SANMINA -SCI INDIA PVT LTD, KANCHEEPURAM V. ACIT, CORP CIR-6(1), CHENNAI

ITTPA 82/CHNY/2018

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 1849 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 04-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 10AA

Judgement Text

आयकर अपीलीय अिधकरण, ‘डी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI Įी महावीर ͧसंह, उपाÚय¢ एवं ᮰ी जी. मंजुनाथ, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.: 82/CHNY/2018 िनधाᭅरण वषᭅ /Assessment Year: 2014-15 M/s. Sanmina – SCI India Pvt. Ltd., Plot OZ-1, SIPCOT Hi-Tech SEZ, Oragadam, Sriperumbudur Taluk, Kancheepuram District – 602 105. PAN: AAFCS 8737E v. The ACIT, Corporate Circle-6(1), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Vikram Vijayaraghavan, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Dr. S. Palani Kumar, Addl. CIT स ु नवाई कȧ तारȣख/Date of Hearing : 01.02.2022 घोषणा कȧ तारȣख/Date of Pronouncement : 04.02.2022 आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the assessee is arising out of the assessment order framed by ACIT, Corporate Circle 6(1), Chennai for the relevant assessment year 2014-15 u/s. 143(3) r.w.s. 92CA(4) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter the ‘Act’), order dated 29.10.2018 which was passed in consequence to directions of DRP-2, Bengaluru, u/s.144C(5) of the Act, dated 07.09.2018. 2 I.T.(TP)A. No.82/Chny/2018 2. At the outset, Shri Vikaram Vijayaram, the ld. Counsel for the assessee drew our attention to the petition filed for admission of additional grounds raised under Rule 11 of Income Tax Appellate Tribunal Rules, vide letter dated 21.09.2021. The ld.counsel for the assessee particularly drew our attention to Ground No.22 relating to the issue of Advance Pricing Agreement entered into subsequently for assessment years 2015-16 to 2019-20 and accepted by the Department. The ld.counsel drew our attention to Ground No.22, which reads as under:- “Ground No.22: As facts of case and applicable law remain identical during period under appeal and the years relating to which Advance Pricing Agreement (APA) was entered into subsequently, the basis adopted and conclusion reached in APA years deserves to be consistently applied to the year under appeal.” 2.1 The ld.counsel stated that the above appeal has been filed in respect of assessment year 2014-15 raising various grounds challenging the impugned assessment order passed by the ACIT, making transfer pricing adjustments and disallowance of expenditure incurred in foreign currency on corporate grounds as well as other corporate grounds. The ld.counsel also stated that the assessee bonafide believed that it has raised all the grounds required to challenge the impugned assessment order but now it has been advised to raise additional grounds arising after the assessee has signed the Advance Pricing Agreement [APA] with the 3 I.T.(TP)A. No.82/Chny/2018 Central Board of Direct Taxes on 15.03.2019 for the relevant assessment years 2015-16 to 2019-20. The ld.counsel stated that the Department has settled the dispute in regard to APA entered with CBDT for the assessment years 2015-16 to 2019-20 and there is no dispute now remains for these four assessment years. The ld.counsel stated that as the facts of the case and applicable law remains identical during the period 2013-14 relevant to this assessment year 2014-15 and the years relating to which the petitioner entered into APA with CBDT subsequently and hence, this being a legal issue goes to the root of the matter and further, the additional ground may kindly be admitted and decided on merits. The ld.counsel for the assessee, on a query from the Bench replied that additional ground Nos.23 & 24 and transfer pricing grounds i.e., Ground Nos.1 to 7 in regard to issue No.1 and Ground Nos. 8 to 14 in regard to issue No.2 of TP need not be adjudicated in case, the first issue is admitted and adjudicated on merits. For admissibility of additional grounds, ld.counsel for the assessee relied on the decisions of  Hon’ble Supreme Court in the case of National Thermal Power Co Ltd, 229 ITR 383 (SC)  Hon’ble Supreme Court in the case of CIT vs. Associated Stone Industries, 224 ITR 560 (SC)  Hon’ble Delhi High Court in the case of CIT vs. M.K. Yashwant Singh, 231 ITR 145 (Delhi) 4 I.T.(TP)A. No.82/Chny/2018 In view of the above, the ld.counsel stated that the additional ground raised as regard to Advance Pricing Agreement be admitted and be adjudicated. 3. On the other hand, the ld.CIT-DR, Dr. S.Palani Kumar, stated that he wants to argue the matter on merits but could not point out as to why the additional ground regarding Advance Pricing Agreement be not admitted. He stated that the assessee has filed Advance Pricing Agreement vide application dated 21.09.2021 along with petition for admission of additional supporting evidences under Rule 29 of Income Tax Appellate Tribunal Rules, 1963. He stated that this document is a new document and cannot be admitted at this stage because the same was not available before the lower authorities. 4. In reply, the ld.counsel for the assessee stated that Advance Pricing Agreement entered by the assessee with the CBDT is only on 15.03.2019 and this is relating to assessment years 2015-16 to 2019-20. He stated that this evidence was not available at the time of assessment or on filing of return of income and this is entered by the assessee with the CBDT but there is no distinguish fact rather facts of the case and applicable law remains identical even during 5 I.T.(TP)A. No.82/Chny/2018 the period under appeal i.e., financial year 2013-14 relevant to assessment year 2014-15. 5. We have heard rival contentions and admissibility of additional ground i.e., Ground No.22 as reproduced above. We have also gone through the facts mentioned by the TPO in its order as well as considered by the DRP. As pointed out by the ld.counsel during the course of hearing, these transactions as per Advance Pricing Agreement is covered as per para 3. The same reads as under:- “3. Covered Transaction(s) The international transactions of: a) import of raw materials and components used in manufacturing of Electronic components; b) export of finished goods; c) Services received / services rendered (incidental to the manufacturing business); and d) Receivable / payable” In this year also, i.e., financial year 2013-14 relevant to assessment year 2014-15 facts are exactly identical as per the orders of lower authorities. The ld.counsel for the assessee also drew our attention to Para 6.1 and stated that margin on covered transactions of Advance Pricing Agreement in regard to operating profit margin is less than 3.5%. The relevant clause 6.1 reads as under:- “ Arm’s Length Price (ALP) 6 I.T.(TP)A. No.82/Chny/2018 6.1 All the international transactions of import of raw materials and components used in manufacturing of electronic components, export of finished goods, services received/services rendered (incidental to the manufacturing business) and receivables and payable shall be benchmarked at aggregate level (inclusive of non-AE sales and purchases) and the ALP of the covered transactions shall be the operating profit margin of not less than 3.5%.” 5.1 We noted that the Revenue itself has admitted this Advance Pricing Agreement for the assessment years 2015-16 to 2019-20 and facts are almost identical. Hence, we admit this additional ground as well as admit the additional supporting evidences as pointed out in petition. 6. The ld.counsel for the assessee pointed out that because there is no adjudication on this issue of Advance Pricing Agreement and what should be the profit margin whether as per APA transactions are covered, this needs verification by the Revenue authorities. Hence, this issue can be remitted back to the file of the AO who in turn can refer the matter to TPO for investigation and examination. He stated that in case, this issue is allowed in favour of assessee, addition of other TP issues raised by way of Ground Nos.1 to 7 on the issue of upward transfer pricing adjustment in the case of manufacturing operations and Ground Nos.8 to 14 on the issue of upward transfer pricing adjustment in the case of interest on outstanding receivables will become academic only. Hence, he 7 I.T.(TP)A. No.82/Chny/2018 requested that this matter may be restored back to the file of AO for adjudication of Advance Pricing Agreement and in case, that is allowed in favour of assessee, then all other issues will become academic and need no adjudication. But he stated that in case, this issue goes against the assessee then the AO be directed to adjudicate the other TP issues also afresh. 7. Per contra, the ld.CIT-DR has not made any serious arguments on this. He only supported the orders of lower authorities but stated that ‘yes’ the matter can be examined at the level of AO as well as the TPO. 8. After hearing rival contentions and perusing the case records and additional grounds and additional evidences, we set aside the issue of Advance Pricing Agreement for verification of the AO whether the facts of the case and applicable law remains identical during the period under appeal i.e., financial year 2013-14 relevant to assessment year 2014-15 as compared to subsequent years where APA was already considered by the Revenue authorities. In term of the above, matter is restored back to the file of the AO. 8 I.T.(TP)A. No.82/Chny/2018 9. Coming to corporate ground of disallowance of expenditure incurred in foreign currency, the assessee has raised Ground Nos.15 to 17 on merits which reads as under:- “15. The Hon’ble DRP/learned AO have erred in law and facts in arbitrarily disallowing the expenditure in foreign currency of INR 2,43,34,595. 16. The Hon’ble DRP/learned AO have failed to appreciate that the Appellant has provided the detailed break up of all expenses and has, considering the voluminous nature of data, provided the nature of payment. 17. The Hon’ble DRP / learned AO have erred by not considering the sample invoices submitted as sufficient evidence to demonstrate the nature of transactions and disallowed the balance arbitrarily. The assessee has also raised alternative ground in case addition is upheld, deduction u/s.10AA of the Act in connection with the above mentioned adjustment / disallowance be increased as a consequence. For this, assessee has raised following Ground No.18:- 18. Without prejudice to the above, the Hon’ble DRP has erred in law by not granting deduction under section 10AA of the Act in connection with the above mentioned adjustment. 10. We have heard rival contentions and gone through facts and circumstances of the case. The ld.counsel for the assessee before us filed additional supporting evidences under Rule 29 of Income Tax Appellate Tribunal Rules, 1963 and stated the fact that the assessee has submitted a detailed break-up of all expenses incurred 9 I.T.(TP)A. No.82/Chny/2018 in foreign currency, furnished copy of ledgers and sample invoices which are voluminous in nature and provided in support of its claim before the lower authorities. It was stated that the assessee has claimed the total expenditure incurred in foreign currency at Rs.5,95,25,676/- and the AO and the DRP has allowed the claim on account of production of invoices, to the extent of Rs.3,51,91,081/-. The balance disallowance remains at Rs.2,43,34,595/-. Now, the ld.counsel for the assessee stated that the assessee has produced now some additional invoices totaling approximately to the extent of 91% of the total value of invoices and he stated that on the same reasoning, these evidences be admitted and matter can be restored back to the file of the AO for verification and investigation into these invoices and accordingly, decide the issue. 11. The ld.CIT-DR objected to admissibility of evidences by stating that the assessee was having these evidences even at the time of assessment and there is no reason for admission of these evidences. But, we have gone through the papers filed by the assessee i.e., invoices in its paper-book, wherein percentage of invoices, in term of value, is submitted to the extent of 91%. These are in the nature of repairs & maintenance, miscellaneous expenses, legal and professional, consumption of stores and spares, 10 I.T.(TP)A. No.82/Chny/2018 communication expenses and others (bank charges, factory expenses, rates and expenses, staff welfare). By going through the nature of these expenses and the fact that the AO and DRP has allowed these expenses particularly on the basis of invoices, let these evidences be admitted and matter can be remanded back to the file of the AO for verification and investigation about genuineness of these invoices. In term of the above, we restore back this issue to the file of the AO and this corporate ground is also allowed for statistical purpose. 12. In the result, the appeal filed by the assessee is allowed for statistical purpose. Order pronounced in the court on 4 th February, 2022 at Chennai. Sd/- Sd/- (जी. मंजुनाथ) (G. MANJUNATHA) लेखा सद᭭य /ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 4 th February, 2022 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ (अपील)/CIT(A) 4. आयकर आयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.