Valmont Structures P Ltd, Pune V. Assistant Commissioner of Income-Tax, Circle -12, Pune

ITA 661/PUN/2022

AI Insights

Valmont Structures Pvt. Ltd., a subsidiary of Valmont Industries B.V., engaged in manufacturing utility and transmission structures, appealed against the order of the Assistant Commissioner of Income Tax, which was in compliance with the directions of the Dispute Resolution Panel (DRP). The appeal primarily contested the non-compliance with DRP directions regarding the assessment of income post-merger and the consideration of brought forward losses. Additionally, issues related to transfer pricing adjustments and the selection of comparables were raised. The Tribunal found that the Assessing Officer did not fully comply with the DRP's directions in the computation of income and remanded the issue of comparability of a specific company back to the Assessing Officer for further examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124523 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 04-04-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 28-08-2022
• Other Referred Cases: Marshall Sons & Co. (India) Ltd vs ITO, Dalmia Power Limited vs. ACIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Initiation of penalty proceedings; Wholly owned subsidiary; Revised return; Unabsorbed depreciation
• Section: 143(3); 244A; 115JB; 234E; 139(4)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, PUNE BEFORE SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA No. 661/PUN/2022 : Assessment Year : 2018-19 Valmont Structures Pvt. Ltd., Unit No. 203, Pentagaon 4, Magarpatta City, Hadapsar, Pune-411 028 PNA: AACCV 3567 C Appellant Vs. The Asstt. CIT Cir. 12 Pune Respondent Appellant by : Shri Vishal Karla, Adv. Respondent by : Dr. Santosh Mankoskar Date of Hearing : 05-04-2023 Date of Pronouncement : 06-4-2023 ORDER PER SHRI PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the assessee emanates from the findings of ld. D.R.P-3, Mumbai, dated 23-05-2022 for Assessment Year 2018-19 on the following grounds of appeal. The appellant objects to the order dated 30 June 2022 passed by the learned Assistant Commissioner of Income Tax, Circle 12, Pune ("Ld. AO") in pursuance to the directions of the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") for the aforesaid assessment year on the following amongst other grounds: Corporate tax 1. The learned AO has erred in law and on the facts and circumstances of the case in assessing the total income of the Appellant at Rs. Nil as per the original return of income, as against the directions of the Hon'ble DRP to consider the revised return filed by the appellant post-merger pursuant to the order of Hon'ble National Company Law Tribunal (NCLT'). 2. The learned AO has erred in law and on the facts and circumstances of the case in not considering the brought forward loss available to the appellant as per the revised return filed by the appellant post-merger pursuant to the order of Hon'ble NCLT. Transfer Pricing 3. On the facts and in the circumstances of the case, the learned Transfer Pricing Officer ['TPO'] / AO DRP has erred in not giving the Appellant a reasonable opportunity of being heard during the time of transfer pricing proceedings. 2 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 4. On the facts and in the circumstances of the case, the learned TPO / AO / DRP, has erred in not providing any reasons to prove that either of the conditions mentioned under clause (a) to (d) of section 92C(3) are satisfied for disregarding the ALP computed by the appellant for the transactions pertaining to manufacturing activity. 5. Selection / rejection of comparables: On the facts and in the circumstances of the case, the Transfer Pricing Officer [‘TPO’]/AO/DRP, has erred in modifying the benchmarking analysis as conducted by the appellant, using transactional Net Margin Method [‘TNMM’] for benchmarking its international transactions pertaining to manufacturing activity and thereby modifying the set of comparables. In doing so, the TPO//AO/DRP has specifically erred in i. Applying a turnover filter on an arbitrary basis to the search undertaken by the appellant and thereby rejected three comparable companies of the appellant. Sr.no. Name of the comparable 1. UKS structures Pvt. Ltd. 2. Saurabh Tubes Pvt. Ltd. 3. Robo Equipments & Forgings Pvt. Ltd. ii. Rejecting ‘Hans Metals Ltd’ which is functionally similar to that of the appellant, provided in the transfer pricing documentation. ‘Initiation of penalty proceedings: 6. The ld. AO erred in law and on facts and in circumstances of the case in processing to initiate penalty proceedings section 270A of the Act without considering the facts of the case. Others 7. Each one of the above grounds of appeal is without prejudice to other 8. The appellant craves leave to add, to amend, to alter, to substitute, and to withdraw any or all of the above grounds of appeal. 2. The assessee is engaged in the manufacturing of utility, transmission, high mast, steel structures and other poles and also has a Galvanisation facility. The assessee is 100% subsidiary of Valmont Industries B.V. Holland, a company organised and existing under the Law of Netherland. The assessee‟s plant is located at Pune having its registered office at Pune. The assessee operates, designs and build highly engineered products. The assessee has the knowledge, expertise and resources to provide the highest quality products and services to the industry and offers monopole structures, lighting poles, power distribution poles, galvanised street lighting poles, conical street lighting poles, polygonal street lighting poles, etc. 3 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 3. The ld. Counsel for the assessee referring to grounds of appeal submitted that grounds No. 1 and 2 pertains to that the DRP‟s directions were partly not complied with by the A.O/T.P.O and therefore, necessary directions may be given for complying with the findings of the ld. D.R.P. In this regard, let us refer to the ld. DRP‟s findings at page 6 para 3 which are the grounds of objection no. 2 by the assessee has been referred. The ld. AO erred in not granting the set-off of the brought forward loss against the addition made. The ld. AO erred in considering the amount of addition as a part of the total income thereby increasing the total income, without giving any reasons in the draft order. 4. That after considering the submissions in this regard at para 3.2 the ld. DRP held as follows: Findings on Ground 1 and 2 We find that the assessee has submitted that pursuant to Hon'ble NCLT order dated 3/6/2020 approving the merger with effect from the appointed date being 1/8/2017, the assessee physically submitted the revised return to the jurisdictional Assessing Officer. The jurisdictional AO does not have any role in the matter as the assessment proceedings were ongoing before the National faceless Assessment Centre electronically. The assessee has also claimed that it had filed submission dated 24/12/2020 in the e filing portal as filed before us vide Exhibit VIII- Page 169 and has requested the AO to conduct the assessment proceedings on the revised return post-merger as per the provisions of the Act. The assessee has relied upon decisions of Hon'ble Supreme Court in the case of Marshall Sons & Co. (India) Ltd vs ITO (223 ITR 809) and Hon'ble Supreme Court in the case of Dalmia Power Limited vs. ACIT (112 taxmann.com 252)in support of its claim. However, we find that the Assessing Officer has not dealt with the issue at all and has not dealt with the submissions and contentions claimed to be filed on the e-filing portal vide which the assessment proceedings were conducted by the National faceless Assessment Centre. Accordingly, the Assessing Officer is directed to consider the figures as per the revised return (post-merger) as per law of the assessee, as per the decisions of Hon'ble Supreme Court, as quoted above. The eligible brought forward loss and unabsorbed depreciation is directed be also allowed to the assessee, as per law, after due verification. In view of the above Ground of objections 1 and 2 are being treated as partly allowed (Direction to the Assessing Officer). 5. Therefore, the A.O was directed to consider the figure as per the revised return (post-merger) of the assessee as per the decision of Hon‟ble Supreme Court (supra). The eligible brought forward loss and unabsorbed depreciation has been directed by the ld. DRP to be allowed to the assessee as per law 4 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 after due verification. That consequently, the A.O while passing the final assessment order dated 30-6-2022 held as follows: 3. The Assessing Officer after considering the adjustment as proposed by the completed the assessment proceedings in this case and draft order dated September 19, 2021 bearing DIN ITBAIAST/F/144C/2021-22/1035712999(1) was issued to the assessee company. The AO has proposed a transfer pricing adjustment of Rs. 18,16,087 to the returned income and that of book profit as per provisions of section 115JB of the I T Act, 1961. In the course of assessment proceedings the assessee company furnish a copy of revised paper return of income along with computation of income in pursuance to merger of the Company with Aircon Guardrails Private Limited vide the order of the Mumbai Special Bench of the Honorable National Company Law Tribunal dated June 3, 2020 and requested the AD to compute the income of the assessee company as per revised paper return filed u/s 139(4) of the I T Act, 1961. The AO however not consider the submission of the assessee company in the proposed draft order dated 19/09/2021. Assessee company filed objections before the Hon'ble Dispute Resolution Panel CORP') on the proposed draft order. The Hon'ble DRP disposed of the objections vide order dated May 23, 2022. In compliance with the directions of the Hon'ble DRP, the total income of the assessee company and the carry forward of losses of the Company is computed as under: Computation of income. 1. Total income as per ROI NIL 2. Current year loss NIL 3. Transfer pricing adjustment 18,16,087 4. Total income after adjustment 18,16,087 5. Less: Set off of brought forward loses 18,16,087 6. Total assessed income NIL 1. Calculation of book profit as per section 115JB of the Income-tax Act, 1961. 2. Book profit as per revised return filed by the company NIL The corrected position of losses allowed to be carried forward to subsequent years is tabulated below. A.Y Busine ss loss b/f /curren t year busine ss loss Loss set off as per revised return if any) Loss set off as per assessment order Business losses c/f Unabsorbed depreciation b/f/current year unabsorbed depreciation Unabsorbed depreciation set off (if any) Unabsor- bed depreciat ion to be carried forward 2009 -10 0 0 0 0 49,675 49,675 2010 -11 0 0 0 0 58,541 58,541 2012 -13 0 0 0 0 2,94,98,816 16,76,649 2,78,22 5 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 2013 -14 12363 9996 10460 713 1818087 1113631 96 162966788 0 162966 2014 -15 56090 324 0 0 5609032 4 79650524 0 79650 2015 -16 34268 476 0 0 3426847 6 77809071 0 77809 2016 -17 17681901 17681 Sub- total 21399 8796 10460 713 1816087 2017219 96 367715316 365930 4. Assessed u/s 143(3) r.w.s. 144C(13) of the IT Act, 1961. Credit for pre- paid taxes allowed after due verification. Interest u/s 234A, 234B, 234C and 234E and u/s 244A is charged wherever applicable. Issue demand notice u/s 156 / Refund order accordingly. 5. Penalty proceedings u/s270A of the Act is initiated separately for under reporting of income on account of TPO adjustment.” 6. To this extent as aforestated there is no dispute by the assessee. However, in the computation attached with the assessment order, income from business or profession has been taken at Rs. 8,09,73,426/-. Meaning thereby in the computation sheet the direction of the ld. D.R.P has not been followed. This needs to be rectified. Therefore, in the assessment order total income of the assessee-company and the carry forward of losses of the assessee- company has been computed in compliance with the directions of the ld. D.R.P. However, inadvertently in the computation sheet in the column “income from business” therein a mistake has crept in where the correct figure is not taken in accordance with the said D.R.P‟s directions. The ld. D.R conceded that an inadvertent mistake has crept in in the computation sheet and that can be rectified. 7. Having heard the parties and considering the facts on record, we direct the A.O/T.P.O to carry out necessary rectification in the computation sheet in the column “income from business or profession” in accordance with the directions of the ld. D.R.P which has already been given effect to in the main 6 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 body of the assessment order. Grounds No. 1 and 2 are allowed for statistical purposes. 8. Regarding grounds No. 3 and 4, the ld. Counsel submitted that these grounds may be taken as academic in nature. We hold accordingly. 9. The ld. Counsel for the assessee further submitted that they are not pressing ground No. 5(i). Therefore, this part of the ground i.e. ground No. 5(i), after hearing the submissions of the ld. Counsel for the assessee is dismissed as not pressed. 10. In ground no. 5(ii), the assessee contends inclusion of M/s. Hans Metals Ltd. as functionally similar to that of the assessee. We observe at para 11 of T.P.O‟s order where the said company M/s. Hans Metals Ltd. has been rejected due to the data not being available in public domain. It was contended in this regard by the assessee that the said company passes turnover filter applied by the T.P.O and passes RPT filter applied by the T.P.O. In the T.P.O‟s comments, the assessee‟s business profile has been spelt out wherein the assessee is manufacturing high mast steel structures and other poles offering monopole structures, lighting poles, power distribution poles, galvanised street lighting poles, etc. The extract of business profile of M/s. Hans Metals Ltd. on the other hand provides that the main project is manufacturing of steel doors, windows and their frames, shutters, rolling shutters, gates and similar articles used on building. Therefore, the T.P.O held that as evident the activity of the assessee‟s business is manufacturing lighting poles whereas M/s. Hans Metals Ltd. is engaged in manufacturing structural steel windows, doors, etc. which are functionally not comparable with that of the assessee. Further, it was held that the company M/s. Hans Metals Ltd. is engaged in manufacturing and trading both and no bifurcation of segment is given in the annual report. Therefore, it cannot be decided whether it passes manufacturing filter of 50% applied by the 7 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 T.P.O or not. So the company was rejected on two counts; (1) failing functional comparability; and (2) no bifurcation of segment of manufacturing and trading in the annual report. 11. We have perused the annual report of M/s. Hans Metals Ltd. and in the segment of corporate information it has been clearly mentioned that the company is engaged in manufacturing and trading of structural rolls and other power products. Now, the T.P.O has rejected this company first and foremost on the basis of failure in functional comparability. Admittedly, the assessee is manufacturing lightning poles, etc. which are in effect for the use of lighting purposes and in the product manufactured by the assessee the steel poles get utilisation and ultimate activity is to use for purposes of lighting. Whereas M/s. Hans Metals Ltd. is manufacturing structural steel doors, windows, shutters, etc. and per se has nothing to do with lighting or electrification of the products. It is to be understood that the product profile of the assessee manufacturing steel lighting poles is galvanised in such a way that it only provides lightning and the electricity that is generated through electrification does not injure any person, living being coming physically in contact with the said poles. The end result is to use for lighting purposes whereas product manufacturing profile of M/s. Hans Metals Ltd. is only restricted to products for structural use in buildings, factories, etc. So functionally at this stage, it is not coming out anywhere from record whether these companies‟ products are similar. It was submitted before this Bench by the ld. Counsel for the assessee that the functional comparability may be verified on factual basis after due examination by the department and the issue may be restored to the file of the A.O/T.P.O. The ld. D.R supported the findings of the T.P.O and the ld. D.R.P. We are of the considered view that on going through the functional product profile of the assessee and M/s. Hans Metals Ltd. per se there is a difference not only of the 8 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 product manufactured but even its end use. The only similarity probably is that the product of the assessee and that of M/s. Hans Metals Ltd. are galvanised structures but in all other respects, we were unable to find any functional similarity. However, we understand that the revenue can conduct specific enquiry and verification of the entire functional profile and then decide whether M/s. Hans Metals Ltd can be included or not. In the interest of justice, therefore, ground No. 5(ii) is remanded back accordingly to the file of the A.O/T.P.O to re-adjudicate as per law complying with the principles of natural justice. Ground No. 5(ii) is allowed for statistical purposes. Accordingly, ground No. 5 is partly allowed for statistical purposes. 12. Ground No. 6 is premature. Grounds No. 7 and 8 are general in nature. 13. In the combined result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on this 6 th day of April 2023. Sd/- sd/- (DR. DIPAK P. RIPOTE (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated, the 6 th day of April 2023. Ankam Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The D.R.P.-3, Mumbai 4. Pr. CIT concerned. 5. The D.R. ITAT „C‟ Bench Pune. 5. Guard File BY ORDER, /// TRUE COPY /// Sr. Private Secretary ITAT, Pune. 9 ITA No. 661/PUN/2022 Valmont Structures A.Y. 2018-19 Date 1 Draft dictated on 05-04-2023 Sr.PS/PS 2 Draft placed before author 06-04-2023 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 06-04-2023 Sr.PS/PS 7 Date of uploading of order 06-04-2023. Sr.PS/PS 8 File sent to Bench Clerk 06-04-2023 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order