M/s. BG India Energy Solutions Pvt. Ltd., New Delhi V. ACIT, Gurgaon

ITA 1021/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3465 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 03-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Rule of consistency; Wholly owned subsidiary
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1021/DEL./2014 (ASSESSMENT YEAR : 2009-10) M/S. BG INDIA ENERGY SOLUTIONS VS. ACIT, CIRCLE 1( 1), PRIVATE LIMITED, GURGAON. 3 RD FLOOR, WORLD TRADE CENTRE, BARAKHAMBA LANE, CONNAUGHT PLACE, NEW DELHI 110 001. (PAN : AAACB9739J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL KALRA, ADVOCATE AND MS. SUMISHA MURGAI, CA REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR DATE OF HEARING : 13.09.2017 DATE OF ORDER : 30.10.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. BG INDIA ENERGY SOLUTIONS PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 24.12.2013, PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE ITA NO.1021/DEL/2014 2 INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTER ALIA THAT :- 1: 0 RE.: ADJUSTMENT OF RS.4,85,779/- ON ACCOUNT OF TIME WRITING CHARGES PAID: 1: 1 THE ASSESSING OFFICER 1 DISPUTE RESOLUTION PA NEL 1 TRANSFER PRICING OFFICER HAVE ERRED IN MAKING AN UPWARD ADJUSTMENT OF RS.4,85,779/- TO THE TOTAL INC OME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTION RELATING TO THE TIME WRITING CHARGES PA ID BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE ('AE') A RE NOT AT ARM'S LENGTH. 1:2 THE APPELLANT SUBMITS THAT, CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILIN G ON THE SUBJECT, THE INTERNATIONAL TRANSACTION RELATING TO PAYMENT OF TIME WRITING CHARGES TO ITS AE ARE AT AR M'S LENGTH AND HENCE NO ADJUSTMENT IN RESPECT THEREOF W AS CALLED FOR AND THE STAND TAKEN BY THE ASSESSING OFF ICER / DISPUTE RESOLUTION PANEL / TRANSFER PRICING OFFICER IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND INCORREC T. 1: 3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFIC ER BE DIRECTED TO DELETE THE UPWARD ADJUSTMENT OF RS.4,85,779/- MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE-COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. WITHOUT PREJUDICE TO THE FOREGOING 2: 0 RE.: DOUBLE DISALLOWANCE OF RS.4,85,779/- ON ACCOUNT OF TIME WRITING CHARGES PAID: 2: 1 THE ASSESSING OFFICER HAS ERRED IN MAKING A FURTHER DISALLOWANCE OF RS.4,85,779/- OF THE TIME W RITING CHARGES PAID BY THE APPELLANT IGNORING THE FACT THA T THE SAID AMOUNT WAS SUO-MOTO DISALLOWED BY THE APPELLAN T U/S. 40(A)(IA) OF THE INCOME-TAX ACT, 1961 WHILE RETURNING ITS TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION AND BY ALSO IGNORING THE SPECIFIC DIR ECTIONS OF THE DISPUTE RESOLUTION PANEL IN THIS REGARD. 2 : 2 THE APPELLANT SUBMITS THAT THE ASSESSING OFFI CER BE DIRECTED TO DELETE THE DISALLOWANCE OF RS.4,85,7 79/- ITA NO.1021/DEL/2014 3 MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE- COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDIN GLY. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF BG ASIA PACIFIC HOLDINGS PTE LTD. IN INDIA AFTER OBTAINING APPROVAL OF FOREIGN INVESTMENT PROMOTION BOARD OF G OVERNMENT OF INDIA. TRANSFER PRICING OFFICER (TPO), DURING T RANSFER PRICING PROCEEDINGS, NOTICED THAT THE TAXPAYER HAS MADE PAY MENT OF RS.10,76,273/- FOR SERVICES PROVIDED TO THE BGIL WH ICH ARE IN THE NATURE OF SHAREHOLDER SERVICES FOR WHICH THE BENEFI T IS DERIVED BY THE PARENT COMPANY, HENCE BG INDIA ENERGY (THE TAXP AYER) CANNOT BE ASKED TO PAY FOR THE SAME. THE TAXPAYER WAS CAL LED UPON TO EXPLAIN. THE TAXPAYER CLAIMED THAT OUT OF THE TOTA L AMOUNT OF RS.10,76,273/- CLAIMED AS REIMBURSEMENT OF EXPENSES , THE AMOUNT OF RS.4,85,779/- IS REIMBURSEMENT OF THE TIME WRITI NG CHARGES WHICH ARE NOT IN RESPECT OF SHAREHOLDER ACTIVITIES. HOWEVER, LD. TPO BY FOLLOWING THE ORDER PASSED BY LD. DRP FOR AY 2007-08 PROCEEDED TO HOLD THAT SERVICES PROVIDED BY BGIL AR E IN THE NATURE OF SHAREHOLDER SERVICES AND THE ALP OF THE SAME HAS BEEN TREATED AS NIL. TPO FURTHER HELD THAT SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL AS IN THE PREVIOUS YEARS THE ARMS LENGTH PRICE (ALP) OF REIMBURSEMENT OF RS.4,85,779/- ON AC COUNT OF TIME ITA NO.1021/DEL/2014 4 WRITING CHARGES IS TAKEN AS NIL AND THEREBY MADE TO TAL ADJUSTMENT OF RS.4,85,779/-. 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING OBJ ECTIONS BEFORE THE LD. DRP WHO HAS AFFIRMED THE ORDER PASSE D BY TPO AND DIRECTED THE AO TO APPROPRIATELY INCLUDE THE BASIS OF UPHOLDING THE TPOS ACTION IN THE FINAL ORDER TO RESTRICT THE DIS ALLOWANCE OF IMPUGNED SUM ONLY ONCE. IN COMPLIANCE TO THE PROPO SAL MADE BY LD. TPO AND DIRECTION ISSUED BY THE LD. DRP, THE AO PASSED ASSESSMENT ORDER BY MAKING ADDITION OF RS.4,85,779/ -. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE DETAIL OF REIMBURSEMENT OF EXPENSES OF RS.10 ,76,273/- MADE TO BGIL IS AS UNDER :- S.NO. PARTICULARS AMOUNT (IN RS.) 1 REIMBURSEMENT OF TIME WRITING CHARGES 4,85,779 2 REIMBURSEMENT OF BANK CHARGES 5,87,307 3 REIMBURSEMENT OF THIRD PARTY TRAVEL EXPENSES 3,187 TOTAL 10,76,273 ITA NO.1021/DEL/2014 5 6. FROM THE GROUNDS OF APPEAL, ARGUMENTS ADDRESSED BY LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE AP PEAL AND FACTS & CIRCUMSTANCES OF THE CASE, THE SOLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER REIMBURSEMENT OF TIME WRITING CHARG ES TO THE TUNE OF RS.4,85,779/- ARE IN THE NATURE OF SHAREHOLDER SERVICES AND THE ALP THEREOF IS TO BE TREATED AS NIL? 7. UNDISPUTEDLY, LD. TPO IN ORDER TO MAINTAIN THE C ONSISTENCY FOLLOWED THE ORDER PASSED BY LD. DRP IN ASSESSEES OWN CASE FOR AY 2008-09, WHEREIN SIMILAR TYPE OF TIME WRITING SE RVICES PROVIDED BY BGIL HAS BEEN TREATED IN THE NATURE OF SHAREHOLDER SERVICES AND THE ALP THEREOF HAS BEEN TREATED AS NI L. SO, LIKEWISE, LD. TPO PROPOSED THE ALP OF RS.4,85,779/- ON ACCOUN T OF TIME WRITING CHARGES TO BE TAKEN AS NIL AND THEREBY MADE TP ADJUSTMENT OF RS.4,85,779/-. 8. LD. AR FOR THE ASSESSEE CONTENDED THAT THE ISSUE IN CONTROVERSY HAS ALREADY BEEN SET AT REST BY THE COO RDINATE BENCH OF THE TRIBUNAL IN CASES OF BG EXPLORATION & PRODUCTION INDIA LTD. VS. JCIT (INTERNATIONAL TAXATION), DEHRADUN (2017 ) 82 TAXMANN.COM 446 (DELHI TRIB.), A GROUP COMPANY AND EATON ITA NO.1021/DEL/2014 6 TECHNOLOGIES (P.) LTD. VS. DCIT, CIRCLE 1 (2), PUNE IN FAVOUR OF THE ASSESSEE. 9. LD. AR FOR THE TAXPAYER FURTHER CONTENDED THAT T HE ASSESSEE HAS BEEN CONTINUOUSLY AVAILING ALL THE AFORESAID SE RVICES FROM ITS ASSOCIATED ENTERPRISES AND IN THE SUBSEQUENT ASSESS MENT YEAR AY 2011-12, TPO HAS ACCEPTED THE INTERNATIONAL TRANSAC TION OF THE PAYMENT OF TIME WRITING CHARGES AT ARMS LENGTH. 10. IDENTICAL REIMBURSEMENT OF TIME WRITING CHARGES WAS CLAIMED BY THE ASSESSEE COMPANY IN AY 2010-11 AND TPO HAS T AKEN ARMS LENGTH PRICE OF REIMBURSEMENT AND THE SAME AT NIL A ND PROPOSED TP ADJUSTMENT THEREOF. IN THE INSTANT CASE, THE TPO/D RP/AO HAVE MERELY FOLLOWED THE DECISION RENDERED BY LD. DRP FO R AY 2008-09 IN ASSESSEES OWN CASE WHICH WAS CHALLENGED. 11. NOW, SO FAR AS QUESTION OF MAKING UPWARD ADJUST MENT OF RS.4,85,779/- BY THE AO/DRP/TPO ON ACCOUNT OF TIME WRITING CHARGES IS CONCERNED, TPO HAS MADE ADJUSTMENT FOR T HE SOLE REASON THAT THE TAXPAYER HAS NOT SUPPLIED ANY DETAILS OF S ERVICES PROVIDED AND THE EMPLOYEES OF BGIL WHO HAVE PROVIDED THESE S ERVICES NOR THE ASSESSEE HAS PRODUCED ANY SUPPORTING DOCUMENTAR Y EVIDENCE FOR THE SERVICE PURPORTEDLY TO BE PROVIDED BY THE B GIL NOR THE TAXPAYER HAS PROVED ANY BENEFIT HAS BEEN DERIVED. MORE SO, THE LD. ITA NO.1021/DEL/2014 7 TPO HAS FOLLOWED THE ORDER OF AYS 2007-08 AND 2008- 09 IN ASSESSEES OWN CASE QUA THE IDENTICAL ISSUE. 12. HOWEVER, THE LD. AR FOR THE TAXPAYER TAKEN US T O PAGE 65 TO 75 OF THE PAPER BOOK WHEREIN THE COMPLETE DETAIL AS REQUIRED BY LD. TPO QUA SERVICES PROVIDED ALONG WITH INVOICES HAS B EEN SUPPLIED VIDE LETTER DATED 26.10.2012, AVAILABLE AT PAGE 63 OF THE PAPER BOOK. THIS FACT HAS NOT BEEN CONTROVERTED BY THE L D. DR DURING THE COURSE OF ARGUMENTS. FURTHERMORE THE LD. AR FOR TH E TAXPAYER BY RELYING UPON THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN BG EXPLORATION & PRODUCTION INDIA LTD. VS. ADDL. DIR IN ITA NO.534/DEL/2013 ORDER DATED 28.04.2017 WHEREIN SIMILAR SERVICES HAVE BEEN RENDERED BY BGIL TO THE GROUP COMPANY, WHEREIN ALP OF TIME WRITING CHARGES SERVIC ES HAVE BEEN UPHELD BY THE LD. DRP IN AYS 2009-10 AND 2010-11 AS DOCUMENTED BY THE TAXPAYER HOLDING THAT NEED TEST, BENEFIT TEST, RENDITION TEST, DUPLICITY TEST AND SHAREHOLDERS AC TIVITY TEST ARE TO BE SATISFIED. 13. THE LD. AR FOR THE TAXPAYER CONTENDED THAT THE LD. DRP HAS DELETED THE IDENTICAL ADJUSTMENT MADE BY THE TPO FO R AYS 2009-10 AND 2010-11 ON ACCOUNT OF TIME WRITING CHARGES HOLD ING THAT THE TAXPAYER HAS RECEIVED USEFUL SERVICES FOR ITS AES. THIS CONTENTION RAISED BY LD. AR FOR THE TAXPAYER HOLDS GROUND BECA USE THE ITA NO.1021/DEL/2014 8 DECISION RENDERED LD. DRP IN CASE OF GROUP COMPANY OF THE TAXPAYER, NAMELY, BG EXPLORATION & PRODUCTION INDIA LTD. HAS BEEN AFFIRMED BY THE COORDINATE BENCH OF THE TRIBUN AL IN CASE CITED AS BG EXPLORATION & PRODUCTION INDIA LTD. (SUPRA) BY HOLDING THAT THE LD. DRP HAS RIGHTLY HELD THAT TIME WRITING SERVICES ARE NEITHER DUPLICATIVE IN NATURE NOR ARE SHAREHOLDER A CTIVITIES AS HAS BEEN HELD BY THE LD. TPO IN THIS CASE. 14. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT WHEN THE ENTIRE EVIDENCE HAS BEEN BROUGHT ON RECORD OR ASSESSED DURING TP PROCEEDINGS AS HAS BEEN DISCUSSED IN THE PRECEDING PARAS TO PROVE THE FACT THAT ADJUSTMENT OF RS.4,85,779/- ON ACCOUNT OF TIME WRITING CHARGES IS AT ARMS LENGTH AND ALSO IN CONSONANCE WITH THE ORDER PASSED BY LD. DRP IN AYS 2009-10 AND 2010 -11 IN BG EXPLORATION & PRODUCTION INDIA LTD. DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 28.04.2017 ( SUPRA) TO WHOM SIMILAR SERVICES HAVE BEEN RENDERED BY BGIL, T HE LD. TPO IS DIRECTED TO EXAMINE THE ISSUE AFRESH FOR DETERMINAT ION OF THE ALP OF THE TIME WRITING CHARGES PAID BY THE ASSESSEE IN THE LIGHT OF THE DECISION RENDERED BY THE COORDINATE BENCH OF THE TR IBUNAL IN BG EXPLORATION & PRODUCTION INDIA LTD. (SUPRA) BY FOLL OWING THE RULE OF CONSISTENCY. ITA NO.1021/DEL/2014 9 15. SO FAR AS GROUND NO.2 QUA DOUBLE DISALLOWANCE O F RS.4,85,779/- ON ACCOUNT OF TIME WRITING CHARGES PA ID BY THE ASSESSEE TO ITS AE IS CONCERNED, THE LD. DRP HAS MA DE A CATEGORIC DIRECTION IN PARA 4.2 OF THE ORDER TO THE AO TO APP ROPRIATELY INCLUDE THE BASIS OF UPHOLDING THE TPOS ACTION ON THIS ACC OUNT BY THE THEN PANEL IN THE FINAL ORDER BUT RESTRICTED THE DISALLO WANCE OF MONEY ONLY ONCE AS A DISALLOWANCE OF RS.4,85,779/- IS INC LUDED IN THE DISALLOWANCE OF MISC. EXPENSES OF RS.11,07,758/- MA DE BY THE TAXPAYER IN THE COMPUTATION OF TOTAL INCOME FILED W ITH THE RETURN OF INCOME IN COMPLIANCE TO THE PROVISIONS CONTAINED U/ S 40(A) OF THE ACT, WHICH OTHERWISE AMOUNTS TO DOUBLE ADDITION ON THIS ACCOUNT. BUT THESE DIRECTIONS OF THE DRP HAVE NOT BEEN COMPL IED WITH BY THE AO WHILE FRAMING THE ASSESSMENT AO IS DIRECTED TO COMPLY WITH THE DIRECTIONS ISSUED BY THE LD. DRP AS CONTAI NED IN PARA 4.2 OF THE ORDER PASSED BY THE LD. DRP. 16. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 30 TH DAY OF OCTOBER, 2017. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 30 TH DAY OF OCTOBER, 2017 TS ITA NO.1021/DEL/2014 10 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.