Appeal details
Counselvise Citation
[2023] 103 COUNSELVISE.COM (IT) 4381 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 10 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-02-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
23-01-2023
Assessment Year
2012-2013
Appeal Filed On
27-03-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER IT(TP)A No.709/Bang/2017 Assessment year : 2012-13 Tata Power Solar Systems Ltd., No.78, Hosur Road, Electronic City, Bangalore – 560 100. PAN: AAACT 4660J Vs. The Deputy Commissioner of Income Tax, Circle 7(1)(1), Bengaluru. APPELLANT RESPONDENT Appellant by : Shri, Kanchan Koushal, CA Respondent by : Shri K.N. Suresh Babu, Addl.CIT(DR)(ITAT), Bengaluru. Date of hearing : 24.01.2023 Date of Pronouncement : 06.02.2023 O R D E R Per Padmavathy S., Accountant Member This appeal is against the final order of assessment passed by DCIT, Circle 7(1)(1), Bangalore u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [the Act] dated 31.1.2017 for the assessment year 2012-13. 2. The assessee is a joint venture between Tata Power Co. Ltd. and B.P. Alternative Energy Holdings Ltd. It is engaged in the business of manufacture and sale including exports of solar cells photovoltaic IT(TP)A No.709/Bang/2017 Page 2 of 14 module and systems. The assessee caters to its Associated Enterprises (AEs) as well as third parties. During the year under consideration, the assessee had undertaken the following international transactions with its AE. Sl. No. Particulars Amount Rs. 1. Sale of finished goods 12,09,70,294 2. Engineering Design services rendered 16,32,073 3. Reimbursement of expenses 2,48,45,593 4. Payment of interest on ECB loan 1,58,97,571 3. Since the transactions related to sale of finished goods, Engineering Design services rendered and reimbursement of expenses were closely linked to the primary activity of manufacture of goods, assessee aggregated the said transactions for benchmarking purposes in the TP study. The assessee applied cost plus method being the most appropriate method for benchmarking using gross profit by direct and indirect cost as Profit Level Indicator and accordingly concluded the transactions to be at arm’s length. 4. The assessee filed return of income for AY 2012-13 on 28.11.2012 returning total income of NIL. The case was selected for scrutiny and statutory notices were duly served on the assessee. Since the assessee had international transactions, a reference was made to the TPO. The TPO rejected the method adopted by the assessee and accordingly made an adjustment of Rs.3,29,82,771. The AO passed the draft assessment order including the TP adjustment. The AO while IT(TP)A No.709/Bang/2017 Page 3 of 14 passing the draft assessment order made addition towards difference in the revenue between Form 26AS and the profit and loss account of the assessee to the tune of Rs.1,03,61,430. The AO also denied the benefit of credit of TDS to the tune of Rs.31,69,801 to the assessee in the draft order. The assessee filed its objections before the DRP. The DRP issued directions directing the TPO/AO to rework the transfer pricing adjustment with respect to international transactions pertaining to Engineering Design services segment and sale of finished goods to AE. The DRP confirmed the additions made by the AO on the corporate tax front. The AO passed the final assessment order against which the assessee is in appeal before the Tribunal. 5. The assessee raised 8 grounds contending the TP adjustment on merits. The assessee also raised 2 grounds with regard to corporate tax disallowance. The assessee raised one additional ground contending the TP adjustment on the legal ground that the final assessment order is not in accordance with the DRP directions as per the provisions of section 144C(10) r.w.s. 144C(13) and hence liable to be quashed. 6. During the course of hearing, the ld. AR submitted that if the TP adjustment is adjudicated based on the legal contention, then the grounds raised on merits would become academic. Accordingly, the ld. AR prayed for admission of additional grounds. 7. The additional ground reads as follows:- IT(TP)A No.709/Bang/2017 Page 4 of 14 “Ground No.11: On the facts and in the circumstances of the case and in law, the final assessment order dated 31 January 2017 passed by the Learned Assessing Officer (`Ld. AO') is bad in law as it is not passed in conformity with the directions issued by the Hon'ble Dispute Resolution Panel (`Hon'ble DRP'), as per the provisions of section 144C(1o) r.w.s. 144C(13) of the Income-tax Act, 1961 (`Act') and hence liable to be quashed.” 8. On the admission of additional ground, the ld. AR submitted that the TP adjustment has undergone a change after the DRP directions and the revised adjustment should have been incorporated by the AO/TPO. But the adjustment retained in the final assessment order is the same as in the draft assessment order and therefore the final assessment order is passed in violation of provisions of section 144C(10) r.w.s. 144C(13) of the Act. The ld AR also submitted that the additional ground, challenging the validity of final assessment order dated 31.01.2017 was inadvertently not taken while filing the original grounds of appeal and hence it was prayed that the same may be admitted for adjudication. Reliance was placed on Jute Corporation of India Ltd. [187 ITR 688 (SC)] and other judgments. 9. After hearing both the parties, following the Hon’ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional ground is admitted for adjudication 10. With regard to the issue contended through additional ground, it is submitted that the TPO vide the order u/s. 92CA of the Act dated IT(TP)A No.709/Bang/2017 Page 5 of 14 29.01.2016, made transfer pricing adjustment to the tune of Rs. 3,29,82,771. The summary of adjustment is reproduced herein below:- Sr. No. Particular Amount (Rs.) 1. Sale of finished products to AE 78,83,334 2. Provision for Engineering services 2,53,844 3. Reimbursement of expenses 2,48,45,593 Total 3,29,82,771 11. The AO incorporated the above adjustment and passed draft assessment order on 28.3.2016. Aggrieved by the same, the assessee filed objections before the DRP and directions were issued by DRP on 22.12.2016. The ld. DRP while passing its directions with respect to transfer pricing adjustment pertaining to Engineering design services, directed the AO/TPO to exclude certain comparable companies selected by the TPO in the final set. Further, it also directed the TPO to rework the transfer pricing adjustment with respect to the international transaction pertaining to sale of finished products to AEs. 12. The ld. AR submitted that the AO passed the final assessment order which is not in conformity with the DRP directions. The relevant paragraph of the final assessment order is reproduced herein below:- "2.3 Accordingly, a draft assessment order was passed u/s 143(3) rws 144C(1) of the I. T. 1961 on 28.03.2016 in which addition of Rs. 3,29,82,771/- was made in accordance with the provisions of section 92C(4) and section 92CA(4) of the Income-tax Act, on this issue. The assessee aggrieved by the Draft Assessment order dated 28.03.2016, filed objection before Draft Resolution Panel- IT(TP)A No.709/Bang/2017 Page 6 of 14 2, Bengaluru. The DRP vide their order dated 22/12/2016 did not give any relief to the assessee on this issue. 13. The ld. AR submitted that the AO retaining the same TP adjustment without considering the directions of the DRP in final assessment order is in violation of the direction of the DRP and liable to be quashed. The ld AR relied on the following decisions in this regard:- • Flextronics Technologies (India) Pvt. Ltd. vs. ACIT [IT(TP)A No. 832/Bang/2017] • M/s. Trivium eSolutions Pvt. Ltd. vs. DCIT [IT(TP)A No. 444/Bang/2022] • Toyota Tsuho India Pvt. Ltd. vs. JCIT [1T(TP)A No. 175/Bang/2022] • Xchanging Solutions Ltd. vs. DCIT [IT(TP)A No. 2664/Bang/2017] • Global One India (P) Ltd. vs. DCIT [ITA No. 1980/Del/2014] • M/s. Olympus Medical Systems Pvt. Ltd. vs. ACIT [ITA No. 873/Del/2021] 14. The ld. DR relied on the order of the AO. 15. We have heard the rival submissions and perused the material on record. We will first recapitulate the facts. The TPO rejected the cost plus method chosen as the most appropriate method by the assessee and adopted Transaction Net Margin Method [TNMM]. The TPO also rejected the aggregation approach followed by the assessee and benchmarked the transactions separately. 16. In respect of transaction of finished goods, the TPO selected a single comparable which had a margin of 9.49%. Accordingly, the TPO arrived at the TP adjustment as given below:- IT(TP)A No.709/Bang/2017 Page 7 of 14 Particulars Amount (Rs.) Operating Revenue (OR) A 9,32,69,10,390 Operating Cost (OC) B 9,07,36,35,341 Operating Profit (OP) C 25,32,75,049 OP/OC of the Appellant D 2.80 % OP/OC of the comparable E 9.49% ALP profit F = E*B 86,10,87,994 ALP Sale G = F+B 9,93,47,23,335 Difference H = G-A 60,78,12,945 Sales to AE I 12 ,09,70,294 % of AE sales to total sales J = I/A 1.2970% ALP adjustment at transaction level K = J*H 78,83,334 17. With regard to Engineering Design services, the TPO conducted his own search to select the following comparables and arrived at an average margin of 24.22% as under:- OP/OC OP/OR S.No. Company Name 2012-13 2012-13 1. Cades Digitech Pvt. Ltd, [Merged] 2.92%2.84% 2. Holtec Consulting Pvt. Ltd. 59.00%37.11% 3. I-Design Engineering Solutions Ltd. 16.89%14.45% 4. Neilsoft Ltd. 2.57% 2.51% 5. Tractebel Consulting Engineers Pvt. Ltd. 57.67%35.35% 6. Onward technologies Limited 17.04%14.56% 7. Acropetal Technologies Limited(Segment) 9.21%8.43% 8. Mahindra Engineering Services Limited 30.68%23.48% 9. IOT Design and Engineering Limited 8.21%7.58% 10. TCE Consulting Engineers Limited 21.15%17.46% 11. Korus Engineering Solutions Pvt Ltd. 36.46%26.72% 12. Genesys International Corporation Ltd. 29.66%22.88% Average 24.22%17.72% IT(TP)A No.709/Bang/2017 Page 8 of 14 18. Accordingly, the TPO made the following adjustment:- International transaction Software service provision Rs.16,32,073 Equivalent cost base Remuneration is Cost-plus – 7.5% Rs.15,18,207 Arms length margin @ 124.22% of cost Rs.18,85,917 Adjustment Rs.2,53,844 19. The TPO also arrived at the ALP of reimbursement of expenses as NIL on the ground that the assessee failed to submit actual cost paid by AE and therefore made an adjustment of the entire amount of reimbursement of expenses at Rs.2,48,45,593. The consolidated TP adjustment made by the TPO is as given below:- Head Adjustments Sale of finished products to AE Rs. 78,83 , 334 Engineering service provision Rs 2,53,844 Reimbursement of expenses Rs. 2,48,45,593 TOTAL Rs. 3,29,82,771 20. The AO passed the the draft assessment order incorporating the above adjustment of Rs.3,29,82,771. Against the objections raised by the assessee the DRP, with regard to the comparables in Engineering Design services segment, held that :- “5.2 However, the specific objections of the assessee regarding the comparables selected by the TPO were examined. As regards Holtec Consulting Private Limited, the assessee claims that it is functionally different_ From the financials of the company it is seen that in para 12 of the Director's report the function of the company is mentioned as primarily engaged in the business of rendering engineering consulting services. It also mentions that there is no requirement of any segment IT(TP)A No.709/Bang/2017 Page 9 of 14 reporting, hence, the company is found to be functionally comparable to the assessee, and the objection of the assessee is not accepted. Tractabel Consulting Engineers Private Limited is into consulting services in project management and industrial engineering segments. Therefore, tinder TNNM, there is no infirmity in selection of this company as a comparable. M/s. Onward Technologies Limited is found to be in the area of EDS and IT consulting services and hence, comparable to assessee. As regards the objection of the assessee about this company having intangible assets. it is found that the assessee also owns substantial intangible assts. As regards the objection that RPT of this company is 26.7%, the exact computation of the same has not been famished. Even if it is accepted as claimed by the assessee, the same being marginally higher than the RPT filter of 25% applied by the filter, will not significantly defeat the purpose of the filter for which it is used. As regards Mahindra Engineering Services Limited, the assessee has objected that companies functionally different and RPT is 56.00%. On perusal of the financials, it is found that the company fails the RPT filter used by the TPO. Hence, the TPO is directed to exclude this company from the list of comparables. Similarly, IOT Design and Engineering Limited also does not qualify the RPT filter and the TPO is required to exclude this company as comparable. The objection of the assessee that the data for Korus Engineering Solutions Private Limited is not available in the public domain. The TPO is directed to provide the data of this company to the assessee and in case of his inability to provide the same, the company should be excluded from the comparables.” 21. Further the DRP on its own enhanced the adjustment made in the sale of finished goods products by stating that the TPO has considered only the transactions with AE whereas the transactions have to be considered in total. Accordingly the DRP held that the adjustment should be for an amount of Rs.12,09,70,294. 22. However we notice that the AO has, in the final assessment order retained the TP adjustment at the same amount of Rs.3,29,82,771 without considering the above directions of the DRP. The relevant IT(TP)A No.709/Bang/2017 Page 10 of 14 extract from AO’s final assessment order in para 2.3 is extracted in the earlier part of this order. From a perusal of these facts, it is clear that the final assessment order passed by the AO is not in accordance with the directions of the DRP. We notice that the coordinate Bench of the Tribunal in the case of Toyota Tsusho P. India Ltd. v. JCIT, IT)TPA No.175/Bang/2022 dated 9.9.2022 had considered a similar issue and held that – “12. We have considered the rival submissions and perused the material on record. We notice that the DRP in para 5.1.1 to 5.1.4 as ex extracted above has given clear directions to the TPO to re-examine the inclusion of M/s. Archroma India Pvt Ltd and M/s. Tarak Chemicals Limited and has also directed for the exclusion of M/s. Sirea India Private Ltd. This would mean that the TP adjustment should be recomputed and thus should undergo change. This is supported by the fact that the jurisdictional AO in the OGE to the directions of the DRP dated 28.2.2022 has revised the TP adjustment to Rs.31,38,49,565. However, in the final assessment order passed by NFAC on 11.02.2011 which is passed prior to TPO’s order dated 15.2.2022 revising the TP adjustment, the AO has retained the same TP adjustment amount as in the draft assessment order by observing that the DRP has confirmed the addition made by the TPO. From these facts, it becomes clear that the final assessment order passed by the NFAC to the extent of TP adjustment is not in accordance with the directions of the DRP and to this extent, the TP adjustment is quashed. 13. We see merit in the contention that the jurisdictional AO has become functus officio once the final assessment order is passed and that there is no authority for him to pass any order modifying the final assessment order. We therefore hold that the order dated 28.02.2022 passed by the jurisdictional AO giving effect to the revised TP adjustment is not sustainable in law and is infructuous. This ground of the assessee is allowed. 14. Since the issue of TP adjustment is quashed on the basis that the final assessment order is not in accordance with the directions of the IT(TP)A No.709/Bang/2017 Page 11 of 14 DRP, we are not adjudicating the rest of the grounds raised with regard to TP adjustment leaving them open.” 23. We notice that the assessee’s case is similar where the AO had not given effect to the directions of the DRP in the final assessment order and has retained the same adjustment as in the draft assessment order. Respectfully the above decision of the coordinate Bench, we quash the TP adjustment and hold the legal contentions raised in favour of the assessee. Since the TP adjustment is quashed on the basis of legal issue, we are not adjudicating the grounds raised with regard to TP adjustment on merits leaving them open. It is ordered accordingly. 24. On the corporate issue, the assessee raised the following grounds:- “10. On the facts and circumstances of the case and in law, the Learned AO, under the directions issued by Hon'ble Dispute Resolution Panel('DRP'), erred in proposing to make an addition of Rs.1,03,61,430/- on account of non -reconciliation of receipts reflected in Form 26AS with the revenue declared in the Profit and Loss Account of the Assessee. The Learned AO/I'PO erred in determining the arm's length price of reimbursement of expenses as NIL and thereby concluding that no benefits has been derived by the Assessee. It is prayed that the Learned AO to be directed to deleted the addition of Rs.1,03,61,430/-. 11. On the facts and circumstances of the case and in law, the Learned AO, under the directions issued by Hon'ble Dispute Resolution Panel('DRP'), erred in proposing to make an addition of Rs.31,69,801/- on account of disallowance of TDS credit claimed with respect to income offered to tax in different assessment years.” IT(TP)A No.709/Bang/2017 Page 12 of 14 Disallowance of difference in 26AS 25. During the course of hearing, the AO noticed that there is a difference between the amount remitted as per Form 26AS and the revenue declared by the assessee in the Profit & Loss account. The AO proceeded to make an adjustment towards the difference of Rs.1,03,61,430. On further objections raised, the DRP sustained the disallowance by stating that the assessee is not at liberty to offer income assessable in a particular year in any subsequent year as per its convenience. 26. In this regard, the ld. AR submitted that the difference between the revenue as per Form 26AS and the P&L account were reconciled and made the relevant submissions before the DRP (Ground No.10 in Form 35). The ld. AR submitted that these submissions have not been considered on merits by the lower authorities and therefore prayed for remitting this issue back to the AO. The ld. DR did not have any objection. Accordingly, we remit this issue back to the AO to consider the reconciliation submitted by the assessee and decide the issue in accordance with law after giving reasonable opportunity of being heard. This ground is allowed for statistical purposes. Disallowance of TDS credit 27. During the course of hearing, the AO observed that the assessee has claimed TDS for an amount of Rs.31,59,801 and the corresponding income has not been offered to tax. Therefore the AO did not give IT(TP)A No.709/Bang/2017 Page 13 of 14 credit for the TDS to this extent. The DRP on further objections, confirmed the same. 28. In this regard, the ld. AR submitted that the assessee had claimed tax credit on such income in the year in which tax has been deducted by the parties and reflected in Form 26AS. The ld. AR also submitted that there may be timing difference in accounting of the transaction by the assessee and prayed that the tax credit can be given in the year in which the income is offered by the assessee. 29. After hearing both the parties, we are of the considered view that the fact of whether tax is claimed as deduction in the year in which the income is offered needs to be examined based on evidence submitted by the assessee. We therefore remit the issue back to the AO to consider the issue on merits as per above directions, after giving reasonable opportunity of being heard. 30. In the result, the appeal by the assessee is partly allowed. Pronounced in the open court on this 06 th day of February, 2023. Sd/- Sd/- ( GEORGE GEORGE K. ) ( PADMAVATHY S. ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 06 th February, 2023. /Desai S Murthy / IT(TP)A No.709/Bang/2017 Page 14 of 14 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.
