Itta/440/2014 Of The Commissioner Of Income Tax-I v. B.a.continuum India Pvt Ltd

HIGH COURT OF JUDICATURE AT HYDERABADFOR THE STATE OF TELANGANA AND THE STATE OF ANDHRAPRADESH PRESENT THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A.No.440 OF 2014 DATED: 16.07.2014 Between: The Commissioner of Income Tax-I … Appellant And M/s.B.A.Continuum India Pvt Ltd … Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTAANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A.No.440of2014 JUDGMENT:(per the Hon’ble The Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is sought to be preferred and admitted bythe Revenue against the judgment and order dated24.10.2013 passed by the learned Tribunal inI.T.A.No.1154/Hyderabad/2011 in relation to theassessment year 2005-06, on the following suggestedquestions of law: 1. Whether, on the facts and thecircumstances of the case, the Tribunal isjustified in rejecting the comparables onthe ground that those comparables havesuper normal profit ignoring that IndianTransfer Pricing regulations prescribearithmetic mean and therefore, as ageneral rule companies with abnormalprofits, per se, need not be excluded? 2. Whether, on the facts andcircumstances of the case and in law, theTribunal was justified in excludingM/s.Vishal Information Technology Ltd.,as comparable on the ground that theemployee cost is lower than industryaverage, despite the fact that the Tribunalin ITA.Nos.1082 & 1084/H/2010 hastaken a different stand by rejecting theclaim to exclude the said company ascomparable? 3.Whether, on the facts and in thecircumstances of the case, the Hon’bleTribunal is justified in directing to considerprofit before depreciation and interest(PBDIT) as profit level indicator? We have heard Mr. J.V.Prasad, learned StandingCounsel for the Revenue and gone through the impugnedjudgment and order. He says that the learned Tribunal iswrong in concluding that M/s.Vishal Information TechnologyLimited cannot be considered as a comparable case on theground mentioned therein ignoring the fact that IndianTransfer Pricing Regulations prescribe arithmetic mean andtherefore, as a general rule, companies with abnormalprofits per se should not have been excluded. Thisargument has been advanced in relation to ground Nos.1and 2 as above. While considering this argument, we look atthe findings of the learned Tribunal recorded at paragraph26 of the impugned judgment and order and are as follows: “M/s.Vishal Information Technologies cannot beconsidered as a comparable case as this companywas rejected by coordinate Bench while decidingsimilar issue in the case of M/s.Brigade GlobalServices Pvt. Ltd reported in 143 ITD 59.” The Tribunal also recorded the relevant findings of theCoordinate Bench of the Tribunal in the case of M/s.Brigade Global Services Pvt. Ltd[[1]]as under: “Regarding Vishal Information Technologies Ltd.,the employee’s cost to total cost ratio is worked outat 2% as compared to the industry average of 30 to 40%. The assessee’s employee’s cost to total costratio is worked out at 47%. Since the employee’scost form major cost base in ITES serviceindustries, the low ratio of comparables implies thatit would not be providing services by employing itsown sources. Being so, the assessee is not alike toM/s.Vishal Information Technologies Ltd.Accordingly, M/s.Vishal Information TechnologiesLtd., cannot be considered as comparables and it isto be excluded from comparables.” He is unable to show that the above decision of theTribunal in the case of M/s.Brigade Global Services Pvt. Ltdhas been challenged or upset by any forum. We are of theview that the Tribunal is not wrong in deciding the issuemaintaining the rule of consistency. As far as ground No.3 isconcerned, the learned Tribunal on fact found that thedepreciation has an impact on the profit margin. Based on the aforesaid findings, we feel that theimpugned judgment and order of the learned Tribunal doesnot appear to be unjust and inappropriate. The appeal is accordingly dismissed. No order as tocosts. He is unable to show that the above decision of theTribunal in the case of M/s.Brigade Global Services Pvt. Ltdhas been challenged or upset by any forum. We are of theview that the Tribunal is not wrong in deciding the issuemaintaining the rule of consistency. As far as ground No.3 isconcerned, the learned Tribunal on fact found that thedepreciation has an impact on the profit margin. Based on the aforesaid findings, we feel that theimpugned judgment and order of the learned Tribunal doesnot appear to be unjust and inappropriate. The appeal is accordingly dismissed. No order as tocosts. ___________________ K.J. SENGUPTA, CJ 16[th] JULY, 2014. __________________ SANJAY KUMAR, J kvni [1]143 ITD 59