Brigada Global Services Pvt.Ltd., Hyd, Hyderabad V. ITO, Ward-1(2), Hyd, Hyderabad

ITA 988/HYD/2011

• Counselvise Citation: 98822514 RSA 2011
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: I RAMA RAO
• Keywords: Scheme of amalgamation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 988/HYD/2011 ASSESSMENT YEAR 2005-06 M/S. BRIGADE GLOBAL SERVICES PVT. LTD., HYDERABAD PAN: AAACW4748A VS THE INCOME TAX OFFICER WARD-1(2) HYDERABAD APPLICANT RESPONDENT APPELLANT BY: SRI I. RAMA RAO RESPONDENT BY: SRI P. SOMA SEKHAR REDDY DATE OF HEARING: 10.11.2014 DATE OF PRONOUNCEMENT: 26 .11.2014 ORDER PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III, HYDERABAD DATED 10.03.2011. 2. THE APPEAL OF THE ASSESSEE IN ITA NO. 988/HYD/2011 FOR A.Y. 2005-06 WAS DISPOSED OFF BY THE TRIBUNAL BY ITS ORD ER DATED 26.11.2012. WHILE DISPOSING OF THE APPEAL, THE TRI BUNAL HAD NOT ADJUDICATED GROUND NOS. 1.2 AND 1.3 INDEPENDENTLY. THE TRIBUNAL HELD THAT THE DECISION OF THE TRIBUNAL FOR A.Y. 200 4-05 HOLDS GOOD. 3. BY M.A. NO. 46/HYD/2013 THE APPLICANT SUBMITTED THA T THE GROUNDS 1.2 AND 1.3 ARE AS FOLLOWS: 1.2 THE LEARNED CIT(A) AS WELL AS LEARNED AO/TPO HAVE ERRED IN SELECTING AND USING CERTAIN COMPANIES AS COMPARABLES TO DETERMINE THE ARM'S LENGTH PRICE (ALP) BY NOT APPRECIATING THE FACT THAT THE COMPARABLE COMPANIES SELECTED ARE NOT COMPARABLES TO THE APPELLANT AND HENCE, CANNOT BE USED IN THE INSTANT CASE. 2 ITA NO. 988/HYD/2011 M/S. BRIGADE GLOBAL SERVICES PVT. LTD. ============================ 1.3 BOTH THE LEARNED CIT(A) AND AS WELL AS AO/TPO ERRED IN REJECTING THE LOSS MAKING COMPARABLES, IN VIOLATION OF OECD GUIDELINES, INSTE AD, SUMMARILY WITHOUT ANY BASIS CONCLUDED THAT THE COMPARABLES SHALL BE OF THOSE COMPANIES WHICH HAVE SHOWN PROFIT. 4. IT WAS SUBMITTED THAT THE GROUNDS PERTAIN TO SELECT ION OF COMPARABLES AND THE FILTERS APPLIED FOR SELECTION O F COMPARABLES FOR A.Y. 2004-05 ARE DIFFERENT FROM THE FILTERS APPLIED BY THE TPO FOR THE A.Y. 2005-06. THEREFORE, IT WAS POINTED OUT THAT T HE RATIO LAID DOWN BY THE TRIBUNAL IN THE ORDER FOR THE A.Y. 2004-05 I S NOT APPLICABLE FOR A.Y. 2005-06. 5. THE APPLICANT PRAYED IN MA NO. 46 THAT THE TRIBUNAL MAY ADJUDICATE GROUND NOS. 1.2 AND 1.3 BY WAY OF PASSIN G MODIFICATION ORDER. THE MA WAS HEARD AND ORDER OF TRIBUNAL RECA LLED. THE RECALLED ORDER HAS BEEN HEARD BY THE BENCH IN ITA N O. 988/HYD/2011 ON 10.11.2014 WHICH IS BEING ADJUDICATED BY THIS OR DER. 6. FACTS OF THE CASE ARE THAT ON REFERENCE FROM THE AO THE TP ORDER U/S. 92CA(3) OF INCOME-TAX ACT, 1961 WAS PASSED ON 30.09.2008. THE TPO A RRI VED AT THE PLI OF THE ASSESSEE AT 0.08% AND IDENTIFIED 9 COMPARABLES WITH ARITHMETIC MEAN PLI OF 24.65 %. TH E ADJUSTED PLI AFTER ALLOWING WORKING CAPITAL ADJUSTMENT OF 1.93% IS ARRIVED AT 22.72%. SINCE THE ADJUSTED PLI OF THE COMPARABLES WAS MORE THAN THE 5% OF THE PLI OF THE ASSESSEE , AN ADJUSTMENT OF RS. 3,36,84,458 WAS PROPOSED. 7. THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND THE CIT(A) CONFIRMED THE ORDER OF THE TPO. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE ITAT, HYDERABAD. THE ITAT VIDE ITA NO. 988/HYD/2011 DATED 26.11.2012 PASSED AN ORDER TO CONSIDER THE DIRECTIO NS GIVEN FOR THE A.Y. 2005-06 . FURTHER THE ITAT DELETED AND ADDED SOME OF THE COMPARABLES TO THE LIST OF COMPARAB L ES PROPOSED BY THE TPO. 3 ITA NO. 988/HYD/2011 M/S. BRIGADE GLOBAL SERVICES PVT. LTD. ============================ DURING THE COURSE OF PASSING THE CONSEQUENTIAL ORDE R, THE ASSESSEE WAS GIVEN AN OPPORTUNITY. IN RESPONSE TO THE SAME THE ASSESSEE FILED ITS REPLY ON 28.02.2013. IT WAS STATED IN THE CONSEQUENTIAL ORDER THAT THE COMPANIES I) ALLSEC TECHNOLOGIES LIMITED , II) NUCLEUS NETSOFT & GIS (INDIA) LTD AND III) MAPLE ESOLUTIONS LIMITED BE EXCLUDED IN VIEW O F THE FINDINGS OF THE ITAT FOR THE A.Y. 2004-05 THAT SUPER PROFIT COMPANIES NEED TO BE EXCLUDED. THE CONTENTION OF TH E ASSESSEE WAS NOT ACCEPTED BY THE TPO-II ON THE REASON THAT IN A.Y. 2004-05 THE ITAT HAS SPECIFICALLY DELETED ULTRAMARINE & PIGMENT LIMITED BEING SUPER PROFIT COMPANY, BUT NOWHERE IT LAID DOWN AS T O WHAT CONSTITUTES A SUPER PROFIT AND I N ABSENCE OF A YARDSTICK DELETION OF A COMPANY ON GROUNDS OF SUPER PROFITS WOULD BE HIGHLY SUBJECTIVE AND BEYOND THE SCOPE OF CONSEQUENTIAL ORDER. THEREFORE, THE TPO-II HELD THAT THE COMPANIES SOUGHT TO BE ELIMINATED BY THE ASSESSEE ARE RETAINED. 8. FOLLOWING THE ORDER OF THE ITAT THE REVISED PLI OF THE ASSESSEE AFTER MAKING NECESSARY ADJUSTMENTS TOWARD RENT WORK S OUT TO 7.64% IS AS UNDER : DESCRIPTION AMOUNT (RS.) OPERATING REVENUE 148897637 OPERATING COST* (148779413 - 10452000) 138327413 OPERATING PROFIT 10570224 OPERATING PROFIT TO COST RATIO 7.64 ' * AS DIRECTED BY THE ITAT, RS. 1,04,52,000 PAID AS EXCESS RENT BY THE ASSESSEE IS ADJUSTED. 9. THE TPO-II WORKED OUT THE AVERAGE PLI OF THE BALANC E COMPARABLES AFTER EXCLUDING AND INCLUDING COMPARABL ES AS DIRECTED BY THE ITAT AT 22.55% AS UNDER: THE AVERAGE PLI OF THE COMPARABLES AS DIRECTED BY THE ITAT WAS WORKED OUT TO 22.15% AS UNDER: S. NO. NAME OF THE COMPARABLE PLI% (OP/OC%) 1. ALLSEC TECHNOLOGIES LTD. 29.85 2. SAFFRON GLOBAL LTD. 24.88 3. TULSYAN TECHNOLOGIES LTD. 17.02 4 ITA NO. 988/HYD/2011 M/S. BRIGADE GLOBAL SERVICES PVT. LTD. ============================ 4. TRANSWORKS INFORMATION SERVICES LTD. 2.81 5. MAPLE ESOLUTIONS LTD. 28.75 6. NUCLEUS NET SOFT & GIS INDIA LTD. 40.06 7. ACE SOFTWARE EXPORTS LTD. 14.50 ARITHMETIC MEAN PLI 22.55 10. ON APPEAL BEFORE US, THE LEARNED COUNSEL SRI I. RAM A RAO POINTED OUT THAT THE LEARNED TPO HAD RETAINED THE F OLLOWING COMPARABLES ON THE GROUND THAT THE ITAT IN ITS ORDE R DATED 26.11.2012 HAD NOT LAID DOWN ANY CRITERIA FOR DELETION OF THE SAME: S. NO. NAME OF THE COMPARABLE PLI% (OP/OC%) 1. ALLSEC TECHNOLOGIES LTD. 29.85 2. SAFFRON GLOBAL LTD. 24.88 3. TULSYAN TECHNOLOGIES LTD. 17.02 4. TRANSWORKS INFORMATION SERVICES LTD. 2.81 5. MAPLE ESOLUTIONS LTD. 28.75 6. NUCLEUS NET SOFT & GIS INDIA LTD. 40.06 7. ACE SOFTWARE EXPORTS LTD. 14.50 11. THE LEARNED COUNSEL SUBMITTED THAT OUT OF THE ABOVE COMPARABLES ITEM NO. 3 I.E., TULSYAN TECHNOLOGIES L TD., WAS NOT CONSIDERED AS COMPARABLE FOR THE REASON THAT IT WAS NOTICED FROM THE ANNUAL ACCOUNTS THAT THE COMPANY OUTSOURCED A CONSI DERABLE PORTION OF THE BUSINESS. THE LEARNED COUNSEL RELIE D ON THE DECISION IN THE CASE OF ACIT VS. MAERSK GLOBAL SERVICE CENTRE I NDIA PVT. LTD. (133 ITD 543) WHEREIN THE MUMBAI BENCH OF THIS TRIBUNAL HELD THAT THIS COMPANY (TULSYAN TECHNOLOGIES LTD.) OUTSOURCED CONS IDERABLE PORTION OF ITS BUSINESS AND AS THE ASSESSEE CARRIED OUT ENTIRE OPERATIONS BY ITSELF, IT CANNOT BE COMPARED WITH TU LSYAN TECHNOLOGIES LTD. AND THE SAME WAS RIGHTLY EXCLUDED. 12. RELYING ON THE DECISION IN THE CASE OF ACIT VS. MAE RSK GLOBAL SERVICE CENTRE INDIA PVT. LTD. (SUPRA), WE ARE OF T HE OPINION THAT TULSYAN TECHNOLOGIES LTD. SHOULD BE EXCLUDED FROM T HE LIST OF COMPARABLES. 5 ITA NO. 988/HYD/2011 M/S. BRIGADE GLOBAL SERVICES PVT. LTD. ============================ 13. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, WIT H REFERENCE TO MAPLE ESOLUTIONS LTD., THAT THE HONBLE ITAT, HY DERABAD BENCH HAD DISCUSSED THE SAME IN ITS ORDER IN ITA NO. 1624 /HYD/2010 DATED 28 TH JUNE, 2013 IN THE CASE OF HSBC ELECTRONIC DATA PRO CESSING INDIA LTD., AND HELD AS FOLLOWS: 'MAPLE E-SOLUTIONS LTD. 12. THE OBJECTION OF THE ASSESSEE WITH REFERENCE TO THIS COMPANY IS WITH REGARD TO THE FINANCIALS OF THE COMPANY, ON THE GROUND OF UNRELIABILITY OF DATA. IT WAS SUBMITTED THAT SELECTION OF THIS COMPANY WAS REJECTED IN THE CASE OF CRM SERVICES INDIA PVT. LTD IN ITA NO. 468/DEL/2009 AND ALSO IN THE CASE OF STREAM INTERNATIONAL SERVICES (SUPRA). FURTHER, THE ASSESS EE ALSO RELIED ON THE DRP ORDER IN ASSESSMENT YEAR 200 7- 08, WITH REFERENCE TO THE ABOVE COMPANY. 12.1. WE HAVE CONSIDERED THE RIVAL SUB MISSIONS. WE AGREE WITH THE OBJECTIONS OF THE ASSESSEE. IN THE C ASE OF STREAM INTERNATIONAL SERVICES P. LTD. (SUPRA), IT I S HELD WITH REFERENCE TO THIS COMPANY AS UNDER- 18. WE ARE UNABLE TO UPHOLD THE CONTENTION RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. IT IS APPARENT FROM TWO ORDERS PASSED ONE BY THE DELHI BENCH AND THE OTHER BY THE HYDERABAD BENCH OF THE TRIBUNAL THAT THE CASE OF MAPLE ESOLUTIONS LIMITE D HAS BEEN DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2006-2007 AND THE DELHI BENCH OF T HE TRIBUNAL HAS ALSO CONSIDERED THE SAME ASSESSMENT YE AR WHILE DIRECTING THE EXCLUSION OF THE CASE OF MAPLE E SOLUTIONS LIMITED FROM THE LIST OF COMPARABLES, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD. DR IN TH IS REGARD. IT IS MORE SO BECAUSE NO CONTRARY VIEW HAS BEEN BROUGHT BY THE LD. DR TO OUR NOTICE. RESPECTFU LLY FOLLOWING THE PRECEDENTS, WE DIRECT THE EXCLUSION O F THIS CASE FROM THE FINAL LIST OF COMPARABLES.' SINCE THE DRP IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 ALSO CONSIDERED AND EXCLUDED THIS COMPANY, WE UPHOLD THE ASSESSEES OBJECTION IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE COMPARABLES ADOPTED.' 6 ITA NO. 988/HYD/2011 M/S. BRIGADE GLOBAL SERVICES PVT. LTD. ============================ 14. THE LEARNED COUNSEL RELIED ON THE DECISION OF HSBC ELECTRONIC DATA PROCESSING INDIA LTD. (SUPRA) AND REQUESTED TH AT THE SAME MAY BE EXCLUDED FROM BEING TAKEN AS COMPARABLE. 15. WE FIND MERIT IN THE SUBMISSION OF THE LEARNED COUN SEL FOR ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF T HE CO-ORDINATE BENCH IN THE CASE OF HSBC ELECTRONIC DATA PROCESSING INDI A LTD. (SUPRA), WE EXCLUDE MAPLE ESOLUTIONS LTD., FROM THE LIST OF COM PARABLES. 16. WITH RESPECT TO NUCLEUS NET SOFT & GIS (INDIA) LTD. , THE LEARNED COUNSEL SUBMITTED THAT IN THE CASE OF HSBC ELECTRONIC DATA PROCESSING (INDIA) LTD., IN ITA NO. 1624/HYD/2010 I T HAS BEEN HELD AS FOLLOWS: 'NUCLEUS NET SOFT & GIS (INDIA) LTD. 13. THE LAST OBJECTION WAS WITH REFERENCE TO THE ABOVE COMPANY, WHICH IS ON SIMILAR FACTS AS THAT OF VISHAL INFORMATION TECHNOLOGIES, DISCUSSED ABOVE. IT WAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND FALLS UNDER THE EMPLOYEE COST FILTER. IT WAS FURTHER SUBMITTED THAT THERE IS A SCHEME OF AMALGAMATION OF EARLIER COMPANY BY THE ORDERS OF TH E HONBLE HIGH COURT OF JUDICATURE OF BOMBAY, ON 22.2.2006 AND IN VIEW OF AMALGAMATION, THE FINANCIA LS HAVE CHANGED AND THE BUSINESS MODEL ALSO CHANGED. REFERRING TO THE ANNUAL REPORT PLACED ON RECORD, IT WAS SUBMITTED THAT AS AGAINST RS. 24.02 LAKHS OF EMPLOY EE COSTS FOR THE YEAR ENDING 31 ST MARCH, 2005, THE EMPLOYEE COST HAS INCREASED TO RS. 132.59 LAKHS. FURTHER, THE DATA PROCESSING CHARGES IS ALSO TO THE EXTENT OF RS. 1.04 CRORES, WHICH INDICATES THAT THE ASSESSEE IS OUTSOURCING THE WORK. ACCORDINGLY, IT CANNOT BE SELECTED AS A COMPARABLE. DUE TO AMALGAMATION DURING THE YEAR, THE ASSESSEE'S BUSINESS MODEL HAS CHANGED AND BECAUSE OF EMPLOYEE COST FILTER ALSO, T HIS COMPARABLE HAS TO BE EXCLUDED.' 17. WE HAVE GONE THROUGH THE OBJECTIONS FILED BY THE AS SESSEE FOR TAKING NUCLEUS NET SOFT & GIS (INDIA) LTD., AS COMP ARABLE. WE FIND FROM THE ANNUAL REPORT PLACED ON RECORD, AS AGAINST RS. 24.02 LAKHS OF EMPLOYEE COST FOR THE YEAR ENDING 31 ST MARCH, 2005, EMPLOYEE COST INCREASED TO RS. 132.54 LAKHS. ALSO THE DATA PROCE SSING CHARGES TO THE 7 ITA NO. 988/HYD/2011 M/S. BRIGADE GLOBAL SERVICES PVT. LTD. ============================ EXTENT OF RS. 1.04 CRORES HAS INCREASED WHICH INDIC ATES THAT THE ASSESSEE IS OUTSOURCING THE WORK. FURTHER DUE TO A MALGAMATION DURING THE YEAR THE ASSESSEE'S BUSINESS MODEL HAS C HANGED. FOR ALL THE THREE REASONS, EMPLOYEE COST FILTER, OUTSOURCING AN D AMALGAMATION, WE ARE OF THE OPINION THAT NUCLEUS NET SOFT & GIS ( INDIA) LTD. CANNOT BE SELECTED AS COMPARABLE. 18. FURTHER THE LEARNED COUNSEL ALSO OBJECTED TO THE RE JECTION OF THE COMPARABLES INTRODUCED BY THE ASSESSEE-COMPANY VIZ., MACRO INFORMATION TECHNOLOGY LTD., ON THE GROUND THAT THE COMPANY WAS LOSS MAKING COMPANY. THE LEARNED COUNSEL RELIED ON THE DECISION IN THE CASE OF DCIT VS. QUARK SYSTEMS PVT. LTD. (38 SO T 307) (SB) (CHD) WHEREIN IT HAS BEEN HELD BY THE SPECIAL BENCH THAT IT CANNOT REJECTED ON THE GROUND THAT IT WAS MAKING LOSSES AND HENCE I T WAS SUBMITTED THAT MACRO INFORMATION TECHNOLOGY LTD. SHOULD BE IN CLUDED. 19. THE DECISIONS OF MUMBAI BENCHES OF THIS TRIBUNAL IN THE FOLLOWING CASES WERE CITED BY THE LEARNED COUNSEL T O BE IN FAVOUR OF THE ASSESSEE: (A) ACIT VS. WOCKHARDT LTD., 6 TAXMANN.COM 78 (B) UCB INDIA (P) LTD. VS. ACIT, 121 ITD 131 (MUM) (C) DCIT VS. TEVA INDIA (P) LTD., 43 SOT 5 (MUM) (URO) (D) TEVA INDIA (P) LTD. VS. DCIT, 44 SOT 105 (MUM)(URO) 20. THE LEARNED DR OBJECTED ON THE GROUND THAT THE COMP ANY WAS MAKING LOSSES CONSISTENTLY. 21. WE HAVE HEARD BOTH PARTIES. 22. WE ARE OF THE OPINION THAT THE TPO SHOULD VERIFY TH E FINANCIALS OF THE COMPANY AND THERE AFTER DECIDE TH E ISSUE TAKING INTO ACCOUNT THE RATIO OF THE DECISION ON THE ISSUE. HE NCE WE SET ASIDE THE ISSUE TO THE FILE OF THE TPO WHO SHALL DECIDE THE I SSUE IN ACCORDANCE WITH LAW. 8 ITA NO. 988/HYD/2011 M/S. BRIGADE GLOBAL SERVICES PVT. LTD. ============================ 23. IN THE RESULT, ASSESSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER, 2014 SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 26 TH NOVEMBER, 2014 TPRAO COPY TO: 1. M/S. BRIGADE GLOBAL SERVICES PVT. LTD., PLOT NO. 30 & 31, BRIGADE TOWERS, FINANCIAL DISTRICT, NANAKRAMGUDA, HYDERABAD-500 032. 2. THE INCOME TAX OFFICER, WARD - 1(2), HYDERABAD. 3. THE CIT(A) - II I, HYDERABAD. 4. THE CIT - I , HYDERABAD. 5. THE DR, A - BENCH, ITAT, HYDERABAD.