M/S. ZYME SOLUTIONS PVT LTD., ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME, CIRCLE-7(1)(1), BANGALORE

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ITTPA 144/BANG/2024Status: DisposedITAT Bangalore25 April 2024AY 2012-139 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that M/s. Universal Print Systems Ltd. should be excluded from the list of comparable companies. The Tribunal noted that while the company had a Pre-Press BPO unit providing back office support and four major segments, including pre-press BPO where employee cost exceeded 25% of revenue, there were no segmental details available even after issuing a notice under Section 133(6). The Tribunal reiterated its earlier finding that if adjustments cannot be made reasonably or accurately, the company should be excluded. Despite issuing a notice under Section 133(6), no reply was received, yet the company was considered comparable. The Tribunal found that the required information was not made available, and TP adjustments could not be made reasonably or accurately. Therefore, the company is to be excluded, relying on the Tribunal's decision in the assessee's own case. Accordingly, Ground no. 3 raised by the assessee was allowed. Grounds 4 to 6 were held to be consequential and did not require adjudication, with a direction to the AO to grant credit of taxes paid after verification. Ground no. 1 was general, and Ground no. 2 and the additional ground were dismissed as not pressed.

What were the facts?

The assessee, M/s. Zyme Solutions Pvt. Ltd., is in appeal before the ITAT against the final assessment order dated 29.12.2023 passed by the DCIT, Circle – 7(1)(1), Bangalore for Assessment Year 2012-13. The assessee initially declared total income of Rs.1,65,93,100/-, but the AO assessed it at Rs.3,65,88,490/-. This led to an appeal before the ITAT, which partly allowed the assessee's appeal. Subsequently, the ITAT recalled its order and directed the TPO to compute the Arm's Length Price (ALP). A subsequent order on 28.06.2019 rejected four comparables and remanded the issue of M/s. Universal Print Systems Ltd. back to the TPO. The TPO passed an order giving effect to the ITAT order on 24.01.2022, and the AO passed the final assessment order on 29.04.2022, assessing total income at Rs.483,91,519/-. The High Court set aside the AO's order and directed the AO to complete proceedings as per DRP directions. The DRP had dismissed the assessee's appeal, and the TPO made an adjustment of Rs.3,10,19,546/-.

What were the issues?

1. Whether the company M/s. Universal Print Systems Ltd. is functionally similar to the assessee and thus deserves to be rejected as a comparable from the final list, as argued by the assessee. The assessee contended that it provides data processing and contract data analysis services as a captive service provider on a cost plus markup basis, which was admitted by the authorities. The assessee further argued that a Coordinate Bench had rejected Universal Print Systems Ltd. in another case and that the TPO failed to obtain segmental details as directed by the ITAT, despite issuing a notice under Section 133(6). The assessee also argued that the AO/DRP/TPO erred by including Universal Print Systems Ltd. despite acknowledging insufficient information for adjustment as directed by the ITAT. The revenue relied on the orders of the authorities below. 2. Whether the other grounds raised by the assessee (Grounds 4 to 6) require adjudication, which are stated to be consequential. 3. Whether Ground no. 1 (general in nature) and Ground no. 2, along with the application for admission of additional ground, are to be decided.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 260A,Section 133(6),Section 92C,Section 10B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE

Before: SHRI CHANDRA POOJARI & SMT BEENA PILLAI

For Appellant: Shri Narendra Kumar Jain, CA
For Respondent: Shri D.K. Mishra, CIT – DR

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT BEENA PILLAI, JUDICIAL MEMBER

IT(TP)A No. 144/Bang/2024 Assessment Year : 2012-13

M/s. Zyme Solutions Pvt. Ltd., No. # 459, Laksha The Deputy Towers, Commissioner Ashoka Pillar Road, of Income Tax, 2nd Block, Circle – 7(1)(1), Jayanagar, Bangalore. Vs. Bangalore – 560 011. PAN: AAACZ2465R APPELLANT RESPONDENT

Assessee by : Shri Narendra Kumar Jain, CA Revenue by : Shri D.K. Mishra, CIT – DR

Date of Hearing : 01-04-2024 Date of Pronouncement : 25-04-2024

ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of final assessment order dated 29.12.2023 passed by DCIT, Circle – 7(1)(1), Bangalore u/s. 143(3) r.w.s. 144C(13) r.w.s. 260A of the Act. The assessee filed its return of income for the year under consideration declaring total income of Rs.1,65,93,100/-. The case was selected for

Page 2 of 9 IT(TP)A No. 144/Bang/2024 scrutiny and order u/s. 143(3) was passed on 25.08.2016 assessing the total income of Rs.3,65,88,490/-.

2.

Aggrieved by the order of the Ld.AO, assessee preferred appeal before this Tribunal in IT(TP)A No. 1661/Bang/2016. This Tribunal vide order dated 16.11.2018 partly allowed the appeal.

3.

Assessee filed the MP No. 16/Bang/2019 seeking rectification of certain alleged errors in order dated 16.11.2018. This Tribunal vide order dated 05.04.2019 recalled its order on certain grounds and gave direction to the Ld.TPO for computation of ALP. In addition to the directions contained in the original order dated 16.11.2018.

4.

This Tribunal passed the subsequent order on the recalled issue on 28.06.2019. This Tribunal in the order dated 28.06.2019 rejected four comparables out of 9 comparables selected by the Ld.TPO. In respect of a company M/s. Universal Print Systems Ltd., this Tribunal remanded the issue back to the file of Ld.TPO for determining the comparability.

5.

The Ld.TPO accordingly issued notice to assessee in order to give effect to the order of the Tribunal. The assessee filed reply opposing the inclusion of Universal Print Systems as a comparable. In furtherance to this, assessee filed submissions vide letter dated 24.02.2021 and 06.01.2022. The Ld.TPO however rejected the submissions of the assessee and passed order giving effect to the ITAT order on 24.01.2022. Thereafter

Page 3 of 9 IT(TP)A No. 144/Bang/2024 the Ld.AO vide order dated 29.04.2022 passed the final assessment order by assessing total income at Rs.483,91,519/-.

6.

Aggrieved by the order of the Ld.AO, assessee filed appeal before the Hon’ble High Court in W.P. No. 13673 of 2023. The Hon’ble High Court vide order dated 13.07.2023 set aside the order dated 29.04.2022 and directed the Ld.AO to take note off the directions of the DRP and to complete the assessment proceedings u/s. 144C(13) of the act. The DRP vide its direction dated 23.11.2022 dismissed the appeal of the assessee. Accordingly, the TPO passed the OGE to the DRP order on 19.12.2022 making an adjustment of Rs.3,10,19,546/-.

7.

Aggrieved by this order of the Ld.AO/TPO, assessee is in appeal before this Tribunal.

8.

At the outset, the Ld.AR submitted that assessee is only seeking relief on the issue raised in ground no. 3. He submitted that assessee is contesting that the company Universal Print Systems Ltd. is not functionally similar to that of the assessee and therefore deserves to be rejected as a comparable from the final list. He submitted that assessee is in the field of data processing service and is providing contract data analysis services to distribution channel and supply chain partners of Zyme Solutions Inc. USA. It is submitted that assessee is only providing support to data management services to Zyme USA customers and that assessee is a captive service

Page 4 of 9 IT(TP)A No. 144/Bang/2024 provider in rendering the services on a cost + markup. He submitted that this functions performed by the assessee as a captive service provider is an admitted fact by the authorities below as has been observed by the Ld.TPO in the 92CA order.

8.1 The Ld.AR submitted that the comparable Universal Print Systems Ltd. has been rejected by Coordinate Bench of this Tribunal in case of Software Paradigms Infotech Ltd. in IT(TP)A Nos. 58 & 59/Bang/2023 vide order dated 17.05.2023. He submitted that in the remand proceedings by this Tribunal vide order dated 28.06.2019 a direction was issued to the Ld.TPO to call for segmental details u/s. 133(6) from Universal Print Systems. Even though the requisite details as per para 5.2 of the Tribunal’s order were not received by the Ld.TPO, the comparable was included.

