Income Tax Appellate Tribunal - Hyderabad
Adp Pvt. Ltd., Hyd, Hyderabad vs Dcit, Circle-1(1), Hyderabad, ... on 28 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No. Asst. Year Appellant Respondent
221/Hyd/2015 2010-11 *Automatic Data The Deputy
Solutions & Technology Commissioner of
Services Private Income Tax,
Limited, Circle-1(1)
HYDERABAD HYDERABAD
[PAN: AANCA8983A]
443/Hyd/2015 2010-11 The Deputy *Automatic Data
Commissioner of Solutions &
Income Tax, Technology Services
Circle-1(1) Private Limited,
HYDERABAD HYDERABAD
[PAN: AANCA8983A]
ITA No. Asst. Year Cross-Objector Respondent
32/Hyd/2015 *Automatic Data The Asst.
(In ITA No. 2010-11 Solutions & Technology Commissioner of
443/Hyd/15) Services Private Income Tax,
Limited, Circle-1(1)
HYDERABAD HYDERABAD
[PAN: AANCA8983A]
* Amalgamating company having amalgamated M/s. ADP Pvt. Ltd.,
For Assessee : Shri Ravi Bharadwaj, AR
For Revenue : Smt U. Mini Chandran, DR
Date of Hearing : 19-01-2017
Date of Pronouncement : 28-02-2017
ORDER
PER B. RAMAKOTAIAH, A.M. :
These are cross-appeals by Assessee and Revenue for the AY. 2010-11 against the order of the Assessing Officer (AO) U/s. 143(3) :- 2 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 r.w.s. 144C of the Income Tax Act [Act] consequent to the directions of the Dispute Resolution Panel (DRP) dt. 28-10-2014.
2. Brief facts of the case are that, assessee-company, ADP India, a wholly owned subsidiary of ADP Inc., USA (together with its Group companies referred to as 'ADP Group' or the 'AE'), was setup to provide software and IT enabled services (ITES) to the ADP Group. After the order of the AO, the company M/s. ADP Pvt. Ltd., has amalgamated with M/s. Automatic Data Solutions and Technology Services Pvt. Ltd., vide the orders of High Court of Judicature at Hyderabad w.e.f. 01-11-2015. Assessee has filed revised Form 36A and revised cross-objection before the ITAT. Accordingly, the name of the company has been taken as M/s. Automatic Data Solutions and Technology Services Pvt. Ltd., 2.1. For the AY. 2010-11, assessee filed its return of income on 13th October 2010 with an income of Rs. 50,87,04,320/- after claiming deduction of Rs. 18,47,85,336/- u/s 10A of the Act in respect of profit from Pune STPI unit. The AO had selected the case for scrutiny assessment u/s 143(2) of the Act, and further made a reference u/s 92CA(1) of the Act to the Transfer Pricing Officer (TPO), Hyderabad for determination of Arm's Length Price (ALP) of the international transactions with Associated Enterprises (AEs). ADP India has international transactions relating to provision of services to its AE. The TPO has rejected the economic analysis undertaken by the assessee for determination of the ALP of the said international transaction and based on fresh analysis concluded that the price received by the assessee for provision of services is not within the arm's length range. The TPO has :- 3 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 accepted that the transaction relating to provision of software services at arm's length and for ITES determined the arm's length margin at 24.52%. Accordingly, the TPO determined Rs. 9,07,90,246/- as the differential adjustment to the price received by assessee. The AO vide his draft order has determined the total income of assessee at Rs. 71,87,43,007/-. The difference between the assessed Income and returned Income was on account of the adjustment proposed by TPO. Further, AO considered the entire communication charges of Rs. 17,79,91,777/- as data link charges and assumed that the same has been incurred in foreign currency and is attributable to delivery of software outside India. Accordingly, AO reduced the same from export turnover while computing deduction u/s. 10A of the Act. The same has resulted in reduction of deduction u/s. 10A of the Act to Rs. 15,00,47,944/- as against Rs. 18,47,85,336/- as claimed by assessee. AO also disallowed the following expenditure u/s 43B of the Act of Rs. 2,02,25,401/- on the assumption that the same has not been paid before filing of return:
i. Employee Contribution to ESI - Rs. 1,12,903/-; ii. Professional Tax payable - Rs. 6,93,472/-;
iii. TDS on Salary - Rs. 1,90,50,026 ;
iv. TDS on Contractor - Rs. 3,69,000/-
The AO also did not allow the set off of brought forward business loss of Rs. 30,38,954/- while computing the taxable income. He also made certain other adjustments to the income declared. Aggrieved by the draft order proposed by the AO and the order passed by the TPO, assessee has filed its objections before the DRP. Assessee made various objections on the draft order and :- 4 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 DRP while rejecting many, however accepted certain companies selected as not comparable. It also gave directions to verify on many issues. Revenue is aggrieved on the deletion of three comparables where as Assessee is aggrieved on issues which DRP has not accepted or AO has not followed the directions of DRP. These are considered in respective appeals.
Appeal of Revenue in ITA No. 443/Hyd/2015:
3. The issue in this appeal is with reference to the deletion of three comparable while deciding the Transfer Pricing (TP) adjustments made by the AO/TPO.
4. This appeal has been filed by Revenue with a delay of 52 days. For that DCIT, Circle-1(1) has submitted an affidavit for condoning the delay by explaining the reasons as under:
(a) "The authorization for filing appeal was received in March, 2015 which is peak period for time barring assessments.
(b) It is also submitted that M/s. APBCL which is also assessed in this office had filed writ petition in Hon'ble High Court which had to be followed up with personal attendance in Hon'ble High Court. Due to these reasons there is delay in filing the appeal".
Considering the above explanation of the Revenue, we condone the delay in filing the appeal and admit the appeal of Revenue to be adjudicated on merits.
5. In this appeal, Revenue has raised only one ground which is as under:
"That on the facts & in the circumstances of the case the Hon'ble DRP erred in directing the AO to exclude M/s. Infosys Ltd., M/s. TCS e-
:- 5 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 serve Ltd., & M/s. Eclerx Services Ltd from list of comparable companies adopted by the TPO for determination of Arms Length Price (ALP) of international transactions which resulted in no adjustment to ALP as against of Rs. 9,07,90,246/- proposed by the AO in draft assessment order".
Ground No.2 is general in nature.
6. The TPO has selected many comparables and among them M/s. Infosys BPO Ltd., TCS e-serve Ltd., and Eclerx Services Ltd., were objected to on the reason of high turnover and functionally different. With reference to Infosys BPO, the objection was that the said company renders vide array of services and has high brand value and turnover is also very high. With reference to TCS E-serve Ltd., there was exceptional event as the company was taken over by Tata Consultancy Services in the year 2008-09 and heavy turnover is due to its takeover. Further, it was submitted that the company was functionally different as it has three different services and segmental information was not arrived. As far as E-clerx Services Ltd., it was submitted that this company caters to high end KPO services and cannot be compared to routine BPO services provided by assessee. The DRP vide para 3.10 has accepted the assessee's objections and accordingly, directed the TPO to exclude the above three companies. There are other directions of the DRP on TP adjustments on which neither party has raised grounds, except the Revenue on the above exclusion of three companies.
7. Referring to the order of the TPO, it was the contention of Ld.DR that DRP was not correct in excluding them on the basis of the turnover, whereas Ld. Counsel submitted that DRP has :- 6 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 followed the decisions of the Co-ordinate Benches in excluding the above three comparables.
8. We have considered the rival submissions and perused the order of the DRP and Co-ordinate Benches. As far as M/s. TCS e-Serve Ltd., is concerned, the Co-ordinate Bench of ITAT in the case of M/s Hyundai Motors India Engineering P. ltd in ITA Nos. 1743/Hyd/2014 (AY.2010-11) & ITA No. 1917/Hyd/2014 (AY.2010-11) dt. 13-11-2015, has decided the issue as under:
"TCS e-SERVE LIMITED 11.2.1. As regards TCS e-Serve Limited is concerned, we find that it possesses brand value as is evident from the Schedule-N (Operation and Other expenses) to the P & L A/c of the annual report for the financial year 2009-10 of Rs.46,065 thousands and also that it possesses intangibles in the form of software licenses which have not been taken note of by the authorities below while adopting its margin. It is also the case of the assessee that this company has a turnover of Rs.1405.10 crores which is 25 times of the turnover of the assessee and hence, is not comparable to the assessee. The Ld. Counsel for the assessee had also placed reliance upon the TPO's order in the case of M/s. IGS Imaging Services India Ltd., to hold that there are exceptional circumstances during the relevant financial year due to which this company is not comparable to the assessee. The Ld. Counsel for the assessee also submitted that the segmental details of this company are not available and hence, has to be excluded on this count also.
11.2.2. We find that the assessee's contentions about the presence of 'brand value' and owning of 'intangibles' is supported by the evidence on record. However, as regards the extraordinary event or exceptional circumstance there is no material placed before us by the Ld. Counsel for the assessee. Therefore, merely because the TPO in another case has held that there is an extraordinary event for which this company has to be excluded from the list of comparables, it cannot be excluded. Such claim has to be supported by evidence on record. As regards the functional dissimilarity and huge turnover and brand value is concerned, we find that this Tribunal in assessee's own case for A.Y.2009-10 while considering the comparability of the assessee with Infosys BPO Ltd., has taken note of the possession of the brand value and intangibles which influenced the financial results of this company. The Hon'ble Delhi High :- 7 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 Court in the case of CIT vs. Agnity India Technologies P. Ltd., (2013) 219 Taxman 26 (Del.), held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee therein. In the case before the Hon'ble High Court (supra), the turnover of the assessee was about Rs.15.79 crores as against the turnover of Rs.1016 crores of the Infosys. Considering these facts, the Hon'ble High Court had directed for exclusion of Infosys BPO because of its brand value and also on the grounds of functional dissimilarity and huge turnover. Though, the company before us is TCS e-Service Ltd., and not Infosys BPO, we find that the turnover of the assessee company for this assessment year is around Rs.50 crores as against the turnover of TCS e-Serve Limited of Rs.1405.10 crores. Therefore, following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables. Accordingly, assessee's grounds of appeal No.6 is partly allowed.
8.1. Respectfully following the above decision of the Co- ordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables.
9. As far as M/s. E-clerx Services Ltd., is concerned, the Co-ordinate Bench of ITAT in the case of M/s Hyundai Motors India Engineering P. ltd in ITA Nos. 1743/Hyd/2014 (AY.2010-11) & ITA No. 1917/Hyd/2014 (AY.2010-11) dt. 13-11-2015, has decided the issue as under:
"16. As regards M/s. Eclerx Services Ltd., is concerned, we find that this company was also directed to be excluded by following the decision of ITAT in assessee's own case for the A.Y. 2009-2010 on the ground that it is a KPO. The Ld. Counsel for the assessee has drawn our attention to the annual report of the said company to demonstrate that the facts and circumstances and the nature of the activities carried on by the said company in the A.Y. 2010-11 are also same.
17. Ld. D.R. has not been able to rebut this factual aspects of the said company with any evidence to the contrary. The only ground relied on by the Revenue is that in the case of Agilent Technologies International P. Ltd., the ITAT, Delhi Bench has upheld selection of M/s. Eclerx Services Ltd. A copy of the said order is filed before us. Assessee's contentions :- 8 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 therein that the KPO services are distinct from BPO services and are not comparable, has been rejected by the Tribunal. However, since a uniform and consistent stand has to be taken in the case of the same assessee on similar facts and circumstances, we, respectfully following the decision of the Coordinate Bench in assessee's own case, do not see any reason to interfere with the order of the DRP. Ground No.2 is accordingly rejected".
9.1. Respectfully following the above decision of the Co- ordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables.
10. As far as M/s. Infosys Ltd., is concerned, the Co- ordinate Bench of ITAT in the case of M/s Hyundai Motors India Engineering P. ltd in ITA Nos. 1743/Hyd/2014 (AY.2010-11) & ITA No. 1917/Hyd/2014 (AY.2010-11) dt. 13-11-2015, has decided the issue as under:
"15. ......................... As far as Infosys BPO is concerned, the DRP has considered the decision of ITAT in assessee's own case for the A.Y. 2009- 10 and directed it to be excluded. The Ld. D.R. has not been able to bring to our notice any distinguishing features and facts for the A.Y. 2010-11 from that of the A.Y. 2009-10 to take any other view. Therefore, we do not see any reason to interfere with the order of the DRP on this issue".
10.1. Respectfully following the above decision of the Co- ordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables.
11. Since there is no infirmity in the order of DRP in rejecting the above three companies from the list of comparables, we upheld the order of DRP and dismiss the ground of Revenue. In the result, appeal of Revenue is dismissed.
:- 9 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15
12. Assessee has raised Cross-objection No. 32/Hyd/2015 against the above appeal of Revenue. Since the appeal of Revenue is dismissed, the Cross-objections of assessee have become infructuous and hence, dismissed.
Appeal of assessee in ITA No. 221/Hyd/2015:
13. This is an assessee's appeal in which assessee has raised the following grounds:
"1. The order of the learned AO is based on incorrect interpretation of law and facts and therefore is bad in law.
2. Disallowing an amount of Rs 3,69,000 towards TDS payable on contractors and Rs 41,809 towards TDS payable on salaries u/s. 43B of the Income Tax Act. 1961 ('Act') without appreciating the fact that the Appellant has not claimed the deduction of the aforesaid TDS payable while computing the taxable income.
3. Without prejudice to the above, not giving effect to the directions of the Hon'ble Dispute Resolution Panel that the revised profits i.e. profits after giving effect to the disallowance prescribed u/s. 30 to 43D, to be considered while computing the deduction u/s. 10A.
4. Addition of interest on short term deposit to the extent of Rs 3,59,083 without appreciating the fact that the interest income as disclosed by the Appellant in the financial statements is more than the interest income as per Form 26AS.
5. Allowing TDS credit of only Rs. 63,27,723 as against Rs. 67,79,643 claimed in the Return of Income.
6. Not providing claim of set off of brought forward losses of Rs 30,38,954.
7. Levy of tax and interest on distributable profit u/s. 115-0 of the Act of Rs 5,77,830 without appreciating the fact that the Appellant has paid the applicable tax u/s. 115-0 within the due date as provided u/s. 1150(3) of the Act.
8. Imposing interest u/s. 234A, 234B and 234C of the Act.
9. Initiating penalty proceedings under section 271(1) (c) of the Act".
:- 10 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 Ground Nos. 1 & 9 are general in nature and does not require any adjudication.
14. Ground Nos. 2 & 3 pertains to issue of disallowance of an amount of Rs. 3,69,000/- towards TDS payable on contracts and Rs. 41,809/- payable towards salaries, invoking the provisions of Section 43B of the Act. It was the contention that the above amounts have not been claimed as a deduction, hence disallowance does not arise. Objection was raised before the Dispute Resolution Panel [DRP], Hyderabad and the DRP has directed the AO to examine and allow which was not followed. Hence the present grounds.
15. It was submitted that the amounts of TDS, if any not payable can only be recovered u/s. 201 and interest u/s. 201(1A) can only be levied, but the same amount cannot be disallowed invoking Section 43B. The disallowance is neither u/s. 40(a)(ia) nor u/s. 37(1), hence the same is not sustainable. In the alternate, it was also submitted that any amount added to the total income would increase the profits for deduction u/s. 10A which was also not considered by the AO.
15.1. After considering the rival contentions, we are of the opinion that the disallowance made by the AO is not according to the provisions of law. The TDS if any not paid or short paid, the same can be recovered by separate proceedings but the same cannot be disallowed u/s. 43B, as the said TDS is not allowable deduction to assessee. It is out of the payments payable to contractors/salaries, TDS is being deducted on behalf of the :- 11 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 government. Since the TDS amount itself is not a claim made u/s. 37(1), disallowance of the same does not arise. AO is directed to delete the same.
16. Ground No. 4 pertains to addition of interest on short term deposit to an extent of Rs. 3,59,083/-. AO in the draft assessment order originally has proposed an amount of Rs. 3,29,082/- on the reason that Form 26AS shows the receipts at Rs. 4,08,97,182/-, whereas assessee has shown the income under the head 'other income' to an extent of Rs. 4,05,98,100/-. The difference of Rs. 3,29,082/- was proposed to be added to the total income. Assessee objected before the DRP that the amount taken by the AO is not correct and the correct amount as per Form 26AS was only Rs. 4,05,38,239/-. Assessee filed a petition u/s. 154 before the AO also. DRP directed the AO to examine and dispose- off the petition u/s. 154. However, in the final order, AO increased the disallowance by stating that the actual amount was Rs. 4,09,27,183/- instead of Rs. 4,08,97,182/- referred earlier.
17. It was the contention of the Ld. Counsel that the amount as shown in Form 26AS was only Rs. 4,05,38,239/-, whereas assessee offered Rs. 4,09,27,183/- which was more than amount shown in Form 26AS. It was submitted that the basis for the AO's disallowance is not forthcoming. We have examined the petition u/s. 154 filed before the AO as well as the contentions before the DRP and the copy of the Form 26AS filed before us at page 76. The basis for the AO's observation of higher amount is not forthcoming from the record. In spite of direction from the DRP, AO has not followed the verification or the petition u/s. 154 :- 12 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 was disposed-off. We are of the opinion that there is no basis for making such addition, after verification of the details filed by the assessee. Accordingly, AO is directed to delete the amount. Ground is allowed.
18. Ground No. 5 pertains to allowing short TDS credit. Assessee claimed an amount of Rs. 67,79,643/- in the return of income, whereas the AO allowed only Rs. 63,27,723/- in the final order without giving any basis for the same. AO is directed to verify the record and allow the claim after due verification. Ground is allowed for statistical purposes.
19. Ground No. 6 pertains to not allowing the claim of set off of brought forward losses. There is no discussion in the order about the set off of losses and inspite of directions from the DRP, the same were not allowed. Ld. Counsel fairly admitted that these losses are subject to the orders in earlier years, accordingly, we direct the AO to verify the past record and determine the losses to be brought forward and allow the set off as per the provisions of law. Ground is considered allowed.
20. Ground No. 7 pertains to levy of tax and interest on distributable profit u/s. 115-O of the Act. It was the contention that the amount was paid within the due date as provided u/s. 115-O Sub-section (3) of the Act. It was submitted that the dividend was declared on 23-12-2009 and the amount was paid on 06-01-2010 i.e., 14th day from the date of declaration. Further, it was submitted that one day has to be excluded while counting the period of fifteen days. Ld. Counsel relied on the decision of the :- 13 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 Hon'ble Bombay High Court in the case of CIT Vs. Heritage Estate (P) Ltd., [303 ITR 469].
21. We have considered the issue and examined the dates involved. There is no basis for levy of interest on the amount as was done by the AO. Even if one day is excluded, then, the period of payment will be within the statutory provisions as provided. Further, as seen from the part B of Form 26AS placed on record, it indicate that amount of Rs. 5,77,830/- pertains to dividend tax was remitted on 6th January, 2010 itself. Since the payment was within the limits as provided, question of levy of interest does not arise. Accordingly, ground of assessee is allowed. AO is directed to withdraw the levy of taxes and interest.
22. Ground No. 8 pertains to levy of interest u/s. 234A, 234B & 234C. Even though these are consequential, it was the contention of Ld. Counsel that due date for filing return was extended upto 15-10-2010 and the return was filed on 13-10-2010 within the due date, therefore, levy of interest u/s. 234A does not arise. It was further submitted that AO has not noticed the extension of time period by the Board for that year, vide notification [F.No. 225/72/2010/IT(A-II)], dt. 27-09-2010. Inspite of specifically bringing it to the notice of the AO by way of an application u/s. 154 filed on 28th January, 2015, AO has not taken any steps to examine nor withdraw the interest so levied. Since the return filed was with in the due date, we are of the opinion that interest u/s. 234A is not leviable. With reference to other interests, AO is directed to examine whether any interest is leviable as per the provisions of the Act, after giving due credit to the taxes :- 14 -: I.T.A. Nos. 221/Hyd/15 443/Hyd/15 & C.O.No. 32/Hyd/15 paid/claimed. This aspect should be examined by the AO in detail and if any interest is to be levied, the working should be provided so that assessee can have knowledge of the same, so as to contest if required. With these observations, the ground is considered allowed for statistical purposes.
23. Many of the issues contested in assessee's appeal are in fact within the domain of AO, which was brought to his knowledge by way of petition u/s. 154. Even though DRP has directed the AO to examine, the AO has not examined the same. We only reiterate that AO should pass necessary modification orders within time, so that assessees are not unnecessarily driven to appellate forums.
24. In the result, appeal of assessee is allowed for statistical purposes.
25. To sum-up, appeal of assessee is allowed for statistical purposes. Appeal of Revenue and cross-objection of assessee are dismissed.
Order pronounced in the open court on 28th February, 2017 Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 28th February, 2017
TNMM
:- 15 -: I.T.A. Nos. 221/Hyd/15
443/Hyd/15 & C.O.No. 32/Hyd/15
Copy to :
1. Automatic Data Solutions & Technology Services Private Limited, 6-3-1091/C/1, Fortune 9, Rajbhavan Road, Somajiguda, Hyderabad.
2. The Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad.
3. The Asst. Commissioner of Income Tax, Circle-1(1), Hyderabad.
4. Dispute Resolution Panel (DRP), Hyderabad.
5. Director of Income Tax (IT & TP), Hyderabad.
6. Addl. Commissioner of Income Tax (Transfer Pricing), Hyderabad.
7. D.R. ITAT, Hyderabad.
8. Guard File.