M/s. Taluna India Private Limited, Gurgaon V. DCIT, New Delhi

ITA 989/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91176 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 26-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JUDY JAMES
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 92D; 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I : NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY , ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO. 6407 /DEL/201 2 ASSESSMENT YEAR 200 8 - 200 9 TOLUNA INDIA PVT. LTD. VS. DCIT, CIRCLE - 12(1), (FORMERLY KNOWN AS GREENFIELD NEW DELHI. ONLINE PVT. LTD.) FIRST FLOOR, UNITECH TRADE CENTRE, SUSHANT LOK, PHASE 1, GURGAON, HARYANA ITA NO. 989/DEL/2014 ASSESSMENT YEAR 2009 - 2010 TOLUNA INDIA PVT. LTD. VS. DCIT, CIRCLE - 12(1), (FORMERLY KNOWN AS GREE NFIELD NEW DELHI. ONLINE PVT. LTD.) FIRST FLOOR, UNITECH TRADE CENTRE, SUSHANT LOK, PHASE 1, GURGAON, HARYANA (PAN AACCG 0003 G) (APPELLANT) (RESPONDENT) DATE OF HEARING : 26 .0 3 .2015 DATE OF PRONOUNCEMENT : 02 .06 .2015 APPELLANT BY : SHRI ASHWANI TANEJA, ADVOCATE SHRI ROHIT TIWARI, CA RESPONDENT BY : SHRI JUDY JAMES , STANDING COUNSEL ORDER PER J.S. REDDY , A M : 1. BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE ASSESSING OFFI CER U/S 143(3) R.W.S. 144C OF THE I.T. ACT, 1961 FOR THE AY 2008 - 09 ON 29.10.2012 AND ORDER DATED 29.11.2013 FOR THE AY 2009 - 10, GIVING IT A NO. 6407 /DEL /20 1 2 ITA NO.989/DEL/2014 2 EFFECT TO THE ORDER OF THE DRP - I U/S 144C(5) OF THE ACT. AS THE ISSUE S ARISING IN BOTH THE APPEALS ARE COMMON , FOR THE S AKE OF CONVENIENCE , THEY HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER. 2. THE FACTS ARE GIVING IN P ARAS 2, TO 2.3 OF THE TPO ORDER , WHICH IS EXTRACTED FOR READY REFERENCE: 2. TAXPAYER S PROFILE 2.1 NAME THE ASSESSEE , GREEN FILED ONLINE PVT. LTD. IS PRIMARILY ENGAGED IN PROVIDING CONTRACT IT AND RELATED SERVICES TO GREENFIELD ONLINE INC. USA (GREENFIELD US). DURING FY 2007 - 08, THE TAXPAYER HAS ALSO PROVIDED MARKETING SUPPORT SERVICES. 2.2 SEGMENTAL FINANCIAL RESULTS OF THE TAXPAYER FOR THE F Y 2007 - 08 PARTICULARS SOFTWARE DEVELOPMENT MARKET SUPPORT SERVICES OPERATING REVENUES 216,533,544 1,589,732 OPERATING EXPENSES 188,195,099 1,471,974 OPERATING PROFIT 28,338,445 117,758 OP/TC 15.06% 8.00% METHOD USED TNMM TNMM PLI OP/TC OP/TC NO O F COMPARABLES 20 5 MEAN MARGIN OF COMPARABLES 13.32% 11.06% 2.3 INTERNATIONAL TRANSACTION (AS MENTIONED IN THE 92 CE REPORT) PROVISION OF SOFTWARE DEVELOPMENT SERVICES 216,533,544 PROVISION OF MARKET SUPPORT SERVICES 1,589,732 INTEREST ON LOAN 1,286, 086 SOFTWARE DEVELOPMENT SERVICES AS THE METHOD FOLLOWED BY THE TPO AND THE TAX PAYER IS TNMM (AS DISCUSSED BELOW), THESE TRANSACTION ARE AGGREGATED FOR THE TRANSFER PRICING STUDY. 3. THE GROUNDS OF APPEAL FOR THE AY 2008 - 09 READS AS FOLLOWS: 1. THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS ISSUED BY THE LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP') IS A VITIATED ORDER AS THE LD. DRP ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING PART OF THE ADDITION MADE BY THE LD. ASSESSING OFFICER ('AO') TO THE APPELLANT'S INCOME BY ISSUING AN ORDER WITHOUT APPROPRIATE APPLICATION OF MIND. IT A NO. 6407 /DEL /20 1 2 ITA NO.989/DEL/2014 3 2. THE LD. AO/ LEARNED TRANSFER PRICING OFFICER (LD. TPO) AND THE LD. DRP ERRED IN IGNORING THE FACT THAT THE REFERENCE MADE U/S 143(2) OF THE ACT BY THE LD. AO SUFFERS FROM JURISDICTIONAL ERROR AS THE LD. AO DID NOT RECORD ANY REASONS IN THE DRAFT ASSESSMENT ORDER BASED ON WHICH IT WAS CONCLUDED THAT IT WAS 'NECESSARY OR EXPEDIENT' TO REFER THE MATTER TO THE LD. TPO FOR COMPUTATION OF THE ARM'S LENGTH PRICE (,ALP') FOR THE APPELLANT'S INTERNATIONAL TRANSACTIONS OF PROVISION OF CONTRACT IT SERVICES AND PROVISION OF MARKETING SUPPORT SERVICES. 3. THE LD. TPO GROSSLY ERRED IN NOT CONSIDERING THE CORRECT OPERATING PROFIT / TOTAL COST ( OP / TC') MARGINS OF SPECIFIC COMPARABLE COMPANIES WITH RESPECT TO THE APPELLANT'S INTERNATIONAL TRANSACTION OF PROVISION OF CONTRACT IT SERVICES, DESPITE THE FACT THAT THE CORRECT COMPUTATIONS OF OP / TC MARGINS OF THE SAID COMPARABLE COMPANIES WERE DULY SUBMITTED BY THE APPELLANT BEFORE THE LD. T PO IN ACCORDANCE WITH THE DIRECTIONS OF THE LD. DRP AND THE SAME WERE ALSO DULY CHECKED AND VERIFIED BY THE LD. TPO. 4. THE LD. AO / LD. DRP ERRED BOTH ON FACTS AND IN LAW IN ENHANCING THE INCOME OF THE APPELLANT BY RS. 20,039,621/ - BY HOLDING THAT ITS INTE RNATIONAL TRANSACTIONS OF PROVISION OF CONTRACT IT SERVICES AND PROVISION OF MARKETING SUPPORT SERVICES DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE LD. DRP HAS GROSSLY ERRED IN AGREEING WITH THE LD. TPO'S ACTION OF: 4.1 NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT WERE SATISFIED IN THE PRESENT CASE; 4.2 DISREGARDING THE ALP AS DETERMINED BY THE APPE LLANT IN THE TRANSFER PRICING ( TP') DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10 D OF THE INCOME - TAX RULES, 1962 ('RULES') AS WELL AS FRESH SEARCH; AND IN PARTICULAR MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 4.3 DISREGARDING MULTIPLE YEAR PRIOR YEARS' DATA AS USED BY THE APPELL ANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR I.E. FINANCIAL YEAR 2007 - 08 DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 4.4 REJECTING COMPARABILITY ANALYSIS IN THE TP DOCUMENTATION / APPELLANT'S FRESH SEARCH AND INSTEAD, CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON THE APPLICATION OF ERRONEOUS AND INAPPROPRIATE QUANTITATIVE AND QUALITATIVE FILTERS IN DETERMINING THE A LP FOR THE APPELLANT'S INTERNATIONAL TRANSACTIONS OF PROVISION OF CONTRACT IT SERVICES AND PROVISION OF MARKETING SUPPORT SERVICES; 4.5 . INCLUDING CERTAIN COMPANIES IN THE FINAL SET THAT WERE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORM ED, ASSETS EMPLOYED AND RISKS ASSUMED WITH RESPECT TO THE APPELLANT'S INTERNATIONAL TRANSACTIONS OF PROVISION OF CONTRACT IT SERVICES AND PROVISION OF MARKETING SUPPORT SERVICES; 4.6 EXCLUDING CERTAIN COMPANIES ON ARBITRARY / FRIVOLOUS GROUNDS EVEN THOUGH THEY WERE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED WITH RESPECT TO THE APPELLANT'S INTERNATIONAL TRANSACTIONS OF PROVISION OF CONTRACT IT SERVICES AND PROVISION OF MARKETING SUPPORT SERVICES; 4.7 CON SIDERING FOREIGN EXCHANGE FLUCTUATIONS AS OPERATING IN NATURE WHILE CALCULATING THE OP/TC MARGINS OF CERTAIN COMPARABLES FOR DETERMINING THE IT A NO. 6407 /DEL /20 1 2 ITA NO.989/DEL/2014 4 ALP OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS OF PROVISION OF CONTRACT IT SERVICES AND PROVISION OF MARKETING S UPPORT SERVICES; 4.8 INCLUDING HIGH - PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES' SET FOR BENCHMARKING A NORMAL RISK BEARING COMPANY SUCH AS THE APPELLANT AND NOT ALLOWING A RISK ADJUSTMENT TO THE APPELLANT; 4.9 COLLECTING INFORMATION OF THE COMPANI ES UNDER SECTION 133(6) OF THE ACT THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES; 4.10 GROSSLY ERRED IN NOT PROVIDING THE BENEFIT OF +/ - 5% RANGE TO THE APPELLANT; AND 4.11 DISREGARDING JU DICIAL PRONOUNCEMENTS IN INDIA IN UNDERTAKING THE TP ADJUSTMENT. 5. THAT THE LD. AO HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271 OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. 6. THAT THE LD. AO HAS GROS SLY ERRED IN LEVYING AN INTEREST U/S 234B OF THE ACT TO THE TAXABLE INCOME OF THE APPELLANT. 4. WE HAVE HEARD SHRI ASHWANI TANEJA, LD. COUNSEL FOR THE ASSESSEE AND SHRI JUDY JAMES, LD. STANDING COUNSEL ON BEHALF OF THE REVENUE. 5 . SHRI ASHWANI TANEJA, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH A NUMBER OF GROUNDS HAVE BEEN RAISED IN THIS APPEAL , HE WOULD BE ONLY DISPUTING THE INCLUSION OF CERTAIN COMPARABLES BY THE TPO FOR DETERMINING THE ARM S LENGTH PRICE. HE RELIED ON THE DECISION OF THE TRIB UNAL IN THE ASSESSEE S OWN CASE IN THE EARLIER ASSESSMENT YEAR AND SUBMITTED THAT THE SAME SHOULD BE FOLLOWED AND THE COMPARABLE DIRECTED TO BE EXCLUDED BY THE ITAT IN ITS EARLIER YEAR ORDER, SHOULD ALSO BE EXCLUDED BY THE T.P.O. IN THE PRESENT T.P. ORDER . 6. LD. STANDING COUNSEL OPPOSED THIS CONTENTION WITHOUT DISTINGUISHING THE ORDER OF THE ITAT FOR THE EARLIER ASSESSMENT YEAR . 7 . FROM THE PERUSAL OF THE ORDER - SHEET ENTRY , IT IS CLEAR THAT A COPY OF THE TRIBUNAL S ORDER IN THE ASSESSEE S OWN CASE FOR TH E IMMEDIATELY PRECEDING YEAR WAS IT A NO. 6407 /DEL /20 1 2 ITA NO.989/DEL/2014 5 GIVEN TO STANDING COUNSEL ON 18.03.2015. T HE STANDING COUNSEL COULD NOT SUBMIT AS TO WHY THE ORDER OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE EARLIER ASSESSMENT YEAR SHOULD NOT BE FOLLOWED. HE COULD NOT DEMONSTRATE THAT THERE IS DIFFERENCE IN THE FACTS FOR BOTH THE YEARS. UNDER THE SE CIRCUMS TANCES, WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE OWN CASE IN THE EARLIER ASSESSMENT YEAR AND DIRECTED THE ASSESSING OFFICER TO EXCL UDE FROM THE COMPARABLES , THE FOLLOWING COMPANIES: 1) INFOSYS TECHNOLOGIES LTD. ; 2) KALS INFORMATION SYSTEMS LTD. (SEGMENTAL) ; 3) TATA ELXSI LTD. (SOFTWARE DEVELOPMENT AND SERVICES SEGMENT) AND 4) WIPRO LTD. (IT SERVIC ES SEGMENT); AND THEN WORKOUT AFRESH T HE ARM S LENGTH PRICE. 8 . FOR THE SAKE OF BREVITY , WE DO NOT EXTRACT THE FINDINGS OF THE TRIBUNAL ON EACH OF THESE COMPARABLES. SUFFICE TO SAY, THE ISSUE OF INFOSYS TECHNOLOGIES LTD. BEING TREATED AS A COMPARABLE WAS DEALT WITH BY THE TRIBUNAL AT PARA 25 A T PAGE 29 OF THE ORDER AND THE ISSUE OF KALS INFORMATION SYSTEMS LTD. (SEGMENTAL) WAS DEALT WITH AT PARA 27.1 AT PAGE 32 OF TH AT ORDER. SIMILARLY, THE ISSUE OF TATA ELXSI LTD. BEING TREATED AS A COMPARABLE WAS DISCUSSED AT PARA 39.1 AND 39.2 AT PAGES 39 & 40 OF THAT ORDER AND THE ISSUE OF WIPRO LTD. BEING TREATED AS A COMPARABLE WAS DISCUSSED AT PARA 41 PAGES 40 & 41 OF THE ORDER FOR THE AY 2007 - 08. 9 . LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IF THESE COMPARABLES ARE ELIMINATED FROM THE LIST OF COMPARABLE S, THEN THE A RM S L ENGTH P RICE WORKED OUT BY THE ASSESSEE WOULD BE THE SAME AS A RM S L ENGTH P RICE ARRIVED AT BY THE REVENUE. AS IT A NO. 6407 /DEL /20 1 2 ITA NO.989/DEL/2014 6 THE ASSESSEE FELT THAT IT WOULD GET RELIEF ON THIS COUNT , THE LD. COUNSEL DID NOT ADVANCE ANY ARGUMENTS ON THE OTHER GROUNDS RAI SED IN THIS REGARD FOR THE REASON THAT IT WOULD BE ACADEMIC EXERCISE. HE RESERVED HIS RIGHT TO RAISE THESE GROUNDS IN OTHER ASSESSMENT YEAR. 10 . IN VIEW OF ABOVE SUBMISSION, WE DO NOT DEAL WITH ALL THE OTHER GROUND OF THE ASSESSEE AND DISMISS THE SAME AS NOT ARGUED IN THE PRESENT PROCEEDINGS . 11 . IN THE RESULT, THIS APPEAL IS ALLOWED IN PART. 1 2 . ITA NO. 989/DEL/2014 P ERTAINS TO THE AY 2009 - 10, H ERE ALSO THE DISPUTE IS REGARDING SELECTION OF COMPARABLES BY THE TPO. THE OTHER ISSUE IS GRANT OF WORKING CAP ITAL ADJUSTMENT . 1 3 . THE LD. COUNSEL FOR THE ASSESSEE, MR. ROHIT TIWARI SUBMITS THAT HE WOULD PRESS THE ARGUMENT THAT INFOSYS TECHNOLOGIES LTD. SHOULD BE ELIMINATED AS A COMPARABLE BY FOLLOWING THE PREPOSITION LAID DOWN IN THE ORDER OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE IN ITA NO. 5645/DEL/2011 FOR THE AY 2007 - 08 DATED 26.08.2014. HE FURTHER SUBMITS THAT WORKING CAPITAL ADJUSTMENT HAS TO BE GRANTED. LD. DR THOUGH DO NOT LEAVE HIS GROUND AGREE D THAT THE TRIBUNAL HAS HELD THAT INFOSYS TECHNOLOGIES L TD. CANNOT BE CONSIDERED AS A COMPARABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ON THE ISSUE OF WORKING CAPITAL ADJUSTMENT , HE VEHEMENTLY CONTENDED THAT THE DATA HAS NOT BEEN PROVIDED BY THE ASSESSEE TO EITHER THE T.P.O. OR THE D.R.P. 14. I N REPLY , THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 33 OF THE ORDER OF TRANSFER PRICING OFFICER AND ALSO TO PARA 17.1 OF THE ORDER OF THE DRP AND IT A NO. 6407 /DEL /20 1 2 ITA NO.989/DEL/2014 7 SUBMITTED THAT THE DATE IN QUESTION WAS GIVEN TO BOTH AUTHORITIES AND WAS BEFORE THE AUTHORITIES AND THAT THE SAME WAS NOT CONSIDERED. HE ARGUED THAT THE REJECTION OF THE CLAIM OF THE ASSESSEE FOR WORKING CAPITAL ADJUSTMENT IS AGAINST THE PROPOSITION OF LAW LAID DOWN BY VARIOUS TRIBUNALS. WE FIND THAT T HE ASSESSEE MADE DETAIL ED SUBMISSIONS BEFORE THE LOWER AUTHOR ITIES ON THIS ISSUE , WHICH WE DO NOT EXTRACT FOR THE SAKE OF BREVITY . SUFFICE TO SAY THAT THE CONTENTIONS RAISED BY THE ASSESSEE HAVE NOT BEEN DEALT WITH BY THE TPO AS WELL AS THE DRP. THE PROPOSITIONS OF LAW LAID DOWN BY THE TRIBUNALS ON THE ISSUE OF WORK ING CAPITAL ADJUSTMENT HAVE ALSO NOT BEEN CONSIDERED. 1 5 . THUS, IT WOULD BE APPROPRIATE TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER /T.P.O. FOR FRESH ADJUDICATION , IN ACCORDANCE WITH LAW , S PECIFICALLY , WHEN THE TPO IN THE PRECEDING AYS 200 7 - 08 & 2008 - 09 HAD ALLOWED THE VERY SAME ADJUSTMENT TO THE ASSESSEE ON THE SAME FACTS AND HAD NOT CONSIDERED THE MATERIAL AND ARGUMENTS OF THE ASSESSEE IN THIS YEAR. 16 . THE TPO IS DIRECTED TO CONSIDER THE DATE FURNISHED BEFORE HIM BY THE ASSESSEE THE CON TENTION RAISED ON THIS ISSUE AS WELL AS THE PROPOSITION LAID DOWN IN THE FOLLOWING CASES: I) MENTOR GRAPHICS PVT. LTD. (2007) 109 ITD 101 II) E - GAIN COMMUNICATION (P) LTD. VS. ITO (118 ITD 243) III) PHILIPS SOFTWARE CENTRE PVT. LTD. (119 TTJ 721) IV) NOKIA INDIA PVT. LTD. [2012] 20 TAXMANN.COM 810 (DELHI) IT A NO. 6407 /DEL /20 1 2 ITA NO.989/DEL/2014 8 17 . IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS ALLOWED IN PART. THE ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE , 2015. SD/ - SD/ - ( GEORGE GEORGE K. ) ( J.S. REDDY ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 ND JUNE , 2015. AKS/ - COPY FORWAR DED TO 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI