2019 (12) TMI 374 - AT - Income Tax

Transfer pricing appeals granted, adjustments ordered based on legal precedents. Departmental appeal dismissed.

Bekaert Industries Private Limited Versus DCIT, Circle-1 (1), Pune And (Vice-Versa) And Bekaert Industries Private Limited Versus DCIT, Circle-1 (1), Pune

The Tribunal partially allowed the appeals for both assessment years, directing adjustments in transfer pricing calculations and excluding certain ... Foreign/Associated Enterprise as a tested party - HELD THAT:- Issue admitted to have been decided by the Tribunal against the assessee in its order for the immediately preceding assessment year, namely, 2009-10. A copy of such order [2019 (4) TMI 1653 - ITAT PUNE] has been placed on record as per which such contention of the assessee for adopting Foreign/ Associated Enterprise as a tested party has been jettisoned. - Decided against assessee. Depreciation towards difference in rates - AR submitted that similar issue also came up before the Tribunal in its order for the assessment year 2009-10 - HELD THAT:- By inviting our attention towards page 23 para 20 of the order, the ld. AR submitted that the Tribunal has restored the matter to the file of AO/TPO for allowing adjustment to the operating margin of comparable companies if there is some difference in the rates of depreciation charged by the assessee vis-à-vis the comparable companies. In view of the reason that the facts and circumstances on this issue are similar, we set-aside the impugned order and remit the matter to the file of AO/TPO for deciding it in conformity with the directions given by the Tribunal in its order for the preceding year as referred to in para 20 of its order. Transfer pricing addition should be restricted only to the value of international transactions and not all the transactions - Admission of additional ground - HELD THAT:- DRP directed the AO/TPO to restrict the transfer pricing adjustment only with reference to the international transaction but the TPO failed to give effect to the DRP’s direction in proper perspective while calculating transfer pricing addition in the final assessment order. The Tribunal in its order for the assessment year 2009-10 has also examined this issue on page 23 para 23. Following the judgment of Hon'ble Bombay High Court in CIT vs. Thyssen Krupp Industries India Private Ltd. [2015 (12) TMI 1076 - BOMBAY HIGH COURT] the Tribunal has directed that the transfer pricing addition should be restricted to the transactions with AEs and not the unrelated or non-AEs. Following the same view, we allow this additional ground of appeal and direct the AO/TPO to restrict the transfer pricing addition only qua the international transactions and not the entity level transactions. Suo moto transfer pricing adjustment offered by the assessee - HELD THAT:- The assessee itself suo moto offered transfer pricing addition of ₹ 38.00 lakh in this international transaction and offered the same in the computation of total income under point no.20.7. The claim of the assessee before the Tribunal is that the authorities have gone ahead with the transfer pricing addition as computed by them without giving effect to the amount of income voluntarily offered by the assessee. The AO/TPO is directed to verify the assessee’s contention. In case the assessee offered the transfer pricing addition of ₹ 38.00 lakh which inadvertently went unnoticed, then relief to this extent should be allowed. Needless to say, the assessee shall be allowed a reasonable opportunity of hearing. TPA - Comparable selection - inclusion of Coral Hub Ltd. (Vishal Information Technologies Ltd.) - HELD THAT:- Coral Hub Ltd. was following June as the year ending as against the assessee following financial year, namely, year ending on 31st March. Thus, there is basic difference in the year ending periods of the assessee and the company. The Hon’ble Bombay High Court in CIT Vs. PTC Software [2016 (9) TMI 1282 - BOMBAY HIGH COURT] has held that the companies with different financial year endings cannot be considered as comparable under Rule 10B(4). In addition, there are certain other functional differences also between the assessee and Coral Hub Ltd. Without delineating on the same, we order to exclude this company on the first issue itself, namely, having different year ending vis-àvis the assessee. This company is, therefore, directed to be excluded from the list of comparables. Non-granting of depreciation adjustment - HELD THAT:- Similar issue has been decided by the Tribunal in its order for the assessment year 2009-10 holding that the depreciation amount should be considered as a part of Operating Cost and that no adjustment can be granted on account of different amounts of depreciation in the hands of assessee and comparables. However, the Tribunal accepted the assessee’s contention for granting adjustment in respect of different rates of depreciation between the assessee and comparables. Following the same view, we direct the AO to examine this issue. In case, there is some difference in the rates of depreciation between the assessee and comparables, then necessary adjustment should be allowed on this count in the profit of comparables. Restricting the transfer pricing addition only to the international transactions and not the unrelated transactions or transactions with non-AEs - HELD THAT:- Following the consistent view taken herein in the immediately two preceding assessment years, we direct to restrict the amount of transfer pricing addition only in respect of transactions with AEs and not with non-AEs. Issues Involved:1. Cross appeals for the assessment year 2010-11 and one appeal by the assessee for the assessment year 2011-12 involving common issues.Analysis:A.Y. 2010-11:1. Transfer Pricing Adjustment - Import of Raw Materials:- The TPO recommended a transfer pricing adjustment, which the DRP partially upheld. The assessee challenged the adjustment.- The Tribunal noted that the issue of adopting a Foreign/Associated Enterprise as a tested party had been decided against the assessee in a previous year's order.- The Tribunal directed the AO/TPO to restrict the transfer pricing adjustment to international transactions only, not entity-level transactions, in line with previous judgments.- An additional ground raised by the assessee regarding the restriction of transfer pricing addition only to the value of international transactions was accepted.2. Transfer Pricing Adjustment - Design Engineering Services:- The TPO proposed a transfer pricing adjustment, which the AO made, and the assessee appealed.- The assessee voluntarily offered a transfer pricing addition, which was not considered by the AO/TPO. The Tribunal directed the AO/TPO to verify and allow relief if the amount offered was inadvertently overlooked.- The Tribunal excluded a comparable company, Coral Hub Ltd., due to differences in financial year endings and functional dissimilarities.3. Miscellaneous Issues:- Various other issues raised by the assessee were not pressed and dismissed.- The Departmental appeal was dismissed due to low tax effect, following CBDT guidelines.A.Y. 2011-12:1. Transfer Pricing Adjustment - Import of Raw Materials:- The assessee challenged a transfer pricing adjustment related to import of raw materials.- Issues regarding comparables, depreciation adjustment, and multiple year data were dismissed as not pressed.- The Tribunal directed to restrict the transfer pricing addition only to transactions with Associated Enterprises (AEs), not unrelated transactions.In conclusion, the Tribunal partially allowed the appeals for both assessment years, directing adjustments in transfer pricing calculations and excluding certain comparables based on legal precedents and factual differences. The Departmental appeal was dismissed due to low tax effect, and various other issues were either dismissed or directed for further examination.