M/S TEXTRON INDIA PRIVATE LIMITED,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(1)(1), BANGALORE

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ITA 2972/BANG/2018Status: DisposedITAT Bangalore09 December 2020AY 2014-155 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that for the sale of purely traded goods, the RPM method is the most appropriate method if no value addition has occurred. The issue was remitted to the Assessing Officer/TPO to apply RPM to the sale of traded goods after the assessee provides segmented details.

What were the facts?

The assessee's appeal concerned transfer pricing adjustments. The assessee withdrew grounds related to US entities due to a Mutual Agreement Procedure (MAP) resolution. An additional ground regarding the rejection of the Resale Price Method (RPM) for benchmarking traded goods was admitted.

What were the issues?

Whether RPM is the most appropriate method for benchmarking the distribution of traded goods when the assessee also engages in manufacturing. The applicability of RPM versus TNMM for traded goods.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13)

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Income Tax Appellate Tribunal, BANGALORE “ B ” BENCH: BANGALORE

Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI

For Appellant: Shri Sumeet Khurana, C.A
For Respondent: Shri G. Guruswamy, CIT (D.R)
Hearing: 09.12.2020

O R D E R PER SHRI CHANDRA POOJARI, A.M. : This appeal filed by the assessee is directed against the order of Assessing Officer dt.03.09.2018 for the Assessment Year 2014-15 passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ('the Act').

2 IT(TP)A No.2972/Bang/2018 2. The assessee has raised various grounds with regard to Transfer Pricing. However, the grounds relating to Transfer Pricing were not pressed by the assessee and accordingly the assessee filed a letter dt.4.12.2019 bearing NO.TIPL/Gen/2019-20/08-09 wherein it was stated that the assessee had filed a Mutual Agreement Procedure (MAP) Application with the competent authority of US and India. The assessee has received MAP Resolution letter F.No.480/4/20129-APA-1 dt.4.10.2019 from ACIT, Circle 7(1)(1), Bangalore. It was submitted by the assessee that the aforesaid letter was issued pursuant to giving effect to the MAP Resolution wherein adjustments were made to US related transactions for Software Development Services. The company was requested to give its acceptance / rejection to the Resolution taken under MAP and withdraw its appeal in relation to TP grounds for US entities consequent to MAP Resolution and acceptance. In view of the above submissions of the A.R., we are inclined to allow withdrawal of TP grounds in relation to US entities and dismiss these grounds as withdrawn.

3.

Further the assessee filed additional grounds as follows :

“ That the learned Transfer Pricing Officer, the ld. DCIT, Circle 7(1)(1), Bangalore and the Dispute Resolution Panel has erred on rejecting Resale Price Method (RPM) as the Most Appropriate Method for bench marking the distribution of traded goods and considering Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM).”

3 IT(TP)A No.2972/Bang/2018 4. The learned Authorised Representative submitted that the additional ground arise out of the order of Dispute Resolution Panel (DRP) and there was a ground on this issue before the DRP as Objection No.2.5 and this was discussed by the DRP in its order in paras 4.1 to 4.5 on page Nos.13 to 15 and there is no necessity of investigation of facts on this issue and this being emanated from the said order and inadvertently the assessee failed to raise this ground on an earlier occasion before this Tribunal and the same may be admitted. On the other hand, the ld. DR has no serious objection in admitting the additional ground.

5.

We have heard both the parties on admission of the additional ground. In view of the judgement of the Hon'ble Supreme Court in the case of NTPC Ltd. Vs. CIT 229 ITR 383 (SC), we are inclined to admit the additional ground for adjudication.

6.

The facts relating to this additional ground are that the in the distribution segment, the assessee has taken Resale Price Method (RPM) to anlayse the segment. According to Transfer Pricing Officer (TPO), RPM method can be used only for pure traders who do not do any local value addition. The TPO made observation that the assessee has declared sale of manufacture of goods at Rs.83,35,010 and sale of traded goods of Rs.1,73,77,415. Further the assessee has also paid Central Excise Duty on manufacturing. It was observed by the TPO that in the distribution segment, the company does assembling of battery operated

4 IT(TP)A No.2972/Bang/2018 hydraulic crimping tools. There are four sub-assemblies, namely head assembly pump housing assembly, case assembly, and packing assembly. There are 20 to 30 components assembled in pump housing assembly. They have to then assemble this with battery. They also do assembling of cutting tools. Each assembly consists of putting 20-30 components. Accordingly, the TPO rejected RPM method to determine the Arm’s Length Price (ALP) and followed TNMM method. Now the contention of the ld. AR is that the RPM method is most suitable method to determine the ALP of the transaction. He submitted that he could give segmental details of the traded goods and in respect of traded goods RPM method is being applied. On the other hand, the ld. DR submitted that before the Assessing Officer/TPO segmental details are not made available as such the DRP observed that no improvisation as to which form the product was imported, whether in raw form, semi assembled form, fully assembled form, etc was made available. Being so, in the absence of factual information, the RPM method cannot be applied.

7.

We have heard both the parties and perused the material on record. In this case, the TPO himself has recorded that the assessee manufactured goods at Rs.83,35,010 and traded goods of Rs.1,73,77,415. However he clubbed the entire turnover and applied TNMM method to determine the ALP. In our opinion, with regard to sale of traded goods, it is appropriate to apply the RPM method if there was no value added to the traded goods. In case pure sale of traded goods, RPM

5 IT(TP)A No.2972/Bang/2018 method is Most Appropriate Method and it does not involve any manufacturing activity. Accordingly, we remit this issue to the file of Assessing Officer/TPO with direction to the assessee to furnish the segmented details of sale of traded goods and then the Assessing Officer/TPO shall apply RPM method in respect of sale of traded goods. This additional ground is partly allowed for statistical purposes.

8.

In the result, the assessee's appeal is partly allowed for statistical purposes. Pronounced in the open court on the date mentioned on the caption page.

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