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MA 187/DEL/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 5769 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 02-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I1
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Search and seizure; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH FRIDAY NEW DELHI BEFORE SH.R.S.SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) (ASSESSMENT YEAR: 20 11-12) APPELLANT BY SH. PORUS KAKA, SR. ADV. & SH. MANISH KANTH, ADV. RESPONDENT BY SH. RAJESH KUMAR, SR. DR DATE OF HEARING 02. 0 2 .201 8 DATE OF PRONOUNCEMENT 02 .0 2 .201 8 ORDER PER R.S. SYAL, VICE PRESIDENT THIS MISCELLANEOUS APPLICATION HAS BEEN FILED AGAI NST THE ORDER PASSED BY THE TRIBUNAL ON 15.12.2016 IN ITA N O. 154 & 499/DEL/2016 PERTAINING TO THE ASSESSMENT YEAR 2011 -12. 2. THE ASSESSEE, THROUGH THE PRESENT RECTIFICATION APPLICATION, IS AGGRIEVED AGAINST ITS CHARACTERIZATION AS KNOWLE DGE PROCESS MCKINSEY KNOWLEDGE CENTRE INDIA PVT. LTD., 3 RD FLOOR, BLOCK-III, VATIKA BUSINESS PARK, SECTOR-49, SOHNA ROAD, GURGAON. PAN-AACCM2356G VS DCIT, CIRCLE-16(2), NEW DELHI. (APPELLANT) (RESPONDENT) M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) PAGE | 2 OUTSOURCING (IN SHORT KPO) FOR THE SERVICES RENDE RED IN THE INTERNATIONAL TRANSACTION OF `PROVISION FOR RESEARC H AND INFORMATION SERVICES. THE TRIBUNAL WHILE DEALING WITH THIS INTERNATIONAL TRANSACTION OBSERVED THAT THE ASSESSE E WAS RENDERING RESEARCH AND INFORMATION SERVICES TO ITS GROUP CONCERNS IN THEIR PROJECTS. AS AGAINST THE ASSESSE ES STAND THAT IT WAS PROVIDING MERELY BUSINESS PROCESS OUTSOURCING ( IN SHORT BPO) SERVICES, THE TRIBUNAL, AFTER MAKING A THORO UGH ANALYSIS, CAME TO CONCLUSION THAT THE NATURE OF SERVICES PROV IDED BY THE ASSESSEE UNDER THIS INTERNATIONAL TRANSACTION WAS K PO AND NOT BPO. THE ASSESSEE IS AGGRIEVED IN THE INSTANT M.A. AGAINST SUCH DECISION. 3. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD, WE FIND THAT THE TRIBUNAL HAS ELABORATELY D ISCUSSED THE NATURE OF SERVICES FROM PARA 5 PAGE 6 OF THE IMPUGN ED ORDER UP TO PARA 22 PAGE 21 BEFORE COMING TO A SPECIFIC CONCLUS ION AGAINST THE ASSESSEE. PARA 22 OF THE IMPUGNED ORDER IS AS UNDER : - `IT IS THUS ESTABLISHED THAT THE ASSESSEE IS CARRYING ON RESEARCH FROM THE INTERNET BASED DATABASES OR OTHER SOURCES TO COMPILE THE DATA, WHICH IS THEN CUSTOMIZED/PROCESSED IN ACCORDANCE WITH THE M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) PAGE | 3 REQUIREMENTS OF THE REQUESTOR THROUGH A SERIES OF O PERATIONS CARRIED OUT BY ITS RESEARCH MANAGERS, KNOWLEDGE EXP ERTS, PRACTICE SPECIALISTS AND SENIOR RESEARCH ANALYST E TC. BEFORE FINALLY TRANSMITTING IT OUTSIDE INDIA AFTER ORGANIZ ING INTO TEMPLATES IN EXCEL, POWER POINT ETC . THUS, IT IS EVIDENT THAT THE ASSESSEE IS MAKING VALUE ADDITION TO THE INFORMATIO N ACCESSED BY IT FROM DATABASES ETC . WHEN WE APPLY THE REQUISITES OF KPO TO THE SERVICES RENDERED BY THE ASSESSEE UNDER THIS SE GMENT, THERE REMAINS HARDLY ANY DOUBT THAT THE ASSESSEE IS REND ERING KPO SERVICES UNDER THIS SEGMENT INVOLVING HUGE EXPERTIS E AND SKILLS. 4. IT IS AMPLY BORNE OUT THAT THE TRIBUNAL AFTER CONSIDERING ALL THE RELEVANT ASPECTS, CAME TO A CLEAR-CUT CONCLUSIO N THAT THE SERVICES RENDERED BY THE ASSESSEE WERE IN THE NATUR E OF KPO. 5. THE LD. SENIOR COUNSEL ARGUED IN THE EXTANT PROCEEDINGS THAT THE TRIBUNAL OVERLOOKED THE JUDGMENT OF THE HO N'BLE HIGH COURT AS WELL AS THE TRIBUNAL ORDER IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2006-07. WE ARE AFRAID THAT THIS C ONTENTION IS SANS MERITS AS THESE DECISIONS HAVE NOT ONLY BEEN C ONSIDERED BUT ALSO DISCUSSED IN PARA 20 OF THE IMPUGNED ORDER, WH OSE RELEVANT PART IS REPRODUCED AS UNDER : - `COPIES OF THE TRIBUNAL ORDER PASSED FOR THE A.Y. 2006-07 REVERSING THE VIEW OF THE AO ON THE DENIAL OF DEDUCTION U/S 10A A ND THEN THE JUDGMENT OF THE HONBLE HIGH COURT AFFIRMING THE VI EW OF THE TRIBUNAL M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) PAGE | 4 HAVE BEEN PLACED BY THE LD. AR IN ITS PAPER BOOK. I T CAN BE SEEN FROM THE TRIBUNAL ORDER, THAT THE AO DENIED DEDUCTION B Y HOLDING THAT THE SERVICES UNDERTAKEN BY THE ASSESSEE WERE NOT I.T. E NABLED SERVICES AS THE ADDED VALUE FOR CUSTOMER WAS NOT GENERATED, LEA ST SIGNIFICANTLY, THROUGH THE USE OF INFORMATION AND COMMUNICATION TE CHNOLOGIES USING NETWORK SOFTWARE. .. THE AO OBSERVED THAT THERE WA S NO VALUE ADDITION THROUGH THE NETWORK SOFTWARE WHICH IS MOST VITAL ASPECT FOR DETERMINATION OF SERVICE AS I.T. ENABLED SERVICE OR OTHERWISE.. THE ASSESSEE, INTER ALIA , CONTENDED IN FIRST APPEAL, AS HAS BEEN REPRODUCED ON PAGE 5 OF THE TRIBUNAL ORDER, THAT THE ASSESSEE, AFTER RECEIVING THE REQUEST WAS COLLATING THE INFORMATION FROM SPECIALI ZED DATA SOURCES/DATA BASES. `(D) THE DATA WAS THEN CUSTOMIZED/PROCESSED IN ACCORDANCE WITH THE REQUIREMENTS OF THE REQUESTOR ; (E) THE CUSTOMIZED/PROCESSED DATA WAS THEN ORGANIZED INTO T EMPLATES IN EXCEL, POWER POINT ETC. AND WAS TRANSMITTED OUTSIDE INDIA THROUGH ELECTRONIC MEANS; (F) THUS, THE ASSESSEE WAS ENGAGED IN DATA PROCESSING/CUSTOMIZATION OF DATA AS IT ENABLED CONV ERSION OF DATA INTO INFORMATION BY USE OF COMPUTER SYSTEM BASED ON THE REQUIREMENTS OF THE REQUESTOR AND THE INFORMATION WAS EXPORTED ELEC TRONICAL LY . ALLOWING THE ASSESSEES CLAIM, THE CIT(A) HELD : `T HAT IT IS EVIDENT THAT THE APPELLANT IS CUSTOMIZING DATA, WHAT IS ACCESSED BY THE APPELLANT IN THE DATABASES AND WHAT IS DELIVERED TO ITS PARENT C OMPANY ARE TWO DIFFERENT PRODUCTS, I.E. DATA IS CUSTOMIZED TO SUIT THE NEEDS OF THE REQUESTER AND THEREAFTER EXPORTED OUT OF INDIA. A FTER RECORDING THE OBSERVATIONS OF THE AO AND CIT(A), THE TRIBUNAL NOT ED ON PAGE 7 OF ITS ORDER THAT :`IT IS CLEAR FROM THE MODUS OPERANDI THAT WHAT WAS ACCESSED BY THE ASSESSEE AT THE STP UNIT AND WHAT WAS DELIVE RED TO MCKINESEY (PARENT COMPANY) AFTER THE CONVERSION TOOK PLACE WE RE TWO DIFFERENT PRODUCTS/SERVICES WHICH IS DESCRIBED AS CUSTOMIZATI ON OF DATA/DATA PROCESSING. THE STP UNIT UNDERTOOK THE SERIES OF OP ERATION OF THE DATA RECEIVED FORM VARIOUS DATABASES BEFORE IT WAS FINAL LY DELIVERED TO THE CUSTOMER. THUS, THERE WAS VALUE ADDITION MADE BY TH E STP UNIT ON THE DATA . WE, THEREFORE, ARE NOT IN AGREEMENT WITH THE FINDIN GS OF AO THAT THERE WAS NO VALUE OF ADDITION ON THE DATA OBTAINED FROM VARIOUS DATA BASES FROM PARENT COMPANY. THE APPEAL FILED BY THE REVENUE AGAINST THE TRIBUNAL ORDER HAS BEEN DISMISSED BY THE HONBL E HIGH COURT VIDE M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) PAGE | 5 ITS JUDGMENT DATED 27.3.2015, THEREBY COUNTENANCING THE CONCLUSIONS DRAWN BY THE CIT(A) AND THE TRIBUNAL OVERTURNING TH E VIEW OF THE AO. 6. IT IS PALPABLE FROM THE ABOVE DISCUSSION THAT THE ISSUE INVOLVED IN SUCH DECISIONS WAS THE DENIAL OF DEDUCT ION U/S 10A OF THE INCOME TAX ACT, 1961. WHILE ARGUING FOR DEDUCT ION U/S 10A OF THE ACT, THE ASSESSEE URGED THAT IT MADE A GREAT VALUE ADDITION TO THE DATA RECEIVED FROM DATABASES BEFORE EXPORTIN G IT AND HENCE WAS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. HOW EVER, WHEN THE ISSUE OF ITS NATURE OF BUSINESS CAME UP FOR BENCHMA RKING, THE ASSESSEE ADOPTED A CONTRARY APPROACH TO CONTEND THA T ITS SERVICES WERE SIMPLY IN THE NATURE OF BPO AND NOT INVOLVING ANY KNOWLEDGE PROCESS. SUCH A CONTRARY APPROACH CANNOT BE COUNTENANCED. ONCE IT HAS BEEN FOUND AND HELD THAT THE ASSESSEE RENDERED VALUE ADDITION IN SERVICES, WHICH QUALIFIE D FOR DEDUCTION U/S 10A, A CONTRARY VIEW COULD NOT HAVE BEEN CANVAS SED BY THE ASSESSEE WHEN THE QUESTION OF DETERMINATION OF TH E ALP CAME. THIS IS THE REASON FOR THE TRIBUNAL RESPECTFULLY FO LLOWING THE JUDGMENT OF THE HONBLE HIGH COURT AND THE TRIBUNAL ORDER FOR EARLIER YEAR IN SO FAR AS NATURE OF SERVICES RENDER ED BY THE M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) PAGE | 6 ASSESSEE IS CONCERNED, BY HOLDING THE SAME TO BE AD DING VALUE AND RESULTANTLY KPO. RELEVANT DISCUSSION HAS BEEN M ADE IN PARA 21 OF THE TRIBUNALS ORDER. 7. THE LD. SENIOR AR THEN ARGUED THAT SAFE HARBOUR RULES WERE NOT TAKEN INTO CONSIDERATION BY THE TRIBUNAL, WHOSE COPY WAS PLACED ON RECORD IN THE INSTANT PROCEEDINGS. WE FIN D THAT PRIMARILY IT IS IMPERMISSIBLE TO BRING ON RECORD A FRESH MATERIAL IN THE RECTIFICATION PROCEEDINGS. BE THAT AS IT MAY, T HESE RULES ARE DATED 04.09.2013 AND HENCE APPLICABLE FROM THE ASSE SSMENT YEAR 2014-15. AS AGAINST THIS, THE ASSESSMENT YEAR UNDE R CONSIDERATION IS 2011-12. 8. IT IS THUS CLEAR THAT THE TRIBUNAL, AFTER CONSID ERING ALL THE RELEVANT THINGS, CAME TO A POSITIVE CONCLUSION THAT THE ASSESSEE WAS RENDERING KPO SERVICES UNDER THIS INTERNATIONAL TRANSACTION. PRESUMING, IF NOW WE ACCEPT THE ARGUMENT OF THE LD. SENIOR AR THAT THE ASSESSEE WAS INVOLVED IN RENDERING BPO SER VICES, THE SAME WILL AMOUNT TO REVIEW OF THE EARLIER ORDER, WH ICH IS IMPERMISSIBLE WITHIN THE KEN OF THE PROVISION OF SE CTION 254(2) OF M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) PAGE | 7 THE ACT. THIS PROVISION REQUIRES RECTIFICATION OF A MISTAKE APPARENT FROM THE RECORD AND NO REVIEW OF THE EARLI ER ORDER. 9. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE S ATISFIED THAT THERE IS NO MISTAKE MUCH LESS A MISTAKE APPARENT FROM REC ORD IN THE IMPUGNED ORDER WARRANTING ANY RECTIFICATION. 10. IN THE RESULT, THE M.A. FILED BY THE ASSESSEE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 0 2 ND FEBRUARY, 2018. SD/- SD/- (BEENA A. PILLAI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT *AMIT KUMAR* DATE:- 02.02.2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI M.A.NO.-187/DEL//2017 (IN ITA NO.154/DEL/2016) PAGE | 8 DATE 1. DRAFT DICTATED ON 02.02.2018 PS 2. DRAFT PLACED BEFORE AUTHOR 02.02.2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/A M 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON .02.2018 PS 7. FILE SENT TO THE BENCH CLERK .02.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *