TRUMPF INDIA P.LTD, PUNE V. DCIT CIR 8(3), MUMBAI

ITA 977/MUM/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8132 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 31-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YAD EV
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Fair market value

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI N.K. BILLAIYA, AM AND SHRI AMIT SHUKLA, JM . . , , ! ' #./ I.T.A. NO.977 /MUM/2014 ( / ASSESSMENT YEAR : 2009-10 TRUMPF INDIA PRIVATE LIMITED, RAISONI INDUSTRIAL PARK, S. NO. 276, HISSA NO. 1, VILLAGE MANN, TALUKA MULSHI, PUNE 411057. / VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE 8(3), ROOM NO. 204, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. % # ./ PAN : AACCT8008J ( ' %& / APPELLANT ) .. ( '(%& / RESPONDENT ) A PPELLANT BY SHRI KANCHUN KAUSHAL DEPARTMENT BY SHRI AKHILENDRA P. YAD EV )* + !, / DATE OF HEARING : 22-09-2014 -./0 + !, / DATE OF PRONOUNCEMENT :26-09-2014 [ / O R D E R PER N.K. BILLAIYA, A.M . : . . , THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF TPO DATED 16-1-2013 IN PURSUANCE TO THE DIRECTIONS OF THE DIS PUTE RESOLUTION PANEL II (DRP), MUMBAI DATED 17-12-2013. 2. THE ASSESSEE HAS RAISED FIVE SUBSTANTIVE GROUNDS OF APPEAL. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE ASSESSEE IS T HAT THE DRP/TPO/A.O. ERRED IN LAW AS WELL AS ON FACT IN MAKING THE ADJUS TMENT OF RS. 6,62,00,363/- TO THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE W ITH ITS ASSOCIATED ENTERPRISES (AES). THE ASSESSEE IS A SUBSIDIARY OF TRUMPF GROUP COMPANY ITA 977/M/14 2 TRUMPF INTERNATIONAL BETEILIGUNGS GMBH AND TRUMPF FINANCE GMBH. THE ASSESSEE HAS THE FOLLOWING BUSINESS ACTIVITIES (A) MARKETING SUPPORT AND AFTER SALES SUPPORT SERVICES FOR THE GOODS SOLD BY ITS ASSOCIATED ENTERPRISES (AES) IN THE TERRITORY OF SAARC REGION FOR WHICH TH E ASSESSEE IS REMUNERATED BY WAY OF COMMISSION, (B) MANUFACTURING PLUS JOB WO RK ACTIVITIES WHICH WAS STARTED DURING THE YEAR UNDER CONSIDERATION BY WHIC H THE ASSESSEE HAS STARTED MANUFACTURING/JOB WORK SERVICES TO THIRD PA RTY CUSTOMER IN INDIA THE ACTIVITY INVOLVED IN (A) ABOVE AS INTERNATIONAL T RANSACTIONS AND IN RESPECT OF ACTIVITY MENTIONED IN (B) ABOVE ONLY THE IMPORT O F CAPITAL GOODS FROM AES INVOLVE INTERNATIONAL TRANSACTION. THE TPO PROCEEDE D BY DETERMINING THE ARMS LENGTH PRICE (ALP) IN RELATION TO THE INTERNA TIONAL TRANSACTIONS WITH THE AES. THE FOLLOWING TRANSACTIONS WERE CONSIDERED FO R BENCH MARKING:- SR. NO. NATURE OF INTERNATIONAL TRANSACTION VALUE IN (RS.) METHOD 1 COMMISSION RECEIVED 8,33,02,434 TNMM 2 SERVICE INC. 2,33,304 TNMM 3 IT SERVICE PAID 13,19,137 TNMM 4 SERVICE CHARGE PAID 32,49,369 TNMM 5 COST ALLOCATION 4,09,072 TNMM 6 TRAINING FEES 1,87,417 TNMM 7 IMPORTS OF SPARES AND CONSUMABLES & TOOLS 86,14,083 # 8 IMPORT OF CAPITAL GOODS 3,89,05,095 # 9 IMPORT SOFTWARE FOR SALE 1,15,590 # 10 IMPORT OF SOFTWARE FOR MACHINERY 1,22,050 # 11 REIMBURSEMENT OF EXPENSES 48,10,052 AT COST 12 RECOVERY OF EXPENSES 58,35,799 AT COST THE TPO OBSERVED THAT THE ASSESSEE HAS BENCHMARKED THE TRANSACTIONS NO. 1 TO 6 ON TNMM AS PER THE ASSESSEES AVERAGE MARGIN O F ITS COMPARABLE IS 12.95%. THE ASSESSEES MARGIN IS 7.99%. ACCORDING LY, IT WAS CLAIMED BY THE ASSESSEE THAT ASSESSEES MARGIN IS WITHIN 5% RANGE AS PER SECTION 92C(2) OF THE ACT. WITH RESPECT TO IMPORT OF SPARES, CONSUMER S GOODS, TOOLS AND CAPITAL GOODS, THE ASSESSEE CLAIMED THAT GOODS BEING SOLD B Y ITS AES IN INDIA ARE NOT SIMILAR TO THE ONE BEING IMPORTED BY THE ASSESSEE F ROM ITS AES, THEREFORE, THERE IS NO CUP AVAILABLE. THOUGH THE ASSESSEE SUB MITTED THE VALUATION FROM ITA 977/M/14 3 CHARTERED ENGINEER ON THE BASIS OF WHICH IT WAS CLA IMED THAT TRANSACTIONS ARE AT FAIR MARKET VALUE. THE TPO WAS OF THE FIRM BELI EF THAT ASSESSEES ANNUAL REPORT HAS NO SEGMENTAL ACCOUNTS OF INDENTING OF MA CHINE TOOLS AND MANUFACTURING OF MACHINE TOOLS. THE TPO WAS OF THE OPINION THAT INDENTING OF MACHINE TOOLS HAVE DIFFERENT PROFIT MARGIN WHERE AS MANUFACTURING OF MACHINES HAS DIFFERENT PROFIT MARGIN. THE TPO FURTH ER OBSERVED THAT 91% OF ASSESSEES REVENUE IS COMING FROM INDENTING THEREFO RE ALL THE REPORTED TRANSACTIONS HAVE TO BE AGGREGATED AND TNMM INDEN TING IS TO BE DONE AT ENTITY LEVEL TO BENCHMARK ASSESSEES TRANSACTIONS. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY APPROPRIATE ADJUSTMENT SHOULD NOT BE MADE TO ITS TRANSACTIONS. THE ASSESSEE FILED A DETAIL REPLY WH ICH DID NOT FIND ANY FAVOUR FROM THE TPO AND PROCEEDED BY MAKING AN ADJUSTMENT OF RS. 6,62,00,363/-. OBJECTIONS WERE RAISED BEFORE THE DRP. IT WAS CLAI MED BEFORE THE DRP THAT ALTHOUGH THE ANNUAL ACCOUNTS DO NOT CONTAIN SEGMENT AL ACCOUNTS BUT THE SAME WERE PROVIDED TO THE TPO. SEGMENTAL ACCOUNTS W ERE ALSO PROVIDED TO THE DRP. THE DRP THOUGH ACCEPTED THAT SEGMENTAL ACCOUN TS HAVE BEEN GIVEN BY THE ASSESSEE BUT AT THE SAME TIME THE DRP WAS OF TH E VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT THE BASIC ISSUE RAI SED BY THE TPO I.E. THE LARGEST TRANSACTION OF THE ASSESSEE WITH AES IS REC EIPT OF COMMISSION. IN SO FAR AS THE INTERNATIONAL TRANSACTIONS PERTAINING TO IMPORT OF CAPITAL GOODS, IMPORT OF SPARES, CONSUMABLES AND TOOLS AND IMPORT OF SOFTWARE IS CONCERNED, THE ASSESSEE CLAIMED THAT IT HAS FURNISHED RELEVANT VALUATION CERTIFICATES COVERED 93% OF THE TOTAL AGGREGATED VALUE OF THE TR ANSACTIONS. THE DRP OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED VALUAT ION CERTIFICATE REGARDING IMPORT OF SOFTWARE FOR THE MACHINERY. THE DRP WENT ON TO CONFIRM THE FINDINGS OF THE TPO. AGGRIEVED BY THIS, THE ASSESS EE IS BEFORE US. 3. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY STAT ED THAT SEGMENTAL ANALYSIS WERE PROVIDED TO THE TPO AS WELL AS TO THE DRP WHICH IS NOT AT ALL BEEN CONSIDERED BY THE REVENUE AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL ITA 977/M/14 4 FOR THE ASSESSEE THAT ON IDENTICAL SET OF FACTS IN THE SUBSEQUENT A.Y. I.E. 2010- 11, THE TPO HAS ACCEPTED THESE TWO SEGMENTS AS SEPA RATE SEGMENT AND HAS ALSO CONSIDERED THE SEGMENTAL RESULTS. IN RESPECT O F INTERNATIONAL TRANSACTIONS PERTAINING TO IMPORT OF CAPITAL GOODS, IMPORT OF SP ARES, CONSUMABLES AND TOOLS, IMPORT OF TOOLS AND IMPORT OF SOFTWARE, VALU ATION CERTIFICATES HAVE BEEN SUBMITTED BEFORE THE REVENUE AUTHORITIES. NO EVIDEN CE TO THE CONTRARY HAS BEEN BROUGHT ON RECORD BY THE TPO. IN RESPECT OF TR ANSACTIONS OF IMPORT OF SOFTWARE OF RS. 1,15,590/-, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE SAME WAS FURTHER SOLD TO THIRD PARTY AT RS. 1,23,65 6/- WHICH IS HIGHER THAN THE RESULTANT PRICE AT WHICH IT WAS PROCURED. 4. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS AN UNDISPUTE D FACT THAT SEGMENTAL REPORTING WAS NOT PART OF THE AUDITED ANNUAL ACCOUN TS. IT IS AN ADMITTED FACT THAT ACCOUNTING STANDARD XVII ON SEGMENTAL REPORT WAS NOT APPLICABLE. HOWEVER, IT IS ALSO AN UNDISPUTED FACT THAT SEGMENT AL RESULTS WERE MADE AVAILABLE TO THE TPO DURING THE COURSE OF ASSESSMEN T PROCEEDINGS. THE TPO HAS NOT POINTED OUT ANY DEFAULT OR ERROR IN THE SEG MENTAL ANALYSIS PROVIDED BY THE ASSESSEE. IN OUR CONSIDERED OPINION, ONCE THE SEGMENTAL RESULTS WERE MADE AVAILABLE, IT WAS INCUMBENT UPON THE TPO TO CO NSIDER THE SAME FOR DETERMINING THE ALP. A SIMILAR VIEW HAS BEEN TAKEN BY THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO. 2152/MDS/2011 AND IN ITA NO . 21/MDS/2013 IN THE CASE OF M/S HONEYWELL ELECTRICAL DEVICES & SYSTEMS INDIA LTD. VS. ACIT AND M/S 3I INFOTECH LIMITED VS. ITO RESPECTIVELY. DRAWI NG SUPPORT FROM THE DECISION OF THE CO-ORDINATE BENCH (SUPRA), WE RESTO RE THIS ISSUE TO THE FILE OF THE TPO/A.O. THE TPO IS DIRECTED TO CONSIDER THE SE GMENTAL RESULTS PROVIDED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH AFTER G IVING A REASONABLE AND ITA 977/M/14 5 PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN RESPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO CAPITAL GOODS, IMPORT OF SPARES AND CONSUMABLES, IMPORT OF TOOLS, WE FIND THAT THE VALUATION CERTIFI CATES FOR IMPORT OF CAPITAL GOODS, TOOLS AND SPARES COVERED 93% OF THE TOTAL AG GREGATED VALUE OF SUCH TRANSACTIONS AND THIRD PARTY CUP (INTERNATIONAL CUP ANALYSIS) FOR IMPORT OF CAPITAL GOODS, TOOLS AND SPARES COVERED 75% OF THE TOTAL AGGREGATED VALUE OF SUCH TRANSACTIONS. WE FIND THAT THE TPO HAS GOT NO COGENT MATERIAL AVAILABLE ON RECORD TO ESTABLISH THE CONTRARY. WE THEREFORE DO NOT FIND ANY MERIT IN MAKING ANY ADJUSTMENT IN RESPECT OF THESE TRANSACTI ONS. WE FURTHER FIND THAT THE IMPORT OF SOFTWARE OF RS. 1,15,590/- HAS BEEN S OLD BY THE ASSESSEE AT RS. 1,23,656/- WHICH IS HIGHER THAN THE PRICE AT WHICH IT WAS PROCURED, THEREFORE, NO ADVERSE INFERENCE SHOULD BE DRAWN IN RESPECT OF THIS. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2014. + -./0 1 2#3 26-9-2014 . + 4* SD/- SD/- (AMIT SHUKLA) (N.K. BILLAIYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER #* MUMBAI ; 2# DATED .26-09-2014. [ ).../ R.K. , SR. PS ITA 977/M/14 6 ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ' %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ! (' ) / THE DRP II, MUMBAI 4. ! / TPO -9, MUMBAI 5. I)J4 'KL , ! ' , KL!0 , #* / DR, ITAT, MUMBAI K BENCH 6. 4MN O* / GUARD FILE. ! ( / BY ORDER, (I' ' //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) , #* / ITAT, MUMBAI