Mindarika Private Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5810/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7572 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 23-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: R K KAPOOR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Corroborative evidences
• Section: 234B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I , NEW DELHI) BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 5810/DEL/2011 ASSESSMENT YEAR : 2007-08 MINDARIKA PRIVATE LIMITED, VS. ADDL. CIT, RANGE 6 , B-64/1, WAZIRPUR INDUSTRIAL AREA, NEW DELHI DELHI GIR / PAN:AAACM8583F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K. KAPOOR, CA RESPONDENT BY : SHRI PEEYUSH JAIN, CIT DR ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST DR P ORDER DATED 08.08.2011. THE ASSESSEE IS AGGRIEVED WITH TWO ADD ITIONS, ONE RELATES TO INTERNATIONAL TRANSACTION AND OTHER RELATES TO CORP ORATE MATTER. THE A.O. HAS TAKEN THE ARMS LENGTH PRICING OF VARIOUS PAYMENTS M ADE BY ASSESSEE AT NIL VALUE AND THEREFORE, MADE ADDITION OF RS.2,94,23,83 5/- ON ACCOUNT OF ROYALTY AND ALLIED PAYMENTS. THE DISPUTES RESOLUTION PANEL (DRP) HOWEVER GAVE A RELIEF ON ACCOUNT OF ROYALTY PAYMENTS. HOWEVER, IT UPHELD THE ADDITION ON ACCOUNT OF ARMS LENGTH PRICING FOR ALLIED PAYMENTS. SIMILARLY, THE A.O. MADE AN ADDITION OF RS.45 LACS ON ACCOUNT OF PAYMEN T OF OVERHEAD EXPENSES AND PERSONAL COST. THE A.O. DISALLOWED THE AMOUNT EQUIVALENT TO 50% OF THE CLAIM ON THE BASIS THAT CHARGES REIMBURSED WERE NOT RELATED TO ACTUAL SERVICES. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEF ORE US. ITA NO.5810/DEL/2011 2 2. AT THE OUTSET, LD. A.R. SUBMITTED THAT THE CASE OF ASSESSEE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF IN ASSESSMENT YEAR 2008-09. OUR ATTENTION WAS INVITED TO ORDER OF THE TRIBUNAL IN I.T.A. NO. 5297/- PLACED AS ANNEXURE A . IT WAS SUBMITTED THAT THE BASIC ADDITION MADE BY TPO IN RESPECT OF INTERN ATIONAL TRANSACTION FOR THE TWO YEARS WERE THE SAME THEREBY TPO HAD MADE AD DITION CONSISTING OF ROYALTY PAYMENT AND ALLIED EXPENSES AND IT WAS PRAY ED THAT FOLLOWING THE TRIBUNAL ORDER IN THE CASE OF ASSESSEE ITSELF FOR T HE ASSESSMENT YEAR 2008- 09, THIS APPEAL OF THE ASSESSEE BE ALLOWED IN ITS F AVOUR. AS REGARDS THE CORPORATE ISSUE, LD. A.R. SUBMITTED THAT IN ASSESSM ENT YEAR 2008-09, FOR SIMILAR ADDITIONS, THE CASE OF THE ASSESSEE WAS RES TORED BACK TO THE OFFICE OF THE A.O. AND THE PRESENT CASE ALSO CAN BE REMITTED BACK. 3. LD. D.R. FAIRLY ACCEPTED THE SUBMISSION OF THE L D. A.R. 4. WE HAVE HEARD RIVAL PARITIES AND HAVE GONE THROU GH THE MATERIAL PLACED ON RECORD. THE CASE OF THE ASSESSEE WAS EAR LIER HEARD ON 23.07.2014. HOWEVER, DURING DICTATION, IT WAS FELT THAT THERE W ERE CERTAIN DIFFERENCE IN THE TPOS ORDER IN ASSESSMENT YEAR 2008-09 AND IN T HE PRESENT YEAR, THEREFORE, THE CASE OF THE ASSESSEE WAS REFIXED FOR CLARIFICATION AND FINALLY, THE CASE WAS HEARD ON 13.10.2014. AT THE TIME OF R EHEARING, LD. A.R. PRODUCED A COPY OF HON'BLE HIGH COURT ORDER DATED 0 8.08.2014 IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEAR 2008-09 AND SUBMITTED THAT THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2008-09 HAS BEEN CONFIRMED BY HON'BLE DELHI HIGH COURT AND THEREFORE, THE CASE OF THE ASS ESSEE IN ASSESSMENT YEAR 2007-08 CAN BE DECIDED FOLLOWING THE DECISION FOR A SSESSMENT YEAR 2008- 09. THE LD. A.R. FURTHER CLARIFIED THAT THERE IS N O DIFFERENCE BETWEEN THE FACTS AND CIRCUMSTANCES OF ASSESSMENT YEAR 2008-09 AND PRESENT YEAR TO ITA NO.5810/DEL/2011 3 WHICH LD. D.R. ALSO AGREED. WE HAVE GONE THROUGH T HE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2008-09 IN THE ASSESSEES OWN C ASE ALONG WITH THE ORDER OF TPO FOR ASSESSMENT YEAR 2008-09 AND 2007-0 8 AND FIND THAT TPO HAS PASSED SIMILAR ORDERS IN THESE TWO ASSESSMENT Y EARS WHEREBY HE MADE ADDITION ON ACCOUNT OF ROYALTY AND OTHER ALLIED PAY MENTS. WE FIND THAT HONBLE TRIBUNAL VIDE ORDER DATED 23.08.2013 IN I.T .A. NO. 5297 IN THE CASE OF ASSESSEE ITSELF, UNDER SIMILAR FACTS AND CIRCUMS TANCES HAS HELD AS UNDER: I) REGARDING INTERNATIONAL TRANSACTION: 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE FIND THAT TPO IN THIS CASE HAS TAKEN UP THE ISSUE OF ADJUSTMENT OF ARM'S LENGTH PRICE OF ROYALTY PAID BY THE TAX PAYER. IN THIS CONNECTION, THE TPO NOTED THAT ASSESSEE HAS DE BITED THE FOLLOWING PAYMENTS:- ROYALTY PAYMENTS 1,56,43,832/- PAYMENT OF TECHNICAL FEE 12,31,863/- PAYMENT OF TRAINING AND TESTING EXPENSES 13,46 ,823/- PAYMENT MODIFICATION OF TOOLS 165,734/- PAYMENT OF DESIGN DEVELOPMENT EXPENSES 69 ,734/-' TOTAL 1,82,92,510/- 8.1 TPO NOTED THAT THE TOTAL ROYALTY MADE AND OTHER ALLIED PAYMENT MADE TO AES IS RS.1,82,92,510/-. THEREAFTER, TPO PR OCEEDED TO EXAMINE THE VARIOUS ASPECTS OF ARM'S LENGTH NATURE OF ROYALTY PAYMENT. IN THIS CONNECTION, WE FIND THAT IN THE EN TIRE TRANSFER PRICING ORDER, THE TPO HAS ONLY DISCUSSED THE TRANSACTION O F ROYALTY PAYMENT. HOWEVER, ONLY IN THE CONCLUDING PARA OF HIS ORDER, HE CLUBS THE PAYMENT FOR ALL SERVICES AND KNOW HOW UNDER ROYALTY AND DETERMINES THE ALP AT NIL. THUS, WE FIND THAT FOR THE FOLLOWIN G PAYMENTS THERE IS NO INDEPENDENT DISCUSSION BY THE TPO NAMELY:- I) PAYMENT OF TECHNICAL FEE RS. 12,31,863/- II) PAYMENT OF TRAINING AND TESTING EXPENSES RS. 13,46,823/- III) PAYMENT OF MODIFICATION OF TOOLS RS. 165,73 4/- IV) PAYMENT OF DESIGN & DEVELOPMENT EXPENSES RS. 69,992/- ITA NO.5810/DEL/2011 4 8.2 ASSESSEE FILED THE OBJECTIONS BEFORE THE DRP. T HE DRP HELD THAT IN ITS OPINION, THE PAYMENT MADE UNDER HEAD ROYALTY WAS AT ARMS LENGTH, AS FOR THE PAYMENT MADE UNDER OTHER HEADS, THE STAND TAKEN BY THE TPO WAS APPROVED. THUS, WE FIND THAT DRP HAS HE LD THAT THE ROYALTY PAYMENT WAS AT ARM'S LENGTH WHICH COVER A S UBSTANTIAL PART OF TPO'S DISALLOWANCE AT RS. 156,43,832/-. THE DRP HAS OBSERVED THAT AS FOR THE PAYMENT MADE UNDER THE OTHER HEADS THE S TAND TAKEN BY THE TPO WAS APPROVED. WE FIND THAT REGARDING THE PAYMEN TS MADE UNDER OTHER HEADS, TPO HAS NOT AT ALL TAKEN ANY DETAILED STAND THROUGHOUT HIS TRANSFER PRICING ORDER. THE TPO HAS DISCUSSED T HE TRANSACTION OF ROYALTY PAYMENT. HE HAS NOT TAKEN UP ANY OTHER HEAD S INDEPENDENTLY. IN THESE CIRCUMSTANCES, WE FIND THAT THERE IS NO CO GENT BASIS FOR SUSTAINING THE ADDITION MADE WITH REGARD TO THE PAY MENT OF TECHNICAL FEE, TRAINING FEE, TESTING EXPENSES, PAYMENT OF MOD IFICATION OF TOOLS AND PAYMENT OF DESIGN AND DEVELOPMENT EXPENSES. 8.3 THE DRP ALSO HAS ALLOWED THE ROYALTY PAYMENT AN D DISALLOWED THE OTHER ALLIED PAYMENTS. FOR ARRIVING AT THE ABOVE DE CISION, DRP HAS NOT GIVEN ANY COGENT REASONS. IN THESE CIRCUMSTANCE S, IN OUR CONSIDERED OPINION, THE ADDITION ON ACCOUNT OF ARM' S LENGTH PRICE AMOUNTING TO RS. 26,48,678/- IS NOT SUSTAINABLE. 8.4 NOW WE DEAL WITH THE LD. DEPARTMENTAL REPRESENT ATIVE'S SUBMISSIONS THAT THE MATTER MAY BE REMITTED TO THE FILE OF THE TPO TO GIVE A DETAILED AND PROPER FINDING ON ALLIED PAYMEN TS OTHER THAN ROYALTY. 8.5 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. W E FIND THAT THE TPO HAS MADE THE ELABORATE ORDER WHEREBY HE HAS ONL Y DEALT WITH ROYALTY ASPECT AND NOT DEALT WITH THE OTHER ALLIED PAYMENTS. THE ROYALTY PAYMENT HAS BEEN ALLOWED BY THE DRP. IN THE SE CIRCUMSTANCES, ASSESSEE WILL BE PUT TO GREAT HARDSH IP, IF THE TPO IS GIVEN A SECOND INNING TO MAKE OUT A FRESH CASE. HEN CE, WE REJECT THESE SUBMISSIONS MADE BY THE LD. DEPARTMENTAL REPRESENTA TIVE. II) REGARDING CORPORATE ISSUE: 14. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ON THE ISSUE REIMBURSEMENT OF EXPENSES AM OUNTING TO RS. 90 LACS PAID TO M/S MINDA INDUSTRIES LTD., ASSESSEE HA S CLAIMED TO HAVE ITA NO.5810/DEL/2011 5 MADE ELABORATE SUBMISSIONS BEFORE THE AUTHORITIES B ELOW. VARIOUS DETAILS AND BREAK UP WERE SAID TO HAVE BEEN GIVEN T O THE ASSESSING OFFICER. THAT ASSESSEE HAS SUBMITTED TIME SPENT CHA RT WHEREIN THE EXACT AMOUNT OF TIME SPENT BY THE EMPLOYEES OF MIND A INDUSTRIES LTD. WERE NOTED. THAT THE ASSESSING OFFICER HAS NOT RESP ONDED TO THE ABOVE SUBMISSIONS AND HAS PROCEEDED TO MAKE AD HOC OF 50% OF EXPENSES. DRP HAS ALSO AFFIRMED ASSESSING OFFICER'S ACTION BY STATING THAT CLAIM OF ASSESSEE THAT 17% OF THE TIME OF EMPLOYEES OF MI L HAS BEEN SPENT FOR THE ASSESSEE IS ALSO WITHOUT ANY SUPPORTING EV IDENCE. THUS, WE FIND THAT THERE IS CONFLICT BETWEEN SUBMISSIONS OF THE ASSESSEE AND FINDING BY THE AUTHORITIES BELOW. WHILE ASSESSEE IS CLAIMING TO HAVE SUBMITTED ELABORATE DETAILS. THE REVENUE HAS CLAIME D THAT PROPER SUPPORTING EVIDENCE WERE NOT THERE. 15. IN OUR CONSIDERED OPINION, IN THESE CIRCUMSTANC ES, INTEREST OF JUSTICE DEMANDS THATS THE MATT4ER MAY BE REMITTED TO THE FILE OF THE A.O. ACCORDINGLY, THIS ISSUE IS REMITTED BACK TO T HE FILE OF THE A.O. A.O. IS DIRECTED TO EXAMINE IN DETAIL THE DETAILS A ND BREAK-UP IN THE TIME CHARTS SUBMITTED BY THE ASSESSEE AND THEREAFTE R CONSIDER THE ISSUE AFRESH. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD B E GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 5. WE FURTHER FIND THAT HON'BLE DELHI HIGH COURT VI DE ORDER DATED 08.08.2014 HAS CONFIRMED THE ORDER OF THE TRIBUNAL HOLDING AS UNDER: HAVING EXAMINED THE SAID REASONING AND LOOKING AT THE QUANTUM OF THE AMOUNT INVOLVED AND ALSO THE FACT THATS THE TR ANSFER PRICING OFFICER HAS NOT SPECIFICALLY DEALT WITH THE SAID IS SUE, AND FINDINGS OF THE DISPUTE RESOLUTION ARE AMBIGUOUS AND NOT SPECIF IC, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY THE TRIBUNAL. THE SECOND ISSUE REALLY DOES NOT ARISE FOR CONSIDER ATION AS ALL ORDER OF REMAND HAS BEEN PASSED BY THE TRIBUNAL IN RESPEC T OF ADDITION OF RS.45 LAKHS WHICH WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PAYMENT TO MINDA INDUSTRIES LTD THE SAID ORDER OF R EMAND WAS PASSED AS THE ASSESSEE HAD SUBMITTED VARIOUS DETAIL S TO JUSTIFY THE SAID EXPENDITURE AND THAT THESE HAD NOT BEEN LOOKED INTO AND EXAMINED. THE CLAIM OF THE ASSESSEE WAS THAT THEY AS WELL AS MINDA INDUSTRIES ITA NO.5810/DEL/2011 6 LTD. WERE BOTH PROFIT MAKING INDUSTRIES AND ACCORDI NGLY PAYING TAXES AT THE SAME RATE. IN VIEW OF THE AFORESAID REASONS, THE APPEAL IS DIS MISSED. 6. WE FIND THAT IN THE PRESENT YEAR ALSO SIMILAR AD DITION HAS BEEN MADE ON ACCOUNT OF INTERNATIONAL TRANSACTION AND ON ACCO UNT OF CORPORATE ISSUE. THE ASSESSEE HAS TAKEN GROUNDS NO.1 TO 10 FOR ITS G RIEVANCE AGAINST ADDITION ON ACCOUNT OF INTERNATIONAL TRANSACTION WHEREAS IT HAS TAKEN GROUND NO.11 FOR ITS GRIEVANCE AGAINST DISALLOWANCE OF 50% CORPO RATE EXPENSES U/S 37 OF THE ACT. WE FIND THAT THE ISSUES RAISED BY THE ASS ESSEE ARE DULY COVERED BY THE ORDER OF THE TRIBUNAL AND HON'BLE HIGH COURT IN THE CASE OF ASSESSEE ITSELF THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE ALLOW GROUNDS NO. 1 TO 10 IN FAVOUR OF THE ASSESSEE WHEREAS, GROUND NO.11 IS RESTORED TO THE FILE OF THE A.O. FOR READJUDICAITON. GROUNDS NO.12 & 13 AR E RELATING TO INTEREST U/S 234B AND PENALTY U/S 271(1)(C), WHICH DO NOT REQUIR E ADJUDICATION. 7. IN VIEW OF ABOVE, THE APPEAL FILED BY THE ASSESS EE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DEC., 2014. SD./- SD./- (DIVA SINGH ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 12 TH DEC., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). ITA NO.5810/DEL/2011 7 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER