HTC India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 2247/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2395 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: PURUSHOTTAM ANAND ADVS
• Keywords: Transfer pricing
• Section: 92C; 143(3); 234B; 144C

Judgement Text

1 ITA NO. 2247/DEL/2017 IN THE INCOME TAX APPELLAT E TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 2247/DEL/2017 ( A.Y 2011-12) (THROUGH VIDEO CONFE RENCING) HTC INDIA PVT. LTD. UNIT NO. 4, GROUND FLOOR, BPTP PARK CENTRAL, NH-8, SECTOR-30 GURGAON AABCH9877L (APPELLANT) VS DCIT CIRCLE-11 (1) NEW DELHI (RESPONDENT) APPELLANT BY SH. NAGESHWAR RAO & SH. PURUSHOTTAM ANAND, ADVS RESPONDENT BY SH. SURENDER PAL, CIT(DR) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 19/01/2017 PASSED BY CIT(A)-19, NEW DELHI FOR ASSESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- PRESENT APPEAL' IS DIRECTED AGAINST ORDER DATED 19 TH JANUARY 2017(IMPUGNED ORDER) PASSED BY HONBLE COMMISSIONER OF INCOME TAX ( APPEALS) -19, NEW DELHI( CIT(A)) IN APPEAL NO 33/28/15-16 FILED AGAINST ASSESSMENT ORDER DATED 30.3.2015, PASSED UNDER SECTION 143(3) BY LD. ASSESSING OFFICER ON THE FOLLOWING GROUNDS , WHICH ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER: DATE OF HEARING 27.01.2021 DATE OF PRONOUNCEMENT 24.02.2021 2 ITA NO. 2247/DEL/2017 1. IMPUGNED ORDER ERRED IN NOT DELETING TRANSFER PRICI NG ADJUSTMENT MADE TO RETURNED INCOME IN RESPECT OF INTERNATIONAL TRANSAC TION OF PROVISION OF SALES AND MARKETING SUPPORT SERVICES BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISE (AE) ( IMPUGNED TRANSACTION). 2. IMPUGNED ORDER ERRED IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH PROVISIONS OF T HE ACT READ WITH THE INCOME-TAX RULES, 1962 (THE RULES') AND MODIFYING THE SAME FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THE IMPUGNED TRANSACTION TO HOLD THAT THE SAME IS NOT AT ARMS LENGTH. 3. LD.CIT (A) ERRED IN MAKING/UPHOLDING ADJUSTMEN T UNDER CHAPTER X OF THE ACT, WITHOUT RETURNING A FINDING ABOUT EXISTENCE OF ANY OF THE CIRCUMSTANCES SPECIFIED IN CLAUSES (A) TO (D) OF SUB-SECTION ( 3) OF SECTION 92C OF THE ACT. 4. LD.TPO / AO / CIT-A HAVE FAILED TO UNDERSTAN D AND APPRECIATE THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED (FAR PROFILE) OF THE APPELLANT IN THE IMPUGNED TRANSACTION, AND ERRE D IN HOLDING THE APPELLANT AS AN ADVERTISEMENT AND MARKETING AGENCY AS AGAINST A ROUTINE MARKETING AND SALES SUPPORT SERVICE PROVIDER, THEREBY VITIATI NG THE COMPARABILITY ANALYSIS SO UNDERTAKEN. 5. LD.TPO / AO / CIT-A HAVE ERRED IN NOT CONSIDERI NG/UPHOLDING USE OF OPERATING PROFIT TO VALUE ADDED EXPENSES (OP/VAE) AS AN APPROPRIATE PROFIT LEVEL INDICATOR (PLI) TO BENCHMARK THE IMPUGNED T RANSACTION. 6. LD.AO / TPO / CIT-A HAVE ERRED IN REJECTING CE RTAIN COMPANIES SELECTED AS COMPARABLE BY THE APPELLANT IN ITS TP DOCUMENTATION FOR BENCHMARKING THE IMPUGNED TRANSACTION WITHOUT ASCRIBING COGENT REASO NING THERETO. 7. LD.AO / TPO / CIT-A HAVE ERRED IN ARBITRARILY INCLUDING CERTAIN COMPANIES 3 ITA NO. 2247/DEL/2017 WHICH ARE NOT COMPARABLE TO AND WHICH HAVE DISSIMIL AR FAR PROFILE FROM APPELLANT. 8. LD.CIT-A AND ID. TPO/AO HAVE ERRED IN ARBITRAR ILY INCLUDING AND REJECTING COMPANIES IN/FROM THE FINAL SET OF COMPARABLE COMPA NIES ON EXTRANEOUS AND IRRELEVANT BASIS. 9. LD. CIT-A HAS ERRED IN REJECTING THE ALTERNATE A NALYSIS FURNISHED DURING THE COURSE OF APPELLATE PROCEEDINGS CITING RULE 46A OF THE RULES. WITHOUT PREJUDICE TO THE ABOVE, IMPUGNED ORDER HAS ALSO ERRED IN ARBITRARILY SELECTING CERTAIN COMPANIES THEREFROM TO ARRIVE AT FINAL SET OF COMPARABLES, THEREBY RESORTING TO CHERRY-PICKING OF COMPARABLES TO BENCHMARK THE IMPUGNED TRANSACTION. 10. LD. TPO / AO / CIT-A HAVE FAILED TO MAKE APPROP RIATE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN WORKING CAPITAL OF TH E APPELLANT VIS-A-VIS COMPARABLES. 11. LD. TPO/ AO / CIT(A) HAVE FAILED TO MAKE APPROP RIATE ADJUSTMENTS TO ACCOUNT FOR THE DIFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COMPARABLES. 12. IMPUGNED ORDER HAS ERRED IN NOT DELETING INITI ATION OF PENALTY PROCEEDINGS U/S 27(1)(C) OF THE ACT. 13. IMPUGNED ORDER HAS ERRED IN NOT DELETING LEVY O F INTEREST U/S 234B AND 234C OF THE ACT. 3. HTC INDIA IS A SUBSIDIARY OF HIGH TECH COMPUTER ASI A PACIFIC RE LTD. SINGAPORE AND ENGAGED IN PROVISION OF SALES, MARKET ING SUPPORT AND AFTER-SALES 4 ITA NO. 2247/DEL/2017 SUPPORT SERVICES FOR HTC PRODUCTS TO ITS ASSOCIATED ENTERPRISE (AE') BASED ON REQUESTS AND REQUIREMENTS RECEIVED FROM ITS AE. THE ASSESSEE COMPANY FILED ITS ORIGINAL RETURN OF INCOME FOR AY 2011-12 ON 14. 09.2011 DECLARING AN INCOME OF INR 7,381,430 ON WHICH TAX LIABILITY OF I NR 2,366,105 WAS PAID BY THE ASSESSEE COMPANY. THE RETURN OF INCOME OF THE A SSESSEE COMPANY WAS SELECTED FOR SCRUTINY AND VARIOUS INFORMATION / DOC UMENTS AS AND WHEN CALLED FOR WERE DULY FURNISHED BY THE ASSESSEE COMPANY. TH E MATTER WAS REFERRED TO TRANSFER PRICING OFFICER AND THE TPO PASSED ORDER D ATED 28/11/2014 THEREBY MAKING ADJUSTMENT AT RS. 2,26,18,345/-. THE DRAFT A SSESSMENT ORDER DATED 01.01.2015 WAS PASSED UNDER SECTION 144C OF THE ACT . THE FINAL ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT WAS PASSED ON 30.03.2015, WHEREIN THE TOTAL INCOME OF THE ASSESSEE COMPANY WAS RE-DETERMI NED AT INR 29,999,770 (AS AGAINST RETURNED INCOME OF INR 7,381,430). 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE AS SESSEE FILED APPEAL BEFORE THE CIT(A) . THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE CIT(A) AS WELL AS THE TPO/AO ARBITRARILY INCLUDED AND REJECTED COMPANIES IN THE FINAL SET OF COMPARABLE COMPANIES ON EXTRANEOUS AND IRRELEVANT BASIS. IN-FACT, THE REVE NUE AUTHORITIES FAILED TO UNDERSTAND THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK ASSUME (FAR PROFILE) OF THE ASSESSEE COMPANY IN THE IMPUGNED TR ANSACTION. IN FACT, THE REVENUE AUTHORITIES ARE NOT CORRECT IN HOLDING THAT THE ASSESSEE IS AN ADVERTISEMENT AND MARKETING AGENCY WHILE AS PER THE RECORDS, THE ASSESSEE IS IN MARKETING AND SUPPORT SERVICE PROVIDERS THEREBY VITIATING THE COMPARABILITY ANALYSIS SO UNDERTAKEN. THE LD. AR SUBMITTED THAT IN THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2013-14, THE A SSESSEES PROFILE WAS ACCEPTED THAT THE ASSESSEE IS NOT AN ADVERTISEMENT OR MANAGEMENT COMPANY. THIS POSITION HAS REMAINED ACCEPTED IN ASSESSMENT Y EAR 2014-15 & 2015-16 AS WELL. THEREFORE, THE LD. AR SUBMITTED THAT THE M ATTER MAY BE REMANDED BACK TO THE FILE OF THE TPO/A.O TO GIVE THE PROPER COGNIZANCE OF THE COMPANY 5 ITA NO. 2247/DEL/2017 PROFILE AND TAKE INTO ACCOUNT THE COMPARABLE IN THA T RESPECT. THE LD. AR HAS CONTESTED TWO COMPARABLES I.E. QUADRANT COMMUNICATI ONS LTD. AND ICC INTERNATIONAL AGENCIES LTD. TO BE EXCLUDED AND KEST ONE INTEGRATED MARKETING SERVICES PVT. LTD. (SEGMENT) TO BE INCLUDED. AS RE GARDS TO RE-CHARACTERIZATION OF HTC INDIA AS AN ADVERTISEMENT AGENCY, THE LD. AR SUBMITTED THAT THE TPO/AO HAS NOT LOOKED INTO THE TP DOCUMENTATION WHE REIN IT IS CLEARLY MENTIONED THAT THE ASSESSEE COMPANY UNDERTAKES SALE S AND MARKETING SUPPORT SERVICES FOR NATURE OF COORDINATION SUPPORT AND ACTS IN AS COMMUNICATOR FOR EXCHANGE OF INFORMATION BETWEEN HT C TAIWAN AND DISTRIBUTOR. THE FUNCTIONAL ANALYSIS WHICH WAS MIS QUOTED BY THE TPO IS CORRECTLY DOCUMENTED ON PAGE 16 OF TP STUDY AS REGA RDS WORKING CAPITAL ADJUSTMENT. THEREFORE, THE LD. AR SUBMITTED THAT T HE ENTIRE ISSUE SHOULD BE REMANDED BACK TO THE FILE OF THE TPO/A.O TO TAKE IN TO ALL THESE CONTENTIONS OF THE ASSESSEE. 6. THE LD. DR SUBMITTED THAT THE TPO HAS TAKEN COG NIZANCE OF ALL ASPECTS AS WELL AS THE CIT(A) HAS ALSO TAKEN INTO ACCOUNT A LL THESE ASPECTS. THE LD. DR HOWEVER, COULD NOT POINT OUT THE DIFFERENCE BETWEEN THE CURRENT ASSESSMENT YEAR AND THE SUBSEQUENT ASSESSMENT YEARS IN WHICH T HE REVENUE HAS ACCEPTED THE PROFILE OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE ENTIRETY OF THE MATER, IT CAN BE S EEN THAT THE COMPANY PROFILE HAS REMAINED INTACT TO THAT OF SALES AND MARKETING SUPPORT SERVICES IN NATURE OF COORDINATION SUPPORT AND THE ASSESSEE COMPANY IS NOT INTO ADVERTISEMENT AND MARKETING AGENCY. THESE ASPECTS WERE NOT PROPE RLY TAKEN COGNIZANCE BY THE TPO/AO AND HENCE THE MATTER IS REQUIRED TO BE R EMANDED BACK TO THE FILE OF THE TPO/A.O. ALL THE OTHER ISSUES HAVE TO BE DE CIDED ONCE THE ISSUE OF RE- CHARACTERIZATION HAS BEEN DETERMINED BY THE TPO/A.O . THEREFORE, WE ARE REMANDING BACK ALL THE ISSUES TO THE FILE OF THE TP O/A.O. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL 6 ITA NO. 2247/DEL/2017 JUSTICE. HENCE, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF FEBRUARY, 2021. SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 24/02/2021 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI