M/s Kennametal India Limited , Bangalore V. Deputy Commissioner of Income Tax LTU Circle-1 , Bangalore

ITA 88/BANG/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 1930 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 11-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K SINGH
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Related party transaction; Transfer pricing; International transaction; Set aside
• Section: 143(3); 144C; 143(2); 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B, BANGALORE BEFORE SHRI CHANDRA POOJARI, AM & SHRI GEORGE GEORGE K, JM IT(TP)A NO.88/BANG/2019 : ASST.YEAR 2014-2015 M/S. KENNAMETAL INDIA LIMITED 8/9 TH MILE, TUNKUER ROAD BANGLAORE 560 073. PAN : AACCK4472B. V. THE DY.COMMISSIONER OF INCOME-TAX, LTC CIRCLE 1 BENGALURU. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI.K.R.VASUDEVAN, ADVOCATE RESPONDENT BY : SRI.B.K.SINGH, CIT-DR DATE OF HEARING : 19.02.2021 DATE OF PRONOUNCEMENT : 19.02.2021 O R D E R PER GEORGE GEORGE K, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.11.2018 PASSED U/S 143(3) R.W.S. 144C OF THE I.T.ACT. THE RELEVANT ASSESSMENT YEAR IS 2014-2015. 2. GROUND NOS.1 TO 7 ARE GENERAL IN NATURE AND NO ARGUMENTS WERE RAISED. HENCE, THESE GROUNDS ARE DISMISSED. GROUND NOS.8 TO 11 ARE RELATING TO VARIOUS FACETS OF TRANSFER PRICING ADJUSTMENT OF RS.4,99,37,624. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOW: THE ASSESSEE IS A SUBSIDIARY OF KENNAMETAL INC. USA. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF HARD METAL PRODUCTS, SPECIAL PURPOSE MACHINES AND METAL FORMING TOOLS. FOR THE ASSESSMENT YEAR 2014-2015, THE RETURN OF INCOME WAS FILED ON 27.11.2014 ADMITTING TOTAL INCOME OF RS.15,98,22,400. THE ASSESSMENT WAS TAKEN UP FOR SCRUTINY BY ISSUANCE OF NOTICE U/S 143(2) OF THE I.T.ACT. DURING THE COURSE OF ASSESSMENT IT(TP)A NO.88/BANG/2019. M/S.KENNAMETAL INDIA LIMITED. 2 PROCEEDINGS, THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) SINCE THE ASSESSEE HAD INTERNATIONAL TRANSACTIONS EXCEEDING RS.15 CRORE FOR THE RELEVANT ASSESSMENT YEAR WITH ITS ASSOCIATE ENTERPRISE (AE). THE TPO VIDE HIS ORDER DATED 30.10.2017, DETERMINED THE ADJUSTMENT U/S 92CA OF THE I.T.ACT AT RS.6,13,87,076 TOWARDS THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH ITS AE. THE ABOVE TP ADJUSTMENT WAS INCORPORATED BY THE AO IN THE DRAFT ASSESSMENT ORDER DATED 15.12.2017. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE ITS ORDER DATED 11.09.2018 DIRECTED THE A.O. TO RECALCULATE THE ARMS LENGTH PRICE (ALP). THE TPO VIDE HIS ORDER DATED 26.11.2018, RECALCULATED THE ALP IN ACCORDANCE WITH THE DIRECTIONS OF THE DRPS ORDER AND ARRIVED THE ARMS LENGTH ADJUSTMENT AT RS.4,99,37,624. THE ABOVE TP ADJUSTMENT WAS INCORPORATED IN THE FINAL ASSESSMENT ORDER DATED 27.11.2018. 4. THE ASSESSEE BEING AGGRIEVED, HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. IN GROUND NO.8, THE ASSESSEE IS ASSAILING THE ORDER OF THE TPO AND DRP IN ADOPTING THE THRESHOLD LIMIT OF 25% FOR RELATED PARTY TRANSACTIONS FILTER AS AGAINST THE LIMIT OF 10% ADOPTED BY THE ASSESSEE. IN GROUND NO.9, THE ASSESSEE IS ASSAILING THE DECISION OF THE DRP IN REJECTING THE CLAIM OF CAPACITY UTILIZATION ADJUSTMENT WITHOUT PROPER DISCUSSION. GROUND NO.10 IS GENERAL IN NATURE. IN GROUND NO.11, THE ASSESSEE IS SEEKING EXCLUSION OF THE FOLLOWING COMPARABLES:- (A) AKAR TOOLS LIMITED (B) LAKSHMI PRECISION TOOLS LIMITED IT(TP)A NO.88/BANG/2019. M/S.KENNAMETAL INDIA LIMITED. 3 (C) LOKESH MACHINE LIMITED (D) MICROMATIC MANUFACTURING SYSTEMS PVT. LTD. (E) MITSUBISHI HEAVY INDUSTRIES INDIA PRECISION TOOLS LTD (MITSUBISHI) (F) BIRLA PRECISION TECHNOLOGIES LIMITED (G) FEDERAL-MOGUL ANAND BEARINGS INDIA LIMITED. 5. THE LEARNED AR SUBMITTED THAT IDENTICAL ISSUE OF TRANSFER PRICING ADJUSTMENT WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-2014 IN IT(TP)A NO.2880/BANG/2017 (ORDER DATED 27.04.2020). IT WAS STATED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-2014, THE TRIBUNAL HAD RESTORED THE ENTIRE TRANSFER PRICING ADJUSTMENT TO THE FILES OF THE AO/TPO FOR DE NOVO CONSIDERATION. IT WAS CONTENDED THAT SIMILAR VIEW MAY BE TAKEN FOR THE RELEVANT ASSESSMENT YEAR SINCE THE TRANSFER PRICING ADJUSTMENT UNDERTAKEN BY THE AO/TPO FOR ASSESSMENT YEAR 2013-2014 IS IDENTICAL TO THE INSTANT CASE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT HAVE SERIOUS OBJECTION FOR REMANDING THE ISSUE TO THE AO/TPO SINCE FOR THE EARLIER ASSESSMENT YEAR, I.E., 2013-2014, THE TRIBUNAL HAD RESTORED AN IDENTICAL ISSUE TO THE AO/TPO FOR DETERMINING AFRESH THE ALP OF THE INTERNATIONAL TRANSACTION. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-2014 HAD RESTORED THE ENTIRE TRANSFER PRICING ISSUE TO THE AO/TPO TO ARRIVE AT FRESH ALP OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH ITS AE. THE RELEVANT FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-2014, READS AS FOLLOW:- IT(TP)A NO.88/BANG/2019. M/S.KENNAMETAL INDIA LIMITED. 4 9. WE HEARD THE PARTIES AND PERUSED THE RECORD. WITH REGARD TO THE THRESHOLD LIMIT FOR RPT FILTER, WE NOTICE THAT THE LD DRP HAS OBSERVED AS UNDER:- 5.1 PANEL:- ASSESSEES SUBMISSION AND TPO ORDER HAS BEEN EXAMINED. PANEL FINDS THE ANALYSIS OF APPLICATION OF THIS FILTER BY THE TPO AT PARA 8.2 OF HIS ORDER AS APPROPRIATE. THEREFORE, ADOPTION OF THIS FILTER BY THE TPO HAS BEEN FOUND ACCEPTABLE AND HENCE OBJECTIONS OF THE ASSESSEE ARE REJECTED. WHILE THE OBJECTION OF THE ASSESSEE WAS WITH REGARD TO THE THRESHOLD LIMIT, WE NOTICE THAT THE LD DRP HAS GIVEN ITS DECISION OF ADOPTION OF RPT FILTER, WHICH IS NOT THE OBJECTION OF THE ASSESSEE. 10. WITH REGARD TO THE PLEA OF THE ASSESSEE FOR INCLUSION OF FOUR COMPARABLE COMPANIES, THE LD DRP HAS OBSERVED AS UNDER:- 7.5 ON PERUSAL OF THE ORDER OF THE TPO, IT IS FOUND THAT ABOVE 4 COMPARABLES QUALIFIED ALL FILTERS ADOPTED BY THE TPO AND ARE FUNCTIONALLY COMPARABLE. PANEL FINDS THAT OBJECTIONS AND SUBMISSIONS OF ASSESSEE MADE BEFORE TPO HAVE BEEN CONSIDERED AND COUNTERED BY THE TPO CORRECTLY. THEREFORE ASSESSEES OBJECTION AGAINST ADOPTION OF ACE MULTI AXES SYSTEMS LTD., MICROMATIC MANUFACTURING SYSTEMS P LTD; FEDERAL MOGUL ANAND BEARINGS INDIA LTD; BIRLA PRECISION TECHNOLOGIES LTD ARE NOT ACCEPTED. 11. WITH REGARD TO THE PLEA OF THE ASSESSEE FOR INCLUSION OF TWO COMPARABLE COMPANIES, THE LD DRP HAS OBSERVED AS UNDER:- 7.6 AT PARA 8 OF HIS ORDER THE TPO HAS CONSIDERED SUBMISSIONS OF THE ASSESSEE AND HAS ACCEPTED THE CONTENTION OF THE ASSESSEE IN THE CASE OF BHARAT FRITZ WERNER LTD. HOWEVER ON THE GROUNDS OF FUNCTIONAL DISSIMILARITIES THE TPO HAS REJECTED PORWAL AUTO COMPONENTS LTD AND RANE ENGINE VALVE LTD. ON CAREFUL EXAMINATION OF THE TPOS ORDER AND AFTER CAREFUL CONSIDERATION OF THE ASSESSEES SUBMISSIONS, PANEL FINDS THAT THE TPO HAS REJECTED THESE CASES CORRECTLY AND HENCE ASSESSEES OBJECTION AGAINST REJECTION OF PORWAL AUTO COMPONENTS AND RANE ENGINE VALVE ARE REJECTED. 12. WITH REGARD TO THE CLAIM FOR CAPACITY UTILISATION ADJUSTMENT, THE LD DRP, IN PARAGRAPH 6.1 OF ITS ORDER, HAS EXPRESSED THAT THE ASSESSEE HAS NOT RAISED THIS OBJECTION BEFORE THE TPO AND ACCORDINGLY DECLINED TO ADJUDICATE THIS GROUND. WITH REGARD TO THE SUBSTITUTION OF PLI FROM OP/OR TO OP/OC, THE ASSESSEE HAD RAISED OBJECTION IN GROUND 8.1 URGED BEFORE LD DRP. HOWEVER, THE LD DRP HAS NOT ADJUDICATED THE SAME. IT(TP)A NO.88/BANG/2019. M/S.KENNAMETAL INDIA LIMITED. 5 13. WE NOTICE THAT THE ASSESSEE HAS FURNISHED DETAILS OF THE COMPANIES, CITED ABOVE, IN ITS PAPER BOOK. WE NOTICE THAT THE LD DRP HAS REJECTED THE CLAIM OF THE ASSESSEE BY MAKING GENERAL OBSERVATIONS, I.E., WITHOUT ADDRESSING SPECIFIC GROUNDS URGED IN RESPECT OF EACH OF THE COMPANIES. WE HAVE NOTICED THAT THE ASSESSEE, IN ITS TRANSFER PRICING STUDY, HAS MADE ADJUSTMENT TOWARDS UNDER UTILIZATION OF CAPACITY. HOWEVER, THE SAID ADJUSTMENT WAS NOT GIVEN BY THE TPO. HENCE, WE ARE OF THE VIEW THAT THE LD DRP WAS NOT JUSTIFIED IN DECLINING TO ADJUDICATE THIS CLAIM OF THE ASSESSEE. AS NOTICED EARLIER, THE LD DRP HAS NOT ADJUDICATED THE ISSUE RELATING TO SELECTION OF PLI. 14. IN TOTALITY, WE ARE OF THE VIEW THAT THE LD DRP HAS PASSED A NONSPEAKING ORDER. IN THIS VIEW OF THE MATTER, WE ARE OF THE OPINION THAT ALL THE ISSUES RELATING TO TRANSFER PRICING ADJUSTMENT NEED TO BE RESTORED TO THE FILE OF LD DRP/AO FOR ADJUDICATING ALL THE OBJECTIONS OF THE ASSESSEE BY A SPEAKING ORDER. ACCORDINGLY, WE SET ASIDE THE TRANSFER PRICING ADJUSTMENT MADE IN THE FINAL ASSESSMENT ORDER AND RESTORE ALL THE ISSUES RELATING THERE TO THE FILE OF AO/DRP WITH THE DIRECTION TO THE LD DRP TO PASS A SPEAKING ORDER. 7.1 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, THE ENTIRE ISSUE RAISED IN THIS APPEAL ARE RESTORED TO THE FILES OF THE AO/TPO TO ARRIVE AT FRESH ALP OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH ITS AE. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 19 TH DAY OF FEBRUARY, 2021 . SD/- SD/- ( CHANDRA POOJARI ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE; DATED : 19 TH FEBRUARY, 2021. DEVADAS G* IT(TP)A NO.88/BANG/2019. M/S.KENNAMETAL INDIA LIMITED. 6 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE DRP-2, BANGALORE 4. THE CIT (T)-2S, BANGALORE. 5. THE DR, ITAT, BENGALURU. 6. GUARD FILE. ASST.REGISTRAR/ITAT, BANGALORE