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Honda R & D (India) Pvt. Ltd. Versus DCIT, OSD, CIT (A) -IV, New Delhi

2017 (12) TMI 406 - ITAT DELHI

TPA - international transaction - Held that:- Since the finding of the Hon'ble High Court for Assessment Year 2005-06 has clearly concluded that for Assessment Year 2007-08 the assessee has not carried out any research and development activity, the same cannot be taken into account for rendering services as per international transactions. Thus, the assessee company has not carried out any international transaction. - As related to working capital adjustment the Hon'ble High Court decision wa .....

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eals are filed by the assessee against the Orders dated 21.09.2010 and 23.08.2011 passed by Assessing Officer, New Delhi u/s 143(3) r/w Section 144C of Income Tax Act, 1961 for Assessment Year 2006-07 and 2007-08 respectively. 2. The grounds of appeal are as under:- (ITA No. 4800/DEL/2010 A.Y. 2006-07) The following grounds of appeal are mutually exclusive of and without prejudice to each another. 1. On the facts and circumstances of the case and in law, the Hon ble Dispute Resolution Panel ( DR .....

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of market research and testing services. 3. The Hon ble DRP/AO erred in computing the net profit margin on the basis of the TNMM. 4. The Hon ble DRP/AO erred in determining the Arm s Length Price for the provision of market research and testing services by the Appellant by using completely inappropriate set of companies that were engaged in a totally different line of business and industry and misconstruing the actual nature of the services provided by the Appellant. 5. The Hon ble DRP/AO erred .....

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the selection of comparables selected by TPO during the course of transfer pricing assessment proceedings. 8. The Hon ble DRP/AO erred in stating that the market research and testing activities undertaken by the Appellant in India lead to the creation of Intellectual Property Rights, Patent, Copyrights & Trademarks, whereas the Appellant s activities do not, in any manner or circumstances, lead to creation of such intangibles. 9. The Hon ble DRP/AO erred in ascertaining the risk profile of t .....

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ard and inherently flawed analysis undertaken by TPO to arrive at the Arm s Length Price. The TPO sought to compare the Appellant to companies undertaking research and development services, however, most of these companies reported no or extremely insignificant research and development revenues. 11. TheHon bleDRP/AO erred in not recognizing the fact that the TPO had grossly miscalculated the operating margin of comparable companies identified by him. 12. The Hon ble DRP/Assessing officer failed .....

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luating the rejection/acceptance of TNMM method, used as a method of secondary choice applied by the Appellant for the purpose of establishing the arm s length nature of the market research and testing services. 15. The Hon ble DRP erred in law and in facts by not giving due cognizance to the new set of appropriate comparable companies submitted by the Appellant with the Hon ble DRP. 16. The Hon ble DRP/AO erred in law and in facts by not giving due cognizance to the working capital adjustment u .....

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y not providing an opportunity of being heard in connection with certain matters critical with the final outcome of the assessment proceedings, which finally led to an adverse conclusion against the Appellant, including failing to issue a speaking order. The Appellant prays for leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstance .....

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n ble DRP and the Learned AO erred in facts and in law by not recognizing that the statutory onus on the TPO to establish that an Appellant s case is covered , under any of (a) to (d) clause of Section 92C (3) of the Act has not been discharged by him. 3. The Hon ble DRP and Learned TPO have erred on facts and in law by not accepting the economic analysis conducted by the Appellant, for the transaction pertaining to provision of market research and testing services, which is in accordance with t .....

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orking capital adjustment and risk adjustment) undertaken by the Appellant in order to improve the comparability of the comparable results and that of the Appellant. The Appellant prays for leave to add, alter, amend and / or modify any of the grounds of appeal at or before the hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case. 3. For the sake of convenience the facts for A.Y. 2006-07 are taken hereun .....

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td. Japan as a 100% subsidiary with 100% equity being held by the above company. The research and development activity is conducted in house for the sole use of such research in the development of products in the auto mobile sector and also barely in the power product sector. The major international transactions reported in Form No. 3CEB are summarized as under:- (1) Sale of services - cost plus -17,29, 83,179/- (2) Re-imbursement of lodging, conveyance and Air Ticket-CUP-1,91,940/- (3) Re-imbur .....

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ng equipments and cost plus method has been applied for sale of services. During the course of proceedings report entitled an Analysis of Transfer Pricing Arrangement with Associated Enterprises was filed. The assessee used cost plus method to bench mark its major international transaction relating to provisions of services with respect to R & D ( sale of services; ₹ 17,29,83,179/-). The TPO observed that as per agreement dated 1/8/2003, only part of services rendered by the assessee g .....

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and product development of ₹ 174.94 crores from M/s Hero Honda Motors Ltd. India alliance in Assessment Year 2005-06. However, no part of such benefit was actually transferred to the assessee which is responsible for conducting research and development activities in India to customize and develop technology suitable to Indian conditions and people. Thus, the TPO concluded that the assessee company which is generating specific R & D for modification of Honda Products to suit the Indian/ .....

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The Assessing Officer while passing assessment order dated 21/9/2010 held that in the order, the TPO has dealt in detail with each aspect for the determination of correct Arm s Length Price for the international transaction undertaken by the assessee. Thus, an addition of ₹ 1,77,51,768/- is made to the income of the assessee being difference between the Arm s Length Price. 5. The Ld. AR submitted that this Assessment Year is already covered by the Hon ble Delhi High Court s decision in the .....

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rking capital issue, the Hon'ble High Court s order was not available before the DRP as well as TPO. Therefore, the said issue should be remanded back to the TPO after taking into consideration the order of the Hon'ble High Court. 6. The Ld. DR relied upon the order of the TPO and DRP. 7. As relates to ITA No. 5734/Del/2011 for Assessment Year 2007-08 the Ld. AR submitted that Ground No. 1, 2, & 4 are not pressed. As relates to Ground No. 3 & 4 the Ld. AR submitted that the Trans .....

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e same cannot be taken into account for rendering services as per international transactions. The High Court in assessee s case for A.Y. 2005-06 held as under 24. Strangely the ITAT again picked up three comparables, i.e., National Research Development Corporation Limited, Panacea Biotech and Suven Life Sciences, which had been rejected as comparables by the TPO in its remand report for AY 2005-2006. The CIT(A) has given cogent reasons why the TPO s report ought to be acted upon. The ITAT also a .....

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