Income Tax Appellate Tribunal - Delhi
M/S Sarens Heavy Lift India (P) Ltd, New ... vs Acit, New Delhi on 2 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I-2' NEW DLEHI
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
I.T.A. No.1027/Del/2015
Assessment Year: 2010-11
ACIT, Central Circle -22(1), vs M/s Sarens Heavy Lift (I) P. Ltd.,
New Delhi F-90/25, Okhla Industrial Area,
Phase-1, New Delhi.
(PAN: AAMCS9036P)
Cross Objection No.286/Del/2015
(In I.T.A. No.1027/Del/2015)
Assessment Year: 2010-11
M/s Sarens Heavy Lift (I) P. Ltd., vs ACIT, Central Circle -22(1),
F-90/25, Okhla Industrial Area, New Delhi.
Phase-1, New Delhi.
(PAN: AAMCS9036P)
(Appellant) (Respondent)
Assessee by: Shri Hari Om Jindal
Department by: Shri H.K. Choudhary, CIT-DR
Shri Sanjay Kumar Yadav, Sr. DR
Date of hearing: 13.03.2018
Date of Pronouncement: 02 .04.2018
ORDER
PER K.Narasimha Chary, JM
Aggrieved by the directions dated 10.11.2014 of the Disputed Resolution Panel-III, New Delhi ("DRP"), in Objection No 34, revenue preferred this appeal.
22. Brief facts of the case are that the assessee is a wholly-owned subsidiary of Sarens NV, Belgium and is in the business of hiring and leasing heavy cranes. Sarens group is stated to be one of the global leaders in transport and handling of heavy equipments. Apart from transport and handling, Sarens group is also engaged in retail and the operation of cranes and the problem solving linked with the crane work, rendering services with heavy cranes and equipments for erection jobs in big industrial and the civil projects in the field of petrochemicals, steel plants and major civil works.
3. The assessee filed their return of income on 15/10/2010 declaring an income of Rs.2,67,60,419/-. During the scrutiny, Ld. AO found that in the relevant previous year, the assessee purchased nine used cranes from its AEs for Rs.34,32,73,475/-and custom authorities assessed the value of cranes for custom purpose at Rs.35,50,93,450/-. Assessee also got to such cranes valued by independent a value as who inspected the cranes before import of the same.
4. Assessee benchmarked this international transaction using the TNMM. Under TNMM the assessee had conducted external comparison of the ratio of operating profit in relation to total sales with the arithmetic mean of operating profit margin of comparable companies. Operating profit margin of assessee for the financial year 2009-10 was 5.94% as compared to 4.82% of comparable companies, and therefore international transactions of assessee was held in accordance with "arms length" standard required under the Indian regulations. However, Ld. TPO rejected the method adopted by the assessee for the purpose of benchmarking of international transactions related to purchase of cranes and applied CUP Method and had taken the written down value of the cranes in the 3 books of associated enterprise as ALP under CUP method and made an adjustment of Rs. 18,46,04,600/-. Ld. TPO also made adjustment of Rs.15,94,752/-as proportionate disallowance of interest paid in relation to purchase of cranes from AEs.
5. Assessee filed objections before the learned DRP and argued that the ld. TPO has erred in computing Arm Length Price as written down value of cranes in the books of AEs as arm's-length price under CUP Method, which is against the provisions of law. It was further argued by the assessee that the TPO has erred in computing arm's-length price as written down value of cranes in the books of AE without comparing the purchase price of cranes with fair market value which can be measured by capitalizing the rent earned from third parties in respect of such cranes in the absence of identical international transactions. It was further argued that ld. TPO has erred in rejecting the valuation report of independent valuer in respect of cranes purchased from AE without pointing out any defect in such report.
6. Assessee further pointed out that instead of taking the difference between the arm's-length price and the purchase price of cranes, TPO erred in making the adjustment, being the difference between the arm's-length price and value taken by the custom authorities.
7. Before the DRP assessee furnished the details under the DCF method. They have also submitted the chart depicting the value of cranes as per invoice and also as computed by the customs authorities and the chartered engineers. Further, assessee placed reliance on a decision of the Hyderabad Bench of the 4 Tribunal in Tecumseh Products India (P) Ltd versus ACIT (2014) 41 taxmann.com 385 (Hyderabad-trib).
8. DRP considered the contentions of the assessee in the light of the material available with them and observed that as against the valuation report furnished by the assessee, TPO has not carried out any exercise for the valuation of the machinery by any approved valuer/chartered engineer. DRP further observed that out of 9 cranes, one crane was of the year 1987, another of 1992 and all other of 2007 with the residual life expectancy of at least 10 years.
9. Basing on these facts DRP observed that the written down value of cranes in the books of the AE cannot be considered as ALP as it is not derived from the transactions between enterprises other than associated enterprises. They have also considered the submission of the assessee that ALP will be based on valuation done by chartered engineer or accepted by custom authorities or done by DCF method, some of the recognized methods which are accepted by various benches of the tribunal and more particularly in Tecumseh Products India Private limited case (supra) wherein it was held that the assessee justified the price paid by way of a certificate which can be considered as external CUP and since the TPO/DRP did not rely on any other certificate and in the absence of any contrary information, price paid by assessee, which was less than the value mentioned in the certificate can be accepted as such.
10. Having considered all these aspects ld. DRP directed the TPO to accept the valuation report of the assessee company and to delete the edition made on account of the ALP of cranes. Consequently DRP also directed the deletion of the adjustment on account of payment of interest amount also. Hence, the revenue is 5 in this appeal before us challenging such deletions. At the same time, assessee also preferred a Cross Objections in support of the DRP's directions.
11. At the outset, it is the submission of ld. AR that the appeal preferred by the revenue had to be quashed, inasmuch as the Finance Act 2012 w. e. f. 1st day of July, 2012 provides that the AO may also file an appeal before the ITAT against an order passed in pursuance of directions of the DRP, but the Government has amended the Act omitting sub-sections (2A) and (3A) of section 253 by way of Finance Act, 2016. Since sub-sections (2A) of section 253 stood omitted from Act without any saving clause would mean that the provisions were never in existence, therefore, appeal preferred by the appellant had to be quashed.
12. We have gone through the decisions cited on behalf of the assessee. The decision in General Finance Company (supra) is in respect of the effect of Section 6 of General Clauses Act of 1897 and held that the principle underlying section 6 of General Clauses Act an saving right to initiate proceedings for liabilities incurred during currency of Act would not apply to omission of a provision in an Act but only to repeal, omission being different from repeal.
13. Insofar as merits are concerned, it is the argument of the ld. DR that the Assessing Officer was justified in taking the arm's-length price of the cranes at the written down value of the cranes in the books of the associated enterprise, inasmuch as such written down value could be taken as internal CUP. He submits that ld. DRP committed an error in not considering this aspect and by proceeding with an exemption that CUP always requires the comparison of transactions between unrelated parties. He submits that consequently the addition made by the ld. AO has to be sustained.
614. Per contra, it is the argument of the ld. Authorised Representative that the written down value of cranes in the books of the associated enterprise of the assessee cannot be considered as ALP as it is not derived from the transaction between enterprises other than associated enterprises. Basing on the decisions reported in CIT v. Ajax Products Limited [1965] 55 ITR 741 (Supreme Court), DCIT, Circle 3(1), New Delhi v. C-Dot Alcatel-Lucent Research Centre (P.) Ltd, 66 taxmann.com 281 ( Delhi-Trib.) [2016], Social Media India Ltd. vs. Asstt. CIT [2013] 40 taxmann.com 37 (Hyderabad -; Trib.)/[2013] 28 ITR(T) 212 (Hyderabad - Trib.)/[2014] 148 ITD 222 (Hyderabad - Trib.), Intel Asia Electronics Inc., India, Branch Office v. Asstt. DIT [2011] 9 taxmann.com 197 (Bang. - IT AT), ACIT v. Koch Chemical Technology Group (India) Ltd. [2015] 64 taxmann.com 464 (Mumbai- Trib) , and Perma Pipe India (P.) Ltd. v. Dy. DIT [2016] 65 taxmann.com 319 (Mumbai - Trib.) he submits that you will be based on valuation done by the chartered engineer could be accepted.
15. He further submitted that in view of the decisions in GKN Sinter Metals (P.) Ltd. V. Assistant Commissioner of Income-tax, Circle-9,Pune 71 taxmann.com 297 [2016], Coastal Energy (P.) Ltd v. Assistant Commissioner of Income Tax, Company Circle- 1(3) Chennai IT AT, Apollo Tyres Ltd v. Commissioner of Income Tax (2002) (255 ITR 273) & M/s Vadilal Chemicals Ltd v. The state of Andhra Pradesh & Ors.Movat v Betts Motors Ltd [1958] 3 All ER 402, the decision which is cited in MobileCommunication India P Ltd v DCIT [2011] 7 ITR (Trib) 219 (Del), MG Abrol, Additional Collector of Customs v Shanti Lai Chhotalal & Co AIR 1966 SC 197, and Ambo Agro Products Ltd. v. Dy CIT [2014] 46 taxmann.com 105 (Kolkata - Trib.) the valuation accepted by the customs authorities could also be taken as ALP of the cranes. Lastly submits that in Ascendas (India) P. Ltd. vs 7 DCIT (2013) 33 taxmann,.com 295, the DCF method was accepted to determine the ALP.
16. In respect of determinability of the Fair Market Value of the Cranes by using Discounted Cash Flow Method, by placing reliance on reliance on the decisions in Visteon Asia Holdings Inc. v. DCIT, International Taxation-II (1), Chennai 73 taxmann.com 33 (Chennai-Trib), VIHI, LLC v. Additional Director of Income Tax, International Taxation, Chennai 42 taxmann.com 304 (Chennai-Trib), Ascendas (India) (P. )Ltd. v. Dy. CIT [2013] 33 taxmann.com 295 (Chennai - Trib.) and Tally Solutions (P.) Ltd. v. Dy. CIT [2011] 48 SOT 110/14 taxmann.com 19 (Bang.)he submitted that Present Value by DCF method of 9 cranes is Rs.43,92,65,295.78 while invoice value of such cranes as per invoice value is Rs.34,32,73,475. DCF method is scientific method to calculate the value of cranes by discounting the rental income.
17. Lastly his contention is that s is held in Ciena India (P.) Ltd. v. ITO [2015] 59 taxmann.com 92 (Delhi - Trib.) since the transaction of purchase of fixed assets is a capital transaction, this, in itself, does not affect the total income of the assessee. It is only the off-shoot of such transaction in the capital field, being depreciation allowance on such ALP of the transaction, which affects the total income.
18. We have considered these submissions on either side in the light of the record. There is no dispute that the actual price paid by the assessee for 9 cranes is Rs.34,32,73,475/-. The cranes were valued by an independent chartered engineer according to whom the price would be Rs.34,15,84,450/-, whereas the 8 valuation as per custom authorities was Rs.34,46,69,670/-. The fair market value by following the DCF method comes to Rs.43,92,65,295/-. All the relevant details were made available to the authorities below and considered by them.
19. However, the Assessing Officer ignored this material available on record and proceeded to determine the ALP basing on the written down value of the cranes as recorded in the books of the seller by applying the CUP method. Ld.DRP accepted the contention of the assessee that the written down value of cranes in the books of the associated enterprise of the assessee cannot be considered as ALP and is not derived from the transaction between enterprises other than associated enterprises. Further ld. DRP observed that it is nobody's case that an old asset cannot be sold at a price exceeding net book value. Having considered the decisions relied upon by the assessee in support of their contention that either the valuation done by the chartered engineer, or the value accepted by the custom authorities, or the value derived by DCF method could be considered for a determination of the ALP. Ld. DRP considered the details furnished by the assessee as per these 3 valuations namely, as valued by the chartered engineer, are as valued by the customs authorities, or as valued by following the DCF method and having done all this exercise DRP reach the conclusion that the method adopted by the Assessing Officer is not an acceptable one.
20. We have gone through the decisions relied upon by the assessee. As a matter of fact DRP extracted the relevant portions of the decision reported in Tecumseh (supra) in support of their reasoning and conclusion. In the circumstances, we are in agreement with the DRP that the assessee justified the price paid by them with the valuation done by the independent chartered 9 engineers, or the customs authorities or determined under DCF method. The reasoning given by the DRP to reach the conclusion that the additions cannot be sustained is impeccable and we find it difficult to take a different view in view of the said legal position.
21. We, therefore, are of the opinion that the impugned directions given by the ld. DRP do not suffer an illegal infirmity so as to invite the interference of this tribunal in this appeal. With this view of the matter we find the grounds of appeal are devoid of merits and the appeal is liable to be dismissed. Consequently while upholding the directions given by the ld. DRP, we dismiss the appeal of the Revenue. In view of the dismissal of the appeal, cross objection preferred by the assessee becomes infructuous and therefore, the Cross Objection is also dismissed.
22. In the result, both the appeal of the revenue and the Cross Objection of the assessee are dismissed.
Order pronounced in the Open Court on this 2nd April, 2018.
Sd/- sd/-
(R.K. PANDA) (K. NARASIMHA CHARY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated 2nd April, 2018
'VJ'
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A) By order
5. DR, ITAT
Asstt. Registrar, ITAT