LIONBRIDGE TECHNOLOGIES P. LTD, NAVI MUMBAI V. ASST CIT 15(2)(1), MUMBAI

MA 704/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4909 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 27-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 30-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Transfer pricing; Rectification of order

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI RAVISH SOOD ( J M) M.A. NO. 704/MUM/2018 ARISING OUT OF I.T.A. NO. 7304 /MUM/ 2017 (ASSESSMENT YEAR 20 13 - 14 ) LIONBRIDGE TECHOLOGIES PVT. LTD. 3 RD FLOOR, RELIABLE TEC H PARK OFF. THANE - BELAPUR ROAD AIROLI, NAVI MUMBAI - 400708. PAN : AABCT3380Q V S . ACIT - 15(2)(1) ROOM NO. 403 4 TH FLOOR AAYAKAR BHAVAN M.K.ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY MS. KARISHMA PHATARPHEKAR & SHRI PRATIK PODDAR D EPARTMENT BY SHRI A.B. KOLI DATE OF HEARING 1.3 . 201 9 DATE OF PRONOUNCEMENT 27 . 5 . 201 9 O R D E R PER SHAMIM YAHYA (AM) : BY WAY OF THIS MISCELLANEOUS APPLICATION ASSESSEE SEEKS RECTIFICATION OF MISTAKES APPARENT FROM RECORD IN THE ORDER OF TH IS TRIBUNAL IN ITA NO. 7304/MUM/2017 FOR A.Y. 2013 - 14 VIDE ORDER DATED 21.5.2018. 2. ONE MISTAKE POINTED OUT IS AS UNDER : - MISTAKE OF NOT FOLLOWING JUDICIAL PRECEDENTS: IN RELATION TO ACROPETAL TECHNOLOGIES LTD . THE TRIBUNAL AGREED WITH THE GROUND RAIS ED BY THE APPELLANT THAT HEALTHCARE SEGMENT OF THIS COMPANY WAS NOT COMPARABLE. THE TRIBUNAL INTENDED TO FOLLOW THE PRECEDENT IN APPELLANT'S OWN CASE, HOWEVER THE TRIBUNAL AT PARA 21, INSTEAD OF DIRECTING TO CONSIDER THE MARGIN OF IT SEGMENT, INADVERTENTLY DIRECTED THAT THE MARGIN OF THE IT SEGMENT, BE CONSIDERED. THE TRIBUNAL IN THE IMPUGNED ORDER HAS ERRED IN INADVERTENTLY STATING THAT THE ITAT IN APPELLANTS OWN CASE FOR AY 2008 - 09 HAD DIRECTED T O COMPUTE THE MARGIN OF THE ITES SEGMENT. LIONBRIDGE TECHOLOGIES PVT. LTD. 2 'THE APPLICANT SUBMITS THAT THE TRIBUNAL IN AY 2008 - 09 HAD IN FACT DIRECTED TO COMPUTE THE MARGIN OF THE IT SEGMENT. THE RELEVANT PARA OF ITAT ORDER IN AY 2008 - 09 IS PRODUCED BELOW: '9. ......... THERE APPEARS TO BE SOME CONTRADICTION/ ERROR WHICH REQUIRES EXAMINATION ON THE PART OF THE LOWER AUTHORITIES. WE ACCORDINGLY, DIRECT THE AO/TPO TO VERIFY AND COMPARE THE REVENUE OF IT SEGMENT OF ACROPETAL TECHNOLOGIES LTD. WITH THAT OF ASSESSEE COMPANY IN PLACE OF REVENUE OF ITS ENGINEERING DESIGN AND SERVICES. ACCORDINGLY, T HE MATTER IS RESTORED BACK TO THE FILE OF THE AO ONLY WITH RESPECT TO COMPARABLE M/S ACROPETAL TECHNOLOGIES LTD, AND FOR DECIDING AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE'. THE TRIBUNAL FAILED TO TAKE COGNIZANCE OF THE FACT THAT, THE TPO HIMSEL F WHILE CONCLUDING THE FINAL SET OF COMPARABLE COMPANIES HAD STATED THAT THE IT SEGMENT OF THE COMPANY WAS COMPARABLE TO THE APPELLANT, HOWEVER WHILE WORKING OUT THE MARGINS IT HAD TAKEN THE FIGURES OF THE HEALTHCARE (ITES) SEGMENT. 3. O N THIS ISSUE, WE N OTE THAT ITAT HAS PASSED FOLLOWING ORDER : - ACROPETAL TECHNOLOGIES LIMITED: 21. THIS COMPARABLE HAS BEEN SELECTED BY THE TRANSFER PRICING OFFICER BUT OBJECTED BY THE ASSESSEE. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFF ICER HAS TAKEN HEALTH CARE SEGMENT FROM THIS COMPARABLE INSTEAD OF THE ITES SERVICES WHICH IS BEING COMPARED. FURTHER, THE SUBMISSION OF THE ASSESSEE IN THIS REGARD IS THAT THE ITAT IN THE CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 HAS DIRECTED TRANSFER PRICING OFFICER TO COMPUTE THE MARGIN FOR THE ITES SEGMENT. THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT DISPUTE THE ABOVE PROPOSITION. ACCORDINGLY, WE DIRECT THE TRANSFER PRICING OFFICER TO COMPUTE AND TAKE THE MARGIN OF ITES SEGMENT OF THE COMPAR ABLE FOR ANALYSIS. 4. UPON CAREFUL CONSIDERATION WE AGREE THAT A MISTAKE APPARENT FROM RECORD IS THERE IN THE ORDER OF THIS TRIBUNAL WITH RELATION TO ADJUDICATION ON COMPARABILITY OF THIS COMPARABLE. HENCE, WE RECALL THE ORDER ONLY TO CONSIDER THE COMPARA BILITY OF THIS COMPARABLE AFRESH. 5 . ANOTHER MISTAKE IS POINTED OUT IS AS UNDER : MISTAKE OF NOT ADJUDICATING ON ALL ARGUMENTS PUT FORTH BY THE APPLICANT: IN RELATION TO ASPIRE SYSTEMS (INDIA) PRIVATE LTD ('ASPIRE'). LIONBRIDGE TECHOLOGIES PVT. LTD. 3 THE SUMMARY OF APPELLANT ARGUMENTS AND ADJUDICATION OF THE SAME IS AS BELOW: APPELLANT'S ARGUMENT IN BRIEF FINDING OF THE TRIBUNAL IP AND R&D CENTRE MERELY BECAUSE THE COMPANY IS HAVING IP AND R&D CENTRE ONE CANNOT REJECT THE COMPARABLE. - SOFTWARE PRODUCTS AND NO SEGMENTATION (PB 112 & WEBSITE EXTRACT) - INTERNALLY DEVELOPS INTANGIBLES (PB 175 & 202) - NO SEGMENTATION AVAILABLE NOT ADJUDICATED. THE ARGUMENTS AND EVIDENCE DEMONSTRATE THE COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCT. HENCE NON ADJUDICATION IS INCONSISTENT WITH THE EX CLUSION OF PERSISTENT SYSTEMS LTD AND THIRDWARE SOLUTIONS LTD, EXCLUDED FOR SAME REASONS. - CAPITAL WORK IN PROGRESS (PB 134) NOT ADJUDICATED. - JUDICIAL PRECEDENTS NOT CONSIDERED. INCONSISTENT WITH FINDINGS IN APPELLANTS OWN CASE FOR PREVIOUS YEARS AND ALSO APPELLANT'S ARGUMENT IN BRIEF FINDING OF THE TRIBUNAL OTHER CASE OF BOMBAY HIGH COURT, WHICH HAVE HELD THAT A COMPANY DEVELOPING SOFTWARE PRODUCTS CANNOT BE COMPARED TO A COMPANY PROVIDING SOFTWARE DEVELOPMENT SERVICES. 5. W E FIND THAT ITAT HAS ADJUDICATED THIS ISSUE IS AS UNDER : - ASPIRE SYSTEMS (INDIA) PRIVATE LIMITED: 23. THIS COMPARABLE WAS SELECTED BY THE TRANSFER PRICING OFFICER BUT HAS BEEN OBJECTED BY THE ASSESSEE. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT THIS COMPANY IS INTO IT CONSULTANCY AND SOFTWARE PRODUCT DEVELOPMENT AND IT IS NOT SOFTWARE SERVICE COMPANY. IN THIS REGARD, WE NOTE THAT THE TRANSFER PRICING OFFICER HAS HELD THAT THIS COMPANY AS WELL AS THE ASSESSEE ARE BROADLY ENGAGE INTO SAM E SERVICES. THIS PROPOSITION HAS ALSO BEEN ACCEPTED BY THE DISPUTE RESOLUTION PANEL. WE FIND THAT THIS PLEA OF THE ASSESSEE HAS BEEN REJECTED BY THE DISPUTE RESOLUTION PANEL. THE DISPUTE RESOLUTION PANEL HAS HELD THAT IT WAS THE ASSESSEES SUBMISSIONS THAT THIS COMPARABLE IS INTO VARIED ACTIVITIES, THE SAME ARGUMENT HAS BEEN PLACED BEFORE US. THE DISPUTE RESOLUTION PANEL HAS HELD THAT THIS COMPANY IS INTO DEVELOPMENT AND SOFTWARE. DISPUTE RESOLUTION PANEL HAS HELD THAT MERELY BECAUSE THIS COMPANY IS HAVING IPS & R & D CENTRE, ONE CANNOT REJECT THE COMPARABLE. WE FIND THAT THE LD. COUNSEL OF THE ASSESSEE HAS NOT BEEN ABLE TO COGENTLY REBUT THE FINDINGS OF THE AUTHORITIES BELOW. HENCE, THE OBJECTION OF THE LD. COUNSEL OF THE ASSESSEE AGAINST THE SELECTION OF A SPIRE SYSTEM LTD. IS REJECTED. LIONBRIDGE TECHOLOGIES PVT. LTD. 4 6. UPON CAREFUL CONSIDERATION WE AGREE THAT A MISTAKE APPARENT FROM RECORD IS THERE IN THE ORDER OF THIS TRIBUNAL WITH RELATION TO ADJUDICATION ON COMPARABILITY OF THIS COMPARABLE. HENCE, WE RECALL THE ORDER ONLY TO CONSIDER THE COMPARABILITY OF THIS COMPARABLE AFRESH. 7. ANOTHER MISTAKE POINTED OUT IS AS UNDER : - MISTAKE OF NOT ADJUDICATING ON ALL ARGUMENTS PUT FORTH BY THE APPLICANT: IN RELATION TO INCLUSION OF PASS THROUGH COST WHILE COMPUTING THE MARGIN EARNED BY THE AP PELLANT. 10. THE APPELLANT HAD PLACED RELIANCE ON VARIOUS CLAUSES OF THE AGREEMENT (CLAUSE 1.3, 1.4,1.7,1.8,3.1, 9.3), WHICH CLEARLY DEMONSTRATE THAT THE APPELLANT DOES NOT BEAR ANY ' RISK NOR DOES IT ADD VALUE WITH RESPECT TO WORK OUTSOURCED TO THIRD PA RTY. FURTHER WITHOUT PREJUDICE THE FUNCTION UNDERTAKEN CAN BE MERELY TREATED AS CO - ORDINATION, FOR WHICH COMPENSATION IS RECEIVED BY THE APPELLANT. THE APPELLANT ALSO PLACED RELIANCE ON CERTAIN JUDICIAL PRECEDENTS. THESE ARGUMENTS HAVE NOT BEEN ADJUDICATED UPON. 11. THE HON'BLE TRIBUNAL HAS NOT ADJUDICATED ON HOW PROFIT MARGIN CAN BE IMPUTED ON THE COST INCURRED ON BEHALF OF THE AE FOR WHICH THE ASSESSEE HAS NOT UNDERTAKEN ANY FAR I.E. PERFORMED ANY FUNCTIONS, DEPLOYED ANY ASSETS OR UNDERTAKEN ANY RISK. THE TRIBUNAL HAS NEITHER CONSIDERED NOR DISTINGUISHED THE DECISIONS RELIED UPON BY THE APPLICANT NOR HAS IT GIVEN REASONS FOR ITS CONCLUSION. 8. UPON CAREFUL CONSIDERATION, WE FIND THAT ITAT HAS ADJUDICATED THIS I S AS UNDER : - APROPOS GROUND NO. 7: INCLUS ION OF PASS - THROUGH COSTS IN THE OPERATING MARGIN: 27. ON THIS ISSUE, THE TRANSFER PRICING OFFICER HAS RECOMPUTED THE PLI BY CONSIDERING THE OUT SOURCING COST OF INR 16,08,80,492/ - AS OPERATING COST, WHEREAS THE ASSESSEE HAS TREATED THE SAME AS PASS THRO UGH COST AND ADJUSTED THE SAME IN INDIRECT EXPENSES. IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED BEFORE US THAT WHILE THE ASSESSEE PROVIDES SOFTWARE SERVICE THERE ARE CERTAIN PORTION OF SOFTWARE WHICH THE ASSESSEE CANNOT DEVELOP, AS IT DO ES NOT HAVE THE REQUIRED TECHNICAL EXPERTISE. HENCE, THESE WORKS ARE OUT SOURCED TO THIRD PARTIES. THE ASSESSEE MERELY INCORPORATES THE WORK DONE BY THE THIRD PARTY IN THE FINAL SOFTWARE PRIOR TO PROVIDING THE SAME TO THE AE. IT HAS BEEN LIONBRIDGE TECHOLOGIES PVT. LTD. 5 CLAIMED THAT THE C OST INCURRED FOR SUCH OUT SOURCING IS REIMBURSED BY THE AE. IT HAS BEEN CLAIMED THAT THE ASSESSEE NEITHER BEARS ANY RISK ASSOCIATED WITH SUCH WORK OUTSOURCED NOR DOES IT ADD ANY VALUE TO SUCH WORK. 29. UPON CAREFUL CONSIDERATION, WE FIND THAT AS RIGHTLY HELD BY THE AUTHORITIES BELOW, THE OUTSOURCING COST IS DIRECTLY RELATED TO THE SOFTWARE DEVELOPMENT AND SERVICES. IT IS NOT THE CASE THAT THE AE HAS DIRECTLY GIVEN CONTRACT TO OTHER PARTIES, RATHER IT IS TO THE ASSESSEE WHO HAS SUB - CONTRACTED ITS PART OF W ORK. THE ASSESSEE HAS MERELY DEVELOPED A PART OF THE SOFTWARE THROUGH OUT - SOURCING INSTEAD OF IN - HOUSE DEVELOPMENT. THE OUTSOURCED WORK IS INCORPORATED IN THE WORK OF THE ASSESSEE IN THE FINAL SOFTWARE PRIOR TO PROVIDING THE SAME TO THE AE. HENCE, WE ARE I N AGREEMENT THAT THE TRANSFER PRICING OFFICER HAS CORRECTLY CONSIDERED THE OUTSOURCING COST AS OPERATING EXPENSE OF THE ASSESSEE. 9. UPON CAREFUL CONSIDERATION, WE FIND THAT THE ASSESSEE IS SEEKING REVIEW OF THE ORDER OF THE TRIBUNAL NOT PERMISSIBLE UNDER LAW. THE ITAT AFTER DU LY CONSIDERING T HE ISSUE HAS PASSED A SPEAKING ORDER. HENCE, ON THIS ISSUE MISCELLANEOUS APPLICATION STANDS DISMISSED. 10. ANOTHER ITEM HAS BEEN RAISED IN MISCELLANEOUS APPLICATION REGARDING NON - ADJUDICATION ON SOME GROUNDS OF APPEA L. LEARNED COUNSEL OF THE ASSESSEE PRAYED THAT HE SHALL NOT BE PRESSING THE SAME. HENCE THIS GROUND IS DISMISSED. 11. IN THE RESULT, MISCELLANEOUS APPLICATION STANDS PARTLY ALLOWED AS ABOVE. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 27 . 5 . 201 9 . SD/ - SD/ - (RAVISH SOOD ) (SH A MIM YAHYA ) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 27 / 5 / 20 1 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPON DENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI LIONBRIDGE TECHOLOGIES PVT. LTD. 6 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI