Appeal details
Counselvise Citation
[2019] 112 COUNSELVISE.COM (IT) 6677 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 1 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-02-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Next Hearing Date
14-02-2019
Assessment Year
2007-2008
Appeal Filed On
10-01-2017
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , !' #$ % & ' ($ , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.94/CHD/2017 / ASSESSMENT YEAR : 2007-08 M/S QUARK MEDIA HOUSE INDIA PVT. LTD. (NOW KNOWN AS QC RESIDENTIAL PRIVATE LIMITED), A-45, PHASE-VIII, INDUSTRIAL AREA, MOHALI. THE D.C.I.T., CIRCLE 6(1) MOHALI. ./PAN NO: AAACQ0535F & \ ./ ITA NO.421/CHD/2017 / ASSESSMENT YEAR : 2011-12 M/S QUARK MEDIA HOUSE INDIA PVT. LTD. (NOW KNOWN AS QC RESIDENTIAL PRIVATE LIMITED), A-45, PHASE-VIII, INDUSTRIAL AREA, MOHALI. THE D.C.I.T., CIRCLE 6(1) MOHALI. ./PAN NO: AAACQ0535F /ASSESSEE BY : SHRI RAMAN AGGARWAL, CA / REVENUE BY : SHRI J.S. KAHLON, SR. DR ! ' /DATE OF HEARING : 14.02.2019 #$%& ' /DATE OF PRONOUNCEMENT: 28.02.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER BOTH THE PRESENT APPEALS FILED BY THE SAME ASSESSEE ARE AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, CHANDIGARH (IN SHORT CIT(A) DATE D ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 2 1.11.2016 AND 5.12.2016 RESPECTIVELY, PASSED U/S 25 0(6) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S ACT). 2. THESE ARE STAY GRANTED MATTERS ,WHICH WAS GRANTED VIDE ORDER DATED 03.05.2018 FOR A PERIOD O F SIX MONTHS OR TILL THE DISPOSAL OF THE APPEAL WHICH EVER WAS EARLIER AND WAS THEREAFTER EXTENDED BY WAY OF INTERIM ORDERS SINCE THE CASES WERE ADJOURNED FOR NO FAULT OF THE ASSESSEE, WITH THE DEPARTMENT SEEKING ADJOURNMENT ON ONE OCCASION, WHILE ON THE OTHER OCCASION IT WAS ADJOURNED BY THE BENCH FOR WANT OF TIME. 3. IT WAS COMMON GROUND THAT THE ISSUES INVOLVED IN THESE APPEALS WERE IDENTICAL AND COMMON. THEY WERE THEREFORE TAKEN UP TOGETHER FOR HEARING AND ARE BE ING DISPOSED OFF BY THIS COMMON, CONSOLIDATED ORDER FO R THE SAKE OF CONVENIENCE. WE SHALL FIRST BE TAKING UP THE APPEAL IN ITA NO.94/CHD/2017 AND THE GROUNDS RAISED READ AS UNDER: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN LAW AS WELL AS FACTS IN HOLDING THAT PROPE R OPPORTUNITY OF BEING HEARD HAS BEEN GRANTED BY THE ASSESSING OFFICER WHICH IS ARBITRARY AND UNJUSTIFIED. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) HAS FAILED TO APPRECIATE THE MATERIALS ON THE RECORD AND FACTS OF THE CASE. 3. THAT THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS, ARBITRARY, OPPOSED TO LAW AND FACTS OF THE CASE AND IS, THUS UNTENABLE. 4. THAT THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER ERRED IN PASSING A NON-SPEAKING ORDER OF THE ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 3 PRINCIPALS OF NATURAL JUSTICE. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS MADE AN ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS FOR THE INTERNATIONAL TRANSACTION AS DETERMINED BY THE TPO AMOUNTING TO RS. 7,46,62,011/-. 6. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO ESTABLISH THAT THE APPELLANT HAD ANY MALAFIDE INTENTION TO MANIPULATE PRICES/PROFITS FOR THE PURPOSE OF AVOIDANCE OF TAX THAT UNDERLIE THE TRANSFER PRICING LAW AND RULES IN INDIA. 7. THAT THE LEARNED TRANSFER PRICING OFFICER AS WELL AS COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN REJECTI NG THE FILTERS SELECTED BY THE ASSESSEE COMPANY. 8. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ILLEGALLY, WRONGLY, ARBITRARILY AND WITHOUT ANY BASIS USED FRESH FILTERS WHICH ARE UNJUST AND IRRATIONAL. 9. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ILLEGALLY, WRONGLY, ARBITRARILY AND WITHOUT ANY BASIS REJECTED THE COMPARABLE SELECTED BY THE ASSESSEE COMPANY. 10. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ILLEGALLY, WRONGLY, ARBITRARILY AND WITHOUT ANY BASIS GATHERED THE INFORMATION FROM SECRET MEANS WHICH ARE NOT AVAILABLE IN THE PUBLIC DOMAIN. 11. THAT THE LEARNED TRANSFER PRICING OFFICER AS WE LL AS COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SELECTION THE COMPARABLE WHICH ARE NOT COMPARABLE WITH THE ASSESSEE COMPANY. 12. THAT THE LEARNED TRANSFER PRICING OFFICER AS WE LL AS COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT ALLOWING THE ADJUSTMENT ON THE ACCOUNT OF FUNCTIONA L APPROACH, ASSETS APPROACH AND RISK APPROACH. (FAR ANALYSIS). 13. ANY OTHER GROUND WHICH MAY BE TAKEN UP AT THE TI ME OF HERRING OF APPEAL WITH THE KIND PERMISSION. 4. AT THE OUTSET, IT WAS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE THAT THE SOLITARY ISSUE INVOLV ED IN THIS APPEAL RELATED TO TRANSFER PRICING(IN SHORT RE FERRED ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 4 TO AS TP) ADJUSTMENT MADE OF RS.7,46,62,011/- TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. DRAWING OUR ATTENTION TO THE FACTS OF THE CASE IT WAS POINTED OUT THAT THE ASSESSEE COMPANY PROVIDED SOFTWARE DEVELOPMENT SERVICES TO ITS AE, M /S QUARK MEDIA HOUSE, SARL, SWITZERLAND. A REFERENCE WAS MAD E BY THE ASSESSING OFFICER(IN SHORT REFERRED TO AS A.O ) TO THE TRANSFER PRICING OFFICER(IN SHORT REFERRED TO AS T PO) U/S 92CA OF THE ACT, FOR COMPUTING THE ARM'S LENGTH PRI CE(IN SHORT REFERRED TO AS ALP) IN RELATION TO THE INTE RNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISE(IN SHORT REFERRED TO AS AE). THE TPO REJECTED THE TP STUDY CONDUCTE D BY THE ASSESSEE FINDING THE SAME DEFECTIVE AND NOT RELIAB LE AND CONDUCTED A FRESH ECONOMIC ANALYSIS TO DETERMINE TH E ALP OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE A SSESSEE AND DETERMINED THE ARM'S LENGTH PRICE OF THE INTERN ATIONAL TRANSACTION AT RS. 78,03,82,835/- INSTEAD OF RS. 70,57,20,824/- THEREBY RESULTING IN AN ADJUSTMENT TO THE EXTENT OF RS. 7,46,62,011/-,WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT(A), WHO UPHELD THE ORDER OF THE A .O. 5. THE LD. COUNSEL FOR ASSESSEE THEREAFTER ARGUED THAT THE ADJUSTMENT HAD RESULTED ON ACCOUNT OF REJECTION OF ALL THE COMPARABLES SELECTED BY THE ASSESSEE AND SELECTION OF FRESH COMPARABLES BY THE TPO. IT WAS POINTED OUT, FROM THE FACTS NOTED IN PARA ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 5 9.1 OF THE CIT(A)S ORDER, THAT THE TPO HAD SELECTE D 26 COMPARABLES AFTER ANALYZING DATABASE, THE ANNUAL REPORTS AND THE OBJECTIONS OF THE ASSESSEE, FOR DETERMINING ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. THE LD. COUNSEL FOR ASSESSEE CONTENDE D, THAT BEFORE THE LD.CIT(A) IT WAS POINTED OUT THAT A LL 26 COMPARABLES SELECTED BY THE TPO HAD BEEN WRONGLY SELECTED AND WERE NOT COMPARABLE AT ALL .IT WAS ALS O POINTED OUT THAT THESE VERY COMPANIES SELECTED AS COMPARABLES BY THE TPO, HAD BEEN REJECTED AS COMPARABLES IN IDENTICAL FACTS AND CIRCUMSTANCES IN VARIOUS ORDERS OF THE I.T.A.T. OUR ATTENTION WAS DR AWN TO THE SUBMISSIONS MADE TO THE CIT(A) IN THIS REGAR D, REPRODUCED AT PAPER BOOK PART-I PAGE NOS.21 TO 61 WHEREIN IT WAS POINTED OUT THAT EACH ONE OF THE 26 COMPARABLES SELECTED BY THE TPO WAS SEPARATELY DEAL T WITH POINTING OUT HOW IT WAS NOT COMPARABLE ON VARIOUS PARAMETERS OF THE FUNCTIONS, ASSETS AND RIS KS ANALYSIS OF THE ASSESSEE COMPANY AND THE COMPARABLE COMPANIES AND ALSO ON ACCOUNT OF THE DECISIONS OF T HE I.T.A.T. IN WHICH THEY HAD BEEN HELD NOT TO BE COMPARABLE IN IDENTICAL FACTS AND CIRCUMSTANCES. T HE LD. COUNSEL FOR ASSESSEE THEREAFTER POINTED OUT THA T THE LD.CIT(A) HAD SIMPLY UPHELD THE FINDINGS OF THE A.O. IN THIS REGARD AND HELD THE COMPARABLES TO BE CORRECT WITHOUT DEALING WITH THE CONTENTIONS RAISED BY ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 6 THE ASSESSEE AS ABOVE. OUR ATTENTION WAS DRAWN TO T HE FINDINGS OF THE CIT(A) AT PARA 9.3 OF HIS ORDER AS UNDER: 9.3 THE SUBMISSION OF THE APPELLANT HAVE BEEN CONSIDE RED. THE TPO HAS GIVEN DETAILED REASONS FOR APPLYING THE FI LTERS AND ALSO COLLECTED INFORMATION FROM THE COMPANIES U/S 133(6) OF THE ACT AND A DETAILED SHOW CAUSE NOTICE WAS GIVE N TO THE APPELLANT. THE INFORMATION COLLECTED BY TPO WAS PROV IDED TO THE TAXPAYER FOR ITS COMMENTS AND FINALLY SELECTED COMPARABLES ON THE BASIS OF FUNCTIONAL SIMILARITY. THE F ILTER OF SOFTWARE DEVELOPMENT SERVICE REVENUES > 75% WAS APPL IED AT ENTERPRISE LEVEL AS WELL AS AT THE SEGMENT LEVEL WHEREVER THE SEGMENTAL DATA IS AVAILABLE. M/S ACCEL TRANSMATIC LTD. D OES NOT HAVE ANY PRODUCT REVENUE AS PER THE ANNUAL REPOR T RECEIVED FROM THE COMPANY AND THEREFORE TPO CONSIDE RED IT A COMPARABLE AS IT DERIVES ALL ITS REVENUE FROM THE SOFT WARE DEVELOPMENT ACTIVITIES. IN THE CASE OF M/S AVANI CIMCO N TECHNOLOGIES LTD. TPO HAS GIVEN FINDING THAT AS PER ANNUAL REPORT OF THE COMPANY FOR THE F.Y. 2006-07 IS DOES NOT HAVE ANY REVENUES FROM SALE OF PRODUCT AND IT IS PURELY SO FTWARE DEVELOPMENT SERVICE PROVIDER. SIMILARLY ON EACH COMPA RABLE THE TPO HAS GIVEN DETAILED FINDINGS AS TO HOW THESE A RE COMPARABLE TO THE APPELLANT COMPANY. THESE COMPARAB LE COMPANIES HAS BEEN SELECTED ON THE BASIS OF THEIR FU NCTIONAL COMPARABILITY WITHOUT GOING INTO THE MARGINS AND ALL QUALIFIES THE FILTERS APPLIED BY TPO. APPELLANT HAS NOT BROUGHT ON RECORD ANY MATERIAL TO CONTROVERT THE FINDING OF A.O / TPO AND HENCE, THE COMPARABLES SELECTED BY TPO ARE COMPARABLES AND A RE FUNCTIONALLY SIMILAR TO THE ASSESSEE. THIS GROUND OF A PPEAL NO. 13 IS DISMISSED. 6. THE LD. COUNSEL FOR ASSESSEE FURTHER PLACED A CHART BEFORE US BRIEFLY OUTLINING ALL THE 26 COMPARABLES COMPANIES AND WHY THEY WERE NOT COMPARABLE WITH THE ASSESSEE COMPANY AND ALSO MENTIONING THE DECISIONS OF THE I.T.A.T. IN WHICH THEY HAD BEEN HELD TO BE NOT COMPARABLE IN IDENTICAL FAC TS AND CIRCUMSTANCES. THE LD. COUNSEL FOR ASSESSEE PLEADED THAT SINCE THESE VERY COMPARABLES HAD BEEN FOUND NOT SUITABLE BY THE I.T.A.T. IN A NUMBER OF ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 7 DECISIONS AND THIS FACT HAVING BROUGHT TO THE NOTIC E OF THE LD.CIT(A), THE ACT OF THE LD.CIT(A) IN REJECTIN G THE CONTENTION OF THE ASSESSEE THAT THE COMPARABLES SELECTED BY THE TPO WERE INCORRECT, WITHOUT DEALING WITH THE CONTENTION OF THE ASSESSEE WAS GROSSLY UNJUSTIFIED AND NEEDED TO BE SET ASIDE. 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD.CIT(A). 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE, WE FIND, HAS RAISED A NUMBER OF GROUNDS BEFORE US CHALLENGING THE TRANSFER PRICING ADJUSTME NT MADE TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN B Y THE ASSESSEE AMOUNTING TO RS. 7,46,62,011/-, BUT HA S RAISED A SOLITARY CONTENTION BEFORE US THAT THE PLEADINGS AND CONTENTION OF THE ASSESSEE VIS A VIS THE SELECTION OF 26 COMPARABLES BY THE TPO MADE BEFORE THE LD.CIT(A), WERE NOT SPECIFICALLY DEALT WITH WHI LE REJECTING THIS GROUND RAISED BEFORE THE LD.CIT(A). ADMITTEDLY AND AS POINTED OUT BY THE LD. COUNSEL FO R ASSESSEE, EACH AND EVERY OF THE 26 COMPARABLES SELECTED BY THE TPO HAD BEEN POINTED OUT BY THE ASSESSEE TO BE INCORRECT COMPARABLE ON VARIOUS PARAMETERS THAT THEY WERE EITHER FUNCTIONALLY DIFFE RENT OR THAT THE TPO HAD RELIED ON SEGMENTAL INFORMATION OF THE COMPARABLE COMPANY WHICH WAS NOT RELIABLE SINCE IT HAD CONSIDERED ONLY DIRECT EXPENSES IGNORING THE ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 8 INDIRECT EXPENSES AND LIKEWISE AND REFERENCE ALSO W AS MADE TO VARIOUS I.T.A.T. DECISIONS WHEREIN THESE VE RY SAME SET OF 26 COMPARABLES WERE HELD TO BE NOT COMPARABLE CASES. LD.DR HAS BEEN UNABLE TO CONTROVERT THIS FACT BEFORE US. THE LD.CIT(A),WE AG REE WITH THE LD.COUNSEL FOR THE ASSESSEE, HAS NOT DEALT WITH THIS CONTENTION OF THE ASSESSEE AND SIMPLY REL IED UPON THE FINDINGS OF THE TPO IN THIS REGARD. 9. IN VIEW OF THE SAME, SINCE THE LD.CIT(A) HAS FAI LED TO ADDRESS THE ARGUMENT OF THE ASSESSEE THAT THE 26 COMPARABLES SELECTED BY THE TPO WERE IN FACT NOT COMPARABLE TO THE ASSESSEE COMPANY AND HAD BEEN HELD SO ALSO BY THE ITAT IN A NUMBER OF DECISIONS, WE CONSIDER IT FIT TO RESTORE THE ISSUE BACK TO THE LD.CIT(A) TO ADJUDICATE THE ISSUE AFRESH IN THE LIG HT OF AFOREMENTIONED CONTENTION MADE BY THE LD. COUNSEL F OR ASSESSEE BEFORE US. WE MAY DIRECT THAT THE ASSESSEE BE GIVEN DUE OPPORTUNITY OF HEARING AND ISSUE BE DECID ED THEREAFTER IN ACCORDANCE WITH LAW. ALL THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISPOSED OFF AS ABOVE. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 10. WE SHALL NOW BE TAKING UP THE APPEAL OF THE ASSESSEE IN ITA NO.421/CHD/2017. GROUND NO.1 & 2 RAISED BY THE ASSESSEE, IT WAS CONTENDED BEFORE US WAS RELATING TO THE SAME ISSUE OF TRANSFER PRICING ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 9 ADJUSTMENT MADE ON ACCOUNT OF DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE RESULTING IN ADJUSTMENT OF RS.2,17,91,71 9/- TO THE SAME. THEY WERE THEREFORE TAKEN UP TOGETHER AND READ AS UNDER: 1. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRI CING OFFICER/LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS MADE AN ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS FOR THE INTERNATIONAL TRANSACTION AS DETERMINED BY THE TPO AMOUNTING TO RS.2,17,91,719/-. 2. THAT DURING THE YEAR UNDER REVIEW, THE COMPANY PAID A SUM OF PAID RS.48,61,726/- AS EXCISE/CUSTOMS DUTY. THE SAID EXPENSE BEING NON OPERATING EXPENSE BY NATURE, THE SAME HAS BEEN INCLUDED BY THE LEARNED ASSESSING OFFICER/TRANSFER PRICING OFFICER/ LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHILE CALCULATING OPERATING MARGIN OF THE COMPANY. 11. IT WAS COMMON GROUND THAT THE ISSUE RAISED IN T HE ABOVE GROUND WAS IDENTICAL TO THAT RAISED IN ASSESS EES APPEAL IN ITA NO.94/CHD/2017 DEALT WITH BY US ABOVE . IT WAS POINTED OUT THAT IN THIS CASE ALSO THE TP ST UDY CONDUCTED BY THE ASSESSEE WAS REJECTED BY THE TPO REJECTING ALL THE COMPARABLES SELECTED BY THE ASSES SEE AND THE TPO HAD IN TURN SELECTED HIS OWN SET OF COMPARABLE COMPANIES AND DETERMINED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS AT RS.24,48,51,108/- INSTEAD OF RS.23,30,67,389/- DETERMINED BY THE ASSESSEE THUS MAKING AN ADJUSTMENT TO THE EXTENT OF RS.2,17,91,719/-. THAT THE ASSESSEE IN THIS CASE ALSO, HAD IN APPELLATE PROCEEDINGS BEFORE THE LD.CIT(A), POINTED OUT THAT THE ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 10 COMPARABLES WERE NOT CORRECT AND HAD BEEN HELD SO I N A NUMBER OF DECISIONS BY THE I.T.A.T. AND THAT THE LD. CIT(A) IN THIS CASE ALSO HAD WITHOUT DEALING WITH T HIS CONTENTION OF THE ASSESSEE REJECTED THE GROUND RAIS ED BY THE ASSESSEE TO THIS EFFECT. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT ITS PLEADINGS AND PRAYER VI S- -VIS TRANSFER PRICING ADJUSTMENT MADE OF RS.2,17,91,719/- WAS IDENTICAL TO THAT RAISED IN TH E APPEAL OF THE ASSESSEE IN ITA NO.94/CHD/2017. 12. THE LD. DR CONCEDED THAT THE ISSUE WAS IDENTICA L THOUGH HE RELIED UPON THE ORDER OF THE CIT(A). 13. IN VIEW OF THE ABOVE, SINCE ADMITTEDLY IDENTICA L ISSUE HAS BEEN DEALT WITH BY US IN ASSESSEES APPEA L IN ITA NO.94/CHD/2017 OUR DECISION RENDERED THEREIN WILL SQUARELY APPLY TO THIS GROUND ALSO FOLLOWING W HICH WE RESTORE THE ISSUE BACK TO THE LD.CIT(A) TO DECID E THE SAME AFRESH IN ACCORDANCE WITH OUR DIRECTIONS I N THE ASSESSEES APPEAL FOR A.Y 2007-08 DECIDED ABOVE BY US IN ITA NO.94/CHD/2017 . THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND OF APPEAL NO.3 TO 10, IT WAS CONTENDED WAS IN RELATION TO THE SAME ISSUE BEING TRANSFER PRICING ADJUSTMENT MADE BY TREATING THE RECEIVABLES OF THE ASSESSEE AS INTERNATIONAL TRANSACTION AND CHARG ING ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 11 INTEREST ON THE SAME. THEY WERE THEREFORE TAKEN UP TOGETHER FOR HEARING AND READ AS UNDER: 3. THAT THE LEARNED ASSESSING OFFICER/TRANSFER P RICING OFFICER/ LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS CONSIDERED THE RECEIVABLES AS INTERNATIONAL TRANSACTION, APPLIED HIGHER RATE O F INTEREST ON RECEIVABLES, APPLIED CUP METHOD FOR DETERMINATION OF INTEREST ON RECEIVABLES AND MADE A N ADDITION ON ACCOUNT OF INTEREST ON OUTSTANDING RECEIVABLES FROM ITS AE AMOUNTING TO RS. 4,21,25,351 /- 4. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRIC ING OFFICER/LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS REJECTED THE COMPARABLES SUBMITTED BY THE COMPANY. 5. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRIC ING OFFICER/LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS DID NOT ALLOW THE ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL. 6. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRI CING OFFICER/ LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS DID NOT ALLOW THE ADJUSTMENT OF RISKS. 7. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRI CING OFFICER/LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS DID NOT ALLOW THE ADJUSTMENTS ON ACCOUNT OF DIFFERENCES SUCH AS INTANGIBLE ASSETS, BR AND VALE ETC. 8. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRIC ING OFFICER/LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BAS IS APPLIED THE LOWER TURNOVER FILTER WITHOUT APPLYING THE UPPER LIMIT FILTER 9. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRIC ING OFFICER HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS REJECTED THE TP STUDY CONDUCTED BY THE COMPANY. 10. THAT THE LEARNED ASSESSING OFFICER/TRANSFER PRI CING OFFICER HAS WRONGLY, ILLEGALLY, ARBITRARILY AND WITHOUT ANY BASIS INCLUDED ACROPERAL TECHNOLOGIES LTD, CELSTREARN, TECHNOLOGIES PVT. LTD, E-INFOCHIPS LTD, EVOKE TECHNOLOGIES PVT LTD, E-ZEST SOLUTIONS LIMITED, ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 12 IGATE GLOBAL SOLUTIONS LTD, INFOSYS LTD, LARSEN & TOUBRO INFO TECH LTD, LGS GLOBAL LTD, MINDTREE LTD, PERSISTENT SYSTEMS AND SOLUTIONS LTD. R.S. SOFTWARE (INDIA ) LTD, SANKHYA INFOTECH LIMITED, SASKEN COMMUNICATIONS TECH LTD TATA ELEXSI LTD, THIRDWARE SOLUTIONS LTD AND WIPRO TECHNOLOGIES LIMITED AS COMPARABLES. 11. THAT THE APPELLANT CRAVES LEAVE TO ADD, DELETE OR AMEND GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 15. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF QU ARK MEDIA HOUSE SARL, SWITZERLAND WHICH IS AN ASSOCIATE D ENTERPRISES IN THIS CASE. ASSESSEE PROVIDED SOFTWAR E DEVELOPMENT SERVICES AND SUPPORTS ITS ASSOCIATED EN TERPRISES IN SOFTWARE DEVELOPMENT ACTIVITIES RELATING TO VARI OUS SOFTWARE PRODUCTS BEING DEVELOPED BY ITS ASSOCIATED ENTERPRISES. ASSESSING OFFICER OBSERVED THAT ASSESS EE'S RECEIVABLES HAD REMAINED OUTSTANDING WITH THE ASSOC IATED ENTERPRISE FOR A PERIOD FAR EXCEEDING THE TERMS OF PAYMENT OF 30 DAYS AS PROVIDED IN THE INTERCOMPANY SERVICE AGR EEMENT WITH THE AE. THE A.O FURTHER OBSERVED THAT NO PARTY IN UNCONTROLLED CIRCUMSTANCES WOULD HAVE ALLOWED SUCH LONG INTEREST FREE CREDIT PERIOD AND THEREFORE EVERY INT ERNATIONAL TRANSACTION WITH AN AE NEEDED TO BE BENCHMARKED SEP ARATELY AND HELD IT TO BE AN INTERNATIONAL TRANSACTION AS P ER SECTION 92B. THE A.O PROPOSED THAT THE ARM LENGTH PRICE OF THE INTEREST ON THE OUTSTANDING RECEIVABLES FROM THE A. E WAS TO BE DETERMINED BY CONSIDERING IT TO BE SIMILAR TO A LOAN IN NATURE AND AFTER GIVING SHOW CAUSE NOTICE DETERMINE D THE ARM'S LENGTH PRICE AT THE INTEREST RATE OF RS. 10.8 4% AND MADE ADJUSTMENT OF RS. 4,21,25,3517- BEING THE ARM' S ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 13 LENGTH INTEREST TO BE CHARGED BY THE ASSESSEE FROM ITS A.E ON EXTENDING CREDIT FACILITY/DELAY IN REALIZATION OF D EBIT BALANCES OUTSTANDING IN THE ACCOUNTS OF ASSOCIATED ENTERPRISE. 16. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT (A) WHO UPHELD THE ADDITION SO MADE HOLDING AS UNDER: 14.3 SUBMISSION OF THE APPELLANT AND ORDER OF THE T PO HAVE BEEN CONSIDERED RECEIVABLES IN THIS CASE PENDIN G BEYOND THE MUTUALLY AGREED PERIOD OF 30 DAYS WOULD CONSTITUT E INTERNATIONAL TRANSACTION. SECTION 92B, EXPLANATION (1)( C) INSERTED WITH RETROSPECTIVE AMENDMENT W.E.F. 01.04.200 2 ENUNCIATES 'RECEIVABLES' TO FALL WITHIN THE AMBIT OF INTERNATIONAL TRANSACTIONS, THUS TPO WAS FULLY JUSTIFI ED IN CONSIDERING THE AFORESAID TRANSACTION AS INTERNATIO NAL TRANSACTION AND EXAMINING IF THE RECEIVABLES FROM T HE ASSOCIATED ENTERPRISES WERE WITHIN THE ARM'S LENGTH RA NGE OR NOT. THE PROVISIONS OF LAW PRESCRIBES THAT THE TAXPA YER IS REQUIRED TO CARRY OUT FAR ANALYSIS WITH REGARD TO EA CH OF THE TRANSACTIONS ENTERED INTO WITH THE AE. THEREFORE, IT WAS MANDATORY UPON THE TAXPAYER TO BENCHMARK THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATING TO IN TEREST CHARGEABLE ON RECEIVABLES FROM THE AE SEPARATELY BY WAY OF ANALYSIS OF THE FUNCTIONS, ASSETS AND RISKS. THE SAME HAS NOT BEEN CARRIED OUT BY THE TAXPAYER IN ITS TP DOCUME NTS. THE TPO HAS PRESENTED A DETAILED ANALYSIS ON THIS ISSUE IN THE ORDER. 14.3.1 THE DECISION OF HON'BLE HIGH COURT OF DELHI IN COTTON NATURALS (INDIA) PVT. LTD. (SUPRA) WHICH THE ASSESSEE HAS RELIED UPON IS IN RESPECT OF A LOAN BUT THE SAME PRINCIPLE WOULD APPLY IN THE CASE OF INTEREST ON RECEIVABLES. THE RATIO OF THIS JUDGEMENT IS NOT APPLICABLE IN THE CA SE OF THE APPELLANT AS THE PROVISION FOR CHARGING OF INTEREST ON THE OVERDUE ACCOUNTS/RECEIVABLES BEYOND THE CREDIT PERIOD OF 30 DAYS IS INCORPORATED IN THE INTERCOMPANY SERVICE AGREEMENT WITH THE AE ITSELF. THE RELEVANT CLAUSE 1 5.8 OF THE SERVICE AGREEMENT DATED 01.11.2003 IS AS UNDER:- THE RATE OF INTEREST APPLICABLE FOR OVERDUE ACCOUNT S SHALL BE THE LOCAL RATE OF INTEREST PREVALENT IN THE COUNTRY IN WHICH THE OFFICE OF THE DEVELOPER IS LOCATED ' 14.3.2 TPO HAS LEVIED INTEREST CHARGEABLE AT 10.84% WHICH WAS DERIVED FROM SBI PLR RATES FOR WHICH REASONED FIN DINGS HAVE BEEN GIVEN AT PAGE 54 OF THE TPO ORDER AND THE SAME ARE UPHELD. GROUNDS OF APPEAL NO. 6, 14, 15 AND 16 ARE DISMISSED. ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 14 17. BEFORE US, THE LD. COUNSEL FOR ASSESSEE CONTEND ED THAT THE ADJUSTMENT HAD BEEN MADE BY TREATING ADVANCE RECEIVABLE AS LOANS AND HOLDING THAT THE ASSESSEE O UGHT TO HAVE CHARGED INTEREST ON THE SAME AS PER STATE BANK OF INDIA PRIME LENDING RATE (SBI PLR RATE). THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT FIRSTLY THIS ACT WAS NOT AS PER LAW AS THE TPO COULD NOT HAVE CHANGED THE CHARACTER OF THE TRANSACTION AS ABOVE AND THAT TOO WITHOUT TAKING NO TE OF THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT IT HAD BEEN DEMONSTRA TED TO THE LD. CIT(A) THAT THE ASSESSEE HAD CHOSEN NOT TO CHARGE INTEREST ON THE ADVANCE RECEIVABLES REMAINING OUTST ANDING BEYOND THE SPECIFIED PERIOD SINCE THE AE WAS RUNNIN G INTO LOSSES AND THIS HAD BEEN PUT INTO WRITING BY WAY OF ADDENDUM TO THE MAIN SERVICE AGREEMENT. OUR ATTENTI ON WAS DRAWN TO THE SAME PLACED AT PAPER BOOK PAGE NO.64. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT THE LD.CIT(A) W ITHOUT TAKING NOTE OF THE SAME AND BY CONSIDERING ONLY THE SERVICE AGREEMENT WHICH MENTIONED CHARGING OF INTEREST ON RECEIVABLES OUTSTANDING BEYOND A SPECIFIED PERIOD, HAD CONFIRMED THE AFOREMENTIONED ADDITION MADE BY THE TPO/A.O. THE LD. COUNSEL FOR ASSESSEE CONTENDED THA T THE ADDENDUM TO THE SERVICE AGREEMENT WAS A CRUCIAL FAC T, CHANGING THE CHARACTER OF THE RECEIVABLES AND ON AC COUNT OF THE SAME COULD NOT BE COMPARED TO OTHER NORMAL RECE IVABLES IN OTHER CASES SO AS TO TREAT THEM AS LOANS AND CHA RGE INTEREST THEREON. THE LD. COUNSEL FOR ASSESSEE CONT ENDED THAT THE LD.CIT(A) HAD THEREFORE ERRED BY OVERLOOKI NG THIS ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 15 FACT. OUR ATTENTION WAS DRAWN TO THE DECISION OF TH E HON'BLE DELHI COURT IN THE CASE OF CIT-I VS. M/S COTTON NAT URALS (I) PVT. LTD. IN ITA NO.233/2014 DATED 13.2.2015 WHEREI N THE HON'BLE HIGH COURT HAD HELD THAT THE TPO WAS NOT EMPOWERED TO CHANGE THE CHARACTER OF THE TRANSACTIO N WHILE UNDERTAKING TRANSFER PRICING ANALYSIS. THE LD. COUN SEL FOR ASSESSEE ALTERNATIVELY CONTENDED THAT THE SBIPLR CO ULD NOT BE APPLIED IN THE PRESENT CASE AND RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S COTTON NATURALS (I) PVT. LTD. (SUPRA) IN SUPPORT OF THIS C ONTENTION. 18. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 19. WE HAVE HEARD THE RIVAL CONTENTIONS. WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL FO R ASSESSEE THAT THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE NEED TO BE TAKEN INTO CONSIDERATION BEFORE SELECTIN G THE COMPARABLES TO AN INTERNATIONAL TRANSACTION. IN THE PRESENT CASE, ADMITTEDLY THE ADDENDUM TO THE SERVICE AGREEM ENT WAS BROUGHT TO THE NOTICE OF THE LD.CIT(A) TO POINT OUT THE CHANGE IN THE FACTS AND CIRCUMSTANCES LEADING TO NO N CHARGING OF INTEREST BY THE ASSESSEE ON THE RECEIVA BLES, WHICH WAS AGREED TO EARLIER IN THE INITIAL SERVICE AGREEMENT ENTERED INTO BETWEEN BOTH THE PARTIES. THE SAME WAS NEEDED TO BE TAKEN INTO CONSIDERATION, IN OUR VIEW, FOR DE TERMINING THE COMPARABLES AND RATE OF INTEREST TO BE LEVIED T HEREON THEREAFTER. BY IGNORING THIS VITAL FACT THE LD.CIT( A) HAS UPHELD THE ADDITION ON THE BASIS OF COMPARABLES SEL ECTED ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 16 WHICH IN STRICT TERMS COULD NOT BE SAID TO BE COMPA RABLE AS PER THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CA SE. UNDENIABLY A COMPANY NOT CHARGING INTEREST ON RECEI VABLES IN THE FACE OF THE FACT THAT THE PAYER COMPANY WAS INCURRING HUGE LOSSES THUS JEOPARDIZING EVEN THE RECOVERY OF THE PRINCIPAL AMOUNT, CANNOT BE COMPARED WITH ANY OTHER COMPANY NOT SO PLACED VIS A VIS RECOVERY OF ITS DEB TS. IT WOULD TANTAMOUNT TO COMPARING APPLES WITH ORANGES. FOR SELECTING CORRECT COMPARABLES, THE SELECTED COMPANI ES SHOULD AS FAR AS POSSIBLE BE OPERATING IN THE SAME FACTS AND CIRCUMSTANCES AS THE TESTED COMPANY SO AS TO ARRIVE AT THE RATE OF INTEREST WHICH ANY OTHER INDEPENDENT COMPAN Y WOULD HAVE CHARGED IN SIMILAR CIRCUMSTANCES. AFTER ALL TH E ENTIRE PURPOSE OF UNDERTAKING TRANSFER PRICING ANALYSIS IS TO DETERMINE THE VALUE OF A TRANSACTION, UNDERTAKEN WI TH A CLOSELY RELATED ENTITY, IN AN INDEPENDENT SITUATION , I.E TO DETERMINE ITS ARMS LENGTH PRICE. AND THE SAME CAN B E ARRIVED AT ONLY IF THE COMPARABLES SELECTED FOR DETERMINING THE FAIR VALUE OF THE TRANSACTION OPERATE IN THE SAME CIRCUM STANCES AS THE ASSESSEE VIS A VIS THE CONCERNED TRANSACTION . THE LD.CIT(A) HAVING NOT TAKEN NOTE OF THE SAME THOUGH POINTED OUT BY THE ASSESSEE TO HIM, AND HAVING RELIED ONLY ON THE INITIAL AGREEMENT , WE CONSIDER IT FIT TO RESTORE T HE ISSUE BACK TO THE LD.CIT(A) TO ADJUDICATE THE ISSUE AFRES H IN THE LIGHT OF AFOREMENTIONED CONTENTION MADE BY THE LD. COUNSEL FOR ASSESSEE BEFORE US. WE MAY DIRECT THAT THE ASSESSEE BE GIVEN DUE OPPORTUNITY OF HEARING AND IS SUE BE DECIDED THEREAFTER IN ACCORDANCE WITH LAW. ALL T HE ITA NO.94/CHD/2017 A.Y.2007-08 & ITA NO.421/CHD/2017 A.Y.2011-12 17 GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISPOSED OFF AS ABOVE AND APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- % & ' ($ (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER )* /ACCOUNTANT MEMBER ,% /DATED: 28 TH FEBRUARY, 2019 * $ * $'( )*+* / COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT 2. (-, / THE RESPONDENT 3. . / CIT 4. . ( )/ THE CIT(A) 5. */0( 1 , '1 , 23405 / DR, ITAT, CHANDIGARH 6. 046! / GUARD FILE $' / BY ORDER, / ASSISTANT REGISTRAR PRECEIVE
