ACIT vs UOP India Pvt. Ltd.

2.

We are inclined to admit the appeal. Accordingly, the following question of law is framed for consideration: (i) Whether the Income Tax Appellate Tribunal [in short, “Tribunal”] has misdirected itself on facts and in law in excluding the comparable Onward Technologies Limited [in short, “OTL”] while benchmarking the engineering, technical and inspection segment, in the course of exercising its powers under Section 254 of the Income Tax Act, 1961 [in short, “Act”]?”

3.

With the consent of the counsel for the parties, the appeal is taken up for final hearing and disposal, at this stage itself. 4. Briefly, the record shows that the Transfer Pricing Officer (TPO) had accepted OTL as a comparable, which was embedded in the appellant/assessee’s transfer pricing study report.

4.1

The record also shows that the appellant/assessee had carried the matter in appeal before the Commissioner of Income Tax (Appeals) on other grounds, not connected with the exclusion of OTL as a comparable.

4.2

The CIT(A), via order dated 18.05.2017, excluded two comparables, i.e., M/s L&T Ramboll Engineering Consulting Services [in short, “L&T”] and Mitcon Consultancy Services [in short, “Mitcon”].

4.3

This resulted in both the appellant/assessee as well as the respondent/revenue preferring appeals with the Tribunal.

5.

The Tribunal, via the impugned order dated 03.03.2023, passed the following operative directions:

“13.

In a nutshell, we hold that the following comparables are directed to be excluded:-

•

Mitcon Consultancy Services

•

L&T Ramboll Consulting Engineers Ltd

•

Onward Technologies Ltd

•

HCCA Business Services Pvt. Ltd

•

Killick Agencies & Mktg. Limited

•

Cyber Media India Online Limited

•

Times Innovative Media Limited

•

Global Procurement Consultants Limited

•

Indiacom Limited”

(i)

The Ld. CIT(A) has erred in directing to exclude the comparable namely, M/s Mitcon Consultancy Services by holding that functional profile & economic activities of the assessee are very different from this comparable. The Id. CIT(A) has also erred in ignoring that fact that the assessee had admitted that this comparable is broadly engaged in the similar business of technical consultancy and engineering services deriving revenue worth 57% from the consultancy segment.

(ii)

The Ld. CIT(A) has erred in concluding that the comparable namely. M/s L&T Rambo// Consulting Engineers Ltd. is fact that the revenue of this comparable for F.Y. 2008-09 is from Engineering Services Consultancy only, as per the available financials and the annual report of this comparable.

(iii)

The Ld. CIT(A) should have also removed the comparable namely M/s. Onward Technology Ltd as this comparable can also be considered to be functionally different since, it is predominantly in automobile engineering segment. If the assessee is allowed to remove M/s Mitcon Consultancy Services and M/s L&T Rambol Consulting Engineers Ltd. on the grounds of functional dissimilarity, then, on the same analogy, M/s Onward Technologies Ltd. should also have been removed.”

7.

Against this backdrop, arguments on behalf of the appellant/assessee have been advanced by Mr Deepak Chopra, while on behalf of the respondent/revenue, submissions have been made by Mr Aseem Chawla, learned senior standing counsel.

8.

Mr Chopra contends that once the TPO accepted the comparable OTL, it could not have been excluded by the Tribunal in the exercise powers under Section 254 of the Act.,

8.1

Mr Chopra contends that the Assessing Officer (AO) had no option but to accept the order passed by the TPO.

8.2

According to Mr Chopra, if the respondent/revenue was aggrieved, it could have, at a relevant point in time, exercised revisionary power under Section 263 of the Act.

9.

On the other hand, Mr Chawla contends that the Tribunal under section 254 of the Act has the same plenary power as the first appellate authority.

10.

Mr Chawla contends that since facts were in dispute, the Tribunal could have entertained the additional grounds referred to hereinabove by us and excluded OTL as a comparable

11.

We may note that Mr Chopra has drawn our attention to paragraph 11, wherein; inter alia, the Tribunal has recorded the following as regards the TPO's observation qua the exclusion of OTL as a comparable: "The professional and consultancy segment can be used as comparable."

12.

Clearly, even according to Mr Chawla, the TPO had accepted the comparable OTL.

13.

A perusal of the impugned order shows that the Tribunal has only recorded the contentions of both sides and perhaps, proceeded based on incorrect facts. The comparable OTL, according to the counsel for the parties, was indeed included in the Transfer Pricing Study Report. It is also not in dispute that the TPO had accepted OTL as a comparable. The Tribunal, in our view, without discussing the scope and ambit of its power under Section 254, has proceeded to issue operative directions, which, inter alia, excluded OTL as a comparable.

14.

Given this position, counsel for the parties say, and something that we tend to agree with, that the matter needs a relook by the Tribunal, with regard to the scope and ambit of its power under Section 254 of the Act.

15.

Accordingly, the question of law, as framed, is answered in favour of the appellant/assessee for statistical purposes.

16.

The impugned order is set aside.”

1.

The captioned appeal has been filed by Department against order dated 18.05.2017 passed by the Commissioner of Income Tax (Appeals) (CIT(A)') This is the second round of litigation, and this appeal was restored pursuant to the remand vide order dated 01.09.2023 in ITA No. 487 of 2023 filed by UOP India Pvt. Ltd. ('Assessee") before the Hon'ble Delhi High Court

2.

The sole issue which now arises for consideration of this Hon'ble Tribunal is whether the Revenue is justified in challenging Onward Technologies Limited (Segmentai) as a comparable for benchmarking Engineering, Technical and Inspection Services Segment ("ET&I Segment), by pleading its exclusion for the first time before this Hon'ble Tribunal, though after due application of mind the said comparable was accepted by the Transfer Pricing Officer ("TPO"), and was confirmed by the CIT(A)

BACKGROUND

3.

For the relevant assessment year 2009-10, the services provided by the Assessee to its overseas Associated Enterprise ("AE') include, Engineering services mainly cover provision of engineering design specifications to the customers, Technical services include technical advisory services consisting of examining the physical fitness of the unit, witnessing the pressure testing and loading of absorbents & catalysts in the unit, advising the customers in the initial operations of the unit, inspection services for the equipment during fabrication & construction of the unit. The transactions pertaining to provision and availing ET&I services and availing of facility and administration services are aggregated for the purpose of benchmarking Based on the functions performed, assets deployed and risk assumed ("FAR") analysis, the transactional net margin method ("TNMM) was selected as the most appropriate method for benchmarking ET&I Segment. The Assessee earned a margin of 15.93 per cent from the ET&I Segment.

4.

It is submitted that Onward Technologies Limited (Segmental) was a comparable selected by the Assessee in its transfer pricing documentation. During transfer pricing proceedings, the TPO vide show cause notice dated 26.03.2012, recorded a categorical finding that segmental data of Onward Technologies Limited dealing with the professional services and consultancy services can be used as a comparable. Thereafter, whilst passing order dated 28.01.2013 under section 92CA(3) of the Act, the TPO used segmental data of Onward Technologies Limited for benchmarking ET&I Segment, which got merged with the final assessment order dated 22.04.2013 passed under section 143(3)/144C(3) of the Act by the Assessing Officer

5.

Subsequently, the CIT(A) vide order dated 18.05.2017 retained Onward Technologies Limited (Segmental) as a comparable for benchmarking ET&I Segment. However, the comparable(s) such as Mitcon Consultancy Services and L&T Ramboll Consulting Engineers Ltd., were excluded by the CIT(A), on the ground(s) of functional dissimilarity and lack of segmental data, respectively

6.

Cross-appeals were filed by Revenue (ITA No. 5724/Del/2017) and Assessee (5421/Del/2017) before this Hon'ble Tribunal. The Assessee's appeal dealt with transfer pricing adjustment relating to marketing support services segment and related issues. Whereas Revenue's appeal was in respect of ETSI Segment. It is pertinent to mention that the original appeal filed by Revenue had no ground for exclusion of Onward Technologies Limited as a comparable. At the behest of filing specific grounds of appeal, the Departmental Representative for the first time before this Hon'ble Tribunal agitated exclusion of Onward Technologies Limited as a comparable, on the same reasoning (viz. functional dissimilarity) on which M/s Mitcon Consultancy Services and Mis L&T Ramboll Consulting Engineers Limited were excluded.

7.

This Hon'ble Tribunal vide order dated 03.03.2023 disposed off the said cross appeals. As regards comparability of Onward Technologies Limited, after recording the contentions of Departmental Representative that the said comparable is predominantly in automobile engineering segment, it was observed as follows:

"On examination of the functional we hold that this is not a right comparable owing to functional dissimilarity. The tribunal cannot ignore the functional dissimilarity and consider it as a right comparable

8.

Aggrieved, the Assessee filed an appeal (ITA No. 497 of 2023) before the Hon'ble High Court of Delhi challenging exclusion of Onward Technologies Limited as a comparable for benchmarking ET&I Segment. The Hon'ble Court vide order dated 01.09.2023 remanded the matter back to the file of this Hon'ble Tribunal by observing as follows:

"13.

A perusal of the impugned order shows that the Tribunal has only recorded the contentions of both sides and perhaps, proceeded based on incorrect facts. The comparable OTL, according to the counsel for the parties, was indeed included in the Transfer Pricing Study Report. It is also not in dispute that the TPO had accepted OTL as a comparable. The Tribunal, in our view, without discussing the scope and ambit of its power under Section 254, has proceeded to issue operative directions, which, inter alia, excluded OTL as a comparable.

14.

Given this position, counsel for the parties say, and something that we tend to agree with, that the matter needs a relook by the Tribunal, with regard to the scope and ambit of its power under Section 254 of the Act."

LEGAL SUBMISSIONS

9.

it well settled law that "right to appeal" is a statutory right and the scope thereof cannot exceed beyond. those bounds. A bare perusal of section 246A(1) of the Act reveal that an appeal before the CIT(A) can be filed only by an assessee", if he is aggrieved with the final assessment order passed under section 143(3) by the Assessing Officer. No right to appeal is vested with the Assessing Officer to agitate his own order by filling an appeal before the CIT(A). At this stage, it is clarified that Revenue is not remediless qua the assessment framed by the Assessing Officer, the statute provides sufficient remedies in the form of reassessment, rectification, revision etc. Even in terms of section 250 of the Act, the CIT(A) is vested with co-terminus powers as the Assessing Officer, where the entire assessment proceedings could be subjected to scrutiny and he can either grant relief to the assessce or even pass an order to his prejudice, by enhancing the assessment. The CIT(A) can, therefore, probe into the correctness of the entire assessment, whether or not a specific issue is raised before him. Such power flows from the power of enhancement of assessment conferred by section 251(1)(a), read with the Explanation

10.

As a sequitur, the legislature in its wisdom has restricted the Revenue's "right to appeal" before the Tribunal to the order passed by CIT(A) In terms of section 253(2) of the Act, the Principal Commissioner or Commissioner may, if he "objects to any order passed by the CIT(A)" under section 250, direct the Assessing Officer to appeal to the Tribunal against the order. A literal interpretation of section 253(2) of the Act makes it abundantly clear that the scope of departmental appeal before Tribunal should be restricted to object to the order passed by the CIT(A). Thus, under no circumstance the Revenue can be aggrieved with a view taken by the Assessing Officer in the assessment order independent of any external influence of the CIT(A). If an issue was not a 'subject matter of challenge before the CIT(A), the same could not be agitated for the first time by Revenue before the Tribunal. It Is well settled legal position that "what cannot be done directly, cannot be done indirectly

11.

It is respectfully submitted that though very wide powers are bestowed with the Tribunal to pass such orders as it thinks fit in terms of section 254(1) of the Act, however, considering the inherent restrictions imposed by legislature under section 253(2) of the Act, on the 'subject matter' which can be objected by the Revenue by filing an appeal, it is submitted that the Tribunal being a creature of statute cannot travel beyond such restrictions. Such restrictions are in line with the settled legal maxim 'actus curiae neminem gravabit' which means that the act of the Court shall prejudice nobody. Further, the Hon'ble Supreme Court in MCorp Global (P.) Ltd. vs. Commissioner of Income-tax, Ghaziabad [2009] 309 ITR 434 (SC), has settled the law that Tribunal is not authorized to take back the benefit granted to the assessee by the Assessing Officer and it has no power to enhance the assessment. Further, the Hon'ble Supreme Court in Commissioner of Income-tax vs. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) reiterated the settled legal principle that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted.

12.

this restriction is immediately applied to the facts of the present case it would be seen that Onward Technalegies Limited (Seg) was selected as a comparable by the Assessee in its transfer pricing documentation and the TPO after due application of mind concluded that the "Professional Services and Consultancy Segment of Onward Technologies Limited can be used for benchmarking ET&I Segment, which was confirmed by the CIT(A). In this background, the ground regarding exclusion of Onward Technologies Limited (Seg) as a comparable does not emanate from the order of CIT(A) and thus, the Revenue is precluded from objecting this comparable for the first time before this Tribunal.

13 This legal issue is squarely covered by decision of coordinate Bench in the case ACIT v. Tech Books Electronics Pvt. Ltd. (2015) 176 TTJ 20 (Delhi Tribunal) (please refer page 908 onwards specifically pages 919 of the compilation), wherein it was observed as follows

"7.3

A brief question which falls for our consideration is whether the Id. DR can legally challenge the action of the AO in considering a particular company as comparable at his own without any external interference by some Income-tax authority in this regard, it is noted that the Revenue has preferred appeal against the deletion of addition on account of transfer pricing adjustment. Accordingly, what has been challenged is the decision given by the Id. CIT(A) on issues decided against the Revenue, which in relation to Ace Software Lid, is the calculation of its profit ratio When the TPO himself considered this company as comparable, in our considered opinion, there can be no reason for the Id. DR to be aggrieved against its inclusion in the appeal filed before the tribunal. The Department can take recourse to the other legal remedies, if any, available as per law in so far as its grievance against the decision of the AO/TPO is concerned."

14 It is highlighted that in all the appeals filed by Revenue against an order passed by the CIT(A), the Appellant before the Tribunal is always the Assessing Officer, Further, in terms of section 92CA(4) of the Act, the Assessing Officer is mandated to compute the total income of an Assessee in conformity with the arm's length price so determined by the TPO, Thus, the Assessing Officer is precluded from taking a stand contrary to the view of TPO. Reliance at this juncture is placed on decision of Hon'ble Bombay High Court in Vodafone India Service (P.) Ltd. v. UOI (2013) 359 ITR 133 (Bombay), wherein it was observed as follows (please refer page 928 onwards specifically pages 965 of the compilation)

"69.

We cannot agree with the Advocate General's submission that the AO is entitled to revisit and, in effect, sit in appeal over the TPO's report in any respect, including his finding that a transaction is an international transaction and the computation of the arm's length price thereof...

15.

It is well settled that when an act provides a particular thing to be done in a particular manner, it must be done in that manner only or not at all. It is submitted that the Income Tax Department works as a single unit with statute prescribing designated roles to different officers. Thus, while pursuing the 'right to appeal, Revenue cannot be permitted to take a stand contrary to the view formed by TPO, being a specialized officer in terms of section 92CA of the Act, which was merged with the order of CIT(A) Income Tax Department being "State" under Article 12 of the Constitution of India, cannot be permitted to act like ordinary litigant and flip-flop its stand.

16.

To buttress this argument, it is highlighted that the CBDT whilst exercising its powers under section 119 of the Act, issued Instruction No. 3/2016 (F.NO.500/9/2015-APA-II), dated 10.03.2016, mandating that determination of arm's length price should be carried out by the TPO only, and such exercise shall not be carried out by the Assessing Officer. Further, the said Instruction No. 3/2016 provides that the TPO, being an Additional/Joint CIT, shall obtain the approval of the jurisdictional CIT (Transfer Pricing) before passing the order. On the other hand, the TPO, being a Deputy/Assistant CIT, shall obtain the approval of the jurisdictional Additional/Joint CIT before passing the order.

17.

In view of above, it is apparent that on the administrative side, the TPO and Assessing Officer report to different Commissioner of Income Tax. Accordingly, the Principal Commissioner of Commissioner referred under section 253(2) of the Act would mean the superior officer having administrative control over the Assessing Officer only, not the TPO. Thus, by no stretch of imagination, the Commissioner or Assessing Officer referred in section 253(2) of the Act has any authority to revisit an order passed by the TPO, by filing an appeal before the Tribunal, which is otherwise binding on them.

18 It is also submitted that neither the Commissioner nor the Assessing Officer referred in section 253(2) of the Act has the power to "review" the final assessment order passed under section 143(3) read with section 144C(3) of the Act, so as to revisit a view taken by the TPO under section 92CA(3) of the Act and confirmed in appeal by the CIT(A) under section 250 of the Act. It is well-settled that the power of review is not an inherent power. Right to seek review of an order is neither natural nor fundamental right of an aggrieved party. Such power must be conferred by law. If there is no power of review, the order cannot be reviewed. The normal principle of law is that once a judgment is pronounced or order is made, a Court, Tribunal or Adjudicating Authority becomes 'functus officio' (viz. ceases to have control over the matter). Such judgment or order is 'final and cannot be altered, changed, varied or modified.

19.

Without prejudice, in the present facts, the Departmental Representative had not filed any approval or sanction granted by the Principal Commissioner or Commissioner for agitating exclusion of Onward Technologies Limited (Segmental) as a comparable for benchmarking ET&I Segment for the first time before Tribunal. Thus, on this short point itself the specific/additional grounds of appeal raised by the Revenue deserve to be rejected.

20.

On merits, the Ld. Departmental Representative raised the specific ground that since M/s Mitcon Consultancy Services and M/s L&T Ramboll Consulting Engineers Limited have been excluded a comparable by the CIT(A), thus, Onward Technologies Limited should also be excluded. However, h failed to appreciate that with respect to Mitcon Consultancy Services in Paras 2.19 to 2.31 and 5.4 and for M/s L&T Ramboll Consulting Engineers Limited in Paras 2.43 to 2.47 and 5.4.4, the CIT had recorded a finding of fact, which remain uncontroverted, that these two comparables were engaged in diversified portfolio of services, however, no segmental data was available. On the flip side, the TPO after due application of mind had selected "Professional Services and Consultancy Segment of Onward Technologies Limited for benchmarking ET&I Segment, which was confirmed by the CIT(A) Thus, owing to functional dissimilarity and lack of segmental data, Mis Mitcon Consultancy Services and Mis L&T Ramboll Consulting Engineers Limited were excluded. However, there is no error in the reasoning of TPO and CIT(A) in selecting "Professional Services and Consultancy Segment of Onward Technologies Limited for benchmarking ET&I Segment.

21.

It is emphatically submitted that selection of comparable is a factual issue and the Ld. Departmental Representative has failed to establish any perversity from records vis-à-vis the view taken by the TPO and CIT(A), in selecting Onward Technologies Limited (seg) for benchmarking ET&I Segment.

22.

The Ld. Departmental Representative relied on the following decisions, which are distinguishable and not applicable on the facts of the present case:

 CIT v. Pruthvi Brokers & Shareholders [ITA 3908/2010 BOM HC] - the said decision deals with the additional claim by the Assessee by way of letter before the Assessing Officer, and the Assessing Officer disallowed the same in the grounds that there was no provision to amend the return filed. Thus, the issue was there before the Assessing Officer itself and was also duly adjudicated by the CIT(A). In the present case, the comparable was accepted and was never a subject matter of appeal before the lower authorities and thus, could not be agitated before the Tribunal. Further, the restriction to object to the order of the CIT(A) in section 253(2) of the Act, is not applicable in the case of an Assessee.

 Aztec Software & Technology Services Ltd.v. ACIT [107 ITD 141 (SB)] This case is factually different. Reliance has been placed by the Ld. Departmental Representative on Para 133 of the said judgment to argue that the tax authorities can substitute their own arm's length price. This is not applicable in the present case, as Onward Technologies Limited (seg.) was accepted as comparable by the TPO itself after due application of mind. Further, no new material or information has been unearthed or collected at the stage of appeal before this Hon'ble Tribunal, which may create a fresh cause of action for the Revenue. Merely because CIT(A) had excluded M/s Mitcon Consultancy Services and M/s L&T Ramboll Consulting Engineers Limited as comparables, would not in itself vitiate the comparability of Onward Technologies Limited (seg.) as accepted by TPO and CIT(A).

23.

Thus, in view of the submissions made above, it is prayed that the appeal of the department be dismissed.”