ACIT, Chandigarh V. M/s Dassault Systems Geovia Pvt. Ltd., Chandigarh

ITA 683/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5209 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 02-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: A K JINDAL
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.683/CHD/2016 (ASSESSMENT YEAR : 2012-13) THE A.C.I.T., VS. M/S DASSAULT SYSTEMS GEOVIA P VT. LTD., CIRCLE-2(1), (FORMERLY KNOWN AS M/S GEMEON SOFTW ARE ROOM NO.414,4TH FLOOR, INDIA PVT. LTD., # SCO 117- 118, 2 ND FLOOR, AAYAKAR BHAWAN, SECTOR 17B, CHANDIGARH. SECTOR 17-E, CHANDIGARH. PAN: AAGCS4694F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI A.K. JINDAL DATE OF HEARING : 10.01.2017 DATE OF PRONOUNCEMENT : 06.04.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-1 CHANDIGARH DATED 08/03/2016 PERTAINING TO A.Y 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.72,16,987/- MADE ON ACCOUNT OF INTER CORPORATE CHARGES PAID TO THE PARENT COMPANY WHEN THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS OF SHOWING WHAT SERVICES WERE PASSED ON TO IT IN RELAT ION TO THESE EXPENSES. 2 3. IT IS PRAYED THAT THE ORDER OF THE LD.CTT(A) BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR IS DISPOSED OFF. 2. THE ONLY ISSUE IN THE PRESENT APPEAL IS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWAN CE MADE BY THE AO OF INTER CORPORATE CHARGES AMOUNTING TO RS. 72,16,987/-. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE IS A SUBSIDIARY OF GEMCOM GROUP AND IS ENG AGED IN THE BUSINESS OF MARKETING MINING SOFTWARE, HARDWARE AND RELATED SERVICES INCLUDING AMC, TRAINING AND CONSUL TANCY. DURING THE IMPUGNED A.Y. THE ASSESSEE CLAIMED EXPEN SES AMOUNTING TO RS.72,16,987/- UNDER THE HEAD INTER C O. CONSULTANCY WHICH THE ASSESSEE EXPLAINED DURING ASSESSMENT PROCEEDINGS BY WAY OF A DETAILED NOTE VI DE ITS LETTER DATED 16.09.2014 REPRODUCED AT PARA 3.1 OF T HE ASSESSMENT ORDER AND THE GIST OF WHICH IS THAT THE PARENT COMPANY OF THE ASSESSEE HAD ASSOCIATES IN SEVERAL C OUNTRIES AND IN THE COURSE OF DEALING WITH THEM, CERTAIN SER VICES WERE RENDERED BY THE PARENT COMPANY TO ITS ASSOCIATES. S UCH COMMON EXPENSES WERE DECIDED TO BE SHARED BY ALL TH E ENTITIES BASED ON THE TRANSFER PRICING STUDY OF THE GROUP. THE ASSESSEE FURTHER STATED THAT IT HAD ALSO PAID SERVI CE TAX ON THE SAME AND WITHHELD TAX ALSO FOR REMITTING THESE EXPENSES OUTSIDE INDIA. LD. AO, HOWEVER REJECTED THE ASSESSE ES CONTENTION FOR THE REASON THAT THE AGREEMENTS WITH THE 3 ASSOCIATE CONCERNS