SMR AUTOMOTIVE SYSTEMS INDIA LTD., NEW DELHI V. ADDL. CIT, SPECIAL RANGE- 8, NEW DELHI

ITA 6614/DEL/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3689 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 02-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJIT TOLANI
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Question of law; Set aside
• Section: 143(3); 92B; 234B; 10B; 144C; 92CA

Judgement Text

I.T.A.NO.6614/DEL/2017/A.Y.2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER . . /. I.T.A NO.6614/DEL/2017 / ASSESSMENT YEAR:2013-14 M/S SMR AUTOMOTIVE SYSTEMS INDIA LTD., F-7, BLOCK-B-I, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI. VS. ADDL. CIT SPECIAL RANGE-8, DELHI. PAN NO. AAFCS0021D APPELLANT / RESPONDENT /ASSESSEE BY SH. AJIT TOLANI, ADV. /REVENUE BY SH. SUNIL KUMAR , CIT DR / DATE OF HEARING: 03.06 .20 2 1 /PRONOUNCEMENT ON 03.06 .20 2 1 /O R D E R PER N.K. BILLAIYA, A.M. 1. WITH THIS APPEAL THE ASSESSEE HAS CHALLENGED THE VA LIDITY OF THE ORDER DATED 28.09.2017 PASSED U/S 143(3) READ WITH SECTION 144C OF THE ACT. 2. THE GRIEVANCE OF THE ASSESSEE READ AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ASSESSING OFFICER (LD. AO) ERRED IN ASSESSIN G THE INCOME OF THE APPELLANT AT INR 23,80,23,611/- AS AG AINST THE RETURNED INCOME OF INR 19,07,01,250/-. 2. THAT THE ORDER OF THE LD. TRANSFER PRICING OFFICER, NEW DELHI (HEREINAFTER REFERRED TO AS THE LD. TRANSFER PRICING I.T.A.NO.6614/DEL/2017/A.Y.2013-14 2 OFFICER, LD. TPO) PASSED U/S 92CA OF THE ACT AND THE SUBSEQUENT DIRECTIONS OF THE HONBLE DISPUTE RESOLU TION PANEL (HEREINAFTER REFERRED TO AS HONBLE PANEL) IN RESPECT OF ASSESSMENT YEAR 2013-14, TO THE EXTENT DETRIMENTAL TO THE APPELLANT IS BAD IN LAW AND ARBI TRARY, CONTRARY TO FACTS, LAW AND CIRCUMSTANCES OF THE CAS E AND LIABLE TO BE QUASHED. 3. THAT IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. TPO/LD. AO DID NOT DISCHARGE HIS/HER STATUT ORY ONUS BY ESTABLISHING THAT THE CONDITIONS SPECIFIED IN CLAUSE (A) TO (D) OF SECTION 92C(3) OF THE ACT HAVE BEEN S ATISFIED BEFORE DISREGARDING THE ARMS LENGTH PRICE DETERMIN ED BY THE APPELLANT AND PROCEEDING TO DETERMINE THE ARMS LENGTH PRICE HIMSELF AND THE HONBLE DRP ERRED BY L ARGELY CONCURRING WITH THE VIEWS OF THE LD. TPO/LD. AO ON THE SAME. 4. THAT THE LD. TPO/LD. AO/HONBLE DRP, WHILE MAKING TRANSFER PRICING ADJUSTMENT ERRED IN LAW AND ON FAC TS AND CIRCUMSTANCES OF THE CASE IN REJECTION OF THE ECONO MIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN THE TRANSFE R PRICING DOCUMENTATION IN ACCORDANCE WITH THE PROVIS IONS OF THE ACT READ WITH RULES, THEREBY CONFIRMING THE ECO NOMIC ANALYSIS ADOPTED BY THE LD. TPO SUBSTANTIALLY. 5. THE LD. AO/LD. TPO/HONBLE DRP ERRED IN ENHANCING T HE INCOME OF THE ASSESSEE BY RS. 4,73,22,361/- HOLDING THAT THE SPECIFIED DOMESTIC TRANSACTIONS UNDERTAKEN BY ASSESSEE DO NOT SATISFY THE ARMS LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO, HAVE GROSS LY ERRED IN: 5.1 DISREGARDING MULTIPLE YEAR/PRIOR YEARS DATA AS USE D BY THE ASSESSEE IN THE TP DOCUMENTATION AND HOLDING TH AT CURRENT YEAR [I.E. FY 2012-13] DATA FOR COMPARABLE COMPANIES SHOULD BE USED; 5.2 REJECTING SEGMENTAL ACCOUNTS OF RELATED PARTIES (R PS), CERTIFIED BY INDEPENDENT CHARTERED ACCOUNTANT, BACK ED-UP BY DIVISION-WISE LEDGER ACCOUNTS, TRIAL BALANCE ETC ., ON AD- HOC REASONS WITHOUT APPRECIATING THE SCIENTIFIC BAS IS OF DRAWING SEGMENTS, AND PROCEEDED TO RE-COMPUTE THE MARGINS FOR RPS CONSIDERING ENTITY LEVEL FINANCIALS . 6. WITHOUT PREJUDICE TO ABOVE CONTENTIONS, THE ASSESSEE WISHES TO STATE THAT APPELLANT AND ITS RPS ARE UNDE R HIGHEST TAX BRACKET AND SUBJECT TO TAX UNDER NORMAL PROVISIONS OR MINIMUM ALTERNATE TAX (WHICHEVER IS H IGHER). THUS, THERE IS NO MOTIVE OF THE TAXPAYER TO SHIFT P ROFITS AND THE TRANSACTIONS ARE REVENUE NEUTRAL. CONSIDER ING THE SAME, APPLICABILITY OF PROVISIONS OF DOMESTIC TRANS FER I.T.A.NO.6614/DEL/2017/A.Y.2013-14 3 PRICING TO TRANSACTIONS WITH PARTIES COVERED U/S 40 A(2)(B) OF INCOME TAX ACT, 1961, HAS BEEN OMITTED BY FINANC E ACT, 2017. 7. WI THOUT PREJUDICE TO APPELLANTS CONTENTIONS, WE REQU EST HONBLE BENCH TO ALLOW APPELLANT TO SUBMIT ADDITION AL ANALYSIS WITH RESPECT TO BENCHMARKING OF IMPUGNED TRANSACTIONS WITH THE MOST APPROPRIATE METHOD AND SELECTION OF TESTED PARTY ALONG WITH NECESSARY COMPARABILITY ADJUSTMENT, IF ANY. 8. LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT. 9. LD. AO HAS ERRED, IN CHARGING INTEREST U/S 234A AND 234B OF THE ACT. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. THE APPELLANT CRAVES TO LEAVE TO ADD, WITHDRAW, ALTER, MODIFY, AMEND OR VARY THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. VIDE APPLICATION DATED 21.02.2018 THE ASSESSEE RAIS ED AN ADDITIONAL GROUND WHICH READS AS UNDER: THAT AS SECTION 92BA(1) HAS BEEN OMITTED VIDE FINA NCE ACT, 2017, IMPUGNED PROCEEDINGS AND ORDER WILL LAPSE AND WILL BECOME INVALID IN LAW. 4. SINCE THE AFOREMENTIONED ADDITIONAL GROUND GOES TO THE ROOT OF THE MATTER AND REQUIRES NO VERIFICATION OF ANY NEW FACT THE SAME IS ADMITTED. 5. HAVING HEARD THE LD. COUNSEL ON THE ADDITIONAL GROU ND AND ALSO THE DR WHO STRONGLY OPPOSE TO THE ADMISSION OF THE ADDITIONAL GROUND STATING THAT IT WAS NEVER RAISED BEFORE ANY OF THE LOWER AUTHORITIES, IN OUR CONSIDERED OPINION, SINCE THIS ADDITIONAL GROUND GOES TO THE ROOT OF THE MATTER AND REQUIRES NO VERIFICATION OF ANY FACT. WE WILL ADDRESS IT FIRST . I.T.A.NO.6614/DEL/2017/A.Y.2013-14 4 6. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DESIGNING, MANUFACTURING, MARKETING, SELLING AND EXPORTING OF THE REAR VIEW MIRRORS AND PARTS THEREOF FOR AUTOMOBILE INDUS TRY. 7. THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE AS SESSEE COMPANY WITH ITS ASSOCIATED ENTERPRISES ARE SUMMARI ZED AS UNDER: S.NO. NATURE OF TRANSACTION METHOD USED BY ASSESSEE PLI AMOUNT IN RS. 1. PURCHASE OF RAW MATERIAL TNMM OP/TC 507112107 2. SALE OF FINISHED GOODS TNMM OP/TC 26733427 3. SERVICES RENDERED BACK OFFICE SERVICES CUP NA 35741466 4. PROVISION OF ENGINEERING DESIGN SERVICES TNMM OP/TC 5. PROVISION OF BACK OFFICE SUPPORT SERVICES TNMM OP/TC 23678628 6. GROUP SUPPORT SERVICES RENDERED TNMM OP/TC 41854117 7. GROUP SUPPORT SERVICES RECEIVED EUROPEAN REGION TNMM OP/TC 8. GROUP SUPPORT RECEIVED ASIA-PACIFIC REGION TNMM OP/TC 9. DESIGN AND DEVELOPMENT SERVICES RECEIVED OM NA 6932837 10. REIMBURSEMENT OF EXPENSES PAID CUP NA 60606 11. REIMBURSEMENT OF EXPENSES RECEIVED CUP NA 1993475 THE SPECIFIED DOMESTIC TRANSACTIONS UNDERTAKEN BY T HE ASSESSEE COMPANY WITH ITS ASSOCIATED ENTERPRISES AR E SUMMARIZED IN THE TABLE BELOW: S.NO. NATURE OF TRANSACTION METHOD USED BY ASSESSEE PLI AMOUNT IN RS. 1. PURCHASE OF RAW MATERIAL TNMM OP/TC 490401349 2. BUSINESS SUPPORT SERVICES RECEIVED TNMM OP/TC 29889261 3. WEB DESIGNING SERVICES RECEIVED TNMM OP/TC 11236 4. PAYMENT OF SERVICE CHARGE TNMM OP/TC 44768 5. REIMBURSEMENT OF EXPENSES PAID CUP NA 165034 I.T.A.NO.6614/DEL/2017/A.Y.2013-14 5 8. SINCE THE AFORE-STATED TRANSACTION EXCEEDED THE MON ETARY LIMIT SPECIFIED IN THE RELEVANT PROVISION OF THE ACT THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER FOR THE DE TERMINATION OF THE ARMS LENGTH PRICE. 9. ACCORDINGLY, THE TPO ISSUED A SHOW CAUSE NOTICE. T HE SUM AND SUBSTANCE OF SHOW CAUSE NOTICE READS AS UNDER: AFTER GOING THROUGH THE SUBMISSIONS OF THE ASSESS EE A SHOW CAUSE NOTICE U/S 92CA(2) WAS ISSUED TO THE ASSESSEE ON 07.10.2016 AS UNDER: - PLEASE REFER TO THE ONGOING TP PROCEEDINGS IN YOUR CASE FOR AY 2013- 14. DURING THE COURSE OF PROCEEDINGS INFORMATION R EQUESTED WAS SUBMITTED BY YOU AT VARIOUS POINTS OF TIME AND ON T HE BASIS OF THE ABOVE, THE FOLLOWING OBSERVATIONS ARE MADE. 2. DETILS OF SPECIFIED DOMESTIC TRANSACTIONS : S.NO. NATURE OF TRANSACTION METHOD USED BY ASSESSEE PLI AMOUNT IN RS. 6. PURCHASE OF RAW MATERIAL TNMM OP/TC 490401349 7. BUSINESS SUPPORT SERVICES RECEIVED TNMM OP/TC 29889261 8. WEB DESIGNING SERVICES RECEIVED TNMM OP/TC 11236 9. PAYMENT OF SERVICE CHARGE TNMM OP/TC 44768 10. REIMBURSEMENT OF EXPENSES PAID CUP NA 165034 10. THE ASSESSEE FILED A DETAILED REPLY TO SUPPORT OF ITS CLAIM THAT THE TRANSACTIONS WITH THE AES ARE AT ARMS LENGTH P RICE AND NO ADJUSTMENT SHOULD BE MADE. 11. AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE A SSESSEE WHICH DID NOT FIND MUCH FAVOUR WITH THE TPO WHO FINALLY P ROPOSE THE FOLLOWING ADJUSTMENTS: I.T.A.NO.6614/DEL/2017/A.Y.2013-14 6 PARTICULARS AMOUNT IN INR ADJUSTMENT ON ACCOUNT OF PURCHASE OF RAW MATERIAL 5,66,22,628 ADJUSTMENT ON ACCOUNT OF BUSINESS SUPPORT SERVICES 62,18,669 TOTAL ADJUSTMENT REQUIRED TO BE MADE 6,28,41,297 12. OBJECTIONS WERE RAISED BEFORE THE DRP BUT WERE OF N O AVAIL AND THE AO FINALLY FRAMED THE ASSESSMENT ORDER WHICH IS UNDER CHALLENGE BEFORE US. 13. BEFORE US REFERRING TO THE ADDITIONAL GROUND RAISED THE COUNSEL FOR THE ASSESSEE VEHEMENTLY STATED THAT SUB-SECTION (1) OF SECTION 92BA HAS BEEN OMITTED FROM THE STATUTE AND BY VIRTUE OF THE AMENDMENT THIS PARTICULAR SUB-CLAUSE SHALL BE D EEMED NOT TO BE ON THE STATUTE SINCE THE BEGINNING AND, THERE FORE, THE ASSESSMENT ORDER DESERVES TO BE QUASHED. THE COUNS EL REFERRED TO VARIOUS JUDICIAL DECISIONS IN SUPPORT OF HIS CON TENTION. PER CONTRA, THE DR STRONGLY SUPPORTED THE FINDINGS OF T HE LOWER AUTHORITIES AND STATED THAT THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT. 14. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT AS PER SUB-CLAUSE (1) OF SECTION 92BA THE ASSESSEE HAS UNDERTAKEN THE TRANSACTION WHICH HAS EXCEEDED THE PRESCRIBED LIMIT. IT IS ALS O NOT IN DISPUTE THAT VIDE FINANCE ACT, 2017 W.E.F. 01.04.20 17 THE SAID SUB-CLAUSE (1) OF SECTION 92BA HAS BEEN OMITTED. W E FIND THAT I.T.A.NO.6614/DEL/2017/A.Y.2013-14 7 THE AO HAS MADE A REFERENCE U/S 92CA HAVING OBSERVE D THAT THE ASSESSEE HAS ENTERED INTO SPECIFIC DOMESTIC TRANSAC TION AS THE CASE IS COVERED U/S 92BA OF THE ACT. 15. WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR ADJUDIC ATION BEFORE THE COORDINATE BENCH, BANGALORE IN IT(TP)A NO. 1722 /2017. THE RELEVANT FINDINGS OF THE COORDINATE BENCH READ AS U NDER: 7. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHOR ITIES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS AND RELEVANT PROVISI ONS AND VARIOUS JUDICIAL PRONOUNCEMENTS, WE FIND THAT BY VIRTUE OF THE INSERTION OF SECTION 92BA ON THE STATUTE AS PER CLAUSE (I), ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE OR IS TO BE MADE TO PERSON REFERRED TO IN CLAUSE (B) OF SUB SECTION 2 O F SECTION 40A EXCEEDS THE PRESCRIBED LIMIT, IT WOULD BE A SPECIFI ED DOMESTIC TRANSACTION FOR WHICH AO IS REQUIRED TO MAKE A REFE RENCE TO TPO UNDER SECTION 92CA OF THE ACT FOR DETERMINATION OF THE ALP. IN THE INSTANT CASE, SINCE THE TRANSACTION EXCEEDS THE PRESCRIBED LIMIT IT BECOMES THE SPECIFIED DOMESTIC TRANSACTION FOR WHICH REFERENCE WAS MADE BY THE AO TO THE TPO UNDER SECTI ON 92CA FOR DETERMINATION OF THE ALP. CONSEQUENTLY, THE TPO SUBMITTED A REPORT WHICH WAS OBJECTED TO BY THE LEARNED COUNS EL FOR THE ASSESSEE AND FILED A OBJECTION BEFORE THE ORP. HAVI NG ADJUDICATED THE OBJECTIONS. THE ORP HAS ISSUED CERT AIN DIRECTIONS AND CONSEQUENTLY THE AO PASSED AN ORDER. SUBSEQUENTLY, BY FINANCE ACT, 2017 W.E.F. 01.04.2017, CLAUSE (I) OF SECTION 92BA WAS OMITTED FROM THE STATUTE. NOW T HE QUESTION ARISES AS TO WHETHER ON ACCOUNT OF OMISSION OF CLAU SE (I) FROM THE STATUTE, THE PROCEEDINGS ALREADY INITIATED OR A CTION TAKEN UNDER CLAUSE (I) BECOMES REDUNDANT OR OTIOSE. IN TH IS REGARD, OUR ATTENTION WAS INVITED TO JUDGMENT OF THE APEX COURT IN THE CASE OF KOLHAPUR CANESUGAR WORKS LTD., (SUPRA) IN WHICH THE IMPACT OF OMISSION OF OLD RULE 10 AND 1 OA WAS EXAMINED. HAVING CAREFULLY EXAMINED THE ISSUE IN THE LIGHT OF PROVISIONS OF SECTION 6 OF THE GENERAL CLAUSES ACT, THEIR LORDSHI P HAS OBSERVED 'THAT IN SUCH A CASE, THE COURT IS TO LOOK TO THE PROVISIONS IN THE RULE WHICH HAS BEEN INTRODUCED AF TER OMISSION OF THE PREVIOUS RULE TO DETERMINE WHETHER A PENDING PROCEEDING WILL CONTINUE OR LAPSE. IF THERE IS A PROVISION THE REIN THAT PENDING PROCEEDINGS SHALL CONTINUE AND BE DISPOSED OF UNDER THE OLD RULE AS IF THE RULE HAS NOT BEEN DELETED OR OMITTED THEN SUCH A I.T.A.NO.6614/DEL/2017/A.Y.2013-14 8 PROCEEDING WILL CONTINUE. IF THE CASE IS COVERED BY SECTION 6 OF THE GENERAL CLAUSES ACT OR THERE IS A PARI-MATERIA PROVISION IN THE STATUTE UNDER WHICH THE RULE HAS BEEN FRAMED IN THAT CASE ALSO THE PENDING PROCEEDING WILL NOT BE AFFECTED BY OMISSION OF THE RULE. IN THE ABSENCE OF ANY SUCH PROVISIONS IN THE STATUTE OR IN THE RULE, THE PENDING PROCEEDING WILL LAPSE UNDE R RULE UNDER WHICH THE NOTICE WAS ISSUED OR PROCEEDING BEING OMI TTED OR DELETED'. 8. IN THE CASE OF GENERAL FINANCE CO., VS. ACIT, TH EIR LORDSHIP OF THE APEX COURT HAS AGAIN EXAMINED THE ISSUE AND HELD THAT THE PRINCIPLE UNDERLYING SECTION 6 AS SAVING THE RIGHT TO INITIATE PROCEEDINGS FOR LIABILITIES INCURRED DURING THE CUR RENCY OF THE ACT WILL NOT APPLY TO OMISSION OF A PROVISION IN AN ACT BUT ONLY TO REPEAL, OMISSION BEING DIFFERENT FROM REPEAL AS HEL D IN DIFFERENT CASES. FOLLOWING THE AFORESAID JUDGMENTS, THE JURIS DICTIONAL HIGH COURT HAS ALSO EXPRESSED THE SAME VIEW IN THE CASE OF CIT VS. GE THERMOMETRICS INDIA PVT. LTD. THE RELEVANT OBSER VATION OF THE JURISDICTIONAL HIGH COURT IS EXTRACTED HEREUNDE R: '8. ADMITTEDLY, IN THE INSTANT CASE, THERE IS NO SAVING CLAUSE OR PROVISION INTRODUCED BY WAY OF AN AMENDMENT WHILE OMITTING SUB-SECTION (9) OF SECTION 1 OB. THEREFORE, ONCE THE AFORESAID SECTION IS OMITTED FROM THE STATUTE BOOK, THE RESUL T IS IT HAD NEVER BEEN PASSED AND BE CONSIDERED AS A LAW THAT NEVER EXISTS AND THEREFORE, WHEN THE ASSESSMENT ORDERS WE RE PASSED IN 2006, THE AO WAS NOT JUSTIFIED IN TAL