Bombardier Transportation India Ltd., New Delhi V. ACIT, New Delhi

ITA 5375/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81671 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 16-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: S D KAPILA
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence
• Section: 92D

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I : NEW DELHI BEFORE SHRI R.S. SYAL , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 5375 /DEL/ 2011 (ASSESSMENT YEAR: 2007 - 08 ) BOMBARDIER TRANSPORTATION INDIA LTD., 3 RD FLOOR, B - WING, SOMDUTT CHAMBERS - I, BHIKAJI CAMA PLACE, NEW DELHI PAN: AAACA5584C VS. ACIT CIRCLE - 3(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : S.D. KAPILA, ADV, RESPONDENT BY : PEEYUSH JAIN, CIT DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER BRIEF FACT OF THE CASE IS THAT THE ASSESSE E COMPANY (BTIL) IS A PART OF BOMBARDIER GROUP AND IS ENGAGED IN MANUFACTURING OF TRANSPORTATION SOLUTION RANGING FROM REGIONAL AIRCRAFTS AND BUSINESS JETS TO RAIL TRANSPORTATION EQUIPMENT, SYSTEM & SERVICES. . IT IS ASSOCIATED WITH THE INDIAN RAILWAYS AS A COMPONENT SUPPLIER FOR PROPULSION AND SIGNALING SYSTEM. IN THE PROPULSION BUSINESS, BTIL MANUFACTURES TRACTION/AUXILIARY CONVERTERS, VACUUM CIRCUIT ELECTRONICS AND TABS CHANGERS IN ITS FACILITIES IN GUJARAT. IN THE SIGNALING BUSINESS, THE COMPANY IS ENGAGED IN THE SUPPLY AND INSTALLATION OF SIGNALING EQUIPMENT. 2. THE INCOME DECLARED BY BTIL WAS AT RS. 70.050 CRORES, INCOME ASSESSED U/S 143(3)/ 144C 78.75 CRORES , TP ADJUSTMENT RS. 8.58 CROR E S 3. THE INTERNATIONAL TRANSACTIONS ENTERED INTO, BY THE ASSESSEE ARE TABULATED BELOW: - PAGE NO. 2 NATURE OF TRANSACTION METHOD SELECTED TOTAL VALUE OF TRANSACTIONS (RS) IMPORT OF RAW MATERIAL, COMPONENTS AND FINISHED GOODS TNMM 11,037,600 PROVISION OF SOFTWARE SERVICES TNMM 36,465,954 AVAILING OF ADMINISTRATIVE AND INTERMEDIARY SERVICES - 85,813,076 REIMBURSEMENT OF EXPENSES BY BOMBARDIER INDIA - 932,213 WRITE OFF OF BALANCE - 28,73,000 4. TPO ACCEPTED THE VALUE OF ALL INTERNATIONAL TRANSACTIONS EXCEPT ADMINISTRATION AND INTERMEDIARY SERVICES RECEIVED FROM BOMBARDIER GROUP & BOMBA R DIER S WITZERLAND. 5. THE TRANSPORTATION BUSINESS OF BOMBARDIER GROUP IS HEADQUARTERED IN GERMANY AND IS FURTHER SPLIT INTO FOLLO WING KEY SUB - DIVISIONS: - THE LOCOMOTIVE DIVISION (LOC) MAINLINE & METROS (MLN) PROPULSION (PPC) BOGIES (BOG) LIGHT RAIL VEHICLES (LRV) LONDON UNDERGROUND PROJECT(LUP) RAIL CONTROL SYSTEMS (RCS) BOMBARDIER TRANSPORTATION NORTH AMERICA (BTNA) SERVICES (SER) TOTAL TRANSIT SYSTEM DIVISION(TTS ) SWISS HUB: - THE WORLDWIDE MANAGEMENT ACTIVITIES FOR EACH OF ABOVE - MENTIONED SUB - DIVISIONS ARE CENTRALIZED IN DEPARTMENTS KNOWN AS HUBS. BOMBARDIE R SWITZERLAND IS THE HUB ENTITY PROPULSION (PPC) AND HOUS ES HEADS FOR VARIOUS FUNCTIONAL AREAS LIKE PROCUREMENT, ENGINEERING OPERATIONS, QUALITY, MARKETING AND FINANCE, EACH CATERING TO THE WORLDWIDE PPC BUSINESS. THESE FUNCTIONAL HEADS MONITOR AND SUPERVISE OPERATIONS OF LOCAL PPC SITE LIKE BOMBARDIER INDIA AT DIVISION LEVEL AND PAGE NO. 3 PROVIDE THEM REGULAR ASSISTANCE. AN AGREEMENT HAS BEEN EXECUTED FOR SUCH SERVICES BETWEEN BOMBARDIER SWITZERLAND AND BOMBARDIER INDIA AND NAMED AS SERVICES AGREEMENT. (AT PG. 284IVOL. - I) BOMBARDIER CANADA: - BOMBARDIER CANADA, BEING THE HEADQUARTER ENTITY FOR THE BOMBARDIER GROUP IS RESPONSIBLE FOR MANAGEMENT AND COORDINATION BETWEEN AEROSPACE AND TRANSPORTATION BUSINESS AND RESPECTIVE SUB - DIVISIONS (HUBS) IN RESPECT OF ALL STRATEGIC AND OPERATIONAL ISSUES AND PROVIDES THE GLOBAL POLICIE S. PROCEDURES, ADMINISTRATIVE SUPPORT SERVICES ETC. FOR AVAILING THESE CENTRALIZED ADMINISTRATIVE AND INTERMEDIARY SERVICES, A SERVICE AGREEMENT WAS EXECUTED BETWEEN BOMBARDIER CANADA AND BOMBARDIER INDIA ALONG WITH OTHER GROUP ENTITIES. (AT PG. 427 IV 01. - 11) 6. AT THE OUTSET THE LD AR RAISES VIOLATION OF NATURAL JUSTICE BY THE AUTHORITIES BELOW AND TOOK OUR ATTENTION TO GROUNDS NO. 5 TO 7 RAISED BY IT WHICH ARE AS FOLLOWS: - 5. THE LD TPO ERRED BY NOT PROVIDING THE APPELLANT AN ADEQUATE OPPORTUNITY OF BEING HEARD BEFORE CONCLUDING THAT THE APPELLANT HAS NOT DERIVED ANY BENEFITS FROM THE SERVICES AVAILED FROM ITS ASSOCIATED ENTERPRISES, WHICH IS AGAINST THE PRINCIPLES OF NATURAL J USTICE. 6. THE HONBLE DISPUTE RESOLUTION PANEL (DRP) ERRED IN ITS FINDINGS THAT NO COST ALLOCATION INFORMATION WAS PROVIDED BY THE APPELLANT AND SAME IS FACTUALLY INCORRECT. 7. THE HONBLE DRP ERRED IN SUSTAINING TPOS ORDER BY IGNORING THE DETAILED EVI DENCE SUBMITTED TO IT, SUBSTANTIATING THE NATURE OF INTRA - GROUP SERVICES AVAILED BY THE APPELLANT AND CORRESPONDING BENEFITS DERIVED THERE FROM. 7 . THE LD AR SUBMITTED THAT , THE ASSESSMENT PROCEEDINGS OF THE ASSESSEE BEGAN IN NOVEMBER 2009. HOWEVER, THE LEARNED TPO ONLY ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE IN SEPTEMBER 2010 AND PROVIDED THE ASSESSEE LESS THAN 4 WORKING DAYS TO PREPARE A RESPONSE FOR THE SAME. THE LD AR FURTHER SUBMITTED THAT IT WAS TIME CONSUMING TO COMPLY WITH THE DETAILED REQUEST OF THE TPO . HOWEVER, THE LEARNED TPO FAILED TO APPRECIATE THIS FACT AND EVEN THOUGH HE HAD SUFFICIENT TIME TO ISSUE THE SHOW CAUSE NOTICE BEFORE HAND, HE PAGE NO. 4 PREFERRED TO ISSUE NOTICE ONLY AT THE LAST STAGE OF ASSESSMENT PR OCEEDINGS AND DIDNT PROVIDE SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO SUBMIT THE COMPLETE DETAILS/INFORMATION AS REQUESTED IN THE SHOW CAUSE NOTICE AND WENT AHEAD AND PASSED THE ORDER. THEREAFTER THE ASSESSEE SUBMITTED THE ADDITIONAL I NFORMATION BEFORE TH E DRP AS THE SA ME COULD NOT BE SUBMITTED BEFORE THE TPO DUE TO PAUCITY OF TIME AS STATED ABOVE . HOWEVER ACCORDING TO THE LD AR, THE DRP HAS FAILED TO CONSIDER THE EVIDENCE INCLUDING THE COST BENEFIT ANALYSIS SUBMITTED BEFORE THE TPO AND VOLUMINOUS EVIDENCE SUBMITTED BEFORE IT. AND ACCORDING TO THE LD AR, THE DRPS FINDING THAT THE APPELLANT DID NOT PROVIDE ALLOCATION KEY FOR ALLOCATION OF COSTS BY THE AES WAS WRONG AND THESE WERE SPECIFICALLY PROVIDED TO THE TPO & DRP. AND ACCORDING TO THE LD AR, NEITHER TH E TPO, NOR THE DRP HAVE QUESTIONED THE VERACITY OF THE FACT AS TO WHETHER THE SWISS & CANADA AE RENDERED SERVICES TO THE ASSESSEE. HOWEVER, IN THE IMPUGNED ORDER THEY HAVE SURMISED THAT THESE SERVICES ARE INCIDENTAL, DUPLICATIVE AND NOT NECESSARY FOR THE APPELLANT TO CARRY ON ITS BUSINESS. SO ACCORDING TO THE LD AR, BECAUSE OF NON - CONSIDERATION OF RELEVANT EVIDENCE BY DRP AND DUE TO THE LACK OF OPPORTUNITY TO PRODUCE THE DOCUMENTS TO SUBSTANTIATE ITS CLAIM BEFORE THE TPO, HAS RESULTED IN FAILURE BY THE SAID AUTHORITIES TO CONSIDER THE SIGNIFICANCE OF THE SERVICES RENDERED BY THE AE ; AND ALSO THEY MADE NO ATTEMPT TO APPRAISE THEIR MARKET VALUE OR BENEFIT DERIVED BY THE APPELLANT. 8 . AND THEREFORE THE LD AR, PRAYS THAT THE ISSUES MAY BE REMANDED BACK TO THE FILE OF THE TPO/ DRP FOR FRESH ADJUDICATION FOR VIOLATION OF NATURAL JUSTICE. 9 . THE LD DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 10 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE FIND THAT THOUGH THE ASSESSMENT PROCEEDINGS IN THE INSTANT CASE BEGAN IN NOVEMBER, 2009, TPO ISSUED SHOW - CAUSE NOTICE TO THE ASSESSEE ONLY IN SEPTEMBER 2010 DIRECTING IT TO SUBMIT DETAILS AND SUPPORTING DOCUMENTS, WHICH ARE ADMITTEDLY VOLUMINOUS AND REQUIRES REASONABLE TIME FOR COLLECTI NG AND PRODUCING THE SAME. HOWEVER WE FIND THAT THE TPO ISSUED THE SAID SHOW CAUSE NOTICE ON 20TH SEPTEMBER 2010, DIRECTING THE ASSESSEE TO SUBMIT THE ENTIRE DOCUMENTS ASKED BY HIM BEFORE 27TH SEPTEMBER 2010, BY WHICH THE ASSESSEE ONLY GOT 4 PAGE NO. 5 WORKING DAYS TO COMPLY THE SAME. SINCE IT WAS PRACTICALLY IMPOSSIBLE TO SUBMIT THE ENTIRE DOCUMENTS, THE ASSESSEE SUBMITTED WHATEVER IT COULD BEFORE THE TPO WHO PASSED ORDERS WITHOUT CONSIDERING THE DOCUMENTS WHICH OUGHT TO HAVE BEEN LOOKED INTO BY HIM PROVIDED SUFFICI ENT TIME WAS GRANTED TO THE ASSESSEE. THEREAFTER WE FIND THAT THE ASSESSEE FILED ALL THE SAID RELEVANT DOCUMENTS ASKED BY THE TPO BEFORE THE DRP. THE DATA AND DOCUMENTS SUBMITTED BEFORE THE TPO AND DRP IS TABULATED BELOW: - 11 . THE TABLE BELOW SHOW DATE AND DETAILS OF THE DOCUMENTS FILED BEFORE TPO/DRP: - S. NO. SEQUENCE DATE REF. 1. TPO ISSUED NOTICE U/S 92CA (2) AND 92D (3) 7.10.2009 2. ASSESSEE FILES DOCUMENTS UNDER RULE I OD ALONG WITH OTHER DOCUMENTS WITH THE TPO . 5.11.2009 PG1 - 268/VOL - I 3. ASSESSEE APPEARS AND TILES SUBMISSIONS ON QUERIES ON SEGMENTAL ACCOUNTS OF BTIL & ALLOCATION OF EXPENSES 3.3.2010 PG 269 - 270/VOL - I 4. ADD RELATING INFORMATION IN RESPONSE TO FACTUAL QUERIES BY TPO ABOUT AES & ALLOCATION KEYS. 20.04.2010 PG 271 - 275/VOL - I 5. TPO FIRST TIME REQUIRES DOCUMENTARY EVIDENCE TO JUSTIFY PAYMENT FOR EVERYONE OF THE SERVICES RENDERED BY THE AES. THE EVIDENCE TO BE FURNISHED WITHIN 4 DAYS EXCLUDING 25TH & 26TH SEPTEMBER, BEING SATURDAY & SUNDAY (OBJECTION 4 & 5) 22. 09.2010 PG.50/APPEAL MEMO (PG. 38/ OBJECTIONS) 6. THE ASSESSEE FURNISHED EXPLANATION WITH SAMPLE EVIDENCE. TPO CLOSES PROCEEDINGS WITH FURTHER OPPORTUNITY (PARTICULARS OF SAMPLES AT ANNEXURE - I 27.09.2010 PG. 276 - 297/ VOL - I 7. COST ALLOCATION KEYS: - 1) VIDE LETTER DT. 27.9.2010 FURNISHED TO TPO 2) NATURE AND ALLOCATION OF COST OF SERVICE AND ALLOCATION KEYS EXPLAINED TO DRP (GROUND NO. 6 ) A) (SWISS HUB) B) CANADA H.O, 3) ALLOCATION KEYS AGAIN PROVIDED TO DRP 11.10.2010 PG.276 - 278/ VOL - I PG.42/AM PG. 20/ OBJECTIONS PG.46/AM PG.24/ OBJECTIONS PG.898/VOL. - III 8. COST ALLOCATION OF SERVICES PROVIDED TO GROUP ENTITIES WORLD - WIDE PG. 452 - 457/VIL - III PAGE NO. 6 9. THE ASSESSEE FILES OBJEC TIONS WITH THE DRP, INTER ALIA, FURNISHING: A) WRITTEN SUBMISSION DRP B) EXPLANATION JUSTIFYING THE TP ANALYSIS OF THE ASSESSEE AND OBJECTING TO TPO REJECTING IT WITHOUT BASIS. (OBJECTION NO. 3) C) ANALYSIS OF SIGNIFICANCE OF THE IMPUGNED SERVICES AND THEIR BENEFIT TO THE APPELLANT'S BUSINESS (OBJ ECTION NO. 2) D) COST BENEFIT ANALYSIS ALONG WITH ADDITIONAL EVIDENCE ESTABLISHING ACTUAL RENDERING OF SERVICES, BY THE AES ESSENTIAL TO THE APPELLANT FOR RUNNING ITS BUSINESS EFFICIENTLY. ' I) SERVICE RENDERED BY CANADA HO, BENEFIT DERIVED, ALLOCATION KEYS APPLIED AND ACTUAL COST ALLOCATION WORLD - WIDE TO ALL AES. 27.01.2010 PGS.383/VOL - II PG.30/APPEAL MEMO (PG 19/OBJECTIONS) PG.41/APPEAL MEMO (PG.19/OBJECTIONS) PGS.385 - 424/VOL - II) PG.48/APPEAL MEMO (PG. 26/OBJECTIONS) PG. 438 - 877/VOL - II (PARTICULARS OF EACH DOCUMENTS AS PER INDEX AT ANNEXURE - 2 PG. 897 - 900/VOL - II PGS. 880 - 1028/VOL - II (INDEX GIVING PARTICULARS OF EACH DOCUMENTS AT ANNEXURE - 3) 12 . HOWEVER, WE ON A PERUSAL OF THE IMPUGNED ORDERS FIND THAT THE DRP HAS NOT CONSIDERED THE AFOR ESAID EVIDENCES INCLUDING THE COST BENEFIT ANALYSIS , THE DETAILS OF THE SERVICE RENDERED BY CANADA HO, BENEFITS DERIVED, ALLOCATION KEYS AND ACTUAL COST - ALLOCATION WORK WIDE TO AES (PG. 438 - 8 77 VOLUME - II AND PAGE 897 - 900/ VOL - II AND OTHER DOCUMENTS RELEVANT TO ADJUDICATE THE ISSUES BEFORE IT. 1 3 . IN THE AFORESAID FACTS AND CIRCUMSTANCES, WE FIND FORCE IN THE SUBMISSION OF THE LD AR, THAT SUFFICIENT OPPORTUNITY WAS NOT GIVEN TO THE ASSESSEE TO FURNISH THE REQUISITE DETAILS AND DOCUMENTS TO ANSWER THE QUERIES RAISED BY THE TPO. AT ANY RATE 4 WORKING DAYS IS INSUFFICIENT TO PRODUCE THE V OLUMINO U S DOCUMENTS NECESSARY FOR ANSWERING THE QUERIES RAISED BY THE TPO ALONG WITH SUPPORTING DOCUMENTS. THUS WE FIND THAT THE TPOS ORDER WAS V ITIATED FOR VIOLATION OF NATURAL JUSTICE AND WE ALSO FIND THAT THE DRP HAS ALSO NOT GONE INTO THE EVIDENCE FILED BEFORE IT BY THE ASSESSEE. THEREFORE WE SET - ASIDE THE IMPUGNED ORDER S OF THE AUTHORITIES BELOW AND REMAND THE MATTER FOR FRESH ADJUDICATION, WI TH A DIRECTION TO THE AO /TPO TO PASS ORDER AFRESH PAGE NO. 7 AFTER TAKING INTO CONSIDERATION THE EVIDENCE FURNISHED BY THE ASSESSEE AND AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 1 4 . THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 0 5 . 09 .2014. - S D / - - S D / - ( R.S. SYAL ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 0 5 / 09 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI