Case Law Details
PCIT Vs Nivea India Pvt Ltd. (Bombay High Court)
The Bombay High Court dismissed the Revenue’s appeal and upheld the order of the Income Tax Appellate Tribunal (ITAT) admitting an additional transfer pricing (TP) ground raised by the assessee for the first time at the appellate stage. The dispute arose after the ITAT allowed the assessee to raise an additional ground contending that its Associated Enterprises (AEs), being the least complex entities, should be treated as the tested party for benchmarking international transactions. The Revenue challenged this, arguing that the ground was purely factual, had not been raised before lower authorities, contradicted the assessee’s own TP study and Form 3CEB, and lacked justification for late introduction.
The High Court noted that the ITAT was fully conscious that the ground had not been raised earlier and nevertheless admitted it after examining the record. The Tribunal found that relevant facts regarding the AEs—their identity, relationship, nature of business, and international transactions—were already available in the TP documentation and Form 3CEB. Relying on settled principles, including Supreme Court decisions permitting additional grounds where necessary to determine correct tax liability, the ITAT reasoned that it is the final fact-finding authority and should adopt a pragmatic approach, particularly where tax liability is sought to be fastened.
The Tribunal further observed that the Income-tax Act does not define “tested party” and that international TP principles recognise selection of the least complex entity with reliable comparables. It therefore admitted the additional ground and remanded the matter to the Assessing Officer/Transfer Pricing Officer (AO/TPO) to examine the issue afresh, call for necessary information, conduct independent inquiries, and decide in accordance with law after granting due opportunity to the assessee.
The High Court, after reviewing the detailed reasoning, held that the ITAT’s decision was well reasoned and did not give rise to any substantial question of law. It also noted that a fresh order had already been passed by the AO pursuant to the remand and was subject to further challenge before the appropriate forum. On these grounds, the Revenue’s appeal was dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Heard learned counsel Mr. Sharma for the Appellant.
2. Being aggrieved by the order dated 21 st August 2017 passed by the Income Tax Appellate Tribunal, Bench “K”, Mumbai (in short, “ITAT”), thereby allowing the Assessee’s Appeal, the Revenue has challenged the said order by way of this Appeal.
3. The submission of learned counsel is that the Assessee raised an additional ground that the Associated Enterprises are least complex entity and should be allowed as tested party. The ITAT considering the submission of the Assessee, restored the issue raised in the additional ground to the file of Assessing Officer / Transfer Pricing Officer for examining the issue afresh after considering all the material available on record and by calling the information and documents from the Assessee as well as by making own inquiry in the data base or otherwise.
4. It is submitted by Shri. Sharma that the ITAT was not justified in admitting the additional ground of the Assessee for the first time which has not been raised before any of the lower authorities though the ground pertains to only of facts and not question of law.
5. It is further submitted that the ITAT was not justified in admitting the additional ground of the Assessee even though the Assessee has not furnished any good reason for omission of such ground in the original Appeal memo and the reasons which prevented it in not raising the ground before the lower authorities. It is further submitted that the ITAT was not justified in appreciating the fact that the additional ground raised to treat the Associated Enterprises as Tested Party instead of Assessee is essentially a question of fact and that only question of law alone could be raised before the ITAT for the first time though not brought before the lower authority.
6. It is further submitted that the ITAT erred in admitting the additional ground of the Assessee to treat the Associated Enterprises as Tested Party though its own Transfer Pricing Study based on which its Return of Income was filed, adopted only the Assessee as the Tested Party and not the Associated Enterprises. Mr.Sharma submitted that admitting the additional ground virtually unsettles the settled position and allows the Assessee to litigate on its own admitted position of treating itself as the Tested Party in its Transfer Pricing Study based on which it filed its Return of Income. By permitting the additional grounds to be raised, the ITAT has ignored Assessee’s own statement before the Transfer Pricing Officer that it has chosen itself as the Tested Party due to the reason that it does not have any significant intangibles and its profitability can also be reliably ascertained. Our attention is then invited by Mr. Sharma to the findings of the ITAT.
7. We have heard learned counsel for the Assessee. We have perused the materials on record and the impugned order. We find that the Tribunal was conscious of the fact that the Assessee has not raised the said issue either before the Transfer Pricing Officer or before the First Appellate Authority and has raised the issue for the first time before the Tribunal by way of additional grounds of Appeal.
8. The Tribunal after considering the materials on record and after considering the said position was of the opinion that the additional grounds or pleas raised by the Assessee deserve to be admitted and accordingly, restored the issue raised in the additional grounds to the file of the Assessing Officer / Transfer Pricing Officer for examining the issue afresh. For coming to such a finding, the discussion of the ITAT from paragraph No.6 onwards to paragraph 12 is relevant and it reads thus:-
“6. We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue. The Ld. AR of the assessee argued that he has raised the additional ground of appeal. It was further argued that the additional ground of appeal may be taken up first. The learned AR for the assessee argued that the overseas AE’s are least complex entity and should be allowed as a tested party. The FAR analysis for determining the complexity of each of the entity is already available on record before the lower authorities in the form of TP study report. In support of his submission the ld AR for assessee relied on the decision of Hon’ble Supreme Court in National Thermal Power Corporation Ltd (229ITR 383), Jute Corporation of India (187ITR 688), and decision of Delhi High Court in GE Money Financial Services Pvt Ltd Vs PCIT in ITA No.662/2016 dated 31.08.2016, Mumbai Tribunal in Pfizer Limited Vs ACIT in ITA No.3729 & 3424/M/2008 dated 06.11.2015 and JCIT Vs Grasim Industries MA No.247/M2010 in ITA No.6253/M/ 1999, CIT v/s S. Nellippan [66 ITR 722(SC)], Ahmadabad Electricity Company and Godavari Sugar Mills Ltd. v/s CIT [199 ITR 351(Bom)] and Inaroo Ltd. v/s CIT [204 ITR 3129(Bom)]. The ld AR argued the assessee is entitled to raise additional ground of appeal before the Tribunal, even though the claim has not been made either before Income-tax Officer/Assessing Officer or the First Appellate Authority. It was further argued that the additional ground of appeal raised by assessee is purely legal in nature. All the facts related with the additional ground of appeal, are available on record. On the other hand, ld. DR for the Revenue strongly opposed the admission of addition ground of appeal at the second appellate stage. The ld. DR for the Revenue argued that in the application for admission of additional evidence, the assessee has relied upon the additional evidence filed by assessee before the Tribunal. In the application for raising additional grounds of appeal, the assessee has pleaded that the additional ground of appeal is based on evidence filed before this Tribunal. The ld. DR for the Revenue further argued that as per the mandate of section 92D, 92E, the person who have entered into International Transaction or Specified Domestic Transaction has to keep and maintain such information and document in respect thereof and to furnish the report of the Accountant in the Form 3CEBon or before the specified date. The specified date is defined under Clause-(iv) of section 92F, as per section 92F the meaning of specified date is the due date of filing of return of income as per sub-section (1) of section 139 of the Act. It was further argued that admittedly no such document or information was available or filed by the assessee either before AO/TPO. There is no reference about the AE’s of assessee as a tested party in the report furnished under Form 3CEB. The ld. DR for the Revenue further argued that by way of additional ground of appeal, the assessee is seeking substitution of tested party for the purpose of bench marking of Transfer Pricing Adjustment. The additional ground of appeal raised by assessee is purely factual in nature and cannot be allowed to raise at this stage. The ld. DR for the Revenue argued that though the ratio descedendi in case of NTPC, Jute Corporation of India Ltd. is not in dispute of the real dispute in raising the additional ground of appeal is emanated from the record available before the lower authority or not. The ld. DR for the Revenue argued that the question related to the additional ground of appeal is directly covered by the decision of Hon’ble Bombay High Court in case of Ultratech Cement v/s ACIT (2017) 81 Taxmann.com 72 (Bom) wherein all earlier decision on the issue related to raising of additional ground has been considered by the Hon’ble Court. It was further argued that Chapter X of the Act does not envisage taking the AE as a tested party. Even otherwise, if it is held that Chapter does not prohibit considering the tested party the same is permitted only when the AE is least complex entity and reliable data of comparable are available. The AE’s with whom, the assessee has entered into international transaction are not least complex entity as they have their own trademark as well as technical knowhow. The assessee used both these intangible for its business activity and for which the assessee compensate them. Reliable date relating to comparable is not available in this case. The additional ground of appeal raised by assessee is absolutely factual in nature and allowable under law. The decisions relied by ld AR for the assessee are distinguishable on facts of the present case.
7. We have considered the rival submission of the parties on the admission of additional ground of appeal. The assessee in the application for admission of additional ground of appeal has categorically contended that the additional ground of appeal is raised in view of the additional evidence submitted before the Tribunal. The assessee has referred various decisions of superior courts. In the additional ground, the assessee has categorically mentioned that AE’s is least complex entity involved in supply of raw-material, packing material and semi-finished goods to the assessee, which entered into transaction in capacity of low risk manufacture had to be taken as a tested party for the purpose of bench marking analysis.
8. As per our considered view, the Transfer Pricing Regulations practice in India is based on Arm’s Length Principle. The concept revolves around that price or margin determined in control transaction involving two AE’s should be compared to an uncontrolled transaction between two India enterprises operating under same circumstances. The Income-tax Act has not defined “tested party”. However, the Organization for Economic Co-operative and Development (OECD) in Transfer Pricing Guidelines for multinational enterprises of tax administration (OEDC Guidelines) defines “tested party”, according to which, tested party “the one to which the transfer pricing matter should be applied in the most reliable manner and for which most reliable comparable can be found” i.e. it will most often be that has to be less than functional analysis. Thus, on the basis of the definition provided by OECD under OECD Guidelines, in our view the “tested party” must contain (a) lest complex (b) availability of reliable and accurate data or comparable (c) the data available can be used with minimal adjustment.
9. To ascertain the fact, if the facts related to additional ground of appeal is available on record or not. We have gone through the report in Form No.3CEB page 16 to 28 of the Paper Book. The Exhibit-1, attached with the report described the name of the AE’s, nature of relationship with AE, and the brief description of business carried by the AE. Exhibit 2 described the details of particulars of international transaction of assessee for purchases / sale of raw materials, consumables or other supplies. Exhibits 3&5 described the details of international transaction in respect of purchased and sale of finished goods with its AE’s. An Exhibits 4 contains the details of sale and purchases of tangible moveable and immovable property or lease of such property. Exhibit 6 refers about the details of transaction of intangible property (not available in TP study). Further page no.29 to 92 contained details of comprehensive transfer pricing study. Thus, in our view the only available details with regards to assessee’s AE’s on record of TP study is the name of the AE’s, nature of relationship with AE, and the brief description of business carried by the AE.
10. The Hon’ble Jurisdictional High Court in Ultratech Cement Ltd. vs. ACIT (supra) while dealing with the additional ground of appeal related to the claim of deduction u/s 80IA which was not claimed by the assessee while filing the return of income. The Hon’ble Court held that it is sine qua non provided in sub-section (7) of section 80IA of the Act is the furnishing along with return of income, a report of audited account in Form No.10CB as required under Rule 18BBB(3) of the Act. The Form 10CCB which is required to be filed along with return of income as various details to be filed including the initial AY from which the deduction is being claimed, the nature of activities carried out with regard to the infrastructure facility, namely, whether it is for developing or developing and operating or for developing, operating and maintaining the new infrastructure facility. It is only on the examination of these details as submitted by the Auditor in Form No.10CCB that the claim of deduction can be considered. The Court further held that in case no Form No.10CCB is filed by the appellant/assessee, therefore, there is no evidence on record for subject AY to allow the claim.
11. We have seen that, undisputedly the name of the AE’s, nature of relationship with AE, and the brief description of business carried by the AE with assessee for functional analysis and benchmarking related with its AEs are on record in the report under Form 3CEB. Though the complete details are not ascertainable from the record relied by the assessee. Though, the details related with the foreign AE’s are available in the additional evidence filed by the assessee, which have not been relied by ld AR for the assessee while making submission on additional ground of appeal. We have also considered the objections of the revenue that additional ground raised by the assessee should not be admitted at this stage. After considering, the submission of revenue, we are of the view that approach in such matters should be different, when the revenue seeks to fasten liability before the Tribunal. The reasons are that the Tribunal is the last fact-finding authority and the assessee has no other avenue to raise its grievances so far as facts are concerned. In case, on the facts and in the law, ultimately if it is discovered that assessee is not liable to tax, the revenue cannot have grievances. The Article 265 of the Constitution of India provides that no tax should be levied and collected except by authority of law. In case, if ultimately the assessee is found to be liable to tax, the assessee will compensate the revenue in term of interest on the tax liability. We are of the view that fundamental principle laid down by Hon’ble Apex Court in case of NTPC (supra) is that there can be no tax liability without the authority of law and the principal will hold good all points of time. The Hon’ble Delhi High Court in case of GE Money Financial Services Private Ltd Vs PCIT (supra) while examining the correctness of the order related with the treating of Foreign Associated Enterprises (AE’s) held as under:
“The question of law which the assessee/appellant argues in this appeal for AY 2009-10 is regarding the appropriateness and correctness of treating the Foreign Associated Enterprises (AE’s) as a tested party. The assessee’s transfer pricing analyses and determination of ALP led it to approach to ITAT which by impugned order has remitted the matter for consideration of the most appropriate method as well as question of appropriate comparable is applicable in the circumstances of the case. The assessee has approached this court against the observation and findings of the ITAT–in para 10 to 18 to the effect that the foreign AE cannot be considered as tested party. Reliance is placed upon section 92B to contend that there is nothing in the provision inhibiting such consideration.
This court notices that for re-consideration and determination of the appropriate method as well as appropriate comparable is and the tested party, it would be convenient and appropriate for the TPO to consider the question which the assessee as in the present case. The TPO is therefore directed to overlook and not feel bound by the observation of the Tribunal and render finding on merit of the issue.”
12. In view of the above factual and legal discussion, we are of the view that whole intent and purpose of the transfer pricing provision is first select the most appropriate comparable/tested party and thereafter, by applying the most appropriate method to determine arm’s length price (ALP). Considering the fact that assessee has not raised the issue related with the selection of comparable as AE’s either before the transfer pricing officer or before first appellate authority, and has raised the issue for the first time before the Tribunal by way of additional ground of appeal. Thus, considering the material available on record and the factual and legal discussion as referred above, we admit the additional ground of appeal raised by assessee, and are inclined to restore this issue raised in the additional ground to the file of assessing officer/transfer pricing officer for examining issue afresh. The AO/TPO shall decide the issue after considering all the material available on record in accordance with the law. The assessing officer/transfer pricing officer shall decide the issue by calling the information and documents from the assessee as well as by making his own inquiry in the data base or otherwise. Needless to say that assessing officer/transfer pricing officer shall afford reasonable opportunity to the assessee before deciding the issue. The assessee is also directed to cooperate with the assessing officer/transfer pricing officer in providing all necessary information and documents and not to seek adjournment without any proper and valid reasons. With these observations the additional ground of appeal raised by assessee is allowed.”
9. Having gone through the well reasoned order, we are satisfied that the present Appeal does not involve any substantial question of law. It is further pointed out that pursuant to the remand made by the Tribunal to the Assessing Officer, a fresh order has been passed by the Assessing Officer. Learned counsel for the Assessee submits that the order passed by the Assessing Officer pursuant to the remand has been challenged before the competent forum by filing appropriate proceedings. In such view of the matter, the Appeal is dismissed.
Author Bio
