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12-04-2019, Continental Automotive, Section 92CA, 144C, Tribunal Bangalore

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1 week 1 day ago #9131 by amit
Section - 92CA, 144C, 92C, 35(2AB), 37(1), 35(1)(iv), 32
Order Date - 12-04-2019
Favouring - Revenue allowed for statistical purpose
Court - Tribunal Bangalore
Appellant - Continental Automotive Components (India) Pvt. Ltd.
Respondent - DCIT
Justice - N.V. VASUDEVAN VP & JASON P. BOAZ AM
Citation - 419Taxpundit166
Appeal No. - IT(TP)A No.457/Bang/2016
Asstt. Year - 2011-12

Order

PER : Jason P. Boaz

These are cross appeals by the assessee and Revenue, directed against the order of assessment dated 14.01.2016, passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short ‘the Act’), pursuant to the directions issued by the Dispute Resolution Panel-1, Bangalore (DRP) u/s 144C(5) of the Act on 14.12.2015 for Assessment Year 2011-12.

2. Briefly stated, the facts of the case are as under:

2.1 The assessee company is a subsidiary of Continental Automotive GMbh, Germany and the ultimate holding company is Continental AG, Germany. The assessee is engaged in the manufacture and trading of various types of automotive components / auto ancillary products. The assessee also provides application / specific contract R & D activities with regard to developing and porting of software, creation of software specification, etc.

The assessee filed its return of income for Assessment Year 2011-12 on 30.11.2011 declaring NIL income and current losses of Rs 66,25,31,764/-. The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny for this Assessment Year. The Assessing Officer (AO) made a reference under section 92CA of the Act to the Transfer Pricing Officer (TPO) for determination of the arm’s length price (ALP) of the assessee’s international transactions with its Associated Enterprises (AE) in the year under consideration The assessee has reported three segments, namely manufacturing, trading and services segments. While the international transactions in the manufacturing and trading segments were found to be at arms length by the TPO, the TPO made certain adjustments to the service segment of the assessee.

2.2 In respect of the services segment, the assessee classified its services as contract R & D services. The assessee conducted its comparability analysis applying TNMM as the most appropriate method (MAM) with operating profit to total cost as the PLI (-10.8%), and chose the following 5 companies as its comparable companies:- After analyzing the margins of such comparable companies, the assessee determined its transactions with AEs to be at arms length.

2.3 The TPO, however, rejected the assessee’s TP Study and performed his own comparability analysis by adopting certain filters and using current years data only and selected the following 10 companies as comparables to the assessee, after characterizing the services rendered by the assessee as ITES.

Having carried out his own comparability analysis, the TPO proceeded to conclude the TP analysis by characterizing the services rendered by the assessee to its AEs as ITES and proposed an adjustment of Rs.11,19,95,059/- as per his order under section 92CA of the Act dated 29.01.2015.

2.4 After receipt of the TPO’s order under section 92CA of the Act, the AO passed the draft order of assessment under section 143(3) r.w.s. 144C of the Act dated 30.03.2015, wherein the assessee’s loss was determined at Rs.37,68,41,545/- in view of, inter alia, the TP additions of Rs.11,19,95,059/-.

2.5 Aggrieved by the draft order of assessment dated 30.03.2015 for Assessment Year 2011-12, the assessee filed its objections thereto before the DRP. The DRP issued its directions thereon under section 144C(5) of the Act dated 14.12.2015. Pursuant thereto, the AO passed the impugned final order of assessment under section 143(3) r w s. 144C of the Act dated 14.01.2016, wherein the assessee’s loss was determined at Rs.31,80,37,446/-; which, inter alia, included the TP adjustment of Rs.8,43,63,985/-.

3. The assessee, being aggrieved by the final order of assessment dated 14.01.2016 for Assessment Year 2011-12, has filed this appeal before the Tribunal, wherein it has raised the following grounds:-

I. Transfer Pricing

The grounds mentioned hereinafter are without prejudice to one another.

1. The learned Assessing Officer ("learned AO"), learned Transfer Pricing Officer ("learned TPO") and the Honourable Dispute Resolution Panel ("Hon'ble DRP") erred in proposing an adjustment of INR 8,43,63,985/- to the arm's length price of the Appellant's international transactions with Associated Enterprises ("AEs") with respect to the services rendered by the Appellant u/s 92CA of the Income-tax Act, 1961 ("the Act").

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