DCIT, NEW DELHI vs. M/S. HONEYWELL INTERNATIONAL INDIA PVT. LTD., NEW DELHI

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ITA 3981/DEL/2015Status: DisposedITAT Delhi20 November 2019AY 2008-0920 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that Vapi Waste & Effluent Management Co. Ltd. was not a valid comparable for routine marketing support services due to functional differences and revenue sources. Several grounds were not pressed or were considered academic.

What were the facts?

The taxpayer, M/s. Honeywell International (India) Pvt. Ltd., challenged the Transfer Pricing Officer's (TPO) adjustments to its international transactions for the assessment year 2008-09. The TPO had rejected the taxpayer's comparability analysis for IT-enabled and market support services and made fresh adjustments.

What were the issues?

The key issues involved the validity of comparable companies selected by the TPO, the rejection of the taxpayer's comparables, and the denial of adjustments like working capital and risk adjustments in transfer pricing.

Which sections of the Income-tax Act were involved?

Section 92D,Section 92C(2),Section 10A,Section 133(6),Section 92C(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’ : NEW DELHI

Before: SHRI R.K. PANDA & SHRI KULDIP SINGH

For Appellant: Shri Kamal Sawhney, Advocate, Shri Prashant Meharchandani, Advocate
For Respondent: Shri Subha Kant Sahu, Senior DR
Hearing: 07.11.2019

per annual report, available at page 1020 of the paper book, it has received its substantial capital from Government. Moreover, it is engaged into effluent treatment and common solid waste management business, as is evident from page 1006 of the paper book, and as such, cannot be a valid comparable vis-à-vis the taxpayer which is a routine marketing support services provider.

1.

Furthermore, when we examine the financials of Vapi at page 1021 of the paper book, it has received income as membership fee from the members to the tune of Rs.178,953,573/-.

27.

Coordinate Bench of the Tribunal in Intercontinental Hotels Group (India) Pvt. Ltd. TS-894-ITAT-2018(DEL)-TP ordered to exclude Vapi as a comparable vis-à-vis routine marketing support services provider by returning following findings :-

“16. We further find that in the case of Vapi Waste Effluent Co., capital is contributed by its members and Government. Major portion of its income comes from members in form of charges for deposition which means that the contributors are beneficiaries. Therefore, the price of this company cannot be treated as an independent and uncontrolled price when the majority of the Revenue is earned from the members who have contributed to the capital of the company.

17.

We further find that almost 64% of the assets employed by this company are plant and machinery and for a service company to have such heavy capitalization in plant and machinery is 17 unique whereas assets of the assessee company are of routine nature, namely computer and office equipment.

18.

The coordinate bench in the case of Actis Advisers Pvt Ltd in ITA No. 6390/DELl2012 has held as under: 'Coming back to the issue of comparability the inclusion! exclusion of Vapi and WAPCOS, the ITAT in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) has held that companies like EIL, Rites, Wapsos and TCE are engineering companies and provide end to end solutions and therefore they cannot be compared with those assessee who were into providing marketing support services to the parent company. They were held to be functionally not comparable with these engineering companies. The case of Vapi also falls on the same footing. Therefore, respectfully following the order of the IT A T in the cases of M/s MCI Com India P. Ltd. and M/s Verizon India P. Ltd. (supra) and Estel in ITA no. 584/Bang/06 we are of the view that Vapi and WAPCOS are functionally not comparable to the assessee."

19.

The order of the coordinate bench was affirmed by the Hon'ble Delhi High Court in Tax Appeal No. 952/2015 wherein the Hon'ble High Court has held as under:

6. As far as Issue (i) is concerned, the Court finds that while the Assessee provides marketing support services, the first excluded company WASCOS, as a comparably/ provides engineering consultancy services and the second excluded company Vapi provides consultancy for water resource management. The reasons given by the ITAT for exclusion of those two entities as comparables appears, therefore, to be fully justified on facts as well as in law. No substantial question of law arises

20.

As discussed else.pwhere, Vapi Waste & Effluent Mgmt. Co. Ltd is functionally different from the assessee company and following the findings of the coordinate bench [supra), we are of the considered view that this company is not a good comparable and should be excluded from the final list of com parables.”

28.

Furthermore, Hon’ble Delhi High Court confirmed the exclusion of Vapi in case of CIT-I vs. Actis Advisers Pvt. Ltd. in support services provider by returning following findings :-

“6. As far as Issue (i) is concerned, the Court finds that while the Assessee provides marketing support services, the first excluded company WASCOS, as a comparable, provides engineering consultancy services and the second excluded company Vapi provides consultancy for water resource management. The reasons given by the ITAT for exclusion of those two entities as comparables appears, therefore, to be fully justified on facts as well as in law. No substantial question of law arises.”

29.

In view of what has been discussed above, we are of the considered view that Vapi being into providing different functions vis-à-vis the taxpayer and has derived substantial revenues from its members on account of membership fee cannot be considered as an uncontrolled entity, hence ordered to be excluded as comparable vis-à-vis the taxpayer.

GROUND NO.7

30.

The taxpayer sought inclusion of Times Innovative Ltd., Interads Limited, Rediff.com India Ltd. and Indiacom Limited as comparables to benchmark its international transactions qua marketing support services. However, during the course of arguments, the same has not been pressed by the taxpayer, hence dismissed.

31.

Grounds No.10 & 11 are not pressed by the ld. AR for the taxpayer on the ground that in case, Apitco Ltd., Vapi Waste & Effluent Management Co. Ltd. and Choksi Laboratories Ltd. are excluded, these grounds have become academic.

GROUND NO.12

32.

This ground needs no adjudication as AO/TPO are required to provide the benefit of 5% variation as per statutory provisions.

GROUNDS NO.13, 14 & 15

33.

Grounds No.13, 14 & 15 are dismissed having not been pressed during the course of arguments.

GROUND NO.16

34.

Ground No.16 needs no finding being general in nature.

35.

Resultantly, the appeal filed by the taxpayer being is partly allowed. ./2015 (REVENUE’S APPEAL)

36.

Since the tax effect in the appeal filed by the Revenue is low i.e. less than Rs.50,00,000/-, in view of the CBDT Circular

20 No.17/2019 dated 8th August, 2019 which is applicable retrospectively in view of the decision rendered by coordinate Bench of the Tribunal in case of Dinesh Madhavlal Patel [TS-469- 14th ITAT-2019(Ahd)] 2019-TIOL-1556-ITAT-AHM dated August, 2019, the appeal of the Revenue being ITA No.3981/Del/2015 is dismissed on account of low tax effect. Order pronounced in open court on this 20th day of November, 2019.

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