DCIT, Bangalore V. M/s Webex Communications India Pvt. Ltd., Bangalore

ITA 782/BANG/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9406 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-03-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Set aside

Judgement Text

IT(TP)A.782/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T(TP).A NO.782/BANG/2015 (ASSESSMENT YEAR : 2010-11) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -7(1)(2), BENGALURU .. APPELLANT V. M/S. WEBEX COMMUNICATIONS INDIA P. LTD, NO.2, NORTH PARK ROAD, KUMARA PARK EAST, BENGALURU 560001 .. RESPONDENT PAN : AABCC0256A ASSESSEE BY : SHRI. RAJAN VORA, CA REVENUE BY : SMT. NEERA MALHOTRA, CIT-DR HEARD ON : 27.03.2019 PRONOUNCED ON : 05.04.2019 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE DCIT, CIRCLE -7(1)(2), BENGALURU, DT.29.01.2 015, PASSED U/S.143(3) R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961, IN PURSUANCE TO THE DIRECTIONS OF THE DRP, FOR THE ASS ESSMENT YEAR 2010-11. IT(TP)A.782/BANG/2015 PAGE - 2 02. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 1. THE DRP ERRED IN EXCLUDING PERSISTENT SYSTEMS A ND SOLUTIONS LTD FROM THE LIST OF COMPARABLES FOR SOFT WARE DEVELOPMENT SERVICES EVENTHOUGH IT WAS SATISFYING A LL THE QUANTITATIVE AND QUALITATIVE FILTERS. 2. THE DRP ERRED IN DIRECTING THE TPO / AO TO INCLU DE THE FOREIGN EXCHANGE LOSS / GAIN FOR DETERMINING THE PR OFIT LEVEL INDICATOR OF THE ASSESSEE IN TRANSFER PRICING ANALY SIS WITHOUT ASCERTAINING THE NEXUS WITH THE BUSINESS ACTIVITY O F THE ASSESSEE EVEN THOUGH IT IS NOT OPERATING IN NATURE. 3. THE DRP ERRED IN DIRECTING THE TPO TO GRANT RISK ADJUSTMENT WITHOUT ANALYSING THE DIFFERENCE IN RISK LEVEL BETWEEN THE TESTED PARTY AND THE UNCONTROLLED COMPA RABLES AND WITHOUT ADVISING ANY REASONABLE ACCURATE METHOD OF ARRIVING AT IT AS PER RULE 10B(3) OF INCOME TAX RULES 1962. 03. APROPOS GROUND NO1 LD. DR FOR THE REVENUE HAD S UBMITTED THAT THE ORDER PASSED BY THE DRP U/S.154 R.W.S.144C IS CRYPTIC AS THE DRP HAD EXCLUDED THE PERSISTENT SYSTEMS & SOLUT IONS LTD WITHOUT GIVING ELABORATE AND DETAILED FINDING. 04. LD AR HAD SUBMITTED THAT THIS GROUND BE SENT B ACK TO THE FILE OF DRP FOR FRESH DECISION 05. IN THIS REGARD, WE MAY POINT OUT THAT IN THE AS SESSEES APPEAL BEARING IT(TP)A.545/BANG/2015, WE HAD ALREADY REMAN DED BACK THE ENTIRE TP ISSUES TO THE FILE OF THE DRP FOR DEN OVO EXAMINATION OF THE ENTIRE CASE BY PASSING A DETAILED AND REASON ED ORDER. THEREFORE RESPECTFULLY FOLLOWING THE SAME RATIO, WE ALLOW THE GROUNDS RAISED BY THE REVENUE. IT(TP)A.782/BANG/2015 PAGE - 3 06. GROUND NO.2, DEALS WITH FOREIGN EXCHANGE LOSS A ND GROUND NO.3, DEALS WITH THE RISK ADJUSTMENT. 07. IT WAS SUBMITTED BY THE LD. DR THAT THE DRP HAD DECIDED THE ISSUE ON THE BASIS OF THE DECISION OF THE HYDERABAD TRIBUNAL IN THE MATTER OF DHL EXPRESS VS ACIT [(2011)11 TAXMAN.COM 40] WITHOUT TAKING INTO ACCOUNT THAT THERE WAS NO SPECI FIC GROUND AND THE DETAILS PROVIDED BY THE ASSESSEE. FURTHER THE LD. DR RELIES UPON THE DECISION OF THE COORDINATE BENCH IN THE MATTER OF MERCEDEZ BENZ R & D INDIA P. LTD V. ACIT [(2018) 90 TAXMANN.COM 3 00], WHEREIN THE TRIBUNAL, ON IDENTICAL FACTS HAD DEALT WITH FOR EIGN EXCHANGE GAIN / LOSS IN PARA 6.1 AND 6.2.1 AS UNDER : 6.1 IN THESE GROUNDS, THE REVENUE CONTENDS THAT THE DR P HAS ERRONEOUSLY CONSIDERED FOREIGN EXCHANGE GAIN / LOSS AS PART OF OPERATING INCOME WHEN THE TPO HAS EXCLUDED THIS ITE M WHILE COMPUTING THE OPERATING MARGINS OF THE ASSESSEE. ON THE CONTRARY, THE ASSESSEE CONTENDS THAT THE FOREIGN EXCHANGE LOS S / GAIN ARE CLOSELY LINKED TO ITS BUSINESS OPERATIONS AND THERE FORE SHOULD BE CONSIDERED AS OPERATIONAL IN NATURE AS HAS BEEN HEL D BY THE DRP. 6.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND C AREFULLY CONSIDERED THE MATERIAL ON RECORD. IN THE CASE ON H AND, THE DRP HAS ACCEPTED THE ASSESSEE'S CONTENTION THAT FOREIGN EXCHANGE LOSS / GAIN IS OPERATIONAL IN NATURE, BY FOLLOWING THE DEC ISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SAP LABS LTD. V. ASSTT. CIT [2012] 134 ITD 253/17 TAXMANN.COM 16 (BANG.) AND OF ANOTHER CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08. WE FIND THAT ANOTHER CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE A SSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010-11 IN ITS ORDER IN IT (TP)A NOS.291 & 427/BANG/2015 DT.24.6.2016 HAS HELD THAT IF FOREI GN EXCHANGE GAIN / LOSS IS OPERATIONAL IN NATURE IF IT IS LINKE D TO THE EXPORTS / IMPORTS RELATED TO THE PARTICULAR YEAR. TO THIS EXT ENT, WE FIND NO INFIRMITY IN THE ORDER OF THE DRP. HOWEVER, THE FAC TS RELATED TO THE FOREIGN EXCHANGE GAIN IN THIS YEAR, I.E. AS TO WHET HER IT IS RELATED TO THE BUSINESS OPERATIONS AND WHETHER THEY ARE IN THE CAPITAL OR REVENUE FIELD IS NOT CLEAR FROM THE ORDERS OF THE A UTHORITIES BELOW. IT(TP)A.782/BANG/2015 PAGE - 4 THE TPO HAS ALSO NOT RENDERED ANY FINDING IN THIS R EGARD. IN THIS FACTUAL MATRIX OF THE CASE, THE FINDING OF THE DRP IS BEING SET ASIDE AND THE MATTER IS REMANDED TO THE FILE OF THE TPO F OR THE LIMITED EXTENT OF FACTUAL VERIFICATION IN THIS REGARD AS OB SERVED ABOVE, BEFORE ALLOWING IT AS OPERATIONAL IN NATURE IN KEEP ING WITH THE ORDERS OF THE CO-ORDINATE BENCH IN THE ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2010-11 (SUPRA). CONSEQUENTLY, REVE NUE'S GROUNDS AT S.NOS.2 & 3 ARE PARTLY ALLOWED FOR STATI STICAL PURPOSES . IN RESPECT OF RISK ADJUSTMENT, THE TRIBUNAL IN PARA 7.3.1 & 7.3.2, HELD AS UNDER : 7.3.1 WE HAVE HEARD BOTH PARTIES, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE DRP, AT PARA 14 OF ITS ORDER, HAD RELIED ON ITS DECISION IN THE EARLIER ASSESSMENT YEAR 2010-11 AND DIRECTED THE TPO TO ALL OW RISK ADJUSTMENT AND DECIDE THE PERCENTAGE OF RISK ADJUST MENT TO BE ALLOWED. AS A MATTER OF GUIDANCE, THE DRP REFERRED TO A DECISION OF THE ITAT, HYDERABAD IN THE CASE OF DY. CIT V. HELLOSOFT (P.) LTD. [2013] 32 TAXMANN.COM 101/57 SOT 4 WHEREIN 1% RISK ADJUSTMENT WAS ALLOWED. FROM THE A BOVE, IT IS SEEN THAT THE DRP HAS MERELY REFERRED TO A DECIS ION IN WHICH 1% RISK ADJUSTMENT WAS GRANTED AND IT IS NOT CORREC T TO SAY THAT DRP DIRECTED THAT 1% RISK ADJUSTMENT IS TO BE GRANT ED IN THIS CASE. 7.3.2 THE BANGALORE BENCHES OF THE TRIBUNAL, WHILE ALLOW ING RISK ADJUSTMENT TO CAPTIVE SERVICE PROVIDERS, AS A MATTER OF PRINCIPLE HAS HELD IN MANY CASES, ;INCLUDING THE ON E CITED (SUPRA), THAT RISK ADJUSTMENT CANNOT BE GRANTED UNL ESS THE ASSESSEE HAS SUBMITTED COMPUTATION OF THE SAME BEFO RE THE AUTHORITIES BELOW. IN THE CASE ON HAND, WE FIND THA T THOUGH THE ASSESSEE IN FORM 35A SUBMITTED BEFORE THE DRP, AT ANNEXURE/OBJECTION 13 THEREOF, MENTIONED RISK ADJUS TMENT AT 4.92%, NO SCIENTIFIC BASIS OR WORKING IN RESPECT OF THE ASSESSEE'S CLAIM VIS--VIS THE COMPARABLE COMPANIES HAD BEEN PROVIDED. EVEN ON PAGES 890 & 891 OF PAPER BOOK (AN NEXURE 9- B), NO WORKING HAS BEEN GIVEN IN RESPECT OF RISK AD JUSTMENT CLAIMED AT 6.26% VIS--VIS THE COMPARABLE COMPANIES . SINCE THE ASSESSEE HAS NOT GIVEN THE COMPUTATION OF RISK ADJUSTMENT OF THE ASSESSEE VIS--VIS THE COMPARABLE COMPANIES, WE HOLD THAT THE ASSESSEE SHALL NOT BE ENTITLED TO ANY RISK ADJU STMENT AND ACCORDINGLY REVERSE THE DRP'S DECISION GRANTING THE ASSESSEE IT(TP)A.782/BANG/2015 PAGE - 5 RISK ADJUSTMENT. IN COMING TO THIS VIEW, WE PLACE R ELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SYNIVERSE TELEDATA SYSTEMS (P.) LTD. (SUPRA) WHI CH COVERS THE ISSUE SQUARELY IN FAVOUR OF THE REVENUE IN THE LIGH T OF THE FACTUAL MATRIX OF THE CASE. CONSEQUENTLY, GROUND NO.4 OF RE VENUE'S APPEAL FOR ASSESSMENT YEAR 2011-12 IS ALLOWED. 08. PER CONTRA, THE LD. AR HAD SUBMITTED THAT THE A SSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS HAD PROVIDED TH E DETAILS OF RISK ADJUSTMENT AND OUR ATTENTION WAS DRAWN TO THE OBJEC TION AT ANNEXURE-18 FOR THE RISK ADJUSTMENT. 09. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. AS WE HAD ALREADY REMANDED BACK TP GROUNDS TO THE F ILE OF THE DRP, FURTHER WE FEEL THAT THE VARIOUS COMPANIES WIL L BE INCLUDED / EXCLUDED BASED ON OUR REMANDING BACK THE ENTIRE TP ISSUES TO THE FILE OF DRP. IN VIEW OF THE ABOVE, AND MORE PARTIC ULARLY WHEN THE ASSESSEE HAD PROVIDED THE DETAILS OF WORKING RISK A DJUSTMENT BEFORE THE DRP AS WELL AS THE AO, IN VIEW OF THE ABOVE, WE ALSO REMAND RISK ADJUSTMENT ISSUE TO THE FILE OF DRP FOR DECIDI NG AFRESH, AFTER AFFORDING OPPORTUNITY OF HEARING AND PROVIDE TIME T O EXPLAIN THE CASE OF THE ASSESSEE. WITH RESPECT TO THE GROUND NO 2 , WE HAD TAKEN CONSISTENT VIEW THAT ONLY FOREX GAIN / LOSS WHICH H AVE NEXUS WITH THE TRANSACTIONS OF THE YEAR SHALL ALONE BE TAKEN I NTO ACCOUNT. HENCE WE ALSO SENT BACK THIS ISSUE TO THE FILE OF DRP TO DECIDE A FRESH IN THE LIGHT OF MERCEDEZ BENZ R & D INDIA P. LTD V. AC IT [(2018) 90 TAXMANN.COM 300]. IT(TP)A.782/BANG/2015 PAGE - 6 10. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DAY OF APRIL, 2019. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 04.2019 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.