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Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE
Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY
This appeal by the assessee is directed against the final assessment order dated 30-10-2018 passed by the Assessing Officer (AO) u/s. 143(3) r.w.s. 144C of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2014-15.
MAN Energy Solutions India Pvt. Ltd.,
Briefly stated, the facts of the case are that the assessee, an Indian company, is a subsidiary of MAN Diesel and Turbo SE, Germany. It is engaged in the business of manufacture of Diesel engines, trading of Diesel engine spares and Design and Engineering for Diesel services for Diesel engines in Domestic and Export markets. The assessee filed its return declaring total income of Rs.49,04,80,300/-. Certain international transactions were reported in Form No.3CEB. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of the international transactions. In the instant appeal, we are concerned only with the international transaction of `Export of Diesel engines’ with transacted value of Rs.22,85,45,158/-.
The assessee initially aggregated its international transactions and applied the Transactional Net Marginal Method (TNMM) as the most appropriate method on a consolidated basis. The TPO, however, segregated the transactions and took up the `Manufacturing segment’ separately, in respect of which the instant issue has arisen. For the purpose of benchmarking the international transaction under the `Manufacturing segment’, the TPO treated only two companies as comparables, namely,
MAN Energy Solutions India Pvt. Ltd., Kirloskar Oil Engines Ltd. (KOIL) and Greaves Cotton Ltd. with their average Profit Level Indicator (PLI) of OP/Sales at 8.13%.
Operating revenue of the assessee under the `Manufacturing segment’ was taken at Rs.23,00,67,334/-. By applying 8.13% as the arm’s length margin against the assessee’s PLI of (-) 7.44%, the TPO proposed transfer pricing adjustment of Rs.1.87 crore.
The assessee approached the Dispute Resolution Panel (DRP) requesting for exclusion of KOIL and Greaves Cotton Ltd. and inclusion of UMS Technologies Ltd. (Engine segment). The DRP upheld the contention of the assessee on inclusion of UMS Technologies Ltd. (Engine segment) with profit rate of 1.47%, but jettisoned the other objection for inclusion of KOIL and Greaves Cotton Ltd. The AO passed the final assessment order giving effect to the directions of the DRP and made a transfer pricing addition of Rs.1,61,65,669/-. Aggrieved thereby, the assessee is in appeal before the Tribunal.
We have heard the rival submissions and gone through the relevant material on record. At the outset, it is recorded that the assessee did not dispute the segregation of the international transactions by the TPO as against the assessee’s aggregate
MAN Energy Solutions India Pvt. Ltd., approach. The assessee is agitating only the inclusion of KOIL and Greaves Cotton Ltd. in the list of comparables of its `Manufacturing segment’. We have gone through the amount of turnover registered by these companies at Rs.2320.00 crore and Rs.1718.91 crore respectively. As against this, the turnover of the assessee under this segment is only Rs.23 crore. Here, it is pertinent to mention that the DRP directed to exclude these two companies in its directions for the A.Ys. 2012-13 and 2013-14 on the raison d`etre of high turnover vis-à-vis the assessee. However, despite high turnover again in this year like preceding years, the DRP did not accept the assessee’s contention for their exclusion on the solitary ground that the assessee did not apply any turnover filter for the year in question notwithstanding the fact that their exclusion was in challenge before it. If a company has registered turnover at several times higher than that of the assessee, as it is more than 100 times in the case of KOIL and 75 times in the case of Greaves Cotton Ltd., the same cannot be considered as comparable. The Hon’ble jurisdictional High Court in CIT Vs. Pentair Water India Pvt. Ltd. (2016) 381 ITR 216 (Bom) has upheld the view of the Tribunal in excluding companies on the MAN Energy Solutions India Pvt. Ltd., basis of high turnover. Once the Hon’ble jurisdictional high Court has countenanced the exclusion of companies on the basis of high turnover, the same cannot be ignored by the DRP on the premise that the assessee did not adopt the turnover filter in its Transfer Pricing study report ignoring the crucial fact that the assessee prayed for their exclusion before it only on the ground of high turnover. In view of the fact that these two companies, namely, KOIL and Greaves Cotton Ltd. have turnovers several times more than that of the assessee, respectfully following the precedent in Pentair Water India Pvt. Ltd. (supra), we order to exclude them from the list of comparables.
Once these two companies are excluded as were the sole companies considered by the TPO as comparable, the only company which stands in the list of comparables is UMS Technologies Ltd. (Engine Segment) as was directed to be included by the DRP. We, therefore, set aside the impugned order and direct the AO/TPO to re-determine the ALP of the `Manufacturing segment’ afresh by considering UMS Technologies Ltd. (Engine segment) as the only comparable.
MAN Energy Solutions India Pvt. Ltd., Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh determination.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the Open Court on 05th March, 2020.
Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 05th March, 2020 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2.
3. The CIT(A)-13, Pune 4. The Pr. CIT -5, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “सी” / DR ‘C’, ITAT, Pune गाड� फाईल / Guard file 6. आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
MAN Energy Solutions India Pvt. Ltd.,
Date 1. Draft dictated on 04-03-2020 Sr.PS 2. Draft placed before author 04-03-2020 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *