Commissioner Of Income Tax, Central -Iii v. M/S.ness Technologies (India) Pvt. Ltd. Formerly Known As Ness Technologies (India) Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.218 OF 2011 Commissioner of Income Tax, Central -IIIVersusM/s.Ness Technologies (India) Pvt. Ltd.Formerly known as Ness Technologies (India) Ltd. ...Appellant ..Respondent Mrs. S.V. Bharucha for the Appellant. Mr. F.V. Irani with Mr. Atul K. Jasani for respondent P.C. CORAM : MOHIT S. SHAH, C.J. & M.S. SANKLECHA, J.DATE : 15 April 2013 On 18 February 2013 the parties were put to notice that the appeal will be disposed of finally at the stage of admission. Accordingly, respondent assessee is served and learned counsel Mr. Irani appears for the respondent assessee. 2.Heard Mrs. Bharucha, learned counsel for the appellant-revenue and Mr. Irani, learned counsel for the respondent assessee.3.This appeal is preferred by the revenue against the order dated 30 July 2012 of the Income Tax Appellate Tribunal, Mumbai Bench (ITAT) for the assessment year 2004-05 raising the following questions for our consideration:- “(1) Whether on the facts and circumstances of the case and in law the ITAT was justified in confirming the order of CIT (A) which held that to determine the arms length price the operating margin is to be applied only to the operating cost of related parties without appreciating the fact that arms length price analysis was done by the transfer pricing officer at enterprise entity level? (2)Whether on the facts and circumstances of the case and in law the ITAT erred in upholding the order of the CIT (A) which gave a finding that the difference between the price shown by the assessee in respect of transactions with its overseas associate concerns at Rs.66,52,28,080/- and the arms length price worked out on the basis of the transfer pricing officers report of the said transaction at Rs.68,47,26,069/- was less than 5% under section 92C(2) of the Act?and in law the ITAT erred in upholding the order of the CIT (A) which gave a finding that the difference between the price shown by the assessee in respect of transactions with its overseas associate concerns at Rs.66,52,28,080/- and the arms length price worked out on the basis of the transfer pricing officers report of the said transaction at Rs.68,47,26,069/- was less than 5% under section 92C(2) of the Act? (3)Whether on the facts and circumstances of the case and in law the ITAT erred in holding that if the difference between the price charged by the assessee and arms length price determined by the most appropriate method is less than 5% the assessee has an option to take the price charged by him as arms length price under section 92C(2)?and in law the ITAT erred in holding that if the difference between the price charged by the assessee and arms length price determined by the most appropriate method is less than 5% the assessee has an option to take the price charged by him as arms length price under section 92C(2)? (4)Whether on the facts and circumstances of the case and in law the ITAT was correct in upholding the order of the CIT(A) which held that to determine arms length price the operating margin is to be applied only to operating cost of related parties without appreciating the fact that arms length analysis has been done at enterprise level by adopting 15 companies as comparables and to adopt only the relative party operating cost would defeat the purpose of adopting the comparables enterprise level profit level indicators?and in law the ITAT was correct in upholding the order of the CIT(A) which held that to determine arms length price the operating margin is to be applied only to operating cost of related parties without appreciating the fact that arms length analysis has been done at enterprise level by adopting 15 companies as comparables and to adopt only the relative party operating cost would defeat the purpose of adopting the comparables enterprise level profit level indicators? (5)Whether on the facts and circumstances of the case and in law the ITAT erred in upholding the reference by the assessing officer to the transfer pricing officer and confirming the transfer pricing adjustment of Rs.65,04,89,766/- (Sixty Five crores four lacs eighty nine thousand seven hundred sixty six only) under section 92C(2) of the Act?”and in law the ITAT erred in upholding the reference by the assessing officer to the transfer pricing officer and confirming the transfer pricing adjustment of Rs.65,04,89,766/- (Sixty Five crores four lacs eighty nine thousand seven hundred sixty six only) under section 92C(2) of the Act?” 4.The respondent company is engaged mainly in the business of development of software and rendering services incidental thereto. In the course of its business the respondent-company had entered into various international transactions with its overseas associate enterprises. A reference, therefore, was made by the Assessing Officer to the transfer pricing officer (TPO) to ascertain whether the said transactions with its associated enterprises were at arms length or not. As per the report submitted by the TPO, adjustment of Rs.7,07,66,474/- was required to be made as according to TPO the transactions of the assessee company with the overseas associated enterprises were not at arm's length price. Relying on the report of the TPO the Assessing Officer has also made addition of Rs.7,07,66,474/- to the total income of the assessee by way of adjustment in respect of the aforesaid transactions. 5.In appeal before the CIT (Appeals) the respondent-company pointed out that additions made by Assessing Officer on the basis of the TPO's report was incorrect as there were mistakes in the TPO's report. The CIT (Appeals) and after verifying the figures submitted by the assessee held that the correct figures for determining the Arms Length Price (ALP) were as under :- On the basis of the above figures the CIT (Appeals) concluded that the difference between price shown by the assessee at Rs.66.52 crores and the arms length price worked out on the basis of the corrected figures in the TPO's report at Rs.68.47 crores was less than 5%. The proviso to Section 92C(2) of the Income Tax Act 1961 as in existence during the Assessment Year 2004-05 read as under:- “Provided that where more than one price is determined by the most appropriate method, the arm/s length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five percent of such arithmetical mean.” 6.On further appeal by the revenue, the Tribunal by the impugned order upheld the finding of the CIT (Appeals) and dismissed the revenue's appeal. The impugned order also concludes that the difference between the price decided by the respondent-company and that arrived at by the CIT (Appeal) on the basis of the correct figures in the TPO's report was less than 5%. Therefore, in view of the 2[nd] proviso to Section 92C(2) of the Act the price declared by the respondent company has to be accepted. 7.We find that there are concurrent findings of fact arrived at by the CIT (Appeals) and the Tribunal that the difference between the declared price and the ALP arrived at by the revenue is less than 5%. The revenue does not challenge the figures arrived at by the CIT (Appeals) and upheld by the Tribunal. We also note that as regards the method of working out the ALP, the method adopted by the TPO was the most appropriate method which is one of the methods specified in Section 92C(1) of the Act as noted by the CIT (Appeals) in his order dated 18 February 2008, that both the assessee and the revenue have adopted TNMM as the appropriate method. The reliance by the revenue upon the 7.We find that there are concurrent findings of fact arrived at by the CIT (Appeals) and the Tribunal that the difference between the declared price and the ALP arrived at by the revenue is less than 5%. The revenue does not challenge the figures arrived at by the CIT (Appeals) and upheld by the Tribunal. We also note that as regards the method of working out the ALP, the method adopted by the TPO was the most appropriate method which is one of the methods specified in Section 92C(1) of the Act as noted by the CIT (Appeals) in his order dated 18 February 2008, that both the assessee and the revenue have adopted TNMM as the appropriate method. The reliance by the revenue upon the question admitted in Income Tax Appeal No.1294 of 2011 (Serdia Pharmaceuticals (India) Pvt. Ltd. vs. Assistant Commissioner of Income Tax, Circle-7(2), Mumbai & Anr.) was admitted on 13 February 2013, is misplaced as the issues arising herein are different from those arising therein. 8.In this view of the matter, the questions proposed by the revenue being based on concurrent findings of fact we do not find that any substantial question of law arises in this appeal. Accordingly, appeal is dismissed with no order as to costs. CHIEF JUSTICE M.S. SANKLECHA, J.