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Philips India Limited Versus D.C.I.T., Circle-12 (2) , Kolkata

2016 (9) TMI 808 - ITAT KOLKATA

Grant of stay for outstanding demand - prima facie case - addition made on account of payment on account of Management Support Services - Held that:- Assessee has a prima facie case. In respect of the payments made under MSSA as well as payment for IT service, the evidence regarding benefit received by the Assessee have not been considered by the DRP. The circumstance that in respect of MSSA receipt by the holding company KPNV, the revenue has accepted that the Assessee has received benefit from .....

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as been paid by the Assessee. The Assessee will also be put to hardship if the order of stay is not granted. The revenue is at liberty to appropriate the adjustment of refunds due to the Assessee as agreed by the learned counsel for the Assessee. We therefore grant an order of stay of recovery of outstanding demand arising out of the Assessment for AY 2009-10 & 2011-12 for a period of 6 months from this day or till disposal of the Appeals of the Assessee, whichever is earlier. The appeal of the .....

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,71,97,219/- arising out of the order of assessment dated 29.4.2016 passed u/s.143(3) read with Sec.144C of the Income Tax Act, 1961 (Act). 2. S.P.No.15/Kol/2016 is a petition filed by the Assessee praying for grant of an order of stay of recovery of outstanding demand of ₹ 118,66,04,240/- arising out of the order of assessment dated 29.2.2016 passed u/s.143(3) read with Sec.144C of the Income Tax Act, 1961 (Act). 3. Both the stay petitions were heard together. We deem it convenient to pas .....

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1961 ( the Act ). Reference was also made to the Transfer Pricing Officer ( TPO ). The scrutiny assessment was completed and the draft assessment order under section 143(3)/144C of the Act was passed on 27 March 2015. In the draft order, primarily the following adjustments/disallowances were made : Sl.No. Particulars Amount (Rs.) Total Amount (Rs.) 1. Management Support Services 2,02,71,59,959 2. Software Development Services 49,57,73,339 3. IT Services 3,55,26,652 4. AMP Expenses 35,19,21,583 T .....

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ted relief in respect of adjustments/disallowances made by the Assessing Officer ( AO ) on account of payments to clubs, lease rent on motor vehicle and loan waived off. The DRP confirmed the disallowance on account of depreciation on moulds. Further, relief was granted by the DRP in relation to AMP Expenses and in relation software services amount were substantially reduced to INR 16,27,69,727. Additionally in relation to MSSA and IT Services DRP confirmed the adjustments made by the TPO. Givin .....

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l income at ₹ 383,79,81,520. Aggrieved by the impugned assessment order, the Company has filed an appeal before the Hon ble Income Tax Appellate Tribunal, Kolkata ( Hon ble ITAT/Tribunal ). 7. The outstanding demand arising out of the aforesaid order of assessment is as follows: Tax Rs.67,73,26,386/- Interest u/s 234A ₹ 1,35,46,528/- Interest u/s 234B Rs.39,96,22,576/- Interest u/s 234D ₹ 1,61,67,498/- Refund granted earlier ₹ 7,52,57,319/- Interest made under section 244 .....

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sed on 1 March 2013. In the draft order, primarily the following adjustments/disallowances were made : Sl.No. Particulars Amount (Rs.) 1. Transfer Pricing Adjustment 1,891,282,392 2. Payments to club 2,631,637 3. Excess of provision for replacement guarantee over actual payment 17,000,000 4. Lease rent 55,099,000 Total 1,966,013,029 9. The Assessee filed its objections with the Hon ble Dispute Resolution Panel ( DRP ) as per the provisions of section 144C of the Act against the draft assessment .....

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,863 2. IT Charges 239,351 ,529 3. Rendering of Software Development Services 302,3000,000 Total 1,794,382,392 10. Based on the directions issued by the Hon ble DRP the final assessment order was passed by the AO under section 143(3) r.w.s 144C of the Act dated 21 January 2014. In the said order, the AO determined total income at ₹ 4,129,485,880. 11. The outstanding demand arising out of the aforesaid order of assessment is as follows: Tax Rs.444,585,763/- Interest u/s 234B Rs.257,859,764/ .....

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sessee before us was that as for as the addition made on account of payment on account of Management Support Services are concerned, the Assessee received services as per Management Support Service Agreement (MSSA) from Koninklijke Phiulips N.V. (KPNV) Netherlands which also happens to be the holding company of the Assessee. The transaction of providing services by the non-resident holding company to the Indian subsidiary company was a transaction between Associate Enterprise (AE) and therefore .....

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e was filed to substantiate the nature of services rendered by KPNV and the corresponding receipt of service by the Assessee. 13. It was brought to our notice by the learned counsel for the Assessee that prior to AY 2008-09 payment for similar services to KPNV were accepted and not questioned by the Revenue. However in AY 2008-09, the TPO for the first time held that the services rendered by KPNV were in the nature of stewardship and shareholder services leading to direct and proximate benefit t .....

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he benefit it received from the services claimed to have been provided by the AE and therefore the benefit test was not satisfied and therefore the ALP determined by the TPO at nil was to be upheld. 14. The learned counsel brought to our notice the voluminous evidence filed by the Assessee to substantiate the nature of services rendered by the AE and how the same benefited the Assessee and these have not been considered at all by the DRP. Similar is the position with regard to the provision of m .....

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y, the holding company was assessed to tax in India and in its assessment for AY 2011-12, the Revenue has taken a stand that the services provided by KPNV to the Assessee were for imparting commercial know-how and commercial experience and fees for technical services to the extent they are making available services to the Assessee s personnel, as envisage in the agreement. (Para-45 of the order of the TPO in AY 2011-12). According to him the revenue is taking a contradictory stand in respect of .....

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ounsel for the Assessee brought to our notice that the stand of the Revenue is almost identical to the stand which they had taken in respect of fees paid under MSSA. 17. With regard to Software Development Services, the learned counsel for the Assessee pointed out that in AY 2011-12, the DRP rejected 5 out of the 10 comparable companies chosen by the TPO and accepted 7 out of the 9 comparable companies chosen by the Assessee in the TP study. According to him some of the comparable companies so c .....

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comparables ultimately retained will be at ALP and no addition can be made. According to him the position would be the same in AY 2009-10 in so far as it relates to adjustment on account of ALP for software development services. 18. The learned counsel for the Assessee submitted that the Assessee has made out a prima facie case. With regard to the balance of convenience the learned counsel brought to our notice the following facts with regard to the payment of taxes for both the AYs which is as .....

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le. 20. Lastly the learned counsel for the Assessee brought to our notice Instruction of the CBDT to its officers as contained in F.No.404/72/93-ITCC dated 29.2.2016 whereby the CBDT has instructed the AO s to grant stay of recovery of outstanding demand where the addition giving raise to outstanding demand is challenged in appeal and the Assessee pays 15% of the disputed demand. It was his submission that the spirit of the aforesaid circular should be applied by the Tribunal also in the matter .....

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