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Income Tax Appellate Tribunal, DELHI ‘I-2’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI KULDIP SINGH
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the assessee is directed against the assessment order dated 28.11.2016 framed u/s 143(3) r.w.s 144C of the Income tax Act, 1961 [hereinafter referred to as 'the Act' for short] pertaining to A.Y 2012-13.
2. The solitary grievance of the assessee is that the Assessing Officer/TPO/DRP erred in making a TP adjustment of Rs. 9.58 crores in respect of international transactions alleging the same to be not at arm’s length in terms of provisions of section 92C of the Act.
Briefly stated, the facts of the case are that the appellant has been engaged in the publishing, reprinting and distribution of scientific books and journals. It also undertakes marketing and sales support services with respect to the aforementioned books and journals sold by the Associated Enterprises [AE] in the territory of India, Pakistan, Bangla Desh and Sri Lanka.
The appellant’s business of publishing books and journals involved electronic as well as physical format, which are sold in India as well as overseas. International transactions pertaining to this business are subject matter of the appeal. The appellant also derives revenue from business of reprinting of books and by way of commission on sales made by the AEs in India and distribution of books of third parties in India.
5. In its TP study report, the assessee has adopted the transaction by transaction approach which was disregarded by the TPO by aggregating all transactions and applying TNMM method and made a total adjustment of Rs. 12.41 crores.
6. When the objections were raised before the DRP, the DRP upheld the application of TNMM on the basis that the appellant had adopted TNMM in the previous years. Accordingly, margins of the comparable companies were recomputed.
Pursuant to the directions of the DRP, the TPO recomputed the TP adjustment at Rs. 9.58 crores.
It would be pertinent to mention here that this is the second round of litigation. In the first round of litigation, the appellant approached the Tribunal disputing the application of TNMM method as against the other method applied by the appellant. The Tribunal remanded the matter to the TPO vide order dated 19.06.2017 with a direction to examine the contentions raised by the appellant and decide on the applicability of most appropriate method [MAM].
Aggrieved by the order of the Tribunal, the appellant approached the Hon'ble High Court of Delhi and the Hon'ble High Court vide order dated 15.12.2017, allowed the appeal of the appellant and remanded the matter to ITAT with the direction that ITAT must decide the matter afresh and give a finding on both, law and facts.
Subsequent to the decision of the Hon'ble High Court, the appellant company has entered into an Advance Pricing Agreement [APA] u/s 92CC of the Act with CBDT on 06.08.2019 with respect to selection of MAM and computation mechanism to determine the ALP of its international transactions.
As per this APA ‘other method’ has been agreed to be the MAM for all transactions in dispute in this year and is applicable for the previous assessment years 2016-17 to 2020-21 and also for roll back period comprising of previous years 2012-13 to 2015-16.
Even though the year under consideration is not covered under APA and risk profile as claimed by the ld. counsel for the assessee is consistent with APA years and, therefore, the ld. counsel for the assessee has prayed for adoption of the method and computation mechanism adopted in the APA to determine the ALP of the international transactions in dispute.
The ld. DR, by way of his written submissions, objected to the applicability of APA claiming that the year under consideration is not covered by APA. The ld. DR further stated that the assessee is required to file requisite documents which include certificate of an independent cost accountant or equivalent inter-company agreements, all true ups and true downs etc alongwith Annual compliance report as
per Rule 10-O of the IT Rules. The ld. DR further contended that the assessee is required to keep and maintain certain documents as per APA and the same should be produced before the TPO during compliance audit.
The ld. DR further stated that there is difference in the TP method pertaining to certain transactions as applied by the assessee in its TP study.
We have given thoughtful consideration to the factual matrix and the submissions of the rival representatives. We have also carefully perused the APA. As per clause 3 under the head ‘Covered Transaction’, it is mentioned that the agreement is applicable to the covered transactions given in Appendix II and Most Appropriate Transfer Pricing Methods for covered international transaction of the applicant are given in Appendix IV. Under the head “The Term of Agreement”, it is mentioned that the agreement shall apply to previous assessment years 2016-17 to 2020-2021 and shall also apply to previous years 2012-13 to 2015-16.
Apparently, the year under consideration is not covered by the APA. List of covered transactions are as under:
In light of the above, we find that the Tribunal, in a series of decisions, have consistently held that even if the year under dispute is not covered by APA, if the FAR is same, APA should be adopted for international transactions for the year under dispute. This view has been taken in the following cases:
Honeywell Automation India Ltd 101 Taxmann.com 6 [Pune]
Abicor Binzel Automation India Ltd ITA 2253 to 2255/Pune/2014
3. Bundy India ITA No. 720/Ahd/2017
4. Celtic Technologies 109 Taxmann.com 334
Ranbaxy Laboratories 68 ITR 322 [Delhi]
Tieto I.T. Services ITA 1398/Pune/2015
Accordingly, we direct TPO to consider the FAR of the year under consideration with FAR of the years in APA. The assessee is directed to produce all necessary documents in compliance with APA and the Assessing Officer/TPO is directed to decide the issue in light of APA in respect of international transactions in dispute in the present appeal and adopt the same methodology which has been directed to be adopted in the APA.
In the result, the appeal of the assessee in is treated as allowed for statistical purposes.
The order is pronounced in the open court on 28.08.2020.