M/s. Toyota Kirloskar Motors Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, LTU, Bangalore

MA 70/BANG/2018

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 2162 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 02-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: PADAMCHAND KHINCHA
• 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; 92; 115JB; 254(2); 48; 13; 22

Judgement Text

MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “B’’BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. Nos.70 & 71/Bang/2018 IT(TP)A Nos.836/Bang/2014 & 350/Bang/2014 Assessment Year: 2005-06 M/s. Toyota Kirloskar Motor Pvt. Ltd. Plot No.1, Bidadi Industrial Area Ramnagar District Bangalore 562 109 PAN NO : AAACT5415B Vs. ACIT (LTU) Bangalore APPELLANT RESPONDENT Appellant by : Shri Padamchand Khincha, A.R. Respondent by : Shri Priyadarshi Mishra, D.R. Date of Hearing : 29.10.2021 Date of Pronouncement : 02.11.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has filed these miscellaneous applications submitting that the order dated 8.9.2017 passed by the Tribunal against the cross appeals filed by the parties relating to assessment year 2005-06 (mentioned in the caption) suffer from mistakes apparent from record. 2. The Ld. Counsel appearing for the assessee submitted that both the assessee as well as revenue had filed appeals for assessment year 2005-06 against the order passed by Ld. CIT(A). MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 2 of 14 The Ld. A.R. submitted that, at the time of hearing, the assessee had pressed grounds 10(b) to 10(e) dealing with Transfer pricing adjustments made in respect of “royalty payments” and also ground No.15 relating to addition of “Provision for warranty” to the net profit, while computing book profit u/s 115JB of the Act. The Ld. A.R. submitted that the ground urged by the revenue also related to transfer pricing adjustment made in respect of royalty payment. Thus, in effect following two issues were required to be adjudicated by Tribunal in the appeals filed by both the parties:- a) Transfer pricing adjustment made in respect of royalty payments. b) Addition of “Provision for warranty” while computing book profit u/s 115JB of the Act. 3. The Ld. A.R. submitted that the assessee is a subsidiary of M/s. Toyota Motor Corporation, Japan. The assessee was set up in India in order to manufacture and sell Multi Utility Vehicles (MUV) under the model name “Qualis” and passenger cars under the model name “Corolla”. During the year under consideration, the assessee launched another model of MUV named “Innova”. The assessee was having two segments, viz., a trading segment and a manufacturing segment. While undertaking transfer pricing study of its international transactions, the assessee followed combined method by aggregating transactions of trading segment and manufacturing segment. In respect of manufacturing segment, the assessee had also paid royalty to its AE and claimed the same as expenditure. Hence, the assessee did not undertake separate benchmarking exercise in respect of royalty payments. MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 3 of 14 4. The TPO did not accept combined approach of Trading and manufacturing segment. Accordingly, he carried out transfer pricing exercise of both the above segments separately. However, he held that the international transactions relating to both the above segments are at arms length. However, the TPO held that the royalty payments should be benchmarked separately. Accordingly, he proceeded to determine the ALP of royalty payments. After citing various reasons, the TPO determined the ALP of royalty payments as NIL. One of the reasons cited by TPO was that the assessee has failed to show that there was transfer of any technology. 5. The Ld A.R submitted that the Ld CIT(A) has rendered following decision in respect of T.P adjustment made on Royalty payments:- (a) The first aspect was on aggregation/segregation of royalty payment from manufacturing activity. The claim of the assessee for aggregation was rejected by Ld CIT(A). (b) The second aspect was on transfer of technology. The claim of the assessee in this regard has been accepted by Ld CIT(A), i.e., the Ld CIT(A) has accepted that there was transfer of technology. (c) The third aspect related to quantum of royalty payment. This issue was remanded back by Ld CIT(A) to the file of TPO for benchmarking it with comparables. The Ld A.R submitted that the assessee has filed appeals in respect of issues mentioned in (a) and (c) above. The revenue has filed appeal in respect of issue mentioned in (c) above. 6. The Ld. A.R. submitted that identical additions were made in AY 2007-08 and the assessee had also filed appeal for AY 2007-08 before the Tribunal, which came to be disposed of first by the Tribunal, i.e., on 11.7.2014 and the same is reported in 48 MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 4 of 14 Taxmann.com 380. In AY 2007-08 also, the TPO had determined the ALP of royalty payment at NIL. However, the Tribunal accepted aggregation of transactions for the purpose of benchmarking. In that year, The Tribunal, after taking the support of the decision rendered by Hon’ble Delhi High Court in the case of CIT Vs. EKL Appliances Ltd. 24 Taxmann.com 199 and also Rule 10B(1)(a), held that the disallowance of expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same is not within the jurisdiction of TPO. The Tribunal further referred to the decision rendered by the Ld. CIT(A) for assessment year 2005- 06, wherein the Ld. CIT(A) had held that TPO’s determination of ALP of royalty payment at Nil cannot be supported. Further, the CIT(A) had restored the issue to the file of TPO in assessment year 2005-06 for determining ALP of royalty payment separately. Since the TPO had taken identical view in AY 2007-08 also, the Tribunal upheld the view taken by Ld CIT(A)/DRP in 2007-08 and further held that the grounds raised by the assessee with regard to the royalty payment is academic in nature. Against the above said order of Tribunal, the revenue filed miscellaneous application seeking some clarifications with regard to the decision rendered by Tribunal on TP adjustments made on royalty payments. The same came to be registered as MP No.7/Bang/2015. The above said miscellaneous application was disposed of by the Tribunal on 20.2.2015, wherein the Tribunal held that the addition made by way of adjustment to the ALP has been deleted by the Tribunal in para 47 of its order. Accordingly, it further held that all that A.O. has to do while giving effect to the order of Tribunal is to delete the addition on account of adjustment to ALP. The Ld. A.R., accordingly submitted that, on a combined reading of the orders passed by the Tribunal on the appeal as well as miscellaneous application would clearly show that the Tribunal has deleted all the MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 5 of 14 additions made in respect of ALP adjustment including that of royalty in assessment year 2007-08. 7. The Ld.A.R submitted that the assessee has placed reliance on the decision rendered by ITAT in 2007-08 before the Tribunal while contesting appeal filed for assessment year 2005-06, i.e., for the year under consideration. However, the Tribunal has interpreted the order passed by the co-ordinate bench for AY 2007- 08 differently. In this regard, the Ld A.R referred to the following points mentioned in the present miscellaneous applications:- a. “(i) The Tribunal in the Petitioners Case for AY 2007-08 [ITA No.1315/Bang/2011(2014) 48 taxmann.com 380]. did not adjudicate Ground No. 22, which pertained to the question whether the TPO was right in separately evaluating Royalty Payment by adopting CUP method. (ii) In para 48 to 51 of the ITAT Order for AY 2007-08, the Tribunal has held that the question of Separate Evaluation of Royalty Payment as purely academic. Based on the above, it is concluded by the Honourable Tribunal in its Order for AY 2005-06 that no specific observation with respect to Separate Evaluation of Royalty Payment was made in Order for AY 2007-08. [Para 14/15] b. The Tribunal in the Petitioners Case for AY 2007-08 [ITA No.1315/Bang/2011[2014) 48 taxmann.com 380], had relied on the Order of the CIT(A) for AY 2005-06. Accordingly, it is concluded by the Honourable Tribunal petitioner relied on the order of the CIT(A) of A Y 2005-06 for adjudication of appeal for A Y 2007-08 and having ac cepted and relied on the order„ the Petitioner is wrong in challenging the CIT(A) Order for AY 2005-06 as the Tribunal in AY 2007-08 had relie d on the same Order to pass an Order in favour of the Petitioner (Para 14/17) c. The Tribunal in the MP Order for AY 2007-08 [M.P. No.7/Bang/2015 ITS-70-ITAT-2015(Bana has made no specific observation with respect to Separate Evaluation of Royalty Payment. [Para 15] MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 6 of 14 d. Same conclusion is drawn with respect to the Tribunal Order for AY 2010-11. [Para 16] 21. After making the above observations, the Honourable Tribunal has rejected the contentions of the Petitioner that separate benchmarking of Royalty payments cannot be made. Following is the relevant extract of the ITAT Order (Page 18 of the Order): In view thereof, the basis of objection of the assessee carrying out the transaction in the form of royalty cannot be analysed on a stand-alone basis, is without any basis and therefore, we have no hesitation to hold this ground against the assessee and in favour of the Revenue.” 8. The Ld A.R submitted that the co-ordinate bench, in AY 2007- 08, has clarified its decision in the order passed against miscellaneous application filed by the Revenue, i.e., the co-ordinate bench has approved aggregation of all international transactions and further clarified that all ALP adjustments are required to be deleted. In fact, the revenue had filed the above said miscellaneous application in order to seek clarification in respect of TP adjustment made on royalty payments. Accordingly, the Ld A.R submitted that the Tribunal should have followed the above said decision in the instant year also and not following the same has resulted in a mistake apparent from record within the meaning of sec.254(2) of the Act. 9. The Ld A.R further submitted that the assessee has also placed its reliance on the decision rendered by Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P) Ltd vs. CIT (2015)(55 taxmann.com 240)(Delhi). In paragraph 101 of the above said order was relied upon by the assessee. In the said paragraph, the Hon'ble Delhi High Court has observed as under:- “Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 7 of 14 declared when matches with the comparables would result in affirmation of the transfer price as the arm’s length price. Then to make a comparison of a horizontal item without segregation would be impermissible.” The Ld A.R submitted that the Tribunal has made reference to paragraph 80 – 82 of the order passed by the High Court of Delhi and did not refer to paragraph 101 at all, which was the final decision rendered by the Hon'ble Delhi High Court. Hence the same constitutes mistake apparent from record. 10. The Ld A.R further submitted that the Tribunal has observed in paragraph 25 of its order that the TPO has to come to a definite finding as to the method to be adopted for benchmarking royalty, i.e., whether CUP, TNMM or any other method prescribed under Chapter X of the Act, i.e., at this stage, the Tribunal has left the selection of Most appropriate method to the wisdom of TPO. Accordingly, the Tribunal remanded back this matter to the file of TPO. However in paragraph 40 of its order, the Tribunal has directed the TPO to follow CUP method. Thus inconsistent direction has been given by the Tribunal and the same constitutes mistake apparent from record. 11. The Ld A.R further submitted that the Tribunal has observed in paragraph 22 of its order that the assessee is paying royalty on ex-factory sale price for manufactured vehicles. However, the fact is that the assessee is paying royalty on “Local Value Addition”. Thus, there is mistake in understanding of facts by the Tribunal and same constitutes mistake apparent from record. 12. The Ld A.R further submitted that the Tribunal has observed in paragraph 29 of its order that the import price paid for purchase MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 8 of 14 of vehicles in SKD (Semi-knocked down) and CKD (Completely knocked down) conditions included for premium for technology and hence no extra payment is required to be made in the guise of royalty. The Ld A.R submitted that the above said observations are contradictory to facts, which has already been captured by the Tribunal that the assessee is engaged in the business of manufacture of vehicles. Accordingly, the Ld A.R submitted that the above said observations are contrary to the facts and the same constitutes mistake apparent from record. 13. The Ld A.R further submitted that the Tribunal, in paragraph 38 of its order has directed the TPO to verify the following:- (a) Whether the AE has transferred technology to the assessee. (b) Whether the assessee has drawn any economic benefit from alleged transfer of Technology for which Royalty was paid. Further, in paragraph 39 of its order, the Tribunal has observed that the assessee should demonstrate the receipt of technology during the year under consideration. 14. The Ld A.R submitted that the above said observations made by the Tribunal in paragraph 38 and 39 are unwarranted and none of the parties has contested this issue before the Tribunal. He submitted that the Ld CIT(A), in the instant year, has given a categorical finding that the assessee has received the technology. The said finding of Ld CIT(A) has also not been disputed by the revenue. Hence the decision given by Ld CIT(A) on this aspect has attained finality. Further, the payment of royalty, in the facts of the present case, is a recurring feature, i.e., it is not a case of lump sum payment. In that case, the assessee might have received technology in the earlier year, but would be liable to pay the royalty MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 9 of 14 every year. However, the Tribunal has directed the AO to examine whether there was transfer of technology during the year under consideration. Such direction is also unwarranted. Accordingly, the Ld A.R submitted that, under above said set of facts, the observations so made and directions so given by the Tribunal are incorrect and the same constitutes mistake apparent from record. 15. In support of the above contentions, the Ld A.R placed his reliance on the decision rendered by Hon'ble Karnataka High Court in the case of Karnataka State Forest Industries Corpn vs. CIT (1994)(72 Taxman 19), wherein it was held that the Tribunal cannot go beyond the scope of appeal and decide a question which does not form the subject matter of appeal. 16. The Ld A.R submitted that the assessee, in ground no.15, has raised a issue with regard to the correctness of adding the amount of provision for warranty debited to the Profit and loss account to net profit while computing book profit u/s 115JB of the Act. The AO treated the above said provision as unascertained liability. However, the Tribunal has referred to paragraph 2 of the assessment order dealing with issue of closing stock value on testing vehicles and accordingly observed that the ground no.15 raised by the assessee and para 2 of the assessment order does not match. In effect, the Tribunal has not disposed of ground no.15 urged by the assessee and hence it constitutes mistake apparent from record. 17. Accordingly, the Ld A.R prayed that the above said mistakes would vitiate the order passed by Tribunal and hence the entire order passed by the tribunal deserves to be recalled. MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 10 of 14 18. On the contrary, the Ld D.R submitted that the Tribunal has taken conscious decision on various aspects and hence the same constitutes view taken by the Tribunal. Accordingly, he submitted that the order passed by the Tribunal need not be disturbed. 19. We heard rival contentions and perused the record. We notice that the assessee has contested only two issues, viz., Transfer pricing adjustment made in respect of royalty payments and the Ground No.15 relating to computation of book profit u/s 115JB of the Act. With regard to the ground no.15, we are of the view that the Tribunal has definitely fell in error in observing that the ground no.15 does not match with paragraph 2 of the assessment order, which deal with different issue. In effect, we notice that the ground no.15 urged by the assessee has not been disposed of by the Tribunal due to wrong appreciation of facts and hence the same constitutes mistake apparent from record. 20. The next issue contested by the assessee related to the determination of ALP of royalty payment. As noticed earlier, the assessee has bench marked all international transactions including royalty payments on a combined approach, i.e., aggregating all the transactions. However, the TPO proceeded to determine the ALP of royalty payment separately. We notice that an identical issue was considered by the co-ordinate bench in AY 2007-08 and it was decided in favour of the assessee, i.e., the co-ordinate bench approved the action of the assessee in determining the ALP of all international transactions on aggregation basis. In the order passed by the co-ordinate bench against the miscellaneous application filed by the revenue for AY 2007-08, the co-ordinate bench has made it clear that the addition made on account of TP MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 11 of 14 adjustment is liable to be deleted. We notice that the assessee had placed its reliance on the order passed by the Tribunal in AY 2007- 08 in the assessee’s own case before the Tribunal in this year. However, the Tribunal has not followed the order passed by the co- ordinate bench in AY 2007-08 on this issue. We notice that the Tribunal has made observations to the effect that the order passed in AY 2007-08 by the co-ordinate bench does not make any specific observation with respect to separate evaluation of royalty payment. As rightly contended by Ld A.R, the co-ordinate bench has made it very clear in the order passed against miscellaneous application that the entire addition made on account of Transfer pricing adjustment needs to be deleted, meaning thereby, the aggregation of all transactions has been upheld by the Tribunal and hence no independent determination of ALP of royalty payment was warranted. 21. In our considered view, the action of the Tribunal in not following the decision rendered by the co-ordinate bench in another year in the assessee’s own case on an identical issue shall constitute mistake apparent from record. In this regard, we derive support from the decision rendered by Hon’ble Supreme Court in the case of Honda Siel Power Products Ltd (295 ITR 466), wherein the Hon’ble Apex Court has held that the Tribunal was justified in exercising its power u/s 254(2) when it was pointed out to the Tribunal that the judgement of co-ordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. 22. The Hon’ble jurisdictional Bombay High Court had an occasion, in the case of Hatkesh Co. op Hsg Society Ltd Vs. ACIT MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 12 of 14 (ITA No.328 of 2014 dated 22-08-2016), to consider the question as to whether the Tribunal was justified in taking a view contrary to the decision of the co-ordinate bench of the Tribunal rendered in the appellant’s own case on identical facts without making reference to a larger bench. In the above said case, the Tribunal had passed order in favour of the assessee in AY 2003-04, 2004-05 and 2005-06 after considering the decision rendered by Hon’ble Bombay High Court in the case of Sind Co-op Hsg. Society Vs. ITO (2009)(317 ITR 47)(Bom). However, the Tribunal has taken a different view in another year in the subsequent decision rendered by it and for that purpose, the Tribunal placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of Sind Co-op Hsg. Society (supra). When the assessee filed appeals before Hon’ble Bombay High Court, the Hon’ble High Court held as under:- “4. We find that the impugned order makes reference to the appellant’s submission that the issue arising in the appeal before it is covered by the order of a Coordinate Bench of the Tribunal dated 24 June 2011 in its own case in respect of Assessment Years 2003-04 2004-05 and 2005-06. The order dated 24 June 2011 of the Tribunal was with regard to the two issues, which arose for consideration before the Tribunal in these six Assessment Years, namely, the application of principle of mutuality in respect of transfer fees and TDR premium received by the Assessee from its members. The order dated 24 June 2011 inter alia considered the decision of this Court in Sind Co. Op. Hsg. Society vs. ITO (2009) 317 ITR 47 (Bom.) before coming to the conclusion that transfer fees as well as TDR premium received from Cooperative Societies is covered by the principle of mutuality. 5. The impugned order of the Tribunal after making a note of its Coordinate Bench’s order dated 24 June 2011 seeks to take a different view. This different view was taken in the impugned order inter alia by relying upon the decision of this Court in Sind Co.Op. Hsg. Society (supra) which was also subjected to consideration in its order dated 24 June 2011. We are of the view that when an identical issue, which had earlier arisen before the Coordinate Bench of the Tribunal on identical facts and a view has been taken on the issue then judicial discipline would demand that a subsequent bench of the Tribunal hearing the same issue should follow MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 13 of 14 the view taken by its earlier Coordinate Bench. No doubt this discipline is subject to the well settled exceptions of the earlier order being passed per incurim or sub silentio or in the meantime, there has been any change in law, either statutory or by virtue of judicial pronouncement. If the earlier order does not fall within the exception which affects its binding character before a coordinate bench of the Tribunal, then it has to follow it. However, if the Tribunal has a view different then the view taken by its Coordinate Bench on an identical issue, then the order taking such a different view must record its reasons as to why it does not follow the earlier order of the Tribunal on an identical issue, which could only be on one of the well settled exceptions which affect the binding nature of the earlier order. It could also depart from the earlier view of the Tribunal if there is difference in facts from the earlier order of Coordinate Bench but the same must be recorded in the order. The impugned order is blissfully silent about the reason why it chooses to ignore the earlier decision of the Tribunal rendered after consideration of Sind Co. Op. Hsg. Society (supra), and take a view contrary to that taken by its earlier Coordinate Bench. It is made clear that in case a subsequent bench of the Tribunal does not agree with the reasons indicated in a binding decision of a coordinate bench, then for reason to be recorded, it must request the President of the Tribunal to constitute a larger bench to decide the difference of view on the issue. 6. In the present facts, the impugned order of the Tribunal is not legally sustainable. We, therefore, set aside the impugned order and restore the appeal to the Tribunal for fresh disposal.” 23. In the instant case also, we noticed that the Tribunal has not followed the decision rendered by the co-ordinate bench in the assessee’s own case in AY 2007-08. Hence it constitutes mistake apparent from record and on this count alone, the order passed by the Tribunal deserves to be recalled. 24. In addition to the above mistake, the assessee has listed out various other mistakes apparent from record. In our view, those contentions do not require specific consideration; since we have held that the order passed by the Tribunal suffers from mistake apparent from record on the first contention of the assessee alone. MP Nos.70 & 71/Bang/2018 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore Page 14 of 14 25. Since the appeal filed by the revenue is also related to the transfer pricing adjustment made in respect of royalty, the order passed in revenue’s appeal would also require to be recalled. 26. In view of the foregoing discussions, we recall the order dated 08-09-2017 passed by the Tribunal in IT(TP)A No.350/Bang/2014 and IT(TP)A No.336/Bang/2014. The registry is directed to post these appeals in the normal course under due intimation to the parties. 27. In the result, both the miscellaneous applications filed by the assessee are allowed. Order pronounced in the open court on 2 nd Nov, 2021 Sd/- (Beena Pillai) Judicial Member Sd/- (B.R. Baskaran) Accountant Member Bangalore, Dated 2 nd Nov, 2021. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.