M/S. MOTHERSON SUMI SYSTEMS LIMITED,NEW DELHI vs. ADDL. CIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘I-1’, NEW DELHI Before Sh. N. K. Saini, AM And Smt. Beena Pillai, JM Asstt. Year : 2009-10 Motherson Sumi Systems Ltd., Vs Additional Commissioner of F-7, Block B-1, Mohan Cooperative, Income Tax, Range-5, Industrial Estate, Mathura Road, New Delhi New Delhi-110044 (APPELLANT) (RESPONDENT) PAN No. AAACM0405A Assessee by : Sh. Pawan Kumar & Rishabe Malhotra, Advs. Revenue by : Sh. Amrendra Kumar, CIT DR Date of Hearing : 11.05.2016 Date of Pronouncement : 13.05.2016 ORDER Per N. K. Saini, AM:

This is an appeal by the assessee against the order dated 23.01.2014 passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act).

“1. That the Assessment Order passed in pursuance to the directions issued by the Learned Dispute Resolution Panel ('DRP') is a vitiated order as the Ld. DRP has erred both on facts and in law, in not considering the submissions made by the Appellant and in confirming the addition made by the Ld.

Motherson Sumi Systems Ltd. Assessing Officer ('AO')/ Ld. Transfer Pricing Officer ('TPO') to the Appellant's income.

2. That on the facts of the case and in law, the Ld. AO/Ld. DRP has erred in not allowing the Appellant the eligible deduction under section 10B of the Act on the basis of incorrect assumptions, conjectures and in doing so have grossly erred in: 2.1 reducing the claim under section 10B of the Act by reducing the Miscellaneous Income/other Income which comprises of Scrap sales, tool development income, interest income from the profits of the undertaking without appreciating the facts that such income are "derived from" the eligible units/undertaking. 2.2 not accepting the contention of the Appellant that deduction under section 10B of the Act in respect of the scrap sales have to be allowed on proportionate basis in the proportion of export turnover to total turnover after including such sales in the total turnover.

4. The Ld. DRP erred both on facts and in law in confirming the Ld. AO/ TPO's action of making an Motherson Sumi Systems Ltd. adjustment of Rs. 2,21,72,122 to the income of the Appellant by holding that the international transactions of the Appellant pertaining to receipt of interest on the loans given to its two subsidiaries do not satisfy the arm's length principle envisaged under the Income-tax Act 1961 ('Act'). In doing so the Ld. DRP has grossly erred in agreeing the TPO's action of; 4.1 disregarding the ALP, as determined by the assessee in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 92D of the Income- tax Rules, 1962 ('Rules'); 4.2 disregarding the fact that the international transaction of interest received on loan has been accepted to be at an arm's length in prior years (upto AY 2006-07) and no changes have happened in the circumstances of the case warranting a fresh analysis or rejection of the arm's length nature of the transactions; 4.3 completely disregarding the detailed and proper comparability analysis of the interest received on loans as submitted by the Assessee under Comparable Uncontrolled Price ('CUP') method on the basis of the comparable third party loan agreements and instead determined the arm's length interest rate on the basis of the prime lending rate ('PLR') applicable in India in that particular year, thereby resulting in an erroneous application of CUP method; Motherson Sumi Systems Ltd. granted to the Ld. TPO under section 133(6) of the Act that was not available to the Assessee in the public domain and in doing so; 4.4.1 violating the fundamental principles of natural justice by relying on the information sourced under section 133(6); 4.4.2 not sharing with the Assessee, the information/ reply received by the Ld. TPO under section 133(6). 4.5 disregarding the analysis carried out by the Assessee to benchmark the international transaction of interest received on loan on various incorrect/ baseless statements with several infirmities in the TP Order so as to mislead the cause of justice, thereby clearly demonstrating a prejudiced mindset driven with the single-minded intention to recommend a TP adjustment; 4.6 disregarding judicial pronouncements in India in undertaking the TP adjustment.

5. That the Ld. AO has grossly erred in law in levying interest under section 234D of the Act and also withdrawing interest under section 244A of the Act.

6. That the Ld. AO erred in law in initiating penalty proceedings under section 271(1)(c) of the Act for concealment of particulars of income and for furnishing inaccurate particulars thereof.

Motherson Sumi Systems Ltd. The above grounds are without prejudice to each other. The Appellant craves leave to alter, amend or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing.” 3. Ground No. 1 is general in nature and Ground No. 6 is prematurely raised so, these grounds do not require any comment on our part.

7. In his rival submissions the ld. DR although supported the order of the AO but could not controvert the aforesaid contention of the ld. Counsel for the assessee.

Motherson Sumi Systems Ltd. 3432/Del/2008 for the assessment year 2004-05 which read as under: “6. We have considered rival submissions. Regarding ground No.1, with regard to exclusion of scrap sale from business profit, we are in agreement with the Ld. A.R. of the assessee that as per the provisions of Section 10B, no such exclusion from business profit is required and only proportionate deduction has to be allowed as per the provisions of sub-section (4) of Section 10B in the proportion of export turnover to total turnover. We are in agreement with him because there is no such sub-section, clause or explanation in Section 10B in line with the Explanation (baa) to Section 80HHC where specific provisions are made for such exclusion from profit of business. It is not the case of the A.O. that scrap sale by the assessee were not generated in manufacturing process carried out by the assessee and hence we direct the A.O. that he should work out the deduction allowable to the assessee u/s 10B as per the provisions of Section 10B(4) in the proportion of export turnover to total turnover without excluding the sale proceeds of scrap from business profit. Such sale proceeds of scrap should be added to total turnover and thereafter, the amount of deduction allowable to the assessee should be worked out as per sub-section (4) of Section 10B.

Motherson Sumi Systems Ltd. 10. Vide Ground Nos. 3 to 4.6, the grievance of the assessee relates to the adjustment of Rs.2,21,72,122/- made by the AO on account of arm’s length price for the international transactions pertaining to receipt of interest on the loans given to its two subsidiaries.

Motherson Sumi Systems Ltd. 15. As regards to Ground No. 5, it was the common contention of both the parties that it is consequential in nature, we order accordingly.