M/s Ingersoll Rand International (India) Private Limited , Bangalore V. The Assistant Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 730/BANG/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6211 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 29-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Set aside
• Section: 143(3)

Judgement Text

IT(TP)A No.730/Bang/2017 M/s. Ingersoll-Rand International (India) Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’ BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A No.730/Bang/2017 Assessment Year : 2012-13 M/s. Inger-Soll Rand International (India) Pvt. Ltd. 8 th Floor, Tower D, IBC Knowledge Park No.4/1, Bannerghatta Main Road Bengaluru 560 029 PAN NO : AABCI3317E Vs. ACIT Circle 3(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Shri K.R. Vasudevan, A.R. Respondent by : Shri Mudavathu Harish Chandra Naik, D.R. Date of Hearing : 23.03.2022 Date of Pronouncement : 23.03.2022 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has filed this appeal challenging the assessment order dated 27.01.2017 passed by the AO u/s 143(3) r.w.s 144C(13) of the Income-tax Act,1961 ['the Act' for short] for assessment year 2012-13 in pursuance of directions given by Ld Dispute Resolution Panel (DRP). 2. The grounds urged by the assessee relates to addition made on account of transfer pricing adjustment. IT(TP)A No.730/Bang/2017 M/s. Ingersoll-Rand International (India) Pvt. Ltd., Bangalore Page 2 of 4 3. The Ld A.R submitted that the assessee is engaged in the business of providing “Sourcing support services” to the group companies to facilitate sourcing of goods from India. He further submitted that, in the earlier years, the assessee was operating four business segments, viz., Software, IT enabled Security technologies, Global Supply and Residential solutions. He submitted that there was a de-merger and consequent thereto the assessee got only two segments viz., “Global Supply sourcing services segment” and “Residential solutions segment”. During the year under consideration, the assessee has operated the above said two segments only. The Ld A.R submitted that the AE transactions are confined to Global supply segment only. The transactions in ‘Residential solutions’ segment is with non-AEs only. 4. The Ld AR submitted that the assessee furnished segmental results before TPO. During the year under consideration, the assessee did not generate any income in ‘Residential solutions’ segment, but was constrained to incur expenses. On examination of segmental results, the TPO took the view that the assessee has shifted expenses to ‘residential solutions’ segment without showing any income. Accordingly, he took the view that the assessee has inflated the profits of ‘Global Supply sourcing services’ segment. The assessee had shown operating expenses under “Global Supply Sourcing Services” at Rs.2,57,82,021/-. The TPO computed operating expenses of the above said segment at Rs.3,85,12,956/- by clubbing expenses incurred in ‘residential solutions’ segment. 5. The TPO also rejected the Transfer pricing study conducted by the assessee. Accordingly, the TPO selected six comparable companies, whose average margin (OP/OC) was 14.72%. Adopting the said margin and the operating cost at Rs.3,85,12,956/-, the TPO IT(TP)A No.730/Bang/2017 M/s. Ingersoll-Rand International (India) Pvt. Ltd., Bangalore Page 3 of 4 proposed adjustment of Rs.2,43,07,700/-. After the order passed by Ld DRP, the TP adjustment was scaled down to Rs.1,33,70,021/-. The AO completed the assessment by making addition of above said amount of Rs.1,33,70,021/- towards transfer pricing adjustment. 6. The Ld A.R submitted that the Global supply Sourcing services segment is having transactions with its AEs. However, the other segment, viz., Residential solutions’ does not having transactions with any of its AE, i.e., it has carried out transactions with non-AE only. He submitted that the TPO has not taken cognizance of this aspect and has accordingly combined financials of both the segments. He further submitted that the expenses incurred in ‘residential solutions’ are in no way connected to the business carried on in Global supply sourcing services segment. He further submitted that the assessee is operating under “cost plus mark-up” model and hence, there is no incentive for the assessee in shifting the expenses to other segments. Accordingly, the Ld A.R submitted that this lacuna would go to the root of the matter and accordingly he prayed that the entire issue relating to transfer pricing adjustment may be restored to the file of AO/TPO for carrying out Transfer pricing exercise afresh. 7. We heard Ld D.R and perused the record. It is the submission of Ld A.R that the expenses incurred in ‘residential solutions’ segment are not connected with the AE segment. It is the contention of Ld A.R that the TPO has missed out this important aspect and accordingly he was not justified in clubbing expenses incurred in both the segments. He has also submitted that the assessee is operating under “cost plus mark-up” model and hence, there is no incentive for the assessee in shifting the expenses to other segments. Accordingly, we are of the view that there may be a flaw in the IT(TP)A No.730/Bang/2017 M/s. Ingersoll-Rand International (India) Pvt. Ltd., Bangalore Page 4 of 4 approach of the TPO. There should not be any dispute that the responsibility to prove that the expenses incurred in ‘residential solutions’ segment are not connected to the AE segment would lie upon the assessee. Since this issue goes to the root of the matter, we find merit in the prayer of Ld A.R. Accordingly, we set aside the order passed by the AO in respect of addition relating to Transfer pricing adjustment and restore all the contentions to the file of AO/TPO for carrying out transfer pricing examination exercise afresh. Since the entire matter is restored, the issues agitated on comparable companies are also left open and the assessee is free so agitate them before the appropriate authorities. 8. In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the open court on 23 rd Mar, 2022. Sd/- (N.V. Vasudevan ) Vice President Sd/- (B.R. Baskaran) Accountant Member Bangalore, Dated 23 rd Mar, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.