JCIT Vs HSBC Professional Services (India) Pvt. Ltd. (ITAT Mumbai)
ITAT Mumbai held that as TPO has gathered financial and functional details of the company by way of using his authority under section 133(6) of the Income Tax Act hence the same needs to provide all the gathered information to the assessee.
Facts-
The assessee company M/s HSBC Professional Services (India) Private Limited is incorporated in India and 98% of the shareholding is held by HSBC holdings BV, Netherlands and the balance of two per cent is held by Hong Kong and Shanghai banking Corp Ltd., India. The assessee company is engaged in providing personnel to various entities of the HSBC group for conducting audit services.
TPO noted that the assessee in its transfer pricing study selected Transactional Net Margin Method as the most appropriate method for benchmarking international transactions. TPO came out with a fresh list of comparables. After considering the objections, TPO made a final list of comparables and arithmetic mean of their PLI was worked out to 24%.
TPO rejected the contention of the assessee for providing working capital adjustment as well as risk adjustment in absence of any quantifiable data provided by the assessee. TPO computed adjustment of Rs. 1,06,65,264/-.
CIT(A) partly allowed the appeal of the assessee and sustained following comparables having arithmetic mean of PLI at 22.32%. Accordingly, assessee preferred the present appeal challenging exclusion of 7 comparables and inclusion of one comparables.
Conclusion-
TPO has gathered financial and functional details of the company by way of using his authority under section 133(6) of the Act. Since the said information has not been provided to the assessee, we feel it appropriate to restore this issue back to the file of the Ld. AO/TPO with the direction to provide all the information gathered under section 133(6) about the company to the assessee and decide the issue of exclusion/inclusion of the company after providing adequate opportunity of being heard to the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These cross appeals by the Revenue and the assessee have been preferred against the order dated 24/10/2011 passed by the Ld. Commissioner of Income-tax (Appeals)-15, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2006 -07.
2. The grounds raised by the Revenue in its appeal are reproduced as under:
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the Transfer Pricing Adjustment of Rs. 1,06,65,264/- made u/s. 92CA(3) of the Act, without appreciating the facts of the case”.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the benefit of -5% relief to the assessee, without appreciating the fact that no standard deduction of 5% to the assessee is envisaged under section 92C(2) of the Act”.
3. The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO be restored”.
3. The grounds raised by the assessee in its appeal are reproduced as under:
1. The learned Commissioner of Income- tax (Appeals) -15, Mumbai (‘CIT-A’) erred on facts and in law in allowing only partial relief in relation to the transfer pricing adjustment made by Assessing Officer /Transfer pricing officer (‘AO/TPO) despite the fact that the AO and the TPO have incorrectly disregarded the benchmarking analysis and the resultant comparable companies identified by the Appellant as part of its transfer pricing report (TP Report’) maintained on a contemporaneous basis as per Section 92D of the Act read with Rule 10D of the Rules without assigning any cogent reasons thereof.
2. The learned CIT-A erred on facts and in law in upholding the order of the AO/TPO despite the fact that the AO/TPO erred in making transfer pricing adjustment by incorrectly invoking the provisions of Section 92C(3)(a) of the Act.
3. The learned CIT-A erred on facts and in law in upholding the order of the AO/TPO despite the fact that the AO and the TPO have conducted a fresh benchmarking analysis using (i) inappropriate search filters; (ii) non contemporaneous data, (iii) functionally dissimilar companies as comparable; and significantly substituting the Appellant’s analysis with a standard set of comparable for the Information Technology Enabled Service (ITeS’) segment which is adopted by the Income-tax department for assessment year 2006 -07 in an arbitrary manner and with a pre-determined mind set of making a transfer pricing adjustment. Thus, the Appellant prays that the fresh benchmarking analysis conducted by the learned TPO is liable to be quashed as the same is contrary to the provisions of law and has resulted in selection of companies suffering from quantitative and qualitative dissimilarities.
4. The learned CIT-A erred on facts and in law in upholding the order of the AO/TPO despite the fact that the AO and TPO have rejected the use of data for two preceding financial years (viz. FY 2004-05 and FY 2003-04) in addition to the previous year i.c. 2005-06 as permitted under the provisions of Rule 10D(4) of the Rules as elaborated in the TP Report.
5. The learned CIT-A erred on facts and in law in upholding the order of the AO/TPO despite the fact that the AO and the TPO have used secret comparable companies by considering companies for which data was not available in public domain at the time of preparation of transfer pricing study report and subsequently invoking the powers given under Section 133(6) of the Act for gathering data not available in the public domain and thereafter using such data for benchmarking international transactions of the Appellant. The exercise undertaken by the TPO under Section 133(6) of the Act is selective and arbitrary and hence should be out rightly rejected.
6. The learned CIT-A erred on facts and in law in upholding the order of the AO/TPO despite the fact that the AO and the TPO have determined the arm’s length price based on data which was not available as on the specified date [as defined in Section 921(iv) of the Act read with Rule 10B(4) of the Rules).
7. The learned CIT-A erred on facts and in law in upholding the order of the AO/TPO despite the fact that the AO and the TPO did not allow any adjustments as warranted under Rule 10B(1)(e)(iii) of the Rules to account for difference between international transactions and the alleged comparable uncontrolled transactions selected by the learned AO/TPO.
The Appellant prays that the additions to the appellant’s income made in relation to transfer pricing matters by the AO/ TPO and upheld by the Hon’ble CIT(A) be deleted. Levy of Interest under Section 234B and 234C of the Act
8. On the facts and in the circumstances of the case and in law, the learned AO erred in levying interest under section 234B and 234C of the Act. The Appellant prays that the AO be directed to delete the interest under the Act.
4. At the outset, we may like to mention that the then Assessing Officer of the case vide letter dated 08/02/2021 intimated to the Departmental Representative for withdrawal of the appeal in view of the tax effect involved being below the limit prescribed by the Central Board of Direct Taxes(CBDT) vide Circular No. 17 of 2019. The said intimation duly forwarded by the concerned Range Officer i.e. Additional Commissioner of Income-tax, is placed on record. The Ld. Departmental Representative also agreed that tax effect involved in ground raised by the Revenue is below the limit prescribed by the CBDT. In view of petition of the Ld. Assessing Officer for withdrawing the appeal, the appeal of the Revenue is dismissed as withdrawn.
5. As far as appeal of the assessee is concerned, before us the Ld. counsel of the assessee only challenged inclusion/exclusion of certain comparable in the final list of the comparable sustained by the Ld. CIT(A). The assessee has also filed additional ground of appeal challenging the rejection of certain comparable by the AO/TPO, which is reproduced as under:
9. The Ld. CIT(A) erred on the facts in upholding the order of the AO/TPO in rejecting functionally comparable companies selected by the Appellant in its transfer pricing report.
6. We have heard parties on the issue of admissibility of the additional ground. In view of settled principle laid down by the Hon’ble Supreme Court in the case of CIT Vs NTPC 229 ITR 383 (SC), the additional ground raised by the assessee is admitted as issues involved being of legal nature and no investigation of fresh facts is required.
7. The brief facts relevant for the adjudication of the issue in dispute are that the assessee company M/s HSBC Professional Services (India) Private Limited is incorporated in India and 98% of the shareholding is held by HSBC holdings BV, Netherlands and balance two percent is held by Hong Kong and Shanghai banking Corp Ltd., India. The assessee company is engaged in providing personals to various entities of the HSBC group for conducting audit services.
7.1 For the year under consideration, the assessee filed its return of income on 17/11/2006 declaring total income of ₹1,02,39,397/-. The return of income filed by the assessee was selected for scrutiny assessment any statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In view of international transactions carried out by the assesse e with its Associated Enterprises , the Ld. Assessing Officer referred the matter of determination of arm ’s length price of the international transactions to the Ld. Transfer Pricing Officer (TPO). On perusal of the transfer pricing study submitted by the assessee , the Ld. TPO noticed certain international transaction s carried out by the assessee, which are reproduced in para 4 of his order dated 21/10/2009. For ready reference, summary of said international transactions is extracted as under:
