Woosu Automotive India Private Limited, Thiruvallur V. ACIT, CHENNAI

ITA 870/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8171 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 05-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MILIND MADHUKAR BUSHARI
• Assessee Lawyers: SANDEEP BAGMAR R
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional depreciation; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ! ' .. # $!% , ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ! ./ ITA NO.870/MDS/2016 * +* /ASSESSMENT YEAR: 2011-12 M/S.WOOSU AUTOMOTIVE INDIA PRIVATE LTD., NO.130, NARASINGAPURAM VILLAGE, PERAMPAKKAM POST, THIRUVALLUR 631 402. VS. THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-3(2), CHENNAI. [PAN: AAACW 7285 L ] ( ,- /APPELLANT) ( ./,- /RESPONDENT) ,- 0 1 / APPELLANT BY : MR.SANDEEP BAGMAR.R, ADV. ./,- 0 1 /RESPONDENT BY : MR.MILIND MADHUKAR BUSHARI, CIT # 0 2' /DATE OF HEARING : 21.12.2016 34+ 0 2' /DATE OF PRONOUNCEMENT : 13.01.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : 1. 0 THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ASSESSMENT ORDER DATED 27/01/2016 MADE U/S 143(3) R.W.S. 144C OF INC OME TAX ACT, 1961 FOR THE AY 2011-12. ITA NO.870/MDS/2016 :- 2 -: 2.0 BACKGROUND : ASSESSEE IS AN INDIAN COMPANY REGISTERED IN THE YE AR 2007 UNDER THE INDIAN COMPANIES ACT. IT IS 100% SUBSIDIARY OF WOOSU AMS CO LTD., SOUTH KOREA. IT IS MANUFACTURING AUTOMOBILE PARTS L IKE ASSEMBLY SHIFT, FORK SHIFT, COMPLETE SHAFT ASSEMBLY, BRAKT ASSEMBLY GEAR DIFFERENTIAL, AND SHAFT INPUT AND CATERS TO THE REQUIREMENTS OF OEM, HYUNDA I MOTOR INDIA LTD. ITS PLANT IS IN SRIPERUMBUDUR, TAMILNADU. 2.1 THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS.9,23,42,893/- ON 30/11/2011. THE CASE WAS SELECT ED FOR SCRUTINY AND DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER(AO) FOUND INTERNATIONAL TRANSACTION OF RS.66,91,34,205/- AND REFERRED THE TRANSACTION TO THE TPO U/S 92CA FOR DETERMINING THE ARMS LENGTH PRICE. THE ASSESSEE ADOPTED THE TNMM AS MOST APPROPRIATE M ETHOD. THE ASSESSEE HAS SELECTED THREE COMPARABLES AND ARRIVED AT THE ADJUSTED OPERATING MARGIN OF @1.47% AND CLAIMED THAT THE TRANSACTION IS AT ARMS LENGTH. THE TPO SELECTED 14 COMPARABLES ON THE BAS IS OF FUNCTIONAL SIMILAR AND ARRIVED AT COMPARABLE MARGIN OF 8.83% A ND SUGGESTED UPWARD ADJUSTMENT OF RS.5,81,33,860/-. THE ASSESSEE WENT TO DRP AND THE DRP HAS CONFIRMED THE ORDER OF THE AO. ACCORDINGLY, TH E AO PASSED ASSESSMENT ORDER MAKING UPWARD ADJUSTMENT OF RS.5,8 1,33,860/- ON ACCOUNT OF INTERNATIONAL TRANSACTION. ITA NO.870/MDS/2016 :- 3 -: 2.2 THE ASSESSEE FILED APPEAL IN THIS CASE MAINLY ON T WO ISSUES REQUESTING FOR RELIEF. THE FIRST IS RELATED TO TP I SSUE AND THE SECOND IS RELATED TO THE DEPRECIATION. APPEARING FOR ASSESSEE THE LD.AR ARGUED THAT THE A SSESSE HAS SELECTED THREE COMPARABLES AFTER MAKING SEARCH PROC ESS. OUT OF THE COMPARABLES SELECTED BY THE ASSESSEE, THE TPO HAS A DOPTED TWO COMPARABLES AND REJECTED ONE OF THE COMPARABLES AND DID NOT GIVE ANY REASON FOR REJECTING THE COMPARABLES SELECTED BY TH E ASSESSE. THE TPO HAS SELECTED 14 COMPARABLES AND DID NOT FURNISH THE SEARCH CRITERIA ADOPTED BY THE TPO. THE LD.AR ARGUED THAT BY NOT G IVING SUFFICIENT OPPORTUNITY TO SUPPORT ITS CASE FOR ARRIVING AT TH E AVERAGE MARGIN, THE TPO HAS ARRIVED AT THE DISTORTED COMPARABLE MARGIN OF 8.53% AGAINST THE AVERAGE MARGIN ARRIVED BY THE ASSESSEE AT 1.47%. T HE LD.AR SUBMITTED THAT ADOPTING AVERAGE MARGIN OF 8.53 AGAINST THE AV ERAGE OF 1.47% LEADS TO DISTORTING PROFIT MARGINS AND AFFECTS THE FINANC IALS ADVERSELY. THEREFORE, THE LD.AR REQUESTED AN OPPORTUNITY TO EXPLAIN ITS CASE AND THE SEARCH EARLIER FOR SELECTING 14 COMPARABLES BY TPO SHOULD BE MADE AVAILABLE WITH SEARCH PROCESS AND FILTERS TO DEFEND ITS CASE. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES . 3.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. ITA NO.870/MDS/2016 :- 4 -: THE FACTS ARE NOT IN DISPUTE THAT BOTH THE PARTIES HAVE ACCEPTED TNMM METHOD AS MOST APPROPRIATE METHOD. THE ASSESS E SELECTED THREE COMPARABLES AND THE TPO HAS REJECTED TWO COMPARABLE S, OUT OF THE THREE COMPARABLES SELECTED BY THE ASSESSE AND REASONS FOR REJECTING THE COMPARABLES WAS NOT GIVEN EITHER IN SHOW CAUSE NOTI CE OR IN THE TPOS ORDER. COMPANY-WISE REASONS FOR REJECTING THE COMPA RABLES SELECTED BY THE ASSESSEE REQUIRED TO BE GIVEN TO THE ASSESSEE T O SUPPORT ITS CASE. THE DRP ALSO HAS NOT ADDRESSED THIS ISSUE AND PROVI DED THE SEARCH FILTERS APPLIED BY THE TPO FOR INCLUSION OF 14 LIVE COMPARA BLES AND THE REASONS FOR ELIMINATING THE TWO COMPARABLES SELECTED BY THE ASSESSEE. THE AVERAGE MARGIN RAISED TO 8.53% AGAINST THE MARGIN W ORKED OUT BY THE ASSESSEE AT 1.47% WHICH SHOWS SUBSTANTIAL INCREASE WHICH RESULTS INT O SIZEABLE INCREASE OF QUANTUM ADDITION. IN THE INSTA NT CASE, IT APPEARS THAT SUFFICIENT OPPORTUNITY WAS NOT GIVEN WITH REGARD TO SEARCH FILTERS APPLIED BY THE TPO FOR INCLUSION OF 14 NEW COMPARABLES AND REJECTING THE TWO COMPARABLES SELECTED BY THE ASSESSEE. THEREFORE, W E ARE OF THE CONSIDERED OPINION THAT IN THE INTEREST OF JUSTICE, THE CASE SHOULD BE REMITTED BACK TO THE AO TO ADDRESS THE DEFICIENCY O F REASONS FOR REJECTION OF COMPARABLES SELECTED BY THE ASSESSEE AND SEARCH CRITERIA APPLIED FOR INCLUSION OF 14 NEW COMPARABLES AND ARRIVE AT FRESH BENCH MARKING. ACCORDINGLY, THE ISSUE IS SET-ASIDE TO THE FILE OF AO/TPO WITH DIRECTION TO GIVE AN OPPORTUNITY OF BEING HEARD TO ASSESSEE AND DECIDE THE ISSUE AFRESH ON MERITS. ALL THE ISSUES OF TP ARE KEPT OPEN BEFO RE THE AO/TPO. THE ITA NO.870/MDS/2016 :- 5 -: ISSUE RELATING TO THE TRANSFER PRICING IN GROUND NO S.1 TO 11 STANDS DISPOSED OFF AND ALLOWED FOR STATISTICAL PURPOSES. 4.0 GROUND NO.10 IS RELATED THE DISALLOWANCE OF ADDITI ONAL DEPRECIATION AMOUNTING TO RS.59,32,534/-. THE AO DISALLOWED THE ADDITIONAL DEPRECIATION SINCE MACHINERY WAS USED AND SECOND HA ND MACHINERY. THE DRP HAS CONFIRMED THE ADDITION MADE BY THE AO. WE HEARD THE BOTH THE PARTIES AND AS PER THE PROVISIONS OF SEC.3 2(I)(A) DEPRECIATION IS NOT ALLOWABLE IF THE MACHINERY IS USED BEFORE ITS I NSTALLATION. FOR READY REFERENCE WE REPRODUCE THE RELEVANT PROVISIO OF INC OME TAX ACT SECTION 32(IIA) HERE UNDER: NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY MA CHINERY OR PLANT WHICH, BEFORE ITS INSTALLATION BY THE ASSESSEE, WAS USED EITHER WITHI N OR OUTSIDE INDIA BY ANY OTHER PERSON. IN THE INSTANT CASE, THE AO STATED THAT THE MACHIN ERY WAS SECOND HAND MACHINERY AND USED BEFORE ITS INSTALLATION. T HE FINDING OF THE AO WAS NOT CONTROVERTED BY THE LD.AR OF THE ASSESSE WI TH TANGIBLE EVIDENCE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF AO AND THE ADDITION MADE BY THE AO IS CONFIRMED. 5.0 GROUND NO.13 IS CONSEQUENTIAL IN NATURE AND NO SEP ARATE ADJUDICATION IS REQUIRED. ITA NO.870/MDS/2016 :- 6 -: 6.0 GROUND NO.14 IS GENERAL IN NATURE WHICH DOES NOT R EQUIRE SEPARATE ADJUDICATION. 7.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . # $!% ) (D.S.SUNDER SINGH) ' /ACCOUNTANT MEMBER /CHENNAI, 5! /DATED: 13 TH JANUARY, 2017. TLN 0 .2$6 76+2 /COPY TO: 1. ,- /APPELLANT 4. # 82 /CIT 2. ./,- /RESPONDENT 5. 6 9 .2 /DR 3. # 82 ( ) /CIT(A) 6. * < /GF