Salesforce.com India Private Limited, Bangalore V. DCIT, Bangalore

ITA 697/BANG/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8934 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 31-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: UMA SHANKAR GOUTAM
• Keywords: Transfer pricing; International transaction

Judgement Text

IT(TP)A.697/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.697/BANG/2016 (ASSESSMENT YEAR : 2011-12) M/S. SALESFORCE.COM INDIA P. LTD, THE EXECUTIVE CENTRE, 24, VITTAL MALLYA ROAD, LEVEL 11, UB CITY CANBERRA BLOCK, BENGALURU 560 001 .. APPELLANT PAN : AAJCS3582R V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -6(1)(1), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. UMA SHANKAR GOUTAM, ADVOCATE REVENUE BY : SHRI. C. H. SUNDAR RAO, CIT DR-I HEARD ON : 06.12.2018 PRONOUNCED ON : 21.12.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER U/S.143(3) R.W.S.144C(13) OF THE ACT, PASSED BY THE DCIT, CIRCLE - 6(1)(1), BENGALURU, DT.29.01.2016, IN PURSUANCE TO THE DIRECTIONS OF THE DRP DT.23.12.2014, FOR THE ASSESSMENT YEAR 2011 -12. IT(TP)A.697/BANG/2016 PAGE - 2 THE ASSESSEE HAS RAISED THE GROUNDS OF APPEAL WHICH ARE AS UNDER : THE ASSESSEE HAS ALSO FILED THE REVISED GROUNDS OF APPEAL CORRESPONDING TO THE ORIGINAL GROUNDS OF APPEAL AS ABOVE : IT(TP)A.697/BANG/2016 PAGE - 3 02. AT THE OUT SET, THE LD. AR HAS SUBMITTED THAT A SSESSEE IS NOT PRESSING GROUND NOS,1 TO 9, 17 AND 19 AND IS ONLY P RESSING GROUND NOS.10 TO 16 AND 18. AS THE ASSESSEE HAS NOT PRESS ED THE GROUND NOS.1 TO 9, 17 AND 19, THE SAME ARE DISMISSED AS NO T PRESSED. IT(TP)A.697/BANG/2016 PAGE - 4 03. BEFORE WE DEAL WITH GROUND NOS.10 TO 16 AND 18, WE MAY GIVE A BRIEF BACKGROUND OF THE ASSESSEES PROFILE AND TH E HISTORY OF THE ASSESSMENT PROCEEDINGS. THE ASSESSEE FILED A RETUR N OF INCOME DECLARING TOTAL INCOME OF RS.3,39,98,201/-. NOTICE U/S.143(2) OF THE ACT WAS ISSUED AND THEREAFTER THE ASSESSEE WAS CALL ED UPON TO FILE THE RESPONSE. IT WAS NOTICED BY THE AO THAT THE AS SESSEE HAS ALSO UNDERTAKEN THE INTERNATIONAL TRANSACTIONS DURING TH E YEAR UNDER CONSIDERATION. ACCORDINGLY THE MATTER WAS REFERRED TO THE TPO FOR THE PURPOSE OF DETERMINING THE ALP OF THE INTERNATI ONAL TRANSACTIONS VIDE COMMUNICATION DT.12.11.2013. THE TPO IN THE T P ORDER RECORDS THE FUNCTIONS OF THE ASSESSEE IN PARA.2 AS UNDER : 04. THE TPO FURTHER MENTIONED THAT THE FINANCIAL RE SULTS AS PER THE P & L ACCOUNT FOR FY 2010-11 AS UNDER : IT(TP)A.697/BANG/2016 PAGE - 5 05. AS PER THE 92CA REPORT, THE INTERNATIONAL TRANS ACTIONS REPORTED BY THE ASSESSEE WAS AS UNDER : 06. DURING THE TP PROCEEDINGS, THE TAX PAYER WAS IS SUED A SHOW CAUSE NOTICE AND IN REPLY THE ASSESSEE HAD FILED RE PLY AND SUBMITTED THE OBJECTIONS. AFTER CONSIDERING THE REPLY AND SU BMISSIONS MADE THE TPO HAS REJECTED THE TP STUDY OF THE ASSESSEE A ND ISSUED A SHOW-CAUSE TO BRING IN VARIOUS COMPARABLES WHICH AR E FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE. FOR THE PURPOSES O F DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS WITH RESPECT TO THE SOFTWARE DEVELOPMENT SERVICES, FINALLY THE TPO ARRIVED AT TH E FOLLOWING SET OF COMPARABLES : IT(TP)A.697/BANG/2016 PAGE - 6 FEELING AGGRIEVED BY THE ORDER OF THE AO / TPO, THE MATTER WAS SCALED UP AND OBJECTION WAS FILED BEFORE THE DRP. 05. THE DRP CONSIDERING THE REPLY OF THE ASSESSEE H AS REJECTED THE CONTENTIONS OF THE ASSESSEE. 06. IT WAS SUBMITTED BY THE ASSESSEE THAT ASSESSEE IS NOT PRESSING EXCLUSION OF ICRA TECHNO ANALYTICS LTD, AS THE TRIB UNAL IN THE MATTER OF M/S. AT & T GLOBAL BUSINESS SERVICES INDI A P. LTD V. ACIT [IT(TP)A.190/BANG/2016, DT.31.08.2016 FOR AY 2 011-12], HAD DECIDED THE ISSUE OF EXCLUSION MERELY ON THE BA SIS OF THE RPT FILTER. HOWEVER THE CONSISTENT VIEW OF THE TRIBUNA L IS THAT IF THE RPT IS LESS THAN 25% AND THE NUMBER OF COMPARABLES ARE LESS THAN SIX, THEN RPT OF 25% IS CORRECT, WHEREAS IF THE NUM BER OF COMPARABLES SELECTED OR REMAINED AFTER THE EXCLUSIO N BY THE DRP CONTINUES TO BE MORE THAN SIX, THEN THE RPT OF 15% IS CORRECT. THIS VIEW WAS TAKEN BY THE COORDINATE BENCH IN THE MATTE R OF ACI WORLDWIDE SOLUTIONS (P.) LTD. * [2017] 84 TAXMANN.COM 216 (BENGALURU TRIB.) THEREFORE, KEEPING THE ABOVESAID IN MIND, FOR MANY YEARS, THE RPT FILTER HAD BEEN ADOPTED BY THE TPOS TO EXCLUDE THE OTHERWI SE COMPARABLE COMPANY FROM THE LIST OF COMPARABLES, IF THE RPT WAS FOUND TO BE MORE THAN 25%. THEORETICALLY, 0% RPT FILTER ADOPTED BY THE DRP IS CORRECT, BUT WI TH A VIEW TO APPRECIATE THE PRACTICAL DIFFICULTIES IN FINDING OUT THE COMPARABL E, THE RPT FILTER WAS RELAXED IN SOME MATTERS BY THE TRIBUNAL TO THE EXTENT OF 25% A ND IN SOME MATTERS, IT WAS RELAXED UP TO 15%. IN OUR VIEW, A BALANCED VIEW IS REQUIRED TO BE ADOPTED AND WHEN SUFFICIENT NUMBER OF COMPARABLES ARE AVAILABLE, THE N THE RPT FILTER SHOULD BE ADOPTED AT 1.5% OTHERWISE IT CAN BE RELAXED FOR 25% . RECENTLY, THERE IS A CHANGE IN LAW ( CBDT ISSUED IN RULES ON MULTIYEAR DATA AND RA NGE CONCEPT AFTER PASSING OF FINANCE ACT 2014 ) WHICH REQUIRES THAT THERE SHOULD BE A MINIMUM OF SIX COMPARABLES AVAILABLE FOR THE PURPOSE OF DETERMININ G THE ALP. THOUGH THE SAID IT(TP)A.697/BANG/2016 PAGE - 7 AMENDMENT IS PROSPECTIVE NATURE, BUT TAKING CLUE FR OM THE WISDOM OF THE LEGISLATURE, WE DEEM IT APPROPRIATE IF MORE THAN SIX COMPARABLES ARE AVAILABLE, THEN 15% RPT FILTER SHOULD BE APPLIED, BUT IF THE COMPAR ABLES AFTER APPLYING THE 15% RPT FILTER IS LESS THAN SIX, THEN THE RPT FILTE R SHOULD BE BROUGHT UP FROM 15% TO 25% . AS THE ASSESSEE HAS NOT PRESSED FOR EXCLUSION OF IC RA TECHNO ANALYTICS P. LTD, ACCORDINGLY GROUND NO.12 IN THE R EVISED GROUNDS IS DISMISSED AS NOT PRESSED. 07. NOW WE ARE LEFT WITH THE FOLLOWING COMPARABLES WHICH ARE NOW AGITATED BY THE ASSESSEE BEFORE US, NAMELY, 1. ACROPETAL TECHNOLOGIES LTD (SEG) 2. E-INFOCHIPS LTD 3. INFOSYS LTD 4. PERSISTENT SYSTEMS LTD 5. SASKEN COMMUNICATION TECHNOLOGIES LTD 6. TATA ELXSI LTD (SEG) 08. WITH REGARD TO EXCLUSION OF THESE SIX COMPARA BLES OUR ATTENTION WAS DRAWN BY THE LD. AR TO THE DECISION O F THE COORDINATE BENCH IN THE MATTER OF M/S. AT & T GLOBAL BUSINESS SERVICES INDIA P. LTD (SUPRA), WHEREIN THE TRIBUNAL AFTER CONSIDER ING THE ANNUAL REPORT AND FUNCTIONAL PROFILE OF THIS COMPANY HAD D IRECTED TO EXCLUDE THESE COMPANIES . FOR READY REFERENCE, WE ARE REPRODUCING PARA 5 & 6 OF THE ORDER : 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, GONE T HROUGH THE ORDERS OF THE LOWER AUTHORITIES AND THE JUDGMENTS C ITED BY THE LEARNED AR OF THE ASSESSEE. VARIOUS GROUNDS NOT PRE SSED BY THE LEARNED AR OF THE ASSESSEE ARE REJECTED AS NOT PRES SED. AS PER THE APPEAL OF THE REVENUE, THE REVENUE HAS CHALLENGED T HE EXCLUSION OF 10 COMPARABLES AS PER THE DIRECTIONS OF DRP. OUT OF THIS, THE ASSESSEE HAS CONCEDED THAT 3 COMPARABLES MAY BE INC LUDED I.E. 1) EVOKE TECHNOLOGIES PVT. LTD., 2) MINDTREE LIMITED ( SEG.) AND 3) A S IT(TP)A.697/BANG/2016 PAGE - 8 SOFTWARE (INDIA) LTD. TO THIS EXTENT, THE ORDER OF DRP IS REVERSED AND THE AO,TPO ARE DIRECTED TO INCLUDE THESE THREE COMPARABLES IN THE FINAL LIST OF COMPARABLES. REGARDING THE REQUES T OF THE REVENUE TO INCLUDE REMAINING SEVEN COMPARABLES EXCLUDED BY DRP AND 3 MORE COMPARABLES WHICH ARE NOT EXCLUDED BY DRP BUT BEING REQUESTED BY THE ASSESSEE FOR EXCLUSION I.E. FOR TO TAL 10 EXCLUSIONS, PARA 9 OF THE TRIBUNAL ORDER RENDERED IN THE CASE O F COMMSCOPE NETWORKS INDIA PVT. LTD. (SUPRA) IS RELEVANT AND TH EREFORE, THE SAME IS REPRODUCED HERE IN BELOW FROM PAGES 2364 & 2365 OF THE CASE LAW COMPENDIUM FOR READY REFERENCE. THIS PARA READS AS UNDER:- '9. NOW WE DECIDE ABOUT THE REMAINING 6 COMPARABLES EXCLUDED BY DRP AND 4 COMPARABLES RETAINED BY DRP BUT FOR WHICH THE ASSESSEE IS SEEKING EXCLUSION. OU T OF THESE 6 COMPARABLES EXCLUDED BY DRP, ONE COMPARABLE ICRA TECHNO ANALYTICS LTD. IS HAVING RPT IN EXCESS OF 15% AND THEREFORE, FOR THIS REASON ALO NE, THIS COMPARABLE HAS TO BE EXCLUDED ALTHOUGH DRP HAS EXCLUDED IT FOR A DIFFERENT REASON THAT IT IS HAVIN G VARIOUS ACTIVITIES AND SEGMENTAL DATA ARE NOT AVAILABLE. WE UPHOLD ITS EXCLUSION ON ACCOUNT OF RP T FILTER. EXCLUSION OF ACROPETAL TECHNOLOGIES LTD. (S EG) IS COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME TRIBU NAL ORDER RENDERED IN THE CASE OF APPLIED MATERIALS IND IA PVT. LTD. VS. AC1T (SUPRA). RESPECTFULLY FOLLOWING THE S AME, WE UPHOLD ITS EXCLUSION. EXCLUSION OF 1) E ZEST SOLUTI ONS LTD., 2) INFOSYS LTD., 3) LARSEN & TOUBRO INFOTECH LTD., 4) PERSISTENT SYSTEMS & SOLUTIONS 5) PERSISTENT SYSTEM S LTD., 6) SASKEN COMMUNICATION TECHNOLOGIES LTD. AND 7) TATA ELXSI LTD. ARE ALSO COVERED IN FAVOUR O F THE ASSESSEE BY THE SAME TRIBUNAL ORDER RENDERED IN THE CASE OF .APPLIED MATERIALS INDIA NT. LTD VS ACJT (SUPRA) RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE EXCLUSION OF THESE SEVEN COMPARABLES ALSO. EXCLUSION OF E INFOCHIPS LTD. IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF SAXO INDIA PVT. LTD. VS. A CIT IN ITA NO, 6148/DEL/ 2015 DATED 05.02.2016 PARA 10.1 & 10.2 AVAILABLE AT PAGE S 221 TO 223. RESPECTFULLY FOLLOWING THE SAME, WE UPH OLD ITS EXCLUSION. IN THIS MANNER, WE UPHOLD THE EXCLUS ION OF SIX COMPARABLES EXCLUDED BY DRP OUT OF 9 COMPARABLE S EXCLUDED BY DRP AND EXCLUDE 4 OMPARABLES RETAINED B Y DRP AND WE HAVE ALREADY HELD THAT OUT OF 9 COMPARAH IES IT(TP)A.697/BANG/2016 PAGE - 9 EXCLUDED BY DRP, 3 HAVE TO COME BACK BEING 1) EVOKE TECHNOLOGIES PVT. LTD., 2) MINDIREE LTD. (SEG) AND 3) R S SOFTWARE (INDIA) LTD. NOW, WE DECIDE ABOUT LGS GLOB AL LTD. AS PER THE TRIBUNAL ORDER RENDERED IN THE CASE OF APPLIED MATERIALS INDIA PVT. LTD. VS. ACIT (SUPRA), THIS IS A GOOD COMPARABLE AND THEREFORE, WE DIRECT THE A.O. A ND TPO TO INCLUDE THIS COMPARABLE. SO, THERE SHOULD BE 4 COMPARABLES IN THE FINAL LIST OF COMPARABLE AND ON THE BASIS OF THAT, THE AO/TPO SHOULD WORK OUT THE ALP.' 6. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE E XCLUDE THESE 10 COMPARABLES I.E.1) ACCROPETAL TECHNOLOGIES LTD. (SE G.), 2) E ZEST SOLUTIONS LTD., 3) F - INFOCHIPS LTD., 4) ICRA TECHNO ANALYTICS LTD., 5) INFOSYS LTD., 6) LARSEN & TOUBRO INFOTECH LTD., 7) PERSISTENT SYSTEM & SOLUTIONS LTD., 8) PER SISTENT SYSTEMS LTD., 9) SASKEN COMMUNICATION TECHNOLOGIES LTD. AND 10) TATA ELXSI LTD. 09. ON THE BASIS OF THE ABOVE, THE LD. AR HAS SUBMI TTED THAT THESE COMPARABLES ARE REQUIRED TO BE EXCLUDED. 10. ON THE OTHER HAND THE LD. DR RELIES UPON THE OR DER PASSED BY THE LOWER AUTHORITIES. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FUNCTIONAL PROFILE OF THE ASSESSEE IS SIMILAR TO THAT OF THE ASSESSEE IN THE MATTER OF AT & T GOBAL BUSINESS SER VICES INDIA P. LTD (SUPRA) AND THE SAME LIST OF COMPARABLES WERE SELECTED BY THE TPO IN BOTH THE MATTERS. ONCE THE COORDINATE BENCH HAS TAKEN A VIEW IN IDENTICAL CIRCUMSTANCES TO EXCLUDE THE ABOV E SIX COMPARABLES, THEREFORE WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW. MORE PARTICULARLY WHEN DR HAD NOT BROUGHT TO OUR NOTICE A CONTRARY FACTS OR DISSIMILARITY. FOLLOWING THE DE CISION OF THE COORDINATE BENCH IN AT & T GOBAL BUSINESS SERVICES INDIA P. LTD (SUPRA), WE ALLOW GROUND NOS. 10, 11, 13, 14, 1 5 AND 16 . THE IT(TP)A.697/BANG/2016 PAGE - 10 TPO IS DIRECTED TO EXCLUDE THESE COMPARABLES FROM T HE LIST OF COMPARABLES. 12. THE NEXT GROUND IS GROUND NO.18 WHICH IS WITH R ESPECT TO WORKING CAPITAL ADJUSTMENT. THE AUTHORITIES BELOW HAD RESTRICTED THE WORKING CAPITAL ADJUSTMENT TO 1.63% INSTEAD OF GRANTING THE ACTUAL WORKING CAPITAL ADJUSTMENT. IN THIS REGARD THE LD. AR RELIES UPON THE FOLLOWING DECISIONS : A) AT&T GLOB AL BUSINESS SERVICES INDIA LTD. - IT(TP)A NO. 19 0 /BANG/2016 A .Y. 2011- 12 B) YOKOGAWA TECHNOLOGIES INDIA P LTD,- 1T(TP)A NO. 6O6/BANG/2016 - AY 2011-12 C) CY PRESS SEMICONDUCTOR TECHNOLOGY INDIA PVT. LTD. - 1T (TP)A NO. 356/BANG/2016 - AY 2011-12 D) METRIC STREAM INFOTECH INDIA PVT. LTD. - IT(TP)A NO. 493/B ANG/2016 - AY 2011-12 E) FINASTRA SOFTWARE SOLUTIONS INDIA PVT. LTD. - 1T(TP )A NO. 529/BANG/2016 - AY 2011-12 F) ZYNGA GAME NETWORK INDIA PVT. LTD. [IT (TP) A. NO. 360,/BANG! 2016] (AY 2011-12) G) M/S. MICROSOFT RESEARCH LAB INDIA PVT. LTD. [IT (TP ) A. NO. 115/ BANG / 2016] (AY 2011-12) H ) GT NEXUS SOFTWARE PVT LTD [IT (TP) A. NO 409/ BAN G/2016] (AY 2011-12) I ) COMRNSCOPE NETWORKS INDIA PVT. LTD. - IT (TP) (A) 166/BANG/16 - AY 2011-12 J) AMD INDIA PVT. LTD - IT (TP) (A) -1487/BANG/2015 - AY 2011-12 K) ELECTRONIC IMAGING INDIA PVT. LTD. - IT (TP) (A) 15O6/BANG/2015 IT(TP)A.697/BANG/2016 PAGE - 11 A.Y. 2 011-12 1) MARVELL INDIA PVT LTD [IT(TP)A NO. 384/BANG/2016 ] AY 2011-12 M) SAXO INDIA PVT LTD - ITA NO. 6148/DELHI/2015 AY 2011-12 13. ON THE OTHER HAND THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY DETAILED WORKING TO THE LOWER AUTHORI TIES. IN THE ABSENCE OF THE NECESSARY DETAILS / DATA, IT IS NOT POSSIBLE FOR THE LOWER AUTHORITIES TO ADJUDICATE THE CLAIM OF WORKIN G CAPITAL ADJUSTMENT. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE TPO HAS ADOPTED THE TNMM FOR THE PURPOSE OF DE TERMINING THE ALP AND AS PER THE MANDATE OF LAW AND RULES FRA MED THE ASSESSEE IS REQUIRED TO WORK OUT THE WORKING CAPITA L ADJUSTMENT WITH A VIEW TO WEED OUT THE DISSIMILARITY BETWEEN THE AS SESSEE AND THE COMPARABLES. THE RULES PROVIDE THAT THE WORKING CA PITAL ADJUSTMENT IS REQUIRED TO BE MADE ON THE BASIS OF T HE ACTUAL SO AS TO REMOVE ABRASION OR DISTORTION IN THE PROFIT EARNED BY THE ASSESSEE. 15. IN THE PRESENT CASE LOWER AUTHORITY HAD WORKED OUT WORKING CAPITAL ADJUSTMENT ON HYPOTHETICAL FIGURE OF 1.63% INSTEAD OF ON ACTUAL BASIS. HENCE WE DIRECT THE TPO TO GRANT WOR KING CAPITAL ADJUSTMENT ON ACTUAL BASIS, SUBJECT TO AVAILABILITY OF THE WORKINGS MADE AVAILABLE BY THE ASSESSEE TO TPO IN EARLIER RO UND OF LITIGATION . ACCORDINGLY WE DIRECT THE AO / TPO TO GIVE THE WORK ING CAPITAL ADJUSTMENT ON ACTUAL BASIS IF THE ASSESSEE HAS GIVE N THE DETAILED WORKING TO THE LOWER AUTHORITIES. HOWEVER, IF NO S UCH WORKING HAS BEEN GIVEN BY THE ASSESSEE TO THE LOWER AUTHORITIES THEN IN OUR VIEW IT(TP)A.697/BANG/2016 PAGE - 12 THE ASSESSEE WILL NOT BE ENTITLED TO ANY SUCH CLAIM . THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 16. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF DECEMBER, 2018. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 21.12.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.