M/s Zeomega Infatech Private Limited , Bangalore V. Assistant Commissioner of Income TAx Circle-7(1)(2) , Bangalore

ITA 78/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5187 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 12-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Related party transaction; Transfer pricing; International transaction; TDS
• Section: 143(3); 92D; 144C; 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BENCH: BANGALORE BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT (TP) A NO. 78 /BANG/201 7 (ASSESSMENT YEAR: 20 12 - 13 ) M/S. ZEOMEGA INFOTECH PRIVATE LIMITED, 20 - 21, RAJALAKSHMI PLAZA, SOUTHEND ROAD, BASAVANAGUDI, BANGALORE - 560 004 .APPELLANT PAN AAACZ 1233F VS. ASSISTANT COMMISSIONER OF INCOME TAX, RESPONDENT. CIRCLE 7(2)(1), BANGALORE. ASSESSEE BY: SHRI NARENDRA KUMAR JAIN, ADVOCATE. REVENUE BY: SHRI MUZAFFAR HUSSAIN, CIT (D.R) DATE OF HEARING : 28.07 .20 20. DATE OF PRONOUNCEMENT : 07 .08 .20 20. O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) UNDER SECTION 144C(5) OF THE INCOME TAX ACT, 1961 DT.19.09.2016 . 2. . AT THE TIME OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT HE IS PRESSING ONL Y GROUND OF APPEAL NOS.4(D) & 6 AND SENT EMAIL ON THE SAME DAY. 2 IT(TP)A NO.78/BANG/2017 ACCORDINGLY, THE OTHER GROUNDS OF APPEAL ARE TREATED AS NOT PRESSED AND DISMISSED. THE EFFECTI VE GROUNDS OF APPEAL ARE AS UNDER: 4(D) - REJECTING ADDITIONAL COMPARABLES PROPOSED BY THE APPELLANT WITHOUT GIVING ANY COGENT REASONS AND ON UNJUSTIFIABLE GROUNDS. 6. GRANTING TDS CREDIT OF RS.78,994 AS AGAINST RS.82,440 CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME. 3. THE BRIEF FACTS OF THE CASE ARE THAT , THE ASSESSEE COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES (SDS) AND PROVIDES SOF TWARE DESIGN , CODING, TESTING, MAINTENANCE SERVICES , INNOVATIVE WEB BASED MANAGEMENT SOFTWARE AND MANAGEMENT SOLUTIONS TO ITS PARENT C OMPANY ZEE OMEGA INC. THE ASSESSEE COMPANY HAS FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012 - 13 ON 11.12.2013 WITH TOTAL INCOME OF RS.2,95,65,600 / - . SUBSEQUENTLY, N OTICE U/SEC143 (2)AND U/SEC142(1) OF THE ACT ALO NG WITH QUESTIONNAIRE WERE ISSUED. IN COMPLIANCE, THE LDAR APPEARED FROM TIME TO TIME AND THE DETAILS WERE FURNISHED. THE ASSESSING OFFICER ON PERUSAL OF FINANCIAL STATEMENTS , FIND THAT THE ASSESSEE HAS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPR ISES , EXCEEDING THE PRESCRIBED LIMITS , AND WAS REFERRED TO TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRIC E (ALP) .WHEREAS THE ASSESSEE COMPANY HAS SUBMITTED FINANCIALS DETAILS OF THE SOFTWARE DEVELOPMENT SERVICES SEGMENT WITH PLI(OP/OC) REFERRED AT PAGE 2 PARA 1.2 OF THE TPO ORDER AS UNDER : 3 IT(TP)A NO.78/BANG/2017 4. THE ASSESSEE HA S INTERNATIONAL TRANSACTIONS REFERRED AT PAGE 3 PARA 3 OF THE TPO ORDER AS UNDER: T HE ASSESSEE COMPANY HAS APPLIED TNMM METHOD AS MOST APPROPRIATE M ETHOD (MAM) AND CALCULATED PLI(OP/OC). THE TPO HA S ISSUED LETTER CALLING FOR DOCUMENTS REQUIRED UNDER SECTION 92D ALONG WITH FINANCIAL S, ANNUAL R EPORT AND COPIES OF AGREEMENT. THE ASSESSEE COMPANY HAS SUBMITTED THE DETAILS . THE TPO ON PERUSAL OF THE TP DOCU MENT FOUND THAT THE ASSESSEE HAS SELE CTED 7 COMPARABLES IN SOFTWARE DEVELOPMENT SERVICES SEGMENT AND APPLIED THE FILTER S . WHEREAS , THE TPO HAS REJECTED THE TP STUDY AND HAS SELE CTED THE COMPARABLES AND TESTED THE FILTERS. 4 IT(TP)A NO.78/BANG/2017 THE FINAL SET OF COMPARABLES SELECTED BY THE TPO AFTER ANALYSIS AS PER PAGE 11 PARA 8.3 OF TPO ORDER AS UNDER : THE TPO AFTER GRANTING THE WORKING CAPITAL ADJUSTMENT HAS DETERMINED THE PLI OF AS SESSEE, OP/OC AT 14.87% AND ON THE SELECTED THE COMPARABLES AT 22.63 % .FURTHER HAS COM PUTED THE ALP AT PAGE 15 PARA 12.4 OF THE ORDER AS UNDER : 5 IT(TP)A NO.78/BANG/2017 FURTHER,THE TPO HAS PASSED THE ORDER UNDER SECTION 92CA OF THE ACT DT.27.1.2016. THE D RAFT ASSESSMENT ORDER W A S PASSED UNDER SECTION 143(3) R.W.S. 144C(1) OF THE ACT ON 1.3.2016 WITH TRANSFER PRICING ADJUS TMENT AND OTHER DISALLOWANCES. WHEREAS, THE ASSESSEE HAS FILED OBJECTIONS IN FOR M 35A WITH THE DRP AGAINST THE D RAFT ASSESSMENT ORDER. THE DRP ISSUED DIRECTIONS AND PASSED THE ORDER UNDER SECTION 143(3) R.W.S. 144C ( 5) OF THE ACT DT19.09.2016 . IN COMPLIANCE TO THE DIRECTIONS OF DRP, THE FINAL ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144 C(13) OF THE ACT WAS PASSED ON 30.11.2016 DETERMINING THE TOTAL INCOME OF RS.4,34,28,753 / - . AGGRIEVED BY THE FINAL ASSESSMENT ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 5. AT THE TIME OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE RESTRICTED HIS ARGUMENTS TO THE EXTENT OF GROUND OF APPEAL N O . 4(D) AND 6, AND FILED CHART, PAPER 6 IT(TP)A NO.78/BANG/2017 BOOK TO SUPPORT THE ARGUMENTS. FURTHER THE LDAR MADE SUBMI SSIONS ON EXCLUSION OF THREE COMP ARABLES AND GRANT OF TDS CREDIT . CONTRA THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT T HREE COMPARABLES CONSIDERED IN DETERMINING THE ALP ARE TO BE EXCLUDED AND SUPPORTED HIS ARGUMENTS WITH THE JUDICIAL D ECISIONS . I) M/S. INFOSYS LIMITED THE COMPANY HAS A TURNOVER OF RS.31,254 CRORES AND IS A GLOBAL BRAND A ND ALSO HAS INTANGIBLE ASSETS . FURTHER IT IS FUNCTIONALLY DIFFERENT AND OPERATES ON FULL FLEDGED RISK MODE L WITH VIDE RANGE OF FUNCTIONS IN COMPARISON WITH OPERATING PROFILE OF THE ASSESSEE. THE LD. AR SUBMITTED T HAT THE SAID COMPARABLE WAS EXCLUDED BY TH E CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD. VS. ACIT (TS - 320 - ITAT - 2018 (BANG) - TP) . (II) LARSEN & TOUBRO INFOTECH LIMITED - THE COMPANY HAS A TURNOVER OFRS.2,95 9 CRORES AND HAS SUBSTANTI AL ON SITE REVENUE S. FURTHER THE OPERATIONS ARE FUNCTIONALLY DIFFERENT AND DERIVED BENEFIT OF L & T BRAND. THIS COM PANY WAS EXCLUDED IN THE COORDINATE BENCH DECISION OF M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD. VS. ACIT (SUPRA). III ) PERSISTENT SYSTEMS LIMITED THIS COMPANY HAS A TURN OVER OF RS.810 CRORES AND HAS SUBSTANTIAL RELATED PARTY TRANSACTIONS. FURTHER HAS HIGH R&D EXPENSES AND IS FUNCTIONALLY DIFFERENT AND NO SEGMENTAL DATA IS AVAILABLE. THIS COMPANY WAS 7 IT(TP)A NO.78/BANG/2017 ALSO EXCLUDED IN THE COORDINATE BENCH DECISION OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD. VS. ACIT(SUPRA) . 7. WE FOUND THE ABOVE THREE COMPARABLE COMPANIES WERE EXCLUDED FROM THE LIST OF FINAL COMPARABLES IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LT D. VS. ACIT (SUPRA) REFERED AT PAGE 15 PARA 28 TO 30 WHICH ARE READ AS UNDER : 8 IT(TP)A NO.78/BANG/2017 9 IT(TP)A NO.78/BANG/2017 WE RESPECTFULLY FALLOW THE HONBLE TRIBUNAL DECISION WERE THE ABOVE THREE COMPARABLES COMPANIES ARE EXCLUDED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL FOR THE SAME ASSE SSMENT YEAR FROM THE FINAL LIST . ACCORDINGLY, WE DIRECT THE TPO TO EXCLUDE (I) INFOSYS LTD (2)LARSEN&TOUBRO INFOTECH LTD AND (III) PERSISTENT SYSTEMS FROM THE FINAL LIST OF COMPARABLES FOR DETERMINATION OF ALP. 8. THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED THAT THE ASSES SING OFFICER HAS GRANTED THE TDS CREDIT TO THE EXTENT OF RS.78,994 AS AGAINST RS .82,440 CLAIMED. WE UPON HEARING THE SUBMISSIONS , DIRECT THE ASSESSING OFFICER TO EXAMINE AND VERIFY THE CORRE CTNESS OF CLAIM AND ALLOW THE C REDIT. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD / - SD/ - ( B.R. B ASKARAN ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 07 .08. 20 20 . *REDDY GP 10 IT(TP)A NO.78/BANG/2017 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE