Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 5436 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 3 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-05-2019
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
E
Assessment Year
2012-2013
Appeal Filed On
14-02-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI N.K. PRADHAN , ACCOUNTANT MEMBER ITA NO. 897 / MUM . /2018 ( ASSESSMENT YEAR : 20 1 2 13 ) DY . COMMISSIONER OF INCOME TAX CIRCLE 1(1)(2) , MUMBAI . APPELLANT V/S EXEDY INDIA LTD. (FORMERLY KNOWN AS CEEKAY DAIKIN LTD.) NKM INTERNATIONAL HOUSE, 178, BABUBHAI M. CHINAL MARG, MUMBAI 400 020 PAN AAACC0641G . RESPONDENT C.O. NO.56/MUM./2019 ( ARISING OUT OF ITA NO. 897 /MUM. /2018 ) ( ASSESSMENT YEAR : 2012 13 ) EXEDY INDIA LTD. (FORMERLY KNOWN AS CEEKAY DAIKIN LTD.) NKM INTERNATIONAL HOUSE, 178, BABUBHAI M. CHINAL MARG, MUMBAI 400 020 PAN AAACC0641G . CROSS OBJECTOR (ORIGINAL RESPONDENT) V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1)(2), MUMBAI . RESPONDENT (ORIGINAL APPELLANT) REVENUE BY : SHRI RAJNEESH YADAV ASSESSEE BY : SHRI AJIT KUMAR JAIN A/W SHRI SIDDHESH CHAUGULE DATE OF HEARING 01.05 . 2009 DATE OF ORDER 31.05.2019 2 EXEDY INDIA LTD. O R D E R PER SAKTIJIT DEY. J.M. THE AFORESAID APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARISE OUT OF THE ORDER DATED 7 TH NOVEMBER 2017 PASSED BY THE LEARNED COMMISSIONER (APPEALS) 56 , MUMBAI, PERTAINING TO THE ASSESSMENT YEA R 2012 13 . C.O. NO.56/MUM./2019 (ARISING OUT OF REVENUES APPEAL IN ITA NO.897/MUM./2018 FOR A.Y. 2012 13 ) 2 . AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE , ON INSTRUCTIONS SUBMITTED , IF THE ISSUE RELATING TO CLAIM FOR WORKING CAPITAL ADJUSTMENT AS RAISED IN THE CROSS OBJECTION IS DECIDED IN FAVOUR OF THE ASSESSEE, HE WOULD NOT CONTEST THE GROUNDS RAISED IN REVENUES APPEAL. FURTHER, HE SUBMITTED , IN THAT EVENTUALITY, THE OTHER GROUNDS RAISED IN THE CROSS OBJECTION VIZ. GROUNDS NO.2, 3 AND 4, WOULD NOT BE PRESSED. KEEPING IN VIEW THE AFORESAID SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE, WE PROCEED TO ADJUDICATE GROUND NO.5 OF THE CROSS OBJECTION RELATING TO CLAIM OF WORKING CA PITAL ADJUSTMENT. 3 . BRIEF FACTS ARE, THE ASSESSEE , AN INDIAN COMPANY , IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF CLUTCHES. THE MANUFACTURED PRODUCTS ARE SUPPLIED TO THE LOCAL VEHICLE MANUFACTURER S AND ALSO TO AFTERMARKET CUSTOMERS. IN THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE HAD ENTERED INTO VARIOUS 3 EXEDY INDIA LTD. INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATED E NTERPRISE (AE) . IN THE TRANSFER PRICING STUDY REPORT, THE ASSESSEE HAD BENCH MARKED THE INTERNATIONAL TRANSACTION RELATING TO PURCHASE OF RAW MATERIALS AND COMPONENT, SALE OF FINISHED GOODS, ETC., BY APPLYING TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE MOST APPROPRIATE METHOD WITH PROFIT BEFORE DEPRECIATION AND INCOME TAX (PBDIT) TO SALES AS THE PROFIT LEVEL INDICAT OR (PLI) . THE ASSESSEE SELECTED 10 COMPARABLES WITH PBDIT MARGIN OF 2.30% . S INCE , THE PBDIT MARGIN SHOWN BY T HE ASSESSEE AT 2.83% WAS HIGHER, ASSESSEE CLAIMED THE INTERNATIONAL TRANSACTION TO BE AT ARM'S LENGTH. THE TRANSFER PRICING O FFICER DID NOT ACCEPT THE BENCH MARK OF THE ASSESSEE. AFTER REJECTING THE COMPARABLES SELECTED BY THE ASSESSEE AND CHANGING THE PLI FROM PBDIT ON SALES TO PBIT, THE ASSESSING OFFICER SELECTED SIX COMPANIES AS COMPARABLE S WITH PLI OF 4.31% AS AGAINST THE PL I OF THE ASSESSEE COMPU TED AT ( - ) 1.63%. THIS RESULTED IN AN ADJUSTMENT OF ` 2.33 CRORE. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER ADDED BACK THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER. AGAINST THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT , THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . L EARNED COMMISSIONER (APPEALS) GRANTED PARTIAL RELIEF TO THE ASSESSEE BY EXCLUDING SOME OF THE COMPARABLES SELECTED BY THE 4 EXEDY INDIA LTD. TRANSFER PRICING OFFICER. HOWEVER, HE DID NOT ALLOW ASSESSEES CLAIM OF WORKING CAPITAL ADJUSTMENT. 5 . THE LEARNED AUTHORISED REPRESENTATIVE DRAWING OUR ATTENTION TO THE TRANSFER PRICING STUDY REPORT , A COPY OF WHICH IS AT PAGE 301 OF THE PAPER BOOK , SUBMITTED THAT THE ASSESSEE HAD PROVIDED FOR WORKING CAPITAL ADJUSTMENT , SINCE , AS PER RULE 10B(E)(III) ENTERPRISE LEVEL DIFFERENCES IN NET MARGIN OF COMPARABLE COMPANIES HAS TO BE ADJUSTED TO FACTOR IN DIFFERENCE S THAT HAVE A MATERIAL IMPACT ON NET P ROFI T MARGIN. IN THIS CONTEXT, HE ALSO DREW OUR ATTENTION TO THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT OF COMPARABLES. HE SUBMITTED , AS AGAINST THE CREDIT PERIOD OF 85 DAYS OF THE COMPARABLES, THE ASSESSEE HAS GI VEN CREDIT PERIOD OF 1,118 DAYS. THEREFORE , SUITABLE ADJUSTMENT FOR WORKING CAPITAL HAS TO BE PROVIDED. HE SUBMITTED , THOUGH , DETAILED SUBMISSIONS WERE MADE BEFORE THE TRANSFER PRICING OFFICER , HOWEVER, WHILE REJECTING THE CLAIM OF WORKING CAPITAL ADJUSTMENT, HE HAS NOT ASSIGNED ANY REASON. HE SUBMI TTED , LEARNED COMMISSIONER (APPEALS) SIMPLY RELYING UPON HIS DECISION IN THE ASSESSMENT YEAR 2011 12, HAS DISALLOWED CLAIM OF WORKING CAPITAL ADJUSTMENT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THOUGH , IN THE APPEAL FILED BEFORE THE TRIBUNAL IN TH E ASSESSMENT YEAR 2011 12, THE ASSESSEE HAD RAISED THE ISSUE, HOWEVER, IT BECAME ACADEMIC SINCE THE TRANSFER PRICING ADJUSTMENT GOT DELETED ON OTHER ISSUES. THE LEARNED AUTHORISED 5 EXEDY INDIA LTD. REPRESENTATIVE SUBMITTED , THE ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL INVES TMENT HAS TO BE ALLOWED AS PER TRANSFER PRICING PROVISIONS. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) ATOS INDIA PVT. LTD. V/S DCIT, ITA NO.1467/MUM./2014, DATED 30.06.2016; II ) DCIT V/S IMSOFER MANUFACTURING INDIA PVT. LTD., [2018] 97 TAXMANN.COM 110 (DEL. TRIB.); III ) ITO V/S H & S SOFTWARE DEVELOPMENT & KNOWLEDGE MANAGEMENT CENTRE PVT. LTD., [2018] 90 TAXMANN.COM 333 (DEL.); IV ) ITO V/S NEVIS NETWORK INDIA PVT. LTD., [2015] 55 TAXMANN.COM 519 (PUNE TRIB.); AND V ) DONGFANG ELECTRIC (I) PVT. LTD. V/S DCIT, ITA NO.2356/ KOL./2014, DATED 27.03.2019. 6 . IN THIS REGARD LEARNED AUTHORISED REPRESENTATIVE SPECIFICALLY DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL, KOLKATA BENCH, IN DONG FANG ELECTRIC INDIA PVT. LTD. V/S DCIT (SUPRA) , TO SUBMIT THAT PARAMETERS HAVE BEEN LAID DOWN FOR COMPUTING WORKING CAPITAL ADJUSTMENT. HE SUBMITTED , THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT BY THE ASSESSEE MAY BE VERIFIED BY THE ASSESSING OFFICER AND THE TRANSFER PRICING OFFICER KEEPING IN VIEW THE A FORESAID PARAMETER S LAID DOWN BY THE TRIBUNAL, KOLKATA BENCH. 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 6 EXEDY INDIA LTD. 8 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. UNDISPUTEDLY, IN THE TRANSFER PRICING STUDY REPORT, THE ASSESSEE HAS MADE ADJUSTMENT ON ACCOUN T OF WORKING CAPITAL INVESTMENT. HOWEVER , NEITHER THE TRANSFER PRICING OFFICER NOR LEARNED COMMISSIONER (APPEALS) HAVE ALLOWED ASSESSEES CLAIM. ON A PERUSAL OF THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES, WE ARE OF THE VIEW THAT DISALLOWANCE OF ASSESSEES CLAIM OF WORKING CAPITAL ADJ USTMENT WAS NOT ON VALID REASONING BUT BY WAY OF GENERAL OBSERVATIONS. NOW, IT IS FAIRLY WELL SETTLED THAT ADJ USTMENT ON ACCOUNT OF WORKING CAPITAL INVESTMENT HAS TO BE ALLOWED, AS IT IS A CRUCIAL FACTOR IMPACTING THE PRICING AND PROFITABILITY IN THE OPEN MARKET . RULE 10B(E)(III) ALSO PROVIDES FOR SUCH ADJUSTMENT. THE LEARNED AUTHORISED REPRESENTATIVE HAS DEMONSTR ATED BEFORE US THAT AS AGAINST CREDIT PERIOD RATIO OF 85 DAYS OF COMPARABLES THE CREDIT PE RIOD RATIO OF THE ASSESSEE IS 1 118 DAYS. THEREFORE, IN PRINCIPLE, WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL HAS TO BE MADE WHILE COMPUTING THE MARGIN OF THE COMPARABLES. THE TRIBUNAL, KOLKATA BENCH, IN DONG FANG ELECTRIC INDIA PVT. LTD. (SUPRA), HAS LAID DOWN CERTAIN PARAMETERS FOR WORKING CAPITAL ADJUSTMENT . IT IS THE CONTENTION OF LEARNED AUTHO RISED REPRESENTATIVE , THAT A WORKING OF MARGINS OF THE COMPARABLES AFTER PROVIDING FOR WORKING CAPITAL ADJUSTMENT FOLLOWING THE PARAMETERS LAID DOWN IN CASE OF DONG FANG ELECTRIC INDIA PVT. LTD. (SUPRA) HAS BEEN 7 EXEDY INDIA LTD. PLACED ON RECORD VIDE PAPER BOOK PAGE NO. 81 . IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER/ TRANSFER PRICING OFFICER TO VERIFY THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT MADE BY THE ASSESSEE AND COMPUTE THE MARGIN OF THE COMPARABLES AND DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNAT IONAL TRANSACTION. ACCORDINGLY, THIS GROUND IS ALLOWED. 9 . GROUNDS NO.6 AND 7, BEING GENERAL IN NATURE DO NOT REQUIRE ADJUDICATION. 10 . IN THE RESULT, CROSS OBJECTION IS PARTLY ALLOWED. ITA NO.897/MUM./2018 ) REVENUES APPEAL FOR A.Y. 2012 13 11 . IN GROUNDS NO.1,2 AND 3 REVENUE HAS CHALLENGED THE DECISION OF LEARNED COMMISSIONER (APPEALS) EXCLUDING THREE COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER. 12 . IN VIEW OF THE SUBMISSIONS OF LEARNED AUTHORISED REPRESENTATIVE THAT ON THE INSTRUCTIONS OF THE ASSESSEE HE WOULD NOT BE CONTESTING THE GROUNDS RAISED BY THE REVENUE, WE DO NOT FIND IT NECESSARY TO DELVE MUCH INTO THE ISSUE S RAISED IN THESE GROUNDS. ACCORDINGLY, G ROUNDS NO.1, 2 AND 3 ARE ALLOWED. 13 . IN GROUND NO.4, THE REVENUE HAS CHALLENGED THE DECISION OF THE L EARNED COMMISSIONER (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO 8 EXEDY INDIA LTD. INCLUDE THE UNUTILIZED MODVAT CREDIT TO THE VALUE OF THE CLOSING STOCK AND ALLOW THE CONSEQUENTIAL EFFECT TO THE OPENING STOCK IN TERMS OF SECTION 145A OF THE ACT. 14 . AT THE TIME OF HEARING, LEARNED COUNSEL S APPEARING FOR THE PARTIES HAVE AGREED BEFORE US THAT THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011 12, VIDE ORDER DATED 21 ST FEBRUARY 2018, PASSED IN ITA NO.6885/MUM. /2016. ON A PERUSAL OF THE AFORESAID ORDER, WE FIND THAT THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE , IN THE ORDER REFERRED TO ABOVE, HAS UPHELD THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO INCLUDE THE UNUTILIZED MODVAT CREDIT TO THE VALUE OF CLOSING STOCK AND ALLOW CONSEQUENTIAL EFFECT TO THE OPENING STOCK. THAT BEING THE CASE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE CO ORDINA TE BENCH, WE DISMISS THE GROUND RAISED BY THE REVENUE. 15 . IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. 16 . TO SUM UP, REVENUES APPEAL AND ASSESSEES CROSS OBJECTION ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 31.05.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 31.05.2019 9 EXEDY INDIA LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI
