M/s. Tyco Electronics Corporation India Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1453/BANG/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9290 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K PRASAD; UMASHANKAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1453 (BANG) 2010 (ASSESSMENT YEARS : 2006-07) M/S TYCO ELECTRONICS CORPN. INDIA PVT. LTD. TE PARK, 22B, DODDENAKUNDI 2 ND PHASE INDUSTRIAL AREA, WHITEFIELD ROAD, BANGALORE - 560048 PAN NO.AABCT7374C APPELLANT VS THE DCIT, LTU, BANGALORE RESPONDENT ASSESSEE BY : SHRI P.K.PRASAD, CA & SHRI UMASHANKA R, CA REVENUE BY : MISS NEERA MALHOTRA, CIT DR DATE OF HEARING : 17-10-2016 DATE OF PRONOUNCEMENT: : 03-11-201 6 O R D E R PER SHRI A.K.GARODIA, AM THIS APPEAL IS FILED BY THE ASSESSEE AND IT IS DIRE CTED AGAINST THE ASSESSMENT ORDER PASSED ON 01.10.2010 U/S 143 (3) R .W.S. 144 C OF THE IT ACT, 1961 FOR A. Y. 2006-07. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - THE G R OUNDS M ENTIONED HEREIN A R E WITHOUT PREJUDICE TO ONE ANOTHER . GENERAL G RO U N DS 1. THAT THE ORDER OF THE LEARNED DEPUTY COMMISS I ONE R OF INCOME TAX , LA R GE TAX PAYERS UN IT, BANGALORE ( ' ASSESSING OFFICER ' OR ' AO ') T O THE E X TE N T P R EJUD I C I AL T O THE APPE L LANT , I S BAD IN LAW AND LIABLE TO BE QUASHED . 2. THA T THE APPEL L ANT CRAVES LEAVE TO ADD TO AND / O R TO A L TER , AME N D , RESCIND , MODI F Y T HE G R OUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE O R AT THE TIME OF HEAR I NG OF T HIS APPEAL . ITA NOS.1453(BANG)2010 2 TRANSFER PRICIN G RELA T E D 3. THA T THE LEARNED DRP ERRED I N NOT APPREC I AT I NG THE FACT THAT T HE APPELLANT HAD PREPARED THE TP DOCUMENTATION BONA FI DE AND IN GOOD FAITH I N COMPLIANCE W I TH THE ACT AND INCOME TAX RULES , 1962 ( ' T HE RULES ') AND SELECTED THE COMPARABLE UNCONTROLLED COMPANIES BASED ON THE DETAILED F U NCTIONAL ASSET AND RISK ( ' FAR ') ANALYSIS PERFORMED WI T H DUE D I LIGENCE , F OLLOWING A METHODICAL AND CONSISTENT BENCHMARK I NG PROCESS IN RESPECT O F VARIOUS I NTERNA TI O N AL TRANSACTIONS W I TH ASSOCIATED ENTERPRISES . 4. THAT THE LEARNED DRP ER R ED BOTH I N FACTS AND LAW I N MAK I NG AN ADJUSTMENT ( ENHANCEMENT I N THE MANUFACTURING SEGMENT) TO THE TRANSFER PRICE OF THE APPELLANT BY RS . 