BRINKS INDIA P.LTD (FORMERLY KNOWN AS BRINKS ARYA (INDIA ) PRIVATE LIMITED , MUMBAI V. DCIT CENTRAL CIR 6(4), MUMBAI

ITA 7071/MUM/2017

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 8468 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 17-08-2022
• Assessment Year: misc
• Appeal Filed On: 12-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 143(3); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 7071/MUM/2017 (Assessment Year: 2013-14) Brinks India Private Limited [Formerly known as „Brinks Arya (India) Private Limited], Pankaj Building, 1 st Floor, Unit#102, Plot No. 1, Behind Chandivali Ice Factory, CTS 46/1, Off Chandivali Farm Road, Chandivali, Mumbai - 400072 [PAN: AAACB3302R] Deputy Commissioner of Income Tax, Central Circle 6(4), Room No. 1925, 19 th Floor, AIR India Building, Nariman Point, Mumbai - 400021 .................. Vs ................ Appellant Respondent Appearances For the Appellant/Assessee For the Respondent/Department : : Shri Farrokh V Irani Shri Krishna Kumar, Ms. Samruddhi Dhananjay Hande Date of conclusion of hearing Date of pronouncement of order : : 18.08.2022 15.11.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present appeal is directed against Assessment Order dated, 25.09.2017, passed under Section 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟], as per directions issued by Dispute Resolution Panel-I, Mumbai (hereinafter referred to as „the DRP‟) under Section 144C(5) of the Act pertaining to the Assessment Year 2013-14. ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 2 2. The Appellant has raised seven grounds, all, directed against the transfer pricing addition of INR 7,83,82,267/-, 3. The relevant facts, in brief, are that the Appellant is part of Brinks Global Services Group engaged in the business of providing security transportation and logistics solutions. The Appellant filed return of income on 28.11.2013 declaring income of INR 16,42,15,172/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has entered into international transactions with its Associated Enterprises (AEs) and therefore, a reference was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) for the determination of Arm‟s Length Price (ALP) of the international transactions. 3.1. The TPO noted that the Appellant had paid Management Fee of INR.8,06,32,267/- to Brink‟s Incorporated USA. First time Management Fee was paid by the Appellant in the immediately preceding Assessment Year 2012-13 and this was the second year wherein expenditure by way of Management Fee was incurred by the Appellant. The TPO noticed that in the immediately preceding assessment year upward transfer pricing adjustment had been proposed by the then TPO and therefore, the Appellant was asked to show cause why similar transfer pricing adjustment should not be made during the Assessment Year 2013-14. In response, the Appellant submitted that the facts and circumstances prevailing during the Assessment Year 2013- 14 were different. During the Assessment Year 2012-13, the Management Fee was benchmarked using Transaction Net Margin Method (TNMM) as the most appropriate method which was not accepted by the TPO who adopted Comparable Uncontrolled Price ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 3 (CUP) Method as the most appropriate method. During the Assessment Year 2013-14, Management Fee has been benchmarked using „Other Method‟ and the details/documents along with working of allocation of costs of Management Fee reimbursed along with the basis allocation and allocation keys have been furnished by the Appellant. However, the TPO rejected the aforesaid contentions of the Appellant and concluded that there was no difference in the transaction undertaken during the Assessment Year 2012-13 and Assessment Year 2013-14. The TPO, therefore, proceeded to determine ALP of the aforesaid international transaction on the basis of information/documents available by applying CUP Method as the most appropriate method on the same basis as was done in the Assessment Year 2012-13. Taking the base of 750 hours and multiplying the same with the man hour rate of INR 3,000/- per hour, the TPO determined Arm‟s Length Price of the international transaction at INR.22,50,000/-, whereas the Appellant had paid Management Fee of INR 8,06,32,267/-. Accordingly, the TPO proposed upward transfer pricing adjustment of INR 7,83,82,267/-, vide letter dated, 31.10.2016 passed under Section 92CA(3) of the Act in respect of Intra-Group Services availed by the Appellant. The aforesaid transfer pricing adjustment was incorporated by the Assessing Officer in the Draft Assessment Order, dated 26.12.2016, passed under Section 143(3) read with Section 144C(1) of the Act. 3.2. Being aggrieved, the Appellant filed objections before DRP which were disposed off vide, order/directions dated 14.09.2017, passed under Section 144C(5) of the Act. The DRP rejected the objections raised by the Appellant observing that the DRP had, for the Assessment Year 2012-13, disallowed similar claim of the ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 4 Appellant and the change in the method use for benchmarking the transaction did not the address the issue since the Appellant had failed to show what services were rendered to the Appellant, whether such services had value, and what was the benefits derived therefrom. 3.3. Pursuant to the direction issued by the DRP, vide order, dated 14.09.2017, the Assessing Officer passed Final Assessment Order, dated 25.09.2017, making transfer pricing addition of INR.7,83,82,267/- leading to the file of the present appeal by the Appellant. 4. When the matter was taken up for hearing, the Ld. Authorised Representative for the Appellant submitted that the authorities below had made/confirmed the transfer pricing addition merely on the basis of transfer pricing adjustment for the immediately preceding Assessment Year 2012-13. He placed on record copy of the order passed by the Tribunal for Assessment Year 2012-13 passed in ITA No. 343/Mum/2017 (Pronounced on 27.12.2019) whereby the appeal filed by the Appellant was allowed by the Co- ordinate Bench of the Tribunal. He submitted that by way of the aforesaid order, the Tribunal had rejected the basis of which transfer pricing adjustment was made by the TPO/Assessing Officer. He further submitted that following the decision of the Tribunal in the case of the Appellant for the immediately preceding Assessment Year 2012-13, the transfer pricing addition made by the TPO/Assessing Officer are liable to be deleted. The Ld. Departmental Representative, responding to the aforesaid submissions, relied upon para No. 4.2 of the DRP order and submitted that the Appellant had failed to provide details of management services received by the appellant and the cost ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 5 actually incurred by the AEs for providing the services to the Appellant. The Appellant has also failed to provide separate details of cost paid for each service and had only provided that reasoning on the requirement for management services. The Ld. Authorised Representative for the Appellant, in rejoinder, making reference to paragraph 4.6 of the order passed by the DRP submitted that the DRP had rejected the objections filed by the Appellant by merely following the order of DRP for the Assessment Year 2012-13 which has since been set aside by the Tribunal in appeal preferred by the Appellant. 5. We have considered the rival submissions and perused the material on record. We find merit in the contention of the Appellant that the Tribunal has, while disposing of appeal for Assessment Year 2012-13, rejected the basis on which addition/transfer pricing adjustment was made by the TPO. The relevant extract of the aforesaid decision of the Tribunal [ITA No. 343/Mum/2017, Assessment Year 2012-13, Pronounced on 27.12.2019] read as under: “3. Before us, the Ld. counsel for the assessee submits that the assessee has...... During the course of hearing the Ld. counsel relies on the order of the Tribunal in the case of Kellogg India Pvt. Ltd. v. DCIT (ITA No. 2866/Mum/2014) for AY 2009-10; M/s CLSA India Pvt. Ltd. v. DCIT (ITA No. 1182/Mum/2017) for AY 2012-13; Firmenich Aromatics India P. Ltd. v. DCIT (ITA No. 2590/Mum/2017) for AY 2012-13. 4. On the other hand, the Ld. Departmental Representative (DR) submits that as observed by the DRP the assessee has not benchmarked the international transactions at all, which is clearly a violation of law. It has not shown how the various transactions are closely linked and how they cannot be evaluated adequately on a separate basis. It is further stated that the assessee has failed to show that specific and distinct services were rendered by ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 6 the AE, for which payment to the extent made by it needs to be paid. Further, it is stated that nothing has been placed either before the TPO or the DRP to demonstrate any benefit received by the assessee from the services rendered for which payment is claimed. Elaborating further, the Ld. DR submits that the assessee has not submitted any details and evidence of costs actually incurred by the AE, specifically for providing the services to the assessee; it has also not been able to give separate details of costs paid for each service stated to have been availed; all that is stated is that costs incurred by AE have been reimbursed on allocation basis, however, no details of such costs incurred by AE and actual evidence thereof were furnished. On the basis of the above arguments, the Ld. DR supports the order passed by the AO. 5. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, the assessee has consistently been benchmarking all of its transactions with the AE under TNMM from the beginning, for now over seven years. In all three previous assessment years i.e. from AY 2009-10 to 2011-12, wherein its international transactions with AEs were in the scrutiny, the assessments have been completed by accepting the transactions with AE being at arm‟s length holding TNMM as the most appropriate method. The assessee had submitted before the TPO that its operating revenue is Rs.168.88 crores and the operating profit is Rs.21.78 crores; the profit level indicator i.e. OP/OR works out to 12.90% for the year under consideration. The assessee submitted working of it before the TPO. Also it submitted the arithmetic mean of the profit level indicator of the comparables which worked out to 4.86% for the year under consideration. We find that in respect of management fees paid/payable during the year under consideration, the assessee had submitted before the TPO its working, calculation, allocation, method, rational and business expediency. In such a situation, the TPO should not have summarily rejected the TNMM in respect of management fees paid/payable by the assessee to its AE and proposed an adjustment of Rs.3,83,75,622/- under the CUP method, without benchmarking with comparable ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 7 uncontrolled transactions. In the instant case, the TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts and circumstances of the case. In the case of Kellogg India Pvt. Ltd. (supra), the Tribunal has rightly held that: “Even assuming that the benchmarking done by the assessee was not correct, the Transfer Pricing Officer should have benchmarked the royalty payment by applying any of the prescribed methods. However, without applying any prescribed method he has simply determined the arm‟s length price of royalty payment at Nil. The aforesaid approach of the Transfer Pricing Officer is not in accordance with statutory provisions, hence, unsustainable.” Similar view has been taken by the Tribunal in M/s CLSA India Pvt. Ltd. (supra) and Firmenich Aromatics India P. Ltd. (supra). 5.1 To sum up, in the instant case, the TPO has summarily rejected the TNMM followed by the assessee in respect of management fees paid/payable by it to its AE and proposing an adjustment under CUP without benchmarking with comparable uncontrolled transactions. Also the TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts of the case. In view of the above factual scenario and position of law, we delete the addition of Rs.3,83,75,622/- made by the AO as adjustment on account of transfer pricing. 6. In the result, the appeal filed by the assessee is allowed.” (Emphasis Supplied) 6. On perusal of the above order of the Tribunal, it is apparent that for the Assessment Year 2012-13, the TPO had made transfer pricing adjustment by determining ALP of Management Fee at INR 22,50,000/- (750 hours x INR 3,000/- per hour) by using CUP Method, and while doing so the TPO made an adhoc unilateral estimation by assuming that around 750 hours would have been spent for providing the aforesaid services for which remuneration of INR 3,000/- per hour was appropriate. The Tribunal deleted the addition holding that the TPO had resorted to an adhoc unilateral ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 8 pricing of the Management Fee without applying any of the prescribed methods and disregarding the facts of the case by placing reliance upon the decision of the co-ordinate Bench of the Tribunal in the case of Kellogg India Pvt. Ltd. v. DCIT (ITA No. 2866/Mum/2014) for AY 2009-10; M/s CLSA India Pvt. Ltd. v. DCIT (ITA No. 1182/Mum/2017) for AY 2012-13; Firmenich Aromatics India P. Ltd. v. DCIT (ITA No. 2590/Mum/2017) for AY 2012-13. 7. We note that in the case of CLSA vs. DCIT [ITA No. 1182/Mum/2017, pronounced on 16.01.2019], relied upon by the Ld. Authorised Representative for the Appellant, the Co-ordinate Bench of the Tribunal has held as under: “22. Section 92C(1) of the Act, contemplates that the arms length price in relation to an international transaction shall be determined by comparable uncontrolled price method; resale price method; cost plus method; profit split method; transactional net margin method or such other method as may be prescribed by the Board. Hence, the TPO is bound to determine the ALP by following one of the prescribed methods, however, we notice that in the present case the Ld. TPO has not followed any prescribed methods and made the transfer pricing adjustment by estimating the man hours and the cost of service per hour. We therefore, find merit in the contention of the Ld. counsel that any ad-hoc determination of arms length price by the Ld TPO u/s section 92 de-hors section 92C(1) of the Act cannot be sustained. The contention of the Ld. counsel is further supported by the judgment of the Hon'ble jurisdictional High Court in the case of Commissioner of Income Tax vs. Merck Ltd. 389 ITR 70 (Mum). In the said case the Hon'ble High Court decline to interfere with the findings of the Mumbai Bench of the Tribunal that the transfer pricing adjustment made by the TPO without following one of the prescribed methods makes the entire transfer pricing adjustment unsustainable in law. The grievance of the revenue was that the consideration paid to the AE is only attributable to the services received / availed. 23. In the light of the facts of the case, provisions of the Law and the cases -discussed in the foregoing paras, we are of the ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 9 considered view that the transfer pricing adjustment made by the Ld. TPO on ad hoc basis is not sustainable in law. Since, the order passed by the TPO u/s 92 CA(3) of the Act is not sustainable, the Ld. DRP ought to allowed the objection filed by the assessee. Hence, we decide both the questions mentioned in para No 17 (supra) in negative and further hold that the assessment order passed by the AO pursuant to the directions passed by the Ld DRP u/s 144(5) of the Act, is not sustainable in law.” (Emphasis Supplied) 8. In the case before us pertaining to Assessment Year 2013-14, the TPO has determined the ALP of the transaction without following any of the prescribed methods. The transfer pricing adjustment has been made by estimating the man hours (at 750 hours) and the cost of service per hour (at INR 3000/- per hour). Identical approach adopted by the TPO stands rejected by the Tribunal in the abovesaid decisions including in the case of the Appellant for the Assessment Year 2012-13. Thus, respectfully following the above decisions of the Tribunal, we delete the transfer pricing addition of INR 7,83,82,267/-. Ground No. I (1. to 3.) is allowed, whereas all the other grounds are disposed off as being infructuous. 9. In the result, the present appeal preferred by the Assessee is allowed. Order pronounced on 15.11.2022. Sd/- Sd/- (Pradip Kumar Kedia) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 15.11.2022 Alindra, PS ITA. No. 7071/Mum/2017 Assessment Year: 2013-14 10 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai