Wissen Infotech Private Limited, Hyderabad V. Dy. Commissioner of Income Tax, Circle-17(2), Hyderabad

MA 58/Hyd/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8235 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 17-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 12-07-2019
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT P. MADHAVI DEVI , JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER M.A. NO. 58/HYD/2019 (IN ITA NO. 2010 /HYD/201 7 ASSESSMENT YEAR: 20 08 - 09 WISSEN INFOTECH PVT. LTD., HYDERABAD . PAN AAAC W3027G VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 17 (2), HYDERABAD. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI P.V.S.S. PRASAD REVENUE BY : SHRI Y.V.S.T. SAI DATE OF HEARING : 1 2 / 0 7 /201 9 DATE OF PRONOUNCEMENT : 17 /0 7 / 201 9 O R D E R PER S . RIFAUR RAHMAN , A .M. : TH IS MISCELLANEOUS APPLICATION IS FILED BY THE ASSESSEE U/S 254(2) OF THE INCOME TAX ACT SEEKING RECTIFICATION/MODIFICATION OF THE ORDER OF THE TRIBUNAL DATED 18 / 04 /201 9 IN ITA NO. 2010 /HYD/201 7. 2. IN THE M.A., THE ASSESSEE STATED AS UNDER: T HIS M ISCELLANEOUS APPLICATION IS FILED AGAINST THE ORDER OF HON'BLE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH , HYDERABAD DT. 18.04.2019 VIDE ITA NO. 2010 / HYD / 2017, SEEKING RECTIFICATION ON THE FOLLOWING SUBMISSIONS. 1. IN THE APPEAL REFERRED ABOVE, THE APPELLANT RAISED THE FOLLOWING GROUNDS: '1. THE LEARNED (LD) DISPUTE RESOLUTIONS PANEL (DRP)/ ASSESSING OFFICER (AO) ARE ERRONEOUS IN LAW AND ON THE FACTS OF THE CASE. 2 M.A. NO. 58 /HYD/1 9 WISSEN INFOTECH PVT. LTD., HYD. 2. THE LD. DRP/ LD AO OUGHT TO HAVE ACCEPTED THE PROFIT MARGIN (DP/DC) OF 6.27% ADOPTED BY THE APPELLANT AS HAVING COMPLIED WITH THE ARM'S LENGTH PRINCIPLE . 3. THE LD DRP/AO ARE NOT JUSTIFIED IN LAW IN CONSIDERING WRONG COMPARABLES AND CONSEQUENTLY ARRIVING AT AN ARM'S LENGTH MARGIN OF 24.11% AFTER MAKING WORKING CAPITAL ADJUSTMENT OF 1.39% AND THEREBY MAKING AN ADJUSTMENT OF RS. 2,75,04,986/ - . 4. THE AD E RRED IN NOT GIVING FULL EFFECT TO THE DIRECTIONS OF LD. DRP IN RESPECT OF EXCLUDING THE COMPANY WIPRO LIMITED (SEG) AS A COMPARABLE COMPANY IN COMPUTATION OF OPERATING MARGIN OF COMPARABLE COMPANIES, WHICH RESULTED IN INCREASE OF MARGIN BY 0.33% (I.E. 24.1 1% LESS 23.78%) AND THEREBY MAKING AN EXCESS ADJUSTMENT OF R S .5,03,127/ - (I.E. RS.2,75,04,986/ - LESS RS.2,70, 01 ,859/ - ). 5. THE LD. DRP/AO ERRED IN NOT ACCEPTING ASSESSEE'S CONTENTION OF REJECTING THE FOLLOWING 8 COMPANIES INTER ALIA ON THE GROUNDS OF HIGH TURNOVER, FUNCTIONAL DIS - SIMILARITY, OWNERSHIP OF INTANGIBLE ASSETS AND NON - AVAILABILITY OF SEGMENTAL INFORMATION RELATING TO SOFTWARE DEVELOPMENT IN CASE OF COMPANIES ENGAGED IN BOTH SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT. S.NO. NAME OF THE COMPANY 1 AVANI CIMCON TECHNOLOGIES LTD 2 BODHTREE LTD 3 CELESTIAL BIOLABS LTD 4 I NFOSYS TECHNOLOGIES LTD 5 LGS GLOBAL LTD 6 PERSISTENT SYST EMS LTD 7 QUINTEGRA SOLUTIONS LTD 8 SOFTSOLLNDIA LIMITED 6. THE LD D RP/ AO ERRED IN CONFIRMING AN ADJUSTMENT WHEN THE APPELLANT COMPANY WAS CLAIMING EXEMPTION U/S LOB AND HENCE THERE IS NO INTENTION TO SHIFT PROFITS OUTSIDE INDIA AND MORE SO WHEN TH E TAX RATES IN USA WHERE THE AE IS LOCATED, WERE HIGHER THAN THOSE PREVAILING IN INDIA. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING WITH THE PRIOR APPROVAL OF THE HON'BLE ITAT. ADDITIONAL GROUNDS 1. THE LD. TPO / D RP ERRED IN COMPUTING/ CONFIRMING THE MARGIN OF APPELLANT COMPANY BY TREATING FRINGE BENEFIT TAX('FBT') AS AN OPERATING EXPENSE, WHICH RESULTED IN REDUCING THE MARGIN OF THE APPELLANT COMPANY FROM 6.27% TO 5.92%. 3 M.A. NO. 58 /HYD/1 9 WISSEN INFOTECH PVT. LTD., HYD. 2. THE LD TPO/ORP ARE NOT JUSTIFIED IN LAW IN CONSIDERING FBT A S AN OPERATING EXPENSE IN CASE OF APPELLANT COMPANY AS THE LD. TPO HIMSELF DID NOT CONSIDER THE FBT AS AN OPERATING EXPENSE WHILE COMPUTING THE MARGINS OF COM PARABLES. ' 2. THE HON'BLE INCOME APPELLATE TRIBUNAL DISPOSED - OFF THESE GROUNDS IN ITS ORDER DAT ED 18.04.2019 IN ITA NO.2010/HYD/2017. 3. THE HON'BLE INCOME APPELLATE TRIBUNAL IN ITS ORDER DATED 18.04.2019 IN ITA NO. 2010/HYD/2017, IN PARA 9.2, MENTIONED THAT THE CASE 3DPLM SOFTWARE SOLUTIONS LTD [2014] 42 TAXMANN.COM 333 (BANGALORE _ TRIB.) CANNOT BE RELIED UPON AS IT REFERS TO AY 2007 - 08, THE EXTRACT OF THE ORDER IS AS UNDER: '9.2 CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE BANGALORE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS (SUPRA) DIRECT THE AO/TP O TO EXCLUDE THE SAID COMPANY BY OBSERVING AS UNDER: '9.5 APART FROM RELYING ON THE AFORE CITED JUDICIAL DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS BROUGHT ON RECORD SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS - SI MILAR AND DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE NOT COMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN THE CITED DECISIONS FOR THE EARLIER YEARS I.E. ASSESSMENT YEAR 2007 - 08 IS APPLICABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBM ISSIONS OF THE ASSESSEE THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT HAS ALSO BEEN SO HELD BY CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (SUPRA) AS WELL AS IN THE CASE OF TRIOLOGY E - BUSI NESS SOFTWARE INDIA (P.) LTD. (SUPRA). IN VIEW OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER PARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDERATION, WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE, FOLLOWING THE DECISION OF THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO.845/BANG/2011 AND TRIOLOGY E - BUSINESS SOFTWARE INDIA ,P. LTD. CASE (SUPRA), WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FORM THE LIST OF COMOARAO. ES. THE AO/TPO ARE ACCORDINGLY DIRECTED.' WE NOTICE THAT THE DECISION OF THE I TAT , BENGALURU BENCH CANNOT BE RELIED AS IT REFERS TO AY 2007 - 08 AND IT IS BASED ON SEVERAL OTHER DECISIONS. WE NOTICE THAT SIMILAR TO ASSESSEE, CELESTIAL BIO LABS ALSO OFFERS SEVERAL SERVICES TO ITS AES AND SINCE WE ARE DETERMINING WITH ALP BASED ON TNMM, WE CONSIDER THE AVERAGE MARGIN OF ALL THE SEVERAL ACTIVITIES CARRIED ON BY THE ASSESSEE. ON A COMPARTMENTALIZING TWO PROFIT MAKING COMPANIES WITH SEVERAL ACTIVITIES, WE CAN CO MPARE THE END 4 M.A. NO. 58 /HYD/1 9 WISSEN INFOTECH PVT. LTD., HYD. RESULT, UNLESS THEY ARE INTO PRODUCT OR HIGHLY DIVERSIFIED OR SOME ACTIVITIES WHICH WILL MODIFY THE PROFIT MAKING ABILITY OF THE ORGANIZATION. IN THIS CASE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE SELECTION PROCESS. THEREFORE, THE OBJE CTION OF THE ASSESSEE TO EXCLUDE THE SAID COMPANY IS HEREBY REJECTED. 4. IN THE COURSE OF PROCEEDINGS BEFORE THE HONOURABLE TRIBUNAL THE AUTHORISED REPRESENTATIVE SUBMITTED THAT THE COMPANY CELESTIAL BIOLABS LTD. IS ENGAGED IN VARIOUS R&D ACTIVITIES AND A LSO IT WAS ENGAGED IN DEVELOPMENT OF PRODUCTS IN THE FIELD OF BIO - TECHNOLOGY, PHARMACEUTICALS ETC. ACCORDINGLY IT FAILS THE TEST OF FUNCTIONAL SIMILARITY. 5. IN THIS CONNECTION THE AUTHORIZED REPRESENTATIVE RELIED ON THE ABOVE CASE LAW (3DPLM SOFTWARE SOL UTIONS LTD [2014J 42 TAXMANN.COM 333 (BANGALORE - TRIB.)) WHEREIN THE HON'BLE ITAT AFTER CONSIDERING THE RIVAL CONTENTIONS HELD THAT THE COMPANY CELESTIAL BIOLABS LTD IS NOT COMPARABLE TO THE ASSESSEE COMPANY AS IT IS FAILS THE TEST OF FUNCTIONAL SIMILARIT Y. FURTHER THE HON'BLE ITAT ALSO HELD THAT IN VIEW OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER PARAMETERS OF CELESTIAL BIOLABS LTD HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDERATION, WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE, FOLLOWING THE DECISION OF THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO.845/BANG/2011 THE HON'BLE ITAT DIRECTED THE LD. TPO TO EXCLUDE THE COMPANY (CELESTIAL BIOLABS LTD) AS A COMPARABLE FOR AY 2008 - 09. 6. THEREFORE, IN THE ABOVE CASE THE HON'BLE BENGALURU BENCH HAS CLEARLY DEMONSTRATED THAT FUNCTIONAL PROFILE AND OTHER PARAMETERS ARE NOT CHANGED IN THE YEAR UNDER CONSIDERATION WHICH IS A.Y 2008 - 09, AND ACCORDINGLY EXCLUDED THE SAME AS A COMPARABLE IN AY 200 8 - 09. 7. FURTHER, WE WOULD LIKE TO HUMBLY SUBMIT THAT THE HON'BLE ITAT OBSERVED IN PARA 9 OF THE ORDER AS FOLLOWS: II AS REGARDS CELESTIAL BIOLABS LTD., ID. AR SUBMITTED THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE COMPANY AS IT IS ENGAGED IN R&D ACTIVITIES AND RENDERS SERVICES TO SPECIFIC SECTORS. IT PROVIDES CONTRACT RESEARCH SERVICES AND IS ALSO DIVERSIF IED INTO MARKETING AND MANUFACTURING ACTIVITIES. IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY, THUS, IT HAS TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. HE RELIED ON THE FOLLOWING CASE: 1. 3DPLM SOFTWARE SOLUTIONS VS. D CI T [2014J 42 TAXMAN N.COM 333 (BANG ALOR E - TRIB. ) ' 5 M.A. NO. 58 /HYD/1 9 WISSEN INFOTECH PVT. LTD., HYD. WHEREAS THE APPELLANT COMPANY IN ITS WRITTEN SUBMISSION FILED BEFORE HON'BLE BENCH RELIED NOT ONLY ON 3DPLM SOFTWARE SOLUTIONS (SUPRA) BUT ALSO ON LIST OF CASE LAW DECIDED IN THIS CONTEXT EXCLUDING 'CELESTIAL BIOLABS LIMITED ' AS A COMPARABLE ON ACCOUNT OF FUNCTIONAL DISSIMILARITY, VIDE P AGE NO.19 OF THE WRITTEN SUBMISSIONS. FOR THE SAKE OF READY REFERENCE THE SAME ARE EXTRACTED BELOW: KETERA SOFTWARE INDIA {P.)LTD. [2017J 79 TAXMANN.COM 183 (BANGALORE - TRIB.) AMD IND IA (P.) LTD [2015J 61 TAXMANN.COM 35 (BANGA L ORE - TRIB.) GXS INDIA TECHNOLOQY CENTRE (P.) LTD. [2015] 62 TAXMANN.COM 276 (BANGA L ORE - TRIB.) ACTIANCE INDIA (P.) LTD. [2015J 59 TAXMANN.COM 72 (BANGA L ORE - TRIB.) AVL INDIA SOFTWARE (P.) LTD [2016J 7 1 TAXMANN.COM 78 (DE/HI - TRIB.) SONUS NETWORKS INDIA {P.)LTD [2015]59 TAXMANN.COM 474 (BANGA L ORE - TRIB.) UCB INDIA (P.) LTD. [2016] 73 TAXMANN.COM 389 (MUMBAI - TRIB.) 8. HOWEVER, HON'BLE ITAT MENTIONED THAT 'WE NOTICE THAT THE DECISION OF THE I TA T BENGALURU BENCH CANNOT BE RELIED AS IT REFERS TO AY 2007 - 08' WHICH IS FACTUALLY INCORRECT, AS HON'BLE BENGALURU ITAT IN THE CASE OF 3DPLM (SUPRA), WHICH IS ALSO INTO SOFTWARE DEVELOPMENT SERVICES, EXCLUDED CELESTIAL BIOLABS LTD FOR AY 2008 - 09 VERY MUCH O N THE BASIS OF EXCLUSION OF THE SAME IN EARLIER YEAR I .E. AY 2007 - 08 AND ALSO ON THE BASIS OF SAME PROFILE BEING MAINTAINED FOR AY 2008 - 09, WHICH CLEARLY DEMONSTRATE THE SAID COMPANY IS FUNCTIONALLY DISSIMILAR. 9. IT IS THEREFORE HUMBLY SUBMITTED THAT THE RE IS A MISTAKE APPARENT FROM THE RECORD IN THE ORDER OF THE HON'BLE ITAT TO THIS EXTENT AND HENCE IT IS PRAYED THAT THE HON'BLE INCOME TAX APPELLATE TRIBUNAL BE PLEASED TO RECTIFY THE ABOVE MISTAKE BY PASSING APPROPRIATE ORDER. 6 M.A. NO. 58 /HYD/1 9 WISSEN INFOTECH PVT. LTD., HYD. 2.1 THE LD. AR OF THE A SSESSEE REFERRING TO THE ABOVE FACTUAL BACKGROUND, REQUESTED THE BENCH TO RECTIFY THE ABOVE MISTAKE BY PASSING APPROPRIATE ORDER. 3. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT THE HONBLE BENCH HAS ALREADY CONSIDERED THIS ISSUE AND APPLIED ITS MIND TO COME TO A DECISION. AS REGARDS THE MISTAKE OF MENTIONING OF AY AS 2007 - 08 INSTEAD OF AY 2008 - 09, IT MAY BE RECTIFIED. HOWEVER, THE CONCLUSION ARRIVED AT BY THE BENCH IS PROPER AND THERE IS NO MISTAKE APPARENT ON RECORD, IT WILL AMOUNT TO REVIEW OF ORDER AN D BENCH HAS GIVEN A CLEAR FINDING. HE RELIED ON THE FOLLOWING CASES: 1 . PCIT VS. SOFTBRANDS INDIA (P) LTD., 406 ITR 513 (KAR.) 2. PCIT VS. TIBCO SOFTWARE (INDIA) PVT. LTD., IT APPEAL NO. 522 OF 2016, DATED 24/09/2018. (BOMBAY HIGH COURT). 4. IN THE REJOINDER, THE AR SUBMITTED THAT T IBCO SOFTWARE (INDIA) PVT. LTD. (SUPRA) ORDER MAY BE DISTINGUISHABLE BECAUSE THERE IS A QUESTION OF LAW BEFORE THE HONBLE HIGH COURT, BUT, HERE WE ARE ARGUING BEFORE THE ITAT ON FACTUAL MATTER. HE SUBMITTED THAT B ENCH MAY REMAND THE MATTER TO TPO TO APPRECIATE THE FACTS ON RECORD. 5. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER THE ORDER, IN PARA 9.2, WE WRONGLY REFERRED AY AS 2007 - 08, WHEREAS THE ORDER WAS FOR AY 2008 - 09, THEREFORE, THE AY MAY BE READ AS 2008 - 09 INSTEAD OF 2007 - 08. THE MODIFIED PARA IS AS UNDER: WE NOTICE THAT THE DECISION OF THE ITAT BENGALURU BENCH CANNOT BE RELIED AS IT REFERS TO AY 2008 - 09 AND IT IS BASED ON SEVERAL OTHER DECISIONS. WE NOTICE THAT SIMILAR TO ASS ESSEE, CELESTIAL BIO LABS ALSO OFFERS SEVERAL SERVICES TO ITS AES AND SINCE WE ARE DETERMINING WITH ALP BASED ON TNMM, WE CONSIDER THE AVERAGE MARGIN OF ALL THE SEVERAL ACTIVITIES CARRIED ON BY THE ASSESSEE. ON A COMPARTMENTALIZING TWO PROFIT MAKING COMPAN IES WITH SEVERAL ACTIVITIES, WE CAN COMPARE THE END RESULT, UNLESS THEY ARE INTO PRODUCT OR HIGHLY DIVERSIFIED OR SOME 7 M.A. NO. 58 /HYD/1 9 WISSEN INFOTECH PVT. LTD., HYD. ACTIVITIES WHICH WILL MODIFY THE PROFIT MAKING ABILITY OF THE ORGANIZATION. IN THIS CASE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE SELECTION PROCESS. THEREFORE, THE OBJECTION OF THE ASSESSEE TO EXCLUDE THE SAID COMPANY IS HEREBY REJECTED. 5.1 WITH REGARD TO OTHER SUBMISSIONS OF THE ASSESSEE, WE HAVE CONSIDERED THE DECISION OF ITAT, BENGALURU BENCH AND OTHER ORDERS REFERRED BY THE ASS ESSEE AND GAVE OUR FINDINGS CONSIDERING THE FACTUAL MATRIX. WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LD. DR THAT BENCH HAS ALREADY APPLIED THE MIND AND CAME TO THE CONCLUSION IN THE ORDER. HE SUBMITTED THAT THE COMPARATIVE ANALYSIS IS PART OF DETER MINING ALP AND IS FINAL WITH A QUIETUS AT THE HANDS OF THE FINAL FACT FINDING AUTHORITIES, BENCH HAS GIVEN CLEAR CUT FINDINGS. THEREFORE, THE BENCH CAME TO THE CONCLUSION AFTER CONSIDERING ALL THE FACTS AND NOT INCLINED TO REVIEW OUR DECISION AS THE ITAT H AS NO POWER TO REVIEW ITS OWN ORDER U/S 254(2) OF THE ACT. 6. IN THE RESULT, MA FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 17 TH JULY , 201 9 SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 17 TH JULY , 201 9 KV C OPY TO: - 1) M/S WISSEN INFOTECH PVT. LTD., C/O PRASAD & PRASAD, CAS., FLAT NO. 301 , MJ TOWERS, 8 - 2 - 698, ROAD NO. 12, BANJAA HILLS, HYDERABAD 500 0 34 2) DC IT, CIRCLE 17 (2), HYDERABAD 3) DRP - 1 , BENGALURU 4) PR. CIT 5, HYDERABAD 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE