Rage Frameworks I Pvt Ltd., Pune V. Assistant Commissioner of Income tax, Circle -5, Pune

ITA 674/PUN/2022

AI Insights

Rage Frameworks India Private Limited appealed against the assessment order of the Assistant Commissioner of Income Tax, which included significant adjustments to the company's income based on transfer pricing issues. The Tribunal examined the comparability analysis used by the TPO, particularly the selection and rejection of companies for benchmarking the international transactions of the appellant. The Tribunal found that several companies used as comparables were not functionally comparable to the appellant's ITES segment and directed their exclusion. Additionally, the Tribunal addressed the issue of negative working capital adjustment, restoring it for re-examination by the TPO.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137943 (ITAT-PUNE)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowedPartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 01-01-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 08-09-2022
• Other Referred Cases: Checkmate Services P. Ltd. & Ors. VS. CIT & Ors. (2022) 448 ITR 518 (SC), Schlumberger India Technology Centre (P.) Ltd. vs. DCIT [2022] 142 taxmann.com 243 (Pune-Tribunal), Inductis India (P.) Ltd. vs. ACIT [2019] 101 taxmann.com 110 (Delhi-Tribunal)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIVASTAVA
• Keywords: Transfer pricing; International transaction
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “C” : PUNE BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI G.D. PADMASHALI, ACCOUNTANT MEMBER ITA No.674/PUN./2022 Assessment Year 2018-2019 Rage Frameworks India Private Limited, Nyati Tech Park, 1 st Floor, Wing A and B, Survey No.9/2/10/ 1/2 / 3/5, Vadegaon Sheri, Wadgaonsheri, Pune City Pune - 411 014. Maharashtra. vs The Assistant Commissioner of Income Tax, Circle-5, Pune. Maharashtra. PIN – 411 014. Appellant Respondent Assessee by : Shri Vishal Kalra Revenue by : Shri Shrivastava, CIT Date of hearing : 02.01.2023 Date of pronouncement : 05.01.2023 ORDER PER SATBEER SINGH GODARA, J.M. : This assessee’s appeal for Assessment Year 2018-19 arises against ACIT, Circle-5, Pune’s assessment dated 15.07.2022 in Din & Order No.ITBA/AST/S/143(3)/2022- 23/1043872173(1) framed in furtherance to the CIT-(DRP-3), Mumbai-1, Mumbai’s directions dated 14.06.2022 in Din & Order No. ITBA/DRP/F/144C(5)/2022-23/1043428421(1), in proceedings u/s.143(3) r.w.s 144C(5) of the Income Tax Act, 1961 (in short "the Act"). 2. Heard both the parties. Case file perused. 2 ITA.No.674/PUN./2022 Rage Frameworks India Private Limited, Pune. 3. The assessee pleads the following substantive grounds in the instant appeal : 1. “That on the facts and circumstances of the case and in law, the AO has erred in assessing the total income of the Appellant for the relevant AV at INR 26,06,89,393 as against the returned income of INR 18,72,68,180, making an adjustment of INR 7,34,21,213 in pursuance to the Dispute Resolution Panel ("DRP") directions. 2. That on the facts and circumstances of the case and in law, Transfer Pricing Officer ("TPO") / DRP / AO have erred in making an adjustment of INR 7,29,33,497 to the income of the Appellant and holding that the international transactions pertaining to provision of services do not satisfy the arm's length principle ("ALP"); and in doing so have grossly erred in modifying comparability analysis by: 2.1. arbitrarily selecting functionally non-comparable companies, namely, Manipal Digital Systems Private Limited, Vitae International Accounting Services Private Limited, Domex e Data Private Limited, MPS Limited, Access Healthcare Services Private Limited and lntegra Software Services Private Limited, for benchmarking the international transaction pertaining to provision of services. 3 ITA.No.674/PUN./2022 Rage Frameworks India Private Limited, Pune. 2.2. arbitrarily rejecting functionally comparable companies, namely, Allec Technologies Limited, Cosmic Global Limited, IKF Technologies Limited, Cameo Corporate Services Limited and Jindal lntellicom Limited, for benchmarking the international transaction pertaining to provision of services. 2.3. arbitrarily rejecting functionally comparable companies, namely, Cheers Interactive (India) Private Limited, I Services Private Limited and Sundaram Business Services Limited by disregarding the fresh search conducted by the Appellant based on TPO's filters. 2.4. not appreciating that the Ld. TPO in Appellant's own case for earlier years (for the 5 years period till AY 2017-18) accepted the applicability of Safe Harbour provisions and ignoring the fact that the margin earned by the Appellant during the AY 2018-19 is in line with the Safe Harbour rates and thus, any addition is unwarranted. 3. That on the facts and circumstances of the case and in law, the AO/ DRP have erred in making a disallowance of INR 4,87,716 under section 36(1)(va) of the Act despite the fact that employee contribution towards Provident Fund ("PF") 4 ITA.No.674/PUN./2022 Rage Frameworks India Private Limited, Pune. and Employee State Insurance ("ESI") were made before the due date of filing the income tax return. 4. That on the facts and circumstances of the case and in law, the AO erred in charging interest under sections 234B and 234C of the Act. 5. That on the facts and circumstances of the case and in law, the AO erred in initiating penalty proceedings under section 270A of the Act. That the above grounds and sub grounds of objections are without prejudice to each other. The Appellant craves leave to alter, amend or withdraw all or any of the Grounds of objections herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the hearing.” 4. Learned counsel states that the assessee’s first and foremost substantive ground is general, third ground raising sec.36(1)(va) ESI/PF issue is covered in department’s favour in the light of Checkmate Services P. Ltd. & Ors. VS. CIT & Ors. (2022) 448 ITR 518 (SC) and 4 th and 5 th grounds are not pressed at this stage being consequential in nature. Rejected accordingly. 5 ITA.No.674/PUN./2022 Rage Frameworks India Private Limited, Pune. 5. Learned counsel further does not press the assessee’s ground nos.2.2, ground no.2.4 is stated to be involving academic issue of applicability of “safe harbour” rules not applicable in the instant case in light of Rule 10TE of the Income Tax Rules. Rejected accordingly. 6. We now proceed to deal with the assessee’s ground no.2.1 seeking to exclude the foregoing comparable companies in its Information Technology Enabled Services [in short “ITES”] segment. It emerges during the course of hearing that this tribunal’s recent coordinate bench’s order in Schlumberger India Technology Centre (P.) Ltd. vs. DCIT [2022] 142 taxmann.com 243 (Pune-Tribunal) has already excluded M/s. Manipal Digital Systems Private Ltd., Domes e-Data Private Ltd., and MPS Ltd., i.e. three of the above comparable entities as not functioning in “ITES segment”. The other entities included by the learned lower authorities i.e., Vitae International Accounting Services Private Limited, Access Healthcare Services Private Limited and Integra Software Services Private Limited are also found to be not engaged in the assessee’s segment since they have been carrying-out their business activities and deriving revenues from accounting, healthcare services and e-publishing services, respectively and, therefore, do not have even broader comparability in the segment in issue before us. This is indeed coupled with the fact 6 ITA.No.674/PUN./2022 Rage Frameworks India Private Limited, Pune. that M/s. Integra Software Services Private Limited had undergone a merger scheme with M/s. Integra Infotech Private Limited as per the National Company Law Tribunal’s [in short “NCLT”] order to this effect in the relevant previous year. Faced with the situation, we direct the learned Transfer Pricing Officer [in short “TPO”] to exclude all the instant six comparables and compute the assessee’s arm’s length price [in short “ALP’] adjustment accordingly. 7. We come to the assessee’s ground no.2.3 seeking to include M/s. Cheers Interactive (India) Private Limited, I Services Private Limited and Sundaram Business Services Limited which stand excluded in the learned lower authorities respective orders. 7.1. It is noted from a perusal of page-32 in assessee’s paper book that the first and foremost comparable herein M/s. Cheers Interactive (India) Private Limited had not derived any revenue in “ITES” segment. We thus reject the assessee’s arguments seeking its inclusion in the array of comparables. 7.2. So far as M/s. I Services Private Limited is concerned, it prima facie emerges from page no.146 in the assessee’s paper book that this entity carried out its business activities in BPO sector. The assessee’s case before us is that the said segment is very much identical to its “ITES” segment. Faced with the 7 ITA.No.674/PUN./2022 Rage Frameworks India Private Limited, Pune. situation, we remit the instant issue back to the learned TPO for his fresh adjudication on merits without commenting anything further at this stage. Ordered accordingly. 7.3. So far as the assessee’s third comparable Sundaram Business Services Limited is concerned, learned counsel could hardly dispute that it’s revenue from operation at page-201 in note-16 nowhere specified any “ITES” activity. We thus decline the assessee’s arguments seeking to include this comparable in ALP computation. Ordered accordingly. This ground no.2.4 is partly accepted for statistical purposes in foregoing terms. 8. This leaves us with the assessee’s second additional ground pleaded during the course of hearing that both the learned lower authorities ought not to have made any negative working capital adjustment when it had not carried any such working capital risk. Learned counsel quotes Inductis India (P.) Ltd., vs., ACIT [2019] 101 taxmann.com 110 (Delhi-Tribunal) reiterating the very proposition. The Revenue’s case on the other hand is that the instant issue indeed requires the TPO’s afresh factual verification. Faced with the situation, we restore the assessee’s instant additional ground back to TPO in very terms. Ordered accordingly. 8 ITA.No.674/PUN./2022 Rage Frameworks India Private Limited, Pune. 9. No other ground or argument has been pressed before us. 10. This assessee’s appeal is partly allowed in above terms. Order pronounced in the open Court on 05 th January, 2023. Sd/- Sd/- (GD PADMASHALI) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 05 th January, 2023 VBP/- Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5 . DR, ITAT, “C” Bench, Pune. 6. Guard File. BY ORDER, // TRUE COPY // Senior Private Secretary ITAT, Pune.