Mahle Behr India Ltd., Pune V. Deputy Commissioner of Income-tax, Pune

ITA 1318/PUN/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6877 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-01-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 05-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R D ONKAR
• Keywords: Transfer pricing; Business expenditure; International transaction; Tax effect; Set aside
• Section: 43B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 1318 /PUN/201 5 / ASSESSMENT YEAR : 20 1 0 - 11 M AHLE BEHR INDIA LIMITED, (FORMERLY KNOWN AS BEHR INDIA LIMITED), 29, MILESTONE, PUNE - NASHIK HIGHWAY, VILLAGE - KURULI, TAL. - KHED, PUNE 410501 PAN : AABCB2186L ...... / APPELLANT / V/S. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE / RESPONDENT ASSESSEE BY : SHRI R.D. ONKAR REVENUE BY : SHRI SHIVRAJ MOREY / DATE OF HEARING : 11 - 01 - 2021 / DATE OF PRONOUNCEMENT : 28 - 01 - 2021 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 30 - 07 - 2015 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 13, PUNE [CIT(A)] FOR ASSESSMENT YEAR 2010 - 11. 2 ITA NO .1318/PUN/2015, A.Y. 2010 - 11 2. GROUND NO. 1 RAISED BY THE ASSESSEE AGAINST THE ACTION OF CIT(A) IN CONFIRMING THE UPWARD ADJUSTMENT TO THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WITHOUT G IVING ANY FINDING IN RESPECT OF THE ACTION OF TPO IN EXCLUSION/INCLUSION OF COMPARABLES IN THE FACTS THE CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS RELATING TO THE ISSUE ON HAND ARE THAT THE BEHR INDIA LTD. (IN SHORT BIL) IS A COMPANY INCORPORATED ON 28 - 04 - 1997. IT IS ENGAGED IN THE MANUFACTURING OF AUTOMOBILE ANCILLARIES, HEAT EXCHANGES I.E. RADIATORS, EVAPORATORS, CONDENSERS AND AUTOMOTIVE AIR CONDITIONING SYSTEM. IT IS A JOINT VENTURE RATIO OF 60:40 BETWEEN BEHR GROUP , GERMANY AND ANAND GROUP, INDIA. THE ASSESSEE HAS UNDERTAKEN INTERNATIONAL TRANSACTIONS IN THE MANUFACTURING SEGMENT. IT HAS SHOWN THE NATURE OF TRANSACTIONS SEPARATELY LIKE PURCHASE OF RAW MATERIAL AND COMPONENTS OF H OMOGENEOUS NATURE, SALE OF FINISHED GOODS OF HOMOGENEOUS NATUR E, PAYMENT OF ROYALTY, PRODUCTS DEVELOPMENT AND TESTING SERVICES, PRODUCTS DEVELOPMENT COST CAPITALIZED WHICH ARE AT PA RA NO. 4 OF THE ORDER OF TPO. THE ASSESSEE HAS TAKEN DIFFERENT METHOD FOR EACH OF THE TRANSACTIONS STATED ABOVE INVOLVING THE MANUFACTUR ING SEGMENT LIKE TNMM USING OP/OC FOR EXPORT OF MANUFACTURED FINISHED GOODS TO BEHR GROUP ENTITIES AND LOCAL PURCHASE AND EXPORT OF GOODS TO BEHR GROUP ENTITIES. FURTHER, THE ASSESSEE HAS ADOPTED CUP METHOD FOR IMPORT OF COMPRESSOR FOR MANUFACTURING ACTIV ITIES FROM SHANGHAI SANDEN BEHR AUTOMOTIVE AIR CONDITIONING CO. LTD., CHINA. ACCORDING TO TPO, THE AGGREGATION IS CORRECT APPROACH AS REGARDS TO THE MANUFACTURING SEGMENT AS WELL THE ASSESSEES PRIMARY ACTIVITIES IS MANUFACTURING. FURTHER, HE OBSERVED TH AT THE ASSESSEE ITSELF FOLLOWED AGGREGATION APPROACH INVOLVING THE YEAR ENDED ON 31 - 03 - 2010 FORMING PART OF NOTE IN PARA NO. 25.2 OF FINANCIALS. HE HELD THE OPERATION IS TOWARDS 3 ITA NO .1318/PUN/2015, A.Y. 2010 - 11 DOMINANTLY MANUFACTURING OPERATION AS IT IS NOT POSSIBLE TO RM INTO DIFFERENT GROUPS IN SEGMENTS AND THE MANUFACTURING SEGMENT IS TO BE AGGREGATED FOR DETERMINATION OF ARMS LENGTH PRICE. THE TPO HAS TAKEN THE DIFFERENCE BETWEEN THE OP/OI OF THE ASSESSEE 4.88% AS COMPARED TO THE COMPARABLE UNCONTROLLED COMPANIES AT 10.73% AND PROP OSED UPWARD TP ADJUSTMENT OF RS.16,67,92,048/ - . THE CIT(A) CONFIRMED THE TPOS VIEW IN ADOPTING TNMM AND AGGREGATION OF THE MANUFACTURING SEGMENT. 4. THE MAIN CONTENTION OF LD. AR, SHRI R.D. ONKAR IS THAT THE CIT(A)/TPO/AO DID NOT GIVE ANY FINDING REJECTING THE COMPARABLES. FURTHER, THE TPO REJECTED THE COMPARABLE S DENSO INDIA LTD., SUBROS LIMITED AND REXNORD ELECTRONICS & CONTROLS LIMITED FURNISHED BY THE ASSESSEE TO BE UNCONTROLLED EXTERNAL COMPARABLES IN THE COURSE OF TP AUDIT AND ALSO LIKEWISE NO FINDING WAS GIVEN IN RESPECT OF INCLUSION OF COMPARABLES BUT HOWEVER THE LD. AR AGREED THAT THE ASSESSEE IS SATISFIED WITH THE AGGREGATION OF MANUFACTURING SEGMENT AS HELD BY THE CIT(A)/TPO AND THE ASSESSEE DID NOT QUESTION THE VIEW OF REVENUE AUTHORITI ES FOR A.Y. 2009 - 10. THUS, IT IS CLEAR FROM THE ASSESSEES SIDE THOUGH THE ASSESSEE SHOWN THE TRANSACTIONS SEPARATELY IN MANUFACTURING SEGMENT BUT HOWEVER ACCEPTED AGGREGATION OF MANUFACTURING SEGMENT. IT IS OBSERVED FROM PAGE NO. 2 OF THE TPOS ORDER TH AT THE NATURE OF TRANSACTIONS IN RESPECT OF MANUFACTURING SEGMENT ARE FOUR AND APPLIED TNMM AND CUP METHOD SEPARATELY TO THE SAID TRANSACTIONS. AS DISCUSSED ABOVE HAVING ACCEPTED TNMM AND AGGREGATION OF THE NATURE OF TRANSACTIONS INVOLVING MANUFACTURING S EGMENT THE ONLY CONTENTION REMAINS FOR OUR CONSIDERATION WHETHER CONTENTION TO CONSIDER THE EXCLUSION AND INCLUSION OF COMPARABLES IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS IN MANUFACTURING SEGMENT. THE LD. DR, SHRI SHIVRAJ MOREY ALSO SUBMI TTED THAT NEITHER AO/TPO/CIT(A) COULD NOT GIVE 4 ITA NO .1318/PUN/2015, A.Y. 2010 - 11 ANY FINDING IN RESPECT OF INCLUSION OR EXCLUSION OF COMPARABLES. THEREFORE, AS OBSERVED ABOVE, WE DEEM IT PROPER TO REMAND THE MATTER TO THE FILE OF TPO FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTIONS I N MANUFACTURING SEGMENT. THE ASSESSEE IS LIBERTY TO FILE EVIDENCES, IF ANY, IN SUPPORT OF ITS CONTENTIONS. THE TPO SHALL AFFORD REASONABLE OPPORTUNITY FOR THE ASSESSEE AND DECIDE THE ISSUE OF MANUFACTURING SEGMENT AS INDICATED ABOVE. THUS, GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 5. GROUND NO. 2 RAISED BY THE ASSESSEE IS AGAINST THE ACTION OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR MANAGEMENT INCENTIVE PERFORMANCE REWARD IN THE FACTS AND CIRCUMSTANCES OF T HE CASE. 6. THE AO FOUND THAT THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.93,25,881/ - PAYABLE TOWARDS MANAGEMENT INCENTIVE BONUS IN NOTE NO. 3 IN COLUMN NO. 21(B) OF TAX AUDIT REPORT . VIDE LETTER DATED 21 - 01 - 2014 THE AO REQUESTED THE ASSESSEE WHY THE SAID AMOUNT SHOULD NOT BE DISALLOWED U/S. 43B OF THE ACT. IT WAS EXPLAINED BY THE ASSESSEE VIDE LETTER DATED 23 - 01 - 2014 THE ASSESSEE PAID MANAGEMENT INCENTIVE BONUS ON THE BASIS OF PERF ORMANCE TO THE ELIGIBLE EMPLOYEES AND CLAIMED THE SAID AMOUNT IS NOT COVERED UNDER THE PAYMENT OF BONUS ACT, 1965. FURTHER, IT WAS CLAIMED THE PAYMENT IS BASED ON THE PERFORMANCE MEASURED ON THE KEY PARAMETERS ASSIGNED TO EMPLOYEES TO ACHIEVE CERTAIN GOAL S AND IN THE INCENTIVE BONUS IS NORMALLY PAID IN THE MONTH OF JANUARY FOR THE EARLIER CALENDAR YEAR. PROVISION FOR SUCH PAYMENT IS MADE DURING JANUARY TO MARCH IN THE BOOKS OF ACCOUNT. THE AO DETERMINED THE ASSESSMENT OF PERFORMANCE OF EMPLOYEES COVERED UNDER THIS CATEGORY HAS TO BE FOR THE ENTIRE YEAR AND REJECTED THE CONTENTION OF ASSESSEE, DISALLOWED THE ABOVE SAID AMOUNT U/S. 43B OF THE ACT. THE CIT(A) HELD THE SAID BONUS IS PAYABLE TO THE HIGHER 5 ITA NO .1318/PUN/2015, A.Y. 2010 - 11 MANAGEMENT EMPLOYEES IN RELATION TO THE SERVICES RENDE RED BY THEM AND IT IS COVERED U/S. 36 (1)(II) OF THE ACT R.W.S. 43B OF THE ACT AND CONFIRMED THE ACTION OF AO IN DISALLOWING THE SAME AMOUNT U/S. 43B OF THE ACT. 7. SIMILAR ISSUE ON SAME IDENTICAL FACTS IN ASSESSEES OWN CASE THIS TRIBUNAL FOR A.Y. 2009 - 10 BY PLACING RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF SHRIRAM PISTON AND RINGS LTD. VS. CIT REPORTED IN 307 ITR 363 (DELHI) HELD THE PAYMENT UNDER THE GOOD WORK REWARD DOES NOT CONSTITUTE BONUS WITHIN THE MEANING OF SECTION 36(1) (II) OF THE ACT AND IT IS ALLOWABLE AS NORMAL BUSINESS EXPENDITURE U/S. 37 OF THE ACT. THE RELEVANT PORTION OF THIS ORDER IS REPRODUCED AS UNDER : 12. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS. WE HAVE ALSO GIVEN CONSIDERABLE THOUGHT TO THE JUDICIAL PRONOUNCEMENT PLACED BEFORE US. THAT AS DEMONSTRATED BY THE LD. AR OF THE ASSESSEE IN THE STATEMENT SHOWING MANAGEMENT INCENTIVE POLICY DOCUMENTS, THERE IS SEPARATE COLUMN FOR BONUS AND SEPARATE COLUMN FOR MIBP. THE OBJECTIVE FOR GI VING MIBP TO EMPLOYEES IS IN A WAY TO ACKNOWLEDGE THE EFFORTS MADE BY THE EMPLOYEES IN ACHIEVING HIGHER GOALS FOR THE COMPANY. THIS IS ABSOLUTELY SEPARATE FROM THE BONUS GIVEN TO EMPLOYEES. THE CASE LAW THAT HAS BEEN PLACED BEFORE US I.E. JUDGMENT OF THE H ON BLE DELHI HIGH COURT IN THE CASE OF SHRIRAM PISTONS & RINGS LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA.), HAD ALSO BEEN PLACED BEFORE THE REVENUE AUTHORITIES. HOWEVER, THEY HAVE STRICTLY GONE INTO INTERPRETING THE NOMENCLATURE OF THE TERMS OF GOOD WORK REWARD AND HAVE HELD THAT THIS CASE IS DISTINGUISHABLE IN FACTS WITH REGARD TO THE CASE OF THE ASSESSEE WHERE IT IS A QUESTION OF GIVING INCENTIVE BONUS. THIS OBSERVATION OF THE REVENUE AUTHORITIES IS INCORRECT SINCE THE FACTS ON RECORDS CLEARLY DEMONSTRAT ES THAT THE ISSUE OF BONUS AS WELL AS ISSUE OF MIBP ARE IN ALTOGETHER DIFFERENT TERMS AND CONDITIONS. THE JUDGMENT OF THE HON BLE DELHI HIGH COURT HAS REFERRED TO THE GOOD WORK REWARD AND IT HAS BEEN CLEARLY HELD THAT IT DOES NOT CONSTITUTE BONUS WITHIN MEANING OF SECTION 36(1)(II) OF THE ACT AND WAS ALLOWABLE AS NORMAL BUSINESS EXPENDITURE U/S.37 OF THE ACT. THE DOCUMENTS PLACED ON RECORD AND THE FACTS DEMONSTRATED IS SQUARELY COVERED BY THIS DECISION OF THE HON BLE DELHI HIGH COURT IN FAVOUR OF THE ASSE SSEE. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND HELD THAT THE MIBP PAID TO THE EMPLOYEES ARE NOT BONUS IN THE HANDS OF THE EMPLOYEES AND THE SAID AMOUNT IS ALLOWABLE FOR DEDUCTION U/S.37(1) OF THE ACT BY THE ASSESSEE. T HUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE LIGHT OF FINDING OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009 - 10 THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE U/S. 43B OF THE ACT MADE BY THE AO IS REQUIRED TO BE DELETED. THUS, GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED. 6 ITA NO .1318/PUN/2015, A.Y. 2010 - 11 9. T HE ASSESSEE FILED APPLICATION UNDER RULE 27 SUPPORTING THE ORDER OF CIT(A) WITH REFERENCE TO ITA NO. 1352/PUN/2015 WHICH WAS FILED BY THE REVENUE . IT WAS BROUGHT TO OUR NOTICE THAT THE SAID APPEAL HAS BEEN DISMISSED FOR LOW TAX EFFECT BY THIS TRIBUNAL. W HEN CONFRONTED WITH THE LD. AR HE FAIRLY AGREED THAT THIS APPLICATION FILED UNDER RULE 27 BECOMES INFRUCTUOUS AS THERE IS NO APPEAL FILED BY THE REVENUE PENDING. THUS, APPLICATION UNDER RULE 27 IS DISMISSED AS INFRUCTUOUS. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY, 202 1 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 28 TH JANUARY, 202 1 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 13, PUNE 4. THE PR. CIT - 5, PUNE 5. , , , / DR, ITAT, C BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE