M/s. Wipro GE Healthcare Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle- 7(1)(2), Bangalore

ITA 2590/BANG/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9100 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-01-2021
• Assessment Year: 2002-2003
• Appeal Filed On: 23-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Assessee Lawyers: K R PRADEEP; G P GIRIJA S
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Commercial expediency; Set aside

Judgement Text

1 IT(TP)A NOS.2590 TO 2592/BANG/2019 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO S . 2590 TO 2592/ BANG/201 9 (ASSESSMENT YEAR S : 20 02 - 03 TO 2004 - 05 ) M/S. WIPRO GE HEALTHCARE PRIVATE LIMITED, NO.4, KADUGODI INDUSTRIAL AREA, WHITEFIELD, BANGALORE - 560 067 .APPELLANT . PAN AAACW 1685J VS. DEPUTY COMMISSIONER OF INCOME TAX (OSD) , CIRCLE 7 (1)( 2 ), BANGALORE. RESPONDENT. ASSESSEE BY: SHRI K.R.PRADEEP & SMT. G.P.GIRIJA, ADVOCATES. REVENUE BY: SMT. R. PREMI, JCIT (D.R) DATE OF HEARING : 07.01.2021. DATE OF PRONOUNCEMENT : 0 7 .01.2021. O R D E R PER SHRI B.R. BASKARAN, A.M. : ALL THE THREE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) - 10, BENGALURU AND THEY RELATE TO THE ASSESSMENT YEARS 2002 - 03 TO 2004 - 05. SINCE COMMON ISSUES ARE URGED IN THESE THREE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS OF APPEAL URGED BY THE ASSESSEE IN ALL THE THREE YEARS RELATE TO THE FOLLOWING TWO ISSUES: - (A) TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF ROYALTY PAYMENT. (B) RE - COMPUTATION OF DEDUCTION ALLOWABLE U/S 10A OF THE ACT. 2 IT(TP)A NOS.2590 TO 2592/BANG/2019 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE, SALE AND SERVICE OF MEDICAL DIAGNOSTIC EQUIPMENTS AND ACCESSORIES. IT IS ALSO ENGAGED IN SOFTWARE DEVELOPMENT AND TRADING IN VARIOUS PRODUCTS. 4. THIS IS SECOND ROUND OF PROCEEDINGS FOR ALL THE THREE YEARS UNDER CONSIDERATION . THE FIRST ISSUE RELATES TO THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF ROY ALTY PAYMENT. IN THE FIRST ROUND, THE TRIBUNAL, VIDE ITS ORDER DATED 16 - 05 - 2008 PASSED IN ITA NO.810 TO 812 (BANG)/2007, CONFIRMED THE ORDER OF LD CIT(A), WHO HAD RESTORED THE ISSUE OF DETERMINATION OF A RMS L ENGTH P RICE (ALP) OF ROYALTY PAYMENTS TO THE FIL E OF AO/TPO. ACCORDINGLY, THE TPO PASSED ORDERS FOR ALL THE THREE YEARS ON 09 - 07 - 2013 AND DETERMINED THE ALP OF ROYALTY PAYMENTS AS NIL VALUE. ACCORDINGLY, THE ROYALTY PAYMENT OF RS.1.74 CRORES, 1.69 CRORES AND RS.5.07 CRORES PAID RESPECTIVELY FOR ASSESS MENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05 CAME TO BE DISALLOWED BY THE AO IN THIS ROUND . 5 . BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE ITAT HAD SET ASIDE THE ISSUE TO THE FILE OF TPO WITH THE DIRECTION TO DETERMINE ALP AFTER IDENTIFYING A COMPA RABLE AND AFTER SELECTING A METHOD. THE ASSESSEE ALSO SUBMITTED THAT THE ITAT HAS CONSIDERED AN IDENTICAL ISSUE IN AY 2005 - 06 AND 2006 - 07 ALSO AND RESTORED THE SAME TO THE FILE OF AO/TPO BY FOLLOWING THE ORDER PASSED BY IT FOR AY 2002 - 03 TO 2004 - 05 IN THE FIRST ROUND AND THE TRIBUNAL HAS FURTHER STATED THAT, IN CASE NO COMPARABLE IS FOUND IN RESPECT OF ROYALTY PAYMENT MADE BY THE ASSESSEE, THEN MAY TREAT THE ROYALTY PAYMENT AS OPERATING COST IN TRADING SEGMENT AND ACCORDINGLY COMPUTE THE ALP OF THE TRADING SEGMENT. IT WAS SUBMITTED THAT THE TP O, WHILE GIVING EFFECT TO THE ORDER OF ITAT FOR AY 2005 - 06 AND 2006 - 07, COULD NOT FIND ANY COMPARABLE AND HENCE THE TPO TREATED THE ROYALTY PAYMENT AS PART OF OPERATING COST IN TRADING SEGMENT AND ACCORDINGLY COMPUTED THE ALP OF THE TRADING SEGMENT. ACCORDINGLY NO SEPARATE ADDITION WAS MADE TOWARDS PAYMENT OF ROYALTY. THE LD CIT(A), HOWEVER, UPHELD THE ORDER OF THE TPO. 3 IT(TP)A NOS.2590 TO 2592/BANG/2019 6. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT CO - ORDINATE BENCH OF ITAT HAS GIVEN FOLLOWING DIRECTIONS TO THE AO IN AY 2005 - 06 IN IT(TP)A NO.40/BANG/2011 DATED 21.04.2017: - 16. GROUND NO.9 IS REGARDING PAYMENT OF ROYALTY. THE ASSESSEE HAS PAID THE ROYALTY TO ITS AE @ 2% ON SALE. THE ASSESSING OFFICER / TPO HELD THAT NONE OF THE COMPARABLE COMPANY HAS PAID ROYALTY FOR TRADING SEGMENT. THE TPO/A.O. HAS CONSIDERED THE CASE OF AMDL AND HELD THAT WHEN THE COMPARABLE COMPANY HAS NOT PAID THE ROYALTY THEN THE PAYMENT OF ROYALTY IS NOT JUSTIFIED AND ACCORDINGLY MADE ADJUSTMENT OF THE ENTIRE AMOUNT. ON APPEAL, THE CIT (APPEALS) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ROYALTY BY FOLLOWING THE DECISION OF THE TRIBUNAL FOR TH E ASSESSMENT YEAR 2002 - 03. 17. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS LEARNED AUTHORISED REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE TRIBUNAL VIDE ORDER DT.16.05.2008 IN ASSESS EE'S OWN CASE FOR THE ASSESSMENT YEARS 2002 - 03 TO 2004 - 05 HAS CONSIDERED THIS ISSUE WHEREBY THIS ISSUE WAS REMANDED TO TPO/A.O. FOR CONSIDERING THE COMPARABLES AND THEN DETERMINE THE ALP. THE CIT (APPEALS) HAS DEALT THIS ISSUE IN PARAS 7.3 AND 7.4 AS UNDER : 7.3 ON THIS VERY SAME ISSUE, CIT (APPEALS VI IN HIS ORDER D T.29.03.2007 FOR A.Y. 2002 - 03 HAS HELD AS UNDER : - FOR A.Y 2002 - 03 A SUM OF RS.1,74,84,318 HAS BEEN CONSIDERED FOR ALP ADJUSTMENT FOR THE REASONS MENTIONED SUPRA. WHEREAS, NO SUCH ADJUSTMENT IS FOUND REQUIRED FOR A.Y. 2003 - 04 & 2004 05, THUS THERE IS AN APPARENT UNCONSISTENCY IN THE APPROACH OF T P O. MOREOVER EVEN FOR A.Y 2002 - 03, THE ALP HAS BEEN DETERMINED ;WITHOUT SELECTING THE METHOD OF IDENTIFYING UNCONTROLLED TRANS A CTION. HENCE THE ADDITION IS DELETED FOR A.Y.A.Y 2002 - 03, THE ALP ON ROYALTY WILL BE DETERMINED AFRESH AFTER IDENTIFYING A COMPARABLE AND SELECTING THE METHOD. HOWEVER, IF TH E TPO FINDS THE REASONS GIVEN FOR NOT MAKING ADJUSTMENT IN A.Y. 2003 - 04 AND 2004 - 05 IS RELEVANT FOR THIS YEAR ALSO, HE MAY CHOOSE TO DO SO (EMPHASIS SUPPLIED). ALP CANNOT BE DETERMINED IN ISOLATIONOF EITHER COMMERCIAL REALITY OR COMMERCIAL EXPEDIENCY. DE SIRABLE COURSE WOULD BE TO SEE IN A SIMILARLY PLACED SITUATION WHAT AN UNCONTROLLED TRANSCTIN WOULD REFLECT. ACCORDINGLY IT IS DIRECTED. 4 IT(TP)A NOS.2590 TO 2592/BANG/2019 7.4 THIS DIRECTION OF THE CIT (APPEALS) HAS BEEN CONFIRMED BY THE HON'BLE ITAT IN PAGE NO.43, ITA NO.810 TO 812/(BA NG)/2007 DT.16.05.2008. SINCE THE ISSUE DURING A.Y. 2005 - 06 IS ALSO THE SAME, THE A.O. IS DIRECTED TO FOLLOW THE SAME DIRECTIONS OF THE CIT (APPEALS) AS HELD FOR A.Y. 2002 - 03 IN THE APPELLATE ORDER REFERRED TO ABOVE. THE LD. AR HAS ALSO SUBMITTED THAT I N CASE NO COMPARABLE IS FOUND TO DETERMINE THE ALP OF ROYALTY THEN IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE CASE OF TOYOTA KIRLOSKAR MOTOR (P) LTD. VS. ACIT 166 TTJ 189 THE ROYALTY PAYMENT SHOULD BE CLUBBED WITH THE OTHER INTERNATIONAL TRANSACTIONS OF THE TRADING SEGMENT AND THE ARMS LENGTH MAY BE DETERMINED ON THE COMPOSITE TRANSACTION OF TRADING OF MEDICAL EQUIPMENT. 18. SINCE THE ISSUE WAS ALREADY SET ASIDE TO THE FILE OF ASSESSING OFFICER FOR CHOOSING THE PROPER COMPARABLE THEREFORE IN VIEW OF THE EARLIER ORDER OF THIS TRIBUNAL, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE TPO/A.O. FOR R ECONSIDERATION OF THE SAME IN THE LIGHT OF DIRECTIONS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2002 - 03 TO 2004 - 05 (SUPRA). FURTHER IN CASE NO COMPARABLE IS FOUND IN RESPECT OF THE ROYALTY PAYMENT BY THE ASSESSEE THEN THE TPO/A.O. MAY CONSIDER THE ROYALTY PAYMENT AS PART OF THE INTERNATIONAL TRANSACTIONS UNDER TRADING SEGMENT AND THEN DETERMINE THE ALP BY C ONSIDERING THE ROYALTY AS PART OF THE OPERATING COST FOR THE PURPOSE OF COMPUTING THE MARGIN IN THE TRADING SEGMENT. 7. IT IS THE SUBMISSION OF LD A.R THAT THE LD CIT(A) DID NOT CONSIDER THE ABOVE SAID DIRECTION GIVEN BY ITAT IN AY 2005 - 06 & 2006 - 0 7 IN A PROPER MANNER . THE ASSESSEE HAS ALSO SUBMITTED THAT THE TPO COULD NOT FIND ANY COMPARABLE IN THE SET ASIDE PROCEEDINGS AND HENCE TREATED THE ROYALTY PAYMENT AS OPERATING COST IN TRADING SEGMENT AND ACCORDINGLY COMPUTED THE ALP OF THE TRADING SEGMEN T, I.E., NO BENCHMARKING DONE SEPARATELY FOR ROYALTY PAYMENT. ACCORDINGLY HE PRAYED THAT THIS ISSUE MAY ALSO BE RESTORED TO THE FILE OF AO/TPO WITH SIMILAR DIRECTIONS AS GIVEN BY ITAT IN AY 2005 - 06 & 2006 - 07. 8. WE HEARD LD D.R AND PERUSED THE RECORD . WE NOTICE THAT THE CO - ORDINATE BENCH, IN AY 2005 - 06 AND 2006 - 07, HAS GIVEN A SPECIFIC DIRECTION TO THE EFFECT THAT, IF THE TPO COULD NOT FIND ANY COMPARABLE IN RESPECT OF 5 IT(TP)A NOS.2590 TO 2592/BANG/2019 ROYALTY PAYMENT, THEN THE TPO/AO MAY CONSIDER THE ROYALTY PAYMENT AS PART OF THE I NTERNATIONAL TRANSACTIONS UNDER TRADING SEGMENT AND HE MAY CONSIDER ROYALTY PAYMENT AS PART OF OPERATING COST FOR THE PURPOSE OF COMPUTING MARGIN IN THE TRADING SEGMENT. ACCORDING TO LD A.R, THE TPO HAS FOLLOWED THE ALTERNATIVE DIRECTION GIVEN BY ITAT WH ILE GIVING EFFECT TO THE ORDER OF THE ITAT IN AY 2005 - 06 AND 2006 - 07. 9. WE NOTICE THAT THE LD CIT(A) DID NOT PROPERLY CONSIDER THE DIRECTION GIVEN BY ITAT ON AN IDENTICAL ISSUE IN AY 2005 - 06 & 2006 - 07 , MORE PARTICULARLY, THE ALTERNATIVE DIRECTION G IVEN BY ITAT . HENCE WE ARE INCLINED TO FOLLOW THE ORDER PASSED BY ITAT IN THE ASSESSEES OWN CASE FOR AY 2005 - 06 & 2006 - 07. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN ALL THE THREE YEARS UNDER CONSIDERATION AND, FOLLOWING TH E DECISION RENDERED BY ITAT IN AY 2005 - 06 & 2006 - 07 ON AN IDENTICAL ISSUE, WE RESTORE THIS ISSUE TO THE FILE OF THE AO/TPO IN ALL THE THREE YEARS UNDER CONSIDERATION WITH SIMILAR DIRECTION. 10. THE NEXT ISSUE RELATES TO RE - COMPUTATION OF DEDUCTION U /S 10A OF THE ACT. IT IS THE SUBMISSION OF THE LD A.R THAT THE ITAT, IN THE EARLIER ROUND, HAD RESTORED THE ISSUE OF TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF ROYALTY PAYMENT ONLY . HOWEVER, WHILE GIVING EFFECT TO THE ORDER OF THE ITAT, THE AO HAS EX CEEDED HIS JURISDICTION BY ALTERING THE DEDUCTION ALLOWED U/S 10A OF THE ACT. HE SUBMITTED THAT THE ASSESSEE WAS NOT GIVEN AN OPPORTUNITY BY THE AO IN THIS REGARD . HE FURTHER SUBMITTED THAT LD CIT(A) HAS ALSO UPHELD THE ACTION OF THE ASSESSING OFFICER, W ITHOUT CONSIDERING THE JURISDICTIONAL ASPECT. ON MERITS, THE LD A.R SUBMITTED THAT IT IS WELL SETTLED PRINCIPLE THAT THE DEDUCTION U/S 10A IS ALLOWED AT UNDERTAKING LEVEL AND NOT AT ENTITY LEVEL . H E SUBMITTED THAT THE LD CIT(A) HAS , HOWEVER, CONSIDERED THE PROFITS AVAILABLE AT ENTITY LEVEL WHILE ADJUDICATING THIS ISSUE , WHICH IS NOT CORRECT PROPOSITION OF LAW . FURTHER, THE SAME IS ALSO AGAINST THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF YOGOKAWA LTD. ACCORDINGLY, H E SUBMIT TED THAT THIS ISSUE MAY ALSO BE RESTORED TO THE FILE OF THE AO, SO THAT THE ASSESSEE COULD BE ABLE TO FURNISH PROPER EXPLANATIONS 6 IT(TP)A NOS.2590 TO 2592/BANG/2019 AND INFORMATION BEFORE THE AO WITH REGARD TO THE COMPUTATION OF DEDUCTION ALLOWABLE U/S 10A OF THE ACT. 11. WE HEARD LD D. R AND PERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS NOT DISCUSSED ON JURISDICTIONAL ISSUE. FURTHER, IT IS THE SUBMISSION OF THE ASSESSEE THAT THE LD CIT(A) HAS CONSIDERED THE PROFITS AT ENTITY LEVEL INSTEAD OF THE CONSIDERING THE PROFIT AT UNDERTA KING LEVEL. IN ANY CASE, IT IS THE SUBMISSION OF LD A.R THAT THE ASSESSEE WAS NOT GIVEN OPPORTUNITY OF BEING HEARD BY THE AO BEFORE MAKING ADJUSTMENT IN THE QUANTUM OF DEDUCTION ALLOWED U/S 10A OF THE ACT. 12. HAVING REGARD TO THE SUBMISSIONS MADE BY LD A.R, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN ALL THE YEARS UNDER CONSIDERATION AND RESTORE THE SAME TO THE FILE OF THE AO. 1 3 . NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE GIVEN PROPER OP PORTUNITY OF BEING HEARD. 1 4 . IN THE RESULT, ALL THE THREE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 7 .01.2021. S D / - S D / - (N.V. VASUDEVAN) (B.R. BASKARAN) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 07.01.2021. *REDDY GP 7 IT(TP)A NOS.2590 TO 2592/BANG/2019 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE