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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): - 1. The captioned matter has come up for fresh hearing before this bench pursuant to the directions of Hon’ble Bombay High Court in assessee’s Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd. Appeal of 2013 dated 02/12/2015, a copy of which is on record. It transpires that the issue of Transfer Pricing Adjustment in revenue’s appeal ITA No. 4719/Mum/2009 was remanded back to the file of Ld. Assessing Officer / TPO by the Tribunal vide para 9 of its order dated 12/04/2013, the copy of which is also on record. Aggrieved, the assessee challenged the directions of the Tribunal before Hon’ble Bombay High Court, wherein the Tribunal’s order, on Transfer Pricing issue, has been set-aside for reconsideration after considering the applicability of decision of Tribunal dated 24/02/2012 rendered in the case of M/s Frost & Sullivan (I) Pvt. Ltd. In the above background the appeal has come up for fresh hearing before the bench.
At the outset, the observations / directions of Hon’ble Court could be extracted in the following manner: -
1. 1. This Appeal under Section 260-A of the Income Tax Act. 1961 (the Act), challenges the order dated 12th April, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal) for the Assessment Year 2004-05.
2. At the hearing, Appellant urges only the following question of law, for our consideration: - Whether on the facts and in the circumstances of the case and in law, non- consideration of submissions of the Appellate, the precedents cited by the Appellant and non-consideration of relevant factors has rendered the impugned order perverse?".
3. On consideration, we admit the appeal on the aforesaid question as it gives rise to a substantial question of law.
4. At the request of the Counsel, the appeal itself is taken up for final disposal as a scope of the dispute lies in a very narrow compass. 5 The Appellant is engaged in the activity of research, marketing and consultancy support services in regard to economy. During the subject Assessment Year, the Appellant has entered into an International Transaction with its Associated Enterprises (AE)–one Gartner Ireland. The services involved are gathering relevant economic data and collating them in the format required by the AE and transmitting the same.
Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd.
As the Appellant's activity involved an International Transaction for the subject Assessment Year, the same was referred to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) in relation to Appellant's transaction with its Irish AE. The Appellant had in its Transfer Pricing study on the basis of 10 comparable had bench marked the margin at 9.63% and its margin was at 7.91%. Therefore, being within + - 5% of the arithmetic mean the Appellant did not carry out any Transfer Pricing Adjustment. 13th 7. However, by an order dated December, 2006, the TPO determined the margin at 20.42 % on the basis of 102 selected comparable. The Assessing Officer passed a final order consequent to and in accordance with the order of the TPO.
Being aggrieved, the Appellant carried the issue in Appeal to the Commissioner of Income Tax (Appeals) [C1T(A)]. By an order dated 26th May, 2009, the CIT (A) allowed the Appellant's appeal. This inter alia on the ground that the TPO's order had referred to Annexure I in its order containing detail of the comparable selected by him. However, copy of the same was not furnished to the Appellant either with the order of TPO or even thereafter. Thus, the CIT(A) during the course of proceeding before him had specifically called upon the AO/TPO to furnish the Annexure I to the order passed by the TPO. However, the same was not furnished even to CIT(A). Therefore, in the absence of the working being furnished, the CIT(A) concluded the no comparable exists. Thus, the adjustment on account of Transfer Pricing was deleted.
Being aggrieved, the Revenue filed an appeal to the Tribunal. The Tribunal by the impugned order, has set aside the order dated 26th May, 2005 of the CIT(A) and restored the issue of arriving at the ALP to the Assessing Officer/ TPO for fresh consideration. We are informed that no proceedings have yet been taken: by the Assessing Officer/TPO after the order dated 12th April, 2013 of the Tribunal.
The grievance of the Appellant is that even when the issue arising for consideration before the Tribunal was concluded in its favour, the decision of the Tribunal in ACIT v/s. M/s. Frost & Sullivan (I) Pvt. Ltd. decided on 24th February, 2012 was not followed even when it carries out the same activity as the Appellant. In the case of M/s. Frost & Sullivan (supra), the same TPO had on 13th December, 2006 (same date on which the TPO passed an order in the Appellant's case) had determined its margin at 20.42% in respect of 102 selected companies as comparable which again were identical to' the comparable selected in the case of Appellant. This was evident from the Annexure-I to the TPO order produced by the Revenue at the hearing before the Tribunal.
The Appellant specifically relied upon the identical observations found in the orders of the TPO dated 13th December, 2006 in ease of M/s. Frost & Sullivan (supra) and in that of the Appellant's. The observations as extracted by the Tribunal in the case of M/s. Frost & Sullivan (supra) reads as under:-
Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd. “ …. …. … .. By taking comparable margins as per Annexure-I, the TPO noted that the OP/TC ratio comes to 20.42% for the sample set. For this purpose a sample of 102 companies from across a wide spectrum of ITES, software consultancy, market research, business process and outsourcing etc. were chosen ....."
As extracted from the order of the TPO in case of Appellant read as under: - "Comparable Margins have been calculated as per Annexure I. A total of 102 comparable from a very vide spectrum of ITES, Software Consultancy, business research and analytics, business process outsourcing companies etc. have been selected to find out the industry average for the purposes. The average comes to 20.42% on cost.' From the above, it is submitted that Annexure 1 to the TPO's orders dated 13"' December, 2006 in the case of the Appellant was identical to the order dated 13lh December, 2006 in the case of M/s. Frost & Sullivan (supra). This fact was also pointed out to the Tribunal. It was in the above circumstances that the Appellant expected the Tribunal in all fairness to decide the issue which arose in their case in accordance with the decision taken by the Tribunal in M/s. Frost & Sullivan (supra). 12 We find that the impugned order of the Tribunal after recording the fact that the Appellant is relying upon the decision of the Tribunal in M/s. Frost & Sullivan (supra) dis-regards the same by making the following observation; - "8.5;- . The Id. A.R. has relied upon the decision of [lie Tribunal wherein those 102 comparable, were held as cannot be considered as comparable. It is to be noted that the decision on the issue of comparability is purely factual in nature and is in the context of comparability of the particular assessee which cannot be applied as a general principle. Further, the Commissioner of Income Tax [Appeals) has also not examined the issue on merit because the Annexure -I to the TP Order was not available." 13 One of the essential elements of Rule of Law is equality of treatment to persons identically situated. The Tribunal has by the impugned order allowed the Revenue's appeal on merits and restored the issue to the TPO for re- consideration. This because the impugned order failed to follow/ consider its decision on identical facts in the case of M/s. Frost & Sullivan (supra). This cannot be done unless there was some good cause for not following a decision of a Co-ordinate Bench on the same issue. The cause, if any, should be reflected in the impugned order passed by the Tribunal. Merely stating that the issue of comparable is factual in nature and cannot be applied as a matter of general principle would not be sufficient to distinguish the reliance placed by the Appellant on the Tribunal's decision in M/s. Frost & Sullivan (supra). However, when according to the Tribunal, the facts are different in the case relied upon, it should be pointed out in the impugned order and not ignored on the basis of generality. The facts as demonstrated by the Appellant is that both in case of Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd. M/s. Frost & Sullivan (supra) and that of the Appellant, prima facie, appear to be identical. 14 In the above circumstances, the Tribunal in the impugned order ought to have considered the decision of the Tribunal in the case of M/s. Frost & Sullivan (supra) in some greater detail pointing out the distinctions before coming to the conclusion that the same cannot be applied in the case of the Appellant. The Tribunal on consideration of the facts pointed out by the Appellant could most certainly for reasons to be recorded yet come to conclusion that the decision in case of M/s. Frost & Sullivan (supra) is not applicable to the present facts. However, before coming to the conclusion, the contention of the Appellant must be dealt with so as to ensure that the assessee concerned does not leave the portals of the Tribunal with a feeling that he has received unfair treatment, inasmuch as his submission of being covered by the decision of Co-ordinate Bench of the Tribunal was not considered. 15 The substantial question of law as formulated is answered in the affirmative i.e. in favour of the Appellant-Assessee and against: the Respondent-Revenue only to the extent of the issue of transfer pricing. 16 In the above view, we set aside the order of the Tribunal to the extent it disposes of the Revenue's appeal with regard to the issue of transfer pricing and restore the issue of transfer pricing to the Tribunal for fresh disposal in accordance with law by a reasoned order. Needless to state that the Tribunal would consider the applicability of the decision of the Tribunal dated 24th February, 2012 rendered in the case of M/s. Frost & Sullivan (supra) to the fact of the present case.
Appeal disposed of in above terms. No order as to costs. Keeping in view the aforesaid directions of the Hon’ble Court, we proceed to adjudicate the issues raised in the appeal. 3.1 The Ld. Sr. Counsel for assessee, Shri Farrokh V.Irani, at the outset, drew our attention to the following chart, to submit that facts in the case of the present assessee and in the case of Frost & Sullivan (I) Private Limited were quite identical as evident from the following table: - No. Particulars Relevant Page of Gartner Relevant page of ITAT order India’s CIT(A) order for in the case of Frost & Sullivan A.Y.2004-05 1. Nature of Business Research support Services Marketing Research/Marketing (gathering collating relevant data Analysis Services [ref. Pg.21] used for preparing market Pg. 41 of PB reports) Ref Pg.14 - - 2. Set of comparable adopted by 102 companies 102 companies - - the TPO From a very wide From a very wide spectrum of ITES spectrum of ITES
Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd. software consultancy, software consultancy, business research and business research and analytics, business analytics, business process outsourcing process outsourcing companies etc. companies etc. - [Ref. Pg. 15[Pg-16 of PB] [Ref.Pg.21] Pg.41 of PB 3. Operating Profit/Total cost ratio 20.42 percent 20.42 percent adopted by TPO [Ref.Pg-15] Pg.16 of PB [Ref.Pg-21] Pg.41 of PB 13th 13th 4. Date of TPO’s order December, 2006 December, 2006 [Ref.Sr.No.5 of the paper book] [Ref.Sr.No.9 Pg. 48 of the paper book] 5. Assessment Year A.Y.2004-05 A.Y.2004-05 [Ref.Pg.1] Pg-2 of Paper book [Ref.Pg.1] Pg-40 of Paper book 3.2 The attention has specifically drawn to the facts that same TPO passed similar order for same Assessment Year on same date in the case of two different assessees having similar functional profile. The first appellate authority, in both the cases, deleted the Transfer Pricing Adjustment. One of the factors that led to deletion of adjustment in assessee’s case, as evident from para 7.1 of the impugned order, was that Annexure-1 of Ld. TPO’s order containing details of comparable entities, was never furnished to the assessee and the additions were made in a cavalier manner. Similar was the observation of Ld. first appellate authority in the case of M/s Frost & Sullivan (I) Private Limited in its order dated 17/12/2009 wherein at para 12.9, it was noted that there was serious violation of the principle of natural justice on the part of Ld. TPO as adequate and proper notice and hearing was not provided to the appellant. The whole exercise of selecting comparable by the TPO was haphazard, illogical and random without any FAR. The revenue contested the stand of Ld. first appellate authority, in M/s Frost & Sullivan (I) Pvt. Ltd., before this Tribunal vide order dated 24/02/2012, wherein Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd. vide paras 9 & 9.1, the Tribunal dismissed the revenue’s ground, concurring with the stand of Ld. CIT(A). Our attention is further drawn to the fact that the assessee’s margin is more than margin of M/s Frost & Sullivan (I) Pvt. Ltd. 3.3 In the above background, Ld. Sr. Counsel emphasized that the said decision of Tribunal in M/s Frost & Sullivan (I) Pvt. Ltd. squarely applies to the facts of the present case also and therefore, to maintain judicial consistency, similar view should be taken in the matter by dismissing the appeal instead of restoring the same back to lower authorities.
The Ld. Departmental Representative, upon confrontation, could not point out any distinction in the factual matrix of the assessee and facts in M/s Frost & Sullivan (I) Pvt. Ltd. However, it has been submitted that the department is in further appeal before Hon’ble Bombay High Court in the case of M/s Frost & Sullivan (I) Pvt. Ltd.
In view of the admitted position, concurring with the submissions made by Ld. Sr. Counsel, we apply the decision of Tribunal rendered in M/s Frost & Sullivan (I) Pvt. Ltd. and accordingly, dismiss Ground No. 2 of the revenue’s appeal.
6. The directions of Tribunal in M/s Frost & Sullivan (I) Pvt. Ltd., for ease of reference, could be extracted in the following manner: - 9. We have considered the rival submissions made by both the sides, perused the orders of the AO and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the TPO vide notice dated 24.11.2006 asked the assessee to show cause as to why the mark-up earned by the assessee at 10% upon cost be not considered as under-pricing of the services to the parent company as the industry is earning a mark-up of over 30%. For this purpose, the AO has given the list of 149 companies as samples according to Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd. which, the average GP /TC comes to 28.23%. We find the TPO after excluding 47 more companies as loss making companies and holding the same as functionally different from assessee company determined the OP/ TC at 20.42%. While doing so, the TPO has excluded the loss-making companies. He, however, has not excluded the profit- making companies. We find the AO has considered companies with huge turnover as comparables. For example, as against the total turnover of 10.82 crores by the assessee (Export turnover of Rs.7.30 crores and Domestic turnover of Rs.3.53 crores) the comparison taken by the TPO includes companies whose turnover are as follows: - COMPANIES AMOUNT (IN CRORES) Tata Sons Ltd. Rs.5869.39 Sonata Information Technology Ltd. Rs.141.79 Larsen & Tourbo Infotech Ltd. Rs.364.61 Tata Technologies Ltd. Rs.131.21 Birlasoft Ltd. Rs.168.90 Polaris Software Lab Ltd. Rs.578.49 Wipro Ltd. Rs.5132.70 Digital Global soft Ltd. Rs.628.09 Infosys Technologis Ltd. Rs.4760.90 I-Flex Solutions Ltd. Rs.684.46 Satyam Computer Services Ltd. Rs.2541.54 9.1 Similarly, although the TPO has excluded the loss making companies we find he has not excluded the high profit making companies from the comparables. We find merit in the submission of the Ld. Counsel for the assessee that the Annexure given by the TPO during the assessment proceedings (a copy of which is placed at paper book page no. 188 to 190) is incomplete and some fresh sets were given according to which the average ALP margin comes to 6.02% as against 10% on cost shown by the assessee. It is only after this incomplete list showing lesser profit than the profit declared by the assessee was brought to the notice of the TPO that he excluded the 47 loss making companies to determine the mean average profit at 20.42%. We, therefore, find merit in the submission of the Ld. Counsel for the assessee that there is no basis for only excluding the loss making companies and not excluding the high profit making companies or companies which are not at all comparable considering their size, volume of turnover and other factors. In our opinion, the whole exercise of selecting the comparables by the TPO is not proper and is in a haphazard manner. In this view of the matter and in view of the detailed discussion by the Ld. CIT(A) on this issue, we do not find any infirmity in his order and accordingly upheld the same. The ground raised
by the Revenue is accordingly dismissed. 7. In result, the revenue’s appeal qua ground no. 2 stands dismissed. Assessment Year-2004-05 M/s Gartner India Research & Advisory Services Pvt.Ltd.
Order pronounced in the open court on 30th July, 2019. Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; िदनांकDated : 30/07/2019 Sr.PS:-Jaisy Varghese आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.