ACIT, New Delhi V. M/s. Stanley Electric Engineering India Pvt. Ltd., Gurgaon

ITA 944/DEL/2012

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5788 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 20-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SHARMA
• Assessee Lawyers: R R MAURYA; BHUVAN MAHAJAN
• Keywords: Related party transaction; Transfer pricing; International transaction; Working capital adjustments

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 , NEW DELHI BEFORE SH. AMIT SHUKLA , JUDICIAL MEMBER DR. B. R. R. KUMAR , ACCOUNTANT MEMBER ITA NO. 944/DEL/2012 : ASSTT. YEAR : 2007 - 08 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 9(1) , NEW DELHI VS M/S STANLEY ELECTRIC ENGINEERING INDIA PVT. LTD., PLOT NO. 164, SECTOR - 5, IMT, MANESAR, GURGAON - 122050 (APPELLANT) (RESPONDENT) PAN NO. A A FCS5100F CO NO. 115/DEL/2014 : ASSTT. YEAR : 2007 - 08 M/S STANLEY ELECTRIC ENGINEERING INDIA PVT. LTD., PLOT NO. 164, SECTOR - 5, IMT, MANESAR, GURGAON - 122050 VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 9(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAFCS5100F ASSESSEE BY : SH. R. R. MAURYA, ADV. & SH. BHUVAN MAHAJAN, ADV. REVENUE BY : MS. NIDHI SHARMA, SR. DR DATE OF HEAR ING: 29 . 08 .201 9 DATE OF PRONOUNCEMENT: 01 .10 .201 9 ORDER PER DR. B. R. R. KUMAR , A CCOUNTANT M EMBER : THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) - XX , NEW DELHI DATED 21.12.2011 . 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE : 1. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN ALLOWING WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE WHILE COMPUTING ITS ARM S LENGTH PRICE ITA NO .944 /DEL /2012 CO NO. 115/DEL/2014 STANLEY ELECTRIC ENGG. INDIA PVT. LTD. 2 MARGIN EVEN THOUGH THE SAME IS NOT WARRANTED O N THE FACTS OF THE CASE AND DESPITE THE ASSESSEE NOT EVEN ASKING FOR THE SAME BEFORE THE TPO. 2. THE LD. CIT (A) ERRED IN LAW AND ON FACTS OF THE CASE IN REJECTING ONE OF THE FOUR COMPARABLES NAMELY SUMI MOTHERSON INNOVATIVE ENGG. LTD. ON THE GROUND THAT IT HAS VERY HIGH RELATED PARTY TRANSACTION WHICH RESULTED IN RELIEF OF RS.32,73,326/ - TO THE ASSESSEE. 3. GROUND NO. 1 DEALS WITH THE ISSUE OF WORKING CAPITAL ADJUSTMENT WHILE COMPUTING ALP. THE LD. DR ARGUED THAT WORKING CAPITAL ADJUSTMENT NEED NOT BE GIVEN AS THE INTEREST RATE TERMS AND CONDITIONS OF THE RECEIPTS AND THE PAYMENTS, AND THE INVENTORY MANAGEMEN T IS COMMON TO ALL THE COMPARABLES AND HENCE NO WC ADJUSTMENT BE GIVEN. THE LD. AR RELIED ON THE ORDER OF THE LD. CIT (A). WE FIND THAT WORKING CAPITAL ADJUSTMENTS IS THE NORM OF THE DAY AS INTEREST COST AND THE MARGIN COST OSCILLATE DEPENDING ON THE RATES . THEREFORE, A REASONABLY ACCURATE ADJUSTMENT CAN BE MADE TO ELIMINATE TO MATERIAL DEFECTS. THE ADJUSTMENTS ARE TO BE ADDED TO THE UNADJUSTED OPERATING MARGIN OF THE COMPARABLE COMPANIES TO IDENTIFY THE MARGIN THE COMPARED WOULD HAVE EARNED HAD IT BEEN OPE RATING WITH SIMILAR WORKING CAPITAL POSITION AS THE TESTED PARTY. SINCE, THE DECISION OF THE LD. CIT (A) IS BASED ON THE JUDGMENTS OF THE CO - ORDINATE BENCH OF ITAT BANGALORE IN THE CASE OF PHILIPS SOFTWARE, VEDARIS TECHNOLOGY PVT. LTD. 131 TTJ 309, WE HERE BY DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). 4. REGARDING THE GROUND NO. 2 TAKEN UP BY THE REVENUE, THE LD. DR ARGUED THAT AS PER THE FAR ANALYSIS SUMI MOTHERSON INNOVATIVE ENGINEERING PVT. LTD. OUGHT TO HAVE BEEN INCLUDED IN ITA NO .944 /DEL /2012 CO NO. 115/DEL/2014 STANLEY ELECTRIC ENGG. INDIA PVT. LTD. 3 THE TP STUDY. THE LD. AR ARGUED THAT THE ACTION OF THE LD. CIT (A) IS CORRECT AS THIS COMPANY HAS GOT RPT TO THE EXTENT OF 76% OF ITS SALES. 5. WE FIND THAT T HE TPO HAS NOT ENDEAVORED TO A FRESH SEARCH FOR COMPARABLES BUT HAS SELECTE D BY REVISITING THE ACCEPT REJE CT M ATRIX OF THE COMPARABLES PRESENTED BY THE ASSESSEE ITSELF. WE FIND THAT I N THE CASE OF SUMI MOTHERSON I NNOVATIVE ENGINEERING PVT. LTD., ON THE ISSUE OF RELATED PARTY TRANSACTION , THE COMPANY HAS RELATED PARTY TRANS ACTION TO THE EXTENT OF 76.70% OF ITS SALE S. WE ALSO FIND THAT THE LD. CIT (A) FOLLOWED THE DECISIONS OF ITAT DELHI BENCH 'C' IN THE CASE OF GLOBAL LOGIC INDIA PVT. LTD. VS DCIT, CIRCLE 12(1), NEW DELHI [2011] 12 TAXMANN.COM 295 (DELHI) AND SON Y I NDIA PVT. LTD. V. DCIT [2008] 114 ITD 448 (DELHI). SINCE, THE RELATED PARTY TRANSACTIONS ARE TO THE EXTENT OF 76%, WE HEREBY HOLD THAT IT WOULD NOT FIT INTO THE SELECTION OF OBJECTIVE COMPARABLES. HENCE, WE DECLINE WITH THE ORDER OF THE LD. CIT (A). 6. IN THE CROSS OBJEC TION , THE ASSESSEE HAS TAKEN UP THE ISSUE OF TPO MAKING ADJUSTMENTS TO THE TOTAL REVENUE INSTEAD OF INTERNATIONAL TRANSACTIONS. WE FIND THAT THE INTERNATIONAL TRANSACTIONS ARE TO THE TUNE OF RS.10,81,12,490/ - WHEREAS THE TOTAL TURNOVER OF RS.16,18,10,000/ - . WE FIND THAT THE LD. CIT (A) HAS NOT SPECIFICALLY DEALT WITH THE ISSUE. ON GOING THROUGH THE VALUE OF THE TRANSACTIONS, WE HEREBY DIRECT THAT THE ADJUSTMENT MAY BE LIMITED TO THE OP WITH REFERENCE TO THE VALUE OF INTERNATIONAL TRANSACTIONS WITH THE AE. R EGARDING THE ACCEPTANCE OF THE COMPARABLE AUTOLITE (INDIA) LTD. WE FIND THAT THE COMPARABLE HAS GOT RPT TO THE EXTENT OF 25.8%. HENCE, ITA NO .944 /DEL /2012 CO NO. 115/DEL/2014 STANLEY ELECTRIC ENGG. INDIA PVT. LTD. 4 KEEPING IN VIEW THE RATIO TAKEN UP IN THE CASE OF SUMI MOTHERSON I NNOVATIVE ENGINEERING PVT. LTD. , IT IS HEREBY DIRECTED THAT THE SAME MAY BE EXCLUDED AS AUTOLITE (INDIA) LTD. HAS GOT MORE THAN 25% OF RPT WHICH MAY LEAD TO SKEWED RESULTS . THE ASSESSING OFFICER MAY ALSO RE - COMPUTE THE OP/OC OF THIS COMPANY AFRESH. AFTER RE - COMPUTATION, THE ASSESSING OFFICER IS DIRECTED TO EXA MINE THE APPLICATION OF SECOND PROVISION TO SECTION 92C(2) OF THE INCOME TAX ACT, 1961 AND GIVE EFFECT AS APPLICABLE. 7 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CO OF THE ASSESSEE IS ALLOWED . (ORDER PRO N OUNC ED IN THE OPEN COURT ON 01 /10 /2019). SD/ - SD/ - ( AMIT SHUKLA ) ( DR. B. R. R. KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 01 /10 /2019 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR