Emerson Climate Technologies (India) Private Ltd., Pune V. Addl/Jt/Dy/ACIT., NeAC, Delhi

ITA 190/PUN/2021

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0767 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 20-05-2021
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Business expenditure; International transaction; Question of law
• Section: 201; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH , C PUNE VIRTUAL COURT BEFORE SH RI R.S. SYAL, VICE PRESIDENT AND SH RI S.S. VISWANETHRA RAVI , J UDICIAL MEMBER . / ITA NO . 1 90 / PUN /20 21 / ASSESSMENT YEAR : 201 6 - 17 EMERSON CLIM ATE TECHNOLOGIES (INDIA) PRIVATE LIMITED, PLOT NO.23, RAJIV GANDHI INFOTECH PARK, PHASE II, HINJEWADI, PUNE 411 057 PAN : AAACK7291C VS. ADDITIONAL/JOINT/DEPUTY /ASSISTANT COMMISSIONER OF INCOME TAX/INCOME TAX OFFICER, NATIONAL E - ASSESSMENT CENTRE, DELHI APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 18.03.2021 PASSED BY THE ASSESSING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2016 - 17. 2. THIS APPEAL WAS FILED BELATEDLY BY 3 DAYS. THE LD. AR EXPLAINED THE LOCKDOWN DUE TO COVID - 19 AS THE REASON FOR THE LATE FILING OF THE APPEAL. THE LD. DR DID NOT OBJECT TO THE CONDONATION OF THE DELAY. WE ARE S ATISFIED WITH SUCH A REASON. THE DELAY IS ASSESSEE BY SHRI DHANESH BAFNA REVENUE BY SHRI SHIVRAJ B. MOREY DATE OF HEARING 14 - 07 - 2021 DATE OF PRONOUNCEMENT 15 - 07 - 2021 ITA NO . 1 90 /PUN/ 20 21 EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. LTD., 2 CONDONED AND THE APPEAL IS ADMITTED FOR HEARING AND DISPOSAL ON MERITS. 3. THE LD. AR DID NOT PRESS GROUND NOS. 5 AND 6 DUE TO SMALLNESS OF THE AMOUNT. SUCH GROUNDS ARE, THEREFORE, DISMISSED AS NOT PRESSED. 4 . THE ONLY OTHER SURVIVING ISSUE IN THIS APPEAL THROUGH VARIOUS GROUNDS IS AGAINST THE CONFIRMATION OF TRANSFER PRICING ADDITION OF RS.14,56,09,180/ - . 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE COMPA NIES ACT, 1956 . IT WAS A 51:49 J OINT V ENTURE BETWEEN KIRLOSKAR BROTHERS LIMITED (KBL) AND COPELAND CORPORATION, USA FOR CARRYING ON THE ACTIVITIES OF PLANNING, DEVELOPMENT, MANUFACTURING, ASSEMBLING, MARKETING AND SELLING COMPRESSORS AND PARTS OF VARIOUS TYPES, MODELS AND VARIETIES. SUBSEQUENTLY, COPELAND CORPORATION, USA PURCHASED THE STAKE OF KIRLOSKAR BROTHERS LIMITED. THE ASSESSEE COMPANY FILED ITS RETURN DECLARING TOTAL INCOME AT RS.1,63,47,34,240/ - . CERTAIN INTERNATIONAL TRANSACTIONS WERE REPORTED IN FORM NO. 3CEB . THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE I NTERNATIONAL T RANSACTIONS. ONE OF THE REPORTED INTERNATIONAL TRANSACTIONS WAS PAYMENT OF FEES FOR ITA NO . 1 90 /PUN/ 20 21 EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. LTD., 3 ADVISORY AND OTHER SE RVICES WITH TRANSACTED VALUE OF RS.14,48,84,020/ - . THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DEMONSTRATING THIS TRANSACTION TO BE AT ALP. THE TPO DID NOT ACCEPT THE ASSESSEES POINT OF VIEW PRIMAR ILY ON THE GROUND THAT THE ASSESSEE DID NOT LEAD ANY EVIDENCE TO DEMONSTRATE THAT THE SERVICES WERE ACTUALLY RECEIVED. THE EVIDENCE AND COMMUNICATION ETC., FILED BY THE ASSESSEE IN THIS REGARD WERE HELD TO BE GENERAL NOT JUSTIFYING RECEIPT OF SERVICES. TH E ASSESSEE SUBMITTED THAT THE TRIBUNAL IN ITS OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 TO 2013 - 14 HAS DELETED THE TRANSFER PRICING ADJUSTMENT PROPOSED BY THE TPO UNDER SIMILAR CIRCUMSTANCES. THE TPO REJECTED THE ASSESSEES CONTENTION ON THE GROUND THAT TH E ORDER PASSED BY THE TRIBUNAL FOR THE EARLIER YEARS WAS NOT ACCEPTED BY THE DEPARTMENT AND THE APPEAL WAS RECOMMENDED. HE, THEREFORE, REJECTED THE TNMM AND APPLIED THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD FOR THIS INTERNATIONAL TRANSACTION. ACCORD INGLY, H E DETERMINED NIL ALP OF THE INTERNATIONAL TRANSACTION OF `RECEIPT OF ADVISORY AND OTHER SERVICES AND PROPOSED TRANSFER PRICING ADJUSTMENT OF RS.14.48 CRORE. THE AO INCORPORATED THE TRANSFER PRICING ADJUSTMENT IN THE DRAFT ORDER NOTIFIED BY HIM. T HE ASSESSEE CARRIED THE MATTER BEFORE THE DISPUTE RESOLUTION PANEL ITA NO . 1 90 /PUN/ 20 21 EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. LTD., 4 (DRP) BUT WITHOUT ANY SUCCESS. THE AO IN THE FINAL ASSESSMENT ORDER MADE THE TRANSFER PRICING ADDITION OF RS.14.56 CRORE AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL . 6 . WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS FOUND AS AN ADMITTED POSITION THAT THE FACTS AND CIRCUMSTANCES OF THE INSTANT APPEAL ARE SIMILAR TO THOSE OF THE EARLIER YEARS. T HE TRIBUNAL HAS PASSED ORDERS STARTI NG FROM ASSESSMENT YEAR 2009 - 10 TO 2015 - 16 , WHOSE COPIES HAVE BEEN PLACED ON RECORD. IN THE LEAD ORDER, WHICH HAS BEEN FOLLOWED IN LATER YEARS, THE APPLICATION OF THE TNMM AS THE MOST APPROPRIATE METHOD HAS BEEN ACCEPTED IN PREFERENCE TO THE CUP METHOD AS APPLIED BY THE TPO. AFTER GIVING CERTAIN DIRECTIONS , MATTER HAS BEEN SENT BACK TO THE AO/TPO FOR DECIDING THE ISSUE ACCORDINGLY. THE LD. DR FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF THE INSTANT APPEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF E ARLIER YEARS. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET - ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DECIDING THIS ISSUE AFRESH IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER AS SESSMENT YEARS. NEEDLESS TO SAY, THE ASSESSEE WILL BE PROVIDED ADEQUATE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. ITA NO . 1 90 /PUN/ 20 21 EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. LTD., 5 7 . THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND: 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER (LEARNED AO) OUGHT TO GRANT A DEDUCTION FOR EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION CESS PAID ON INCOME - TAX WHILE COMPUTING THE INCOME FROM BUSINESS AND PROFESSION FOR THE YEAR UNDER APPEAL. IT IS PRAYED THAT THE DEDU CTION OF EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION CESS SHOULD BE ALLOWED TO THE APPELLANT AS A BUSINESS EXPENDITURE UNDER THE PROVISIONS OF THE ACT. 8 . THE HONBLE SUPREME COURT IN NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (1998) 229 ITR 383 (SC) HAS OBSERVED THAT T HE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS P ENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON - TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE R ELEVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM . ANSWERING THE QUESTION POSED BEFORE IT IN AFFIRMATIVE, THEIR LORDSHIPS HELD THAT ON THE FACTS FOUND BY THE AUTHORITIES BELOW, IF A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE THE AUTHORITIES) WHI CH HAS BEARING ON THE TAX LIABILITY OF THE ASSESSEE , THE TRIBUNAL ITA NO . 1 90 /PUN/ 20 21 EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. LTD., 6 HAS J URISDICTION TO EXAMINE THE SAME. HAVING GONE THROUGH THE SUBJECT MATTER OF THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE, IT IS APPARENT THAT THE SAME RAISES A PURE QUESTION OF LAW. WE, THEREFORE, ADMIT THE SAME. 9 . ON MERITS, IT IS FOUND THAT THE ISSUE RAISED THROUGH THE ADDITIONAL GROUND IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN SESA GOA LT. VS. JCIT (2020) 423 ITR 426 (BOM.) IN WHICH IT HAS BEEN HELD THAT EDUCATION CESS IS NOT DISALLOWABLE EXPENDITURE U/S.40(A)(II) OF THE ACT. SIMILAR VIEW WAS EARLIER TAKEN BY THE HONBLE RAJASTHAN HIGH COURT IN CH A MBAL FERTILISERS AND CHEMICALS LTD. AND ANOTHER VS. JCIT (2018) 102 CCH 0202 (RAJ - HC) . WE, THEREFORE, DIRECT THE AO TO ASCERTAIN THE CORRECT AMOUNT OF EDUCATION CESS AND THEN ALLOW A DEDUCTION FOR IT, AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 1 0 . IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . O RDER PRONOU NCED IN THE OPEN COURT ON 15 TH JULY , 2021 . SD/ - SD/ - ( S.S. VISWANETHRA RAVI ) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT PUNE ; DATED : 15 TH JULY , 2021 ITA NO . 1 90 /PUN/ 20 21 EMERSON CLIMATE TECHNOLOGIES (INDIA) PVT. LTD., 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT (DRP - 3), MUMBAI - 1/ CIT (DRP - 3), MUMBAI - 2/ CIT (DRP - 3), MUMBAI - 3 4. 5. DR, ITAT, C BENCH, PUNE / GUARD FILE . / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE D ATE 1. DRAFT DICTATED ON 14 - 07 - 2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 5 - 0 7 - 2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KE PT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *