Income Tax Appellate Tribunal - Delhi
Avaya India Pvt. Ltd., Mumbai vs Addl.Cit, Special Range- 1, New Delhi on 12 December, 2018
1 Stay Appl. No. 846/Del/2018
Avaya India Pvt. Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'I-1' NEW DELHI
BEFORE SHRI N.K. SAINI, VICE PRESIDENT
&
SMT. BEENA A PILLAI, JUDICIAL MEMBER
Stay Appl. No. 846/Del/2018
(In ITA No. 7290/Del/2018)
(ASSESSMENT YEAR-2014-15)
Avaya India Pvt. Ltd. vs Addl. Cit
202, Platina, 2 Floor, Plot No. C-59,
nd Special Range-1
G-Block, Bandra Kurla Complex, New Delhi.
Bandra (E), Mumbai, Maharashtra.
PAN No. AAECA3592N
(APPELLANT) (RESPONDENT)
Appellant by Sh. Ajit Korde, Adv.
Respondent by Sh. Sandeep Kumar Mishra, Sr. DR
Date of Hearing 11/12/2018
Date of Pronouncement 12/12/2018
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER:
Present stay petition has been filed by applicant seeking extension of stay of outstanding demand of Rs.11,96,68,110/- inclusive of interest.
2. Ld. Counsel submitted that assessee is a company owned by Sierra Communication International LLC with Avaya US as ultimate holding company. It has been submitted that assessee operates in four segments being; software services segment, back office support 2 Stay Appl. No. 846/Del/2018 Avaya India Pvt. Ltd.
services segment, marketing support services segment and maintenance and technical services segment. 2.1 Ld. Counsel submitted that for the year under consideration, assessee filed its return of income on 28/11/2014 declaring total income of Rs.148,64,57,280/-, under normal provisions of the Act. The book profits u/s 115 JB of the Act was determined at Rs.141,72,78,834/-. The return of income of assessee was selected for scrutiny and draft assessment order was issued by Ld.AO, wherein an adjustment made by Ld.TPO amounting to Rs.68,65,52,173/- was proposed in addition to Rs.23,58,11,169/- on account of difference of income offered to tax by assessee in the return of income vis-a-vis amount appearing in Form 26 AS of assessee for year under consideration.
3. Aggrieved by draft assessment order, assessee filed objections before the DRP which were partly allowed vide directions issued dated 10/09/2018. DRP accepted contention of assessee regarding corporate tax addition, on account of difference due to 26 AS statement.
4. Pursuant to directions of DRP, Ld.AO passed final assessment order dated 11/10/2018, wherein demand of Rs.11,96,68,110/- has been determined as payable by assessee.
5. Raised by the impugned final order passed by Ld.AO u/s 144C read with 144(13) of the Act, assessee is in appeal before us on following grounds of appeal:
General Grounds of Appeal
1. "That, the final assessment order framed by the Ld. Additional Commissioner of Income-tax, Special Range-1, Delhi pursuant to 3 Stay Appl. No. 846/Del/2018 Avaya India Pvt. Ltd.
the directions of the Hon'ble Dispute Resolution Panel - 1 (hereinafter referred to as "the Hon'ble DRP") u/s 143(3) read with section 144C of the I.T. Act, 1961 is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and is void ab-initio.
2. That, in framing the impugned assessment order, the reference made by the Ld. AO u/s 92CA(1) of the Act suffers from jurisdictional error, as the Ld. AO had not recorded any reasons nor he had any material whatsoever on the basis of which he could even reach a prima - facie opinion, that it was 'necessary or expedient' to refer the matter to the Ld. ACIT, Transfer Pricing Officer - I(1)(1), New Delhi (hereinafter referred to as "Ld. TPO") for computation of arm's length price ("ALP"). TP adjustment in relation to software services [INR 20,56,61,108]
3. That on the fact of the case and in law, the Ld. AO/TPO/Hon'ble DRP have erred, in making an adjustment of INR 20,55,61,108/- to the total income of the Appellant in respect of international transaction pertaining to provision of software services by the Appellant to its associated enterprise ("AE").
3.1 That on the fact of the case and in law, the Ld. AO/TPO/Hon'ble DRP has erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 and conducting a fresh economic analysis for the determination of the ALP of the Appellant's international transaction pertaining to provision of software services by the Appellant and holding that the said international transaction is not at an arm's length without sharing the detailed accept reject matrix for selection or rejection of companies evaluated by him.
3.2 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP has erred in rejecting the Appellant's claim to use multiple year data for computing the arm's length price and, instead, has adhered to the use of single year (i.e. FY 2013-14) updated data to conclude the ALP of the international transaction which was not available to the 4 Stay Appl. No. 846/Del/2018 Avaya India Pvt. Ltd.
Appellant at the time of undertaking transfer pricing study required to be maintained u/s92D of the Act. 3.3 That on fact of the case and in law, the Ld. TPO/Hon'ble DRP has erred in application of inappropriate filters such as different financial year end and export service income filter for identifying companies comparable to the Appellant. 3.4 That on the facts of the case and in law, the Ld.TPO/Hon'ble DRP have erred, in law and on facts and circumstances of the case, by wrongfully rejecting comparable companies and including certain non- comparable companies to the final set of comparable companies for the purpose of determining the ALP of the impugned international transactions on an ad-hoc basis, thereby resorting to cherry picking of comparable companies.
3.4.1 That on the facts of the case and in law, the Ld. TPO, in particular, erred in selecting Thirdware Solutions Limited without appreciating the fact that DRP directed to include the same only if segmental data is available. However, the Ld. TPO erroneously included it based on geographical segment data available in annual report of the company for FY 2013-14.
3.4.2 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP, in particular, erred in selecting Infobeans Technologies Limited, Persistent Systems Limited, Larsen & Toubro Infotech Limited, Cigniti Technologies Limited, RS Software (India) Limited and Mindtree Limited as comparable companies without appreciating that these companies are not functionally comparable to the Appellant in relation to the International transaction pertaining to provision of software services. 3.4.3 That on the facts of the case and in law, the Hon'ble DRP, in particular, erred in rejecting Sasken Communciations Technologies Ltd., as comparable to the Appellant in relatin to the international transaction pertaining to provision of software service on the ground that the FAR of the company is different than that of the Appellant.
3.4.4 That on the facts of the case and in law, the Hon'ble DRP, in particular, erred in rejecting Caliber Point Business 5 Stay Appl. No. 846/Del/2018 Avaya India Pvt. Ltd.
Solutions, as comparable to the Appellant in relation to the international transaction pertaining to provision of software services on the ground that the company has different financial year ending.
3.4.5 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP, in particular, erred in rejecting CAT Technologies Limited, as comparable to the Appellant in relation to the international transaction pertaining to provision of software services on the ground that the company fails to qualify the persistent loss filter without appreciating that the company had operating profit for FY 2011-12 and had operating losses only for FY 2012-13 and FY 2013-14.
3.4.6 That on the facts of the case and in law, the Hon'ble DRP, in particular, erred in not adjudicating on inclusion of additional companies argued before the Hon'ble DRP namely Lucid Software Limited and Maveric Systems Limited as comparable to the Appellant in relation to the international transaction pertaining to provision of software services.
3.5 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP have erred, in law and on facts and circumstances of the case, by selecting companies which are earning supernormal profits as compared to the Appellant.
3.6 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP have erred, in law and on facts and circumstances of the case, by treating foreign exchange gain/loss as non-operating items while determining the ALP of the subject international transaction. 3.7 That on the fact of the case and in law, the Ld.TPO/Hon'ble DRP has erred in not allowing a risk adjustment to the Appellant on account of the fact that the Appellant is a captive service provider for its associated enterprises and is remunerated on a cost plus basis irrespective of the outcome of the services provided and hence undertakes no market risk, service liability risk, credit and collection risk as against comparable companies that are the full-fledged risk taking entrepreneurs.
6 Stay Appl. No. 846/Del/2018Avaya India Pvt. Ltd.
TP adjustment in relation to notional interest on outstanding receivables [INR 3,81,58,172]
4. That on the fact of the case and in law, the Ld. AO/TPO/Hon'ble DRP have erred, in making an adjustment of INR 3,81,58,172 to the total income of the Appellant in respect of notional interest on outstanding receivables. 4.1 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP has erred in making TP adjustment of INR 3,81,58,172 on account of notional interest on receivables from AE without application of any method as prescribed u/s 92C of the Act.
4.2 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP has erred in re-characterizing the inter- company receivables as a separate international transaction of an unsecured loan and imputing interest on such transaction.
4.3 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP has erred in not appreciating that inter- company receivables arising out of provision of services by the Appellant to its AE is closely linked to such transaction and if such services transaction is determined at an Arm's length price after considering working capital adjusted margins of comparable companies, no separate adjustment can be made for such inter-company receivables. 4.4 That on the facts of the case and in laws, the Ld. TPO/Hon'ble DRP has erred in determining the arm's length interest rate for inter-company receivables at LIBOR plus 400 basis points on an arbitrary basis without any cogent reasons.
4.5 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP has erred in granting the credit of period of 60 days instead of 90 days having regard to the provisions of Section 92CE of the Act.
4.6 That on the facts of the case and in law, the Ld. TPO/Hon'ble DRP has erred, by not appreciating that Appellant has earned more than arm's length return in its order segments, and such excess remuneration should be "set off" with the proposed adjustment.
7 Stay Appl. No. 846/Del/2018Avaya India Pvt. Ltd.
Corporate Tax adjustment in relation to TDS Reconciliation [INR 34,72,945]
5. That on the facts and circumstances of the case and in law, the Ld. AO has erred in making addition amounting to INR 34,72,945 on account of difference in the income credited to profit and loss account and offered to tax by the Appellant in its return of income filed for AY 2014-15 vis-à-vis the amount of receipts as appearing in the Form 26 statement for AY 2014-15. Non-grant of additional TDS credit amounting to INR 94,054
6. That on the facts and circumstances of the case and in law, the Ld. AO has erred in not granting the additional TDS credit amounting to INR 94,054, without appreciating the fact that corresponding income has been offered to tax by the Appellant in the return of income filed for AY 2014-15. Levy of interest u/s 234A and 234B of the Act
7. That on the facts and circumstances of the case and in law, the Ld. AO has erred in levying interest u/s 234A and section 234B of the Act.
Initiation of penalty proceedings
8. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s 271(1)(c) of the Act.
The above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.
The Appellant prays that appropriate relief be granted based on the above grounds of appeal and the facts and circumstances of the case."
6. Before us, Ld. Counsel submitted that, regarding Transfer Pricing adjustment in respect of software development services, if certain comparable companies selected by Ld.TPO/Hon'ble DRP are excluded, adjustment would stand automatically deleted. He submitted that comparables objected by assessee for its inclusion, 8 Stay Appl. No. 846/Del/2018 Avaya India Pvt. Ltd.
cannot be considered due to functional dissimilarity. In stay application in Annexure E, Applicant is relying upon certain decisions, wherein comparables disputed by assessee has been rejected by orders of this Tribunal. Ld. Counsel further submitted that adjustment in respect of interest on receivables made by Ld.TPO/Hon'ble DRP has also been considered by the decision of Hon'ble High Court as well as coordinate benches of this Tribunal.
7. Ld. Counsel thus submitted for stay of the outstanding demand as assessee has a good case on merits.
8. On other hand, Ld.DR relying upon orders passed by authorities below, objected for a blanket stay to be granted to assessee. He submitted that in the event stay is granted certain amount may be directed to be deposited against the balance outstanding demand as on date.
9. We have perused submissions advanced by both sides in light of records placed before us.
10. We are of considered opinion that applicant has made out a prima facie case on merits. The balance of convenience shifts in favour of assessee and, therefore, we are inclined to grant stay to assessee for year under consideration for a period of 6 months (180 days), or till the passing of the order whichever is earlier subject to making payment of Rs.1.5 crores on or before 15/12/18. On making aforestated payment within stipulated time, Registry is directed to fix the appeal in ITA No. 7290/Del/2018 for hearing on 24/12/2018. Needless to say that assessee shall not seek any 9 Stay Appl. No. 846/Del/2018 Avaya India Pvt. Ltd.
adjournment unless there being a cogent reason, otherwise this stay shall stand automatically vacated.
In the result stay application filed by assessee stands allowed. Order pronounced in the open court on 12/12/2018 Sd/- Sd/-
(N.K. SAINI) (BEENA A PILLAI)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 12/12/2018
*Kavita Arora
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
10 Stay Appl. No. 846/Del/2018
Avaya India Pvt. Ltd.
Date
1. Draft dictated on 12/12/2018
2. Draft placed before author 12/12
3. Draft proposed & placed before the 12/12
second member
4. Draft discussed/approved by Second 12/12
Member.
5. Approved Draft comes to the 12/12
Sr.PS/PS
6. Kept for pronouncement on 12/12
7. File sent to the Bench Clerk & order 12/12
uploaded on
8. Date on which file goes to the AR
9. Date on which file goes to the Head
Clerk.
10. Date of dispatch of Order.