M/s. GE BE Private Limited, Bangalore V. The Deputy Commissioner Of Income Tax, Circle- 11(3), Bangalore

ITTPA 125/BANG/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8139 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 31-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Transfer pricing
• Section: 143(3); 144C

Judgement Text

IT(TP)A NO.125/BANG/2014 GE BE PRIVATE LIMITED, BANGALORE -IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT(TP)A NO.125/BANG/2014 ASSESSMENTYEAR : 2009-10 GE BE PVT. LTD. NO.60, EXPORT PROMOTION INDUSTRIAL PARK, WHITEFIELD BANGALORE-560 066 PAN NO : AAACG6714A VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(3) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI SACHIT JOLLY, A.R. RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, D.R. DATE OF HEARING : 28.07.2020 DATE OF PRONOUNCEMENT : 31.07.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER FO R ASSESSMENT YEAR 2009-10 U/S 143(3) R.W.S. 144C OF T HE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] IN PURSUA NCE OF DIRECTIONS GIVEN BY LD. DISPUTE RESOLUTION PANEL (D RP). 2. THIS APPEAL WAS ORIGINALLY DISPOSED OF BY THE COORDINATE BENCH ON 24.4.2019. SUBSEQUENTLY, THE ASSESSEE MOVED A MISCELLANEOUS APPLICATION POINTING OUT IT(TP)A NO.125/BANG/2014 GE BE PRIVATE LIMITED, BANGALORE PAGE 2 OF 6 CERTAIN MISTAKES APPARENT FROM RECORD IN THE ABOVE SAID ORDER. THE MISCELLANEOUS APPLICATION WAS DISPOSED OF BY THE COORDINATE BENCH IN MP NO.158/BANG/2019, VIDE I TS ORDER DATED 29.1.2020, WHEREIN THE BENCH RECALLED T HE ORDER FOR LIMITED PURPOSE OF ADJUDICATING GROUND NO .12 URGED BY THE ASSESSEE IN ITS APPEAL. ACCORDINGLY, THIS APPEAL CAME TO BE LISTED BEFORE US. 3. GROUND NO.12 URGED BY THE ASSESSEE READS AS UNDE R: THAT THE LD. AO/THE LD. DRP ERRED IN UPHOLDING THE ADJUSTMENT TO THE ENGINEERING DESIGN SERVICES SEGME NT OF THE APPELLANT MADE BY THE LD. TPO AND IN DOING SO G ROSSLY ERRED IN NOT GRANTING THE WORKING CAPITAL ADJUSTMEN T TO THE APPELLANT. [CORRESPONDING TO GROUND NO.6(C)] 4. THE LD. A.R. SUBMITTED THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF MANUFACTURING AND SELLING COMPON ENTS OF MEDICAL EQUIPMENTS AND ALSO ENGAGED IN PROVIDING ENGINEERING DESIGN SERVICES TO ITS AFFILIATES WORLD WIDE. IN THE TRANSFER PRICING STUDY, THE ASSESSEE SOUGHT FOR WORKING CAPITAL ADJUSTMENT FOR ITS MANUFACTURING DIVISION AS WELL AS FOR ENGINEERING DESIGN SERVIC ES DIVISION. WHILE THE WORKING CAPITAL ADJUSTMENT WA S ALLOWED IN RESPECT OF MANUFACTURING DIVISION, THE S AME WAS REJECTED BY THE TAX AUTHORITIES. THE LD. A.R. SUBMITTED THAT THE TPO DID NOT ALLOW WORKING CAPITA L ADJUSTMENT IN RESPECT OF ENGINEERING DESIGN SERVICE S SEGMENT ON THE REASONING THAT ACCURATE DETAILS OF S UNDRY DEBTORS, SUNDRY CREDITORS AND INVENTORY ARE NOT AVA ILABLE. IT(TP)A NO.125/BANG/2014 GE BE PRIVATE LIMITED, BANGALORE PAGE 3 OF 6 THE LD. DRP ALSO CONFIRMED THE VIEW TAKEN BY THE TP O WITH THE FOLLOWING OBSERVATIONS: 10.2 IT IS SEEN THAT THE ASSESSEE COMPANY DOES NOT HAVE SEGREGATED DATA FOR BOTH ITS SEGMENTS AS FAR AS WOR KING CAPITAL IS CONCERNED. THE ASSESSEE COMPANY HAS TRI ED TO APPORTION THE AMOUNTS IN THE RATIO OF TURNOVER IN B OTH THESE SEGMENTS. WORKING CAPITAL CAN ONLY BE ALLOWED IF I T IS POSSIBLE TO ACCURATELY ESTIMATE THE ADJUSTMENT. TH E TURNOVER OF THE ASSESSEE COMPANY IS DOMINATED BY THE CONTRAC T MANUFACTURING ACTIVITY. THERE IS NO DENYING THE FA CT THAT THE PROVISION OF ENGINEERING SERVICE IS FUNCTIONALLY AN D ECONOMICALLY DIFFERENT FROM THE CONTRACT MANUFACTUR ING ACTIVITY AND HENCE THE RESOURCES CANNOT BE ALLOCATE D BASED ON THE TURNOVER OF BOTH THE SEGMENTS. THE ENTIRE F UNCTIONING OF THE ASSESSEE IS DOMINATED BY THE CONTRACT MANUFA CTURING ACTIVITY AS THE LEVEL OF ACTIVITY IN RESPECT OF THI S ACTIVITY IS NOT DEMARCABLE. SINCE THE CONTRACT MANUFACTURING ACTIV ITY IS THE DOMINANT ACTIVITY, WORKING CAPITAL ADJUSTMENT HAS B EEN ALLOWED EARLIER IN RESPECT OF THIS SEGMENT. HOWEVE R, THE SAME IS NOT TRUE OF THE ITES SEGMENT. THE PROPOSAL OF THE ASSESSEE COMPANY TO ALLOCATE THE RESOURCES IN THE R ATIO OF SALES TURNOVER WILL NOT REFLECT TRUE ALLOCATION AND HENCE WILL NOT REFLECT TRUE WORKING CAPITAL ADJUSTMENT. 5. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS FURNISHED DETAILED WORKINGS RELATING TO WORKING CAP ITAL ADJUSTMENT TO THE TAX AUTHORITIES AND COPIES OF THE SAME ARE PLACED IN THE PAPER BOOK AT PAGES 438 & 439. T HE LD. A.R. SUBMITTED THAT THE TAX AUTHORITIES HAD NOT PRO PERLY EXAMINED THE WORKING FURNISHED BY THE ASSESSEE. 6. WITH REGARD TO THE OBSERVATIONS MADE BY THE LD. DRP, THE LD. A.R. SUBMITTED THAT DRP WAS NOT RIGHT IN OBSERVING THAT THE ASSESSEE COMPANY DID NOT HAVE SEGREGATED DATA FOR BOTH ITS SEGMENTS AS FAR AS WOR KING IT(TP)A NO.125/BANG/2014 GE BE PRIVATE LIMITED, BANGALORE PAGE 4 OF 6 CAPITAL IS CONCERNED. HE SUBMITTED THAT THE LD. DR P ITSELF HAS ALLOWED WORKING CAPITAL ADJUSTMENT IN RESPECT O F MANUFACTURING SEGMENT WHICH COULD NOT HAVE BEEN POSSIBLE WITHOUT AVAILABILITY OF SEGREGATED DATA. FURTHER, THE LD. DRP HAS OBSERVED THAT THE ASSESSEE COMPANY HAS TRIED TO APPORTION THE AMOUNTS IN THE RATIO OF TURN OVER IN BOTH THE SEGMENTS. HE SUBMITTED THAT THE SAID OBSERVATION OF LD DRP ARE ALSO NOT CORRECT, AS THE ASSESSEE HAS FURNISHED ACTUAL DETAILS RELEVANT TO T HE WORKING CAPITAL ADJUSTMENT IN RESPECT OF BOTH SEGME NTS. HE SUBMITTED THAT THE ASSESSEE DID NOT APPORTION AN Y AMOUNT IN THE RATIO OF TURNOVER IN RESPECT OF ASSES SEES WORKING CAPITAL FIGURES. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIE D IN REJECTING THE CLAIM OF WORKING CAPITAL ADJUSTMENT I N RESPECT OF ENGINEERING DESIGN SERVICES. 7. ON THE CONTRARY, THE LD. D.R. SUPPORTED THE ORDE R PASSED BY A.O./DRP. 8. WE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE FROM THE ASSESSEE HA S FURNISHED WITH REGARD TO THE WORKING CAPITAL ADJUST MENT BEFORE THE TPO AND THE SAME ARE PLACED AT PAGES 438 & 439 OF THE PAPER BOOK. WE NOTICE THAT THE ASSESSEE HAS FURNISHED DETAILED WORKINGS WITH REGARD TO ITS CLAI M. WE ALSO NOTICE THAT THE ASSESSEE HAS FURNISHED ACTUAL FIGURES IT(TP)A NO.125/BANG/2014 GE BE PRIVATE LIMITED, BANGALORE PAGE 5 OF 6 OF SUNDRY DEBTORS, SUNDRY CREDITORS AND INVENTORY PERTAINING TO ENGINEERING DESIGN SERVICES DIVISION IN THE ABOVE SAID WORKING. WE NOTICE THAT THE WORKINGS SO FURNISHED BY THE ASSESSEE HAVE NOT BEEN EXAMINED BY TPO AS WELL AS DRP. HENCE, IN OUR VIEW, THIS ISSUE REQ UIRES PROPER EXAMINATION AT THE END OF THE TPO BY DULY CONSIDERING THE WORKINGS FURNISHED BY THE ASSESSEE. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF T HE AO/TPO FOR EXAMINING IT AFRESH. 9. IN THE RESULT, THE GROUND NO.12 URGED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31.07.20 20. SD/- (PAVAN KUMAR GADALE ) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 31 ST JULY, 2020. VG/SPS IT(TP)A NO.125/BANG/2014 GE BE PRIVATE LIMITED, BANGALORE PAGE 6 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.