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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the assessment order dated 26-02-2015 passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
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Shri Vispi Patel with Shri Suresh Dhoot appearing on behalf of the assessee submitted at the outset that he is not pressing ground No. 2 raised in the appeal. The ld. AR contended that the core issue in dispute is raised in ground Nos. 4, 5 and 6 of the appeal. The ground Nos. 3, 7 to 11 are in support of the core issue. The ld. AR submitted that the Transfer Pricing Officer (TPO) made transfer pricing adjustments to the tune of Rs.5,08,87,680/- by applying Transactional Net Margin Method (TNMM). The Dispute Resolution Panel (DRP) upheld the same and the Assessing Officer passed assessment order in accordance with the directions of DRP. The assessee submitted before the authorities below that internal CUP or at the best TNMM should be applied as the most appropriate method to benchmark the international transactions. The ld. AR submitted that upward adjustment for the similar reasons was made in the assessment year 2009-10. The assessee carried the matter in appeal before the Tribunal in ITA No. 314/PUN/2014. The Tribunal vide order dated 05-06- 2018 decided the issue in favour of the assessee. Thus, the issues raised in ground Nos. 4 to 6 of the appeal relating to most appropriate method for benchmarking international transaction is squarely covered by the decision of Tribunal in the immediately preceding assessment year. The ld. AR submitted that in so far as the other issue raised in ground Nos. 12 to 14 of the appeal qua excess provision for interest on service tax is concerned, the assessee has offered the amount to tax in the subsequent assessment year. The same can be verified by the Assessing Officer.
Shri B. Kishore representing the Department vehemently defended the assessment order. However, the ld. DR fairly submitted that the issue contested by the assessee in ground Nos. 4 to 6 of the appeal is similar to the one raised in the appeal by the assessee in assessment year 2009-10.
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The Tribunal has adjudicated this issue in assessee’s own case for assessment year 2009-10.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The ground No. 1 raised in the appeal is general in nature, hence, requires no adjudication.
The ground No. 2 raised in the appeal is not pressed by the ld. AR. Thus, in view of the statement made at Bar by the ld. AR, ground No. 2 is dismissed as not pressed.
The ground No. 3, 7 to 11 raised in the appeal are in support of the main issue raised in the appeal by the assessee in ground Nos. 4 to 6. Thus, the effective grounds raised by the assessee in appeal i.e. ground Nos. 4 to 6 are reproduced here-in-below : “4. The AO/DRP/TPO erred in rejecting CUP as the most appropriate method (MAM) to determine the arm's length price of the international transactions pertaining to provision of engineering design services to its AE as selected and applied by the appellant, without giving cogent reasons. 5. The AO/DRP/TPO erred in determining the arm's length price of the international transactions by applying Transactional Net Margin Method (TNMM) as MAM, by selecting external comparable companies. 6. The AO/DRP/TPO erred in rejecting the internal TNMM analysis conducted by the appellant on the basis of audited segmental accounts for benchmarking the international transactions, without giving cogent reasons.”
Both the sides have admitted that the main issue raised in the present appeal is the most appropriate method to be applied for determining Arm’s Length Price (ALP) of international transactions in respect of provision for engineering design and services. We find that
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identical grounds were raised before the Tribunal by the assessee in assessment year 2009-10 in ITA No. 314/PUN/2014 (supra). The Tribunal decided the issue by observing as under : “14. Now, coming to instant appeal before us also, the learned Authorized Representative for the assessee was specifically asked as to what is the method applied in assessment year 2008-09 by the Assessing Officer / TPO after the matter was set aside to them vide order dated 14.12.2015. The learned Authorized Representative for the assessee pointed out that no appeal effect has been given and the matter was pending. He then, stressed before us that in the year under appeal, the benchmarking is being done by applying man-hour rates which has been worked out as per revised form number. The man-hour rates worked out at 24 Euros which has been claimed in the revised form No.3CEB filed during the course of TP proceedings. It may be noted that the assessee in the year under consideration also, has been changing its stand i.e. in TP study report, TNMM method was selected. However, before the TPO, the assessee pleaded that internal CUP method was the most appropriate method, wherein hourly rates charged to associated enterprises at 24 Euros be applied as against charges levied on non-associated enterprise charges. The TPO on the other hand, had applied TNMM method and had made comparison with external comparables in order to benchmark international transactions of the assessee. We are of the view that in order to benchmark international transactions undertaken by the assessee, the most appropriate method needs to be applied. The question is which is the most appropriate method? The assessee had selected TNMM method and then by way of revised form No.3CEB during TP proceedings has changed its stand to apply internal CUP of man hourly rates. In order to benchmark international transactions undertaken by the assessee, an endeavour should be made to apply the most appropriate method and the same may be what has been applied by the assessee in TP study report or as proposed in TP proceedings. The stand of assessee that it is providing services to its associated enterprises and charging hourly rates, which worked out to 24 Euros per hour as against charges raised against non-associated enterprises and domestic parties. The assessee is providing specialized services in the field of engineering design services and where similar services are being provided to the domestic and non-associated enterprises parties, the question which arises is can the same be compared especially where the costs are from the same source and hence, the transactions are tainted. 15. We have already taken a view in the case of DCIT Vs. Man Trucks India Pvt. Ltd. in ITA No.547/PUN/2014 and in appeal filed by assessee in ITA No.582/PUN/2014, relating to assessment year 2009-10, order dated 03.04.2018, where the costs are identical for providing services, then even if the costs borne for associated enterprises and non-associated enterprises or the domestic parties are same, the same can be ignored in order to benchmark arm's length price of international transactions undertaken by the assessee. Accordingly, we find merit in the plea of assessee that hourly rates charged by it in providing specialized services to its associated enterprises can be the basis for verifying its stand as to whether the services provided by the assessee to its associated enterprises were at arm's length.
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However, the stand of Assessing Officer / TPO in rejecting the said plea of assessee was the tainted transactions vis-à-vis costs incurred by the assessee both for associated enterprises and non-associated enterprises. In the totality of the above said facts and circumstances, where the stand of assessee has not been looked into by the TPO and has been brushed aside, we in the interest of justice, direct the Assessing Officer / TPO to determine arm's length price of international transactions undertaken by the assessee by applying most appropriate method i.e. internal TNMM method of man hourly rates. The assessee has also asked for various other adjustments for carving out differences which may also be looked into by the TPO, who shall decide the issue after affording reasonable opportunity of hearing to the assessee and determine arm's length price of international transactions.”
Since, both the sides are unanimous in stating that the facts and the international transactions in the assessment year under appeal are identical to assessment year 2009-10, we deem it appropriate to remit this issue back to the file of TPO/Assessing Officer to decide the issue raised in ground Nos. 4, 5 and 6 in line with the above order of the Tribunal for assessment year 2009-10. Accordingly, ground Nos. 3 to 11 raised in the appeal are allowed for statistical purpose in the terms aforesaid.
In ground Nos. 12 to 14 of the appeal the assessee has assailed addition of Rs.3,57,169/- in respect of excess provision for interest on service tax. The contention of the assessee is that this amount has been offered to tax in the subsequent assessment year when the actual amount of service tax liability got materialized. Without going into the merits of the addition, we deem it appropriate to restore this issue to the file of Assessing Officer for verification. If the assessee has already offered the amount to tax in the subsequent assessment year the Assessing Officer is directed to grant relief to the assessee in assessment year under appeal as the same would amount to double taxation. The Assessing Officer before deciding this issue shall grant opportunity of haring to the assessee, in
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accordance with law. Accordingly, ground Nos. 12 to 14 are allowed for statistical purpose.
In ground No. 15 the assessee has assailed initiation of penalty proceedings u/s. 274 r.w.s. 271(1)(c) of the Act. Challenge to penalty proceedings at this stage is pre-mature. Accordingly, ground No. 15 raised in the appeal is dismissed.
In the result, the appeal of the assessee is partly allowed for statistical purpose in the terms aforesaid.
Order pronounced on Wednesday, the 08th day of August, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 08th August, 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, “बी” बेंच, 5. ऩुणे / DR, ITAT, “B” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune