INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD., NEW DELHI v. DCIT, CIRCLE- 2,, GURGAON

ITA 4240/DEL/2017 | 2011-2012
Pronouncement Date: 03-03-2021 | Result: Allowed

Appeal Details

RSA Number 424020114 RSA 2017
Assessee PAN AAGCS7613G
Bench Delhi
Appeal Number ITA 4240/DEL/2017
Duration Of Justice 3 year(s) 8 month(s) 4 day(s)
Appellant INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD., NEW DELHI
Respondent DCIT, CIRCLE- 2,, GURGAON
Appeal Type Income Tax Appeal
Pronouncement Date 03-03-2021
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 03-03-2021
Assessment Year 2011-2012
Appeal Filed On 27-06-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI KULDIP SINGH JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI ACCOUNTANT MEMBER ITA NO.4240/DEL./2017 (ASSESSMENT YEAR : 2011-12) M/S. INTERCONTINENTAL HOTELS GROUP (INDIA) VS. DCIT CIRCLE 2 PRIVATE LIMITED GURGAON. 11 TH FLOOR BUILDING 10 TOWER C DLF CYBER CITY DLF PHASE II GURGAON 122 002 (HARYANA). (PAN : AAGCS7613G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ATUL JAIN ADVOCATE REVENUE BY : SHRI DHIRAJ JAIN SENIOR DR DATE OF HEARING : 18.02.2021 DATE OF ORDER : 03.03.2021 O R D E R PER KULDIP SINGH JUDICIAL MEMBER : APPELLANT M/S. INTERCONTINENTAL HOTELS GROUP (INDIA) PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FIL ING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 24.04.2017 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- 1 GURGAON IN AN APPEAL CHALLENGING THE ORDERS PASS ED BY THE LD. TPO/AO QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUN DS INTER ALIA THAT :- ITA NO.4240/DEL./2017 2 L. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) - 1 (' HON'BLE CIT(A)') HAS ERRED IN CONFIRMING AN ADDITION TO THE EXTENT OF INR 1 09 13 894 MADE BY THE LEARNED DEPUTY COMMISS IONER OF INCOME TAX CIRCLE-2 GURGAON ('LD. AO')/ LEARNED A DDITIONAL COMMISSIONER OF INCOME TAX TRANSFER PRICING OFFICE R - 1(3} NEW DELHI ('LD. TPO') ON ACCOUNT OF ADJUSTMENT TO T HE ARM'S LENGTH PRICE ('ALP') OF THE APPELLANT'S INTERNATION AL TRANSACTION OF PROVISION OF ANCILLARY MANAGEMENT SU PPORT SERVICES TO ITS ASSOCIATED ENTERPRISES ('AES'). 2. ON FACTS AND IN LAW THE HON'BLE CIT(A) HAS ERRE D IN DISPOSING OFF THE ORDER WHILE DEALING WITH COM PARA BLES SUMMARILY BASED ON CONJECTURES AND SURMISES THEREB Y CONTRAVENING THE PROVISIONS OF THE RULE 10B(2) OF T HE INCOME TAX RULES 1962 ('RULES'). IN DOING SO THE CIT(A) ERRED IN: 2.1. SOLELY RELYING ON THE COMPANIES SELECTED BY T HE TPO IN AY 2010-11 AND IGNORING THE DETAILED REASONS FOR AC CEPTING / REJECTING DISPUTED COMPARABLES SUBMITTED BY THE APP ELLANT BEFORE THE CIT(A} THEREBY DISREGARDING THE METHODOLOGICAL BENCHMARKING SEARCH UNDERTAKEN BY THE APPELLANT IN ITS TP DOCUMENTATION; 2.2. NOT APPRECIATING THAT THE COMPARABLES SELECTE D IN THE TP DOCUMENTATION HAVE ALREADY BEEN ACCEPTED BY THE LD. TPO AS BROADLY SIMILAR TO THE APPELLANT. 3. ON FACTS AND IN LAW THE HON'BLE CIT(A) ERRED IN NOT ALLOWING RISK ADJUSTMENT UNDER RULE 10B(1)(E) OF TH E RULES FOR DETERMINATION OF THE ALP TO ACCOUNT FOR THE DIFFERE NCE IN THE RISK PROFILE OF THE APPELLANT AND OF COMPARABLE COMPANIE S. 4. ON FACTS AND IN LAW THE HON'BLE CIT(A) ERRED IN DISREGARDING THE APPELLANT'S USE OF MULTIPLE YEAR / PRIOR YEARS' DATA IN CONTRAVENTION OF THE PROVISION OF SECTION 9 2C OF THE ACT READ WITH RULE 10B AND RULE 10D(4) OF THE RULES. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. DEPUTY COMMISSIONER OF INCOME TAX ASSESSING OF FICER ('LD. AO') HAS ERRED IN CHARGING INTEREST UNDER SEC TION 234B 234C AND 234D OF THE ACT ON THE ASSESSED INCOME. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE AO HAS FURTHER ERRED IN INITIATING PENALTY PROCEEDI NGS U/S 271(1)(C) MECHANICALLY AND WITHOUT RECORDING ANY AD EQUATE SATISFACTION FOR THIS INITIATION EVEN WHEN NO SUCH PENALTY IS WARRANTED IN THE PRESENT CASE. ' ITA NO.4240/DEL./2017 3 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. INTERCONTINENTAL HOT ELS GROUP (INDIA) PVT. LTD. (IHG INDIA) THE TAXPAYER WAS INC ORPORATED AS H.I. CROWE PLAZA (I) PVT. LTD. ON AUGUST 23 1996 AS SUB SIDIARY OF BASS INTERNATIONAL HOLDINGS N.V. NETHERLANDS (NOW KNOWN AS SIX CONTINENTS INTERNATIONAL HOLDING B.V.) FOR MANAGING AND OFFERING SERVICES MAINLY TO INDIAN HOTELS. IHG INDIA PROVID ES ANCILLARY MANAGEMENT SUPPORT SERVICES TO SIX CONTINENTS HOTEL S INC. AND TO INTER CONTINENTAL GROUP (ASIA PACIFIC) PTE. LTD. (I HGAP). DURING THE YEAR UNDER CONSIDERATION THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) A S UNDER :- SL. NO. NATURE OF TRANSACTIONS VALUE RS. METHOD APPLIED ARMS LENGTH RESULT RESULT OF ASSESSEE 1 PROVISION OF ANCILLARY MANAGEMENT AND OPERATIONAL ASSISTANCE SERVICES 120 925 638 TNMM 10% 9.94% 2 RECOVERY OF EXPENSES 2 095 671 NO BENCHMARKING REQUIRED N.A. N.A. 3 REIMBURSEMENT OF EXPENSES 17 630 431 3. THE TAXPAYER IN ITS TRANSFER PRICING ANALYSIS TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS APPLIED TRANSACTIONAL NE T MARGIN METHOD (TNMM) WITH OPERATING PROFIT/OPERATING COST (OP/OC) AS PROFIT LEVEL INDICATOR (PLI) AS THE MOST APPROPR IATE METHOD (MAM). THE TAXPAYER COMPUTED ITS MARGIN (OP/OC) AT 9.94% ITA NO.4240/DEL./2017 4 CHOSEN 7 EXTERNAL COMPARABLES AND FOUND ITS INTERNA TIONAL TRANSACTIONS AT ARMS LENGTH. 4. HOWEVER LD. TPO REJECTED THE TP ANALYSIS UNDERT AKEN BY THE TAXPAYER AND PROCEEDED TO COMPARE THE AE SEGMENT OF TAXPAYER WITH ITS NON-AE SEGMENT AND COMPARED THE NET MARGIN THAT HAVE BEEN EARNED BY THE TAXPAYER IN ITS AE AND NON-AE SE GMENT. ACCORDINGLY TPO IN ORDER TO BENCHMARK THE INTERNAT IONAL TRANSACTIONS TREATED THE TAXPAYERS NET MARGIN EARN ED FROM ITS NON-AE TRANSACTIONS AND TREATED THE MARGIN OF 22.17 % AS THE ARMS LENGTH MARGIN AND PROPOSED THE ALP OF INTERNATIONAL TRANSACTIONS QUA THE SUPPORT SERVICES AS UNDER :- TOTAL COST RS.109 948 739 ALP AT A MARGIN OF 22.17% RS.134 324 374 PRICE RECEIVED RS.120 925 638 ADJUSTMENT U/S 92CA RS. 13 987 736 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING AN APPEAL WHO HAS PARTLY ALLOWED THE SAME. F EELING AGGRIEVED THE TAXPAYER HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.4240/DEL./2017 5 7. AT THE VERY OUTSET IT IS POINTED OUT BY THE LD. AR FOR THE TAXPAYER THAT LD. CIT (A) HAS ERRED IN ADOPTING THE INTERNAL COMPARABLES FINALLY SELECTED BY THE TPO AND ACCEPTE D BY THE LD. CIT(A) IN TAXPAYERS OWN CASE FOR AY 2010-11 FOR T HIS YEAR I.E. AY 2011-12 AND THEREBY COMPUTED THE ALP TO THE EXTE NT OF RS.1 09 13 894/-. HOWEVER LD. DR FOR THE REVENUE H AS FAILED TO CONTROVERT THE FACTUAL ARGUMENT ADDRESSED BY THE LD . AR FOR THE TAXPAYER RATHER RELIED UPON THE ORDER PASSED BY THE REVENUE AUTHORITIES BELOW. 8. PERUSAL OF THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) GOES TO PROVE THAT LD. CIT (A) INSTEAD OF EXAMININ G THE LEGALITY OF TP ANALYSIS MADE BY THE TPO AS WELL AS THE TAXPAYER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS STRAIGHTAWAY JUMPED TO ADOPT THE TP ANALYSIS MADE BY THE TPO AND ACCEPTED BY LD. CIT (A ) IN TAXPAYERS OWN CASE FOR AY 2010-11 TO DETERMINE THE ALP OF INTERNATIONAL TRANSACTIONS QUA PROVISIONS OF SUPPOR T SERVICES BY RETURNING FOLLOWING FINDINGS :- 3.9 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S S UBMISSIONS. I HAVE ALSO PERUSED THE TPO ORDER IN THE APPELLANT'S CASE FOR AY 2010-11AND THE ORDER OF THE CIT(A) IN APPELLANT' S CASE FOR AY 2010-1L. FOLLOWING ISSUES NEED TO BE CONSIDERED IN THIS CASE:- I. WHETHER THE USE OF INTERNAL COMPARABLES AS DONE BY THE TPO IS CORRECT. ITA NO.4240/DEL./2017 6 II. THE QUANTUM OF ADJUSTMENT REQUIRED TO BE MADE IN THIS CASE. EACH OF THE AFORESAID ISSUES IS BEING DISCUSSED AS UNDER:- I. WHETHER THE USE OF INTERNAL COMPARABLES AS DONE BY THE TPO IS CORRECT. A. AS SEEN FROM THE SUBMISSIONS MADE BY THE APPELL ANT IT IS EVIDENT THAT THE SERVICES RENDERED BY THE APPELL ANT TO THE AES ARE VERY DIFFERENT FROM THE SERVICES BEING REND ERED TO THE OTHER PARTIES. THE SERVICES RENDERED TO UNRELATED P ARTIES INCLUDE PRE-COMMENCEMENT SERVICES AND HOTEL MANAGEM ENT SERVICES WHEREAS THE SERVICES RENDERED TO AES ARE I N THE NATURE OF SYSTEM FUND SUPPORT BRAND SUPPORT AND REGIONAL OFFICE SERVICES THE BASIS OF CHARGING OF SERVICES FEE IS ALSO DIFFERENT IN THE CASE OF UNRELATED PARTIES AND IN THE CASE OF AE S. WHEREAS THE PRE-COMMENCEMENT SERVICES IN THE CASE OF UNRELA TED PARTIES ARE BEING CHARGED ON A FIXED BASIS AND THE HOTEL MA NAGEMENT SERVICES IN THE CASE OF UNRELATED PARTIES ARE BEING CHARGED ON THE BASIS OF FIXED PERCENTAGE OF GROSS TURNOVER TH E SERVICES IN THE CASE OF AES ARE BEING CHARGED ON THE BASIS OF C OST INCURRED PLUS 10% MARK-UP. IT IS THEREFORE EVIDENT THAT THE NATURE OF SERVICES AND THE BASIS OF CHARGING ARE COMPLETELY D IFFERENT IN THE CASE OF AES AND IN THE CASE OF UNRELATED PARTIE S. IT IS ALSO RELEVANT TO MENTION HERE THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES IN APPELLANT'S OWN CASE FOR AY 2010-1 1 THE TPO HAD ADOPTED EXTERNAL COMPARABLES FOR THE PURPOS E OF ARRIVING AT ARMS LENGTH MARGIN AND THIS APPROACH O F TPO HAD ALSO BEEN CONFIRMED BY THE CIT(A). B. KEEPING IN VIEW ALL THE' FACTS DISCUSSED ABOVE AND IN VIEW OF THE RULE OF CONSISTENCY IT MAY BE CONSIDER ED VIEW THAT THE TPO WAS NOT JUSTIFIED IN ADOPTING INTERNAL COMP ARABLES FOR THE PURPOSE OF COMPUTATION OF ARM'S LENGTH MARGIN. II. THE QUANTUM OF ADJUSTMENT REQUIRES TO BE MADE IN THIS CASE. A. THE APPELLANT HAS COMPUTED THE ARM'S LENGTH MAR GIN BY ADOPTING EXTERNAL COMPARABLES AT 10%. AS MENTION ED ABOVE SIMILAR ISSUE WAS CONSIDERED IN APPELLANT'S OWN CAS E FOR AY 2010-11. THE COMPARABLES USED BY THE APPELLANT WERE DISCUSSED AT LENGTH BOTH BY THE TPO AND BY THE CIT( A) IN THEIR ORDERS FOR AY 2010-11. SOME COMPARABLES USED BY THE APPELLANT WERE REJECTED WHEREAS CERTAIN OTHER NEW C OMPARABLE WERE USED BY THE TPO. THE FINAL LIST OF COMPARABLES USED BY THE TPO IN AY 2010-11 FOR COMPUTATION OF ARM'S LENG TH MARGIN IS AS UNDER:- ITA NO.4240/DEL./2017 7 S. NO. COMPANIES SELECTED BY LD. TPO IN AY 2010-11 AND AFFIRMED BY HONBLE CIT (A) NCP FY 2010-11 (%) 1 APITCO LIMITED 25.07 2 CAMEO CORPORATE SERVICES LIMITED 11.03 3 GLOBAL PROCUREMENT CONSULTANTS LIMITED 30.86 4 QUADRANT COMMUNICATION LIMITED 14.58 5 TSR DARASHAW LIMITED 41.32 6 H C C A BUSINESS SERVICES PRIVATE LIMITED 13.99 7 HSCC (INDIA) LIMITED 16.01 8 IDC ( INDIA) LIMITED 10.60 9 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 15.71 ARITHMETIC MEAN 19.91 B. THE COMPARABLES USED BY THE TPO WERE UPHELD BY THE CIT(A) IN HIS ORDER DATED 29/03/2016. THE APPELLANT HAS NOT GIVEN ANY EXPLANATION OR JUSTIFICATION AGAINST THE COMPARABLES ADOPTED BY THE TPO IN APPELLANT'S OWN CASE FOR AY 2 010-11. C. KEEPING IN VIEW THE AFORESAID FACTS AND IN VIEW OF THE DETAILED REASONS RECORDED BY THE TPO AND CIT(A) IN APPELLANT'S OWN CASE FOR AY 2010-11 IT IS HELD THA T THE SAME COMPARABLES MAY BE ADOPTED FOR ARRIVING AT ARM'S LE NGTH MARGIN. FURTHER IN VIEW OF THE DETAILED REASONS GI VEN BY TPO IN HIS ORDER DATED 12/12/2014 THE USE OF ONLY THE CURRENT YEAR DATA IN RESPECT OF THE COMPARABLES IS UPHELD. THE A RM'S LENGTH MARGIN IS ACCORDINGLY COMPUTED AS UNDER:- S. NO. COMPANIES SELECTED BY LD. TPO IN AY 2010-11 AND AFFIRMED BY HONBLE CIT (A) NCP FY 2010-11 (%) 1 APITCO LIMITED 25.07 2 CAMEO CORPORATE SERVICES LIMITED 11.03 3 GLOBAL PROCUREMENT CONSULTANTS LIMITED 30.86 4 QUADRANT COMMUNICATION LIMITED 14.58 5 TSR DARASHAW LIMITED 41.32 6 H C C A BUSINESS SERVICES PRIVATE LIMITED 13.99 7 HSCC (INDIA) LIMITED 16.01 8 IDC (INDIA) LIMITED 10.60 9 ICRA MANAGEMENT CONSULTING SERVICES LIMITED 15.71 ARITHMETIC MEAN 19.91 ITA NO.4240/DEL./2017 8 D. THE TPO HAD COMPUTED THE TOTAL COST AT RS.10 99 48 739/-. THE APPELLANT HAD NOT RAISED ANY GROUND OF APPEAL AGAINST THIS COMPUTATION OF TOTAL COST. THE ADJUSTMENT U/S 92CA IS ACCORDINGLY COMPUTED AS UNDER:- TOTAL COST RS.10 99 48 739 ALP AT A MARGIN OF 19.9% RS.13 18 39 532 PRICE RECEIVED RS.12 09 25 638 PROPOSED ADJUSTMENT U/S 92CA RS. 1 09 13 894 E. THE ADJUSTMENT MADE BY THE AO IS ACCORDINGLY CONFIRMED TO THE EXTENT OF RS.1 09 13 894/-. 3.10 THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 9. AFORESAID FINDINGS RETURNED BY THE LD. CIT (A) G O TO SHOW THAT LD. CIT (A) UNDER THE GARB OF RULE OF CONSIST ENCY ADOPTED THE TP ANALYSIS MADE BY THE TPO AND ACCEPTED BY THE LD. CIT (A) IN TAXPAYERS OWN CASE FOR AY 2010-11 WITHOUT EXAMININ G THE LEGALITY OF THE TP STUDY CONDUCTED BY THE TAXPAYER FINDING ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH AND TP A NALYSIS OF THE TPO VIDE WHICH HE HAS ADOPTED THE INTERNAL COMPARAB LES AND PROPOSED AN ADJUSTMENT OF RS.1 39 87 736/-. 10. THIS METHOD OF TP ANALYSIS IS UNHEARD OF AS EVE RY ASSESSMENT YEAR IS REQUIRED TO BE EXAMINED INDEPEND ENTLY TO REACH THE LOGICAL CONCLUSION TO DETERMINE THE ALP OF INTE RNATIONAL TRANSACTIONS. MERELY BECAUSE OF THE FACT THAT DURI NG THE YEAR UNDER CONSIDERATION THERE IS NO CHANGE IN THE BUSINESS M ODEL OF THE TAXPAYER AND THE SERVICES RENDERED ARE IDENTICAL T HERE IS NO ITA NO.4240/DEL./2017 9 STATUTORY MANDATE TO ADOPT THE TP ANALYSIS MADE BY THE REVENUE DEPARTMENT IN THE EARLIER YEARS IN ORDER TO MAKE TH E ADJUSTMENT IN THE SUBSEQUENT YEARS. IN THESE CIRCUMSTANCES WE A RE OF THE CONSIDERED VIEW THAT PASSING SUCH AN ORDER ON THE B ASIS OF CONJECTURES AND SURMISES IS IN CONTRAVENTION OF THE PROVISIONS CONTAINED IN RULE 10B (2) OF THE INCOME-TAX RULES 1962. CONSEQUENTLY IMPUGNED ORDER PASSED BY THE LD. CIT (A) IS SET ASIDE AND FILE IS REMITTED BACK TO THE LD. CIT(A) T O DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO TH E TAXPAYER. THE APPEAL FILED BY THE TAXPAYER IS HEREBY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 3 RD DAY OF MARCH 2021. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 3 RD DAY OF MARCH 2021. TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A). 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.