Enfinity Solar Solutions Private Ltd., CHENNAI V. ACIT, CHENNAI

ITA 208/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4964 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 16-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-01-2017
• Court: TRIBUNAL
• Department Lawyers: PATHALAVATH PEERYA
• Keywords: Transfer pricing

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO.208/MDS./2017 ASSESSMENT YEAR : 2012-13 M/S.ENFINITY SOLAR SOLUTIONS PVT LTD., OLD NO.55, TEACHERS COLONY, VENKATARATHNAM NAGAR, CHENNAI -20 VS. THE ACIT, CORPORATE CIRCLE-2(1), CHENNAI-34. [PAN AACCE 3046 M ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.RAMAKRISHNAN, C.A /RESPONDENT BY : MR.PATHALAVATH PEERYA, CIT, D.R / DATE OF HEARING : 16 - 03 - 201 7 / DATE OF PRONOUNCEMENT : 03 - 04 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE DIRECTED AGAIN ST THE ASSESSMENT ORDER DATED 25.12.2016 PASSED U/S.143(3) R.W.S.144C(13) OF THE ACT CONSEQUENT TO THE DIREC TIONS OF THE DRP PASSED U/S.144C(5) OF THE ACT ON 21.10.2016 FO R THE ASSESSMENT YEAR 2012-13. ITA NO208./MDS./17 :- 2 -: 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS F OR OUR ADJUDICATION. 1. FOR THAT THE ORDER OF THE LEARNED ASSESSING OFFI CER AND THE DIRECTION OF THE DISPUTE RESOLUTION PANEL IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. FOR THAT THE LEARNED TRANSFER PRICING OFFICER AN D DISPUTE RESOLUTION PANEL HAVE ERRED IN REJECTING CUP AS THE MOST APPROPRIATE METHOD IN RESPECT OF THE TRANSACTION INVOLVING PURCHASE OF RAW MATERIALS AND FREIGHT CHARGES FROM ASSOCIATED ENTERPRISES EVEN AFTER IT WAS BROUGHT TO THE NOTICE OF TRANSFER PRICING OFFICER AND DISPUTE RESOLUTION PANEL THAT N O MARK-UP HAS BEEN CHARGED BY THE ASSOCIATED ENTERPRISES. 3. FOR THAT THE LEARNED TRANSFER PRICING OFFICER AN D DISPUTE RESOLUTION PANEL HAVE ERRED IN CONSIDERING TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD FOR COMPUTING ARMS LENGTH PRICE . 4. WITHOUT PREJUDICE TO GROUND NO. 3, THAT THE DISP UTE RESOLUTION PANEL ERRED IN DIRECTING THE TRANSFER PRICING OFFICER TO RE-COMPUT E THE ARMS LENGTH PRICE WITH RESPECT TO THE TRANSACTIONS ENTERED INTO BY TH E APPELLANT, WHICH IS BEYOND THE POWERS OF THE DISPUTE RESOLUTION PANEL UNDER SE CTION 144(5) OF THE INCOME- TAX ACT, 1961 (ACT). IN THIS REGARD, WE RELY ON T HE DECISION OF THIS HONBLE TRIBUNAL IN THE CASE OF DOOWON AUTOMOTIVE SYSTEMS I NDIA (P) LTD. V. DOLT [2016] 76 TAXMANN.COM 174 (CHENNAI - TRIB.). 5. WITHOUT PREJUDICE TO GROUND NO. 3 AND 4, THE DIS PUTE RESOLUTION PANEL ERRED IN DIRECTING THE TRANSFER PRICING OFFICER TO RE-COMPUT E THE ARMS LENGTH PRICE AT ENTITY LEVEL INCLUDING TRANSACTIONS WITH NON-ASSOCI ATED ENTERPRISES WHICH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 6. WITHOUT PREJUDICE TO GROUND NO. 3 TO 5, THE LEAR NED TRANSFER PRICING OFFICER AND DISPUTE RESOLUTION PANEL HAVE ERRED IN NOT FACT ORING THE ECONOMIC ADJUSTMENTS FOR THE PURPOSES OF COMPUTING ARMS LEN GTH PRICE UNDER TRANSACTIONAL NET MARGIN METHOD. 7. WITHOUT PREJUDICE TO GROUND NO. 3 TO 6, THE LEAR NED TRANSFER PRICING OFFICER AND DISPUTE RESOLUTION PANEL OUGHT TO HAVE CONSIDER ED THE FACT THAT THE ACCOUNTING METHODOLOGY EMPLOYED BY THE COMPARABLE C OMPANIES ARE DIFFERENT FROM THAT OF THE APPELLANT AND THEREFORE COMPARABLE S ADOPTED BY THE TRANSFER PRICING OFFICER OUGHT TO BE REJECTED. 8. FOR THAT THE DISPUTE RESOLUTION PANEL ERRED IN D IRECTING THE ASSESSING OFFICER TO DISALLOWANCE THE INTEREST PAID ON DELAYED REMITT ANCE OF TDS AMOUNTING TO RS. 2,50,495/-, WHICH IS NOT THE SUBJECT MATTER OF THIS ASSESSMENT YEAR. ITA NO208./MDS./17 :- 3 -: 2. 1 AT THE TIME OF HEARING, THE LD.A.R FILED ADDI TIONAL GROUNDS AS FOLLOWS:- 10. THE LEARNED TRANSFER PRICING OFFICER AND DISPUT E RESOLUTION PANEL HAVE ERRED IN NOT EXCLUDING THE LIQUIDATED DAMAGES FROM OPERATING COSTS FOR THE PURPOSE OF DETERMINATION OF PROFIT LEVEL INDICATOR ( PLI ) OF THE APPELLANT. 11. THE LEARNED TRANSFER PRICING OFFICER AND DISPU TE RESOLUTION PANEL HAVE ERRED IN ARRIVING AT THE PLI OF THE COMPARABLE COMP ANY (TRF LIMITED) WHICH IN TURN HAS RESULTED IN HIGHER ARMS LENGTH PRICE ( ALP). 2.2 THE LD.A.R ALSO FILED A PETITION FOR ADMIS SION OF ADDITIONAL GROUNDS ON THE REASON THAT DUE TO INADVERTENT ERROR , IT WAS FAILED TO FILE ADDITIONAL GROUNDS BEFORE THE LOWER AUTHORI TIES, WHICH IS IN RELATION TO COMPUTATION OF PLI OF THE ASSESSEE AN D THE COMPARABLE COMPANIES BY THE LD. TPO. FURTHER, LD.A .R SUBMITTED THAT NON-FILING OF THE ADDITIONAL GROUNDS BEFORE THE LOWER AUTHORITIES WAS NEITHER WILLFUL NOR WANTED AN D HE PRAYED THAT THE ABOVE ADDITIONAL GROUNDS MAY BE ADMITTED IN THE INTEREST OF JUSTICE. LD.D.R HAS NOT PUT ANY SERIOUS OBJECTION F OR ADMISSION OF ADDITIONAL GROUNDS. ACCORDINGLY, THE ADDITIONAL GRO UND IS ADMITTED. 3. COMING TO GROUND NO.2 IS WITH REGARD TO REJECTI ON OF CUP METHOD AS THE MOST APPROPRIATE METHOD AND FOLLOWING TNMM BY THE TPO. ITA NO208./MDS./17 :- 4 -: 4. THE LD.A.R SUBMITTED THAT THE TPO HAS WRONGLY R ECORDED IN HIS ORDER OF TRANSFER PRICING THAT THE ASSESSEE HAS NOT GIVEN EVIDENCE TO SUPPORT THE CLAIM OF APPLICABILITY OF C UP METHOD. HE SUBMITTED THAT THE TPO AT PAGE -4 OF HIS ORDER DAT ED 29.01.2016 OBSERVED THAT THE ASSESSEE IN HIS DOCUMENTATION HA D CHOSEN CUP METHOD AS THE MOST APPROPRIATE METHOD FOR PUR CHASE OF RAW MATERIAL FROM AE, THE PRICE ON WHICH AE SOURCE D THE SAME FROM THIRD PARTIES, WAS STATED TO BE THE CUP. HOWE VER, THERE HAS BEEN NO EVIDENCE SUBMITTED IN SUPPORT OF THAT CLAIM . CONTRTARY TO THIS, HE SUBMITTED THAT THE ASSESSEE HAS FILED ALL RELEVANT PURCHASE INVOICES OF AE WITH REFERENCE TO THE PURCH ASE MADE BY THE ASSESSEE FROM AE. HE ALSO DREW OUR ATTENTION T O THE REPLY FILED BY THE ASSESSEE BEFORE THE TPO VIDE LETTER DA TED 17.08.2015 WHERE THE ASSESSEE REPLIED AS FOLLOWS:- I) LIST OF PURCHASES DETAILS OF PARTY WISE PURC HASES ALONG WITH BRIEF DESCRIPTIONS ATTACHED HEREWITH. II) PURCHASES FROM A.E DURING THE F.Y 2011-12 TOT AL OF MATERIAL PURCHASED FROM A.E WAS OF RS.286,289,140.43. ALL TH E COPIES OF INVOICES ARE ATTACHED HEREWITH. AS WELL BACK TO BACK INVOICE COPIES ALSO ATTACHED HEREWITH. III) NOTE ON PRICING POLICIES FROM A.E: ALL SALES M ADE B;Y THE AE WERE ON BACK-BACK BASIS AS PER COPIES ATTACHED. IV) SERVICES PROVIDED TO AES DURING F.Y 2011-12, T OTAL OF SERVICES PROVIDED TO AE WAS RS.4,609,351. ALL THE C OPIES OF ITA NO208./MDS./17 :- 5 -: INVOICES ARE ATTACHED HEREWITH. ALSO COMPUTATION DE TAILS OF HOURLY RATE FOR ONE INVOICE IS ATTACHED HEREWITH. 4.1 THE LD.A.R FURTHER SUBMITTED THAT CONTRARY TO THIS FINDING OF THE TPO, THE LD. DRP RECORDED IN HIS DIRECTION DATE D 21.10.2016 IN PARA 2.4 AS FOLLOWS:- THE SUBMISSIONS OF THE ASSESSEE HAVE DULY BEEN CONS IDERED, HOWEVER THE SAME DO NOT HAVE ANY FORCE. THE TPO IS CORRECT IN HOLDING THAT THE PURCHASE PRICE INDICATED ON INVOIC ES IS NOT SUFFICIENT IN ITSELF TO JUSTIFY APPLICABILITY OF CU P. THE BACK TO BACK INVOICES AS PRODUCED BY THE ASSESSEE IN THEMSELVES ARE NOT SUFFICIENT TO SHOW THAT THE AE HAS NOT DERIVED ANY BENEFIT OR MARK UP ON THE PRICE CHARGED BY THE VENDOR FOR SUPPLY OF MATERIAL FOR AE, WHICH IT HAS SOLD TO THE ASSESSEE. THE TERMS AN D CONDITIONS OF THE TRANSACTIONS BETWEEN THE AE AND SUCH VENDORS OR THE AGREEMENTS BETWEEN THE AE AND THE VENDOR FOR SUPPLY OF THE MATERIAL HAVE NOT BEEN PRODUCED BY THE ASSESSEE E ITHER BEFORE THE TPO OR BEFORE THIS PANEL TO JUSTIFY ITS CLAIM. THIS IS ALWAYS POSSIBLE THAT THOSE VENDORS ARE PROVIDING INVOICES WITH CERTAIN VALUE TO THE AE AS PER AGREEMENT WITH THE AE, AS TH E MATERIAL IS TO BE SUPPLIED BY THE VENDOR DIRECTLY TO THE CUSTOM ER (ASSESSEE IN PRESENT CASE) OF ITS AE AND THE AE WOULD NOT LIK E TO DISCLOSE THE CORRECT PURCHASE PRICE TO SUCH CUSTOMER (I.E. ASSESSEE). THE PROFORMA INVOICE SHOWS THAT THE GOODS WERE DIRECTLY SHIPPED TO THE ASSESSEE BY SUCH VENDOR, ALTHOUGH BILLING WAS D ONE IN NAME OF AE. THIS IS NORMAL PRACTICE IN SUCH TRANSACTION S THAT THE PERSON PLACING THE ORDER (IN PRESENT CASE AE) GETS DISCOUNT OR COMMISSION BY WAY OF CREDIT NOTES FROM THE VENDORS AND AT THE SAME TIME SUCH PERSON IS ABLE TO GET THE MATERIAL D IRECTLY DELIVERED TO ITS OWN CUSTOMER (ASSESSEE IN PRESENT CASE) WITHOUT DISCLOSING THE CORRECT PRICE OR BY JUST DISCLOSING THE INVOICED ITA NO208./MDS./17 :- 6 -: PRICE WITHOUT ANY DETAILS OF TRADE DISCOUNTS/COMMIS SION ETC. CONSIDERING THE ABOVE THERE IS MERIT IN THE ACTION OF THE TPO IN NOT ACCEPTING THE CUP METHOD AS ADOPTED BY THE ASSE SSEE. ACCORDING TO THE LD.A.R, THERE IS NO BASIS FOR REJE CTING THE CUP METHOD AND IT SHOULD BE FOLLOWED AS THE MOST APPROP RIATE METHOD WHILE MAKING TP ADJUSTMENTS. 5. THE LD.D.R RELIED ON THE ORDERS OF LOWER AUTHOR ITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS SEEN FROM THE ORDER OF DRP, THE ASSE SSEE HAS ONLY FILED THE PURCHASE INVOICE RELATING TO ITS PURCHASE FROM ITS AE AND ALSO FILED BACK TO BACK INVOICE COPIES RELATING TO AE PURCHASING TO THE TUNE OF RS.286,289,140.43. HOWEVER, THE ASSESSE E HAD NOT SUBSTANTIATED THAT AE HAS NOT DERIVED ANY BENEFIT O R MARK UP ON THE PRICE CHARGED BY THE VENDOR FOR SUPPLY OF MATER IAL TO IT (AE), WHICH IT HAS SOLD TO THE PRESENT ASSESSEE. UNLESS THE ASSESSEE FILED FULL DETAILS OF FINANCIAL STATEMENT TO SHOW T HAT THE ASSESSEES AE HAS NOT DERIVED ANY BENEFIT, IT IS NOT POSSIBLE TO APPLY THE CUP METHOD. IN VIEW OF THIS, IN THE INTEREST OF JUSTIC E, WE REMIT THE ISSUE REGARDING APPLICATION OF THE METHOD WHETHER T HE CUP METHOD OR TNMM AS A MOST APPROPRIATE METHOD, TO THE FILE OF AO TO SEE WHETHER THE AE DERIVED ANY BENEFIT OR MARK U P ON THE PRICE ITA NO208./MDS./17 :- 7 -: CHARGED BY THE VENDOR FOR SUPPLY OF RAW MATERIALS T O ASSESSEES AE, WHICH IT HAS SOLD TO ASSESSEE. WITH THIS OBSER VATION, WE REMIT THE PRESENT ISSUE FOR SELECTION OF APPROPRIAT E METHOD TO THE AO FOR FRESH CONSIDERATION. SINCE WE HAVE REMITTED THE ISSUE REGARDING SELECTION OF MOST APPROPRIATE METHOD BY T HE AO/TPO, AT THIS STATE IT IS TOO PREMATURE TO DECIDE ANY OTH ER ISSUES RAISED BY THE ASSESSEE. FURTHER, WE MAKE IT CLEAR THAT TH E ASSESSEE IS AT LIBERTY TO RAISE ANY OTHER GROUNDS IN SUPPORT OF THE CLAIM OF ASSESSEE IN THIS CASE. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 03 RD APRIL, 2017, AT CHENNAI. SD/ - SD/ - . ! '# $ ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER %& / CHENNAI '() / DATED: 03 RD APRIL, 2017 . K S SUNDARAM (*++,-.+/. / COPY TO: + 1 . / APPELLANT 3. + 0+$ / CIT(A) 5. .12+,,3 / DR 2. / RESPONDENT 4. + 0 / CIT 6. 2#4+5 / GF