TMI Blog2017 (10) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP has to be given effect to and the third respondent has to pass an order of assessment, which can be questioned by the petitioner by filing an appeal before the Tribunal. For all the above reasons, the Writ Petition is dismissed with direction to the third respondent to give effect to the directions issued by the DRP, dated 13.12.2016, by passing an assessment order, after which, it is open to the petitioner to challenge the same before the Tribunal - W. P. No. 2088 of 2017 & W. M. P. No. 2058 of 2017 - - - Dated:- 20-10-2017 - T. S. Sivagnanam, J. For the Petitioner : Mr.N.Venkatraman Senior counsel for Mr.K.Magesh For the Respondent : Mrs. Hema Muralikrishnan ORDER The petitioner has challenged the order passed by the Dispute Resolution Panel-II, Bangalore (DRP), dated 13.12.2016, by which directions have been issued under Section 144C(5) of the Income Tax Act, 1961 (Act). 2. The petitioner is a wholly owned subsidiary of Hyundai Motor Company, South Korea, and is a manufacturer and exporter of cars. The Transfer Pricing Officer had made adjustment to the value of international transactions and the Assessing Officer had disallowed various expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not sustainable; (xii) The Transfer Pricing Officer erred in rejecting the transfer pricing study carried out by the assessee without cogent reasons and erred in analyzing domestic segment on a standalone basis. The Transfer Pricing Officer has erred in benchmarking the international transactions entered into by the assessee with its Aes on the basis of the segment wise profitability details obtained during the assessment proceedings, without appreciating that the international transactions entered into by Assessee are closely linked and integrated and cannot be viewed in terms of separate segments for Transfer Pricing benchmarking; (xiii) The Transfer Pricing Officer erred in not considering the royalty income received by the Assessee in consideration for the license of the trademarks and know-how transferred to Mobis in relation to the distribution of after sales products, as operating while computing the operating margins of the tested party. The Transfer Pricing Officer erred in not considering the incentives received from the Government of Tamil Nadu for its Phase II investments under Ultra Mega Integrated Automobile Projects within Tamilnadu, as operating while co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP vide its order dated 28.12.2015. The second respondent, the Transfer Pricing Officer, while taking up the transfer pricing adjustment for the assessment year 2012-13, rightly restricted the transfer pricing adjustment to the international transaction from AE's only. However, the DRP under the guise of exercising powers under Section 144C(8) of the Act, has sought to enhance the adjustment by traveling beyond international transaction and making adjustments on non-international transaction including domestic procurement and administrative costs in blatant violation of the law and all binding judicial precedents. The petitioner in no uncertain terms, have stated that they are not challenging the merits of the order passed by the DPO as confirmed by the DRP and will prosecute appropriate appellate remedy. In other words, the Writ Petition is confined only to the aspect of the enhancement sought to be made by the first respondent, which according to the petitioner is without jurisdiction and contrary to binding judgments and thus violative of Article 14 19(1)(g) of the Constitution. 4. Mr.N.Venkatraman, learned Senior counsel appearing for the petitioner did not venture int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on three questions of law and this issue has not been framed as a question of law for consideration and therefore, the finding in this regard has attained finality. Relying on the decision in the case of The Commissioner of Income Tax-1, Mumbai vs. Alstom Projects India Limited in Income Tax Appeal No.362 of 2014, while taking note of the decision of the Delhi High Court in the case of CIT vs. Keihin Panalfa Ltd., in ITA No.11 of 2015, dated 09.09.2015, it was held that the transfer pricing adjustment is done under Chapter 10 of the Act and the mandate therein is only to re-determine the consideration received or given to arrive at income arising from international transactions with AE. The transaction with non-AEs are presumed to be at arms length, as there is no relationship which is likely to influence the price. It was further pointed out that if the contention of the revenue is accepted, it would lead to artificial increase in the profits of the transactions entered into with non-AEs by applying the margin at entity level, which is not the object of Chapter X of the Act. Absence of segmental accounting is not an insurmountable issue, as appropriate basis could be adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has to be passed under Section 144C(13) within 30 days from the end of the month in which such directions are issued. As against such assessment order, the petitioner has a remedy of filing an appeal before the Appellate Authority and the present Writ Petition is premature and liable to be rejected. In this regard, reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT Ors., vs. Chhabil Dass Agarwal reported in 357 ITR 357, CIT vs. Vijaybhai N.Chandrani reported in 357 ITR 713 and the decisions of this Court in the cae of Dr.Nedunchezhian vs. Deputy Commissioner of Income Tax Anr., reported in 279 ITR 342 (Mad) and Fisher Xomox Sanmar Ltd., vs. Assistant Commissioner of Income Tax reported in 294 ITR 620 (Mad) wherein it has been held that once there is an effective alternative remedy, Writ Petition is not maintainable. 8. With regard to the contention raised by Mr.N.Venkatraman, it is submitted that the petitioner did not have data in relation to profits earned by it in respect to the cost pertaining to the international transactions. It is further submitted that the assessee is selling product manufactured with parts purchased from AE and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer can take different view in the subsequent year, when new facts come to his knowledge. It is further submitted that the DPO had computed ALP of the value of International transaction in proportion to the adjusted operating cost resulting in proportionate downward adjustment. However, the DRP was of the view that proportionate adjustment made was not justifiable and adjustment had to be made on the entire cost base and consequently enhancing the amount of adjustment. In the impugned order, the proposition for adjustment was explained by giving an illustration, which will clearly show that there is absolutely no merit in the petitioner's contention. On the above grounds, the learned counsel seeks to sustain the impugned order. 9. In reply, Mr.N.Venkatraman, submitted that the act does not specifically provide for alternate remedy to the petitioner against the impugned order and the remedy suggested is only after the Assessing Officer passes final orders. Thus, in the absence of an efficacious alternate remedy, the present Writ Petition is maintainable. The impugned order being in contradiction with the various decisions of the High Courts and the decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an appeal before the Income Tax Appellate Tribunal (ITAT). 13. Section 144C was inserted in the Income Tax Act by Finance Act, 2009, with a view to provide speedy disposal and to create an alternate dispute resolution mechanism within the income tax department (see notes on clauses to Finance Bill, 2009). Prior to insertion of Section 144C, the assessee could file an appeal to the CIT (Appeals) challenging the assessment order. On creation of the DRP, one more option is given to the assessee to approach the DRP raising objections against the variations made by the Assessing Officer. On such objections being filed, the DRP is expected to consider the draft assessment order, objections of the assessee, evidence/records that may be furnished by the assessee, reports if any called for from the Assessing Officer/Valuation Officer/TPO and issue directions, as it thinks fit, to enable the assessing officer to complete the assessment. The directions so issued by the DRP is only after opportunity to the assessee. The directions given by the DRP are binding on the Assessing Officer. Thus, the proceedings before the DRP is not an appeal over the draft assessment order, but an alternate me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), the same procedure was adopted, where the Assessing Officer proceeded to frame a draft assessment order based on the recommendations of the TPO in which the Assessing Officer proposed an addition of ₹ 9,58,60,55,22/- for the arms length price adjustment, apart from other additions. These were for income arising out of an invoice raised subsequent to the end of the relevant previous year, disallowance of amortization cost of leasehold land, disallowance of payment made for acquiring software licence and reimbursement of expenses for non-deduction of tax at source. The assessee (Mobis) elected to move the DRP as done by the petitioner and raised objections one of which being with regard to the adjustment on account of the alleged difference in arms length operating profit to the proportionate AE transaction. 15. The DRP, after considering the objections, issued directions with regard to transfer pricing adjustment and based on the directions final assessment order was framed by the Assessing Officer. Challenging such order, the assessee (Mobis), filed appeal to the Tribunal. In the said challenge, the Tribunal has examined the factual position and after recording its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being shown. 17. After recording the above finding, the DRP has adopted a hypothesis with regard to an assessee having international transactions and how the arms length price needs to be determined. The case of the hypothetical assessee is dismissed in paragraphs 18.2, 18.3 and 18.4 of the impugned directions. After the above discussions, on facts the DRP has recorded as hereunder:- 18.5.........Any impact on the basis of calculation of ALP by MAM (here TNMM) has to be considered as adjustment under Section 92CA and the same cannot be proportionately reduced by considering that a part of the purchases was from non-AE also. Whatever is the reduction in the margin of the assessee vis a vis comparables is on account of inflated purchases from AE and the same gets considered when ALP is calculated by applying TNMM. As regards assessee's reliance on Judicial decisions, the above factual matrix was not brought to the knowledge of Hon'ble Judicial Authorities and so those decisions cannot be applied to the case of the assessee. The AO/TPO is, therefore, directed to effect adjustment without restricting the same to the proportion of international transaction to the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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