Appeal details
Counselvise Citation
[2016] 121 COUNSELVISE.COM (IT) 4420 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-11-2016
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Assessment Year
2011-2012
Appeal Filed On
20-06-2016
Judgement Text
ITA NOS 980 AND 931 OF 2016 EUROFLEX TRANSMISSION INDIA P LTD HYDERABAD PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.980/HYD/2016 (ASSESSMENT YEAR: 2011-12) EUROFLEX TRANSMISSIONS (INDIA) P LTD HYDERABAD PAN: AAACE 5313 K VS ADDL. COMMISSIONER OF INCOME TAX, RANGE-2 HYDERABAD ITA NO.931/HYD/2016 (ASSESSMENT YEAR: 2011-12) DY. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) HYDERABAD VS EUROFLEX TRANSMISSIONS (INDIA) P LTD, HYDERABAD PAN: AAACE 5313 K FOR ASSESSEE : MR. RAGHUNATHAN S FOR REVENUE: SMT. U. MINI CHANDRAN, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE CROSS APPEALS FOR THE A.Y 2011-12 AGAINST THE ORDER OF THE CIT (A)-5, HYDERABAD, DATED 29.03.2016 . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WHICH IS ENGAGED IN MANUFACTURE OF ENGINEERING GOOD S MAINLY TRANSMISSION COUPLINGS, FILED ITS RETURN OF INCOME ON 21.09.2011 DECLARING TOTAL INCOME OF RS.38,30,77,870. DURING T HE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO NOTICED T HAT THE ASSESSEE FILED A REPORT IN FORM NO.3 CEB ONLY ON 27 .03.2013 DATE OF HEARING : 16.11.2016 DATE OF PRONOUNCEMENT : 30.11.2016 ITA NOS 980 AND 931 OF 2016 EUROFLEX TRANSMISSION INDIA P LTD HYDERABAD PAGE 2 OF 5 THOUGH IT WAS TO BE FILED ALONG WITH THE RETURN OF INCOME. HE OBSERVED THAT THE ASSESSEE HAS ENTERED INTO INTERNA TIONAL TRANSACTIONS IN THE FORM OF SALES TO AE AND PAYMENT OF ROYALTY. HE WENT THROUGH THE T.P. STUDY MADE BY THE ASSESSEE AN D OBSERVED THAT THE ASSESSEE HAS FOLLOWED THE CUP METHOD FOR B OTH SALE OF GOODS AS WELL AS ROYALTY. HE OBSERVED THAT THOUGH THE ASSESSEE STATED THAT THE MARGIN OF THE ASSESSEE WAS WITHIN 5 % OF THE MARGIN OF THE COMPARABLE COMPANIES FOR BOTH SALE AS WELL AS PAYMENT OF ROYALTY, THE MARGIN WAS MUCH MORE THAN 5 %. THEREFORE, THE ASSESSEE WAS DIRECTED TO FILE ITS EX PLANATION WITH REGARD TO THESE DISCREPANCIES. ON 19.02.2014, THE A SSESSEE FILED DETAILS OF INTERNAL CUP TRANSACTIONS WITH REFERENCE TO SALES AND IT WAS NOTICED THAT THE DATA IN THE TP STUDY WAS NOT R ELATING TO FINANCIAL YEAR 2010-11 BUT RELATED TO THE SUBSEQUEN T PERIOD. WITH REGARD TO THE ROYALTY PAYMENT ALSO, THE ASSESSEE HA S STATED THAT THE ROYALTY WAS PAID AT 4% ON EXPORT SALE AND 2.5% O N DOMESTIC SALE TO M/S. EUROFLEX INTERNATIONAL (UK). ACCORDING TO THE ASSESSEE, THE ROYALTY PAYMENTS ARE GENUINE AND ARE ALSO SANCTIONED BY THE MINISTRY OF COMMERCE AND THE RBI. THE AO, HOWEVER, OBSERVED THAT THE TP STUDY OF THE ASSESSEE IS NOT RELIABLE. HE THEREFORE, CONDUCTED HIS OWN TP STUDY. 3. THE TPO ARRIVED AT A LIST OF 18 COMPANIES AS FIN AL COMPARABLES AND COMPUTED THE ARMS LENGTH PRICE ADJ USTMENT ACCORDINGLY. AGGRIEVED, THE ASSESSEE PREFERRED AN A PPEAL BEFORE THE CIT (A) STATING THAT THE TP STUDY CONDUCTED BY THE ASSESSEE ITSELF IS NOT CORRECT AND THE MOST APPROPRIATE METH OD OUGHT TO HAVE BEEN TNMM. THE ASSESSEE HAS ALSO BROUGHT OUT T HE DIFFERENCES IN THE PRODUCTS FOR WHICH THE COMPARABL E COMPANIES ALSO PAID ROYALTY AND SUBMITTED THAT THE CUP METHOD CANNOT BE ADOPTED WITH SUCH HUGE DISCREPANCIES. THE CIT (A) A GREED THAT THE ITA NOS 980 AND 931 OF 2016 EUROFLEX TRANSMISSION INDIA P LTD HYDERABAD PAGE 3 OF 5 CUP IS NOT THE MOST APPROPRIATE METHOD BUT, HOWEVER , SINCE THE ASSESSEE ITSELF HAS ADOPTED THE CUP AS THE MOST APP ROPRIATE METHOD IN ITS TP STUDY, HE DECLINED TO CHANGE THE M ETHOD. HOWEVER, HE DIRECTED THE EXCLUSION OF CERTAIN COMPA NIES FROM THE FINAL LIST OF COMPARABLES. AGAINST THIS FINDING OF THE CIT (A) THE REVENUE IS IN APPEAL AND IN CONFIRMING THE METHOD A ND THE CONSEQUENT ALP ADJUSTMENT, THE ASSESSEE IS IN APPEA L BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN O UR ATTENTION TO THE SUBMISSIONS MADE BY THE ASSESSEE B EFORE THE CIT (A) WHEREIN ALL THE DIFFERENCES IN PRODUCTS SUCH AS THE MARKET CONDITIONS, GEOGRAPHICAL FEATURES ETC., HAVE BEEN B ROUGHT TO THE NOTICE OF THE CIT (A) AND THE OBSERVATIONS OF THE C IT (A) WHEREIN HE HAS AGREED THAT THE METHOD ADOPTED BY THE ASSESS EE IS NOT THE MOST APPROPRIATE METHOD. THEREFORE, ACCORDING TO TH E LEARNED COUNSEL FOR THE ASSESSEE THE TNMM METHOD SHOULD BE ADOPTED AS THE MOST APPROPRIATE METHOD AND ALP SHOULD BE RECOM PUTED. THE LEARNED DR, HOWEVER, SUPPORTED THE ASSESSMENT ORDER . 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE AGREE WITH THE LEARNED COUNSEL FOR TH E ASSESSEE THAT FOR ADOPTING THE CUP METHOD, THE HIGHEST DEGREE OF SIMILARITIES HAVE TO BE CONSIDERED AND AS BROUGHT OUT BY THE LEA RNED COUNSEL FOR THE ASSESSEE, THERE ARE VARYING CONDITIONS BETW EEN THE ASSESSEE AND THE COMPARABLES BOTH IN THE PRODUCTS M ANUFACTURED BY THEM AND ALSO THE MARKET CONDITIONS. THEREFORE, WE AGREE WITH THE FINDINGS OF THE CIT (A) THAT THE CUP IS NOT THE MOST APPROPRIATE METHOD. HOWEVER, WE DO NOT AGREE WITH T HE CONCLUSION OF THE CIT (A) THAT SINCE THE ASSESSEE H AS ADOPTED THE CUP METHOD IN ITS TP STUDY, THE SAME HAS TO BE FOLL OWED. THE REQUIREMENT OF LAW IS THAT THE MOST APPROPRIATE MET HOD SUITABLE ITA NOS 980 AND 931 OF 2016 EUROFLEX TRANSMISSION INDIA P LTD HYDERABAD PAGE 4 OF 5 FOR DETERMINING THE ALP IS TO BE ADOPTED. MERELY BE CAUSE THE ASSESSEE HAS ADOPTED THE CUP METHOD, IT WILL NOT BE COME THE MOST APPROPRIATE METHOD. THE AO, AFTER CONDUCTING T HE FAR ANALYSIS HAS TO DETERMINE THE MOST APPROPRIATE METH OD. IT HAS BEEN HELD TIME AND AGAIN THAT THE PROCEEDINGS BEFOR E THE FIRST APPELLATE AUTHORITY ARE CONTINUATION OF THE ASSESSM ENT PROCEEDINGS ITSELF. IN SUCH CIRCUMSTANCES, IT IS TH E BOUNDEN DUTY OF THE CIT (A) TO EXAMINE THE MOST APPROPRIATE METH OD FOR DETERMINATION OF THE ALP PARTICULARLY WHEN THE ASSE SSEE ITSELF IS CHALLENGING THE METHOD ADOPTED BY IT IN ITS TP STUD Y. IN VIEW OF THE SAME, WE ARE SATISFIED THAT THE TNMM IS THE MOS T APPROPRIATE METHOD AND THEREFORE, WE DEEM IT FIT AND PROPER TO SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMAND THE ISSU E OF DETERMINATION OF THE ALP TO THE FILE OF THE AO BY A DOPTING THE TNMM AS THE MOST APPROPRIATE METHOD. THE OTHER GROU NDS ARE NOT PRESSED BY THE ASSESSEE AND THEREFORE, ARE REJE CTED. IN VIEW OF THE SET ASIDE AND THE CHANGE OF THE MOST APPROPRIAT E METHOD, THE REVENUES APPEALS BECOME INFRUCTUOUS. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 30 TH NOVEMBER, 2016. VINODAN/SPS ITA NOS 980 AND 931 OF 2016 EUROFLEX TRANSMISSION INDIA P LTD HYDERABAD PAGE 5 OF 5 COPY TO: 1 M/S. EUROFLEX TRANSMISSION INDIA P LTD PLOT NO.99 CIE PHASE-II GANDHINAGAR, BALANAGAR, HYDERABAD 2 3 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 17(1) 9 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD ADDL. COMMISSIONER OF INCOME TAX, RANGE 2 HYDERABAD 4 CIT (A)-5 HYDERABAD 5 PR.CIT 5 HYDERABAD 6 THE DR, ITAT HYDERABAD 7 GUARD FILE BY ORDER
