SMARTSTREM TECHNOLOGIES INDIA P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 85/MUM/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2802 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 06-01-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH MISHRA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Bad and doubtful debts
• Section: 234B

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI AMARJIT SINGH (JM) I.T.A. NO. 85/MUM/2015 (ASSESSMENT YEAR 2010-11) SMART STREAM TECHNOLOGIES INDIA PRIVATE LIMITED AVER PLAZA, 2 ND FLOOR PLOT NO. B-13, NEW LINK ROAD, ANDHERI-WEST MUMBAI-400 053. PAN : AAACG2086M VS. DCIT-9(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI NINAD PATADE DEPARTMENT BY SHRI RAJESH MISHRA DATE OF HEARING 07.10.2021 DATE OF PRONOUNCEMENT 20.10.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED CIT(A) DATED 30.10.2014 PERTAINING TO ASSESSMENT YE AR 2010-11. 2. THE GROUNDS OF APPEAL READ AS UNDER : EACH OF THE GROUNDS OF APPEAL AND THE SUB GROUNDS TH ERE UNDER ARE WITHOUT PREJUDICE TO AND INDEPENDENT OF ONE ANOTHER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED DEPUTY COMMISSIONER OF INCOME- TAX - 8(3) (HEREINAFT ER REFERRED TO AS THE AO) ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT F OR THE RELEVANT ASSESSMENT YEAR AT RS.2,54,05,180 PURSUANT TO THE DIREC TIONS OF HON'BLE DISPUTE RESOLUTION PANEL ('DRP/THE PANEL') AS AGAINST TH E TOTAL INCOME OF RS. 1,50,19,717 DECLARED AS PER RETURN OF INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE AO ERRED IN MAKING TRANSFER PRICING ADJUSTMENT OF RS. 1,03,85,458 IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE APPELLANT. TRANSFER PRICING GROUNDS: NOT GIVING EFFECT TO THE DIRECTIONS OF THE DRP SMART STREAM TECHNOLOGIES INDIA PRIVATE LIMITED 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN NOT REWORKING THE MARGINS OF THE APPELLANT AND THAT OF TH E COMPARABLE COMPANIES BY TREATING THE FOREIGN EXCHANGE INCOME/LO SS AS NON- OPERATING IN NATURE AND THE AMOUNT OF BAD DEBTS RECOVERED, EXCESS P ROVISION WRITTEN BACK AND MISCELLANEOUS INCOME AS OPERATING IN NATURE AS P ER DIRECTIONS OF HON'BLE PANEL AT PARAS 8 AND 10 OF THE DIRECTIONS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN NOT ALLOWING THE APPELLANT, THE BENEFIT CONTEMPLATED I N SECOND PROVISO TO SECTION 92C(2)OF THE ACT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN NOT APPRECIATING THAT ON REWORKING THE MARGINS OF T HE APPELLANT AND OF THE COMPARABLE COMPANIES BY GIVING EFFECT TO THE DIRECTIO NS OF THE HON'BLE PANEL AT PARAS 8 AND 10 OF THE DIRECTIONS, THE ARM'S LENGTH P RICE OF THE 'INCOME FROM PROVIDING SOFTWARE DEVELOPMENT SERVICES' AS DETERMIN ED, WOULD NOT EXCEED 5% OF THE ACTUAL PRICE OF THE INTERNATIONAL TRANSACTION O F PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND THEREFORE NO TRANSFER PRICING ADJUSTMENT WOULD HAVE BEEN REQUIRED TO BE MADE. REJECTION OF COMPARABLES SELECTED BY THE APPELLANT 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ HON'BLE PANEL ERRED IN REJECTING SOME OF THE COMPARABLE COM PANIES SELECTED BY THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION ('TP STUDY REPORT'). SELECTION OF COMPARABLES WHICH WERE REJECTED BY THE APPELLANT IN TRANSFER PRICING STUDY REPORT 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / HON'BLE PANEL ERRED IN UPHOLDING THE ACTION OF THE LEARNED T RANSFER PRICING OFFICER (TPO') IN SELECTING FOLLOWING COMPANIES AS A COMPARA BLE COMPANY, WHICH WAS REJECTED BY THE APPELLANT IN ITS TP STUDY REPORT: THIRDWARE SOLUTIONS LIMITED KALS INFORMATION SYSTEMS LIMITED BODHTREE CONSULTING LIMITED THE AO/HON'BLE PANEL OUGHT TO HAVE HELD THAT A) THIRDWA RE SOLUTIONS LIMITED B) KALS INFORMATION SYSTEMS LIMITED AND C) B ODHTREE CONSULTING LIMITED IS NOT FUNCTIONALLY COMPARABLE WITH THE APPEL LANT AND OUGHT TO HAVE BEEN REJECTED. OBSERVATIONS BY HON'BLE PANEL IN RESPECT OF AKSHAY S OFTWARE TECHNOLOGY LIMITED 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/HON'BLE PANEL ERRED IN HOLDING THAT 'AKSHAY SOFTWARE TECHNOLO GY LIMITED' IS A SOFTWARE PRODUCT COMPANY BEARING HIGH SIGNIFICANT RIS KS AND THEREFORE SMART STREAM TECHNOLOGIES INDIA PRIVATE LIMITED 3 SIMILAR TO THE COMPARABLE COMPANIES 'THIRDWARE SOLUTI ONS LIMITED' AND 'KALS INFORMATION SYSTEMS LIMITED' SELECTED BY THE TPO. THE AO/HON'BLE PANEL FURTHER ERRED IN HOLDING THAT IN THE EVENT 'THIRDWARE SOLUTIONS LIMITED' AND 'KALS INFORMATION SYSTEMS LIM ITED' ARE EXCLUDED FROM COMPARABLE COMPANIES AT A LATER STAGE FOR THE REASON TH AT THEY ARE NOT COMPARABLE, THEN 'AKSHAY SOFTWARE TECHNOLOGY LIMITED ' ALSO REQUIRES TO BE EXCLUDED. THE AO/HON'BLE PANEL ERRED IN NOT GIVING APPELLANT SU FFICIENT OPPORTUNITY OF BEING HEARD WHILE CONSIDERING AND COMMENTING UPON THE AFORESAID COMPARABLE COMPANY. DENIAL OF WORKING CAPITAL ADJUSTMENT AND MARKET RISK ADJUSTMENT 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/HON'BLE PANEL ERRED IN NOT ALLOWING ANY ADJUSTMENTS (I.E. W ORKING CAPITAL ADJUSTMENT AND MARKET RISK ADJUSTMENT) AS WARRANTED UNDER RULE 10B(L)(E)(III) OF THE INCOME- TAX RULES, 1962 ('THE RULES') TO ACCOUNT FOR D IFFERENCES BETWEEN INTERNATIONAL TRANSACTIONS AND THE ALLEGED COMPARABLE UNCONTROLLED TRANSACTION SELECTED BY THE ASSESSING OFFICER/PANEL. USE OF MULTIPLE YEAR DATA 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE AO/HON'BLE PANEL ERRED IN REJECTING THE USE OF MULTIPLE YEAR DATA AS PERMITTED UNDER THE PROVISIONS OF RULE 10D(4) OF THE RULES FOR COMPUTING THE OPERATING MARGINS EARNED BY THE ALLEGED COMPARABLE COMPANIES. OTHERS: 11. THE AO ERRED IN CHARGING INTEREST UNDER SECTI ON 234B OF RS. 16,35,312. 12. THE AO ERRED IN CHARGING INTEREST UNDER SECTI ON 234D OF RS. 1,42,203. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, VARY, OM IT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING, OF THE APPEAL. 3. AT THE OUTSET IN THIS CASE LEARNED COUNSEL OF TH E ASSESSEE SUBMITTED THAT HE SHALL BE WITHDRAWING THE APPEAL. LEARNED DEPARTM ENTAL REPRESENTATIVE DID NOT HAVE ANY OBJECTION TO THIS PROPOSITION. SMART STREAM TECHNOLOGIES INDIA PRIVATE LIMITED 4 4. UPON CAREFUL CONSIDERATION WE HAVE GRANTED PERMI SSION TO WITHDRAW THE APPEAL. ACCORDINGLY THIS APPEAL IS DISMISSED AS WIT HDRAWN. PRONOUNCED IN THE OPEN COURT ON 20.10.2021. SD/- SD/- (AMARJIT SINGH) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI; DATED : 20/10/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI