Sunquest Inforamtion Systems India Pvt. Ltd., V. JCIT,

ITA 79/BANG/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8428 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 18-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KAMALADHAR SD
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Transfer pricing; Rectification of order; International transaction; Wholly owned subsidiary
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ASSESSEES APPEAL IT(TP)A NO. 79/BANG/2013 ASSESSMENT YEAR : 2008-09 M/S. SUNQUEST INFORMATION SYSTEMS INDIA PVT. LTD., I FLOOR, EAGLE RIDGE, EGL BUSINESS PARK OFF INTERMEDIATE RING ROAD, BENGALURU-560071. PAN:AAECS2754E VS. JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-12(3), BENGALURU. APPELLANT RESPONDENT REVENUES APPEAL IT(TP)A NO. 112/BANG/2013 ASSESSMENT YEAR : 2008-09 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(3), 14/3, 4 TH FLOOR, RASTROTHANA BHAVAN (OPP. RBI), NRUPATHUNGA ROAD, BENGALURU-560 001. VS. M/S. SUNQUEST INFORMATION SYSTMES INDIA PVT. LTD., BENGALURU-560071. PAN:AAECS2754E APPELLANT RESPONDENT ASSESSEE BY : SHRI. T. SURYANARAYANA, ADVOCATE REVENUE BY : SHRI. KAMALADHAR, SD. COUNSEL DATE OF HEARING : 28.12.2016 DATE OF PRONOUNCEMENT : 17 .03.2017 IT(TP)A NO. 79/BANG/2013 & IT(TP)A NO. 112/BANG/2013 PAGE 2 OF 17 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE ASSESSEE COMPANY AS WELL AS THE REVENUE DIRECTED AGAINST THE ORDER OF LEARNED C IT(A)-IV, BENGALURU DATED 20.11.2012 FOR THE ASSESSMENT YEAR 2008-09. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF SUNQUEST INFORMATION SYS TEMS INC., USA, AND IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWAR E SERVICES TO ITS ASSOCIATE ENTERPRISES (AE). THE ASSESSEE COMPANY F ILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 30.09.200 8 DECLARING TOTAL INCOME OF RS.2,25,47,548/- UNDER THE PROVISIONS OF MAT AND RS.1,43,060/- UNDER THE NORMAL PROVISIONS OF THE AC T. THE SAID RETURN OF INCOME WAS TAKEN UP FOR SCRUTINY ASSESSMENT AFTE R THE ISSUE OF REQUISITE NOTICE UNDER SECTION 143(2) OF THE ACT, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE COMPANY REPORTED THE FOLLOWING INTERNATIONAL TRANSACTIONS: SL. NO. TYPE OF TRANSACTION AMOUNT PAID (RS.) AMOUNT RECEIVED (RS.) 1 SOFTWARE DEVELOPMENT SERVICES 34,96,83,925/- 2 REIMBURSEMENT OF EXPENSES 68,83,883/- 23,98,255/- IT(TP)A NO. 79/BANG/2013 & IT(TP)A NO. 112/BANG/2013 PAGE 3 OF 17 3. THE ASSESSEE COMPANY SOUGHT TO JUSTIFY THE CONSI DERATION RECEIVED FOR THE INTERNATIONAL TRANSACTIONS ENTERED WITH ITS AE TO BE AT ARMS LENGTH PRICING. THE ASSESSEE COMPANY HAD ALS O SUBMITTED TRANSFER PRICING STUDY REPORT ADOPTING OPERATING PR OFIT TO TOTAL COST (OP/TC) AS A PROFIT LEVEL INDICATOR FOR THE TRANSFE R PRICING STUDY REPORT. THE ASSESSEE COMPANY APPLIED TNMM WHICH WA S CONSIDERED TO BE THE MOST APPROPRIATE METHOD FOR THE PURPOSE O F BENCH MARKING THE INTERNATIONAL TRANSACTIONS. THE ASSESSEE COMPA NYS PROFIT WAS COMPUTED AT 13.6% AND THE ASSESSEE COMPANY CLAIMED THAT THE SAME WAS COMPARABLE WITH OTHER COMPANIES RENDERING SOFTW ARE DEVELOPMENT SERVICES. FOR THE PURPOSE OF TRANSFER PRICING STUD Y, THE ASSESSEE COMPANY HAD CHOSEN 23 COMPARABLES AND THE ARITHMETI C AVERAGE PROFIT MARGIN OF THE SAID COMPARABLES WAS COMPUTED AT 14.8 4%. ACCORDING TO THE ASSESSEE COMPANY, ITS PLI WAS WITHIN 5% OF ARITHMETIC MEAN OF COMPARABLE ENTITY. HENCE, IT WAS CLAIMED THAT T HE TRANSACTION WITH ITS AE ARE AT ARMS LENGTH. THE ASSESSEE HAD CHOSE N THE FOLLOWING 23 ENTITIES: COMPANY NAME PROWESS, CAPITALINE & SEGMENTAL MARK-UP ON TOTAL COSTS AKSHAY SOFTWARE TECHNOLOGIES LIMITED 6.60% AZTECSOFT LIMITED 18.16% GOLDSTONE TECHNOLOGIES LIMITED 11.50% HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED 38.40% IT(TP)A NO. 79/BANG/2013 & IT(TP)A NO. 112/BANG/2013 PAGE 4 OF 17 INDIUM SOFTWARE (INDIA) LIMITED 11.09% INFOSYS TECHNOLOGIES LIMITED 39.96% KPIT CUMMINS INFOSYSTEMS LIMITED 13.20% LANCO GLOBAL SYSTEMS LIMITED 13.28% LARSEN & TOURBO INFOTECH LIMITED 11.35% MAARS SOFTWARE INTERNATIONAL LIMITED 15.58% MELSTAR INFORMATION TECHNOLOGIES LIMITED 3.46% MINDTREE LIMITED 16.98% PERSISTENT SYSTEMS PRIVATE LIMITED 24.34% QUINTEGRA SOLUTIONS LIMITED 15.18% R S SOFTWARE (INDIA) LIMITED 14.11% S I P TECHNOLOGIES AND EXPORTS LIMITED 18.37% SASKEN COMMUNICATION TECHNOLOGIES LIMITED 17.88% SATYAM COMPUTERS SERVICES LIMITED 29.43% T V S INFOTECH LIMITED -21.27% V J I L CONSULTING LIMITED 5.85% V M F SOFTECH LIMITED 4.32% VISUALSOFT TECHNOLOGIES LIMITED 16.76% ZYLOG SYSTEMS LIMITED 16.87% MEAN (AVERAGE) 14.84% 4. THE AO REFERRED THE MATTER TO THE TPO FOR THE PU RPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTIONS. THE TPO BY ORDER DATED 31.10.2011 PASSED UNDER SECTION 92CA(3) OF THE ACT, COMPUTED THE TRANSFER PRICING ADJUSTMENT AT RS.3,24,55,435/- . THE TPO ACCEPTED THE TNMM ADOPTED BY THE ASSESSEE COMPANY, BUT REJECTED THE TRANSFER PRICING STUDY REPORT. THEN THE TPO PROCEEDED TO ID ENTIFY THE DIFFERENT SET OF COMPARABLE STUDIES FOR THE PURPOSE OF DETERM INING THE ALP OF IT(TP)A NO. 79/BANG/2013 & IT(TP)A NO. 112/BANG/2013 PAGE 5 OF 17 THE TRANSACTIONS WITH ITS AE. WHILE DOING SO, THE LEARNED TPO HAD ADOPTED THE FOLLOWING FILTERS: STEP DESCRIPTION 1 COMPANIES WHOSE DATA IS NOT AVAILABLE FOR FY 2007 -08 EXCLUDED 2 COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE REVE NUE