Income Tax Appellate Tribunal - Bangalore
M/S.Curram Software International ... vs Income Tax Officer, Bangalore on 7 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, BENGALURU
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
and
SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
IT(TP)A No.192/Bang/2017
(Assessment year: 2012-13)
M/s.Curam Software International Pvt. Ltd.
C/o IBM India Pvt. Ltd.,
# 12, Bannerghatta Road,
Subramanya Arcade 1, 3rd floor,
Bengaluru-560029.
PAN:AACCC 5472 F
Vs.
...
Appellant
Income-tax Officer,
Ward 2(1)(2),
Bengaluru.
...
Respondent
Appellant by
:
Shri Nageshwar Rao, Advocate.
Respondent by
:
Ms. Neera Malhotra, CIT(DR)
Date of hearing :
05/04/2017
Date of pronouncement :
07/06/2017
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the assessment order dated 28/11/2016 passed u/s 143(3) r.w.s. 144C of the of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] for the assessment year 2012-13.
2. The assessee raised the following grounds of appeal:
7. The learned AO/TPO have erred in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, and conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the appellant's international transaction is not at arm's length.
3. The assessee filed petition under rule 11 of the ITAT Rules, 1963 for admission of the following grounds of appeal:
4. Brief facts of the case are as under: The assessee is a company duly incorporated under the provisions of the Companies Act, 1956. It is a wholly owned subsidiary of Curam Software Ltd. Ireland. It is engaged in the business of providing software development and support services to its Associated Enterprises (AE) at cost + based for services rendered. Return of income for the assessment year 2012-13 was filed on 30/11/2012 declaring total income of Rs.6,43,79,600/-. The assessee-company also reported the following international transaction in Form 3CED.
Particulars Amount Software Development Services 49,80,26,933 Total 49,80,26,933
5. The assessee-company sought to justify the consideration received for above international transaction entered with its AE to be at arm's length price. The assessee-company also submitted that Transfer Pricing (TP) study report by adopting operating profit to total cost as Profit Level Indicator (PLI) and TNMM as the most appropriate method for TP study report. The assessee-company's profit margin was computed at 14%. The assessee-company claimed that the same was comparable with other companies rendering software development services. For the purpose of TP study, assessee-company had chosen 25 comparable entities and the arithmetic average of operating profit of the said comparables was computed at 11.88%. According to assessee-company, its PLI was much higher than arithmetical mean of comparable entities. Hence, it was claimed that the transactions with its AE are at arm's length. The assessee-company had chosen the following 25 comparable companies:
6. The Assessing Officer (AO) referred the matter to the TPO for the purpose of bench marking the above international transactions.
7. The Transfer Pricing Officer (TPO), by order dated 22/01/2016 passed u/s 92CA of the Act computed transfer pricing (TP) adjustment at Rs.3,21,96,263/-. The TPO accepted TNMM adopted by the assessee-company but rejected TP study report as the assessee-company had not (1) adopted current year's financial data,(2) adopted average margin of three years data (3) had not applied the filter of export earnings of more than 75% to sales and employee-cost filter i.e. employee cost to sales more than 25%. The TPO proceeded to identify different set of comparables for the purpose of determining the ALP. While doing so, the TPO applied the following filters:
Use of current year data Companies having different financial yer ending i.e. not March 31, 2012 or data of the company which does not fall within 12 month period i.e. 01/04/2011 to 31/03/2012 were rejected.
Companies whose service income <Rs.1 crore were excluded.
Companies whose software development service is less than 75% of the total operating revenues were excluded.
Companies which have export service income less than 75% of the sales were excluded.
Companies with employee cost less than 25% of turnover were excluded.
The TPO selected the following 10 comparables:
The TPO computed average profit margin of the comparables finally selected at 22.63% and denied risk adjustment. However, granted working capital adjustment at 1.26%. On the above said basis, the TPO computed TP adjustment as follows:
8. The AO passed draft assessment order dated 28/03/2016 u/s 143(3) r.w.s 92CA of the Act incorporating above TP adjustment and also making disallowance of depreciation on fixed assets of Rs.1,26,93,666/- on the ground that no evidence was filed and also disallowing donations of Rs.30,000/-
9. Being aggrieved, objections were filed before the Hon'ble DRP contending that the TPO was not justified in adopting only current year's data and rejecting TP study report and not applying turnover filter. The assessee-company also contested inclusion of the following companies:
Akshay Software Technologies Ltd.
Blue Star Infotech Ltd.
Caliber Point Business Solutions Ltd.
Cat Technologies Ltd.
CG-VAK Software & Exports Ltd.
Cigniti Technologies Ltd.
Evoke Technologies Pvt. Ltd.
Maveric Systems Ltd.
Thinksoft Global Services Ltd.
R Systems The assessee-company also contested exclusion of the following companies:
Datamatics Global Services Ltd.
Genesys International Corporation Ltd.
ICRA Techno Analytics Ltd.
Infosys Ltd.
Persistent Systems Ltd.
Spry Resources India Pvt. Ltd.
10. The Hon'ble DRP granted relief by excluding the companies viz., Datamatics Global Services Ltd., Genesys International Corporation Ltd., ICRA Techno Analytics Ltd., Infosys Ltd., Spry Resources India Pvt. Ltd., and Sasken Communication. The Hon'ble DRP also held that foreign exchange gain should be treated as part of operating nature for the purpose of computing margins. The Hon'ble DRP confirmed addition in respect of disallowance of depreciation as the assessee-company had failed to produce any evidence. The AO passed the final assessment order u/s 143(3) r.w.s.144C of the Act, vide order dated 28/11/2016. After receipt of the assessment order, the appellant has filed the present appeal before us.
11. Ground Nos.1 and 2 are general in nature and do not require any adjudication. Similarly ground Nos.15 and 16 are consequential in nature and do not require any adjudication.
12. Ground Nos.3 and 4 challenge confirmation of disallowance of depreciation of Rs.25,03,336/- claimed on fixed assets of Rs.1,26,93,666/-. The AO denied claim of depreciation on the ground that the assessee-company had failed to file any evidence in support of acquisition of fixed assets to the tune of Rs.1,26,93,666/-. Even before the Hon'ble DRP, assessee-company had not filed any evidence. The finding of the Hon'ble DRP on this issue is as under:
12.2 The above findings have not been controverted by the learned counsel for the assessee. Before us also no evidence was filed but it is the only contention of the assessee that since books of account are audited addition to block of assets should be accepted by the revenue. A mere fact that books of account were audited does not absolve the assessee from producing evidence to the satisfaction of the AO to allow depreciation. Therefore, the grounds of appeals are dismissed.
13. Ground No.5 is regarding disallowance of donation which is not pressed, hence, dismissed as such.
14. Ground Nos.6 to 10 challenge rejection of TP study report submitted by the assessee-company and rejection of comparables chosen by the assessee-company. As far as rejection of TP study, the TPO has given reasons as to why TP study was rejected by citing that adoption of weightage of 3 years profit margin and not adopting filter like employee-cost and export earnings. It is not the case of the assessee-company that these filters are not relevant. Therefore, we uphold rejection of TP study submitted by the assessee-company.
15. As regards selection of comparables is concerned, the Hon'ble DRP not with exclusion of such companies. Therefore, assessee-company cannot seek any relief by exclusion of the companies selected by the TPO.
16. During the course of hearing, learned counsel for the assessee has sought exclusion of (i) Persistent Systems Ltd. (ii) Larsen & Toubro Infotech, and (iii) Spry Resources India Pvt. Ltd. by putting forth the contentions which were not made before lower authorities We are unable to agree with the submissions of the learned counsel for the assessee for two reasons: The contentions raised by the learned counsel for the assessee are based on facts which were not there before the lower authorities. No application was made for admission of these additional grounds of appeal. The additional grounds of appeal require verification of facts and cannot be raised for the first time before us without proper application for admission of the same. A ground can be raised before the appellate authority for the first time only if it is able to satisfy the appellate authority that this ground raised was bona fide and same could not have been raised earlier for good and sufficient reasons. In such cases, additional ground can be allowed. In the present case, there was no material on record to support such a claim nor this issue was subject matter of proceedings before the AO or Hon'ble DRP. Therefore, no new claim can be allowed in the light of the decision of the Apex Court in the case of Addl.CIT vs. Gurjargravures P. Ltd. (111 ITR 1). Furthermore, there is nothing in the petition for admission of additional grounds of appeal indicating reasons which prevented the appellant/assessee from raising a claim for deduction of expenditure incurred on ESOP for the assessment year under consideration during the proceedings before the AO or the CIT(A). In identical facts of the case, the Hon'ble Bombay High Court in the case of Ultratech Cement Ltd. vs. Addl.CIT in ITA No.1060 of 2014 dated 18th April, 2017 after referring to the decision of the Apex court in the case National Thermal Power Co. Ltd. vs. CIT (229 ITR 383), held as follows:
"23] Therefore, before an additional ground is allowed to be raised, the appellate authority must be satisfied that the ground raised could not have been raised earlier for good reasons. The underlying basis for allowing the raising the additional ground in the case of Ahmedabad Electricity Co.Ltd. (supra) was the subsequent decision rendered by this Court in Amalgamated Electricity Co. Ltd. (supra) when appeal was pending. As held by the subsequent decisions of the Apex Court in NTPC Ltd. (supra), a judicial decision when an appeal is pending will entitle raising of additional ground.
24] In any view of the matter, the aforesaid decision does not deal with the situation which arises for consideration in this case viz. relying upon the evidence on record for a subsequent assessment year to hold that the assessee is entitled to a benefit of deduction u/s 80IA of the Act for an earlier assessment year. A deduction under Chapter VIA of the Act under which Section 80IA of the Act falls would depend, as pointed out above, upon the satisfaction of the facts necessary for claiming a deduction. The allowing of a deduction in a subsequent year's assessment order cannot determine the facts as existing in the earlier assessment year, such as in this case so as to allow the deduction.
