Case Law Details
PCIT Vs Osram India Pvt. Ltd (Punjab and Haryana High Court)
In PCIT Vs Osram India Pvt. Ltd., the Punjab and Haryana High Court addressed an appeal by the Revenue against an Income Tax Appellate Tribunal (ITAT) decision. The ITAT upheld the ruling of the Commissioner of Income Tax (Appeals) [CIT(A)], rejecting the findings of the Transfer Pricing Officer (TPO) in determining the Arm’s Length Price (ALP) for international transactions. The Revenue challenged this decision, asserting that the TPO had applied the relevant rules correctly by using data from the financial year in which the transactions occurred. However, both appellate authorities dismissed this position, noting that the Revenue had not provided adequate justification for deviating from established precedents in previous years’ assessments.
The Court noted that the TPO’s decision to introduce new comparables in the ALP determination for the financial year 2008-09 lacked compelling reasons, especially since similar data had been rejected in prior assessments for subsequent years. According to Rule 10B(2) of the Income Tax Rules, the comparability analysis requires examining transactions within the same financial year, but both the CIT(A) and ITAT found that adjustments were necessary to ensure fairness, such as considering working capital adjustments. The appellate bodies emphasized that the Revenue had failed to justify a departure from settled positions on comparables in previous assessments.
The High Court rejected the Revenue’s argument that the TPO was correct in solely using current year data, stating that there was no substantial question of law requiring further examination. It emphasized that when the TPO rejects comparables in later years for identical circumstances, it cannot selectively include them for the year in question. This lack of consistency undermined the Revenue’s case, and the court concluded that there were no valid grounds for reopening the assessment.
The Court’s decision underscores the need for the Revenue to provide solid justification when deviating from settled precedents in transfer pricing cases. In this instance, the appeal was dismissed, affirming the CIT(A) and ITAT’s rulings that the TPO had not established sufficient grounds for altering the previously accepted position on comparables. All related applications were disposed of, bringing the case to a close.
FULL TEXT OF THE JUDGMENT/ORDER OF PUNJAB AND HARYANA HIGH COURT
1. Applications are allowed as prayed for documents are taken on record.
2. Heard learned counsel for the appellant/revenue on admission and relating to the Appeal assailing the order dated 22.09.2022 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘I’, New Delhi (for short ‘ITAT’) whereby the ITAT has confirmed the order passed by the CIT(Appeals) setting aside the order passed by the Transfer Pricing Officer-II(1), New Delhi (for short “TPO”) , New Delhi holding that there was no material change justifying the revenue to take a different view and the revenue has over a period of time accepted certain facts which were relevant for the purpose of establishing the arm’s length price . There was not occasion for re-opening and departure from the settled position by the TPO. The revenue has failed to establish that there were no compelling reasons to depart from the settled position as accepted by the revenue earlier.
3. Learned counsel for the appellant has strenuously argued that the order passed by the TPO was in conformity with the provisions of Rule10B (2) and 10B(4) of the Income Tax Rules, 1962 (for short ‘the Rules’) and both CIT(Appeals) and the ITAT have erred in setting aside the order.
4. Learned counsel for the appellant has taken this Court to the order passed by the TPO to submit that the tax payer’s submissions were rightly not accepted by the TPO with regard to having used multiple air data for the purpose of determining the margins of comparables for the year 2008- It is submitted that as per Rule 10B (4) of the Rules, the data of the comparable transaction should be the data pertaining to the financial year in which the tax payer has entered into the international transaction and the same is mandatory. While proviso to 10(b) (4) also mentions of considering the earlier period data that the same would only have an influence of determination of transfer prices in relation to the transactions being compared.
5. Learned counsel for the appellant submits that the provision does not say that the successive year’s data can be considered excluded in the current year’s data and the TPO has, therefore, rightly applied the current data for achieving the comparable for the international transactions at arm ’s length price with associated enterprise .
6. Learned counsel for the appellant has also argued that in terms of Rule 10B(2) only the current year data is required to be examined along with filters.
7. We have considered the submissions.
8. The aspects this Court raised by the appellant before are purely factual. Though the CIT(A) as well as ITAT have details and as discussed by the TPO and a finding would be apposite to quote:-
“10. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the working capital adjustment that was sought by the assessee and allowed by the Ld CIT(A). We find that CIT(A) after considering the fact that the TPO has himself given the working capital adjustment to the assessee in A.Ys. 2010-11 & 2011 -12 and after relying on the various decisions cited in his order has held that assessee is entitled to work in capital adjustment. We find that the Co–ordinate Bench of Tribunal in the case of Sony Mobile Communication International SB (supra) has held that working capital adjustment cannot be denied to the assessee if it is a service industry. It has further observed that in order to neutralize the differences on account of carrying high or low inventory, trade payables and trade receivables, as the case may be, it becomes eminent to allow working capital adjustment so as to bring the case of the assessee at par with other functionally comparable entities. It has further, by relying on the decision of the Tribunal in the case of Navisite India Pvt. Ltd. vs. ITO has held that the component of working capital deployed should be considered on annual basis with the average of opening and closing figures.
11. Before us, Revenue has not pointed to any distinguishing feature in the facts of the case in the year under consideration and that of the earlier year. Revenue has also not placed any material on record to demonstrate that the decision relied upon by the CIT(A) has been stayed/set aside/overruled by higher judicial forum. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.”
9. It is also to be noticed that the TPO on identical facts of the Assessees’ case for the subsequent assessment proceedings of 2010 -2011, 2011-2012, 2012 -2013 and 2013-2014 had rejected the comparables. Once the TPO himself has not accepted the said comparable which were considered for assessment proceedings in question while examining the subsequent assessment proceedings, we do not find any justification to allow the inclusion of such comparables for the first time for the year 2009-20 Moreso, as even for the previous years, the comparables which may have taken into consideration as accepted by the TPO , the departure of course be made for each year assessment but as noticed by both the appellate authorities, the Revenue would have to establish compelling reasons for such departure.
10. In view of the above, we do not find any substantial question of law which needs to be examined afresh by this Court after the concurrent findings of the both the appellate authorities. The Appeal is devoid of merits and is accordingly dismissed.
11. All pending applications filed in this case shall stand disposed of accordingly.
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