M/S. EATON POWER QUALITY PRIVATE LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

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ITA 599/PUN/2014Status: DisposedITAT Pune19 November 2018AY 2009-106 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that the issue was identical to the previous assessment year, where a similar adjustment by the TPO was set aside and the matter remitted back for re-adjudication. Following its own precedent, the Tribunal restored the issue to the Assessing Officer/TPO for determination of the Arm's Length Price (ALP).

What were the facts?

The assessee company, engaged in trading and maintenance of power systems, received centralized support services from its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) determined the value of these services as Nil, making a significant adjustment. The assessee contested this, arguing that the services were received and benchmarked using TNMM.

What were the issues?

Whether the Transfer Pricing Officer erred in determining the Arm's Length Price of Headquarter services as Nil without proper analysis, and whether interest under sections 234C and 234D was correctly charged.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 234C,Section 234D

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, PUNE

Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM

For Appellant: Shri Vishal Kalra
For Respondent: Shri Rajeev Kumar

PER VIKAS AWASTHY, JM :

This appeal by the assessee is directed against the assessment order dated 17-01-2014 passed u/s. 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2009-10. 2

2.

The assessee in appeal has assailed the findings of Assessing Officer by raising following grounds :

“1. That on the facts and circumstances of the case and in law the AO erred in assessing the total income of the Appellant under section 143(3) r.w.s. 144C(13) of the Act, for relevant assessment year at Rs.12,86,80,325 as against the returned income of Rs.11,62,52,587. 2. That on the facts and circumstances of the case and in law, the AO/DRP/Transfer Pricing Officer (“TPO”) erred in making an arbitrary adjustment of Rs.1,24,27,738 in respect of international transaction pertaining to payments made to associated enterprises ('AEs') for Headquarter (“HQ”) services, alleging that the same were not at arm’s length and determining the arm’s length price (“ALP”) of the same to be Nil.

3.

That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in rejecting the economic analysis and methodology adopted by the Appellant, being Transactional Net Margin Method ("TNMM"), for benchmarking the international transactions of payments to AEs for HQ services, without any cogent reason, and further erred applying Comparable Uncontrolled Price (“CUP”) method to benchmark such transaction, in a manner, which is not in conformity with the methodology provided under the Act.

4.

That on the facts and circumstances of the case and in law, the AO has erred in granting a TDS credit of only Rs.37,96,692 as against Rs.53,44,615 which was claimed and available to the Appellant.

5.

That on the facts and in the circumstances of the case and in law, the AO has erred in charging interest under section 234C and 234D of the Act.”

3.

Shri Vishal Kalra appearing on behalf of the assessee submitted that the assessee company is engaged in trading of Uninterrupted Power Supply (UPS) and Direct Current (DC) Power Systems, Switch Mode Power Supply (SMPS) and Power Distribution Systems and also provides maintenance services for the above said items. The assessee is a subsidiary of Eaton Power Quality Private Limited USA. The assessee entered into various international transactions with its Associated Enterprises (AEs) and applied Transactional Net Margin Method (TNMM) as the most appropriate method to benchmark its international transactions with AEs. The assessee received centralized support services from its AEs i.e. China (Investment) Company Limited (in short „Eaton China‟) and Eaton Corporation USA (in short Eaton, US). The assessee had entered into agreement with its aforesaid AEs for providing centralized services which inter alia includes : i. Internal Audit ii. Accounting/Finance iii. Human Resources support iv. Legal and Tax related services v. IT services vi. Telecommunication vii. Training and Education

The TPO following the directions of DRP in assessment year 2008-09 held that there is no evidence that the assessee has received services and the assessee has not received any benefits from the alleged services from its group entities. The TPO determined the value of headquarters services as Nil and made TP adjustment of Rs.1,24,27,738. The ld. AR submitted that the Co-ordinate Bench of the Tribunal in appeal by the assessee in ITA No. 119/PUN/2013 for assessment year 2008-09 decided on 11-09-2018 has reversed the findings of DRP. The ld. AR further submitted that the specialized services received by the assessee from its overseas entities in the assessment year under appeal are identical to the one received in earlier assessment years. The Shared Services Agreement dated January 1, 2005 and the Shared Internal Services Agreement of even date between the assessee and Eaton China is the same which was subject matter of appeal in assessment year 2008-09. Even the Standard WHQ Services Agreement with Eaton US for providing Headquarters Services to assessee was executed in June 24, 2005. The only difference in assessment year under appeal is that no services were received from Eaton Power Quality Pte Limited, Singapore. The assessee received services from Eaton China at Cost + 5% and from Eaton US at Cost + 8%.

4.

Shri Rajeev Kumar representing the Department fairly admitted that the issue raised in the present appeal is similar to the one already adjudicated by the Tribunal in assessee‟s own case in assessment year 2008-09. 5. Both sides heard. Orders of the authorities below perused. The assessee in appeal has assailed the orders of authorities below in determining arm‟s length price of the services rendered by assessee‟s AEs as „Nil‟, thereby making adjustment of Rs.1,24,27,738/- in respect of Headquarter Services. A perusal of documents on record reveal that the S Shared Services Agreement dated 01-01-2005 and Shared Internal Audit Service Agreement of even date entered into with Eaton China is the same which was subject matter of appeal in assessment year 2008-09. Apart from the above, the assessee has entered into standard WHQ service agreement dated June 24, 2005 with Eaton US for providing Headquarter Services. The Co-ordinate Bench of the Tribunal in the case of assessee‟s sister concern, Eaton Fluid Power Ltd. Vs. Assistant Commissioner of Income Tax in ITA No. 45/PUN/2013 decided on 12-03-2018 had occasion to adjudicate identical issue, wherein similar services were received by the assessee from its AEs and the same were valued by TPO as „Nil‟. The Tribunal held that the TPO has erred in observing that that the assessee has not availed any services. The Tribunal remitted the issue back to the file of TPO/Assessing Officer to determine the ALP of transactions.

In the instant case as well the assessee has filed various agreements and documents to substantiate that the services have been received by the assessee from Eaton China and Eaton US. In immediately preceding assessment year i.e. assessment year 2008-09, the Tribunal in assessee‟s appeal in ITA No. 119/PUN/2013 (supra) has restored this issue back to the file of Assessing Officer/TPO by placing reliance on the decision of Eaton Fluid Power Ltd. Vs. Assistant Commissioner of Income Tax in ITA No. 45/PUN/2013 decided on 12-03-2018. The relevant extract of the findings of Tribunal in assessee‟s own case in assessment year 2008-09 reads as under :

“12. In the present case, we find that the assessee has furnished various documents before the authorities below to substantiate the services rendered by Eaton Singapore and Eaton China. The TPO instead of analyzing the ALP of the transactions on the basis of documents furnished went on to a different tangent to hold that no services were rendered by AEs to the assessee and the assessee has not derived any benefit from the alleged services provided by the overseas group entities.

Thus, in view of the facts of the case and the decision of Co-ordinate Bench of Tribunal in the case of assessee’s sister concern, we deem it appropriate to set aside the assessment order and remit the this issue back to the file of TPO/Assessing Officer to determine the ALP of transactions, in accordance with law. We hold and direct accordingly. Needless to say that the Assessing Officer/TPO while re-adjudicating this issue shall afford reasonable opportunity of hearing to the assessee, in accordance with law. Thus, ground Nos. 2 to 4 raised in the appeal by assessee for assessment year 2008-09 are allowed for statistical purpose.”

6.

Thus, in the light of the facts of the case and the decision of Tribunal in assessee‟s own case in immediately preceding assessment year, we restore this issue back to the file of Assessing Officer/TPO with similar directions. Accordingly, ground Nos. 2, 3 and 4 of the appeal are allowed for statistical purpose.

7.

The ground No. 1 is general in nature, hence, requires no adjudication.

8.

In ground No. 5 of the appeal, the assessee has assailed charging of interest u/s. 234C and 234D of the Act. Charging of interest u/s. 234C and 234D is consequential and mandatory, hence, ground No. 5 raised in appeal by the assessee is dismissed being devoid of any merit.

9.

In the result, the appeal of assessee is partly allowed for statistical purpose in the terms aforesaid.

Order pronounced on Monday, the 19th day of November, 2018. (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 19th November, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent.

2.3.

The Dispute Resolution Panel, Pune

4.

The DIT (IT/TP), Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत //// आदेशानुसार / BY ORDER,

यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune

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