Toyota Industries Engine India Private Limited, Bangalore V. The Assistant Commissioner Of Income Tax, Circle-7(1)(1), Bangalore

ITA 173/BANG/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8010 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 13-03-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJIT TOLANI
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 43B; 139; 143(3); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER IT(TP)A No.173/Bang/2022 Assessment year : 2017-18 Toyota Industries Engine India Private Ltd., Plot No.9, Phase 2, Jigani Industrial Area, Jigani, Bangalore – 561 105. PAN: AAACK 7425Q Vs. National e-Assessment Centre, Delhi. / The Assistant Commissioner of Income-tax, Circle 7(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Ajit Tolani, Advocate Respondent by : Dr. Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru. Date of hearing : 12.05.2022 Date of Pronouncement : 13.05.2022 O R D E R Per Padmavathy S., Accountant Member This appeal is against the order passed by National Faceless Assessment Centre, New Delhi u/s. 143(3) r.w.s. 144C of the Income Tax Act (the Act) dated 31/01/2022 for the assessment year 2017-18 passed pursuant to the directions of the Dispute Resolution Panel (DRP). IT(TP)A No.173/Bang/2022 Page 2 of 9 2. During the course of hearing the learned AR pressed for only Ground No.19 with regard to transfer pricing adjustment and Ground No. 20 regarding corporate issues. The said Grounds read as follows:- “19. On the facts and in circumstances of the case, the learned AO/learned TPO erred in non-consideration of gross profit (“GP”)/sales as the PLI respect of the international transaction of purchase of raw materials. 20. On the facts and circumstances of the case and in law the learned AO erred in making an addition u/s.43B of the Act towards bonus provision without appreciating that the said section shall not apply if the payment is made on or before the due date for furnishing of return of income u/s. 139(1).” 3. The assessee is a joint-venture between Toyota Industries Corporation Japan holding 98.85% of stake and the balance 1.15% is held by Kirloskar Systems Ltd India. As part of its business, the assessee had the following international transactions with its AE :- • Purchase of raw materials and components. • Purchase of fixed assets. • Sale of finished goods. • Payment of Professional and consultancy charges. • Reimbursement of expenses received • communication expenses 4. In this appeal we are concerned with the determination of Arm’s Length Price (ALP) in the auto components manufacturing segment. Pursuant to the order of the DRP, the only relief which the assessee seeks is with regard to the computation of profit level indicator (PLI) as done by the TPO which was operating profit on total cost. The assessee seeks PLI to be operating profit on sales. No other grounds IT(TP)A No.173/Bang/2022 Page 3 of 9 were addressed insofar as auto components manufacturing segment is concerned. 5. As far as prayer of the assessee for adopting PLI as OP/Sales is concerned, we notice that the coordinate bench of the Tribunal in assessee’s own case for AY 2010-11 in IT(TP)A no.485/Bang/2015 dated 18/05/2016 accepted the contention of the assessee and directed that the PLI should be adopted as OP/Sales. This is followed by the Tribunal for the AY 2011-12 also in assessee’s own case. The relevant observations of the Tribunal in assessee own case for the assessment year 2010-11 is reproduced below:- “In principle we are in agreement with the contention raised by the assessee as GP over sales can eliminate the difference in claim of depreciation due to age of machinery rate at which it was claimed and method of claims like straight line or written down value. We accordingly direct the AO/TPO to adopt the comparison of profitability ratios adopting GP over sales. Since the details of capacity utilisation of the comparable companies and rate of depreciation could not be analysed as commented by DRP it would be better if GP analysis was undertaken taking sales less cost of raw material as basis (excluding other cost including depreciation interest etc.) so that auto components profitability could be analysed so as to consider whether the import of raw material from AE has effected the profitability of assessee under their provisions. Accordingly we set aside the impugned orders of the revenue authorities on this issue and restore the matter to the file of AO/TPO to carry out the exercise as stated above. Assessee should be given new opportunity. However we make it clear that if any adjustment is required to be made the same is to be restricted as directed by DRP in Paras 3.1.3 (Ground No.2) intended to be reopened. AO/TPO is directed accordingly. Ground No.3 is allowed for statistical purposes” IT(TP)A No.173/Bang/2022 Page 4 of 9 6. We also notice that the Hon’ble Karnataka High Court has dismissed the appeal of the revenue against the above order of the Tribunal in ITA No.229/2017 [2019] 106 taxmann.com 309. 7. Respectfully following the decision of the coordinate bench of the Tribunal, we hold that PLI should be adopted for the purpose of comparing the assessee’s margin in Auto component manufacturing segment and that the comparable companies PLI should be GP by sales. We direct the AO/TPO to re-compute the arm’s length margin of the assessee in accordance with the above direction after giving reasonable opportunity of being heard to the assessee. This ground is allowed in favour of the assessee. 8. The next issue for consideration is the disallowance made by the AO u/s. 43B. During the assessment year 2017-18 the assessee had created a provision for bonus amounting to Rs. 55,023,516 and a provision for long-term service award for Rs.3,37,270. The assessee in the computation of income disallowed these two amounts and claimed the amount actually paid before for the due date for filing the return of income as a deduction u/s. 43B of the Act. The amount so claimed are Rs.4,36,47,012 towards bonus and Rs.90,000 towards long-term service awards. The assessing officer made an adjustment of Rs.4,15,30,847 as disallowable u/s. 43B of the Act in the draft assessment order. IT(TP)A No.173/Bang/2022 Page 5 of 9 9. The assessee raised objections before the DRP stating that the amount claimed in the computation of income by the assessee u/s. 43B is on the basis of actual payment of bonus and the long-term service award. The DRP accordingly issued a direction to the AO to verify that the payments has been made before the due date for filing the return and if so no disallowance u/s. 43B should be made. However in the final assessment order, the AO sustained the disallowance stating that the auditors report itself has certified that the assessee had only made payment of Rs 65,35,061 and not the amount as claimed by the assessee. Aggrieved the assessee is in appeal before the Tribunal. 10. The ld. AR submitted that the assessee has created a provision for bonus amounting to Rs.55,023,516 as reflected in clause 26(i)(B)(a) and clause 26(i)(B) (b) of the tax audit report in Form 3CD (page 426 of paper book). The assessee also created provision for long- term service awards for Rs.3,37,270 as reflected in clause 26(i)(B)(b). Out of the said amount the assessee had paid Rs.4,15,30,847 out of current year provision and Rs.21,16,165 out of the earlier year provision and claimed both these amounts in the return of income u/s. 43B of the Act since these amounts were paid before the due date for filing the return of income u/s. 139(1). The ld. AR submitted that the amount actually paid is also certified by the auditors in Form 3CD under the relevant clauses. The ld. AR also submitted that the AO has not followed the directions of the DRP and did not call for any detail to verify the actual payment made by the assessee towards bonus and long-term service awards. The learned AR therefore prayed that the IT(TP)A No.173/Bang/2022 Page 6 of 9 said amount be allowed as a deduction u/s. 43B of the act based on the audit report in Form 3CD. 11. The learned DR supported the decision of AO and submitted that if the AO has not verified the actual payments as contended by the ld. AR, then the matter be remitted back to the AO for proper verification. 12. We have heard the rival submissions and perused the material on record. The assessee while filing its objections before the DRP had presented the details of the provision made towards bonus and long- term service awards along with the amounts actually paid and claimed as a deduction in the return of income u/s. 43B of the Act. The assessee had presented these details in a tabular form which is reproduced below:- Particulars Opening balance of provision for bonus Amount (in INR) 5,649,864 [2,116,165 plus 3,533,699] Reference to Form 3CD Remarks Clause 26(i)(A)(a) and Clause 26(i)(A)(b) Opening balance of provision for bonus disallowed in earlier years under section 43B Add: Provision created during the 55,023,516, [41,530,847 plus Clause 26(i)(B)(a) and Clause Provision for bonus disallowed in the ROI of AY AY 2017-18 13,492,669] 26(i)(B)(b) 2017-18 Less: Payment towards opening balance within FY 2,116,165 Clause 26(i)(A)(a) Claimed as an admissible expense under section 43B in the ROI of AY 2017-18 16-17 Less: Payment towards provision for bonus created during the AY 41,530,847 Clause 26(i)(B)(a) Claimed as an admissible expense under section 43B in the ROI of AY 2017-18 2017-18 Closing balance of 17,026,368 Clause 26(i)(A)(b) Closing balance of provision provision for [3,533,699+ Clause 26(i)(B)(b) disallowed in the ROI of bonus (i.e. bonus remain unpaid) 13,492,669] previous years or AY 2017-18 on account of non-payment. IT(TP)A No.173/Bang/2022 Page 7 of 9 Break up of the amounts reported in ROI Particulars Amount (in INR) Reference to Form 3CD Part A - OI - # 10(c) Any sum payable to employee as bonus or commission disallowed under section 43B in any preceding previous year but allowable during the previous year . - Provision for bonus 43,647,012 Clause 26(i)(A)(a) and Clause26(i)(B)(a) - Provision for long term service award 90,000 Clause 26(i)(A)(a) Total amount reported in Part A - OI - # 10(c) 43,737,012 Part A - OI - # 11(c) Any sum payable to employee as bonus or commission debited to profit and loss account of the previous year but disallowable under section 43B. - Provision for bonus 55,023,516 Clause 26(i)(B)(a) and Clause 26(i)(B)(b) - Provision for long term service award 337,270 Clause Total amount reported in Part A - OI - # 11(c) 55,360,786 13. The learned AR during the course of hearing drew our attention to the relevant clauses in form 3CD and also the computation of income where the assessee has made the disallowances of the entire provision and made claim u/s. 43B based on actual payment of the said provisions. IT(TP)A No.173/Bang/2022 Page 8 of 9 14. Section 43B provides that certain deductions to be allowed only on actual payment basis and any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred. Hence there is no argument that the assessee is entitled for claiming deduction u/s. 43B with respect to provision made for bonus and long- term service awards based on the actual amount paid on or before the due date for filing the return of income. We notice that in the final assessment order the assessing officer has stated that the auditor has certified only a payment of Rs.65,35,061 which in our considered view is not factually correct. On perusal of Form 3CD, we notice that the auditors have certified Rs.4,15,30,847 (clause 26(i)(B)(a) and Rs.21,16,165 (clause 26(i)(A)(a) towards bonus and Rs.90,000 (clause 26(i)(A)(a) towards long-term service awards. In view of the above, it is clear that the auditors, Price Waterhouse & Co., have verified the actual amount paid by the assessee, have certified the same in the tax audit report in Form 3CD stating that the assessee has paid the said amounts before the due date for furnishing the return of income u/s.139(1). Hence we are of the considered view that the assessee is entitled for the deduction u/s. 43B in respect of the amount Rs.4,37,37,012. The addition made in this regard is deleted and it is ordered accordingly. This ground is allowed in favour of the assessee. IT(TP)A No.173/Bang/2022 Page 9 of 9 15. In the result, the appeal by the assessee is allowed. Pronounced in the open court on this 13 th day of May, 2022.. Sd/- Sd/- ( GEORGE GEORGE K. ) ( PADMAVATHY S. ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 13 th May, 2022. / Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.