M/s Advice America Software Development Centre Pvt Ltd, Bangalore V. Income TAx Officer Ward-1(1)(1), Bangalore

MA 171/BANG/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 6983 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 24-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 22-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SACHIN JOLLY
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K. GARODIA , ACCOUNTANT MEMBER M.P. NO.171/BANG/2018 [ IN I T (TP) A NO. 2531/BANG/2017] ASSESSMENT YEAR : 2013 - 14 M/S. ADVICE AMERICA SOFTWARE DEVELOPMENT CENTER PVT. LTD., # 23 & 24, 3 RD FLOOR, AMR TECH-PARK, BESIDE OXFORD COLLEGE, HOSUR MAIN ROAD, BENGALURU 560 068. PAN: AAECA 2942E VS. THE INCOME TAX OFFICER, WARD 1(1)(1), BENGALURU. APPL IC ANT RESPONDENT APPLICANT BY : S HRI SACHIN JOLLY, ADVOCATE RESPONDENT BY : DR. P.V. PRADEEP KUMAR, ADDL.CIT(DR)(ITAT), BENGALU RU. DATE OF HEARING : 20 . 07 .201 8 DATE OF PRONOUNCEMENT : 24 .08.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS A MISCELLANEOUS PETITION FILED BY THE ASS ESSEE U/S. 254(2) OF THE INCOME-TAX ACT, 1961 [THE ACT] PRAYING FOR RE CTIFICATION OF THE ORDER OF THE TRIBUNAL ON THE ALLEGATION THAT THERE ARE APPAR ENT MISTAKES FROM THE RECORD IN THE ORDER OF THE TRIBUNAL DATED 23.05.201 8 PASSED IN THE AFORESAID APPEAL. 2. THE DISPUTE IN THE AFORESAID APPEAL WAS WITH REG ARD TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF AN INTERN ATIONAL TRANSACTION CARRIED M.P. NO.171/BANG/2018 PAGE 2 OF 8 OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE (AE). THE FIRST MISTAKE POINTED OUT IN THE ORDER OF THE TRIBUNAL IS WITH RE GARD TO ASSESSMENT YEAR WHICH IS WRONGLY MENTIONED IN PARA 1 OF THE TRIBUNA LS ORDER. INSTEAD OF ASSESSMENT YEAR 2013-14, IN PARA 1OF THE ORDER OF T RIBUNAL IT HAS BEEN NOTED THAT THE APPEAL RELATES TO ASSESSMENT YEAR 20 12-13. THIS IS AN APPARENT MISTAKE AND IS RECTIFIED BY SUBSTITUTION O F ASSESSMENT YEAR 2013- 14 INSTEAD OF ASSESSMENT YEAR 2012-13 IN PARA 1 OF THE ORDER. 3. THE NEXT ALLEGED APPARENT MISTAKE POINTED OUT I N THE ORDER OF TRIBUNAL IS WITH REGARD TO EXCLUSION OF A COMPANY B Y NAME, CG-VAK SOFTWARE EXPORTS LTD. FROM THE LIST OF COMPARABLES CHOSEN BY THE TPO WHICH WAS CONFIRMED BY THE DRP. ON THE EXCLUSION O F THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES, THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE WERE AS FOLLOWS:- 9. CG VAK SOFTWARE EXPORTS LTD.: THE FOLLOWING AR E THE ARGUMENTS OF THE ASSESSEE FOR EXCLUDING THIS COMPAN Y FROM THE LIST OF COMPARABLE COMPANIES VIZ., (I) THIS COMPANY OWNS INTANGIBLES WHICH CONSTITUTES ABOUT 5.60% OF ITS TO TAL REVENUE WHEREAS THE ASSESSEE DOES NOT OWN ANY INTANGIBLES. (II) THIS COMPANY PROVIDES ARRAY OF SERVICES SUCH AS SWD SERV ICES, SOFTWARE PRODUCTS AND BPO SERVICES WHEREAS THE ASSE SSEE IS ENGAGED ONLY IN PROVIDING SWD SERVICES. THIS COMPA NY ALSO DOES RESEARCH & DEVELOPMENT ACTIVITIES WHEREAS THE ASSESSEE DOES NOT DO ANY SUCH ACTIVITY. (III) THE SEGMENTAL DETAILS OF THE VARIOUS SEGMENTS OF THIS COMPANY ARE NOT AVAILABLE IN THE PUBLIC DOMAIN AND ONLY GEOGRAPHICAL SEGMENT DETAILS ARE AV AILABLE. THE TPO HAS ALSO NOT BROUGHT ANY MATERIAL ON RECORD TO COMPARE THE SWD SERVICES SEGMENT OF THIS COMPANY WITH THAT OF T HE ASSESSEE BUT HAS COMPARED THE OVERALL PROFITABILITY OF THIS COMPANY. (IV) IN AY 2012-13 THIS COMPANY WAS EXCLUDED FROM THE LI ST OF COMPARABLE COMPANIES BY THE TPO HIMSELF IN ASSESSEE S OWN CASE ON THE GROUND THAT THIS COMPANY IS INTO PRODUC T DEVELOPMENT, PRODUCT MAINTENANCE, PRODUCT TESTING A ND BPO SERVICES HENCE FUNCTIONALLY DIFFERENT. THE DRP IN AY 2012-13 HAD ALSO UPHELD SUCH EXCLUSION. M.P. NO.171/BANG/2018 PAGE 3 OF 8 4. WITH REGARD TO THE ARGUMENT THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES BY THE TPO HIMSELF IN ASSES SEES OWN CASE FOR AY 2012-13, THE TRIBUNAL REJECTED THE SAME BY OBSERVIN G AS FOLLOWS IN PARA 13 OF ITS ORDER:- THE OTHER ARGUMENT OF THE ASSESSEE THAT THE TPO HAS HIMSELF REJECTED THIS COMPANY AS A COMPARABLE COMPA NY IN ASSESSEES CASE FOR EARLIER AY IS NOT SUBSTANTIATED WITH ANY SUPPORTING DOCUMENT. IN THESE CIRCUMSTANCES, WE AR E OF THE VIEW THAT THIS COMPANY HAS TO BE RETAINED AS COMPARABLE COMPANY. 5. IT IS THE SUBMISSION IN THIS MISCELLANEOUS PETIT ION FILED BY THE ASSESSEE THAT IN GROUND NO.9 OF THE OBJECTION FILED BEFORE THE DRP BY THE ASSESSEE AT PAGE 82 OF THE OBJECTIONS BEFORE THE DR P, A PLEA WAS SPECIFICALLY TAKEN IN THIS REGARD BY THE ASSESSEE B EFORE THE DRP AND A SNAPSHOT OF SEARCH MATRIX FOR AY 2012-13 WHICH WAS MADE AVAILABLE BY THE TPO TO THE ASSESSEE WHICH SHOWED THAT CG-VAK SOFTWA RE EXPORTS LTD. WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES FOR THE REASON THAT IT WAS ALSO IN THE SOFTWARE DEVELOPMENT PRODUCTS WAS F ILED BEFORE THE DRP. IT IS THEREFORE PRAYED IN THE PETITION THAT THAT TH E CONCLUSIONS OF THE TRIBUNAL THAT ASSESSEE DID NOT PRODUCE EVIDENCE TO SHOW THAT CG-VAK SOFTWARE EXPORTS LTD. WAS EXCLUDED FROM THE LIST OF COMPARAB LE COMPANIES IN AY 2012-13 IS A MISTAKE APPARENT FROM THE RECORD. 6. WE HAVE HEARD THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE, WHO REITERATED THE FACTS NARRATED ABOVE. WE HAVE C ONSIDERED HIS SUBMISSION AND ARE OF THE VIEW THAT THERE IS NO MER IT IN THE PLEA OF THE ASSESSEE. AS FAR AS AY 2013-14 WHICH WAS THE YEAR BEFORE THE TRIBUNAL IS CONCERNED, THE TRIBUNAL HAS GIVEN A FINDING THAT CG -VAK SOFTWARE EXPORTS LTD. WAS NOT A SOFTWARE PRODUCT COMPANY IN PARA 10 OF ITS ORDER. THEREFORE, THE CONCLUSIONS OF THE TPO IN AY 2012-13 ARE IRRELE VANT. THE MISTAKE M.P. NO.171/BANG/2018 PAGE 4 OF 8 POINTED OUT IN THE ORDER OF TRIBUNAL WOULD NOT MAKE ANY DIFFERENCE TO THE CONCLUSION ARRIVED AT BY THE TRIBUNAL THAT CG-VAK S OFTWARE EXPORTS LTD. IS TO BE REGARDED AS A COMPARABLE COMPANY. THEREFORE, THIS MISTAKE POINTED OUT IN THE ORDER OF TRIBUNAL IS HELD TO BE UNSUSTAI NABLE. 7. THE NEXT MISTAKE POINTED OUT IN THE ORDER OF TRI BUNAL IS WITH REGARD TO THE ORDER OF TRIBUNAL UPHOLDING THE INCLUSION OF PERSISTENT SYSTEMS LTD. AS A COMPARABLE COMPANY. THE CONCLUSIONS OF THE TR IBUNAL ON THE COMPARABILITY OF THIS COMPARABLE ARE IN PARA 21 OF THE TRIBUNALS ORDER WHICH READS AS FOLLOWS:- 21. PERSISTENT SYSTEMS LTD.: THE OBJECTION OF THE ASSESSEE FOR EXCLUDING THIS COMPANY FROM THE LIST OF COMPARA BLE COMPANIES IS ON THE GROUND THAT THIS COMPANY IS ALS O ENGAGED IN MAKING SOFTWARE PRODUCTS AND IS NOT ONLY IN PROVIDI NG SWD SERVICES AND THAT THE SEGMENTAL DETAILS OF REVENUE FROM SALE OF SOFTWARE PRODUCTS AND REVENUE FROM RENDERING SWD SE RVICES ARE NOT AVAILABLE. THIS OBJECTION IS EXAMINED IN THE L IGHT OF THE ANNUAL REPORT OF THIS COMPANY FOR 2013 WHICH IS AT PAGES 648 TO 841 OF VOLUME-III PAPER BOOK FILED BY THE ASSESSEE. THE LEARNED AR POINTED OUT THAT EVEN IN THE ANNUAL REPO RT THIS COMPANY IS STATED TO BE IN THE BUSINESS OF DEVELOPI NG SOFTWARE PRODUCTS. THE REFERENCE BY THE LEARNED AR IS TO TH E CONSOLIDATED ACCOUNTS, I.E., INCLUSIVE OF THE ACTIVITIES OF THE GROUP (AE COMPANIES). THE UNCONSOLIDATED ACCOUNTS OF THIS C OMPANY IS AT PAGE 787 OF VOLUME-III PAPER BOOK FILED BY THE ASSE SSEE. THE PROFIT & LOSS ACCOUNT IS AT PAGE-793 OF VOLUME-III PAPER BOOK FILED BY THE ASSESSEE. INCOME FROM OPERATION IS RS .9967.53 MILLION. NOTE 21 TO THE NOTE ON ACCOUNTS GIVES THE BREAK OF THIS REVENUE WHICH IS AT PAGE- 814 AND IT IS FULLY FROM PROVIDING SOFTWARE DEVELOPMENT SERVICES. THIS REVENUE HAS BE EN COMPARED WITH COSTS AND THE OP/TC OF THIS COMPANY ARRIVED AT BY THE TPO. NOTE 26 TO THE NOTES ON ACCOUNTS GIVES THE SEGMENTA L BREAK-UP AND THE SEGMENTS ARE ALL SOFTWARE SERVICES SEGMENT AND THERE IS NO PRODUCT SEGMENT AT ALL. THE LEARNED AR PLACED R ELIANCE ON DECISIONS WHERE THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THESE DECISIONS DO NOT RELAT E TO AY 13- M.P. NO.171/BANG/2018 PAGE 5 OF 8 14. WE CAN THEREFORE SAFELY PROCEED ON THE BASIS T HAT THOSE DECISIONS ARE RENDERED ON THEIR FACTS PREVAILING IN THE RELEVANT AY. AS FAR AS THE PRESENT AY 13-14 IS CONCERNED, T HE PLEA OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY ON THE GROUN D THAT IT IS A SOFTWARE PRODUCT COMPANY IS HELD TO BE WITHOUT ANY BASIS AND IS REJECTED. NO OTHER ARGUMENTS WERE ADVANCED FOR EXC LUSION OF THIS COMPANY. HENCE, WE UPHOLD THE ORDERS OF THE REVENU E AUTHORITIES INCLUDING THIS COMPANY IN THE LIST OF COMPARABLE CO MPANIES. 8. IN THIS MISCELLANEOUS PETITION (MP), IT IS POIN TED OUT THAT THE CONCLUSIONS OF THE TRIBUNAL THAT THIS COMPANY WAS A SWD SERVICE COMPANY AND NOT A PRODUCT COMPANY IS ERRONEOUS. IN THIS RE GARD, IT HAS BEEN SUBMITTED THAT IN PAGE 796 OF ASSESSEES PB IN THE NOTES FORMING PART OF FINANCIAL STATEMENT, THERE IS A REFERENCE TO THE FA CT THAT PERSISTENT SYSTEMS LTD. WAS OFFERING COMPLETE PRODUCT LIFE CYCLE SERVI CES. IT HAS ALSO BEEN SUBMITTED THAT AT PAGE 750 OF ASSESSEES PB, WHICH IS THE NOTES FORMING PART OF THE CONSOLIDATED STATEMENT, THERE IS A REFE RENCE TO SOFTWARE PRODUCTS BEING DEVELOPED BY THE COMPANY. ACCORDING TO THE AVERMENTS IN THE MP, THESE FACTS HAVE BEEN OVERLOOKED BY THE TRI BUNAL. APART FROM THE ABOVE, A REFERENCE HAS ALSO BEEN MADE TO TWO DECISI ONS OF THE TRIBUNAL IN WHICH PERSISTENT SYSTEMS LTD. WAS NOT CONSIDERED AS FUNCTIONALLY COMPARABLE. THESE DECISIONS DO NOT RELATE TO AY 20 13-14 AND THEREFORE ARE NOT RELEVANT. 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE FACTS STATED ABOVE AND PRAYED FOR RECTIFICATION. WE HAVE CONSIDERED H IS SUBMISSIONS AND ARE OF THE VIEW THAT THE SAME IS WITHOUT ANY MERIT. IN PARA 21 OF THE ORDER OF TRIBUNAL, IT HAS BEEN CLEARLY BROUGHT OUT THAT PROF IT & LOSS ACCOUNT HAS NO STREAM OF INCOME FROM SOFTWARE PRODUCTS. THIS HAS NOT BEEN REBUTTED BY THE ASSESSEE. THE FACT THAT THERE ARE REFERENCES TO SOME SOFTWARE PRODUCTS IN THE NOTES TO ACCOUNTS CANNOT BE THE BASIS TO COM E TO A CONCLUSION THAT M.P. NO.171/BANG/2018 PAGE 6 OF 8 PERSISTENT SYSTEMS LTD. IS A SOFTWARE PRODUCT COMPA NY AND NOT SWD SERVICE COMPANY. WE THEREFORE REJECT THE PLEA OF TH E ASSESSEE IN THIS REGARD AND HOLD THAT THERE IS NO MISTAKE IN THE ORD ER OF TRIBUNAL, MUCH LESS AN APPARENT MISTAKE. 10. THE NEXT MISTAKE POINTED OUT IN THE ORDER OF TR IBUNAL IS WITH REGARD TO EXCLUSION OF CIGNITI TECHNOLOGIES LTD. AS A COMP ARABLE COMPANY. AS FAR AS COMPARABILITY OF THIS COMPANY IS CONCERNED, THE TRIBUNAL HELD AS FOLLOWS:- 22. CIGNITI TECHNOLOGIES LTD. :- THIS COMPANY WA S EXCLUDED BY THE TPO FROM THE LIST OF COMPARABLE COMPANIES FO R THE REASON THAT THIS COMPANY ONLY PERFORMS TESTING OF SOFTWARE ALREADY DEVELOPED AND CANNOT BE SAID TO BE ENGAGED IN PROVI DING SWD SERVICES. THE PLEA OF THE ASSESSEE IS THAT EVEN TH E ASSESSEE DOES TESTING OF SOFTWARE IT DEVELOPS AND THEREFORE THE B ASIS ON WHICH THE TPO REJECTED THIS COMPANY AS A COMPARABLE COMPA NY IS NOT CORRECT. IT IS THE PLEA OF THE ASSESSEE THAT SOFTWA RE TESTING IS AN INTEGRAL PART OF SOFTWARE DEVELOPMENT CYCLE. THI S CONTENTION OF THE ASSESSEE IS NOT CORRECT. THE QUESTION THEREFOR E WOULD BE AS TO WHETHER SOFTWARE TESTING SERVICES WOULD BE EQUIVALE NT TO SOFTWARE DEVELOPMENT SERVICES. SOFTWARE TESTING IS ONLY PAR T OF SOFTWARE DEVELOPMENT LIFE CYCLE. IT CANNOT BE EQUATED WITH SOFTWARE DEVELOPMENT SERVICES. THE TPO IN OUR VIEW RIGHTLY EXCLUDED THIS COMPANY FOR COMPARABILITY PURPOSES. THE LEARNED DR ALSO BROUGHT TO OUR NOTICE A DECISION OF THE ITAT BANGAL ORE BENCH RENDERED IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWAR E LTD. VS. DCIT (2013) 29 TAXMANN.COM 310(BANG-TRIB) WHEREIN I DENTICAL VIEW HAS BEEN TAKEN ON AN IDENTICAL ISSUE. WE THER EFORE UPHOLD EXCLUSION OF THIS COMPANY AS A COMPARABLE COMPANY. 11. IN THIS MP, IT HAS BEEN STATED BY THE ASSESSEE THAT THE TRIBUNAL HAS WRONGLY APPROACHED THE ISSUE OF COMPARABILITY OF TH IS COMPANY BY POSING THE QUESTION ' WHETHER SOFTWARE TESTING SERVICES WOULD BE EQUIVALE NT TO SOFTWARE DEVELOPMENT SERVICES '. IT IS THE CONTENTION OF THE ASSESSEE M.P. NO.171/BANG/2018 PAGE 7 OF 8 TESTING SERVICES WAS AN INTEGRAL PART OF THE SOFTWA RE DEVELOPMENT CYCLE AND THIS FACTOR WAS A DECISIVE FACTOR IN CHOOSING THIS COMPANY AS COMPARABLE COMPANY. IT HAS FURTHER BEEN SUBMITTED THAT IF THE CONCLUSION DRAWN BY THE TRIBUNAL IN RESPECT OF CG-VAK, STATED IN PARA 10 OF THE ORDER THAT 'DEVELOPING SOFTWARE PRODUCTS FOR CLIENTS WOULD ALS O BE IN THE NATURE OF RENDERING SOFTWARE DEVELOPMENT SERVICES.' IS CONSIDERED TO BE CORRECT THEN, APPLYING THE SAME LOGIC IN RESPECT OF CIGNITI, IT C AN BE RIGHTLY CONCLUDED THAT RENDERING SOFTWARE TESTING SERVICES WAS A PART OF S OFTWARE DEVELOPMENT SERVICES RENDERED BY THE ASSESSEE AND THEREFORE, CI GNITI SHOULD HAVE BEEN INCLUDED AS A COMPARABLE. 12. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE STAND OF THE ASSESSEE AS REFLECTED IN THE MP EXTRACTED ABOVE. W E ARE OF THE VIEW THAT THERE IS NO MERIT IN THE STAND TAKEN BY THE ASSESSE E IN THIS REGARD. TESTING SOFTWARE IS ONE OF THE DIFFERENT LIFE CYCLE OF SOFT WARE DEVELOPMENT. CIGNITY TECHNOLOGIES LTD. WAS PERFORMING ONLY TESTING SOFTW ARE ALREADY DEVELOPED AND DOES NOT DO ANY OTHER LIFE CYCLE OF SOFTWARE DE VELOPMENT AND WAS THEREFORE REGARDED AS NOT COMPARABLE WITH A SOFTWAR E DEVELOPMENT SERVICE COMPANY, WHICH DEVELOPS AN ENTIRE LIFE CYCLE OF SOF TWARE DEVELOPMENT. THERE IS NO MISTAKE, MUCH LESS AN APPARENT MISTAKE IN THE ORDER OF TRIBUNAL. THE CONTENTION OF ASSESSEE IN THIS REGAR D WILL CLEARLY AMOUNT TO SEEKING A REVIEW OF THE ORDER OF TRIBUNAL WHICH IS NOT PERMISSIBLE U/S. 254(2) OF THE ACT. 13. WE ARE OF THE VIEW THAT THE ASSESSEE IN THE GAR B OF A MA CANNOT SEEK TO REAGITATE ISSUES WHICH HAVE ALREADY BEEN DE CIDED AND SEEK A REVIEW OF THE ORDER OF THE TRIBUNAL. UNDER SECTION 254(2) OF THE ACT, THE TRIBUNAL DOES NOT HAVE POWERS TO REVIEW ITS ORDER. THIS MISCELLANEOUS APPLICATION IS NOTHING BUT AN ATTEMPT BY THE ASSESS EE TO SEEK REVIEW OF THE M.P. NO.171/BANG/2018 PAGE 8 OF 8 ORDER, WHICH IS NOT PERMISSIBLE U/S.254(2) OF THE A CT. THE MA IS THEREFORE HELD TO BE BEYOND THE SCOPE OF POWERS OF THE TRIBUN AL U/S.254(2) OF THE ACT. 14. IN THE RESULT, THE MISCELLANEOUS PETITION FILED BY THE ASSESSEE IS PARTLY ALLOWED TO THE EXTENT OF RECTIFYING TYPOGRAP HICAL ERROR IN THE ORDER. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF AUGUST, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 24 TH AUGUST, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APP L IC ANT 2. THE RESPONDENT 3. THE C IT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.