GNB Technologies India Private Limited, Bangalore V. DCIT, Bangalore

ITA 676/BANG/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7595 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER IT (TP) A NO . 67 6 /BANG/201 6 ASSESSMENT YEAR : 20 11 - 12 M/S. GNB TECHNOLOGIES (INDIA) PVT. LTD., 389, 1 ST CROSS, 12 TH MAIN, HAL 2 ND STAGE, BENGALURU 560 008. PAN : AAACG 5269 Q VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(1)(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : MS. VIDYA, ADVOCATE REVENUE BY : MS. NEERA MALHOTRA, CIT - DR DATE OF HEARING : 20 . 0 6 .201 8 DATE OF PRONOUNCEMENT : 20 . 0 7 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER PASSED CONSEQUENT TO THE DIRECTION OF DRP, ON THE FOLLOWING GROUNDS: A. TRANSFER PRICING THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1. THE LEARNED ASSESSING OFFICER ('LEARNED AO'), LEARNED TRANSFER PRICING OFFICER ('LEARNED TPO') AND THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') GROSSLY ERRED IN ADJUSTING THE TRANSFER PRICE BY INR 6,15,44,956/- OF THE APPELLANT'S INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ('AES') U/S 92CA OF THE INCOME-TAX ACT, 1961. IT(TP)A NO. 676/BANG/2016 PAGE 2 OF 3 2. THE LEARNED AO, THE LEARNED TPO AND THE HON'BLE DRP ERRED IN NOT CONSIDERING THE PREVIOUS TWO YEARS FINANCIAL DATA OF THE COMPARABLE COMPANIES WHILE DETERMINING THE ARM'S LENGTH PRICE ('ALP'). 3. THE LEARNED AO, THE LEARNED TPO AND THE HON'BLE DRP ERRED IN INAPPROPRIATELY CALCULATING THE NET OPERATING MARGI N OF THE APPELLANT AT -13.78 PERCENT OF THE REVENUE. 4. THE LEARNED AO, THE LEARNED TPO AND THE HON'BLE DRP ERRED IN DISREGARDING THE ADJUSTMENT MADE BY THE APPELLANT ON ACCOUNT OF UNDER-UTILIZATION OF CAPACITY WHILE ARRIVING AT THE NET OPERATING MARGIN EARNED BY THE APPELLANT DURING THE RELEVANT FINANCIAL YEAR. WHILE DOING SO, THE LEARNED AO, THE LEARNED TPO AND THE HON'BLE DRP ERRED IN: 4.1. DIS-REGARDING THE FACT THAT THE APPELLANT'S CAPACITY WAS NOT FULLY OR OPTIMALLY UTILIZED WHICH HAD RESULTED IN UNDER RECOVERY OF FIXED COSTS INCURRED BY THE APPELLANT. 4.2. IGNORING THE FACT THAT THE COMPARABLES ARE WELL ESTABLISHED PLAYER IN THE INDUSTRY AND ARE OPERATING AT A HIGHER SCALE VIS--VIS THE APPELLANT, THEREFORE APPROPRIATE ADJUSTMENT OUGHT TO BE MADE ON ACCOUNT OF UNDER UTILIZATION OF CAPACITY, FOR A MEANINGFUL COMPARABILITY ANALYSIS. 4.3. NOT PROVIDING ANY COMMENTS ON THE ADJUSTMENTS MADE BY THE APPELLANT FOR THE ABNORMAL AND NON-RECURRING EXPENSES INCURRED DURING THE RELEVANT FINANCIAL YEAR WHILE ARRIVING AT THE NET OPERATING MARGIN. 5. THE LEARNED AO, THE LEARNED TPO AND THE HON'BLE DRP ERRED IN CONSIDERING THE ALP FOR PAYMENTS MADE BY THE APPELLANT ON ACCOUNT OF ALLOCATION OF COMMON CORPORATE COSTS TO ITS ASSOCIATED ENTERPRISES ('AES') TO BE AT 'NIL'. WHILE DOING SO, THE LEARNED AO, THE LEARNED TPO AND THE HON'BLE DRP ERRED IN: 5.1. IGNORING THE DETAILS PROVIDED BY THE APPELLANT WITH RESPECT TO THE JUSTIFICATION OF 'BENEFIT TEST' FOR THE RECEIPT OF THE MANAGEMENT SERVICES AND THAT THE ALP FOR SUCH SERVICES SHOULD BE 'NIL'. 5.2. REJECTING THE USE OF TRANSACTIONAL NET MARGIN METHOD ('TNMM') AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO PAYMENT MADE TOWARDS THE ALLOCATION OF MANAGEMENT FEE BY THE AES. 5.3. STATING THAT THE APPELLANT PROVIDES SIMILAR SERVICES TO THE AES AND THE APPELLANT IS INCURRING COSTS ON PROVISION OF SUCH SERVICES. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND AND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RAISED AT THE TIME OF HEARING, IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. IT(TP)A NO. 676/BANG/2016 PAGE 3 OF 3 2. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS MOVED AN APPLICATION ALONG WITH AFFIDAVIT STATING THEREIN THAT IT HAS SEIZED ITS OPERATIONS IN INDIA, THEREFORE IT DOES NOT WANT TO PURSUE THEIR APPEAL FURTHER. ACCORDINGLY, THE APPELLANT MAY BE ALLOWED TO WITHDRAW THE PRESENT APPEAL TO WHICH THE REVENUE HAS NO OBJECTION. ACCORDINGLY, WE DISMISS THE APPEAL AS WITHDRAWN. 3. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2018. SD/- SD/- ( JASON P BOAZ ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE. DATED: 20 TH JULY, 2018. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. DR 5. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.