NIIT Ltd, New Delhi v. DCIT, New Delhi

ITA 1871/DEL/2009 | 2005-2006
Pronouncement Date: 07-01-2011 | Result: Allowed

Appeal Details

RSA Number 187120114 RSA 2009
Assessee PAN AAACN0085D
Bench Delhi
Appeal Number ITA 1871/DEL/2009
Duration Of Justice 1 year(s) 8 month(s) 2 day(s)
Appellant NIIT Ltd, New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 07-01-2011
Date Of Final Hearing 09-11-2010
Next Hearing Date 09-11-2010
Assessment Year 2005-2006
Appeal Filed On 05-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `A: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA VICE PRESIDENT AND SHRI C.L.SETHI JUDICIAL MEMBER. I.T. A. NO.1844/DEL/2009 ASSESSMENT YEAR: 2005-06 ASSTT. COMMISSIONER OF INCOME-TAX M/S. NIT LTD. CENTRAL CIRCLE-8 NEW DELHI. VS. C-125 OKHLA I NDL. AREA PHASE-I NEW DELHI. PAN: AAACN0085D I.T. A. NO.1871/DEL/2009 ASSESSMENT YEAR: 2005-06 M/S. NIT LIMITED DY. COMMISSIONER OF INCOME-TAX NEW DELHI. VS. CIRCLE 15(1) NEW DELHI. (APPELLANTS) ( RESPONDENTS) DEPARTMENT BY: SHRI G.C. SRIVASTAVA SPL. COUNSE L. ASSESSEE BY: SHRI TARAN ARORA CA. O R D E R PER C.L. SETHI JUDICIAL MEMBER: THESE ARE CROSS APPEALS FILED BY THE REVENUE AS WEL L BY THE ASSESSEE AGAINST THE ORDER DATED 27.02.2009 PASSED BY THE LE ARNED COMMISSIONER OF INCOME-TAX (APPEALS) PERTAINING TO THE ASSESSMENT Y EAR 2005-06. 2. THE ASSESSEE COMPANY IS A PUBLIC LIMITED COMPANY INCORPORATED UNDER THE LAWS OF INDIA ENGAGED IN THE BUSINESS OF EDUCA TION AND PROVIDING 2 LEARNING/KNOWLEDGE SOLUTIONS WHICH INCLUDE DEVELOP ING IT PRODUCTS FOR SALE AND PROVIDING CONTENT DEVELOPMENT SERVICES TO ITS C USTOMERS. THE ASSESSEE HAS OPERATIONS IN VARIOUS COUNTRIES ACROSS THE GLOB E INCLUDING UNTIED STATES NETHERLANDS MALAYSIA ETC. ALL OVERSEAS NIIT GROU P COMPANIES ARE ASSOCIATED ENTERPRISES OF THE ASSESSEE COMPANY. IN CONDUCT OF ITS BUSINESS DURING THE YEAR THE ASSESSEE COMPANY HAS ENTERED I NTO SEVERAL INTERNATIONAL TRANSACTIONS WITH ITS AES. IN CONFORMITY WITH THE TRANSFER OF PRICING REGULATIONS PRESCRIBED UNDER THE ACT IN RELATION T O THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS AES THE ASSESSEE FURNISH A REPORT OF ACCOUNTANT IN FORM NO.3CEB AS REQUIRED UN DER THE PROVISIONS OF SECTION 92E OF THE ACT. IN REPORT IT WAS STATED T HAT AS PER THE TRANSFER PRICING STUDY COMMISSIONED BY THE ASSESSEE THE VAR IOUS INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE DURING TH E RELEVANT YEAR WERE DETERMINED TO HAVE BEEN UNDERTAKEN AT ARMS LENGTH. DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS THE LEARNED TPO EXAMINED ALL THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION AND ACCEPTED THEM TO BE AT ARMS LENGTH EXCEPT THE INTERNATIONAL TRANSACTION RELATED TO PROVISION OF CORPORATE/SUPPO RT SERVICES BY THE ASSESSEE TO ITS OVERSEAS COMPANIES. IN RESPECT OF CORPORATE /SUPPORT SERVICES THE ASSESSEE COMPANY CHARGES ASSOCIATED ENTERPRISES ON A COST PLUS ARMS 3 LENGTH MARK-UP BASIS. THE