Poclain Hydraulics Private Limited, Pondicherry V. DCIT, CHENNAI

ITTPA 32/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4312 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 24-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 05-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RAMAKRISHNAN
• Keywords: Transfer pricing; International transaction; Additional evidence; Set aside

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, CHENNAI . . . , , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.(TP).A.NOS.32 & 33/CHNY/2019 & I.T.A. NO.944/CHNY/2019 ( [ [ / ASSESSMENT YEARS: 2013-14, 2014-15 & 2015-16) M/S. POCLAIN HYDRAULICS PVT. LTD., NO.131/2, KOTHAPURINATHAM ROAD, MANNIPET COMMUNE, THIRUVANDAR KOIL, PONDICHERY 605 102. VS THE DEPUTY COMMISSIONER OF INCOME TAX, PONDICHERRY CIRCLE, PONDICHERRY. PAN: A AECP0947Q ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE / RESPONDENT BY : SHRI S. RAMAKRISHNAN, CIT /DATE OF HEARING : 22.01.2020 /DATE OF PRONOUNCEMENT : 24.02.2020 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : ALL THE THREE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), PUDUCHERRY DATED 31.01.2019 AND PERTAINS TO THE ASSESSMENT YEARS 2013-14, 2014-15 & 2015-16. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THE APPEALS, WE HEARD THE SAME TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2 IT(TP)A NOS.32 & 33/CHNY/2019 & I.T. NO..944/CHNY/2019 2. SHRI S.P. CHIDAMBARAM, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS PART OF M/S. POCLAIN HYDRAULICS GROUP OF COMPANIES HAVING ITS HEAD QUARTERS AT FRANCE. THE ASSESSEE PRIMARILY ENGAGED IN MANUFACTURING HYDRAULIC MOTORS AND MOTOR PARTS AND EXPORTS THE SAME TO ITS ASSOCIATED ENTERPRISES AS WELL AS SELL IN THE DOMESTIC MARKET. FOR THE ASSESSMENT YEAR 2013-14 AND 2014-15, THE ASSESSEE ENTERED IN TO VARIOUS INTERNATIONAL TRANSACTIONS IMPORTING RAW MATERIALS, EXPORT OF FINISHED GOODS, WARRANTY AND PAYMENT OF CORPORATE SERVICE FEES. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR BENCHMARKING THE INTERNATIONAL TRANSACTION IN RELATION TO IMPORT OF RAW MATERIALS AND EXPORT OF FINISHED GOODS. HOWEVER, IN RELATION TO PURCHASE OF TANGIBLE ASSET AND INTEREST ON EXTERNAL COMMERCIAL BORROWING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WAS ADOPTED. THE ASSESSEE HAS ALSO ADOPTED COST PLUS METHOD (CPM) IN RELATION TO COMMERCIAL AGENCY SERVICES AS MOST APPROPRIATE METHOD. 3. THE SUBJECT MATTER OF PRESENT APPEAL BEFORE THIS TRIBUNAL, ACCORDING TO THE LD.COUNSEL IS ON ACCOUNT OF DISALLOWANCE OF CORPORATE SERVICE FEE PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES OUTSIDE 3 IT(TP)A NOS.32 & 33/CHNY/2019 & I.T. NO..944/CHNY/2019 THE COUNTRY. THE CORPORATE SERVICES FEE WAS PAID FOR SALES AND APPLICATION ENGINEERING, QUALITY, INSURANCE, LEGAL, FINANCING, HR, GENERAL POLICIES AND STRATEGIES. THE TNMM WAS ADOPTED AFTER TAKING IN TO CONSIDERATION THE DEBIT OF CORPORATE SERVICE FEES. THE LD. COUNSEL, FURTHER SUBMITTED THAT FOR OVERALL BENCHMARKING ANALYSIS UNDER TNMM ON AGGREGATE BASIS INCLUSIVE OF CORPORATE SERVICE FEES WAS ACCEPTED BY THE TPO TO BE AT ARMS LENGTH. HOWEVER, THE CORPORATE SERVICE FEES WAS ONCE AGAIN INDEPENDENTLY EVALUATED BY THE TPO ADOPTING COMPARABLE UNCONTROLLED PRICE METHOD. 3.1 THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE ENTERED INTO CORPORATE SERVICES AGREEMENT WITH ITS ASSOCIATED ENTERPRISES AND PAID CORPORATE SERVICES FEES TO ALL GROUP COMPANIES WITH AN AGREED MARK-UP OF 3% AND 6% FOR VARIOUS CATEGORIES OF SERVICES AVAILED FROM ITS ASSOCIATED ENTERPRISES. THE TPO WITHOUT APPRECIATING THE EVIDENCES FILED BY THE ASSESSEE APPLIED COMPARABLE UNCONTROLLED PRICE METHOD WITHOUT SELECTING ANY COMPARABLE COMPANIES BY PROPOSING ADHOC ADJUSTMENT ON PERCENTAGE BASIS FOR VARIOUS SERVICES. FOR THE ASSESSMENT YEAR 2014-15, THE ASSESSING OFFICER WITHOUT REFERRING THE MATTER TO THE TPO HAS MADE SUO-MOTTO TRANSFER PRICING ADJUSTMENT. REFERRING TO SECTION 92CA(1) 4 IT(TP)A NOS.32 & 33/CHNY/2019 & I.T. NO..944/CHNY/2019 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), THE LD. COUNSEL SUBMITTED THAT THE ASSESSING OFFICER HAVE PRECLUDED FROM MAKING ANY TRANSFER PRICING ADJUSTMENT ON HIS OWN. IF AT ALL THERE WAS ANY TRANSFER PRICING ADJUSTMENT, THE ASSESSING OFFICER IS BOUND TO REFER THE ISSUE TO THE TPO. ONCE THE TPO MADE ADJUSTMENT WITH REGARD TO INTERNATIONAL TRANSACTION AS PROVIDED IN SECTION 92CA(4) OF THE ACT, THE ASSESSING OFFICER IS BOUND TO INCORPORATE THE ADJUSTMENT PROPOSED BY THE TPO. MOREOVER THE ASSESSEE HAS FILED FRESH MATERIAL BEFORE THE TPO FOR THE ASSESSMENT YEAR 2014-15 WITH REGARD TO CORPORATE SERVICES FEES. IN FACT, ADDITIONAL MATERIAL FILED BY THE ASSESSEE BEFORE THE TPO AND CIT(A) WITH REGARD TO SERVICES AVAILED BY THE ASSESSEE FROM ITS ASSOCIATED ENTERPRISES OUTSIDE THE COUNTRY. THE LD.COUNSEL FURTHER SUBMITTED THAT OFCOURSE THE ASSESSEE COULD NOT FILE ALL THE MATERIALS BEFORE THE TPO. THE PART OF THE MATERIAL EVIDENCING THE SERVICES AVAILED BY THE ASSESSEE WAS PRODUCED BEFORE THE ASSESSING OFFICER, SOME OF THE DOCUMENTS WAS PRODUCED ONLY BEFORE THE CIT(A). THE LD.COUNSEL FURTHER SUBMITTED THAT SOME MORE DOCUMENTS HAVE BEEN FILED BEFORE THIS TRIBUNAL IN THE PRESENT APPEALS WHICH ALSO SHOWS THAT THE ASSESSEE HAS RECEIVED CORPORATE SERVICES FROM THE ASSOCIATED ENTERPRISES. THE ASSESSING OFFICER WITHOUT CONSIDERING ALL THOSE DOCUMENTS AND WITHOUT SELECTING ANY COMPARABLE COMPANIES MADE 5 IT(TP)A NOS.32 & 33/CHNY/2019 & I.T. NO..944/CHNY/2019 ADHOC ADJUSTMENT ON PERCENTAGE BASIS FOR THE VARIOUS SERVICES AVAILED BY THE ASSESSEE. EVEN THOUGH ADDITIONAL EVIDENCES WERE FILED BEFORE THE CIT(A), THE CIT(A) HAS SIMPLY CONFIRMED THE FINDING OF THE TPO BY HOLDING THAT THE EVIDENCES DOES NOT COMMENSURATE WITH THE SERVICES AVAILED BY THE ASSESSEE. THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE HAS FILED MAJORITY OF THE DOCUMENTS BEFORE THE TPO AS WELL AS BEFORE THE CIT(A) AND NOW BEFORE THIS TRIBUNAL AND THE ASSESSEE ALSO INDEPENDENTLY DEPUTED SOME PERSONNEL FOR COLLECTING SOME MORE EVIDENCES WITH REGARD TO SERVICES AVAILED BY THE ASSESSEE. THE LD.COUNSEL FURTHER SUBMITTED THAT THE DOCUMENTS ALREADY FILED BEFORE THE TPO AND CIT(A) WAS NOT CONSIDERED BY ANY OF THE AUTHORITIES BELOW. MOREOVER THE DOCUMENTS NOW FILED BEFORE THIS TRIBUNAL ALSO NEEDS TO BE EXAMINED BY THE ASSESSING OFFICER AFTER REFERRING THE MATTER TO THE TPO. REFERRING TO THE DECISION OF THE BENCH OF THIS TRIBUNAL IN DCIT VS. FLAKT (INDIA) LTD., IN ITA NO.1032/MDS/2014 DATED 09.06.2016, THE LD.COUNSEL SUBMITTED THAT WITHOUT IDENTIFYING COMPARABLE CASES, THE TPO CANNOT ESTIMATE ANY DISALLOWANCE. IN THIS CASE ALSO, THE TPO WITHOUT IDENTIFYING ANY OF THE COMPARABLE CASES BY ADOPTING COMPARABLE UNCONTROLLED PRICE METHOD ESTIMATED THE DISALLOWANCE. THIS TRIBUNAL IN THE CASE OF M/S. BONFIGLIOLI 6 IT(TP)A NOS.32 & 33/CHNY/2019 & I.T. NO..944/CHNY/2019 TRANSMISSIONS PVT. LTD., VS. DCIT IN ITA NO.2977/CHNY/2017 DATED 14.05.2018 HAS TAKEN A SIMILAR VIEW. 3.2 IN VIEW OF THE ABOVE ADDITIONAL EVIDENCES FILED BEFORE THIS TRIBUNAL AND ALSO BEFORE CIT(A) AND THE ASSESSEE HAS ALSO IN THE PROCESS OF COLLECTING SOME MORE EVIDENCE TO SUPPORT THE SERVICES AVAILED BY THE ASSESSEE, THE LD.COUNSEL SUBMITTED THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER SO THAT THE TPO COULD RECONSIDER THE MATTER AFRESH IN THE LIGHT OF THE MATERIAL FILED BY THE ASSESSEE. 4. WE HAVE HEARD SHRI S. RAMAKRISHNAND, THE LD. DEPARTMENTAL REPRESENTATIVE ALSO. ACCORDING TO THE LD.DR, THE ASSESSEE HAS FILED ADDITIONAL MATERIAL BEFORE THIS TRIBUNAL. THEREFORE HE HAS NO OBJECTION TO REMIT BACK THE MATTER TO THE ASSESSING OFFICER FOR RECONSIDERATION. 5. HAVING HEARD THE LD. COUNSEL FOR THE ASSESSEE AND THE LD.DR, THIS TRIBUNAL FINDS THAT THE ASSESSEE HAS NOT FILED THE ENTIRE MATERIAL TO ESTABLISH THE SERVICES AVAILED FROM THE ASSOCIATED ENTERPRISES OUTSIDE THE COUNTRY. THE PART OF THE DOCUMENTS ARE FILED BEFORE THE TPO, 7 IT(TP)A NOS.32 & 33/CHNY/2019 & I.T. NO..944/CHNY/2019 ANOTHER PART OF THE DOCUMENTS ARE FILED BEFORE THE CIT(A). NOW THE ASSESSEE HAS FILED PART OF THE DOCUMENTS BEFORE THIS TRIBUNAL FOR THE FIRST TIME. THE ASSESSEE ALSO CLAIMS THAT THEY WERE IN THE PROCESS OF COLLECTING REMAINING DOCUMENTS TO SUPPORT THE SERVICES AVAILED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, AS RIGHTLY SUBMITTED BY THE LD.COUNSEL AND THE LD.DR, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY THE ORDERS OF ALL THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSUE RAISED BY THE ASSESSEE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REFER THE MATTER TO THE TPO ONCE AGAIN. ON SUCH REFERENCE, THE TPO SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE MATERIAL ALREADY FILED BY THE ASSESSEE AND THAT MAY ALSO BE FILED IN THE COURSE OF PROCEEDINGS BEFORE HIM AND THEREAFTER DECIDE THE ISSUE AFRESH AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. THE ASSESSING OFFICER AFTER RECEIVING THE ORDER OF THE TPO SHALL FOLLOW THE PROCEDURE AS PRESCRIBED UNDER THE SCHEME OF INCOME TAX ACT AND PASS AN APPROPRIATE ORDER. WITH THE ABOVE OBSERVATION ALL THE THREE APPEALS OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 8 IT(TP)A NOS.32 & 33/CHNY/2019 & I.T. NO..944/CHNY/2019 6. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE STAND ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 24 TH FEBRUARY, 2020 AT CHENNAI. SD/- SD/- ( ) (RAMIT KOCHAR) /ACCOUNTANT MEMBER ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER /CHENNAI, /DATED, THE 24 TH FEBRUARY, 2020. RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. [ /GF