Schneider Electric India (P) Ltd., Gurgaon V. Addl. CIT, New Delhi

ITA 5728/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65905 (ITAT-DELHI)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 05-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 22-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PIYUSH JAIN CIT DR HEARING ON
• Assessee Lawyers: RAHUL K MITRA; OTHERS
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Royalty expenses; Revised return
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S.KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 5728/DEL/2011 ASSESSMENT YEAR: 2007-08 SCHNEIDER ELECTRIC INDIA PVT. LTD. VS. ADDL.CIT, 9 TH FLOOR, TOWER C, BLDG 10, DLF RANGE 7, C.R. BLDG . CYBER CITY PHASE-II, GURGAON. NEW DELHI PAN: AABCS1624G (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. RAHUL K. MITRA, & OTHERS, ADV. REVENUE BY : SH. PIYUSH JAIN, CIT DR. HEARING ON : 05/11/2012 ORDER PRONOUNCED ON THE DATE : ORDER PER I.C.SUDHIR, JM : IN ITS APPEAL THE ASSESSEE HAS IMPUGNED FIRST APPEL LATE ORDER ON SEVERAL GROUNDS. THE GROUND NOS. 1, 1.1 TO 6 ARE RELATING T O TRANSFER PRICING ADJUSTMENT AND GROUND NOS. 7 TO 8 ARE RELATED TO CO RPORATE TAX. IN THE REMAINING GROUNDS 9 AND 10 THE INITIATION OF PENALT Y PROCEEDINGS U/S 271(1) ITA NO. 5728/DEL/2011 2 (C) AND LEVY OF INTEREST U/SECTIONS 234B AND 234C O F THE ACT HAVE BEEN QUESTIONED. 2. AT THE OUTSET OF HEARING THE LD. AR SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PURSUE GROUND NOS. 9 AND 10. THE SAME A RE ACCORDINGLY REJECTED. REGARDING THE GROUND NOS. 1, 1.1 TO 6 RELATING TO T RANSFER PRICING ADJUSTMENT, THE LD. AR POINTED OUT THAT BEFORE THE LD. DISPUTE RESOLUTION PANEL (DRP) VIDE ITS APPLICATION DATED 27.1.2011 THE ASSESSEE H AD SUBMITTED THAT ITS INTERNATIONAL TRANSACTIONS OUGHT TO BE ANALYSED ON A TRANSACTION BY TRANSACTION BASIS TO THEN DETERMINE ADHERENCE TO AR MS LENGTH PRINCIPLE. PURSUANT TO THIS SUBMISSION THE ASSESSEE HAD HIGHLI GHTED THE PRICING POLICY OF ITS INTERNATIONAL TRANSACTIONS CORRESPONDING TO ITS MANUFACTURING OPERATIONS NAMELY IMPORT OF COMPONENTS AT THE RATE COST PLUS 5% , EXPORT OF FURNISHED GOODS AT THE RATE COST PLUS 5%, PAYMENT O F TECHNOLOGY ROYALTY AT THE RATE OF 9% ON VALUE ADDITION, PAYMENT OF BRAND ROYALTY AT THE RATE 1% OF TURN OVER, AND PAYMENT OF PROJECT SUPPORT SERVICES AT THE RATE OF COST PLUS MARK UP BASIS. THE APPELLANT IMPLODED THAT EACH OF THE ABOVE TRANSACTIONS BE TESTED INDIVIDUALLY WITHOUT CONSIDERING THE OVER AL L NET MARGIN OF ITS MANUFACTURING SEGMENTS WHICH MAY BE AFFECTED BY OTH ER EXTERNAL FACTORS NET RELATING TO THE PRICING OF ITS INTERNATIONAL TRANSA CTIONS. HOWEVER, THE ASSESSEE WAS UNABLE TO PROVIDE REQUISITE CORROBORATIVE EVIDE NCE TO SUBSTANTIATE ITS ITA NO. 5728/DEL/2011 3 PRICING POLICY IN RESPECT OF THE AFOREMENTIONED INT ERNATIONAL TRANSACTIONS TO THE SATISFACTION OF THE LD. DRP. PRESENTLY, THE ASS ESSEE HAS MANAGED TO COLLATE ADDITIONAL EVIDENCE IN THE FORM OF CERTIFIC ATES, PRICING POLICY DOCUMENTS, SPECIAL VALUATION BRANCH (SVB) ORDER, BE NCH MARKING ANALYSIS AND SAMPLE COPIES OF INVOICES AND BILL OF ENTRIES. THE LD. AR ALSO CITED FOLLOWING DECISIONS OF THE DELHI BENCH OF THE TRIBU NAL RELATING TO SUBMISSION OF ADDITIONAL EVIDENCE AVAILABLE WITH TH E ASSESSEE AND WAS CONSIDERED NECESSARY FOR DISPOSAL OF GROUNDS OF APP EAL TAKEN BY THE ASSESSEE APPELLANT: (1) KYUNGSHIN INDUSTRIAL MOTHERSON LTD. VS. DCIT, ITA N O. 1396/DEL/2009 (2) NOKIA INDIA (P.) LTD. VS. ACIT, ITA NO. 4559/DEL/20 11 (3) JCB INDIA LTD., ITA NO. 5200/DEL/2010 (4) UOP LLC, 108 ITD 186 (DEL.) (5) QUARK SYSTEMS INDIA PVT. LTD. 38 SOT 307 (SB). 3. REGARDING THE ISSUE OF CORPORATE TAX RAISED IN GROU ND NOS. 7 AND 8, THE LD. AR SUBMITTED THAT THE LD. DRP HAS ERRED IN CONF IRMING THE DISALLOWANCE OF ROYALTY EXPENSES (GROUND NO.7) AND AGAIN HAS ERR ED IN NOT ALLOWING THE DEDUCTION U/S 10A TO THE ASSESSEE (GROUND NO. 8). H E SUBMITTED THAT THE LD. DRP HAS CONFIRMED THE DISALLOWANCE OF ROYALTY EXPEN SES OF RS.6,80,28,472/- ITA NO. 5728/DEL/2011 4 TREATING IT AS CONTINGENT LIABILITY / CESSATION OF LIABILITY U/S 41(1) WHEREAS IT WAS ASCERTAINED LIABILITY AND WAS ACTUALLY PAID SUB SEQUENTLY. HE SUBMITTED FURTHER THAT THE LD. DRP HAS FAILED TO APPRECIATE T HE SUBMISSION SPECIALLY THAT THE LIABILITY WAS ACTUALLY PAID SUBSEQUENTLY. HE SU BMITTED FURTHER THAT IN VIEW OF DECISION OF THE TRIBUNAL IN THE CASE OF YOK OGAWA INDIA LTD, NOW UPHELD BY THE HONBLE KARNATAKA HIGH COURT REPORTED IN 2012- (341) ITR 0385- KAR, INCOME OF THE SECTION 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, T HE LOSS OF THE NON-SECTION 10A UNIT CAN NOT BE SET OFF AGAINST THE INCOME OF T HE SECTION 10A UNIT UNDER SECTION 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY BUSINESS OR PROFESSION CARRIED ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAINS UNDER SECTION 10A IS NOT B E INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH PROF ITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. THE ASSESSEE REVISED I TS RETURN OF INCOME CLAIMING DEDUCTION U/S 10A OF THE ACT. HE REFERRED PAGE NO. 55 TO 57 OF THE PAPER BOOK WHEREIN COPY OF REVISED RETURN OF INCOME FILED ON 6.3.2009 ALONG WITH COMPUTATION OF INCOME FOR THE ASSESSMENT YEAR HAS BEEN MADE AVAILABLE. THE LD. AR SUBMITTED THAT ISSUE RAISED I N THESE GROUND NOS. 7 AND ITA NO. 5728/DEL/2011 5 8 ARE THUS REQUIRED FRESH CONSIDERATION OF THE ASSE SSING OFFICER TO VERIFY THE CORRECTNESS OF THE CLAIMS OF THE ASSESSEE REGARDING PAYMENT OF ROYALTY EXPENSES AND DEDUCTION U/S 10A OF THE ACT AS PER TH E REVISED RETURN. IN SUPPORT HE PLACED RELIANCE ON THE DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S PRUTHVI BROKERS & SHAREHOLD ERS PVT. LTD. , ITA NO. 3908 OF 2010. 4. THE LD. DR OPPOSED REQUEST OF THE ASSESSEE FOR CON SIDERATION OF THE ADDITIONAL EVIDENCE HE HOWEVER, SUBMITTED THAT IN C ASE IT IS ALLOWED THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE TPO / AO WITH THIS SPECIFIC DIRECTION THAT WHILE ENTERTAINING THESE ADDITIONAL EVIDENCE ON THE ISSUE OF TRANSFER PRICING ADJUSTMENT, HE SHOULD FIRST ASCERT AIN THAT THE INSTANCES CITED ARE INDEED COMPARABLE WITH THE CASE OF ASSESSEE TO DETERMINE ADHERENCE TO ARMS LENGTH PRINCIPLE. 5. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT IN T HE CASE KYUNGSHIN INDUSTRIAL MOTHERSON LTD. (SUPRA) THE PRIMARY CONTE NTIONS OF THE ASSESSEE INVOLVED WAS REGARDING ANALYSIS OF SUPPLIERS PROFI TABILITY FOR IMPORTS AND LIMITING THE VARIATION ON ACCOUNT OF TRANSFER PRICI NG ONLY TO THE PROPORTION OF RELATED PARTY TRANSACTIONS. THE AUTHORITIES BELOW D ID NOT ADDRESS THE ISSUES FOR WANT OF DATA. THE TRIBUNAL ACCEDED TO THE ASSES SEES PLEA FOR ACCEPTING THESE ADDITIONAL EVIDENCES AND REMANDING THE MATTER TO THE AUTHORITIES BELOW ITA NO. 5728/DEL/2011 6 FOR FRESH ADJUDICATION. AGAIN IN THE CASE OF QUARK SYSTEMS INDIA PVT. LTD. (SUPRA) THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT THE APPELLANT CAN NOT BE ESTOPPED FROM HIGHLIGHTING MISTAKES IN THE ASSES SMENT EVEN THOUGH SUCH MISTAKE IS THE RESULT OF EVIDENCE ADDUCED BY THE TA X PAYER. WE FIND THAT IN THE PRESENT CASE THE ASSESSEE HAS ALSO COLLATED SUP PLEMENTARY EVIDENCE TO CORROBORATE THE ARMS LENGTH NATURE OF ITS INTERNAT IONAL TRANSACTIONS IN ADHERENCE TO THE PRINCIPLES AND CONTENTIONS MADE BE FORE THE AUTHORITIES BELOW. WE THUS IN THE INTEREST OF JUSTICE SET ASIDE THE MATTER TO THE FILE OF THE A.O. TO FIRST ASCERTAIN TO HIS SATISFACTION THAT TH E INSTANCES FURNISHED BY THE ASSESSEE BY WAY OF SUPPLEMENTARY EVIDENCE ARE INDEE D COMPARABLE TO THE CASE OF THE ASSESSEE TO CORROBORATE THE ARMS LENGT H NATURE OF ITS INTERNATIONAL TRANSACTION IN ADHERENCE TO THE PRINCIPLES OF ARMS LENGTH AND THEN ANALYSE PRICING POLICY OF THE ASSESSEE IN THE LIGHT OF THE SAID EVIDENCE WHICH WAS NOT IN THE POSSESSION OF THE ASSESSEE EARLIER. IT IS NE EDLESS TO MENTION OVER HERE THAT WHILE DECIDING THE ISSUE AFRESH THE A.O. WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. WE ALSO SET ASIDE THE ISSUES RAISED IN GROUND NOS. 7 AND 8 OF THE APPEAL TO THE FILE OF THE AO FOR HIS FRESH CONSIDERATION I N VIEW OF THE ABOVE DEVELOPMENT IN THIS REGARD POINTED OUT BY THE LD. A R. AFTER AFFORDING ITA NO. 5728/DEL/2011 7 OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GRO UND NOS. 1, 1.1 TO 6, 7 AND 8 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 7. IN RESULT APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 8. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON THE DAY OF 22/11/2012. SD/- SD/- ( T.S. KAPOOR ) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22/11/2012 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO. 5728/DEL/2011 8