Wills Towers Watson India P.Ltd., Gurgaon V. ACIT, Circle- 4(1), Gurgaon

ITA 7230/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3953 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Assessment Year: 2014-2015
• Appeal Filed On: 14-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHELLEY GOYAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 234B; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DLEHI BEFORE SHRI R.K. PANDA, JUDICIAL MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 7230/DEL/2018 ASSESSMENT YEAR: 2014-15 WILLIS TOWERS WATSON INDIA PVT. LTD., VS. ACIT, CI RCLE 4(1), 2 ND FLOOR, TOWER-B, UNITECH BUSINESS GURUGRAM. PARK, SOUTH CITY-1, SECTOR-41, GURUGRAM (HARYANA) PAN : AAACG2955K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. NAGESHWAR RAO, ADV. & MS. SHELLEY GOYAL, ADV. RESPONDENT BY : SH. ANUPAM KANT GARG, CIT/DR DATE OF HEARING: 28/10/2020 DATE OF ORDER : 28/10/2020 ORDER PER K. NARASIMHA CHARY, J.M. THIS IS AN APPEAL BY M/S WILLIES TOWERS WATSON IND IA PRIVATE LIMITED (THE ASSESSEE) BEING AGGRIEVED BY THE ASSES SMENT ORDER 12/9/2018 PURSUANT TO THE DIRECTIONS DATED 6/8/2018 OF THE DISPUTE RESOLUTION PANEL -I, NEW DELHI (FOR SHORT HEREINAFT ER CALLED LD. DRP). 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPA NY IS A SUBSIDIARY OF WATSON WYATT HOLDINGS (MAURITIUS) AND IS ENGAGED IN PROVIDING CONSULTING 2 SERVICES IN THE AREA OF HUMAN CAPITAL, EMPLOYEE BEN EFITS AND INSURANCE. FOR THE ASSESSMENT YEAR 2014-15 THEY HAVE FILED THE IR RETURN OF INCOME ON 28/11/2014 DECLARING AN INCOME OF RS. 87, 28, 560/- . SINCE THE ASSESSEE HAS ENTERED INTO CERTAIN INTERNATIONAL TRANSACTION, LEARNED AO REFERRED THE MATTER TO THE LEARNED TPO FOR DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSES SEE. LEARNED TPO DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS, NOT ED THAT THE ASSESSEE HAS RENDERED SUCH SERVICES TO ITS AE FOR AN AMOUNT OF RS. 48.91 CRORES AND DETERMINED THE ALP USING CUP METHOD AS THE MOST APP ROPRIATE METHOD WHEREIN IT CAME TO COMPARE THE PER DIEM RATES OF IT S EMPLOYEES TO RENDER SERVICES TO ITS AES AS WELL AS THIRD PARTIES AND CO NCLUDED THE TRANSACTION TO BE AT ARM'S LENGTH. LEARNED TPO REJECTED THE ANALYS IS OF THE ASSESSEE IN ABSENCE OF INSUFFICIENT DOCUMENTARY EVIDENCE PRODUC ED DURING THE COURSE OF PROCEEDINGS AND OWING TO GEOGRAPHICAL DIFFERENCE S BETWEEN SUCH TRANSACTIONS PROCEEDED TO APPLY TNMM AS THE MOST AP PROPRIATE METHOD AND FINALLY LEARNED TPO SELECTED 10 COMPARABLES WHO SE AVERAGE MARGIN WAS 16.54% AS AGAINST 2.17% OF THE ASSESSEE AND COM PUTED THE PROPORTIONATE ADJUSTMENT FOR THE INTERNATIONAL TRAN SACTION OF THE ASSESSEE AT RS. 4, 22, 58, 831/-UNDER SECTION 92CA OF THE AC T. 3. THE DRP NOTICING THE METHOD APPLIED BY THE LD. T RANSFER PRICING OFFICER FOR THE ASSESSMENT YEARS 2009-10 TO 2013-14 AS A TNMM, AND ALSO THAT THE TAXPAYER HAS NOT FURNISHED THE ELECTRICITY DETAILS REGARDING THE PROVISION OF SERVICES TO ITS AES WHEN COMPARED WITH THE SERVICES RENDERED TO 3 RD PARTIES, UPHELD THE TPO'S APPROACH OF REJECTING TH E CUP METHOD AS MOST APPROPRIATE METHOD AND UPHELD THE TNMM METHOD APPLIED BY THE AO. THE DRP FURTHER UPHELD THE VARIOUS COMPARABLES SELECTED BY THE TPO. HOWEVER, IT DIRECTED WORKING CAPITAL ADJUSTMENT WIT H CERTAIN DIRECTIONS. 3 LEARNED ASSESSING OFFICER, ACCORDINGLY, IN THE FINA L ORDER PASSED ON 12/9/2018, MADE AN ADDITION OF RS. 4, 06, 11, 746/- TO THE TOTAL INCOME OF THE ASSESSEE AND DETERMINED THE TOTAL INCOME AT RS. 4, 93, 40, 310/-. 4. INSOFAR AS GROUNDS NO. 1 TO 9 ARE CONCERNED, AT THE OUTSET, LD. AR BROUGHT TO OUR NOTICE THAT IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEARS 2011-12 AND 2013-14 A COORDINATE BENCH OF THIS TRIB UNAL IN ITA NO. 1710/DEL/2016 AND ITA NO. 7826/DEL/2017 RESPECTIVEL Y HELD THAT CUP AS THE MOST APPROPRIATE METHOD. HE SUBMITTED THAT FOR A.Y. 2012-13, NO TP ASSESSMENT WAS MADE FOR WHICH NO APPEAL HAS BEEN FI LED. HE SUBMITTED THAT ONCE THE CUP IS HELD AS THE MOST APPROPRIATE M ETHOD IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2011-12 AND 2013-14, THE OTHER GROUNDS WILL BECOME ACADEMIC IN NATURE. 5. LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE TPO/DRP, AND SUBMITTED THAT THE LEMONADE TPO HAS GI VEN JUSTIFIABLE REASON AS TO WHY CUP METHOD CANNOT BE APPLIED AS TH E MOST APPROPRIATE METHOD. HE FURTHER SUBMITTED THAT EACH ASSESSMENT Y EAR IS SEPARATE AND PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME- TAX PROCEEDINGS. THEREFORE, THE ORDER OF THE AUTHORITIES BELOW SHOUL D BE UPHELD. 6. LD. COUNSEL, IN HIS REJOINDER, SUBMITTED THAT A LL OBJECTIONS RAISED BY THE TPO HAS BEEN CONSIDERED BY THE TRIBUNAL WHILE D ECIDING THE ISSUE IN THE EARLIER YEARS AND SINCE THERE IS NO CHANGE IN T HE FACTS OR LAW THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL FOR THE ASSES SMENT YEARS 2011-12 AND 2013-14 MAY BE FOLLOWED. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON 4 BEHALF OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH T HE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2011-12 AND 2013-14. WE FIND, THE TRIBUNAL, VIDE ITA NO.1710/DE L/2016, ORDER DATED 11TH MARCH, 2019, AND ITA NO. 7826/DEL/2017 BY ORDE R DATED 11/9/2020 HAS THOROUGHLY DISCUSSED THE ISSUE IN QUESTION AND HELD THAT CUP IS THE MOST APPROPRIATE METHOD IN THE INSTANT CASE. RELEVA NT OBSERVATION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2011-12 READ THAT, - '19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE G IVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHO RITIES BELOW QUA THE ISSUE. FACTS ON RECORD REVEAL THAT THE TIME IS RECORDED ON RATE PER HOUR METHODOLOGY. THE AES ARE CHARGED ON THE BA SIS OF HOURS SPENT ON SERVICES RENDERED TO THEM. THOUGH THE URES ARE ALSO CHARGED ON HOURLY RATE BASIS, BUT DUE TO CUT-THROAT COMPETITION IN THIS LINE, PRE- DETERMINED FIXED RATE IS BILLED AND IF THE HOURLY RATE IS HIGHER THAN THE PRE-DETERMINED FIXED RATE, THEN DIF FERENCE IS WRITTEN OFF. IN OUR CONSIDERED OPINION, THIS IS A S TANDARD PRACTICE FOLLOWED BY THE ENTERPRISES PROVIDING SIMILAR CONSU LTANCY SERVICES. FURTHER, WE FIND THAT THE ASSESSEE HAS TO ASSUME TO TAL RISK WHEN IT IS PROVIDING SERVICES TO THE URES WHEREAS WHEN THE SERVICES ARE PROVIDED TO AES, THE RISK IS THAT OF THE AES WHOSE CLIENT HAS BEEN SERVICED. 20. WE DO NOT FIND ANY FORCE IN THE CONTENTION THAT THE EVIDENCES ARE NOT BROUGHT ON RECORD. THE INVOICES RAISED TO A ES AND NON AES ARE EXHIBITED IN THE PAPER BOOK. WHETHER THE SAME P ERSON IS PROVIDING SERVICE TO BOTH THE AES AND NON AES IS IR RELEVANT, SO AS LONG AS THE EVIDENCES OF SERVICES PROVIDED ARE AVAI LABLE. THE SERVICES ARE PROVIDED BY DIFFERENT SET OF PERSONNEL , HAVING DIFFERENT QUALIFICATION AND IT WOULD NOT BE JUSTIFIABLE TO AS K FOR INVOICES OF THE SAME PERSON WHO HAS PROVIDED SERVICE TO AES AND ALS O TO NON AES. 21. MOREOVER, CONSIDERING THE NATURE OF SERVICES PR OVIDED BY THE ASSESSEE, WE DO NOT FIND THE GEOGRAPHICAL LOCATIONS RELEVANT BECAUSE THE CONSULTING SERVICES PROVIDED BY THE ASS ESSEE WOULD REMAIN THE SAME WHETHER THE SERVICE RECEIVER IS LOC ATED IN 'X' 5 COUNTRY OR 'Y' COUNTRY AS LONG AS SERVICE PROVIDER IS IN INDIA. OUR VIEW IS FORTIFIED BY THE FACT THAT THE PRICE CHARGE D TO NON AES, [IRRESPECTIVE OF GEOGRAPHICAL LOCATION] IS COMPARAB LE TO THE PRICE THAT IS CHARGED TO INDIAN ENTITIES. MOREOVER, RATE PER HOUR FOR CONSULTANT, ONCE DECIDED, DOES NOT CHANGE IRRESPECT IVE OF COUNTRY AND WHETHER IT IS RELATED OR UNRELATED ENTITY. 22. AS MENTIONED ELSEWHERE, RISK AND RESPONSIBILITY TO THE CLIENT IS DIRECT IN INDIAN NON AES AND FOR AES THE OVERALL RE SPONSIBILITY TO THE CLIENT IS OF THE AE ITSELF. IN THIS LINE, WORK IS A SSIGNED TO DIFFERENT TEAM MEMBERS [WHETHER RELATING TO AE OR NON AE] BAS ED ON THE SPECIFIC JOB SKILL-SET REQUIREMENT, AVAILABLE RESOU RCES AND OVERALL DELIVERABLE EXPECTED, MEANING THEREBY, THAT IF THE WORK REQUIRES MORE TIME OF A JUNIOR CONSULTANT, HE/SHE IS ASSIGNE D THAT WORK WHEREAS IF A SENIOR'S ASSISTANCE IS REQUIRED, THEY DEVOTE TIME. ACCORDINGLY, A PROPER TEAM COMPOSITION IS THERE TO TAKE CARE OF THE NATURE AND TECHNICAL DIFFICULTIES OF THE PROJECT. E VEN THE OECD GUIDELINES OF JULY 2010 PREFERRED INTERNAL CUP OVER OTHER METHODS, SINCE IT BEARS A MORE DIRECT AND CLOSER RELATIONSHI P TO THE TRANSACTION UNDER REVIEW. 23. CONSIDERING THE TOTALITY OF THE FACTS IN THE LI GHT OF INVOICES RELATING TO AES AND NON AES EXHIBITED IN THE PAPER BOOK, WE ARE OF THE CONSIDERED OPINION THAT CUP IS THE MAM AND HAS BEEN RIGHTLY ADOPTED BY THE ASSESSEE TO BENCH MARK ITS TRANSACTI ONS FOR PROVISION OF CONSULTING SERVICES RENDERED. THIS GRI EVANCE IS, ACCORDINGLY, ALLOWED.' 8. SINCE THE FACTS OF THE INSTANT CASE ARE IDENTIC AL TO THE FACTS FOR THE A.Y. 2011- 12 AND AY 2013-14, THEREFORE, RESPECTFUL LY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT TO OUR NOTICE, WE ARE OF THE OPINION THAT CUP IS THE MOST APPROPRIATE METHOD IN THE INSTANT C ASE WHICH HAS BEEN APPLIED BY THE ASSESSEE FOR BENCHMARKING THE TRANSA CTIONS FOR PROVISION OF CONSULTANCY SERVICES RENDERED. WE HOLD AND DIRECT A CCORDINGLY. SINCE THIS 6 ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE, THE OTH ER GROUNDS RELATING TO THE TRANSFER PRICING ISSUE BECOME ACADEMIC IN NATUR E AND NEED NO ADJUDICATION. 9. INSOFAR AS THE NON-GRANT OF MAT CREDIT UNDER SEC TION 115 JAA OF THE ACT AND SHORT GRANT OF TAX DEDUCTED AT SOURCE COVER ED BY GROUNDS NO. 10 AND 11, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE RE CORD AND GIVE PROPER CREDIT IN RESPECT OF THE SAME. NEEDLESS TO SAY, THE LEARNED ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE AND DECIDE THE ISSUE AS PER FACT AND LAW. WE HOLD AND D IRECT ACCORDINGLY. GROUNDS NO. 10 AND 11 RAISED BY THE ASSESSEE ARE AL LOWED FOR STATISTICAL PURPOSES. 10. GROUND NO. 12 RELATES TO LEVY OF INTEREST U/S 234B WHICH, IN OUR OPINION, IS MANDATORY AND CONSEQUENTIAL IN NATURE. ACCORDINGLY, THIS GROUND BY THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART AND FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28/10/2020. SD/- SD/- (R.K. PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28/10/2020 AKS