Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax, ... vs M/S. Alfa Laval (India) Limited,, Pune on 20 June, 2019
आयकर अपीलीय अिधकरण, पुणे यायपीठ "lh" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "C", PUNE
सु ी सुषमा चावला, याियक सद य एवं ी डी. क णाकरा राव, लेखा सद य के सम
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM
आयकर अपील सं. / ITA No.1945/PUN/2017
िनधारण वष / Assessment Year : 2013-14
DCIT, Circle-8,
Pune. .... अपीलाथ /Appellant
Vs.
M/s. Alfa Laval (India) Limited,
Survey No.222/1A, Mumbai-Pune Road,
Dapodi, Pune-411012.
PAN : AAACA5899A .... थ / Respondent
Revenue by : Shri M. K. Gautam
Assessee by : Shri Nikhil Pathak
सुनवाई क तारीख / घोषणा क तारीख /
Date of Hearing : 29.04.2019 Date of Pronouncement: 20.06.2019
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the Revenue against the order of CIT(A)-13, Pune dated 08.05.2017 for the assessment year 2013-14.
2. The grounds raised by the Revenue are as under :-
"1. "whether in the facts and circumstances of the ease and in law, the Ld. CIT(A) erred in holding that the domestic market segment and the export market segment were distinct and not comparable and thereby, the application of the cost plus method adopted by the TPO was incorrect?"
2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of IT Service charges of Rs. 2,82,35,265/- by holding that the above expenditure was in the nature of revenue expenditure?"
2a. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition on account of IT Services Charges of Rs. 2,82,35,265/-, ignoring that on similar issue for A.Y. 2008- 09, the Hon'ble ITAT has restored the matter to the file of the AO for fresh verification?"
3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 7,85,222/- u/s 14A 2 ITA No.1945/PUN/2017 ignoring that AO has clearly recorded in his order that he is not satisfied with the quantum of expenses allocated by the assessee against exempt income?"
4. The appellant craves leave to add, amend or alter any of the above grounds of appeal."
3. Before us, at the outset, ld. Counsel for the assessee brought our attention to the grounds and submitted that the Revenue questioned the decision of the CIT(A) in matters relating to (i) correctness of the cost plus method as not the most appropriate method (MAM); (ii) revenue nature of IT services charges incurred by the assessee and (iii) the deletion of disallowance u/s 14A of the Act.
4. Mentioning that the identical issues, which were adjudicated by the Tribunal for various assessment years including the immediate preceding assessment year 2012-13, ld. Counsel brought our attention to the grounds raised in the said assessment year i.e. A.Y. 2012-13. The ld. AR submitted that the ground no.1 pertains to the most appropriate method qua the TPO's decision to compare the profit margins of international transactions with that of the domestic segment. The Assessing Officer/TPO adopted cost plus method as MAM in this year too like in earlier assessment years.
When the said issue was the subject-matter of the appeal for the assessment year 2012-13 in assessee's own case vide ITA No.937/PUN/2017 dated 01.04.2019, the Tribunal granted relief to the assessee relying on the findings of the earlier order of the Tribunal for the assessment year 2011-12 vide ITA No.2638/PUN/2016. In the process, the Revenue's appeal for the assessment year 2012-13 was dismissed as per the discussion given in para 2 to 4 of the said order of the Tribunal in ITA No.937/PUN/2017 (supra).
3 ITA No.1945/PUN/20175. On hearing both the sides on the issue of MAM and perusing the para 2 to 4 of the order of the Tribunal for the assessment year 2012-13 (supra), we find it relevant to extract and the same are extracted as under :-
"2. The Ld. AR of the assessee appraised the Bench that the ground No.1 in the grounds of appeal by the Revenue is covered by the decision of Co- ordinate Bench of the Tribunal in assessee's own case in ITA No.2638/PUN/2016 for the assessment year 2011-12. The issue has been discussed at Para 4 of the Tribunal's order which is as under:
"4.The assessee aggregated all its international transaction of the equipment division in its Transfer Pricing Study Report. According to the assessee, its international transactions are required to be aggregated because the same are closely interlinked, therefore, it used the Transactional Net Margin Method (TNMM) to benchmark its international transactions. The assessee stated that the net operating margin over sales of its Equipment division was of 13.77% which was higher than the average net operating margin of the comparable companies. Therefore, its international transactions of the Equipment division were at the arm's length price (ALP). The Transfer Pricing Officer (TPO) in the order passed u/s.92CA(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') rejected the TNMM used by the assessee. The TPO applied the Cost Plus Method (CPM) with the Profit Level Indicator (PLI) with respect to its domestic segment of the traded spares @ 136.15% wherein the PLI in the case of the export of the traded spares to AE is @46.02%. With the result, the TPO made the adjustment of Rs.1,56,00,000/- to the assessee's international transaction of export of spares."
The Co-ordinate Bench of the Pune Tribunal on the issue has held and observed as follows:
"7. With regard to the first ground, at the time of hearing, the Ld. AR of the assessee invited our attention to the Para 2.1.1 to 2.1.4 at pages 10 to 18 of the Ld. CIT(A)'s order wherein on the issue as per the reasons appearing therein, Ld. CIT(A) has provided relief to the assessee which is on record. The Ld. AR submitted that TPO has made an addition while determining ALP of the international transactions relating to the Equipment Division. The assessee has adopted TNMM as the most appropriate method for determining ALP. The TPO held that the cost plus method is the more suitable than TNMM. However, the Ld. CIT(A) has held that TNMM is to be applied following the order of the Co-ordinate Bench, ITAT in assessee's own case for assessment year 2008-09 to 2010-11. The ITAT has held that TNMM is the most appropriate method and accordingly, the addition made has been deleted.
8. The Ld. DR though principally agreed to the submissions of the Ld. AR , however, he has placed strong reliance on the findings of TPO as well as the Assessing Officer.
9. We have perused the case record and heard the rival contentions in the paper book filed before us. The copies of order of ITAT relates to assessee's own case for assessment year 2010-11 have been filed in pages 71 to 81 of the paper book. The relevant portion of the order on this issue is as under:4 ITA No.1945/PUN/2017
"13. Now, coming to the facts of the present case, the Transfer Pricing Officer (TPO) in para 12 of its order had referred the same list which is similar to as reproduced in para 10 at page 8 of the Tribunal's order dated 30.06.2017 (supra.). The TPO is directed to apply the TNMM method as in earlier years to exclude five concerns i.e. Axtel Industries Ltd., Anup Engineering Ltd, Thermax Ltd., Walchandnagar Industries Ltd. and GMM Pfaudler Ltd. It may be pointed out herein itself that the TPO in para 9 has also referred to the order of the Tribunal in assessment year 2008-09. The CIT(A) has also granted the relief to the assessee in para 2.1.15 at page 24 in turn, relying on the order of Tribunal in assessment year 2008-09. We find that the Tribunal further in assessment year 2009-10 has applied similar principle and held as under:
"12. Similar issue of selection of most appropriate method arose before the Tribunal in assessee's own case in assessment year 2008-09 and the Tribunal held that CPM method should not be applied and TNMM method is to be applied as most appropriate method. Applying the said ratio to the facts of the present case, where the TPO himself had applied TNMM method in all the earlier years starling from assessment years 2002-03 to 2007- 08 and the Tribunal had directed the application of TNMM method in assessment year 2008-09, we hold that for benchmarking the interactional transactions in the equipment division, TNMM method is to be applied. The TPO has already considered the list of comparables selected by the assessee. In respect of comparables at serial Nos.1 and 7 being rejected for non-matching on turnover, we uphold the order of TPO. Similarly, Walchandnagar Industries Ltd. cannot be selected as comparable for different accounting period. In respect of Thermax Ltd. and GMM Pfaudler Ltd., 'the two concerns are not functionally comparable. Now, looking at the margins of balance four concerns which were selected by the assessee and as pointed out by the learned Authorized Representative for the assessee that the margins of said concerns are much below the margins shown by the assessee at 19.48% and consequently, no adjustment is to be made in the hands of assessee on this account. We also accept the aggregation approach applied by the assessee under the said equipment division as similar aggregation approach has been applied by the TPO in all the earlier years and even by the Tribunal in assessment year 2008-09 Consequently, we delete the addition of Rs.8,87,590/- made in the division of export of equipments."
14. In view of similarity of the issue, we apply the parity of reasoning as in assessment year 2009-10 to decide the issue in favour of the assessee. The TPO is thus, directed to exclude five concerns i.e. Axtel Industries Ltd., Anup Engineering Ltd., Thermax Ltd., Walchandnagar Industries Ltd. and GMM Pfaudler Ltd. and after excluding the said comparables, the average margin of balance comparables work to 14.01% against which, the assessee has shown the margins of 25.27%. Hence, no adjustment is to be made on account of arm's length 5 ITA No.1945/PUN/2017 price of international transactions. The ground of appeal No.1 raised by the Revenue is, thus, dismissed."
Respectfully, following the decision of the Co-ordinate Bench, we upheld the relief provided by the Ld. CIT(A) on this issue. Hence, ground of appeal No.1 raised by the Revenue is dismissed."
3. The Ld. DR though principally agreed to the submissions of the Ld. AR, however, he has placed strong reliance on the findings of the TPO as well as the Assessing Officer.
4. We have perused the case records and heard the rival contentions. We have also perused our findings in ITA No.2638/PUN/2016 (supra.) in assessee's own case and we find that the issue has been dealt and is squarely covered in favour of the assessee.
Respectfully, following our above mentioned decision, we sustain the relief provided to the assessee by the Ld. CIT(Appeals). Thus, ground No.1 raised in the appeal by the Revenue is dismissed."
6. Consistently, the claim of the assessee is being allowed by the Tribunal. Considering the above, we find it is now settled legal proposition in favour of the assessee that the comparison of profit margin of export market segment with that of the domestic market segment is not proper.
Thus, the cost plus method adopted by the TPO stands rejected and held unsustainable. Accordingly, ground no.1 raised by the Revenue is dismissed.
7. Ground no.2 and 2a relates to the IT service charges incurred by the assessee. Assessing Officer held that these expenses are capital in nature.
Thus, there is dispute on if the said expenditure is of revenue nature or capital expenditure. In this regard, bringing our attention to ground no.2 of the Revenue's appeal for the assessment year 2012-13 (supra), ld.
Counsel submitted that a similar issue was adjudicated by the Tribunal as per the discussion given in para 5 to 8 of the order of the Tribunal (supra) and the matter stands remanded to the file of the Assessing Officer for 6 ITA No.1945/PUN/2017 verification. Before us, ld. AR pleaded that a similar direction of the Tribunal (supra) may be given for this year too and requested for remanding the issue to the file of the Assessing Officer for fresh adjudication.
8. On hearing both the sides on this issue, we find it relevant to extract the said para 5 to 8 of the order of the Tribunal (supra) and the same are extracted hereunder :-
"5. With regard to ground No.2 in the grounds of appeal, the Ld. AR of the assessee submitted that the issue has been restored back to the file of the Assessing Officer for verification in assessee's own case in the aforesaid decision in ITA No.2638/PUN/2016 for the assessment year 2011-12.
6. We have perused the case records and analyzed the facts and circumstances in this case. This issue relates to the deletion of disallowance of IT service charges. That in our decision in assessee's own case in ITA No.2638/PUN/2016 for the assessment year 2011-12, we have observed and held as follows:
"17. We have perused the case record and heard the rival contentions. We find that in assessee's own case for assessment year 2008-09 and 2010-11, this issue has been remitted back to the file of Assessing Officer for verification. Relevant part of the order in ITA No.1351/PUN/2015 for assessment year 2010-2011 wherein the order of Tribunal for assessment year 2008-09 has considered is as under:
"16. In the facts relating to the issue, the assessee during the year under consideration had claimed expenditure incurred towards acquisition and use of software at Rs.5.38 crores. The Assessing Officer on examination of the details of expenditure had found the said expenditure to be capital in nature and allowed depreciation at Rs.1.61 crores on it. The Assessing Officer disallowed net expenditure of Rs.3.76 crores.
17. The CIT(A) had deleted the entire disallowance with direction to reverse the depreciation allowed on the said disallowance.
18. The Revenue is aggrieved by the order of CIT(A) as similar issue of software expenses had been restored back to the file of Assessing Officer for fresh verification by the Tribunal.
19. We find that the Tribunal in assessment year 2008-09 had set aside the said issue for verification as per para 10 at page 53 of the said order. We are relying on the finding of Tribunal in this regard. However, for the sake of brevity, the same is not being reproduced. In line with the said directions, we remit this issue back to the file of Assessing Officer for verification, as per directions of Tribunal in assessment year 2008-09. The grounds of appeal No.2 and 3 raised by the Revenue are allowed for statistical purposes."7 ITA No.1945/PUN/2017
That, respectfully following the decision of our Co-ordinate Bench, ITAT in assessee's own case, these two grounds are remitted back to the file of Assessing Officer for verification. Accordingly, grounds No. 3 and 4 raised in appeal by the Revenue are allowed for statistical purpose."
7. The Ld. DR fairly conceded in remitting back the issue to the file of Assessing Officer for verification.
8. We have perused the case records and analyzed the facts and circumstances in this case. In view of the matter, respectfully following our decision in assessee's own case in ITA No.2638/PUN/2016 (supra.), we set aside the order of the Ld. CIT(Appeals) and remit the matter back to the file of Assessing Officer for verification. The Assessing Officer shall grant reasonable opportunity of hearing to the assessee in accordance with law. Thus, ground No.2 raised in appeal by the Revenue is allowed for statistical purposes."
9. From the above, it is evident that the allowability of I.T. charges expenses is the identical issue came up before the Tribunal for the assessment year 2012-13 (supra) and the Tribunal remanded the issue to the file of the Assessing Officer for fresh verification. The direction given by the Tribunal to assessment year 2008-09 are required to be followed.
Considering the same and perusing the said order of the Tribunal (supra), we are of the opinion the said issue is remanded with identical direction to the file of the Assessing Officer for fresh adjudication. The Assessing Officer shall decide the issue afresh after granting reasonable opportunity of being heard to the assessee. Accordingly, ground no.2 and 2a raised by the Revenue is allowed for statistical purposes.
10. Ground no.3 relates to the disallowance u/s 14A of the Act. In this regard, ld. Counsel brought our attention to the contents of para 9 of the assessment order and submitted that the satisfaction recorded by the Assessing Officer is identical to that of the satisfaction recorded by the Assessing Officer for the assessment year 2012-13. The ld. Counsel for the 8 ITA No.1945/PUN/2017 assessee, bringing our attention to para 9 and 10 of earlier order of the Tribunal in assessee's own case for the assessment year 2012-13 (supra), submitted that this issue is squarely covered in favour of the assessee by the said decision of the Tribunal (supra).
11. On hearing both the sides on this issue, we find it relevant to extract the said para 9 and 10 of the order of the Tribunal (supra) and the same are extracted hereunder :-
"9. Ground No.3 relates to the deletion of disallowance u/s.14A of the Act. The Ld. AR of the assessee appraised the Bench that this issue is covered in favour of the assessee by the decision of Co-ordinate Bench of the Tribunal in ITA No.2638/PUN/2016(supra.). The relevant findings on the issue are as follows:
"20. We have perused the case record. We find that the Ld. CIT(Appeal) deleted this disallowance in assessee's case for assessment year 2010-11 because the Assessing Officer failed to record his satisfaction before invoking Rule 8D, which is held as a mandatory precondition provided u/s.14(2) of the Act and the same facts prevail during the year under consideration. Therefore, Ld. CIT(Appeal) had deleted the disallowance as he has done for assessment year 2010-11, maintaining status quo.
21. At the time of hearing, the Ld. AR of the assessee appraised the Bench that the Pune Bench of the Tribunal in ITA No.1351/PUN/2015 on the same issue, facts and circumstances has also deleted the disallowance made and has given findings in favour of the assessee. The relevant parts of the findings are as under:
"25. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is the preliminary issue of recording of satisfaction by the Assessing Officer before applying provisions of Rule 8D of the Rules in line with section 14A of the Act. We find that similar issue of exercise of jurisdiction by the Assessing Officer in recording the satisfaction while applying the provisions of section 14A of the Act arose before the Tribunal in Kalyani Steels Ltd. Vs. Addl.CIT (supra), wherein it was held as under:-
"10. In the aforesaid background, now, we may examine the facts of the present case. In this case, assessee has earned by way of dividends a sum of Rs.5,45,58,685/-, which is exempt u/s 10(38) of the Act and thus the same does not form part of the total income under the Act. In the computation of income, assessee having regard to section 14A of the Act, determined the amount of expenditure incurred in relation to such income at Rs.5,00,000/-. The Assessing Officer has not found it acceptable and has instead determined the amount of expenditure in relation to such income by applying rule 8D of the Rules. Ostensibly, the action of the Assessing 9 ITA No.1945/PUN/2017 Officer cannot be upheld unless he has complied with the pre-requisite of invoking rule 8D of the Rules, namely, recording of an objective satisfaction with regard to the claim of the assessee that an expenditure of Rs.5,00,000/- has been incurred in relation to the exempt income, is incorrect. In order to examine the aforesaid compliance with the pre-condition, we have perused the para 4 to 4.2 of the assessment order and find that no reasons have been advanced as to why the disallowance determined by the assessee was found to be incorrect, having regard to the accounts of the assessee. The only point made by the Assessing Officer is to the effect that "the said disallowance was not acceptable". In-fact, we find that the assessee made detailed submissions to the Assessing Officer, which have been reproduced by the CIT(A) in para 3.2.1 of his order. As per the assessee, the determination of disallowance u/s 14A of the Act of Rs.5,00,000/- was based on the employee costs and other costs involved in carrying out this activity. Further, assessee also explained that the shares which have yielded exempt income were acquired long back out of own funds and no borrowings were utilized. The mutual fund investments were claimed to be also made out of surplus funds. It was specifically claimed that no fresh investments have been made during the year under consideration in shares yielding exempt income. All the aforesaid points raised by the assessee have not been addressed by the Assessing Officer and the same have been brushed aside by making a bland statement that the disallowance is "not acceptable". Therefore, in our view, in the present case, the Assessing Officer has not recorded any objective satisfaction in regard to the correctness of the claim of the assessee, which is mandatorily required in terms of section 14A(2) of the Act and therefore his action of invoking rule 8D of the Rules to compute the impugned disallowance is untenable. Accordingly, the orders of the authorities below are set- aside on this aspect and the Assessing Officer is directed to retain the disallowance u/s 14A of the Act to the extent of Rs.5,00,000/-, as returned by the assessee."
26. In the facts of the present case, the Assessing Officer has failed to record any satisfaction before making the aforesaid disallowance and in the absence of recording of satisfaction, the provisions of section 14A of the Act cannot be invoked as the Assessing Officer has failed to come to a finding as to why the disallowance made by the assessee under section 14A of the Act at Rs.3 lakhs is incorrect. Accordingly, we uphold the order of CIT(A). The ground of appeal No.4 raised by the Revenue is thus, dismissed."
Therefore, respectfully following the decision of the Co-ordinate Bench, we uphold the order of Ld. CIT(Appeal) on this issue and sustain the relief provide to the assessee. Thus, ground No. 5 raised in appeal by Revenue is dismissed."
10. We have perused the case records and have given thoughtful consideration to the findings of the Ld. CIT(Appeals) and have also perused 10 ITA No.1945/PUN/2017 our order in the case of assessee in ITA No.2638/PUN/2016 for the assessment year 2011-12. We observe that there is no change in the facts and circumstances with respect to the relevant assessment year. The Ld. DR also agreed to this fact. Hence, respectfully following our decision for the assessment year 2011-12 in assessee's own case, we sustain the relief provided to the assessee. Thus, ground No.3 raised in appeal by the Revenue is dismissed."
12. We find that the DR could not demonstrate that there exists requisite satisfaction, legally sustainable, on the records. Thus, it is evident that there is no change on the facts and circumstances with respect to the assessment year under consideration. Therefore, following the said decision of the Tribunal (supra), we dismiss the said issue relating to the disallowance u/s 14A of the Act. Thus, the ground no.3 raised by the Revenue is dismissed.
13. In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Order pronounced on 20th day of June, 2019.
Sd/- Sd/-
(SUSHMA CHOWLA) (D. KARUNAKARA RAO)
ाियक सद / JUDICIAL MEMBER लेखा सद / ACCOUNTANT MEMBER
पुणे / Pune; दनांक Dated : 20th June, 2019.
Sujeet
आदेश क ितिलिप अ िे षत/Copy of the Order is forwarded to :
1. अपीलाथ / The Appellant;
2. यथ / The Respondent;
3. The CIT(A)-13, Pune;
3. The CCIT, Pune;
4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, पुणे "lh" / DR 'C', ITAT, Pune;
5. गाड फाईल / Guard file.
आदेशानुसार/ BY ORDER, स यािपत ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune