SKILLNET SOLUTIONS INDIA P. LTD, MUMBAI V. DCIT CIR 3(3)(2), MUMBAI

ITA 6570/MUM/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3702 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 10-11-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAY
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Transfer pricing
• Section: 143(3); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 6570 / MUM . /201 7 ( ASSESSMENT YEAR : 20 13 14 ) SKILLNET SOLUTIONS INDIA PVT. LTD. F 14, ROAD NO.23, MAROL, MIDC OPP. SEEPZ ANDHERI (E) MUMBAI 400 093 PAN AAFCS3362P . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 3 (3) (2) , MUMBAI . RESPONDENT ASSESSEE BY : SHRI JITENDRA SINGH REVENUE BY : SHRI CHANDRA VIJAY DATE OF HEARING 1 1 .02.2021 DATE OF ORDER 24.02.2021 O R D E R PER SAKTIJIT DEY. J.M. THE CAPTIONED APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE FINAL ASSESSMENT ORDER DATED 28 TH SEPTEMBER 2017, PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) FOR THE ASSESSMENT YEAR 20 13 1 4 , IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 2 (FOR SHORT THE DRP ) , MUMBAI. 2 SKILLNET SOLUTIONS INDIA PVT. LTD. 2. AT THE OUT SET, THE LEARNED COUNSEL FOR THE ASSESSEE , REFERRING TO GROUND NO.4, SUBMITTED THAT IF ONE OF THE COMPARABLES I.E., INFOBE A NS TECHNOLOGIES LTD. IS REMOVED, ASSESSEES MARGIN W OULD BE WITHIN ARM'S LENGTH MARGIN OF THE REST OF THE COMPARABLES REQUIRING NO FU RTHER ADJUSTMENT. THEREFORE, IN THAT EVENT, THE OTHER GROUNDS RAISED WOULD BECOME ACADEMIC. CONSIDERING THE AFORESAID SUBMISSION , WE PROCEED TO DEAL WITH GROUND NO.4, AT THE VERY OUTSET. 3. BRIEF FACTS RELATING TO THIS GROUND ARE , THE ASSESSEE , A RESIDENT CO MPANY , IS A SUBSIDIARY OF SKILLNET SOLUTIONS INC., USA. IT IS STATED THAT THE ASSESSEE IS ENGAGED IN PROVIDING ROUTINE SOFTWARE DEVELOPMENT SERVICES TO CUSTOMERS THROUGH SKILLNET SOLUTIONS INC., USA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED REVENUE OF ` 22,79,88,050, FROM PROVIDING SOFTWARE DEVELOPMENT SERVICES THROUG H ITS ASSOCIATED ENTERPRISES (A E). THE ASSESSEE BENCHMARKED THE AFORESAID TRANSACTION BY APPLYING COMPARABLE UNCONTROLLED PRICE (CUP ) METHOD . THE TRANSFER PRICING OFFICER, HOWEV ER, DID NO T ACCEPT THE BENCH MARKING OF THE ASSESSEE. NOTICING THAT IN ASSESSMENT YEAR 2010 11, CUP METHOD FOLLOWED BY THE ASSESSEE WAS REJECTED AND THE ARM'S LENGTH PRICE WAS DETERMINED BY APPLYING TRANSACTIONAL NET MARGIN METHOD ( TNMM ) , THE TRANSFER PRICING OFFICER FOLLOWED THE SAME AND PROCEEDED TO DETERMINE THE ARM'S LENGTH PRICE UNDER TNMM. WHILE DOING SO, HE SELECTED SEVEN 3 SKILLNET SOLUTIONS INDIA PVT. LTD. COMPARABLES WITH ARITHMETIC MEAN OF 23.54% . B Y APPLYING THE SAID ARITHMETIC MEAN TO THE OPERATING COST , HE DETER MINED THE ARM'S LENGTH PRICE O F SALES TO THE AE AT ` 25,58,81,505. THUS, THE SHORT FALL OF ` 2,78,93,455, WAS PROPOSED AS UPWARD ADJUSTMEN T TO THE PRICE CHARGED TO THE A E. THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER WAS ADDED BACK TO THE INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMENT ORDER. THE ASSESSEE RAISED OBJECTIONS BEFORE LEARNED DRP AGAINST THE AFORESAID ADJUSTMENT. HOWEVER, LEARNED DRP DID NOT FIND MERIT IN ASSESSEES OBJECTIONS. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , INFOBE A NS TECHNOLOGIES LTD. BEING ENGAGED IN DIVERSIFIED ACTIVITIES AND THE SEGMENTAL RESULTS NOT BEING AVAILABLE IN PUBLIC DOMAIN , CANNOT BE COMPARED TO A ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER LIKE THE ASSESSEE. IN SUPPORT OF SUCH CONTENTION, LEARNED COUNS EL FOR THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS: I) M/S. PUB MATIC INDIA PVT. LTD. V/S ACIT, ITA NO.655/PUN./2017 DATED 09.03.2018; II) M/S. EMERSON ELECTRIC CO. INDIA PVT. LTD. V/S ACIT, ITA NO. 6098 & 531/MUM./2018, DATED 14.06.2019; III) M/S. ABHAY INDIA PVT. LTD. V/S ACIT, ITA NO.7290/DEL./2018 DATED 24.09.2019. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP. 4 SKILLNET SOLUTIONS INDIA PVT. LTD. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIGHT OF THE DECISIONS RELIED UPON AND PERUSED MATERIAL S ON RECORD. AS COULD BE SEEN FROM THE FACTS ON RECORD, THE ASSESSEE OPERATES IN A SINGLE SEGMENT OF PROVIDING ROUTINE SOFTWAR E DEVELOPMENT SERVICES TO ITS A E. WHEREAS, INFOBE A NS TECHNOLOGIES LT D. IS PROVIDING A RANGE OF SERVICES , SUCH AS , AUTOMATION ENGINEERING, SERVICE NOW, UX AND UI, CUSTOMIZED SOFTWARE, STORAGE AND VIRTUALIZATION , DATA MINING, DATA MODELING, STATISTICAL ANALYSIS, MACHINE LEARNING TECHNIQUE, ETC. CONSIDERING THE FACT THAT INFO BE A NS TECHNOLOGIES LTD. IS ENGAGED IN DIVERSIFIED ACTIVITIES AND SEGMENTAL DETAILS ARE NOT AVAILABLE, THE TRIBUNAL, PUNE BENCH, IN PUBMATIC INDIA PVT. LTD. (SUPRA) HAS HELD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. IN CASE OF M/S. EMERSION ELECTRI C CO. INDIA PVT. LTD. (SUPRA) WHICH IS FOR THE VERY SAME ASSESSMENT YEAR, THE CO ORDINATE BENCH FOLLOWING THE DECISION RENDERED IN CASE OF PUBMATIC INDIA PVT. LTD. (SUPRA) HAS HELD THAT INFOBE A NS TECHNOLOGIES LTD. CANNOT BE CONSIDERED AS COMPARABLE TO A RO UTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER. THE SAME VIEW WAS AGAIN EXPRESSED BY THE TRIBUNAL, DELHI BENCH, IN M/S. ABHAY INDIA PVT. LTD. (SUPRA). KEEPING IN VIEW THE CONSISTENCY IN THE DECISION S OF THE TRIBUNAL WITH REGARD TO THE COMPARABILITY OF INFOBE A NS TECHNOLOGIES LTD. WITH A ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER , WE HOLD THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE. ACCORDINGLY , WE 5 SKILLNET SOLUTIONS INDIA PVT. LTD. DIRECT THE ASSESSING OFFICER TO REMOVE THIS COMPANY FROM THE LIST OF COMPARABLE S AND DETERMINE THE ARM'S LENGTH PRICE. 7. CONSIDERING THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT WITH THE REMOVAL OF INFOBE A NS TECHNOLOGIES LTD. ASSESSEES MARGIN WOULD BE WITHIN ARM'S LENGTH EVEN ACCEPTING THE REST OF THE COMPARABLES , WE DO NOT INTEND TO DWE L UPON THE OTHER GROUNDS RAISE D BY THE ASSESSEE , AS , THEY HAVE BECOME ACADEMIC INSOFAR AS THE PRESENT APPEAL IS CONCERN ED . 8. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.02.2021 SD/ - RAJESH KUMAR ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMB AI, DATED: 24.02.2021 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI