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Facts
The assessee filed an appeal against the final assessment order related to the adjustment of Rs. 10,486,841 concerning the arm's length price (ALP) of international related party transactions. The assessee contended that the markup charged for services was accepted in previous years and that the current year's facts are similar.
Held
The Tribunal observed that the issues in the appeal are covered by previous decisions of coordinate benches. The Tribunal noted that there was no change in facts and circumstances compared to prior years and that the principle of consistency should apply.
Key Issues
Whether the markup charged on inter-company services is allowable as per the arm's length principle, considering the principle of consistency and previous year's precedents.
Sections Cited
143(3), 144C(13), 92CA(4), 144C(8), 92C(2), 234A, 234C, 270A, 153, 144C
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Income Tax Appellate Tribunal, DELHI BENCH ‘I’: NEW DELHI
(Assessment Year: 2021-22) Humboldt Wedag India Private Ltd., vs. Addl./Joint/Deputy/Asstt. A – 36, Mehtab House, Commission of Income-tax, Mohan Co-op. Estate, Mathura Road, National e-Assessment Centre, New Delhi – 110 044. Circle 10(1), Delhi. (PAN : AAACH7474G) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rajineesh Verma, CA Ms. Hem Lata Verma, CA REVENUE BY : Shri Dharam Veer Singh, CIT DR Date of Hearing : 09.04.2025 Date of Order : 21.05.2025 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the final assessment order dated 05.09.2024 passed u/s 143(3) r.w.s.144C (13) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) subsequent to the directions of the Ld. Dispute Resolution Panel (DRP)/TPO vide order dated 07.08.2024 for Assessment Year 2021-22 raising following grounds of appeal :- “Pertaining to Transfer Pricing Matters: Adjustment Rs.10,486,841
1. On the facts and in the circumstances of the case and in law, the Learned Dispute Resolution Panel ('Ld. DRP'), the Learned Transfer Pricing Officer (Ld. TPO') and the Learned AO (collectively referred as "the Revenue") erred in making an adjustment of Rs.10,486,841 to the total income of the Appellant on account of the alleged difference in the arm's length price (‘ALP') of its international related party transactions under the provisions of Section 92CA( 4) of the Act. 2 On the facts and in the circumstances of the case and in law, the Revenue erred in sustaining the adjustment/additions only on the condition that if the order of the Hon'ble Tribunal in Appellant's own case for past assessment years has been challenged before the Hon'ble High Court, thereby grossly violating the provisions of Section 144C(8) of the Act. 3 On the facts and in the circumstances of the case and in law, the Revenue erred in not appreciating that the pricing of such services including the mark-up paid thereof has been accepted by the Hon'ble ITAT and by the Revenue in the Appellant's own case for the past years A Y 2011-12 to A Y 2018-19 and there being no change in the facts and circumstances of the case in A Y 2021-22 vis-a-vis the aforesaid years. In doing so, the Revenue grossly erred in not following the principle of consistency as laid by the Hon'ble Supreme Court of India in the case of Radhasaomi Satsang v. CIT [1992J 193 ITR 321 (SC). 4 On the facts and IN the circumstances of the case and in law, the Revenue erred in incorrectly considering the markup amounts as Rs.10,486,841 instead of actual markup of Rs.5,527,251 paid by the Appellant on such services. In doing so, the revenue erred in disregarding all the documentary evidence furnished by the Appellant in support of calculation of markup amount. 5 On the facts and in the circumstances of the case and in law, the Revenue erred in not allowing the benefit of (+/-) 3% as provided in the proviso to Section 92C(2) of the Act, while determining the arm's length price of the international transactions of the Appellant. 6 On without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Revenue has grossly erred in disallowing the mark-up portion charged by the associated enterprises ("AEs") without providing any cogent reason thereof. In doing so, the Revenue erred in: 4.1 Disregarding the fact that based on the economic and commercial circumstances, no independent third party would agree to provide such services without keeping an arm's length profit element over and above cost of services. 4.2 Disregarding the comprehensive benchmarking analysis undertaken by the Appellant, without demonstrating the inadequacy or infirmity in the analysis so conducted by the Appellant.
4.3 Disregarding the corroborative internal Comparable Uncontrolled Price ("CUP") analysis furnished by the Appellant in relation to availing of supervision services. 4.4 Adopting a contradictory view with respect to availing of supervision services while accepting similarly priced services that the Appellant provided to its AEs. 7 On the facts and in the circumstances of the case and in law, the Ld. DRP erred in passing a cryptic order and neither considering information furnished nor addressing any of the contentions raised by the Appellant during the proceedings before the Revenue. 8 That, on the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under Section 234A and 234C of the Act. 9 That, on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 270A of the Act. 10 Without prejudice to the above grounds, on the facts and circumstances of the case and in law, the assessment proceedings are barred by limitation in view of Section 153 read with Section 144C of the Act.
10.1 The draft assessment order was passed on J 6 November 2023 and DRP proceedings are extension of the assessment proceedings which were required to be completed by 31 December 2023, the instant proceedings for A Y 2021-22 are barred by limitation in light of section l53(1), 153(4) & 144C of the Act and bad in law and hence, liable to be quashed.
The above grounds are notwithstanding and without prejudice to each other. The objections embodied in the above grounds are mutually exclusive.
At the outset of the hearing, ld. AR of the assessee submitted that the issues involved in grounds of appeal raised by the assessee are covered by the decision of coordinate Benches and in this regard, he filed written submissions which are reproduced for the sake of clarity :-
On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.
Considered the rival submissions and perused the material on record. We find that the issues raised in the grounds of appeal
are covered in favour of the assessee by various decisions of coordinate Benches of the Tribunal and one such decision of the coordinate Bench is in for AY 2020-21 order dated 10.12.2024. For the sake of repetition, we reproduce the relevant finding of the aforesaid order dated 10.12.2024 as under :-
4. We observe that there is no change in the facts and circumstances of the case as compared to the previous years under litigation. Thus on principle of consistency, the AO should have examined the issue but same was not done. A summary of litigation history on the subject transaction as provided by the ld. AR is reproduced below:
AY Service costs 2007-08 Allowed by Ld. TPO Allowed by Ld. TPO Mark- up 2008-09 2009-10 Allowed by Ld. TPO 2010-11 Allowed by Ld. DRP 2011-12 2012-13 Allowed by Ld. TPO Allowed by the Hon’ble ITAT 4 2013- 14 Not picked up for scrutiny Allowed by 2014-15 Allowed by Ld. TPO the Hon’ble 2015-16 Not picked up for scrutiny Allowed by Ld. TPO 2016-17 2017-18 2018-19 Allowed by the Hon’ble ITAT 2019-20 Not picked up for scrutiny 5. Then, in the Assessee’s own case for AY 2014-15, AY 2016-17.2017- 18 and 2018-19 the co-ordinate benches have considered the issue of mark and have held that the mark-up charged by the AE for the services provided should be allowed and deleted the entire adjustment made on this account. The relevant part of the decision in AY 2014-15, paras 5 to 8, are reproduced below:- “5. The markup of 4% and 5% has been disallowed by the TPO and accordingly enhanced the income of the assessee based on the ld. DRP observations for the year 2010-11. For the sake of ready reference, the same is reproduced as under: “3.3.2. In the assessee’s case, the intra- group services relate to general administration, finance and accounting, coordination, general management, corporate and project financing, recruitment and education. It is noted that the assessee is an entrepreneur in its own right and is engaged in engineering, procurement and commissioning projects for the third party clients. It procured orders on independent basis and also carried out the project on its own. It is hardly operating as an extension of AE or catering exclusively to the AE. It virtually undertakes all the risks associated with rendering services, marketing and performs various complex roles. Therefore, the ratio of Supreme Court decision in the case of Morgan and Stanley & Co. hardly applies on the facts of the assessee’s case. The assessee has also provided substantial evidence in form of e- mails and correspondence with the AE in respect of the services rendered by the AE. On going through the same, it clearly comes out that the AE was rendering services which were beneficial for the assessee in conducting its business. No doubt, some benefit of the services may have accrued to overall group also. But the primary beneficiary was definitely the assessee. Under these circumstances, it would not be proper to term the services rendered by the AE as stewardship activity. 3.3.3. Corning to the quantum of payment for the services, it is seen that from the total cost of services, cost of stewardship activity services/duplicate services is first removed. The remaining cost is allocated to different organizations of the group. The assessee pays the cost of services allocated to it plus ore-agreed mark up. In the course of hearing, the assessee was asked to justify the mark up. However, no detailed justification was provided in this regard. It was only stated that since the AE was providing the services, it was entitled to earn some margin on the same. However, as discussed earlier, while the primary beneficiary of the services is the assessed, there are also some incidental benefits accruing to the group. The parent company gets benefited by better synergies, scale of economy, better coordination and reporting. Considering this, the AE, in our opinion, was not justified in charging any mark up on the cost of services. The arm’s length price of the services is therefore decided at the actual cost. The adjustment is therefore sustained to the extent of mark up only. The TPO is directed to reduce the adjustment accordingly.”
6. The main argument of the ld. AR was that these transactions are benchmarked by using TNMM and furnished that TP documentation whereas the TPO did not follow any prescribed method and the entire markup is disallowed without giving any reasons. The observation of the revenue that the parent company gets benefited by better synergies, scale of economy, better coordination and reporting cannot be accepted.
7. While the assessee avails supervision services from its AEs and pays markup charges, it also provides such services to the AEs for their third party contracts and receives markup charges. The pricing basis and the results arising from the same have been accepted by the TPO. Disallowing the mark-up on receipt of services while in-principle accepting the provision of similar services rendered having similar intent and basis of pricing cannot be valid ground to disallow the markup. It is not out of contest to note that no such disallowance has been made on the markup in the case of the assessee AY 2007-08 to 2012-13 and AY 2015-16.
8. Hence, keeping in view, the entire facts and circumstances, the contention of the revenue that the AE invariably derives some benefit and hence no markup should be charged, cannot be accepted.”
In AY 2018-19, the co-ordinate bench in which one of us, the Hon’ble Accountant Member, was also in quorum has concluded that the issue of mark up being at arm’s length is no more res integra, and the relevant part of order is reproduced below:- “5. In the light of the submissions made on behalf of the assessee, the issue is no longer res integra. The issue has been either endorsed by the Revenue itself or has been ruled in favour of the assessee by the Coordinate Bench in assessee’s own case in Assessment Years 2014- 15, 201617 and 2017-18. A reference is made in this regard to the decision of the Co-ordinate Bench in order dated 27.04.2022 relevant to Assessment Year 2017-18 and order dated 18.08.2021 concerning Assessment Year 2014-15.”
7. Thus the AO has definitely fallen in error in not following the directions of DRP to benefit the assessee of the decisions in favour of assessee in assessee’s own cases.
8. Hence, Ground Nos.1 to 11 are sustained. Ground No.12 and 13 are consequential while ground No.14 stands dismissed as not pressed. Accordingly, the appeal of the assessee is allowed.”
Respectfully following the aforesaid decision of the coordinate Bench, we allow the grounds no.1 to 7 raised by the assessee.
6. Grounds No.8 & 9 are premature, hence dismissed as such.
Ground No.10 is not pressed, hence dismissed as such.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on this 21st day of May, 2025.