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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
O R D E R PER PRASHANT MAHARISHI, AM:
This appeal is filed by assessee against the assessment order passed by the Dy. Commissioner of Income Tax, 3(3), Mumbai (the learned Assessing Officer) under Section 143(3) read with section 144C(13) of the Income- tax Act, 1961 (the Act) dated 13th January, 2014, wherein the assessee has raised following grounds of appeal:-
“Based on the facts and circumstances of the case, SAS institute (India) Private Limited (Appellant respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income Tax Circle 331, Mumbai (learned AO) under section 1400) read with section 144C) of Income-tax On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO have Grounds of appeal pertaining to transfer pricing adjustment;
1. Inappropriate transfer pricing adjustment amounting to Rs 14,67,22,782 even though the pricing of all international transactions of the Appellant was at arm's length.
Erred in making confirming the transfer pricing adjustment to the international transactions of the Appellant pertaining to software licensing revenue segment Le royalty and software licensing revenue sharing transactions and concluding that the value of the said international transactions is not at arm's length
2. Inappropriate nun acceptance of the approach and analysis provided by the Appellant in transfer pricing study report
Erred by not accepting the approach and analysis undertaken provided by the Appellant, in its transfer pricing study report for benchmarking its
3. Inappropriately not considering the fact that losses are not on account of transfer price
Erred by making transfer pricing adjustment without considering the commercial reasons for losses to the Appellant Le due to external factors
4. Inappropriately rejecting comparable uncontrolled price method (CUP) and using transactional net margin method (TNMM") for benchmarking royalty transaction
Erred by not considering CUP as the most appropriate method adopted by the Appellant for benchmarking its international transaction pertaining to payment of royalty and inappropriately adopting TNMM as the most appropriate method
5. Inappropriately considering functionally different companies as comparable for benchmarking royalty and software licensing revenue sharing transactions
Without prejudice to the above grounds of appeal, erred by concluding that companies engaged in rendering technical support services are comparable to the Appellant for benchmarking the international transactions pertaining to payment of royalty and software licensing revenue sharing.
Without prejudice to the above grounds of appeal, erred by not considering comparable companies engaged in software distribution services provided by the Appellant for benchmarking the software licensing revenue segment i.e. royalty and software licensing revenue sharing transactions.
7. Inappropriate use of single year and non- contemporaneous financial data of comparable companies for transfer pricing analysis
Erred in considering the operating margins on operating revenue of the comparable companies based on the financial data pertaining only to financial year ended 31 March 2009 and rejecting use of financial data of comparable companies for multiple i.e. including 31 March 2008 and 31 March 2007.
Further, erred in computing the arm's length price using the financial information of comparable companies available at the time of assessment proceedings, although such information was not available at the time when the Appellant complied with the transfer pricing regulations.
8. Inappropriate computation of transfer pricing adjustment on the total revenue of the Appellant from software licensing revenue segment instead of only on the value of international transactions
Inappropriately not considering the operating margins of the Appellant based on the income offered and expenses claimed in the return of income
Erred by not considering the operating margins of the Appellant from software licensing revenue segment based on the income offered and expenses claimed in the return of income after negating the impact of deferral of royalty and software licensing revenue sharing transactions.
Other Grounds of appeal:
Non grant of tax deducted at source ('TDS') credit of Rs 1,04,54,206
Erred in granting credit for TDS at Rs 4,14,68,631 instead of Rs 5,19,22,837 and consequentially erroneously levying interest under section 234B of the Act.
Erroneous levy of interest under section 234B of the Act
Without prejudice to the above grounds of appeal, even if the transfer pricing adjustment is sustained, the learned AO has erred in levying
12. Erroneous levy of penalty under section 271(1)(c) of the Act
Without prejudice to the above grounds of appeal even if the transfer pricing adjustment is sustained, the learned AO has erred in proposing to levy penalty under section 271(1)(c) of the Act, without considering the fact that adjustment to transfer price is just on account of difference of opinion which has consequently resulted in an adjustment to income.”
The brief facts of the case shows that assessee is a company engaged in the business of software products and consultancy, filed its return of income on 30th September, 2009, declared total income of ₹10,86,16,530/-. The book profit under Section 115JB of the Act was also shown at ₹3,33,10,219/-. The return of income was picked up for scrutiny.
3. As the assessee has entered into certain international transaction with its Associated Enterprises reference under Section 92CA(1) of the Act was made to the learned Transfer Pricing Officer being Dy. Commissioner of Income
Based on this, the draft assessment order was passed on 25th February, 2013, determining the total income of the assessee at ₹25,53,39,310/-, against the return of income of ₹10,86,16,530/-. The assessee preferred an objection before the learned Dispute Resolution Panel-2, Mumbai, who passed direction on 29th November, 2013. The assessee pleaded that the transaction by transaction approach adopted by the assessee in its transfer pricing study report has been wrongly rejected by the learned Transfer Pricing Officer. The learned Dispute Resolution
Though the assessee has raised 12 grounds of appeal, but in substance it is stated that, the co-ordinate Bench in assessee’s own case for A.Y. 2008-09 and 2010-11, has considered this issue. The learned Authorized Representative submitted that identical issue was considered where the learned Transfer Pricing Officer has not given any reason in rejecting the CUP method and resale price method adopted by the assessee in respect of royalty and other international transaction. He extensively referred to paragraph no.14 of the order dated 24th February, 2016, for A.Y. 2008-09. He further stated that for A.Y. 2010-11, the co-ordinate Bench in case of the assessee has also followed the order for A.Y. 2008-09. He further referred to the direction of the learned Dispute Resolution Panel for A.Y. 2013-14, wherein in Para no.11.11, the use of the CUP method was even to be the most appropriate method. Similarly, for A.Y. 2014-15, the direction of A.Y. 2013-14 are followed. Therefore, the
The learned Departmental Representative vehemently supported the order of the learned Transfer Pricing Officer/ Dispute Resolution Panel.
We have carefully considered the rival contention. We find that here the only dispute is with respect to the most appropriate method. The assessee has also adopted CUP as the most appropriate method. The learned Transfer Pricing Officer has used the TNMM for benchmarking royalty transactions. The identical issue arose in the case of the assessee for A.Y. 2008-09, as well as for A.Y. 2010- 11. This is the A.Y. 2009-10. In both the previous assessment year and subsequent assessment year, the co-ordinate Bench has sent the issue about most appropriate method back to the file of the learned Transfer Pricing Officer. Paragraph no.15 of the order of the co- ordinate Bench categorically deals with this issue as under. The order of the co-ordinate Bench reads as under:-
“15. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant paper books filed before us. The undisputed facts are that the TPO has not given any reasons for rejecting the CUP / RPA methods adopted by the assessee in respect of „royalty‟ and other international transactions. It is also a fact that the TPO travelled in the wrong presumption that the “1. Whether the CUP method, used by the assessee, is most appropriate one in respect of the assessee’s international transactions? If not, reasons for rejecting the same.
2. Whether the TNMM method, which is considered by the TPO, is the most appropriate method for benchmarking the software licensing revenue segment? If yes, reasons for considering the same?
Whether the transfer pricing adjustment should be made only to the value of the assessee’s international transactions with its AEs or on the total turnover of the software licensing revenue segment?
4. Any other relevant issue, if any.”
Therefore, respectfully following the decision of the co- ordinate Bench, we set aside the ground no.4 of the appeal back to the file of the learned Assessing Officer/ Transfer Pricing Officer with the similar direction as contained in the order of the ITAT for A.Y. 2008-09. Accordingly, all other grounds of appeal left unadjudicated.
9. The assessee has also raised some additional ground but same were not pressed and therefore, those are dismissed.
Order pronounced in the open court on 26.07.2023.