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Income Tax Appellate Tribunal, DELHIBENCH ‘I’, NEW DELHI
Before: Dr. B. R. R. KumarSh. Yogesh Kumar US
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order dated 27.01.2022 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. General Grounds “1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in enhancing the income of the Appellant under section 143(3) read with section 144C(13) read with section 144B of the Act, for AY 2017-18 by INR 5,65,93,386.
2 Inter Continental Hotels Group (India) Pvt. Ltd. 3. Specific Ground IT enabled services (INR 2,29,52,492)
2. On facts and in law, the Hon'ble Dispute Resolution Panel ('DRP')/ Ld. Transfer Pricing Officer ('TPO') erred in rejecting the economic analysis adopted by the Assessee in its TP Documentation, thereby modifying / adding / selecting filters and selecting non-comparable companies as well as rejecting comparable companies selected by the Assessee, thereby contravening the provisions of Rule 10B(2) of the Income Tax Rules, 1962 ('the Rules').
3. On facts and in law, the Ld. TPO has grossly erred in including Infosys B P M Ltd which was accepted to be functionally non-comparable by the Hon'ble Tribunal in the case of the Appellant itself in earlier years.
On facts and in law, the Ld. TPO has further erred in including the following companies which are non-comparable to the Appellant in view of their functions performed, assets owned, risks assumed vis-a- vis the Appellant a) Infosys Ltd. b) Wipro Ltd. c) C G-V A K Software & Exports Ltd. d) Mindpool Technologies Ltd. e) Mindtree Ltd. f) Tata Elxsi Ltd. g) Infobeans Technologies Ltd. h) Newt Global India Pvt. Ltd. i) Xavient Software Solutions (India) Pvt. Ltd.
3 Inter Continental Hotels Group (India) Pvt. Ltd. j) Nihilent Ltd. k) Tech Mahindra Business Services Ltd. l) Cyfuture India Pvt. Ltd. m) E-Zest Solutions Ltd. n) 8K Miles Software Services Ltd.
5. On facts and in law, the Ld. TPO has further erred in excluding the following comparable companies having similar functional profile as that of the Appellant: a) Informed Technologies India Ltd. b) Digicall Global Ltd. c) Cosmic Global Ltd. d) Crystal Voxx Ltd. e) Bhilwara Infotechnology Ltd.
6. On facts and in law, the Ld. TPO erred in not allowing relevant adjustments as per the provisions of Rule 10B(1) and Rule 10B(3) of the Rules for determination of the ALP to account for the difference in the working capital of the Appellant and of comparable companies.
Marketing support services (INR 2,79,61,859)
On facts and in law, the Hon'ble DRP/ Ld. TPO erred in rejecting the economic analysis adopted by the Assessee in its TP Documentation, thereby modifying / adding / selecting filters and selecting non-comparable companies as well as rejecting comparable companies selected by the Assessee, thereby contravening the provisions of Rule 10B(2) of the Rules.
4 Inter Continental Hotels Group (India) Pvt. Ltd. 8 On facts and in law, the Ld. TPO has grossly erred in excluding Cyber Media Research & Services Ltd. on the grounds that the company is making persistent losses not appreciating that: a) the company has actually earned profits in the assessment year under question, i.e., AY 2017-18, b) the loss/profit cannot be the barometer of comparability under Rule 10B(2)
9 On facts and in law, the Ld. TPO has further erred in including the following companies which are clearly non- comparable to the Appellant in view of their functions performed, assets owned, risks assumed vis-a-vis the Appellant: a) Just Dial Ltd. b) Info Edge (India) Ltd. c) I C R A Ltd. d) E DC I L (India) Ltd. e) Overseas Manpower Corpn. Ltd. f) Majestic Research Services & Solutions Ltd. g) Fcbulka Advertising Pvt. Ltd. h) Concept Public Relations India Ltd.
On facts and in law, the Ld. TPO has grossly erred in excluding the following comparable companies having similar functional profile as that of the Appellant: a) DGM India Internet Marketing Ltd b) Honeycomb Relationship Management Services Pvt Ltd c) Netlink Solutions (India) Ltd
5 Inter Continental Hotels Group (India) Pvt. Ltd. d) Mig Media Neurons Ltd.
Other Grounds
On facts and in law, the Ld. AO has erred in incorrectly computing the assessed income as INR 4,62,38,480 by adding the original TP adjustment of INR 5,65,93,386, and not taking into account the revised TP adjustment of INR 5,09,14,351 as per the rectified order passed by the Transfer Pricing Officer.
On facts and in law, the Ld. AO has erred in not correctly considering the taxes deducted at source and advance taxes paid by the Company while computing the refund due.
On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270 A of the Act.”
Brief Background
The assessee company was engaged in providing back- office support services to its Associated Enterprises (AEs) in the nature of IT enabled Services (ITeS) and marketing support services (MSS). During the relevant year, InterContinental Hotels Group (India) Private Limited (‘IHG India’ or ‘the Assessee’) was engaged in providing back- office support services to its Associated Enterprises (‘AEs’) in the nature of:
1. IT-enabled services (ITeS’) @ cost plus 13.13% which includes, providing various business process outsourcing services, primarily accounting services in the nature of 6 Inter Continental Hotels Group (India) Pvt. Ltd. bank reconciliation, invoice processing, account receivables, account payables, account reconciliation, analyzing profit and loss, and assisting in statutory audit.
Marketing support services (‘MSS’) @ cost plus 10.07% which includes, marketing & reservation services, sales and reservation support, market communications/ publicity, market research and other sales and marketing program promotions, guest relations, and operation and maintenance of reservation programs, brand support services consisting of creating awareness, promotes, and publicizes the brands, and their services among the members of the travel industry and the media. Under the segment of MSS, the assessee provides regional office services such as coordination and operational support services.
I. Adjustments made by the Revenue Assessment Order u/s 143(3) r.w.s. 144C(13) read with section 144B of the Income-tax Act, 1961 (‘the Act’) dated 27 January 2022 passed by the National Faceless Assessment Centre, Delhi (‘Ld. AO’) read with rectification order u/s 154 r.w.s, 143(3) of the Act dated 23 August 2022.
7 Inter Continental Hotels Group (India) Pvt. Ltd. Adjustment Particulars in brief
• Provision of ITeS The Appellant selected 10 comparables from the (Rs. 2,29,52,492) ITes sector to benchmark the transaction and considered the transaction to be arm’s length. • The TPO accepted only 3 comparables and introduced 17 new comparables working out an ALP of 18.34% to make an adjustment. • The Hon’ble DRP relied upon the IT AT orders of previous years of the erstwhile merged entity “IHG IT Services India Private Limited” to direct the TPO to remove comparables E Clerx on account of being a KPO - rejected by ITAT in earlier years in appellant’s own case. • TPO provided final arm’s length is computed from 13.45% to 21.69% with a median of 15.66%.
• The Appellant selected 10 comparables Marketing support performing marketing support activities to Services benchmark the transaction and considered the (Rs. 2,79,61,859) transaction to be arm’s length. • The TPO accepted only 3 comparables and introduced 9 new comparables working out an ALP of 20.09% to make an adjustment. • No relief was obtained post the DRP directions on this account
The assessee argued before us taking preliminarily through the FAR of all the comparables.
The ld. CIT DR submitted the written submissions which are as under:
“The hearing in the above noted case was conducted on 17.11.2022 and the next hearing is on 23.11.2022. The major issue in this is the upward adjustment of Rs.2,29,52,492/- on account of IT enabled services and upward adjustment of Rs.2,79,61,859/- with regard to marketing support services.
8 Inter Continental Hotels Group (India) Pvt. Ltd. Vide letter dated 23.09.2022, assessee company has filed revised grounds of appeal and the assessee has mainly opposed the inclusion of certain comparables by TPO based in the assessment/TP proceedings and also exclusion of certain other comparables which were included by the assessee company in its TP study.
