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Income Tax Appellate Tribunal, DELHI BENCH: ‘I-1’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against order dated 19/01/2017 passed by CIT(A)-19, New Delhi For Assessment Year 2011-12.
The grounds of appeal are as under:- “Present Appeal' is directed against order dated 19th January 2017(“impugned order”) passed by Hon’ble Commissioner of Income Tax ( Appeals) -19, New Delhi( “CIT(A)”) in Appeal no 33/28/15-16 filed against Assessment order dated 30.3.2015, passed under section 143(3) by Ld. Assessing Officer on the following grounds , which are independent and without prejudice to each other:
1. Impugned order erred in not deleting Transfer pricing adjustment made to returned income in respect of international transaction of provision of sales and marketing support services by the Appellant to its associated enterprise (“AE”) (“ impugned transaction”).
2. Impugned order erred in not accepting the economic analysis undertaken by the Appellant in accordance with provisions of the Act read with the Income-tax Rules, 1962 (“the Rules") and modifying the same for determination of arm’s length price (“ALP”) of the impugned transaction to hold that the same is not at arm’s length.
3. Ld.CIT (A) erred in making/upholding adjustment under Chapter X of the Act, without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of sub-section (3) of section 92C of the Act.
4. Ld.TPO / AO / CIT-A have failed to understand and appreciate the functions performed, assets employed and risks assumed (“FAR profile”) of the Appellant in the impugned transaction, and erred in holding the Appellant as an advertisement and marketing agency as against a routine marketing and sales support service provider, thereby vitiating the comparability analysis so undertaken.
5. Ld.TPO / AO / CIT-A have erred in not considering/upholding use of Operating Profit to Value Added Expenses (“OP/VAE”) as an appropriate Profit Level Indicator (“PLI”) to benchmark the impugned transaction.
6. Ld.AO / TPO / CIT-A have erred in rejecting certain companies selected as comparable by the Appellant in its TP documentation for benchmarking the impugned transaction without ascribing cogent reasoning thereto.
7. Ld.AO / TPO / CIT-A have erred in arbitrarily including certain companies which are not comparable to and which have dissimilar FAR profile from Appellant.
8. Ld.CIT-A and Id. TPO/AO have erred in arbitrarily including and rejecting companies in/from the final set of comparable companies on extraneous and irrelevant basis.
9. Ld. CIT-A has erred in rejecting the alternate analysis furnished during the course of appellate proceedings citing Rule 46A of the Rules. Without prejudice to the above, impugned order has also erred in arbitrarily selecting certain companies therefrom to arrive at final set of comparables, thereby resorting to cherry-picking of comparables to benchmark the impugned transaction.
10. Ld. TPO / AO / CIT-A have failed to make appropriate adjustments to account for differences in working capital of the Appellant vis-a-vis comparables.
11. Ld. TPO/ AO / CIT(A) have failed to make appropriate adjustments to account for the differences in the risk profile of the Appellant vis-a-vis the comparables.
12. Impugned order has erred in not deleting initiation of penalty proceedings u/s 27(1)(c) of the Act.
13. Impugned order has erred in not deleting levy of interest u/s 234B and 234C of the Act.”
3. HTC India is a subsidiary of High Tech Computer Asia Pacific Re Ltd. Singapore and engaged in provision of sales, marketing support and after-sales support services for HTC products to its associated enterprise (“AE") based on requests and requirements received from its AE. The assessee company filed its original return of income for AY 2011-12 on 14.09.2011 declaring an income of INR 7,381,430 on which tax liability of INR 2,366,105 was paid by the assessee company. The return of income of the assessee company was selected for scrutiny and various information / documents as and when called for were duly furnished by the assessee company. The matter was referred to Transfer Pricing Officer and the TPO passed order dated 28/11/2014 thereby making adjustment at Rs. 2,26,18,345/-. The draft assessment order dated 01.01.2015 was passed under section 144C of the Act. The final assessment order under section 143(3) of the Act was passed on 30.03.2015, wherein the total income of the assessee company was re-determined at INR 29,999,770 (as against returned income of INR 7,381,430).
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A) . The CIT(A) partly allowed the appeal of the assessee.
The Ld. AR submitted that the CIT(A) as well as the TPO/AO arbitrarily included and rejected companies in the final set of comparable companies on extraneous and irrelevant basis. In-fact, the Revenue authorities failed to understand the functions performed, assets employed and risk assume (FAR profile) of the assessee company in the impugned transaction. In fact, the Revenue Authorities are not correct in holding that the assessee is an advertisement and marketing agency while as per the records, the assessee is in marketing and support service providers thereby vitiating the comparability analysis so undertaken. The Ld. AR submitted that in the subsequent Assessment Year i.e. Assessment Year 2013-14, the assessee’s profile was accepted that the assessee is not an advertisement or management company. This position has remained accepted in Assessment Year 2014-15 & 2015-16 as well. Therefore, the Ld. AR submitted that the matter may be remanded back to the file of the TPO/A.O to give the proper cognizance of the company profile and take into account the comparable in that respect. The Ld. AR has contested two comparables i.e. Quadrant Communications Ltd. and ICC International Agencies Ltd. to be excluded and Kestone Integrated Marketing Services Pvt. Ltd. (Segment) to be included. As regards to re-characterization of HTC India as an Advertisement Agency, the Ld. AR submitted that the TPO/AO has not looked into the TP Documentation wherein it is clearly mentioned that the assessee company undertakes sales and Marketing Support Services for nature of coordination support and acts in as communicator for exchange of information between HTC Taiwan and Distributor. The functional analysis which was misquoted by the TPO is correctly documented on Page 16 of TP Study as regards working capital adjustment. Therefore, the Ld. AR submitted that the entire issue should be remanded back to the file of the TPO/A.O to take into all these contentions of the assessee.
The Ld. DR submitted that the TPO has taken cognizance of all aspects as well as the CIT(A) has also taken into account all these aspects. The Ld. DR however, could not point out the difference between the current assessment year and the subsequent Assessment Years in which the Revenue has accepted the profile of the assessee.
We have heard both the parties and perused the material available on record. In the entirety of the mater, it can be seen that the company profile has remained intact to that of sales and marketing support services in nature of coordination support and the assessee company is not into advertisement and marketing agency. These aspects were not properly taken cognizance by the TPO/AO and hence the matter is required to be remanded back to the file of the TPO/A.O. All the other issues have to be decided once the issue of re- characterization has been determined by the TPO/A.O. Therefore, we are remanding back all the issues to the file of the TPO/A.O. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Hence, appeal of the assessee is partly allowed for statistical purpose.
In result, the appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the Open Court on this 24th Day of February, 2021.