$~32
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 30.10.2017
+ ITA 913/2017
PRINCIPAL COMMISSIONER OF INCOME TAX-8
..... Appellant
Through
versus
ST MICROELECTRONICS PRIVATE LTD. ..... Respondent
Through
Advocates who appeared in this case:
For the Appellant : Mr Sanjay Kumar with Mr. Rahul Chaudary,
Advocates.
For the Respondent : None.
CORAM:-
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
S. RAVINDRA BHAT, J. (OPEN COURT)
CM NO.38878/2017 (for condonation of delay)
For the reasons stated in the application, the application is
allowed.
The delay of 69 days in filing the appeal is condoned.
ITA 913/2017
1. The question of law urged in this case is whether the deletion of
16 comparables originally proposed by the Transfer Pricing Officer
ITA 913/2017 Page 1 of 5
(TPO) in the course of assessment for AY 2007-2008, in the ALP
(Arms Length Price) determination, conducted in respect of the
assessee, is erroneous.
2. The facts are that the assessee is engaged in software
development services to its associated enterprise (AE Group) Genesis
Microchip Inc., US. With regard to transfer price required to be
furnished in the Court, the assessee compared its activities to 55
comparable entities performing similar functions. The TPO upon his
undertaking analysis discard 45 of them while retaining 10.
3. In the course of analysis, some more companies were added as
comparables; the total of 26 such comparable entities were taken into
account for conducting the ALP determination. Ultimately, the
arithmetic mean of the PLI (Profit Level Indicator) was determined at
124.51% of the operating cost at Rs.54,30,79,601/-. The resultant
transfer pricing adjustment recommended was Rs.4,64,98,881/-, under
Section 92CA. This figure was later rectified to Rs.3,99,84,625/-
under Section 154 of the Act.
4. The TPO's decision was left undisputed by the Dispute
Resolution Board (DRP). Consequently, the AO finalized the
assessment on 29.08.2011.
5. The assessee appealed to the ITAT. By then, the decision of the
ITAT in Hewlett Packard India Global Soft Pvt. Ltd. vs. DCIT in
IT(TP)A No.1031/Bang/2011 dated 23.09.2015 had been rendered.
ITA 913/2017 Page 2 of 5
The assessee placed reliance upon it to contend that the comparables
included by the TPO leading to the ALP determination in its case
were either based on the identical terms to the comparables included
in the Hewlett Packard India Global Soft Pvt. Ltd.. It was also
contended that there was complete identity of functionality between
the assessee's business operations and that of Hewlett Packard India
Global Soft Pvt. Ltd.
6. ITAT considered the submissions of the parties in para 12 of
the impugned order and elaborately extracted the relevant passage of
its reiterated decision in Hewlett Packard India Global Soft Pvt. Ltd.
(pages 558 to 585 of the paper book). It was of the opinion that since
the functional profile of the assessee was identical to that of Hewlett
Packard India Global Soft Pvt. Ltd., no different conclusions could
have been arrived at.
7. It is argued on behalf of the Revenue that the ITAT fell into
error in mechanically following the decision in Hewlett Packard India
Global Soft Pvt. Ltd.(supra). It was urged that the ITAT, who had,
after taking into account its previous ruling in Hewlett Packard India
Global Soft Pvt. Ltd.(supra), remitted the matter for reconsideration of
the TPO to determine whether, as a matter of fact, functional profile
of the entities, which the assessee sought exclusion of, were, in fact,
different or identical. It was further submitted that the assessee was
engaged in chip designing and embedded software development.
8. The Court is of the opinion that the arguments of the Revenue
ITA 913/2017 Page 3 of 5
are unsubstantial and without merit. Whereas the TPO clearly noticed
that the assessee's business profile is rendering `software
development services' to its AE. Furthermore, the TPO notes as
follows:-
"1. Software Development Services
The transactions pertaining to the Software Development
Services segment are analysed as under. As the method
followed by the TPO and the taxpayer is TNMM (a
discussed below), these transactions are aggregated for
the transfer pricing study along with reimbursement of
expenses received and paid along with other payments
routed through the profit and loss account."'
9. From the above facts, it is evident that the assessee was
engaged in software development services which were provided to its
AE.
10. The essential submission of the Revenue is that without fresh
determination as to the identical of the comparable entities taken into
account in Hewlett Packard India Global Soft Pvt. Ltd.(supra), the
ITAT could not have `blindly' followed its previous rule.
11. Here the arguments cannot be accepted. If the reasoning of the
ITAT were merely to accept the ratio in previous decision without
noticing the relevant fact, the Revenue's arguments would have been
merited in the present case. As noticed previously, the ITAT
extracted its previous ruling in Hewlett Packard India Global Soft Pvt.
Ltd.(supra) to the extent of 26 pages. This extract contained an
ITA 913/2017 Page 4 of 5
analysis of each of 16 comparables that are in issue in the present
appeal. Therefore, the submission of the Revenue lacks merit.
12. The Revenue or for that matter any party may be correct in
contending, that a blind application of precedent, merely because in a
previous ruling the Tribunal accepted or did not accept the
comparables, cannot per se be a ground for excluding it or including it
later. At the same time, while testing the application of that Rule, the
Court has to be careful to discern whether, in fact, the subsequent
ruling, which relies on the previous ruling, carries out such a factual
analysis. In this case, the ITAT clearly did communicate and carry
out such a functional and factual analysis.
13. In view of the above reasons, we are of the opinion that no
substantial question of law arises.
14. The appeal is, therefore, dismissed.
S. RAVINDRA BHAT
(JUDGE)
SANJEEV SACHDEVA
(JUDGE)
OCTOBER 30, 2017
st
ITA 913/2017 Page 5 of 5
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