DCIT, BANGALORE vs. M/S LM WIND POWER TECHNOLOGIES INDIA PVT. LTD., BANGALORE

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ITA 289/BANG/2016Status: DisposedITAT Bangalore08 September 2016AY 2011-124 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal found the Revenue's grounds of appeal to be misconceived. The TPO was directed to reconsider the percentage of risk adjustments in accordance with the law, following previous judicial precedents.

What were the facts?

The Department appealed the Dispute Resolution Panel's (DRP) order regarding a 1% risk adjustment for the assessment year 2011-12. The assessee argued that the DRP's decision was based on previous ITAT rulings which accepted similar objections.

What were the issues?

Whether the DRP erred in granting a 1% risk adjustment without appreciating the facts and comparables. The core issue revolved around the appropriate risk adjustment for a captive service provider.

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, BENCH- A, BANGALORE

For Appellant: Shri GR Reddy, CIT
For Respondent: Shri T Suryanarayana, Advocate

PER A SHA VIJAYARAGHAVAN, JUDICIAL MEMBER :

1.

This appeal by the assessee is directed against the order of Commissioner of Income-tax, Bangalore dated 31.12.2015 and it pertains to the assessment year 2011-12.

2.

The Department has filed the following grounds of appeal:

“(1) The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. The Hon’ble DRP erred in granting 1% risk adjustment arbitrarily without appreciating the facts of the case and its comparables. 3. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.”

3.

The ld counsel for the assessee submitted as under:-

As regards adjustment on account of risk analysis, the objections of the tax payer have been considered along with the judicial decisions cited. This issue was before DRP for AY 2010-11 also and the objection of the assessee was accepted. The Hon’ble Bangalore ITAT in case of Intellinet Technologies Pvt. Ltd., Vs. ITO (ITA No.1237/Bang/2007) rejected the tax department’s argument that a single customer risk borne by the tax payer in its status of a captive service provider was equivalent to the marketing and technical risk

3 attached to the comparables. The Hon’ble ITAT held that the risk of having a single customer is an anticipated risk which may or may not happen unlike the marketing and technical risks which have to be contemporaneously dealt with by the compa5rbles. The ITAT did not accept that the risk adjustment should be by 5% or at the difference of PLR of the RBI and the banks, and directed the TPO to consider all the contentions and decide the percentage of risk adjustments to be made in accordance with law. Respectfully following the decision of the Hon’ble ITAT Bangalore as above the TPO is directed to decide the percentage of risk adjustments to be calculated in this case. By means of guidance, it may be mentioned that in the case of DCIT Vs. Hello Soft Pvt. Ltd., (2013) 32 taxmann.com 101 (ITAT, Hyd) 1% adjustment to the average margin was provided towards risk differential.

4 4. We are of the opinion that Revenue’s grounds are misconceived and hence we dismiss the same.

In the result, the appeal of the Department is dismissed.

Order pronounced in the open court on 8th September, 2016.

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