×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.
The captioned two appeals filed by the assessee, pertaining to assessment years 2012-13 and 2013-14 respectively, are directed against the separate fair assessment orders passed by the Assessing Officer under section 144C(13) read with Section 143(3) of the Income Tax Act, 1961 (in short the ‘Act’), which incorporate the directions given by the learned Dispute Resolution Panel-2, New Delhi.
2.Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in I.T.A. No. 726/Kol/2017, for assessment year 2012-13, have been taken into consideration for deciding the above appeals en masse.
3. The common grounds of appeal raised by the assessee in these two appeals are as follows:
(1) Whether the associated enterprises (AE) can be considered as a tested party as per Indian Transfer Pricing Regulation?
(2) Accepting the audited segmental analysis for the transaction of purchase of finished goods, receipt of commission and sale of finished goods by the assessee from the Associated Enterprises (AE).
(3) Administrative supports services and IT support services received by the assessee from the Associated Enterprises (AE) wrongly treated to be in the nature of stewardshipfunctions.
4. At the time of hearing, the ld. Counsel for the assessee informs the Bench that the assessee does not want to press ground Nos. 1, 4 and6 of ITA No.726/Kol/2017, for A.Y.2012-13. The assessee also does not press ground Nos.1 and 4 of ITA No.2361/Kol/2017, for A.Y. 2013-14.Learned Departmental Representative for the Revenue, does not object therefore,we treat these grounds to be dismissed as not pressed.
5. Ground No.6 raised by the assessee in ITA No.2361/Kol/2017, for A.Y. 2013- 14 and ground No.7 raised by the assessee in ITA No.726/Kol/2017, for A.Y.2012-13, relate to initiation of penalty proceedings under section 271(1) (c ) of the Act, which are premature in nature, hence do not require adjudication.
6. Now we shall take first common issue of these two appeals, which relates to whether the foreign associated enterprises (AE) can be considered as a tested party as per Indian Transfer Pricing Regulation?
7.The facts of the case which can be stated quite shortly are as follows:Almatis Alumina Private Limited ('Almatis India' or 'assessee' or 'company') is a 100% subsidiary of Almatis Holdings GmbH, Germany. It is primarily engaged in the manufacturing of alumina based refractory and ceramic raw materials. The local manufacturing activity includes crushing, screening, grinding and packaging of Tabular Alumina CD (converter discharged) balls and grinding and packaging of calcined alumina for which company imports raw materials from its AEs. During the assessment year 2012-13, the company had several international transactions with its Associated Enterprises (hereinafter referred to as the 'AEs') which have been disclosed in the Accountant's Report in Form 3CEB report filed u/s 92E of the Act along with the return of income.The return of income was processed u/s 143(1) of the Act and subsequently taken up for scrutiny assessment u/s 143(3) of the Act. During the course of scrutiny assessment, the company's case was referred to the Transfer Pricing Officer (hereinafter referred to as the 'Ld. TPO') u/s 92CA of the Act, for determination of arms' length price in respect of international transactions entered into with its AEs. Order u/s 92CA(3) was passed on 29th January 2016 which was subsequently incorporated in the draft Assessment Order u/s 144C(1)/ 143(3) dated 10.03.2016.
The Ld. TPO has made additions with respect to the international transactions undertaken by the assessee during the Financial Year (FY) 2011-12 with its AEs, against which the assessee has filed objections before Hon`ble DRP. The Hon`ble DRP issued directions under section 144C (5) of the Act, vide its order dated 27.12.2016, which were incorporated in the final assessment order passed by AO under section 144C(13)/143(3) of the Income tax Act, 1961.
8. As per the Transfer pricing (TP) document furnished by the assessee for the A.Y. 2012-13, the assesseecompany has entered into the following international transactions with its Associated Enterprises (AEs).
The arm’s length price of the international transactions representing different functions with associate enterprises(A.E), the method and the profit level indicator (PLI) used for bench marking such transaction are summarized in the table below: The assessee has benchmarked the above transaction on entity level by applying TNMM as Most appropriate method (MAM) and Operating Profit on Sales as the profit level indicator (PLI). The PLI of the entity is arrived at 2.92% while that of the comparable uncontrolled transaction was calculated at 10.48%. The assessee has justified the above transaction by working out the average weighted adjusted working capital of the comparable for the three years i.e. F.Ys 2009-10, 2010-11 and 2011-12 at 7.34%. Even though the PLI of the comparable is more than the PLI of the assessee. The assessee has not made any adjustment and has also not calculated the Arm's length price to see whether the same is within the +/- 5% range. Howeve , it was noticed that the PLI of the comparableswas arrived by considering weighted average margin of 3 years data for the A.Ys 2009-10,2010- 11 and 2011-12.
For the purpose of justifying the transaction of Services, the assessee has usedTNMM as Most appropriate method and Operating Profit on Sales as the PLI. However, the assessee has Associated enterprises as the tested party. It was also observed that the assessee has not calculated the PLI of the tested party but used the cost plus markup of 9.6% as the PLI of the tested party. Thus, the assessee has justified the transaction to be at Arm's length by calculating the PLI of the comparable at 10.17% and that of the cost plusmarkup at 9.6%.