EPCOS India Private Limited, Nadia V. DCIT, Circle-11(1), Kolkata, Kolkata

ITA 506/KOL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0582 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 15-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: RAHUL KUMAR MITRA
• Keywords: Transfer pricing; International transaction; Additional evidence

Judgement Text

1 ITA NOS.278 & 322/KOL/2016 & 506/KOL/2017 EPCOS INDIA PVT. LTD., AYS- 2011-12 & 2012-13 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE . , /AND . . , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VA RKEY, JM] I.T.A. NO. 278/KOL/2016 ASSESSMENT YEAR: 2011-12 EPCOS INDIA PRIVATE LIMITED (PAN: AAACI6950Q) VS. JOINT COMMISSIONER OF INCOME-TAX, RANGE-11, KOLKATA. APPELLANT RESPONDENT & I.T.A. NO. 322/KOL/2016 ASSESSMENT YEAR: 2011-12 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), KOLKATA. VS. EPCOS INDIA PRIVATE LIMITED APPELLANT RESPONDENT & I.T.A. NO. 506/KOL/2017 ASSESSMENT YEAR: 2012-13 EPCOS INDIA PRIVATE LIMITED VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 05.12.2017 DATE OF PRONOUNCEMENT 15.12.2017 FOR THE ASSESSEE SHRI RAHUL KUMAR MITRA, AR FOR THE RESPONDENT SHRI G. MALLIKARJUNA, CIT, DR ORDER PER SHRI A.T.VARKEY, JM ITA NOS. 278/KOL/2016 AND 322/KOL/2016 ARE CROSS AP PEALS FILED BY THE ASSESSEE AND REVENUE AND ITA NO. 506/KOL/2017 FILED BY THE ASSES SEE ARE AGAINST THE DIRECTIONS OF DISPUTE RESOLUTION PANEL-2, NEW DELHI PASSED U/S. 144C(5) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) DATED 26.11. 2015 AND 28.12.2016 FOR AYS 2011-12 2 ITA NOS.278 & 322/KOL/2016 & 506/KOL/2017 EPCOS INDIA PVT. LTD., AYS- 2011-12 & 2012-13 AND 2012-13 RESPECTIVELY. FINAL ASSESSMENT ORDERS WERE PASSED BY JCIT, RANGE-11 AND DCIT, CIRCLE-11(1), KOLKATA DATED 27.01.2016 AND 1 7.02.2017 U/S. 144C(13)/143(3) OF THE ACT RESPECTIVELY. 2. BRIEF FACTS DISCERNIBLE FROM A PERUSAL OF THE SUMMARY OF TP ADJUSTMENT FOR BOTH THE YEARS HAS BEEN PROVIDED IN THE TABLE BELOW: S. NO. NATURE OF TRANSACTION VALUE OF TRANSACTION VALUE OF TP ADJUSTMENT VALUE OF TRANSACTION VALUE OF TP ADJUSTMENT AY 2011-12 AY 2012-13 I. SALE OF FINISHED GOODS (FERRITES) FOR RESALE 67.43 4.95 47.78 13.40 PAYMENT OF SALES MARGIN 19.40 12.82 21.92 15.10 II. SALE OF FINISHED GOODS (FERRITES) FOR CONSUMPTION 17.09 1.12 18.53 5.17 III. PAYMENT FOR BUSINESS SUPPORT SERVICES 16.52 16.52 19.19 19.19 IV. PAYMENT OF NON-COMPETE FEE - - 8.62 8.62 V. PAYMENT OF LUMP-SUM FEE FOR TECHNOLOGY - - 6.65 6.65 TOTAL 120.44 35.41 `122.59 68.13 ALL OTHER INTERNATIONAL TRANSACTIONS, APART FROM AS STATED ABOVE, OF THE ASSESSEE FOR THE MENTIONED YEARS WERE CONSIDERED TO BE AT ARM'S LENG TH BY THE LD. TRANSFER PRICING OFFICER (TPO). WITH RESPECT TO AY 2011-12, THE ASSESSEE HAD ADOPTE D AN OVERALL ENTITY BASED TRANSACTIONAL NET MARGIN METHOD (TNMM) TO DETERMINE ARM'S LENGTH PRICE OF ITS INTERNATIONAL TRANSACTIONS. THE LD. TPO ADOPTED A T RANSACTION-BY-TRANSACTION APPROACH CONSIDERING SEGMENTAL PROFITABILITY AS PER AS 17 WH ICH INCLUDES TRANSACTION WITH NON-AES ALSO AND ALLEGED THAT THREE OF ITS INTERNATIONAL TR ANSACTIONS HAVE NOT BEEN ENTERED INTO AT ARM'S LENGTH PRICE, THEREBY PROPOSING A TP ADJUSTME NT OF RS.35.41 CR. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AND CONTINUED TO PRESS UPON THE ENTITY BASED TNMM APPROACH TO DEF END ITS TRANSACTION PRICE. THE DRP DID NOT ALLOW ASSESSEE'S APPEAL AND STOOD BY THE LD. TP O'S CONCLUSION. 3. WITH RESPECT TO AY 2012-13, THE LD. TPO CONTINUE D ITS PREVIOUS YEAR ANALYSIS AND HELD THE SAME TRANSACTIONS (AS LISTED IN SL. NO. I TO III ABOVE) TO BE UNDERTAKEN AT NON-ARM'S 3 ITA NOS.278 & 322/KOL/2016 & 506/KOL/2017 EPCOS INDIA PVT. LTD., AYS- 2011-12 & 2012-13 LENGTH PRICE. IN ADDITION THE LD. TPO ALLEGED TWO M ORE TRANSACTIONS (AS ENTERED INTO IN AY 2012-13 ONLY I.E. SL. NO. IV & V) TO BE AT NON-ARM' S LENGTH PRICE AND PROPOSED A TP ADJUSTMENT OF RS.68.13 CR. IN APPEAL BEFORE THE LD. DRP, THE ASSESSEE, ON BEING CORRECTLY ADVISED ON TRANSFER PRICING PRINCIPLES, REVISED THE APPROACH TO TRANSACTION-BY-TRANSACTION APPROACH FOR DETERMINATION OF ARM'S LENGTH PRICE AN D SUBMITTED ALL NECESSARY DOCUMENTS FOR THEIR CONSIDERATION (REFER PAGE 1535-2682 OF PART 3 OF PAPER BOOK). ACCORDING TO LD. AR, THE LD. DRP DID NOT TAKE MOST OF THE ADDITIONAL DOC UMENTS INTO COGNIZANCE AND ADJUDICATED THE MATTER BY REJECTING ASSESSEE'S PLEA AND HOLDING LD. TPO'S APPROACH AS CORRECT. 4. BEING AGGRIEVED BY THE LD. DRP'S DIRECTION, THE ASSESSEE HAS PREFERRED THESE APPEALS BEFORE US FOR CONSIDERATION OF REVISED APPROACH AND ADDITIONAL EVIDENCES AS SUBMITTED BEFORE THE LD. DRP (FOR AY 2012-13) AND FOR A.Y 201 1-12 ALSO BEFORE US, FOR ADJUDICATION OF THE MATTER. THE COPY OF SUBMISSION FOR BOTH ASSE SSMENT YEARS WERE FILED ON 6TH OCTOBER, 2017. WE NOTE THAT THE FOLLOWING DOCUMENTS HAVE BE EN FILED AS ADDITIONAL EVIDENCE. LIST OF ADDITIONAL EVIDENCE 1. COPY OF ORGANIZATION STRUCTURE OF SALES ORG ANIZATIONS ENGAGED IN DISTRIBUTION ACTIVITY 2. SAMPLE COPIES OF INVOICES RAISED BY SALES ORGANISAT ION ON THE APPELLANT AND OTHER MANUFACTURING UNITS PURSUANT TO DISTRIBUTORSHIP AGR EEMENT 3. BACK TO BACK LISTING OF APPELLANT'S SALES INVOICES WITH SALE INVOICES OF SALES ORGANISATION FOR FY 2010-11 4. CERTIFIED COPIES OF COST PROFITABILITY STATEMENTS O F SALES ORGANISATIONS FROM UNDERTAKING DISTRIBUTION ACTIVITY OF APPELLANT'S PR ODUCTS 5. BENCHMARKING REPORT TO SUBSTANTIATE DISTRIBUTORSHIP ARRANGEMENT WITH EACH OF THE SALES ORGANISATIONS HAS BEEN UNDERTAKEN AT ARM'S LE NGTH 6. COPY OF ROYALTY AGREEMENT CONSIDERED BY THE LD. TPO IN RELATION TO EXPLOITATION OF MARKETING AND DISTRIBUTION RIGHTS 4 ITA NOS.278 & 322/KOL/2016 & 506/KOL/2017 EPCOS INDIA PVT. LTD., AYS- 2011-12 & 2012-13 7. TRANSFER PRICING ORDER OF AY 2012-13 EVIDENCING SEL ECTION OF MAHINDRA HINODAY AND MMG INDIA PVT. LTD. AS COMPARABLE C OMPANIES FOR BENCHMARKING APPELLANT'S PROFITABILITY UNDER ITS FERRITE SEGMENT 8. CERTIFIED COPY OF FINANCIAL INFORMATION SHOWING PRO FITABILITY EARNED BY THE APPELLANT UNDER ITS KALYANI UNIT (FERRITE SEGMENT) 9. FRAMEWORK SERVICE AGREEMENT OF EPCOS AG WITH OTHER GROUP COMPANIES 10. INDIVIDUAL SERVICE AGREEMENT IN RELATION TO IT SERV ICES OF EPCOS AG WITH OTHER GROUP COMPANIES 11. SAMPLE COPIES OF INVOICES RAISED BY EPCOS AG ON EPC OS INDIA AND OTHER GROUP COMPANIES FOR PROVISION OF IT SUPPORT SERVICES 12. BENCHMARKING REPORT WITH RESPECT TO THE TRANSAC TION PERTAINING TO PAYMENT FOR BUSINESS SUPPORT SERVICES (IT SUPPORT AND EXPORT SU PPORT SERVICES 13. COPY OF ORGANIZATION STRUCTURE OF EPCOS AG'S IT DIV ISION ENGAGED IN RENDERING OF IT SUPPORT SERVICES TO GROUP COMPANIES 14. LIST OF IT USERS WORKING ON IT SYSTEMS, SAP AND OTH ER APPLICATIONS 15. ADDITIONAL COPIES OF MAIL COMMUNICATION ALONG WITH SUMMARY OF SUCH MAILS SHOWING BENEFITS RECEIVED BY APPELLANT FROM IT SUPP ORT SERVICES 16. COPY OF AGREEMENTS ENTERED INTO BETWEEN EPCOS AG AN D OTHER GROUP ENTITIES IN RELATION TO EXPORT SUPPORT SERVICES 17. SAMPLE COPIES OF INVOICES RAISED BY EPCOS AG ON OTHER GROUP COMPANIES FOR PROVISION OF EXPORT SUPPORT SERVICES 18. EVIDENCES OF EXPORT SUPPORT SERVICES RECEIVED AND C ONSEQUENT BENEFITS THEREFROM 19. COPY OF ANNUAL REPORTS OF COMPARABLE COMPANIES (ALO NG WITH DETAILS OF MARGIN COMPUTATION) SELECTED FOR BENCHMARKING THE TRANSACT ION OF SALES 5 ITA NOS.278 & 322/KOL/2016 & 506/KOL/2017 EPCOS INDIA PVT. LTD., AYS- 2011-12 & 2012-13 20. COMPARABLE PRICE DETAILS FOR BENCHMARKING THE UNIT PRICE OF FERRITE SOLD BY ASSESSEE TO AES FOR CONSUMPTION PURPOSES ALONG WITH COPIES O F THIRD PARTY PRICE QUOTATION 21. ENGLISH TRANSLATED COPIES OF IT AGREEMENT ENTERED I NTO BY EPCOS AG WITH THIRD PARTY VENDORS 22. ORGANIZATION STRUCTURE OF EPCOS AG PM TEAM RENDERIN G EXPORT SUPPORT SERVICES TO GROUP COMPANIES 23. SAMPLE COPIES OF DEBIT NOTES RAISED BY THIRD PARTY VENDORS ON EPCOS AG 24. DETAILS OF IT HELPDESK TICKETS RAISED AND RESOLVED DURING THE YEAR FY 10-11 25. MONTH-WISE DETAILS OF SALES MARGIN AS PAID BY ASSES SEE TO EACH OF THE SALES ORGANIZSATIONS 26. DISTRIBUTORSHIP AGREEMENT BETWEEN EPCOS INDIA AND EPCOS SUMPERK 27. COST AUDITOR CERTIFICATE SHOWING DETAILS OF CAPACIT Y UTILIZATION AND DETAILS OF CONTRIBUTION EARNED BY EPCOS, KALYANI UNIT FROM SAL E OF FERRITE FOR CONSUMPTION TO AES FOR AY 11-12 AND AY 12-13. 5. ACCORDING TO ASSESSEE, IT HAS APPOINTED THE NEW LAW FIRM WHEN THE APPEAL WAS PREFERRED BEFORE THE TRIBUNAL FOR A.Y 2011-12. THE NEW LAW FIRM AFTER ANALYSIS OF THE ORIGINAL T. P STUDY HAS ADVISED THE ASSESSEE TO ADO PT TRANSACTION BY TRANSACTION METHOD, IN PLACE OF ENTITY LEVEL BENCH MARKING APPROACH. ACCO RDING TO THE ASSESSEE, IT SHOULD NOT BE PENALIZED FOR THE ERROR/MISTAKE WHICH OCCURRED IN T HE FIRST PLACE, BECAUSE OF WRONG LEGAL ADVICE OF ERSTWHILE ATTORNEYS. WE NOTE THAT THE HON BLE SUPREME COURT IN N. BALAKRISHNAN VS. M. KRISHNAMURTHY (1998) 7 SCC 123 WHEREIN A SIM ILAR CASE WHERE THERE WAS A DELAY OF 883 DAYS BECAUSE OF THE MIS-HANDLING THE CASE BY TH E ADVOCATE OF THE PETITIONER, THE HONBLE SUPREME COURT CONDONED THE DELAY TAKING NOT E THAT THE PETITIONER CANNOT BE FAULTED DUE TO THE LATCHES OF THE LAWYER. SIMILARLY, FOR S UBSTANTIAL JUSTICE, THE ASSESSEE SHOULD NOT SUFFER BECAUSE OF EARLIER LEGAL ADVICE WHICH THE AS SESSEE REALIZES TO BE WRONG AND READY TO CORRECT. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, THE TRANSFER PRICING ADJUSTMENT ORDERED BY THE TPO IS SET ASIDE WITH A DIRECTION TO RE-ADJUDICATE ONLY ON THE ISSUE ON WHICH 6 ITA NOS.278 & 322/KOL/2016 & 506/KOL/2017 EPCOS INDIA PVT. LTD., AYS- 2011-12 & 2012-13 THE TPO HAS FOUND THE ASSESSEES TRANSACTION NOT AT ARMS LENGTH, WHICH IS TO BE DONE AFRESH AFTER TAKING INTO CONSIDERATION, THE AFORESAID DOCU MENTS FILED BEFORE US FOR A.Y 2011-12 AND DRP FOR AY 2012-13 AND AFTER HEARING THE ASSESSEE. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AS WELL AS THE CROSS APPEAL OF REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 15TH DECEM BER. 2017. SD/- SD/- (J. SUDHAKAR REDDY) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 15TH DECEMBER, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT EPCOS INDIA PRIVATE LIMITED, WBIDC G ROWTH CENTRE, KULIA KANCHRAPARA ROAD, P.O. NETAJI SUBHAS SANITORIUM, KA LYANI, NADIA, WEST BENGAL. 2 RESPONDENT .DCIT/JCIT, CIRCLE-11(1), KOLKATA. 3. THE CIT(A) KOLKATA. 4. 5. CIT KOLKATA DR, GUWAHATI BENCH, GUWAHATI / TRUE COPY, BY ORDER, SR. PVT. SECRETARY