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Facts
Benetton India Pvt. Ltd., a subsidiary engaged in garment manufacturing and sales, filed appeals against TPO adjustments for AY 2017-18 and AY 2010-11 concerning various international transactions. These adjustments included royalty payments, reimbursement of advertisement, IT, and HR costs, and market support services. The TPO generally rejected the assessee's CUP method, applying TNMM or determining Arm's Length Price as NIL, which was challenged by both parties.
Held
For AY 2017-18, the Tribunal largely upheld the assessee's CUP method for royalty, remanding a part for fresh determination on the advertisement component. It ruled that the TPO lacked *locus-standi* to question commercial expediency for cost reimbursements (advertisement, IT, HR), deleting those adjustments based on consistent past rulings. For AY 2010-11, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of adjustments for royalty and reimbursements, and largely upholding the CIT(A)'s comparable selection methodology for market support services, directing re-computation for that segment.
Key Issues
Whether royalty payments, reimbursement of advertisement/IT/HR expenses, and market support services were at Arm's Length Price; choice between CUP and TNMM benchmarking methods; validity of TPO questioning commercial expediency of expenses; and the appropriate selection of comparable companies for transfer pricing analysis.
Sections Cited
143(3), 144C(13), 143(3A), 143(3B), 144B, 92CA(1), 92CA(3), 270A(1), 115JB, Rule 10B(2), Rule 10B(1)(e)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, [ DELHI BENCH: ‘I’ NEW DELHI ]
Before: SHRI G. S. PANNU & SHRI YOGESH KUMAR U.S.Shri Deepak Chopra, H. S. Ajmani, Sh. Shri Mahesh Shah,
per the Annual Report of APITCO Ltd., it is evident that it is engaged in
provision of various services and not products.
The ld. AR submitted that APITCO Ltd is a government-controlled
company engaged in diversified services. He relied on the judgments of Hon’ble
Delhi High Court in Philip Morris (ITA No. 1468 of 2018) and various
judgments of coordinate benches which have held that APITCO Ltd. be
excluded as a comparable.
We have heard the rival arguments. APITCO Ltd. is a government
company set up for specific government purposes. It provides diversified high
end technical services, that are different in nature than the support services.
Further, this company has been consistently excluded on the basis of
functional comparability by the coordinate benches and the exclusion is upheld
by the Hon’ble High Court. Therefore, we agree with the contention of the
assessee and uphold the decision of the ld. CIT(A) to exclude this company
from the list of comparables.
HCCA Business Services Pvt. Ltd.
The TPO included HCCA Business Services Pvt. Ltd as it is engaged in
provision of business/market support services and clears all the filters set by
him. The ld. CIT(DR) submitted that the assessee excluded the company in its
29 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon
TP Study due to insufficient information and the audited financials were
available at the time of the TPO’s order. He further submitted that there is
negligible impact of owning intangible assets as the assessee does not use
these assets in provision of services.
The Ld. AR objected to the company’s inclusion as it owns significant
amount of intangibles in the form of business and commercial rights. He also
contended that it is functionally not comparable as it provides HR services.
We have heard the rival arguments. We find that the comparable company
HCCA Business Services Pvt. Ltd. has total fixed assets to the tune of
Rs. 6.27 Cr. As per Schedule-D of fixed assets out of the same, business and
commercial rights are of Rs. 3.75 Cr. and Computer software is of Rs. 1.15 cr.
This highlights the difference in the asset holding of the assessee company vis-
a-vis comparable company. Further, it is observed that the comparable
company has claimed software development cost of Rs. 1.5 Cr. during financial
year 2008-09. This shows that the company has a dependency on the
technology to deliver the functions. Since the functions performed by the
comparable are dependent on the technology and are therefore, not comparable
with the tested party. Accordingly, HCAA is not a good comparable in this
case. This in view of the proposition of ‘functional similarity’ laid down by the
Hon’ble Delhi High Court in the Rampreen Green Solutions. In view of above,
we do not find any infirmity in the action of the Ld. CIT(A), hence, we uphold
the same.
30 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon
Quippo Valuers and Auctioneers Pvt. Ltd
The TPO included Quippo Valuers and Auctioneers Pvt. Ltd as it is engaged
in provision of selling services, does not have significant material costs and
clears all the filters set by him. The ld. CIT(DR) relied on the order of the TPO.
The Ld. AR objected to the company’s inclusion as it is functionally not
comparable being an appraiser and auctioneer for construction equipment. He
also relied on the decision of the Coordinate Bench in Adidas Technical
Services Pvt. Ltd vs. DCIT (ITA No.1233/Del/2015).
We have heard the rival arguments. The services provided by Quippo
Valuers and Auctioneers are in the nature of valuation and auctioning, which
are different from the assessee. Further, this company has been excluded on
the basis of functional comparability by the Coordinate Bench in Adidas
Technical Services Pvt Ltd vs. DCIT (ITA No.1233/Del/2015). Therefore, we
agree with the contention of the assessee and uphold the decision of the ld.
CIT(A) to exclude this company from the list of comparables.
T S R Darashaw Ltd
The TPO included T S R Darashaw Ltd as it is engaged in provision of
business support services and clears all the filters set by him. The ld. CIT(DR)
31 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon
relied on the order of the TPO and submitted that the segmental accounts of
the company are available.
The ld.AR objected to the inclusion of the company on the ground that it
acts as a depository and share registrar. He also relied on the judgments of
Hon’ble Delhi High Court in Philip Morris (ITA No. 1468 of 2018) and various
judgments of coordinate benches which have held that T S R Darashaw Ltd. be
excluded as a comparable.
We have heard the rival arguments. TSR Darashaw Ltd provides
registrar and transfer agent services, records management services and payroll
and trust fund services. All these segments are functionally different from the
marketing support activities performed by the assessee. Further, this company
has been consistently excluded on the basis of functional comparability by the
coordinate benches and the exclusion is upheld by the Hon’ble High Court.
Therefore, we agree with the contention of the assessee and uphold the
decision of the ld. CIT(A) to exclude this company from the list of comparables.
India Tourism Development Corporation Ltd (ITDCL).
The TPO excluded ITDCL as it is functionally different from the assessee.
The ld. CIT(DR) submitted that as per the segmental results of the company
provided in the Annual Report, the “ARMS” Segment is unidentifiable.
32 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon
The ld. AR relied on the order of the ld. CIT(A) which seeks inclusion of
this company if the segmental results of Ashok Reservation and Management
System (“ARMS”) are available.
We have heard the submissions of both the parties. ITDCL is a
government company engaged in operation of hotels, restaurants, shops and
also earns revenue from consultancy and ticketing systems. The TPO has
observed that the functions performed by ARMS are close to the functions
performed by the tested party. The segmental data is available at Page No. 78
of the Annual Report, therefore, ARMS segment of ITDC is a good comparable
with the tested party. Therefore, in this background, in our considered view,
the Ld. CIT(A) has rightly directed the AO to include ITDS (ARMS segment) as a
good comparable if the assessee provides the segmental financial results for
benchmarking analysis. In view of above, we do not find any infirmity in the
action of the Ld. CIT(A), hence, we uphold the same.
Overseas Manpower Corporation Ltd.
The TPO excluded Overseas Manpower Corporation Ltd. from the list of
comparables as it was an employee placement agency and has diminishing
revenue. The ld. CIT(DR) submitted that the ld. CIT(A) was factually incorrect in
observing that the TPO did not question the functional comparability of the
company.
33 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon
The ld. AR relied on the order of the CIT(A) which directed inclusion of the
company as the TPO did not question the functional comparability.
We have heard the rival arguments. We find that the stand taken by the
TPO to reject the comparable is not in conformity to the judicial precedent, as
held by the Hon’ble Delhi High Court in the case of Chryscaptial Investment
Advisors (India) Pvt. Ltd. vs. DCIT (ITA No. 417/2014) wherein, the Hon’ble
High Court has held that the company cannot be rejected merely on account of
wide fluctuation in margin (profit/loss) if it is otherwise comparable. It is noted
that Ld. CIT(A) has observed in his finding that TPO has nowhere questioned
the functional comparability aspect, and therefore, observed that Overseas
Manpower Corporation Limited is a good comparable and directed the AO to
include it in the final matrix of comparables. In the background of the
aforesaid, we do not find any infirmity in the action of the Ld. CIT(A), hence, we
uphold the same.
ICRA Management Consulting Services Ltd
The TPO excluded ICRA Management Consulting Services Ltd. as it is
classified as a management consultant. The ld. CIT(DR) submitted that the
company offers professional services, not similar to the assessee.
The ld. AR submitted that the TPO has accepted the comparable in the
preceding and succeeding years.
34 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon
We have heard the rival submissions. The TPO/AO included the company
as a comparable in AY 2009-10, AY 2011-12 and AY 2012-13. In the current
year, no different facts were brought on record. Therefore, no difference is
warranted in its treatment. Following the principle of consistency, we agree
with the contention of the assessee and uphold the decision of the ld. CIT(A) to
include this company in the list of comparables.
In view of above, the TPO/AO is directed to give effect and re-compute the
arm’s length price for the marketing support services segment. Accordingly,
the Ground No. 3 of the Revenue is dismissed.
The Grounds No. 4 and 5 of the Revenue are general in nature which
requires no adjudication.
In the result, the appeal of the Revenue in ITA No. 7389/DEL/2017 is
dismissed.
Order pronounced in the open court on : 24/ 07/2024.
( G. S. PANNU ) (YOGESH KUMAR U.S.) VICE PRESIDENT JUDICIAL MEMBER Dated : 24/07/2024
*R.N* Sr. PS
35 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon