M/s. Honda R&D (India) Pvt. Ltd., Gurgaon V. ACIT, New Delhi

MA 341/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1405 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 16-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2007-2008
• Appeal Filed On: 22-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BARNWAL
• Assessee Lawyers: ATAMIK CHAKRABARTY
• Keywords: Transfer pricing; International transaction

Judgement Text

1 M.A NOS. 341 & 342/DEL/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: FRIDAY NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER MA NO. 341/DEL/2018 IN I.T.A. NO. 5754//DEL/2011 (A.Y 2007-08) MA NO. 342/DEL/2018 IN I.T.A. NO. 4800//DEL/2010 (A.Y 2006-07) M/S HONDA R & D (INDIA) PVT. LTD. TECHNICAL CENTRE, PLOT NO.02, SECTOR-03, IMT MANESAR, DISTT, GURUGRAM, HARYANA-122050 PAN: AABCH307IN (APPLICANT) VS DCIT OSD, CIT-IV NEW DELHI (RESPONDENT) APPLICANT BY SH. NAGESHWAR RAO, ADV & SH. ATAMIK CHAKRABARTY, ADV RESPONDENT BY SH. M. BARNWAL, SR. DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO MISCELLANEOUS APPLICATIONS ARE FILED BY THE ASSESSEE IN RESPECT OF THE ORDER DATED 03.11.2017 PASSED BY THE TRIBUNAL. 2. THE LD. AR SUBMITTED THAT THE TRIBUNAL VIDE COMMON ORDER DATED 03 RD NOVEMBER 2017 DISPOSED OF BOTH THE APPEALS FOR A.YS. 2006-07 AND 2007-08 FILED BY THE APPLICANT. THE LD. AR SUBMITTED THAT THE TRIBUNAL DID NOT GIVE ANY DATE OF HEARING 06.11.2020 DATE OF PRONOUNCEMENT 16.12.2020 2 M.A NOS. 341 & 342/DEL/2018 SPECIFIC FINDINGS FOR ASSESSMENT YEAR 2007-08 AND HELD IN PARA 11 OF THE ORDER AS UNDER:- AS RELATES TO GROUND NO. 3 AND 5 THE ISSUES ARE SIMILAR TO THE A.Y. 2006-07, HENCE THE SAME ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE . IN EARLIER PART OF THE ORDER WHILE DECIDING APPEAL FOR AY 2006-07, THE TRIBUNAL AT PARAS 3, 5 AND 9 HELD AS UNDER: (A) FOR THE SAKE OF CONVENIENCE THE FACTS OF AY 2006-07 ARE TAKEN INTO CONSIDERATION, AS THE ISSUE RELATING TO AMP IS IDENTICAL IN BOTH THE ASSESSMENT YEARS. (B) IN AY 2005-06, HONBLE HIGH COURT IN ASSESSEES OWN CASE HAS RESTORED THE MATTER TO ITAT. (C) THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY INTERNATIONAL TRANSACTION. 3. AS BOTH THE APPEALS, BEING ON SIMILAR ISSUES, WERE DECIDED VIDE COMMON ORDER THEREFORE FINDINGS OF THE TRIBUNAL IN RELATION TO AY 2006-07 EQUALLY APPLY TO AY 2007-08 AND ACCORDINGLY MISTAKES IN THE ITATS ORDER, IS DISCUSSED, IN FOLLOWING PARAGRAPHS: (A) MISTAKE APPARENT IN PARA 3 OF ORDER. THE ITAT IN PARA 3 OF THE ORDER OBSERVED AS UNDER:- FOR THE SAKE OF CONVENIENCE THE FACTS FOR AY 2006-07 ARE TAKEN HEREUNDER AS THE ISSUE RELATING TO AMP IS IDENTICAL IN BOTH THE ASSESSMENT YEARS.' THE TRIBUNAL WHILE PASSING ITS ORDER HAS INADVERTENTLY OBSERVED THAT THE ISSUE INVOLVED IN APPEAL PERTAINS TO ADVERTISING MARKETING AND PROMOTIONAL (AMP) EXPENDITURE. THE LD. AR SUBMITTED THAT NO INTERNATIONAL TRANSACTION PERTAINING TO AMP EXPENDITURE HAS BEEN ENTERED INTO BY THE APPLICANT NOR THE SAME HAS 3 M.A NOS. 341 & 342/DEL/2018 BEEN ALLEGED BY TPO/AO. FURTHER, THE LD. AR SUBMITTED THAT THE TRIBUNALS OBSERVATION IN PARA 3 IS COMPLETELY CONTRARY TO GROUNDS OF APPEAL FOR AY 2006 - 07 AND AY 2007-08 AS RECORDED IN PARA 2 OF ORDER. THEREFORE, THE LD. AR PRAYED TO RECALL THE ORDER AND MODIFY THE TRIBUNALS ORDER. TO THIS EXTENT THERE APPEARS TO BE A CLEAR MISTAKE APPARENT FROM RECORD WHICH DESERVES TO BE CORRECTED. (B) MISTAKE APPARENT WHILE RECORDING FACTS IN PARA 5 OF ORDER. THE ITAT IN PARA 5 OF THE ORDER OBSERVED AS UNDER- THE LD. AR SUBMITTED THAT THIS ASSESSMENT YEAR IS ALREADY COVERED BY THE HONBLE DELHI HIGH COURTS DECISION IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 (ITA NO. 616/15, DATED 2/8/2016 WHEREIN IN PARA 12,13 & 26, THE SAME AS DISCUSSED AND THE MATTER WAS RESTORED TO THE ITAT. THE TRIBUNAL WHILE PASSING ITS ORDER HAS INADVERTENTLY RECORDED THAT HONBLE HIGH COURT IN APPLICANTS OWN CASE FOR AY 2005-06 HAS RESTORED THE MATTER TO THE ITAT. IT IS RESPECTFULLY SUBMITTED THAT VIDE ORDER DATED 02.08.2016, HONBLE DELHI HIGH COURT IN ITA NO. 616 OF 2015 FOR AY 2005-06 HAS CONCLUSIVELY HELD THAT APPLICANT WAS NOT INVOLVED IN R&D ACTIVITY AND RATHER WAS PROVIDING MARKET SUPPORT SERVICES TO ITS AE. THE LD. AR PRAYED TO RECALL THE ORDER AND MODIFY THE TRIBUNALS ORDER. TO THIS EXTENT THERE APPEARS TO BE A CLEAR MISTAKE APPARENT FROM RECORD WHICH DESERVES TO BE CORRECTED. (C) MISTAKE APPARENT IN PARA 5 OF ORDER THE ITAT IN PARA 5 OF THE ORDER OBSERVED AS UNDER:- AS RELATED TO WORKING CAPITAL ISSUE, THE HONBLE HIGH COURTS ORDER WAS NOT AVAILABLE BEFORE THE DRP AS WELL AS TPO. THEREFORE, THE SAID ISSUE SHOULD BE REMANDED BACK TO TPO AFTER TAKING INTO CONSIDERATION THE ORDER 4 M.A NOS. 341 & 342/DEL/2018 OF THE HONBLE HIGH COURT' THE LD. AR SUBMITTED THAT THE ISSUE OF WORKING CAPITAL ADJUSTMENT WAS NOT INVOLVED BEFORE HONBLE HIGH COURT. HOWEVER, AS DETAILS ARE AVAILABLE, PRAYER WAS MADE FOR VERIFICATION OF WORKING CAPITAL ADJUSTMENT ENTITLEMENT AND CONSIDERATION IN ACCORDANCE WITH LAW. THE TRIBUNAL MAY LIKE TO SUITABLY MODIFY PARA 10 OF THE ORDER CONSEQUENT TO ABOVE RECTIFICATION. (D) MISTAKE APPARENT IN PARA 9 OF ORDER THE ITAT IN PARA 9 OF THE ORDER OBSERVED AS UNDER:- THUS THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY INTERNATIONAL TRANSACTION. THE LD. AR SUBMITTED THAT ONLY DISPUTE BEFORE THE TRIBUNAL WAS PERTAINING TO BENCHMARKING DONE BY TPO BY TREATING APPLICATION AS CORE R & D ENTITY, WHICH IS NOW COVERED IN FAVOUR OF APPLICANT BY AFORESAID DECISION OF HONBLE DELHI HIGH COURT. THE LD. AR FURTHER SUBMITTED THAT NEITHER PARTY EVER DISPUTED EXISTENCE OF ANY INTERNATIONAL TRANSACTION. FURTHER, THE TRIBUNAL IN ITS ORDER AT PARA 4 HAS SUMMARIZED THE INTERNATIONAL TRANSACTIONS, AS REPORTED IN FORM 3CEB FOR AY 2006-07, UNDERTAKEN BY APPLICANT WITH ITS AE, MOST OF WHICH ARE EVEN CONTINUING DURING AY 2007-08. THUS, THE LD. AR PRAYED TO RECALL THE ORDER AND MODIFY THE HONBLE TRIBUNALS ORDER. TO THIS EXTENT THERE APPEARS TO BE A CLEAR MISTAKE APPARENT FROM RECORD WHICH DESERVES TO BE CORRECTED. (E) THE LD. AR FURTHER SUBMITTED THAT THERE IS NO CLEAR FINDING ON ISSUES OTHER THAN WORKING CAPITAL ADJUSTMENT. THE TRIBUNAL MAY CORRECT THE ERROR POINTED OUT AT POINT (B) ABOVE AND GIVE A CLEAR DECISION ON ALL THE GROUNDS OF APPEAL OTHER THAN WORKING CAPITAL ADJUSTMENT. 4. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE VARIOUS COURTS HAVE LAID DOWN THAT IN A SCENARIO WHEREIN INCORRECT OBSERVATION/FINDING HAS BEEN GIVEN BY TRIBUNAL THE SAME CONSTITUTES A MISTAKE APPARENT FROM RECORD AND THE ORDER 5 M.A NOS. 341 & 342/DEL/2018 OF THE TRIBUNAL NEEDS TO BE RECTIFIED. FOR THIS PURPOSE, RELIANCE IS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF HONDA SIEL POWER PRODUCT LTD V CIT (295 ITR 466) WHEREIN THE PRINCIPLE WAS LAID DOWN BY HONBLE SUPREME COURT THAT IN A CASE WHERE PREJUDICE HAD RESULTED TO THE PARTY, WHICH PREJUDICE IS ATTRIBUTABLE TO THE TRIBUNALS MISTAKE, ERROR OR OMISSION AND WHICH ERROR IS MANIFEST ERROR THEN THE TRIBUNAL WOULD BE JUSTIFIED IN RECTIFYING ITS MISTAKE. THE LD. AR SUBMITTED THAT INCORRECT FINDING CONSTITUTES A MISTAKE WHICH IS APPARENT FROM RECORD AND THE SAME NEEDS TO BE RECTIFIED. THUS, IN VIEW OF THE FACTUAL AND LEGAL SUBMISSIONS MADE ABOVE, THE LD. AR PRAYED THAT THE TRIBUNAL MAY CORRECT THE MISTAKES APPARENT FROM THE RECORD AND CONSEQUENTLY DECIDE THE ISSUE OF CHARACTERIZATION OF TRANSACTION AND COMPARABLES IN LINE WITH ORDER OF HONBLE JURISDICTIONAL DELHI HIGH COURT IN APPLICANTS OWN CASE AND FURTHER DIRECT GRANT OF WORKING CAPITAL ADJUSTMENT AFTER VERIFICATION. 5. THE LD. DR SUBMITTED THAT PRIMA FACIE THERE APPEARS TO BE CERTAIN MISTAKE ABOUT THE FACTS CREPT IN THE ORDER FOR THIS PARTICULAR ASSESSMENT YEAR IN ORDER DATED 03.11.2017. BUT OVERALL, THE LD. DR OPPOSED THE MISC. APPLICATION. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ORDER DATED 03.11.2017, IT APPEARS THAT THE CONTENTIONS OF THE ASSESSEE RAISED IN THE PRESENT MISC. APPLICATIONS ARE CORRECT AND THERE IS A MISTAKE APPARENT FROM RECORD. THEREFORE, WE ARE RECALLING OUR ORDER DATED 03.11.2017 AND MODIFY THE SAID ORDER ACCORDINGLY. (A) AS REGARDS TO FIRST MISTAKE, THE LD. AR RIGHTLY SUBMITTED THAT PARA 3 IS CONTRARY TO THE GROUNDS OF APPEAL FOR A.Y. 2006-07 AND 2007-08 AS RECORDED IN PARA 2 OF THE ORDER. HENCE, WE ARE MODIFYING PARA 3 AND THE SAME MAY BE READ AS UNDER: 3. FOR THE SAKE OF CONVENIENCE, THE FACTS FOR A.Y. 2006-07 ARE TAKEN HEREINAFTER. 6 M.A NOS. 341 & 342/DEL/2018 (B) AS REGARDS TO SECOND MISTAKE, THE LD. AR RIGHTLY POINTED OUT THAT THE HONBLE HIGH COURT IN ASSESSEES OWN CASE FOR A.Y. 2005-06 HAS NOT RESTORED THE MATTER TO THE TRIBUNAL, BUT HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE WAS NOT INVOLVED IN R&D ACTIVITY AND RATHER WAS PROVIDING MARKET SUPPORT SERVICES TO ITS AE. THUS, IN PARA 5, THE CORRECT SUBMISSIONS OF THE LD. AR BE RECORDED. (C) THE LD. AR FURTHER SUBMITTED THAT REGARDING THE THIRD MISTAKE IN PARA 5 IS ABOUT THE ISSUE OF WORKING CAPITAL ADJUSTMENT WAS NOT INVOLVED BEFORE THE HONBLE HIGH COURT. HOWEVER, AS DETAILS ARE AVAILABLE, THE LD. AR PRAYED FOR VERIFICATION OF WORKING CAPITAL ADJUSTMENT ENTITLEMENT AND CONSIDERATION IN ACCORDANCE WITH LAW. THE LD. AR SUBMITTED THAT PARA 10 SHOULD BE MODIFIED ACCORDINGLY AS WELL. HENCE, WE ARE MODIFYING PARA 5 & PARA 10 AND THE SAME MAY BE READ AS UNDER: 5. THE LD. AR SUBMITTED THAT THIS ASSESSMENT YEAR IS ALREADY COVERED BY THE HONBLE DELHI HIGH COURTS DECISION IN ASSESSEES OWN CASE FOR A.Y. 2005-06 (ITA NO. 616/15 DATED 02.08.2016) WHEREIN IN PARA 24, 25 & 26, THE ISSUE WAS DISCUSSED AND HELD IN FAVOUR OF THE ASSESSEE. THE HONBLE HIGH COURT CLEARLY MENTIONED IN PARA 25 THAT HONDA R&D INDIA PVT. LTD. WAS NOT INTO CORE RESEARCH & DEVELOPMENT ACTIVITY. THUS, THE TPOS AS WELL AS THE DRPS FINDING THAT IT IS AT ARMS LENGTH PRICE WILL NOT SUSTAIN. AS RELATED TO WORKING CAPITAL ADJUSTMENT, THE LD. AR SUBMITTED THAT SINCE THIS ISSUE WAS NOT BEFORE THE HONBLE HIGH COURT, THE TPO/AO MAY BE DIRECTED TO VERIFY THE WORKING CAPITAL ADJUSTMENT AND CONSIDERATION IN ACCORDANCE WITH LAW. 10. AS RELATES TO WORKING CAPITAL ADJUSTMENT THE ISSUE WAS NOT BEFORE THE HONBLE HIGH COURT, AND SINCE THE DETAILS ARE AVAILABLE, WE DIRECT THE TPO/AO TO VERIFY THE WORKING CAPITAL ADJUSTMENT ENTITLEMENT AND CONSIDERATION ACCORDING TO THE LAW. HENCE THIS ISSUE IS PARTLY ALLOWED. (D)AS REGARDS TO FOURTH MISTAKE, THE LD. AR RIGHTLY SUBMITTED THAT THERE IS ONLY ONE DISPUTE PERTAINING TO BENCH MARKING DONE BY THE TPO BY TREATING THE ASSESSEE AS CORE R&D ENTITY, WHICH IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN A.Y. 2005-06. IN FACT, FROM THE 7 M.A NOS. 341 & 342/DEL/2018 FACTS IT EMERGES THAT NO PARTY DISPUTED THE EXISTENCE OF THE INTERNATIONAL TRANSACTIONS, AS REPORTED IN FORM 3CEB FOR A.Y. 2006-07 UNDERTAKEN BY THE ASSESSEE WITH ITS AE, MOST OF WHICH ARE EVEN CONTINUING DURING A.Y. 2007-08. HENCE, WE ARE MODIFYING PARA 9 AND THE SAME MAY BE READ AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY WE TAKE UP THE APPEAL FOR A.Y. 2006-07, SINCE THE FINDING OF THE HON'BLE HIGH COURT FOR ASSESSMENT YEAR 2005-06 HAS CLEARLY CONCLUDED THAT FOR ASSESSMENT YEAR 2005-06 THE ASSESSEE HAS NOT CARRIED OUT ANY RESEARCH AND DEVELOPMENT ACTIVITY, THE SAME CANNOT BE TAKEN INTO ACCOUNT FOR RENDERING SERVICES AS PER INTERNATIONAL TRANSACTIONS. THE HIGH COURT IN ASSESSEES CASE FOR A.Y. 2005-06 HELD AS UNDER: 24. STRANGELY THE ITAT AGAIN PICKED UP THREE COMPARABLES, I.E., NATIONAL RESEARCH DEVELOPMENT CORPORATION LIMITED, PANACEA BIOTECH AND SUVEN LIFE SCIENCES, WHICH HAD BEEN REJECTED AS COMPARABLES BY THE TPO IN ITS REMAND REPORT FOR AY 2005-2006. THE CIT(A) HAS GIVEN COGENT REASONS WHY THE TPOS REPORT OUGHT TO BE ACTED UPON. THE ITAT ALSO APPEARS TO HAVE OVERLOOKED THE FACT THAT AN ORDER OF ANOTHER CO-ORDINATE BENCH OF ITAT IN HRDPS OWN CASE FOR AY 2004-2005 HAD REMANDED THE MATTER TO THE CIT(A), ACTING ON THE REMAND REPORT OF THE TPO FOR AY 2005-06. BY TAKING A DIFFERENT VIEW AND BY AGAIN SENDING TO THE CIT(A) THE ENTIRE ISSUE OF DETERMINING WHICH COMPARABLES WERE BEST SUITED FOR THE EXERCISE OF DETERMINATION OF ALP, THE ITAT WAS ADDING TO THE CONFUSION RESULTING FROM CONTRADICTORY ORDERS. 25. THE COURT IS OF THE CONSIDERED VIEW THAT THE ITAT DID NOT HAVE SUFFICIENT MATERIAL BEFORE IT TO COME TO THE CONCLUSION THAT HRDI WAS INTO CORE R&D ACTIVITY. THAT FINDING OF THE ITAT WOULD ONLY CAUSE CONFUSION BEFORE THE CIT(A) IN THE REMAND PROCEEDINGS. ON THE OTHER HAND THERE WAS SUFFICIENT MATERIAL IN THE FORM OF THE REMAND REPORT OF THE TPO FOR AY 2005- 2006 AS WELL AS DRPS ORDER FOR 2007-2008 TO SHOW THAT HRDI WAS NOT 8 M.A NOS. 341 & 342/DEL/2018 INTO CORE R&D ACTIVITY. 26. ACCORDINGLY QUESTION (I) IS ANSWERED IN THE NEGATIVE BY HOLDING THAT THE ITAT WAS NOT JUSTIFIED IN CONCLUDING THAT HRDI WAS INVOLVED IN R&D ACTIVITY AND NOT PROVISION OF MARKET SUPPORT SERVICES. THE ORDER OF THE CIT(A), WHICH WAS REVERSED BY THE ITAT, IS RESTORED. THE HONBLE HIGH COURT HAS DECIDED THE ISSUE IN A.Y. 2005-06 IN FAVOUR OF THE ASSESSEE AND THE FACTS ARE IDENTICAL IN A.Y. 2006-07. NO CONTRARY FACTS WERE PUT UP BY THE LD. DR DURING THE COURSE OF HEARING. HENCE, THIS ISSUE IS ALLOWED. SINCE THE ISSUE IN A.Y. 2006-07 IS DECIDED IN FAVOUR OF THE ASSESSEE, THE SAME IS APPLICABLE FOR A.Y. 2007-08 AS WELL, THEREFORE, WE ARE MODIFYING PARA 11 AND 12 AS WELL. PARAS 11 AND 12 READS AS UNDER: 11. IN RESPECT OF THE APPEAL FOR A.Y. 2007-08, GROUND NO. 1, 2 AND 4 ARE NOT PRESSED BY THE LD. AR DURING THE HEARING HENCE, THE SAME ARE DISMISSED. AS RELATES TO GROUND NO. 3 AND 5, THE ISSUES ARE SIMILAR TO THE A.Y. 2006-07, HENCE THE SAME ARE PARTLY ALLOWED. 12. IN RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. 7. IN RESULT, BOTH THE MISC. APPLICATIONS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16TH DAY OF DECEMBER, 2020. SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 16/12/2020 R. NAHEED COPY FORWARDED TO: 9 M.A NOS. 341 & 342/DEL/2018 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 09.11.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09.11.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 16.12.2020 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 16.12.2020 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 16.12.2020 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 16.12.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 16.12.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 16.12.2020 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER