Bureau Veritas Consumer Products Services (India) Private Limited Vs ACIT (ITAT Delhi)
ITAT held that It is true that the assessee has paid rebate/discount to its overseas AEs. It is equally true that such arrangement has been done through Master Service Agreements (‘MSA’) with various overseas companies (sample JC Penny ) for providing testing and inspection services. Under such MSA, BV overseas entities have agreed to provide for a volume rebate and discount at a pre-decided percentage to the overseas customers in relation to worldwide sale of services made to the entire group of overseas customers.
We find that the discounts and rebates have to be provided at a global level and not directly by the company rendering the services. We further find that such rebate/ discount payments are recovered by the BV overseas entities from their affiliates which included the appellant, as per allocated percentages based upon their respective sales proportion on the global sales. We further find that for recovery of such rebate/ discounts, BV overseas entities have entered into a Memorandum of Understanding (‘MOU’) with the appellant company which provides that the appellant is required to render testing and inspection services to various affiliates / suppliers / agents of the overseas vendors in India. These MOUs are placed in the paper book.
We find that as per the agreement/MOUs, BV overseas entities entered into MSA with overseas customers for provision of testing and inspection services. Simultaneously, BV overseas entities enter into a MOU with the appellant, instructing them to provide testing and inspection services to the overseas customer /agents/ affiliates/ supplier. The assessee provides services as required, from time to time and BV overseas entities computes the global sale of services made to the overseas customers and accordingly computed the volume discount payable to them. Such discount percentage is allocated amongst the affiliates of BV overseas entities which also included the assessee company based upon their proportionate sales vis-à-vis global sale and such discounts are recovered from its affiliates which also included the assessee company and finally, rebate is passed upon to third party vendor. Some sample proof of remittances are placed in the paper book.
In our humble opinion, these agreements/MOUs were before the lower authorities and nowhere the Assessing Officer has demonstrated that these are sham transactions. Without properly appreciating the agreement, the Assessing Officer has rubbished the same.
In our considered opinion, the Assessing Officer should have examined the transactions in light of agreements/MOUs and related documentary evidences before coming to any conclusion. We further find that all the documents were not furnished before the Assessing Officer as the same has been placed before us in the form of Additional Evidences to demonstrate that the discounts/rebates have ultimately been passed on to the customers.
In the interest of justice and fair place, we deem it fit to restore this issue to the file of the Assessing Officer. The assessee is directed to demonstrate that discounts/rebates have ultimately been passed on to customers and the Assessing Officer is directed to verify the same in light of Agreements/MOUs. Needless to mention, the Assessing Officer shall give reasonable and sufficient opportunity of being heard to the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is preferred against the order of the CIT(A) – 44, New Delhi dated 16.04.2019 pertaining to assessment year 2013-14.
2. The grievances of the assessee read as under:
1. That the Ld. CIT(A) has erred in facts and in law, in partly confirming the disallowance made by the Ld. TPO on account of Transfer Pricing Adjustment.
2. On the facts and in law, the Ld. TPO/AO and Ld. CIT (A) violated the provisions of Rule 10B (2) of the Rules by arbitrarily rejecting the companies selected by the appellant in the TP Documentation/fresh search which are functionally comparable to the appellant.
3. On the facts and in law, the Ld. TPO/AO and the Ld. CIT(A) has erred in not accepting /veBPO Services Private Limited as a valid comparable to the Information Technology Enabled Services segment of the Appellant, even though the company passes all the quantitative filters applied by the Ld. TPO, and is functionally comparable to the Information Technology Enabled Services segment of the Appellant.
4. On the facts and in law, the Ld. TPO/AO has erred in selecting companies (viz. TCS E- Serve International Ltd., Infosys BPO Limited, Capgemini Business Services (India) Pvt. Ltd., Tech Mahindra Limited and Hartron Communications Limited), which are not comparable to the Information Technology Enabled Services segment of the Appellant, on account of various quantitative/ qualitative filters, acceptable to the Ld. TPO himself. Further, the Ld. CIT(A) has erred in not adjudicating on the action / approach of the Ld. TPO, w.r.t. selection of the aforesaid companies.
5. That the Ld. CIT(A) has erred in facts and in law, in confirming disallowance made by the Ld. AO amounting to INR 3,50,08,872/- incurred in relation to rebates / discounts paid to the holding company of the Appellant without appreciating the fact that these were in the nature of sale and promotional expenses.
6. That the Ld. CIT(A) has erred in facts and in law, in not appreciating that the rebates/ discount payments have been
made to an associated enterprise and no adverse inference has been drawn by the Ld. TPO in this regard.
7. That the Ld. CIT(A) has erred in law in confirming the disallowance made by the Ld. AO on account of rebates/discounts without appreciating that the Ld. AO cannot question the commercial expediency of the transaction.
8. That the Ld. CIT(A) has erred in facts and in law, in charging interest under section 234B of the Act.
9. That the Ld. CIT(A) has erred in facts and in law, in initiating penalty proceedings against the Appellant under Section 27i(i)(c) of the Act”.
3. Though, while challenging the selection of the comparable companies, the assessee has challenged several companies, but, at the very outset, the ld. counsel for the assessee stated that the appellant is challenging the inclusion of TCS e-Serve International Limited and Tech Mahindra Limited only and solely on the ground that both these companies do not pass the filter of 25% of Related Party Transactions [RPT].
4. Briefly stated, the facts of the case are that the appellantcompany BVCPS is a wholly owned subsidiary of Bureau Veritas SA., France and was incorporated in India in April 2003. BVCPS provides testing, inspection and audit services to clients for a full range of consumer products/softlines/textiles, toys and juvenile products, hardlines/hard goods and house hold products throughout the supply chain.
5. During the year under consideration, the appellant company has undertaken the following international transactions:
