Income Tax Appellate Tribunal - Kolkata
Dcit, Cir-1(1), Kolkata, Kolkata vs M/S Landis + Gyr Ltd., Kolkata on 13 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH : KOLKATA
[Before Hon'ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
I.T.A No. 584/Kol/2015
Assessment Year : 2010-11
DCIT, Circle-1(1), Kolkata -vs- M/s Landis + Gyr Ltd.
[PAN: AAACV 9922 B]
(Appellant) (Respondent)
I.T.A No. 687/Kol/2015
Assessment Year : 2010-11
M/s Landis + Gyr Ltd. -vs- DCIT, Circle-1(1), Kolkata
[PAN: AAACV 9922 B]
(Appellant) (Respondent)
I.T.A No. 549/Kol/2016
Assessment Year : 2011-12
DCIT, Circle-1(1), Kolkata -vs- M/s Landis + Gyr Ltd.
[PAN: AAACV 9922 B]
(Appellant) (Respondent)
I.T.A No. 619/Kol/2016
Assessment Year : 2011-12
M/s Landis + Gyr Ltd. -vs- DCIT, Circle-1(1), Kolkata
[PAN: AAACV 9922 B]
(Appellant) (Respondent)
For the Appellant : Shri G. Mallikarjuna, CIT, DR
For the Respondent : Shri Kamal Sawhney, AR
Date of Hearing : 16.08.2017
Date of Pronouncement : 13.09.2017
2
ITA Nos.584 & 687/Kol/2015
ITA Nos.549 & 619/Kol/2016
M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12
ORDER
Per M.Balaganesh, AM
1. These appeals of the assessee as well as the revenue arise out of the proceedings for the Asst Years 2010-11 and 2011-12 of the Learned Dispute Resolution Panel (DRP) dated 29.12.2014 and 16.12.2015 respectively in which directions are given to the Learned AO u/s 144C(5) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). As some of the issues involved in both the years are identical in nature, they are taken up together and disposed off by this common order for the sake of convenience.
2. At the outset, we would like to place on record our appreciation for the assistance provided by the ld DR in disposal of these appeals. These cases were listed for hearing on 14.8.2017 and was kept as part heard and further adjourned to 16.8.2017. We are given to understand from the statement of the ld DR that he had applied for Earned Leave from 16.8.2017. Since the counsel for the assessee had come from New Delhi, the ld DR was gracious enough to be present on 16.8.2017 for completion of these appeals after cancellation of his sanctioned leave. The enthusiasm with which the ld DR co-operated with us for expeditious disposal of these appeals richly deserves to be appreciated.
3. The Ground No. 1 raised by the assessee for the Asst Year 2010-11 is general in nature and does not require any specific adjudication. The Ground No. 2 raised by the assessee for the Asst Year 2010-11 against the confirmation of adjustment of Rs 1,87,48,901/- to the international transactions of the assessee with its Associated Enterprises (AEs) is dealt with independently in other grounds adjudicated herein below. Hence this ground does not require any specific adjudication.
2 3ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12
4. Adjustment to Arm's Length Price - ITA No. 584/Kol/2015 (Assessee Appeal) - Asst Year 2010-11 The assessee is a closely held company engaged in the business of manufacturing and distribution of electric meters and related components. It also renders software development services to its group companies. In the course of its business operations, the assessee has entered into certain international transactions. For the purpose of benchmarking the prices of the international transactions, the assessee in its transfer pricing report, segregated the above transactions into three broad segments 'Manufacturing' , 'Trading' and 'Service'. The particulars of the transaction and the relevant segment to which it relates has been depicted below:-
Landis + Gyr Manufacturing segment Trading segment-Meters Service segment Meters Software development Transaction Domestic Export Business Import of Finished Goods Business Transactions Export of services Transactions- Transactions-
Import of raw materials Sale of Finished Goods & components
4.1. In addition to the above transactions, the assessee has also entered into following class of transactions being 'payment of royalty' , 'payment of management service fees' and 'reimbursement of expenses'. The said transactions being distinct class of 3 4 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 transactions have been benchmarked separately applying the most appropriate method (MAM).
4.2. The international transactions entered into by the assessee under each of the above depicted segments, have been summarized below:
International Transactions of the Segment of the Amount (Rs.) assessee with its associated assessee enterprises Import of raw materials & Manufacturing segment 1,06,57,099 components -Domestic Sales Export of finished goods Manufacturing 9,73,74,896 Segment -Export Purchase of finished goods Trading segment 36,40,613 Payment of management fees Different class of 7,22,96,951 Reimbursement of expenses transactions - 78,47,460 Payment of Royalty benchmarked 2,39,63,552 separately Software development - Export of Service Segment 16,79,99,092 Services 4.3. The ld AO based on the order passed by the ld TPO u/s 92 CA(3) of the Act had made additions/disallowances against the international transactions undertaken by the assessee as encompassed under the 'Manufacturing Segment - Domestic', 'Manufacturing Segment - Export' and 'Trading Segment'. In addition, the ld AO made adjustments in relation to the transaction of 'payment of royalty' and 'payment of management service fees' entered into by the assessee with its AEs. All other international transactions of the assessee have been determined to be at arm's length.
4.4. The assessee had benchmarked the international transactions of sale of finished goods, purchase of raw materials and purchase of finished goods by considering the transactional level profitability for each of the relevant transaction. However, the ld 4 5 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 TPO ignored the transactional level analysis submitted by the assessee and instead considered the entire Meter Segment (as reflected in Accounting Standard -17 on 'Segment Reporting' disclosure in the audited financial statements) to determine ALP of aforesaid transactions.
4.5. The assessee submitted that the turnover of the Meter Segment was Rs 194.07 crores as against the value of international transactions of only Rs 11.17 crores and accordingly it submitted that while benchmarking the international transactions accounting for merely 5.76% ( 11.17 / 194.07 crores * 100) of the entire Meter Segment, the ld TPO erred in considering the entire Meter Segment margin which majorly includes third party business amounting to Rs 182.90 crores i.e 94.24% of total meter segment.
4.6. The details of functional segment, tested party, transfer pricing method and Profit Level Indicator (PLI) adopted by the assessee with respect to sale of finished goods (manufacturing segment - export) ; purchase of raw material / finished goods (manufacturing segment - domestic) and purchase of finished goods (trading segment) have been presented below:-
Nature of Relevant Most Tested Party Amounts (Rs.) International Segment appropriate for the Transactions method transaction Sale of finished Manufacturing TNMN Appellant 9,73,74,896 goods Segment- Export Import of raw Manufacturing Cost Plus Associated 1,06,57,099 materials & Segment- Method (CPM) Enterprise components Domestic Purchase of Trading segment Resale Price Appellant 36,40,613 finished goods Method (RPM)
4.7. The assessee has submitted in its TP study report , the segmentation of its business segments into manufacturing segment, trading segment and service segment. Furhter, 5 6 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 the manufacturing segment was further classified into 'manufacturing for the domestic market' and 'manufacturing for the export market' for transactions of purchase of raw material and sale of finished goods respectively. Each of the aforesaid segments of the assessee is based on uniqueness of functions performed and risks assumed. It submitted that the activities undertaken and the international transactions proposed to be benchmarked under the two segments are distinct from one another and hence the assessee had benchmarked the activities separately in its TP study report.
5. Sale of Finished Goods in Manufacturing Segment (Export) For the manufacturing segment with two further sub-segments of domestic sales and exports, the ld TPO found its bifurcation untenable because despite calling two sub- segments as two separate ones, the assessee had merely divided various costs on the basis of turnovers, except the Export Incentive and Excise Duty which had been done on the actual basis. The cost of raw materials and cost of manpower had merely been proportionately allocated. The ld TPO was of the view that the combined Profit Level Indicator (PLI) would reflect a more appropriate indicator.
5.1. The assessee had justified the Arm's Length nature of the aforesaid international transactions selecting itself as the tested party wherein it benchmarked the PLI (OP / Sales) using Transaction Net Margin Method (TNMM). The benchmarking was done by the assessee by comparing its export segment net profitability of 29.15% with uncontrolled comparable companies at 5.17% operating in India and since the assessee's margin was more than the margin of comparable companies, the transaction was determined to be at ALP.
5.2. The ld TPO accepted the selection of the tested party to be the assessee itself. He also accepted the TNMM as the MAM and the PLI of OP / Sales as chosen by the assessee. With regard to the benchmarking done by the assessee, the ld TPO ignored 6 7 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 the relevant 'Manufacturing-Export Segment' (Rs 9.74 crores) profitability and considered the margin of 'entire meter segment' (Rs 194.07 crores) which also encompasses profit from third party transactions accounting for 95% of the total segment. As a result, the ld TPO identified comparable companies of his own to arrive at the arm's length margin of 15.61% thereby arriving at adjustment of Rs 1,51,98,611/- . This action of the ld TPO was approved by the ld Dispute Resolution Panel (DRP). Aggrieved, the assessee is in appeal before us.
6. Purchase of raw materials ( Manufacturing Segment - Domestic) The assessee had justified the Arm's Length nature of the aforesaid international transactions selecting the AEs as the tested party wherein it benchmarked the PLI [(Gross Profit (GP) / Direct and Indirect Cost of Production (DICOP) ] using Cost Plus Method (CPM). The benchmarking was done by the assessee by comparing the AEs profitability from sale of materials to assessee with sale of materials to similar companies operating in AEs region. As a result, the assessee found that the margins earned by the AEs were lower than the comparables' margin and accordingly the transaction was determined to be at ALP.
6.1. The ld TPO selected the tested party to be the assessee itself. He adopted the TNMM as the MAM and the PLI of OP / Sales . With regard to the benchmarking done by the assessee, the ld TPO ignored the relevant 'Manufacturing-Domestic Segment' (Rs 1.07 crores) profitability and considered the margin of 'entire meter segment' (Rs 194.07 crores) which also encompasses profit from third party transactions accounting for 99.45% of the total segment. As a result, the ld TPO identified comparable companies of his own to arrive at the arm's length margin of 15.61% thereby arriving at adjustment of Rs 16,64,527/- . This action of the ld TPO was approved by the ld Dispute Resolution Panel (DRP). Aggrieved, the assessee is in appeal before us.
7 8ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12
7. Purchase of finished goods (Trading Segment) The assessee had justified the Arm's Length nature of the aforesaid international transactions selecting itself as the tested party wherein it benchmarked the PLI (Gross Profitability) using Resale Price Method (RPM). The benchmarking was done by the assessee by comparing its Trading Segment Gross Profitability of 33.48% with Gross Profitability of Uncontrolled Comparable Companies at 22.34% operating in India and since the assessee's margin was more than the margin of comparable companies, the transaction was determined to be at ALP. This approach was even adopted by the ld TPO and ld DRP in assessee's own case for the Asst Years 2007-08 and 2008-09.
7.1. The ld TPO accepted the selection of the tested party to be the assessee itself. He adopted the TNMM as the MAM and the PLI of OP / Sales. With regard to the benchmarking done by the assessee, the ld TPO ignored the relevant 'Trading Segment (Rs 0.36 crores) profitability and considered the margin of 'entire meter segment' (Rs 194.07 crores) which also encompasses profit from third party transactions accounting for 99.81% of the total segment. As a result, the ld TPO identified comparable companies of his own to arrive at the arm's length margin of 13.45% thereby arriving at adjustment of Rs 4,90,394/- . This action of the ld TPO was approved by the ld Dispute Resolution Panel (DRP). Aggrieved, the assessee is in appeal before us.
8. The ld TPO rejected the transactional level analysis and adopted entity wide analysis for determination of ALP of international transactions. This action of the ld TPO was approved by the ld Dispute Resolution Panel (DRP). Aggrieved, the assessee is in appeal before us.
9. The ld AR argued that in transfer pricing analysis a transaction by transaction approach should be undertaken for bench marking analysis to determine the arm's length price of the international transactions being entered into. The principle of 8 9 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 undertaking transaction by transaction analysis for determination of arm's length price has been embedded under the Indian Transfer Pricing Regulations, OECD Transfer Pricing Guidelines, 2010 updated via Base Erosion and Profit Shifting Action Plan 8-10, 2015 (herein referred to as 'OECD TP Guidelines') and UN TP Manual, 2013. He drew our attention to Rule 10B(2) of the Income-tax Rules, 1962, which sets out the criteria for comparability of the transactions, wherein in sub-rule (a) and (b) sets out as under:-
(a) the specific characteristics of the property transferred or services provided in either transaction ;
(b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions.
9.1. He submitted that the functions performed and risk assumed by the assessee in case of the international transactions covered under the segments i.e 'Manufacturing - Domestic Segment', 'Manufacturing - Export Segment' and 'Trading Segment' are distinct and separate from one another. It was explained that with regard to 'Manufacturing-Domestic Segment' , the assessee undertakes full-fledged marketing efforts to secure customer contracts. It has to ensure appropriate application of licensed technology from the AE for manufacturing of products to meet customer requirement and satisfaction. The assessee also has to bear product performance risks towards end customers, in addition to bearing the credit risk with respect to its domestic operations. Whereas under 'Manufacturing-Export Segment' the assessee receives product specification from its AE and accordingly manufactures and supplies the product. It is not liable to end customers for product performance. It is also not undertaking any marketing efforts in the export market to secure contracts and does not bear any credit risk as it receives payment from its AEs. Further with regard to 'Trading Segment', the assessee purchases finished goods from AEs based on orders received from the Indian customers. The assessee performs the role of limited risk distributor for the said 9 10 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 activity. The assessee bears indirect market risk as it is only being remunerated for limited risk distribution activity.
9.2. He argued that these functional and risk differences arising under the different segments were completely overlooked by the ld TPO and ld DRP. He further argued that with regard to sub-segments of Manufacturing Segment, the fact that market dynamics and economic circumstances of the Export and Domestic market cannot be compared due to varied factors. Further, the Export market is likely to have a different realization from the Domestic market and therefore the two sub-segments cannot be compared for analysis purposes.
9.3. He again reiterated that the total value of international transactions was only Rs 11.17 crores (i.e sale of finished goods (export) - Rs 9.74 crores ; purchase of raw materials and components in Manufacturing - Domestic segment - Rs 1.07 crores and purchase of finished goods in Trading Segment - Rs 0.36 crores) , whereas the value of entire Meter Segment sales was Rs 194.07 crores. He argued that how can the profitability from entire sales value of Rs 194.07 crores would be a better reflection of Rs 11.17 crores of transaction value rather than profitability determined from Rs 11.17 crores transaction value itself. He submitted that the segmentation undertaken by the assessee was to achieve greater functional comparability and the benchmarking was also undertaken keeping in mind the specific characteristics of the international transactions captured within the relevant segments as per Rule 10B(2) of the Rules.
9.4. In the context of comparability and FAR analysis, he placed reliance on the following paras of OECD Transfer Pricing Guidelines, 2010 updated via Base Erosion and Profit Shifting Action Plan 8-10, 2015 (herein referred to as 'OECD TP Guidelines') since the Indian Transfer Pricing law is largely based on the principles and technicalities laid down in these guidelines :-
10 11ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 D.1.2. Functional analysis Para 1.51. " In transactions between two independent enterprises, compensation usually will reflect the functions that each enterprise performs (taking into account assets used and risks assumed). Therefore, in delineating the controlled transaction and determining comparability between controlled and uncontrolled transactions or entities, a functional analysis is necessary. This functional analysis seeks to identify the economically significant activities and responsibilities undertaken, assets used or contributed, and risks assumed by the parties to the transactions. ........................... "
9.5. He submitted that the ld TPO had failed to decipher that FAR analysis is one of the critical factors in establishing the ALP of the international transaction and reiterated the fact that functions undertaken and risks assumed for the aforesaid international transactions are completely different and hence a collective benchmarking analysis for the same would distort the principles of transfer pricing and will render the comparison defective. He stated that where the international transaction could be specifically related to a particular business segment of the assessee and the segmented result with respect to such segments could be obtained, use of segmented profitability would provide a better and more scientific method for determining the arm's length operations of the company rather than adopting an overall /entity level TNMM approach.
9.6. The ld AR also submitted that as per para 2.78 of Chapter II - Transfer Pricing Methods of the OECD TP Guidelines under the caption 'Determination of Net Profit', it is stated as under:-
Para B.3.3. - Determination of the net profit " 2.78. Costs and revenues that are not related to the controlled transaction under review should be excluded where they materially affect comparability with 11 12 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 uncontrolled transactions. An appropriate level of segmentation of the taxpayer's financial data is needed when determining or testing the net profit it earns from a controlled transction (or from transactions that are appropriately aggregated according to the guidance at paragraphs 3.9 - 3.12). Therefore, it would be inappropriate to apply the transactional net margin method on a company wide basis if the company engages in a variety of different controlled transactions that cannot be appropriately compared on an aggregate basis with those of an independent enterprise."
9.7. Accordingly the ld AR submitted that the assessee had carried out the benchmarking exercise based on the segmental profitability and the segmental statement reflects the profitability under relevant segments being 'Manufacturing- Domestic' , 'Manufacturing- Export' and 'Trading Segment'. The assessee had considered the profitability from the relevant segment and benchmarked the same with the companies engaged in similar activities. On the basis of such analysis, the price of international transactions of purchase of materials & components, sale of finished goods and purchase of finished goods were determined to be at arm's length. He also submitted that as per Rule 10B(1) of the Rules comprising of different methods of determination of ALP, the price / profit earned from the relevant international transaction should be tested. In this regard, he also placed reliance on the OECD TP Guidelines in para 3.9 of the document wherein it was stated as under:
3.9 Ideally, in order to arrive at the most precise approximation of arm's length conditions, the arm's length principle should be applied on a transaction-by-transaction basis. However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis....
9.8. The ld AR also placed reliance on the United Nations TP Manual vide para B.2.3.1.11 of the document which states as under:-
Evaluation of separate and combined transactions 12 13 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 " B.2.3.1.11. The transfer pricing analysis should ideally be made on a transaction-by- transaction basis. However, there are cases where separate transactions are so closely linked that such an approach would not lead to a reliable result. Where transactions are so closely interrelated or continuous that application of the arm's length principle on a transaction-by-transaction basis would become unreliable or cumbersome, transactions are often aggregated for the purposes of the analysis.".
9.9. The ld AR argued that it could be observed from the above readings of International Guidelines that both OECD TP Guidelines and UN TP Manual have given primary preference to undertake a transaction by transaction analysis. It is only under certain exceptional circumstances, where separate transaction level analysis could not be undertaken or separate transactions are so closely inter-linked , that aggregation of transaction approach has been warranted. However, in the instant case, each of the transactions undertaken by the assessee on which TP adjustment has been imputed were distinct, independent and warrant separate analysis to determine the arm's length price.
Like for instance, in sale of finished goods, the assessee manufactures and sells the goods based on the specification received from the AE wherein it does not undertake any marketing efforts nor does it bear any credit risk as it receives payment from its AEs. Whereas, with respect to purchase of components, the assessee needs to ensure that those are appropriately used in its manufacturing process to produce goods with desirable performance quality and meet end customers requirement. Thus, the two primary impugned transactions i.e sale of finished goods and purchase of raw materials are separate and distinct from each other and do require a separate transaction level analysis to determine arm's length price. In support of his contention, he placed reliance on the Co-ordinate Bench decision of Delhi Tribunal in the case of Benetton India (P) Ltd vs ITO reported in (2012) 134 ITD 229 (Delhi Trib.) wherein it was held that :-
7 ... The first and foremost question in this case is to determine whether the action of TPO in undertaking entity level bench marking by TNM method combining all the international transactions is justifiable or the TP analysis provided by assessee, based on "transaction to transaction" basis in respect of different segments should be adopted.13 14
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A.Yr.2010-11 & 11-12 7.1 From the facts mentioned above, it is clear that assessee's manufacturing export activities: buying/sourcing and commission earning activities are independent of each other. Each activity has different factors in respect of source, identification of vendors, merchandise, designs quality control, handling etc. The FAR analysis in each of the activity will have distinct and separate considerations.
7.2 We find merit in the argument of the learned counsel that the TPO should have accepted the method of assessee's benchmarking analysis on the basis of transaction to transaction basis in respect of different segments of assessee's international transactions with associated enterprises. In our view, assessee's functions, risk and assets FAR considerations, which are given in the above table, deserves to be merited. TPO did not appreciate the assessee's transactions correctly and applied entity level bench marking on TNMM method by combining assessee's all international transactions with associated enterprise without justification.
7.3 Our view is supported by ITAT judgments - Mumbai Bench in the cases of UCB India (P) Ltd. Vs. ACIT (2009) 30 SOT 95 (Mum.); ACIT v. Star India Ltd. (ITA NO.s 3585 & 3846 (M) of 2006); and Kolkata Bench in the case of Development Consultants (P) Ltd. (2008) 23 SOT 455 (Kol.). All these cases clearly lay down that ALP would be determined based on the nature of service provided by assessee for each class of transaction based on various factors and analysis. In the case of Star India Ltd. (supra), also the TPO treated all the activities of the assessee as one and determined the ALP at entity level without appreciating that one cannot compare the FAR of a principal and agent on same footing.
7.4. In our view, in the assessee's case there are different segmental activities, which are independent of each other. They are required to be analyzed on transaction to transaction basis and not by combining all activities. Consequently, we uphold the assessee's method of ALP.
Consideration of transaction by transaction approach for determination of the arm's length price has also been upheld in the following mentioned judicial precedents:
• Ankit Diamonds ( 2011) 43 SOT 523( Mumbai Trib.) • Avineon India (P) Ltd, TS-308-ITAT-2013(Hyd)-TP • DCIT -vs- M/s Starlite (133 TTJ 425) (Mumbai Trib.) • Symantec Software Solutions (P) Ltd., (2011) 46 SOT 48 (Mumbai Trib) • Tecnimount ICB (P) Ltd., (2011) 11 taxmann.com 49 (Mumbai Trib.) Accordingly, he argued that the 'transaction by transaction approach' adopted by the assessee should be considered for benchmarking the international transactions undertaken by the assessee.14 15
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A.Yr.2010-11 & 11-12 9.10. The ld AR also submitted that the consideration of transaction by transaction approach had been upheld by this tribunal in assessee's own case for the Asst Years 2007-08 and 2008-09 in ITA Nos. 37 & 1623/Kol/2012 respectively dated 3.8.2016.
10. In response to this, the ld DR stated that the sale of finished goods in 'Manufacturing Segment- Export' ; purchase of raw materials & components in 'Manufacturing Segment - Domestic' are all interlinked and closely related with each other and for this purpose only, payment of royalty is also made by the assessee. The segmental bifurcation made by the assessee between two different segments have been duly rejected by the ld TPO as the basis of allocation of costs thereon was not properly done by the assessee. Even the United Nations TP Manual in para B.2.3.1.11 relied upon by the ld AR supports the case of the revenue in the facts of the instant case as the subject mentioned international transactions are closely related and hence only entity level approach would yield the desirable results for determination of ALP. He also stated that the AE profitability cannot be considered for benchmarking the profitability of international transactions carried out by the assessee. He stated that the provisions of the Act provides for adoption of bundled / composite approach for determination of ALP of international transactions. The assessee had merely camouflouged the entire gamut of transactions by bifurcating into different segments which are not at all required in the instant case. In support of his argument that bundled approach is permitted, he placed reliance on the OECD Guidelines under the caption 'Evaluation of a taxpayer's separate and combined transactions' in para 3.9 and 3.11 thereon which are reproduced hereunder:-
"3.9 Ideally, in order to arrive at the most precise approximation of arm's length conditions, the arm's length principle should be applied on a transaction-by- transaction basis. However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis. Examples may include 1. Some long-term contracts for the supply of commodities or services, 2. Rights to use intangible property, and 3. Pricing a range of closely-15 16
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A.Yr.2010-11 & 11-12 linked products (e.g. in a product line) when it is impractical to determine pricing for each individual product for transaction. Another example would be the licensing of manufacturing know-how and the supply of vital components to an associated manufacturer; it may be more reasonable to assess the arm's length terms for the two items together rather than individually. Such transactions should be evaluated together using the most appropriate arm's length method. A further example would be the routing of a transaction through another associated enterprise; it may be more appropriate to consider the transaction of which the routing is a part in its entirely, rather than consider the individual transactions on a separate basis.
3.11 While some separately contracted transactions between associated enterprise may need to be evaluated together in order to determine whether the conditions are arm's length, other transactions contracted between such enterprise as a package may need to be evaluated separately. An MNE may package as a single transaction and establish single price for a number of benefits such as licenses for patents, know-how, and trademarks, the provision of technical and administrative services, and the lease of production facilities. This type of arrangement is often referred to as a package of deal. Such comprehensive packages would be unlikely to include sales of goods, however, although the price charged for sales of goods may cover some accompanying services. In some cases, it may not be feasible to evaluate the package as a whole so that the elements of the package must be segregated. In such cases, after determining separate transfer pricing for the separate elements, the tax administration should nonetheless consider whether in total the transfer pricing for the entire package is arm's length."
In the instant case, the closely linked transactions of each international transaction are clearly established . He argued that the assessee had segregated the risks in page 187 of the paper book between Manufacturing- Domestic and Manufacturing -Export , which is not at all required. The assessee would not be floating separate tenders for Domestic or Export business. He also placed reliance on the decision of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P) Ltd vs CIT reported in (wherein bundled approach was permitted. ) 374 ITR 118 (Del) wherein the principle of bundled approach had been accepted by the Hon'ble Delhi High Court.
11. We have heard the rival submissions and perused the materials available on record including the paper books filed by the assessee. We find that the growing importance of international trade, globalization and rapid rise in the number of Multinational 16 17 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 Enterprises (MNEs) has resulted in exhaustive and meticulous research and studies in this complex area of determination of transfer price and shifting of profits from one country to another country pursuant to transactions with AEs. The transfer pricing methods have seen a measure of standardization, universal recognition and acceptability. Indian transfer pricing regulations have adopted and benefitted, from the international framework. The OECD Transfer Pricing guidelines for MNEs and tax administration and United Nations' Practical Manual on Transfer Pricing do reflect the international understanding on several aspects relating to transfer pricing. We have taken note of the saem and had referred to the two guidelines as it is found to be conducive and helpful in deciding the issues.
11.1. Sub-section (1) to Section 92 states that any income arising from an international transaction shall be computed having regard to arm's length price. It includes expense or interest arising from an international transaction. Sub-Section (2) is an adjunct and intrinsically connected with Sub- Section (1) to Section 92. It stipulates that Sub- Section (1) shall be applicable when two or more AEs enter into a mutual agreement or arrangement for allocation, apportionment or contribution to any cost, expense incurred or to be incurred in connection with benefit, service or facility provided or to be provided. An international transaction, therefore, means transaction between two or more AEs when either one or both are non-resident; the transaction should be in nature of sale, purchase or lease of tangible or intangible property or in the nature of provision for services or lending of money or any other transaction having bearing on the profits, income, losses or assets. A mutual agreement or arrangement for allocation of expenses would also be an international transaction. Section 92F defines the term "transaction" broadly and is a very wide definition, and we observe, that clause (v) thereof stipulates that an arrangement, understanding or action in concert would be a transaction whether or not such arrangements, etc. are formal or in writing or whether or not such 17 18 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 arrangements are legally enforceable. From the above, we find that the definition of 'transaction' in section 92F(v) of the Act is an inclusive definition. We also find that Rule 10A(d) of the Rules defines 'transaction' as under:-
'Transaction' includes a number of closely linked transactions.
11.2. The determination of ALP vis a vis the assessment of real income under the Act had been discussed elaborately in the decision of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P) Ltd vs CIT reported in (2015) 374 ITR 118 (Del) wherein it was held :-
77. As a concept and principle Chapter X does not artificially broaden, expand or deviate from the concept of "real income". "Real income", as held by the Supreme Court in Poona Electricity Supply Co. Ltd. v. CIT [1965] 57 ITR 521, means profits arrived at on commercial principles, subject to the provisions of the Act. Profits and gains should be true and correct profits and gains, neither under nor over stated. Arm's length price seeks to correct distortion and shifting of profits to tax the actual income earned by a resident/domestic AE. The profit which would have accrued had arm's length conditions prevailed is brought to tax. Misreporting, if any, on account of non-
arm's length conditions resulting in lower profits, is corrected.
11.3. The assessee had undertaken the transactional level analysis which has been rejected by the ld TPO and ld DRP. We find that while undertaking the transactional level analysis, the assessee had submitted the copy of certified segmental statement reflecting profitability earned by it under its various segments being 'Manufacturing- Domestic', 'Manufacturing-Export' and 'Trading' Segment, which is as under:-
18 19ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 However, the ld TPO rejected the segmental statement stating that the broad segmentation of manufacturing and trading is not backed by any documentary evidence and it is a far-fetched approach. Further, it raised various other apprehensions being:-
(i) basis of allocation of expenses is not justifiable as direct cost allocation is higher in case of domestic segment as against export segment
(ii) segmental statement is not part of the audited financial accounts.
11.4. The assessee had addressed the aforesaid apprehensions in the following manner:-
(i) Basis of allocation of expenses is not justifiable The assessee submitted that the segmental analysis has considered all direct costs apportionment on actual basis and indirect costs apportioned on sales basis. The direct costs incurred with respect to each segment which forms nearly 50% of total costs has 19 20 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 been identified on actual basis. It is only the indirect overheads wherein one to one mapping of expense could not be ascertained has been allocated on the size of the activity in each segment. Hence the ld TPO's contention that direct cost allocation has been higher in case of domestic segment as against export segment is not warranted as allocation has been on actual basis.
(ii) Segmental statement is not part of audited financial accounts The assessee submitted that there is no statutory requirement of maintaining a separate segmental accounts reflecting profitability earned by the assessee from its international transactions. The Accounting Standard (AS) 17 issued by the Institute of Chartered Accountants of India (ICAI) requires reporting of financial information or result about the different types of products or services that the business segment produces and there is no requirement of reporting details for transaction with related parties and unrelated parties separately. In addition, there is no statutory requirement of the segmental accounts of being audited or certified by any independent agency and neither these are required to be part of audited financial statements. However, the assessee still submitted the copy of segmental accounts certified by an independent Chartered Accountant before the ld TPO / ld DRP.
11.5. We find that the reliance has been placed by the ld DR on the decision of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P) Ltd vs CIT reported in (2015) 374 ITR 118 (Del) for adoption of bundled approach, wherein it was held as under:-
G. Section 92(3) of the Act and Bundled/Inter-Connected Transactions
79. At this stage and before we examine the TNM Method exhaustively, we deem it necessary to interpret and refer to in some detail sub-section (1) to Section 92C and reference to the term 'transaction' with the vowel 'an', which has been interpreted by the majority judgment of the Tribunal to mean a single independent transaction and not a 20 21 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 group or bundle of transactions. We do not think that use of vowel 'an' or the word 'transaction' instead of the word 'transactions' should be given undue notability and prominence. One of the primary rules of statutory construction is that singular includes plural and vice-versa. This rule applies unless a contrary intention is manifest and exhibited. Merely because a statutory provision is drafted in singularity as opposed to plurality, is not enough to exclude application of the general rule that singular includes plural. The rule is not to be discarded on the ground that the relevant provision is singular or plural and the subsidiary and ancillary provision follow the same pattern. Contrary intention to exclude this generic rule is not to be lightly inferred. Contrary intention is not assumed or formed by confining attention to a specific provision but it would be apposite to consider the provision in the setting and placement of the legislation. It is a substance and tenure of the statute which would be meaningfully and critically determinative. This is the mandate of Section 13(2) of the General Clauses Act, 1897 (see Newspapers Ltd. v. State Industrial Tribunal AIR 1957 SC 532, Narshimha Murthy v.Susheelabai [1996] 4 SCC 644, J. Jayalalitha v. Union of India [1999] 5 SCC 138, Blue Metal Industries Ltd. v. RW Dilley [1960] 3 All ER 437, Floor v. Davis Inspector of Taxes [1979] 2 All ER 677, Sin Pon Amalgamated (H.K.) Ltd. v. Attorny General [1965] 1 All ER 225 (PC)
80. The use of expression 'class of transaction', 'functions performed by the parties' in Section 92C(1) illustrates to the contrary, that the word 'transaction' can never include and would exclude bundle or group of connected transactions. More important would be reference to meaning of the term 'transaction' in Section 92F, clause (v), which as per the said definition includes an arrangement or understanding or action in concert whether or not the same is formal or in writing, whether or not it is intended to be enforceable by legal proceedings. Rule 10A in clause (d) states that "for the purpose of this Rule and Rules 10AB and 10E", the term 'transaction' would "include a number of closely linked transactions". This Rule in positive terms declares that the legislative intent is not to deviate from the generic rule that singular includes plural. The meaning or definition of the expression 'transaction' in clause (d) to Rule 10A read with sub- section (1) to Section 92C, therefore, does not bar or prohibit clubbing of closely connected or intertwined or continuous transactions. This is discernible also from sub- rule (2) to Rule 10B quoted above. The sub-rule refers to 'services provided', 'functions performed', 'contractual terms (whether or not such terms are formal or in writing) of the transactions' which lay down explicitly or impliedly the responsibilities, risks and benefits to be divided between the respective parties to the transactions. Use of plurality by way of necessity and legislative mandate is evident in the said Rule.
81. Similarly, sub-rule (3) to Rule 10B refers to transactions being compared or comparison of the enterprises entering into such transactions likely to affect the price or cost charged etc. A reading of Rule 10C reassures and affirms that the general principle of plurality is not abandoned or discarded.
82. There is considerable tax literature and text that CUP Method, i.e. Comparable Uncontrolled Price Method, RP Method, i.e. Resale Price Method and CP Method, i.e. Cost Plus Method can be applied to a transaction or closely linked, or continuous 21 22 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 transactions. Profits Split Method and TNM Method grouped as 'transactional profit methods', can be equally effective and reliable when applied to closely linked or continuous transactions. Thus, it would be inappropriate to proceed with the arm's length computation methods, with a pre-conceived suppositions on singularity as a statutory mandate. Clubbing of closely linked, which would include continuous transactions, may be permissible and not ostracized. Aggregation of closely linked transactions or segregation by the assessed should be tested by the Assessing Officer/TPO on the benchmark and the exemplar; whether such aggregation/ segregation by the assessed should be interfered in terms of the four clauses stipulated in Section 92C(3) of the Act, read with the Rules. It would, among other aspects, refer to the method adopted and whether reliability and authenticity of the arm's length determination is affected or corrupted.
83. We now proceed to examine the TNM Method, whether there is prohibition in applying this method on entity to entity basis, and if not, when is it permissible to apply entity to entity comparison. The discussion would also answer the question, when is clubbing or bunching or transactions permissible in TNM Method.
11.6. Hence it could be seen from the underlined portions of the aforesaid judgment, the Hon'ble Court was only trying to concur with the adoption of bundled approach as an exception by stating that it is also permissible and accepted. But the Hon'ble Court had stated the same with a rider that the said approach should be tested on the benchmarking done on the various transactions of the assessee in terms of four clauses stipulated in section 92C(3) of the Act read with the Rules. Hence it could be safely concluded that the bundled approach could be adopted only after passing the test contemplated above and it is not automatic application or it is not the mandate of law. The bundled approach, in our considered opinion, was only stated as one of the permissible methods depending upon the international transactions of the assessee with its AEs. In the instant case, the assessee had undertaken the transactional level analysis by considering the certified segmental statement profitability earned by it under its various segments being 'Manufacturing-Domestic', 'Manufacturing-Export' and 'Trading' Segment. Infact we find that the arguments of the ld DR are duly answered in para 3.9 of the OECD Transfer Pricing Guidelines for MNEs and Tax Administrations in Chapter III which are reproduced hereinabove. It states that only in the event of assessee not able 22 23 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 to benchmark the transactions independently, then bundled approach could be adopted. In the instant case, the assessee was able to prepare the segmental profitability statement for each of its segments and prove the ALP thereon with respect to its comparables. Hence we hold that the said approach should be adopted in the place of bundled approach adopted by the ld TPO / ld DRP. Accordingly, we hold that the reliance placed by the ld DR on the decision of Sony Ericsson supra does not advance the case of the revenue. In any case, the aggregation is to be done only for international transactions and not for domestic transactions as has been done in the instant case by the ld TPO. We find lot of force in the argument of the ld AR that the ld TPO had accepted Resale Price Method for purchase of finished goods (Trading segment) in Asst Year 2011-12 (which will be dealt separately in this order) and hence the same could not have been bundled. The total value of international transactions in three segments is only Rs 11.17 crores out of total turnover of the entire meter segment of Rs 194.07 crores which works out to only 5.75% and the remaining 94.25% represents domestic transactions. Hence the comparison based on aggregation of both domestic and international transactions would only project distorted figures and would result in absurdity. We also place reliance on the decision of the Hon'ble Bombay High Court in the case of Tara Jewels Exports Pvt Ltd reported in TS-481-HC-2015(BOM)-TP wherein it was held that international transactions only are to be considered for purpose of PLI computation. Similar decision was rendered by the Hon'ble Bombay High Court in yet another case of Syscom Corporation Ltd reported in TS-808-HC-2016(BOM)-TP wherein it was held that TP adjustment is to be restricted only to international transaction.
11.7. We also find that in Asst Year 2007-08 in assessee's own case in ITA No. 37 /Kol/2012 dated 3.8.2016 , this tribunal had held as under:-
5.2.13. We find that the ld DRP failed to understand the benchmarking approach as submitted by the assessee. The ld DRP did not recognize the fact that assessee was comparing AEs margin with comparable companies in AEs region rather than 23 24 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 comparing the latter with assessee's margin earned in India (vide page 316 of the Paper Book). Thus the ld DRP summarily rejected the transaction by transaction approach adopted by the assessee. We find that the revenue had not brought anything concrete on records either factually or legally to negate the assessee's approach of determining the Arm's Length Transaction Price.
11.8. We also find that in Asst Year 2008-09 in assessee's own case in ITA No. 1623/Kol/2012 dated 3.8.2016, this tribunal had held as under:-
6.3.1. .................................
Since the assessee was able to appropriately segregate its business operations in to its various business / functional segments, the arm's length nature of the international transaction(s), which could be directly related to such segments, should be determined base don th relevant segmented profitability.
We draw support from the following decisions in support of this proposition:-
Benetton India P Ltd vs ITO reported in (2012) 134 ITD 229 (Delhi Trib.) Birlasoft (India) Ltd vs DCIT reported in (2011) 44 SOT 664 (Delhi Trib.) General Motors India Pvt Ltd vs DCIT reported in (2013) 146 ITD 559 (Ahd Trib.) Moreover, we find that the ld TPO had accepted the certified segmental profitability as he has considered 'Manufacturing Segment' profitability from the same. However, he did not consider the sub-segment profitability of Manufacturing Segment into Manufacturing (Domestic) segment and Manufacturing (Export) segment based on difference in FAR analysis to determine the profitability from sale of finished goods. The ld AR further stated that the ld TPO in the earlier years has considered prices of international transaction pertaining to export of goods to AEs to be at Arm's Length wherein the assessee followed the same economic analysis to determine the Arm's Length Price.
In view of the aforesaid findings and in the facts and circumstances of the case and respectfully following the judicial precedents relied upon hereinabove, we direct the ld TPO / ld AO to consider the certified segmental profitability to determine the Arm's Length Price of the relevant international transactions and hereby reject the combined segment approach adopted by the ld TPO.
11.9. The ld AR also pointed out that the revenue had not preferred any further appeal to the Hon'ble Calcutta High Court against the order of this tribunal for the Asst Years 24 25 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 2007-08 and 2008-09 and hence as such the matter had reached finality and revenue had accepted the verdict of this tribunal in assessee's own case. Hence we hold that the certified segmental statement reflecting separate profitability under different segments are to be considered for the purpose of benchmarking the transaction of (i) sale of finished goods , (ii) purchase of materials and components and (iii) purchase of finished goods. Accordingly, the Ground No. 3 raised by the assessee for Asst Year 2010- 11 is allowed.
12. Sale of Finished Goods - Manufacturing Export Segment During the Financial Year 2009-10, the assessee manufactured and sold electric meters and components worth Rs. 194.07 crores out of which goods worth Rs. 9.74 crores were exported to AE. The details of the same are enclosed in page 1296 of Part 3 of the Paper Book. For the purpose of determination of Arm's Length Price , the assessee undertook a detailed functional analysis and determined itself to be a tested party to the transaction. The assessee undertook segmental level profitability analysis to determine the profit earned from export of finished goods. The assessee also submitted a certified copy of the segmental profitability analysis before the ld TPO and ld DRP. On evaluation of the methods prescribed under the TP regulations, the assessee considered TNMM as the MAM and OP/Sales as the most appropriate PLI, which has been accepted by the ld TPO / ld DRP. Thereafter, the assessee undertook a scientific search process to identify uncontrolled comparable companies having a reasonable level of revenue from export sales. The details of the same are enclosed in page 187 of the Paper Book.
12.1. Twelve comparable companies were identified to be dealing in manufacturing of meter business having substantial level of export sales by the assessee. The margins for the comparable companies have been erroneously computed by the ld TPO and hence the correct margins as computed from the audited financial statements have been 25 26 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 considered by the assessee. On comparing the average OP/Sales of these comparable companies at 5.17% based on single year data with OP/Sales earned by the assessee at 29.15% from sale of finished goods under the 'Manufacturing-Export Segment', the transaction value was determined to be at arm's length. The details of the same are available in page 195 of Vol. I read together with page 1296 of Vol. III of the Paper Book. We also find that similar decision was rendered in assessee's own case, on due appreciation of similar facts, by this tribunal for the Asst Years 2007-08 and 2008-09 in ITA Nos. 37 & 1623/Kol/2012 dated 3.8.2016 for considering the segmental level profitability as submitted by the assessee for determining the ALP of this international transaction. The ld AR also pointed out that the revenue had not preferred any further appeal to the Hon'ble Calcutta High Court against the order of this tribunal for the Asst Years 2007-08 and 2008-09 and hence as such the matter had reached finality and revenue had accepted the verdict of this tribunal in assessee's own case. Hence we hold that the value of export sales of finished goods of the assessee under 'Manufacturing Segment - Export' is at arm's length and no adjustment is warranted thereon. Accordingly the Ground No. 5 raised by the assessee for the Asst Year 2010-11 is allowed.
13. Purchase of materials / components - 'Manufacturing Segment - Domestic' With respect to the above, an adjustment computed as a percentage of transaction value to the total costs of the Meter Segment was undertaken by the ld TPO. The value of purchase of materials / components from its AE was Rs 1,06,57,099/- (Rs 1.07 crores) which works out to 0.55% of total turnover of meter segment of Rs 194.07 crores. We find that the assessee is trying to justify its Arm's length price by following transaction- by-transaction approach, encompassed in its 'Manufacturing Domestic' segment, by selecting CPM as the MAM and selecting its AEs as the tested party. The PLI adopted by the assessee was GP / DICOP. The assessee had benchmarked the margins retained by AEs by supplying the materials and components to the assessee with companies 26 27 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 engaged in similar activities, details of which are enclosed in pages 195 to 198 of Part 1 of Paper Book. The assessee has submitted the economic analysis for the consideration of the lower authorities , wherein AEs were selected as tested party for the analysis and profitability retained by them were benchmarked. The assessee provided the ld TPO with the details of margins earned by the AEs on supply of materials to the assessee. Accordingly, the comparable companies were identified and arithmetic mean was computed. The prices of such transfer of materials and components wre determined to be at arm's length.
13.1. Detailed benchmarking analysis as submitted before the ld DRP and ld TPO has been provided by the assessee in pages 240-251 of Part 1 of Paper Book. A summary of the said benchmarking study has been provided herein below:-
Pricing Arm's length Pricing methodology Arm's length Price methodology Price of the followed by Landis of the comparable followed by comparable Greece companies in Greece Landis USA companies in region US region GP/DICOP - GP/DICOP - GP/DICOP - 4.81% GP/DICOP - 50.26% 5.26% 40.80% The margin retained by AEs of the assessee were less than the margin earned by comparable companies in their region and accordingly the transaction price of supply of materials and components to assessee was determined to have been undertaken at arm's length by the AE.
13.2. However, the ld TPO rejected the aforesaid benchmarking analysis and in the remand report dated 18.12.2014 mentioned the following points fo rejection :-
a. stating that information available from the certificates runs contrary to the claim of the assessee regarding AEs suffering loss in respect of their transaction with AEs .27 28
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A.Yr.2010-11 & 11-12 It was explained that the ld TPO erred in computing margin on sales as against margin on cost computed by the assessee.
b. database of foreign companies is not available to ld TPO's office, hence veracity of data could not be verified.
It was explained that merely because the access to foreign databases is not available with the ld TPO, the same could not be considered as a reasonable cause to reject the foreign comparable companies.
13.3. We find from the above that the ld TPO had failed to bring anything concrete on records to negate the assessee's approach of determining the ALP of purchase of materials and components from its AEs. We also find that the aforementioned benchmarking analysis of considering the AEs as tested party and benchmarking their margins (earned from sael of materials to assessee) with the margins of comparable companies in AEs region, has been upheld by this tribunal, on due appreciation of the similar facts, in assessee's own case for the Asst Years 2007-08 and 2008-09 vide order dated 3.8.2016 wherein it was held :-
5.2.12. We find that in the transfer pricing analysis with respect to purchase of materials, the ld TPO had continued to select assessee as the tested party for imports of raw materials of Rs. 2.31 crores which is consumed in the manufacturing segment with a turnover of Rs. 90.45 crores. The margin earned from the entire segment cannot be a representation of 2.55% of the international transaction encompassed therein. Hence the selection of the assessee as the tested party would result in an abnormal outcome in the transfer pricing adjustments. The same could be observed from the fact that post applying TNMM, the ld TPO produced an outcome wherein the value of TP adjustment (as initially arrived of Rs. 8.90 crores) was determined to be more than the value of international transactions of Rs. 4.25 crores which is practically not possible.
Therefore, to cover up the fallacy in its approach of transfer pricing analysis, the ld TPO then proportionated the value of adjustment to the value of international transaction encompassed in the manufacturing segment to arrive at an adjustment value 28 29 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 of Rs. 43,27,604/-. We find that this is modified application of TNMM and not either as per the intention of the Act or OECD Guidelines. Hence with regard to correct application of CPM or TNMM, the Associated Enterprises of the assessee should be selected as tested party to the transaction, as being the least complex entity. Subsequently, an analysis of gross margin or net margin by applying either CPM or TNMM retained by AEs should be undertaken for benchmarking the transaction price pertaining to purchase of materials and components. In this regard, we find that the assessee had submitted the economic analysis for the consideration of ld DRP and ld TPO in the course of proceedings wherein AEs were selected as tested party for the analysis and profitability retained by them were benchmarked. The assessee provided the ld TPO with the group transfer policy wherein it was stated that the supplier of the components would retain a maximum margin of 5% on costs on supply of materials to members of the group (vide page 215 of the paper book). Accordingly, the comparable companies were identified and arithmetic mean was computed. The prices of such transfer of materials and components were determined to be at Arm's Length. The detailed benchmarking analysis as submitted before the ld DRP and ld TPO is enclosed in pages 211 to 227 of the Paper book. However, we find that the ld TPO in his remand report dated 8.8.2011 had rejected the analysis on the following grounds (vide pages 228 to 236 of the Paper Book) :-
....................................
5.2.13. We find that the ld DRP failed to understand the benchmarking approach as submitted by the assessee. The ld DRP did not recognize the fact that assessee was comparing AEs margin with comparable companies in AEs region rather than comparing the latter with assessee's margin earned in India (vide page 316 of the Paper Book). Thus the ld DRP summarily rejected the transaction by transaction approach adopted by the assessee. We find that the revenue had not brought anything concrete on records either factually or legally to negate the assessee's approach of determining the Arm's Length Transaction Price.
The ld AR also pointed out that the revenue had not preferred any further appeal to the Hon'ble Calcutta High Court against the order of this tribunal for the Asst Years 2007- 08 and 2008-09 and hence as such the matter had reached finality and revenue had accepted the verdict of this tribunal in assessee's own case. Accordingly we hold that the transactions of purchase of raw materials and components carried out by the assessee was at arm's length. Accordingly, the Ground No. 4(a) raised by the assessee for the Asst Year 2010-11 is allowed.
14. Purchase of finished goods - Trading Segment 29 30 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 We find that the assessee had justified the Arm's Length nature of the aforesaid international transactions selecting itself as the tested party wherein it benchmarked the PLI (Gross Profitability) using Resale Price Method (RPM). The benchmarking was done by the assessee by comparing its Trading Segment Gross Profitability of 33.48% with Gross Profitability of Uncontrolled Comparable Companies at 22.34% operating in India and since the assessee's margin was more than the margin of comparable companies, the transaction was determined to be at ALP. This approach was even adopted by the ld TPO and ld DRP in assessee's own case for the Asst Years 2007-08 and 2008-09. There is no dispute on the selection of assessee itself as the the tested party. The dispute is with regard to the adoption of MAM and PLI by the ld TPO . The ld TPO adopted TNMM as the MAM and PLI of OP/Sales. With regard to the benchmarking done by the assessee, the ld TPO ignored the relevant 'Trading Segment (Rs 0.36 crores) profitability and considered the margin of 'entire meter segment' (Rs 194.07 crores) which also encompasses profit from third party transactions accounting for 99.81% of the total segment. The ld TPO considered the profitability of comparable companies from database and imputed adjustment as the profitability earned by the assessee under the trading segment was lower than the average industry margin. We find that this tribunal in assessee's own case for the Asst Years 2007-08 and 2008-09 vide its order dated 3.8.2016 had directed to consider the profitability of the comparable companies from audited financial statements for more authenticity of the data and compute the average margin accordingly. If the same is done, then the transaction was determined to be at arm's length as the profitability earned by the assessee under the trading segment was higher than the average industry margin. We also find that the ld TPO had combined the trading segment with the manufacturing segment of the assessee to separately benchmark the transaction of purchase of finished goods. In doing so, we find that the ld TPO had contradicted his own stand from earlier years of considering the profitability of relevant segment (i.e for benchmarking the transaction encompassed under that segment) and ended up considering the combined profitability from both 30 31 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 manufacturing and trading operations for the analysis. We find that the average margin of comparable companies chosen by the ld TPO was 22.34% based on single year data, whereas assessee's margin was 33.48% using RPM as the MAM. The average margin of comparable companies chosen by the ld TPO using TNMM as the MAM was 6.93%. Hence in any case, we find that the assessee's margin of 33.48% was higher than the average industry margin of comparable companies. Hence we hold that no adjustment is warranted to the ALP determined by the assessee in respect of purchase of finished goods. Accordingly, the Ground No. 4(b) raised by the assessee for the Asst Year 2010-11 is allowed.
15. The Ground Nos. 6 & 7 raised by the assessee were stated to be not pressed during the course of hearing. The same is reckoned as a statement from the Bar and accordingly the Ground Nos. 6 & 7 raised by the assessee for the Asst Year 2010-11 are dismissed as not pressed.
16. Disallowance of Depreciation on Intellectual Property Rights The assessee is a closely held company engaged in the business of manufacturing and distribution of electric meters and related components. The assessee had been a manufacturer and supplier of electro-mechanical meters till 2005 while the market had migrated from electro-mechanical meters to static meters due to availability of anti tampering features and communication facilities in static meters. It also did not have any dedicated Research & Development wing to support any electronic business. The Central Electricity Authority vide its notification no. 502/70/CEA/DP&D dated 17.3.2006 notified the Central Electricity Authority (Installation and operation of meters) Regulations, 2006 which inter alia, provided that all interface meters, consumer meters and energy accounting and audit meters shall be of static type. The meters not complying with these regulations were to be replaced as per the direction of the Central 31 32 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 Electricity Authority. Faced with this challenge , assessee wanted to quickly set up its R&D department and acquire some of the intellectual property in this field. Accordingly, it acquired a sole proprietorship unit named "Technology & Research - STPI (TECRES)" vide Business Transfer Agreement dated 12.11.2006. The sole proprietorship concern was run by Mr. Guljeet Singh Gandhi ( an unrelated party to the assessee). Mr Gandhi through his business unit named TECRES had developed certain metering related software and was engaged in the business of sale (both domestic and export) of such software along with related services. Research and development expenses were incurred in the said business. Mr Gandhi and his personnel through their technical intelligence and expertise developed know-how for producing metering related softwares. Since TECRES possessed the requisite know-how, a key to survival in the market for static meters, the assessee entered into Business Transfer Agreement for acquisition of business of TECRES. The entire team of the said TECRES along with their developed codes and domain repository had joined the assessee pursuant to the Business Transfer Agreement. The intellectual property rights acquired by the assessee consisted of designs, software, data base, research and development material and facility, technical know-how, process know-how , confidential information, basic and detailed drawings, operation and maintenance manuals relating to the business carried out by TECRES. The ld AO observed that the Income Tax Rules recognizes intangible assets such as knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature and these assets must possess certain certification / authenticity / sanctity and or recognition from Government or from competent authority. He further observed that the nature of the IP assets acquired by the assessee does not fall in any of the category or similar nature as mentioned in IT Rules. Therefore, he held that the assets are not intangible assets eligible for depreciation and disallowed the claim of Rs. 60,53,906/- on the opening written down value of intellectual property assets. This disallowance was upheld by the 32 33 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 ld DRP on the ground that similar disallowance had been made for Asst Years 2007-08 and 2008-09 in assessee's own case. Aggrieved, the assessee is in appeal before us.
16.1. The ld AR argued that the ld AO erred in alleging that the intellectual property needs to have recognition from government and does not fall in any of the category of intangible assets as mentioned in the Income Tax Rules and accordingly denied the claim of depreciation. He argued that the TECRES, which was taken over from Mr. Gandhi had total assets of Rs 40.17 lakhs and current liabilities of Rs. 4.69 lakhs, was evaluated at Rs. 4.92 crores wherein the major share of the consideration was attributed towards the intellectual property the said business possessed. The entire team together with the domain knowledge had been transferred to the assessee pursuant to the agreement. The same had been used by the assessee for its very survival in the business of static meters to be in line with the regulations of the Central Electricity Authority and hence the use of intellectual property for the purpose of business had been duly demonstrated by the assessee. He argued that the allegation of the ld DRP is without any basis by ignoring the fact that the knowhow in the instant case has been actually acquired by paying a consideration of Rs.4.92 crores (pursuant to independent valuation by an expert) to Mr Gandhi pursuant to business transfer agreement. He argued that the provisions of the Act in more than one section had, in its wisdom, had defined intangible assets as knowhow, patents, copyrights, trademarks, licenses , franchises or any other business or commercial rights of similar nature. Hence knowhow is an independent item of intangible asset. Similarly patent is an independent item of intangible asset. The ld DRP had erred in mixing the term patent with knowhow and observed that since the knowhow acquired had not been registered with Indian Government and hence the same does not have any recognition from Government and accordingly does not fall in the category of intangible assets. He further argued that there is no mandate in the law that the knowhow needs to be registered with the Indian 33 34 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 Government to fall under the category of intangible asset for claiming depreciation u/s 32 of the Act.
16.2. The Learned DR argued that the IP's acquired by the assessee have not been approved by any authority and hence not recognized by the Indian Government. Hence the claim of purchase of IP from a private unrelated entity is merely a self serving statement and not supported by any evidences. He further argued that the unit having assets of just Rs 40.17 lakhs had been given a fancy valuation of Rs. 4.92 crores which is very unlikely. Moreover, the components of assets predominantly comprised of computers worth Rs 1.93 lakhs and Software of Rs 1.34 lakhs, Furniture of Rs. 10.84 lakhs , Car of Rs. 8.56 lakhs, among others.
16.3. We have heard the rival submissions. We find that this issue is already settled in favour of the assessee in its own case by the order of this tribunal for Asst Years 2007- 08 and 2008-09 in ITA No. 37 & 1623/Kol/2012 dated 3.8.2016 wherein it was held as under:-
3.3. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of relevant extracts of Central Electricity Authority (Installation and operation of meters) Regulations, 2006 (pages 47 to 66 of paper book) with regard to this issue. We find that the assessee had capitalized the following assets under intellectual properties :-
a. Low cost single phase static meter IP for domestic segment. b. Low cost single phase static meter IP for South Asian market like Vietnam, etc c. RF AMR Radio frequency accelerated meter reading IP d. Salem 3T Metering Module IP e. Salem 1G HVDS IP f. PL Comm Evaluation Modem IP 34 35 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 3.3.1. It was argued that the intellectual property rights acquired by the assessee consisted of designs, software, data base, research and development material and facility , technical know how, process know how , confidential information, basic and detailed drawings, operation and maintenance manuals relating to the business carried out by TECRES. The valuation of the same was carried out by an independent expert and valuation report is enclosed in pages 25 to 82 of paper book. We find that the OECD Tranfer Pricing Guidelines for Multinational Enterprises and Tax Administrations issued in July 2010 (enclosed in pages 67 to 73 of Part A of Paper Book) provides that the term 'intangible property' includes rights to use industrial assets such as patents, trademark, trade names, designs or models. It also includes literary and artistic property rights and intellectual property such as knowhow and trade secrets. These intangibles are assets that may have considerable value eventhough they may have no book value in the company's balance sheet. We find in Para 1.155 of the OECD / G20 Base Erosion and Profit Shifting (BEPS) Report on Actions 8- 10 (2015) - Aligning Transfer Pricing Outcomes with Value Creation, issued in the year 2015, 'that in some situations, the transfer or secondment of one or more employees may, depending on the facts and circumstances, result in the transfer of valuable knowhow or other intangibles from one associated enterprise to another'. Even though in the instant case, the transaction is between two unrelated enterprises, the principles enunciated therein would squarely apply. Further para 6.20 of the said action plan, provide that 'knowhow and trade secrets are proprietory information or knowledge that assists or improve a commercial activity, but that are not registered for protection in the manner of patent or trademark. Knowhow and trade secrets generally consist of undisclosed information of an industrial , commercial or scientific nature arising from previous experience, which has practical application in the operation of an enterprise. Knowhow and trade secrets may relate to manufacturing , marketing, research and development, or any other commercial activity. The value of know how and trade secrets is often dependent on the ability of the enteprise to preserve the confidentiality of the know how or trade secret. In certain industries the disclosure of information necessary to obtain patent protection could assist competitors in developing alternative solutions. Accordingly, an enterprise may, for sound business reasons, choose not to register patentable knowhow, which may nonetheless contribute substantially to the success of the enterprise. The confidential nature of knowhow and trade secrets may be protected to some degree by (i) unfair competition or similar laws , (ii) employment contracts, and (iii) economic and technological barriers to competition. Knowhow and trade secrets are intangibles.' .35 36
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A.Yr.2010-11 & 11-12 Hence it could be safely concluded that even OECD has laid down the principle that intellectual property in the form of knowhow is not required to be registered.
3.3.2. We find that the assessee had filed a copy of the Business Transfer Agreement (BTA) entered into with Mr Gandhi as an additional evidence. It was submitted by the ld AR that the said agreement was never called for by the lower authorities and hence there was no occasion for the assessee to file the same and it was also submitted that the acquisition of business from Mr Gandhi by the assessee was never a subject matter of debate. In these circumstances, we deem it fit and appropriate to admit the said additional evidence for better appreciation of the facts to resolve the issue under dispute before us.
3.3.3. We find force in the argument advanced by the ld AR that the transfer of employees would also result in transfer of knowhow also. We find that the Explanation 4 to section 32(1) of the Act defines 'knowhow' as any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). Section 32(1)(ii) of the act provides for depreciation on intangible assets including knowhow, patents, copyrights, trade marks, licences, franchises, or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1st day of April 1998. Hence from the combined reading of OECD, definition of knowhow and provisions of section 32 of the Act in respect of intangible assets, it could be safely concluded that depreciation is allowed on intellectual property being knowhow and such intellectual property is not required to be registered with any government authority . Know how is an intangible property, rights in respect of which can be bought and sold. As per the Law Lexicon dictionary, 'knowhow' indicates something essentially different from secret and confidential information. It indicates the way in which a skilled man does his job with his skill and experience. It was also stated that knowhow is a closely held unpatented inventions, formulae, design, drawings, procedures and methods together with accumulated skills and experience in the hands of a licensor firm's professional personnel.
3.3.4. It is not in dispute that assessee had acquired from TECRES six different IPs which were independently valued by the independent expert before the company was taken over by the assessee company. Admittedly TECRES was engaged in the research and development of metering related to software and communication technology which is useable in measurement of electrical and management of energy. It is not in dispute that the said company had been delivering service in the field of metering software development of static meters for major Indian manufacturers in the metering industry namely L & T , Genus, 36 37 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 HPL Socomec etc apart from doing work for other overseas clients. We find that the assessee in order to migrate into the new lucrative business of manufacturing static meters was looking for partner which could help it out in its new venture. Therefore, after a detailed study and informed business decision , the assessee decided to buy out the entire unit of TECRES along with its specialized research engineers who had enormous experience and domain knowledge in respect of static meters which the assessee could leverage in developing new marketable products. Therefore, in essence what the assessee has acquired is knowhow in developing new type of meters which were digital meters with anti-tampering and other communication facilities. We find that the reliance placed by the ld AR on the Co-ordinate bench decision of Pune Tribunal in the case of Modular Infotech P Ltd vs DCIT reported in 131 TTJ 243 (Pune) is well founded. In the said case, the assessee company was engaged in the business of software development and also licensing of software. It had taken over the business of a firm namely M/s Modular Systems and claimed depreciation @ 25% on an amount of Rs. 4,27,00,000/- pertaining to the value of IPR paid to the firm. The AO disallowed the claim of depreciation on IPR against which assessee filed appeal before the ld CITA. During the appellate proceedings with the CITA, the appellant pointed out that the amount of Rs. 4.27 crores included composite consideration in respect of all the intangible assets of the firm namely IPRs and the goodwill and submitted a fresh valuation of the assets including that of the goodwill at Rs. 79,50,000/-. The CITA disallowed depreciation on goodwill of Rs. 79,50,000/- and allowed assessee's claim of depreciation in respect of balance IPR payment. On appeal filed before the Tribunal, it was held that where assessee company took over business of a firm at value assessed by professionals and value so determined was made part of agreement, it was wrong to presume that there was a notional amount which was transacted between parties, hence disallowance of depreciation on intellectual property rights on ground that value was assigned to an asset which was non- existent was not justified. We find that the facts of the assessee's case are also similar to the facts before the Pune Tribunal supra. It is not in dispute that the turnover of the assessee had substantially increased from the year under appeal on account of activities of the R&D Centre which the assessee had acquired from Mr Gandhi. The element of know how is inherent in the static meters manufactured by the assessee pursuant to acquisition of TECRES. It is not in dispute that the entire Research & Development team of TECRES along with their developed codes and domain depository have joined the assessee. Hence it cannot be said that the assessee had not acquired any intellectual properties from Mr Gandhi. The total consideration paid by the assessee in the sum of Rs. 6,07,89,093/- to Mr. Gandhi has not been disputed. Out of this total consideration, the assessee had bifurcated the value towards IP rights to the tune of Rs. 4.92 crores based on an independent valuation from an expert. The main 37 38 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 emphasis for disallowance is only on the point that the intellectual properties is not approved by any government or any competent authority. Nowhere the income tax act mandates the registration of the intellectual properties for the purpose of granting depreciation u/s 32 of the Act. Getting the intellectual properties registered is within the domain of the assessee and it only offers protection to the assessee from preventing other parties to use the same. The revenue cannot thrust the mandate of registration of the same and mere non- registration of the same does not make the transaction ingenuine or sham. Hence the version of the revenue that IP should be certified by the government authority and it does not fall within the assets specified in IT Rules is without any basis and not tenable.
3.3.5. In view of the aforesaid findings and respectfully following the judicial precedent relied upon hereinabove, we allow the grounds 2(a) to 2(d) raised by the assessee for the Asst Year 2007-08 and grounds 12(1) to 12(c ) raised for the Asst Year 2008-09. The ld AO is also directed to rework the opening WDV of this asset in the subsequent year and rework the allowability of depreciation on the same pursuant to this order. In view of this decision, we are not inclined to entertain the alternative claim of the assessee vide ground no. 1(a) that the consideration so paid in the sum of Rs. 4,92,00,000/- has to be construed as Goodwill and depreciation has to be granted accordingly.
Respectfully following the said decision of this tribunal for the earlier years, we allow the Grounds 8(a) to 8(c ) raised by the assessee for the Asst Year 2010-11.
17. Disallowance of Depreciation on Goodwill The assessee recorded an amount of Rs 93,41,680/- as Goodwill arising as a result of acquisition of business from Mr Guljeet Singh Gandhi during Asst Year 2007-08. No depreciation on such goodwill was claimed in the return of income by the assessee. The assessee filed additional grounds of appeal before this tribunal for the Asst Years 2007-08 and 2008-09 claiming depreciation on goodwill in the light of the decision of the Hon'ble Supreme Court in the case of CIT vs Smifs Securities ltd reported in 348 ITR 302 (SC) and the same was granted to the assessee. The assessee similarly filed additional ground of objection before ht eld DRP for the Asst Year 2010-11 claiming depreciation amounting to Rs 11,49,465/- on written down value of goodwill. The ld 38 39 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 DRP did not allow the same as at that point of time, the appeal was pending before this tribunal for the Asst Years 2007-08 and 2008-09 and pending finality of the same, it felt that no decision would be warranted. It is not in dispute that the assesee had paid consideration towards acquisition of Goodwill. We find that since this issue is now settled in favour of the assessee by the order of this tribunal for the Asst Years 2007-08 and 2008-09, we hold that assessee should be allowed depreciation on goodwill amounting to Rs 11,49,465/- on the written down value of goodwill. Accordingly the Ground No. 9 raised by the assessee for the Asst Year 2010-11 is allowed.
18. The Ground No. 10 raised by the assessee for the Asst Year 2010-11 is with regard to short credit of TDS to the tune of Rs 11,12,472/-. The assessee claimed credit of TDS amounting to Rs 11,58,178/- in the return of income and additional credit of TDS of Rs 3,10,550/- vide letter dated 7.3.2014 during the course of assessment proceedings. The assessee filed all the TDS certificates to the ld AO . Credit for TDS of Rs 3,10,550/- was not taken in the return of income as the assessee was not in possession of the TDS certificates at that point of time and had received the same subsequent to the date of filing the return. In the draft assessment order, the ld AO gave credit for TDS of Rs 11,58,178/- as claimed in the return of income and denied the additional claim of credit of TDS of Rs 3,10,550/- without providing any specific reason. The assessee filed an objection before the ld DRP. The ld DRP vide its direction dated 29.12.2014 directed the ld AO to verify the TDS certificates and allow due credit to the assessee. In case of any short allowance, the ld AO was directed to pass a speaking order. The ld AO in the final assessment order dated 27.2.2015 , granted credit for TDS to the tune of Rs 3,56,256/- only out of Rs 14,68,728/- ( 11,58,178 +3,10,550) without providing any reason. Hence the assessee is in appeal before us seeking to give direction to grant credit of TDS for the remaining amount to the tune of Rs 11,12,472/-.
39 40ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 18.1. We find that the ld AO while framing the final assessment order had not carried out the directions of the ld DRP. Once the assessee produces the TDS certificates before the ld AO in support of its claim for credit of TDS, the duty of the ld AO is to grant the same on getting satisfied whether the relatable income thereon has been duly offered to tax by the assessee in accordance with the provisions of the Act. Hence we direct the ld AO to grant the credit of TDS after verification of the fact whether the relatable income thereon is offered to tax. Accordingly the Ground No. 10 raised by the assessee for the Asst Year 2010-11 is allowed for statistical purposes.
19. In the result, the appeal of the assessee in ITA No. 687/Kol/2015 is partly allowed for statistical purposes.
Revenue Appeal - Asst Year 2010-11 - ITA No. 584/Kol/2015
20. The Ground No.1 raised by the revenue for the Asst Year 2010-11 is objecting to the directions of the ld DRP to remove certain comparable companies. The adjudication of this ground becomes academic as ultimately the ld AR had proved that the international transactions had been carried out at arm's length by benchmarking its transactions with the comparables chosen by the ld TPO only. Hence the adjudication of this ground becomes academic in nature in view of our decision rendered in assessee appeal for the Asst Year 2010-11 with regard to TP issues. Accordingly, the Ground No. 1 raised by the revenue is dismissed.
21. The next ground to be decided in the appeal of the revenue is as to whether the ld DRP was justified in concluding that the services provided by the AE under the head of management services are not in the nature of stewardship activities, in the facts and circumstances of the case.
40 41ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 21.1. The brief facts of this issue is that the during the year, the assessee received varied intra group services from its AE, Landis + Gyr AG, Switzerland for which a payment of Rs 7.23 crores was made by the assessee to its AE. With respect to the said transaction, the assessee submitted that it had received varied nature of management services under a Service Agreement entered into with its AE. For the purpose of compliance with the transfer pricing documentation requirements, the assessee documented in its transfer pricing study report and submitted in the course of assessment, the management services framework wherein the description of services received, payment terms, details of cost allocation mechanism, evidences of benefits received from such services etc were explained. These are enclosed in Pages 199-208 read with pages 282 to 1068 of the Paper Book. With respect to economic analysis, the assessee considered, payment of management service fee to be a different class of transaction, distinct from other international transactions. Accordingly, based on functional analysis, AE was determined as the least complex party and accordingly determined to be the tested party for the purpose of analysis. Further, TNMM was determined to be the most appropriate method of the methods prescribed. A search process was also undertaken to identify comparable companies rendering similar services and the international transaction was determined to at arm's length. Summary of benchmarking study has been provided herein below:
Pricing methodology followed by AE while Arm's length Price of the comparable rendering services to assessee companies in AE region rendering similar services Cost Plus 5% Cost plus 6.98% As the margin retained by AE of the appellant was less than the margin earned by comparable companies in its region, the transaction price was determined to have been undertaken at arm's length.41 42
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A.Yr.2010-11 & 11-12 21.2. The ld TPO however, disregarded the aforesaid information along with benchmarking analysis submitted by the assessee and treated the ALP of the transaction as NIL stating that the services rendered pertain to stewardship services. The Ld. TPO stated that the services rendered by the AE of the assessee were mostly in the nature of exercising overall control and supervision over the assessee company and hence these were in the nature of stewardship services thereby not meriting any charge.
21.3. The ld DRP deleted the adjustment made by the TPO stating that "From the nature of services described by the assessee, it can be seen that they were mainly for purpose of assessee's own business. While the group as a whole, might also have been benefitted from the services, such benefit to the parent company was incidental. The primary beneficiary of the services was the assessee itself." "Therefore, the services rendered by the AE cannot be considered in the nature of stewardship/shareholder activity." "It has been informed by the assessee that the payment for the services has been made on the cost allocated to it."
21.4. The revenue had filed an appeal against the aforesaid action of ld DRP stating that the ld DRP had erred in concluding that the services provided by the AE are not in the nature of stewardship activities.
21.5. The ld DR submitted that this issue may be remanded to the file of the ld TPO for determination of ALP of the payment of management fees in the light of various documentary evidences furnished by the assessee for the benefits derived by the assessee out of payment of management service fees for the intra group services received from its AE. In response to this, the ld AR stated that it had duly furnished sample set of 94 emails, correspondences etc, demonstrating the services received by the assessee from AE along with the copy of emails, correspondences etc . He stated that the assessee had tried to capture to the extent possible the benefits received from 42 43 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 the said category of services in the form of emails, communications, reports etc and the illustration of benefits received from various categories of services as mentioned in the cost allocation sheet was duly submitted before the ld TPO and ld DRP. In fact the ld DRP had called for a remand report from the ld TPO in this regard for determination of ALP based on the documents available on record. The ld TPO did not give any adverse finding about this issue in the remand report and merely stated that these were in the nature of shareholder services. Hence the ld DRP had analysed the entire services in great detail along with the benefits accruing from the services to the assessee as could be seen in Pages 25 to 30 of ld DRP order. The ld DRP on perusing and analyzing the same information / documents, concluded that the assessee had duly received services which had benefited the assessee in its business operations. Accordingly it concluded that the services were in the nature for which any third party would be willing ot pay and hence not in the nature of stewardship services. The ld DRP also appreciated the fact that it would be impractical for assessee to keep documentary evidences for each of the services received by it as the services are received in the form of directions, recommendations through emails, calls, reports etc. However, for the purpose of demonstration and explanation before the ld TPO / ld DRP, the assessee had enclosed a sample set of 94 voluminous documents evidencing the regular flow of valuable commercial services under the agreement with the ld TPO. He stated that the ld TPO was offered opportunity to examine all these documents twice i.e. one at the time of original TP hearing and another during remand proceedings. But the ld TPO chose to ignore the said documents without assigning any reasons. Hence the ld DRP had no other option but to examine those documents and concluded that the assessee had indeed received lot of commercial benefits pursuant to payment of management service charges to its AE as could be evident from the various set of emails, correspondences, filed on record. Hence he argued that there is no need to remand the issue to the file of the ld TPO in this regard. The ld AR also placed reliance on the following decisions 43 44 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 in support of his contentions that payment of management service charges for intra group services are not in the nature of stewardship activities :-
a) Co-ordinate bench decision of Delhi Tribunal in the case of AWB India (P) Ltd vs Addl CIT reported in TS-67-ITAT-2013(DEL)-TP
b) Decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs Max India Limited reported in TS-9480HC-2016(P&H).
c) Decision of Co-ordinate Bench of this Tribunal in the case of Almatis Alumina Pvt Ltd in ITA No. 283/Kol/2016 and CO 23/Kol/2016.
21.6. We have heard the rival submissions and perused the materials available on record including the paper books of the assessee filed in this regard. We find that the assessee had indeed furnished sample set of 94 emails, correspondences etc before the ld TPO which were summarily ignored by him while passing the order u/s 92CA(3) of the Act. The ld TPO held that the payment for intra group services are in the nature of stewardship activities and were paid only for the control and supervision over the assessee and accordingly determined the ALP of the said transaction at Rs Nil. During the proceedings before the ld DRP, the remand report was duly called for from the ld TPO, who did not comment anything adverse on the various set of documents and evidences for receipt of commercial benefits by the assessee from its AE pursuant to payment of management service charges for rendering intra group services. We find that the ld DRP had duly examined the various set of documents placed on record and had concluded that the assessee had indeed derived commercial benefits out of rendering of intra group services by the AE and the payment made thereon are in the nature which any third party would be willing to pay and held that they are not in the nature of stewardship services. We have gone through those papers placed in the paper book before us (pages 1354 to 1359 of Paper Book) and we hold that the said services enable the assessee to meet the challenges of the business environment on an on-going 44 45 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 basis and the same are rendered continuously and the assessee had been actually benefited out of those services. In any case, we hold that the ld TPO cannot determine the value of management services to be Rs Nil without applying any transfer pricing methods.
21.6.1. We find that the Hon'ble Delhi High Court in the case of CIT vs Cushman and Wakefield (India) (P) Ltd reported in (2014) 367 ITR 730 (Del) is applicable to the facts of the instant case, wherein it was held that :-
"35. The Transfer Pricing Officer's report is, subsequent to the Finance Act, 2007, binding on the Assessing Officer. Thus, it becomes all the more important to clarify the extent of the Transfer Pricing Officer's authority in this case, which is to determining the arm's length price for international transactions referred to him or her by the Assessing Officer, rather than determining whether [such services exist or benefits have accrued. That exercise of factual verification is retained by the Assessing Officer under Section 37 in this case.] Indeed, this is not to say that the Transfer Pricing Officer cannot after a consideration of the facts state that the arm's length price is 'nil' given that an independent entity in a comparable transaction would not pay any amount. However, this is different from the Transfer Pricing Officer stating that the assessee did not benefit from these services, which amounts to disallowing expenditure. That decision is outside the authority of the Transfer Pricing Officer. ...... ....... .... .
36. In this case, the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee-activities for which, according to the assessee's claim-interaction with IBM's regional offices in Singapore and the United States was necessary. These services cannot as the Income-tax Appellate Tribunal correctly surmised be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be second- guessed by the Revenue." [brackets provided by us] 21.6.2. We also find that the co-ordinate bench decision of this tribunal in the case of DCIT vs Bata India Ltd reported in (2016) 69 taxmann.com 120 (Kolkata Trib) dated 6.4.2016 had considered the decisions of Hon'ble Delhi High Court in the case of CIT vs EKL Appliances Ltd (2012) 345 ITR 241 (Del) ; CIT vs Cushman & Wakefield 45 46 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 (India) (P) Ltd (2014) 367 ITR 730 (Del) and co-ordinate bench of Mumbai Tribunal in the case of Dresser Rand India (P) Ltd vs Addl CIT (2011) 47 SOT 423 (Mum) and applied the principles emanating out of those judgments and applied the same to the facts of the case in Bata India Ltd. In the said case (i.e Bata India Ltd supra) it was observed as under:-
27. The Hon'ble High Court of Delhi in the case of CIT v. EKL Appliances Ltd.[2012] 345 ITR 241/24 taxmann.com 199/209 Taxman 200 as well as CIT v. Cushman & Wakefield (India) (P.) Ltd.[2014] 367 ITR 730/46 taxmann.com 317 (Delhi), rendered similar ruling as was rendered in the case of Dresser-Rand India (P.) Ltd. (supra). In the case of Cushman & Wakefield India (P.) Ltd. (supra), the Hon'ble Delhi High Court observed that whether a third party - in an uncontrolled transaction with the Taxpayer would have charged amounts lower, equal to or greater than the amounts claimed by the AEs, has to perforce be tested under the various methods prescribed under the Indian TP provisions. In the context of cost sharing arrangement, the Hon'ble High Court opined that concept of base erosion is not a logical inference from the fact that the AEs have only asked for reimbursement of cost. This being a transaction between related parties, whether that cost itself is inflated or not only is a matter to be tested under a comprehensive transfer pricing analysis. The basis for the costs incurred, the activities for which they were incurred, and the benefit accruing to the Taxpayer from those activities must all be proved to determine first, whether, and how much, of such expenditure was for the purpose of benefit of the Taxpayer, and secondly, whether that amount meets ALP criterion. In the present case however, the arrangement between the AE and the Assessee is not a cost sharing arrangement but a payment for specific services rendered. To this extent the above observations of the Hon'ble High Court may not be relevant to the present case.
28. The following aspects would require consideration in order to identify intragroup services requiring arm's length remuneration:
- Whether services were received from related party.
- Nature of services including quantum of services received by the related party.
- Services were provided in order to meet specific need of recipient of the services.
- The economic and commercial benefits derived by the recipient of intragroup services.
- In comparable circumstances an independent enterprise would be willing to pay the price for such services?
- An independent third party would be willing and able to provide such services?46 47
ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 Whether payment made to AE meets ALP criterion will be determined, keeping in mind all the above factors, as well.
29. Keeping in mind the principles emanating from the aforesaid decisions, we shall now proceed to examine the material on record to see the nature of services received by the Assessee and as to whether the same were at Arm's Length.
47. In the light of the discussion in paragraphs 30 to 46, We hold that the Assessee has established the nature of services including quantum of services received by the related party, that services were provided in order to meet specific need of the Assessee for such services, the economic and commercial benefits derived by the Assesseee of intragroup services.
21.6.3. We also find that in the recent decision of the Hon'ble Delhi High Court in the case of Knorr-Bremse India (P) Ltd vs ACIT reported in (2016) 380 ITR 307 (Del) wherein it was held as under:-
29. We hasten to add that in the case before us the assessee has, in fact, contended that it has benefited from the international transactions entered into by it with its AEs. However, even assuming that this has not been established, it would make no difference.
31. The TPO, in the case before us, had observed as under:--
"The OECD guidelines lay down the principle that the basis of indirect charge will have to answer the benefit test. Para 7.24 of the OECD guidelines further states, "To satisfy the arm's length principle, the allocation method chosen must lead to a result that is consistent with what comparable independent enterprises would have been prepared to accept." Therefore, the assessee cannot escape its responsibilities of having to show the actual benefit it has received. The assessee will also have to demonstrate that independent parties would be inclined to make such a payment in similar circumstances."
The TPO's conclusion in the last but one sentence does not follow from the OECD Guidelines quoted by him. The OECD Guidelines merely state that the result must be consistent with what comparable independent enterprises would have been prepared to accept. We do not see how from this observation it follows that the assessee cannot escape its responsibility of having to show the actual benefits it had received.
46. There is yet another issue of law which, in our view, is important and requires consideration. The TPO referred to the management support services. The same fell within four categories, namely, business development, human resource services, accounting, financial support and controlling services and IT services. With regard to the same, the TPO held that the assessee had sufficient local help to allow it to overcome the legal challenges at the local level. The TPO held that there was no reason to believe that the AEs provided assistance that the assessee could not obtain at the local level in India. Mr. Joshi, the learned counsel appearing on behalf of the 47 48 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 respondent, submitted that for these and other services, the appellant could always have availed of the services of personnel and enterprises in India.
47. That, however, in our view, cannot be a ground for rejecting a claim for deduction. Nor can that be a ground for assuming that the consideration paid for the same is not the genuine arm's length price. Absent any law, an assessee cannot be compelled to avail the services available in India. It is for the assessee to determine whose services it desires availing of and whose goods it intends purchasing. It is certainly understandable if the assessee prefers to deal with its group entities/AEs. This is for a variety of reasons which are far too obvious to state. So long as there is no bar in law to the assessee availing the services of a particular party, the authorities under the Act must determine whether the consideration paid for the same is at an arm's length price or not.
We find that this judgement had approved the earlier decision of Hon'ble Delhi High Court in the case of Cushman and Wakefield (India) (P) Ltd supra and also the decision of EKL Appliances supra.
21.6.4. We find that the ld TPO had rejected the benchmarking analysis adopted by the assessee. However, it failed to provide its own benchmarking analysis to determine the transaction price to be Rs Nil. Moreover, when ld DRP remanded back the case to the file of the ld TPO for analysis of the benchmarking analysis and providing ground wise observations for arguments raised by the assessee before the ld DRP, the ld TPO did not provide any comments with respect to economic analysis carried out by the assessee and the documents submitted by the assessee for transaction pertaining to payment of management service fees. Hence in these circumstances , there is no harm in accepting the assessee's method of benchmarking and the payment of management service charges for the intra group services received from its AE. There is no dispute that the assessee had indeed received services from its AE. There is no dispute that the assessee had indeed received commercial benefits out of services rendered by the AE. The findings given by the ld DRP in this regard are not controverted by the ld DR before us.
48 49ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 21.6.5. We find that the ld AR also stated that the allocation keys used to share the burden of the cost are also sound and can be taken to be as the arm's length contribution to the costs. For the same, the assessee has shared the cost allocation stateemtns wherein appropriate cost allocation drivers have been used which have been agreed between the parties beforehand. Along with an appropriate benchmarking analysis and evidence of receipt of services with consequent benefits, viewed from whichever way, the payment for management support services fulfil the arm's length test.
21.6.6. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the determination of ALP for Management Support Services at Rs NIL is unwarranted and accordingly reject the adjustment made to the income of the assessee by the ld TPO and hence addition made in the sum of Rs. 7,22,96,951/- is deleted. Accordingly, the Ground Nos 2 raised by the revenue is dismissed.
22. Payment of Royalty - Rs 2,39,63,552/-
The assessee received technology and technical assistance for manufacture of electric and static meters under a Technology License Agreement entered into with the AEs for which a payment of Rs 2,39,63,552/- ( Rs 2.40 crores) was made by the assessee. The assessee had duly documented the terms of such agreement, description of technology, technical assistance etc in the transfer pricing study report prepared and submitted for the perusal of the ld TPO vide page 209 to 215 of part I of the Paper Book. With regard to economic analysis, the assessee considered such transaction to be of different class and distinct from other transactions. Accordingly, the assessee evaluated the methods prescribed under the Indian TP regulations and determined CUP to be the MAM. For the purpose of application of CUP, the assessee identified certain agreements, following a detailed search process, which could be considered comparable with the instant 49 50 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 transaction. Accordingly the said transaction was determined to be at arm's length. The summary of benchmarking study has been provided herein below:-
Rate of Royalty paid by the assessee to its AE - 1.21% Arm's length rate of royalty as determined from Benchmarking study - 4.34%
Thus it was pleaded that the royalty rate charged by the AE was lower than the royalty rate as per the comparable agreements, the transaction was determined to have been undertaken at arm's length price.
22.1. The ld TPO without purusing the necessary information submitted on records, held that the value of such technology should be Rs Nil. The ld TPO stated that the technology provided by the AE was not unique in nature and that the assessee was not bale to show that it derived any substantial benefit from the technology received from the AE and accordingly imputed an upward adjustment of Rs 2,39,63,552/- for the same.
22.2. The ld DRP deleted the adjustment made by the ld TPO by stating as under:-
3.5.2. Since it had been claimed that the assessee had filed all the details called for before the TPO, vide its submission dated 27/1/2014, which had not been taken into account by the TPO, comments of the TPO were called for by the Panel vide letter dated 10/12/2014. The comments of the TPO have been received. It has been stated by him, that its submission dtd 27/1/2014 , the assessee has provided comparable royalty transaction using foreign data base and comes up with royalty of comparables at 4.33%. The TPO has objected to the choice of database of US company used by the assessee and has stated that the royalty paid by assessee in case of Baddi-Static meter unit at 5% was higher than the benchmark computed by assessee. The assessee has given its counter comments on 23/12/2014. In this it has been stated that the assessee has provided the royalty agreement and has also provided comparables on the basis of the only data base available. The TPO had not pointed out any better basis of 50 51 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 benchmarking. It has also pointed been out that as per the agreement produced, the assessee was paying royalty not on the gross sales but only on the value addition made. Thus the apparent rate of 5% actually amounted to about 1.5% of the total sales which was well below the benchmark.
3.5.3. We have considered the facts of the case. The adjustment by the TPO had been made in absence of the details such as agreement and comparables etc. However it is clear that the assessee had provided such details on 28/1/2014. In his comments on the same, the TPO has not pointed out any specific defect in the same. The objections raised by him have in our opinion been satisfactorily replied to by the assessee. The assessee has been all along making payment of royalty to its AE for use of brand name, which has been allowed in the past. Considering all these facts, the proposed adjustment is not considered to be proper and is directed to be deleted.
22.3. We have heard the rival submissions and perused the materials available on record. We find that the information / documents evidencing receipt of technology / technical assistance and benchmarking analysis determining the ALP of the same has been duly submitted both before the ld TPO and ld DRP. The ld TPO without perusing and analyzing the said information concluded that the technology received by the assessee was not unique and has no avenue for future development. We find however, the ld DRP on perusing and analyzing the same information / documents, concluded that the technology / technical assistance so received was unique in nature and amount of royalty paid was reasonably justified as well. The finding given by the ld DRP on the receipt of technology / technical assistance by the assessee was not controverted by the revenue before us. It was also stated that the apprehensions raised by the ld TPO were duly replied by the assessee before him vide reply to show cause notice and the same were completely ignored by the ld TPO while passing the order. The ld AR on the apprehensions raised by the ld TPO stated as under:-
APPREHENSION 1 - Technology furnished by the AE was not unique in nature and has no avenue for the assessee to participate any future development 51 52 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 With regard to the above, the assessee submitted that the intangible is complete technology including design, bom, testing process etc for making a mechanical meter compliant with Swiss quality and standards. Further, the intangible property shall also include the following:
- Drawings and parts list of the complete products and various CKD products
- Work instructions for the manufacture, assembly and calibration of the meters
- Information on quantity and quality of materials to be used and parts to be purchased
- Information on necessary tooling activity required for manufacturing of meter
- Operational manuals The assessee submitted that the unique property is the design of the meter that is being manufactured. Further, the Swiss technology was used to design a meter specifically for Indian market customizing the same as per the Central Electricity Authority of India. From perusal of the annual report of the assessee, it could be seen that there are no R&D expenses in the books of the assessee. This implies that the assessee is not engaged in R&D activities with respect to manufacturing and sale of meters in India. The assessee is made avaialbel with ready and tested technology to manufacture the meter. It stated that without the aid of the said technology, the assessee would not have been able to do its manufacturing business. Further, the technology received from the AE, allowed the assessee to introduce for the first time high quality, tamper-resistant electric meters having longer life than its competitor products. Further, continuous improvement, upgradations etc. takes place in the technology of meter manufacturing to meet the expectations of the customer and to stand out as a unique product in the market. Further, Indian electricity market is infected with tampering of meter which obstructs measuring of accurate consumption of energy. The most famous tampers are known as '35kv' and 'Jammer' , wherein the capability of measuring energy is affected significantly. Futher, new method sof meter tampering are invented in India. The assessee is expected from its customers and stakeholders to manufacture and deliver 52 53 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 tamper-resistant meters. The assessee is dependant on R&D team of its AE for developing specific technology to deal with tampering of meters in India.
APPREHENSION 2 - Assessee failed to provide justification regarding reasonableness of the amount of royalty paid to AE The assessee submitted that the royalty is being paid by the assessee only with respect to value additions being made by the assessee from its own manufacturing process undertaken with aid of technology and technical assistance received from the AE. To establish the same, the assessee had submitted the methodology applied in determining the value of sales on which royalty is paid by the assessee to its AE. The same are enclosed in page 159 of Part I of the Paper Book. The assessee pays royalty on value of meters manufactured less the bought out components used in the meters. Therefore, it confirms that royalty is not paid by the assessee on the bought out components. As already submitted, the assessee is paying royalty not on the gross sales but only on the value addition made, which effectively works out to only 1.21% of total sales as compared to arm's length rate of royalty as determined from benchmarking study at 4.34%.
22.3.1. We find that the ld TPO while passing the order u/s 92CA(3) of the Act, ignored the CUP analysis undertaken by the assessee for justifying the arm's length nature of the international transaction and instead went ahead and determined the arm's length price of the transaction at Rs Nil stating that the assessee was not able to justify the reasonableness of the amount of royalty. We find that in the following decisions, it has been held that CUP method is the MAM to determine the arm's length nature of international transaction of payment of royalty:-
a) Castrol India Limited vs DCIT reported in (2014) 40 CCH 764 (Mumbai Trib.)
b) Reebok India Co. reported in TS-160-ITAT-2013(DEL)
c) Benetton India P Ltd vs ITO reported in (2012) 134 ITD 229 (Delhi Trib.)
d) Ciba India Limited reported in TS-242-ITAT-2013(MUM)-TP 53 54 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 We find that the ld TPO erred in not communicating the relevant clause of section 92C(3) of the Act under which the CUP analysis undertaken by the assessee was found to be defective leading him to reject the analysis and adopt TNMM as the MAM.
22.3.2. We find that as per the provisions of section 92C(3) of the Act read with section 92CA(3) of the Act, the ld TPO may proceed to determine the ALP if he is of the opinion that conditions as provided in section 92C(3) of the Act have been satisfied. In this regard, CBDT had issued a Circular No. 12/2001 dated 23.8.2001 which would be relevant in this regard:-
CLARIFICATION ON PROVISIONS GOVERNING TRANSFER PRICE IN AN INTERNATIONAL TRANSACTION CIRCULAR : NO. 12/2001, DATED 23-8-2001 ................................................ In this background the Board have decided the following :
(i) .......................... (ii) .......................... (iii) It should be made clear to the concerned Assessing Officer that where an
international transaction has been put to a scrutiny, the Assessing Officer can have recourse to sub-section (3) of section 92C only under the circumstances enumerated in clauses (a) to (d) of that sub-section and in the event of material information or documents in his possession on the basis of which an opinion can be formed that any such circumstances exists. In all other cases, the value of the international transaction should be accepted without further scrutiny.
From the reading of the aforesaid circular, it is clear that the intention of the section 92C(3) of the Act has always been that scrutiny of international transactions of an assessee can only be done if the ld TPO can prove that atleast any one of the four conditions laid down in section 92C(3) of the Act has been satisfied. This view has been ratified by the co-ordinate bench of Bangalore Tribunal in the case of Philips 54 55 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 Software Centre Private Limited vs ACIT in ITA No. 218 (Bng)/2008 wherein it was held that :-
"The TPO or the AO needs to satisfy and communicate to the taxpayer the relevant clause under section 92C(3) which has been triggered by the assessee, which has necessitated the application of provisions of the transfer pricing provisions. In the instant case, since this was not demonstrated to the assessee, the transfer pricing order is void."
We find from the order of the ld TPO that he has nowhere suggested that any of the clauses of section 92C(3) of the Act are satisfied.
22.3.3. We also find that considering CUP as the MAM for benchmarking the transaction of payment of royalty has been upheld by this tribunal in assessee's own case for the Asst Years 2007-08 and 2008-09 vide order dated 3.8.2016 wherein it was held that :-
5.2.15. .........................
We hold that the study made by the assessee with regard to payment of royalty using CUP method as the MAM and using specific database 'RoyaltyStat' for benchmarking royalty transactions which has been accepted by the revenue in the subsequent years, should be applied for the years under appeal also to put an end to this controversy. Hence in order to meet the ends of justice, we direct the ld TPO/ ld AO accordingly.
22.3.4. We also find that during the course of TP assessment for the Asst Year 2011-12, the said transaction of payment of royalty has been considered to be at arm's length by the ld TPO wherein same economic analysis has been adopted by the assessee to determine the ALP of the transaction.
22.3.5. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the determination of ALP for payment of royalty at Rs NIL is unwarranted and accordingly reject the adjustment made to the 55 56 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 income of the assessee by the ld TPO and hence addition made in the sum of Rs. 2,39,63,552/- is deleted. Accordingly, the Ground Nos 3 raised by the revenue is dismissed.
23. In the result, the appeal of the revenue in ITA No. 584/Kol/2015 for Asst Year 2010-11 is dismissed.
Asst Year 2011-12 - ITA No. 619/Kol/2016 - Assessee Appeal
24. The Ground No.1 raised by the assessee for the Asst Year 2011-12 is general in nature and does not require any specific adjudication. The Ground No. 2 raised by the assessee for the Asst Year 2010-11 against the confirmation of adjustment of Rs 96,43,641/- to the international transactions of the assessee with its Associated Enterprises (AEs) is dealt with independently in other grounds adjudicated hereinbelow. Hence this ground does not require any specific adjudication.
25. Adjustment to Arm's Length Price - ITA No. 619/Kol/2016 (Assessee Appeal) - Asst Year 2011-12 The Ground Nos. 3 , 4(a), 4(b) & 5 raised by the assessee are similar to that raised in Asst Year 2010-11 and the decisions rendered thereon would apply with equal force for this Asst Year also, except with variance in figures. For the sake of clarity, the relevant figures for Asst Year 2011-12 are reproduced below:-
International Transactions of the Segment of the Amount (Rs.) assessee with its associated assessee enterprises Import of raw materials & Manufacturing segment 18,60,438 components -Domestic Sales Export of finished goods Manufacturing 11,08,62,642 Segment -Export 56 57 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12
Purchase of finished goods Trading segment 5,42,103
Payment of management fees Different class of 2,69,85,790
Reimbursement of expenses transactions - 19,21,994
Payment of Royalty benchmarked 2,63,47,893
separately
Software development - Export of Service Segment 23,75,71,347
Services
Total meter segment turnover - Rs 192.77 crores
Total value of international transactions - Rs 11.32 crores working out to 5.87% (11.32 / 192.77 * 100) of the meter segment.
Third party business turnover - Rs 181.45 crores - representing 94.13%.
The facts of Asst Year 2011-12 with regard to international transactions carried out by the assessee with its AE are identical with that of Asst Year 2010-11. Accordingly, the Grounds 3, 4(a) , 4(b) and 5 raised by the assessee for the Asst Year 2011-12 are allowed.
26. The Ground Nos. 6 & 7 raised by the assessee for the Asst Year 2011-12 are with regard to erroneous computation of arithmetic mean margin of comparable companies and rejecting certain comparables chosen by the assessee. The adjudication of this ground becomes academic as ultimately the ld AR had proved that the international transactions had been carried out at arm's length by benchmarking its transactions with the comparables chosen by the ld TPO only. Hence the adjudication of this ground becomes academic in nature in view of our decision rendered in assessee appeal for the Asst Year 2010-11 with regard to TP issues. Accordingly, the Ground Nos . 6 & 7 raised by the assessee are allowed.
57 58ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12
27. The Ground No. 8 raised by the assessee for the Asst Year 2011-12 is general in nature and does not require any specific adjudication.
28. The Ground No. 13 raised by the assessee is stated to be not pressed by the ld AR at the time of hearing as necessary relief had already been granted by the ld DRP. Accordingly the Ground No. 13 raised by the assessee is dismissed as not pressed.
29. The Ground No. 9 raised by the assessee for the Asst Year 2011-12 is with regard to the claim of depreciation on intellectual properties. This issue has been adjudicated at length for the Asst Year 2010-11 vide paras 16 to 16.3 above and the decision rendered thereon would apply with equal force for this Asst Year also. Accordingly, the Ground No. 9 raised by the assessee for the Asst Year 2011-12 is allowed.
30. The Ground No. 12 raised by the assessee is with regard to the allowability of employees' contribution to PF in the sum of Rs 75,580/- which was deposited before the due date of filing the return of income u/s 139(1) of the Act. The date of deposit of employees contribution to PF before the due date of filing the return u/s 139(1) of the Act is not in dispute. This issue is settled in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs Vijay Shree Ltd reported in 43 taxmann.com 396 (Cal HC). Respectfully following the same, the Ground No. 12 raised by the assessee for the Asst Year 2011-12 is allowed.
31. The Ground No. 17 raised by the assessee for the Asst Year 2011-12 is with regard to short credit of TDS to the tune of Rs 2,22,966/-. The assessee claimed credit of TDS amounting to Rs 4,63,731/- in the return of income and additional credit of TDS of Rs 2,22,966/- vide letter dated 20.2.2015 during the course of assessment proceedings based on physical TDS certificates received and the said TDS being reflected in Form 26AS. The assessee filed all the TDS certificates to the ld AO . Credit for TDS of Rs 58 59 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 2,22,966/- was not taken in the return of income as the assessee was not in possession of the TDS certificates at that point of time and had received the same subsequent to the date of filing the return. In the draft assessment order, the ld AO did not give any credit for TDS of Rs 6,86,697/- ( 4,63,731 + 2,22,966) as claimed by the assessee wiithout providing any specific reason. The assessee filed an objection before the ld DRP. The ld DRP vide its direction dated 16.12.2015 directed the ld AO to verify the TDS certificates and Form 26AS and allow due credit to the assessee. The ld AO in the final assessment order dated 29.1.2016 , granted credit for TDS to the tune of Rs 4,63,731/- only out of Rs 6,86,697/- without providing any reason. Hence the assessee is in appeal before us seeking to give direction to grant credit of TDS for the remaining amount to the tune of Rs 2,22,966/-.
31.1. We find that the ld AO while framing the final assessment order had not carried out the directions of the ld DRP. Once the assessee produces the TDS certificates before the ld AO in support of its claim for credit of TDS, the duty of the ld AO is to grant the same on getting satisfied whether the relatable income thereon has been duly offered to tax by the assessee in accordance with the provisions of the Act. Hence we direct the ld AO to grant the credit of TDS after verification of the fact whether the relatable income thereon is offered to tax. Accordingly the Ground No. 17 raised by the assessee for the Asst Year 2011-12 is allowed for statistical purposes.
32. The next issue to be decided in this appeal of the assessee is as to whether the ld DRP was justified in upholding the disallowance made in the sum of Rs 2,06,67,831/- on account of provision for warranty in the facts and circumstances of the case. The interconnected ground is as to whether the same would have to be added back while computing book profits u/s 115JB of the Act.
59 60ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 32.1. The ld AO observed that the assessee claimed deduction on account of provision for warranty of Rs 2,06,67,831/- in the return of income. The assessee was asked to furnish the details and explanation in respect of claim of warranty on provision basis. The assessee produced / furnished details in respect of provision for warranty. The ld AO observed that the Hon'ble Apex Court had clearly emphasized in the case of Rotork Controls India (P) Ltd vs CIT reported in 314 ITR 62 (SC) that the assessee is entitled to deduciton provided a scientific data is systematically maintained on the basis of past events. In the instant case, the estimated claims made by the assessee cannot be recognized as a systematic data based on widely accepted scientific calculation supported by information of earlier years. Accordingly, he disallowed the provision for warranty in the assessment under normal provisions of the Act. The ld AO also added the same while computing the book profits u/s 115JB of the Act treating the same as provision made for unascertained liabilities. This action of the ld AO was upheld by the ld DRP. Aggrieved, the assessee is in appeal before us vide Grounds 11 & 16.
32.2. We have heard the rival submissions. From the perusal of the materials available on record, we find that the assessee had made certain supplies to West Bengal State Electricity Distribution Company Ltd (WBSEDCL in short) who had raised certain issues against the quality of the material supplied by the assessee. The issues against supplies being made within the warranty period and hence the assessee decdied to provide for the warranty on the material delivered which the assessee had to replace. The provision was made for Rs 1,85,85,000/- on this account. The ld AR stated that these were specific bookings and did not require the assistance of a sound method backed by historical trends to determine its ascertainability.
32.2.1. We find that the assessee had made general provisions to the tune of Rs 12.79 lakhs towards warranty. Apart from this, we find that the assessee had actually spent a sum of Rs 8.04 lakhs towards warranty during the year. The assessee had made total 60 61 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 provision for warranty during the year to the tune of Rs 206.68 lacs ( 185.85+12.79+8.04) as under:-
Warranty expenses Year BY10 BY09 BY08 BY07 BY06 BY05 BY04 BY03 BY02 BY01 BY00 Sales 20,30,537 17,50,156 16,07,925 11,07,766 8,97,067 8,50,525 9,82,350 9,74,414 13,48,417 18,71,520 12,59,382 Warranty 732 2,901 1,713 1,730 1,166 944 1,676 804 977 3,780 725 % 0.04% 0.17% 0.11% 0.16% 0.13% 0.11% 0.17% 0.08% 0.07% 0.20% 0.06% BY10 BY09 BY08 BY^07 BY06 BY05 BY04 BY03 BY02 BY01 BY00 @0.110% average cost 2,560 2,206 2,027 1,395 1,131 1,072 1,738 1,228 1,700 2,359 1,588 Additional 20% to reach full warranty cost 3,072 2,648 2,432 1,676 1,357 1,287 1,485 1,474 2,040 2,831 1,905 Divided by 10 years 307 265 243 168 136 129 149 147 204 283 191 Remaining Exposure (Years) 10.00 9.00 8 7.0 6.0 5.0 4.0 3.0 2.0 1.0 -
Total Warranty Exposure at 31.12.2010 3,072 2,383 1,946 1,173 814 643 594 442 408 283 -
Total Accrual Needed 11,759 Sum of total Exposures for year 2000 to 2010
Total Accrual Currently Recorded 10,480
Difference to be booked 1,279
WB Specified 18,585
Increased Provision 19,864
Incurred 804
Total Charge 20,668
32.2.2. We find from the various correspondences addressed by WESEDCL to the assessee enclosed in pages 1381 to 1401 of Part 3 of Paper Book filed by the assessee informing that abnormal behaviour was noticed in the meters supplied by the assessee to them. The correspondences also prove that the representative of the assessee had duly visited the spot and agreed to the disturbance created by the meters supplied by the assessee to WBSEDCL. We find that the compliant from the said party had been received on 14.9.2010 (enclosed in page 1381 of Part 3 of Paper Book) . The total purchase order is for 814000 Nos. of meters valued at Rs 68.04 crores. Out of that deliveries made upto the month of receipt of compliant i.e upto sept 2010 was 296000 meters totally sold to WBSEDCL in Bankura, Burdwan and Midnapore. Out of this supply, 31500 units of meters have been identified to be defective pursuant to the personal inspection of the assessee's representative and assessee made provision for the same by taking the cost of production of 31500 meters and arrived at the figure of Rs 1,85,85,000/-. The details of the same are enclosed in page 1391 of Part 3 of Paper Book. We find that the assessee had made a provision for warranty in this regard on 61 62 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 coming to know that it had to replace 31500 units of meters to WBSEDCL and accordingly considered its cost of production of Rs 590 per meter and arrived at the figure of Rs 1,85,85,000/- , which liability is certain.
32.2.3. We place reliance on the decisions of the Hon'ble Apex Court in Bharat Earth Movers vs CIT reported in 245 ITR 428 (SC) and Rotork Controls India (P) Ltd vs CIT reported in 314 ITR 62 (SC) to prove that the provision made for warranty is clearly an ascertained liability. We find that the liability had arisen in a year and once the same is done, it has to be allowed as a deduction although the said liability had to be discharged at a later date. The term 'provision' is explained as 'a liability which can be measured only by using a substantial degree of estimation'. We find from the aforesaid decisions of the Hon'ble Apex Court, the provision in order to be recognized needs to satisfy three following parameters:-
a) an enterprise has a present obligation as a result of a past event ;
b) it is probable that an outflow of resources will be required to settle the obligation; and
c) a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, then no provision could be recognized. Once these parameters are satisfied and the liability for which the provision is created is certain to result in outflow of resources of the assessee irrespective of the future conduct of the business, then the liability will be allowed as a deduction. In the instant case, the assessee as afar as the sum of Rs 1,85,85,000/- , it satisfies all the criteria laid down i.e it is a definitive sum and is extremely certain to be incurred and is a result of the supplies made in the past. Accordingly, following the principles laid down by the Hon'ble Supreme Court supra, there is no doubt that the amount is a certainty for payment and has been incurred in the current previous year. Thus it cannot be termed as an unascertained liability.
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A.Yr.2010-11 & 11-12 32.2.4. When the assessee sells his goods, the warranty clause is part of the sale transaction and therefore it is a committed liability by the assessee at the very initial stage of sale. But for prescription of such a warranty clause, the customer may not even buy the product of the assessee. In the instant case, the assessee had given the figures of actual warranty liability incurred and paid in the previous years which forms the basis of existence of warranty liability in the past. Now it would be pertinent to get into Clause 19 of the Purchase Order dated 16.2.2010 issued by WBSEDCL to the assessee defining the terms and conditions of contract. The ld DR vehemently relied on this clause as it only mentioned about 'Guarantee' and there was no clause for 'warranty' in the terms and conditions. Accordingly the ld DR objected to the allowability of provision for warranty in the sum of Rs 1,85,85,000/-. For the sake of convenience, the relevant clause 19 under the caption 'Guarantee' is reproduced hereunder:-
19. Guarantee:
a) The Meters and Pilfer Proof Meter Boxes shall be guaranteed arising out faulty design, materials, bad workmanship for a period of 5-1/2 years from the date of supply. The meters / Pilfer Proof Meter Boxes found defective within the above guarantee period should be replaced by the supplier free of cost within one month on receipt of intimation. If the defective meters / Pilfer Proof Meter Boxes are not replaced within the above specified period, WBSEDCL will recover twice the cost of meters /Pilfer Proof Meter Boxes from the supplier.
b) Name plate of the meter is to be marked with 'Guarantee of the Meter' : 5-
1/2 years from the date of supply.
We find from the above clause, the warranty clause is inbuilt in the Guarantee Clause itself. As it could be seen that the assessee in the event of any defective supply within a period of 5-1/2 years had to replace the meters to WBSEDCL and in the event of meters not getting replaced, then the assessee has to pay twice the cost of meters to WBSEDCL. Hence it could be safely concluded that the assessee had agreed for both 63 64 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 warranty (i.e replacement of defective meters) as well as guarantee ( of paying twice the cost of meters if meters are not replaced). Hence we hold that the reliance placed by the ld DR does not advance the case of the revenue and actually it favours the assessee. We also find that the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd vs CIT reported in 314 ITR 62 (SC) had held as under:-
11. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
12. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations arising from past events existing independently of the future conduct of the business of the enterprise that is recognized as provision. For a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. Where there are a number of obligations (e.g., product warranties or similar contracts) the probability that an outflow will be required in settlement, is determined by considering the said obligations as a whole. In this connection, it may be noted that in the case of a manufacture and sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction under section 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation. In the present case, the appellant has been manufacturing and selling Valve Actuators. They are in the business from assessment years 1983-84 onwards. Valve Actuators are sophisticated goods. Over the years appellant has been manufacturing Valve Actuators in large numbers. The statistical data indicates that every year some of these manufactured Actuators are found to be defective. The statistical data over the years also indicates that being sophisticated item no customer is prepared to buy Valve Actuator without a warranty. Therefore, warranty became integral part of the sale price of the Valve Actuator(s). In other words, warranty stood attached to the sale price of the product. These aspects are important. As stated above, obligations arising from past events have to be recognized as provisions. These past events are known as obligating events. In the present case, therefore, warranty provision needs to be recognized because the appellant is an enterprise having a present obligation as a result of past events resulting in an outflow of resources. Lastly, a reliable estimate can be made of the amount of the obligation. In short, all three conditions for recognition of a provision are satisfied in this case.64 65
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A.Yr.2010-11 & 11-12 Hence we hold that the provision for warrant in the sum of Rs 1,85,85,000/- is an ascertained liability based on the claims made by WBSEDCL during the year under appeal for which the liability to incur the same had definitely arisen during the year under appeal and accordingly eligible for deduction in the year of arising of liability.
32.2.5. There is no dispute with regard to the actual warranty cost incurred by the assessee in the sum of Rs 8,04,000/- and hence the same represents crystallized liability during the year which is allowable as deduction.
32.2.6. With regard to the remaining provision for warranty of Rs 12,79,000/-, we find from page 1380 of Part 3 of Paper Book, that the assessee had arrived at this figure based on scientific method on a very conservative approach by taking the average of actual warranty liability incurred in the past 10 years . The said workings were very much filed before the lower authorities. Hence we hold that the said sum represents ascertained liability during the year under appeal, although the actual quantification of the same would arise in future. It is well settled that if the assessee is following mercantile system of accounting, if the business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at a future date but what should be definite is incurring of liability. It is not in dispute that the assessee is following mercantile system of accounting. This principle has been endorsed by the Hon'ble Supreme Court in the case of Bharat Earth Movers vs CIT reported in 245 ITR 428 (SC). Hence we hold that this liability of Rs 12,79,000/- is an ascertained liability in the year under appeal based on the systematic historical data of the past wherein warranty liabilities had occurred to the assessee. Reliance in this regard is again placed on yet another finding of the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd vs CIT reported in 314 ITR 62 (SC) wherein it was held as under:-
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17. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. As stated above, the case of Indian Molasses Co. (P.) Ltd. (supra) is different from the present case. As stated above, in the present case we are concerned with an army of items of sophisticated (specialised) goods manufactured and sold by the assessee whereas the case of Indian Molasses Co. Ltd. (supra) was restricted to an individual retiree. On the other hand, the case of Metal Box Co. of India Ltd. (supra) pertained to an army of employees who were due to retire in future. In that case the company had estimated its liability under two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out its estimated liability on actuarial valuation. It had made provision for such liability spread over to a number of years. In such a case it was held by this Court that the provision made by the assessee-company for meeting the liability incurred by it under the gratuity scheme would be entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The same principle is laid down in the judgment of this Court in the case of Bharat Earth Movers (supra). In that case the assessee-company had formulated leave encashment scheme. It was held, following the judgment in Metal Box Co. of India Ltd.'s case (supra), that the provision made by the assessee for meeting the liability incurred under leave encashment scheme proportionate with the entitlement earned by the employees, was entitled to deduction out of gross receipts for the accounting year during which the provision is made for that liability. The principle which emerges from these decisions is that if the historical trend indicates that large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under section 37 of the 1961 Act. It would all depend on the data systematically maintained by the assessee. It may be noted that in all the impugned judgments before us the assessee(s) has succeeded except in the case of Civil Appeal Nos. 3506-3524 of 2009 - Arising out of S.L.P.(C) Nos. 14178-14182 of 2007 -
Rotork Controls India (P.) Ltd. v. CIT, in which the Madras High Court has overruled the decision of the Tribunal allowing deduction under section 37 of the 1961 Act. However, the High Court has failed to notice the "reversal" which constituted part of the data systematically maintained by the assessee over last decade. (UNDERLINING IS PROVIDED BY US) 32.2.7. Accordingly we hold that the entire provision for warranty in the sum of Rs 206.68 lakhs would be squarely allowed as deduction in the year under appeal under the normal provisions of the Act.
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A.Yr.2010-11 & 11-12 32.2.8. The next dispute in this regard is as to whether the said provision for warranty would have to be construed as ascertained liability or unascertained liability for computing the book profits u/s 115JB of the Act. We have already held that all the three categories of provision for warranties (i.e 185.85 lakhs , 12.79 lakhs and 8.04 lakhs) are clearly ascertained liabilities and hence there is no question of adding back the same to the net profits as per profit and loss account for computing the book profits u/s 115JB of the Act. We have already held that the liability towards provision for warranty has been incurred by the assessee during the year under appeal although the actual quantification of the same arises in future date. Once it is held that there is a liability which is certain, the same automatically falls outside the ambit of unascertained liabilities contemplated in the Explanation to section 115JB of the Act and accordingly the same would be allowed as deduction while computing the book profits u/s 115JB of the Act. In our considered opinion, the said clause in provided in section 115JB of the Act only to prevent assessees from making some ad hoc provisions in the books , which would never crystallize , so as to reduce the net profits as per the books with consequential reduction in the tax payable u/s 115JB of the Act. That is not the case here and that is not the allegation also raised by the revenue in this case. The assessee herein had made provision for warranty based on a systematic and scientific working and method by taking into account the past history of incurrence product warranties and the said workings were also filed before the lower authorities. Hence it could be safely concluded that the said provision for warranty is not made based on ad hoc provision. Rather it has got a sound basis and judgment on the part of the assessee creating an obligating event on the assessee as a result of past events. We find that this provision would also not tantamount to provision made for diminution in value of assets.
32.2.9. We would like to place reliance on the decision of the Hon'ble Delhi High Court in the case of CIT vs Becton Dickinson India (P) Ltd reported in (2013) 29 taxmann.com 80 (Delhi) dated 19.11.2012 wherein it was held as under:-
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6. In the facts of the present case too this Court is of the opinion that the reasoning adopted by the Tribunal cannot be found fault with. The considerations which weighed with the Supreme Court in Rotork Controls India (P.) Ltd.'s case (supra) in concluding such warranty provisions were not contingent liabilities would apply with greater force to negate the claim by the revenue that such provisions are made for diminution in the value of any asset, so as to be covered by Explanation 1(i) to section 115JB of the Act.
In these circumstances, the Court is satisfied that no substantial question of law arises for consideration.
Similar view was also taken by the co-ordinate bench decision of Mumbai Tribunal in the case of Anchor Electricals (P) Ltd vs DCIT reported in (2015) 81 taxmann.com 250 (Mumbai-Trib.) dated 26.4.2017 in the context of allowability of provision for warranty vis a vis computation of book profits u/s 115JB of the Act. It was held that :-
23. With regard to the adjustment in book profit u/s115JB is concerned, it is noted that this issue is squarely covered in favour of the assessee by the judgment of Hon'ble Delhi High Court in the case of Becton Dickinson India (P) Ltd. (supra), wherein it has been held that the provision for warranty cannot be treated as provision for diminution in value of any assets so as to be covered by Explanation 1(i) to section 115JB (2) and thus no additions to book profit can be made. Further, Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd. (supra) held that amount of provision made on account of warranty expenses cannot be said to be unascertained liability. Thus, taking into account both these decisions, we find that no addition could have been made u/s 115JB for this amount. Therefore, addition to book profit is directed to be totally deleted.
32.3. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the provision for warranty in the sum of Rs 206.68 lakhs would be allowed as deduction under normal provisions of the Act as well as while computing book profits u/s 115JB of the Act. Accordingly, the Grounds 11 & 16 raised by the assessee for the Asst Year 2011-12 are allowed.68 69
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33. The next issue to be decided in this appeal of the assessee is as to whether the ld DRP was justified in upholding the disallowance made in the sum of Rs 10,00,472/- on account of provision for obsolescence of inventory in the facts and circumstances of the case. The interconnected ground is as to whether the same would have to be added back while computing book profits u/s 115JB of the Act.
33.1. The ld AO observed that the assessee claimed deduction on account of provision for obsolescence of raw materials of Rs 10,00,472/- (being the provision made for the year under appeal) in the return of income in respect of old and dead stocks which has got no realizable value. It was explained that assessee had converted into static meters as per the mandate of West Bengal Electricity Department. However, it was holding certain old stocks for years in view of the fact, that there might be some liability for replacement of those old stocks in respect of sales made in the earlier years pursuant to warranty clause prevailing in the old agreements. For this purpose, it had to maintain sufficient quantity of inventories even though it is old and not presently usable in the line of business of assessee. However, the same had become obsolete compared to the present line of business of the assessee and accordingly thought it fit to make a provision for those inventories on account of diminution. The detailed workings in this regard were duly filed before the ld AO which has been acknowledged by him in the assessment order which are enclosed in pages 1185 to 1189 of Part 3 of Paper Book. The ld AO disallowed the same treating the same as an unascertained liability under normal provisions of the Act as well as while computing the book profits u/s 115JB of the Act. This action of the ld AO was upheld by the ld DRP by holding as under in page 21 of his order :-
The details of the date of manufacture of meters, etc with batch numbers and quality control number which had become obsolete were not available on record. Similar other details establishing the rational nexus between the obsolete inventories of Rs 10,00,472/- and the specific manufactured items becoming obsolescent were not 69 70 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 maintained by the A' also. The related details which were required to be maintained by the A' to establish its connection with the obsolete inventories were as under:-
1) Date of manufacture of such electricity meters, etc with batch and quality control inspection numbers.
2) The reasons why such inventories were treated as obsolete.
3) The authorities certifying that such inventories had become obsolete.
4) The technical qualifications and the competency of such authorities to declare the inventories as obsolete.
5) The stock register containing the details and descriptions of the stocks becoming obsolete.
6) The proof of physical verification of the inventories part of which was found to be obsolete.
Since the above details were not maintained by the A' the Panel has no hesitation in inferring that there being no proof of actual verification of the inventories leading to detection of inventories worth Rs 10,00,472/- as obsolete the provision made was unascertained.
33.2. Aggrieved, the assessee is in appeal before us vide Grounds 10 & 15.
33.3. We have heard the rival submissions. From the perusal of the materials available on record, we find that the assessee has created a provision for obsolete inventories amounting to Rs 10,00,472/- during the year following the mandate provided in Accounting Standard (AS) 2 issued by Institute of Chartered Accountants of India (ICAI) on 'Valuation of Inventories' , wherein, while creating such provision, i.e the method of valuation of stock should be cost or net realizable value whichever is lower. The ld AR stated that the items of obsolete stock are identified from the system maintained by the assessee . The system captures the slow moving inventories nad thereafter the realizable value of the stock is considered vis a vis the cost of those items. The items of inventory identified are those items which have lost their consumer acceptability over a period of time and hence are considered obsolete. The realizable market value considered for comparison is determined based upon prevalent prices and is the only practical method for comparison and subsequent evaluation whether an item of inventory has become obsolete or not. He stated that the method for determining the 70 71 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 item of obsolete inventory being a scientific and commercially acceptable method and the provision created based thereupon indicate that the loss has actually incurred in the current period and it is only its actual quantification which is not possible and hence the provision is recorded in the books. We find from the workings of provision for obsolete stocks furnished before the lower authorities by the assessee (enclosed in pages 1185 to 1189 of Part 3 of Paper Book) that the assessee had adopted different percentage of provision for obsolete stocks depending upon the different time periods from the date of sale as under:-
Upto 180 days - 0% provision
181-360 days - 25% provision - Rs 2,83,815.18
361-540 days - 50% provision - Rs 7,970.69
541-720 days - 75% provision - Rs 1,75,572.98
> 720 days - 100% provision -Rs 5,33,113.50
Total Provision Rs 10,00,472.35
We find from the said workings , the assessee had clearly mentioned the item code, description of item available in the inventories, date of last transaction, quantity, rate per unit and the value together with the time periods from the date of sale to decide the relevant provision percentage. Hence it could be safely concluded that the assessee had made a scientific calculation for making provisions based on commercially acceptable method. We find that the valuation of the stocks in accordance with AS-2 issued by the ICAI is one of the standards recognized u/s 145(2) of the Act, wherein the closing stock is to be valued at lower of cost or net realizable value.
33.3.1. We find that this issue is directly covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case of CIT vs Hotline Teletube & Components Ltd reported in (2008) 175 Taxman 286 (Delhi) . The facts before the Hon'ble Delhi High Court and the decision rendered thereon are as under:-
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A.Yr.2010-11 & 11-12 3.1 The assessee had filed a return on 20-10-2002 declaring a loss of Rs. 51,031. The case of the assessee was picked up for scrutiny and a notice under section 143(2) of the Act was issued. During the course of the assessment, it came to light that the assessee is in the business of manufacture of picture tubes of black and white television sets, as well as, glass shells for black and white picture tubes, electron gun and glass stems. 3.2 During the course of the assessment proceedings, the Assessing Officer sought explanation from the assessee with regard to provision in respect of diminution in value of stock. The Assessing Officer also sought the assessee's explanation as to why the provision be not added back while computing the profit from business under section 115JB of the said Act.
3.3 The assessee sought to explain the provision made in respect of diminution in value of stock by submitting that a sum of Rs. 12,02,973 debited to the profit and loss account was on account of obsolete and old picture tubes. It was the assessee's say that since the demand for black and white television picture tubes had diminished, the inventory with respect to the same which it had been carrying for more than three years had become obsolete and hence, it was unable to sell the same which, prompted the assessee to write off the same as a loss.
5. In the instant case we find that the principle for valuing stock at cost or realizable market price whichever is lower is applicable. The assessee has demonstrated that the stock being obsolete did not move for over three years and also the fact that it could only be sold if at all as scrap. As a matter of fact, the assessee also established that in the event it is sold as scrap the burden of excise duty would be much more than what it could realize on sale of the said stock as scrap. The Tribunal has returned this as a finding of fact. In view of these findings, it is quite clear that, all that, the assessee has done by making the provision for diminution in value of stock is to anticipate the loss in the value of stock.
6. In the circumstances, we are of the view that no substantial question of law arises for our consideration.
7. Accordingly, the appeal is dismissed.
33.3.2. In view of our aforesaid findings and respectfully following the judicial precedent relied upon hereinabove, we hold that the provison made for obsolete stocks in the sum of Rs 10,00,472/- is squarely allowable as deduction as a business loss under normal provisions of the Act. Accordingly, the Ground No. 10 raised by the assessee for the Asst Year 2011-12 is allowed.72 73
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A.Yr.2010-11 & 11-12 33.3.3. With regard to the allowability of the provision for obsolete stock while computing the book profits u/s 115JB of the Act, the ld AO had disallowed the same on the ground that it is an unascertained liability and accordingly to be added back while computing book profits u/s 115JB of the Act. The ld DR argued that pursuant to the amendment brought in by the Finance (No.2) Act , 2009 with retrospective effect from 1.4.2001 , the said provision for obsolete stock represents provision made for diminution in value of asset and hence the same requires to be added back while computing the book profits u/s 115JB of the Act. When this was put to the ld AR, he fairly conceded for the addition u/s 115JB of the Act. Moreover, we find that the decision of the Hon'ble Delhi High Court supra was rendered on 11.8.2008 which was prior to the amendment brought in by Finance (No.2) Act, 2009 with retrospective effect from 1.4.2001. Accordingly, the Ground No. 15 raised by the assessee for the Asst Year 2011-12 is dismissed.
34. The last issue to be decided in this appeal is as to whether the ld DRP was justified in upholding the addition made on account of provision for interest on MSMED in the sum of Rs 29,21,911/- in the facts and circumstances of the case.
34.1. The ld AO observed that assessee had made provision for interest to the tune of Rs 29,21,911/- for making delayed payment to its suppliers who are registered under The Micro , Small and Medium Enterprises Development Act, 2006 . This provision for interest in the sum of Rs 29,21,911/- was voluntarily disallowed by the assessee in the return of income under normal provisions of the Act but deduction was claimed under computation of book profits u/s 115JB of the Act. The ld AO treated the same as an unascertained liability and added back the same while computing the book profits u/s 115JB of the Act. This action of the ld AO was upheld by the ld DRP. Aggrieved, the assessee is in appeal before us vide Ground No. 14.
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A.Yr.2010-11 & 11-12 34.2. We have heard the rival submissions. We find that as per the provisions of The Micro, Small and Medium Enterprises Development Act, 2006, any amount due to the supplier as defined in section 2(n) of the MSMED Act, should be paid on the date agreed upon between the buyer and the seller, which shall be before the appointed date as per section 15 of MSMED Act. Section 16 of the said Act provides that in case the buyer (i.e the assessee herein) fails to make the payment to the supplier , then the buyer shall be responsible to pay interest at monthly intervals on the amount due to the supplier from the appointed date at three times the bank rate notified by the Reserve Bank of India. Accordingly, the ld AR argued that the liability towards interest can in no way be termed as an unascertained liability as it gets crystallized pursuant to an independent statute. He stated that the term 'ascertained' as defined in the Oxford Dictionary means "find out, definite, certain". He stated that as per the method prescribed in the MSMED Act, 2006, there cannot be an iota of doubt that the interest calculated and due towards the suppliers is an ascertained liability. It is calculated as per a set formula and based on the number of days of payment overdue and hence it has to be construed as a certain liability and not as a contingent one and accordingly he prayed for allowance of the same as deduction while computing the book profits u/s 115JB of the Act.
34.2.1. As per Section 23 of the said Act, the said provision for interest is not allowable as a deduction under the provisions of the Income Tax Act and accordingly, the assessee had rightly disallowed the same in the return of income under normal provisions of the Act. Now the short point of dispute in this regard is whether the said provision for interest would have to be disallowed even in the computation of book profits u/s 115JB of the Act. The ld DR stated that the provisions of section 115JB of the Act are also part of the Income Tax Act, 1961 only and once section 23 of the MSMED Act, 2006 specifically states that the said interest shall not be allowed as deduction under Income Tax Act, it should not be allowed as deduction even in the computation of book profits 74 75 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 u/s 115JB of the Act. The ld DR argued that only then the real intent of the provisions of section 23 of MSMED Act would get sanctified.
34.2.2. We find that though the provisions of section 115JB of the Act are self contained code in itself and starts with a non-obstante clause creating a legal fiction regarding the total income of the assessee. The provisions of section 115JB of the Act have been introduced in the statute book with effect from 1.4.2001. The MSMED Act, 2006 received the assent of the Hon'ble President of India on 16.6.2006. The Provisions of Section 23 of MSMED Act , 2006 are reproduced hereinbelow for the sake of convenience:-
23. Interest not to be allowed as deduction from income Notwithstanding anything contained in the Income Tax Act, 1961 (43 of 1961), the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-Tax Act, 1961, be allowed as deduction.
34.2.3. The Provisions of section 23 of MSMED Act, 2006 also starts with non-obstante clause by stating 'Notwithstanding anything contained in the Income Tax Act, 1961'.
In this regard, it was argued by the ld DR that the wisdom of the legislators need to be accepted that the Parliament ought to have considered the provisions of the earlier Act while legislating the new Act. Obviously the MSMED Act was legislated and assent of the Hon'ble President of India obtained only on 16.6.2006 which is much after the Income Tax Act, 1961 and section 115JB of the Act contained therein. Going by the intention behind enacting the MSMED Act, i.e to protect the interests of the micro, small and medium enterprises that they get their dues in time for the supplies made by them and they don't get exploited by the big corporates or bigger players in the market, 75 76 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 this payment of interest to those suppliers were provided in the MSMED Act. But we would like to state that the issue before us is to be decided as per the provisions contained in section 115JB of the Act. It is not in dispute that the revenue had sought to add back the provision for interest in the sum of Rs 29,21,911/- while computing the book profits u/s 115JB of the Act by treating the same only as an unascertained liability falling in clause (c ) of Explanation 1 to section 115JB(2) of the Act. For the sake of convenience, the said clause (c ) is reproduced below:-
Explanation 1 - For the purposes of this section, "book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) , as increased by -
(a) to (b) .........................
(c ) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities 34.2.4. Now the pertinent question would be whether the provision for interest of Rs 29,21,911/- would be ascertained or unascertained liability. We find that the said provision had been determined with reasonable certainty pursuant to the method of calculation provided under the MSMED Act, 2006 (which is an independent statute) . Moreover, the payment of this interest to the suppliers registered under MSMED Act, 2006 is mandatory in nature and no option is given to the assessee in this regard. Hence it could be safely concluded that the said provision of interest would be clearly an ascertained liability. Moreover, we find that out of total provision of Rs 29,21,911/-, the assessee has paid a sum of Rs 10,71,467/- before the end of the previous year and the balance outstanding as on 31.3.2011 was only Rs 18,50,444/- which is quite evident from the annual report enclosed in the paper book of the assessee. This itself proves that the assessee had already discharged partial liability towards interest within the end of the previous year and unless the liability had crystallized, no assessee would come 76 77 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 forward to make payment of the same. Hence we hold that it is only an ascertained liability as on 31.3.2011.
34.2.5. We find that the provisions of section 115JB of the Act stipulates that 'Book Profits' shall be deemed to be the total income of the assessee. The expression 'Book Profits' is defined in Explanation 1 to section 115JB of the Act which states as under:-
For the purposes of this section, "book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- section(2) , as increased by -
(a) to (k) ...........................
If any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by , -
............................
Once the expression "Book Profits" is defined in section 115JB of the Act, we cannot travel beyond what is defined therein and we cannot impute any other words or provisions therein unless otherwise specified by the statute . Reliance in this regard is placed on the decision of the Hon'ble Apex Court in the case of Apollo Tyres Ltd reported in 255 ITR 273 (SC). Admittedly the interest payable to suppliers under MSMED Act, 2006 is not one of the item contemplated for addition to net profit for the purpose of computing book profits u/s 115JB of the Act. It is well settled that provisions of section 115JB of the Act creates a deeming fiction and there cannot be deeming fiction on an existing deeming fiction by imputing the provisions of section 23 of MSMED Act, 2006 into the expression "book profits" as defined in Explanation 1 to Section 115JB of the Act. We find that there is no other clause provided in Explanation (1) to section 115JB(2) of the Act for increasing the book profits of the assessee due to this provision for interest under MSMED Act, 2006. Moreover, we find that the provisions of section 23 of MSMED Act, 2006 specifies that interest payable to buyer 77 78 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 shall not for the purposes of computation of income under the Income Tax Act, 1961, be allowed as deduction. In this regard, the expression ' computation of income' used therein , in our considered opinion, refers to the expression 'income' referred to in section 29 or in section 57 of the Income Tax Act. We find that Section 29 and Section 57 of the IT Act, 1961 talks about the manner in which the income referred to in section 28 (i.e business or professional income) and section 56 (i.e income from other sources) subject to grant of certain deductions under the respective heads. For the sake of convenience, the provisions of section 29 and section 57 are reproduced hereunder:-
Section 29 - Income from profits and gains of business or profession, how computed The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D.
Section 57- The income chargeable under the head 'income from other sources' shall be computed after making the following deductions, namely - ..........................
34.2.6. In our considered opinion, what section 23 of MSMED Act, 2006 contemplates or refers to was the 'income' mentioned in section 29 and 57 of the Act i.e how the interest payable under MSMED Act, 2006 shall be treated while computing the income from business or profession u/s 29 or while computing the income from other sources u/s 57 of the Act. It cannot be stretched to extend to the provisions of section 115JB of the Act which is a deeming fiction, wherein the book profits shall be deemed to be the 'total income' of the assessee. The expression 'total income' as used in section 115JB of the Act cannot be equated with 'computation of income' used in section 23 of MSMED Act, 2006.. It can be appropriately used only in the context of provisions of section 29 and section 57 of the Act. Thus while computing the income under normal 78 79 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 provisions under various heads alone, the provisions of section 23 of MSMED Act, 2006 would assume relevance and significance. Hence we hold that the interest payable under MSMED Act, 2006 need not be added back to the net profits while computing book profits u/s 115JB of the Act. Moreover, the ld AR also placed the scrutiny assessment orders of the assessee on record for the Asst Year 2014-15 u/s 143(3) of the Act dated 26.12.2016, wherein this aspect has been duly examined by the ld AO in the assessment and deduction was duly granted by him in the assessment. In view of these facts and findings, we hold that the provision for interest payable to suppliers registered under MSMED Act, 2006 in the sum of Rs 29,21,911/- is only an ascertained liability and need not be added back to the book profits computed u/s 115JB of the Act. Accordingly, the Ground No. 15 raised by the assessee for Asst Year 2011-12 is allowed.
Revenue Appeal - Asst Year 2011-12 - ITA No. 549/Kol/2016
35. The Ground Nos.1 & 2 raised by the revenue with regard to payment of management service fees being held as not paid for stewardship services rendered by the AE to the assessee and determination of its ALP are already discussed at length hereinabove in Revenue's Appeal for Asst Year 2010-11 and the decision rendered thereon would apply with equal force to this Asst Year also. Accordingly, the Ground Nos. 1 & 2 raised by the revenue for the Asst Year 2011-12 are dismissed.
36. In the result, the appeal of the revenue for Asst Year 2011-12 is dismissed.
37. To sum up, 79 80 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12
Sl. I.T.A. No. Assessment Revenue/ Result
No. Year Assessee
1 584/Kol/2015 2010-11 Revenue Dismissed
2 687/Kol/2015 2010-11 Assessee Partly Allowed for statistical
purposes
3 549/Kol/2016 2011-12 Revenue Dismissed
4 619/Kol/2016 2011-12 Assessee Partly Allowed for statistical
purposes
Order pronounced in the Court on 13 .09.2017
Sd/- Sd/-
[A.T. Varkey] [ M.Balaganesh ]
Judicial Member Accountant Member
Dated : 13.09.2017
SB, Sr. PS
Copy of the order forwarded to:
1. DCIT, Circle-1(1), Kolkata, P-7, Chowringhee Square, R. No. 20, 7th Floor, Kolkata- 700069
2. M/s Landis + Gyr Limited, P.O.-Joka, Diamond Harbour Road, 24 Parganas (South), Pin-700104.
3..C.I.T.(A)-4, Kolkata 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By Order Senior Private Secretary Head of Office/D.D.O., ITAT, Kolkata Benches 80 81 ITA Nos.584 & 687/Kol/2015 ITA Nos.549 & 619/Kol/2016 M/s Landis + Gyr Ltd.
A.Yr.2010-11 & 11-12 81