IMSOFER MANUFACTURING INDIA PVT. LTD.,PUNE V. ACIT, CIRCLE-12(1), NEW DELHI

ITA 7924/DEL/2019

AI Insights

The case involves Imsofer Manufacturing India Pvt. Ltd. appealing against the order of the Commissioner of Income-tax (Appeals)-44, New Delhi, for the Assessment Year 2013-14. The primary issues in the appeal were related to transfer pricing adjustments on international transactions concerning the receipt of services and erroneous consideration of net profit as book profit under section 115JB of the Income-tax Act. The appellant contested the adjustments made by the Transfer Pricing Officer (TPO) and the subsequent tax demand, arguing that the transactions were benchmarked using the Transactional Net Margin Method (TNMM) and that the services received were beneficial for conducting its business. The Tribunal found merit in the appellant's arguments regarding the transfer pricing adjustments and directed the deletion of the addition made. However, it remitted the issue of book profit computation back to the Assessing Officer for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396484 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Other Referred Cases: Humboldt Wedag India Pvt Ltd, BMW India Financial Services Pvt Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHISHEK DEVAL
• Assessee Lawyers: AJIT JAIN
• Keywords: Opportunity of being heard; Transfer pricing; International transaction; Depreciation; Rule of consistency; Unabsorbed depreciation
• Section: 271(1)(c); 115JB; 10B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.7924/DEL/2019 (Assessment Year: 2013-14) Imsofer Manufacturing India Pvt. Ltd., vs. ACIT, Circle 12 (1), (now known as Ferrero India Pvt. Ltd.), New Delhi. World Trade Centre, 8th Floor, Tower 3, Kharadi, Pune – 411 014 (Maharashtra). (PAN : AABCI6450N) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ajit Jain, AR REVENUE BY : Shri Abhishek Deval, Sr. DR Date of Hearing : 21.05.2025 Date of Order : 28.05.2025 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against the order of ld. Commissioner of Income- tax (Appeals)-44, New Delhi for the Assessment Year 2013-14 raising following grounds of appeals :- “1. Transfer Pricing adjustment on the international transaction of Receipt of Services On the facts and in circumstances of the case and in law, the Ld. TPO/ AO has erred and the Hon. CIT(A) has further erred in upholding/confirming the action of the Ld. TPO/ AO by: 1.1 making an adjustment with regard to receipt of services transaction of the Appellant as the same cannot be benchmarked separately since it is 2 ITA No.7924/DEL/2019 inextricably linked with the main function i.e. manufacturing function of the Appellant. 1.2 violating the \"Rule of Consistency\" while making the adjustment to the receipt of service transaction, as the same was considered to be at arm's length in the TP assessment proceedings for earlier years. 1.3 not granting the benefit of +/- 5 percent as per the proviso to section 92C(2) of the Act. 1.4 not providing any valid reason to reject the alternative benchmarking carried out by the Appellant wherein the Associated Enterprise ('AE') is considered as tested party for arm's length price. 1.5 holding that the Appellant failed to justify the mark-up of 5% on cost with respect to the services which were actually rendered by the AEs 1.6 not considering various evidences and justifications submitted in order to justify the mark up charged on the receipt of services. 1.7 disallowing mark-up of 5% on the receipt of services transaction without identifying any comparable uncontrolled transactions and without cogent reasons and thereby disregarding Rule 10B of the Rules. 1.8 ignoring the fact that the AE has paid tax on such services rendered to the Appellant and disallowance of such payment for the services received by the Appellant will lead into double taxation of the same amount. 2. Erroneous consideration of net profit of INR 332,317,314 as book profit instead of INR 38,665,980 under section 115JB of the Act. On the facts and in circumstances of the case and in law, the Ld. AO has erred by: 2.1 considering the net profit of INR 332,317,314 as book profit for the purpose of computation of MAT without considering the adjustments carried out under Section 115JB. 2.2 raising a tax demand of Rs.99,852,960. 2.3 incorrectly adding the TP adjustment to the book profits as the Appellant has paid taxes under the provisions of Section 115JB. 3. Other Grounds 3 ITA No.7924/DEL/2019 3.1 On the facts and in circumstances of the case and in law, the Ld. AO has erred and the Hon. CIT(A) has further erred in upholding/confirming the action of the Ld. TPO/AO by proposing to initiate penalty proceedings under section 271(1)(c) of the Act without considering the facts of the case and legal provisions of the Act. The above 'Grounds of Appeal' are all independent and without prejudice to one another.” 2. Ground No.1 raised by the assessee is with regard to transfer pricing adjustment on the international transaction of receipt of services. At the time of hearing, ld. AR of the assessee submitted that this issue is squarely covered in favour of the assessee in assessee’s own case in ITA No.7923/Del/2019 for AY 2012-13 vide order dated 14.11.2024. Accordingly, he prayed that this ground may be allowed. 3. On the other hand, ld. DR of the Revenue fairly accepted that Ground No.1 is covered issued. 4. Considered the rival submissions and material placed on record. We find that this issue is covered in favour of the assessee by the decision of coordinate Bench dated 14.11.2022 (supra). For the sake of clarity, the relevant part of the findings of the abovesaid order is reproduced below:- Reproduce 34. We have heard the rival submissions and have perused the relevant material on record. The co-ordinate Bench of ITAT Delhi Bench in the case of Humboldt Wedag India Pvt Ltd (supra) has held as under: “Ground No. 1.1 to 1.5 pertaining to transfer pricing adjustment of Rs. 1,56,78,332 7.1 Our attention was drawn to the order of the Hon’ble Tribunal for the assessment years 2014-15 and 2016-17 in assessee’s own case wherein similar issue arose for consideration and the Hon’ble Tribunal keeping in view the entire facts and circumstances of the case deleted the entire adjustment made on this account by allowing the mark-up charged by the AEs in the services provided to the assessee. The relevant extract of the order of the Hon’ble Tribunal for the assessment years 2014-15 4 ITA No.7924/DEL/2019 and 2016- 17 in ITA No. 8119/De/2018 and ITA No. 475/Del/2021 respectively dated 18.08.2021 is reproduced below:- “4. The assessee paid Rs.8.28 lacs for supervising charges, and Rs.14.25 Crores for central services. On supervision services, the AE charged a net profit mark-up of 4% on the internal cost incurred on the basis of number of hours spent by its personal in providing such services. On the central services, the AE charged 5% profit mark- up on internal cost while third party costs are charged on cost to cost basis. 5. The mark-up of 4% and 5% has been disallowed by the TPO and accordingly enhanced the income of the assessee based on the id. DRP observations for the year 2010-11. For the sake of ready reference, the same is reproduced as under: \"3.3.2. In the assessee's case, the intra- group services relate to general administration, finance and accounting, coordination, general management, corporate and project financing, recruitment and education. It is noted that the assessee is an entrepreneur in its own right and is engaged in engineering, procurement and commissioning projects for the third party clients. It procured orders on independent basis and also carried out the project on its own. It is hardly operating as an extension of AE or catering exclusively to the AE. It virtually undertakes all the risks associated with rendering services, marketing and performs various complex roles. Therefore, the ratio of Supreme Court decision in the case of Morgan and Stanley & Co. hardly applies on the facts of the assessee's case. The assessee has also provided substantial evidence in form of e-mails and correspondence with the AE in respect of the services rendered by the AE. On going through the same, it clearly comes out that the AE was rendering services which were beneficial for the assessee in conducting its business. No doubt, some benefit of the services may have accrued to overall group also. But the primary beneficiary was definitely the assessee. Under these circumstances, it would not be proper to term the services rendered by the AE as stewardship activity. 5 ITA No.7924/DEL/2019 3.3.3. Corning to the quantum of payment for the services, it is seen that from the total cost of services, cost of stewardship activity services/duplicate services is first removed. The remaining cost is allocated to different organizations of the group. The assessee pays the cost of services allocated to it plus ore-agreed mark up. In the course of hearing, the assessee was asked to justify the mark up. However, no detailed justification was provided in this regard. It was only stated that since the AE was providing the services, it was entitled to earn some margin on the same. However, as discussed earlier, while the primary beneficiary of the services is the assessed, there are also some incidental benefits accruing to the group. The parent company gets benefited by better synergies, scale of economy, better coordination and reporting. Considering this, the AE, in our opinion, was not justified in charging any mark up on the cost of services. The arm's length price of the services is therefore decided at the actual cost. The adjustment is therefore sustained to the extent of mark up only. The TPO is directed to reduce the adjustment accordingly.\" 6. The main argument of the Id. AR was that these transactions are benchmarked by using TNMM and furnished that TP documentation whereas the TPO did not follow any prescribed method and the entire mark-up is disallowed without giving any reasons. The observation of the revenue that the parent company gets benefited by better synergies, scale of economy, better coordination and reporting cannot be accepted. 7. While the assessee avails supervision services from its AEs and pays mark-up charges, it also provides such services to the AEs for their third party contracts and receives mark-up charges. The pricing basis and the results arising from the same have been accepted by the TPO. Disallowing the markup on receipt of services while in-principle accepting the provision of similar services rendered having similar intent and basis of pricing cannot be valid ground to disallow the mark-up. It is not out of contest to note that no such disallowance has been made on the mark-up in the case of the assessee AY 2007-08 to 2012-13 and AY 2015-16. 6 ITA No.7924/DEL/2019 8. Hence, keeping in view, the entire facts and circumstances, the contention of the revenue that the AE invariably derives some benefit and hence no mark-up should be charged, cannot be accepted.” 7.2 Keeping in view the rule of consistency and more so the position that the facts for the assessment year 2017-18 remain the same as that of assessment year 2014-15 and 2017 in respect of the impugned transactions with its AE, we respectfully following the order of the Hon’ble Tribunal (supra) direct the Ld. AO to delete the addition of Rs.1,56,78,332/-. Ground No. 1.1 to 1.5 pertaining to the adjustment of Rs. 1,56,78,332 to the total income of the assessee on account of difference in ALP of its international transactions with its AEs relating to availment of supervision services, SAP services and Central services are thus allowed.” 35. Further, the co-ordinate bench of ITAT Delhi Bench in the case of BMW India Financial Services Pvt Ltd ITA No. 478 & 562/DEL/2022 vide order dated 03.02.2023 held as under: ”Hence, in view of the observations above, it cannot be said that the software/IT support services cannot be charged at par. A markup of 5% policy for the IT services rendered is an acceptable markup by international guidelines and as per EU Joint Transfer Pricing Forum. It cannot be expected that the parent organization supply support services without charging anything for such services rendered. Hence , we hold that the markup o f 5% is sufficient to recoup the expenditure involved by the AE in exploration, inspection, testing and finalization of ITA Nos. 478 & 562/Del/2022 BMW India Financial Services Pvt. Ltd. 12 the suitable software . Accordingly, we direct that no other expenses other than 5% markup be allowed on the support services rendered by the AE.” 36. Respectfully following the decision of the co-ordinate bench in Humboldt Wedag and BMW India Financial Services (supra) case, we direct the TPO to allow mark-up on receipt of services. Ground no. 3.1 to 3.8 is allowed.” 5. With regard to Ground No.2, ld. AR of the assessee brought to our notice page 3 of the assessment order wherein while computing the book profit, the Assessing Officer has considered the profit declared by the assessee in the Profit & Loss Account of Rs.33.23 crores and proceeded to make the ALP adjustment. However, he submitted 7 ITA No.7924/DEL/2019 that the Assessing Officer has ignored the carry forward of business loss. He brought to our notice page 234 of the paper book and submitted that the tax liability determined by the assessee u/s 115JB of the Income-tax Act, 1961 (for short ‘the Act’) and the assessee has determined the book profit of Rs.3,86,65,980/-. He also brought to our notice page 235 of the paper book wherein assessee has submitted the carry forward of business loss as well as unabsorbed depreciation and prayed that the issue under consideration may be remitted back to the Assessing Officer to verify the same and compute the book profit as per law. 6. On the other hand, ld. DR of the Revenue did not raise any objection of remitting this issue back to the file of Assessing Officer. 7. Considered the rival submissions and material placed on record. After going through the submissions of the ld. AR of the assessee, we are of the opinion that this issue be restored back to the file of Assessing Officer to decide afresh as per law, after providing an opportunity of being heard to the assessee. We direct and order accordingly. 8. Ground No.3 raised by the assessee is premature, hence the same is dismissed. 9. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on this 28th day of May, 2025. Sd/- sd/- (ANUBHAV SHARMA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28.05.2025 TS 8 ITA No.7924/DEL/2019 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "