Appeal details
Counselvise Citation
[2021] 108 COUNSELVISE.COM (IT) 3238 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 4 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-06-2021
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
08-03-2021
Assessment Year
2011-2012
Appeal Filed On
29-01-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.94/BANG/2016 ASSESSMENT YEAR : 2011-12 RADISYS INDIA PVT. LTD., 6 TH FLOOR, ELECTRA WING B EXORA BUSINESS PARK, BEHIND PRESTIGE TECH PARK, MARATHAHALLI SARJAPURA OUTER RING ROAD, BENGALURU-560 103. PAN AACCC 3169 M VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-5(1)(1), BENGALURU. APPELLANT RESPONDENT IT(TP)A NO.367/BANG/2016 ASSESSMENT YEAR : 2011-12 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-5(1)(1), BENGALURU. VS. RADISYS INDIA PVT. LTD., 6 TH FLOOR, ELECTRA WING B EXORA BUSINESS PARK, BEHIND PRESTIGE TECH PARK, MARATHAHALLI SARJAPURA OUTER RING ROAD, BENGALURU-560 103. PAN AACCC 3169 M APPELLANT RESPONDENT ASSESSEE BY : SHRI MAHAVEER C JAIN, C.A REVENUE BY : MS. NEERA MALHOTRA, CIT (DR) PAGE 2 OF 10 IT(TP)A NO.94 & 367/BANG/2016 DATE OF HEARING : 08-03-2021 DATE OF PRONOUNCEMENT : 14-06-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT CROSS APPEALS HAS BEEN FILED BY AS SESSEE AGAINST FINAL ASSESSMENT ORDER DATED 13/11/2015 PASSED BY L D.DCIT CIRCLE 5(1)(1), BANGALORE UNDER SECTION 143(3) READ WITH 144C(3) OF THE ACT ON FOLLOWING GROUNDS OF APPEAL: IT(TP)A NO.367/BANG/2016 1. THE DIRECTION OF THE DISPUTE RESOLUTION PANEL AR E OPPOSED TO THE LAW AND NOT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.DRP ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE EXPEN DITURE INCURRED IN FOREIGN CURRENCY, BOTH FROM THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10 OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE STATUTE ALLOWS EXCLU SION OF SUCH EXPENDITURE ONLY FROM ETO BY WAY OF SPECIFIC DEFINI TION OF EXPORT TURNOVER AS ENVISAGED BY SUB-CLAUSE(4) OF EXPLANATI ON 2 BELOW SUB SECTION 8 OF SECTION 10A. ON THE OTHER HAND , THERE IS NO SPECIFIC PROVISION IN SECTION 10A WARRANTING EXCLUSION OF AB OVE EXPENSES FROM TOTAL TURNOVER ALSO. 3. WHETHER THE DRP IS CORRECT IN EXCLUDING E-INFOCH IPS LIMITED WHILE THE COMPARABLE IS QUALIFYING THE SERVICE INCOME TO TURN OVER FILTER OF 75% AND THE COMPANY IS FUNCTIONALLY A SOFTWARE DEVELOPMENT COMPANY. 4. WHETHER THE DRP IS CORRECT IN EXCLUDING ICRA TEC HNO ANALYTICS LIMITED WHILE THE COMPARABLE IS QUALIFYING ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 5. WHETHER THE DRP IS CORRECT IN EXCLUDING INFOSYS TECHNOLOGIES LIMITED WHILE THE COMPARABLE IS QUALIFYING ALL THE QUALITAT IVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UP ON, DIRECTION OF THE DISPUTE RESOLUTION PANEL MAY BE REVERSED AND THAT A SSESSMENT ORDER BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEAL. ITA NO. 367/B/2016 PAGE 3 OF 10 IT(TP)A NO.94 & 367/BANG/2016 1. THE LEARNED TRANSFER PRICING OFFICER HAS ERRED I N PROPOSING A TRANSFER PRICING ADJUSTMENT AND HON'BLE DISPUTE RESOLUTION P ANEL HAS ERRED IN CONFIRMING THE SAME. BY DOING SO, THEY HAVE IGNORED THE FACT THAT, SINCE THE APPELLANT IS AVAILING TAX HOLIDAY UNDER SECTION 10A OF THE INCOME TAX ACT, THERE IS NO INTENTION TO SHIFT THE PROFIT BASE OUT OF INDIA AND ACCORDINGLY THERE IS NO MOTIVE FOR TAX AVOIDANCE; 2. THE LEARNED TRANSFER PRICING OFFICER/HON'BLE DIS PUTE RESOLUTION PANEL HAVE GROSSLY ERRED BY ARBITRARILY REJECTING THE COM PANIES SELECTED /ACCEPTED BY THE APPELLANT AS COMPARABLES ON UNJUST IFIABLE GROUNDS. 3. THE LEARNED TRANSFER PRICING OFFICER HAS GROSSLY ERRED BY DISREGARDING THE FUNCTIONAL PROFILE OF THE APPELLANT AND COMPARI NG IT WITH A COMPANY HAVING DIFFERENT FUNCTIONAL PROFILE AND THE HON'BLE DISPUTE RESOLUTION PANEL HAS ERRED IN CONFIRMING THE SAME. 4. THE HON'BLE DISPUTE RESOLUTION PANEL HAS GROSSLY ERRED IN APPLYING 'ONSITE REVENUE FILTER'. 5. THE HON'BLE DISPUTE RESOLUTION PANEL HAS GROSSL Y ERRED BY REJECTING COMPARABLES HAVING EXPENDITURE IN FOREIGN CURRENCY OF LESS THAN 75% TO TOTAL REVENUE UNDER 'ONSITE REVENUE FILTER'. 6. THE LEARNED TRANSFER PRICING OFFICER HAS GROSSLY ERRED ON FACTS BY MAKING ARITHMETICAL ERRORS IN THE COMPUTATION OF TH E COMPARABLES NCP MARGIN. 7. THE LEARNED TRANSFER PRICING OFFICER HAS GROSSLY ERRED BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS- A-VIS THE COMPARABLES AND THE HON'BL E DISPUTE RESOLUTION PANEL HAS ERRED IN CONFIRMING THE SAME. 8. THE LEARNED ASSESSING OFFICER HAS ERRED IN INITI ATING PENALTY PROCEEDINGS UNDER SECTION 271 (1 )(C) OF THE INCOME TAX ACT MECHANICALLY AND WITHOUT RECORDING ANY ADEQUATE SATISFACTION FOR SUCH INITIATION. THE APPELLANT PRAYS THAT EACH OF THE ABOVE GROUNDS BE CONSIDERED DISCRETELY AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, OMIT OR ALTER GR OUNDS OF APPEAL BEFORE OR DURING THE HEARING OF THE APPEAL. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY AND HAS FILED ITS RETURN O F INCOME FOR YEAR UNDER CONSIDERATION ON 29/11/2011 DECLARING IN COME OF RS.76,595/-. RETURN WAS PROCESSED UNDER SECTION 143 (1) OF THE ACT. THE CASE WAS SUBSEQUENTLY SELECTED FOR SCRUTIN Y AND NOTICE UNDER SECTION 143 (2) OF THE ACT WAS ISSUED ALONG W ITH NOTICE UNDER SECTION 142 (1). IN RESPONSE TO STATUTORY NOT ICES, PAGE 4 OF 10 IT(TP)A NO.94 & 367/BANG/2016 REPRESENTATIVE OF ASSESSEE APPEARED BEFORE THE LD. AO AND FILED REQUISITE DETAILS AS CALLED FOR. 3. THE LD.AO OBSERVED THAT, ASSESSEE HAD INTERNATIO NAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES EXCEEDING RS.15 CRORES, AND THEREFORE, REFERENCE WAS MADE TO THE TRANSFER P RICING OFFICER UNDER SECTION 92C OF THE ACT. 4. ON RECEIPT OF REFERENCE, THE LD. TPO CALLED UPON ASSESSEE TO FILE THE ECONOMIC DETAILS OF INTERNATIONAL TRANSACT ION WITH ITS ASSOCIATED ENTERPRISES. 5. THE LD. TPO FROM THE DETAILS FILED, OBSERVED THA T, ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF CONTINUOUS COMPUTIN G CORPORATION, USA, AND IT IS ESTABLISHED IN INDIA MA INLY TO ASSIST AND SUPPORT THE BUSINESS OF ITS AE THROUGH DEVELOPM ENT AND SUPPORT OF COMPUTER SOFTWARE TO ITS HOLDING COMPANY . IT WAS OBSERVED THAT, ASSESSEE HAD FOLLOWING INTERNATIONAL TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION WITH ITS AE: INTERNATIONAL TRANSACTIONS AMOUNT (IN RS.) SOFTWARE DEVELOPMENT SERVICES 35,65,84,106/- INTEREST FREE LOAN FROM AE 2,34,06,912/- MOVABLE PROPERTY ACQUIRED ON LOAN 2,34,02,412/- RECOVERY OF EXPENSES 4,92,605/- RECEIPT ON LOAN BASIS OF COMPUTERS/ EQUIPMENTS 6,46,04,968/- TOTAL 46,84,91,003!- OPERATING INCOME (OR)* 35,65,84,106/ - EXPENDITURE (OC)** 31,01,48,418/ - OPERATING PROFIT (OP) 4,64,35,688/- OP/OC 14.97% OP/OR 13.02% 6. LD.TPO OBSERVED THAT ASSESSEE USED TNMM AS MOST APPROPRIATE METHOD AND APPLIED OP/OC AS PLI TO COMP UTE ITS PAGE 5 OF 10 IT(TP)A NO.94 & 367/BANG/2016 MARGIN AT 14.97%. ASSESSEE HAD SELECTED 11 COMPARAB LES WITH AVERAGE MARGIN OF 12.22%, THEREBY HOLDING THE TRA NSACTION ENTERED INTO BETWEEN ASSESSEE AND ITS AE TO BE AT A RMS LENGTH. 7. DURING TRANSFER PRICING PROCEEDINGS, ASSESSEE FU RNISHED ADDITIONAL COMPARABLES, OUT OF WHICH 2 COMPARABLES WERE ACCEPTED BY THE LD.TPO. 8. THE LD.TPO THEREAFTER UNDERTOOK FRESH SEARCH AND SELECTED FOLLOWING FINAL SET OF 13 COMPARABLES WITH AVERAGE MARGIN OF 24.82%. S1.NO NAME PLI 1 ACROPETAL TECHNOLOGIES LTD.(SEG) 31.98% 2 E ZEST SOLUTIONS (FROM CAPITALINE) 21.03% 3 E - INFOCHIPS LTD 5 6 .44% 4 EVOKE (FROM CAPITALINE) 8.11% 5 ICRA TECHNO ANALYTICS LTD. (IN 000) 24.83% 6 INFOSYS LTD 43.39% 7 LARSEN & TOUBRO INFOTECH LTD. 19.83% 8 MINDTREE LTD.(SEG) 10.66% 9 PERSISTENT SYSTEMS & SOLUTIONS LTD. 22.12% 10 PERSISTENT SYSTEMS LTD. 22.84% N R S SOFTWARE (INDIA) LTD. 16.37% 12 SASKEN COMMUNICATION TECHNOLOGIES LTD 24.13% 13 TATA ELXSI LTD (SEG) 20.91% AVERAGE MARGIN 24.82% 9. THE LD.TPO THUS PROPOSED AN ADJUSTMENT OF RS.2,54,87,730/-BEING SHORTFALL. PAGE 6 OF 10 IT(TP)A NO.94 & 367/BANG/2016 10. ON RECEIPT OF THE TRANSFER PRICING ORDER, THE L D.AO PASSED DRAFT ASSESSMENT ORDER. IN THE DRAFT ASSESSMENT ORD ER THE LD.AO DISALLOWED A SUM OF RS.24,58,203/- BEING DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. THE LD.AO MADE THE DI SALLOWANCE ON THE GROUND THAT, THE APPEAL AGAINST DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF TATA ELXSI , REPORTED IN (2011) 247 CTR 334, HAS BEEN FILED BY REVENUE BEFORE HONBLE SUPREME COURT WHICH WAS PENDING DURING RELEVANT PERIOD. 11. ON RECEIPT OF THE DRAFT ASSESSMENT ORDER, THE A SSESSEE PREFERRED OBJECTIONS BEFORE DRP. THE DRP ACCEPTED T HE SUBMISSIONS OF ASSESSEE AND DIRECTED LD.AO TO EXCLU DE FOLLOWING: ACROPETAL TECHNOLOGIES LTD. E-ZEST SOLUTIONS E INFOTECH LTD. ICRA TECHNO ANALYTICS LTD. INFOSYS TECHNOLOGIES LTD. TATA ELXSI LTD. MINDTREE LTD. RS SOFTWARE LTD. LARSEN AND TOUBRO INFOTECH LTD. EVOKE TECHNOLOGIES LTD. 12. DRP ALSO ALLOWED THE PLEA OF ASSESSEE REGARDING COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE I N ACCORDANCE WITH THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS TATA ELXSI LTD. (SUPRA) PAGE 7 OF 10 IT(TP)A NO.94 & 367/BANG/2016 13. ON RECEIPT OF THE ORDER PASSED BY DRP, THE LD.A O, PASSED THE FINAL ASSESSMENT ORDER. 14. AGGRIEVED BY THE FINAL ASSESSMENT ORDER PASSED BY LD.AO, ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US NOW. 15. AT THE OUTSET, BOTH SIDES SUBMITTED THAT APPEAL FILED BY REVENUE IS NOT MAINTAINABLE DUE TO LOW TAX EFFECT. 16. ACCORDINGLY, BASED ON THE ABOVE SUBMISSION WE D ISMISS THE APPEAL FILED BY REVENUE RELYING ON THE CIRCULAR NO .17/2019 ISSUED BY CBDT DATED 8/8/2019. IN THE RESULT, APPEAL FILED BY REVENUE STANDS DISMI SSED. 17. IN RESPECT OF THE APPEAL FILED BY ASSESSEE, THE LD.AR SUBMITTED THAT, ASSESSEE WISHES TO ARGUE ONLY 3 CO MPARABLES EXCLUDED BY LD.AO/DRP RAISED IN GROUND NO.1-2: RS SOFTWARE LTD. EVOKE TECHNOLOGIES LTD. CG-VAK SOFTWARE AND EXPORTS LTD. 18. IT WAS FURTHER SUBMITTED BY THE LD.AR THAT IN R ESPECT OF EVOKE TECHNOLOGIES AND CG-VAK SOFTWARE AND EXPORTS LTD., ASSESSEE HAD NOT RAISED ANY OBJECTION AGAINST THE 2 COMPANIES BEFORE DRP. HOWEVER, THE DRP REJECTED THESE 2 COMPA NIES ON ITS OWN. IT HAS BEEN SUBMITTED THAT THESE COMPARABLES W ERE ACCEPTABLE TO BOTH ASSESSEE AS WELL AS THE LD.TPO, AND THEREFORE NEEDS TO BE RESTORED TO THE FINAL SET OF COMPARABLE S. 19. AS REGARDS R.S.SOFTWARE LTD., LD.AR SUBMITTED T HAT THE DRP EXCLUDED THIS COMPARABLE SUO MOTO, BY APPLYING ON-SITE REVENUE FILTER. IT WAS SUBMITTED THAT, THIS FILTER WAS NOT APPLIED BY THE PAGE 8 OF 10 IT(TP)A NO.94 & 367/BANG/2016 LD.TPO FOR SELECTING THE FINAL SET OF COMPARABLES. BOTH REVENUE AS WELL AS ASSESSEE URGED THAT THESE COMPARABLES MAY B E RESTORED BACK TO THE FINAL LIST OF COMPARABLES. 20. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 21. WE FOUND THE SUBMISSIONS BY LD.AR TO BE TRUE AN D ACCORDINGLY DIRECT LD.AO TO INCLUDE R.S SOFTWARE LT D. ,EVOKE TECHNOLOGIES LTD., CG-VAK SOFTWARE AND EXPORTS LTD. TO THE FINAL LIST OF COMPARABLES. 22. APART FROM THE ABOVE COMPARABLES THE LD.AR DID NOT ARGUE FOR ANY OTHER COMPARABLES RAISED IN THESE GROUNDS. ACCORDINGLY, THESE GROUNDS RAISED BY ASSESSEE STAND S PARTLY ALLOWED IN RESPECT OF THE COMPARABLES ARGUED BEFORE US. 23. IT IS BEEN SUBMITTED BY LD.AR THAT ASSESSEE DO NOT WISH TO PRESS THE OTHER GROUNDS RAISED IN THE APPEAL. ACCORDINGLY, REMAINING GROUNDS ARE DISMISSED AS NOT PRESSED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED AS INDICATED HERE AND APPEAL FILED BY REVENUE STANDS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 14 TH JUNE, 2021. /VMS/ PAGE 9 OF 10 IT(TP)A NO.94 & 367/BANG/2016 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 10 OF 10 IT(TP)A NO.94 & 367/BANG/2016 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -4-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -4-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -4-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -4-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -4-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -4-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -4-2021 SR.PS 9. FILE SENT TO THE BENCH CLERK -4-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS
