×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
08-03-2019, Sandvik Asia, Section 144C(13), 920(3), Tribunal Pune
The cross appeals filed by assessee and Revenue are against the order of ACIT, Circle-10, Pune, dated 29.01.2016 relating to assessment year 2011- 12 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short ‘the Act’). The assessee has also filed Cross Objections against the appeal of Revenue.
2. The cross appeals filed by assessee and Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience.
3. The assessee in ITA No.491/PUN/2016 has raised the following grounds of appeal:-
1. Ground 1: Transfer pricing matters
On the facts and in the circumstances of the case the Learned Dispute Resolution Panel ('Ld. DRP') has erred in confirming the action of the Learned Assessing Officer ('Ld.AO')/ Learned Transfer Pricing Officer („Ld. TPO') of disallowing Rs.32,29,80,881 pertaining to Payment of Management Service Fee ('MSF') to Associated Enterprise ('AE') by holding that the arm's length value of an international transaction pertaining to payment of MSF is 'Nil'. While doing so, the Ld. DRP/ Ld. AO/ Ld. TPO have erred in:
- not undertaking any analysis for selection of most appropriate method and search for comparable uncontrolled transaction to compute arm's length price, as prescribed by Indian Transfer Pricing Regulations, thereby violating the provisions of Section 920(3) of the Income-tax Act, 1961 ('the Act');
- not considering the submissions made by the assessee covering substantive documentary evidences furnished, demonstrating the receipt of management services and benefits derived therefrom;
- rejecting the benchmarking analysis conducted by the assessee by considering the overseas AE as the tested party. The Appellant prays that the transfer pricing adjustment pertaining to MSF be deleted.
2. Ground 2: Corporate tax matters
On the facts and in the circumstances of the case, the Ld. DRP has erred in confirming the action of the Ld. AO of disallowing an ad hoc amount of Rs.10,00,000 relating to provision for expenses. The Appellant prays that the disallowance relating to provision for expenses be deleted.
4. The Revenue in ITA No.533/PUN/2016 has ra sed the following grounds of appeal:-
1. Whether on the facts and ircumstances of the case and in law, the Hon'ble DRP was justified in directing the AO to accept TIL Ltd and Yamuna Syndicate Ltd as comparable companies ?
2. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP was justified in directing the AO to exclude Solitare Machine Ltd as comparable company ?
3. Whether on the facts and circumstances of the case and in law, the Hon'bl DRP was justified in directing the AO to adopt method of work ng capital adjustment as provided in the "Annexure to Chapter III" of OECD Transfer pricing Guidelines 2010 ?
4. Whether on the facts and circumstances of the case and in law, the Hon'ble DRP was justified in following the Hon'ble ITAT Pune's decision in the case of Allianz SE Vs ADIT 51 SOT 399 and directing the AO to delete disallowance of payment made to AE (Sandvik Tooling Sverige AB) u/s.40a(i) of Rs.1,42,75,668/-?
5. The assessee in CO No.20/PUN/2018 has raised the following ground of objection:-
1. On the facts and in the circumstances of the case and in law, the Honorable Dispute Resolution Panel („Hon‟ble DRP‟) erred in upholding the action of the Learned Transfer Pricing Officer / Assessing Officer („Ld. TPO/Ld.AO‟) in excluding the functionally comparable Trading segment of Modern India Ltd. from the set of comparable companies pertaining to company‟s Distribution segment, based on the erroneous observations.
6. First, we shall take up the appeal of assessee.
7. Briefly, in the facts of the case, the assessee was engaged in manufacturing, trading and regrinding of tungsten carbide tools, rock processing equipments, thermostatic electrical bimetal strips, wires, ribbons, heating elements, cold finished tubes/pipes and manufacturing of hot extruded seamless stainless steel tubes/pipes. The business of assessee was divided into segments which were identified based on the nature of products and services and the nature of production process. The assessee had also paid management fees to associated enterprises. The Assessing Officer in such circumstances, made reference to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Act. The TPO noted that the assessee had split its business into six segments i.e. Design Engineering & Projects, Distribution Segment, Tube Manufacturing, Tools Manufacturing Segment, Wires Manufacturing Segment and common segments. The assessee in this regard had furnished segmental details of different segments. The assessee had aggregated certain transactions segment-wise and had applied TNMM method to justify the arm's length nature of transactions undertaken. The TPO accepted the segregation of international transactions into six segments. However, management fees paid of ₹ 32,29,80,881/- was considered by the TPO to be examined separately to verify whether the payment made was at arm's length price considering the benefits if any, received by the assessee and services if any, rendered by associated enterprises. The first segment which was considered by the TPO was the Distribution Segment, wherein the net margins worked out to 1.27%. The assessee had selected 36 companies as comparable in the TP study report and the mean margins of the said concerns worked out to 3.91%. The TPO was of the view that the only data for current year had to be applied and certain other filters were proposed by the TPO and