Rieter India Private Limited,, Pune v. Deputy Commissioner of Income-tax, Circle - 5,, Pune

ITA 2371/PUN/2017 | 2013-2014
Pronouncement Date: 04-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 237124514 RSA 2017
Assessee PAN AAACR3556P
Bench Pune
Appeal Number ITA 2371/PUN/2017
Duration Of Justice 3 year(s) 4 month(s) 23 day(s)
Appellant Rieter India Private Limited,, Pune
Respondent Deputy Commissioner of Income-tax, Circle - 5,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 04-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 04-03-2021
Date Of Final Hearing 03-03-2021
Next Hearing Date 03-03-2021
Last Hearing Date 05-11-2019
First Hearing Date 02-03-2021
Assessment Year 2013-2014
Appeal Filed On 11-10-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY JUDICIAL MEMBER . / ITA NO.2371/PUN/2017 / ASSESSMENT YEAR : 2013-14 RIETER INDIA PRIVATE LIMITED GAT NO.768/2 VILLAGE WING SHINDEWADI-BHOR ROAD TALUKA KHANDALA DISTRICT SATARA MAHARASHTRA 412 801 PAN : AAACR3556P VS. DCIT CIRCLE-5 PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 24-08-2017 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YE AR 2013-14. 2. THE ASSESSEE HAS TAKEN TEN GROUNDS IN THE MEMORANDUM OF APPEAL OUT OF WHICH NINE WERE NOT PRESSED. SUCH GROUND S ERGO STAND DISMISSED AS NOT PRESSED. ONLY GROUND NO.9 SURVIVE S WHICH ASSESSEE BY SHRI M.P. LOHIA REVENUE BY SHRI SANGRAM GAIKWAD DATE OF HEARING 03-03-2021 DATE OF PRONOUNCEMENT 04-03-2021 ITA NO.2371/PUN/2017 RIETER INDIA PRIVATE LIMITED 2 CONCERNS WITH RESTRICTING THE TRANSFER PRICING ADJUSTMENT ONLY TO THE INTERNATIONAL TRANSACTIONS. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSE E AN INDIAN COMPANY IS A SUBSIDIARY OF RIETER GROUP BASED IN SWITZERLAND. THE ASSESSEE IS ENGAGED IN MANUFACTURE OF TEXTILE MACHINES AND RELATED PARTS AND COMPONENTS. IT PROVIDES SA LES AND AFTER-SALES SUPPORT SERVICES FOR THE TEXTILE MACHINERY AND EQUIPMENTS MANUFACTURED AND SOLD BY THE RIETER GROUP COMP ANIES IN INDIA. IT ALSO CARRIES OUT INSTALLATION AND COMMISSIONING OF THE MACHINES/EQUIPMENTS SOLD BY THE RIETER GROUP COMPANIES AND ALSO PROVIDES WARRANTY SUPPORT SERVICES. A RETURN WAS FILED DE CLARING LOSS OF RS.48.00 CRORE. CERTAIN INTERNATIONAL TRANSACTIONS WE RE REPORTED IN FORM NO. 3CEB. THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LE NGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. INSTANTLY WE AR E CONCERNED WITH THE ONLY INTERNATIONAL TRANSACTION OF PURCHASE O F GOODS (TEXTILE COMPONENTS/PARTS) WITH TRANSACTED VALUE OF RS.2 15 00 14 692/-. THE ASSESSEE APPLIED INTERNAL TRAN SACTIONAL NET MARGINAL METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH THREE COMPARABLES FOR DEMONSTRATING THE INTERNATIONAL TRANSACTION AT ALP. THE TPO REJECTED THE APPLICATION OF INTERNAL ITA NO.2371/PUN/2017 RIETER INDIA PRIVATE LIMITED 3 TNMM AND RESORTED TO THE EXTERNAL TNMM. OUT OF THE THREE COMPANIES CHOSEN BY THE ASSESSEE AS COMPARABLE THE TPO REJECTED ONE AND INCLUDED ONE NEW COMPANY AGAIN HAVING THREE COM PANIES IN TOTAL NAMELY BAJAJ STEELS INDUSTRIES LTD. VEEJAY LAKSHMI ENGINEERING WORKS LTD. AND CHANDNI TEXTILES ENGINEERING INDUSTRIES LTD. THE TPO DETERMINED THE ASSESSEES ADJUSTED PLI OF OPERATING PROFIT (OP)/OPERATING REVENUE (OR) AT (-) 6.56%. MEAN MARGIN OF THREE COMPARABLES WAS WORKED OUT AT 0.86%. WITH THE DIFFERENCE IN MARGINS AT 7.42% THE TPO PROPOSED TRANSFER PRICING ADJUSTMENT OF RS.32.12 CRORE BY CONSIDERING TOTAL OPERATING REVENUE OF THE ASSESSEE AT RS.432.98 CRORE. THE CASE OF THE ASSESSEE IS THAT THE TRANSFER PRICING ADJUSTMENT IF ANY SHO ULD HAVE BEEN RESTRICTED ONLY TO THE INTERNATIONAL TRANSACTIONS AND NOT THE ENTITY LEVEL TRANSACTIONS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. PRIMAR ILY WE WANT TO RECORD THAT THE ASSESSEE HAS DISPUTED NEITHER THE SE LECTION OF EXTERNAL TNMM NOR ANY OF THE THREE COMPARABLES CHOSEN. THE EXTANT DISPUTE IS FOR RESTRICTING THE TRANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS ALONE AND NOT EXTENDING IT TO THE ENTITY LEVEL TRANSACTIONS. ITA NO.2371/PUN/2017 RIETER INDIA PRIVATE LIMITED 4 5. SECTION 92 IS FIRST SECTION OF THE CHAPTER-X CONTAINING SP ECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX. SUB-SECTION (1) OF SE CTION 92 PROVIDES THAT: `ANY INCOME ARISING FROM AN INTERNATIONAL TRANSA CTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE . THUS IT IS GRAPHICALLY CLEAR THAT THE ALP AND THE CONSEQUENTIAL TRANSFER PRICING ADJUSTMENT ARE CONTEMPLATED ONLY IN RESPECT OF THE INTERNATIONAL TRANSACTIONS (WITH AES) AND NOT THE ENTITY LEVEL TRANSACTIONS (WHICH ALSO INCLUDE TRANSACTIONS WITH NON-AES). TH E TPO IN THE INSTANT CASE HAS COMPUTED TRANSFER PRICING ADJUSTM ENT IN RESPECT OF ENTITY LEVEL TRANSACTIONS WHICH CANNOT BE COUNTENAN CED. WE THEREFORE DIRECT TO RESTRICT THE TRANSFER PRICING ADJUS TMENT ONLY TO THE INTERNATIONAL TRANSACTIONS RATHER THAN THE ENTITY LEVEL TRANSACTIONS OF COURSE AFTER GIVING DUE OPPORTUNITY OF HEA RING TO THE ASSESSEE. 6. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND OF APPE AL READING AS UNDER : WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL FILED BY THE APPELLANT IN CASE VRS EXPENSES ARE TO BE CONSIDERED AS OPERATING IN NATURE WHILE COMPUTING THE NET OPERATING PROFIT MARGINS OF THE APPELLANT THE SAME SHOULD BE CONSIDERED AS OPERATING IN NATURE WHILE COMPUTING THE NET OPERATING PROFIT MARGIN OF THE COMPARABLE COMPANY I.E. VEEJAY LAKSHMI ENGINEERING WORKS LIMITED. ITA NO.2371/PUN/2017 RIETER INDIA PRIVATE LIMITED 5 7. THE INSTANT ADDITIONAL GROUND RAISES A PURE QUESTION OF LAW WHICH DOES NOT REQUIRE ANY FRESH INVESTIGATION OF FACTS. THE SAME IS ADMITTED IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (1998) 229 ITR 383 (SC). 8. NOW WE ESPOUSE THE GROUND FOR DISPOSAL ON MERITS. T HE LD. AR SUBMITTED THAT IN SELF COMPUTING THE OWN PLI OF OP/OR THE ASSESSEE INITIALLY DID NOT CONSIDER VOLUNTARY RETIREMENT SCHEME (VRS) EXPENSES INCURRED BY IT IN THE OPERATING COST BASE. H OWEVER THE TPO INCLUDED THE SAME IN THE OPERATING COSTS OF THE ASS ESSEE AND RECOMPUTED THE ADJUSTED PLI OF THE ASSESSEE AT (-) 6.56%. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS NO OBJECTION TO THE INCLUSIO N OF VRS EXPENSES IN ITS OPERATING COST BASE FOR THE PURPOSE OF DETERMINING ITS PLI. IT WAS HOWEVER SUBMITTED THAT THE SAME METHODOLOGY SHOULD BE APPLIED IN RESPECT OF COMPARABLE VEE JAY LAKSHMI ENGINEERING WORKS LTD. AND THE VRS EXPENSES INCURR ED BY IT SHOULD ALSO BE INCLUDED IN THE OPERATING COST BASE WHICH THE TPO DID NOT DO. 9. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. THE LD. AR HAS DEMONSTRATED WITH REFE RENCE TO THE RELEVANT MATERIAL ON RECORD THAT THE VRS EXPENSES INCURRE D BY IT ITA NO.2371/PUN/2017 RIETER INDIA PRIVATE LIMITED 6 HAVE BEEN FINALLY INCLUDED IN THE OPERATING COST BASE. HIS PRIN CIPAL AND THE ONLY CONTENTION IN THIS REGARD HAS BEEN THAT SIMILAR TREATMENT SHOULD BE GIVEN TO THE VRS EXPENSES INCURRED BY VEEJAY LASKSHMI ENGINEERING WORKS LTD. 10. IN PRINCIPLE THERE CAN BE NO DISPUTE WITH VRS EXPEN SES INCURRED BY ANY COMPANY FORMING PART OF THE OPERATING COS T BASE A PROPOSITION THAT HAS NOT BEEN DISPUTED BY THE ASSESSEE AS WE LL. ONCE SUCH EXPENSES INCURRED BY THE ASSESSEE HAVE BEEN FINALLY INCLUDED IN ITS TOTAL OPERATING COSTS SIMILAR NATURED COSTS INCURRED BY THE COMPARABLES IF ANY SHOULD ALSO BE GIVEN A PARALLEL TREAT MENT. 11. THE LD. AR ATTEMPTED TO DEMONSTRATE THAT THE OPERATING COST BASE OF VEEJAY LASKSHMI ENGINEERING WORKS LTD. DID NOT INCLU DE VRS EXPENSES. PAGE 657 OF THE PAPER BOOK IS A COPY OF PROFIT AND LOSS ACCOUNT OF THIS COMPANY INDICATING `EXCEPTIONAL ITEM OF RS.475.37 LAKH WHICH GIVES DESCRIPTION OF ITS NATURE AS VR S EXPENSES AT NOTE NO. 26 TO THE ACCOUNTS. NOW IT NEEDS TO BE ESTABLISHED THAT THIS COST WAS NOT INCLUDED BY THE TPO WHILE CALCULATING THE PLI. WITH A VIEW OF BOLSTER HIS POINT OF VIEW THE LD. AR INVITED OUR ATTENTION TOWARDS PAGE 458 OF THE PAPER BOOK SHOWING SOME WORKING OF THE PLI OF THIS COMPANY. THIS DOCU MENT DOES NOT BEAR SIGNATURE OF THE TPO. ON A FURTHER ENQUIRY THE LD. AR ITA NO.2371/PUN/2017 RIETER INDIA PRIVATE LIMITED 7 FAIRLY ADMITTED THAT THIS IS THE WORKING DONE BY THE TPO AT THE TIME OF GIVING EFFECT TO THE ORDER OF THE DRP. IN OUR OPINION WHAT IS ESSENTIAL TO CONSIDER IS THE PLI COMPUTATION OF THE COMPARABLE A T THE TIME OF THE PASSING OF THE ORIGINAL ORDER BY THE TPO FOR E NSURING THAT VRS EXPENSES DID NOT FORM PART OF THE COST BASE AS CO NTENDED. THE LD. AR DID NOT READILY HAVE SUCH A COPY OF THE WORKIN G OF THE PLI OF THE COMPANY BY THE TPO. IN VIEW OF THE FOREGOIN G DISCUSSION WE SET-ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF AO/TPO WITH A DIRECTION TO INCLUDE VRS COSTS INCURRED BY VEEJAY LASKSHMI ENGINEERING WORKS LTD. IN ITS OPERATING COST BASE IF NOT ALREADY INCLUDED IN THE SAME MAN NER AS HAS BEEN DONE IN THE CASE OF THE ASSESSEE AND THEREAFTE R TO COMPUTE THE OPERATING COSTS AND THE CONSEQUENTIAL OPERATING PROFIT. NE EDLESS TO SAY THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING. 12. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH MARCH 2021. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 04 TH MARCH 2021 ITA NO.2371/PUN/2017 RIETER INDIA PRIVATE LIMITED 8 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13 PUNE 4. 5. 6. THE PR.CIT-V PUNE / DR C ITAT PUNE; / GUARD FILE. / BY ORDER // TRUE COPY // SENIOR P RIVATE SECRETARY / ITAT PUNE DATE 1. DRAFT DICTATED ON 03-03-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 03-03-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *