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Income Tax Appellate Tribunal, DELHI BENCH ‘I’, NEW DELHI
Before: SH. N. K. BILLAIYA & SH. ANUBHAV SHARMA
This appeal by the assessee is preferred against the order dated 24.08.2012 framed u/s. 143 (3) r.w.s. 144 C (13) of the Act.
2. The revised grounds of appeal read as under :-
“The addition amounting to INR 22,618,798 undertaken by the Learned Deputy Commissioner of Income-tax, Circle 10 (1), New Delhi (the Ld. AO) vide final assessment order dated August 24, 2012 (received by the Appellant on August 29, 2012) passed under section 143 (3) read with section 144C (13) of the Income Tax Act, 1961 (the Act) is not in accordance with the law and therefore not sustainable. Transfer Pricing ("TP") Adjustment - INR 22,648,798 That the Hon'ble Dispute Resolution Panel (DRP), New Delhi has erred both in law and on facts by summarily rejecting the Appellant's objections to the draft order dated November 24, 2011 passed by the Ld. AO under section 143(3) read with section 144C(1) of the Act. The Hon'ble DRP while issuing directions under section 144C(5) of the Act did not consider the facts and merits of Appellant's objections to the proposed adjustments, and merely relied on the reasoning given by the Additional Commissioner of Income-tax, Transfer Pricing Officer-1 (2) vide order under section 92CA(3) of the Act dated October 31, 2011 without due application of mind and without affording a reasonable opportunity of being heard in the matter to the Appellant on the following grounds:
1. By summarily rejecting/disregarding the comparability analysis without giving any cogent basis and without demonstrating the inadequacy or infirmity in the economic analysis so conducted by the Assessee. In this regard, the Ld. TPO erred in demonstrating correctness of the presumption/hypothesis so framed to reject the comparability analysis of the Assessee and has accordingly misconstrued the provisions of Section 92C (3) (c) of the Act.
By substituting the comparability analysis conducted by the Assessee for its software development services and BPO services function with a fresh comparability analysis based on his own conjectures and surmises.
3. By misconstruing Rule 10B (1) of the Income Tax Rules, 1962 (Rules) and its applicability on the facts and circumstances of the case. In this context the Ld. TPO has erred in disregarding independent legal status accorded to an overseas branch of an Indian company in view of the provision of clause (iii) of Section 92F of the Act. 4. By using data called pursuant to issuance of notice under Section 133(6) of the Act which was not available to the Assessee at the time of maintenance of Transfer Pricing Documentation. 5. By not providing the complete information which was called pursuant to issuance of notice under Section 133(6) of the Act and by conducting the assessment based on unfair analysis. 6. By misconstruing the functional and risk profile of the Assessee and by not allowing risk adjustments. 7. By selecting comparable having dissimilar functional profile vis-à- vis the Assessee. 8. By applying the wages-to-sales ratio based upon conjectures and surmises and further, applying an arbitrary filter of 25 percent without following a cogent economic basis and without establishing any statistical veracity of the presumption/ hypothesis framed. Further, the Ld. TPO has also erred by juxtaposed application of two or more methods to conclude a single benchmarking analysis as application of wages-to-sales screen tantamount to adoption of the cost-plus method.
9. By changing the computation methodology by misconstruing certain line items as operating/ non-operating which represents an unjustified approach.
By relying upon data of the comparables for financial year 2007- 08 only for determination of the arm's length price, disregarding the multiple year data approach followed by the Assessee. 11. By relying upon updated data of the Comparables which was not available to the Assessee at the time of maintenance of Transfer Pricing Documentation within the time- frame mentioned in Rule 10D(4) of the Rules. 12. By not allowing appropriate comparability adjustment on account of risk of the comparable companies for the purpose of comparison with the results of the Assessee. 13. By not appreciating that there was no intention whatsoever on the part of the Appellant to shift profits outside India by under- reporting revenue since the Appellant was eligible to claim 100 percent of such profits as tax exemption under section 10A of the Act.”
Briefly stated the facts of the case are that the assessee company is involved in the business of BPO and Technology Development Services, Human Resource Consultancy and Human Resources Outsourcing Service.
During the course of the scrutiny assessment proceedings the AO noticed that the assessee has international transactions for which it filed form No.3CEB as per provisions of section 92E of the Act relating to international transactions. Since the total transactions were excess of Rs.5 crores. The case was referred to the TPO and the TPO vide order dated 31.10.2011 proposed an addition of Rs.440638092/-.
Objections were raised before the DRP and the DRP vide order dated 13.06.2012 dismissed the objections and pursuant to the order of the DRP the final assessment order was framed by making addition of Rs.440638092/-against which the assessee is in appeal before us.
The Transfer Pricing Adjustment comprises of two parts (i) TP adjustment – US Transactions Rs.417989294/- (ii) TP adjustment – non US Transactions Rs.22648798/- Rs.440638092/-
While hearing the Counsel, Bench came to know that the associated enterprise of the assessee in the USA filed an application under mutual agreement procedure (mAp) with the competent authority of the US under article 27 of the India US- DTAA and the settlement has been arrived at between the competent authority of India with respect to the adjustment on account of Transfer Pricing issues relating to the US transactions.
The DR vehemently stated that the same treatment should be given to the non US transactions as there is no difference in FAR of US transactions and non US transactions.
The Counsel vehemently objected to this contention of the DR stating that it is the appeal by the assessee and the revenue cannot raise any additional plea.
10. The DR stated that he is raising the issue under rule 27 of the ITAT rules to which the Counsel placed strong objections.
We have given a thoughtful consideration to the rival submissions. It is true that this is an appeal by the assessee but it is equally true that the other party i.e. the revenue can raise issue under rule 27 orally as settled by the Hon’ble Jurisdictional High Court of Delhi in the case of Sanjay Sahney 316 CTR 392 and respectfully following the same the oral request of the DR is accepted.
It would be better to refer to the settlement arrived between the competent authority of India and the competent authority of USA to resolve the cases relating to Hewitt India for A.Y. 2006-07 to 2010-11 by adopting the values relating to US related international transaction as below :-
The assessee vide letter dated 26.12.2017 gave its acceptance as under:-
In the light of the above we have no hesitation to direct the AO / TPO to adopt the same approach for the non US transactions as adopted in the MAP for US transactions and determine the TP adjustment, if any, after affording a reasonable and sufficient opportunity of being heard to the assessee. For this proposition we draw support from the decision of the Hon’ble High Court of Bombay in the case of J.P. Morgan Services India Private Limited 105 taxmann.com 40. The relevant findings read as under :-
“2. For convenience, we may record facts from Income Tax Appeal No.4/2017. The Respondent-Assessee is a private limited company. In the return of income-tax filed by the assessee for the assessment year 2007- 2008, the question of determination of Arm's Length Price of the transaction entered into by the assessee with its international Associated Enterprises came up for consideration. The Assessee has 96% of its such transactions with its US based associated enterprise. The rest of the transactions are non-US based transactions. In relation to the US based transactions, the Government of India and that of United States of America entered into a Mutually Agreed Procedure for determining the tax to be levied in the two countries in relation to such transactions. This Mutually Agreed Procedure culminated into an order being formally passed in this regard. When it came to the question of determining the Arm's Length Price of assessee's similar transactions, which were non-US based, the tribunal by the impugned judgment, applied the same parameters and determined the Arm's Length Price on the basis of determination contained in MAP in relation to US based transactions. This approach of the tribunal has given rise to the present Appeals.
3. The main contention of the Department is that the MAP is a non- adjudicatory process and therefore the culmination of such process cannot be automatically projected for determination of Arm's Length Price in terms of section 92C of the Act, where no such agreement has been arrived at. The case of the assessee on the other hand is that in the present case the tribunal has not automatically lifted parameters laid down in the MAP. Firstly, the MAP itself has been drawn after detail consideration of the Arm's Length Price. In absence of any material difference between the US based transactions and assessee's non-US based transactions, the revenue cannot raise any such objection to approach adopted by the tribunal.”
In the light of the above the issues restored back to the AO / TPO to be decided afresh as direct here in above.
In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 20.12.2023