Tata Johnson Controls Automotive Ltd., Pune V. ACIT, Circle-7, Pune

ITA 296/PUN/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9292 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 30-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REENA JHA TRIPATHI
• Keywords: Transfer pricing; International transaction; Rule of consistency; Tax effect

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 296/PUN/2013 / ASSESSMENT YEAR : 2008-09 M/S. ADIENT INDIA PVT. LTD., (FORMERLY KNOWNTATA JOHNSON CONTROLS AUTOMOTIVE LIMITED), PLOT NO.1, S.NO.235 AND 245, HINJEWADI, TALUKA MULSHI, PUNE 411 057 PAN : AAACT6342D . / APPELLANT V/S ACIT, CIRCLE - 7, PUNE . / RESPONDENT ASSESSEE BY : SHRI PERCY PARDIWALLA REVENUE BY : SMT. REENA JHA TRIPATHI / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DERS OF THE AO/DRP/TPO FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : GROUND 1 : ERROR IN DEDUCTING INR 38,08,61,587 FRO M TOTAL TURNOVER AND EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SEC TION 10A, BY TREATING THE SAME AS EXPENSES INCURRED IN RENDERING TECHNICA L SERVICES OUTSIDE INDIA. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER (LD. AO) AND LEARNED DISPUTE RESO LUTION PANEL (LD. DRP) HAVE ERRED IN TREATING INR 38,08,61,587 AS EXPENSES INCURRED IN FOREIGN CURRENCY FOR RENDERING TECHNICAL SERVICES OUTSIDE I NDIA AND THEREBY REDUCING THE SAME FROM EXPORT TURNOVER AND TOTAL TURNOVER WH ILE COMPUTING DEDUCTION UNDER SECTION 10A. / DATE OF HEARING :08.06.2017 / DATE OF PRONOUNCEMENT:14.06.2017 2 ITA NO.296/PUN/2013 GROUND 2 : ERROR IN DISALLOWING THE PAYMENT MADE TO WARDS ADMINISTRATIVE SERVICES CHARGES TO TATA AUTOCOMP SYSTEMS LTD. (TA CO) UNDER SECTION 40A(2)(A)(B). THE LD. DRP AND THE LD. AO ERRED IN RECORDING ITS F INDING THAT THE APPELLANT HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO SUBSTA NTIATE ITS CLAIM OF ADMINISTRATIVE SERVICES CHARGES PAID TO TACO. THE LD. DRP AND THE LD. AO ERRED IN DISALLOWING THE PAYMENT OF INR 2,58,12,000 MADE ON ACCOUNT OF ADMINISTRATIVE SERV ICE CHARGES TO TACO UNDER SECTION 40A(2)(A)(B). 3. BRIEFLY STATED RELEVANT FACTS AS PROVIDED IN STA TEMENT OF FACTS ARE THAT ASSESSEE M/S. ADIENT INDIA PVT. LTD. IS A COMPANY ( FORMERLY KNOWN AS TATA JOHNSON CONTROLS AUTOMOTIVE LTD. (TJCAI)) INCORP ORATED UNDER THE INDIAN COMPANIES ACT, 1956 IN JANUARY 1996. IT IS A 50:50 JOINT VENTURE BETWEEN TATA AUTOCOMP SYSTEMS LIMITED CTACO') AND JOHNSON C ONTROLS INTERNATIONAL B.V., NETHERLANDS ('JCBV'). ASSESSEE IS ENGAGED IN MANUFACTURING AND DESIGNING OF SEATING SYSTEMS. THE ENGINEERING DIVIS ION OF ASSESSEE IS A CAPTIVE DESIGN ENGINEERING SERVICE PROVIDER FOR THE JOHNSON CONTROLS C'JC') GROUP. THE ENGINEERING DIVISION WORKS UNDER THE SUP ERVISION OF THE JC GROUP ENTITIES AND PERFORMS DESIGN ENGINEERING SERVICES I N THE FIELD OF SEATING SYSTEMS AND SEAT COMPONENTS, WITH THE HELP OF CAD, CAM AND SUCH OTHER ANALYTICAL TOOLS. FOR THE F.Y. 2007-08, THE ASSESSE E FILED ITS RETURN OF INCOME AND THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUING N OTICE U/S.143(2) OF THE ACT. THE AO REFERRED THE CASE OF THE ASSESSEE TO TH E TPO U/S. 92CA(1) OF THE ACT. EVENTUALLY, THE TPO PASSED AN ORDER ON 31-1 2-2011 U/S. 92CA(3) OF THE ACT PROPOSING TOTAL ADDITION OF RS. 85,484,374 TO THE PRICE OF THE INTERNATIONAL TRANSACTION. 4. OTHERWISE, THE TPO PASSED AN ORDER U/S.92CA(3) D ATED 31-12-2011 AND THE AO MADE THE DRAFT ASSESSMENT ORDER AFTER IN CORPORATING THE TPOS TRANSFER PRICING ADJUSTMENTS ON 30-12-2011 U/S.144C (1) OF THE ACT. SUBSEQUENTLY, THE DRP ISSUED GUIDELINES VIDE THE OR DER DATED 15-09-2012. 3 ITA NO.296/PUN/2013 FINALLY, THE AO MADE THE ASSESSMENT U/S.143(3) R.W. S. 144C(13) OF THE ACT ON 29-11-2012. IN THE SAID ASSESSMENT, SOME OF THE DISALLOWANCES MADE BY THE AO INCLUDE (1) THE DISALLOWANCE OF 2,58,12,000/ - ON ACCOUNT OF PAYMENT OF ADMINISTRATIVE SERVICE CHARGES MADE TO TACO, (2) DEDUCTION OF EXPENSES INCURRED IN FOREIGN EXCHANGE EQUIVALENT TO RS.38,08 ,61,587 FROM THE EXPORT TURNOVER OF TOTAL TURNOVER WHILE COMPUTING DEDUCTIO N U/S.10A OF THE ACT AND THEREBY CLAIM OF DEDUCTION U./S.10A IS REDUCED TO T HE EXTENT OF RS.51,79,470/-. THESE ISSUES ARE THE SUBJECT MATTE R OF APPEAL BEFORE US IN THE GROUNDS EXTRACTED ABOVE. 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE REFERRED CHANGES IN THE REDUCTION OF CLAIM OF DEDUCTION U/S.10A OF THE ACT AND SUBMITTED THAT THE ASSESSEE INCURRED CERTAI N EXPENSES AND THE SAME WERE TREATED AS EXPENSES INCURRED FOR RENDERING OF TECHNICAL SERVICES OUTSIDE INDIA. IT HAS THE EFFECT OF REDUCTION OF CLAIM OF DEDUCTION U/S.10A OF THE ACT. EVENTUALLY, SHRI P. PARDIWALLA, LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT SAID GROUND NO.1 IS NOT PRESSED CONSIDERING THE SMA LLNESS OF THE TAX EFFECT. HE FAIRLY MENTIONED THAT THE AUTHORITIES TOOK A RIG HT DECISION IN REDUCING THE CLAIM BOTH FROM THE EXPORT TURNOVER AND THE TOTAL T URNOVER. HOWEVER, HE MADE A MENTION OF THE FACT THAT THE SAID CONCESSION OF NOT PRESSING THE GROUND NO.1 SHOULD NOT GO ON THE WAY AGAINST THE A SSESSEE, WHEN THE ISSUES RELATING TO LEVY OF PENALTY U/S.271(1)(C) OF THE ACT, IF ANY ARE TO BE DECIDED IN DUE COURSE. 6. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE FOR THE REVENUE RELIED HEAVILY ON THE ABOVE SAID ORDERS OF THE REVE NUE. 7. AFTER HEARING BOTH THE SIDES ON THIS ISSUE AND A LSO CONSIDERING THE CONCESSION BY THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE VIEW THAT 4 ITA NO.296/PUN/2013 GROUND NO.1 RAISED BY THE ASSESSEE IS REQUIRED TO B E DISMISSED AS NOT PRESSED CONSIDERING THE SMALLNESS OF THE TAX IMPLI CATIONS. 8. REGARDING THE COUNSELS PRAYER RELATING TO THE E FFECT OF THIS DECISION OF DISMISSAL OF THE GROUND NO.1 IN MATTERS RELATING TO CONCEALMENT OF PENALTY, IF ANY, WE ARE OF THE CONSIDERED VIEW THAT THE PENALTY PROCEEDINGS ARE ENTIRELY INDEPENDENT OF THESE PROCEEDINGS ON THE MERITS. TH E PENALTY PROCEEDINGS IN ANY CASE ARE TO BE DECIDED CONSIDERING THE FACTS, L AW AND CIRCUMSTANCES OF THE PENALTY PROCEEDINGS. THEREFORE, WE ARE OF THE VIEW THAT NO CATEGORICAL FINDING IS REQUIRED AT THIS POINT OF TIME. IN ANY CASE, WE ARE NOT DECIDING THE ISSUE ON MERITS. THE PRESENT DECISION IS ONLY BASE D ON THE CONCESSION GIVEN BY THE LD. COUNSEL FOR THE ASSESSEE. THUS, GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 9. GROUND NO.2 RELATES TO THE ERROR IN DISALLOWING PAYMENT MADE TOWARDS ADMINISTRATIVE SERVICE CHARGES TO TATA AUTOCOMP S YSTEMS LTD. U/S.40A(2)(A)/(B) OF THE ACT. ON