PR. COMMISSIONER OF INCOME TAX, GURGAON vs. M/S CORPORATE EXECUTIVE BOARD INDIA PVT. LTD.

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ITA/540/2017HC Punjab & HaryanaPHHC01117767201720 August 2019Author: MR. JUSTICE AJAY TEWARI,MR. JUSTICE HARNARESH SINGH GILL6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises from the ITAT's order. Regarding M/s. Accentia Technologies Limited, the Court noted that its own previous decision in the assessee's own case for AY 2008-09 had upheld the ITAT's exclusion of Accentia as not functionally comparable. For M/s. TCS E-Serve Ltd. and M/s. TCS E-Serve International Ltd., the Court observed that the ITAT had excluded them on the grounds of functional dissimilarity, citing that these companies were engaged in technical services like software testing and data center management, with no segmental information available to bifurcate income and expenses between ITES and technical services. The ITAT's decision was supported by decisions of coordinate Benches and affirmed by the Delhi High Court in the case of Ameriprise India (P.) Ltd. The Court also referred to the Delhi High Court's decision in PCIT vs B.C. Management Services (P) Ltd., which upheld the exclusion of Accentia and TCS E-Serve due to functional dissimilarities, unavailability of segmental data, and brand value impact. The Revenue failed to demonstrate any illegality or perversity in the ITAT's findings. Therefore, the appeal was dismissed.

What were the facts?

The Revenue has appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2010-11. The assessee, Corporate Executive Board India P. Ltd., provides data collection, web services, and related support to associated enterprises. The Transfer Pricing Officer (TPO) determined a transfer pricing adjustment of Rs. 4,25,05,514. The Dispute Resolution Panel (DRP) revised this to Rs. 2,40,24,399. The Assessing Officer (AO) framed the assessment, including an addition of Rs. 4,20,24,399 on account of transfer pricing adjustments. The assessee appealed to the ITAT, which partly allowed the appeal. The Revenue's appeal to the High Court challenges the ITAT's exclusion of certain comparable companies used by the TPO.

What were the issues?

1. Whether, in law, the ITAT was correct in excluding M/s. Accentia Technologies Limited, M/s. TCS E-Serve Ltd., and M/s. TCS E-Serve International Ltd. as comparables for determining the Arm's Length Price (ALP) in the case of the assessee company, given that the TPO had made detailed findings analyzing functionality, turnover, and profile, and applied relevant parameters. The Revenue argued that these comparables were functionally similar and that the TPO's selection was justified, also asserting that issues pertaining to earlier years should not influence the current assessment year. 2. Whether, in law, the ITAT was justified in excluding M/s. Accentia Technologies Limited, M/s. TCS E-Serve Ltd., and M/s. TCS E-Serve International Ltd. from the list of comparables for determining the ALP. The assessee contended that the ITAT rightly excluded these companies, relying on High Court decisions and the principle of functional dissimilarity and lack of segmental data. The assessee also cited its own case for AY 2008-09 and other precedents.

Which sections of the Income-tax Act were involved?

Section 260A,Section 92CA(3),Section 143(3),Section 144C

AI-generated summary — verify with the full judgment below

ITA-540-2017 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 230 ITA-540-2017 (O&M) Date of Decision: 20.8.2019 The Principal Commissioner of Income Tax, Gurgaon

...... Appellant Versus Corporate Executive Board India P. Ltd., Gurgaon ...... Respondent CORAM : HON'BLE MR.JUSTICE AJAY TEWARI : HON'BLE MR. JUSTICE HARNARESH SINGH GILL Present : Mr. Tajender K. Joshi, Sr. Standing Counsel for the appellant. Mr. Vishal Kalra, Advocate for the respondent. *** AJAY TEWARI, J. (Oral)

1.

This order shall dispose appeal bearing No. ITA No. 540- 2017 preferred by the Revenue under section 260A of the Income Tax Act, 1961 (for short “the Act”) against the order dated March 17, 2017 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Delhi Bench, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 963/Del/2015 for Assessment Year 2010-11, claiming the following substantial question of law:- “Whether in the facts and circumstances of the case and in law, the Hon’ble ITAT was correct in excluding M/s. Accentia Technologies Limited, M/s. TCS E-Serve Ltd. and M/s. TCS E- Serve International Ltd. used as a comparable for determining the ALP in the case of the assessee company, since the TPO Anuradha 2019.09.10 16:34 integrity of this document

ITA-540-2017 2 had made detailed findings by analyzing functionality, turnover and profile of various comparables considered in his order. Further the ITAT was not justified to consider issues pertaining to earlier years, since each year is a separate assessment year and should be considered independently. The comparables had been selected by the TPO by applying suitable and relevant parameters.”

2.

A few facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee was engaged in providing data collection, web services, information research and related support services to its associated enterprises. It filed its return of income on 1.10.2010 for the assessment year 2010-11 declaring income of Rs.5,75,377. The Assessing Officer noticed that the assessee had entered into international transactions with its associated enterprises and, therefore, a reference was made to the Transfer Pricing Officer (in short “the TPO”) to determine the Arm’s Length Price (“ALP”). The TPO vide order dated 21.01.2014 (Annexure A-II) passed under Section 92CA(3) of the Act and determined the transfer pricing adjustment at Rs.4,25,05,514./- Thereafter, draft assessment order was passed against which the assessee approached the Dispute Resolution Panel-III, New Delhi. The Dispute Resolution Panel-III vide order dated 22.12.2014 revised the adjustment to Rs. 2,40,24,399/- instead of Rs.4,25,05,514/-. Thereafter, the Assessing Officer vide order dated 6.2.2015 (Annexure A- 1) framed the assessment under section 143(3) read with section 144C of the Act at a total income of Rs. 4,25,99,780/- including the addition of Rs.4,20,24,399/- on account of Transfer Pricing Adjustments. Feeling aggrieved, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 17.3.2017 (Annexure-A-III) partly allowed the appeal of Anuradha 2019.09.10 16:34 integrity of this document

ITA-540-2017 3 the assessee. Hence, the present appeal by the Revenue.

3.

Learned counsel for the Revenue submitted that the Tribunal had erred in law in excluding comparables, namely, M/s Accentia Technologies Limited, M/sTCS E-Serve Ltd. and M/s TCS E-Serve International Ltd. used as comparables for determining the ALP in the case of the assessee company when the assessee company and comparable companies are providing similar nature of services. He further relied upon the order passed by the TPO while dealing with these companies as comparables.

4.

On the other hand, learned counsel for the appellant besides supporting the order passed by the Tribunal has submitted that the Tribunal had rightly excluded M/s Accentia Technologies Limited, M/s TCS E-Serve Ltd. and M/s TCS E-Serve International Ltd. from comparables for determining the ALP. In support of his contentions, he has placed reliance upon the following judgments:- (i) The Pr. CIT vs Corporate Executive Board India P. Ltd.: ITA No. 142 of 2018 (Respondent’s own case for AY 2008-09) (ii) PCIT vs B.C. Management Services (P.) Ltd. [2018] 403 ITR 45 (Del) (iii) Ameriprise India (P.) Ltd. vs DCIT: ITA No. 7014 of 2014 – (affirmed by the Hon’ble Delhi High Court: ITA No.461/2016)

5.

The issue of excluding M/s. Accentia Technologies Limited for the list of comparables was decided by this Court in the case of the assessee in ITA No. 142 of 2018 for the A.Y. 2008-09, wherein it was held that the ITAT has rightly excluded M/s Accentia Technologies Limited from the list of comparables as the same was not functionally Anuradha 2019.09.10 16:34 integrity of this document

ITA-540-2017 4 comparable.

6.

The Tribunal further in this year directed the AO/TPO to exclude TCS E-Serve Ltd. and TCS E-Serve International Ltd. from the list of comparables on the ground that the same were functionally dissimilar to the assessee company. The tribunal held that the above mentioned comparable companies were engaged in providing technical services such as software testing, verification and validation of software at the time of implementation and data centre management activities and no segmental information was available to bifurcate the income and expenses between the ITES services and technical services. The ITAT, while excluding the comparable followed the decision of the coordinate Bench of the Tribunal in the case of Ameriprise India Private limited (supra) and Equant Solutions India Private Limited ITA No. 1202/ Del/ 2015 wherein both the above said companies were discussed and held to High Court in ITA No.461/2016. 7. 2019.09.10 16:34 integrity of this document

ITA-540-2017 5 the Tribunal in excluding Accentia Technologies Pvt. Ltd and TCS E- Serve from the list of comparables in the line of assessee’s industry had held as under:- “13. The exclusion of second comparable ICRA Techno Analytics Ltd. was on the basis that it had engaged itself in processing and providing software development and consultancy and engineering services/web development services. The reasons for execution were functional dissimilarities and that segmental data were unavailable. Again the findings of the ITAT are reasonable and based on record. The third comparable that the AO/TPO excluded is TCS E-serve. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TATA Consultancy Service Ltd. which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impactedTCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld. The assesse was aggrieved by the inclusion of Accentia a Software Development Company. The Revenue is aggrieved by the exclusion of Accentia from the TP analysis. The DRP had directed its deletion. We observe that the ITAT has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concerned, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector.

14.

In view of the above findings, this Court is of the opinion that no substantial question of law arises. The appeals are dismissed. “ Anuradha 2019.09.10 16:34 integrity of this document

ITA-540-2017 6

9.

Learned counsel for the Revenue was unable to demonstrate that the order of the Tribunal suffers from any illegality or perversity as it had failed to consider or appreciate any relevant circumstances for excluding these three comparables, namely, M/s. Accentia Technologies Ltd., M/s. TCS E-Serve Ltd. and Ms. TCS E-Serve International Ltd. for determining the ALP.

10.

In view of the above, it cannot be held that the aforesaid findings recorded by the Tribunal in the appeal warrant any interference by this Court.

11.

Accordingly, no substantial question of law arises. Consequently, the appeal is dismissed.

(AJAY TEWARI)

JUDGE (HARNARESH SINGH GILL) JUDGE 20.8.2019 anuradha

Whether speaking/reasoned - Yes/No Whether reportable - Yes/No Anuradha 2019.09.10 16:34 integrity of this document

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