DCIT, Uttrakhand V. M/s. Delta Power Solution India Pvt. Ltd., Uttrakhand

ITA 3004/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6421 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I1
• Next Hearing Date: 29-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY CHAUDHARY
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 92E

Judgement Text

1 ITA NO. 30 04/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT ME MBER & SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO.-3004/DE L/2013 (ASSESSMENT YEAR-2008- 09) DCIT INCOME TAX OFFICE HALDWANI, DISTT. NAINITAL UTTRAKHAND. VS DELTA POWER SOLUTION INDIA P. LTD. PANTNAGAR. UTTRAKHAND AACCD5896N APPELLANT BY SHRI VIJAY CHAUDHARY, SR. DR RESPONDENT BY SHRI PARTH, ADV. ORDER PER BEENA PILLAI, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF THE LD. CIT(A)-II, DEHRADUN VIDE ORDER DAT ED 08/03/2013 FOR THE AY 2008-09 ON THE FOLLOWING GROUNDS OF APPE AL: 1. THAT THE LD. CIT(A)-II, DEHRADUN HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO ADOPT RPM FOR WORKING OUT VAL UE OF TRANSACTION WITH RESPECT TO AES WITHOUT APPRECIATIN G THE FACT THAT EACH YEAR IS AN INDEPENDENT YEAR AND PRIN CIPLE OF RES-JUDICATA ARE NOT APPLICABLE TO INCOME TAX PROCEEDINGS. IN VIEW OF THE FACT AND CIRCUMSTANCES OF THE TAX PAYERS CASE, TNMM IS THE MOST APPROPRIATE METH OD. DATE OF HEARING 29.02.2016 DATE OF PRONOUNCEMENT 14.03.2016 2 ITA NO. 30 04/DEL/2013 2. THAT THE ORDER OF THE LD. CIT(A)-II, DEHRADUN IS AG AINST THE SPIRIT OF LEGISLATURE AND THE ORDER OF THE ASSESSIN G OFFICER IS LIABLE TO BE RESOTRED. 3. THAT THE APPELLANT CRAVES, LEAVE TO ADD, ALTER, AME ND OR VARY FROM THE ABOVE GROUNDS OF APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE HAS E-FILED ITS RETURN OF INCOME ON 29 .09.2008 DECLARING NIL TOTAL INCOME BY CLAIMING LOSS OF RS. 71,49,110/-. THE ASSESSEE IS WHOLLY OWNED SUBSIDIARY OF DET INTERNAT IONAL HOLDING LTD., CAYMAN ISLAND. THE ASSESSEE HAS MANUFACTURIN G FACILITIES AT PONDICHERRY AND RUDRAPUR WITH CORPORATE OFFICE AT G URGAON. THE REGISTERED OFFICE OF THE ASSESSEE IS AT RUDRAPUR. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE DID NOT START PROD UCTION AT RUDRAPUR PLANT HOWEVER, AS PER THE CAS REPORT U/S 92E OF THE I.T. ACT, THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSA CTION WITH ITS AE TO THE EXTENT OF RS. 23,72,68,470/-WHICH IS AS UNDE R; S.NO. TYPE OF INTERNATIONAL TRANSACTION TOTAL VALUE (RS.) METHOD SELECTED 1. PURCHASE OF RAW MATERIALS 11,38,15,778/ - TNMM USING OPERATING PROFIT AS A PLI OPERATION REVENUE. 2. EXPORT OF FINISHED GOODS 20,68,837/ - TNMM USING OPERATING PROFIT AS PLI OPERATING REVENUT. 3. IMPORT OF INDUSTRIAL AUTOMATION PRODUCTS 118,615,849/ - RPM USING GROSS PROFIT AS A PLI SALES. 4. SALES COMMISSION 16,46,756/ - RPM USING GROSS PROFIT AS A PLI SALES. 5. WINDOW LICENSE FEE 32,51,160/ - NO BENCHMARKING REQUIRED. 3 ITA NO. 30 04/DEL/2013 6. REIMBURSEMENT OF EXPENSES 61,071/ - NO BENCHMARKING REQUIRED. 2.1. THE ASSESSEE USED TRANSACTIONAL NET MARGIN MET HOD(TNMM) AS THE MOST APPROPRIATE METHOD(MAM) FOR THE TRANSACTIO NS RELATING TO PURCHASE OF RAW MATERIALS AND EXPORT OF FINISHED GO ODS AND THE ASSESSE USED THE OPERATING PROFIT AS PLI. IN RESPEC T OF IMPORT OF AUTOMATION PRODUCTS AND SALES COMMISSION SEGMENT, T HE ASSESSEE USED RESALE PRICE METHOD(RPM) AS THE MAM AND GROSS PROFIT AS PLI SALES. 2.2. THE LD.AO THEREFORE MADE A REFERENCE U/S 92CA OF THE I.T. ACT WAS MADE TO ADDL. DIRECTOR INCOME TAX, TRANSFER PRI CING OFFICER, KANPUR (CAMP OFFICE NOIDA) TO COMPUTE ARMS LENGTH PRICE(ALP), REGARDING THE INTERNATIONAL TRANSACTIONS MADE BY TH E ASSESSEE COMPANY. THE TPO, NOIDA DETERMINED THE ARMS LENGT H PRICE OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE RELATING TO COST OF GOODS SOLD IS AT RS. 7,56,53,190/- AS AGAINST RS. 11,86,1 5,849/- SHOWN BY THE ASSESSEE FOR IMPORT OF INDUSTRIAL AUTOMATION PRODUCTS. THE LD.TPO REJECTED THE RPM USED BY THE ASSESSEE AND AP PLIED TNMM METHOD FOR BENCHMARKING THE TRANSACTION AND PROPOSE D AN ADJUSTMENT OF RS. 4,29,62,659/- FOR IMPORT OF INDUS TRIAL AUTOMATION PRODUCTS. ACCORDINGLY ON THE BASIS OF THE ORDER OF TPO, ASSESSMENT U/S 143(3) WAS MADE BY MAKING AN ADDITION OF RS. 4, 29,62,659/-. 3. AGGRIEVED WITH THE ABOVE ORDER U/S 143(3) OF THE IT ACT, 1961, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A)-II, DEHRADUN. 3.1. THE LD.CIT(A) CALLED FOR A REPORT IN RESPECT O F SOME DOCUMENTS FILED BY THE AASSESSEE IN RESPECT OF NET MARGINS IN SUBSEQUENT 4 ITA NO. 30 04/DEL/2013 YEARS. THE TPO FILED HIS REPORT ON 08.02.2013, IN W HICH HE ONCE AGAIN HE SUPPORTED THAT TNMM MUST BE APPLIED TO CAL CULATE THE ALP. THE ASSESSEE ALSO FILED ITS OBJECTION TO THE R EPORT. THE LD. CIT(A)-II, DEHRADUN HAS ALLOWED THE APPEAL IN FAVOU R OF THE ASSESSEE BY STATING THAT,; T HE ARGUMENTS FOR ADOPTING RPM AND THE AUTHORITIES RELI ED UPON FOR COMPARING RPM/TNMM HAVE CONSIDERABLE PERSUASIVE VAL UE. HOWEVER, THE CLINCHING ARGUMENT FOR ADOPTING RPM IS THE FACT THAT IN THE APPELLANTS OWN CASE FOR AY 2009-10 THE LD. TPO HAS ADOPTED RPM FOR DETERMINING THE ARMS LENGTH PRICING (AS AG AINST USING TNMM FOR THIS YEAR BEING AY 2008-09). ON THIS GROU ND THE LD. ASSESSING OFFICER IS DIRECTED TO ADOPT RPM FOR WORK ING OUT VALUE OF TRANSACTION WITH RESPECT TO AES. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN APPEAL BEFORE US NOW. 4.1. THE LD.DR SUBMITTED THAT THE LD.TPO HAS CORREC TLY APPLIED THE TNMM AS THE MAM FOR DETERMINING ALP. HE SUPPORTED T HE ORDER OF THE LD.TPO. 5. ON THE CONTRARY, THE LD.AR SUBMITTED THAT RPM MU ST BE MAM FOR THESE TRANSACTIONS AS THERE IS NO VALUE ADDITION TH AT IS MADE BY THE ASSESSEE. HE REITERATED HIS SUBMISSIONS MADE BEFORE THE LD.CIT(A) THAT, RPM IS APPLIED WHERE AN ENTERPRISE PURCHASES FROM ITS AE AND THEN RESELLS TO AN UNRELATED ENTERPRISES. HE SUBMI TTED THAT THERE IS NO VALID REASONS GIVEN BY THE TPO FOR REJECTING R PM ADOPTED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE TPO IN THE SUBSEQUENT 5 ITA NO. 30 04/DEL/2013 YEAR BEING 2009-10 HAS ACCEPTED RPM AS MAM FOR THE TRADING SECTION. LD.AR SUPPORTED THE FINDINGS OF THE LD.CIT (A). 6. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AS WELL AS THE ARGUMENTS ADVANCED BY BOTH THE PARTIES. 6.1. IT IS OBSERVED THAT THE PRIMARY OBJECTIVE OF T HE ASSESSEE IS OF MANUFACTURING/TRADING/ASSEMBLING OF TELECOM POWER E QUIPMENT, VISUAL DISPLAY PRODUCTS, INDUSTRIAL AUTOMATION AND MAGNETIC COMPONENTS, ETC. THE ONLY ISSUE IN DISPUTE IS IN RE GARDS TO THE MAM FOR DETERMINING ALP IN RESPECT OF THE TRADING SECTI ON. THE ASSESSEE HAD USED TNMM AS MAM FOR ARRIVING AT THE ALP IN RES PECT OF PURCHASE OF RAW MATERIALS, EXPORT OF FINISHED GOODS AND IN RESPECT OF TRANSACTION RELATING TO IMPORT OF INDUSTRIAL AU TOMATION PRODUCTS AND SALES COMMISSION IT HAD USED RPM AS MAM. THE LD . AR SUBMITTED THAT AS THERE IS NO VALUE ADDITION IN RES PECT OF GOODS SOLD BY THE ASSESSEE AND THEREFORE RPM IS THE MAM FOR DE TERMINING ALP IN RESPECT OF THESE TWO HEADS BEING IMPORT OF INDUS TRIAL AUTOMATION PRODUCTS AND SALES COMMISSION. 6.2. IT IS OBSERVED THAT THE LD.CIT(A) HAS DEALT WI TH THE ISSUES RELATING TO THE TIMING DIFFERENCE AND SUFFICIENT DA TA NOT BEING AVAILABLE TO RECONCILE THE CHANGE IN THE MARKET, CH ANGE IN RATE OF EXCHANGE, CHANGE IN COST ETC. AT LENGTH IN PARAGRAP H 3.1.AT PAGES 3 TO 9. THE LD.CIT(A) HAS REPRODUCED IN PARAGRAPH G, THE RELEVANT EXTRACT OF THE ACCEPTED POSITION FOR A.Y: 2009-10, WHEREIN THE TPO HAS ACCEPTED THE RPM AS THE MOST APPROPRIATE METHOD FOR CALCULATING THE ALP IN RESPECT OF TRADING SEGMENT. 6 ITA NO. 30 04/DEL/2013 7. WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD.CIT(A). AS IN THE SUBSEQUENT YEAR THE TPO HIMSELF HAS ACCEPTED RP M TO THE MAM FOR DETERMINING THE ALP FOR THE TRADING SEGMENT, ON THE SIMILAR FACTS AND CIRCUMSTANCES, AS RECORDED BY THE LD.CIT( A). WE THEREFORE UPHOLD THE FINDINGS OF LD.CIT(A). THE GROUNDS FILED BY THE REVENUE IS THUS DISMISSED. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STAN DS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14.03. 2016 SD/- SD/- (N.K. SAINI) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14/03/2016 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 30 04/DEL/2013 DATE 1. DRAFT DICTATED ON 29.02.2016 2. DRAFT PLACED BEFORE AUTHOR 01.03.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.