Income Tax Appellate Tribunal - Ahmedabad
Lubrizol Advanced Materials India ... vs Acit., Circle-1(2),, Baroda on 26 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "I" BENCH AHMEDABAD
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER,
AND SHRI S. S. GODARA, JUDICIAL MEMBER.
ITA No. 2898/Ahd/2012
(Assessment Year:2008-09)
Lubrizol Advanced Materials India
Private Limited (Formerly known as
Indiamalt Private Limited)
P.O. Manjusar, Tal. Savli, Distt. -
Baroda, Gujarat 391775 Appellant
Vs.
Assistant Commissioner of Income Tax,
Circle 1(2), Baroda - 390007 Respondent
PAN: AAACI4361B
आवेदक क ओर से/By Assessee : Shri Dhanesh Bajna with Pratik
Shah, A.R.
राज व क ओर से/By Revenue : Shri M. P. Singh, CIT D.R.
सन
ु वाई क तार ख/Date of Hearing : 26.09.2016
घोषणा क तार ख/Date of
Pronouncement : 26.12.2016
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This assessee's appeal for assessment year 2008-09 arises against the ACIT, Circle-1(2), Baroda's assessment order dated 25.10.2012, passed in furtherance to the Dispute Resolution Panel "DRP" hereafter, Ahmedabad's ITA No. 2898/Ahd/2012 ( Lubrizol Advanced Materials India Pvt. Ltd. vs. ACIT) A.Y. 2008-09 -2- directions dated 25.09.2012, in proceedings under section 143(3) r.w.s. 144C(1) of the Income Tax Act, 1961; in short "the Act".
2. We come to assessee's pleadings. The instant case file indicates that its sole substantive ground pleads that the Transfer Pricing Officer (the TPO) & the above DRP have erred in making transfer pricing adjustment of Rs.73,43,657/- in respect of its international transactions of provision of marketing support services rendered to its eponymous associate enterprises based in Europe and Asia Pacific region totaling to Rs.7,73,62,467/-.
3. We come to basic facts first. The assessee company manufactures cassia and guar gum powder. It provided above marking support services to its associate enterprises stated in preceding paragraph. It had benchmarked the same at the rate of 14.18% after selecting eight comparables and adopting cost plus method as the most appropriate method. The Transfer Pricing Officer rejected assessee's transfer pricing study and its comparables mainly on the ground that the said entities did not reveal data of the relevant financial year along with lack of export turn over exceeding 75% criteria. He would thereafter finalize total seven comparable entities namely M/s. Acccentia Technologies Ltd., Acropetal Technologies Ltd., Asit C Mehta Financial Services Ltd. and Spanco Ltd. (all segmental) followed by M/s. Coral Hubs Ltd. (formerly Vishal Information Technologies Ltd.), Crossdomain Solutions and Moldtek Technologies having average PLI ratio of 36.16%. The Transfer Pricing Officer's order dated 28.10.2011 rejected assessee's objections and proposed the impugned adjustments. The Assessing Officer then framed draft assessment on 09.12.2011 as per the same. We find the amount involved in the original proposal arising from the impugned adjustment to be of Rs.1,56,06,649/-.
ITA No. 2898/Ahd/2012 ( Lubrizol Advanced Materials India Pvt. Ltd. vs. ACIT)A.Y. 2008-09 -3-
4. The assessee filed its objections before the Dispute Resolution Panel inter alia pleading that the TPO had wrongly rejected its transfer pricing study report based on the contemporaneous data available after rejecting/accepting inappropriate comparables resulting in the impugned adjustment. This panel upheld Assessing Officer's action in its order dated 25.09.2012 except to the extent that it would direct the Assessing Officer to exclude M/s. Moldtek having abnormal results. The Assessing Officer accordingly framed the impugned assessment re-computing the above transfer pricing adjustment of Rs.73,43,657/- in question leaving the assessee aggrieved.
5. We have heard both the parties. Case file perused. The assessee's first argument in the course of hearing is that the authorities below have erred in rejecting its transfer pricing study thereby undertaking a fresh selection process of comparables having data of the relevant financial year 2007-08. It however fails to dispute that its original comparables were not based on inter alia selection of the relevant financial year 2007-08 data followed by fulfillment of the latter filter of 75% export earnings. The same position continues before us as well since the assessee has not been able to substantiate its case that the original comparables had to be accepted since satisfying the relevant pacific filters. Its first argument is accordingly declined.
6. The assessee's next argument seeks to exclude M/s. Coral Hubs Ltd. (formerly Vishal Information Technologies ), M/s. Accentia Technologies Ltd., M/s. Acropetal Technologies Ltd. and M/s. Crossdomain Solutions. Ld. Departmental Representative strongly supports inclusion of all of the above entities in the array of comparables.
ITA No. 2898/Ahd/2012 ( Lubrizol Advanced Materials India Pvt. Ltd. vs. ACIT)A.Y. 2008-09 -4-
7. We have given out thoughtful consideration to rival contentions. We first come to M/s. Coral Hubs Ltd., formerly known as M/s. Vishal Information Technologies Ltd. There does not appear to be any dispute that the lower authorities have included this entity as a comparable solely because of the very course of action adopted in the immediate preceding assessment year 2007-08. Learned counsel at this stage filed before us a copy of ITA No.2811/Ahd/2011 decided on 21.10.2015 in assessee's case itself for preceding assessment year that M/s. Vishal Information Technology had outsourced its information technology enabled services to third party vendors and therefore not to be taken as a valid comparable. We rely on the very reasoning herein as well in absence of any distinction on facts being pointed out and direct the Assessing Officer to exclude M/s. Coral Hubs Ltd. from the above comparables and finalize afresh computation.
8. We now come to M/s. Accentia Technoligies Ltd. Learned counsel representing assessee pleads that the said entity had seen merger of two units during the relevant financial year having impact on its margins. We find that a co-ordinate bench of this tribunal in Symphony Marketing Solutions India Pvt. Ltd. case ITA No.1316/Banglore/2012 decided on 14.08.2013 excludes this entity for the impugned assessment year itself on the ground that above extraordinary events of merger had an impact on its margins. We notice that various other co-ordinate benches have also adopted the very course of action of excluding the said entity from the array of comparables with respect to IT enabled services. We thus direct the Assessing Officer to exclude M/s. Accentia Technologies Ltd. as well from the array of comparables.
9. The assessee's next argument is regarding inclusion of M/s. Acropetal Technologies Ltd. We find herein as well that the above co-ordinate bench ITA No. 2898/Ahd/2012 ( Lubrizol Advanced Materials India Pvt. Ltd. vs. ACIT) A.Y. 2008-09 -5- decision in Symphony Marketing Solutions India Pvt. Ltd. (supra) holds that M/s. Acropetal Technologies Ltd. is engaged in providing high end services of engineering design which are totally different from IT enabled services. Ld. Departmental Representative fails to rebut this factual and legal position. We thus direct exclusion of this third entity as well from the array of comparables.
10. This leaves us with assessee's arguments challenging inclusion of M/s. Crossdomain Solution Ltd. It submits herein as well that the said entity is engaged in providing high end and KPO services, development of product suits and IT enabled services as per the case law of Symphony Marketing Solutions India Pvt. Ltd. (supra) which is not a valid comparable since not having any bifurcation available for such vertical services. It is evident to us that hon'ble Delhi high court in Rampgreen Solutions Pvt. Ltd. vs. CIT ITA No.102/2015 decided on 10.08.2015 concludes that KPO business entities are not valid comparables to BPO and other IT enabled services. We thus direct the Transfer Pricing Officer to undertake consequential exercise restricting inclusion of M/s. Crossdomain Solutions only to the extent of its result in IT enabled services segment as per law. The assessee succeeds in its instant argument to this extent only.
11. We draw support from our above discussion and direct the Transfer Pricing Officer to finalize consequential computation. Learned counsel at this stage submits that the assessee is entitled for working capital adjustment and ±5% relief in the nature of tolerance margin. Ld. Departmental Representative states that the Revenue would have no objection if these two issues are considered as per law in consequential computation. We ITA No. 2898/Ahd/2012 ( Lubrizol Advanced Materials India Pvt. Ltd. vs. ACIT) A.Y. 2008-09 -6- appreciate this fair stand and direct the Transfer Pricing Officer to consider these two assessees concerns as per law.
12. This assessee's appeal is partly allowed for statistical purposes.
[Pronounced in the open Court on this the 26th day of December, 2016.] Sd/- Sd/-
(PRAMOD KUMAR) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 26/12/2016
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आय!
ु त / Concerned CIT
4. आयकर आय!
ु त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।