M/s. Fag Bearings India Ltd., Baroda V. The Dy.CIT, Circle-1, Baroda

MA 207/AHD/2014

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 2730 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 10-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-01-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 23-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER MA NO.207/AHD/2014 - AY 2002-03 (IN ./ IN I.T.A. NO.793/AHD/2006 AY 2002-03) M/S.FAG BEARINGS INDIA LTD. P.O. MANEJA BARODA (ORIGINAL APPELLANT) / VS. THE DCIT CIRCLE-1 BARODA (ORIGINAL RESPONDENT) ' ./ ./ PAN/GIR NO. : AAACF 3357 Q ( APPLICANT ) .. ( %&'' / RESPONDENT ) ASSESSEE BY: SHRI MILIN MEHTA, A.R. REVENUE BY : SHRI M.K. SINGH, SR.DR () / DATE OF HEARING 16/01/2015 *+,-) / DATE OF PRONOUNCEMENT 10/02/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS MISCELLANEOUS APPLICATION HAS BEEN FILED BY THE ASSESSEE ON 23.12.2014 (ARISING OUT OF ITA NO.793/AHD/2006 FOR AY 2002-03) SEEKING MODIFICATION OF THE TRIBUNAL (ITAT D BENC H AHMEDABAD) ORDER DATED 14.11.2014. MA NO.207/AHD/2014 ( IN ITA NO.793/AHD/2006) M/S.FAG BEARING INDIA LTD. VS. DCIT ASST.YEAR 2002-03 - 2 - 2. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT V IDE GROUND NO.6, THE APPLICANT HAD CHALLENGED THE UPWARD ADJUSTMENT MADE TO THE INCOME ON ACCOUNT OF INTERNATIONAL TRANSACTIONS WITH ASSOC IATED ENTERPRISES. HE SUBMITTED THAT THE HONBLE TRIBUNAL IN PARA NO.2 8.3 OF ITS ORDER AGREED WITH THE CONTENTION OF THE APPELLANT THAT TH E MANUFACTURING SEGMENT OF THE APPELLANT CANNOT BE FURTHER BIFURCAT ED INTO DTA AND EOU, IT HAS NOT GIVEN CLEAR DIRECTIONS TO THE CIT(A ) TO APPLY TNM METHOD BY CONSIDERING BOTH THE SEGMENTS TOGETHER. HE SUBMITTED THAT THIS TRIBUNAL MAY BE PLEASED TO ISSUE SPECIFIC DIRE CTIONS TO THIS EFFECT TO AVOID ANY REPETITIVE LIMITATION ON THIS ISSUE. 3. ON THE CONTRARY, LD.SR.DR SHRI M.K. SINGH V EHEMENTLY OPPOSED THE MISCELLANEOUS APPLICATION OF THE ASSESSEE AND SUBMI TTED THAT THE LD.COUNSEL FOR THE ASSESSEE HAS NOT POINTED OUT ANY MISTAKE APPARENT FROM THE RECORDS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE TRIBUNAL IN ITS ORDER DATED 14.11.2014 IN PARAGRAPH NOS.28.3 & 28.4 HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- 28.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE RESPECTIVE REPRESENT6ATIVE PARTIES. WE FIND FORCE INTO THE CO NTENTION OF THE MA NO.207/AHD/2014 ( IN ITA NO.793/AHD/2006) M/S.FAG BEARING INDIA LTD. VS. DCIT ASST.YEAR 2002-03 - 3 - LD.COUNSEL FOR THE ASSESSEE THAT THE ARTIFICIAL BIF URCATION OF DTA AND EOU IS DE HORS THE PROVISIONS OF LAW, DTA SEGMENT H AS NO EXPORTS BUT COMPARABLE COMPANIES HAS EXPORTS AND INCORRECT COMP UTATION BY THE LD.CIT(A). IT IS POINTED OUT BY THE LD.COUNSEL FOR THE ASSESSEE THAT IT CAN BE SEEN THAT THE FIGURE OF RS.8,43,42,316/- IS ARRI VED AT BY THE FOLLOWING METHOD:- A. INTERNATIONAL TRANSACTIONS IN THE NATURE OF REVENUE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT (OTHER THAN ROYALTY) OF RS.4,01,14,355 (RS.8,88,38,750 MINUS 4,87,24,395 OF ROYALTY). B. ADDED TO ABOVE, THE ROYALTY OF THE DTA SEGMENT OF R S.4,87,24,395 GIVING AGGREGATE OF RS.8,88,38,750. C. ADDED TO ABOVE, THE INTERNATIONAL TRANSACTION IN TH E NATURE OF REVENUE EXPENDITURE CREDITRED TO AT THE P&L ACCOUNT OF RS.74,03,728. D. ADDED TO ABOVE, THE INTERNATIONAL TRANSACTION IN TH E NATURE OF CAPITAL GOODS, PART OF THE BALANCE SHEET OF RS.5,19 ,25,936, AGGREGATING TO RS.14,81,68,414. E. FROM THE ABOVE, REDUCTION OF THE ROYALTY (OF DTA AN D EOU SEGMENT BOTH) OF RS.6,38,26,098. IT MAY BE NOTED T HAT ROYALTY OF EOU OF RS.1,51,01,703 WAS NOT INCLUDED IN THE ABOVE AGGREGATE. DESPITE THIS FACT, IT WAS REDUCED FROM THE AGGREGAT E. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS THE ASS ESSEE HAD BIFURCATED ITS ACTIVITIES INTO MANUFACTURING SEGMEN T AND DISTRIBUTION SEGMENT. HOWEVER, THE TRANSFER PRICING OFFICER (TP O) HAS FURTHER BIFURCATED THE ACTIVITIES OF THE ASSESSEE INTO DOME STIC UNIT (DTA) AND EXPORT ORIENTED UNIT (EOU). THUS, THE TPO ARTIFICI ALLY DIVIDED THE MANUFACTURING SEGMENT INTO TWO SUB-SEGMENTS, I.E. F OR EXPORTS AND FOR DOMESTIC SALES, BUT HOWEVER KEPT THE SET OF COMPARA BLE COMPANIES SAME FOR BOTH EOU AND DTA. THE LD.COUNSEL FOR THE ASSES SEE INVITED OUR ATTENTION TOWARDS THE BIFURCATION OF THE INTERNATIO NAL TRANSACTIONS. ITEM-WISE DESCRIPTION OF THE INTERNATIONAL TRANSACT IONS AS CONTAINED ON PAGE-3 OF THE TPOS ORDER. HOWEVER, THE LD.CIT(A) VIDE PARA 10.7.2 TO 10.7.4 IN HIS ORDER HAS HELD THAT THE DIFFERENTIAL MARGIN OF THE DTA MA NO.207/AHD/2014 ( IN ITA NO.793/AHD/2006) M/S.FAG BEARING INDIA LTD. VS. DCIT ASST.YEAR 2002-03 - 4 - SEGMENT AND COMPARABLES SHOULD BE APPLIED ONLY TO T HE INTERNATIONAL TRANSACTIONS WITH AES AND NOT ON THE ENTIRE TURNOVE R OF THE DTA UNIT. THEREFORE, LD.CIT(A) HAS RESTRICTED THE ADDITION ON ACCOUNT OF LOWER MARGINS OF THE DTA TO RS.59,12,396/- AS AGAINST RS. 13.84 CRORES MADE BY THE TPO. THIS IS DULY SUPPORTED BY THE DECISION S OF THE COORDINATE BENCHES IN THE FOLLOWING CASES:- (I) PHOENIX MECANO (INDIA) LTD. VS. DCIT (2012) 17 TAX MANN.COM 119 (MUM). (II) M/S.GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LTD. VS . DCIT (2013) 152 TTJ 215 (BANGALORE) (III) PENNZOIL QUAKER STATE INDIA LTD. (2012) 26 TAXMANN. COM 124 (MUM.) (IV) LIOBRIDGE TECHNOLOGIES PVT.LTD. (2012) 137 ITD 197 (MUM.). 28.4. THERE IS NO FAULT CAN BE FOUND FROM THE ORDER OF THE LD.CIT(A) SO FAR AS RESTRICTING THE ADDITION ON ACCOUNT OF DIFFE RENTIAL OPERATING MARGIN TO THE INTERNATIONAL TRANSACTIONS IS CONCERN ED. HOWEVER, THE FIGURE OF RS.8,43,42,316/- AS WORKED OUT BY THE LD. CIT(A) IS NOT CORRECT, THEREFORE THIS ISSUE IS REQUIRED TO BE RESTORED TO THE FILE OF LD.CIT(A) FOR RECOMPUTATION OF THE INTERNATIONAL TRANSACTIONS. N EEDLESS TO SAY THAT THE LD.CIT(A) WOULD GIVE SUFFICIENT OPPORTUNITY OF BEING HEARD TO BOTH THE PARTIES. THUS, GROUND NO.6 IS ALLOWED FOR STAT ISTICAL PURPOSES. 4.1. THE LD.COUNSEL FOR THE ASSESSEE HAS NOT POINTE D OUT ANY MISTAKE EXCEPT THAT A PRAYER FOR SPECIFIC DIRECTION TO THE LD.CIT(A). WE AGREE WITH THE CONTENTION OF THE LD.SR.DR THAT THE ASSESS EE HAS NOT POINTED OUT ANY MISTAKE APPARENT FROM THE RECORDS. HOWEVER, IT IS CLARIFIED THAT THE LD.CIT(A) WHILE DECIDING THE ISSUE WOULD CONSIDER T HE OBSERVATION OF THIS TRIBUNAL AS MADE IN PARA-28.3 OF THE ORDER. THEREF ORE, MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE IS DISPOSED OF AS INDICATED ABOVE. MA NO.207/AHD/2014 ( IN ITA NO.793/AHD/2006) M/S.FAG BEARING INDIA LTD. VS. DCIT ASST.YEAR 2002-03 - 5 - 5. IN THE RESULT, THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE IS ALLOWED IN THE TERMS MADE HEREINABOVE. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( ) ( ) ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 10/ 02 /2015 1..,.../ T.C. NAIR, SR. PS !'#$%$&' / COPY OF THE ORDER FORWARDED TO : 1. '' / THE APPLICANT. 2. %&'' / THE RESPONDENT. 3. 234 5 / CONCERNED CIT 4. 5 ( ) / THE CIT(A)-GANDHINAGAR 5. 67% 34 , 34- , 2 / DR, ITAT, AHMEDABAD 6. 79:;( / GUARD FILE. / BY ORDER, &6 % //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 3.2.15 (DICTATION-PAD 3- PA GES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3.2.15 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.10.2.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10.2.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER