FIAMM Minda Automotive Limited, New Delhi V. DCIT, New Delhi

ITA 5657/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58961 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH JAIN
• Assessee Lawyers: PALLAVI DINODIA CAS
• Keywords: Valuation report
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.5657/DEL/2010 ASSESSMENT YEAR : 2006-07 FIAMM MINDA AUTOMOTIVE LIMITED, (NOW KNOWN AS MINDA ACOUSTIC LTD.), B-64/1, WAZIRPUR INDUSTRIAL AREA, NEW DELHI. PAN : AAACF8168K VS. DCIT, CIRCLE 11 (1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA, SHRI R.K. KAPOOR & MS PALLAVI DINODIA, CAS REVENUE BY : SHRI PEEYUSH JAIN, CIT, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THE PRESENT APPEAL IS FILED BY THE ASSESSEE AND IS DIRECT ED AGAINST THE ORDER DATED 6 TH OCTOBER, 2010 PASSED BY THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 11 (1), NEW DELHI IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 UNDER THE PROVISIONS OF SECTION 143 (3) READ WITH SECTION 144C (5) OF THE INCOME-TA X ACT, 1961 (THE ACT). 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF AUTOMOBILE HORNS AND COM PONENTS. ITS PARENT CONCERN IS FIAMM, AN ITALIAN INDUSTRIAL GROUP ENGAGED IN PRODUCTION OF AUTOMOTIVE COMPONENTS, LEAD ACID BATTE RIES AND ACOUSTIC ITA NO.5657/DEL/2010 2 DEVICES. THE ASSESSEE COMPANY IS A JOINT VENTURE OF THE PARENT COMPANY (FIAMM ITALY) AND MINDA GROUP IN INDIA TO P RODUCE FOUR- WHEELER AUTOMOTIVE HORNS. IN RESPECT OF ITS INTERNAT IONAL TRANSACTION WITH ITS PARENT COMPANY THE TPO VIDE ITS ORDER DATED 28 TH AUGUST, 2009 HAD ENHANCED THE ASSESSEES INCOME BY ` 17,89,23,711/- W HICH COMPRISES OF TWO COMPONENTS: (I) ` 11,45,57,520/- ON A CCOUNT OF SALE INCOME OF THE ASSESSEE; AND (II) ` 6,43,66,191/- IN RESP ECT OF VALUE OF IMPORTED CAPITAL GOODS AND PLANT & MACHINERY. APAR T FROM THAT ONE MORE ADDITION IS MADE OF A SUM OF ` 1,65,11,140/- TOW ARDS PROVISIONS OF WARRANTY WHICH, ACCORDING TO THE DEPARTMENT IS CO NTINGENT LIABILITY AND DEPENDS ON THE OCCURRENCE OF A PARTICULAR EVENT IN THE FUTURE AND, THUS, NOT ALLOWABLE DURING THE YEAR AS THE SAME HAS NOT BEEN CRYSTALLIZED. IN THIS MANNER, THE RETURNED LOSS OF ` 6 ,39,73,062/- HAS BEEN ASSESSED AS POSITIVE INCOME OF ` 13,14,61,790/-. TH E ADJUSTMENT PROPOSED BY THE TPO AND MADE BY THE ASSESSING OFFICER HA VE BEEN CONFIRMED BY DISPUTE RESOLUTION PANEL-I, NEW DELHI (D RP) VIDE ITS ORDER DATED 9 TH SEPTEMBER, 2010 AFTER GIVING VARIOUS OPPORTUNITIES O F HEARING TO THE ASSESSEE ON 16 TH JUNE, 2010, 31 ST AUGUST, 2010 AND 9 TH SEPTEMBER, 2010. 3. AT THE OUTSET, IT WAS SUBMITTED BY THE LEARNED AR T HAT THE PERUSAL OF ORDER PASSED BY DRP WILL REVEAL THAT DESPITE DETAILED OBJECTIONS FILED BY THE ASSESSEE AND NARRATED BEFORE THE DRP, NO REASONS HAVE BEEN ACCORDED TO CONFIRM THE DISALLOWANCE S. THUS, IT IS THE CASE OF THE LEARNED AR THAT DRP WITHOUT GIVING R EASONS HAS DISPOSED OF THE OBJECTIONS OF THE ASSESSEE IN A SUMMARY MAN NER AND, IN THIS VIEW OF THE SITUATION, THE MATTER HAS TO BE RE STORED BACK TO THE FILE OF DRP FOR RE-ADJUDICATION OF THE OBJECTIONS BY PASSING A SPEAKING ORDER ON THE DETAILED OBJECTIONS FILED BY THE ASSESSEE. THE LEARNED AR REFERRED TO VARIOUS PAGES OF THE PAPER BOOK FILED BY THE ASSESSEE BEFORE DRP IN WHICH THE DETAILED SUBMISSIONS WERE MADE RAISING ITA NO.5657/DEL/2010 3 VARIOUS OBJECTIONS AGAINST THE ADDITIONS PROPOSED BY THE ASSESSING OFFICER AND REFERENCE IN THIS REGARD WAS MADE TO THE PAGES 455 TO 621, 631-633 AND 634 TO 641 WHICH CONTAINED VARIOUS SUBMISSI ONS MADE BY THE ASSESSEE BEFORE DRP. TO DEMONSTRATE THAT THE DRP HA S SUMMARILY DISPOSED OF THESE OBJECTIONS, THE LEARNED AR REFERRED T O THE OBSERVATIONS OF LD. DRP AS THE FIRST OBJECTION ON ADDIT ION OF ` 11,45,57,520/- HAS BEEN DISPOSED OF WITH THE FOLLOWING OBSERVATIONS:- OBJECTION-I, RELATES TO FOUR SUB HEADS WHICH IS AS UN DER:- I. WRONG SELECTION OF HELLA INDIA LIGHTING AS COMPA RABLE : THE LD. TPO HAS SELECTED HELLA INDIA LIGHTING AS COMPARAB LE DISREGARDING THE FACTS THAT THIS COMPANY HAS RELATED PARTL Y TRANSACTIONS AS DEPICTED IN THE FOLLOWING TABLE. 2. INCORRECT COMPUTATION OF MARGIN OF COMPARABLE COMPANIES: THE LD. TPO HAS MADE ERRONEOUS COMPUTATION OF ARM'S LENGTH PRICE. 3. ADJUSTMENT OF UNUTILIZED CAPACITY: ONE OF THE MAIN REASONS FOR THE LOSSES INCURRED BY THE ASSESSEE WAS TH AT IT HAD SIGNIFICANT UNUTILIZED CAPACITY DURING THE YEAR (59%). WE THUS RESPECTFULLY WISH TO SUBMIT THAT THE ASSESSEE MUST BE ALLO WED THE BENEFIT OF THE FOLLOWING ADJUSTMENTS WHILE DETERMININ G ITS OP/TC. 4. DISALLOWANCE OF BENEFIT OF +/- 5 PERCENT RANGE: TH E LD. TPO HAS ALLOWED THE ASSESSEE THE BENEFIT OF +/- % RANG E AS PROVIDED IN THE PROVISIO TO SECTION 92C(2)OF THE ACT. IN THIS REGARD, WE WISH TO RELY ON THE FOLLOWING JUDICIAL PRE CEDENTS. IT IS SEEN THAT TPO IN HIS ORDER U/S 154 HAS ADDRESSE D THESE ISSUES. THE OBJECTION IS NOT SUSTAINABLE AND REJECTED. 4. HE SUBMITTED THAT THE ENTIRE OBJECTIONS RAISED BY T HE ASSESSEE IN DETAIL HAVE BEEN DISPOSED OF BY THE DRP BY WRITING SIN GLE LINE AS IT IS SEEN THAT TPO IN HIS ORDER U/S 154 HAS ADDRESSED THESE ISSUE S. THE OBJECTION IS NOT SUSTAINABLE AND REJECTED. 5. SIMILARLY, THE OBJECTION NO.2 WHICH RELATES TO AD JUSTMENT OF ` 6,43,66,191/- HAS BEEN DISPOSED IN SUMMARY MANNER AFTER ITA NO.5657/DEL/2010 4 SUMMARIZING THE OBJECTIONS OF THE ASSESSEE IN CLAUSES (A) T O (I). THE RELEVANT PORTION OF DRP AS REFERRED BY THE LEARNED A R IS AS UNDER:- OBJECTION-II RELATES TO ADJUSTMENT OF RS.6,43,66,191/- IN RESPECT OF VALUE OF IMPORTED CAPITAL GOODS, PLANTS AND MACHINERY. IN PARA 10.2 THE TPO HAS INNUMERATED POIN T A TO I WHICH IS AS UNDER:- A) HOW THE INDEPENDENT VALUER/ENGINEER HAS DETERMINED IS THE COST OF REPLACEMENT OF THE DEPRECATED OF THE ASSETS IS NOT MENTIONED IN THE CERTIFICATE. B) THE ASSESSEE HAS FILED PHOTOCOPY OF THE VALUER'S CERTIFICATE, WHICH WAS NOT VERIFIED BY THE PRESCRIBED A UTHORITY. C) THE MACHINERY PURCHASED ARE OLD PLANTS WHICH HAD ALREADY BEEN USED BY THE AE OF THE ASSESSEE FOR A CON SIDERABLE LENGTH OF TIME. D) IT HAS BEEN CLAIMED BY THE ASSESSEE THAT THE ASSETS PROCURED WERE SPECIALIZED IN NATURE AND WERE PRODUCTI ON FACILITIES WHICH WERE RARELY SOLD, THERE WAS NO INFOR MATION ABOUT SUCH ASSETS IN THE PUBLIC DOMAIN. E) THE SAID VALUATION REPORT HAS NOT CONSIDERED THE VAL UE OF ANY INTANGIBLE IN THE VALUATION OF THE ASSETS. F) THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH ANY AGRE EMENT REGARDING THE TRANSFER OF THE SAID ASSETS. G) THE ONLY MANNER IN WHICH THE VALUE OF THE ASSETS CO ULD BE DETERMINED INDEPENDENTLY WAS TO EXAMINE THE BOOKS OF THE AE. THE ASSESSEE WAS ASKED TO SUBMIT THE SAME BUT THE ASSESS EE HAS EXPRESSED ITS INABILITY TO FURNISH THE SAID INFORMA TION. H) THE VALUER CELTIFICATE HAS BEEN GIVEN BY A GERMAN VALUER AND THE DATA USED REMAINS UNVERIFIED. I) THE YALUER HAS ESTIMATED THE USEFUL LIFE OF THE ASSE TS. THE BASIS OF SUCH ESTIMATION WAS NO KNOWN. DURING THE PROCEEDINGS BEFORE US THE ASSESSEE HAS FIL ED ON 02/07/2010 A TO WHOM SO EVER IT MAY CONCERN CERTIFIC ATE FROM FIAMM SPA NAME GIUSEPEE ZANETTI DESIGNATION: CHAIRMAN OF THE BOARDS OF DIRECTORS DATE JANUARY 27,20 I 0 PLACE MONTECCHIO MAGGIORE. THE OBJECTION RAISED BY T PO IS STILL VALID. NO DIRECTION ARE ISSUED REGARDING HIS OBJECTI ON. ITA NO.5657/DEL/2010 5 6. SIMILARLY, OBJECTION NO.3, WHICH RELATED TO DISAL LOWANCE OF ` 1.64 CRORE TOWARDS THE PROVISION OF LIABILITY, HAS BEEN DISP OSED OF IN THE FOLLOWING WORDS:- OBJECTION-III RELATED TO DISALLOWANCE OF RS.1.65 CROR ES TOWARDS PROVISION OF WARRANTY REPRESENTS A CONTINGENT LIABILITY WHICH DEPENDS ON THE OCCURRENCE OF A PARTICULARS EVEN IN THE FUTURE, THE NATURE AND QUANTUM OF WHICH REMAINS UNASCERTAINED, THIS PROVISION ACQUIRES THE COLOUR OF A LIABILITY WHICH IS CONTINGENT WHICH CANNOT BE ALLOWED SINCE THE LIABILITY OF THE PARTI CULARS ITEM HAS NOT CRYSTALISED IN THE FINANCIAL YEAR UNDER CONSID ERATION. 7. THE LEARNED AR RELIED UPON THE FOLLOWING DECISIO NS:- 1. 2012-TII-14-ITAT-MUMBAI-TP ORDER DATED 25TH JANUA RY, 2012 IN THE CASE OF LION BRIDGE TECHNOLOGIES PVT. LTD. VS. DCLT. 2. 2012-TII-09-ITAT-DELHI-ITAT ORDER DATED 13TH JANUA RY 2012 IN THE CASE OF CONSULTING ENGINEERING SERVICES INDIA PVT. LTD. VS. ADDITIONAL CIT. 3. 2010-TII-59-ITAT-DELHI-TP VS DCIT IN THE CASE OF GAP INTERNATIONAL SOURCING INDIA PVT. LTD. THIS JUDGEMENT IS ALSO REPORTED IN 135 TTJ (DELHI)-627. 4. VODAFONE-ESSAR LTD. VS. DRP-240- CTR (DELHI)- 263 . 5. 341-ITR-162 (DELHI) IN THE CASE OF ERICSSON AB VS ADIT. 6. 2011-TII-136-ITAT-DELHI-TP ORDER DATED 16TH DECEMB ER, 2011 IN THE CASE OF MARUBENI INDIA PVT. LTD. VS DCIT. IN THIS CASE, HON'BLE ITAT HAS FOLLOWED THE JUDGEMENT OF HON'BLE DE LHI HIGH COURT IN THE CASE OF VODAFONE-ESSAR LTD. 8. IT WAS SUBMITTED BY THE LEARNED AR THAT THE DRP HA S SIMPLY BRUSHED ASIDE THE ASSESSEES VOLUMINOUS SUBMISSIONS AND HAS PASSED A NON-SPEAKING ORDER AND, IN SUCH A SITUATION, IN THE AFOREMENTIONED CASES THE MATTERS HAVE BEEN REMANDED BACK TO THE FILE OF DRP FOR RE- CONSIDERATION OF THE ISSUES RAISED BY THE ASSESSEE IN PROPER PERSPECTIVE AND FOR ISSUE OF SPEAKING DIRECTIONS U/S 144C OF THE ACT. ITA NO.5657/DEL/2010 6 9. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDER PASSED BY THE ASSESSING OFFICER AND PLEADED THAT ADJUSTMENTS HAV E RIGHTLY BEEN UPHELD BY LD. DRP. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. UNDOUBTEDLY, THE OR DER PASSED BY LD. DRP IS A NON-SPEAKING ORDER THE RELEVANT PORTIONS OF W HICH HAVE ALREADY BEEN REPRODUCED IN THE ABOVE PART OF THIS OR DER. KEEPING IN VIEW THE AFOREMENTIONED DECISION AND THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF VODAFONE ESSAR LTD. VS. DRP-I I & ORS 2010- (IT2)-GJX-0726-DEL AND ALSO ERICSSON AB VS. ADDL. DIREC TOR OF INCOME- TAX (INTERNATIONAL TAXATION) (2012) 341 ITR 162 (DE L) WE RESTORE THE ISSUES RAISED IN THIS APPEAL TO THE FILE OF DRP WITH A D IRECTION TO GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE AND DEA L WITH THE ISSUES URGED BY A SPEAKING ORDER WHICH WOULD REFLECT CO GENT REASONS. WE DIRECT ACCORDINGLY. SINCE WE ARE REMITTING THE MATTER BACK TO THE FILE OF DRP WITH THE AFOREMENTIONED DIRECTIONS, WE D O NOT EXPRESS ANY OPINION ON THE MERITS OF THE ADDITIONS AGITATED IN TH IS APPEAL WHICH WILL BE RE-ADJUDICATED BY LD. DRP AS PER OUR AFOREMENTION ED DIRECTIONS. 11. IN THE RESULT, FOR STATISTICAL PURPOSES THE APPEAL F ILED BY THE ASSESSEE SHALL BE TREATED TO BE ALLOWED IN THE MANNER AF ORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 23.03.20 12. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 23.03.2012. DK ITA NO.5657/DEL/2010 7 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR, ITAT, DELHI BENCHES