Income Tax Appellate Tribunal - Panji
Tata Johnson Controls Automotive ... vs Acit, Circle-7, Pune on 14 June, 2017
आयकर अपीलीय अिधकरण,
अिधकरण पुणे यायपीठ "बी
बी"
बी पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
ी डी.
डी. क णाकरा राव , लेखा सद य
एवं ी िवकास अव थी,
अव थी याियक सद य के सम
BEFORE SHRI D.KARUNAKARA RAO, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No. 296/PUN/2013
िनधा रण वष / Assessment Year : 2008-09
M/s. Adient India Pvt. Ltd., .......... अपीलाथ /
(Formerly knownTata Johnson Controls Appellant
Automotive Limited),
Plot No.1, S.No.235 and 245,
Hinjewadi, Taluka Mulshi,
Pune - 411 057
PAN : AAACT6342D
बनाम v/s
ACIT, Circle-7,
Pune .......... यथ /
Respondent
Assessee by : Shri Percy Pardiwalla
Revenue by : Smt. Reena Jha Tripathi
सुनवाई क तारीख / घोषणा क तारीख /
Date of Hearing :08.06.2017 Date of Pronouncement:14.06.2017
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
This appeal filed by the Assessee is against the orders of the AO/DRP/TPO for the Assessment Year 2008-09.
2. The grounds raised by the assessee are as under :
"Ground 1 : Error in deducting INR 38,08,61,587 from total turnover and export turnover while computing deduction under section 10A, by treating the same as expenses incurred in rendering technical services outside India.
On the facts and circumstances of the case and in law, the Learned Assessing Officer (Ld. AO) and Learned Dispute Resolution Panel ('Ld. DRP') have erred in treating INR 38,08,61,587 as expenses incurred in foreign currency for rendering technical services outside India and thereby reducing the same from export turnover and total turnover while computing deduction under section 10A.2 ITA No.296/PUN/2013
Ground 2 : Error in disallowing the payment made towards 'Administrative Services charges to Tata AutoComp Systems Ltd. ('TACO') under section 40A(2)(a)(b).
The Ld. DRP and the Ld. AO erred in recording its finding that the Appellant has not produced any documentary evidence to substantiate its claim of Administrative Services charges paid to TACO.
The Ld. DRP and the Ld. AO erred in disallowing the payment of INR 2,58,12,000 made on account of "Administrative Service Charges" to TACO under section 40A(2)(a)(b)."
3. Briefly stated relevant facts as provided in Statement of facts are that assessee M/s. Adient India Pvt. Ltd. is a company (Formerly known as Tata Johnson Controls Automotive Ltd. ('TJCAI')) incorporated under the Indian Companies Act, 1956 in January 1996. It is a 50:50 joint venture between Tata Autocomp Systems limited CTACO') and Johnson Controls International B.V., Netherlands ("JCBV"). Assessee is engaged in manufacturing and designing of seating systems. The Engineering division of assessee is a captive design engineering service provider for the Johnson Controls C'JC") Group. The Engineering division works under the supervision of the JC Group entities and performs design engineering services in the field of seating systems and seat components, with the help of CAD, CAM and such other analytical tools. For the F.Y. 2007-08, the assessee filed its return of income and the case was taken up for scrutiny by issuing notice u/s.143(2) of the Act. The AO referred the case of the assessee to the TPO u/s. 92CA(1) of the Act. Eventually, the TPO passed an order on 31-12-2011 u/s. 92CA(3) of the Act proposing total addition of Rs. 85,484,374 to the price of the international transaction.
4. Otherwise, the TPO passed an order u/s.92CA(3) dated 31-12-2011 and the AO made the draft assessment order after incorporating the TPO's Transfer Pricing adjustments on 30-12-2011 u/s.144C(1) of the Act. Subsequently, the DRP issued guidelines vide the order dated 15-09-2012. 3 ITA No.296/PUN/2013 Finally, the AO made the assessment u/s.143(3) r.w.s. 144C(13) of the Act on 29-11-2012. In the said assessment, some of the disallowances made by the AO include (1) the disallowance of 2,58,12,000/- on account of payment of Administrative Service charges made to TACO, (2) deduction of expenses incurred in foreign exchange equivalent to Rs.38,08,61,587 from the export turnover of total turnover while computing deduction u/s.10A of the Act and thereby claim of deduction u./s.10A is reduced to the extent of Rs.51,79,470/-. These issues are the subject matter of appeal before us in the grounds extracted above.
5. Before us, Ld. Counsel for the assessee brought our attention to the above referred changes in the reduction of claim of deduction u/s.10A of the Act and submitted that the assessee incurred certain expenses and the same were treated as expenses incurred for rendering of technical services outside India. It has the effect of reduction of claim of deduction u/s.10A of the Act. Eventually, Shri P. Pardiwalla, Ld. Counsel for the assessee submitted that said Ground No.1 is not pressed considering the smallness of the tax effect. He fairly mentioned that the authorities took a right decision in reducing the claim both from the export turnover and the total turnover. However, he made a mention of the fact that the said concession of not pressing the ground No.1 should not go on the way against the assessee, when the issues relating to levy of penalty u/s.271(1)(c) of the Act, if any are to be decided in due course.
6. On the other hand, Ld. Departmental Representative for the Revenue relied heavily on the above said orders of the Revenue.
7. After hearing both the sides on this issue and also considering the concession by the Ld. Counsel for the assessee, we are of the view that 4 ITA No.296/PUN/2013 Ground No.1 raised by the assessee is required to be dismissed as 'not pressed' considering the smallness of the tax implications.
8. Regarding the counsel's prayer relating to the effect of this decision of dismissal of the Ground No.1 in matters relating to concealment of penalty, if any, we are of the considered view that the penalty proceedings are entirely independent of these proceedings on the merits. The penalty proceedings in any case are to be decided considering the facts, law and circumstances of the penalty proceedings. Therefore, we are of the view that no categorical finding is required at this point of time. In any case, we are not deciding the issue on merits. The present decision is only based on the concession given by the Ld. Counsel for the assessee. Thus, Ground No.1 raised by the assessee is dismissed as 'not pressed'.
9. Ground No.2 relates to the error in disallowing payment made towards "Administrative Service charges" to Tata Autocomp Systems Ltd. u/s.40A(2)(a)/(b) of the Act. On this issue, Ld. Counsel for the assessee submitted that similar issue was adjudicated by the Tribunal in assessee's own case for the Assessment Year 2006-07 dated 09-12-2015. However, Ld. Authorised Representative mentioned that the same is not available to the Revenue authorities while making the assessment/while issuing guidelines by the DRP in connection with the present appeal for the Assessment Year 2008-09. The assessment was made in the present case on 29-11-2012. Continuing to argue on merits, the Ld. Counsel for the assessee brought our attention to the said order of the Tribunal placed at 373 of the paper book. This order of the Tribunal was passed for the Assessment Year in ITA No.1450/PN/2011 order dated 09-12-2015. Ld. Counsel brought our attention to Ground No.2 and read the same as under :
5ITA No.296/PUN/2013
"The Ld. CIT(A) erred in confirming the disallowance of administrative service charges paid to Tata Autocomp Systems Ltd ("TACO") to the extent of Rs.1,50,63,122/- out of Rs.2,00,84,162/- u/s.40A(2)(b) of the income-tax Act on the grounds that the same is excessive and unreasonable having regard to services rendered by TACO and the legitimate business needs of the appellant."
10. To demonstrate the manner of adjudication of the said ground by the Tribunal, Ld. Counsel brought our attention to page 386 and read out the contents from Para 23 onwards and mentioned that the payments made to TACO is on account of "business exigency" and the claim of the assessee is fully allowable. In this case, the entire claim was disallowed by the assessing authorities, whereas, the CIT(A) allowed the expenditure to the extent of 25% of the expenses only. Bringing our attention, particularly, to the contents of Para No.32, the Ld. Counsel for the assessee submitted that the Tribunal not only held that the payment to TACO was made for the reasons of the business exigency (Para 23); but also held that there is no requirement for including the provisions of section 40A(2)(a) of the Act (Para
32). Relevant lines of these two paragraphs are extracted as under :
"24. The first issue to be addressed in this regard is whether in order to judge commercial exigency of the agreement and the quantum of remuneration paid in view of the terms of agreement entered into between two parties, can the reasonableness of expenditure be viewed by the authorities or reasonableness has to be established from the view point of businessman. The first aspect in this regard is that where there is a joint venture between two concerns to the extent of 50:50 and additional remuneration is being paid by joint venture company formulated by them to one of the concerns, then the issue has to be seen from the view point of other concern who is part of joint venture and is incurring 50% cost of the said remuneration paid. There is a commercial agreement between the assessee and TACO, under which certain services had to be provided by TACO, for which remuneration was due to them. The list of services are enlisted in the agreement and undoubtedly, the said agreement has been in force for more than 7 years and the amounts have been paid and allowed as expenditure in the hands of assessee from year to year. In the entirety of the above said facts and circumstances, we find no merit in the order of Assessing Officer in holding that the entire expenditure merits to be disallowed in the hands of the assessee, since the quantum of remuneration has been fixed at percentage of turnover. Theexplanation of the assessee before us was that TACO was the holding company of all joint venture companies and it was providing the said services to all the joint ventures and the assessee was one such joint venture, to which the said services were provided. The remuneration paid in this regard is allowable in the hands of assessee as the same is paid on account of business exigency.6 ITA No.296/PUN/2013
25. . . . . . .
.........
.........
32. Now, coming to the case of quantum of remuneration to be allowed in the hands of assessee, where the CIT(A) has allowed expenditure @ 25% of total expenses and no basis has been given by the CIT(A) to allow the said expenditure @ 25% of the total. There is no basis for measuring such services and in the absence of any evidence brought on record to establish that the expenditure incurred by the assessee was excessive i.e. more than market value of the said services, we find no merit in the orders of authorities below in invoking provisions of section 40A(2)(a) of the Act. Accordingly, we modify the order of CIT(A) and direct the Assessing Officer to allow the expenditure in totality in the hands of the assessee as the said expenditure has been laid down in terms of the agreement agreed upon between the parties and is for carrying on of the business of the assessee more efficiently and is allowable as business expenditure. The grounds of appeal No.2 and 3 raised by the assessee are allowed and ground of appeal No.2 raised by the Revenue is dismissed."
11. Further, Ld. Counsel for the assessee filed a copy of another order of the Tribunal in the case of Tata Ficosa Automotive Systems Ltd. in ITA Nos. 254 to 258/PUN/2015 and ITA Nos. 269 to 273PUN/2013 for the Assessment Years 2007-08 to 2011-12 order dated 23-12-2016 and mentioned that similar issue came up with that assessee and the Tribunal, where one of us is a party (Judicial Member), decided the issue in favour of the assessee and upheld the claim of the assessee, i.e. no disallowance is required u/s.40A(2)(b) of the Act on the payments made.
12. From the above, the contents of the paragraphs are self-explanatory and the claims of the assessee were decided in favour of the assessee. As such, Ld. Departmental Representative for the Revenue has not brought anything contrary to our notice before us to distinguish the said order of the Tribunal. Considering the principle of consistency as well as in view of the similarity of the facts, we are of the opinion that the above conclusions of the Tribunal are equally relevant for the issue raised in the present appeal. Accordingly, Ground No.2 raised by the assessee is allowed. 7 ITA No.296/PUN/2013
13. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on this 14th day of June, 2017.
Sd/- Sd/-
(VIKAS AWASTHY) (D. KARUNAKARA RAO)
JUDICIAL MEMBER ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 14th June, 2017.
सतीश
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The DRP, Pune
4. DR, ITAT, "B Bench" Pune;
5. गाड फाईल / Guard file.
आदेशानुसार/ BY ORDER,स
//True
//True Copy//
सहायक रिज
ार/Assistant
Registrar
आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune