M/s. Sanden Vikas India Ltd., New Delhi V. ACIT, New Delhi

CO 6/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6998 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 05-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Assessee Lawyers: PALLAVI DINODIA GUPTA
• Keywords: Business income; Transfer pricing; Rectification of order; International transaction
• Section: 92C; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-2: NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.6290/DEL/2015 ASSESSMENT YEAR: 2010-11 ACIT, CIRCLE 22(1), NEW DELHI. VS SANDEN VIKAS INDIA LTD., 12-A, SHIVAJI MARG, NEW DELHI. PAN: AABCS3174M CO NO.06/DEL/2016 (ITA NO.6290/DEL/2015) ASSESSMENT YEAR: 2010-11 SANDEN VIKAS INDIA LTD., C/O N. NARASIMHAN & CO., CAS, 211, HANS BHAWAN, 1, BAHADURSHAH ZAFAR MARG, NEW DELHI. PAN: AABCS3174M VS . ACIT, CIRCLE 22(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : MS PALLAVI DINODIA GUPTA, CA REVENUE BY : MS NIDHI SHARMA, SR. DR DATE OF HEARING : 26.09.2019 DATE OF PRONOUNCEMENT : 22.10.2019 ORDER PER R.K. PANDA, AM: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20 TH AUGUST, 2015 OF THE CIT(A)-44, NEW DELHI, RELATING TO ASSESSMENT YEAR 2010-11. THE ASSESSEE ALSO FILED CROSS OBJECTION. FOR THE S AKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. ITA NO.6009/DEL/2016 2 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW BY CONSIDERING THE PROPORTIONATE DIFFERENCE FOR PURPOSE OF CALCULATION OF +/- 5% BEN EFIT AS AGAINST THE ACTUAL DIFFERENCE BETWEEN THE ARMS LENGTH PRICE DETERMINED AND AMOUNT SHOWN IN THE BOOKS OF ACCOUNTS. THE LD. CIT(A) HAS INADVERTE NTLY TAKEN THE DIFFERENTIAL FIGURE I.E. 3.56 % BASED ON WORKING OF RS. 4,10,82, 956/RS. 1,06,25,38,120*100 =3.86 % WHICH IS LESS THAN 5% IN STEAD OF CORRECT AND APPROPRIATE FIGURE OF 10.44 % BASED ON WORKING OF R S.11,09,72,200/RS.1,06, 25, 38, 120*100 = 10.44 %. 2. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, A DD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING TH E HEARING OF THIS APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF COMPONENTS OF CAR A/C SYSTEMS. IT FILED ITS RETURN OF INCOME ON 27 TH SEPTEMBER, 2010 DECLARING A LOSS OF RS.14,20,18,99 1/-. THE ASSESSING OFFICER REFERRED THE MATTER TO THE TP O U/S 92CA FOR COMPUTATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE. THE TPO, DURING TP ASSESSMENT PROCEEDINGS NOTED THAT TH E ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS:- ITA NO.6009/DEL/2016 3 4. THE ASSESSEE COMPANY HAD TAKEN 12 COMPARABLES AN D THE AVERAGE PLI OF SUCH COMPARABLES WAS COMPUTED AT 3.40% WHEREAS THE PLI OF THE ASSESSEE COMPANY WAS 3.85%. ACCORDINGLY IT WAS ARGUED THAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH THE AE ARE AT ARMS LENGTH PRICE. HOWEVER, THE TPO PROPOSED NINE MORE COMPARABLES FOR BENCHMARKING THE INTERNAT IONAL TRANSACTION VIDE ITS SHOW CAUSE NOTICE TO THE COMPANY. AFTER CONSIDERIN G THE REPLY OF THE ASSESSEE, THE TPO FINALLY DETERMINED THE ARMS LENGTH PLI AT 7.05 % ON THE BASIS OF FINAL 27 COMPARABLES, THE DETAILS OF WHICH ARE AS UNDER:- S. NO. COMPANY OP/SALES (%) COMPARABLES TAKEN BY I. AUTOMOTIVE STAMPINGS & ASSEMBLIES LTD 2.96 ASSESSEE II. CLUTCH A UTO LTD. 9.59 ASSESSEE III. EXEDY INDIA LTD. 3.45 ASSESSEE IV. HINDUSTAN HARDY SPICER LTD -0.78 ASSESSEE V . IAI INDUSTRIES LTD. - 0.47 ASSESSEE VI. K R RUBBERITE LTD. 4.42 ASSESSEE VII. RASANDIK ENGINEERING IND.INDIA LTD 8.24 ASSESSEE VIII. SCHRADER D UNCAN LTD 2.47 ASSESSEE IX. TRITON VALVES LTD 9.66 ASSESSEE X. UPASANA ENGINEERING LTD 0.86 ASSESSEE XI. VAID ELASTOMER PROCESSORS PVT. LTD. -25.3 ASSESSEE XII. ALPHA TOYO LTD. 2.8 ASSESSEE XIII. ADROIT INDUSTRIES (INDIA) LTD. 19.15 TPO XIV. BANCO PRODUCTS INDIA LTD. 24.74 TPO XV. KAR MOBILES LTD. 6 TPO XVI. RANE ENGINE VALVES LTD. 5.3 TPO XVII. RAUNAQ AUTO COMPONENTS LTD. 6.77 TPO XVIII. BRAKES INDIA LTD. 7.75 TPO XIX. ANG INDUSTRIES LTD. 4.1 TPO XX. DURO VALVES INDIA PVT. LTD. 6.15 TPO XXI. W ABCO INDIA LTD. 17.49 TPO XXII. TATA TOYO RADIATORS LTD. 13.41 TPO XXIII. RSB TRANSMISSION (I) LTD. 14.4 TPO XXIV. SUPRAJIT ENGG. LTD. 18.37 TPO XXV. SETCO AUTOMOTIVE LTD. 12.79 TPO XXVI. BMW INDUSTRIES LTD. 8.66 TPO XXVII. TATA AUTO COMP SYSTEMS LTD. 7.38 TPO AVERAGE 7.05% ITA NO.6009/DEL/2016 4 5. THE TPO HAS ONLY PROPOSED ADJUSTMENT IN RESPECT OF AFOREMENTIONED INTERNATIONAL TRANSACTIONS ENTERED INTO WITH MANUFA CTURING SEGMENTS. NO ADJUSTMENT HAS BEEN PROPOSED IN RESPECT OF THE TRAD ING SEGMENT OR PURCHASE OF CAPITAL GOODS. THE TPO, AFTER EXCLUDING NON-OPERAT ING INCOME OR EXPENSES WHILE COMPUTING OPERATING REVENUES AND OPERATING EXPENSES FINALLY PROPOSED ADJUSTMENT OF RS.11,09,72,200/- THE WORKING OF WHICH IS AS UND ER:- PARTICULARS AMOUNT IN INR TOTAL SALES 2,968,400,000 ARMS LENGTH MARGIN (%) 7.05% ARMS LENGTH MARGIN 209,272,200 ARM'S LENGTH COST 2,759,127,800 OPERATING COST 2,870,100,000 DIFFERENCE IN THE ARM'S LENGTH COST AND OPERATING COST FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 110,972,200 DIFFERENCE (IN %) WITH THE ARMS LENGTH COST 10.44% 6. AGGRIEVED BY THE ORDER OF THE TPO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). SINCE THE ASSESSEE ITSELF HAD FOUND CERTAI N CLERICAL MISTAKE IN RESPECT OF CALCULATION OF TP ADJUSTMENT PROPOSED BY THE TPO, W HICH IS APPARENT FROM RECORD, FILED A RECTIFICATION APPLICATION U/S 154 OF THE AC T. AS PER THE ORIGINAL ORDER, THE TPO HAD MADE ADJUSTMENT OF DIFFERENCE BETWEEN TOTAL ALP OF RS.2,75,91,27,800/- AND TOTAL OPERATING COST OF RS.28,70,10,000/- WHICH IS INCORRECT AS PER THE PROVISIONS OF SECTION 92 OF THE ACT. IT WAS ARGUED BEFORE THE TPO THAT TP ADJUSTMENT SHOULD BE PROPORTIONATE OF INTERNATIONAL TRANSACTION OF MANUFACTURING SEGMENTS. IT WAS ACCORDINGLY REQUESTED TO TPO TO R ECTIFY THE MISTAKE. THE TPO VIDE RECTIFICATION ORDER DATED 16 TH JULY, 2014 PASSED U/S 154/143(3) REDUCED THE ITA NO.6009/DEL/2016 5 TRANSFER PRICING ADJUSTMENT FROM 11,09,72,200/- TO RS.6,58,73,098/-, THE WORKING OF WHICH IS AS UNDER:- PARTICULARS (RELATED TO MANUFACTURING SEGMENT AMOUNT IN INR REFERENCE TOTAL SALES 2,96,84,00,000 PAGE NO. 3 OF AOS RECTIFICATION ORDER U /S 154/143(3) DATED 16.07.2014 ARMS LENGTH PLI 7.05% ARMS LENGTH OPERATING COST 20,92,72,200 ARMS LENGTH COST 2,75,91,27,000 OPERATING COST OF 2,87,01,00,000 DIFFERENCE BETWEEN ALP COST & OPERATING COST 11,09,72,200 DIFFERENCE (IN%)WITH THE ARMS LENGTH COST 10.44% PERCENTAGE OF INTERNATIONAL TRANSACTION IN MANUFACTURING SEGMENT TO TOTAL OF INTERNATIONALS TRANSACTIONS (I.E RS. 1062538120/RS. 1789939325*100) 59.36% PROPORTIONATE DIFFERENCE FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 6,58,73,098 7. HOWEVER, THE TPO/A.O. COMPUTED THE TP ADJUSTMENT BY CONSIDERING THE PROPORTION OF INTERNATIONAL TRANSACTIONS IN MANUFAC TURING SEGMENT TO TOTAL INTERNATIONAL TRANSACTIONS WHICH, ACCORDING TO THE ASSESSEE, WAS INCORRECT. THEREAFTER, THE ASSESSEE COMPANY FILED ANOTHER APPL ICATION U/S 154, VIDE LETTER DATED 12 TH MARCH, 2015 FOR RECTIFICATION OF THE MISTAKE AND A LSO REQUESTED THAT THE PROPORTIONATE ADJUSTMENT WOULD BE COVERED UNDER +/ - 5% OF THE INTERNATIONAL TRANSACTIONS AND CONSEQUENTLY ADJUSTMENT SHOULD BE REDUCED TO NIL AS PER THE PROVISIONS OF SECTION 92C OF THE IT ACT. THE ASSES SING OFFICER, VIDE RECTIFICATION ORDER U/S 154/143(3) DATED 12 TH MARCH, 2015, REDUCED THE TP ADJUSTMENT FROM ITA NO.6009/DEL/2016 6 6,58,73,098/- TO RS.4,10,82,596/-. HOWEVER, THE AS SESSING OFFICER REJECTED THE +/- 5% BENEFIT AS PER THE SECOND PROVISO TO SECTION 92( 2) OF THE IT ACT. 8. BEFORE THE CIT(A), IT WAS ARGUED THAT THE ADJUST MENT IN MANUFACTURING SEGMENT IN ALP COMES TO RS.4,10,82,956/- WHICH IS A LSO 3.87% OF THE TOTAL INTERNATIONAL TRANSACTION OF MANUFACTURING SEGMENT WHICH IS AS UNDER:- 4,10,82,956 = 3.87% 1,06,25,38,120 9. IT WAS ACCORDINGLY REQUESTED THAT NO ADJUSTMENT IS REQUIRED TO BE MADE WHILE DETERMINING THE ALP OF THE INTERNATIONAL TRAN SACTION AS PER THE FIRST PROVISO TO SECTION 92C(2) OF THE IT ACT. IN APPEAL, THE LD . CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AS UNDER:- 7. DECISION:- I HAVE CONSIDERED THE ASSESSMENT ORD ER, ORDER U/S 92CA(3) PASSED BY THE TPO AND THE SUBSEQUENT RECTIFICATION ORDER PASSED BY THE TPO ON 19.08/2014 AND 12.03.2015. WITHOUT GIVING INTO T HE MERITS OF SELECTION OF COMPARABLE BY THE TPO FOR FINALLY DETERMINING THE A LP OF INTERNATIONAL TRANSACTION U/S 92CA, I WOULD LIKE TO DWELL UPON WH ETHER THE ADJUSTMENT MADE IN ALP IS WITHIN THE SAFE HARBOR AS PER SECOND PROV ISO BELOW SUB-SECTION 2 OF SECTION 92C OF THE I.T. ACT. WHILE PASSING THE ORDE R U/S 92CA(3) DATED 27.01.2014 THE LD. TPO HAS APPLIED ARMS LENGTH MARG IN AT THE RATE OF 7.05% TO ARRIVE AT ARM LENGTH COST FROM TOTAL SALES WHICH CONSIST OF MANUFACTURING AS WELL AS TRADING. TOTAL ARM LENGTH COST HAS BEEN COMPUTED AT RS. 2,7 5,91,27,800/- AND THE TOTAL OPERATING COST IN THE FINANCIAL RESULT (PROFI T 85 LOSS A/C) IS RS.287,01,00,000/- AND THE DIFFERENCE BETWEEN THE O PERATING COST AND ARMS LENGTH COST HAS BEEN TAKEN AS ADJUSTMENT IS ARM LEN GTH COST AMOUNTING TO RS.11,09,72,200/-. THE LD. TPO HAD GIVEN THE FINDIN G IN PARA 11 OF THE ORDER AND THE OTHER INTERNATIONAL TRANSACTION ARE EITHER RELATABLE TO TRADING SEGMENT OR THEY ARE WITH RESPECT TO THE PURCHASE OF CAPITAL GOODS AND NOT AFFECTING THE OPERATING RESERVE OF THE RELEVANT SEGMENT. THEREFOR E, THE TPO HAS INTENDED TO MADE ADJUSTMENT IN MANUFACTURING SEGMENT ONLY. THIS DECISION OF THE TPO IS FURTHER REINFORCED WHILE PASSING THE RECTIFICATION ORDER U/S 154 ON 16.07.2014 AND 12.03.2015 WHERE ADJUSTMENT IN ALP HAS BEEN MAD E ON PRO-DATA BASIS IN ITA NO.6009/DEL/2016 7 RESPECT OF MANUFACTURING SEGMENT ON THE PROPORTION OF MANUFACTURING COST OF THE TOTAL OPERATING COST INCLUDING TRADING SEGMENT WHICH HAS BEEN ARRIVED AT 59.36% IN RECTIFICATION ORDER DATED 16.07.2014 WHIC H HAS BEEN FINALLY COMPUTED TO 37.02% IN THE RECTIFICATION ORDER DATED 12.03.2015. BY APPLYING THE PROPORTIONATE DIFFERENCE REQUIRED TO BE MADE TH E TPO IS BASICALLY MAKING ADJUSTMENT ON THE OPERATING COST RELATABLE TO THE M ANUFACTURING SEGMENT. THE TOTAL FINAL ADJUSTMENT IN ALP RELATABLE TO MANUFACT URING COST IS RS.4,10,82,956 ON THE TOTAL OPERATING COST TO THE MANUFACTURING SE GMENT AMOUNTING TO RS. 106,25,38,120 RATIO (RS. 4,10,82,956/ 106,25,38,120 X100) WHICH COMES TO 3.86% WHICH IS LESS THAN 5% OF THE BASE FIGURE OF O PERATING COST. THE LD. TPO HAS REJECTED THE RECTIFICATION APPLICATION ON THE I SSUE OF ADJUSTMENT +-5% AS PER SECOND PROVISO TO SUB-SECTION (2) OF SECTION 92 C ON THE GROUND THAT THESE MISTAKES REQUIRES DEEPER ANALYSIS AND INTERPRETATIO N THEREFORE IS NOT A MISTAKE RECTIFIABLE U/S 154. I HAVE CONSIDERED THE ARGUMENT OF THE LD. AR AND F INDINGS OF THE TPO. IT IS UNDISPUTED FACTS THAT THE TOTAL ADJUSTMENT IN MANUF ACTURING SEGMENT AFTER PASSING OF RECTIFICATION ORDER U/S 154 DATED 12.03. 2015 IN ALP HAS BEEN MADE FOR RS.4,10,82,956/- WHICH IS 3.86% OF THE OPERATIN G COST OF THE MANUFACTURING SEGMENT. THIS ENTIRE COST OF THE MANUFACTURING SEGM ENT IS INTERNATIONAL TRANSACTION WITH ITS AES WHICH IS RS.106,25,38,120/ -. THEREFORE, THE ADJUSTMENT IN INTERNATIONAL TRANSACTION IS DEFINITE LY LESS THAN 5% OF TOTAL INTERNATIONAL TRANSACTION. BY VIRTUE OF SECOND PROV ISO OF THE SUB-SECTION (2) OF SECTION 92C NO ADJUSTMENT CAN BE MADE AND SUCH INTE RNATIONAL TRANSACTION HAS BEEN DEEMED TO BE AT ALP. ACCORDINGLY, ADDITION OF RS. 11,09,72,200/- WHICH HAS BEEN FINALLY RECTIFIED AT RS.4,10,82,956 IS HER EBY DELETED. HENCE, THIRD GROUND OF APPEAL IS ALLOWED. 10. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE RE VENUE IS IN APPEAL BEFORE THE TRIBUNAL. 11. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). WE HAVE ALSO GONE THROUGH THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIN D, AFTER PASSING OF THE SECOND RECTIFICATION ORDER, THE FINAL TP ADJUSTMENT AS PER THE ASSESSING OFFICER COMES TO RS.4,10,82,596/- WHICH IS 3.86% OF THE OPERATING CO ST OF THE MANUFACTURING SEGMENT. THEREFORE, THE ADJUSTMENT IN INTERNATIONAL TRANSACTIONS BEING LESS THAN 5% ITA NO.6009/DEL/2016 8 OF THE TOTAL INTERNATIONAL TRANSACTIONS IS DEEMED T O BE AT ALP AS PER SECOND PROVISO TO SUB-SECTION (2) OF SECTION 92 OF THE IT ACT. WE , THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DIRECTING T HE A.O./TPO TO DELETE THE ADDITION. THE GROUND RAISED BY THE REVENUE, IN OUR OPINION, IS WITHOUT ANY MERIT. THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL ALSO SUPPORT ITS CASE THAT TP ADJUSTMENT MADE UNDER TNMM IS NOT WARRANTED WHEN TH E VALUE OF THE INTERNATIONAL TRANSACTION OF PURCHASE OF RAW MATERI AL AND THE PROPORTIONATE ARMS LENGTH OPERATING COST FALLS WITHIN THE +/- 5% ARMS LENGTH RANGE. WE FURTHER FIND THAT THE TPO IN THE INSTANT CASE HAS PASSED RECTIFI CATION ORDER TWICE I.E., THE FIRST ONE ON 19 TH AUGUST, 2014 AND THE SECOND ONE ON 12 TH MARCH, 2015 AND FINALLY REDUCED THE TP ADJUSTMENT FROM 11,09,72,200/- TO RS .4,10,82,956/-. WE, THEREFORE, FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL THAT THE APPEAL FILED BY THE REVENUE SHOULD BE DISMISSED BEING INFRUCTUOUS SINCE THE VAR IATION BETWEEN THE ALP SO DETERMINED AND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED 5%. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. CO NO.06/DEL/2016 12. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. SINCE THE APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED, THE REFORE, THE CO FILED BY THE ASSESSEE BECOMES INFRUCTUOUS. ACCORDINGLY, THE SAM E IS DISMISSED. ITA NO.6009/DEL/2016 9 13. IN THE RESULT, THE APPEAL FILED BY THE RE VENUE AND THE CO FILED BY THE ASSESSEE ARE DISMISSED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 22.10.2019. SD/- SD/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED: 22 ND OCTOBER, 2019 DK COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI