Bangalore ITAT Allows Wipro GE’s AY 2006-07 Appeal, Partly Allows AY 2012-13

Wipro GE Healthcare Private Limited Vs DCIT (ITAT Bangalore)

Facts and Procedural Background

The supplied order is a Legal Case/Judgment/Tribunal Order of the Income Tax Appellate Tribunal, Bangalore Bench “C”, pronounced on 07.10.2022 in IT(TP)A No.344/Bang/2021 for AY 2006-07 and ITA No.703/Bang/2021 for AY 2012-13. The Tribunal comprised Shri Chandra Poojari, Accountant Member, and Smt. Beena Pillai, Judicial Member; the hearing was held on 12.09.2022.

For AY 2006-07, the original assessment dated 12.10.2010 contained a transfer-pricing adjustment of Rs.2,35,51,065/- in the software-services segment. The Tribunal, by order dated 23.06.2017 in IT(TP)A No.1414/Bang/2010, set aside the entire transfer-pricing issue and restored it to the AO/TPO for fresh decision after adequate opportunity. In the set-aside proceedings, the TPO determined an adjustment of Rs.2,42,58,140/-. The assessee challenged the comparables and filters, including turnover, RPT, functional comparability and other criteria. The DRP directed removal of Kals Information Systems Ltd. (seg), but the AO retained the adjustment without giving effect to that direction.

For AY 2012-13, the AO made additions including transfer-pricing adjustments of Rs.113,56,25,171/-, comprising royalty of Rs.12,64,67,850/-, interest on intra-group trade advances of Rs.51,81,085/-, distribution-segment adjustment of Rs.91,39,62,617/- and software-development adjustment of Rs.9,00,13,619/-, besides other disallowances. The TPO passed the order on 28.10.2019, the draft assessment order followed on 30.12.2019, the assessee filed DRP objections on 27.01.2020, the DRP issued directions on 11.02.2021, and the AO passed the final assessment order on 30.03.2021 without following those directions.

AY 2006-07: Transfer-Pricing Comparables

The assessee’s turnover was stated at Rs.29.91 crore. The Tribunal directed exclusion of six comparables having turnover above Rs.200 crore—Infosys Ltd., Mindtree Consulting Ltd., Persistent Systems Ltd., Sasken Communication Ltd. (Seg), Flextronics Software Systems Ltd. (Seg) and Igate Global Solutions Ltd.—following the turnover-filter reasoning discussed in Fulcrum Fund Services (India) Pvt Ltd vs ITO, Genisys Integrating System (India) Pvt Ltd. V. DCIT and Autodesk India P. Ltd. Vs. DCIT.

The Tribunal also directed exclusion of Aztech Software Ltd. (RPT 17.78%), Geometric Software Ltd. (19.98%) and Megasoft Ltd. (17.08%) because their related-party transactions exceeded the 15% threshold applied in the cited Bangalore Tribunal decision in FCG Software Services (India) (P) Ltd vs ITO.

Kals Information Systems Ltd. (Seg) had already been directed by the DRP to be removed for functional dissimilarity, and the Tribunal directed the AO/TPO to give effect to that direction. Tata Elxsi Ltd. (Seg) and Accel Transmatics (Seg.) were also directed to be excluded on functional-comparability grounds, following the cited decisions concerning software-development comparables. The Tribunal further directed the AO/TPO to grant the ±5% variance deduction under Section 92C(2), as applicable to AY 2006-07, with reference to CBDT Circular No.12/2001 dated 23.08.2001. The AY 2006-07 appeal was partly allowed.

AY 2012-13: Principal Transfer-Pricing Issues

For the distribution segment, the earlier Tribunal order in IT(TP)A No.340/Bang/2017 dated 31.08.2017 had restored the matter to the AO/TPO for re-adjudication in light of earlier years. The Tribunal noted that the lower authorities had not followed the earlier directions. On the assessee’s distribution segment, the TPO had computed OP/OC at 3.52%, while the assessee relied on earlier treatment of the segment under the Resale Price Method. The assessee’s margin was stated to be 50.11% against 18.43% for the comparables, and the material states that no adjustment was required on that basis. The Tribunal nevertheless directed the AO/TPO to pass a fresh order in conformity with the earlier Tribunal observations; other comparable-related issues would become infructuous once the earlier directions were followed. This ground was partly allowed for statistical purposes.

For royalty of Rs.12,64,67,850/-, the Tribunal followed its earlier directions concerning the treatment of royalty as part of the international transaction under the trading segment where an appropriate comparable was not found. It remitted the issue to the AO/TPO to consider royalty as operating cost and verify the assessee’s margin against the comparable before deciding the matter.

Regarding Rs.51,81,085/- interest on intra-group trade advances, the Tribunal noted that the Rs.11,05,00,000/- advance had been made in an earlier year, the year-end balance was nil and a provision for doubtful recovery had been made. It directed the AO/TPO to consider the net advance after deducting the provision for doubtful loans and advances and apply LIBOR+2%, following Swiss Re Global Business Solutions India Pvt. Ltd. in IT(TP)A No.397/Bang/2021 dated 21.1.2022.

On outstanding receivables, the Tribunal considered the competing submissions concerning whether deferred receivables constituted an independent international transaction and the effect of working-capital adjustment. The order discusses Kusum Healthcare (P.) Ltd., Bechtel India (P.) Ltd., Ameriprise India (P.) Ltd., Patni Computer Systems Ltd., Cotton Naturals (I) (P.) Ltd., Instrumentation Corpn. Ltd., Orange Business Services India Solutions (P.) Ltd., Avenue Asia Advisors Pvt. Ltd. and PCIT v. AMD (India) Pl. Ltd. The Tribunal held that deferred receivables constituted an independent international transaction and directed the AO/TPO to recompute interest using LIBOR+2%, referring to CIT v. Aurionpro Solutions Ltd.

Software-Development Segment

For the Rs.9,00,13,619/- software-development adjustment, the assessee sought exclusion of Datamatics Global Services Ltd., Infosys Ltd., Larsen & Toubro Infotech Ltd., Mindtree Ltd., Persistent Systems Ltd., R S Software (India) Ltd. and Spry Resources India Pvt Ltd., and sought inclusion of Akshay Software Technologies Ltd. and Cades Digitech Pvt Ltd. CG VAK Software & Exports Ltd., R Systems International Ltd. and Sonata Software Ltd. were not pressed.

The Tribunal considered the turnover filter and directed exclusion of companies above Rs.200 crore where applicable. It also directed removal of Datamatics Global Services Ltd. and R S Software (India) Ltd. in conformity with the DRP directions. Spry Resources India Pvt Ltd. was excluded by following Applied Materials India Private Limited vs ITO, IT(TP)A No.1838/Bang/2016 dated 05.02.2020 for AY 2012-13.

Akshay Software Technologies Ltd. was directed to be included as a comparable following NXP India Pvt Ltd vs DCIT, IT(TP)A No.2861/Bang/2017 dated 27.04.2020 for AY 2012-13. Cades Digitech Pvt Ltd. was likewise directed to be included following DCIT vs Applied Micro Circuits India Private Limited, ITA 1250/Pun/2015 dated 24.11.2017.

Other Disallowances

The Tribunal allowed relief on several non-transfer-pricing issues. The disallowance relating to obsolete inventory was decided in favour of the assessee following the assessee’s earlier case and the Karnataka High Court proceedings. The Tribunal also relied on Rotork Controls India (P)Ltd vs CIT, Racold Thermo Private Limited vs ACIT and Nokia India Sales Pvt Ltd vs Addl.CIT.

The loss on exchange fluctuation of Rs.13,85,26,037/- was considered with reference to Quality Engineering and Software Technologies Pvt Ltd vs DCIT and Bharat Mines and Minerals vs DCIT. The Tribunal followed the latter decision and allowed the ground.

The provision for sales tax and customs duty of Rs.92,21,561/- was remitted to the AO for a fresh order in conformity with the Delhi Bench decision in ACIT Vs. NHPC Limited (41 CCH 655), which discussed the treatment of ascertained liabilities under Section 115JB and the effect of Section 43B(f), including the cited decision in Bharat Earth Movers.

The Rs.21,95,00,000/- legal and professional-fee disallowance was allowed after the Tribunal noted that the assessee had furnished recipient details and TDS particulars and that the expenditure could not be disallowed merely on surmises and conjectures. The provision for expenses treated as contingent liability was also allowed after consideration of the details furnished. Dealer commission of Rs.13,85,00,000/- and miscellaneous expenses of Rs.9,97,00,000/- were allowed on the material considered by the Tribunal. Eligible TDS credit was remitted to the AO, while interest under Section 234B was directed to be recomputed consequentially.

Final Decision

The Tribunal ultimately recorded that IT(TP)A No.344/Bang/2021 for AY 2006-07 was allowed, while ITA No.703/Bang/2021 for AY 2012-13 was partly allowed for statistical purposes. The order was pronounced in the open court on 07.10.2022.

Cases Discussed

• M/s. Wipro GE Healthcare Pvt. Ltd. (ITAT Bangalore), IT(TP)A No.340/Bang/2017, dated 31.08.2017
• M/s. Wipro GE Healthcare Pvt. Ltd. (ITAT Bangalore), IT(TP)A No.40/Bang/2011 & 1647/Bang/2013, dated 21.04.2017
• M/s. Wipro GE Healthcare Pvt. Ltd. (ITAT Bangalore), IT(TP)A No.701 & 702/Bang/2021, dated 05.08.2022
• Fulcrum Fund Services (India) Pvt Ltd vs ITO (ITAT Bangalore), IT(TP)A No.2521/B/2017, dated 12.04.2019
• Genisys Integrating System (India) Pvt Ltd. V. DCIT (ITAT Bangalore), ITA No.1231/Bang/2010, dated 05.08.2011 [152 TTJ 215/53 SOT 159]
• Autodesk India P. Ltd. Vs. DCIT (ITAT Bangalore), [96 taxmann.com 263] (Bangalore-Trib)
• M/s. Acusis Software (I) Pvt. Ltd., Vs. ITO (Karnataka High Court), ITA No.223/2017, dated 14.08.2018
• CIT Vs. Pentair Water India Pvt.Ltd. (Bombay High Court), Tax Appeal No.18 of 2015, dated 16.09.2015
• Chryscapital Investment Advisors India (P) Ltd vs DCIT (Delhi High Court)
• Societe Generale Global Solution Centre P Ltd vs DCIT (ITAT Bangalore), IT(TP)A 1188/B/2011
• Capgemini India Pvt Ltd vs ACIT (ITAT Mumbai), ITA 7861/Mum/2011
• FCG Software Services (India) (P) Ltd vs ITO (ITAT Bangalore), ITA No.1447/Bang/2010, dated 08.01.2016, AY 2006-07 – 176 TTJ 145
• 24 X 7 Customer.Com Pvt. Ltd. (ITAT Bangalore), ITA No.227/Bang/2010
• Tesco Hindustan Service Centre Pvt Ltd vs The Deputy Commissioner of Income-Tax (ITAT Bangalore), IT(TP).A No.1317/Bang/2010, dated 26.05.2015 for AY 2006-07
• 3DPLM Software Solutions Ltd. (ITAT Bangalore), IT(TP)A.No.1109/Bang/2010, dated 10.05.2013
• Bindview India Private Limited Vs. DCI (ITAT Pune), ITA No.1386/PN/1O
• Capgemini India (F) Ltd v Ad. CIT (ITAT Mumbai), 12 Taxman.com 51
• Logica Pvt.Ltd. (ITAT Mumbai), IT (TP) 1129/Bang/2011 AY 07-08
• Swiss Re Global Business Solutions India Pvt. Ltd. (ITAT Bangalore), IT(TP)A No.397/Bang/2021, dated 21.1.2022 for AY 2016-17
• Kusum Healthcare (P.) Ltd. v. Asstt. CIT (ITAT Delhi), [2015] 62 taxmann.com 79
• Pr. CIT v. Kusum Health Care (P.) Ltd. (Delhi High Court), [2018] 99 taxmann.com 431/[2017] 398 ITR 66
• Bechtel India (P.) Ltd. v. Dy. CIT (ITAT Delhi), [2016] 66 taxman.com 6
• Pr. CIT v. Bechtel India (P.) Ltd. (Delhi High Court), IT Appeal No.379 of 2016, dated 21-7-16
• Ameriprise India (P.) Ltd. v. Asstt. CIT (ITAT Delhi), [2015] 62 taxmann.com 237
• CIT v. Patni Computer Systems Ltd. (Bombay High Court), [2013] 33 taxmann.com 3/215 Taxman 108
• Cotton Naturals (I) (P.) Ltd. (Delhi High Court), [2015] 55 taxmann.com 523/231 Taxman 401
• Instrumentation Corpn. Ltd. v. Asstt. DIT (ITAT Kolkata Special Bench), [2016] 71 taxmann.com 193/160 ITD 1 (Kol. – Trib.)
• Orange Business Services India Solutions (P.) Ltd. v. Dy. CIT (ITAT Delhi), [2018] 91 taxmann.com 286
• Avenue Asia Advisors Pvt. Ltd v. DCIT (Delhi High Court), [2017] 398 ITR 120 (Del)
• PCIT v. AMD (India) Pl. Ltd. (Karnataka High Court), ITA No.274/2018, dated 31.8.2018
• CIT v. Aurionpro Solutions Ltd. (Bombay High Court), 99 CCH 0070 (Mum HC)
• Applied Materials India Private Limited vs ITO (ITAT Bangalore), IT(TP)A No.1838/Bang/2016, dated 05.02.2020 for AY 2012-13 (58 CCH 106)
• NXP India Pvt Ltd vs DCIT (ITAT Bangalore), IT(TP)A No.2861/Bang/2017, dated 27.04.2020 for AY 2012-13
• DCIT vs Applied Micro Circuits India Private Limited (ITAT Pune), ITA 1250/Pun/2015, dated 24.11.2017
• Bechtel India Pvt. Ltd. Vs. DCIT (ITAT Delhi), ITA No.1478/Del/2015, dated 21.12.2015
• Rotork Controls India (P)Ltd vs CIT (Supreme Court of India), 314 ITR 62
• Racold Thermo Private Limited vs ACIT (ITAT Pune), ITA 2654/Pun/2017, dated 12.05.2022
• Nokia India Sales Pvt Ltd vs Addl.CIT (ITAT New Delhi), ITA 2527/Del/2018, dated 12.01.2021
• Kedarnath Jute Mfg Co Ltd vs CIT (Supreme Court of India), 82 ITR 363
• CIT vs V.MR.P.Firm (Supreme Court of India), 56 ITR 67
• Quality Engineering and Software Technologies Pvt Ltd vs DCIT (ITAT Bangalore), ITA 257 & 275/B/2014, dated 14.11.2014
• Bharat Mines and Minerals vs DCIT (ITAT Bangalore), ITA 2378 & 2379/B/2018, dated 30.03.2022
• CIT vs. Concord Commercial Pvt. Ltd. (ITAT Mumbai Special Bench), (2005) 95 ITD 117 (Mum) (SB)
• M/s. sugars and chemicals Ltd Vs. Axis Bank Ltd. (Madras High Court), O.A’s 252 of 2008 in C.S.No.240 of 2008, O.A.No.251 & 252 of 2008 in C.S. No.240 of 2008, O.A.Nos.526 & 527 of 2008 in C.S. No.240 of 2008, A. Nos.1926, 1927, 2446 and 2447 of 2008 in S.S No.240 of 2008, dated 14.10.2008, reported in 8 MU 261
• ACIT Vs. NHPC Limited (ITAT Delhi), (41 CCH 655)