Eaton Industries Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax, Pune

MA 3/PUN/2017

• Counselvise Citation: [2017] 124 COUNSELVISE.COM (IT) 5637 (ITAT-PUNE)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 09-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Assessee Lawyers: S S TOMAR
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . /MA NO. 03 /PN/ 20 1 7 ARISING OUT OF ITA NO. 1 462 /PN/20 1 0 ASSESSMENT YEAR : 200 6 - 0 7 EATON INDUSTRIES PVT. LTD., 145, OFF MUMBAI PUNE ROAD, PIMPRI, PUNE 411018 ... APPLICANT PAN: AAACE6351P VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE ... RESPONDENT APPLICANT BY : SHRI S.S. TOMAR RESPONDENT BY : SHRI ANIL CHAWARE / DATE OF HEARING : 19 . 05 .201 7 / DATE OF PRONOUNCEMENT: 26 . 05 .201 7 / ORDER PER SUSHMA CHOWLA , JM : BY TH IS MISCELLA NEOUS APPLICATION, THE APPLICANT HAS POINTED OUT CERTAIN MISTAKES IN THE ORDER OF TRIBUNAL DATED 16.05.2016. 2. THE FIRST MISTAKE HAS BEEN POINTED OUT IN PARAS 5 AND 15 AT PAGES 5 AND 13 RESPECTIVELY, WHEREIN WHILE RECORDING ARGUMENTS OF THE AS SESSEE REGARDING EXCLUSION OF FIVE COMPARABLE COMPANIES, THE NAME OF ONE COMPARABLE COMPANY SOUGHT TO BE EXCLUDED WAS WRONGLY MENTIONED AS KEYNOTE CORPORATE SERVICES LTD. AS AGAINST CORRECT NAME OF THE COMPANY NAMELY KJMC GLOBAL MARKET INDIA LTD. THE APPL ICANT FURTHER POINTED OUT THAT WHILE DECIDING THE EXCLUSION OF EACH OF THE 2 M A NO. 03 / P U N/20 1 7 ARISING O UT OF ITA NO. 1462 /PN/ 20 1 0 COMPARABLES ON MERITS IN PARA 27 AT PAGE 19 OF THE APPELLATE ORDER, THE NAME OF SAID COMPANY HAS BEEN RIGHTLY MENTIONED AS KJMC GLOBAL MARKET INDIA LTD. 3. WE FIND THAT AN ERROR HA S CREPT IN THE ORDER OF TRI BUNAL IN PARAS 5 AND 15 AT PAGES 5 AND 13 RESPECTIVELY, WHEREIN THE NAME OF COMPARABLE COMPANY HAS BEEN WRONGLY MENTIONED AS KEYNOTE CORPORATE SERVICES LTD. INSTEAD OF KJMC GLOBAL MARKET INDIA LTD. THE PARA 5 WOULD NOW READ AS U NDER: - 5. THE SECOND OBJECTION RAISED BY THE ASSESSEE BEFORE THE TPO WAS THAT THIRD COMPARABLE WHICH HAS BEEN PROPOSED TO BE REJECTED IN THE SHOW CAUSE NOTICE FOR THE REASONS OF THEIR FAILURE TO PASS ONE OF THE QUANTITATIVE FILTER I.E. FUND BASED INCOME D IVIDED BY TOTAL INCOME BEING GREATER THAN 25%, ACCORDINGLY, IF THE QUANTITATIVE FILTERS HAVE BEEN CONSIDERED TO BE APPROPRIATE, THEN THE QUALITATIVE PARAMETERS BASED ON THE DATA AVAILABLE FOR FINANCIAL YEAR 2005 - 06 FOR THE PURPOSE OF ACCEPTING OR REJECTING THE COMPARABLES SHOULD ALSO HAVE BEEN FOLLOWED, WHERE ESPECIALLY, THE COMPANIES MAY HAVE DIVERSIFIED / EXPANDED INTO OTHER ACTIVITIES / BUSINESS VENTURES. IN THIS REGARD, THE ASSESSEE POINTED OUT THAT THE BUSINESS DESCRIPTION OF FIVE COMPARABLES WHICH WE RE (I) AJCON GLOBAL SERVICES LTD., (II) BRESCON CORPORATE ADVISORS LTD., (III) S R E I CAPITAL MARKETS LTD., (IV) KHANDWALA SECURITIES LTD. AND (V) KJMC GLOBAL MARKET INDIA LTD. IT WAS FURTHER POINTED OUT BY THE ASSESSEE THAT TWO COMPARABLES I.E. INDIA SE CURITIES LTD. AND KINETIC TRUST LTD. HAVE NOT BEEN CONSIDERED BY THE TPO ON ACCOUNT OF SIGNIFICANT LOSSES AND FURTHER, PIONEER INVESTCORP LTD. HAD BEEN REJECTED ON ACCOUNT OF EARNING SIGNIFICANTLY HIGH PROFITS. THE ASSESSEE POINTED OUT THAT OTHER COMPANIE S I.E. AJCON GLOBAL SERVICES LTD., BRESCON CORPORATE ADVISORS LTD. AND KHANDWALA SECURITIES LTD. WERE ALSO EARNING SIGNIFICANTLY HIGH PROFITS, BUT THEY HAD BEEN RETAINED AS 3 M A NO. 03 / P U N/20 1 7 ARISING O UT OF ITA NO. 1462 /PN/ 20 1 0 COMPARABLES. THE CLAIM OF THE ASSESSEE IN THIS REGARD WAS WHERE THE ASSESSEE WAS C OST INSULATED UNIT, THEN SUCH AN ENTITY COULD NOT INCUR LOSSES ON ACCOUNT OF BEING IT COST PROTECTED AND ALSO ACCORDINGLY, IT COULD NOT EARN HIGH SIGNIFICANT PROFITS, WHICH WERE LINKED TO ENTREPRENEUR RISKS. THE PLEA OF THE ASSESSEE BEFORE THE TPO WAS THA T SIGNIFICANT LOSS MAKERS HAVE BEEN EXCLUDED FOR THE REASON THAT THE COST INSULATED ENTITY COULD NOT INCUR LOSSES, THEN THE SIGNIFICANT PROFIT EARNERS SHOULD ALSO BE REJECTED ON SIMILAR GROUNDS. WHERE THE LOSS OF 30% FOR KINETIC TRUST LTD. HAD BEEN CONSID ERED TO BE IN THE CATEGORY OF SIGNIFICANT LOSS MAKER, THEN THE PROFIT OF OVER AND ABOVE 30% RETAINED ON COST SHOULD ALSO BE REJECTED AS SIGNIFICANT PROFIT EARNER. IN THIS VIEW ONLY THREE COMPARABLES I.E. IDC (INDIA) LTD., KJMC GLOBAL MARKET (INDIA) LTD. A ND SREI CAPITAL MARKET (INDIA) LTD. WOULD REMAIN IN THE SET OF COMPARABLES WITH THE ARITHMETIC MEAN OF TOTAL COST WORKING OUT TO 15.13%. FURTHER, THE ASSESSEE ASKED FOR BENEFIT OF +/ - 5% AS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE ACT. THE TPO FIR ST ELABORATELY CONSIDERED THE SUBMISSIONS OF ASSESSEE FOR THE ADOPTION OF MULTIPLE YEAR DATA VIS - - VIS SINGLE YEARS DATA AND HELD THAT ONLY SINGLE YEARS DATA COULD BE USED. 4. THE PARA 15 WOULD NOW READ AS UNDER: - 15. WE HAVE HEARD THE RIVAL CONTENTI ONS AND PERUSED THE RECORD. THE ASSESSEE BEFORE US IS A COMPANY WHICH IS PROVIDING VARIOUS SERVICES INCLUDING BUSINESS SUPPORT SERVICES AND RESEARCH AND DEVELOPMENT AND ENGINEERING SERVICES TO ITS ASSOCIATE ENTERPRISE EATON CORPORATION, USA. THE ASSESSEE HAD SEPARATELY SHOWN THE INTERNATIONAL TRANSACTIONS IN DIFFERENT FIELDS WITH ITS ASSOCIATE ENTERPRISES. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US IS IN RELATION TO THE PROVISION OF BUSINESS SUPPORT 4 M A NO. 03 / P U N/20 1 7 ARISING O UT OF ITA NO. 1462 /PN/ 20 1 0 SERVICES, WHICH HAS BEEN PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS WITH REGARD TO BENCHMARKING THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE IN ITS TP STUDY REPORT HAD APPLIED THE TNMM METHOD AND HAD TAKEN OPERATING P ROFIT / TOTAL COST AS PROFIT LEVEL INDICATOR (PLI), WHICH WORKED OUT TO 7.61% FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD SELECTED 11 COMPANIES AS ITS COMPARABLES AND HAD USED MULTIPLE YEAR DATA FOR BENCHMARKING ITS TRANSACTIONS AND AS PER THE ASSE SSEE, THE ARITHMETIC MEAN OF PLI OF COMPARABLES WORKED OUT TO 12.61% AS AGAINST ASSESSEES PLI AT 7.39% AND THE SAME WAS FOUND TO BE AT ARM'S LENGTH PRICE AS THE SAME WAS WITHIN PARAMETERS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE ACT. HOWEVER, THE TPO REJECTED THE ANALYSIS IN THE TP STUDY REPORT ON THE GROUND THAT THE DATA FOR THE CURRENT YEAR I.E. FINANCIAL YEAR 2005 - 06 NEEDS TO BE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. IN THIS REGARD, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE, WHO IN TURN, FURNISHED THE DATA FOR THE FINANCIAL YEAR 2005 - 06 IN RESPECT OF ITS COMPARABLES, DURING THE COURSE OF TP PROCEEDINGS. ALL THESE FIGURES WERE PICKED UP BY THE TPO AND WERE APPLIED AND THREE CONCERNS WERE PROPOSED TO BE EXCLUDED SINCE THEY DID NOT QUALITY THE QUALITATIVE FILTER AND ALSO WHERE TWO OF THE CONCERNS WERE LOSS MAKING AND THIRD CONCERN WAS ON ACCOUNT OF EARNING SIGNIFICANTLY HIGHER PROFITS. THE ASSESSEE OBJECTED TO THE SAME AND POINTED OUT THAT IF SUCH QUANTI TATIVE FILTER IS TO BE APPLIED TO THE SET OF COMPARABLES, THEN QUALITATIVE FILTERS ALSO SHOULD BE APPLIED IN SELECTING THE FINAL SET OF COMPARABLES. THE ASSESSEE IN THIS REGARD PROPOSED THAT WHERE IT WAS A CAPTIVE SERVICE PROVIDER, THEN IT COULD NOT EARN LOSSES AND SIMILARLY IT COULD NOT EARN HIGHER PROFITS, SO THE CONCERNS WHICH WERE EARNING HIGH PROFITS AS PER THE FINAL LIST OF 5 M A NO. 03 / P U N/20 1 7 ARISING O UT OF ITA NO. 1462 /PN/ 20 1 0 COMPARABLES, APPLYING THE DATA FOR CURRENT YEAR, THE SAME SHOULD BE REJECTED. THE ASSESSEE STRESSED THAT THE FOLLOWING CONCERNS SHOULD BE REJECTED: - (I) AJCON GLOBAL SERVICES LTD., (II) BRESCON CORPORATE ADVISORS LTD., (III) S R E I CAPITAL MARKETS LTD., (IV) KHANDWALA SECURITIES LTD. AND (V) KJMC GLOBAL MARKET INDIA LTD. 5. FURTHER, THE SECOND MISTAKE WHICH HAS BEEN PO INTED OUT BY THE APPLICANT IN THE PRESENT MISCELLANEOUS APPLICATION IS VIS - A - VIS THE GROUND OF APPEAL NO.6. THE SAID GROUND OF APPEAL HAS BEEN DISMISSED AS NOT PRESSED , BY THE TRIBUNAL. THE CASE OF APPLICANT BEFORE US BY WAY OF GROUND OF APPEAL NO.6 IS T HAT THE RELIEF SOUGHT WAS ONLY OF GRANTING THE BENEFIT OF +/ - 5% RANGE AND NOT STANDARD DEDUCTION. OUR ATTENTION WAS DRAWN TO THE NOTE FORWARDED BY THE TPO IN THIS REGARD, WHICH WAS SUBMITTED THROUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, WHEREIN HE HAD MADE AVERMENTS FOR NOT ALLOWING STANDARD DEDUCTION. OUR ATTENTION WAS DRAWN TO THE NOTE DATED 09.02.2016 SUBMITTED POST HEARING AND SIMILAR STATEMENT WAS MADE AT POINT NO.3. 6. WE FIND THAT VIDE GROUND OF APPEAL NO.6, THE ASSESSEE HAD SOU GHT GRANT OF BENEFIT OF +/ - 5% RANGE AND NOT STANDARD DEDUCTION. THE SAID GROUND OF APPEAL BY AN ERROR HAS BEEN DISMISSED AS NOT PRESSED. HOWEVER, WE REVERSE OU R FINDING AND HOLD AS UNDER: - 10 . THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSEE IS AGAINS T THE SAID ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.1,08,89,061/ - WHILE PROVIDING BUSINESS SUPPORT SERVICES TO THE ASSOCIATE ENTERPRISES. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AGAINST REJECTION OF USE OF MULTIPLE YEARS D ATA, IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS WITH 6 M A NO. 03 / P U N/20 1 7 ARISING O UT OF ITA NO. 1462 /PN/ 20 1 0 REGARD TO RETENTION OF FIVE COMPARABLES WHICH WERE QUALITATIVELY NOT SIMILAR AND HENCE, NOT TO BE ADOPTED. BY WAY OF GR OUND OF APPEAL NO.4, THE ISSUE RAISED IS AGAINST SELECTION OF ONE CONCERN WHICH WAS SELECTED BY THE ASSESSEE IN A FRESH SEARCH FOR COMPARABLES USING DATA FOR FINANCIAL YEAR 2005 - 06 ALONE. THE CONTENTION OF THE ASSESSEE VIDE GROUND OF APPEAL NO.5 IS AGAINS T THE RISK ADJUSTMENT NOT ALLOWED IS NOT TAKING THE COGNIZANCE OF DIFFERENCES IN THE RISKS ASSUMED BY COMPARABLES AND THE RISK ASSUMED BY THE ASSESSEE AND THEREBY NOT GRANTING THE ADJUSTMENT FOR THE SAME. THE GROUND OF APPEAL NO.6 RAISED BY THE APPLICANT IS AGAINST GRANT OF +/ - 5% RANGE WHICH IS ALLOWED AND GROUND OF APPEAL NO.7 IS PREMATURE AND HENCE, THE SAME IS DISMISSED. 7 . IN THE RESULT, THE MISCELLANEOUS APPLICATION FILED BY THE APPLICANT IS DISPOSED OF AS INDICATED ABOVE. ORDER P RONOUNCED ON THIS 26 TH DAY OF MAY , 201 7 . SD/ - SD/ - ( ANIL CHATURVEDI ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 26 TH MAY, 2017 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUN E; 4. THE DRP, PUNE; 5. THE DR A, ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE