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Commissioner of Income Tax Versus Same Deutz Fahr India Private Limited

2017 (12) TMI 631 - MADRAS HIGH COURT

TPA - Computation of income from international transaction having regard to arm's length price - comparability selection of M/s.HMT Limited - Held that:- In the instant case, whether M/s.HMT Limited can be a comparable or not is a factual issue. The learned Tribunal has factually assessed the similarities between M/s.HMT Limited and the respondent assessee and the same, in our considered opinion, does not warrant interference of this Court under Section 260A of the Income Tax Act, 1961. - Tax Ca .....

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ent appellant is aggrieved by the order of the Appellate Tribunal to the extent that the Transfer Pricing Officer (hereinafter referred to as "TPO") has been directed to include M/s.HMT Limited as a comparable and to re-work the comparable margin in determination of the arm's length price (hereinafter referred to as "ALP"). 3. The respondent assessee Same Deutz Fahr India Private Limited is a part of the SAME Group of companies which had entered into joint venture agreeme .....

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India with effect from 1st April, 2002. The amalgamation was approved by the Madras High Court in February, 2003 and in April, 2004 the amalgamated company (the respondent assessee) was renamed M/s.SAME Deutz Fahr India Private Limited. The respondent assessee is engaged in the manufacture and export of tractors. 6. The respondent assessee filed its return of income for the assessment year in question, declaring a loss of ₹ 3,30,16,163/-. In the assessment proceedings, the Assessing Offic .....

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, 1961, as they stood at the material time are set out herein below for convenience: Section 92. Computation of income from international transaction having regard to arm's length price.- (1)Any income arising from an international transaction shall be computed having regard to the arm's length price. Explanation.- For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having rega .....

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e determined having regard to the arm's length price of such benefit, service or facility, as the case may be. (3) The provisions of this sections hall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or as the case may be, contributed under sub-section (2), has the effect of reducing the income chargeable to .....

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ted persons or functions performed b y such persons or such other relevant factors as the Board may prescribe, namely.- (a) comparable uncontrolled price method; (b) resale price method (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. (2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed. Section 92C .....

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Transfer Pricing Officer (TPO) for determination of the Arm's Length Price of the international transaction. 9. The respondent assessee adopted Transactional Net Margin Method (TNMM) as the appropriate method to determine the ALP of its international transactions of purchase of raw materials and components. The assessee identified five comparables and it made adjustment on account of idle capacity on comparables in order to arrive at ALP of its purchase transaction. The respondent assessee a .....

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out herein below for convenience: The appellant has contended that the Assessing Office, i.e., the Transfer Pricing Officer (TPO) has rejected the comparable companies selected by the assessee except VST Tillers in the transfer pricing documentation. The Assessing Officer has rejected all the comparable companies on the ground that the said companies recorded huge turnover whereas the turnover of SAME Deutz Fahr India (P) Ltd. is very small and hence not comparable. Therefore, the Transfer Pric .....

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of purchase of raw materials by SAME Deutz Fahr India (P) Ltd. from its associate enterprises. 12. Being aggrieved, the respondent assessee appealed to the Income Tax Appellate Tribunal, 'D' Bench, Chennai. The appeal, being I.T.A.No.266/MDS/2016, has partly been allowed by the order dated 22.2.2017 under appeal. 13. The learned Tribunal observed that during the transfer pricing proceedings, the TPO had selected M/s.HMT Limited as one of the comparables on functional similarity, but whil .....

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as comparable merely because of the turnover. The turnover of the M/s.HMT Ltd., for the AY 2005-06 was ₹ 248.00 Cr. as against the assessee's company turnover of ₹ 120.00 Cr. It is impossible to find out comparable with all similarities inclusive of turnover. Even M/s.VST Tiller selected by TPO was with ₹ 130.00 Cr. The turnover filter with turnover 3-5 times is acceptable for selecting the comparable as per the decisions of the tribunals. In the Appellant's case, the .....

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e and re-work the comparable margin. This ground of appeal is allowed. 14. The appeal is to the limited extent that the TPO has been directed to include M/s.HMT Limited as a comparable and re-work the comparable margin. 15. The learned Tribunal very rightly observed and held that refusal to include a company as a comparable only on the ground that the company had far higher turnover was not justified. 16. The learned Tribunal also very rightly observed that no comparables could have exactly the .....

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, it is urged that the learned Tribunal failed to appreciate that M/s.HMT Limited was a government owned company and the functions performed under government management were altogether different from a private company. 18. There is, however, no provision of law which makes any distinction between a government owned company and a company under private management for the purpose of transfer pricing audit and/or fixation of ALP. There is no reason why a government owned company cannot be treated as .....

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(2) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner or an Assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be- (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the Assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. (b) [***]; (c .....

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all be heard only on the question so formulated, and the respondents shall at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so f .....

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08) relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section. 20. An appeal lies under Section 260-A of the IT Act, only when there is a substantial question of law. We find that there is no question of law involved in this appeal much less any substantial question of law. 21. In Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. & Mfg. Co. Ltd., reported in AIR 1962 SC 1314, the Supreme Court agreed with and approved a Full Bench Judg .....

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levant paragraphs of the judgment of the Supreme Court in Hero Vinoth (supra) are set out herein below : 21. The phrase substantial question of law , as occurring in the amended Section 100 CPC is not defined in the Code. The word substantial, as qualifying question of law , means of having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contradistinction with technical, of no substance or consequence, or academic merely. However, it .....

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estion of law as it was employed in the last clause of the then existing Section 100 CPC (since omitted by the Amendment Act, 1973) came up for consideration and their Lordships held that it did not mean a substantial question of general importance but a substantial question of law which was involved in the case. In Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] the Constitution Bench expressed agreement with the following view taken by a Full Bench of the Madras High Court in Rimm .....

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he highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular fact of the case it would not be a substantial question of law. This Court laid down the following test as proper test, for determining whether a question of law raised in the case is substantial: (Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] , SCR pp. 557-58) The proper test for determining whether a que .....

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e applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law. 22. In Dy. Commr. v. Rama Krishna Narain [1954 SCR 506 : AIR 1953 SC 521] also it was held that a question of law of importance to the parties was a substantial question of law entitling the appellant to a certificate under (the then) Section 100 CPC. 23. To be substantial a question of .....

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for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case or not, the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and im .....

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e, when there is misconstruction of a document or wrong application of a principle of law in construing a document, it gives rise to a question of law. (ii) The High Court should be satisfied that the case involves a substantial question of law, and not a mere question of law. A question of law having a material bearing on the decision of the case (that is, a question, answer to which affects the rights of parties to the suit) will be a substantial question of law, if it is not covered by any sp .....

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