Income Tax Appellate Tribunal - Pune
Symantec Software India Pvt. Ltd.,, ... vs Deputycommissioner Of Income-Tax,, on 20 January, 2017
1
आयकर अपील य अ धकरण] पण
ु े यायपीठ "ए" पण
ु े म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
स
ु ी सष
ु मा चावला, या यक सद य एवं
ी अ नल चतव
ु द
" , लेखा सद य के सम$
BEFORE MS. SUSHMA CHOWLA, JM AND
SHRI ANIL CHATURVEDI, AM
आयकर अपील सं. / ITA No.962/PUN/2013
नधा%रण वष% / Assessment Year : 2006-07
Asst.Commissioner of Income Tax,
Circle-7, Pune. .... Appellant
Vs.
Symantic Software India Pvt. Ltd.
(Formerly Veritas Software India Pvt Ltd.),
Pune. S.No.210/1A Symphony, Range Hills,
Pune - 411 020.
PAN: AAACV6015F .... Respondent
C.O.No.71/PUN/2014
(Arising out of ITA No.962/PUN/2013
नधा%रण वष% / Assessment Years : 2006-07
Symantic Software India Pvt. Ltd.
(Formerly Veritas Software India Pvt Ltd.),
Pune. S.No.210/1A Symphony, Range Hills,
Pune - 411 020.
PAN: AAACV6015F .... Appellant
Vs.
Dy. Commissioner of Income Tax,
Circle -7, Pune. .... Respondent
अपीलाथ क ओर से / Appellant by : Shri Suhas S. Kulkarni.
यथ क ओर से / Respondent by : Shri Pramod Achutan,
Shri Swapnil Befna and
Shri Rajendra Agiwal.
2
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 21.12.2016 Date of Pronouncement: 20.01.2017
आदे श/ORDER
PER ANIL CHATURVEDI, AM:
The present appeal filed by the Revenue and the Cross- Objection filed by the assessee are directed against the order of Commissioner of Income-Tax (Appeals)-IT/TP, Pune dt.06.02.2013 for the assessment year 2006-07.
1. Assessee is a company stated to be engaged in the business of Software Development Services rendering technical support services and related services. Assessee filed is return of income for A.Y. 2006-07 on 30.10.2006 declaring total income of Rs.22,56,05,340/-. The assessee revised the return of income on 23.10.2007 wherein it revised the total income to Rs.24,31,56,915/-. The case was selected for scrutiny and notice u/s 143(2) dt.15.09.2008 was issued and served on the assessee. Thereafter reference to the Transfer Pricing Officer (TPO) was made for determining the Arm's Length Price (ALP) of International Transactions. Accordingly, DCIT(TPO) vide order dt.29.10.2009 passed order u/s 92CA(3) and determined the total adjustments of Rs.4,24,01,314/- to the international transactions relating to the provision of Software Development Services. Thereafter assessment was framed u/s 143(3) vide order dt.26.02.2010 and the total income was determined at Rs.42,01,20,690/-. Aggrieved by the 3 order of AO, assessee carried the matter before ld. CIT(A), who by a consolidated order dt.06.02.2013 for A.Ys. 2005-06 to 2008-09 passed the order. For A.Y. 2006-07 he granted partial relief to the assessee. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us and has filed the following grounds in ITA No.962/PUN/2013.
1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in directing the AO to accept Ace Software Exports Limited as a comparable company, disregarding the finding of the Transfer Pricing Officer (TPO), that there is nothing similar between the Assessee company and Ace Software Exports Limited as far as functions are concerned.
2. On the facts and in the circumstances of the case, the learned CIT (A) has erred in holding that the assessee is entitled to claim deduction u/s.10A on the profit of Unit B also.
3. On the facts and circumstances of the case, learned CIT(A) has erred in directing the Assessing officer to reduce the telecommunication charges not only from the export turnover but also from the total turnover.
4. On the facts and circumstances of the case, learned CIT(A) has erred in holding that the gain from fluctuation of foreign exchange is directly related with the export activities and should be considered as income derived from export in the year in which export took place.
The Appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off."
2. Assessee also filed Cross-Objections and the Cross- Objections raised by the assessee in ITA No.962/PUN/2013 reads as under :
1. Erroneously accepting certain companies as comparable to the respondent Erred by accepting certain companies as comparable to the respondent in spite of the fact that these companies are functionally not comparable to the respondent.
Further, without prejudice to the fact that Ace Software Exports Limited is comparable to the Respondent, in case Ace Software Exports Limited is rejected as functionally non- comparable as appealed by department then Vishal 4 Information Technologies Limited should also be rejected since both the companies are engaged in similar business activities.
2. Inappropriate application of turnover filter for rejection of comparable companies Erred in law in applying arbitrary turnover filter and thereby rejecting comparable companies without any justification for the application of turnover filter adopted.
3. Inappropriately rejection of benchmarking of technical support and IS&T services on an aggregated basis Erred by rejecting the benchmarking analysis for technical support services and IS&T services conducted by respondent on an aggregated basis.
4. Inappropriate use of non-contemporaneous financial date of comparable companies for transfer pricing analysis Erred in computing the arm's length price using the financial information of comparable companies available at the time of assessment proceedings, although such information was not available at the time when the respondent complied with the transfer pricing regulations.
5. Inappropriate use of single year financial data of comparable companies for transfer pricing analysis Erred in considering the operating margins on operating cost of the comparable companies based on the financial data pertaining only to financial year ended 31 March 2006 and rejecting use of financial data of comparable companies for multiple i.e. three years including 31 March 2004 and 31 March 2005.
6. Erroneously rejecting risk adjustment to account for difference in risk profile of comparable companies vis- à-vis the respondent Erred in not making any adjustments for difference in risk profile of comparable companies vis-à-vis the respondent and thereby comparing the operating margins of the comparable companies assuming high business risk with the Respondent's captive risk mitigated operations without making any adjustment for difference in functional and risk profiles.
7. Computation of benefit of variation of +/- 5 percent available under proviso to section 92C(2) of the Act Erred on the facts and in circumstances of the case by computing the arm's length price of the international transactions of the Appellant as the mean arm's length price determined, without taking into account the lower 5 percent variation (as standard deduction) from the mean arm's length price determined, which is permitted to and which has been opted for by the Appellant under the provisions of proviso to section 92C(2) of the Act.
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8. Erroneous levy of interest under section 234B of the Act on transfer pricing adjustment Without prejudice to the above grounds of appeal, if the transfer pricing adjustment is sustained then the learned AO has erred in levying interest under section 234B of the Act, without considering the fact that the addition on account of transfer pricing adjustment is due to difference of opinion and as at the due date of payment of advance tax by no means the Appellant could have estimated such adjustments and consequential tax on such adjustment.
Cross objections with reference to Ground 4 of the Department's Appeal [Reduction of telecommunication expenses from total turnover]
9. Telecommunication charges ought not to have been reduced from Export turnover Erred in reducing the telecommunication charges of Rs.18,19,836 from 'Export Turnover' without appreciating the fact that the same were not incurred in foreign currency. The Respondent craves, to consider each of the above grounds of cross objections without prejudice to each other and craves, leave to add, alter, delete or modify all or any of the above grounds of cross objections."
3. We first take up assessee's Cross-Objections. 3.1 Assessee vide letter dt.15.12.2016 has made a request for withdrawal of cross-objections wherein, inter-alia, it is submitted that the Associated Enterprises of the assessee based out of USA, had applied for Mutual Agreement Procedure (MAP) with the competent authorities of the USA. The competent authorities of USA and India have reached a conclusion on the MAP and the assessee wishes to accept the proposed resolution under MAP received from competent authorities of India. It was further submitted that in order to enable the AO to give effect to the resolutions agreed under MAP, the assessee would need to fulfill certain conditions as provided under Rule 44H of the Income Tax Rules, 1962 which inter-alia requires the withdrawal of appeal if 6 any, pending on the issue. The assessee therefore sought to withdraw the objections raised in the Cross-Objections filed by the assessee. Ld. D.R. for the Revenue submitted that the Department has no objection in case, the assessee wishes to withdraw the appeal.
4. We have heard the rival submissions and perused the material on record. In view of the submissions made by the assessee in its letter dt.15.12.2016 and the submissions made by ld.A.R, the cross-objections of the assessee are dismissed as withdrawn.
5. In the result, the Cross-Objection of the assessee is dismissed.
6. Now we take up Revenue's Appeal in ITA No.962/PUN/2013.
6.1 First ground is with respect to the directions of ld. CIT(A) to AO to accept Ace Software Exports Limited as a comparable company.
6.2 From the details and the Transfer Pricing study report that was submitted by assessee, it was noticed by TPO that international transaction towards provision of technical support services amounted to Rs.32,26,760/- and provision of information system and technical support services amounted to Rs.28,47,30,958/- and both these transactions were combined and bench-marking was done on aggregate basis by adopting single set of comparables taking weighted average of PLI (operating profit / 7 operating cost). The comparable companies selected by the assessee included Ace Software Exports Limited whose Weighted Average Margin was 8.69%. The TPO concluded that Ace Software Exports Limited was not comparable to the assessee company as its business activities was different from that of the assessee. Aggrieved by the rejection of Ace Software Exports Limited as a comparable company, assessee carried the matter before ld. CIT(A). Ld. CIT(A) directed the AO to accept Ace Software Exports Limited by observing as under :
"3.5.5 I have considered the arguments of the learned TPO and of the Appellant. I find the learned TPO has been inconsistent in selection of the comparable companies. The learned TPO has to compare financial results of the ITeS segment of the Appellant with the ITeS segment of comparable companies. All above three companies pertain to ITeS segment. The learned TPO does not have any argument on rejection of Ace Software except that it is not functionally similar. However, it would be incorrect to conclude that the Ace Software is not functionally comparable because e- publishing and data base creation fall under ITeS according to the Notification issued by the CBDT. Accordingly, I direct the learned AO to accept Ace Software Exports Limited as a comparable Company."
7. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us.
8. Before us, ld. D.R. supported the order of AO. Ld.A.R. on the other hand reiterated the submissions made before lower authorities and supported the order of ld. CIT(A).
9. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) after considering the notification issued by CBDT has given a finding that E-Publishing and data base creation falls under ITeS Segment and was therefore functionally comparable with that of assessee. Before us, Revenue 8 has not placed any material on record to controvert the findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed.
10. Second ground is with respect to claim of assessee for deduction u/s 10A on the profit of Unit B. 10.1 AO noticed that assessee was carrying out its operation from different places as listed in page 4 of the assessment order, though it had taken approval from STPI authorities for all those places. He also noticed that assessee had treated all the different places as branches under Unit A and for which deduction u/s 10A was claimed by the assessee. AO noticed that Office at Pune IT Park, Aundh Road, Pune and Bind View Office, near Sadhu Vaswani Chowk, Pune for which STPI authorities approval was received on 08.10.2003 and 05.11.2004 respectively but assessee, though had named it as Unit B, but had claimed the profits from it as deduction u/s 10A of the Act. He also noticed the claim of 10A deduction was disallowed by his predecessor for those 2 Units in A.Y. 2004-05 and 2005-06. He therefore, following the views of his predecessor for A.Y. 2004-05 and 2005-06, held that Unit B was an extension of the existing business of the assessee and was not eligible for deduction u/s 10A. He accordingly denied the excess claim of deduction of Rs.36,98,818/-.
11. Aggrieved by the order of AO, assessee carried the matter before ld. CIT(A). ld. CIT(A) following his own order for A.Y. 2005-06 decided the issue in favour of the assessee by holding as under: 9
ASSESSMENT YEAR 2005 - 06 "Ground 1 Denial of deduction u/s 10A on profits of Unit B 2.1.1 The learned AO restricted the deduction claimed u/s 10A as according to him, Appellant's Unit-B was an extension of the existing business. He stated that Unit-B is claiming deduction u/s 10A beyond ten years and hence is not eligible to claim the deduction. On this ground, the learned AO had restricted the deduction claimed u/s 10A in the AY 2004-05. The learned AO observed in the assessment Order that the facts of the case under consideration are identical with the facts of the AY 2004-05.
Accordingly, he restricted the deduction claimed u/s 10A. 2.1.2 The Appellant submitted that this issue is covered in its favour by the Order of the honourable ITAT in its own case for AY 2004-05(ITA 787/PN/09). Findings 2.1.3 It is seen on the perusal of the Order that the ITAT has held that Unit-B is independent and distinct Unit from Unit-A, which is eligible to claim deduction u/s 10A. The Tribunal has given its decision in para 12 of its Order after considering the argument of the learned AO that Unit-B was claiming deduction beyond the period of ten years. Following the decision of the jurisdictional Tribunal, I hold that the Appellant is entitled to claim deduction u/s 10A also on the profits of Unit-B. Ground 12 Separate existence of Unit-B
3. 12.1. This ground of appeal is already decided vide Ground 1 in A.Y. 2005-06. Same findings will be applicable here."
12. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us.
13. Before us, ld. D.R. supported the order of AO. On the other hand ld.A.R. reiterated the submissions made before AO and ld. CIT(A) and supported the order of ld. CIT(A).
14. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while holding that the assessee is eligible for claim of deduction on the profits of Unit B 10 had followed the decision of Hon'ble Tribunal in assessee's own case. Before us, no material has been placed on record by the Revenue to demonstrate that the decision of the Tribunal that was followed by ld. CIT(A) has been set- aside by the Hon'ble High Court. In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A). Thus, this ground of the Revenue is dismissed.
15. Third ground is with respect to reduction of tele- communication charges from total turnover. 15.1 AO noticed that for claiming the deduction u/s 10A the expenses incurred in foreign currency and telecommunication expenses were deducted by the assessee from export turnover as well as total turnover. AO was of the view that these expenses are to be reduced from the export turnover because benefit of Sec.10A is provided for net realization of foreign-exchange in India and generally the expenses are not part of turnover and hence, the expenses are not required to be reduced from the total turnover. He accordingly re-worked the deduction u/s 10A by reducing the telecommunication expenses of Rs.18,19,936/- only from export turnover. Aggrieved by the order of AO, assessee carried the matter before ld. CIT(A), who decided the issue in favour of the assessee by holding as under:
"2.5.1 On reduction of telecommunication expenses and expenses incurred in foreign currency, I find that the learned AO has relied on the information contained in the Form 56F filed by the Applicant. In view of this facts and clear provisions of law on this subject, I uphold the decision of the learned AO to reduce expenses from the export turnover.
2.5.2 It is seen that the issue of reducing the same amounts also from the total turnover has been covered in the 11 Appellant's favour by the Order of the honourable ITAT in the Appellant's own case of AY 2004-05. In view of the decision of the honourable Tribunal in the Appellant's case, I direct the AO to reduce the above items of income also from the total turnover".
Ground 12 Separate existence of Unit-B
3. 12.1. This ground of appeal is already decided vide Ground 1 in A.Y. 2005-06. Same findings will be applicable here.
Ground 13 - Telecommunication expenses of Rs.18,19,936/- Ground 14 - Computation of deduction u/s 10A Ground 15 - Foreign Exchange Fluctuation Gain 2,41,30,641/-."
16. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us.
17. Before us, ld. D.R. supported the order of AO. On the other hand ld.A.R. reiterated the submissions made before AO and ld. CIT(A) and supported the order of ld. CIT(A).
18. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while deciding the issue had followed the order of the Co-ordinate Bench of the Tribunal in assessee's own case for A.Y. 2004-05. Before us, Revenue has not placed any material on record to demonstrate that the aforesaid order of the Tribunal has been set-aside by the Hon'ble High Court. In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A). Thus, this ground of the Revenue is dismissed.
19. Next ground is with respect to considering the foreign fluctuation as income derived from exports. 12 19.1 AO on perusing the claim of deduction of 10A noticed that assessee had earned Rs.2,41,30,641/- as 'exchange gain' and had considered it for deduction u/s 10A. AO was of the view that since it was not derived from export of articles of things or computer software, it was not eligible for deduction. He accordingly denied the claim of the assessee.
20. Aggrieved by the order of AO, assessee carried the matter before ld. CIT(A), who decided the issue in favour of the assessee by holding as under:
"2.2.3 I have considered the arguments of the Appellant and gone through the case-laws relied on by it. As far as foreign exchange gain is concerned, it has been held by the jurisdictional High Court in the case of CIT v Gem Plus Jewellery India Ltd (2011) 330 ITR 175 (Bom) that the gain from fluctuation of foreign exchange is directly related with the export activities and should be considered as income derived from export in the year in which the export took place. Accordingly, deduction u/s 10A on foreign exchange gain is allowable. I direct the learned AO to allow the deduction on foreign exchange gain."
21. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us.
22. Before us, ld. D.R. supported the order of AO. On the other hand ld.A.R. reiterated the submissions made before AO and ld. CIT(A) and supported the order of ld. CIT(A).
23. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while deciding the issue in favour of assessee had followed the decision of jurisdictional of Hon'ble High Court of Bombay in the case of CIT Vs. Gem Plus Jewellery India Ltd reported in (2011) 330 ITR 175. Before us, 13 Revenue has not placed any contrary binding decision in its support. In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A). Thus, this ground of the Revenue is dismissed.
24. Thus, the appeal of the Revenue is dismissed. ,,
25. In the result, cross-objection and appeal of the Revenue are dismissed.
Order pronounced on the 20th day of January, 2017.
Sd/- Sd/-
(SUSHMA CHOWLA) (ANIL CHATURVEDI)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पण
ु े Pune; दनांक Dated : 20th January, 2017.
Yamini
आदे श क' ( त)ल*प अ+े*षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A)-IT/TP, Pune
4. CIT-IV / DIT(TP/IT), Pune.
5 वभागीय #त1#न$ध, आयकर अपील य अ$धकरण, "ए" / DR, ITAT, "A" Pune;
6. गाड) फाईल / Guard file आदे शानस ु ार/ BY ORDER,स या//// True Copy // //T // True Copy // सहायक रिज/0ार/ Assistant Registrar, आयकर अपील य अ$धकरण ,पुणे / ITAT, Pune.