Income Tax Appellate Tribunal - Delhi
Grail Research India Pvt. Ltd., Mumbai vs Dcit, New Delhi on 8 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I-1 : NEW DELHI
BEFORE SHRI R.S. SYAL, VICE PRESIDENT
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
ITA No.1473/Del/2013
Assessment Year : 2008-09
Grail Research India Pvt. Ltd. Vs. DCIT,
(Now known as Integreon (India) Circle-12(1),
Pvt. Ltd.), New Delhi.
402, Building No.4, Infinity Park,
Gen. A.K. Vaidya Marg,
Malad (E),
Mumbai.
PAN: AACCG7235J
(Appellant) (Respondent)
Assessee By : Shri Percy Perdiwala, Sr. Advocate
Department By : Shri Sanjay F. Bara, CIT, DR
Date of Hearing : 07.02.2018
Date of Pronouncement : 08.02.2018
ORDER
PER R.S. SYAL, VP:
This appeal filed by the assessee is directed against the final assessment order passed by the Assessing Officer (AO) on 28.09.2012 ITA No.1473/Del/2013 u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year 2008-09.
2. This is a recalled matter inasmuch as the earlier ex parte order dated 17.12.2013 passed by the Tribunal was subsequently recalled on 23.05.2014.
3. The first issue raised in this appeal is against the addition on account of the transfer pricing adjustment amounting to Rs.261,21,340/-.
4. Briefly stated, the facts of the case are that the assessee is a wholly owned subsidiary of Grail Research Ltd., Cyprus. The assessee is engaged in providing Consultancy Services; Research and Development services; Corporate Strategy Determination; Finance, Accounting, Treasury and Legal Function; and Human Resource Management Function to its associated enterprise (AE), namely, Grail Research LLC (Grail US). An international transaction of 'Provision of ITES services' to Grail US was reported with transacted value of Rs.18,55,12,261/-. 2 ITA No.1473/Del/2013 The assessee applied the Transactional Net Margin Method (TNMM) with Profit Level Indicator (PLI) of Operating Profit/Total Cost (OP/TC). Certain comparables were selected by the assessee to demonstrate that the international transaction was at arm's length price (ALP). The Assessing Officer made reference to the Transfer Pricing Officer (TPO) for determining the ALP of the international transaction. After making certain inclusions/exclusions from/to the list of comparables, the TPO finally determined the ALP at Rs.20.89 crore and, accordingly, proposed the transfer pricing adjustment of Rs.2.34 crore. The DRP made certain alterations in the list of comparables. While giving effect to the directions given by the DRP, the Assessing Officer made an addition on account of transfer pricing adjustment amounting to Rs.2,61,21,340/-. The assessee is aggrieved against this addition.
5. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the application of the TNMM as the most appropriate method with the PLI of OP/TC. In fact, the ld. Sr. AR submitted that the assessee would be satisfied if only three 3 ITA No.1473/Del/2013 companies, namely, Apitco Ltd., Rites Ltd., and Wapcos Ltd. (Seg) are excluded from the final list of comparables consisting of ten companies.
6. We find that the Mumbai Bench of the Tribunal in ThyssenKrupp Industries India Private Limited vs. Addl. CIT (ITA No.6460/Mum/2012), vide its order dated 27.02.2013, a copy placed on record, excluded Engineers India Ltd., inter alia, on the ground that it is a Government company and profit motive can never be a relevant consideration in Government undertakings. This order passed by the Tribunal was assailed by the Revenue before the Hon'ble Bombay High Court. Vide its judgment dated 28.03.2016, the Hon'ble Bombay High Court has refused to admit the questions of law on this aspect of the matter. A copy of such order is available on record. Further, the Delhi Bench of the Tribunal in International SOS Services India P. Ltd. vs. DCIT (ITA No.1631/Del/2014) vide its order dated 08.12.2015, followed the decision of the Mumbai Bench of the Thyssen Krupp Industries India Private Limited vs. Addl. CIT (supra) and ordered to exclude Apitco Ltd. on the ground of it being a Government company. 4 ITA No.1473/Del/2013 The Revenue preferred appeal against this order. The Hon'ble Delhi High Court, vide its judgment dated 30.05.2017, a copy placed on record, refused to admit any question of law arising from this aspect of the matter. Still further, the Mumbai Bench of the Tribunal in another decision in Shell India Markets Pvt. Ltd. vs. ACIT (ITA No.193/Mum/2013), vide its order dated 10.12.2014, ordered to exclude Rites Ltd. and WAPCOS LTD. (Seg) on the same reasoning that these are Government Undertakings. It is also seen that the Delhi Bench of the Tribunal in Virginia Transformer India Pvt. Ltd. vs. ITO (ITA No.1001/Del/2014) has excluded WAPCOS LTD., vide its order dated 31.07.2017 on the ground of it being a Government of India Undertaking. The above discussion shows that a Government of India Undertaking cannot be included in the list of comparables.
7. It is amply borne out from the above orders that all the three companies under challenge, namely, Apitco Ltd., Rites Ltd., and Wapcos Ltd. (Seg) are Government of India Undertakings. Despite their functional similarity, these companies cannot be considered as 5 ITA No.1473/Del/2013 comparable. Our view is fortified by the above discussed precedents. Ergo, we order to exclude these three companies from the list of comparables. The TPO is directed to recompute the ALP of the international transaction afresh after excluding the above three companies. Needless to say, the assessee will be allowed an opportunity of hearing in such fresh proceedings.
8. The only other ground which survives in this appeal is against the computation of deduction u/s 10A of the Act. The Assessing Officer computed deduction u/s 10A in the prescribed formula by excluding 'Communication expenses' amounting to Rs.59,17,996/- from the figure of `Export turnover'. However, the figure of `Total turnover' in the formula was considered as inclusive of such communication expenses.
9. After considering the rival submissions and perusing the relevant material on record, we find that this issue is no more res integra in view of the judgment of the Hon'ble jurisdictional High Court in CIT VS. Genpact India (2011) 203 TAXMAN 632 (Del), in which it has been held that the Communication expenses reduced from `export turnover' should 6 ITA No.1473/Del/2013 also be reduced from 'total turnover' for the purpose of deduction under s. 10A. The Hon'ble Punjab & Haryana High Court in CIT vs. Mercer Consulting India (P) Ltd. (2017) 390 ITR 615 (P&H) has also held that telecommunication charges should be excluded both from the `Export turnover' and `Total turnover' in the formula prescribed for computing deduction u/s 10A. Similar view has been taken by the Hon'ble Karnataka High Court in CIT & Anr vs. Tata Elxsi Ltd. and Ors (2012) 349 ITR 98 (Kar). In view of the above decisions, it is clear that the amount of communication expenses is required to be reduced both from the `export turnover' as well as the `total turnover'. We order accordingly. The Assessing Officer is directed to recompute the amount of deduction u/s 10A of the Act by excluding the amount of communication expenses both from the `total turnover' and `export turnover'.
7 ITA No.1473/Del/2013
10. In the result, the appeal is allowed for statistical purposes.
The order pronounced in the open court on 08.02.2018.
Sd/- Sd/-
[K. NARASIMHA CHARY] [R.S. SYAL]
JUDICIAL MEMBER VICE PRESIDENT
Dated, 08th February, 2018.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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