ASSESSEE COMPANY APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) TO CONFIRM THE ARMS LENGTH PR ICING FOR ITS CORPORATE/SUPPORT SERVICES USING THE OPERATING PROF IT/TOTAL COST (OP/TC) AS THE RELEVANT PROFIT LEVEL INDICATOR (PLI). WHILE AP PLYING THE TNMM METHOD THE ASSESSEE USED UNCONTROLLED COMPARABLE C OMPANIES ENGAGED IN UNDERTAKING IT ENABLED BACK-OFFICE SERVICES AS COMP ARABLES FOR THE CORPORATE/SUPPORT SERVICES. BASED ON THE BENCH MARK ING EXERCISE CARRIED OUT BY THE ASSESSEE A SET OF 23 COMPARABLE COMPANIES W AS ARRIVED AT WITH AN AVERAGE OP/TC MARGIN OF 10% BY THE ASSESSEE. IT WAS CLAIMED BY THE ASSESSEE THAT OP/TC MARGIN EARNED BY THE ASSESSEE A T 7.5% BEING WELL WITHIN THE + 5% RANGE OF THE OP/TC MARGIN OF COMPARABLES. IN TH E TRANSFER PRICING STUDY THE ASSESSEE ALSO USED THE FINANCIAL DATA OF THE COMPARABLE COMPANIES OF PREVIOUS 2 YEARS I.E. FINANCIAL YEARS 2002-03 AND 2003-04. HOWEVER DURING THE COURSE OF TP ASSESSMENT PROCEED INGS THE LEARNED TPO REJECTED THE MULTIPLE YEAR DATA OF COMPARABLES USED BY THE ASSESSEE AND PROCEEDED TO USE THE CURRENT YEAR FINANCIAL DATA I. E. F.Y. 2004-05. IN THE COURSE OF TP ASSESSMENT PROCEEDINGS THE LEARNED TP O REJECTED 4 COMPANIES OUT OF THE SET OF 23 COMPARABLE COMPANIES SELECTED BY THE ASSESSEE COMPANY IN ITS TP DOCUMENTATION ON THE GROUND THAT THEIR C URRENT YEAR FINANCIAL DATA WAS NOT AVAILABLE. THE LEARNED TPO CONSIDERED A RE VISED SET OF 19 4 COMPANIES (I.E. 23 COMPANIES ORIGINALLY SELECTED BY THE ASSESSEE IN ITS TP DOCUMENTATION 4 COMPANIES REJECTED BY THE TPO) AN D ARRIVED AT A REVISED AVERAGE OP/TC MARGIN OF 30.94% USING THE CURRENT YE AR I.E. F.Y. 2004-05 DATA OF THE REMAINING 19 COMPARABLES. FOLLOWING AR E THE 4 COMPANIES IN RESPECT OF WHICH DATA OF CURRENT YEAR WAS NOT AVAIL ABLE AT THE TIME OF TRANSFER PRICING ASSESSMENT PROCEEDINGS:- 1. TATA SERVICES LTD. 2. B.N. KE SOLUTIONS PVT. LTD. 3. SAFFRON GLOBAL LTD. 4. SUPRAWIN TECHNOLOGIES LTD. 3. AFTER CONSIDERING 19 COMPARABLES THE TPO DETERM INED THE ARMS LENGTH PRICE OF THE TRANSACTION AT RS.1 21 11 070/- AS AGAINST THEIR BOOK VALUE OF RS.99 46 066/-. THUS THE TPO PROPOSED AN ADJUSTMENT OF RS.21 65 004/- TO THE PROVISION OF CORPORATE/SUPPOR T SERVICE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH THE ASSOCIATED EN TERPRISES. 4. ON AN APPEAL THE LEARNED CIT(A) RESTRICTED THE ADJUSTMENT OF RS.21 65 004/- TO RS.11 99 078/- THEREBY GIVING A RELIEF OF RS.9 65 926/- TO THE ASSESSEE. 5. HENCE BOTH THE ASSESSEE AS WELL AS THE DEPARTME NT IS IN APPEAL BEFORE US. 6. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE CIT(A)S ORDER IN CONFIRMING THE AOS ACTION IN MAKING ADJUSTMENT OF INTERNATIONAL 5 TRANSACTIONS TO THE EXTENT OF RS.11 99 078/- AND TH E DEPARTMENT IS IN APPEAL AGAINST THE CIT(A)S ORDER IN RESTRICTING THE ADJUS TMENT TO RS.11 99 078/- AS AGAINST RS.21 65 004/- SUGGESTED BY THE TPO. 7. IN THE COURSE OF HEARING OF THESE APPEALS THE A SSESSEE HAS SUBMITTED AN APPLICATION UNDER RULE 29 OF THE INCOME-TAX (APP ELLATE TRIBUNAL) RULES 1963 SEEKING PERMISSION TO FILE ADDITIONAL EVIDENCE S IN SUPPORT OF THE GROUNDS TAKEN IN THE APPEAL BY STATING AS UNDER:- MAY IT PLEASE YOUR HONOUR: 1. IN THE CAPTIONED APPEAL PREFERRED BY ASSESSEE AGAI NST THE ORDER DATED FEBRUARY 27 2009 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XX NEW DELHI [LD. CIT(A)] UNDER SECTION 250 OF THE INCOME-TAX ACT 1 961 THE APPELLANT HAS RAISED GROUNDS CHALLENGING THE INCLUS ION OF CERTAIN COMPANIES IN THE FINAL SET OF COMPARABLE CO MPANIES USED TO BENCHMARK THE PROVISION OF CORPORATE/SUPPOR T SERVICES BY THE APPELLANT. 2. IN THIS REGARD THE APPELLANT HUMBLY SUBMITS THAT T HE LD. CIT(A) WHILE OPINING ON THE COMPARABILITY OF T HE COMPANIES DID NOT CONSIDER CERTAIN MATERIAL INFORMA TION/ DOCUMENTS BECAUSE THE SAID INFORMATION / DOCUMENTS WERE NOT AVAILABLE IN THE PUBLIC DOMAIN OR PROWESS/CAPITALIN E DATABASES. 3. IN VIEW OF THE ABOVE THE APPELLANT BY WAY OF THIS APPLICATION SEEKS PERMISSION TO BRING THE SAID INFORMATION/DOCUMENTS ON RECORD AS AN ADDITIONAL EV IDENCE TO SUBSTANTIATE ITS CLAIM. 6 4. IT MAY APPRECIATED THE SAID ADDITIONAL EVIDENCE IS RELEVANT AND NECESSARY FOR THE PROPER DISPOSAL OF T HE ABOVE- REFERRED GROUND OF APPEAL AND HENCE THE APPELLANT NUMBLY REQUESTS THE HONBLE BENCH TO KINDLY CONSIDER THEM IN THE INTEREST OF SUBSTANTIAL JUSTICE. 5. CERTIFIED COPIES OF ANNUAL REPORTS/DATABASE EXTRACT S OF THE FOLLOWING COMPANIES ARE ENCLOSED: A) SUPRAWIN TECHNOLOGIES LIMITED (REFER PAGES 1 TO 20) B) SAFFRON GLOBAL LIMITED (REFER PAGES 21 TO 43) C) F1 SOFEX LIMITED (REFER PAGES 44 TO 65) 6. FURTHER IT IS ALSO SUBMITTED THAT THE RELEVANT DAT A IN RESPECT OF THE RELATED PARTY TRANSACTIONS OF AIRLIN E FINANCIAL SERVICES LIMITED WAS NOT AVAILABLE WITH THE CIT(A) DURING THE APPELLATE PROCEEDINGS. THE ANNUAL REPORT OF THIS CO MPANY CONTAINING DETAILS ON THE RELATED PARTY TRANSACTION S IS ATTACHED HEREWITH (REFER PAGES 66 TO 85) IN THE LIGHT OF THE AFORESAID SUBMISSION HONBLE B ENCH MAY WITH A VIEW TO ADVANCE THE CAUSE OF JUSTICE BE PLE ASED TO ADMIT THESE ADDITIONAL EVIDENCES TO THE PROCEEDINGS UNDER CONSIDERATION AND PASS SPECIFIC ORDER TO THAT EFFEC T IN THIS PRAYER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES ON THE ASSESSEES APPLICATION MADE UNDER RULE 29 OF THE IN COME-TAX (APPELLATE TRIBUNAL) RULES 1963. BY WAY OF THIS APPLICATION THE ASSESSEE HAS MADE A PRAYER TO ADMIT ADDITIONAL EVIDENCES IN THE FORMING OF ANNUAL REPORTS/DATA BASED EXTRACTS OF THE FOLLOWING COMPANIES WHICH WE RE NOT FOUND AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF SUBMITTING TRAN SFER PRICING STUDY OR AT 7 THE TIME WHEN THE TRANSFER PRICING ASSESSMENT WAS T AKEN BY THE LEARNED TPO:- (I) SUPRAWIN TECHNOLOGIES LIMITED (II) SAFFRON GLOBAL LIMITED (III) F1 SOFEX LIMITED. 9. FURTHER THE ASSESSEE HAS SUBMITTED THE DETAILS OF RELATED PARTY TRANSACTION OF ONE OF COMPARABLES NAMELY AIRLINE FINANCIAL LIMITED WHICH WAS NOT AVAILABLE WITH THE LEARNED CIT(A) DURING TH E FIRST APPELLATE PROCEEDINGS. 10. AFTER CONSIDERING THE ASSESSEES APPLICATION AN D KEEPING IN MIND THE FACT THAT THESE DETAILS NOW SUBMITTED BEFORE US WER E NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME WHEN TRANSFER PRICING STU DY WAS SUBMITTED BY THE ASSESSEE OR AT THE LATER STAGE WHEN TRANSFER PRICIN G ASSESSMENT PROCEEDINGS WERE TAKEN BY THE TPO AND HAVING REGARD TO THE FACT THAT THESE DOCUMENTS ARE ESSENTIAL FOR DETERMINING ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION EFFECTED BY THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION WE ARE INCLINED TO ADMIT THESE ADDITIONAL EVIDENCES FO R CONSIDERATION AND THESE ARE ACCORDINGLY ADMITTED FOR CONSIDERATION. SINCE THESE DOCUMENTS WERE NOT AVAILABLE BEFORE THE TPO AND THE TPO HAD NO OPPORTU NITY TO EXAMINE THE ANNUAL REPORT OR DATA BASE OF THE AFORESAID COMPANI ES WE FIND IT FIT THAT THE ISSUE INVOLVED IN THIS APPEAL BE FRESHLY DECIDED BY THE TPO AFTER PROVIDING 8 REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WHILE MAKING AFRESH TRANSFER PRICING ORDER THE TPO SHALL TAKE INTO ACC OUNT THE ANNUAL REPORTS OR DATABASE OF THE AFORESAID COMPANIES NOW SUBMITTED B EFORE US AND SHALL ALSO DECIDE THE POINT AS TO WHETHER ALL THE COMPARABLES SELECTED BY THE ASSESSEE ARE PROPER COMPARABLES FOR THE PURPOSE OF DETERMINI NG ARMS LENGTH PRICE AFTER CONSIDERING THE FOLLOWING FACTORS AS PER LAW: - (I) WHETHER THE COMPANIES HAVE LARGE VOLUME OF RELATED PARTY TRANSACTIONS. (II) WHETHER COMPANIES HAVE ABNORMALLY HIGH PROFITS OR L OSSES. (III) WHETHER COMPANIES HAVE GONE FOR BUSINESS RE-STRUCTU RING. (IV) WHETHER COMPANIES HAVE SHOWN HIGH GROWTH. (V) WHETHER COMPANIES ARE HAVING HIGH TURNOVER. (VI) WHETHER COMPANIES ARE HAVING LARGER INVENTORY. (VII) WHETHER COMPANIES ARE HAVING HIGH MARKETING EXPENSE S. 11. WE FURTHER ORDER THAT THE MATTER SHALL BE DECID ED AFRESH AS PER LAW AND AFTER PROVIDING REASONABLE OPPORTUNITY TO THE ASSES SEE. THE ASSESSING OFFICER SHALL MADE A REFERENCE TO THE TPO IN RESPEC T OF THE MATTERS INVOLVED IN THIS APPEAL TO PASS AFRESH ORDER AFTER CONSIDERI NG ALL THE COMPARABLES IN THE LIGHT OF THE VARIOUS PARAMETERS LAID DOWN BY TH E VARIOUS COURTS FROM TIME TO TIME. THE ASSESSEE SHALL BE UNDER AN OBLIGATION TO FURNISH ALL THESE DETAILS THAT HAVE BEEN SUBMITTED BEFORE US BEFORE THE TPO TO ENABLE HIM TO 9 CONSIDER THEM FOR HIS DECISION. THIS UNDERSTANDING WAS GIVEN AT THE TIME WHEN THE HEARING OF THESE APPEALS HAD TAKEN PLACE. WE ORDER ACCORDINGLY. 12. IN THE RESULT BOTH THE APPEALS FILED BY THE RE VENUE AND THE ASSESSEE ARE TREATED TO BE ALLOWED FOR STATISTICAL PURPOSES. 13. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 7 TH JANUARY 2011. SD/- SD/- (G.E. VEERABHADRAPPA) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 7 TH JANUARY 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.