Income Tax Appellate Tribunal - Chennai
Trimble Information Technologies ... vs Acit Corporate Circle 3(1), Chennai on 6 June, 2019
आयकर अपील य अ धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH : CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं
ी इंटूर रामा राव, लेखा सद य के सम
[BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER]
आयकर अपील सं./I.T (TP) No.16/CHNY/2018
नधारण वष /Assessment year :2013-2014
M/s. Trimble Information Vs The Assistant Commissioner of
Technologies India Private Limited, Income Tax,
Module No.603-604, 6th floor, Corporate Circle 3(1)
C Block, Tidel Park, Chennai.
No.4, Rajiv Gandhi Salai,
Taramani, Chennai 600 113.
[PAN AACCA 6240K]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ# क$ ओर से/ Appellant by : Shri. Ashik Shah, C.A.
&'यथ# क$ ओर से /Respondent by : Shri. M. Srinivasa Rao, CIT.
सन
ु वाई क$ तार ख/Date of Hearing : 12-03-2019
घोषणा क$ तार ख /Date of Pronouncement : 06-06-2019
आदे श / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER
This is an appeal filed by the Assessee directed against the order of the Commissioner of Income Tax (Appeals)-11, Chennai ('CIT(A)' for short) dated 28.02.2018 for the Assessment Year (AY) 2013 -2014. :- 2 -: IT(TP) No.16/18
2. The Assessee-company raised the following grounds of appeal:
1. ''The order passed by the Ld. TPO confirmed by the Ld. Commissioner of Income Tax (Appeals) -11 [hereinafter referred to as Learned ("Ld.") authorities] under section 250 of the Act to the extent prejudicial to the Appellant, is contrary to the facts and circumstance of the case and is bad in law.
2. The Ld. authorities have finalized their order with improper adjustment to the reported taxable profits of the Appellant, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, application of filters, analysis of the functions carried out by the Appellant and those of the comparable companies, analysis of the economic circumstances experienced by the Appellant, selection of comparable companies, computation of profit margins of comparable companies, usage of appropriate adjustments, and consideration of the information, arguments and evidence provided by the Appellant.
3. The Ld. authorities erred in law and on facts by not taking cognizance of the submissions filed by the Appellant and thereby not passing a speaking order in respect of such submissions.
4. In the facts and circumstances of the case, the Ld. TPO erred in rejecting the TP documentation maintained by the Appellant in accordance with the provisions of the law and undertaking a fresh comparability analysis at the time of assessment, which was beyond the due date of mandatory maintenance of TP documentation under the Act.
5. In the facts and circumstances of the case, the Ld. TPO erred in law and facts by not providing the details of the search undertaken by him for selecting the comparable companies for software services transactions.
6. In the facts and circumstances of the case, the Ld. TPO erred in inter alia applying the following filters in comparability analysis and rejecting the comparable software services companies:
a) Persistent loss for three years; and :- 3 -: IT(TP) No.16/18
b) Financial year not ending on 31st March.
7. In the facts and circumstances of the case, the Ld. TPO erred in inter alia selecting the following companies as comparables, which are functionally dissimilar to the Appellant:
a) Larsen & Toubro Infotech Ltd;
b) Persistent Systems Ltd
c) Thirdware Solutions Ltd
8. In the facts and circumstances of the case, the Ld. TPO erred in rejecting the comparable companies selected by the Appellant on incorrect parameters.
9. In the facts and circumstances of the case, the Ld. TPO/ Ld. CIT(A) erred in computing the net margin of ICRA Techno Analytics Ltd.
10. In the facts and circumstances of the case, the Ld. CIT(A) erred in rejecting a comparable company viz., Acropetal Technologies Limited, though the same was accepted by the Ld TPO as it satisfied all the comparability filters applied by him.
11. The Ld. TPO and Ld. CIT(A) erred in law and on facts by not applying the multiple year/ prior year data for comparable companies while determining the arm's length price.
12. In the facts and circumstances of the case, the Ld. TPO and Ld. CIT(A) erred in not undertaking adjustment for differences in working capital of the Appellant vis-à-vis the comparable companies selected.
13. In the facts and circumstances of the case, the Ld. TPO and Ld. CIT(A) erred in economic adjustment for the differences in risks borne by the Appellant vis-ã-vis the comparable companies selected.
14. The Ld. AO erred in initiating penalty proceeding against the Appellant. The Appellant is contending on such penalty proceeding before the Ld. Assessing Officer''.
:- 4 -: IT(TP) No.16/18
3. The brief facts of the case are as under:
The appellant namely M/s. Trimble Information Technologies India Private Limited is a company incorporated under the provisions of the Companies Act, 1956. M/s. Trimble Information Technologies India Private Limited is a 100 percent subsidiary of Trimble Navigation Limited (''Trimble US''). It is engaged in the business of rendering software development support services to 'Trimble US''. These services were rendered as per the services agreement with 'Trimble US. Appellant company works on a remuneration model of operating cost plus 15 percent margin. The return of income for the AY 2013-14 was filed on 30.09.2013 disclosing total income of Rs.7,16,76,410/-. The assessee also reported the following international transactions in form 3CEB as under:-
Sl.No Nature of Amount Method
transaction (E) adopted
1 Services 50,00,43,803 TNMM
2 Reimbursement 2,46,43,846 CUP
3 Fixed Assets 2,69,236 TNMM
Total 52,49,56,885
Assessee company submitted Transfer Pricing study report adopting Transactional Net Margin Method (''TNMM'') as most appropriate method in respect of the services segments and CUP method for the :- 5 -: IT(TP) No.16/18 purpose of benchmarking the transaction of reimbursement of expenses. The Assessing Officer made reference u/s.92CA(1) of the Income Tax Act, 1961 (in short ''the Act'') to Transfer Pricing Officer for the purpose of bench marking above international transactions. The Transfer Pricing Officer vide order dated 26.10.2016 passed u/s.92CA(3) of the Act rejected the transfer pricing documentation submitted by the assessee company and proceeded with bench marking the above transactions by selecting the following comparables.
Sl.No Name of comparables OP/OC (%)
1 Acropetal Technologies Ltd 0.81
2 Mindtree Ltd 20.23
3 R S Software (India) Ltd 17.35
4 Goldstone Technologies Ltd 14.54
5 CG-Vak exports 12.29
6 ICRA Techno Analytics Ltd 20.81
7 Persistent Systems 31.94
8 Thirdware Solutions 36.98
9 L & T infortech. 25.86
Average 20.09
whose the average margin was computed at 20.09% and suggested a upward adjustment of E2,21,32,373/-. The Assessing Officer after receipt of the Transfer Pricing Officer order passed draft assessment order on 21.11.2016, which was served on assessee on 28.11.2016. Thereafter, assessee vide his letter dated 14.12.2016 submitted that it is exercising the option of appeal before the ld. Commissioner of :- 6 -: IT(TP) No.16/18 Income Tax (Appeals), then the Assessing Officer passed final assessment order on 20.12.2016 passed u/s.143(3) r.w.s. 144C of the Act at total income of E9,38,23,571/- after making transfer pricing adjustment of E2,21,32,373/-.
4. Being aggrieved, an appeal was preferred before ld. CIT(A), contending that the TPO had adopted wrong mark-up of comparables and seeking exclusion of L & T infotech, Thirdware softwares, M/s. Persistent System Ltd etc. on the grounds of functional dissimilarity. The ld. Commissioner of Income Tax (Appeals) after considering the submissions had directed the Assessing Officer/ Transfer Pricing Officer to exclude M/s. Aeropetal Technologies Ltd and confirmed the inclusion of other comparables. The ld. Commissioner of Income Tax (Appeals) simply confirmed the action of the Assessing Officer without expressing any his independent views on the selection of comparables.
5. Being aggrieved, the appellant is in appeal before us in the present appeal.
6. We heard the rival submissions and perused the material on record. From the perusal of the impugned order, it is clear that the ld. Commissioner of Income Tax (Appeals) had merely confirmed the action of the Transfer Pricing Officer without examining comparability criteria adopted and appropriating or otherwise eligible criteria. He :- 7 -: IT(TP) No.16/18 simply endorsed the view of the Transfer Pricing Officer without expressing his independent view without meeting the objections raised by the assessee-company. Therefore we remit the appeal back to the file of the ld. Commissioner of Income Tax (Appeals) for fresh adjudication in accordance with law after affording due opportunity of hearing to the assessee. We make it clear that the issues raised in the present appeal are left open before the ld. Commissioner of Income Tax (Appeals) and accordingly direct the ld. Commissioner of Income Tax (Appeals) to adjudicate the appeal on merits.
7. In the result, the appeal filed by the assessee is partly allowed for statistical purpose.
Order pronounced on 6th day of June, 2019, at Chennai.
Sd/- Sd/-
(एन.आर.एस. गणेशन) (इंटूर रामा राव)
(N.R.S. GANESAN) (INTURI RAMA RAO)
या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
चे नई/Chennai
.दनांक/Dated: 6th June, 2019.
KV
आदे श क$ & त0ल1प अ2े1षत/Copy to:
1. अपीलाथ#/Appellant 3. आयकर आयु3त (अपील)/CIT(A) 5. 1वभागीय & त न7ध/DR
2. &'यथ#/Respondent 4. आयकर आयु3त/CIT 6. गाड फाईल/GF