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29-04-2019, VODAFONE IDEA, HIGH COURT OF DELHI

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5 months 6 days ago - 5 months 6 days ago #9363 by amit
Section -
Order Date - 29-04-2019
Favouring - Set Aside
Court - HIGH COURT OF DELHI
Appellant - VODAFONE IDEA LTD.
Respondent - ACIT
Justice - S. RAVINDRA BHAT & PRATEEK JALAN
Citation - 519Taxpundit140
Appeal No. - W.P.(C) 4467/2019 & CM APPL.19840/2019
Asstt. Year - 2009 - 10 to 2012- 13

Order

PER : S. RAVINDRA BHAT, J.

1. Issue notice. Mr.Ajit Sharma, Senior Standing Counsel accepts notice.

2. By the order impugned in this writ petition, the ITAT, according to the petitioner, has conclusively determined certain issues on which it had at the same time directed a remand. This Court had on 01.06.2018, in the assessee’s appeal for the concerned year [ITA No.660/2018], directed as follows:

“The Court has considered the submissions of the parties; the ITAT remitted for fresh reconsideration of the issue relating to advertising, marketing and promotion (AMP) expenses. Furthermore, it also, through stray sentences in the impugned order not premised on any reason in no manner observed that the benchmarking of international transactions pertaining to payment of royalty cannot be done by using comparables with transactions entered into between two foreign parties. This observation in the opinion of the Court is not warranted to. Having regard to the fact that all materials were available with it, the ITAT is directed to consider the transactions involving AMP expenditure as well as the issue of royalty. In this regard its observations with respect to the comparables used by the assessee vis-a-vis the two foreign parties shall not be treated conclusive. The ITAT shall carry out necessary inquiry if need be by resorting to a limited remand to the TPO or DRP as the case may be having regard to the overall facts and circumstances and decide whether AMP expenses required in the present case involve international transaction, if so, to what extent.”

3. By the impugned order, passed pursuant to the remit by this Court, the ITAT noticed certain facts and discussed certain relative merits observing as follows:

“22. On the aspect of quantitative filters adopted by the assessee are with related to the payments. In the agreement entered into by the assessee the payment terms are payment of specified percentage over the net service revenue. However, the assessee adopted a filter of payment terms of percentage of gross sales. There is no such condition in any of the agreement entered into by the assessee with both the parties with respect to the payment of fees on gross sales. There is no justification found in the transfer pricing study report with respect to the above filter applied by the assessee.

23. Therefore one of the quantitative filters applied by the assessee also deserves to be rejected is devoid of any justification. xxxx xxxx xxxx xxxx

25. Now coming to the single agreement which was found to be comparable by the assessee, This agreement was where the licensor is Motorola incorporation USA and the licensee is forward industries incorporation USA, the period of the agreement was January 2008 to March 2009 and services were trademark license fees for the use of Motorola signature and the M logo (Emsignia) where the payment of royalty was 7% of net sales. Therefore the assessee stated that this is the only agreement which is between 2 foreign parties, both from USA is the only comparable, hence applying CUP method, comparing transaction of its AE with that solitary transaction stated that it is transaction of payment of royalty is at arm'slength. It is important to note that assessee is paying only 0.15% and 0.30% as trademark license fees and it is comparing the transaction where the royalty was paid as 7% of net sales, which is almost 50 times more than what the assessee has paid. Such a huge margin between the comparable price stated by the assessee and actual international transactions entered into by the assessee clearly makes the comparability analysis unjustified and devoid of any reasoning. xxxx xxxx xxxx xxxx

27. As the Honourable High court has directed ITAT to determine the ALP of the Royalty ( Trademark License fees) payment and only comparable was stated to be payments by Forward Industries Inc to Motorola inc, and further as assessee did not provide any details about the agreement between Motorola and forward incorporation, we are dutybound to make our own research on the issue.

28. We looked at the functional profile of the Forward Industries inc from (yahoo. Finance. Co) which shows that Forward Industries, Inc., together with its subsidiaries,

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Last edit: 5 months 6 days ago by amit.

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