Compucom CSI Systems India Private Limited, Pune V. Income Tax Officer, Pune

ITA 785/PUN/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2102 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-11-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 03-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.785/PUN/2017 / ASSESSMENT YEAR : 2012-13 COMPUCOM CSI SYSTEMS INDIA PRIVATE LIMITED, LEVEL 4, TOWER-7, MAGARPATTA CITY, SEZ, HADAPSAR, PUNE 411 013 PAN : AADCC9446J VS. ITO, WARD-1(2), PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 31-01-2017 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YE AR 2012-13. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS EE IS A 98.99% SUBSIDIARY OF CCSI-INTERNATIONAL HOLDING LTD., MAURI TIUS WHICH IN TURN IS 100% SUBSIDIARY OF COMPUCOM INC., USA. ASSESSEE BY SHRI AJIT JAIN REVENUE BY SHRI T. VIJAYA BHASKAR REDDY DATE OF HEARING 05-12-2019 DATE OF PRONOUNCEMENT 09-12-2019 ITA NO.785/PUN/2017 COMPUCOM CSI SYSTEMS INDIA PVT. LTD., 2 COMPUCOM, USA. IT IS AN I.T. OUTSOURCING COMPANY THAT SPECIALIZES IN THE ASSESSMENT, DESIGN, PROCUREMENT, INTEGRATIO N, DEPLOYMENT AND MANAGEMENT OF ENTERPRISE I.T. INFRASTRUCTURE S. THE ASSESSEE WAS INCORPORATED IN APRIL 2010 TO PROVIDE I.T. ENABLED REMOTE INFRASTRUCTURE SUPPORT SERVICES TO THE THIRD PARTY CLIEN TS OF THE ULTIMATE PARENT COMPANY, COMPUCOM, US. THE ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOME AT NIL. CERTAIN INTERNATIONAL TRANSACTIONS WERE REPORTED IN FORM NO.3CEB. THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETER MINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. THE TPO FOUND THAT THE ASSESSEE WAS FOLLOWING THE TRANSACTIONAL N ET MARGIN METHOD (TNMM). THE ASSESSEE REPORTED AN INTERNATIO NAL TRANSACTION OF `PROVISION OF IT ENABLED REMOTE INFRASTRUCTURE SUPPORT SERVICES WITH TRANSACTED VALUE OF RS.24,68,51,557/ -. THE ASSESSEE CHOSE FOUR COMPANIES AS COMPARABLE WITH A MEAN MARGIN AT 8.22%. THE ASSESSEE COMPUTED ITS OWN MARGIN AT 17.77% TO DEMONSTRATE THAT ITS INTERNATIONAL TRANSACTION WAS AT THE ALP. T HE TPO REJECTED ALL THE COMPARABLES CHOSEN BY THE ASSESSEE AND FINALLY SELECTED FOUR NEW COMPANIES AS COMPARABLE WITH AVERAGE PR OFIT LEVEL INDICATOR (PLI) AT 32.51%, ON THE BASIS OF WHICH HE RECOMMENDED THE TRANSFER PRICING ADDITION OF RS.3.09 CRORE , THAT GOT ITA NO.785/PUN/2017 COMPUCOM CSI SYSTEMS INDIA PVT. LTD., 3 INCORPORATED IN THE DRAFT ORDER. GIVING EFFECT TO THE DIRECTIO N GIVEN BY THE DISPUTE RESOLUTION PANEL (DRP), THE AO, IN THE FINAL ASSESSMENT ORDER, MADE TRANSFER PRICING ADDITION OF RS.1 ,80,93,764/, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE TH E TRIBUNAL. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS NOT DISPUTE D ANY ASPECT OF THE DETERMINATION OF THE ALP BY THE TPO EXCEPT FOR TH E INCLUSION OF UNIVERSAL PRINT SYSTEMS LTD. (SEGMENT) WITH PLI AT 51.80%. 4. BEFORE ANALYZING THE COMPARABILITY OR OTHERWISE OF THE UNIVERSAL PRINT SYSTEMS LTD. (SEGMENT), IT IS ESSENTIAL TO ASCERTAIN THE FUNCTIONAL PROFILE OF THE ASSESSEE. THE TPO HAS NOTED TH E INTERNATIONAL TRANSACTION AS PROVISION OF IT ENABLED REMOTE INFRASTRUCTURE SUPPORT SERVICES. WE HAVE GONE THROUGH THE TP STUDY REPORT OF THE ASSESSEE, A COPY OF WHICH IS AVAILABLE AT PAGE 12 ONWARDS OF THE PAPER BOOK. DESCRIPTION OF THE BUSINESS OPERATIONS OF THE ASSESSEE HAS BEEN GIVEN THEREIN ALONG WITH THE DISC USSION ABOUT THE BUSINESS OPERATIONS AT COMPUCOM GROUP MENTIONING THAT COMPUCOM, USA SPECIALIZES IN DESIGN, PROCUREMENT, INTEGRATION, ITA NO.785/PUN/2017 COMPUCOM CSI SYSTEMS INDIA PVT. LTD., 4 DEPLOYMENT AND MANAGEMENT OF ENTERPRISE IT INFRASTRUCTURES. DESCRIPTION OF THE ASSESSEES BUSINESS OPERATIONS HAS BEEN GIVEN AT PAGE 10 AS PROVIDING `REMOTE IT INFRASTRUCTURE SUPPORT SER VICES, `REMOTE TROUBLE SHOOTING AND `SUPPORT USING IT COMMUNICATION CHANNELS. THE ASSESSEE PROVIDES ONLY OFFSHORE SUPPOR T FOR THE CONTRACTS UNDERTAKEN BY COMPUCOM, USA. THE ASSESSEE P ROVIDES SUCH SERVICES USING VOICE AND ELECTRONIC COMMUNICATION SYSTE MS. USERS FROM THE CLIENTS END COMMUNICATE THROUGH E-MAILS, TELEPHONE AND CHATS. 5. ON GOING THROUGH THE ABOVE DESCRIPTION OF THE BUSINESS OPERATIONS OF THE ASSESSEE, IT CAN BE SEEN THAT THE ASSESS EE IS PROVIDING INFRASTRUCTURE SUPPORT I.T. SERVICES AS A HELP DE SK. THESE SERVICES ARE PROVIDED FROM THE ASSESSEES OWN PREMISES IN INDIA AND THEY CATER TO THE FOREIGN CLIENTS OF COMPUCOM, USA. WITH THE ABOVE UNDERSTANDING OF THE FUNCTIONAL PROFILE OF THE ASSESS EE COMPANY, WE NOW PROCEED TO EXAMINE WHETHER UNIVERSAL PRIN T SYSTEMS LTD. IS COMPARABLE? 6. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPAN Y BY STATING THAT IT WAS ENGAGED IN DISSIMILAR BUSINESS, DISSIMILAR EMPLOYEE COST AND EXCEPTIONAL HIGH MARGINS. THE TPO REJECTE D THE ITA NO.785/PUN/2017 COMPUCOM CSI SYSTEMS INDIA PVT. LTD., 5 ASSESSEES CONTENTION OF HIGH PROFIT MARGIN ON PAGE 12 OF HIS ORDER BY HOLDING THAT ONCE ARITHMETIC MEAN OF PROFIT MARGINS OF THE COMPARABLES IS TAKEN, THERE REMAINS NO NET TO EXCLUDE COMP ANIES WITH SUPER PROFIT MARGINS. THE TPO, HOWEVER, DID NOT DISCU SS THE OTHER DISSIMILARITIES POINTED OUT BY THE ASSESSEE. THE DRP OB SERVED THAT THE TPO SELECTED ONLY THE `PREPRESS BPO SEGMENT OF THIS COMPANY, WHICH WAS COMPARABLE TO THE ITES ACTIVITIES OF THE ASSESSEE. NO RELIEF WAS, THEREFORE, ALLOWED BY THE DRP ON THIS COUNT. THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL URGING FOR THE EXCLUSION OF THIS COMPANY. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RELEVAN T MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE ANNUAL REPORT OF THIS COMPANY, A COPY OF WHICH HAS BEEN PROVIDED AT PAGE 457 ONWARDS OF THE PAPER BOOK. THE TPO HAS TAKEN SEGMENT AL MARGIN OF THIS COMPANY, COMPUTED AT 51.80%. SEGMENT SO TAKEN IS PREPRESS-BPO EXPORT. WE HAVE GONE THROUGH THE ADDITION AL INFORMATION ON THE PROFIT AND LOSS ACCOUNT, GIVEN AT PAGE 5 40 OF THE PAPER BOOK, WHICH HAS A BREAK UP OF PREPRESS-BPO EXP ORT REVENUE OF RS.6,11,96,400/-. OUR ATTENTION HAS NOT BE EN DRAWN BY THE LD. DR TOWARDS FURTHER DETAILS OF PREPRESS-BPO EXPORT SERVICES IN THE ANNUAL REPORT OF THE COMPANY. AS THIS COMPANY IS EN GAGED ITA NO.785/PUN/2017 COMPUCOM CSI SYSTEMS INDIA PVT. LTD., 6 IN PRINTING BUSINESS, PROBABLY THE PREPRESS-BPO EXPORT SER VICES MAY BE OF THE NATURE OF SERVICES AS ARE UTILIZED BEFORE THE ACTUAL PRINTING IS DONE. ANOTHER FEATURE WHICH EMERGES FROM THE A BOVE DISCUSSION IS THAT THE REVENUE OF RS.6.11 CRORE IS NOT FRO M PERFORMANCE OF SOME `PREPRESS ACTIVITIES BUT RENDERING O F BPO SERVICES IN CONNECTION WITH PREPRESS ACTIVITIES. IT IS STILL FURTHER RELEVANT TO NOTE THAT THE ASSESSEE IS ENGAGED IN PROVIDING IT ENABLED REMOTE INFRASTRUCTURE SUPPORT SERVICES THROUGH ITS HELP DESK WHICH REQUIRE TRAINED IT PROFESSIONALS VIS--VIS THE SERVICES RENDERED BY THE UNIVERSAL PRINT SYSTEMS LTD. UNDER THE PREPRESS BPO SERVIC ES. THIS FACT IS HIGHLIGHTED ON EXAMINING THE PERCENTAGE OF EMPLOY EE COSTS INCURRED BY THE ASSESSEE, WHICH IS AT 59.51% AS AGA INST ONLY 18.56% OF UNIVERSAL PRINT SYSTEMS LTD., AS HAS ALSO BEEN NO TED IN PARA 9 OF THE DRPS DIRECTION. THIS SHOWS THAT THE NATURE OF ACTIVITY DONE BY THE ASSESSEE IS QUITE DIFFERENT FROM THAT DONE BY THE UNIVERSAL PRINT SYSTEMS LTD. WE, THEREFORE, ORDER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 8. THE IMPUGNED ORDER IS SET-ASIDE AND THE MATTER IS REMITTED TO THE AO/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION AFTER EXCLUDING UNIVERSAL PRINT SYSTEMS ITA NO.785/PUN/2017 COMPUCOM CSI SYSTEMS INDIA PVT. LTD., 7 LTD. FROM THE LIST OF COMPARABLES. ON OTHER ISSUES, THE OR DER OF AO/TPO, AS AMENDED BY THE DRP, SHALL REMAIN FINAL. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH DECEMBER, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 09 TH DECEMBER, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , C / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.785/PUN/2017 COMPUCOM CSI SYSTEMS INDIA PVT. LTD., 8 DATE 1. DRAFT DICTATED ON 05-12-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 09-12-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *