MWH INDIA PRIVATE LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 9(2), MUMBAI

MA 284/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5861 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 18-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UODHALRAJ SINGH
• Assessee Lawyers: J D MISTRI; NEE RAJ S H ETH AR S
• Keywords: Transfer pricing; Rectification of order; International transaction; Set aside
• Section: 143(3); 92CA; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI MAHAVIR SINGH (VICE PRESIDENT) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) M.A. NO. 284/MUM/2018 ( ITA NO. 792/MUM/2013 ) ASSESSMENT YEAR: 2008 - 09 MWH INDIA PVT. LTD. 133 , UDYOG BHAVAN , SONAWALA ROAD, GOREGAON (E), MUMBAI - 400063. VS. DCIT - 9(2) AAYAKAR BHAVAN, MAHARSHI KARVE ROAD MUMBAI - 400020. PAN NO. AAACA4613L APPELLANT RESPONDENT ASSESSEE BY : MR. J.D. MISTRI & MR. NEE RAJ S H ETH, AR S REVENUE BY : MR. UODHALRAJ SINGH , DR DATE OF HEARING : 13/12/2019 DATE OF PRONOUNCEMENT : 11/03/2020 ORDER PER N.K. PRADHAN, A.M. BY MEANS OF THIS MISCELLANEOUS APPLICATION (MA) THE APPLICANT SEEKS RECALL OF THE ORDER DATED 27.10.2017 PASSED BY THE ITAT K BENCH, MUMBAI IN ITA NO. 792/MUM/2013 FOR THE ASSESSMENT YEAR (AY) 2008 - 09. 2. BEFORE US, THE LD. COUNSEL FOR THE APPLICANT REI TERATES THE WRITTEN SUBMISSION DATED 18.04.2018 FILED ALONG WITH THE MA AND SUBMITS THAT IN THE 1 ST GROUND OF APPEAL RAISED BY IT, THE APPLICANT HAD CHALLENGED THE ACTION OF THE AO/TPO/DRP OF MAKING AN ADJUSTMENT OF RS.4,48,60,208/ - VIS - - VIS THE CONSULTAN CY AND DESIGN SERVICES RENDERED BY IT TO ITS AES. IN RESPECT OF M/S MWH INDIA PVT. LTD. MA NO. 284/MUM/2018 2 GRANTING OF WORKING CAPITAL ADJUSTMENT TO THE COMPANY VIS - - VIS THE COMPARABLES, IT IS STATED THAT RELIANCE WAS PLACED ON THE DECISION IN WALT DISNEY CO. (INDIA) (P.) LTD. V. DCIT (2017) 81 TA XMANN.COM 321 (MUMBAI - TRIB.); BA CONTINUUM INDIA (P.) LTD. V. ADIT (2017) 79 TAXMANN.COM 85 (HYDERABAD - TRIB.). FURTHER, IT IS STATED THAT COMPARABLE COMPANIES SELECTED BY THE TPO VIZ. CELESTIAL BIOLABS LABS LTD. , E - ZEST SOLUTIONS LTD . AND E - INFOCHIPS BANG ALORE LTD. OUGHT TO BE REMOVED FROM THE LIST OF COMPARABLES, SINCE ALL THE COMPANIES WERE FUNCTIONALLY DISSIMILAR TO THAT OF THE APPLICANT. ALSO IT IS STATED THAT IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION IN TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. V. DCIT [ITA (T.P.) NO. 33/BANG/2013]; 3DPLM SOFTWARE SOLUTIONS PVT. LTD. V. DCIT [ITA (T.P.) NO. 1303/BANG/2012]; ITO V. INTOTO SOFTWARE INDIA PRIVATE LIMITED [ITA N OS. 1921/HYD/14 & 25/HYD/2015] . THE LD. COUNSEL FURTHER SUBMITS THAT IT WAS POINTED DURING THE COURSE OF HEARING ON 01.08.2017 THAT MARGINS OF ONE OF THE COMPARABLE COMPANY SELECTED BY THE TPO VIZ., SOFTSOL LTD. OUGHT TO BE RECTIFIED FROM 42.33% AS CONSIDERED BY THE TPO TO 15%; ATTENTION OF THE BENCH WAS INVITED TO PAGE NO. 255 OF THE PAPER BOOK (P/B) FILED BEING THE DETAILED WORKING SUBMITTED BEFORE THE DRP EXPLAINING AS TO HOW THE MARGIN COMPUTATION CONSIDERED BY THE TPO WAS INCORRECT. FURTHER IT IS ARGUED THAT THE WORKING WAS ALSO HAND ED OVER TO THE BENCH OF THE MARGINS OF THE COMPARABLE COMPANIES, AFTER EXCLUDING THE AFORESAID THREE NON - COMPARABLE COMPANIES, RECTIFYING THE ERROR IN THE MARGIN OF THE COMPARABLE COMPANIES AND RE - COMPUTING THE WORKING CAPITAL ADJUSTMENT ON THE BASIS OF TH E AFORESAID. IT IS STATED THAT THE TRIBUNAL IN THE IMPUGNED ORDER HAS SET ASIDE THE ENTIRE MATTER TO THE FILE OF THE AO WITH CERTAIN OBSERVATIONS, WHEREAS THE BENCH HAS NOT M/S MWH INDIA PVT. LTD. MA NO. 284/MUM/2018 3 REFERRED TO ANY OF THE DECISIONS CITED BY THE APPLICANT BEFORE IT DURING THE COURSE OF HEARING. THUS IT IS STATED THAT THE AFORESAID ERROR TO THE EXTENT IT SETS ASIDE THE 1 ST GROUND OF APPEAL TO FILE OF THE AO WITHOUT REFERENCE TO THE AUTHO RITIES CITED BY THE APPLICANT IS ERRONEOUS AND THEREFORE, A MISTAKE / ERROR APPARENT FROM RECORD. REGARDING THE 2 ND GROUND OF APPEAL I.E. ADJUSTMENT RELATING TO PAYMENT OF MANAGEMENT CHARGES, THE LD. COUNSEL SUBMITS THAT VIDE IT THE APPLICANT HAD CHALLENGED THE ACTION OF THE AO/TPO/DRP OF MAKING AN ADJUSTMENT OF RS.1,10,25,109/ - ON ACCOUNT OF PAYMENT O F MANAGEMENT CHARGES BY THE APPLICANT TO ITS AES. IT IS STATED THAT DURING THE COURSE OF HEARING BEFORE THE BENCH, IT WAS EMPHASIZED THAT IN THE ORDER DATED 31. 10.2011, THE TPO HAD PROPOSED A TRANSFER PRICING ADJUSTMENT OF RS.4,48,60,208/ - ON ACCOUNT OF P ROVISION FOR CONSULTANCY AND DESIGN SERVICES. THE TPO, AFTER DISCUSSING THE ISSUE OF PAYMENT OF MANAGEMENT FEES, HAD NOT MADE ANY SEPARATE ADJUSTMENT FOR THE MANAGEMENT FEES OF RS.1,10,25,109/ - , SINCE THE MANAGEMENT FEE WAS CONSIDERED BY HIM TO BE A PART O F THE OPERATING COST FOR THE COMPUTATION OF THE PROFIT LEVEL INDICATOR, WHILE DETERMINING THE ARMS LENGTH PRICE OF THE DESIGN AND CONSULTING SERVICES. IT IS STATED THAT IN TERMS OF AN ORDER DATED 25.07.2012 PASSED U/S 154 OF THE ACT, THE TPO HAD RECTIFIED HIS ORDER AND MADE SEPARATE ADJUSTMENTS TO THE CONSULTANCY AND DESIGN SERVICES AND THE MANAGEMENT CHARGES. IT IS FURTHER EXPLAINED THAT THE APPLICANT HAD CHALLENGED BOTH THE ADJUSTMENTS MADE BY THE TPO BEFORE THE DRP ; THE OBJECTIONS FILED BY THE APPLICAN T WERE DISPOSED OFF BY THE DRP VIDE ITS DIRECTION DATED 26.09.2012, WHEREIN WITHOUT ANY SPECIFIC DISCUSSION, THE ACTION OF THE TPO OF TREATING THE ALP OF MANAGEMENT FEES AT NIL WAS CONFIRMED. HOWEVER, IN THE FINAL ASSESSMENT ORDER DATED 29.11.2012 PASSED U /S 143(3) R.W.S. 144C(13) OF M/S MWH INDIA PVT. LTD. MA NO. 284/MUM/2018 4 THE ACT, THE AO ONLY MADE AN ADDITION OF RS.4,48,60,208/ - BEING THE AMOUNT OF ADJUSTMENT PROPOSED BY THE TPO IN HIS ORIGINAL ORDER DATED 31.10.2011 PASSED U/S 92CA(3) OF THE ACT, VIS - A - VIS THE PROVISION OF CONSULTANCY AND DESIG NING SERVICES ; HE DID NOT MAKE ANY ADJUSTMENT WITH RESPECT TO THE MANAGEMENT CHARGES. THUS IT IS STATED THAT EVEN THOUGH A GROUND WAS RAISED CHALLENGING THE ADDITION PROPOSED BY THE TPO VIS - A - VIS THE MANAGEMENT CHARGES OUT OF ABUNDANT CAUTION, SINCE NO SE PARATE ADJUSTMENT WAS MADE BY THE AO IN THE FINAL ASSESSMENT ORDER DATED 29.11.2012 ON THE ISSUE OF MANAGEMENT FEES, THE SAID ISSUE STOOD CONCLUDED IN FAVOUR OF THE APPLICANT AND OUGHT TO BE DECIDED ACCORDINGLY. THE LD. COUNSEL EXPLAINS THAT WITHOUT ANY DI SCUSS ION WHATSOEVER VIS - A - VIS THE TRANSFER PRICING ADJUSTMENT ON MANAGEMENT CHARGES OF RS.1,10,25,109/ - , THE BENCH HAS SET ASIDE THE ORDER OF THE AO AND DIRECT ED HIM TO MAKE AN ASSESSMENT DE NOVO . THUS IT IS STATED THAT THE ISSUES RAISED IN BOTH THE 1 ST AND 2 ND GROUND OF APPEAL ARE DIFFERENT AND DIFFERENT ARGUMENTS WERE ADVANCED IN RESPECT OF THE TWO GROUNDS ; WHILE IN THE 1 ST GROUND OF APPEAL, THE APPLICANT HAD CHALLENGED THE TRANSFER PRICING ADJUSTMENT OF RS.4,48,60,208/ - MADE VIS - A - VIS THE PROVISION OF CONSULTANCY AND DESIGN SERVICES, THE 2 ND GROUND OF APPEAL HAS TO BE STRAIGHTAWAY DECIDED IN FAVOUR OF THE APPLICANT SINCE NO ADJUSTMENT ON ACCOUNT OF MANAGEMENT CHARGES HAS BEEN MADE IN THE FINAL ASSESSMENT ORDER. THEREFORE, IT IS ARGUED THAT THE ORDER OF THE TRIBUNAL TO THE EXTENT IT SETS ASIDE THE GROUND OF APPEAL NO. 2 TO THE FILE OF THE AO IS ERRONEOUS, SINCE THE RELEVANT FACTS OF THE MATTER VIZ. NO ADDITION HAS BEEN MADE BY THE AO ON THE ISSUE AND THE APPLICANTS CONTENTIONS HAVE BEEN LEFT OUT TO BE CONSIDERED BY THE BENCH. M/S MWH INDIA PVT. LTD. MA NO. 284/MUM/2018 5 THUS THE LD. COUNSEL SUBMITS THAT (A) THE TRIBUNAL MAY RECALL ITS ORDER VIS - A - VIS THE GROUND OF APPEAL NO. 1 RAISED BY THE APPLICANT AND DISPOSE OFF THE SAID GROUND AFTER TAKING INTO CONSIDERATION THE ARGUMENTS AN D DECISIONS RELIED ON BY THE APPLICANT; (B) THE TRIBUNAL MAY RECALL ITS ORDER VIS - A - VIS THE GROUND OF APPEAL NO. 2 RAISED BY THE APPLICANT AND THE FURTHER TO DECIDE IT IN FAVOUR OF THE APPLICANT SINCE NO ADJUSTMENT HAS BEEN MADE BY THE AO IN HIS FINAL ASSE SSMENT ORDER ON THE ISSUE OF MANAGEMENT CHARGES; (C)THE TRIBUNAL MAY GRANT SUCH FURTHER AND OTHER RELIEF AS THE NA TURE AND CIRCUMSTANCES REQUIRE. 3. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) EXPLAINS THAT THERE BEING NO MISTAKE APPARENT FROM RECORD IN THE PRESENT CASE, THERE IS NO MERIT IN THE MA FILED BY THE APPLICANT. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE, VIDE THE 1 ST GROUND OF APPEAL, THE APPLICANT HAD CHALLENGED THE ACTION OF THE AO/TPO/DRP OF MAKING AN ADJUSTMENT OF RS.4,48,60,208/ - VIS - A - VIS THE CONSULTANCY AND DESIGN SERVICES RENDERED BY IT TO ITS AES. IN THE 2 ND GROUND OF APPEAL, IT HAD CHALLENGED THE ACTION OF THE AO/TPO/DRP OF MAKING AN ADJUS TMENT OF RS.1,10,25,109/ - ON ACCOUNT OF PAYMENT OF MANAGEMENT CHARGES BY THE ASSESSEE TO ITS AES. THE SAID GROUNDS OF APPEAL READ AS UNDER : RE.: ADJUSTMENT OF RS.4,48,60,208/ - U/S 92CA OF THE INCOME - TAX ACT, 1961 ('THE ACT') ON ACCOUNT OF THE PROVISION OF CONSULTANCY & DESIGN SERVICES : 1:1 THE ASSESSING OFFICER ('AO') HAS ERRED IN MAKING AN UPWARD ADJUSTMENT OF RS.4,48,60,208/ - TO THE TOTAL INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTION RELATING TO PROVISION OF CONSULTANCY & DESIGN M/S MWH INDIA PVT. LTD. MA NO. 284/MUM/2018 6 SERVICES ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES ('AES') WAS NOT ENTERED AT ARM'S LENGTH PRICE ('ALP'). 1:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, THE INTERNATIONAL TRANSACTION RELATING TO PROVISION OF CONSULTANCY & DESIGN SERVICES ENTERED INTO BY THE APPELLANT WITH ITS AES WAS ENTERED AT ALP AND HENCE NO ADJUSTMENT IN RESPECT THEREOF WAS CALLED FOR AND THE STAND TAKEN BY THE AO IN THIS REGARD IS MI SCONCEIVED, ERRONEOUS AND INCORRECT. 1:3 THE APPELLANT SUBMITS THAT THE AO BE DIRECTED TO DELETE THE UPWARD ADJUSTMENT OF RS.4,48,60,208/ - MADE BY HIM TO THE APPELLANT'S TOTAL INCOME AND TO RE - COMPUTE ITS TOTAL INCOME AND TAX LIABILITY ACCORDINGLY. 1:4 WIT HOUT PREJUDICE TO THE ABOVE, THE AO ERRED IN NOT GIVING EFFECT TO THE RECTIFICATION ORDER DATED 25 JULY 2012 PASSED U/S 154 OF THE ACT BY THE TPO REDUCING THE ADJUSTMENT FROM RS.4,48,60,208/ - TO RS.3,02,91,629/ - 2:0 RE.: ADJUSTMENT OF RS.1,10,25,109/ - U/S 9 2CA OF THE ACT ON ACCOUNT OF THE PAYMENT OF MANAGEMENT CHARGES : 2:1 THE TPO ERRED IN CONSIDERING THE CORPORATE CHARGES PAID BY THE APPELLANT TO ITS AES AS SHAREHOLDER SERVICES AND CONSEQUENTLY, ERRED IN DETERMINING THE ALP AS NIL. 4.1 IN THE ORDER DATED 31.10.2011, THE TPO HAD PROPOSED A TRANSFER PRICING ADJUSTMENT OF RS.4,48,60,208/ - ON ACCOUNT OF PROVISION FOR CONSULTANCY AND DESIGN SERVICES. THE TPO, AFTER DISCUSSING THE ISSUE OF PAYMENT OF MANAGEMENT FEES, HAD N OT MADE ANY SEPARATE ADJUSTMENT FOR THE MANAGEMENT FEES OF RS.1,10,25,109/ - , SINCE THE MANAGEMENT FEE WAS CONSIDERED BY HIM TO BE A PART OF THE OPERATING COST FOR THE COMPUTATION OF THE PROFIT LEVEL INDICATOR WHILE DETERMINING THE ARMS LENGTH PRICE OF THE DESIGN AND CONSULTING SERVICES. HOWE VER, AS MENTIONED EARLIER, THE ASSESSEE IN ITA NO. 792/MUM/2013 FOR THE IMPUGNED ASSESSMENT YEAR HAS RAISED IN THE 2 ND M/S MWH INDIA PVT. LTD. MA NO. 284/MUM/2018 7 GROUND OF APPEAL - AN ADJUSTMENT OF RS.1,10,25,109/ - RELATING TO PAYMENT OF MANAGEMENT CHARGES. THE 2 ND GROUND RAISED BY THE ASSESSEE H AS CONTRIBUTED TO THE CONFUSION. 4.2 HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT NON - CONSIDERATION OF CASE LAWS CITED DURING THE COURSE OF HEARING REGARDING GRANTING OF WORKING CAPITAL ADJUSTMENT ; SELECTION OF COMPARABLE COMPANIES AND MARGIN CALCULATION OF COMPARABLE COMPANIES AS MENTIONED AT PARA 2 HEREINBEFORE ARE MISTAKES APPARENT FROM RECORD IN RESPECT OF THE 1 ST GROUND OF APPEAL. SIMILARLY, IN RESPECT OF THE 2 ND GROUND OF APPEAL NON - CONSIDERATION OF THE RELEVANT FACTS OF THE MATTER IS A MISTAKE APPAR ENT FROM RECORD. 4.3 IN VIEW OF THE FOREGOING, WE RECALL THE IMPUGNED ORDER IN RESPECT OF THE 1 ST AND 2 ND GROUND OF APPEAL AND DIRECT THE REGISTRY TO FIX THE CASE FOR HEARING BEFORE A REGULAR BENCH, AFTER INFORMING BOTH THE SIDES. 5. IN THE RESULT, THE MA IS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 11/03/2020 SD/ - SD/ - ( MAHAVIR SINGH ) (N.K. PRADHAN) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED: 11/03/2020 WAKODE, SR.P.S. M/S MWH INDIA PVT. LTD. MA NO. 284/MUM/2018 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI