Income Tax Appellate Tribunal - Delhi
Intercontinental Hotels Group (India) ... vs Acit, Circle-1(1), Gurgaon on 20 February, 2023
THE INCOME TAX APPELLATE TRIBUNAL
DELHIBENCH 'I', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member
Sh. Yogesh Kumar US, Judicial Member
ITA No. 505/Del/2022 : Asstt. Year : 2017-18
Inter Continental Hotels Group (India) Vs ACIT,
Pvt. Ltd., 11th Floor, Building No. 10, Circle-1(1),
Tower-C, DLF Cyber City, Phase-2, Gurgaon
Gurgaon-122002
(APPELLANT) (RESPONDENT)
PAN No. AAGCS7613G
Assessee by : Sh. Atul Jain, AR &
Ms. Suchita Kanodia, AR
Revenue by : Sh. Rajesh Kumar, CIT DR
Date of Hearing: 23.11.2022 Date of Pronouncement: 20.02.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order dated 27.01.2022 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. General Grounds "1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in enhancing the income of the Appellant under section 143(3) read with section 144C(13) read with section 144B of the Act, for AY 2017-18 by INR 5,65,93,386.
2 ITA No. 505/Del/2022Inter Continental Hotels Group (India) Pvt. Ltd.
3. Specific Ground IT enabled services (INR 2,29,52,492)
2. On facts and in law, the Hon'ble Dispute Resolution Panel ('DRP')/ Ld. Transfer Pricing Officer ('TPO') erred in rejecting the economic analysis adopted by the Assessee in its TP Documentation, thereby modifying / adding / selecting filters and selecting non-comparable companies as well as rejecting comparable companies selected by the Assessee, thereby contravening the provisions of Rule 10B(2) of the Income Tax Rules, 1962 ('the Rules').
3. On facts and in law, the Ld. TPO has grossly erred in including Infosys B P M Ltd which was accepted to be functionally non-comparable by the Hon'ble Tribunal in the case of the Appellant itself in earlier years.
On facts and in law, the Ld. TPO has further erred in including the following companies which are non-comparable to the Appellant in view of their functions performed, assets owned, risks assumed vis-a- vis the Appellant
a) Infosys Ltd.
b) Wipro Ltd.
c) C G-V A K Software & Exports Ltd.
d) Mindpool Technologies Ltd.
e) Mindtree Ltd.
f) Tata Elxsi Ltd.
g) Infobeans Technologies Ltd.
h) Newt Global India Pvt. Ltd.
i) Xavient Software Solutions (India) Pvt. Ltd.
3 ITA No. 505/Del/2022
Inter Continental Hotels Group (India) Pvt. Ltd.
j) Nihilent Ltd. k) Tech Mahindra Business Services Ltd. l) Cyfuture India Pvt. Ltd. m) E-Zest Solutions Ltd. n) 8K Miles Software Services Ltd.
5. On facts and in law, the Ld. TPO has further erred in excluding the following comparable companies having similar functional profile as that of the Appellant:
a) Informed Technologies India Ltd.
b) Digicall Global Ltd. c) Cosmic Global Ltd. d) Crystal Voxx Ltd. e) Bhilwara Infotechnology Ltd.
6. On facts and in law, the Ld. TPO erred in not allowing relevant adjustments as per the provisions of Rule 10B(1) and Rule 10B(3) of the Rules for determination of the ALP to account for the difference in the working capital of the Appellant and of comparable companies.
Marketing support services (INR 2,79,61,859)
7. On facts and in law, the Hon'ble DRP/ Ld. TPO erred in rejecting the economic analysis adopted by the Assessee in its TP Documentation, thereby modifying / adding / selecting filters and selecting non-comparable companies as well as rejecting comparable companies selected by the Assessee, thereby contravening the provisions of Rule 10B(2) of the Rules.
4 ITA No. 505/Del/2022Inter Continental Hotels Group (India) Pvt. Ltd.
8 On facts and in law, the Ld. TPO has grossly erred in excluding Cyber Media Research & Services Ltd. on the grounds that the company is making persistent losses not appreciating that:
a) the company has actually earned profits in the assessment year under question, i.e., AY 2017-18,
b) the loss/profit cannot be the barometer of comparability under Rule 10B(2)
9 On facts and in law, the Ld. TPO has further erred in including the following companies which are clearly non- comparable to the Appellant in view of their functions performed, assets owned, risks assumed vis-a-vis the Appellant:
a) Just Dial Ltd. b) Info Edge (India) Ltd. c) I C R A Ltd. d) E DC I L (India) Ltd. e) Overseas Manpower Corpn. Ltd. f) Majestic Research Services & Solutions Ltd. g) Fcbulka Advertising Pvt. Ltd. h) Concept Public Relations India Ltd.
10. On facts and in law, the Ld. TPO has grossly erred in excluding the following comparable companies having similar functional profile as that of the Appellant:
a) DGM India Internet Marketing Ltd
b) Honeycomb Relationship Management Services Pvt Ltd
c) Netlink Solutions (India) Ltd
5 ITA No. 505/Del/2022
Inter Continental Hotels Group (India) Pvt. Ltd.
d) Mig Media Neurons Ltd. Other Grounds
11. On facts and in law, the Ld. AO has erred in incorrectly computing the assessed income as INR 4,62,38,480 by adding the original TP adjustment of INR 5,65,93,386, and not taking into account the revised TP adjustment of INR 5,09,14,351 as per the rectified order passed by the Transfer Pricing Officer.
12. On facts and in law, the Ld. AO has erred in not correctly considering the taxes deducted at source and advance taxes paid by the Company while computing the refund due.
13. On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270 A of the Act."
Brief Background
4. The assessee company was engaged in providing back- office support services to its Associated Enterprises (AEs) in the nature of IT enabled Services (ITeS) and marketing support services (MSS). During the relevant year, InterContinental Hotels Group (India) Private Limited ('IHG India' or 'the Assessee') was engaged in providing back- office support services to its Associated Enterprises ('AEs') in the nature of:
1. IT-enabled services (ITeS') @ cost plus 13.13% which includes, providing various business process outsourcing services, primarily accounting services in the nature of 6 ITA No. 505/Del/2022 Inter Continental Hotels Group (India) Pvt. Ltd.
bank reconciliation, invoice processing, account receivables, account payables, account reconciliation, analyzing profit and loss, and assisting in statutory audit.
2. Marketing support services ('MSS') @ cost plus 10.07% which includes, marketing & reservation services, sales and reservation support, market communications/ publicity, market research and other sales and marketing program promotions, guest relations, and operation and maintenance of reservation programs, brand support services consisting of creating awareness, promotes, and publicizes the brands, and their services among the members of the travel industry and the media. Under the segment of MSS, the assessee provides regional office services such as coordination and operational support services.
I. Adjustments made by the Revenue Assessment Order u/s 143(3) r.w.s. 144C(13) read with section 144B of the Income-tax Act, 1961 ('the Act') dated 27 January 2022 passed by the National Faceless Assessment Centre, Delhi ('Ld. AO') read with rectification order u/s 154 r.w.s, 143(3) of the Act dated 23 August 2022.
7 ITA No. 505/Del/2022Inter Continental Hotels Group (India) Pvt. Ltd.
Adjustment Particulars in brief Provision of ITeS • The Appellant sel ected 10 comparables from the (Rs. 2,29,52,492) ITes sector to benchmark the transaction and
considered the transaction to be arm's length.
• The TPO accepted only 3 comparables and introduced 17 new comparables working out an ALP of 18.34% to make an adjustment.
• The Hon'ble DRP relied upon the IT AT orders of previous y ears of the erstwhile mer ged entity "IHG IT S ervices I ndia Private Limited" to direct the TPO to remove comparables E Clerx on account of being a KPO - rejected by ITAT in earlier y ears in appellant's own case.
• TPO provided final arm's length is computed from 13.45% to 21.69% with a median of 15.66%.
Marketing support • The Appellant sel ected 10 comparables Services performing marketing support activities to (Rs. 2,79,61,859) benchmark the transaction and considered the transaction to be arm's length.
• The TPO accepted only 3 c omparables and introduced 9 new comparables working out an ALP of 20.09% to make an adjustment.
• No reli ef was obtained post the DRP d irections on this account
5. The assessee argued before us taking preliminarily through the FAR of all the comparables.
6. The ld. CIT DR submitted the written submissions which are as under:
"The hearing in the abo ve note d case was co nducte d on 17.11.2022 and the next he aring is on 23.11.2022. The major issue in this is the upward adjustm ent of Rs.2,29,52,492/- on account of IT e nabled services and upward adj ustment of Rs.2,79,61,859/- with regard to marketing suppo rt services.8 ITA No. 505/Del/2022
Inter Continental Hotels Group (India) Pvt. Ltd.
Vide letter date d 23.09.2022, assessee company has file d revise d grounds of appe al and the assessee has mainly oppose d the inclusion of certain comparables by TPO based in the assessment/TP proceedings and also exclusion of ce rtain other comparables which were included by the assessee company in its TP study.
The assessee has contested the inclusion o f 20 co mparables before the Hon' ble DRP and requeste d for their exclusion on the ground that those comparable were excluded in earlie r years by ITAT or by the DRP. T he Hon' ble DRP directed the T PO to verify the assess conte ntio ns and exclude the comparables if the department has accepted the decision the earlie r years. The relevant e xtract o f the order of the Hon'ble DRP is mentioned at 3.3 and para 3.4 of the Hon'ble DRP order and for ready refere nce and be ing pe rtinent, same is repro duce d belo w:-
3.3 Grounds No . 3, 3.1, 3.2, 3.3 & 4 re late to the rejection of economic analysis of the assessee and the conseque nt selection and rejection of ce rtain comparables by the TPO.
3.3.1 As far as the selection o f the follo wing comparables, the assessee contests the following se lectio n on the ground that these comparable s have bee n excluded in the earlie r ye ars by ITAT or the DRP as fo llo ws:
1. Eclerx Exclude d by ITAT in A .Y. 2008- 09 and 2012- 13
2. Infosys BPM Exclude d by ITAT in A .Y. 2008- 09 and 2012- 13
3. Infosys Ltd. Exclude d by ITAT in A .Y. 2008- 09
4. Wipro Ltd. Exclude d by ITAT in A .Y. 2008- 09
5. Tech Mahindra Business Exclude d by ITAT in A .Y. 2008- 09 Service s Ltd.
6. Infosys BPM Ltd. Exclude d by ITAT in A .Y. 2008- 09
7. Eclerx & Wipro Ltd. Exclude d by ITAT in A .Y. 2012- 13 9 ITA No. 505/Del/2022 Inter Continental Hotels Group (India) Pvt. Ltd.
8. Tata Elxsi Exclude d by ITAT in A .Y. 2012- 13
9. E-Zest Soluti ons Exclude d by ITAT in A .Y. 2012- 13
10. CG-VAK Software Exclude d by ITAT in A .Y. 2012- 13
11. Mindtree Exclude d by ITAT in A .Y. 2012- 13
12. Infosys Ltd. Exclude d by ITAT in A .Y. 2014- 15
13. Mindpool T echnolog ies Exclude d by ITAT in A .Y. 2014- 15
14. CG-VAK Exclude d by ITAT in A .Y. 2014- 15
15. Xavient Exclude d by ITAT in A .Y. 2014- 15
16. Surevin BPO Exclude d by ITAT in A .Y. 2014- 15
17. EDCIL India Ltd. Exclude d by ITAT in A .Y. 2010- 11
18. Just Dial Exclude d by ITAT in A .Y. 2012- 13
19. Info Edge Exclude d by ITAT in A .Y. 2012- 13
20. ICRA Ltd Exclude d by ITAT in A .Y. 2012- 13 3.3.1.1 The Panel accordingly directs the TPO to verify the aforesaid co ntention of the assesse e and also whether any appeal has been file against the e xclusion by the ITAT. In case the department has accepted the decisions in the previous year and the facts remain the same, a consistent view may be take n during A.Y2017-18 as well.
Based o n the directions of the Hon' ble DRP, the TPO passed an o rder date d 19.01.2022 vide which he gave effe ct to directions u/s 144C issued by the DRP. The relevant part of the TPO's order is i.e . para 3 of the T PO order is re produced be lo w.
3. In pursuance of the DRP directions, the pe rusal of TPO is as follows: -
i. In respect of the assessee contention on the selection of comparables that have been exclude d in the earlier ye ars by ITAT or DRP, the TPO perusal is as fo llo ws:10 ITA No. 505/Del/2022
Inter Continental Hotels Group (India) Pvt. Ltd.
Sr . N am e of t h e A s se s se e' s T PO ' s Pe r u s al
No . Co m p a n y Co m m e nt s
1 E cl e r x E xc lu d ed b y IT A T A .Y A s s es s e e ' s C o n t en t i on
in 2008-09 an d ac c ep t e d
2012-13
2 In f o sy s B PM E xc lu d ed b y IT A T A .Y It wa s ex clu d ed i n A . Y
in 2008-09 an d 2008-09 & 2 0 1 1 -1 2 by
2012-13 ITA T , b u t it wa s s el e ct ed
as a c om p a rab l e in A .Y
2 0 1 4 - 1 5 an d t h e s a m e wa s
r et a in ed b y Ld . D R P al s o .
3 In f o sy s L t d E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 0 8 - 0 9
in 2 0 0 8 - 0 9 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
4 Wip r o L t d E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 0 8 - 0 9
in 2 0 0 8 - 0 9 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
5 T ech M ah in d r a E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 0 8 - 0 9
Bu si n es s in 2 0 0 8 - 0 9 A s s es s e e ' s c o n t en t i on
S e r vi c es Lt d r ej e ct ed .
6 In f o sy s B PM Lt d E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 0 8 - 0 9
in 2 0 0 8 - 0 9 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
7 E cl e r x & Wi p r o E xc lu d ed b y IT A T A .Y On l y E cl e r x has b e en
Lt d in 2 0 1 2 - 1 3 e xc lu d ed b y IT A T , Wip r o
h as n ot b e en ex clu d ed
8 Tat a E lx si E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 2 - 1 3
in 2 0 1 2 - 1 3 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
9 E- Z es t S o lu t i on s E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 2 - 1 3
in 2 0 1 2 - 1 3 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
10 CG - V A K E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 4 - 1 5
S o ft wa r e in 2 0 1 2 - 1 3 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
11 Min d t r e e E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 2 - 1 3
in 2 0 1 2 - 1 3 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
12 In f o sy s L t d E xc lu d ed b y D R P in N ot ex clu d ed in 2 0 1 2 - 1 3
A . Y 2 0 1 4- 1 5 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
13 Min d p o ol E xc lu d ed b y D R P in N ot ex clu d ed in 2 0 1 2 - 1 3
T ech n o l og i e s A . Y 2 0 1 4- 1 5 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
14 CG - V A K / - E xc lu d ed b y D R P in N ot ex clu d ed in 2 0 1 4 - 1 5
A . Y 2 0 1 4- 1 5 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
11 ITA No. 505/Del/2022
Inter Continental Hotels Group (India) Pvt. Ltd.
15 Xav i en t E xc lu d ed b y D R P in N ot ex clu d ed in 2 0 1 4 - 1 5
A . Y 2 0 1 4- 1 5 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
16 S u r e vin B P O E xc lu d ed b y D R P in N ot ex clu d ed in 2 0 1 4 - 1 5
A . Y 2 0 1 4- 1 5 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
17 ED CI L In d i a Lt d E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 0 - 1 1
in 2 0 1 0 - 1 1 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
18 J u st D i al E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 2 - 1 3
in 2 0 1 2 - 1 3 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
19 In f o Ed g e E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 2 - 1 3
in 2 0 1 2 - 1 3 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
20 ICR A L t d E xc lu d ed b y IT A T A .Y N ot ex clu d ed in 2 0 1 2 - 1 3
in 2 0 1 2 - 1 3 A s s es s e e ' s c o n t en t i on
r ej e ct ed .
From the abo ve, it is see n that the TPO did no t agree with the assesse's contentions made befo re DRP in most o f the cases. Thus it appe ars, from the perusal o f the T PO's orde r giving effect to DRP directio ns, that the assessee has made inco rrect contentio ns befo re the Hon' ble DRP and appears that DRP in a bonafide belie f acce pte d the assessee's co ntentions which were prove d to be inco rrect and wrong as mentioned in the order of the T PO date d 19.01.2022.
Further the assessee has also moved a rectification application dated 19.01.2022, which was disposed by AO on 22.01.2022. Further from the perusal of the rectificatio n order (copy o f the o rder produce d before the Hon'ble Bench in the last hearing) , in which the Assessing Office r has also incorpo rated the assessee's conte ntions, it is seen that the assessee did no t raise the issue of the so called wro ng effect to DRP dire ctions by the Assessing Office r. During the co urse of hearing the assessee has refe rred the submission filed before the DRP and specially refe reed to page 561, 562 and 563 o f the paper book volume 1. From the bare perusal of these documents it is seen that the assessee has mentione d that some of the com panies named 12 ITA No. 505/Del/2022 Inter Continental Hotels Group (India) Pvt. Ltd.
in those pages should be excluded by following decisio ns in assessee's own case. Howe ver, on verification by the TPO the assessee's co ntentions were prove d were wrong and incorrect.
Thus in view of the above , it appears from the order of the TPO that wrong and incorre ct asse rtions on facts was made by the asse ssee's company before the Hon'ble DRP and the Hon'ble DRP did no t adjudicate on merits about the exclusion/ inclusion of comparables. Thus because o f the wro ng assertio ns made the asse ssee it robbed the DRP o f adjudicating on the co mparables and no w assessee has raise d the matter befo re the Hon'ble ITA T regarding inclusio n/exclusio n of comparables. Further the asse ssee was aware of his contentions made after the order of the TPO giving effect to Hon'ble DRPs dire ctions as it moved the rectificatio n application u/s 154 but still it did not point out the issue befo re the TPO/A O/DRP which creates doubts on the intentio ns o f the assessee .
Thus it is cle ar that the assessee has provided wrong and incorre ct info rmation be fore the Hon'ble DRP and relying on assessee's incorrect asse rtio ns the DRP did not adj udicate the issue of inclusio ns/exclusio ns of above note d comparables on merits as see n from the orde r of the TPO accordingly the Hon'ble Bench is humbly requested to take the above facts on records and if found suitable , the assessee's appeal may be dispo sed of in vie w of the above facts with regard to pro viding inco rrect and wrong info rmation to DRP.
Submitted fo r kind consideration ple ase.
S d/-
(Rajesh Kumar) CIT(DR)-9, ITAT
7. The ld. AR rebutted the arguments of the ld. DR.
13 ITA No. 505/Del/2022Inter Continental Hotels Group (India) Pvt. Ltd.
8. On going through the entire ld. DRP consisting of five pages, we find from para no. 3.3 at page no. 2 to para 3.3.1.1 at page no. 3 of the said order, the ld. DRP has not adjudicated on merits of the issue pertaining to comparables.
9. Both the parties have agreed in principle and also we deem it fit to remand the matter to the file of the ld. DRP to adjudicate the issue on merits of the case.
10. In the result, the appeal of the assessee is allowed for statistical purpose.
Order Pronounced in the Open Court on 20/02/2023.
Sd/- Sd/-
(Yogesh Kumar US) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 20/02/2023
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR