VOLVO CE INDIA PRIVATE LIMITED,BANGALORE V. ACIT/DCIT CIRCLE - 7(1)(1), BANGALORE

SA 79/BANG/2024

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Volvo CE India Private Ltd. filed a stay petition against an outstanding demand of Rs.59,00,16,069 for the assessment year 2021-22, arising from transfer pricing adjustments. The Tribunal considered the assessee's previous similar case for AY 2020-21, where a stay was granted under similar circumstances. The main contention was the separate benchmarking of manufacturing and trading segments by the Transfer Pricing Officer (TPO), despite their inter-linkage. The assessee argued that the TPO's adjustments were made without proper reasoning and that the financial strain from the demand would cause irreparable harm. The Tribunal noted the assessee's negative net worth and the potential impact of the demand on its business operations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33189 (ITAT-BANGALORE)
• Appeal Type: Stay Application
• Pronouncement Date: 06-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T. SURYANARAYANA
• Keywords: Transfer pricing; International transaction; Application of stay
• Section: 143(3); 143(1); 92CA

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER SP No.79/Bang/2024 [ in IT(TP)A No.2377/Bang/2024] Assessment year: 2021-22 Volvo CE India Private Ltd., Plot no.7 & 8, Phase-1, Peenya Industrial Area, Peenya, Bangalore – 560 058. PAN: AAGCV 4943G Vs. The Deputy Commissioner of Income Tax, Circle 7(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri T. Suryanarayana, Sr. Advocate Respondent by : Shri Parithivel, V., Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 03.01.2025 Date of Pronouncement : 06.01.2025 O R D E R Per Prashant Maharishi, Vice President 1. This stay petition is filed by Volvo CE India Private Ltd. [the Assessee / Applicant ] for the assessment year 2021-22 seeking direction to the ld. AO to keep the outstanding demand of Rs.59,00,16,669 in abeyance arising out of the assessment order passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 [the Act] dated 25.10.2024 wherein total income of assessee is assessed at Rs.118,61,11,961 against the return of income SP No.79/Bang/2024 Page 2 of 7 filed by the assessee on 14.3.2022 declaring total income at Nil, incorporating the TP addition on account of adjustment of ALP of international transaction of Rs.116,00,87,863/- resulting into notice of demand u/s. 156 of the Act dated 25.10.2024 of Rs.59,00,16,670/-, as according to assessee the balance of convenience lies in its favour. 2. The ld. AR adverting to the stay petition and facts of the case submitted that: - i. on identical facts and circumstances of the case for the AY 2020-21 in SP No.56/Bang/2024 (in ITA No.1619/B/2024) order dated 20.9.2024, assessee requested for stay of demand of Rs.61,76,06,126, which was kept in abeyance as per para 10 of the order. He also submits similar facts exist for this year also. ii. The main difference in income is on account of order of the ld. TPO holding that manufacturing segment and trading segment transactions are not inter-linked and are to be benchmarked separately. He referred to the TP Study Report [TPSR] wherein the assessee has benchmarked the same together considering as inter-linked and closely connected transaction. iii. Order of the TPO in para 2.4.1 has specifically accepting the above aggregation of trading as well as manufacturing segment, but in the end segregating both the transactions, SP No.79/Bang/2024 Page 3 of 7 benchmarking them separately and proposing an adjustment of Rs.28.67 crores in manufacturing segment and Rs.81.07 crores in trading segment, because of which this demand has arisen. There is no reason given by the ld. TPO for segregating both these transactions. iv. The Direction of the Ld. DRP in para 2.1.5 wherein this issue was raised and the ld. DRP rejected the same without giving any reason. v. Even otherwise adjustment should be restricted to international transaction with its AE which is merely 50.13% and therefore addition will go down substantially. vi. Assessee has filed an application for an Advance Pricing Agreement [APA] on 27.3.2023 wherein AY 2020-21 & AY 2021-22 are covered under the roll back years, therefore as soon as APA is arrived at, the issue would be resolved and appeal that is filed on this demand related to this adjustment would be withdrawn. So, till that time recovery of demand deserves to be kept in abeyance. vii. In the TPSR assessee has given complete reasoning for combined transaction approach of trading & manufacturing segment at para 5.1.2 with which the TPO has agreed, but in the end for no reason stated therein, separately benchmarked the transaction. SP No.79/Bang/2024 Page 4 of 7 viii. With respect to the international transaction of Engineering & Design services, he submits that the margin of the assessee is 14% and margin taken by the ld. TPO is 13.27% by changing the cost, resulting in a difference of Rs.10 lakhs without any reason. ix. Minor adjustment of only Rs.4 lakhs on account of interest on delayed receivables from its AE is left. x. Thus, the balance of convenience lies in favor of the assessee. xi. With respect to financial hardship, he submitted annual accounts of the company stating that it is having negative net worth and submitted the monthly cash flow statement stating that if the demand is recovered coercively, it will hamper business of assessee. xii. In the end, he submitted a computation of income reflecting the international transaction adjustment to the extent of transaction with AEs, computed the tax and interest thereon wherein it is stated that refund of Rs.2.5 crores and adjustment u/s. 143(1) of Rs.87,80,000 has already been made, which leaves the outstanding demand of Rs.30,39,22,966 and 20% thereof is Rs.6,07,84,559 only. He requested to stay on the similar lines as granted in AY 2020-21 by the coordinate bench. 3. Ld. DR vehemently objected to the same and submitted that assessee must be directed to pay 20% of the outstanding SP No.79/Bang/2024 Page 5 of 7 demand. He further submitted that argument of the assessee on merits deserves to be decided only in the appeal and therefore assessee does not deserve the stay as on similar lines of the order of Bench for AY 2020-21. 4. We have carefully considered the rival contentions and perused the orders of ld. lower authorities. We have considered the stay petition filed by the assessee, the order of the coordinate Bench in assessee’s own case for AY 2020-21 wherein stay of demand of Rs.61.76 crores was granted, the application made by assessee for APA and also the TPSR along with the financial position of assessee company. 5. On the basis of the above material placed before us, it is apparent that the addition on account of ALP of the international transaction has arisen for the reason that assessee has aggregated the transaction of trading & manufacturing segment which was in principle accepted by the TPO, but has computed the ALP separately without restricting the adjustment to the extent of international transaction of AEs, made an independent adjustment in both the segments, i.e. Rs 28.67 crores in manufacturing segment and Rs.81.07 crores in trading segment. The ld. TPO without giving any reason has given contradictory findings on this issue in order u/s 92CA (3) of the Act and ld. DRP has not given any reason to reject the contention of the assessee. Further, the assessee has also made an application for APA wherein the transaction of manufacturing & trading SP No.79/Bang/2024 Page 6 of 7 segment is inter-linked and closely connected transaction and to be benchmarked by aggregation, which is pending. The respective authorities would consider the issue of aggregation of manufacturing and trading transactions, however the issue is rejection of claim without reasons. With respect to the Engineering Design segment, the ld. TPO has computed the margin of 14% without giving any reason, whereas the assessee has stated it to be 13.27%. Thus, on all the issues involved in this appeal, except with respect to adjustment of Rs.4 lakhs on interest on overdue receivables, the balance of convenience prima facie lies in favor of the assessee. Further, the assessee has also demonstrated that it is a loss-making unit which has negative net worth and therefore enforcing such a huge demand would lead to irreparable damage to the financial condition of the assessee. However, as the interest of the revenue is to be safeguarded, the assessee was directed to offer security at least to the extent of 20% of the outstanding demand, to which the ld. AR agreed. The ld. DR has also agreed to that extent. 6. In view of the above facts, we direct the ld. AO to keep the demand of Rs.59,00,16,069 in abeyance till (i) APA is reached; (iii) 180 days from the date of this order; or (iii) disposal of the appeal, whichever is earlier; subject to the condition that the assessee shall furnish a bank guarantee to the satisfaction of the ld. AO of Rs. 6 crores which is being 20% of the above outstanding demand. SP No.79/Bang/2024 Page 7 of 7 7. We direct the registry to fix the hearing of the appeal on 24th March, 2025. By that time, assessee should file the necessary paperbooks, etc. in terms of provisions of the ITAT Rules, 1963. 8. In the result, the stay petition filed by the assessee is disposed of as above. Pronounced in the open court on this 06th day of January, 2025. Sd/- Sd/- ( SOUNDARARAJAN K.) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 06th January 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. "