RELIASYS TECHNOLOGIES (I) P. LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 7152/MUM/2011

• Counselvise Citation: 715219914 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 02-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 21-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Assessee Lawyers: JAYESH DADIA
• Keywords: Business income; Transfer pricing; International transaction

Judgement Text

+ K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI .. , ; BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, J M ./ I.T.A. NO.7152 /MUM/2011 ( / ASSESSMENT YEAR : 2008-2009 M/S RELIASYS TECHNOLOGIES (INDIA) PVT. LTD., 2 ND FLOOR, 24, NITYANAND NAGAR 3, SAHAR ROAD, OPP. SIDHI NURSING HOME, ANDHERI (EAST), MUMBAI 400 036. / VS. D .C.I.T. 8 ( 3 ), MUMBAI.. ./ PAN : AAACD4135G ( # / APPELLANT ) .. ( $%# / RESPONDENT ) A PPELLANT BY SHRI JAYESH DADIA R E SPONDENT BY : SHRI VIVEK BATRA ) * / DATE OF HEARING : 02-04-2014 ) * / DATE OF PRONOUNCEMENT :28-05-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A)- 15, MUMBAI DATED 12-09-2011WHEREBY HE CONFI RMED THE ADDITION OF RS. 48,06,740/- MADE BY THE A.O./TPO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF SOFTWARE SUPPORT DEVELOPMENT AND SERVIC ES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 25-09-2008 DECLARING TOTAL INCOME AT NIL. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, IT WAS NOTICED ITA 7152/M/11 2 BY THE A.O. THAT THE ASSESSEE HAS ENTERED INTO INTE RNATIONAL TRANSACTIONS WITH ITS AE NAMELY M/S RELIASYS INCORPORATED, CALIFORNIA FOR PROVIDING SOFTWARE DEVELOPMENT AND CONSULTANCY SERVICES. IN THE TP ST UDY REPORT FILED ALONG WITH THE RETURN OF INCOME, THE SAID TRANSACTIONS WERE BE NCH-MARKED BY THE ASSESSEE BY FOLLOWING COST PLUS METHOD AND THE ARM S LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS WITH ITS AE WAS COMP UTED AT RS. 79,16,965/- AS AGAINST 82,55,825/- CHARGED TO ITS AE. THE WORK ING OF THIS ALP AS GIVEN ON PAGE 2 OF THE ASSESSMENT ORDER IS EXTRACTED BELO W:- AMOUNT RECEIVED FOR SERVICES RENDERED TO AE 82,55,8 25 GROSS RECEIPT EXCLUDING TRADING SALES AND RECEIPTS FROM AE 49,62,174 TOTAL EXPENDITURE RELATED TO THE SERVICES OFFERED 1 ,01,40,373 EMPLOYEES COST PERTAINING TO SERVICES OFFERED, INCL UDED IN TOTAL EXPENDITURE OF RS.1,01,40,373/- 52,62,545 TOTAL INDIRECT COST PERTAINING TO SERVICES OFFERED EXCLUDING EMPLOYEE COST AND COST OF TRADING SALES 48,77,828 PROPORTIONATE INDIRECT COST PERTAINING TO SERVICES PROVIDED TO AE 30,46,641 DIRECT COST ON SERVICES PROVIDED TO AE 32,86,931 TOTAL COST OF SERVICES PROVIDED TO AE 63,33,572 25% OF THE TOTAL COST ON SERVICES PROVIDED TO AE 15 ,83,393 ARMS LENGTH PRICE AS PER COST PLUS METHOD 79,16,96 5 3. THE APPORTIONMENT OF DIRECT AND IN-DIRECT COST MADE BY THE ASSESSEE IN THE ABOVE WORKING FOR THE PURPOSE OF DETERMINING TH E ALP OF THE RELEVANT INTERNATIONAL TRANSACTIONS BY ADOPTING COST PLUS ME THOD WAS NOT ACCEPTED BY THE TPO. HE MADE SUCH APPORTIONMENT OF DIRECT AND IN-DIRECT EXPENSES IN THE RATIO OF AE SALES/TOTAL SALES TO WORK OUT THE TOTAL COST OF SERVICES RENDERED BY THE ASSESSEE TO ITS AE AT RS. 1,04,50,052/- AND DET ERMINED THE ALP OF THE SERVICES RENDERED BY THE ASSESSEE TO ITS AE AT RS. 1,30,62,565/- BY APPLYING THE MARK-UP OF 25%. SINCE THE AMOUNT ACTUALLY CHAR GED BY THE ASSESSEE FROM ITS AE WAS RS. 82,55,825/-, THE TP ADJUSTMENT OF RS. 48,06,740/- WAS MADE BY THE A.O. ON APPEAL, THE LD. CIT(A) CONFIRME D THE SAID ADDITION HOLDING THAT THE APPORTIONMENT OF DIRECT AND IN-DIR ECT COST MADE BY THE A.O. IN THE RATIO OF ALP SALES TO TOTAL SALES WAS QUITE FAIR AND REASONABLE. ITA 7152/M/11 3 AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE THE TRIBUNAL, THE ASSESSEE HAS FILED AN APPLICATION SEEKING ADMISSION OF THE FOLLOWING ADDITIONAL GROUND:- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FAC TS OF THE CASE IN NOT CONSIDERING TRANSACTION NET MARGIN METHOD (TNMM) IN DETERMINING THE ARMS LENGTH PRICE (ALP) IN RESPECT OF INTERNATIONAL TRANSACTIONS. YOUR PETITIONER IS ENGAGED IN THE BUSINESS OF SERVICES A ND THEREFORE TNMM IS THE MOST APPROPRIATE METHOD. 5. SINCE THE ISSUE RAISED IN THE ADDITIONAL GROUND IS INCIDENTAL TO THE MAIN ISSUE INVOLVED IN THE GROUNDS ORIGINALLY RAISED AND THE LD. D.R. HAS ALSO NOT RAISED ANY OBJECTION FOR THE ADMISSION OF ADDITIONA L GROUND, THE SAME HAS BEEN ADMITTED BY US. AS THE ISSUE INVOLVED IN THE A DDITIONAL GROUND RAISED BY THE ASSESSEE IS PRELIMINARY ONE, WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THE SAID ISSUE. AS SUBMITTED BY THE LD. C OUNSEL FOR THE ASSESSEE, THE COST BASE ITSELF BEING NOT DETERMINATIVE IN THE ABS ENCE OF SEPARATE ACCOUNTS MAINTAINED BY THE ASSESSEE AND THERE BEING A DISPUT E AMONG THE PARTIES REGARDING THE APPORTIONMENT OF DIRECT AND IN-DIRECT COST, THE COST PLUS METHOD FOLLOWED IN THE ASSESSEES CASE TO DETERMINE THE AL P OF THE RELEVANT TRANSACTIONS IS NOT APPROPRIATE AND THIS POSITION C LEARLY EVIDENT FROM THE RECORD IS NOT DISPUTED EVEN BY THE LD. D.R. THE LD . REPRESENTATIVES OF BOTH THE SIDES HAVE ALSO AGREED THAT THE TNMM IS THE MOS T APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE RELEVANT INTERNATIONAL T RANSACTION IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. D.R. HAS CONTEN DED THAT THE MATTER THEREFORE BE SENT BACK TO THE A.O. FOR DETERMINING THE ALP OF THE RELEVANT INTERNATIONAL TRANSACTIONS AFRESH FOLLOWING THE TNM M AND THE ASSESSEE MAY BE DIRECTED TO FURNISH THE TP STUDY REPORT FOLLOWIN G THE SAID METHOD IN ORDER TO ENABLE THE A.O. TO DECIDE THE ISSUE. WE FIND ME RIT IN THIS CONTENTION OF THE LD. D.R. AND SINCE THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO NO OBJECTION IN ITA 7152/M/11 4 THIS REGARD, WE RESTORE THE MATTER TO THE FILE OF T HE A.O. WITH A DIRECTION TO DETERMINE THE ALP OF THE RELEVANT INTERNATIONAL TRA NSACTIONS AFRESH FOLLOWING TNMM AFTER TAKING INTO CONSIDERATION THE TP STUDY R EPORT WHICH IS TO BE FURNISHED BY THE ASSESSEE BY FOLLOWING TNMM WITHIN A PERIOD OF THREE MONTHS FROM THE DATE OF THIS ORDER. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MAY, 2014. ) 0 1 28-05-2014 ) SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 DATED _28/05/2014 [ .../ RK , SR. PS # $&' (' / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. ; () / THE CIT(A)9 MUMBAI. 4. ; / CIT 5 MUMBAI 5. $? , * ? , / DR, ITAT, MUMBAI A BENCH 6. / GUARD FILE. / BY ORDER, % $ //TRUE COPY// / ( DY./ASSTT. 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