DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 5, PUNE V. RENISHAW METROLOGY SYSTEMS LTD, PUNE

ITA 628/PUN/2021

AI Insights

The case involves the Deputy Commissioner of Income Tax, Central Circle-5, Pune (Appellant) against Renishaw Metrology Systems Ltd. (Respondent) concerning the assessment year 2013-14. The primary issue revolves around the Transfer Pricing (TP) adjustments made by the Transfer Pricing Officer (TPO) and the subsequent appeal by the assessee against these adjustments. The TPO had made upward adjustments totaling ₹4,29,42,878 for various services and royalty payments. The assessee appealed these adjustments, which were partly allowed by the CIT(A), leading to cross appeals by both parties. The Tribunal's decision focused on the proper evaluation of comparables used in the TP adjustments, particularly the exclusion of BVG India Ltd and Just Dial Ltd, which was contested by the Revenue.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 26326 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2024
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 17-09-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 22-11-2021
• Other Referred Cases: Radhasoami Satsang Vs CIT, AkzoNobel India Pvt. Ltd. Vs Addl CIT, Chandra Kishore Jha Vs Mahavir Prasad
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISH MEHTA LD.
• Assessee Lawyers: AJIT JAIN LD.
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 143(2); 250; 251

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE ‘C’ BENCH, PUNE ITAT-Pune Page 1 of 10 BEFORE HON’BLE SMT ASTHA CHANDRA, JUDICAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 0628/PUN/2021 िनधाªरण वषª / Assessment Year : 2013-14 Dy. Commissioner of Income Tax, Central Circle-5, Pune . . . . . . . अपीलाथê / Appellant बनाम / V/s Renishaw Metrology Systems Ltd. S No. 284, Raisoni Estate, Village Mann, Tal. Mulshi, Pune PAN :AABCR6361F . . . . . . . ÿÂयथê / Respondent Ĭारा / Appearances Assessee by: Mr Ajit Jain [‘Ld. AR’] Revenue by: Mr Manish Mehta [‘Ld. DR’] सुनवाई कì तारीख / Date of conclusive Hearing : 17/09/2024 घोषणा कì तारीख / Date of Pronouncement : 26/11/2024 आदेश / ORDER PER G. D. PADMAHSHALI, AM; The present appeal instituted by the Revenue u/s 253(2) of Income Tax Act, 1961 [in short ‘the Act’] challenges DIN-less order dt. 21/09/2021 passed u/s 250 by Commissioner of Income Tax-Appeals-13, Pune [in short ‘Ld. CIT(A)’] anent to assessment year 2012-13 [in short ‘AY’] which in turn arisen out of assessment order dt. 27/12/2016 passed u/s 143(3) r.w.s. 144C(1) of the Act by learned Dy. Commissioner of Income Tax, Circle-5, Pune [in short ‘Ld. AO’]. DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 2 of 10 1. Tersely stated facts emanating from the case records are that; 1.1 The assessee company is a wholly owned subsidiary Renishaw International Ltd. United Kingdom. The assessee company engaged in the business of (a) manufacturing of Arms & Cables, (b) software development services for its associated enterprises [in short ‘AEs’] (c) marketing support service of group product line and (d) trading of group product. 1.2 The original of return of income [in short ‘ITR’] filed by the assessee declaring total income ₹37,74,24,360/- on 29/11/2013 was subsequently revised on 31/03/2014 without variation of income declared in the original return. The case of the assessee was selected for scrutiny by service of notice u/s 143(2) of the Act. In assessment proceedings upon coming to notice that, the assessee had undertaken certain international transactions, the Ld. AO made a reference to Transfer Pricing Officer [in short ‘TPO’] u/s 92CA(1) of the Act for computing/determining Arm’s Length Price [in short ‘ALP] in relation to such international transactions entered/undertaken by the assessee company. 1.3 On a reference, the Ld. TPO passed an order u/s 92CA(3) of the Act wherein an upward Transfer Price [in short ‘TP’] adjustment for total sum of ₹4,29,42,878/- was made in relation to (1) provision of software development ₹45,25,254/- (2) provision of sales & marketing support services DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 3 of 10 ₹1,42,00,046/- (3) management service fees ₹1,62,56,517 and (4) royalty payment ₹79,61,061/-. The Ld. AO accordingly incorporated the TP adjustment alongwith separate solitary addition of ₹15.95Lakhs made on account of difference of income reported in ITS date & accounted in books by the assessee and by order dt. 27/12/2016 framed an assessment u/s 143(3) r.w.s. 144C(3) of the Act and assessed the taxable income at ₹42,70,07,620/- 2. Aggrieved assessee carried the matter in an appeal u/s 246A(1) of the Act, wherein the Ld. CIT(A) following decision of his predecessor and Co- ordinate bench’s decision in assessee’s own case for earlier years partly allowed the appeal. 3. Aggrieved by the adjudication of the first appellate authority both the parties filed cross appeals. The assessee company vide ITA No. 619/PUN/2021 substantively challenged the addition of ₹15.95Lakhs made by the Ld. AO on account of difference of income, was in appeal ultimately dismissed by the Ld. Co-ordinate bench vide its order dt. 24/01/2024. The Revenue in present appeal through the following grounds challenged relief granted by the impugned order; 1. The CIT(A) erred both on facts and in law in passing the order. 2. The CIT (A) erred in law as well as on facts by relying on the order of his predecessor by directing to exclude BVG DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 4 of 10 India Limited as being functionally different on account of its diverse activities. 3. The CIT (A) erred in law as well as on facts by relying on the order of his predecessor by directing to exclude Just Dial Limited as being functionally different on account of its diverse activities. 4. The CIT (A) erred in law as well as on facts by relying on order of Hon'ble ITAT in assessee's own case in accepting that the assessee has proved the receipt of services for Management services function. 5. The CIT (A) erred in law as well as on facts by relying on order of Hon'ble ITAT in assessee's own case in not appreciating fact that more than 50% of purchases are from AE and 100% sales of goods manufactured aro th 6. The CIT (A) erred in law as well as on facts by relying on order of Hon'ble ITAT in assessee's own case in allowing a royalty payment only on the basis of service agreement and not holding assessee as contract manufacturer. 7. For these and such other reasons as may be urged at the time of hearing, the order of the CIT(A) may be vacated and that of the Assessing Officer be restored. 8. The appellant craves, leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal. 4. We have heard rival party’s contentions & submission; and subject to rule 18 of ITAT-Rules 1963 perused material placed on record and considered the facts in light of settled legal position which are also forewarned to parties for their rebuttal. DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 5 of 10 5. At the outset we note that ground no. 1, 7 & 8 raised by the Revenue are general in nature triggering no adjudication, consequently dismissed as such. The ground no 4, 5 & 6 are relating to TP adjustments made towards provision of management service & royalty payments respectively. These issues were decided earlier in favour of the assessee by the Tribunal vide ITA No 376/PUN/2014 & 2975/PUN/2017 dt. 12/09/2017 and 1560/PUN/2017 dt. 01/04/2022. Respectfully following the same, these grounds without reproducing the said adjudication here in verbatim are dismissed. 6. Now next comes the ground no 2 & 3 by which the Revenue disputes the exclusion of ‘BGV India Ltd’ & Just Dial Ltd. from the set of comparable adopted by the Ld. TPO while proposing TP Adjustment in relation of market support services. The Ld. DR submitted that, the first appellate authority while dealing with the first appeal was duty bound to conduct independent enquiries in relation to issues before him and was then to arrive at logical decision thereon after elaborating independent findings therefore, however same is sidestepped by placing reliance on the earlier year order of his predecessor. Au contraire, the Ld. AR solidifying former facts claimed for exclusion of these two comparable by reiterating its submission as were made before the LD. CIT(A) to the effect that, the size and scale of operation cannot be comparable with the size & scale of operation it has undertaken during the year under consideration. To bolster the contention, the Ld. AR took us DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 6 of 10 through the financial statements of these comparable companies. It is further submitted that, in the absence of change in the functionality and size & scale of operation of these comparable the Ld. CIT(A) maintained the parity in the decision by following the decision of his predecessor in assessee’s own case and thus directed to exclude these comparables. Therefore, the prayer for upholding the exclusion. 6.1 BVG India Ltd. [in short ‘BVG’] : From page 294 to 440 of paper book volume-I, arguments and other submission placed on records we note that, BVG is engaged in providing range of services, including: Mechanized housekeeping, Landscaping and gardening, Civil and electrical maintenance, Fabrication services, Turn key solutions and Logistics support services. It operates with largely serving public sector & private sector companies beside certain governmental departments across the country. Whereas the respondent assessee predominantly specializes in precision measurement, motion control, and spectroscopy. The assessee into a range of products and services for a variety of applications, including; machine tool automation additive manufacturing medical diagnostics and large scales surveying etc. Insofar as the inclusion or exclusion of BVG is concerned, we note that at the time of proposed TP proposed adjustment and at first appellate proceeding not only functionality difference of this comparable company was at a challenge, but the size & scale of operation. DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 7 of 10 6.2 Just Dial Ltd [in short ‘JDL’] From page 441 to 482 of paper book volume-I, arguments and other submission placed on records we note that, JDL is engaged predominantly in search engine & tele marketing services through internet technology, in addition to services in the field of a business management solution, a digital payment solution for users and vendors, a social platform sharing, real time chat messenger services etc. Whereas the respondent assessee predominantly specializes in precision measurement, motion control, and spectroscopy. The assessee into a range of products and services for a variety of applications, including; machine tool automation additive manufacturing medical diagnostics and large scales surveying etc. Insofar as the inclusion or exclusion of JDL is concerned, alike in former case we note that not only at the time of proposed TP proposed adjustment and but also in first appeal proceeding the inclusion was challenged on both functionality difference as well as on the size & scale of operation. 7. While excluding these comparable by the Ld. CIT(A) vide para 4.3 placed on page 57 of the impugned order gave his findings as; ‘4.3 I have carefully considered the submission of the Appellant in light of the facts of the case and materials available on record. It is seen that in the previous AY 2012- 13, My learned predecessor, after thorough analysis has ordered exclusion of all the 3 comparables selected by the Learned TPO, namely, APITCO Ltd, BVG India Ltd and Just Dial Ltd. The facts of previous year and current year are same for both the appellant and the comparables. Accordingly, following the precedent, the learned TPO is directed to reject DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 8 of 10 all the comparables from the final set of comparables. As a result, the comparables selected by the appellant get restored on this technical ground.’ 8. We note at the outset that, solely based upon his predecessor decision for immediate earlier assessment year but without any independent findings for the year under consideration the Ld. CIT(A) allowed the exclusion claimed by the assessee. While accepting the plea for exclusion the Ld. CIT(A) may inadvertently turned blind eye to the submission of the assessee and did fail to verify & vouch comparative financial/turnover which alone founded the basis for placing reliance on predecessor’s decision. Mindfully we say it so from financial/turnover comparison submitted by the assessee in first appellate proceedings which is reproduced in verbatim at page 52-53 of the impugned order. The said comparative chart glaringly shows that, the financial figures of total turnover of these comparable companies were taken as a whole in absolute terms as basis and playfully compared with its operation in no of times without providing absolute figures therein. We also note that, while doing such pricked comparison, the assessee handpicked its sales against total turnover figures of comparable companies and tacitly showcased its operational incomparability in size & scale. Thus, perfunctory adjudication has not only suffered from independent findings but since based on comparatives which are not free from material defects. Therefore, we see no cogent reasons in not setting-aside these two exclusions. DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 9 of 10 8.1 We are heedful to the restriction placed by clause (a) of sub-section (1) of section 251 of the Act which obligates the Ld. CIT(A) to adjudicate the issue either by confirming or annulling the addition or reducing or enhancing the addition made by the assessing officer without the right to remand the matter back. However, while exercising the jurisdiction u/s 251(1)(a) of the Act, the Ld. CIT(A) is required to state point of determination, its decision thereon and clear reasons therefore in terms of section 250(6) of the Act. This exercise by the Ld. CIT(A) is a pre-requisite and invariably necessary for each assessment year in each case irrespective its repetition and while doing so the order of his predecessor may be perused as it would have only persuasive value but cannot completely influence or cannot be a solitary basis in forming substantive foundation for arriving in independent decision. This is because in taxation each assessment year per-se is a separate unit which is governed by its own peculiar facts and as such principle of res-judicata is inapplicable in fiscal laws. Therefore, any adjudication in taxation is final utterly for the year of adjudication only and it does not govern any later or subsequent year. This, finds fortified in ‘Radhasoami Satsang Vs CIT’ [1992, 193 ITR 321 (SC)], ‘AkzoNobel India Pvt. Ltd. Vs Addl CIT’ [2022, in ITA 370/2022, (Del)]. 8.2 It is a trite law as laid down by Hon’ble Supreme Court in case ‘Chandra Kishore Jha Vs Mahavir Prasad’ reported in 8 SCC 266 (SC), that DCIT Vs Renishaw Metrology Systems Ltd. ITA No. 628/PUN/2021 AY: 2013-14 ITAT-Pune Page 10 of 10 ‘if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner’. In view hereof, we hold that, the impugned exclusions by the first appellate authority sidestepping the dictate is inconsonance with the provision of s/s (6) of section 250 of the Act. 8.3 For the reasons we set-aside the impugned order and without commenting on merits of the case, we deem it proper to remand the file to first appellate authority (faceless regime) with a direction to deal with the limited issue exclusion of BVG & JDL on the basis of material already brought on record and held as on the date of impugned order, without burdening the assessee to reproduce/resubmit evidences on the subject matter and pass a speaking order in terms of section 250(6) of the Act. Ordered accordingly. The grounds accordingly stands partly allowed. 8.4 In result, the appeal of the Revenue is partly allowed for statistical purposes in above terms. u/r 34 of ITAT Rules, the order pronounced in open court on the date of mentioned hereinabove. -S/d- -S/d- ASTHA CHANDRA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE / Dated : 26th day of November, 2024. Panaji / Dated : 14th day of November, 2024 आदेश कì ÿितिलिपअúेिषत / Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT Concerned. 4. The CIT(A) Concerned 5. DR, ITAT, Bench ‘C’, Pune 6.गाडªफ़ाइल / Guard File. आदेशानुसार / By Order वåरķ िनजी सिचव / Sr. Private Secretary आयकर अपीलीय Æयायािधकरण, पुणे / ITAT, Pune. "