BOCK COMPRESSORS INDIA PRIVATE,BENGALURU vs. THE DY. CIT, CIRCLE - 1(1)(1), VADODARA

The assessee company is engaged into the wholesale and retail trade, retail sale of other products. The assessee company filed his return of income for assessment year 2020-21 on 10-02- 2021 declaring total income at Rs. _(2,77,94,663/-). The case of the assessee was selected under CASS. The assessment u/s. 143(3) of the Income Tax Act, 1961 on the reason that international transaction of the creditors/liabilities, losses as per return of income filed. A reference u/s. 92CA(1) was made to the TPO. The TPO vide order dated 16-06-2023 u/s. 92CA(3) of the Act recommended to enhance the income of the assessee company by Rs. 4,59,51,095/- and Rs. 10,01,946/- being cumulative adjustment on account of sale of goods and mark up respectively. The Assessing Officer passed draft assessment order vide order dated 21-09-2023. The assessee being aggrieved by the draft assessment order dated 21-09-2023 filed objection before DRP. The DRP vide order dated 24-05-2024 deleted the adjustment of Rs. 10,01,946/- being 5% mark up on the management services appeared from the associated concern of the assessee, the adjustment made by the TPO. The TPO passed the necessary order giving effect to the directions of DRP vide order dated 06-06-2024. Consequently to the directions of the Bock Compressors India Pvt. Ltd., A.Y. 2020-21 DRP, the Assessing Officer made addition of Rs. 4,59,51,095/- on account of sale of goods as discussed in the draft assessment order to the income of the assessee for assessment year under consideration.

Being aggrieved by the assessment order, the assessee filed appeal before us.

The Ld. A.R. submitted that the Assessing Officer on suo moto basis has rectified the assessment order u/s. 154 thereby giving effect to the directions of the DRP and the assessment order passed dated 27-06-2024. The assessee filed rectification application dated 19-07-2024 wherein the assessee requested that while issuing the demand notice u/s. 156 of the Act and computation sheet for such payment, the Assessing Officer erroneously taken adjustment amount of Rs. 4,59,51,095/- instead of Rs. 83,30,174/- as per order giving effect issued by the TPO dated 06-06-2024 pursuant to the directions of the DRP dated 24-05-2024. Thus, the assessee requested to rectify the mistake. The Assessing Officer vide order dated 22-11-2024 passed a rectification order u/s. 154 thereby revising TPO adjustment of Rs. 83,30,174/- instead of Rs. 4,59,51,095/- u/s. 154 of the Act . After making addition of Rs. 83,30,174/-, the current year loss of Rs. 1,94,64,689/- as required to carry forward for subsequent years. The Ld. A.R. further submitted that Section 154 of the Act is regarding rectification of mistake and the Assessing Officer has rectified the order thereby giving final effect of the DRP directions. The Assessing Officer on suo moto basis has rectified the assessment order u/s. 154 thereby giving effect to directions of the DRP. But as per the binding Section 144C(10), the Assessing Officer has to follow the Bock Compressors India Pvt. Ltd., A.Y. 2020-21 direction of the DRP. The Ld. A.R. relied upon the decisions of Delhi Tribunal in case of M/s. Global One India Pvt. Ltd. Vs. DCIT (ITA No. 1980/Del/2024 order dated 10-12-2019), Olympus Medical Systems (P) Pvt. Ltd. vs. ACIT (2022) 137 taxmann.com 306 (Delhi Tribunal), Tata Power Solar Systems Ltd. vs. DCIT (2023) 149 taxmann.com 294 (Bangalore-Trib), Toyota Tsusho India P. Ltd. vs. Joint/Deputy CIT SP No. 12/Bang/2022 & IT(TP)A No. 175/Bang/2022 order dated 09- 09-202.

The Ld. D.R. submitted that the rectification order was passed due to the assessee’s rectification application filed by the assessee on 19-07-2024 and therefore it is not a suo moto rectification which was ignoring the DRP directions. Therefore, the decisions relied upon by the assessee will not be applicable in the present scenario.

We have heard both the parties and perused all the relevant materials available on records. As regards the rectification order passed by the Assessing Officer, the assessee has filed the rectification application which cannot be held as suo moto rectification on the part of the revenue and therefore the decisions referred by the Ld. A.R. will not at all be applicable in the present case. Thus, the legal contention of the Ld. A.R. as per ground no. 6 is dismissed.

As regards the merits of the case, the Ld. A.R. submitted that the RPM method is not accepted by the TPO and the same should have been considered. The Ld. A.R. submitted that no further allocation of expenses, depreciation, advertisement travelling etc. for undertaking mere trading activity may be Bock Compressors India Pvt. Ltd., A.Y. 2020-21 warranted since no significant value added functions undertaken by the assessee under the arraignment of deeded international transaction. The TPO was not right in disregarding the ALP determined by the assessee and rejecting the methodical benchmarking analysis carried out by the assessee in its TPO study report using re-sale price method (RPM) in accordance with section 92C and section 92B of the Act read with rule 10B, 10C and 10D of the Income Tax Rules, 1962 without providing the cogent reason. The Ld. A.R. further submitted that the assessee has provided corroborative analysis wherein gross margin from sale of goods to parties covered under the provisions of deemed international transaction is more than gross carried down owned from parties. Thus, Ld. A.R. submitted that the TPO has not rightly rejected the RPM method. The Ld. D.R. relied upon the order of the DRP.

We have heard both the parties and perused all the relevant materials available on record. The DRP has considered the bench marking adopted by the assessee as well as by the TPO as transactions conducted by the assessee i.e. purchase as well as sales are contended and hence it does not fit into the ambit of RPM and consequently because various expanses were incurred by the assessee in India which adds significant value to the sales and hence gross margin analysis cannot be at all as it is not a case simple re-sale. This observation of the DRP is general in nature and in fact for the transactions related to purchase as well as sales the RPM method is the most appropriate method as demonstrated by the assessee as the assessee has demonstrated before the Assessing Officer that the sale of goods are at arms length price and since the transactions are so inter-linked and inter-connected that the deemed Bock Compressors India Pvt. Ltd., A.Y. 2020-21 international transaction of sale of goods have to be aggregated for the purpose of bench marking and thus the RPM is rightly selected method related to the transactions which are in the nature of trading for bench marking international transactions. Therefore, the TPO’s directions to that extent and the type of TNMM is not justifiable. Hence, the TPO is directed to consider the same and make the adjustment to that effect. Thus, ground no. 4 & 5 are partly allowed.

In the result, the appeal of the assessee is partly allowed.