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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM
This appeal is filed by the CNH Industrial Pvt. Ltd. (The assessee/appellant) for assessment year 2018- 19 against the assessment order passed by the Assistant Commissioner Of Income-Tax Central Circle 6(3), Mumbai (The AO) dated 27.06.2022 wherein the total income of the assessee is determined at 253,11,19,599/- as per the normal computation of normal income whereas the return of income filed by the assessee on 30.11.2018 was of Rs 191,96,80,300/-
The Assessee is aggrieved and has raised the following 9 Grounds of appeal as under:
1. On the facts and in law, the Ld. AO has erred in: Assessing the total income of the Appellant at Rs. 2,53,11,19,599 as against the returned income of Rs. 1,91,96,80,300 under the normal provisions of the Act Levying income tax including interest under Section 234B of the Act and raising a net demand payable of Rs. 18,09,08,820 upon the Appellant.
II. Transfer Pricing Grounds- Adjustment in relation to export of tractors and parts to its AES, amounting to Rs. 34,33,55,268; 2. On the facts and in the circumstances of the case and in law, the Ld. TPO/AO erred, and Hon'ble DRP further erred in confirming the action of the Ld. TPO/ AO in making the addition Rs. 34,33,55,268 under Section 92CA(3) of the Act to the international transaction of 'Export of tractors and parts'.
3. Erroneous rejection and selection of comparable companies 3.1 On facts and in the circumstances of the case and in law, the Ld. TPO/AO, and the Hon'ble DRP further erred in rejecting ‘Action Construction Equipment Limited’ selected by the Appellant in the TP documentation, and in doing so, further erred in:
-violating the provisions of Rule 10B(2) of the Rules by rejecting Action Construction Equipment Limited without considering its functional comparability 3.2 On facts and in the circumstances of the case and in law, the Ld. TPO AO erred, and the Hon'ble DRP further erred in upholding the action of the TPO/AO of arbitrarily introducing new companies, namely, 'Indo Farm Equipment Limited" and "TAFE Motors and Tractors Limited' by relying upon previous year Le. AY 2017-18, and in doing so, further erred in: -not conducting a methodical search as required in accordance with Rules 10B and Rule 10C of the Rules, thereby resorting to cherry-picking of comparable companies. -violating the provisions of Rule 10B(2) by introducing new companies as comparable to the Appellant without establishing their functional comparability.
Erroneous application of turnover filter and consequent rejection of functionally comparable companies selected by Appellant in its TP study 4.1 On facts, and in the circumstances of the case, and in law, the Ld. TPO/AO erred, and the Hon'ble DRP further erred in upholding/confirming the action of the Ld. TPO/ AO in applying the additional turnover filter of 10 times upper and lower on Appellant's turnover, and in doing so, has grossly erred in:
-rejecting companies namely, ‘Standard Corporation India Limited' and 'Swaraj Limited', that are functionally comparable to the Appellant -not the fact that the industry in which the Appellant operates has few comparable companies and application of additional filter would further reduce the set. thus, giving distorted outcome.
Erred in treating foreign exchange gain as non- operating in nature 5.1 On the facts, and in the circumstances of the case, and in law, the Ld. TPO/AO erred, and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO AO considering foreign exchange gain as non-operating and whereas there is no change in facts of the Appellant as compared to AY 2009-10, wherein the Hon. ITAT in Appellant's own case had accepted foreign exchange gain as operating in nature. 5.2 On the facts, and in the circumstances of the case, the Ld. TPO erred in not providing an opportunity of being heard (no show-cause notice was issued) in respect of treating foreign exchange gain as non-operating in nature, thereby, violating the principles of natural justice III. Corporate Tax Grounds
Disallowance of Rs. 2,28,85,300 under section 14A of the Act 6.1 On the facts and in the circumstances of the case and in law, the Ld. AO has erred in disallowing Rs. 2,28,85.300 under section 14A of the Act r.w Rule SD of the Income Tax Rules, 1962 ("the Rules') even though the Appellant has not earned/accrued any exempt income during the year under appeal.
Denial of Rs. 24.51,98,731 as deduction under section 35(2AB) of the Act 7.1 On the facts and in the circumstances of the case and in law, the Ld. AO has erred in denying weighted deduction of Rs. 24.51,98,731 under section 35(2AB) of the Act in the absence of Form 3CL, approval from the Department of Scientific and Industrial Research ('DSIR"). 7.2 The Ld, AO has failed to appreciate the fact that once R & D facility has been approved by DSIR and there being no dispute to the fact that Appellant has incurred the expenditure towards R&D activities, the Appellant is eligible to claim deduction under 35(2AB) of the Act 7.3 The Ld. AO has further erred by not appreciating the fact that DSIR is not the appropriate authority to quantify the eligible expenditure and therefore, non-issuance of Form 3CL by DSIR should not have a bearing on the Appellant's claim of weighted deduction which otherwise is allowable under the Act IV. Consequential Grounds
Initiating Penalty under section 270A of the Act 9.1 On the facts and in the circumstance of the case and in law, the Ld. AO has grossly erred in initiating penalty proceedings for under and misreporting of income under section 270A of the Act, mechanically and without recording any satisfaction for its initiation. 9.2 The Ld. AO has failed to appreciate the fact that the addition/ disallowance made in the assessment order does not represent any "under reporting' or 'misreporting' but is a mere difference in view.
Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays that directions be given to grant all such relief arising from the above and also all relief consequential thereto. The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.
Brief facts of the case are that the assessee is engaged in the business of manufacturing and trading of Agricultural Equipments and Components.
Ground number one raised by the assessee is general in nature and therefore it is dismissed.
Ground number eight is against the levy of interest under section 234B of the act, which is consequential in nature, and therefore it is dismissed. 17. Ground number nine of the appeal is against initiation of penalty proceedings under section 270A of the act which is premature therefore same is dismissed 18. Ground no 5 whether the foreign exchange gain is consider as operating or non operating income, the co-ordinate bench in assessee’s own case for assessment year 2009-10 as held that forex gain is operating in nature. In view of this ground no 5 of the appeal, respectfully following the decision of co- ordinate bench, in assesse’s own case, is allowed. 19. Ground no. 6 is with respect to disallowance u/s 14A of the Act made of Rs 2,22,85,300/-. The facts clearly show that assessee has not earned any exempt income during the year. Therefore, no disallowance under section 14 A of the act read with rule 8D can be made. Further amendment made by The Finance Act, 2022 to section 14A with effect
For selecting these comparables the assessee applied turn over filter of INR 1 crore. The TPO held that assessee should have applied turnover filter 10 times
The Ld. Authorized Representative has not pressed the ground against introduction of two comparables by the Ld. TPO namely Indo Farm Equipment and T A F E Motors. Therefore, ground no. 3.2 is not pressed hence dismissed.
Ground no. 3.1 is against the exclusion of Action Construction Equipment Ltd. selected by the assessee and rejected by the TPO, DRP. It is apparently that above comparable companies passes turn over filter applied by the assessee as well as by the Ld TPO. The turnover of this company is Rs. 1040 Crore. The Ld. TPO has not given any reason for exclusion of the above comparable. In order u/s 92CA (3) of the Act for assessment year 2016-17 this comparable company was selected by assessee and accepted by the TPO. No evidences were led before us that this company is functionally different or the facts prevailing in that year is not comparable with this year. For this reason only ground no 3.1 of the appeal is allowed and Ld. AO, TPO directed to include Action Construction Ltd in comparable analysis. 24. Accordingly ground number 3 of the appeal is partly allowed.
Order pronounced in the open court on 15.05.2023.