Trimble Information Technologies India Private Limited, CHENNAI V. ACIT Corporate Circle 3(1), CHENNAI

ITTPA 16/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2626 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 06-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 15-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: ASHIK SHAH C A
• Keywords: Transfer pricing
• Section: 250

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , , [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ] ./I.T (TP) NO.16/CHNY/2018 ! / ASSESSMENT YEAR :2013-2014 M/S. TRIMBLE INFORMATION TECHNOLOGIES INDIA PRIVATE LIMITED, MODULE NO.603-604, 6 TH FLOOR, C BLOCK, TIDEL PARK, NO.4, RAJIV GANDHI SALAI, TARAMANI, CHENNAI 600 113. [PAN AACCA 6240K] VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1) CHENNAI. ( / APPELLANT) ( /RESPONDENT) '# $ % / APPELLANT BY : SHRI. ASHIK SHAH, C.A. &' '# $ % /RESPONDENT BY : SHRI. M. SRINIVASA RAO, CIT. ( ) $ * /DATE OF HEARING : 12-03-2019 +,! $ * /DATE OF PRONOUNCEMENT : 06-06-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-11, CHE NNAI (CIT(A) FOR SHORT) DATED 28.02.2018 FOR THE ASSESSMENT YEAR (AY ) 2013 -2014. IT(TP) NO.16/18 :- 2 -: 2. THE ASSESSEE-COMPANY RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER PASSED BY THE LD. TPO CONFIRMED BY T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) -11 [HEREINAFTE R REFERRED TO AS LEARNED (LD.) AUTHORITIES] UNDER SECTION 250 O F THE ACT TO THE EXTENT PREJUDICIAL TO THE APPELLANT, IS CONTRARY TO THE FACTS AND CIRCUMSTANCE OF THE CASE AND IS BAD IN LAW. 2. THE LD. AUTHORITIES HAVE FINALIZED THEIR ORDER WI TH IMPROPER ADJUSTMENT TO THE REPORTED TAXABLE PROFITS OF THE AP PELLANT, AS A RESULT OF MISAPPLYING THE PROVISIONS OF THE ACT AND BY ADOPTING FAULTY ASSESSMENT PROCEDURE TO FINALIZE THE ADJUSTM ENT, SUCH AS BUT NOT LIMITED TO, APPLICATION OF FILTERS, ANALYSI S OF THE FUNCTIONS CARRIED OUT BY THE APPELLANT AND THOSE OF THE COMPA RABLE COMPANIES, ANALYSIS OF THE ECONOMIC CIRCUMSTANCES E XPERIENCED BY THE APPELLANT, SELECTION OF COMPARABLE COMPANIES , COMPUTATION OF PROFIT MARGINS OF COMPARABLE COMPANIES, USAGE OF APPROPRIATE ADJUSTMENTS, AND CONSIDERATION OF THE INFORMATION, ARGUMENTS AND EVIDENCE PROVIDED BY THE APPELLANT. 3. THE LD. AUTHORITIES ERRED IN LAW AND ON FACTS BY NOT TAKING COGNIZANCE OF THE SUBMISSIONS FILED BY THE APPELLAN T AND THEREBY NOT PASSING A SPEAKING ORDER IN RESPECT OF SUCH SUB MISSIONS. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. TPO ERRED IN REJECTING THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE LAW AND UNDER TAKING A FRESH COMPARABILITY ANALYSIS AT THE TIME OF ASSESSM ENT, WHICH WAS BEYOND THE DUE DATE OF MANDATORY MAINTENANCE OF TP DOCUMENTATION UNDER THE ACT. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. TPO ERRED IN LAW AND FACTS BY NOT PROVIDING THE DETAILS OF TH E SEARCH UNDERTAKEN BY HIM FOR SELECTING THE COMPARABLE COMP ANIES FOR SOFTWARE SERVICES TRANSACTIONS. 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. TPO ERRED IN INTER ALIA APPLYING THE FOLLOWING FILTERS IN COM PARABILITY ANALYSIS AND REJECTING THE COMPARABLE SOFTWARE SERVICES COMP ANIES: A) PERSISTENT LOSS FOR THREE YEARS; AND IT(TP) NO.16/18 :- 3 -: B) FINANCIAL YEAR NOT ENDING ON 31ST MARCH. 7. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. TPO ERRED IN INTER ALIA SELECTING THE FOLLOWING COMPANIES AS COMPARABLES, WHICH ARE FUNCTIONALLY DISSIMILAR TO THE APPELLANT: A) LARSEN & TOUBRO INFOTECH LTD; B) PERSISTENT SYSTEMS LTD C) THIRDWARE SOLUTIONS LTD 8. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. TPO ERRED IN REJECTING THE COMPARABLE COMPANIES SELECTED BY T HE APPELLANT ON INCORRECT PARAMETERS. 9. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. TPO/ LD. CIT(A) ERRED IN COMPUTING THE NET MARGIN OF ICRA TE CHNO ANALYTICS LTD. 10. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN REJECTING A COMPARABLE COMPANY VIZ., ACROP ETAL TECHNOLOGIES LIMITED, THOUGH THE SAME WAS ACCEPTED BY THE LD TPO AS IT SATISFIED ALL THE COMPARABILITY FILTERS A PPLIED BY HIM. 11. THE LD. TPO AND LD. CIT(A) ERRED IN LAW AND ON FACTS BY NOT APPLYING THE MULTIPLE YEAR/ PRIOR YEAR DATA FOR COM PARABLE COMPANIES WHILE DETERMINING THE ARMS LENGTH PRICE. 12. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. TPO AND LD. CIT(A) ERRED IN NOT UNDERTAKING ADJUSTMENT FOR DIFFERENCES IN WORKING CAPITAL OF THE APPELLANT VIS--VIS THE C OMPARABLE COMPANIES SELECTED. 13. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. TPO AND LD. CIT(A) ERRED IN ECONOMIC ADJUSTMENT FOR THE DIF FERENCES IN RISKS BORNE BY THE APPELLANT VIS--VIS THE COMPARAB LE COMPANIES SELECTED. 14. THE LD. AO ERRED IN INITIATING PENALTY PROCEEDIN G AGAINST THE APPELLANT. THE APPELLANT IS CONTENDING ON SUCH PENA LTY PROCEEDING BEFORE THE LD. ASSESSING OFFICER. IT(TP) NO.16/18 :- 4 -: 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY M/S. TRIMBLE INFORMATION TECHN OLOGIES INDIA PRIVATE LIMITED IS A COMPANY INCORPORATED UND ER THE PROVISIONS OF THE COMPANIES ACT, 1956. M/S. TRIMBLE INFORMATI ON TECHNOLOGIES INDIA PRIVATE LIMITED IS A 100 PERCENT SUBSIDIARY O F TRIMBLE NAVIGATION LIMITED (TRIMBLE US). IT IS ENGAGED IN THE BUS INESS OF RENDERING SOFTWARE DEVELOPMENT SUPPORT SERVICES TO TRIMBLE US. THESE SERVICES WERE RENDERED AS PER THE SERVICES AGREEMEN T WITH TRIMBLE US. APPELLANT COMPANY WORKS ON A REMUNERATION MODE L OF OPERATING COST PLUS 15 PERCENT MARGIN. THE RETURN OF INCOME F OR THE AY 2013-14 WAS FILED ON 30.09.2013 DISCLOSING TOTAL INCOME OF RS.7,16,76,410/-. THE ASSESSEE ALSO REPORTED THE FOLLOWING INTERNATIO NAL TRANSACTIONS IN FORM 3CEB AS UNDER:- SL.NO NATURE OF TRANSACTION AMOUNT (E) METHOD ADOPTED 1 SERVICES 50,00,43,803 TNMM 2 REIMBURSEMENT 2,46,43,846 CUP 3 FIXED ASSETS 2,69,236 TNMM TOTAL 52,49,56,885 ASSESSEE COMPANY SUBMITTED TRANSFER PRICING STUDY R EPORT ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD IN RESPECT OF THE SERVICES SEGMENTS AND CUP METHOD FOR THE IT(TP) NO.16/18 :- 5 -: PURPOSE OF BENCHMARKING THE TRANSACTION OF REIMBURS EMENT OF EXPENSES. THE ASSESSING OFFICER MADE REFERENCE U/ S.92CA(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) TO TRAN SFER PRICING OFFICER FOR THE PURPOSE OF BENCH MARKING ABOVE INTERNATION AL TRANSACTIONS. THE TRANSFER PRICING OFFICER VIDE ORDER DATED 26.10 .2016 PASSED U/S.92CA(3) OF THE ACT REJECTED THE TRANSFER PRICIN G DOCUMENTATION SUBMITTED BY THE ASSESSEE COMPANY AND PROCEEDED WIT H BENCH MARKING THE ABOVE TRANSACTIONS BY SELECTING THE FOL LOWING COMPARABLES. SL.NO NAME OF COMPARABLES OP/OC (%) 1 ACROPETAL TECHNOLOGIES LTD 0.81 2 MINDTREE LTD 20.23 3 R S SOFTWARE (INDIA) LTD 17.35 4 GOLDSTONE TECHNOLOGIES LTD 14.54 5 CG-VAK EXPORTS 12.29 6 ICRA TECHNO ANALYTICS LTD 20.81 7 PERSISTENT SYSTEMS 31.94 8 THIRDWARE SOLUTIONS 36.98 9 L & T INFORTECH. 25.86 AVERAGE 20.09 WHOSE THE AVERAGE MARGIN WAS COMPUTED AT 20.09% AND SUGGESTED A UPWARD ADJUSTMENT OF E2,21,32,373/-. THE ASSESSING OFFICER AFTER RECEIPT OF THE TRANSFER PRICING OFFICER ORDER PASSE D DRAFT ASSESSMENT ORDER ON 21.11.2016, WHICH WAS SERVED ON ASSESSEE ON 28.11.2016. THEREAFTER, ASSESSEE VIDE HIS LETTER DATED 14.12.20 16 SUBMITTED THAT IT IS EXERCISING THE OPTION OF APPEAL BEFORE THE LD . COMMISSIONER OF IT(TP) NO.16/18 :- 6 -: INCOME TAX (APPEALS), THEN THE ASSESSING OFFICER P ASSED FINAL ASSESSMENT ORDER ON 20.12.2016 PASSED U/S.143(3) R. W.S. 144C OF THE ACT AT TOTAL INCOME OF E9,38,23,571/- AFTER MAKING TRANSFER PRICING ADJUSTMENT OF E2,21,32,373/-. 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE LD. CIT(A), CONTENDING THAT THE TPO HAD ADOPTED WRONG MARK-UP OF COMPARABLES AND SEEKING EXCLUSION OF L & T INFOTECH, THIRDWARE SOFTWARES, M/S. PERSISTENT SYSTEM LTD ETC. ON THE GROUNDS OF FUNCTI ONAL DISSIMILARITY. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS HAD DIRECTED THE ASSESSING OFFICER/ TRA NSFER PRICING OFFICER TO EXCLUDE M/S. AEROPETAL TECHNOLOGIES LTD AND CON FIRMED THE INCLUSION OF OTHER COMPARABLES. THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) SIMPLY CONFIRMED THE ACTION OF THE ASSESS ING OFFICER WITHOUT EXPRESSING ANY HIS INDEPENDENT VIEWS ON THE SELECTI ON OF COMPARABLES. 5. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. FROM THE PERUSAL OF THE IMPUGNED ORDER, IT IS CLEAR THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD MERELY CONFIRMED THE ACTION OF THE TRANSFER PRICING OFFICER WITHOUT EXAM INING COMPARABILITY CRITERIA ADOPTED AND APPROPRIATING OR OTHERWISE ELI GIBLE CRITERIA. HE IT(TP) NO.16/18 :- 7 -: SIMPLY ENDORSED THE VIEW OF THE TRANSFER PRICING O FFICER WITHOUT EXPRESSING HIS INDEPENDENT VIEW WITHOUT MEETING TH E OBJECTIONS RAISED BY THE ASSESSEE-COMPANY. THEREFORE WE REMIT THE APPEAL BACK TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AFTER AFFORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE MAKE IT CLEAR THAT THE ISSUES RAISED IN THE PRESENT APPEAL ARE LEFT OPEN BEFORE THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) AND ACCORDINGLY DIRECT THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) TO ADJUDICATE THE APPEAL ON MERITS. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 6TH DAY OF JUNE, 2019, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER - ) / CHENNAI . / DATED: 6TH JUNE, 2019. KV $ &*01 21!* / COPY TO: 1 . '# / APPELLANT 3. ( 3* () / CIT(A) 5. 16 &*7 / DR 2. &' '# / RESPONDENT 4. ( 3* / CIT 6. 8 9) / GF