Atotech India Pvt. Ltd., Gurgaon V. DCIT, Circle- 1(1), Gurgaon

ITA 7617/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1617 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2014-2015
• Appeal Filed On: 30-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Additional evidence; Commercial expediency; Set aside
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH FRIDAY NEW DELHI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) IT A S NO. 7617 /DEL/20 1 8, 9093/DEL/2019 & 9094/DEL/2019 ASSESSMENT YEAR: 2011 - 12 , 20 14 - 15 & 2015 - 16 ATOTECH INDIA PVT. LTD., 66 KM STONE, NH-8, DELHI JAIPUR HIGHWAY, VILLAGE-SIDHRAWALI GURGAON, HARYANA. V. DCIT, CIRCE-1(1), GURGAON. TAN/PAN: AACCM0338G (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI RAVI SHARMA & ANUBHAV RASTOGI, ADV. RESPONDENT BY: MS. RAKHI VIMAL, SR.D.R. DATE OF HEARING: 27 11 2020 DATE OF PRONOUNCEMENT: 27 11 2020 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER: THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSES SEE AGAINST THE SEPARATE IMPUGNED FINAL ASSESSMENT ORDE RS U/S 144C/143(3) DATED 11.10.2019 FOR THE ASSESSMENT YEA R 2011-12; DATED 16.10.2018 FOR THE ASSESSMENT YEAR 2 014-15; AND DATED 11.10.2019 FOR THE ASSESSMENT YEAR 2015-1 6, PASSED IN PURSUANCE OF DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL-1. IN ALL THE APPEALS, COMMON ISSUE IS INVOLV ED RELATING TO TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF PAYMEN T OF RESEARCH AND DEVELOPMENT AND OTHER R&D RELATED SERV ICES, WHICH HAS BEEN HELD TO BE INTRA GROUP SERVICES (IGS ) BY THE ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 2 TPO. IN ALL THE YEARS UNDER APPEAL, THE LD. TPO HAS DETERMINED THE ALP AND THE CONTRIBUTION MADE TOWARD S RESEARCH AND DEVELOPMENT ACTIVITIES AT NIL. 2. THE FACTS IN BRIEF ARE THAT ATOTECH INDIA PVT. L TD. IS A SUBSIDIARY OF ATOTECH BV NETHERLANDS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF SPECIALT Y CHEMICALS AND COMPOUNDS USED FOR GENERAL METAL FINI SHING AND PRODUCTION OF PRINTED CIRCUIT BOARDS. THE LD. T PO HAS CHARACTERIZED PAYMENTS MADE UNDER COST SHARING AGRE EMENT (CSA) UNDER IGS AND HAS DETERMINED THE ARMS LENGTH PRICE AT NIL. LD. TPO ALSO OBSERVED THAT ASSESSEE HAS P AID RS.2,23,93,98,692/-TOWARDS COST-SHARING EXPENSES TO ITS AE AS UNDER: SL . NO. TRANSACTION PARTICULARS AMOUNT IN RS. 1. RESEARCH & DEVELOPMENT 145,024,029 2. MANAGEMENT GROUP COST (GLOBAL) 91,800,200 3. MANAGEMENT GROUP COST (REGIONAL) 2,574,463 TOTAL 239,398,692 TPO AFTER CONSIDERING SUBMISSIONS ADVANCED BY ASSES SEE PROPOSED AN ADJUSTMENT OF RS.2,21,60,608/-AS ARMS LENGTH PRICE OF INTRA-GROUP SERVICES BY APPLYING CUP METHO D AND THEREBY PROPOSING AN UPWARD ADJUSTMENT OF RS.21,72,38,084/- TOWARDS THE INTRA GROUP SERVICES (COST- SHARING SERVICES) BEING DIFFERENCE BETWEEN ALP DETE RMINED BY ASSESSEE AND ALP DETERMINED BY LD. TPO. ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 3 3. LD. COUNSEL INFORMED THAT FOR THE ASSESSMENT YEA R 2011-12, MATTER HAD COME UP BEFORE THE TRIBUNAL IN THE FIRST ROUND OF PROCEEDINGS AND THE TRIBUNAL HAS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH TH E FOLLOWING DIRECTIONS:- INSOFAR AS THE TRIBUNAL ORDERS IN THE CASE OF THE A SSESSEE ON THE APPLICABILITY OF THE MOST APPROPRIATE METHOD AR E CONCERNED, WE FIND THAT AS ITA NOS.3419 & 6571/DEL/ 2016 & 1112/DEL/2014 11 AGAINST THE ASSESSEE APPLYING THE TNMM, THE TPO APPLIED THE CUP METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION IN THE IMMEDIATELY PR ECEDING YEAR. THE TRIBUNAL APPROVED THE CUP AS THE MOST APP ROPRIATE METHOD, BUT ON THE BASIS OF A CONCESSION GIVEN BY T HE ASSESSEE AS HAS BEEN RECORDED THEREIN. THE LD. AR D ID NOT GIVE ANY CONCESSION FOR THE APPLICABILITY OF THE CU P AS THE MOST APPROPRIATE METHOD FOR THE YEAR UNDER CONSIDER ATION. WE FURTHER FIND FROM THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2011-12 THAT THERE IS NO ADJUDICATION ON THE A PPLICABILITY OF A PARTICULAR METHOD AS MOST APPROPRIATE FOR DETE RMINING THE ALP OF THE INTERNATIONAL TRANSACTION. 13. BY NOW, IT IS FAIRLY SETTLED THROUGH A CATENA O F DECISIONS THAT THE CUP IS THE MOST APPROPRIATE METHOD TO DETE RMINE THE ALP OF AN INTERNATIONAL TRANSACTION BECAUSE IT SEEK S TO COMPARE THE PRICE CHARGED OR PAID FOR PROPERTY TRAN SFERRED OR SERVICES RENDERED, PROVIDED PROPER COMPARABLES ARE AVAILABLE. IT IS UNDER THIS METHOD ALONE THAT THE PRICE CHARGE D OR PAID IS DIRECTLY COMPARED WITH THE PRICE CHARGED OR PAID IN AN UNCONTROLLED COMPARABLE TRANSACTION. THE REMAINING FOUR ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 4 SPECIFIC METHODS SEEK TO MAKE COMPARISON OF THE PRI CE CHARGED OR PAID INDIRECTLY THROUGH THE MEDIUM OF IT A NOS.3419 & 6571/DEL/2016 & 1112/DEL/2014 12 NORMAL PROFIT ARISING IN A COMPARABLE UNCONTROLLED TRANSAC TION. FURTHER, THE CUP METHOD IS A TRANSACTION SPECIFIC M ETHOD WHICH STRIVES TO DETERMINE THE ALP OF AN INTERNATIO NAL TRANSACTION ON A MICRO LEVEL, THEREBY LENDING MORE CREDIBILITY TO THE ALP OF A TRANSACTION. 14. CONSIDERING THE DECISION IN KNORR-BREMSE (SUPRA ) AND THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE A S DISCUSSED ABOVE, WE SET ASIDE THE IMPUGNED ORDER AN D REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERM INATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF `MANAGE MENT GROUP COST, PRIMARILY, UNDER THE CUP METHOD. WHILE APPLYING THE CUP METHOD, IT IS ALWAYS OBLIGATORY TO BRING ON RECORD SOME COMPARABLE UNCONTROLLED INSTANCE AS PER THE MA NDATE OF RULE 10B(1)(A)(I). NOT EVEN A SINGLE COMPARABLE INS TANCE HAS BEEN BROUGHT ON RECORD BY THE TPO IN HIS ORDER TO F ACILITATE COMPARISON BETWEEN THE PRICE PAID BY THE ASSESSEE V IS--VIS THAT PAID BY OTHER COMPARABLES IN SIMILAR UNCONTROL LED CIRCUMSTANCES. IT WAS ON ACCOUNT OF HIS HAVING CANV ASSED A VIEW THAT EITHER THE SERVICES WERE NOT RECEIVED BY THE ASSESSEE OR WERE DUPLICATE IN NATURE. SUCH A VIEW HAS BEEN OVERTURNED BY US IN EARLIER PA RAS. UNDER THESE CIRCUMSTANCES, WE ARE LEFT WITH NO OPTI ON BUT TO SET ASIDE THE IMPUGNED ITA NOS.3419 & 6571/DEL/2016 & 1112/DEL/2014 13 ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION, PRIMARILY, UNDER THE CUP METHOD. IN ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 5 CASE, THE TPO FINDS THAT THE CUP METHOD CANNOT BE A PPLIED EITHER DUE TO NON-AVAILABILITY OF THE RELEVANT DATA OR FOR SOME OTHER GENUINE REASONS, HE IS FREE TO APPLY ANY OTHE R APPROPRIATE METHOD FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF `MANAGEMENT GROUP COST . NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 4. IN A REMAND BACK PROCEEDINGS BEFORE THE LD. TPO, THE TPO HAS CHARACTERIZED THE PAYMENT MADE FOR THE R&D ACTIVITIES AS CONTRACT FOR R&D SERVICES BY ASSESSEE TO ITS AE AND OTHER R&D SERVICES FOR INTRA GROUP SERVICES, HE APPLIED RESIDUAL PROFIT METHOD. FOR THE PAYMENT MADE FOR R& D ACTIVITIES HE HAS DETERMINED THE ALP AT RS.4,17,02, 436/- AGAINST SUM OF RS.11,75,29,948/- INCURRED BY THE AS SESSEE AND MADE ADDITION OF RS.7,18,27,512/- AND DID NOT A CCEPT THE VALUE OF PAYMENT BY THE ASSESSEE TOWARDS OTHER R&D RELATED TASK (MANAGEMENT GROUP TASK) AT ARMS LENGT H PRICE AND TREATED ALL SUCH PAYMENTS AT NIL. BEFORE THE DRP, THE ASSESSEE HAD FILED ADDITIONAL EVIDENCES SUBSTANTIAT ING THE SUPPORT HAVE RECEIVED PER GROUP ENTITIES ON ACCOUNT CSA AND THE REMAND REPORT WAS SOUGHT FROM THE LD. TPO TO AN ALYSE THE SAME. THE TPO HAS SUBMITTED HIS REMAND REPORT. THE DRP ISSUED DIRECTION DELETING THE ASSESSMENT MADE ON AC COUNT R&D EXPENSES, BUT ENTIRELY UPHOLDING THE ADJUSTMENT MADE BY THE LD. TPO ON ACCOUNT OF PAYMENT MADE BY MANAGE MENT RELATED CSA. 5. LD. COUNSEL SUBMITTED THAT SIMILAR ISSUES WERE I NVOLVED ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 6 IN THE APPEAL BEFORE THE TRIBUNAL FOR THE ASSESSMEN T YEAR 2007-08 IN ITA NO.104/DEL/2012, WHEREIN THE TRIBUNA L HAS REMANDED BACK THE MATTER TO THE FILE OF THE ASSESSI NG OFFICER STATING AS UNDER: COMMERCIAL EXPEDIENCY OF THE ASSESSEE CAN-NOT BE QUESTIONED WHILE DETERMINING ARMS LENGTH PRICE; NEED, NECESSITY AND BENEFIT CANNOT BE ACCEPTABLE CR ITERIA FOR BENCHMARKING AN INTERNATIONAL TRANSACTION; CONSIDER THE RULING PRONOUNCED BY HONBLE ITAT IN MATTER OF DRESSER-RAND INDIA PVT. LTD. VS. ACIT [IT A NO. 8753/MUM/20IO] WHILE DECIDING THE ISSUE. 6. FURTHER, IN THE ORDER FOR THE ASSESSMENT YEAR 20 11-12 IN ITA NO.66/DEL/2015, THE TRIBUNAL HAS SET ASIDE T HE ISSUE TO THE FILE OF THE TPO TO EXAMINE THE ISSUE AFRESH AFTER CONSIDERING THE FOLLOWING:- I) CONTENTION OF THE ASSESSEE THAT THE ALP OF THE CONTRIBUTIONS MADE TOWARDS THE RESEARCH & DEVELOPME NT RELATED ACTIVITY WAS ACCEPTED TO BE AT ARMS LENGTH BY THE LD. TPO DURING PREVIOUS ASSESSMENT YEAR'S NAMELY AY 2007-08, AY 2008-09, AY 2009-10 & AY 2010-11 AND TH E FACT THAT THE CONTRIBUTIONS WERE MADE UNDER THE SIM ILAR AGREEMENT AS IN FORCE FOR CURRENT AY AND SIMILAR IN TENSITY OF ACTIVITIES WERE PERFORMED BY THE ASSESSEE AND SI MILAR EVIDENCES HAVE BEEN SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS IN EARLIER YEARS; ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 7 II) CONTENTION OF ASSESSEE THAT THE BENEFITS RECEIV ED REPRESENTS ACTIVITIES CARRIED OUT UNDER CSA AND IS NOT AN OUTCOME OF INTRA-GROUP SERVICES; III) JUDICIAL GUIDANCE PROVIDED BY THE HONBLE DELH I HIGH COURT IN CASE OF CIT VERSUS CUSHMAN WAKEFIELD 46 TAXMANN.COM 317 (DEL) (PARAGRAPHS NUMBER 37 AND 45) . 7. AGAIN THIS TRIBUNAL IN ASSESSEES OWN CASE FOR T HE ASSESSMENT YEAR 2008-09, 2009-10 AND 2012-13 HAS SE T ASIDE THE MATTER FOR FRESH ADJUDICATION AFTER CONSID ERING THE FOLLOWING. A. C ONTENTION OF ASSESSEE THAT THE BENEFITS RECEIVED REPRESENT ACTIVITIES CARRIED OUT UNDER CSA AND ARE NOT AN OUTCOME OF INTRA-GROUP SERVICES; B. JUDICIAL GUIDANCE PROVIDED BY THE HONBLE. PUNJAB & HARYANA HIGH COURT IN KNORR-BREMSE INDIA P. LTD. VS . ACIT (2016) 380 1TR 307 (P&H) WHEREIN IT: WAS HELD THAT THE APPLICABILITY OF BENEFIT TEST CANNOT BE COUNT ENANCED. 8. SINCE THE ADDITIONS MADE THEREIN ARE SIMILAR TO ASSESSMENT YEARS 2007-08, 2008-09, 2009-10 AND 2012 -13, WHEREIN THE MATTER HAS BEEN SET ASIDE, THEREFORE, H E SUBMITTED THAT FOLLOWING THE SAME, THIS ISSUES RAIS ED IN THESE APPEALS CAN BE REMANDED BACK TO THE FILE OF THE TPO WITH SIMILAR DIRECTIONS. 9. LD. DR ALSO ADMITTED THAT MATTER CAN BE RESTORED BACK TO THE FILE OF THE TPO FOR FRESH ADJUDICATION IN LI NE OF DIRECTION ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 8 GIVEN BY THE TRIBUNAL IN EARLIER YEARS. 10. AFTER CONSIDERING THE SUBMISSIONS AND THE IMPU GNED ORDERS AS WELL AS THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, WE FIND THAT THE ONLY CONTRO VERSY INVOLVED IN ALL THE ASSESSEES APPEALS IS WITH REGA RD TO PAYMENT MADE FOR MANAGEMENT RELATED ACTIVITIES UNDE R CSA WHICH HAS BEEN TAKEN AT NIL BY THE TPO. THIS ADJU STMENT IS A RECURRING ISSUE IN ASSESSEES OWN CASE RIGHT FROM THE ASSESSMENT YEARS 2007-08, 2009-10 AND ASSESSMENT YE AR 2012-13. THE TRIBUNAL HAS REMANDED THIS ISSUE TO TH E FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE RELEVANT FINDINGS AND OBSERVATIONS OF THE TRIBUNAL IN THE AP PEAL FOR THE ASSESSMENT YEAR 2012-13 IS REPRODUCED HEREUNDER : HERE, AGAIN, BOTH THE SIDES AGREE THAT THE FACTS AN D CIRCUMSTANCES OF THIS APPEAL ARE SIMILAR TO THOSE O F PRECEDING YEARS DEALT WITH ABOVE EXCEPT THAT IN THIS YEAR THE TPO, APART FROM DETERMINING NIL ALP OF THE INTERNATIONAL TRANS ACTION OF PAYMENT OF MANAGEMENT GROUP COST, ALSO RECOMMENDE D TRANSFER PRICING ADJUSTMENT IN RESPECT OF R&D ASSI STANCE ITA NOS.3419 & 6571/DEL/2016 & 1112/DEL/2014 15 COST. THE TRIBUNAL HAS PASSED AN ORDER FOR THE IMMEDIATELY PR ECEDING YEAR RESTORING THE FRESH DETERMINATION OF THE ALP O F `R&D ASSISTANCE COST AND `MANAGEMENT GROUP COST TO THE FILE OF THE AO/TPO. FOLLOWING THE VIEW TAKEN IN SUCH AN ORDER O F THE IMMEDIATELY PRECEDING YEAR AND THE TWO EARLIER YEAR S DEALT WITH HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDER A ND REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANS ACTION OF ITAS NO.7617/DEL/2018, 9093 & 9094/DEL/2012 9 MANAGEMENT GROUP COST AND R&D ASSISTANCE COST I N ACCORDANCE WITH THE OBSERVATIONS MADE IN OUR DETAIL ED ORDER FOR THE ASSESSMENT YEAR 2008-09 ABOVE. 11. THUS, IN THE SAME LINES, WE DIRECT THE TPO TO C ARRY OUT FRESH ANALYSIS AND DETERMINE THE ARMS LENGTH PRICE AND THE PAYMENTS RELATING TO OTHER R&D TASK AND DECIDE THE ISSUE FRESH IN ACCORDANCE WITH LAW. 12. SINCE, IN ALL THE THREE YEARS, THE ISSUES ARE C OMMON ARISING OUT OF ADEQUATE SET OF FACTS AND THE REASON ING GIVEN BY THE TPO/DRP, THEREFORE, THE IMPUGNED ISSUE AS RAISE D IN THE GROUNDS OF APPEAL BEFORE US ARE REMANDED BACK TO TH E FILE OF THE TPO/ASSESSING OFFICER TO BE DECIDED AFRESH IN A CCORDANCE WITH DIRECTION AND GUIDELINES GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE. 13. IN RESULT, ALL THE THREE APPEALS OF THE ASSESSE E ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2020 SD/- SD/- [G.S. PANNU] [AMIT SHUKLA] VICE PRESIDENT JUDICIAL MEMBER DATED: 27 TH NOVEMBER, 2020 PKK