Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
Appellant by : Shri K.R.Vasudevan, Advocate. Revenue by : Shri C.H.Sundari Rao, CIT(DR) Date of hearing : 29/01/2018 Date of pronouncement : 20/04/2018 O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the assessment order dated 31/01/2011 passed u/s 143(3) r.w.s. 144C(13) of the Income-tax Act,1961 [‘the Act’ for short] for the assessment year 2007-08.
The assessee raised the following grounds of appeal:
IT(TP)A No.03/Bang/2012 Page 2 of 7 IT(TP)A No.03/Bang/2012 Page 3 of 7 IT(TP)A No.03/Bang/2012 Page 4 of 7
Briefly, the facts of the case are that the assessee is a company incorporated under the provisions of the Companies Act, 1956. It is a subsidiary of Makino Japan Co. Ltd., The return of income for the assessment year 2007-08 was filed on 30/10/2007 declaring total income of Rs.8,41,39,074/-. The said return of income was selected for scrutiny. Accordingly notice u/s 143(2) was issued. The Assessing Officer (AO) noticed that the assessee entered into following international transaction:
After noticing the same, the AO referred the matter to the Transfer Pricing Officer (TPO) for the purpose of bench marking the above international transactions.
The TPO found that the assessee submitted transfer pricing study adopting TNMM as the most appropriate method and operating profit to sales as PLI. While doing so, the TPO noticed that the assessee had not used the current year data but used financial data of immediately preceding two years. Therefore, the IT(TP)A No.03/Bang/2012 Page 5 of 7 TPO rejected the TP study report submitted by the assessee- company. While rejecting the TP study report submitted by the assessee, the TPO proceeded to identify different set of comparables and applied the following filters for the purpose of selecting the comparables:
The TPO finally selected the following comparables:
The TPO computed arm’s length price (ALP) adjustment as under:
IT(TP)A No.03/Bang/2012 Page 6 of 7 Accordingly, the TPO suggested ALP adjustment of Rs.5,50,05,337/- vide order dated 6/10/2010 passed u/s 92CA of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short].
The AO passed draft assessment order vide order dated 29/12/2010 passed u/s 143(3) of the Act, incorporating the above TP adjustments and also computed deduction u/s 10A by reducing expenditure incurred on telecommunication charges, travelling charges from export turnover only.
After receipt of the draft assessment order, objections were filed before the Hon’ble DRP contending inter alia that the TPO was not justified in adopting only current year data and not applying multiple year data and applying the RPT of 25% and also that ALP adjustment in respect of international transaction can be confined to transactions with Associated Enterprises (AE) only. Further while calculating benefit u/s 10A, telecommunication and travelling charges to be reduced from export turnover as well as total turnover. The assessee further contended that RPT filter with threshold limit of 10% should be applied. It was also contended that comparable entities like M/s.Iykot Hitech Tool Room Ltd., and M/s.Mitsubishi Heavy Industries India Precision Tools Ltd. are not comparable. The Hon'ble DRP, after considering the submissions in great detail, confirmed the action of the TPO.
After receipt directions from the Hon'ble DRP, the AO passed final assessment order dated 31/10/2010 incorporating the directions of the Hon'ble DRP.
Being aggrieved, the assessee is before us.
8.1 Learned counsel for the assessee argued that the TPO is not justified in rejecting the TP documentation submitted by the assessee and when internal TNMM is available same should be applied in preference to external TNMM and the adjustment of ALP should be confined to the transactions with AE alone.
IT(TP)A No.03/Bang/2012 Page 7 of 7 8.2 As regards adjustment of deduction u/s 10A, the issue is no longer res integra as the same is covered by the decision of the jurisdictional High Court in the case of CIT vs. Tata Elxsi (349 ITR 98) wherein it has been held that expenses excluded from the export turnover should also be excluded from the total turnover for computation of deduction u/s 10A of the Act.
We heard rival submissions and perused the material on record. We find from record that the assessee had not applied current year data in respect of comparables in deciding the comparability. Further, the TPO also made adjustment even in respect of non-AE transactions. In the circumstances we deem it fit and proper to send the matter back to the TPO for undertaking fresh exercise of TP analysis and also direct the assessee to furnish TP study report before the TPO by using current year data alone.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on this 20th April, 2018