Appeal details
Counselvise Citation
[2015] 123 COUNSELVISE.COM (IT) 1015 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 23 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
17-07-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
Not Allotted
Assessment Year
2009-2010
Appeal Filed On
24-06-2014
Judgement Text
, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , , , BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO. 1255/MUM/2014 ( / ASSESSMENT YEAR : 2009 - 10 THE DCIT - 2(1), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. FEDERAL MOGUL BEARING INDIA LTD. 4 TH FLOOR, MAGNET HOUSE, N.M. ROAD, MUMBAI - 400 038 C.O. NO. 129/MUM/2014 (ARISING OUT OF I .T.A. NO . 1255/MUM/2014 ( / ASSESSMENT YEAR : 2009 - 10 M/S. FEDERAL MOGUL BEARING INDIA LTD. 4 TH FLOOR, MAGNET HOUSE,N.M. ROAD, MUMBAI - 400 038 / VS. THE DCIT - 2(1), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AAGCA 3784Q ( / APPELLANT ) .. ( / RESPONDENT ) / REVENUE BY: SHRI N.K. CHERND / ASSESSEE BY : SHRI TOLANI SHRI DARPAN KIRPALANI / DATE OF HEARING : 13 . 0 7 .2015 / DATE OF PRONOUNCEMENT : 17 .0 7 .2015 / O R D E R PER N.K. BILLAIYA, AM: ITA. NO. 1255/M/14 C.O. NO. 129/M/2014 2 T H ESE ARE APPEALS BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE AGAINST THE VERY SAME ORDER OF THE DRP - I MUMBAI DT. 01 . 11 .2013 PERTAINING TO ASSESSMENT YEAR 200 9 - 1 0. 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE DRP HAS ERRED IN REJECTING THE ENTITY LEVEL TNMM ADOPTED BY THE TPO AND DIRECT ED TO COMPUTE THE ADJUSTMENT AT TRANSACTION LEVEL ONLY. 2.1. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF COMPONENTS LIKE BI - METAL ENGINE BEARINGS, BUSHES, WASHERS, FLANGES FOR AUTOMOTIVE, INDUSTRIAL, AGRICULTURAL, EARTHMOVING , MARINE AND STATIONARY ENGINES. MORE THAN 50% OF THE SHARES ARE HELD BY FEDERAL MOGUL CORPORATION, USA. THE ASSOCIATED ENTERPRISES OF THE ASSESSEE ARE: - 1) FEDERAL MOGUL CORPORATION, U.S. 2) FEDERAL MOGUL S.A.R.L, ITALY 3) FEDERAL MOGUL OPERATIONS FRANCE S.A.S 4) F EDERAL MOGUL WIESBADEN GMBH, GERMANY 5) FEDERAL MOGUL BIMET, S.A. 2.2. DURING THE YEAR, THE ASSESSEE ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS: S. NO. PARTICULARS AMOUNT IN RS. METHOD 1 IMPORT OF RAW MATERIAL 44,55,962/ - TNMM 2. PURCHASE/SALE OF TRADED/FINISHED GOODS 4,88,52,809 / - - DO - 3. IMPORT OF CAPITAL GOODS 4,86,45,466/ - - DO - 4. REIMBURSEMENT PAID 46,96,735/ - - DO - ITA. NO. 1255/M/14 C.O. NO. 129/M/2014 3 5. REIMBURSEMENT RECEIVED 1,712 / - 2.3. A REFERENCE WAS MADE TO THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE W ITH REFERENCE TO ALL THE TRANSACTIONS REPORTED IN FORM 3CD WHICH HAS BEEN FILED BY THE ASSESSEE. THE TPO MADE ADJUSTMENTS TO THE TUNE OF RS. 89,07,470/ - . 3. THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP. IT WAS STRONGLY CONTENDED BEFORE THE DRP, THE TP ADJUSTMENT SHOULD BE RESTRICTED TO THE VALUE OF INTERNATIONAL TRANSACTION WITH AE ONLY AND SHOULD NOT BE MADE AT ENTITY LEVEL. THE DRP WAS CONVINCED WITH THIS CLAIM OF THE ASSESSEE AN D DIRECTED THE AO TO COMPUTE THE ADJUSTMENT AT TRANSACTION LEVEL ONLY. THE AO IN THE FINAL ASSESSMENT ORDER CARRIED OUT THE DIRECTIONS OF THE DRP AND RECOMPUTED THE ADJUSTMENT AT RS. 3,16,022/ - . 4. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 5. INSOF AR AS THE GRIEVANCE OF THE REVENUE IS CONCERNED, THE UNDISPUTED FACT IS THAT THE TP ADJUSTMENTS HAVE TO BE MADE ONLY FOR THE TRANSACTION WITH THE ASSOCIATED ENTERPRISES. A SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF RATILAL BECHARLAL & SONS IN ITA NO. 7876/M/11 WHEREIN THE TRIBUNAL AT PARA - 13 OF ITS ORDER HAS HELD THAT ADJUSTMENT ARISING OUT OF ALP CANNOT BE MADE ON THE ENTIRE TURNOVER AND THE SAME HAS TO BE RESTRICTED TO THE INTERNATIONAL TRANSACTION WITH THE AE. THUS THE ALP HAS TO BE AT INTERNATIONAL TRANSACTION AND NOT IN RELATION TO ASSESSEES ENTIRE SALES/TURNOVER. 6. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE DECISION OF THE TRIBUNAL (SUPRA), WE DO NOT FIND ANY ERROR IN THE DIRECTIONS OF THE DRP. APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSED. ITA. NO. 1255/M/14 C.O. NO. 129/M/2014 4 7. COMING TO THE CROSS OBJECTION OF THE ASSESSEE, IT IS S EEN THAT THE CROSS OBJECTION IS LATE BY 80 DAYS. WE FIND THAT THE ASSESSEE HAS FILED AN APPLICATION FOR THE CONDONATION OF DELAY WHICH IS SUPPORTED BY AN AFFIDAVIT. 8. WE HAVE CAREFULLY GONE THROUGH THE CONTENTS OF THE AFFIDAVIT. WE FIND THAT THE ASSES SEE WAS PREVENTED BY REASONABLE AND SUFFICIENT CAUSE FOR NOT FILING THE APPEAL ON TIME. THE DELAY IS CONDONED. 9. THE ISSUES RAISED VIDE GROUND NO. 1.1 TO 5.2 BECOME OTIOSE AS WE HAVE DISMISSED REVENUES APPEAL IN ITA NO. 1255/M/2014. 10. THE NEXT GRIE VANCE RELATES TO NOT ALLOWING THE BENEFIT OF THE PROVISO TO SEC. 92C OF THE ACT. 11. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT FOLLOWING THE DIRECTIONS OF THE DRP, THE AO HAS MADE TP ADJUSTMENT OF RS. 3,16,022/ - . WE FIND FORCE IN TH E CONTENTION OF THE LD. COUNSEL THAT THE BENEFIT OF PROVISO I.E. THE DIFFERENCE IS WITHIN THE RANGE OF +/ - 5% SHOULD BE ALLOWED TO THE ASSESSEE. WE DIRECT THE AO TO VERIFY THIS CONTENTION OF THE ASSESSEE AND DECIDE THE ISSUE AS PER THE PROVISIONS OF THE LAW. 12. THE NEXT GRIEVANCE RELATES TO THE DISALLOWANCE OF RS. 26,31,060/ - BEING LOAN WRITTEN OFF. AS MENTIONED ELSEWHERE, THE DRP HAS CONFIRMED THE F INDINGS OF THE AO HOLDING THAT THE LOAN WAS GRANTED IN THE FIELD OF CAPITAL AND FOR CAPITAL PURPOSES AND THE ASSESSEE IS NOT IN THE BUSINESS OF GRANTING LOAN NOR ANY PART OF THE LOAN WAS OFFERED FOR TAXATION IN THE EARLIER YEARS . THEREFORE, THE WRITE O FF M ADE BY THE ASSESSEE IS NOT ALLOWABLE. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS WRITTEN OF RS. ITA. NO. 1255/M/14 C.O. NO. 129/M/2014 5 26,31,060/ - BEING DEDUCTION OF LOAN TO MICRON SURFACE TREATERS WHICH WAS WRITTEN OFF AS UNRECOVERABLE. 13. BEFORE THE DRP, THE ASSESSEE STRONGLY CON TENDED THAT THE AMOUNT WAS ADVANCED FOR THE PURPOSE OF BUSINESS, THEREFORE THE SAME SHOULD BE ALLOWED AS A REVENUE LOSS. THE DRP OBSERVED THAT LOAN WAS GRANTED IN CAPITAL F IELD AND FOR CAPITAL PURPOSES. FURTHER GRANTING OF LOAN IS NOT A BUSINESS OF THE A SSESSEE NEITHER IS THE LOAN OR ANY PART THEREOF WAS CREDITED IN THE P&L ACCOUNT AND OFFERED FOR TAXATION BEFORE SUCH A WRITE OFF. THE DRP DECLINE D TO ALLOW DEDUCTION. 14. B EF ORE US, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION IN THE CASE OF CIT VS HONDA SIEL POWER PRODUCTS 165 ITR 577. 15. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE DECISION OF THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF DCM LTD. VS DCIT 123 TTJ 114, HONBLE BOMBAY HIGH COURT IN THE CASE OF SALEM MANGNESITE (P) LTD. VS CIT 321 ITR 43 AND THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN THE CASE OF JCIT VS RALLIS INDIA LTD. 3 ITR 01. 16. WE HAVE GIVEN A THOUGHTFUL CONSIDERATI ON TO THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE COMPANY WAS LOOKING AT OUTSOURCING A PROCESS TO AN EXTERNAL VENDOR FOR WHICH IT IDENTIFIED MICRON SURFACE TREATERS (MST). SINCE MST DID NOT HAVE LTC PLATING FACILITY WHICH WAS REQUIR ED BY THE ASSESSEE COMPANY, THE ASSESSEE ENTERED INTO AN AGREEMENT BY WHICH MST AGREED TO SET UP THE LTC PLATING FACILITY FOR UNDERTAKING WORK TO BE DONE FOR THE ASSESSEE AND FOR THIS ASSESSEE AGREED TO PROVIDE ADVANCE OF RS. 30 LAKHS. SUBSEQUENTLY, THE ASSESSEE DISCONTINUED THIS LINE OF BUSINESS. THE ASSESSEE ALSO TOOK ITA. NO. 1255/M/14 C.O. NO. 129/M/2014 6 BACK THE MACHINERY FROM MST AND RECOVERED RS. 3.50 LAKHS OUT OF SALE OF SCRAP AND WROTE OFF THE BALANCE AMOUNT OUTSTANDING IN THE NAME OF MST. 17. THE ANALYSIS OF THE AFOREMENTIONED F ACT SHOWS THAT FIRSTLY THE ASSESSEE LENDED MONEY TO MST KNOWING FULLY WELL THAT MST IS NOT IN A POS IT ION TO CARRY ON THE WORK OF THE ASSESSEE AS IT DOES NOT POSSESS THE NECESSARY FACILITIES. YET THE ASSESSEE ADVANCED MONEY TO MST. THE RECOVERY OF MACHINE RY FROM MST WAS NOTHING BUT RECOVERY ON ACCOUNT OF ADJUSTMENT OF LOAN SINCE THE ASSESSEE HAS GROSSLY FAILED TO ESTABLISH ANY COMMERCIAL EXPEDIENCY IN GIVING ADVANCE TO MST, WE DO NOT FIND ANY REASON TO ALLOW THE WRITE OFF AS EXPENDITURE . WE, THEREFORE CON FIRM THE FINDINGS OF THE DRP. 18. BEFORE CLOSING, THE RELIANCE O N VARIOUS JUDICIAL DECISIONS BY THE ASSESSEE IS MISPLACED AS THE DECISIONS ARE ON DIFFERENT SET OF FACTS. 19. THE LAST GRIEVANCE RELATES TO THE BROUGHT FORWARD LOSSES. IN OUR CONSIDERED OPINION, THIS ISSUE HAS TO BE RELOOKED AS WE HAVE CONFIRMED THE FINDINGS OF THE DRP IN SO FAR AS TRANSFER PRICING ADJUSTMENTS IS CONCERNED IN REVENUES APPEAL. THE AO IS DIRECTE D TO DECIDE THIS ISSUE AFRESH AS PER PROVISIONS OF THE LAW. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT ON 17 TH JU LY , 2015 ( A.D. JAIN ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 17 TH JU LY , 2015 . . ./ RJ , SR. PS ITA. NO. 1255/M/14 C.O. NO. 129/M/2014 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI
