Income Tax Appellate Tribunal - Jaipur
M/S Vsibrant Academy (I) Private ... vs Deputy Commissioner Of Income Tax, ... on 29 January, 2021
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@IT(T.P) A No. 02/JP/2019
fu/kZkj.k o"kZ@Assessment Year :2015-16
M/s Vibrant Academy (I) Private cuke DCIT
Limited, 4 - 14(A) Road No. 1 Vs. Circle-01,
Indraprastha Industrial Area, Kota Kota
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCV9783C
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Sh. Manish Agarwal (FCA) &
Sh. Arun Gautam (CA)
jktLo dh vksj ls@ Revenue by : Sh. A. S. Nehra (ACIT)
lquokbZ dh rkjh[k@ Date of Hearing : 18/11/2020
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 29/01/2021
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Assessing Officer dated 14.08.2019 passed under section 143(3) read with section 144C of the Income-tax Act 1961 wherein assessee has taken the following grounds of appeal:-
"1. On the facts and in the circumstances of the case, the Ld. AO as well as the Hon'ble Dispute Resolution Panel (in short DRP) has grossly erred in considering the Arm's Length price (ALP) determined by the Ld. TPO, for salary payments made to Associate Enterprises (faculties, being Director's wives) at Rs. 31,12,178/- as against the actual salary paid at Rs. 48,76,200/- by the assessee and consequently making addition of Rs. 17,63,722/- to the Total income declared, without appreciating the IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota submissions and evidences adduced, in the correct perspective. Thus in the circumstances the addition of Rs. 17,63,722/- deserves to be deleted.
1.1 That the ld. AO as well as Hon'ble DRP erred in making TP adjustments, without appreciating the contention of assessee that not only the educational qualification but also the length of service as well as dedication and relationship with the organization deserves to be considered while ascertaining the arm's length price in respect of salaries paid to AEs. Appellant prays that addition made without appreciating such important aspects, being unjustified, deserves to be deleted.
2. On facts and in circumstances of the case ld. AO has grossly erred in disallowing Rs. 16,100/- out of Director's Travelling expenses arbitrarily without considering the submissions made. Assessee prays such addition being unwarranted deserve to be deleted."
2. During the course of hearing, the ld. AR submitted that appellant is a private limited company incorporated in 2009 and is running an institute offering coaching for preparation of JEE (Main & Advanced) education in Kota, Rajasthan. Over a period of time, institute has evolved as one the renowned and incredible institute. The institute was set up with the objective to nurture quality education to JEE aspirants.
3. It was submitted that return of income for the year under appeal was filed on 29.09.2015 declaring total income of Rs. 34,06,88,210/-, which was revised on 30.05.2016 at Rs.34,51,67,610/-. Case was selected for limited scrutiny by issuing notice/s 143(2), which was later converted into Complete Scrutiny on the observation that assessee had entered into certain Specified Domestic Transactions. Accordingly, case of assessee was referred to Transfer 2 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota Pricing Officer (TPO) u/s 92C for determination of Arm's length Price of such transactions. Ld. TPO, vide order dated 23.03.2018 passed u/s 92CA(3), proposed adjustment of Rs.17,63,272/- for the captioned Assessment Year and Draft Assessment order dated 17.12.18 was passed by ld. AO in the case of assessee. Assessee objected to such Draft Assessment Order before Dispute Resolution Panel (DRP) in terms of section 144C, which was rejected and vide order dated 18.07.2019, ld.AO was directed to incorporate the variation proposed by ld. TPO in Final Assessment order. Accordingly, ld.AO passed the final assessment order on 14.08.2019, after making addition of Rs. 17,63,272/- being Transfer Pricing Adjustment and disallowance of Rs.16,100/- of Travelling Expenses, which has been challenged in the present appeal.
4. It was submitted in Ground Nos. 1 & 1.1., the assessee has challenged the action of ld. AO in re-computing the Arm's Length price (ALP) of Salary payments made to related parties at Rs.31,12,178/- as against Rs.48,76,200/- and consequently making addition of Rs.17,63,722/- to the Total Income of assesse and also action of ld. DRP in issuing directions confirming order of TPO.
5. In this regard, at the outset, it was submitted that recomputation of ALP in the case of assessee has been done in accordance with section 92C in respect of Specified Domestic Transactions as defined under clause (i) of section 92BA, which reads as under:-
92BA. For the purposes of this section and sections 92, 92C, 92D and 92E, "specified domestic transaction" in case of an assessee means any of the following transactions, not being an international transaction, namely:--
(i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A 3 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota
6. Coming to the facts of the case, it was submitted that during the year under consideration, assessee has paid salary/Remuneration to certain related parties (wives of directors of assesse company), which inter alia included:
Sl No. Name of AE Nature of Amount Return of Income Payment at APB
1. Shubha Gupta Salary 6,96,600/- 67-69
2. Soneesha Jain Salary 6,96,600/- 70-74
3. MeenaKanwar Salary 6,96,600/- 75-78
4. Anjali Jaiswal Salary 6,96,600/- 79-82
5. RachnaSethia Salary 6,96,600/- 83-86
6. PritiAwasthi Salary 6,96,600/- 87-90
7. Shikha Sharma Salary 6,96,600/- 91-94 48,76,200/-
7. In order to determine Arm's length price, show cause notice was issued by TPO to assessee to furnish comparable cases to benchmark the salary paid by assesse to above related parties. It was submitted that the assessee has applied Comparable Uncontrolled Price (CUP) method for benchmarking Salary paid to these related parties. However, ld. TPO brushed aside submission made by assesse and re computed Arm's length price on the basis of salaries of other employees working in the organization. At this juncture, education qualification, work handled and job duration of such employees and AEs is tabulated as under:
Name of Education Salary Job description Duration of Employee Qualification service till 01.04.2014 Gaurav Jain MBA Rs.2,14,942/- -Handling marketing in 7 months distance learning programme,
-Maintaining and monitoring fees records Neeraj MBA Rs.2,54,916/- Same as above 1 year 6 4 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota Sharma months Nikhil Bajpai B.E. Rs.4,04,363/- -Floating the policies from 1 year Comp/PGDBM the board of directors to the executive staff and maintaining proper coordination between the staff and the managers.
Prashant Post Graduate Rs.7,08,000/- -Coordinating with the 4 years Varma faculties and arranging the
-Arranging the classes in time for students
-Managing the requirements arrived in classes during the day.
Satya Bsc., MBA Rs.5,56,500/- -planning the business 1 year 9
Prakash promotion for DLP and months
Gupta other business planning
activities for the company
also, Mr. Gaurav Jain and
Mr. Neeraj Sharma are
assisting him.
Yashwant BSC. IT/MCA Rs.5,29,500/- -Managing the records of 5 years
Sharma students. He also helps
them in admission process
including issuing ID Cards,
arranging books, study
material and bags etc.
Name of AE's Education Salary Job description Duration of
Qualification service till
01.04.2014
Priti Avasthi M.A., Maths 6,96,600/- -Managing Maths department 3 years
(Raj. University) affairs and
- managing administration work
Anjali Jaiswal Ph.D Drawing & 6,96,600/- -Administration activities 3 years
Painting
5
IT(TP) A No. 02/JP/2019
M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota Soneesha Jain LLB, BSc.(Delhi 6,96,600/- -Handling legal matters 3 years Univ.) Shikha Sharma LLB, M.A. 6,96,600/- -Handling legal matters and 3 years Philosophy
-administration activities Rachna Sethia M.Com 6,96,600/- -Handling Administration 3 years activities & accounts, audit, tax matters Meena Kanwar B.A. 6,96,600/- Counselling students; 3 years (Political
- for appearing in competitive Science, exams Sociology)
- in stream selection
- in stress management Counseling guardians to provide environment for better learning according to the interest of their wards and sharing performance evaluation
-Ensuring motivated staff and uniformity in objectives Shubha Gupta BSc., Diploma in 6,96,600/- Supervising computer related 3 years Computer matters Applications
8. It is pertinent to note here that ld. TPO has termed such employees as "comparables available within the organization" by grossly ignoring the fact that such employees were:-
- holding different education qualification than that of AEs / related parties:
- having different job profiles,
- employed with assessee company for shorter duration comparatively,
6
IT(TP) A No. 02/JP/2019
M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota
9. And last but not the least related parties being wives of directors had objectives beyond monetary rewards, which ensures higher productivity. Also, by virtue of experience and qualification, all the related parties are not only discharging their respective responsibilities in a very efficient and economic manner but also always ready to shoulder and in fact shouldering additional responsibilities, thereby enabling the institute to achieve greater and greater heights besides fulfilling the objects for which it was created. Moreover, they usually devote their almost full time towards the betterment of the institute. Thus, salary paid to them is quite justified and not in any way excessive and moreover same cannot be compared with the staff / executives cited by ld. TPO, as these are not comparable.
10. Further, ld. TPO has alleged that unrelated persons were having better education qualifications than that of related parties. In this regard it is submitted that neither these related parties under consideration nor unrelated parties as above were teaching faculties. Both were handling mostly different types of administrative activities, which requires more of leadership/interpersonal skills than education qualification. It is thus submitted that ALP computed by ld. TPO is not correct. Your honour's would appreciate that Kota is a coaching hub and looking at the number of institutes providing best of faculties and atmosphere, to survive, there is constant need to know expectations of students/their parents and put efforts in that direction. In such competitive scenario, management itself has to be involved to attract the students and then to retain them, besides providing them best education. As directors are teaching faculties, they are already burdened with so many responsibilities that they cannot give enough time to administrative, legal, counseling matters, therefore their wives, who are holding educational qualifications in respective fields, have been appointed to take care of such 7 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota issues. It is further submitted that neither TPO nor DRP has doubted the fact about such related parties actively providing their services rather salaries have been held excessive solely by comparing the same with other employees, when the services provided by them are different. It is submitted that work assigned to these unrelated employees except Prashant Verma, is of routine in nature and limited to very specific or limited field. For example Mr. Gaurav Jain and Mr. Neeraj Sharma were assisting Shri Satya Prakash Gupta and are very Junior executive or staff. Similarly Mr. Nikhil Vajpai was coordinating between staff and managers and thus he was senior staff member, though these were loosely referred as manager. Whereas related parties were assigned the supervisory and / or managerial positions and were looking after wider canvas activities of the institute.
11. Further, so far as observation of DRP that details of duration/experience/ increase in salary of Prashant Varma furnished before DRP were not in consonance with TP Study Report (page 4 para 2.4.5 DRP order) it is submitted that details were not part of TP Study Report, rather were part of staff salary details furnished before DRP. Kind attention of your goodself is invited which shows staff salary details, it is apparent that all the details of salary paid to Shri Prashant Varma in different years are exactly same as mentioned in written submission filed before DRP. There was merely a mistake in percentage calculation of increase in salary over preceding years, which was a human error occurred while calculating the percentage in our case, and not at all any deliberate attempt to give incorrect data. It is therefore prayed that adverse inference drawn by DRP for this reason is contrary to the facts of the case.
12. It is further submitted that the payment of salary to related parties is made in accordance to the legitimate business needs of the assessee and efforts put in by them and it is well settled law that benefit derived or accrued 8 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota to the assessee from the goods, services or facilities are to be judged from the view point of a businessman and not that of tax officer. Moreover, all the related parties are taxpayers and salary received by them is duly declared by them in their respective Returns of Income, thus there no loss to Revenue in any case. Copies of their ITR and computation of income are placed on record.
13. In view of above, it is submitted that salary paid to related parties is commensurate with the efforts made by them and disallowance of part salary of Rs. 17,63,272/- made by ld. AO deserves to be deleted.
14. Per contra, the ld DR taken us through the findings of the DRP which read as under:
"2.4.1 The objections in ground nos. 1 to 4 are pertain to the transfer pricing adjustment of Rs. 17,62,272/-. The assessee has applied CUP Method, as per TP Study report, for benchmarking the salary paid to these person. But while benchmarking the assessee failed to furnish any comparable case to justify payments to these persons. The TPO observed that the assessee paid salaries to the following related persons whose qualification did not justify payment of higher salaries as compared to unrelated persons having better and higher qualification. The summary of facts are as under:-
Related persons Qualification Salary
Amount (in Rs.)
Priti Avasthi M.A. Mathematics 6,96,600/-
Anjali Jaiswal Ph.D in Drawing and Painting M. A. 6,96,600/
(Drawing & painting)
Someesha Jain Details not given 6,96,600/
Shikha Sharma M. A in philosophy 6,96,600/
Rachna Sethia Details not given 6,96,600/
9
IT(TP) A No. 02/JP/2019
M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota Meena Kanwar B. A. (history, political science, 6,96,600/ sociology) Shibha Gupta Details not given 6,96,600/-
Total 48,76,200/-
Name Post Educational Salary paid (in
Qualification Rs.)
Gaurav Jain Manager MBA 2,14,942/-
Neeraj Sharma Manager MBA 2,54,916/-
Nikhil Bajpai Manager B.E. 4,04,363/-
Comp/PGDBM
Prashant Varma Manager Post Graduate 7,08,000/-
Satya Prakash Gupta Manager B. Sc. MBA 5,56,500/-
Yashwant Sharma Manager BSc IT/MCA 5,29,500/-
Total 26,68,221/-
Average Salary Paid 4,44,704/-
2.4.2 Accordingly, applying internal CUP the TPO held that ALP of salary paid to relatives shall be taken at Rs. 4,44,704/- per person and proposed adjustment of Rs. 17,63,272/-.
2.4.3 The assessee has submitted that the all the related persons (Director's wives) of the Directors have 3 years of service till 1st of April, 2014, whereas some of the employees considered by the TPO have lesser duration of service.
The comparative data of duration of service of the six person given by the assessee is as under:-
Employees name Duration of Directors Wives Duration of service till 1st April Name Service till 1st April 10 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota 2014 2014 Mr Gaurav Jain 7 months Mrs Priti Avasthi 3 years Mr Neeraj Sharma 1.5 Years Mrs Anjali Jaiswal 3 years Mr Nikhil Bajpai 1 Year Mrs Soneesha Jain 3 years Mr Prashant Varma 4 Years Mrs Shikha Sharma 3 years Mr Satya Prakash 1.75 Years Mrs Rachna Sethia 3 years Gupta Mr Yashwant 5 Years Mrs Meena Kanwar 3 years Sharma However, as per transfer pricing study filed by the assessee along with its submissions dated 09.02.2018, during the proceedings before the TPO, the data about service duration of the above mentioned employees is as under:-
Name Duration of
Service till 1st
April, 2014
Mr Gaurav Jain 19
Mr Neeraj Sharma 7
Mr Nikhil Bajpai 8
Mr Prashant Varma 5
Mr Satya Prakash Gupta 7
Mr Yashwant Sharma 5
Mr Gaurav Jain
2.4.4 The assessee has further submitted that there has been gradual increase in salaries paid to all the related persons (Directors's wives). The assessee has stated that the annual increase in salary given to unrelated person/employee is more than those of related persons. In this regard, it has 11 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota relied upon the case of one of the employee Mr. Prashant Verma and submitted his salary data, which is reproduced as under:-
Name 2011-12 2012-13 2013-14 2014-15
Per Month & 30,000/- 37,000/- 47,000/- 57,000/-
Per related
person
Percentage 23% 27% 21%
Increase Year
to year
Name 2011-12 2012-13 2013-14 2014-15
Per Month salary Mr Prashant 34,000/- 42,000/- 50,500/- 59,000/-
Verma
Percentage Increase Year to 24% 25% 25%
year
However, as per transfer pricing study filed by the assessee along with its submissions dated 09.02.2018, during the proceedings before the TPO, the data about service duration of the above mentioned employee- Mr. Prashant Verma is as under:-
F.Y 2011-12 2012-13 2013-14 2014-15
Annual Salary given 4,08,500/- 5,04,000/- 6,06,000/- 7,08,000/-
Percentage Increase Year to year 23 20 17
2.4.5 A perusal of the above shows that the assessee has deliberately filed
false data regarding the service duration/experience of the above employees and the annual increase in salary of Mr. Prashant Verma before us. All the above mentioned employees have more service duration/experience as 12 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota compared to the all the related persons (Director's wives) of the directors, each having 3 years of service till 01.04.2014. Further, this argument was never raised before the TPO. The only argument taken by the assessee before the TPO was that the educational qualification of the comparable employees were different than those of the related persons. Besides, Mr. Prashant Verma had lesser average increase (20%) in his annual salary as compared to the all the related persons (Director's wives) of the directors, each having more average increase (23.66%). Therefore, the above ground of objection is rejected.
2.4.6 Furthermore, the TPO in his order has clearly given finding that the unrelated persons were having better educational qualifications and their educational qualification was relevant to the business of the assessee, but the qualification of the related persons in drawing & painting, philosophy, history was not all the relevant to the business of assessee for which higher salary was paid to them. The TPO/AO has clearly given cogent reasons for his findings regarding his non-acceptance of higher salary paid to the related persons and necessity of application of internal CUP method for benchmarking salary paid to the related persons (wives of the Directors).
2.4.7 In view of the above observations, we are not inclined to interfere with the proposed TP adjustment. The action of the AO/TPO is upheld."
15. We have heard the rival contentions and perused the material available on record. The limited issue under consideration relates to comparable cases selected by the TPO for the purposes of determining the arm's length price of the transactions entered into by the assessee company in terms of payment of remuneration to the related persons while applying the CUP method. We find that both the related persons as well as comparable cases selected by the TPO are holding non-teaching faculty role, and are holding and discharging 13 IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota administrative functions in terms of supervising and managerial role in their respective administrative fields. Therefore, besides the requisite educational qualification which each of them possesses, what is more relevant is the experience and period of service of such personnel discharging their respective functions which would provide a better and rationale basis for benchmarking analysis. In the instant case, we find that each of the related persons have rendered services of three years as on 1.04.2014 and thus carry the desired experience and skill set developed over such period of three years with the assessee company of supervising and managerial activities in their respective administrative fields whereas in cases of comparable cases selected by the TPO, we find that in these cases, the employees have rendered service ranging from seven months to five years which provide a wide variance and thus, for comparability purposes, it would be appropriate to consider comparable cases who have rendered services for minimum three years and exclude other cases who have rendered services for a lesser period. Therefore, the case of Shri Prashant Varma who has rendered service of 4 years and that of Shri Yashwant Sharma who has rendered service of 5 years would be taken as comparable cases and rest all cases shall be excluded for the purposes of comparability analysis. The average salary of these two comparable cases comes to Rs 618,500/- which shall be taken as ALP of salary paid to related persons as against current salary of Rs 696,600/- resulting in transfer pricing adjustment of Rs 546,700/- in hands of the assessee company. The AO/TPO is accordingly directed to restrict the TP adjustment to Rs 546,700/- and the ground of appeal is thus partly allowed.
16. Ground no. 2 was not pressed during the course of hearing. Hence, the same is dismissed as not pressed.
14IT(TP) A No. 02/JP/2019 M/s Vibrant Academy (I) Private Ltd, Kota vs. DCIT, Circle-01, Kota In the result, appeal of the assessee is partly allowed.
Order pronounced in the open Court on 29/01/2021.
Sd/- Sd/-
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(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 29/01/2021
*Ganesh Kr.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Vibrant Academy (I) Private Limited, Kota
2. izR;FkhZ@ The Respondent- DCIT, Circel-01, Kota
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {IT(TP) A No. 02/JP/2019} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 15