ACI Worldwide solutions P Ltd, Bangalore V. Deputy Commissioner of Income tax, Bangalore

MA 76/BANG/2015

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 3367 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-08-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 22-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NANDINI DAS JT
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 92E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER M.P. NO.76/BANG/2015 [IN IT(TP)A NO. 652/BANG/2012] ASSESSMENT YEAR : 2004-05 M/S. ACI WORLDWIDE SOLUTIONS PRIVATE LTD., (FORMERLY VISUAL WEB SOLUTIONS PVT. LTD.), NO.9, SALARPURIA CAMBRIDGE MALL, ULSOOR, BANGALORE 560 038. PAN: AAACV 7566R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(5), BANGALORE. APPLICANT RESPONDENT APPLICANT BY : SHRI PADAMCHAND KHINCHA, C.A. RESPONDENT BY : SMT. NANDINI DAS, JT. CIT(DR) DATE OF HEARING : 07.08.2015 DATE OF PRONOUNCEMENT : 14.08.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS A MISCELLANEOUS PETITION FILED BY THE ASS ESSEE PRAYING FOR RECTIFICATION OF CERTAIN APPARENT ERRORS IN THE ORD ER DATED 10.04.2015PASSED BY THIS TRIBUNAL IN THE AFORESAID APPEAL. MP NO.76/BANG/2015 PAGE 2 OF 5 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT I S A 100% SUBSIDIARY OF AN AMERICAN COMPANY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPING SOFTWARE SOLUTIONS FOR THE BANKING INDUS TRY. DURING THE PREVIOUS YEAR, THE ASSESSEE HAD ENTERED INTO AN INTERNATIONA L TRANSACTION WITH ITS AE VIZ., TRANSACTION OF RENDERING SOFTWARE DEVELOPMENT SERVICES. THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR RENDERIN G OF SUCH SERVICES HAS TO THEREFORE SATISFY THE ALP OF THE TRANSACTION IN QUESTION FILED AN AUDIT REPORT U/S. 92E IN FORM 3CEB CERTIFYING THE PRICE C HARGED IN THE INTERNATIONAL TRANSACTION AS AT ARMS LENGTH. 3. THE TRIBUNAL ULTIMATELY IN PARA 7 OF ITS ORDER RETAINED FOUR COMPANIES AS COMPARABLE WHOSE ARITHMETIC MEAN WAS 1 6.12% AND IN PARA-9 OF ITS ORDER DIRECTED THE TPO TO CONSIDER I NCLUDING TWO MORE COMPANIES VIZ., ACE SOFTWARE EXPORTS LTD., AND CRES SANDA SOLUTIONS LTD. AS COMPARABLE COMPANIES. THE TRIBUNAL IN PARA14 OF ITS ORDER ALSO DIRECTED THAT PROPER ADJUSTMENTS ON ACCOUNTS OF RAT ES OF DEPRECIATION ADOPTED BY THE COMPARABLE COMPANIES SHOULD BE GIVEN AND THE MARGINS OF THE COMPARABLES SHOULD BE WORKED OUT AFTER GIVING S UCH ADJUSTMENT. 4. IN PARA-15 THE TRIBUNAL HAS OBSERVED THAT ALL OT HER GROUNDS RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL WERE NOT PRES SED. IN THIS M.P. THE ASSESSEE HAS SUBMITTED THAT IN GROUND NO.7 (B) THE ASSESSEE HAD PRAYED FOR DELETING THE DIRECTION OF THE CIT(A) WHEREBY HE WITHDREW 2% DEDUCTION ON ACCOUNT OF WORKING CAPITAL DIFFERENCES GRANTED W HILE WORKING OUT THE MP NO.76/BANG/2015 PAGE 3 OF 5 ARITHMETIC MEAN MARGIN OF THE COMPARABLES. ACCORDI NG TO THE ASSESSEE THIS GROUND WAS ALSO ARGUED AND AN ADJUDICATION HAD BEEN PRAYED FOR. 5. WE HAVE PERUSED OUR LOG BOOK FOR THE HEARING D ATE 25.3.2015 ON WHICH DATE THE APPEAL WAS HEARD. WE FIND FROM THE SAME THAT WE HAVE NOTED THE ARGUMENT OF THE A/R WORKING CAPITAL ADJU STMENT TO BE GIVEN AS WAS GIVEN BY TPO. THUS THE STAND TAKEN IN THE M.P . IS CORRECT AND THIS GROUND WAS PRESSED FOR ADJUDICATION. WE THEREFORE HOLD THAT THERE WAS AN ERROR APPARENT ON THE FACE OF THE RECORD INASMUCH A S, A GROUND ARGUED BEFORE THE TRIBUNAL REMAINED TO BE ADJUDICATED. WE THEREFORE PROCEED TO ADJUDICATE THE SAID GROUND. 6. AS FAR AS THE WORKING CAPITAL ADJUSTMENT PLEADED BY THE ASSESSEE IS CONCERNED, WE FIND THAT EVEN THE TPO WAS OF THE VIE W THAT 2% DEDUCTION OF THE ARITHMETIC MEAN PROFIT MARGIN OF THE COMPARABLE COMPANIES HAD TO BE GIVEN. THE CIT(A) HELD IN PARA- 2.3 OF HIS ORDER A S FOLLOWS:- FURTHER, EVEN THOUGH IT IS CLAIMED THAT WORKING CA PITAL ADJUSTMENT AND RISK ADJUSTMENT TO BE ALLOWED BUT TH E APPELLANT FAILED TO COMPUTE SUCH ADJUSTMENT AND THEREFORE THE ADJUSTMENT ALLOWED BY THE TPO @ 2% TAKES CARE OF ANY FUNCTIONA L DIFFERENCES INCLUDING WORKING CAPITAL, RISK AND OTH ERS. 7. IN OUR VIEW, FUNCTIONAL DIFFERENCES WILL EXCLUD E A PROPOSED COMPARABLE COMPANY ALTOGETHER. INSOFAR AS THE COMP ANIES RETAINED AS COMPARABLE COMPANIES, IF THERE IS WORKING CAPITAL A ND RISK PROFILE DIFFERENCES BETWEEN THOSE COMPANIES AND THE ASSESSE E, THEN A SUITABLE MP NO.76/BANG/2015 PAGE 4 OF 5 ADJUSTMENT HAS TO BE ALLOWED FOR THE SAME. IT IS N OT CORRECT TO STATE THAT FUNCTIONAL DIFFERENCES WILL TAKE CARE OF WORKING CA PITAL AND OTHER RISKS. ADJUSTMENT WILL HAVE TO BE ALLOWED IN RESPECT OF CO MPANIES RETAINED AS COMPARABLES. HOWEVER, WE FIND THAT THE WORKING CAP ITAL ADJUSTMENT OF 2% HAS BEEN QUANTIFIED BY THE TPO HIMSELF AND IT IS NO T RIGHT ON THE PART OF THE CIT(A) TO SAY THAT THE ASSESSEE HAS NOT GIVEN WORKI NG CAPITAL ADJUSTMENT COMPUTATION. TO THIS EXTENT, WE HOLD THAT THE TPO SHOULD ALLOW ADJUSTMENT TO THE ARITHMETIC MEAN PROFIT MARGIN OF THE COMPARA BLES. AS FAR AS RISK ADJUSTMENT IS CONCERNED, THE ASSESSEE HAS NOT QUANT IFIED THE SAME AND THEREFORE NO ADJUSTMENT CAN BE GIVEN. WE HOLD AND DIRECT ACCORDINGLY. TO THE ABOVE EXTENT. THE ORDER OF THE TRIBUNAL SHALL S TAND MODIFIED. 8. IN THE RESULT, THE MISCELLANEOUS PETITION IS PAR TLY ALLOWED, AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 14 TH AUGUST, 2015. /D S/ MP NO.76/BANG/2015 PAGE 5 OF 5 COPY TO: 1. APPLICANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.