Daikin Airconditioning India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6339/DEL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3479 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 12-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

1 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. S. SYAL, VICE PRE SIDENT AND SMT SUCHITRA KAMBLE, JU DICIAL MEMBER I.T.A .NO.-5090/DEL/2010 (A.Y 2006-07) I.T.A .NO.-5685/DEL/2011 (A.Y 2007-08) I.T.A .NO.-6339/DEL/2012 (A.Y 2008-09) DAIKIN AIR - CONDITIONING INDIA PVT. LTD. F-25/2, OKHLA INDUSTRIAL AREA, PHASE-II NEW DELHI AABCD0971F (APPELLANT) VS ACIT CIRCLE 10(1), ROOM NO. 406, 4 TH FLOOR, C. R. BUILDING NEW DELHI (RESPONDENT) APPELLANT BY SH. VISHAL KOLRA, SH. GAURAV GUPTA, MS. KHAYATI DADWAL, ADVS. RESPONDENT BY SH. AMRENDRA KUMAR, CIT DR ORDER PER SUCHITRA KAMBLE, JM THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGAIN ST THE ORDERS OF THE ASSESSING OFFICER PASSED U/S 143(3) READ WITH SECT ION 144C (13) OF THE INCOME-TAX ACT, 1961 FOR ASSESSMENT YEAR 2006-07, 2 007-08 & 2008-09. DATE OF HEARING 12.04.2017 DATE OF PRONOUNCEMENT 17.04.2017 2 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA 2. DURING THE COURSE OF HEARING THE LD. AR SUBMITTE D THAT THE HON'BLE DELHI HIGH COURT VIDE ORDER DATED 27 TH JULY 2016 HAS REMANDED THE ISSUE REGARDING THE EXISTENCE OF INTERNATIONAL TRANSACTION INVOLVIN G AMP EXPENSES BETWEEN THE ASSESSEE AND ITS AE TO THE ITAT. THE LD. AR FURTHE R SUBMITS THAT AS PER THE INSTRUCTIONS FROM THE ASSESSEE/CLIENT HE IS REQUEST ING FOR REMAND OF THIS ISSUE BEFORE THE TPO/A.O FOR DETERMINING THE EXISTENCE OF INTERNATIONAL TRANSACTIONS INVOLVING AMP EXPENSES. HE FURTHER SUBMITTED THAT SELLING EXPENSES SHOULD NOT BE CONSIDERED WITHIN THE AMBIT OF AMP. FOR ASS ESSMENT YEAR 2007-08 & 2008-09, THE LD. AR SUBMITTED THAT ON THE LEGAL ISS UE IT IS COVERED AGAINST THE ASSESSEE BY THE HON'BLE HIGH COURT JUDGMENT IN CASE OF SONY ERICSON MOBILE COMMUNICATION PVT. LTD. VS. CIT (374 ITR 118) BUT F OR DETERMINING THE INTERNATIONAL TRANSACTION AS RELATES TO AMP EXPENSE S, THE FACTUAL ASPECT HAS TO BE DETERMINED BY THE TPO. THEREFORE, THE MATTER NE EDS TO BE REMANDED BACK. 3. THE LD. DR DID NOT OBJECT FOR THESE SUBMISSIONS OF REMANDING THE MATTER BEFORE THE TPO/A.P FOR DETERMINING THE EXISTENCE OF INTERNATIONAL TRANSACTIONS INVOLVING AMP EXPENSES BETWEEN THE ASSESSEE AND THE A.E. THE LD. DR FURTHER SUBMITTED THAT THE JUDGMENT OF HONBLE DELHI HIGH C OURT CIT VS. M/S. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. (2015) 233 TAXMAN 250 MAY BE CONSIDERED WHILE DETERMINING THE SELLING EXPENSES W ITHIN THE AMBIT OF AMP. 4. THE FACTUAL ASPECT OF THE APPEALS FOR THE THREE YEARS AS PER THE LD. AR ARE RECORDED AS FOLLOWS: ASSESSMENT YEAR 2006-07 4.1. THE ASSESSEE ENTERED INTO THE FOLLOWING INTERNATION AL TRANSACTIONS WITH ITS AES, WHICH WERE DULY ACCEPTED TO BE AT ARMS LE NGTH PRICE BY THE TPO/AO: 3 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA 4.2. THE TRANSACTION PERTAINING TO IMPORT OF FINISHED GO ODS FOR DISTRIBUTION WAS ACCEPTED AT ARMS LENGTH BASED ON THE FOLLOWING COM PARABILITY ANALYSIS: S. NO. INTERNATIONAL TRANSACTIONS TRANSFER PRICING METHOD VALUE (INR) ACTION OF THE TPO/ AO 1 IMPORT OF FINISHED GOODS AND SPARE FOR DISTRIBUTION TNMM 57,59,03,678 TPO/ AO ACCEPTED THE ARMS LENGTH PRICE OF THE TRANSACTION 2 IMPORT OF TOOLS AND EQUIPMENT TNMM 1,446,78,183 3 COMMISSION RECEIVED ON DIRECT SALES BY DIL TNMM 10,64,39,135 4 PAYMENT OF TECHNICAL FEE TNMM 91,35,000 5 PAYMENT OF ROYALTY TNMM 25,98,620 6 REIMBURSEMENT OF WARRANTS - 1,62,30,708 7 REIMBURSEMENT OF COMMISSION TNMM 2,35,004 8 PAYMENT OF SEMINAR EXPENSES TNMM 2,32,920 9 REIMBURSEMENT OF FREIGHT CHARGES - 8,81,893 10 OTHER RECOVERABLE TNMM 2,97,946 11 COST REIMBURSEMENT TNMM 83,87,418 12 CONSULTANCY SERVICES TNMM 48,51,450 S NO COMPANY NAME WEIGHTED AVERAGE GP/SALES (%) 1. ACI INFOCOM LIMITED 0.12 2. BUSINESS LINK AUTOMATION (INDIA) LIMITED 1.59 3. COMPUAGE INFOCOM INDIA LIMITED 1.89 4. CONTROL PRINT (INDIA) LIMITED 19.81 5. IRIS COMPUTERS LIMITED 1.41 6. KILBURN OFFICE AUTOMATION LIMITED (0.11) 7. MEDIA VIDEO LIMITED 7.89 8. PRIYA LIMITED 0.96 9. USHA INTERNATIONAL LIMITED 1.70 10. VIDEOCON INDUSTRIAL FINANCE LIMITED 0.05 MEAN 3.53 4 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA 4.3. HOWEVER, THE TPO OBSERVED THAT THE ASSESSEE HA D INCURRED EXCESSIVE AMP EXPENDITURE BY APPLYING THE BRIGHT LINE TEST, WHEREIN THE TPO SELECTED 7 OUT OF THE 10 COMPARABLE COMPANIES SELEC TED BY THE ASSESSEE : 4.4. THE ASSESSEE FILED AN APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL (ITAT). THE ITAT, FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON 374 ITR 118 AND DECISION OF THE COORDINATE BENCH OF THE ITAT IN THE CASE OF TOSHIBA INDIA TS-226- ITAT-2015, SET-ASIDE THE IMPUGNED ORDER AND RESTORED IT BACK T O THE FILES OF THE TPO / AO FOR DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF THE AMP SPEND BY THE ASSESSEE, VIDE ORDER DATED OCTOBER 8, 2015. 4.5. AGGRIEVED BY THE ORDER OF THE ITAT, THE ASSESS EE FILED AN APPEAL BEFORE THE HONBLE DELHI HC. THE HC VIDE ORDER DATE D JULY 27, 2016 HELD THAT THE ITAT HAS NOT RENDERED ANY CATEGORICAL FIND ING ON THE CENTRAL ISSUE OF EXISTENCE OF INTERNATIONAL TRANSACTION BET WEEN ASSESSEE AND ITS AE INVOLVING AMP EXPENSES. ACCORDINGLY, THE HC REMA NDED THE MATTER BACK TO THE FILE OF THE ITAT, TO FIRST DECIDE THE Q UESTION REGARDING THE EXISTENCE OF INTERNATIONAL TRANSACTION WITH THE DIR ECTION THAT THE TRIBUNAL SHALL NOT REMAND THE MATTER TO LOWER AUTHORITIES FO R DECISION. COMPANY NAME AMP/ SALES AS PER TPO ORDER (%) BUSINESS LINK AUTOMATION (INDIA) LIMITED 0.42 CONTROL PRINT (INDIA) LIMITED 0.64 IRIS COMPUTERS LIMITED 0.60 KILBURN OFFICE AUTOMATION LIMITED 2.92 MEDIA VIDEO LIMITED 1.28 PRIYA LIMITED 0.45 USHA INTERNATIONAL LIMITED 15.01 MEAN 3.05 5 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA 4.6. EXCLUSION OF DIRECT SELLING EXPENSES FROM AMP EXPENDITURE FOR THE PURPOSE OF DETERMINATION OF ALP, AS PER THE DIRECTI ONS OF THE DELHI HC IN SONY ERICSSON 374 ITR 118 ASSESSMENT YEAR 2007-08 4.7 THE ASSESSEE ENTERED INTO THE FOLLOWING IN TERNATIONAL TRANSACTIONS WITH ITS AES : 4.8 THE TRANSACTION PERTAINING TO IMPORT OF FIN ISHED GOODS FOR DISTRIBUTION WAS ACCEPTED AT ARMS LENGTH BASED ON THE FOLLOWING COMPARABILITY ANALYSIS : PARTICULARS AMOUNT (INR) SALES COMMISSION (REFER PG 281 VOL 1 OF PB) 60,660,239 PUBLICITY & SALES PROMOTION (REFER PG 281 VOL 1 OF PB) 40,301,259 TOTAL AMP CONSIDERED BY TPO 100,961,498 LESS: SALES COMMISSION 60,660,239 LESS: SELLING AND DEALER INCENTIVE 15.491250 AMP WITHOUT DIRECT SELLING EXPENSES ( 24,810,009 ) INTERNATIONAL TRANSACTIONS TRANSFER PRICING METHOD / PLI VALUE OF TRANSACTION (INR) ACTION OF THE TPO / AO IMPORT OF FINISHED GOODS AND SPARE FOR DISTRIBUTION TNMM NP/SALES 72,81,15,693 TPO/ AO ACCEPTED THE ARMS LENGTH PRICE OF THE TRANSACTION IMPORT OF TOOLS AND EQUIPMENT TNMM NP/SALES 38,16,053 COMMISSION RECEIVED ON DIRECT SALES (MARKET SUPPORT SERVICES) TNMM NP/TOTAL COST 6,54,87,184 PAYMENT OF TECHNICAL FEE TNMM NP/SALES 17,35,906 REIMBURSEMENT OF TRAINING EXPENSES, FREIGHT CHARGES, ETC. TNMM NP/SALES 1,70,89,777 REIMBURSEMENT OF WARRANTY CLAIMS - 1,97,96,770 6 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA 4.9 HOWEVER, THE TPO OBSERVED THAT THE ASSESSE E HAD INCURRED EXCESSIVE AMP EXPENDITURE BY APPLYING THE BRIGHT L INE TEST WHEREIN HE SELECTED 7 OUT OF THE 10 COMPARABLE COMPANIES SELEC TED BY THE ASSESSEE 4.10 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL (ITAT) AND THE ITAT VIDE ORDER DATED JUL Y 31, 2013, FOLLOWED THE SPECIAL BENCH DECISION IN THE CASE OF L.G. ELECTRONICS; [2013] 22 ITR(T) 1 AND GRANTED PARTIAL RELIEF BY EXCLUDING SALES COMMI SSION AMOUNTING TO INR 7,79,07,784 AT THE THRESHOLD ITSELF. HOWEVER, T HE LEGAL ISSUES IN RESPECT OF AMP EXPENSES WERE DECIDED AGAINST THE AP PELLANT. 4.11 AGGRIEVED BY THE ITAT ORDER, THE ASSESSEE FILL ED AN APPEAL BEFORE THE SNO COMPANY NAME WEIGHTED AVERAGE (%) NP/SALES 1. ACI INFOCOM LIMITED - 1.89 2. BUSINESS LINK AUTOMATION (INDIA) LIMITED 7.3 3. COMPUAGE INFOCOM INDIA LIMITED 3.21 4. KILBURN OFFICE AUTOMATION LIMITED 14.63 5. MEDIA VIDEO LIMITED 8.23 6. PRIYA LIMITED 1.43 7. IRIS COMPUTERS LIMITED 1.26 8. CONTROL PRINT (INDIA) LIMITED 15.87 9. USHA INTERNATIONAL LIMITED 3.67 10. SES TECHNOLOGIES LIMITED 0.74 MEAN (%) 5.43 COMPANY NAME AMP/ SALES - AS PER TPO ORDER (%) ACI INFOCOM LIMITED 0.44% BUSINESS LINK AUTOMATION (INDIA) LIMITED 1.51% COMPUAGE INFOCOM INDIA LIMITED 0.00% KILBURN OFFICE AUTOMATION LIMITED 1.07% PRIYA LIMITED 0.08% IRIS COMPUTERS LIMITED 0.56% CONTROL PRINT (INDIA) LIMITED 1.00% MEAN 0.66% 7 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA DELHI HIGH COURT (HC) AND THE HC VIDE JUDGMENT DA TED MARCH 16, 2015 IN THE CASE OF SONY ERICSSON; 374ITR118 REMANDED THE MATTER BACK TO THE ITAT FOR DE NOVO CONSIDERATION ON THE BASIS OF LEGAL PRINCIPLES LAI D DOWN IN THE SAID DECISION. AMP EXPENDITURE TO BE CONSIDERED BY APPLYING THE HC PRINCIPLES: ASSESSMENT YEAR 2008-09 4.12 THE ASSESSEE ENTERED INTO THE FOLLOWING INTERN ATIONAL TRANSACTIONS WITH ITS AES : INTERNATIONAL TRANSACTIONS TRANSFER PRICING METHOD / PLI VALUE OF TRANSACTION (INR) ACTION OF THE TPO / AO IMPORT OF AIR CONDITIONERS AND SPARE PARTS TNMM OP/OR 98,37,35,533 MANAGEMENT AND TECHNICAL TRAINING SERVICES TNMM OP/OR 13,90,100 RECEIPT OF CONSULTANCY SERVICES TNMM OP/OR 89,02,817 TPO/ AO ACCEPTED THE IMPORT OF FIXED ASSETS TNMM OP/OR 29,03,096 ARMS LENGTH PRICE OF THE MARKET SUPPORT AND MAINTENANCE SERVICES TNMM OP/OC 9,29,91,747 TRANSACTION REIMBURSEMENT OF EXPENSES NA 1,68,00,247 RECOVERY OF EXPENSES NA 2,39,33,406 PARTICULARS AMOUNT (INR) PUBLICITY & SALES PROMOTION (REFER PAGE NO. 476 VO L 2 PB) 7,27,88,356 SALES COMMISSION (B) (REFER PAGE 476 VOL 2 PB) 7,79,07,784 TOTAL AMP CONSIDERED BY THE TPO (C) = (A+B) 15,06,96,140 LESS: SALES COMMISSION (77,907,784) LESS: SELLING AND DEALER INCENTIVES (24,239,105) TOTAL AMP TO BE CONSIDERED BY APPLYING HC PRINCIPLES 48,549,251 8 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA 4.13 THE TRANSACTION PERTAINING TO IMPORT OF FINISH ED GOODS FOR DISTRIBUTION WAS ACCEPTED AT ARMS LENGTH BASED ON THE FOLLOWING COMPARABILITY ANALYSIS : 4.14 HOWEVER, THE TPO OBSERVED THAT THE ASSESSEE HAD INC URRED EXCESSIVE AMP EXPENDITURE BY APPLYING THE BRIGHT LINE TEST, WHEREIN 3 COMPARABLE COMPANIES WERE SELECTED FOR APPLICATION OF BRIGHT L INE : 4.15 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL (ITAT) AND THE ITAT VIDE ORDER DATED JUL Y 31, 2013, FOLLOWED THE SPECIAL BENCH DECISION IN THE CASE OF L.G. ELECTRONICS 22 ITR(T) 1 AND GRANTED PARTIAL RELIEF BY EXCLUDING SALES COMMISSIO N AMOUNTING TO INR 9,73,58,499 AT THE THRESHOLD ITSELF. HOWEVER, THE L EGAL ISSUES IN RESPECT OF AMP EXPENSES WERE DECIDED AGAINST THE ASSESSEE. 4.16 AGGRIEVED BY THE ITAT ORDER, THE ASSESSEE FILE D AN APPEAL BEFORE THE DELHI HIGH COURT (HC) AND THE HC VIDE JUDGMENT DA TED MARCH 16, 2015 IN THE CASE OF SONY ERICSSON 374 ITR118 REMANDED THE MATTER BACK TO THE ITAT FOR DE NOVO CONSIDERATION ON THE BASIS OF LEGAL PRINCIPLES LAI D DOWN IN S NO COMPANY NAME WEIGHTED AVERAGE (%) OP/OR 1. BAJAJ ELECTRICALS LIMITED 9 08 2. KHAITAN (INDIA) LIMITED 8.84 3. MEDIA VIDEO LIMITED 8.25 4. MODI HOOVER INTERNATIONAL LIMITED 2.91 5. USHA INTERNATIONAL LIMITED 10.40 MEAN (%) 7.89 COMPANY NAME AMP/ SALES - AS PER TPO ORDER (%) KILBURN OFFICE AUTOMATION LIMITED 1.07 PRIYA LIMITED 0.24 VIVEK LIMITED 3.99 MEAN (%) 1.77 9 ITA NOS. 5090/DEL/2010, 5685/D EL/2011 & 6339/DEL/2012 ITA THE SAID DECISION. AMP EXPENDITURE TO BE CONSIDERED BY APPLYING THE HC PRINCIPLES: 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED ALL TH E RECORDS. AS PER THE HON'BLE DELHI HIGH COURTS DIRECTION GIVEN IN AN AP PEAL BY THE ASSESSEE, WHILE REMANDING BACK THE MATTERS BEFORE THE ITAT, THE HON 'BLE HIGH COURT IN PARA 12 (B) DIRECTED ITAT TO ITSELF DECIDE THE QUESTION REG ARDING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES BE TWEEN THE ASSESSEE AND ITS AE. THE LD. AR FAIRLY, AT THE OUTSET, ACCEPTING TH AT THE DECISION ON THE QUESTION OF AMP AS AN INTERNATIONAL TRANSACTION REQ UIRES IN-DEPTH ANALYSIS OF A LARGE NUMBERS OF DOCUMENTS AND FACTS, THEREFORE, RE QUESTED THAT THE MATTER BE RESTORED TO THE TPO FOR DECISION. THE LD. DR ALSO S UPPORTED THE LD. AR IN THIS REGARD. AS SUCH, WE ARE ACCEPTING THIS SUBMISSION A ND REMANDING THE MATTER RELATING TO THE EXISTENCE OF INTERNATIONAL TRANSACT ION TO THE TPO/AO. THE TPO/AO IS FURTHER DIRECTED THAT SELLING EXPENSES SH OULD NOT BE CONSIDERED WITHIN THE AMBIT OF AMP. THE LD. ARS CONTENTION IN THE TABULATED FORM FOR ANNEXURE 3 ANNEXED TO HIS SUBMISSIONS FOR ALL THE Y EARS HAS TO BE CONSIDERED BY THE TPO/AO. FOR ASSESSMENT YEAR 2007-08 & 2008-0 9 THOUGH THE HONBLE HIGH COURT IN CASE OF SONY ERICSON MOBILE COMMUNICA TION INDIA PVT. LTD. HAS DECIDED THE LEGAL ISSUE AGAINST THE ASSESSEE, THE F ACTUAL ASPECT RELATED TO INTERNATIONAL TRANSACTION RELATED TO AMP IN ASSESSE ES CASE HAS TO BE DEALT WITH BY THE TPO/AO. THEREFORE, THE ISSUE RELATED TO THES E THREE APPEALS FILED BY THE PARTICULARS AMOUNT (INR) PUBLICITY & SALES PROMOTION (A) (REFER PAGE 270 OF PB) 8,10,18,516 SALES COMMISSION (B )(REFER PAGE NO. 270 OF PB) 9,73,58,499 178,377,015 LESS: SALES COMMISSION (97,358,499) LESS: SELLING AND DEALER INCENTIVES (33,802,245) TOTAL AMP TO BE CONSIDERED BY APPLYING HC PRINCIPLE S 47,216,271 10 ITA NOS. 5090/DEL/2010, 5685/ DEL/2011 & 6339/DEL/2012 ITA ASSESSEE ARE REMANDED BACK TO THE TPO/A.O FOR DECID ING AS PER THE DIRECTIONS GIVEN HEREINABOVE. 6. IN RESULT, ALL THE THREE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF APRIL, 2017. SD/- SD/- (R. S. SYAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 17/04/2017 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 12/04/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 12/04/2017 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 1 7 .04.2017 PS/PS 11 ITA NOS. 5090/DEL/2010, 5685/ DEL/2011 & 6339/DEL/2012 ITA SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 7 .04.2017 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.