Caterpillar Logistics Services India Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1916/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64216 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: S SRIDHAR
• Keywords: Transfer pricing
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.1916(MDS)/2011 ASSESSMENT YEAR : 2007-08 M/S.CATERPILLAR LOGISTICS SERVICES INDIA PVT. LTD., 7 TH FLOOR, INTERNATIONAL TECH PARK, CHENNAI TARAMANI RD. TARAMANI, CHENNAI-113. PAN AACCC3949F. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE I(3), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.SRIDHAR , ADVOCATE RESPONDENT BY : SHRI SHAJI P JACOB , IRS, JCIT DATE OF HEARING : 28 TH AUGUST, 2012 DATE OF PRONOUNCEMENT : 28 TH AUGUST, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS IS A TRANSFER PRICING (TP) APPEAL. IT IS FI LED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ASSESSMENT ORDER DAT ED - - ITA 1916 OF 2011 2 30-9-2011 PASSED UNDER SECTION 143(3), READ WITH SE CTION 147 OF THE INCOME-TAX ACT, 1961. THE TRANSFER PRICING ORD ER HAS BEEN PASSED BY THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA OF THE INCOME-TAX ACT, 1961, ON 29-10-2010. T HE DISPUTE RESOLUTION PANEL (DRP) HAS GIVEN THEIR DIRECTIONS U NDER SECTION 144C(5) OF THE ACT THROUGH THEIR PROCEEDINGS DATED 28-9-2011. 2. THE GROUNDS RAISED IN THE APPEAL AS FAR AS THE TP ASSESSMENT IS CONCERNED ARE TWO-FOLD. THE FIRST SE T OF GROUNDS RELATES TO THE ITES SEGMENT. THE SECOND SET RELATE S TO THE IT SEGMENT. 3. AS FAR AS THE ITES SEGMENT IS CONCERNED, THE MO ST IMPORTANT ARGUMENT OF THE ASSESSEE IS THAT THE LOWE R AUTHORITIES HAVE ERRED IN INCLUDING COMPANIES HAVING SUPER NORM AL PROFITS, WITHOUT STATING ANY VALID REASONS FOR ADOPTING THEM , FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE (ALP) IN THE PRESENT CASE. - - ITA 1916 OF 2011 3 4. IT IS THE CASE OF THE ASSESSEE THAT SUPER PROFI T COMPANIES WERE ADOPTED BY THE TPO JUST FOR THE PURP OSE OF BOOSTING THE ALP AGAINST THE ASSESSEE. 5. REGARDING THE IT SEGMENT ONE OF THE IMPORTANT GROUNDS RAISED BY THE ASSESSEE IS THAT THE LOWER AU THORITIES HAVE ERRED IN APPLYING FILTERS AFTER REJECTING THE COMPA RABILITY ANALYSIS CARRIED OUT BY THE ASSESSEE IN ITS TP DOCUMENTATION . IT IS ALSO THE CASE OF THE ASSESSEE COMPANY THAT THE AUTHORITI ES BELOW HAVE NOT MADE PROVISIONS FOR APPROPRIATE ADJUSTMENT S TOWARDS RISK DIFFERENTIAL AND OTHER MATTERS CONCERNED. 6. THE REMAINING GROUNDS RAISED BY THE ASSESSEE IN THE PRESENT APPEAL RELATE TO THE DEDUCTION UNDER SE CTION 10A AND THE DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF TH E INCOME-TAX ACT, 1961. 7. WE HEARD SHRI S.SRIDHAR, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE AND SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E. - - ITA 1916 OF 2011 4 8. ON GOING THROUGH THE ORDERS OF THE LOWER AUTHOR ITIES AND THE MATERIALS OF ANALYSIS PLACED BY THE ASSESSE E BEFORE US, WE FIND THAT THE SELECTION OF COMPARABLES CONSIDERE D IN THE PRESENT TP STUDY REQUIRES A FRESH LOOK FOR THE REAS ON THAT THE FUNCTIONAL DIFFERENCES OF HIGH-END COMPANIES AND CO MPANIES SIMILAR TO ASSESSEE HAVE NOT BEEN PROPERLY EXAMINED BY THE TPO. INSTEAD OF RELYING SOLELY ON THE WORKING RESU LTS OF THE FINANCIAL YEAR 2006-07, THE TPO SHOULD HAVE CONSIDE RED THE RECENT PAST YEARS AS WELL, SO THAT A BALANCED PICTU RE IS AVAILABLE ON THE CONSISTENCY OF THE WORKING RESULTS ATTRIBUTA BLE TO THE ASSESSEE-COMPANY. A CUMULATIVE VALUE MAY BE SOME TIMES MORE APPROPRIATE TO GUARD AGAINST ADHOC SEASONAL CH ANGES OF CIRCUMSTANCES. THESE MATTERS SHOULD HAVE BEEN CONS IDERED BY THE TPO. LIKEWISE, IN THE IT SEGMENT, THE RISK DIF FERENTIAL ALSO SHOULD HAVE BEEN FAIRLY EXAMINED BY THE LOWER AUTHO RITIES. 9. AS THE ABOVE FINDINGS ARE VERY CRITICAL IN ARRI VING AT AN ACCEPTABLE ALP, SUPPORTED BY MATERIALS, WE FIND THAT THERE IS A NEED OF RE-EXAMINING THE TP FRAME OF THIS CASE TA KING INTO CONSIDERATION THE ABOVE MENTIONED INFIRMITIES. AS SUCH, WE ARE - - ITA 1916 OF 2011 5 SETTING ASIDE THE ASSESSMENT ORDER AND THE TP STUDY IS REMITTED TO THE TPO FOR MAKING A FRESH ANALYSIS AFTER HEARIN G THE ASSESSEE WITH AN OPEN MIND. THE SELECTION OF COMPA RABLES MUST BE JUDICIOUS. IT SHOULD NOT BE AN EMPTY FORMALITY. THOUSANDS OF COMPARABLES MAY BE AVAILABLE UNDER A P ARTICULAR INDUSTRY. BUT, DISCRETION IS THE WISDOM TO BE USED BY THE TPO. PRACTICAL AND PRAGMATIC CONSIDERATIONS ALSO SHOULD BE GIVEN DUE WEIGHTAGE IN SELECTING COMPARABLES. REGARDING ALL OTHER ASPECTS OF ALP COMPUTATION, THE ASSESSEE IS DIRECTE D TO PLACE ITS OBJECTIONS BEFORE THE TPO FOR APPROPRIATE CONSIDERA TION IN ACCORDANCE WITH LAW. 10. REGARDING DEDUCTION UNDER SECTION 10A AND DISALLOWANCE UNDER SECTION 40(A)(IA), THE MATTERS A RE REMANDED BACK TO THE ASSESSING OFFICER TO DECIDE THE ISSUE A FRESH IN THE LIGHT OF THE LATEST DECISIONS AVAILABLE ON THE TOPI CS. THE ASSESSEE ALSO MAY PRODUCE THE MATERIALS AVAILABLE W ITH IT TO SUPPORT ITS ARGUMENTS. - - ITA 1916 OF 2011 6 11. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE MATTER IS REMITTED BACK TO THE ASSESSING OFFICER VIS--VIS TP O. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON TUESDAY, THE 28 TH OF AUGUST, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 28 TH AUGUST, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.