HONDA R&D (INDIA) PRIVATE LIMITED,GURGAON V. DCIT,CIRCLE-10(1), DELHI

SA 430/DEL/2024

AI Insights

The case involves M/s. Honda R & D (India) Pvt. Ltd., which sought a stay on a demand arising from transfer pricing adjustments made by the Transfer Pricing Officer (TPO). The adjustments were related to two segments: infrastructure payments and reimbursements of personnel costs and travel. The assessee argued that the TPO arbitrarily determined the arm's length price of services as NIL and that the reimbursements were already benchmarked as cost plus markup. The Revenue opposed the stay, citing unsatisfactory corroboration of the expenses claimed. The Tribunal, after considering the submissions and the balance of convenience, decided to grant a partial stay.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 31744 (ITAT-DELHI)
• Duration Of Justice: 15 day(s)
• Appeal Type: Others
• Pronouncement Date: 08-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 08-11-2024
• Assessment Year: 2021-2022
• Appeal Filed On: 24-10-2024
• Other Referred Cases: Gates India Pvt. Limited vs. ACIT, Principal Commissioner of Income Tax vs. Mercer Consulting India (P) Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PARKASH
• Keywords: Transfer pricing; Application of stay
• Section: 13; 72

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “I BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER S.A.No.430/Del/2024 [In ITA No [Assessment Year : M/s. Honda R & Pvt.Ltd., Technical Centre, Plot No.2, Sector Manesar, Gurgaon, Harayana-122050. PAN-AABCH3071N APPELLANT Appellant by Respondent by Date of Hearing Date of Pronouncement PER PRADIP KUMAR KEDIA The captioned stay assessee seeking stay of demand arising from transfer pricing adjustment amounting to INR 6,97,87,640/ 2. In support of the stay petition, Ld. oral and written submissions reproduced as under:- 1. “Request in stay application is relating to demand of INR 6.97 crores. Demand notice is on page no. 36 of the stay application. 2. Though initially Transfer pricing officer made addition on 3 segments, subject matter of appeal is confined only to adjustme 2 segments as detailed below. Kind reference is invited to running page 267 of the Appeal set where Transfer Pricing order dated 28th October 23 is placed. Brief profile of the company is at page 278. IN THE INCOME TAX APPELLATE TRIBUNAL “I-FRIDAY” BENCH: NEW DELHI SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER S.A.No.430/Del/2024 ITA No.4930/Del/2024] Assessment Year : 2021-22] M/s. Honda R & D (India) Pvt.Ltd., Technical Centre, Plot No.2, Sector-03, Manesar, Gurgaon, 122050. AABCH3071N vs DCIT, Circle-10(1), Delhi. RESPONDENT Shri Nageshwar Rao, Adv. Respondent by Shri Om Parkash, Sr.DR Hearing 08.11.2024 Date of Pronouncement 08.11.2024 ORDER PRADIP KUMAR KEDIA, AM : captioned stay application has been preferred by the applicant stay of demand arising from transfer pricing adjustment 6,97,87,640/- for the Assessment Year 2021-22 in question. In support of the stay petition, Ld. Counsel for the assessee oral and written submissions dated 08.11.2024 as seeking stay of demand “Request in stay application is relating to demand of INR 6.97 crores. Demand notice is on page no. 36 of the stay application. Though initially Transfer pricing officer made addition on 3 segments, subject matter of appeal is confined only to adjustme 2 segments as detailed below. Kind reference is invited to running page 267 of the Appeal set where Transfer Pricing order dated 28th October 23 is placed. Brief profile of the company is at page 278. SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER Nageshwar Rao, Adv. preferred by the applicant- stay of demand arising from transfer pricing adjustment 22 in question. for the assessee has made as seeking stay of demand “Request in stay application is relating to demand of INR 6.97 crores. Demand notice is on page no. 36 of the stay application. Though initially Transfer pricing officer made addition on 3 segments, subject matter of appeal is confined only to adjustment in 2 segments as detailed below. Kind reference is invited to running page 267 of the Appeal set where Transfer Pricing order dated 28th October 23 is placed. Brief profile of the company is at page 278. Segments which are subject matter of connected ap 4930/DEL/2024 are 315 to 327 (Appeal set) AND Reimbursement of Salaries discussed at page 327 and 328 (Appeal Set). 3. Disputed demand arises from 2 transfer pricing additions made to returned income. This can be seen from running page 52 of stay petition summary of additions upon giving effect to Directions of Ld. DRP (order dated 23.09.24 starts from page 41). Submission in support of request for absolute stay on recovery are as follows: 4. INR 52 lacs of TP addition is made treating the amounts paid toward infrastructure payments to Associated Enterprise as NIL. Details of services received are at Running page 8 of Stay Application at para 5.1. We rely on decisions of Hon'ble courts discussed in pages 9 to 13 of stay application that in any case and event arm's length price of services cannot be arbitrarily determined as NIL by TPO. Additionally, we rely on recent decision of this Hon'ble Tribunal in ITA no 2379/DEL/2022 relating to Gate ACIT order dated 22/08/2024. 5. Second addition which is subject matter of appeal relates to treating reimbursement of expenditure towards Personnel costs and travelling & Conveyance of Stay Application. In this connection it was submitted that Applicant is captive service provided remunerated on cost plus mark up. TNNM is applied for benchmarking the core services of Market Research and Testing Services in relation to which impugned reimbursement were already treated as cost and bench marked as can be seen from Order giving effect (refer page 41 of Stay application). Post DRP the adjustment made towards provision of market research and testing services are found to be at arm's length. For clarity it is emphasised that reimbursement is one of the cost S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] Segments which are subject matter of connected ap 4930/DEL/2024 are - Infrastructure segment is discussed at page 315 to 327 (Appeal set) AND Reimbursement of Salaries discussed at page 327 and 328 (Appeal Set). Disputed demand arises from 2 transfer pricing additions made to me. This can be seen from running page 52 of stay petition summary of additions upon giving effect to Directions of Ld. DRP (order dated 23.09.24 starts from page 41). Submission in support of request for absolute stay on recovery are as follows: 2 lacs of TP addition is made treating the amounts paid toward infrastructure payments to Associated Enterprise as NIL. Details of services received are at Running page 8 of Stay Application at para 5.1. We rely on decisions of Hon'ble courts discussed in pages 9 to 13 of stay application that in any case and event arm's length price of services cannot be arbitrarily determined as NIL by TPO. Additionally, we rely on recent decision of this Hon'ble Tribunal in ITA no 2379/DEL/2022 relating to Gates India Pvt. Limited vs. ACIT order dated 22/08/2024. Second addition which is subject matter of appeal relates to treating reimbursement of expenditure towards Personnel costs and travelling & Conveyance - kind reference is invited to pages 17 to 18 f Stay Application. In this connection it was submitted that Applicant is captive service provided remunerated on cost plus mark up. TNNM is applied for benchmarking the core services of Market Research and Testing Services in relation to which impugned imbursement were already treated as cost and bench marked as can be seen from Order giving effect (refer page 41 of Stay application). Post DRP the adjustment made towards provision of market research and testing services are found to be at arm's length. or clarity it is emphasised that reimbursement is one of the cost S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] Page | 2 Segments which are subject matter of connected appeal no ITA Infrastructure segment is discussed at page 315 to 327 (Appeal set) AND Reimbursement of Salaries discussed Disputed demand arises from 2 transfer pricing additions made to me. This can be seen from running page 52 of stay petition summary of additions upon giving effect to Directions of Ld. DRP (order dated 23.09.24 starts from page 41). Submission in support of request for absolute stay on recovery are as follows: 2 lacs of TP addition is made treating the amounts paid toward infrastructure payments to Associated Enterprise as NIL. Details of services received are at Running page 8 of Stay Application at para 5.1. We rely on decisions of Hon'ble courts discussed in detail on pages 9 to 13 of stay application that in any case and event arm's length price of services cannot be arbitrarily determined as NIL by TPO. Additionally, we rely on recent decision of this Hon'ble Tribunal s India Pvt. Limited vs. Second addition which is subject matter of appeal relates to treating reimbursement of expenditure towards Personnel costs and kind reference is invited to pages 17 to 18 f Stay Application. In this connection it was submitted that Applicant is captive service provided remunerated on cost plus mark up. TNNM is applied for benchmarking the core services of Market Research and Testing Services in relation to which impugned imbursement were already treated as cost and bench marked as can be seen from Order giving effect (refer page 41 of Stay application). Post DRP the adjustment made towards provision of market research and testing services are found to be at arm's length. or clarity it is emphasised that reimbursement is one of the cost elements in TNMM benchmarking and it is important to note that mark up is earned on such cost already. Kindly refer page 52 of stay application would show that TP adjustment towards provisio of marketing research and testing services is deleted. In above factual background, without prejudice to other contention that arm's length price cannot be arbitrarily determined at NIL without application of any of the prescribed methods especially by whose jurisdiction is limited, kind reference is invited to decision in Principal Commissioner of Income Tax vs. Mercer Consulting India (P) Limited, [2024] 161 Taxmann.com 420 (Delhi) upholding Hon'ble Tribunal order in ITA 1085/DEL/2016 reported as M Consulting India (P) Limited vs. Dy. Commissioner of Income Tax [2016] 72 Taxmann.com 323 (Delhi very important but basic principle that in a cost service taxpayer, if cost of one of the elements is by TPO then a corresponding adjustment is necessarily to be made to revenue of cost + margin. As section 92(3) expressly prohibits such an adjustment which will reduce income taxable, cost element cannot be made NIL in Transfer pricing p 6. In view of both the issues being covered ex Courts recovery of even a token amount towards disputed demand would be unjust and render the appeal itself nugatory and meaningless apart from undue hardship. We pray f on recovery of disputed demand in present case.” 3. Ld. Sr. DR for the Revenue, on the other hand objected to the stay of demand and pointed out tha adjustments have been carried out by the explanation and lack of corroboration Sr. DR contended that the S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] elements in TNMM benchmarking and it is important to note that mark up is earned on such cost already. Kindly refer page 52 of stay application would show that TP adjustment towards provisio of marketing research and testing services is deleted. In above factual background, without prejudice to other contention that arm's length price cannot be arbitrarily determined at NIL without application of any of the prescribed methods especially by whose jurisdiction is limited, kind reference is invited to decision in Principal Commissioner of Income Tax vs. Mercer Consulting India (P) Limited, [2024] 161 Taxmann.com 420 (Delhi) upholding Hon'ble Tribunal order in ITA 1085/DEL/2016 reported as M Consulting India (P) Limited vs. Dy. Commissioner of Income Tax [2016] 72 Taxmann.com 323 (Delhi-Trib.). This decision upholds a very important but basic principle that in a cost-plus markup captive service taxpayer, if cost of one of the elements is determined at NIL by TPO then a corresponding adjustment is necessarily to be made to revenue of cost + margin. As section 92(3) expressly prohibits such an adjustment which will reduce income taxable, cost element cannot be made NIL in Transfer pricing proceedings. In view of both the issues being covered ex-facie by orders of Hon'ble Courts recovery of even a token amount towards disputed demand would be unjust and render the appeal itself nugatory and meaningless apart from undue hardship. We pray for absolute stay on recovery of disputed demand in present case.” DR for the Revenue, on the other hand objected to the of demand and pointed out that the additions/transfer pricing been carried out by the Revenue owing to unsatisfactory corroboration of expenses claimed in question. The Sr. DR contended that the assessee has not discharged the onus before the S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] Page | 3 elements in TNMM benchmarking and it is important to note that mark up is earned on such cost already. Kindly refer page 52 of stay application would show that TP adjustment towards provisions of marketing research and testing services is deleted. In above factual background, without prejudice to other contention that arm's length price cannot be arbitrarily determined at NIL without application of any of the prescribed methods especially by TPO whose jurisdiction is limited, kind reference is invited to decision in Principal Commissioner of Income Tax vs. Mercer Consulting India (P) Limited, [2024] 161 Taxmann.com 420 (Delhi) upholding Hon'ble Tribunal order in ITA 1085/DEL/2016 reported as Mercer Consulting India (P) Limited vs. Dy. Commissioner of Income Tax Trib.). This decision upholds a plus markup captive determined at NIL by TPO then a corresponding adjustment is necessarily to be made to revenue of cost + margin. As section 92(3) expressly prohibits such an adjustment which will reduce income taxable, cost element facie by orders of Hon'ble Courts recovery of even a token amount towards disputed demand would be unjust and render the appeal itself nugatory and or absolute stay DR for the Revenue, on the other hand objected to the blanket the additions/transfer pricing unsatisfactory in question. The Ld. assessee has not discharged the onus before the Revenue authorities and therefore, the stay application is without merit and liable to be dismissed. 4. On careful consideration of rival submissions as well as material aspects of the case which are relevant to ascertain the balance of convenience, such as prima facie case of the assessee on merit has argued, we are of the view th mitigating circumstances do exist to some extent to enable us to grant partial stay. 5. Having regard to the facts pointed out on behalf of the assessee, we inclined to exercise our discretion in favour of the assessee for partial stay of balance demand outstanding for a period of six months or till the disposal of appeal whichever is earlier, subject to payment of 20% of the demand on or before 15.12.2024. extent of 20% of the tax demand 6. The stay granted is also subject to the condition that the assessee will fully co-operate in speedy disposal of the appeal and will not seek any adjournment on any grounds unless wholly unavoidable and bonafide circumstances prevents the proceedings before the Tribunal. The stay granted herein above may stand vacated together with associated benefit of out of turn hearing of appeal in the event of failure to comply with the directions set out above applicant shall come up for hearing on 03.02.2025as informed to both the sides. The issuance of formal notice of hearing is thus dispensed. 7. In the result, stay application filed by the applicant is disposed off as indicated above. Order pronounced in the open Court on Sd/- (MAHAVIR SINGH) VICE PRESIDENT * Amit Kumar * S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] Revenue authorities and therefore, the stay application is without merit and On careful consideration of rival submissions as well as material aspects of the case which are relevant to ascertain the balance of convenience, such as case of the assessee on merit has argued, we are of the view th mitigating circumstances do exist to some extent to enable us to grant partial Having regard to the facts pointed out on behalf of the assessee, we discretion in favour of the assessee for partial stay of nd outstanding for a period of six months or till the disposal of appeal whichever is earlier, subject to payment of 20% of the demand The assessee shall produce proof of payment extent of 20% of the tax demand before the AO. The stay granted is also subject to the condition that the assessee will operate in speedy disposal of the appeal and will not seek any adjournment on any grounds unless wholly unavoidable and bonafide circumstances prevents the assessee from participating in appellate proceedings before the Tribunal. The stay granted herein above may stand vacated together with associated benefit of out of turn hearing of appeal in the event of failure to comply with the directions set out above. The appeal of the applicant shall come up for hearing on 03.02.2025as informed to both the sides. The issuance of formal notice of hearing is thus dispensed. stay application filed by the applicant is disposed off as Order pronounced in the open Court on 08th November, 202 Sd/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] Page | 4 Revenue authorities and therefore, the stay application is without merit and On careful consideration of rival submissions as well as material aspects of the case which are relevant to ascertain the balance of convenience, such as case of the assessee on merit has argued, we are of the view that mitigating circumstances do exist to some extent to enable us to grant partial Having regard to the facts pointed out on behalf of the assessee, we discretion in favour of the assessee for partial stay of nd outstanding for a period of six months or till the disposal of appeal whichever is earlier, subject to payment of 20% of the demand payable The assessee shall produce proof of payment to the The stay granted is also subject to the condition that the assessee will operate in speedy disposal of the appeal and will not seek any adjournment on any grounds unless wholly unavoidable and bonafide assessee from participating in appellate proceedings before the Tribunal. The stay granted herein above may stand vacated together with associated benefit of out of turn hearing of appeal in the . The appeal of the applicant shall come up for hearing on 03.02.2025as informed to both the sides. The issuance of formal notice of hearing is thus dispensed. stay application filed by the applicant is disposed off as , 2024. PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] ASSISTANT REGISTRAR ITAT, NEW DELHI S.A.No.430/Del/2024 [In ITA No.4930/Del/2024] Page | 5 ASSISTANT REGISTRAR ITAT, NEW DELHI "