Honeywell Turbo Technologies (India) Pvt.Ltd, Pune V. Assistant Commissioner of Income-tax, Circle - 11, Pune

ITA 3074/PUN/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3571 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-10-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 26-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Question of law
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, C PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.3074/PUN/2017 / ASSESSMENT YEAR : 2013-14 GARRETT MOTION TECHNOLOGIES (INDIA) PRIVATE LIMITED (EARLIER KNOWN AS HONEYWELL TURBO TECHNOLOGIES (INDIA) PRIVATE LIMITED), PLOT NO.4A, RAISONI INDUSTRIAL ESTATE, VILLAGE MANN, MULSHI, NEAR HINJEWADI PHASE-II, PUNE - 411 057 PAN : AABCH5035J VS. ACIT, CIRCLE-11, PUNE APPELLANT RESPONDENT / ORDER PER R.S. SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 30.10.2017 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSME NT YEAR 2013-14. 2. THE ONLY ISSUE RAISED THROUGH VARIOUS GROUNDS IN THE MEMORANDUM OF APPEAL IS AGAINST THE TRANSFER PRICING ADDITION OF RS.88,41,429/-. ASSESSEE BY SHRI AJIT KUMAR JAIN REVENUE BY SHRI SHEKHAR L. GAJBHIYE DATE OF HEARING 13-10-2021 DATE OF PRONOUNCEMENT 14-10-2021 ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN DECLARING TOTAL INCOME OF RS.1,20,21,64,290/-. CE RTAIN INTERNATIONAL TRANSACTIONS WERE REPORTED IN FORM NO. 3CEB. TH E AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) F OR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. IN THE INSTANT APPEAL, WE ARE CONCERNED ONLY WITH THE INTERNATIONAL TRANSACTION OF PROVISION OF BUSINESS SUPPORT SERVICES WITH TRANSACTED VALUE OF RS.15,52,55,349/-. THE ASSESSE E APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) TO DEMONSTRATE THAT INTERNATIONAL TRANSACTION WAS AT THE ALP. THE TPO DID NOT DISPUTE THE CORRECTNESS OF THE METHOD EMPLOYED NOR THE PROFIT LEVEL IND ICATOR (PLI) OF OPERATING PROFIT TO OPERATING COST (OP/OC). HOWEVER, ALL THE SEVEN COMPANIES CHOSEN BY THE ASSESSEE AS COMPARAB LE WERE REJECTED AND THE TPO INTRODUCED FOUR NEW COMPANIES WITH THEIR MEAN OP/OC AT 18.20%. SINCE THE ASSESSEE HAD DECLARED ITS OP/OC AT 7.91%, THE TPO WORKED OUT THE TRANSFER PRICING ADJUSTMENT A T RS.1,48,12,508/-. THE DISPUTE RESOLUTION PANEL (DRP) RE-W ORKED OUT THE AVERAGE ADJUSTED OP/TC OF THE FOUR COMPANIES CHOSEN BY THE TPO AT 14.05%. THE AO, GIVING EFFECT TO THE DIRECTIONS OF TH E DRP, FINALLY DETERMINED THE TRANSFER PRICING ADDITION AT RS.88,41,42 9/-. ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 3 AGGRIEVED THEREBY, THE ASSESSEE HAS COME UP IN APPEAL BE FORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. THE ASSESSEE IS ENGAGED IN THE MAN UFACTURING OF TURBOCHARGERS. IT RENDERED BUSINESS SUPPORT SERVICES TO ITS ONE AE AND RECEIVED A SUM OF RS.15,52,55,349/-. THE ASSESS EES TRANSFER PRICING STUDY REPORT PROVIDES THE NATURE OF SERVICES RENDER ED BY IT UNDER THIS TRANSACTION AS CONSISTING OF INFORMATION TECHNOLOG Y RELATED SERVICES; FINANCE RELATED SERVICES; HEALTH, SAFETY AND ENVIRONMENT CONTROL; QUALITY ANALYSTS; SUPPLY BASE ANALYST; SUPP LY CHAIN PLANNERS/ANALYSTS; AND PACKAGING SPECIALIST. ON A PERTIN ENT QUERY TO FURNISH A COPY OF THE AGREEMENT WITH THE AE UNDER WHICH SUCH SERVICES WERE RENDERED, THE LD. AR SUBMITTED THAT NO FORMAL AGREEMENT WAS ENTERED INTO. IN VIEW OF THE FACT THAT THE TPO HAS NOT DISPUTED THE NATURE OF SERVICES AS BUSINESS SUPPORT SERVICE S, WHICH IS FURTHER CORROBORATED BY THE TRANSFER PRICING STUDY REPORT, WE ACCEPT THE NATURE OF SERVICES AS SUCH. 5. THE ONLY EFFECTIVE DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE INCLUSION OF JUST DIAL LTD. IN THE LIST OF COMPARAB LES BY THE TPO. THIS COMPANY WAS CHOSEN BY THE TPO AS COMPARAB LE, TO WHICH THE ASSESSEE OBJECTED BY SUBMITTING THAT THE SERVICES R ENDERED ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 4 AND THE FUNCTIONS PERFORMED BY JUST DIAL WERE SIGNIFICANTLY DIF FERENT VIS--VIS THE SERVICES RENDERED BY ASSESSEE. THE TPO JETTISONED TH E OBJECTIONS AND INCLUDED IT IN THE LIST OF COMPARABLES. THE DRP , TOO, DID NOT PROVIDE ANY SUCCOR TO THE ASSESSEE ON THIS COUNT. WE HAVE SCANNED THE ANNUAL REPORT OF THIS COMPANY, A COPY OF WHIC H IS AVAILABLE AT PAGE 255 ONWARDS OF THE PAPER BOOK. THIS C OMPANY PROVIDES LOCAL SEARCH RELATED SERVICES TO USERS THROUGH M ULTIPLE PLATFORMS - INTERNET, MOBILE INTERNET, TELEPHONE (VOICE) AND TEXT (SMS). IT HELPS THE USERS IN FINDING OUT THE RELEVANT PRO VIDERS OF GOODS AND SERVICES QUICKLY THROUGH ITS NETWORK. THE PROVID ERS OF GOODS AND SERVICE ENLIST THEMSELVES WITH JUST DIAL. AS AND WH EN A USER INTENDS TO FIND OUT PROVIDER(S) OF A PARTICULAR SERVICE OR GOOD, HE VISITS WEBSITE OF JUST DIAL AND JUST ON A CLICK CAN FIND OUT A LIS T OF ALL THE PROVIDERS OF THAT SERVICE OR GOOD. THE PROVIDERS OF SERVICE AND GOODS PAY TO JUST DIAL FOR ENROLMENT ON ITS PLATFORM UNDER DIFFERENT SUBSCRIPTION MODELS, SUCH AS, PAID, PREMIUM, PLATINUM DIAMOND, DEPENDING UPON THE MANNER IN WHICH THEY WANT THEMSELVES TO BE PRESENTED TO THE USERS. IN A NUTSHELL, JUST DIAL ACTS AS A B RIDGE BETWEEN THE USERS AND PROVIDERS OF SERVICES AND GOODS. WHEREAS THE PROVIDERS HAVE TO PAY TO JUST DIAL FOR THEIR ENROLMENT, THE U SER WHO SEEKS THE DETAILS OF PROVIDERS OF PARTICULAR GOOD OR SERVIC E NEED NOT ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 5 PAY ANYTHING. PAGE 30 OF THE ANNUAL REPORT OF THE COMPANY STATES THAT: OPERATING THROUGH MULTIPLE COMMUNICATION PLATFORMS, THE COMPANY HAS EMPHASIZED MORE ON ENSURING SIMPLICITY OF SEAR CH ACROSS ALL PLATFORMS. THE COMPANY HAS DEVELOPED A FAST, TROUBLE FREE AND EASY-TO-USE APPROACH ON ITS ENTIRE SEARCH MEDIA PLATFOR M TO CATER TO THE EVOLVING REQUIREMENTS OF ITS USERS. PAGE 13 OF THE A NNUAL REPORT STATES THAT: IN ORDER TO ADDRESS THE EMERGING NEEDS OF OUR USERS AND SMES, WE HAVE SET UP AN R&D LABORATORY TO DEVE LOP INNOVATIVE PRODUCTS AND FEATURES ON OUR PLATFORM. OUR R&D INVESTMENTS WILL ENABLE US TO REACH NEW LEVELS OF INNOVATION IN LINE WITH TECHNOLOGY ADVANCEMENTS, EVOLVING MARKET TRENDS AND ME ETING THE CONSUMER EXPECTATIONS. 6. ON AN OVERVIEW OF THE ANNUAL REPORT OF THE COMPANY, IT IS OVERWHELMINGLY PELLUCID THAT JUST DIAL PROVIDES INFORMATION TO ITS USERS ABOUT THE SUPPLIERS OF GOODS AND SERVICES. THE S OURCE OF REVENUE OF JUST DIAL IS SUBSCRIPTION BY THE PROVIDERS OF GOO DS OR SERVICES, WHO ENROLL THEMSELVES ON THE COMPANYS PLATFORM. FOR ENROLLING WITH JUST DIAL, THE PROVIDERS CHOOSE FROM A VARIETY OF SUBSCRIPTION MODELS DEPENDING UPON THE TYPE OF COVERAGE AN D THE MANNER OF THEIR PRESENTATION ON THE COMPANYS PLATFORM. W HEN WE ADVERT TO THE NATURE OF SERVICES RENDERED BY THE ASSESSEE WHICH ARE - ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 6 INFORMATION TECHNOLOGY RELATED SERVICES; FINANCE RELATED SERV ICES; HEALTH, SAFETY AND ENVIRONMENT CONTROL; QUALITY ANALYSTS; SUPPLY BASE ANALYST; SUPPLY CHAIN PLANNERS/ANALYSTS; AND PACKAGING SPECIALIST - IT BECOMES GRAPHICALLY CLEAR THAT NOT ONLY THE NATURE OF SERVICES RENDERED BY JUST DIAL IS DIFFERENT BUT ALSO THE BUSIN ESS MODEL ON WHICH IT WORKS IS POLES APART FROM THAT OF THE ASSESSEE . WHEREAS JUST DIAL RECEIVES SUBSCRIPTION FROM THE PROVIDERS OF THE GO ODS OR SERVICES FOR HOSTING THEIR PRODUCTS/SERVICES ON ITS PLATFORM A ND THE USER HAS TO PAY NOTHING, THE ASSESSEE IS PROVIDING SERVICES TO ITS AE AND GETS REMUNERATED AT A COST WITH MARK UP FROM THE USER OF THE SERVICE ITSELF, NAMELY, THE AE. IN VIEW OF SUCH A DIVERGE NCE IN THE NATURE OF SERVICES AND BUSINESS MODEL BETWEEN THE ASSESS EE AND JUST DIAL, WE HOLD THAT THIS COMPANY IS NOT COMPARABLE. ACCORDINGLY , JUST DIAL IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. 7. TO SUM UP, WE SET-ASIDE THE IMPUGNED ORDER AND REM IT THE MATTER TO THE FILE OF THE AO/TPO FOR RE-DOING THE ALP DETERMINATION OF THE INTERNATIONAL TRANSACTION OF `PROVISION OF BUSINESS SUPP ORT SERVICES AFRESH IN TERMS OF THIS ORDER. 8. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND READING A S UNDER : THAT THE EDUCATION CESS PAID DURING THE RELEVANT ASSESSMENT YEAR BE ALLOWED AS A DEDUCTION EXPENSE WHICH IS NOT COVERE D UNDER THE PROVISIONS OF SECTION 40(A)(II) OF THE ACT. ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 7 9. THE HONBLE SUPREME COURT IN NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (1998) 229 ITR 383 (SC) HAS OBSERVED THAT THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSE E IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON-TAXABLE ITEM IS TAXED OR A PERMISSIBLE DED UCTION IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOU LD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FO R THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESP ECT OF THAT ITEM. ANSWERING THE QUESTION POSED BEFORE IT IN AFFIRMATIVE , THEIR LORDSHIPS HELD THAT ON THE FACTS FOUND BY THE AUTHORITIES BELOW , IF A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE THE AUTHORITIE S) WHICH HAS BEARING ON THE TAX LIABILITY OF THE ASSESSEE, THE TRIB UNAL HAS JURISDICTION TO EXAMINE THE SAME. HAVING GONE THROUGH THE SUBJECT MATTER OF THE ADDITIONAL GROUND ESPOUSED BY THE AS SESSEE, IT IS APPARENT THAT THE SAME RAISES A PURE QUESTION OF LAW. WE, TH EREFORE, ADMIT THE SAME. 10. ON MERITS, IT IS FOUND THAT THE ISSUE RAISED THROUGH TH E ADDITIONAL GROUND IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN SESA GOA LT. VS. JCIT (2020) ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 8 423 ITR 426 (BOM.) IN WHICH IT HAS BEEN HELD THAT EDUCATION CESS IS NOT A DISALLOWABLE EXPENDITURE U/S.40(A)(II) OF THE ACT. SIMILAR VIEW WAS EARLIER TAKEN BY THE HONBLE RAJASTHAN HIGH COURT IN CHAMBAL FERTILISERS AND CHEMICALS LTD. AND ANOTHER VS. JCIT (2018) 10 2 CCH 0202 (RAJ-HC). WE, THEREFORE, DIRECT THE AO TO ASCERTAIN THE CORRECT AMOUNT OF EDUCATION CESS AND THEN ALLOW A DEDUCTION OF IT, AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 11. THE GROUND RELATING TO LEVY OF INTEREST U/S.234B AND 23 4C IS CONSEQUENTIAL. GROUND RELATING TO PENALTY PROCEEDINGS U/S.27 1(1)(C) IS PREMATURE. NO OTHER GROUND WAS PRESSED. 12. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2021. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 14 TH OCTOBER, 2021 ITA NO.3074/PUN/2017 GARRETT MOTION TECHNOLOGIES (INDIA) PVT. LTD., 9 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE CIT(A)-13, PUNE 3. THE PCIT-5, PUNE 4. 5. DR, ITAT, C BENCH, PUNE / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 13-10-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 14-10-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *