Bekaert Mukand Wire Industries Private Limited.,, Pune v. Deputy Commissioner of Income Tax,, Pune

ITA 2634/PUN/2016 | 2011-2012
Pronouncement Date: 28-02-2020 | Result: Allowed

Appeal Details

RSA Number 263424514 RSA 2016
Assessee PAN AAFCM1972K
Bench Pune
Appeal Number ITA 2634/PUN/2016
Duration Of Justice 3 year(s) 3 month(s) 9 day(s)
Appellant Bekaert Mukand Wire Industries Private Limited.,, Pune
Respondent Deputy Commissioner of Income Tax,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2020
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 28-02-2020
Date Of Final Hearing 14-11-2019
Next Hearing Date 14-11-2019
Last Hearing Date 23-09-2019
First Hearing Date 20-06-2019
Assessment Year 2011-2012
Appeal Filed On 18-11-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH PUNE BEFORE SHRI R.S. SYAL VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI J UDICIAL MEMBER . / ITA NO . 2634/PUN/ 201 6 / ASSESSMENT YEAR : 20 11 - 12 BEKAERT MUKAND WIRE INDUSTRIES PRIVATE LIMITED PLOT NO . 127 SR. NO. 232/1+2 FRIENDS CO - OPERATIVE HOUSING SOCIETY NEW AIRPORT ROAD BEHIND IDBI BANK SAKORE NAGAR VIMANNAGAR PUNE 411014 PAN : AAFCM1972K ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1) PUNE / RESPONDENT ASSESSEE BY : S HRI VISHAL NANAWATI REVENUE BY : S HRI PRAKASH BHATT / DATE OF HEARING : 25 - 02 - 2020 / DATE OF PRONOUNCEMENT : 28 - 0 2 - 20 20 / ORDER PER S.S. VISWANETHRA RAVI JM : TH IS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 11 - 08 - 2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 3 PUNE [CIT(A)] FOR ASSESSMENT YEAR 20 11 - 12. 2 ITA NO .2634/PUN/2016 A.Y. 2011 - 12 2. GROUND NO. 1 IS GENERAL IN NATURE HENCE REQUIRES NO ADJUDICATION. 3. GROUND NOS. 2 AND 3 RAISED BY THE ASSESSEE CHALLENGING THE ACTION OF CIT(A) IN CONFIRMING THE ORDER OF AO IN TREATING THE VALUE OF INTERNATIONAL TRANSACTIONS IN RESPECT OF PAYMENT FO R SERVICES RECEIVED AS NIL. 4. THE BRIEF FACTS RELATING TO THE ISSUE ON HAND AS EMANATING FROM THE RECORD ARE THAT THE BEKAERT GROUP IS AN INTERNATIONAL SYSTEMS MANUFACTURER OF DRAW STEEL WIRE PRODUCTS AND LEADER IN ADVANCED METAL TRANSFORMATION AND ADV ANCED MATERIALS AND COATINGS. IT EMPLOYS UNIQUE METAL TREATMENT TECHNOLOGY TO DELIVER A QUALITY PORTFOLIO OF DRAWN STEEL WIRE PRODUCTS AND COATING SOLUTIONS WHICH IS BASED AT BELGIUM. THE ASSESSEE BEKAERT MUKAND WIRE INDUSTRIES PVT. LTD. (IN SHORT BMPL ) IS A JOINT VENTURE (JV) OF BEKAET GROUP ESTABLISHED IN 2007 AND COMMENCED PRODUCTION IN 2009. THE BMPL IS ENGAGED IN MANUFACTURING ABOUT 400 GRADES OF LONG STEEL PRODUCTS IN THE FORM OF RODS BARS AND BRIGHT BARS AND STEEL ALLOY WIRES. 5. THE ASSESS EE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT NIL. REGARDING THE INTERNATIONAL TRANSACTIONS REPORTED IN FORM NO. 3CEB THE AO MADE A REFERENCE U/S. 92CA(1) OF THE ACT TO THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) TO SUCH INTERNATIONAL TRANSACTIONS. IN RESP ONSE TO NOTICE U/S. 92CA(2) OF THE ACT ISSUED BY THE TPO THE AUTHORIZED REPRESENTATIVE REPRESENTING ASSESSEE APPEARED IN TP PROCEEDINGS AND SUBMITTED REQUISITE DETAILS. ON PERUSAL OF TP AUDIT REPORT THE TPO FOUND THAT THE ASSESSEE MADE PAYMENT OF RS.3 23 64 855/ - UNDER THE HEAD PAYMENT FOR SERVICES RECEIVED FROM ITS AES ARE AS UNDER : 3 ITA NO .2634/PUN/2016 A.Y. 2011 - 12 SR. NO. SERVICE NATURE AMOUNT IN RS. 1 PAYMENT FOR PROFESSIONAL SERVICES 5 43 372/ - 2 PAYMENT FOR TECHNICAL AND MARKETING SERVICES 2 62 21 605 3 PAYMENT FOR TECHNICAL SALES SERVICES 49 53 738 4 PAYMENT FOR SOURCING SERVICES 4 19 140 5 PAYMENT FOR TECHNICAL SERVICES 2 27 000 TOTAL 3 23 64 855 6. HAVING NO EVIDENCE SUPPORTING THE SAID PAYMENTS I.E. CHARGING OF SAID SERVICES ANNUAL ACCOUNTS OF AES EXACT NATURE AND NEED OF SERVICES AVAILED NATURE OF VALUE ADDITION AND QUANTIFICATION OF DEMONSTRATED BENEFITS THE TPO PROPOSED TO TREAT THE ALP OF ABOVE SAID TRANSACTIONS AT NIL AND SHOW - CAUSE D THE ASSESSEE AS TO WHY THE UPWARD ADJUSTMENT OF RS.3 23 64 855/ - SHOULD NOT BE MADE TO THE INTERNATIONAL TRANSACTIONS ON ACCOUNT OF ABOVE SAID PAYMENT FOR SERVICES RECEIVED. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE THE ASSESSEE FILED LETTER DATED 23 - 01 - 2015 GIVING EXPLANATION IN SUPPORT OF ITS PAYMENTS TO AES. IT WAS CONTENDED THAT THE ASSESSEE HAS AVAILED THE TECHNICAL AND MARKETING SERVICES FROM ITS BELGIUM BASED AE WITH RESPECT TO ITS STAINLESS STEEL BUSINESS OPERATIONS. THERE ARE TWO DEDICATED EMPLOYEES OF BEKAERT BELGIUM FOR STAIN LESS STEEL BUSINESS AND THESE TWO EMPLOYEES GIVEN THEIR SERVICES TO THE ASSESSEE IN ITS UNIT IN INDIA. WE NOTE THAT THE NATURE OF SERVICES WERE BEING EXPLAINED BY THE ASSESSEE IN WRITTEN SUBMISSIONS AND THE DEDICATED EMPLOYEES WHO WERE GIVEN SERVI CES TO A SSESSEE AND THEIR NAMES DESIGNATION AND THEIR EXPERTISE IN THE REQUIRED FIELD WHICH ARE RE PRODUCED BY THE TPO IN ITS ORDER AT PAGE 6. THE TPO WHILE CONSIDERING THE REPLY OF ASSESSEE OBSERVED THAT NONE OF 4 ITA NO .2634/PUN/2016 A.Y. 2011 - 12 THE SUBMISSIONS CLEARLY INDICATE ANY NEED FOR SERV ICES ACTUAL RECEIPT OF ANY SERVICE FOR WHICH ANY INDEPENDENT ENTITY WILL BE WILLING TO PAY QUANTIFICATION OF BENEFITS OF SERVICE AND THE EVIDENCE THAT ANY COST IS INCURRED IN PROVIDING ANY RELEVANT SERVICE TO THE ASSESSEE. FURTHER HE OBSERVED THE DETA ILS SUBMITTED BY THE ASSESSEE COMPRISING OF PRINT OUTS OF SOME EMAILS AND PRESENTATIONS OF THEIR DAY TO DAY WORKING AND HELD SUCH INTERACTIONS ARE NOT EVIDENCE OF SPECIFIC SERVICES PROVIDED AS PER THE TERMS OF THE SERVICES AGREEMENT. HAVING NO RELEVANT EV IDENCE IN RESPECT OF SAID AES AND DETERMINED THE ALP OF THE TRANSACTIONS AT NIL. 7. HAVING AGGRIEVED BY UPWARD TP ADJUSTMENT MADE BY THE AO IN PURSUANCE OF TPO THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT ALL DETAILS OF SERVICES AND BENEFITS AVAILED FORM ING PAYMENT FOR VARIOUS SERVICES WERE FILED BEFORE THE AO AND THE AO DID NOT CONSIDER THE SAME RELEVANT TO THE CLAIM OF ASSESSEE. FURTHER IT WAS CONTENDED THAT DETAILS OF SUGGESTIONS / WORK PLAN IN THE FORM OF PRESENTATION REGARDING THE VISIT OF EXPERT PERSONNEL OF ITS AES TO INDIA WERE SUBMITTED AND THE AO FAILED TO TAKE INTO CONSIDERATION THE SAME. IT WAS CONTENDED THAT THE AO/TPO WRONGLY MADE TP ADJUSTMENT. THE CIT(A) DID NOT ACCEPT THE SUBMISSI ONS OF ASSESSEE AND CONFIRMED THE VIEW OF AO/TPO BY HOLDING THAT THE ASSESSEE COULD NOT ESTABLISH THE RELEVANT FACTS OF TRANSACTIONS. 8. BEFORE US THE LD. AR SHRI VISHAL NANAWATI REITERATED THE SUBMISSIONS AS MADE BEFORE THE AO/CIT(A). WE NOTE THAT T HE COST ALLOCATION AGREEMENT DATED 16 - 11 - 2011 WHICH IS AT PAGE 317 OF THE PAPER BOOK IS RETROACTIVELY EFFECTIVE FROM 01 - 01 - 2010 AND WILL CONTINUE IN EFFECT FOR AN INDEFINITE PERIOD OF TIME VIDE ARTICLE 4. FURTHER ARTICLE 1 OF THIS 5 ITA NO .2634/PUN/2016 A.Y. 2011 - 12 AGREEMENT EXPLAINS THE USE OF COMMON RESOURCES LISTED IN THE SCHEDULE TO THIS AGREEMENT WHICH ARE PERFORMED BY THE HOLDING COMPANY ON BEHALF OF THE SUBSIDIARY. THE SERVICES CAN BE EXTENDED TO ANY OTHER SERVICES AS AGREED UPON BETWEEN THE PARTIES. THE HOLDING COMPANY AGREED TO RENDER SERVICES TO THE SUBSIDIARY TO THE EXTENT APPROPRIATE IN RELATION TO THE SUBSIDIARYS BUSINESS. BOTH THE PARTIES THAT ARE HOLDING COMPANY AND SUBSIDIARY COMPANY AGREED THAT THE SCOPE OF SAID AGREEMENT IS STRICTLY LIMITED TO THE PROVISION OF THE SERV ICES SET FORTH THEREIN. 9. FURTHER ARTICLE 2 EXPLAINS COST ALLOCATION THAT THE SUBSIDIARY WILL REIMBURSE THE VARIETY OF DIFFERENT TYPES OF COST INCURRED BY THE HOLDING COMPANY IN RENDERING THE SERVICES INSOFAR THEY CAN BE ALLOCATED TO THE SUBSIDIARY. THE HOLDING COMPANY WILL CHANGE THE COSTS ON A YEARLY BASIS AND AT THE BEGINNING OF EACH CALENDAR YEAR THE HOLDING COMPANY SHALL INVOICE THE COSTS TO THE SUBSIDIARY BASED ON A BEST ESTIMATE AS TO THE LEVEL OF EACH OF THE SERVICES TO BE RENDERED. IN THIS C ONTEXT THE LD. AR DREW OUR ATTENTION TO PAGE 229 OF THE PAPER BOOK WHEREIN WE NOTE THAT ITS CORRESPONDENCE BETWEEN THE ASSESSEE AND ITS AES UNDER MEMO CONSISTING FROM PAGES 229 TO 240 REGARDING VISIT TO MBWI ON 24/25 JUNE 2010. FURTHER THE SAID CORRESPO NDENCE WAS MADE AVAILABLE TO MANY PEOPLE STATING TO BE EXPERTS IN THE REQUIRED FIELD. FURTHER IN THE SAID MEMO CONSISTS SUPPORTS STRUCTURE FOR EXPORT BUSINESS AND SALES OUT OF MBWI . 10. FURTHER LIKEWISE ANOTHER MEMO IS PLACED AT PAGE 241 OF THE PAPER B OOK REFERRING TO VISIT TO MBWI ON 13/14 SEPTEMBER 2010. ON PERUSAL OF THE SAME WE NOTE THAT THE ASSESSEE AVAILED SERVICES FROM ITS AES AND DETAILS OF WHICH ARE PLACED FROM PAGES 241 TO 250 OF THE PAPER BOOK. 6 ITA NO .2634/PUN/2016 A.Y. 2011 - 12 LIKEWISE MEMO REGARDING VISITS IN JANUARY 20 11 IS PLACED AT PAGES FROM 251 TO 261 OF THE PAPER BOOK. FURTHER WE NOTE THAT THE PRESENTATION REGARDING THE FIRST VISIT ON 23 RD JULY 2010 BY ITS AES IS AT PAGES 263 TO 280 OF THE PAPER BOOK AND PRESENTATION REGARDING STAINLESS STEEL WIRE SALES PLAN IS PLACED AT PAGES 283 TO 316 OF THE PAPER BOOK. ON PERUSAL OF THE SAME WE NOTE THAT THE ASSESSEE RECEIVED SERVICES FROM ITS AES AND MADE PAYMENTS IN RESPECT OF COST ALLOCATION AGREEMENT TO ITS AES UNDER THE HEAD PAYMENT FOR SERVICES RECEIVED WHICH IS CONTRA RY TO FINDINGS RENDERED BY THE AO/TPO AND CIT(A). 11. FURTHER THE LD. AR PLACED ON RECORD THE FUNCTIONAL PROFILE OF MANFRED GRONING WHO IS CHIEF OPERATIONS OFFICER AT BERKENHOFF GMBH STATED TO BE EXPORT IN MELTING CASTING DRAWING ANNEALING AND ELECT ROPLATING OF HIGH - TECH PRECISION COPPER AND COPPER ALLOY WIRES. THEREFORE ALL THE EVIDENCES AS PLACED BEFORE US CLEARLY SHOWS THAT THE ASSESSEE AVAILED SERVICES FROM ITS AES BUT HOWEVER THOSE WERE NOT CONSIDERED BY THE AUTHORITIES BELOW. WE NOTE THAT TH E ASSESSEE SELECTED ITS AES AS TESTED PARTIES REGARDING COMPUTATION OF ALP OF SERVICES AVAILED FROM ITS AES AND IT IS AN ESTABLISHED PRINCIPLE THAT THE AES CANNOT BE TESTED PARTY. THEREFORE AS DISCUSSED ABOVE THERE WAS NO APPROPRIATE METHOD APPLIED BY T HE ASSESSEE AND IN VIEW OF THE SAME WE REMAND THE ISSUE TO THE FILE OF AO FOR COMPUTATION OF ALP OF INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESSEE BY APPLYING MOST APPROPRIATE METHOD AND THE ASSESSEE SHALL GIVE LIST OF COMPARABLES. THUS GROUND NOS. 2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 7 ITA NO .2634/PUN/2016 A.Y. 2011 - 12 12. GROUND NO. 4 RAISED BY THE ASSESSEE BECOMES INFRUCTUOUS IN VIEW OF OUR DECISION IN GROUND NOS. 2 AND 3 IN THE ABOVE MENTIONED PARAGRAPHS. THUS REQUIRES NO ADJUDICATION. 13. IN THE RESULT THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY 2020 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 28 TH FEBRUARY 2020. RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 1 3 PUNE 4. THE PCIT - 1 PUNE 5. / DR ITAT C BENCH PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER / PRIVATE SECRETARY / ITAT PUNE