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Income Tax Appellate Tribunal, DELHI BENCH : I-2 : NEW DELHI
Before: SHRI R.K. PANDA & MS SUCHITRA KAMBLE
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER Assessment Year: 2013-14 Towers Watson India Ltd., Vs ACIT, 2nd Floor, Tower-B, Circle-4(1), Unitech Business Park, Gurgaon. South City-1, Sector-41, Gurgaon. PAN: AAACG2955K (Appellant) (Respondent) Assessee by : Shri Nageshwar Rao, Advocate & Ms Sherry Goyal, Advocate Revenue by : Shri Anupam Kant Garg, CIT, DR Date of Hearing : 01.09.2020 Date of Pronouncement : 11 .09.2020 ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 24th October, 2017 passed by the AO u/s 143(3) r.w.s 144C of the IT Act, 1961.
The grounds raised by the assessee are as under:- “On the facts and circumstances of the case and in law, the learned AO has erred in passing the assessment order under section 143(3) read with section 144C of the Income- tax Act, 1961 (‘the Act’) after considering the adjustments proposed by the learned TPO in his order passed under section 92CA(3) of the Act and subsequently confirmed by the Hon’ble DRP. Each of the ground referred is separate, which may kindly be considered independent of each other. Transfer Pricing Grounds On the facts and circumstances of the case and in law:
1. 1. The learned TPO/AO/DRP have erred in making an adjustment of INR 20,547,164 to total income of the Appellant in respect of international transaction pertaining to provision of consulting services by the Appellant to its Associated Enterprise (“AE”) (hereinafter referred to as “impugned transaction”).
2. The learned TPO/AO/DRP have erred in arbitrarily rejecting the Comparable Uncontrolled Price (“CUP”) method selected by the Appellant in its TP documentation and selecting Transactional Net Margin Method (“TNMM”) as the most appropriate method to determine the arm’s length price (“ALP”) of the impugned transaction without giving any plausible reasoning thereto.
3. The learned TPO/DRP have erred in disregarding internal TNMM proposed by the Appellant during the course of assessment without citing any cogent reasoning, and thereafter applying external TNMM for determination of ALP of the impugned transaction.
4. The learned TPO/AO/DRP have erred in considering entity-wide margin earned by the Appellant from provision of consulting services (which includes related party as well as third-party business) instead of segmental margin earned from provision of consulting services to AE for determination of ALP of the impugned transaction.
5. The learned TPO/AO/DRP have erred in not undertaking a methodical search process for identifying comparable companies (as outlined in Section 92CA of the Act read with Rule 10B(1)(e) of the Rules) and taking companies selected as comparable in previous year for benchmarking the impugned transaction on an ad- hoc basis without providing any reasons thereto.
6. The learned TPO/AO/DRP have erred in considering the use of single-year data for determining the comparability of the selected companies and computing margins thereof to benchmark the impugned transaction.
7. The learned TPO/AO/DRP have erred in not including certain companies as comparable by applying different financial year ending filter (i.e. having 2 accounting year other than March 31 or companies whose financial statements were for a period other than 12 months).
8. The learned TPO/AO/DRP have erred in selecting certain companies (which are earning supernormal profits) as comparable to the Appellant to benchmark the impugned transaction. Corporate tax grounds 9. The learned AO has erred in granting TDS credit only to the extent of INR 14,705,387 as against TDS credit of INR 18,333,275 claimed by the Appellant in its return of income.
10. The learned AO has erred in levying interest, which is not payable, of INR 7,224,965 under section 234B of the Act. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.”
Facts of the case, in brief, are that the assessee is a company engaged in providing consulting services in the area of human capital, employee benefits and insurance. It filed its return of income declaring the total income at Rs.1,12,69,100/-. Since the assessee has entered into certain international transaction, the AO referred the matter to the TPO for determination of the ALP of the international transaction entered into by the assessee. The TPO during the course of TP assessment proceedings, noted that the assessee has rendered such services to its AE for an amount of Rs.29,25,35,886/- and determined the ALP using CUP method as the most appropriate method wherein it came to compare the per diem rates of its employees to render services to its AEs as well as third parties and concluded the transaction to be at arm’s length. The TPO rejected the TP 3 analysis of the assessee in absence of insufficient documentary evidence produced during the course of proceedings and owing to geographical differences between such transactions proceeded to apply TNMM as the most appropriate method by selecting same set of comparables as applied by the TPO in earlier years and approved by the DRP. The TPO selected the following ten comparables:-
S.No. Company Name OP/OC 1. ICRA Management Consulting Services 2.90% 2. ICRA Online Limited 13.31% 3 ICRA Techno Analytics I imlted 14:01% 4 Cyber Media Research Limited -1.71% 5 Informed Technologies Limited 4.47% 6 Accentia Technologies Limited 13 93% 7 Acropeal Technologies Limited (Healthcare segment) 10.91% 8 Eclerx Services Limited 57.78% 9 Cosmic Global Limited 23.38% 10 E4e Healthcare Business Services Limited 17.11% Average 15.61% 3.1 The average margin was computed at 15.61% and the TPO accordingly proposed an upward adjustment of Rs.4,29,90,719/-.
The DRP, applying the directions issued in earlier years, i.e., A.Y.s 2010-11, 2011-12 and 2012-13, upheld the TPO’s approach of rejecting the CUP method as most appropriate method and upheld the TNMM method applied by the AO. The DRP further upheld the various comparables selected by the TPO. However, it directed working capital adjustment with certain directions. The AO, accordingly, in the final order passed on 24th October, 2017, made an addition of Rs.2,05,47,164/- to the total income of the assessee and determined the total income at Rs.3,18,16,260/-.
The ld. Counsel for the assessee, drew the attention of the Bench to page 38 of the appeal set which is the order passed u/s 92CA(3) of the Act and submitted that the TPO, following the stand taken in the previous years, i.e., AYs 2010-11, 2011-12 and 2012-13 has rejected the economic analysis disregarding the CUP as the most appropriate method and applied TNMM. He submitted that the Tribunal in assessee’s own case for A.Y. 2011-12, vide order dated 2nd April, 2019, has held CUP as the most appropriate method. He submitted that for A.Y. 2012-13, no TP assessment was made for which no appeal has been filed. He submitted that once the CUP is held as the most appropriate method in the light of the decision of the Tribunal in assessee’s own case for A.Y. 2011-12, the other grounds will become academic in nature.
The ld. DR, on the other hand, heavily relied on the order of the TPO/DRP. Referring to page 8 of the order of the TPO, the ld. DR drew the attention of the Bench to the following and submitted that the TPO has given justifiable reason as to why CUP method cannot be applied as the most appropriate method:- “However, the undersigned is of the belief that CUP method cannot be applied as the most appropriate method herein due to the following reasons. • The assesses has compared the invoices raised on its AE with the invoices raised another group entities. The transaction with other Tower Watson Group entity cannot serve as a good comparable.
• The comparisons shall be on invoice by invoice with third parties located in the same "geographical locations”. However, the assessee has done only sample comparison which fails the comparison under CUP. • The charges also depend upon the nature and technical difficulties of the services rendered. The assessee has not furnished any of the technical description of the services rendered to the AEs Vs. NonAEs.”
He submitted that each assessment year is separate and principle of res judicata does not apply to income-tax proceedings. Therefore, the order of the AO/TPO/DRP should be upheld.
The ld. Counsel, in his rejoinder, submitted that all objections raised by the TPO has been considered by the Tribunal while deciding the issue. Therefore, the same view has to be followed.
We have considered the rival arguments made by both the sides, perused the orders of the AO/TPO/DRP and the paper book filed on behalf of the assessee. We have also gone through the decision of the Tribunal in assessee’s own case. We find, the tribunal, vide order dated 11th March, 2019, has thoroughly discussed the issue in question and held that CUP is the most appropriate method in the instant case. The relevant observation of the Tribunal from para 19 to 23 read as under:-
“19. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below qua the issue. Facts on record reveal that the time is recorded on rate per hour methodology. The AEs are charged on the basis of hours spent on services rendered to them. Though the UREs are also charged on hourly rate basis, but due to cut-throat competition in this line, pre- determined fixed rate is billed and if the hourly rate is higher than the pre-determined fixed rate, then difference is written off. 6 In our considered opinion, this is a standard practice followed by the enterprises providing similar consultancy services. Further, we find that the assessee has to assume total risk when it is providing services to the UREs whereas when the services are provided to AEs, the risk is that of the AEs whose client has been serviced.
We do not find any force in the contention that the evidences are not brought on record. The invoices raised to AEs and non AEs are exhibited in the paper book. Whether the same person is providing service to both the AEs and non AEs is irrelevant, so as long as the evidences of services provided are available. The services are provided by different set of personnel, having different qualification and it would not be justifiable to ask for invoices of the same person who has provided service to AEs and also to non AEs.
Moreover, considering the nature of services provided by the assessee, we do not find the geographical locations relevant because the consulting services provided by the assessee would remain the same whether the service receiver is located in 'X' country or 'Y' country as long as service provider is in India. Our view is fortified by the fact that the price charged to non AEs, [irrespective of geographical location] is comparable to the price that is charged to Indian entities. Moreover, rate per hour for consultant, once decided, does not change irrespective of country and whether it is related or unrelated entity.
As mentioned elsewhere, risk and responsibility to the client is direct in Indian non AEs and for AEs the overall responsibility to the client is of the AE itself. In this line, work is assigned to different team members [whether relating to AE or non AE] based on the specific job skill-set requirement, available resources and overall deliverable expected, meaning thereby, that if the work requires more time of a junior consultant, he/she is assigned that work whereas if a senior's assistance is required, they devote time. Accordingly, a proper team composition is there to take care of the nature and technical difficulties of the project. Even the OECD Guidelines of July 2010 preferred internal CUP over other methods, since it bears a more direct and closer relationship to the transaction under review.
Considering the totality of the facts in the light of invoices relating to AEs and non AEs exhibited in the paper book, we are of the considered opinion that CUP is the MAM and has been rightly adopted by the assessee to bench mark its transactions for provision of consulting services rendered. This grievance is, accordingly, allowed.”
Since the facts of the instant case are identical to the facts for the A.Y. 2011- 12, therefore, respectfully following the decision of the Tribunal in assessee’s own case and in absence of any distinguishable features brought to our notice, we are of the opinion that CUP is the most appropriate method in the instant case which has been applied by the assessee for benchmarking the transactions for provision of consultancy services rendered. We hold and direct accordingly. Since the ground of appeal No.2 is decided in favour of the assessee, the other grounds relating to the transfer pricing issue become academic in nature and need no adjudication.
11. So far as ground No.9 is concerned, the same relates to the denial of TDS credit. It is the submission of the ld. Counsel that as against TDS credit of Rs.1,83,33,275/- claimed by the assessee, the AO has given TDS credit of only Rs.1,47,05,387/-. We, therefore, deem it proper to restore this issue to the file of the AO with a direction to verify the record and give proper credit of the TDS. Needless to say, the AO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. Ground No.9 raised by the assessee is allowed for statistical purposes.
12. Ground No.10 relates to levy of interest u/s 234B which, in our opinion, is mandatory and consequential in nature. Accordingly, this ground by the assessee is dismissed.