LANXESS INDIA P.LTD, THANE V. ASST CIT CIR 1, THANE

MA 104/MUM/2023

AI Insights

The case involves Lanxess India Pvt. Ltd., which sought a recall/rectification of the Tribunal's order concerning transfer pricing adjustments for the assessment year 2009-10. The original dispute centered on whether the transfer pricing adjustment should apply to the entire manufacturing turnover or just to the international transactions with associated enterprises. The Tribunal initially directed a comparison of the export segment of the assessee with that of comparable companies, which was contested by the assessee. Upon review, the Tribunal acknowledged the error and rectified the order to limit the adjustment to transactions with AEs only.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123757 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 09-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 20-04-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 26-01-2023
• Other Referred Cases: THY INDUSTRIES INDIA P. LTD Vs. ACIT, TARA JEWELS EXPORTS P. LTD Vs. ACIT, THYSSENKRUPP INDUSTRIES INDIA P. LTD Vs. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K” MUMBAI BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) M.A. No. 104/MUM/2023 (Arising out of ITA No. 2628/MUM/2014) Assessment Year: 2009-10 Lanxess India Pvt. Ltd., Lanxess House, Plot No. 162- 164, Road No. 27, MIDC Wagle Estate, Thane (W)-400604 Vs. ACIT Circle-1, 6 th floor, Asher IT Park, Road No. 16Z, Wagle Industrial Estate, Thane. PAN No. AACCB 3880 A Appellant Respondent Assessee by : Dhanesh Bafna/Ms. Riddhi Maru Revenue by : Smt. Anne Varghese, DR Date of Hearing : 21/04/2023 Date of pronouncement : 10/07/2023 ORDER PER OM PRAKASH KANT, AM By way of this Miscellaneous Application, the assessee is seeking recall/rectification of the order of the Tribunal in ITA No. 2628 and 2728/Mum/2014 for assessment year 2009-10. 2. Before us, the Ld. Counsel of the assessee referred to para 14 of the Tribunal and submitted that though the Tribunal has followed its earlier order in the case of the assessee for assessment year 2008-09, where under the TNMM Method comparison was made of the assessee a The Tribunal, however, in impugned order margins of export segment of the assessee with the export segment of the comparable companies record, needs to be rectified. 3. We have heard rival submission of the parties on the issue in dispute and perused the relevant m the assessee, the assessee had entered into various international transactions with its Associated E the determination of arm’s length piece, the ld Officer (TPO) made an up Rs.596,53,388/- to the transaction of However, the TPO international transaction o goods rather than benchmar with associated enterprises. The Ld. DRP also upheld. On this issue, the Tribunal (supra) adjudicated as under: “14. We have heard rival submission of the parties on the issue in dispute and perused the relevant mate record. The issue in dispute is whether the transfer pricing adjustment should be made on the entire manufacturing turnover of the assessee or in respect of international transactions carried out by the assessee with the Associated Enterprises. In determination of arm’s international transactions carried out by the assessee with the Associated Enterprises and therefore adjustment is also should be limited to the international tran out with the Associated Enterprises and cannot be applied made of the assessee at entity level with comparable companies. Tribunal, however, in impugned order directed to export segment of the assessee with the export segment of the comparable companies, which being a mistake apparent from to be rectified. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. In the case of the assessee, the assessee had entered into various international transactions with its Associated Enterprises (AEs). At the time of determination of arm’s length piece, the ld Transfer Officer (TPO) made an upward transfer pricing adjustment of to the transaction of export of finished goods. However, the TPO made adjustment in relation to afore international transaction on the total turnover of exports of finished benchmarking only to the controlled associated enterprises. The Ld. DRP also upheld. On this , the Tribunal (supra) adjudicated as under: We have heard rival submission of the parties on the issue in dispute and perused the relevant mate record. The issue in dispute is whether the transfer pricing adjustment should be made on the entire manufacturing turnover of the assessee or in respect of international transactions carried out by the assessee with the Associated Enterprises. In our opinion, the entire exercise of determination of arm’s-length price is in respect of the international transactions carried out by the assessee with the Associated Enterprises and therefore adjustment is also should be limited to the international transactions carried out with the Associated Enterprises and cannot be applied Lanxess India Pvt. Ltd. 2 M.A No. 104/Mum/2023 t entity level with comparable companies. directed to compare the export segment of the assessee with the export segment which being a mistake apparent from We have heard rival submission of the parties on the issue in aterial on record. In the case of the assessee, the assessee had entered into various international nterprises (AEs). At the time of Transfer Pricing ward transfer pricing adjustment of export of finished goods. adjustment in relation to aforesaid of exports of finished king only to the controlled transaction associated enterprises. The Ld. DRP also upheld. On this We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is whether the transfer pricing adjustment should be made on the entire manufacturing turnover of the assessee or in respect of international transactions carried out by the assessee with the our opinion, the entire exercise of length price is in respect of the international transactions carried out by the assessee with the Associated Enterprises and therefore adjustment is also sactions carried out with the Associated Enterprises and cannot be applied over the transactions with unrelated party or domestic parties unless covered under Domestic Transfer Pricing Provisions. In the case of the assessee identical issue has been decided in favour of the assessee by the Tribunal in assessment year 2008 “7.3 Before us, the learned AR for the assessee submitted that the assessee relation to the selection of comparables or in relation to computation of mean margin of comparable or the margin computed by TPO/AO in case of the assessee. The assessee was disputing only the method of computation of TP adjustme the AO had made the adjustment to the entire revenue which was not correct as adjustment is required to be made only with respect to transactions with AE. The learned AR placed reliance on the decision of Tribunal in case of THY INDUSTRIES INDIA P. LTD Vs. ACIT in ITA No. 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said proposition. The learned CIT(D)R on the other hand placed reliance on the orde 7.4 We have perused the records and considered matter carefully. The dispute is regarding TP adjustment made by AO/TPO on account of transactions with associate enterprises (AEs) in relation to the manufacturing segment. The AO/TPO have transaction and seven comparable have been selected which gave arithmetic mean margin of 5.42%. The margin of the assessee has been computed at 1.73%. The assessee had computed the margin at 9.04% after making adjustment utilization of capacity which has not been accepted by the AO/TPO. The learned AR for the assessee has not disputed before us either the comparables or the arithmetic mean margin of the comparables or the margin of the assessee computed by AO/TP 1.73%. Only limited dispute raised is that AO had made the adjustment with respect to entire revenue of over the transactions with unrelated party or domestic parties unless covered under Domestic Transfer Pricing Provisions. In the case of the assessee identical issue has d in favour of the assessee by the Tribunal in assessment year 2008-09, observing as under: “7.3 Before us, the learned AR for the assessee submitted that the assessee had no dispute either in relation to the selection of comparables or in relation to computation of mean margin of comparable or the margin computed by TPO/AO in case of the assessee. The assessee was disputing only the method of computation of TP adjustment. It was pointed out that the AO had made the adjustment to the entire revenue which was not correct as adjustment is required to be made only with respect to transactions with AE. The learned AR placed reliance on the decision of Tribunal in case of THYSSENKRUPP INDUSTRIES INDIA P. LTD Vs. ACIT in ITA No. 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said proposition. The learned CIT(D)R on the other hand placed reliance on the order of AO/TPO. 7.4 We have perused the records and considered matter carefully. The dispute is regarding TP adjustment made by AO/TPO on account of transactions with associate enterprises (AEs) in relation to the manufacturing segment. The AO/TPO applied TNMM for bench marking the transaction and seven comparable have been selected which gave arithmetic mean margin of 5.42%. The margin of the assessee has been computed at 1.73%. The assessee had computed the margin at 9.04% after making adjustment utilization of capacity which has not been accepted by the AO/TPO. The learned AR for the assessee has not disputed before us either the comparables or the arithmetic mean margin of the comparables or the margin of the assessee computed by AO/TP 1.73%. Only limited dispute raised is that AO had made the adjustment with respect to entire revenue of Lanxess India Pvt. Ltd. 3 M.A No. 104/Mum/2023 over the transactions with unrelated party or domestic parties unless covered under Domestic Transfer Pricing Provisions. In the case of the assessee identical issue has d in favour of the assessee by the Tribunal in “7.3 Before us, the learned AR for the assessee had no dispute either in relation to the selection of comparables or in relation to computation of mean margin of comparable or the margin computed by TPO/AO in case of the assessee. The assessee was disputing only the method of nt. It was pointed out that the AO had made the adjustment to the entire revenue which was not correct as adjustment is required to be made only with respect to transactions with AE. The learned AR placed reliance on the SSENKRUPP INDUSTRIES INDIA P. LTD Vs. ACIT in ITA No. 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said proposition. The learned CIT(D)R on the other hand placed reliance on 7.4 We have perused the records and considered matter carefully. The dispute is regarding TP adjustment made by AO/TPO on account of transactions with associate enterprises (AEs) in relation to the manufacturing segment. The AO/TPO applied TNMM for bench marking the transaction and seven comparable have been selected which gave arithmetic mean margin of 5.42%. The margin of the assessee has been computed at 1.73%. The assessee had computed the for under- utilization of capacity which has not been accepted by the AO/TPO. The learned AR for the assessee has not disputed before us either the comparables or the arithmetic mean margin of the comparables or the margin of the assessee computed by AO/TPO at 1.73%. Only limited dispute raised is that AO had made the adjustment with respect to entire revenue of manufacturing segment whereas the adjustment is required only in relation to transaction with associated enterprises. The plea raised by the learne is supported by the several decisions of the Tribunal as mentioned in para 7.3 of this order. We, therefore, direct the AO to make the adjustment only in relation transactions with the AE.” 14.1 Since identical ground raised before us, respectfully following the finding of the Tribunal (supra), we set aside the finding of the Assessing Officer on the issue in dispute and restore the matter back to him for comparison of export assessee with the export segment of comparable companies and then determine the arm’s international transactions with AE applying the mean margin of the comparables. The ground No. 2 of the appeal of the assessee is accor purposes.” 3.1 Since, we find that that the Tribunal (supra) has followed the order of the Tribunal in the case of the assessee itself for assessment year 2008 assessee was directed the comparable companies. However, we find that in para 14.1 the Tribunal has directed for comparison of the export segment of the assessee with the export segment of the comparable companies which in our opinion is a from record, we feel it appropriate to rectify the order of the Tribunal. 3.2 Accordingly, we rectify the para 14.1 of the impugned order and direct that transfer pricing adjustment under dispute in the manufacturing segment whereas the adjustment is required only in relation to transaction with associated enterprises. The plea raised by the learned AR for the assessee is quite reasonable and is supported by the several decisions of the Tribunal as mentioned in para 7.3 of this order. We, therefore, direct the AO to make the adjustment only in relation transactions with the AE.” Since identical issue in dispute is involved in the ground raised before us, respectfully following the finding of the Tribunal (supra), we set aside the finding of the Assessing Officer on the issue in dispute and restore the matter back to him for comparison of export segment of the assessee with the export segment of comparable companies and then determine the arm’s-length price of the international transactions with AE applying the mean margin of the comparables. The ground No. 2 of the appeal of the assessee is accordingly allowed for statistical Since, we find that that the Tribunal (supra) has followed the order of the Tribunal in the case of the assessee itself for assessment year 2008-09 wherein the entity level margin of the assessee was directed to be compared with the entity level margin of the comparable companies. However, we find that in para 14.1 the Tribunal has directed for comparison of the export segment of the assessee with the export segment of the comparable companies nion is an inadvertent mistake and being apparent from record, we feel it appropriate to rectify the order of the Accordingly, we rectify the para 14.1 of the impugned order and direct that transfer pricing adjustment under dispute in the Lanxess India Pvt. Ltd. 4 M.A No. 104/Mum/2023 manufacturing segment whereas the adjustment is required only in relation to transaction with associated enterprises. The plea raised by the d AR for the assessee is quite reasonable and is supported by the several decisions of the Tribunal as mentioned in para 7.3 of this order. We, therefore, direct the AO to make the adjustment only in relation issue in dispute is involved in the ground raised before us, respectfully following the finding of the Tribunal (supra), we set aside the finding of the Assessing Officer on the issue in dispute and restore the segment of the assessee with the export segment of comparable companies length price of the international transactions with AE applying the mean margin of the comparables. The ground No. 2 of the appeal dingly allowed for statistical Since, we find that that the Tribunal (supra) has followed the order of the Tribunal in the case of the assessee itself for 09 wherein the entity level margin of the to be compared with the entity level margin of the comparable companies. However, we find that in para 14.1 the Tribunal has directed for comparison of the export segment of the assessee with the export segment of the comparable companies, and being apparent from record, we feel it appropriate to rectify the order of the Accordingly, we rectify the para 14.1 of the impugned order and direct that transfer pricing adjustment under dispute in the year under consideration shall be determined keeping in view the direction of Tribunal in AY 2008 the impugned order of the Tribunal. 4. In the result, the Miscellaneous Application of the assessee is allowed as indicated Order pronounced in the open Court on Sd/ (ABY T VARKEY JUDICIAL MEMBER Mumbai; Dated: 10/07/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// ear under consideration shall be determined keeping in view the direction of Tribunal in AY 2008-09, which has been reproduced in the impugned order of the Tribunal. In the result, the Miscellaneous Application of the assessee is indicated above. nounced in the open Court on 10/0 Sd/- ABY T VARKEY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Lanxess India Pvt. Ltd. 5 M.A No. 104/Mum/2023 ear under consideration shall be determined keeping in view the 09, which has been reproduced in In the result, the Miscellaneous Application of the assessee is /07/2023. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai