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 Attachment on Cash Credit of Assessee under GST Act: Delhi HC directs Bank to Comply Instructions to Vacate

Vodafone Idea Ltd. Vs. Assistant Commissioner Of Income Tax & Ors.
May, 07th 2019

                                               Decided on: 29th April, 2019

+      W.P.(C) 4467/2019 & CM APPL.19840/2019

       VODAFONE IDEA LTD.                                  ..... Petitioner
                   Through:           Mr.Deepak Chopra, Mr.Harpreet
                                      Singh Ajmani & Mr.Manasvini
                                      Bajpai, Advocates


       INCOME TAX & ORS.                          ..... Respondents
                    Through: Mr.Ajit Sharma, Sr.Std.Counsel with
                             Mr.Adeeba Majahid, Jr.Std.Counsel
                             & Mr.Ashutosh Senger, Advocate




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

W.P.(C) 4467/2019                                                    Page 1 of 6
       "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.

W.P.(C) 4467/2019                                                    Page 2 of 6
       23. Therefore one of the quantitative filters applied by the
       assessee also deserves to be rejected is devoid of any

                    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's-
       length. 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
                     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 duty-
       bound 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,

W.P.(C) 4467/2019                                                    Page 3 of 6
       designs, markets, and distributes carry and protective
       solutions primarily for hand held electronic devices. It
       provides carrying cases and other accessories for medical
       monitoring and diagnostic kits; and other portable electronic
       and non-electronic products, such as sporting and recreational
       products, bar code scanners, smartphones, GPS location
       devices, tablets, firearms, and other products. The company
       sells its products to original equipment manufacturers in the
       Americas, the Asia-Pacific, Europe, the Middle East, and
       Africa. Forward Industries, Inc. was founded in 1954 and is
       headquartered in West Palm Beach, Florida.

       30. In view of this, the transfer pricing study document
       prepared by the assessee
       for benchmarking the royalty payment does not inspire any
       confidence but merely eyewash.
                   xxxx         xxxx     xxxx        xxxx

       32. Though the honourable High Court has directed us to
       determine the arm's length price of the royalty payment,
       however very kindly looking at the complexity of the issue,
       honourable High Court was also pleased to authorize the
       coordinate bench to carry out necessary enquiries and if need
       be to resort to a limited remand to the learned transfer pricing
       officer or dispute resolution panel.

       33. During the course of hearing both the parties also
       submitted that identical issue is involved with respect to the
       determination of the arm's-length price of the international
       transaction of the payment of royalty to associated enterprises
       in all those years from assessment year 2009 - 10 to 2012- 13.
       Therefore, it was requested that if the issues remanded to the
       learned transfer-pricing officer then similar direction to both
       the parties may be given for all those years and all those
       appeals may be disposed of with respect to the above ground
       based on the above limited remand. Therefore, at the request
       of the parties we also agree to give similar directions for all
       these years.

       34. Therefore, in view of

W.P.(C) 4467/2019                                                    Page 4 of 6
                    a)   the inadequate facts about the product
                         comparability for technology for which trademark
                         fees is paid as Royalty
                    b)   Absence of availability of agreement between two
                         foreign parties, as well as terms, economic
                         indicators, risk etc
                    c)   No adjustment on account of geographical
                         difference between two prices
                    d)    Use of database PowerK without justification
                         and not using other specific databases
                    e)   Use of inappropriate filters

       35. Therefore, for all these years, i.e. A Y 2009-10 to 2012- 13,
       We direct limited remand to the ld TPO to examine the
       comparability analysis for determination of the arm's-length
       price of the royalty fees paid by the assessee. For the
       examination of the learned transfer pricing officer we direct
       the assessee to submit a fresh comparability analysis before
       the learned transfer pricing officer justifying the use of various
       database with the rationale for using them, justifying each and
       every filter that assessee would like to use, justify the various
       differences in the prices and it is adjustment to be made and
       all the necessary details before the learned transfer pricing
       officer on or before 15/04/2019. The learned transfer-pricing
       officer will also examine them, also make his own
       determination of ALP of Royalty on or before 05/05/2019, and
       seek any explanation/submission clarification on or before
       22nd of May 2019. Based on examination and on his finding
       on the submission of the assessee, ld TPO/AO is directed to
       submit on or before 30/05/2019 remand report before the
       coordinate bench and the copy to the assessee on the
       determination of ALP of the above royalty payment. Needless
       to say that both the parties are free to decide any other method
       or mechanism of determination of ALP of above royalty
       payment, if in case it is found that CUP is not the correct
       method in absence of availability of the comparable data. After

W.P.(C) 4467/2019                                                      Page 5 of 6
       that on 03/06/2019, the matter is posted for hearing before the
       coordinate bench. Interim order pronounced in the open court
       on 25/03/2019."

4.     The assessee is aggrieved and contends that though characterized as
an interim order and not conclusive of the merits, yet, the finality precludes
the assessee/petitioner from urging the grounds with respect to the precise
issues that were subject to remand and for which the ITAT felt the need
fails to make a further remand and set up inquiry by the TPO.
5.     This Court is of the opinion that till the remand directed by the ITAT
is worked out and a report on that aspect is received, the ITAT's
observations in the impugned order, particularly the ones quoted above, or
any other observation like them which tend to indicate finality, shall in no
way be treated as conclusive of the merits. All rights and contentions of the
parties are accordingly kept open. The concerned Bench of the ITAT
dealing with the final merits shall be uninfluenced by the said observations.
6.     The writ petition is disposed of.
7.     Copy of the order be given dasti.

                                                  S. RAVINDRA BHAT, J

                                                     PRATEEK JALAN, J
APRIL 29, 2019

W.P.(C) 4467/2019                                                     Page 6 of 6
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