M/s. Aicor Binzel Production (India) Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 139/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1100 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K RASTOGI
• Assessee Lawyers: AJIT TOLANI
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 1 39 /PN/20 1 4 / ASSESSMENT YEAR : 20 09 - 1 0 M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD., SURVEY NO.297, VILLAGE URAWADE, TALUKA MULSHI, PUNE 412108 . / APPELLANT PAN: A ACCA2959F VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE . / RESPONDENT / APPELLANT BY : S /S HRI AJIT TOLANI AND DARPAN KIRPALANI / RESPONDENT BY : S HRI S.K. RASTOGI, CIT / DATE OF HEARING : 0 3 . 0 8 .201 6 / DATE OF PRONOUNCEMENT: 12 . 0 8 .201 6 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF D C I T , CIRCLE 1(1), PUNE , DATED 19 . 11 .20 1 3 RELATING TO ASSESSMENT YEAR 20 09 - 1 0 PASSED UNDER S ECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 19 61 (IN SHORT THE ACT) . ITA NO . 1 39 /PN/20 1 4 M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD. 2 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO AND THE ADDITIONAL COMMISSIONER OF I NCOME - TAX, (TRANSFER PRICING - II ), PUNE [HEREINAFTER REFERRED TO AS LD. TRANSFER PRICING OFFICER ('LD. TPO')] HAVE ERRED IN PROPOSING AND THE DRP HAS FURTHER ERRED IN CONFIRMING THE PROPOSED ADDITION TO THE APPELLANT'S TOTAL INCOME OF RS.4,55,95,256 (RS.4 ,01,51,242 BASED ON THE PROVISIONS OF CHAPTER X OF THE ACT AND RS.54,44,014 BASED ON THE OTHER PROVISIONS OF THE ACT). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRED IN REJECTING THE EXTERNAL CPM ANALY SIS CORROBORATED BY AN EXTERNAL TNMM ANALYSIS IN THE TRANSFER PRICING REPORT WITHOUT APPRECIATING THE DETAILED BENCHMARKING ANALYSIS CARRIED OUT THEREIN. 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRE D IN WRONGLY REJECTING COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN ITS DETAILED BENCHMARKING ANALYSIS. APPLICATION OF INTERNAL COMPARABLE UNCONTROLLED METHOD ('CUP') BY THE LD. AO / TPO NOT APPROPRIATE 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE , AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRED IN APPLYING INTERNAL CUP BY COMPARING LD. AO AND THE LD. TPO ERRED IN APPLYING INTERNAL CUP BY COMPARING THE DOMESTIC PRICES TO THE EXPORT PRICES. 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRED IN APPLYING INTE RNAL CUP BY COMPARING PRICES CHARGED TO DOMESTIC CUSTOMERS WITH PRICES CHARGED TO THE AES IN SPITE OF DIFFERENCES ON ACCOUNT OF FUNCTIONS PERFORMED, RISKS ASSUMED, GEOGRAPHIES OF MARKETS, MARKET SIZE, VOLUMES TRANSACTED, COMMERCIAL CIRCUMSTANCES, ECONOMIC CIRCUMSTANCES AND VARIOUS OTHER DIFFERENCES. 3.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRED IN APPLYING INTERNAL CUP WITHOUT FOLLOWING THE PROVISIONS OF RULE 10 B(3); APPLICATION OF INTERNAL COST PLU S METHOD ('CPM') BY THE LD. AO I TPO NOT APPROPRIATE 4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRED IN APPLYING INTERNAL CPM BY COMPARING THE DOMESTIC SEGMENT TO THE EXPORT SEGMENT. 4.1 ON THE FA CTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRED IN APPLYING INTERNAL CPM IN SPITE OF DIFFERENCES IN FUNCTIONS PERFORMED, RISKS ASSUMED AND DIFFERENCES IN VOLUMES, COMMERCIAL AND ITA NO . 1 39 /PN/20 1 4 M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD. 3 ECONOMIC CIRCUMSTANCES BETWEEN THE DO MESTIC AND EXPORT SEGMENTS; 4.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE DRP, THE LD. AO AND THE LD. TPO ERRED IN APPLYING INTERNAL CPM WITHOUT FOLLOWING THE PROVISIONS OF RULE 10 B(3); 4.3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE ORP, THE LD. AO AND THE LD. TPO ERRED IN APPLYING INTERNAL CPLM AND COMPARING THE DOMESTIC SEGMENT CONTAINING TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES ('AES) (AMOUNTING TO MORE THAN 25% OF SALES) WITH THE EXPORT SEGMENT AND THEREBY ERR ONEOUSLY COMPARING CONTROLLED TRANSACTIONS WITH CONTROLLED TRANSACTIONS . 5 IN THE ALTERNATIVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE ORP, THE LD. AO AND THE LD. TPO HAVE ERRED IN ADOPTING HIGHER OF THE TWO ADJUSTMENTS (I.E. UNDER IN TERNAL CPM AND INTERNAL CUP) THAT IS LESS FAVOURABLE TO THE ASSESSEE. ECONOMIC ADJUSTMENTS ARE NECESSARY TO IMPROVE COMPARABILITY 6 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE D RP, THE LD. AO AND THE LD. TPO ERRED IN NOT ALLOWING OR PR OVIDING FOR ANY ADJUSTMENTS TO IMPROVE COMPARABILITY BETWEEN EXPORT AND DOMESTIC SEGMENT WHILE APPLYING INTERNAL CUP / INTERNAL CPM. OTHER GROUNDS OF OBJECTIONS 7 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE D RP, THE 7 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE D RP, THE LD. AO AND THE LD. TP O HAVE NOT ALLOWED THE ASSESSEE THE BENEFIT OF 5% VARIATION ENVISAGED IN THE PROVISO TO SECTION 92C(2) OF THE INCOME - TAX ACT, 1961. 8 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE D RP, THE LD. AO AND THE LD. TPO HAVE NOT MAINTAINED CONSISTEN CY AND UNIFORMITY IN THE TP AUDITS OVER THE ASSESSMENT YEARS BY REJECTING THE EXTERNAL TNMM ADOPTED BY HIM IN AY 2008 - 09 AND INSTEAD ADOPTING AN INTERNAL CPM / INTERNAL CUP FOR AY 2009 - 10. 9 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE D RP , THE LD. AO AND THE LD. TPO HAVE ERRED ON THE FACTS AND IN LAW IN INITIATING PENALTY PROCEEDING UNDER SECTIONS 274 READ WITH SECTION 271( 1 )(C) OF THE ACT AND LEVYING INTEREST UNDER SECTION 234A, 234B, 234C AND 234 D OF THE ACT. RELIEF A) THE APPELLANT PR AYS THAT THE ADDITION MADE BY THE LEARNED AO AND TPO AND UPHELD BY THE LEARNED DRP BE DELETED. B) THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION, MODIFICATION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, EITHER BEFORE OR DURING THE HEARING OF THE APPEAL. ITA NO . 1 39 /PN/20 1 4 M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD. 4 3. THE ASSESSEE IS IN APPEAL AGAINST THE ORDERS OF ASSESSING OFFICER AND DISPUTE RESOLUTION PANEL (DRP) IN MAKING TRANSFER PRICING ADJUSTMENT TO THE EXTENT OF RS. 4, 01 , 51 ,2 42 / - . 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASS ESSEE POINTED OUT THAT THE ASSESSEE HAD ENTERED INTO AN ADVANCE PRICING AGREEMENT (APA) WITH CENTRAL BOARD OF DIRECT TAXES (CBDT) COVERING NINE YEARS I.E. FROM ASSESSMENT YEARS 2010 - 11 TO 2013 - 14 UNDER ROLL BACK PROVISIONS AND FROM ASSESSMENT YEARS 2014 - 15 TO 2018 - 19 FOR THE BALANCE PERIOD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THEREAFTER POINTED OUT THAT THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION INCLUDING FAR ANALYSIS OF THE ASSESSEE FOR TH E YEAR UNDER CONSIDERATION WAS IDENTICAL TO THE ASSESSMENT YEARS WHICH WERE PART OF APA PROCEEDINGS. IN THIS REGARD, HE POINTED OUT THAT TP ADJUSTMENT, IF ANY, HAD TO BE MADE ON SIMILAR BASIS AS WAS AGREED TO BEFORE THE CBDT IN APA PROCEEDINGS. 5. THE LE ARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE WAS ASKED TO OBTAIN A FACTUAL REPORT FROM THE ASSESSING OFFICER IN THE CASE OF ASSESSEE IN LINE WITH APA PROCEEDINGS CARRIED OUT IN SUBSEQUENT YEARS. ON THE NEXT DATE OF HEARING, THE LEARNED DEPARTMENTAL R EPRESENTATIVE FOR THE REVENUE FILED A LETTER DATED 15.07.2016 ALONG WITH REPORT RECEIVED FROM DCIT(TP) 1(1), PUNE DATED 13.07.2016 AND IT IS REPORTED THAT INTERNATIONAL TRANSACTIONS DURING THE YEAR UNDER APPEAL WERE SIMILAR TO THE INTERNATIONAL TRANSACTION S ENTERED DURING ASSESSMENT YEARS 2010 - 11 TO 2015 - 16 . ITA NO . 1 39 /PN/20 1 4 M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD. 5 6. ON PERUSAL OF RECORD AND WRITTEN SUBMISSIONS MADE BY THE ASSESSEE AND THE REPORT RECEIVED FROM THE TPO, WE FIND THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRA NSACTIONS WITH ITS ASSOCIATE ENTERPRISES WHICH ARE AS UNDER: - SR. NO. DETAILS OF TRANSACTION VALUE OF THE TRANSACTION (RS. ) 1 PURCHASE OF RM & COMPONENTS 11,30,19,988 2 SALE OF FINISHED GOODS 16,99,30,509 3 PURCHASE OF CAPITAL GOODS 9,54,785 4 PURCHA SE OF TOOLS, CALENDARS, AND LABEL PRINTING SOFTWARE AND PAYMENT OF RENT FOR VIDEO CONFERENCING 1,84,872 TOTAL 28,40,90,154 7. THE TRANSFER PRICING OFFICER (TPO) HAD PROPOSED AN ADJUSTMENT OF RS. 4,01,51,242/ - HOLDING THAT INTERNATIONAL TRANSACTIONS ENTE RED INTO BY THE ASSESSEE ON ACCOUNT OF PURCHASE OF RAW MATERIAL AND SALE OF FINISHED GOODS WAS NOT AT ARMS LENGTH. THE ASSESSING OFFICER RE - COMPUTED THE DEDUCTION UNDER SECTION 10B OF THE ACT RESULTING IN AN ADDITION OF RS.12,82,707/ - . ANOTHER ADDITION MADE IN THE HANDS OF ASSESSEE WAS ON ACCOUNT OF DEPRECIATION, WHEREIN EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE AT RS. 41,41,930/ - WAS DISALLOWED. THE DRAFT ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS OBJECTED TO BEFORE THE DRP, WHO IN TURN, HA D UPHELD THE ADDITIONS PROPOSED IN THE DRAFT ASSESSMENT ORDER. CONSEQUENT THERETO, THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT IN ASSESSING THE INCOME OF ASSESSEE AT RS. 4,55,95,256/ - . 8. THE PERUSA L OF GROUNDS OF APPEAL REFLECTS THAT THE ASSESSEE IS IN APPEAL ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF ASSESSEE. NO ITA NO . 1 39 /PN/20 1 4 M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD. 6 OTHER GROUNDS OF APPEAL HA VE BEEN RAISED BY THE ASSESSEE OTHER THAN TRANSFER PRICING ADJUSTMENT. THE ASSESSEE HAS M ADE A REQUEST SINCE IT HAD ENTERED INTO ADVANCE PRICING AGREEMENT (APA) WITH CBDT COVERING NINE YEARS FROM ASSESSMENT YEARS 2010 - 11 TO 2013 - 14 UNDER ROLL BACK PROVISIONS AND FROM ASSESSMENT YEARS 2014 - 15 TO 2018 - 19 BEING THE BALANCE APA PERIOD, SIMILAR PRO POSITION SHOULD BE APPLIED TO THE YEAR UNDER CONSIDERATION ALSO AS THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES IN THE INSTANT ASSESSMENT YEAR ARE IDENTICAL TO THE INTERNATIONAL TRANSACTIONS WHICH WERE PART OF APA PROCEEDINGS. THE DCIT(TP) 1(1), PUNE HAS SUBMITTED A REPORT DATED 13.07.2016, IN WHICH IT HAS BEEN STATED THAT THE INTERNATIONAL TRANSACTIONS DURING THE ASSESSMENT YEAR 2009 - 10 WERE SIMILAR TO THE INTERNATIONAL TRANSACTIONS ENTERED DURING ASSESSMENT Y EARS 2010 - 11 TO 2015 - 16. IN VIEW THEREOF, WHERE THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES ARE SIMILAR TO THE INTERNATIONAL TRANSACTIONS IN THE SUCCEEDING YEARS, THEN WHERE THE APA PROCEEDINGS HAVE BEEN CARR IED OUT IN THE CASE OF ASSESSEE AND THE BOARD AND THE ASSESSEE HAVE COME TO A SETTLEMENT VIS - - VIS THE MANNER OF COMPUTATION OF ARM'S LENGTH PRICE IN THE CASE OF ASSESSEE IN RELATION TO THE INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATE ENTERPRISES , WE DEEM IT FIT TO RESTORE THIS ISSUE ALSO BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL CONSIDER THE PLEA OF ASSESSEE AND SHALL AFTER OBTAINING REPORT FROM THE TPO IN THIS REGARD, DECIDE THE ISSUE IN ACCORDANCE WITH LAW. REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE AFFORDED TO THE ASSESSEE WHILE DECIDING THE ISSUE . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. IN RESPECT OF THE BALANCE ADDITIONS, NO SPECIFIC GROUND OF APPEAL HAS BEEN RAISED NOR ANY ARGUMENTS HAVE BEEN MADE BY THE ITA NO . 1 39 /PN/20 1 4 M/S. ABICOR BINZEL PRODUCTION (INDIA) PVT. LTD. 7 LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, HENCE THE SAME ARE NOT DISTURBED. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 12 TH DAY OF AUGUST , 201 6 . SD/ - SD/ - ( R.K. PANDA ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; D ATED : 12 TH AUGUST , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE CIT(A) - IT/TP, PUNE ; 3. THE CIT(A) - IT/TP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE