Heidelberg Cement India Limited (Formerly Known As Mysore Cementslimited v. Deputy Commissioner Of Income Tax

ITA-125-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-125-2018 Date of Decision: 19.3.2019 Heidelberg Cement India Limited (formerly known as Mysore CementsLimited) ....Appellant. Versus Deputy Commissioner of Income Tax ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Himanshu Sinha, Advocate, Mr. Ashim Aggarwal, Advocate and Ms. Aushma Aggarwal, Advocate for the appellant. *** AJAY KUMAR MITTAL, J. 1.This order shall dispose of two appeals bearing ITA Nos.125and 127 of 2018 as according to learned counsel similar issues are involvedtherein. For brevity, the facts are being extracted from ITA-125-2018. 2.ITA-125-2018 has been preferred by the assessee under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 29.6.2017 (Annexure A-11) passed by the Income Tax AppellateTribunal, Delhi Bench 'I-1', New Delhi (hereinafter referred to as “theTribunal”) in ITA No. 1029/DEL/2015, for the assessment year 2010-11,claiming the following substantial questions of law:- I.Whether the ITAT has grossly erred in failing toexercise its appellate jurisdiction and ordering a de ITA-125-2018-2- novo remand to the file of the TPO to decide onwhether the combined transaction approach asadopted by the Appellant or the transaction bytransaction approach should be considered fordetermining the ALP of the internationaltransactions instead of deciding the same, despiteall facts, evidence and material required for adecision being on record? II.Whether the Impugned Order of the ITAT isuntenable in the eye of law on account of its failureto adjudicate and give its finding in respect of allthe grounds raised by the Appellant in its appeal?untenable in the eye of law on account of its failureto adjudicate and give its finding in respect of allthe grounds raised by the Appellant in its appeal? 3.Put shortly, the facts necessary for adjudication of the appeal asnarrated therein may be noticed. The assessee is engaged in the business ofmanufacturing of cement and sells them to its customers in India. It filed itsreturn of income on 12.10.2010 for the assessment year 2010-11 declaringthe total income at ` 106,66,41,340/-. In the assessment year in question,the assessee entered into various international transactions with itsAssociated Enterprises (AEs) and submitted Form 3CEB (Annexure A-1)and disclosed the same in the transfer pricing documentation (Annexure A-2). The assessee clubbed the said transactions under one segment as theywere closely linked to the business of manufacture of cement and usedTransactional Net Margin Method (TNMM) as the Most AppropriateMethod. It used operating profit/sales as the profit level indicator forbenchmarking the transactions. For the purposes of benchmarking, theassessee used 3 years weighted average of 7 comparables and the operating ITA-125-2018 -3- ITA-125-2018 -3- profit/sales was calculated at 16.87% while the operating profit/sales of theassessee was 17.37%. Since the operating profit/sales of 6 comparablesusing current year data was 14.93%, the transactions were at arm's length.As the assessee had entered into various international transactions with itsAEs, a reference was made to the Transfer Pricing Officer (in short “theTPO”) to determine the Arm's Length Price (ALP) of the transactions. Theassessee filed written submissions dated 7.1.2014 and 23.1.2014 (AnnexureA-3 Colly) before the TPO. The TPO vide order dated 29.1.2014(Annexure A-4) passed under Section 92CA(3) of the Act proposed to makean adjustment of ` 3,78,80,000/- holding that the transaction pertaining totechnical know-how fee should not be clubbed with the other transactions.The TPO determined the arm's length rate at 1.27% using by considering thecomparables as specified in the external consultant report and additionalcomparables, i.e. ACC Limited, ACC Concrete Limited, Zuari CementLimited and Shree Digvijay Cement Company Limited. Since the assesseehad paid 1.67% on net sales, the TPO carried out an adjustment of` 3,78,80,000/- to its total income. All other transactions of the assesseewere found to be at arm's length. The Assessing Officer vide draftassessment order dated 13.2.2014 (Annexure A-5) added the said amount of` 3,78,80,000/- to the total income of the assessee and framed theassessment at ` 110,45,21,340/-. Against the order, Annexure A-5, theassessee filed objections dated 19.3.2014 (Annexure A-6) before theDispute Resolution Panel (hereinafter referred to as “the DRP”). The DRPvide order dated 14.11.2014 (Annexure A-7) rejected the objections filed bythe assessee. Thereafter, the Assessing Officer framed the final assessment ITA-125-2018 -4- Section 144C of the Act at a total income of ` 110,45,21,340/- and raised ademand of ` 1,60,75,830/- under Section 156 of the Act. Feeling aggrievedby the order, Annexure A-8, the assessee filed an appeal on 18.2.2015(Annexure A-9) before the Tribunal. The assessee also filed synopsis dated24.8.2016 (Annexure A-10) before the Tribunal. The Tribunal vide orderdated 29.6.2017 (Annexure A-11) remanded the issue regarding aggregationof payment for technical know-how fee transaction back to the file of theTPO for fresh adjudication for the reasons that 'the appellant was required toprovide to the TPO cogent evidence, backed by economic reasoning andbusiness case that the transactions were intrinsically linked and had to beaggregated for benchmarking purposes and that the TPO had not provided afinding for rejecting the approach of the appellant of aggregating the closelylinked transactions.' The other grounds were dismissed by the Tribunalbeing premature in nature with liberty to the assessee to re-agitate themonce the issue of aggregation of transactions had been decided. Hence, thepresent appeals. 4.We have heard learned counsel for the assessee. 5.The only question raised in these appeals is whether theTribunal was justified in remanding the issue regarding aggregation ofpayment for technical know-how fee transaction back to the file of the TPOfor fresh adjudication. 6.The Tribunal after appreciating the factual and legal matrix,inter alia, noticed that as per the assessee, the transaction of payment oftechnical fees was required to be aggregated with other transactions whereasas per TPO, these transactions were required to be benchmarked separatelyas the same were not closely linked with the other transactions entered into ITA-125-2018 -5- 4.We have heard learned counsel for the assessee. 5.The only question raised in these appeals is whether theTribunal was justified in remanding the issue regarding aggregation ofpayment for technical know-how fee transaction back to the file of the TPOfor fresh adjudication. 6.The Tribunal after appreciating the factual and legal matrix,inter alia, noticed that as per the assessee, the transaction of payment oftechnical fees was required to be aggregated with other transactions whereasas per TPO, these transactions were required to be benchmarked separatelyas the same were not closely linked with the other transactions entered into ITA-125-2018 -5- by the assessee. The main reason for clubbing the transactions under onesegment was that it was closely linked to the business of manufacture ofcement. The TPO had held that as payment for the services was a class oftransaction of its own, therefore, the same required a separate benchmarkinganalysis and cannot be aggregated with the other transactions. Further,under Rule 10A(d) of the Income Tax Rules, 1962, 'transaction' includes anumber of closely linked transactions. Under Section 92(1) of the Act, anyincome arising from 'an international transaction' was required to becomputed having regard to arm's length price. More than one transactioncan be taken together for determination of arm's length price only if theywere closely linked. Aggregation of transaction or combined transactionapproach is accepted practice for determination of arm's length price,however, such aggregation of transaction can be allowed if they were linkedwith each other. As per the transfer pricing study report, the only statementmade by the assessee is that the assessee is engaged in the business ofmanufacturing the cement which is its primary business activity andtherefore, all the transactions relating to cement manufacturing activityshould be bundled together for determination of their ALP applying TNMMas the most appropriate method. The services rendered by the AE arespecifically mentioned in the agreement. Therefore, there is no reason thatsuch services cannot be evaluated independently on standalone basis. 7.The Tribunal also observed that it was the duty of the assesseeto show with cogent evidence and factual analysis backed by economicreasoning and business that all the international transactions wereoriginating from one source or they were independent or were part ofpackage deal. Further, the TPO had not recorded any finding while ITA-125-2018 -6- rejecting the claim of aggregating the transaction of the assessee.Accordingly, the Tribunal had rightly remanded the matter to the file of theTPO with a direction to the assessee to justify how international transactionswere closely linked. 8.No illegality or perversity could be pointed out by the learnedcounsel for the revenue in the aforesaid findings recorded by the Tribunal inthe appeals which may warrant interference by this Court. No question oflaw, muchless a substantial question of law arises in these appeals.Consequently, finding no merit in the appeals, the same are herebydismissed. Needless to say that anything observed hereinbefore, shall not betaken to be an expression of opinion on the merits of the controversy. (AJAY KUMAR MITTAL) JUDGE March 19, 2019 (MANJARI NEHRU KAUL)JUDGE gbsWhether Speaking/ReasonedYes/NoWhether ReportableYes/No