DCIT, Bangalore V. M/s Payne India Pvt. Ltd., Bangalore

ITA 143/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95255 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANAPATI BHAT
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER A ND SHRI JASON P BOAZ, ACCOUNTANT MEMBER IT (TP) A NO. 143 /BANG/201 5 (ASSESSMENT YEAR: 20 1 0 - 11 ) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 5(1)( 2), BANGALORE. VS. APPELLANT M/S.ESSENTRA INDIA PVT. LTD. (FORMERLY KNOWN AS PAYNE (INDIA) PVT.LTD.) NO.3 (OLD PLOT NOS.18 & 23), 3 RD MAIN ROAD, PEENYA INDUSTRIAL AREA, PHASE I, YESHWANTPUR HOBLI, BANGALORE - 560058. PAN:AABCB1955H R ESPONDENT APPELLANT BY: SHR I GANAPATI BHAT, CIT(DR). RESPONDENT BY: SHRI T.SURYANARAYANA, ADVOCATE. DATE OF HEARING : 08 /09/2015. DATE OF PRONOUNCEMENT: 24 /09/2015. O R D E R PER VIJAY PAY RAO, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 30/12/2014 PASSED IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTES REDRE SSAL FORUM (DRP) DATED 14/11/2014 . IT(TP)A NO. 143/BANG/2015 M/S.ESSENT RA INDIA PVT. LTD. PAGE 2 OF 5 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. HON BLE DRP HAS ERRED IN HOLDING THE INTERNATIONAL TRANS ACTIONS (I.E. INTRA GROUP SERVICES) AT ARM S LENGTH FOR AY 2010 - 11 WHEREAS THE TAXPAYER COULD NOT ESTABLISH ANY BENEFIT ANALYSIS FOR THE RELEVANT YEAR. 2. THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE HON BLE ITAT IS PLEADED TO QUA SH THE DIRECTIONS OF DISPUTE RESOLUTION PANEL. 3. THE ONLY ISSUE ARISES FROM THE GROUNDS RAISED BY THE REVENUE IS WHETHER THE INTRA GROUP SERVICES RENDERED BY THE AE TO THE ASSESSEE ARE AT ARM S LENGTH. THE ASSESSEE ENTERED INTO VARIOUS INTERNATION AL TRANSACTIONS WHICH INCLUDE IMPORT OF RAW MATERIALS AND PACKING MATERIAL, EXPORT OF FINISHED GOODS, PURCHASE OF FINISHED GOODS, IMPORT OF CAPITAL GOODS, PAYMENT OF INTRA GROUP SERVICES AND REIMBURSEMENT OF DIRECTOR S SALARY AND TRAVEL EXPENSES. ALL THE A BOVE INTERNATIONAL TRANSACTIONS WERE CLUBBED BY THE ASSESSEE TO DETERMINE THE ARMS LENGTH PRICE UNDER TRANSACTION NET MARGIN METHOD (TNMM). THE TPO ACCEPTED THE OTHER TRANSACTIONS WITH AE AT ARM S LENGTH PRICE EXCEPT THE PAYMENT FOR INTRA GROUP SERVICES. T HE ASSESSEE IS MAKING THE PAYMENT FOR INTRA GROUP SERVICES WITH A MARKUP OF 5.8% WHEREAS THE TPO HAS DETERMINED THE ALP IN RESPECT OF THE GROUP SERVICES AT NIL BY HOLDING THAT THE INTRA GROUP SERVICES DID NOT RESULT INCREASE ANY PROFIT MARGIN. 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS THE LEARNED AR OF THE ASSESSEE AND CONSIDERED THE IT(TP)A NO. 143/BANG/2015 M/S.ESSENT RA INDIA PVT. LTD. PAGE 3 OF 5 RELEVANT MATERIAL ON RECORD. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2005 - 06 A S WELL AS FOR ASSESSMENT YEAR 2006 - 07. FOR THE ASSESSMENT YEAR 2006 - 07 THIS BENCH HAS DEALT WITH THIS ISSUE VIDE EVEN DATED ORDER IN PARAS.4 TO 6 AS UNDER: 4. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRI BUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2005 - 06 IN ITANO.446/BANG/2012 VIDE ORDER DATED 24/7/2015 IN PARA.5 AS UNDER: 5. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HA S MADE THE PAYMENT TOWARDS THE COST CONTRIBUTION ON ACCOUNT OF INTRA GROUP SERVICES. THE AO AS WELL AS THE TPO HAS NOT DISPUTED THE ACTUAL COST OF SERVICES WHICH IS CONTRIBUTED BY THE ASSESSEE, THOUGH THE AE OF THE ASSESSEE HAS ALLOCATED THE COST WITH THE MARK - UP OF 5.8%. THE TPO HAS DETERMINED THE ALP OF GROUP SERVICES AT NIL ON THE GROUND THAT THE SERVICES HAS NOT RESULTED IN ANY INCREASE IN THE PROFIT MARGIN OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE COMPUTATION OF ALP BY THE TPO AT NIL IS CONTRAR Y TO THE PROVISIONS OF TRANSFER PRICING AS WELL AS RULES PROVIDED UNDER THE ACT. THE ONLY ISSUE BEFORE THE TPO WAS TO CONSIDER THE ARM S LENGTH PRICE OF THE SERVICES RECEIVED BY THE ASSESSEE. ONCE THE SERVICES RECEIVED BY THE ASSESSEE IS NOT IN DISPUTE THA N, THE DISPUTE IS ONLY THE ALP OF SUCH SERVICES. IN THE CASE IN HAND THE DISPUTE WAS FURTHER NARROWED ONLY IN RELATION TO THE MARK - UP CHARGED BY THE AE ON THE COST. THE CIT(A) HAS ALREADY DISALLOWED THE MARK - UP AND DETERMINED THE ALP AT COST OF THE GROUP S ERVICES WHICH HAS BEEN CONTRIBUTED BY THE ASSESSEE. WE FURTHER NOTE THE CIT(A) HAS NOTED THAT THE FACT FOR ASSESSMENT YEAR 2008 - 09, THE PAYMENT OF INTRA GROUP SERVICES WAS ACCEPTED Y THE TPO AT ARM S LENGTH UNDER THE TNMM WHERE THE PERCENTAGE OF PROFIT ON COST OF ASSESSEE AT ENTITY LEVEL WAS ONLY 16.31% IN COMPARISON TO THE CURRENT YEARS MARGIN AT 33.31%. WE FIND THAT FOR THE ASSESSMENT YEAR 2008 - 09, THE TPO HAS ACCEPTED THE PAYMENT MADE FOR INTRA GROUP SERVICES AS UNDER; HOWEVER, FROM THE SUBMISSIONS M ADE BY THE TAXPAYER AND FACTS OF CASE, IT IS SEEN THAT THE PAYMENT IS MADE TOWARDS COST CONTRIBUTION AND THE IT(TP)A NO. 143/BANG/2015 M/S.ESSENT RA INDIA PVT. LTD. PAGE 4 OF 5 TAXPAYER HAS ALSO SUBMITTED THE PAYMENT IS IN NATURE OF REIMBURSEMENT OF ALLOCATED COSTS WHICH AMOUNTS TO 6.99% OF THE LOCAL ALLOCATION MADE TH E FILTRONA UK LIMITED TO ALL THE AES AT A MARK - UP OF 5.8%. AS IT IS EVIDENT FROM THE FACTS AND SUBMISSIONS, THE PAYMENT IS CLEARLY FOR THE COST CONTRIBUTION AND THEREFORE, THERE SHOULD NOT BE ANY MARK - UP ON SUCH ALLOCATIONS MADE BY THE PARENT COMPANY. HE NCE, FOR THE SAME REASON, THE MARK - UP OF 5.8% PAID TOWARDS COST CONTRIBUTION IS NOT AT ARM S LENGTH AND THE ALP FOR THE MARKUP IS TREATED AS NIL WHICH AMOUNTS TO RS.2,15,140/ - . THUS, THE ABOVE EXCESS AMOUNT BEING ADJUSTMENT U/S 92CA OF RS.2,15,140/ - IS T REATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA FOR ASSESSMENT YEAR 2007 - 08 . 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION, THE TPO HAS NOTED THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS TO ESTABL ISH THAT ANY SERVICE HAS BEEN RENDERED BY THE AE FOR WHICH THE ASSESSEE HAS MADE THE PAYMENT. TO COUNTER THIS OBJECTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE, LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT VIDE LETTER DATED 20/8/2009, THE ASSESSEE FUR NISHED ALL THE RELEVANT DETAILS, AGREEMENTS, VOUCHERS AND INVOICES AS WELL AS NATURE OF THE SERVICES RENDERED BY THE AE OF THE ASSESSEE ALONG WITH PROOF OF THE SERVICES RENDERED BY THE AE OF THE ASSESSEE. HE HAS FILED COPY OF THE LETTER DATED 20/8/2009. 6 . HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSEE PRODUCED ALL THE RELEVANT DETAILS AS WELL AS THE EVIDENCE IN SUPPORT OF THE CLAIM THAT THE AE OF THE ASSESSEE HAS RENDERED THE SERVICES AS PER TH E AGREEMENT BETWEEN PARTIES. WE FIND THAT THE ASSESSEE HAS PRODUCED THE DOCUMENTS BEFORE THE TPO TO SHOW THAT RECEIPT OF THE SERVICES IN RESPECT OF THE LIST OF THE PRODUCTS DEVELOPED BY THE AE, DETAILS OF SALES STRATEGIES, BUDGET PLANNER, ACCOUNTS SUPPORT AND MANAGEMENT REPORTS ETC. THUS, IT IS MANIFEST FROM THE RECORD THAT THE ASSESSEE PRODUCED ALL THE DETAILS IN SUPPORT OF THE CLAIM. HOWEVER, THE TPO WITHOUT CONSIDERING THE RELEVANT RECORD HAS MENTIONED IN THE IMPUGNED ORDER THAT THE ASSESSEE HAS NOT F ILED THE DETAILS WHICH IS CONTRARY TO THE RECORD. ACCORDINGLY, FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL DATED 24/07/2015, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE TO THE EXTENT THAT THE COST OF SERVICES PRODUCED BY THE ASSESSEE HAS TO BE ALLOWED . IT(TP)A NO. 143/BANG/2015 M/S.ESSENT RA INDIA PVT. LTD. PAGE 5 OF 5 HENCE, IN VIEW OF THE FINDINGS FOR ASSESSMENT YEAR 2006 - 07 WE DO NOT FIND ANY ERROR IN THE DIRECTION OF THE DRP. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED PRONOUNCED IN THE OPEN COURT ON 24 TH SEPTEMBER, 201 5 . SD/ - SD/ - (JASON P BOAZ ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE