M/s. Motherson Sumi Systems Ltd., New Delhi V. DCIT, New Delhi

ITA 805/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0309 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Assessment Year: 2011-2012
• Appeal Filed On: 15-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 271(1)(c); 133(6)

Judgement Text

1 ITA NO. 805/DEL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 805/DEL/2016 ( A. Y 2011-12) MOTHERSON SUMI SYSTEMS LTD. 2 ND FLOOR, F-7, B-1 MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD NEW DELHI AAACM0405A (APPELLANT) VS DCIT CIRCLE-17(1) C. R. BUILDING, I.P. ESTATE NEW DELHI (RESPONDENT) APPELLANT BY SH. RAVI SHARMA, ADV & MS. SHRUTI KHIMTA, AR RESPONDENT BY SH. SANJAY I. BARA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE AS SESSMENT ORDER DATED 27/01/2016 PASSED BY THE ASSESSING OFFICER U/S 143 (3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961, FOR ASSESSMENT YE AR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW , THE LEARNED ASSESSING OFFICER (LD. AO)/ LEARNED TRANSFER PRIC ING OFFICER (LD. TPO) (IN PURSUANCE TO THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL (LD. DRP)), ERRED IN NOT ACCEPTING THE RETURNED INCOME OF THE APPELLANT AMOUNTING TO RS. 2,91,09,98,332/- AND ENHANCING THE SAME BY R S. 9,03,71,268/-. ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW , THE LD. AO/DRP GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS. 9,03,71,268 /- TO THE INCOME OF THE DATE OF HEARING 22.05.2019 DATE OF PRONOUNCEMENT 01.07.2019 2 ITA NO. 805/DEL/2016 APPELLANT PROPOSED BY THE LD. TPO BY HOLDING THAT I TS INTERNATIONAL TRANSACTION PERTAINING TO RECEIPT OF CORPORATE GUAR ANTEE FEE FROM ITS ASSOCIATED ENTERPRISE (AE) DO NOT SATISFY THE ARMS LENGTH P RINCIPLE ENVISAGED UNDER THE ACT AND IN DOING SO, THE LD. AO/DRP GROSSLY ERRED I N UPHOLDING THE LD. TPOS ACTION OF: 2.1. DISREGARDING THE FACT THAT THE PROVISION OF CORPOR ATE GUARANTEE TO THE AE WAS INTENDED TO FACILITATE AN ACQUISITION BY THE AP PELLANT, AND CONSEQUENTLY THE GUARANTEE WAS IN THE NATURE OF SHAREHOLDER SERV ICES; 2.2. DISREGARDING THE FACT THAT IN THE ABSENCE OF THE CO RPORATE GUARANTEE PROVIDED, THE APPELLANT BEING THE HOLDING COMPANY W OULD HAVE PROVIDED THE FUNDS TO THE SUBSIDIARY BY INCREASING THE SHARE CAP ITAL, AND THUS THE GUARANTEE PROVIDED SHOULD BE TREATED AS QUASI- EQUI TY IN NATURE FOR WHICH ARMS LENGTH COMPENSATION IS NOT REQUIRED; 2.3. DISREGARDING THE DETAILED AND PROPER COMPARABILITY ANALYSIS SUBMITTED BY THE APPELLANT FOLLOWING THE INTEREST SAVED APPROA CH; 2.4. IMPUTING THE CORPORATE GUARANTEE COMMISSION @ 2.695 % PLUS AN AD-HOC MARK-UP OF 200 BASIS POINTS, ON THE BASIS OF DATA A LLEGEDLY OBTAINED FROM VARIOUS BANKS UNDER SECTION 133(6) OF THE ACT WITHO UT APPRECIATING THE FACT THAT THE SAME DID NOT CONSTITUTE A VALID COMPARABLE UNCONTROLLED PRICE (CUP); 2.5. DISREGARDING THE APPELLANTS CONTENTION THAT BANK G UARANTEE CANNOT BE CONSIDERED COMPARABLE TO CORPORATE GUARANTEE AND AD JUSTMENTS ARE REQUIRED TO NULLIFY THE DIFFERENCES BETWEEN THE TWO; 2.6. MAKING AN AD-HOC ADJUSTMENT OF 200 BASIS POINTS TO THE AVERAGE RATE OF THE COMMISSION CHARGED BY THE DOMESTIC BANKS FOR WHICH DATA WAS OBTAINED FROM VARIOUS BANKS U/S 133(6) OF THE ACT, WITHOUT ANY BA SIS; 2.7. COLLECTING INFORMATION ON BANK GUARANTEE RATES FROM VARIOUS BANKS BY EXERCISING POWER GRANTED TO THE LD. TPO UNDER SECTI ON 133(6) OF THE ACT THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DO MAIN AND IN DOING SO; 2.7.1 VIOLATING THE FUNDAMENTAL PRINCIPLES OF NATURAL JU STICE BY RELYING ON THE INFORMATION SOURCED UNDER SECTION 133(6) OF TH E ACT; 2.7.2 NOT SHARING THE INFORMATION/ REPLY RECEIVED BY TH E LD. TPO UNDER SECTION 133(6) OF THE ACT AND NOT GIVING OPPORTUNI TY OF BEING HEARD TO THE APPELLANT BEFORE USING SUCH INFORMATION TO MAKE AN ADJUSTMENT. 3 ITA NO. 805/DEL/2016 3. THAT ON THE FACTS OF THE CASE, THE LD. AO ERRED IN NOT ALLOWING FULL CREDIT OF TAXES PAID (INCLUDING THE EXCESS AMOUNT OF DIVIDEND DISTRIBUTION TAX) BY THE ASSESSEE IN ACCORDANCE WITH PROVISIONS OF THE ACT W HILE RAISING TAX DEMAND OF RS. 3,27,18,850 IN THE DEMAND NOTICE SENT ALONG WIT H IMPUGNED ASSESSMENT. 4. THAT ON THE FACTS OF THE CASE, THE LD. A.O ERRED IN RAISING THE TAX DEMAND OF RS. 3,27,18,850/- IN THE DEMAND NOTICE SENT ALON G WITH IMPUGNED ASSESSMENT ORDER WITHOUT ALLOWING HE SET-OFF/REFUND DUE ON EXCESS AMOUNT OF DIVIDEND DISTRIBUTION TAX AMOUNTING TO RS.26,19,562 /- PAID BY THE ASSESSEE DURING THE YEAR. 5. THE LD. A.O HAS GROSSLY ERRED BY PROPOSING TO CO MPUTE INTEREST U/S 234A, 234B, 234C AND 234D OF THE ACT; 6. THE LD. A.O HAS GROSSLY ERRED IN INITIATING PENA LTY U/S 271(1)(C) OF THE ACT MECHANICALLY AND WITHOUT RECORDING ANY SATISFACTION FOR ITS INITIATION. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. 3. THE ASSESSEE COMPANY WAS INCORPORATED IN 1986 UN DER THE COMPANIES ACT, 1956. IT WAS FORMED AS A JOINT VENTURE BETWEE N MOTHERSON GROUP, INDIA AND SUMITOMO WIRING SYSTEMS LTD, JAPAN. THE ASSESS EE IS ENGAGED IN MANUFACTURING OF AUTOMOTIVE ELECTRICAL DISTRIBUTION SYSTEM. THE ASSESSEE IS PUBLICLY TRADED COMPANY AND THE SHARES ARE LISTED I N MUMBAI, AHMEDABAD, DELHI AND THE NATIONAL STOCK EXCHANGE. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE UNDER TOOK FOLLOWING INTERNATIONAL TRA NSACTIONS WITH ASSOCIATED ENTERPRISES (AES) ON WHICH IT HAS PAID TRANSFER PRI CING ADJUSTMENT. S. NO. HEAD VALUE METHOD USED FOR DETERMINING THE PRICE 1 PURCHASE OF GOODS RS.1,14,19,38,905/ - TNMM 2 SALE OF GOODS RS.81,06,60,137 TNMM 3 PURCHASE OF FIXED ASSETS RS.13,92,39,925/ - TNMM 4 PAYMENT OF ROYALTY RS. 13,65,49,697/ - TNMM 4 ITA NO. 805/DEL/2016 AND TECHNICAL FEE 5 SERVICES RECEIVED RS.7,09,12,683/ - TNMM 6 SERVICES RENDERED RS.24,45,995/ - TNMM 7 REIMBURSEMENT OF EXPENSES PAID RS.1,25,88,434/ - TNMM 8 RECEIPT OF GUARANTEE FEE RS.40,20,973/ - CUP 9 RECEIPT OF INTEREST ON LOAN RS.3,39,224/ - CUP 10 REIMBURSEMENT OF EXPENSES RECEIVED RS.2,08,51,157/ - CUP TOTAL 2,33,95,47,130/ - THE CASE WAS REFERRED TO THE TRANSFER PRICING OFFI CER AND THE TRANSFER PRICING OFFICER VIDE ORDER DATED 15/1/2015 INCREASE D RS. 9,50,06,189/- OF THE TOTAL INCOME OF THE ASSESSEE AND MADE THE ADJUSTMEN T ACCORDINGLY. THE ASSESSING OFFICER VIDE ORDER DATED 27/1/2016 HAS MA DE DISALLOWANCE OF RS.9,03,71,268/- ON ACCOUNT OF TP ADJUSTMENT BY FOL LOWING THE DIRECTIONS GIVEN BY THE DRP VIDE DIRECTIONS DATED 27/11/2015. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE US. 6. THE LD. AR SUBMITTED THAT THE TRANSFER PRICING O FFICER AND THE DRP IN SUBSEQUENT ASSESSMENT YEARS BEING PRINCIPALLY ACCEP TED THE CONCEPT OF INTEREST SAVED APPROACH AS PROPOSED BY THE ASSESSEE . THE LD. AR FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2012-13, THE DRP VIDE ORDER DATED 22 ND SEPTEMBER, 2016 UPHELD THE USE OF INTEREST SAVE APP ROACH. THE TPO WHILE GIVING EFFECT TO THE ORDER OF THE DRP APPLIED THE I NTEREST SAVE APPROACH IN SIMILAR MANNER AS BEING USED BY THE ASSESSEE IN THE LETTER DATED 24/12/2014. SIMILAR APPROACH WAS FOLLOWED BY DRP AND TPO FOR AS SESSMENT YEAR 2013-14. IN ASSESSMENT YEAR 2014-15, THE TPO APPLIED THE SAM E INTEREST SAVE APPROACH WHILE ISSUING THE TP ORDER U/S 92CA(3) OF THE ACT. THUS, THE LD. AR SUBMITTED 5 ITA NO. 805/DEL/2016 THAT THE APPROACH ADOPTED BY THE TPO AND UPHELD BY THE DRP IS DEFECTIVE AND IS CONTRARY TO THE JUDICIAL PRECEDENTS. THE LD. AR REQUESTED TO SET ASIDE THE MATTER TO THE FILE OF THE TPO/A.O WITH A DIRECTION TO USE SIMILAR APPROACH TO DETERMINE THE ARMS LENGTH PRICE AS BEING APPLIED I N THE RECENTLY CONCLUDED ASSESSMENT PROCEEDINGS. 7. THE LD. DR RELIED UPON THE ORDER OF THE TPO/DRP. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT CAN BE SEEN THAT THE APPROACH ADOPTED BY THE TPO AND THE DRP IS NOT INCONSONANCE WITH THE CONCEPT OF INTEREST SAVED APPROACH AS PROPOSED BY THE ASSESSEE AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE IN SUBSEQUENT YEARS. THEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE TPO/A.O. FOR TAKING COGNIZANCE OF ALL THE RELEV ANT MATERIAL AVAILABLE ON RECORD. THUS, GROUND NO. 2 IS PARTLY ALLOWED FOR S TATISTICAL PURPOSES. 9. AS REGARDS GROUND NOS. 3 & 4, THE LD. AR SUBMITT ED THAT THE ASSESSING OFFICER ERRED IN NOT ALLOWING FULL CREDIT OF TAXES PAID INCLUDING THE EXCESS AMOUNT OF DIVIDEND DISTRIBUTION TAX AS PER THE PRO VISIONS OF THE ACT WHILE RAISING THE TAX DEMAND OF RS. 3,27,18,815/- IN THE DEMAND NOTICE SENT WITH IMPUGNED ASSESSMENT ORDER. THE LD. AR RELIED UPON T HE ORDER OF THE TRIBUNAL IN CASE OF ITC LTD. VS. CIT (ITA NO. 301/KOL/2015, 684/KOL/2015 AND 1027/KOL/2013 ORDER DATED 03.02.2015) 10. THE LD. DR RELIED UPON THE ORDER OF THE TPO/A.O . 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE QUANTIFICATION IT APPEARS THAT TH E SET OFF REFUND DUE ON EXCESS AMOUNT OF DIVIDEND DISTRIBUTION TAX AMOUNTIN G TO RS. 26,19,562/- MENTIONED BY THE ASSESSEE DURING THE YEAR WAS NOT A T ALL CONSIDERED BY THE DRP AS WELL AS TPO. THEREFORE, IT WILL BE APPROP RIATE TO REMAND BACK THIS 6 ITA NO. 805/DEL/2016 ISSUE TO THE FILE OF THE TPO/A.O. THUS, GROUND NO. 3 & 4 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 12. GROUND NO. 5 & 6 ARE CONSEQUENTIAL, HENCE, DISM ISSED. 13. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 01 ST JULY, 2019 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01/07/2019 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 805/DEL/2016 DATE OF DICTATION 06.05.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 07.05.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 0 1 . 0 7 . 2 0 1 9 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 0 1 . 0 7 . 2 0 1 9 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 0 1 . 0 7 . 2 0 1 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER