Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 9162 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 1 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-06-2016
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
D
Next Hearing Date
09-05-2016
Assessment Year
2009-2010
Appeal Filed On
16-04-2014
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.1692 & 1693/MDS/2014 ( )( / ASSESSMENT YEARS : 2002-03 & 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI - 600 034. V. M/S TECHNICAL STAMPINGS AUTOMOTIVE LTD. (NOW KNOWN AS SUNGWOO GESTAMP HITECH LTD.), G17-18, SIPCOT INDL ESTATE, IRUNGATTUKOTTAI, SRIPERUMPUDUR, PAN : AAACJ 2661 H (+,/ APPELLANT) (-.+,/ RESPONDENT) ./ ITA NO.954/MDS/2014 ( )( / ASSESSMENT YEAR : 2009-10 M/S SUNGWOO GESTAMP HITECH (CHENNAI) LIMITED, (FORMERLY TECHNICAL STAMPINGS AUTOMOTIVE LIMITED), G17-18, SIPCOT INDL ESTATE, IRUNGATTUKOTTAI, SRIPERUMPUDUR TALUK, KANCHEEPURAM DISTRICT, TAMIL NADU 602 105. V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) / 0 1 /REVENUE BY : SMT. VIJAYALAKSHMI, CIT SH. DURAIPANDIAN, JCIT (23 0 1 /ASSESSEE BY : SH. G. RAVI KUMAR, ADVOCATE 4 0 3% / DATE OF HEARING : 09.05.2016 5') 0 3% / DATE OF PRONOUNCEMENT : 09.06.2016 2 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE REVENUE HAS FILED APPEALS FOR ASSESSMENT YEA RS 2002- 03 AND 2007-08 AND THE ASSESSEE HAS FILED APPEAL FO R ASSESSMENT YEAR 2009-10. THEREFORE, WE HEARD ALL THESE APPEAL S TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. SHRI G. RAVI KUMAR, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSEE-COMPANY IS A JOINT VENT URE COMPANY OF M/S JBM-SUNG WOO PRIVATE LIMITED. THE ASSESSEE IS ENGAGED ITSELF IN THE BUSINESS OF MANUFACTURING AND SALE OF SHEET METAL COMPONENTS, ASSEMBLIES AND SUB-ASSEMBLIES AND SUPPL YING THEM TO HYUNDAI MOTORS INDIA LTD. THE ASSESSEE HAS PAID 4% AS SERVICE CHARGES FOR THE SERVICE RENDERED BY THE PARENT COMP ANY. THE PARENT COMPANY OFFERED SERVICES IN MANAGEMENT AND ADMINISTRATION, RIGHT FROM THE HIGH LEVEL STRATEGIC PLANNING, INCLUDING THE PRODUCTS TO BE VENTURED, TYPE OF CUSTOMERS TO B E TARGETED, ETC. AND ALSO DAY-TO-DAY OPERATION OF THE ASSESSEE-COMPA NY. THE PAYMENT MADE BY THE ASSESSEE-COMPANY WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THERE WAS NO E VIDENCE TO SUGGEST THAT THE PARENT COMPANY HAS OFFERED SERVICE S TO THE 3 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 ASSESSEE-COMPANY. ACCORDING TO THE LD. COUNSEL, TH E ASSESSEE HAS ADOPTED TRANSACTION NET MARGIN METHOD AS MOST A PPROPRIATE METHOD FOR DETERMINING ARM'S LENGTH PRICE FOR THE P URPOSE OF TRANSFER PRICING STUDY. IN FACT, THE TESTED PARTY PAID 5.23 % AS AGAINST THE COMPARABLE STANDALONE AVERAGE MARGIN OF 4.63%. TH EREFORE, THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE INTERNATIONAL TRANSACTION MADE BY THE ASSESSEE WAS AT ARMS LENGT H. 3. REFERRING TO THE COPY OF SERVICE AGREEMENT, MORE PARTICULARLY ARTICLE 2, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE PARENT COMPANY HAS PROVIDED ALL THE SERVICES REFERRED IN A RTICLE 2 OF THE AGREEMENT. ON A QUERY FROM THE BENCH, HOW THE PARE NT COMPANY WAS ABLE TO PROVIDE SERVICES IN CARRYING OUT DAY-TO -DAY ACTIVITIES OF A COMPANY WHICH IS INDIA? THE LD.COUNSEL COULD NOT C LARIFY HOW THE PARENT COMPANY WAS ABLE TO CARRY ON THE BUSINESS OF THE INDIAN COMPANY. REFERRING TO LEGAL AND TAXATION SERVICES SAID TO BE OFFERED BY THE PARENT COMPANY, THE LD.COUNSEL CLARIFIED THA T THE PARENT COMPANY OFFERED ADVICE ON HOW TO DEAL WITH LEGAL AN D TAXATION MATTERS IN INDIA. THEREFORE, THE DISPUTE RESOLUTIO N PANEL, ACCORDING TO THE LD. COUNSEL, IS NOT JUSTIFIED IN C ONFIRMING THE ORDER OF THE TRANSFER PRICING OFFICER. 4 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 4. WE HAVE HEARD SMT. VIJAYALAKSHMI, THE LD. DEPART MENTAL REPRESENTATIVE ALSO. ACCORDING TO THE LD. D.R., TH E ASSESSEE HAS NOT RECEIVED ANY SERVICE FROM THE PARENT COMPANY. REFERRING TO THE ORDER OF THE DISPUTE RESOLUTION PANEL, THE LD. D.R. CLARIFIED THAT NO EVIDENCE WAS FILED BEFORE THE TRANSFER PRICING OFFI CER AS WELL AS DRP WITH REGARD TO THE SERVICES SAID TO BE RENDERED BY THE PARENT COMPANY. REFERRING TO THE DIRECTIONS OF THE DRP, T HE LD. D.R. SUBMITTED THAT IT APPEARS THAT THE PARENT COMPANY H AS DONE LIAISON WORK WITH CHINESE AUTHORITIES. IF THIS IS TRUE, TH EN THE INDIAN COMPANY IS NOT EXPECTED TO MAKE ANY PAYMENT FOR THE LIAISON WORK DONE BY THE PARENT COMPANY WITH CHINESE AUTHORITIES . THEREFORE, THE LD. D.R. SUBMITTED THAT IT IS A CLEAR CASE OF D IVERTING PROFIT OUTSIDE THE JURISDICTION OF THE COUNTRY SO AS TO RE DUCE THE PROFIT IN INDIA. IN THE ABSENCE OF EVIDENCE OF ANY SERVICES RENDERED BY THE PARENT COMPANY, THE SO-CALLED PAYMENT OF ADMINISTRA TIVE CHARGES CANNOT BE ALLOWED. THEREFORE, THE TPO HAS RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMS THAT IT PAID ADMINISTRATIVE CHARGES TO THE P ARENT COMPANY FOR THE SO-CALLED SERVICES RENDERED AS PER THE AGREEMEN T DATED 5 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 04.02.2009. THE PARENT COMPANY APPEARS TO HAVE ENT ERED INTO AN AGREEMENT FOR PROVIDING SERVICES DESCRIBED IN ARTIC LE 2 OF THE AGREEMENT. THE ASSESSING OFFICER AS WELL AS THE DR P FOUND THAT THE ASSESSEE HAS NOT RECEIVED ANY SERVICE FROM THE PARENT COMPANY. IN FACT, THE CHIEF FINANCIAL OFFICER OF T HE PARENT COMPANY WAS SUMMONED UNDER SECTION 131 OF THE INCOME-TAX AC T, 1961 (IN SHORT 'THE ACT'). HE ADMITTED BEFORE THE ASSESSING OFFICER THAT IT IS NOT POSSIBLE TO PROVIDE THE DETAILS OF THE ADMINIST RATIVE SERVICES PROVIDED TO THE INDIAN COMPANY. CONSIDERING THE FU NCTIONS PERFORMED BY THE JOINT VENTURE PARTNERS AS SHAREHOL DERS OF THE INDIAN COMPANY, THE DRP FOUND THAT THE SERVICES REN DERED BY THE SHAREHOLDERS DOES NOT REQUIRE ANY COMPENSATION FROM THE ASSESSEE-COMPANY EVEN AS PER THE OECD GUIDELINES. THE DRP FURTHER FOUND THAT THE CONTRIBUTION SAID TO BE MADE BY THE JOINT VENTURE PARTNERS TO THE SALES OF THE EXISTING BUSIN ESS OF THE ASSESSEE-COMPANY WAS NOT AVAILABLE ON RECORD. IN T HE ABSENCE OF ANY MATERIAL TO INDICATE THAT SERVICES WERE RENDERE D BY THE JOINT VENTURE COMPANY, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DRP HAS RIGHTLY CONFIRMED THE ORDER OF THE TRANSFER PRICING OFFICER. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 6 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 6. NOW COMING TO REVENUES APPEALS FOR THE ASSESSME NT YEARS 2002-03 AND 2007-08 IN I.T.A. NOS.1692 & 1693/MDS/2 014, THE ONLY GROUND IS WITH REGARD TO DISALLOWANCE OF PAYMENT OF ROYALTY. 7. SHRI DURAIPANDIAN, THE LD. DEPARTMENTAL REPRESEN TATIVE, SUBMITTED THAT THE ASSESSEE CLAIMS THE PAYMENT OF R OYALTY AS REVENUE EXPENDITURE FOR USE OF TECHNICAL KNOWHOW AS PER THE AGREEMENT. THE ASSESSING OFFICER, AFTER CONSIDERIN G THE AGREEMENT ENTERED INTO WITH M/S SUNGWOO HIGHTECH COMPANY LIMI TED, FOUND THAT THE SO-CALLED PAYMENT OF ROYALTY IS A CAPITAL EXPENDITURE SINCE THERE WAS ENDURING BENEFIT ACQUIRED BY THE ASSESSEE . HOWEVER, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE ON T HE GROUND THAT THE PAYMENT OF ROYALTY IS REVENUE IN NATURE. REFER RING TO THE ORDER OF THE ASSESSING OFFICER, THE LD. D.R. SUBMITTED TH AT BY PLACING RELIANCE ON THE OBSERVATION MADE BY THE DISPUTE RES OLUTION PANEL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009 -10, THE CIT(APPEALS) ALLOWED THE CLAIM WITHOUT EXAMINING TH E SAME INDEPENDENTLY. ON A QUERY FROM THE BENCH, WHETHER ANY APPEAL WAS FILED BY THE REVENUE CHALLENGING DIRECTIONS OF THE DRP FOR ASSESSMENT YEAR 2009-10 IN THE ASSESSEE'S OWN CASE? THE LD. 7 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 D.R. CLARIFIED THAT NO APPEAL WAS FILED AGAINST THE DIRECTIONS OF THE DRP FOR THE ASSESSMENT YEAR 2009-10. 8. ON THE CONTRARY, SHRI G. RAVI KUMAR, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE ADMITTEDLY PA ID ROYALTY AND THE SAME WAS CLAIMED AS REVENUE EXPENDITURE. ACCOR DING TO THE LD. COUNSEL, M/S SUNGWOO HITECH COMPANY LIMITED, KO REA IS THE LEGITIMATE OWNER OF TECHNICAL KNOWHOW AND THE ASSES SEE WAS GIVEN THE RIGHT TO USE THE TECHNICAL KNOWHOW. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS NOT ACQUIRED THE INTELLEC TUAL PROPERTY. THE LD.COUNSEL FURTHER CLARIFIED THAT THE RIGHT TO USE THE TECHNOLOGY AND THE INFORMATION WAS FOR A PRESCRIBED PERIOD AND IT IS NOT FOR PERPETUAL. THE LD.COUNSEL FURTHER SUBMITTED THAT T HE RIGHT TO USE TECHNOLOGY FOR MANUFACTURING A PRODUCT DOES NOT RES ULT IN ENDURING BENEFIT TO THE ASSESSEE. THE RIGHT TO USE THE TECH NOLOGY WOULD NOT MAKE THE ASSESSEE-COMPANY THE OWNER OF THE TECHNOLO GY, THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ROYALT Y PAID BY THE ASSESSEE IS A BUSINESS EXPENDITURE FOR THE PURPOSE OF CARRYING OUT THE BUSINESS. HENCE, ACCORDING TO THE LD. COUNSEL, IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. 8 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 9. REFERRING TO THE DIRECTIONS OF DRP FOR THE ASSES SMENT YEAR 2009-10, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE WAS CONSIDERED BY THE DRP AND FOUND THAT IT IS A RE CURRING PAYMENT, THEREFORE, IT CANNOT BE PRESUMED THAT THE PAYMENT WAS MADE FOR ACQUIRING A NEW TECHNOLOGY. THE DRP CATEG ORICALLY FOUND THAT THE PAYMENT WAS REVENUE IN NATURE, THEREFORE, THE ASSESSING OFFICER HAS TO ALLOW THE SAME AS REVENUE EXPENDITUR E. THE LD.COUNSEL FURTHER SUBMITTED THAT THE REVENUE HAS N OT FILED ANY APPEAL AGAINST THIS DIRECTION OF THE DRP FOR ASSESS MENT YEAR 2009- 10. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE S AME CANNOT BE DISPUTED BY THE REVENUE FOR THE ASSESSMENT YEARS 20 02-03 AND 2007-08. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE NATURE OF PAYMENT WAS EXAMINED BY THE DRP FOR THE ASSESSMENT YEAR 2009- 10. THE DRP FOUND THAT THE PAYMENT WAS MADE BY THE ASSESSEE FOR RIGHT TO USE THE TECHNOLOGY AND TECHNICAL INFOR MATION FOR A PRESCRIBED PERIOD AND IT IS NOT PERPETUAL. THE DRP HAS ALSO FOUND THAT THE ASSESSEE DOES NOT OBTAIN ANY ENDURING BENE FIT. THE PAYMENT IS ALSO RECURRING IN NATURE. THEREFORE, TH E DRP FOR THE ASSESSMENT YEAR 2009-10 FOUND THE PAYMENT AS REVENU E 9 I.T.A. NOS.1692 & 1693/MDS/14 I.T.A. NO.954/MDS/14 EXPENDITURE. ADMITTEDLY, THIS DIRECTION OF THE DRP WAS NOT CHALLENGED BY THE REVENUE FURTHER. THEREFORE, IT A TTAINED FINALITY. SINCE THE NATURE OF PAYMENT WAS EXAMINED BY DRP AND IT WAS FOUND AS REVENUE EXPENDITURE AND THE DIRECTION OF T HE DRP ATTAINED FINALITY, THIS TRIBUNAL IS OF THE CONSIDERED OPINIO N THAT THE CIT(APPEALS) HAS RIGHTLY FOUND THAT THE PAYMENT WAS REVENUE IN NATURE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY R EASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDING LY THE SAME IS CONFIRMED. 11. IN THE RESULT, APPEALS OF THE REVENUE AND THE A SSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 9 TH JUNE, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 9 TH JUNE, 2016. KRI. 0 -389 :9)3 /COPY TO: 1. (23 /ASSESSEE 2. ASSESSING OFFICER 3. 4 ;3 () /CIT(A)-III, CHENNAI 4. 4 ;3 /CIT, CHENNAI-III, CHENNAI 5. 9< -3 /DR 6. ( = /GF.
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