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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by the assessee against the orders of AO/TPO/DRP for the A.Y. 2010-11.
Assessee raised various grounds as well as additional grounds which were subsequently concised vide letter dated 16-10-2017. The Concise grounds raised by the assessee read as under :
“1. The Ld. AO/TPO erred in making (and Ld. DRP erred in upholding) addition of Rs.6,94,00,000/-. 2. The Ld. TPO erred in (and Ld. DRP erred in upholding) denying following adjustments : a. Capacity utilization adjustment irrespective of the fact that it is second full year of operation. b. Working capital adjustment c. Custom Duty adjustment d. Cash PLI (without prejudice to above grounds)
2 ITA No.509/PUN/2015 Nord Drivesystems Pvt. Ltd.
Appellant pleads rejections of certain functionally non comparable companies.
The Ld. AO/TPO erred in computing TP adjustment (and Ld. DRP erred in confirming) arriving at the profit of the assessee by reducing the income by way of gain due to fluctuation of foreign exchange.
The Ld. AO/TPO be directed to compute the corrected PLI on basis of financials of comparable companies.
The appellant pleads that your honour consider’s the pricing policy adopted by the group of appellant vis-à-vis third party (discount rate compared to Group’s global price list) for determination of arm’s length price for the transaction of purchase.
The Ld. AO/TPO erred in (and Ld. DRP erred in confirming) non acceptance in change of characterization.
7.1 While rejecting the change in characterization AO/TPO/DRP gave certain reasoning which are incorrect or logically not relevant for decide the issue.
The Ld. AO/TPO erred in (and Ld. DRP erred in confirming) non adoption of alternate method, though discussed by the TPO, which would have resulted in a reduced TP adjustment of Rs.3,04,00,000/-.
The Ld. TPO has erred in (and Ld. DRP in upholding making TP adjustments on total turnover of the assessee instead of making adjustment on international transactions only.
The Ld. TPO may please to consider the appellant plea to provide the benefit of +/- 5 percent as per proviso to section 92C(2) of the Income Tax Act, 1961.
The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case.”
During the proceedings, assessee filed a chart before us
mentioning the relevant extracts from the orders of AO/TPO/DRP.
The chart also contains the assessee’s submissions in brief, the details
of additional evidences, wherever relevant etc. Assessee also
submitted the details of the favourable case laws in the last column of
the said chart. Considering the concise nature of the issues, reasons
and submissions of the assessee, we proceed to adjudicate each of the
issues raised by the assessee before us relying on the said chart.
Background facts of this case include that the assessee is a
company and engaged in the manufacture of Gear boxes and Gear
motors. Assessee is a manufacturer-cum-trader of the Gear
3 ITA No.509/PUN/2015 Nord Drivesystems Pvt. Ltd.
boxes/Motors, a commission agent for Gear boxes and Gear motors
and other parts. Assessee filed the return of income reflecting the
International Transactions. A reference is made to the TPO for
computation of Arm’s Length price in relation to the international
transactions. Assessee (NORD India) is a 100% subsidiary of NORD,
Germany. Assessee undertook the international transactions with the
parent company worth Rs.20.70 crores (Rounded off). TPO
benchmarked the said international transactions, quantified the
adjustments and recommended addition of Rs.6.94 crores (Rounded
off). AO made the draft assessment order on 12-03-2014 and the
proposed addition works out to Rs.6,94,00,000/-. The matter was
travelled to the DRP with various issues. The DRP vide order dated
26-12-2014 gave directions as per the discussion given in Para 9 of
their order. The DRP did not find need to interfere with the order of
the TPO/AO on many issues.
Aggrieved with the same, the assessee is in appeal before the
Tribunal with the aforementioned concise grounds. With these
backgrounds facts, we proceed to adjudicate each of the issues raised
by the assessee before us relying on the chart provided by the Ld. AR
for the assessee.
Concise Ground No.1 relates to the aforementioned TP
adjustment amounting to Rs.6.94 crores. It is the submission of Ld.
AR for the assessee that the said ground is general in nature and the
same can be dismissed. Further, referring to Concise Ground No.4
and 7, Ld. AR for the assessee submitted that the same are not
pressed. Accordingly, we order and said Ground Nos. 1, 4 and 7 are
dismissed.
4 ITA No.509/PUN/2015 Nord Drivesystems Pvt. Ltd.
Referring to concise Ground Nos. 9 and 10, Ld. AR submitted
that the said grounds are relevant at the time of actual calculations.
From that point of view, the same constitutes consequential in nature.
After hearing both the sides, we find Ground No.9 relates to the
method of calculation of adjustments qua the international
transactions only and not linked to the total turnover of the assessee.
Further, the concise Ground No.10 relates to the margin of +/- 5%
which is obviously to be decided based on the settled law on this issue.
Accordingly, these ground Nos. 9 and 10 are dismissed as
consequential.
To sum up, the Grounds at Sl.No. 1, 4, 7, 9 and 10 stand
dismissed. That leaves the Ground Nos. 2, 3, 5, 6 and 8 for
adjudication. The ground-wise adjudication is given in the paragraphs
below of this order.
Regarding the Concise Ground No.2, Ld. AR submitted that it
has 4 independent sub-grounds and they deal with (a) capacity
utilisation adjustment (b) working capital adjustment (c) custom duty
adjustment and (d) cash PLI adjustment.
Before us, Ld. AR for the assessee submitted that all these 4
issues relate to the economic adjustments required to be granted to
the assessee while making TP adjustments. Referring to the
adjustments mentioned at (a), (b) and (d) above, Ld. AR submitted that
these issues are adjudicated by the Tribunal in connection with the
Appeal for A.Y. 2009-10 and the Tribunal passed an order dated
30-03-2016 deciding the issues favourable to the assessee. He fairly
mentioned that the said order of the Tribunal is not in existence at the
time of passing orders by the DRP/TPO/AO. Therefore, Ld. AR for the
5 ITA No.509/PUN/2015 Nord Drivesystems Pvt. Ltd.
assessee submitted that all these issues should revisit the file of
TPO/AO for fresh adjudication for want of a fresh decision in the light
of the said order of the Tribunal for A.Y. 2009-10. Referring to the
working capital adjustment and cash PLI adjustment, Ld. AR for the
assessee submitted that the DRP allowed similar adjustments when
adjudicating the issues relating to the A.Y. 2011-12. It is also
submitted that the TPO himself allowed the adjustments towards
working capital adjustment in the A.Y. 2011-12. Further, referring to
the custom duty adjustment, Ld. AR submitted that similar
adjustment was allowed to the assessee by the DRP in assessee’s own
case for the subsequent assessment year 2011-12. This order of the
DRP is also subsequent in time. In this regard, he relied on the
decision of Pune Bench of the Tribunal in the case of Skoda Auto
(India) Ltd. 122 TTJ 669 (Pune) and Demag Cranes & Components
(India) Pvt. Ltd. – ITA No.120/PN/2011. Thus, it is the case of Ld. AR
for the assessee that all these economic adjustments (capacity
utilisation, working capital adjustment, cash PLI, custom duty
adjustments), in the interest of justice, should be remanded to the file
of TPO/AO for fresh adjudication. The fact that similar issues were
remanded by the Tribunal for A.Y. 2009-10 was demonstrated by the
Ld. AR for the assessee bringing our attention to Para No.44 of the said
order of the Tribunal.
On hearing both the parties on this concise Ground No.2 which
deals with the said economic adjustments, we find the similar issues
were remanded by the Tribunal for A.Y. 2009-10. For the sake of
completeness of this order, the said para No.44 is extracted here as
under :
“44. In view of the direction of the DRP for A.Y. 2011-12 on various issues and the order of the TPO for A.Y. 2009-10 we are of the considered opinion that the matter requires a re-visit to the file of the
6 ITA No.509/PUN/2015 Nord Drivesystems Pvt. Ltd.
TPO for adjudication of the entire issue afresh. We accordingly set aside the matter to the file of the TPO for determination of the ALP keeping in mind the directions for capacity utilisation adjustment and the various other adjustments which were allowed to the assessee in subsequent assessment years but were not considered by the DRP/TPO/AO for the impugned assessment year. The AO shall decide the issue as per law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the assessee are accordingly allowed for statistical purposes.”
Considering the above, we are of the opinion that with similar
directions, the said concise Ground No.2 relating to all aspects of the
economic adjustments is remanded to the file of AO for fresh
adjudication and for want of a decision. AO shall grant reasonable
opportunity of being heard to the assessee as per the set principles of
natural justice. Therefore, concise Ground No.2 raised by the assessee
is allowed for statistical purposes.
Concise Ground No.3 relates to the comparables. Background
facts of this issue goes back to the TP study of the assessee. It is the
submission of the assessee that some of the comparables considered
by the TP study team are not functionally comparable to that of the
assessee. M/s.Premium Energy Transmission Ltd., M/s.Deepak
Industries Ltd., M/s. Shanti Gears Ltd. Gujarat Automotive Gears Ltd.
and M/s. Flender Ltd. are the few of them. The decision of assessee in
considering these comparables as good comparables to the assessee’s
case is a mistake and therefore, the assessee prays for exclusion of the
same from the list of the good comparables for making TP study.
Admittedly, this issue is raised for the first time before the Tribunal.
In this regard, assessee relied on following decisions viz. (1) Quark
Systems Pvt. Ltd. Vs. DCIT – ITA No.100/Chd/2009 (SB) and (2)
Bindview India Pvt. Ltd. Vs. DCIT – ITA Nos. 1501/PN/2011 for the
proposition that the taxpayer is not stopped from changing the
comparables at any stage of the proceedings. It is the submission of
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the assessee that mistakes are apparent from the functions of these
companies qua the functions of the assessee. In this regard, various
details are furnished before us to demonstrate the above differences in
functions of the said comparables.
Ld. DR for the Revenue opposed the assessee’s move
vehemently.
After hearing both the sides and considering the fact that the
assessee is not prevented from requesting for exclusion of certain
comparables if they are really not comparable and also in case, if their
decision to consider them as good comparables constitute a mistake.
In our view, there is a prima-facie case in favour of the assessee both
on facts and in law. Therefore, we are of the view that this ground can
be admitted at this stage. In any case, it is a matter of fact that
requires inputs from the TPO/AO. Ld. DR for the Revenue submitted
that the legal principle permits the consideration of the demand for
change of the comparables at any time. Accordingly, concise Ground
No.3 raised by the assessee is admitted and set-aside to the file of
TPO/AO for fresh adjudication.
Concise Ground No.5 relates to the allowing correction in the
margins of comparables. In this regard, Ld. AR for the assessee
brought our attention to the order of DRP and submitted that the
request of the assessee was not actually commented upon by the DRP
on the issues relating to the required correction to the margins of the
comparable companies. The fact that assessee filed rectification
application before the DRP under Rule 13 and the absence of a
decision in this regard was also brought to our notice. Further, he
submitted that similar corrections were allowed by the DRP in
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connection with the comparables for the A.Y. 2011-12. Therefore, it is
the prayer of Ld. AR for the assessee before us for want of a direction
from the Tribunal to the DRP/TPO/AO for taking up appropriate
measures after due process of verification of the figures.
On hearing both the parties on this issue, we find that the
DRP/TPO/AO should be directed to incorporate the requisite
correction in the figures after due process of verification and after
granting reasonable opportunity to the assessee on this issue.
Accordingly, concise Ground No.5 raised by the assessee is allowed for
statistical purposes.
Concise Ground No.6 relates to the requirement of adopting the
corroborative approach for determination of ALP. In short, it is the
prayer of the assessee that NORD, Germany need to be adopted as a
Tested party unlike the TP study undertaken by the assessee’s study
team. Considering the assessee as a Tested party, in this regard, Ld.
AR for the assessee made the following submissions :
“The appellant submits the pricing policy adopted by the group of appellant vis-a-vis third party (discount rate compared to Group’s global price list) for determination of arm’s length price for the international transaction of purchases. The appellant pleaded to consider the associated enterprise (AE), i.e. Nord Germany as the tested party – indicates margin earned by Nord, Germany from sale to third party vendors is higher than the margin earned from sale to the assessee.”
Considering the above submissions of the assessee, we are of the
opinion that this matter should also revisit to the file of TPO/AO for
comprehensive study and decision in the matter. We direct the
TPO/AO to invoke the prevailing law on the subject and adjudicate the
issue in accordance with the law. Accordingly, concise Ground No.6
raised by the assessee is allowed for statistical purposes.
9 ITA No.509/PUN/2015 Nord Drivesystems Pvt. Ltd.
Concise Ground No.8 relates non-adoption of alternate method
for computing the TP adjustment amounting to Rs.3.04 crores in place
of Rs.6.94 crores. It is evident from the TPO’s order that of the two
figures of adjustments of Rs.2.94 crores and Rs.3.04 crores, the
TPO/AO adopted the figure of Rs.6.94 crores to be set off for
adjustment for capacity utilisation. No reasons are given in the orders
as to why the sum of Rs.3.04 crores is not to be considered. His order
does not specify why the demand for the said capacity utilisation
adjustment was not granted. To that extent, we find, the order of the
Officer do not constitute a speaking order. Therefore, it requires
revisiting of the issue to the file of TPO/AO. Relying on various
binding decisions, Ld. AR for the assessee submitted that when two
views are possible, the favourable decision to the assessee should be
adopted was not followed.
Considering the same, we are of the opinion that the orders of
TPO/DRP, on many issues including the said decision of the TPO in
adopting the figure of Rs.3.04 crores constitutes a non-speaking order.
Hence, the matter should revisit to the file of AO for want of a speaking
order. Accordingly, concise Ground No.8 raised by the assessee is
allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on this 07th day of February, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 07th February, 2018. सतीश
10 ITA No.509/PUN/2015 Nord Drivesystems Pvt. Ltd.
आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. CIT(A)-IT/TP, Pune 4. CIT(A)-13, Pune िवभागीय %ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” 5. Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// Senior Private Secretary //True Copy// आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune