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Income Tax Appellate Tribunal, DELHI BENCH: ‘I’ NEW DELHI
Before: DR. B. R. R. KUMAR & SH. YOGESH KUAMR U.S
ORDER SH. YOGESH KUAMR U.S, JM This appeal is filed by the assessee against the order dated 30.03.2021 of the ITO, National E-Assessment Centre, Delhi for assessment year 2016-17.
2. The ground of appeal are as under:-
1. That on facts and circumstances of the case and in law, the AO erred in assessing the income of the Appellant under the normal provisions of the Act at INR 1,45,83,61,480, in pursuance to the directions of the Dispute Resolution Panel ("DRP"), as against the returned income of INR 75,52,83,580.
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT
That on the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer ("AO") is bad in law and void ab-initio.
3. That on the facts and in the circumstances of the case and in law, the AO has erred in making a reference to the Transfer Pricing Officer ("TPO") by not appreciating that such a reference suffers from jurisdictional error as no reasons have been recorded in the assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the TPO for computation of the arm's length price ("ALP"), as is required under Section 92CA(1) of the Income Tax Act, 1961 ("Act").
4.That on the facts and in the circumstances of the case and in law, the AO / DRP / TPO have erred in making an adjustment of INR 70,30,77,902 on account of international transaction of receipt of intra-group services from Associated Enterprises ("AEs") alleging that it does not satisfy the arm's length principle and the Appellant has not been able to demonstrate the need, benefit and rendition of such services; and in doing so have grossly erred in:
4.1. Not appreciating that the intra-group services received by the Appellant were intrinsically linked to the business operations/ segments of the Appellant, i.e. Self- Adhesive Materials ("SAM") and Retail Information & Branding Solutions ("RBIS");
4.2. Not appreciating the business model of the Appellant and rejecting the Appellant's economic analysis of benchmarking closely interlinked transactions using Transactional Net Margin Method ('TNMM') and arbitrarily applying Comparable
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT
Uncontrolled Price ("CUP") method only to a fragment of services;
4.3. Failing to appreciate that the services received from the AEs are part of a package of composite agreements which cannot be unbundled, especially when the DRP / TPO have accepted the bundled approach for a segment of services;
4.4. Ignoring documents, cost allocation methodology and analysis provided by the Appellant and placing reliance on previous year's conclusion that the services availed by the Appellant from its AE were in nature of 'duplicate' and "shareholder" services which have not conferred any commercial benefit upon the Appellant.
4.5. Not appreciating that the DRP / TPO cannot question the commercial wisdom of the Appellant and the benefit received by the Appellant from the receipt of intra-group services and can only ascertain the arm's length price payable for such services;
4.6. Not appreciating that the DRP / TPO, while applying CUP method failed to apply any comparable uncontrolled transaction price/ data for computing the arm's length price for the intra-group services received by the Appellant;
4.7. Not appreciating that even at a transactional level, the margin earned by AEs from provision of intra-group services were at arm's length;
4.8. Not appreciating the fact that since the Hon'ble Tribunal in the earlier years has accepted the need and benefit test for the S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT intragroup services, the arm's length price of the said intragroup services cannot be assumed to be Nil and the adjustment made ought to be deleted;
4.9. Ignoring the decisions of the Hon'ble High Court and the Hon'ble Tribunal for earlier assessment year(s) wherein transfer pricing adjustment on account of intra group services has been deleted.
5. That on the facts and in the circumstances of the case and in law, the education cess ("EC") and higher and secondary education cess ("SHEC") on income-tax is an allowable expenditure for computing total income as per the provisions of the Act.
6. That on the facts and in the circumstances of the case and in law, the AO has erred in levying interest under section 234B and 234C of the Act.
That the above grounds are independent and without prejudice to each other.”
Brief facts of the case are that, the Assessee Company is a subsidiary of Avery Dennision (India) Pvt. Ltd. Corporation, USA and is engaged in manufacturing and trading of pressure sensitive adhesive material, self- adhesive paper, self-adhesive film, tape, sheets, tags and labels. During the Assessment Year i.e. 2016-17, the assessee categorized its business into two primary segments i.e. Self Adhesive Material (SAM) and Retail Branding and Information Solutions (RBIS), the details of the same are as under:-
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT SAM Segment 1. Marketing Support Services. 2. Operations, Logistics and Technical Support Services. 3. Labour Law & Employee Relations Services 4. Finance, Accounting, Administration and Management Information Systems Services. 5. Corporate Support Centre (CSC) Services.
RBIS Segment
VIPS and Ticketing Hub Services 7. GVP Services 8. CSC Services
During the course of transfer proceedings, TPO computed the Arm’s Length Price of payment of Intra-Group Service Fee to be at Rs. 11,50,23,572/- as against the payment made by the assessee to it’s A.E of Rs. 81,81,01,474/- by applying Comparable Uncontrable Price (CUP) method by relying on the approach of the DRP in Assessee’s own case for Assessment Year 2010-11 to 2012-13 and Assessment Year 2015-16 and accepted the Arm’s Length Price for receipt of two services i.e. Ticketing HUB and VIPs. The final assessment order came to be passed against the assessee on 30/03/2021 u/s 143(3) read with Section 144 (13), 143(3A) and 143(3) of the Act by making addition On account of TPO order in relation to Arm’s Length Price of International Transactions of Rs.70,30,77,902/-.
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT
Aggrieved by the assessment order, the assessee has preferred the present appeal on the grounds mentioned above.
6. The Ld. Counsel for the assessee submitted that the issue involved in the present appeal are squarely covered in asessee’s own case for the Assessment Year 2007-08, 2008-09, 2010-11, 2011-12 and 2014-15 wherein the similar adjustment on account of Intra Group ‘services received by the assessee had been made by the CIT(A) and DRP. As against such adjustments the assessee had preferred an appeal before this Tribunal, the Tribunal has allowed the appeal in favour of the assessee wherein the Tribunal has accepted that Intra Group Services received by the assessee in the respective years to be at Arm’s Length. As against the order of the Tribunal, the Department had approached the Hon'ble High Court for the Assessment Year 2007-08 to 2011-12 which has been dismissed by the Hon'ble High Court which are placed at Page No. 241 to 306 of the paper book Volume No. 1. Therefore submitted that the present Appeal may be allowed.
On the other hand, Ld. DR relied on the order of the CIT(A).
We have heard the parties perused the material available on record and gave our thoughtful consideration. The Co-ordinate Bench of the Tribunal in S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT Assessee’s own case for the Assessment Year 2009-10 in has held as under:-
“19. Before us, the ld. AR submitted that the ITAT, in the Assessee’s own case for AY 2007-08 and AY 2008-09, after understanding the nature of the Assessee's business operations and the nature of various intra-group services received by the Assessee held that there existed a direct, nexus between the intra-group services received by the Assessee vis-a-vis the revenue earned/cost incurred by the assessee.
Hence, the Co-ordinate Bench of ITAT held that these services are intrinsically linked to the core business operations of the assessee and cannot be analysed in isolation. The relevant extract from the ruling of the Co-ordinate bench of ITAT Delhi in Assessee's own case for AY 2007-08 is as under:
"20. On perusal of the TP Study, we observe that each transaction are interlinked with each other. We notice that the assessee has treated the agreement as a whole, and has applied TNMM, in respect of the services received to arrive at the ALP. It is observed that the Id. CIT(A) accepted the contentions of the assessee that; intra group services were received by the assessee as per the agreement, and that these are critical, and linked to the core business operations of the assessee. However, the Ld. CIT(A) held
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT that certain services specified in the agreement did not result in any benefit to the assessee.
21. All the services received are part of composite contracts/agreements which in our view cannot be unbundled...
23. From the above discussion we are of the considered opinion that the agreement is an intrinsic one and that it is wrong to split the same and hold that some services are at arm's length and some services are not.
The Ld. CIT(A) accepted TNMM to arrive at the ALP, in respect of certain services received by the assessee and in the same breath, has rejected the analysis undertaken by the assessee under the TNMM in respect of other services. We are informed by the assessee that, the authorities have accepted TNMM as MAM in the subsequent years. The revenue has to be consistent in its approach. In our view, the TPO analysis of the assessee using TNMM as the MAM has to be accepted. When there is an agreement for services and certain services out of a bundle of services are undisputedly rendered, the entire agreement has to be viewed as a whole. Whether the services have actually resulted in a benefit to the assessee or not is not material. The conclusion of the Ld. TPO that the services have not resulted in any benefit and no independent entity would have made such a payment is in the realm of surmised and conjunctures and not backed by any material. Thus, the ALP determined by the assessee company is accepted and the TPO adjustment is deleted."
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT
The relevant extracts of Co-ordinate Bench of ITAT Delhi in its own case for the A.Y. 2008-09 in and 4869/Del/2014 is as under:
“33. Further, the Id. DR had raised a contention that the assessee has not demonstrated how the services received are beneficial to the assessee. We are of the opinion that, ascertaining whether a service has actually benefitted the taxpayer or not is not within the prerogative of the Tax Authorities. To avail a service or not is a commercial decision which cannot be challenged by the Tax Authorities."
The Co-ordinate bench of ITAT in the Assessee’s case for AY 2008-09 held that OECD guidelines end an aggregated benchmarking approach in a situation, where the underline transactions are closely linked to the core business operations. The relevant extracts in this regard are reproduced below:
"28. We are of the considered opinion that, with regard to PSM and RIS segments, the mark-up charged by the AEs is within the +/-5% range, allowed under second proviso to section 92C of the Indian Income Tax Act, 1961. Accordingly, these services can be considered to be at arm's length; and with regard to of GVP services, VIPFS services and Ticketing Hub Services, the service charges paid by the assessee, represents the actual cost incurred by the AEs, without applicable of any mark-up. Accordingly, these can be considered to be at arm's length.
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT
We have perused the OECD guidelines which has recommend an aggregate benchmarking approach in situation, where the underline transactions are closely linked to the core business operations. Principle of aggregation, is a well-established rule in transfer pricing analysis. This principle seeks to combine all closely linked transactions wherein arm's length price can be determined for a number of transactions taken together...
The assessee is predominantly a manufacturer and the services received by the assessee from its AEs are intrinsically linked to the core business operations of the assessee, in the following form:
a. Based on the support provided by the AEs in terms of marketing services and strategic services, the assessee is able to achieve higher sales, both in terms of higher sales quantity and sales prices. b. Based on the support provided by the assessee in terms of operations and logistics the assessee has been able to procure raw materials at lower costs. Accordingly, the impact of such support services is received by the assessee in the form of lower direct costs.
We observe that there exists a direct nexus between the revenue earned/ cost incurred by the Assessee and the majority intra-group services received, it would be incorrect to analyse the intra-group services received as a single element of cost in isolation..."
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT
Further, the Department has also filed appeal against the order of ITAT before Hon'ble Delhi High Court. Hon'ble Delhi High Court has held that the view taken by the ITAT is plausible one and does not warrant any interference. The relevant extracts of the order of Hon'ble Delhi High Court are as under:
"The contention of the assessee was that agreement between the assessee and its AE was a composite one and could not be split up for the purposes of holding that some services are at arm's length and some are not. The ITAT appears to have agreed with the above contention of the assessee on viewing the agreement as whole. It was not within the purview of the TPO to determine if some of the services resulted in any actual benefit to the assessee or not."
24. Since, the order of the ld. CIT(A) is based on the order of the ITAT Delhi and the Hon’ble High Court of Delhi, in the absence of any change in the material facts and the proposition of law, we decline to interfere with the considered decision of the ld. CIT(A).
Since, the issue involved in the present appeal have been already dealt and decided in favour of the assessee in Assessee’s own case for the Assessment year 2007-08, 2008-09, 2010-11, 2011-12, 2014-15, by respectfully following the same, we uphold the contention of the assessee and delete the TP Adjustment.
S.A No. 82/Del/2022 Avery Dennison (India) Vs. ACIT
In the result, Appeal of the assessee is allowed.
In view of deciding the Appeal in S.A No. 82/Del/2022 becomes infructuous. Therefore, the S.A No. 82/Del/2022 filed by the assessee is dismissed for having become infructuous.