Emeson Climate Technologies (India) Pvt.Ltd, Pune V. Assistant Commissioner of Income-tax, Circle - 1 (2), Pune

ITA 1530/PUN/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5018 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 01-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 201; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, PUNE BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 1530 /PUN/201 9 / ASSESSMENT YEAR : 20 1 5 - 16 EMERSON CLIMATE TECHNOLOGIES (INDIA) PRIVATE LIMITED, PLOT NO. 23, RAJIV GANDHI INFOTECH PARK, PHASE - II, HINJEWADI, PUNE 411057 PAN : AAACK7291C ....... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1 (2), PUNE / RESPONDENT ASSESSEE BY : SHRI DHANESH BAFNA REVENUE BY : SHRI T. VIJAYA BHASKAR REDDY / DATE OF HEARING : 2 9 - 01 - 2020 / DATE OF PRONOUNCEMENT : 19 - 0 2 - 20 20 / ORDER PER S.S. VISWANETHRA RAVI, JM : TH IS APPEAL BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 26 - 08 - 2019 PASSED BY THE AO ( A CIT, CIRCLE - 1 (2), PUNE) U/S. 143(3) R.W.S. 144C(13) OF THE ACT FOR ASSESSMENT YEAR 201 5 - 16. 2 ITA NO. 1530/PUN/2019, A.Y. 2015 - 16 2. GROUND NO. 1 IS GENERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION. 3. GROUND NO. 2 RAISED BY THE ASSESSEE CHALLENGING THE ACTION OF AO IN DETERMINING ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS PERTAINING TO PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES TO ITS AE AS NIL. 4. THE BRIEF FACTS OF THE CASE RELATING TO ISSUE AS EMANATING FROM THE RECORD ARE THAT THE ASSESSEE IS A COMPANY AND CONDUCTS ITS BUSINESS UNDER THE NAME AND STYLE OF EMERSON CLIMATE TECHNOLOGIES (INDIA) LTD. (FORMERLY KNOWN AS KIRLOSKAR COPELAND LIMITED). THE ASSESSEE IS A JOINT VENTURE OF KIRLOSKAR BROTHERS LIMITED (KBL) AND COPELAND CORPORATION AT A RATIO OF 51:49, FORMED TO CARRY ON THE ACTIVITIES OF PLANNING, DEVELOPING, MANUFACTURING, ASSEMBLING, MARKETING AND SEL LING COMPRESSORS AND PARTS OF VARIOUS TYPES, MODELS AND VARIETIES. LATER , THE COPELAND CORPORATION, USA BOUGHT OVER THE STAKE OF KIRLOSKAR BROTHERS ON 26 - 07 - 2006 AND THEREAFTER, COPELAND CORPORATION, USA IS ITSELF A WHOLLY OWNED SUBSIDIARY OF EMERSON ELEC TRIC CO., USA. THE ASSESSEE IS ENGAGED IN THE MANUFACTURE AND SALES OF COMPRESSORS AND RELATED COMPONENTS IN THE DOMESTIC AND EXPORT MARKETS AND TRADING IN COMPRESSORS IN THE DOMESTIC MARKET PROCURED FROM ITS GROUP COMPANIES. THE ASSESSEE ALSO RENDERS AF TER SALES SERVICES IN THE DOMESTIC MARKET AND ACTS AS A COMMISSION AGENT IN INDIA FOR OTHER GROUP COMPANIES. THE ASSESSEE REPORTED INTERNATIONAL TRANSACTIONS FOR THE YEAR UNDER CONSIDERATION PERTAINING TO PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES TO THE EXTENT OF RS.14,05,99,630/ - BY APPLYING TNMM. 3 ITA NO. 1530/PUN/2019, A.Y. 2015 - 16 5. A SHOW CAUSE NOTICE DATED 05 - 10 - 2018 WAS ISSUED SEEKING EXPLANATION FROM THE ASSESSEE AS TO WHY THE SELECTION OF AE AS A TESTED PARTY SHOULD NOT BE REJECTED SINCE THE RELIABLE INFORMATION IN TERMS OF COMPLETE SET OF AUDITED ACCOUNTS ALONG WITH THE NOTES TO ACCOUNT AND DIRECTORS REPORT IS NOT AVAILABLE FOR THE TESTED PARTY ON ACCOUNT OF PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES ARE ON FOLLOWING FACTORS : I . CONVERGENCE WITH GLOBAL OPERATING STANDARD S; II . OPTIMIZING THE COSTS INCURRED IN AVAILING THE SERVICES FROM EMERSON HK AS COMPARED TO THIRD PARTIES; III . ACCESS TO EMERSON HK AT ALL TIMES AND HAVING ACCESS TO ON - CALL SERVICES OF HK ENTITY; IV . IMPLEMENTATION OF COST EFFECTIVE AND ADVANCED MANUFACTURING PROCESSES; V . DEVELOP STRONG GLOBAL CUSTOMER BASE; VI . ESTABLISH ROBUST CONTROL AND GOVERNANCE PROCESSES; VII . ESTABLISH BEST IN CLASS HR PRACTICES; AND VIII . IMPROVED FINANCIAL PERFORMANCE AND ACCOUNTING PROCESSES. 6. THE TPO OBSERVED THERE WAS NO CONCRETE EVIDENCE FOR RECEIPT OF SUCH VALUABLE SERVICES AND HOW THE CALCULATION OF PAYMENTS MADE TO THE AE IS RELATED TO ANY SERVICE RECEIVED HAS NOT BEEN EXPLAINED WITH SUPPORTING DOCUMENTS. THERE WAS NO EXPLICIT COST ALLOCATION FORMULA TO LINK IT TO ACTUAL SERVICE OR VOLUME OR VALUE OF SERVICE RECEIVED. THEREBY, THE TPO HELD THE ADVISORY SERVICES RECEIVED IS ONLY A GROUP DISCUSSION , DOES NOT JUSTIFY THE ALP OF TRANSACTIONS. FURTHER, THE TPO PLACING RELIANCE ON THE DECISION OF DRP IN ASSESSEES OWN CASE FOR A.Y. 2013 - 14 , WH EREIN , WHICH CONFIRMED THE DETERMINATION OF ALP OF THE TRANSACTION PERTAINING TO PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES AT NIL . THE DRP CONFIRMED 4 ITA NO. 1530/PUN/2019, A.Y. 2015 - 16 THE APPLICATION OF CUP METHOD AS MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE TRANSACTION PERTAINING TO PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES AT NIL , T AKING INTO CONSIDERATION THE APPEALS PENDING BEFORE THE HONBLE HIGH COURT OF BOMBAY AGAINST THE ORDER OF ITAT, PUNE BENCHES IN ASSESSEES OWN CASE CONFIRMED THE VIEW OF AO. 7. HAVING AGGRIEVED, THE ASSESSEE IS BEFORE US. 8. THE LD. AR SUBMITS THAT THE ISSUE RAISED IN GROUND NO. 2 IS SIMILAR TO THE GROUNDS OF APPEAL RAISED IN A.Y. 2009 - 10 WHEREIN , THIS ITAT HELD THE TNMM APPLIED BY THE ASSESSEE IS MOST APPROPRIATE METHOD AND U PHELD THE ALP DETERMINED BY THE ASSESSEE PERTAINING TO TRANSACTIONS IN RESPECT OF ADVISORY AND OTHER SERVICES. THE LD. AR REFERRED TO PAGE NO. 1 OF COMPILATION OF JUDGMENTS AND D REW OUR ATTENTION TO PARA NOS. 17 TO 29 AND SUBMITTED THAT INSPITE OF HAVING DECIDED THE ISSUE BY THE ITAT, PUNE BENCHES IN ASSESSEES OWN CASE , THE TPO AND DRP ONLY ON THE GROUND OF THAT APPEALS PREFERRED BY THE REVENUE AND PENDING WITH THE HONBLE HIGH COURT OF BOMBAY REJECTED THE CONTENTIONS OF ASSESSEE. FURTHER, THE ORDER PASS ED IN A.Y. 2009 - 10 HAS BEEN FOLLOWED IN A.Y. 2014 - 15 AND REFERRED TO PARA NO. 4 OF THE SAID ORDER AND SUBMITTED THAT BY FOLLOWING THE ORDERS OF A.YS. 2009 - 10, 2013 - 14 OF THIS TRIBUNAL REMANDED THE MATTER TO THE FILE OF AO/TPO FOR DECIDING THIS ISSUE AFRESH IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS. THERE IS NO DISPUTE BY THE LD. DR THAT THE FACTS ARE NOT SIMILAR TO THE EARLIER YEARS. FOR READY REFERENCE PARA NOS. 3 AND 4 OF ORDER DATED 14 - 02 - 2019 FOR A.Y. 2014 - 15 ARE REPRODUCED HERE - IN - BELOW: 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND WAS A JOINT VENTURE BETWEEN KIRLOSKAR BROTHERS LIMITED (KBL) AND COPELAND COR PORATION, USA FOR CARRYING ON THE 5 ITA NO. 1530/PUN/2019, A.Y. 2015 - 16 ACTIVITIES OF PLANNING, DEVELOPMENT, MANUFACTURING, ASSEMBLING, MARKETING AND SELLING COMPRESSORS AND PARTS OF VARIOUS TYPES, MODELS AND VARIETIES. SUBSEQUENTLY, THE COPELAND CORPORATION, USA BOUGHT THE STAKE OF KIRLOSKAR BROTHERS LIMITED. THE ASSESSEE COMPANY FILED ITS RETURN DECLARING TOTAL INCOME OF RS.70.51 CRORE AND ODD. CERTAIN INTERNATIONAL TRANSACTIONS WERE REPORTED. THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. ONE OF THE REPORTED TRANSACTIONS WAS PAYMENT OF FEES FOR ADVISORY AND OTHER SERVICES WITH TRANSACTED VALUE OF RS.13,74,20,444/ - . THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DEMONSTRATING THIS TRANSACTION TO BE AT ALP. THE TPO REJECTED SUCH A METHOD AND APPLIED THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD FOR THIS INTERNATIONAL TRANSACTION. IN THIS EXERCISE, HE DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTIONS OF `RECEIPT OF ADVISORY AND OTHER SERVICES. THE ASSESSEE CARRIED THE MATTER BEFORE THE DISPUTE RESOLUTION PANEL (DRP). FOLLOWING THE VIEW TAKEN FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, NAMELY, 2013 - 14, THE DRP UPHELD THE TRANSFER PRICING ADJUSTMENT PROPOSED BY THE AO IN THE DRAFT ORDER PURSUANT TO THE ORDER PASSED BY THE TPO. THE AO MADE TRANSFER PRICING ADDITION OF RS.13.74 CRORE IN THE FINAL ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED FROM THE ORDER PASSED BY THE TPO THAT IN DETERMINING THE ALP AT NIL OF THE INTERNATIONAL TRANSACTION OF `RECEIPT OF ADVISORY AND OTHER SERVICES, HE RELIED ON THE DRPS DIRECTI ON GIVEN FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, FOR WHICH THERE IS A MENTION AT PAGE 53 OF HIS ORDER. THE DRP, TOO, FOLLOWED ITS OWN ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, WHICH ASPECT HAS BEEN DISCUSSED AT PAGE 32 OF THE ORDER IN WHI CH THE DRP HAS OBSERVED THAT THE FACTS ARE IDENTICAL TO THE FACTS DISCUSSED BY THE DRP IN A.Y. 2013 - 14 AND, THEREFORE, FOLLOWING THE SAME, THESE GROUNDS ARE DISMISSED. IT IS A MATTER OF RECORD THAT THE APPEAL FOR THE A.Y. 2013 - 14 CAME UP FOR CONSIDERATIO N BEFORE THE TRIBUNAL. VIDE ORDER DATED 06 - 06 - 2018, THE TRIBUNAL IN ITA NO.2432/PUN/2017 HAS HELD THE TNMM TO BE THE MOST APPROPRIATE METHOD IN PREFERENCE TO THE CUP APPLIED BY THE TPO. AFTER GIVING CERTAIN DIRECTIONS, THE MATTER HAS BEEN SENT BACK TO THE AO/TPO FOR DECIDING THE ISSUE ACCORDINGLY. IN REACHING THIS CONCLUSION, THE TRIBUNAL RELIED ON ITS OWN ORDER FOR THE A.YS. 2009 - 10 AND 2010 - 11 IN WHICH SIMILAR VIEW WAS CANVASSED. COPIES OF ALL SUCH ORDERS OF THE TRIBUNAL, RIGHT FROM THE A.YS. 2009 - 10 TO 2 013 - 14, HAVE BEEN PLACED ON RECORD IN WHICH SIMILAR VIEW HAS BEEN TAKEN. THE LD. DR FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF THE INSTANT APPEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF EARLIER YEARS. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SETA SIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DECIDING THIS ISSUE AFRESH IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS. NEEDLESS TO SAY, THE ASSESSEE WILL BE PROVIDE D ADEQUATE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 9. IN VIEW OF THE ABOVE, THE AO/TPO IS DIRECTED TO VERIFY THE CLAIM OF ASSESSEE AND DECIDE THE ISSUE AFRESH IN TERMS OF DIRECTIONS GIVEN BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.YS. 2 009 - 10 TO 2014 - 15. ACCORDINGLY, GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO. 3 RAISED BY THE ASSESSEE IS BECOMES ACADEMIC IN VIEW OF DECISION TAKEN BY US IN GROUND NO. 2 IN THE AFOREMENTIONED PARAGRAPHS. 6 ITA NO. 1530/PUN/2019, A.Y. 2015 - 16 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2020 . SD/ - SD/ - (ANIL CHATURVEDI) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBE R / PUNE; / DATED : 19 TH FEBRUARY, 20 20 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE DISPUTE RESOLUTION PANEL - 3 , MUMBAI 4. THE CIT (TP), PUNE 5. , , , / DR, ITAT, C BENCH, PUNE. 6. / GUARD FILE. // // TRU E COPY // / BY ORDER, / PRIVATE SECRETARY , , / ITAT, PUNE