Income Tax Appellate Tribunal - Pune
Tavanappa Padanabh Kemble [Huf], ... vs Dcit, Sangli on 15 February, 2017
आयकर अपील य अ धकरण पण
ु े यायपीठ "ए" पण
ु े म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
सु ी सुषमा चावला, या यक सद य एवं ी अ नल चतुव!द , लेखा सद य के सम$
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM
आयकर अपील सं. / ITA No.2567/PUN/2012
नधा&रण वष& / Assessment Year : 2008-09
Endurance Systems (India) Pvt. Ltd.,
(Now merged with Endurance
Technologies Pvt. Ltd.),
K-228, MIDC Industrial Area,
Waluj, Aurangabad - 431136 .... अपीलाथ /Appellant
PAN: AAACE0819Q
Vs.
The Asst. Commissioner of Income Tax,
Circle 1, Aurangabad .... यथ / Respondent
अपीलाथ क ओर से / Appellant by : S/Shri Nikhil Pathak and
Abhay Avchat
यथ क ओर से / Respondent by : Shri Rajeev Kumar, CIT
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 21.12.2016 Date of Pronouncement: 15.02.2017
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
This appeal filed by the assessee is against order of ACIT, Circle-1, Aurangabad, dated 02.11.2012 relating to assessment year 2008-09 passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short 'the Act').
2 ITA No.2567/PUN/2012
Endurance Systems (India) Pvt. Ltd.
2. The assessee has raised the following grounds of appeal:-
1. On the facts and in the circumstances of the case and in law the learned Assistant Commissioner of Income Tax Circle-1, Aurangabad / Dispute Resolution Panel-I, Mumbai (herein after referred as 'the Assessing Officer') has erred in making aggregate addition of Rs.2,76,62,100/-.
2. Without considering provisions of Section 92C of the Income tax Act, 1961, the Assessing officer has erred in making additions of Rs.2,76,62,100/- .
3. Without prejudice to the foregoing, in spite of internal comparable figures being available, the assessing officer has erred in ignoring the profitability of internal comparables being sale to AE not at arm's length.
4. Without prejudice to the foregoing, the assessing officer has erred in selecting the comparables under TNMM and rejecting the comparables selected by the Company without giving justifiable reasons for the same.
5. On the facts and circumstances of the case, proposed addition of Rs.2,70, 22,100/- in respect of purchase/sale of traded/ finished goods from/to the associate enterprises is bad in law.
6. On the facts and in the circumstances of the case and in law, addition of Rs.6,40,000/- in respect of issue of guarantee to the associate enterprise is bad in law.
7. Without prejudice to the foregoing, an addition of Rs.6,40,000/- in respect of issue of guarantee to the associate enterprise is excessive and unreasonable.
8. Without prejudice to the foregoing, the addition of Rs.6,40,000/- in respect of issue of guarantee to the associate enterprise is double addition, as the another proposed addition of Rs.2,70,22,100/- is in respect, of the entire business of the assessee Company and therefore, this addition is over and above the aforesaid addition.
9. Allowance under Section 43B of Rs.11,14,602/- is not allowed and is not in keeping with the law.
10. The Assessing Officer has erred in not granting relief due to the assessee, in spite of duty bound to assess correct income under the Act for the following expenses:
Sr. No. Particulars Amount Rs.
1. Excise duty 1,11,309.00
6,081.00
2. Bonus paid 1,79,647.00
3. Sales Tax dues paid 11,14,602
3. The assessee has also raised additional ground of appeal :
"1. The assessee company submits that without prejudice to its contention that the comparable uncontrolled price method is the most appropriate method for determining the Arm's Length Price (ALP) of the International Transaction entered into with the AE, in the event, the Transactional Net Margin Method is to be adopted as the most 3 ITA No.2567/PUN/2012 Endurance Systems (India) Pvt. Ltd.
appropriate method, the adjustment on account of working capital should be granted."
4. Briefly in the facts of the case the assessee was engaged in the business of design, manufacturing, development, marketing and distribution of automotive products. For the year under consideration, the assessee had furnished the return of income declaring total income of Rs.2,83,738/-. The assessee had entered into international transactions over Rs.15 crores. The Assessing Officer made a reference to the Transfer Pricing Officer (in short 'the TPO') to benchmark the international transaction of the assessee. The TPO noted that the assessee had merged with Endurance Technologies Pvt. Ltd. ('in short ETPL') w.e.f. 01-04-2008. ETPL had acquired 40% ownership stake in PaioliMeccanica S.P.A, which was a company incorporated in Italy and was engaged in manufacturing of suspension parts for two and three wheelers. The assessee had entered into international transaction mainly with PaioliMeccanica S.P.A. The assessee had aggregated the transactions and had benchmarked the same following internal CUP method. The Total proceedings before the TPO were whether CUP method is to be applied or TNMM is the most appropriate method to be applied. The TPO rejected the application of CUP method and selected comparables to benchmark the international transaction of the assessee. The PLI of the assessee was 2.85% whereas the PLI of the 8 comparables selected by the TPO worked out to 7.93% and he proposed an adjustment of Rs.25,56,49,000/-. The Assessing Officer passed the draft assessment order against which the assessee filed objections before the DRP. However, the objections of the assessee were rejected but the DRP directed the Assessing Officer to calculate the Arm's Length Price with respect to transactions with Associate Enterprise and not the entire turnover. Accordingly, the Assessing Officer in the final assessment order made an adjustment of Rs.2,76,62,100/- on account of international transaction relating to its export of 4 ITA No.2567/PUN/2012 Endurance Systems (India) Pvt. Ltd.
spares and on account of guarantee of Rs.6,40,000/-. The assessee is in appeal against the order of the Assessing Officer.
5. The Ld. Authorised Representative for the assessee fairly admitted before us that the limited issue which needs adjudication in the case is that in case TNMM is held to be most appropriate method, then the concern Bosch Chassis System India Ltd. is to be excluded from the final set of comparables having different financial year ending. He further pointed out that even M/s. Escorts Ltd. has different financial year and following the ratio laid down in Dover India (P) Ltd. Vs. Dy.CIT reported in (2015) 59 taxmann.com 53 (Pune Tribunal) the two concerns are to be excluded. He fairly admitted that the assessee was seeking that Escorts Ltd. should be included in the final set of comparables which was rejected by the Assessing Officer/Transfer Pricing Officer on turnover basis but the turnover of the segmental division was within limits. He also pointed out that by way of additional ground of appeal working capital adjustment is sought for, but, in case, if Bosch Chassis System India Ltd. is excluded, then the assessee is within +/-5% range, then no need for even the working capital adjustments.
6. The Ld. Departmental Representative for the Revenue on the other hand placing reliance on the orders of the Assessing Officer/Transfer Pricing Officer and the directions of the Dispute Resolution Panel pointed out that as the assessee had not raised any issue of working capital adjustment either before the Assessing Officer/ Transfer Pricing Officer, the same could not be raised by way of additional grounds of appeal.
7. We have heard the rival contentions and perused the record. The assessee is a subsidiary company of Endurance Technologies Pvt. Ltd. and is engaged in manufacturing of auto-components and specialized in the field of 5 ITA No.2567/PUN/2012 Endurance Systems (India) Pvt. Ltd.
machining of auto components. The assessee had merged with Endurance Technologies Pvt. Ltd., w.e.f. 01-04-2008, which is the year under consideration, who in turn had acquired 40% equity stake in PaioliMeccanica S.P.A. The said company was incorporated in Italy and was engaged in the manufacture of suspension parts of two and three wheelers and the assessee had entered into international transaction mainly with PaioliMeccanica S.P.A. The assessee had applied internal CUP method in order to benchmark its international transaction and the whole proceedings before the Transfer Pricing Officer and Dispute Resolution Panel and the Assessing Officer was in respect of the method to be applied for benchmarking the international transaction, wherein the case of the assessee was that internal CUP method is to be applied. On the other hand Transfer Pricing Officer was of the view that TNMM was the most appropriate method to be applied. In the final analysis the Transfer Pricing Officer applied TNMM method by selecting certain companies as comparables which are enlisted at page 10 of the Transfer Pricing Officer's order.
8. The Ld. Authorised Representative for the assessee before us fairly admitted that in case the concern Bosch Chassis System India Ltd. is excluded from the final list of comparables, while applying TNMM method, then the margins shown by the assessee in the mean margins of the comparables were within the +/-5% range and no adjustment is to be made in the hands of the assessee on account of Transfer Pricing provisions. He fairly agreed to adoption of TNMM for benchmarking international transaction of the assessee.
9. The grounds of appeal No.1 and 2 raised by the assessee are general in respect of the entire Transfer Pricing adjustment and the same are dismissed. 6 ITA No.2567/PUN/2012
Endurance Systems (India) Pvt. Ltd.
10. The issue raised vide ground of appeal No.3 is for application of CUP method which is also dismissed because of the admission of the Ld. Authorised Representative for the assessee.
11. The issue raised by way of ground of appeal No.4 is against exclusion of Bosch Chassis System India Ltd. and non-inclusion of Escorts Ltd. The assessee has placed on record the financials of Bosch Chassis System India Ltd. wherein at Page 404 of the paper book, the calendar year has been adopted by the said concern as its accounting period, i.e. year of closing on 31-12-2007/31-12-2008. The assessee is following financial year for accounting its income. Since the accounting year adopted by the said concern is at variance, then while applying the Transfer Pricing Provisions, it has been held that such concerns having different accounting years be excluded from the final list of comparables, in order to benchmark the international transactions undertaken. The Pune Bench of the Tribunal in the case of Dover India Pvt. Ltd. (Supra) held that concerns with different year ending be excluded from the final set of comparables before benchmarking the international transaction undertaken by any concern. Another concern against which the assessee has raised the issue of its inclusion, the Ld. Authorised Representative for the assessee, fairly pointed out that the said concern Escorts Ltd. has a different financial year ending, i.e. September 2007 which is evident from the copy of the balance sheet placed at page 497 of the paper book. He pointed out that the Assessing Officer/Transfer Pricing Officer had rejected the said concern on turnover basis but since the segmental profits of the ancillary unit engaged in the similar business as that of the assessee were available and the same reflected turnover of only Rs.96 crores which was within the range of the assessee, the same had to be considered. Hence the rejection by the Assessing Officer/Transfer Pricing Officer was not correct. However, because 7 ITA No.2567/PUN/2012 Endurance Systems (India) Pvt. Ltd.
of the said concern having a different accounting year, the results of the said concern could not be included in the final set of comparables. In view of the admission of the assessee and in view of the present facts and circumstances, we hold that both Bosch Chassis System India Ltd. and Escorts Ltd. having different accounting year ending are not to be included in the final set of comparables in order to benchmark the international transaction of the assessee, while applying TNMM method. We direct so. The Assessing Officer/Transfer Pricing Officer is directed therefore to recompute the adjustment, if any, in the hands of the assessee in this regard. The Ld. Authorised Representative for the assessee pointed out that in case if Bosch Chassis System India Ltd. is excluded from the final set of comparables, its margin would be within +/-5% and no adjustment is to be made on account of Arm's Length provisions. Accordingly, we direct the Assessing Officer to work out the margins of the comparables and compare it with the PLI of the assessee. The Ground of appeal No.4 raised by the assessee is thus partly allowed.
12. The Ground of appeal No.5 raised by the assessee is general in nature is dismissed.
13. The additional ground of appeal raised by the assessee is against disallowance of working capital adjustment while applying the Transfer Pricing provisions. The Ld. Authorised Representative for the assessee pointed out that complete financial data of the assessee and also the comparables picked up by the Transfer Pricing Officer applied for benchmarking the international transaction are available on record and in view of the various decisions of the Pune Bench of the Tribunal the said plea of the assessee may be accepted. 8 ITA No.2567/PUN/2012
Endurance Systems (India) Pvt. Ltd.
14. We find merit in the plea of the assessee wherein complete facts are available on record and the Assessing Officer/Transfer Pricing Officer need to verify the same. Accordingly, we admit the additional ground of appeal raised by the assessee and direct the Assessing Officer to decide the issue of allowability of working capital adjustment in accordance with law and settled legal position on the same. Accordingly, the grounds of appeal raised by the assessee is allowed.
15. Now coming to the issue of Corporate guarantee adjustment made in the hands of the assessee of Rs.6,40,000/-. The assessee by way of grounds of appeal No.6 to 8 has raised the said issue.
16. Briefly in the facts of the case relating to the issue are that the assessee had reported the said transaction in Form 3CEB under which it had provided financial services and had incurred a risk for which compensation was due. The Associate Enterprise not being very credit worthy had been unable to avail financing from Bank of India, but on the strength of Corporate Guarantee issued by the assessee, to the bank, the said Guarantee was availed. The Transfer Pricing Officer was of the view that one measure of the value of this service was the difference in interest rate. However, since the information was not available, external CUP was applied. The Transfer Pricing Officer held that where the banks in India charge 1% as guarantee fee on such transaction, adjustment of US$ 16000 or approximately Rs.6,40,000/- is to be made in respect of the said transaction.
17. The Dispute Resolution Panel dismissed the objections raised by the assessee and the Assessing Officer in the final assessment year made an addition of Rs.6,40,000/-, against which the assessee is in appeal. 9 ITA No.2567/PUN/2012
Endurance Systems (India) Pvt. Ltd.
18. The Ld. Authorised Representative for the assessee pointed out that the assessee had given Corporate Guarantee to a subsidiary in Thailand against which services the Transfer Pricing Officer says something should be charged and 1% was charged. He further pointed out that the Transfer Pricing Officer settled it as international transaction. He placed reliance on the ratio laid down by the Mumbai Bench of the Tribunal in Manugraph India Ltd. Vs. DCIT reported in (2015) 62 taxmann.com 347 (Mumbai Tribunal) wherein the issue was decided by taking the rate of 0.5% for assessment years 2008-09 and 2009-10. He also referred to the decision of Hon'ble Bombay High Court in CIT Vs. Everest Kento Cylinders Ltd. reported in (2015) 58 taxmann.com 254 (Bombay)
19. The Ld. Departmental Representative for the revenue placed reliance on the orders of the Assessing Officer/ Transfer Pricing Officer.
20. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is with regard to the facility provided by the assessee to its AE under which Corporate Guarantee was given by the assessee on behalf of the subsidiary. The Transfer Pricing Officer while benchmarking the international transaction of the assessee was of the view that against the provision of Bank Guarantee, the assessee should have charged some amount as Guarantee fee and he worked out the above in the hands of the assessee by adopting the Guarantee fee @1%, i.e. resulting in addition of Rs.6,40,000/-. The assessee is in appeal against the order of the Assessing Officer/ Transfer Pricing Officer. The Ld. Authorised Representative for the assessee has placed reliance on the ratio laid down by the Mumbai Bench of the Tribunal wherein vide para 11 after referring to the decision of Hon'ble Bombay High Court, the Tribunal had held that rate of 0.5% is justified. Applying the same ratio, we direct the Assessing Officer to apply the rate of 0.5% as charges for providing Bank Guarantee to the Associate Enterprise and 10 ITA No.2567/PUN/2012 Endurance Systems (India) Pvt. Ltd.
restrict the addition accordingly. Grounds of appeal No.6 to 8 raised by the assessee are thus partly allowed.
21. The last issue raised by way of grounds of appeal No.9 and 10 by the assessee are against the deduction allowable in view of the provisions of section 43B of the Act.
22. The Ld. Authorised Representative of the assessee pointed out that the Assessing Officer had erred in not granting relief which was due to the assessee on account of Excise duty to be paid, bonus paid and sales tax dues paid. The claim was made totaling Rs.11,14,602/- in view of the provisions of section 43B of the Act on the ground that all the above said amounts were paid within the due date stipulated in the aforesaid section.
23. The Ld. Authorised Representative for the assessee pointed out that no such claim was made in the return of income, however, the claim was made during the course of assessment proceedings, but both the Assessing Officer and the Dispute Resolution panel dismissed the claim of the assessee as not entertainable in view of the ratio laid down in Goetze India Ltd. Vs. CIT (2006) 284 ITR 323 (SC). The Ld. Authorised Representative for the assessee pointed out that the claim of the assessee is entertainable in view of the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd. reported in 349 ITR 336 (bom.) and the matter be verified and relief be allowed to the assessee. The Ld. Authorised Representative for the assessee referred to the submissions made before the Assessing Officer dated 13-12- 2011 wherein it was pointed out that certain deductions on account of excise duty provision, bonus payable and sales tax paid relating to the earlier year, but paid during the current year were not claimed in the return of income but since the amounts were added in the hands of the assessee, then the same were 11 ITA No.2567/PUN/2012 Endurance Systems (India) Pvt. Ltd.
allowable in view of provisions of section 43B of the Act. The said plea of the assessee was not considered by the Assessing Officer. Before the Dispute Resolution Panel, objections were raised, copy of which are placed at pages 783 to 785 of the paper book. The Ld. Authorised Representative for the assessee pleaded that following the ratio laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (supra) the said issue is to be allowed.
24. We have heard the rival contentions and perused the record. The plea of the assessee before us is regarding allowance of certain deductions on payment basis under section 43B of the Act, which were not claimed in the return of income. The assessee had claimed that it had deposited the excise duty, bonus and sales tax relating to assessment year 2007-08, during the current financial year and in view of the provisions of section 43B of the Act the assessee was entitled to claim the said deduction since they were inadvertently disallowed in the earlier year. The total deduction which are claimed by the assessee are Rs.11,24,602/-. Under the provisions of section 43B of the Act, it is provided that in case the assessee does not deposit certain sums within the stipulated period, then the said amount is to be disallowed in the hands of the assessee but the assessee is entitled to claim the same as deduction in the year of payment. The assessee claims that the provisions made on account of excise duty, bonus and sales tax were offered to tax in assessment year 2007- 08 since the amounts were not deposited, however, the said amounts have been paid in the year under consideration but by an inadvertent error, while filing the return of income, the said deductions were not claimed. Following the ratio laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (supra) we hold that the assessee can raise such a plea before the authorities, i.e. during the course of assessment or 12 ITA No.2567/PUN/2012 Endurance Systems (India) Pvt. Ltd.
appeal proceedings. Accordingly, we find no merit in the observations of the Dispute Resolution Panel in rejecting the claim of the assessee relying on the ratio laid down by the Hon'ble Supreme Court in the case of Goetze India Ltd. Vs. CIT (2006) 284 ITR 323 (SC). Reversing the same, we direct the Assessing Officer to verify the claim of the assessee and allow the same in accordance with law after affording reasonable opportunity of hearing to the assessee. Grounds of appeal No.9 and 10 are thus allowed for statistical purposes.
25. In the result, the appeal of the assessee is partly allowed.
Order pronounced on this 15th day of February, 2017.
Sd/- Sd/-
(ANIL CHATURVEDI) (SUSHMA CHOWLA)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
th
पण
ु े / Pune; दनांक Dated : 15 February, 2017
Satish
आदे श क( ) त*ल+प अ,े+षत/Copy of the Order is forwarded to :
1. The Appellant;
2. The Respondent;
3. The CIT(A)-IT/TP, Pune;
4. The DIT (TP/IT), Pune;
5. The DR 'A', ITAT, Pune;
6. Guard file.
ु ार/ BY ORDER, आदे शानस स या!पत "त //True Copy// सहायक पंजीकार / Assistant Registrar, आयकर अपील य अ&धकरण ,पण ु े / ITAT, Pune