2018 (5) TMI 2069 - AT - Income Tax

Tribunal partially allows appeal for statistical purposes, grants relief on various grounds. Assessing Officer directed to reconsider specific aspects.

M/s. Bonfigioli transmissions Private Limited. Versus  Deputy Commissioner of Income Tax,  Chennai

The appellant's appeal was partly allowed by the Tribunal for statistical purposes. Relief was granted on various grounds, such as capacity utilization ... TP Adjustment - Application of TNMM - computing the operating margin of the Appellant and those of the comparable companies selected for benchmarking purposes - choosing certain comparable companies despite such companies failing the legally required parameters such as, but not limited to, functional dissimilarity, quantitative filters and non-availability of data - HELD THAT:- As decided are M/S ICON CLINICAL RESEARCH INDIA PVT. LTD VERSUS THE DY. COMMISSIONER OF INCOME TAX COMPANY CIRCLE II (3) CHENNAI [2016 (9) TMI 1592 - ITAT CHENNAI] the change in the factors came about on account of drop in the capacity utilization of the assessee to 47% during the relevant assessment year - a perusal of the report of the Reserve Bank of India (RBI) clearly shows that during the assessment year 2013-14, the capacity utilization as per RBI’s report is 75%. This being so, admittedly assessee is entitled to have the benefit of capacity utilization adjustments. However, as it has been pointed out that the data in respect of capacity utilization is not available on account of non-availability of variable data, liberty is granted to the assessee to obtain the variable data and prove the claim before the TPO, who has to consider the same and grant the assessee the benefit of the adjustments towards capacity utilization. Consequently, grounds No.6 & 7 of the assessee’s appeal stands allowed. Adjustments on account of depreciation so as to determine the aggregate cash profit margins - The same is to be determined by adopting pre-depreciation figures in respect of comparables in line with the decision of Co-ordinate Bench of this Tribunal in the case of M/s.ICON Clinical Research India Pvt. Ltd. Vs. The DCIT referred to supra. Consequently, ground No.8 of the assessee stands allowed. Payments for Corporate Services availed by the assessee from its A.Es - HELD THAT:- Admittedly the business of the assessee is a consolidated one. The services referred under ‘Corporate Services” are intrinsically linked to its manufacturing and sales activity. These two services cannot be separately demarcated. Corporate services are the services rendered, which has helped the assessee in generating the business in respect of marketing and trading. This being so, in view of the decision of Hon’ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd [2012 (4) TMI 346 - DELHI HIGH COURT] the ld. Assessing Officer is directed to allow the assessee’s claim of the Corporate Services expenditure incurred by assessee. Disallowance of the Sales Commission paid by the assessee to its sister concern in Bonfiglioli Deutschland GmbH (BD), Germany - HELD THAT:- Perusal of the agreement between the assessee and the Germany counterpart clearly shows that the agreement has been entered into in 2009. Consequent to the said agreement, the sales commission has been paid and the same has also been allowed during immediately preceding assessment years 2010-11, 2011-12 & 2012-13. The Revenue has not been able to bring any new fact, which has led to change the present stand for the purpose of disallowing sales commission. This has been so, we find no reason to change the existing position and the ld. Assessing Officer is directed to allow the assessee’s claim in respect of the sales commission paid to BD. In these circumstances, ground No.14 of the assessee’s appeal stands allowed Employees’ contribution to Provident Fund (PF) - HELD THAT:- As it is noticed that the issue is squarely covered by the decision of Hon’ble Madras High Court in the case of C.I.T v. Salem CoOperative Spinning Mills Ltd.[2001 (12) TMI 11 - MADRAS HIGH COURT] ld. Assessing Officer is directed to allow the assessee’s claim of payment of PF and ESI, which has been made within the grace period provided under the relevant statutes. Issues Involved:1. Violation of principles of natural justice and legal provisions.2. Improper adjustments to reported taxable profits.3. Incorrect computation of operating margin using TNMM.4. Selection and rejection of comparable companies.5. Non-admission of comparability adjustments.6. Disregard of economic circumstances and market conditions.7. Disregard of the arm's length analysis.8. Disregard of financial information and internal TNMM analysis.9. Rejection of multiple-year data usage.10. Non-acceptance of corporate services availed from AEs.11. Disallowance of sales commission expense.12. Disallowance of employees provident fund remitted after due dates.Detailed Analysis:1. Violation of Principles of Natural Justice and Legal Provisions:The appellant argued that the assessment order was passed in violation of principles of natural justice and the provisions of the Income Tax Act, 1961. However, no specific argument was raised for these grounds, and thus, they did not call for adjudication.2. Improper Adjustments to Reported Taxable Profits:The appellant claimed that the lower authorities made improper adjustments to the reported taxable profits by misapplying the provisions of the Act and adopting faulty assessment procedures. However, no specific argument was raised for these grounds, and thus, they did not call for adjudication.3. Incorrect Computation of Operating Margin using TNMM:The appellant contended that the lower authorities incorrectly computed the operating margin of the appellant and the comparable companies selected for benchmarking purposes. The Tribunal noted that the appellant's business was significantly affected by market conditions in the wind mill sector, leading to substantial losses. The Tribunal allowed the appellant's claim for capacity utilization adjustments and directed the TPO to rework the PLI of the comparables after excluding the depreciation cost.4. Selection and Rejection of Comparable Companies:The appellant argued that the lower authorities erred in choosing certain comparable companies despite failing legally required parameters and rejecting certain companies selected by the appellant. No specific arguments were raised for these grounds, and thus, they were dismissed as not argued.5. Non-admission of Comparability Adjustments:The appellant claimed that the lower authorities erred in not admitting the comparability adjustments considered by the appellant, including adjustment for idle capacity. The Tribunal allowed the claim for capacity utilization adjustments and directed the TPO to consider the same.6. Disregard of Economic Circumstances and Market Conditions:The appellant argued that the lower authorities erred in not considering the economic circumstances and market conditions experienced by the appellant. The Tribunal noted the significant impact of market conditions on the appellant's business and allowed the claim for capacity utilization adjustments.7. Disregard of the Arm's Length Analysis:The appellant contended that the lower authorities erred in disregarding the arm's length analysis prepared by the appellant. No specific arguments were raised for these grounds, and thus, they were dismissed as not argued.8. Disregard of Financial Information and Internal TNMM Analysis:The appellant claimed that the lower authorities erred in disregarding the financial information and internal TNMM analysis submitted by the appellant. No specific arguments were raised for these grounds, and thus, they were dismissed as not argued.9. Rejection of Multiple-year Data Usage:The appellant argued that the lower authorities erred in disregarding the relevance of using multiple-year data. No specific arguments were raised for these grounds, and thus, they were dismissed as not argued.10. Non-acceptance of Corporate Services Availed from AEs:The appellant contended that the lower authorities erred in not accepting that the corporate services availed were closely linked to the appellant’s business. The Tribunal directed the Assessing Officer to allow the appellant’s claim of the Corporate Services expenditure incurred by the appellant, citing the decision of the Hon’ble Delhi High Court in the case of CIT vs. EKL Appliances Ltd.11. Disallowance of Sales Commission Expense:The appellant argued against the disallowance of sales commission expense under section 37 of the Act. The Tribunal noted that similar expenses had been allowed in previous assessment years and directed the Assessing Officer to allow the appellant’s claim for the sales commission paid.12. Disallowance of Employees Provident Fund Remitted After Due Dates:The appellant contended that the employees' provident fund had been paid within the grace period and before the due date of filing the return. The Tribunal directed the Assessing Officer to allow the appellant’s claim, citing the decision of the jurisdictional High Court in the case of C.I.T v. Salem Co-Operative Spinning Mills Ltd.Conclusion:The appeal of the appellant was partly allowed for statistical purposes. The Tribunal provided relief on several grounds, including capacity utilization adjustments, corporate services expenditure, sales commission expense, and employees' provident fund remittance.