L & T CONSTRUCTION EQUIPMENT LTD,MUMBAI vs. ADDL CIT RG 2(2), MUMBAI

Brief facts are, the assessee an Indian company is a joint venture of L&T Limited and M/s. Komatsu Asia Pacific PTE Ltd., Singapore, with 50:50 participation. The assessee is engaged in the business of manufacturing of construction equipments namely earth moving machinery and hydraulic excavator equipments. During the relevant financial year, the assessee entered into the following international transactions with its A.E.

The Assessing Officer during the assessment proceedings, noticing that the assessee had entered into international transactions with its A.E. made a reference to the Transfer Pricing Officer for determining the arm's length price. In the course of proceedings before the Transfer Pricing Officer, he found that assessee had 3 L&T Construction Equipment Ltd. purchased components for hydraulic excavators amounting to ` 279.03 crore from seven A.Es out of which components worth ` 208.16 crore was purchased from Komatsu Ltd., Japan. He found that the assessee had applied cost plus method (CPM) to bench mark the arm's length price of the transactions. After calling for necessary details from the assessee and examining the same, the Transfer Pricing Officer found that the assessee has bench marked the price by comparing the margin on cost by the A.Es from the assessee and the profit earned by the A.Es on sales in other countries. The Transfer Pricing Officer did not find the method adopted by the assessee to be appropriate. He was of the view, comparing the sales made to the assessee with sales made to other countries in the world is not correct, as they are in different geographical locations. He observed, it is not known whether products sold to assessee and rest of the world are same or different. The Transfer Pricing Officer opined, comparability of the nature of product sold by the A.Es to the assessee and to others was not established. As far as arm's length price of sale of components by the assessee to its A.E. in Germany is concerned, the Transfer Pricing Officer observed that assessee has not submitted how it has carried at the cost. Accordingly, discarding the bench marking done by the assessee, the Transfer Pricing Officer proceeded to determine the arm's length price which resulted in transfer pricing adjustment of ` 32,17,10,000. In terms of the order passed by the Transfer Pricing

Learned Authorised Representative appearing for the assessee submitted, though, the transfer pricing adjustment made by the Transfer Pricing Officer was challenged before the DRP on multiple ground and in the course of hearing the assessee had submitted a number of documentary evidences including fresh analysis done on comparables but the DRP without examining such documentary evidence or applying its mind to the material brought on record has rejected the ground raised by the assessee in a mechanical manner in a non–speaking order. Learned Authorised Representative submitted, as neither the submissions made by the assessee nor the documentary evidences were considered in proper perspective by the DRP, the issue relating to transfer pricing adjustment may be restored back to the file of the DRP for considering afresh.

Learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP.

We have considered the submissions of the parties and perused the material available on record. The limited grievance of the assessee is, DRP has passed a non–speaking order without considering the grounds raised and documentary evidences submitted by the assessee. As could be seen from the material placed on record, the assessee has challenged the transfer pricing adjustment before the DRP on various issues. It is also evident, in the course of proceedings before the DRP the assessee had submitted voluminous documentary evidences in support of its contention which also included a fresh comparability analysis. However, on a perusal of the order / direction of the DRP, we are of the impression that DRP has not at all applied its mind either to the submissions made by the assessee or the documentary evidences placed before it. The DRP has simply rejected the objections of the assessee by making a general observation that assessee has not produced the data necessary to rebut the factual findings of the Transfer Pricing Officer. The order passed by the DRP is a non–speaking one and bereft of reasons. When the assessee files objection before the DRP against certain additions and adjustments and makes elaborate submissions supported by documentary evidences, it is expected that the submissions made by the assessee should be dealt with by the Panel in proper perspective after taking into consideration the documentary evidence brought on record. The DRP cannot dispose off the objections of the assessee in a summary

In the result, assessee’s appeal stands allowed for statistical purposes. Order pronounced in the open Court on 21.07.2016.