Income Tax Appellate Tribunal - Hyderabad
Euroflex Transmission (India) P. Ltd., ... vs Add.Cit, Range-2, Hyd, Hyderabad on 30 November, 2016
ITA Nos 980 and 931 of 2016 Euroflex Transmission India P Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' B ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA No.980/Hyd/2016
(Assessment Year: 2011-12)
Euroflex Transmissions Vs Addl. Commissioner of
(India) P Ltd Income Tax, Range-2
Hyderabad Hyderabad
PAN: AAACE 5313 K
ITA No.931/Hyd/2016
(Assessment Year: 2011-12)
Dy. Commissioner of Vs Euroflex Transmissions (India) P
Income Tax, Circle 17(1) Ltd, Hyderabad
Hyderabad PAN: AAACE 5313 K
For Assessee : Mr. Raghunathan S
For Revenue: Smt. U. Mini Chandran, DR
Date of Hearing: 16.11.2016
Date of Pronouncement: 30.11.2016
ORDER
Per Smt. P. Madhavi Devi, J.M.
Both are cross appeals for the A.Y 2011-12 against the order of the CIT (A)-5, Hyderabad, dated 29.03.2016.
2. Brief facts of the case are that the assessee company which is engaged in manufacture of engineering goods mainly transmission couplings, filed its return of income on 21.09.2011 declaring total income of Rs.38,30,77,870. During the assessment proceedings u/s 143(3) of the Act, the AO noticed that the assessee filed a report in Form No.3 CEB only on 27.03.2013 Page 1 of 5 ITA Nos 980 and 931 of 2016 Euroflex Transmission India P Ltd Hyderabad though it was to be filed along with the return of income. He observed that the assessee has entered into international transactions in the form of sales to AE and payment of royalty. He went through the T.P. study made by the assessee and observed that the assessee has followed the CUP method for both sale of goods as well as royalty. He observed that though the assessee stated that the margin of the assessee was within 5% of the margin of the comparable companies for both sale as well as payment of royalty, the margin was much more than 5%. Therefore, the assessee was directed to file its explanation with regard to these discrepancies. On 19.02.2014, the assessee filed details of internal CUP transactions with reference to sales and it was noticed that the data in the TP study was not relating to financial year 2010-11 but related to the subsequent period. With regard to the royalty payment also, the assessee has stated that the royalty was paid at 4% on export sale and 2.5% on domestic sale to M/s. Euroflex International (UK). According to the assessee, the royalty payments are genuine and are also sanctioned by the Ministry of Commerce and the RBI. The AO, however, observed that the TP study of the assessee is not reliable. He therefore, conducted his own TP study.
3. The TPO arrived at a list of 18 companies as final comparables and computed the Arm's Length Price adjustment accordingly. Aggrieved, the assessee preferred an appeal before the CIT (A) stating that the TP study conducted by the assessee itself is not correct and the most appropriate method ought to have been TNMM. The assessee has also brought out the differences in the products for which the comparable companies also paid royalty and submitted that the CUP method cannot be adopted with such huge discrepancies. The CIT (A) agreed that the Page 2 of 5 ITA Nos 980 and 931 of 2016 Euroflex Transmission India P Ltd Hyderabad CUP is not the most appropriate method but, however, since the assessee itself has adopted the CUP as the most appropriate method in its TP study, he declined to change the method. However, he directed the exclusion of certain companies from the final list of comparables. Against this finding of the CIT (A) the Revenue is in appeal and in confirming the method and the consequent ALP adjustment, the assessee is in appeal before us.
4. The learned Counsel for the assessee has drawn our attention to the submissions made by the assessee before the CIT (A) wherein all the differences in products such as the market conditions, geographical features etc., have been brought to the notice of the CIT (A) and the observations of the CIT (A) wherein he has agreed that the method adopted by the assessee is not the most appropriate method. Therefore, according to the learned Counsel for the assessee the TNMM method should be adopted as the most appropriate method and ALP should be recomputed. The learned DR, however, supported the assessment order.
5. Having regard to the rival contentions and the material on record, we agree with the learned Counsel for the assessee that for adopting the CUP method, the highest degree of similarities have to be considered and as brought out by the learned Counsel for the assessee, there are varying conditions between the assessee and the comparables both in the products manufactured by them and also the market conditions. Therefore, we agree with the findings of the CIT (A) that the CUP is not the most appropriate method. However, we do not agree with the conclusion of the CIT (A) that since the assessee has adopted the CUP method in its TP study, the same has to be followed. The requirement of law is that the most appropriate method suitable Page 3 of 5 ITA Nos 980 and 931 of 2016 Euroflex Transmission India P Ltd Hyderabad for determining the ALP is to be adopted. Merely because the assessee has adopted the CUP method, it will not become the most appropriate method. The AO, after conducting the FAR analysis has to determine the most appropriate method. It has been held time and again that the proceedings before the first appellate authority are continuation of the assessment proceedings itself. In such circumstances, it is the bounden duty of the CIT (A) to examine the most appropriate method for determination of the ALP particularly when the assessee itself is challenging the method adopted by it in its TP study. In view of the same, we are satisfied that the TNMM is the most appropriate method and therefore, we deem it fit and proper to set aside the orders of the authorities below and remand the issue of determination of the ALP to the file of the AO by adopting the TNMM as the most appropriate method. The other grounds are not pressed by the assessee and therefore, are rejected. In view of the set aside and the change of the most appropriate method, the Revenue's appeals become infructuous.
6. In the result, the appeal of the assessee is treated as allowed for statistical purposes and the Revenue's appeal is dismissed.
Order pronounced in the Open Court on 30th November, 2016.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 30th November, 2016.
Vinodan/sps
Page 4 of 5
ITA Nos 980 and 931 of 2016 Euroflex Transmission India P Ltd Hyderabad Copy to:
1 M/s. Euroflex Transmission India P Ltd Plot No.99 CIE Phase-II Gandhinagar, Balanagar, Hyderabad 2 Asstt. Commissioner of Income Tax, Circle 17(1) 9th Floor, Signature Towers, Kondapur, Hyderabad 3 Addl. Commissioner of Income Tax, Range 2 Hyderabad 4 CIT (A)-5 Hyderabad 5 Pr.CIT - 5 Hyderabad 6 The DR, ITAT Hyderabad 7 Guard File By Order Page 5 of 5