25] In fact, the issue with regard to the raising of new grounds in the absence of any evidence on record is no longer res integra in view of decision of the Apex Court in Addl. Commissioner of Income Tax Vs. Gurjargravures Pvt. Ltd.,(supra). In the above case, it has been held that an additional ground cannot be raised before the appellate Authority when no claim for a particular deduction was made before the original authority nor was there any material on record to support such a claim. Further the Court held that merely by allowing the deduction for a subsequent assessment year, it could not be held that conditions for availing the deduction in the subject assessment were also satisfied. In the present facts also, the claim for deduction under Section 80IA of the Act was not made before the Assessing Officer or the CIT(A) but was made for the first time only before the Tribunal nor was there any evidence in support of the claim for the subject assessment year on record. Thus it stands covered by the above decision in Gurjargravures Pvt. Ltd. (supra). The aforesaid decision of the Apex Court was subject matter of consideration in Jute Corporation of India Ltd. (supra) wherein the Court while distinguishing Gurjargravures Pvt. Ltd. (supra) held that the additional ground could also be raised before the appellate Authority if such ground could not have been raised at the earlier stage i.e. when the return of income was filed. This is only when the assessee is able to satisfy the appellate Authority that the ground now raised was bona fide and the same could not have been raised earlier for good reasons. In such cases, the raising of additional ground could be allowed. In this case, there is nothing on record to indicate as to what was the reason which prevented the appellant assessee from raising a claim for deduction under Section 80IA of the Act for subject assessment year during the proceedings before the Assessing Officer and the CIT(A). Therefore, in the above facts, the view taken by the Tribunal in not allowing the appellant to raise additional ground in appeal is in line with the decision of the Apex Court in Gurjargravures Pvt. Ltd.(supra), NTPC Ltd. (supra) and Jute Corporation of India Ltd.
26] None of the decisions cited by the appellant would render the decision of the Supreme Court in Gurjargravures Pvt. Ltd. (supra), read with Jute Corporation of India Ltd. and NTPC Ltd. (supra) inapplicable to the present facts.
27] There can be no dispute that whether or not to allow an additional ground to be raised before the appellate authority is to be decided by the appellate authority in exercise of its discretion considering the facts and circumstances of the case before it. Where only a pure question of law arises from facts which are already on record, then there is no reason why the appellate authority should not consider the question of law so as to determine the correct tax liability of an assessee in accordance with law. However, where evidence is to be examined and that is not on record, then it will be considered only if the parties seeking to raise the additional ground satisfies the authority concerned that for good and sufficient reasons, the ground could not be raised before the lower authorities. In the present facts, no such ground has been made out by the assessee before the Tribunal. In the present facts, as pointed out above and being reiterated once more, the additional ground, which is raised, is not a pure question of law, but would depend upon the satisfaction of the authority as to the facts existing in the subject assessment year for allowing the benefit of Section 80IA of the Act. The additional ground is being raised for the first time before the Tribunal without relevant evidence being on record."
Following the law laid down by the Hon'ble Bombay High Court in the case of M/s.Ultratech Cement Ltd. (supra) which is squarely applicable to the facts of the present case, we dismiss the additional grounds of appeal. In the circumstances, we reject the submission of the assessee-company that comparable entities viz., Persistent Systems and Larsen & Toubro Infotech Ltd., should be excluded for the reasons stated above.
17. The assessee-company is seeking relief of inclusion of the following companies:
Evoke Technologies Helios and Matheson Information Technology Ltd.
R Systems International Ltd.
Akshay Software Technologies Ltd.
Cignity Technologies Thinksoft Global Solutions Ltd.
CG VAK Software and Exports Ltd.
Learned counsel for the assessee submitted that the above contention is raised for the first time before this Tribunal. We are unable to accept this contention for the reason that ground of appeal are based on facts, it amounts to additional grounds of appeal governed by vrule 11 of the ITAT Rules, 1963 which were not urged before the lower authorities nor these facts were placed before the lower authorities. Therefore, this cannot be admitted either as additional ground of appeal or under rule 27 in absence of proper application for admission of the same. Ground Nos.6 to 11 filed by the assessee are dismissed.
18. Ground No.12 challenges working capital adjustment. The assessee-company had not filed any evidence showing as to how working capital adjustment made by the TPO is incorrect. Therefore, this ground of appeal is also dismissed.
19. Ground No.13 deals with risk adjustment. The finding of the Hon'ble DRP on this issue is as under:
The learned counsel had not controverted the finding of the Hon'ble DRP. In the circumstances, we confirm the same.
20. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on this 07th June, 2017
Sd/- sd/-
(VIJAY PAL RAO)
(INTURI RAMA RAO)
JUDICIAL MEMBER
ACCOUNTANT MEMBER
Place : Bengaluru
D a t e d : 07/06/2017
srinivasulu, sps
Copy to :
1
Appellant
2
Respondent
3
CIT(A)-
4
CIT
5
DR, ITAT, Bangalore.
6
Guard file
By order
Assistant Registrar
Income-tax Appellate Tribunal
Bangalore
T(TPA No.192/Bang/2017
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