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Income Tax Appellate Tribunal, DELHI BENCH ‘I-1’, 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).
Following grounds have been raised in this appeal:
“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.
That the reference made by the Ld AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the Arm's Length Price ('ALP'), as is required under section 92CA(1) of the Income Tax Act, 1961 ('the Act').
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.
Vide Ground Nos. 2 to 2.2, the grievance of the assessee relates to the deduction u/s 10B of the Act.
Facts related to this issue in brief are that the assessee e-filed its return of income on 30.09.2009 declaring an income of Rs.26,30,31,230/-. The AO during the course of assessment proceedings noticed that the assessee had credited “miscellaneous income” and “other income” which included profits from sale of scraps, development income, interest income etc. The AO did not allow deduction claimed by the assessee u/s 10B of the Act on the said income by observing that the “other income” amounting to Rs.81,64,287/- and Rs.19,88,225/- relating to Bangalore and Noida units of the assessee respectively and the scraps sale of Rs.67,66,379/- and Rs.19,24,313/- at Bangalore and Motherson Sumi Systems Ltd. Noida respectively by observing that those income were not derived from the specific undertaking. He accordingly reworked the claim u/s 10B of the Act and disallowed Rs.95,26,967/- which was added to the income of the assessee.
Being aggrieved the assessee is in appeal. During the course of hearing the ld. Counsel for the assessee at the very outset stated that this issue has been adjudicated by the ITAT Delhi Bench “E”, New Delhi in assessee’s own case in for the assessment year 2004-05 (copy of which is placed at page nos. 417 to 423 of the assessee’s paper book).
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.
After considering the submissions of both the parties and the material on record, it is noticed that an identical issue having similar facts has already been adjudicated in assessee’s own case by the ITAT New Delhi Bench “E”, New Delhi wherein relevant findings have been given in paras 6 & 7 of the order dated 18.06.2010 in ITA No.
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.
Regarding 2nd aspect i.e. regarding interest income we are not in agreement with the Ld. A.R. of the assessee because he could not show us any direct nexus between interest received and interest Motherson Sumi Systems Ltd. payment by showing that interest payment was incurred for the purpose of earning interest income. Interest payment has to be excluded from business profit because this is business expenditure. Interest income is generally assessable as income from other sources when it is earned by deploying surplus funds when interest is earned by deploying interest bearing borrowed funds, in that case also interest expenditure to the extent nexus is established has to be reduced from interest income and surplus, if any has to be assessed as income from other sources whereas deduction u/s 10B is allowable on account of profit and gains derived from 100% export oriented undertaking. Hence, such interest income cannot be considered as a profit and gains derived by 100% export oriented undertaking and, therefore, the same was rightly excluded by the A.O. from profit of business shown by the assessee in computation of income filed with income tax return copy of which is available on page 2-4 of the Paper Book. Ground 1 of the assessee’s appeal is partly allowed as indicated above.”
So, respectfully following the aforesaid referred to order in assessee’s own case, this issue is restored to the file of the AO to be adjudicated in accordance with the directions given in the earlier order dated 18.06.2010 of the ITAT for the assessment year 2004-05 in in assessee’s own case.
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.
As regards to this issue the ld. Counsel for the assessee submitted that a similar issue has been adjudicated by the ITAT in & 375/Del/2013 for the assessment years 2007-08 and 2008-09 in assessee’s own case vide order dated 01.04.2015 (copy of the said order was furnished which is placed on record). It was further stated that the interest was earned by the assessee on the same loan which were given to the subsidiaries of the assessee in the preceding years and there is no change in the facts for the year under consideration vis-à-vis the preceding assessment years 2007-08 and 2008-09.
In his rival submissions the ld. DR strongly supported the order of the AO.
After considering the submissions of both the parties and material available on the record, it is noticed that an identical issue having similar facts for the assessment years Motherson Sumi Systems Ltd. 2007-08 and 2008-09 was set aside to the file of the AO for fresh adjudication. The relevant findings have been given in para 25 of the aforesaid order dated 01.04.2015 which read as under: “25. Ground Nos. 3, 4, 4.1 to 4.4 (4.4.1 & 4.4.2), 4.5, 4.6: In these grounds, adjustment of Rs.2,41,94,156 to the income of the assessee confirmed by the learned DRP holding that the international transactions of the assessee pertaining to receipt of interest on the loans given to its subsidiaries do not satisfy the arm’s length principles, has been questioned by the assessee. Under almost similar facts, an identical issue has already been decided by us in the above appeal for the assessment year 2007-08. Following the same, the matter is set aside to the file of the Learned TPO/A.O. to decide the issue afresh as directed therein after affording opportunity of being heard to the assessee. These grounds are accordingly allowed for statistical purposes.”
So, respectfully following the aforesaid referred to order dated 01.04.2015 in & 375/Del/2013 for the assessment years 2007-08 and 2008-09, this issue is remanded back to the AO to be adjudicated in the same manner as was directed for the preceding years vide aforesaid referred to order dated 01.04.2015.
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.
In the result, appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 13/05/2016)