DCIT, Bangalore V. M/s Payne (India) Pvt. Ltd., Bangalore

ITA 446/BANG/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90033 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER IT(TP)A NO.446(B)/2012 (ASSESSMENT YEAR : 2005-06) THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRLCE-12(2), RASHTROTHANA BHAVAN, BANGALORE APPELLANT VS M/S PAYNE (INDIA.) PVT.LTD., SURVEY NO.46, JALA HOBLI, DODDAJALA VILLAGE, BANGALORE-562 157 PAN NO.AABCB 1955H RESPONDENT ASSESSEE BY : SHRI SURYANARAYANA, ADVOCATE REVENUE BY : DR. P.K.SRIHARI, ADDL. CIT DATE OF HEARING : 09-07-2015 DATE OF PRONOUNCEMENT : 24-07-2015 O R D E R PER SHRI VIJAY PAL RAO, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 24- 01-2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06. 2. THE REVENUE HAS RAISED THE FOLLOWING CONCISE GRO UNDS; 1. THE ORDER OF THE LD.CIT(A) IN SO FAR AS IT RELA TES T THE FOLLOWING GROUNDS IS OPPOSED TO LAW AND FACTS OF TH E CASE. IT(TP)A NO.44 6(B)/12 2 2. THE LD.CIT(A) ERRED IN HOLDING THAT INTRA GROUP SERVICES ARE AT ARMS LENGTH AS THE ASSESSEE FAILED TO ESTABLISH THAT SERVICES WERE RENDERED BY AE FOR THE DIRECT BENEFIT OF THE ASSESSEE. 3. THE ONLY ISSUE ARISES FROM THE GROUNDS RAISED B Y THE REVENUE IS WHETHER THE INTRA GROUP SERVICES RENDERED BY THE AE TO THE ASSESSEE ARE AT ARMS LENGTH. THE ASSESSEE ENTERED INTO VARIOUS IN TERNATIONAL TRANSACTIONS WHICH INCLUDE IMPORT OF RAW MATERIALS AND PACKING M ATERIAL, EXPORT OF FINISHED GOODS, PURCHASE OF FINISHED GOODS, IMPORT OF CAPITAL GOODS, PAYMENT OF INTRA GROUP SERVICES AND REIMBURSEMENT O F DIRECTORS SALARY AND TRAVEL EXPENSES. ALL THE ABOVE INTERNATIONAL TR ANSACTIONS WERE CLUBBED BY THE ASSESSEE TO DETERMINE THE ARMS LENGTH PRICE UNDER TRANSACTION NET MARGIN METHOD (TNMM). THE ASSESSEE HAD PROFIT MARG IN ON COST AT ENTITY LEVEL WAS 33.31% AS COMPARED TO MEAN MARGIN ON COST OF THE COMPARABLES SELECTED BY THE TPO AT 10.11%. THE TPO ACCEPTED TN MM AS MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP IN RESP ECT TO ALL OTHER INTERNATIONAL TRANSACTIONS EXCEPT THE PAYMENT FOR I NTRA GROUP SERVICES. THE ASSESSEE IS MAKING THE PAYMENT FOR INTRA GROUP SERVICES WITH A MARK- UP OF 5.8% WHEREAS THE TPO HAS DETERMINED THE ALP I N RESPECT OF THE GROUP SERVICES AT NIL BY HOLDING THAT THE INTRA GRO UP SERVICES DID NOT RESULT INCREASE ANY PROFIT MARGIN. IT(TP)A NO.44 6(B)/12 3 4. ON APPEAL, THE CIT(A) HAS ALLOWED THE PAYMENT F OR INTRA GROUP AT COST BY EXCLUDING THE MARK-UP OF 5.8% AND ACCORDING LY, DIRECTED THE AO/TPO TO MAKE THE ADJUSTMENT TO THE EXTENT OF 5.8% MARK-UP OF COST. THUS, THE LIMITED DISPUTE BEFORE US IN THE REVENUE S APPEAL IS RESTRICTING THE ADJUSTMENT BY THE CIT(A) ONLY TO THE EXTENT OF MARK-UP ON COST AS AGAINST THE ENTIRE PAYMENT OF INTRA GROUP SERVICES MADE BY THE TPO. 5. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEA RNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AS SESSEE HAS MADE THE PAYMENT TOWARDS THE COST CONTRIBUTION ON ACCOUNT OF INTRA GROUP SERVICES. THE AO AS WELL AS THE TPO HAS NOT DISPUTED THE ACTU AL COST OF SERVICES WHICH IS CONTRIBUTED BY THE ASSESSEE, THOUGH THE AE OF THE ASSESSEE HAS ALLOCATED THE COST WITH THE MARK-UP OF 5.8%. THE TPO HAS DETERMINED THE ALP OF GROUP SERVICES AT NIL ON THE GROUND THAT THE SERVICES HAS NOT RESULTED IN ANY INCREASE IN THE PROFIT MARGIN OF TH E ASSESSEE. IT IS PERTINENT TO NOTE THAT THE COMPUTATION OF ALP BY THE TPO AT N IL IS CONTRARY TO THE PROVISIONS OF TRANSFER PRICING AS WELL AS RULES PRO VIDED UNDER THE ACT. THE ONLY ISSUE BEFORE THE TPO WAS TO CONSIDER THE ARMS LENGTH PRICE OF THE SERVICES RECEIVED BY THE ASSESSEE. ONCE THE SERVIC ES RECEIVED BY THE ASSESSEE IS NOT IN DISPUTE THAN, THE DISPUTE IS ONL Y THE ALP OF SUCH SERVICES. IN THE CASE IN HAND THE DISPUTE WAS FURT HER NARROWED ONLY IN RELATION TO THE MARK-UP CHARGED BY THE AE ON THE CO ST. THE CIT(A) HAS ALREADY DISALLOWED THE MARK-UP AND DETERMINED THE A LP AT COST OF THE IT(TP)A NO.44 6(B)/12 4 GROUP SERVICES WHICH HAS BEEN CONTRIBUTED BY THE AS SESSEE. WE FURTHER NOTE THE CIT(A) HAS NOTED THAT THE FACT FOR ASSESSM ENT YEAR 2008-09, THE PAYMENT OF INTRA GROUP SERVICES WAS ACCEPTED Y THE TPO AT ARMS LENGTH UNDER THE TNMM WHERE THE PERCENTAGE OF PROFIT ON CO ST OF ASSESSEE AT ENTITY LEVEL WAS ONLY 16.31% IN COMPARISON TO THE C URRENT YEARS MARGIN AT 33.31%. WE FIND THAT FOR THE ASSESSMENT YEAR 2008 -09, THE TPO HAS ACCEPTED THE PAYMENT MADE FOR INTRA GROUP SERVICES AS UNDER; HOWEVER, FROM THE SUBMISSIONS MADE BY THE TAXPAY ER AND FACTS OF CASE, IT IS SEEN THAT THE PAYMENT IS M ADE TOWARDS COST CONTRIBUTION AND THE TAXPAYER HAS AL SO SUBMITTED THE PAYMENT IS IN NATURE OF REIMBURSEMEN T OF ALLOCATED COSTS WHICH AMOUNTS TO 6.99% OF THE LOCA L ALLOCATION MADE THE FILTRONA UK LIMITED TO ALL THE AES AT A MARK-UP OF 5.8%. AS IT IS EVIDENT FROM THE FACTS A ND SUBMISSIONS, THE PAYMENT IS CLEARLY FOR THE COST CONTRIBUTION AND THEREFORE, THERE SHOULD NOT BE AN Y MARK-UP ON SUCH ALLOCATIONS MADE BY THE PARENT COMPANY. HE NCE, FOR THE SAME REASON, THE MARK-UP OF 5.8% PAID TOWAR DS COST CONTRIBUTION IS NOT AT ARMS LENGTH AND THE ALP FO R THE MARK- UP IS TREATED AS NIL WHICH AMOUNTS TO RS.2,15,140/- . THUS, THE ABOVE EXCESS AMOUNT BEING ADJUSTMENT U/S 92CA OF RS.2,15,140/- IS TREATED AS TRANSFER PRICIN G ADJUSTMENT U/S 92CA FOR ASSESSMENT YEAR 2007-08. IT(TP)A NO.44 6(B)/12 5 6. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF TH E CIT(A) QUA THIS ISSUE OF ACCEPTING THE PAYMENT FOR INTRA GROUP SERVICES AT C OST. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THE 24-07-2015. SD/- SD/- (JASON P BOAZ) (VIJA Y PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER D A T E D : 24-07-2015 PLACE: BANGALORE AM* COPY TO : 1 APPELLANT 2 RESPONDENT T3 CIT(A) BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR, ITAT, BANGALORE