NORD DRIVESYSTEMS PRIVATE LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

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.

“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.

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.

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.

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.

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.

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.

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that the said grounds are relevant at the time of actual calculations.

From that point of view, the same constitutes consequential in nature.

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.

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.

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.

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

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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.

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.”

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.

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.

vehemently.

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.

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.

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.

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.”

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.

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.

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.

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