Myunghwa Automotive India Pvt. Ltd., Kancheepuram V. ACIT Corporate Circle 4(1), CHENNAI

ITTPA 25/CHNY/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3928 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 14-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 03-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Set aside
• Section: 201

Judgement Text

आयकरअपीलीयअिधकरण,‘डी’ यायपीठ,चे ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ी जी मंजूनाथा, लेखा सद के सम , ी अिनके श बनज , ाियक सद एवं BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER आयकर अपील सं./I.T.(TP)A No.:25/Chny/2019 िनधा रण वष /Assessment Year: 2011 – 2012 M/s. Myunghwa Automotive India Private Limited, No.112, Singadivakkam Village, Kancheepuram District, Tamil Nadu – 631 560 PAN : AAFCM 2148H Vs. The Assistant Commissioner of Income Tax, Corporate Circle – 4(1), No.121, Nungambakkam High Road, Chennai – 600 034. (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/Appellant by : Shri. S. Sankaranarayanan, Advocate यथ क ओरसे/Respondent by : Dr. S. Palani Kumar, CIT सुनवाई की तारीख/Date of Hearing : 07.06.2022 घोषणा की तारीख/Date of Pronouncement : 15.06.2022 आदेश /O R D E R PER ANIKESH BANERJEE, JM: The instant appeal was filed by the Assessee against the order of the learned Dispute Resolution Panel-2, Bengaluru, (in brevity “the DRP”) date of order 06.12.2018, the direction was made under section 144C(5) of the Income Tax Act, 1961 (in brevity “the Act”) for the assessment year 2011–2012. ::2 :: I.T.(TP)A No.:25/Chny/2019 2. The assessee has raised the following grounds which are as follows: - [1] Assessment order passed by AOÆPO are bad on facts and in law- 1.1 The Assessment Order is bad on facts and in law, to the effect giving effect to the order of the TPO is in violation of Principles of Natural Justice. 1.2 The order of the Ld. TPO is bad on facts and in law, to the extent applying the wrong direction of the Ld. DRP not allowing the +/-5% benefit, which is otherwise statutorily available, therefore to the extent the order of Top to be quashed 1.3 The Ld. DRP's order has also violated principle of natural justice in so far it attempts to enhance the downward adjustment by not allowing the +/5%, without either a reference from the Tribunal Order ÆPO with any specific show cause notice in this regard and hence to the extent the DRP order is also liable to be quashed. [2] The Ld. TPO failed to consider properly the directions of the tribunal with regard to one of the comparable company Dynamatic Technology and rejected this particular company's Automotive division on the pretext that it is less than I crore turnover, but the turnover of the company's division itself is Rs. 192.49 Crores. [3] The Ld. DRP erred in rejecting the +/- 5% range statutorily available to the Assessee Company. 3.1. The Ld. DRP totally misplaced by rejected +/-5% benefit, on the basis that the legal position with regard to 'standard deduction of 5% range' is already settled, without understanding the provisions of 92C(2), and without understanding the fact that the Assessee Company's margin is falling within the +/-5% range as per section 92C (2). [4] The Assessee desires leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of objections, at any time before or during the hearing. The Appellant submits that the above grounds are independent and without prejudice to another”. ::3 :: I.T.(TP)A No.:25/Chny/2019 2.1 During the Appellate proceedings the learned Counsel of the Assessee informed that Ground No.2 is not being pressed by him. And Ground No.4 is generally in nature. So, only the Ground Nos. 1 and 3 will be adjudicated. 3. The brief fact of the case is that the Revenue and the Assessee previously filed an appeal before the Co-ordinate Bench in ITAT Chennai Bench bearing I.T.A No.1186/Mds/2016 & C.O No.179/Mds/2016 for Assessment Year 2011-2012. The Co-ordinate Bench adjudicated the same issue and passed the order accordingly. The observation of the Co- ordinate Bench is as follows, paragraph Nos. 4 & 6 of the said order of the Tribunal. “4.0 One of the comparables selected by the T PO is M/s. Dynamatic Technologies Ltd. The average mean of the comparable worked out to 7.0%. The TPO has issued show cause notice to the assessee as to why the PLI of comparables @ 7.0% should not be adopted against the operating margins of 0.97% of the assessee. The assessee filed it's objections and after considering the objections of the assessee, the T PO has re-worked the average mean and PLI of comparable at 6.67% and suggested for downward adjustment of Rs.85,84,772/- in purchases. The AO issued draft Assessment Order as per T PO's suggestion of ALP and against the draft Assessment Order, the assessee has filed the objections before the DRP. One of the objections raised before the DRP was the selection of M/s. Dynamatic Technologies Ltd., as comparable which was rejected by the DRP. The DRP has issued the directions to the AO to allow working capital adjustment against which the Revenue has filed appeal before this Tribunal. The assessee filed cross-objections agitating various issues and one of ::4 :: I.T.(TP)A No.:25/Chny/2019 the grounds is objection for including M/s. Dynamatic Technologies Ltd., as comparable. 5.0. We heard both the parties and perused the material p;aced on record................. 6.0 Since the DRP has no power to remit the matter back to the file of the Assessing Officer/Transfer Pricing Officer [AO / TPO], we are of the considered opinion that the issue should go back to the file of the DRP to work out the correct amount of working capital adjustment and issue necessary directions to the AO / TPO. Accordingly, we set aside the issue and remit the matter back to the file of the DRP and the appeal of the Revenue is allowed for statistical purposes.” 3.1 In consequential effect of order of ITAT, Chennai Bench, the learned DRP passed an order on 06.12.2018. The observation of the learned DRP is as follows. Paragraph-5 of the DRP order is extracted as follows:- “5.0 Panel: We have carefully considered the computation of WCA submitted by the assessee and also the TPO. Having considered, the Panel directs the AO to allow working capital adjustment as per the computation reproduced above. However, the issue related to benefit standard deduction of 5% range has already been settled after amendment by finance Act 2009 and later by finance act 2012 (with retrospective effect from 1.4.2()02) and confirmed in various cases viz 24/7 Custoyner. Coyn (P.) Ltd v DCIT [2012] 28 taxmann.com 258 (Bang.), Bayer Crop Science Ltd. v. Add. CIT [2012] 25 taxmann. com 575 - Trib.), WC; IT' Services (India) Pvt. Ltd v. ITO (ITATDelhi Special Bench) that no such standard deduction of 5% is available to the assessee. We direct accordingly.” 3.2 As per the direction made in impugned order, the assessee is not allowed +/-@5% standard deduction of the working capital ::5 :: I.T.(TP)A No.:25/Chny/2019 adjustment in ALP. The working capital adjustment was set aside by the ITAT Chennai bench to the ld. DRP with certain direction as mentioned above. The DRP called the report from the ld. TPO. In this regard the learned TPO dispatched a report. In the remand report it was stated that comparable company M/s Dynamatic technologies Limited was rejected following the direction of ITAT. Thereafter the working capital adjusted TNM of the comparable companies. The margins of comparable is 2.55% as against the TNM of the assessee, the margin is .98%. The learned counsel had submitted the variation as +|-5%. The benefit should be allowed statutorily. 4. The learned counsel filed a written submission on 18.06.2019 which is kept in record. From the written submission the activity of the assessee is annexed in Page 56 of WS which is extracted as follows. “Background of the Assessee, relevant for A.Y 2011-12 1. Corporate Background Myunghwa Automotive Pvt ltd (“Myunghwa India") incorporated as Private Limited Company under the Companies Act, during September 2007. The Company is having its manufacturing facility in Sriperumbadur. The Company is mainly engaged in the manufacture of automobile products such as Water Pump Assembly and Oil Pump Assembly. The Company mainly caters to Original Equipment Manufacturers ("OEMs") Hyundai Motors India and its ancillary units. The company's shareholding as at 31-03-201 1 is as follows- ::6 :: I.T.(TP)A No.:25/Chny/2019 Paid Up Share Capital Rs: 463,807,190/- HELD BY Myunghwa Industrial Co Ltd: 100% 2. International transactions During the previous year relevant to assessment year ('AY') 201 1-12, [i.e. reievant to financial year ('FY') 2010-1 1], Myunghwa India had entered into the following international transactions with its AEs: Sl.NO. Particulars Amount (INR) (1) Import of Raw Material & Semi-finished Components 146,986,643 (2) Import of Capital Items 175,591,239 Royalty 3,855,441 The learned counsel further mentioned that the TPO studied made on five comparable on that basis The working capital adjustment the margin of comparable is 2.55% as against the margin of assessee that is .98%.” 4.1 The learned counsel of the assessee pointed out that the assessee company predominantly caters to domestic market 99%. Therefore, comparable was chosen and must also be those companies having their revenues from the same market having similar economic circumstances. This has been judicial settled. The assessee company adopted in its transfer pricing report, and export filter in this regard and rejected companies with more than 20% of the revenue. Unfortunately, without providing any reason, the ld. DRP has not considered the filter. The comparable company, Sundaram fasteners, has during financial year 2010–11 done exports to industrial sale of more than 25%. Further the company Sundaram Fasteners, is mainly into High Tensile Fastener, a different product ::7 :: I.T.(TP)A No.:25/Chny/2019 line. The learned counsel prepared a chart and annexed in page number 68 of his written submission which is extracted as under: Segmental Report of Dynamatic Technologies : (In Indian Rupees ‘000) Description HPE (Hydralic & Precision Engineering AC (Aluminium Casting) AUC (Automotive Components) ASP (Aerospace Division) WF (Wind Farm) Total Revenue 1,450,322 337,104 1,924,928 436,558 54,627 Total 1,450,322 337,104 1,924,928 436,558 54,627 4,203,539 Expenditure 1,128171 305,258 1,518,831 72,783 11.372 Excise Duty 108,350 673 194,391 1,429 0 Deprecia- tion 41,672 23,549 82,127 41,809 14,908 Total Expenses 1,278,193 329,480 1,795,349 116,021 26,280 Profit before Interest & Tax 172,129 -17,120 2,477 211,804 27,216 658,216 OPM% 11.87% (5.08)% 0.13% 48.52% 49.82% 15.66% The export of the assessee is only contributed 1% of its turnover and the link price calculation only the automotive segment. The operating margin of the said segment is .13% which alone needs to be considered instead of the percentage considered by the learned DRP. 5. The Learned Departmental Representative only relied on the order of the learned DRP. During the hearing, no such new point was raised against the assessee. ::8 :: I.T.(TP)A No.:25/Chny/2019 6. We heard the rival submission and relied on the documents available in the records. The Assessee company is not an export oriented company. The export has contributed 1% of its turnover. In the written submission the learned counsel elaborately explained that compatibles are not related with the accessories business. The learned DRP in the order has not adjudicated properly as per the direction of the ITAT Chennai Benches. The 5% variation in the working capital adjustment in relation to the comparable is a thumb rule. The 5% adjustment in WCA can be accepted during the calculation of ALP. The learned counsel respectfully submitted the following judgements that are as under: - I. M/s Reliable Cashew Company Private Limited vs. ACIT, CC V (3), Chennai. ITA no. 2237/MDS/2013 date of order 04.09.2015. 2015 (11) TNI 269-ITAT Chennai. II. Capgemini India Private Limited vs. The Addl. CIT, R- 10(2), Mumbai. IT no. 7729/M/2010. Date of order 25.05.2011 III. M/s IHG IT Services (India) Private Limited vs. ITO, Wd- 11(3), New Delhi. ITA no 5890/DEL/2010. Date of order 30.04.2013 6.1 Considering the above discussions, here we are concluding that the price charged by assessee was within +/-5% variation of the mean ALP which is within the tolerance margin. It is to be directed ::9 :: I.T.(TP)A No.:25/Chny/2019 that no addition is required to be made in such a case. The variation was calculated within the tolerance limit that is +/-@5%. The respectful consideration of the judgments of the Co-ordinate Benches of the Tribunal is in favour of Assessee. The revenue was unable to show the contradictory view against those referred judgments during the hearing before the Bench. So, the addition made by the learned Assessing Officer amounting to Rs.24,75,099/- is liable to be deleted. No other issue is yet to be discussed. The matter is disposed of accordingly. 7. In the result appeal of the Aseessee bearing IT(TP)A.25/Chny/ 2019 is allowed. Order pronounced in the court on 15 th June,2022at Chennai. Sd/- Sd/- (जीमंजूनाथा) (G. MANJUNATHA) लेखा सद /ACCOUNTANT MEMBER (अिनके श बनज ) (ANIKESH BANERJEE) ाियकसद एवं /JUDICIAL MEMBER चे(ई/Chennai, िदनांक/Dated, the15th June, 2022 IA, Sr. PS आदेशकी*ितिलिपअ,ेिषत/Copy to: 1. अपीलाथ /Appellant 2. *-थ /Respondent 3. आयकरआयु. (अपील)/CIT(A) 4. आयकरआयु./CIT 5. िवभागीय*ितिनिध/DR 6. गाड3फाईल/GF