M/s. Ina Bearing India Pvt. Ltd., Pune V. Dy. Commissioner of Income-tax,

ITA 1797/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1985 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: MILIN K MEHTA
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1797/PN/2013 %' ( ')( / ASSESSMENT YEAR : 2009-10 M/S. INA BEARINGS INDIA PVT. LTD., PLOT NO. A-3, TALEGAON INDUSTRIAL AREA, FLORICULTURE AREA, NAVLAKH AMRE, TAL.: MAVAL, TALEGAON, DISTT.-PUNE-410507 PAN : AAACI7163H ....... / APPELLANT ' / V/S. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2), P.M.T. BUILDING, 2 ND FLOOR, SWARGATE, PUNE 411037 / RESPONDENT / ITA NOS. 1973 & 1974/PN/2013 %' ( ')( / ASSESSMENT YEARS : 2008-09 & 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE ....... / APPELLANT ' / V/S. M/S. INA BEARINGS INDIA PVT. LTD., S. NO. 297-299, INDO GERMAN TECHNOLOGY PARK, VILLAGE URAWADE, TAL.-MULSHI, PUNE PAN : AAACI7163H / RESPONDENT ASSESSEE BY : SHRI MILIN K. MEHTA REVENUE BY : SHRI SUBHASH CHANDRA / DATE OF HEARING : 16-02-2016 / DATE OF PRONOUNCEMENT : 18-04-2016 2 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 * / ORDER PER VIKAS AWASTHY, JM : ITA NOS. 1973 & 1974/PN/2013 HAVE BEEN FILED BY THE REV ENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- IT/TP, PUNE DATED 19-08-2013 COMMON FOR THE ASSESSMENT YEARS 200 8-09 AND 2009-10. THE ASSESSEE HAS FILED CROSS APPEAL IN ITA NO. 1797/PN/2013 FOR THE ASSESSMENT YEAR 2009-10. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM THE RE CORDS ARE: THE ASSESSEE IS A 100% SUBSIDIARY OF SCHAEFFLER KG GERMANY. T HE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF ROLLER BEARINGS, LINEAR GU IDES BEARINGS SYSTEMS AND ENGINE COMPONENTS FOR VARIOUS AUTO MOBILE COMPANIES. DURING THE IMPUGNED ASSESSMENT YEARS THE AS SESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISES (AE). FOR BENCHMARKING THE SAME THE ASSESSE E ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) IN ASSESSMENT YE AR 2008-09. IN RESPECT OF INTERNATIONAL TRANSACTIONS IN ASSESSMENT Y EAR 2009-10 THE ASSESSEE ADOPTED TNMM METHOD AS THE MOST APPROPRIATE METHOD FOR SOME OF THE TRANSACTIONS AND FOR OTHER TRANSACTIONS, THE ASSESSEE ADOPTED COST PLUS METHOD/CUP METHOD. THE DETAILS OF TRA NSACTIONS CARRIED OUT BY THE ASSESSEE IN ASSESSMENT YEARS 2008- 09 AND 2009-10 AND METHOD ADOPTED FOR BENCHMARKING THE SAME ARE AS UNDER: ASSESSMENT YEAR 2008-09 NATURE OF TRANSACTION AMOUNT (RS.) METHOD USED IMPORT OF COMPONENTS 43,90,7 8,041 TNMM EXPORT OF FINISHED GOODS 1,99,41,535 TNMM IMPORT OF FINISHED GOODS 51,48,64,483 TNMM PROVISION OF SALE AND SALE SERVICES 1,16,05,166 TNMM 3 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 PAYMENT FOR PROCUREMENT 34,27,37,742 TNMM IT & COMMUNICATION COST 1,90,56,520 TNMM INTEREST 1,60,43,876 TNMM REIMBURSEMENT OF PROJECT COST 19,91,428 TNMM REIMBURSEMENT OF EXPENSES 2,18,88,609 TNMM TOTAL 1,42,67,32,320 ASSESSMENT YEAR 2009-10 NATURE OF TRANSACTION AMOUNT (RS.) METHOD USED IMPORT OF RAW MATERIAL 72,94,72,803 TNMM IMPORT OF TRADED GOODS 56,71,27,900 TNMM EXPORT, MANUFACTURED GOODS 3,98,36,955 TNMM IMPORT CAPITAL GOODS 3,27,78,428 COST PLUS 5% COMMISSION PAID FOR INDENTING SERVICES 16,99,282 TNMM COMMISSION RECEIVED FOR INDENTING SERVICES 21,91,867 TNMM PAYMENT OF INTEREST 5,54,00,324 CUP LIBOR + 0.455 RECEIPT OF LOAN 9,59,36,000 CUP LIBOR + 0.455 PAYMENT FOR SERVICES - PRODUCT DEVELOPMENT, TECHNICAL AND MANAGEMENT SUPPORT 4,09,79,999 COST PLUS 5% PAYMENT OF CHARGES FOR SAP SOFTWARE AND IT COSTS 1,52,22,396 COST PLUS 5% REIMBURSEMENT OF EXPENSES PAID 3,26,15,978 ACTUALS REIMBURSEMENT OF EXPENSES RECEIVED 49,950 ACTUALS TOTAL 1,61,33,11,882 SINCE, THERE WERE HUGE INTERNATIONAL TRANSACTIONS WITH AE IN THE IMPUGNED ASSESSMENT YEARS, THE ASSESSING OFFICER REFERRED THE SAME TO TRANSFER PRICING OFFICER (TPO) FOR VERIFICATION OF CORRECTNESS O R OTHERWISE OF ALP OF THESE TRANSACTIONS. THE TPO VIDE ORDER DATED 28-10-2011 REJECTED THE BENCHMARKING OF INTERNATIONAL TRANSACTIONS D ONE BY THE 4 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 ASSESSEE WITH ITS AE AND MADE UPWARD ADJUSTMENT OF ` 19,97,51,177/- IN ASSESSMENT YEAR 2008-09. SIMILARLY, FOR THE ASSESSMENT YEAR 2009- 10 THE TPO REJECTED THE BENCHMARKING DONE BY THE ASS ESSEE OF INTERNATIONAL TRANSACTIONS WITH ITS AE AND MADE UPWARD AD JUSTMENT OF ` 1,71,54,000/-. THE ASSESSING OFFICER ACCORDINGLY MADE ADDITIO NS IN THE INCOME RETURNED BY THE ASSESSEE IN THE RESPECTIVE ASSESSMENT YEARS. AGGRIEVED BY THE ASSESSMENT ORDERS, THE ASSESSEE FILED A PPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMIS SIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER COMMON FOR ASS ESSMENT YEARS 2008-09 AND 2009-10 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY ACCEPTING ADJUSTMENT ON ACCOUNT OF UNDER CAPACITY U TILIZATION IN BOTH THE ASSESSMENT YEARS. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF OTHER ISSU ES RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2009-10. AGAINST T HE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL ASSAILING THE UNDER CAPACITY UTILIZATION ADJUSTMENT GRANTED IN FAVOUR OF ASSESSEE. THE ASSESSEE HAS CHALLENGED THE FINDINGS OF COM MISSIONER OF INCOME TAX (APPEALS) IN RESPECT OF OTHER ADDITIONS CONFIRM ED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN ASSESSMENT YEAR 2009-10. 3. SHRI SUBHASH CHANDRA REPRESENTING THE DEPARTMENT S UBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN GRANTING THE BENEFIT OF UNDER UTILIZATION OF CAPACITY ADJUSTMENT TO T HE ASSESSEE WITHOUT GIVING ANY COGENT REASONS. THE TPO WHILE PASSING THE ORDER HAS NOT GIVEN DETAILED FINDINGS ON CAPACITY UTILIZATION. THE LD. DR PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN RESPECT OF UNDER CAPACITY UTILIZATION ADJUSTMENT GRANTED TO 5 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 THE ASSESSEE. THE LD. DR MADE AN ALTERNATE PRAYER THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER/TPO FOR REC ONSIDERING THE ISSUE RELATING TO THE UNDER CAPACITY UTILIZATION ADJUSTMENT. THE LD. DR FURTHER SUBMITTED THAT THE COMMISSIONER OF INC OME TAX (APPEALS) IN ASSESSMENT YEAR 2009-10 HAS ERRED IN D IRECTING THE ASSESSING OFFICER/TPO TO APPLY THE FILTER OF MINIMUM 75% OF MANUFACTURING INCOME WITHOUT GIVING ANY VALID REASON FOR GIV ING SUCH DIRECTION. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FAI LED TO TAKE INTO CONSIDERATION THE FACT THAT WITHOUT CARRYING OUT FRES H STUDY OF COMPARABLES, THE REVISED FILTER CANNOT BE APPLIED. 4. ON THE OTHER HAND SHRI MILIN K. MEHTA APPEARING ON BEH ALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONE R OF INCOME TAX (APPEALS) IN GRANTING ADJUSTMENT ON ACCOUNT OF CAPACIT Y UNDER UTILIZATION. THE LD. AR SUBMITTED THAT THE CAPACITY UTILIZATION IN THE CASE OF ASSESSEE WAS 35.42% WHEREAS CAPACITY UTILIZATION IN CASE OF COMPARABLE COMPANY WAS 81.63%. TO SUBSTANTIATE HIS CLAIM THE LD. AR REFERRED TO PAGE 459 OF THE PAPER BOOK. THE LD. AR CON TENDED THAT THE ASSESSEE HAD UNDERTAKEN SUBSTANTIAL EXPANSION PROGRAM WHICH RESULTED IN UNDER UTILIZATION OF CAPACITY. THE TPO AFTER VER IFYING THESE FACTS ALLOWED ADJUSTMENT FOR CAPACITY UTILIZATION IN ASSESSME NT YEAR 2009-10. THE COMMISSIONER OF INCOME TAX (APPEALS) APPROVE D THE FINDINGS OF TPO AND GRANTED THE BENEFIT OF UNDER UTILIZATION O F CAPACITY IN ASSESSMENT YEAR 2008-09 ON SIMILAR GROUNDS. THE LD. A R IN SUPPORT OF HIS SUBMISSIONS RELATING TO ALLOWABILITY OF UNDER CAPACITY UT ILIZATION ADJUSTMENT PLACED RELIANCE ON THE FOLLOWING DECISIONS: 6 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 I. AMDOCS BUSINESS SERVICES PVT. LTD. VS. DIT IN ITA NO. 1412/PN/2011 FOR THE ASSESSMENT YEAR 2007-08 DECIDED ON 23- 07-2012. II. ARISTON THERMO INDIA LTD. VS. DCIT IN ITA NO. 1455/PN/2010; III. TASTY BITE EATABLES LIMITED VS. ACIT IN ITA NO. 1682/PN/2011; IV. ACIT VS. FIAT INDIA PVT. LTD. 2010-TII-30-ITAT-MUM-TP V. MANDO INDIA STEERING SYSTEMS PRIVATE LIMITED VS. ACIT IN ITA NO. 2092/MDS./2012. 5. IN RESPECT OF ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2009-10 THE LD. AR SUBMITTED, THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IN IMPUGNED ORDER HAS ERRED IN OBSERVING THAT NO WRITTEN S UBMISSIONS WERE FILED FOR THE ASSESSMENT YEAR 2009-10. THE IMPUGNED ORDER WAS PASSED ON 19-08-2013, THE ASSESSEE HAD FILED WRITTEN SUB MISSIONS BEFORE THE DATE OF PASSING OF IMPUGNED ORDER. THE LD. AR SUBMITTED THAT THE WRITTEN SUBMISSIONS WERE RECEIVED IN HIS OFFICE THR OUGH E-MAIL ON 08-08-2013 AND THEREAFTER THE REVISED SUBMISSIONS WE RE RECEIVED ON 15-08-2013. THE HARD COPY OF THE WRITTEN SUBMISSIONS WA S RECEIVED IN THE OFFICE OF THE ASSESSEE ON 13-08-2013. THE SAME WERE FURNISHED IN THE OFFICE OF COMMISSIONER OF INCOME TAX (APPEALS) BEFORE THE PASSING OF ORDER ON 19-08-2013. HOWEVER, THE COMMISSIONER OF INC OME TAX (APPEALS) HAS FAILED TO TAKE THE SAME ON RECORD. THE LD. AR PRAYED FOR REMITTING THE MATTER BACK TO COMMISSIONER OF INCOME TAX (APPEALS) FOR CONSIDERING THE DETAILED WRITTEN SUBMISSIONS AND THEREAFTE R PASS THE ORDER. THE LD. AR IN SUPPORT OF HIS CONTENTIONS PLACED ON RECORD A COPY OF E-MAIL THROUGH WHICH WRITTEN SUBMISSIONS WERE ALLEGEDLY S ENT TO THE COUNSEL FOR THE ASSESSEE FOR FILING IT BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), AS WELL AS THE COPY OF COURIER RECEIPT THROU GH WHICH THE 7 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 HARD COPY OF THE WRITTEN SUBMISSIONS WERE DISPATCHED TO THE LD. AR OF THE ASSESSEE FROM BARODA FOR FILING BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), PUNE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE EXAMINED THE ORDERS OF THE AUTHORITIE S BELOW. THE MAIN ISSUE IN APPEAL OF THE DEPARTMENT FOR ASSESSMENT YEA R 2008-09 IS GRANT OF ADJUSTMENT ON ACCOUNT OF UNDER CAPACITY UTILIZAT ION TO THE ASSESSEE BY COMMISSIONER OF INCOME TAX (APPEALS). A PERU SAL OF ORDER DATED 28-10-2011 PASSED BY TPO U/S. 192CA(3) OF THE ACT SHOWS THAT THE TPO HAS NOT TOUCHED UPON THE ISSUE OF CAPACITY UND ER UTILIZATION ADJUSTMENT CLAIMED BY THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER FOR ASSESSMENT YEAR 2008- 09 IN PARA 2.2.4 TO 2.2.5 HAS DIRECTED THE ASSESSING OFFICER/TPO TO GRA NT THE ADJUSTMENT ON ACCOUNT OF THE CAPACITY UNDER UTILIZATION O N THE BASIS OF THE ORDER OF TPO PASSED IN THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2009-10. IT IS AN UNDISPUTED FACT THAT THE BENEFIT OF UNDER CAPAC ITY UTILIZATION HAS BEEN GRANTED BY THE TRIBUNAL IN VARIOUS CA SES WHEREVER THE ASSESSEE DESERVES OR WHERE THE FACTS AND CIRCUMST ANCES OF THE CASE WARRANTS SO. IN THE PRESENT CASE, IT IS NOT CLEARLY EME RGING FROM THE RECORDS AS TO ON WHAT BASIS UNDER CAPACITY UTILIZATION AD JUSTMENT IS TO BE GRANTED TO THE ASSESSEE. THEREFORE, WE DEEM IT APPR OPRIATE TO REMIT THE FILE BACK TO TPO FOR DECIDING THE ISSUE AFRESH BY PASS ING SPEAKING ORDER. THE TPO SHALL DECIDE THE ISSUE AFTER CONSIDERING T HE FACTS OF THE CASE, DOCUMENTS ON RECORD AND IN THE LIGHT OF DECISIONS OF TRIBUNA L. THE APPEAL OF THE DEPARTMENT FOR THE ASSESSMENT YEAR 2 008-09 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 8 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 ITA NOS. 1797 & 1974/PN/2013 (A.Y. 2009-10) 7. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE CO MMISSIONER OF INCOME TAX (APPEALS) HAS PASSED THE IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2009-10 WITHOUT CONSIDERING THE WRITTE N SUBMISSIONS FILED BY THE ASSESSEE. A PERUSAL OF IMPUGNED ORDER SHOWS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CATEGORICALLY OBSE RVED THAT THE ASSESSEE HAS NOT FURNISHED WRITTEN SUBMISSIONS ON TH E CONCLUDING DAY OF HEARING I.E. 06-08-2013 AND EVEN THEREAFTER DESPITE TELEPHONIC REMINDER. 8. ON THE OTHER HAND LD. AR HAS SUBMITTED THAT THE WRIT TEN SUBMISSIONS WERE FILED BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) BEFORE PASSING OF THE IMPUGNED ORDER. IN SUPPORT OF HIS SUBMISSION THE LD. AR HAS PLACED ON RECORD A COPY OF E-M AIL TO SHOW THAT SOFT COPY OF THE WRITTEN SUBMISSIONS WERE RECEIVED IN THE OFFICE OF LD. AR OF THE ASSESSEE ON 08-08-2013 AND THEREAFTER THE REVISED WRITTEN SUBMISSIONS WERE RECEIVED ON 15-08-2013 AND THE HARD C OPY OF THE WRITTEN SUBMISSION WERE ALSO RECEIVED IN THE OFFICE OF THE CO UNSEL OF THE ASSESSEE THROUGH COURIER ON 13-08-2013. THE LD. AR OF T HE ASSESSEE STATED AT BAR THAT THESE WRITTEN SUBMISSIONS WERE FILED IN THE OFFICE OF COMMISSIONER OF INCOME TAX (APPEALS) BEFORE THE DATE OF PA SSING OF IMPUGNED ORDER I.E. 19-08-2013. KEEPING IN VIEW THE PRINCIPLES OF NATURAL JUSTICE, WE ARE OF T HE CONSIDERED OPINION THAT AN OPPORTUNITY SHOULD BE GRANTED TO THE ASSESSEE TO FILE WRITTEN SUBMISSIONS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND REMIT THE FILE BACK TO THE COMMISSIONER OF INCOME TAX (APPEALS) TO PASS FRESH ORDER AFTER CONSIDERING THE WRITTEN SUBMISSIONS FILED ON BEH ALF OF THE 9 ITA NOS. 1797, 1973 & 1974/PN/2013, A.YS. 2008-09 & 2009-10 ASSESSEE AND ALSO AFTER GRANTING AN OPPORTUNITY OF HEARIN G TO THE ASSESSEE, IN ACCORDANCE WITH LAW. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WELL AS THAT OF REVENUE FOR ASSESSMENT YEAR 2009-10 IS ALLOWED FOR STATISTICAL PURP OSE. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND T HAT OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 18 TH DAY OF APRIL, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 18 TH APRIL, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-IT/TP, PUNE 4. THE DIT (TP/IT), PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE