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Income Tax Appellate Tribunal, [ DELHI BENCH: ‘I’ NEW DELHI ]
Before: SHRI ANIL CHATURVEDI & SHRI YOGESH KUMAR U.S.
PER YOGESH KUMAR US, JM
This appeal is filed by the assessee against the order dated 22.03.2018
of the ld. Commissioner of Income Tax (Appeals)-44, New Delhi [hereinafter
referred to CIT (Appeals)] for assessment year 2012-13.
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The assessee has raised the following substantive grounds of appeal :-
“1. That on the facts and in the circumstances of the case and in law, the reference made by the Assessing Officer (' Ld. AO') to the Transfer Pricing Officer (' Ld. TPO') under section 92CA of the Act suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the order passed based on which, the conclusion that it was "expedient and necessary" to refer the matter to the Ld. TPO for computation of arm's length price ("ALP") was reached, as is required under section 92CA (1) of the Act.
The Ld. C!T(A) / Ld. TPO erred on facts and circumstances of the case in determining the arm's length price adjustment to the Appellant's international transactions related to purchase of certain fixed assets by disallowing mark-up of 5% charged by the Associated Enterprises ("AEs").
That on the fact and in the circumstances of the case and in law, the Ld. C!T(A) / Ld. TPO erred in disallowing mark-up for assets ("smoked meter" and "heating channel") purchased by Appellant for which the additional evidences were filed before the C!T(A);
That on the facts and in the circumstances of the case and in law, the Ld. C!T(A) further disregarded rectification application filed in respect of purchase of certain fixed assets "smoked meter" and "heating channel" purchased by AVL Technical.
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That on the facts and circumstances of the case and in law, the Ld. C!T(A) / Ld. TPO erred in rejecting the Transactional Net Margin Method (TNMM'), wherein closely linked transactions were benchmarked together and instead segregating the closely linked transaction of import of fixed assets, for the purpose of benchmarking.
That on the facts and circumstances of the case and in law, the Ld. AO / Ld. TPO has erred in initiating penalty proceedings under section 271(l)(c) of the Act
mechanically and without recording any adequate satisfaction for such initiation.
The Ld. Assessing Officer has gravely erred on facts and circumstances of the case and in law in charging interest under section 234B and 234C of the Act.”
Brief facts of the case are that, the assessee who was engaged in the
business of providing broad range of design Powertra in development and
testing services to it’s AE’s and non AE’s as well. The matter was referred to
TPO for the subject year wherein all the International transactions were
accepted to be Arm’s Length except the transaction of purchase of fixed assets.
The assessee had purchased fixed assets amounting to Rs. 6,54,03,283/- in
the year under consideration from its Associate Enterprises to carry out its
business operation in India. The same was bench marked in the TP Study by
aggregating other intentional transactions using TNMM as MAM. The said
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fixed assets were manufactured by the A.E in-house and was purchased by the
assessee at manufacturing cost plus 5% mark up. The TPO bench marked the
said transaction of purchase of fixed assets separately wherein Arm’ s Length
Price fixed assets were considered as manufacturing cost and mark up
changed by A.E on fixed assets was disallowed. The said mark up amounting
to Rs. 32,70,164/- was therefore, adjustment determined u/s 92CA of the Act.
In the draft orders along with the TP addition, proposed to disallow Staff
Welfare Expenses amounting to Rs. 1,21,599/- being 5% of 24,31,798/- on ad-
hoc basis. The final assessment order came to be passed on 28/03/2016 by
A.O by assessing the income of the assessee as under:-
Returned Income Rs. 17,960/- Add: Adjustment u/s 92CA, on account of purchase of FA Rs.32,70,164/- Add: Disallowance of staff welfare expenses Rs.1,21,590/- Assessed Income Rs.34,09,710
Aggrieved by the final assessment order dated 28/03/2016, the assessee
preferred an appeal before the CIT(A) and the CIT(A) vide order dated
22/03/2018, accepted the internal CUP Method and accepted the purchase of
fixed assets to be ALP accept ‘Smoke Meter’ and ‘Heating Channel’. The CIT(A)
also deleted the addition with respect to Staff Welfare Expenses. The assessee
had filed an application for rectification contending that the TPO has not taken
cognizance of the invoices and has misled by invoice dated 09/03/2011. The
CIT(A) has disposed off the rectification application stating that the TPO’s
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finding in this regard were final and CIT(A) cannot rectify the same as error
apparent from the record. The assessee aggrieved by the order of the CIT(A)
dated 22/03/2018 has preferred the present appeal on the grounds mentioned
above. The Ld. Counsel for the assessee submitted that the Ground No. 1 is
general in nature and the same is not been pressed.
Ground No. 2 & 3 of the Assessee’s Appeal is regarding TP Adjustment
being disallowed of 5% marked up in relation to purchase of certain fixed
assets (i.e. Smoke Meter and Heating Channel) and a non consideration of
evidence in respect of the same. The Ld. counsel for the assessee submitted
that the CIT (A) has relied upon the remand report of the TPO without
appreciating that TPO therein in relation to ‘Smoke Meter and Heating
Channel’, looked only at A.E and the third party invoice for Financial Year
2010-11 and over looked the A.E. and the third party invoice for impugned
Financial Year 2011-12. Further submitted that the TPO/CIT(A) did not refer
to invoice No. 3011101638 dated 3rd November, 2011, wherein the aforesaid
assets were sold by AVL List GmBG to 3rd party customer (invoice to Ashok
Leyland Ltd) Financial Year 2011-12. The Ld. Counsel had also enclosed
Invoice No. 3011101638 dated 3rd November, 2011, wherein the aforesaid
assets were sold by AVL List GmBG to third party customer (invoiced to Ashok
Leyland Ltd.) during the Financial Year 2011-12. The assessee had further
enclosed Invoice No. 3081120881 dated November, 10th 2011, wherein the
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aforesaid assets were sold by AVL List GmbH to the assessee during Financial
Year 2011-12. The comparison of price charged to the assessee vis-à-vis third
parties are given as under for ready reference:-
S. No. Product Description Price charged to Price charged to assessee third party (Euro/Unit) (Euro/unit) 1 Smoke Meter 415S G002 2,565.19 8454.34 2 Heating 1 Channel 230V 347.22 1.295.53
By considering the above price comparison, the assessee submitted that
price paid by the assessee proves the veracity of Arm’s Length Price and further
submitted that the aforesaid invoice were duly submitted to the CIT(A) vide
Application dated 05/12/2018 as additional evidence. The remand report was
also asked from the TPO, but the CIT(A) erred in not accepting the same bench
marking approach of internal CUP as accepted for other assets. The Ld.
Counsel for the assessee has also submitted that in Assessee’s own case for
Assessment Year 2011-12, the Revenue Authorities have accepted the
purchase of all fixed assets including heating channel and in Assessment Year
2011-12 CIT(A)/TPO accepted the purchase of all fixed assets including both
‘heating channel’ and ‘smoke meter’ at to be ALP. Thus submitted that the
present appeal is deserves to be allowed.
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On the other hand, the Ld. DR submitted that it is the specific case of
the assessee is that the invoices produced by the assessee has not been
considered in right perspective, therefore the matter may be remanded to the
file of A.O. to verify the details.
We have heard the parties perused the material available on record and
gave our thoughtful consideration. It is the specific case of the assessee is that
the CIT(A) has relied on the remand report of the TPO without appreciating that
TPO in relation to ‘smoke meter’ and ‘heating channel’ looked only at A.E and
third party invoice A.O for Financial Year 2010-11 and over looked the A.E and
third party invoice for impugned Financial Year 2011-12 and did not refer to
Invoice No. 3011101638 dated 03/11/2021 wherein the aforesaid asset were
sold by AVL List GmPG to third party customer. Therefore, in our considered
opinion, if the matter is remanded to the file of A.O to consider the A.E and
third party invoice for the Financial Year 2011-12, Invoice No. 3011101638
dated 03/11/2011 and other details submitted by the assessee and decide the
said issue afresh, the substantial justice would be rendered. Accordingly, we
allow the Grounds of Appeal for statistical purpose with a direction to the A.O.
for de-novo consideration for the issue by considering all the invoices and
details submitted by the assessee in the right perspective and pass order in
accordance with law.
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In the result, the Appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on : 13/03/2023.
Sd/- Sd/- ( ANIL CHATURVEDI ) (YOGESH KUMAR US) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 13/03/2023
*MEHTA/R.N, Sr. PS*