Yongsan Automotive India Pvt. Ltd., Thiruvallur V. ACIT, CHENNAI

ITA 357/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5825 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RU GEORGE
• Keywords: Transfer pricing; Principle of natural justice; International transaction

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , !, # !$ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.357/MDS/2017 ' (' / ASSESSMENT YEAR : 2012-13 M/S YONGSAN AUTOMOTIVE INDIA PVT. LTD., NO.99, PAPPARAMBAKKAM VILLAGE & POST, THIRUVALLUR DIST 602 025. PAN : AAACY 2879 A V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2), CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI RAGHUNATHAN SAMPATH, ADVOCATE ,-*+ . / / RESPONDENT BY : SMT. RUBY GEORGE, CIT 0 . 1# / DATE OF HEARING : 08.11.2017 23( . 1# / DATE OF PRONOUNCEMENT : 16.11.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER PASSED BY THE ASSESSING OFFICER CONSEQUENT TO THE D IRECTIONS OF THE DISPUTE RESOLUTION PANEL DATED 21.10.2016 AND PERTA INS TO ASSESSMENT YEAR 2012-13. 2 I.T.A. NO.357/MDS/17 2. SHRI RAGHUNATHAN SAMPATH, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE DISPUTE RESOLUTION PAN EL HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE AND MADE DOWNWARD ADJUSTMENT BY TAKING THE ENTIRE TRANSACTION AT ENTITY LEVEL INSTE AD OF ASSOCIATED ENTERPRISE TRANSACTION. ACCORDING TO THE LD. COUNS EL, UNDER THE SCHEME OF INCOME-TAX ACT, THE TRANSACTION OF THE AS SESSEE BEING TESTED PARTY WITH ASSOCIATED ENTERPRISE OUTSIDE THE COUNTRY HAS TO BE COMPARED WITH TRANSACTION OF THE SIMILARLY PLACE D COMPANY IN UNCONTROLLED TRANSACTION. IN THE CASE BEFORE US, A CCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER HAS TAKEN THE ENTIRE TRANSACTION OF THE ASSESSEE, INCLUDING THE DOMESTIC TRANSACTION, F OR THE PURPOSE OF TRANSFER PRICING ADJUSTMENT. 3. REFERRING TO THE JUDGMENT OF BOMBAY HIGH COURT I N CIT V. ALSTOM PROJECTS INDIA LIMITED 2016 (12) TMI 1408, A COPY OF WHICH IS AVAILABLE AT PAGE 4 OF THE PAPER-BOOK, THE LD.CO UNSEL FOR THE ASSESSEE SUBMITTED THAT UNDER CHAPTER X OF THE INCO ME-TAX ACT, 1961 (IN SHORT 'THE ACT'), TRANSFER PRICING ADJUSTM ENT HAS TO BE DONE IN ORDER TO DETERMINE THE CONSIDERATION RECEIVED IN A TRANSACTION WITH ASSOCIATED ENTERPRISE OUTSIDE THE COUNTRY. TH EREFORE, ACCORDING TO THE LD. COUNSEL, CHAPTER X OF THE ACT DOES NOT REQUIRE 3 I.T.A. NO.357/MDS/17 ANY ADJUSTMENT WITH REGARD TO DOMESTIC TRANSACTION, HENCE, THE DISPUTE RESOLUTION PANEL IS NOT JUSTIFIED IN CONSID ERING THE ENTIRE TRANSACTION OF THE ASSESSEE INCLUDING THE DOMESTIC TRANSACTION. REFERRING TO THE DECISION OF THIS BENCH OF THE TRIB UNAL IN CATERPILLAR INDIA PVT. LTD. V. ACIT IN I.T.A. NOS.204 & 365/MDS /2012 DATED 05.04.2017, THE LD.COUNSEL SUBMITTED THAT THIS TRIB UNAL FOUND THAT THE ENTIRE TRANSACTION OF THE ASSESSEE HAS TO BE TA KEN INTO CONSIDERATION FOR THE PURPOSE OF TRANSFER PRICING A DJUSTMENT. IN VIEW OF THE JUDGMENT OF BOMBAY HIGH COURT IN ALSTOM PROJ ECTS INDIA LIMITED (SUPRA), ACCORDING TO THE LD. COUNSEL, THE DECISION OF THIS BENCH OF THE TRIBUNAL MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. 4. SHRI RAGHUNATHAN SAMPATH, THE LD.COUNSEL FOR THE ASSESSEE, FURTHER SUBMITTED THAT THE DISPUTE RESOLU TION PANEL HAS ALSO REMOVED THE ROYALTY REVERSAL OF ` 1,27,05,764/- FROM OPERATING INCOME OF THE ASSESSEE-COMPANY WITHOUT APPRECIATING THE BASIS OF SUCH REVERSAL. THEREFORE, ACCORDING TO THE LD. COU NSEL, THE DRP IS NOT JUSTIFIED IN GIVING DIRECTION TO THE ASSESSING OFFICER FOR ADJUSTMENT. 4 I.T.A. NO.357/MDS/17 5. WE HAVE HEARD SMT. RUBY GEORGE, THE LD. DEPARTME NTAL REPRESENTATIVE, ALSO. ACCORDING TO THE LD. D.R., T HE ENTIRE TRANSACTION OF THE ASSESSEE, INCLUDING DOMESTIC TRA NSACTION, HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF TRAN SFER PRICING ADJUSTMENT. MOREOVER, THE ROYALTY REVERSAL NEEDS T O BE REMOVED FROM OPERATING INCOME FOR THE PURPOSE OF TRANSFER P RICING ADJUSTMENT. THEREFORE, ACCORDING TO THE LD. D.R., THERE IS NO REASON TO INTERFERE WITH THE DIRECTION OF THE DISPU TE RESOLUTION PANEL. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WHETHER THE ENTIRE TRAN SACTION OF THE ASSESSEE NEEDS TO BE TAKEN INTO CONSIDERATION FOR T HE PURPOSE OF TRANSFER PRICING ADJUSTMENT OR THE TPO AND DRP HAVE TO CONFINE THEMSELVES ONLY TO INTERNATIONAL TRANSACTION? THIS ISSUE WAS EXAMINED BY THE DELHI HIGH COURT IN CIT V. KEIHIN P ANALFA LTD. 92016) 381 ITR 407. THE DELHI HIGH COURT FOUND THA T THE INTERNATIONAL TRANSACTION CONSTITUTES ONLY 23.38%, THEREFORE, THE TRANSFER PRICING ADJUSTMENT PROPORTIONATE TO THAT E XTENT CAN BE MADE IN RESPECT OF SUCH INTERNATIONAL TRANSACTION. THIS JUDGMENT OF DELHI 5 I.T.A. NO.357/MDS/17 HIGH COURT WAS FOLLOWED BY BOMBAY HIGH COURT IN ALS TOM PROJECTS INDIA LIMITED (SUPRA). THE BOMBAY HIGH COURT FOUND THAT CHAPTER X OF THE ACT IS NOT TRIGGERED TO MAKE ADJUSTMENT TO C ONSIDERATIONS RECEIVED OR PAID UNLESS THEY ARE SPECIFIED DOMESTIC TRANSACTIONS. THE TRANSACTION WITH NON-ASSOCIATED ENTERPRISES ARE PRESUMED TO BE AT ARM'S LENGTH AS THERE IS NO RELATIONSHIP WHIC H IS LIKELY TO INFLUENCE THE PRICE. IN THE ABSENCE OF ANY SEGMENT AL ACCOUNTING, PROPORTIONATE BASIS CAN ALSO BE ADOPTED AS DONE BY THE DELHI HIGH COURT IN KEIHIN PANALFA LTD. (SUPRA). IN VIEW OF T HESE JUDGMENTS OF DELHI HIGH COURT AND BOMBAY HIGH COURT, IT IS OBVIO US THAT FOR THE PURPOSE OF TRANSFER PRICING ADJUSTMENT, THE TRANSAC TION OF THE ASSESSEE WITH ASSOCIATED ENTERPRISE OUTSIDE THE COU NTRY ALONE HAS TO BE TAKEN INTO CONSIDERATION. THE DOMESTIC TRANS ACTION UNLESS IT IS A SPECIFIED DOMESTIC TRANSACTION, CANNOT BE A BASIS FOR MAKING ANY ADJUSTMENT. THEREFORE, THE ORDER OF THIS TRIBUNAL IN CATERPILLAR INDIA PVT. LTD. (SUPRA) MAY NOT BE APPLICABLE TO THE FACT S OF THE CASE. 7. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT UNDER THE SCHEME OF THE INCOME-TAX ACT, THE TRANSFER PRICING ADJUSTMENT HAS TO BE MADE ONLY IN RESPECT OF THE TRANSACTION OF TH E ASSESSEE BEING A TESTED PARTY, WITH ASSOCIATED ENTERPRISE OUTSIDE THE COUNTRY AFTER 6 I.T.A. NO.357/MDS/17 COMPARING THE TRANSACTION MADE BY SIMILARLY PLACED COMPANY IN UNCONTROLLED TRANSACTION WITH NON-ASSOCIATED ENTERP RISE. THEREFORE, WE ARE UNABLE TO UPHOLD THE ORDER OF THE DISPUTE RE SOLUTION PANEL ACCORDINGLY THE ORDER OF THE DRP IS SET ASIDE AND T HE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 8. SINCE THE MAIN ISSUE IS REMITTED BACK TO THE FIL E OF THE ASSESSING OFFICER, THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT REVERSAL OF ROYALTY TO THE EXTENT OF ` 1,27,05,764/- ALSO NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDER OF THE TPO AS CONFIRMED BY THE DRP IS SET ASIDE AND THE ENTIRE ISSUE IS REMITT ED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SH ALL REFER THE MATTER ONCE AGAIN TO THE FILE OF THE TPO. THE TPO SHALL RE- EXAMINE THE ISSUE IN RESPECT OF THE INTERNATIONAL T RANSACTION OF THE ASSESSEE WITH ASSOCIATED ENTERPRISE OUTSIDE THE COU NTRY AND COMPARE THE SAME WITH THE TRANSACTION OF SIMILARLY PLACED COMPANY WITH NON-ASSOCIATED ENTERPRISE AND THEREAFTER, DECI DE THE ISSUE IN ACCORDANCE WITH LAW. SIMILARLY, THE REVERSAL OF RO YALTY ALSO NEEDS TO BE EXAMINED BY THE TPO AND THE PROCEDURE PRESCRIBED UNDER 144C OF THE ACT NEEDS TO BE FOLLOWED BOTH BY THE ASSESSE E AND THE DRP. 7 I.T.A. NO.357/MDS/17 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 16 TH NOVEMBER, 2017 AT CHENNAI. SD/- SD/- ( ! ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) # / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 16 TH NOVEMBER, 2017. KRI. . ,167 87(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 91 () /CIT(TP-2), CHENNAI 4. PRINCIPAL CIT-3, CHENNAI 5. TPO-3(2), CHENNAI 6. 7: ,1 /DR 7. ' ; /GF.