Appeal details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 134062 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 9 month(s) 1 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-01-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
D
Next Hearing Date
08-01-2023
Assessment Year
2012-2013
Appeal Filed On
06-04-2017
Judgement Text
आयकर अपीलीय अिधकरण ’डी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI माननीय ,ी वी. द ु गा2 राव, ाियक सद4 एवं माननीय ,ी मनोज कु मार अ9वाल ,लेखा सद4 के सम;। BEFORE HON’BLE SHRI V. DURGA RAO, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.861/Chny/2017 (िनधा2रण वष2 / Assessment Year: 2012-13) M/s. Faurecia Emissions Control Technologies India Pvt. Ltd. Karumuthu Center, 1 st Floor, No.634, Chennai – 600 105. बनाम / V s. ACIT(OSD) Corporate Range-2, Chennai. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAAC A- 8 4 5 0 - F (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri Ajit Kumar Jain (C.A) – Ld. AR थ की ओरसे/Respondent by : Dr. S. Palanikumar (CIT) – Ld. DR सुनवाई की तारीख/Date of Hearing : 09-01-2023 घोषणा की तारीख /Date of Pronouncement : 09-01-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2012-13 arises out of final assessment order dated 20-01-2017 passed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 144C pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru (DRP) u/s 144C(5) dated 19-12-2016. The assessee carried out certain international transactions with its Associated Enterprises (AE) which were subjected to determination of Arm’s Length Price (ALP) before ITA No.861/Chny/2017 - 2 - Ld. Transfer Pricing Officer-1(2), Chennai (TPO) vide order dated 28- 01-2016. Incorporating the proposed adjustment, draft assessment order was passed by Ld. AO on 28-03-2016 which was subjected to further objections before Ld. DRP. Subsequently, final assessment order was passed by Ld. AO pursuant to the directions of Ld. DRP which is in further appeal before us. The assessee has filed revised grounds of appeal on 19.04.2019 which reads as under: - 1. On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer ('TPO') and the learned Assessing Officer ('AO') under the directions of the Hon'ble Dispute Resolution Panel ('DRP') erred in making an adjustment of Rs. 2,79,30,000 under Chapter X of the Income-tax Act, 1961 ('the Act'); 2. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in disregarding the transfer pricing study report maintained by the Appellant as per Section 92D of the Act read with Rule 10D of the Income tax Rules, 1962 and the various submissions made by the Appellant; 3. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in rejecting companies functionally comparable to the engineering design segment of the Appellant; 4. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in selecting companies as comparables for the purpose of determining the arm's length price without considering the fact that their functions undertaken, assets employed and risks borne were not comparable to those of the Appellant; 5. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in incorrectly computing the margin earned by the Appellant from its engineering design segment. 5.1 On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of Hon’ble DRP erred in considering foreign exchange gain as non-operating while computing the margin earned by the appellant from its engineering design segment. 5.2 On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of Hon’ble DRP erred in considering recovery of expenses amounting to INR 1.075 Crores, forming part of financial statement line item “non-operating income” as non-operating in view of the fact that corresponding expenses for these recoveries are part of the cost base of the engineering design segment of the Appellant. 6. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in not considering correct margins of comparable companies based on annual reports; ITA No.861/Chny/2017 - 3 - 7. On the facts and in the circumstances of the case and in law, the learned AO erred in not granting tax credit due on account of merger of 'Yutuka Auto Parts Pune Pvt Ltd' with the Appellant in financial year 2011-12. 8. On the facts and in the circumstances of the case and in law, the learned AO erred in computing interest under Section 234B and 234C of the Act; Additional Ground 9. On the facts and in the circumstances of the case and in law, the learned TPO and the learned AO under the directions of the Hon'ble DRP erred in not allowing adjustments in accordance with the provisions of Rule 10B to account for the differences between the international transactions of the Appellant and the comparables selected. Along with revised grounds of appeal, the assessee has filed additional evidences also in support of ground no. 5 and its sub-grounds. 2. During hearing before us, the Ld. AR restricted arguments with respect to two comparable entities and computation of assessee’s Profit Level Indicator (PLI). The Ld. CIT-DR controverted the arguments of Ld. AR. Having heard the rival submissions and after due consideration of case records, our adjudication would be as under. Proceedings before lower authorities 3.1 The assessee carried out certain international transactions in two segments. One of the segments was Design Engineering Services (EDS). The assessee earned revenue of Rs.983.73 Lacs out of this segment and benchmarked the same using Transactional Net Margin Method (TNMM) adopting PLI as Operating Profit / Operating Cost (OP/OC). The assessee computed its own PLI as 8.81% as against mean PLI of 7.60% as reflected by 6 comparable entities and accordingly, no adjustments were offered by the assessee. 3.2 The Ld. TPO rejected 4 comparable entities and added two more comparable entities and arrived at mean PLI of 4 comparable entities as 15.69%. Two of the comparable entities as introduced by Ld. TPO were (i) M/s Vama Industries Ltd. & (ii) M/s Cades Digitech Ltd. Both ITA No.861/Chny/2017 - 4 - these entities are under dispute before us. At the same time, Ld. TPO disturbed assessee’s PLI to -6.22% which was arrived at after considering forex gains as non-operating item. The forex gains of Rs.40.50 Lacs were removed from income and other income (expenses reimbursement) of Rs.107.50 Lacs was added back to the cost base. The revised workings by Ld. TPO resulted into adjustment of Rs.2.29 Crores. 3.3 The Ld. DRP, vide directions dated 19.12.2016, directed Ld. TPO to consider segmental results of M/s Vama Industries Ltd. The assessee had excluded Cades Digitech Ltd. in its TP study which was included by Ld. TPO. The assessee did not raise any objection before Ld. DRP against inclusion of this entity. However, Ld. DRP held that this entity was onshore company whereas the assessee was offshore company. Therefore, this entity was to be excluded. The Ld. DRP also held that Ld. TPO was correct in considering the foreign exchange fluctuations as operating in nature which in fact, was treated as non- operating in nature by Ld. TPO. The assessee’s objection to consider ‘other income’ as operational income was also rejected. 3.4 Considering the directions of Ld. DRP, Ld. TPO passed another order on 02.01.2017. In this order, the mean PLI of 3 comparable entities have been recomputed as 20.41% whereas the assessee’s PLI has been retained as -6.22% which has enhanced the proposed adjustment to Rs.279.30 Lacs. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. The Ld. AR has sought exclusion of M/s Vama Industries Ltd. by drawing our attention to its Annual report wherein this entity is stated to ITA No.861/Chny/2017 - 5 - be engaged in providing IT and ITeS Services and trading in hardware products and related services, consultancy and projects. The Ld. AR submitted that segmental of this entity is not available and therefore, this entity is to be excluded. Upon due consideration, we find that this entity is engaged in diverse field and could be accepted as comparable entity only if one of the segment was akin to assessee’s segment and segmental results were available. If segmental results are not available, this entity could not be considered as comparable entity. The Ld. AO / TPO is directed to reconsider the exclusion / inclusion of the entity in terms of our directions. 5. So far as selection of M/s Cades Digitech Ltd. is concerned, this entity is found to be functionally comparable by Ld. TPO and the assessee did not object for inclusion of the same. Therefore, this entity is to be retained in the final comparability analysis. We order so. 6. So far as forex gains / losses are concerned, it is the submissions of Ld. AR that forex gains / losses of EDS segments are distinctly identifiable and the same should be treated as operating in nature. We concur with the submissions that forex losses / gains are part of normal business operations and should be considered as operating in nature. Accordingly, the assessee is directed to provide the requisite details of forex losses / gains of EDS segment to Ld. AO / TPO. These gains / losses would be treated as operating in nature. We order so. 7. The Ld. TPO has increased the cost base by ‘other incomes’. The Ld. AR has filed additional evidences to support the fact that these are mere recovery of expenses which have been debited as well as credited by same amount in the Profit & Loss Account and therefore, same treatment should be given to both the items i.e., both should ITA No.861/Chny/2017 - 6 - either be excluded or included while computing assessee’s PLI. The same is quite logical. We admit the additional evidences and direct Ld. AO / TPO to give same treatment to debits as well as credits as urged by Ld. AR. 8. In one of the ground, the assessee seeks TDS credit pertaining to merged entity by the name ‘Yukta Auto Parts Pune Ltd.’. For the same, it would suffice on our part to direct Ld. AO to grant TDS credit in accordance with law. The assessee is directed to substantiate this claim. 9. The appeal stand partly allowed in terms of our above order. Order pronounced on 09 th January, 2023. Sd/- (V. DURGA RAO) ाियक सद4 /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद4 / ACCOUNTANT MEMBER चे+ई / Chennai; िदनांक / Dated : 09-01-2023 EDN/- आदेश की Vितिलिप अ 9ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A) 4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF
AI Insights
The case involves M/s. Faurecia Emissions Control Technologies India Pvt. Ltd., which appealed against the final assessment order passed by the Assessing Officer under the directions of the Dispute Resolution Panel, concerning adjustments made under Chapter X of the Income-tax Act, 1961. The primary issues revolved around the determination of the Arm's Length Price (ALP) for international transactions and the selection of comparable entities for this purpose. The Tribunal examined the arguments regarding the inclusion and exclusion of certain companies as comparables and the treatment of foreign exchange gains and other incomes in the Profit Level Indicator (PLI) calculations.
