ACIT, Circle-16(2), Hyd, Hyderabad v. Progress Software Development Pvt.ltd., Hyd, Hyderabad

ITA 347/HYD/2015 | 2010-2011
Pronouncement Date: 15-03-2021 | Result: Dismissed

Appeal Details

RSA Number 34722514 RSA 2015
Assessee PAN AADCP4833A
Bench Hyderabad
Appeal Number ITA 347/HYD/2015
Duration Of Justice 5 year(s) 11 month(s) 9 day(s)
Appellant ACIT, Circle-16(2), Hyd, Hyderabad
Respondent Progress Software Development Pvt.ltd., Hyd, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 15-03-2021
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB-A
Tribunal Order Date 15-03-2021
Date Of Final Hearing 04-02-2021
Next Hearing Date 04-02-2021
Last Hearing Date 05-06-2018
First Hearing Date 05-12-2017
Assessment Year 2010-2011
Appeal Filed On 06-04-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 347/HYD/15 2010-11 DY.COMMISSIONER OF INCOME TAX CIRCLE-16(2) HYDERABAD M/S. PROGRESS SOFTWARE DEVELOPMENT PRIVATE LIMITED HYDERABAD [PAN: AADCP4833A] 391/HYD/15 M/S. PROGRESS SOFTWARE DEVELOPMENT PRIVATE LIMITED HYDERABAD [PAN: AADCP4833A] ASST. COMMISSIONER OF INCOME TAX CIRCLE-16(2) HYDERABAD FOR ASSESSEE : SHRI MAHAVEER JAIN AR FOR REVENUE : SHRI SIBENDU MOHARANA DR DATE OF HEARING : 04-02-2021 DATE OF PRONOUNCEMENT : 15-03-2021 O R D E R PER BENCH : THESE REVENUES AND ASSESSEES CROSS-APPEALS FOR AY.2010-11 ARISE FROM ACIT CIRCLE-16(2) HYDERABAD S ASSESSMENT DT.02-02-2014 FRAMED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANEL DRP HYDERABADS DIRECTION S DT.24-12-2014 INVOLVING PROCEEDINGS U/S.143(3) R.W.S .92CA(3) R.W.S.144C(5) OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. HEARD BOTH THE PARTIES. CASE FILES PERUSED. ITA NOS. 347 & 391/HYD/2015 :- 2 -: 2. A PERUSAL OF THE RIVAL PLEADINGS INDICATES THAT THE REVENUES TWIN SUBSTANTIVE GROUNDS IN ITS APPEAL ITA NO.347/HYD/2015 SEEK TO REVERSE THE DRPS DIRECTIONS EXCLUDING M/S. MIND TREE LTD. FROM THE ARRAY OF COM PARABLES IN ASSESSEES LINE OF SOFTWARE DEVELOPMENT BUSINESS INVOLVING INTERNATIONAL TRANSACTIONS WITH ITS OVERSEAS ASSOCIATED ENTERPRISE (AE) AND ALSO DIRECTING THE TRANSFER PRICIN G OFFICER (TPO) TO ASCERTAIN THE LIBOR RATE FOR 12 MONTHS IN THE PERIOD PREVAILING IN FY.2009-10 AND ADOPT LIBOR+2% FOR INTE REST PAYABLE ON LOANS TAKEN FROM THE SAID AES. 3. THE ASSESSEES APPEAL ITA NO.391/HYD/2015 HAS RA ISED THE FOLLOWING MULTIPLE SUBSTANTIVE GROUNDS: 1.THE LEARNED TPO HAS ERRED IN SELECTING E-INFOCHI PS BANGALORE LTD AS A COMPARABLE COMPANY TO THE APPELLANT. 2.THE LEARNED TPO HAS ERRED IN SELECTING KALS INFOR MATION SYSTEMS LTD (SEG) AS A COMPARABLE COMPANY TO THE APPELLANT. 3.THE LEARNED TPO HAS ERRED IN SELECTING COMP-U-LEA RN TECH INDIA LTD AS A COMPARABLE COMPANY TO THE APPELLANT. 4.THE LEARNED TPO HAS ERRED IN SELECTING PERSISTENT SYSTEMS LTD AS A COMPARABLE COMPANY TO THE APPELLANT. 5.THE LEARNED TPO HAS ERRED IN SELECTING SASKEN COM MUNICATION TECHNOLOGIES LTD AS A COMPARABLE COMPANY TO THE APP ELLANT. 6.THE LEARNED TPO HAS ERRED BY NOT ACCEPTING CG-VAK SOFTWARE & EXPORTS LTD (SEGMENTAL) AS A COMPARABLE COMPANY TO THE APPELLANT. 7.THE LEARNED TPO HAS ERRED BY NOT ACCEPTING QUINTE GRA SOLUTIONS LIMITED AS A COMPARABLE COMPANY TO THE APPELLANT. 8.THE LEARNED TPO GROSSLY ERRED BY ACCEPTING THE CO MPARABLE COMPANIES HAVING ABNORMAL/HIGH PROFITS ON ONE HAND AND ON THE OTHER HAND REMOVING PERSISTENT LOSS-MAKING COMPANIE S AND THE HON'BLE DRP HAS ERRED IN CONFIRMING THE SAME. 9.THE LEARNED TPO HAS ERRED BY CONSIDERING BAD DEBT S AS NON- OPERATING EXPENSES; THEREBY ERRED IN THE COMPUTATIO N OF COMPARABLE COMPANIES MARGIN. ITA NOS. 347 & 391/HYD/2015 :- 3 -: 10.THE LEARNED TPO HAS GROSSLY ERRED BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS--VIS THE COMPARABLES AND IN DOING SO HE HAS FAILED TO FOLLOW THE DIRECTIONS GIVEN BY THE HON'BLE DRP. 11.THE LEARNED TPO HAS GROSSLY ERRED BY CHARGING NO TIONAL INTEREST ON DELAYED RECEIPT FROM ASSOCIATED ENTERPRISE AND H ON'BLE DRP HAS ERRED IN UPHOLDING THE SAME. 12.THE LEARNED TPO HAS GROSSLY ERRED BY NOT APPRECI ATING THAT INTEREST PAID ON LOAN BORROWED FROM ASSOCIATED ENTE RPRISE ARE AT ARMS LENGTH AND THE HON'BLE DRP HAS ERRED IN UPHOL DING THE SAME. 4. LEARNED COUNSEL REPRESENTING THE ASSESSEE IS FAIR ENOUGH IN NOT PRESSING FOR ITS THIRD FIFTH TO TENTH SUBSTANTIVE GROUNDS AT THIS STAGE. THE SAID GROUNDS STAND REJECTED THEREFORE AS NOT PRESSED THEREFORE. 5. WE PROCEED FURTHER AND NOTICE THAT THE FIRST AND FORE MOST COMMON ISSUE IN VIEW OF THESE CROSS-APPEALS IS THAT OF ALLEGED WRONGFUL ALLEGED EXCLUSION/INCLUSION OF M/S.MIND TR EE LTD. (AT REVENUES BEHEST) AND INCLUSION OF M/S.E-INFOCHI PS BANGALORE LTD. KALS INFORMATION SYSTEMS LTD. AND PERSISTENT SYSTEMS LTD. (ASSESSEES CASE); RESPECTIVELY. 6. WE DEEM IT APPROPRIATE TO OBSERVE AT THIS STAGE THAT THER E IS NO DISPUTE BETWEEN THE PARTIES ABOUT THE ASSESSEE BE ING ENGAGED IN SOFTWARE DEVELOPMENT BUSINESS HAVING CARR IED OUT THE CORRESPONDING INTERNATIONAL TRANSACTIONS WITH ITS OV ERSEAS AE(S) THEREBY DISCLOSING NET COST + MARGIN OF 17.18%. IT IS THUS PURELY AN ISSUE OF THE ALLEGED WRONGFUL EXCLUSION AN D INCLUSION OF COMPARABLE ENTITIES ONLY. 7. COMING TO THE REVENUES GRIEVANCE SEEKING INCLUSIO N OF M/S.MIND TREE LTD. WE NOTICE THAT THE DRP HAS ACCEPTED THE ASSESSEES OBJECTIONS IN PARA 8 PAGE 4 THAT THIS ENTITY HAD ITA NOS. 347 & 391/HYD/2015 :- 4 -: SEEN EXTRAORDINARY EVENTS IN THE FORM OF STRATEGIC ACQUI SITION AMALGAMATION AND DISSOLUTION OF SUBSIDIARY DURING THE RELEVANT FY.2009-10. AND ALSO THAT THIS ENTITY IS FUN CTIONALLY NOT SIMILAR SINCE CARRYING OUT INTENSIVE RESEARCH AND DEVELOPMENT PROVIDING INNOVATIVE SOLUTIONS. THIS EN TITY HAD INTANGIBLE ASSETS AS PATENTS AS WELL OVER A PERIOD OF Y EARS. WE THUS HOLD IN THIS FACTUAL BACKDROP THAT THE LEARNED PANEL HAS RIGHTLY DIRECTED EXCLUSION OF M/S.MINDTREE SINCE LACK ING NOT ONLY THE RELIABLE FUNCTIONAL SIMILARITY BUT ALSO HAV ING EXTRAORDINARY EVENTS IN THE RELEVANT TIME SPAN IN FY.20 09-10. WE THEREFORE SEE NO REASON TO ACCEPT THE REVENUES INSTA NT GROUND. THE SAME STANDS REJECTED. 8. WE NEXT ADVERT TO THE ASSESSEES THREE FOLDED PLEADIN GS SEEKING EXCLUSION OF M/S.E-INFOCHIPS BANGALORE LTD. KALS INFORMATION SYSTEMS AND PERSISTENT SYSTEMS P. LTD. FROM THE ARRAY OF COMPARABLES. IT TRANSPIRES AT THE OUTSET THAT THIS TRIBUNALS CO-ORDINATE BENCHS ORDER IN M/S.PEGASYSTEM S WORLDWIDE INDIA PVT. LTD. VS. ACIT ITA NOS.1758 & 1936/HYD/2014 HAS ALREADY HELD IN THE VERY ASSESSMEN T YEAR I.E. AY.2010-11 THAT FORMER TWIN ENTITIES ARE NOT FUN CTIONALLY SIMILAR IN SOFTWARE DEVELOPMENT ACTIVITY; AND THEREFOR E ARE NOT TO BE TAKEN AS VALID COMPARABLES. THE VERY CONCLUSIO N STANDS REITERATED IN M/S.PAREXEL INTERNATIONAL (INDIA) PVT. L TD. VS. ACIT IN ITA NO.1918/HYD/2014 AND FISERV INDIA PVT. LTD. VS. DCIT IN ITA NO.6737/DEL/2014; BOTH INVOLVING THE VERY AY.2010-11. THE SAME APPEARS TO BE THE FACTUAL POSITIO N REGARDING M/S.PERSISTENT SYSTEMS LTD. WHEREIN THIS TRI BUNALS YET ANOTHER CO-ORDINATE BENCHS DECISION IN 3DPLM SOFT WARE SOLUTIONS LTD. VS. DCIT IT (TP)A NO.1303/BANG/2012 HOLDS ITA NOS. 347 & 391/HYD/2015 :- 5 -: THAT IT WAS ENGAGED IN OUTSOURCED PRODUCT DEVELOPMENTAL ACTIVITIES AND COULD NOT BE TAKEN AS A VALID COMPARABLE . WE THUS DECLINE THE REVENUES ARGUMENTS FOR ALL THESE REAS ONS AND HOLD M/S.PERSISTENT SYSTEMS LTD. AS NOT A VALID COMPARABLE IN ASSESSEES LINE OF BUSINESS OF INTERNA TIONAL TRANSACTIONS IN THE RELEVANT PREVIOUS YEAR. THE SAME IS DIRECTED TO EXCLUDED THEREFORE. 9. NEXT COMES THE REVENUES SECOND AND ASSESSEES 10 TH TO 12 TH SUBSTANTIVE GROUNDS RAISING THE COMMON ISSUE OF INTER EST OF RECEIVABLES. THE DRPS DIRECTIONS IN PGS.4 AND 5 TAKE NOTE OF THE TPOS OBSERVATIONS HAVING MERELY PROPOSED TO CH ARGE INTEREST @12% P.A. REGARDING THE RECEIVABLES EXCEEDIN G THE CREDIT PERIOD OF 30 DAYS. SUFFICE TO SAY THE DRP HAS ADMITTEDLY DIRECTED THE TPO TO ASCERTAIN LIBOR RATE FOR 12 MONTHS IN FY.2009-10 WITHOUT EVEN INDICATING THE CORRESPONDING COMPARABLES IN THE RELEVANT SEGMENT INV OLVING THE RECEIVABLES IN ISSUE. WE MAKE IT CLEAR THAT CHAPTE R-X IN THE ACT IS A SPECIAL PROVISION WHEREIN EACH AND EVERY UPWARD AND DOWNWARD ADJUSTMENT OUGHT TO BE MADE AFTER ANALYSING THE ARRAY OF COMPARABLES IN THE VERY SEGMENT THAN BASED ON MERE PROPOSAL LACKING ANY UNCONTROLLED TRANSACTIONS INFORMATION. WE THUS DEEM IT PROPER TO DELETE THE IMPUGN ED ARMS LENGTH PRICE OF RS.18 10 432/- FOR THIS PRECIS E REASON ALONE. THE ASSESSEE SUCCEEDS IN ITS 10 TO 12 SUBSTANTI VE GROUNDS AND THE REVENUES CORRESPONDING SECOND SUBSTA NTIVE GROUND IS DECLINED. NECESSARY COMPUTATION TO FOLLOW AS PER LAW. ITA NOS. 347 & 391/HYD/2015 :- 6 -: 10. THE REVENUES APPEAL ITA NO.347/HYD/2015 IS DISMISSED AND ASSESSEES CROSS APPEAL ITA NO.391/HY D/2015 IS PARTLY ACCEPTED IN ABOVE TERMS. A COPY OF THIS COMMO N ORDER BE PLACED IN THE RESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD DATED: 15-03-2021 TNMM ITA NOS. 347 & 391/HYD/2015 :- 7 -: COPY TO : 1.M/S.PROGRESS SOFTWARE DEVELOPMENT PVT. LTD. 4 TH FLOOR NO.18 1 LABS CENTRE #8 SOFTWARE UNIT LAYOUT MAD HAPUR HYDERABAD. 2.THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-16( 2) HYDERABAD. 3. THE ASST.COMMISSIONER OF INCOME TAX CIRCLE-16(2 ) HYDERABAD. 4.DISPUTE RESOLUTION PANEL (DRP) HYDERABAD. 5.DIRECTOR OF INCOME TAX (IT & TP) HYDERABAD. 6.ADDL.COMMISSIONER OF INCOME TAX (TRANSFER PRICING ) HYDERABAD. 7.D.R. ITAT HYDERABAD. 8.GUARD FILE.