Nivea India Private Ltd vs. DCIT (ITAT Mumbai)

(i) The assessee in the application for admission of additional ground of appeal has categorically contended that the additional ground of appeal is raised in view of the additional evidence submitted before the Tribunal. The assessee has referred various decisions of superior courts. In the additional ground, the assessee has categorically mentioned that AE’s is least complex entity involved in supply of raw-material, packing material and semi-finished goods to the assessee, which entered into transaction in capacity of low risk manufacture had to be taken as a tested party for the purpose of bench marking analysis.

(ii) As per our considered view, the Transfer Pricing Regulations practice in India is based on Arm’s Length Principle. The concept revolves around that price or margin determined in control transaction involving two AE’s should be compared to an uncontrolled transaction between two India enterprises operating under same circumstances. The Income-tax Act has not defined “tested party”. However, the Organization for Economic Co-operative and Development (OECD) in Transfer Pricing Guidelines for multinational enterprises of tax administration (OEDC Guidelines) defines “tested party”, according to which, tested party “the one to which the transfer pricing matter should be applied in the most reliable manner and for which most reliable comparable can be found” i.e. it will most often be that has to be less than functional analysis. Thus, on the basis of the definition provided by OECD under OECD Guidelines, in our view the “tested party” must contain (a) lest complex (b) availability of reliable and accurate data or comparable (c) the data available can be used with minimal adjustment.

(iii) To ascertain the fact, if the facts related to additional ground of appeal is available on record or not. We have gone through the report in Form No. 3CEB page 16 to 28 of the Paper Book. The Exhibit-1, attached with the report described the name of the AE’s, nature of relationship with AE, and the brief description of business carried by the AE. Exhibit 2 described the details of particulars of international transaction of assessee for purchases/ sale of raw materials, consumables or other supplies. Exhibits 3&5 described the details of international transaction in respect of purchased and sale of finished goods with its AE’s. An Exhibits 4 contains the details of sale and purchases of tangible moveable and immovable property or lease of such property. Exhibit 6 refers about the details of transaction of intangible property (not available in TP study). Further page no.29 to 92 contained details of comprehensive transfer pricing study. Thus, in our view the only available details with regards to assessee’s AE’s on record of TP study is the name of the AE’s, nature of relationship with AE, and the brief description of business carried by the AE.

(iv) The Hon’ble Jurisdictional High Court in Ultratech Cement Ltd. vs. ACIT (2017) 81 Taxmann.com 72 (Bom) while dealing with the additional ground of appeal related to the claim of deduction u/s 80IA which was not claimed by the assessee while filing the return of income. The Hon’ble Court held that it is sine qua non provided in sub-section (7) of section 80IA of the Act is the furnishing along with return of income, a report of audited account in Form No. 10CB as required under Rule 18BBB(3) of the Act. The Form 10CCB which is required to be filed along with return of income as various details to be filed including the initial AY from which the deduction is being claimed, the nature of activities carried out with regard to the infrastructure facility, namely, whether it is for developing or developing and operating or for developing, operating and maintaining the new infrastructure facility. It is only on the examination of these details as submitted by the Auditor in Form No. 10CCB that the claim of deduction can be considered. The Court further held that in case no Form No. 10CCB is filed by the appellant/assessee, therefore, there is no evidence on record for subject AY to allow the claim.

(v) We have seen that, undisputedly the name of the AE’s, nature of relationship with AE, and the brief description of business carried by the AE with assessee for functional analysis and benchmarking related with its AEs are on record in the report under Form 3CEB. Though the complete details are not ascertainable from the record relied by the assessee. Though, the details related with the foreign AE’s are available in the additional evidence filed by the assessee, which have not been relied by ld AR for the assessee while making submission on additional ground of appeal. We have also considered the objections of the revenue that additional ground raised by the assessee should not be admitted at this stage. After considering, the submission of revenue, we are of the view that approach in such matters should be different, when the revenue seeks to fasten liability before the Tribunal. The reasons are that the Tribunal is the last fact-finding authority and the assessee has no other avenue to raise its grievances so far as facts are concerned. In case, on the facts and in the law, ultimately if it is discovered that assessee is not liable to tax, the revenue cannot have grievances. The Article 265 of the Constitution of India provides that no tax should be levied and collected except by authority of law. In case, if ultimately the assessee is found to be liable to tax, the assessee will compensate the revenue in term of interest on the tax liability. We are of the view that fundamental principle laid down by Hon’ble Apex Court in case of NTPC (supra) is that there can be no tax liability without the authority of law and the principal will hold good all points of time. The Hon’ble Delhi High Court in case of GE Money Financial Services Private Ltd Vs PCIT ITA No. 662/2016 dated 31.08.2016 while examining the correctness of the order related with the treating of Foreign Associated Enterprises (AE’s) held as under:

“The question of law which the assessee/appellant argues in this appeal for AY 2009-10 is regarding the appropriateness and correctness of treating the Foreign Associated Enterprises (AE’s) as a tested party. The assessee’s transfer pricing analyses and determination of ALP led it to approach to ITAT which by impugned order has remitted the matter for consideration of the most appropriate method as well as question of appropriate comparable is applicable in the circumstances of the case. The assessee has approached this court against the observation and findings of the ITAT –in para 10 to 18 to the effect that the foreign AE cannot be considered as tested party. Reliance is placed upon section 92B to contend that there is nothing in the provision inhibiting such consideration. This court notices that for re-consideration and determination of the appropriate method as well as appropriate comparable is and the tested party, it would be convenient and appropriate for the TPO to consider the question which the assessee as in the present case. The TPO is therefore directed to overlook and not feel bound by the observation of the Tribunal and render finding on merit of the issue.”

(vi) In view of the above factual and legal discussion, we are of the view that whole intent and purpose of the transfer pricing provision is first select the most appropriate comparable/ tested party and thereafter, by applying the most appropriate method to determine arm’s length price(ALP). Considering, the fact that assessee has not raised the issue related with the selection of comparable as AE’s either before the transfer pricing officer or before first appellate authority, and has raised the issue for the first time before the Tribunal by way of additional ground of appeal. Thus, considering the material available on record and the factual and legal discussion as referred above, we admit the additional ground of appeal raised by assessee, and are inclined to restore this issue raised in the additional ground to the file of assessing officer/transfer pricing officer for examining issue afresh. The AO/TPO shall decide the issue after considering all the material available on record in accordance with the law.