M/s. Steer Engineering Pvt. Ltd., Bengaluru V. Deputy Commissioner of Income-tax, Circle-6(1)(2), Bengaluru

MA 83/BANG/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2857 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-09-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 04-08-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NARENDRA JAIN
• Keywords: Transfer pricing
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND MS. S. PADMAVATHY, ACCOUNTANT MEMBER MP No.83/Bang/2022 (in ITA No.2071/Bang/2018) Assessment Year : 2012-13 M/s. STEER ENGINEERING PRIVATE LIMITED, No.290, 4 th Main, 4 th Phase, Peenya Industrial Area, Nagawara, Bengaluru – 560 058. PAN : AABCS 8840 E Vs. DCIT, Circle – 6(1)(2), Bengaluru. APPELLANT RESPONDENT Assessee by :Shri.Narendra Jain, Advocate Revenue by:Shri. K. R. Narayan, Addl. CIT(DR)(ITAT), Bengaluru. Date of hearing:09.09.2022 Date of Pronouncement:12.09.2022 O R D E R Per N. V. Vasudevan, Vice President :. V. Vasudevan This is a Miscellaneous Application (MP) filed by the assessee under section 254(2) of the Income Tax Act, 1961 (hereinafter called ‘the Act’), praying for rectification of errors apparent on the face of the Order of the Tribunal. 2. The assessee is a private limited company and has subsidiaries in Japan, USA, China and Hong Kong. The assessee is engaged in the business of manufacturing and MP No.83/Bang/2022 (in ITA No.2071/Bang/2018) Page 2 of 5 sale of extruders and its parts & elements. The subsidiaries act as distributors for products manufactured by the assessee. 3. The Assessee manufactured extruders for it’s Associated Enterprise (AE) and therefore the price at which the products were sold to the AE had to satisfy the Arm’s Length Price test contemplated by the provisions of Sec.92 of the Act. The TPO accepted TNMM and both the comparables selected by the assessee in it’s Transfer Pricing documentation for manufacturing segment. The Transfer Pricing Officer (TPO) compared the international segment of the assessee with the entity wide margins of same comparables and made TP adjustment of Rs.5,92,37,627/-. The AO incorporated the TP adjustment proposed by the learned TPO in the draft assessment order under section 143(3) r.w.s. 144C(1). Thereafter, final assessment order was passed u/s 143(3) r.w.s 144C(1) incorporating the same. 4. Being aggrieved by the above stated final assessment order, the assessee filed an appeal before the learned CIT(A)-6 on 13.03.2018. The CIT(A) passed its order on 26.03.2018. In his order, the learned CIT(A) confirmed the above TP adjustment made by the learned AO. 5. Being aggrieved, the assessee filed the above referred appeal [ITA No.2071/Bang/2018] before the ITAT against the order passed by the CIT(Appeals), Bangalore – 6, dated 21.06.2018 for AY 2012-13. The above appeal was disposed by the Income Tax Appellate Tribunal vide its Order dated 27.04.2022. MP No.83/Bang/2022 (in ITA No.2071/Bang/2018) Page 3 of 5 6. In this petition, it has been submitted by the assessee that the Order of the ITAT contains certain “Mistakes Apparent from Record”. In this regard, it has been submitted that before the ITAT, the assessee raised ground 4(c), which is extracted below: “The learned CIT(A), has erred in confirming the action of the Assessing Officer (‘AO’) and Transfer Pricing Officer (‘TPO’) in: ........... c)Conducting TP analysis at segment level instead of entity level and Comparing the Appellant’s international segment with comparable companies entity wide margins without appreciating that the comparable companies have both domestic and export revenue and therefore comparing international transactions of the Appellant with entity wide margins of the comparables is inappropriate.” It has further been submitted that the TPO accepted TNMM and both the comparables selected by the Petitioner. The TPO has observed that the Petitioner has international and domestic sales. The TPO has contended that since the Petitioner’s transactions with foreign subsidiaries are in the international segment, international sales segment should be considered for benchmarking purpose. The TPO has compared the international segment of the Petitioner with the entity wide margins of same Comparables and made TP adjustment of Rs.5,92,37,627/- for the manufacturing segment. 7. The ITAT has dealt with the Petitioner’s ground of appeal on page 29 and 30, and in para 34 of the order, the tribunal observed that for purpose of comparing international segment of the Petitioner, sale and proportionate expenses relatable to sale of AE has to be considered to arrive at profit margin. Further, the ITAT has directed the TPO to perform similar exercise for two comparables by identifying MP No.83/Bang/2022 (in ITA No.2071/Bang/2018) Page 4 of 5 expenses relatable to export sale to AE and call relevant information exercising power u/s 133(6). 8. In this MP it has further been submitted that export sales to AE of comparables will constitute controlled transactions and therefore, cannot be compared. What can be compared is export sales to Non-AE / third parties of comparables. It has been submitted that the TPO should be directed to exercise powers u/s 133(6) and call for information from two comparables with respect to profit margin from export sales to Non-AE / third parties. It has been submitted that the instead of the words “to AE” in para 34 at page 30 it should be replaced by words “to third parties”. 9. We have considered the contentions in the MP and are of the view that the order of the Tribunal suffers from an error apparent on the face of it. It is correct to say that what has to be compared is the Export Sale of the comparable companies to Non-AE / Third Parties and Export Sales to AE of comparables will be a controlled transaction and what has to be compared is the margin that comparable companies would earn from transactions with Non-AE / Third Parties and not with Related AE parties. The apparent error is rectified by substituting the following sentence to the existing last sentence of para – 34 viz., “Similar exercise has to be carried out by the TPO with regard to the two comparable companies and the profit margin of the two comparable companies has to be arrived at by identifying expenses relatable to Export Sale to Non-AE / third parties and for this purpose, the TPO may exercise his powers under section 133(6) of the Act and call for the required details from the comparable companies.” MP No.83/Bang/2022 (in ITA No.2071/Bang/2018) Page 5 of 5 10. In the result, MP of the assessee is allowed to the extent indicated above. Pronounced in the open court on the date mentioned on the caption page. Sd/- (S. PADMAVATHY) Sd/- (N.V. VASUDEVAN) Accountant MemberVice President Bangalore, Dated: 12.09.2022. /NS/* Copy to: 1.Appellants2.Respondent 3.CIT4.CIT(A) 5.DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.