M/s. Goodyear India Ltd., Haryana V. DCIT, New Delhi

ITA 151/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3994 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2005-2006
• Appeal Filed On: 08-01-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Question of law

Judgement Text

ITA NO. 151/DEL/2015 (ASSESSMENT YEAR: 2005 - 06 GOODYEAR INDIA LIMITED V DCIT, CIRCLE 12 (1), NEW DELHI PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 : NEW DELHI BEFORE SMT DIVA SINGH , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 151/DEL/2015 (ASSESSMENT YEAR: 2005 - 06 ) GOODYEAR INDIA LTD, MATHURA ROAD, BALLABGARH, DISTT. FARIDABAD, HARYANA PAN: AAACG3511H VS. DCIT, CIRCLE - 12(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NEERAJ JAIN, ADV REVENUE BY: SHRI KUMAR PRANAV, SR. DR DATE OF HEARING 30/05 / 2018 DATE OF PRONOUNCEMENT 1 3 / 0 8 / 2018 O R D E R PER PRASHANT MAHARISHI , A. M. 1 . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT ( A) - XXIX, NEW DELHI DATED 03.09.2014 FOR THE ASSESSMENT YEAR 2005 - 06. 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) (CIT(A)) ERRED IN FACTS AND IN LAW IN SUSTAINING TRANSFER PRICING ADJUSTMENT TO THE EXTENT OF RS. 1,87,55,048 IN RESPECT OF INTERNATIONAL TRANSACTION OF EXPORT OF TRADED GOODS, FOLLOWING THE ORDER OF THE HON'BLE TRIBUNAL FOR THE ASSESSMENT YEAR 2006 - 07. 1.1 THAT THE CIT(A) ERRED IN FACTS AND IN LAW IN NOT HOLDING THAT EXPORT INCENTIVE OF RS. 1,87,55,048 WAS REQUIRED TO BE REDUCED FROM THE COST OF GOODS SOLD / ADDED TO SALE PRICE FOR COMPUTING GROSS PROFIT MARK - UP FOR DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF EXPORT OF TRADED GOODS. 1.2 THAT THE CIT(A) ERRED IN FACTS AND IN LAW IN NOT ADJUDICATING WITH THE ALTERNATE SUBMISSION OF THE APPELLA NT TO ADDED THE EXPORT INCENTIVE OF RS.1,87,55,048 WITH THE SALES PRICE OF THE GOODS SOLD FOR COMPUTING GROSS PROFIT MARGIN / NET PROFIT MARGIN FOR DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF EXPORT OF TRADED GOODS. 1.3 THAT THE CI T(A) ERRED IN FACTS AND IN LAW IN HOLDING THAT EXPORT INCENTIVE WAS TO BE CONSIDERED AS PART OF OPERATING PROFIT FOR UNDERTAKING BENCHMARKING ANALYSIS FOR INTERNATIONAL TRANSACTION OF EXPORT OF TRADED GOOD. 1.4 THAT THE CIT ( A) ERRED IN FACTS AND IN LAW IN UPHOLDING THE ALLEGATION MADE BY THE ASSESSING OFFICER THAT IF INDIA PROVIDE TAX INCENTIVE OR OTHER INCENTIVE TO COMPENSATE ITA NO. 151/DEL/2015 (ASSESSMENT YEAR: 2005 - 06 GOODYEAR INDIA LIMITED V DCIT, CIRCLE 12 (1), NEW DELHI PAGE | 2 ITS TAXPAYERS ON THE BASIS OF THE ECONOMIC SITUATION, THEN THIS BENEFIT IS AVAILABLE TO INDIAN TAXPAYERS AND THE SAME CANNOT BE TR ANSFERRED OR TRADED TO OTHER ENTITY WHICH IS NOT LOCATED IN INDIA. 1.5 THAT THE CIT ( A) ERRED IN FACTS AND IN LAW IN UPHOLDING THE ALLEGATION MADE BY THE ASSESSING OFFICER THAT THE ECONOMIC AND TAX INCENTIVES OFFERED TO INDIAN ENTITIES ARE NOT MEANT TO S UBSIDIZE THE ENTITY IN FOREIGN JURISDICTION. THE ASSESSEE WHO IS INVOLVED IN CONTROLLED TRANSACTION THIS APPROACH ACTUALLY RESULTS IN TRANSFERRING BENEFIT FROM GOVERNMENT GRANTED INCENTIVES TO AE . 1.6 THAT THE CIT(A) ERRED IN FACTS AND IN LAW IN HOLDING T HAT THE APPELLANTS METHOD OF CALCULATION OF COST OF GOODS SOLD WOULD TANTAMOUNT TO CLAIM OF BENEFIT, WHICH HAS NOT ACCRUED AT THE TIME OF SALE OF GOODS, BEING TREATED AS A COMPONENT OF COST OF GOODS SOLD. 1.7 THAT THE CIT(A) ERRED IN FACTS AND IN LAW IN H OLDING THAT, SINCE EXPORT INCENTIVE DOES NOT FORM PART OF INVOICE PRICE, THE SAME CANNOT BE REDUCED FROM THE COST OF GOODS SOLD 3 . B RIEF FACTS OF THE CASES IS THAT ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF AUTOMOTIVE TYRES, TUBES AND OTHER INDUSTRIAL PRODUCTS. IT FILED ITS RETURN OF INCOME ON 28/10/2005 DECLARING NIL INCOME AFTER SET - OFF OF THE BROUGHT FORWARD LOSSES. THE LD. ASSESSING OFFICER PASSED AN ORDER UNDER SECTION 143 (3) OF THE ACT MAKING SEVERAL DISALLOWANC ES ON ADDITION OF EXCISE DUTY PAYABLE, DISALLOWANCE OF MACHINERY REPAIRS AND MAINTENANCE EXPENDITURE, PROVISION FOR WARRANTY EXPENDITURE AND TRANSFER PRICING ADJUSTMENT OF RS. 18755048/ . THE ASSESSEE CHALLENGED THE SAME BEFORE THE LD. CIT A WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. HOWEVER THE ISSUE O F TRANSFER PRICING ADJUSTMENT WITH RESPECT TO RS. 1 875 5048 WAS DECIDED AGAINST THE ASSESSEE AND THEREFORE ASSESSEE IS IN APPEAL BEFORE US. 4 . D URING THE YEAR ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACTION OF EXPORT OF FINISHED GOODS WITH ITS FOREIG N ASSOCIATED ENTERPRISE AMOUNTING TO RS. 44, 49, 95, 951/ WHICH COMPRISES OF EXPORT OF MANUFACTURED PRODUCTS OF RS. 2 1, 25, 71, 741/ AND EXPORT OF TRADED PRODUCTS OF RS. 2 3, 24, 24, 210/ . THE APPELLANT HAS PURCHASED SUCH TRADED FINISHED GOODS FROM A G ROUP COMPANY IN INDIA NAMELY, GOODYEAR SOUTH ASIAN TYRES PRIVATE LIMITED WHICH WERE EXPORTED TO ITS FOREIGN ASSOCIATED ENTERPRISES. IN ITS TRANSFER PRICING STUDY REPORT THE APPELLANT HAS ADOPTED COST PLUS METHOD AS MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTION OF EXPORT OF TRADED GOODS. FOR COMPUTING THE GROSS PROFIT MARKUP FOR SUCH INTERNATIONAL TRANSACTION EXPORT INCENTIVE OF DUTY ENTITLEMENT PASS BOOK SCHEME AMOUNTING TO RS. 1 94, 52, 795/ RECEIVED IN RESPECT OF SUCH PURCHASES FROM THE SALE OF THE T YRES BEING INEXTRICABLY LINKED TO THE COST OF GOODS SOLD WAS REDUCED FROM THE COST OF GOODS EXPORTED. THEREFORE, THE NET COST OF PURCHASES OF FINISHED GOODS WAS TAKEN INTO CONSIDERATION. ITA NO. 151/DEL/2015 (ASSESSMENT YEAR: 2005 - 06 GOODYEAR INDIA LIMITED V DCIT, CIRCLE 12 (1), NEW DELHI PAGE | 3 AS PER THE GLOBAL TRANSFER PRICING POLICY OF THE A SSESSEE GROUP , THE APPELLANT WAS ENTITLED TO PROFIT MARKUP OF 5% ON IN VENTORY COST AND OTHER DIRECT AND INDIRECT COST. CONSEQUENTLY, THE ARMS LENGTH PRICE IN RESPECT OF TRADED FINISHED GOODS PURCHASED FROM THE INDIAN ENTITY WAS CONSIDERED AT ARMS LENGTH . THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF RS. 2 3, 92, 18, 341/ - WAS CONSIDERED AT RS. 2 3, 07, 53, 823 BY THE ASSESSEE. 5 . THE LD. TRANSFER PRICING OFFICER DID NOT ACCEPT THE CONTENTION OF THE APPELLANT THAT EXPORT INCENTIVE OF RS. 1 945 279 5/ WAS TO BE NETTED WHILE COMPUTING THE COST OF GOODS SOLD FOR DETERMINING THE GROSS PROFIT MARGIN. ACCORDINGLY THE TRANSFER PRICING OFFICER PROPOSED ADJUSTMENT OF RS. 1 875 5048/ IN THE ORDER PASSED UNDER SECTION 92CA (3) DATED 26/10/2009. CONSEQUENTLY , THE FINAL ORDER WAS PASSED BY THE LD. ASSESSING OFFICER MAKING THE ABOVE ADJUSTMENT. 6 . THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSESSING OFFICER WHEREIN THE ABOVE ADJUSTMENT OF ARMS LENGTH PRICING WAS MADE CHALLENGED THE SAME BEFORE THE LD. CIT A. THE LD. CIT A FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006 07 WHERE THE SIMILAR TRANSFER PRICING ADJUSTMENT MADE BY THE TPO WAS UPHELD AND FOR THE REASONS GIVEN BY THE COORDINATE BENCH AND ALSO ON THE SUBSEQUENT DECISION OF THE MUMBAI BENCH OF TRIBUNAL IN CASE OF WELSPUN ZUCCHI TEXTILES LTD VERSUS ACIT IN ITA NO. 6539/MU M/2009, CONFIRMED THE ADJUSTMENT. THEREFORE, THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. CIT A HAS PREFERRED AN APPEAL BEFO RE US. 7 . THE LD. AUTHORIZED REPRESENTATIVE FAIRLY ADMITTED THAT GROUND NO. 1 OF THE APPEAL IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER YEARS. HOWEVER IT WAS ALSO SUBMITTED THAT HONBLE DELHI HI GH COURT IN ITA NO. 717 AND 718 AND 719/2016 HAS ALREADY ADMITTED THE ISSUE THAT WHETHER THE EXPORT INCENTIVE NEEDS TO BE REDUCED FROM THE COST OF GOODS SOLD OR ADDED TO THE SALE PRICE FOR COMPUTING GROSS PROFIT MARGIN FOR DETERMINATION OF THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF EXPORT OF FINISHED GOODS. HE SUBMITTED THE COPY OF THE ORDER OF THE HONBLE DELHI HIGH COURT WHERE THE QUESTION OF LAW WAS ADMITTED. 8 . THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUBMITTED THAT THE ISSUE HAS BEEN SQU ARELY COVERED AGAINST THE ASSESSEE AND THEREFORE EVEN IF THE ISSUE HAS BEEN ADMITTED BY THE HONBLE HIGH COURT THE ISSUE NEEDS TO BE DECIDED IN THIS APPEAL AGAINST THE ASSESSEE. 9 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO CONSIDERED THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER YEARS WHICH HAS BEEN RELIED BY THE LD. CIT A FOR DECIDING THE ABOVE ISSUE. THE ITA NO. 151/DEL/2015 (ASSESSMENT YEAR: 2005 - 06 GOODYEAR INDIA LIMITED V DCIT, CIRCLE 12 (1), NEW DELHI PAGE | 4 SAME ISSUE HAS NOW REACHED AT THE DOORSTEP OF THE HONBLE DELHI HIGH COURT. THE HONBLE DELHI HIGH COURT IS PLEASED TO ADMIT THE ISSUE WHETHER FOR WORKING OUT THE GROSS PROFIT MARKUP FOR DETERMINATION OF THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION OF THE EXPORT OF FINISHED GOODS W HETHER THE INCENTIVE RECEIVED BY THE ASSESSEE IN THE FORM OF DUTY ENTITLEMENT PASSBOOK SCHEME IS REQUIRED TO BE REDUCED FROM TOTAL COST OR NOT. HOWEVER, SO FAR AS THE ISSUE CONCERNED BEFORE US IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE AS STATED BY THE LD. CIT APPEAL, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT A AND ACCORDINGLY GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 10 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 3 / 0 8 / 2018 . - S D / - - S D / - ( DIVA SINGH ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 3 / 0 8 / 2018 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI