Denso India Pvt. Ltd Vs DCIT (ITAT Delhi)
The issue under consideration is whether rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to purchase of fixed assets by the Appellant to its overseas AEs is justified in law?
ITAT states that, as regards to this ground, the same has been argued extensively by the Ld. AR. But the fact remains that proper evidences were not produced before the DRP/TPO at the time of the adjudication of this issue by the assessee. The Ld. DR extensively supported the filters adopted by the TPO and relied heavily upon various decisions of various benches of the Tribunal and High Courts, but the same do not support the case of revenue either. In the present case the evidences produced before the Revenue by the assessee were insufficient. Therefore, ITAT are remanding back the entire issue to the file of the TPO/AO for verifying all the evidences and after taking into consideration the same, decide the issue accordingly. Needless to say, the assessee should provide proper documents/evidences before the TPO/AO and the assessee be given opportunity of hearing by following principles of natural justice. Hence, Ground is partly allowed. In result, the appeal of the assessee is partly allowed for statistical purpose.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the assessee against the order dated 27/11/2015 passed under Section 254/143(3) read with Section 144C of the Income Tax Act, 1961 passed by DCIT, Circle-7(1), New Delhi (Assessing Officer), for Assessment Year 2011-12.
2. The grounds of appeal are as under:-
1. That the Assessment order passed in pursuance of the directions issued by the Hon’ble Dispute Resolution Panel (Hon’ble DRP) is a vitiated order as the Hon’ble DRP erred both on facts and in law in confirming the assessed income of Rs. 8,12,12,120/- made as against the returned loss of Rs. 5,06,48,350 by the Ld. Assessing Officer (“Ld. AO”) to the Appellant’s returned loss by issuing an order without appreciation of facts and law.
2. That the Ld. AO (following the directions of the Hon’ble DRP), erred on facts and in law, in enhancing the returned income of the Appellant Rs. 10,75,64,125/- on account of transfer pricing (‘TP’) adjustment u/s 92CA(3) of the Income Tax Act, 1961 (‘Act’) made by the Learned Deputy Commissioner of Income-tax, Transfer Pricing Officer-I(i) (’Ld. TPO’), by holding that the international transactions of Application Cost from/ to associated enterprises (“AEs”) during the year do not satisfy the arm’s length principle envisaged under the Act and in doing so have grossly erred in:
2.1 rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to payment of application cost by the Appellant to its overseas AEs, and in doing so have grossly erred in:
2.2. disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 (‘the Rules’);
2.3 applying Comparable Uncontrolled Price (‘CUP’) Method in contravention of the provisions of Rule 10 B of the Rules, merely based on incorrect presumptions and holding the arm’s length value of the transaction as ‘NIL’.
2.4 disregarding the distinct nature of services received by the Appellant from AEs, under separate heads such as technology/ technical assistance, modification/ customization related services, technical services, etc. pertaining to application cost;
2.5 concluding that the services provided by the AEs to Denso India are not commensurate with the service fee paid by the Appellant to its AEs; and
2.6 wrongly assuming that neither did the Appellant receive any assistance/ service, or any commensurate direct and tangible benefit in lieu of the payments made for application cost for such services/ payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard.
3. That the Ld. AO (following the directions of the Hon’ble DRP), erred on facts and in lawr, in enhancing the returned income of the Appellant Rs. 10,908,782/- on account of TP adjustment u/s 92CA(3) of the Act made by the Ld. TPO, by holding that the international transactions of General Services (Rs. 9,264,987/-) and Training Services (Rs. 1,643,795/-) from/ to AEs during the year do not satisfy the arm’s length principle envisaged under the Act and in doing so have grossly erred in:
3.1 rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to service fee and training fees by the Appellant to its overseas AEs, and in doing so have grossly erred in:
3.2 disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules;
3.3. applying CUP Method in contravention of the provisions of Rule 10B of the Rules, merely based on incorrect presumptions and holding the arm’s length value of the transaction as ‘NIL’.
3.4 concluding that the payment made to overseas AEs is duplicative in nature and accordingly holding the ALP of the such transactions to be NIL;
3.5 disregarding the distinct nature of services received by the Appellant from AEs, under separate heads such as technology/ technical assistance, modification/ customisation related services, technical services, etc. pertaining to general services and technical fees;
3.6 concluding that the services provided by the AEs to Denso India are not commensurate with the service fee paid by the Appellant to its AEs; and
3.7 wrongly assuming that neither did the Appellant receive any assistance/ service, or any commensurate direct and tangible benefit in lieu of the payments made for technical fee and service fee, nor was there any need for such services/ payments; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the recent judicial pronouncements in this regard.
4. The Ld. AO/ Ld. TPO erred in determining the value of Fixed Assets at Rs. Nil as against the international transaction value of Rs. 12,82,38,681 (Effective Addition only to the extent of depreciation on such assets i.e. Rs. 13,387,562/-) by holding that the Appellant’s international transactions in relation to the purchase of fixed assets does not satisfy the arm’s length principle as envisaged under the Act and in doing so have grossly erred in:
4.1 rejecting the benchmarking approach and methodology followed by the Appellant for determining the ALP of the transactions pertaining to purchase of fixed assets by the Appellant to its overseas AEs , and in doing so have grossly erred in:
4.2 disregarding the ALP, as determined by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Rules;
4.3 carrying out a TP adjustment on the transaction of purchase of fixed assets, disregarding the separate benchmarking analysis carried out in the TP documentation by testing overseas entity as tested party;
4.4. incorrectly held that the appellant had applied overall TNMM and aggregating such transaction with purchase of raw material and sale of finished goods by the appellant to its AE’s; and
4.5 disregarding the relevant judicial pronouncements in India in making the TP adjustment.
5. That on the facts and circumstances of the case the Ld. TPO erred in not providing the sufficient opportunity of being heard/time to provide the details/documents required during the course assessment proceedings. Thus the principle of natural justice has not been followed.
6. That the Ld. TPO made various statements/ averments merely based on conjectures/ surmises and unsound presumptions, which were not in accordance with the facts of the case and therefore the adjustments made should be deleted.
7. That the Ld. AO also erred in initiating penalty under section 27i(i)(c) of the Act for furnishing inaccurate particulars of income.
8. That the Ld. AO’s action to charge interest under sections 234A, 234B and 234C of the Act, based on the draft assessment which is bad in law.
The above objections are without prejudice to each other.”
3. The assessee M/s Denso India Limited is engaged in the business of manufacturing and sale of wide range of automobile components and other auto electrical components etc. Denso Corporation, Japan an automobile component manufacturer holds 47.93% of share capital in Denso India. The assessee filed e-return declaring loss of Rs. 5,06,48,350 on 29.11.2011. The Assessing Officer made reference to the Transfer Pricing Officer (TPO). The TPO vide order dated 01.12.2014 made following adjustments to the international transactions entered into by the assessee during the year:
