DSM NUTRITIONAL PRODUCTS INDIA PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX-9(3)(1), MUMBAI

ITA 6635/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9136 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2014-2015
• Appeal Filed On: 22-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Transfer pricing
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I G. MANJUNATH A , ACCOUNTANT MEMBER ITA NO. 6635 / MUM . /20 1 8 ( ASSESSMENT YEAR : 20 14 15 ) DSM NUTRITIONAL PRODUCTS INDIA PVT. LTD. B 502, DELPHI BUILDING, ORCHARD AVENUE HIRANANDANI BUSINESS PARK, POWAI MUMBAI 400 076 PAN AACCCR3973J . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 9 ( 3 ) (1) , MUMBAI . RESPONDENT ASSESSEE BY : SHRI DHANESH BAFNAA/W MS. CHANDANI SHAH REVENUE BY : S HRI AKHTAR H. ANSARI DATE OF HEARING 30 .07.2020 DATE OF ORDER 05.08.2020 O R D E R PER SAKTIJIT DEY. J.M. THE CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER DATED 29 TH AUGUST 2018, PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 14 15 , IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) I , MUMBAI. 2 DSM NUTRITIONAL PRODUCTS INDIA PVT. LTD. 2. THE SUBJECT MATTER OF CHALLENGE IN THE PRESENT APPEAL IN SUM AND SUBSTANCE IS, COMPARABILITY OF A SINGLE COMPARABLE VIZ. AXIS INTEGRATED SYSTEMS LTD. 3. FACTS NECESSARY FOR DISPOSAL OF THIS ISSUE ARE, THE ASSESSEE , A RESIDENT COMPANY , IS ENGAGED IN THE BUSINESS OF MARKETING OF NUTRITION AND HEALT H CARE PRODUCTS OF DSM GROUP WHICH IS ITS ASSOCIATED ENTERPRISE (A E) . IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO VARIOUS INTERN ATIONAL TRANSACTIONS WITH ITS AE, SUCH AS PURCHASE OF GOODS FOR DISTRIBUTION , PROVISION OF MARKETING SUPPORT SERV ICE , PAYMENT FOR E CONNECTIVITY CHARGES, SALE OF FINISHED GOODS, PURCHASE OF CAPITAL GOOD S, REIMBURSEMENT OF EXPENDITURE AND RECOVERY OF EXPENSES. HOWEVER, IN THE FACTS OF THE PRESENT APPEAL, THE DISPUTE IS ONLY WITH REGARD TO THE ADJUSTMENT MADE TO THE AR MS LE NGTH PRICE OF PROVISION OF MARKETING SUPPORT SERVICE S TO THE AE. AS PER THE AUDIT REPORT IN FORM NO.3CEB, DURI NG THE YEAR UNDER CONSIDERATION THE ASSESSEE REPORTED REVENUE OF ` 10,02,22,324 FROM THE PROVISION OF MARKETING SUPPORT SERVICE S TO THE A E S. THE ASSESSEE BENCH MARK ED THE AFORESAID TRANSACTION BY SELECTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD. FOR COMPARABILITY ANALYSIS, THE ASSESSEE SELECTED THREE COMPARABLES WITH WEIGHTED AVERAGE MARGIN OF 14.52%. SINCE , THE M ARGIN S HOWN BY THE ASSESSEE @ 13.29% WAS WITHIN THE ACCEPTABLE RANGE, THE TRANSACTION WITH THE AES WAS CLAIMED TO BE AT 3 DSM NUTRITIONAL PRODUCTS INDIA PVT. LTD. ARM'S LENGTH. THE TRANSFER PRICING OFFICER , HOWEVER, WAS N OT SATISFIED WITH THE ECONOMIC ANALYSIS MADE BY THE ASSESSEE. T HOUGH, HE ACCEP TED TNMM AS THE MOST APPROPRIATE METHOD, HOWEVER, HE DID NOT ACCEPT ONE OF THE COMPARABLES SELECTED BY THE ASSESSEE , NAMELY , ASIAN BUSINESS EXHIBITION AND CONFERENCE LTD. FURTHER, THE TRANSFER PRICING OFFICER WANTED TO INCLUDE TWO FRESH COMPARABLES , NAMELY , AXIS INTEGRATED SYSTEMS LTD. AND BVG INDIA LTD. AND ACCORDINGLY ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. VIDE LETTER DATED 30 TH OCTOBER 2017, THE ASSESSEE OBJECTED TO INC LUSION OF THESE TWO COMPARABLES. HOWEVER , REJECTING ASSESSEES OBJECTION, THE TRA NSFER PRICING OFFICER INCLUDED BOTH THE AFORESAID COMPANIES AS COMPARABLES ALONG WITH THREE OTHER COMPANIES PROPOSED BY THE ASSESSEE. THUS, IN TOTAL, THE TRANSFER PRICING OFFICER FINALLY SELECTED FIVE COMPARABLES WITH WEIGHTED AVERAGE OF 17.95% . S INCE , THE MARGIN SHOWN BY THE ASSESSEE WAS NOT WITHIN 3% OF THE AVERAGE WEIGHTED MARGIN OF THE COMPARABLES, THE TRANSFER PRICING OFFICER PROPOSED AN ADJUSTMENT OF ` 42,63,879. IN TERMS WITH THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFF ICER FRAMED THE DRAFT ASSESSM ENT ORDER. WHILE CONSIDERING ASSESSEES OBJECTION AGAINST THE DRAFT ASSESSMENT ORDER, LEARNED DRP PARTLY ACCEPTING ASSESSEES CLAIM DIRECTED THE TRANSFER PRICING OFFICER TO EXCLUDE BVG INDIA LTD. IN VIEW OF SUCH DIRECTION OF LE ARNED DRP, THE ADJUSTMENT WAS REDUCED TO ` 38,43,195. 4 DSM NUTRITIONAL PRODUCTS INDIA PVT. LTD. 4. OBJECTING TO SELECTION OF AXIS INTEGRATED SYSTEMS LTD., THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THIS COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AS IT IS ENGAGED IN THE BUSINESS OF TRADI NG IN DIGITAL SIGNATURE AND IS PROVIDING LIASIONING AND CON SULTANCY SERVICE S . IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE FINANCIAL STATEMENTS OF THIS COMPANY AS PL ACED IN THE PAPER BOOK. FURTHER ELABORATING, HE SUBMITTED , THE LIASIONING AND CONSULTANCY SERVICES PROVIDED BY THIS COMPANY IS IN RELATION TO FOREIGN TRADE, CUSTOMS, EXCISE AND GST RELATED MATTER S . IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE INFORMATION CONTAINED IN THE WEBSITE OF THE COMPANY AS PLACED AT PAGE 68 AND 69 OF THE APPEAL SET. THU S, HE SUBMITTED , THE COMPANY BEING FUNCTIONALLY DISSIMILAR CANNOT BE SELECTED AS COMPARABLE . I N SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I) BERGEN ENGINES INDIA PVT. LTD. V/S ACIT, ITA NO.7802/DEL./2017, DATED 27.04.2020; II) PCIT V/S LI & FUNG INDIA PVT. LTD., ITA NO.176 OF 2019 (DHC), DATED 08.07.2019; III) LI & FUNG INDIA PVT. LTD. V/S ACIT, ITA NO.7549/DEL./2017, DATED 14.05.2018; AND IV) ARKAY LOGISTICS LTD. V/S DCIT, ITA NO.765/MUM./2018, DATED 19.11.2019. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP 5 DSM NUTRITIONAL PRODUCTS INDIA PVT. LTD. SUBMITTED TH AT THE CONSULTANCY AND LIASIONING SERVICE SEGMENT OF THIS COMPANY IS COMPARABLE TO THE ASSESSEE. THEREFORE, IT HAS BE EN RIGHTLY INCLUDED AS A COMPAR ABLE. TO SUPPORT HIS SUBMISSION , HE SPECIFICALLY DREW OUR ATTE NTION TO THE OBSERVATIONS OF LEARNED DRP AT PARA 4.2.6. OF THEIR ORDER. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON GOING THROUGH THE FINANCIAL STATEMENTS OF THE DISPUTED COMPANY, A COPY OF WHICH IS PLACED AT PAGE 326 OF THE PAPER BOOK, IT IS NOTICED THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN DIGITAL SIGNATURE, CON SULTANCY AND PROVIDING LIASIONING SERVICES. THOU GH, TH E REVENUES STAND IS THAT THE CONSULTANCY AND LIASIONING SERVICE SEGMENT IS COMPARABLE TO THE ASSESSEE, HOWEVER, ON DEEPER SCRUTINY, WE FIND THA T SUCH CONSULTANCY AND LIASIONING SERVICE S PROVIDED BY THIS COMPANY IS IN RELATION TO FOREIGN TRADE , CUSTOMS, EX CISE AND GST RELATED MATTER S . FURTHER , THE COMPANY PROVIDED SUCH SERVICES TO INDEPENDENT CLIENTS / AGENCIES , UNLIKE , THE ASSESSEE WHICH IS PURELY A CAPTIVE SERVICE PROVIDER. AS COULD BE SEEN , IN CASE OF BE RGEN ENGINES INDIA PVT. LTD. (SUPRA), THE CO ORDINA TE BENCH WHILE EXAMINING THE FUNCTIONALITY OF THIS COMPANY HAS NOTED THAT THE CONSULTANCY/LIASIONING SERVICE S RELATING TO FOREIGN TRADE, CUSTOMS, EXCISE, GST, ETC., ARE OF EXPERT NATURE AND CANNOT BE COMPARED WITH ROUTINE MARKETING SERVICE S LIKE RAISING IN VOICE, CO ORDINATION WITH 6 DSM NUTRITIONAL PRODUCTS INDIA PVT. LTD. CUSTOMERS, LOGISTICS, ETC. SIMILAR VIEW WAS EXPRESSED IN CASE OF LI & FUNG INDIA PVT. LTD. (SUPRA). NOTABLY, THE DECISION OF THE BENCH IN CASE OF LI & FUNG INDIA PVT. LTD. (SUPRA) WAS CHALLENGED BY THE REVENUE BEFO RE THE HONBLE D ELHI HIGH COURT S PECIFICALLY ON THE ISSUE OF COMPARABILITY OF AXIS INTEGRATED SYSTEMS LTD. WHILE DEALING WITH THE I SSUE, THE HON'BLE HIGH COURT HAS VERY CATEGORICALLY OBSERVED THAT NO COMPARISON CAN BE DRAWN BETWEEN A CAPTIVE S ERVICE PROVIDER AND AN ENTITY LIKE AXIS INTEGRATES SYSTEMS L TD. WHICH IS PROVIDING LIASIONING SERVICE S TO A LARGE NUMBER OF ENTITIES. ACCORDINGLY, THE HON'BLE HIGH COURT UPHELD THE DECISION OF THE TRIBUNAL . I N CASE OF ARKAY LOGISTICS LTD. (SUPRA), THE TRIBUNAL, WHILE EXAMINING THE COM PARABILITY OF THIS VERY COMPANY HAS ALSO FOU ND IT TO BE FUNCTIONALLY DISSIMILAR TO A ROUTINE MARKETING SERVICE PROVIDER. THOUGH, THE AFORESAID DECISION S PERTAIN TO THE ASSESSMENT YEAR 2013 14, HOWEVER, THE MATERIAL FACTS ON THE BASIS OF WHICH SUCH DECISION S HAVE BEEN RENDERED ARE NO DIFFERENT FROM THE FACTS INVOLVED IN THE IMPUGNED ASSESSMENT YEAR INSOFAR AS IT RELATES TO THIS COMPARABLE. KEEPING IN VIEW THE FACTS AND MATERIAL ON RECORD AS WELL AS THE CITED DECISIO NS, WE HOLD THAT AXIS INTEGRATED SYSTEMS LT D. CANNOT BE TREATED AS A COMPARABLE TO THE ASSESSEE, HENCE , SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED A WRITTEN NOTE , AS PER WHICH , ON EXCLUSION OF AXIS INTEGRATED SYSTEMS LTD., THE WEIGHTED AVERAGE MARGIN OF REST OF THE COMPARABLES WOULD WORK OUT TO 7 DSM NUTRITIONAL PRODUCTS INDIA PVT. LTD. 15.36%. THAT BEING THE CASE, ASSESSEES MARGIN WOULD BE WITHIN THE ACCEPTABLE RANGE REQUIRING NO FURTHER ADJUSTMENT. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE MARGI N OF COMPARABLES AFRESH AND GRANT CONSEQUENTIAL RELIEF TO THE ASSESSEE. 7. SINCE , THE LEARNED COUNSEL FOR THE ASSESSEE HAS RESTRICTED HIS ARGUMENTS ONLY TO THE ISSUE OF COMPARABILITY OF AXIS INTEGRATED SYSTEMS LTD., WE DO NOT INTEND TO DEAL WITH THE OTHER I SSUES RAISED IN THIS APPEAL AND SUCH ISSUES ARE TREATED AS NOT PRESSED. 8. IN THE RESULT, APPEAL IS ALLOWED TO THE EXTENT INDICATED ABOVE. ORDER PRONOUNCED THROUGH NOTICE BOARD UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 , ON 05.08.2020 SD/ - G. MANJUNATHA ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 05.08.2020 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI