Dy. CIT New Delhi. Vs. M/s Ariba India Pvt. Ltd. (Formerly Free Market Services Pvt. Ltd.) 2nd Floor, Sucheta Bhawan, 11-A Vishnu Digambar Marg, New Delhi.
February, 20th 2015
tIN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `I' NEW DELHI
BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER
SHRI J. S. REDDY, ACCOUNTANT MEMBER
I.T.A. No. 903/Del/2010
Assessment Year: 2004-05
Dy. CIT Vs. M/s Ariba India Pvt. Ltd.
Circle-2(1) (Formerly Free Market
New Delhi. Services Pvt. Ltd.) 2nd Floor,
Sucheta Bhawan, 11-A
Vishnu Digambar Marg,
C.O. No. 130/Del/2010
(in I.T.A. No. 903/Del/2010)
Assessment Year: 2004-05
M/s Ariba India Pvt. Ltd.Dy. CIT Vs. Dy. CIT
(Formerly Free Market Circle-2(1)
Services Pvt. Ltd.) 2nd Floor, New Delhi.
Sucheta Bhawan, 11-A
Vishnu Digambar Marg,
Revenue by: Shri. Peeyush Jain, CIT.DR.
Assessee by: Shri. Himanshu Shekhar Sinha, &
Sh. Manoneet Dalal, Adv.
PER J. S. REDDY, AM:
This is an appeal filed by the Revenue directed against the order of the
CIT (Appeals)-XX, New Delhi on the following grounds:
"1. The Ld. CIT(A) has erred in law and on facts in
directing to reduce addition on account of Arms Length
Price from Rs.65,10,452/- to Rs.18,46,109/- in respect of
international transaction entered into by the Assessee.
(a) by violating the provisions of Rule 46A(3) of the IT
Rules, 1962 in not providing any opportunity to the
TPO before admitting evidence in the form of
Annual Report of Lan Esada and also in allowing
the assessee to go back on its own stand of
calculation of margin of this company.
(b) by calculating the margin of the comparable namely
Lan Esada by considering items of expenditure
which are non-operating in nature."
2. Cross-objection is filed by the assessee on the following grounds:
"1. That on the facts and in law, the Commissioner of Income-
tax Appeals (`Ld. CIT(A) erred in holding that current year
financial information of comparable companies, which was
not available to the assessee company at the time of filling
its return of income, is to be used for comparability
2. Without prejudice to Ground 1 above, the Ld. CIT(A) erred
in disregarding the results of the fresh search carried out by
the assessee during the appellate proceedings, using data
for FY 2003-04.
3. That the Ld. CIT(A) erred on facts and law in not excluding
one company, viz., Kushagra Software Limited, from the
comparable set despite the appellant's
contentions/arguments on the inconsistency in the financial
data reported by the company for FY 2003-04.
4. That the Ld. CIT(A) grossly erred on facts and law by
including extraordinary expenses in the nature of `Provision
for doubtful debts' and `Bad debts written off in the
computation of the assessee's Total Cost, despite the
objections raised by the assessee.
5. That the Ld. CIT(A) grossly erred on facts and law by not
allowing to the assessee, the benefit of (+/-) 5% range
mentioned in the proviso to section 92C of the Act before
computing the adjustment."
3. Facts are at Para 4.1 & 4.2 of the CIT(A)'s order, which is extracted for
"4.1 Free Markets Services Private Limited (now known as Ariba India
Private Limited and hereinafter referred to as `Ariba India'or `appellant'), is a
wholly owned subsidiary of Free Markets International Holding Inc. USA,
which in turn is a subsidiary of Ariba Inc (formerly known as Free Markets
4.2 During the relevant financial year, the appellant is engaged in the
business of selling online auction solutions along with provision of related
services to its Indian clients. Further, the appellant also provided contract
software development services to Ariba Inc."
4. The ld. DR Mr. Peeyush Jain, referred to Para 12.4 at page 45 of the ld.
CIT(A)'s order and submitted that there is difference in the financial data, for
the financial year 2003-04, of the company M/s LAN ESADA Industries Ltd. as
the data available in the public domain were at variance with the data available
in the annual report. The assessee relied on the financial data as given in the
annual report of the company and submitted that the financial data in the public
domain is wrong. The ld. CIT(A) agreed with the contention of the assessee.
The ld. DR contends that the issue should go back, to the file of the TPO for
fresh adjudication, for the reason that the annual report was not available to him
at the time of preparation of Transfer Pricing Order. One more reason cited by
the ld. DR for seeking remand is that the assessee submitted financial data of
the company for year ended June 2004 and OP/Sales margin for the relevant
financial year i.e. twelve months, ending March, 2004 was arrived at by taking
pro rata data. He submitted that such pro rata data cannot be adopted as only the
actuals have to be taken, as otherwise the purpose of bench marking would get
5. The ld. counsel for the assessee Mr. Himanshu Shekhar on the other hand
opposed the contentions of the Revenue and submitted that sending back the
matter to the file of the TPO would be an empty formality for the reason that,
there is no dispute that M/s LAN ESADA Industries Ltd. is a comparable and
the only issue is whether the correct financial data, as per annual report of the
company is to be considered or financial data in public domain which is
admittedly wrong is to be considered. He relied on certain case laws and
submitted that the annual reports are accurate and hence they should be
6. After hearing rival contentions, we are of the considered opinion that the
submissions of the ld. DR is devoid of merit. When both parties agree that the
company M/s LAN ESADA Industries Ltd. is a comparable, then the correct
financial data of that company as reflected by its annual report, which were not
available before the TPO, has been rightly considered by the ld. CIT(A). We
also do not find any merit in the submission of the ld. DR that pro rata data
should not be taken.
7. In the result, the appeal of the Revenue is dismissed.
8. Coming to the Cross-objections, the ld. counsel for the assessee submits
that he is not pressing ground no. 1.
9. In the result, ground no. 1 is dismissed as not pressed.
10. On ground no. 2 the ld. counsel, for the assessee submitted that additional
comparables were not looked into by the first appellate authority, which as per
the ld. counsel is against the principles of natural justice. Ld. counsel contended
that truth has to be found out and when they are fresh set of comparables, with
current year data, it was the duty of the first appellate authority to consider the
11. After considered rival submissions, we are of the considered opinion that
the fresh comparables cited by the assessee before the ld. CIT(A) which had
current year data should have been admitted and adjudicated on merits.
12. In our view, the issue should be set aside to the file of the AO for fresh
adjudication in accordance with law.
13. In the result, ground no. 2 is allowed for statistical purposes.
14. On ground no. 3 the ld. counsel argued that the, comparables M/s
Kushagra Software Limited was sought to be excluded by the assessee before
the ld. CIT(A), on the ground that segmental results and data of this company
could not be culled out from the financial statements. The ld. CIT(A) rejected
this contention of the assessee on the ground that the assessee cannot ask for
exclusion of a comparable, when it was the assessee who has included the same
in the T.P. Report.
15. The ld. DR opposed this contention of the assessee. After hearing both
sides we find that this issue is no more res integra as the Special Bench of the
Tribunal in the case of Quark Systems has held otherwise. This is a binding
judgment and the assessee succeeds in its contentions.
16. As we have set aside ground no.2, to the file of the TPO, we are of the
considered opinion that this issue, are also be set aside to the file of the AO or
TPO shall follow the decision of Special Bench of the Tribunal.
17. In the result, this ground is allowed for statistical purposes.
18. On ground no., 4 ld. counsel submitted that bad debts are extraordinary
items and cannot be considered as operational cost and hence, they should have
been removed before arriving at operational margins. The ld. DR opposed these
19. Ground no. 4 is allowed, for the reason that while arriving at operational
profit ratio, extraordinary items should be eliminated. Bad debts or provision for
bad debts are extraordinary items and have to be eliminated for arriving at the
20. In the result, ground no. 4 of the assessee is allowed.
21. Ground no. 5 is dismissed as not pressed.
22. In the result, the appeal of the Revenue is dismissed and the Cross-
objection of the assessee is allowed in part.
Order pronounced in the open Court on 19/02/2015.
(I. C. SUDHIR) (J. S. REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Copy forwarded to:
5. DR: ITAT