INFOR GLOBAL SOLUTIONS (I) P.LTD, MUMBAI V. DCIT CIR 8(2), MUMBAI

ITA 8974/MUM/2010

• Counselvise Citation: 897419914 RSA 2010
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 13-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 23-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 10B

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI K BENCH . . , , , BEFORE S/SH. A D JAIN ,JUDICIAL MEMBER & RAJ ENDRA,ACCOUNTANT MEMBER /. ITA NO. 8974 /MUM/ 2010 , / ASSESSMENT YEAR - 2006 - 07 INFOR GLOBAL SOLUTIONS (I) PVT. LTD., A - 301/302, CITIPOINT, ANDHERI - KURLA ROAD, J.B. NAGAR, ANDHERI (E), MUMBAI - 400 059. PAN: AAACB 6197 Q VS DCIT - 8 (2) MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY: KARISHMA R. PHATARPHEKAR AND MS. KEERTHIGA R. SHARMA / REVENUE BY : SHRI N.K. CHAND - CIT AND SHRI JITENDRA YADAV / DATE OF HEARING : 2 9 - 07 - 2015 / DATE OF PRONOUNCEMENT : 29 - 07 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE DIRECTIONS OF DISPUTE RESOLUTION PANEL - I I, MUMBAI, DATED 17.8.2010 AND THE ORDER OF THE A SSESSING OFFICER(AO)DATED 16.9.2010, COMPLETED U/S.144 C (13) R.W.S. 143(3) OF THE ACT, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE GROUNDS STATED HERE UNDER ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO ONE ANOTHER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TRANSFER PRICING OFFICER ('TPO') AND THE LEARNED ASSESSING OFFICER (' AO') UNDER DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL ('ORP'), ER RED IN MAKING AN ADDITION OF RS. 4,26,00,000 TO THE APPELLANT'S TOTAL INCOME BASED ON THE PROVISIONS OF CHAPTER X OF THE INCOME - TAX ACT, 1961 ('THE ACT'). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED AND THE HON'B LE DRP FURTHER ERRED IN SELECTING COMPANIES WHICH HAVE A DIFFERENT FUNCTIONAL, ASSET OR RISK PROFILE AS COMPARED TO THAT OF THE APPELLANT, OR DO NOT SATISFY THE FILTER / CRITERIA APPLIED BY THE TPO HIMSELF. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING /CONFIRMING THE ACTION OF THE TPO IN ARBITRARILY REJECTING COMPANIES BY APPLYING FILTERS HAVING TURNOVER ABOVE RS. 1 CRORES WITHOUT CONSIDERING AN UPPER CEILING FOR THE RANGE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED AND THE HO NP 'BLE DRP FURTHER ERRED IN INCORRECTLY COMPUTING THE OPERATING MARGINS OF COMPANIES WHILE MAKING ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF THE APP ELLANT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED AND THE HO N BLE DRP FURTHER ERRED IN NOT ALLOWING RISK ADJUSTMENT IN ACCORDANCE WITH THE PROVISIONS OF RULE 10B OF THE RULES TO ACCOUNT FOR DIFFERENCE BETWEEN I NTERNATIONAL TRANSACTIONS AND THE ALLEGED COMPARABLE UNCONTROLLED TRANSACTIONS SELECTED BY THE LEARNED TPO 8974/M/10 IGSIPL 2 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED AND THE HORI'BLE DRP FURTHER ERRED IN NOT ALLOWING THE VARIAT ION/REDUCTION OF 5 PERCENT FROM THE ARITHMETIC MEAN WHILE DETERMINING THE ARM'S LENGTH PRICE AS ENVISAGED UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TPO ERRED AND THE HON'BLE DRP FURTHER ERRED IN FAILING TO APPRECIATE THAT THE APPELLANT WAS CLAIMING TAX EXEMPTION UNDER SECTION 10A OF THE ACT AND ACCORDINGLY HAD NO INTENTION TO SHIFT PROFITS OUTSIDE INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATIONAL TRANSACTIONS WHIC H IS A PRE - REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD OR ALTER BY DELETION, SUBSTITUTION, MODIFICATION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR DURING THE HEA RING OF THE APPEAL. ASSESSEE - CO MPANY , E NGAGED IN THE BUSINESS OF RESEARCH, DEVELOPMENT AND EXPORT OF COMPUTED SOFTWARE FILED ITS RETURN OF INCOME ON 30.11.2006, DECLARING AN INCOME OF RS.2.41 CRORES.THE AO COMPLETED ASSESSMENT U/S.144C (13) R.W.S. 143(3) O F THE ACT , DETERMINING ITS INCOME AT RS.6.67 CRORES. 2. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD TRANSACTIONS WITH THE A SSOCIATED ENTERPRISES (AE) EXCEEDING RS.15 CRORES.THEREFOR E , HE MADE A REFERENCE TO THE TRANSFER PRICING OFFIC ER (TPO) TO ASCERTAIN THE ARMS LENGTH PRICE (A L P) .VIDE ORDER,DATED 26. 10.2009, THE TPO PROPOSED ADJUSTMENT OF RS. 4.85 CRORES ON ACCOUNT OF ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS.THE ASSESSEE FILED ITS OBJECTION AGAINST THE DRAFT ASSESSMENT ORDER PREPA RED BY THE AO BEFORE THE DRP - II. 3. BEFORE THE DRP, THE ASSESSEE CONTENDED THAT THE INTERNATIONAL TRANSACTIONS PERT AINED TO THE PROVISIONS OF SOFT WARE DEVELOPMENT AND SUPPORT SERVICES, THAT THE ASSESSEE HAD VALUED THE INTERNATIONAL TRANSACTIONS FOLLOWING THE CUP METHOD, THAT THE TPO FOLLOWED TNMM METHOD AND PROPOSED AND ADJUSTMENT OF RS.4.85 CRORES, THAT THE TPO HAD ERRED IN REJECTING THE STUDY CONDUCTED BY THE ASSESSEE AND BY TAKING NEW SET OF 14 COMPARABLE ENTITIES .IT WAS FURTHER ARGUED THAT THERE WAS FUNCT IONAL DIFFERENCE IN CASE OF SSA GLOBAL AND THE JOB DONE BY THE ASSESSEE , THAT THE TPO HAD USED THE DATA AVAILABLE AS IN DECEMBER 2008.THE ASSESSEE SPECIFICALLY OBJECTED TO THE INCLUSION OF INFOSYS LIMITED AND FLEXTRONICS SOFTWARE SYSTEM LIMITED. AFTER CONSI DERING THE SUBMISSION OF THE ASSESSEE , THE DRP HELD THAT THE INCLUSION OF INFOSYS LTD APPEARED TO BE INCONSISTENT WITH THE NATURE OF BUSINESS TURNOVER AND VOLUMES, THAT THE DATA OF OTHER 13 COMPARABLE COMPANIES WERE CORRECTLY APPLIED BY THE TPO, THAT THE SE ARCH PROCESS OF THE TPO WAS IN ACCORDANCE WITH THE TP REGULATIONS , THAT THE EXCLUSION OF INFOSYS LIMITED WOULD MAKE THE SET OF COMPARABLES RATIONAL AND REASONABLE.THE DRP DIRECTED THE AO TO EXCLUDE INFOSYS LTD. F ROM THE SET OF COMPARABLES AND TO COMPUTE THE ALP. 4. DURING THE COURS E OF HEARING BEFORE US,AUTHORISED REPRESENTATIVE (AR ) STATED THAT THE ASSESSEE HAD NOT CARRIED OUT TP STUDY FOR THE YEAR UNDER CONSIDERATION , THAT TPO HAD SELECTED 14 COMPARABLES, THAT THE ASSESSEE WAS AGAINST INCLUSION OF SIX COMPARA BLE, THAT THE DRP HAD EXCLUDED ONE COMPARABLE I.E. INFOSYS LTD. WHEN THE ORDER OF THE DRP WAS BROUGHT TO THE 8974/M/10 IGSIPL 3 NOTICE OF THE DEPARTMENTAL REPRESENTATIVE ( DR ) BY THE BENCH, HE ADMITTED THAT IT DID NOT CONTAIN DETAILED DISCUSSION. HE LEFT THE ISSUE TO THE DISCR ETION OF THE BENCH. 5. AFTER PERUSING THE MATERIAL ON RECORD , WE ARE OF THE OPINION THAT THE DRP HAS NOT PASSED A SPEAKING AND REASONED ORDER. THE ASSESSEE HAD SPECIFICALLY OBJECTED INCLUSION OF INFOSYS LIMITED AND FLEXTRONICS SOFTWARE SYSTEM LIMITED . BUT, TH E DRP IN ITS ONE PARA GRAPH ORDER HAD MADE SOME GENERAL OBSERVATIONS. AS A F IRST A PPELLATE FORUM, IT WAS THE DUTY OF THE DRP TO DISCUSS THE INCLUSION/EXCLUSION OF THE COMPARABLE IN A DETAILED MANNER. IT IS A FA C T THAT THE ASSESSEE HAD NO T FURNISHED THE TP ST UDY REPORT.T HEREFORE, IT WAS NECESSARY ON PART OF THE DRP TO DELIBERATE UPON THE COMPARABLES AND THE METHODOLOGY OF SELECTING THE COMPARABLES.IN SHORT, THE ORDER OF THE DRP DOES NOT FALL UNDER THE CATEGORY OF A SPEAKI NG ORDER. THEREF ORE, IN THE INTEREST OF J USTICE, WE ARE REMI TTING BACK THE ISSUE TO THE DRP, WHO WOULD PASS A DETAILED AND REASONED ORDER AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE . AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 2 9 TH ,JULY,2015. 29 , 2015 SD/ - SD/ - ( . . /A.D. JAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE:29 .07.2015 . . . JV. SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.