M/s. Intellinet Technologies India Pvt. Ltd.,, Bangalore v. The Income Tax Officer,, Bangalore

ITA 1237/BANG/2010 | 2006-2007
Pronouncement Date: 30-03-2012 | Result: Partly Allowed

Appeal Details

RSA Number 123721114 RSA 2010
Assessee PAN AAACI7939P
Bench Bangalore
Appeal Number ITA 1237/BANG/2010
Duration Of Justice 1 year(s) 4 month(s) 15 day(s)
Appellant M/s. Intellinet Technologies India Pvt. Ltd.,, Bangalore
Respondent The Income Tax Officer,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-03-2012
Date Of Final Hearing 14-03-2012
Next Hearing Date 14-03-2012
Assessment Year 2006-2007
Appeal Filed On 15-11-2010
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A BANGALORE BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI JASON P. BOAZ ACCOUNTANT MEMBER I.T.A. NO.1237(BANG.)/2010 ( ASSESSMENT YEAR : 2006-07) M/S INTELLINET TECHNOLOGIES INDIA PVT.LTD. UNIT NO.4/3 4/4 3 RD FLOOR OXFORD TOWERS MUNICIPAL NO.139 AIRPORT ROAD KODIHALLI BANGALORE-560 017 APPELLANT PAN NO.AAACI7939P VS THE INCOME-TAX OFFICER WARD-11(2) BANGALORE. RESPONDENT APPELLANT BY : SHRI D. DEVARAJ CA REVENUE BY : SHRI ETWA MUNDA CIT-III DATE OF HEARING : 14-03-2012 DATE OF PRONOUNCEMENT : 30-03-2012 O R D E R PER SMT.P.MADHAVI DEVI JM; THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR : 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL; 1. THE ORDER PASSED BY THE LD. AO BASED ON THE DIRECTIONS ISSUED BY THE DRP IS BAD IN LAW. 2. THE LD. AO RELIED ON THE DIRECTIONS ISSUD BY THE DRP. THE DRP HAS UPHELD THE ORDER OF THE TPO. 3. THE ORDER OF THE TPO SUFFERS FROM ERRORS AND IS UNJUSTIFIED ON ACCOUNT OF THE FOLLOWING; ITA NO.1237(B)/2010 2 A. THE TPO ERRED IN MAKING AN ORDER U/S 92CA AND DIRECTING ADJUSTMENTS TOWARDS SHORTFALL TO ARM S LENGTH PRICE TO THE EXTENT OF RS.62 55 873/- B. THE TPO ERRED IN REJECTING THE DOCUMENTATION MAINTAINED BY THE APPELLANT AND CONDUCTING A FRESH SEARCH OF THE COMPARABLES. C. THE TPO ERRED IN OBTAINING THE INFORMATION AND DOCUMENTS NOT AVAILABLE IN PUBLIC DOMAIN BY EXERCIS ING HIS POWER U/S 133(6) OF THE IT ACT 1961 D. THE TPO ERRED IN ADOPTING AN ARBITRARY BASIS OF FILTERING COMPARABLE CASES SUMMARILY REJECTING THE COMPARABLES OF THE PETITIONER ARBITRARILY REJECTIN G THE OBJECTIONS RAISED BY THE PETITIONER AGAINST THE COMPARABLES CHOSEN BY HER AND ARBITRARILY CHOOSING THE COMPARABLES NOT COMPARABLE WITH THAT OF THE TRANSACTIONS OF THE PETITIONER. E. THE DRP ERRED IN NOT ACCEPTING THE CONTENTION OF THE APPELLANT IN RELATION TO THE ADJUSTMENT SOUGHT BY HE APPELLANT TOWARDS RECEIVABLE MARKETING AND CREDIT RISK BORNE BY THE COMPARABLES. F. THE TPO ERRED IN ADOPTING THE ARMS LENGTH MARGIN OF 19.03% OF THE OPERATING COSTS AND FIXING THE ARMS LENGTH PRICE AT RS.842.88 LAKHS AS AGAINST TH E TRANSACTIONAL VALUE OF RS.780.31 LAKHS. 4. THE DRP ERRED IN CONFIRMING THE ACTION OF THE AO WHILE COMPUTING THE DEDUCTION U/S 10A BY EXCLUDING AN AMOUNT OF RS.1 05 858/- FROM THE AMBIT OF EXPORT TURNOVER WITHOUT EXCLUDING THE SAME FROM AMBIT OF T OTAL TURNOVER. ITA NO.1237(B)/2010 3 2.1 THE ASSESSEE HAS ALSO FILED THE FOLLOWING REVI SED ADDITIONAL GROUND OF APPEAL; 1. WITHOUT PREJUDICE TO THE GROUNDS TAKEN EARLIER THE TPO ERRED OR WAS UNJUSTIFIED IN NOT PROVIDING THE BENEF IT OF +/- 5 PERCENT OF THE RANGE AT THE TIME OF COMPUTING THE T RANSFER PRICING ADJUSTMENT. 3. GROUND NOS.1 &2 ARE GENERAL IN NATURE AND THERE FORE NEEDS NO ADJUDICATION. 4. COMING TO THE GROUND NO.3 WE FIND THAT THE AS SESSEE IS CHALLENGING THE ADJUSTMENT MADE BY THE TPO TO THE A RMS LENGTH PRICE BY REJECTING THE DOCUMENTATION MAINTAINED BY THE ASSES SEE AND CONDUCTING THE SEARCH OF THE COMPARABLES AND ALSO OBTAINING TH E INFORMATION AND DOCUMENTATION NOT AVAILABLE IN PUBLIC DOMAIN BY EXE RCISING HIS POWERS U/S 133 OF THE IT ACT 1961. WE FIND THAT THE SUB- GROUND (A) IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. SUB-GROUND- (B) IS REJECTED AS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. A S REGARDS SUB-GROUND- (C) & (D) ARE CONCERNED WE FIND THAT THESE ISSUES ARE COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL( TO WHICH ONE OF US IE. JM IS A SIGNATORY) IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LTD. IN ITA NO.1231(BNG)/2010 DATED 05-08-2011 WHEREIN THIS TRIBUNAL HAS DIRECTED THE AO TO ADOPT THE FILTER OF TURNOVER AND ALSO TO GIVE THE ASSESSEE AN OPPORTUNITY OF REBUTTING THE I NFORMATION AND DOCUMENTS OBTAINED BY THE TPO BY EXERCISING HIS POW ERS U/S 133(6) OF THE ITA NO.1237(B)/2010 4 IT ACT. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL WE REMAND THESE TWO ISSUES TO THE FILE OF THE AO TO RE-CONSIDER THE SAME AS PER THE GUIDELINES ISSUED IN THE CASE O F M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LTD. IN ITA NO.123 1(BNG)/2010 . IT IS FURTHER DIRECTED THAT THE ASSESEE SHALL RAISE ITS O BJECTION TO THE ADDITIONAL COMPARABLES ADOPTED BY THE TPO AND THE TPO/AO SHALL CALL FOR ALL THE INFORMATION FROM THE COMPARABLES (ADOPTED BY HIM BY OBTAINING THE INFORMATION U/S 133(6) OF THE IT ACT) TO CLARIFY TH E QUERIES RAISED BY THE ASSESSEE TO ARRIVE AT THE APPROPRIATENESS OF THE CO MPARABLES AND AS A LAST RESORT SHALL ALSO GIVE THE ASSESSEE AN OPPORTUNITY TO CROSS EXAMINE THE PARTIES IF IT IS FOUND NECESSARY AFTER ALL THE INFO RMATION BEING FURNISHED TO THE ASSESSEE DOES NOT SATISFY THE ASSESSEES QUERIE S. 5. COMING TO THE SUB-GROUND (E) OF THE GROUNDS OF APPEAL THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHI LE MAKING THE TRANSFER PRICING ADJUSTMENT TO ARRIVE AT THE ALP IN THE CASE OF INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES THE TPO IS BOUND TO CONDUCT THE FAR ANALYSIS. HE SUBMITTED THAT THE ASSESSEE WAS THE CAPTIVE SERVICE PROVIDER RENDERING SERVICES O N A COST PLUS BASIS. THUS ACCORDING TO THE LEARNED COUNSEL FOR THE ASSE SSEE THE ASSESSEE HAS NO RISK WHATSOEVER AS COMPARED TO THE COMPARABLES A DOPTED BY THE TPO. HE DREW OUR ATTENTION TO THE TRANSFER PRICING ANALY SIS ADOPTED BY THE ASSESSEE AND THE RISK ADJUSTMENT CLAIMED BY THE ASS ESSEE AT 5.5% AS COMPARED TO ITS COMPARABLES. HE SUBMITTED THAT THE COMPARABLES ADOPTED ITA NO.1237(B)/2010 5 BY THE ASSESSEE AND ALSO TPO ARE PRONE TO VARIOUS R ISKS SUCH AS MARKET RISK TECHNICAL RISK ETC. AND THESE RISKS ARE TAKE N INTO CONSIDERATION THE NET MARGIN OF THESE COMPANIES WOULD COME DOWN SUBST ANTIALLY WHICH WOULD BE ON PAR WITH THE ALP ADOPTED BY THE ASSESS EE. THUS ACCORDING TO HIM THE TPO OUGHT TO HAVE ALLOWED THE RISK ADJU STMENT BEFORE MAKING COMPARISON OF THE NET MARGIN OF THE ASSESSEE AND CO MPARABLES. 6. THE LEARNED DR HOWEVER OPPOSED THE CONTENTION O F THE ASSESSEE AND RELIED UPON THE ORDERS OF THE TPO AND DRP. THE LEARNED DR SUBMITTED THAT THE ASSESSEE BEING A CAPTIVE SERVICE PROVIDER IS HAVING A SINGLE CUSTOMER WHICH IS CALLED SINGLE CUSTOMER RI SK AS OBSERVED BY THE TPO. THUS ACCORDING TO HIM THE RISK ATTRIBUTABLE TO THE COMPARABLES BY THE ASSESSEE ARE ALSO EQUIVALENT TO THE RISKS ATTRI BUTABLE TO THE ASSESSEE. FURTHER AS REGARDS THE RISK ADJUSTMENT OF 5.5% ADO PTED BY THE ASSESSEE THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY BASIS FOR ARRIVING AT SUCH AN ADJUSTMENT. HE HAS DRAWN OUR A TTENTION TO THE RELEVANT PARA OF TPO AND THE DRP WHEREIN SUCH AN O BSERVATION IS MADE. 6.1 IN THE REJOINDER THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE HAS NO DOUBT NOT GIVEN ANY BASIS FOR ARRIVING AT THE RISK ADJUSTMENT OF 5.5% TO THE ALP BUT HE SUGGESTED THA T THE DIFFERENCE BETWEEN THE PRIME LENDING RATE OF INTEREST BY RBI T O THE BANKS AND THE INTEREST AT WHICH THE BANKS LEND LOANS TO THEIR CUS TOMERS IS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF RISK ADJUSTME NT. ITA NO.1237(B)/2010 6 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS WE FIND THAT THE ASSESSEE HAS CLAIMED THE RISK ADJUSTMENT WHICH IS NOT ALLOWED BY THE TPO ON THE GROUND THAT THE ASSESSEE ALSO HAS THE RISK OF HAVING A SINGLE CUSTOMER. THE QUESTION BEFORE US IS AS TO WHETHER THE RISK OF HAVING A SINGLE CUSTOMER IS EQU IVALENT TO THE MARKETING AND TECHNICAL RISK ATTACHED TO THE COMPAR ABLES. ACCORDING TO THE TPO THE ASSESSEE HAS THE SINGLE CUSTOMER RISK MEANING IF THE SINGLE CUSTOMER REFUSES TO HAVE ANY DEALINGS WITH THE ASSE SSEE THE ASSESSEE WOULD LOSE ALL OF ITS BUSINESS AND THERE WOULD BE N O PROFIT AT ALL. BUT AS WE SEE IT THE RISK OF HAVING A SINGLE CUSTOMER IS ANTICIPATED RISK WHICH MAY OR MAY NOT HAPPEN. WHAT WE HAVE TO SEE IS THE POSITION IN THE RELEVANT PERIOD WHETHER THE ASSESSEE HAD ENCOUNTERE D SUCH A RISK DURING THE RELEVANT PERIOD. 7.1 AS SEEN FROM THE RECORDS THE ASSESSEE HAD ACQU IRED THE BUSINESS AND ALSO EARNED INCOME OUT OF THE SAID TRA NSACTION BY COST PLUS BASIS. THUS IT CAN BE SEEN THAT THE ASSESSEE HAS NOT ENCOUNTERED THE RISK OF HAVING A SINGLE CUSTOMER WHEREAS THE SAME CANNOT BE SAID AS REGARDS THE COMPARABLES. AS POINTED OUT BY THE LEA RNED COUNSEL FOR THE ASSESSEE THE COMPARABLES WERE DEALING IN OPEN MARK ET AND THEREFORE THEY WERE PRONE TO THE MARKETING AND TECHNICAL RISK S. THEY WOULD HAVE INCURRED CERTAIN EXPENDITURE ON MARKETING SERVICES AND ALSO TO SAFEGUARD THE TECHNICAL USE BY THEM. IN SUCH A CASE THE RIS K ENCOUNTERED BY THE ASSESSEE CANNOT BE SAID TO BE THE EQUIVALENT RISKS ATTACHED TO THE ITA NO.1237(B)/2010 7 COMPARABLES. THE RISK ATTRIBUTED TO THE ASSESSEE B Y THE TPO IS AN ANTICIPATED RISK WHEREAS THE RISK ATTRIBUTED BY THE ASSESSEE TO THE COMPARABLES IS AN EXISTING RISK. IN SUCH SITUATIO N THE TPO OUGHT TO HAVE GIVEN THE RISK ADJUSTMENT TO THE NET MARGIN OF THE COMPARABLES FOR BRINGING THEM ON PAR WITH THE ASSESSEE COMPANY. TH E ASSESSEES CONTENTION THAT THE RISK ADJUSTMENT SHOULD BE AT 5. 5% OR AT THE DIFFERENCE OF PRIME LENDING RATE OF THE RBI AND THE BANKS IS N OT ACCEPTABLE TO US. THEREFORE WE DIRECT THE TPO TO CONSIDER ALL THE CO NTENTIONS OF THE ASSESSEE AND AFTER TAKING INTO ACCOUNT ALL THE RELE VANT MATERIAL DECIDE THE PERCENTAGE OF RISK ADJUSTMENT TO BE MADE IN ACCORDA NCE WITH LAW. THIS GROUND IS ACCORDINGLY ALLOWED FOR STATISTICAL PURP OSES. 8. AS REGARDS SUB-GROUND-(F) WE FIND THAT IT IS CO NSEQUENTIAL TO SUB- GROUND-(E) AND THEREFORE THIS ISSUE IS ALSO REMAND ED TO THE FILE OF THE APO/O. 9. AS REGARDS GROUND NO.4 WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE HONBLE H IGH COURT OF KARNATAKA IN THE CASE OF M/S TATA ELXSI LTD. VS ACIT CITED S UPRA. RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE AO TO EXCLUDE THE AMOUNT OF RS.1 05 858/- FROM THE EXPORT TURNOVER AS WELL AS T HE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 10A OF T HE IT ACT. 10. AS REGARDS THE ADDITIONAL GROUND OF APPEAL WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF THIS TRIBU NAL IN THE CASE OF M/S GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LTD. CITED SUPRA AND ALSO IN THE ITA NO.1237(B)/2010 8 CASE OF M/S TATRA VECTRA MOTOS LTD. IN ITA NO.1284 (B)/2010 DATED 31- 01-2012 TO WHICH ONE OF US IS A SIGNATORY. RESPECT FULLY FOLLOWING THE SAME WE DIRECT THE AO TO GIVE PLUS OR MINUS 5% VAR IATION FOR THE PURPOSE OF COMPUTING THE ALP. THIS GROUND OF APPEAL IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH MARCH 2012. SD/- SD/- (JASON P BOAZ) (SMT. P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: BANGALORE DATED: 30-03-2012 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR ITAT BANGALORE