Income Tax Appellate Tribunal - Delhi
Schneider Electric India (P) Ltd., ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'F' NEW DELHI
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND
SHRI T.S.KAPOOR, ACCOUNTANT MEMBER
I.T.A. NO. 5728/Del/2011
Assessment Year: 2007-08
Schneider Electric India Pvt. Ltd. Vs. Addl.CIT,
9th Floor, Tower C, Bldg 10, DLF Range 7, C.R. Bldg.
Cyber City Phase-II, Gurgaon. New Delhi
PAN: AABCS1624G
(APPELLANT) (RESPONDENT)
Assessee by: Sh. Rahul K. Mitra, & others, Adv.
Revenue by: Sh. Piyush Jain, CIT DR.
Hearing on: 05/11/2012
Order Pronounced on the Date:
ORDER
PER I.C.SUDHIR, JM:
In its appeal the assessee has impugned first appellate order on several grounds. The ground nos. 1, 1.1 to 6 are relating to transfer pricing adjustment and ground nos. 7 to 8 are related to corporate tax. In the remaining grounds 9 and 10 the initiation of penalty proceedings u/s 271(1) 2 ITA NO. 5728/Del/2011 (C) and levy of interest u/Sections 234B and 234C of the Act have been questioned.
2. At the outset of hearing the ld. AR submitted that the assessee does not wish to pursue ground nos. 9 and 10. The same are accordingly rejected. Regarding the ground nos. 1, 1.1 to 6 relating to transfer pricing adjustment, the ld. AR pointed out that before the ld. Dispute Resolution Panel (DRP) vide its application dated 27.1.2011 the assessee had submitted that its international transactions ought to be analysed on a transaction by transaction basis to then determine adherence to arm's length principle. Pursuant to this submission the assessee had highlighted the pricing policy of its international transactions corresponding to its manufacturing operations namely import of components at the rate cost plus 5% , export of furnished goods at the rate cost plus 5%, payment of technology royalty at the rate of 9% on value addition, payment of brand royalty at the rate 1% of turn over, and payment of project support services at the rate of cost plus mark up basis. The appellant imploded that each of the above transactions be tested individually without considering the over all net margin of its manufacturing segments which may be affected by other external factors net relating to the pricing of its international transactions. However, the assessee was unable to provide requisite corroborative evidence to substantiate its 3 ITA NO. 5728/Del/2011 pricing policy in respect of the aforementioned international transactions to the satisfaction of the ld. DRP. Presently, the assessee has managed to collate additional evidence in the form of certificates, pricing policy documents, Special Valuation Branch (SVB) order, bench marking analysis and sample copies of invoices and bill of entries. The ld. AR also cited following decisions of the Delhi Bench of the Tribunal relating to submission of additional evidence available with the assessee and was considered necessary for disposal of grounds of appeal taken by the assessee appellant:
(1) Kyungshin Industrial Motherson Ltd. Vs. DCIT, ITA No. 1396/Del/2009 (2) Nokia India (P.) Ltd. Vs. ACIT, ITA No. 4559/Del/2011 (3) JCB India Ltd., ITA No. 5200/Del/2010 (4) UOP LLC, 108 ITD 186 (Del.) (5) Quark Systems India Pvt. Ltd. 38 SOT 307 (SB).
3. Regarding the issue of corporate tax raised in ground nos. 7 and 8, the ld. AR submitted that the ld. DRP has erred in confirming the disallowance of royalty expenses (Ground No.7) and again has erred in not allowing the deduction u/s 10A to the assessee (Ground No. 8). He submitted that the ld. DRP has confirmed the disallowance of royalty expenses of Rs.6,80,28,472/- 4 ITA NO. 5728/Del/2011 treating it as contingent liability / cessation of liability u/s 41(1) whereas it was ascertained liability and was actually paid subsequently. He submitted further that the ld. DRP has failed to appreciate the submission specially that the liability was actually paid subsequently. He submitted further that in view of decision of the Tribunal in the case of Yokogawa India Ltd, now upheld by the Hon'ble Karnataka High Court reported in 2012- (341) ITR 0385- KAR, income of the section 10A unit has to be excluded at source itself before arriving at the gross total income, the loss of the non-section 10A unit can not be set off against the income of the section 10A unit under Section 72. The loss incurred by the assessee under the head "Profits and gains of business or profession" has to be set off against the profits and gains, if any business or profession carried on by such assessee. Therefore, as the profits and gains under Section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise. The assessee revised its return of income claiming deduction u/s 10A of the Act. He referred page no. 55 to 57 of the paper book wherein copy of revised return of income filed on 6.3.2009 along with computation of income for the assessment year has been made available. The ld. AR submitted that issue raised in these ground nos. 7 and 5 ITA NO. 5728/Del/2011 8 are thus required fresh consideration of the Assessing Officer to verify the correctness of the claims of the assessee regarding payment of royalty expenses and deduction u/s 10A of the Act as per the revised return. In support he placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT Vs. M/s Pruthvi Brokers & shareholders Pvt. Ltd. , ITA No. 3908 of 2010.
4. The ld. DR opposed request of the assessee for consideration of the additional evidence he however, submitted that in case it is allowed the matter should be set aside to the file of the TPO / AO with this specific direction that while entertaining these additional evidence on the issue of transfer pricing adjustment, he should first ascertain that the instances cited are indeed comparable with the case of assessee to determine adherence to arm's length principle.
5. Considering the above submissions we find that in the case Kyungshin Industrial Motherson Ltd. (Supra) the primary contentions of the assessee involved was regarding analysis of suppliers' profitability for imports and limiting the variation on account of transfer pricing only to the proportion of related party transactions. The authorities below did not address the issues for want of data. The Tribunal acceded to the assessee's plea for accepting these additional evidences and remanding the matter to the authorities below 6 ITA NO. 5728/Del/2011 for fresh adjudication. Again in the case of Quark Systems India Pvt. Ltd. (Supra) the Special Bench of the Tribunal has held that the appellant can not be estopped from highlighting mistakes in the assessment even though such mistake is the result of evidence adduced by the tax payer. We find that in the present case the assessee has also collated supplementary evidence to corroborate the arm's length nature of its international transactions in adherence to the principles and contentions made before the authorities below. We thus in the interest of justice set aside the matter to the file of the A.O. to first ascertain to his satisfaction that the instances furnished by the assessee by way of supplementary evidence are indeed comparable to the case of the assessee to corroborate the arm's length nature of its international transaction in adherence to the principles of arm's length and then analyse pricing policy of the assessee in the light of the said evidence which was not in the possession of the assessee earlier. It is needless to mention over here that while deciding the issue afresh the A.O. will afford opportunity of being heard to the assessee.
6. We also set aside the issues raised in ground nos. 7 and 8 of the appeal to the file of the AO for his fresh consideration in view of the above development in this regard pointed out by the ld. AR. after affording 7 ITA NO. 5728/Del/2011 opportunity of being heard to the assessee. The ground nos. 1, 1.1 to 6, 7 and 8 are thus allowed for statistical purposes.
7. In result appeal is allowed for statistical purposes.
8. The order is pronounced in the open Court on the day of 22/11/2012.
Sd/-
Sd/-
( T.S. KAPOOR ) (I.C. SUDHIR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 22/11/2012
*AK VERMA*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
8 ITA NO. 5728/Del/2011