M/s. Eaton Power Quality Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 381/PUN/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3831 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-02-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.381/PUN/2015 / ASSESSMENT YEAR : 2010-11 M/S. EATON POWER QUALITY PRIVATE LIMITED, 145, OFF MUMBAI PUNE ROAD, PIMPRI, PUNE 411 018 PAN : AAACC6943R VS. DCIT, CIRCLE-8, PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 18-02-2015 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YE AR 2010-11. 2. THE ASSESSEE IS AN INDIAN RESIDENT ENGAGED IN THE B USINESS OF TRADING OF UNINTERRUPTED POWER SUPPLY AND DIRECT CURRENT P OWER SYSTEMS, SWITCH MODE POWER SUPPLY, POWER DISTRIBUTION SYSTEMS APPELLANT BY SHRI VISHAL KALRA RESPONDENT BY SHRI KRISHNA KUMAR DATE OF HEARING 18-02-2021 DATE OF PRONOUNCEMENT 18-02-2021 ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 2 AND ALSO PROVIDING MAINTENANCE SERVICES FOR THESE ITEMS. A RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME AT RS.7.92 CRORE. CERTAIN INTERNATIONAL TRANSACTIONS WERE REPORTED. THE AO MADE A REF ERENCE TO THE TPO FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. 3. GROUND NOS. 2 TO 5 DEAL WITH TRANSFER PRICING ADDITION OF RS.1,96,06,209/- MADE IN RESPECT OF INTERNATIONAL TRANSACTIO N OF `SERVICES RECEIVED FROM AES WITH TRANSACTED VALUE OF RS.1,96,06,209/-. THE TPO OBSERVED THAT THE ASSESSEE A DOPTED THE TRANSACTIONAL NET MARGINAL METHOD (TNMM) ON ENTITY LEVEL COVERING, INTER ALIA, THE INTERNATIONAL TRANSACTION IN QUESTION. HE CALLED UPON THE ASSESSEE TO PROVE THE FACTUM OF RECEIPT OF SERVICES AND ALSO THE BASIS FOR ALLOCATION OF COSTS. THE ASSESSEE C OULD NOT FURNISH EVIDENCE DEMONSTRATING THE RECEIPT OF SERVICES TO THE SATISFACTION OF THE TPO, WHO DETERMINED NIL ALP, THEREBY PROPOSING TRANSFER PRICING ADDITION OF THE EQUAL AMOUNT. NO RELIEF WAS ALLOWED BY THE DISPUTE RESOLUTION PANEL (DRP), WHICH FOUND THAT SIMILAR VIEW WAS CANVASSED BY IT IN THE CASE OF THE ASSE SSEE FOR THE PRECEDING ASSESSMENT YEARS INCLUDING THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR 2009-10. CONSEQUENTLY, THE AO MADE THE ADDITION ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 3 IN THE IMPUGNED ORDER, AGAINST WHICH THE ASSESSEE HAS COM E UP IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS N OTED THAT THE DRP RELIED ON ITS DIRECTION FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR FOR GRANTING SEAL OF APPROVAL TO THE TRANSF ER PRICING ADJUSTMENT. SUCH EARLIER ASSESSMENT YEAR CAME UP FOR CON SIDERATION BEFORE THE TRIBUNAL. BY ITS ORDER DATED 19-11-2018, THE TRIBUNAL IN ITA NO.599/PUN/2014 HAS RESTORED THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF THE ALP. IN REACHING TH IS CONCLUSION, THE TRIBUNAL ALSO RELIED ON A COORDINATE BENCH DE CISION OF THE ASSESSEES SISTER CONCERN, NAMELY, EATON FLUID POWER LTD. VS. ACIT . RELEVANT DISCUSSION HAS BEEN MADE AT PARA 5 OF THE ORDER. SINCE THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER CONS IDERATION ARE ADMITTEDLY SIMILAR TO THOSE OF THE PRECEDING YEAR, RESP ECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER A ND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DECIDING IT AFRESH IN CONFO RMITY WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL FOR SUCH EARLIER YEAR . ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 4 5. GROUND NOS. 6 AND 7 ARE AGAINST THE ADDITION OF RS.92, 58,784/- MADE U/S.37(1) OF THE ACT IN RESPECT OF THE MANAGEMENT FEE (CORPORATE COST ALLOCATION). THE ASSESSEE INCURRED SUCH EX PENSES TO ITS ANOTHER INDIAN SISTER CONCERN, NAMELY, EATON TECHNOLOGIE S PRIVATE LIMITED. THE AO REQUIRED THE ASSESSEE TO DEMONSTR ATE THE BASIS FOR COST ALLOCATION OF RS.92.58 LAKH AND ALSO THE FAC TUM OF RECEIPT OF SERVICES. THE ASSESSEE COULD NOT PROVE ITS POIN T OF VIEW TO THE SATISFACTION OF THE AO. HE, THEREFORE, MADE THE DISALLO WANCE U/S.37(1) OF THE ACT. THE DRP ALSO DID NOT ALLOW ANY REPR IEVE TO THE ASSESSEE, WHICH LED TO THE MAKING OF THE ADDITION IN THE IMP UGNED ORDER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE AO HAS MADE OUT A CASE THAT THE ASSESSEE COULD NOT EVIDENCE RECEIPT OF SERVICES WITH NECE SSARY DOCUMENTS AND HENCE, THE EXPENDITURE WAS NOT ALLOWABLE. IN ADDITION, THE AO ALSO OBSERVED THAT THE ALLOCATION OF COSTS WAS NOT PROPERLY PROVED. ON A SPECIFIC QUERY FROM THE BENCH, TH E LD. AR INVITED OUR ATTENTION TOWARDS INVOICES WHICH SHOW THE INCURRING OF EXPENSES BY IT UNDER DIFFERENT HEADS. IT IS ELEMENTARY THAT RAISING OF INVOICE IS ONE THING AND DEMONSTRATING THE FACTUM OF RECEIPT O F ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 5 SERVICES IS ANOTHER THING. IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO LEAD PROPER EVIDENCE BEFORE THE AUTHORITIES BELOW TO PROVE THE RECEIPT OF SERVICES. THE LD. AR CONTENDED THAT THE ASSESSEE HAS SUFFICIENT EVIDENCE TO PROVE THE RECEIPT OF SUCH SERVICES AN D ONE MORE OPPORTUNITY BE GRANTED, WHICH WAS NOT SERIOUSLY OBJECTE D BY THE LD. DR. UNDER THESE CIRCUMSTANCES, WE CONSIDER IT APPRO PRIATE TO SET ASIDE THE IMPUGNED ORDER TO THIS EXTENT AND DIRECT THE ASS ESSEE TO FILE SUCH EVIDENCE IN SUPPORT OF RECEIPT OF SERVICES TO THE S ATISFACTION OF THE AO, WHO WILL THEN EXAMINE AND DECIDE THE ISSUE DENOVO. 7. GROUND NOS. 8 TO 11 ARE AGAINST CERTAIN CLAIMS MADE B EFORE THE DRP FOR THE FIRST TIME FOR WHICH A DIRECTION OF RE-EXAMINATION TO THE AO WAS NOT PROPERLY COMPLIED WITH. 8. FACTUAL MATRIX OF THESE GROUNDS IS THAT THE ASSES SEE CLAIMS THAT A SUM OF RS.17,17,227/- RELATING TO PRIOR PERIOD EXPENSES WAS INADVERTENTLY NOT REDUCED FROM ITS TAXABLE INCOME AT THE TIME OF FILING OF RETURN AND ALSO NO SUCH CLAIM WAS MADE BEFORE TH E AO. SIMILARLY, THE ASSESSEE CLAIMS THAT THERE WAS A REVERSAL OF RENT EQUALIZATION RESERVE AMOUNTING TO RS.32,58,808/- THAT OUGHT T O HAVE BEEN REDUCED, WHICH IT OMITTED TO DO. IN THE LIKE MANNE R, THE ASSESSEE CLAIMS THAT THERE WAS REVERSAL OF PROVISION OF ANTIC IPATED ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 6 INSTALLATION COST OF RS.1,36,80,000/-, WHICH WAS WRONGLY OM ITTED TO BE REDUCED FROM THE TOTAL INCOME AT THE TIME OF FILING OF THE RETURN OF INCOME. ALL THE ABOVE THREE ITEMS WERE NEITHER CLAIMED AS DEDUCTIONS IN THE RETURN OF INCOME, NOR BEFORE THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS FOR THE FIRST TIME THAT THE ASSESSEE TOOK UP THIS ISSUE BEFORE THE DRP WHICH INITIALLY HELD IN PARA 5.1 THAT THE CLAIM OF THE ASSESSEE COULD NOT BE ENTERTA INED BECAUSE OF THE JUDGMENT OF HONBLE SUPREME COURT IN GOETZ (INDIA) LTD. VS. CIT 284 ITR 323 AND THEREAFTER, WITHOUT PREJUDICE, DIRECTED THE AO TO VERIFY THE CLAIM ON MERITS AND MAKE SPECIFIC REM ARKS IN THE FINAL ASSESSMENT ORDER FOR ALLOWING OR REJECTING THE SAME . THE AO IN THE FINAL ASSESSMENT ORDER HAS AGAIN RELIED ON THE JUDG MENT IN GOETZ (INDIA) LTD. (SUPRA) AND DID NOT EXAMINE THE CLAIMS ON MERITS, AS WAS DIRECTED BY THE DRP. THERE IS HARDLY ANY NEED T O EMPHASIZE THAT THE JUDGMENT IN GOETZ (INDIA) LTD. (SUPRA) APPLIES ONLY TO THE AO AND NOT TO THE HIGHER AUTHORITIES. ONCE THE DRP DIRECTED THE AO TO VERIFY THE ASSESSEES CLAIMS ON MERITS, IT BECAME INCU MBENT UPON HIM TO EXAMINE THE SAME ON MERITS. HAVING NOT DONE S O, WE SET-ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE F ILE OF AO FOR EXAMINING THEM AFRESH AS PER LAW AND THEN CONSIDER THE IR ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 7 DEDUCTIBILITY OR OTHERWISE ON MERITS. NEEDLESS TO SAY, THE ASS ESSEE WILL BE ALLOWED REASONABLE OPPORTUNITY OF HEARING. 9. THE ONLY OTHER GROUND ABOUT LEVY OF INTEREST U/S. 234A, 234B AND 234C IS CONSEQUENTIAL NOT REQUIRING ANY SPECIFIC ADJUDICATIO N. 10. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND. THE C RUX OF SUCH GROUND IS THAT THE ORDER PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX IN THE CAPACITY OF TRANSFER PR ICING OFFICER (TPO) IS INVALID AS THE ORDER, AT THE MATERIAL TIME, COU LD HAVE BEEN PASSED ONLY BY THE JOINT COMMISSIONER OF INCOME -TAX (JCIT) OR DEPUTY COMMISSIONER OF INCOME-TAX (DCIT) OR A SSISTANT COMMISSIONER OF INCOME-TAX (ACIT). IT IS OBSERVED THAT SI MILAR ADDITIONAL GROUND WAS RAISED IN THE APPEAL BEFORE THE TRIBUNA L BY ANOTHER SISTER CONCERN OF THE ASSESSEE, VIZ., EATON INDUS TRIAL SYSTEMS PVT. LTD. FOR THE SAME ASSESSMENT YEAR. THE TRIBUNAL VID E ITS ORDER DATED 25-11-2019 IN ITA NO.505/PUN/2015 HAS DISMISSED SU CH ADDITIONAL GROUND ON MERITS. SINCE THE FACTS AND CIRCUMSTANCES OF THE INSTANT ADDITIONAL GROUND ARE SIMILAR, FOLLOWING THE PRECEDEN T, WE DISMISS THE ADDITIONAL GROUND. ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 8 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY, 2021. SD/- SD/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 18 TH FEBRUARY, 2021 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.381/PUN/2015 M/S.EATON POWER QUALITY PRIVATE LIMITED 9 DATE 1. DRAFT DICTATED ON 18-02-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 18-02-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *