DCIT, Bangalore V. M/s NTT Data Global Delivery Services Pvt. Ltd., Bangalore

ITA 653/BANG/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5022 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-10-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 29-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Transfer pricing; Principle of natural justice; Earning of tax free income; Bad and doubtful debts; TDS; Rule 8D
• Section: 143(3); 244A; 234B; 14A; 40(a)(ia); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. A.K. GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.653/BANG/2016 ASSESSMENT YEAR : 2011 12 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-5(1)(1), BENGALURU. VS. NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD., (IN THE CASE OF M/S NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PVT. LTD., FORMERLY KNOWN AS M/S INTELLIGROUP ASIA PVT. LTD., NO.17 & 17/1, SOUTH END ROAD, BASAVANGUDI, BENGALURU-560 004. PAN AABCK 7777 J APPELLANT RESPONDENT IT(TP)A NO.584/BANG/2016 ASSESSMENT YEAR : 2011-12 NTT DATA GLOBAL DELIVERY SERVICES PVT. LTD., (IN THE CASE OF M/S NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PVT. LTD., FORMERLY KNOWN AS M/S INTELLIGROUP ASIA PVT. LTD., NO.17 & 17/1, SOUTH END ROAD, BASAVANGUDI, BENGALURU-560 004. VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-5(1)(1), BENGALURU. PAGE 2 OF 9 IT(TP)A NO.584 & 653/BANG/2016 PAN AABCK 7777 J APPELLANT RESPONDENT ASSESSEE BY : SHRI CHAVALI NARAYAN, C.A REVENUE BY : SHRI MUZAFFAR HUSSAIN, CIT (DR) DATE OF HEARING : 08-10-2020 DATE OF PRONOUNCEMENT : 12-10-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT CROSS APPEALS HAS BEEN FILED BY ASSESSEE AS WELL AS REVENUE AGAINST FINAL ASSESSMENT ORDER DATED 29/01/ 2016 PASSED BY LD. AO UNDER SECTION 143 (3) READ WITH SE CTION 144C (13) OF THE ACT, ON FOLLOWING GROUNDS OF APPEAL: ITA NO.584/BANG/2016 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, NTT DATA GLOBAL DELIVERY SERVICES PRIVATE LIMITED [SUCCESSOR OF NTT DATA INDIA ENTERPRISE APPLICATION SERVICES PRIVATE LIMITED] (' THE APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL UNDER SECTION 253 OF THE INCOME-TAX ACT, 1961 ('THE ACT') AGAINST THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1) BANGALOR E ['THE LEARNED AD'] UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE ACT PURSUANT TO THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PAN EL ('DRP'), BANGALORE, ON THE FOLLOWING GROUNDS: (I) GENERAL THE ORDER OF THE LEARNED AO IS BASED ON INCORRECT A PPRECIATION OF FACTS AND INTERPRETATION OF LAW AND IS, THEREFORE, BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED AO HAS ERRED, IN LAW AND FACTS, IN ASSESSING THE TOTAL INCOME OF THE APPELLANT AT INR 312,875,888 AS AGAINST THE RETURNE D INCOME OF INR PAGE 3 OF 9 IT(TP)A NO.584 & 653/BANG/2016 194,511,019 AND ARRIVING AT THE TOTAL TAX AND INTER EST PAYABLE (AS REDUCED BY THE TAX DEDUCTED AT SOURCE AND ADVANCE T AX) BY THE APPELLANT AT INR 59,299,550. (II) TRANSFER PRICING GROUNDS 3. THE LEARNED AO/ TRANSFER PRICING OFFICER ('TPO') ERRED IN MAKING AN ADDITION OF INR 113,287,872 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES TRANSACTION ENTERED BY THE APP ELLANT WITH ITS ASSOCIATED ENTERPRISE; 4. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN AC CORDANCE WITH PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULE S, 1962 ('THE RULES'), AND MODIFYING THE SAME FOR DETERMINATION OF ARM'S L ENGTH PRICES ('ALP') OF THE IMPUGNED TRANSACTION TO HOLD THAT THE SAME IS N OT AT ARM'S LENGTH. 5. THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY DETERMINING THE ARM'S LENGTH MARGIN/ PRICE USING ONLY FY 2010-11 DA TA WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS; 6. THE LEARNED AO! TPO ERRED, IN LAW AND IN FACTS, BY REJECTING THE SUPPLEMENTARY/ ALTERNATE ECONOMIC ANALYSIS USIN G INTERNAL TNMM AS SUBMITTED BY THE APPELLANT; 7. THE LEARNED AG! TPO ERRED IN REJECTING CERTAIN COMPARABLE COMPANIES BY APPLYING THE FOLLOWING QUANTITATIVE AN D QUALITATIVE FILTERS: (A) THE LEARNED AO/ TPO ERRED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT FO R HAVING DIFFERENT ACCOUNTING YEAR (I.E. COMPANIES HAVING ACCOUNTING Y EAR OTHER THAN MARCH 31 OR COMPANIES WHOSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 12 MONTHS); (B) THE LEARNED AOITPO ERRED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT ON ACCOUNT OF SHOWING DIMINISHING REVENUES TREND; (C) THE LEARNED AOITPO ERRED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT US ING 'EMPLOYEE COST GREATER THAN 25 PERCENT OF TOTAL COST' AS A COMPARA BILITY CRITERION; (D) THE LEARNED AO!TPO ERRED, IN LAW AND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT US ING 'EXPORT EARNINGS LESS THAN 75 PERCENT OF OPERATING REVENUES' AS A CO MPARABILITY CRITERION; 8. THE LEARNED AOITPO ERRED, IN LAW AND IN FACTS, BY ACCEPTING I REJECTING COMPANIES BASED ON UNREASONABLE COMPARABI LITY CRITERIA. 9. THE LEARNED AOITPO ERRED, IN LAW AND IN FACTS, BY NOT CONSIDERING GAINS/ LOSSES ARISING OUT OF FOREIGN EX CHANGE FLUCTUATIONS, BANK CHARGES AND PROVISION FOR DOUBTFUL DEBTS WHILE COMPUTING THE OPERATING MARGINS OF THE COMPARABLE COMPANIES. 10. THE LEARNED AOITPO ERRED, IN LAW AND IN FACTS, BY INCURRING COMPUTATIONAL ERRORS IN THE IMPUGNED TP ORDER; PAGE 4 OF 9 IT(TP)A NO.584 & 653/BANG/2016 11. THE LEARNED AOITPO ERRED, IN LAW AND IN FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN T HE RISK PROFILE OF THE APPELLANT VIS--VIS THE COMPARABLES, WHILE CONDUCTI NG COMPARABILITY ANALYSIS; 12. THE LEARNED AG/TPO ERRED, IN LAW AND IN FACTS, BY COMPUTING THE ARM'S LENGTH PRICE WITHOUT GIVING BENEFIT OF +1- 5 PERCENT UNDER THE PROVISO TO SECTION 920 OF THE ACT; (III) CORPORATE TAX GROUNDS 13. DISALLOWANCE OF INTEREST AND LATE PAYMENT FEE OF PR OFESSIONAL TAX AND SERVICE TAX AMOUNTING TO INR 22,750 AND INR 226,302 RESPECTIVELY, TOTALLING TO INR 249,052 13.1. THE LEARNED AG HAS ERRED, IN LAW AND IN FACTS , BY DISALLOWING THE AMOUNT PAID TOWARDS INTEREST AND LATE PAYMENT OF PR OFESSIONAL TAX AND SERVICE TAX AMOUNTING TO INR 22,750 AND INR 226,302 RESPECTIVELY, TOTALLING TO INR 249;052 BY CONSIDERING THE SAME AS PENAL IN NATURE. 13.2. THE LEARNED AG HAS ERRED IN LAW AND FACTS BY NOT APPRECIATING THE FACT THAT SUCH INTEREST PAYMENTS ARE COMPENSATORY I N NATURE AND NOT PENAL IN NATURE. 14. DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF T HE ACT AMOUNTING TO INR 515,175 14.1. THE LEARNED AG HAS ERRED IN LAW AND FACTS, BY STATING THAT THERE IS EXPENDITURE ATTRIBUTABLE TO EARNING EXEMPT INCOME W ITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS NOT INCURRED ANY EX PENDITURE IN RELATION TO SUCH EXEMPT INCOME. 14.2. THE LEARNED AG HAS ERRED IN NOT CONSIDERING T HE SUBMISSIONS MADE BY THE APPELLANT AND APPRECIATING THE FACT THAT THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL TAXABLE INCOME. 14.3. THE LEARNED AG HAS ERRED, IN LAW AND ON FACTS , BY COMPUTING INR 515,175, AS DISALLOWANCE UNDER SECTION 14A OF THE A CT BY APPLYING THE PROVISIONS OF RULE 8D OF THE RULES. 15. DISALLOWANCE OF EXPENSES AS PER THE PROVISIONS OF SECTION 40(A)(I) AND 40(A)(IA) OF THE ACT AMOUNTING TO INR 2,992,562 RESULTING IN DOUBLE DISALLOWANCE 15.1. THE LEARNED AG HAS ERRED IN LAW AND IN FACTS IN DISALLOWING THE YEAR END PROVISIONS AMOUNTING TO INR 22,98,683 UNDE R SECTION 40(A)(I) AND SECTION 40(A)(IA) OF THE ACT WITHOUT APPRECIATI NG THE FACT THAT SUCH AMOUNT REPRESENTS TAXES ON EXPENSES WHICH HAS ALREA DY BEEN OFFERED TO TAX IN THE RETURN OF INCOME FILED BY THE APPELLANT. 15.2. THE LEARNED AG HAS ERRED IN NOT CONSIDERING T HE SUBMISSIONS MADE BY THE APPELLANT AND APPRECIATING THE FACT THAT THE DISALLOWANCE HAS WRONGFULLY RESULTED IN THE SAME AMOUNT BEING DISALL OWED TWICE AND HENCE IS NOT AS IN ACCORDANCE WITH THE PRINCIPLES O F NATURAL JUSTICE. PAGE 5 OF 9 IT(TP)A NO.584 & 653/BANG/2016 (IV) OTHER GROUNDS 16. THE LEARNED AO HAS ERRED IN LAW AND FACTS, IN N OT GRANTING DEDUCTION ELIGIBLE UNDER CHAPTER VI-A OF THE ACT OF INR 360,7 33 AS CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME. 17. THE LEARNED AO HAS ERRED IN LAW AND FACTS, BY R ESTRICTING CREDIT TOWARDS TAX DEDUCTED AT SOURCE ('TDS') AND ADVANCE TAX TO AN AGGREGATE AMOUNT OF INR 58,999,914 AS AGAINST INR 71 896,342 CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME RESULTING INTO RE DUCTION OF TDS AND ADVANCE TAX CLAIM BY INR 12,896,428. 18. THE LEARNED AO HAS ERRED IN LEVYING INTEREST OF INR 548,766 UNDER SECTION 234A OF THE ACT, INR 15,914,214 UNDER SECTI ON 234B OF THE ACT, INR 2,724,805 UNDER SECTION 234D OF THE ACT AND INR 829,108 UNDER SECTION 244A OF THE ACT. THE ABOVE GROUNDS ARE MUTUALLY EXCLUSIVE AND WITHOU T PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AM END, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONOURABLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. ITA NO.653/BANG/2016 1. THE DIRECTION OF THE DISPUTE RESOLUTION PANEL AR E OPPOSED TO THE LAW AND NOT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE DRP ERRED IN LAW IN DIRECTING THE ASSESSING OFFICER TO REDUCE TH E EXPENDITURE INCURRED IN TRAVEL, TELECOMMUNICATION ETC, BOTH FROM THE EXP ORT TURNOVER AS WELL AS THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION O F DEDUCTION U/S.10A OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT TH E STATUE ALLOWS EXCLUSION OF SUCH EXPENDITURE ONLY FROM THE EXPORT TURNOVER BY WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVER AS ENVISAGED BY SUB-CLAUSE(4) OF EXPLANATION 2 BELOW SUB-SECTION 8 OF SECTION 10A. O N THE OTHER HAND, THERE IS NO SPECIFIC PROVISION IN SECTION 10A WARRA NTING EXCLUSION OF ABOVE EXPENSES FROM TOTAL TURNOVER ALSO. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UP ON, DIRECTION OF THE DISPUTE RESOLUTION PANEL MAY BE REVERSED AND THAT A SSESSMENT ORDER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEAL. 2. AT THE OUTSET LD.AR SUBMITTED THAT ASSESSEE HAS SOUGHT TO RESOLVE TRANSFER PRISING ISSUES ARISING OUT OF INTE RNATIONAL TRANSACTIONS UNDERTAKEN WITH U.S. ASSOCIATED ENTERP RISES VIDE MAP RESOLUTION ENTERED BETWEEN RESPECTIVE COMPETENT AUTHORITIES PAGE 6 OF 9 IT(TP)A NO.584 & 653/BANG/2016 DATED 01/06/2020. COMMUNICATION OF RESOLUTION OF DI SPUTE UNDER MAP WITH USA IS PLACED AS ANNEXURE 1 TO LETTE R DATED 24/09/2020 FILED BY ASSESSEE BEFORE THIS TRIBUNAL . LD.AR SUBMITTED THAT, IN VIEW OF MAP RESOLUTION, ASSESSEE WISHES TO WITHDRAW GROUND OF APPEAL 3-13, IN APPEAL FILED BY ASSESSEE. IN THE LIGHT OF ABOVE RESOLUTION AGREED BETWEEN COMPET ENT AUTHORITIES OF USA AND INDIA, LD.TPO/AO IS DIRECTED TO CONSIDER E TRANSFER PRISING ISSUE WITH US AES IN ACCORDANCE W ITH MAP RESOLUTION. ACCORDINGLY, WE DISMISS GROUNDS 3-13 RAISED BY ASSE SSEE IN ITS APPEAL AS WITHDRAWN. 3. LD.AR FILED LETTER DATED 05/10/2020 BY ASSESSEE, WHEREIN IT IS STATED THAT, IN RESPECT OF GROUND NO. 1, 2 AND 1 4-30 ASSESSEE IS OPTING FOR VSVS 2020, AND THAT, THESE GROUNDS RA ISED MAY BE ALLOWED TO BE WITHDRAWN WITH LIBERTY. 4. LD.SR.DR DID NOT OBJECT TO THE SAME. 5. WE HAVE PERUSED SUBMISSIONS ADVANCES BY BOTH SID ES IN LIGHT OF RECORDS PLACED BEFORE US. 6. AS ASSESSEE HAS SOUGHT FOR VSVS- SCHEME 2020, NO PURPOSE WILL BE SERVED IN KEEPING THE PRESENT APPEAL PENDIN G. CONSIDERING THE SITUATION, WE DISMISS THE PRESENT APPEAL AS WIT HDRAWN. HOWEVER, LIBERTY IS GRANTED TO MOVE APPROPRIATE APP LICATION FOR RECALL OF THIS ORDER, IN THE EVENT, FORM 1 FILED BY ASSESSEE IS NOT ACCEPTED BY REVENUE. ACCORDINGLY, GROUNDS 1-2 AND 14-30 IN ASSESSEES AP PEAL ARE ALLOWED TO BE WITHDRAWN WITH LIBERTY. PAGE 7 OF 9 IT(TP)A NO.584 & 653/BANG/2016 ITA NO. 653/BANG/2016 7. IN RESPECT OF APPEAL FILED BY REVENUE, IT HAS BE EN SUBMITTED THAT, ONLY ISSUE RAISED IS, FOR EXCLUDING TRAVEL, TELECOMMUNICATION EXPENSES ETC., FOR COMPUTING TOTA L TURNOVER AND EXPORT TURNOVER AND EXCLUDING LOSS EARNED FROM NON-ELIGIBLE UNIT FOR PURPOSES OF 10 A DEDUCTION. 8. WE NOTE THAT, DRP BY FOLLOWING DECISION OF HON'BLE KARNATAKA HIGH COURT, IN THE CASE OF CIT V. TATA ELXSI LTD. REPORTED IN [2012] 17 TAXMANN.COM 100, HELD THAT, IF ANY EXPENDITURE IS EXCLUDED FROM EXPORT TURNOVER, THEN THE SAME NEEDS TO BE EXCLUDED FROM TOTAL TURNOVER AS WELL, A CCORDINGLY, DIRECTING LD.AO TO EXCLUDE EXPENSES DEDUCTED FROM E XPORT TURNOVER FROM TOTAL TURNOVER FOR COMPUTING DEDUCTIO N U/S 10A OF THE INCOME-TAX ACT, 1961. 9. FURTHER IN RESPECT OF EXCLUSION OF LOSS EARNED F ROM NON- ELIGIBLE UNIT FOR COMPUTING PROFITS OF ELIGIBLE UNI T UNDER SECTION 10 A, DRP RELIED ON DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF AND CIT V. YOKOGAVA INDIA LTD. REPORTED IN [2012] 21 TAXMANN.COM 154 10. WE DO NOT FIND ANY INFIRMITY IN VIEW TAKEN BY DRP/AO AS IT IS SUPPORTED BY RATIOS HELD BY HONBLE JURISDICTIONAL HIGH COURT . THERE IS NOTHING ON RECORD BROUGHT BY REVENUE TO ES TABLISH ANY DISTINGUISHING FACTORS TO DEVIATE FROM RATIO OF HONBLE JURISDICTIONAL HIGH COURT . PAGE 8 OF 9 IT(TP)A NO.584 & 653/BANG/2016 ACCORDINGLY THESE GROUNDS RAISED BY REVENUE STANDS DISMISSED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS WITHD RAWN AS INDICATED HEREINABOVE AND APPEAL FILED BY REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCT, 2020 SD/- SD/- (A.K GARODIA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 12 TH OCT, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE