DCIT, CIRCLE -1 (1), TIRUPATI vs. DASAN INDIA PRIVATE LIMITED, VIJAYWADA
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI K. NARASIMHA CHARY & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M:
This appeal is filed by M/s. DASAN India Private Limited, Vijayawada (“the assessee”) against the final assessment order of learned Assessing Officer (“Ld. AO”) dated 17/02/2022 passed as per the directions of Dispute Resolution Panel, Bengaluru (“Ld. DRP”), for the A.Y. 2017-18, u/s 143(3) r.w.s. 144C(13) r.w.s.144B of the Income Tax Act, 1961 (“the Act”).
Facts of the case are that the assessee is engaged in the business of trading of products in telecommunication and information technology sectors
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which were imported from its Associated Enterprises (AEs). For the A.Y. 2017-
18, the assessee filed the return of income on 30/11/2017, declaring loss of Rs.
9,95,903/-. In view of the international transaction of import of products from
the AEs, determination of Arm’s Length Price (“ALP”) was referred to the learned
Transfer Pricing Officer (“ Ld. TPO”). The assessee had adopted Resale Price
Method(“RPM”) as Most Appropriate Method (“MAM”) in the TP study report.
Ld. TPO by order dated 29/12/2020, rejected RPM as MAM and adopting the
Transaction Net Margin Method (“TNMM”) as MAM, suggested upward
adjustment of Rs. 1,09,47,033/- in respect of imported products. Accordingly,
the Ld. AO passed the draft assessment order dated 01/04/2021. Aggrieved,
assessee preferred objection before the Ld. DRP, and pursuant to the directions
of the Ld. DRP dated 28/01/2022, Ld. AO finalised the assessment, determining
the upward adjustment of Rs. 1,50,23,628/- on account of imported products.
Hence, this appeal.
At the outset, Ld. AR submitted that the assessee is not disputing the
adoption of TNNM as MAM by the Ld. TPO instead of RPM for calculation of ALP.
However the assessee is disputing the inclusion of eight comparables, namely,
ACL Mobile Ltd.(“ACL”), Arya Communication & Electronics Services Pvt.
Ltd.(“Arya”),Cineom Broadcast India Ltd.(“Cineom”), Hughes Communications
India Pvt. Ltd.(“Hughes”), HCL Comnet Systems & Services Ltd.(“HCL”), Uniinfo
Telecom Services Ltd.(“Uniinfo”), Seven 3 Rockers Technologies Pvt Ltd.(“ Seven-
3”) and S.K.Communications Pvt Ltd.(“S.K. Communications”), on the grounds of
functional dissimilarity only. The Ld. AR submitted that the assessee was engaged
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in the trading activities i.e. the assessee was importing the products from AEs
and supplying the same products to the seller without any value addition. Hence
the activities of the assessee was purely in the nature of trading. To justify their
contention that the assessee was engaged purely in trading activity and there
was no value addition to the product, the Ld. AR submitted before the bench,
some purchases and sales invoices to demonstrate that the items purchased as
per the purchase invoice and sold as per sales invoices are same. The Ld. AR
further submitted that the main activities of the said eight comparables
companies were in the nature of services. Therefore, he requested that, these
comparables may be excluded from the list of comparables.
He also submitted that the assessee is praying for inclusion of one
comparable, namely, Globe Mobility Private Limited(“Globe”), which was
excluded by the Revenue authorities.
The assessee also filed one additional ground of appeal which is as under:
“Ground No. 1 : erred in not appreciating that the appelant is in first year of
operations and expecting the appellant to earn such high profits.”
We have persued the additional ground of appeal of the assessee and
gone through the records. There is no dispute about the facts that this is the first
year of the business of the assessee. It is also a fact that the assessee is not in
manufacturing or other complicated line of business structure, which involves a
lot of exercise to get established in the market. To the contrary the assessee is in
purely trading activity with a determined supplier as well as the buyer. Hence on
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perusal of the facts of the case and the nature of the business of the assessee,
we do not find any merits in the additional ground raised by assessee and
therefore we dismiss the same. Accordingly the additional ground raised by
assessee is dismissed.
Ld. DR, heavily placed reliance on the orders of the Revenue authorities
and requested to upheld the order of the revenue authority. The Ld. DR further
submitted that the assessee was not purely engaged in the activity of trading,
but provided the installation services also to the buyer. Therefore the contention
of the assessee that they were purely engaged in the activity of trading is not
correct. Therefore he objected to exclude these eight company from the list of
comparable.
We have gone through the record in the light of the submissions made
on either side. Before going to examine the suitability of the entity as
comparable, we have to first decide the nature of business of the assessee. As
per the claim of the assessee, they were engaged purely in trading activities and
no value addition had been made to the product before the same were supplied
to the buyer. The assessee also contended that they did not perform any activity
in the nature of services in pursuance of the supply of the product i.e. any
installation etc. However the Ld. DR argued that the assessee had performed the
installation services also. We have gone through the purchase and sales invoices
submitted by the assessee corresponding to the supply of the products. The
assessee has also furnished an affidavit dated 05/08/2022 to the effect that the
company had not undertaken any functions pertaining to
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installation/commissioning services. On the perusal of purchases invoices, sales
invoices and the affidavit, we are of the considered opinion that the assessee
was engaged in the nature of purely trading activity and was not involved in
supply of any services.
With this fact on records, the suitability of the entities, namely, ACL,
Hughes , HCL , Uniinfo and Seven-3 , to be compared with the assessee was
considered, the revenue from trading activity of these companies are Rs.
NIL,Rs.8310989/-, Rs.NIL, Rs.172257 and Rs.NIL/- respectively, the revenue from
service activity of these companies are Rs.1465388544/-, Rs.1515273581,
Rs.435276818, Rs.278593753 and Rs.194706733/- respectively and the total
operational revenue of these companies are Rs.1465388544/-,Rs.1658055169,
Rs.435276818, Rs.278766010 and Rs.194706733/- respectively. Hence the % of
revenue from service activity with total operational revenue are
100%,91.39%,100%,99.94% and 100% respectively. Therefore most of the
operational revenue of ACL, Hughes , HCL , Uniinfo and Seven-3 are from service
activity, however in the case of the assessee the total revenue is from trading
activity. Therefore we are of considered opinion that ACL, Hughes , HCL , Uniinfo
and Seven-3 are functionally dissimilar and are not comparable to the assessee.
Hence, we deem it just and proper to exclude these five companies from the list
of comparable. Accordingly , we direct the Ld. AO to exclude these five
companies from the list of comparable for the purpose of working of profit level
indicator(“PLI”).
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So far as, the suitability of the entity, namely, S.K.Communications, to be
compared with the assessee was considered, the Ld. AR brought our attention to
page no. 1946 of the P.B. and submitted that S.K.Communications is a
subcontractor of TCIL for the work of “erecting communication towers, posting
VSAT and antennas, laying cables, setting up computer hardware and installing
computer softwares and power backups to run those systems”. The total receipt
of the assessee from TCIL is Rs. 441,84,400/-( page no. 1942 of the P.B.), which
is 87.03% of the total revenue from operation. Hence the major receipts of
S.K.Communications are from sub-contract work, however in the case of the
assessee the total revenue is from trading activity. Therefore we are of
considered opinion that S.K.Communications is functionally dissimilar and is not
comparable to the assessee. Hence, we deem it just and proper to exclude
S.K.Communications from the list of comparable. Accordingly , we direct the Ld.
AO to exclude S.K.Communications from the list of comparable for the purpose
of working of profit level indicator(“PLI”).
So far as, the suitability of the entity, namely, Arya , to be compared with
the assessee was considered, the Ld. AR submitted that Arya is engaged in
trading, commission agent and rendering of services, and hence functionally
dissimilar to the assessee . However as per page no. 1295 of the P.B. the receipt
from trading, services and total revenue from operations of Arya are Rs.
1767362424/-, Rs.46251983/- and Rs. 1813614407/- respectively. Hence the
receipt from the trading activity of Arya is 97.45% of the total revenue from
operations, resulting only nominal receipt from services. As the major receipts
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are from trading activity, the contention of the Ld. AR in this regards is not
acceptable and there submission for exclusion of Arya from the list of comparable
is dismissed.
So far as, the suitability of the entity, namely, Cineom, to be compared
with the assessee was considered, the Ld. AR submitted that Cineom is also
engaged in rendering of services, and hence functionally not comparable to the
assessee . However as per page no. 1340 of the P.B. the receipt from trading,
services, other receipts and total revenue from operations of Cineom are Rs.
525354754/-, Rs.82093312/-, Rs.27067035/- and Rs. 634515101/- respectively.
Hence the receipt from the trading activity of Cineom is 82.80% of the total
revenue from operations, resulting into only 17.20% from other activity. As the
major receipts are from trading activity, the contention of the Ld. AR in this
regards is not acceptable and there submission for exclusion of Cineom from the
list of comparable is dismissed.
Coming to the issue relating to the inclusion of the entities, Globe, which
was rejected by the revenue authority due the reason that, company data was
not available. The Ld. AR submitted that, the annual report of Globe is now
available on the public domain and contended that Globe should be considered
as the comparable company as it is engaged in trading activity and passes all the
filter applied by the Ld. TPO. Considering their submissions, we are of the
considered opinion that, if the comparable is functionally same as that of tested
party then same cannot be rejected. Hence we direct the Ld. AO to verify the
comparability of Globe after providing an opportunity of being heard to the
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assessee. Accordingly, we allow this ground of the assessee for statistical
purpose.
In the result, appeal of the assessee is partly allowed for statistical purpose.
Pronounced in the open court on 29th Aug., 2024.
Sd/- Sd/- (K. NARAIMHA CHARY) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad. Dated: 29.08.2024.
* Reddy gp
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Copy of the Order forwarded to : M/s. Dasan India Pvt. Ltd., Sri Pothuri Towers, 4th 1. Floor, D.No.40-1-140/3, M G Road, Labbipet, Vijhayawada-520010 Krishna District, A.P. 2. DCIT, Circle 1(1), Tirupati.
Pr. CIT, Tirupati. 4. DR, ITAT, Hyderabad. 5. Guard file.
BY ORDER,
