M/s Sartorius Stedium India Pvt Ltd , Bangalore V. Deputy Commissioner of INcome Tax Circle-12(3), Bangalore

ITA 2084/BANG/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5051 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 30-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Assessee Lawyers: NARENDRA KUMAR J JAIN
• Keywords: Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 2 084 / BANG/201 7 ASSESSMENT YEAR : 20 09 - 10 M/S. SARTORIUS STEDIM INDIA PVT. LTD., NO. 69/2 & 69/3, JAKKASANDRA, KUNIGAL ROAD, NH-48, NELAMANGALA TALUK, BANGALORE 562 123. PAN: AABCS7591Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12 (3), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI NARENDRA KUMAR J JAIN, ADVOCATE RE VENUE BY : SMT. SRI NANDINI DAS, ADDL. CIT (DR) DATE OF HEARING : 09 . 10 .2018 DATE OF PRONOUNCEMENT : 12 . 10 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ORDER OF LD. CIT (A)-6, BANGALORE DATED 21.07.2017 FOR ASSESSMEN T YEAR 2009-10. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. GENERAL GROUNDS: 1. THE ORDER PASSED BY THE HONORABLE COMMISSIONER O F INCOME TAX (APPEALS)-6 [HEREINAFTER REFERRED TO AS HONORABLE CIT(A)] TO TH E EXTENT PREJUDICE TO THE APPELLANT IS BAD IN LAW. TRANSFER PRICING GENERAL GROUNDS 2. THE LEARNED AO ERRED IN MAKING A REFERENCE TO TP O FOR DETERMINING ARM'S LENGTH PRICE WITHOUT DEMONSTRATING AS TO WHY IT WAS NECESSARY AN D EXPEDIENT TO DO SO. THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE TPO; 3. THE CIT(A) / AO / TPO IN PASSING THE ORDER WITHO UT DEMONSTRATING THAT THE APPELLANT HAD MOTIVE OF TAX EVASION; 4. THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO/TPO IN NOT APPRECIATING THAT THERE IS NO AMENDMENT TO THE DEFINITION OF 'INCOME' AND THE CHARGING OR COMPUTATION PROVISION RELATING TO INCOME UNDER THE HEAD 'PROFIT S & GAINS OF BUSINESS OR PROFESSION' DO NOT REFER TO OR INCLUDE THE AMOUNTS COMPUTED UNDER CHAPTER X AND THEREFORE ADDITION MADE UNDER CHAPTER X IS BAD IN LAW; AND 5. THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO/TPO IN MAKING TRANSFER PRICING ADJUSTMENT OF RS. 3,32,42,344/-. GROUNDS RELATING TO TP ADJUSTMENT IN MANUFACTURING SEGMENT 6. THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO/TPO IN REJECTING COMPARABLES ITA NO. 2084/BANG/2017 PAGE 2 OF 4 SELECTED AND THE TP ANALYSIS UNDERTAKEN BY THE APPE LLANT ON UNJUSTIFIABLE GROUNDS. THE LOWER INCOME TAX AUTHORITIES HAVE ERRED IN REJECTIN G FOLLOWING COMPANIES SELECTED BY THE APPELLANT AS COMPARABLES: A. GANSONS LTD; B. MOJJ ENGINEERING SYSTEMS LTD; AND C. RIECO INDUSTRIES LTD 7. THE CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO/TPO IN: (I) CONSIDERING OPERATING REVENUE AND OPERATING COS T OF BOTH AE AND NON-AE TRANSACTIONS WHILE COMPUTING OPERATING MARGIN OF THE APPELLANT; (II) INAPPROPRIATELY COMPUTING THE OPERATING PROFIT MARGIN IN THE CASE OF THE APPELLANT AND THE COMPARABLES; AND (III) NOT RESTRICTING THE TP ADJUSTMENT TO THE VALU E OF INTERNATIONAL TRANSACTION UNDERTAKEN WITH THE AE. 8. ASSUMING WITHOUT ADMITTING THAT ENTITY LEVEL FIG URES ARE TO BE ADOPTED, THE CIT(A)/TPO/AO HAVE ERRED IN CONSIDERING REVERSAL OF PROVISION WITH RESPECT TO WARRANTY AND INSTALLATION & COMMISSION CHARGES AS WELL AS PA CKING AND FORWARDING CHARGES RECEIVED AS NON-OPERATING IN NATURE WHILE COMPUTING OPERATING MARGIN OF THE APPELLANT. 9. THE LOWER AUTHORITIES HAVE ERRED IN: (I) NOT MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEV EL AND TRANSACTIONAL LEVEL DIFFERENCES BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES; (II) NOT GRANTING WORKING CAPITAL ADJUSTMENT; AND (III) NOT RECOGNIZING THAT THE APPELLANT WAS INSULA TED FROM RISKS, AS AGAINST COMPARABLES, WHICH ASSUME THESE RISKS AND THEREFORE HAVE TO BE C REDITED WITH A RISK PREMIUM ON THIS ACCOUNT. 10. THE LEARNED CIT(A) HAS ERRED IN PASSING SHORT A ND CRYPTIC ORDER WITHOUT CONSIDERING THE SUBMISSIONS OF THE APPELLANT AND MERELY RELYING ON REMAND REPORT OF THE TPO, WITHOUT APPRECIATING THE SUBMISSIONS MADE BY THE APPELLANT. 11. ASSUMING WITHOUT ADMITTING THAT THE ADJUSTMENT IS TO BE MADE, THE LOWER INCOME TAX AUTHORITIES HAVE ERRED IN NOT ALLOWING THE BENEFIT OF THE +/-5% RANGE PRESCRIBED IN THE PROVISO TO SECTION 92C(2). 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT AS P ER GROUND NO. 8 RAISED BEFORE CIT(A), THIS WAS THE GRIEVANCE OF THE ASSESSEE THAT THE TPO HAS ERRED IN NOT RESTRICTING THE TP ADJUSTMENT TO AE TRANSACTIONS ON LY AND THEREBY, MAKING AN ADJUSTMENT IN RESPECT OF TRANSACTION WITH NON-AE AL SO. BUT DECISION ON THIS ISSUE IS NOT COMING OUT FROM THE ORDER OF CIT(A). IN THIS REGARD, OUR ATTENTION WAS DRAWN TO PARAS 9 AND 10 ON PAGE NO. 11 OF THE O RDER OF CIT(A) AND IT WAS POINTED OUT THAT ALTHOUGH, IT IS NOTED BY CIT(A) IN THESE PARAS THAT THE ASSESSEE IS HAVING TWO DIFFERENT MANUFACTURING UNITS IN TWO DIFFERENT BUILDINGS OUT OF WHICH THE FIRST UNIT IS IN RESPECT OF MATERIAL IMPO RTED FROM AE AND FINISHED PRODUCTS EXPORTED TO AE AND THE SECOND BUILDING HOU SES MANUFACTURING UNIT THAT MANUFACTURES TOOLS AND VESSELS FOR NON-AES BUT STILL, LD. CIT(A) HAS NOT DECIDED THIS ASPECT OF THE MATTER AS TO WHETHER THE TP ADJUSTMENT MADE BY THE ITA NO. 2084/BANG/2017 PAGE 3 OF 4 TPO IS PROPER OR NOT BECAUSE HE HAS CONSIDERED BOTH SEGMENTS FOR MAKING TP ADJUSTMENT. AT THIS JUNCTURE, THIS WAS THE OBSERVA TION OF THE BENCH THAT UNDER THESE FACTS, WHEN IT IS SEEN THAT THE ORDER OF CIT (A) IS VERY CRYPTIC, IT IS BETTER TO RESTORE BACK THE MATTER TO THE FILE OF CIT (A) FOR A FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER. IN REPLY, BOTH SIDES AGREED TO THIS PROPOSITION PUT FORWARD BY THE BENCH BUT THIS WAS THE SUBMISSIO N OF LD. AR OF ASSESSEE THAT IN THAT CASE, ALL THE ASPECTS OF THE MATTER SHOULD BE LEFT OPEN FOR FRESH DECISION BY CIT (A). 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND AFTE R GOING THROUGH THE ORDER OF CIT (A), WE FIND THAT THE ORDER OF CIT (A) IS VERY CRYP TIC. BUT FOR THE SAKE OF READY REFERENCE, WE REPRODUCE PARAS 9 AND 10 FROM THE ORD ER OF CIT (A). THE SAME ARE AS UNDER. 9. IN RESPECT OF ADJUSTMENT MADE BY TPO, IT MAY BE NOTED THAT SINCE TWO DIFFERENT UNITS ARE MAINTAINED FOR MANUFACTURING DIFFERENT PR ODUCTS, TWO DIFFERENT MANUFACTURING SEGMENTS ARE POSSIBLE. THE TWO DIFFER ENT MANUFACTURING UNITS WERE RUN FROM DIFFERENT BUILDINGS. THE FIRST BUILDING PE RTAINS TO MANUFACTURING OF FILTERS. RAW MATERIALS ARE RECEIVED FROM AES AND MA NUFACTURED PRODUCTS ARE SOLD TO AES. THE SECOND BUILDING HOUSES MANUFACTURING UN IT THAT MANUFACTURES TOOLS AND VESSELS FOR NON-AES. HOWEVER, GENUINENESS OF TH E TWO SEGMENTS IS STILL QUESTIONABLE. ALTHOUGH THE PROFIT & LOSS A/C & BALA NCE SHEET OF THE COMPANY HAVE BEEN AUDITED BY A CHARTERED ACCOUNTANT, SEGMEN TAL DETAILS HAVE NOT BEEN AUDITED. IT MAY ALSO BE NOTED THAT THE APPELLANT HA S NOT GIVEN SEGMENTAL AUDIT REPORT ALTHOUGH IT WAS SUPPOSED TO SUBMIT THE SAME AS PER AS-17. 10. IN VIEW OF THE FACTS NARRATED ABOVE, AND BASED ON THE REMAND REPORT OF TPO DATED 5/7/2017, IT IS HELD THAT NO INFIRMITY OCCURR ED IN ADJUSTMENT MADE BY TPO, AND THE SAME IS UPHELD AND CONFIRMED. 5. FROM THE ABOVE PARAS REPRODUCED FROM THE ORDER O F CIT (A), WE FIND THAT THE ORDER OF CIT (A) IS VERY CRYPTIC PARTICULARLY WHEN THIS IS A GROUND OF THE ASSESSEE BEFORE CIT (A) THAT THE TPO HAS ERRED IN N OT APPRECIATING THAT WHEN THE AE SEGMENT UNDER THE MANUFACTURING ACTIVITIES I S CONCERNED, ITS TRANSACTIONS ARE AT ARMS LENGTH EVEN IF THE COMPAR ABLES ADOPTED BY THE TPO ARE CONSIDERED. THIS ISSUE IS RAISED BY ASSESSEE A S PER GROUND NO. 8 RAISED BEFORE CIT(A). BUT THERE IS NO FINDING OF LD. CIT( A) ON THIS ASPECT OF THE MATTER. HENCE WE FEEL IT PROPER TO RESTORE BACK THE ENTIRE MATTER TO THE FILE OF CIT (A) FOR ITA NO. 2084/BANG/2017 PAGE 4 OF 4 FRESH DECISION WITH THE DIRECTION THAT HE SHOULD DE CIDE ALL THE ASPECTS OF THE MATTER AFRESH BY WAY OF A SPEAKING AND REASONED ORD ER AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. IN VIEW OF THIS DECISION, NO FURTHER ADJUDICATION IS CALLED FOR IN RESPECT OF IN DIVIDUAL GROUNDS RAISED BEFORE US. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 12 TH OCTOBER, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.