General Motors India Private Limited, Panchmahal V. The ACIT., Panchmahal Circle, Godhra

MA 65/AHD/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8202 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 13 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 16-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing

Judgement Text

MA NO.65/AHD/2017 (IN ITA NO.1294/AHD/2015) ASSESSMENT YEAR: 2007-08 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR VICE PRESIDENT AND MADHUMITA R OY JM] M.A. NO.65/AHD/2017 (IN ITA NO.1294/AHD/2015) ASSESSMENT YEAR: 2007-08 GENERAL MOTORS INDIA PVT. LTD., .. APPLICANT CHANDRAPURA INDUSTRIAL ESTATE, HALOL, DISTRICT PANCHMAHAL, GUJARAT 389 351. [PAN: AAACG 8371 P] VS. ASSTT. COMMISSIONER OF INCOME TAX, .......... RESPONDENT PANCHMAHAL CIRCLE, GODHARA. APPEARANCES BY S.N. SOPARKAR & SHREYASH SHAH FOR THE APPLICANT S.K. DEV FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 07.09.2018 DATE OF PRONOUNCEMENT : 31.12.2018 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT: BY WAY OF THIS MISCELLANEOUS APPLICATION, THE ASSES SEE APPLICANT POINTS OUT OUR ATTENTION TO THE MISTAKE SAID TO HAVE CREPT IN OUR ORDER DATED 11.08.2016. 2. IT IS POINTED OUT THAT MISTAKE HAS OCCURRED WHIL E DISPOSING OF GROUND NO.4 RAISED IN THE APPEAL MEMO PERTAINING TO ADJUSTMENT AMOUNTING TO RS.4,89,60,504/- TO THE ARMS LENGTH PRICE (ALP) OF ROYALTY PAYMENTS TO GM DAEWOO AUTO & TECHNOLOGY (GM DAT/ GM KOREA) UNDER J200 TECHNO LOGY LICENSE AGREEMENT (TLA) BEING PAID 5% OF THE NET ASSESSABLE VALUE O F THE UNITS SOLD. 3. IT IS POINTED OUT THAT THE TRIBUNAL HAS OBSERVED THAT NOTHING HAS BEEN BROUGHT ON RECORD IN THE REMAND PROCEEDINGS TO SHOW THAT TH E EXTERNAL CUP AGREEMENTS MA NO.65/AHD/2017 (IN ITA NO.1294/AHD/2015) ASSESSMENT YEAR: 2007-08 PAGE 2 OF 6 USED BY THE TPO TO BENCHMARK THE ROYALTY PAYMENTS A RE NOT COMPARABLE. IN THIS REGARD, ASSESSEE APPLICANT HAS POINTED OUT AS FOLLO WS :- 5. AT THE OUTSET ATTENTION IN THIS REGARD, IS INVI TED TO THE DIRECTIONS OF THE ITAT IN THE FIRST ROUND OF APPELLATE PROCEEDINGS VI DE ORDER DATED AUGUST 2, 2013 (REFER PARAS 19.3 TO 19.13 PAGES 34 TO 36 OF THE OR DER). A COPY OF THE HON'BLE TRIBUNAL'S ORDER IN THE FIRST ROUND IS ATTA CHED HEREWITH AS ANNEXURE-2. THE HON'BLE TRIBUNAL IN THE SAID ORDER DIRECTED THE TRANSFER PRICING OFFICER ('TPO') TO EXAMINE THE CONTENTIONS OF THE APPLICANT REGARDING COMPARABILITY OF INTERNAL CUP AGREEMENT BETWEEN APPLICANT AND THE ISUZU MOTORS LTD, JAPAN ('ISUZU') ALREADY ON RECORD. THE HON'BLE TRIB UNAL FURTHER DIRECTED THE TPO TO DEMONSTRATE AS TO HOW THE COMPARABLE EXTERNA L F AGREEMENTS BETWEEN, I.E. GMDAT AND (I) NAMYANG-HENGLONG; AND ( II) DELPHI-JINGZHOU WERE VALID COMPARABLE TO BENCHMARK THE ROYALTY PAYM ENTS. THE HON'BLE TRIBUNAL ALSO NOTED IN PARA 19.12/PAGE 36, THAT THE DISPUTE RESOLUTION PANEL ('DRP') HAVE NOT DEALT WITH THE CONTENTIONS PUT FOR TH BY THE APPLICANT AS TO WHICH CUP AGREEMENT WOULD BE FUNCTIONAL COMPARABLE TO AGREEMENT UNDER WHICH THE APPLICANT IS PAYING ROYALTY. THE TRIBUNAL , ACCORDINGLY, DIRECTED THE TPO TO ACCEPT OR REJECT THE ROYALTY AGREEMENTS ON R ECORD POST EXAMINATION OF THE TERMS AND CONDITIONS, BASIS WHICH IT COULD HAVE ONLY BEEN DETERMINED WHETHER AN AGREEMENT (EITHER CHOSEN BY THE APPLICAN T OR BY THE TPO) COULD HAVE BEEN SELECTED AS A VALID COMPARABLE UNDER THE CUP METHOD TO BENCHMARK THE ROYALTY PAYMENTS IN THE INSTANT YEAR. THE RELEVANT OBSERVATIONS ARE REPRODUCED AS UNDER: 19.12 ................ THE ASSESSES HAD TAKEN THE A GREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ISUZU AND TREATED AS CUP W HEREAS THE TPO HAD AS CUP THE AGREEMENTS OF (I) NAMYANG-HENGLO NG; AND (II) DELPHI-JINGZHOU. THIS HAS BEEN ASSAILED BY THE ASSE SSEE FOR THE REASONS NARRATED ABOVE. THE AGREEMENT ENTERED INTO BY THE ASSESSEE AS WELL AS THE AGREEMENTS OF UNRELATED PARTIES REFE RRED TO BY THE TPO CONTAINED [TERMS AND CONDITIONS] THE NATURE AND SCO PE OF SERVICES INVOLVED WHICH REQUIRED TO BE EXAMINED. THE DRP HAD, WITHOUT INVOLVING ITSELF IN ANALYZING THE CONTENTIONS PUT-F ORTH BY THE ASSESSEE WITH THAT OF THE TPO IN REJECTING THE ASSE SSEE' COMPARABLE, SUSTAINED THE TPO'S STAND WITHOUT ASSIG NING ANY PLAUSIBLE REASON WHATSOEVER. MOREOVER THE RELEVANT AGREEMENTS WHICH CONTAINED TERMS AND CONDITIONS ON THE BASIS O F WHICH, THEY WERE TO BE SELECTED AS COMPARABLES. OBVIOUSLY, THIS REQUIRES CONSIDERABLE VERIFICATION, EXAMINATION AND COMPARIS ON. 19.13 IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE REQUIRES TO BE REMITTED BACK ON THE FILE OF THE TPO FOR A DETAILED EXAMINATION AND VERIFICATION OF THE ASSESS EE'S CONTENTIONS. TO FACILITATE THE TPO TO IMPLEMENT THE ABOVE DIRECT ION, THIS ISSUE IS RESTORED ON THE FILE OF THE TPO TO TA KE APPROPRIATE ACTION AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASS ESSEE OF BEING HEARD.' (EMPHASIS SUPPLIED) MA NO.65/AHD/2017 (IN ITA NO.1294/AHD/2015) ASSESSMENT YEAR: 2007-08 PAGE 3 OF 6 6. IT IS SUBMITTED THAT THE APPLICANT HAD GIVEN DET AILED SUBMISSIONS FOR SELECTION OF THE AGREEMENT BETWEEN APPLICANT AND IS UZU MOTORS LTD, JAPAN ('ISUZU') AND ALSO OBJECTED TO THE USE OF THIRD PAR TY AGREEMENTS, IE, (I) NAMYANG-HENGLONG; AND (II) DELPHI-JINGZHOU FOR BENC HMARKING ROYALTY PAYMENTS. ATTENTION IN THIS REGARD IS INVITED TO TH E SUBMISSIONS DATED SEPTEMBER 30, 2010 (REFER PAGE 551 OF THE PAPER-BOOK VOLUME-1) FILED BEFORE THE TPO IN THE FIRST ROUND OF ASSESSMENT PRO CEEDINGS. IN THE SAID SUBMISSIONS THE APPLICANT HAD NOT ONLY PROVIDED DET AILED OBJECTIONS TO USE OF THE AGREEMENTS, IE, (I) NAMYANG-HENGLONG; AND (II) DELPHI-JINGZHOU AS BENCHMARK BUT HAD ALSO OBJECTED TO THE COMPUTATION ADOPTED BY THE TPO FOR CONSIDERING THE ABOVE AGREEMENTS. DETAILED CONTENTI ONS IN THIS REGARD WERE ALSO RAISED BEFORE THE DRP IN FORM 35A (REFER PAGES 371 TO 482 OF THE PAPER-BOOK VOLUME-1/ RELEVANT SUBMISSIONS AT PAGES 460 TO 463 OF THE PAPER-BOOK VOLUME-1). 