Volvo India Pvt. Ltd., V. DCIT,

ITA 384/BANG/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9236 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 22-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G R REDDY I
• Assessee Lawyers: P J PARDIWALA SR
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.384/BANG/2013 ASSESSMENT YEAR : 2005-06 M/S. VOLVO INDIA PRIVATE LIMITED, YALACHAHALLY VILLAGE, TAVARAKERE POST, HOSKOTE, BANGALORE, KARNATAKA. PAN : AAACV6747N VS. COMMISSIONER OF INCOME TAX (APPEALS), LTU, BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI. P. J. PARDIWALA, SR. COUNSEL REVENUE BY : SHRI. G. R. REDDY, CIT-DR-I DATE OF HEARING : 22.09.2016 DATE OF PRONOUNCEMENT : 16.12 .2016 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE COMPANY DIR ECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APP EALS), BANGALORE DATED 19-12-2008 FOR THE ASSESSMENT YEAR 2005-06. IT(TP)A NO.384/BANG/2013 PAGE 2 OF 14 2. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF AP PEAL: IT(TP)A NO.384/BANG/2013 PAGE 3 OF 14 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE APPEL LANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS A IT(TP)A NO.384/BANG/2013 PAGE 4 OF 14 100% SUBSIDIARY OF M/S. VOLVO TRUCK CORPORATION, AB , SWEDEN. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF TRUCKS, BUSES AND DISTRIBUTION OF CONSTRUCTION EQUIPMENT, ETC. 4. THE APPELLANT FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 31.10.2005 DECLARING A TOTAL INCOME OF R S.162,76,44,630/-. THE SAID RETURN OF INCOME WAS TAKEN UP FOR SCRUTINY ASSESSMENT AFTER ISSUING REQUISITE NOTICE UNDER SECTION 143(3). THE AO, AFTER NOTICING THAT THE APPELLANT HAD ENTERED INTO FOLLOWING INTERNATIO NAL TRANSACTIONS WITH ITS AE HAD REFERRED THE MATTER TO THE TPO FOR THE PURPO SE OF BENCH MARKING THE ABOVE INTERNATIONAL TRANSACTIONS WITH ITS AE: 5. THE APPELLANT IN HIS TP STUDY HAD APPLIED TRANSA CTIONAL NET MARGIN METHOD (TNMM) TO ESTABLISH THE TRANSACTION WITH ITS AE AT ARMS LENGTH. IT(TP)A NO.384/BANG/2013 PAGE 5 OF 14 THE TPO WHILE ACCEPTING THAT THE TRANSACTION OTHER THAN THE MANAGEMENT FEE AND ROYALTY ARE AT ARMS LENGTH, HAD PROCEEDED TO DETERMINE THE ALP IN RESPECT OF MANAGEMENT FEE AND ROYALTY OF RS.26,22,1 9,000/- PAID TO VOLVO TRUCK CORPORATION, SWEDEN, THE PARENT COMPANY OF TH E APPELLANT. OUT OF THIS, RS.13,60,00,0000/- WAS PAID IN RESPECT OF MAN UFACTURING SEGMENT AND RS.12,62,19,000/- WAS PAID TOWARDS DISTRIBUTION AGR EEMENT. DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO, THE APPELLANT SUBMITTED VIDE ITS LETTER DATED 21.09.2007 REGARDING NATURE OF SERVICE S RENDERED BY ITS AE IN RESPECT OF MARKETING AND SUPPORT SERVICES IN RESPEC T OF VOLVO GROUP. IT(TP)A NO.384/BANG/2013 PAGE 6 OF 14 IT(TP)A NO.384/BANG/2013 PAGE 7 OF 14 IT(TP)A NO.384/BANG/2013 PAGE 8 OF 14 6. THUS IT WAS SUBMITTED BEFORE THE TPO THAT THE VO LVO GROUP HAD SUPPORTED THE APPELLANT IN BRAND CREATING, CORPORAT E IDENTITY AND IN PROTECTING THE BRAND IDENTITY IN INDIA. WHEN TH E ASSESSEE WAS ASKED TO PRODUCE THE DETAILS OF THE EXPENDITURE INCURRED ON THE FOLLOWING, NO DETAILS OR EVIDENCES IN RESPECT OF SUCH EXPENDITURE WERE FU RNISHED BY THE APPELLANT BEFORE THE TPO: IT(TP)A NO.384/BANG/2013 PAGE 9 OF 14 1. CUSTOMER VISITS TO VARIOUS FACILITIES OF VOLVO G ROUP. 2. MEDIAPERSON VISITS TO SWEDEN 3. VISIT OF SCHOOL CHILDREN FROM INDIA TO SWEDEN 4. SPONSORING BY VOLVO GROUP SEVERAL SPORTS EVENTS 5. BRAND SURVEYS UNDERTAKEN BY VOLVO GROUP IN INDIA 6. KNOWLEDGE SHARING 7. VOLVO GROUP SHARES PRODUCT AND MARKET STRATEGIES 8. CUSTOMER PROFILING DONE BY VOLVO GROUP 9. ASSISTANCE IN DRAFTING SERVICE AGREEMENTS 10. TRAINING OF TAXPAYERS PERSONNEL BY THE TECHNIC AL PEOPLE OF VOLVO GROUP ENTITIES. THEREFORE, THE TPO CONCLUDED THAT NO ACTUAL SERVICE S WERE RENDERED BY THE AE AND ALSO NO BENEFIT OUT OF SUCH EXPENDITU RE WAS DERIVED BY THE ASSESSEE COMPANY AND THEREFORE CONCLUDED THAT THE A LP IN RESPECT OF THE ABOVE TRANSACTIONS IS NIL. THE CONCLUSIONS OF TH E TPO ON THESE TRANSACTIONS ARE AS UNDER: IT(TP)A NO.384/BANG/2013 PAGE 10 OF 14 7. THUS THE AO CONCLUDED THAT THE ALP IN RESPECT OF MANAGEMENT SUPPORT SERVICES IS NIL AND SUGGESTED ADJUSTMENT OF RS.26,22,19,000/- UNDER SECTION 92CAOF THE ACT. THE AO PASSED THE FIN AL ASSESSMENT ORDER UNDER SECTION 143(3) VIDE ORDER DATED 19.12.2008, I NCORPORATING THE ABOVE ADJUSTMENT. 8. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE CIT(A), LARGE TAXPAYERS UNIT, BANGALORE, WHO VIDE IMPUGNED ORDER HAD CONFIRMED THE ADDITION. HENCE, THE APPELLANT IS BEFORE US IN THE PRESENT APPEAL. 9. THE LEARNED SR. COUNSEL SHRI. PARDIWALA VEHEMENT LY CONTENDED THAT THE TPO CANNOT DETERMINE ALP AT NIL BY HOLDING TH AT THERE WAS NEED TO INCUR SUCH EXPENDITURE AND BY QUESTIONING THE NECES SITY OF BENEFIT OF IT(TP)A NO.384/BANG/2013 PAGE 11 OF 14 EXPENDITURE INCURRED AND RELIANCE IN THIS REGARD WA S PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCE LTD.,345 ITR 241. AS REGARDS THE RENDERING OF SERVICES, THE LEARNED COUNSEL VEHEMENTLY ARGUED THAT THE TPO IMPLIEDLY SATISFIED WITH THE CONDITION OF RENDITION OF SERVICES. ALTERNATIVELY, HE SUBMITTED THAT THE TRANSACTION OF PAYMENT OF MANAGEMENT SUPPORT FEE SHOULD BE AGGREGA TED AND BE CONSIDERED TO BE A SINGLE TRANSACTION AND ALP SHOUL D BE DETERMINED BY APPLYING TNMM. ON OTHER HAND, THE LEARNED CIT(DR) PLACED RELIANCE ON THE ORDERS OF TPO AND CIT(A) AND SUBMITTED THAT THE CONDITION OF RENDITION OF SERVICES IS SINE QUA NON FOR ALLOWING THE SAME A S A DEDUCTION. 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL IS WHETHER THE AO/T PO WAS JUSTIFIED IN ADOPTING THE ALP AT RS.NIL IN RESPECT OF MANAGEMENT AND SUPPORT SERVICES FEE PAID BY THE APPELLANT TO ITS AE. PRIMARILY, TH E TPO DETERMINED THE ALP AS NIL FOR THE FOLLOWING REASONS: 11. NO DOUBT, NOW IT IS SETTLED PROPOSITION OF LAW THAT IT IS BEYOND SCOPE AND POWERS OF AO/TPO TO QUESTION THE NECESSITY OF I NCURRING ANY IT(TP)A NO.384/BANG/2013 PAGE 12 OF 14 EXPENDITURE. THE HONBLE DELHI HIGH COURT IN THE C ASE OF CIT VS. EKL APPLIANCE LTD. 345 ITR 241 HELD THAT TPO CANNOT DETERMINE THE ALP AT NIL BY HOLDING THAT THERE WAS NO NEED TO INC UR ANY EXPENDITURE. THE ABOVE DECISION WAS FOLLOWED BY TH E SEVERAL COORDINATE BENCHES OF THE TRIBUNAL, SOME BY THEM AR E AS FOLLOWS: 12. THUS IN THE LIGHT OF THE ABOVE LEGAL POSITION, THE ALP OF SERVICES OF AE CANNOT BE DETERMINED AT NIL BY QUESTIONING THE N ECESSITY OF BENEFITS OF EXPENDITURE INCURRED. BUT THE MATTER DOES NOT END THERE. THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE SERVICES ARE ACTUALL Y RENDERED BY THE AE. BUT THE ASSESSEE HAD FAILED TO DISCHARGE THIS ONUS LYING UPON IT DESPITE BEING ASKED TO DO SO BY THE TPO. THE TPO HAD ESPEC IALLY INVITED THE ASSESSEE COMPANY TO PRODUCE THE PROOF IN SUPPORT OF THE SERVICES IT(TP)A NO.384/BANG/2013 PAGE 13 OF 14 RENDERED BY AE. THE APPELLANT ONLY HAD TRIED TO PR OVE THIS BY PRODUCING SOME CORRESPONDENCE WHICH DOES NOT PROVE THAT THE S ERVICES ARE ACTUALLY RENDERED. THE FAILURE BY THE ASSESSEE TO DISCHARGE THE ONUS CAN BE PRESUMED THAT THE ASSESSEE HAD NO EVIDENCE TO ESTAB LISH THAT SERVICES OF MANAGEMENT SUPPORT ARE RENDERED BY ITS AE IN CONSID ERATION TO PAYMENT OF RS.26,22,19,000/-. THIS PRESUMPTION CAN BE DRAWN E VEN AS PER THE PROVISIONS UNDER SECTION 86 OF INDIAN EVIDENCE ACT. THE SUBMISSION THAT THE TPO HAD IMPLIEDLY ACCEPTED THE RENDITION OF SER VICES CANNOT BE ACCEPTED AS THERE WAS NO FINDING GIVEN BY THE TPO T HAT SERVICES ARE ACTUALLY RENDERED. IN FACT, THE TPO WHILE SUMMARIZ ING THIS OBSERVATION VIDE PAGE NO. 30 OF HIS ORDER VIDE COLUMN NO.6 HAD SPECI FICALLY MENTIONED THAT THE ASSESSEE HAD FAILED TO PROVE THAT THE SERVICES ARE ACTUALLY RENDERED BY AE. FURTHERMORE THE FINDING OF THE TPO THAT THE IN VOICE WAS RAISED MUCH AFTER THE CLOSURE OF THE ACCOUNTING YEAR AND THE PA YMENT OF MANAGEMENT FEE IN NOTHING BUT SIPHONING OF THE PROFITS FROM IN DIA WITH THE INTENTION OF AVOIDING TAX ARE SERIOUS ENOUGH TO DOUBT THE GENUIN ENESS OF TRANSACTIONS. THE APPELLANT HAD MADE NO EFFORT TO CONTROVERT THE FINDINGS OF THE TPO. THEREFORE, IN OUR CONSIDERED OPINION THE TPO/AO IS JUSTIFIED IN ADOPTING ALP AT NIL. 13. NOW WE SHALL DEAL WITH THE ALTERNATIVE SUBMISSI ON OF THE LEARNED COUNSEL FOR THE APPELLANT THAT THE TRANSACTION OF M ANAGEMENT AND SUPPORT FEE SHOULD BE BUNDLED WITH OTHER TRANSACTIONS AND B ENCH MARKED BY ADOPTING TNMM CANNOT BE ACCEPTED FOR THE REASON THA T BUNDLING OF TRANSACTIONS IS PERMISSIBLE ONLY WHEN THE TRANSACTI ONS ARE CLOSELY RELATED TO IT(TP)A NO.384/BANG/2013 PAGE 14 OF 14 EACH OTHER AND RELIANCE IN THIS REGARD CAN BE PLACE D ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBIL E COMMUNICATIONS INDIA PVT. LTD., VS. CIT 374 ITR 118 AND PUNJAB HAR YANA HIGH COURT IN THE CASE KNORR BREMSE INDIA (P) LTD., VS. ASST. CIT 201 6 (380 ITR 307). IT IS NOT THE CASE OF THE APPELLANT THAT THESE TRANSACTIO NS ARE CLOSELY LINKED WITH THE OTHER TRANSACTIONS AND THEREFORE THE SUBMISSION THAT THESE TRANSACTIONS SHOULD BE BUNDLED WITH OTHER TRANSACTIONS CANNOT BE ACCEPTED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF DECEMBER, 2016. SD/- (ASHA VIJAYARAGHAVAN) SD/- (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUN TANT MEMBER BANGALORE. DATED: 16 TH DECEMBER, 2016. /NS/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.