ITA 955/Del/2015
AY: 2010-11
Agnity India Technologies P.Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "I" NEW DELHI
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND
SHRI J.SUDHAKAR REDDY, AM
ITA No: 955/Del/2015
A.Y.: 2010-11
Agnity India Technologies P.Ltd. vs. DCIT, Circle 1(2)
C 42, Sector 58, Noida New Delhi
PAN: AABCB 2399 B
(Appellant) (Respondent)
Assessee by : Sh.Rohit Tiwari, C.A.
Ms.Anjali Joshi, C.A.
Revenue by: Sh. Judy James, Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the assessee and is directed against the
order of the AO passed u/s 143(3) r.w.s. 144C(5) of the Income Tax Act,
1961 (the Act) dated 24.12.2002 pertaining to the Assessment Year (AY)
2010-11.
2. Facts in brief:- The assessee is a company and is engaged in the
business of software development and its export. The issue that arises for
our consideration is the transfer pricing adjustment made by the A.O.
3. The grounds raised by the assessee are as follows.
"That on the facts and circumstances of the case, and in law;
1. The assessment order passed by the Ld. AO in partial pursuance to the
directions issued by the Hon'ble DRP is a vitiated order as the Hon'ble DRP
erred both on facts and in law in confirming of the Transfer Pricing ('TP')
additions made by the Ld. AO / Ld. Additional Commissioner of Income Tax,
Transfer Pricing Officer, Noida ('Ld. TPO).
1
ITA 955/Del/2015
AY: 2010-11
Agnity India Technologies P.Ltd.
1.1. That the assessment order passed by the Ld. AO is bad in law in as
much as the same was passed in complete disregard to the scheme of the Act
which mandates the AO to incorporate the directions of the DRP in the final
order.
2. The Ld. AO / Ld. TPO and the Hon'ble DRP erred in ignoring the fact that
the reference made by the LdAO suffers from jurisdictional error as the Ld. AO
did not record any reasons in the draft assessment order based on which it
was concluded that it was 'necessary or expedient' to refer the matter to the
Ld. TPO for computation of the Arm's Length Price (,ALP'), as is required under
section 92CA(1) of the Act.
4. The Ld. AO / Ld. TPO and the Hon'ble DRP erred in not appreciating
that none of the conditions set out in section 92C(3) of the Act are satisfied in
the present case.
5. The Learned Assessing Officer ('Ld. AO') has erred in facts and
circumstances of case and in law by passing an order for Assessment Year
2010-11 which is bad-in-law.
6. The Ld. AO/Ld. TPO and the Hon'ble DRP erred on facts and in law in
partially confirming the adjustment of Rs. 11,587,357 in the assessment order
passed under section 143(3) of the Income-tax Act, 1961 ('the Act'), by holding
that the international related party transaction of the Appellant with respect to
the provision of software development services do not satisfy the arm's length
principle envisaged under the Act. In doing so the Ld. AO/Hon'ble DRP has
erred:
5.1 by disregarding the economic analysis conducted by the Appellant to
determine the Arm's Length price (ALP') of the international transaction
pertaining to software development services in compliance with section 92D of
the Act read with Rule 10 D of the Income-tax Rules, 1962 ('Rules') in the
Transfer Pricing ('TP') documentation;
5.2 by disregarding multiple year/ prior years' data as used by the Appellant
in the TP documentation and holding that current year (i.e. FY 2009-10) data
for comparable companies should be used despite the fact that the same was
not necessarily available to the Appellant at the time of preparing its TP
documentation;
5.3 by rejecting comparability analysis in the TP documentation/Fresh search
and in conducting a fresh comparability analysis based on application of the
following additional! arbitrary filters in determining the ALP for software
development services;
· Rejection of companies whose data is not available for the current year
(i.e. FY 2009-10);
· Rejection of companies having operating income from IT services to
sales less than 75%
· Rejection of companies with research & development expenses to sales
more than 3%
2
ITA 955/Del/2015
AY: 2010-11
Agnity India Technologies P.Ltd.
· Applying sales filter of Rs. 5 crores for selecting comparable companies
· Not fully accepting the application of the filter of net worth less than
zero
· Rejection of companies with advertising, marketing and distribution
expenses to sales more than 3%
5.4. by including high profit making companies in the final comparables set
for benchmarking a low risk captive unit such as the Appellant, thus
demonstrating an intention to arrive at a pre-formulated opinion without
complete and adequate application of mind with a single-minded intention of
making an addition to the returned income of the Appellant;
5.5 by including certain companies in the final set of comparables which are
not comparable to the Appellant in terms of functions performed, assets
employed and risks assumed;
5.6 by excluding certain companies on arbitrary/ frivolous grounds even
though they are comparable to the Appellant in terms of functions performed,
assets employed and risks assumed;
5.7 by ignoring the business/ commercial reality that since the Appellant
(vis-a-vis its e services) is remunerated on an arm's length cost plus basis,
undertakes minimal business risks as against comparable companies that are
full-fledged risk taking entrepreneurs, and by not allowing a risk adjustment
to the Appellant on account of this fact; and
5.8 by disregarding judicial pronouncements in India while computing an
adjustment to the transfer price of the international transaction entered into
by the Appellant.
5.9 The Ld. AO has erred by not limiting the amount of adjustment to the
lower end of the arithmetic mean as envisaged under second proviso to
section 92C sub section 2 of the Act.
6. That the learned AO, on the facts and in the circumstances of the case
and in law, has erred in levying an interest u/s 234A, B C & D of the Act.
7. Ignoring the fact that the appellant is entitled to tax holiday under
section 10B of the Act on its profits and therefore would not have any
untoward motive of deriving a tax advantage by international transactions
8. That given the facts and circumstances of the case and in law, the
Hon'ble DRP has grossly erred in confirming the action of the Ld. AO of
initiating penalty proceedings under section 271(1)(C) of the Act.
The above grounds and sub-grounds are independent, mutually exclusive and
without prejudice to each other.
The Appellant craves leave to add, alter, amend or withdraw any of the
grounds of appeal, as may be considered necessary, either before or during
the hearing of this appeal."
3
ITA 955/Del/2015
AY: 2010-11
Agnity India Technologies P.Ltd.
4. We have heard Sh. Rohit Tiwari, the Ld.Counsel for the assessee and
Mr.Judy James, the Ld.Standing Counsel on behalf of the Revenue.
Mr.Rohit Tiwari restricted his arguments to the issue of elimination of
Wipro Technology Services Ltd. as a comparable. He submitted that in the
assessee's own case in the earlier AY 2008-09 in ITA no.6485/Del/2012
dated 20th September, 2013, the Tribunal at para 5 has held that Wipro
Technology Services Ltd. cannot be considered as a comparable and
directed the Transfer Pricing Officer to exclude the same from the list of
comparables, by following the decision of Jurisdictional High Court in the
assessee's own case for the AY 2006-07. We extract the same for ready
reference.
"5. We have heard the rival contentions and perused material on the
record. The issue about exclusion of above list of comparables while making
the TP adjustments in assessees case has been settled by Hon'ble Delhi High
court. It has been unequivocally held that those companies ( like Infosys and
others) are full fledged risk bearing companies and are functionally dissimilar
as a comparable to assessee who is a captive software service provider by
following observations:
"8. It is a common case that Satyam Computer Services Ltd. should not be
taken into consideration. The Tribunal for valid and good reasons has pointed
out that Infosys Tchnologies Ltd. cannot be taken as a comparable in the
present case. This leaves L&T Infotech Ltd. which gives us the figure of
11.11%, which is less than the figure of 17% margin as declared by the
respondent-assessee. This is the finding recorded by the Tribunal. The
tribunal in the impugned order has also observed that the ae had furnished
details of workables in respect of 23 companies and the mean of the
comparables worked out to 10%, as against the margin of 17% shown by the
assessee. Details of these companies are mentioned in para 5 of the
impugned order.
4
ITA 955/Del/2015
AY: 2010-11
Agnity India Technologies P.Ltd.
9. In view of the aforesaid position, we do not think that any substantial
question of law arises for consideration. The appeal is dismissed. "
5.1. Thus while analysing the arm's length nature of the transfer price of a
captive software service provider i.e. the Appellant, the objected comparables
are to be excluded.
5.2. Respectfully following the Hon'ble Delhi High Court judgment we uphold
the plea of the assessee to exclude such comparables and allow this ground
of the assessee. TPO/AO will accordingly work out the TP adjustment in
conformity of the Hon'ble Delhi High Court order."
4.1. The Ld.Standing Counsel for the Revenue on the other hand opposed
these contentions but could not demonstrate how the facts are different this
year.
5. After hearing rival contentions, perusing the papers on record and
orders of authorities below, we uphold that the submission of the assessee
that Wipro Technology Services Ltd. cannot be considered as a comparable,
in view of the binding judgement of the Jurisdictional High Court in the
assessee's own case for the AY 2006-07 which was followed by the
Coordinate Bench of the Tribunal in the assessee 's own case for the AY
2008-09. Consistent with the view taken therein we direct the AO to
exclude Wipro Technology Services Ltd. as a comparable and recompute the
Arm's length price. No other issue has been argued before us by the
Ld.Counsel for the assessee for the reason that the assessee believes, it
would get total relief if this comparable of Wipro Technology Services Ltd. is
eliminated. Hence we do not adjudicate the other grounds, as it would be
academic in nature.
5
ITA 955/Del/2015
AY: 2010-11
Agnity India Technologies P.Ltd.
6. In the result, the assessee 's appeal is partly allowed.
Order pronounced in the Open Court on 22nd May, 2015.
Sd/- Sd/-
(I.C. SUDHIR) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 22nd May, 2015
*manga
Copy of the Order forwarded to:
1. Appellant;
2.Respondent;
3.CIT;
4.CIT(A);
5.DR;
6.Guard File
By Order
Asst. Registrar
6
|
