Appeal details
Counselvise Citation
78821114 RSA 2008
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-01-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
23-01-2012
Assessment Year
2004-2005
Appeal Filed On
02-06-2008
Judgement Text
ITA.788/BANG/2008 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. N. BARATHVAJA SANKAR, VICE PRESIDENT AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A NO.788/BANG/2008 (ASSESSMENT YEAR : 2004-05) M/S. SPHERIS INDIA P. LTD., (FORMERLY KNOWN AS HEALTHSCRIBE INDIA P. LTD.,) 1, SPHERIS PLAZA, KORAMANGALA, BLOCK-8 BANGALORE 560 095 .. APPELLANT PAN : AAACG6644N V. INCOME-TAX OFFICER, WARD -12(2), BANGALORE .. RESPONDENT APPELLANT BY : SHRI. ARVIND V. SONDE, ADVOCATE RESPONDENT BY : SHRI. ETWA MUNDA, CIT III DATE OF HEARING : 23.01.2012 DATE OF PRONOUNCEMENT : 23.01.2012 O R D E R PER N. BARATHVAJA SANKAR, VICE PRESIDENT : THIS IS AN APPEAL PREFERRED BY THE ASSESSEE, SPHER IS INDIA P. LTD., BANGALORE, FOR THE ASSESSMENT YEAR 2004-05, A GAINST THE APPELLATE ORDER DATED. 26.03.2008 OF THE COMMISSIONER OF INCO ME-TAX (APPEALS)-IV, BANGALORE. ITA.788/BANG/2008 PAGE - 2 02. IN THIS APPEAL, THE ASSESSEE HAS BROUGHT BEFORE US FOR ADJUDICATION THE SOLITARY ISSUE RELATING TO DETERMI NATION OF ARM'S LENGTH PRICE. THE GROUNDS ARE UNDER DIFFERENT HEADS, VIZ. , TP ADJUSTMENT; REJECTION OF EXTRAORDINARY EXPENSES ; CRITERIA FOR SELECTING COMPARABLE COMPANIES ; PRESENCE OF INTANGIBLES ; CONSOLIDATED FINANCIALS OF SIPL: ADJUSTED MARGINS ;TP ANTI AVOIDANCE MECHANISM ; A ND USE OF CONTEMPORANEOUS DATA. 03. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE, SHRI. ARVIND SONDE, FILED CERTAIN ADDITIONAL EVIDEN CES. WHILE PLACING THE ADDITIONAL EVIDENCES, THE LEARNED COUNSEL SUBMI TTED AS UNDER : THE ASSESSEE WAS INCORPORATED IN THE YEAR 1993 AS H EALTH SCRIBE INDIA PVT. LTD., A WHOLLY OWNED SUBSIDIARY OF HEALTH SCRI BE INC. IN JUNE 2000, MAX INDIA ACQUIRED MAJORITY STAKE IN HEALTH S CRIBE INDIA PVT. LTD., IN DECEMBER 2003, HEALTH SCRIBE PURCHASED BA CK THE MAJORITY STAKE OWNED BY MAX INDIA IN HEALTH SCRIBE INDIA PVT LTD., IN THE YEAR 2005, HEALTH SCRIBE INC. WAS MERGED WITH SPHERIS IN C. THE NAME OF THE ASSESSEE WAS CHANGED FROM HEALTH SCRIBE INDIA P VT. LTD., TO SPHERIS INDIA PRIVATE LIMITED. IN THE YEAR 2009, T HE PARENT OF THE ASSESSEE COMPANY, SPHERIS INC FILED FOR CHAPTER XI PROCEEDINGS (BANKRUPTCY PETITION) IN THE USA AND IN THE YEAR 20 10, THE ASSETS OF SPHERIS INC AND SHARES OF THE ASSESSEE COMPANY WERE ACQUIRED BY ITA.788/BANG/2008 PAGE - 3 CBAY GROUP. WITH EFFECT FROM 1ST APRIL 2010, SPHER IS INDIA WAS MERGED WITH CBAY SYSTEMS (INDIA) PRIVATE LTD., CBA Y GROUP IS A US BASED MEDICAL TRANSCRIPTION SERVICE PROVIDER AND WA S A COMPETITOR TO THE ASSESSEE AND ITS PARENT. DURING RELEVANT A.Y.2 004-05, CBAY SYSTEMS LTD., ('CBAY USA') HAS AVAILED MEDICAL TRAN SCRIPTION SERVICES FROM THIRD PARTY SERVICE PROVIDERS BASED IN INDIA. DUE TO THE SAID TAKEOVER OF THE ASSESSEE COMPANY BY CBAY GROUP, THE ASSESSEE HAS NOW ACCESS TO THE DATA/INFORMATION OF CBAY USA IN R ESPECT OF SIMILAR TYPE OF SERVICES FROM THIRD PARTY TRANSCRIPTION VEN DORS SITUATED IN INDIA (PAGES 625 TO 670 OF PAPER BOOK NO.II). THE SERVIC ES PROVIDED BY SUCH THIRD PARTY VENDORS TO CBAY USA AND THAT PROVI DED BY THE APPELLANT TO ITS AE ARE SIMILAR IN NATURE AND HENCE CAN BE CONSIDERED COMPARABLE AND ACCORDINGLY CUP METHOD COULD BE USED TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS WITH RESPECT TO MEDI CAL TRANSCRIPTION. 04. THE LEARNED COUNSEL SUBMITTED THAT THESE MATERI ALS WERE NOT AVAILABLE FOR THE ASSESSEE, AS CBAY GROUP WAS A COM PETITOR TO THE ASSESSEE. NOW THAT THE ASSESSEE HAS BECOME PART OF CBAY GROUP, THESE MATERIALS ARE AVAILABLE FOR CONSIDERATION. HENCE I N THE FITNESS OF THINGS, THE LEARNED COUNSEL SUBMITTED THAT THESE AD DITIONAL EVIDENCES SHOULD BE ADMITTED AND CONSIDERED WHILE DETERMINING THE ARM'S LENGTH PRICE FOR THE ASSESSEE COMPANY. HE ALSO RELIED ON THE DECISION OF THE ITA.788/BANG/2008 PAGE - 4 MADRAS HIGH COURT IN THE CASE OF CIT(CENTRAL) MADRA S V. INDIAN EXPRESS (MADURAI) PVT. LTD., (140 ITR 705), FOR THE PROPOSITION THAT ADDITIONAL EVIDENCE SHOULD BE TAKEN INTO CONSIDERAT ION FOR ASCERTAINING THE CORRECT TAX LIABILITY. 05. THE COUNSEL ALSO REFERRED TO RULE 29 OF THE APP ELLATE TRIBUNAL RULES, 1963 AND SUBMITTED THAT THE CUP DATA WAS IN EXISTENCE IN THE RELEVANT YEAR UNDER CONSIDERATION. HOWEVER, THE SAM E WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF COMP LETION OF ASSESSMENT AND THE FIRST APPEAL AND HENCE, IT HAD A SUBSTANTIAL CAUSE FOR NOT BEING ABLE TO SUBMIT THESE EVIDENCES AT THA T TIME. HOWEVER, TO PROVIDE EQUITABLE JUSTICE, THE SAID DATA WHICH IS N OW AVAILABLE IN CONNECTION WITH THE RELEVANT YEAR SHOULD BE CONSIDE RED AND ADJUDICATED UPON. IN THIS REGARD, THE LEARNED COUN SEL PLACED RELIANCE ON THE FOLLOWING DECISIONS : ACIT V. NIT LTD (ITA NO.1844/DEL/2009 CIT V. TEXT HUNDRED INDIA PVT. LTD.(DEL)(ITA.2077,2 061 & 2065/2010) ELECTRA (JAIPUR) (P) LTD., V. IAC (1988) 26 ITD 236 (DELHI) ABHAY KUMAR SHROFF V. ITO (63 ITD 144) (PATNA-THIRD MEMBER) RAJMOTI INDUSTRIES V. ITO [52 ITD 286 (AHD)] ORISSA STATE CIVIL SUPPLIES CORPORATION LTD., V. DC IT[259 ITR 20 ITAT, CUTTACK] ANAIKAR TRADES AND ESTATES (P) LTD (NO.2) V. CIT [1 86 ITR 313- MAD] ITA.788/BANG/2008 PAGE - 5 THE LEARNED COUNSEL SUBMITTED THAT DURING THE RELEV ANT YEAR UNDER CONSIDERATION, CBAY, USA HAD ENTERED INTO ARRANGEME NTS FOR AVAILING MEDICAL TRANSCRIPTION SERVICES FROM ITS SUBSIDIARY CBAY INDIA AND ALSO FROM THIRD PARTIES BASED IN INDIA. HE FURTHER SUBM ITTED THAT IN THE RELEVANT YEAR, CBAY INDIA'S INTERNATIONAL TRANSACTI ONS WERE ACCEPTED TO BE AT ARM'S LENGTH BY CONSIDERING THE CUP DATA OF C BAY USA WHICH WAS AVAILING SIMILAR TYPE OF MEDICAL TRANSCRIPTION SERVICES FROM THIRD PARTIES IN INDIA. THE TRANSFER PRICING ORDERS FOR A.YS.2004-05 AND 2005-06 ARE FOUND AT PAGES 671 AND 674 OF THE PAPER BOOK-II. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTED THAT THE A PPELLANT HAD CONDUCTED A FRESH SEARCH ON PROWESS AND CAPITALINE DATABASE THAT ARE UPDATED TILL 29.09.2006 AND 10.11.2006 RESPECTIVELY , USING THE SAME DATABASE AS USED BY THE TPO AT THE TIME OF ASSESSME NT. BASED ON THE SAID FRESH SEARCH, THE ASSESSEE WAS ABLE TO FIND OU T COMPARABLE COMPANIES WHICH ARE ENGAGED IN THE MEDICAL TRANSCRI PTION BUSINESS. THE BREAK-UP OF COMPARABLE COMPANIES IS (-) 10.77% VIS--VIS ASSESSEE'S COST PLUS MARKUP (UNADJUSTED) OF 6.76%. IT WAS ALSO SUBMITTED THAT NONE OF THE COMPARABLES CONSIDERED B Y THE TPO IN HIS ORDER ARE INTO MEDICAL TRANSCRIPTION BUSINESS. THE REFORE, IT WAS REQUESTED THAT THE ADDITIONAL EVIDENCES BE ACCEPTED TO PROVIDE FAIR JUSTICE TO THE ASSESSEE. ITA.788/BANG/2008 PAGE - 6 06. PER CONTRA, THE LEARNED CIT-DR, VEHEMENTLY OPPO SED THE ADMISSION OF ADDITIONAL EVIDENCES. HE SUBMITTED TH AT THE TNM METHOD HAS BEEN ACCEPTED BY THE ASSESSEE AT TPO AND COMMISSIONER OF INCOME-TAX (APPEALS) LEVELS AND NOW BY FILING TH ESE ADDITIONAL EVIDENCES, IT CANNOT CHANGE TO CUP METHOD. 07. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIALS ON RECORD. THERE IS TRUTH IN THE SUB MISSION OF THE LEARNED COUNSEL THAT THE ASSESSEE WAS NOT HAVING AC CESS TO THE DATA OF CBAY GROUP AT THE RELEVANT POINT OF TIME AS IT WAS THE ASSESSEE'S COMPETITOR, AND NOW THAT THE ASSESSEE COMPANY HAS B EEN TAKEN OVER BY THE COMPETITOR, CBAY GROUP ITSELF, THE ASSESSEE IS HAVING ACCESS TO THE DATA OF CBAY GROUP AND HENCE, THESE ADDITIONAL EVID ENCES ARE PRODUCED AT THIS STAGE. AT THE SAME TIME, WE ARE O F THE OPINION THAT WE CANNOT ADJUDICATE BASED ON THESE ADDITIONAL EVID ENCES AT OUR LEVEL BECAUSE THE SAME WERE NOT CONSIDERED BY THE LOWER A UTHORITIES. HOWEVER, TO MEET THE ENDS OF JUSTICE, WE DEEM IT FI T AND PROPER TO ADMIT THESE ADDITIONAL EVIDENCES AND IN ORDER TO CO MPLY WITH THE PRINCIPLES OF NATURAL JUSTICE, WE ARE RESTORING THI S APPEAL WITH THE ADDITIONAL EVIDENCES TO THE FILE OF THE TPO FOR FRE SH CONSIDERATION, OF COURSE, AFTER GIVING EFFECTIVE OPPORTUNITY OF HEARI NG TO THE ASSESSEE. WE MAKE IT CLEAR AT THIS POINT OF TIME THAT WE ARE NOT COMMENTING ON ITA.788/BANG/2008 PAGE - 7 THE METHOD TO BE ADOPTED WHILE DETERMINING THE ARM' S LENGTH PRICE BY THE TPO. HOWEVER, WE DIRECT THE TPO TO GIVE EFFECT IVE OPPORTUNITY OF HEARING TO THE ASSESSEE TO PRODUCE THESE ADDITIONAL EVIDENCES BEFORE HIM AND THEN DECIDE THE ISSUE ACCORDING TO LAW. TH US THE ADDITIONAL EVIDENCES ARE ADMITTED AND THE MATTER IS RESTORED T O THE FILE OF THE TPO WITH THE ABOVE MENTIONED DIRECTIONS. 08. IN THE RESULT, THE ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSE ONLY. ORDER PRONOUNCED AT THE END OF HEARING ON 23.01.201 2. SD/- SD/- (SMT. P. MADHAVI DEVI) (N. BARATHVAJA SANKAR) JUDICIAL MEMBER VICE PRESIDENT