The assessee has contested the inclusion of 20 comparables before the Hon’ble DRP and requested for their exclusion on the ground that those comparable were excluded in earlier years by ITAT or by the DRP. The Hon'ble DRP directed the TPO to verify the assess contentions and exclude the comparables if the department has accepted the decision the earlier years. The relevant extract of the order of the Hon’ble DRP is mentioned at 3.3 and para 3.4 of the Hon'ble DRP order and for ready reference and being pertinent, same is reproduced below:-
3.3 Grounds No. 3, 3.1, 3.2, 3.3 & 4 relate to the rejection of economic analysis of the assessee and the consequent selection and rejection of certain comparables by the TPO.
3.3.1 As far as the selection of the following comparables, the assessee contests the following selection on the ground that these comparables have been excluded in the earlier years by ITAT or the DRP as follows:
Eclerx Excluded by ITAT in A.Y. 2008-09 and 2012-13 2. Infosys BPM Excluded by ITAT in A.Y. 2008-09 and 2012-13 3. Infosys Ltd. Excluded by ITAT in A.Y. 2008-09 Wipro Ltd. 4. Excluded by ITAT in A.Y. 2008-09 5. Tech Mahindra Business Excluded by ITAT in A.Y. 2008-09 Services Ltd. Infosys BPM Ltd. 6. Excluded by ITAT in A.Y. 2008-09 Eclerx & Wipro Ltd. 7. Excluded by ITAT in A.Y. 2012-13 9 Inter Continental Hotels Group (India) Pvt. Ltd.
Tata Elxsi Excluded by ITAT in A.Y. 2012-13 9. E-Zest Solutions Excluded by ITAT in A.Y. 2012-13 10. CG-VAK Software Excluded by ITAT in A.Y. 2012-13 11. Mindtree Excluded by ITAT in A.Y. 2012-13 12. Infosys Ltd. Excluded by ITAT in A.Y. 2014-15 13. Mindpool Technologies Excluded by ITAT in A.Y. 2014-15 14. CG-VAK Excluded by ITAT in A.Y. 2014-15 15. Xavient Excluded by ITAT in A.Y. 2014-15 16. Surevin BPO Excluded by ITAT in A.Y. 2014-15 17. EDCIL India Ltd. Excluded by ITAT in A.Y. 2010-11 18. Just Dial Excluded by ITAT in A.Y. 2012-13 19. Info Edge Excluded by ITAT in A.Y. 2012-13 20. ICRA Ltd Excluded by ITAT in A.Y. 2012-13 3.3.1.1 The Panel accordingly directs the TPO to verify the aforesaid contention of the assessee and also whether any appeal has been file against the exclusion by the ITAT. In case the department has accepted the decisions in the previous year and the facts remain the same, a consistent view may be taken during A.Y2017-18 as well.
Based on the directions of the Hon'ble DRP, the TPO passed an order dated 19.01.2022 vide which he gave effect to directions u/s 144C issued by the DRP. The relevant part of the TPO’s order is i.e. para 3 of the TPO order is reproduced below.
In pursuance of the DRP directions, the perusal of TPO is as follows: - i. In respect of the assessee contention on the selection of comparables that have been excluded in the earlier years by ITAT or DRP, the TPO perusal is as follows:
10 Inter Continental Hotels Group (India) Pvt. Ltd. Sr. Name of the Assessee's TPO's Perusal No. Company Comments 1 Eclerx Excluded by IT AT A.Y Assessee's Contention in 2008-09 and accepted 2012-13 2 Infosys BPM Excluded by IT AT A.Y It was excluded in A. Y in 2008-09 and 2008-09 & 2011-12 by 2012-13 ITAT, but it was selected as a comparable in A.Y 2014-15 and the same was retained by Ld. DRP also. 3 Infosys Ltd Excluded by IT AT A.Y Not excluded in 2008-09 in 2008-09 Assessee's contention rejected. 4 Wipro Ltd Excluded by IT AT A.Y Not excluded in 2008-09 in 2008-09 Assessee's contention rejected. 5 Tech Mahindra Excluded by IT AT A.Y Not excluded in 2008-09 Business in 2008-09 Assessee's contention Services Ltd rejected. 6 Infosys BPM Ltd Excluded by IT AT A.Y Not excluded in 2008-09 in 2008-09 Assessee's contention rejected. 7 Eclerx & Wipro Excluded by IT AT A.Y Only Eclerx has been Ltd in 2012-13 excluded by IT AT, Wipro has not been excluded 8 Tata Elxsi Excluded by IT AT A.Y Not excluded in 2012-13 in 2012-13 Assessee's contention rejected. 9 E-Zest Solutions Excluded by IT AT A.Y Not excluded in 2012-13 in 2012-13 Assessee's contention rejected. 10 CG-VAK Excluded by IT AT A.Y Not excluded in 2014-15 Software in 2012-13 Assessee's contention rejected. 11 Mindtree Excluded by IT AT A.Y Not excluded in 2012-13 in 2012-13 Assessee's contention rejected. 12 Infosys Ltd Excluded by DRP in Not excluded in 2012-13 A. Y 2014-15 Assessee's contention rejected. 13 Mindpool Excluded by DRP in Not excluded in 2012-13 Technologies A. Y 2014-15 Assessee's contention rejected. 14 CG-VAK/- Excluded by DRP in Not excluded in 2014-15 A. Y 2014-15 Assessee's contention rejected.
11 Inter Continental Hotels Group (India) Pvt. Ltd. 15 Xavient Excluded by DRP in Not excluded in 2014-15 A. Y 2014-15 Assessee's contention rejected. 16 Surevin BPO Excluded by DRP in Not excluded in 2014-15 A. Y 2014-15 Assessee's contention rejected. 17 EDCIL India Ltd Excluded by IT AT A.Y Not excluded in 2010-11 in 2010-11 Assessee's contention rejected. 18 Just Dial Excluded by IT AT A.Y Not excluded in 2012-13 in 2012-13 Assessee's contention rejected. 19 Info Edge Excluded by IT AT A.Y Not excluded in 2012-13 in 2012-13 Assessee's contention rejected. 20 ICR A Ltd Excluded by IT AT A.Y Not excluded in 2012-13 in 2012-13 Assessee's contention rejected.
From the above, it is seen that the TPO did not agree with the assesse's contentions made before DRP in most of the cases. Thus it appears, from the perusal of the TPO's order giving effect to DRP directions, that the assessee has made incorrect contentions before the Hon’ble DRP and appears that DRP in a bonafide belief accepted the assessee’s contentions which were proved to be incorrect and wrong as mentioned in the order of the TPO dated 19.01.2022.
Further the assessee has also moved a rectification application dated 19.01.2022, which was disposed by AO on 22.01.2022. Further from the perusal of the rectification order (copy of the order produced before the Hon'ble Bench in the last hearing), in which the Assessing Officer has also incorporated the assessee’s contentions, it is seen that the assessee did not raise the issue of the so called wrong effect to DRP directions by the Assessing Officer. During the course of hearing the assessee has referred the submission filed before the DRP and specially refereed to page 561, 562 and 563 of the paper book volume 1. From the bare perusal of these documents it is seen that the assessee has mentioned that some of the companies named
12 Inter Continental Hotels Group (India) Pvt. Ltd. in those pages should be excluded by following decisions in assessee’s own case. However, on verification by the TPO the assessee’s contentions were proved were wrong and incorrect.
Thus in view of the above, it appears from the order of the TPO that wrong and incorrect assertions on facts was made by the assessee’s company before the Hon’ble DRP and the Hon’ble DRP did not adjudicate on merits about the exclusion/inclusion of comparables. Thus because of the wrong assertions made the assessee it robbed the DRP of adjudicating on the comparables and now assessee has raised the matter before the Hon’ble ITAT regarding inclusion/exclusion of comparables. Further the assessee was aware of his contentions made after the order of the TPO giving effect to Hon’ble DRPs directions as it moved the rectification application u/s 154 but still it did not point out the issue before the TPO/AO/DRP which creates doubts on the intentions of the assessee.
Thus it is clear that the assessee has provided wrong and incorrect information before the Hon’ble DRP and relying on assessee’s incorrect assertions the DRP did not adjudicate the issue of inclusions/exclusions of above noted comparables on merits as seen from the order of the TPO accordingly the Hon’ble Bench is humbly requested to take the above facts on records and if found suitable, the assessee’s appeal may be disposed of in view of the above facts with regard to providing incorrect and wrong information to DRP.