STOLL INDIA P.LTD, MUMBAI V. ASST CIT 10(3), MUMBAI

ITA 5640/MUM/2013

• Counselvise Citation: 564019914 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 05-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAY
• Assessee Lawyers: SUBHASH S SHETTY
• Keywords: Transfer pricing; International transaction; Revised return
• Section: 92

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFORE S/SH. A.D. JAIN ,JUDICIAL MEMBER & RAJE NDRA,ACCOUNTANT MEMBER /. ITA NO. 5640 /MUM/201 3 , / ASSESSMENT YEAR - 200 8 - 09 STOLL INDIA PVT. LTD. 816, CORPORATE CENTRE, NIRMAL LIFE STYLE LBS MARG, MULUND(W) MUMBAI - 400 0 8 0. PAN: A A HCS 4043 D VS ACIT - 10(3) ROOM NO.473 , 4 TH FLOOR, ASSESSEE YAKAR BHAVANM.K. ROAD MUMBAI - 400 0 20 . ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI SUBHASH S SHETTY / REVENUE BY : SHRI CHANDRA VIJAY / DATE OF HEARING : 20 - 0 7 - 2015 / DATE OF PRONOUNCEMENT : 24 - 0 7 - 2015 , 1961 2 54 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 17 . 07 .20 13 OF THE CIT(A) - 15, MUMBAI ,A SSESS EE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) COMMITTED A GROSS ERROR OF LAW AND FACT IN CONFIRMING THE ADDITION OF RS. 3 5, 13,000/ - ON ACCOUNT TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) COMMITTED A GROSS ERROR OF LAW AND FACT IN UPHOLDING THE ADDITION IN AS MUCH AS THE TRANSFER PRICING OFFICER MADE THE IMPUGNED ADDITION WITHOUT PROPERTY APPRECIATING THE AGREEMENT DATED 1 - 6 - 2007 MODIFIED W.E.F. 31 - 12 - 2007. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN NOT APPRECIATING THAT AFTER THE MODIFICATION OF THE AGREEMENT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE W.E.F. 31 - 12 - 2007 NO INCOME BY WAY OF MANDAY SUPPORT CHARGES WAS RECEIVED NOR ACC RUED TO THE APPELLANT FROM 1ST JANUARY, 2008 TO 31ST MARCH, 2008. THE APPELLANT THEREFORE PRAY'S THAT THE UNJUSTIFIED, UNCALLED FOR AND UNSUSTAINABLE ADDITION MADE IS REQUIRED TO BE DELETED. APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND THE ABOVE G ROUNDS OF APPEAL. ASSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF SALES AND SERVICES OF FLAT BED KNITTING MACHINES, FILED ITS RETURN OF INCOME ON 2 8.09.20 0 8 DECLARING INCOME OF RS. 5 2. 95 LAKHS . ON 14.01.2009,A REVISED RETURN WAS FILED SHOWING INCOME AT RS.56,6 7,330/ - . THE ASSESSING OFFICER( AO ) COMPLETED THE ASSESSMENT U/S.143(3)R.W.S.144C(13)OF THE ACT ON 23 . 02.2012, DETERMINING THE INCOME OF THE ASSESSEE AT RS.1, 00 , 40 ,9 1 0/ - . 2 .EFFECTIVE GROUND OF APPEAL IS ABOUT ADDITION OF RS.35.13 LAKHS MADE ON ACCOUNT OF TRANS FER PRICING ADJUSTMENTS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOND THAT THE ASSESSEE WAS A 100% WHOLLY OWNED SUBSIDY OF M/S. H STOLL GMBH & CO.,KG GERMANY,THAT IT HAD INTERNATIONAL ITA/ 5640 /MUM/2013,AY. 0 8 - 09 - STOLL INDIA 2 TRANSACTION ONLY WITH ITS ASSOCIATION ENTITY(AE),THAT IT WAS ESTABLISHED IN JULY,2003. THE ASSESSEE HAD REPORTED FOLLOWING INTERNATIONAL TRANSACTIONS : S N . NATURE OF TRANSACTIONS AMOUNT(RS.) METHOD ADOPTED 1. PURCHASE OF MACHINES 2,35,12,100 CUP 2. PURCHASE OF SPARES 1,05,88,758 CUP 3. WARRANTY SUPPLIES 9,42,825 CUP 4. WARR ANT - SHORT SUPPLY 12,26,143 CUP 5. RECONDITIONING CHARGES 22,40,000 CUP 6. SALES COMMISSION CHARGES 13,15,174 CUP 7. SERVICE COMMISSION 3,16,661 CUP 8. SALE OF RECONDITIONED MACHINE 1,03,36,480 CUP 9. MANDAY CHARGES 2,29,33,150 CUP 10. SERVICE CHARGES (EXPORT) 22,47,409 CUP 11 SUPPLIER CREDIT FACILITY 67,36,921 CUP TOTAL 8,23,95,621 THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER(TPO),AS PER THE PROVISIONS OF SECTION 92 OF THE ACT. IT WAS OBSERVED BY THE TPO THAT THE ASSESSEE HAD REPORTED M AN - DAY SUPPORT CHARGES (MSC)OF RS.1,00,96,609/ - , THAT THE AMOUNT WAS CLAIMED TO REPRESENT SERVICE CHARGES RECEIVED BY IT @ 20,000 EURO PER MONTH FOR MAINTAINING THE OFFICE AND INFRASTRUCTURE FACILITIES IN INDIA FOR RENDERING SERVICES TO STOL L MACHINES IN IND IA AS PER AGREEMENT WITH AE.I T WAS SUBMITTED BEFORE THE TPO, THAT IRRESPECTIVE OF WHETHER ANY SERVICE WAS RENDERED OR NOT THE ASSESSEE WOULD RECEIVE THE CHARGES AS PROVIDED IN THE SERVICE AGREEMENT DT. 0 1.6.07.HE DIRECTED THE ASSESSEE TO CLARIFY AS TO WHETHE R THE CHARGES WERE RECEIVED FOR 12 MONTHS DURING THE YEAR UNDER APPEAL. THE ASSESSEE CLARIFIED THAT THE PAYMENT UNDER THE HEAD MSC WAS RECEIVED TILL DEC. 2007 ONLY, THAT VIDE LETTER DT.4.12.2007 THE PAYMENT WAS TERMINATED W.E.F. JAN . 2008.THE ASSESSEE ALSO FILED A COPY OF THE LETTER BEFORE THE TPO .AS PER THAT LETTER THE MSC WERE TERMINATED TAKING INTO CONSIDERATION THE PROFITABILITY AND IMPROVED CASH FLOW OF THE ASSESSEE - COMPANY .THE TPO ASKED THE ASSESSEE TO FILE JUSTIFICATION FOR TERMINATION OF EARLIER ARRA NGEMENT - SPECIALLY WHEN IT WAS MAINTAINING THE SERVICE CENTRE FOR THE AE.IT WAS CONTENDED THAT THE PAYMENT OF MSC WAS MADE AS PER THE ORIGINAL AGREEMENT, DATED 0 1.9.2003, THAT THE CASH POSITION OF INDIAN ENTIT Y HAD IMPROVED OVER THE YEARS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ,THE TPO HELD THAT THE INDIAN ENTITY WAS MAINTAINING THE SERVICE CENTRE FOR TH E AE.REFERRING TO THE AGREEMENT, DT. 0 1.6.2007, HE OBSERVED THAT THE ASSESSEE WAS REQUIRED TO BE COMPENSATED FOR MAINTAINING THE SERVICE CENTRE, THAT THE DISCONTINUATION OF PAYMENT UNILATERALLY BY THE AE WAS NOT JUSTIFIED, THAT THE INDIAN ENTITY CONTINUED WITH SERVICE CENTRE AS REQUIRED UNDER THE ORIGINAL AGREEMENT.AS THE COMPENSATION WAS NOT PROVIDED FOR 3 MONTHS( FROM JANUARY 2008 TO MARCH 2008), SO , HE MADE AN ADJUSTMENT @ 20,000 EUROS PER MONTH FOR PROVISION OF SERVICE CENTRE FACILITY TO THE AE.FINALLY ,THE TPO RECOMMENDED A N ADJUSTMENT OF RS.35.13 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE .THE AO ACCORDINGLY ADDED THE SAID SUM WHILE COMPLETING THE ASSES SMENT. ITA/ 5640 /MUM/2013,AY. 0 8 - 09 - STOLL INDIA 3 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(F A A ). BEFORE HIM, IT WAS STATED THAT THE ASSESSEE WAS FORMERLY KNOWN AS STOLL TEXTILE SERVICE PVT. LTD., THAT IT WAS INCORPORATED IN JULY 2003 TO SET UP A CUSTOMER CARE SERVICE CENTRE IN INDIA AND ABROAD, THAT AN AGREEMENT WAS ENTERED BETWEEN AE AND THE ASSESSEE - COMPANY ON 01. 09.2003, THAT AS PER THE AGREEMENT THE AE HAD TO PAY TO THE ASSESSEE EUROS 20,000 PER MONTH , THAT THE PAYMENT WAS MADE BY THE AE BECAUSE IT WAS NEWLY ESTABLISHED AND IT HAD NO SOURCE TO GENERATE REVENUE, THAT TO MEET THE CASH FLOW REQUIREMENT OF DAY TO DAY EXPENSES AND THE INFRASTRUCTURE MAINTENANCE , SERVICE CHARGES WERE REVISED FROM 15,000 TO 20,000 EUROS, THAT SERVICE CHARGES WERE TERMED AS MSC, THAT IN ADDITION TO MSC THE ASSESSEE ALSO RAISED INVOICES FOR OTHER SERVICES RENDERED ON BEHALF OF THE AE, THAT THE ASSESSEE HAD TO R AISE MONTHLY INVOICES TO ITS AE,TH AT IN JUNE 2007 THERE WAS A CHANGE IN MAIN OBJECT OF THE ASSESSEE COM PANY, THAT IT AMENDED ITS MAIN OBJECTS AND IT INCLUDED THE TRADING OF STO LL MACHINES IN ITS MAIN OBJECT,THAT ITS NAME WAS ALSO CHANGED, THAT DURING THE PERIOD THE AE TERMINATED THE SERVICES OF ITS SOLE SELLING AGENT IN INDIA AND THE ASSESSEE WAS MADE THE AG ENT, THAT THE CHANG E FROM SERVICE CENTRE TO A FULL - FLEDGED SALES AND AFTER SALES SERVICE ORGANIS ATION HAPPENED IN 2007, THAT IT RESULTE D IN INCREASE IN PROFITABILITY, THAT DUE TO INCREASED PROFITABILITY AND CASH FLOW THE ASSESSEE BECAME SELF SUFFICIENT TO ME ET EXPENSES OF INFRASTRUCTURE FACILITY,THAT IT WAS MUTUALLY AGREED BETWEEN THE AE AND THE ASSESSEE TO TERMINATE THE AGREEMENT W.E.F. 31.12.2007,THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM ITS AE WAS REIMBURSEMENT OF INFRASTRUCTURE EXPENSES, THAT IT WAS NE VER IN THE NATURE OF ANY INCOME, THAT THE ASSESSEE DID NOT RECEIVE MSC FOR THE PERIOD JAN UARY TO MARCH 2008.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ORDER OF THE TPO, THE F AA HELD THAT THE SO CALLED AGREEMENT DT.4.12.2007 WAS A LETTER ADDRES SED BY THE AE TO THE ASSESSEE , THAT IT WAS UNILATERAL AND COULD NOT BE TERMED AS AN AGREE MENT, THAT AS PER THE AGREEMENT,DT.1.9.2003, THE ASSESSEE WAS TO BE COMPENSATED FOR MAINTAINING SERVICE CENTRE FOR THE BUSINESS NEEDS OF THE AE, THAT THE DISCONTINUATI ON OF PAYMENT WAS NOT JUSTIFIED, THAT THE ASSESSEE CONTINUED TO MAINTAIN SERVICE CENTRE AS ACQUIRED UNDER THE ORIGINAL AGREEMENT .FINALLY, HE UPHELD THE TP ADJUSTMENT MADE BY THE AO . 4. BEFORE US THE AUTHORISED REPRESENTATIVE (AR)ARGUED THAT THE AE HAD DECIDE D TO DISCONTINUE THE PAYMENT ON ACCOUNT OF MSC , THAT THE ASSESSEE WAS PROVIDING OTHER SERVICES FOR THE CENTRE AND CHARGING MONEY ACCORDINGLY FROM THE AE.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE F AA AND STATED THAT THERE WAS NO AGREEMENT OF TERMINATION OF SERVICES, THAT IT WAS A SIMPLE LETTER WRITTEN BY THE AE TO THE ASSESSEE . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE WHOLE DISPUTE REVOLVES AROUND THE TERMINATION OF MSC AGREEMENT.IT IS FOUND THAT IN 2003 THE AE HAD ENTERED INTO AN AGREEMENT WITH THE ASSESSEE - COMPANY FOR GETTING VARIOUS SERVICES, INCLUDING THE MSC,IN INDIA, THAT THE INITIAL REMUNERATION WAS FIXED @ 15,00 0 EUROS, THAT LATER ON THE AE WAS PAYING 20,000 EUROS FOR MAINTAINING THE SER VICE CENTRE, THAT IN 2007 THE NAME OF THE ASSESSEE COMPANY CHANGED, THAT THE NATURE OF JOB TO BE DONE FOR THE AE ALSO CHANGED, THAT FROM MERE ITA/ 5640 /MUM/2013,AY. 0 8 - 09 - STOLL INDIA 4 SERVICE CENTRE TO A FULL - FLEDGED SALES AND AFTER SALES SERVICE ORGANIS ATION , THAT THE AE DECIDED NOT TO PAY FOR MSC F ROM JAN UARY 2008 ONWARDS. W E HAVE GONE THROUGH THE AGREEMENT OF 2003 AND THE LETTER ISSUED BY THE AE IN THE YEAR 2007.IN OUR OPINION, THERE IS NO NEED FOR A FORMAL AGREEMENT IN A PRESCRIBED FORMAT AND IN ABSENCE OR EXISTENCE OF FORMAL AGREEMENT ADDITION S CA NNOT BE MADE OR BE DELETED. W HAT HAS TO BE SEEN IS THE ESSENCE OR THE REAL NATURE OF THE UNDERSTANDING BETWEEN THE TWO PARTIES.THE AE HAD SPECIFICALLY MENTIONED THAT THE MSC RENDERED BY THE ASSESSEE - COMPANY WERE NO LONGER REQUIRED AFTER 31.12.2007. IT WAS A BUSINESS DECISION AND WAS TAKEN AFTER CONSIDERING THE FACT THAT THE ASSESSEE HAD BECOME SELF SUFFICIENT UNIT. IN THESE CIRCUMSTANCES ,WE ARE OF THE OPINION THAT THERE WAS NO JUSTIFICATION FOR MAKING ANY TP ADJUSTMENT.AS NO INCOME HAD ARISEN OR ACCRUED TO THE ASSESSEE FOR THE PERIOD JANUARY - MARCH 2008,SO, REVERSING THE ORDER OF THE F AA , WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE . AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JU LY ,2015. 24 , 2015 SD/ - SD/ - ( . . /A.D. JAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 24 .07. 2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.