TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 1182
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....t the appeal effect order passed by the Assessing Officer, based on fresh inputs from the Transfer Pricing Officer, the appeal can only be filed before the Dispute Resolution Panel or the CIT(A). It is submitted that this Tribunal is not the forum for the first appeal, that the assessment was done de novo in terms of the directions of the Tribunal and that it was not case of mere arithmetical exercise having been done at the assessment stage. He urged us to reject the appeals as non maintainable, with the liberty, maybe, to the assessee to file the fresh appeals before the CIT(A) along with a petition seeking condonation of delay, if so advised. He submits that the order not having been appealed before the right forum, the matter has now achieved finality. As for condonation of delay, that is the prerogative of the forum which the assessee ought to have approached anyway. 3. Learned senior counsel opposes these submissions on two grounds. His first plea is that if the stand is taken that this order is to be taken on the same footing as an assessment order passed under section 143(3), the order must stand quashed for the short reason that the Assessing Officer did not first issue a....
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....rievances of the assessee against the appeal effect order. 6. Learned Departmental Representative, however, has one more preliminary objection. He submits that the core issue in this appeal is whether a foreign entity can be tested party or not, and since there are conflicting opinions by the coordinate benches, on this issue, the matter should be referred to a special bench. When it was pointed out to the learned Departmental Representative that right now we are in the second round of proceedings, and that issue has already been decided in favour of the assessee in the first round of proceedings before us, and the appeal against the Tribunal decision is pending before Hon'ble High Court on that issue, he submits that even in the impugned order the Transfer Pricing Officer has not accepted the stand of the Tribunal, and the issue is thus open for adjudication. He submits that since the same issue is coming up in the other years, which are in the first round and at least one of which is also being heard along-with these appeal, this issue should be referred at least for the years other than the years in the second round of proceedings. 7. Learned Departmental Representative submit....
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....le High Court cannot be a reason enough to decline reference to the special bench, in a situation in which admittedly there is a cleavage of opinion by the division benches. We are urged to recommend constitution of a special bench, to Hon'ble President, for adjudication on this issue. 8. Learned counsel for the assessee vehemently opposes these submissions. His stand is that the matter that this specific issue, i.e. a foreign party being taken as tested party, is now before Hon'ble jurisdictional High Court in assessee's own case in the first round of assessment, and no useful purpose will, therefore, be served by recommending constitution of special bench on the same issue. It is pointed out that Their Lordships have admitted, in assessee's own case for the assessment years 2006-07 and 2007-08 and on Commissioner's appeal, the question "Whether Income Tax Appellate Tribunal was justified in directing the Transfer Pricing Officer to accept GMDAT as the tested party" for adjudication on merits. Our attention is then invited to several decisions of successive Hon'ble Presidents of this Tribunal, to the effect that when Hon'ble jurisdictional High Court is in seisin of an issue in a....
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....n benches, and, therefore, per incurium. Learned counsel for the assessee then took us through the order of the coordinate bench, in the first round of proceedings, holding that, on the facts of this case, GMDA, which is a non-resident entity, should be treated as a tested party, and justified the stand so taken by the coordinate bench. Learned counsel submits that referring a matter to a special bench cannot be a matter of course particularly when a well-considered view is taken on that issue in assessee's own case, just because in some other case a contrary view is taken on an altogether different set of facts. It is only when the bench has doubts on correctness of the earlier decision that there can be occasion for making a reference to the special bench. There is no good reason, according to the learned counsel, to doubt the correctness of the view so taken by the coordinate bench in assessee's own case. Learned counsel then made elaborate submissions on merits of the proposition as well. On the strength of these arguments, we are urged to follow the decision of the coordinate bench and not to refer the same to Hon'ble President for constitution of a special bench. 9. We have ....
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.... through carefully the earlier communication dated 23.6.2009 written by the Members who at that time constituted the Special Bench to the then Hon'ble President, ITAT containing a similar suggestion. On the communication, the President had passed the following note: "Let S.B. consider whether case it is necessary to adjourn hearing of the case till the matter is disposed by the Hon'ble H/C". (Date: 28-7-2009) The Special Bench need to be reconstituted thereafter due to transfer of two of the Members. The Members of the Special Bench as constituted thereafter reiterated the earlier suggestion in their note dated 6-9-2010. They have held that the same reasons given in the earlier communication dated 23.6.2009 continue to hold good. The situation as of now is that the earlier orders of the Tribunal for the AY's 90-91 & 91-92, which are against the assessee, are pending in appeal before the Hon'ble High Court awaiting adjudication of the substantial question of law. For the AYs 92-93 & 93-94, a Special Bench has been constituted to decide the same question. I agree with the point made by the Members that it is not proper to continue with the Special Bench when the same issue is p....
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....to the approval of Their Lordships. When the matter is awaiting adjudication by Hon'ble High Court, the special bench decision, irrespective of the numeral strength of such a special bench, is nothing more than writing on the sand which is bound to get washed away by a wave, of binding judicial precedent, approaching the sand. Having said that, we must take note of the fact that another special bench of this Tribunal, in the case of Summit Securities (supra), has touched a different chord. Presenting an antithesis of the views expressed by the special bench in the case of Tivoli (supra), this special bench, inter alia, states as follows: 13. The learned counsel for the assessee has raised objection to the continuation of the Special Bench on the ground that similar question of law has been admitted by the Hon'ble Bombay High Court in the case of Zuari Industries Ltd. (supra). The only reason advanced by the learned Authorised Representative for the deconstitution of the Special Bench is the admission of the question of law by the Hon'ble High Court in March, 2007. It is not the case of the parties that any judgment has been delivered on merits by the Hon'ble Bombay High Court on t....
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....ribunal order which is admitted by the Hon'ble High Court. Suppose similar issue comes up before a subsequent Bench which finds itself unable to endorse the view taken by the earlier Bench. The only course open to the subsequent Bench, as per the aforestated three judgments, is to make a reference to the President for the constitution of a Special Bench instead of recording a contrary decision at its own. On the constitution of the Special Bench if an argument is taken that since the substantial question of law has been admitted by the Hon'ble High Court against the earlier order of the Tribunal and hence such reference be withdrawn, there would be a deadlock. The subsequent Bench would land itself in a quagmire, being neither in a position to swallow the earlier view nor spit it out. Following the earlier decision of the Coordinate Bench would be difficult because of its non-concurrence with it. In the like manner it would find its hands tied to directly record a contrary conclusion because of the prevalence of the aforestated legal position expressed by the Hon'ble Supreme Court and other Hon'ble High Courts prohibiting adopting such a course of action. Disposal of appeal against....
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....s further pertinent to note that the practice, similar to the constitution of Special Bench by the Tribunal to resolve a possible conflict in the views amongst various Benches of the Tribunal and not waiting till the matter is finally decided by the High Court, is also uniformly followed by the High Courts as well. Whenever a view is taken on a point by a Bench of a High Court and the subsequent Bench of the same High Court finds it difficult to accept the same, the practice is to refer the matter to the Chief Justice of the concerned High Court for constitution of a Larger Bench. Notwithstanding the fact that SLP against the judgment of its earlier Bench has been admitted by the Hon'ble Supreme Court, the Hon'ble High Court does not stop its functioning to wait for the outcome before the Hon'ble Supreme Court for an indefinite time. The Larger Bench so constituted hears the matter and gives its conclusion, which becomes final qua various Benches of that High Court until the final judgment is rendered by the Hon'ble Supreme Court. 19. The Hon'ble Delhi High Court in the case of CIT vs. Asian Hotels Ltd. (2008) 215 CTR (Del) 84 : (2008) 2 DTR (Del) 129 : (2010) 323 ITR 490 (Del) he....
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....ken in assessee's favour. Finding it difficult to approve the earlier view in Dilip N. Shroff (supra), the matter was placed before the Larger Bench to take a final decision, which has since been decided in Union of India & Ors. vs. Dharamendra Textile Processors & Ors. (2008) 219 CTR (SC) 617 : (2008) 14 DTR (SC) 114 : (2008) 306 ITR 277 (SC). 21. In the name of precedents, the learned senior Authorised Representative in support of his objection, apart from relying on certain administrative orders passed by the Hon'ble President, has relied on the solitary case of Harsha Achyut Bhogle (supra). That case rested on the facts in which the Tribunal decided the issue against the assessee in his own case in the earlier year. When the subsequent year came up for hearing, the assessee came out with a request that a Special Bench be formulated on the subject because the Tribunal in another case had taken a different view. The Division Bench dealing with the assessee's case for the subsequent year observed that the facts of the other case cited by the assessee were different. Following the view taken by the earlier Bench in assessee's own case, the Tribunal refused to accede to the request....
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....in question was decided against the assessee in an earlier year. When the subsequent year of that assessee came up before the next Bench, it was noticed that a contrary view was also available. In order to resolve this conflict a Larger Bench of three Members was formed. In that case also a preliminary objection was raised on behalf of the Revenue that since the point in controversy was already decided against the assessee by the Tribunal in an earlier year and such matter was pending before the Hon'ble High Court, the same view should be followed in the subsequent assessment years as well and as such there was no need for a Special Bench. Repelling this contention, the Special Bench held that when the subsequent Bench was not convinced with the earlier view, the constitution of the Larger Bench for resolving the conflicting decisions of the Benches of the Tribunal was in order. 24. Adverting to the facts of the instant case we find that situation is identical apart from the change of parties. Whereas in that case the Revenue raised preliminary objection for not proceeding with the Special Bench in view of the earlier Bench's decision in their favour pending for adjudication befor....
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....and the Special Bench is deconstituted and again the Division Bench finds itself unable to agree with the earlier view. Will the assessee in that case again request the Division Bench to make a reference for the constitution of Special Bench and on such constitution will again request to dismantle it? Law does not permit a person to both approbate and reprobate. When the Special Bench has actually been constituted at the plea of the assessee, now the assessee cannot turn around and argue that the Special Bench be deconstituted. We do not approve such a vacillating stand of the assessee. 26. It is beyond our comprehension as to what difference it makes to the assessee when his case is heard by the Division Bench or the Special Bench. The hearing by the Special Bench inter alia, is only to regularize the working of the Tribunal aimed at achieving a uniform view by different Benches on the point. The assessee's interest is not affected in any manner whether the case is heard by the Division Bench or the Special Bench. The assessee's logic for withdrawing the reference to the Special Bench on the ground that similar issue is pending for adjudication before the Hon'ble High Court would....
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....e same view should be adopted for the assessment years with which we are concerned and that no departure from that view should be made on the ground that a different view had been taken in the case of another assessee by another Bench of the Tribunal". This plea was rejected by the special bench on the ground that "we are bound to consider all the aspects of the points in controversy afresh and come to independent conclusion and the fact that in the earlier years the point had been decided against the assessee would not by itself preclude the special Bench from talking a contrary view". The issue whether constitution of a special bench would be justified in a situation in which the matter is pending before Hon'ble High Court in assessee's own case was neither raised by the parties nor decided by the special bench. It is only elementary that a judicial precedent is binding for what is actually decides and not for what may even logically follow from this. As held by Hon'ble Bombay High Court in the case of CIT vs. Sudhir Jayantilal Mulji [(1995) 214 ITR 154 (Bom)], a judicial precedent is only "an authority for what it actually decides and not what may come to follow from some observ....
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....to harmonise these binding precedents. Viewed in this perspective, and with analysing the legal position with this objective, we find that the sum total of these discussion is that (a) Summit Securities decision was in a situation in which the appeal admitted, and pending for final adjudication, by Hon'ble High Court was in the case of a person other than the assessee concerned, and would not, therefore, apply to the fact situation before us; (b) Dak Copy Centre decision did only deal with the limited plea of the assessee that special bench should follow earlier division bench in assessee's own case, even if a contrary view is take by a division bench in some other case; and, therefore, (c) Tivoli decision holding that when the matter is admitted, and pending for final adjudication, by Hon'ble jurisdictional High Court in assessee's own case, there is no need for constitution of special bench on the same issue, holds good law and there is no contrary judicial precedent to the same. Respectfully following the esteemed views of the special bench, directly on the issue in the case of Tivoli Investment (supra), we reject the contention of the learned Departmental Representative, and de....
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.... support of this stand, was noted but rejected. The Transfer Pricing Officer was of the view that "in the absence of reliability of data, it is not possible to treat GM-DAT as tested party as further analysis of transfer pricing is based on reliability of these data". The Transfer Pricing Officer was further of the view that selection of GMDAT as tested party because the tested party should be least complex entity which does not own valuable intangible property or unique assets, while GMDAT owns unique intangibles and carries out large number of related party transactions with its subsidiaries. He also noted that the GMDAT is receiving royalty/ technical knowhow fees from large number of its subsidiaries in different parts of Europe and Asia. It was also noted that there is no dispute about ownership and development of manufacturing intangibles by GMDAT. The assessee's plea about availability of sub-segmental data, which does not reflect impact of intangibles, was also rejected because, as noted by the TPO, "entity should be least complex, not the data". It was also noted that the choice of tested party may also be restricted by limited data availability regarding the transactions ....
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....ustments for the assessment year 2007-08 which were quantified at Rs. 237.73 crores the CKD imports and Rs. 18.98 crores for Tech Centre operations. Aggrieved, the assessee carried the matter in appeal before a coordinate bench of this Tribunal. 16. The coordinate bench, vide order dated 2nd August 2013 in the first round of proceedings, remitted both of these issues to the file of the Transfer Pricing Officer. The operative portion of the order of the coordinate bench was as follows: (A) On the issue of ALP adjustment for CKD Kit imports 11.6.1. We are in disagreement with the revenue's argument that GMDAT should not be selected as a 'tested party' as the comparable as the comparable companies selected by the assessee doesn't fall within the ambit of TPO's jurisdiction and, thus, he can neither call for any additional information nor scrutinize their books of accounts. The Revenue can get all the relevant particulars around the globe by using the latest technology under its thumb or direct the assessee to furnish the same. 11.6.2. As rightly highlighted by the assessee, we find inconsistency in the approach of the TPO with regard to the issue of 'tested party'. On the one h....
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....ed parties and rejected for the reasons recorded [which have been cited supra] the following companies: (i) Onward Technologies Limited; (ii) Pentasoft Technologies Limited; (iii) Tata Technologies Limited 17.8.3. However, it was contention of the assessee that the TPO erred while stating that assessee's tech-center is engaged in providing high-end research services. Tech-Center is essentially engaged in provision of engineering design and analysis of automobile parts, assemblies and manufacturing tools. This entails provision of computer-aided design and data translation services. Such services involve product assembly documentation, exterior and interior surfacing / designing, 3D modeling and 2D drawings etc. 17.8.4. It was further submitted that Tech-Center focuses mainly on providing routine services in relation to next generation materials, designs, manufacturing processes. Primary research and development of strategy (including identification of projects) is done at US level. Work is performed within Tech-Center using the standard GM practices and processes. There are standard budgetary controls and procedures applicable for ISL including standard process of approval....
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....Officer came to be in seisin of the matter again so far determination of the arm's length price of CKD Kits and Tech Centre revenues are concerned. 18. In the remanded proceedings, the Transfer Pricing Officer noted that "the facts have been wrongly represented by the appellant before the ITAT and these wrong set of averments before the ITAT have formed the basis of decision by the ITAT" and then he gave the detailed analysis of how, according to him, decision of the Tribunal was fallacious and incorrect. He also noted that "during the course of set aside proceedings before this office, the assessee has not complied with the directions of the ITAT contained in the above order", and specifically pointed out that in the present case, "inspite of specific requests made by the TPO to the assessee to produce suitable data in respect of non-resident tested party and also to produce person well conversant with the such accounts as to demonstrate to the TPO, reliability of arriving at the segmental operating profit produced before the TPO, no such data has been furnished". The Transfer Pricing Officer once again picked up the transfer pricing report and discussed at length, what he percei....
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.... was justified in directing the Transfer Pricing Officer (TPO) to accept GMDAT as tested party? (B) Whether the findings recorded by the Income Tax Appellate Tribunal are perverse to the records of the case? 8.4.2 In view of the above, and in view of the failure on the part of the assessee to cooperate with the TPO in executing the directions of the ITAT, it is impossible to determine ALP by taking AE as tested party. Therefore, with due respect to the directions of the Hon'ble ITAT, the ALP determined by the TPO as per original order taking assessee as tested party is retained as it is. Thus, the adjustment of Rs. 33.49 crores made to the international transaction of import of CKD kits and other raw materials, recovery of costs and purchase of capital assets is proposed as per original order. 19. As regards the ALP adjustment in respect of Tech Centre operations, the TPO noted that the assessee, vide letter dated 7th October 2014, had raised objections in the matter of following comparables- namely Genesys International Corporation Limited, Pentasoft Technologies Limited, Onward Technologies Limited, Tata Technologies Limited, Zensar Technologies Ltd, PSI Data Systems Limited....
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....ion. 2. In light of the various directions given by the Hon'ble Bench, you are requested to furnish further information as detailed below; A: Purchase of CKD Kits - 8. Detailed annual accounts of GMDAT with reference to the components included in the CKD along with cost allocation details. Individual cost centre ledger accounts in respect of components of the kits, the basis of costing of the component with reference to the total cost of the centre where it was produced, the final pricing of these components, details relating to other expenses incurred by GMDAT related to their manufacturing and the proportion in which they have been integrated in CKD costs may also be furnished. 9. Kindly ensure that a competent person aware of finances of the tested party who can demonstrate as to how the GMDAT's turnover and other financial data has been arrived at from its annual financial data of 2005/2006 using the PLP submitted by you. He is required to explain the details of extraction of costs related to CKDs supplied to the Indian entity and culling of data relating to Indian CKD supply from the data as specified above. 10. Before the ITAT it has been claimed by you that....
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....is of each of your comparables with regards to their comparability with your tested party with reference to their functions, assets and risks. 13. As regards your contention relating to use of multiple year data, it is now a settled principle that data for the relevant year is to be used. To this extent, your study does not conform to the settled principles of law and is, therefore, liable to be rejected. Kindly explain why the TP study should not be rejected to exclude the multiple year working. 14. It has been your contention that the TPO has adopted GMDAT as tested party while benchmarking royalty payment while assessee's selection of GMDAT has been rejected by him. This has been one of the major grounds on which the ITAT has directed adoption of GMDAT as tested party in transaction relating to purchase of CKD Kits. The relevant para is reproduced below: 11.6.2. As rightly highlighted by the assessee, we find inconsistency in the approach of the TPO with regard to the issue of 'tested party'. On the one hand, the TPO averred that there was no reliable data available for both GMDAT and comparables, however, on the other hand, he had conveniently taken GMDAT as the....
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....rowed down to the issue of comparing of the agreements. The assessee had taken the agreement entered into between the assessee and Isuzu and treated as CUP where the TPO had as CUP the agreements of (i) Namyang-Henglong; and (ii) Delphi- Jingzhou. This has been assailed by the assessee for the reasons narrated above. The agreement entered into by the assessee as well as the agreements of unrelated parties referred to by the TPO contained [terms and conditions] the nature and scope of services involved which required to be examined. The DRP had, without involving itself in analyzing the contentions put-forth by the assessee with that of the TPO in rejecting the assessee's comparable, sustained the TPO's stand without assigning any plausible reason whatsoever. Moreover the relevant agreements which contained terms and conditions on the basis of which, they were to be selected as comparables. Obviously, this requires considerable verification, examination and comparison. 19.13 In view of the above, we are of the considered view that this issue requires to be remitted back on the file of the TPO for a detailed examination and verification of the assessee's contentions. To facilitate ....
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....ata of GMDAT, along with certificate dated 8th January 2013 issued by Deloitte Anjin LLC Korea, and complete financial statements of the GMDAT. The copies of these detailed replies, as also the documents furnished before the Transfer Pricing Officer, have been placed before us in the paperbooks and examined by us. It is, therefore, clearly incorrect statement of the Transfer Pricing Officer that the requisite information has not been furnished by the assessee. We have noted that the assessee has produced Certified PLP data from the statutory auditors of GM Korea, Consolidated annual report of GM Korea, Allocation keys, Reconciliation of the certified segmental report prepared by the Auditor vis-à-vis the PLP data submitted by the assessee, Back-up excel files referred by the auditor while preparing the certified report for AYs 2006-07 and 2007- 08. The TPO is, therefore, in error in taking a stand that the assessee has not provided any segmental data nor consolidated financial statement of GM Korea. As a matter of fact, the assessee had furnished segmental data of GM Korea in the transfer pricing documentation itself and these are certified from statutory auditors of GM Kore....
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....ection of comparables through "OneSource database" by using the similar keywords to find out the comparable companies functionally similar to the tested party. Since the tested party is located in South Korea, the region was restricted to Korea only to avoid geographical differences. The soft copy of screen shots of search process is enclosed in CD. 3. As a result of search, 74 comparable companies located in Korea are found. On further examination the search result, it is found that only 33 companies are functionally similar. Since the assessee has selected TNM method for benchmarking, the above 33 companies are found broadly engaged in similar functions that are carried out by the tested party. It is noticed from the copies of financial statements of the comparables submitted by the assessee that the financial statements of only 17 companies are submitted. Therefore, an attempt was made to obtain the financial statements of remaining 16 comparables from the "Orbis database" for which the access is now available to the TPO. Previously, access was allowed to the TPO for very limited territory of the world. After examining the financial statements of all the 33 comparable companie....
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....al revenue (for sale of CKD kits, components, spare parts, accessories and capital goods) i.e. revenue from related parties is shown at 81.73 Million USD whereas payments made by the assessee to GMDAT during AY 2007-08 alone comes to 81.30 Million USD (Total value of above transactions in INR 353,15,40,392 divided by 43.44 i.e. prevailing rate of one dollar and further converted into Million). The figure of 81.30 Million USD is revenue from Indian AE only. The details of revenue earned by tested party from above mentioned international transactions from other AEs are not available. However on the basis of available figures, the segmental revenue of the tested party should have minimum 81.30 Million USD whereas in the segmental accounts, the same is shown at 81.73 Million USD. Therefore it is presumed that the difference figure of 0. 43 Mn USD pertains to segmental revenue earned from other AEs and as such the PLI ratio of 10.50% (OP/OC) is adopted for computation of arm's length price. (iv) In the TP study report, the assessee has used filter of sales more than zero and no upper limit is applied. The same approach is adopted while selecting the comparables under report. (v)....
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.... to 2.20% (NCP i.e. profit/cost) whereas the PLI margin of the tested party (AE) is 10.50%. This shows that the AE has earned extra profit by 8.30% than the arm's length price from the transaction with Indian AE. In other words, the assessee has paid more price to the AE than the arm's length price. Since the difference ALP margin and actual margin earned falls beyond the benefit of +/-5%, adjustment is required to be made in this year. The ALP profit for AY 2007-08 comes to 1.63 USD Million whereas, the profit worked out by the assessee is 7.77 USD Million. This shows that 6.14 USD Millions is paid more than the ALP. The value of payments made by the Indian party is 81.73 USD Million. However, after reducing the extra profit of 6.14 USD Million, the ALP price of International transaction comes to 75.59 USD Millions. Thus the adjustment of 6.14 USD Million equivalent to Rs. 26,67,21.600/- (61,40,000 USD X 43.44 prevailing USD rate in INR) needs to be made. 6. The soft copy of search process in One Source database carried out on 06/11/2015, copies of annual reports of comparables furnished by the assessee, copies of annual reports of comparables downloaded from Orbis ....
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....soft copies for both tested party and comparable companies vide submission dated November 6, 2015. * Para 3 of the submission - Extract from the learned TPO's submission is reproduced below for Your Honours kind consideration: 3. As a result of search, 74 comparable companies located in Korea are found. On further examination the search result, it is found that only 33 companies are functionally similar. Since the assessee has selected TNM method for benchmarking, the above 33 companies are found broadly engaged in similar functions that are carried out by the tested party. lt is noticed from the copies of financial statements of the comparables submitted by the assessee that the financial statements of only 17 companies are submitted. Therefore, an attempt was made to obtain the financial statements of remaining '16 comparables from the "Orbis database" for which the access is now available to the TPO. Previously, access was allowed to the TPO for very limited territory of the world. After examining the financial statements of all the 33 comparable companies, the detailed computation of PLI working is made. A copy of the same is enclosed as per Annexure-A Before the submit....
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.... a true and fair analysis. * No reasons to believe that the transactions were not at the arm's length with providing any cogent reasons As provided in section 92C(3) of the Act, the TPO can proceed to determine the arm's length price only in circumstances enumerated under clause (a) to (d) provided therein. Section 92C(3) of the Act provides as under: "Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material information or document in his possession, of the opinion that - a) the price charged or paid in an international transaction has not been determined in accordance with sub-section (1) and (2); b) any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in subsection (1) of section 92D and the rules made in this behalf; c) the information or data used in computation of the arm's length price is not reliable or correct; d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of sectio....
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....s Harikishan Jethalal Patel [1987] 168 ITR 472 (Guj) has held that when there is no dispute as to the facts of the case or the material available on record then remanding back of the proceedings is no warranted. The High Court held as under: 13. In the present case also, as pointed out earlier, the Income Tax Officer never doubted the genuineness of the firm and/or the transaction. On the record, there is no material whatsoever to doubt either. What the Revenue desires is a remand so that it may, on introduction of fresh facts, if any, examine the genuineness of the firm and/or the transaction. Even at present, it is not the case of the Revenue that it has come into possession of fresh facts which cast a doubt on the genuineness of the firm and/or the transaction. The Revenue wants to take a shot in the dark hoping that it may on remand be able to dig out fresh facts which may cast a doubt on the genuineness of the firm and or the transaction. It is merely a possibility and that too not supported by an iota of material. The Revenue desires to enter upon a mere fishing inquiry hoping that in the course of the inquiry some material may fall into its hands which may throw a doubt on ....
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....2005 to 31/03/2006 for AY 2006-07 and for the period from 01/06/2006 to 31/03/2007 for AY 2007-08. However, the data of all the comparables is for Jan. to Dec. period. Though the financial statements of tested party (GMDAT) are also for the period Jan. to Dec., the assessee has prepared segmental accounts for the period from l" April to 31" March and no justification is given in the TP study report. However, since the Hon'ble Bench has directed to adopt the segmental PLI after verification, the same is accepted for ALP computation subject to correction of arithmetical errors discussed in point No. (ii) & (iii) below At the very outset, it is highlighted that the learned TPO erred in stating that the data for AY 2007-08 was for period from 01/06/2006 to 31/03/2007. However, the data for AY 2007-08 has been considered for period from 01/04/2006 to 31/03/2007. Also, it is pertinent to note that the Appellant follows an accounting year from April to March in its financial statements and even the international transactions disclosed in Accountant's report in prescribed Form 3CEB pertains to the same period (i.e. April to March). Accordingly, the report of independent auditor for ve....
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....he OP/OC % comes to 9.15% as against (-)6 23 % shown by the assessee in respect of tested party. (iii) For AY 2007-08, the segmental revenue (for sale of CKD kits, components, spare parts, accessories and capital goods) i.e. revenue from related parties is shown at B'1.73 Million USD whereas payments made by the assessee to GMDAT during AY 2007-08 alone comes to 81.30 Million USD (Total value of above transactions in INR 353,15,40,392 divided by 43.44 i.e. prevailing rate of one dollar and further converted into Million). The figure of 81.30 Million USD is revenue from Indian AE only. The details of revenue earned by tested party from above mentioned international transactions from other AEs are not available. However, on the basis of available figures, the segmental revenue of the tested party should have minimum 8'1.30 Million USD whereas in the segmental accounts, the same is shown at 81.73 Million USD. Therefore it is presumed that the difference figure of 0.43 Mn USD pertains to segmental revenue earned from other AEs and as such the PLI ratio of 10.50% (OP/OC) is adopted for computation of arm's length price 4. As a result of ALP computation for AY 2006-07, it....
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....ities as well which resulted in a higher value. The total value of import of parts and components and spare parts from GM Korea as per Form 3CEB is provided below for Your Honours consideration: Particulars Amount (INR) AY 2006-07 Amount (INR) AY 2007-08 Import of parts and components from GM Korea 2,269,447,566 3,275,793,039 Import of spare parts 64,307,683 147,226,276 Capital goods 162,088,948 56,852,642 Total Amount (INR) - A 2,495,844,197 3,479,871,957 Total Amount (INR) - Considered by the TPO - B 2,830,072,189 3,531,540,392 Difference - B-A 33,42,27,992 5,16,68,435 The difference highlighted above is the value of imports from other associated entities. The learned TPO has erred in including this value to GM Korea's financial data. From the above, it is clear that the learned TPO has erred in considering the value of the import of parts and components, spare parts and capital goods in both the assessment years 2006-07 and 2007-08. Accordingly, it is prayed that the segmental data which has also been verified by external auditors should be considered for computing the margins of GM Korea and benchmarking analysis. Further, it should....
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....ed that the learned TPO never raised this contention before in the original assessment or remand proceedings. Further, it is pertinent to note that the comparables financial reports obtained from OneSource database (also shared with the learned TPO) discloses the non-operating income and expense heads separately and the same has not been considered by the Appellant while computing the operating profit margins of the comparable companies. The 'Other revenue' head proposed to be excluded by the learned TPO is related to the business activity of the comparable companies. Considering the non-operating heads have already been disclosed separately, the 'Other Revenue' item should be considered as operating in nature. A sample screenshot of the annual reports extract to demonstrate that non-operating items have been disclosed separately is attached as Annexure 2 to this submission. Further, it should be noted that the learned TPO in computation of operating profit margin of comparable companies in tech-center segment for assessment years 2006-07 and 2007-08 has considered 'other income' or 'miscellaneous income' as operating in nature. Kind attention is drawn to Annexure 3 to this submis....
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....ontrolled parties) in the similar circumstances. lt is settled legal position as decided by the various tribunals that if the related party transactions in the case of comparable case are less than 25%, then such comparable case is treated as uncontrolled party On this background, it is seen in the present case that the financial statements/annual reports of all the comparables are in a particular standard format and they do not contain the information of related party transactions. Thus it is not possible to verify the aspect of related party transactions percentage In relation to the above contention of the learned TPO, it should be noted that the same was never mentioned or stated to the Appellant in the original assessment proceedings or remand proceedings. The learned TPO, in his remand order, made certain assertions about related party transactions. Considering the same, Appellant during the course of the present hearings presented an additional submission before Your Honours with the related party details of comparable companies. Therefore, based on the above contentions and plea, it is reasonable to conclude that economic analysis undertaken by the Appellant in the transf....
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....respect to GMDAT, it is not possible to conduct the transfer pricing study adopting the GMDAT as tested party", that "in the light of (inter alia) failure/ defiance on the part of the assessee company to furnish sufficient and reliable data in respect of the tested party selected by it to benchmark the transactions of the tested party with the comparables selected by the assessee" , that "none of the comparables selected by the assessee are found to be functionally comparable with the tested party selected by the assessee" and that "in view of the failure on the part of the assessee to cooperate with the TPO in executing the directions of the ITAT, it is impossible to determine ALP by taking AE as tested party". The TPO also noted that ""in order to ensure conformity with the above principle, the assessee was called upon to submit the data relating to the tested party which was available with it for the purpose of benchmarking. Such data has been submitted by it in response to the letter dated 10/7/2014. The data merely comprises of the consolidated annual report of GMDAT for 2004 and 2005, a PLP schedule and the profit statement from supply of CKDs to Indian company..." 28. All t....
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....ertified segmental report prepared by the Auditor vis-à-vis the PLP data submitted by the assessee; (e) back-up excel files referred by the Auditor while preparing the certified report for assessment years 2006-07 and 2007-08. This objection, therefore, does not hold good either, nor did the revenue canvass it before us any longer as aggressively. All the reasons for which the impugned ALP adjustments were reiterated stand abandoned. We may mention that even with respect to the assessee being treated as a tested party, the TPO did not deal with the specific issues regarding rejection of Force Motors, Hindustan Motors, Swaraj Mazda Limited Atul Auto Limited and Ashok Leyland Limited as comparables or in correction of the margins of the Mahindra & Mahindra Limited. The exercise conducted by the TPO was thus quite superficial and without application of mind. The ALP adjustments, as proposed by the TPO in the report filed before us, are suggested at Rs. 16.01 crore for the assessment year 2006-07 and Rs. 26.67 crores for the assessment year 2007-08. To justify these adjustment, has some news, he has an altogether new basis. The question really is whether such a course of action....
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.... of comparables. Such an approach, in our humble understanding and subject to what Hon'ble Courts above hold, is not permissible in law. The proceedings before us are not extension of assessment proceedings, and there are serious limitations on the powers of this Tribunal, so far improvement of case by the revenue is concerned. What is before us is whether or not the TPO correctly gave effect to the directions of the Tribunal, and we find that the TPO did not do so at all. Despite the fact that he had all the information at the stage of original proceedings as also remanded proceedings, he did not find any fault in the same. Even when he was given opportunity to do so during the course of hearing before us, he did not point out any infirmities in the information furnished by the assessee. The TPO has now raised the issue regarding related party transactions but that issue was not taken up at any stage by the TPO earlier. The assessee has filed a petition for admission of additional evidence and submitted the information regarding related party transactions and submitted that there such related party transactions, as certified, are within permissible limits. The inertia of the TPO a....
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.... segmental revenues, on inclusion of nonrecurring revenues, interest and dividend income, as also his selecting the fresh comparables, on the basis of his understanding that he was directed by the ITAT to do the transfer pricing analysis de-novo. 31. The ALP adjustments of Rs. 33.49 crores (assessment year 2006-07) and Rs. 237.73 crores (assessment year 2007-08), in respect of imports of CKD kits from the AEs and as reiterated by the TPO in the remand proceedings, thus stand deleted.The assessee gets the relief accordingly. 32. That now takes us to the ALP adjustments in respect of Tech Centre. 33. We have noted that the TPO, in the remand proceedings, has reiterated his earlier stand on the basis of rather vague observations to the effect that "it is noticed that though the Hon'ble ITAT had directed the assessee to submit the reasons before the TPO as to why the comparables quoted by it should be accepted by the TPO as comparables and why the comparables selected by TPO should be rejected,.....the assessee submitted reply/ information raising similar objections, which have already been dealt by the TPO in the original order. In view of the above facts, the adjustment of Rs. 19.....
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....gn, procurement and construction management activities as well. For all these reasons, in our considered view, the assessee was quite justified in claiming that Roltas India Ltd is to be excluded from the list of comparables. We uphold this plea as well. Coming to the assessee's plea regarding inclusion of PSI Data Systems Ltd, the additional comparable selected by the assessee, we find that this comparable is engaged in providing IT solutions to banking and financial sector- a segment, which includes, inter alia, product engineering, migration, independent verification and validation and ERP implementation. Having examined the details of the services, and the material on record, we are inclined to accept the plea of the assessee on this count as well. Accordingly, the TPO is directed to include this comparable as well. As regards the working capital adjustment sought by the assesse, learned TPO has fairly accepted the same in principle. He, however, submits that the low risk adjustment sought by the assessee is good in theory but is difficult to be implemented inasmuch as there is no way it can be quantified. On this issue also, while we uphold the plea in principle, we direct th....
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.... the assessee with that of the TPO in rejecting the assessee's comparable, sustained the TPO's stand without assigning any plausible reason whatsoever. Moreover the relevant agreements which contained terms and conditions on the basis of which, they were to be selected as comparables. Obviously, this requires considerable verification, examination and comparison. 19.13. In view of the above, we are of the considered view that this issue requires to be remitted back on the file of the TPO for a detailed examination and verification of the assessee's contentions. To facilitate the TPO to implement the above direction, this issue is restored on the file of the TPO to take appropriate action after affording a reasonable opportunity to the assessee of being heard. It is ordered accordingly 38. When the matter thus travelled back to the TPO, he reiterated the ALP adjustment. While doing so, the TPO observed as follows: During the course of TP proceedings for giving appeal effect to the order of ITAT, a notice u/s 92CA was issued to submit the reply on the point of royalty adjustment to enable to give effect of the directions of ITAT. Accordingly the assessee has submitted the reply ....
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....ject; whereas agreement between Korea Delphy Automotive Systems Corporation, Korea and Jingzhou Henglong Automotive Parts Company Limited, China is exactly comparable in respect of all technical specification and for same project of GMDAT'M-200. This agreement clearly specifies that technology is of GMDAT only. Under the circumstances, this agreement can be said as exact comparable for assessee's royalty agreement in this regard; whereas Isuzu's agreement is only for some certain specific technologies and not of this specific GMDAT's technology for assembly of car, hence, cannot be treated as exact comparable. The assessee had further stated that royalty payment is only 0.54% of gross selling price which is not correct way of comparing prices. Therefore the TPO had made adjustment of Rs. 4,89,60,504/-restricting the payment @ 3% as against 5% claimed by the assessee. In view of above, it is clear that though the royalty payment was treated at ALP in earlier year, during this year, due to detection of valid internal CUP, adjustment was made. Therefore the adjustment of Rs. 4,89,60,504/- is retained as it is. 39. The assessee is aggrieved and is in appeal before us. 40....
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....every year but depends on the nature of the property or any other question on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions, if decided by a court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated. One of the decisions referred to by the Full Bench was the case of Hoystead vs. Commissioner of Taxation [1926] AC 155 (PC). Speaking for the Judicial Committee, Lord Shaw stated (p.165): Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle - namely, that of a setting to rest rights of litigants, applies....
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....gest that a special leave petition was preferred against that judgment but he has no instructions as to what happened thereafter. Learned counsel for the respondents states that their enquiries with the Registry reveal that no appeal against that judgment was preferred by the Revenue. If the Revenue did not accept the correctness of the judgment in the case of Pradip Ramanlal Sheth [1993] 204 ITR 866 (Guj), it should have preferred an appeal there against and instructed counsel as to what the fate of that appeal was or why no appeal was filed. It is not open to the Revenue to accept that judgment in the case of the appellant in that case and challenge its correctness in the case of other appellants without just cause. For this reason, we decline to consider the correctness of the decision of the High Court in this matter and dismiss the civil appeal. Similarly, the Supreme Court in CIT vs. Shivsagar Estate (257 ITR 59) has held that if the Revenue has accepted the contention of the appellant for an earlier year, it would not be entitled to challenge that contention in a subsequent year. This has been stated by the Supreme Court in the following words: Having regard to the fac....
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....ove Also, reliance can be placed on the following recent jurisprudence available in this regard: - NGC Networks (India) Private Limited vs. ACIT [2011 10 Taxmann 140 (Mum.)]; - CIT vs. Neo Polypack (P) Ltd [(2000) 245 ITR 492 (DELHI)]; - CIT vs. Girish Mohan Ganeriwala [2003 260 ITR 417 (PUNJ & HAR)]; - M/s. Kuehne+Nagel Pvt. Limited vs. ACIT [2012 17 taxrnann.com 97 (Delhi)]; Also, while arriving at the conclusion that internal CUP cannot be applied in the said case, your goodself has not brought on record any facts contrary to the facts in the earlier year that warrant a change in the choice of most appropriate method applicable for testing the international transaction of payment of royalty by the assessee for this year (which has been accepted by the department in the earlier year). Based on the above judicial view, given that there has been no change in the nature and terms of the international transaction of payment of royalty entered into by the assessee, there is no justification for taking a different view on a fundamental issue i.e. choice of the transfer pricing method when there are similar facts and hence, in line with the earlier year, internal CUP should....