HITACHI DATA SYSTEMS INDIA P.LTD, MUMBAI V. ASST CIT 14(2)(1), MUMBAI

CO 54/MUM/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3810 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-05-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 11-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN LD
• Assessee Lawyers: NIKHIL TIWARI LD ARS
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IT(TP)A NO.1012/MUM/2016 & CO. NO. 54/MUM/2016 HITACHI DATA SYSTEM INDIA PRIVATE LIMITED ASSESSMENT YEAR:2011-12 1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.1012/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) ASSISTANT COMMISSIONER OF INCOME TAX-14(2)(1) ROOM NO. 474, 4 TH FLOOR AAYKAR BHAWAN, M.K.ROAD MUMBAI 400 020 / VS. HITACHI DATA SYSTEMS INDIA PVT. LTD. 6 TH FLOOR, C-WING, LAXMI TOWER BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 40 051 ./ ./ PAN/GIR NO.AABCH-4372-C ( ! /APPELLANT ) : ( '# ! / RESPONDENT ) & CO. NO.54/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) HITACHI DATA SYSTEMS INDIA PVT. LTD. 6 TH FLOOR, C-WING, LAXMI TOWER BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 40 051 / VS. ASSISTANT COMMISSIONER OF INCOME TAX-14(2)(1) ROOM NO. 474, 4 TH FLOOR AAYKAR BHAWAN, M.K.ROAD MUMBAI 400 020 ./ ./ PAN/GIR NO.AABCH-4372-C ( ! /APPELLANT ) : ( '# ! / RESPONDENT ) REVENUEBY : V.JENARDHANAN, LD. DR ASSESSEE BY : M.P.LOHIA & NIKHIL TIWARI, LD. ARS / DATE OF HEARING : 03/05/2018 / DATE OF PRONOUNCEMENT : 04 /05/2018 / O R D E R IT(TP)A NO.1012/MUM/2016 & CO. NO. 54/MUM/2016 HITACHI DATA SYSTEM INDIA PRIVATE LIMITED ASSESSMENT YEAR:2011-12 2 PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2011-12 CONTEST THE FINAL ASSESSMENT ORDER DATED 31/12/2015 PASSED U/S 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 BY LD. ASSISTANT COMMISSIONER OF INCOME TAX-14(2)(1) PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL [DRP] WHEREIN THE RETURNED INCOME OF RS.376.08 LACS E-FILED BY THE ASSESSEE ON 29/09/2011 HAS BEEN ACCEPTED. THE REVENUE IS AGGRIEVED BY RELIEF P ROVIDED BY LD.DRP TO THE ASSESSEE AGAINST CERTAIN TRANSFER PRICING [TP] ADJUSTMENT AS PROPOSED BY LD. TRANSFER PRICING OFFICER [TPO] IN AN ORDER U/S 92CA(3). THE ASSESSEE, CHALLENGING THE DI RECTIONS OF LD. DRP ON CERTAIN ISSUES RELATING TO TRANSFER PRICING ADJUSTMENT , HAS FILED CROSS-OBJECTIONS AGAINST THE SAME. 2. THE REGISTRY HAS NOTED THAT THE APPEAL HAS BEEN FILED WITH A DELAY OF 37 DAYS. HOWEVER, UPON PERUSAL OF FORM NO. 36 FILED BY THE REVENUE, IT IS NOTED THAT THE DATE OF COMMUNICATION OF ORDER APPEALED AGAINST IN COLUMN NO. 9 HAS WRONGLY BEEN MENTIONED AS 24.11.2015 WHEREAS THE DATE OF PASSING OF IMPUGNED ORDER IS 31/12/2015 . THE SAME HAS BEEN CLARIFIED BY THE REVENUE DURING HEARI NG BEFORE US. PRIMA FACIE, THE APPEAL IS IN ORDER AND THEREFORE, WE PROCEED TO DISPOSE-OFF THE SAME ON MERITS. 3.1 FACTS IN BRIEF ARE THAT CERTAIN INTERNATIONAL TRANSACTIONS AS CARRIED OUT BY THE ASSESSEE DURING THE IMPUGNED AY WITH ITS ASSOCIATED IT(TP)A NO.1012/MUM/2016 & CO. NO. 54/MUM/2016 HITACHI DATA SYSTEM INDIA PRIVATE LIMITED ASSESSMENT YEAR:2011-12 3 ENTERPRISES [AE] AS REPORTED IN FORM NO. 3CEB WERE REFERRED FOR DETERMINATION OF ARMS LENGTH PRICE [ALP] TO LD. TPO U/S 92CA(1) ON 17/12/2013. THE ASSESSEE WAS ENGAGED IN THE BUSINES S OF PROVIDING MARKETING AND SUPPORT SERVICES LIKE PROMOTING THE S ALES OF AES PRODUCTS IN INDIA, MARKETING PRESENTATION TO POTENT IAL CUSTOMERS OF ITS AE, GENERAL CORPORATE COMMUNICATIONS, PUBLIC RELATI ONS, ADVERTISEMENT AND CHANNEL COMMUNICATIONS AMONG OTHE R ACTIVITIES. THE DISPUTE UNDER APPEAL IS RELATED WITH DETERMINAT ION OF ALP OF MARKETING SUPPORT SERVICES FEES OF RS.35.66 CRORES RECEIVED BY THE ASSESSEE FROM ITS AE WHICH HAS BEEN BENCHMARKED IN THE TRANSFER PRICING [TP] STUDY USING TRANSACTIONAL NET MARGIN METHOD [TNMM] , PROFIT LEVEN INDICATOR [PLI] BEING OPERATING PROFIT / OPERATING COST [OP/OC] AND THE ASSESSEE BEING THE TESTED PARTY. THE ASSESS EE COMPUTED ITS OWN PLI OF 9.40% AS AGAINST MEAN PLI OF 10.36% AS REFLECTED BY SIX COMPARABLE ENTITIES AND THEREFORE, CLAIMED THE TRANSACTIONS TO BE AT ALP . THE LD. TPO WHILE ACCEPTING ASSESSEES FIVE COMPARABLES, ADDED SIX MORE COMPARABLES AND CO MPUTED MEAN PLI OF ELEVEN COMPARABLES AS 15.47% AS AGAINST ASSESSE ES PLI OF 9.40% AND WORKED OUT TP ADJUSTMENT OF RS.240.54 LACS AGAINST THE SAME. 3.2 INCORPORATING THE ORDER OF LD. TPO, DRAFT ASSESSMENT ORDER U/S 144C(1) DATED 23/03/2015 WAS PASSED, WHICH WAS ASSAILED BY THE ASSESSEE WITH PARTIAL SUCCESS BEFORE LD. DRP VIDE D IRECTIONS U/S IT(TP)A NO.1012/MUM/2016 & CO. NO. 54/MUM/2016 HITACHI DATA SYSTEM INDIA PRIVATE LIMITED ASSESSMENT YEAR:2011-12 4 144C(5) DATED 02/11/2015. THE LD. DRP DIRECTED FOR EXCLUSION OF ONE COMPARABLE NAMELY EMPIRE INDUSTRIES LTD. AS SELECTED BY LD. TPO BY MAKING FOLLOWING OBSERVATIONS:- APPARENTLY, THE TPO HAS TAKEN SEGMENTAL RESULT OF T RADING AND INDENTING ACTIVITY. LOOKING AT THE FACT THAT THE ASSESSEE IS PROVIDING MARKETING SUPPORT SERVICES TO ITS AE WHEREAS EMPIRE INDUSTRIES LTD. IS EARNING 40 % OF ITS REVENUE FROM TRADING ACTIVITIES, WE ARE OF THE OPINION THAT THE COMPANIE S ARE FUNCTIONALLY DIFFERENT AND THEREFORE, THE AO IS DIRECTED TO DROP EMPIRE INDUST RIES LTD. FROM THE LIST OF COMPARABLES. THE EXCLUSION OF THE SAID COMPARABLE HAS RESULTED I NTO TP ADJUSTMENT BEING REDUCED TO NIL . AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] SUPPORT ED THE STAND OF LD. TPO WHEREAS LD. AUTHORIZED COUNSEL FOR ASSES SEE [AR], RELYING ON CERTAIN JUDICIAL PRONOUNCEMENTS, SUPPORTED THE S TAND OF LD. DRP BY SUBMITTING THAT THE SAID ENTITY WAS NOT COMPARAB LE TO THE ASSESSEE AND THEREFORE, RIGHTLY BEEN EXCLUDED BY LD. DRP. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. UPON DUE CONSIDERATION, WE FIND THAT THE METHODOLOGY USED TO BENCHMARK THE TRANSACTIONS IS TNMM WHICH REQUIRE ONLY BROAD FUNCTIONAL COMPARABILITY OF THE ENTITIES. HOWEVER, AT THE SAME TIME, IT IS ALSO IMPERATIVE THAT ENTITIES BEING SELECTED AS COMPARABLE TO CARRY OUT TP STUDY ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE ON BROAD PARAMETERS. A PREDOMINANTLY TRADI NG ENTITY COULD NOT BE COMPARED WITH PREDOMINANTLY SERVICE PROVIDIN G ENTITY. IT IS UNDISPUTED FACT THAT THE IMPUGNED ENTITY NAMELY EMPIRE INDUSTRIES IT(TP)A NO.1012/MUM/2016 & CO. NO. 54/MUM/2016 HITACHI DATA SYSTEM INDIA PRIVATE LIMITED ASSESSMENT YEAR:2011-12 5 LIMITED WAS INTO TRADING SEGMENT AND A MAJOR CHUNK OF ITS R EVENUE WAS COMING FROM TRADING ACTIVITY AS AGAINST THE ASS ESSEE, WHICH WAS PREDOMINANTLY A SERVICE PROVIDING ENTITY. THEREFORE , FINDING THE STAND OF LD. DRP QUITE FAIR AND REASONED ONE, WE DISMISS GROUND NUMBERS 1 & 2 OF REVENUES APPEAL. 6. IN GROUND NUMBER 3, THE REVENUE IS AGGRIEVED BY TREATMENT OF CERTAIN AMC EXPENSES AS PRIOR PERIOD EXPENDITURE WHILE ARRIVIN G AT ASSESSEES MARGINS. HOWEVER, UPON PERUSAL OF ORDERS OF LOWER AUTHORITIES, WE FIND THAT NO SUCH ADJUSTMENT IS PRO POSED / ENVISAGED AND THE GROUND SEEMS TO HAVE BEEN RAISED ERRONEOUSL Y. THEREFORE, THE SAME STAND DISMISSED IN LIMINE. REST OF THE GROUNDS IS GENERAL IN NATURE. 7. SINCE, WE HAVE ALREADY DISMISSED REVENUES APPEA L AS ABOVE, THE CROSS-OBJECTIONS RAISED BY THE ASSESSEE BECOMES MERELY ACADEMIC IN NATURE AND THEREFORE, DISMISSED. 8. FINALLY, THE APPEALS AS WELL AS CROSS-OBJECTION STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH MAY, 2018. SD/- SD/- (SAKTIJIT DEY) (MANOJ KU MAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; !' DATED : 04.05.2018 SR.PS:-THIRUMALESH IT(TP)A NO.1012/MUM/2016 & CO. NO. 54/MUM/2016 HITACHI DATA SYSTEM INDIA PRIVATE LIMITED ASSESSMENT YEAR:2011-12 6 / COPY OF THE ORDER FORWARDED TO : 1. 89: / THE APPELLANT 2. >?: / THE RESPONDENT 3. CDE89F / THE CITEAF 4. CD / CIT CONCERNED 5. KLMN>D'OP 89Q8OPR / DR ITAT MUMBAI 6. NTUV / GUARD FILE / BY ORDER / EDY./ASSTT.REGISTRARF ./012 / ITAT2 MUMBAI