Honda R & D (India) Pvt. Ltd., Gurgaon v. DCIT,Circle-11(1), New Delhi

ITA 7419/DEL/2017 | 2013-2014
Pronouncement Date: 15-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 741920114 RSA 2017
Assessee PAN AABCH3071N
Bench Delhi
Appeal Number ITA 7419/DEL/2017
Duration Of Justice 3 year(s) 3 month(s) 4 day(s)
Appellant Honda R & D (India) Pvt. Ltd., Gurgaon
Respondent DCIT,Circle-11(1), New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 15-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 15-03-2021
Last Hearing Date 27-10-2020
First Hearing Date 27-10-2020
Assessment Year 2013-2014
Appeal Filed On 11-12-2017
Judgment Text
ITA. NO. 7419/DEL/2017. IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH: I1 NEW DELHI ] BEFORE SHRI N. K. BILLAIYA ACCOUNTANT MEMBER A N D MS. SUCHITRA KAMBLE JUDICIAL MEMBER I.T.A. NO. 7419/DEL/2017 (A.Y. 2013-14) (THROUGH VIDEO CONFERENCING) HONDA R & D (INDIA) PVT. LTD. TECHNICAL CENTRE PLOT NO. 02 SECTOR : 03 IMT MANESAR DISTT. GURGAON HARYANA122050. PIN : AABCH3071N (APPELLANT) VS. DCIT CIRCLE 11 (1) NEW DELHI. ( RESPONDENT) ASSESSEE BY : SHRI NAGESHWAR RAO ADV.; DEPARTMENT BY: SHRI SURENDRA PAL SR. D. R.; O R D E R PER SUCHITRA KAMBLE JM : THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RESEARCH AND DEVELOPMENT OF TWO WHEELERS AND POWER PRODUCERS. ASSESSEE FILE D ITS RETURN OF INCOME ON 28.11.2013 DECLARING AN INCOME OF RS.1 19 16 780/-. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD UNDERTAKEN INTERNATI ONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. THE CASE WAS REFERRED TO T RANSFER PRICING OFFICER (TPO). THE TPO VIDE ORDER DATED 13.10.2016 MADE AN ADJUSTMENT OF RS.10 28 08 892/-. SUBSEQUENTLY DRAFT ASSESSMENT ORDER WAS PASSED ON 2 4.11.2016 THEREBY COMPUTING THE INCOME AT RS.4 10 07 860/-. THE ASSESSEE FILED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE DIRECTION DAT ED 25.08.2017 DIRECTED THE TPO TO MAKE VERIFICATION ON CERTAIN ISSUES. THE TPO VIDE ORDER GIVING EFFECT TO THE DRP PASSED ORDER DATED 18.09.2017 THEREBY RE-COMPUTING THE ALP ADJUSTMENT UNDER DATE OF HEARING 02.03.2021 DATE OF PRONOUNCEMENT 15.03.2021 ITA. NO. 7419/DEL/2017. SECTION 92CA OF THE ACT. THE ASSESSING OFFICER PAS SED ASSESSMENT ORDER DATED 28.09.2017 THEREBY MAKING ALP ADJUSTMENT / ADDITION OF RS.4 74 55 478/-. 2. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE US. 3. THE LD. AR SUBMITTED THAT THE MAIN ISSUE IN THE PRESENT APPEAL IS RELATED TO THE EXCLUSION AND INCLUSION OF THE COMPARABLES. FIRSTLY WE ARE TAKING UP EXCLUSION CONTESTED BY THE ASSESSEE: (A) M/S APTICO LTD. : THE TPO HAS ACCEPTED THE SALE COMPARABLE IN THE FI NAL LIST OF COMPARABLES THEREBY STATING THAT IT IS IN BUSINESS / MARKET SUPPORT SERVICES. THE LD. AR SUBMITTED THAT THIS PARTICULAR COMPARABL E COMPANY IS FUNCTIONING DISSIMILAR AS IT IS ENGAGED IN PROVIDING HIGH-END T ECHNICAL SERVICES. BESIDES THIS THE LD. AR POINTED OUT THAT THIS COMPANY IS A GOVT. COMPANY AND CANNOT BE TAKEN INTO ACCOUNT AS COMPARABLE. THE LD. AR RE LIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. PHI LLIP MORRIS SERVICES LTD. (ITA. 1468/2018) AND ALSO RELIED UPON PCIT VS. INTE RNATIONAL SOS SERVICES INDIA PVT. LTD. (ITA. 454/2016). THE LD. AR FURTHE R RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF BERGEN ENGINES PVT. LTD . [TS 305-ITAT-2020 (DEL) TP] (ASSESSMENT YEAR 2013-14). THE LD. DR SUBMITTED THAT MERELY BEING A GOVT. COMPANY AND ENGAGED IN PROVIDING HIGH-END TECHNICAL SERVICES DOES NOT DISQ UALIFY THIS COMPARABLE AS THE RATIO OF 16.82% AND CANNOT BE HELD AS NON-COMPA RABLE COMPANY. (B) AXIS INTEGRATED SYSTEM LTD. : THE TPO INCLUDED THIS COMPARABLE FOR THE REASON TH AT IT IS ENGAGED IN MARKET SUPPORT SERVICES. THE LD. AR SUBMITTED THAT THIS FUNCTIONALLY DISSIMILAR AS THIS COMPARABLE COMPANY IS ENGAGED IN ADDRESSING REGULARLY AND LICENSING REQUIREMENT AND ACT AS A LICENSE BETWEEN ALL RELATE D GOVT. AND REGULARITY ITA. NO. 7419/DEL/2017. AGENCIES. THE LD. AR RELIED UPON THE DECISION OF T HE TRIBUNAL IN THE CASE OF LI & FUNG INDIA PVT. LTD. [TS 352-ITAT-2018 (DEL) TP] (ASSESSMENT YEAR 2013-14) AND ALSO RELIED UPON BERGEN ENGINES PVT. LTD. (SUPR A). THE LD. DR SUBMITTED THAT THIS COMPARABLE CASE HAS A SIMILAR FUNCTION AND IS EVEN THE MERELY BEING A GOVT. COMPANY AND IS WIT HIN THE MARGIN I.E. 38.19%. THE LD. DR FURTHER SUBMITTED THAT THE TPO HAS RIGHT LY SELECTED THIS COMPARABLE COMPANY IN THE FINAL LIST. (C) KILLIK AGENCIES AND MARKETING LTD. : THE TPO INCLUDED THIS COMPARABLE COMPANY AS IT IS E NGAGED IN SUPPORT SERVICES REVENUE SERVICES AND COMMISSION INCOME) FOR THE REASON THAT IT IS ENGAGED IN MARKET SUPPORT SERVICES. THE LD. AR SUB MITTED THAT THIS COMPARABLE COMPANY IS FUNCTIONALLY DISSIMILAR AS IT IS ENGAGED IN MARKETING SPECIALIZED PRODUCTS. THE LD. AR FURTHER RELIED UP ON FURTHER DECISION OF BERGEN ENGINES PVT. LTD. (SUPRA). THE LD. DR SUBMITTED THAT THIS COMPARABLE COMP ANY IS FUNCTIONALLY SIMILAR TO THAT OF ASSESSEE COMPANY AND RELIED UPON THE ORD ER OF THE TPO AND DRP. 4. NOW COMING TO THE INCLUSION OF THE COMPARABLE CO MPANIES CONTESTED BY THE ASSESSEE : (A) HI-TECH LABORATORIES LTD. : THE TPO REJECTED THIS COMPARABLE COMPANY FOR THE R EASON THAT IT PAYS TURNOVER RETURN OF LESS THAN RS.1 CRORE. THE LD. A R SUBMITTED THAT THE CIT (APPEALS) ACCEPTED THIS COMPARABLE IN ASSESSEES OW N CASE FOR ASSESSMENT YEAR 2005-06 AS WELL AS THE TPO HAS ACCEPTED THIS COMPAR ABLE IN ASSESSMENT YEARS 2007-08 2010-11 AND 2011-12. THE LD. AR FURTHER S UBMITTED THAT THE DRP ALSO ACCEPTED THIS COMPARABLE IN ASSESSMENT YEAR 20 07-08. AT THESE ASSESSMENT YEARS ALSO THIS COMPANY WAS HAVING LESS THAN RS.1 CRORE TURNOVER ITA. NO. 7419/DEL/2017. AND IN FACT IN SOME OF THE COMPARABLES IT WAS SELEC TED BY THE TPO. THE TURNOVER IS LESS THAN RS. 1 CRORE AND THUS THIS FIL TER WAS NOT FOLLOWED BY THE TPO HIMSELF. THE LD. AR SUBMITTED THAT THIS COMPAR ABLE HAS TO BE ACCEPTED INCLUDED AS IT HAS A COMPARABLE MARGIN TO THAT OF 1 0.76%. THE LD. DR RELIED UPON THE ORDER OF THE TPO AN D DRP. (B) ITDC LTD. : THE TPO REJECTED THIS COMPARABLE OBSERVING THAT TH IS COMPARABLE COMPANY IS FUNCTIONALLY DISSIMILAR. THE LD. AR SUB MITTED THAT ARMS & MISC. OPERATION SEGMENT HAS BEEN CONSIDERED COMPARABLE T O HRID. THE LD. AR FURTHER SUBMITTED THAT THIS COMPARABLE COMPANY CONT INUES TO OPERATE IN FUNCTIONAL PROFILE WHICH HAS BEEN ACCEPTED BY THE C IT (APPEALS) AND DRP IN EARLIER YEARS. THE COMPANY WAS CONSIDERED AS COMPA RABLE BY CIT (APPEALS) FOR ASSESSMENT YEAR 2005-06 WHICH WAS FURTHER UPHELD BY THE HONBLE HIGH COURT IN THIS COMPARABLE COMPANYS CASE. ALSO COMPANY HA S BEEN ACCEPTED BY DRP IN ASSESSMENT YEARS 2007-08 2010-11 AND 2011-12 AS THE PROFILE OF THE COMPANY REMAINS SAME VIS--VIS PAST YEAR. THE LD. AR FURTHER SUBMITTED THAT COMPARABLE MARGINS OF THIS COMPARABLE COMPANY IS 1 1.14%. THE LD. DR RELIED UPON THE ORDER OF THE TPO AN D DRP. (C) CYBER MEDIA RESEARCH LTD.[FORMERLY KNOWN AS IDC LTD.] : THE TPO REJECTED THIS COMPARABLE COMPANY THEREBY OB SERVING THAT IT IS FUNCTIONALLY DISSIMILAR AND PECULIAR ECONOMIC CIRCU MSTANCES HAS OCCURRED IN THE PRESENT ASSESSMENT YEAR. THE LD. AR SUBMITTED THAT THE FUNCTIONS ARE SIMILAR TO THAT OF ASSESSEE COMPANY AS THIS COMPARA BLE COMPANY IS WITHIN THE BUSINESS OF RESEARCH AND CONSULTING FIRM OFFERING C USTOMERS STRATEGIC AND TACTICAL INSIGHTS IN THE FORM OF MARKETING INTELLIG ENCE MARKET SIZING MARKET ECO-SYSTEM MAPPING ADVISORY AND GO TO MARKET SERV ICES. THE LD. AR SUBMITTED THAT THE TPO HAS ACCEPTED THIS COMPARABLE IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2008-09 2010-11 AND 2011-12 AND T HERE IS NO CHANGE IN ITA. NO. 7419/DEL/2017. BUSINESS SINCE THEN. THE LD. AR SUBMITTED THAT THI S COMPANY CANNOT BE REJECTED SOLELY ON THE REASON OF ABNORMAL FUNCTION IN MARGINS. THE LD. AR RELIED UPON THE DECISION OF CHRYS CAPITAL INVESTMEN T ADVISORS (INDIA) PVT. LIMITED (ITA. 417/2014) WHEREIN IT IS HELD THAT IF A COMPANY IS FUNCTIONALLY COMPARABLE IT CANNOT BE REJECTED MERELY ON THE GROU ND THAT IT MADE HIGH / EXTREMELY HIGH PROFITS / LOSSES. THE LD. DR RELIED UPON THE ORDER OF THE TPO AN D DRP. THE LD. DR FURTHER SUBMITTED THAT THE WORKING CAPITAL ADJUSTMENT HAS N OT BEEN PROPERLY CALCULATED AND THEREFORE THE ISSUE MAY BE REMANDE D BACK TO THE FILE OF THE TPO / DRP. THE LD. DR RELIED UPON THE ORDER OF THE TPO DRP AND FURTHER SUBMITTED THAT THE TPO AND DRP HAS RIGHTLY EXECUTED THE THREE COMPARABLES AS THE FUNCTIONAL PROFILE OF THOSE COMPARABLES WAS NOT IN CONSONANCE WITH THE ASSESSEE COMPANYS PROFILE. AS REGARDS THE WOR KING CAPITAL ADJUSTMENT IS CONCERNED THE LD. DR SUBMITTED THAT IF THE RE-C OMPUTATION IS REQUIRED THEN IT IS NECESSARY TO REMAND BACK THE ISSUE TO THE FIL E OF THE TPO / ASSESSING OFFICER. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE COMPARABLES WHICH WERE ARGUED BY THE ASSESSEE TO BE EXCLUDED AS A FUNCTION ALLY DISSIMILAR CANNOT BE SIMPLICITORY INCLUDED. IT CAN BE SEEN FROM ANNUAL REPORT AND THE DOCUMENTS PROVIDED BY THE ASSESSEE BEFORE US THAT THE FUNCTIO NAL PROFILE WAS NOT PROPERLY VERIFIED BY TPO / ASSESSING OFFICER. THUS IT WILL BE APPROPRIATE TO DIRECT THE TPO TO EXCLUDE THESE THREE COMPARABLES I.E. M/S APT ICO LTD.; AXIS INTEGRATED SYSTEM LTD. AND KILLIK AGENCIES AND MARKETING LTD. AS REGARDS THE INCLUSION PRIMA FACIE AFTER SEEING THE DOCUMENTATION OF ALL T HE THREE COMPANIES IT CAN BE SEEN THAT THE FUNCTIONAL PROFILE OF EACH OF THE COM PANY WERE NOT EXACTLY SIMILAR TO THE ASSESSEE COMPANY AND BESIDES THAT THERE ARE FILTERS WHICH WAS TAKEN INTO ACCOUNT BY THE TPO DURING THE REFERENCE PROCEE DINGS HAS NOT BEEN PROPERLY SUFFICIENT AND COMPARABLE TO THE ASSESSEE COMPANY. THOUGH THE ITA. NO. 7419/DEL/2017. ASSESSEE POINTED OUT THAT THESE COMPANIES HAVE TO B E INCLUDED IT NEEDS PROPER VERIFICATION AS THE DATA BEFORE US CANNOT CONVEY AS TO HOW THESE COMPARABLES HAS TO BE ACCEPTED. THEREFORE IT WILL BE APPROPRI ATE TO REMAND BACK THE INCLUSIONS TO THE FILE OF THE TPO / ASSESSING OFFIC ER FOR THROUGH VERIFICATION OF THESE COMPARABLE COMPANIES AND IF FOUND COMPARABLE THE SAME SHOULD BE TAKEN INTO ACCOUNT. 6. AS REGARDS THE WORKING CAPITAL ISSUE FROM THE PE RUSAL OF THE ORDER OF THE TPO / ASSESSING OFFICER IT CAN BE SEEN THAT THE COM PUTATION OF THE WORKING CAPITAL ADJUSTMENT WAS NOT PROPERLY DONE AND THE SA ME HAS TO BE DONE IN ACCORDANCE WITH THE ALP MARGINS. THEREFORE WE DIR ECT THE TPO / ASSESSING OFFICER TO RE-COMPUTE THE WORKING CAPITAL ADJUSTMEN T AS PER THE ALP MARGINS. NEEDLESS TO SAY THE ASSESSEE BE GIVEN AN OPPORTUNIT Y OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. HENCE THE APPEAL O F THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF MARCH 2021. SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/03/2021. *MEHTA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT ITA. NO. 7419/DEL/2017. 4. CIT (APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI