M/s. Suprajit Engineering limited, Bengaluru V. Deputy Commissioner of Income Tax, Bengaluru

ITA 2611/BANG/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9459 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 05-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUDHEENDRA B R
• Keywords: Transfer pricing; Rule 8D; Set aside
• Section: 143(3); 14A; 80IA; 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V VASUDEVAN, VICE PRESIDNET AND SHRI B.R BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.2611/BANG/2017 ASSESSMENT YEAR : 2013-08 SUPRAJIT ENGINEERING LTD., NO.100, BOMMASANDRA INDUSTRIAL AREA, BENGALURU-560 099. PAN AADCS 1638 L VS. THE DY. COMMISSIONER OF INCOME-TAX, LARGE TAXPAYERS UNIT, CIRCLE-1, BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI SUDHEENDRA B.R, ADVOCATE RESPONDENT BY : SHRI PRADEEP KUMAR, CIT (DR) DATE OF HEARING : 05.09.2019 DATE OF PRONOUNCEMENT : 25.09.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASST. ORDER PASSED BY AO U/S 143(3) R.W.S 144C OF THE ACT IN PU RSUANCE OF DIRECTIONS GIVEN BY LD DRP. 2. THE GROUNDS URGED BY THE ASSESSEE RELATE TO THE FOLLOWING THREE ISSUES:- A) TRANSFER PRICING ADJUSTMENT IN RESPECT OF SPECIFIED DOMESTIC TRANSACTIONS. B) TRANSFER PRICING IN RESPECT OF CORPORATE GUARANTEE. C) DISALLOWANCE U/S 14A OF THE ACT IT(TP)A NO.2611/BANG/2017 PAGE 2 OF 6 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURE OF AUTO COMPONENTS CONSISTING MAINLY OF CONTROL CABLES , SPEEDO CABLES AND OTHER COMPONENTS FOR AUTOMOBILES. 4. THE FIRST ISSUE RELATES TO TRANSFER PRICING ADJU STMENT MADE IN RESPECT OF SPECIFIED DOMESTIC TRANSACTION. THE ASS ESSEE IS HAVING SEVERAL PRODUCTION UNITS. TWO OF UNITS NUMBERED AS UNIT 7 AND UNIT 10 ARE ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. FOR THE SAKE OF CONVENIENCE, BOTH THE ABOVE UNITS ARE REFERRED A S EXEMPT UNITS. ALL OTHER UNITS ARE REFERRED AS NON-EXEMPT UNITS. IN THE TRANSFER PRICING STUDY, THE ASSESSEE HAS ADOPTED OTHER METH OD TO BENCHMARK ITS SPECIFIED DOMESTIC TRANSACTIONS, I. E THE ASSESSEE HAS COMPARED THE SELLING PRICE OF UNITS SOLD TO EXE MPT UNIT AND NON EXEMPT UNITS. THE ASSESSEE HAD EFFECTED SALES AT T HE SAME RATE TO BOTH EXEMPT UNITS AND NON EXEMPT UNITS. ACCORDINGL Y, IT WAS SUBMITTED THAT THE SPECIFIED DOMESTIC TRANSACTIONS ARE AT ARMS LENGTH. 5. THE TPO NOTICED THAT BOTH THE EXEMPT UNITS A ND NON-EXEMPT UNITS ARE OWNED AND CONTROLLED BY THE ASSESSEE ITS ELF. ACCORDINGLY HE HELD THAT THE COMPARISON OF SELLING PRICE BETWEE N TWO UNITS CONTROLLED BY THE ASSESSEE WOULD FALL UNDER THE CAT EGORY OF CONTROLLED TRANSACTION. HE FURTHER NOTICED THAT TH ERE WAS ONLY INTER UNIT STOCK TRANSFERS AND THERE WERE NO SALES BETWEE N THE UNITS. ACCORDINGLY HE REJECTED THE TRANSFER PRICING STUDY CONDUCTED BY THE ASSESSEE. THE TPO NOTICED THAT THE EXEMPTED UNITS HAVE PURCHASED STOCK (I.E., BY WAY OF STOCK TRANSFER) MAINLY FROM UNIT NO.12. IT(TP)A NO.2611/BANG/2017 PAGE 3 OF 6 ACCORDINGLY, FOR THE PURPOSE OF TRANSFER PRICING ST UDY, THE TPO TOOK UNIT NO.12 AS TESTED PARTY. THE TPO ADOPTED TNMM METHOD FOR BENCH MARKING THE TRANSACTIONS. HE ADOPTED THE PLI AS OPERATING PROFIT/OPERATING COST (OP/OC). HE ALSO TOOK UNIT 2 AS COMPARABLE COMPANY, SINCE THE UNIT 2 DID NOT HAVE INTER UNIT T RANSACTIONS. THE TPO COMPARED THE PLI OF UNIT 12 & 1 WITH THE PLI OF UNIT 2. ACCORDINGLY THE TPO MADE ADJUSTMENT OF 86.20 LAKHS IN RESPECT OF TRANSACTIONS OF STOCK TRANSFER FROM UNIT 12 TO EXEM PT UNITS OF THE ASSESSEE. THE LD DRP ALSO CONFIRMED THE SAME. 6. WE HEARD THE PARTIES ON THIS ISSUE. WE NOTICED THAT BOTH THE ASSESSEE AS WELL AS THE TPO HAS BENCH MARKED THE TR ANSACTIONS BY COMPARING THE SELLING RATE/PLI OF TWO DIFFERENT UNI TS OWNED BY THE ASSESSEE. THERE SHOULD NOT BE ANY DISPUTE THAT TH E ALP OF TRANSACTIONS COULD BE ESTABLISHED BY COMPARING THE TRANSACTIONS WITH UNRELATED PARTIES ONLY. IN THE INSTANT CASE, BOTH THE ASSESSEE AS WELL AS TPO HAS NOT COMPARED THE TRANSACTIONS WI TH THE TRANSACTIONS OF UNRELATED PARTIES. HENCE THE TRANS FER PRICING STUDY DONE BY BOTH THE ASSESSEE AS WELL AS TPO, IN OUR VI EW, IS AGAINST THE PROVISIONS OF THE ACT. ACCORDINGLY WE ARE OF T HE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF AO/T PO. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO/TPO FOR EXAM INING IT AFRESH. 7. THE NEXT ISSUE RELATES TO TRANSFER PRICING ADJUS TMENT MADE IN RESPECT OF CORPORATE GUARANTEE GIVEN BY THE ASSESSE E. AT THE TIME OF HEARING, THE LD AR FAIRLY ADMITTED THAT THE ADJU STMENT IN RESPECT OF CORPORATE GUARANTEE WAS MADE IN THE EARLIER YEAR S ALSO AND THE IT(TP)A NO.2611/BANG/2017 PAGE 4 OF 6 SAME HAS BEEN ACCEPTED BY THE ASSESSEE. ACCORDINGL Y WE MODIFY THE ORDER PASSED BY THE AO ON THIS ISSUE AND DIREC T HIM TO MAKE TRANSFER PRICING ADJUSTMENT IN RESPECT OF CORPORATE GUARANTEE BY FOLLOWING SAME METHODOLOGY AS FOLLOWED IN THE EARLI ER YEAR. 8. THE NEXT ISSUE RELATES TO DISALLOWANCE MADE U/S 14A OF THE ACT. THE LD AR SUBMITTED THAT THE ASSESSEE IS HAVI NG OWN FUNDS IN FAR EXCESS OF THE INVESTMENT MADE BY IT AND HENCE N O DISALLOWANCE UNDER RULE 8D(2)(II) OF THE INCOME-TAX RULES. HE F URTHER SUBMITTED THAT, FOR THE PURPOSE OF CALCULATING DISALLOWANCE U NDER RULE 8D(2)(III) OF THE INCOME-TAX RULES, INVESTMENT WHIC H DID NOT YIELD DIVIDEND SHOULD NOT BE TAKEN IN TO CONSIDERATION FO R COMPUTING AVERAGE VALUE OF INVESTMENTS. ACCORDINGLY HE PRAYE D THAT THE DISALLOWANCE MADE U/S 14A MAY BE MODIFIED. 9. THE LD DR ON THE CONTRARY SUPPORTED THE ORDER OF AO. WE NOTICED THAT THE PLEA OF THE ASSESSEE WITH REGARD T O INTEREST DISALLOWANCE IS SUPPORTED BY THE DECISION OF HONBL E KARANATAKA HIGH COURT RENDERED IN THE CASE OF JCIT VS. CHAITAN YA PROPERTIES P LTD (ITA NO.569/2015 & ITA NO.229/2016 DATED 15.06. 2018 AND PLEA IN RESPECT OF DISALLOWANCE TO BE MADE UNDER RU LE 8D(2)(III) IS SUPPORTED BY THE DECISION RENDERED BY SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT (P) LTD (201 7)(82 TAXMANN.COM 415)(165 ITD 27). ACCORDINGLY WE SET A SIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND RESTORE THE SAME TO HIS FILE WITH THE DIRECTION TO MODIFY THE DISALLOWANCE MADE U/S 1 4A OF THE ACT BY FOLLOWING THE ABOVE SAID TWO DECISIONS. IT(TP)A NO.2611/BANG/2017 PAGE 5 OF 6 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2019. SD/ - (N.V VASUDEVAN) VICE PRESIDENT SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 25 TH SEPTEMBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. IT(TP)A NO.2611/BANG/2017 PAGE 6 OF 6 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..