Logica P Ltd, Bangalore v. Deputy Commissioner of Income tax,, Bangalore

ITA 1620/BANG/2014 | 2006-2007
Pronouncement Date: 21-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 162021114 RSA 2014
Bench Bangalore
Appeal Number ITA 1620/BANG/2014
Duration Of Justice 1 year(s) 10 month(s) 2 day(s)
Appellant Logica P Ltd, Bangalore
Respondent Deputy Commissioner of Income tax,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 21-10-2016
Date Of Final Hearing 10-03-2016
Next Hearing Date 10-03-2016
Assessment Year 2006-2007
Appeal Filed On 19-12-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BANGALORE BEFORE SHRI A.K.GARODIA ACCOUNANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER IT(TP)A NOS. A.Y. APPELLANT V S RESPONDENT 1 IT(TPA NO.1620(B)/2014 2006-07 M/S LOGICA PVT. LTD. E-CITY TOWER-2 95/1 & 95/2 ELECTRONIC CITY PHASE-1(WEST) BANGALORE- DCIT CIRCLE-11(5) BANGALORE 2 IT(TP) NO. 1663(BANG)/2014 2006-07 ACIT CIRCLE-2(1)(1) BANGALORE M/S LOGICA PVT. LTD. E-CITY TOWER-2 95/1 & 95/2 ELECTRONIC CITY PHASE-1(WEST) BANGALORE ASSESSEE : SHRI T. SURYANARAYANA ADVOCATE REVENUE BY : MS. NEERA MALHOTRA CIT-II DATE OF HEARING : 10-10-2016 DATE OF PRONOUNCEMENT : -10-2016 O R D E R PER A. K. GARODIA A. M.:- THESE ARE CROSS APPEAL FILED BY THE ASSESSEE AND T HE REVENUE WHICH ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IV BA NGALORE DATED 17-10-2014 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS; TRANSFER PRICING RELATED 1. T H A T TH E OR D ER P ASSE D B Y TH E LEAR N E D C OMMI SSIO N E R OF IN CO M E TAX (APPEA L S) - I V B ANGA L ORE (C I T (A) T O TH E E XT E NT P RE JUDI C I A L T O TH E A PP E LL A NT I S B A D IN L AW A N D LI AB L E T O BE Q U AS H ED. 2. T H AT T HE L EA R NED CIT (A) ER R ED IN UPH O LD I N G TH E REJEC TI O N O F TRA N SFER PRICING (TP) DOC UM EN T A T IO N BY TH E IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 2 LEAR N ED TRANSFER PR I CING OFF ICE R ( TPO ' ) / ASSESS IN G OFFI CER ( ' A O ' ) AND IN MAKING A N ADJ U S TM E NT T O TH E TR A N S F ER P RI CE OF TH E AP P E LL AN T I N RESPEC T O F IT S S OFT WA R E D EVE L O PM E NT SE R V I CES . 3. T H AT O N TH E FAC T S AND IN TH E C IR C UM S T A N CES O F TH E CASE TH E L EA RN E D C IT (A) WHI L E MA KIN G ADJ U S TM E NT T O TH E VA RI O U S SEG M E NT S OF TH E A PP E LL A N T ERRE D IN; A) U PH O L DING T HE R EJEC TI O N OF CO M PARAB ILIT Y ANA L YSIS OF T H E A P PE LL ANT I N T HE T P DOCU M E NT A TI O N A ND ACCE PTIN G TH E COMPA R AB ILIT Y A N A L YS I S PE RF OR M E D B Y T HE L EA RN E D TPO IN TH E T P O RDER . B) DISREGAR D I N G A PPLI CA T IO N OF MULT IP L E YEAR/ P RI OR YEAR D A T A AS U SE D B Y TH E A P PE LL A NT IN TH E TP D OC UM EN T A TI O N A ND H O LDIN G TH AT C URR E NT YEA R ( I.E . F IN A N C I A L YEA R 20 0 8 - 0 9) DA T A FOR CO MP A NI ES S HOULD B E U SED FOR CO M PA R A BILIT Y. C) UP H O LDIN G TH E L EA RN E D TPO 'S AP P ROAC H OF US IN G D A T A AS A T TH E TIME OF ASS E SSMENT PROC E E D I N GS I N S T EA D OF TH A T AVAI L A BL E A S ON TH E D A T E O F P RE P AR IN G T H E T P D OC UM E N TA T ION FOR COMPARAB L E CO M PA NI ES W HIL E D E T E RM I N I N G TH E AR M 'S L E NGTH PRI CE . D) AR BIT RARI L Y ARR I V IN G A T A SE T OF CO MP A NI ES AS C O MP A R AB L E T O TH E SOF T WARE DEVE L OPME NT SERV I CES BU S IN ESS OF TH E A PP E LL A N T O N RE J EC T I NG CO MP A NI ES TH A T A R E OTH E R W I SE F UN C TI O N A LL Y COM P ARA BL E T O TH E A PP E LL A NT A ND ON IN C LU S I O N OF COMPA NI ES TH A T O TH E R W I SE FAIL THE T ES T OF CO M PA R A B I LIT Y. 4. T H A T TH E L EAR N ED CIT(A) ERRED IN L AW A ND O N F AC T S IN I G N OR IN G TH E L OW RIS K P ROF IL E OF AP P E LL AN T AS D E T A IL E D IN TH E TP DOCUM E N TA TI ON A N D IN UPHOLDING TH E CON C LU SI ON OF T H E L EA RNED TPO A ND IN N O T A LL OW IN G A PP RO PRI A T E A DJU S TM E NT S UND E R RULE 1OB O F TH E RUL ES T O ACCO UNT F O R D IF F ERE N CES BE T WEEN T HE AP P E LL A NT AN D CO MP ARAB L E CO MP A NI ES. OTHER THAN TRANSFER PRICING RELATED 5. T H E LEARNED AO / LEARNED CIT(A) ERRED IN TREA TING TH E EX P E N SES T OWARDS P U RC H AS E OF APP L ICA TI O N A ND PR O J EC T BASED SOFTWARE EXPE N SES A M O UN TING TO R S 3 5 87 1 54 8 A S CA PIT A L IN NA TU RE. 6 . CONSEQUEN TL Y T H E L EAR N E D A O ERRE D IN C H ARG IN G INT E R ES T UND ER SEC T IO N 234B 234C AND 2 3 4D O F TH E AC T. T H AT T H E APPE LL A NT C R AVES L EAVE T O A DD T O A N D/OR T O IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 3 A LT E R A M E ND R ESC IN D MODIFY THE GRO U NDS H ERE IN A B OVE O R PROD U CE FUR TH ER D OC UM E NT S B E F O R E OR A T TH E T I M E O F H EA RIN G O F THI S APPEA L . 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS; 1. THE ORDER OF THE LD.CIT(A) IS CLEARLY OPPOSED T O LAW AS FARE AS THE FINDINGS ARE PERVERSE CONTRARY TO T HE FACTS AND CIRCUMSTANCES OF THE CASE AND HENCE NOT SUSTAINABLE. 2. THE LD. CIT(A) ERRED IN HOLDING THAT THE SIZE AN D TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TREATING A COMPANY AS A COMPARABLE AND ACCORDINGLY ERRED IN EXCLUDING INFOSYS LTD. FLEXTRONICS SOFTWAR E SYSTEMS LTD. & I-GATE GLOBAL SOLUTIONS LTD.(SEG.) COMPANIES AS COMPARABLES. 3. THE LD. CIT(A) ERRED IN EXCLUDING UNCONTROLLED COMPARABLES HAVING TURNOVER MORE THAN RS.500 CRORES FOR SWD & RS.200 CRORES FOR ITES IN THE ABSENCE OF TURNOVE4R CRITERION PRESCRIBED IN RULE 10B OF IT RU LES AND ALSO THERE BEING NO CORRELATION BETWEEN TURNOVE R AND PROFIT MARGIN. 4. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND A ND OR DELETE ANY OF THE GROUND MENTIONED ABOVE. THE LD. AR OF THE ASSESSEE SUBMITTED A CHART IN RE SPECT OF TP ISSUES IN REVENUES APPEAL AND IN ASSESSEES APPEAL AS PER GR OUND NO.1 TO 4. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT THE FO LLOWING COMPANIES ARE TO BE EXCLUDED BY APPLYING THE RPT FILER OF 15%. A) AZTEC SOFTWARE LTD. B) GEOMETRIC SOFTWARE LTD. C) ACCEL TRANSMATICS LTD. IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 4 HE ALSO SUBMITTED THAT ONE COMPANY SHOULD BE EXCLU DED BY APPLYING TURNOVER FILTER OF 10 TIMES OF ASSESSEE COMPANYS T URNOVER AND THIS COMPANY IS M/S INFOSYS LTD. HAVING TURNOVER OF RS.9028 CRO RES AS AGAINST THE TURNOVER OF RS.195 CRORES OF THE ASSESSEE COMPANY. THEREAFTER SHE SUBMITTED THAT THE FOLLOWING COMPANIES SHOULD BE EX CLUDED ON ACCOUNT OF FUNCTIONAL DISSIMILARITY AND IN SUPPORT OF THIS CON TENTION RELIANCE WAS PLACED ON THE TRIBUNALS ORDER RENDERED IN THE CASE OF M/S INFINERA INDIA PVT. LTD. IN IT(TP)A NO.1290(B)/2010 DATED 24-06- 2016:- A) M/S KALS INFO SYSTEMS LTD. B) M/S PERSISTENT SYSTEMS LTD. C) M/S TATA ELXSI LTD.(SEG.) D) M/S FLEXTRONICS SOFTWARE SYSTEMS LTD. HE SUBMITTED A COPY OF THE TRIBUNAL ORDER AND OUR A TTENTION WAS DRAWN TO PARA-9 11 13 15 & 19 OF THIS TRIBUNAL ORDER. HE AL SO SUBMITTED THAT ONE CO. I.E. M/S IGATE GLOBAL SOLUTIONS LTD.(SEG.) WHICH WA S EXCLUDED BY THE LD. CIT(A) BY APPLYING TURNOVER FILTER OF 500 CRORES MA Y COME BACK AS A GOOD COMPARABLE BECAUSE THE TURNOVER OF THE COMPANY IS ONLY RS.527.91 CRORES WHICH IS WITHIN THE RANGE OF 10 TIMES OF THE TURNOV ER OF THE ASSESSEE COMPANY AND ACCORDINGLY GROUND NO.2 OF THE APPEAL OF THE REVENUE MAY BE PARTLY ALLOWED. BUT TWO MORE COMPANIES BEING DISPU TED BY THE REVENUE AS PER GROUND NO2 OF ITS APPEAL BEING M/S INFOSYS LTD SHOULD BE EXCLUDED BY APPLYING TURNOVER FILTER OF 10 TIMES AND M/S FLEXTR ONICS SOFTWARE SYSTEMS SHOULD BE EXCLUDED ON ACCOUNT OF FUNCTIONAL DISSIMI LARITY AS PER PARA-19 OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S INFI NERA INDIA PVT. LTD.(SUPRA). IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 5 LEARNED DR OF THE REVENUE SUPPORTED THE ORDER OF T HE TPO. REGARDING GROUND NO.5 OF THE ASSESSEES APPEAL IT WAS SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN IT(TP)A NO.1192(B)/2012 DATED 18-07-2014. HE SUBMITTED A C OPY OF THE TRIBUNAL ORDER AND POINTED OUT THAT PARA-5 6 OF THIS TRIBUNA L ORDER ARE RELEVANT FOR THIS ISSUE. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGARDI NG TP ISSUES AS PER GROUND NO.1 TO 4 OF THE ASSESSEES APPEAL AND AS PE R APPEAL OF THE REVENUE WE HOLD THAT BY APPLYING RPT FILTER OF 15% FOLLOWI NG FOUR COMPANIES ARE TO BE EXCLUDED I.E.. A) AZTEC SOFTWARE LTD. B) GEOMETRIC SOFTWARE LTD. C) ACCEL TRANSMATICS LTD. D) MEGASOFT LTD. SIMILARLY ON THE BASIS OF TURNOVER FILTER OF 10 TI MES OF THE TURNOVER OF THE ASSESSEE COMPANY WE UPHOLD THE ORDER OF THE LD. CI T(A) REGARDING EXCLUSION OF M/S INFOSYS LTD. (SUPRA) BECAUSE THIS COMPANY I S HAVING A TURNOVER OF RS.9028 CRORES AS AGAINST THE ASSESSEES TURNOVER O F RS.195 CRORES. NOW WE EXAMINE THE CLAIM OF THE ASSESSEE REGARDIN G EXCLUSION OF VARIOUS COMPARABLES ON THE BASIS OF FUNCTIONAL DISS IMILARITY AND IN THIS REGARD RELIANCE HAS BEEN PLACED BY THE LD. AR OF T HE ASSESSEE ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S INFINERA INDIA PVT. LTD. (SUPRA). AS PER THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPA NY NOTED BY THE TPO ON PAGE-2 & 3 OF HIS ORDER THE ASSESSEE COMPANY IS RE NDERING SOFTWARE SERVICES AND THE LD. DR OF THE REVENUE COULD NOT POINT OUT A NY DIFFERENCE IN FACTS IN IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 6 THE PRESENT CASE AND IN THE CASE OF M/S INFINERA IN DIA PVT. LTD. (SUPRA) AND THEREFORE WE HOLD THAT THIS TRIBUNAL ORDER IS APPL ICABLE IN THE PRESENT CASE. AS PER PARA-9 OF THIS TRIBUNAL ORDER IT WAS HELD BY THE TRIBUNAL THAT M/S KALS INFO SYSTEMS LTD. IS FUNCTIONALLY DISSIMIL AR BECAUSE IT DERIVES ITS REVENUE PRIMARILY FROM SOFTWARE SERVICES AND SOFTWA RE PRODUCTS AND SEGMENTAL INFORMATION WAS NOT AVAILABLE. SIMILARLY AS PER PARA -11 OF THE TRIBUNAL ORDER IT WAS HELD BY THE TRIBUNAL THAT M/S PERSISTENT SYSTEMS LTD. IS NOT A GOOD COMPARABLE BECAUSE THE TURNOVER OF THIS COMPANY IS REPORTED IN A COMBINED MANNER AS A SALE OF SOFTWARE SERVICES AND PRODUCTS (EXPORT) OF RS.209.17 CRORES IN THE PRESENT YEAR AN D SEGMENTAL INFORMATION IS NOT AVAILABLE IN THE ANNUAL REPORT. THEREAFTER IN PARA-13 OF THIS TRIBUNAL ORDER THE TRIBUNAL HELD THAT M/S TATA ELXSI LTD.(S EG.) CANNOT BE CONSIDERED AS GOOD COMPARABLE BECAUSE THIS COMPANY IS FUNCTIO NALLY DISSIMILAR AND FOR HOLDING SO THE TRIBUNAL CONSIDERED AND FOLLOWED TW O TRIBUNAL ORDER RENDERED IN THE CASE OF M/S TELECORDIA TECHNOLOGIES INDIA PVT. LTD. VS DCIT IN ITA NO.78121/MUM/2011 AND IN THE CASE OF EMC DAT A STORAGE SYSTEMS (IND.) PVT. LTD. VS DCIT (IT(TP)A NO.1274(BANG)/201 0. THEREAFTER IN PARA-19 THE TRIBUNAL HELD THAT M/S FLEXTRONICS SOFTWARE SYS TEMS LTD. IS ALSO NOT A GOOD COMPARABLE BECAUSE THIS COMPANY INCURRED LARG E AMOUNT OF R&D EXPENDITURE OF RS.40.23 CRORES AND IT IS FUNCTIONAL LY DISSIMILAR AS WAS HELD BY THE TRIBUNAL IN THE CASE OF M/S INTOTO SOFTWARE INDIA PVT. LTD. VS ACIT IN ITA NO.1196/HYD)/2010. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER WE HOL D THAT THESE COMPANIES I.E. A) M/S KALS INFORMATION SYSTEMS LTD. IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 7 B) M/S PERSISTENT SYSTEMS LTD. C) M/S TATA ELXSI LTD. (SEG.) D) MS/S FLEXTRONICS SOFTWARE SYSTEMS LTD. SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABL ES ON THE BASIS OF FUNCTIONAL DISSIMILARITY. REGARDING IGATE GLOBAL SOLUTIONS LTD. WHICH WAS E XCLUDED BY THE LD. CIT(A) BY APPLYING TURNOVER FILTER OF RS. 500 CRORE S WE HOLD THAT THIS COMPANY IS A GOOD COMPARABLE IN THE FACTS OF THE PR ESENT CASE AND THEREFORE THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF FINA L COMPARABLES. THE LD.AO/TPO SHOULD WORK OUT THE ALP AND TP ADJUS TMENT IF ANY TO BE MADE AFTER CONSIDERING THE EXCLUSION/INCLUSION O F VARIOUS COMPANY AS PER THE ABOVE PARAS. NOW WE DECIDE GROUND NO.5 OF THE ASSESSEES APPEAL I.E. REGARDING ALLOWABILITY OF SOFTWARE EXPENSES OF RS.3 58 71 548 /- AS REVENUE EXPENDITURE. THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2008-09 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY RESPECTFULLY FOLLOWI NG THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF AMWAY INDIA ENTERPRISES VS DCIT REPORTED IN 301 ITR(AT)1 (DEL.) IT WAS THE CLAIM OF THE LD. AR OF THE ASSESSEE THAT THE NATURE OF SOFTWARE EXPENDITURE IS THE SAME IN THE PRESENT YEAR ALSO AND THE SAME COULD NOT BE CON TROVERTED BY THE LD. DR OF THE REVENUE AND THEREFORE WE FIND NO REASON TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR. ACCORDINGLY GROUND NO.5 OF THE ASSESSEE IS ALLOWED. BOTH SIDES AGREED THAT OTHER GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE ARE NOT REQUIRED TO BE DECIDED SEPARATELY. IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 8 IN THE RESULT THE APPEAL OF THE ASSESSEE AND REVEN UE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (ASHA VIJAYARAGHAVAN) (A.K. GA RODIA) JUDICAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : 10.2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR ITAT BANGALORE. 6 GUARD FILE BY ORDER AR ITAT BANGALORE IT(TP)A NOS.1620(B)2014 & 1663(B)/2014 9 1. DATE OF DICTATION 2. DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !' + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !' ' - ) IF NOT UPLOADED FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .