ACIT, Circle-4(2), New Delhi V. Benetton India P.Ltd, Gurgaon

ITA 7389/DEL/2017

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0771 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 02-05-2024
• Assessment Year: 2010-2011
• Appeal Filed On: 07-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Assessee Lawyers: H. S. AJMANI
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Commercial expediency; TDS
• Section: 143(3); 115JB; 10B; 144C; 13; 22; 92CA; 20

Judgement Text

1 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH: ‘I’ NEW DELHI ] BEFORE SHRI G. S. PANNU, VICE PRESIDENT AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER I.T.A. No. 496/DEL/2022 (A.Y 2017-18) Benetton India Pvt. Ltd., Plot No. 25B, Block Infocity Sector : 34, Gurugram, Haryana.PAN:AAACD1013F (APPELLANT) Vs. Asstt. Commissioner of Income Tax, Circle : 4 (2), New Delhi. (RESPONDENT) I.T.A.No. 7389/DEL/2017 (A.Y 2010-11) Asstt. Commissioner of Income Tax, Circle : 4 (2), New Delhi. (APPELLANT) Vs. Benetton India Pvt. Ltd., Plot No. 25B, Block Infocity Sector : 34, Gurugram, Haryana. PAN No. AAACD1013F (RESPONDENT) ORDER PER YOGESH KUMAR U.S., JM These two appeals are filed by the assessee and the Revenue for Assessment Years 2017-18 & 2010-11 aggrieved by the orders dated 25/02/2022 & 11/04/2014 respectively passed by Additional/joint/Deputy/ Assistant Commissioner of Income Tax , National Faceless Appeal Centre, Delhi u/s 143(3) read with Section 144C (13) and 143(3B) of the Income Tax Act (“Act” for short). Assessee by : Shri Deepak Chopra, H. S. Ajmani, Sh. Ankul Goel & Ms. Rashi Khanna, Advs Department by: Shri Mahesh Shah, [CIT] D.R. & Sh. Kanv Bali, Sr. DR Assessee by : Shri Atul Jain, Ms. Suchita Kanodia, ARs Department by: Shri Mahesh Shah, [CIT] D.R. & Sh. Kanv Bali, Sr. DR Date of Hearing 03.05.2024 Date of Pronouncement 24.07.2024 2 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 2. The assessee has raised the following ground of appeal:- I.T.A. No. 496/DEL/2022 (A.Y 2017-18) (Assessee) The following grounds are independent of and without any prejudice to one another: 1. That on the facts and circumstances of the case and in law, the Learned Assessing Officer ('Ld. AO') has erred in enhancing the income of the Appellant under section 143(3) read with section 144C(13) and section 144C(13) read with sections 143(3A) & 143(3B) of the Act, for the assessment year ('AY') 2017-18 at INR 13,23,48,799 as against the returned income of NIL under the normal provisions of Act. 2. That on the facts and circumstances of the case and in law, the Ld. AO has erred in violating the provisions of section 144B of the Act and principles of natural justice by not providing an opportunity of being heard and failing to issue a show-cause notice for the proposed variation. Grounds pertaining to addition on account of payment of royalty (INR 70,12,25,209) 3. On the facts of the case and in law, the Learned Transfer Pricing Officer ('Ld. TPO') erred in proposing an adjustment on account of arm's length price for payment of royalty. In doing so, the Ld. TPO / Hon'ble DRP erred in: - 3.1 Rejecting the Comparable Uncontrolled Method ('CUP') method used by the Appellant to benchmark the royalty transaction based on surmises and incorrect findings and ignoring the fact that the royalty transaction has been accepted to be at arm's length by 3 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon various authorities in Appellant's case for prior assessment years including the TPO himself for the immediately preceding year assessed by him under the same approach; 3.2 Not appreciating the facts pertaining to royalty arrangement which includes royalty not only for trademark and tradename but also for technical know-how and designs; 3.3 Disregarding the commercial wisdom of the Appellant so far as incurrence of advertisement expenses is concerned; 3.4 Not appreciating the fact that Appellant is a manufacturer and thus- a. spends the said alleged advertising and marketing expenses for selling its own goods and not for the benefit/ at the behest of the associated enterprise; b. such expenses are an intrinsic part of the Appellant's business; c. such expenses are also incurred by the comparable companies selected by the Appellant to benchmark the transaction of payment of royalty. 3.5 Proposing to apply Transactional Net Margin Method ('TNMM') on entity level, disallowing the entire royalty and making a further adjustment on advertisement expenses, while doing so the Ld. TPO further erred in disregarding the favorable precedence in Appellant's own case wherein the Hon'ble ITAT held that royalty cannot be disallowed and TNMM cannot be used considering the facts of the case; 4 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 3.6 Erred in using an incorrect approach for determining the arm's length price by- a. treating the selling and distribution expenses as a part of the advertising and marketing expenses; b. incorrectly selecting functionally dissimilar companies as comparable companies which were used by the Assessee to benchmark its trading operations while the Assessee pays royalty only for manufactured goods; c. applying an ad-hoc margin of 10% on the alleged advertising and marketing spend; d. incorrectly computing the net operating margin of the Appellant as well as of the comparable companies by not granting the benefit of economic adjustments as required under Rule 10B(2) as well as Rule 10B(l)(e) of the Rules; e. not appreciating that the losses at the net level are owing to various business and economic reasons and not owing to payment of royalty; f. not appreciating the Appellant's entire revenue as well as entire imports from/ for manufacturing activities is from third parties. 3.7 Including the amount of advertising and marketing expenses incurred by the Appellant towards domestic unrelated parties while computing the amount of adjustment for payment of royalty; 3.8 Making an adjustment in a manner contrary to the accepted TP Principles. 5 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon Grounds pertaining to addition on account of receipt of consultancy services (INR 56,70,203), reimbursement of other expenses (INR 1,24,46,492) and IT cost allocation (INR 30,12,824) 4. On the facts and circumstances of the case and in law, the Ld. TPO erred in determining a NIL price for payment of receipt of consultancy services, reimbursements of expenses and IT cost allocation using the Other Method. 4.1 In doing so, the Ld. TPO further failed to provide information on any comparable uncontrolled cases wherein NIL price would have been charged for similar transactions; 4.2 While doing so, the TPO/DRP completely ignored the judicial precedence in this regard in the Appellant's own case as well as in other taxpayers' case as upheld by the Hon'ble Tribunals; 4.3 While doing so, the Ld. TPO erred in completely brushing aside all the documentary evidences filed to substantiate the nature of services received; 4.4 While doing so, the TPO has failed to bring out any factual evidences to show that a third party would provide such services fee of cost and has further failed to appreciate that the Appellant would have to avail such services from third parties at a much higher cost if not received from Associated Enterprises. 5. On the facts and circumstances of the case and in law, the Ld. TPO/ DRP erred in not appreciating the commercial expediency and business needs of the Appellant and completely ignoring all submissions made by the Appellant in this regard. 6 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 6. On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A(1) of the Act. The Appellant craves leave to alter, amend, or withdraw all or any of the Grounds of Appeal herein or add any further grounds as may be considered necessary and to submit such statements, documents and papers as may be considered necessary either before or during the appeal hearing. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case.” 3. The Revenue has raised following grounds of appeal:- I.T.A. No. 7389/DEL/2017 (A.Y 2010-11) (Revenue) 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of arm’s length price of international transaction amounting to Rs. 18,90,29,156/-. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the TPO in ALP on two International Transactions i.e, Reimbursement of Expenses of Rs. 7,45,66,854/- 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the adjustment made by the TPO in ALP on account of provision of Market Support Services of Rs. 99,62,662/-. 7 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 4. Whether on the facts and in the circumstances of the case and in law, the findings given by the Ld. CIT(A) is perverse.” I.T.A. No. 496/DEL/2022 (A.Y 2017-18) (filed by the Assessee) 4. The briefs facts of the case are that the assessee company is a wholly owned subsidiary of Benetton International NV, Netherlands which in turn is subsidiary of Benetton Group SPA, Italy. The assessee company is engaged in the business of production and sale of readymade garments in the name and style of "Benetton" in India. The assessee company operates through various franchisees as well as self-owned stores in India. The assessee has filed its Return declaring total loss at Rs.14,68,46,338/- under normal provisions of the Income Tax Act, 1961 (hereinafter referred as to "Act"). 5. During the year under consideration, the assessee entered into International Transactions. The case was referred to the Transfer Pricing Officer as per provisions of Section 92CA (1) of the Act for computation of Arm's Length Price in relation to International Transactions/ Specified domestic transactions. Subsequently, the Ld. TPO passed an order u/s 92CA (3) of the Act on 29/01/2021, wherein total adjustment of Rs.72,23,54,728/- was made with respect to the international transactions in following manner: 8 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon SI No. Description of transaction Adjustment u/s 92CA(3) Rs. 1 Reimbursement of advertising expenses 1,24,46,492/- 2 IT Cost Allocation 30,12,824/- 3 Consultancy Services allocation 56,70,203/- 4 Payment of royalty/ consideration for the use of trademark and know-how 70,12,25,209/- TOTAL 72,23,54,728/- 6. The Ld. A.O. agreed with the view taken by the TPO for calculating the Arm's Length Price with respect to the International Transactions entered by the assessee with Associated Enterprise. Accordingly, a draft assessment order u/s l43(3) of the Act, dated 23/04/2021, was issued proposing the taxable income at Rs.58,25,70,627/- after taking into consideration the adjustment of Rs.72,23,54,728/- as per the order of the TPO. 7. Aggrieved by the Draft assessment order, the assessee had filed objections before the DRP. The Ld. DRP vide order u/s 144C(5) of the Act, dated 19/01/2022 decided on the objections raised by the assessee and issued directions to the A.O.to incorporate the reasons given by the DRP in respect of various objections of the assessee at appropriate places in the final order. In compliance with directions of the DRP, the final assessment order came to be passed on 25/02/2022 u/s 143(3) read with Section 144C(13) and Section 144B of the Act. 9 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 8. Aggrieved by the final assessment order dated 25/02/2022, the assessee has preferred the present appeal on the grounds mentioned above. 9. The Ground No. 1 & 2 are general in nature which requires no separate adjudication. 10. The Ground No. 3 and its sub grounds pertain to addition of Rs. 70,12,25,209/- on account of payment of royalty/consideration for use of trademark and know-how. 11. The brief facts are that, the assessee has entered into trademark and know-how license agreement with Benetton Group S.r.l, it's A.E. As per the License Agreement, the assessee pays royalty to its AE for the use of trademark and know-how at5% on sale of products which are sold through stores owned by franchises,2.5% on the sale of products which are sold through owned stores and 50% of gross royalty earned by the assessee from its authorized sub licenses. For the purpose of determining the Arm's Length Price for payment of royalty, the assessee has adopted CUP method. Three comparable agreements were selected for royalty payment which averaged out to be 6.08%. Since the effective royalty paid by the assessee during the year under consideration was 4.81% on sales, the transaction was held to be at Arm's Length. 12. The Ld. TPO has applied Transactional Net Margin Method (TNMM) on entity level and disregarded Comparable Uncontrolled Price (CUP). The TPO also included amount of third party AMP Expenses while computing the amount of adjustment for royalty, applied the TNMM Method and determined 10 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon the Arm's Length Margin at 5.42%. The said action of the TPO has been confirmed by the DRP/A.O vide order impugned. 13. The Ld. Counsel for the assessee submitted that the Ld. TPO/AO/DRP have treated selling and distribution expenses as part of advertising and marketing expenses, incorrectly associated profitability with payment of royalty. The ld. Counsel further submitted that the authorities have erroneously found that marketing was responsibility of the A.E and applied an ad-hoc margin of 10%on advertising and marketing spend. He also submitted that, the authorities have incorrectly computed the net operating margin of the assessee as well as of the comparable companies by not granting benefit of economic adjustment as required under Rule 10B (2) and Rule 10B(1)(e) of the Rules. 14. The Ld. Counsel for the assessee further submitted that, the payment of royalty was held to be Arm's Length in the earlier years. For the Assessment Year2006-07 in Assessee's own case, the Coordinate Bench of the Tribunal in ITA No. 3829/Del/2010 has treated the payment of royalty to be Arm's Length by rejecting the application of TNMM. Even in the Assessment Year 2007-08, 2008-09, 2009-10, 2011-12 to 2012-13, the Tribunal has decided the said issue in favour of the assessee. He further submitted that, for the Assessment Year 2010-11, the very same addition has been deleted by CIT(A) and in the Assessment Year 2016-17 no adverse inference taken by the TPO. The Ld. Counsel for the assessee has taken us through the various judicial 11 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon pronouncements and contended that the Ld. TPO has erred in proposing the adjustment on account of Arm's Length Price for payment of royalty. 15. Per contra, the Ld. DR relied on the orders of the TPO/DRP/A.O, and took support of the “Trade-Mark and Know-how License Agreement” entered by the assessee and justified the orders of the TPO/DRP/A.O. The Ld. DR also submitted that the steps for benchmarking laid out by the Hon’ble Delhi High Court in Sony Ericcson Mobile Communications v.CIT (2015) are followed in this case. Further, submitted that in all the previous years of the order of the Tribunal, the issue of advertisement being part of the royalty payment was not there. It was further submitted that the advertisement expenses forming part of the royalty payment based on the “Trade-Mark and Know-how License Agreement” has never been dealt with by the Tribunal, for the first time the issue of advertisement being part of the royalty payment has come for consideration before the Tribunal. Therefore, submitted that this issue is not covered in favour of the assessee. 16. We have heard the rival submissions. The issue of benchmarking the royalty payment was litigated in AY 2006-07 (ITA No.3829/Del/2010),in A.Y. 2007-08 & 2008-09, (Revenue Appeal ITA No. 457and 453/Del/2013), in A.Y. 2009-10 (ITA No. 4329/Del/2014 and 4229/Del/2014), in A.Y. 2011-12 (ITA No. 31/Del/2017), in A.Y. 2012-13 (ITA No.1091/Del/2018), wherein the payment of royalty was held to be at arm’s-length by coordinate benches of this Tribunal. 12 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 17. In the present year, the TPO added advertisement expenses (including a mark-up of 10%) to the payment made by assessee in accordance with the Trademark and Know-how License Agreement (“License Agreement”), in addition to the royalty payment. This was done because Clause 13 of the License Agreement, quoted below, mandates the assessee to advertise the licensed products. “13. Advertising 1. The LICENSEE shall continuously advertise the Licensed products in a way attractive to the consumers and in keeping with the trends of the market, by way of photo reportage, pictures, scripts ,texts, other materials and services made available by the LICENSOR with a view to both assuring as uniform as possible a world-wide image of the Licensed Trademarks and the Benetton Group and allowing the LICENSEE to avail itself of the world- wide terms and arrangements for the time being in force between Benetton Group and its advertising agencies 2. The LICENSEE shall previously submit to the LICENSOR for approval all data and information related to the media intended to be used (such as outdoor, tv, radio, the internet and press), and the relevant costs and expenses to be paid by the LICENSEE and shall not place any such campaign or action in hand without having secured the previous written approval of the LICENSOR with respect thereto. 3. in any case, the LICENSEE shall submit to the prior written approval of the LICENSOR all data and information regarding any advertising campaigns intended to be pursued (and shall not place any such campaign in hand, without having secured the prior written approval of the LICENSOR with respect thereto) in order to assure an image of the Licensed Trademarks and of the Benetton Group in the Territory uniform to the image of the Licensed Trademarks and the Benetton Group in the rest of the world.” 13 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 18. Further, the TPO rejected the benchmarking of the assessee (CUP method) and proceeded to benchmark the transaction using Transactional Net Margin (TNMM) Method. 19. However, the Coordinate Benches have taken a consistent view in the previous years, upholding the CUP method used by the assessee for benchmarking royalty and rejecting an entity level TNMM approach. The Coordinate Bench of this Tribunal in ITANo. 3829/Del/2010 for A.Y 2016-17, vide order dated 30/11/2021 held asunder: “7. We have heard rival contentions, perused the material available on record. The first and foremost question in this case is to determine whether the action of TPO in undertaking entity level benchmarking by TNM method combining of the international transactions is justifiable or the TP analysis provided by assessee, based on “transaction to transaction” basis in respect of different segments should be adopted. 7.1. From the facts mentioned above, it is clear that assessee’s manufacturing export activities; buying/sourcing and commission earning activities are independent of each other. Each activity has different factors in respect of source, identification of vendors, merchandise, designs quality control, handling etc. The FAR analysis in each of the activity will have distinct and separate considerations. 7.2. We, find merit in the argument of the learned counsel that the TPO should have accepted the method of assessee’s benchmarking analysis on the basis of transaction to transaction basis in respect of different segments of assessee’s international transactions with associated enterprises. In our view, Assessee’s functions, risk and assets FAR considerations, which are given in the above table, deserves to be merited. 14 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon TPO did not appreciate the Assessee’s transactions correctly and applied entity level benchmarking on TNMM method by combining Assessee’s all international transactions with associated enterprise without justification. 7.3. Our view is supported by ITAT judgments - Mumbai Bench in the cases of UCB India (P) Ltd. Vs. ACIT (supra); and ACIT v. Star India Ltd. (supra); and Kolkata Bench in the case of Development Consultants (P) Ltd. (supra). All these cases clearly lay down that ALP would be determined based on the nature of service provided by assessee for each class of transaction based on various factors and analysis. In the case of Star India Ltd. (supra), also the TPO treated all the activities of the assessee as one and determined the ALP at entity level without appreciating that one cannot compare the FAR of a principal and agent on same footing. 7.4. In our view, in the assessee’s case there are different segmental activities, which are independent of each other. They are required to be analyzed on transaction to transaction basis and not by combining all activities. Consequently, we uphold the assessee’s method of ALP.” 20. Following the principle of consistency, the TNM Method is rejected in the current year too, and the Assessee’s use of CUP is upheld. Accordingly, following the co-ordinate Bench orders, the issue of royalty is decided in favour of the assessee and against the Revenue. 21. In so far as the adjustment on account of advertisement expenses is concerned, we found that the addition on account of advertising expenses incurred by the assessee according to the License Agreement was not done in earlier years. Therefore, the issue of advertisement expenses incurred by the 15 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon assessee is remanded to the file of the TPO for fresh determination in accordance with law after allowing a reasonable opportunity of being heard to the assessee. Accordingly, Ground 3 and sub-grounds are partly allowed for statistical purposes. 22. Ground No. 4 and its sub grounds pertaining reimbursement of advertisement expenses of Rs.1,24,46,492/-, IT Cost Allocation of Rs. 30,12,824/- and Consultancy Services HR Cost of Rs. 56,70,203/-. Reimbursement of Advertisement expenses 23. During the year under consideration, the assessee has reimbursed advertising expenses incurred on its behalf to its AE. The assessee submitted before the TPO that these expenses were incurred by its AE with respect to Indian catalogue and brochure, Indian advertisement campaigns and related travelling and accommodation expenses of models for advertisement campaigns etc. The assessee has applied the CUP Method to benchmarking the said transaction. The Ld. TPO found that all the third-party invoices were in the name of the associated enterprises namely Benetton Group Srl, Italy, and there was no evidence of the purported services by the assesses company. The assessee in its letter 18/01/2021 submitted before the TPO that the advertisement expenses are supported by 100% third party back-to-back invoices. The Ld. TPO has also on perusing the document found that all the third-party invoices are in the name of associated enterprises. The TPO concluded that there is no evidence of receipt of service as the third party 16 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon invoices should have been in the name of the assessee company if at all the payments were in the nature of reimbursement. The ld. DRP upheld this finding of the TPO. 24. Having considered the rival stands on this issue, we find that the lower authorities have misdirected themselves and not appreciated the factual matrix sought to be canvassed by the Assessee. Notably, the assessee submitted before the lower authorities that the expenses in question were incurred for promotion of products of the assessee and in order to meet the high quality advertisement and promotion material which are of global standards. Such expenses were met through the foreign AE. It was submitted that expenses incurred on year to year basis as per actual business requirement of the assessee. According to the assessee, the same were in the nature of pass through costs paid by its AE and thereafter reimbursed by assessee at the request of its AE. Before us, Ld. Representative for the assessee has referred the Pages 754 to 881 of the Paper Book Vol.II wherein, he placed the copy of Submission dated 25.11.2020 addressed to the TPO inter alia, including the summary of invoices raised by its AE Benetton Group SRL to the assessee which are supported by 100% third party back-to-back invoices. The said material has been referred to show that the amount reimbursed by the assessee to its AE were on No Margin Basis and were on account of advertisement expenses relating to business of assessee. 17 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 25. The Ld. DR, though defended the action of the lower authorities, but has not controverted the material referred to by the assessee before us, which ostensibly was also before the lower authorities. 26. We have perused the order of the TPO, more specifically, para 4.3 of his order, whereby he has questioned the reason for the 3 rd parties to issue bills in the name of the assessee and for that reason according to him the receipt of services is not proved. In fact the observations of the TPO in our view is fallacious in as much as the case of the assessee is that the 3 rd party had executed the work on account of advertisement relating to Assessee’s business and the expenditure thereof was met by Assessee’s AE on behalf of the assessee. The Assessee’s AE raised back-to-back invoices on the assessee for such expenses, which is clearly fortified by the material referred to before us, which also shows that there is no margin earned by the AE. Be that as it may, the TPO has no locus-standi to opine on the necessity or otherwise for the incurrence of expenditure. In other words, the TPO does not has a jurisdiction to question the commercial expediency of the assessee have incurred such expenditure and his jurisdiction extends only to benchmark the transaction in terms of mandate of Section 92(1) of the Act. The aforesaid proposition is well founded in light of the Hon’ble Delhi High Court decision in the case of CIT vs. EKL Appliances Ltd. 345 ITR 241. Therefore, in our view, the approach of the TPO, which has also been thereafter approved by the Ld. 18 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon DRP is contrary to the legal as well as the factual position and the transfer pricing adjustment made thereupon, is unsustainable. We hold accordingly. IT Cost Allocation 27. The assessee claimed to have received information technology support services from its AE in the nature of Computer Assistance Designing Techniques including software like CAD, Orchidie, Iris, Citirix, Rtbenet etc. which were used by it in its manufacturing process. The AE charged BIPL for the use of the above software on cost-to-cost basis. The TPO determined the ALP of these intra-group services to be zero as the assessee could not provide any evidence of requisition or receipt or cost-benefit analysis. The ld. DRP upheld the order of the TPO. 28. Before us, the Ld. AR submitted that the Coordinate Bench in Assessee’s own case for AY 2009-10 and CIT(A) for AYs 2007-08 and 2008-09 decided this issue in the Assessee’s favour. Ld. DR relied on the order of the TPO. 29. We have gone through the record in the light of the submissions made on either side. Since the facts are similar and issue is identical, we find no reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in Assessee’s own case for the Assessment Years 2009-10, we hold that the impugned addition cannot be sustained. We therefore direct the TPO/AO to delete the adjustment made on account of IT Cost Allocation. 19 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon Consultancy Services- HR Cost 30. The assessee hired the services of an employee (Mr. Daniel Hueng) to provide consultancy with regards to quality control. Salary and perquisites of this employee was paid by the AEs and reimbursed by BIPL on a cost-to-cost basis. The TPO determined the ALP of this reimbursement to be zero as the assessee could not provide any documentary evidence of exclusive receipt of services from employee and categorized his services to be in the nature of shareholder service. The ld. DRP upheld the order of the TPO. 31. Before us, the Ld. AR submitted that the Tribunal in Assessee’s own case for the Assessment Years 2007-08, 2008-09 and 2009-10, deleted the adjustment on account of similar issue of expatriate cost. 32. We have heard the rival submissions. The assessee has availed consultancy services from an employee based out of Hong Kong and has reimbursed the salary and related expenses of this employee to its AE. Since this is similar to the issue of expatriate cost in previous years, we find no reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in Assessee’s own case for the Assessment Years 2007-08, 2008-09 and 2009-10, we hold that the impugned addition cannot be sustained. We, therefore, direct the TPO/AO to delete the adjustment made on this issue. Thus, Ground 4 and sub-grounds are partly allowed in favour of the assessee. 20 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 33. Ground 5 being general in nature and Ground No. 6 is consequential requires no adjudication. 34. In the result, the appeal of the Assessee in ITA No. 496/DEL/2022 is partly allowed for statistical purposes. ITA No. 7389/Del/2017 (A.Y 2010-11) (filed by the Revenue) 35. For the Assessment Year 2010-11, the assessee filed its return of income reporting a total loss of Rs.12,32,47,435/-. The return was revised on subsequently declaring a loss of Rs.10,81,64,716/- and a Book Profit of loss of Rs.68,53,29,652/- under Section 115JB of the Income Tax Act,1961 (“the Act”). 36. During the Financial Year 2009-10, the assessee had entered into the following international transactions: S.No Head Value (Rs.) 1 Purchase of Consumables 70,45,063 2 Purchase of readymade garments and accessories 14,23,47,549 3 Sale of readymade garments and accessories 75,56,550 4 Payment of Royalty 10,35,00,000 5 SourcingSupport Services 8,78,60,727 6 Reimbursement of Expenses 7,45,66,854 7 Recovery of Expenses 2,16,22,275 8 Issue of Share Capital 40,00,00,000 Total 84,44,99,018 21 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 37. The Transfer Pricing Officer (TPO) determined the arm’s length price of payment of royalty and reimbursements to be nil and that of sourcing support services to be Rs.9,78,23,389/-. The TPO proposed an adjustment to the tune of Rs. 18,80,29,516/-attributable to the difference in arm’s length price of the international transaction entered by the assessee with the associated enterprise. Pursuant to the order of the TPO, the Assessing Officer made an addition of such amount while passing the final assessment order. 38. Aggrieved by the said addition, the assessee preferred an appeal and by way of order, Ld. CIT(A) directed the Ld. TPO/learned Assessing Officer to treat the royalty payment and reimbursements at arm’s length and not to make any upward adjustment on these issues following orders of the coordinate benches of the Tribunal in Assessee’s own case in previous years. On the issue of provision of sourcing support services, the Ld. CIT(A) partly allowed the plea of the assessee by including/excluding certain comparables. Aggrieved by the order of the ld. CIT(A) dated 20/09/2017, the Revenue is in appeal before us on the grounds mentioned above. 39. The Ground No. 1 is general in nature which requires no adjudication. 40. Ground No. 2 of the Revenue is against the order of Ld. CIT(A) in deleting the addition made by the TPO in ALP on two international transactions i.e, Reimbursements of Expenses of Rs. 7,45,66,854/- and payment of royalty of Rs. 10,35,00,000/-. 22 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon Payment of Royalty 41. Brief facts of the case are that, the assessee entered into technical know-how agreement with its Bencom S.R.L for payment of royalty for manufactured goods at 4.8% on net sales of goods through franchises and 2.4% of net sales in relation to goods sold through own retail outlets. The TPO treated the arm’s length price of royalty paid to be zero on account of the assessee failing to produce any primary evidence to justify that the payment of royalty is at arm’s length. 42. The ld. CIT(A) has discussed the issue in detail and concluded that that the Assessee’s internal and external benchmarking using CUP method are valid. The TPO has rejected the internal CUP method due to geographical differences, but the ld.CIT(A) held that Royalty/Sales neutralizes the impact of currency rate and economic conditions arising out of geographical differences. The ld. CIT(A) proceeded to delete the adjustment following the decision of his predecessors in Assessee’s own case for AYs 2007-08, 2008-09, 2009-10 and 2011-12 which have already been affirmed by the Coordinate Bench of the Tribunal. 43. Ld. AR submitted that the Coordinate Bench in assessee’s own cases for AYs 2006-07, 2007-08, 2008-09, 2009-10, 2011-12 and 2012-13 decided this issue in the Assessee’s favor. Ld. DR relied on the order of the TPO. 23 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 44. We have gone through the record in the light of the submissions made on either side. Since the facts are similar and issue is identical, we find no reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in assessee’s own case for the Assessment Years 2006-07, 2007-08, 2008-09, 2009-10, 2011-12 and 2012-13, we hold that the impugned addition cannot be sustained. We, therefore, uphold the findings of the Ld. CIT(A) and dismiss the appeal of Revenue on this issue. IT Cost Allocation 45. The assessee claimed to have received information technology support services from its AE in the nature of Computer Assistance Designing Techniques including software like CAD, Orchidie, Iris, Citirix, Rtbenet etc. which were used by it in its manufacturing process. The AE charged BIPL for the use of the above software on cost-to-cost basis. The TPO determined the ALP of these intra-group services to be zero as the assessee could not provide any evidence of requisition or receipt or cost-benefit analysis. 46. The ld. CIT(A) held that the ‘need, benefit and rendition test’ is satisfied in this case. He proceeded to delete the adjustment following the decision of his predecessors in Assessee’s own case for AYs 2007-08 and 2008-09 which have already been affirmed by the Coordinate Bench of the Tribunal. 24 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 47. Ld. AR submitted that the Coordinate Bench in Assessee’s own cases for AYs 2007-08, 2008-09 and 2009-10 decided in the Assessee’s favor. Ld. DR relied on the order of the TPO. 48. We have gone through the record in the light of the submissions made on either side. The Coordinate Bench in Assessee’s own cases for AYs 2007-08, 2008-09 and 2009-10 decided in the Assessee’s favor. The relevant portion of the order of the Coordinate Bench in ITA No. 4329/Del/2014 and ITA No. 4229/Del/2014 (A.Y 2009-10) is as under:- “13. The coordinate Bench of the Tribunal upheld the findings of ld. CIT (A) returned in favour of the taxpayer qua the identical issue on the premise that it is settled principle of law that certain transactions entered into by the taxpayer for business expediency need not necessarily attract financial benefits. In such cases, Revenue cannot dictate its term that certain transactions should not be entered into. Even otherwise, there is no data available with the Revenue that the CUP value of the transaction would be NIL nor any comparable has been taken where such adjustment on account of reimbursement of software cost or reimbursement of expatriate cost as the case may be has been taken as NIL. 14. Moreover keeping in view the concept of "there is no free lunch" a third party shall not charge anything for providing services. TPO as well as CIT (A) have not disputed the incurring of the software cost. Even otherwise, rule of consistency is required to be followed by the Revenue particularly when there is no change in facts and circumstances of the case. When the Revenue has extended relief to 25 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon the taxpayer in AY 2007-08 and 2008-09 the ld. CIT (A) had no reason to decline the same qua the year under assessment. The Revenue has also accepted same transaction at arm's length in AY 2011-12 and 2012-13.” 49. Since the facts are similar and the issue is identical to that of the assessment years 2007-08, 2008-09 and 2009-10, we find no reason to take a different view for the year under consideration. While respectfully following the consistent view taken by the Tribunal in Assessee’s own case for the Assessment Years 2007-08, 2008-09 and 2009-10, we hold that the impugned addition made by the A.O. cannot be sustained and find no error or infirmity in the action of the Ld. CIT(A) in deleting the addition. Reimbursement of Expatriate Cost 50. The assessee hired the services of 5 expatriate employees to work in its business. Salary and perquisites of the expats was paid by the AEs and reimbursed by BIPL on a cost-to-cost basis. The TPO determined the ALP of this reimbursement to be zero as the assessee could not provide any contemporaneous documentary evidence of receipt of services from the expat employees. 51. The ld. CIT(A) held that the assessee has fully discharged its onus providing the documentation regarding these employees and the TPO failed to prove otherwise. He proceeded to delete the adjustment following the decision 26 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon of his predecessors in Assessee’s own case for AYs 2007-08 and 2008-09 which have already been affirmed by the Coordinate Bench of the Tribunal. 52. Ld. AR submitted that the Coordinate Bench in Assessee’s own cases for AYs 2007-08, 2008-09 and 2009-10 decided in the Assessee’s favor. Ld. DR relied on the order of the TPO. 53. We have gone through the record in the light of the submissions made on either side. Since the facts are similar and issue is identical, we find no reason to take a different view for this assessment year. While respectfully following the consistent view taken by the Tribunal in Assessee’s own case for the Assessment Years 2007-08, 2008-09 and 2009-10, we hold that the impugned addition cannot be sustained. We, therefore, uphold the findings of the Ld. CIT(A) and dismiss the appeal of Revenue on this issue. Accordingly, the Ground No. 2 of the Revenue is dismissed. 54. Ground No. 3 is against deletion of the adjustment made by the TPO in ALP on account of provision of Market Support Services of Rs. 99,62,662/-. 55. The facts in brief that the assessee has assisted its AE Benind SPA in identifying vendors for acquiring products from third party vendors in India. For this provision of marketing support services, the assessee earned a margin of 12.39% on cost. The assessee selected 11 comparables with average margin 7.32% and determined the transaction to be at arm’s length. The TPO rejected 10 of these comparables and introduced 7 new comparables, resulting in an 27 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon average margin of 25.13%. Accordingly, an adjustment of Rs.99,62,662/- was made by the TPO. 56. The ld. CIT(A) rejected 4 comparables chosen by the TPO viz., APITCO Ltd., HCCA Business Services, Quippo Valuers and Auctioneers Pvt. Ltd and TSR Darashaw Ltd. The ld. CIT(A) also accepted 3 comparables chosen by the assessee viz., ICRA Management Consulting Services Ltd., India Tourism Development Corporation Ltd and Overseas Manpower Corporation Ltd. 57. Before us, the Revenue prayed for exclusion of ICRA Management Consulting Services Ltd., India Tourism Development Corporation Ltd and Overseas Manpower Corporation Ltd. and inclusion of APITCO Ltd., HCCA Business Services, Quippo Valuers and Auctioneers Pvt. Ltd and TSR Darashaw Ltd. 58. The respondent did not raise the issue of any other comparable and limited its arguments only to these seven comparables- four which were chosen by TPO and rejected by ld. CIT(A) and three which were chosen by the assessee and accepted by the ld. CIT(A). APITCO Ltd. 59. The TPO included APITCO Ltd as it provides business support services and clears all the filters set by him. The ld. CIT(DR) submitted that each comparable is to be tested according to its own FAR analysis for each year citing the decisions of Coordinate Bench in Interra Information Technologies v. 28 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon DCIT (I.T. A. Nos.5568/Del/2010 & 5680/Del/2011). He also pointed out the factual inaccuracies in Para C.3.3 in the order of the ld. CIT(A), stating that as per the Annual Report of APITCO Ltd., it is evident that it is engaged in provision of various services and not products. 60. The ld. AR submitted that APITCO Ltd is a government-controlled company engaged in diversified services. He relied on the judgments of Hon’ble Delhi High Court in Philip Morris (ITA No. 1468 of 2018) and various judgments of coordinate benches which have held that APITCO Ltd. be excluded as a comparable. 61. We have heard the rival arguments. APITCO Ltd. is a government company set up for specific government purposes. It provides diversified high end technical services, that are different in nature than the support services. Further, this company has been consistently excluded on the basis of functional comparability by the coordinate benches and the exclusion is upheld by the Hon’ble High Court. Therefore, we agree with the contention of the assessee and uphold the decision of the ld. CIT(A) to exclude this company from the list of comparables. HCCA Business Services Pvt. Ltd. 62. The TPO included HCCA Business Services Pvt. Ltd as it is engaged in provision of business/market support services and clears all the filters set by him. The ld. CIT(DR) submitted that the assessee excluded the company in its 29 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon TP Study due to insufficient information and the audited financials were available at the time of the TPO’s order. He further submitted that there is negligible impact of owning intangible assets as the assessee does not use these assets in provision of services. 63. The Ld. AR objected to the company’s inclusion as it owns significant amount of intangibles in the form of business and commercial rights. He also contended that it is functionally not comparable as it provides HR services. 64. We have heard the rival arguments. We find that the comparable company HCCA Business Services Pvt. Ltd. has total fixed assets to the tune of Rs. 6.27 Cr. As per Schedule-D of fixed assets out of the same, business and commercial rights are of Rs. 3.75 Cr. and Computer software is of Rs. 1.15 cr. This highlights the difference in the asset holding of the assessee company vis- a-vis comparable company. Further, it is observed that the comparable company has claimed software development cost of Rs. 1.5 Cr. during financial year 2008-09. This shows that the company has a dependency on the technology to deliver the functions. Since the functions performed by the comparable are dependent on the technology and are therefore, not comparable with the tested party. Accordingly, HCAA is not a good comparable in this case. This in view of the proposition of ‘functional similarity’ laid down by the Hon’ble Delhi High Court in the Rampreen Green Solutions. In view of above, we do not find any infirmity in the action of the Ld. CIT(A), hence, we uphold the same. 30 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon Quippo Valuers and Auctioneers Pvt. Ltd 65. The TPO included Quippo Valuers and Auctioneers Pvt. Ltd as it is engaged in provision of selling services, does not have significant material costs and clears all the filters set by him. The ld. CIT(DR) relied on the order of the TPO. 66. The Ld. AR objected to the company’s inclusion as it is functionally not comparable being an appraiser and auctioneer for construction equipment. He also relied on the decision of the Coordinate Bench in Adidas Technical Services Pvt. Ltd vs. DCIT (ITA No.1233/Del/2015). 67. We have heard the rival arguments. The services provided by Quippo Valuers and Auctioneers are in the nature of valuation and auctioning, which are different from the assessee. Further, this company has been excluded on the basis of functional comparability by the Coordinate Bench in Adidas Technical Services Pvt Ltd vs. DCIT (ITA No.1233/Del/2015). Therefore, we agree with the contention of the assessee and uphold the decision of the ld. CIT(A) to exclude this company from the list of comparables. T S R Darashaw Ltd 68. The TPO included T S R Darashaw Ltd as it is engaged in provision of business support services and clears all the filters set by him. The ld. CIT(DR) 31 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon relied on the order of the TPO and submitted that the segmental accounts of the company are available. 69. The ld.AR objected to the inclusion of the company on the ground that it acts as a depository and share registrar. He also relied on the judgments of Hon’ble Delhi High Court in Philip Morris (ITA No. 1468 of 2018) and various judgments of coordinate benches which have held that T S R Darashaw Ltd. be excluded as a comparable. 70. We have heard the rival arguments. TSR Darashaw Ltd provides registrar and transfer agent services, records management services and payroll and trust fund services. All these segments are functionally different from the marketing support activities performed by the assessee. Further, this company has been consistently excluded on the basis of functional comparability by the coordinate benches and the exclusion is upheld by the Hon’ble High Court. Therefore, we agree with the contention of the assessee and uphold the decision of the ld. CIT(A) to exclude this company from the list of comparables. India Tourism Development Corporation Ltd (ITDCL). 71. The TPO excluded ITDCL as it is functionally different from the assessee. The ld. CIT(DR) submitted that as per the segmental results of the company provided in the Annual Report, the “ARMS” Segment is unidentifiable. 32 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 72. The ld. AR relied on the order of the ld. CIT(A) which seeks inclusion of this company if the segmental results of Ashok Reservation and Management System (“ARMS”) are available. 73. We have heard the submissions of both the parties. ITDCL is a government company engaged in operation of hotels, restaurants, shops and also earns revenue from consultancy and ticketing systems. The TPO has observed that the functions performed by ARMS are close to the functions performed by the tested party. The segmental data is available at Page No. 78 of the Annual Report, therefore, ARMS segment of ITDC is a good comparable with the tested party. Therefore, in this background, in our considered view, the Ld. CIT(A) has rightly directed the AO to include ITDS (ARMS segment) as a good comparable if the assessee provides the segmental financial results for benchmarking analysis. In view of above, we do not find any infirmity in the action of the Ld. CIT(A), hence, we uphold the same. Overseas Manpower Corporation Ltd. 74. The TPO excluded Overseas Manpower Corporation Ltd. from the list of comparables as it was an employee placement agency and has diminishing revenue. The ld. CIT(DR) submitted that the ld. CIT(A) was factually incorrect in observing that the TPO did not question the functional comparability of the company. 33 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 75. The ld. AR relied on the order of the CIT(A) which directed inclusion of the company as the TPO did not question the functional comparability. 76. We have heard the rival arguments. We find that the stand taken by the TPO to reject the comparable is not in conformity to the judicial precedent, as held by the Hon’ble Delhi High Court in the case of Chryscaptial Investment Advisors (India) Pvt. Ltd. vs. DCIT (ITA No. 417/2014) wherein, the Hon’ble High Court has held that the company cannot be rejected merely on account of wide fluctuation in margin (profit/loss) if it is otherwise comparable. It is noted that Ld. CIT(A) has observed in his finding that TPO has nowhere questioned the functional comparability aspect, and therefore, observed that Overseas Manpower Corporation Limited is a good comparable and directed the AO to include it in the final matrix of comparables. In the background of the aforesaid, we do not find any infirmity in the action of the Ld. CIT(A), hence, we uphold the same. ICRA Management Consulting Services Ltd 77. The TPO excluded ICRA Management Consulting Services Ltd. as it is classified as a management consultant. The ld. CIT(DR) submitted that the company offers professional services, not similar to the assessee. 78. The ld. AR submitted that the TPO has accepted the comparable in the preceding and succeeding years. 34 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon 79. We have heard the rival submissions. The TPO/AO included the company as a comparable in AY 2009-10, AY 2011-12 and AY 2012-13. In the current year, no different facts were brought on record. Therefore, no difference is warranted in its treatment. Following the principle of consistency, we agree with the contention of the assessee and uphold the decision of the ld. CIT(A) to include this company in the list of comparables. 80. In view of above, the TPO/AO is directed to give effect and re-compute the arm’s length price for the marketing support services segment. Accordingly, the Ground No. 3 of the Revenue is dismissed. 81. The Grounds No. 4 and 5 of the Revenue are general in nature which requires no adjudication. 82. In the result, the appeal of the Revenue in ITA No. 7389/DEL/2017 is dismissed. Order pronounced in the open court on : 24/ 07/2024 . ( G. S. PANNU ) (YOGESH KUMAR U.S.) VICE PRESIDENT JUDICIAL MEMBER Dated : 24/07/2024 *R.N* Sr. PS 35 ITA No. 496/Del/2022 & 7389/Del/2017 Benetton India P. Ltd., Gurgaon Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI