DCIT, New Delhi V. M/s Verizon India Pvt. Ltd., New Delhi

ITA 904/DEL/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4739 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA SENIOR
• Assessee Lawyers: SANDEEP PURI
• Keywords: Transfer pricing; Retrospective amendment
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.904/DEL./2013 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE 17 (1), VS. M/S. VERIZON INDIA PVT. LTD., NEW DELHI. (FORMERLY KNOWN AS MCI WORLDCOM INDIA PVT. LTD.) RADISSON COMMERCIAL PLAZA, A WING, 2 ND FLOOR, NH-8, MAHIPALPUR, NEW DELHI. (PAN : AACCM2423N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PAWAN KUMAR, ADVOCATE AND S/SHRI SANDEEP PURI & RISHABH JAIN REVENUE BY : SHRI SAMEER SHARMA, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM TH E ORDER OF THE CIT (APPEALS)-XX, NEW DELHI DATED 12.11.2012 FOR AS SESSMENT YEAR 2005-06. 2. THE ASSESSEE COMPANY PROVIDES MARKETING SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES. THESE SERVICES INCLUDE MARK ET DEVELOPMENT, PROVIDING INFORMATION ON POTENTIAL CUSTOMERS AND LI AISING WITH POTENTIAL CUSTOMERS FOR DISSEMINATING INFORMATION REGARDING T HE PRODUCTS OF ITA NO.904/DEL/2013 2 VERIZON COMMUNICATIONS SINGAPORE PTE. LIMITED AND F OR OBTAINING FEEDBACK FROM POTENTIAL CUSTOMERS IN INDIA. THE RET URN OF INCOME WAS FILED FOR THE YEAR UNDER CONSIDERATION ON 30.10.200 5. THE ASSESSMENT WAS FINALIZED ON 19.12.2008 U/S 143(3) OF THE INCOME-TA X ACT, 1961 AT AN INCOME OF RS.3,45,25,800/-. THE ADDITION OF RS.1,89 ,34,083/- WAS MADE ON THE BASIS OF REPORT RECEIVED FROM TPO BY MAKING THE ADJUSTMENT ON THE BASIS OF ARMS LENGTH PRICE IN RESPECT OF INTERN ATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. 3. AT THE OUTSET OF THE HEARING, THE LD. AR SUBMITT ED THAT THE ORDER OF THE CIT (A)-XX, NEW DELHI DATED 12.11.2012 IS A COM BINED ORDER FOR TWO ASSESSMENT YEARS 2004-05 AND 2005-06. THE MATTE R IN THE ASSESSMENT YEAR 2004-05 IN ITA NO.260/DEL/2013 HAS ALREADY BEEN DECIDED BY HON'BLE ITAT, DELHI BENCH E, NEW DELHI IN ITS ORDER DATED 22.03.2013. THEREFORE, THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ITAT ORDER FOR ASSESSMENT YEAR 2004-05. 4. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HA VE ALSO GONE THROUGH THE GROUNDS OF APPEAL TAKEN IN ITA NO.260/D EL/2013 FOR ASSESSMENT YEAR 2004-05 WHICH ARE IDENTICAL AS TAKE N BY THE ASSESSEE IN THE APPEAL UNDER CONSIDERATION WHICH READ AS UNDER :- 1. LD. CIT (A) ERRED IN LAW AND ON THE FACTS OF TH E CASE IN HOLDING THE APPELLANTS MARGINS ARE WITHIN ARMS LENGTH AFTER TAKING INTO CONSIDERATION THE AMENDMEN TS IN ITA NO.904/DEL/2013 3 SECTION 92C OF THE ACT VIDE FINANCE ACT 2009 AND FINANCE ACT, 2012. 2. THE APPELLANT CRAVES LEAVE OR RESERVING THE RIGH T TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. THE ITAT WHILE DECIDING THESE GROUNDS OF APPEAL BY HOLDING HAS HELD AS UNDER IN ITA NO.260/DEL/2013 IN ASSESSEES OWN CASE :- 4. UPON ASSESSEES APPEAL, LD. COMMISSIONER OF INCOME TAX (A) DELETED THE ADDITION HOLDING THAT TH E ASSESSEES MARGIN WERE FALLING WITHIN THE +-5% RAN GE OF THE ARMS LENGTH MARGIN/PRICE DETERMINED. HENCE, T HEY WERE HELD TO BE AT ARMS LENGTH. 5. THE DEPARTMENT APPEALED BEFORE THE ITAT WHEREIN ONE OF THE GROUNDS RAISED BY THE LD. DEPARTMENTAL REPRESENTATIVE THAT LD. COMMISSIONER O F INCOME TAX (A) HAS WRONGLY HELD THAT ASSESSEES OPERATING MARGIN FALLS WITHIN +-5% OF THE ARITHME TIC MEAN OF THE COMPARABLE PRICES. THE TRIBUNAL IN IT S ORDER NOTED THAT IN VIEW OF THE AMENDMENT TO SECTION 92C, THE MATTER WAS TO BE SET ASIDE TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (A) FOR FRESH ADJUDICATI ON. PURSUANT TO THE SAID REMAND BY THE ITAT, THE LD. COMMISSIONER OF INCOME TAX (A) CONSIDERED THE ISSUE . LD. COMMISSIONER OF INCOME TAX (A) HELD AS UNDER:- I HAVE CONSIDERED THE MATTER AND HEARD THE APPELLANT IN THIS REGARD. THE RETROSPECTIVE AMENDMENT INTRODUCED BY FINANCE ACT, 2012 CLARIFIED THAT THE BENEFIT OF 5% AVAILABLE AS PER PROVISO TO SECTION 92C(2) OF THE ACT, IS NOT AVAILABLE AS A STANDARD DEDUCTION FOR THE COMPANY WHERE THE DIFFERENCE BETWEEN THE TRANSFER PRICE AND ARMS LENGTH PRICE IS MORE THAN 5%. THE ISSUE OF STANDARD DEDUCTION ARISES IF THE TRANSACTION VALUE OF THE ASSESSEE DOES NOT FALL WITHIN +/-5% RANGE OF THE ARMS LENGTH PRICE. SINCE IN THE PRESENT CASE THE TRANSACTION VALUE I S WITHIN THE -5% RANGE OF THE COMPARABLES MARGIN ITA NO.904/DEL/2013 4 (AS SET OUT IN THE TABLE BELOW), THE ISSUE OF STANDARD DEDUCTION IS NOT APPLICABLE / RELEVANT IN THE PRESENT CASE AND THUS, THE AMENDMENT SHALL NOT HAVE ANY EFFECT FOR THE APPELLANT. TABLE-1: PARTICULARS A.Y. 2004-05 (AMOUNT IN `) A.Y. 2005-06 AMOUNT IN `) PROVISION OF SERVICES (A) 71,050,622 104,974,351 OPERATING PROFIT / TOTAL COST (OP/TC) MARGIN OF APPELLANT (B) 6.59% 8.50% OPERATING COST OF THE APPELLANT [C= A*100/(100+B)%] 66,657,868 96,750,554 ARMS LENGTH MARGIN (OP/TC) AS PER ITAT FINDINGS 11.73% 11.27% ARMS LENGTH PRICE AFTER INCORPORATING ITAT FINDINGS BASED ON ARMS LENGTH MARGIN OF 11.73% / 11.27% 74,476,836 107,654,341 95% OF THE ALP 70,752,995 102,271,624 ARMS LENGTH STATUS (AFTER AVAILING THE BENEFIT OF +/- 5% RANGE AS PER PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT, 1961) TRANSACTIONS AT ARMS LENGTH AS PRICE CHARGED > 95% OF ALP TRANSACTIONS AT ARMS LENGTH AS PRICE CHARGED > 95% OF ALP FURTHER, PRIOR TO AMENDMENT BY FINANCE ACT, 2009, AS PER THE PROVISO TO SECTION 92C(2), THE +/- 5% RANGE WAS COMPUTED AROUND THE ARMS LENGTH PRICE. POST OF AMENDMENT (W.E.F. 1.10.2009), THE +/-5% RANGE NEEDS TO BE COMPUTED AROUND THE TRANSACTION VALUE. THE ORDER FOR A.Y. 2004-05 AND A.Y. 2005-06 HAVE BEEN PASSED ON NOVEMBER 27, 2006 AND OCTOBER 20, 2008 RESPECTIVELY. SINCE THE TPO HAS PASSED THE ORDERS BEFORE OCTOBER 1, 2009 (PRIOR TO AMENDMENT BY FINANCE ACT, 2009), THE AMENDMENT SHALL NOT BE APPLICABLE AND THE +/- 5% RANGE SHALL BE COMPUTED AROUND THE ARMS LENGTH PRICE. HENCE, I HOLD THAT THE APPELLANTS MARGINS ARE WITHIN ARMS LENGTH AFTER TAKING INTO CONSIDERATION ITA NO.904/DEL/2013 5 THE AMENDMENTS IN SECTION 92C OF THE ACT VIDE FINANCE ACT, 2009 AND FINANCE ACT, 2012. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE. NONE APPEARED ON BEHALF OF THE ASSE SSEE. IN OUR CONSIDERED OPINION, THE MATTER CAN BE DISPOS ED OF BY PERUSING THE RECORDS AND HEARING THE LD. DEPARTM ENTAL REPRESENTATIVE. 8. WE CAN CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 92C. THE RETROSPECTIVE AMENDMENT INTRODUCE D BY THE FINANCE ACT, 2012 CLARIFIED THAT THE BENEFIT OF 5% AVAILABLE AS PER PROVISO TO SECTION 92C(2) OF THE A CT, IS NOT AVAILABLE AS A STANDARD DEDUCTION FOR THE COMPA NY WHERE THE DIFFERENCE BETWEEN THE TRANSFER PRICE AND THE ARMS LENGTH PRICE IS MORE THAN 5%. 9. WE FIND THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAS NOTED THAT THE ORDER FOR THE ASSESSMENT YEA R 2004-05 WAS PASSED ON 27.11.2006. SINCE THE TPO HA S PASSED THE ORDERS BEFORE OCTOBER 1, 2009 (PRIOR TO AMENDMENT BY FINANCE ACT, 2009). THE AMENDMENTS IN SECTION 92C OF THE ACT IS NOT APPLICABLE IN THE PR ESENT CASE. WE AGREE WITH THE LD. COMMISSIONER OF INCOME TAX (A) THAT IN SUCH CASE +/-5% RANGE SHALL BE COMP UTED AROUND THE ARMS LENGTH PRICE. SINCE THE TRANSACTI ON WAS WITHIN THE -5% RANGE OF COMPARABLE MARGIN, THE ISSU E OF STANDARD DEDUCTION WAS NOT APPLICABLE AND THE AMENDMENT DOES NOT HAVE ANY EFFECT ON THE ASSESSEE. HENCE, IN OUR CONSIDERED OPINION, THERE IS NO INFIR MITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) , THEREFORE, WE UPHOLD THE SAME. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ITA NO.904/DEL/2013 6 SINCE THE FACTS REMAIN THE SAME, RESPECTFULLY FOLLO WING THE AFORESAID DECISION OF THE ITAT, COORDINATE BENCH, WE DISMISS THE REVENUES APPEAL IN THIS YEAR ALSO. 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 27 TH DAY OF AUGUST, 2013. SD/- SD/- (R.P. TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 27 TH DAY OF AUGUST, 2013 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT NEW DELHI