Pr. Commissioner Income Tax v. Lionbridge Technologies Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1815 OF 2016 Pr. Commissioner Income Tax ..Appellant VersusLionbridge Technologies Pvt. Ltd...Respondent Mr. Suresh Kumar for appellantMr. B.M.Chatterji, Senior Advocate with Shreyas and VisheshSrivastav with Pritesh Chatterji I/b.Girish Pikale for respondents. P.C. This appeal is filed by the revenue to challenge thejudgement of Income Tax Appellate Tribunal (Tribunal for short).Following questions are presented for our consideration:- (1)Whether on the facts and circumstances of thecase and in law, the Tribunal is justified in directing toexclude the comparable of M/s. Bodhtree ConsultingLtd. for 2010-11 while determining the Arm LengthPrice?” (2)Whether on the facts and circumstances of thecase and in law the ITAT was correct in law in holding that foreign exchange gain attributable to the deliveryof good outside India as included in the total turnoverby AO is also entitled to be included in the exportturnover for proper computation of deduction undersection 10A of the Act?” (3)Whether on the facts and circumstances of thecase and in law the ITAT was correct in law in holdingthat expenditure incurred in foreign exchange isexcludable from the total turnover and also from theexport turnover for computation of deduction undersection 10A of the Act.? (4)Whether on the facts and in the circumstancesof the case and in law, the ITAT erred in solely relyingon the Bombay High Court’s decision of Gem PlusJewellery (330 ITR 175 (Bom)] which has beencontested by the Revenue before the Hon’ble ApexCourt.”? 2]Learned Counsel for the revenue fairly points out that the question Nos. 2, 3 and 4 had come up for consideration before thisCourt in the case of this very assessee in Income Tax Appeal No.97of 2015 and Income Tax Appeal No.1528 of 2016. These appeals ofthe revenue were dismissed by this Court by orders dated 18[th]September 2017 and 30[th] January 2019 respectively. Withoutseparate discussion therefore, these questions are not entertained. The sole surviving question relates to the determination 10-itxa-1815-16 of arms length price in case of respondent assessee. The focalissue relates to excluding one M/s. Bodhtree Consulting Limited.Brief facts are that in the arms length price determination, theassessee had itself included the said entity viz., BodhtreeConsulting as one of the comparables. The transfer pricing officerTPO proceeded on such basis and gave his report which includedBodhtree Consulting as one of the comparables. Before theTribunal, the assessee took a stand that Bodhtree consulting wasnot a comparable and while determining the arms length price thesaid entity should be excluded. The tribunal accepted the saidcontention, which decision has aggrieved the revenue. 4]In the impugned judgement, the tribunal noted thatundisputedly the assessee was a product manufacturing company,whereas the Bodhtree Consulting were software productmanufacturer. It was on this basis that the tribunal found that thetwo instances cannot be compared. The relevant observations ofthe tribunal in this regard may be noted. “24(a)In the department’s written submissions atpage 4, para 3.2.3 as also by way of his oral arguments, 4]In the impugned judgement, the tribunal noted thatundisputedly the assessee was a product manufacturing company,whereas the Bodhtree Consulting were software productmanufacturer. It was on this basis that the tribunal found that thetwo instances cannot be compared. The relevant observations ofthe tribunal in this regard may be noted. “24(a)In the department’s written submissions atpage 4, para 3.2.3 as also by way of his oral arguments, the DR has sought to place reliance on the assessee’sTransfer Pricing Report (TPR) as per which, acordingto the ld. D.R., the assessee is into “applicationdevelopment”, which includes, inter alia, “productrelease”. Therefore, according to the Ld. DR, theassessee is a product manufacturing company. Thishowever, has been emphatically denied on behalf of theassessee. It has been contended that the TPR is, infact, being grossly misconstrued and mis-readinasmuch as “product release” does not, in any mannerhave any equivalence whtsoever with productmanufacture. As a matter opf fact, according to the ld.Counsel for the assessee, if the TPR is correctlyconstrued, it refers to the product release only in thecontext of application development, softwaredevelopment being the sole business activity of theassessee. 24(b) Here also, the argument of the ld. DR is found tobe misplaced. He has sought to develop this argumentout of para 3.2.2 of the TPR of the assessee, ascontained at page 72 of the assessee’s paper book forY 2009-10. It would be apt to reproduce the relevantportion thereof; “application developmentincludes testing, application buildingquality assurance, program assemblyand product release.” A plain reading of the above sentence belies thedepartment’s contention. Reading this sentence as it isshows that it concerns the components of “applicationdevelopment” only and “product release” is but onesuch component. In the absence of any evidence to thecontrary, either in the TPR or elsewhere in the record,this argument of the Ld. DR is unsustainable and isrejected. 25(c) Besides, the TPO’s order does not record any finding that the assessee is a product manufacturingcompany. Rather, the assessee was found to be in thecalling of localisation and software services, asrecorded by the TPO in para 5.1 of his order. Thisfinding of the TPO was confirmed by the ld. DRP. TheDepartment cannot now be allowed to set up a newcase, as is sought to be done. Even otherwise, thecase sought to be now set up at this stage i.e. that theassessee manufacturing company is a productcompany, is factually incorrect. 26.On the basis of the above, it is correct thatBodhtrede Consulting Ltd. Being a software productmanufacturer, is not comparable to the assesseelcompany. Moreover, it has been excluded in “NethawkNetworks Pvt. Ltd.”, (supra) “Wills Processing Services(I) Pvt. Ltd. (supra) and “CISCO” Systems Pvt. Ltd.(supra). Accordingly, here also, it is ordered to beexcluded from the final set of comparables. 5]These findings are based on materials on record. We do not find any error in the view of the Tribunal that because offundamental difference in the profiles of the two companies, they didnot present the comparable instances. 6]The only question is, could the assessee have changedthe stand regarding comparability once having included the saidBodhtree Consulting as one of the comparables in the transferpricing analysis presented by the assessee. This issue had come up before this Court earlier in case of Commissioner of Income Tax-7 Vs. Tata Power Solar Systems Ltd., reported in (2017)taxman.com 326 (Bombay) in which, in the context of similarcontroversy the court has observed as under:- 5]These findings are based on materials on record. We do not find any error in the view of the Tribunal that because offundamental difference in the profiles of the two companies, they didnot present the comparable instances. 6]The only question is, could the assessee have changedthe stand regarding comparability once having included the saidBodhtree Consulting as one of the comparables in the transferpricing analysis presented by the assessee. This issue had come up before this Court earlier in case of Commissioner of Income Tax-7 Vs. Tata Power Solar Systems Ltd., reported in (2017)taxman.com 326 (Bombay) in which, in the context of similarcontroversy the court has observed as under:- “3(c) By the impugned order, the Tribunalallowed the respondent – assessee’s appeal. It heldthat merely because an assessee has included M/s.Indowind Energy Ltd. And B.F.Utilities Ltd. In itslist ofcomparables to determine the ALP would not by itselfestop a party from establishing that these companies arenot comparable. The impugned order found that the twocomparables viz., M/s. Indowind Energy Ltd. AndB.F.Utilities Ltd., were engaged in completely differentline of business i.e. generation of wind energy while therespondent – assessee is engaged in generation of solarenergy. Thus, not functionally comparable. In the aboveview, the impugned order on the basis of function, assetsand risk (FAR) analysis excluded M/s. Indowind EnergyLtd. A d B.F.Utilities Ltd, from the list of final comparablesto determine the ALP-. “3(d) We find that the impugned order of theTribunal holding that a party is not barred in law fromwithdrawing from its list of comparables, a company, ifthe same is foundto have been included on account ofmistake as on facts, it is not comparable. The TransferPricing Mechanism requires comparability analysis to bedone between like companies and controlled anduncontrolled transactions. This comparison has to bedone between like companies and requires carrying outof FAR analysis to find the same. Moreover, theassessee’s submission in arrriving at the ALP is notfinal. It is for the TPO to examine and find out the companies listed as comparables which are, in fact,comparable. The impugned order has on FAR analysisfound that M;/s. Indowind Energy Ltd. And B.F.UtilitiesLtd., are not comparable. They are in a different areai.e. wind energy while the respondent – assessee is inthe field of solar energy.” 6]In the result, the appeal is dismissed. (SARANG V. KOTWAL, J)(AKIL KURESHI, J)