GARTNER INIDA RESEARCH & ADVISORY SERVICES P. LTD, MUMBAI V. ACIT 10(1), MUMBAI

ITA 7800/MUM/2010

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6676 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 28-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RIGNESH K DAS LD
• Assessee Lawyers: SHAMINA MENONLD ARS
• Keywords: Transfer pricing
• Section: 143(3); 92

Judgement Text

1 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T A.NO.7800/MUM/2010 ( / ASSESSMENT YEAR: 2006-07) M/S. GARTNER INDIA RESEARCH & ADVISORY SERVICES PRIVATE LTD. RAHEJA TOWERS, 2 ND FLOOR C-30, G BLOCK, BANDRA-KURLA COMPLEX BANDRA (EAST), MUMBAI-400 051. / VS. A CIT CIRCLE - 6(3) 5 TH FLOOR, ROOM NO.522, AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020. ./ ./PAN/GIR NO. AACCA-0176-C ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI FARROKH V. IRANI & MS. SHAMINA MENON-LD. ARS / RESPONDENT BY : SHRI RIGNESH K. DAS- LD.DR !'# / DATE OF HEARING : 18/07/2019 $%'# / DATE OF PRONOUNCEMENT : 30/07/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2006-07 CONTEST THE FINAL ASSESSMENT OR DER DATED 24/08/2010 2 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 PASSED BY LD. ASSISTANT COMMISSIONER OF INCOME TAX- 10(1), MUMBAI [AO] U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1 961 PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL-1, MUMBA I U/S 144C(5) DATED 14/07/2010 ON CERTAIN GROUNDS OF APPEAL. IN THE APP EAL, THE ASSESSEE HAS CHALLENGED THE ADDITIONS ON ACCOUNT OF TRANSFER PRI CING ADJUSTMENT AS WELL AS NON-TRANSFER PRICING ADJUSTMENTS, AS MADE BY LOW ER AUTHORITIES. TRANSFER PRICING GROUNDS 2.1 ALTHOUGH THE ASSESSEE HAS RAISED AS MANY AS 9 G ROUNDS OF APPEAL, HOWEVER, LD. SR. COUNSEL FOR ASSESSEE, SHRI FARROKH V. IRANI, HAS SUBMITTED THAT THE ASSESSEE, UNDER THE APPEAL, IS PITCHING ON LY FOR THE EXCLUSION OF 4 COMPARABLE ENTITIES SINCE THE EXCLUSION OF THE SAME WOULD BRING THE MEAN MARGINS OF COMPARABLE ENTITIES WITHIN THE TOLERANCE RANGE OF + 5% AS PROVIDED U/S 92C(2). IT HAS BEEN SUBMITTED THAT THE SE COMPARABLE ENTITIES, IN VARIOUS ORDERS OF THE TRIBUNAL, HAVE BEEN FOUND TO BE NON-COMPARABLE TO ENTITIES HAVING SIMILAR FUNCTIONAL PROFILE AS THAT OF THE PRESENT ASSESSEE. KEEPING IN VIEW THE SAID SUBMISSIONS, HENCEFORTH, O UR ADJUDICATION SHALL REMAIN CONFINED TO SELECTION OF THESE COMPARABLE EN TITIES ONLY. HENCE, OTHER ISSUES RAISED UNDER THE TRANSFER PRICING GROU NDS ARE NOT BEING TAKEN UP, AS PER THE SUBMISSIONS OF LD. SR. COUNSEL. 2.2 THE ASSESSEE IS STATED TO BE ENGAGED IN PROVIDI NG RESEARCH SUPPORT / MARKETING SUPPORT SERVICES TO ITS ASSOCIATED ENTERP RISE [AE] NAMELY M/S GARTNER IRELAND. THESE SERVICES HAVE BEEN CLASSIFIE D AS ITES / BPO SERVICES. DURING THE YEAR UNDER CONSIDERATION, IT E ARNED REVENUE OF RS.602.58 LACS BY PROVIDING RESEARCH SUPPORT SERVIC ES TO ITS AE AND IN ITS 3 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 TRANSFER PRICING [TP] STUDY, BENCHMARKED THE SAME U SING TRANSACTIONAL NET MARGIN METHOD [TNMM] AS THE MOST APPROPRIATE ME THOD [MAM], PROFIT LEVEL INDICATOR [PLI] BEING OPERATING PROFIT /COST. THE FUNCTIONAL PROFILE OF THE ASSESSEE HAS BEEN ACCEPTED TO BE ITES SERVICE P ROVIDER. 2.3 THE ASSESSEE, IN ITS TP STUDY, REFLECTED OWN MA RGIN OF 13.24% AS AGAINST MEAN MARGIN OF 10.57% OF ELEVEN ENTITIES BA SED ON THREE YEARS WEIGHTED AVERAGE PLI. HOWEVER, FINDING FALLACY IN T HE SAME, LD. TPO CONDUCTED FRESH SEARCH USING PROWESS AND CAPITALINE DATABASES AND IDENTIFIED 13 COMPARABLE ENTITIES WITH MEAN MARGIN OF 24%. ALTHOUGH THE ASSESSEE AGITATED THE SELECTION OF COMPARABLE ENTIT IES, HOWEVER, THE SAME COULD NOT CONVINCE LD. TPO. FINALLY, 14 ENTITIES WE RE ACCEPTED IN FINAL SET OF COMPARABLE WITH MEAN PLI OF 23.33%. IN THE PROCESS OF SELECTION, MOST OF THE ENTITIES SELECTED BY THE ASSESSEE GOT REJECTED. A RELIEF OF 1.96% WAS PROVIDED ON ACCOUNT OF WORKING CAPITAL ADJUSTMENT A ND THE NET PLI WAS WORKED OUT TO BE 21.36%. APPLYING THE SAME, LD. TPO PROPOSED TRANSFER PRICING [TP] ADJUSTMENT OF RS.43.22 LACS VIDE ITS O RDER U/S 92 CA (3) DATED 20/10/2009. 2.4 INCORPORATING THE PROPOSAL OF LD. TPO, DRAFT AS SESSMENT ORDER WAS PASSED ON 30/11/2009, WHICH WAS SUBJECTED TO OBJECT IONS BEFORE LD. DRP. HOWEVER, LD. DRP CONFIRMED THE ADJUSTMENT AND CONSE QUENTLY, FINAL ASSESSMENT ORDER WAS PASSED ON 24/08/2010 WHEREIN T HE ASSESSEE WAS SADDLED WITH AFORESAID ADJUSTMENT. AGGRIEVED, THE A SSESSEE IS IN FURTHER APPEAL BEFORE US. 4 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 2.5 THE LD. SR. COUNSEL, PLACED ON RECORD, A CHART TO SUBMIT THAT THE ASSESSEE IS PITCHING FOR EXCLUSION OF FOLLOWING 4 E NTITIES, RELYING UPON VARIOUS ORDERS OF TRIBUNAL FOR SAME ASSESSMENT YEAR RENDERED IN CASES OF ASSESSEES HAVING SIMILAR FUNCTIONAL PROFILE: - OUR ADJUDICATION TO THE SAME WOULD BE AS FOLLOWS: - (I) ASIT C.MEHTA FINANCIAL SERVICES LTD. (EARLIER K NOWN AS NUCLEUS NETSOFT & GIS INDIA LTD. THE LD. AR HAS OBJECTED TO INCLUSION OF THIS ENTITY ON THE GROUND THAT THIS ENTITY WAS FUNCTIONALLY NOT COMPARABLE TO THE ASSES SEE SINCE IT WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AS EVIDENT FROM ITS ANNUAL REPORT. IT HAS FURTHER BEEN SUBMITTED THAT S EGMENTAL RESULTS OF THE ENTITY ARE NOT AVAILABLE AND THEREFORE, IT COULD NO T BE TREATED AS A COMPARABLE ENTITY. OUR ATTENTION HAS BEEN DRAWN TO CATENA OF DECISION OF VARIOUS BENCHES OF THE TRIBUNAL TO FORTIFY THE SUBM ISSIONS. UPON DUE CONSIDERATION, WE FIND THAT HYDERABAD BENC H OF TRIBUNAL, ON SIMILAR FACTUAL MATRIX, IN HSBC ELECTRONIC DATA PROCESSING INDIA LTD. V/S CIT [38 TAXMANN.COM 141] AND IN ANOTHER DECISION TITLED AS TNS INDIA PVT. LTD. V/S ACIT [48 TAXMANN.COM 80] HAS DIRECTED FOR EXCLUSION OF THIS ENTITY ON THE GROUND OF CHANGE OF BUSINESS MODEL. B OTH THE DECISIONS ARE FOR SAME AY AND RENDERED IN THE CONTEXT OF ASSESSEE S HAVING SIMILAR NO. NAME OF ENTITY PLI ( %) (I) ASIT C.MEHTA FINANCIAL SERVICES LTD. 34.52 (II) GOLDSTONE INFRATECH LTD. 29.01 (III) MAPLE ESOLUTIONS LTD. 32.66 (IV) VISHAL INFORMATION TECHNOLOGIES LTD. 48.03 5 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 FUNCTIONAL PROFILE. THE OTHER DECISION AS PLACED ON RECORD ALSO SUPPORT THE EXCLUSION OF THIS ENTITY. FACTS BEING PARI-MATERIA THE SAME, WE DIRECT FOR EXCLUSION OF THIS ENTITY. (II) GOLDSTONE INFRATECH LTD. (EARLIER GOLDSTONE TE LESERVICES LTD.) SIMILAR ARGUMENTS HAVE BEEN ADVANCED TO SUBMIT THAT THIS ENTITY FAILS EXPORT TURNOVER FILTER OF 25% AS APPLIED BY LD. TPO. IT HA S BEEN SUBMITTED THAT BPO DIVISION OF THE ENTITY CONSTITUTE INSIGNIFICANT PORTION OF OVERALL FUNCTIONAL PROFILE AND COULD NOT BE TREATED AS COMPARABLE ENTI TY. RELIANCE HAS BEEN PLACED ON CATENA OF DECISION OF VARIOUS BENCHES OF THE TRIBUNAL TO FORTIFY THE SUBMISSIONS. WE FIND THAT HYDERABAD BENCH OF TRIBUNAL, ON SIMILA R FACTUAL MATRIX, IN HSBC ELECTRONIC DATA PROCESSING INDIA LTD. V/S CIT [38 TAXMANN.COM 141], VIDE PARA 10.1 OF THE ORDER, DIRECTED FOR EXCLUSION OF THIS ENTITY ON THE GROUND THAT FOREIGN EXCHANGE REVENUE WERE LESS THAN 1% OF TOTAL TURNOVER OF THE ENTITY AND THE REVENUE FROM BPO WAS FALLING OVER A PERIOD OF THREE YEARS. THE OTHER DECISIONS AS PLACED ON RECORD, ALS O SUPPORT THE EXCLUSION OF THIS ENTITY. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT FOR EXCLUSION OF THIS ENTITY. (III) MAPLE ESOLUTIONS LTD. RELIANCE HAS BEEN PLACED ON THE DECISION OF HSBC ELECTRONIC DATA PROCESSING INDIA LTD. V/S CIT [SUPRA] FOR THE SUBMISSIONS THAT THIS ENTITY WAS ENGAGED IN PROVIDING CALL CENTER SERVICES FOR W HICH FAR ANALYSIS WOULD BE QUITE DIFFERENT IN CONTRAST TO THE ENTITIES ENGA GED IN PROVIDING BPO SERVICES. IT HAS FURTHER BEEN SUBMITTED THAT THIS E NTITY HAS SIGNIFICANT 6 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 INTANGIBLE ASSETS OF MORE THAN 21% OF TOTAL FIXED A SSETS WHICH WOULD MAKE THIS ENTITY NON-COMPARABLE. WE FIND THAT THE COORDINATE BENCH, AT PARA 12.1, ON SIMILAR FACTUAL MATRIX, HAS DIRECTED FOR EXCLUSION OF THIS ENTITY ON THE GR OUND OF UNRELIABILITY OF DATA. RELIANCE HAS BEEN PLACED ON THE DECISION OF HYDERAB AD BENCH AS WELL AS DELHI BENCH TO ARRIVE AT SUCH A CONCLUSION. THEREFO RE, FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL, WE DIRECT FOR EXCL USION OF THIS ENTITY. (IV) VISHAL INFORMATION TECHNOLOGIES LTD. PITCHING FOR EXCLUSION OF THIS ENTITY, IT HAS BEEN SUBMITTED THAT THIS ENTITY HAS OUTSOURCED ITS WORK INSTEAD OF CARRYING OUT THE WOR K BY ITSELF WHICH IS EVIDENT FROM ITS ANNUAL REPORT. THE BUSINESS MODEL BEING DIFFERENT, LD. SR. COUNSEL HAS PLEADED FOR EXCLUSION OF THIS ENTITY. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF PR.CIT V/S PTC SOFTWARE INDIA PVT. LTD. [ITA NO. 598 OF 2016] HAS CONFIRMED THE STAND OF THE TRIBUNAL IN EXCLUDING THIS ENTITY ON THE GROUND OF NON-COMPARABLE BUSINESS MODEL. THE OTHER DECISIONS AS PLACED ON RE CORD ALSO SUPPORTS THE EXCLUSION OF THIS ENTITY. RESPECTFULLY FOLLOWING TH E SAME, WE DIRECT FOR EXCLUSION OF THIS ENTITY. 2.6 IN RESULTS, THE TRANSFER PRICING GROUNDS STANDS PARTLY ALLOWED TO THE EXTENT OF EXCLUSION OF THESE 4 COMPARABLE ENTITIES. THE LD. TPO / LD. AO IS DIRECTED TO RECOMPUTE THE TP ADJUSTMENT, IF ANY. NON-TRANSFER PRICING GROUNDS 3. IN GROUND NO. 2, THE ASSESSEE IS AGGRIEVED BY AD HOC DISALLOWANCE OF 20% OF COMMUNICATION EXPENSES. DURING ASSESSMENT PR OCEEDINGS, IT 7 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 TRANSPIRED THAT THE ASSESSEE DEBITED AN AMOUNT OF R S.18.68 LACS ON ACCOUNT OF COMMUNICATION EXPENSES REIMBURSED TO ITS EMPLOYEES. THE LD. AO PROPOSED DISALLOWANCE OF 40% AGAINST THE SAME TO ACCOUNT FOR PERSONAL ELEMENT. THE LD. DRP REDUCED THE SAME TO 2 0%. IT HAS BEEN ADMITTED POSITION BEFORE US THAT THE ISSUE STOOD SQ UARELY COVERED IN ASSESSEES FAVOR BY THE DECISION OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR AY 2004-05 ITA NO.4719/MUM/2019 ORDER DATED 12/04/2 013, A COPY OF WHICH HAS BEEN PLACED ON RECORD. FACTUAL MATRIX BEI NG SIMILAR, RESPECTFULLY FOLLOWING THE EARLIER DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE, WE DELETE THE ADHOC DISALLOWANCE OF 20% AS SUSTAINED B Y LD. DRP AND ALLOW THIS GROUND OF APPEAL. 4. GROUND NO. 3 CONTEST LEVY OF INTEREST U/S 234, W HICH BEING MANDATORY & CONSEQUENTIAL IN NATURE, WOULD NOT REQUIRE ANY AD JUDICATION ON OUR PART. SIMILARLY, GROUND NO. 4 CONTEST INITIATION OF PENAL TY PROCEEDINGS. THE SAME BEING PREMATURE, ALSO DO NOT REQUIRE ANY ADJUDICATI ON ON OUR PART. 5. THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) & && & / JUDICIAL MEMBER & && & / ACCOUNTANT MEMBER & MUMBAI; DATED : 30/07/2019 SR.PS:-JAISY VARGHESE 8 ITA NO.7800/MUM/2010 GARTNER INDIA RESEARCH & ADVISORY SERVICES PVT. LTD . ASSESSMENT YEAR 2006-07 / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT 3. %% ( ) / THE CIT(A) 4. %% / CIT CONCERNED 5. & '# ( , % ( , / DR, ITAT, MUMBAI 6. ' *+, / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.