TP addition without considering objections of assessee : ITAT directs AO for re-adjudication

Wipro GE Healthcare Pvt. Ltd. Vs DCIT (ITAT Bangalore)

In respect of transfer pricing addition made by Ld.AO. It is observed that DRP/TPO for year under consideration did not consider objections raised by assessee against comparables selected by Ld.TPO and simply followed DRP directions issued for AY 2014-15. As AY: 2014-15 has been set aside by this Tribunal, we deem it fit and proper to remit the issues to file of Ld.AO/TPO for taking necessary action of passing a speaking order by granting fair opportunity to assessee of being heard. It is also observed that all these are pending before lower authorities and we find no reason adjudicate these issues at this stage. Accordingly, following earlier orders passed by this Tribunal in assessee’s own case, we set aside all issues to Ld.AO for re-adjudication of issues in the light’ of the findings given in earlier years.

FULL TEXT OF THE ITAT JUDGEMENT

Present appeal has been filed by assessee against final assessment order dated 31/10/19 passed by Ld.ACIT Circle 7(1)(2) under section 143(3) read with section 144C(13) of the Act, for assessment year 2015-16 on following grounds of appeal:

1. That the order of the Assessing Officer (AO),Transfer Pricing Officer (TPO), the directions of the Dispute Resolution Panel (DRP) and the order of the transfer pricing officer in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity, without jurisdiction, bad in law and all other known principles of law.

2. That the total income computed and the total tax computed is hereby disputed.

3. That the findings, reasons, conclusions and directions of Dispute Resolution Panel (DRP) u/s 144C are unsustainable in law requires to be set aside. Consequently the additions based on such directions also requires to be set aside.

4. The DRP erred in not considering the relevant materials, evidences, data and relevant law. The directions. issued are without application of mind.

5. That the Orders AO/TPO Directions of the DRP violates the principles of judicial discipline as the binding nature of the orders of the higher appellate authorities have been totally ignored.

6. That the order of the AO/TPO/DRP and the directions given therein are bad in law and not as per law requires to be cancelled.

7. That the AO/TPO/DRP erred in not providing adequate and sufficient opportunity as required under law thus violating the principle of natural justice, hence on this ground alone the orders requires to be annulled.

ISSUE OF TRANSFER PRICING

8. That the order of the Transfer Pricing Officer is without jurisdiction, against the law, facts, circumstances, natural justice, equity and all other known principles of law.

9.The learned DRP erred in overlooking the fact that the entire objections filed by the appellant have not been considered by the TPO before passing order u/s 92CA.

10.The appellant denies the tax liability on the surplus arising on the computation of arms length price for the impugned assessment year.

11. (i) The Learned AO erred in bringing to tax a sum of Rs. 246,02,17,944/- as outlined below in the table under section 92CA of the Act as per the communication/ order of the Transfer Pricing Officer and the directions of DRP,

(ii) The learned TPO/DRP erred in disregarding the use of multiple year data and ought to have accepted the use of contemporaneous data as per the transfer pricing regulations due to non availability of current year data in public domain at the time of preparing the report.

iii)The learned TPO/DRP erred in rejecting companies having different financial year ending or whose data does not fall within the 12 month period of impugned financial year.

iv) The learned TPO/DRP erred in not considering working capital adjustments.

v)The Learned AO / TPO / DRP erred in failing to rely on binding decisions of the Hon’ble ITAT in appellants own case for the assessment years 2002- 03 to 2004 – 05, 2008-09 and subsequent orders of the ITAT for AY: 2005-06 & 2006-07.

12. (i) The Learned AO / TPO / DRP erred in making adjustment towards the royalty for use of technology amounting Rs.7,29,91,441/- without determining the comparable transaction in the public domain as prescribed under the Act and Rules.

(ii) The Learned AO/ TPO/DRP have failed to identify a comparable in terms of Rule 10B(3).

(iii) The 1d.AO/TPO/DRP erred in failing to rely on decision of the ITAT in appellant’s own case for the years 2002-03 to 2004-05 and subsequent orders of the ITAT for AY:2005-06 & 2006-07.

13.(i) The Learned AO / TPO / DRP erred in making adjustment towards the Arms Length Price difference in the distribution segment amounting Rs.175,84,64,764/-.

ii. The Learned AO / TPO / DRP erred in making adjustment on transactions beyond AE transactions, thus, the adjustment proposed includes non AE transactions.

iii. The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee.

iv.The Learned AO / TPO / DRP erred in comparing the appellant’s distribution margin with comparables which are not in the business of trading/ distribution.

v. The Learned AO / TPO / DRP erred in not following their own orders passed for the earlier asst. years on this issue.

vi. The selection of the method by the Learned AO / TPO / DRP is not as per law.

vii. The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular.

viii. The Learned AO / TPO / DRP erred in not carrying out the adjustments as required under law as well as the facts.

ix. The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 10B(3).

x. The Learned TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law.

xi) The AC/TPC/DRP erred in rejecting the following comparables selected by the assessee

1) Advanced Micronics Devices Ltd

2) Central Scientific Supplies Co Ltd

3) Lyka Exports Ltd

4) Frontline Electro Medical Ltd

5) Max Medical Services Ltd

6) ADS Diagnostic Ltd

xii) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the assessee

1) Infra Medica Exim Pvt Ltd

2) Biomex Instruments Pvt Ltd

3) Vinod Medical Systems Pvt Ltd

4) Weldon Biotech (India) Pvt Ltd

5) Iris Healthcare Technologies Pvt Ltd

6) Affiance Medi tech Pvt Ltd

7) Cyronics Instruments Pvt Ltd

8) Peerless Biotech Pvt Ltd

9) Schiller Healthcare India Pvt Ltd

10) Pinnacle Biomed Pvt Ltd

11)Maquet Medical India Pvt Ltd 12)Narang Medical Ltd

13)Kalelker Surgicals Pvt Ltd

xiii) The Learned AC / TPO / DRP erred in failing to rely on decision of the ITAT in assessee’s own case for the years 2002 – 03 to 2004 – 05 and subsequent orders of the hAT for other assessment years.

xiv.The Learned AO / TPO / DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellants own case for earlier years and accepted by department on the same issue. xv.The Learned TPO / DRP have failed to apply the provisions of Rule 10B(4)&(5) & 10CA(2) while selecting the criteria and filters: xvi. The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, etc., as required under law as well as the facts.

xvii.The learned TPO/DRP erred in rejecting the price per unit adjustment carried out by the appellant

xviii. The learned TPO/DRP erred in rejecting the import duty adjustment carried out by the appellant

xix.The learned TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment.

xxi. The learned TPO/DRP erred in rejecting the corroborative analysis provided by the appellant.

xxii) The Learned TPO./DRP erred in applying the trading income threshold of 75% to sales to select comparable. companies.

14.(i) The Learned AO / TPO / DRP erred in making adjustment towards the Arms Length Price difference in the Software Development Segment amounting Rs.70,17,53,230/-.

ii) The Learned AO / TPO / DRP erred in selecting the comparables. The selection of comparables does not confirm to the I.T. 1Rules. Further it also does not comply with the case laws on this point.

iii)The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, etc., as required under law as well as the facts.

iv The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee.

v)The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 10B(3).

vi)The Learned TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while  considering comparables which failed to meet the filters /criteria as required under law.

vii) The Learned AO/TPO/DRP erred in not granting the variances deduction envisaged in the Act and Circular. The Learned TPO/DRP have failed to apply the provisions of Rule 10B(4)&(5) & 10CA(2) while selecting the criteria and filters.

viii)The learned TPO / DRP erred in rejecting R & D expense more than 3% on turnover to eliminate companies engaged in R & D activities.

ix)The learned TPO / DRP erred in applying the software development service income threshold of 75% to sales to select comparable companies.

x)The learned TPO / DRP erred in rejecting the comparable companies having ratio of employee cost to sales less than 25%.

xi)The Learned TPO/DRP erred in rejecting the following companies as comparables rejecting the submissions / objections made by the appellant.

a) CAT Technologies Ltd

b) Akshay Software Technologies Ltd

c) Cambridge Technology Enterprises Ltd

d) Spry Resources India Pvt Ltd

e) Rsystems International Ltd

f) Hellos & Matheson Information Technology Ltd

g) Bells Softech Ltd

h) Minvesta Infotech

I) New-Age Bizsoft Solutions Pvf Ltd

j) 12T2 India Ltd

k) Daffodial Software Ltd

xii) The Learned TPO/DRP erred in considering the following companies as comparables rejecting the submissions / objections made by the appellant.

a) Kals Informatiom Systems Ltd

b) Tata Elxsi Ltd (Seg)

c) Rheal Software Pvt Ltd

d) Mindtree Ltd

e) L & T Infotech Ltd

f) Infobeans Technologies Ltd

g) Nihilent Technologies Ltd

h) Aspire Systems (India) Pvt Ltd I) Inteq Software Pvt Ltd

j) Infosys Ltd

k) Thirdware Solutions Ltd

I) Cybage Software Pvt Ltd

15. (i) The Learned AO / TPO / DRP erred in making adjustment towards the Arm’s Length Price difference in the Support Services/Specified Domestic Transactions amounting Rs.4,94,14,855/-.

ii)The Learned TPO / DRP erred in making adjustment on Support Services/specified domestic transactions overlooking the statutory reports and these reports cannot be found fault with in the absence of any cogent or contrary evidence.

iii. The Learned AO / TPO / DRP erred in not identifying a comparable as required under law.

iv.The Learned AO / TPO / DRP erred in not considering the details, information and evidences furnished by the assessee.

OTHER ISSUES/ADDITIONS/DISALL0WANCES

16. The Learned AO / DRP erred in disallowing provision for Onerous contract amounting to Rs.60,00,000/-.

17. The Learned AO / DRP erred in disallowing the sum of Rs. 7,49,33,375/- being 30% of Rs.24,97,77,917/- for non deduction of tax at source u/s.40(i)(ia) of the Act on the following provision for expense

18. The AO/DRP failed to appreciate and consider that if payees/receivers/deductees have paid the tax then no disallowance can be made u/s 40(a)(ia) of the Act.

19. The above disallowances have been made without providing sufficient and adequate opportunity as required under law and the Act. On this ground alone the above disallowances requires to be deleted.

20. The Learned AO/DRP erred in not granting relief u/s 90 of the Act to the extent of Rs.11,72,448/- and no reasons have been given for not giving credit for the above amount.

21. The Learned AO/DRP erred in not giving TDS credit amounting to Rs.1,14,36,741/- and no reasons or explanations have been given for denying the credit.

ISSUE OF INTEREST U/S.234 B&C

22. The appellant denies the liabilities for interest u/s 234B & C of the Act. Further prays that the interest if any should be levied only on returned income. No opportunity has been given before the levy of interest u/s 234 B & C of the Act.

23. Without prejudice to the appellants right of seeking waiver before appropriate authority the appellant begs for consequential relief in the levy of interest u/s 234B & C of the Act.

24. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered,

2. Brief facts of the case are as under:

Assessee is joint venture between General Electric Co USA and Wipro Ltd. It has been stated to be engaged in contract manufacturing of medical diagnostic imaging equipment, ultrasound systems, patient monitoring and X-Ray systems, provision of engineering and software services and distribution of medical diagnostic imaging equipment, therapy equipment and life science products. During the year under consideration assessee entered into international transactions with its AE and specified domestic transactions.

3. TPO/AO passed the order by making following additions:

1. TP adjustment

• • royalty
  • distribution segment
  • software development segment
  • support services (specified domestic transactions)

2. provision for Onerous Contract

3. Disallowance made u/s/40(a(ia) for non deduction of tax

• • Advertisement expenses
  • Legal and professional expenses
  • Repairs and maintainance
  • Miscellaneous expenses
  • Dealer Commission

4. Relief under 90

5. TDS credit

4. At the outset, admittedly it is submitted that all issues raised by assessee in present appeal except for disallowance of provision for onerous contract are squarely covered by decisions of this Tribunal in assessee’s own case for assessment years 2005-06 to 2014-15. It has been submitted that all issues have been set aside by this Tribunal to Ld.TPO for re-adjudication afresh.

5. We have perused submissions advanced by both sides in the light of the records placed before us.

6. It has been submitted that Ground no. 1-12 are general in nature and therefore, do not require adjudication. Ld.AR has filed before us a chart detailing manner in which the grounds in present appeal are covered by orders of this Tribunal for earlier assessment years annexed as Annexure-I. As submitted by Ld.AR, we have perused all decisions passed by this Tribunal in assessee’s own case for assessment years 2005-06 to 2014-15 and found that issues in present appeal are common with earlier years and have been set aside to Ld.TPO on the ground that Ld.TPO as well as DRP failed to consider objections raised by assessee.

7. In respect of transfer pricing addition made by Ld.AO. It is observed that DRP/TPO for year under consideration did not consider objections raised by assessee against comparables selected by Ld.TPO and simply followed DRP directions issued for AY 2014-15. As AY: 2014-15 has been set aside by this Tribunal, we deem it fit and proper to remit the issues to file of Ld.AO/TPO for taking necessary action of passing a speaking order by granting fair opportunity to assessee of being heard. It is also observed that all these are pending before lower authorities and we find no reason adjudicate these issues at this stage. Accordingly, following earlier orders passed by this Tribunal in assessee’s own case, we set aside all issues to Ld.AO for re-adjudication of issues in the light’ of the findings given in earlier years. (Refer Annexure 1).

7. In respect of Ground No.16, being disallowance of provision for onerous contract amounting to Rs.60,00,000/-. Ld.AR could not prove from the records that the same has been debited to profits & Loss account. Accordingly we reject this ground. However, assessee may claim such amount in relevant year of Accrual. Accordingly Ground No.16 sands dismissed.

8. In the result appeal filed by assessee stands partly

allowed for statistical purposes.

Order pronounced in the open court on 11th Dec, 2020