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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
These are appeals filed by the Revenue and assessee respectively directed against an order dated 31.12.2014 of Deputy & 449/Mds/2015 :- 2 -:
Commissioner of Income Tax, Corporate Circle 2(1), Chennai pursuant to directions of ld. Dispute Resolution Panel (in short ‘’the DRP’’) u/s.144C (13) of the Income Tax Act, 1961 (in short ‘’the Act’’).
Grounds taken by the assessee read as under:- 2. 1.The order of the assessing officer (AO) 1 Transfer Pricing Officer (TPO) /DRP is opposed to law and the facts and circumstances of the case. 2.The AO erred in adding a total sum of Rs.1,79,74,941/- under "Profits from Marketing Services"; the addition made pursuant to the directions of the DRP is incorrect and unsustainable. 3.The TPO/ DRP/ AO erred in not accepting the objections raised to the Transfer Pricing Adjustment in Form No.35A (u/s 144C(2)(b)) filed on 04.04.2014 and the further Written Submissions dated 17.09.2014 and sustaining enhancing the 1 adjustment and adding Rs.1 ,74,00,000/- to the appellant's total income. 4.The TPO/ DRP erred in excluding Akshay Software from the comparables together with FCS Software Solutions; removal of FCS Software was sought on the ground of functional and operational differences, a ground not considered in the DRP proceedings and Akshay Software, was also excluded in the set of com parables, by adopting a Off-shore Service Provider filter. It is submitted that if Akshay Software is included in the set of comparables, the average operating margin would be 20.87% and no adjustment to the transaction price will be needed. 5.Without prejudice to the foregoing, the TPO 1 DRP erred in applying "75% or more of Off - Shore Service provider" to selected com parables without considering the same for other comparables viz., RS Software and Taksheel Solutions. 6.Without prejudice to the aforesaid contentions, and assuming without admitting that any adjustment is justified, the appellant submits that in giving effect to the DRP directions u/s 144C(5) dated 30.12.2014 & 449/Mds/2015 :- 3 -: the TPO has inadvertently considered the operating margin of a comparable company, KALS Information System Ltd at 36.25% as against the correct operating margin of 21.11 %, which was adopted by the TPO in the Remand Report dated 18.11.2014 submitted to the DRP; considering the correct operating margin of 21.11 %, the Revised Average Operating Margin of the comparable companies will be 24.01 % and the Revised Upward adjustment will be 1.32 Crores - as indicated in the Petition for Rectification u/s 154 dated 27.01.2015 made by the appellant to the AO.
7. The appellant submits and urges that, on the facts and circumstances of its case, the Transfer Pricing Adjustment is uncalled for and deserves to be deleted.
The AO erred in adding Employees' contribution to PF of Rs.5,74,941/- invoking section 2(24)(x) r.w.s 36(1 )(va) of the Act. 9. The AO I DRP failed to see that the said amount had been paid before the due date for furnishing the return of income for the present year and qualifies for allowance I deduction during this year. 10. The AO I DRP further failed to see that the Apex Court had affirmed the decision of the Karnataka High Court in CIT vs. Sabari Enterprises [(2008) 298 ITR 141 (Karn)] which deals with the allowability of employees' contribution to provident fund I ESI paid within the due date for filing return deciding the issue in assessee's favour. 11. The appellant submits that, in addition to the decisions cited by the appellant before the DRP and noted in Para 8.2.1 of the DRP's directions, the following other judicial decisions also support the appellant's claim for deduction of the Employees' contribution to PF i) CIT vs. Vinay Cements Ltd [(2009) 313 ITR (St) 1 (SC)] ii)Commissioner of Income-tax v. AIMIL Ltd. [(2010) 321 ITR 508 (Delhi)] iii) CIT vs. Lakhani Rubber Works [(2010) 326 ITR 425 (P & H)] iv) DCIT vs. Eastern Medikit Ltd [(2012) 18 ITR (Trib)
& 449/Mds/2015 :- 4 -:
457 (Delhi)] v) CIT, Circle I, Kolkata vs. Mis Vijay Shree Limited 12.The appellant submits that the decision of the Hon'ble Gujarat High Court in CIT vs. Gujarat State Road Transport Corporation [(2014) 366 ITR 117 (Guj)] relied on by the AO I DRP has been dissented from in Essae Teraoka P Ltd vs. DCIT [(2014) 366 ITR 408 (Karn)]; the appellant relies on the reasoning and conclusion in the judgment of the Hon'ble Karnataka High Court and submits that the addition of Rs.5,74,941/- is wholly unjustified. 13.The appellant urges that its case is squarely covered by the decision of the Supreme Court in Alom Extrusions Ltd and other judicial decisions cited in Ground NO.11 above and the sum of Rs.5,74,941/- representing Employees' contribution to PF is allowable.
Without prejudice to the above grounds, it is ‘submitted that the sum of ₹5,74,941/- includes ₹5,30,076/- pertaining to the eligible unit u/s.10A and the balance Employee’s Contribution to PF for the ₹44,865/- ineligible Unit is only. Hence, the disallowance of ₹5,74,941/- is in any event, excessive.
The appellant craves leave to refer to the correspondence with the TPO and detailed objections raised before DRP and argue to the appeal at the time of hearing.
The Assessing Officer erred in levying interest u/s.234B/ 234D. The levy of interest is not according to law and the interest levied is, in any case, excessive 17. For these and other grounds that may be adduced at the time of hearing the appellant prays that the Hon’ble Tribunal be pleased to allow the appeal and render justice.
As against this grounds taken by the Revenue read as under:-
‘’1. The Order of the learned Dispute Resolution Panel is contrary to the law and facts of the case.
& 449/Mds/2015 :- 5 -:
2.1. The Id. DRP erred in excluding M/s.FCS Software Solutions Limited from the set of uncontrolled comparables as the ECS does not qualify the filter named onsite Revenue Filter more than 75% are rejected". 2.2. The Id. DRP ought to have appreciated that the FCS has only 48.94$ of Onsite Revenue to the total revenue and not 75% as decided by the Hon'ble Panel. 2.3. The Id. DRP erred in giving the direction by considering that MIs. FCS .Software Solutions Ltd., is engaged in IT consulting, Educational and infrastructure management based on the facts given in the consolidated financial and not on the basis of standalone financials of MIs. FCS Software Solutions. Ltd. 2.4. The Id. DRP ought to have considered the nature of services rendered by the assessee company which are System software development, System software conversion, Design and implementation of management information system and decision support system, Financial control and accounting system, Production management and inventory control, Project feasibility studies and project monitoring systems, Microprocessor based software, Communication software, Computer Aided Design (CAD), Computer Aided Manufacturing (CAM), CIM and FEA, Export system, Back office, remote data entry and Application re-engineering are similar to the services rendered by MIs. FCS Software Solutions Ltd. 2.5. The Id. DRP failed to consider the decision of the Hon'ble ITAT in the case of M/s Navisite India Pvt. Ltd., in which the Hon'ble ITAT upheld that MIs. FCS Software Solutions Ltd., should be considered as comparable company and facts of the case is same. 2.6. The Id. DRP, erred in directing the TPO to consider the interest expenditure of ₹42,00,000/- as operating cost in the case of M/s. Taksheel Solutions Limited. 3.1. The Id. DRP erred in excluding the foreign exchange loss both from the export turnover and also from the total turnover . 3.2 The Id. DRP ought to have considered that issue of exclusion of foreign exchange form export turnover has been decided in favour of Revenue by the jurisdictional ITAT in the case of Financial Software and systems P. Ltd. in decided in June 2014. 4.For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Dispute Resolution Panel be set aside and that of the Transfer Pricing & 449/Mds/2015 :- 6 -:
Officer be resorted’’.
Ground No.1 of both assessee and Revenue are general in 4. nature needing no specific adjudication.
Grounds 2.1 to 2.6 of the Revenue and grounds 2 to 7 of the assessee are on Transfer Pricing issues.
6. Ld. Counsel for the assessee at the outset submitted that the order of the ld. Assessing Officer which is impugned here was subjected to a rectification by ld. Transfer Pricing Officer (in short ‘’ld.
TPO’’). As per the ld. Authorised Representative, the TPO had on 27.02.2015 passed a rectification order whereby margin computation of a number of comparables were re-considered. As per the ld. Authorised Representative, the ld. TPO had re-calculated the PLI of the comparables which were used for analyzing the pricing of the international transactions of the assessee with its Associated Enterprise. According to him, grounds raised in the assessee in this appeal would still be valid and relevant and had to be considered, despite such rectification of the margins computed for the comparables.
On the other hand, ld. Departmental Representative submitted that Revenue was also aggrieved on the directions by the ld. DRP to exclude certain comparables and the correctness of new PLI & 449/Mds/2015 :- 7 -:
of comparables based on rectification effected by ld. TPO on 27.02.2015 was an issue which was never considered by the ld. DRP.
We have heard the rival contention and perused the orders 8. of the lower authorities. Assessee through its grounds is seeking exclusion of number of companies based on various filters which as
per assessee ought to have been applied by the lower authorities. As against this, Revenue is aggrieved on directions of the ld. DRP to exclude one of the many comparables considered by the ld. TPO.
What we find is that the ld. TPO had in the original TPO order dated 03.12.2013 while accepting the TNMM study as the most appropriate one, considered following comparables for analyzing the correctness of the value of the international transactions undertaken by the assessee with its Associated Enterprise.
Sl.No Name of the comp. company Margin (%) 1 Akshay Software Tech Ltd (-)0.91 2 KALS Information System Ltd 36.25 3 Spry Resoruces India P. Ltd 33.01 4 ICRA Techno Analytics Ltd 28.89 5 CTIL (Comp-U-Learn Tech 16.94 India Ltd) 6 Taksheel Solutions Ltd 41.92 7 Thinksoft Global Services Ltd 17.27 8 R.S. Software (India) Ltd 10.59 9 FCS Software solutions Ltd 49.12
Average 25.90 & 449/Mds/2015 :- 8 -:
In the rectification order dated 27.02.2015 of the ld. TPO, the margin of the following comparables were reworked as under:-
Sl.No Name of the comp. company Margin (%) 1 KALS Information System Ltd 21.11 2 Spry Resoruces India P. Ltd 33.26 3 ICRA Techno Analytics Ltd 28.62 4 CTIL (Comp-U-Learn Tech 18.11 India Ltd) 5 Taksheel Solutions Ltd 40.22 6 Thinksoft Global Services Ltd 17.26 7 R.S. Software (India) Ltd 10.29
Average 24.12 A change in profit level margins of comparables would have considerable effect on the TP study since assessee’s margin has to be compared with average PLI of the comparables of the selected comparables. That apart, the question whether ld. TPO could affect a rectification of an assessment order passed by the ld. Assessing Officer pursuant to directions of ld. DRP u/s.144C (13) of the Act has also to be considered. In such circumstances, we are of the opinion that transfer pricing issues raised by the assessee as well as Revenue requires a revisit by the ld. DRP. We therefore set aside the order of the ld. Assessing Officer and remit the transfer pricing issues back to the ld. DRP for consideration afresh and ld. Assessing Officer shall pass a fresh order based on the directions given by the ld. DRP. Ld. DRP shall also consider correctness of margins of various comparables worked out by the ld.TPO and also decide exclusion/ inclusion sought & 449/Mds/2015 :- 9 -: by the assessee giving reasons for their decision. In the result, grounds 2 to 7 of the assessee and grounds 2.1 to 2.6 of the Revenue are treated as allowed for statistical purpose.
The only other ground raised by the assessee is on 9. disallowance of employees contribution to Provident Fund.
As per ld. Authorised Representative such contribution was 10. remitted by the assessee before due date for furnishing returns.
Hence, disallowance ought not have been done u/s.2(24)(x) r.w.s.
36(1)(va) of the Act. Reliance was placed on the judgment of Jurisdictional High Court in the case of CIT vs. M/s. Industrial Security & Intelligence India Pvt. Ltd in Tax Case (Appeal) 585 and 586/2015 dated 24.07.2015.
Per contra, ld. Departmental Representative strongly 11.
supported the orders of the authorities below.
We have considered the rival contentions and perused the 12. orders of the authorities below. Hon’ble Jurisdictional High Court in the case of M/s. Industrial Security & Intelligence India Pvt. Ltd (supra) had held at para 5 & 6 of its judgment dated 24.07.2015 as under.
‘’5. We find that the Tribunal has righty relied on the decision of the Supreme Court in the case of CIT vs. Alom Extrusions Ltd, reported in 319 ITR 306, whereby & 449/Mds/2015 :- 10 -: the Supreme Court held that omission of second proviso to Section 43B and amendment to first proviso by Finance Act, 2003 are curative in nature and are effective retrospectively. i.e. with effect from 01.01.1988 i.e the date of insertion of first proviso. The Delhi High Court in the case of CIT vs. Amil Ltd, reported in 321 ITR 508 held that if the assessee had deposited employee’s contribution towards Provident Fund and ESI after due date as prescribed under the relevant Act, but before the due date of filing of return under the Income Tax Act, no disallowance could be made in view of the provisions of Section 43B as amended by Finance Act, 2003.
In the present case, the assessee had remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income. Hence, following the above said decisions, we find no reason to differ with the findings of the Tribunal. Accordingly, we find no question of law much less any substantial question of law arises for consideration in these appeals. Accordingly, both the Tax Case (Appeals) stand dismissed. No cost. Consequently, M.P. No.1 of 2015 is also dismissed’’.
However, whether the sum of �5,74,941/- was paid by the assessee before due date of filing of return was not verified by any of the lower authorities. For this limited purpose, we remit the issue back to the file of the ld. Assessing Officer. Grounds 8 to 13 of the assessee are allowed for statistical purposes.
This leaves us with ground No.3 taken by the Revenue, in its appeal which assails exclusion of foreign exchange loss both for export turnover and total turnover. We find that the above issue is covered in favour of the assessee by the judgment of Hon’ble & 449/Mds/2015 :- 11 -:
Karnataka High Court in the case of CIT vs. Tata Elxsi Ltd, 349 ITR 98. Their Lordship had held that whatever was excluded from export turnover had to excluded from total turnover also while computing deduction u/s.10A/10B of the Act. In such circumstances, we do not find any reason to interfere with the orders of lower authorities.
To summarize the results, appeal of the Revenue is treated s 14. partly allowed for statistical purposes whereas that of the assessee is allowed for statistical purpose.
Order pronounced on Friday, the Seventh day of April, 2017, at Chennai.