DCIT CIR 3(3), MUMBAI V. THYSSENKRUPP INDUSTRIES INDIA P.LTD, MUMBAI

ITA 2084/MUM/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6652 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MOHAN
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI , # ,$ % BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI N.K.PRADHAN, ACCOUNTANT MEMBER . 2084 / /201 4 (. . 2009-10 ) ITA NO. 2084/MUM/2014 (A.Y.2009-10) DY. COMMISSIONER OF INCOME TAX CIRCLE-3(3), ROOM NO.609, 6 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ...... - / APPELLANT VS. M/S. THYSSENKRUPP INDUSTRIES INDIA PVT. LTD. 154-C, MITTAL TOWER, 210 NARIMAN POINT, MUMBAI 400 021 PAN: AAACK1947K ..... #. / RESPONDENT C.O. NO.94/MUM/2014 (ARISING OUT OF ITA NO.2084/MUM/2014, A.Y.2009-10) M/S. THYSSENKRUPP INDUSTRIES INDIA PVT. LTD. 154-C, MITTAL TOWER, 210 NARIMAN POINT, MUMBAI 400 021 PAN: AAACK1947K ..... CROSS OBJECTOR/ASSESSEE VS. DY. COMMISSIONER OF INCOME TAX CIRCLE-3(3), ROOM NO.609, 6 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 .... APPELLANT IN APPEAL 2 ITA NO.2084/MUM/2014(A.Y.2009-10) C.O. NO.94/MUM/2014 -// APPELLANT BY : SHRI A. MOHAN, CIT- DR #. // RESPONDENT BY : SHRI MADHUR AGRAWAL, ADVOCATE 0. / DATE OF HEARING : 28/08/2020 123 0. / DATE OF PRONOUNCEMENT : 07/09/2020 / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 31/01/2014 FOR THE ASSESSMENT YEAR 2009-10 PA SSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE IN ITS APPEAL HAS RAISED FOLLOWING G ROUNDS:- 1.WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, HAS THE DRP ERRED IN REJECTING THE COMPARABLE CASE OF ENGINEERS INDIA LT D. BEING GOVERNMENT UNDERTAKING WITHOUT APPRECIATING THE FACT THAT THE COMPARABLE W AS CONTINUOUSLY MAKING PROFITS AND WAS FUNCTIONALLY COMPARABLE WITH ASSESSEE AND W AS SELECTED APPROPRIATELY BY THE TPO AS COMPARABLE AS PER THE PROVISIONS OF THE ACT. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, DID THE DRP ERRED IN GIVING RELIEF TO THE ASSESSEE BY DELETING THE TP ADJUSTMEN T OF RS.5,93,58,926/- ON ACCOUNT OF PAYMENT OF ROYALTY, PROJECT ENGINEERING AND MANUFAC TURING DRAWINGS WITHOUT APPRECIATING THE FACT THAT THE ADJUSTMENT WAS MADE APPROPRIATELY AS PER THE PROVISIONS OF THE ACT. 3. THE ASSESSEE IN ITS CROSS OBJECTIONS HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX (TRANSFER PRI CING-11(6) (TPO) AND LEARNED DEPUTY COMMISSIONER OF INCOME TAX-3(3) (AO') UNDER DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL (DRP) ERRED IN C ONSIDERING IL & FS TRANSPORTATION NETWORK LTD AS COMPARABLE COMPANY FOR DETERMINING A RMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF THE RESPONDENT. 3 ITA NO.2084/MUM/2014(A.Y.2009-10) C.O. NO.94/MUM/2014 2. ON THE FACTS CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED TPO AND THE LEARNED AO UNDER THE DIRECTIONS OF THE HONBLE DRP ERRED IN REJECTING THE INTERNAL TRANSACTIONAL NET MARGIN METHOD (TNMM) ANALYSIS C ARRIED OUT BY THE RESPONDENT. 4. SHRI MADHUR AGRAWAL, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED AT THE OUTSET THAT BOTH THE GROUNDS RAISED BY THE REVE NUE IN APPEAL ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. THE FACTS IN THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO FACTS IN AY 2008-09. THE LD. COUNSEL FOR THE ASSESSEE FURNISHED A COPY OF TRIBUNAL ORDER REPORTED AS 33 T AXMANN.COM 107(MUM) IN ASSSSEES OWN CASE FOR IMMEDIATELY PRECEDING ASSESS MENT YEAR. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT IF THE DEPARTMENTS APPEAL IS DISMISSED, CROSS OBJECTIONS FILED BY THE ASSESSEE W OULD BECOME INFRUCTUOUS AS THE MARGIN OF THE ASSESSEE WOULD BE AT ARMS LENGTH . 5. SHRI A. MOHAN, REPRESENTING THE DEPARTMENT VEHEM ENTLY DEFENDED THE ORDER OF TRANSFER PRICING OFFICER (TPO). HOWEVER, T HE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY ADMITTED THAT BOTH THE GROUND S RAISED BY THE REVENUE IN APPEAL WERE CONSIDERED BY THE TRIBUNAL IN ASSESSEE S OWN CASE IN THE PRECEDING ASSESSMENT YEAR. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE EXAMINED THE ORDERS OF AUTHORITIES BELOW. IN GROUND NO.1 OF THE APPEAL, THE REVENUE HAS ASSAILED EXCLUSION OF ENGINEERS INDIA LIMITED, A GOVERNMENT UNDERTAKING FROM THE LIST OF COMPARABLE COMPANIES. THE TRIBUNAL IN VARIOUS CASES HAS CONSISTENTLY HELD THAT THE GOVERNMENT COMPANIES ARE NOT GOOD COMPARABLES AS THEY WORK UNDER CONSTRAINS. IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2008-09 THE CO-ORDINATE BENCH HAS EXCLUDED ENGINEER S INDIA LIMITED FROM THE 4 ITA NO.2084/MUM/2014(A.Y.2009-10) C.O. NO.94/MUM/2014 LIST OF COMPARABLES, BEING A GOVERNMENT COMPANY. FO R THE SAKE OF COMPLETENESS THE RELEVANT EXTRACT OF THE OBSERVATIO NS OF THE TRIBUNAL ARE REPRODUCED HEREIN BELOW:- 12.8.2 WE FIND IT AS UNDISPUTED THAT ENGINEERS INDIA LIMI TED IS A GOVERNMENT COMPANY. IT HAS SEVERAL SEGMENTS WHICH ALSO INCLUDE TURNKEY PROJECT'. PAGE 700 OF THE PAPER BOOK IS A COPY OF ANNUAL REPORT OF ENGINE ERS INDIA LIMITED ON TURNKEY PROJECT. IT CAN BE SEEN THAT THE REVENUE HAS ARISEN FROM COMPLETING PARA XYLENE PLANT OF IOCL AND FURTHER THAT COMPANY IS ENGAGED IN EXEC UTION OF OTHER UNIT OF IOCL'S PANIPAT NAPHTHA CRACKER PROJECT. IN OUR CONSIDERED OPINION, THIS CASE SHOULD NOT HAVE BEEN INCLUDED IN THE LIST OF FINAL COMPARABLES FOR TWO REASONS. FIRST REASON IS THAT PROFIT MOTIVE IS NOT A RELEVANT CONSIDERATION IN CASE OF GOVERNMENT UNDERTAKINGS. MANY GOVERNMENT UNDERTAKINGS EVEN OPE RATE ON LOSSES IN FURTHERANCE OF THE SOCIAL OBLIGATIONS OF THE GOVERNMENT. THE SE COND REASON IS THAT ENGINEERS INDIA LIMITED EARNED INCOME FROM TURNKEY PROJECT BY SUCCE SSFULLY COMPLETING THE PROJECT OF IOCL AND OTHER PUBLIC SECTOR UNDERTAKINGS. IN THAT SENSE OF THE MATTER, THE RELATED PARTY TRANSACTIONS ARE MUCH MORE THAN THE FILTER OF 25%. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS CASE FROM THE LIST OF COMPARABLES . THE DISPUTE RESOLUTION PANEL (DRP) REJECTED THE GOV ERNMENT UNDERTAKING AS COMPARABLE BY FOLLOWING THE ORDER OF TRIBUNAL IN AS SESSES OWN CASE FOR AY 2008-09. WE DO NOT FIND ANY MERIT IN GROUND NO.1 OF THE APPEAL. ACCORDINGLY, THE SAME IS DISMISSED. 7. IN GROUND NO.2 OF THE APPEAL, REVENUE HAS ASSAIL ED THE FINDINGS OF DRP IN DELETING THE TRANSFER PRICING ADJUSTMENT OF RS.5 ,93,58,926/- ON ACCOUNT OF PAYMENT OF ROYALTY, PROJECT ENGINEERING AND MANUFAC TURING DRAWINGS. WE FIND THAT THE DRP HAS DELETED THE ADDITION BY PLACING RE LIANCE ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. THE CO-ORDINATE BENCH OF THE TRIBUNAL DELETED THE ADDITION IN RESPE CT OF PAYMENT OF ROYALTY IN THE ASSESSMENT YEAR 2008-09. THE RELEVANT EXTRACT O F THE FINDINGS OF THE TRIBUNAL ON THIS ISSUE ARE AS UNDE R:- 5 ITA NO.2084/MUM/2014(A.Y.2009-10) C.O. NO.94/MUM/2014 14.1 THE NEXT ISSUE IS AGAINST THE ADJUSTMENT OF RS . 4,29,03,966 PERTAINING TO PAYMENT OF ROYALTY. THE FACTS CONCERNING THIS ISSUE AS RECORDED IN THE ORDER OF THE TPO ARE THAT THE ASSESSEE OBTAINED KNOW-HOW AND PRO JECT-ENGINEERING DRAWINGS FROM ITS ASSOCIATED ENTERPRISE VIDE COLLABORATION A GREEMENT DATED 23.07.1996. AS PER THIS AGREEMENT, THE ASSESSEE AVAILED TECHNICAL AND ENGINEERING SUPPORT FOR CEMENT PLANT EQUIPMENT AND MACHINERY. FOR AVAILING THE SAI D MANUFACTURING DRAWINGS AND PROJECT ENGINEERING SERVICES, THE ASSESSEE PAID 2% OF CONTRACT VALUE TO ITS AE AND FOR KNOW-HOW. IT ALSO PAID ROYALTY AT 5% OF THE SELLING PRICE TO ITS AE. ROYALTY AGREEMENT BETWEEN THE ASSESSEE AND KRUPP POLYSIUS AG WAS APPR OVED BY RESERVE BANK OF INDIA AND FIPB. THE ASSESSEE SELECTED ITSELF AS THE TESTE D PARTY AND TNMM AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THIS TRANSACTIO N. THE TPO NOTED THAT SIMILAR ISSUE WAS INVOLVED IN ASSESSEE'S CASE FOR THE ASSES SMENT YEAR 2007-2008. FOLLOWING THE VIEW TAKEN BY HIM IN EARLIER YEAR, THE TPO DETE RMINED ALP AT RS. NIL THEREBY PROPOSING ADJUSTMENT OF RS. 4.29 CRORE. THE DRP ALS O, FOLLOWING THE VIEW TAKEN BY IT IN THE EARLIER YEAR, DECLINED TO INTERFERE WITH THE ORDER OF THE AO/TPO IN RESPECT OF ROYALTY PAYMENT. 14.2 THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE SAID EARLIER YEAR CAME UP FOR ADJUDICATION BEFORE THE TRIBUNAL. PLACING ON RECORD A COPY OF THE ORDER DATED 27.11.2012 PASSED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE IN THYSSEN KRUPP INDUSTRIES INDIA (P.) LTD. V. ASSTT. CIT [2013] 55 SOT 497/[20 12] 27 TAXMANN.COM 334 (MUM.) FOR THE A.Y. 2007-08, THE LEARNED AR STATED THAT THIS P OINT HAS BEEN DECIDED IN ASSESSEE'S FAVOUR. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HO WEVER, RELIED ON THE IMPUGNED ORDER. 14.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE ENTERED INTO COLL ABORATION AGREEMENT WITH ITS AE FOR PAYMENT OF 2% OF CONTRACT VALUE FOR MANUFACTURING, DRAWING AND ENGINEERING SERVICES AND 5% OF THE SELLING PRICE AS ROYALTY. TH E ASSESSEE APPLIED TO THE RBI SEEKING APPROVAL IN RESPECT OF PAYMENT OF ROYALTY AND TECHN ICAL FEE THROUGH CENTRAL BANK OF INDIA. A COPY OF LETTER ADDRESSED BY THE CENTRAL BA NK OF INDIA TO THE RBI DATED 26.03.2008 IS AVAILABLE ON PAGE 240 OF THE PAPER BO OK. THROUGH THIS LETTER, THE CENTRAL BANK OF INDIA FORWARDED RELEVANT DOCUMENTS ALONG WITH A COPY OF THE AGREEMENT. THE RBI VIDE ITS LETTER DATED 21.04.2008 REQUESTED CENTRAL BANK OF INDIA TO CONSIDER THE ASSESSEE'S CASE IN ACCORDANCE WITH ITS AP (DIR SERIES) NO.76 DATED 24.02.2007. IT IS IN PURSUANCE TO THE DEEMED APPROV AL BY RBI UNDER THE AUTOMATIC APPROVAL SCHEME THAT THE ASSESSEE MADE PAYMENT OF R OYALTY AND TECHNICAL FEE TO ITS AE. IT IS RELEVANT TO NOTE THAT SUCH PAYMENT HAS BE EN APPROVED OR DEEMED TO HAVE BEEN APPROVED BY THE RBI. WHEN A PAYMENT IS MADE AF TER OBTAINING DUE APPROVAL FROM THE RBI, HOW ITS ALP CAN BE COMPUTED AT RS. NI L, IS ANYBODY'S GUESS. THE FACT OF 6 ITA NO.2084/MUM/2014(A.Y.2009-10) C.O. NO.94/MUM/2014 APPROVAL OF THE PAYMENT BY THE RBI HAS BEEN SUCCINC TLY RECORDED BY THE TPO IN HIS ORDER AS WELL. HE STILL CHOSE TO PROPOSE ADJUSTMENT IN RESPECT OF FULL PAYMENT. IN OUR CONSIDERED OPINION, WHEN THE RATE OF ROYALTY PAYMEN T AND FEE FOR DRAWINGS ETC. HAS BEEN APPROVED OR DEEMED TO HAVE BEEN APPROVED BY TH E RBI, THEN SUCH PAYMENT HAS TO BE CONSIDERED AT ALP. WE, THEREFORE, DIRECT TO D ELETE ADDITION OF RS. 4.29 CRORE MADE BY THE A.O. IN THI S REGARD. NO MATERIAL HAS BEEN PLACED ON RECORD BY THE REVENU E TO SHOW THAT THE FACTS IN ASSESSMENT YEAR UNDER APPEAL ARE DISTINGUISHABLE OR TO CONTROVERT THE DECISION OF THE TRIBUNAL. WE SEE NO INFIRMITY IN TH E DIRECTIONS OF DRP IN DELETING THE ADDITION. THE GROUND NO.2 OF THE APPEA L IS WITHOUT ANY MERIT, HENCE, THE SAME IS DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 9. THE LD. COUNSEL FOR THE ASSESSEE HAS STATED AT T HE BAR THAT IF APPEAL OF THE REVENUE IS DISMISSED, CROSS OBJECTIONS OF THE A SSESSEE WOULD NOT SURVIVE AS THE MARGIN OF THE ASSESSEE WOULD BE WITHIN ARMS LE NGTH. SINCE, THE APPEAL OF REVENUE HAS BEEN DISMISSED, CROSS OBJECTIONS FILED BY THE ASSESSE ARE DISMISSED HAVING BECOME INFRUCTUOUS. 10. IN THE RESULT, APPEAL BY THE REVENUE AND CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON MONDAY , THE 07 DAY OF SEPTEMBER 2020. SD/- SD/- (N.K.PRADHAN) (VIKAS AWASTHY) $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 5 '/ DATED: 07/09/2020 VM , SR. PS (O/S) 7 ITA NO.2084/MUM/2014(A.Y.2009-10) C.O. NO.94/MUM/2014 COPY OF THE ORDER FORWARDED TO : 1. - / THE APPELLANT , 2. #. / THE RESPONDENT. 3. 6. ( )/ THE CIT(A)- 4. 6. CIT 5. 78 #.' , . . . , / DR, ITAT, MUMBAI 6. 89: ;< / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI