Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI MANOJ KUMAR AGGARWAL
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the assessment order dated 31/01/2017 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961( in short ‘the Act’).
Shri M.P.Lohia, appearing on behalf of the assessee submitted that the assessee is engaged in providing research based consultancy services in brand building. The assessee is a subsidiary of Russell Square Holding BV, Netherlands. The ld. Authorized Representative for the assessee pointed that
2 ITA NO.2239/MUM/2017(A.Y.2012-13)
during the period relevant to the assessment year under appeal the assessee entered into international transactions, which was identical to the transaction carried out in assessment year 2011-12. The manner of benchmarking of the international transactions in the impugned assessment year is similar to the one made in assessment year 2011-12. The assessee had made payments to its Associated Enterprises (AEs) towards intra group services to the tune of Rs.7.54 crores. The Transfer Pricing Officer(TPO) held that the assessee has not been able to show services rendered and the benefit derived by the assessee from the alleged services. Hence, the TPO determined the Arms Length Price (ALP) of the services at ‘Nil’. The assessee filed objections before Dispute Resolution Panel (DRP).The DRP vide directions dated 22/12/2016 rejected the objection of the assessee and upheld the findings of TPO. The ld. Authorized Representative for the assessee pointed that TPO in para A3.3 and 5 of his order dated 25/01/2016 has categorically mentioned that addition on similar grounds for the same transactions were made in assessment year 2011-12 and the DRP had rejected the objections of the assessee. The ld. Authorized Representative for the assessee further pointed that the DRP in para 4.2.18 of the directions has reiterated that the issue had come up before the Panel in the preceding year also, wherein the action of the TPO in determining ALP of the international transaction of provision of co-ordination and support services at ‘Nil’ was upheld. The ld. Authorized Representative for the assessee submitted that thus, the issue raised in ground No.4 to 9 of the present appeal is the same which was subject matter of appeal before the Tribunal in ITA No.932/Mum/2016 in assessee’s own case in assessment year 2011-12. The Tribunal vide order dated 08/01/2020 deleted the addition by placing reliance on the decision of Hon’ble Jurisdictional High Court in the case
3 ITA NO.2239/MUM/2017(A.Y.2012-13)
of CIT vs. Johnson & Johnson Ltd. in Income Tax Appeal No. 1030 of 2014 decided on 07/03/2017.
The ld. Authorized Representative for the assessee submitted that in ground No.10 to 13 of the appeal, the assessee has assailed the findings of the Assessing Officer in not allowing TDS credit in full to the assessee. The ld. Authorized Representative for the assessee contended that as per provisions of section 199 of the Act, the TDS credited is to be allowed to the assessee in the year in which income is offered to tax. Whereas, the Assessing Officer in the present case has allowed TDS in the year in which it has been deducted. This has resulted in mismatch of TDS claimed by the assessee and TDS claim TDS reflected in Form 26AS. The ld. Authorized Representative for the assessee submitted that TDS deducted and reflected in Form 26AS also includes receipts which are offered to tax by the assessee in the subsequent assessment years. The assessee has offered some of the receipts in subsequent assessment year as they have been actually received in later financial year.
In respect of ground No.15 & 16 relating to short grant of TDS credit and interest under section 244A of the Act, respectively, the ld. Authorized Representative for the assessee submitted that assessee has filed rectification petition before the Assessing Officer. The same is still pending for the final disposal. The ld. Authorized Representative for the assessee prayed that direction may be given to Assessing Officer to dispose of the application in time bound manner.
Shri Uodal Raj Singh, representing the Department vehemently defended the assessment order and the directions of the DRP. However, the ld. Departmental Representative fairly admitted that the issue raised in ground
4 ITA NO.2239/MUM/2017(A.Y.2012-13)
No.4 to 9 of the appeal by the assessee is similar to the one adjudicated by the Tribunal in assesssee’s own case in assessment year 2011-12.
We have heard the submissions made by rival sides and have perused orders of authorities below. The assessee in appeal has raised as many as 17 grounds. The ground No.1 to 3 are general in nature, hence, requires no adjudication.
The ground No.4 to 9 of the appeal are in respect of a single issue assailing the method of benchmarking international transactions entered into by the assessee with it Associated Enterprise (AE) in the period relevant to the assessment year under appeal. The assessee had made payment towards allocation of operational expenses. The assessee paid Rs.3.95 crores to its AE Millward Brown Inc(Global Hub) and Rs.3.59 crores to Millward Brown Singapore (Regional Hub) in lieu of certain intra group services. The assessee selected AE as tested party and selected 16 companies as comparable to benchmark the transaction. The AE charged 10% mark-up on direct and indirect cost for rendering global services. The assessee applied Transactional Net Margin Method (TNMM) as most appropriate method to benchmark its international transaction. The TPO rejected the benchmarking of the assessee. The TPO held that the assessee has failed to provide exact cost incurred for each services. The TPO further pointed that the assessee has not been able to substantiate the benefit derived from the services rendered and hence, determined ALP of the global services and the regional services at ‘Nil’. The DRP upheld the findings of TPO.
We find that in the immediately preceding assessment year i.e. assessment year 2011-12 the assessee had made payments to the same AEs
5 ITA NO.2239/MUM/2017(A.Y.2012-13)
for providing similar intra-group services. The fact that nature of the transaction and services provided were similar in assessment year 2011-12 and 2012-13 is evident from the observations of the TPO in para A 3.3 and para 5 of the order dated 25/01/2016. The DRP has also reconfirmed in its directions that the nature of international transaction in the preceding assessment year is similar. The assessee in assessment year 2011-12 carried the issue in appeal to the Tribunal in ITA No.932/Mum/2016(supra). The Tribunal deleted the addition by holding as under:-
“ 8. Against the above assessee is in appeal before us. We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that the Transfer Pricing officer has determined the arms length price of the international transaction in this case to be nil, without applying any method whatsoever. He submitted that assessee has submitted voluminous document showing the services however they have been summarily dismissed on the ground that the benefit accruing to the assessee has not been established. The learned counsel of the assessee submitted that this approach is not at all sustainable. He referred to the decision of honourable jurisdictional High Court in this regard for the proposition that it is not for the Transfer Pricing officer to apply the benefit test under section 37(1) of the I.T. Act, but the same is for the assessing officer. We find that the ratio from the above honourable during High Court decision is quite clear. Hence admittedly the Transfer Pricing officer has exceeded his jurisdiction. Hence the Transfer Pricing officer's proposition that the documents submitted by the assessee do not provide the benefit obtained by the assessee and hence they have to be rejected and arm's- length price is to be determined as nil is not at all sustainable. The learned departmental representative in this regard could not submit anything against the proposition that Transfer Pricing officer has erred in applying the benefit test. In this view of the matter in our considered opinion authorities below have totally erred in rejecting the assessee's documents and submissions on the ground that they do not prove the benefit obtained by the assessee. That the services have been rendered is very much evident from the documents submitted to the authorities below. The assignment to the TPO was to benchmark the international transaction and compute the arm’s length price. Instead of performing his statutory duties the TPO sat into the shoes of the Assessing Officer and rejected the documents on the ground that they do not prove the benefit test. This action has been upheld by the DRP. This approach is not sustainable. 9. Furthermore, we also note that submission of learned Counsel of the assessee is also correct that the authorities below have summarily rejected the assessee’s claim without applying any method of benchmarking international transaction as
6 ITA NO.2239/MUM/2017(A.Y.2012-13)
specified in section 92C of the Act. In this regard we note that section 92C provides that following method of benchmarking of international transaction. 92C. (1) The arm’s length price in relation to an international transaction or specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely :— (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. 10. It is to be further noted that Rule 10B of Income Tax Rules, 1962 (for short "the Rules"), provides the mechanism for determination of arm's length price under the aforesaid methods prescribed under section 92C of the Act. If the Assessing Officer in course of assessment proceedings finds that the assessee has entered into international transactions with its AE, he may with the previous approval of the authority concerned make a reference to the Transfer Pricing Officer under section 92CA(1) of the Act to compute the arm's length price of the international transaction by applying any of the methods prescribed under section 92C of the Act. After receiving such a reference from the Assessing Officer, the Transfer Pricing Officer is required to determine the arm's length price of the international transaction as per the provisions contained under section 92C and 92CA of the Act read with relevant rules. Thus, as could be seen from the reading of the aforesaid provisions, the duty of the Transfer Pricing Officer is restricted only to the determination of arm's length price of an international transaction between two related parties by applying any of the methods prescribed under section 92C of the Act r/w rule 10B of the Rules. Thus, there is no provision under the Act empowering the Transfer Pricing Officer to determine the arm's length price on estimation basis (which in this case is nil), that too, by entertaining doubts with regard to the business expediency of the payment and in the process stepping into the shoes of the Assessing Officer for making disallowance under section 37(1) of the Act. This, in our considered opinion, is not in conformity with the statutory provision, hence, unacceptable. The Transfer Pricing Officer is duty bound to determine the arm's length price of the international transaction by adopting one of the method prescribed under the statute and cannot deviate from the restrictions/conditions imposed under the statute. The Hon'ble Jurisdictional High Court in CIT vs. Johnson & Johnson Ltd., ITA no. 1030/2014, dated 7th March 2017, while dealing with identical issue of determination of arm's length price of royalty by resorting to estimation by the Transfer Pricing Officer has held as under:-
7 ITA NO.2239/MUM/2017(A.Y.2012-13)
"(d) We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in section 92C of the Act read with Rule 10B of the Income Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical knowhow has not been carried out as required under the Act. Further, as held by the CIT(A) and upheld by the impugned order of the Tribunal, the TPO has given no reasons justifying the technical know-how royalty paid by the Assessing Officer to its Associated Enterprise being restricted to 1% instead of 2%, as claimed by the respondent assessee. This determination of ALP of technical knowhow royalty by the TPO was ad-hoc and arbitrary as held by the CIT(A) and the Tribunal.” 11. We find that ratio from the above Hon'ble Jurisdictional High Court decision is squarely applicable here. Hence transfer pricing adjustment at nil fails on both counts. Firstly on the account of benefit test which is not to be applied by the TPO and secondly none of the method of benchmarking the international transaction as specified in section 92C has been applied. 12. Accordingly, we set aside the orders of the authorities below determining arms length price at nil and decide the issue in favour of the assessee” Since the facts in the assessment year under appeal are similar to the one adjudicated by Co-ordinate Bench of the Tribunal in assessee’s own case in assessment year 2011-12, we see no reason to take a different view. Respectfully following the decision of Co-ordinate Bench of the Tribunal in assessee’s own case, we allow ground No.4 to 9 of the appeal in similar terms.
In ground No.10 to 13 of the appeal, assessee has assailed disallowance of TDS credit. During the assessment proceedings, the Assessing Officer asked the assessee to reconcile the payments received and the TDS reflected in Form 26AS. The assessee furnished details of the transactions and explained that difference in revenue recognized in the books of account and the TDS reflected in Form 26AS is on account of difference between the period of recognition of profit and the amount received. The ld.Authorized Representative of the
8 ITA NO.2239/MUM/2017(A.Y.2012-13)
assessee placed reliance on the provisions of section 199 to contend that the TDS credit be given to the assessee in the year in which the income is offered to tax. The ld.Authorized Representative of the assessee pointed that TDS reflected in Form 26AS in respect of certain payments has been offered to tax by the assessee in subsequent assessment years as the payment was actually received by the assessee during the later assessment year. After considering the submissions of ld.Authorized Representative of the assessee we deem it appropriate to restore this issue back to the file of Assessing Officer. The Assessing Officer is directed to grant TDS credit to the assessee in the year in which the assessee has received the income and has offered the same to tax. Thus, ground No.10 to 13 of the appeal are allowed for statistical purpose in the terms aforesaid.
The grounds No. 15 and 16 are relating to grant of TDS credit Rs.98,92,295/- and grant of interest under section 244A, respectively. The ld.Authorized Representative of the assessee pointed that rectification petition has already been filed before the Assessing Officer and the same is still pending for the disposal. The Assessing Officer is directed to dispose of the rectification petition filed by the assessee expeditiously, preferably within a period of three months from the date of receipt of this order. The grounds No.15 & 16 of the appeal is thus allowed for statistical purpose in the terms aforesaid.
In ground No.17 of the appeal, the assessee has assailed initiation of penalty under section 271(1)(c) of the Act. The ground raised by the assessee is premature at this state, the same is dismissed, accordingly.
9 ITA NO.2239/MUM/2017(A.Y.2012-13)
In the result, appeal of the assessee is partly allowed in the terms aforesaid.
Order pronounced in the open court on Tuesday the 18th day of February, 2020.
Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 18/02/2020 Vm, Sr. PS(O/S)
Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai