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08-11-2019, Emulex Communications, Section 92CA, 10A, Tribunal Bangalore

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3 days 6 hours ago #11366 by amit
Section - 92CA, 10A, 144C(13), 115JAA
Order Date - 08-11-2019
Favouring - Revenue Partly
Court - Tribunal Bangalore
Appellant - Emulex Communications Pvt. Ltd.
Respondent - ITO
Justice - N V VASUDEVAN VP & A K GARODIA AM
Citation - 1119Taxpundit101
Appeal No. - ITA No. 230/Bang/2015
Asstt. Year - 2010-11

Order

PER : N. V. Vasudevan

IT(TP)A No. 152/Bang/2015 is an appeal by the Revenue while IT(TP)A No.230/Bang/2015 is an appeal by the Assessee. Both these appeals are directed against the final order of assessment dated 24.12.2014 passed by the Income Tax Officer, Ward-2(1)(4), Bangalore, u/s.143(3) read with Sec.144C(13) of the Income Tax Act, 1961 (Act).

2. Grounds of appeal 4 to 7 raised by the Revenue in its appeal and Gr.No. 1 to 4 raised by the Assessee in the revised grounds of appeal, in its appeal are with regard to the determination of Arm’s Length Price (ALP) in respect of an international transaction between the Assessee and it’s Associated Enterprise of rendering Software Development Services (SWD Services). These grounds reads as follows:

Revenue’s appeal:

1. On the facts and in the circumstances of the case, the Hon'ble Dispute Resolution Panel was not justified in giving direction to the TPO to exclude M/s ICRA Techno Analytics Ltd as a comparable, without considering the discussion made by the TPO in respect of the comparable company in the TP order

2. On the facts and in the circumstances of the case, the Hon'ble Dispute Resolution Panel was not justified in giving direction to the TPO to exclude M/s Infosys Ltd and M/s Tata Elxsi Ltd as a comparable without considering the facts discussed in the case of the taxpayer by the TPO in respect of thecomparable company in the TP Order.

3. On the facts and n the circumstances of the case, the Hon'ble Dispute Resolution Panel was not justified in excluding INFOSYS Ltd and Tata Elxsi Ltd as a comparable on the basis of decision in a different case when in TP rejection or acceptance of a comparable in a case on the basis of its appropriateness / inappropriateness in some other is not possible.

4. On the facts and in the circumstances of the case, the Hon'ble Dispute Resolution Panel was not justified in giving direction to the TPO to exclude M/s Persistent Systems & Solutions Ltd, M/s Think Soft Global Services Ltd, R.S.Software (India) ltd and Persistent Systems Ltd as a comparable, without considering the discussion made by the TPO in respect of the comparable company which was accepted by the taxpayer during the TP proceedings.

Assessee’s appeal:

1. That the order of the learned Income-tax Officer, Ward 2(1)(4), Bangalore ("Assessing Officer" or "AO") pursuant to the direction of the learned Dispute Resolution Panel (Panel') to the extent prejudicial to the Appellant, is bad in law and liable to the quashed.

2. That the learned AO/learned Panel erred in upholding the learned Transfer Pricing Officer's ("TPO") approach of rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant;

3. That the learned AO/learned Panel erred in upholding the learned TPO's approach of considering certain expenses, which have been disallowed while computing the total income for the purpose of Income-tax, as a part of operating cost base which leads to double taxation

4. That on the facts and circumstances of the case, the learned AO/learned Penal erred in;

(a) Upholding the rejection of comparability analysis of the Appellant in the TP documentation and accepting the fresh comparability analysis performed by the learned TPO with application of certain arbitrary/modified filters

(b) Arbitrarily arriving at a set of companies as comparable for the services rendered by the Appellant, on rejecting/not considering companies that are otherwise functionally comparable to the Appellant like Persistent Systems and Solutions Ltd., R S Software (India) Ltd., Thinksoft Global Services Ltd., Akshay Software Technologies Ltd., LGS Global Ltd. and Cat Technologies Ltd., and on inclusion of Kals Information Systems Ltd. that otherwise fails the test of comparability.

(c) Disregarding application of multiple year/prior year date as used by the Appellant in the TP documentation and holding the current year (i.e. Financial Year 2009-10) data for companies should be used comparability Upholding the learned TPO's approach of using data as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for comparable companies while determining the arm's length price

(e) Upholding the TPO's approach of not providing Risk Adjustment and thus ignored the limited risk nature of the services provided by the Appellant and in not
providing an appropriate adjustment towards the risk differential. even when full-fledged entrepreneurial companies are selected as comparables.

3. The Assessee is a company registered under the provisions of the Companies Act, 1956 and is a subsidiary of Emulex International Ltd. (which holds 99.998% shares) and Emulex Corporate Services Corpn. (which holds 0.002% shares). The Assessee company is engaged in providing SWD services to its affiliates, for which it received a consideration of Rs.29,54,66,768/- during the previous year relevant to the assessment year 2010-11.Since the transaction of provision of Software service by the Assessee was an international transaction, income from such international transaction has to be determined having regard to Arm’s Length Price (ALP) as laid down in the provisions of Sec 92 of the Act.

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