HARLAND CLARKE HOLDINGS SOFTWARE INDIA PRIVATE LIMITED,CHENNAI vs. DCIT, CHENNAI

Shri N.V. Balaji, the Ld. Counsel for the assessee submitted that the assessee engaged in the business of software development, content development and tutoring services. The assessing officer referred the international transaction to the 2 Transfer Pricing Officer (TPO) under Section 92CA(1) of the Act for making adjustments. Having aggrieved by the adjustment made by the assessing officer, the assessee filed objections before the Dispute Resolution Panel. Before the Dispute Resolution Panel, the assessee placed 5 more comparable companies for the purpose of making adjustment with regard to transaction made by the assessee with the Associated Enterprises outside the country. According to Ld. Counsel for the assessee, the Dispute Resolution Panel has not considered the comparable companies filed before them. Referring to the additional ground filed by the assessee before this Tribunal, the Ld. Counsel submitted that 7 more comparable companies needs to be considered for the purpose of determining the Arm’s Length Price (ALP) with regard to the transaction made by the assessee. Hence, the Ld. Counsel submitted that the matter may be remitted back to the file of the TPO for reconsideration.

The Ld. Counsel for the assessee further submitted that the TPO as well as the Dispute Resolution Panel misunderstood the business of the assessee company and adapted erroneous segmentation while applying the transaction net margin method as most appropriate method for determining the international transaction method. The TPO included Informed Technologies India Limited as one of the comparable companies whose revenue consists of both income from IT enabled services and rental income. Segmental details are not available in the financial statement of that company. Therefore according to the Ld. Counsel, Informed Technologies India Limited cannot be considered as comparable companies. Similarly, other companies selected by TPO also 3 cannot be comparable with that of the assessee company. According to the Ld. Counsel, financial similarity is one of the most relevant factors for the purpose of comparing the other companies with assessee company to determine the international transaction. The Ld. Counsel further submitted that there is no intention on the part of the assessee company to shift the profit to other territory while claiming deduction under Section 10A of the Act. The Ld. Counsel further submitted that the assessing officer has also committed an error in not allowing a MAT credit to be set-off against the income of the assessee.

On the contrary, Shri Pathlavath Peerya, the Ld. Departmental Representative submitted that the additional ground by way of other comparable companies may not be admitted at this stage. According to the Ld. Departmental Representative, the comparable companies should be provided to the TPO for examination. Therefore, the comparable companies now provided before this Tribunal cannot be examined either by this Tribunal or by other authorities. On a query from the bench, when this Tribunal being a final fact finding authority, why the comparable companies now furnished by the assessee cannot be examined by the TPO and the Dispute Resolution Panel, the Ld. Departmental Representative submitted that in that case the matter may be remitted back to the file of the assessing office for referring the matter again for consideration of TPO.

We have considered rival submissions on either side and perused the material available on record. It is not in dispute that the 4 assessee engaged in the business of software and content development apart from tutoring services. For the purpose of adjustment and to determine the Arm’s Length Price it is necessary to compare the companies which are engaged in the similar business as that of the assessee company. Now, the assessee company has produced the details of 7 more companies in the additional grounds of appeal. They are as follows:

1) Aptech Limited 2) Compucom Software Limited 3) Educomp Solutions Limited 4) First Object Technologies Limited 5) Globsyn Technologies Limited 6) NIIT Limited 7) Usha Martin Education and Solutions Limited These 7 companies according to assessee are comparable. However, the lower authorities have no occasion to examine these companies. This Tribunal is of considered opinion that for the purpose of determination of Arm’s Length Price the comparable companies furnished by the assessee needs to be examined. Examination of the above 7 companies by the TPO once again may not prejudice the interest of justice in any way. This Tribunal is of the considered opinion that facts has to be settled at the Tribunal level otherwise, the higher forums may not be able to appreciate the reasoning of this Tribunal when the order is challenged by way of appeal. Therefore the TPO needs to consider the comparable companies furnished by the assessee and thereafter determine the Arm’s Length Price. Accordingly, the order of the lower authorities is set aside and the entire issue raised by the assessee is remitted back to the file of the assessing officer. The Assessing Officer shall refer the matter once again to the TPO along with the 7 comparable companies filed by the assessee before this Tribunal. The TPO shall re-examine the matter after considering the 7 comparable companies filed by the assessee before this Tribunal and thereafter decide the issue in accordance with law. It is open to the assessee to furnish objections in case it is aggrieved by the decision taken by the TPO. In such a case, the matter shall again be referred to the Dispute Resolution Panel on the basis of the objections raised by the assessee. The Dispute Resolution Panel shall also reconsider the matter afresh in accordance with provisions of Section 144C and therefore issue direction to the assessing officer after determining the Arm’s Length Price in respect of international transaction with Associated Enterprises.

With the above observations, the appeal of the assessee is allowed for statistical purpose.