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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA, ACCOUNTANT MEMBE
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBE
IT(TP)A No.1230/Bang/2011 Assessment year : 2007-08
M/s. TE Connectivity Global Vs. The Income Tax Officer, Shared Services India Pvt. Ltd., Ward 11(1), [formerly ADC (India) Bangalore. Communications & Infotech Private Ltd.] 59/2, Block-B, Gurudas Heritage 100 Feet Ring Road, Kadrenahalli, Banashankari 2nd Stage, Bangalore – 560 070. PAN: AACCA 9228R APPELLANT RESPONDENT
Appellant by : Shri Dhanesh Bafna, CA Respondent by : Ms. Neera Malhotra, CIT-II(DR)(ITAT), Bengaluru
Date of hearing : 20.09.2017 Date of Pronouncement : 27.09.2017
O R D E R Per Sunil Kumar Yadav, Judicial Member This appeal is preferred by the assessee against the assessment order passed consequent to the directions of the DRP. During the pendency of the appeal, the assessee has filed revised grounds of appeal with the submission that the same may be taken on record in place of the original grounds. Accordingly, revised grounds are taken on record and it
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replaces the original grounds. The revised grounds are reproduced hereunder for the sake of reference:-
“Based on the facts and circumstances of the case and in law, TE Connectivity Global Shared Services India Private Limited (hereinafter referred to as 'Appellant') respectfully craves leave to prefer an appeal against the order passed by Income-Tax Officer, Ward - 11(1) (`A0') dated September 30, 2011 in pursuance of the directions issued by Dispute Resolution Panel (`DRP'), Bangalore dated September 05, 2011 under section 253 of the Income-tax Act, 1961 (Act') on the following grounds: That on the facts and circumstances of the case and in law,
That the order of the learned Income Tax Officer, Ward 11(1), Bangalore (`Assessing Officer' or `AO') to the extent prejudicial to the Appellant is bad in law and liable to be quashed. [corresponding to ground 1] 2. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal. [corresponding to ground 2] Grounds of appeal relating to transfer pricing matters 3. That the learned AO and the learned Dispute Resolution Panel (Panel) erred in upholding the rejection of Transfer Pricing (TP) documentation by the learned Deputy Commissioner of Income —tax (Transfer Pricing) — IV, Bangalore (`Transfer Pricing Officer' or 'TPO'). [corresponding to ground 3] 4. That the learned AO and the learned Panel erred both in facts and law in confirming the action of the learned TPO of making an adjustment to the transfer price of the Appellant by INR 11,520,701 in respect of contract software development services and by INR 10,368,503 in respect of Shared Services, holding that the international transactions do not satisfy the arm's length principle envisaged under the Income Tax Act, 1961 (the 'Act') [corresponding to ground 4] 4.1 Upholding the rejection of comparability analysis of the Appellant in the TP documentation and in submissions provided during the assessment proceedings; confirming the comparability analysis as adopted by the learned TPO in the TP Order and thereby, confirming the acceptance of the following comparable companies introduced by the learned TPO in the TP Order namely:
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Information Technology services segment: • Avani Cimcon Technologies Limited • Celestial Labs Limited • Flextronics Software Systems Limited • Infosys Technologies Limited • Ishir Infotech Limited • KALS Information Systems Limited • Lucid Software Limited • R Systems International Limited • Tata Elxsi Limited • Wipro Limited Megasoft Limited • Accel Transmatic Limited • E-Zest Limited • Persistent Systems Limited Information Technology enabled Services segment: • Accentia Technologies Limited • Eclerx Services Limited • Mold-Tek Technologies Limited • Vishal Information Technologies Limited • Accurate Data Converters Private Limited • Bodhtree Consulting Limited • Caliber Point Business Solutions Limited • HCL Comnet Systems and Services Limited • Informed Technologies India Limited • Wipro Limited • Infosys BPO Limited [corresponding to ground 4.1] 4.2 Upholding the act of the learned TPO of collecting information of the companies by exercising power granted to him under section 133(6) of the Act. [corresponding to ground 4.2] 4.3 Disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2006-07) data for comparable companies should be used. [corresponding to ground 4.3] 4.4 Ignoring the limited risk nature of the services provided by the Appellant as detailed in the TP documentation and in upholding the conclusion of the learned TPO that no adjustment on account of risk differential is required while determining the Arm's Length Price of the international transactions of the Appellant, but for an adjustment towards differences in the
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working capital position between the Appellant and the entrepreneurial comparable companies. [corresponding to ground 4.4] 5 The learned AO and the learned Panel erred in not proving the benefit of lower range of +/-5% in determination of arm's length price. [corresponding to ground 5] 6 That the learned AO and the learned Panel erred in disregarding the judicial pronouncement in India in undertaking Transfer Pricing adjustment. [corresponding to ground 6] Other than transfer pricing matters On the facts and in the circumstances of the case and in law: 7. a) That the learned Assessing Officer erred in disallowing software expenses amounting to INR 1,318,733 on the ground that tax was not deducted at source on payment of the same. [corresponding to ground 7(a)] b) Without prejudice to the above, the learned Assessing Officer erred in adding the disallowances made under section 40a(i) against the taxable income determined after allowing deduction under section10A, instead of adding it to profits of the business for computing deduction under section 10A. [corresponding to ground 7(b)] 8. a) That the learned Assessing Officer erred in taxing 'Other Income' of INR 2,931,651 twice, once as 'Profits from business' and again as 'Income from Other Sources'. [corresponding to ground 8(a)] b) That the learned Assessing Officer erred in classifying interest earned from fixed deposits amounting to Rs 43,538 and interest earned from loans provided to employees amounting to Rs 35,588 as 'Income from Other Sources' and not 'Profits and Gains from Business or Profession', thereby not allowing the deduction under section 10A on such income. [corresponding to ground 8(b)] c) That the learned Assessing Officer has erred in not including such interest income in profits derived from the Export Oriented Undertaking for the purpose of computing the deduction under section 10A(1) read with section 10(A)(4) of the Act. [corresponding to ground o8(c)] d) That the learned Assessing Officer erred in classifying and taxing the profits earned on sale of depreciable assets, amounting to Rs 2,852,525, under the head 'Income from other sources'. [corresponding to ground 08(d)]
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That the learned Assessing Officer erred in not allowing deduction under section 10A of the Act on the entire profit of the undertaking registered with the Software Technology Park of India. [corresponding to ground o9] 10. That the learned Assessing Officer erred in considering the profit of the undertaking for the purpose of computing the deduction under section 10A at Rs 18,556,415 without considering adjustments made in the return of income as per the provisions of the Act. [corresponding to ground 10] 11. a) That the learned Assessing Officer erred in treating the leased line charges of Rs 7,85,369 (being 100% of the leased line charges incurred) as attributable to delivery of software outside India and reducing the same from 'Export Turnover' while computing the deduction under section 10A. [corresponding to ground 11(a)] Without prejudice to the above, having reduced the leased line b) charges from 'export turnover', the learned Assessing Officer erred in not reducing the same from 'total turnover as well. [corresponding to ground 11(b)] That the learned Assessing Officer erred in not applying the c) principles of section 8oHHE to section 10A. [corresponding to ground 11(c)] That the learned Assessing Officer erred in not following the d) various judicial precedents in this regard. [corresponding to ground 11(d)] 12. That the learned Assessing Officer erred in levying and computing interest under section 234B at Rs 4,758,222. [corresponding to ground 12] 13. That the learned Assessing Officer erred in levying interest under section 234D at Rs 3,65o. [corresponding to ground 13] The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of _appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law.”
The assessee has also moved an application for admission of additional grounds which are reproduced hereunder:-
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“4.5 On the facts and in the circumstances of the case and in law, the Transfer Pricing Officer erred in introducing Helios & Matheson Information Technology Limited and Thirdware Solutions Limited in its comparability analysis which are functionally dissimilar Appellant in respect of its provision of contract software development services (IT). 4.6 On the facts and in the circumstances of the case and in law, the TPO erred in introducing Iservices India Private Limited in its comparability analysis which is functionally dissimilar to the Appellant in respect of its provision of shared services (ITeS). 4.7 On the facts and in the circumstances of the case and in law, the TPO erred in introducing Miton Corp Limited in its comparability analysis without considering the peculiar facts about the company which make it unfit to be held as a good comparable for benchmarking provision of shared services (ITeS). It is prayed that the above companies be excluded from the set of comparables considered by the TPO for comparability analysis. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
During the course of hearing, the ld. counsel for the assessee has invited our attention that though the DRP has reproduced the assessee’s contentions and TPO’s finding with regard to exclusion/inclusion of comparables, but they themselves have not examined the issue in the light of assessee’s contentions. Only in one para they have adjudicated the issue of exclusion/inclusion of comparables and finally concluded that no interference is called for in the order of the TPO.
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During the course of hearing, both the parties have agreed that
since the DRP has not adjudicated the contentions of the assessee by
passing a reasoned order, the matter should be restored back to their file
with a direction to reajdudicate the contentions of the assessee with regard
to exclusion/inclusion of comparables by applying different filters. The ld.
counsel for the assessee, however, submitted that since the assessee has
also raised additional grounds of appeal before the Tribunal, the same
should also be considered by the DRP while adjudicating the issue of
transfer pricing.
Having carefully examined the order of the DRP and the TPO, we
find that the DRP has not applied its mind to the contentions of the
assessee and findings of the TPO. It has summarily rejected the
contentions of the assessee and approved the action of the TPO by
passing a cryptic order, whereas the DRP is supposed to pass a reasoned
order analyzing the contentions of the assessee in the light of TPO’s order.
Since the DRP has not passed a reasoned order adjudicating the
contentions of the assessee, we set aside the order of the DRP and restore
the matter back to their file with a direction to readjudicate the issue of
transfer pricing determining the ALP for international transactions in the
light of assessee’s contentions for exclusion/inclusion of the comparables.
Since the assessee has also filed additional grounds of appeal and the
entire issue is restored to the DRP, the DRP may also consider the
additional grounds of appeal raised before the Tribunal while adjudicating
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the issue of transfer pricing. Accordingly, the order of the DRP is set aside and the matter is restored to the file of DRP to readjudicate the issues afresh in the terms indicated above.
In the result, the appeal of the assessee stands allowed for statistical purposes.
Pronounced in the open court on this 27th day of September, 2017.
Sd/- Sd/-
( A.K. GARODIA ) ( SUNIL KUMAR YADAV) Accountant Member Judicial Member
Bangalore, Dated, the 27th September, 2017. / Desai Smurthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Senior Private Secretary ITAT, Bangalore.