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03-07-2019, EMC Software and Services, Section 144C(13), Tribunal Bangalore

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1 week 4 days ago #9971 by amit
Section - 144C(13), 92CA, 154, 234A
Order Date - 03-07-2019
Favouring - Partly
Court - Tribunal Bangalore
Appellant - EMC Software and Services India Private Limited
Respondent - ACIT
Justice - N. V. VASUDEVAN VP & JASON P BOAZ AM
Citation - 719Taxpundit60
Appeal No. - IT(TP)A No.523/Bang/2017
Asstt. Year - 2012-13

Order

PER : Jason P Boaz

This appeal filed by the assessee is directed against the final order of assessment dated 29.12.2016 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short ‘the Act’) for Assessment Year 2012-13, pursuant to the directions of the Dispute Resolution Panel – 1, Bangalore (DRP) under section 144C(5) of the Act on 31.10.2016.

2. Briefly stated, the facts of the case are as under:

2.1 The assessee, a subsidiary of EMC Corporation, USA, engaged in marketing and distribution of EMC Products, consultancy and provision of software development services and IT enabled services (ITES) to its Associated Enterprises (AEs), filed its original return of income for Assessment Year 2012-13 on 29.11.2012 declaring income of Rs.61,23,25,140/-. A revised return was filed on 10.06.2013, wherein the assessee declared income of Rs.41,11,22,730/-. The case was selected for scrutiny and thereafter the Assessing Office (AO) made a reference to the Transfer Pricing Officer (TPO) under section 92CA of the Act for
determination of the arm’s length price (ALP) of the international transactions entered into by the assessee with its AEs in the year under consideration. The TPO passed an order under section 92CA of the Act dated 06.01.2016, wherein he proposed (i) an adjustment of Rs.20,99,44 284/- to the international transactions relating to the assessee’s software development services segment (SWD segment) and (ii) an adjustment of Rs 1,66,99,160/- to the assessee’s ITES segment. Vide order under section 92CA( ) r.w.s. 154 of the Act, dated 04.04.2016, the TP adjustment to the SWD segment was reduced to Rs.15,35,74,316/-.

2.2 The assessee filed its objections thereto before the DRP, who vide its directions dated 31.10.2016 allowed the assessee partial relief. Pursuant thereto, the AO passed the impugned final order of assessment dated 29.12.2016 under section 143(3) r.w.s. 144C(13) of the Act wherein the assessee’s income was determined at Rs.61,57,40,610/-; which included a TP adjustment of Rs.16,46,17,878/- in respect of the assessee’s international transactions in the software development services segment.

3.1 Aggrieved by the final order of assessment for Assessment Year 2012-13 dated 29.12.2016 for Assessment Year 2012-13, the assessee has preferred this appeal before the Tribunal, wherein it has raised the following grounds:-

1. That the order of the Assistant Commissioner of Income-tax, Circle - 2 (1)(2), Bangalore (the "learned Assessing Officer" or the "learned AO") dated December 29, 2016, passed under Section 143(3) read with section 144C(13) of the Act, pursuant to the directions of the learned Dispute Resolution Panel-1, Bangalore (the "learned Panel") to the extent prejudicial to the Appellant, is bad in law and liable to be quashed.

2. That on the facts and in the circumstances of the case, the learned AO and the Deputy Commissioner of Income-tax (Transfer Pricing) — 1(2)(1), Bangalore (the "learned Transfer Pricing Officer" or the "learned TPO") erred in not conforming with the directions of the learned Panel in entirety and making an adjustment to the transfer price of the Appellant, in doing so the learned AO/ learned TPO erred in not providing the basis on which the aforementioned adjustment was made.

3. That on the facts and in the circumstances of the case, the learned Panel and the learned AO erred in upholding the learned TPO's approach of determining the arm's length price for the contract software development services segment of the Appellant by:

3.1. Invoking provisions of section 92C(3) read with section 92CA of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct;

3.2. Disregarding application of multiple year/ prior year data as used by the Appellant in the transfer pricing documentation and holding that current year (i.e. Financial Year 2011-12) data for companies should be used for comparability;

3.3. Using data which was not available in the public domain at the time, the transfer pricing documentation was prepared by the Appellant;

3.4. Conducting a fresh comparability analysis by rejecting certain filters applied by the Appellant in the transfer pricing documentation (i.e., R&D spend / Sales filter, net-worth filter and advertising, marketing and distribution expenses / sales filter) and applying additional /modified filters (i.e., service revenue > 75% filter, export sales / total sales filter, consistent losing making filter, different year ending filter and RPT /Sales >25% filter).

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