Appeal details
Counselvise Citation
[2021] 107 COUNSELVISE.COM (IT) 3811 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 6 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-10-2021
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
07-10-2021
Assessment Year
2011-2012
Appeal Filed On
04-04-2016
Judgement Text
IT(TP)A NO.712/BANG/2016 M/S. BIESSE MANUFACTURING COMPANY PVT. LTD., BANGALORE RURAL DIST. IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.712/BANG/2016 ASSESSMENTYEAR: 2011-12 M/S. BIESSE MANUFACTURING COMPANY PVT. LTD. SY.NO.32, # 469, JAKKASANDRA VILLAGE SONDEKAPPA ROAD NELAMANGALA TALUK BENGALURU RURAL DISTRICT 562 123 PAN NO : AACCB7928D VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1(1)(2) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI TATA KRISHNA, A.R. RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, D.R. DATE OF HEARING : 07.10.2021 DATE OF PRONOUNCEMENT : 11.10.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER DATED 29.2.2016 PASSED FOR ASSESSMENT YEAR 20 11-12 U/S 143(3) R.W.S 144C OF THE ACT IN PURSUANCE OF DIRECT IONS GIVEN BY LD. DRP. 2. THOUGH THE ASSESSEE HAS RAISED MANY GROUNDS WITH REGARD TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE AO/TPO IN SOFTWARE DEVELOPMENT SEGMENT, AT THE TIME OF HEARING, THE LD . A.R. RESTRICTED IT(TP)A NO.712/BANG/2016 M/S. BIESSE MANUFACTURING COMPANY PVT. LTD., BANGALORE RURAL DIST. PAGE 2 OF 6 HIS ARGUMENTS WITH REGARD TO EXCLUSION OF 6 COMPARA BLE COMPANIES AND INCLUSION OF 3 COMPARABLE COMPANIES. ACCORDING LY, ALL OTHER GROUNDS ARE REJECTED AS NOT PRESSED. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ASSESSEE COMPANY IS WHOLLY OWNED SUBSIDIARY OF M/S. BIESSE SPA, ITALY. THE ASSESSEE COMPANY IS ENGAGED IN PRO DUCTION AND TRADING OF WOOD WORKING MACHINERY AND SPARE PARTS. IN ADDITION TO THESE FUNCTIONS, THE ASSESSEE COMPANY ALSO PROVIDES SOME TECHNOLOGY SERVICES TO ITS A.E AND OTHERS. THE ASS ESSEE HAS ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS A. E. WE ARE CONCERNED WITH THE TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF SOFTWARE DEVELOPMENT SEGMENT. THE TECHNOLOGY SERVI CES WERE HELD TO BE SOFTWARE DEVELOPMENT ACTIVITY BY THE TRANSF ER PRICING OFFICER (TPO). DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE HAS SHOWN RECEIPTS OF RS.4,55,96,879/- FROM SOFTWARE DE VELOPMENT ACTIVITY, WHICH INCLUDED RS.1.78 CRORES RECEIVED FR OM ITS A.E. THE ASSESSEE DID NOT BENCH MARK HIS TRANSACTION. THE A SSESSEE SUBMITTED BEFORE TPO THAT THE SOFTWARE TESTING AND TECHNICAL SERVICES ARE INEXTRICABLY LINKED TO ITS MANUFACTURI NG ACTIVITY AND HENCE NO SEPARATE BENCH MARKING WAS REQUIRED. THE TPO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND PROCEEDE D TO DETERMINE ALP OF SOFTWARE SEGMENT SEPARATELY UNDER TNM METHOD . THE TPO SELECTED 13 COMPARABLES WHOSE AVERAGE MARGIN WORKED OUT TO RS.24.82%. ACCORDINGLY, HE MADE TRANSFER PRICING A DJUSTMENT OF RS.49,16,335/- IN RESPECT OF SOFTWARE DEVELOPMENT S ERVICES. THE ASSESSEE HAS ALSO ACCEPTED THE METHODOLOGY ADOPTED BY THE TPO AND IT IS CONTESTING ONLY INCLUSION/EXCLUSION OF CE RTAIN COMPARABLE COMPANIES. THE 13 COMPARABLES SELECTED BY THE TPO ARE AS UNDER: IT(TP)A NO.712/BANG/2016 M/S. BIESSE MANUFACTURING COMPANY PVT. LTD., BANGALORE RURAL DIST. PAGE 3 OF 6 SL. NO. NAME SALES COST PLI 1 ACROPETAL TECHNOLOGIES LTD. (SEG) 814,016,893 61,67,54,876 31.98% 2 E ZEST SOLUTIONS (FROM CAPITALINE) 11,28,66,098 9,32,55,341 21.03% 3 E - INFOCHIPS LTD. 26 , 03 , 84 , 251 16 , 64 , 47 , 527 56.44% 4 EVOKE (FROM CAPITALINE) 14,48,69,912 13,39,96,568 8.11% 5 ICRA TECHNO ANALYTICS LTD. (IN 000) 15,84,01,000 12,68,94,000 24.83% 6 INFOSYS LTD. 25385 , 00 , 00 , 000 17703 , 00 , 00,000 43.39% 7 LARSEN & TOUBRO INFOTECH LTD. 2331,81,22,096 1976,48,61,289 19.83% 8 MINDTREE LTD. (SEG) 87 , 830 , 00,000 793 , 71 , 43,242 10.66% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 18,94,90,457 15,51,72,089 22.12% 10 PERSISTENT SYSTEMS LTD. 6 1, 012 , 70,000 497 , 18 , 60,000 22.84% 11 R.S. SOFTWARE (INDIA) LTD. 188,26,38,471 161,78,04,170 16.37% 12 SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 394,19,62,000 317,56,16,000 24.13% 13 TATA ELXSI LTD. (SEG) 358 , 19 , 85,000 296 , 25 , 33,352 20.91% AVERAGE MARGIN 24.82% 4. THE LD. DRP DIRECTED EXCLUSION OF ACROPETAL TECH NOLOGIES LTD. (SEG), E-INFOCHIPS LTD. & ICRA TECHNO ANALYTICS LTD . IN EFFECT, THE LD. DRP RETAINED 10 COMPARABLES SELECTED BY THE TPO . 5. BEFORE US, THE ASSESSEE SEEKS EXCLUSION OF FOLLO WING 6 COMPARABLES ON THE GROUND THAT THEY FAIL UNDER TURN OVER CRITERIA. 1 INFOSYS LTD. 25385 , 00 , 00 , 000 2 LARSEN & TOUBRO INFOTECH LTD. 2331 , 81 , 22 , 096 3 MINDTREE LTD. (SEG) 87 , 830 , 00,000 4 PERSISTENT SYSTEMS LTD. 6 1, 012 , 70,000 5 SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 394,19,62,000 6 TATA ELXSI LTD. (SEG) 358 , 19 , 85,000 IT(TP)A NO.712/BANG/2016 M/S. BIESSE MANUFACTURING COMPANY PVT. LTD., BANGALORE RURAL DIST. PAGE 4 OF 6 6. THE LD. A.R. SUBMITTED THAT THE ASSESSEE FALLS I N THE CATEGORY OF COMPANIES HAVING TURNOVER TO RS.1 TO 200 CRORES, WHILE THE TURNOVER OF THE ABOVE SAID COMPANIES HAS EXCEEDED R S.200 CRORES. ACCORDINGLY, BY PLACING RELIANCE ON THE DECISION OF COORDINATE BENCH RENDERED IN THE CASE OF AUTODESK INDIA LTD. VS. DEP UTY COMMISSIONER OF INCOME-TAX (2018) 96 TAXMANN.COM 26 3, THE LD. A.R. SUBMITTED THAT THE ABOVE SAID COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPANIES. 7. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. WE HAVE NOTICED THAT THE TURNOVER OF THE ASSESSEE COMP ANY FOR SOFTWARE DEVELOPMENT SEGMENT WAS RS.4.56 CRORES AND HENCE TH E ASSESSEE COMPANY FALLS IN THE CATEGORY OF COMPANIES HAVING T URNOVER OF RS.1 TO 200 CRORES. THE COORDINATE BENCH IN THE CASE OF AUTODESK INDIA PVT. LTD. HAS EXPRESSED THE VIEW THAT THE COMPANIES HAVING TURNOVER OF LESS THAN RS.200 CRORES CANNOT BE COMPA RED WITH THE COMPANIES HAVING TURNOVER EXCEEDING RS.200 CRORES. ACCORDINGLY, WE FIND MERIT IN THE SUBMISSION OF THE ASSESSEE AND ACCORDINGLY DIRECT THE A.O. TO EXCLUDE ABOVE SAID 6 COMPANIES F ROM THE LIST OF COMPARABLE COMPANIES. 8. THE ASSESSEE SEEKS EXCLUSION OF FOLLOWING 3 COMP ANIES: A) CG-VAK SOFTWARE & EXPORTS LTD. B) CTIL LTD. C) CAT TECHNOLOGIES LTD. THE LD. A.R. SUBMITTED THE FOLLOWING IN RESPECT OF THE ABOVE SAID THREE COMPANIES:- (A) THE LD. DRP REJECTED CG-VAK SOFTWARE & EXPORTS LTD. ON THE REASONING THAT THE DETAILS OF EMPLOYEE COST ARE NOT AVAILABLE AND HENCE IT IS NOT CLEAR AS TO WHETHER I T SATISFIES IT(TP)A NO.712/BANG/2016 M/S. BIESSE MANUFACTURING COMPANY PVT. LTD., BANGALORE RURAL DIST. PAGE 5 OF 6 THE EMPLOYEE COST FILTER. THE LD. A.R. SUBMITTED T HAT THE DETAILS OF EMPLOYEE COST ARE AVAILABLE AND IT PASSE S EMPLOYEE COST FILTER. (B) THE LD DRP REJECTED CTIL LTD ON THE REASONING T HAT THE COMPANY IS ENGAGED IN OUTSOURCING OF SOFTWARE DEVEL OPMENT. THE LD A.R SUBMITTED THAT THE COMPANY IS NOT OUTSOU RCING ITS ACTIVITIES AND HENCE THE REASONING GIVEN BY LD DRP IS WRONG. (C) THE LD DRP HAS REJECTED THIS COMPANY ON THE REA SONING THAT THIS COMPANY FAILS IN EMPLOYEE COST FILTER. T HE LD A.R SUBMITTED THAT THE LD DRP HAS ARRIVED AT THE ABOVE SAID CONCLUSION BY CONSIDERING CONSOLIDATED FINANCIAL RE SULTS. HE SUBMITTED THAT THE SEGMENTAL RESULTS ARE AVAILABLE AND IT PASSES EMPLOYEE COST FILTER. 9. THE LD D.R SUBMITTED THAT THE LD A.R IS RELY ING ON CERTAIN FACTUAL ASPECTS AND THEY REQUIRE VERIFICATION. 10. WE HEARD THE PARTIES ON THIS ISSUE. BEFOR E US, THE LD A.R HAS SUBMITTED THAT THE REASONING GIVEN BY LD DRP FO R EXCLUSION OF ABOVE SAID THREE COMPANIES IS CONTRARY TO THE FACTS AVAILABLE ON RECORD. HOWEVER, AS SUBMITTED BY LD DR, THE RELEVA NT FACTUAL ASPECTS REQUIRE VERIFICATION. ACCORDINGLY, WE REST ORE THESE THREE COMPARABLE COMPANIES TO THE FILE OF AO/TPO FOR EXAM INING THE CLAIM OF THE ASSESSEE. 11. ACCORDINGLY, THE ISSUE RELATING TO TP ADJUST MENT IN SOFTWARE DEVELOPMENT SEGMENT IS RESTORED TO THE FILE OF AO/T PO. IT(TP)A NO.712/BANG/2016 M/S. BIESSE MANUFACTURING COMPANY PVT. LTD., BANGALORE RURAL DIST. PAGE 6 OF 6 12. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCT, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 11 TH OCT, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.