THIS ISSUE, LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 DATED 09-1 2-2015. HOWEVER, LD. AUTHORISED REPRESENTATIVE MENTIONED THAT THE SAME IS NOT AVAILABLE TO THE REVENUE AUTHORITIES WHILE MAKING THE ASSESSMENT/WHI LE ISSUING GUIDELINES BY THE DRP IN CONNECTION WITH THE PRESENT APPEAL FOR T HE ASSESSMENT YEAR 2008-09. THE ASSESSMENT WAS MADE IN THE PRESENT CA SE ON 29-11-2012. CONTINUING TO ARGUE ON MERITS, THE LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE SAID ORDER OF THE TRIBUNAL PLACED AT 373 OF THE PAPER BOOK. THIS ORDER OF THE TRIBUNAL WAS PASSED FOR THE ASSES SMENT YEAR IN ITA NO.1450/PN/2011 ORDER DATED 09-12-2015. LD. COUNSE L BROUGHT OUR ATTENTION TO GROUND NO.2 AND READ THE SAME AS UNDER : 5 ITA NO.296/PUN/2013 THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E OF ADMINISTRATIVE SERVICE CHARGES PAID TO TATA AUTOCOMP SYSTEMS LTD ( TACO) TO THE EXTENT OF RS.1,50,63,122/- OUT OF RS.2,00,84,162/- U/S.40A (2)(B) OF THE INCOME-TAX ACT ON THE GROUNDS THAT THE SAME IS EXCESSIVE AND U NREASONABLE HAVING REGARD TO SERVICES RENDERED BY TACO AND THE LEGITIM ATE BUSINESS NEEDS OF THE APPELLANT. 10. TO DEMONSTRATE THE MANNER OF ADJUDICATION OF TH E SAID GROUND BY THE TRIBUNAL, LD. COUNSEL BROUGHT OUR ATTENTION TO PAG E 386 AND READ OUT THE CONTENTS FROM PARA 23 ONWARDS AND MENTIONED THAT T HE PAYMENTS MADE TO TACO IS ON ACCOUNT OF BUSINESS EXIGENCY AND THE C LAIM OF THE ASSESSEE IS FULLY ALLOWABLE. IN THIS CASE, THE ENTIRE CLAIM WA S DISALLOWED BY THE ASSESSING AUTHORITIES, WHEREAS, THE CIT(A) ALLOWED THE EXPEND ITURE TO THE EXTENT OF 25% OF THE EXPENSES ONLY. BRINGING OUR ATTENTION, PARTICULARLY, TO THE CONTENTS OF PARA NO.32, THE LD. COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE TRIBUNAL NOT ONLY HELD THAT THE PAYMENT TO TACO WAS MADE FOR THE REASONS OF THE BUSINESS EXIGENCY (PARA 23); BUT ALSO HELD T HAT THERE IS NO REQUIREMENT FOR INCLUDING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT (PARA 32). RELEVANT LINES OF THESE TWO PARAGRAPHS ARE EX TRACTED AS UNDER : 24. THE FIRST ISSUE TO BE ADDRESSED IN THIS REGARD IS WHETHER IN ORDER TO JUDGE COMMERCIAL EXIGENCY OF THE AGREEMENT AND THE QUANTUM OF REMUNERATION PAID IN VIEW OF THE TERMS OF AGREEMENT ENTERED INTO BETWEEN TWO PARTIES, CAN THE REASONABLENESS OF EXPENDITURE BE VIEWED BY THE AUTHORITIES OR REASONABLENESS HAS TO BE ESTABLISHED FROM THE VIEW POINT OF BUSINESSMAN. THE FIRST ASPECT IN THIS REGARD IS THA T WHERE THERE IS A JOINT VENTURE BETWEEN TWO CONCERNS TO THE EXTENT OF 50:50 AND ADDITIONAL REMUNERATION IS BEING PAID BY JOINT VENTURE COMPANY FORMULATED BY THEM TO ONE OF THE CONCERNS, THEN THE ISSUE HAS TO BE SEEN FROM THE VIEW POINT OF OTHER CONCERN WHO IS PART OF JOINT VENTURE AND IS I NCURRING 50% COST OF THE SAID REMUNERATION PAID. THERE IS A COMMERCIAL AGREE MENT BETWEEN THE ASSESSEE AND TACO, UNDER WHICH CERTAIN SERVICES HAD TO BE PROVIDED BY TACO, FOR WHICH REMUNERATION WAS DUE TO THEM. THE L IST OF SERVICES ARE ENLISTED IN THE AGREEMENT AND UNDOUBTEDLY, THE SAID AGREEMENT HAS BEEN IN FORCE FOR MORE THAN 7 YEARS AND THE AMOUNTS HAVE BE EN PAID AND ALLOWED AS EXPENDITURE IN THE HANDS OF ASSESSEE FROM YEAR TO Y EAR. IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN HOLDING THAT THE ENTIRE EXPEND ITURE MERITS TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE, SINCE THE QUANTUM OF REMUNERATION HAS BEEN FIXED AT PERCENTAGE OF TURNOVER. THEEXPLAN ATION OF THE ASSESSEE BEFORE US WAS THAT TACO WAS THE HOLDING COMPANY OF ALL JOINT VENTURE COMPANIES AND IT WAS PROVIDING THE SAID SERVICES TO ALL THE JOINT VENTURES AND THE ASSESSEE WAS ONE SUCH JOINT VENTURE, TO WHICH T HE SAID SERVICES WERE PROVIDED. THE REMUNERATION PAID IN THIS REGARD IS A LLOWABLE IN THE HANDS OF ASSESSEE AS THE SAME IS PAID ON ACCOUNT OF BUSINESS EXIGENCY. 6 ITA NO.296/PUN/2013 25. . . . . . . . . . . . . . . . . . . . . . . . . 32. NOW, COMING TO THE CASE OF QUANTUM OF REMUNERAT ION TO BE ALLOWED IN THE HANDS OF ASSESSEE, WHERE THE CIT(A) HAS ALLOWED EXPENDITURE @ 25% OF TOTAL EXPENSES AND NO BASIS HAS BEEN GIVEN BY THE C IT(A) TO ALLOW THE SAID EXPENDITURE @ 25% OF THE TOTAL. THERE IS NO BASIS F OR MEASURING SUCH SERVICES AND IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD TO ESTABLISH THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS E XCESSIVE I.E. MORE THAN MARKET VALUE OF THE SAID SERVICES, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN INVOKING PROVISIONS OF SECTION 40A(2)(A) OF THE ACT. ACCORDINGLY, WE MODIFY THE ORDER OF CIT(A) AND DIRE CT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE IN TOTALITY IN THE HANDS O F THE ASSESSEE AS THE SAID EXPENDITURE HAS BEEN LAID DOWN IN TERMS OF THE AGRE EMENT AGREED UPON BETWEEN THE PARTIES AND IS FOR CARRYING ON OF THE B USINESS OF THE ASSESSEE MORE EFFICIENTLY AND IS ALLOWABLE AS BUSINESS EXPEN DITURE. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWE D AND GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS DISMISSED. 11. FURTHER, LD. COUNSEL FOR THE ASSESSEE FILED A C OPY OF ANOTHER ORDER OF THE TRIBUNAL IN THE CASE OF TATA FICOSA AUTOMOTIVE SYSTEMS LTD. IN ITA NOS. 254 TO 258/PUN/2015 AND ITA NOS. 269 TO 273PUN/2013 FOR THE ASSESSMENT YEARS 2007-08 TO 2011-12 ORDER DATED 23-12-2016 AND MENTIONED THAT SIMILAR ISSUE CAME UP WITH THAT ASSESSEE AND THE TR IBUNAL, WHERE ONE OF US IS A PARTY (JUDICIAL MEMBER), DECIDED THE ISSUE IN FAV OUR OF THE ASSESSEE AND UPHELD THE CLAIM OF THE ASSESSEE, I.E. NO DISALLOWA NCE IS REQUIRED U/S.40A(2)(B) OF THE ACT ON THE PAYMENTS MADE. 12. FROM THE ABOVE, THE CONTENTS OF THE PARAGRAPHS ARE SELF-EXPLANATORY AND THE CLAIMS OF THE ASSESSEE WERE DECIDED IN FAVO UR OF THE ASSESSEE. AS SUCH, LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVEN UE HAS NOT BROUGHT ANYTHING CONTRARY TO OUR NOTICE BEFORE US TO DISTIN GUISH THE SAID ORDER OF THE TRIBUNAL. CONSIDERING THE PRINCIPLE OF CONSISTENCY AS WELL AS IN VIEW OF THE SIMILARITY OF THE FACTS, WE ARE OF THE OPINION THAT THE ABOVE CONCLUSIONS OF THE TRIBUNAL ARE EQUALLY RELEVANT FOR THE ISSUE RAISED IN THE PRESENT APPEAL. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 7 ITA NO.296/PUN/2013 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF JUNE, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; DATED : 14 TH JUNE, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE //TRUE COPY// /ASSISTANT REGISTRAR , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE DRP , PUNE 4. DR, ITAT, B BENCH PUNE; 5. / GUARD FILE.