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Avaya India Pvt. Ltd. 202, Platina, 2nd Floor, Plot No. C-59, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai, Maharashtra. vs. Addl. Cit Special Range-1 New Delhi.
December, 13th 2018
                                   1              Stay Appl. No. 846/Del/2018
                                                          Avaya India Pvt. Ltd.

            IN THE INCOME TAX APPELLATE TRIBUNAL
                 DELHI BENCH: `I-1' NEW DELHI

             BEFORE SHRI N.K. SAINI, VICE PRESIDENT
                                &
               SMT. BEENA A PILLAI, JUDICIAL MEMBER

                        Stay Appl. No. 846/Del/2018
                        (In ITA No. 7290/Del/2018)
                       (ASSESSMENT YEAR-2014-15)
     Avaya India Pvt. Ltd.                       vs Addl. Cit
     202, Platina, 2 Floor, Plot No. C-59,
                    nd                              Special Range-1
     G-Block, Bandra Kurla Complex,                 New Delhi.
     Bandra (E), Mumbai, Maharashtra.
     PAN No. AAECA3592N
     (APPELLANT)                                    (RESPONDENT)
             Appellant by        Sh. Ajit Korde, Adv.
           Respondent by         Sh. Sandeep Kumar Mishra, Sr. DR


                   Date of Hearing         11/12/2018
                Date of Pronouncement      12/12/2018

                                 ORDER

PER BEENA PILLAI, JUDICIAL MEMBER:

        Present stay petition has been filed by applicant seeking
extension of stay of outstanding demand of Rs.11,96,68,110/-
inclusive of interest.
2.      Ld. Counsel submitted that assessee is a company owned by
Sierra Communication International LLC with Avaya US as ultimate
holding company. It has been submitted that assessee operates in
four segments being; software services segment, back office support
                                  2              Stay Appl. No. 846/Del/2018
                                                         Avaya India Pvt. Ltd.

services   segment,   marketing   support   services   segment          and
maintenance and technical services segment.
2.1   Ld. Counsel submitted that for the year under consideration,
assessee filed its return of income on 28/11/2014 declaring total
income of Rs.148,64,57,280/-, under normal provisions of the Act.
The book profits u/s 115 JB of the Act was determined at
Rs.141,72,78,834/-. The return of income of assessee was selected
for scrutiny and draft assessment order was issued by Ld.AO,
wherein    an   adjustment     made   by    Ld.TPO     amounting           to
Rs.68,65,52,173/- was proposed in addition to Rs.23,58,11,169/-
on account of difference of income offered to tax by assessee in the
return of income vis-a-vis amount appearing in Form 26 AS of
assessee for year under consideration.
3.    Aggrieved by draft assessment order, assessee filed objections
before the DRP which were partly allowed vide directions issued
dated 10/09/2018. DRP accepted contention of assessee regarding
corporate tax addition, on account of difference due to 26 AS
statement.
4.    Pursuant to directions of DRP, Ld.AO passed final assessment
order dated 11/10/2018, wherein demand of Rs.11,96,68,110/-
has been determined as payable by assessee.
5.    Raised by the impugned final order passed by Ld.AO u/s 144C
read with 144(13) of the Act, assessee is in appeal before us on
following grounds of appeal:
General Grounds of Appeal
  1. "That, the final assessment order framed by the Ld. Additional
     Commissioner of Income-tax, Special Range-1, Delhi pursuant to
                                    3               Stay Appl. No. 846/Del/2018
                                                            Avaya India Pvt. Ltd.

     the directions of the Hon'ble Dispute Resolution Panel ­ 1
     (hereinafter referred to as "the Hon'ble DRP") u/s 143(3) read
     with section 144C of the I.T. Act, 1961 is a vitiated order having
     been passed in violation of principles of natural justice and is
     otherwise arbitrary and is thus bad in law and is void ab-initio.
  2. That, in framing the impugned assessment order, the reference
     made by the Ld. AO u/s 92CA(1) of the Act suffers from
     jurisdictional error, as the Ld. AO had not recorded any reasons
     nor he had any material whatsoever on the basis of which he
     could even reach a prima ­ facie opinion, that it was `necessary
     or expedient' to refer the matter to the Ld. ACIT, Transfer Pricing
     Officer ­ I(1)(1), New Delhi (hereinafter referred to as "Ld. TPO")
     for computation of arm's length price ("ALP").
TP adjustment in relation to software services [INR
20,56,61,108]
  3. That on the fact of the case and in law, the Ld.
     AO/TPO/Hon'ble DRP have erred, in making an adjustment of
     INR 20,55,61,108/- to the total income of the Appellant in
     respect of international transaction pertaining to provision of
     software services by the Appellant to its associated enterprise
     ("AE").
  3.1     That on the fact of the case and in law, the Ld.
          AO/TPO/Hon'ble DRP has erred by not accepting the
          economic analysis undertaken by the Appellant in
          accordance with the provisions of the Act read with the
          Income Tax Rules, 1962 and conducting a fresh economic
          analysis for the determination of the ALP of the Appellant's
          international transaction pertaining to provision of software
          services by the Appellant and holding that the said
          international transaction is not at an arm's length without
          sharing the detailed accept reject matrix for selection or
          rejection of companies evaluated by him.
  3.2     That on the facts of the case and in law, the Ld.
          TPO/Hon'ble DRP has erred in rejecting the Appellant's
          claim to use multiple year data for computing the arm's
          length price and, instead, has adhered to the use of single
          year (i.e. FY 2013-14) updated data to conclude the ALP of
          the international transaction which was not available to the
                                 4               Stay Appl. No. 846/Del/2018
                                                         Avaya India Pvt. Ltd.






        Appellant at the time of undertaking transfer pricing study
        required to be maintained u/s92D of the Act.
3.3     That on fact of the case and in law, the Ld. TPO/Hon'ble
        DRP has erred in application of inappropriate filters such as
        different financial year end and export service income filter
        for identifying companies comparable to the Appellant.
3.4     That on the facts of the case and in law, the
        Ld.TPO/Hon'ble DRP have erred, in law and on facts and
        circumstances of the case, by wrongfully rejecting
        comparable companies and including certain non-
        comparable companies to the final set of comparable
        companies for the purpose of determining the ALP of the
        impugned international transactions on an ad-hoc basis,
        thereby resorting to cherry picking of comparable
        companies.
3.4.1   That on the facts of the case and in law, the Ld. TPO, in
        particular, erred in selecting Thirdware Solutions Limited
        without appreciating the fact that DRP directed to include
        the same only if segmental data is available. However, the
        Ld. TPO erroneously included it based on geographical
        segment data available in annual report of the company for
        FY 2013-14.
3.4.2   That on the facts of the case and in law, the Ld.
        TPO/Hon'ble DRP, in particular, erred in selecting
        Infobeans Technologies Limited, Persistent Systems
        Limited, Larsen & Toubro Infotech Limited, Cigniti
        Technologies Limited, RS Software (India) Limited and
        Mindtree Limited as comparable companies without
        appreciating that these companies are not functionally
        comparable to the Appellant in relation to the International
        transaction pertaining to provision of software services.
3.4.3   That on the facts of the case and in law, the Hon'ble DRP,
        in particular, erred in rejecting Sasken Communciations
        Technologies Ltd., as comparable to the Appellant in relatin
        to the international transaction pertaining to provision of
        software service on the ground that the FAR of the company
        is different than that of the Appellant.
3.4.4   That on the facts of the case and in law, the Hon'ble DRP,
        in particular, erred in rejecting Caliber Point Business
                                 5               Stay Appl. No. 846/Del/2018
                                                         Avaya India Pvt. Ltd.

      Solutions, as comparable to the Appellant in relation to the
      international transaction pertaining to provision of software
      services on the ground that the company has different
      financial year ending.
3.4.5 That on the facts of the case and in law, the Ld.
      TPO/Hon'ble DRP, in particular, erred in rejecting CAT
      Technologies Limited, as comparable to the Appellant in
      relation to the international transaction pertaining to
      provision of software services on the ground that the
      company fails to qualify the persistent loss filter without
      appreciating that the company had operating profit for FY
      2011-12 and had operating losses only for FY 2012-13 and
      FY 2013-14.
3.4.6 That on the facts of the case and in law, the Hon'ble DRP,
      in particular, erred in not adjudicating on inclusion of
      additional companies argued before the Hon'ble DRP
      namely Lucid Software Limited and Maveric Systems
      Limited as comparable to the Appellant in relation to the
      international transaction pertaining to provision of software
      services.
3.5   That on the facts of the case and in law, the Ld.
      TPO/Hon'ble DRP have erred, in law and on facts and
      circumstances of the case, by selecting companies which
      are earning supernormal profits as compared to the
      Appellant.
3.6   That on the facts of the case and in law, the Ld.
      TPO/Hon'ble DRP have erred, in law and on facts and
      circumstances of the case, by treating foreign exchange
      gain/loss as non-operating items while determining the ALP
      of the subject international transaction.
3.7   That on the fact of the case and in law, the Ld.TPO/Hon'ble
      DRP has erred in not allowing a risk adjustment to the
      Appellant on account of the fact that the Appellant is a
      captive service provider for its associated enterprises and is
      remunerated on a cost plus basis irrespective of the
      outcome of the services provided and hence undertakes no
      market risk, service liability risk, credit and collection risk
      as against comparable companies that are the full-fledged
      risk taking entrepreneurs.
                                6               Stay Appl. No. 846/Del/2018
                                                        Avaya India Pvt. Ltd.

TP adjustment in relation to notional                  interest         on
outstanding receivables [INR 3,81,58,172]

4. That on the fact of the case and in law, the Ld.
   AO/TPO/Hon'ble DRP have erred, in making an adjustment of
   INR 3,81,58,172 to the total income of the Appellant in respect
   of notional interest on outstanding receivables.
4.1    That on the facts of the case and in law, the Ld.
       TPO/Hon'ble DRP has erred in making TP adjustment of
       INR 3,81,58,172 on account of notional interest on
       receivables from AE without application of any method as
       prescribed u/s 92C of the Act.
4.2    That on the facts of the case and in law, the Ld.
       TPO/Hon'ble DRP has erred in re-characterizing the inter-
       company receivables as a separate international
       transaction of an unsecured loan and imputing interest on
       such transaction.
4.3    That on the facts of the case and in law, the Ld.
       TPO/Hon'ble DRP has erred in not appreciating that inter-
       company receivables arising out of provision of services by
       the Appellant to its AE is closely linked to such transaction
       and if such services transaction is determined at an Arm's
       length price after considering working capital adjusted
       margins of comparable companies, no separate adjustment
       can be made for such inter-company receivables.
4.4    That on the facts of the case and in laws, the Ld.
       TPO/Hon'ble DRP has erred in determining the arm's length
       interest rate for inter-company receivables at LIBOR plus
       400 basis points on an arbitrary basis without any cogent
       reasons.
4.5    That on the facts of the case and in law, the Ld.
       TPO/Hon'ble DRP has erred in granting the credit of period
       of 60 days instead of 90 days having regard to the
       provisions of Section 92CE of the Act.
4.6    That on the facts of the case and in law, the Ld.
       TPO/Hon'ble DRP has erred, by not appreciating that
       Appellant has earned more than arm's length return in its
       order segments, and such excess remuneration should be
       "set off" with the proposed adjustment.
                                    7               Stay Appl. No. 846/Del/2018
                                                            Avaya India Pvt. Ltd.

     Corporate Tax adjustment in relation to TDS Reconciliation
     [INR 34,72,945]






   5. That on the facts and circumstances of the case and in law, the
      Ld. AO has erred in making addition amounting to INR
      34,72,945 on account of difference in the income credited to
      profit and loss account and offered to tax by the Appellant in its
      return of income filed for AY 2014-15 vis-à-vis the amount of
      receipts as appearing in the Form 26 statement for AY 2014-15.
Non-grant of additional TDS credit amounting to INR 94,054
   6. That on the facts and circumstances of the case and in law, the
      Ld. AO has erred in not granting the additional TDS credit
      amounting to INR 94,054, without appreciating the fact that
      corresponding income has been offered to tax by the Appellant
      in the return of income filed for AY 2014-15.
Levy of interest u/s 234A and 234B of the Act
   7. That on the facts and circumstances of the case and in law, the
      Ld. AO has erred in levying interest u/s 234A and section 234B
      of the Act.
Initiation of penalty proceedings
   8. That on the facts and circumstances of the case and in law, the
      Ld. AO has erred in initiating penalty proceedings u/s 271(1)(c)
      of the Act.
The above grounds are without prejudice to each other.
The Appellant craves leave to add, amend, vary, omit or substitute
any of the aforesaid grounds of appeal at any time before or at the
time of hearing of the appeal.
The Appellant prays that appropriate relief be granted based on the
above grounds of appeal and the facts and circumstances of the
case."

6.     Before us, Ld. Counsel submitted that, regarding Transfer
Pricing adjustment in respect of software development services, if
certain comparable companies selected by Ld.TPO/Hon'ble DRP are
excluded, adjustment would stand automatically deleted. He
submitted that comparables objected by assessee for its inclusion,
                                   8               Stay Appl. No. 846/Del/2018
                                                           Avaya India Pvt. Ltd.

cannot be considered due to functional dissimilarity. In stay
application in Annexure E, Applicant is relying upon certain
decisions, wherein comparables disputed by assessee has been
rejected by orders of this Tribunal. Ld. Counsel further submitted
that adjustment in respect of interest on receivables made by
Ld.TPO/Hon'ble DRP has also been considered by the decision of
Hon'ble High Court as well as coordinate benches of this Tribunal.
7.   Ld. Counsel thus submitted for stay of the outstanding
demand as assessee has a good case on merits.
8.   On other hand, Ld.DR relying upon orders passed by
authorities below, objected for a blanket stay to be granted to
assessee. He submitted that in the event stay is granted certain
amount may be directed to be deposited against the balance
outstanding demand as on date.
9. We have perused submissions advanced by both sides in light of
records placed before us.
10. We are of considered opinion that applicant has made out a
prima facie case on merits. The balance of convenience shifts in
favour of assessee and, therefore, we are inclined to grant stay to
assessee for year under consideration for a period of 6 months (180
days), or till the passing of the order whichever is earlier subject to
making payment of Rs.1.5 crores on or before 15/12/18. On
making aforestated payment within stipulated time, Registry is
directed to fix the appeal in ITA No. 7290/Del/2018 for hearing on
24/12/2018. Needless to say that assessee shall not seek any
                                  9            Stay Appl. No. 846/Del/2018
                                                       Avaya India Pvt. Ltd.

adjournment unless there being a cogent reason, otherwise this
stay shall stand automatically vacated.
In the result stay application filed by assessee stands allowed.
Order pronounced in the open court on 12/12/2018

          Sd/-                                    Sd/-
     (N.K. SAINI)                             (BEENA A PILLAI)
  VICE PRESIDENT                             JUDICIAL MEMBER
Dated: 12/12/2018
*Kavita Arora

Copy forwarded to:
1.  Appellant
2.  Respondent
3.  CIT
4.  CIT(Appeals)
5.  DR: ITAT
                                          ASSISTANT REGISTRAR
                                                ITAT NEW DELHI
                                         10                Stay Appl. No. 846/Del/2018
                                                                   Avaya India Pvt. Ltd.




                                              Date
1.    Draft dictated on                       12/12/2018
2.    Draft placed before author              12/12
3.    Draft proposed & placed before the      12/12
      second member
4.    Draft discussed/approved by Second      12/12
      Member.
5.    Approved Draft comes to the             12/12
      Sr.PS/PS
6.    Kept for pronouncement on               12/12
7.    File sent to the Bench Clerk & order    12/12
      uploaded on
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.

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