Avon Beauty Products India Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 5739/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97848 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 12-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHAILESH KUMAR S
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 37(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND MS SUCHITRA KAMBLE, J M ITA NO.5739/DEL/2011 ASSESSMENT YEAR : 2007-08 AVON BEAUTY PRODUCTS INDIA PVT. LTD., 4 TH FLOOR, TOWER-C, GLOBAL BUSINESS PARK, MEHRAULI GURGAON ROAD, GURGAON. PAN: AAACA5282H VS. ACIT, CIRCLE 1(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESWAR RAO & SHRI SHAILESH KUMAR, ADVOCATES DEPARTMENT BY : SHRI ANAND KUMAR KEDIA, CIT, DR DATE OF HEARING : 12.11.2015 DATE OF PRONOUNCEMENT : 13.11.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) ON 24.10 .2011 U/S 144C ITA NO.5739/DEL/2011 2 READ WITH SECTION 143(3) OF THE INCOME-TAX ACT, 196 1 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2007- 08. 2. ALL THE GROUNDS TAKEN IN THIS APPEAL ARE AGAINST THE ADDITION OF RS.1,26,78,625/- MADE BY THE AO ON ACCOUNT OF TRANS FER PRICING ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A SUBSIDIARY OF AVON INTERNATIONAL OPERATIONS, WHICH IS, IN TURN, A SUBSIDIARY OF AVON PRODUCTS INC., USA. ANOTHER AVO N GROUP COMPANY, NAMELY, AVON OVERSEAS CAPITAL CORPORATION HOLDS THE REMAINING 10% SHARES OF THE ASSESSEE COMPANY. THE ASSESSEE, AN I NDIAN COMPANY, IS PRIMARILY ENGAGED IN THE BUSINESS OF MARKETING , S ALE AND DISTRIBUTION OF AVON BEAUTY PRODUCTS IN INDIA. ITS ACTIVITY IS BEI NG DONE BY DIRECT SALE OF COSMETICS, BEAUTY PRODUCTS, TOILETRIES AND FRAGR ANCE PRODUCTS TO CUSTOMERS IN INDIA. THE ASSESSEE HAS ALSO ENTERED INTO CONTRACT MANUFACTURING AGREEMENTS WITH LOCAL THIRD PARTY MAN UFACTURERS, WHO MANUFACTURE THE FINISHED PRODUCTS, SUCH AS, COSMETI CS, BEAUTY PRODUCTS, TOILETRIES AND FRAGRANCE PRODUCTS FOR THE ASSESSEE. SEVEN INTERNATIONAL ITA NO.5739/DEL/2011 3 TRANSACTIONS WERE REPORTED BY THE ASSESSEE IN ITS A UDIT REPORT IN FORM NO.3CEB, WHICH INCLUDE IMPORT OF BEAUTY PRODUCTS FO R RESALE; RENDERING OF PROFESSIONAL SUPPORT SERVICES; PAYMENT OF ROYALTY; AND AVAILING OF PROFESSIONAL SERVICES. THE ASSESSEE US ED DIFFERENT METHODS FOR DEMONSTRATING THAT ITS INTERNATIONAL TRANSACTIO NS WERE AT ARMS LENGTH PRICE (ALP). FOR EXAMPLE, THE INTERNATIONAL TRANSA CTION OF IMPORT OF BEAUTY PRODUCTS FOR RESALE WAS PROCESSED FOR TRANSF ER PRICING PURPOSES UNDER RESALE PRICE METHOD; PAYMENT OF ROYALTY WAS DONE UNDER THE `CUP METHOD; RENDERING OF PROFESSIONAL SUPPORT S ERVICES WAS DONE UNDER THE TNMM; AND THE AVAILING OF PROFESSIONAL S ERVICES WAS, AGAIN, DONE UNDER TNMM. THE CONTROVERSY IN THE INSTANT AP PEAL IS ONLY ON THE DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANS ACTION OF AVAILING OF PROFESSIONAL SERVICES WITH TRANSACTED VALUE AT RS. 1,26,78,625/-. THE ASSESSEE USED THE TNMM, WITH ITS FOREIGN AE AS A TE STED PARTY, TO INDICATE THAT THIS TRANSACTION WAS AT ALP. ON A RE FERENCE MADE BY THE AO TO THE TRANSFER PRICING OFFICER (TPO), THE LATTE R REQUIRED THE ASSESSEE TO GIVE DETAILS OF THE INTERNATIONAL TRANS ACTION OF AVAILING OF PROFESSIONAL SERVICES. IN RESPONSE, THE ASSESSEE S UBMITTED THAT IT HAS ITA NO.5739/DEL/2011 4 AVAILED FINANCIAL MANAGEMENT SERVICES, HUMAN RESOUR CES SERVICES, LEGAL SERVICES, MARKETING SERVICES AND SECURITY SER VICES. A FURTHER BREAK-UP OF THESE SERVICES WAS GIVEN TO THE TPO. A FTER CONSIDERING THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE, THE TPO NOTICED THAT THERE WERE TWO BROADER ISSUES IN THE ANALYSIS OF TR ANSFER PRICING OF THESE INTRA-GROUP SERVICES, THE FIRST BEING WHETHER INTRA -GROUP SERVICES WERE, IN FACT, PROVIDED AND, SECOND, WHETHER CHARGES FOR SUC H SERVICES WERE AT ALP. HE DEALT WITH THE FIRST QUESTION FIRST TO DET ERMINE WHETHER ANY INTRA-GROUP SERVICES WERE RENDERED. AFTER ENTERTAI NING THE ASSESSEES SUBMISSIONS, HE CAME TO HOLD THAT THE CLAIM OF THE ASSESSEE TO HAVE RECEIVED SERVICES WAS NOT ACCEPTABLE INASMUCH AS TH E SERVICES SO AVAILED WERE EITHER IN THE NATURE OF INCIDENTAL BENEFITS OR DUPLICATION OF SERVICES. IN THE PENULTIMATE PAGE OF HIS ORDER, THE TPO OBSER VED THAT PAYMENT FOR SUCH SERVICES CAN BE TREATED AT ALP ONLY WHEN IT IS PROVED THAT THE SERVICES WERE ACTUALLY RECEIVED AND THAT SUCH RECEI VED SERVICES BENEFITED THE ASSESSEE. FURTHER, REJECTING THE ASSESSEES AP PLICATION OF TNMM AS THE MOST APPROPRIATE METHOD, THE TPO PRESSED INTO S ERVICE THE CUP METHOD FOR DETERMINING THE ALP OF THIS INTERNATIONA L TRANSACTION. SINCE ITA NO.5739/DEL/2011 5 SUCH SERVICES WERE NOT REQUIRED BY THE ASSESSEE IN THE OPINION OF THE TPO, HE DETERMINED THE ALP OF THIS INTERNATIONAL TR ANSACTION AT NIL AND PROPOSED TRANSFER PRICING ADJUSTMENT FOR THE FULL V ALUE OF TRANSACTION. IN THIS PROCESS, HE DID NOT CONSIDER ANY COMPARABLE CA SE. THE AO, IN THE DRAFT ORDER DATED 23.12.2010, WHICH RUNS INTO TWO P AGES, INCORPORATED THE FINAL DECISION OF THE TPO IN DETERMINING THE AL P OF THIS INTERNATIONAL TRANSACTION AT RS. NIL. THAT IS HOW, AN ADDITION OF RS. 1.26 CRORE WAS PROPOSED. THE ASSESSEE OBJECTED TO THE D RAFT ORDER BEFORE THE DISPUTE RESOLUTION PANEL (DRP), BUT, WITHOUT ANY SU CCESS. THE AO IN HIS FINAL ASSESSMENT ORDER MADE AN ADDITION OF RS.1 .26 CRORE BY NOTICING THE DECISION TAKEN BY THE TPO IN PROPOSING TRANSFER PRICING ADJUSTMENT TO THIS EXTENT. THE ASSESSEE IS AGGRIEVED AGAINST THIS ADDITION. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE TPO HA S COMPUTED THE ALP OF THE INTERNATIONAL TRANSACTION OF `AVAILING OF PR OFESSIONAL SERVICES AT NIL BY HOLDING THAT THE ASSESSEE DID NOT AVAIL ANY BENEFIT OF SUCH SERVICES AND THE SERVICES PROVIDED BY THE FOREIGN AE WERE EI THER INCIDENTAL OR ITA NO.5739/DEL/2011 6 DUPLICATE AND HENCE UNWARRANTED. IN DOING SO, HE R EJECTED THE ASSESSEES ADOPTION OF TNMM AS THE MOST APPROPRIATE METHOD AND FOLLOWED THE CUP METHOD. SINCE, IN HIS OPINION, THE ASSESSEE FA ILED TO PROVIDE ANY EVIDENCE ABOUT THE SERVICES RENDERED BY THE AE NECE SSITATING THE PAYMENT OF SUCH PROFESSIONAL CHARGES, HE COMPUTED T HE ALP OF THIS INTERNATIONAL TRANSACTION AT RS. NIL. THE AO IN THE DRAFT ORDER AS WELL AS THE FINAL ASSESSMENT ORDER, HAS SIMPLY INCORPORATE D THE CONCLUSION OF THE TPO IN DETERMINING THE ALP OF THIS INTERNATIONA L TRANSACTION AT NIL WITHOUT CARRYING OUT ANY INDEPENDENT ANALYSIS OR EV ALUATION AS TO WHETHER OR NOT SUCH INTRA-GROUP SERVICES WERE REQUI RED/AVAILED BY THE ASSESSEE. 5. THE HON'BLE DELHI HIGH COURT IN THE CASE CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730(DEL) HAS HELD THAT THE AUTHORITY OF THE TPO IS LIMITED TO CONDUCTING TRANS FER PRICING ANALYSIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSAC TION AND NOT TO DECIDE IF SUCH SERVICES EXIST OR BENEFITS DID ACCRUE TO TH E ASSESSEE. SUCH LATER ASPECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSI VE DOMAIN OF THE AO. ITA NO.5739/DEL/2011 7 IN THAT CASE, IT WAS OBSERVED THAT THE E-MAILS CONS IDERED BY TRIBUNAL FROM MR. BRAGANZA AND MR. CHOUDHARY DEALT WITH SPECIFIC INTERACTION AND RELATED TO BENEFITS OBTAINED BY ASSESSEE, PROVIDING A SUFFICIENT BASIS TO HOLD THAT BENEFIT ACCRUED TO ASSESSEE. SINCE THE DE TAILS OF SPECIFIC ACTIVITIES FOR WHICH COST WAS INCURRED BY BOTH AES (FOR ACTIVITIES OF MR. BRAGANZA AND MR. CHOUDHARY), AND ATTENDANT BENEFITS TO ASSESSEE WERE NOT CONSIDERED, THE HON'BLE HIGH COURT REMANDED THE MATTER TO FILE OF CONCERNED AO FOR AN ALP ASSESSMENT BY TPO, FOLLOWED BY AO'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW CONSIDERING THE DEDUCTIBILITY OR OTHERWISE AS PER SECTION 37(1) OF THE ACT. 6. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE, IT IS FOUND THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT WITH N IL ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT MADE FOR `AVAI LING OF PROFESSIONAL SERVICES ON THE GROUND THAT NO EVIDENCE WAS FURNIS HED ABOUT ANY SERVICES RENDERED BY THE FOREIGN AE AND FURTHER NO COST BENEFIT ANALYSIS ON ACCOUNT OF SUCH SERVICES WAS BROUGHT TO HIS NOTI CE AND AS SUCH THE SERVICES WERE NOT REQUIRED BY IT. THE AO IN HIS DRA FT ORDER/FINAL ITA NO.5739/DEL/2011 8 ASSESSMENT ORDER DATED 23.12.2010/24.10.2011 HAS TA KEN THE ALP AT NIL ON THE BASIS OF RECOMMENDATION OF THE TPO WITHOUT C ARRYING OUT ANY INDEPENDENT INVESTIGATION IN TERMS OF THE DEDUCTIBI LITY OR OTHERWISE OF SUCH PAYMENT IN TERMS OF SECTION 37(1) OF THE ACT. AS PER THE RATIO DECIDENDI OF CUSHMAN & WAKEFIELD INDIA (P.) LTD . (SUPRA), THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THIS TR ANSACTION UNCONCERNED WITH THE FACT, IF ANY BENEFIT ACCRUED T O THE ASSESSEE AND THEREAFTER, IT WAS FOR THE AO TO DECIDE THE DEDUCTI BILITY OF THIS AMOUNT U/S 37(1) OF THE ACT. 7. SINCE THE AUTHORITIES BELOW HAVE ACTED IN CONTR ADICTION TO THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA) , WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FIL E OF AO/TPO FOR DECIDING IT IN CONFORMITY WITH THE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (SUPRA). 8. BEFORE PARTING WITH THIS APPEAL, WE WANT TO MAKE IT CLEAR THAT WE HAVE DESISTED FROM EXAMINING THE CORRECTNESS OF ANY ASPECT OF ITA NO.5739/DEL/2011 9 DETERMINATION OF ALP OF THIS INTERNATIONAL TRANSACT ION, SUCH AS, THE MOST APPROPRIATE METHOD AND COMPARABLES ETC. BECAUSE THE MATTER IS BEING SENT TO THE AO/TPO FOR REDOING IN ACCORDANCE WITH T HE JUDGMENT IN THE CASE OF CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (SUPRA). NOW THE BALL IS IN THE COURT OF THE LOWER AUTHORITIES TO INDEPENDEN TLY DO THE NEEDFUL AS PER THIS JUDGMENT. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STAT ISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 13.11.201 5. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED,13 TH NOVEMBER, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.