DEPUTY COMMISSIONER OF INCOME-TAX vs. M/S. STAUFF INDIA PVT. LTD.,, PUNE

The Revenue has raised the following grounds of appeal:-

The learned Authorized Representative for the assessee pointed out that the issue raised in the present appeal is squarely covered by earlier orders of the Tribunal in assessee’s own case.

The learned Departmental Representative for the Revenue relying on the order of Assessing Officer fairly admitted that the issue stands covered by the orders of Tribunal in earlier years.

We have heard the rival contentions and perused the record. Briefly, in the facts of the case, the assessee was engaged in manufacturing and trading of hydraulic accessories and spares. The assessee was wholly owned subsidiary of Walter Stauffenberg, Germany. The Assessing Officer noted that business profile of assessee company included import of accessories and components for re-selling to Indian market and procuring of accessories and components from Indian market for export to parent company. As per details furnished, the assessee had entered into the following international transactions with its associated enterprises:-

The assessee had divided its operations in two segments i.e. domestic sales and export sales. For the purpose of benchmarking the transactions under the domestic sales and export sales, TNMM method was selected as most appropriate method. The operating profit to operating sales ratio and operating profit to operating cost ratio were taken as PLI in the TNMM analysis, respectively. In case of domestic sales, PLI of assessee was arrived at 4.45%, whereas average PLI of comparables arrived at 8.80%; in the case of export sales, PLI of assessee was 2.86%, whereas the average PLI of comparables was 8.30%. The assessee had selected two companies as comparables on the basis of search conducted. The Assessing Officer was of the view that there was no logic for bifurcating the trading activity into domestic sales and export sales. He proposed to aggregate and benchmark all the transactions using the set of comparables selected following TNMM method. Since the assessee had calculated margins of comparables on the basis of average of preceding two years, the assessee was directed to apply the data of contemporaneous period, as per which the average worked out to 12.82%. The assessee was thus, show caused in this regard. The Assessing Officer did not accept the plea of assessee for benchmarking two transactions separately and noted that as against the margins of assessee at 2.94%, margins of comparables were 12.82% and hence, made an upward adjustment of ₹ 1,46,32,576/-.

The CIT(A) deleted the aforesaid adjustment following the same approach as he had applied in assessment years 2008-09 and 2009-10.

The Revenue is in appeal against the order of CIT(A). It may be pointed out herein itself that the issue was decided in favour of assessee by the CIT(A) in turn, relying on his own order for assessment years 2008-09 and 2009-10.

We find that the Revenue had filed appeals against the order of CIT(A) relating to assessment years 2008-09 and 2009-10. The appeals of Revenue were decided by the Tribunal vide order dated 26.04.2018 in ITA Nos.669 & 670/PUN/2014, relating to assessment years 2008-09 & 2009-10. The Tribunal after taking note of the additional evidence filed by assessee before the CIT(A), against which remand report was obtained from the TPO, wherein the TPO concluded that there was no logic in bifurcating trading activity into domestic sales and export sales; whereas the case of assessee was that apart from trading of components, it was also engaged in the export of finished goods. The assessee furnished manufacturing process chart before the CIT(A) and various other evidences which were confronted to the TPO, who after examining the additional evidence, had accepted that the assessee company was engaged in manufacturing and trading activity. The Tribunal after taking into consideration all the evidences including additional evidence observed that manufacturing activity was being carried out by the assessee.

The learned Authorized Representative for the assessee pointed out that the adjustment has been made in the hands of assessee on the ground that the assessee is not engaged in any manufacturing activity but the Tribunal upheld

The first aspect of the issue is that admittedly, the assessee is carrying on two separate divisions i.e. two separate activities; one is the manufacturing and second is trading. The Assessing Officer had considered the operations of assessee in entirety and held it to be one activity. However, in the preceding year, the assessee was held to be in carrying on two activities. There is no dispute to the same. Accordingly, we hold that the assessee is engaged in two separate activities; one is manufacturing and the second is trading.

Now, coming to the second step, wherein it is the duty of Assessing Officer / TPO to benchmark two activities separately. Accordingly, we direct the Assessing Officer / TPO to apply TNMM method and go through the comparables selected by assessee and determine the arm's length price of international transactions entered into by assessee with its associated

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