Ita/629/2017 Of Herbalife International India Private Limited v. The Asst. Commissioner Of Income-Tax

Digitally signed byANUSHA VLocation: HIGHCOURT OFKARNATAKA IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 11 DAY OF JULY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 629 OF 2017 BETWEEN : HERBALIFE INTERNATIONAL INDIA PVT LTD., RMZ PINNACLE, NO.15, COMMISSARIAT ROAD BENGALURU-560 025 REPRESENTED HEREIN BY ITS DIRECTOR-DIRECT TAX MS. PRATIKSHA SINGH …APPELLANT (BY SHRI. PERCY PARDIWALA, SENIOR ADVOCATE FOR MS. TANMAYEE RAJKUMAR, ADVOCATE) AND: 1.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 1(1)(4) BENGALURU, 2 FLOOR BMTC BUILDING 80 FT ROAD, 6 BLOCK KORAMANGALA BANGALORE-560 095 INCOME-TAX, CIRCLE 1(1)(4) BENGALURU, 2 FLOOR BMTC BUILDING 80 FT ROAD, 6 BLOCK KORAMANGALA BANGALORE-560 095 2.THE COMMISSIONER OF INCOME TAX-3 BMTC BUILDING, 80 FT ROAD 6 BLOCK, KORAMANGALA BANGALORE-560 095 …RESPONDENTS (BY SHRI. M. DILIP, STANDING COUNSEL FOR SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL) . . . . THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 17.04.2017 PASSED IN IT(TP)A NO.1406/BANG/2010, FOR THE ASSESSMENT YEAR 2006-2007, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET-ASIDE THE ORDER DATED 17.04.2017 (ANNEXURE-"N") PASSED BY THE TRIBUNAL IN IT(TP)A NO.1406/BANG/2010 TO THE EXTENT QUESTIONED HEREIN AND TO THE EXTENT IT RELATES TO THE ISSUES, WHEREIN THE TRIBUNAL HAS NOT TAKEN COGNIZANCE OF THE ADDITIONAL EVIDENCES WHICH ARE RELEVANT TO ADJUDICATE THE MATTER AND ISSUES WHICH HAVE NOT BEEN ADJUDICATED BY THE TRIBUNAL AND ETC. THIS ITA, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the assessee directed against order dated 17.04.2017 in IT(TP)A Nos.1406/Bang/2010 passed by ITAT[1], has been admitted to consider the following questions: 1.Whether in the facts and circumstance of the case and in law, the Tribunal erred in drawing a presumption based on provisions of the Indian Evidence Act, without taking cognizance of the fact that evidence to prove the receipt of the administrative services and technical know-how were filed and relied by the appellant?law, the Tribunal erred in drawing a presumption based on provisions of the Indian Evidence Act, without taking cognizance of the fact that evidence to prove the receipt of the administrative services and technical know-how were filed and relied by the appellant? 1 Income Tax Appellate Tribunal 2.Whether the Tribunal has erred in ignoring the principle of stare decisis and not following its orders in appellant’s own case especially when there is no change in facts?stare decisis and not following its orders in appellant’s own case especially when there is no change in facts? 3.Whether the Tribunal erred in not appreciating that transaction approved by the FIPB and RBI can be considered to be at arm’s length as per the requirement of the Income-Tax Act?transaction approved by the FIPB and RBI can be considered to be at arm’s length as per the requirement of the Income-Tax Act? 4.Whether on the facts and in the circumstances of the case, the Tribunal’s order in so far it is passed without adjudicating all the grounds raised by the appellant, is not in compliance with principles of natural justice and liable to be set-aside?the Tribunal’s order in so far it is passed without adjudicating all the grounds raised by the appellant, is not in compliance with principles of natural justice and liable to be set-aside? 2. Heard Shri. Percy Pardiwala, learned Senior Advocate for the assessee and Shri. M. Dilip, learned Standing Counsel for the Revenue. 4.Whether on the facts and in the circumstances of the case, the Tribunal’s order in so far it is passed without adjudicating all the grounds raised by the appellant, is not in compliance with principles of natural justice and liable to be set-aside?the Tribunal’s order in so far it is passed without adjudicating all the grounds raised by the appellant, is not in compliance with principles of natural justice and liable to be set-aside? 2. Heard Shri. Percy Pardiwala, learned Senior Advocate for the assessee and Shri. M. Dilip, learned Standing Counsel for the Revenue. 3. Briefly stated, the facts of the case are, assessee engaged in the business of dealing with weight management, food and dietary supplements and personal care products, entered into certain agreements to avail certain common services from Herbalife International Inc., and other associated group companies. Assessee also availed technical know-how services under Royalty Agreement dated November 10, 1999 between assessee and Herbalife International Inc., agreeing to pay royalty of 5% on the net retail sales on the patents, copyrights, trade names, trade secrets and other proprietary rights in connection with manufacture of Herbalife products. The said services were utilized by Herbalife Group subsidiary. The common services were termed as administrative services which included Sales and Marketing, Distributor services etc. The TPO[[2]] held that the assessee had not got the 4. The TPO[[2]] held that the assessee had not got the benefit of the aforementioned agreements and determined the ALP[3] as ‘Nil’ by holding that there was no need to incur such expenditure. On appeal, the ITAT dismissed the same on two grounds. Firstly, that the assessee had not conclusively proved that it had actually received the administrative services and the technical services as claimed by the assessee. Secondly, that the assessee had not filed any additional evidence to prove that the technical know-how was actually received by the assessee. 2 Transfer Pricing Officer 3 Arm’s Length Price - 5 - 5. Shri. Pardiwala, adverting to Annexure-H (the index of paper book filed before the ITAT) submitted that the copy of the Administrative Service Agreement between assessee and Herbalife International Inc. was appended at serial No.8 and the Royalty Agreement with Herbalife International Inc. was appended at Serial No.11. Further, adverting to letter dated January 5, 2016 (Annexure-J), he pointed out that the assessee had filed additional supporting documents/evidences. According to Shri. Pardiwala, though the assessee had filed the agreements and the additional evidences, the ITAT has incorrectly recorded in para 11 of its order that assessee had not proved that it had received administrative service and had not filed any additional evidences to prove the administrative service/ technical know-how. 6. Shri. Dilip, for the Revenue, though argued in support of the impugned order, in his usual fairness did not dispute the factual matrix with regard to Annexures – H & J. 7. We have carefully considered rival contentions and perused the records. 8. Annexure-H is a letter dated August 24, 2015. It contains an index of papers filed in the paper book. A copy of the Administrative Service Agreement is marked at Sl. No.8 and copy of the Royalty Agreement is marked at Sl. No.11. Annexure-J is a letter dated January 5, 2016 under which the assessee has sought to produce additional supporting documents/evidences. The said aspects not being in dispute, the findings recorded by the Tribunal in paragraphs No.10 & 11 run counter to the material on record. In that view of the matter, we are of the considered opinion that the impugned order passed on the basis of the findings recorded at paragraphs No.10 and 11 is not sustainable. Hence, the following: ORDER (a)Appeal is allowed. (b)Order dated April 17, 2017 in IT(TP)A No. 1406/Bang/2010 passed by the ITAT is set-aside. (c)Matter is remitted to the file of ITAT, ‘A’ Bench for ORDER (a)Appeal is allowed. (b)Order dated April 17, 2017 in IT(TP)A No. 1406/Bang/2010 passed by the ITAT is set-aside. (c)Matter is remitted to the file of ITAT, ‘A’ Bench for reconsideration in accordance with law. All contentions of parties are kept open. No costs. Sd/- JUDGE Sd/- JUDGE SPS List No.: 1 Sl No.: 35