GE BE Private Limited, Bangalore V. DCIT, Bangalore

ITA 1143/BANG/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7535 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 22-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MADHAVI RATHI
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction
• Section: 234B; 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI S.K.YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER IT (TP) A NO.1143 (BANG) 2011 (ASSESSMENT YEAR : 2006 07) M/S GE BE PVT. LTD., 6, EPIP, WHITEFIELD, BANGALORE 560066. PAN: AAACG6714A APPELLANT VS DCIT, CIRCLE 11 (3), BANGALORE RESPONDENT ASSESSEE BY : SMT. MADHAVI RATHI, C. A. REVENUE BY : MS. NEERA MALHOTRA, CIT DR DATE OF HEARING : 21-09-2017 DATE OF PRONOUNCEMENT : 28-09-2017 O R D E R PER A. K. GARODIA, A. M.: THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ASSESSMENT ORDER DATED 23.09.2011 FOR A. Y. 2006 07 PASSED U/S 143 (3) R.W.S. 144C AS PER THE DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - THE GROUNDS MENTIONED HEREIN BELOW ARE WITHOUT PREJ UDICE TO ONE ANOTHER. 1.1 THAT THE ORDER OF THE LEARNED ASSESSING OFFICER ('LD. AO'), PURSUANT TO THE DIRECTIONS GIVEN BY THE HON'BLE DIS PUTE RESOLUTION PANEL ('DRP'), TO THE EXTENT PREJUDICIAL TO THE APP ELLANT IS PERVERSE, ERRONEOUS ON FACTS AND BAD IN LAW AND HAS BEEN PASS ED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. AO/ DRP ERRED IN CONCLUDING THAT THE PR OFITS DERIVED FROM THE SALE OF SPARE PARTS, COMPONENTS ETC ARE IN THE NATURE OF TRADING PROFITS AND HENCE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961 ('THE ACT'). 1.3 THE LD. AO/DRP ERRED IN IGNORING THE FACT THAT THE PROFIT FROM SPARE PARTS SALE OF RS. 6,88,907 ARE GENERATED FROM THE MANUFACTURING ACTIVITIES CARRIED OUT IN THE UNDERTAKING OF THE AP PELLANT AND HENCE IT (TP) A NO.1143/B/2011 2 THE SAME WOULD CONSTITUTE 'PROFITS DERIVED FROM THE UNDERTAKING' ELIGIBLE FOR TAX HOLIDAY BENEFITS UNDER SECTION 10B OF THE ACT. 1.4 THE LD. AO/ DRP ERRED IN REDUCING NET PROFIT FR OM SALE OF SPARE PARTS FROM THE 'PROFIT OF THE UNDERTAKING' AND THE GROSS RECEIPTS FROM THE 'EXPORT TURNOVER' AND 'TOTAL TURNOVER' OF THE U NDERTAKING WHILST COMPUTING THE REVISED DEDUCTION UNDER SECTION 10B O F THE ACT. 1.5 THE LD. AO/ DRP ERRED IN IGNORING THE FACT THAT PROFIT FROM SCRAP SALES OF RS. 1,70,83,875 ARE GENERATED FROM THE MAN UFACTURING ACTIVITIES OF THE UNDERTAKING AND THE SAME WOULD CO NSTITUTE PROFITS DERIVED FROM THE BUSINESS OF THE UNDERTAKING ELIGIB LE FOR TAX HOLIDAY BENEFITS UNDER SECTION 10B OF THE ACT. 1.6 THE LD. AO/ DRP ERRED IN REDUCING INCOME FROM S CRAP SALES FROM THE 'TOTAL TURNOVER' OF THE UNDERTAKING WHILST COMP UTING DEDUCTION UNDER SECTION 10B OF THE ACT. 1.7 THAT THE LD. AO/ DRP ERRED IN UPHOLDING THE REJ ECTION OF TRANSFER PRICING (TP) DOCUMENTATION BY THE LD. TRANSFER PRIC ING OFFICER ('LD. TPO'). 1.8 THAT THE LD. AO/ DRP ERRED IN CONFIRMING THE AC TION OF THE LD. TPO IN IGNORING THE FACT THAT SINCE THE APPELLANT I S AVAILING TAX HOLIDAY UNDER SECTION 10B OF THE ACT, THERE IS NO I NTENTION TO SHIFT THE PROFIT BASE OUT OF INDIA. 1.9 THAT THE LD. AO/ DRP ERRED BOTH IN FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF RS. 359,428,519 IN RESPECT OF CONTRAC T MANUFACTURING SEGMENT AND RS. 6,818,289 IN RESPECT OF ENGINEERING DESIGN SERVICES SEGMENT OF THE APPELLANT, HOLDING THAT THE INTERNAT IONAL TRANSACTIONS IN THESE SEGMENTS DO NOT SATISFY THE ARM'S LENGTH P RINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO GROSSLY ERRED IN: 1.9.1 UPHOLDING THE REJECTION OF COMPARABILITY ANAL YSIS OF THE APPELLANT IN THE TP DOCUMENTATION AND CONFIRMING TH E COMPARABILITY ANALYSIS AS ADOPTED BY THE LD. TPO IN THE TP ORDER; 1.9.2 DISREGARDING APPLICATION OF PRIOR YEAR DATA A S USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR 2006-07) DATA FOR COMPARABLE C OMPANIES SHOULD BE USED; 1.10 THAT THE LD. AO/ DRP, IN RESPECT OF CONTRACT M ANUFACTURING SEGMENT, ERRED IN UPHOLDING COST PLUS METHOD ('CPM' ) AS THE MOST APPROPRIATE METHOD WITH SELECTION OF GROSS PROFIT T O COST OF PRODUCTION AS THE PROFIT LEVEL INDICATOR AS AGAINST TRANSACTIONAL NET MARGIN METHOD ('TNMM') WITH OPERATING PROFIT TO TOT AL COST AS THE RELEVANT PROFIT LEVEL INDICATOR ADOPTED BY THE APPE LLANT IN THE TP DOCUMENTATION. IT (TP) A NO.1143/B/2011 3 1.11 THAT THE LD. AO / THE LD. DRP ERRED IN UPHOLDI NG THE ADJUSTMENT TO THE ENGINEERING DESIGN SERVICES SEGMENT OF THE A PPELLANT MADE BY THE LD. TPO AND IN DOING SO GROSSLY ERRED IN; 1.11.1 RECHARACTERISING THE ENGINEERING DESIGN SERV ICES RENDERED BY THE APPELLANT TO BE INFORMATION TECHNOLOGY ENABL ED SERVICES. 1.11.2 UPHOLDING THE ACT OF THE LD. TPO OF COLLECTI NG INFORMATION OF THE COMPANIES BY EXERCISING POWER GRANTED TO HIM UNDER SECTION 133(6) OF THE ACT. 1.11.3 IGNORING THE LIMITED RISK NATURE OF THE SERV ICES PROVIDED BY THE APPELLANT AS DETAILED IN THE TP DOCUMENTATION AND I N UPHOLDING THE CONCLUSION OF THE LEARNED TPO THAT NO ADJUSTMENT ON ACCOUNT OF RISK DIFFERENTIAL IS REQUIRED WHILE DETERMINING THE ARM' S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT, BU T FOR AN ADJUSTMENT TOWARDS DIFFERENCES IN THE WORKING CAPITAL POSITION BETWEEN THE APPELLANT AND THE ENTREPRENEURIAL COMPARABLE COMPAN IES. 1.12 THAT THE LD. AO/ DRP ERRED IN LAW AND FACTS IN COMPUTING THE ARM'S LENGTH PRICE WITHOUT GIVING BENEFIT OF LOWER RANGE OF +/- 5 PERCENT UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT. 1.13 THE LD. AO/ DRP HAS ERRED IN CONSEQUENTLY LEVY ING INTEREST UNDER SECTION 234B OF THE ACT TO THE EXTENT OF RS. 6,95,09,039. 1.14 THE LD. AO/DRP ERRED IN CONSEQUENTLY LEVYING I NTEREST UNDER SECTION 234D OF THE ACT TO THE EXTENT OF RS. 1,17,9 81. ALL THE AFORESAID GROUNDS ARE WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND, MODIFY, AMP LIFY OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF OBJECTION, OR ADD A NY FURTHER GROUNDS, BEFORE OR AT THE TIME OF HEARING. 3. THE ASSESSEE HAS ALSO RAISED 3 ADDITIONAL GROUND S. LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ADDITIONAL GROUNDS AND GROUND NO. 1.1 & 1.2 AND 1.7 TO 1.9 ARE GENERAL AND THEREFORE, NO SEPARA TE ADJUDICATION IS CALLED FOR IN RESPECT OF THESE GROUNDS. THEREAFTER, SHE SU BMITTED THAT IN GROUND NO. 1.3 & 1.4 IS THE ISSUE ABOUT ALLOWABILITY OF DE DUCTION U/S 10B IN RESPECT OF SALE OF SPARE PARTS AND IN GROUND NO. 1.5 & 1.6 IS THE ISSUE ABOUT ALLOWABILITY OF DEDUCTION U/S 10B IN RESPECT OF SAL E OF SCRAP. SHE SUBMITTED THAT BOTH THESE ISSUES ARE COVERED BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR A. Y. 2006 07 IN IT (TP) A NO. 1222/B/20 10 DATED 04.11.2016 COPY ON PAGES 1537 TO 1546 OF THE PAPER BOOK. SHE P OINTED OUT THAT THE ISSUE ABOUT SALE OF SPARE PARTS IS COVERED AGAINST THE ASSESSEE AS PER PARA 7 OF THIS TRIBUNAL ORDER AND THE SECOND ISSUE ABOUT S ALE OF SCRAP IS COVERED IN FAVOUR OF THE ASSESSEE AS PER PARA 8 OF THIS TRIBUN AL ORDER. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BEL OW. IT (TP) A NO.1143/B/2011 4 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE RESPECTFULLY FOLLOW THIS EARLIER TRIBUNAL ORDER AND REJECT GROUND NO. 1 .3 & 1.4 AND ALLOW GROUND NO. 1.5 & 1.6 BECAUSE WE FIND NO REASON TO T AKE A CONTRARY VIEW IN THE PRESENT YEAR. 5. REGARDING THE TP ISSUE RAISED AS PER THE REMAINI NG GROUNDS, SHE SUBMITTED THAT AS PER PARA 9 OF THE SAME TRIBUNAL O RDER, IT WAS HELD THAT TNMM SHOULD BE ADOPTED AS MAM AND THE MATTER WAS RE STORED TO AO/TPO FOR WORKING OUT ALP BY ADOPTING TNMM AS MAM. LEARNE D DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE RESPECTFULLY FOLLOW THIS EARLIER TRIBUNAL ORDER AND WE FIND NO REASON T O TAKE A CONTRARY VIEW IN THE PRESENT YEAR. THEREFORE, WE RESTORE TP MATTER B ACK TO AO/TPO FOR WORKING OUT ALP BY ADOPTING TNMM AS MAM AFTER PROVI DING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MEN TIONED ON THE CAPTION PAGE. SD/- (SUNIL KUMAR YADAV) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE D A T E D : 28.09.2017 *MS COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.