Demag Cranes & Components (India) P. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 521/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9378 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 23-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO , AM AND SHRI VIKAS AWASTHY,JM . / I TA NO. 521 /PUN/20 15 / ASSESSMENT YEAR : 2010 - 11 TEREX INDIA PRIVATE LIMITED. [ SUCCESSOR OF DEMAG CRANES & COMPON ENTS ( INDIA) PRIVATE LIMITED.] GAT NO. 330,332,333,334, NANEKARWADI, CHAKAN, TALUKA KHED PUNE - 410 501 PAN : AABCM9351Q ....... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(2), PUNE. / RESPONDENT / RESPONDENT A SSESSEE BY : SHRI M.P LOHIA & SHRI HEMEN CHAN DARIYA REVENUE BY : SHRI VINOD KUMAR / DATE OF HEARING : 01.06.2017 / DATE OF PRONOUNCEMENT : 07 .06.2017 / ORDER PER VIKAS AWASTHY, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 27.02.2015 PASSED U/S 143(3) R.W.S 144C (13) OF TH E INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO. 521/PUN/2015 A.Y.2010 - 11 2. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF MATERIAL HANDLING EQUIPMENTS. THE ACTIVITIES OF THE ASSESSEE ARE CLASSIFIED IN THREE SEGMENTS VIZ. MANUFACTURING, TRADING AND SERVICE. THE ISSUE IN PRESENT APPEAL IS WITH RESPECT TO MANUFACTURING ACTIVITY. DURING THE PERIOD RELEVANT TO ASS ESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AE S . THEREFORE, REFERENCE U/S 92CA OF THE ACT WAS MADE TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF ARM S LENGTH PRICE OF THE TRANSACTION S REPORTED IN FORM - 3CEB FILED BY THE ASSESSEE. TO BENCHMARK THE TRANSACTION S THE ASSESSEE APPLIE D TRANSAC TIONAL NET MARGIN METHOD (TNMM). THE ASSESSEE SELECTED FOUR COMPANIES AS COMPARABLES WITH AVERAGE MARGIN OF 5.94% . THE TRANSFER PRICING OFFICER ADDED TWO MORE CO MPANIES I N THE LIST OF COMPARABLES I.E ELE CON ENGINEERING COMPANY PVT. LTD. AND W.M.I CRANES LTD. THE TRANSFER PRICING OFFICER COMPUTED AVERAGE PLI OF COMPARABLES AS 12.29% AGAINST PLI OF THE ASSESSEE COMPANY AT 1.91%. THE TRANSFER 12.29% AGAINST PLI OF THE ASSESSEE COMPANY AT 1.91%. THE TRANSFER PRICING OFFICER MADE UPW ARD ADJUSTMENT OF RS. 10,51 , 05 , 420/ - IN RESPECT OF INTERNATIONAL TRANSACTION S PERTAINING TO MANUFACTURING SEGMENT. 3. AGGRIEVED BY THE ADJUSTMENT MADE BY TRANSFER PRICING OFFICER, THE ASSESSEE FILED OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL ( DRP ) INTER ALIA CHALLENGING INCL USION OF COMPANIES I.E E L E CON ENGINEERING COMPANY PVT. LTD. AND W.M.I CRANES LTD. IN THE LIST OF COMPARABLES BY THE TPO . THE ASSESSEE FURTHER PRAYED FOR EXCLUSION OF T.R.F LTD FROM THE LIST O F COMPARABLES ON ACCOUNT OF MIS STATEM ENT S IN THE ANNUAL REPORT OF THE SAID COMPANY. THE DRP VIDE DIRECTION S DATED 26.12.2014 REJECTED THE OBJECTION S RAISED BY THE ASSESSEE FOR EXCLUDING AFORESAID COMPAN IES FROM THE LIST OF COMPARABLES. BASED ON THE DIRECTION S OF DRP, IMPUGNED ASSESSMENT ORDER WAS PASSED BY THE ASSESSING OFFICER. NOW THE ASSESSEE 3 ITA NO. 521/PUN/2015 A.Y.2010 - 11 IS IN APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF AUTHORITIES BELOW. THE ASSESSEE HAS RAISED AS MANY AS NINE GROUNDS IN THE APPEAL. 4. SHRI M.P LOHIA AND SHRI HEMEN CHANDARIYA APPEARING ON B EHALF OF THE ASSESSEE STATED AT THE BAR THAT HE IS NOT PRESSING GROUNDS NO. 1,2,4,5 & 6. THUS, THE GROUNDS WHICH OPEN FOR ADJUDICATION BEFORE THE TRIBUNAL ARE AS UNDER : 3. SELECTION OF INAPPROPRIATE COMPARABLE COMPANIES WITHOUT CONDUCTING A STRUCTURED SEARCH: THE DRP ERRED IN ACCEPTING CERTAIN NON - COMPARABLE COMPANIES. 7. NON GRANT OF CREDIT FOR TAXES DEDUCTED AT SOURCE: THE DRP HAS ERRED IN NOT GRANTING CREDIT FOR TAXES DEDUCTED AT SOURCE OF RS. 40,11,150/ - 8. ERRONEOUS LEVY OF INTEREST UND ER SECTION 234B OF THE ACT : THE DRP HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 9. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1) (C) OF THE ACT : THE DRP HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1) (C) OF TH E ACT. 4.1 THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS SEEKING EXCLUSION OF W.M.I CRANES LTD AND T.R.F LTD FROM THE LIST OF COMPARABLES. W.M.I CRANES LTD. IS NOT A GOOD COMPARABLE AS E XTRAORDINARY EVENTS I.E D EMERGER HAD TAKEN PLACE IN THE FINANCIAL Y EAR 2009 - 10. THE LD. AR CONTENDED THAT THIS FACT WAS BROUGHT TO THE NOTICE OF AUTHORITIES BELOW. THE TRANSFER PRICING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE PERIOD INVOLVED IN POST DEMERGER IS ONLY THREE MONTHS , A S DEMERGER HAD TAKEN PLACE ON 18.12.2009. PRIOR TO THE DATE OF DEMERGER , OPERATION S OF THE SAID COMPANY WERE NO T AFFECTED BY DEMERGER. THE L D. AR POINTED THAT THE FINDINGS OF TRANSFER PRICING OFFICER ARE AGAINST THE FACTS . THE LD. AR REFERRED TO ANNUAL REPORT OF W.M.I CRANES LTD FOR FINANCIAL Y EAR 2009 - 10 AT PAGE NO. 383 OF THE PAPER BOOK. THE L D. AR FURTHER POINTED THAT IN THE DIRECTORS R EPORT IT HAS BEEN CLEARLY MENTIONED THAT HONBLE HIGH COURT OF JUDICATURE, BOMBAY HAS AP PROVED D EMERGER APPLICATION OF W.M.I CRANES LTD W.E.F 1 ST 4 ITA NO. 521/PUN/2015 A.Y.2010 - 11 SEPTEMBER, 2009. AFTER DEMERGER, TURNOVER OF TH E COMPANY HA S INCREASED FROM RS. 1562 MILI ONS IN THE IMMEDIATELY PRECEDING FINANCIAL Y EAR TO RS. 1711 MILIONS IN FINANCIAL Y EAR 2009 - 10. WHEREAS , GROS S PROFIT BEFORE DEPRECIATION AND INTEREST HA S DECREASED FROM RS.389.83 MILIONS IN THE IMMEDIATELY PRECEDING FINANCIAL Y EAR TO RS. 387.25 MILIONS IN FINANCIAL YEAR 2009 - 10. ON ACCOUNT OF EXTRAORDINARY EVENT S I.E THE DEMERGER, THE FINANCIAL RESULTS OF THE COMPANY DOE S NOT SHOW TRUE PICTURE OF PERFORMANCE OF THE COMPANY . THEREFORE, W.M.I CRANES LTD SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 4.2 THE LD. AR PLACED RELIANCE ON THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CUMMIN S TURBO TECHNOLOGIES LIMITED VS. DEPUTY COMMISSIONER OF INCOME TAX, IN ITA NO. 593/PUN/2015, A SSESSMENT YEAR 2010 - 11, DECIDED ON 28.12.2016 TO EMPHASIS THAT THE COMPANY HAVING EXTRAORDINARY EVENTS DURING THE RELEVANT PERIOD SHOULD NOT BE CONSIDERED AS GOOD COMPARA BLE . 4.3 THE L D. AR SUBMITTED THAT IF W.M.I CRANES LTD. IS EXCLUDED FROM THE LIST OF COMPARABLES, THE ASSESSEE WOULD FALL WITHIN +/ - 5% RANGE, AS ARITHMETIC MEANS OF THE COMPARABLES WOULD BE 3.20 % AS AGAINST THE OPERATING MARGIN OF THE ASSESSEE AT 2.16% . 4. 4 THE LD. AR SUBMITTED THAT T.R.F LTD WAS INCLUDED IN THE LIST OF COMPARA BLES BY THE ASSESSEE. S UBSEQUENTLY, IT TRANSPIRED THAT THE COMPANY HAD GIVEN WRONG INFORMATION IN THE ANNUAL REPORT WHICH IS AVAILABLE IN PUBLIC DOMAIN . THEREFORE, THE SAID COMPANY IS ALSO LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 5. ON THE OTHER HAND, SHRI VINOD KUMAR REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF DRP AND THE 5 ITA NO. 521/PUN/2015 A.Y.2010 - 11 ASSESSMENT ORDER. THE LD DR. CONTENDED THAT THE IMPUGNED ORDER IS WELL REASONED AND PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE . 6. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDER OF AUTHORITIES BELOW. THE ONLY ISSUE RAISED BY THE LD . AR OF THE ASSESSEE BEFORE US IS WITH REGARD TO EXCLUSION OF W.M.I CRANES LTD AND T.R.F LTD. FROM THE LIST OF COMPARABLES. THE ASSESSEE IS SEEKING EXCLUSION OF W.M.I CRANES LTD. FROM THE LIST OF COMPARABLES ON ACCOUNT OF EXTRAORDINARY EV ENTS VIZ. D EM ER GER. A PERUSAL OF DIRECTORS R EPORT OF THE SAID COMPANY AT PAGE NO. 386 OF THE PAPER BOOK SHOWS THAT THERE WAS DEMERGER OF W.M.I CRANES LTD W.E.F 1 ST SEPTEMBER, 2009. ON ACCOUNT OF DEMERGER, THERE WERE ABERRATIONS IN THE FINANCIAL RESULT OF THE SAID COMPAN Y. THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CUMMINS TURBO TECHNOLOGIES LIMITED VS. DEPUTY COMMISSIONER OF INCOME TAX (SUPRA) HAS HELD THAT WHERE EXTRAORDINARY EVENTS SUCH AS ACQUISITION S , A MALGAMATION, MERGER OR DEMERGER HAD TAKEN PLACE DURING THE PERIOD UNDER CONSIDERATION THE SAID COMPANY SHOULD NOT BE CONSIDERED AS GOOD COMPARABLE. WHILE COMI NG TO SUCH A CONCLUSION, RELIANCE W AS ALSO PLACED ON THE DECISION RENDERED IN THE CASE OF APTARA TECHNOLOGIES PRIVATE LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX (ACIT) IN ITA NO. 259/PUN/2015 FOR ASSESSMENT YEA R 2010 - 11 DECIDED ON 31.05.2016, WHEREIN SIMILAR PROPOSITION WAS LAID DOWN BY THE TRIBUNAL. 7. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISIONS OF CO - ORDINATE BENCH OF THE TRIBUNAL, WE FIND MERIT IN THE SUBMISSION OF THE ASSESSEE . A CCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TRANSFER PRICING OFFICER TO EXCLUDE W.M.I CRANES LTD FROM THE LIST OF FINAL COMPARABLES. THE L D. AR HAS POINTED THAT AFTER EXCLUSION OF W.M.I CRANES LTD., 6 ITA NO. 521/PUN/2015 A.Y.2010 - 11 ARITHMETIC MEAN OF COMPARABLE COMPANIES WOULD FALL WITHIN +/ - 5% RANGE . THUS, IN VIEW OF THE STATEMENT MADE BY LD. AR OF THE ASSESSEE , WE ARE OF THE VIEW THAT SUBMISSION S MADE BY LD. AR REGARDING EXCLUSION OF T.R.F LTD. FROM THE LIST OF COMPARABLES HA S BECOME ACADEM IC . THEREFORE, WE DO NOT DEEM IT NECESSARY TO TAKE UP THE ISSUE OF EXCLUSION OF SAID COMPANY FROM COMPARABLES FOR ADJUDICATION. ACCORDINGLY, GROUND NO. 3 RAISED BY THE ASSESSEE IS PART L Y ALLOWED. 8. IN GROUND NO. 7, THE ASSESSEE HAS ASSAILED THE FINDINGS OF DRP IN NOT GRANTING CREDIT OF TAX DEDUCTED AT SOURCE. WITHOUT GOING IN TO THE MERIT S OF THE ISSUE , WE DIRECT THE AS SESSING OFFICER TO EXAMINE THE CLIAM OF ASSESSEE AND IF THE ASSESSEE IS FOUND ELIGIBLE FOR THE BENEFIT OF TDS, IF ANY, THE SAME MAY BE ALLO WED, IN ACCORDANCE WITH LAW . A CCORDINGLY, GROUND NO. 7 IS ALLOWED FOR STATISTICAL PURPOSES. 9 . IN GROUND NO. 8, THE ASSESSEE HAS ASSAILED THE FINDINGS OF 9 . IN GROUND NO. 8, THE ASSESSEE HAS ASSAILED THE FINDINGS OF ASSESSING OFFICER IN LEVYING INTEREST UNDER SE CTION 234B OF THE ACT. INTEREST U/S 234B OF THE ACT IS MANDATORY AND CONSEQUENTIAL; ACCORDINGLY, THE GROUND NO. 8 IS DISMISSED. 10 . IN GROUND NO. 9, THE ASSESSEE HAS ASSAILED THE F INDINGS OF DRP IN INITIATING PENALTY P ROCEEDINGS UNDER SECTION 271(1) (C) OF THE ACT. THE GROUND RAISED BY THE ASSESSEE IS PR EMATURE. HE NCE , THE SAME IS DISMISSED, AS SUCH. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. O RDER PRO NOUNCED ON WEDNESDAY , THE 7 TH DAY OF JUNE , 201 7 . SD / - SD/ - ( . / D. KARUNAKARA RAO ) ( /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 7 TH JUNE , 2017 . 7 ITA NO. 521/PUN/2015 A.Y.2010 - 11 SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 11, PUNE. 4. THE CIT - 11, PUNE. 5 . , , , / DR, ITAT, B BENCH, PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER, /ASSISTANT REGISTRAR , / ITAT, PUNE .