ACIT, Gurgaon V. M/s. Volvo Auto India Pvt. Ltd., Gurgaon

ITA 3431/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9176 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BARNWAL
• Keywords: Transfer pricing; International transaction; Additional evidence; Wholly owned subsidiary; Assessment record; TDS

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 3431/DEL/2016 [ASSESSMENT YEAR: 2010-11] THE A.C.I.T VS. M/S VOLVO AUTO (INDIA) PRIVATE L IMITED CIRCLE 4 TOWER A, GROUND FLOOR, UNITED CYBER P ARK GURGAON GREEN WOOD CITY, SECTOR 39, GURGAON PAN: AADCV 0346 E [APPELLANT] [RESPONDENT] DATE OF HEARING : 06.08.2020 DATE OF PRONOUNCEMENT : 11.08.2020 ASSESSEE BY : SHRI RAVI SHARMA, ADV SHRI RISHAB MALHOTRA, AR REVENUE BY : SHRI M. BARNWAL, SR. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A) - 2, GURGAON DATED 31.03.2016 PERTAINING TO ASSESSMENT YEAR 2010-11. 2 2. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT TH E LD. CIT(A) ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 3,24,90,810/- MADE ON APPLICATION OF CUP METHOD FOR DETERMINATION OF A LP OF INTERNATIONAL TRANSACTIONS BY THE ASSESSING OFFICER. 3. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH. CASE RECORD CAREFULLY PERUSED. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF VOLVO CAR CORPORATION AN D IS ENGAGED IN THE BUSINESS OF IMPORTING OF CARS AS COMPLETELY BUILT U NITS FOR THE PURPOSE OF DISTRIBUTION IN THE INDIAN MARKET. THIS IS THE FIRST FINANCIAL YEAR OF THE ASSESSEES BUSINESS OPERATIONS. 5. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAS MADE A PAYMENT OF RS. 2,94,56,764/- TO ITS PARENT COMPANY ON ACCOUNT OF MANAGEMENT SERVICE FEES ON WHICH TAXES WERE DEDUCTE D AT SOURCE. THE ASSESSEE EARNED MARGIN OF 1.59% FROM ITS OPERAT IONS AND AS PER TP STUDY CARRIED OUT BY THE ASSESSEE, AVERAGE MARGINS OF COMPARABLE COMPANIES WAS SHOWN AT 1.86% AND SINCE THE MARGIN O F THE ASSESSEE 3 WITH COMPARABLE COMPANIES WAS WITHIN +/- 5% RANGE, INTERNATIONAL TRANSACTIONS WERE CONCLUDED TO BE AT ARMS LENGTH. 6. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER DETERMINED ALP OF MANAGEMENT SERV ICE FEES AT NIL AND MADE UPWARD ADJUSTMENT OF RS. 3,24,90,810/-, WH ICH, INCIDENTALLY ALSO INCLUDED SERVICE TAX OF RS. 30,34,046/- PAID B Y THE ASSESSEE UNDER REVERSE CHARGE MECHANISM. 7. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE TO SUBSTANTIATE THAT THE SER VICES WERE ACTUALLY RECEIVED. THE ASSESSING OFFICER FURTHER OBSERVED T HAT THE ASSESSEE HAS FAILED TO FURNISH A COST BENEFIT ANALYSIS DEMONSTRA TING THE BENEFITS DERIVED FROM SERVICES RECEIVED FROM THE AE. THE ASS ESSING OFFICER FURTHER OBSERVED THAT DOCUMENTATION PRODUCED BY THE ASSESSEE TO SUPPORT ITS CLAIM FOR RECEIPT OF SERVICES IS TOO GE NERIC. ADDITION OF RS. 3,24,90,810/- WAS ACCORDINGLY MADE. 8. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND FURNISHED ALL THE DOCUMENTS IN SUPPORT OF ITS CONTE NTION AND ALSO FURNISHED A DETAILED COST BENEFIT ANALYSIS. 4 9. CONSIDERING THE NATURE OF ADDITIONAL EVIDENCE, T HE LD. CIT(A) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER ON THE FOLLOWING POINTS: 1. WHETHER AMOUNT OF MANAGEMENT FEE PAID TO AES WA S ONLY INR 2,94,56,764 AS AGAINST AMOUNT OF 3,24,90,8 10 DISALLOWED BY ASSESSING OFFICER (AO)? 2. WHETHER SIMILAR MANAGEMENT CHARGES HAVE BEEN ALL OWED BY TPO AS WELL AS AO IN SUBSEQUENT YEAR? 3. WHETHER APPELLANT HAS RECEIVED TRUE-UP ADJUSTMEN T AMOUNTING TO 6,15,78,632FROM AE DURING THE RELEVANT FINANCIAL YEAR? 4. WHETHER NON-PAYMENT OF MANAGEMENT CHARGES WOULD RESULT IN RECEIPT OF LESSER AMOUNT OF TRUE-UP ADJUSTMENT CONS EQUENTLY REDUCTION OF PROFIT OF APPELLANT? 5. WHETHER APPELLANT HAS DEDUCTED WITHHOLDING TAX A ND SERVICE TAX ON MANAGEMENT CHARGES PAID TO AE DURING RELEVAN T ASSESSMENT YEAR? 6. WHETHER DETAILS OF SERVICES RENDERED BY THE AE A ND SERVICE AGREEMENT WERE SUBMITTED BY APPELLANT DURING THE TI ME OF ASSESSMENT PROCEEDINGS? 5 7. WHETHER IN CIRCUMSTANCE MENTIONED ABOVE, 'DI SALLOWANCE OF MANAGEMENT CHARGES PAID BY APPELLANT TO ITS AES IS JUSTIFIED? 10. VIDE HIS REPORT DATED 06.01.2016, THE ASSESSING OFFICER SUBMITTED HIS REPORT ON THE POINTS RAISED BY THE LD. CIT(A). 11. AFTER CONSIDERING THE FACTS AND SUBMISSIONS AND THE REMAND REPORT OF THE ASSESSING OFFICER, THE LD. CIT(A) CON CLUDED AS UNDER: 3.12 I HAVE ALSO PERUSED THE ASSESSMENT RECORDS O F CURRENT YEAR AND SUBSEQUENT YEAR. FROM THE FACTS ON RECORD, THE SUBMISSIONS OF THE APPELLANT, THE REPORT OF THE AO AND THE FACTS RECORDED IN THE ASSESSMENT RECORDS FOR THE SU BSEQUENT YEARS, FOLLOWING FACTS EMERGE:- (I) OUT OF GROSS AMOUNT OF RS. 3,24,90,810/- SHOWN AS MANAGEMENT CHARGES, AN AMOUNT OF RS. 30,34,046/- WA S ON ACCOUNT OF SERVICE TAX PAID BY THE APPELLANT PERTAI NING TO THESE MANAGEMENT CHARGES AND THE NET MANAGEMENT CHA RGES PAID WERE RS. 2,94,56,764/- ONLY. THEREFORE THE ADJ USTMENT, IF ANY, COULD BE OF RS. 2,94,56,764 ONLY. THE ADJUS TMENT OF RS. 3,24,90,810/- IS BASED ON INCORRECT APPRECIATIO N OF FACTS. 6 (II) THE APPELLANT HAD PAID SERVICE TAX AS APPLICAB LE ON THE MANAGEMENT CHARGES. (III) THE APPELLANT HAD DEDUCTED TDS @ 10% ON THE MANAGEMENT SERVICES CHARGES PAID AMOUNTING TO RS. 29,54,676/-. (IV) DURING THE YEAR THE APPELLANT HAD RECEIVED TRU E UP ADJUSTMENT AMOUNTING TO RS. 61578632. THESE TRUE UP ADJUSTMENTS WERE COMPUTED ON THE BASIS OF 12% MARK UP ON THE VALUE ADDED EXPENSES THAT ALSO INCLUDED MANAGEM ENT FEES. AS PER THE REMAND REPORT OF THE AO, IN CASE THE MAN AGEMENT FEES HAD NOT BEEN PAID BY THE APPELLANT THE TRUE UP ADJUSTMENT RECEIVED WOULD HAVE BEEN RS. 2,51,90,000 /- ONLY AND THE PROFITS OF THE APPELLANT WOULD HAVE BEEN LE SS THAN THE PROFITS RETURNED BY THE APPELLANT. (V) HE COST BENEFIT ANALYSIS HAS BEEN FURNISHED BY THE APPELLANT DURING THE REMAND PROCEEDINGS. (VI) THE DETAILS OF SERVICES RENDERED BY THE AE HAV E BEEN SHOWN IN THE SERVICE AGREEMENT WHICH WAS DULY PROVI DED BY THE APPELLANT TO THE AO AS IS EVIDENT FROM THE REMA ND REPORT. 7 (VII) NO ADJUSTMENT ON ACCOUNT OF MANAGEMENT SERVI CES FEE HAS BEEN MADE BY THE TPO/AO IN THE ASSESSMENT ORDER S FOR A.Y. 2011-12 AND A.Y. 2012- 13. 3.13 FROM THE FACTS DISCUSSED ABOVE IT IS EVIDENT T HAT THE AOS OBSERVATION THAT THIS EXPENDITURE HAS BEEN DEB ITED TO THE PROFIT AND LOSS ACCOUNT TO INFLATE THE EXPENSES AND THEREBY REDUCE THE TAXABLE PROFITS IN INDIA IS NOT BORNE OUT FROM THE FACTS ON RECORD. FURTHER AS MENTIONED ABOV E, THE CLAIM OF MANAGEMENT SERVICE FEE PAID BY THE APPELLA NT TO ITS AE HAS ALSO BEEN EXAMINED IN THE 2 SUBSEQUENT YEARS AND THE TPO AND AO HAVE NOT MADE ANY ADJUSTMENT ON THIS ACC OUNT IMPLYING THEREBY THAT IT HAS BEEN ACCEPTED THAT THE APPELLANT HAD RECEIVED SERVICES FROM THE AE AND PAYMENT FOR T HESE SERVICES WAS MADE AT ARMS LENGTH. 3.14. KEEPING IN VIEW THE AFORESAID FACTS OF THE CA SE, THE AO WAS NOT JUSTIFIED IN ADOPTING CUP METHOD AND DETERMININ G THE ALP OF THE TRANSACTION AS NIL AND CONSEQUENTLY MAKING A N ADJUSTMENT TO THE INCOME OF RS. 3,24,90,810/-. THE ADJUSTMENT DONE BY THE AO ON THIS ACCOUNT IS DELETE D. THESE GROUNDS OF APPEAL ARE ALLOWED. 8 12. BEFORE US, THE LD. DR VEHEMENTLY STATED THAT TH E ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER, AS I N HIS REMAND REPORT, THE ASSESSING OFFICER HAS NOT MADE ANY COMMENT ON T HE COST BENEFIT ANALYSIS. 13. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. WE DO NOT FIND ANY FORCE IN THIS CONTENTION OF THE LD. DR. IN OUR CONSIDERED OPINION, NO SECOND INNIN GS SHOULD BE GIVEN TO APPRECIATE THE SAME SET OF FACTS WHICH WERE ALREADY BEFORE THE ASSESSING OFFICER. MOREOVER, IN THE REMAND REPORT , THE ASSESSING OFFICER HIMSELF HAS ACCEPTED THAT IF THE MANAGEMENT FEES HAD NOT BEEN PAID BY THE APPELLANT, THE TRUE UP ADJUSTMENT RECEIVED WOULD HAVE BEEN RS. 2.51 CRORES ONLY AND PROFITS OF THE A PPELLANT WOULD HAVE BEEN LESS THAN THE PROFITS RETURNED BUT IT. 14. THE COST BENEFIT ANALYSIS WAS FURNISHED BY THE ASSESSEE DURING THE REMAND PROCEEDINGS BUT THE ASSESSING OFFICER DI D NOT CARE TO EXAMINE THE SAME AND NOW THE LD. DR IS ASKING FOR R EMAND. BUT THE LD. DR COULD NOT POINT OUT ANY FACTUAL DEFECT IN THE FI NDINGS OF THE FIRST APPELLATE AUTHORITY. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, IN LIGHT OF REMAND REPORT AND FACTUAL FINDINGS OF THE LD. CIT(A), AND 9 CONSIDERING THE TREATMENT GIVEN IN SUBSEQUENT A.Y B Y THE TRANSFER PRICING OFFICERS, WE DO NOT FIND ANY REASON TO INTE RFERE WITH THE FINDINGS OF THE LD. CIT(A). 15. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 3431/DEL/2016 IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.08. 2020. SD/- SD/- [SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH AUGUST, 2020. VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ASST. REGISTRAR 4. CIT(A) ITAT, NEW DELHI 5. DR 10 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER