Income Tax Appellate Tribunal - Delhi
Honda R & D (India) Pvt. Ltd., Haryana vs Dcit, New Delhi on 19 September, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I': NEW DELHI
BEFORE,
DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
AND
SHRI VIMAL KUMAR, JUDICIAL MEMBER
ITA No.376/Del/2015
(ASSESSMENT YEAR 2010-11)
Honda R & D (India) DCIT
Private Limited, Circle-11(1)
Technical Centre, Vs. New Delhi
Plot No.2, Sector-3
IMT Manesar,
Distt. Gurgaon
Haryana-122050
PAN:AABCH3071N
(Appellant) (Respondent)
Assessee by Shri Nageswar Rao,
Parth & Aman Rewaria, Adv.
Respondent by Shri Rajesh Kumar, CIT-DR
Date of Hearing 02/07/2024
Date of Pronouncement 19/09/2024
ORDER
PER VIMAL KUMAR, JM:
1. The Assessee's appeal is against assessment order dated 04/12/2014 passed U/s 154/143(3) r.w.s.144C of the Income Tax Act, 1961 (hereinafter called 'the Act') subsequent to direction dated 25/09/2014 of the Ld. Dispute Resolution Panel (DRP) for Assessment Year 2010-11.
2 ITA No.376 /Del/2015Honda R & D (India) Pvt. Ltd. vs. DCIT
2. Brief facts of case are that the assessee company filed return of income declaring total income of Rs.93,41,470/- on 21/09/2010 for Asst. Year 2010-11. The case was selected for scrutiny and notice u/s 142 was issued on 20/09/2011. Further, notice u/s 142(1) along with questionnaire was issued on 02/08/2013. In response to notices, Ms. Amrita Kumari, CA/ Authorized Representative appeared from time to time. The assessee company engaged in business of research and development of two wheelers and power products. Authorized Representative has produced computerized ledger extracts and vouchers which have been test checked. During the year under consideration, the assessee had undertaken international transaction with its associated enterprises. As value of international transaction was more than Rs.15 crore, with the previous approval of CIT, Delhi IV, New Delhi and in accordance with provisions of section 92CA of the IT Act, the international transaction entered into by the assessee with the associated enterprises was referred to the transfer pricing officer (TPO) for determining the Arm's Length Price. The TPO passed order u/s 92CA(3) dated 23/01/2014 making an adjustment of Rs.4,18,05,854/- in the Arms Length Price of the assessee. The assessee was asked to show cause as to why an adjustment of Rs.4,18,05,854/- to the income of the assessee should not be made being the difference in Arm's Length Price as determined by the TPO vide his order u/s 92CA(3) dated 23/01/2014. The assessee gave reply vide letter dated 31/01/2014. The assessee preferred 3 ITA No.376 /Del/2015 Honda R & D (India) Pvt. Ltd. vs. DCIT objections before DRP. DRP decided objections vide order dated 25/09/2014. Incorporating the observations of DRP, learned TPO passed order dated 27/11/2014/-, giving effect to the directions of DRP, Ld. AO passed order dated 04/12/2014.
3. Being aggrieved appellant/assessee preferred present appeal with following grounds:-
"Ground 1 Hon'ble DRP/Ld. TPO erred in disregarding the order of higher appellate authority ("Hon'ble IT AT") in Appellant's own case for the Assessment Year ('AY') 2004-05, and thereby advocating an approach in respect of certain comparable companies which is contrary to the approach followed and accepted by the Hon'ble DRP /CIT in the past assessment years in the Appellant's own case.
Ground 2 Hon'ble DRP/ Ld. TPO erred in understanding the business model of the Appellant and accordingly failed to comprehend the limited environment in which the Appellant is operating, which is also confirmed by Hon'ble DRP in AY 2007-08 and AY 2008-09, thereby misunderstood the operational profile of the Appellant and erred in selecting certain inappropriate comparable companies to compute the arm's length price.
Ground 3 Hon'ble DRP/Ld. TPO erred in selecting/rejecting certain comparables, without establishing their functional comparability/ non comparability, and failed to undertake appropriate functional, asset and risk analysis of comparable vis-a-vis the Appellant.
Ground 4 Hon'ble DRP applied inconsistent approach; rejected Rites Limited engaged in technical and consultancy services being functionally different from the Appellant and in contrast accepted some comparables (such as Apitco Ltd. and WAPCOS Ltd) having similar profile vis-a-vis Rites Ltd. which also needs to be rejected.
Ground 5 Ld. TPO has committed a mistake in computing the working capital adjusted margins of the comparable companies while giving effect of the Hon'ble DRP's directions.4 ITA No.376 /Del/2015
Honda R & D (India) Pvt. Ltd. vs. DCIT Ground 6 Hon'ble DRP/Ld. TPO has erred in ascertaining the risk profile of the Appellant by comparing it against the companies bearing substantial entrepreneurial risk, without giving due cognizance to the fact that Appellant indeed enjoys a "No Risk" status, i.e., all expenses incurred by the Appellant get reimbursed with a markup of 3 percent, irrespective of their commercial success.
• Hon'ble DRP/Ld. TPO has erred in not making suitable adjustments to account for differences in the risk profile of the Appellant (no risk) vis-a-vis the comparables (bearing full-fledged entrepreneurial risk).
Ground 7 Hon'ble DRP/Ld. TPO erred in law in determining the price of the impugned transaetic of the Appellant, as the circumstances necessitating the determination of price by the Learned TPO as mentioned in sub-section (3) of section 92C did not exist in case of the Appellant.
Ground 8 Hon'ble DRP/Ld. TPO erred in facts and in law by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Income-tax Act, 1961 ("the Act") read with the Income-tax Rules, 1962 ("the Rules"), and conducting a fresh economic analysis for the determination of the arm's length price of the impugned international transaction and holding that the Appellant's international transaction is not at arm's length.
Ground 9 Hon'ble DRP/Ld. TPO has erred in .facts and in law in rejecting the Appellant's claim to use multiple year data for computing the ALP, and instead used single year updated data to compute arm's length price of the international transaction.
Ground 10 Hon'ble DRP/ Ld. TPO has erred in not applying the proviso to Section 92C(2) of the Act correctly and has failed to allow the benefit of downward variation of 5 percent in the determining arm's length price so computed. The Appellant craves leave to add, amend, vary, omit or substitute, any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal and consider each of the grounds as without prejudice to the other grounds of appeal."5 ITA No.376 /Del/2015
Honda R & D (India) Pvt. Ltd. vs. DCIT
4. Through application dated 21/03/2023 appellant/assessee filed application under Rule-11 of the ITAT Rules, 1963 for admission of following additional grounds:-
"On facts and in the circumstances of case and in law, final assessment order passed by the Ld. AO is not as per Ld.DRP directions and further is barred by limitation, hence is liable to be quashed/annulled."
5. Learned Authorized Representative for appellant/assessee submitted that the Ld. AO passed order dated 27/11/2014 giving effect to directions of DRP. The Order was revised by figures of Rs1,46,24,889/- in place of 4,18,05,854/- vide order dated 04/12/2014. Since, the order dated 04/12/2014 was passed after 30/11/2014. The order dated 04/12/2014 was barred by period of limitation. The Co-ordinate Bench of ITAT, Delhi in ITA No.1980/Del/2014 titled as M/s Global One India Pvt. Ltd. in para 11 observed as under:-
"We have heard both the parties and perused all the relevant materials available on record. Section 154 of the Income Tax Act is regarding the rectification of mistake and the Assessing Officer on 15.07.2014 has rectified the order thereby giving the final effect of the DRP directions. At the same time, the Assessing Officer was suppose to complete the assessment under Section 143(3) read with Section 144C of the Income Tax Act on the basis of the draft assessment order if the assessee intimates to the Assessing Officer the acceptance of the variation or no objection are received within the period specified in sub section (2) of Section 144C of the Income Tax Act. In the present case, the assessee filed objections before the DRP after passing the draft assessment order. The DRP issued certain directions to the Transfer Pricing Officer. The Assessing Officer was very well aware that the DRP has given certain directions to the Transfer Pricing Officer and it is binding on the Assessing Officer to follow every direction issued by the Dispute Resolution Panel as per as per Section 144C(10) of the Act. Sub-Section (10) of Section 144C is not procedural but a mandatory requirement. If the Transfer Pricing Officer has not passed any order, the Assessing Officer should have taken into account the DRP's direction and would have taken cognizance in the final 6 ITA No.376 /Del/2015 Honda R & D (India) Pvt. Ltd. vs. DCIT assessment order, but the Assessing Officer choose not to follow the DRP's direction. Subsequently, when the Transfer Pricing Officer passed the order giving effect to DRP's directions vide order dated 21.02.2014, the Assessing Officer on suo moto basis has rectified the assessment order u/s 154 thereby giving effect to directions of the DRP. As per Section 143(3), the Assessing Officer has to pass the assessment order within the prescribed period otherwise the assessment becomes time barred. The Assessing Officer has followed the statutory provisions of Section 143(3) thereby passing assessment order. But as per the binding section i.e. Section 144C(10) of the Act, the mandatory provision was not followed by the Assessing Officer, thereby it is binding on the Assessing Officer to follow the directions of the DRP. Therefore, the assessment becomes null and void. As regards rectification, there is no mistake committed on part of Assessing Officer, in fact Assessing Officer was very well aware that the DRP has given certain directions so it could not be termed that there is a mistake apparent on record. When the Assessing Officer has deliberately chosen not to follow a binding provisions u/s 144C of the Act while passing the final assessment order, the Assessment Order, itself becomes null and void. The case laws referred by the Ld. AR are categorically highlighting the same position of law. The submissions of the Ld. DR that after passing assessment order, the Transfer Pricing Officer has given final effect to the DRP direction and thereafter the Assessing Officer u/s 154 has rectified the original assessment order well within time thereby deleting the entire Transfer Pricing adjustment, does not hold the test of legal sanctity as per the provisions of Section 144C (10) of the Act. Thus, assessment order itself is quashed. Therefore, Ground Nos. 1 and 2 of the Assessee's appeal are allowed."
6. Learned Authorized Representative for appellant/assessee submitted that Hon'ble Supreme Court in case of Popat Bahiru Govardhane and Ors. vs. Special Land Acquisition Officer (2013) 10 Supreme Court Cases 765 has held as under:-
"16. It is a settled legal proposition that law of limitation may harshly affect a particular party but the court has no choice but to enforce it giving full effect to the same. The legal maxim dura lex sed lex which means the law is hard but it is the law", stands attracted in such a situation. It has consistently been held that, "inconvenience is not" a decisive factor to be considered while interpreting a statute. "A result flowing from a statutory provision is never an evil. A court has no power to ignore that provision to relieve what it considers a distress resulting from its operation."
Therefore, impugned order may be set aside.
7 ITA No.376 /Del/2015Honda R & D (India) Pvt. Ltd. vs. DCIT
7. The Learned Authorized Representative of Department of Revenue submitted that the DRP passed order u/s 144C (5) on 25/09/2014 issuing certain directions with regard to TP adjustment. As per the provisions of section 144C(13) of IT Act, the final order of assessment is to be passed by AO within one month from the end of the month DRP directions received i.e., by 30/11/2014. As order giving effect from TPO was not received till passing of order, the AO passed order u/s 144C of IT Act on 27/11/2014. AO received order giving effect dated 27/11/2014 from TPO on 02/12/2014 and passed order u/s 154/143(3) r.w.s 144C on 04/12/2014. Thus, both the assessment order as well as the order giving effect of TPO passed on 27/11/2014 i.e., within the period of limitation. The Assessing Officer definitely made a technical procedure lapse with regarding to section 144C of the Act. However, appellant assessee after passing of 8 years preferred application raising additional ground was not maintainable. The Assessing Officer in final order dated 04/12/2014 has taken cognizance of DRP directions by incorporating in the same. Accordingly, modification of the final assessment order comes well within the ambit of section 154. Ld. AO has precisely done that immediately after receipt of order giving effect dated 27/11/2014 from the TPO. The facts of present case are distinguishable from the facts of case titled as Global One India Pvt. Ltd.'s case (supra).
8 ITA No.376 /Del/2015Honda R & D (India) Pvt. Ltd. vs. DCIT
8. The Learned Counsel for the Department of Revenue submitted that a Co-ordinate Bench in ITA No.1005/Del/2022 titled as Hitachi Astemo Haryana Private Ltd. vs. DCIT decided on 23/11/2023 in para No. 4 to 10 has held as under:-
"4. Briefly stated, in this case, the TPO passed an order under section 92CA(3) of Income-tax Act, 1961 (for short 'the Act') vide order dated 27/07/2021. In this order, the TPO suggested upward adjustment in the Arm's Length Price (ALP) of international transactions. The AO passed draft assessment order under section 144C of the Act on 18/09/2021 incorporating TPO's recommendations. The assessee filed its objections before the ld. DRP and the DRP passed an order under section 144C(5) of the Act on 23/02/2022. In the DRP order, certain directions were issued with regard to the TP adjustments made. In accordance with the provisions of section 144C(13) of the Act, the final order of the assessment has to be passed by the AO within one month from the end of the month in which DRP's directions are received i.e. by 31.03.2022. The AO passed the order on 30.03.2022. In this order of the assessment, the DRP's directions could not be complied with as the order giving effect of the TPO was not received by the AO at the time of the passing* of the order. AO in his final assessment order commented that DRP's directions to the TPO/AO has to be given effect by the TPO and the same was communicated to the TPO requesting to pass order giving effect of DRP's order dated 23.02.2022. Though the order giving effect of DRP's direction passed by the TPO is also dated 30.03.2022, the same was not received by the AO. AO could not incorporate the same in the assessment order. However, he passed the order subject to the modified order of the TPO which is yet to be passed and the necessary modification with regard TP adjustment which would be made by passing rectification of order on receipt of the TPO order in due course. Thus, in the above facts, it is emanating that the final assessment order is without incorporating of DRP's directions. As stated above, the reason is that DRP has given certain directions which were to be given effect by the TPO. The AO till passing the final assessment order has not received the order giving effect by the TPO. In this regard, stating that such an order passed by the AO is not legal in the eyes of law, Id. Counsel of the assessee has placed reliance on the following Tribunal orders and also on the Hon'ble Karnataka High Court in the case of Pr.CIT vs. M/s. Flextronics Technologies (India) Pvt. Ltd. in ITA No.332 of 2019 order dated 9th January 2023.
(i) Flextronics Technologies (India) Private Ltd. vs. ACIT: IT (TP) A No.832/Bang/2017;9 ITA No.376 /Del/2015
Honda R & D (India) Pvt. Ltd. vs. DCIT
(ii) Software Paradigms Infotech (P.) Ltd. vs. ACIT (2018) 89 taxmann.com 339 (Bangalore - Trib.);
(iii) M/s. Global One India Pvt. Ltd. vs. DCIT : ITA No. 1980/Del/2014;
(iv) M/s. Olympus Medical Systems Pvt. Ltd. vs. ACIT: ITA No.873/Del/2021;
(v) Yokogawa India Ltd. vs. ACIT : ITA (TP) A No. 1715 & 692/Bang/2016 & MP.No.136/Bang/2021; and
(vi) July Systems & Technologies Pvt. Ltd. vs. DCIT : IT (TP) A.No.368/Bang/2016.
5. Per contra, Id. DR for the Revenue relied upon the orders of the Hon'ble jurisdictional High Court of Delhi and decision of Hon'ble Madras High Court as under:-
(i) Anand NYH Products Pvt. Ltd. vs. National E Assessment Centre ANR dated 06.08.2021 - WP (C) 7936/Del/2021;
(ii) Fiber Home India vs. National E Assessment Centre ANR 15.12.2021 -WP(C) 11609/2021;
(iii) SRF Ltd. vs. National E Assessment Centre and ANR WP (C) 6484/2021; and
(iv) Ford India Pvt. Ltd. vs. National E Assessment Centre - WP (C) 12701/2021.
5.1 Referring to these case laws, Id. DR for the Revenue has submitted that the facts of the present case and the case laws cited are similar. AO in hese cases passed the order without incorporating the DRP's direction. In all the above cases, the Hon'ble High Courts did not quash the entire proceedings and only the final assessment order along with the demand notice were set aside and proceedings restored to the level of DRP/AO. He reiterated that even though the assessment orders have been passed without incorporating the DRP's directions and in complete violation of mandatory procedure u/s 144C of the Act, but still the Hon'ble jurisdictional High Court did not treat it as fatal error which cannot be corrected. Ld. DR for the Revenue further pleaded that from the orders of Hon'ble High Court, it can be inferred that the Hon'ble High Court treated it as technical/ procedural default and to cure the same, restored the proceedings at the level of DRP and given Department, the opportunity to pass a fresh assessment order after incorporating the DRP's directions.
6. We have heard both the parties and perused the records. We have given very thoughtful consideration to the above submissions and case laws. We find that the ld. Counsel of the assessee relied upon the Tribunal decisions 10 ITA No.376 /Del/2015 Honda R & D (India) Pvt. Ltd. vs. DCIT and one decision from Hon'ble Karnataka High Court (supra). On the other hand, ld. DR for the Revenue has relied upon three case laws from Hon'ble jurisdictional High Court and one decision from Hon'ble Madras High Court. We find that Hon'ble jurisdictional High Court is binding on the Tribunal, hence we adjudicate this issue with reference to the orders of the Hon'ble jurisdictional High Court referred above, as the facts are similar.
7. In the case of Anand NVH Products Pvt. Ltd. (supra), we noted that assessment order has been passed under section 143(3) read with section 144C of the Act without waiting for the decision of the DRP. Hon'ble High Court in that case set aside the final assessment order along with notice of demand and restored the matter to the level of DRP. 7.1 In the case of SRF Ltd. (supra), the final assessment order was passed without incorporating the DRP's directions. Hon'ble High Court, in such a situation, quashed the final assessment order and the demand of notice and remitted the matter to DRP for consideration under section 144C of the Act. Thereafter, it was directed that the assessment order shall be passed in accordance with the procedure stipulated under section 144B(1) as well as section 144(C) of the Act.
7.2 In the case of Fibrehome India Pvt. Ltd. (supra) also, the final assessment order was passed without incorporating the directions of the DRP. In that case also, Hon'ble jurisdictional High Court remitted the matter to DRP keeping in view of the scheme of section 144C of the Act. In this decision, Hon'ble jurisdictional High Court inter alia referred to the decisions of Hon'ble jurisdictional High Court in the cases of Anand NYH Products Pvt. Ltd. and SRF Ltd. (supra).
8. Thus, from the above reading of Hon'ble jurisdictional High Court decisions, it is emanating that in the final assessment order passed without incorporating the DRP's directions, the matter has been remanded to the DRP by the Hon'ble High Court to give effect to the scheme of section 144C of the Act. The above case laws are binding upon us. Hence, following the same, we remit the issue to the file of AO, AO shall pass an order incorporating DRP's directions which has been given effect by the TPO.
9. Since, we have remanded the matter to the AO to give effect to the directions of the DRP/TPO, adjustment of other grounds at this juncture is not required.
10. In the result, the appeal filed by the assessee is allowed for statistical purposes."
11 ITA No.376 /Del/2015Honda R & D (India) Pvt. Ltd. vs. DCIT
9. Learned Authorized Representative for Department of Revenue submitted that Hon'ble Supreme Court in case Civil Appeal No.6144 of 2019 titled as PCIT-4, Mumbai vs. M/s S.G. Asia Holdings (India) Pvt. Ltd. has observed as under:-
"8 However, the Tribunal ought to have accepted the submission made by the Departmental Representative as quoted in para 16.2 of its order and the matter ought to have been restored to the file of the Assessing Officer so that appropriate reference could be made to the TPO. It would therefore be upto the authorities and the Commissioner concerned to consider the matter in terms of Sub-Section (1) of Section 92CA of the Act."
10. The Learned Authorized Representative for Department of Revenue submitted that a Co-ordinate Bench in the case of assessee for the assessment year 2008-09 titled as Honda R & D (India) Pvt. Ltd. vs. DCIT has held as under:-
"24. The only other issue, which remains to be decided is the additional ground raised by the assessee regarding certain computational error while computing the working capital adjustment. It is the contention of learned counsel that SBI PLR rate has been taken wrongly.
25. Having consider the submissions of the parties, we restore the issue to the Assessing Officer with a direction to compute the working capital adjustment correctly after providing due and reasonable opportunity of being heard to the assessee."
11. From examination of record, it is crystal clear that order u/s 144C (5) dated 25/09/2014 of DRP contained certain directions with regard to TP adjustment u/s 144C(13). Final order of assessment was to be passed by Ld. AO within one month from the end of the month in which DRP directions were received i.e. 30/11/2014. As the order giving effect from TPO was not received, the Ld. AO passed order dated 27/11/2014 u/s 144C. In the meanwhile, Ld. AO received order giving effect dated 27/11/2014 12 ITA No.376 /Del/2015 Honda R & D (India) Pvt. Ltd. vs. DCIT from the TPO on 02/12/2014, so Ld. AO passed order u/s 154/143(3) r.w. s 144C on 04/12/2014. Thus, the Ld. AO had made a technical lapse with regard to section 144C of IT Act. It is a fact that assessment order dated 27/11/2014 was issued within period of limitation i.e., 30/11/2014. After receiving order giving effect dated 27/11/2014, Ld. AO made necessary corrections of Rs. 1,46,24,889/- in place of Rs.4,18,05,854/- and passed order dated 04/12/2014 u/s 144C.
12. In view of above material fact, as per ratio of judgment in Pr. CIT vs. M/s S. G. Asia Holdings (India) Pvt. Ltd.'s case (supar), the issue is remitted back to the file of Learned AO to pass an order incorporating the DRP direction which have been given effect by the TPO.
13. Since, the matter is being remanded, the adjudication of other grounds is not required.
14. In the result, the appeal of Assessee is allowed for statistical purposes.
Order pronounced on 19th September, 2024.
Sd/- Sd/-
(B.R.R. KUMAR) (VIMAL KUMAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 19/09/2024
Pk/R.N sps
13 ITA No.376 /Del/2015
Honda R & D (India) Pvt. Ltd. vs. DCIT
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ITAT, NEW DELHI