ACIT, New Delhi v. M/s Convergys India Service (P) Ltd.,, New Delhi

ITA 4291/DEL/2009 | 2004-2005
Pronouncement Date: 28-11-2014 | Result: Allowed

Appeal Details

RSA Number 429120114 RSA 2009
Assessee PAN AABCC5056G
Bench Delhi
Appeal Number ITA 4291/DEL/2009
Duration Of Justice 5 year(s) 22 day(s)
Appellant ACIT, New Delhi
Respondent M/s Convergys India Service (P) Ltd.,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Department
Order Result Allowed
Bench Allotted I
Tribunal Order Date 28-11-2014
Date Of Final Hearing 26-11-2014
Next Hearing Date 26-11-2014
Assessment Year 2004-2005
Appeal Filed On 06-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL AM AND SHRI I.C. SUDHIR JM ITA NO.4291/DEL/2009 ASSESSMENT YEAR : 2004-05 ACIT CIRCLE 3(1) CR BUILDING NEW DELHI. VS. CONVERGYS INDIA SERVICE (P) LTD. P-22 1 ST FLOOR SOUTH EXTN PART II NEW DELHI. PAN : AABCC5056G CO NO.14/DEL/2014 (ITA NO.4291/DEL/2009) ASSESSMENT YEAR : 2004-05 CONVERGYS INDIA SERVICE (P) LTD. BESTECH BUSINESS TOWERS SOHNA ROAD SECTOR 48 GURGAON. PAN : AABCC5056G VS. ACIT CIRCLE 3(1) CR BUILDING NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI PAWAN KUMAR & SHRI ROHIT TIWARI CAS DEPARTMENT BY : S HRI PIYUSH JAIN CIT DR ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 2 ORDER PER R.S. SYAL AM: THIS APPEAL FILED BY THE REVENUE AND THE CROSS OBJE CTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 14.9.2009 IN RELATION TO THE ASSESSMENT YEAR 2004-0 5. 2. THE FIRST GROUND OF THE REVENUES APPEAL IS AGAI NST THE REJECTION OF COMPARABLES ON THE GROUND OF RELATED PARTY TRANS ACTIONS. HERE IT IS RELEVANT TO MENTION THAT THE REVENUE HAS ALSO TA KEN AN ADDITIONAL GROUND WHICH IS RELEVANT FOR BOTH ITS GROUNDS READ ING AS UNDER:- THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DE LETING THE ADDITION ON ACCOUNT OF ARMS LENGTH PRICE BY ENTERTAINING ADDITIONAL EVIDENCES FILED BY THE ASSE SSEE WITHOUT REFERRING THE SAME TO THE AO FOR VERIFICATI ON IN CONTRAVENTION OF PROVISIONS OF SUB-SECTION (3) OF R ULE 46A. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF CONVERGYS CUSTOMER MANAG EMENT GROUP INC. USA (CMG). IT IS ENGAGED IN PROVIDING IT ENA BLED BACK OFFICE SUPPORT SERVICES ONLY TO CMG. CERTAIN INTERNATIONA L TRANSACTIONS WERE REPORTED BY THE ASSESSEE. THE TRANSACTIONAL N ET MARGIN METHOD (TNMM) WAS APPLIED TO BENCHMARK THE INTERNAT IONAL TRANSACTIONS WITH PROFIT LEVEL INDICATOR (PLI) OF O P/TC. CERTAIN ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 3 COMPANIES WERE CHOSEN AS COMPARABLE. THE TPO EXCLU DED SOME COMPANIES AND EVENTUALLY PROPOSED ADDITION ON ACCOU NT OF TRANSFER PRICING ADJUSTMENT TO THE TUNE OF `27 58 30 556/-. THE LD. CIT(A) MADE CERTAIN ALTERATIONS BY ORDERING TO EXCLUDE SOM E COMPANIES FROM THE LIST OF COMPARABLES. THE DEPARTMENT IN ITS GROUND IS AGGRIEVED ONLY QUA THE EXCLUSION OF THREE COMPANIES FROM THE LIST OF COMPARABLES BECAUSE OF THEIR RELATED PARTY TRANSACT IONS (RPTS) BEING IN EXCESS OF 25%. THESE THREE COMPANIES ARE DATAMA TICS TECHNOLOGIES LTD. (WITH RPTS 34%) HINDUJA TMT LT D. (RPTS 39%) AND MUKAND ENGINEERS LTD. (RPT 45%). THE GRIEVANCE OF THE REVENUE IS CONFINED ONLY AGAINST THE EXCLUSION OF T HESE THREE COMPANIES FROM THE LIST OF COMPARABLES ON THE BASIS OF RELATED PARTY TRANSACTIONS AND ALSO AGAINST THE ACCEPTANCE OF ADD ITIONAL EVIDENCE BY THE LD. CIT(A) WITHOUT CONFRONTING IT TO THE TPO AS PER RULE 46A OF IT RULES 1962. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE PRINCIPAL QUESTION ABOUT T HE EXCLUSION OF COMPANIES WITH MORE THAN 25% RPTS FROM THE LIST OF COMPARABLES ON ACCOUNT OF THESE BECOMING CONTROLLED TRANSACTIONS HAS BEEN FAIRLY DECIDED BY VARIOUS BENCHES OF THE TRIBUNAL. IT HAS BEEN HELD BY THE ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 4 DELHI BENCH OF THE TRIBUNAL IN AGILENT TECHNOLOGIES INTERNATIONAL PVT. LTD. VS. ACIT (2013) 36 CCH 187 (DEL) (TRIB.) THAT A POTENTIAL COMPARABLE HAVING MORE THAN 25% OF THE RELATED PART Y TRANSACTIONS IS TO BE IGNORED. SIMILAR VIEW HAS BEEN TAKEN IN ACTIS ADVISORS PVT. LTD. VS. DCIT (2012) 20 ITR (TRIB.) 138 (DEL) . RECENTLY THE SAME VIEW HAS BEEN REITERATED IN NOKIA INDIA PVT. LTD. VS. DCIT (2013)-TIL-224- ITAT-DEL-TP. IN VIEW OF THE ABOVE DECISIONS WE DO NOT FIND AN Y INFIRMITY IN THE REASONING GIVEN BY THE LD. CIT(A) FOR THE EXCLUSION OF COMPANIES ON THE BASIS OF RELATED PARTY TRANSACTION S OF MORE THAN 25%. 5. THE LD. DR CONTENDED THAT THE LD. CIT(A) ACCEPTE D THE ABOVE PERCENTAGE OF RELATED PARTY TRANSACTIONS IN RESPECT OF THESE THREE COMPANIES WITHOUT CONFRONTING IT TO THE TPO. IT CA N BE SEEN FROM THE ASSESSEES LETTER DATED 26.10.2006 ADDRESSED TO THE TPO A COPY OF WHICH IS AVAILABLE AT PAGES 205 ONWARDS OF THE PAPE R BOOK THAT THE ASSESSEE SUBMITTED COMPUTATION OF RELATED PARTY TRA NSACTIONS AT MORE THAN 25% IN RESPECT OF DATAMATICS TECHNOLOGIES LTD. AND HINDUJA TMT LTD. SINCE THE DETAILS ABOUT THE COMPU TATION OF RPTS BEING MORE THAN 25% IN THESE TWO COMPANIES WERE FI LED BY THE ASSESSEE BEFORE THE TPO WHICH HAVE NOT BEEN ADVERS ELY ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 5 COMMENTED WE DO NOT FIND ANY REASON ON THE PART OF THE LD. CIT(A) IN NOT ACCEPTING SUCH CALCULATION WHICH WAS MADE BEFOR E THE TPO HIMSELF. WE THEREFORE UPHOLD THE EXCLUSION OF TH ESE TWO COMPANIES. 6. AS REGARDS THE THIRD COMPANY NAMELY MUKAND ENGINEERS LTD. IN RESPECT OF WHICH THE LD. CIT(A) ACCEPTED THE RPTS A T 45% THE LD. AR CANDIDLY ACCEPTED THAT THE CALCULATION OF SUCH PERC ENTAGE OF RPT WAS NOT BEFORE THE TPO AND THE SAME WAS FILED BEFORE TH E LD.CIT(A) FOR THE FIRST TIME. THIS CALCULATION ON THE BASIS OF THE ANNUAL ACCOUNTS OF MUKAND ENGINEERS LTD. IN OUR CONSIDERED OPINION C ONSTITUTES AN ADDITIONAL EVIDENCE. THE LD. CIT(A) WAS REQUIRED T O SEEK THE COMMENTS OF THE TPO BEFORE ACCEPTING THE CORRECTNES S OF THE PERCENTAGE OF RELATED PARTY TRANSACTIONS AS CALCULA TED BY THE ASSESSEE. WE THEREFORE SET ASIDE THE IMPUGNED ORD ER ON THIS ISSUE AND SEND THE MATTER TO THE AO/TPO FOR VERIFYING THE CORRECTNESS OF THE PERCENTAGE OF THE RPTS OF THIS COMPANY AS PER L AW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. IF SUCH COMPUTATION SHOWS RPTS AT LESS THAN 25% THEN THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. IN THE OTH ERWISE SITUATION THE VIEW TAKEN BY THE LD. CIT(A) IN EXCLUDING IT FROM T HE LIST OF COMPARABLES BE UPHELD. ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 6 7. THE SECOND GROUND TAKEN BY THE DEPARTMENT IS AGA INST THE INCLUSION OF WEAL INFOTECH LTD. BY THE LD. CIT(A) IN THE LIST OF COMPARABLES. ON THIS SCORE WE FIND THAT THE ASSES SEE INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES BUT DUE TO THE ABSENCE OF THE RELEVANT ANNUAL ACCOUNTS THE WORKING OF OP/TC OF T HIS COMPANY WAS NOT CALCULATED. ACCORDINGLY THIS CASE WAS INCLUDE D IN THE LIST OF COMPARABLES WITH THE REMARKS NA AGAINST THE COLUM N OP/TC MARGIN. THE ASSESSEE SUBMITTED THE DATA IN RESPECT OF THIS COMPANY BEFORE THE LD. CIT(A) WHICH CAME IN PUBLIC DOMAIN LATER O N. SUCH DATA WAS CONSIDERED BY THE LD. CIT(A) FOR THE PURPOSES OF CA LCULATION OF ARITHMETIC MEAN OF THE COMPARABLE COMPANIES. ON TH IS SCORE WE FIND THAT THE REVENUE IS AGGRIEVED AGAINST THE ACCE PTANCE OF ADDITIONAL EVIDENCE IN RESPECT OF THIS COMPANY IN V IOLATION OF RULE 46A. 8. THERE ARE TWO ASPECTS OF THIS ISSUE. FIRST IS THE QUESTION OF THE VERY INCLUSION OF THIS COMPANY IN THE LIST OF COMPA RABLES AND THE SECOND IS ABOUT THE CALCULATION OF ITS PROFIT MARGI N. AS REGARDS THE FIRST ISSUE WE DO NOT FIND ANY REASON TO DISTURB T HE VIEW OF THE LD. CIT(A) BECAUSE THE ASSESSEE INCLUDED IT IN THE LIS T OF COMPARABLES IN ITS TRANSFER PRICING STUDY. THE VERY COMPARABILITY OF THIS COMPANY ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 7 WAS NOT DISPUTED BY THE TPO. IN THAT VIEW OF THE MA TTER THE LD. CIT(A) CANNOT BE FAULTED WITH FOR DIRECTING TO INCLUDE THE DATA OF A COMPANY IN THE LIST OF COMPARABLES WHICH WAS ORIGINALLY IN CLUDED BY THE ASSESSEE AND NOT OBJECTED TO BY THE TPO. AS REGARDS THE SECOND ASPECT OF THE COMPUTATION OF THE PROFIT MARGIN OF T HIS COMPANY WE FIND THAT THE LD. CIT(A) ACCEPTED THE DATA FURNISHE D BY THE ASSESSEE OF THIS COMPANY AND PROCEEDED TO INCLUDE THE SAME I N THE LIST OF COMPARABLES WITHOUT AFFORDING ANY OPPORTUNITY TO TH E TPO FOR EXAMINING THE SAME. WE THEREFORE FIND THAT THE RE IS VIOLATION OF RULE 46A TO THIS EXTENT. ACCORDINGLY WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND SEND THE MATTER BACK TO THE AO/TP O FOR VERIFYING THE CORRECTNESS OF THE CALCULATION OF OP/TC OF THIS COMPANY FOR THE PURPOSES OF CALCULATING ARITHMETIC MEAN OF PLI OF T HE COMPARABLE COMPANIES. 9. THE ONLY ISSUE RAISED BY THE ASSESSEE IN ITS CRO SS OBJECTION IS ABOUT THE EXCLUSION OF TRICOM INDIA LTD. FROM THE LIST OF COMPARABLES. NO OTHER ISSUE TAKEN IN THE CROSS OBJECTION WAS PR ESSED BY THE LD. AR. ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 8 10. AS REGARDS TRICOM INDIA LTD. IT IS SEEN THAT T HE ASSESSEE INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. THE STATED- INADVERTENT INCLUSION OF THIS COMPANY WAS NEITHER C HALLENGED BEFORE THE TPO NOR BEFORE THE LD. CIT(A). IT IS FOR THE F IRST TIME THAT THE ASSESSEE HAS CHALLENGED THE INCLUSION OF THIS COMPA NY BEFORE US ON ACCOUNT OF HIGH ABNORMAL PROFIT. THE LD. DR OBJECT ED TO THE ACTION OF THE ASSESSEE IN NOW CONTENDING BEFORE THE TRIBUNAL FOR THE FIRST TIME TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S WHICH WAS VOLUNTARILY INCLUDED. IN OUR CONSIDERED OPINION T HIS CONTENTION DESERVES TO BE REJECTED. JUST LIKE A SITUATION IN WHICH THE ASSESSEE CHOOSES A COMPANY AS COMPARABLE WHICH CAN BE EXCLUD ED BY THE TPO ON FINDING IT AS INCOMPARABLE THERE CAN BE NO FETTERS ON THE ASSESSEE REQUESTING FOR THE EXCLUSION OF A COMPANY ORIGINALLY CONSIDERED BY IT AS COMPARABLE BY INADVERTENCE. AFT ER ALL IT IS FOR THE TPO TO EXAMINE AND EVALUATE SUCH CONTENTION AND DEC IDE ABOUT ITS COMPARABILITY ON MERITS. TO FORECLOSE THE RAISING OF SUCH A CONTENTION BY THE ASSESSEE FOR FURTHER APPRAISAL AT THE TPOS END IS IMPERMISSIBLE. THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF DCIT VS. QUARK SYSTEMS PVT. LD. (2010) 132 TTJ (CHD) (SB ) HAS ALLOWED THE ASSESSEE TO CLAIM EXCLUSION OF CERTAIN COMPANIES FR OM THE LIST OF ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 9 COMPARABLES WHICH WERE INADVERTENTLY INCLUDED BY I T IN ITS TRANSFER PRICING STUDY. WE THEREFORE REJECT THIS FOUNDATI ONAL ARGUMENT RAISED ON BEHALF OF THE ASSESSEE. 11. ON THE MERITS WE REMIT THE MATTER TO THE F ILE OF TPO/AO FOR EXAMINING THE ASSESSEES CONTENTION THAT THE HIGH P ROFIT OF THIS COMPANY WAS DUE TO ABNORMAL CIRCUMSTANCES. HERE WE WANT TO MAKE IT CLEAR THAT A POTENTIAL COMPARABLE CANNOT BE EXCLUDED SIMPLY ON THE GROUND OF HIGH PROFIT RATE UNLESS IT IS CON CLUSIVELY SHOWN THAT SUCH HIGHER PROFIT WAS THE RESULT OF SOME ABNORMAL CONDITIONS PREVAILING IN THAT CASE ALONE. NEEDLESS TO SAY THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN THIS REGARD. 12. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.11.201 4. SD/- SD/- [ I.C. SUDHIR ] [ R.S. SYAL ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 28 TH NOVEMBER 2014. ITA NO.4291/DEL/2009 CO NO.14/DEL/2014 10 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT AR ITAT NEW DELHI.