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Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE
Before: SHRI S. S. GODARA & SHRI DR. DIPAK P. RIPOTE
ORDER
PER S. S. GODARA, JM:
This assessee’s appeal for assessment year 2017-18 arises against the National Faceless Assessment Centre, Delhi’s assessment dated 19.01.2022 framed in tune to the CIT (DRP-3), Mumbai-2’s directions dated 30.11.2021 involving Objection number & date 102200/2021-22 & 29.04.2021, in proceedings u/s 143(3) r.w.s. 144C(13) r.w.s. 144BB of the Income Tax Act, 1961; in short “the Act”. Heard both the parties. Case file perused.
The assessee raises the following substantive grounds in the instant appeal :- “Ground No. 1: General Ground On the facts and in the circumstances of the case, and in law, the National Faceless Assessment Centre, Delhi (‘NaFAC’) pursuant to the directions of the Learned Dispute Resolution Panel (‘Ld. DRP’), erred in making a Transfer Pricing (‘TP’) adjustment of INR 84,50,662 to the income of the Appellant, by holding that the Appellant’s international transaction of Sale of goods pertaining to the Manufacturing segment does not satisfy the arm’s length principle envisaged under the Income- tax Act, 1961 (‘the Act’). Ground No. 2: Erroneous rejection of TP documentation maintained by the Appellant pertaining to the Manufacturing segment On the facts and in the circumstances of the case, and in law, the Ld. DRP/Ld. TPO erred in rejecting the TP documentation maintained which was prepared by the Appellant in accordance with the manner contemplated under the relevant provisions of the Act and the Income Tax Rules, 1962 and has erroneously considered that Internal TNMM was used by the Appellant for determining the arm’s length price (‘ALP’) of Sale of goods pertaining to the Manufacturing segment. Ground No. 2.1- Erroneously conducting fresh search by adding/modifying the filters adopted by the Appellant On the facts and in the circumstances of the case and in law, the Ld. TPO erred in conducting a fresh search for comparable companies with respect to the international transaction of Sale of goods pertaining to the Manufacturing segment by adding/modifying the quantitative filters applied by the Appellant in the TP study report for FY 2016-17. Ground No. 2.2- Erroneously rejecting certain comparable companies selected by the Appellant On the facts and in the circumstances of the case and in law, the Ld. TPO erred in rejecting certain comparable companies selected by the Appellant in its TP study report for FY 2016-17 while benchmarking its international transaction of Sale of goods pertaining to the Manufacturing segment. Ground No. 3- Erroneously comparing the Appellant’s margin at entity level with that of the comparable companies On the facts and in the circumstances of the case and in law, the Ld. DRP/Ld. TPO erred in comparing the Appellant’s margin at entity level with that of the comparable companies’ margin. Ground No. 4- Erroneously rejecting the segmental profitability statement as submitted by the Appellant On the facts and in the circumstances of the case and in law, the Ld. DRP/Ld. TPO erred in rejecting the segmental profitability statement Appellant for determining the ALP of Sale of goods transaction pertaining to the Manufacturing segment. Ground No. 4- Erroneously considering certain items as non-operating in nature while computing the margin of the Appellant On the facts and in the circumstances of the case and in law, the Ld. DRP/Ld. TPO erred in considering foreign exchange earning/loss and provision for doubtful, debt/provisions written back as non-operating in nature. Ground No. 5- Erroneously considering income from provision of management support services in AE sales for computing the TP adjustment On the facts and in the circumstances of the case and in law, the Ld. DRP/Ld. TPO erred in including an income of INR 1,60,69,733 from provision of management support services while calculating the TP adjustment with respect to Sale of goods transaction pertaining to the Manufacturing segment. Ground No. 6- Erroneously rejecting Cost-Plus Method considered as the most appropriate method on a without prejudice basis On the facts and in the circumstances of the case and in law, the Ld. DRP/Ld. TPO erred in rejecting the corroborative analysis conducted by the Appellant on a without prejudice basis by considering Cost Plus Method (‘CPM’) as the most appropriate method. Ground No. 7- Erroneous initiation of penalty proceedings On the facts and in the circumstances of the case and in law, the Ld. AO erred in initiating the penalty proceedings under Section 274 r.w.s. 270 of the Act. In view of foregoing grounds of appeal
, the Appellant most humbly prays that the abovementioned TP adjustment ought to be deleted. The above grounds are independent of and without prejudice to each other. The Appellant craves leave to add, alter, amend, or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
3. Learned counsel does not press for the assessee’s ground nos.1, 2 and 7 being general in nature. Rejected accordingly.
4. Coming to the assessee’s third substantive ground, it emerges during the course of hearing that it’s sole endeavour is to get impugned arm’s length price re-computed at transaction than entity Chapter X of the Act. Mr. Bafna submitted during the course of hearing that the issue as to whether the impugned arm’s length price ought to be computed at transaction level or at entity level is not more res-integra in light of hon’ble jurisdictional high court’s decision in CIT vs. Alstom Projects India Ltd. [2017] 88 taxmann.com 465 (Bombay) rejecting the Revenue’s arguments to this effect. Faced with this situation, we direct the learned Transfer Pricing Officer to ensure computation of assessee’s arm’s length price in issue involving sales in manufacturing segment at transactions level. Necessary computation at the TPO’s level shall follow as per law.
5. The assessee’s fourth substantive ground also pleads that only its corresponding international transaction involving the corresponding Associated Enterprises “AEs” ought to be considered and the learned lower authorities have erred in law and on facts in rejecting certain items i.e. forex gains/losses as well as provision for bad and doubtful debts/provisions written back as non-operating heads. Mr. Bafna sought to invite our attention to the assessee’s segmental details in its audited books of accounts that the learned lower authorities have erred in law and on facts in computing the impugned arms’ length price in foregoing terms. Be that as it may, we are of the view that the TPO herein also needs to recalculate the assessee’s arm’s length price after taking into consideration the assessee’s audited book results in its transfer pricing study report so as ensure that non-operating items are not included in its consequential computation. Ordered accordingly.
6. The assessee’s fifth substantive ground is also found to be identical in nature as it seeks to exclude income from provision of management services from AE sales in issue for computing arm’s length price for subject matter of adjudication before us. We prima- facie find merit in the assessee’s instant substantive ground subject to final computation since its sales involving Associated Enterprise “AE” and provision of management support services prime-facie form different segments. Suffice to say, we make it clear that we have not expressed our opinion on merits since the issue is being restored back to the learned TPO for his final computation as per law.
7. Learned counsel next states that the assessee does not press for its sixth substantive ground once segment specific margins are computed in foregoing terms. Rejected accordingly. We make it clear before parting that the assessee herein has not contested or pressed all the remaining issues involving the impugned transfer pricing adjustment of Rs.84,50,662/- pertaining to sale of goods in