Benteler Automotive I P Ltd, Pune V. Assistant Commissioner of Income-Tax, Circle -8, Pune

ITA 670/PUN/2022

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The case involves Benteler Automotive India Private Limited appealing against the assessment order passed by the Assistant Commissioner of Income Tax, which was based on the directions of the Dispute Resolution Panel (DRP) and the findings of the Transfer Pricing Officer (TPO). The primary contention was regarding the arm's length price of INR 11,52,81,428 for management services provided by Benteler Automotive (China) Investment Ltd. The TPO and DRP concluded that no services were provided, leading to an adjustment of the transaction value to nil. The Tribunal, however, referenced a conflicting assessment in the case of Benteler Automotive (China) Investment Ltd., which acknowledged the provision of such services, thereby overturning the TPO's adjustment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134410 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 14-02-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 07-09-2022
• Other Referred Cases: Benteler Automotive (China) Investment Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Double taxation relief; Principle of natural justice; International transaction; Commercial expediency
• Section: 143(3); 234B

Judgement Text

आयकर अपीलीय अिधकरण “सी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “C” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.670/PUN/2022 िनधाᭅरण वषᭅ / Assessment Year : 2018-19 Benteler Automotive India Private Limited, Block-D, Horizon Industrial Parks, Plot No. A79, Chakan MIDC Industrial Area, Phase-II, Village Savardari, Talkuka Khed, Pune – 410501. PAN: AADCB 5251 E Vs The ACIT, Circle-8, Pune. Appellant / Assessee Respondent / Revenue Assessee by Shri Nitin Narang – AR Revenue by Shri Pankaj Kumar – DR Date of hearing 15/02/2023 Date of pronouncement 29/03/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the assessee against the order of the ld.Assistant commissioner of Income Tax, Circle-8, Pune under section 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 dated 30.06.2022. The assessee has raised following grounds of appeal : General Grounds 1. That on the facts and circumstances of the case and in law, the order of assessment framed by the Assistant Commissioner of Income Tax, Circle 8, Pune (hereinafter ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 2 referred to as "Ld. AO") pursuant to the directions passed by the Hon'ble Dispute Resolution Panel (hereinafter referred to as "Hon'ble DRP") under Section 144C(5) of the Income-tax Act, 1961 ("the Act") is a vitiated order having been passed in violation of principles of natural justice and is otherwise arbitrary and is thus bad in law and void-ab-initio. 2. That the Hon'ble DRP's directions are bad in law and in facts. Grounds on Transfer Pricing ("TP") 3. That the Ld. AO in conformity with the Learned Transfer Pricing Officer ("Ld. TPO") has erred on the facts and in law by adopting a materially defective approach while making the TP adjustment of INR 11,52,81,428 in respect of the international transaction pertaining to payment of management service fees (hereinafter referred to as "impugned transaction"). 4. That the Ld. TPO and Hon'ble DRP erred on the facts and in law, in rejecting the economic analysis in the TP documentation filed by the Appellant in terms of the Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ("the Rules") and proceeded to make the TP addition based on re-determination of the arm's length price ("ALP") of the international transaction. 5. The Hon'ble DRP/ Ld. TPO/ Ld. AO erred by applying commercial expediency and thereby, considering that there was no tangible benefit for paying the management service fee as there was no scope for the AE to provide services that the Appellant was already performing or could perform and accordingly erred in determining the ALP of the transaction as Nil. 6. That on the facts and circumstances of the case and in law, the Ld. TPO/ Hon'ble DRP have erred by evaluating the need of incurring any legitimate business expenditure, which is outside the jurisdiction of the Ld. TPO/ Hon'ble DRP. 7. Without prejudice, the Hon'ble DRP/ Ld. TPO erred in erroneously disregarding the evidence submitted by the Appellant to substantiate the need, actual receipt and benefits derived from the management services obtained from the AE. ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 3 8. The Hon'ble DRP/ Ld. TPO erred by considering that the services provided by the AE were in the nature of "shareholder activity" and therefore, did not warrant any payment to be made. 9. That on the facts and circumstances of the case and in law, the Ld. TPO/ Hon'ble DRP have erred by not accepting the combined TNMM analysis undertaken by the Appellant to establish the ALP of the impugned transaction and instead undertaking a fresh analysis for determining the ALP and basis such analysis, holding that the value of the impugned transaction is not at arm's length, while accepting TNMM on aggregate basis for all other transactions. 10. That on the facts and circumstances of the case and in law, the Ld. TPO/ Hon'ble DRP erred in adopting CUP Method and determined the ALP of the impugned transaction without any analysis of comparable uncontrolled transactions ("CUT"), thereby not following the procedure prescribed under the Act and the Rules or any basis for applying such method. 11. The Hon'ble DRP/ Ld. TPO/ Ld. AO have erred, on facts and in law, in not taking cognizance of the observations made by the Ld. AO in the case of Benteler Automotive (China) Investment Limited ("Benteler China") for the same year under consideration, wherein contrary view has been upheld that these management services have been provided by Benteler China to the Assessee in India. 12. Without prejudice and notwithstanding the fact that payment of management service fee is to be benchmarked using combined TNMM approach, the Appellant undertook an external CUT search to substantiate the ALP of the international transaction which was rejected by the Hon'ble DRP without providing any cogent reasons thereof. Other Grounds on Erroneous Computation 13. The Ld. AO has erred by granting short credit for Minimum Alternate Tax ("MAT") to the tune of INR 75,43,640 while determining the net tax liability of the Appellant, at the time of passing the final assessment order. 14. Based on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing to initiate penalty proceedings under section 270A of the Act, against the ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 4 Appellant. 15 Based on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing to levy interest under Section 234B and Section 234D of the Act. 16. Without prejudice, the Ld. AO has erred in computing the interest under section 234B of the Act to INR 2,24,65,704 instead of INR 1,86,18,475.” Brief facts of the case : 2. The assessee company filed its original return of income for A.Y.2018-19 on 30.11.2018 declaring total income of Rs.17,32,23,430/-. The assessee’s case was selected for scrutiny. The Assessing Officer(AO) made a reference under section 92CA(1) of the Act to the Transfer Pricing Officer(TPO) for the determination of Arm’s Length Price(ALP) of the international transaction entered into by the assessee with it AE. The TPO vide his order dated 30.07.2021 passed under section 92CA(3) of the Act decided the ALP of the intra group services at Rs.Nil, and making an adjustment of Rs.11,52,81,428/-. During the year, assessee claimed that its AE, Benteler Automotive (China) Investment Ltd., has provided services mentioned in the service agreement to the assessee for which assessee had paid Rs.11,52,81,428/-. In the Transfer Pricing Study Report assessee clubbed this intra group services with other international transactions and applied Transactional Net Margin Method (TNMM). In the transfer pricing study report, assessee ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 5 benchmarked the services and arrived at the conclusion that services were at Arm’s Length. The TPO, in the Transfer Pricing Order independently benchmarked the management service fee of Rs.11,52,81,428/- paid to its AE i.e.Benteler Automotive (China) Investment Ltd. The TPO in para 8.9 of the Transfer Pricing Order held that no chargeable intra group services were received by the assessee and hence TPO arrived ALP at Rs.Nil. The TPO held that assessee has not furnished any evidence regarding the services availed. Aggrieved by the order, the assessee filed appeal before the Dispute Resolution Panel(DRP). The DRP vide its order dated 30.05.2022 held as under : “The facts and circumstances discussed above and also the fact that the assessee failed to furnish the details of the costs incurred by the AEs, which should be available with the assessee and constitute the very basis of the fee payable by the assessee as per the agreements, lead to the inescapable conclusion that no services had actually been rendered by the AEs to the assessee, in terms of the Services Agreement. Therefore, no credence can be given to the agreements in question, and the same have to be rejected as self- serving statements. 3.3.12 The other documents furnished by the assessee in this regard are copies of invoices raised by the AEs. However, in view of the peculiar features of the agreement entered into between the assessee and its AE (absence of provision for allowing inspection of records by the assessee) and other facts and circumstances of the case as discussed hereinabove, these documents also cannot be accepted as conclusive evidence of services having been rendered by the AEs. It is important to note that in the present case, the transactions are between related parties, and, in such cases, it is easy for the parties to create self-serving documents, like invoices, etc. Therefore, in our view, in the cases of related party transactions, like agreements and invoices also cannot be accepted as conclusive evidence, unless other relevant facts and material ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 6 supporting the contents thereof are brought on record. In the present case, even if the agreement is accepted as genuine, it has been provided therein that the AE shall keep true and accurate books and records of the costs incurred by them. Therefore, if the services had really been rendered by the AE, the same would be reflected in the audited books of account of the AEs and from the said books of account, the cost incurred by the AEs and attributable to the services rendered to the assessee can be identified. The TPO had specifically required the assessee to furnish the details of the costs incurred by the AE along with the financial statements of the AE. However, the assessee failed to furnish the same. The assessee’s failure to furnish the details of the cost incurred by the AEs and attributable to rendering of services to the assessee would also lead to the conclusion that no services had actually been rendered by the AEs. Under these facts and circumstances, the copies of the invoices furnished by the assessee also cannot be given credence.” 3. Thus, the DRP also held that no services were actually received by the assessee. The DRP upheld the order of the TPO. The AO framed the order under section 143(3) r.w.s 144C(13) of the Income Tax Act, 1961. Aggrieved by the same, the assessee filed appeal before this Tribunal. Submission of ld.Authorised Representative (ld.AR) : 4. The ld.AR took us through the agreement entered between AE and assessee for management fee which is at page 254 to 260 of the paper book. The ld.AR also took us through the sample copies of the invoices which are on page no.261 to 272 of the paper book. The ld.AR also took us through the allocation key and method of allocating the management service charges which were on page no.273 to 275 of the paper book. ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 7 The ld.AR brought to our notice copy of the assessment order dated 14.01.2021 for A.Y. 2018-19 in the case of Benteler Automotive (China) Investment Ltd. The ld.AR invited our attention to para 5.4 of the said assessment order which is reproduced here as under : “5.4 In view of the above discussion, it is clear that assessee has provided various managerial services including services such as management support, finance, human resources, facility management etc to Bentler India. Therefore, the payment received by the assessee is taxable in India as Fees for Technical Services. Accordingly, an amount of Rs. 11,52,81,444/- is taxed @ 10% as per Article-12 of the India-China DTAA. I am satisfied that assessee has misreported income to the extent of Rs. 11,52,81,444/-, and hence findings of the penalty proceedings u/s 270A(9)(a) for misrepresentation of facts is being recorded herewith and the penalty proceedings are being initiated alongwith this final assessment order.” Therefore, the ld.AR pleaded that assessee has established receipt of services. Assessee also established that it was benchmarked using TNMM. Once TPO has accepted assessee’s TNMM result, TPO cannot take out one single transaction and separately benchmarked. Submission of Ld.Departmental Representative (ld.DR) : 5. The ld.DR heavily relied on the order of the DRP and TPO. The ld.DR submitted that assessed failed the benefit test. The ld.DR submitted that assessee had not filed any details regarding the ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 8 services availed and hence TPO was right in deciding the value of the services at Rs.Nil. Findings and Analysis : Ground No. 3 to 12 : 6. The only issue for our consideration is Arm’s Length Price of the services provided by the AE, Benteler Automotive (China) Investment Ltd., to the assessee. The assessee had paid an amount of Rs.11,52,81,428/- to Benteler Automotive (China) Investment Ltd., for management services as per the service agreement, which is at page no.254 to 260 of the paper book. The TPO and DRP held that no chargeable intra group services were received by the assessee from Benteler Automotive (China) Investment Ltd. Therefore, TPO arrived at ALP of Rs.Nil. It is observed that the Assistant Commissioner of Income Tax(IT), Circle-1, Pune vide his order date 14.01.2021 for A.Y. 2018-19 in the case of Benteler Automotive (China) Investment Ltd., has held that Benteler Automotive (China) Investment Ltd., has provided various managerial services, such as management support, finance, human resources, facility management etc., to Benteler Automotive India Private Limited. Thus, ACIT(IT) has categorically held that various services were provided to the assessee i.e.Benteler Automotive India Private Limited., by its AE, Benteler Automotive (China) Investment Ltd. The TPO has arrived ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 9 at the Arm’s Length Price of the management services provided by Benteler Automotive (China) Investment Ltd., at Rs.Nil only on the ground that no chargeable intra group services were provided by Benteler Automotive (China) Investment Ltd. Thus, the entire thrust of TPO was that assessee failed to provide necessary evidence that assessee had received intra group services. However, once the ACIT(IT), Circle-1, Pune has held that Benteler Automotive (China) Investment Ltd., had provided services, the finding of TPO that no services were received becomes erroneous. Therefore, the adjustment made by the TPO on the basis that no services were received becomes erroneous. Hence, TPO is directed to delete the adjustment of Rs.11,52,81,428/-. Accordingly, ground no.3 to 12 raised by the assessee are allowed. Ground No.13, 15 & 16 : 7. The assessee claimed the AO has erred in granting short credit of MAT. The assessee has also submitted that assessee has already filed rectification application dated 09.08.2022 before the AO. However, the AO has not acted on it. In these facts and circumstances, we direct the AO to verify the assessee’s claim of short credit of MAT. The AO shall give opportunity to the assessee before deciding the same. ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 10 8. Ground No.15 and 16 are also related to interest under section 234B and 234D of the Act. The AO is directed to verify the claim of the assessee and decide the same as per law after giving opportunity to the assessee. Therefore, Ground No.13, 15 and 16 are allowed for statistical purpose. Ground No.14 : 9. The ground is related to penalty initiated by the AO. The ground is pre-mature and hence dismissed. 9.1 The ground no.14 of the assessee is dismissed. Ground No.1 : 10. The assessee has claimed that order passed by the DRP is void- ab-initio as no opportunity was provided. However, on perusal of the order of the DRP, it is observed that DRP had provided opportunity to the assessee. The ld.Authorised Representative of the assessee has not made any submission as how DRP has failed to provide opportunity to the assessee. Therefore, the Ground No.1 of the assessee is dismissed. Ground No.2 : 11. This ground is general in nature, however, the issues are discussed at length in earlier paras. Therefore, ground no.2 dismissed as it is general in nature. ITA No.670/PUN/2022 Benteler Automotive India Private Limited [A] 11 11.1 The Ground No.2 of the assessee is dismissed. 12. In the result, appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 29 th March, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 th Mar, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “सी” बᱶच, पुणे / DR, ITAT, “C” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.