Income Tax Appellate Tribunal - Delhi
Sany Heavy Industry India Pvt. Ltd., New ... vs Acit, New Delhi on 15 January, 2021
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "I-2": NEW DELHI
BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
(Through Video Conferencing)
IT(TP) No. 930/Del/2016
(Assessment Year: 2011-12)
Sany Heavy Industry India Pvt. Vs. ACIT,
Ltd, Circle-22(1),
B-2/92, 9th Floor, Himalaya New Delhi
House, 23 Kasturba Gandhi
Marg, New Delhi
PAN: AAGCS7754L
(Appellant) (Respondent)
Assessee by : Shri Gagan Kumar, Adv
Revenue by: Shri Sarabjeet Singh, Sr. DR
Date of Hearing 16/10/2020
Date of pronouncement 15/01/2021
ORDER
PER PRASHANT MAHARISHI, A. M.
1. This appeal is filed by the assessee against the order passed by ld ACIT, Circle-22(1), New Delhi passed u/s 144C read with section 143(3) of the Act on 30.12.2015 for the Assessment Year 2011-12, wherein, the total loss of the assessee was determined of Rs. 5,75,08,923/-.
2. The assessee has raised the following grounds of appeal:-
"1. That on the facts and in the circumstances of the case and in law, the Learned Transfer Pricing Officer (Ld. TPO) erred and the Ld. AO under directions issued by the Hon'ble DRP, grossly erred in confirming the addition on account of transfer pricing of Rs. 2,62,23,702 to the total income of the Appellant based on the provisions of Chapter X of the Act.
2. That on the facts and in the circumstances of the case and in law, the Ld. TPO/Ld. AO has erred in passing the Transfer Pricing Assessment order without considering the directions of the Hon'ble DRP to the extent the same being prejudicial to the Appellant consequent to which the such order is void ab-initio and the same is liable to be quashed.
3. That on the facts and circumstances of the case and in law, the order of assessment framed by ne Ld. AO pursuant to the directions of the Hon'ble DRP under section 143(3) read with section 144C of the Act, erred in making an addition of Rs.2,62,23,702 on account of transfer Page | 1 pricing adjustment without considering the facts & the law as given in the detailed explanations filed by the Appellant during the course of Transfer Pricing proceedings & thus the order passed is against the principles of natural justice and is liable to be modified/quashed.
4. That on the facts and in the circumstances of the case and in law, the Ld. TPO grossly erred in not conforming with the directions of the Hon'ble DRP in case of one of the comparable company, namely, TIL Ltd. thereby considering the profit margin of the entity as a whole rather than the profit margin of only one comparable division i.e. Material Handling Solution Division for the purpose of computing arm's length price.
5. That on the facts and in the circumstances of the case and in law the Ld. AO/TPO under directions issued by the Hon'ble DRP, grossly erred in rejecting one of the company namely Greaves Cotton Limited selected as comparable by the Appellant in its Transfer Pricing Documentation on erroneous and insufficient grounds, that its segment had persistent losses for the last three years including the current year thereby disregarding the fact that the said company had earned profits on entity level.
6. That without prejudice to the above grounds and in the alternative, the Ld. AO/TPO under the directions issued by the Hon'ble DRP, grossly erred in not appreciating the fact that in case the final list of comparables are taken as considered by Ld. AO/TPO, the adjusted profit margin of the tested party (i.e. Relevant segment of Appellant) is also required to be revised.
7. That the Ld. TPO and consequently the Hon'ble DRP, on erroneous and insufficient grounds, erred both in law and in facts, while conducting the benchmarking exercise for the relevant international transactions, by rejecting the use of multiple-year data of comparables (i.e. data pertaining to the assessment years 2009-10 and 2010-11)
8. That the Ld. TPO and consequently the Hon'ble DRP, on erroneous and insufficient grounds, erred both in law and in facts, while conducting the benchmarking exercise for the relevant international transactions, by determining the arm's length margins / prices using only the data of comparables pertaining to the relevant assessment year (i.e. 2011-12) which was not available to the Appellant at the time of complying with the TP documentation requirements.
9. That without prejudice to the above grounds, the Hon'ble DRP while making the transfer pricing adjustment has grossly erred in law in not granting relief as is avail proviso to Section 92C (2) of the Income Tax Act, 1961.
10. That the addition as proposed by the Ld. AO/TPO is without any basis or material and is based on conjectures, surmises and hypothesis.
11. That on facts and in law, the Ld. AO erred in proposing to initiate penalty proceedings under section 271(1) (c) of the Income Tax Act, 1961.
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12. The Ld. AO erred, on facts and in law, in levying interest under section u/s 244A and 234D of the Act mechanically and without recording any satisfaction for its initiation.
13. The Ld. AO has erred in imposing a demand under section 156 of the Act amounting to INR 1,37,520.
14. That the aforesaid grounds are without prejudice to each other."
3. Brief facts of the case shows that assessee filed its return of income on 17.11.2011 declaring total loss of Rs. 83732625/-. The assessee is engaged in business of trading and rental of imported construction, demolition equipments and their spares. It is also providing warranty and other services related to goods supplied by its holding companies from China to its customers in India.
4. The assessee entered into an international transaction and therefore, same were referred for determination of its ALP to the ld TPO. The assessee has entered into an international transaction of purchase of spare parts for manufacturing Finished Goods from its associated enterprises amounting to Rs. 33,99,93,775/-. Assessee benchmarked the above transaction adopting Transactional Net Margin Method (TNMM) applied profit level indicator of AOP/ OR computed its PLI at 3.70%. The assessee selected comparable companies calculated their margin at 4.19% and submitted that transaction is at arm's length. The ld TPO rejected the comparable selected by the assessee and introduced two more comparables. Ultimately, the ld TPO selected 3 comparables companies computed profit level indicator OP/OR of 10.62% and for the international transactions of 33,99,93,775/- the proportionate adjustment of Rs. 2,65,39,55/- was determined. Such adjustment was proposed as per order passed u/s 92CA(3) of the Act on 12.01.2015. The ld AO framed draft assessment order which was challenged by filing objection before the ld DRP-II, New Delhi. The ld DRP considered the objection of the assessee with respect to comparable Greaves Cotton Ltd and held that it is not a good comparable. In case of TIIL Ltd was retained as comparable. Consequently, the direction was passed on 06.11.2015 and based on it ld TPO computed the difference in ALP adjustment of Rs. 2,62,23,702/- instead of Rs. 2,65,39,655/-. Such adjustment was incorporated in the assessment order and the total loss of the assessee was determined at Rs. 57,58,923/- .
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5. The ld AR before us submitted that the only dispute is with respect to Ground No. 6 of the appeal wherein the assessee has contested that AP/ TPO/ DRP did not appreciate the fact that in case of final list of comparables are taken as per order of the TPO the adjusted profit margin of the tested parties is also required to be revised. For this proposition, he submitted a chart wherein according report the adjusted margin of the tested party of its manufacturing segment was considered at 3.57%, the ld TPO considered it on 3.05 % and in objections before the ld DRP assessee computed that at 11.49 %. The ld AR referred to page No. 247 of the paper book stated that assesse's depreciation cost is 5% of its operating income and for comparables it is only 2% , therefore, in case of the assessee, there is higher depreciation cost of 3 %. He further stated that the employee cost as a percentage of operating income of assessee is 17% whereas in case of comparable it is merely 6%. He therefore submitted that the tested party's margin is required to be adjusted. He further stated that if assessee's cost of goods sold on operating income is 99% and if the above 2 adjustments are made cost of goods sold comes to 69 % . Therefore, the above margin of the tested party needs to be reduced by this excess percentage. He otherwise submitted that such a huge difference in the cost definitely requires adjustment under Rule 10B of the Income-Tax Rules, 1962. He submitted that these are material facts in computation of margin and it needs to be eliminated. He further submitted that such adjustment is also allowed as per OECD guidelines as well as several judicial precedents of the co- ordinate benches.
6. The ld DR vehemently objected to the above contention and submitted that there is no such argument before the ld DRP and therefore, the above contention of the assessee which was neither before the DRP nor before the TPO needs to be examined first and if found to be in accordance with the law then only such adjustment can be granted.
7. We have carefully considered the rival contentions and find that above issue of the computation of the margin was neither considered by the ld DRP nor by the ld TPO. However, the above facts were mentioned in the transfer pricing study report of the assessee. Even assessee has also not drawn attention of the ld TPO on this aspect. As it is the request of the ld DR Page | 4 that this matter requires examination on the part of the ld TPO to which the ld AR did not object to, we direct the assessee to substantiate its claim of the margin of the tested party and its comparison with comparables margin with evidences. The ld TPO/ AO is also directed to consider the above objections of the assessee and if found in accordance with the law, may compute the margin of the tested party and comparable and pass a speaking order. Thereafter the ld AO should pass a draft assessment order. Assessee may file its file its subjection before the ld DRP. Consequent to that the final assessment order is required to be passed. In view of this ground No. 6 of the appeal of the assessee is allowed with the above direction.
8. No other grounds are pressed hence those are dismissed.
9. In the result appeal of the assessee is partly allowed Order pronounced in the open court on 15/01/2021.
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Sd/- Sd/-
(KULDIP SINGH) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 15/01/2021
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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Date of dictation 15.01.2021
Date on which the typed draft is placed before the 15.01.2021
dictating member
Date on which the typed draft is placed before the other 15.01.2021 member Date on which the approved draft comes to the Sr. PS/ 15.01.2021 PS Date on which the fair order is placed before the 15.01.2021 dictating member for pronouncement Date on which the fair order comes back to the Sr. PS/ 15.01.2021 PS Date on which the final order is uploaded on the website 15.01.2021 of ITAT date on which the file goes to the Bench Clerk 15.01.2021 Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the order Page | 6