M/s. Panasonic Industrial Asia Pte Ltd.- India Branch Office, New Delhi V. DCIT (International Taxation), New Delhi

ITA 979/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1991 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction; Set aside
• Section: 274; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI BEFORE MS. SUSHMA CHOWLA, VICE PRESIDENT DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 979/DEL/2017 : ASSTT. YEAR : 2009 -10 M/S PANASONIC INDUSTRIAL ASIA PTE LTD., INDIA BRANCH OFFICE, C/O SRBC & ASSOCIATES LLP, 6 TH FLOOR, WORLDMARK 1, AERO CITY (INDIRA GANDHI INTERNATIONAL AIRPORT), OPP. HOLIDAY INN, MAHIPALPUR, NEW DELHI-110037 VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2)(2), INTERNATIONAL TAXATION, NEW DELHI-110002 (APPELLANT) (RESPONDENT) PAN NO. AACCP7345J ASSESSEE BY : NONE REVENUE BY : MS. NIDHI SHARMA, SR. DR DATE OF HEARING: 12.03.2020 DATE OF PRONOUNCEMENT: 27.04.2020 ORDER PER DR. B.R.R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER DATED 29.11.2016 PASSED BY THE AO U/S 143 (3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: THE DISPUTE RESOLUTION PANEL (DRP)/ASSESSING OFFICER (AO)/TRANSFER PRICING OFFICER (TPO) HAS ERRED, IN LAW AND FACTS OF THE CASE IN NOT ALLOCATI NG THE AMOUNT OF DEPRECIATION TO THE RESPECTIVE SEGMENTS WHILE CALCULATING THE NET MARGINS OF ONE COMPARABLE, NAMELY, ICC INTERNATIONAL AGENCY LIMITED. THE DRP/AO/TPO HAS THUS ERRED IN INCORRECT APPLICATION OF TRANSACTIONAL NET MARGIN METHOD (TNMM). ITA NO. 979/DEL/2017 PANASONIC INDUSTRIAL ASIA PTE LTD. 2 2. THE AO/TPO HAS ERRED, IN LAW AND ON FACTS OF THE CASE, IN NOT GIVING EFFECT TO THE DIRECTIONS OF DRP PASSED UNDER SECTION 144C(5) OF THE INCOME TAX ACT, 1961 WITH RESPECT TO OBJECTION RAISED BY THE APPELLANT ON SUCH INCORRECT APPLICATION OF THE TNMM FOR THE PURPOSE OF CALCULATION OF MARGINS. 3. THE AO/TPO HAS ERRED, IN FACTS AND CIRCUMSTANCES OF THE CASE, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, AND MODIFYING THE ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ALP OF THE APPELLANTS INTERNATIONAL TRANSACTIONS AND HOLDING THAT THE INTERNATIONAL TRANSACTIONS ARE NOT AT ARMS LENGTH. 4. THE AO/TPO HAS ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANTS AND CONSIDERING INAPPROPRIATE COMPANIES INSTEAD. 5. THE AO/TPO HAS ERRED, IN FACTS AND CIRCUMSTANCES OF THE CASE, IN RELYING ON DATA OBTAINED UNDER SECTION 133 OF THE ACT WHICH IS NOT AVAILABLE IN TH E PUBLIC DOMAIN. THEREBY, THE AO/TPO HAS ERRED IN VIOLATING THE PRINCIPLES OF NATURAL JUSTICE AND NOT PROVIDING THE APPELLANT AN OPPORTUNITY FOR MAKING APPROPRIATE SUBMISSIONS. 6. THE AO/TPO HAS ERRED, IN FACTS AND CIRCUMSTANCES OF THE CASE, IN EXCEEDING HIS JURISDICTION BY ADJUDICATING ON MATTERS NOT REMANDED BACK BY THE ITAT AND THE DRP HAS ERRED, IN UPHOLDING SUCH ACTION OF THE AO/TPO. PENALTY FOR CONCEALMENT OF INCOME 1. THAT ON FACTS AND IN LAWS, THE AO ERRED IN HOLDI NG THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF EACH ITEM OF DISALLOWANCE/ADDITIONS AND IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271 OF THE ACT. ITA NO. 979/DEL/2017 PANASONIC INDUSTRIAL ASIA PTE LTD. 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE INTERNA TIONAL TRANSACTIONS REPORTED BY THE ASSESSEE IN FORM 3CEB ARE AS UNDER: S. NO. NATURE OF TRANSACTION METHOD USED BY ASSESSEE AMOUNT 1. PROVISIONS OF SUPPORT SERVICES TNMM 9,66,41,885 2. REIMBURSEMENT OF EXPENSES NO BENCHMARKING REQUIRED 1,70,07,920 THE TPO HAS MADE AN ADJUSTMENT OF RS.1,98,67,642/- IN ITS ORDER DATED 24.01.2013 FOR AY 2009-10. THE ASSESSEE HAS GONE IN APPEAL BEFORE THE DRP. THE DRP IN ITS ORDER DATED 20.12.2013 PARTIALLY ALLOWED THE APPEAL AND PROVIDED CERTAIN DIRECTION TO THE TPO BY WHICH THE UPWARD ADJUSTMENT WAS REVISED AT RS.59,99,397/-. POST DRP DIRECTIONS FINAL ORDER WAS PASSED BY THE ASSESSING OFFICER ACCORDINGLY BY INCORPORATING THE TPOS ORDERS. BEING AGGRIEVED, THE ASSESSEE HAS FILED AN APPEAL BEFORE ITAT, DELHI VIDE ITA NO. 1111/DEL/2014. THE ITAT HAS PASSED AN ORDER DATED 23.04.2014 DIRECTING THE TPO AND AO TO RE- ADJUDICATE THE ISSUE AS PER DIRECTION GIVEN IN THAT ORDER. 3.1 AS PER THE DIRECTIONS OF THE ITAT IN ITS ORDER DATED 23.04.2014, TPO WAS REQUIRED TO VERIFY THE NATURE OF EXPENSES WHICH WERE UNALLOCATED TO THE SEGMENT OF THE COMPARABLE M/S ICC INTERNATIONAL AGENCIES LTD. WHICH WAS DETERMINED WHILE COMPUTING THE AVERAGE MARGINS OF THE COMPARABLES VIS--VIS THAT OF THE ASSESSEE FOR DETERMINING ITS PLI AND RE - DETERMINE THE ALP OF THE TRANSACTION ACCORDINGLY. 4. THE TPO HELD THAT IN THE SUBMISSIONS DATED 27.07 .2015, THE ASSESSEE COULD NOT SUBMIT ANY DOCUMENTS IN SUPP ORT OF ITS CONTENTION AS TO WHY THE UNALLOCATED EXPENSES SHOUL D ALLOTTED BETWEEN THE OTHER BUSINESS SEGMENTS OF THE COMPANY. THE ADDITIONAL DETAILS PROVIDED BY THE ICC INTERNATIONA L WERE EXAMINED BY US WHEREIN THE DEPRECIATION WAS KEPT UN DER ITA NO. 979/DEL/2017 PANASONIC INDUSTRIAL ASIA PTE LTD. 4 OTHERS/UNALLOCABLE HEAD. FURTHER, WE FIND THAT THER E IS NO DEPRECIATION COST IN THE COMMISSION AND SERVICE ACT IVITY, THEREFORE, NO ALLOCATION IS REQUIRED. THE ORDER OF THE TPO ON THIS ISSUE IS CONFIRMED. 5. REGARDING THE GROUND NO. 2, WE FIND THAT THE LD. DRP HAS DIRECTED THE MATTER TO THE AO TO VERIFY THE CORRECT NESS OF THE CLAIM. THE TRANSACTIONAL NET MARGIN METHOD (TNMM) I N TRANSFER PRICING COMPARES THE NET PROFIT MARGIN OF A TAXPAYE R ARISING FROM A NON-ARM'S LENGTH TRANSACTION WITH THE NET PROFIT MARGINS REALIZED BY ARM'S LENGTH PARTIES FRO M SIMILAR TRANSACTIONS AND EXAMINES THE NET PROFIT MARGIN REL ATIVE TO AN APPROPRIATE BASE SUCH AS COSTS, SALES OR ASSETS. IN THE GIVEN CIRCUMSTANCES, WE FIND THAT THIS METHOD HAS BEEN CO RRECTLY APPLIED BY THE REVENUE. HENCE, WE DECLINE TO INTERF ERE WITH THE ORDER OF THE TPO. 6. GROUND NOS. 3 & 4 HAVE ALREADY BEEN CONSIDERED B Y THE ITAT IN THEIR EARLIER ORDER. HENCE, NO NEED TO DWEL L UPON THIS ISSUE AT THIS JUNCTURE. 7. GROUND NO. 5, THE DATA COLLECTED BY THE TPO HAS ALREADY BEEN GIVEN TO THE ASSESSEE. HENCE, THERE IS NO VIOL ATION OF PRINCIPLE OF NATURAL JUSTICE. WE FIND THAT THE ACTI ON OF THE TPO IS INCONSONANCE WITH THE PROVISIONS OF SECTION 92CA (7), PROVISION OF WHICH HAVE NOT BEEN VIOLATED. 8. REGARDING THE GROUND NO. 6, WHEREIN THE ASSESSEE CONTENDED THAT THE TPO ERRED IN EXCEEDING THE JURIS DICTION BY ADJUDICATING THE MATTERS NOT REMANDED BACK BY THE I TAT. THE DRP ALSO ERRED IN CONFIRMING THE SAME. WE FIND THAT THE CO- ITA NO. 979/DEL/2017 PANASONIC INDUSTRIAL ASIA PTE LTD. 5 ORDINATE BENCH OF ITAT HAS REFERRED THE MATTER REGA RDING THE ALLOCATION OF EXPENSES OF RS.42,25,388/- TO THE FIL E OF THE ASSESSING OFFICER FOR RE-ADJUDICATION. THE RELEVANT PORTION OF THE ORDER OF THE CO-ORDINATE BENCH OF ITAT IS AS UN DER: SOMETIMES IT IS DIFFICULT TO POINT OUT THE DIRECT NEXUS BETWEEN THE EXPENSES VIS--VIS THE ACTIVITY. ACCORDING TO THE ASSESSEE THE COMMON POOL EXPENDITURE ARE BEING ALLOCATED IN THE PROPORTION O F GROSS PROFIT RATIO TO THE SEGMENTAL ACTIVITIES. SIN CE, THE DETAILS ARE NOT AVAILABLE ON THE RECORD TO CROS S- VERIFY THIS ALLOCATION, THEREFORE WE DEEM TO APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION. 9. FROM THE ABOVE, IT IS VERY CLEAR THAT THE ITAT D IRECTED THE ASSESSING OFFICER TO ALLOCATE COMMON POOL EXPENDITU RE IN PROPORTION OF GROSS PROFIT RATIO TO THE SEGMENTAL A CTIVITIES AFTER VERIFICATION OF SUCH ALLOCATION. THE ASSESSING OFFI CER HAS ALLOCATED THE EXPENSES OF RS.42,25,388/- TO THE TUN E SEGMENT OF M/S ICC AGENCIES INTERNATIONAL LTD. THE EXPENSES SUCH AS TRAVELLING, TELEPHONE, COURIER AND VEHICLE EXPENSES HAVE ALREADY BEEN ALLOCATED BY M/S ICC AGENCIES INTERNAT IONAL LTD. TO THE COMMISSION AND SERVICES ACTIVITY. THE LD. DR P HELD THAT THE BALANCE AMOUNT OF RS.10,93,435/- WAS ALLOCATED BY THE TPO TO THE COMMISSION AND SERVICES ACTIVITY OF THE M/S ICC AGENCIES INTERNATIONAL LTD. AFTER DILIGENT WORKING. 10. WE FIND THAT THE TPO HAS NOT EXCEEDED THE DIREC TIONS GIVEN BY THE TRIBUNAL TO CONSIDER THE ALLOCATION OF EXPENSES. THE TPO HAS ALLOCATED THE EXPENSES AS PER THE DIREC TIONS OF THE ITAT ONLY. HENCE, NO INTERFERENCE IS CALLED FOR ON THIS ISSUE. ITA NO. 979/DEL/2017 PANASONIC INDUSTRIAL ASIA PTE LTD. 6 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/04/2020. SD/- SD/- (SUSHMA CHOWLA) (DR. B.R.R. KUMAR) VICE PRESIDENT ACCOUNTANT MEMB ER DATED: 27/04/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR