KABELSCHLEPP INDIA PRIVATE LIMIED,BANGALORE vs. DEPUTY COMMISSIONER INCOME TAX, CIRCLE-4(3)(1), BANGALORE

IT(TP)A No. 1577/Bangalore/2024 is filed by Kabelschlepp India Pvt. Ltd., (the assessee/appellant) for Assessment Year 2020 – 21 against the Assessment Order passed under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (The Act), dated 25/06/2024, by the Assessment Unit (the learned Assessing Officer) which was passed in pursuance to the Order by the learned Transfer Pricing Officer (learned TPO) – 2(1)(1), Bangalore, dated 23.06.2023 and Draft Assessment Order dated 15.09.2023 on which direction of the learned Dispute Resolution Panel (learned DRP), Bangalore, dated 28.05.2024, were incorporated and total income of the assessee was assessed at Rs.17,5,97,220/- against the return of income filed of Rs.47,32,130/- which was determined as per intimation under section 143(1)

Based on this, the Draft Assessment Order under section 144C(1) of the Act was passed on 15.09.2023 which was objected to before the learned DRP.

Based on this, the learned AO passed Assessment Order under section 143(3) r.w.s. 144C(13) and 144B of the Act dated 25.06.2024 determining the total income of the assessee at Rs.1,75,97,220/-.

The assessee has raised 12 grounds of appeal. Ground No.1 and ground no. 12 were not pressed being general and consequential in nature.

Ground No.2 and ground No.10 are with respect to the TP adjustment. The assessee has argued only on the characterization of the business profile of the assessee and submits that comparable which are not matching with the business profile of the assessee were selected by assessee as well as ld. TPO.

The learned AR submitted that factually it is correct that in the TPSR, the functional profile of the assessee was taken as a manufacturer of cables and based on that, search was made on the data base considering it as a manufacturer of cable. The assessee has submitted a fresh TP analysis before the learned DRP wherein it was submitted that assessee is engaged in the manufacture of telescopic covers for guideway protection, solution for machines, etc. Assessee has both trading and manufacturing i.e., assembly activities. Since the trading and manufacturing activities are different, margin for the two units was computed separately. The comparability analysis was also conducted after selecting the functional profile of assessee as cable carriers. This time, in the separate analysis before the learned DRP, assessee selected CUP method as the MAM for manufacturing activities and Resale Price Method (RPM) for trading activities. The learned DRP rejected the same. It was further submitted that in the subsequent Assessment Year, revised TP analysis submitted before the learned DRP on similar lines, TPSR was submitted. In that subsequent year, the functional profile of the assessee was accepted as manufacturer of telescopic covers and trading of cable carriers. For that Assessment Year, the CUP method was accepted as MAM for manufacturing activity by both assessee and TPO. However, with respect to the trading of cable carriers, assessee adopted RPM as the MAM, but the Page 5 of 8 learned TPO adopted TNMM as the MAM. He therefore submitted that for this year, admittedly, the TPSR and TPO’s Order are both based on incorrect characterization of business of the assessee. In nutshell, his argument was that assessee is a trader in cable carrier but is considered as a manufacturer in trading of cables.

He further referred to the fact that same TP analysis which was not admitted and accepted by the learned DRP is submitted before the co-ordinate Bench along with the affidavit from the Director of the assessee. He extensively submitted judicial precedence to show that when the TPSR and Order of learned TPO are on incorrect characterization of the assessee, the whole issue deserves to be set aside to the file of the learned AO/TPO to recompute the ALP more so for the reason that in subsequent years, the correct characterization made in the TPSR is accepted by the learned AO/TPO.

The learned DR vehemently submitted that assessee has himself classified it as a cable manufacturer and trader in cable, now submitting the same TPSR, the assessee also submitted before the TPO the same classification. Therefore, the learned DRP is correct in rejecting the stand of the assessee as it was constantly changing. She submitted that there is no infirmity in the Orders of the lower authorities.

We have carefully considered the rival contentions and perused the Orders of the lower authorities. Undoubtedly, in the TPSR, the assessee has considered the comparability analysis of trading activity of cable carriers selecting 4 cable manufacturers. Further, in the TPSR, the profile of the taxpayer clearly shows that assessee is engaged in manufacturing and trading of cable carriers, chain-suitable cables, conveyers, etc., along with its spares and accessories. It is also stated that assessee is an Indian subsidiary of German company. Indian company is a pioneer in cable carriers used in heavy industry. It Page 6 of 8 imports the cable carriers of various dimensions in SKD condition. Thus, the assessee itself has compared its margin with 4 comparable companies which are in fact cable manufacturers and not at all any way related to the business of cable carriers. . The comparable companies selected are LS Cables India Pvt. Ltd., Relicab Cable Manufacturing Ltd., Oswal Cables Pvt. Ltd., and Dynamic Cables Ltd. Therefore, the TPSR prepared by the assessee was also on incorrect characterization of business profile of the assessee. It is not a case of recharacterization or incorrect characterization of the functions but the business profile of the assessee itself is vitiated in the TPSR. Subsequently, the learned TPO though rejected the TPSR, carried out a fresh search in data base but has mentioned it as a capital line data base [ in fact search by TPO was on prowess database] putting the key word “cables”, selected 849 companies. The comparability study was restricted to 10 comparable after applying several filters but the learned TPO also did not carefully look at the TPSR that assessee is not engaged in business of manufacturing of cable but importer of cable carriers in SKD condition. He also made the same error which was made by the assessee of selecting comparable which are engaged in the business of cable manufacturing and not cable carriers. It is also evident that for Assessment Year 2021-22, in subsequent year, assessee and learned TPO both corrected themselves on the business profile of the assessee as well as the functional profile. The TPSR was prepared on function of trading cable carriers and held that he was also determined by the learned TPO on the basis of same profile. It is not in dispute before us that assessee is not engaged in the business of manufacturing of cable. Undisputed fact shows that assessee has imported the cable carriers in SKD condition from its associated enterprise. Thus, the business of the assessee is importing cable carriers in SKD conditions and then selling those cable carriers to its Indian customers. Therefore, a TP analysis by assessee as well as TPO both are faulty.

The decision of the Hon’ble Special Bench also binds us, and we are also required to determine the ALP of the transaction at this stage also. However, as the basic information concerning this year is not available and the revised TP analysis made by the assessee is not available before learned TPO, in the interest of justice and at the request of the parties, we restore this issue back to the file of learned AP/TPO. The assessee is directed to submit the revised TP analysis before the TPO. The learned TPO may examine the same and then determine the ALP of the international transaction.

In the result, ground Nos.2 to 10 of the appeal are restored back to the file of the learned TPO.

At the time of computation of the ALP for this year, the TP Order for Assessment Year 2021-22 may also be examined for determining the correct business profile of the assessee.

As per ground No.11, the assessee has challenged that the income is computed as per intimation under section 143(1) of the Act at Rs.58,85,470/-. However, the AO has not provided any such intimation to the said adjustment. The AO is directed to intimate the assessee on which date the intimation under section 143(1) of the Act was served on the assessee. In view of this, ground No.11 of the appeal is also restored to the file of the AO.

In the result, appeal of the assessee is partly allowed for statistical purposes.