M/s. Honda Motor India Pvt. Ltd., Uttar Pradesh v. DCIT, Noida

ITA 5847/DEL/2015 | 2011-2012
Pronouncement Date: 28-11-2017 | Result: Allowed

Appeal Details

RSA Number 584720114 RSA 2015
Assessee PAN AABCH7526E
Bench Delhi
Appeal Number ITA 5847/DEL/2015
Duration Of Justice 2 year(s) 1 month(s)
Appellant M/s. Honda Motor India Pvt. Ltd., Uttar Pradesh
Respondent DCIT, Noida
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Allowed
Bench Allotted I1
Tribunal Order Date 28-11-2017
Date Of Final Hearing 10-07-2017
Next Hearing Date 10-07-2017
First Hearing Date 10-07-2017
Assessment Year 2011-2012
Appeal Filed On 28-10-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL VICE PRESIDENT AND MS SUCHITRA KAMBLE JUDICIAL MEMBER ITA NO.5847/DEL/2015 ASSESSMENT YEAR : 2011-12 HONDA MOTOR INDIA PVT. LTD. PLOT NO.A-1 SECTOR 40/41 SURAJPUR KASNA ROAD GREATER NOIDA INDUSTRIAL DEVELOPMENT AREA DISTT. GAUTAM BUDH NAGAR UTTAR PRADESH. PAN: AABCH7526E VS. DCIT CIRCLE-1 NOIDA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOTRA SHRI AMIT SRIVASTAVA & SHRI ANKUL GOYAL ADVOCATES. DEPARTMENT BY : SHRI SANJAY I. BARA CIT DR DATE OF HEARING : 27.11.2017 DATE OF PRONOUNCEMENT : 28.11.2017 ITA NO.5847/DEL/2015 2 ORDER PER R.S. SYAL VP: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 143( 3) READ WITH SECTION 144C OF THE INCOME-TAX ACT 1961 (HEREINAFTER ALSO CALLED THE ACT) ON 17.09.2005 IN RELATION TO THE ASSESSMENT YEAR 2011- 12. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE TRANSFER PRICING ADDITION IN RELATION TO THE INTERNATIONAL TRANSACTI ON OF PURCHASE AND SALE OF GOODS FROM THE ASSOCIATED ENTERPRISE (AE). 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF HONDA MOTOR CO. LTD. JAPAN. I T WAS INCORPORATED IN SEPTEMBER 2006 TO SUPPORT INDEPENDENT SPARE PAR TS BUSINESS OF HONDA GROUPS INDIAN SUBSIDIARIES OPERATING IN AUTO MOTIVE (BOTH TWO- WHEELERS AND FOUR-WHEELERS) AND POWER PRODUCT INDUS TRY. THE ASSESSEE IS ENGAGED IN THE DISTRIBUTION OF SPARE PARTS ACCE SSORIES AND OTHER ANCILLARY PRODUCTS FOR VARIOUS HONDA PRODUCTS IN IN DIA FOR SERVICING. IT ENTERED INTO AGREEMENT WITH HONDA SIEL CAR INDIA LT D. FOR DOING THE ITA NO.5847/DEL/2015 3 BUSINESS OF SPARE PARTS RELATING TO CARS MANUFACTUR ED AND/OR SOLD BY HONDA SIEL CAR INDIA LTD. IN THE SAME WAY THE ASSE SSEE ENTERED INTO SIMILAR AGREEMENTS WITH HONDA MOTORCYCLES AND SCOOT ERS INDIA LTD. AND HONDA SIEL POWER PRODUCTS LTD. IT REPORTED EIGHT IN TERNATIONAL TRANSACTIONS IN FORM NO. 3CEB. THE ASSESSING OFFIC ER REFERRED THE MATTER OF DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THESE INTERNATIONAL TRANSACTIONS TO THE TPO. THE TPO OBS ERVED THAT THE ASSESSEE APPLIED TNMM TO DEMONSTRATE THAT THE INTER NATIONAL TRANSACTIONS WERE AT ALP. NOT CONVINCED WITH THE A SSESSEES METHOD THE TPO APPLIED RESALE PRICE METHOD (RPM) AS THE MO ST APPROPRIATE METHOD AND DETERMINED THE AMOUNT OF TRANSFER PRICIN G ADJUSTMENT AT RS.27 01 51 919/-. THE ASSESSEE REMAINED UNSUCCESS FUL BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THAT IS HOW THE TR ANSFER PRICING ADDITION OF RS.27.01 CRORE CAME TO BE MADE IN THE F INAL ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE HAS COME UP IN AP PEAL BEFORE THE TRIBUNAL. ITA NO.5847/DEL/2015 4 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSI NG OFFICER DISCARDED THE ASSESSEES VERSION OF APPLYING THE TNMM AND RES ORTED TO THE APPLICATION OF RPM BY BEING INFLUENCED WITH THE VIE W TAKEN BY HIM FOR THE IMMEDIATELY PRECEDING TWO ASSESSMENT YEARS. HI S ORDERS CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.180 1 AND 6807/DEL/2014. VIDE ITS COMBINED ORDER DATED 07.01 .2016 FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 THE TRIBUNAL DID NOT ACCEPT THE ASSESSEES CONTENTION OF BEING ONLY A MANUFACTURER. ITS CONTENTION OF PLACING ORDERS FOR MANUFACTURING DID NOT WEIGH WIT H THE TRIBUNAL TO HOLD THE ASSESSEE AS A MANUFACTURER. THE ASSESSEE W AS CONSIDERED AS PREDOMINANTLY A DISTRIBUTOR. IT WAS HOWEVER NOTI CED IN PARA 6.3 OF THE ORDER WHOSE COPY IS PLACED IN THE PAPER BOOK THAT THE FACTS AND FUNCTIONS OF THE ASSESSEE WERE NOT CLEARLY REPORTED BY IT AND HENCE COULD NOT BE PROPERLY ADJUDICATED BY THE TPO. IT W AS FURTHER NOTICED THAT: THE FUNCTION OF DISTRIBUTOR HAS TO BE TREATE D DIFFERENTLY FROM THE FUNCTION OF JOB ORDER MANUFACTURER OF SPARE OF SPAR E OR CASES WHERE THERE IS VALUE ADDITION. THAT IS HOW THE MATTER WAS SEN T BACK FOR RE- ITA NO.5847/DEL/2015 5 EXAMINING THE FUNCTIONAL PROFILE OF THE ASSESSEE AN D FOR DETERMINING THE CORRECT ALP AFRESH. AS REGARDS THE APPLICATION OF THE MOST APPROPRIATE METHOD THE TRIBUNAL UPHELD THE RPM AS THE MOST APP ROPRIATE METHOD FOR DISTRIBUTOR/TRADING SEGMENT AND IN CASES WHERE PROCUREMENT WAS DONE BY PLACING JOB WORK ORDERS FRESH ADJUDICATION WAS DIRECTED TO BE DONE DE NOVO FOR DETERMINING THE MOST APPROPRIATE METHOD. THE O RDER OF THE TRIBUNAL WAS CHALLENGED BY THE ASSESSEE BEFORE THE HON'BLE HIGH COURT. VIDE JUDGMENT DATED 20.07.2016 THE HON'BLE HIGH COURT HAS HELD THAT WHEN THE MATTER WAS REMANDED THE AUTHORI TY WHO HAS TO CONSIDER THE MATTER OF REMAND SHOULD BE FREE TO L OOK INTO THE ENTIRE MATTER WITHOUT BEING INFLUENCED BY ANY OBSERVATIONS IN THE TRIBUNAL ORDER ETC. CRUX OF THE LITIGATION FOR THE IMMEDIA TELY PRECEDING TWO YEARS THEREFORE BOILS DOWN TO THE RESTORATION OF THE QUESTION OF DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTI ON TO THE FILE OF TPO/ASSESSING OFFICER FOR A FRESH REDO WITHOUT THE RE BEING ANY DIRECTION FROM A HIGHER FORUM FOR APPLICATION OF A SPECIFIC METHOD AS THE MOST APPROPRIATE METHOD. THAT IS EXACTLY THE CASE O F THE REVENUE. ITA NO.5847/DEL/2015 6 5. THE LD. AR CONTENDED THAT THE FACTS FOR THE INST ANT YEAR HAVE UNDERGONE SOME CHANGE INASMUCH AS THE ASSESSEE ENTE RED INTO AN AGREEMENT WITH HONDA MOTOR CO. JAPAN UNDER WHICH IT WAS GIVEN LICENCE TO USE THE INTELLECTUAL PROPERTY RIGHTS AND TECHNICAL INFORMATION FOR OR IN CONNECTION WITH THE MANUFACTURE BY ITSELF OR THROUGH THIRD PARTIES ETC. ON A SPECIFIC QUERY IT WAS ADMITTED THAT THE MANUFACTURING WAS GOT DONE FROM LOCAL MANUFACTURERS AS WAS BEING DONE IN THE PRECEDING TWO YEARS. WE FIND THAT THE ONLY DIFFERE NCE WHICH HAS ARISEN IN THE INSTANT YEAR IS THAT WHEREAS ROYALTY WAS EAR LIER PAID BY ORIGINAL EQUIPMENT MANUFACTURERS (OEMS) LIKE HONDA SIEL CAR INDIA LTD. ETC. TO THE ULTIMATE HOLDING COMPANY HONDA MOTOR COMPANY LTD. JAPAN FOR THE USE OF TECHNICAL INFORMATION ETC. IN THE MANUFA CTURE OF GOODS BY THE LOCAL MANUFACTURERS HAS NOW FALLEN ON THE ASSESSEE FOR PAYMENT. EXCEPT THIS THERE IS NO DIFFERENCE WORTH THE NAME INSOFAR AS THE FUNCTIONAL PROFILE OF THE ASSESSEE IS CONCERNED. TH E GOODS ARE BEING MANUFACTURED IN THE SAME WAY BY THE LOCAL MANUFACTU RERS ETC. WITH THE TECHNICAL KNOW-HOW SUPPLIED BY THE ASSESSEES HOLDI NG COMPANY. THIS DISCERNS THAT THE FUNCTIONAL PROFILE OF THE ASSESSE E DURING THE INSTANT ITA NO.5847/DEL/2015 7 YEAR DESPITE THE ACQUISITION OF LICENCE TO USE INT ELLECTUAL PROPERTY RIGHTS AND TECHNICAL INFORMATION ETC. HAS NOT UNDERGONE A NY CHANGE VIS--VIS THE PRECEDING TWO YEARS WHICH HAVE BEEN DECIDED BY THE HONBLE HIGH COURT AND THE TRIBUNAL. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE HIGH COURT AMENDING THE ORDER OF THE TRIBUN AL TO A LIMITED EXTENT FOR THE PRECEDING TWO YEARS WE SET ASIDE TH E IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF TPO/ASSESSING OFFIC ER FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANS ACTION IN THE LIGHT OF THE OBSERVATIONS OF THE TRIBUNAL AND THOSE OF THE H ON'BLE HIGH COURT WHICH HAVE MODIFIED THE TRIBUNAL ORDER TO SOME EXTE NT. 6. THE ONLY OTHER ISSUE IN THIS APPEAL IS AGAINST T HE TRANSFER PRICING ADDITION OF RS.10 87 61 442/- IN RESPECT OF INTERNA TIONAL TRANSACTION OF PAYMENT OF ROYALTY. THE FACTS APROPOS THIS ISSUE A RE THAT THE ASSESSEE PAID ROYALTY TO HONDA MOTOR CO. LTD. JAPAN @ 3.5% ON DOMESTIC SALES AND 5% ON EXPORTS PURSUANT TO AGREEMENT DATED 01.09 .2010 EFFECTIVE FROM 01.04.2010 FOR THE USE OF TECHNICAL INFORMATIO N AS DISCUSSED IN THE FOREGOING PARAS. THE TPO DETERMINED NIL ALP OF THI S INTERNATIONAL ITA NO.5847/DEL/2015 8 TRANSACTION BY OPINING THAT THE LICENCE AGREEMENT W AS SIGNED ONLY TO TRANSFER PROFITS TO ITS PARENT COMPANY. THAT IS HO W THE TRANSFER PRICING ADJUSTMENT OF RS.10.87 CRORE WAS PROPOSED. THE ASSE SSEE REMAINED UNSUCCESSFUL BEFORE THE DRP AND THE ASSESSING OFFIC ER MADE THE TRANSFER PRICING ADDITION EQUAL TO THE AMOUNT OF RO YALTY PAYMENT. THE ASSESSEE IS AGGRIEVED AGAINST SUCH ADDITION. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS CLEAR FROM THE FACTS THA T THE TPO DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY WHICH HAS BEEN ADOPTED BY THE AO AS SUCH WITHOUT ANY FURTHER EXAMINATION. THE HON'BLE DELHI HIGH COURT IN CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730 (DEL) READ ALONG WITH (2015) 277 CTR 368 (DEL) HAS HELD THAT THE AUTHORITY OF THE TPO IS LIMITED T O CONDUCTING TRANSFER PRICING ANALYSIS FOR DETERMINING THE ALP O F AN INTERNATIONAL TRANSACTION AND NOT TO DECIDE IF SUCH SERVICES EXIS T OR BENEFITS DID ACCRUE TO THE ASSESSEE. SUCH LATER ASPECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAIN OF THE AO. IN THAT CASE IT WAS OB SERVED THAT THE E- ITA NO.5847/DEL/2015 9 MAILS CONSIDERED BY TRIBUNAL FROM MR. BRAGANZA AND MR. CHOUDHARY DEALT WITH SPECIFIC INTERACTION AND RELATED TO BENE FITS OBTAINED BY ASSESSEE PROVIDING A SUFFICIENT BASIS TO HOLD THAT BENEFIT ACCRUED TO ASSESSEE. AS THE DETAILS OF SPECIFIC ACTIVITIES FO R WHICH COST WAS INCURRED BY BOTH AES (FOR ACTIVITIES OF MR. BRAGANZA AND MR. CHOUDHARY) AND ATTENDANT BENEFITS TO ASSESSEE WERE NOT CONSIDERED THE HON'BLE HIGH COURT REMANDED THE MATTER TO FILE OF CONCERNED AO F OR AN ALP ASSESSMENT BY TPO FOLLOWED BY AO'S ASSESSMENT ORDE R IN ACCORDANCE WITH LAW CONSIDERING THE DEDUCTIBILITY OR OTHERWISE AS PER SECTION 37(1) OF THE ACT. 8. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE IT TURNS OUT THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT EQUAL TO THE STATED VALUE OF TRANSACTION OF ROYALTY PAYMENT WITH NIL ALP BY H OLDING THAT NO BENEFIT ETC. WAS RECEIVED BY THE ASSESSEE BECAUSE O F THE INTRA-GROUP SERVICES RECEIVED BY IT AND HENCE NO PAYMENT ON THI S ACCOUNT WAS WARRANTED. THE AO IN HIS DRAFT ORDER HAS TAKEN ALP OF THIS INTERNATIONAL TRANSACTION AT NIL ON THE BASIS OF RECOMMENDATION O F THE TPO WITHOUT ITA NO.5847/DEL/2015 10 CARRYING OUT ANY INDEPENDENT INVESTIGATION AS TO TH E DEDUCTIBILITY OR OTHERWISE OF SUCH A PAYMENT IN TERMS OF SECTION 37( 1) OF THE ACT. THIS ADDITION HAS BEEN MADE BY THE AO IN HIS FINAL ASSES SMENT ORDER GIVING EFFECT TO THE DIRECTION GIVEN BY THE DRP AND NOT BY INVOKING SECTION 37(1) OF THE ACT. AS PER THE RATIO DECIDENDI IN CUSHMAN & WAKEFIELD INDIA (P.) LTD . (SUPRA) THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION UNCONCERNED WI TH THE FACT IF ANY BENEFIT ACCRUED TO THE ASSESSEE AND THEREAFTER IT WAS FOR THE AO TO DECIDE THE DEDUCTIBILITY OF THIS AMOUNT U/S 37(1) O F THE ACT. AS THE TPO IN THE INSTANT CASE INITIALLY DETERMINED NIL ALP BY HOLDING THAT NO BENEFIT ETC. ACCRUED TO THE ASSESSEE BECAUSE OF ROY ALTY PAYMENT AND THE AO MADE THE ADDITION WITHOUT EXAMINING THE APPLICAB ILITY OF SECTION 37(1) OF THE ACT WE FIND THE ACTIONS OF THE AO/TPO RUNNING IN CONTRADICTION TO THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA) . RESPECTFULLY FOLLOWING THE PRECEDENT WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DECI DING THIS ISSUE WITHIN THE BROADER PARAMETERS LAID DOWN BY THE HONBLE DEL HI HIGH COURT IN THE CASE OF CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (SUPRA) . NEEDLESS TO ITA NO.5847/DEL/2015 11 SAY THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPO RTUNITY OF BEING HEARD. 9. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.11.201 7. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED 28 TH NOVEMBER 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT AR ITAT NEW DELHI.