Colt Technology Services India Private Limited vs Income Tax Officer, Ward-6(2), New Delhi

“1.

The order dated November 30, 2015, passed by the Learned Income Tax Officer, Ward 6(2), New Delhi (hereinafter referred as "Ld. AO') under section 143(3) read with section 144C of the Income Tax Act, 1961 (hereinafter referred as the Act) is bad in law and on the facts and circumstances of the case.

2.

The reference made by the Ld. AO to the Learned Additional Commissioner of Income Tax, TPO-1(1), New Delhi (hereinafter referred as Ld. TPO) suffers from jurisdictional error as the Ld. AO has not recorded any reason on the basis of which he reached the conclusion that it was necessary or expedient to refer the matter to the Ld. TPO.

3.

The Ld. AO as well as the Ld. TPO and the Hon'ble Dispute Resolution Panel (hereinafter referred as 'Hon'ble DR') have erred in law as well as facts of the case in not accepting the Arm's Length Price (hereinafter referred as 'ALP) determined by the appellant.

4.

The Ld. AO / Ld. TPO / Hon/ble DRP have erred in ignoring the fact that the appellant is entitled to deduction under section 10A of the Act on its profits from provision of Information Technology Enabled Services (ITES') and Contract Software Development ('CSD) Services to overseas associated enterprises and there is no untoward motive to derive any tax advantage by manipulating transfer prices of International Transaction undertaken by it with its associated enterprises.

5.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in determining the ALP on the basis of data for Financial Year (FY) 2010-11 only and ignoring the data for two prior financial years i.e. FY 2009-10 and FY 2008-09.

6.

The Ld. A0 / Ld. TPO / Hon'ble DRP have erred in rejecting the analysis conducted by the appellant and conducting a fresh comparability analysis for determining the ALP which did not take into consideration the functions and risks applicable to the appellants business.

7.

The Ld. AO / Ld. TPO / Honble DRP have erred in rejecting the quantitative filters adopted by the appellant, and adopting inappropriate quantitative filters for carrying out a fresh comparability analysis .

8.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in arbitrarily rejecting certain companies selected by the appellant as comparables in terms of functions performed, assets employed and risks assumed, and in accepting certain companies which are not comparable to the appellant, for determining ALP.

9.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in accepting companies wiht exceptionally high operating margins as comparables of the appellant on a arbitrary basis.

10.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in accepting companies with significantly high turnover as compared to the appellant.

11.

The Ld. AO / Ld. TPO/Hon'ble DRP have erred in rejecting companies with low margins as comparables of the appellant on an arbitrary basis.

12.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in not allowing any risk adjustments to the appellant as it is remunerated on a cost plus mark-up basis and undertakes minimal risks.

13.

The Ld. AO / Ld. TPO / Hon/ble DRP have erred in taking an inconsistent stand by not applying the wages / sales ratio filter to the ITES segment (as applied in the CSD Segment) and thereby adopting an inconsistent stand between the ITES and CSD segments and applying this filter selectively only to the CSD segment.

14.

The Ld. AO / Ld. TPO / Ld. DRP have erred in making a notional addition on account of interest on perceived delay in collection of receivables from the Associated Enterprises without taking due cognizance of the business model and submissions made by the appellant.

15.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in making the adjustment on account of interest on account receivables without indentifying any comparable transaction or any enterprise which has entered into such comparable transaction, as mandated and necessitated by Rule 10B(2) of the Income Tax Rules, 1962.

16.

The Hon'ble DRP has erred in making additions on the basis of notional interest by comparing it with LIBOR ignoring that the said comparison is none of the 5 prescribed methods under the Indian transfer pricing regulations.

17.

The Ld. AO / Ld. TPO have erred in fact and in law by considering the arm's length value of some of the fixed assets imported by the appellant from its associated enterprises during the financial year 2010-11 as Nil, and thereby making additions on this ground.

18.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in fact and in law by not taking cognizance of the evidences submitted by the appellant substantiating that no mark-up has been charged by the associated enterprises for purchase of fixed assets, as also provided in the invoices submitted by the appellant.

19.

The Ld. AO / Ld. TPO / Honble DRP have erred in fact and in law by not taking cognizance of the evidences submitted by the appellant the valuation of the assets is consistent with the value arrived by the Custom authorities.

20.

The Ld. AO / Ld. TPO/Hon'ble DRP have erred in fact and in law by disallowing value of fixed assets purchased as per the books of accounts instead of the amount of depreciation claimed on the same.

21.

The Ld. AO / Ld. TPO / Hon'ble DRP have erred in ignoring the judicial pronouncements relied upon by the appellant.

22.

The Ld. AO has erred in levying the interest under section 234B, 234D and withdrawal of interest under section 244A of the Act.

23.

The Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of (the Act.

24.

The above grounds of appeals are independent and without prejudice to one another.

25.

The appellant craves leave to add / withdraw / amend any ground of appeal at the time of hearing.

“13.

In the view of the above said judicial pronouncements, by taking into consideration that, in the MAP Resolution, the margin accepted was 15.50%, we direct the AO/TPO to apply to benchmark ALP at 15.50% with respect to the ITEs segment on transaction with Colt Luxembourg. Accordingly, we allow the Assessee's Grounds of Appeal Nos. 1 to 13.”

ITAT order passed for AY 2012-13

“30.

The grounds of Appeal Nos. 1 to 11 are in respect of ITEs Segment on transaction with Colt Luxembourg. The Ld. AR submitted that, there is no distinction between services rendered by the assessee to Colt UK and Colt Luxembourg. Even the TPO has not made any distinction in its order and also while computing Arm's Length margin for ITEs segment. Further, under the APA, the costs in ITEs segment with respect to the transaction with Colt UK and Colt Luxembourg have been appropriated proportionately on the basis of revenue, thereby showing there is no distinction between the natures of services rendered by the assessee. The Ld. AR further contended that quantum of UK transactions constitutes only 5.75% of the total transaction undertaken by the asssessee in ITES segment. The Ld. Counsel for the assessee has relied on the several judicial pronouncements to support his contentions. Therefore, submitted that, the margin accepted in APA resolution (15.50%) should be applied to benchmark the ITES services rendered by the appellant to Colt Luxembourg as against the margin of 26.60% computed by the Ld. TPO.

31.

The above issue has already been dealt and decided by us of Assessee's own case in ITA No.536/Del/2015 for AY 2010-11 in favour of the assessee. Ergo, we allow the Grounds of appeal No. 1 to 11 of present appeal.”

“14.

The Grounds No. 14 to 16 are in respect of interest on receivables. The Ld. Counsel for the assessee submitted that, the Ld. TPO in his order made adjustment amounting to INR 94,185,402/- by computing notional interest on the delayed receipt of payment in case of certain receivables with AE's at PLR plus 300 basis points. The Hon'ble DRP in its order directed the Ld. TPO to apply interest in keeping with safe harbour regulations i.e. SBI base rate on 30-6-2009 plus 300 basis points which amounted to 14.75% and the addition got revised to INR 93,362,245/-.

15.

The Ld. Counsel for the assessee further submitted that, under the MAP Resolution dated 12-2-2018entered into between Indian and UK Competent Authorities, the addition pertaining to UK in respect of the interest on receivables has been settled at 3 months average Euribor plus 200 basis points applied on receivables received beyond 90 days, amounting to Rs. 80,58,170/-. The Ld. Counsel further submitted that after MAP settlement, the remaining addition which is subject matter of the present appeal pertains to delay in receivable from Colt Luxembourg is INR 42,26,509/-. By relying on the judicial pronouncements mentioned above, submitted that, the interest rate agreed in the MAP Resolution may be applied with respect to receivable by the appellant from Colt Luxembourg.

16.

In view of the above discussed ratio laid down in the judicial pronouncements mentioned above and by taking into consideration that, in the MAP Resolution entered into between UK and Indian Authorities in respect of the addition pertaining to UK got settled at 3 months average Euribor plus 200 basis points applied on receivables beyond 90 days, we direct the AO/TPO to apply 3 months average Euribor plus 200 basis points on the receivables received beyond 90 days in respect of outstanding from Colt Luxembourg. Accordingly, allow the Grounds No. 14 to 16 for statistical purpose.”

“20.

On hearing both the sides, we are agreeing with the argument advanced by the Ld. AR. In the case of Coastal Energy (P.) Ltd. v. Asstt. CIT [2011] 12 taxmann.com 355/46 SOT 286 (URO) (Chennai), it is held that, the custom authorities are assigning the value to imported goods on the basis of scientifically formulated methods and they are responsible for determining a fair value of the imported goods.

21.

By considering the facts and circumstances of the case, we are of the opinion that, the fixed assets purchased by the assessee cannot be taken as NIL and the value assigned by the custom authorities are to betaken as the fair value of the fixed assets purchased by the assessee. Accordingly, we allow the Assessee's Grounds of Appeal Nos. 17 & 18.”