OF THE ASSESSEE DID NOT PROVIDE FOR THE PAYMENT OF INTER CO. CONSULTANCY CHARGES AND IN ANY CASE, THE ASSESSEE WAS MAKING PAYMENTS FOR THE SOFTWARE A ND USTS PURCHASED TO ITS GROUP COMPANIES AT ARMS LENGT H AND THERE WAS NO REASON TO MAKE ANY FURTHER REPAYMENTS. LD. AO ALSO HELD THAT THE ASSESSEE HAD NOT PROVIDED ANY DE TAILS/ BIFURCATION OF THESE COMMON EXPENSES. LD. AO THEREF ORE DISALLOWED THE AMOUNT OF RS.72,16,987/- CLAIMED BY THE COMPANY AS INTER CO. CONSULTANCY AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE SAME, THE MATTER WAS CARRIED I N APPEAL BEFORE THE LD. CIT(A) WHO ALLOWED THE ASSESS EES APPEAL FOLLOWING HIS ORDER IN THE PRECEDING YEARS I .E A.Y 2008-09,2010-11 AND 2011-12. 5. AGGRIEVED BY THE SAME, THE REVENUE HAS NOW COME UP IN APPEAL BEFORE US. 6. DURING THE COURSE OF HEARING BEFORE US, IT WAS COMMON GROUND BETWEEN BOTH THE PARTIES THAT IDENTIC AL ISSUE HAD BEEN DECIDED BY THE ITAT, CHANDIGARH BENCH, IN ASSESSEES CASE FOR A.Y 2011-12, VIDE ORDER IN ITA NO. 676/CHD/2015 DATED 30/06/2016, WHEREIN THE MATTER H AD BEEN RESTORED BACK TO THE AO FOR FRESH ADJUDICATION . COPY OF THE ORDER WAS PLACED BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES. WE HAVE ALSO GO NE THROUGH THE ORDER OF THE ITAT IN ASSESSEES CASE RE LATING TO 4 THE A.Y 2011-12.WE FIND THAT IDENTICAL ISSUE RELATI NG TO ALLOWABILITY OF INTER CO. CONSULTANCY CHARGES, HAS BEEN ADJUDICATED THEREIN. THE ITAT AFTER GOING THROUGH A LL THE DOCUMENTS PLACED BEFORE IT INCLUDING THE AGREEMENTS ENTERED INTO WITH THE PARENT COMPANY, HELD THAT THERE DID E XIST A COST SHARING AGREEMENT BETWEEN THE ASSESSEE AND ITS PARENT COMPANY, BUT AT THE SAME TIME, THE ITAT HELD, THE A SSESSEE HAD NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT SE RVICES OF THE NATURE AGREED UPON WITH THE PARENT COMPANY HAD BEEN RENDERED NOR ANY EVIDENCE OF THE NUMBER OF HOURS PU T IN BY THE PARENT COMPANY WHILE RENDERING THESE SERVICES W AS ALSO PRODUCED. NO BASIS OF THE CALCULATION OF COST ALLOC ATION WAS ALSO FOUND TO HAVE BEEN PRODUCED. THE ITAT THEREFOR E HELD THAT THE ASSESSEE HAD NOT DISCHARGED ITS ONUS OF PR OVING ITS CLAIM OF EXPENSE INCURRED. SINCE THE DISALLOWANCE H AD BEEN MADE BY THE AO IN THE ABSENCE OF ANY COST SHARING AGREEMENT, THE ITAT HAVING FOUND THE EXISTENCE OF S UCH AN AGREEMENT, RESTORED THE ISSUE BACK TO THE FILE OF T HE AO TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF T HE SAID AGREEMENT AND EVIDENCES TO SUPPORT THE SAME. THE RE LEVANT FINDINGS OF THE ITAT AT PARA 10 TO13 OF THE ORDER I S AS UNDER: 10. AFTER HEARING THE ARGUMENTS OF BOTH THE PARTIES WE FIND THAT THIS ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR F RESH ADJUDICATION AND DETERMINATION OF THE FACT OF RENDERING SERVICES TO THE ASSESSEE AS WELL AS CALCULATION OF THE EXPENSES INCURRED, WHETHER BOTH WERE AS AGREED UPON BETWEEN THE PARTIES. 11. UNDOUBTEDLY THERE WAS A COST SHARING AGREEMENT BETWEEN THE TWO PARTIES WHICH IS CLEARLY BROUGHT OUT IN THE RECITAL S TO THE AGREEMENT AND CLAUSE 3-8 OF THE AGREEMENT DT. 01/01/2008 WHICH ST ATED AS FOLLOWS: RECITALS 5 1. GSI IS THE PARENT COMPANY OF GSA, GSA IS THE PAR ENT COMPANY OF SSL, GSI IS THE ULTIMATE HOLDING COMPANY OF SSI, GSI IS THE PARENT COMPANY OF WHITTLE. 2. GSI IS THE DEVELOPER AND OWNER OF INTELLECTUAL P ROPERTY, INCLUDING THE GEMS, PRODTRAK AND INSITE SUITE OF SOFTWARE PRODUCT S. GSI ALSO HOLDS APPROPRIATE OEM AGREEMENTS WITH THIRD PARTY SOFTWAR E DEVELOPERS OF THE SALE AND USE OF MINESCHED AND MINE MAX/ GANTT SOFTW ARE. 3. GSA IS THE DEVELOPER AND OWNER OF INTELLECTUAL P ROPERTY, INCLUDING THE SUPRAC VISION, MINEX, MAXIMIZER, XPLORPAC AND QUARR Y SUITE OF PRODUCTS. 4. WHITTLE IS THE DEVELOPER AND OWNER OF INTELLECTU AL PROPERTY FOR WHITTLE SOFTWARE PRODUCTS. 5. SSI IS AN AUTHORIZED RESELLER OF LICENCES AND MA INTENANCE UPGRADES OWNED BY GSI, GSA AND WHITTLE. 6. GSI, GSA AND WHITTLE MAY ENGAGE SSI TO CONDUCT R ESEARCH AND DEVELOPMENT ON THEIR BEHALF COSTS FOR THAT PORTION OF RESEARCH AND DEVELOPMENT COMPLETED BY SSI EMPLOYEES MAY BE CHARG ED BACK TO GSL, GSA AND WHITTLE. 7. SSI MAY FROM TIME TO TIME REQUIRE THE ASSISTANCE OF GSI EMPLOYEES OR GSA EMPLOYEES TO PERFORM PROFESSIONAL SERVICES WORK . 8. THE TRANSFER PRICE OF THE SOFTWARE LICENCES, SOF TWARE USTS (MAINTENANCE) PROFESSIONAL SERVICES WORK AND OUTSOU RCED RESEARCH AND DEVELOPMENT WORK IS DETERMINED BY THIS AGREEMENT. CLAUSE 3 TO 8 3. TRANSFER PRICING ON OWNED INTELLECTUAL PROPERTY 3.1 THE TRANSFER PRICE RATE CHARGED TO SSI FOR SOFT WARE LICENSE AND SOFTWARE USTS WIPE 50% OF THE INVOICED AMOUNT, NET OF ANY AGENCY COMMISSION. PRODUCT GROUP PAY TO RATE SURPAC LICENSE SURPAC USTS GSA 50% MINEX LICENSE MINEX USTS GSA 50% MAXIMIZER LICENSE MAXIMIZER USTS GSA 50% GEMS LICENSE GEMS USTS GSA 50% INSITE (PROD TRAK) LICENSE INSITE (PRODTRAK) USTS GSA 50% WHITTLE LICENSE WHITTLE USTS GSA 50% 6 EXAMPLE: SSI SELLS A SURPAC LICENSE FOR INR 100,000 THROUGH AN AGENT WHO EARNS 30% COMMISSION. REVENUE: SURPAC LICENSE INR 100,000 COGS: AGENCY COMMISSION (30,000) NET INVOICE VALUE 70,000 TRANSFER PRICE CHARGE AT 50% (35,000) NET MARGIN AFTER COSTS TO SSI 35,000 3.2 THE TRANSFER PRICING INVOICE WILL BE RAISED AGA INST SSI AT THE TIME OF THE SALE. 4. TRANSFER PRICING ON THIRD PARTY PRODUCTS MINES CHED 4.1 THE TRANSFER PRICE RATE CHARGED TO SSI FOR MINE SCHED LICENSES AND USTS WILL BE 30% OF THE GROSS INVOICE VALUE IE NO D EDUCTION FOR ANY AGENCY COMMISSION. PRODUCT GROUP PAY TO RATE MINESCHED LICENSE MINESCHED USIS GSI 30% 5. TRANSFER PRICING ON THIRD PARTY PRODUCTS MINEM AX/ GANTT 5.1 THE TRANSFER PRICE RATE CHARGED TO SSI FOR MINE MAX / GANTT LICENSE AND USTS WILL BE A FIXED SUM REGARDLESS OF THE INVO ICES VALUE OR ANY APPLICABLE AGENCY COMMISSION. PRODUCT GROUP PAY TO RATE MINEMAX/ GANTT LICENSE MINEMAX/ GANTT GSI AUD $14,000 AUD$3,000 6. TRANSFER PRICING ON RESEARCH & DEVELOPMENT STAFF 6.1 THE TRANSFER PRICE RATE CHARGED TO GSI, GSA AND WHITTLE INCLUDES A. THE BASE SALARIES AND ON-COSTS OF STAFF EMPLOYED TO DEVELOP SOFTWARE ON BEHALF OF THESE PARTIES. B. VARIABLE EXPENSES INCURRED BY THESE STAFF, INCLU DING BUT NOT LIMITED TO OFFICE CONSUMABLES, TELEPHONE EXPENSES AND TRAVEL R ELATED EXPENSES; C. A PORTION OF OFFICE OVERHEAD EXPENSES, INCLUDING BUT NOT LIMITED TO RENTS AND OUTGOINGS; AND D. ADMINISTRATION CHARGES 7. TRANSFER PRICING ON PROFESSIONAL SERVICES STAFF 7.1 THE TRANSFER PRICE RATE CHARGED BY ONE PARTY FO R THE USE OF THEIR PROFESSIONAL SERVICES STAFF BY ANOTHER PARTY IS BAS ED ON THE FORMULAS: 7 HOURLY RATE = COST TO COMPANY (CTC) MULTIPLIED BY 2 ; DAILY RATE = HOURLY RATE MULTIPLIED BY 8 HOURS. WHERE CTC = EMPLOYEE ANNUAL BASE SALARY DIVIDED BY 2080 HOURS. 8. TRANSFER PRICING ON OTHER EXPENSES 8.1 THE TRANSFER PRICE RATE CHARGED BY ONE PARTY IN RELATION TO EXPENSES INCURRED BY THAT PARTY ON BEHALF OF THE OTHER PARTY IS CALCULATED ON A COST RECOVERY BASIS. THIS AGREEMENT BEING DT. 01/01/2008 WAS THERE BEFOR E THE LD. CIT(A) WHILE ADJUDICATING THIS ISSUE FOR ASSESSMENT YEAR 2 008-09 AND THEREFORE RELIANCE PLACED BY LD. CIT(A) ON HIS ORDER FOR ASSE SSMENT YEAR 2008-09 IS NOT MISPLACED TO THIS EXTENT. BUT HAVING SAID SO WE FIND THAT THIS ALONE DOES NOT ESTABLISH THE CLAIM OF THE ASSESSEE OF INCURRING EXPENSES ON THIS ACCOUNT OF RS. 44,46,029/-. THE ASSESSEE HAS ADMITTEDLY NOT BROUGHT ON RECORD ANY E VIDENCE PROVING THAT SERVICES OF THE NATURE AGREED UPON WITH THE PARENT COMPANY WERE RENDERED BY IT IN THE FIRST PLACE. NO EVIDENCE OF T HE NUMBER OF HOURS LOGGED IN BY THE PERSONNEL OF THE PARENT COMPANY WH ILE RENDERING THESE SERVICES, WAS ALSO PRODUCED. NO BASIS OF CALCULATIO N OF THE COST ALLOCATION WAS ALSO PRODUCED BEFORE THE LOWER AUTHORITIES. IN SUBSTANCE, WE FIND THAT THE ASSESSEE HAS NOT DISCHARGED HIS ONUS OF PROVING THAT HE INCURRED THE IMPUGNED EXPENSES DURING THE YEAR WHICH IS A SINE Q UA NON FOR CLAIMING ANY EXPENDITURE. MOREOVER WE AGREE WITH THE LD. DR THAT THE DISALLOWANCE WAS MADE NOT MERELY FOR THE REASON THA T THE AGREEMENTS DID NOT PROVIDE FOR THE PAYMENT OF INTERNATIONAL COMPAN Y CONSULTANCY, BUT ALSO FOR NOT SUBSTANTIATED THE SAME. THE RELEVANT F INDING OF THE AO AT PARA 3.4 OF HIS ORDER (SUPRA) LEND CREDENCE TO THIS BELI EF. 12. THE LD. CIT(A) WE FIND, ALLOWED THE ASSESSEES A PPEAL WITHOUT EXAMINING THE ABOVE ASPECTS. THE LD. CIT(A) HAS SIM PLY RELIED UPON HIS ORDER IN ASSESSMENT YEAR 2008-09 WHERE IT APPEARS T HAT HE RELIED UPON THE SUBMISSIONS MADE BY THE ASSESSEE DURING APPELLATE P ROCEEDING WITHOUT CORROBORATING THE SAME WITH EVIDENCES. THERE IS NO WHISPER IN THE ORDER OF THE CIT(A) OF ANY EVIDENCE RELIED UPON BY THE CIT(A ) OTHER THAN THE AGREEMENT AND COPY OF INVOICE, TO ARRIVE AT THE CON CLUSION THAT THE EXPENSES WERE INCURRED BY THE ASSESSEE DURING THE Y EAR. MOREOVER THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY IN INCOME TAX AND THE CLAIM OF AN EXPENDITURE HAS TO BE EXAMINED EVERY YEAR. BY FOLLO WING HIS EARLIER YEAR ORDER, LD. CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE WITHOUT EXAMINING THE FACTS OF THE CASE. 13. IN THE LIGHT OF THE ABOVE WE CONSIDER IT FIT TO RESTORE THE ISSUE OF ALLOWABILITY OF INTER CORPORATION CONSULTANCY EXPEN SES AMOUNTING TO RS.44,46,029/-, BACK TO THE FILE OF THE AO FOR FRES H ADJUDICATION AS PER LAW. THE ASSESSEE, WE MAY ADD, BE GIVEN DUE OPPORTUNITY OF HEARING. 8. SINCE, THE FACTS IN THE PRESENT CASE ARE IDENTI CAL TO THAT IN A.Y 2011-12 AS AGREED TO BY BOTH THE PAR TIES, THE DECISION RENDERED IN 2011-12 WILL SQUARELY APPLY IN THE 8 PRESENT CASE ALSO, RESPECTFULLY FOLLOWING WHICH WE RESTORE THE ISSUE OF ALLOWABILITY OF INTER CO. CONSULTANCY CHAR GES OF RS.72,16,987/- BACK TO THE FILE OF THE AO TO EXAMIN E THE ISSUE AFRESH IN THE LIGHT OF THE COST SHARING AGREE MENT BETWEEN THE ASSESSEE AND ITS PARENT COMPANY AND EVI DENCES IN SUPPORT OF ITS CLAIM. WE MAY ADD THAT THE ASSESS EE BE GIVEN DUE OPPORTUNITY OF HEARING AND ADEQUATE OPPOR TUNITY TO ADDUCE EVIDENCES IN SUPPORT OF ITS CLAIM. 9. IN EFFECT, THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6 TH APRIL, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH 9