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Income Tax Appellate Tribunal, BANGALORE BENCH “ A ”
Before: SHRI A.K. GARODIA & SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.9.8.2012 of Commissioner of Income Tax (Appeals) for the Assessment Year 2007-08.
The assessee has raised the following grounds : 1. “ The order passed by the Learned Commissioner of Income-tax (Appeals) -IV, Bangalore (‘CIT (Appeals)’), to the extent prejudicial to the Appellant is bad in law and liable to be quashed.
2 IT(TP)A No.1308/Bang/2012 2. The Learned CIT(Appeals) erred in not appreciating the fact that the Appellant had prepared the Transfer Pricing ('TP') documentation bona fide and in good faith in compliance with the Income-tax Act,1961 ('the Act') and Income-tax Rules, 1962 ('the Rules').
3. The Learned CIT(Appeals) erred in upholding the rejection of TP documentation by the Learned Transfer Pricing Officer (‘TPO’)/ Assessing Officer (‘AO’) and in making an adjustment to the transfer price of the Appellant in respect of its software development services by Rs. 35,600,361.
The Learned CIT(Appeals) erred in law and on facts in ignoring the business and commercial realities of the Appellant, while upholding the order of the TPO.
5. The Learned CIT(Appeals) erred in law and on facts in (i) disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation, that was available as on the date of preparing the TP documentation and (ii) holding that only current year (i.e. Financial Year 2006- 07) data should be used for comparable companies.
That on the facts and in the circumstances of the case, the Learned CIT(Appeals) erred in: (a) Upholding the rejection of comparability analysis of the Appellant in the TP documentation and in submissions provided during the assessment proceedings and amending the comparability analysis performed by the Learned TPO in the TP order;
(b) Modifying the benchmarking analysis performed by the TPO and thereby substituting the Appellant’s analysis with fresh benchmarking analysis, based on his own conjectures and assumptions;
(c) Arbitrarily arriving at a set of only three companies as comparable to the software development services of the Appellant, rejecting companies that are otherwise functionally comparable to the Appellant and considering comparable companies that otherwise fail the test of comparability;
(d) Upholding the Learned TPO’s approach of using data as at the time of assessment proceedings, instead of data that was available as on the date of preparing the TP documentation for comparable companies, while determining the arm’s length price; and 3 IT(TP)A No.1308/Bang/2012
(e) Upholding the approach adopted by the Learned TPO of collecting selective information of the companies by exercising power granted to him under section 133(6) of the Act, that was not available to the Appellant in the public domain 7. The Learned CIT(Appeals) erred in law and on facts in ignoring the limited risk profile of Appellant as detailed in the TP documentation and in upholding the conclusion of the Learned TPO and in not allowing appropriate adjustments under Rule 10B of the Rules to account for differences between the Appellant and comparable companies.
The Learned CIT(Appeals) erred in upholding the charging of interest under section 234B of the Act.
That the Appellant craves leave to add to and / or alter, amend, rescind or modify the grounds taken hereinabove before or at the time of hearing of this appeal.”
The assessee has also raised additional grounds and filed application seeking leave for filing the additional grounds which has been supported by the Affidavit. The additional grounds raised are as under :
“6(f). That the CIT(A) ought to have applied the related party transactions filter at 15% so as to reject companies having related party transactions in excess of 15% of their total operating revenues in the financial year 2006-07,instead of applying the said filter at ‘nil’.
6(g). That, having upheld the TPO’s action in applying the onsite revenues filter, the CIT(A) erred in suo moto modifying the threshold of its application from 75% to 25% so as to reject companies having onsite revenues exceeding 25% of their export revenues in the financial year 2006-07.
6(h). That, in the facts and circumstances of the case, Accel Transmatic Ltd., E-Zest Solutions Ltd., Persistent Systems Ltd., Quintegra Solutions Ltd., Sasken Communications Technologies Ltd., and Thirdware Solutions Ltd.ought to stand rejected as comparables to the Appellant as they are functionally dissimilar to the Appellant.”
4 IT(TP)A No.1308/Bang/2012 4. The assessee is a company incorporated in August, 2005 as wholly owned subsidiary of PMC Sierra Inc. The assessee is providing software development services to its Associated Enterprises (AEs). The Transfer Pricing Officer (‘TPO’) while determining the Arm’s Length Price (‘ALP’) in respect of international transactions has selected 26 comparable companies. The TPO applied various filters including RPT at 25%, export and on site revenue of 75%. The CIT (Appeals) rejected 18 companies from the set of comparables and applied 0% RPT filter and further has applied a modified filter in respect of on site revenue.
The CIT (Appeals) has further modified the filter of on site revenue from 75% to 25%. Thus the assessee has raised the additional grounds in respect of filters applied and modified by the CIT (Appeals) on its own without any objection raised by the assessee.
We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record.
Since these issues raised in the additional grounds are in respect of the filters applied by the CIT (Appeals) therefore it does not require any investigation and examination of new facts. Therefore in view of the decision of Hon'ble Supreme Court in the case of NTPC Ltd. 229 ITR 383, we admit the additional grounds raised by the assessee.
5 IT(TP)A No.1308/Bang/2012 6. As regards 0% RPT filter applied by the CIT (Appeals), we find that this Tribunal has been consistently taking a view that 0% RPT filter is not a possible situation while selecting the comparable companies and therefore the tolerance range of 15% RPT is considered as reasonable and proper in normal circumstances. Accordingly, the comparability of the companies selected by the TPO are required to be examined by applying the RPT filter at 15% and then on functional comparability. Since the CIT (Appeals) has modified the on site revenue filter on its own without giving an opportunity to the assessee therefore in the facts and circumstances of case, we set aside the impugned order of the CIT (Appeals) and remit the matter to the record of the CIT (Appeals) for readjudication of the issue of transfer pricing and comparability of the companies selected by the TPO in the light of our above observations.
Needless to say the assessee be afforded opportunity of hearing.