BANC TEC INDIA PRIVATE LIMITED,NAVI MUMBAI vs. ACIT, CIRCLE-15(1)(2), MUMBAI

Date of Hearing – 24.04.2019 Date of Order – 12.07.2019

O R D E R PER SAKTIJIT DEY. J.M.

Captioned appeal has been filed by the assessee challenging the final assessment order dated 29thJanuary 2016, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short

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"the Act") for the assessment year 2011–12, in pursuance to the directions of the Dispute Resolution Panel–1 (DRP), Mumbai.

transfer pricing analysis done by the assessee. He rejected the internal TNMM applied by the assessee and proceeded to benchmark the international transaction with the AE by applying external TNMM. Having done so, the Transfer Pricing Officer selected six companies as comparables with arithmetic mean of 17.06%. Applying the arithmetic mean of the comparables to the total cost, the Transfer Pricing Officer determined the arm's length price of the international transaction with the AE at ` 55,25,00,072. Accordingly, he made an adjustment of ` 3,16,12,419, to the arm's length price of the international transaction with the AE. Though, in the grounds raised the assessee has challenged the adjustment made to the arm's length price on various grounds, however, at the time of hearing of appeal, the only issue on which both the parties advanced their argument is with regard to selection / rejection of comparables.

4 BancTec TPS India Pvt. Ltd. comparables, hence, all other transfer pricing issues raised by the assessee would become redundant. In view of the aforesaid submissions of the learned Sr. Counsel, we proceed to deal with the comparables specifically disputed before us by the assessee.

i) BC Management Services Pvt. Ltd. v/s DCIT, [2017] 89 taxmann.com 346 (Del. Trib.); and ii) PCIT v/s B.C. Management Services Pvt. Ltd., 2017 & C.M. no.43177/2017, dated 28.11.2017 (Del. HC); and 5 BancTec TPS India Pvt. Ltd. iii) Aptara Technologies Pvt. Ltd. v/s DCIT, ITA no.291/Pun./2016, dated 05.04.2018.

our view, the aforesaid reasoning of the Transfer Pricing Officer is unacceptable. For the very same reason, the Tribunal, Delhi Bench, in B.C. Management Service Pvt. Ltd. v/s DCIT, [2017] 83 taxmann.com 346 (Del.), has held that this company cannot be a comparable. The aforesaid decision of the Tribunal was upheld by the Hon'ble Jurisdictional High Court while deciding the appeal filed by the Revenue. Further, the Tribunal, Pune Bench, in Aptara Technologies Pvt. Ltd. (supra), following the decision of the Tribunal, Delhi Bench, in B.C. Management Services Pvt. Ltd. (supra) has held that this company cannot be a comparable to a BPO service provider. The aforesaid decisions of the Tribunal are for the very same assessment year i.e., A.Y. 2011–12. That being the case, respectfully following the decisions of the Co–ordinate Bench, as referred to above, we hold that this company cannot be a comparable to the assessee.

assessee objectively. He submitted, the company being functionally different from the assessee cannot be treated as comparable. He submitted, the DRP has also accepted it as a comparable simply following the observations of the Transfer Pricing Officer. In support of his contention, the learned Sr. Counsel relied upon the following decisions:– i) DCIT v/s CGI Information Systems & Management Consultation Pvt. Ltd., [2018] 93 taxmann.com 9 (Bang.) (Trib.); ii) ACIT v/s Flextronics Technologies India Pvt. Ltd., [2019] 101 taxmann.com 348 (Bang.) (Trib.); and iii) DCIT v/s Goldman Sachs Services Pvt. Ltd., [2018] 99 taxmann.com 123 (Bang.) (Trib.).

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Officer himself has stated that the company has three segments namely; engineering, design service, information technology service segment and healthcare segment. However, he has stated that only healthcare service segment was considered by him for comparability analysis. But nowhere the Transfer Pricing Officer has dealt with assessee’s contention with regard to unavailability of segmental details relating to export sales, employee cost, etc. Further, he has also not dealt with assessee‘s objection that substantial operation of software development activities were outsourced on sub–contract basis.Learned DRP has also not considered the objections of the assessee property. In case of CGI Information Systems and Management Consultation Pvt. Ltd. (supra) has excluded this company from being treated as comparable since segmental information to apply certain filters are not available. Identical view has been expressed by the Tribunal in other decisions cited by the learned Sr. Counsel. Since, the aforesaid decisions of the Tribunal are for the very same assessment year, respectfully following them, we exclude this company as a comparable.

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He submitted, the assessee is also not aware of the nature of information relating to the company available with the Transfer Pricing Officer as no details were provided to the assessee either by the Transfer Pricing Officer or by the DRP. He submitted, for this reason alone, the company cannot be treated as comparable. Further, he submitted, the company is also functionally different from the assessee as it provides re–engineering pay roll service, development of product suits which are in the nature of KPO service. Thus, he submitted, the company cannot be treated as comparable. In support of such contention, he relied upon the following decisions:– i) ACIT v/s Monster.com India Pvt. Ltd., ITA no.1425/Hyd./2015, etc., order dated 30.08.2017; ii) BNY Mellon International Operations India Pvt. Ltd. v/s DCIT, [2015] 55 taxmann.com 386 (Pun.); and iii) PCIT v/s BNY Mellon International Operations India Pvt. Ltd., [2018] 93 taxmann.com 363 (Bom.).

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On a perusal of the order passed by the Transfer Pricing Officer, it is observed, without discussing in detail functional similarity of the company with the assessee qua the objections raised, the Transfer Pricing Officer has simply selected this company as a comparable simply on the reasoning that it was selected as a comparable in assessment year 2008–09. No material has been furnished before us by the Department to controvert the contention of the assessee that financial results of the company for the year under consideration are not available in public domain. Further, the Department has failed to substantiate the nature of information gathered by the Transfer Pricing Officer to consider the company as a comparable to the assessee. If the financial results of the company for the impugned assessment year are not available, as alleged by the assessee, the company cannot be considered as a comparable. Moreover, from the decisions relied upon by the learned Sr. Counsel for the assessee, it is noticed that the company has been excluded as a comparable in case of a BPO service provider since it is engaged in providing KPO service. In view of the aforesaid, we hold that this company cannot be treated as comparable to the assessee. Accordingly, the Assessing Officer is directed to determine the arm's length price of the international transaction with the AE after excluding the aforesaid three companies namely Accentia Technologies Ltd., Acropetel Technologies Ltd. and Crossdomain

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Solutions Ltd. from the list of comparables. Accordingly, these grounds are partly allowed.

books of Tracmail AR Services Pvt. Ltd., was transferred to the books of account of the assessee on account of such amalgamation. In the return of income filed for the impugned assessment year, the assessee claimed depreciation of ` 2,25,66,258, on the opening written down value of goodwill amounting to ` 9,02,65,033, appearing in the books of the assessee. The Assessing Officer after calling for necessary details and examining them was of the view that the assessee has entered into a circular transaction by transferring a part of its business to create the goodwill and acquiring the same business again to claim depreciation. Thus, observing that the assessee has adopted a colourable device to claim depreciation, the Assessing Officer disallowed it. Though, the assessee objected the aforesaid disallowance before the DRP, however, it was unsuccessful.

13 BancTec TPS India Pvt. Ltd. taken by the management of the company for effective management of business to reduce operating cost, personnel cost, etc. He submitted, the scheme of amalgamation was also approved by the Hon'ble Jurisdictional High Court effective from February 2010. Thus, he submitted, when the earlier sale of assessee’s business and subsequent amalgamation are through proper legal procedure and are transparent, the Departmental Authorities cannot accuse the assessee of adopting colourable device. The learned Sr. Counsel submitted, sale and purchase of goodwill having been reflected in the respective books of account of both the companies and the assessee having paid tax on transfer of goodwill in assessment year 2008–09, it is entitled to claim depreciation on goodwill which got transferred to it by virtue of amalgamation of Tracmail AR Services Pvt. Ltd. Further, he submitted, since the goodwill is an intangible asset, assessee’s claim of depreciation has to be allowed. Further, he submitted, initially Tracmail AR Services Pvt. Ltd. did not claim depreciation as, at that point of time legal position relating to allowability of depreciation on goodwill was still doubtful and controversial. Therefore, once there was clarity on the issue by virtue of decision of the Hon'ble Supreme Court in CIT v/s Smifs Securities Ltd., [2012] 348 ITR 302 (SC), the assessee claimed depreciation in the impugned assessment year. He further submitted, the observation of the DRP that the assessee

14 BancTec TPS India Pvt. Ltd. cannot claim depreciation on the entire amount of goodwill is also irrelevant considering the fact that the assessee has actually claimed depreciation on the opening WDV. Thus, he submitted, assessee’s claim should be allowed.

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High Court. That being the case, it cannot be said that the assessee has entered into a circular transaction or adopted a colourable device for claiming depreciation. Moreover, in the return of income filed for the assessment year 2009–10, the assessee had offered capital gain on the transfer of goodwill of ` 11,51,01,122. However, in the course of assessment proceedings for the assessment year 2008–09, the Assessing Officer was of the view that the capital gain on goodwill has to be assessed in assessment year 2008–09. Accordingly, he proceeded to assess the amount of ` 11,51,01,122, as short term capital gain in assessment year 2008–09. Thus, when the assessee has paid capital gain tax at the time of transfer of goodwill and the Department has accepted it, it cannot be said that the assessee has adopted a colourable device. Moreover, the scheme of amalgamation between the assessee and Tracmail AR Services Pvt. Ltd., having been approved by the Hon'ble Jurisdictional High Court, no doubt can be raised with regard to the transparency or genuineness of such transaction. Thus, when the assessee by virtue of such amalgamation has received back the goodwill in its book, depreciation has to be allowed on goodwill. As regards the doubt raised by learned DRP that the assessee cannot claim depreciation on the entire amount of goodwill, it must be observed that the assessee has claimed goodwill on the opening WDV only and not on the entire amount. It is now fairly

16 BancTec TPS India Pvt. Ltd. well settled that goodwill being an intangible asset, depreciation has to be allowed. In view of the aforesaid, we direct the Assessing Officer to allow assessee’s claim of depreciation of ` 2,25,66,258, on goodwill. Grounds are allowed.

17 BancTec TPS India Pvt. Ltd. the assessee can claim it subsequently either before the Assessing Officer or even before the appellate authority. In this context, he relied upon the following decisions:– i) CIT v/s Pruthvi Brokers & Shareholders Pvt. Ltd., [2012] 349 ITR 336 (Bom.); and ii) Franklin Templeton Asset Management India Pvt. Ltd. v/s ACIT, ITA no.4068/Mum./2011

revised return of income. In our view, the aforesaid reasoning of learned DRP is contrary to the settled legal position. In case of Pruthvi Brokers and Shareholders Pvt. Ltd. (supra), the Hon'ble Jurisdictional High Court has held that even if the assessee has failed to claim a deduction either in the return of income or by filing revised return of income, the assessee can make such claim subsequently. Even in case of Goetz India Ltd. (supra), the Hon'ble Supreme Court has held that there is no restriction on the appellate authorities in entertaining a fresh claim of deduction made by the assessee. Therefore, keeping in view the ratio laid down in the aforesaid decisions, the decision of learned DRP in rejecting assessee’s claim is unsustainable, hence, deserves to be set aside. However, since the Departmental Authorities have not examined assessee’s claim, both factually and legally, we are inclined to restore the issue to the Assessing Officer for examining assessee’s claim on its own merit. While doing so, the Assessing Officer is also directed to take note of the fact whether such claim was allowed in any other assessment year. He should also keep in view the decisions to be cited by the assessee on the issue. Needless to mention, before deciding the issue the Assessing Officer must afford reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.

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