M/s. Eaton Power Quality Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 599/PUN/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1791 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-10-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 599 /P U N/201 4 / ASSESSMENT YEAR : 20 0 9 - 10 M/S. EATON POWER QUALITY PRIVATE LIMITED, 145, OFF MUMBAI - PUNE ROAD, PIMPRI, PUNE 411018 PAN : AAACC6943R ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4, PUNE / RESPONDENT ASSESSEE BY : SHRI VISHAL KALRA REVENUE BY : SHRI RAJEEV KUMAR / DATE OF HEARING : 1 0 - 10 - 2018 / DATE OF PRONOUNCEMENT : 19 - 1 1 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSM ENT ORDER DATED 17 - 01 - 2014 PASSED U/S. 143(3) R.W.S. 144C O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR THE ASSESSMENT YEAR 20 0 9 - 10. 2 ITA NO . 599/PUN/2014, A.Y. 2009 - 10 2. THE ASSESSEE IN APPEAL HAS ASSAILED THE FINDINGS OF ASSESSING O FFICER BY RAISING FOLLOWING GROUNDS : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT, FOR RELEVANT ASSESSMENT YEAR AT RS.12,86,80,325 AS AGAINST THE RETURNED INCOME OF RS.11,62,52,587. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TRANSFER PRICING OFFICER (TPO) ERRED IN MAKING AN ARBITRARY ADJUSTMENT OF RS.1,24,27,738 IN RESPECT OF INTERNAT IONAL TRANSACTION PERTAINING TO PAYMENTS MADE TO ASSOCIATED ENTERPRISES ('AES') FOR HEADQUARTER (HQ) SERVICES, ALLEGING THAT THE SAME WERE NOT AT ARMS LENGTH AND DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE SAME TO BE NIL. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/DRP/TPO HAVE ERRED IN REJECTING THE ECONOMIC ANALYSIS AND METHODOLOGY ADOPTED BY THE APPELLANT, BEING TRANSACTIONAL NET MA RGIN METHOD ('TNMM'), FOR BENCH MARKING THE INTERNATIONAL TRANSACTIONS OF PAYMENTS TO AES FOR HQ SERVICES, WITHOUT ANY COGENT REASON , AND FURTHER ERRED APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD TO BENCHMARK SUCH TRANSACTION, IN A MANNER, WHICH IS NOT IN CONFORMITY WITH THE METHODOLOGY PROVIDED UNDER THE ACT. 4. THAT ON THE F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE AO HAS ERRED IN GRANTING A TDS CREDIT OF ONLY RS.37,96,692 AS AGAINST RS.53,44,615 WHICH WAS CLAIMED AND AVAILABLE TO THE APPELLANT. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN CHARGING INTEREST UNDER SECTION 234C AND 234D OF THE ACT. 3. SHRI VISHAL KALRA APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN TRADING OF UNINTERRUPTED POWER SUPPLY (UPS) AND DIRECT CURRENT (DC) POWER SYSTEMS, SWITCH MODE POWER SUPPLY (SMPS) AND POWER DISTRIBUTION SYSTEMS AND ALSO PROVIDES MAINTENANCE SERVICES FOR THE ABOVE SAID ITEMS. THE ASSESSEE IS A SUBSIDIARY OF EATON POWER QUALITY PRIVATE LIMITED USA. THE ASSESSEE ENTERED INTO VARIOU S INTERNATIONAL TRANSACTIONS WITH I TS ASSOCIATED ENTERPRISES (AES) AND APPL IED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS WITH AES . THE ASSESSEE RECEIVED CENTRALIZED SUPPORT SERVICES F ROM ITS AES I.E. CHINA (INVESTMENT) COMPANY LIMITED (IN SHORT EATON CHINA) AND EATON CORPORATION USA (IN SHORT EATON, US). THE ASSESSEE HAD ENTERED INTO 3 ITA NO . 599/PUN/2014, A.Y. 2009 - 10 AGREEMENT WITH ITS AFORESAID AES FOR PROVIDING CENTRALIZED SERVICES WHICH INTER ALIA INCLUDES : I . INTE RNAL AUDIT II . ACCOUNTING/FINANCE III . HUMAN RESOURCES SUPPORT IV . LEGAL AND TAX RELATED SERVICES V . IT SERVICES VI . TELECOMMUNICATION VII . TRAINING AND EDUCATION THE TPO FOLLOWING THE DIRECTIONS OF DRP IN ASSESSMENT YEAR 2008 - 09 HELD THAT THERE IS NO EVIDENCE THAT THE ASSES SEE HAS RECEIVED SERVICES AND THE ASSESSEE HAS NOT RECEIVED ANY BENEFITS FROM THE ALLEGED SERVICES FROM ITS GROUP ENTITIES. THE TPO DETERMINED THE VALUE OF HEADQUARTERS SERVICES AS NIL AND MADE TP ADJUSTMENT OF RS.1,24,27,738 . THE LD. AR SUBMITTED THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN APPEAL BY THE ASSESSEE IN ITA NO. 119/PUN/2013 FOR ASSESSMENT YEAR 2008 - 09 DECIDED ON 11 - 09 - 2018 HAS REVERSED THE FINDINGS OF DRP. THE LD. AR FURTHER SUBMITTED THAT THE S PECIALIZED SERVICES RECEIVED BY THE ASSESSEE FROM ITS OVERSEAS ENTITIES IN THE ASSESSMENT YEAR UNDER APPEAL ARE IDENTICAL TO THE ONE RECEIVED IN EARLIER ASSESSMENT YEARS. THE S HARE D S ERVICES A GREEMENT DATED JANUARY 1, 2005 AND THE S HARE D I NTERNAL S ERVICES A GREEMENT OF EVEN DATE BETWEEN THE ASSESSEE AND EATON CHINA IS THE SAME WHICH WAS SUBJECT MATTER OF APPEAL IN ASSESSMENT YEAR 2008 - 09. EVEN THE STANDARD WHQ SERVICES AGREEMENT WITH EATON US FOR PROVIDING HEADQUARTERS SERVICES TO ASSESSEE WAS EXECUTED IN JUNE 24, 2005. THE ONLY DIFFERENCE IN ASSES SMENT YEAR UNDER APPEAL IS THAT NO SERVICES WERE RECEIVED FROM EATON POWER QUALITY 4 ITA NO . 599/PUN/2014, A.Y. 2009 - 10 PTE LIMITED, SINGAPORE . THE ASSESSEE RECEIVED SERVICES FROM EATON CHINA AT COST + 5% AND FROM EATON US AT COST + 8%. 4. SHRI RAJEEV KUMAR REPRESENTING THE DEPARTMENT F AIRLY ADMITTED THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SIMILAR TO THE ONE ALREADY ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 - 09. 5. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PERUSED. THE ASSESSEE IN APPEA L HAS ASSAILED THE ORDERS OF AUTHORITIES BELOW IN DETERMINING ARMS LENGTH PRICE OF THE SERVICES RENDERED BY ASSESSEES AES AS NIL , THEREBY MAKING ADJUSTMENT OF RS.1,24,27,738/ - IN RESPECT OF HEADQUARTER SERVICES. A PERUSAL OF DOCUMENTS ON RECORD REVEAL THAT THE S S HARE D S ERVICES A GREEMENT DATED 01 - 01 - 2005 AND S HARE D I NTERNAL A UDIT S ERVICE A GREEMENT OF EVEN DATE ENTERED INTO WITH EATON CHINA IS THE SAME WHICH WAS SUBJECT MATTER OF APPEAL IN ASSESSMENT YEAR 2008 - 09. APART FROM THE ABOVE, THE ASSESSEE HAS ENTERED INTO STANDARD WHQ SERVICE AGREEMENT DATED JUNE 24, 2005 WITH EATON US FOR PROVIDING HEADQUARTER SERVICES. THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN , EATON FLUID POWER LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX IN ITA NO. 45/PUN/2013 DECIDED ON 12 - 03 - 2018 HAD OCCASION TO ADJUDICATE IDENTICAL ISSUE, WHEREIN SIMILAR SERVICES WERE RECEIVED BY THE ASSESSEE FROM ITS AES AND THE SAME WERE VALUED BY TPO AS NIL. THE TRIBUNAL HELD THAT THE TPO HAS ERRED IN OBSERVIN G THAT THAT THE ASSESSEE HAS NOT AVAILED ANY SERVICES. THE TRIBUNAL REMITTED THE ISSUE BACK TO THE FILE OF TPO/ASSESSING OFFICER TO DETERMINE THE ALP OF TRANSACTIONS. IN THE INSTANT CASE AS WELL THE ASSESSEE HAS FILED VARIOUS AGREEMENTS AND DOCUMENTS TO SUBSTANTIATE THAT THE SERVICES HAVE BEEN RECEIVED BY THE 5 ITA NO . 599/PUN/2014, A.Y. 2009 - 10 ASSESSEE FROM EATON CHINA AND EATON US . IN IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2008 - 09 , T HE TRIBUNAL IN ASSESSEES APPEAL IN ITA NO. 119/PUN/2013 (SUPRA) HAS RESTORED THIS ISS UE BACK TO THE FILE OF ASSESSING OFFICER/TPO BY PLACING RELIANCE ON THE DECISION OF EATON FLUID POWER LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX IN ITA NO. 45/PUN/2013 DECIDED ON 12 - 03 - 2018. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN ASSESSEE S OWN CASE IN ASSESSMENT YEAR 2008 - 09 READS AS UNDER : 1 2 . IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS FURNISHED VARIOUS DOCUMENTS BEFORE THE AUTHORITIES BELOW TO SUBSTANTIATE THE SERVICES RENDERED BY EATON SINGAPORE AND EATON CHINA. THE TPO INSTE AD OF ANALYZING THE ALP OF THE TRANSACTIONS ON THE BASIS OF DOCUMENTS FURNISHED WENT ON TO A DIFFERENT TANGENT TO HOLD THAT NO SERVICES WERE RENDERED BY AES TO THE ASSESSEE AND THE ASSESSEE HAS NOT DERIVED ANY BENEFIT FROM THE ALLEGED SERVICES PROVIDED BY THE OVERSEAS GROUP ENTITIES. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN , WE DEEM IT APPROPRIATE TO SET ASIDE THE ASSESSMENT ORDER AND REMIT THE THIS ISSUE BACK TO THE FILE OF TPO/ASSESSING OFFICER TO DETERMINE THE ALP OF TRANSACTIONS, IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY. NEEDLESS TO SAY THAT THE ASSESSING OFFICER/TPO WHILE RE - ADJUDICATING THIS ISSUE SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THUS, GROUND NOS. 2 TO 4 RAISED IN THE APPEAL BY ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 ARE ALLOWED FOR STATISTICAL PURPOSE. 6. THUS, IN THE LIGHT OF THE FACTS OF THE CASE AND THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING ASSESSMENT YEAR, WE RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER/TPO WITH SIMILAR DIRECTIONS. ACCORDINGLY, GROUND NOS. 2, 3 AND 4 OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 7. THE GROUND NO. 1 IS GEN ERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION. 6 ITA NO . 599/PUN/2014, A.Y. 2009 - 10 8. IN GROUND NO. 5 OF THE APPEAL, THE ASSESSEE HAS ASSAILED CHARGING OF INTEREST U/S. 234C AND 234D OF THE ACT. CHARGING OF INTEREST U/S. 234C AND 234D IS CONSEQUENTIAL AND MANDATORY, HENCE, GROUND NO. 5 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED BEING DEVOID OF ANY MERIT. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE IN THE TERMS AFORESAID. ORDER PRONOUNCED ON MONDAY, THE 19 TH DAY OF NOVEMBER, 2018 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 19 TH NOVEMBER, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE DISPUTE RESOLUTION PANEL, PUNE 4. THE DIT (IT/TP), PUNE 5. , , , / DR, I TAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE