Deputy Commissioner of Income-tax, V. M/s. Stauff India Pvt. Ltd., Pune

ITA 1579/PUN/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9568 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-05-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 13-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Keywords: Transfer pricing; International transaction; Additional evidence; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1579 /P U N/201 4 / ASSESSMENT YEAR : 20 1 0 - 1 1 THE DY . COMMISSIONER OF INCOME TAX, CIRCLE 6 , PUNE . / APPELLANT VS. M/S. STAUFF INDIA PVT. LTD., GAT NO.2340, PUNE NAGAR ROAD, PUNE 412207 . / RESPONDENT PAN: AA ACK7672D / APPELLANT BY : SHRI M.K. VERMA / RESPONDENT BY : SHRI NIKHIL PATHAK / DATE OF HEARING : 17 . 1 0 .201 8 / DATE OF PRONOUNCEMENT: 18 . 1 2 .201 8 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY REVENUE IS AGAINST ORDER OF CIT (A) - IT/TP , PUNE , DATED 2 7 . 05 .201 4 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT ) . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: - ITA NO. 1579 /P U N/20 1 4 M/S. STAUFF INDIA PVT. LTD . 2 1 . THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 . THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - IT/TP HAS ERRED ON FACTS AND IN LAW, IN DELETING THE TRANSFER PRICING ADJUSTMENT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS BIFURCATED ITS TRADING ACTIVITY INTO DOMESTIC SALE AND EXPORT SALE, BUT HAS CHOSEN SAME SET OF THE COMPARABLE COMPANIES BY FOLLO WING THE SAME STRATEGY IN THE ECONOMIC ANALYSIS OF THE TRANSFER PRICING STUDY REPORT. 3 . THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - IT/TP HAS ERRED ON FACTS AND IN LAW IN ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING ACTIVITY, WHEN NO SUCH DETAILS WERE SUBMITTED IN TP PROCEEDINGS. 4 . FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE ID. CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE LEA RNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED BY EARLIER ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELYING ON THE ORDER OF ASSESSING OFFICER FAIRLY ADMITTED THAT THE ISSUE STANDS COVERED BY THE ORDERS OF TRIBUNAL IN EARLIER YEARS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN MANUFACTUR ING AND TRADING OF HYDRAULIC ACCESSORIES AND SPARES. THE ASSESSEE WAS WHOLLY OWNED SUBSIDIARY OF WALTER STAUFFENBERG, GERMANY. THE ASSESSING OFFICER NOTED THAT BUSINESS PROFILE OF ASSESSEE COMPANY INCLUDED IMPORT OF ACCESSORIES AND COMPONENTS FOR RE - SELL ING TO INDIAN MARKET AND PROCURING OF ACCESSORIES AND COMPONENTS FROM INDIAN MARKET FOR EXPORT TO PARENT COMPANY. AS PER DETAILS FURNISHED, THE ASSESSEE HAD ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES: - ITA NO. 1579 /P U N/20 1 4 M/S. STAUFF INDIA PVT. LTD . 3 SR. NO. NATURE OF TRANSACTION AMOUNT METHOD APPLIED 1 SALE OF FINISHED GOODS 30631459 TNMM 2 PURCHASE OF GOODS 28859610 TNMM 3 ISSUE OF SHARES 27908000 NA 4 REIMBURSEMENT OF TRAVEL EXPENSES 1548405 NA TOTAL 88947474 6. THE ASSESSEE HAD DIVIDED ITS OPERATI ONS IN TWO SEGMENTS I.E. DOMESTIC SALES AND EXPORT SALES. FOR THE PURPOSE OF BENCHMARKING THE TRANSACTIONS UNDER THE DOMESTIC SALES AND EXPORT SALES, TNMM METHOD WAS SELECTED AS MOST APPROPRIATE METHOD. THE OPERATING PROFIT TO OPERATING SALES RATIO AND O PERATING PROFIT TO OPERATING COST RATIO WERE TAKEN AS PLI IN THE TNMM ANALYSIS, RESPECTIVELY. IN CASE OF DOMESTIC SALES, PLI OF ASSESSEE WAS ARRIVED AT 4.45%, WHEREAS AVERAGE PLI OF COMPARABLES ARRIVED AT 8.80%; IN THE CASE OF EXPORT SALES, PLI OF ASSESSE E WAS 2.86%, WHEREAS THE AVERAGE PLI OF COMPARABLES WAS 8.30%. THE ASSESSEE HAD SELECTED TWO COMPANIES AS COMPARABLES ON THE BASIS OF SEARCH CONDUCTED. THE ASSESSING OFFICER WAS OF THE VIEW THAT THERE WAS NO LOGIC FOR BIFURCATING THE TRADING ACTIVITY INT O DOMESTIC SALES AND EXPORT SALES. HE PROPOSED TO AGGREGATE AND BENCHMARK ALL THE TRANSACTIONS USING THE SET OF COMPARABLES SELECTED FOLLOWING TNMM METHOD . SINCE THE ASSESSEE HAD CALCULATED MARGINS OF COMPARABLES ON THE BASIS OF AVERAGE OF PRECEDING TWO YEARS, THE ASSESSEE WAS DIRECTED TO APPLY THE DATA OF CONTEMPORANEOUS PERIOD, AS PER WHICH THE AVERAGE WORKED OUT TO 12.82%. THE ASSESSEE WAS THUS, SHOW CAUSED IN THIS REGARD. THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA OF ASSESSEE FOR BENCHMARKING TWO TRANSACTIONS SEPARATELY AND NOTED THAT AS AGAINST THE MARGINS OF ASSESSEE AT 2.94%, MARGINS OF COMPARABLES WERE 12.82% AND HENCE, MADE AN UPWARD ADJUSTMENT OF 1,46,32,576/ - . ITA NO. 1579 /P U N/20 1 4 M/S. STAUFF INDIA PVT. LTD . 4 7. THE CIT(A) DELETED THE AFORESAID ADJUSTMENT FOLLOWING THE SAME APPROACH AS HE HAD APPLIED IN ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. 8. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). IT MAY BE POINTED OUT HEREIN ITSELF THAT THE ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE BY THE CIT(A) IN TURN, RELYING ON HIS OWN ORDER FOR ASSE SSMENT YEARS 2008 - 09 AND 2009 - 10. 9. WE FIND THAT THE REVENUE HA D FILED APPEAL S AGAINST THE ORDER OF CIT(A) RELATING TO ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. THE APPEALS OF REVENUE WERE DECIDED BY THE TRIBUNAL VIDE ORDER DATED 26.04.2018 IN ITA NOS.669 & 670/PUN/2014, RELATING TO ASSESSMENT YEARS 2008 - 09 & 2009 - 10. THE TRIBUNAL AFTER TAKING NOTE OF THE ADDITIONAL EVIDENCE FILED BY ASSESSEE BEFORE THE CIT(A), AGAINST WHICH REMAND REPORT WAS OBTAINED FROM THE TPO, WHEREIN THE TPO CONCLUDED THAT THERE WAS N O LOGIC IN BIFURCATING TRADING ACTIVITY INTO DOMESTIC SALES AND EXPORT SALES; WHEREAS THE CASE OF ASSESSEE WAS THAT APART FROM TRADING OF COMPONENTS, IT WAS ALSO ENGAGED IN THE EXPORT OF FINISHED GOODS. THE ASSESSEE FURNISHED MANUFACTURING PROCESS CHART B EFORE THE CIT(A) AND VARIOUS OTHER EVIDENCES WHICH WERE CONFRONTED TO THE TPO, WHO AFTER EXAMINING THE ADDITIONAL EVIDENCE , HA D ACCEPTED THAT THE ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING AND TRADING ACTIVITY. THE TRIBUNAL AFTER TAKING INTO CONSIDERAT ION ALL THE EVIDENCES INCLUDING ADDITIONAL EVIDENCE OBSERVED THAT MANUFACTURING ACTIVITY WAS BEING CARRIED OUT BY THE ASSESSEE. 10. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ADJUSTMENT HAS BEEN MADE IN THE HANDS OF ASSESS EE ON THE GROUND THAT THE ASSESSEE IS NOT ENGAGED IN ANY MANUFACTURING ACTIVITY BUT THE TRIBUNAL UPHELD ITA NO. 1579 /P U N/20 1 4 M/S. STAUFF INDIA PVT. LTD . 5 THE ORDER OF CIT(A) AND HELD THAT THERE WAS MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE P OINTED OUT THAT THE TPO HAD AGGREGATED TWO TRANSACTIONS ON THE GROUND THAT THERE WAS ONE ACTIVITY AND NO SUBSTANTIAL MANUFACTURING WAS BEING CARRIED OUT, WHEREAS THE CIT(A) HELD THAT TWO ACTIVITIES WERE UNDERTAKEN BY THE ASSESSEE I.E. ONE IS MANUFACTURING AND SECOND ONE IS TRADING. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WHEN CONFRONTED FAIRLY AGREED THAT THE ISSUE BE SENT BACK TO THE FILE OF ASSESSING OFFICER / TPO TO BENCHMARK THE MANUFACTURING ACTIVITY AND THE TRADING ACTIVITY SEPARATELY BY APPLYING TNMM METHOD AS THE MOST APPROPRIATE METHOD AND EVEN THE COMPARABLES HAVE TO BE LOOKED INTO AND THE ARM'S LENGTH PRICE OF TRANSFER PRICING OF INTERNATIONAL TRANSACTIONS HAD TO BE DETERMINED. 11. THE FIRST ASPECT OF THE ISSUE IS THAT ADMITTEDL Y, THE ASSESSEE IS CARRYING ON TWO SEPARATE DIVISIONS I.E. TWO SEPARATE ACTIVITIES; ONE IS THE MANUFACTURING AND SECOND IS TRADING. THE ASSESSING OFFICER HAD CONSIDERED THE OPERATIONS OF ASSESSEE IN ENTIRETY AND HELD IT TO BE ONE ACTIVITY. HOWEVER, IN TH E PRECEDING YEAR, THE ASSESSEE WAS HELD TO BE IN CARRYING ON TWO ACTIVITIES. THERE IS NO DISPUTE TO THE SAME. ACCORDINGLY, WE HOLD THAT THE ASSESSEE IS ENGAGED IN TWO SEPARATE ACTIVITIES; ONE IS MANUFACTURING AND THE SECOND IS TRADING. 12. NOW, COMING T O THE SECOND STEP, WHEREIN IT IS THE DUTY OF ASSESSING OFFICER / TPO TO BENCHMARK TWO ACTIVITIES SEPARATELY. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TPO TO APPLY TNMM METHOD AND GO THROUGH THE COMPARABLES SELECTED BY ASSESSEE AND DETERMINE THE ARM' S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ITS ASSOCIATED ITA NO. 1579 /P U N/20 1 4 M/S. STAUFF INDIA PVT. LTD . 6 ENTERPRISES UNDER THE UMBRELLA OF MANUFACTURING ACTIVITY AND ALSO AS PART OF TRADING ACTIVITIES. THE TWO ACTIVITIES HAVE TO BE BENCHMARKED SEPARATELY AND INDEPENDENTLY, FOR WHICH REASONABLE OPPORTUNITY OF HEARING SHALL BE PROVIDED TO THE ASSESSEE. ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER / TPO IN THIS REGARD. THE GROUNDS OF APPEAL RAISED BY REVENUE ARE THUS, AL LOWED FOR STATISTICAL PURPOSES. 13 . IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 18 TH DAY OF DECEM B ER , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 18 TH DECEM BER , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARD ED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - IT/TP , PUNE ; 4. THE CIT - III / DIT (TP/IT), PUNE ; 5. 6. , , / DR B , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE