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Income Tax Appellate Tribunal, DELHI BENCH “I-1”: NEW DELHI
Before: SMT DIVA SINGH & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT (A)-XXIX, New Delhi dated 03.09.2014 for the Assessment Year 2005-06. 2. The assessee has raised the following grounds of appeal:-
1. That the Commissioner of Income Tax (Appeals) („CIT(A)‟) erred in facts and in law in sustaining transfer pricing adjustment to the extent of Rs. 1,87,55,048 in respect of international transaction of export of traded goods, following the order of the Hon'ble Tribunal for the assessment year 2006-07. 1.1 That the CIT(A) erred in facts and in law in not holding that export incentive of Rs. 1,87,55,048 was required to be reduced from the cost of goods sold / added to sale price for computing gross profit mark-up for determination of arm‟s length price of international transactions of export of traded goods. 1.2 That the CIT(A) erred in facts and in law in not adjudicating with the alternate submission of the appellant to added the export incentive of Rs.1,87,55,048 with the sales price of the goods sold for computing gross profit margin / net profit margin for determination of arm‟s length price of international transactions of export of traded goods. 1.3 That the CIT(A) erred in facts and in law in holding that export incentive was to be considered as part of operating profit for undertaking benchmarking analysis for international transaction of export of traded good. 1.4 That the CIT (A) erred in facts and in law in upholding the allegation made by the assessing officer that “if India provide tax incentive or other incentive to compensate Page | 1 (Assessment Year: 2005-06 Goodyear India Limited V DCIT, Circle 12 (1), New Delhi its taxpayers on the basis of the economic situation, then this benefit is available to Indian taxpayers and the same cannot be transferred or traded to other entity which is not located in India”. 1.5 That the CIT (A) erred in facts and in law in upholding the allegation made by the assessing officer that “the economic and tax incentives offered to Indian entities are not meant to subsidize the entity in foreign jurisdiction. The assessee who is involved in controlled transaction this approach actually results in transferring benefit from Government granted incentives to AE.” 1.6 That the CIT(A) erred in facts and in law in holding that the appellant‟s method of calculation of cost of goods sold would tantamount to claim of benefit, which has not accrued at the time of sale of goods, being treated as a component of cost of goods sold. 1.7 That the CIT(A) erred in facts and in law in holding that, since export incentive does not form part of invoice price, the same cannot be reduced from the cost of goods sold”
Brief facts of the cases is that assessee is an Indian company engaged in the business of manufacture and sale of automotive tyres, tubes and other industrial products. It filed its return of income on 28/10/2005 declaring nil income after set-off of the brought forward losses. The Ld. assessing officer passed an order under section 143 (3) of the Act making several disallowances on addition of excise duty payable, disallowance of machinery repairs and maintenance expenditure, provision for warranty expenditure and transfer pricing adjustment of Rs. 18755048/–. The assessee challenged the same before the Ld. CIT – A who partly allowed the appeal of the assessee. However the issue of transfer pricing adjustment with respect to Rs. 1 875 5048 was decided against the assessee and therefore assessee is in appeal before us.
During the year assessee has entered into an international transaction of export of finished goods with its foreign associated enterprise amounting to Rs. 44, 49, 95, 951/– which comprises of export of manufactured products of Rs. 21, 25, 71, 741/– and export of traded products of Rs. 2 3, 24, 24, 210/–. The appellant has purchased such traded finished goods from a group company in India namely, Goodyear South Asian tyres private limited which were exported to its foreign associated enterprises. In its transfer pricing study report the appellant has adopted cost plus method as most appropriate method to benchmark its international transaction of export of traded goods. For computing the gross profit markup for such international transaction export incentive of Duty Entitlement Pass book scheme amounting to Rs. 194, 52, 795/– received in respect of such purchases from the sale of the tyres being inextricably linked to the cost of goods sold was reduced from the cost of goods exported. Therefore, the net cost of purchases of finished goods was taken into consideration. Page | 2 (Assessment Year: 2005-06 Goodyear India Limited V DCIT, Circle 12 (1), New Delhi As per the global transfer pricing policy of the assessee group, the appellant was entitled to profit markup of 5% on Inventory cost and other direct and indirect cost. Consequently, the arm’s length price in respect of traded finished goods purchased from the Indian entity was considered at arm’s length. The arms length price of the international transaction of Rs. 23, 92, 18, 341/- was considered at Rs. 23, 07, 53, 823 by the assessee.
The Ld. transfer pricing officer did not accept the contention of the appellant that export incentive of Rs. 1 945 2795/– was to be netted while computing the cost of goods sold for determining the gross profit margin. Accordingly the transfer pricing officer proposed adjustment of Rs. 1 875 5048/– in the order passed under section 92CA (3) dated 26/10/2009. Consequently, the final order was passed by the Ld. assessing officer making the above adjustment.
The assessee aggrieved with the order of the Ld. assessing officer wherein the above adjustment of arm’s length pricing was made challenged the same before the Ld. CIT – A. The Ld. CIT – A following the decision of the coordinate bench in assessee’s own case for assessment year 2006 – 07 where the similar transfer pricing adjustment made by the TPO was upheld and for the reasons given by the coordinate bench and also on the subsequent decision of the Mumbai bench of tribunal in case of Welspun Zucchi textiles Ltd versus ACIT in M/2009, confirmed the adjustment. Therefore, the assessee aggrieved with the order of the Ld. CIT – A has preferred an appeal before us.
The Ld. authorized representative fairly admitted that ground No. 1 of the appeal is covered against the assessee by the decision of the coordinate bench in assessee’s own case for earlier years. However it was also submitted that Hon’ble Delhi High Court in ITA No. 717 and 718 and 719/2016 has already admitted the issue that whether the export incentive needs to be reduced from the cost of goods sold or added to the sale price for computing gross profit margin for determination of the arms length price of international transactions of export of finished goods. He submitted the copy of the order of the Hon’ble Delhi high court where the question of law was admitted.
The Ld. departmental representative vehemently submitted that the issue has been squarely covered against the assessee and therefore even if the issue has been admitted by the Hon’ble high court the issue needs to be decided in this appeal against the assessee.
We have carefully considered the rival contentions and the orders of the lower authorities. We have also considered the decision of the coordinate bench in assessee’s own case for earlier years which has been relied by the Ld. CIT – A for deciding the above issue. The