Appeal details
Counselvise Citation
[2018] 118 COUNSELVISE.COM (IT) 9110 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 1 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-12-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
K
Next Hearing Date
07-07-2016
Assessment Year
2008-2009
Appeal Filed On
09-11-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRIMAHAVIR SINGH, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.6869/MUM/2012 ASSESSMENT YEAR: 2008-09 STREAM INTERNATIONAL SERVICES PVT.LTD. MAXUS MALL, 4 TH FLOOR FATAK ROAD, NEAR TIMBDA HOSPITAL BHYENDAR (W), THANE-400101 PAN AAECS8569F VS. ACIT 7(2) AAYKAR BHAVAN MUMBAI-400020 (APPELLANT) RESPONDENT) APPELLANTS BY : CHANDNI SHAH RESPONDENT BY :VACHAS PATI TRIPATHI DATE OF HEARING :04.12.2018 DATE OF PRONOUNCEMENT :13.12.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE, BEING ITA NO.686 9/MUM/2012, IS DIRECTED AGAINST ASSESSMENT ORDER DATED 23/11/2011 PASSED BY THE LEA RNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 144C(1) OF THE IN COME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN PURSUANCE OF DIRECTIONS DATED 30/07/2012 ISSUED BY LEARNED DISPUTE RESOLUTION PANEL-II, MUMBAI (HEREINAFTER CA LLED THE DRP), FOR ASSESSMENT YEAR 2008-09. THE GROUNDS RAISED BY THE ASSESSEE ARE ASUNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASS ISTANT COMMISSIONER OF INCOME-TAX 7(2), MUMBAI (THE LEARNED AO) ERRED IN CONCLUDING THE ITA NO.6869/MUM/2012 STREAM INTERNATIONAL SERVICES PVT.LTD. 2 ASSESSMENT BY UPHOLDING THE ACTION OF THE TRANSFER PRICING OFFICER (THE LEARNED TPO) IN MAKING AN ADJUSTMENT OF RS.5,66,99 ,532/- IN RESPECT OF INTERNATIONAL TRANSACTION OF PROVISION OF INFORMATI ON TECHNOLOGY ENABLED BACK OFFICE SERVICES RENDERED TO ITS ASSOCIATED ENT ERPRISES. THE APPELLANT PRAYS THAT THE LEARNED AO BE DIRECTED TO DELETE THE AFORESAID ADJUSTMENT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, LEARNED AO HAS ERRED IN APPLYING SECTION 14A OF THE ACT READ W ITH RULE 8D OF THE INCOME-TAX RULES, 1962 (THE RULES) TO DISALLOW AN AMOUNT OF RS.18,59,006. THE APPELLANT PRAYS THAT AFORESAID DISALLOWANCE UND ER SECTION 14A OF THE ACT BE DELETED. 3. WITHOUT PREJUDICE TO GROUND NO.2 ABOVE , ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A O FOR DETERMINATION OF ARMS LENGTH PRICE OUGHT TO HAVE CONSEQUENTLY REDUC ED THE OPERATING EXPENSES, BY THE AMOUNT ASCERTAINED AND DISALLOWED FOR EARNING TAX FREE INCOME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO HAS ERRED IN GRANTING SHORT CREDIT OF TDS TO THE EXTENT OF RS.51,285. THE APPELLANT PRAYS THAT THE LEARNED AO BE DIRECTED TO PROVIDE THE AFORESAID CREDIT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO HAS ERRED IN LEVYING EXCESS INTEREST UNDER SECTI ON 234B. THE APPELLANT PRAYS THAT THE LEARNED AO BE DIRECTED ACCORDINGLY. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AO HAS LEVIED EXCESS INTEREST UNDER SECTION 234C AS A CONSEQUENCE TO THE SHORT CREDIT TO TDS. THE APPELLANT PRAYS THAT THE LEARNED AO BE DIRECTED TO RE-COMPUTE THE INTEREST IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. THE APPELLANT CRAVES LEAVE TO ADD TO, TO AMEND, TO SUBSTITUTE, TO WITHDRAW, TO MODIFY, TO ALTER AND/OR RE-INSTATE THE FOREGOING GROUNDS OF THE APPEAL . 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY ENABLED BACK OFFIC E SERVICES TO ITS ASSOCIATE ENTERPRISES (AE). DURING THE YEAR, THE ASSESSEE HA S CHARGED COST-PLUS MARK-UP MARGIN OF 15% FOR THE PURPOSE OF BENCHMARKING THE I NTERNATIONAL TRANSACTIONS. THE TRANSFER PRICING OFFICER (TPO) PROPOSED NEW COMPARA BLES BASED UPON THE ORDER OF TPO IN A.Y 2007-08 WITHOUT CONDUCTING A STRUCTURED SEARCH PROCESS AND ARRIVED AT ARITHMETIC MEAN MARGIN OF 25.53% ON THE BASIS OF 1 4 COMPARABLES AS PER DETAILS ITA NO.6869/MUM/2012 STREAM INTERNATIONAL SERVICES PVT.LTD. 3 BELOW THEREBY ADJUSTMENT OF RS. 5,66,99,532/- IN RE SPECT OF INTERNATIONAL TRANSACTIONS WITH AES: - SR.NO. PARTICULARS MARGIN (%) 1 ADITYA BIRLA MINAC WORLDWIDE LTD (EARLIER TRANSWORKS INFORMATION SERVICES LTD) -4.36 2 APEX KNOWLEDGE SOLUTIONS PVT.LTD 2.19 3 ASIT C. MEHTA FINANCIAL SERVICES LTD. (SEG.) (FORMERLY KNOWN AS NUCLEUS NETSOFT AND GIS (INDIA) LTD.) -1.90 4 BNR UDYOG LTD. 13.95 5 COSMIC GLOBAL LTD. 23.30 6 E4E HEALTHCARE SOLUTIONS LTD. (FORMERLY NITTANY OUTSOURCING SERVICES PVT.LTD.) 18.26 7 INFOSYS BPO LTD. 19.66 8 SHREEJAL INFO HUBS LTD. -1.25 9 TSR DARASHAW LTD. 38.19 10 TRITON CORP LTD. 22.04 11 CROSS DOMAIN SOLUTIONS LTD. 29.96 12 ECLERX SERVICES LTD. 59.41 13 MOLD-TEK TECHNOLOGY LTD. 96.66 14 ACCENTIA TECHNOLOGIES LTD. 44.34 AVERAGE 25.53 3. ACCORDINGLY, THE AO PASSED DRAFT ASSESSMENT ORD ER U/S 144C (1) R.W.S 143(3) OF THE ACT. IN THE APPELLATE PROCEEDING, T HE DRP ALSO CONFIRMED THE DRAFT ASSESSMENT ORDER THEREBY UPHOLDING THE ENTIRE ADDIT ION/ADJUSTMENT OF ITA NO.6869/MUM/2012 STREAM INTERNATIONAL SERVICES PVT.LTD. 4 RS.5,66,99,532/-. THEREAFTER FINAL ASSESSMENT WAS F RAMED BY THE AO BY PASSING ORDER U/S 144C(1) R.W.S. 143(3) OF THE ACT VIDE ORD ER DATED 10.09.2012. 4. THE LD. AR SUBMITTED AT THE OUTSET THAT IF THR EE COMPARABLES ARE EXCLUDED NAMELY E-CLERX SERVICES PRIVATE LIMITED (TPOS COMP ARABLE)-59.41%, MOLD TEK TECHNOLOGIES LTD (TPOS COMPARABLE)-96.66% AND ACCE NTIA TECHNOLOGIES LTD (TPOS COMPARABLE)-44.34% FROM THE FINAL SET OF COMPARABLE S FOR THE PURPOSE OF BENCHMARKING, THEN THE ARITHMETIC MEAN MARGIN WOULD COME TO @14.28% AS PER DETAILS BELOW: SR.NO. PARTICULARS MARGIN (%) 1 ADITYA BIRLA MINAC WORLDWIDE LTD (EARLIER TRANSWORKS INFORMATION SERVICES LTD) -4.36 2 APEX KNOWLEDGE SOLUTIONS PVT.LTD 2.19 3 ASIT C. MEHTA FINANCIAL SERVICES LTD. (SEG.) (FORMERLY KNOWN AS NUCLEUS NETSOFT AND GIS (INDIA) LTD.) -1.90 4 BNR UDYOG LTD. 13.95 5 COSMIC GLOBAL LTD. 23.30 6 E4E HEALTHCARE SOLUTIONS LTD. (FORMERLY NITTANY OUTSOURCING SERVICES PVT.LTD.) 18.26 7 INFOSYS BPO LTD. 19.66 8 SHREEJAL INFO HUBS LTD. -1.25 9 TSR DARASHAW LTD. 38.19 10 TRITON CORP LTD. 22.04 11 CROSS DOMAIN SOLUTIONS LTD. 29.96 12 ECLERX SERVICES LTD. --- 13 MOLD-TEK TECHNOLOGY LTD. --- 14 ACCENTIA TECHNOLOGIES LTD. --- AVERAGE 14.28 ITA NO.6869/MUM/2012 STREAM INTERNATIONAL SERVICES PVT.LTD. 5 THE ASSESSEE HAS BENCHMARKED THE INTERNATIONAL TRAN SACTIONS WITH THE AE AT COST- PLUS MARK-UP MARGIN OF 15% AND THEREFORE,NO ADJUSTM ENT ON ACCOUNT OF TP IS REQUIRED TO BE MADE TO THE INCOME OF THE ASSESSEE. LD. AR SUBMITTED THAT TWO COMPARABLES NAMELY E-CLERX SERVICES PRIVATE LIMITED AND ACCENTIA TECHNOLOGIES LTD WERE EXCLUDED BY THE COORDINATE BENCH WHILE DECIDIN G THE CASE OF THE ASSESSEE IN RESPECT OF EARLIER YEAR A.Y 2007-08 IN ITA NO.8290/ MUM/2012 UNDER SIMILAR CIRCUMSTANCES AND THEREFORE, THE SAME SHOULD BE EXC LUDED FOLLOWING THE CO-ORDINATE BENCH ORDER. SO FAR AS THE COMPARABLE MOLD TEK TEC HNOLOGIES LTD IS CONCERNED, THE LD AR SUBMITTED THAT THE DRP HAS ITSELF EXCLUDE D THE COMPARABLE IN AY 2009-10 AND THE REVENUE HAS NOT CONTESTED THE EXCLUSION OF SAID COMPARABLE BEFORE THE ITAT. THE LD. AR THEREFORE SUBMITTED THAT THE IF TH E ABOVE THREE COMPARABLES EXCLUDED, TRANSFER PRICING MARGIN WOULD BE @14.28% WHICH IS LOWER THAN THE APPELLATE MARGIN AND HENCE THE ASSESSEE TRANSACTION S ARE AT THE ARMED LENGTH. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF DRP AND TPO. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING THE DECISIONS RELIED BY THE ASSESSEE AND THE IMPUGNED ORDER. AFTER PERUSAL OF THE TP STUDY OF THE ASSESSEE , WE FIND THAT THE ASSESSEE HAS BENCHMARKED THE INTERNATIONAL TRANSACTION WITH ITS AE AT A MARGIN OF 15% ON COST WHEREAS THE TPO HAS MADE THE TRANSFER PRICING ADJUSTMENT BY APPLYIN G ARITHMETIC MEAN @ 25.53%. IF THREE COMPARABLES AS MENTIONED AT SR.NO. 12, 13, 14 NAMELY E-CLERX SERVICES PRIVATE LIMITED, MOLD TEK TECHNOLOGIES LTD. AND ACC ENTIA TECHNOLOGIES LTD ARE EXCLUDED BASED ON DECISIONS OF THE CO-ORDINATE BENC H IN THE EARLIER YEAR AY 2007- ITA NO.6869/MUM/2012 STREAM INTERNATIONAL SERVICES PVT.LTD. 6 08 SO FAR AS THE COMPARABLES AT SR. NO.12 AND 14 AR E CONCERNED AND DRP ORDER FOR A.Y 2009-10 IN RESPECT OF MOLD TEK TECHNOLOGIES LTD ., THE TP MARGIN WOULD COME TO 14.28% WHICH IS BELOW THE ASSESSEES MARGIN @15% . IN VIEW OF THESE FACTS AND CIRCUMSTANCES , WE ARE OF THE VIEW THAT THE APPELL ANT TRANSACTIONS WITH ITS AE ARE AT ARMS LENGTH PRICE AND NO ADJUSTMENT IS REQUIRED. A CCORDINGLY, WE DIRECT THE AO TO DELETE ADDITIONS OF RS.5,66,99,532/-. 6. THE ISSUE RAISED IN SECOND GROUND OF APPEAL IS A GAINST THE DIRECTION OF DRP UPHOLDING THE ORDER OF AO IN APPLYING THE PROVISION S OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES, 1962, THERE BY CONFIRMING THE DISALLOWANCE OF RS.18,59,006/-. 7. THE FACTS IN BRIEF ARE THAT THE DURING THE YEAR THE ASSESSEE HAS EARNED AN EXEMPT INCOME OF RS.9,97,612/- WITHOUT MAKING ANY SUO-MOTO DISALLOWANCES OF EXPENSES ATTRIBUTABLE TO EARNING OF SAID EXEMPT IN COME. ACCORDINGLY THE AO WORKED OUT THE DISALLOWANCE BY THE APPLYING RULE 8D AT RS.18,59,006/- UNDER RULE 8D(2)(III) WHICH WAS CONFIRMED BY THE DRP. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RELEVANT RECORDS , WE NOTE THAT IN THE PRESENT CASE THE EXEMPT INCOME EARNED B Y THE ASSESSEE IS ONLY RS.9,97,612/-. THUS THERE IS A MERIT IN THE CONTENT ION OF THE LD. AR THAT IN ANY CASE THE DISALLOWANCE CANNOT EXCEEDS THE AMOUNT OF EXEMP T INCOME. THE LD. AR ALSO SUBMITTED BEFORE THE BENCH THAT IN ANY CASE WHILE WORKING OUT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D ONL Y THOSE INVESTMENTS SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTING AVERAGE WH ICH YIELDED THE EXEMPT INCOME ITA NO.6869/MUM/2012 STREAM INTERNATIONAL SERVICES PVT.LTD. 7 AND NOT THE ENTIRE INVESTMENTS. THE LD. AR ALSO FIL ED BEFORE THE BENCH A COMPUTATION OF THE SAME CALCULATING THE DISALLOWAN CES AT RS.2,03,156/- BEING 0.5% OF THE AVERAGE INVESTMENT UNDER RULE 8D(2)(III) WHI CH IS IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE SPECIAL BENCH IN THE CASE O F ACIT VS VIREET PVT. LTD [2017](82 TAXMANN.COM (415)DELHI TRIBUNAL )SPECIAL BENCH),WHEREIN IT HAS BEEN HELD THAT ONLY THOSE INVESTMENTS WHICH YIELD EXEMP T INCOME SHOULD BE CONSIDERED FOR THE PURPOSE OF CALCULATING DISALLOWANCE U/S 14A OF THE ACT RULE 8D OF THE RULES. WE THEREFORE CONSIDER IT FIT AND PROPER TO RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH THE DIRECTION TO WORKED OUT THE DISALLOWANC ES AFTER EXCLUDING THOSE INVESTMENTS WHICH DID NOT YIELD ANY EXEMPT INCOME D URING THE YEAR. THE GROUND IS SET ASIDE. 9. THE GROUND NO.3 IS WITHOUT PREJUDICE TO NO.2 AND THEREFORE, NEED NOT TO BE ADJUDICATED. 10. GROUND NO.4 IS AGAINST SHORT GRANTING OF TDS CR EDIT TO THE TUNE OF RS. 51,285/-. 11. AFTER HEARING BOTH THE PARTIES AND PERUSING THE FACTS ON THE RECORD, WE ARE OF THE VIEW THAT THERE IS SHORT CREDIT OF TDS. HOWEVER THE ISSUE NEEDS TO BE EXAMINED AT THE LEVEL OF AO AFTER A REASONABLE OPPORTUNITY T O THE ASSESSEE. ACCORDINGLY WE RESTORE ISSUE TO THE FILE OF THE AO TO CONSIDER AN D DISPOSE-OFF THE SAME AS PER FACTS AND LAW. NEEDLESS TO SAY THAT SHORT CREDIT HAS TO BE ALLOWED TO THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.6869/MUM/2012 STREAM INTERNATIONAL SERVICES PVT.LTD. 8 12. THE OTHER GROUNDS NO.5 AND 6 ARE CONSEQUENTIAL IN NATURE AND NEED NO ADJUDICATION. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 13 TH DECEMBER, 2018. SD/- SD/- (MAHAVIR SINGH) (RAJESH K UMAR) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED : 13 TH DECEMBER, 2018 * TIRUMALESH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. THE CIT 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI
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