ASB INTERNATIONAL P.LTD, THANE V. ASST CIT CIR I, KALYAN

ITA 1068/MUM/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6850 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 21-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JANARDHANAN
• Assessee Lawyers: AMAR GAHLOT
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 1068 / MUM/20 15 ( ASSESSMENT YEAR : 2010 - 11 ) M/S. ASB INTERNATIONAL PVT. LTD., E - 9, MIDC ADDITIONAL AMBERNATH INDUSTRIAL AREA ANAND N AGAR, AMBERNATH EAST DIST: THANE 421 506 VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE I KALYAN PAN/GIR NO. AAACA8424F APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI AMAR GAHLOT REVENUE BY SHRI V JANARDHANAN DATE OF HEARING 16 / 05 /201 8 DATE OF PRONOUNCEME NT 29 / 05 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF AO PASSED U/S.143(3) R.W.S. 144C OF THE IT ACT FOR THE A.Y.2010 - 11. 2. IN THIS APPEAL ASSES SEE IS AGGRIEVED FOR THE TRANSFER PRICING ADJUSTMENT OF RS.12,92,99,272/ - MADE BY THE TPO. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE, A 100% SUBSIDIARY OF THE NISSEI ASB MACHINE CO. LTD., JAPAN (ASBJ), IS ENG AGED IN MANUFACTURING OF INJECTION STRETCH BLOW - MOULDING MACHINES, MOULDS AND PARTS, COMPONENTS AND SUB - ASSEMBLIES OF MACHINES AND MOULDS. DURING THE ASSESSMENT PROCEEDINGS, THE AO ITA NO. 1068/MUM/2015 M/S. ASB INTERNATIONAL PVT. LTD., 2 FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS (ITS) W ITH ITS ASSOCIATED ENTERPRISES (AES.) HOWEVER, THE AO REFERRED THE MATTER TO THE TPO AND TPO PASSED ORDER U/S.92CA(3) WHEREIN TP ADJUSTMENT OF RS.12,92,99,272/ - WAS MADE. DRP HAS CONFIRMED THE ORDER OF TPO AND THE AO HAS PASSED CONSEQUENTIAL ORDER U/S.143 (3) R.W.S. 144C (14) OF THE IT ACT DATED 11/12/2014, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4 . AT THE OUTSET, LEARNED AR PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.2011 - 12 DATED 04/01/2017 WHEREIN UNDER SI MILAR FACTS AND CIRCUMSTANCES MATTER WAS RESTORED BACK TO THE FILE OF THE AO WITH THE FOLLOWING OBSERVATION: - 6.1.SECTION 92. AND THE RULES DEALING WITH TP PROCEEDINGS WERE BROUGHT ON STATUTE TO ENSURE THAT THE PRICE PAID BY AN ASSESSEE TO ITS AE FOR THE G OODS SOLD/PURCHASED OR SERVICES RENDERED/ AVAILED IS NOT LESS THAN THE FAIR MARKET VALUE. LN SHORT, FOR AN IT, THE ASSESSEES SHOULD CHARGE THE - SAME PRICE FROM ITS AE AS IT WOULD HAVE CHARGED FROM A UNKNOWN THIRD PARTY. FOR DETERMINING ALP ONE OF THE SEVERA L METHODS CAN BE USED, AND SEVERAL FACTORS, HAVE - TO BE CONSIDERED. BUT, THE BASE REMAINS THE SAME I.E. DETERMINATION OF FAIR MARKET, VALUE OF A TRANSACTION ENTERED IN TO FAIRNESS DEMANDS THAT THE ASSESSEE AS WELL AS THE. REVENUE AUTHORITIES SHOULD AVOID A RBITRARINESS WHILE DETERMINING ALP OF AN IT. BOTH SHOULD USE SOME REASONABLE DATA TO PROVE THAT IT IS ABOVE BOARD. ADHOC ADJUSTMENTS, IN OUR OPINION GOES AGAINST THE BASIC CONCEPT OF TP. IN THE CASE UNDER CONSIDERATION 3% AND 8% ALLOWANCE WAS GIVEN BY THE TPO AND THE DRP. BUT, THEY ARRIVED AT THOSE FIGURES IS NOT KNOWN. THE REASONS FOR ADOPTING A. CERTAIN PERCENTAGE DOES NOT FIND PLACE IN THEIR ORDERS. THEY HAVE NOT DISCUSSED AS TO WHAT WAS THE MATERIAL THAT GAVE THEM BASIS FOR ALLOWING 3% AND 8% ADJUSTM ENT ON ACCOUNT OF 'DELAY IN RECEIVABLES AND AFTER SALES SERVICES' AND CONSIDERING THE FACTORS LIKE BULK MANUFACTURING ORDERS RECEIVED FROM AE.S ARID GEOGRAPHICAL LOCATIONS. BUT, BOTH THE AUTHORITIES HAVE NOT CITED THE INSTANCES WHERE AN. INDEPENDENT ASSESS EE, IN SIMILAR CIRCUMSTANCES, HAD CLAIMED THAT ADJUSTME N T ON ACCOUNT OF D ELAY IN RECEIVABLES' 'GEOGRAPHICAL FACTORS ETC, WAS APPROXIMATELY 3% OR 8%,NO JUDICIAL FORUM HAS ADOPTED THE SAID PERCENTAGE ON ACCOUNT OF DELAY IN RECEIVABLES/ BULK MANUFACTU RING/GE OGRAPHICAL LOCATION. EVEN IF THEY ITA NO. 1068/MUM/2015 M/S. ASB INTERNATIONAL PVT. LTD., 3 HAD SOM E MATERIAL SUPPORTING THEIR STAND, SAME HAS NOT BEEN BROUGHT ON RECORD. THUS, THE ORDER PASSED BY THEM IS A NON - SPEAKING ORDER AR E UNDER THE CATEGORY OF AN ORDER PASSED WITHOUT ASSIGNING REASONS. SUCH ORDERS CANNOT BE ENDORSED. AS A REPRESENTATIVES OF THE STATE, THEY ARE SUPPOSED TO RAISE AND COLLECT ONLY TAXES FROM THE SUBJECTS. AS PER THE - SCHEME AND PROVISIONS OF THE ACT, DUE TAXES CANNOT BE DETE RMINED BY MAKING ADHO C ALL OWANCES/DISALLOWANCES. BEFORE THE DRP, TH E ASSESSEE HAD FILED A LIST OF COMPARABLES ARID IT WAS NOT CONSIDERED IN PR OPER PERSPECTIVE, A COMPARABLE C ANNOT AND SHOULD NOT BE REJECTED ONLY ON THE BASIS OF LOSS SUFFE RED BY IT FOR A PARTICULAR YEAR. A PERSISTENT JOSS MAKING COMPARABLE CAN BE EXCLUDED. BUT, IN THE CASE UNDER CONSIDERATE ON THE COMPARABLE HAD NOT SUFFERED LOSS, YEAR AFTER YEAR. AFTER ADMITTING THAT INTERNAL TNMM COULD NOT HAVE BEEN APPLIED STRAIGHT AWAY, THE DRP SHOULD HAVE DELIBERATED UPON THE ISSUE OF DETER MINATION OF ALP IN A MORE RAT IONAL MANNER, BUT, IT JUST ADOPTED, THE EASIEST ROUTE - AN ADHOC ALLOWANCE IT IS A FACT THAT MORE THAN 60% OF THE SALES TURNOVER OF THE ASSESSEE IS WITH NON - AES AND THE PROFIT RATIOS OF NON - AE S AND AE.S CANNOT BE SAME. BESIDES, THE ASSESSEE HAD ENTERED IN T O AN AGREEMENT WITH ITS AE FOR SUPPLY OF GOODS AND WORKING CAPITAL ADJUSTMENT IS REQUIRED TO 'BE MADE. A L L THESE FACTORS WOULD AFFECT THE ALP OF THE TRANSACTIONS. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE MATTER NEEDS FURTHER VERIFICATION AND INVESTIGATION. SO, IN THE INTEREST OF THE JUSTICE, WE ARE RESTORING THE MATTER TO THE FILE - OF THE TPO/AO TO DECIDE THE ISSUE AFRESH. WHILE DETERMINING THE ALP, HE SHOULD CONSIDER THE DATA OF THE COMPANIES WHO ARE ENGA GED IN SUCH ACTIVITIES THAT ARE SIMILAR OR CLOSER TO THE ACTIVITIES OF THE ASSESSEE AND THE TURNOVER WITH THE AE.S AND NON - AE.S .SHOULD BE OF SIMILAR VO LUMES. I N SHORT, SOME REASONABLE COMPARABLES SHOULD BE SELECTED AFTER CONSIDERING THE FAR ANALYSIS OF SU CH COMPARABLE AND ONLY THEN EXERCISE OF DETERMINING ALP SHOULD BE COMPLETED. EFFECTIVE GROUND OF APPEAL IS DE CIDED IN FAVOUR OF THE ASSESSEE IN PART. 5 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CAS E. THE ASSESSEE'S CASE WAS SELECTED FOR SCRUTINY AND FOLLOWING THE ASSESSMENT PROCEEDINGS BEFORE THE TPO AND DRP, THE ALP OF INTERNATIONAL TRANSACTIONS AS BENCHMARKED BY THE ASSESSEE WAS REJECTED. THE TPO ADOPTED INTERNAL TNMM INSTEAD OF ENTITY LEVEL TNMM AND MADE ADJUSTMENTS AMOUNTING TO RS. 12,92,99,272 / - . THE ADJUSTMENT PROPOSED BY THE TPO WAS ACCEPTED ITA NO. 1068/MUM/2015 M/S. ASB INTERNATIONAL PVT. LTD., 4 BY THE AO AND THE DRP TOO, VIDE ORDER DATED 11.12.2014, THE AO PASSED FINAL ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE IT ACT . AFTER GOING THROUGH THE ORDER OF THE TRIBUNAL DATED 04/01/2017 AT PARA 6.1 PAGE 7, THE TRIBUNAL RESTORED THE MATTER BACK TO THE FILE OF THE AO WITH CERTAIN DIRECTIONS. WE OBSERVE THAT IN AY 2010 - 11 AND 2011 - 12, THE ISS UE PERTAINING TO BENCHMARKING OF THE INTERNATIONAL TRANSACTIONS RELATES TO REJECTION OF ENTITY LEVEL TNMM AS ADOPTED BY THE ASSESSEE. FURTHER, DURING THE ASSESSMENT PROCEEDINGS IN BOTH THE AY'S INTERNAL TNMM APPROACH WAS ADOPTED WHEREBY THE PROFITS OF AE S EGMENT AND NON - AE SEGMENT WERE COMPARED TO ARRIVE THE ALP FOR INTERNATIONAL TRANSACTION WITH ITS AE. 6 . THE HON'BLE TRIBUNAL, VIDE ITS ORDER DATED 04.01.2017, FOR AY 2011 - 12, HAS RESTORED THE MATTER TO THE 1 FILE OF THE AO/TPO FOR FRESH EXAMINATION. THE CO NCLUSIONS REACHED BY THE HON'BLE TRIBUNAL ARE AS FOLLOWS: AD - HOC DISALLOWANCE OF 3% BY THE TPO AND 8% BY THE DRP IS NOT JUSTIFIED, AND NO REASONING HAS BEEN GIVEN FOR ARRIVING AT SUCH FIGURES. INTERNAL TNMM WAS REJECTED AS IT WAS HELD THAT PROFIT MARGINS OF AE AND NON - AE SEGMENTS CANNOT BE THE SAME. THE AO/ TPO HAS BEEN DIRECTED TO FRESHLY EXAMINE THE ISSUE ON THE BASIS OF EXTERNAL COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. 7 . AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CON SIDERATION ARE PERIMATERIA, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO / TPO FOR DECIDING AFRESH IN TERMS AND THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER DATED 04/01/2017. ITA NO. 1068/MUM/2015 M/S. ASB INTERNATIONAL PVT. LTD., 5 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 29 / 05 /201 8 SD/ - ( SANDEEP GOSAIN ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 29 / 05 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//