Deputy Commissioner of Income-tax, Circle - 1(2), Pune V. M/s. Eaton Technologies Private Ltd., Pune

MA 30/PUN/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7764 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 15-01-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 24-09-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A M KRISHNAN MADHAVAN
• Assessee Lawyers: S S TOMAR
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, J UDICIAL M EMBER M.A. NO. 30 /PUN/ 2020 ( ARISING OUT OF ITA NO. 400 /PUN/ 2014 ) / ASSESSMENT YEAR : 2009 - 10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 1(2), PUNE. .. /APPLICANT / V/S. M/S. EATON TECHNOLOGIES PRIVATE LIMITED. CLUSTER C WING, EON FREE ZONE, PLOT NO.1, SURVEY NO.77, MIDC, KHARADI KNOWLEDGE PARK, PUNE - 4110 14. PAN : AABCE4323Q / RESPONDENT A SSESSEE BY : SHRI S.S. TOMAR REVENUE BY : SHRI A.M KRISHNAN MADHAVAN / DATE OF HEARING : 15.01.2021 / DATE OF PRONOUNCEMENT : 15 .01.2021 / ORDER PER PARTHA SARATHI CHAUDHU RY, JM : THIS MISCELLANEOUS APPLICATION HAS BEEN PREFERRED BY THE REVENUE U/S.254(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WITH A PRAYER TO RECALL THE ORDER OF TRIBUNAL IN ITA NO.400/PUN/2014 FOR THE ASSESSMENT YEAR 2009 - 10 DATED 06.03 .2019. 2 M A NO. 30 /PUN/20 20 A.Y. 2009 - 10 2. THE GRIEVANCE OF THE APPLICANT IS AGAINST OBSER VATION OF THE TRIBUNAL IN LAST LINE OF PARA 7.1 AT PAGE 8 OF ORDER OF TRIBUNAL DATED 06.03.2019 WHEREIN IT HAS BEEN HELD THAT THEREFORE, MINDTREE L T D. HAS TO BE ALSO EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 3. AT THE TIME OF HEARING, T HE LD. DR FOR THE REVENUE BRINGING OUR ATTENTION TO LAST LINE AT PARA 7.1 PAGE 8 OF THE TRIBUNALS ORDER DATED 06.03.2019 SUBMITTED THAT THE LAST LINE I.E. THEREFORE, MINDTREE L T D. HAS TO BE ALSO EXCLUDED FROM THE FINAL LIST OF COMPARABLES . MAY BE OMITTED AND IT IS ONLY TO THIS EXTENT, THE INSTANT MISCELLANEOUS APPLICATION HAS BEEN FILED AND REMAINING ORDER MAY REMAIN UNCHANGED. 4. ON THE OTHER HAND, THE LD. A R OF THE ASSESSEE CONCEDED TO THE FACT THAT THE LAST LINE OF PARA 7.1 AT PAGE 8 OF ORDER OF TRIBUNAL DATED 06.03.2019 I.E. THEREFORE, MINDTREE L T D. HAS TO BE ALSO EXCLUDED FROM THE FINAL LIST OF COMPARABLES. MAY KINDLY BE EXPUNGED/OMITTED. 5. AFTER HEARING THE SUBMISSIONS OF THE PARTIES HEREIN, WE ARE OF THE CONSIDERED VIEW THAT THIS MISCELLANEOUS APPLICATION HAS BEEN FILED ONLY LIMITED PURPOSE OF OMISSION OF THE LAST LINE AT PARA - 7.1 PAGE 8 I.E. THEREFORE, MINDTREE L T D. HAS TO BE ALSO EXCLUDED FROM THE FINAL LIST OF COMPARABLES. WE, THEREFORE, DELETE THE LAST LINE AT PARA 7.1, PAGE 8 AND NOW, PARA 7.1 NOW READ S AS UNDER: 7.1 THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF PRINCIPAL GLOBAL SERVICES VS. DCIT (SUPRA.). WE OBSERVE THAT THE PUNE BENCH OF THE TRIBUNAL IN THE AFORESAID CASE HAS HELD AS UNDER: 26. W ITH RESPECT TO THE DISPUTE IN THE SOFTWARE SERVICES SEGMENT, ANOTHER POINT MADE OUT BY ASSESSEE WAS THAT THE MARGIN OF 3 M A NO. 30 /PUN/20 20 A.Y. 2009 - 10 MINDTREE CONSULTING LTD. CONSIDERED BY THE TPO AT 27.60% WAS WRONG. IN THIS CONTEXT, THE LD. REPR ESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BEFORE THE TPO, ASSESSEE HAD ASSERTED THAT ONLY THE IT SERVICES SEGMENT OF THE SAID CONCERN BE CONSIDERED AS A COMPARABLE AND NOT THE ENTIRE ENTITY AND THEREFORE THE MARGIN RELATABLE TO THE IT SERVICES SEGMENT O F THE SAID CONCERN AT 5.52% BE ALONE CONSIDERED FOR THE PURPOSES OF THE COMPARABILITY ANALYSIS. THE LD. REPRESENTATIVE SUBMITTED THAT THE TPO HAS CONSIDERED THE MARGIN AT THE ENTITY LEVEL AND NOT THE SEGMENTAL LEVEL, WHICH WAS REQUIRED TO BE DONE. 27. IN THIS CONTEXT, THE LD. CIT - DR REFERRED TO THE DISCUSSION MADE BY THE TPO IN PARA 10(5) OF THE IMPUGNED ORDER TO JUSTIFY NON - ADOPTION OF SEGMENTAL PROFITS FOR THE PURPOSES OF COMPARABILITY ANALYSIS. ACCORDING TO THE LD. CIT - DR, THE SAID CONCERN WAS EN GAGED IN THE ACTIVITY OF COMPUTER SOFTWARE AND EVEN THE R&D SERVICES WERE NOTHING BUT TO SUPPORT DEVELOPMENT SERVICES THEREFORE THE MARGIN OF THE SAID CONCERN AT THE ENTITY LEVEL REFLECTED PROFITS FROM SOFTWARE DEVELOPMENT SERVICES ONLY AND THUS THE TPO WA S JUSTIFIED IN ADOPTING THE MARGINS AT THE ENTITY LEVEL FOR THE PURPOSES OF COMPARABILITY. 28. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE CONTEXT OF THE CONTROVERSY BEFORE US, WE HAVE PERUSED THE ANNUAL REPORT OF THE SAID CONCERN, A COPY O F WHICH IS PLACED AT PAGES 214 TO 267 OF THE PAPER BOOK. AT PAGE 263 OF THE PAPER BOOK IN PARA 15 OF THE SCHEDULE TO THE ANNUAL FINANCIAL STATEMENT, THE SAID CONCERN HAS ENUMERATED ITS SEGMENTAL REPORTING. AS PER THE ANNUAL REPORT, THE SAID CONCERN IS HAVI NG TWO BUSINESS SEGMENTS VIZ. IT SERVICES AND R&D SERVICES. THE SEGMENTAL PROFITS RELATING TO R&D SERVICES AND IT SERVICES HAVE BEEN SEPARATELY ENUMERATED THEREIN. THE PLEA OF THE ASSESSEE IS THAT THE MARGIN RELATING TO THE IT SERVICES SEGMENT ALONE BE CON SIDERED COMPARABLE TO ASSESSEE'S ACTIVITIES OF PROVISION OF SOFTWARE SERVICES AND NOT THE MARGIN RELATABLE TO THE R&D SERVICES SEGMENT OF THE SAID CONCERN. IT HAS BEEN EMPHASIZED THAT THE ACTIVITIES OF THE R&D SERVICES SEGMENT ARE NOWHERE COMPARABLE TO ASS ESSEE'S ACTIVITIES SINCE ASSESSEE DOES NOT RENDER SUCH SERVICES AND RATHER IT IS PROVIDING SOFTWARE DEVELOPMENT SERVICES ON THE BASIS OF THE SPECIFICATIONS PROVIDED BY THE ASSOCIATED ENTERPRISES. IN OUR CONSIDERED OPINION, THE AFORESAID FUNCTIONAL DIFFEREN CE POINTED OUT BY THE ASSESSEE VIS - A - VIS THE R&D SERVICES SEGMENT OF THE SAID CONCERN ARE GERMANE AND RELEVANT TO DECIDE ABOUT THE INCLUSION OF THE SAID CONCERN FOR THE COMPARABILITY ANALYSIS. THEREFORE, WE DIRECT THE LOWER AUTHORITIES TO EXCLUDE THE MARGI NS RELATABLE TO THE R&D SERVICES SEGMENT OF THE SAID CONCERN AND CONSIDER ONLY THE MARGIN RELATABLE TO THE IT SERVICES SEGMENT ALONE TO BENCHMARK ASSESSEE'S ACTIVITY OF PROVISION OF SOFTWARE SERVICES TO ITS ASSOCIATED ENTERPRISES. THUS, ON THIS ASPECT ALS O ASSESSEE SUCCEEDS. THEREFORE, AS OBSERVED IN THE AFORESAID CASE BY THE PUNE BENCH OF THE TRIBUNAL, SIMILARLY IT IS DIRECTED THAT THE LOWER AUTHORITIES TO EXCLUDE THE MARGINS RELATABLE TO THE R& D SERVICES SEGMENT OF THE SAID CONCERN AND CONSIDER ONLY THE MARGIN RELATABLE TO THE IT SERVICES SEGMENT ALONE TO BENCHMARK 4 M A NO. 30 /PUN/20 20 A.Y. 2009 - 10 ASSESSEE'S ACTIVITY OF PROVISION OF SOFTWARE SERVICES TO ITS ASSOCIATED ENTERPRISES. 6 . REST OF THE ORDER OF TRIBUNAL REMAINS UN CHANGED. HENCE, MISCELLANEOUS APPLICATION FILED BY REVENUE STANDS ALLOWED . 7 . IN THE RESULT, MISCELLANEOUS APPLICATION FILED BY THE REVENUE IS ALLOWED . ORDER PRO NOUNCED ON 15 TH DAY OF JANUARY , 20 2 1 . SD/ - SD/ - INTURI RAMA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 15 TH JANUARY , 202 1 SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 13, PUNE. 4. THE PR. CIT - 1, PUNE. 5 . , , , / DR, ITAT, A BENCH, PUNE. 6 . / GUARD FILE. / BY ORDER, // TRUE COPY // / PRIVATE SECRETARY , / ITAT, PUNE . 5 M A NO. 30 /PUN/20 20 A.Y. 2009 - 10 DATE 1 DRAFT DICTATED ON 1 5 . 01 .202 1 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 1 5 . 01 .202 1 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER