HUMBOLDT WEDAG INDIA PVT. LTD,NEW DELHI vs. ADDITIONAL/JOINT/ DEPUTY/ACIT, CIRCLE-10(1), DELHI

The DRP noted that identical issues were adjudicated in favour of the Appellant by this Tribunal vide order dated August 18, 2021 for AYs 2014-15 and 2016-17 respectively and November 10, 2022 for AY 2018-19. Accordingly, for the AY under consideration i.e. AY 2020-21, the DRP directed the AO/TPO to inquire whether an appeal has been preferred by the Revenue against the order of this ITAT before the Hon’ble Delhi High Court and if such appeal was indeed preferred before the Hon’ble Delhi High Court, the DRP directed the AO to sustain the aforesaid adjustment/ additions.

We observe that there is no change in the facts and circumstances of the case as compared to the previous years under litigation. Thus on principle of consistency, the AO should have examined the issue but same was not done. A summary of litigation history on the subject transaction as provided by the ld. AR is reproduced below: AY Service costs Mark-up 2007-08 Allowed by Ld. TPO 2008-09 Allowed by Ld. TPO 2009-10 Allowed by Ld. TPO Allowed by 2010-11 Allowed by Ld. DRP the Hon’ble 2011-12 ITAT 2012-13 Allowed by Ld. TPO 4 2013-14 Not picked up for scrutiny Allowed by 2014-15 Allowed by Ld. TPO the Hon’ble 2015-16 Not picked up for scrutiny Allowed by Ld. TPO Allowed by 2016-17 the Hon’ble 2017-18 2018-19 ITAT 2019-20 Not picked up for scrutiny

Then, in the Assessee’s own case for AY 2014-15, AY 2016-17.2017-18 and 2018-19 the co-ordinate benches have considered the issue of mark and have held that the mark-up charged by the AE for the services provided should be allowed and deleted the entire adjustment made on this account. The relevant part of the decision in AY 2014-15, paras 5 to 8, are reproduced below:- “5. The markup of 4% and 5% has been disallowed by the TPO and accordingly enhanced the income of the assessee based on the ld. DRP observations for the year 2010-11. For the sake of ready reference, the same is reproduced as under: “3.3.2. In the assessee’s case, the intra- group services relate to general administration, finance and accounting, coordination, general management, corporate and project financing, recruitment and education. It is noted that the assessee is an entrepreneur in its own right and is engaged in engineering, procurement and commissioning projects for the third party clients. It procured orders on independent basis and also carried out the project on its own. It is hardly operating as an extension of AE or catering exclusively to the AE. It virtually undertakes all the risks associated with rendering services, marketing and performs various complex roles. Therefore, the ratio of Supreme Court decision in the case of Morgan and Stanley & Co. hardly applies on the facts of the assessee’s case. The assessee has also provided substantial evidence in form of e-mails and correspondence with the AE in respect of the services rendered by the AE. On going through the same, it clearly comes out that the AE was rendering services which were beneficial for the assessee in conducting its business. No doubt, some benefit of the services may have accrued to overall group also. But the primary beneficiary was definitely the assessee. Under these circumstances, it would not be proper to term the services rendered by the AE as stewardship activity. 3.3.3. Corning to the quantum of payment for the services, it is seen that from the total cost of services, cost of stewardship activity services/duplicate services is first removed. The remaining cost is allocated to different organizations of the group. The assessee pays the cost of services allocated to it plus ore-agreed mark up. In the course of hearing, the assessee was asked to justify the mark up. However, no detailed justification was provided in this regard. It was only stated that since the AE was providing the services, it was entitled to earn some margin on the same. However, as discussed earlier, while the primary beneficiary of the services is the assessed, there are also some incidental benefits accruing to the group. The parent company gets benefited by better synergies, scale of economy, better coordination and reporting. Considering this, the AE, in our opinion, was not justified in charging any mark up on the cost of services. The arm’s length price of the services is therefore decided at the actual cost. The adjustment is therefore sustained to the extent of mark up only. The TPO is directed to reduce the adjustment accordingly.”

In AY 2018-19, the co-ordinate bench in which one of us, the Hon’ble Accountant Member, was also in quorum has concluded that the issue of mark up being at arm’s length is no more res integra, and the relevant part of order is reproduced below:- “5. In the light of the submissions made on behalf of the assessee, the issue is no longer res integra. The issue has been either endorsed by the Revenue itself or has been ruled in favour of the assessee by the Co- ordinate Bench in assessee’s own case in Assessment Years 2014-15, 2016- 17 and 2017-18. A reference is made in this regard to the decision of the Co-ordinate Bench in order dated 27.04.2022 relevant to Assessment Year 2017-18 and order dated 18.08.2021 concerning Assessment Year 2014-15.”

Thus the AO has definitely fallen in error in not following the directions of DRP to benefit the assessee of the decisions in favour of assessee in assessee’s own cases.

Hence, Ground Nos.1 to 11 are sustained. Ground No.12 and 13 are consequential while ground No.14 stands dismissed as not pressed. Accordingly, the appeal of the assessee is allowed.