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Income Tax Appellate Tribunal, DELHI BENCHES : I : NEW DELHI
Before: SHRI NARENDRA KUMAR BILLAIYA & SHRI ANUBHAV SHARMA
ORDER
PER ANUBHAV SHARMA, JM:
The appeal is preferred by the Assessee against the order dated 27.03.2014 of the Commissioner of Income Tax (Appeals)-XX, New Delhi, (hereinafter referred to as ‘the Ld. First Appellate Authority or in short as ‘ the Ld. ‘FAA’) in appeal No.88/2013-14/CIT(A)-XX arising out of an appeal before it against the order dated 28.12.2006 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the ITO, Ward-2(1)(3), Mumbai (hereinafter referred to as ‘the Ld. AO’).
2. Heard and perused the record.
It was pointed out by the ld. AR that an application for admission of additional evidences has been filed under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, the copy of which along with copies of the documents stands supplied to the opposite party. The ld. DR submitted that the arguments should first be heard on the admission of evidence and consequently the arguments on merits should be heard. We find force in the submissions of the ld. DR as in case the additional evidence is allowed, the matter will certainly have to be restored to the TPO and, accordingly, the arguments on the application of the appellant assessee for admission of additional evidences were heard.
The ld. counsel for the applicant-assessee submitted that in the present AY, being first year, the assessee had erroneously considered the comparable companies engaged in ‘financial and leasing services’ (hire purchase and leasing services, investment services, other financial services, other consultancy services) to benchmark the subject international transaction instead of considering comparable companies engaged in providing ‘business support services’. It was submitted that during the assessment proceedings, the TPO had also adopted the comparables of the same segment. 2 4.1 The ld. counsel has taken the Bench through various clauses of the transfer pricing report indicating the functional profile of the assessee and submitted that in fact, the services being rendered were in the nature of marketing or business support services and not of the nature of financial advisory services. 4.2 He submitted that in AY 2008-09, the assessee company had corrected its course of benchmarking to benchmarking on the basis of comparable companies engaged in providing business support services and, accordingly, the TPO had also considered the comparable companies engaged in providing business support services. It was followed in AY 2009-10 and 2010-11 by both the assessee and the TPO. 4.3 It was stated by the ld. counsel for the assessee that there has been no change in the facts and circumstances of the applicant’s business, functions and risks analysis from initial AY 2004-05 to 2019-20. 4.4 The ld. counsel submitted that the applicant has made a fresh exercise of identifying companies comparable to the functions actually performed and new set of companies were identified as comparables. The ld. counsel, accordingly, submitted that the additional evidences in the form of results of the five companies which are comparables to the functions performed by the assessee be accepted and the issue be restored to the file of ld. TPO.
The ld. DR has, however, opposed the same. It was submitted that this application for filing additional evidence in the form of fresh study/new list of 3 comparable companies have been filed after seven years from filing of appeal before ITAT and about 17 years from the completion of financial year 2003-04. It was submitted that the assessee is trying to take advantage of the subsequent assessments made by the TPO/AO from 2007-08 onwards. In written submission, the ld. DR submitted that as the assessee’s contention when considered vis-à-vis its financial and TP Study Report it submitted at the time of original assessment, the following functional profile emerges out on the perusal of the financials/TPSR:- “(1) The assessee is part of the AMEX group and the business profile is mentioned in TPSR at para 1.2.1 page 153 /paper book volume 1 is reproduced below:- 1.2.1 American Express is a transnational group founded in 1850 in New York. It covers a global network of more than 130 countries and caters to individuals, small businesses and financial education services. The American Express Group (Amex Group) is primarily engaged in travel- related services, financial advisory services and international banking services around the world. Also the business profile of the assessee company, as mentioned, at para 2.3.6 at page 157/paper book is mentioned below:- 2.3.6 In September, 2003, in order to avoid any duplication of efforts between itself and its wholly owned subsidiary AEFESIL, AESIL discontinued its foreign exchange line of business. AESIL aims at being a leading distributor of retail financial products by offering a comprehensive product range, and is conducting its business through a combination of owned and third party distribution networks. It presently markets products (Consumer cards and installments loans) of American Express Bank Ltd. The details about the business operation of the assessee company in the financials/Directors report, as mentioned in page 217 /paper book is reproduced below:- Business Operations At the close of working hours of 1st September, 2003, your Company had discontinued the foreign exchange line of business. Consequent t the discontinuation of the foreign exchange business, your Company decided to write off intangible assets (exceptional items) related to the foreign exchange business, as mentioned in the Profit and loss Account, resulting in a loss amounting to Rs. 1818.16 lakhs for the financial year ended 31st March, 2004. With effect from 1st December, 2003, your Company commenced the business of marketing and distribution of third party financial products. Your company is pleased to record a total income amounting to Rs. 1267.88 lakhs from the new business for the period from Is' December, 2003 to 31s' March, 2004. This had resulted in net profit of Rs. 90.73 lakhs for the year ended 31s' March, 2004, from the new business. The net loss recorded by your Company for the year ended 31s' March, 2004, therefore, amounted to Rs. 1727.43 lakhs. Based on the performance of the new business during the period ended 31s' March, 2004, your Company has a positive future outlook. Your Company aims at being a leading distributors of retail financial products by offering a comprehensive products range, and is conducting its business through a combination of owned and third party distribution networks. It is presently the key distributor of products of American Express Bank Ltd. viz Consumer Cards and Installment Loans across five cities in India. Your Company has also received the broker code for distribution of mutual funds. The assesse has utilized two data banks i.e. Prowess and Capital line for taking out financially comparable companies. The selection process/filters adopted by the assessee company in Prowess at page 179 is reproduced below:- 4.12.29. We started with a universe of 7,957 companies in Prowess updated as of February 16, 2004. To identify comparables engaged in marketing of financial products, to start with, we selected companies classified under ‘ Financial and leas services’ and ‘Business services. 4.12.30. This search listed 511 companies30. From this broad set, we selected companies falling under the main headings of financial and leasing services’ and ‘Business services’ and those falling under the following specific sub-types: • Hire Purchase and leasing services • Investment service • Other financial services • Other consultancy • Business activity nec. Also the selection criteria/filter applied by the asssessee company in another software called Capital line given at page 183 is also reproduced below:- iv. Selection process from Prowess We extracted segmental financial data from prowess (402 companies having segmental data) using the industry classification query module as given in Prowess, and selected those segments (of companies), which were classified under the ‘Services ’ industry. This resulted in 203 segments. Further, from the aforesaid, the following sub industry classification were selected: • Financial &; Leasing services • Companies classified under Financial Consultancy services, Other consultancy and Business activity nec, all of which fall under the sub-type of Business Services. Based on the search conducted by the assessee company from two data banks, the assessee has come up with this comparable companies and the brief financial profile of these companies, as mentioned by the assessee in TPSR at page 204 is mentioned below:- Appendix F: Business Description of Comparable Companies 1. Geojit Financial Services Ltd. The company is into stock broking and distribution of financial products.
Integrated enterprises (India) Ltd. The company is engaged in the business of mobilizing of financial products.
3. Keynote Corporate Service Ltd. The Company is engaged in handling assignments of takeovers, managing the rights issues of few corporates and also concentrated on other non-fund based activities such as loan syndication, corporate advisory services.
4. SKP Securities Ltd. The company is into broking and distribution of mutual fund products.
5. V C K Capital Market Services Ltd. The company is into retails mobilization of mutual fund products.
5.1 Thus, it was submitted by the ld. DR that the aforesaid establish that the business profile of the assessee group is clearly the company which is dealing in financial advisory services/selling of financial product only. Right from the business profile of the assessee company group to the selection of the comparable companies, it is clearly mentioned that the entire American Express group is dealing mainly in the financial products/advisory services and assessee company is also working in the field of finance service advisory/financial insurance, mutual funds business. Accordingly, it can safely concluded that the assessee company is dealing with only one segment of financial service/selling of financial products and it has been rightly characterized by assessee company, itself, on as dealing in financial advisory services and after examining it, its business profile was duly accepted /approved by the TPO/DRP. Thus there is no basis in the assessee contention that it is basically a market/business support service provider and it is respectfully submitted that the so called, second TP search criteria, done after considerable period of time is nothing but to mislead the Hon'ble Tribunal because the assesseee financial/TPSR clearly makes it a company dealing in financial advisory services and selling of financial products. The assessee has only stated that as in subsequent years its profile was accepted as a different profile by authorities then it should be allowed to undo the activities/functional profile decided by the assessee itself/TP expert /department for earlier years , which cannot be permitted. 5.2 Coming to the power of the Tribunal to admit additional evidence, it was submitted that the Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 allow the additional evidence to be admitted only in two circumstances and otherwise the parties are restrained from filing additional evidences. It was submitted that the Tribunal can accept the additional evidences only if: (i) the Tribunal required these documents for evidences at its own instance or (ii) if the income-tax authorities have decided the case without giving sufficient opportunities to the assessee. It was submitted that both the conditions are not satisfied. In this regard, the ld. DR relied on the Tribunal decision in the case of Kanniappan Murugadoss vs. Income Tax Officer, Non Corporate Ward- 7(4), Chennai, 79 taxmann.com 244/164 ITD 260 (Chennai Tribunal 2017); judgement of the Hon’ble Bombay High Court in the case of CIT vs. Smt. Kamal C. Mahboobbani, 81 taxmann 311 (Bom)/214 ITR 15 (Bom); judgement of the Hon’ble Delhi High Court in the case of CIT vs. Tax Hundred India Pvt. Ltd., 239 CTR 263; and the judgement of the Hon’ble High Court of Gujarat in the case of Fairdeal Filaments Ltd. vs. CIT, 302 ITR 173 (Guj). On the basis of these decisions, the ld. DR submitted in written submissions that:
(i). The Tribunal powers to admit additional evidence are highly limited. In fact the Rule 29 is couched in negative language, as it does not confirm any right on the parties to produce additional evidence before the Tribunal, in fact it is the opposite i.e. it takes away the right to file additional evidence during appellate proceedings. (ii). The Tribunal may accept the additional evidence only if (Tribunal) on its own volition require any document to be produced, witnesses to be examined only if it thinks that additional evidence will be necessary to do substantial justice in the case. (iii). The assesee has to prove that the Income Tax authority have decided the case without giving sufficient opportunity or assessee is prevented by sufficient cause to lead such evidence before the lower authority. (iv). The Rule 29 does not enable an assessee or the department to tender fresh evidence or to make out a new case. Also the Rule 29 is not to allow litigants to patch up the weak parts of the case and fill up the omissions because of which he was unsuccessfully in lower courts. (v). The admission of additional evidence does not depend on the relevancy or materiality of the evidence. Also, it is not important how much vital and important the evidence is because these are the factor which cannot create /provide a basis for substantial cause. (vi). The Rule 29 is not available to a person who is negligent, non cooperative and recalcitrant before the lower authorities. (vii). By admitting additional evidence on routine basis the Tribunal are not required to give another chance or opportunity to a person to cover up its lapses before the lower authority.
5.3 Concluding his argument, the ld. DR submitted that: A. By way of making application for additional evidences, the asseeessee company is trying to bring fresh/new facts in the case which were not present during the time of original assessment. The so called additional evidence is result of a fresh search process conducted by the assessee/ its TP study report, which is based on the results of the subsequent assessments conducted in the case of the assessee company. The so called additional evidence is mainly created/fabricated by the assessee to somehow give post facto approval/validation to the comparable companies and the benchmarking process adopted by it. This additional evidence was not in existence earlier and it is clearly a case of bringing in fresh/ fabricated evidence to make out a new case .
B. The assesse was unsuccessful before the lower authorities and to cover up the weak part/lacuna in his case, he is bringing freshly created evidence which was not there at the time of original assessment. The assessee is part of the Amex group which has operations in more than 130 countries with revenue in billion in dollars. The assessee company employs best of the brains/Chartered Accountants, financial expert etc. and after a detailed discussion with their Transfer Pricing Expert they have prepared a TP Study report mandated as per Income Tax Act and now they are trying to negate it by creating a fresh TP report which they are not permitted to do under the provision of Income Tax Act. The assessee company again cannot be called a negligent or ignorant person and by way of fabricated new evidence they cannot be granted another chance or opportunity at the Appellant Tribunal level to scuttle the process of law. C. Thus if in the case of assessee, an application of additional evidence is allowed then it will be from the difficult to bring finality in the completed cases because every person who is unsuccessful at the lower stages will try to create/fabricate new evidence which is in total diversion/opposite to the TPSR prepared by assessee /independent TP experts during the original assessment level. Thus it is humbly requested that the assessee 11 application for evidence for filing of additional evidence observes to be rejected. D. Further, it is humbly submitted that in the instant case the additional evidence has been filed by the assessee itself and not on the directions of the Hon’ble Tribunal. Also as held by Hon'ble Supreme Court in the case of Union of India vs. Ibrahim Uddin (2012) 8 SSC 148 it is held that the additional evidence can be taken on record if it is required for pronouncing the judgment or for any other substantial cause. It is humbly submitted that in the instant case both the conditions are not met as neither the tribunal is at the stage of pronouncing the judgment nor there is any other substantial cause as highlighted by the Hon'ble Tribunal. Accordingly in this case there is absolutely no reason for the Hon'ble Tribunal to admit the additional evidence because as discussed in detail in the above paras, the additional evidence in the case is nothing but creation/fabrication of new evidence by assessee to somehow scuttle the process of law and give legitimacy to the wrong ALP determined by it at the time of original assessment.
We have considered the facts and circumstances canvassed before us for admitting the additional evidences. The first thing that comes up is that the ld. DR does not dispute that in the subsequent years after AY 2008-09, the TPO has 12 changed the search of comparable companies from ‘financial and leasing services’ to companies engaged in ‘providing business support services’ and the consistent approach thereafter till AY 2019-20 is to examine the benchmarking done by the assessee on the basis of comparable companies engaged in providing business support services.
Then ld. DR has tried to argue that segment of assessee has been financial services/ selling of financial products only but he could not cite that there was any change in the functional profile of the assessee from AYs 2004-05 to 2007- 08 and onwards and that in present year comparables were rightly taken and subsequently rightly changed. 7.1 In this context we find that Section 92CA(3) rests obligation on TPO to determine the arm’s length price in relation to the international transaction in accordance with sub-section (3) of section 92C. This exercise at one end is to accept or discredit the TPSR of the assessee on the other hand obliges the TPO to make an independent enquiry of his own on the question of determination of ALP. The point is that in present AY the TPO accepted the comparables of segment taken by assessee without questioning if the assessee was right in taking up comparable of segment financial services/ selling of financial products however in same set and scope of business activity and model when accepted in AY 2008-09 onwards the assessee’s changed stand with comparables of different segment of ‘business support services’. Thus the comparables of segment AY 2008-09 onwards are binding on the TPO and if 13 those are accepted the whole TPSR becomes defective and that causes prejudice to both the parties. In any case, if additional evidence of fresh TPSR on new set of comparables is allowed, the TPO will still have a right to not consider the same and allege that in present AY the comparables of right segment were taken.
Now coming to the question of admissibility of additional evidence we are of the considered view that Rule 29, bars the right of parties to the appeal to produce additional evidence either oral or documentary. However, if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders, the additional evidence can be called for. Further the Rule 29 provides that for ‘any other substantial cause’ also the Tribunal can allow the additional evidences. The decision of the Delhi Bench ‘F’ in the case of UOP LIC v Additional Director of Income- tax, International taxation, Circle 2(2) New Delhi (2007) 108 lTD 186 is relevant where in para 30 it is observed; “30. It is a settled position that production of additional evidence at the appellate stage is not a matter of right to litigating public and allowing of production of additional evidence is in the discretion of the Tribunal. The said discretion, however, is to be exercised judicially and not arbitrarily. As held by Hon’ble Madhya Pradesh High Court in the case of CIT V. Kum. Satya Setia (1983) 143 ITR 486, it is within the discretion of the appellate authority to allow production of additional evidence if the said authority requires any document to enable it to pass orders or for any other substantial cause. The Tribunal is the final fact finding body under the scheme of the 14 Income Tax Act, 1961 and powers, therefore, have necessarily to be exercised by it for deciding the questions of fact. While exercising its powers, if the Tribunal is of the opinion that additional evidence is material in the interest of justice for deciding a particular issue, its discretion cannot be interfered with unless it has been exercised on non existing or imaginary grounds..”
Further more the powers of the Tribunal are restricted in a scope, under Rule 29, but, at the same time, these powers have to be read in consonance with section 254(1) of the Act which gives the Bench hearing the appeal, the power to pass ‘such orders thereon as it thinks fit’. This makes the discretion and power of Tribunal under Rule 29 to be quiet wider and majestic than one available to CIT(A) under Rule 46A or even to appellate Civil Courts under Order 41 of Rule 27 of CPC.
So here in the case in hand the facts and circumstances establish that either both TPO and the assessee or the TPO only hand failed to take comparables of correct segment. Thus, there is force in the contention of the ld. counsel for the assessee that both the assessee and TPO were mistaken on facts of the functional profile of the assessee to consider comparables engaged in ‘financial and leasing services’ instead of ‘business support services’. Hence at the end, before us, neither the assessee nor the Revenue can completely justify the comparables accepted by them.
Further, the assessee has sought indulgence of the Bench to allow the additional evidences of new set of comparables, but, the same require verification as the whole exercise has to be done again by the TPO who has right to rebut the same. Thus, the question of admissibility of these evidences as to the assessee had opportunity to lead this evidence at the first instance or that the assessee has created this evidence subsequently is not of much consequences. The evidence is from the contemporary data of relevant AY only so there is no question of assessee taking advantage of subsequent facts or something created by assessee ex post facto. The nature of fresh set of comparables require a fresh look into all the issues, substantially and incidentally involved due to erroneously taking comparables of wrong segment by both the assessee and the TPO.
So the proposition of law as relied by Ld. DR are not applicable to the facts and circumstances before us as in none of the cases cited there was a question of fact involved that may be even the lower revenue authority had fallen in error to rely an incorrect set of evidences of the assessee. The question of delay in filing of additional evidence is not of any consequence unless a malafide is alleged and established, which is not the case here.
Thus, we are inclined to allow the application of the assessee. Accordingly, impugned final assessment order is set aside and the TPO is directed to accept the fresh evidence and report of the assessee for the purpose of Section 92C of the Act r.w. Rule 10B of the Income-tax Rules, 1962 and, after giving further opportunity of hearing to the assessee pass a fresh order. The assessee will be at liberty to raise further incidental issues afresh before the 16 TPO/AO. In the result, the appeal of the assessee be considered allowed for statistical purposes.