Hitachi High- Technologies (Singapore) Pte Ltd.- India Branch Office, Gurgaon V. DCIT, New Delhi

ITA 1932/DEL/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6220 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Assessee Lawyers: NEERAJ JAIN SH RAMIT KATIYAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1932/DEL/2015 ASSESSMENT YEAR: 2011-12 HITACHI HIGH-TECHNOLOGIES (SINGAPORE) P. LTD. INDIA BRANCH OFFICE, 209, SECOND FLOOR, TIME TOWER, M. G. ROAD. GURGAON PAN NO. AABCH8797H VS DCIT CIRCLE GURGAON INTERNATIONAL TAXATION NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. NEERAJ JAIN, ADVOCATE SH. RAMIT KATIYAL, ADVOCATE RESPONDENT BY MS. NIDHI SHARMA, SR. DR. DATE OF HEARING: 10/10/2019 DATE OF PRONOUNCEMENT: 10/10/2019 ORDER PER N. K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER DATED 31.12.2014 FRAMED U/S. 143 (3) R.W.S. 144 C(1 3) OF THE ACT. 2. THE GRIEVANCE OF THE ASSESSEE READ :- 1. ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE HONBLE DISPUTE 2 RESOLUTION PANEL - IV, NEW DELHI (THE LD DRP) GRO SSLY ERRED IN CONFORMING THE ADDITION OF RS 40,34,383 PROPOSED BY THE LD DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE GURGAON, NEW DELHI (THE LD AO). 2. THE LD DRP HAS ERRED, IN FACTS AND IN LAW, IN CONF IRMING THAT THE LD AO HAS DISCHARGED HIS STATUTORY ONUS BY ESTABLISHING THAT THE CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SECTION 92C(3) OF THE ACT HAVE BEEN S ATISFIED BEFORE DISREGARDING THE ARM'S LENGTH PRICE DETERMINED BY THE APPELLANT AND PROCEE DING TO DETERMINE THE ARM'S LENGTH PRICE HIMSELF. 3. THE LD DRP/AO ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE IN CONSIDERING A COMPANY NAMELY ICC INTERNATIONAL AGENCIES LIMITED W HICH HAS EARNED SUPER NORMAL PROFITS DURING THE RELEVANT ASSESSMENT YEAR, AS COM PARABLE TO THE APPELLANT FOR BENCHMARKING THE IMPUGNED TRANSACTION PERTAINING TO PROVISION OF SERVICES. 4. THE LD DRP/AO ERRED, ON FACTS AND IN LAW, BY NOT AC CEPTING THE QUANTITATIVE ADJUSTMENTS CLAIMED BY THE APPELLANT IN ACCORDANCE WITH THE TRANSFER PRICING PROVISIONS ON ACCOUNT OF SIGNIFICANT DIFFERENCES IN CAPACITY UTIL IZATION: 4.1 THE APPELLANT HAD CLAIMED AN ADJUSTMENT FOR DI FFERENCES IN CAPACITY UTILIZATION VIS-A-VIS THE COMPARABLE COMPANIES. THE DRP/AO HAD ALSO FAILED TO APPRECIATE AND GIVE DUE COGNIZANCE TO FACTUAL DATA SUBMITTED ON THE NUMBER OF YEARS OF OPERATIONS OF THE COMPARABLE COMPANIES. 4.2 THE APPELLANT ALSO RESPECTFULLY SUBMITS THAT A N ADJUSTMENT DUE TO DIFFERENCES BETWEEN THE ACTUAL CAPACITY UTILIZATION VIS-A-VIS E STIMATED CAPACITY UTILIZATION SHOULD BE PROVIDED AS THE APPELLANT WAS IN ITS INITIAL YEARS OF BUSINESS OPERATIONS. 5. THE LD DRP/AO ERRED IN FACTS AND CIRCUMSTANCES OF T HE CASE IN REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT AND CONSIDERI NG FUNCTIONALLY DISSIMILAR COMPANIES AS COMPARABLE TO THE APPELLANT FOR BENCHMARKING THE IM PUGNED TRANSACTIONS PERTAINING TO PROVISION OF 3 SERVICES. 6. THE LD DRP/AO ERRED BY USING SINGLE YEAR DATA AS AG AINST THE MULTIPLE YEAR DATA USED BY THE APPELLANT, TO COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT USING TNMM. THE LD DRP/AO HAS ALSO ERRED IN USING DATA WH ICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING TRANSFER PRICING DOCUMENTATIO N. 7. THE LD DRP/AO ERRED IN IGNORING THE FACT THAT THE A PPELLANT WAS IN ITS NASCENT STAGE OF BUSINESS CYCLE EXPERIENCING HIGH FIXED COST OF OPER ATIONS AND THEREFORE THERE WAS A VALID CASE FOR ADJUSTING THE EXCESS FIXED COSTS INCURRED BY COMPAR ING THE CAPACITY UTILIZED BY THE APPELLANT IN FY 2010-11 VIS-A-VIS THE PROFITABILITY BEFORE THE STAR T OF OPERATIONS WITH THE ACTUAL PROFITABILITY. 8. THE LD. AO HAS ERRED IN FACTS AND IN LAW IN INITIAT ING THE PENALTY PROCEEDINGS U/S. 271 (1) (C) OF THE ACT AGAINST THE APPELLANT FOR CONCEA LING THE PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. 3. VIDE APPLICATION DATED 12.11.2018 ASSESSEE PRAYE D FOR ADMISSION OF ADDITIONAL GROUND OF APPEAL IN TERMS O F RULE 11 OF THE ITAT RULES 1963. THE ADDITIONAL GROUND SO READ AS UNDER :- 5.1 THAT THE DRP/ AO ERRED ON FACTS AND IN LAW IN CO MPUTING INCORRECT OPERATING MARGIN OF (I) ICC INTERNATIONAL AGENCIES LTD. AT 62.61% AS AGAINST 40.20% AND (II) INDIA TOURISM DEVELOPMENT CORPORATION LTD. AT (-) 5.86% AS AGAINS T (-) 17.21 % FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION OF PROVISION OF MARKET SUPPORT SERVICES U NDERTAKEN BY THE APPELLANT. 4 4. AT THE VERY OUTSET THE COUNSEL FOR THE ASSESSEE STATED THAT THE PROPOSED ADDITIONAL GROUND RELATES TO SOME CALC ULATION ERRORS IN THE IMPUGNED COMPARABLES ADOPTED BY THE AO. IT IS THE SAY OF THE COUNSEL THAT IT REQUIRES NO VERIFICATION OF NEW FACTS AS ALL THE FINANCIAL DATAS ARE AVAILABLE ON RECORD AND ONLY SO ME MATHEMATICAL CORRECTION NEED TO BE MADE. 5. WE HAVE CAREFULLY PERUSED THE APPLICATION RAISIN G ADDITIONAL GROUND. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. WHILE COMPUTING OPERATING MARGIN OF THE C OMPARABLE COMPANIES, THE AO HAS INCORRECTLY CALCULATED THE OP ERATING MARGIN WHICH REQUIRES FRESH DETERMINATION OF THE OP ERATING MARGINS HENCE, THE ADDITIONAL GROUND IS ADMITTED. 6. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH. CASE RECORD CAREFULLY PERUSED. 7. APPELLANT IS ENGAGED IN THE PROVISION OF MARKET SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISES HITACHI HIGH TECHNOLOGIES CORPORATION. 8. THE APPELLANT COMPANY HAS RENDERED SALES AND MAR KETING SUPPORT SERVICES/ SALES DEVELOPMENT SERVICES TO ITS AES, FOR WHICH IT HAS BEEN REMUNERATED RS.4,70,69,330/- DURING THE YEAR UNDER CONSIDERATION. THESE TRANSACTIONS HAVE BEEN AGGREG ATED FOR THE PURPOSE OF BENCHMARKING USING TNMM METHOD WITH OP/ OC AS THE PROFIT LEVEL INDICATOR. THE ASSESSEE HAS SELECT ED 11 5 COMPARABLES AND HAS TAKEN WEIGHTED AVERAGE OF 3 YEA RS TO JUSTIFY THE ARMS LENGTH NATURE OF THE TRANSACTION. 9. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS SELECTED THE COMPANIE S WHICH ARE NOT COMPARABLE TO THE ASSESSEE COMPANY. THE AO FUR THER NOTICED THAT THE ASSESSEE HAS USED MULTIPLE YEAR DATA FOR B ENCHMARKING THE TRANSACTION. 10. ACCORDINGLY, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. THE ASSESSEE WAS ASKED TO EXPLAIN WHY IT HAS USED M ULTIPLE YEAR DATA AND NOT CURRENT YEAR DATA ALONE I.E. F.Y.2010- 11. THE AO FURTHER PROPOSED TO EXCLUDE COMPANIES HAVING SUBSTA NTIAL RELATED PARTIES TRANSACTIONS (MORE THAN 25%), TO EXCLUDE CO MPANIES HAVING EXCEPTIONAL YEAR OF OPERATION AND TO EXCLUDE COMPANIES WITH DIFFERENT FUNCTIONAL PROFILE. 11. ASSESSEE FILED A DETAILED REPLY JUSTIFYING USE OF MULTIPLE DATA. THE ASSESSEE FURTHER CLAIMED THAT THE COMPARABLES U SED BY IT ARE GOOD COMPARABLES. 12. THE OBJECTIONS OF THE ASSESSEE WERE DISMISSED B Y THE AO WHO WAS OF THE FIRM BELIEF THAT CURRENT YEAR DATA A LONE SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF BENCHMA RKING. AFTER REFERRING TO OECD GUIDELINES AND VARIOUS JUDICIAL D ECISIONS THE AO FINALLY CONCLUDED BY TAKING THE FOLLOWING COMPAN IES IN THE FINAL SET OF COMPARABLES :- 6 13. IT CAN BE SEEN FROM THE ABOVE THAT MARGIN OF IC C INTERNATIONAL AGENCIES LIMITED (SEGMENTAL) IS TAKEN AT 62.61% AND THAT OF INDIA TOURISM DEVELOPMENT CORPORATION L IMITED (SEGMENTAL) IS TAKEN AT MINUS 5.86%. 14. BEFORE US THE COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE CORRECT MARGIN OF ICC INTERNATIONAL AGENCIES LIMITE D COMES TO 40.20% AND THAT OF INDIA TOURISM DEVELOPMENT CORPOR ATION LIMITED AT MINUS 17.21% AND FURNISHED THE MARGIN CO MPUTATION. 15. CONSIDERING THESE FACTS WE ARE OF THE CONSIDERE D VIEW THAT THE CALCULATION MADE BY THE ASSESSEE NEEDS VERIFICA TION BY THE AO. WE ACCORDINGLY RESTORE THE ENTIRE ISSUE TO THE FILES OF THE AO. THE ASSESSEE IS DIRECTED TO FURNISH THE CORRECT CAL CULATION OF MARGINS OF ICC INTERNATIONAL AND INDIA TOURISM AND THE AO IS DIRECTED TO EXAMINE THE SAME AND IF SATISFIED DECID E THE ISSUE AFRESH AFTER GIVING A REASONABLE OPPORTUNITY OF BEI NG TO THE ASSESSEE. 7 16. WITH THE ABOVE DIRECTIONS, ALL THE CONTESTED IS SUES REMAIN OPEN AND BOTH THE SIDES ARE AT LIBERTY TO FURNISH N EW DATAS / COMPARABLES. 17. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10.10.2019. SD/- SD/- [SUCHITRA KAMBLE] [N.K. B ILLAIYA] JUDICIAL MEMBER A CCOUNTANT MEMBER DATED: 10 OCTOBER , 2019 *NEHA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CITI 4. CIT(A) 5. DR ASST. REGISTRAR ITAT, NEW DELHI DATE OF DICTATION 10.10.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 10.10.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 10.10.2019 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS 10.10.2019 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 10.10.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 10.10.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 10.10.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10.1 0.2019 DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER