MAN Energy Solutions India Pvt.Ltd, Aurangabad V. Assistant Commissioner of Income-tax, Circle - 1, Aurangabad

ITA 1961/PUN/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3621 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-03-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 27-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 143(3); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.1961/PUN/2018 / ASSESSMENT YEAR : 2014-15 MAN ENERGY SOLUTIONS INDIA PRIVATE LIMITED, (FORMERLY KNOWN MAN DIESEL AND TURBO INDIA PRIVATE LIMITED), E-73, MIDC, WALUJ, AURANGABAD 431 136 PAN : AAACM0320L VS. ACIT, CIRCLE-1, AURANGABAD APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 30-10-2018 PASSED BY THE ASSESS ING OFFICER (AO) U/S. 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMEN T YEAR 2014-15. ASSESSEE BY SHRI RAHUL MEHTA & SHRI AAYUSH MODI REVENUE BY SHRI T. VIJAYA BHASKAR REDDY DATE OF HEARING 04-03-2020 DATE OF PRONOUNCEMENT 05-03-2020 ITA NO.1961/PUN/2018 MAN ENERGY SOLUTIONS INDIA PVT. LTD., 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E, AN INDIAN COMPANY, IS A SUBSIDIARY OF MAN DIESEL AND TURBO SE, GERMANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF DIESEL ENGINES, TRADING OF DIESEL ENGINE SPARES AND DESIGN AND ENGINEERING FOR DIESEL SERVICES FOR DIESEL ENGINES IN DOMES TIC AND EXPORT MARKETS. THE ASSESSEE FILED ITS RETURN DECLARING TOTAL INCOME OF RS.49,04,80,300/-. CERTAIN INTERNATIONAL TRANSACTION S WERE REPORTED IN FORM NO.3CEB. THE AO MADE A REFERENC E TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LEN GTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. IN THE INSTANT A PPEAL, WE ARE CONCERNED ONLY WITH THE INTERNATIONAL TRANSACTION OF `EX PORT OF DIESEL ENGINES WITH TRANSACTED VALUE OF RS.22,85,45,15 8/-. 3. THE ASSESSEE INITIALLY AGGREGATED ITS INTERNATIONAL TRANSAC TIONS AND APPLIED THE TRANSACTIONAL NET MARGINAL METHOD (TNMM) AS THE MOST APPROPRIATE METHOD ON A CONSOLIDATED BASIS. THE T PO, HOWEVER, SEGREGATED THE TRANSACTIONS AND TOOK UP THE `MANUFACTURING SEGMENT SEPARATELY, IN RESPECT OF WHICH TH E INSTANT ISSUE HAS ARISEN. FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION UNDER THE `MANUFACTURING SEGMENT, TH E TPO TREATED ONLY TWO COMPANIES AS COMPARABLES, NAMELY, ITA NO.1961/PUN/2018 MAN ENERGY SOLUTIONS INDIA PVT. LTD., 3 KIRLOSKAR OIL ENGINES LTD. (KOIL) AND GREAVES COTTON LTD. W ITH THEIR AVERAGE PROFIT LEVEL INDICATOR (PLI) OF OP/SALES AT 8.13%. OPERATING REVENUE OF THE ASSESSEE UNDER THE `MANUFACTURIN G SEGMENT WAS TAKEN AT RS.23,00,67,334/-. BY APPLYING 8 .13% AS THE ARMS LENGTH MARGIN AGAINST THE ASSESSEES PLI OF (-) 7.44%, THE TPO PROPOSED TRANSFER PRICING ADJUSTMENT OF RS.1.87 CR ORE. THE ASSESSEE APPROACHED THE DISPUTE RESOLUTION PANEL (DRP) REQUESTING FOR EXCLUSION OF KOIL AND GREAVES COTTON LTD. A ND INCLUSION OF UMS TECHNOLOGIES LTD. (ENGINE SEGMENT). THE DR P UPHELD THE CONTENTION OF THE ASSESSEE ON INCLUSION OF UMS TECHNOLOGIES LTD. (ENGINE SEGMENT) WITH PROFIT RATE OF 1.47%, BUT JETTISONED THE OTHER OBJECTION FOR INCLUSION OF KOIL AND GREAV ES COTTON LTD. THE AO PASSED THE FINAL ASSESSMENT ORDER GIVING EFFECT TO THE DIRECTIONS OF THE DRP AND MADE A TRANSFER PR ICING ADDITION OF RS.1,61,65,669/-. AGGRIEVED THEREBY, THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. AT THE OUTSET, IT IS RECORDED THA T THE ASSESSEE DID NOT DISPUTE THE SEGREGATION OF THE INTERNATIONAL TRANSACTIONS BY THE TPO AS AGAINST THE ASSESSEES AGGREGA TE ITA NO.1961/PUN/2018 MAN ENERGY SOLUTIONS INDIA PVT. LTD., 4 APPROACH. THE ASSESSEE IS AGITATING ONLY THE INCLUSION OF KOIL AND GREAVES COTTON LTD. IN THE LIST OF COMPARABLES OF ITS `MANUFACTURING SEGMENT. WE HAVE GONE THROUGH THE AMOUN T OF TURNOVER REGISTERED BY THESE COMPANIES AT RS.2320.00 CROR E AND RS.1718.91 CRORE RESPECTIVELY. AS AGAINST THIS, THE TURNOVE R OF THE ASSESSEE UNDER THIS SEGMENT IS ONLY RS.23 CRORE. HERE, IT IS PERTINENT TO MENTION THAT THE DRP DIRECTED TO EXCLUDE THESE TWO COMPANIES IN ITS DIRECTIONS FOR THE A.YS. 2012-13 AND 2013- 14 ON THE RAISON D`ETRE OF HIGH TURNOVER VIS--VIS THE ASSESSEE. HOWEVER, DESPITE HIGH TURNOVER AGAIN IN THIS YEAR LIKE PRECEDING YEARS, THE DRP DID NOT ACCEPT THE ASSESSEES CONTENTION FOR THEIR EXCLUSIO N ON THE SOLITARY GROUND THAT THE ASSESSEE DID NOT APPLY ANY TURNOV ER FILTER FOR THE YEAR IN QUESTION NOTWITHSTANDING THE FACT THAT THEIR EXCLUSION WAS IN CHALLENGE BEFORE IT. IF A COMPANY HAS RE GISTERED TURNOVER AT SEVERAL TIMES HIGHER THAN THAT OF THE ASSESSEE, AS IT IS MORE THAN 100 TIMES IN THE CASE OF KOIL AND 75 TIMES IN TH E CASE OF GREAVES COTTON LTD., THE SAME CANNOT BE CONSIDERED AS COMPARABLE. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. PENTAIR WATER INDIA PVT. LTD. (2016) 381 ITR 216 (BOM) HAS UPHELD THE VIEW OF THE TRIBUNAL IN EXCLUDING COMPANIES ON THE ITA NO.1961/PUN/2018 MAN ENERGY SOLUTIONS INDIA PVT. LTD., 5 BASIS OF HIGH TURNOVER. ONCE THE HONBLE JURISDICTIONAL HIGH COURT HAS COUNTENANCED THE EXCLUSION OF COMPANIES ON THE BASIS O F HIGH TURNOVER, THE SAME CANNOT BE IGNORED BY THE DRP ON THE PRE MISE THAT THE ASSESSEE DID NOT ADOPT THE TURNOVER FILTER IN ITS TRAN SFER PRICING STUDY REPORT IGNORING THE CRUCIAL FACT THAT THE ASSESSE E PRAYED FOR THEIR EXCLUSION BEFORE IT ONLY ON THE GROUND OF HIGH TURNOVER. IN VIEW OF THE FACT THAT THESE TWO COMPANIES, NAMELY, KOIL AND GREAVES COTTON LTD. HAVE TURNOVERS SEVERAL TIMES MORE THAN THAT OF THE ASSESSEE, RESPECTFULLY FOLLOWING THE PRECEDEN T IN PENTAIR WATER INDIA PVT. LTD. (SUPRA), WE ORDER TO EXCLUDE THEM FROM THE LIST OF COMPARABLES. 5. ONCE THESE TWO COMPANIES ARE EXCLUDED AS WERE THE SOLE COMPANIES CONSIDERED BY THE TPO AS COMPARABLE, THE ONLY COMPANY WHICH STANDS IN THE LIST OF COMPARABLES IS UMS TECHNOLOGIES LTD. (ENGINE SEGMENT) AS WAS DIRECTED TO BE INCLUDED BY THE DRP. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND DIRECT THE AO/TPO TO RE-DETERMINE THE ALP OF THE `MANUFACTURING SEGMENT AFRESH BY CONSIDERING UMS TECHNOLOGIES LTD. (ENGINE SEGMENT) AS THE ONLY COMPARABLE. ITA NO.1961/PUN/2018 MAN ENERGY SOLUTIONS INDIA PVT. LTD., 6 NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED REASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH DETERMINATION. 6. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH MARCH, 2020. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 05 TH MARCH, 2020 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. THE PR. CIT -5, PUNE 5. , , / DR C, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO.1961/PUN/2018 MAN ENERGY SOLUTIONS INDIA PVT. LTD., 7 DATE 1. DRAFT DICTATED ON 04-03-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 04-03-2020 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. KEPT 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. *