M/s Robert Bosch Engineering and Business Solutions Private Limited, Bangalore V. Deputy Commissioner of Income-Tax, LTU,Circle, Bangalore

MA 102/BANG/2022

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The case involves M/s. Robert Bosch Engineering and Business Solutions Pvt. Ltd. appealing against the order of the Deputy Commissioner of Income Tax concerning the assessment year 2011-12. The Tribunal's earlier decision inadvertently included errors regarding the comparables used in transfer pricing and the non-adjudication of specific grounds related to the arm's length price of services received from associated enterprises. The Tribunal acknowledged these oversights and corrected them, ensuring that the assessee's arguments and submissions were properly considered and adjudicated.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124305 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 06-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-06-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 29-08-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PERCY PADIWALA
• Keywords: Transfer pricing
• Section: 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) Assessment Year : 2011-12 M/s. Robert Bosch Engineering and Business Solutions Pvt. Ltd., #123, Industrial Layout, Hosur Road, Koramangala, Bangalore – 560095. PAN: AAACR7108R Vs. The Deputy Commissioner of Income Tax, Large Tax Payers Unit, Circle 1, Bangalore. APPELLANT RESPONDENT Assessee by : Shri Percy Padiwala, Sr. Advocate Revenue by : Shri Sankar Ganesh .K, Addl. CIT (DR) Date of Hearing : 02-06-2023 Date of Pronouncement : 07-06-2023 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present miscellaneous petition has been filed by assessee against the order dated 02.02.2022 passed by this Tribunal in the above appeal wherein the Ld.Counsel is seeking rectification of the following mistakes that has crept in: 2. Issue no. 1: 2.1 The Ld.Counsel submits that this Tribunal inadvertently adjudicated the comparable “Mindtree” at page no. 32 and has remanded the same to the Ld.TPO by observing that this comparable was rejected by the Ld.TPO. Page 2 of 8 M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) 2.2 He submitted that this particular observation deserves rectification since the comparable Mindtree was included by the Ld.TPO in its final list. He referred to page no. 29 of the order passed u/s. 92CA wherein this comparable was acceptable to the Ld.TPO. It is the submission of the Ld.Counsel that it is the DRP that suo moto deleted this comparable from the final list which was sought to be included by the assessee before this Tribunal. This submission of the Ld.Counsel was agreeable to the Ld.DR. We have perused the records and found the above submissions to be true and therefore necessary amendment is being carried out in the paragraph of the impugned order passed by this Tribunal at page 32. 2.3 The relevant paragraph at page 32 shall henceforth be read as under: “Assessee is also seeking inclusion of LGS Global Ltd. that formed part of TP study, however it was rejected by the Ld.TPO. It is the submission of the Ld.AR that these companies are functionally similar.” 3. Issue no. 2: 3.1 The next issue alleged by the Ld.AR is in respect of non- adjudication of Ground no. 17. The Ld.AR submitted that at the time of hearing, the said ground was argued and various submissions were advanced that forms part of records. On verification of the log book as well as the records referred to by the Ld.AR, we note that ground no. 17 has been argued on the date of hearing. The Ld.AR had referred to the observations of the DRP at page 10, para 6 and the observations of the Ld.TPO at page 33 wherein the submissions of the assessee has been Page 3 of 8 M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) rejected by observing that no details have been furnished by the assessee in order to establish and rendition of such intragroup services. 3.2 We accordingly adjudicate Ground no. 17 as under: “Ground no. 17: “17. That the learned AO/TPO and learned Panel erred in determining the arm's length price for receipt of services from its Associated Enterprises amounting to Rs. 69,448,424 to be NIL.” The Ld.AR submitted that payment has been made by the assessee amounting to Rs.69,448,424/- for receipt of certain services during the year under consideration in order to facilitate assessee in rendering the software development and IT enabled Services. It is the submission of the Ld.AR that these expenses received against the services from the associated enterprises have been considered as the part of operating cost based for the purposes of computation of operating profit mark-up. The Ld.Counsel thus submitted that these expenses have been considered while computing the arms length margin of the primary transaction with the associated enterprise being provision of software development services and IT enabled Services. The Ld.AR submitted that these details have not been verified by the authorities below and has disregarded the submissions of the assessee. The Ld.AR also alleged that the Ld.TPO has not adopted any method and has held the cost to be at Nil cannot be agreed. It is the submission of the Ld.AR that the Ld.TPO is to adopt a definite method which is one prescribed as per the transfer pricing legislation in the event the margin has to be computed. Page 4 of 8 M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) On the contrary, the Ld.DR vehemently supported the order of the authorities below. He submitted that the assessee failed to satisfy the rendition test and benefit contest and therefore the arms length price of the international transaction has been rightly held to be at Nil. The Ld.DR submitted that CUP method has been applied to show that no individual party would have paid for such services. It is the submission of the Ld.DR that assessee could not produce any document shows that no services have been rendered. We have perused the submissions advanced by both sides in the light of records placed before us. The issue involved in this case is regarding payment of intragroup services. The Ld.AR has submitted that the expenditure determined to be paid towards certain services as forming part of the cost base for determining the margin of the relevant segment being SWD and ITeS. Any payment for intragroup services, the payer must have definitely maintained robust documentation to show that those services are required for the purpose of the assessee and therefore such services were received by assessee from its associated enterprises. The associated enterprise has also rendered those services as agreed upon as per the agreements between the parties. Over a period of time, we noted that there is no standard requirement of providing manner of maintenance of documentation regarding IGS rendition. The basic document would be the service agreement between the parties that demonstrates the right and obligations of both the parties, nature of services, nature of reporting, the manner of billing along with documentary Page 5 of 8 M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) evidences. Therefore, in our view, primarily, the Ld.AO is directed to verify if the expenses have been considered to be forming part of the cost base for computing the margins under respective segments. In the event, the observations and verifications on this aspect comes in favour of assessee, no separate bench marking is required. On the contrary, if the cost incurred by assessee towards IGS does not form part of respective segments, bench marking of the transaction has to be carried out in accordance with the transfer pricing principles. We may make it clear that we do not agree with the transfer pricing officer of not adopting any method and determining the value to be at Nil. A definite method must be adopted by the Ld.TPO to bench mark the transaction in such circumstances. Accordingly, we direct the Ld.TPO to carry out necessary verifications based on the evidences filed by the assessee and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee. Accordingly this ground raised by assessee stands partly allowed for statistical purposes.” 3.3 The above referred paragraphs shall be read into the order dated 02.02.2022 after ground no. 12 at page 33. 4. Issue no. 3 is in respect of the deduction u/s. 80JJAA that was disallowed by the authorities below. 4.1 The Ld.AR submitted that this Tribunal having noted the issue for consideration has decided on the point relating to the disallowance if any could be made in the 2 nd and 3 rd years of entitlement merely because the employees had not completed 300 days in the first year of employment. Page 6 of 8 M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) 4.2 He submitted that the issue that was raised before this Tribunal was whether the assessee was entitled for deduction u/s. 80JJAA on the additional wages paid to all new regular workmen employed or whether it should be restricted to the net additional new regular workmen employed by the assessee during the previous year. 4.3 On perusal of the record, we note that the submissions of the Ld.AR is correct and this Tribunal has concluded on a different point which was not alleged by the assessee. Accordingly after considering the relevant arguments of the Ld.AR, the observations of this Tribunal at pages 23-24 are to be read as under: “We have perused the submissions advanced by both sides in the light of records placed before us. Admittedly, assessee had a total strength of 2783 workmen during the year under consideration and assessee had employed 1343 workmen out of which 544 workmen who were employed with assessee resigned. The Ld.AR has submitted that at the end of the relevant FY, the assessee had a total strength of 3582 workmen. The Ld.AO after observing the submissions disallowed the deduction claimed in respect of 544 workmen who had resigned during the year. The Ld.AO has also held that assessee has not established that the payment to the new workmen was in excess of the payment to the existing workmen. The Ld.AO thus disallowed a sum of Rs.4,81,27,046/-. The said action of the Ld.AO was upheld by the DRP. The Ld.AR submitted that the rendition of employees can be done only in respect of such employees who joined during the relevant FY and resigned Page 7 of 8 M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) during the same FY as they have not fulfilled the requirement of minimum number of working days. Referring to page no. 679 of paper book, the assessee submitted that out of the total 544 employees, it is only 100 employees starting from S.No. 474 onwards who have joined during the relevant FY and has left the assessee organisation within the relevant FY. The Ld.DR has supported the action of the Ld.AO by referring to the proviso to explanation u/s. 80JJAA wherein it is stated that explanation for the purpose of this section “(i) "additional employee cost" means the total emoluments paid or payable to additional employees employed during the previous year: Provided that in the case of an existing business, the additional employee cost shall be nil, if— (a) there is no increase in the number of employees from the total number of employees employed as on the last day of the preceding year;” In counter to the above argument of the Ld.DR, the Ld.AR submitted that the relevant proviso referred to by the revenue is not applicable for the year under consideration. He submitted that the provision what is applicable for the year under consideration reads as under: “Explanation – For the purposes of this section, the expressions, - (i) "additional wages' means the wages paid to the new regular workmen in excess of fifty workmen employed during the previous year : Provided that in the case of an existing factory, the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing number of workmen employed in such factory as on the last day of the preceding year;” He submitted that the new provision referred to by the Ld.DR is applicable w.e.f. 01.04.2020 and therefore the provision that was prevailing during Page 8 of 8 M.P. No. 102/Bang/2022 (in IT(TP)A Nos. 608 & 445/Bang/2016) the relevant AY must be considered. We accordingly, direct the Ld.AO to recompute the disallowance restricting to only such employees who were appointed during the relevant year and has resigned before the end of the relevant year. The Ld.AO is therefore directed to verify the details and consider the claim of assessee in accordance with law. Accordingly, this ground raised by assessee stands allowed for statistical purposes.” 5. The above paras stands replaced with the paragraphs that has been recorded at pages 22-23 of the impugned order. 6. The rest of the contents of order dated 02/02/2022 passed by this Tribunal shall remain unchanged. In the result, the M.P. filed by the assessee stands allowed. Order pronounced in the open court on 07 th June, 2023. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 07 th June, 2023. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore