Harland Clarke Holdings Software India Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 784/CHNY/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3931 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 15-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: N V BALAJI
• Keywords: Transfer pricing

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO. 784/MDS/2015 / // / ASSESSMENT YEAR : 2010-11 HARLAND CLARKE HOLDINGS SOFTWARE INDIA PRIVATE LIMITED, 2 ND FLOOR, SKCL CENTRAL SQUARE -1, UNIT-C35, CIPET ROAD, THIRU-VI-KA INDUSTRIAL ESTATE, GUINDY, CHENNAI - 600032 PAN : AAHCS4742D V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 2(2), CHENNAI - 600034 ( / APPELLANT) ( !' / RESPONDENT) # / APPELLANT BY : SHRI N.V. BALAJI, ADVOCATE !' # / RESPONDENT BY : SHRI PATHLAVATH PEERYA, CIT # / DATE OF HEARING : 15.12.2016 # / DATE OF PRONOUNCEMENT : 27.12.2016 / // / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 18.02.2015 CONSEQUENT T O THE DIRECTION OF DISPUTE RESOLUTION PANEL DATED 17.12.2014. 2. SHRI N.V. BALAJI, THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF SOFTWA RE DEVELOPMENT, CONTENT DEVELOPMENT AND TUTORING SERVI CES. THE ASSESSING OFFICER REFERRED THE INTERNATIONAL TRANSA CTION TO THE 2 I.T.A. NO. 784/MDS/2015 TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA(1 ) OF THE ACT FOR MAKING ADJUSTMENTS. HAVING AGGRIEVED BY THE ADJUST MENT MADE BY THE ASSESSING OFFICER, THE ASSESSEE FILED OBJECTION S BEFORE THE DISPUTE RESOLUTION PANEL. BEFORE THE DISPUTE RESOL UTION PANEL, THE ASSESSEE PLACED 5 MORE COMPARABLE COMPANIES FOR THE PURPOSE OF MAKING ADJUSTMENT WITH REGARD TO TRANSACTION MADE B Y THE ASSESSEE WITH THE ASSOCIATED ENTERPRISES OUTSIDE THE COUNTRY . ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, THE DISPUTE RESOLUTIO N PANEL HAS NOT CONSIDERED THE COMPARABLE COMPANIES FILED BEFORE TH EM. REFERRING TO THE ADDITIONAL GROUND FILED BY THE ASSESSEE BEFO RE THIS TRIBUNAL, THE LD. COUNSEL SUBMITTED THAT 7 MORE COMPARABLE CO MPANIES NEEDS TO BE CONSIDERED FOR THE PURPOSE OF DETERMINI NG THE ARMS LENGTH PRICE (ALP) WITH REGARD TO THE TRANSACTION M ADE BY THE ASSESSEE. HENCE, THE LD. COUNSEL SUBMITTED THAT TH E MATTER MAY BE REMITTED BACK TO THE FILE OF THE TPO FOR RECONSI DERATION. 3. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITT ED THAT THE TPO AS WELL AS THE DISPUTE RESOLUTION PANEL MISUNDE RSTOOD THE BUSINESS OF THE ASSESSEE COMPANY AND ADAPTED ERRONE OUS SEGMENTATION WHILE APPLYING THE TRANSACTION NET MAR GIN METHOD AS MOST APPROPRIATE METHOD FOR DETERMINING THE INTERNA TIONAL TRANSACTION METHOD. THE TPO INCLUDED INFORMED TEC HNOLOGIES INDIA LIMITED AS ONE OF THE COMPARABLE COMPANIES WH OSE REVENUE CONSISTS OF BOTH INCOME FROM IT ENABLED SERVICES AN D RENTAL INCOME. SEGMENTAL DETAILS ARE NOT AVAILABLE IN THE FINANCIA L STATEMENT OF THAT COMPANY. THEREFORE ACCORDING TO THE LD. COUNSEL, INFORMED TECHNOLOGIES INDIA LIMITED CANNOT BE CONSIDERED AS COMPARABLE COMPANIES. SIMILARLY, OTHER COMPANIES SELECTED BY TPO ALSO 3 I.T.A. NO. 784/MDS/2015 CANNOT BE COMPARABLE WITH THAT OF THE ASSESSEE COMP ANY. ACCORDING TO THE LD. COUNSEL, FINANCIAL SIMILARITY IS ONE OF THE MOST RELEVANT FACTORS FOR THE PURPOSE OF COMPARING THE O THER COMPANIES WITH ASSESSEE COMPANY TO DETERMINE THE INTERNATIONA L TRANSACTION. THE LD. COUNSEL FURTHER SUBMITTED THAT THERE IS NO INTENTION ON THE PART OF THE ASSESSEE COMPANY TO SHIFT THE PROFIT TO OTHER TERRITORY WHILE CLAIMING DEDUCTION UNDER SECTION 10A OF THE A CT. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSING OFFICE R HAS ALSO COMMITTED AN ERROR IN NOT ALLOWING A MAT CREDIT TO BE SET-OFF AGAINST THE INCOME OF THE ASSESSEE. 4. ON THE CONTRARY, SHRI PATHLAVATH PEERYA, THE LD . DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ADDI TIONAL GROUND BY WAY OF OTHER COMPARABLE COMPANIES MAY NOT BE ADM ITTED AT THIS STAGE. ACCORDING TO THE LD. DEPARTMENTAL REPRESENT ATIVE, THE COMPARABLE COMPANIES SHOULD BE PROVIDED TO THE TPO FOR EXAMINATION. THEREFORE, THE COMPARABLE COMPANIES NOW PROVIDED BEFORE THIS TRIBUNAL CANNOT BE EXAMINED EITHER BY T HIS TRIBUNAL OR BY OTHER AUTHORITIES. ON A QUERY FROM THE BENCH, WHE N THIS TRIBUNAL BEING A FINAL FACT FINDING AUTHORITY, WHY THE COMPA RABLE COMPANIES NOW FURNISHED BY THE ASSESSEE CANNOT BE EXAMINED BY THE TPO AND THE DISPUTE RESOLUTION PANEL, THE LD. DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT IN THAT CASE THE MATT ER MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICE F OR REFERRING THE MATTER AGAIN FOR CONSIDERATION OF TPO. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER S IDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NO T IN DISPUTE THAT THE 4 I.T.A. NO. 784/MDS/2015 ASSESSEE ENGAGED IN THE BUSINESS OF SOFTWARE AND CO NTENT DEVELOPMENT APART FROM TUTORING SERVICES. FOR THE PURPOSE OF ADJUSTMENT AND TO DETERMINE THE ARMS LENGTH PRICE IT IS NECESSARY TO COMPARE THE COMPANIES WHICH ARE ENGAGED IN THE S IMILAR BUSINESS AS THAT OF THE ASSESSEE COMPANY. NOW, TH E ASSESSEE COMPANY HAS PRODUCED THE DETAILS OF 7 MORE COMPANIE S IN THE ADDITIONAL GROUNDS OF APPEAL. THEY ARE AS FOLLOWS : 1) APTECH LIMITED 2) COMPUCOM SOFTWARE LIMITED 3) EDUCOMP SOLUTIONS LIMITED 4) FIRST OBJECT TECHNOLOGIES LIMITED 5) GLOBSYN TECHNOLOGIES LIMITED 6) NIIT LIMITED 7) USHA MARTIN EDUCATION AND SOLUTIONS LIMITED THESE 7 COMPANIES ACCORDING TO ASSESSEE ARE COMPARA BLE. HOWEVER, THE LOWER AUTHORITIES HAVE NO OCCASION TO EXAMINE THESE COMPANIES. THIS TRIBUNAL IS OF CONSIDERED OPINION THAT FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE THE COMPARABLE COMPANIES FURNISHED BY THE ASSESSEE NEEDS TO BE EXA MINED. EXAMINATION OF THE ABOVE 7 COMPANIES BY THE TPO ONC E AGAIN MAY NOT PREJUDICE THE INTEREST OF JUSTICE IN ANY WA Y. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT FACTS HAS TO BE S ETTLED AT THE TRIBUNAL LEVEL OTHERWISE, THE HIGHER FORUMS MAY NOT BE ABLE TO APPRECIATE THE REASONING OF THIS TRIBUNAL WHEN THE ORDER IS CHALLENGED BY WAY OF APPEAL. THEREFORE THE TPO NE EDS TO CONSIDER THE COMPARABLE COMPANIES FURNISHED BY THE ASSESSEE AND THEREAFTER DETERMINE THE ARMS LENGTH PRICE. ACCORDINGLY, THE ORDER OF THE LOWER AUTHORITIES IS SET ASIDE AND THE ENTIRE ISSUE 5 I.T.A. NO. 784/MDS/2015 RAISED BY THE ASSESSEE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REFER THE MAT TER ONCE AGAIN TO THE TPO ALONG WITH THE 7 COMPARABLE COMPANIES FILED BY THE ASSESSEE BEFORE THIS TRIBUNAL. THE TPO SHALL RE-E XAMINE THE MATTER AFTER CONSIDERING THE 7 COMPARABLE COMPANIES FILED BY THE ASSESSEE BEFORE THIS TRIBUNAL AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. IT IS OPEN TO THE ASSESSEE TO FURNISH OBJECTIONS IN CASE IT IS AGGRIEVED BY THE DECISION TAKEN BY THE TPO. IN SUCH A CASE, THE MATTER SHALL AGAIN BE RE FERRED TO THE DISPUTE RESOLUTION PANEL ON THE BASIS OF THE OBJECT IONS RAISED BY THE ASSESSEE. THE DISPUTE RESOLUTION PANEL SHALL A LSO RECONSIDER THE MATTER AFRESH IN ACCORDANCE WITH PROVISIONS OF SECTION 144C AND THEREFORE ISSUE DIRECTION TO THE ASSESSING OFFI CER AFTER DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF IN TERNATIONAL TRANSACTION WITH ASSOCIATED ENTERPRISES. 6. WITH THE ABOVE OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 27 TH DECEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, /DATED, THE 27 TH DECEMBER, 2016. JR. 6 I.T.A. NO. 784/MDS/2015 # ! $ % $ /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. &' ( ) /CIT(A) 4. &' /CIT 5. ! $ /DR 6. () /GF.