DCIT, Bangalore V. M/s DTZ International Property Advisor Pvt. Ltd., Bangalore

ITA 78/BANG/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4350 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-03-2019
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 144C; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE-PRESIDENT AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER IT ( TP) A NO. 78/BANG/2015 ASSESSMENT YEAR : 2008 - 09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BANGALORE. VS. M/S. DTZ INTERNATIONAL PROPERTY ADVISOR PVT. LTD., LEVEL 3, FEATHERLITE VISTA, # 8, 1 ST MAIN ROAD, VASANTHNAGAR, BANGALORE 560 052. PAN: AACCD 0007B APP ELL ANT RESPONDENT APPELLANT BY : SHRI C.H. SUNDARA RAO, CIT(DR - I), ITAT, BENG ALURU. RESPONDENT BY : SHRI K.R. VASUDEVAN, ADVOCATE DATE OF HEARING : 1 3 . 03.2019 DATE OF PRONOUNCEMENT : 15 .0 3 .201 9 O R D E R PER N.V. VASUDEVAN,VICE-PRESIDENT THIS APPEAL BY THE REVENUE IS AGAINST THE FINAL O RDER OF ASSESSMENT DATED 28.11.2004 PASSED BY THE DCIT, CIRCLE 1(1)(1) , BENGALURU U/S. 143(3) R.W.S. 144C R.W.S. 263 OF THE INCOME-TAX ACT , 1961 [THE ACT] IN RELATION TO ASSESSMENT YEAR 2008-09. IT(TP)A NO.78/BANG/2015 PAGE 2 OF 7 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO THE CORRECTNESS OF THE RELIEF GIVEN BY TH E DISPUTES RESOLUTION PANEL (DRP) IN THE MATTER OF DETERMINATION OF ARMS LENGTH PRICE (ALP) UNDER THE PROVISIONS OF SECTION 92 OF THE ACT, IN R ESPECT OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS A SSOCIATED ENTERPRISE (AE). 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF REAL ESTATE CONSULTANCY SERVICES. THE ASSESSEE RENDERED REAL E STATE CONSULTANCY SERVICES TO A HOLDING COMPANY, DTZ INDIA LTD. (UK). FOR RENDERING SUCH SERVICES, THE ASSESSEE RECEIVED A SERVICE FEE OF RS .10,60,60,656. THERE IS NO DISPUTE THAT THE SAID TRANSACTION OF RENDERING C ONSULTANCY SERVICE WAS AN INTERNATIONAL TRANSACTION AND THE ALP OF SUCH TR ANSACTION HAD TO BE DETERMINED. FOR DETERMINATION OF THE ARMS LENGTH PRICE OF THE AFORESAID TRANSACTION, THE AO MADE A REFERENCE U/S. 92CA OF T HE ACT TO THE TPO. THE TPO CHOSE 7 COMPARABLE COMPANIES AND DETERMINED THE ALP OF THE TRANSACTION AND SUGGESTED AN ADDITION OF RS.5,77,08 ,156 TO THE TOTAL INCOME OF THE ASSESSEE AS FOLLOWS:- 9.3 ACCORDINGLY, THE FINAL SET OF COMPARABLES IN T HE CASE OF THE TAXPAYER FOR COMPARABILITY ANALYSIS UNDER TNMM, INC LUDING THE TWO SELECTED COMPARABLES OF THE TAXPAYER, IS AS UND ER: SL. COMPANY PLI (OP/OC%) 1 CRISIL LTD. 45.98% 2 ICRA MANAGEMENT CONSUL TING SERVICES LTD. 4.45% 3 ASIAN BUSINESS EXHIBITION & CONFERENCES LTD. 15.50% 4 CYBER MEDIA RESEARCH LTD. 15.54% 5 HGS BUSINESS SERVICES PVT. LTD. 15.12% 6 KILLICK AGENCIES & MARKETING LTD. 23.23% 7 PRIYA INTERNATIONAL LTD. 11.43% AVERAGE 18.75% IT(TP)A NO.78/BANG/2015 PAGE 3 OF 7 10. DETERMINATION OF ARMS LENGTH PRICE 10.1 SINCE THE TAXPAYER DID NOT FILE ANY SUBMISSI ONS BEFORE THE TPO IN RESPONSE. TO THE SHOW CAUSE NOTICE DATED: 01 .01.2014 DID NOT AVAIL OF THE OPPORTUNITY OF PERSONAL HEARING NO R, FILED ANY REQUEST FOR GRANT OF ADDITIONAL TIME, AS MENTIONED ABOVE, THE TPO UNDERSTANDS THAT, THE TAXPAYER HAS NO OBJECTIONS TO THE PROPOSED TRANSFER PRICING ADJUSTMENTS IN THE SHOW CAUSE NOTI CE. 10.2 BEING A TIME BAITING MAILER, THE TPO PROCEEDS TO FINALIZE THE CASE ON THE BASIS OF MATERIAL AVAILABLE ON RECO RD. 10.3 THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF THE TAXPAYER IS THEREFORE DETERMINED AS UNDER USING THE SET OF 7 (SEVEN) UNCONTROLLED COMPARABLES FINALLY SELECTED B Y THE TPO AS PER PARA 9.3 ABOVE, WITH AVERAGE PLI (OP/COST) OF 18.75%. THE TAXPAYER'S PLI (OP/COST) IN THE SEGMENT IS 5.96% AS PER PARA 3 ABOVE. PARTICULARS AMOUNT (RS.) OPERATING COST 45,12,97,631 ARMS LENGTH MEAN MARGIN 18.75% ARMS LENGTH PRICE (118.75% OF OPERATING COST) 53,59,15,937 PRICE REC EIVED 47,82,07,771 SHORTFALL BEING ADJUSTMENT U/S. 92CA 5,77,08,166 THEREFORE THE TRANSFER PRICING ADJUSTMENT MADE IN THE CASE OF THE TAX PAYER U/S. 92CA OF THE INCOME-TAX ACT, 6 1 IS OF RS.5,77,08,166/- (RUPEES FIVE CRORES, SEVENTY SEVEN LAKHS, EIGHT THOUSAND, ONE HUNDRED AND SIXTY SIX ONLY) AS DISCUSSED ABOVE. 4. ON THE OBJECTIONS BY THE ASSESSEE BEFORE THE DRP AGAINST THE ABOVE ORDER OF ASSESSMENT IN WHICH THE ADJUSTMENT W AS SUGGESTED BY THE TPO, THE DRP EXCLUDED M/S. CRISIL LTD. ON THE GROUN D THAT RPT WAS IN EXCESS OF 25% AND THEREFORE THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE DRP ALSO EXCLUDED M/S . HGS BUSINESS IT(TP)A NO.78/BANG/2015 PAGE 4 OF 7 SERVICES PVT. LTD., M/S. KILLICK AGENCIES & MARKETI NG LTD. AND PRIYA INTERNATIONAL LTD. FROM THE LIST OF COMPARABLE COMP ANIES ON THE GROUND THAT THESE COMPANIES WERE FUNCTIONALLY NOT COMPARABLE WI TH THE ASSESSEE. AT THIS STAGE, WE MAY MENTION THAT THE SERVICES RENDER ED BY THE ASSESSEE TO ITS AE WAS INVESTMENT ADVISORY SERVICES, OCCUPATION AL DEVELOPMENT MANAGEMENT, PROJECT MANAGEMENT AND RESEARCH AND VAL UATION OF PROPERTY. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE GROUND S OF APPEAL OF THE REVENUE IS AS FOLLOWS:- 1. THE ORDER OF THE DISPUTE RESOLUTION PANEL IS OP POSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE DRP ERRED IN HOLDING THAT NO PROPER OPPORTUN ITY OF BEING HEARD WAS GIVEN TO THE ASSESSEE BEFORE FINALI ZING THE COMPARABLES/TP ADJUSTMENT WITHOUT APPRECIATING THE FACT THAT A PROPER OPPORTUNITY OF BEING HEARD WAS GIVEN TO THE ASSESSEE VIDE SHOW CAUSE NOTICE DATED 01.01.2014 AND THERE WAS NO RESPONSE FROM THE ASSESSEE SIDE FOR THE NOTICE. 3. THE DRP ERRED IN DIRECTING THE TPO TO EXCLUDE M/ S. CRISIL LTD FROM THE LIST OF COMPARABLE, HOLDING TH AT THE RPT IN THIS CASE HAS EXCEEDED 2570 WITHOUT APPRECIATING TH E FACT THAT THE COMPARABLE WAS SELECTED BY THE TAXPAYER IN THE TP D OCUMENTATION. 4. THE DRP ERRED IN DIRECTING THE TPO TO EXCLUDE M/ S.HGS BUSINESS SERVICES PVT LTD., M/S. KILLICK AGENCIES & MARKETING LTD., M/S. PRIYA INTERNATIONAL LTD FROM THE LIST OF FINAL COMPARABLES, BEING FUNCTIONALLY INCOMPARABLE WITHOUT APPRECIATIN G THE FACT THAT THESE COMPANIES QUALIFY ALL THE QUALITATIVE AND QUA NTITATIVE FILTERS APPLIED BY THE TPO. 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE DRP BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. IT(TP)A NO.78/BANG/2015 PAGE 5 OF 7 6. THE APPELLATE CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 6. AS FAR AS GROUND NOS. 1, 5 & 6 ARE CONCERNED, TH ESE ARE GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. 7. GROUND NO.2 DOES NOT REQUIRE ANY SPECIFIC ADJUDI CATION BECAUSE NO PREJUDICE WOULD BE CAUSED BY THE DRP GRANTING SPECI FIC OPPORTUNITY OF BEING HEARD, DESPITE THE AO HAVING AFFORDED OPPORTU NITY TO THE ASSESSEE. 8. AS FAR AS GROUND NO.3 IS CONCERNED, THE ADMITTED FACTUAL POSITION IS THAT THE COMPUTATION OF RPT WAS FILED BEFORE THE DR P AND HAS BEEN SPECIFICALLY MENTIONED BY THE DRP IN PARA 6.3 OF IT S ORDER. THEREFORE, THE FACT THAT THE ASSESSEE CHOSE THIS COMPANY AS A COMP ARABLE, DOES NOT FURTHER THE CASE OF THE REVENUE. FURTHER, IT WAS A LSO POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT CRISIL LTD. WAS CHOSE N BY THE ASSESSEE AS A COMPARABLE COMPANY ONLY ON THE BASIS OF THE FINAN CIAL DATA FOR THE 3 FINANCIAL YEARS, 2005-06, 2006-07 & 2007-08. THE T PO, HOWEVER, TOOK THE FINANCIAL DATA ONLY FOR THE FY 2007-08 AND RETAINED THIS COMPANY AS A COMPARABLE. THEREFORE, IT IS NOT CORRECT TO SAY T HAT THIS COMPANY WAS ASSESSEES OWN COMPARABLE CHOSEN IN THE TP DOCUMENT ATION AND THEREFORE SHOULD NOT BE EXCLUDED. 9. AS FAR AS GROUND NO.4 RAISED BY THE REVENUE IS C ONCERNED, THE COMPARABLE COMPANY HGS BUSINESS SERVICES PVT. LTD. WAS EXCLUDED BY THE DRP FOR THE REASON THAT THIS COMPANY WAS ENGAGE D IN PAYROLL PROCESSING AND COMPLIANCES, MANAGEMENT OF LABOUR AN D LEGAL COMPLIANCES, WHICH CANNOT BE COMPARED WITH THE FUNC TIONS PERFORMED BY THE ASSESSEE. AS FAR AS KILLICK AGENCIES & MARKETI NG LTD. IS CONCERNED, THE DRP CAME TO THE CONCLUSION THAT THIS COMPANY CONDUC TS BUSINESS AS AN IT(TP)A NO.78/BANG/2015 PAGE 6 OF 7 AGENT OF FOREIGN PRINCIPALS AND DEALS IN MARITIME E QUIPMENT. THE RECEIPTS ARE MAINLY IN THE NATURE OF COMMISSION INCOME AND S ERVICE CHARGES. THE DRP, THEREFORE, CAME TO THE CONCLUSION THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. AS FAR AS COMPARABLE VIZ., PRIYA INTERNATIONAL LTD. IS CONCERNED, THE DRP FOUN D THAT THIS COMPANY WAS PREDOMINANTLY A TRADING COMPANY WITH INVENTORIES CO NSTITUTING 40.86% OF ITS TOTAL ASSETS. THEREFORE, IT WAS CONCLUDED THAT THI S COMPANY WAS NOT FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. WHEN WE COMPARE THE ORDER OF DRP WITH THE FUNCTIONAL PROFILE OF THE ASS ESSEE, WE CAN ONLY UPHOLD THE CONCLUSIONS OF THE DRP. THUS, WE DO NOT FIND ANY MERIT IN GROUND NO.4 RAISED BY THE REVENUE ALSO. 10. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF MARCH, 2019. SD/- SD/- ( G. MANJUNATHA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE - PRESIDENT BANGALORE, DATED, THE 15 TH MARCH, 2019. / D ESAI S MURTHY / IT(TP)A NO.78/BANG/2015 PAGE 7 OF 7 COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.