IN THE ITAT, DELHI BENCH
N.K. BILLAIYA, A.M. & KULDIP SINGH, J.M.
Vedanta Ltd. v. ACIT
ITA No. 12/Del/2020
21 September, 2020
Assessee by: Ajay Vohra, Sr. Advocate, Sachit Jolly, Advocate, Rohit Garg, Advocate, Shri Sidharth Joshi, Advocate
Revenue by: Anupam Kant Garg, CIT-DR
N.K. Billaiya, A.M.
This appeal by the assessee is directed against the Order, dated 28-11-2019 framed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act' for short].
2. Representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the learned Counsel, we have considered the documentary evidences brought on record in the Form of Paper Book in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides.
3. With Ground No. 1, the assessee has challenged the validity of the assessment order itself on the ground that it is barred by limitation and, therefore, liable to be quashed,
4. Without going into the merits of this contention, we find that an identical challenge was dismissed by the co-ordinate bench in the case of Religare Capital Markets Ltd. in ITA No. 1881/DEL/2014 : 2019 TaxPub(DT) 7117 (Del-Trib) wherein it has been held that final assessment order passed under section 143(3) read with section 144C(13) of the Act would not be covered under the provisions of section 153 of the Act. Respectfully following the findings of the coordinate bench, this ground is dismissed.
5. Ground No. 2 with all its sub grounds relates to the transfer pricing adjustments on account of international transactions relating to receipt of Management and consultancy services received by the assessee amounting to Rs. 24,37,43,634 and Rs. 1,44,69,443 towards Recovery of costs for SAP maintenance.
6. Facts on record show that the assessee receives Strategic Planning and Consultancy Services from Vedanta Resources Plc. (VRPL.) under a Management Consultancy Agreement dated 29-3-2005. The relevant clauses of that agreement show that VRPL agreed to provide Strategic planning and consultancy services to Sesa Sterlites [now present appellant] and its subsidiaries in various areas of business such that Sesa Sterlites is able to finalize and implement their plans for growth and are able to raise necessary finances.
7. The assessee claimed that services received from VRPL included consultancy services, strategic advices which included a global profile, assistance in formulating and implementing short, medium and long-term plans and strategic and assistance on all opportunities for growth and diversification, legal advice and advice on account of financial treasury, marketing, human resource management and I.T. support.
8. In the agreement, it is also provided that VRPL will provide technical and commercial material to Sesa Sterlites to enable it to promote its business and/or raise funds overseas thereby acting as representative office of Sesa Sterlites in UK.
9. In the Transfer Pricing study, the foreign AE was considered as tested party and the benchmarking was done as per TNMM method. A total of 8 comparables were chosen whose return on operating costs worked out to be 7.96%. Since the operating margins of the AEs of the Appellant from the provision of business support services was 5.51% on the operating cost, therefore, the transaction was treated to be at arm's length.
10. However, the TPO denied the bench-marking done by the assessee on the following grounds :--
(i) failure to substantiate actual rendition of services;
(ii) failure to prove benefit derived by the Appellant from the services; and
(iii) failure to provide the basis for the allocation key.
11. The TPO himself allowed 20% of the total sum paid purportedly attributing such share of payment for obtaining strategic advice, considering the services rendered by the top management, with regards to the huge diversification and the acquisition undergone by the assessee. In doing so, the TPO rejected the application of TNMM method by treating management consultancy fee as a separate class of transaction from the strategic and representative office services received by the Appellant.
12. When objections were raised before the DRP, the DRP dismissed the objection and upheld the action of the TPO by holding that the assessee failed to substantiate its claim of payment of management consultancy fees with sufficient evidences. The DRP further observed that no sufficient evidences to support the claim of expenses incurred on account of management consultancy fees are made available and the expenses also fail the tests of benefit and genuineness. The DRP, accordingly, directed the assessing officer that the expenses incurred on account of management and consultancy charges shall also be disallowed on protective basis under section 37(1) of the Act.
13. Before us, the learned counsel for the assessee vehemently stated that the evidence/proof of services provided by VRPL were submitted before the lower authorities. It is the say of the learned counsel for the assessee that the assessee has access to wide range of services and cannot be limited to the services mentioned in the Agreement. The learned counsel for the assessee further stated that the services rendered by VRPL should not be limited to paper work but should also be considered in the light of constant interaction through the modern communication facilities. It is the say of the learned counsel for the assessee that in case of intra-group services received on an on-going basis, it is difficult for the taxpayer to provide evidence for support received with regard to day-to-day operations. The learned counsel for the assessee further submitted that evidences are available at critical milestones and not at every step of the process and absence of such evidence should not be construed to mean that the services were not received.
14. In so far as the benefits received by the assessee is concerned, the learned counsel for the assessee strongly relied upon the decision of the Hon'ble High Court of Delhi in the case of EKL Appliances (2012) 345 ITR 241 (Del) : 2012 TaxPub(DT) 2071 (Del-HC) wherein it has been held that benefits shall be considered from the perspective of the taxpayer. The learned counsel for the assessee vehemently stated that it is incorrect to segregate management consultancy fee as a separate class of transaction and is clearly in violation of law as was laid down by Hon'ble Jurisdictional Delhi High Court in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. (2015) 374 ITR 118 (Del) : 2015 TaxPub(DT) 1653 (Del-HC).