Cookson India Pvt. Ltd., Kolkata V. DCIT, CIR-3(1), KOLKATA, Kolkata

ITA 633/KOL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2755 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-11-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Question of law; Wholly owned subsidiary
• Section: 143(3); 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI J. S. REDDY, HONBLE ACCOUNTANT MEMBE R & SMT. MADHUMITA ROY, HONBLE JUDICIAL MEMBER (THROUGH VIRTUAL COURT) ./ITA NOS.633 & 442/KOL/2016 ./ITA NO.387/KOL/2017 ( / ASSESSMENT YEARS: 2009-10, 2011-12 & 2012-13) COOKSON INDIA PVT. LTD. (ADDRESS 1) C/O, S. P CHATTERJEE & CO NO. 10, OLD POST OFFICE STREET, ROOM NO. 15A, KOLKATA-700001 (ADDRESS 2) MR. SRIRAM KUMAR/ RAVI KUMAR DEVELOPED PLOT NO. 16 (NORTH PHASE) SIDCO INDUSTRIAL ESTATE, AMBATTUR, CHENNAI-600098 VS. D CIT, COMPANY CIRCLE-3(1), KOLKATA ./ ./PAN/GIR NO.: AABCC 1679 B (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI AJIT KUMAR JAIN, A.R RESPONDENT BY : SHRI VIJAY SHANKAR, CIT / DATE OF HEARING : 18/11/2020 /DATE OF PRONOUNCEMENT : 20/11/2020 COOKSON INDIA PVT. LTD. ITA NOS. 633& 442 /KOL/2016 ITA NO. 387/KOL/2017 ASSESSMENT YEARS:2009-10, 2011-12 & 2012-13 P PP PA AA AG GG GE EE E | || | 2 22 2 / O R D E R PER SMT. MADHUMITA ROY, JM: THE INSTANT THREE APPEALS FILED BY THE ASSESSE E ARE DIRECTED AGAINST THE SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOM E TAX (APPEALS), KOLKATA, WHICH IN TURN ARISE OUT OF FINAL ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 144C(3) OF THE INCOME TAX ACT, 1 961 (IN SHORT THE ACT) WHICH INCORPORATE THE FINDINGS OF THE TRANSFER PRICING OF FICER U/S 92CA(3) OF THE INCOME TAX ACT, 1961 WHICH FOLLOWED THE DIRECTION OF THE D RP FOR ASSESSMENT YEAR 2009-10, 2011-12 & 2012-13 RESPECTIVELY, 2. THE ASSESSEE, COOKSON INDIA PVT. LTD. , IS PART OF THE ELECTRONICS DIVISION OF COOKSON GROUP, AND IS A 100% SUBSIDIARY OF COOKSON GROUP PIC, UK. IT IS ENGAGED IN THE MANUFACTURE AND SUPPLY OF MATERIALS TO THE ELECTRONICS INDUSTRY, PRIMARILY SERVING FABRICATORS AND ASSEMBLERS OF PCB S, ASSEMBLERS OF SEMICONDUCTOR PACKAGING AND THE ELECTRICAL AND INDU STRIAL MARKETS. IT HAS ITS MANUFACTURING FACILITY AT CHENNAI, AND A R & D CENT RE IN BANGALORE. THE R&D CENTRE IS A 100% EOU AND PROVIDES CONTRACT R&D SERV ICES TO COOKSON GROUP PIC. DURING THE ASSESSMENT YEAR 2009-10, NUMBER OF INTER NATIONAL TRANSACTIONS WERE ENTERED INTO BY AND BETWEEN THE APPELLANT BEFORE US WITH ITS ASSOCIATED ENTERPRISES (AES). HOWEVER, ONLY INTERNATIONAL TRANSACTIONS PE RTAINING TO MANAGEMENT AND SUPPORT SERVICE FEE (HEREINAFTER REFERRED TO AS TH E MSSF) FOR INFRA GROUP SERVICES (HEREINAFTER REFERRED TO AS IGS) AND R & D SERVICES IS UNDER DISPUTE BEFORE US. THESE TRANSACTIONS WERE REFERRED TO THE TRANSFER PRICING OFFICER U/S 92CA OF THE ACT FOR COMPUTING ARMS LENGTH PRICE (A LP), AFTER OBTAINING DUE APPROVAL OF THE PR.CIT, KOLKATA-1, KOLKATA. IT WAS HELD BY THE TPO THAT THE IGS PERFORMED BY THE AE OF THE ASSESSEE UNDER MSSA FALL S INTO THE CATEGORY OF STEWARDSHIP ACTIVITY AND FOR THE REASONS GIVEN BY THE TPO, THE ARMS LENGTH PRICE OF THE IGS PROVIDED BY THE ASSESSEE UNDER MSS A WAS DETERMINED TO BE NIL AND THE TOTAL INCOME OF THE ASSESSEE UPWARDLY ADJU STED FOR INFRA GROUP SERVICES WAS RS. 5,89,83,473/-. IN RESPECT OF R & D SERVIC ES THE TPO HAS ALSO MADE AN COOKSON INDIA PVT. LTD. ITA NOS. 633& 442 /KOL/2016 ITA NO. 387/KOL/2017 ASSESSMENT YEARS:2009-10, 2011-12 & 2012-13 P PP PA AA AG GG GE EE E | || | 3 33 3 UPWARD ADJUSTMENT OF RS. 5,03,62,107/-. THE ORDER O F TPO ISSUED U/S 92CA(3) OF THE ACT DATED 30.01.2015 WAS INCORPORATED IN THE DR AFT ASSESSMENT ORDER DATED 23.03.2015 AGAINST WHICH OBJECTIONS WERE PREFERRED BY THE DISTRICT RESOLUTION PANEL-2 AND THE SAME WAS ADJUDICATED VIDE DRP ORDER DATED 28.10.2015. PURSUANT TO THIS THE FINAL ASSESSMENT ORDER DATED 02.02.2015 WAS PASSED BY DCIT(TPO)-1, KOLKATA. 3. THE CASE OF THE APPELLANT IS THAT, IT HAD SIGNE D AN ADVANCE PRICING AGREEMENT (APA) DATED 17.01.2020 WITH THE CENTRAL B OARD OF DIRECT TAXES (CBDT) FOR FIVE YEARS I.E. F.Y. 01.04.2015 TO 31.03 .2020. THE APPELLANT ALSO FILED FOR ROLLBACK PERIOD AND THE AGREEMENT ALSO PROVIDES FOR ROLL BACK OF THE SAID APA FOR THREE PREVIOUS YEAR I.E. FY 2012-13 TO 2014-15 . COPY OF THE AGREEMENT IS ANNEXED WITH THE PAPER BOOK FILED BEFORE US. AS PER THE APA, FOR MANAGEMENT FEES FOR IGS IS THE AMOUNT OF MANAGEMENT CHARGES PA ID IN THE MANUFACTURING SEGMENT DOES NOT EXCEED 2.95% OF OPERATING REVENUE OF THE MANUFACTURING SEGMENT OF THE PREVIOUS YEAR. SIMILARLY COMPUTATION OF REVENUE OF CONTRACT R & D SEGMENT, SHALL BE THE REVENUE ARRIVED AT BY CONSIDE RING THE MARK UP OF 19.90% ON THE OPERATING COST OF THIS SEGMENT EXCLUDING THE MA NAGEMENT CHARGES. IT IS THE CASE OF THE APPELLANT THAT ALL THE FACTS, INCLUDING FUNCTIONAL AND RISK PROFILE OF THE COMPANY WITH RESPECT TO THE YEAR UNDER APPEAL IS ID ENTICAL TO THE FACTS AND THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY FOR THE YEARS COVERED BY THE APA AND THAT THE ALP AGREED TO BETWEEN THE GOVERNMENT AND T HE ASSESSEE FOR THESE ASSESSMENT YEARS MAY BE APPLIED FOR THE IMPUGNED AS SESSMENT YEAR ALSO. AT THE TIME OF HEARING OF THE INSTANT APPEALS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT IN THE ABOVE BACK GROUND THE ALP DETERMINED IN THE APA FOR DIFFERENT INTERNATIONAL TRANSACTION, F OR THE APA PERIOD AND THE ROLLBACK PERIOD, MAY BE APPLIED FOR THE EARLIER ASS ESSMENT YEAR ALSO AS THE FACTS ARE IDENTICAL. HE ALSO RELIED ON SEVERAL ORDERS OF THE ITAT AND THE JUDGMENT OF THE HONBLE DELHI HIGH COURT FOR THIS PROPOSITION. THES E DECISIONS ARE (I) HONBLE DELHI HIGH COURT IN THE CASE OF AMERIPRISE INDIA P VT. LTD. IN ITA NO. 206/2016, (II) ORDER OF HONBLE CO-ORDINATE BENCH OF KOLKATA IN ITA NO. 564/KOL/2014 IN COOKSON INDIA PVT. LTD. ITA NOS. 633& 442 /KOL/2016 ITA NO. 387/KOL/2017 ASSESSMENT YEARS:2009-10, 2011-12 & 2012-13 P PP PA AA AG GG GE EE E | || | 4 44 4 THE CASE OF IXIA TECHNOLOGIES PVT. LTD. VS. DCIT, C IRCLE-2, KOLKATA AND (III) DECISION OF HONBLE DELHI TRIBUNAL IN THE CASE OF R ANBAXY LABORATORIES LTD. IN ITA NO. 196/DEL/2013. HE SUBMITTED BEFORE US THAT ALP AGREED TO BY THE APA WITH RESPECT TO MANAGEMENT FEES FOR IGS AS WELL A S R & D SERVICE SHOULD BE CONSIDERED AS THE ALP FOR THE IMPUGNED ASSESSMENT Y EAR AND THE LD. A.O. BE DIRECTED TO ADOPT THE SAME. 4. ON THE OTHER HAND, THE LD. D.R RELIED UPON THE O RDER PASSED BY THE AUTHORITIES BELOW. HE ARGUED THAT ALP DEPENDS ON FA CTS AND THAT ECONOMIC CIRCUMSTANCES VARY YEAR AFTER YEAR AND HENCE IT CAN NOT BE SAID THAT THE FACTS ARE THE SAME. ON A QUARRY FROM THE BENCH HE FAILED TO POINT OUT THE DIFFERENCE IN FACTUAL MATRIX IN THE CASE FOR ALL THESE THREE YEARS AS COM PARED TO THE YEARS WHERE APA WAS APPLICABLE AS PER THE AGREEMENT, WHICH COULD LE AD TO DETERMINATION OF A DIFFERENT ALP. ACCORDING TO HIM, ADVANCE PRICING A GREEMENT IS A CONTRACTUAL AGREEMENT WHICH IS SPECIFIC TO A PARTY AND THAT THE BENEFIT CAN BE EXTENDED ONLY FOR THE PERIOD OF AGREEMENT. HOWEVER, HE HAS FAILED TO CITE ANY JUDGMENT TAKING A CONTRARY VIEW THAN THAT OF THE RATIO LAID DOWN IN T HE JUDGMENT CITED BY THE LD. A.R WHICH WERE LISTED BY US ABOVE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. THE QUESTION ARISES AS TO WHETHER, WHEN T HE FACTUAL MATRIX INCLUDING THE FUNCTIONAL AND RISK PROFILE OF THE ASSESSEE WITH RE SPECT TO THESE THREE YEARS UNDER APPEAL IS SIMILAR, TO THE FACTUAL MATRIX AND FUNCT IONAL PROFILE OF THE ASSESSEE CONSIDERED BY THE CBDT WHILE DETERMINING THE ALP IN THE APA, FOR THE FIVE FINANCIAL YEARS 2015-16 TO 2019-20 AND FOR THE ROLL BACK PERIOD I.E. FY 2012-13 TO 2014-15. IN OUR VIEW THE ALP DETERMINED AND AGREED TO IN THE APA SHOULD NECESSARILY BE APPLIED AS THE ALP, ON THE INTERNAT IONAL TRANSACTION OF IGS AND R & D SERVICES FOR THE ASSESSMENT YEAR IN APPEAL. WHI LE HOLDING SO , WE HAVE CONSIDERED THE VARIOUS JUDGMENTS ONE OF WHICH IS O F PASSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF AMERIPRISE INDIA PVT. LTD . IN ITA 206/2016 WHEREIN IT WAS HELD AS UNDER: COOKSON INDIA PVT. LTD. ITA NOS. 633& 442 /KOL/2016 ITA NO. 387/KOL/2017 ASSESSMENT YEARS:2009-10, 2011-12 & 2012-13 P PP PA AA AG GG GE EE E | || | 5 55 5 5. ADDITIONALLY, IT IS POINTED OUT BY DEEPAK CHOPR A, LEARNED COUNSEL FOR THE ASSESSEE, THAT FOR THE SUBSEQUENT AYS AN ADVANC E PRICING AGREEMENT HAS BEEN ENTERED INTO BETWEEN THE ASSESSEE AND THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 92CC OF THE ACT ON 22 ND JANUARY, 2016 WHEREUNDER THE AFOREMENTIONED COST PLUS PRICING ME THODOLOGY HAS BEEN IMPLICITLY ACCEPTED. THEREFORE, IN THE FACTS OF THE PRESENT CASE, THE COURT IS OF THE VIEW THAT NO SUBSTANTIAL QUESTION OF LAW ARI SES. THE CO-ORDINATE BENCH OF ITAT, KOLKATA IN THE CASE OF IXIS TECHNOLOGIES PVT. LTD. IN ITA NO. 564/KOL/2014 WHEREIN IT WAS HE LD AS UNDER: 7.1 APPLYING THE PROPOSITION LAID DOWN IN THESE CA SE LAWS TO THE FACTS OF OUR CASE AND AS THE ALP DETERMINED BY THE ASSESSEE HAD APPARENT PROFIT MARK UP OF 18.88% IN ITS SDS SCHEME AND AS THIS IS WITHIN THE MARGIN LAID DOWN IN THE APA, THIS IS TO BE CONSIDERED AS AT ARM S LENGTH PRICE. HENCE, NO ADJUSTMENT IS WARRANTED. FURTHER THE ORDER PASSED BY THE HONBLE DELHI TRIB UNAL IN RANBAXY LABORATORIS LTD. (SUPRA) HAS ALSO BEEN CONSIDERED BY US. THE RELEVANT PARAGRAPH IS REPRODUCED AS UNDER: 28. MAY THAT BE THE CASE, BUT THE CONCEPT AND T HE METHODOLOGY LAID DOWN IN APA CAN HAVE THE GUIDANCE VALUE FOR TH E REVENUE AUTHORITIES FOR THE PURPOSES OF COMPARABILITY ANALYSIS. THE MAI N INTENT OF THE ADVANCE PRICING AGREEMENTS ISTO PROTECT THE FAIR SHARE OF T HE REVENUE OF THE STATES IN SIMPLE AND EFFICIENT MANNER AND TO PROTECT THE T AX BASE. NEED FOR ADVANCE PRICING AGREEMENTS ARE EMERGING OUT OF CURR ENT GLOBAL COMPLEX ECONOMIC SITUATIONS AND ITS IMPACT ON REVENUE OF TA X COMPELLING GOVERNMENTS TO INTENSIFY AND STREAMLINE THEIR TRANS FER PRICING COMPLIANCE EFFORTS TO REDUCE THE DISADVANTAGE IN STAKING THEIR CLAIM FOR TAX. HIGHER RISK OF DISPUTES MAY BE REDUCED BY THE ADVANCE PRIC ING AGREEMENTS. ON THE SAME INTENTIONS AND OBJECTS, THE LD. TPO IS ALS O REQUIRED TO COMPUTE THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE AS SESSEE FOR THIS YEAR. THEREFORE, THE AGREEMENT ENTERED INTO BY CBDT WITH THE ASSESSEE, WHICH HAS CONSIDERED ALL THE ASPECTS OF THE MANNER OF DET ERMINATION OF ALP WHICH ARE ALSO SIMILAR FOR THE THIS YEAR, SHOULD BE GIVEN HIGHEST SANCTITY AND THEREFORE MECHANISM SUGGEST IN THAT AGREEMENT S HOULD BE NECESSARILY FOLLOWED IN DETERMINING ALP OF THE TRANSACTIONS FOR THIS YEAR. 30. AS THE FAR ANALYSIS OF THE YEAR UNDER APA AS WE LL AS THE YEAR UNDER APPEAL ARE SIMILAR AND IT IS ALSO AN ESTABLISHED FA CT THAT THE TESTED PARTIES SELECTED BY THE APA I.E. FOREIGN AES ARE LEAST COMP LEX AND ADEQUATE FINANCIAL DATA FOR COMPARISON ON REGION BASIS / COU NTRY BASIS ARE AVAILABLE AND FURTHER THE FINANCIAL TRANSACTIONS AR E SAME, WE HOLD THAT COOKSON INDIA PVT. LTD. ITA NOS. 633& 442 /KOL/2016 ITA NO. 387/KOL/2017 ASSESSMENT YEARS:2009-10, 2011-12 & 2012-13 P PP PA AA AG GG GE EE E | || | 6 66 6 BASED ON APA FOR A Y 2014- 15 THE SELECTION OF TEST ED PARTY SHOULD BE TAKEN AS FOREIGN AE FOR THE CURRENT YEAR TOO. THUS, IN THE ABSENCE OF ANY CONTRARY JUDGMENT RELIE D UPON BY THE LD. D.R, WE RESPECTFULLY RELYING UPON THE RATIO LAID DOWN BY THE JUDICIAL FORUM AS STATED ABOVE, DIRECT THE ASSESSING OFFICER TO ADOPT THE AL P DETERMINED IN THE APA AS THE ALP OF THE INTERNATIONAL TRANSACTION OF MSSF FOR I GS AND R & D SERVICES FOR ALL THE IMPUGNED ASSESSMENT YEARS. 6. IN THE RESULT, ALL THE THREE APPEALS OF THE AS SESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 20.11.2020 SD/- ( J. SUDHAKAR REDDY ) / ACCOUNTANT MEMBER SD/- (MADHUMITA ROY) / JUDICIAL MEMBER /KOLKATA; / DATE: 20/11/2020 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. COOKSON INDIA PVT. LTD. 2. DCIT, COMPANY CIRCLE-3(1) KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES