SKF Technologies India Private Limited, Bangalore V. ACIT, Bangalore

ITA 1563/BANG/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8589 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G. R. REDDY
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER IT(TP)A NO.1563/BANG/2012 ASSESSMENT YEAR : 2008-09 M/S. SKF TECHNOLOGIES INDIA PVT. LTD., 13/5, SINGASANDRA, 13 TH KM HOSUR ROAD, BANGALORE 560068. PAN:AAACC4393D VS. ASSISTANT COMMISSIONER OF INCOME TAX, 12(3), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI. K. R. VASUDEVAN, ADVOCATE REVENUE BY : SHRI. G. R. REDDY, CIT-DR-I DATE OF HEARING : 22.12.2016 DATE OF PRONOUNCEMENT : 31.1.2017 O R D E R PER LALIT KUMAR, JUDICIAL MEMBER THIS APPEAL IS ARISING OUT OF THE ORDER PASSED BY T HE LEARNED AO, 12(3), BANGALORE UNDER SECTION143(3) R.W.S. 144C OF THE I. T. ACT, 1961, DATED 20.09.2012. IT(TP)A NO.1563/BANG/2012 PAGE 2 OF 7 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: TRANSFER PRICING T H E LE A RNED ASSISTANT COMMISSIONER OF INCOME-TAX , 12(3), BANGALORE ( ' LD AO ' ) AND THE LE ARNED DISPUTE RESOLUTION PANEL ( ' PANEL ' ) GROSSLY ERRED IN FACTS AND LAW IN CONFIRMING THE AC TION OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX (TRANSFER PRICING - VI), BANGALORE ( ' TRANSFER PRI C ING OFFICER ' OR ' TPO ' ) OF MAKING AN ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT IN RESPECT OF GROUP INFORMATION TECHNOLOGY ( ' IT ' ) SERVICE FEE OF RS. 66 , 40 , 175 / - PAID BY APPELLANT TO ITS ASSOCIATED ENTE R PRISES HOLDING THAT THE INTERNATIONAL TRANSACTIONS DO NOT SATISFY THE ARM ' S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME TAX ACT , 1961 (THE ' ACT ' ) AND THEREB Y GROSSL Y EARNED IN I. THE LD AO AND THE LD PANEL HAS ERRED IN ACCEPTING T HE CONTENTION OF THE TPO THAT THE ARM'S LENGTH P R ICE OF THE PAYMENT OF GROUP IT SERVICE FEE I S NIL' . II . THE LD AO AND THE LD PANEL HAS ERRED ACCEPTING THE CONTENTION OF THE TPO IN REJECTING TRANSACTIONAL NET MARGIN ME THOD ( ' TNMM ' ) AS THE MOST APPROPRIATE METHOD IN DETERMINING THE ARM' S LENGTH PRICE OF GROUP IT S ERVICE FEE. III THE LD AO AND THE LD PANEL HAS ERRED IN ACCEPTING T HE CONTENTION OF THE TPO THAT THE COMPARABLE UNCONTROL LED PRICE ( ' C U P ' ) METHOD I S THE MOST APPROPRIATE METHOD I N DETERMINING THE ARM 'S LENGTH PRICE OF GROUP IT SERVICE FEE , IN SPITE OF THE FACT THAT INFORMATION RELATING TO SIMILAR SERVICES BETWE EN TWO UNRELATED ENT I TIES WAS NOT AVAILABLE AND WAS NOT PRODUCED BY THE TPO . IV. THE LD AO AND THE LD PANEL HAS ERRED IN ACCEPT ING THE CONTENTION OF THE TPO , WHEREIN THE TPO HAS REJECTED THE DETAILED DOCUMENTATION MAINTAINED EVIDENCING T HE BENEFITS DERIVED AND THE RECEIPT OF SERVICES IN RESPECT GROUP IT SERVICE FEE AND THEREBY CONCLUDING THAT THE APPELLANT HAS NOT RECEI VED ANY BENEFITS FROM GROUP IT SERVICE FEE . V. T H E LD AO AND THE LD PANEL HAS ERRED IN UPHOLDING THE ACTION OF LD TPO OF FAILING TOTAKE THE COGNIZANCE OF THE FACT THAT RATIONAL AND SCIENTIFIC ALLOCATION KE Y S FOR THE PAYMENT OF GROUP IT SERVICE FEES WERE PROVIDED BY THE APPELLANT . IT(TP)A NO.1563/BANG/2012 PAGE 3 OF 7 II. CORPORATE TA X I. THE LD AO HAS ERRED IN CONSIDERING POSITIVE INCOME OF RS. 95 , 780 , 278 BASED ON THE ERRONEOUS FIGURE OF CARRY FORWARD LOSS AS PER ASSESSMENT ORDERS FOR A Y 2006-07 AND 2007 - 08. II. THE LD AO HAS ERRED IN RELYING ON THE ASSESSMENT OR DERS FOR A Y 2006-07 AND 2007-08, WHEREIN THE CARRY FORWARD LOSS FIGURE HAS BEEN MENTIONED ERRONEOUSLY. 3. DRP HAS UPHELD THE ACTION OF THE AO/TPO IN CONSI DERING THE ALP AT NIL AND THE DRP HAS REMANDED THE MATTER TO T HE AO TO VERIFY THE CLAIM OF THE ASSESSEE WITH RESPECT TO CARRY FOR WARD OF LOSSES. AGAINST THE SAID ORDER OF DRP, THE ASSESSEE IS BEFO RE US. AT THE OUTSET, IT WAS MENTIONED BY THE LEARNED COUNSEL FOR THE ASS ESSEE THAT THE COORDINATE BENCH IN THE CASE OF THE ASSESSEE IN IT( TP) NO. 1481/BANG/10 AND IT(TP) NO. 1339/BANG/2011 VIDE ORDER DATED 31.3.2016 HAD REMANDED BACK THE MATTER TO THE AO WI TH THE FOLLOWING DIRECTION: IN OUR OPINION THERE IS NO DOUBT THAT THE ASSESSEE HAS TO ESTABLISH RECEIPT OF BENEFITS ON ACCOUNT OF SERV ICES RENDERED BY ITS AES AND THESE WERE COMPENSATED ON A LEVEL COMPARABLE TO PAYMENTS THAT WOULD HAVE BEEN MADE IF SIMILAR SERVICES WERE RECEIVED FROM UNRELATED PARTI ES OR IN AN UNCONTROLLED TRANSACTION. AT THE SAME TIME, IF IT IS NOT OPEN FOR THE TPO TO CONSIDER THAT THERE WAS NO BENE FIT WHATEVER RECEIVED BY THE ASSESSEE WITHOUT VERIFYING THE DOCUMENTATION SUBMITTED BY THE ASSESSEE. AS PER TH E ASSESSEE, IT HAD EVIDENCE TO SHOW THAT HERE WAS CON SIDERABLE CORRESPONDENCE BETWEEN THE AE AND ITSELF WHICH COUL D AMPLY PROVE RENDERING OF SERVICES BY THE AES TO THE ASSES SEE. THE FACTS AND CIRCUMSTANCES OF THE CASE AS DESCRIBED AB OVE SHOW IT(TP)A NO.1563/BANG/2012 PAGE 4 OF 7 THAT THE QUESTION OF BENCH-MARKING THE VALUE OF SUC H SERVICES REQUIRES A FRESH LOOK BY THE AO/TPO. WE THEREFORE SET ASIDE THE ORDERS OF THE AO / TPO AND REMIT THE ISSUES REL ATING TO ALLEGED PAYMENTS FOR TECHNICAL FEES AND ALLEGED REIMBURSEMENT OF GROUP IT EXPENDITURE TO THE AES BA CK TO THE FILE OF THE AO/TPO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ASSESSEE IS FREE TO PRODUCE A NY EVIDENCE TO SHOW THAT SERVICES WERE INDEED RECEIVED BY IT FROM THE AE. ASSESSEE IS ALSO DUTY BOUND TO BENCH- MARK SUCH SERVICES BY COMPARING IT WITH UNCONTROLLED TRA NSACTIONS BY INDEPENDENT ENTERPRISES WHERE SIMILAR SERVICES A RE RECEIVED. ACCORDINGLY, GROUND I OF THE ASSESSEE FO R BOTH YEARS IS TREATED AS ALLOWED. 4. THE ASSESSEE HAS FURTHER BROUGHT TO OUR NOTICE T HAT IN RESPECT OF CARRY FORWARD OF LOSSES, THE ISSUE WAS REMANDED BAC K TO THE AO FOR ACTUAL VERIFICATION OF THE CARRY FORWARD OF LOSSES. ON THE OTHER HAND, THE LEARNED DR RELIES ON THE ORDER PASSED BY THE TP O, DRP AND AO. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTI ES AND PERUSED THE RECORDS. THE DRP IN PARAGRAPH 3.4 HAS HELD THA T THE TRANSACTION RELATING TO PAYMENTS OF INTRA GROUP SERVICES AND TE CHNICAL FEES IS TREATED AS SEPARATE TRANSACTIONS AND NOT AGGREGATED WITH THE TRANSACTION OF THE MANUFACTURING ACTIVITY AND IN THE LIGHT OF T HE ABOVE, IT WAS HELD BY THE TPO THAT THE ASSESSEE HAS FAILED TO PROVE TH AT IT HAS ACTUALLY RECEIVED THE SERVICES AND SUCH SERVICES HAVE BENEFI TED THE ASSESSEE. IN THE LIGHT OF THE ABOVE AND MORE PARTICULARLY RESPEC TFULLY FOLLOWING THE JUDGMENT OF THE COORDINATE BENCH IN THE CASE OF THE ASSESSEE, WE DEEM IT APPROPRIATE TO RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO FIND OUT AS TO WHETHER ANY SERVICE IS RENDERED BY THE AE TO IT(TP)A NO.1563/BANG/2012 PAGE 5 OF 7 THE ASSESSEE AND FROM WHICH THE ASSESSEE HAS DRAWN ANY BENEFIT FROM IT. THUS IN LINE OF THE DIRECTION OF THIS TRIBUNAL REFERRED HEREIN ABOVE AND ALSO IN THE LINE OF THE PARAGRAPH 34 REPRODUCED HEREIN BELOW, OF DELHI HIGH COURT JUDGMENT AS RENDERED IN THE CASE O F COMMISSIONER OF INCOME TAX I VS. CUSHMAN & WAKEFIELD INDIA PVT. L TD., ITA NO. 475/2012 (DELHI HIGH COURT), WE REMAND BACK THE MATTER TO THE AO : T HE COURT F IRST NOTES THAT THE AUTHORIT Y O F THE T PO I S T O C ONDU C T A TR A NS F ER PRICIN G AN A L YS I S TO DETERMIN E TH E AL P A ND NOT T O D ETE RMIN E W H ETHER THERE IS A SERVICE O R N OT FROM WHICH THE ASSESSEE BENEFIT S . THA T ASPECT OF THE EXERCISE IS L EFT TO THE AO. THIS DISTINCTION WAS MA DE C L EAR BY THE ITAT IN DRESSER -R AND INDIA PVT. LTD . V . ADDITION AL COMMISSIONER OF INCOME TAX, 2012 ( 1 3) IT R (TRIB) 422: IT(TP)A NO.1563/BANG/2012 PAGE 6 OF 7 10. WITH RESPECT TO THE SECOND ISSUE OF THE CORPORA TE TAX, WE ALSO REMAND THE MATTER TO THE FILE OF THE AO FOR ACTUAL VERIFICATION OF THE IT(TP)A NO.1563/BANG/2012 PAGE 7 OF 7 CARRY FORWARD OF LOSSES AVAILABLE TO IT DURING THE PRECEDING YEAR AND GIVE BENEFIT OF ACTUAL CARRY FORWARD OF LOSSES. IN THE LIGHT OF THE ABOVE, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 31 ST JANUARY, 2017. SD/- SD/- (A. K. GARODIA) (LALI T KUMAR) ACCOUNTANT MEMBER JUDI CIAL MEMBER BANGALORE. DATED: 31 ST JANUARY, 2017. /NS/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.