Ikea Services India Pvt. Ltd. Vs ACIT (ITAT Delhi)
The TPO has not accepted the decision of the Hon’ble Jurisdictional High Court of Delhi in the case of Li & Fund [supra] solely on the ground that an appeal has been recommended before the Hon’ble Apex Court. In our considered view, when the operation of the decision of the Hon’ble Jurisdictional High Court has not been suspended or stayed, it was mandatory upon the TPO to follow the binding decision of the Hon’ble Jurisdictional High Court.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is preferred against order dated 29.06.2021 framed u/s 143(3) r.w.s 144C(13) r.w.s 144B of the Income-tax Act, 1961 [hereinafter referred to as ‘The Act’] pertaining to A.Y. 2016-17.
2. The grievances of the assessee read as under:
“1. On the facts and circumstances of the case, and in law, the order passed by the National e- Assessment Centre, Delhi (‘Ld. AO’) is bad in law and void ab-initio.
2. On the facts and circumstances of the case, and in law, the Deputy Commissioner of Income Tax – Income Tax & Transfer Pricing Delhi 2(1)(2) (‘the Ld. TPO’) (following the directions of the Ld. DRP), erred in enhancing the income of the Appellant by INR 43,01,97,828 holding that the Appellant’s international transaction pertaining to provision of sourcing support services to its Associated Enterprises (‘AEs’) does not satisfy the arm’s length principle envisaged under the Act and in doing so, the Ld. TPO/ the Ld. DRP have grossly erred in:
2.1 concluding the incorrect functional profile of the Appellant, thereby wrongly characterizing it as a trader and not as a service provider;
2.2 concluding that the Appellant has developed human resource and supply chain intangible for its AEs;
2.3 concluding that the Appellant is engaged in maximizing location savings for its AEs.
3. On the facts & circumstances of the case and in law, the Ld. TPO/ Ld DRP have erred in disregarding the benchmarking approach adopted by the Appellant in its TP Documentation and including the Free on Board (‘FOB’) cost of the goods sourced directly by the AEs from the third party vendors in the cost base of the Appellant, for the purpose of computing the arm’s length profit margin of the Appellant.
4. On the facts & circumstances of the case and in law, the Ld. TPO/Ld.DRP have erred in considering the cost incurred by unrelated enterprise to compute net profit margin of the Appellant while applying Transaction Net Margin Method (‘TNMM’).
5.Without prejudice to other grounds raised by the Appellant, on the facts & circumstances of the case and in law, the Ld. TPO/ Ld. DRP have erred in selecting companies carrying out trading activities as comparable to the Appellant’s business of provision of sourcing support services for computation of alleged arm’s length price and in doing so have grossly erred in selection of:
5.1 Shoppers Stop Limited;
5.2 Isha Natural Beauty Products& Wellness Private Limited;
5.3 Lifestyle International Private Limited;
5.4 Future Enterprises Limited;
5.5 Bioworld Merchandising (India) Private Limited;
5.6 Avenue Supermarts Limited;
5.7 V2 Retail Limited;
5.8 Parin Furniture Limited
All the above grounds are without prejudice to each other. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at thje time of hearing of the appeal.
The Appellant prays that appropriate relief be granted based on the said grounds or 0|-, facts and circumstances of the case.”
3. The representatives of both the sides were heard at length, the case records carefully perused. Judicial decisions brought to our notice duly considered.
4. Briefly stated, the facts of the case are that the appellant company is a 100% subsidiary of Ingka Pro Holding BV Netherlands and is primarily engaged in the provision of sourcing support services to its Associated Enterprises [AEs]. The appellant operates on an assured return revenue model undertaking minimal/limited risk, making the services of the appellant having least complex operations and bears lesser share of risks.
5. The facts on record further show that the appellant, in the course of provision of sourcing support, is not involved in making any strategic sourcing decisions. It is primarily involved in identification and search of suppliers, obtaining offers and quotations, managing logistics and quality control check in performing its day-to-day functions. We find that the AE(s) undertake functions like strategy formulation for its sourcing business, selecting and approving new suppliers, negotiations with suppliers, claim management etc.
6. During the year under consideration, the appellant has entered into the following international transactions:
