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.
|