Dy. CIT, Pune V. YUTAKA AUTO PARTS PUNE P.LTD, Pune

ITA 1561/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1791 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Assessee Lawyers: R D ONKAR ROOPAM
• Keywords: Depreciation; Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 1 561 /PN/201 3 / ASSESSMENT YEAR : 20 0 8 - 0 9 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / APPELLANT VS. YUTAKA AUTO PARTS PUNE PVT. LTD., GAT NO.316, POST AMBADVET, VILLAGE KASARMBOLI, OFF URWADE ROAD, PIRAN GUT, TALUKA MULSHI, PUNE - 412111 . / RESPONDENT PAN: AABCT3928L / APPELLANT BY : SHRI ANIL CHAWARE / RESPONDENT BY : SHRI R.D. ONKAR , ROOPAM / DATE OF HEARING : 18 . 0 5 .201 6 / DATE OF PRONOUNCEMENT: 20 . 0 5 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT (A) - IT/TP, PUNE , DATED 30 . 0 5 .20 1 3 RELATING TO ASSESSMENT YEAR 20 0 8 - 0 9 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) R.W.S. 144C(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE ANG INDUSTRIES LIMITED FROM THE LIST OF COMPARABLE COMPANIES. ITA NO. 1 561 /PN/20 1 3 YUTAKA AUTO PARTS PUNE PVT. LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT(A) HAS ERRED IN HOLDING THAT THIS COMPANY IS NOT A COMPARABLE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS TA KEN THE STAND OF EXCLUDING THIS COMPANY AS THE PLI OF THE COMPARABLE COMPANY IS 20.59 AND BY REMOVING THIS AS A COMPARABLE, THE ASSESSEE IS ABLE TO PROJECT THAT ITS INTERNATIONAL TRANSACTIONS IS AT ARMS LENGTH PRICE (ALP). 3. THE ONLY ISSUE RAISED BY THE REVENUE IN THE PRESENT APPEAL IS AGAINST EXCLUSION OF ANG INDUSTRIES LTD. FROM FINAL LIST OF COMPARABLES WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS A JOINT VENTURE B ETWEEN TATA AUTO COMPARABLES SYSTEMS LTD. AND YUTAKA JAPAN. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF COMPONENTS VI Z. SUSPENSION PRODUCTS I.E. SPRINGS AND BARS, EXH AUST MANIFOLD MUFFLERS FOR MOTOR BIKES, BRAK E DISKS FOR TWO WHEEL ERS IN THE AUTOMOBILE SECTOR. THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS ASSOCIATE ENTERPRISES, AGAINST WHICH THE ASSESSING OFFICER MADE A REFERENCE UNDER ENTERPRISES, AGAINST WHICH THE ASSESSING OFFICER MADE A REFERENCE UNDER SECTION 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO) TO COMPUTE AR M'S LENGTH PRICE OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE ASSESSEE HAD BENCHMARKED THE INTERNATIONAL TRANSACTION WITH ITS ASSOCIATE ENTERPRISES BY APPLYING TNMM METHOD AND OPERATING PROFIT / OPERATING S ALES RATIO WAS TAKEN AS PROFIT LEVEL INDICATOR I.E. PLI. THE PLI OF ASSESSEE WAS ARRIVED AT 10.50%, WHEREAS THE AVERAGE PLI OF COMPARABLES WAS AT 9.39%. THE ASSESSEE HAD SELECTED THREE COMPANIES AS COMPARABLE I.E. ANG INDUSTRIES LTD., SHARDA MOTORS INDUS TRIES LTD. AND BOSCH CHASIS SYSTEMS INDIA LTD. THE TPO RE - WORKED THE PLI OF BOTH THE ASSESSEE AND THE COMPARABLES AND AS AGAINST THE OPERATING MARGINS OF ASSESSEE AT 7.72%, THE ARITHMETIC MEAN OF PLI OF COMPARABLES WORKED OUT TO 13.41% AND PLI OF ANG INDU STRIES LTD. WAS 20.85% . THE WORKING OF PLI OF ANG INDUSTRIES ITA NO. 1 561 /PN/20 1 3 YUTAKA AUTO PARTS PUNE PVT. LTD. 3 LTD. AS PER ANNEXURE A IS TABULATED AT PAGE 4 OF THE TPOS ORDER AND OF THE ASSESSEE AT 7.72% AT PAGE 3 OF TPOS ORDER. THE ASSESSEE WAS THUS, SHOW CAUSED AS TO WHY AN ADJUSTMENT TO THE EXTENT OF RS. 3,08,41,000/ - SHOULD NOT BE MADE IN THE HANDS OF ASSESSEE. THE ASSESSEE EXPLAINED THAT PLI OF ANG INDUSTRIES LTD. WAS NOT CORRECTLY WORKED OUT FOR THE UNDER - MENTIONED REASONS: - A) MISCELLANEOUS INCOME OF NON OPERATING NATURE RS.0.03 CR. SHOULD NOT HAVE BEEN ADDED TO SALES. B) MISCELLANEOUS EXPENSES OF RS.1.76 CR. SHOULD NOT HAVE BEEN REDUCED FROM COST BUT OUGHT TO HAVE BEEN CONSIDERED AS PART OF TOTAL OPERATING EXPENSES AND THEREFORE DEDUCTED FROM OPERATING PROFITS WHICH HAS BEEN DONE BY THE ASSESS EE IN WORKING OUT ITS OPERATING PROFITS CONSISTENT WITH THE STAND TAKEN BY TPO AND FOLLOWED IN OTHER PEER COMPANIES WORKING OF PLI. FURTHER MISCELLANEOUS EXPENSES HAVE BEEN TAKEN AT RS.1.76 CR. INSTEAD OF RS.1.97 CR. APPEARING IN THE PROFIT & LOSS STATEM ENT OF ANG INDUSTRIES LIMITED FOR THE IMPUGNED FY 2007 - 08. C) THE FOREIGN CURRENCY GAIN/LOSS HAVE BEEN TAKEN TO BE PART OF OPERATING PROFITS AS DIRECTED BY TPO AND THE SAME SHOULD HAVE BEEN TAKEN AS PART OF OPERATING PROFITS IN THE AFORESAID WORKING. D) THE FIGURE OF TOTAL COST TAKEN BY TPO EXCLUDES DEPRECIATION OF RS.3.55 CR. WHICH IS CONSIDERED IN THE REVISED WORKING. E) THE REVISED OP TO SALES COMES TO 19.73% E) THE REVISED OP TO SALES COMES TO 19.73% 5. THE TPO HOWEVER, REJECTED THE CASE OF ASSESSEE ON MAJOR POINTS AND RE - WORKED THE PLI IN THE CASE OF ANG INDUSTRIES LTD. AT 20.59% , THE MEAN PLI OF COMPARABLES WORKED OUT TO 13.33% AND THAT OF ASSESSEE WAS WORKED OUT TO 7.72% AND CONSEQUENTLY, AN ADJUSTMENT TO THE EXTENT OF RS.3,03,96,941/ - WAS MADE TO THE INTERNATIONAL TRANSACTIONS OF THE ASS ESSEE WITH ITS ASSOCIATED ENTERPRISES. 6. BEFORE THE ASSESSING OFFICER, THE ASSESSEE ONCE AGAIN EXPLAINED ITS CASE VIS - A - VIS WORKING OF PLI OF ANG INDUSTRIES LTD. AND ALSO REVISED PLI OF WORKING OF ASSESSEE ITSELF. BOTH WERE REJECTED BY THE ASSESSING O FFICER AND ADDITION TO THE EXTENT OF RS.3.03 CRORES WAS MADE IN THE HANDS OF ASSESSEE. ITA NO. 1 561 /PN/20 1 3 YUTAKA AUTO PARTS PUNE PVT. LTD. 4 7. BEFORE THE CIT(A), THE CLAIM OF ASSESSEE WAS TWO FOLDS; THAT FIRST OF ALL, THOUGH THE ASSESSEE HAS PICKED UP ANG INDUSTRIES LTD. AS COMPARABLE IN ITS TRANSFER PRICING REPORT, THE SAME WAS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE. THE ASSESSEE FURTHER POINTED OUT THAT ANG INDUSTRIES LTD. WAS ENGAGED IN THE MANUFACTURE OF HEAVY VEHICLES SPARE PARTS AND TRAILERS AND THE SEGMENTAL DETAILS IN THIS REGARD WERE NOT AVAILA BLE. ON THE OTHER HAND, THE ASSESSEE WAS AN IN - HOUSE RESEARCH GROUP COMPANY OF TATA AUTO COMP GROUP AND WAS SUPPLYING SUSPENSION PRODUCTS, EXHAUST SYSTEMS TO TATA MOTORS FOR ITS PASSENGER CARS AND SPORTS UTILITY VEHICLES. IT WAS FURTHER POINTED OUT THAT IN MAJOR CORPORATE RESTR UCTURING, SUBSIDIARY COMPANY ANG AUTO TECH PVT. LTD. WAS AMALGAMATED WITH ANG INDUSTRIES LTD. W.E.F. MARCH, 2007 AND BECAUSE OF THE SAID AMALGAMATION, THE CONCERN BECAME WELL DIVERSIFIED COMPANY. FURTHER, THE TURNOVER OF ANG INDUST RIES LTD. WAS RS.143 CRORES AS AGAINST THE TURNOVER OF ASSESSEE AT RS.54 CRORES. IN VIEW OF SIZE, VOLUME, TURNOVER AND OTHER FACTORS, THE PLEA OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE CONCERN M/S. ANG INDUSTRIES LTD. SHOULD BE EXCLUDED WHILE BENCHMA RKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT THE SAID CONCERN WAS MECHANICALLY AND INADVERTENTLY INCLUDED IN THE LIST OF COMPARABLES BY ASSESSEE ITSELF. HOWEVER, THE CONCERN SHOULD BE EXCLUDED BECAUSE O F FUNCTIONAL DIFFERENCES. AN ALTERNATE PLEA FOR ADJUSTMENT OF EXPENSES WAS ALSO MADE BY THE ASSESSEE BEFORE THE CIT(A). THE CIT(A) HELD AS UNDER: - 3.1.5 I HAVE CONSIDERED THE ARGUMENTS OF THE APPELLANT. I FIND THAT THE APPELLANT HAD SELECTED ANG INDUSTR IES LIMITED AS A COMPARABLE COMPANY IN ITS TRANSFER P RI CING REPORT. HOWEVER, IT HAS CONSIDERED LATER THAT THE COMPANY IS NOT COMPARABLE. I AGREE WITH THE APPELLANT THAT IT CAN CHANGE ITS ADMITTED POSITION LATER ONCE IT NOTICES ITS ERROR. THE FUNDAMENTAL I SSUE HERE WOULD BE; ON FACTS, WHETHER THE COMPANY IS COMPARABLE OR NOT? 3.1.6 THE APPELLANT COMPANY IS A MANUFACTURER OF AUTO COMPONENTS WHEREAS ANG INDUSTRIES LIMITED ALSO MANUFACTURES TRAILERS IN ADDITION TO AUTO ITA NO. 1 561 /PN/20 1 3 YUTAKA AUTO PARTS PUNE PVT. LTD. 5 COMPONENTS. PAGE 17 OF ANNUA L REPORT OF THE COM PANY FOR FY 2007 - 08 STATES AS UNDER: - THIS COMPANY HAS P OSITIONED ITSELF AS THE LARGEST MANUFACTURE OF TRAILS IN INDIA WITH AN ANNUAL CAPACITY OF 3600 TRAILERS WITH THE SECOND PHASE OF EXPANSION MATERIALISING ; THE CAPACITY WILL CATAPULT TO 6000 UNI TS ANNUALLY BY THE END OF 2008 - 09 3.1.7 SIMILAR REFERENCE CAN BE FOUND ON PAQE 29 OF THE ANNUAL REPORT, WHICH IS AS UNDER: REVENUE (NET SALES) THE COMPANY'S REVENUE GREW BY 22.89% OVER THE PREVIOUS YEAR ON ACCOUNT OF THE FOLLOWING FACTORS. A SIGNIFICAN T GROWTH IN THE TRAILER BUSINESS: IMPROVED DEMAND IN THE INDIAN UNDER - CARRIAGE MARKET, ACCELERATING THE COMPANY'S AUTO COMPONENT SALES. SUCCESSFUL PERFORMANCE OF PRODUCTS LIKE W - SERIES OF FULLY DRESSED TRAILER AXLES 3.1.8 FURTHER PERUSAL OF THE ANNUAL REP ORT SHOWS THAT THE COMPANY HAS NOT SHOWN SEPARATE INCOME FROM THE TRAILERS SEGMENT. THEREFORE, IT WOULD BE INCORRECT TO COMPARE FINANCIAL RESULTS OF THIS COMPANY WITH THE APPELLANT COMPANY IN ABSENCE OF THE AVAILABILITY OF COMPARABLE AUTO COMPONENT SEGMEN T. IN VIEW OF THIS FACTUAL POSITION, I HOLD THAT THIS COMPANY IS NOT COMPARABLE ON THE GROUND THAT ITS PRODUCT MIX IS NOT COMPARABLE WITH THE APPELLANT. I DIRECT THE LEARNED AO TO EXCLUDE THE COMPANY FROM THE LIST OF THE COMPARABLE COMPANIES. 3.1.9 AS THE MAIN GROUND OF APPEAL ON THIS ISSUE IS DECLARED IN FAVOUR OF THE APPELLANT, THE ALTERNATIVE GROUND OF APPEAL ON THIS ISSUE ON GRANTING APPELLANT, THE ALTERNATIVE GROUND OF APPEAL ON THIS ISSUE ON GRANTING ADJUSTMENTS FOR VARIOUS DIFFERENCES HAS BECOME INFRUCTUOUS, HENCE IS DI S MISSED. 8. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) . 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACING RELIANCE ON THE ORDER OF ASSESSING OFFICER POINTED OUT THAT THE SAID CONCERN ANG INDUSTRIES LTD. WAS PICKED UP BY THE ASSESSEE WHILE CARRYING ON ITS TP STUDY REPORT AND W HERE THE ASSESSEE HAD HELD IT TO BE FUNCTIONALLY COMPARABLE, THEN AT THIS JUNCTURE, THE SAID CONCERN COULD NOT BE EXCLUDED FROM THE LIST OF COMPARABLES . 10. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, PLACED RELIANCE ON THE O RDER OF CIT(A). ITA NO. 1 561 /PN/20 1 3 YUTAKA AUTO PARTS PUNE PVT. LTD. 6 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS WITH REGARD TO TRANSFER PRICING ADJUSTMENT TO BE MADE IN THE HANDS OF ASSESSEE. THE ASSESSEE WAS A JOINT VENTURE COMPANY BETWEEN TA TA AUTO COMPARABLES SYSTEMS LTD. AND YUTAKA JAPAN . HOWEVER, DURING THE YEAR ENDING 31.03.2007 , IT BECAME WHOLLY SUBSIDIARY OF YUTAKA JAPAN. THE ASSESSEE WAS ENGAGED IN MANUFACTURING ACTIVITY IN THE AUTOMOBILE INDUSTRIES AND WAS OPERATING FROM ITS PLANT S ITE AT PIRANGUT IN PUNE. THE ASSESSEE HAD BENCHMARKED ITS INTERNATIONAL TRANSACTION BY APPLYING TNMM METHOD AND OPERATING PROFIT / OPERATING SALES RATIO WAS TAKEN AS THE PLI IN TNMM ANALYSIS. THE ASSESSEE HAD WORKED OUT ITS PLI AT 10.50%. HOWEVER, THE T PO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, RE - WORKED THE PLI OF ASSESSEE COMPANY AT 7.72%. THE ASSESSEE ON THE OTHER HAND, HAD PICKED UP THREE CONCERNS AS COMPARABLE WHOSE ARITHMETIC MEAN OF PLI WORKED OUT TO 9.39%. THE TPO DURING THE COURSE OF PROC EEDINGS HAD RE - WORKED THE PLI OF THREE CONCERNS AND THE AVERAGE MEAN WAS WORKED OUT AT 13.41%. THE ASSESSEE IS AGGRIEVED BY INCLUSION OF ANG INDUSTRIES LTD. AS COMPARABLE IN THE FINAL SET OF COMPARABLES. THE CONTENTION OF THE ASSESSEE WAS THAT THOUGH IT HAD PICKED UP THE SAID CONCERN AS COMPARABLE IN ITS TP STUDY REPORT, BUT BECAUSE OF THE CHANGED CIRCUMSTANCES, THE SAID CONCERN WAS NOT COMPARABLE BEING FUNCTIONALLY DIFFERENT. THE FIRST ASPECT OF THE ISSUE IS THAT WHERE THE ASSESSEE HAD PICKED UP THE CON CERN AS COMPARABLE IN ITS TP STUDY REPORT, CAN THE SAID CONCERN BE EXCLUDED WHILE BENCHMARKING INTERNATIONAL TRANSACTION OF T HE ASSESSEE . 12. WE FIND THAT THE SAID ISSUE IS SQUARELY COVERED BY THE SPECIAL BENCH OF CHANDIGARH TRIBUNAL IN THE CASE OF QUAR K SYSTEMS PVT. LTD. REPORTED IN 132 TTJ 1 (CHANDIGARH TRIB) . APPLYING THE SAID PROPOSITION LAID DOWN BY THE ITA NO. 1 561 /PN/20 1 3 YUTAKA AUTO PARTS PUNE PVT. LTD. 7 CHANDIGARH SPECIAL BENCH OF TRIBUNAL, WE HOLD THAT IN CASE, BECAUSE OF FINANCIAL STATEMENTS OR OTHERWISE, THE ASSESSEE IS ABLE TO PROVE THAT THE SAID CONCERN THOUGH PICKED UP BY IT AS COMPARABLE IN THE TP STUDY REPORT, IS FUNCTIONALLY DIFFERENT, THEN THE SAME IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. 13. NOW, COMING TO THE CONCERN ANG INDUSTRIES LTD. THE ASSESSEE WAS A MANUFACTURER OF AUTO COMPONENTS. HOWEVER, ANG INDUSTRIES LTD. HAD UNDERGONE MAJOR RESTRUCTURING, WHEREIN THE SUBSIDIARY ANG AUTO TECH PVT. LTD. WAS AMALGAMATED WITH ANG INDUSTRIES LTD. W.E.F. M ARCH, 2007. AFTER AMALGAMATION, ANG INDUSTRIES LTD. B ECAME WELL DIVERSIFIED C OMPANY AND WAS ENGAGED IN THE MANUFACTURE OF TRAILERS IN ADDITION TO AUTO COMPONENTS. THE CIT(A) HAD REFERRED TO THE PAGE 17 OF THE ANNUAL REPORT OF THE SAID CONCERN, WHEREIN THE SAID FACT HAS BEEN REPORTED BY THE COMPANY. FURTHER, THE REASON FOR GROWTH IN BUSINESS WAS ALSO ATTRIBUTED TO THE GROWTH IN TRAILER BUSINESS. THE FOR GROWTH IN BUSINESS WAS ALSO ATTRIBUTED TO THE GROWTH IN TRAILER BUSINESS. THE TURNOVER OF ANG INDUSTRIES LTD. WAS RS.143 CRORES AS AGAINST THE TURNOVER OF ASSESSEE AT RS.54 CRORES DECLARED BY THE ASSESSEE, WHICH IS NOT THE SOLE CRITERIA TO REJECT THE SAID CONCER N. HOWEVER, WHERE THE CONCERN HAD ENTERED INTO OTHER LINE OF BUSINESS AND IN THE ABSENCE OF SEGMENTAL PROFITS IN RESPECT OF TWO BUSINESSES CARRIED ON BY THE SAID CONCERN, WE HOLD THAT THE SAID CONCERN ANG INDUSTRIES LTD. IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND HENCE, THE SAME IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. UPHOLDING THE ORDER OF CIT(A) IN THIS REGARD, WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 14. BEFORE US, THIS ISSUE WAS RAISED BY WAY OF APPEAL FILED BY THE REVENUE AND THE ASSESSEE HAS NOT POINTED OUT ANY APPEAL HAS BEEN FILED BY THE ITA NO. 1 561 /PN/20 1 3 YUTAKA AUTO PARTS PUNE PVT. LTD. 8 ASSESSEE AGAINST OTHER TRANSFER PRICING ISSUES AND HENCE, WE DECIDE THE PRESENT APPEAL ONLY ON THIS ISSUE. 1 5 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRO NOUNCED ON THIS 20 TH DAY OF MAY , 201 6 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 20 TH MAY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APP ELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - IT/TP , PUNE ; THE CIT - I V , PUNE / DIT(TP/IT), PUNE ; 4. / THE CIT - I V , PUNE / DIT(TP/IT), PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE