Income Tax Appellate Tribunal - Mumbai
Mettler Toledo (I) P.Ltd, Mumbai vs Department Of Income Tax on 31 August, 2010
आयकर अपील य अ धकरण,
धकरण मंुबई यायपीठ 'के' मंुबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"K" BENCH, MUMBAI
सव ी बी. रामकोटया
रामकोटया,
या लेखा सद य एवं ी वजयपाल राव,
राव या.स
या स ।
BEFORE SHRI B. RAMAKOTAIAH
RAMAKOTAIAH,
AMAKOTAIAH, AM,
AM, & SHRI VIJAY PAL RAO,
RAO, JM
आयकर अपील सं./II .T.A. No.7642/Mum/2010
( नधारण वष / Assessment Year :2004-05)
DCIT 8(2) बनाम/
बनाम M/s Mettler Toledo (India) Pvt Ltd.
R. No. 216-A, Aayakar Amar Hill, Sa ki Vihar Road, Powai,
Vs.
Bhavan, M.K. Road, Mumbai-400072
Mumbai-400020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. :AABCM0779N
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
अपीलाथ ओर से / Appellant by : Shri Ajeet Kumar Jain
यथ क ओर से/Respondent by : Shri K. Shivram
सनवाई
ु क तार ख / D t. o f H e a ri n g : 9th July 2013
घोषणा क तार ख/D
ख t. O f P r o n o u n c e m e n t : 12th July 2013
आदे श / O R D E R
PER : वजयपाल राव, या.स. / VIJAY PAL RAO, JM
This appeal by the Revenue is directed against the order dated 31.8.2010 of Commissioner of Income Tax(Appeals) for the assessment year 2004-05.
2. The Revenue has raised the following grounds in this appeal:
"1. "On the facts and in the circumstances of the case and in law, The Ld CIT(A) erred in restrict the disallowance of 25,000against total disallowance of 6,00,054/- made u/s. 14A of the Act (being 5% of dividend income of the year under consideration)?"
2. "On the facts and in the circumstances of the case and in law, The Ld CIT (A) erred in deleting the adjustment of 2 ITA No. 7642/M/2010 Mettler Toledo (I) Pvt. Ltd.
.
68,57,133/- made u/s. 92CA(3) of the Act, without appreciating the facts of the case?".
3. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in taking Avery India as the only case comparable with the assessee ignoring the other two comparable cases adopted by the T.P.O.?"
4. "On the facts and in the circumstances of the case and in law, the CIT(A) erred in ignoring TPO's comparable set of 3 companies, which was also confronted to the assessee during the transfer pricing proceedings?"
5. "On the facts and in the circumstances of the case and in law, the CIT(A) erred in not considering the TPO's reasons for rejecting the other two comparables selected by the assessee?"
3. Ground No. 1 is regarding disallowance u/s 14A. During the year under consideration the assessee has received dividend of ` 1,20,01,080/- from its subsidiary namely, Turing Software Pvt. Ltd. The Assessing Officer disallow 5% of the dividend income i.e. ` 6,00,054/- as expenditure incurred for earning dividend income by invoking the provision of section 14A of the Income Tax Act and added the same to the total income of the assessee. On appeal the CIT(A) restricted the disallowance to ` 25,000/-.
4. We have heard the Ld. DR as well as the Ld. AR and considered the relevant material on record. Undisputedly the dividend has been received by the assessee on the shares of its subsidiary. The investment in the shares of subsidiary was made by the assessee from its own fund and no borrowed fund was used. Even the AO has also not brought out any facts on record to show that the assessee has used any borrowed fund for investment in the 3 ITA No. 7642/M/2010 Mettler Toledo (I) Pvt. Ltd.
.
shares of subsidiary. The disallowance made by the Assessing Officer on his own estimated basis. It is pertinent to note that when the dividend has been received from one investment and there is only one dividend warrant therefore, the disallowance restricted by the CIT(A) to ` 25,000/- in our view is just and proper keeping in mind the facts and circumstances of the case. Accordingly, we do not find any error or illegality in the order of CIT(A) qua this issue.
5. Ground No. 2-5 is regarding deletion of TP adjustment made by the TPO. The assessee is a company and engaged in the business of manufacturing, marketing, sales and services of range of weighing equipments. During the year under consideration, it has carried out international transaction with its associates enterprises for purchase of goods, import of finished goods and other services. The assessee has selected one company namely, Avery India Ltd. as a comparable to bench mark its international transaction by applying TNMM as most appropriate method. The assessee has used various ratios as PLI including net profit/sales for bench marking its transaction with the comparable. The assessee has computed the profit margin of the comparable by using PLI net profit/sales at 5.45% in comparison to the assessee's own margin (net profit/sales) at ` 11.29%. Hence, the assessee claimed that its international transactions are at Arm's Length Price. The TPO found that only one comparable is not sufficient and proper and accordingly he has added two more comparables namely, Flex Engineering Ltd. and 4 ITA No. 7642/M/2010 Mettler Toledo (I) Pvt. Ltd.
.
Manugraph India Ltd. Thus, the TPO has computed the arithmetic mean of three comparables by using OP/sales as PLI and arrived the ALP at 9.60% in comparison to the assessee's operating margin (OP/sales) at 6.18%. Accordingly, the TPO made an addition of ` 58,57,133/- to the price of international transactions being purchase of raw materials. On appeal the CIT(A) has rejected the two comparables added by the TPO and took only one comparable namely, Avery India Ltd. selected by the assessee whose profit margin by using PLI as OP/sale is at 7.70% in comparison to the assessee's operating margin at 6.18%. The Revenue is aggrieved by the order of the CIT(A) whereby two comparables added by the TPO for computation of ALP were deleted.
6. We have heard the Ld. DR as well as the Ld. AR and considered the relevant material on record. During the year under consideration the assessee has reported the following international transactions:
Sl. Particulars A.E. Amount Method
No. adopted
1. Purchase of Various AE's 4,88,67,220 TNMM
Components
2. Commission Income Various AE's 1,29,07,686 TNMM
and Reinvoiced Service
3. Purchase of Demo Various AE's 22,21,310 TNMM
Products and others
7. As we have noted above the assessee used net profit/sales as PLI and TNMM as most appropriate method for bench-marking its international transaction. The assessee selected only one 5 ITA No. 7642/M/2010 Mettler Toledo (I) Pvt. Ltd.
.
comparable namely, Avery India Ltd. and computed the net profit/sale at 5.455 in comparison to the assessee's net profit/sale at 11.29%. The TPO has added two more comparables and work out the arithmetic mean of the comparables margin by using OP/sale as PLI as under:
Particulars OP/Sales
Avery India Ltd 7.70%
Flex Engineering Ltd 9.71%
Manugraph India Ltd 11.41%
verage Arithmetic Mean 9.60%
8. Thus, the TPO has arrived the arithmetic mean of the operating margin of comparables at 9.60% in comparison to the assessee's operating margin at 6.18%. At the outset, we note that the price of the international transaction of the assessee is within the tolerance range of 5% of the ALP computed by the TPO. Therefore, without going into the issue of justification of rejecting the two comparables by the CIT(A), we find that even if the ALP determined by the TPO is accepted no adjustment can be made in view of the proviso to section 92C(2) of the Income Tax Act. The other issues raised by the revenue becomes infructuous and academic in nature when no adjustment can be made even on the basis of the Arm's Length Price determined by the TPO because of the reason that the price of international transaction is within the tolerance range of 5% as per the proviso to section 92C(2). Accordingly, we do not find any reason to interfere with the impugned order of the CIT(A) qua this issue.6
ITA No. 7642/M/2010
Mettler Toledo (I) Pvt. Ltd.
.
9. In the result, the appeal of the revenue is dismissed. Order pronounced in the open Court on this day of 12th July 2013 आदे श क घोषणा खले ु यायालय म दनांकः 12thजलाई ु को क गई ।
Sd/- Sd/-
(बी. रामकोटया) ( वजयपाल राव )
लेखा सद य या यक सद य
(B. RAMAKOTAIAH) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai : Dated: 12th July 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai