Bundy India Limited, Baroda V. The Dy.CIT, Circle-1(1), Baroda

ITA 683/AHD/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9017 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 27-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 25-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Transfer pricing; International transaction
• Section: 43B; 133(6); 37(1); 10B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER, AND SHRI S. S. GODARA, JUDICIAL MEMBER. ITA NO.683/AHD/2015 (ASSESSMENT YEAR:2010-11) BUNDY INDIA LIMITED 2, GIDC INDUSTRIAL ESTATE, MAKARPURA, VADODARA 390010 APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), RACE COURSE CIRCLE, VADODARA, GUJARAT 390007 RESPONDENT PAN: AAACB3039M /BY ASSESSEE : SHRI S. N. SOPARKAR, A.R. /BY REVENUE : SHRI PRASOON KABRA, SR. D.R. /DATE OF HEARING : 06.01.2017 /DATE OF PRONOUNCEMENT : 15.03.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST THE DCIT, CIRCLE-1(1)(1), VADODARAS ASSESSMENT ORDER DATED 22.01.2015, PASSED IN FURTHERANCE TO THE DISPUTE RESOLUTION PANEL, AHM EDABADS DIRECTIONS DATED 09.12.2014, IN PROCEEDINGS U/S.143(3) R.W.S. 144C(1 3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. ITA NO. 683/AHD/2015 ( BUNDY INDIA LTD. VS. DCIT) A.Y. 2010-11 - 2 - 2. THE ASSESSEE PLEADS THE FOLLOWING SUBSTANTIVE GR OUNDS IN THE INSTANT APPEAL. 1 THE LD. AO ERRED IN LAW AND ON FACTS IN MAKING AN UPWARD ADJUSTMENT OF RS.4,41,77,501 U/S 92CA(3) OF THE ACT IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE APPELLANT. 2 THE LD. AO ERRED IN LAW AND ON FACTS IN NOT PAS SING AN ORDER IN CONFORMITY WITH DRP DIRECTIONS AS REQUIRED U/S 144C(13) OF THE ACT, THEREBY COMPLETELY DISREGARDED PROVISION OF THE ACT AND PAS SING AN INVALID ORDER WHICH NEEDS TO BE QUASHED. 3 THE LD. AO ERRED IN LAW AND ON FACTS IN NOT FOL LOWING DIRECTIONS PASSED BY THE DRP U/S 144(5) OF THE ACT TO, INTER-ALIA, (I) D ELETE THE ENTIRE ADJUSTMENT OF PAYMENT OF MANAGEMENT FEES OF RS. 32,218,260; (I I) EXCLUDE EXPORT INCOME IN COMPUTING MARGIN OF RAMBAL LTD; AND (III) RE-COMPUTE CONSEQUENTIAL TRANSFER PRICING ADJUSTMENT. 4 THE LD. AO ERRED IN LAW AND ON FACTS IN DISALLOW ING ENTIRE MANAGEMENT CHARGES AND IN GIVEN FACTS AND CIRCUMSTANCES, THE D ISALLOWANCE OUGHT NOT TO HAVE BEEN MADE. 5 THE LD. AO ERRED IN LAW AND ON FACTS IN INVOKIN G PROVISIONS OF SECTION 92C(3) OF THE ACT WITHOUT TAKING INTO ACCOUNT VARIO US INFORMATION AND DOCUMENTATION MAINTAINED BY THE APPELLANT AS PER RU LE 10D OF THE INCOME TAX RULES, 1962 ('THE RULES') AND REJECTING THE TRA NSFER PRICING DOCUMENTATION WITHOUT PROVIDING COGENT REASONS. 6 THE LD. AO HAS ERRED IN LAW AND ON FACTS IN DISR EGARDING AND ALTERING THE METHODICAL SEARCH PROCESS UNDERTAKEN BY THE APPELLA NT TO BENCHMARK INTERNATIONAL TRANSACTION UNDER THE MANUFACTURING S EGMENT AND REJECTED COMPARABLE COMPANIES SELECTED BY THE APPELLANT WITH OUT TAKING COGNIZANCE OF RULE 10B(2) OF THE RULES. 7 THE LD. AO HAS ERRED IN LAW AND ON FACTS, IN RE JECTING ALL THE 5 (FIVE) COMPARABLE COMPANIES SELECTED BY THE APPELLANT AND SELECTING NEW 2 (TWO) ALLEGED COMPARABLE COMPANIES WITHOUT TAKING COGNIZA NCE OF RULE 10B (2), (3) AND (4) OF THE RULES AND PROVIDING ANY COGENT R EASON. 8. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN USIN G DATA OBTAINED U/S 133(6) OF THE ACT FOR THE ALLEGED COMPARABLE COMPANIES FOR WHICH WERE NOT AVAILABLE IN PUBLIC DOMAIN. 9. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN CONS IDERING FOREIGN EXCHANGE GAIN AS NON-OPERATING IN NATURE WHILE COMPUTING MAR GIN EARNED BY THE APPELLANT FROM THE MANUFACTURING SEGMENT. 10. THE LD. AO HAS ERRED IN LAW AND ON FACTS IN REJ ECTING USE OF MULTIPLE YEAR DATA BY THE APPELLANT AS PRESCRIBED UNDER RULE 10B( 4) OF THE ACT. ITA NO. 683/AHD/2015 ( BUNDY INDIA LTD. VS. DCIT) A.Y. 2010-11 - 3 - 11. WITHOUT PREJUDICE TO OUR CONTENTIONS THAT THE M ARGIN OF THE APPELLANT IS AT ARM'S LENGTH AND NO ADJUSTMENT OUGHT TO HAVE BEEN M ADE, THE LD. AO ERRED IN NOT GRANTING BENEFIT OF 5% RANGE AS PER THE PROV ISIONS OF THE ACT. 12. THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), BARODA ('LEARNED AO') ERRED IN LAW AND ON FACTS BY DISALLO WING APPELLANT'S CLAIM OF SALES TAX PAYMENT UNDER SECTION 43B OF THE INCOM E-TAX ACT, 1961 ('THE ACT') AMOUNTING TO RS 9,16,852. 13 THE LEARNED AO FAILED TO APPRECIATE THAT THE APP ELLANT HAS NOT CLAIMED ANY DEDUCTION UNDER SECTION 43B OF THE ACT IN CONNECTIO N WITH SUCH SALES-TAX PAID IN THE YEAR OF PAYMENT AND THE SAME WAS SHOWN AS ADVANCES IN THE BALANCE-SHEET OF THE APPELLANT. AS THE LIABILITY HA S BEEN CRYSTALISED DURING THE YEAR UNDER CONSIDERATION, THE SAME HAS BEEN CHA RGED OFF TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS DEDUCTION. GROUNDS RELATING TO DISALLOWANCE OF SALES TAX PAYME NT U/S 43B OF RS. 916,852 14 THE LEARNED AO FAILED TO APPRECIATE THE FACT TH AT THE SALES-TAX PAID BY THE APPELLANT WAS UNDER DISPUTE, ACCORDINGLY, THE SAME WAS NOT CLAIMED AS DEDUCTION UNDER SECTION 43B OF THE ACT, ON PAYMENT BASIS IN THE YEARS OF PAYMENT. 15 WITHOUT PREJUDICE TO THE FOREGOING, THE AFORE SAID DEDUCTION CLAIMED BY THE APPELLANT IS ALLOWABLE UNDER SECTION 28 / 37(1) OF THE ACT, IN THE YEAR UNDER CONSIDERATION EVEN THOUGH THE PAYMENT HAS BEEN MADE IN EARLIER YEARS, AS THE DISPUTE IN CONNECTION WITH SUCH DEDUCTION WAS S ETTLED / EXPENSES HAS BEEN CRYSTALIZED IN THE YEAR UNDER CONSIDERATION. T HE LEARNED AO FAILED TO APPRECIATE THE JUDICIAL PRECEDENT OF THE APEX COURT , JURISDICTIONAL HIGH COURT AND VARIOUS OTHER JUDICIAL AUTHORITIES IN THI S CONNECTION. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AND / OR A MEND / WITHDRAW ANY AND / OR ALL THE GROUNDS OF APPEAL ADDUCED ABOVE. 3. SHRI SOPARKAR STATES AT THE OUTSET THAT THE ABOV E EXTRACTED FIRST SUBSTANTIVE GROUND IS GENERAL IN NATURE. HE THEN S UBMITS THAT THE ASSESSING OFFICER HAS NOT FOLLOWED ABOVE DISPUTE RESOLUTION P ANELS DIRECTIONS IN ASSESSEES OBJECTIONS PREFERRED AGAINST THE DRAFT A SSESSMENT ORDER DATED 24.03.2013; IN FRAMING THE IMPUGNED ASSESSMENT. HE INFORMS US THAT THE ASSESSEE HAS ALREADY FILED NECESSARY RECTIFICATION BEFORE THE ASSESSING OFFICER ON 26.02.2015 AS PENDING TILL DATE. HE ACCORDINGLY CLARIFIES THAT THE ASSESSEE FURTHER DOES NOT WISH TO PRESS FOR ITS SUBSTANTIVE GROUNDS 2-3 SINCE A DRPS DIRECTIONS ARE VERY MUCH BINDING ON AN ASSESSING OF FICER U/S.144C(10) OF THE ITA NO. 683/AHD/2015 ( BUNDY INDIA LTD. VS. DCIT) A.Y. 2010-11 - 4 - ACT. HE THEREAFTER CONCEDES ASSESSEES FOURTH SUBS TANTIVE GROUND AS WELL TO BE GENERAL IN NATURE. 4. SHRI SOPARKAR THEN INVITES OUR ATTENTION TO ASSE SSEES FIFTH AND SIXTH SUBSTANTIVE GROUNDS IN SEEKING TO INCLUDE TWO ENTIT IES M/S. IAI INDUSTRIES AND M/S. VICTOR GASKETS LTD. IN THE ARRAY OF COMPARABLE AS EXCLUDED BY THE LOWER AUTHORITIES. 5. THE ASSESSEE COMPANY MANUFACTURES TUBES, AUTOMOT IVE COMPONENTS AND TUBULAR PRODUCTS. IT ADMITTEDLY ENTERED INTO I NTERNATIONAL TRANSACTIONS WITH ITS OVERSEAS ASSOCIATE ENTERPRISES. THE SAID TRANSACTIONS ARE IN THE NATURE OF PAYMENT OF MANAGEMENT FEE AS WELL AS IN MANUFACT URING SEGMENTS. THE ASSESSEE CHOSE FOUR COMPARABLES I.E. M/S. IAI INDUS TRIES, JNS INSTRUMENTS LTD., VENUS INDUSTRIAL CORPORATION LTD. AND VICTOR GASKETS LTD. IN ORDER TO JUSTIFY THE ABOVE TRANSACTIONS TO HAVE BEEN EXECUTE D AT ARMS LENGTH PRICE. THE TRANSFER PRICING OFFICERS ORDER REJECTED ALL O F THEM. HE OPINED QUA THE FIRST ENTITY M/S. IAI INDUSTRY THAT IT MANUFACTURED VARIOUS AUTOMOTIVE PARTS NOT NECESSARILY RELATED TO BRAKING ASSEMBLY SO AS T O BE FUNCTIONALLY SIMILAR TO ASSESSEES BRAKING ASSEMBLY AND SUSPENSION PARTS MA NUFACTURING ACTIVITY. HE THEN EXCLUDED SECOND ENTITY M/S. JNS INSTRUMENTS LT D. TO BE FUNCTIONALLY DIFFERENT SINCE MANUFACTURING INSTRUMENT CLUSTERS A ND FUEL UNITS. THE TRANSFER PRICING OFFICER ADOPTED THE VERY COURSE OF ACTION FOR THE THIRD ENTITY M/S. VENUS INDUSTRIAL CORPORATION FOR NON AVAILABIL ITY OF DATA PERTAINING TO FINANCIAL YEAR 2009-10 IN QUESTION. HE THEREAFTER REJECTED FOURTH ENTITY M/S. VICTOR GASKETS LTD. ON THE GROUND THAT IT MANUFACTU RED GASKETS INSTEAD OF BEING INVOLVED IN MANUFACTURING ASSESSEES NATURE O F PRODUCTS HEREINABOVE. 6. IT IS EVIDENT THAT THE TRANSFER PRICING OFFICER THEREAFTER CHOSE TO INCLUDE TWO COMPARABLES M/S. RAMBAL LTD. AND M/S. S TI SANOH INDIA LTD. TO ARRIVE AT UPWARD ADJUSTMENTS OF RS.1,90,59,241/- IN MANUFACTURING SEGMENT ITA NO. 683/AHD/2015 ( BUNDY INDIA LTD. VS. DCIT) A.Y. 2010-11 - 5 - FORMING SUBJECT MATTER OF ADJUDICATION IN THE INSTA NT SUBSTANTIVE GROUNDS. THE ASSESSING OFFICER FRAMED A DRAFT ASSESSMENT ON 24.03.2014. THE ASSESSEE PREFERRED OBJECTIONS BEFORE THE DISPUTE RE SOLUTION PANEL SEEKING TO INCLUDE ITS FOUR COMPARABLES AND EXCLUDE THE ABOVE TWO ENTITIES. THIS PANEL IN TURN HAS UPHELD THE TRANSFER PRICING OFFICERS A CTION IN QUESTION EXCLUDING THE ABOVE TWO COMPARABLES LEAVING THE ASSESSEE AGGR IEVED. 7. WE HAVE HEARD RIVAL SUBMISSIONS. RELEVANT FIND INGS PERUSED. THERE DOES NOT APPEAR TO BE ANY DISPUTE THAT THE LO WER AUTHORITIES QUOTE ASSESSEES MANUFACTURING ACTIVITY OF BRAKING ASSEMB LY TO EXCLUDE THE TWO COMPARABLES IN QUESTION. WE FURTHER NOTICE THAT TH E ASSESSEE HAD EMPLOYED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) TO BENCH MARK ITS TRANSACTIONS. PAGE 284 OF THE PAPER BOOK INDICATES THE ASSESSEES PROFILE AS FOLLOWS: BIL OPERATES UNDER FLUID CARRYING SYSTEM SEGMENT O F TI AUTOMOTIVE GROUP. UNDER THE FLUID CARRYING SYSTEMS SEGMENT, TI AUTOMO TIVE GROUP DESIGNS AND MANUFACTURES FLUID CARRYING SYSTEMS THAT INCLUDE FU EL LINES, BRAKE LINES, TANK TOP LINES, HEATED SCR LINES, VACUUM BOOSTER LINES, ETC. BIL MANUFACTURES WELD TUBES (SINGLE WALL AND DOUBLE WALL COPPER COATED STEEL TUBES), BRAKE AND FUEL LINES, POWER BENDERS AND OTH ER ACCESSORIES OF MOTOR VEHICLE. THESE ARE THE BASIC PRODUCTS REQUIRED BY ANY AUTOMO BILE MANUFACTURING ENTITY. A DETAILED DESCRIPTION OF PRODUCTS MANUFACTURED BY BI L IS DISCUSSED HEREUNDER: 8. THIS EXTRACTED PORTION MAKES IT CLEAR THAT THE A SSESSEE IS RATHER A MANUFACTURER OF FLUID CARRYING SYSTEM SEGMENT IN AU TOMOTIVE GROUP. IT USED PROWES DATABASE IN AUTO ANCILLARY INDUSTRIES CLASSI FIED AS AUTOMOBILE ANCILLARIES. THIS FOLLOWS NIC CLASSIFICATION IN CODE NO.291. THIS CODE NO. 291 SIGNIFIES GROUP 291 IN SPECIFYING INDUSTRIAL CL ASSIFICATION IN CATEGORY OF MANUFACTURING OF BEARINGS, GEARS, GEARING AND DRIVI NG ELEMENTS TO NAME A FEW. THE ABOVE NIC HEREIN MEANS NATIONAL INDUSTR IAL CLASSIFICATION. SHRI SOPARKAR TAKES US TO PAGE 1177 CONTAINING TRANSFER PRICING OFFICERS ORDER THAT HE HAS IGNORED ALL THIS MATERIAL FOR EXCLUDING THE ABOVE TWO COMPARABLES. ITA NO. 683/AHD/2015 ( BUNDY INDIA LTD. VS. DCIT) A.Y. 2010-11 - 6 - 9. IT IS FURTHER EVIDENT FROM THE CASE FILE THAT TH E ASSESSEE AS WELL AS THE ABOVE TWO ENTITIES DO HAVE THE SAME NIC CODES OF 30 913 INDICATING TO BE HAVING BROADER COMPARABILITY IN AUTOMOTIVE ANCILLAR Y SEGMENT. THESE TWO ENTITIES PROFILES REVEAL THEM TO BE ENGAGED IN MANU FACTURING ACTIVITY OF AUTO ANCILLARY PARTS NOT DISPUTED BY THE LOWER AUTHORITI ES. WE ACCORDINGLY QUOTE ASSESSEES TNMM METHOD HAVING HALLMARK OF BROADER P RODUCT SIMILARITY AS WELL AS VARIOUS DECISIONS I.E. ITA NO.3223/AHD/2011 GEMSTONE GLASS PVT. LTD. VS. JCIT DECIDED ON 30.10.2015 AS WELL AS HON BLE DELHI HIGH COURTS JUDGMENT IN [2015] 56 TAXMANN.COM 417 (DEL) CHRYSCA PITAL INVESTMENT ADVISORS (INDIA) (P.) LTD. VS. DCIT TO OBSERVE THAT THE LOWER AUTHORITIES HAVE ERRED IN EXCLUDING ASSESSEES ABOVE TWO COMPARABLES NAMELY M/S. IAI INDUSTRIES AND VICTOR GASKETS (SUPRA). THIS TRANSF ER PRICING ISSUE IS ACCORDINGLY REMITTED BACK TO THE FILE OF TRANSFER P RICING OFFICER TO PASS AFRESH ORDER AS PER LAW AFTER INCLUDING THESE TWO E NTITIES. SHRI SOPARKAR STATES AT THIS STAGE THAT ASSESSEES ALL PLEADINGS PERTAIN ING TO THIS TRANSFER PRICING ISSUE NEED NOT BE ADJUDICATED ANY MORE. WE APPRECI ATE THIS FAIR STAND AND CONCLUDE THAT ASSESSEES ALL REMAINING SUBSTANTIVE GROUNDS ARE RENDERED INFRUCTUOUS AT THIS STAGE. 10. THIS LEAVES US WITH ASSESSEES LAST SUBSTANTIVE GROUND ASSAILING CORRECTNESS OF SECTION 43B DISALLOWANCE OF SALES TA X PAYMENT OF RS.9,16,852/-. THE ASSESSING OFFICER HOLDS THAT TH IS DEDUCTION ALLOWABLE ON PAYMENT BASIS IS NOT ADMISSIBLE SINCE ALREADY PAID IN ASSESSMENT YEARS 1997- 98 TO 2000-01. THIS TRIBUNAL IN [2005] 92 ITD 119 (DELHI) MARUTI UDYOG LTD. VS. DCIT HOLDS THAT ADVANCE PAYMENT OF TAXES O R DUTIES IS NOT ALLOWABLE U/S.43B OF THE ACT WITHOUT INCURRING OF CORRESPONDI NG LIABILITY. WE NOTICE IN THIS BACKDROP THAT THE ASSESSEE HAS SUFFICIENTLY MA DE ITS CASE TO HAVE PAID IN ADVANCE THE SALES TAX SUM IN QUESTION IN SAID EARLI ER ASSESSMENT YEARS WITHOUT CLAIMING ANY DEDUCTION. IT PLEADED BEFORE THE ASSE SSING OFFICER THAT THE COMMISSIONER (APPEALS) CONCERNED HAD DECLINED ITS C HALLENGE TO THE ITA NO. 683/AHD/2015 ( BUNDY INDIA LTD. VS. DCIT) A.Y. 2010-11 - 7 - IMPUGNED SALES TAX LIABILITY THEREBY CRYSTALLIZING THE SAME IN THE IMPUGNED ASSESSMENT YEAR MAKING IT TO RECORD NECESSARY ENTRY IN P&L ACCOUNT. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DISPUT E THIS FACTUAL POSITION. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO DELE TE THE IMPUGNED DISALLOWANCE. THIS GROUND IS ACCEPTED. 11. THIS ASSESSEES APPEAL IS PARTLY ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 15 TH DAY OF MARCH, 2017.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD: DATED 15/03/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0