Assistant Commissioner of Income-tax, V. M/s. Haldex India Ltd., Nashik

ITA 1731/PUN/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7655 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-03-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 31-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CHAWARE
• Assessee Lawyers: R D ONKAR
• Keywords: Depreciation; Transfer pricing; International transaction; Bad and doubtful debts; Avoidance of tax

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.1731/PUN/2015 / ASSESSMENT YEAR : 2009-10 ACIT, CIRCLE-1, NASHIK . /APPELLANT VS. M/S. HALDEX INDIA LIMITED, B-71, MIDC, AMBAD, NASHIK 422 010 PAN : AABCH9044B . / RESPONDENT / APPELLANT BY : SHRI ANIL KUMAR CHAWARE / RESPONDENT BY : SHRI R.D. ONKAR / DATE OF HEARING : 22.03.2018 / DATE OF PRONOUNCEMENT: 25.04.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF C IT(A)-1, NASHIK, DATED 09-10-2015 FOR THE ASSESSMENT YEAR 2009-10. 2. GROUNDS RAISED BY THE REVENUE READ AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CIT(A)-1, NASHIK IS JUSTIFIED IN DELETING THE AD DITION OF RS.12,54,108/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON WRITTEN DOWN VALUE OF FIXED ASSETS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)-1, NASHIK IS JUSTIFIED IN GIVING RELIEF O F RS.1,56,81,600/- DIRECTING THE TP ADJUSTMENT ONLY ON THE VALUE OF INTERNATIONA L TRANSACTION RS.27.04 CRORES, AS THE TPO HAS MADE ADJUSTMENT OF RS.3,82,6 0,000/- ON THE ENTIRE SALES OF RS.45.83 CRORES OF THE ASSESSEE. 3. THE APPELLANT PRAYS THE ORDER OF THE ASSESSING O FFICER MAY BE RESTORED. 4. THE APPELLANT PRAYS TO ADDUCE SUCH FURTHER EVIDE NCE TO SUBSTANTIATE HIS CASE. 5. THE APPELLANT PRAYS LEAVE TO ADD, ALTER, CLARIFY , AMEND AND OR WITHDRAW ANY GROUNDS OF APPEAL AS AND WHEN THE OCCA SION DEMANDS. 2 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SLACK ADJUSTERS AND BRAKE COMPONENTS USED IN BRAKING SYSTEMS. ASSESSEE FILED THE O RIGINAL RETURN OF INCOME ON 30-09-2009 DECLARING TOTAL LOSS OF RS.3,12,86,913/- . ON FINDING THE EXISTENCE OF INTERNATIONAL TRANSACTIONS WITH AE, AS PER THE RULES, AO REFERRED THE INTERNATIONAL TRANSACTIONS TO THE TPO FOR BE NCHMARKING APPLYING THE PROVISIONS RELATING TO TRANSFER PRICING. IN T HE PROCEEDINGS U/S.92CA(3) OF THE ACT, THE TPO MADE THE ADJUSTMENT AMOU NTING TO RS.3,82,60,000/-. EVENTUALLY, AO PASSED THE ORDER U/S.143(3 ) OF THE ACT ON 26-03-3014 DETERMINING THE TOTAL INCOME AT RS.1,23,31,40 0/- AGAINST THE RETURNED LOSS. IN ADDITION TO THE TRANSFER PRICING A DJUSTMENTS, AO ALSO MADE NON-TP ADDITIONS ON ACCOUNT OF MANAGEMENT INCENT IVE BONUS PLAN, APPLICATION U/S.40(A)(IA), DISALLOWANCE OF DEPRECIATION AND ON ACCO UNT OF BAD AND DOUBTFUL DEBTS WRITTEN OFF. SUBSEQUENTLY, IN TH E FIRST APPELLATE PROCEEDINGS, CIT(A) GAVE PART RELIEF TO THE ASSESSEE. AGGR IEVED WITH THE ORDER OF CIT(A) THE REVENUE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL WITH THE GROUNDS MENTIONED ABOVE. THERE IS NO APPEAL BY T HE ASSESSEE. GROUND-WISE ADJUDICATION OF REVENUES APPEAL IS GIVEN IN T HE FOLLOWING PARAGRAPHS. 4. GROUND NO.1 RELATES TO DELETION OF THE ADDITION OF RS.12,5 4,108/- ON ACCOUNT OF DEPRECIATION ON WRITTEN DOWN VALUE OF FIXED ASS ETS ASSESSEE SUBMITTED THAT DURING THE A.Y. 2008-09 ALSO, THE SIMILAR ISS UE OF DEPRECIATION ON THE ASSETS WAS THE SUBJECT MATTER IN S CRUTINY PROCEEDINGS. FOR WANT OF ORIGINAL BILLS AND EVIDENCES, AO DISALLOWED THE CLAIM OF DEPRECIATION ON ASSETS TO THE TUNE OF RS.16,99,760/-. THE DISALLOWAN CE WAS SUBSEQUENTLY REDUCED TO RS.2,99,999/- IN VIEW OF THE ORDE R OF THE TRIBUNAL FOR THE A.Y. 2008-09. THE TRIBUNAL GRANTED RELIEF IN THIS RE GARD TO THE 3 EXTENT OF RS.13,99,761/-. HOWEVER, IN THE A.Y.2009-10, I.E. THE YEAR UNDER CONSIDERATION, THE AO DID NOT CONSIDER THE SAID RELIEF WHILE C OMPUTING THE ALLOWABLE DEPRECIATION. AO CONSIDERED THE INCORRECT WDV WIT HOUT CONSIDERING THE RELIEF GIVEN BY THE TRIBUNAL AND DISALLOWED THE CLAIM OF DEPRECIATION OF RS.12,54,108/- FOR THE A.Y. 2009-10. HOWEVE R, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE FIRST A PPELLATE PROCEEDINGS, LD.CIT(A) RELYING ON THE DECISION OF THE TRIBUN AL/CIT(A) FOR THE A.Y. 2008-09, DELETED THE ENTIRE ADDITION AS PER THE DISCUS SION IN PARA 6.2 OF HIS ORDER. AGGRIEVED WITH THE SAME, REVENUE FILED THE PRESENT APPEA L. 5. LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO DUTIFULLY. 6. PER CONTRA, LD. COUNSEL FOR THE ASSESSEE FILED THE WRITTE N SUBMISSIONS ON THE ISSUE. THE SAME ARE REPRODUCED HERE AS UNDER : 1. LD. AO HAS FOLLOWED PRECEDING YEARS ASSESSMENT ORDER FOR A.Y. 2008- 09 WHEREIN DEPRECIATION RS.16,99,760/- WAS DISALLOW ED ON THE GROUND THAT EACH AND EVERY BILL/VOUCHER COULD NOT BE GIVEN BY T HE ASSESSEE IN RESPECT OF ADDITIONS TO FIXED ASSETS IN THAT YEAR. THE MATTER HAD COME UP BEFORE HONBLE PUNE TRIBUNAL IN REVENUES APPEAL AND THE I SSUE WAS REMANDED BACK TO THE AO FOR VERIFICATION. (KINDLY REFER PAP ER BOOK PAGE 11 PARA 15 OF THE ORDER). 2. THE AO HAS SUBSEQUENT TO THE ASSESSMENT OF A.Y. 2009-10 PASSED ORDER U/S.143(3) R.W.S.254 GIVING EFFECT TO THE DIR ECTIONS OF HONBLE TRIBUNAL WHEREIN ON VERIFICATION OF RECORDS THE ORIGINAL DIS ALLOWANCE OF DEPRECIATION OF RS.16,99,760/- HAS BEEN REDUCED TO RS.2,99,999/- ON LY (KINDLY REFER PAGES 4 & 5 PARA 5 OF THE ORDER). IN THE REMAND DEP. ALLOW ED IS RS.13,99,761/-. 3. SINCE THE DISALLOWANCE OF DEPRECIATION OF RS.12, 54,108/- IN THE IMPUGNED A.Y. 2009-10 IS EMANATING FROM THE WDV OF ASSETS BROUGHT FORWARD FROM THE PRECEDING A.Y. 2008-09 THE DISALLO WANCE NEEDS TO BE REDUCED AS A CONSEQUENCE OF THE FACTUAL VERIFICATIO N AND FINDING GIVEN BY THE LD. AO FOR THE PRECEDING A.Y. 2008-09. 7. WE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED T HE ORDERS OF THE REVENUE AS WELL. ON PERUSING THE ORDER OF CIT(A) GIVEN AT PARA NO.6.3 OF HIS ORDER, WE FIND IT RELEVANT TO EXTRACT THE SAME HERE AS UNDER : 4 6.3 I HAVE EXAMINED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE. THE DISALLOWANCE OF DEPRECIATION RS.16,99,760/- HAS BEE N DELETED BY MY PREDECESSOR VIDE PARA 6.2 OF HIS ORDER DATED 31-01- 2014 IN THE CASE OF APPELLANT. THE AO HAS DISALLOWED DEPRECIATION OF R S.12,54,108/- IN RESPECT OF ADDITION TO FIXED ASSETS MADE IN THE A.Y. 2008-0 9. SINCE THE DEPRECIATION HAS BEEN DIRECTED TO BE ALLOWED IN A.Y. 2008-09 IN THE APPELLATE ORDER, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE OF DEPREC IATION IN RESPECT OF THOSE ASSETS. FROM THE ABOVE, IT IS EVIDENT THAT THE DISALLOWANCE OF DEPR ECIATION CLAIM RELATES BACK TO THE DISTURBED WDV FIGURES FOR THE A.Y . 2008-09. ON CONSIDERING THE SAME, CIT(A) DELETED THE ADDITION. ONCE TH E CORRECT WDV IS CONSIDERED, THE RELIEF GRANTED BY THE CIT(A) IS PROPER. THER EFORE, WE FIND THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE AND DOES NOT CA LL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMIS SED. 8. GROUND NO.2 RELATES TO ALLOWING OF THE PROPORTIONATE COM PUTING OF THE TRANSFER PRICING ADJUSTMENT, I.E. RESTRICTING THE ADJUSTMENT S IF ANY TO THE INTERNATIONAL TRANSACTIONS ONLY (RS.27.04 CRORES) AND NOT T O EXTEND TO THE ENTIRE SALES OF THE ASSESSEE FOR THE YEAR (RS.45.83 CRORES ). THE TPO COMPUTED THE PLI OF THE ASSESSEE ON THE ENTIRE SALES O F THE ASSESSEE AMOUNTING TO RS.45.83 CRORES WHICH INCLUDES THE TRANSACTIO NS OTHER THAN THE TRANSACTIONS WITH AES. THE CIT(A) HELD THAT THE TP A DJUSTMENT IS TO BE COMPUTED ONLY ON THE VALUE OF INTERNATIONAL TRANSACTION A ND ACCORDINGLY, THE AO WAS DIRECTED TO COMPUTE THE TP ADJUSTMENT ONLY ON THE VALUE OF INTERNATIONAL TRANSACTION, I.E. RS.27.04 CRORES. 9. ON THIS LIMITED ISSUE, LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE TPO/AO. ON THE OTHER HAND, LD. COUNSEL FOR THE AS SESSEE SUBMITTED THE FOLLOWING WRITTEN SUBMISSIONS AND THE SAID SUBMISSIONS READ AS UND ER : 1. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND SALE OF AUTOMATIC AND MANUAL SLACK AND BRAKE ADJUSTERS IN T HE BRAKE SYSTEMS USED IN TWO WHEELERS AND FOUR WHEELERS IN THE AUTOMOTIVE SEGMENT. 5 THE INTERNATIONAL TRANSACTIONS CONSIST OF IMPORTS O F MATERIAL FROM THE AE AND ROYALTY AND EXPORT SALE OF BRAKE ADJUSTORS AND COMP ONENTS THEREOF TO THE AE. THE EXPORTS ENABLE THE ASSESSEE TO OBTAIN DUTY FREE IMPORTS OF MATERIAL WHICH ARE USED IN DOMESTIC (THIRD PARTY) MANUFACTURE AND SALES AS WELL AS IN THE EXPORTS. DOMESTIC PURCHASES (THIRD PARTY) ARE ALSO USED IN PRODUCTION FOR EXPORTS AS WELL AS SALES IN DOMESTIC MARKET. IN TH E CIRCUMSTANCES, IT IS NOT POSSIBLE TO WORK OUT THE PROFITABILITY OF AE AND NO N-AE SEGMENT OF THE ASSESSEE SEPARATELY AS WELL AS OF THE EXTERNAL COMP ARABLES CHOSEN IN THE PEER SET. LAW DOES NOT EXPECT A PERSON TO DO THE I MPOSSIBLE. (LEX NON COGITA D IMPOSSIBILIA). THE LEGAL PROPOSITION IS UPHELD B Y HONBLE SC IN KRISHNASWAMY S. PD 281 ITR 305. 2. IN THE LIGHT OF MIXED NATURE OF TRANSACTIONS AND THE IMPOSSIBILITY TO BENCHMARK UNDER TNMM THE PLI OF EXPORTS AND DOMESTI C ACTIVITIES SEPARATELY AND ALSO ITS COMPARISON WITH UNCONTROLLED COMPARABL ES, PROPORTIONATE ADJUSTMENT IS GRANTED BY LD.CIT(A). ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF THY SSEN KRUPP INDUSTRIES INDIA P. LTD. REPORTED IN 381 ITR 413 10. WE HEARD BOTH THE SIDES ON THE ISSUE OF RESTRICTING THE COMPUTATION OF THE TP ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSAC TIONS OF RS.27.04 CRORES AND NOT TO THE ENTIRE SALES OF RS.45.83 CRORES INV OLVED IN COMPUTATION OF THE SAID ADJUSTMENTS. WE HAVE ALSO CONS IDERED THE ORDERS OF THE REVENUE AND THE SUBMISSIONS OF THE ASSESSEE. WE FIND IT RELEVANT TO EXTRACT THE FINDINGS GIVEN BY THE CIT(A) AT PARA 2.2.7OF HIS ORDER AND THEREFORE, THE SAME IS REPRODUCED HEREUNDER FOR THE SAKE OF COMPLET ENESS : 2.2.7 FROM THE TP ORDER, I FIND THAT THE TPO HAS COMPUTED THE PLI OF THE ASSESSEE @ (-) 2.60% WHEREAS THE MEAN PLI OF TH E COMPARABLES IS COMPUTED @5.75%. THOUGH THE TPO HAS MENTIONED THAT THE ADJUSTMENT IS TO BE MADE ONLY TO THE VALUE OF INTERNATIONAL TRANSACT ION BUT IN FACT HE HAS COMPUTED THE ADJUSTMENT ON THE ENTIRE SALES OF THE A SSESSEE RS.45.83 CRORES. THIS IS NOT PERMITTED. THE AO/TPO IS DIRECTED TO C OMPUTE THE TP ADJUSTMENT ONLY ON THE VALUE OF INTERNATIONAL TRANSACTION RS.2 7.04 CRORES. THIS GROUND IS THEREFORE ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE TPO AIMS AT THE T P ADJUSTMENT ON THE VALUE OF THE INTERNATIONAL TRANSACTIONS AND HOWEVE R, IN THE COMPUTATION, THE ADJUSTMENTS WERE EXTENDED TO THE ENT IRE SALES OF RS.45.83 CRORES. FURTHER, WE HAVE ALSO CONSIDERED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. THYSSEN KRUPP INDUST RIES INDIA PVT. 6 LTD.(SUPRA) RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSE E. WE FIND THE HONBLE HIGH COURT IN SIMILAR CIRCUMSTANCES HAS HELD AS UNDER : 3. RE QUESTION (A). . . . . . . . . . . . (E) WE FIND IN TERMS OF CHAPTER X OF THE ACT, RE-DE TERMINATION OF THE CONSIDERATION IS TO BE DONE ONLY WITH REGARD TO INC OME ARISING FROM INTERNATIONAL TRANSACTIONS ON DETERMINATION OF ALP. THE ADJUSTMENT WHICH IS MANDATED IS ONLY IN RESPECT OF INTERNATIONAL TRA NSACTION AND TRANSACTIONS ENTERED NOT BY ASSESSEE WITH INDEPENDE NT UNRELATED THIRD PARTIES. THIS IS PARTICULARLY SO AS THERE IS NO IS SUE OF AVOIDANCE OF TAX REQUIRING ADJUSTMENT IN THE VALUATION IN RESPECT OF TRANSACTIONS ENTERED INTO WITH INDEPENDENT THIRD PARTIES. THE ADJUSTMENT AS PROPOSED BY THE REVENUE IF ALLOWED WOULD RESULT IN INCREASING THE P ROFIT IN RESPECT OF TRANSACTIONS ENTERED INTO WITH NON-AE. THIS ADJUST MENT IS BEYOND THE SCOPE AND AMBIT OF CHAPTER X OF THE ACT. FROM THE ABOVE EXCERPTS OF THE ORDER OF CIT(A) AS WELL AS FROM THE JUDGMENT OF JURISDICTIONAL HIGH COURT ON THIS PARTICULAR ISSU E, WE FIND THE ORDER OF CIT(A) IS A WELL REASONED ONE AND THE SAME IS IN T UNE WITH THE SAID BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT OF BOMBAY . THEREFORE, WE HOLD THAT THE ORDER OF CIT(A) ON THIS ISSUE DOES NOT C ALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DIS MISSED. 11. GROUND NOS.3 TO 5 RAISED BY THE REVENUE ARE GENERA L IN NATURE AND THEREFORE THEY ARE DISMISSED AS SUCH. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF APRIL, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKAR A RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 25 TH APRIL, 2018. SATISH 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-1, NASHIK 4. / THE CIT-1, NASHIK 5. , , / DR A, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE