Appeal details
Counselvise Citation
[2022] 103 COUNSELVISE.COM (IT) 9775 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Transfer Pricing) Appeal
Pronouncement Date
25-10-2022
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
D
Next Hearing Date
28-09-2022
Assessment Year
2017-2018
Appeal Filed On
23-03-2022
Judgement Text
आयकर अपीलीय अिधकरण ‘डी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI माननीय ,ी महावीर िसंह, उपा23 एवं माननीय ,ी मनोज कु मार अ8वाल ,लेखा सद; के सम3। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ IT(TP) A No.12/Chny/2022 (िनधाCरण वषC / Asse ssment Year: 2017-18) Howden Solyvent (India) Pvt. Ltd. 147, Poonamalee High Road, Numbal Village, Kancheepuram D.T., Chennai – 600 077. बनाम / Vs . ITO Corporate Ward-2(3), Chennai. थायी लेखा सं. /जीआइ आर सं. /P AN / G I R No . AA AC F - 6153 -G (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri Sriram Seshadhri (CA)-Ld. AR थ की ओरसे/Respondent by : Shri Ann L Kapthuama (CIT) –Ld. DR सुनवाई की तारीख/Da te of He a rin g : 29-09-2022 घोषणा की तारीख /Date of Pronouncement : 26-10-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of final assessment order dated 24-02-2022 passed by Ld. Assessing Officer, National Faceless Assessment Centre, Delhi (AO) pursuant to the directions of Learned Dispute Resolution Panel-2, Bengaluru [DRP] u/s. 144C(5) of the Act dated 23-01-2022. The assessee carried out certain international transactions with its Associated Enterprises (AE) which were subjected to determination of Arm’s Length Price (ALP) before Ld. Transfer Pricing Officer-2(1), IT(TP)A No.12/Chny/2022 - 2 - Chennai (TPO) vide order dated 28-01-2021. Incorporating the proposed adjustment, draft assessment order was passed by Ld. AO on 21-04-2021 which was subjected to further objections before Ld. DRP. Subsequently, final assessment order was passed by Ld. AO pursuant to the directions of Ld. DRP which is in further appeal before us. The grounds raised by the assessee read as under: - 1. That on the facts and in the circumstances of the case, the order passed by the Income Tax Officer, National e-Assessment Centre, Kolkata (hereinafter referred to as 'Ld, AO') under section 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter referred to as 'the Act 1 ) is erroneous on facts and bad in law. 2. That on the facts and in the circumstances of the case, the Ld. DRP erred in confirming the action of the Ld. AO in disallowing TDS deducted and not deposited within the due date amounting to Rs.30,55,057/- under the provisions of Section 43B of the Act. 3.1 That on the facts and in the circumstances of the case, the Ld. DRP erred in confirming the action of the Ld. AO in disallowing interest paid on account of delay in deposit of TDS under section 201(1A) / 206C(7) amounting to Rs.44,83,310/- under the provisions of Section 43B of the Act. 3.2 That on the facts and in the circumstances of the case, the Ld. DRP erred in confirming the action of the Ld. AO resulting in double disallowance of the said amount of Rs.44,83,310/- as the appellant itself had disallowed the same in the return of income by applying the provisions of Section 40(a)(ii) of the Act. 4.1 That on the facts and in the circumstances of the case, the Ld. DRP erred in confirming the action of the Ld. AO in additionally disallowing an amount of Rs.24,14,844/- as inadmissible under Section 40(a)(ii) of the act by arbitrarily considering amounts subject to disallowance under the said section. 4.2 That on the facts and in the circumstances of the case, the Ld. DRP and Ld. AO erred in not correctly considering the amount disallowable under Section 40(a)(ia) of Rs.52,51,196/- as added back by the appellant in the return of income on the basis of clause 21(b)(ii) of the Tax Audit Report. 5. That on the facts and in the circumstances of the case, the Ld. DRP and the Ld. AO erred in adding back the amount of Rs.19,80,00,000/- having share capital received from Howden International Holdings, B.V., the parent company of the appellant, as unexplained cash credit under section 68 of the act. 6. That on the facts and in the circumstances of the case, the Ld. AO erred while computing the total income of the appellant for the year under appeal, in considering the total income (loss) as per return to be Rs.(-)17,79,34,313/- as against Rs.(-)18,69,52,740/- reported in the tax return. 7. That on the facts and in the circumstances of the case, the Ld. AO erred in considering the income from other sources amounting to Rs.4,38,429/- twice while computing the gross total income for the year under consideration. 8. That on the facts and in the circumstances of the case, the Ld. AO erred in charging interest u/s 234A amounting to Rs.1,69,212/-. IT(TP)A No.12/Chny/2022 - 3 - 9. That on the facts and in the circumstances of the case, the Ld. AO erred in charging interest u/s 234B amounting to Rs.99,83,508/-. 10. That on the facts and in the circumstances of the case, the Ld. AO and ld. TPO have erred in making upward transfer pricing adjustment in relation to the international transaction of sale of goods to AEs and thereby enhancing the income of the Assessee by INR 2,59,97,387. 11. That on the facts and in the circumstances of the case, the Ld. AO and Ld. TPO have grossly erred in- 3.1 disregarding the analysis performed by the assessee in Transfer Pricing Study Report (TPSR) in relation to the said international transaction and thereby conducting a fresh comparability analysis. 3.2 not considering cost plus method (CPM) as the most appropriate method (MAM) as per TPSR and thereby selecting transactional net margin method (TNMM) as the MAM without providing any cogent reasons for the same; 3.3 disregarding the segmental profitability computed by the Assessee, for the transaction of sales of goods and instead considering an entity level margin, thereby not appreciating that law provides for use of transactional level data to benchmark an international transaction. 3.4 not appreciating the fact that transaction of sale of goods only constitute 10.61 percentage of overall revenue of the assessee and hence an entity level analysis will mostly include third party sales and expenses which are not subject to transfer pricing laws. 12. Without prejudice to the above grounds, the Ld. TPO has not provided for any risk adjustment considering that the Assessee is not exposed to market risk and credit risk in relation to the said international transaction of export of goods to AE, compared to the comparable companies. Ground No.1 is general in nature whereas ground no.7 has not pressed by Ld. AR during hearing before us. 2. The assessee company being resident corporate assessee is stated to be engaged in manufacturing of industrial fans. The product range of the company includes adjustable pitch axial fans, reciprocating compressors, mining fans, centrifugal fans, sinter plant fans and various ventilation systems. 3. The Ld. AR advanced arguments supporting the case of the assessee and drew attention to various documents as placed on record. The Ld. CIT-DR controverted the arguments of Ld. AR and supported the assessment framed by Ld. AO. Having heard rival IT(TP)A No.12/Chny/2022 - 4 - submissions and after due consideration of relevant material on record, our adjudication would be as under. 4. Ground Nos. 2 to 3.2: Disallowance u/s. 43B of the Act: 4.1 The Tax Auditor reported TDS default of Rs.30.55 Lacs in Column No. 34(a) of Tax Audit Report which represent amount of tax deducted but not deposited to the credit of Central Government. Further, Column No. 34(c) reflected interest on TDS default for Rs.44.83 Lacs. Both these items were added for want of satisfactory explanation forthcoming from the assessee. The Ld. DRP confirmed the same. Aggrieved, the assessee is in further appeal before us. 4.2 Upon perusal of Tax Audit Report, it could be seen that Tax Auditor has reflected TDS default of Rs.30.55 Lacs which represents amount of tax deducted but not credited to central government. The corresponding amount on which tax has been deducted is Rs.303.53 Lacs. The amount of interest on late payment of TDS is Rs.44.83 Lacs. From the computation of income, we find that the amount of Rs.303.53 Lacs as well as the amount of Rs.44.83 Lacs has already been disallowed by the assessee and accordingly, no further disallowance would be required on this count. The Ld. AO is directed to verify the same. The assessee is directed to supply requisite details / information. These grounds stand allowed for statistical purposes. 5. Ground Nos.4.1 & 4.2: Disallowance u/s. 40(a)(ia) of the Act : 5.1 The Tax Audit Report reflected amount inadmissible u/s. 40(a)(ia) for Rs.506.47 Lacs, whereas the assessee only disallowed Rs.425.97 Lacs in the return of income. Accordingly, 30% of differential amount of Rs.80.49 Lacs was added u/s. 40(a)(ia) of the Act, which resulted into another addition of Rs.24.14 Lacs in the hands of the assessee. The IT(TP)A No.12/Chny/2022 - 5 - Ld. DRP confirmed the same against which the assessee is in further appeal before us. 5.2 Upon perusal of Computation of income and extract of TDS default as placed on record, we find that the amount of Rs.425.97 Lacs is gross disallowance u/s 40(a)(i), u/s 40(a)(ia) and interest on delayed payment of TDS. The assessee has not deducted TDS u/s 195 on sum of Rs.25.10 Lacs which form part of this disallowance. The assessee has short deducted TDS and accordingly, made separate disallowance of 30% for Rs.52.51 Lacs which also form part of this disallowance. Apparently, whatever disallowance was required, the assessee has already made the same in the computation of income. The Ld. AO is directed to verify the same. The assessee is directed to supply requisite details / information. These grounds stand allowed for statistical purposes. 6. Ground No.5 – Addition u/s 68 for Share Capital 6.1 Ground No.5 relates to disallowance of share capital receipt. The assessee received share capital for Rs.1980 Lacs but in support, the assessee could not file any documentary evidences such as the name of parties to whom shares were issued, PAN of the party and also failed to establish the genuineness of the transaction. Accordingly, the same was added u/s. 68 of the Act. Similar was the situation before Ld. DRP. 6.2 The Ld. AR has submitted that the assessee is in possession of sufficient documentary evidences and therefore, this issue may be restored back to the file of Ld. AO. Accepting the same, the issue is restored back to the file of Ld. AO with a direction to the assessee to IT(TP)A No.12/Chny/2022 - 6 - substantiate its stand. This ground stand allowed for statistical purposes. 7. Gr. No.6: Adoption of Correct Loss as per Return of Income The assessee has submitted that quantum of loss as per return is Rs.1869.52 Lacs and not Rs.1779.34 Lacs as taken by Ld. AO. The ld. AO is directed to verify the same and pick correct figures of loss as per financial statements. 8. Ground Nos.8 & 9 – Computation of interest u/s 234A & 234B The Ld. AR has submitted that no interest u/s 234A would be chargeable since the return has been filed within due date as per Sec. 139(1). Accordingly, Ld. AO is directed to verify the same. Further, interest u/s 234B shall be computed in accordance with law. 9. Ground Nos.10 to 12: Transfer Pricing Adjustment 9.1 Since the assessee carried out international transactions with its Associated Enterprises (AE), the same were referred to Ld. TPO for determination of Arm’s Length Price (ALP). One of the transactions was sale of goods by assessee to its AEs for Rs.856.38 Lacs which was benchmarked using Cost Plus Method (CPM). The assessee submitted that this method evaluates Arm’s length nature of a controlled transaction by reference to the gross mark-up i.e., gross profit divided by direct and indirect costs (GP/DICOP) that is realized in comparable uncontrolled transactions. 9.2 The assessee also conducted search to identify comparable entities under Transactional Net Margin (TNMM) method. The assessee computed gross margin of 68.92%. However, considering the fact that the segmental data for assessee was not reliable / available, Ld. TPO proceeded to benchmark the transactions using IT(TP)A No.12/Chny/2022 - 7 - entity level TNMM. The assessee’s PLI (OP/OC) was computed as (-) 16.86%. The assessee disputed the margins of comparable entities. Finally, Ld. AO, adopting mean margin of 11.37%, computed TP adjustment of Rs.290.72 Lacs. 9.3 The Ld. DRP confirmed the rejection of CPM method, The Ld. TPO was directed to apply correct margin of the comparable entities. The plea of risk adjustments as demanded by the assessee were not accepted. The aforesaid directions have reduced the TP adjustment to Rs.259.97 Lacs in the final assessment order. Aggrieved, the assessee is in further appeal before us. 10. From the fact, it emerges that the assessee has considered the segmental profitability and compared it with the profitability of comparable entities. Thus, the assessee has benchmarked the transactions using segmental TNMM. The Ld. TPO has adopted entity level TNMM to benchmark the transactions. From the assessee’s submissions, it transpires that the AE export constitutes merely 10.61% of total sale during the year and therefore, to compare the margins of the entity as a whole with comparable entities would not be a correct approach to benchmark the transactions. The assessee has benchmarked the transactions under CPM also wherein the assessee’s gross margins (GP/DICOP) are reflected as 68.92% which are much higher than the margins shown by comparable entities. At segmental level TNMM also, the assessee has computed its margins which have been rejected only because the same were not certified. No other cogent reason has been mentioned to reject the segmental results of the assessee. Therefore, on the facts and circumstances of the case, the approach of Ld. TPO in applying entity level TNMM could not be IT(TP)A No.12/Chny/2022 - 8 - upheld. The benchmarking done by the assessee was to be accepted. The grounds thus raised stand allowed accordingly. Conclusion 11. The assessee’s appeal stands partly allowed in terms of our above order. Order pronounced on 26 th October, 2022 Sd/- (MAHAVIR SINGH) उपा23 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद; / ACCOUNTANT MEMBER चे+ई / Chennai; िदनांक / Dated : 26.10.2022 EDN/- आदेश की Wितिलिप अ 8ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आय ु त (अपील)/CIT(A) 4. आयकर आय ु त/CIT 5. वभागीय त न ध/DR 6. गाड फाईल/GF
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