8.2 The Ld.A.R. thus submitted that the Learned AO/ DRP/ TPO had erred in law and on facts by not following the directions of this ITAT, Bengaluru with respect to the comparability analysis of M/s. Universal Print Systems Limited wherein the ITAT had specifically directed to adjust the margins of pre-press BPO segment after verifying whether label printing and offset, printing segment supplements pre-press BPO segment.

8.3 He submitted that the ld. AO/DRP/TPO erred in law and on facts by including M/s. Universal Print Systems despite acknowledging the non-availability of sufficient information to

Page 5 of 9 IT(TP)A No. 144/Bang/2024 adjust the margins of pre-press BPO segment as directed by the ITAT. On the contrary, the Ld.DR relied on the orders of the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us.

9.

We note from the record that this company has:- (a) Pre-Press BPO unit provides back office support services. (b) This company has four major segments viz., Repro, Label Printing, Offset Printing and pre-press BPO. The employee cost of pre-press BPO was more than 25% of the revenue from pre-press BPO and therefore the employee cost filter is satisfied in the case of this company.

However there is no segmental details available even after issuing 133(6) notice in order to compare an apple with an apple. 9.1 The requirements of Rule 10B(1)(2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: “10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely: — (a) to (d). ****** (e) transactional-margin method, by which,

Page 6 of 9 IT(TP)A No. 144/Bang/2024

(i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (if) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub- clause (iii): (v) the net profit margin thus established is then taken into account an arm's Jlength price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an (a) the specific characteristics of the property transferred or services provide: either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (c) the specific characteristics of the property transferred or services provide: either transaction; (d) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (e) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or Implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions: d)conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the

Page 7 of 9 IT(TP)A No. 144/Bang/2024 markets, the laws and Government orders in force, costs of labour and. capital in the markets, overall economic development and level of competition and whether the markets are wholesale retail (3) An uncontrolled transaction shall be comparable to an international (i) none of the differences, if any, between the transactions being compared or between the enterprises entering into such transactions are likely materially affect the price or cost charged or paid in, or the profit arising from such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences."

9.2 In our opinion, Tribunal on earlier occasion given the finding that if the adjustment cannot be made reasonable or accurately, this company M/s. Universal Print Systems Ltd. to be excluded from the list of comparable companies. For this purpose, the Ld.TPO/AO should exercise power u/s 133(6) of the Act. The Ld.TPO/AO though issued notice u/s 133(6) of the Act to M/s. Universal Print Systems Ltd., no reply was received from them. Still, he considered this company as comparable to the assessee and included in the lists of comparables. In our opinion, the required information u/s 133(6) of the Act is not made available to the Ld.TPO, and in such circumstances, T.P. adjustment on this count cannot be made in reasonable manner or accurately made in this regard. Accordingly, this company is to be excluded from the list of comparable companies as reliance placed by this Tribunal while deciding this issue in assessee’s own case on the decision of Zyme Solutions Pvt. Ltd. Vs. ACIT (2019) 101 Taxmann.com 292. Accordingly, we direct the AO/TPO to

Page 8 of 9 IT(TP)A No. 144/Bang/2024 exclude this company M/s. Universal Print Systems Ltd. from the list of comparables. Based on the same, we are of the opinion that this comparable deserves to be rejected. Accordingly, we allow ground no. 3 raised by assessee.

10.

We note that the other Grounds 4 to 6 are consequential in nature and therefore do not require adjudication. However, we direct the Ld.AO to grant credit of taxes paid based on the evidences filed by the assessee after necessary verification.

11.

Ground no. 1 is general in nature and nothing has been argued by the assessee in respect of Ground no. 2 and the application for admission of additional ground dated 28.03.2024. Accordingly, these grounds are dismissed as not pressed. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 25th April, 2024.

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 25th April, 2024. /MS /

Page 9 of 9 IT(TP)A No. 144/Bang/2024 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order

Assistant Registrar, ITAT, Bangalore

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