262 , 599 , 834 HOLD I NG THAT THE I NTERNATIONAL TRANSACTIONS DO NO T SAT I SFY THE A R M ' S LENGTH PR I NC I P L E ENVISAGED UNDE R THE ACT AND IN DO I NG SO , GROSSLY ERRED I N: ( A ) NOT CONS I DER I NG THE APPELLANT ' S CONTENTIONS / ARGUMENTS / EVIDEN TI ARY DA T A PU T F ORWARD DUR I NG THE COURSE OF THE ASSESSMENT PROCEEDINGS , AND IN NO T APPRECIAT IN G T HE FACT THAT THE REASONS FO R THE LOW PROF I TABIL I TY IN THE MANU F ACTU RI NG SEGMEN T WERE DUE TO BUS I NESS REASONS AND NOT AR I S I NG FROM THE INTERNATIONAL TRANSACTIONS UNDERTA K E N BY THE APPELLAN T W I TH I T S ASSOCIATED ENTE R PRISES . ( B ) REJECT I NG THE P R OFIT LEVEL I ND I CATOR , AS SE L ECTED BY THE APPELLANT UNDER THE TRANSACTIONAL NET MARGIN METHOD , F OR A R BITRARY REASONS , AND THEREBY GOING AGAINST GENERA L TRANS F ER PRIC I NG PR I NC I PLES . ( C ) APP L YING MULT I P L E YEAR / PR I O R YEA R DATA F OR COMPARABLE COMPANIES WHILE DETE R MINING A R M ' S LENGTH PRICE . ( D ) US I NG DATA OF COM PARABLES AS A T T HE T I ME OF ASSESSMENT PROCEEDINGS , INSTEAD OF THAT AVAILABLE AS ON THE DATE OF PREPARI NG T HE TP DOCUMENTATION FO R COMPARABLE COMPANIES WHILE DETERMIN I NG ARM ' S LENGTH PRICE . ( E ) THAT THE LEARNED DRP ERRED IN INCLUDING COMPAN I ES I N THE COMPA R ABILI T Y ANALYSIS WHICH ARE D I FFERENT FROM T H E APPELLANT IN FUNCTIONS , ASSET BASE AND R I SK PROF I LE . ( F ) THAT THE L EARNED DRP ERRED I N REJECT I NG COMPAN I ES S I MILAR TO THE APPELLA N T I N F UNCT I ONS , ASSET BASE AND RISK PROF I LE WH I LE PER F ORM I NG COMPA R ABI LIT Y ANALYS I S . 5.THAT THE LEARNED DRP ERRED IN ARBITRARILY ADOPTIN G AND IMPOSING FILTERS FOR ARRIVING AT THE 9 COMPARABLE COMPANIES IN THE MANUFACTURING SEGMENT. 6. THAT THE LEARNED DRP ERRED IN MAKING AN ADJUSTME NT TO THE APPELLANTS ENTIRE SALES, WHICH INCLUDED EVEN THIRD PARTY SALES AND THEREBY GOING AGAINST SETTLED PRINCIPLES OF TRANSFE R PRICING THAT AN ANALYSIS OF DETERMINING THE ARMS LENGTH PRICE SHOU LD BE RESTRICTED ITA NOS.1453(BANG)2010 3 TO THE RELATED PARTY TRANSACTIONS UNDERTAKEN BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES AND NOT TO THE COMPANY A S A WHOLE. 7. THAT THE LD.DRP ERRED IN CONCLUDING THAT THE AME NDED PROVISO TO SEC.92C(2) OF THE ACT UNDER FINANCE (NO.2) ACT, 200 9 WOULD BE APPLICABLE FOR ASSESSMENT YEAR 2006-07 AND IN NOT A PPRECIATING THAT EVEN IF THE ARMS LENGTH PRICE FAILS OUTSIDE T HE 5% TOLERANCE ABAND THE ADJUSTMENT WOULD HAVE TO BE RECKONED AFTE R ALLOWING THE BENEFIT OF +/-5% VARIATION AS PROVIDED IN PROVISO T O SEC.92C(2) OF THE ACT, WHILE DETERMINING THE ARMS LENGTH PRICE. OTHER THAN TRANSFER PRICING RELATED 8. (A) THAT THE LD.AO ERRED IN TREATING SOFTWARE EX PENSES AMOUNTING TO RS.4,116,495/- AS CAPITAL IN NATURE. (B) THAT THE LD. AO ERRED IN PROPOSING TO DISAL LOW SOFTWARE EXPENDITURE AMOUNTING TO RS.1,646,598/- (AFTER ALLO WING DEPRECIATION AT THE RATE OF 60% OF RS.2,469.897 ON TOTAL EXPENSES OF RS.4,116,495/-) IN THE COMPUTATION OF TOTAL INCO ME 9. THAT THE LD., AO ERRED IN NOT ALLOWING THE DEDUC TION CLAIMED UNDER CHAPTER VIA AMOUNTING TO RS.100.000 10. (A) THAT THE LEARNED AO ERRED IN COMPUTING THE INTEREST UNDER SECTION 234B WITHOUT CONSIDERING THE PROVISIONS OF THIS SECTION. (B) THAT THE AO ERRED IN ADJUSTING THE INTEREST DUE UNDER SECTION 234C AGAINST THE SELF ASSESSMENT TAX IN ARR IVING AT THE TAX LIABILITY ON WHICH INTEREST IS TO BE COMPUTED UNDER SECTION 234B. 11. THE LD. AO ERRED IN NOT CONSIDERING THE EXTENSI ON IN DUE FOR PAYMENT OF THE FOURTH INSTALMENT OF ADVANCE TAX AND CONSEQUENTLY, COMPUTING HIGHER INTEREST UNDER SECTION 234C. 3. IT IS SUBMITTED BY THE LD.AR OF THE ASSESSEE TH AT GROUND NO.1,2,3,4C,4D AND 7 ARE GENERAL AND GROUND NO.4B I S NOT PRESSED AND GROUND NO.11 IS CONSEQUENTIAL. ACCORDINGLY, GROUND NO.4B IS REJECTED AS NOT PRESSED AND IT IS HELD THAT NO SEPARATE ADJUDICATIO N IS CALLED FOR REGARDING GENERAL AND CONSEQUENTIAL GROUNDS NOTED ABOVE. ITA NOS.1453(BANG)2010 4 4. REGARDING REMAINING GROUND NO.4A,4E,4F AND 5 TO 7 IN RESPECT OF TP ISSUES AND GROUND NO.8 & 9 IN RESPECT OF CORPORATE TAX ISSUES, IT IS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT THESE ISSUES SHOULD BE RESTORED BACK TO THE FILE OF THE AO/TPO/DRP BECAUSE THE ORDE R OF DRP IS VERY CRYPTIC AND WITHOUT ANY REASONING. 5. THE LD. DR OF THE REVENUE SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT ON PAGE-6 & 7 OF DRP ORDER, THE DRP HAS NOTED VARIOUS FACTS AND VARIOUS OBJECTIONS OF THE ASSESSEE AND THEREAFTER, THE ISSUE WAS DECIDED BY THE DRP IN ONE LINE WHICH IS RE-PRODUCED HEREIN BELOW; THE PANEL IS OF THE VIEW THAT THE FILTERS ADOPTED BY THE TPO ARE VERY REASONABLE AND THE OBJECTIONS OF THE ASSESSEE CANNOT BE ACCEPTED. 7. FROM THE ABOVE FINDING OF THE DRP, IT IS VERY C LEAR THAT THE ORDER OF THE DRP IS VERY CRYPTIC AND WITHOUT ANY REASONING A ND THEREFORE, WE FIND FORCE IN THE SUBMISSIONS OF THE LD. AR OF THE ASSES SEE THAT THE ENTIRE ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE AO/TPO/D RP FOR FRESH DECISION. HENCE, WE SET ASIDE THE ORDER OF THE AO AND RESTORE THE MATTER BACK TO HIS FILE FOR A FRESH DECISION AFTER ALLOWING ADEQUATE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN VIEW OF OUR ABOVE DECISION, NO ADJUDICATION IS CALLED FOR ON MERIT OF ANY OF THE ISSUES INVOLVED IN THIS APPEAL. ITA NOS.1453(BANG)2010 5 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (SMT ASHA VIJAYARAGHAVAN SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : 03.11.2016 AM * COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE ITA NOS.1453(BANG)2010 6 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHI CH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6 . DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER