Dymos Lear Automotive India Private Limited, Kancheepuram V. ACIT, CHENNAI

ITTPA 78/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5561 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 16 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 15-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 29-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 92D

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBE R ./ IT (TP) NO. 78 /CHNY/2018 / ASSESSMENT YEAR: 20 13 - 1 4 M/S. DYMOS LEAR AUTOMOTIVE INDIA PVT. LTD., A6 & A7, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI, SRIPERUMBUDUR TALUK, KANCHIPURAM 602 105. VS. ASST. COMMISSIONER OF INCOME TAX, CORPORATE RANGE - 1, CHENNAI. [PAN : AACCD 7225K ] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SANDEEP BAGMAR, ADVOCATE /RESPONDENT BY : SHRI SRINIVASA RAO, CIT / DATE OF HEARING : 08 .0 5 .2019 / DATE OF PRONOUNCEMENT : 15 .0 5 .2019 / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER : THE ASSESSEE F ILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS) - 4 , CHENNAI, IN ITA NO. 403/2016 - 17/A.Y. 2013 - 14/CIT(A) - 4 DATED 19.09.2018 FOR THE ASSESSMENT YEAR ( AY ) 20 13 - 14 2. M/S. DYMOS LEAR AUTOMOTIVE INDIA PVT. LTD., THE ASSESSEE , IS IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILE SEATS. M/S. DYMOS, KOREA IT (TP) NO. 78 / CHNY /201 8 : - 2 - : WAS 65% SHAREHOLDER IN THE ASSESSEE COMPANY AND ALL THE DESIGN AND TECHNICAL DRAWINGS OF THE SEATS WERE MADE BY M/S. DYMOS, KOREA AND THE ASSESSEE WAS ONLY DOING MANUFACTURING OF SEATS IN INDIA. DURING THE ASSESSMENT YEAR 2013 - 14, T HE ASSESSEE HAD PAID RS. 1.86 CR. AS TECHNICAL AND MANAGEMENT SERVICE FEE TO M/S. DYMOS, KOREA. T HE ASSESSEE HAD TURN OVER OF NEARLY RS. 846.66 CR. AND THE NET OPERATING PROFIT WAS NEARLY RS. 31.66 CR. GIVING A PROFIT MARGIN OF 3.73% . T HE ASSESSEE HAD APPLIED TNMM METHOD AND IN ITS TP REPORT, NO ADJUSTMENT WAS CALLED FOR. HOWEVER, THE TPO APPLIED CUP METHOD AND HELD THAT THE TRANSFER PRICING ADJUSTMENT OF THE ENTIRE TECHNICAL AND MANAGEMENT SERVIC E FEE PAID TO M/S. DYMOS, KOREA WAS LIABLE TO BE ADDED BACK UNDER THE TRANSFER PRICING ADJUSTMENT. ON THE ASSESSEE S REQUEST, THE A O PASSED THE FINAL ORDER AGAINST WHICH, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) . T HE LD CIT(A) DISMISSED T HE APPEAL. AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL. 3. AT THE TIME OF HEARING, THE LD.AR SUBMITTED THAT ALTHOUGH THE ASSESSEE HAS TAKEN VARIOUS GROUNDS IN THIS APPEAL , THE ONLY ISSUE IN THE ASSESSEE'S APPEAL WAS AGAINST TRANSFER PRICING A DJUSTMENT MADE IN RESPECT OF PAYMENT OF TECHNICAL AND MANAGEMENT SERVICE FEE TO M/S. DYMOS, KOREA VIZ GROUND NOS 3, 4 & 9 ONLY , WHICH ARE EXTRACTED AS UNDER: IT (TP) NO. 78 / CHNY /201 8 : - 3 - : 3 . THE LEARNED CIT(A) AND THE TPO FAILED TO APPRECIATE THAT THE TNMM METHOD ADOPTED BY THE APPE LLANT FOR DETERMINING THE ARM S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION IN ITS TRANSFER PRICING DOCUMENTATION MAINTAINED UNDER SECTION 92D OF THE ACT READ WITH RULE 1OD OF THE INCOME TAX RULES, 1962 ( RULES WHEREIN IT HAS ESTABLISHED THAT THE ARITHM ETIC MEAN OF NET OPERATING MARGIN OF THE APPELLANT WAS HIGHER THAN THE COMPARABLE COMPANIES. 4 . THE LEARNED CIT(A) AND THE TPO FAILED TO APPRECIATE THAT BASED ON THE TNMM APPLIED BY THE APPELLANT IN ITS TP DOCUMENTATION STUDY, THE NET OPERATING PROFIT MARG IN ARRIVED AFTER DEDUCTING THE TECHNICAL AND MANAGEMENT SERVICE CHARGES WAS HIGHER THAN THE ARITHMETIC MEAN OF COMPARABLE COMPANIES, THEREBY ASSERTING THE ARM S LENGTH NATURE OF INTERNATIONAL TRANSACTIONS. 9 . THE CIT (A) GROSSLY ERRED IN NOT FOLLOWING THE DECISION OF THE JURISDICTIONAL TRIBUNAL IN APPELLANT S OWN CASE WHEREIN THE TRIBUNAL REMANDED THE ISSUE BACK TO THE TPO AND TO VERIFY IF THE TRANSACTION WAS AT ARM S LENGTH PRICE. SUBSEQUENTLY, THE TPO HAS VERIFIED THE TRANSACTION AND FOUND THE SAME TO BE AT ARM S LENGTH AND CONSEQUENTLY, DELETED THE ADJUSTMENT. 3.1 THE LD AR SUBMITTED THAT HE IS NOT ARGUING ALL OTHER GROUNDS AND TO THIS EFFECT , HE MADE AN ENDORSEMENT IN THE RECORD. 4. AT THE TIME OF HEARING, IT WAS FAIRLY AGREED BY BOTH THE SID ES THAT THE ABOVE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE AY 2010 - 11 IN ITA NO.928 & 943/MDS/2015 & CO NO.48/MDS/15 WHEREIN THE CO - ORDINATE BENCH OF THIS TRIBUNAL H AS HEL D AS UNDER : 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN PLEA OF THE LD.A.R IS THAT TO ACHIEVE PROJECTED REVENUE. THE ASSESSEE INCURRED MANAGEMENT FEES EXPENSES AND THERE IS NO NECESSITY OF TP ADJUSTMENTS ON THIS ISSUE. FURTHER, HE SUBMITTED THAT ALL INTERNATIONAL TRANSACTION ON AGGREGATE BASIS TO BE CONSIDERED TO DETERMINE THE ALP. FURTHER, IT WAS STATED IN THE ABSENCE OF IDENTICAL UN - CONTROLLED PRICE, THE CUP METHOD WAS NOT IT (TP) NO. 78 / CHNY /201 8 : - 4 - : POSSIBLE. HENCE, TNMM METHOD IS MOST APPROPRIA TE. AT THIS STAGE, WE ARE OF THE OPINION THAT IT IS NOT APPROPRIATE TO COMMENT ON THE METHOD TO BE FOLLOWED WHETHER TNMM OR CUP TO DETERMINE THE ALP. FIRST OF ALL, THE TPO/AO HAS TO ASCERTAIN WHETHER TECHNICAL MANAGEMENT SERVICE EXPENSES ARE AT ARM'S LENGT H OR NOT, AS COMPARE TO THE ACTUAL SALES ACHIEVED BY THE ASSESSEE. ACCORDINGLY, HE HAS TO RECONSIDER THE ISSUE AFRESH. IN THE LIGHT OF OUR OBSERVATION IN ASSESSEE'S APPEAL, THIS ISSUE IS REMITTED TO THE FILE OF AO FOR FRESH CONSIDERATION. 5. IT WAS FURT HER CLARIFIED BY THE LD.AR THAT FOR THE AY 2010 - 11, THE TPO HAD ALLOWED THE ISSUE AS PER THE DIRECTIONS OF THE TRIBUNAL AND NO ADJUSTMENT WAS MADE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS CLEAR FROM THE ABOVE THAT THE ISSUE IN THIS APPEA L BEFORE US IS IN RESPECT OF THE TRANSFER PRICING ADJUSTMENT IN REGARD TO THE TECHNICAL AND MANAGEMENT SERVICE FEE PAID BY THE ASSESSEE TO M/S. DYMOS, KOREA , WHICH IS SQUARELY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE AS SESSEE'S OWN CASE FOR THE AY 2010 - 11 . R ESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE REFERRED TO SUPRA, THE ISSUE IN THIS APPEAL IS ALSO RESTORED TO THE FILE OF THE AO ON THE IDENTICAL DIRECTIONS AS GIVEN BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE AY 2010 - 11. SINCE THE ASSESSEE HAS NOT ARGUED ON ALL OTHER GROUNDS IN THIS APPEAL, THEY ARE TREATED AS DISMISSED. IT (TP) NO. 78 / CHNY /201 8 : - 5 - : 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 15 TH MAY , 2019 IN CHENNAI. SD/ - SD/ - ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( . ) ( S. JAYARAMAN ) / ACCOUNTANT MEMBER / CHENNAI, / DATED: 15 TH MAY , 2019 . EDN, SR. P.S / COPY TO: 1. / APPELLANT 2. / RESPONDENT 3. ( ) / CIT(A) 4. / CIT 5. / DR 6. / GF