Grail Research India Pvt. Ltd., Mumbai V. DCIT, New Delhi

ITA 1473/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3676 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 06-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 12-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY F BARA
• Assessee Lawyers: PERCY PERDIWALA
• Keywords: Transfer pricing; International transaction; Question of law; Wholly owned subsidiary
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.1473/DEL/2013 ASSESSMENT YEAR : 2008-09 GRAIL RESEARCH INDIA PVT. LTD. (NOW KNOWN AS INTEGREON (INDIA) PVT. LTD.), 402, BUILDING NO.4, INFINITY PARK, GEN. A.K. VAIDYA MARG, MALAD (E), MUMBAI. PAN: AACCG7235J VS. DCIT, CIRCLE-12(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PERCY PERDIWALA, SR. ADVOCATE DEPARTMENT BY : SHRI SANJAY F. BARA, CIT, DR DATE OF HEARING : 07.02.2018 DATE OF PRONOUNCEMENT : 08.02.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (A O) ON 28.09.2012 ITA NO.1473/DEL/2013 2 U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2008-09. 2. THIS IS A RECALLED MATTER INASMUCH AS THE EARLIE R EX PARTE ORDER DATED 17.12.2013 PASSED BY THE TRIBUNAL WAS SUBSEQU ENTLY RECALLED ON 23.05.2014. 3. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE ADDITION ON ACCOUNT OF THE TRANSFER PRICING ADJUSTMENT AMOUNTIN G TO RS.261,21,340/-. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF GRAIL RESEARCH LTD., CYPRUS. T HE ASSESSEE IS ENGAGED IN PROVIDING CONSULTANCY SERVICES; RESEARCH AND DEVELOPMENT SERVICES; CORPORATE STRATEGY DETERMINATION; FINANCE , ACCOUNTING, TREASURY AND LEGAL FUNCTION; AND HUMAN RESOURCE MAN AGEMENT FUNCTION TO ITS ASSOCIATED ENTERPRISE (AE), NAMELY, GRAIL RESEARCH LLC (GRAIL US). AN INTERNATIONAL TRANSACTION OF PROVIS ION OF ITES SERVICES TO GRAIL US WAS REPORTED WITH TRANSACTED VALUE OF R S.18,55,12,261/-. ITA NO.1473/DEL/2013 3 THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN M ETHOD (TNMM) WITH PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROF IT/TOTAL COST (OP/TC). CERTAIN COMPARABLES WERE SELECTED BY THE A SSESSEE TO DEMONSTRATE THAT THE INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH PRICE (ALP). THE ASSESSING OFFICER MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ALP OF THE INTERN ATIONAL TRANSACTION. AFTER MAKING CERTAIN INCLUSIONS/EXCLUSIONS FROM/TO THE LIST OF COMPARABLES, THE TPO FINALLY DETERMINED THE ALP AT RS.20.89 CRORE AND, ACCORDINGLY, PROPOSED THE TRANSFER PRICING ADJUSTME NT OF RS.2.34 CRORE. THE DRP MADE CERTAIN ALTERATIONS IN THE LIST OF COM PARABLES. WHILE GIVING EFFECT TO THE DIRECTIONS GIVEN BY THE DRP, T HE ASSESSING OFFICER MADE AN ADDITION ON ACCOUNT OF TRANSFER PRICING ADJ USTMENT AMOUNTING TO RS.2,61,21,340/-. THE ASSESSEE IS AGGRIEVED AGAINST THIS ADDITION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE APPL ICATION OF THE TNMM AS THE MOST APPROPRIATE METHOD WITH THE PLI OF OP/ TC. IN FACT, THE LD. SR. AR SUBMITTED THAT THE ASSESSEE WOULD BE SATISFI ED IF ONLY THREE ITA NO.1473/DEL/2013 4 COMPANIES, NAMELY, APITCO LTD., RITES LTD., AND WAP COS LTD. (SEG) ARE EXCLUDED FROM THE FINAL LIST OF COMPARABLES CONSIST ING OF TEN COMPANIES. 6. WE FIND THAT THE MUMBAI BENCH OF THE TRIB UNAL IN THYSSENKRUPP INDUSTRIES INDIA PRIVATE LIMITED VS. ADDL. CIT (ITA NO.6460/MUM/2012), VIDE ITS ORDER DATED 27.02.2013, A COPY PLACED ON RECORD, EXCLUDED ENGINEERS INDIA LTD ., INTER ALIA , ON THE GROUND THAT IT IS A GOVERNMENT COMPANY AND PROFIT MOTIVE CAN NEVER BE A RELEVANT CONSIDERATION IN GOVERNMENT UNDERTAKINGS. THIS ORDE R PASSED BY THE TRIBUNAL WAS ASSAILED BY THE REVENUE BEFORE THE HON 'BLE BOMBAY HIGH COURT. VIDE ITS JUDGMENT DATED 28.03.2016, THE HON 'BLE BOMBAY HIGH COURT HAS REFUSED TO ADMIT THE QUESTIONS OF LAW ON THIS ASPECT OF THE MATTER. A COPY OF SUCH ORDER IS AVAILABLE ON RECOR D. FURTHER, THE DELHI BENCH OF THE TRIBUNAL IN INTERNATIONAL SOS SERVICES INDIA P. LTD. VS. DCIT (ITA NO.1631/DEL/2014) VIDE ITS ORDER DATED 08.12.2 015, FOLLOWED THE DECISION OF THE MUMBAI BENCH OF THE THYSSEN KRUPP INDUSTRIES INDIA PRIVATE LIMITED VS. ADDL. CIT (SUPRA) AND ORDERED TO EXCLUDE APITCO LTD. ON THE GROUND OF IT BEING A GO VERNMENT COMPANY. ITA NO.1473/DEL/2013 5 THE REVENUE PREFERRED APPEAL AGAINST THIS ORDER. TH E HON'BLE DELHI HIGH COURT, VIDE ITS JUDGMENT DATED 30.05.2017, A COPY PLACED ON RECORD, REFUSED TO ADMIT ANY QUESTION OF LAW ARISIN G FROM THIS ASPECT OF THE MATTER. STILL FURTHER, THE MUMBAI BENCH OF THE TRIBUNAL IN ANOTHER DECISION IN SHELL INDIA MARKETS PVT. LTD. VS. ACIT (ITA NO.193/MUM/2013), VIDE ITS ORDER DATED 10.12.2014, ORDERED TO EXCLUDE RITES LTD. AND WAPCOS LTD. (SEG) ON THE SAME REASON ING THAT THESE ARE GOVERNMENT UNDERTAKINGS. IT IS ALSO SEEN THAT THE DELHI BENCH OF THE TRIBUNAL IN VIRGINIA TRANSFORMER INDIA PVT. LTD. VS. ITO (ITA NO.1001/DEL/2014) HAS EXCLUDED WAPCOS LTD., VIDE ITS ORDER DATED 31.07.2017 ON THE GROUND OF IT BEING A GOVERNMENT O F INDIA UNDERTAKING. THE ABOVE DISCUSSION SHOWS THAT A GOVE RNMENT OF INDIA UNDERTAKING CANNOT BE INCLUDED IN THE LIST OF COMPA RABLES. 7. IT IS AMPLY BORNE OUT FROM THE ABOVE ORDERS THAT ALL THE THREE COMPANIES UNDER CHALLENGE, NAMELY, APITCO LTD., RI TES LTD., AND WAPCOS LTD. (SEG) ARE GOVERNMENT OF INDIA UNDERTAKI NGS. DESPITE THEIR FUNCTIONAL SIMILARITY, THESE COMPANIES CANNOT BE CO NSIDERED AS ITA NO.1473/DEL/2013 6 COMPARABLE. OUR VIEW IS FORTIFIED BY THE ABOVE DISC USSED PRECEDENTS. ERGO, WE ORDER TO EXCLUDE THESE THREE COMPANIES FRO M THE LIST OF COMPARABLES. THE TPO IS DIRECTED TO RECOMPUTE THE ALP OF THE INTERNATIONAL TRANSACTION AFRESH AFTER EXCLUDING TH E ABOVE THREE COMPANIES. NEEDLESS TO SAY, THE ASSESSEE WILL BE AL LOWED AN OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 8. THE ONLY OTHER GROUND WHICH SURVIVES IN THIS APP EAL IS AGAINST THE COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. THE A SSESSING OFFICER COMPUTED DEDUCTION U/S 10A IN THE PRESCRIBED FORMUL A BY EXCLUDING COMMUNICATION EXPENSES AMOUNTING TO RS.59,17,996/ - FROM THE FIGURE OF `EXPORT TURNOVER. HOWEVER, THE FIGURE OF `TOTA L TURNOVER IN THE FORMULA WAS CONSIDERED AS INCLUSIVE OF SUCH COMMUNI CATION EXPENSES. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS NO M ORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. GENPACT INDIA (2011) 203 TAXMAN 632 (DEL) , IN WHICH IT HAS BEEN HELD THAT THE COMMUNICATION EXPENSES REDUCED FROM `EXPOR T TURNOVER SHOULD ITA NO.1473/DEL/2013 7 ALSO BE REDUCED FROM TOTAL TURNOVER FOR THE PURPO SE OF DEDUCTION UNDER S. 10A. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. MERCER CONSULTING INDIA (P) LTD. (2017) 390 ITR 615 (P&H) HAS ALSO HELD THAT TELECOMMUNICATION CHARGES SHOULD BE EXCLUDED BOTH F ROM THE `EXPORT TURNOVER AND `TOTAL TURNOVER IN THE FORMULA PRESC RIBED FOR COMPUTING DEDUCTION U/S 10A. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE KARNATAKA HIGH COURT IN CIT & ANR VS. TATA ELXSI LTD. AND ORS (2012) 349 ITR 98 (KAR). IN VIEW OF THE ABOVE DECISIONS, IT IS CLEAR THAT THE AMOUNT OF COMMUNICATION EXPENSES IS REQUIRED TO BE REDUCED BOTH FROM THE `EXPORT TURNOVER AS WELL AS THE `TOTAL TURNOVE R. WE ORDER ACCORDINGLY. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE AMOUNT OF DEDUCTION U/S 10A OF THE ACT BY EXCLUDING THE AM OUNT OF COMMUNICATION EXPENSES BOTH FROM THE `TOTAL TURNOVE R AND `EXPORT TURNOVER. ITA NO.1473/DEL/2013 8 10. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 08.02.201 8. SD/- SD/- [K. NARASIMHA CHARY] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 08 TH FEBRUARY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.