M/s. Honda R&D (India) Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 5754/DEL/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3940 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 01-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDER KUMAR
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Wholly owned subsidiary
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 4800/DEL/2 010 (A.Y 2006-07) & I.T.A. NO. 5754/DEL/2011 (A.Y.2007-08) HONDA R & D (INDIA) PVT. LTD. 118 JP HOUSE 1 ST FLOOR SHAHPUR JAL NEW DELHI AABCH3071N (APPELLANT) VS DCIT OSD, CIT(A)-IV NEW DELHI (RESPONDENT) APPELLANT BY SH. NAGESHWAR RAO, ADV. SH. SANDEEP KARHEL, ADV. RESPONDENT BY SH. AMRENDER KUMAR, CIT DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS DATED 21.09.2010 AND 23.08.2011 PASSED BY ASSESSING OFFIC ER, NEW DELHI U/S 143(3) R/W SECTION 144C OF INCOME TAX ACT, 1961 FOR ASSESS MENT YEAR 2006-07 AND 2007-08 RESPECTIVELY. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- (ITA NO. 4800/DEL/2010 A.Y. 2006-07) THE FOLLOWING GROUNDS OF APPEAL ARE MUTUALLY EXCLU SIVE OF AND WITHOUT PREJUDICE DATE OF HEARING 08.08.2017 DATE OF PRONOUNCEMENT 03.11.2017 TO EACH ANOTHER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DISPUTE RESOLUTION PANEL (DRP) ERRED IN CONFIRMIN G THE DRAFT ORDER PASSED BY THE LEARNED ASSESSING OFFICER (AO), AND THEREBY CONFIRMING THE ORDER ISSUED UNDER SECTION 92CA(3) THE INCOME T AX ACT, 1961 (THE ACT) PASSED BY THE LEARNED TRANSFER PRICING OFFICE R (TPO); 2. THE HONBLE DRP/AO ERRED IN LAW AND IN CIRCUMSTANCE S BY NOT PROVIDING ANY REASONS FOR REJECTION OF THE COST PLUS METHOD I DENTIFIED AS THE MOST APPROPRIATE METHOD BY THE APPELLANT AND APPLYING TH E TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR THE PROVISION OF MARKET RESEARCH AND TESTING SERVICES. 3. THE HONBLE DRP/AO ERRED IN COMPUTING THE NET PROFI T MARGIN ON THE BASIS OF THE TNMM. 4. THE HONBLE DRP/AO ERRED IN DETERMINING THE ARMS L ENGTH PRICE FOR THE PROVISION OF MARKET RESEARCH AND TESTING SERVICES B Y THE APPELLANT BY USING COMPLETELY INAPPROPRIATE SET OF COMPANIES THA T WERE ENGAGED IN A TOTALLY DIFFERENT LINE OF BUSINESS AND INDUSTRY AND MISCONSTRUING THE ACTUAL NATURE OF THE SERVICES PROVIDED BY THE APPELLANT. 5. THE HONBLE DRP/AO ERRED IN UPHOLDING THAT THE TPO FOLLOWED ALL THE REQUIRED STEPS IN IDENTIFYING COMPARABLE COMPANIES VIZ. VISITING THE PUBLIC DATABASE, USE OF APPROPRIATE FILTERS AND UNDERTAKIN G AN APPROPRIATE FUNCTIONS, ASSETS & RISKS (FAR) ANALYSIS. 6. THAT THE HONBLE DRP ERRED IN UPHOLDING THE ARMS L ENGTH PRICE FOR PROVISION OF MARKET RESEARCH AND TESTING SERVICES A S COMPUTED BY THE TPO BY NOT PASSING A SPEAKING ORDER. 7. THE HONBLE DRP/AO ERRED BY NOT AWARDING ANY OPPORT UNITY TO THE APPELLANT TO CONTEST THE SELECTION OF COMPARABLES S ELECTED BY TPO DURING THE COURSE OF TRANSFER PRICING ASSESSMENT PROCEEDIN GS. 8. THE HONBLE DRP/AO ERRED IN STATING THAT THE MARKET RESEARCH AND TESTING ACTIVITIES UNDERTAKEN BY THE APPELLANT IN INDIA LEA D TO THE CREATION OF INTELLECTUAL PROPERTY RIGHTS, PATENT, COPYRIGHTS & TRADEMARKS, WHEREAS THE APPELLANTS ACTIVITIES DO NOT, IN ANY MANNER OR CIRCUMSTANCES, LEAD TO CREATION OF SUCH INTANGIBLES. 9. THE HONBLE DRP/AO ERRED IN ASCERTAINING THE RISK P ROFILE OF THE APPELLANT BY ASSUMING THAT IT UNDERTAKES SUBSTANTIAL RISK WHI LE RENDERING MARKET RESEARCH AND TESTING SERVICES. ALSO, THE HONBLE DR P/AO DID NOT GIVE DUE COGNIZANCE TO THE FACT THAT ALL HONDA R&D GROUP ENT ITIES ENJOY A NO RISK STATUS, I.E., ALL EXPENSES INCURRED BY THE APPELLAN T GET REIMBURSED WITH A MARKUP OF 3 PERCENT, IRRESPECTIVE OF WHETHER ITS MA RKET RESEARCH AND TESTING ACTIVITIES RESULT IN ANY COMMERCIAL SUCCESS OR NOT. 10. THE HONBLE DRP/AO GROSSLY ERRED IN APPROVING T HE SUBSTANDARD AND INHERENTLY FLAWED ANALYSIS UNDERTAKEN BY TPO TO ARR IVE AT THE ARMS LENGTH PRICE. THE TPO SOUGHT TO COMPARE THE APPELLA NT TO COMPANIES UNDERTAKING RESEARCH AND DEVELOPMENT SERVICES, HOWE VER, MOST OF THESE COMPANIES REPORTED NO OR EXTREMELY INSIGNIFICANT RE SEARCH AND DEVELOPMENT REVENUES. 11. THEHONBLEDRP/AO ERRED IN NOT RECOGNIZING THE FACT THAT THE TPO HAD GROSSLY MISCALCULATED THE OPERATING MARGIN OF COMPA RABLE COMPANIES IDENTIFIED BY HIM. 12. THE HONBLE DRP/ASSESSING OFFICER FAILED TO APPRECI ATE THE FACT THAT AFTER REMOVING THE MISTAKES APPARENT FROM THE MARGIN COMP UTATION OF THE COMPARABLE COMPANIES IDENTIFIED BY THE TPO, THE INT ERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT WOULD COMP LY WITH THE ARMS LENGTH STANDARD EMBODIED IN THE ACT. 13. THE HONBLEDRP ERRED IN LAW AND IN FACTS AND IN CIR CUMSTANCES BY NOT GIVING DUE COGNIZANCE TO THE INFORMATION SUBMITTED BY THE APPELLANT ON MAY 28, 2010, IN CONTEXT OF THE FAR ANALYSIS. 14. THE HONBLEDRP ERRED IN LAW BY NOT EVALUATING THE R EJECTION/ACCEPTANCE OF TNMM METHOD, USED AS A METHOD OF SECONDARY CHOICE APPLIE D BY THE APPELLANT FOR THE PURPOSE OF ESTABLISHING THE ARMS LENGTH NA TURE OF THE MARKET RESEARCH AND TESTING SERVICES. 15. THE HONBLE DRP ERRED IN LAW AND IN FACTS BY NOT GI VING DUE COGNIZANCE TO THE NEW SET OF APPROPRIATE COMPARABLE COMPANIES SUB MITTED BY THE APPELLANT WITH THE HONBLE DRP. 16. THE HONBLE DRP/AO ERRED IN LAW AND IN FACTS BY NOT GIVING DUE COGNIZANCE TO THE WORKING CAPITAL ADJUSTMENT UNDER TAKEN BY THE APPELLANT FOR ESTABLISHING ARMS LENGTH NATURE OF T HE INTERNATIONAL TRANSACTION, AND ALSO NOT ALLOWING ANY ADJUSTMENT F OR RISK. 17. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE DRP ERRED IN NOT DIRECTING TPO TO ALLOW A VARIATION OF 5 PERCENT IN DETERMINING THE ARMS LENGTH PRICE AS AMENDED PROVI SO TO SECTION 92C OF THE ACT IS NOT APPLICABLE TO A.Y. 2006-07. 18. THE HONBLE DRP PASSED DIRECTIONS TO THE AO WHO DEN IED NATURAL JUSTICE TO THE APPELLANT BY NOT PROVIDING AN OPPORTUNITY OF BEING HEARD IN CONNECTION WITH CERTAIN MATTERS CRITICAL WITH THE F INAL OUTCOME OF THE ASSESSMENT PROCEEDINGS, WHICH FINALLY LED TO AN ADV ERSE CONCLUSION AGAINST THE APPELLANT, INCLUDING FAILING TO ISSUE A SPEAKING ORDER. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND / OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF T HE APPEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF THE CASE. (ITA NO. 5754/DEL/2011 A.Y. 2007-08) THE FOLLOWING GROUNDS OF APPEAL ARE MUTUALLY EXCLU SIVE OF AND WITHOUT PREJUDICE TO EACH ANOTHER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE HONBLE DISPUTE RESOLUTION PANEL (DRP) ERRED IN CONFIRMIN G THE DRAFT ORDER PASSED BY THE LEARNED ASSESSING OFFICER (AO), AND THEREBY CONFIRMING THE ORDER ISSUED UNDER SECTION 92CA(3) THE INCOME T AX ACT, 1961 (THE ACT) PASSED BY THE LEARNED TRANSFER PRICING OFFICE R (TPO). 2. THE HONBLE DRP AND THE LEARNED AO ERRED IN FAC TS AND IN LAW BY NOT RECOGNIZING THAT THE STATUTORY ONUS ON THE TPO TO E STABLISH THAT AN APPELLANTS CASE IS COVERED ,UNDER ANY OF (A) TO (D ) CLAUSE OF SECTION 92C (3) OF THE ACT HAS NOT BEEN DISCHARGED BY HIM. 3. THE HONBLE DRP AND LEARNED TPO HAVE ERRED ON F ACTS AND IN LAW BY NOT ACCEPTING THE ECONOMIC ANALYSIS CONDUCTED BY TH E APPELLANT, FOR THE TRANSACTION PERTAINING TO PROVISION OF MARKET RESEA RCH AND TESTING SERVICES, WHICH IS IN ACCORDANCE WITH THE PROVISIONS OF THE A CT READ WITH THE INCOME- TAX RULES, 1962 (THE RULES), FOR THE DETERMINATIO N OF THE ARMS LENGTH PRICE (ALP). 4. THE HONBLE DRP AND LEARNED TPO HAVE ADOPTED A F LAWED APPROACH BY USING SINGLE YEAR DATA AS AGAINST THE MULTIPLE YEAR DATA USED BY THE ASSESSEE, TO COMPUTE THE ALP OF THE INTERNATIONAL T RANSACTION OF THE APPELLANT USING THE TRANSACTIONAL NET MARGIN METHO D (TNMM). 5. THE HONBLE DRP AND LEARNED TPO HAVE ERRED IN NO T ACCEPTING THE ECONOMIC ADJUSTMENTS (SUCH AS WORKING CAPITAL ADJUS TMENT AND RISK ADJUSTMENT) UNDERTAKEN BY THE APPELLANT IN ORDER TO IMPROVE THE COMPARABILITY OF THE COMPARABLE RESULTS AND THAT OF THE APPELLANT. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND / OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF T HE APPEAL. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF BASED ON THE SAID GROUNDS OF APPEAL AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. FOR THE SAKE OF CONVENIENCE THE FACTS FOR A.Y. 2006-07 ARE TAKEN HEREUNDER AS THE ISSUE RELATING TO AMP IS IDENTICAL IN BOTH THE ASSESSMENT YEARS. 4. THE ASSESSEE COMPANY WAS ESTABLISHED AS A DOMEST IC COMPANY IN JUNE 2003 TO UNDERTAKE RESEARCH AND DEVELOPMENT ACTIVITY IN RELATION TO HONDA AUTO MOBILE POWER EQUIPMENT COMPANIES IN INDIA. THE COM PANY IS ENGAGED IN RESEARCH & DEVELOPMENT OF ANY PRODUCT INVOLVED SERV ICE/REVIEW/PASTING OF THE PRODUCT IN THE LOCAL CONDITIONS AND TO UNDERTAKE SU CH ACTIVITIES. THE DOMESTIC COMPANY WAS LOADED BY HONDA R & D COMPANY LTD. JAPA N AS A 100% SUBSIDIARY WITH 100% EQUITY BEING HELD BY THE ABOVE COMPANY. THE RESEARCH AND DEVELOPMENT ACTIVITY IS CONDUCTED IN HOUSE FOR THE SOLE USE OF SUCH RESEARCH IN THE DEVELOPMENT OF PRODUCTS IN THE AUTO MOBILE SECTOR AND ALSO BARELY IN THE POWER PRODUCT SECTOR. THE MAJOR INTE RNATIONAL TRANSACTIONS REPORTED IN FORM NO. 3CEB ARE SUMMARIZED AS UNDER:- (1) SALE OF SERVICES - COST PLUS -17,29, 83,179/- (2) RE-IMBURSEMENT OF LODGING, CONVEYANCE AND AIR T ICKET-CUP-1,91,940/- (3) RE-IMBURSEMENT OF MEDICAL EXPENSES CUP - 3347 /-. (4) IMPORT OF GOSOLINE HANDY CAN CUP - 53,460/- (5) IMPORT OF VARIABLE RESIDENCES CUP - 5,53,77 7/- (6) RE-IMBURSEMENT OF CUSTOM DUTY AND CLEARANCE CHA RGES-CUP-2,28,473/-. (7) IMPORTED MACHINERY-CUP-6,30,702/- (8) IMPORTED CONSUMABLES CUP - 1,04,691/-. IN THE FORM NO. 3 CEB ENCLOSED WITH THE RETURN OF I NCOME IT WAS MENTIONED THAT TNMM WAS APPLIED FOR DETERMINING THE ARMS LENG TH PRICE OF THE INTERNATIONAL TRANSACTION RELATED TO THE PURCHASE O F TESTING EQUIPMENTS AND COST PLUS METHOD HAS BEEN APPLIED FOR SALE OF SERVI CES. DURING THE COURSE OF PROCEEDINGS REPORT ENTITLED AN ANALYSIS OF TRANSFE R PRICING ARRANGEMENT WITH ASSOCIATED ENTERPRISES WAS FILED. THE ASSESSEE U SED COST PLUS METHOD TO BENCH MARK ITS MAJOR INTERNATIONAL TRANSACTION REL ATING TO PROVISIONS OF SERVICES WITH RESPECT TO R & D ( SALE OF SERVICES; RS.17,29,83,179/-). THE TPO OBSERVED THAT AS PER AGREEMENT DATED 1/8/2003, ONLY PART OF SERVICES RENDERED BY THE ASSESSEE GETS REMUNERATED AND THE AGREEMENT DID NOT STIPULATE PAYMENT IN LIEU OF TRANSFER OF IPR, PATENT AND COPYRIGHT TO PARENT COMPANY. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS CUSTOMIZING HOND A TECHNOLOGY USED IN FOUR & TWO WHEELERS TO SUIT THE REQUIREMENT OF INDIAN CU STOMER, BUT BENEFIT OF SUCH CUSTOMIZED TECHNOLOGY EARNED BY THE PARENT COMPANY FROM INDIAN SUBSIDIARIES HAS NOT BEEN SHARED WITH THE ASSESSEE. THUS, HONDA MOTOR COMPANY LTD. HAS EARNED INCOME FROM LICENSE, TECHNO LOGICAL ASSISTANCE AND PRODUCT DEVELOPMENT OF RS.174.94 CRORES FROM M/S HE RO HONDA MOTORS LTD. INDIA ALLIANCE IN ASSESSMENT YEAR 2005-06. HOWEVER , NO PART OF SUCH BENEFIT WAS ACTUALLY TRANSFERRED TO THE ASSESSEE WHICH IS R ESPONSIBLE FOR CONDUCTING RESEARCH AND DEVELOPMENT ACTIVITIES IN INDIA TO CUS TOMIZE AND DEVELOP TECHNOLOGY SUITABLE TO INDIAN CONDITIONS AND PEOPLE . THUS, THE TPO CONCLUDED THAT THE ASSESSEE COMPANY WHICH IS GENERATING SPECI FIC R & D FOR MODIFICATION OF HONDA PRODUCTS TO SUIT THE INDIAN/LOCAL CONDITIO NS AND ALSO FOR TRANSFER OF PATENT IPR AND COPYRIGHT IS NOT BEING COMPENSATED A T ARMS LENGTH PRICE. THE DRAFT ORDER U/S 144C OF THE INCOME TAX ACT, 1961 WA S PASSED AND SERVED ON THE ASSESSEE ON 24/11/2009 AGAINST WHICH THE ASSESS EE FILED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP, NEW DELHI). THE DRP VIDE ITS ORDER DATED 30/8/2010 UPHELD THE ADDITIONS/DISALLOWANCES MADE B Y THE ASSESSING OFFICER , WHEREIN THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.1,77,51,768/-. THE ASSESSING OFFICER WHILE PASSING ASSESSMENT ORDER D ATED 21/9/2010 HELD THAT IN THE ORDER, THE TPO HAS DEALT IN DETAIL WITH EACH ASPECT FOR THE DETERMINATION OF CORRECT ARMS LENGTH PRICE FOR THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. THUS, AN ADDITION OF RS.1,77,51,768/ - IS MADE TO THE INCOME OF THE ASSESSEE BEING DIFFERENCE BETWEEN THE ARMS LEN GTH PRICE. 5. THE LD. AR SUBMITTED THAT THIS ASSESSMENT YEAR I S ALREADY COVERED BY THE HONBLE DELHI HIGH COURTS DECISION IN THE ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 (ITA NO. 616/15, DATED 2/8/ 2016 WHEREIN IN PARA 12,13 & 26, THE SAME IS DISCUSSED AND THE MATTER WA S RESTORED TO THE ITAT. FOR ASSESSMENT YEAR 2005-06 THE ITAT PASSED ORDER DATED 29.01.2015. THE HON'BLE HIGH COURT CLEARLY MENTIONED IN PARA 25 THA T HONDA R & D INDIA PVT. LTD. WAS NOT INTO CORE RESEARCH & DEVELOPMENT ACTIV ITY. THUS, THE TPOS AS WELL AS DRPS FINDING THAT IT IS AT ARMS LENGTH PR ICE WILL NOT SUSTAIN. AS RELATED TO WORKING CAPITAL ISSUE, THE HON'BLE HIGH COURTS ORDER WAS NOT AVAILABLE BEFORE THE DRP AS WELL AS TPO. THEREFORE, THE SAID ISSUE SHOULD BE REMANDED BACK TO THE TPO AFTER TAKING INTO CONSIDERATION THE ORDER OF THE HON'BLE HIGH COURT. 6. THE LD. DR RELIED UPON THE ORDER OF THE TPO AND DRP. 7. AS RELATES TO ITA NO. 5734/DEL/2011 FOR ASSESSME NT YEAR 2007-08 THE LD. AR SUBMITTED THAT GROUND NO. 1, 2, & 4 ARE NOT PRESSED. AS RELATES TO GROUND NO. 3 & 4 THE LD. AR SUBMITTED THAT THE TRAN SFER PRICING STUDY HAS BEEN ACCEPTED BY THE TPO AND THE SAME ARE IDENTICAL WITH THE EARLIER YEAR. 8. THE LD. DR ONCE AGAIN RELIED UPON THE ORDERS OF THE TPO & DRP. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. FIRSTLY WE TAKE UP THE APPEAL FOR A.Y. 200 6-07, SINCE THE FINDING OF THE HON'BLE HIGH COURT FOR ASSESSMENT YEAR 2005-06 HAS CLEARLY CONCLUDED THAT FOR ASSESSMENT YEAR 2007-08 THE ASSESSEE HAS NOT CA RRIED OUT ANY RESEARCH AND DEVELOPMENT ACTIVITY, THE SAME CANNOT BE TAKEN INTO ACCOUNT FOR RENDERING SERVICES AS PER INTERNATIONAL TRANSACTIONS. THE HIG H COURT IN ASSESSEES CASE FOR A.Y. 2005-06 HELD AS UNDER 24. STRANGELY THE ITAT AGAIN PICKED UP THREE COMPA RABLES, I.E., NATIONAL RESEARCH DEVELOPMENT CORPORATION LIMITED, PANACEA B IOTECH AND SUVEN LIFE SCIENCES, WHICH HAD BEEN REJECTED AS COMPARABLES BY THE TPO IN ITS REMAND REPORT FOR AY 2005-2006. THE CIT(A) HAS GIVEN COGEN T REASONS WHY THE TPOS REPORT OUGHT TO BE ACTED UPON. THE ITAT ALSO APPEAR S TO HAVE OVERLOOKED THE FACT THAT AN ORDER OF ANOTHER CO-ORDINATE BENCH OF ITAT IN HRDPS OWN CASE FOR AY 2004-2005 HAD REMANDED THE MATTER TO THE CIT (A), ACTING ON THE REMAND REPORT OF THE TPO FOR AY 2005-06. BY TAKING A DIFFERENT VIEW AND BY AGAIN SENDING TO THE CIT(A) THE ENTIRE ISSUE OF DET ERMINING WHICH COMPARABLES WERE BEST SUITED FOR THE EXERCISE OF DETERMINATION OF ALP, THE ITAT WAS ADDING TO THE CONFUSION RESULTING FROM CONTRADICTOR Y ORDERS. 25. THE COURT IS OF THE CONSIDERED VIEW THAT THE ITAT DID NOT HAVE SUFFICIENT MATERIAL BEFORE IT TO COME TO THE CONCLUSION THAT H RDI WAS INTO CORE R&D ACTIVITY. THAT FINDING OF THE ITAT WOULD ONLY CAUSE CONFUSION BEFORE THE CIT(A) IN THE REMAND PROCEEDINGS. ON THE OTHER HAND THERE WAS SUFFICIENT MATERIAL IN THE FORM OF THE REMAND REPORT OF THE TPO FOR AY 200 5-2006 AS WELL AS DRPS ORDER FOR 2007-2008 TO SHOW THAT HRDI WAS NOT INTO CORE R&D ACTIVITY. 26. ACCORDINGLY QUESTION (I) IS ANSWERED IN THE NEGATI VE BY HOLDING THAT THE ITAT WAS NOT JUSTIFIED IN CONCLUDING THAT HRDI WAS INVOLVED IN R&D ACTIVITY AND NOT PROVISION OF MARKET SUPPORT SERVICES. THE ORDER OF THE CIT(A), WHICH WAS REVERSED BY THE ITAT, IS RESTORED. THE ITAT HAS DECIDED THE ISSUES VIDE ORDER DATED 2 9.01.2015 FOR A.Y. 2005-06. THUS, THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY INTERNATIONAL TRANSACTION. 10. AS RELATED TO WORKING CAPITAL ADJUSTMENT THE HON'BL E HIGH COURT DECISION WAS NOT AVAILABLE BEFORE THE TPO AS WELL AS BEFORE THE DRP. THEREFORE, THE SAME SHOULD BE VERIFIED BY THE TPO/A.O. NEEDLESS T O SAY, THAT THE ASSESSEE BE GIVEN FULL OPPORTUNITY OF HEARING. 11. IN RESPECT OF THE APPEAL FOR A.Y. 2007-08, GROUND N O. 1, 2 AND 4 ARE NOT PRESSED BY THE LD. AR DURING THE HEARING HENCE, THE SAME ARE DISMISSED. AS RELATES TO GROUND NO. 3 AND 5, THE ISSUES ARE SIMIL AR TO THE A.Y. 2006-07, HENCE THE SAME ARE PARTLY ALLOWED FOR STATISTICAL P URPOSE. 12. IN RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03RD NOVEMB ER, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 03/11/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 11/08/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 14/08/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .11.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK .11.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.