Lakshmi Electrical Control Systems Ltd., Coimbatore V. ACIT Corporate Circle 2, Coimbatore

ITA 2984/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2306 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 05-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR M SREENIVASA RAO
• Assessee Lawyers: JHARNA B HARILAL
• Keywords: Transfer pricing; Earning of tax free income; Additional evidence
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2984/CHNY/2017 ( / ASSESSMENT YEAR: 2013-14) M/S. LAKSHMI ELECTRICAL CONTROL SYSTEMS LTD., 695, AVINASHI ROAD, COIMBATORE 641 037. VS THE ACIT, CORPORATE CIRCLE - 2, COIMBATORE. PAN: AAACL3737E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : CA JHARNA B. HARILAL, FCA / RESPONDENT BY : DR.M. SREENIVASA RAO, CIT /DATE OF HEARING : 02.08.2018 /DATE OF PRONOUNCEMENT : 30.08.2018 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE DIRECTIONS OF THE LD. MEMBERS OF THE DRP DATED 18.09.2017 AND THE ASSESSMENT ORDER PASSED BY THE LD.ACIT DATED 27.09.2017 PASSED U/S. 143(3) R.W.S. 144C(1) OF THE ACT FOR THE ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL:- 2 ITA NO.2984/CHNY/2017 1. THE CONTENTION OF THE LEARNED ASSESSING OFFICER / TRANSFER PRICING OFFICER (AO/TPO) IS CONTRARY TO LAW AND FACTS OF THE CASE. THE LEARNED AO ITPO HAD ERRED IN NOT APPRECIATING THE FACTS OF THE CASE. 2. THE HONORABLE DISPUTE RESOLUTION PANEL (DRP) HAS ERRED IN GIVING DIRECTIONS CONFIRMING THE ADDITIONS MADE BY THE LEARNED TPO, CHENNAI, WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT. 3. THE HONORABLE DRP HAS FAILED TO CONSIDER THE ADDITIONAL EVIDENCES FILED BY THE APPELLANT DUE TO CONSTRAINT OF TIME. THE HON'BLE DRP FAILED TO APPRECIATE THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE APPELLANT THAT THE PROVISIONS OF SEC. 40A(2) OF THE ACT ARE NOT APPLICABLE WITH RESPECT TO THE TRANSACTIONS ENTERED INTO WITH M/S LAKSHMI MACHINE WORKS LIMITED AND M/S LMW MACHINERY LIMITED AND CONSEQUENTLY THE SAID TRANSACTIONS ARE OUT OF THE PURVIEW OF TRANSFER PRICING PROVISIONS. 4. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT RAISES THE FOLLOWING GROUNDS: A. THE LEARNED TPO /DRP HAS ERRED IN REJECTING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPRIATE METHOD (MAM), WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT; B. THE LEARNED TPO ERRED IN CONSIDERING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITHOUT GIVING JUSTIFIABLE REASONS; C. THE LEARNED TPO /DRP FAILED TO UNDERSTAND THE BUSINESS OF THE APPELLANT AND ERRED IN COMPARING THE APPELLANT WITH COMPANIES OF UN COMPARABLE BUSINESS; AND D. THE LEARNED TPO ERRED IN NOT GIVING EFFECT TO APPROPRIATE ADJUSTMENTS UNDER TNMM METHOD. 5. THE LEARNED AO HAS FAILED TO APPRECIATE THAT THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE WHICH IS DIRECTLY/INDIRECTLY ATTRIBUTABLE TO EXEMPT INCOME. 6. THE LEARNED ASSESSING OFFICER FAILED TO APPRECIATE THAT THE PROVISIONS OF SEC. 14A R.W.R. 8D IS NOT AUTOMATIC AND IT HAS TO BE INVOKED ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE APPELLANT. 3 ITA NO.2984/CHNY/2017 7. THE APPELLANT CRAVES THE LEAVE OF THE HONORABLE TRIBUNAL TO ADDUCE AND ALLOW ADDITIONAL GROUNDS OF APPEAL, IF NECESSARY, DURING THE COURSE OF HEARING AND CONSIDER THE ABOVE GROUNDS AND GRANT THE RELIEF TO THE APPELLANT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING MACHINERY RELATED TO SPINNING TEXTILES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ELECTRONICALLY ON 14.09.2013 ADMITTING TOTAL INCOME OF RS.7,51,04,620/- UNDER NORMAL PROVISIONS AND RS.5,41,84,562/- UNDER MAT COMPUTATION. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 04.09.2014. THEREAFTER THE CASE WAS REFERRED TO THE LD.TPO WHO PASSED ORDER U/S. 92CA(3) & 92C(3) OF THE ACT ON 07.10.2016 FOLLOWED BY DRAFT ASSESSMENT ORDER ON 16.12.2016. SUBSEQUENTLY THE LD.MEMBERS OF THE DRP ISSUED DIRECTIONS ON 18.09.2017 WHEREIN THEY CONFIRMED THE ADDITIONS MADE BY THE LD.TPO. 4. AT THE OUTSET THE LD.AR SUBMITTED BEFORE US THAT THE ASSESSEE HAD FILED ADDITIONAL EVIDENCES IN SUPPORT OF ITS STAND, BUT THE LD.MEMBERS OF THE DRP REJECTED THE SAME BECAUSE THEY WERE NOT PRODUCED BEFORE THE LD.TPO. THE LD.AR FURTHER ARGUED STATING THAT THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE IS VERY CRUCIAL IN 4 ITA NO.2984/CHNY/2017 DECIDING THE ISSUES. IT WAS FURTHER SUBMITTED THAT FOR THE ISSUE WITH RESPECT TO DOMESTIC TRANSFER PRICING, THE ASSESSEE HAD INADVERTENTLY CONSIDERED THE COMPANIES SUCH AS 1. LAKSHMI MACHINE WORKS LTD., 2. LMW MACHINERY LIMITED, 3. TITAN HMG PAINTS INDIA LIMITED AS RELATED PARTIES WHILE AS THE SAME WERE NOT RELATED PARTIES. HENCE IT WAS PLEADED THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF LD.TPO FOR CONSIDERING OF THE FRESH EVIDENCE PRODUCED BY THE ASSESSEE. THE LD.AR ALSO SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS THE GROUND NO.6 WITH RESPECT TO DISALLOWANCE OF EXPENDITURE INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES. THE LD.DR ON THE OTHER HAND VEHEMENTLY OPPOSED TO THE SUBMISSION OF THE LD.AR AND PRAYED THAT THE ORDERS OF THE LD.REVENUE AUTHORITIES MAY BE SUSTAINED. 5. AFTER HEARING BOTH PARTIES, THOUGH WE DO NOT APPRECIATE THE SUBMISSION OF THE LD.AR FOR NOT HAVING FURNISHED THE ENTIRE EVIDENCE BEFORE THE LD.TPO AT THE APPROPRIATE TIME, HOWEVER, IN THE INTEREST OF JUSTICE, WE ARE OF THE VIEW THAT IT IS ESSENTIAL FOR THE LD.TPO TO LOOK INTO THE FRESH EVIDENCE SUBMITTED BY THE ASSESSEE IN ORDER TO JUSTIFY THE ASSESSEES STAND. ACCORDINGLY WE HEREBY REMIT BACK THE MATTER TO THE FILE OF LD.TPO FOR DE-NOVA CONSIDERATION WITH DIRECTION TO ADMIT AND 5 ITA NO.2984/CHNY/2017 EXAMINE ANY FRESH EVIDENCE PRODUCED BY THE ASSESSEE AND ALSO WITH RESPECT TO THE ISSUE OF THE UNRELATED PARTIES BEING TREATED AS RELATED PARTIES INADVERTENTLY BY THE ASSESSEE AND THEREAFTER DECIDE THE MATTER IN ACCORDANCE WITH LAW AND MERIT. HOWEVER WITH RESPECT TO GROUND NO.6 BEING DISALLOWANCE OF EXPENSES U/S.14A R.W.R 8D OF THE RULES, SINCE THE LD.AR HAS WITHDRAWN THE GROUND, THIS GROUND STANDS DISMISSED. 6. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 30 TH AUGUST, 2018 AT CHENNAI. SD/- SD/- ( . ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED 30 TH AUGUST, 2018 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF