ACCENTURE SOLUTIONS PVT LTD. (ASOL) AS A SUCCESSOR TO ACCENTURE SERIVCES PVT LTD (ASPL), MUMBAI V. DY CIT CIRCLE- 14 (1)(1), MUMBAI

ITA 8008/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9573 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: K
• Assessment Year: 2015-2016
• Appeal Filed On: 26-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Period of limitation; TDS
• Section: 92C; 43B; 139; 143(3); 10AA; 234B; 10B; 144C; 139(1); 153; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “K”, MUMBAI BEFORE SHRI BASKARAN BR, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.8008/M/2019 Assessment Year: 2015-16 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’), (as a successor to Accenture Services Pvt. Ltd. (‘ASPL’) which has merged into ASOL with an effective date of 1 December 2016) Plant 3, Godrej & Boyce Complex, Phirojshah Nagar, Vikhroli West, Off L.B.S Marg, Mumbai – 400 079 PAN: AACCA8997K Vs. The Dy. Commissioner o Income Tax, Circle 14(1)(1), 475, Aayakar Bhavan, M.K. Road, Mumbai - 400020 (Appellant) (Respondent) Present for: Assessee by : Shri Percy J. Pardiwalla, A.R. Shri Hiten Chande, A.R. Revenue by : Dr. Yogesh Kamat, D.R. Date of Hearing : 17 . 05 . 2022 Date of Pronouncement : 07 . 07 . 2022 O R D E R Per : Kuldip Singh, Judicial Member: Appellant, M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) (hereinafter referred to as ‘the assessee’) by filing the present ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 2 appeal sought to set aside the impugned order dated 12.09.2019 passed by the Assessing Officer (AO) in consonance with the orders passed by the Disputes Resolution Panel (DRP)/Transfer Pricing Officer (TPO) under section 143 (3) read with section 144C(13) of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2015-16 on the grounds inter alia that :- “Based on the facts and in the circumstances of the case and in law, the Appellant respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income-tax -14(1)(1) [‘Learned AO'], under Section 143(3) r.w.s 144C( 13) of the Income- tax Act, 1961 ('Act') ('Assessment order'), in pursuance to the Directions issued by Dispute Resolution Panel - 1(WZ) ('Hon'ble DRP'), Mumbai, on the following grounds: On the facts and circumstances of the case and in law, the learned AO /Transfer Pricing Officer ('TPO'), based on the directions of the Hon'ble DRP has: General Ground 1. Erred in assessing the total income of the Appellant at Rs.24,35,50,65,077 against a total income of Rs.17,36,67,02,180 as computed by the Appellant in its return of income. A. Transfer Pricing grounds 2. Erred in making a reference of the Appellant's case to the learned TPO under Section 92CA(1) of the Act, without satisfying any of the conditions laid down in clauses (a) to (d) of Section 92C(3) of the Act based on the information / documents available with him; Separate segmental margins 3. Erred in law and facts, in upholding that the international transactions of the Appellant of rendering IT and BPO services under the Delivery Centre Agreement ('DCA') are two distinct transactions (i.e. rendering of IT services and rendering of BPO services) which should be benchmarked separately. Provision of IT services 4. Without prejudice to Ground No. 3 above, the learned TPO has erred in determining the arm's length range to be 20.95% to 24.88% ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 3 (with a median of 22.91%) for the IT services provided under the DCA. Economic Analysis 5. Erred, in law and facts, in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules for determination of arm's length price for rendering of IT services under DCA and making modifications to this analysis in a subjective, arbitrary and inconsistent manner. Accept/Reject criteria adopted while selecting comparables companies 6. Erred in applying the accept / reject criteria / filters in an arbitrary, subjective, inconsistent and erroneous manner for the purpose of selection of comparables. 7. Erred in applying a filter of rejecting companies following a financial year other than April to March. 8. Erred in applying a filter of rejecting companies having turnover of less than 35 times & more than 35 times of ASOL's turnover in the IT services segment. 9. Erred in applying a threshold of 75% for the export earnings filter as against a threshold of 25% of revenues applied by the Appellant. Rejection of comparable companies 10. Erred in accepting Infosys Limited as comparable for benchmarking the IT services transaction disregarding the fact that the company is functionally different from Appellant, owns significant intangibles and does not provide segmental break-up between revenues from software services and products. 11. Erred in accepting Larsen & Toubro Info tech Limited as comparable for benchmarking the IT services transaction disregarding the fact that the company is functionally different from Appellant as it is involved in trading of goods, enjoys brand presence and has experienced an extra-ordinary event during the year. 12. Erred in accepting Mindtree Limited as comparable for benchmarking the IT services transaction disregarding the fact that the company is functionally different from Appellant as it in engaged in varied activities like software development and maintenance, business process management, infrastructure management, product engineering, etc and does not provide any ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 4 separate segmental information for software development services in its the financial statements. Adjustment required to be made to arm's length margin 13. Erred in not allowing the Appellant the benefit of working capital adjustment which is required to be undertaken to account for the difference in working capital levels between the comparable companies and the Appellant. 14. Erred in not allowing the Appellant the benefit of the risk adjustment to account for the difference between the risks taken on by the Appellant and the risks taken on by the comparable companies Transaction of royalty payment 15. Erred in rejecting the economic analysis undertaken by the Appellant using CUP method for benchmarking the royalty payment to AE, and instead determining the arm's length price to be at 1% of revenue on an ad hoc basis without using any of the methods prescribed under Section 92C of the Act read with Rule 10B of the Income Tax Rules, 1962. 16. Erred in allowing royalty payment at an ad hoc rate of 1% only for use of brand name and trademark: disregarding the fact that the royalty paid by the Appellant is for the entire portfolio of IP which also includes tools, technology, methodology, etc. 17. Erred in rejecting all the external royalty agreements that were identified by the Appellant as comparables to determine the arm's length price under the CUP method, by giving ad hoc and arbitrary reasons. 18. Without prejudice to the Ground I6and 17 above, erred in not accepting the alternate comparables set of three agreements submitted by the Appellant (on a without prejudice basis) which were only for 'Licensing of trademark and brand' with an average royalty rate of 3.3%. 19. Without prejudice to the contention that CUP method is the most appropriate method for benchmarking the royalty transaction, erred in rejecting the alternate analysis using TNMM that was submitted by the Appellant for benchmarking the royalty transaction. Proportionate adjustment 20. Without prejudice to the contention that the royalty transaction was found to be at arm's length even under the alternate TNMM ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 5 analysis, even if an adjustment is to be made using the TNMM, the adjustment should be restricted to the proportion of the international transaction (ie royalty) to the total costs of the segment. B. Non-Transfer Pricing grounds 21. Erred in making addition amounting to Rs 14,50,987 on account of delayed payment of employees' contribution to provident fund and employees state insurance under Section 36( 1 )(va) of the Act without appreciating the fact that the said contribution is paid before filing of return of income under Section 139(1) of the Act. 22. Erred in not granting credit of taxes deducted at source of Rs.39,43,015 claimed by the Appellant in its return of income. 23. Erred in law and in facts by levying interest under Section 234A and Section 234B of the Act. 24. Erred in initiating penalty proceedings under Section 271(1 )(c) of the Act. Each of the above grounds of appeal is without prejudice to and independent of one another. The Appellant craves leave to add, alter, amend or delete the above grounds of appeal at or before the time of hearing of the appeal, so as to enable the Hon'ble Income tax Appellate Tribunal to decide this appeal according to law.” 2. Assessee by filing an application sought to raise additional grounds, which are as under: “1. Additional Ground (Ground No. 26 & 27); Without prejudice to ground 1 to 25, the TP order , passed under Section 92CA (3) is invalid and unsustainable in law since the same is passed on 1 November 2018 which is beyond the time limit available for completion of proceedings under section 92CA(3A) of the Act. The Ld. AO has erred in law in incorporating the TP adjustment proposed in the TP order which is invalid and bad in law into the Final Assessment Order passed under section 143(3) read with section 144C (13) of the Act.” On the ground that additional ground sought to be raised is legal one which goes to the ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 6 roots of the case affecting the jurisdiction of Ld. TPO to pass the order under section 92CA(3) of the Act. 3. The Ld. D.R. for the Revenue opposed raising of additional ground by the assessee on the ground that no such ground has been raised before the Lower Revenue Authorities. However, we are of the considered view that when additional ground sought to be raised by the assessee is a legal ground, which goes to the roots of the case and is also necessary to adjudicate the issue in controversy the same can be raised at any stage of the proceedings. Hence, additional ground raised by the assessee is allowed. 4. Briefly stated facts necessary for adjudication of the controversy at hand are : the assessee Accenture Solutions Pvt. Ltd. (‘ASOL’) being the successor to the Accenture Services Pvt. LTd. (ASPL), is an Indian company engaged in providing Information Technology (IT) Services, BPO services and consultancy services. Presently the assessee operates out of several units located in the Software Technology Parks of India (STPI) and Special Economic Zone (SEZ) and claimed a deduction under section 10AA of the Act qua the profits earned from the SEZ unit. 5. During the year under assessment assessee entered into 30 international transactions with its Associate Enterprises (AE). The Ld. TPO after providing opportunity of being heard to the assessee and by rejecting the TP study relied upon by the assessee, proposed adjustment on account of Arm’s Length Price (ALP) qua the international transactions entered into by it with its AE as under: ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 7 Sr No Particulars Amount (Rs.) 1. ALP adjustment for provision of IT services 934,93,36,377 2. ALP adjustment on account of BPO Segment 274,70,08,993 3. ALP Adjustment for Royalty 68,38,32,843 Total 1278,01,78,213 6. Assessee carried the matter before the Ld. DRP by way of filing objections who has partly allowed the same. Feeling aggrieved the assessee has come up before the Tribunal by way of filing present appeal. 7. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 8. At the very outset, the Ld. A.R. for the assessee challenged the impugned order passed by the AO/DRP to the extent of making adjustment on account of ALP, on the legal ground that “the TP order in this case is passed by the Ld. TPO beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act rendering the TP order and consequential assessment order illegal, null and void ab-initio and liable to be quashed. So we would first decide this legal issue before going into the merits of the case. ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 8 9. The Ld. A.R. for the assessee challenging the impugned order passed by the Ld. TPO contended that the order passed by the Ld. TPO is passed beyond the time limit prescribed under section 92CA(3A) read with section 153 of the Act and consequent assessment order, to the extent of TP adjustment, is not sustainable and brought on record the factual position to calculate the period of limitation under the Act necessary to decide the issue in controversy in tabulated form which is as under: Particulars Relevant dates Assessment Year ('A.Y.') 2015-16 End of Assessment Year 31-03-2016 Due date for completion of assessment under section 1 53(1 ) i.e. 21 months from the end of A.Y. 31-12-2017 Extension of 12 months in case of transfer pricing reference as per section 153(4) of the Act 31-12-2018 Time Limit for passing the order under section 92CA(3A) i.e. 60 days prior to the date prescribed under section 153 Less: Date on which limitation expires under section 153 i.e. 31-12-2018 1 day Less: Remaining days of December 30 days Less: Number of days of November 30 Days Due date for passing the order under section 92CA(3) of the Act i.e. 61 days from 31 December 31-10-2018 Date of passing the TP order under section 92CA(3) 01-11-2018 10. The Ld. A.R. for the assessee while discussing the factual position qua the order passed by Ld. TPO and statutory provisions ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 9 applicable thereto contended inter alia that the order passed by Ld. TPO dated 01.11.2018 is not sustainable in the eyes of law being barred by limitation; that the last date to pass the TP order by Ld. TPO was 31.10.2018; that the order passed by the Ld. TPO is barred by limitation as the period of 60 days is completed in accordance with the provisions of section 153 of the Act by excluding the last date and relied upon the decision rendered by the Hon’ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. & Ors. Vs. DCIT in WA No.1120 of 2021 & ors. judgment dated 31.03.2022. 11. However, on the other hand, the Ld. D.R. for the Revenue to repel the argument addressed by the Ld. A.R. for the assessee contended that the Ld. TPO passed order in this case well within the time i.e. on 01.11.2018. 12. In order to determine if the order dated 01.11.2018 passed by the Ld. TPO is barred by limitation as contended by the Ld. AR for the assessee, we would advert to the provisions contained under section 92CA(3) read with section 153 of the Act. 13. Undisputedly, sub-section (3A) to section 92CA has been inserted w.e.f. 01.06.2007 providing time limit for the Transfer Pricing Officer to pass the order i.e. within a period of 60 days prior to the date of completion of assessment as per section 153 of the Act. So, under section 92CA (3A) read with section 153, Ld. TPO was required to pass the order within the period of 60 days prior to the date on which the period of limitation referred to in section 153 expires i.e. 21 months. ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 10 14. Undisputedly, the TP order was passed by the Ld. TPO on 01.11.2018 whereas the Ld. TPO was required to pass the order within 60 days prior to the date on which the period of limitation referred to in section 153 of the Act expires i.e. 31.10.2018. 15. Now the question arises as to how the period of 60 days prior to the date of transfer pricing order i.e. 01.11.2019 is to be computed. Hon'ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. (supra) while dealing with the issue held that for computing the period of 60 days, the last date as per section 153 should be excluded. Operative part of the judgment is extracted for ready perusal as under :- "30. Now, coming to the question of how the 60 day period is to be computed, the critical question would be whether the period of 60 days would be computed including the 31st of December or excluding it. Section 153 states that no order of assessment shall be made at any time after time expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the revenue is to the effect that limitation expires only on 12 am of 01.01.2020. However, this would mean that an order of assessment can be passed at 12 am on 01.01.2020, whereas, in my view, such an order would be held to be barred by limitation as proceedings for assessment should be completed before 11.59.59 of 31.12.2019. The period of 21 months therefore, expires on 31.12.2019 that must stand excluded since Section 92CA(3A) states 'before 60 days prior to the date on which the period of limitation referred to Section 153 expires'. Excluding 31.12.2019, the period of 60 days would expire on 01.11.2019 and the transfer pricing orders thus ought to have been passed on 31.10.2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the dale by which the Transfer Pricing orders are to be passed as 31.10.2019. The impugned orders are thus, held to be barred by limitation." 16. Identical issue has been decided by the co-ordinate Bench of the Tribunal in case of ECL Finance Ltd. vs. ACIT in ITA No.899/M/2018 order dated 22.09.2021 in favour of the assessee by ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 11 following M/s. Pfizer Healthcare India Pvt. Ltd. (supra) case rendered by Hon’ble Madras High Court. 17. In view of what has been discussed above and following the order passed by the Hon’ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. (supra) and order passed by the co-ordinate Bench of the Tribunal in case of ECL Finance Ltd. (supra), we are of the considered view that as per limitation prescribed under section 153 of the Act that assessment order was required to be passed within a period of 21 months from the end of assessment year i.e. A.Y. 2015-16 i.e. 31.03.2016, meaning thereby the assessment order under section 153(1) was to be completed within 21 months from the end of assessment year i.e. on 31.12.2017 with further extension of 12 months in case of transfer pricing reference as per section 153(4) of the Act was made which expires on 31.12.2018. So the limitation for passing the order under section 92CA(3) is 60 days prior to the date prescribed under section 153 of the Act. In the instant case due date for passing the order under section 92CA(3) of the Act is 31.10.2018 whereas the TP order in this case is passed on 01.11.2018 which is beyond the period of limitation because the same was required to be passed 60 days before the date of which limitation expires under section 153 of the Act i.e. o. 31.10.2018, hence barred by limitation. 18. However, by virtue of this appeal the assessee has also raised corporate grounds No.21, 22 & 23 challenging additions under section 36(1)(va) and non granting of credit of taxes deducted at source and levying of interest under section 234A and 234B of the Act, which are determined as under: ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 12 Ground No.21: 19. AO/CIT(A) made the disallowance of Rs.14,50,987/- on account of late deposit of employees’ contribution on account of PF & ESIC on the ground that the same were not deposited within the due date prescribed under the Act. However, this issue is now no longer res-integra as has been decided in favour of the assessee by the Hon’ble Bombay High Court in case of CIT V. Ghatge Patil Transporters Ltd. 368 ITR 749 by confirming the order passed by the Tribunal that deduction claimed by the assessee on account of employees contribution to PF & ESIC well before the due date of filing return of income is allowable deduction. 20. Hon’ble High Court of Bombay in case of Ghatge Patil Transporters Ltd. (supra) held that both employees’ and employer’s contribution are covered under amendment to section 43B and covered under judgment of Hon’ble Supreme Court in case of CIT vs. Alom Extrusions Ltd. (2009) 319 ITR 306 and such deduction claimed by the assessee is allowable. 21. Co-ordinate Bench of the Tribunal in case of M/s. Adyar Ananda Bhavan Sweets India P. Ltd. vs. ACIT (supra) also decided the identical issue in favour of the assessee by holding that the payment of employees contribution qua PF & ESIC if made before the due date of filing of return of income, the same is allowable deduction as per provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B of the Act. ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 13 22. In view of what has been discussed above, we are of the considered view that since the amended provisions contained under section 43B read with section 36(1)(va) of the Act are not applicable for the year under consideration i.e. A.Y. 2015-16 as the amendment will be effective from A.Y. 2021-22 and the AO/ Ld. CIT(A) have erred in disallowing the same. Consequently, impugned order passed by the Ld. CIT(A) is set aside and as such ground No.21 is determined in favour of the assessee. Ground No.22 23. Assessee has come up with the ground that the AO has not granted credit of TDS for Rs.39,43,015/- deducted by the customers of the assessee for which rectification application dated 02.12.2019, available at page 68 & 69 of the paper book is already pending before the AO. Since the assessee is entitled for grant of credit of TDS AO is directed to dispose of the rectification application (supra) filed by the assessee within 2 months from the date of receipt of the order. So ground No.22 is also determined in favour of the assessee. Ground No.23 24. AO has charged the interest under section 234A & section 234B of the Act which the assessee has challenged on the ground that he has filed return of income under section 139 of the Act within due date and as such no interest under section 234A is not leviable. In this case assessee has also filed rectification application dated 02.12.2019 available at page 68 & 69 of the paper book which is pending disposal before the AO. Again AO is directed to dispose of the rectification application within two ITA No.8008/M/2019 M/s. Accenture Solutions Pvt. Ltd. (‘ASOL’) 14 months from the date of receipt of this order in accordance with law. At the same time interest levied under section 234B of the Act is consequential and needs no specific findings. 25. In view of what has been discussed above, since TP order (supra) passed by the Ld. TPO is not sustainable in the eyes of law having passed beyond the period of limitation period the consequential TP adjustment made by the AO is also not sustainable, hence ordered to be deleted. Corporate grounds raised by the assessee are determined in favour of the assessee. Resultantly, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 07.07.2022. Sd/- Sd/- (BASKARAN BR) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 07.07.2022. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai.