BEKAERT INDUSTRIES PRIVATE LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, PUNE

PER R.S.SYAL, VP :

This batch of three appeals involves two cross appeals for the

assessment year 2010-11 and one appeal by the assessee for the

assessment year 2011-12. Since some common issues are raised in

these appeals, we are, therefore, proceeding to dispose them off by

this consolidated order for the sake of convenience.

A.Y. 2010-11 :

assessment order dated 27-02-2015 passed by the Assessing Officer

(AO) u/s.143(3) r.w.s.144C(13) of the Income-tax Act, 1961

(hereinafter called ‘the Act’) in relation to the assessment year

2010-11.

its return declaring loss of Rs.1,18,56,169/-. Certain international

transactions were reported in Form No.3CEB. The Assessing

3 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

Officer (AO) made a reference to the Transfer Pricing Officer

(TPO) for determining the Arm’s Length price (ALP) of the

international transactions. The TPO, in the international transaction

of Import of raw materials, did not accept the assessee’s contention

of adopting Foreign/Associated Enterprise as a tested party. He,

therefore, selected the assessee itself as tested party to find out

certain comparables on the basis of which a transfer pricing

adjustment was recommended. The assessee remained unsuccessful

before the Dispute Resolution Panel (DRP) except the direction to

restrict the amount of transfer pricing adjustment only to the

international transactions. The AO, pursuant to the order of the

TPO and the direction of the Dispute Resolution Panel (DRP),

made the transfer pricing addition of Rs.7,39,20,120/- in the

international transaction of Import of raw materials. The assessee is

aggrieved by the addition to this extent.

relevant material on record. The ld. AR has placed on record

international transaction wise chart showing the issues with his

comments. The first issue about taking the Foreign/Associated

Enterprise as a tested party was admitted to have been decided by

4 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

the Tribunal against the assessee in its order for the immediately

preceding assessment year, namely, 2009-10. A copy of such order

in ITA No.146/PUN/2014 dated 24-04-2019 has been placed on

record as per which such contention of the assessee for adopting

Foreign/ Associated Enterprise as a tested party has been jettisoned.

The ld. AR was fair enough to concede the position in this regard

and admitted that the facts and circumstances are similar. This issue

is, therefore, decided against the assessee.

income earned by the Associated Enterprises from supply of raw

materials was not pressed, which is dismissed as not pressed.

the TPO was also not pressed, which is again dismissed as not

pressed.

challenge to the adjustment on account of depreciation towards

difference in rates. The ld. AR submitted that similar issue also

came up before the Tribunal in its order for the assessment year

2009-10. By inviting our attention towards page 23 para 20 of the

order, the ld. AR submitted that the Tribunal has restored the matter

5 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

to the file of AO/TPO for allowing adjustment to the operating

margin of comparable companies if there is some difference in the

rates of depreciation charged by the assessee vis-à-vis the

comparable companies. In view of the reason that the facts and

circumstances on this issue are similar, we set-aside the impugned

order and remit the matter to the file of AO/TPO for deciding it in

conformity with the directions given by the Tribunal in its order for

the preceding year as referred to in para 20 of its order.

transfer pricing addition should be restricted only to the value of

international transactions and not all the transactions. This being a

legal issue does not require any separate examination of facts. We,

therefore, admit this additional ground in the hue of the judgment of

Hon’ble Supreme Court in National Thermal Power Company Ltd.

Vs. CIT (1998) 229 ITR 383 (SC).

restrict the transfer pricing adjustment only with reference to the

international transaction but the TPO failed to give effect to the

DRP’s direction in proper perspective while calculating transfer

pricing addition in the final assessment order. The Tribunal in its

6 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

order for the assessment year 2009-10 has also examined this issue

on page 23 para 23. Following the judgment of Hon'ble Bombay

High Court in CIT vs. Thyssen Krupp Industries India Private Ltd.

(2016) 381 ITR 413 (Bom), the Tribunal has directed that the

transfer pricing addition should be restricted to the transactions with

AEs and not the unrelated or non-AEs. Following the same view,

we allow this additional ground of appeal and direct the AO/TPO to

restrict the transfer pricing addition only qua the international

transactions and not the entity level transactions.

order pertaining to receipt of sales commission amounting to

Rs.67,08,036/- was not pressed by the ld. AR. The same is hereby

dismissed.

Rs.77,76,390/- made by the AO in the international transaction of

Provision of Design Engineering Services.

comparables and proposed the transfer pricing adjustment of

Rs.99,48,945/-. After giving effect to the direction given by the

7 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

DRP, the AO made transfer pricing addition of Rs.77,76,390/-,

against which the assessee has come up in appeal before the

Tribunal.

transfer pricing adjustment offered by the assessee at Rs.38.00 lakh

was ignored by the AO/TPO, who enhanced the income with the

amount of transfer pricing addition computed without giving effect

to such amount offered by the assessee.

of Rs.38.00 lakh in this international transaction and offered the

same in the computation of total income under point no.20.7. The

claim of the assessee before the Tribunal is that the authorities have

gone ahead with the transfer pricing addition as computed by them

without giving effect to the amount of income voluntarily offered by

the assessee. The AO/TPO is directed to verify the assessee’s

contention. In case the assessee offered the transfer pricing addition

of Rs.38.00 lakh which inadvertently went unnoticed, then relief to

this extent should be allowed. Needless to say, the assessee shall be

allowed a reasonable opportunity of hearing.

8 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

adopting certain additional quantitative/qualitative filters was not

pressed by the ld. AR, which is hereby dismissed.

assessee was also not pressed by the ld. AR, which is hereby

dismissed.

multiple year data were also not pressed by the ld. AR, which are

again dismissed.

international transaction is challenge to the inclusion of Coral Hub

Ltd. (earlier known as Vishal Information Technologies Ltd.).

or not, it is relevant to consider the nature of activity done by the

assessee in this international transaction. The authorities below

have referred to the Transfer Pricing study report for analyzing the

nature of functions, which is not disputed. We have also gone

through the relevant parts of the T.P. study report concerning this

9 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

international transaction. The relevant narration of functional profile

has been made in para 6.3 of the TP study report as per which the

assessee is engaged in the provision of Programme Logic Controller

(PLC) Automation Services and Field Service Engineering through

its Design Engineering Center in Pune. Under the heading

`Functions performed’, it has been mentioned that the basic

design/layouts of the machines and its components are

conceptualized by technical personnel based in the project and

design offices of the AE on the basis of the proposed plans of

various assemblies and sub-assemblies of the product being

developed. The design engineering function is undertaken by the

assessee once the Project managers of the AE finalize the plans and

scope of work for the execution of the project. Once the project

plan is finalized, the project manager of the relevant project

outsources/allocates part of the design development work to the

various offshore centers including the assessee. The work is

outsourced to India by coding the detailed instructions summary as

a particular task. The specified job is followed up, traced and

consolidated with the help of task number. The detailed instruction

summary sheet contains the specifications like the technologies for

the new design to be developed for the specified component,

10 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

procedure for the customers of the existing design of the

component, procedure for analyzing the proposed design etc. The

work carried on in India primarily relates to drafting/modeling of

designs. Thereafter, the processing of the job is done.

Information Technologies Ltd.) which was objected to by the

assessee on the ground that it was functionally different with the

different business model and different financial year. The TPO

rejected the assessee’s contention for its inclusion in the list of

comparables, which was echoed by the DRP.

on record, it is found as a preliminary point that Coral Hub Ltd. was

following June as the year ending as against the assessee following financial year, namely, year ending on 31st March. Thus, there is

basic difference in the year ending periods of the assessee and the

company. The Hon’ble Bombay High Court in CIT Vs. PTC

Software (2017) 395 ITR 176 (Bom.) has held that the companies

with different financial year endings cannot be considered as

comparable under Rule 10B(4). In addition, there are certain other

functional differences also between the assessee and Coral Hub Ltd.

11 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

Without delineating on the same, we order to exclude this company

on the first issue itself, namely, having different year ending vis-à-

vis the assessee. This company is, therefore, directed to be excluded

from the list of comparables.

matter to the file of AO/TPO for recomputing the ALP of the

international transactions of Import of raw materials and Provision

of Design Engineering Services in consonance with the discussion

made above. Needless to say, the assessee will be allowed

reasonable opportunity of hearing.

submitted at the outset that the tax effect in the appeal of the

Revenue is less than Rs.50.00 lakh. The CBDT vide

F.No.279/Misc/M-13/2018-ITJ dated 20-08-2019 has clarified that

the revised monetary limits so mentioned in Circular No.17/2019

are applicable to all pending appeals. Not only that, it has further

been directed to the competent authorities to withdraw all such

appeals on or before 31-10-2019. The ld. DR fairly conceded to the

same. We, therefore, dismiss the appeal filed by the Revenue as not

maintainable because of low tax effect.

12 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

statistical purposes and that of the Revenue is dismissed.

A.Y. 2011-12 :

pricing addition amounting to Rs.6,91,37,958/- made in the

international transaction of Import of raw materials.

as a tested party was conceded to be similar to the earlier years,

which has been decided by the Tribunal against the assessee in its

order for assessment year 2009-10. This ground is, therefore,

dismissed.

selected by the TPO and also that the adjustment cannot exceed the

income earned by the Associated Enterprise form such supply of

raw materials. These grounds are, therefore, dismissed as not

pressed.

adjustment. Here again, we find that similar issue has been decided

by the Tribunal in its order for the assessment year 2009-10 holding

13 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

that the depreciation amount should be considered as a part of

Operating Cost and that no adjustment can be granted on account of

different amounts of depreciation in the hands of assessee and

comparables. However, the Tribunal accepted the assessee’s

contention for granting adjustment in respect of different rates of

depreciation between the assessee and comparables. Following the

same view, we direct the AO to examine this issue. In case, there is

some difference in the rates of depreciation between the assessee

and comparables, then necessary adjustment should be allowed on

this count in the profit of comparables.

and the AO failing to provide details of computation without giving

effect to the directions of DRP were not pressed by the ld. AR. The

same, therefore, dismissed as not pressed.

restricting the transfer pricing addition only to the international

transactions and not the unrelated transactions or transactions with

non-AEs. Following the consistent view taken herein in the

immediately two preceding assessment years, we direct to restrict

14 ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

the amount of transfer pricing addition only in respect of

transactions with AEs and not with non-AEs.

purposes.

Order pronounced in the Open Court on 06th December, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 06th December, 2019 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-V, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “C” / DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA Nos.571, 541/PUN/2015 & ITA No.976/PUN/2016 Bekaert Industries Private Limited

Date 1. Draft dictated on 05-12-2019 Sr.PS 2. Draft placed before author 06-12-2019 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. *