Gujarat High Court
Pr. Commissioner Of Income ... vs Sabic Innovative Plastic India Private ... on 31 July, 2018
Author: M.R. Shah
Bench: M.R. Shah, A.Y. Kogje
C/TAXAP/248/2018 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 248 of 2018
With
R/TAX APPEAL NO. 231 of 2018
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PR. COMMISSIONER OF INCOME TAX-VADODARA-2,
Versus
M/S SABIC INNOVATIVE PLASTIC INDIA PRIVATE LIMITED
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Appearance:
MR.VARUN K.PATEL(3802) for the APPELLANT(s) No. 1
MRS SWATI SOPARKAR(870) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 31/07/2018
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE M.R. SHAH)
1. Feeling aggrieved and dissatisfied with the impugned order passed by the learned Income Tax Appellate Tribunal, Ahmedabad I Bench, Ahmedabad dated 17/03/2017 in IT (TP) No.427/Ahd/2016 for the Assessment Year 2011-12 (assessee's appeal), revenue has preferred Tax Appeal No.248/2018 with the following proposed questions of law;
(a) Whether the ITAT has erred in law and on facts in applying Transactional Net Margin Method (TNMM) instead of CUP method as prescribed under Rule 10B(1)(a) for determining the arm's length price for management services?
(b) Whether the ITAT has erred in law and on facts in deleting the addition made on account of payment of management services fees?
Page 1 of 4 C/TAXAP/248/2018 ORDER
(c) Whether the ITAT has erred in law and on
facts in not considering the decision of AO/TPO in proposing a cost plus mark up of 3% instead 10% in respect of fees of information technology services?
2. Feeling aggrieved and dissatisfied with the order passed by the learned Income Tax Appellate Tribunal, Ahmedabad "I" Bench dated 24/04/2017 in ITA No.133/AHD/2017 for the Assessment year 2012-13 (assessee's appeal), revenue has preferred Tax Appeal No.231/2018 with the following proposed questions of law;
(a) Whether the ITAT has erred in law and on facts in applying Transactional Net Margin Method (TNMM) instead of CUP method as prescribed under Rule 10B(1)(a) for determining the arm's length price for management services?
(b) Whether the ITAT has erred in law and on facts in deleting the addition made on account of payment of management services fees?
(c) Whether the ITAT has erred in law and on facts in not considering the decision of AO/TPO in proposing a cost plus mark up of 3% instead of 10% in respect of fees of information technology services availed from SABIC Innovative Plastics (SEA) Pvt. Ltd?
3. Having heard the learned Advocates appearing on Page 2 of 4 C/TAXAP/248/2018 ORDER behalf of the respective parties, present Appeals are Admitted to consider the following questions of law;
(a) Whether the ITAT has erred in law and on facts in applying Transactional Net Margin Method (TNMM) instead of CUP method as prescribed under Rule 10B(1)(a) for determining the arm's length price for management services?
(b) Whether the ITAT has erred in law and on facts in deleting the addition made on account of payment of management services fees?
4. So far as proposed question no.(c) common in both the Appeals are concerned, at the outset it is required to be noted that the TPO adopted 3% as acceptable mark up for the Information technology services instead of 10% as claimed by the assessee, without any basis and /or without any comparable instances. While setting aside such an estimation and /or adoption of 3%, learned Tribunal has observed in paragraph 25 as under;
"25. We did ask the learned Departmental Representative about the basis on which 3% margin was adopted and he justified the same on the ground that when software is being procured from outside and simply being distributed by the AE, such a margin is more than reasonable. No specific comparables were, however, pointed out. Such being the position, as learned counsel rightly points out, there is no basis for adoption of 3% as an Page 3 of 4 C/TAXAP/248/2018 ORDER acceptable mark up for the information management services. This variation in the mark up is based on the perceptions of the TPO and not any cogent material. There is, in any case, no reason for rejecting the comparables from IT sector only because the AE is not developing the software on its own and providing the software obtained from outside vendors. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the related ALP adjustment. The assessee gets the relief accordingly."
5. Learned Advocate appearing on behalf of the Department - revenue is not in a position to justify the estimation adopted by the learned Assessing Officer at 3% margin. It is candidly admitted that nothing comes on record that there was any specific comparables before the TPO. Under the circumstances, we are in complete agreement with the view taken by the learned Tribunal in quashing and setting aside the decision of the AO /TPO in proposing the cost plus mark up of 3% instead of 10% as claimed by the assessee in respect of information technology services. No substantial question of law arises. Under the circumstances, present Appeals qua proposed question no.(c) stands dismissed.
(M.R. SHAH, J.) (A.Y. KOGJE, J.) siji Page 4 of 4