7. IT IS RESPECTFULLY SUBMITTED THAT THE TPO VIDE ORDER DATED JANUARY 29, 2015 PASSED PURSUANT TO REMAND DIRECTIONS, MERELY R EPRODUCED THE DIRECTIONS OF THE HON'BLE TRIBUNAL AND THE STAND TAKEN BY HIS PREDECESSOR. A COPY OF THE ORDER PASSED BY THE TPO PURSUANCE TO THE REMAND DIR ECTIONS BY THE HON'BLE TRIBUNAL IS ATTACHED HEREWITH AS ANNEXURE-3. THE TPO DID NOT, HOWEVER, VERIFY/EXAMINE THE CUP AGREEMENTS WHICH WERE ALREAD Y ON RECORD TO DEMONSTRATE AS TO WHICH AGREEMENT CAN BE HELD TO BE A VALID CUP FOR BENCHMARKING THE ROYALTY PAYMENTS. THE TPO MERELY R EITERATED THE STAND TAKEN BY THE PREDECESSOR AND HELD THAT TPO IN THE E ARLIER ROUND HAS HELD THAT THE AGREEMENT BETWEEN APPLICANT AND ISUZU IS NOT EX ACTLY COMPARABLE. FURTHER, IN RELATION TO THE EXTERNAL THIRD PARTY AG REEMENTS USED BY THE TPO IN THE FIRST ROUND OF PROCEEDINGS IT WAS MERELY REITER ATED THAT THE SAME SHOULD BE TAKEN AS A VALID CUP. THUS, NOT EXAMINING THE TERMS AND CONDITIONS OF THE AGREEMENTS TO COME TO A REASONED INFERENCE BASIS FU NCTIONAL COMPARABILITY. THOUGH THE TPO IN THE ORDER PASSED IN THE REMAND PR OCEEDINGS HAS MADE REFERENCE TO SUBMISSIONS DATED SEPTEMBER 30, 2012 A ND OCTOBER 7, 2014, WHEREIN THE APPLICANT HAD STATED ITS CONTENTIONS (I ) THAT THE AGREEMENT BETWEEN APPLICANT AND ISUZU SHOULD BE ACCEPTED AS A VALID INTERNAL CUP; (II) THE ROYALTY PAYMENTS TO BE ACCEPTED TO BE AT ALP BA SIS THE CONSISTENT APPROACH AS THE SAME STAND ACCEPTED IN FINANCIAL YE AR 2005-06, HOWEVER, DID NOT VERIFY THE SAID AGREEMENTS OR THE CONTENTIONS R AISED. 8. IN THE IMPUGNED ORDER THE HON'BLE TRIBUNAL ON T HE SOLE PREMISE THAT THE APPLICANT HAS NOT MADE ANY SUBMISSIONS ON THE USE O F EXTERNAL CUP IN BOTH THE ROUND OF PROCEEDINGS, UPHELD THE ADJUSTMENT IN RELATION TO ROYALTY PAYMENTS. IT IS THE RESPECTFUL SUBMISSION OF THE AP PLICANT THAT THE SAME IS FACTUALLY IMPRECISE. DETAILED SUBMISSIONS WERE MADE IN THE FIRST ROUND OF PROCEEDINGS AS HAVE BEEN STATED SUPRA, WHICH WERE N OT DEALT WITH BY THE LOWER AUTHORITIES. THEREFORE, THE ONUS WAS ON THE T PO TO DEAL WITH THE OBJECTIONS/CONTENTIONS ALREADY RAISED BY THE APPLIC ANT AS WAS ALSO DIRECTED BY THE HON'BLE TRIBUNAL WHILE REMANDING THE ISSUE FOR DE NOVO ADJUDICATION. MA NO.65/AHD/2017 (IN ITA NO.1294/AHD/2015) ASSESSMENT YEAR: 2007-08 PAGE 4 OF 6 9. IN VIEW OF THE AFORESAID, AND IN THE INTEREST O F JUSTICE, IT IS RESPECTFULLY PRAYED, THAT TRIBUNAL MAY REMIT THE ISSUE OF BENCHM ARKING THE ROYALTY PAYMENTS TO THE FILE OF THE TPO TO SPECIFICALLY DEA L WITH THE CONTENTIONS OF THE APPLICANT IN TERMS OF THE DIRECTIONS ISSUED BY THE HON'BLE TRIBUNAL IN THE FIRST ROUND VIDE ORDER DATED AUGUST 2, 2013. IT MAY BE PO INTED OUT THAT SIMILARLY IT HAS BEEN DIRECTED BY THE HONBLE TRIBUNAL IN ITA NO .2634/AHD/2012 IN APPLICANTS OWN CASE FOR AY 2008-09 4. LEARNED COUNSEL SUBMITS THAT THE TRIBUNAL WAS CL EARLY IN ERROR IN OBSERVING THAT THE ASSESSEE DID NOT HAVE MUCH TO SAY ON THE EXTERNAL COMPARABLE GIVEN BY THE TPO. OUR ATTENTION WAS THEN INVITED TO OBSER VATION OF THE TRIBUNAL THAT ONCE AN ASSESSEE IS GIVEN A COMPARABLE INSTANCE AN OPPOR TUNITY TO EXPLAIN AS TO WHY SUCH A COMPARABLE SHOULD NOT BE ADOPTED, AND YET AS SESSEE REMAINS QUIET ON THE ISSUE, IT SHOULD NOT BE OPEN TO HIM TO BE AGGRIEVED OF THE SAME EXTERNAL COMPARABLE BEING ADOPTED. 5. LEARNED COUNSEL SUBMITS THAT THIS OBSERVATION IN THE LIGHT OF THE SUBMISSIONS MADE ABOVE IS FACTUALLY INCORRECT AND IT IS WITH TH IS REASON THE TRIBUNAL HAD CONFIRMED THE ARMS LENGTH PRICE (ALP) ADJUSTMENT OF RS.4,89,60,504/-. IT IS SUBMITTED THAT RATHER THAN SUMMARILY REJECTING THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT HAVE ANYTHING TO SAY IN THIS REGARD WHICH IS CLEARLY INCORRECT, THE TRIBUNAL OUGHT TO HAVE DEALT WITH THE MERITS OF THE CASE. WE, THEREFORE, URGE TO RECALL THE ORDER TO THE LIMITED EXTENT OF GROUND NO.4 AND DISPOSE OF THE MATTER ON MERITS. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, SUBMITTED THAT THE TRIBUNAL HAS TAKEN A CONSCIOUS DECISION TO DISMISS THE PLEA OF THE ASSESSEE AND THIS DECISION CANNOT BE REVIEWED IN THE COURSE OF PROCEE DINGS WHICH MUST REMAIN CONFINED TO SOMETHING WHICH IS CLEARLY ERRONEOUS AN D MISTAKE APPARENT ON RECORD. HE THUS URGES TO DECLINE TO INTERFERE IN THE MATTER . 7. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MARTIAL ON RECORD, WE MUST ADMIT THAT THERE IS INDEED A GLARING ERROR, WHICH IS NOT CAPABLE OF TWO VIEWS BEING TAKEN IN THE IMPUGNED ORDER. WE FIND THAT IN PARAGRAPH NO.42 OF THE IMPUGNED MA NO.65/AHD/2017 (IN ITA NO.1294/AHD/2015) ASSESSMENT YEAR: 2007-08 PAGE 5 OF 6 ORDER WHICH DEALS WITH THE GROUND NO.4, THE OBSERVA TION MADE BY THE TRIBUNAL IS AS FOLLOWS :- 42. CLEARLY, EVEN IN THIS ROUND OF PROCEEDINGS, TH E ASSESSEE DID NOT HAVE MUCH TO SAY ON THE EXTERNAL COMPARABLE GIVEN BY THE TPO. ONCE AN ASSESSEE IS GIVEN A COMPARABLE INSTANCE AN OPPORTUN ITY TO EXPLAIN AS TO WHY SUCH A COMPARABLE SHOULD NOT ADOPTED, AND YET ASSES SEE REMAINS QUIET ON THE ISSUE, IT SHOULD NOT BE OPEN TO HIM TO BE AGGRI EVED OF THE SAME EXTERNAL COMPARABLE BEING ADOPTED. NO OTHER MATERIAL IS ON R ECORD TO SHOW THAT THE ASSESSEE MADE ANY EFFORTS TO DEMONSTRATE THAT THE S AID EXTERNAL COMPARABLE FOR CUP IS NOT COMPARABLE WITH THE FACTS OF THIS CA SE. UNDOUBTEDLY, A PARTICULAR STAND WAS TAKEN IN THE ASSESSMENT YEAR 2 005-06 BUT THAT WAS A STAGE IN WHICH NO EXTERNAL COMPARABLE WAS AVAILABLE TO THE TPO. NOW THAT AN EXTERNAL COMPARABLE AS CUP INPUT IS AVAILABLE, AND THE ASSESSEE HAS NOT MADE ANY EFFORTS TO SHOW AS TO THIS CUP INPUT IN DI FFERENT IN RESPECT TO THE ROYALTY TRANSACTION UNDERTAKEN BY THE ASSESSEE, SUC H AN EXTERNAL COMPARABLE CAN INDEED BE ACCEPTED. WE SEE NO INFIRMITY IN THE SAME AND WE, THEREFORE, CONFIRM THE ACTION OF THE TPO ON THIS COUNT. 8. THIS OBSERVATION MADE IN THE OPENING SENTENCE OF THE AFORESAID PARAGRAPH DOES NOT TAKE INTO ACCOUNT THE FACT, AS RECORDED BY THE TRIBUNAL, IN THE FIRST ROUND OF PROCEEDINGS THAT THE DRP HAD NOT ANALYSED CONTENTIO NS PUT FORTH BY THE ASSESSEE AND SUSTAINED THE TPOS STAND WITHOUT ASSIGNING ANY REASON. WHATEVER MAY HAVE BEEN THE WORTH OF EXPLANATION OF THE ASSESSEE, IT C OULD CLEARLY NOT BE SAID THAT THE ASSESSEE DID NOT HAVE ANYTHING TO SAY ON THE COMPAR ABLE ADOPTED. TO THIS EXTENT WE WERE INDEED IN ERROR IN PROCEEDINGS ON THE BASIS THAT THE ASSESSEE KEPT QUIET EVEN WHEN AN OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO EXPLAIN AS TO WHY THE COMPARABLE SHOULD NOT BE ADOPTED. WE, THEREFORE, D EEM IT FIT AND PROPER TO RECALL THE ORDER FOR THE LIMITED PURPOSES OF DEALING WITH GROUND NO.4 ON MERITS IN ACCORDANCE WITH LAW AND AFTER GIVING A REASONABLE O PPORTUNITY OF HEARING TO BOTH THE PARTIES. 9. AS WE DO SO, WE ARE ALIVE TO THE FACT THAT WITH THE SCOPE OF PROCEEDING UNDER SECTION 254(2) I.E. RECTIFICATION OF THE MISTAKE IS INHERENTLY LIMITED TO SUCH ISSUE WHICH ARE NOT CAPABLE OF TWO VIEWS BEING TAKEN AND CONSTI TUTE A GLARING MISTAKE APPARENT ON RECORD. HOWEVER, IN OUR CONSIDERED VIEW, OUR OB SERVATION TO THE EFFECT THAT THE ASSESSEE DID NOT HAVE ANYTHING TO SAY ON THE EXTERN AL COMPARABLE BEING ADOPTED IS CLEARLY ONE SUCH MISTAKE WHICH, IN THE LIGHT OF MAT ERIAL ON RECORD, CANNOT BE SAID TO BE CAPABLE OF TWO VIEWS BEING TAKEN. THE ASSESSEE HAD OBJECTION TO EXTERNAL MA NO.65/AHD/2017 (IN ITA NO.1294/AHD/2015) ASSESSMENT YEAR: 2007-08 PAGE 6 OF 6 COMPARABLE BEING TAKEN AND THE OBJECTION SO RAISED BY THE ASSESSEE, AS NOTED BY THE TRIBUNAL IN THE FIRST ROUND OF PROCEEDINGS, WER E NOT DEALT WITH AT ALL. THE VERY FOUNDATION OF THE DECISION RESTS ON A FACTUAL PREMI SE WHICH IS CLEARLY INCORRECT. IN VIEW OF THIS DISCUSSION AS ALSO BEARING IN MIND ENT IRETY OF THE CASE, WE ALLOW THE PLEA RAISED BY THE ASSESSEE TO THE EXTANT INDICATED ABOV E. IN EFFECT, THE DECISION OF THE TRIBUNAL ON GROUND NO.4 IS RECALLED AND REGISTRY IS DIRECTED TO FIX THE MATTER FOR HEARING FOR THE LIMITED PURPOSES OF DISPOSING OF GR OUND NO.4 AFRESH. 10. IN THE RESULT, THE MISCELLANEOUS APPLICATION IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 3 1 ST DAY OF DECEMBER, 2018. SD/- SD/- MADHUMITA ROY PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, DATED THE 31 ST DAY OF DECEMBER, 2018 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD