M/s. Soplar (India) Pvt. Ltd, Bangalore V. Deputy Commissioner of Income Tax, Circle-6(1)(2), Bangalore

MA 23/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2582 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 02-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ENTIRE WORK

Judgement Text

M.P. NO. 23/BANG/2018 (IN IT(TP)A NO. 65/BANG/2017) PAGE 3 OF 8 AN APPEAL BEFORE THIS TRIBUNAL. THE TRIBUNAL VIDE ITS ORDER DATED 13.10.2017 DISMISSED THE ASSESSEES APPEAL. 2.5.1 THE ASSESSEE HAS FILED THIS MISCELLANEOUS PETITION (M.P) IN RESPECT OF THE TRIBUNALS ORDER IN IT(TP)A NO. 65/BANG/2017 DATED 13.10.2017; SUBMITTING THAT CERTAIN MISTAKES HAVE INADVERTENTLY CREPT INTO THE AFORESAID ORDER OF THE TRIBUNAL WHICH ARE APPARENT FROM THE RECORD. 2.5.2 ACCORDING TO THE LEARNED AR FOR THE ASSESSEE, IN THE TRIBUNALS ORDER AT PARA 9.33 ON PAGE 28 THEREOF, THE TRIBUNAL HAS OBSERVED THE FACT THAT DRAWINGS/DESIGNS AND TECHNICAL INPUTS ARE GIVEN BY THE AE TO THE ASSESSEE. THE LEARNED AR SUBMITTED THAT THE AE PROCURES THE ORDER FROM THE END CUSTOMER AND THE ENTIRE WORK FOR CERTAIN TYPES OF MACHINES IS GIVEN TO THE ASSESSEE AND TO ACCOMPLISH THIS MANUFACTURING ACTIVITY, THE ASSESSEE PROCURES CRITICAL COMPONENTS FROM THE AE. THE MANUFACTURE OF NON- CRITICAL COMPONENTS IS OUTSOURCED TO LOCAL VENDORS, WHO, BASED ON THE DRAWINGS GIVEN BY THE AE, DO THE MANUFACTURING OF SUCH NON-CRITICAL COMPONENTS. UPON PROCUREMENT OF ALL THE COMPONENTS, THE ASSESSEE ASSEMBLES THE MACHINES. THE ASSEMBLY ACTIVITY OF A MACHINE LIKE BMU 70 MACHINE CONTAINS 7,338 INDIVIDUAL COMPONENTS AND INVOLVES COMPREHENSIVE DOCUMENTATION OF DETAILS LIKE 390 INDIVIDUAL 3D AND 2D DRAWINGS; ASSEMBLY DRAWING AND DOCUMENTATION, ELECTRICAL DOCUMENTATION AND SCHEMES, ALIGNMENT AND ADJUSTMENT MANUAL, USERS MANUAL AND INSTALLATION MANUAL, AS PER THE DRAWINGS THAT ARE PROVIDED BY THE AE. ACCORDING TO THE LEARNED AR, AFTER THE ASSEMBLY PROCESS, THE MACHINE IS SHIPPED TO THE END CUSTOMER AND INVOICE IS RAISED ON THE AE; WHO IN TURN RAISES INVOICES AND BILLS ON THE END-CUSTOMER ON A BACK TO BACK BASIS AS PER DETAILS AT PAGES 455 TO 460 AND 738 TO 744 OF PAPER BOOK 1. IT IS CONTENDED THAT AS THE BENEFIT OF THE SALE PRICE ACCRUES TO THE ASSESSEE, IT CANNOT BE CATEGORIZED AS A CONTRACTOR. M.P. NO. 23/BANG/2018 (IN IT(TP)A NO. 65/BANG/2017) PAGE 4 OF 8 2.5.2 THE LEARNED AR ARGUED THAT DESPITE THE FACT THAT DRAWINGS/DESIGNS AND TECHNICAL INPUTS ARE RECEIVED BY THE ASSESSEE, THE ENTIRE SALE PRICE FROM THE END- CUSTOMER DEVOLVES ON THE ASSESSEE AND THE FACT THAT NO ADJUSTMENTS HAVE BEEN MADE TO THE MARGINS AT ENTITY LEVEL IN THIS REGARD, AT PARA 7.3.6 OF THE IMPUGNED TRIBUNAL ORDER, IT IS HELD THAT THE BENEFITS OF DRAWINGS AND KNOW-HOW GO ENTIRELY TO THE AE AND NO BENEFIT WHATSOEVER ACCRUES TO THE ASSESSEE. THE LEARNED AR CONTENDS THAT THIS FINDING IS INCONSISTENT WITH THE OBSERVATION AT PARA 9.3.3 OF TRIBUNALS ORDER AND THEREFORE CONSTITUTES MISTAKE APPARENT FROM THE RECORD AS PER THE PROVISIONS OF SECTION 254(2) OF THE ACT. 2.6.1 WITH RESPECT TO THE FTS ISSUE, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT IN PARA 13 OF THE TRIBUNALS ORDER, IT IS STATED THAT THE ASSESSEE HAS NOT PROVIDED ANY MATERIAL EVIDENCE IN SUPPORT OF RENDERING OF TECHNICAL SERVICES BY THE AE BEYOND WHAT WAS FURNISHED BEFORE THE TPO. IT IS SUBMITTED THAT DETAILS WERE ALSO FILED BEFORE THE DRP WHICH ARE AS FOLLOWS: (I) BEFORE THE TPO ANNEXURE 1 STATEMENT SHOWING DETAILS OF TECHNICAL FEES PAID AND COPIES OF INVOICES PAGES 238 TO 243 (II) BEFORE THE DRP ANNEXURE 9 - COPY OF SAMPLE RECORD OF TECHNICAL DOCUMENTATION PAGES 537 TO 616 ANNEXURE 10 - LIST OF EMPLOYEES PAGE NO. 617 ANNEXURE 11 BREAK UP OF TECHNICAL SERVICES FEES PAID 618 TO 619 ANNEXURE 13 COPY OF SAMPLE INVOICE OF RATE CHARGED TO THIRD PARTIES PAGES 628 TO 629 ANNEXURE 14 TO 16 DESCRIPTION OF SERVICES PROVIDED PAGES 630 TO 693 ANNEXURE 20 COPIES OF INVOICES RAISED BY AE ON THIRD PARTIES AT PAGES 696 701 M.P. NO. 23/BANG/2018 (IN IT(TP)A NO. 65/BANG/2017) PAGE 5 OF 8 IT IS CONTENDED THAT THE FILING OF THE ABOVE MATERIAL AND DOCUMENTS EVIDENCES THAT THE FINDING OF THE TRIBUNAL THAT NO MATERIAL WAS FILED BEYOND WHAT WAS FILED BEFORE THE TPO, IS CONTRARY TO THE FACTS ON RECORD. 2.6.2 THE LEARNED AR FURTHER CONTENDS THAT THE TPO HAS IN FACT ACCEPTED THAT A PART OF THE FTS TO BE AT ARMS LENGTH. IT IS SUBMITTED THAT SINCE THE AE HAS CHARGED THIRD PARTIES THE SAME RATE PER MAN DAY AS IT CHARGED THE ASSESSEE, INTERNAL COMPARABLES OUGHT TO HAVE BEEN CONSIDERED BY THE TRIBUNAL. 2.7 TH LEARNED DR FOR REVENUE CONTENDED THAT THERE WAS NO ERROR IN THE IMPUGNED ORDER OF THE TRIBUNAL THAT WARRANTED RECTIFICATION U/S 254(2) OF THE ACT AS THERE WAS NO MISTAKE APPARENT FROM THE RECORD. THE ARGUMENTS PUT FORTH IN THE M.P. AND BY THE LEARNED AR FOR THE ASSESSEE SEEK REVIEW OF THE ORDER OF THE TRIBUNAL, WHICH IS NOT PERMISSIBLE AS PER THE PROVISION OF SECTION 254(2) OF THE ACT AND THEREFORE THE ASSESSEES M.P. IS LIABLE TO BE DISMISSED. 2.8.1 WE HAVE HEARD AND GIVEN CAREFUL CONSIDERATION TO THE SUBMISSIONS PUT FORTH BY THE ASSESSEE, THE AVERMENTS OF THE LEARNED DR FOR REVENUE, THE MATERIAL ON RECORD; INCLUDING THE IMPUGNED ORDER OF THE TRIBUNAL DATED 13.10.2017 FOR ASSESSMENT YEAR 2012-13. WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE ASSESSEE/LEARNED AR THAT THERE IS ANY MISTAKE APPARENT FROM THE RECORD, AS CLAIMED. AT PARA 7.3.4 OF THE IMPUGNED ORDER OF THE TRIBUNAL, THE FACTS OF THE CASE HAVE BEEN DISCUSSED IN DETAIL AND AT PARAS 7.3.5 AND 7.36 THEREOF, THE CONCLUSIONS/FINDINGS HAVE BEEN DISCUSSED IN DETAIL, IN THE CONTEXT OF THE FACTS OF THE CASE ENUMERATED AT PARA 7.3.4. WE THEREFORE EXTRACT HEREUNDER PARAS 7.3.4 TO 7.3.6 OF THE TRIBUNALS ORDER: 7.3.4 ON AN APPRAISAL OF THE FACTS OF THE CASE ON RECORD, THE FOLLOWING POINTS EMERGE:- (I) AS PER THE SUBMISSIONS OF THE A.SSESSEE ITSELF, IT IS ENGAGED IN THE PROCESS OF ASSEMBLY; M.P. NO. 23/BANG/2018 (IN IT(TP)A NO. 65/BANG/2017) PAGE 6 OF 8 (II) AS PER THE SUBMISSION OF THE ASSESSEE AT PAGE 293 OF PAPER BOOK, THE AE PERFORMS THE FUNCTION OF PROCUREMENT OF ORDERS FROM THIRD PARTY CUSTOMERS AS THE CUSTOMER REQUIREMENTS REQUIRE TO HE PROPERLY UNDEMOOD. THEREFORE, IT IS CLEAR THAT THE ASSESSEE HAS NO ROLE WHATSOEVER IN EITHER UNDERSTANDING THE REQUIREMENTS OF THE CUSTOMERS AND ACTING ON THE SAME. THE ASSESSEE MERELY CARRIED OUT THE INSTRUCTIONS OF THE AE AS TO HOW A PARTICULAR MACHINE IS TO BE ASSEMBLED. (III) IT FOLLOWS FROM THE ABOVE THAT THE RESPONSIBILITY OF QUALITY AND SPECIFICATION IS ON THE AE AND NOT ON THE ASSESSEE. (IV) AS PER THE ASSTSSE'S SUBMISSION ITSELF, THE CRITICAL COMPONENTS OF THE MACHINE ARE PROCURED FROM THE AE ONLY FOR MAINTAINING THE QUALITY STANDARDS. AS OBSERVED BY THE TPO AT PANT 3.6 OF HIS ORDER, THE ASSESSEE IS MANDATED TO PROCURE CRITICAL COMPONENTS LIKE, EXTRUDERS AND ELECTRONIC CONTROL COMPONENTS FROM THE AL ONLY. (V) AS PER THE ASSESSEE 'S BMISSIONS, IT IS ACKNOWLEDGED THAT THE ASSEMBLY IS DONE STRICTLY AS PER THE SPECIFICATIONS GIVEN BY THE AE AND UNDER THE SUPERVISION AND TRAINING OF THE AE'S PERSONNEL. (VI) THE PATENTS HELD, ARC IN THE NAME OF THE AE AND FOR ITS BENEFIT. THE ASSESSEE HAS NO ROTE TO PLAY EITHER IN APPLYING FOR THE PATENT OR IN ENJOYING THE BENEFITS OF THE PATENT. (VII) AS PER THE SUBMISSIONS OF THE ASSESSEE ITSELF, AT PAGE 302 OF THE PAPER BOOK, THE ASSESSEE IS WHOLLY DEPENDENT ON THE AE FOR ITS ACTIVITY. 7.3.5 FROM THE ABOVE IT IS AMPLY CLEAR THAT THE ENTIRE BUSINESS PROCESS IS CONTROLLED BY THE AE AND IS DONE FOR AND ON BEHALF OF THE AE. THE ASSESSEE HAS TO PURCHASE THE CRITICAL COMPONENTS, WHICH CONSTITUTE THE HEART AND SOUL OF THE MACHINE, FROM THE A.F. THE NON-CRITICAL COMPONENTS THAT ARE PURCHASED FROM THIRD PARTIES ARE ALSO REQUIRED TO BE AS PER THE SPECIFICATIONS OF THE AE. THE ASSEMBLY WORK IS CARRIED OUT BY THE ASSESSEE UNDER THE GUIDANCE, SUPERVISION AND CONTROL OF THE AE, FOR WHICH TECHNICAL FEE IS SEPARATELY PAID. THE SALES OF THE MACHINES IS TOTALLY CONTROLLED BY THE AE AND IT IS THE AE WHO DECIDES THE REQUIREMENTS OF INDIVIDUAL CUSTOMERS. THE PRODUCTION PROCESS AND CYCLE IS CONTROLLED BY THE REQUIREMENTS OF THE AE AND THE ASSESSEE CAN ASSEMBLE THE MACHINES ONLY AS PER THE REQUIEMS GIVEN BY THE AE. THEREFORE, NOTWITHSTANDING ANYTHING MENTIONED IN THE AGREEMENT, THE ENTIRE ASSEMBLY WORK CARRIED OUT BY THE ASSESSEE IS UNDER THE SUPERVISION AND CONTROL OF THE AE AND FOR AND BEHALF OF THE AE. IN THIS M.P. NO. 23/BANG/2018 (IN IT(TP)A NO. 65/BANG/2017) PAGE 7 OF 8 FACTUAL MATRIX, AS DISCUSSED ABOVE, IT APPEARS TO US THAT THE ROLE OF THE ASSESSEE IS MORE LIKE A CONTRACTOR RATHER THAN AN INDEPENDENT MANUFACTURER OR PRODUCER OF MACHINES. 7.3.6 AS DISCUSSED ABOVE, THE RESPONSIBILITY AND OWNERSHIP OF QUALITY OF THE MACHINES IS ON THE AE AND THE ASSESSEE HAD NO ROLE WHATSOEVER TO PLAY WITH THE ULTIMATE CUSTOMERS. IF THE AL HAD GIVEN THE DRAWINGS, IT IS IN THE INTEREST OF THE AE AS IT HAS TO MAINTAIN THE QUALITY SPECIFICATIONS AND THE REQUIREMENTS IT HAD PROMISED THE END USE CUSTOMERS. IT WOULD BE FALLACIOUS TO SAY THAT THE AE HAD GIVEN THE ASSESSEE DRAWINGS AND KNOW- HOW TO BE EXPLOITED BY THE ASSESSEE. THE BENEFITS OF THE DRAWINGS AND KNOW-HOW, EVEN IF SHARE WITH THE ASSESSEE GO ENTIRELY TO THE AE AND NO BENEFIT WHATSOEVER ACCRUES TO THE ASSESSEE. IN THE FACTUAL MATRIX OF THE CASE, AS DISCUSSED ABOVE, WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE ASSESSES THAT THE AE HAS GIVEN TECHNICAL DRAWINGS AND KNOW-HOW TO THE ASSESSEE FOR ITS OWN USE AND THEREFORE HOLD THAT THE ASSESSEE'S CLAIM OF PAYMENT OF ROYALTY TO ITS AE IS NOT TENABLE. 2.8.2 AS CAN BE SEEN FROM THE ABOVE EXTRACTED PORTION OF THE TRIBUNALS ORDER (SUPRA), THE FACT THAT THE DRAWINGS HAVE BEEN GIVEN BY THE AE HAS BEEN ACKNOWLEDGED AND YET THE FINDING HAS BEEN RENDERED THAT THE BENEFITS OF THE DRAWINGS GO ENTIRELY TO THE AE. AGAIN IN PARA 9.3.3 AT PAGE 28 OF THE TRIBUNALS ORDER, IT HAS BEEN ACKNOWLEDGED THAT THE DRAWINGS/DESIGNS AND TECHNICAL INPUTS ARE GIVEN BY THE AE TO THE ASSESSEE. HENCE, BOTH AT PARAS 7.3.5 AND 9.3.3 OF TRIBUNALS ORDER, IT HAS BEEN ACKNOWLEDGED THAT THE DRAWINGS/DESIGNS AND TECHNICAL INPUTS ARE GIVEN BY THE AE TO THE ASSESSEE. HOWEVER, A CLEAR FINDING HAS BEEN RENDERED AT PARA 7.3.6 (SUPRA) THAT THE BENEFITS OF THE DRAWINGS AND KNOW-HOW, EVEN IF SHARED WITH THE ASSESSEE, GO ENTIRELY TO THE AE AND NO BENEFIT WHATEVER ACCRUES TO THE ASSESSEE. THEREFORE, IN OUR CONSIDERED VIEW, THERE IS NO MISTAKE APPARENT FROM THE RECORD TO WARRANT ANY CORRECTIVE ACTION U/S 254(2) OF THE ACT. 2.8.3 AS REGARDS TECHNICAL SERVICE FEES, THE TRIBUNAL, IN THE IMPUGNED ORDER, HAS NOT SAID THAT NO EVIDENCE WAS FURNISHED. AT PARA 13.2 OF THE IMPUGNED ORDER, A FINDING HAS BEEN RENDERED THAT NO MATERIAL EVIDENCE WAS FURNISHED TO PROVE THE M.P. NO. 23/BANG/2018 (IN IT(TP)A NO. 65/BANG/2017) PAGE 8 OF 8 CONTENTIONS FACTUALLY. THE IMPORT OF THE FINDING IS THAT DETAILS GIVEN LIKE TECHNICAL DOCUMENTATION, EMPLOYEE LISTS AND VISITS, SAMPLE COPY OF INVOICES, SEMANTIC DESCRIPTION OF SERVICES, ETC., DOES NOT CONSTITUTE EVIDENCE OF RENDITION OF SERVICES AND VALUATION FOR THE SERVICES FOR THE PURPOSE OF BENCHMARKING THE SAME; THE REASONS FOR WHICH THE TPO HAD DISALLOWED THE EXPENSES; AS OBSERVED IN PARA 13.1 OF TRIBUNALS ORDER. IT HAS ALSO BEEN NOTED THAT THE TPO HAD ALLOWED EXPENSES TO THE EXTENT OF ACTUAL DETAILS FURNISHED AND DISALLOWED ONLY THAT PORTION WHICH WERE UNSUPPORTED AND UNESTABLISHED EXPENSES. IT WAS IN THIS CONTEXT THAT THE OBSERVATION ON NON-PRODUCTION OF EVIDENCES HAS BEEN MADE IN PARA 13.2 OF THE IMPUGNED ORDER OF THE TRIBUNAL. THE DISALLOWANCE MADE BY THE TPO WAS UPHELD BECAUSE MATERIAL EVIDENCE SHOWING RENDERING OF SERVICES AND VALUATION OF SERVICES WERE NOT PRODUCED AND THEREFORE THERE IS NO MISTAKE APPARENT FROM RECORD IN RESPECT OF THIS FINDING THAT REQUIRES RECTIFICATION U/S 254(2) OF THE ACT. 3. IN THE RESULT, THE ASSESSEES M.P. FOR ASSESSMENT YEAR 2012-13 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF NOVEMBER, 2018. SD/- SD/- BANGALORE. DATED: 7 TH NOVEMBER, 2018. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE. ( SUNIL KUMAR YADAV ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER