ADDL CIT 10(3), MUMBAI V. SGS INDIA P. LTD, MUMBAI

ITA 9035/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1836 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 05-04-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 24-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIDDARAMAPPA KAPPATTANAVAR
• Keywords: Transfer pricing; International transaction; Additional evidence; Non passing of speaking order
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K , MUMBAI BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 9035 /MUM/201 0 : ( / A.Y : 200 3 - 0 4 ) ACIT - 10(3), MUMBAI (APPELLANT) VS. M/S. SGS INDIA PVT. LTD., SGS HOUSE, 4B, ADI SHANKARACHARYA MARG, VIKROLI (W), MUMBAI 400 083 PAN : AAACS5514Q (RESPONDENT) CO NO. 245/MUM/2012 ( ARISING OUT OF ITA NO.9035/MUM/2010 ) : ( / A.Y : 2003 - 04 ) M/S. SGS INDIA PVT. LTD., SGS HOUSE, 4B, ADI SHANKARACHARYA MARG, VIKROLI (W), MUMBAI 400 083 PAN : AAACS5514Q ( CROSS - OBJECTOR ) VS. ACIT - 10(3), MUMBAI (APPELLANT IN ORIGINAL APPEAL ) / ASSESSEE BY : MRS. KEERTHIGA SHARMA, SHRI PARAS SAVLA & HARSH SHAH / REVENUE BY : SHRI SHIDDARAMAPPA KAPPATTANAVAR / DATE OF HEARING : 0 6 / 1 0/2016 DATE OF PRONOUNCEMENT : 24 / 1 0/2016 / O R D E R PER SAKTIJIT DEY , JM : THE AFORESAID APPEAL AND CROSS - OBJECTION BY THE DEPARTMENT AND THE ASSESSEE RESPECTIVELY ARE AGAINST THE COMMON ORDER OF LD. CIT(A) - 15, 2 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 MUMBAI FOR THE ASSESSMENT YEAR 2003 - 04. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE PAYMENT OF TECHNICAL FEES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE IS AT ARMS LENGTH AND HENCE NO ADJUSTMENT IS REQUIRED TO BE MADE ON ACCOUNT OF TECHNICAL FEES. 2. O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT NO EVIDENCE WAS PRODUCED BY THE ASSESSEE TO ESTABLISH THAT THE PAYMENT MADE FOR AREA, SECTOR & FUNCTIONS (ASF) COSTS WOULD BE RS. 4.20 CRORES AND HENC E THE ARMS LENGTH PRICE OF ASF COSTS SHOULD HAVE BEEN RESTRICTED TO THE DIFFERENCE BETWEEN THE TECHNICAL FEES PAID OF RS. 5.10 CRORES AND THE LICENCE FEES PAID OF RS.3.22 CRORES. 2. IT IS RELEVANT TO MENTION HERE THIS APPEAL WAS DECIDED EARLIER BY THE T RIBUNAL VIDE ORDER DATED 30.1.2013. AGAINST THE ORDER OF THE TRIBUNAL, DEPARTMENT PREFERRED AN APPEAL BEFORE THE HON'BLE BOMBAY HIGH COURT U/S 260A OF THE INCOME TAX ACT, 1961. THE HON'BLE BOMBAY HIGH COURT WHILE DECIDING THE APPEAL REGISTERED AS ITA NO. 1809 OF 2013 VIDE JUDGMENT DATED 23.11.2015 REMANDED THE MATTER BACK TO THE TRIBUNAL TO DECIDE GROUND NO. 2 FOR WANT OF A SPEAKING ORDER. THE OPERATIVE PORTION FROM THE ORDER OF THE HON'BLE HIGH COURT IS REPRODUCED HEREINBELOW. 6. THE IMPUGNED ORDER OF THE TRIBUNAL DISMISSED THE REVENUE'S APPEAL BEFORE IT BY MAKING THE FOLLOWING OBSERVATIONS: 47. GROUND NO.2 PERTAINS ASF COSTS. 48. THE ISSUE HAD NOT BEEN IMPUGNED BY THE TPO AND THE REVENUE AUTHORITIES, THEREFORE, AT THIS STAGE, TAKING UP A GROUND, 3 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 WHICH WAS NEVER IN DISPUTE CANNOT BE ENTERTAINED AND HAS TO BE HELD TO BE NON MAINTAINABLE. 49. IN THE RESULT, THE GROUND TAKEN IN THE APPEAL BY THE DEPARTMENT & IN CO BY THE ASSESSEE ARE REJECTED. 7. WE FIND THAT THE AFORESAID OBSERVATIONS DO NOT BRING OUT THE REASONS WHY THE TRIBUNAL WAS OF THE VIEW THAT THE APPEAL COULD NOT BE ENTERTAINED. THIS IS PARTICULARLY SO THE ASSESSMENT ORDER SEEMS TO INDICATE THAT THE TPO (TRANSFER PRICING OFFICER) HAD DETERMINED THE INTERNATIONAL TRANSACTIONS OF TECHNICAL FE ES INCLUDING ASF COSTS AT RS.1.68 CRORES AS AGAINST RS.5.10 CRORES CLAIMED BY THE ASSESSEE. THE IMPUGNED ORDER IS THEREFORE A NON SPEAKING ORDER. 8. IN THE ABOVE VIEW, WHILE ANSWERING THE QUESTION NO.2 AS FRAMED HEREINABOVE IN THE NEGATIVE, WE SET ASIDE T HE IMPUGNED ORDER OF THE TRIBUNAL. HOWEVER, WE RESTORE THE QUESTION TO THE TRIBUNAL TO DISPOSE OF NOT ONLY THE REVENUE'S APPEAL BUT ALSO THE ASSESSEE'S CROSS OBJECTIONS IN ACCORDANCE OF LAW. 3. IN GROUND NO. 2, DEPARTMENT HAS CHALLENGED THE DECISION OF C IT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DETERMINATION OF ARMS LENGTH PRICE ( ALP ) OF ASF COSTS. BRIEFLY, THE FACTS ARE IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TPO NOTICING THAT ASSESSEE HAS PAID TECHNICAL FEES OF RS. 5.10 CRORES TO ASSOCIATED ENTERPRISE (AE) , CALLED UPON THE ASSESSEE TO PRODUCE DOCUMENTARY EVIDENCE TO SHOW RECEIPT OF COMMENSURATE SERVICES. IN RESPONSE TO THE QUERY RAISED BY THE TPO, IT WAS SUBMITTED BY THE ASSESSEE THAT AS AGAINST THE TECHNICAL FEES P AID ASSESSEE HAS RECEIVED SERVICES/BENEFITS WORTH RS.7.42 CRORES COMPRISING OF THE FOLLOWING : - I) LICENCE FEE @ 3% OF TURNOVER FOR USER OF INTELLECTUAL PROPERTY/INTANGIBLES RS. 3.22 CRORES 4 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 II) SUPPORT SERVICES AREA, SECTOR AND FUNCTION (ASF) COST ATTRIBUTABLE TO THE ASSESSEE RS. 4.20 CRORES FURTHER, ASSESSEE SUBMITTED, MANAGEMENT SUPPORT FUNCTIONS ARE IMPLEMENTED AT THE GLOBAL LEVEL AND DUE TO THEIR VARIED AND CONTINUOUS NATURE, IT IS NEITHER POSSIBLE NOR PRACTICAL TO COMPILE A LIST OF ALL INSTANCES OF SUPPORT SERVICES RECEIVED BY IT DURING THE PREVIOUS YEAR. HOWEVER, T HE ASSESSEE SUBMITTED A LIST OF VARIOUS INSTANCES OF RECEIPT OF SERVICES UNDER VARIOUS HEADS FOR WHICH CHARGE HAS BEEN MADE ON THE ASSESSEE. TO SUPPORT SUCH CLAIM, ASSESSEE ALSO FURNISHED CERTAIN DOCUMENTARY EVIDENCES. THE TPO OBSERVED THAT EVERY TELEPHO NIC CONVERSATION OR EXCHANGE OF CORRESPONDENCE IN THE NORMAL COURSE OF BUSINESS CANNOT BE CONSTRUED AS KNOW - HOW OR TECHNICAL ASSISTANCE. AFTER GOING THROUGH THE BREAK - UP OF COSTS ALLOCATED TO THE ASSESSEE UNDER VARIOUS HEADS, THE TPO COMPARED THE SAME TO SIMILAR COSTS INCURRED FOR THE PREVIOUS YEAR AND ULTIMATELY DETERMINED THE ALP OF TECHNICAL FEES AS UNDER : - (AMT. IN CRORES) PARTICULARS AMOUNT ALP FOR LICENCE FEES 1.30 ALP FOR ASF COSTS 0.38 TOTAL ALP 1.68 AMOUNT OF INTERNATIONAL TRANSACTION 5.10 ADJUSTMENT 3.42 THIS RESULTED IN ADDITION OF RS.3.42 CRORES. BEING AGGRIEVED OF THE ADDITION MADE ON ACCOUNT OF ADJUSTMENT TO ALP OF TECHNICAL FEE , ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). ON THE BASIS OF ARGUMENTS MADE BEFORE HIM, THE LD . CIT(A) CALLED FOR A REMAND REPORT. 5 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 ON THE BASIS OF REMAND REPORT RECEIVED FROM THE ASSESSING OFFICER/TPO, LD. CIT(A) FOUND THAT THE PAYMENT MADE BY THE ASSESSEE TOWARDS THE ASF COSTS IS AT ARMS LENGTH, HENCE, DELETED THE ADDITION. 4. THE LD. DR RELY ING UPON THE OBSERVATIONS OF THE TPO SUBMITTED THAT AS THE ASSESSEE HAS NOT DEMONSTRATED RECEIPT OF COMMENSURATE SERVICES, PAYMENT OF ASF COSTS IS NOT AT ARMS LENGTH. THEREFORE, THE ADJUSTMENT MADE BY TPO IS JUSTIFIED. 5. THE LD. AR, ON THE OTHER HAND , STRONGLY SUPPORTING THE ORDER OF CIT(A) SUBMITTED THAT DURING THE REMAND PROCEEDINGS, THE ASSESSING OFFICER/TPO THOROUGHLY VERIFIED THE PAYMENT MADE ON ACCOUNT OF ASF COSTS AND HAVING BEEN SATISFIED HAD FOUND IT TO BE IN ORDER. THEREFORE, CIT(A) HAD COR RECTLY DELETED THE ADDITION. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT FROM THE ORDER OF TPO THAT HE HAD PROCEEDED TO DETERMINE THE ALP OF TECHNICAL FEE ALLEGING NON - FURNISHING OF VALID EVIDENC E BEFORE HIM. HOWEVER, DURING THE PROCEEDINGS BEFORE THE CIT(A), ON THE BASIS OF CERTAIN SUBMISSIONS MADE BY THE ASSESSEE AND EVIDENCES PRODUCED, THE LD. CIT(A) HAD CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER/TPO. THE TPO, IN HIS REPORT DATED 4. 6.2010, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE EVIDENCES BROUGHT ON RECORD HAS OBSERVED AS UNDER : - 4. CERTAIN EVIDENCES WERE PROVIDED TO YOUR GOODSELF VIDE SUBMISSION DATED 15 NOVEMBER 2006 AND FURTHER ADDITIONAL EVIDENCE WAS PROVIDED TO MY OFFICE VIDE SUBMISSION DATED 24 FEBRUARY 2010 AND 26 MAY 2010. 6 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 1. ASF COST : IN THE AFORESAID CASE, THE ASSESSEE LEVERAGES FROM THE MANAGEMENT SUPPORT FUNCTIONS THAT ARE IMPLEMENTED AT THE GLOBAL LEVEL. THE SUPPORT IS CLASSIFIED UNDER THREE HEADS I.E. AREA MANAGEMENT, SECTOR MANAGEMENT AND CORPORATE FUNCTIONS (ASF COSTS). SUCH MANAGEMENT SUPPORT FUNCTIONS WERE IMPLEMENTED AT THE GLOBAL LEVEL, WITH A CENTRAL FUNDING MECHANISM WHICH WAS REVIEWED BY AN INDEPENDENT ACCOUNTING FIRM, BASE D ON WHICH SERVICE FEES WERE CHARGED TO AFFILIATES, INCLUDING THE ASSESSEE. THE SAID REVIEW CONFIRMED THAT SUCH CHARGES HAVE BEEN BILLED CORRECTLY TO THE BENEFICIARY SUBSIDIARIES, ON A UNIFORM AND CONSISTENT BASIS. PLEASE FIND A SUMMARY OF THE EVIDENCES, INCLUDING ADDITIONAL EVIDENCES SUBMITTED IN RESPECT OF EACH ITEM AS FOLLOWS : SR. NO. ASF COSTS AMOUNT SUBMISSION DATED/ADDITIONAL DETAILS SUBMITTED 1 MANAGEMENT ASIA/PACIFIC 3,514,020 SUBMISSION DATED 24 FEBRUARY 2010 TO TPO : MAIL CORRESPONDENCE AND PRESENTATION SHARED DURING SUCH VISITS AND MEETINGS. 2 OIL, GAS & CHEMICALS SERVICES 634,964 SUBMISSION DATED 24 FEBRUARY 2010 TO TPO: COPY OF PRESENTATION ON SOLUTIONS FOR THE WHOLE OIL, GAS & CHEMICAL VALUE CHAIN. 3 SYSTEM SERVICES & CERTIFICATION 299,182 SUBMISSION DATED 24 FEBRUARY 2010 TO TPO: COPY OF REGULATIONS GOVERNING THE USE OF SGS SYSTEM CERTIFICATION MARK 4 FINANCE 975,858 SUBMISSION DATED 24 FEBRUARY 2010 TO TPO: COPY OF 'SGS GROUP FINANCE MANUAL' 5 FUNCTIONAL COSTS 2,976,833 SUBMISSION DATED 24 FEBRUARY 2010 TO TPO: COPY OF 'SGS GROUP INVESTMENT MANUAL' SELF ASSESSMENT QUESTIONNAIRE PERTAINING TO FINANCIAL REPORTING & ACCOUNTING RESOURCES, COLLECTIONS & PAYMENTS, REVENUES AND ACCOUNTS RECEIVABLE, PROCUREMENT AND ACCOUNTS PAYABLE, GENERAL MANAGEMENT ASPECTS 6 OTHER CORPORATE COST/ASIA 9,813,79 9 SUBMISSION DATED 24 FEBRUARY 2010 TO TPO COPY OF SGS SAFETY PROGRAM MANUAL; COPY OF RISK ASSESSMENT AND RISK CONTROL MATRIX: 7 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 COPY OF QUALITY CONTROL TRAINING MANUAL; COPY OF GENERAL PROCUREMENT POLICY; COPY OF FIELD AUDIT CHECKLIST. 7 AGRICULTURAL SERVICES 6,648,783 SUBMISSION DATED 15 NOVEMBER 2006 TO CIT(A): TECHNICAL GOVERNANCE PORTAL ON INTRANET; COPY OF BROCHURES, FLYERS, PRESENTATIONS AND VALUE PROPOSITIONS DOCUMENTS AVAILABLE ON INTRANET. 8 MINERAL SERVICES 1,667,978 SUBMISSION DATED 15 NOVEMBER 2006 TO CIT(A): SOPS ON THE SGS PORTAL PREPARED AND MANAGED BY GLOBAL TEAM AND COPY OF TECHNICAL DOCUMENTS AVAILABLE ON THE PORTAL. 9 CONSUMER PRODUCT (CONSUMER TESTING SERVICES) 5,516,828 SUBMISSION DATED 15 NOVEMBER 2006 TO CIT(A): CTS MANAGER VISITED SGS AUSTRALIA FOR 12 DAYS FOR BUSINESS DEVELOPMENT DETAILS OF SUCH VISIT. SUBMISSION DATED 26 MAY 2010 MADE TO TPO: PRESENTATION ON PERSONAL & HOME CARE PRODUCTS PRESENTATION GLOBAL CONSUMER SERVICES PRESENTATION TRAINING OVERVIEW CONSUMER TESTING SERVICES PORTAL ON INTRANET STANDARD OPERATING MANUAL FOR APPAREL PRODUCTS GLOBAL PERFORMANCE BROCHURE 10 INDUSTRIAL & EMERGING SERVICES 1,545,132 SUBMISSION DATED 15 NOVEMBER 2006 TO CIT(A): COPY OF INDUSTRIAL PORTAL ON INTRANET; COPY OF TECHNICAL GOVERNANCE PORTAL ON INTRANET; CV DATABASE ON INTRANET; COPY OF PRESENTATION MADE; MARKETING BROCHURE PROVIDED BY THE GROUP; SALES CD PROVIDED BY THE GROUP. 11 INFORMATION SYSTEM & TECHNOLOGY 2,738,545 SUBMISSION DATED 15 NOVEMBER 2006 TO CIT(A) : COPIES OF GENERAL IT SECURITY POLICY, INTERNET USER POLICY, ANTIVIRUS POLICY, IT CONTINUING PLANNING, IT USER POLICY. 12 LEGAL 1,751,157 SUBMISSION DATED 15 NOVEMBER 2006 TO CIT(A) : COPY OF PRESENTATION MADE; SUBMISSION DATED 26 MAY 2010 TO TPO: DOCUMENTATION TO BE MAINTAINED WHILE ENTERING INTO CONTRACTS; 8 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 REPORTS, CERTIFICATES AND DISCLAIMERS TO BE MAINTAINED ON THE DATA BASE. 13 AUDIT & CORPORATE SECURITY 952,515 INTERNAL AUDIT REPORT; ALP ACCEPTED BY THE PREVIOUS TPO VIDE ORDER DATED 6, MARCH 2006 14 HUMAN RESOURCES 2,922,073 PRESENTATIONS (LEADERSHIP ASSESSMENT & STAFF ASSESSMENT), LEADERSHIP COMPETENCE MODEL, PROVIDING VARIOUS FORMS (SGS LEADERSHIP ASSESSMENT FORM, MANPOWER REQUISITION FORM), GUIDELINES ON RECRUITMENT ETC. ALP ACCEPTED BY THE PREVIOUS TPO VIDE ORDER DATED 6, MARCH 2006 TOTAL 41,957,668 IN THE ORDER DATED 6 MARCH 2006, TWO OF SUCH ASF COSTS AS LISTED IN S.NO. 13 & 14 IN THE ABOVE TABLE (I.E. AUDIT & CORPORATE SECURITY & HUMAN RESOURCES) WERE ACCEPTED AND THE REMAINING WERE REJECTED STATING IN RESPECT OF THE BALANCE CHARGE ON ACCOUNT OF ASF COSTS, AS THE ASSESSEE HAS NOT FURNISHED ANY EVIDEN CE FOR THE RECEIPT OF COMMENSURATE SERVICES, THE ARMS LENGTH PRICE IN RESPECT OF THE SAME IS DETERMINED AS NIL. THE DOCUMENTATION IN SUPPORT OF THE REMAINING ASF COST HEADS AS SUBMITTED BY THE ASSESSEE DURING THE REMAND PROCEEDINGS HAS BEEN PERUSED AND FOUND TO BE IN ORDER. THUS, AS COULD BE SEEN FROM THE AFORESAID OBSERVATIONS MADE BY THE TPO IN THE REMAND REPORT , AFTER SCRUTINY OF THE EVIDENCES BROUGHT ON RECORD IN RELATION TO THE ASF COSTS UNDER VARIOUS HEADS, HE HAS FOUND THEM TO BE IN ORDER. IN VI EW OF THE AFORESAID, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF ADJUSTMENT TO THE ARMS LENGTH PRICE OF ASF COSTS. T HE GROUND IS DISMISSED. 7. IN THE RESULT, DEPARTMENTS APPEAL IS ALSO DISMISSED. 9 M/S. SGS INDIA PVT. LTD. ITA NO.9035/MUM/2010 & CO 245/MUM/2012 CO NO. 245/MUM/2012 8. THE GROUNDS RAISED IN THE CROSS OBJECTION ARE IN RELATION TO COMPUTATION OF ALP OF LICENCE FEE AND ASF COSTS. THE DEPARTMENTS APPEAL ON THE VERY SAME ISSUES HAS BEEN DISMISSED BY US IN THE EARLIER PART OF THIS ORDER. THAT BEING THE CASE, THE GROUNDS RAISED IN THE CROSS OBJECTION HAVE BECOME INFRUCTUOUS. IN THE RESULT, CROSS OBJECTION IS ALSO DISMISSED AS INFRUCTUOUS. 9 . IN THE RESULT, DEPARTMENTS APPEAL AS WELL AS THE ASSESSEES CROSS OBJECTION ARE DISMISSED. ORDE R PRONOUNCED IN THE OPEN COURT ON 2 1 S T OCTOBER, 2016. SD/ - SD/ - ( RAJENDRA ) / ACCOUNTANT MEMBER ( SAKTIJIT DEY ) / JUDICIAL MEMBER MUMBAI, DATE D 2 1 S T OCTOBER , 2016 *SSL* / COPY OF THE ORDER FORWARDED TO : 1) / THE APPELLANT 2) / THE RESPONDENT 3) ( ) / THE CIT(A) CONCERNED 4) / THE CIT CONCERNED 5) , , / THE D.R, K BENCH, MUMBAI 6) / GUARD FILE / BY ORDER DY./ASSTT. REGISTRAR , / ITAT, MUMBAI