TMI Blog2021 (3) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... es sold by assessee is untenable, as the transactions undertaken with third-party distributors are comparable to the transaction with the associated enterprises. Other part of the transactions relating to export of spares and components which are required by the associated enterprises for manufacture of two and three wheelers undertaken by them and the components which are required by the overseas associated enterprises for manufacture of four wheelers, namely, New, Quadracycle Poker. For these two categories of transactions, the Tribunal negated the invoking of internal TNM mechanism by the TPO and instead remanded the matter back to the file of the Assessing Officer to examine the plea setup by the assessee. We restore the issue back to the file of the Assessing Officer who shall carry requisite verification/exercise and re-adjudicate the matter while complying with the principles of natural justice. We direct the Assessing Officer to redetermine the ALP of the impugned international transaction of export of spares and components on the basis of the decision of the Tribunal in assessee's own case for assessment year 2006-07 (supra.). Thus, Ground Nos. 2, 3 and 4 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and components in global sourcing segment Erred in combining the international transactions pertaining to export of service spares to AE and export of parts and components in global sourcing segment and consequently, following combined benchmarking approach thereby, ignoring the vital differences in functions performed and risk undertaken by the Appellant for the international transactions pertaining to export of service spares to AE vis- -vis export of parts and components in global sourcing segment. 3. Inappropriate rejection of external Transactional Net Margin Method ('TNMM') approach for benchmarking international transaction of export of spare parts and components in global sourcing segment Erred in rejecting the external TNMM approach adopted by the Appellant and inappropriately applying internal TNMM for determining the arm's length price for the international transaction of export of parts and components in the global sourcing segment. 4. Disregarding the decisions of Hon'ble Pune Income-tax Appellate Tribunal ('ITAT') for in Appellants case for AY 2006-07 to AY 2009-10 Without prejudice to the other grounds of appeal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %); 8.2 Where DDT paid by the Appellant as per the provisions of section 115-O of the Act is held to be in excess of the rate applicable for taxability of dividend in India as per the India -Italy Double Taxation Avoidance Agreement, is the Appellant entitled for refund of such excess DDT paid. ADJUDICATION OF THE GROUNDS IN APPEAL MEMO 3. The Ld. Senior Counsel for the assessee opening his argument submitted that Ground No. 1 is general in nature and hence, no adjudication is required. 4. Ground Nos. 2, 3 and 4 pertains to inappropriately combining of export of service spare and export of parts and components in global sourcing segment. 5. The Ld. Senior Counsel for the assessee referring to the order of the Transfer Pricing Officer (TPO) at Para 6 demonstrated that the activities performed by the assessee company pertains to sale of service spares and sourcing of spares and components. He further submitted that in various assessment years in the case of the assessee, this issue has been decided by the Tribunal in favour of the assessee. Thereafter, the Revenue has preferred appeal before the Hon'ble Jurisdictional High Court and appeals are as on date p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court, with a humble view to protect the right of revenue an addition is being proposed on the similar lines that of the order of the predecessor TPO. It was further reiterated in that same Para, TP adjustment was only being suggested to the Assessing Officer to protect the interest of the revenue at the stage of Hon'ble High Court. Demonstrating this Para, the Ld. Senior Counsel for the assessee submitted that even the TPO was convinced with the transaction of the assessee but only TP adjustment was made to secure the interest of the revenue at the stage of the Hon'ble High Court. 5.4. The Ld. Senior Counsel for the assessee brought notice to the Bench that in assessee's own case for assessment year 2008-09 in ITA No. 2583/PN/2012 wherein the Tribunal has referred to assessee's own case for assessment year 2006-07 wherein the facts are pari-materia with that of the assessment year 2008-09 and therein, the issues raised in the present grounds of appeal No. 2 to 4, those issues were decided in favour of the assessee specifically the activities for benchmarking the transaction of the assessee is that the assessee is engaged in manufacture and sale of three wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Export to AE Domesti c parties spares BO (service spares) Exports to third parties spares BO (service spares) Total sales to Non-AEs Spares -BO (servic e spares) Global sourcing and NQP(sourci ng activities) Total Exports to AE Sales (Rs) 529461 000 154510 00 5449120 00 21860 00 13893400 0 141120 000 Net Profit (Rs) 755910 00 558300 0 8117400 0 87700 0 13832000 147090 00 Total cost (Rs) 453870 000 986800 0 4637380 00 13090 00 12510200 0 126411 000 Profit margin (on sales) 14.27% 36.13% 14.90% 40.12 % ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on external comparable is more appropriate. Initially, we do not take up this controversy, which we shall deal with a little later. However, another pertinent plea of the assessee is to the effect that even the internal TNMM mechanism applied by the income-tax authorities is quite inappropriate and, therefore, the same has resulted in an unjustified adjustment to impugned International transaction. This aspect of the matter is being addressed at this stage. The assessee undertakes three categories of transactions in the course of the sale of spares and components. The three categories have been noted by us in the earlier part of the order and to briefly recapitulate, the same are as follows: Category 'A' transaction represents sale of spares by the assessee to third party distributors as well as to the AEs of such spares/components which are required for the purpose of servicing the vehicles sold by the assessee company. Category 'B' transactions represent sourcing of components required by the overseas AEs for manufacture of 2/3 wheelers, and category 'C' transactions represent sourcing of components required by the overseas AEs for manufacture of 4 whee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of category 'A' on the other. With regard to the transactions of category 'B' and 'C', which is in the realm of sourcing of components, quite clearly the same is in the nature of industrial supplies, which are in-turn, used by the buyer in manufacturing of vehicles and the services being rendered by assessee is merely logistic service equivalent. On the other hand, the nature of transactions in category 'A' effectuated by the assessee to its AE abroad as well as third party distributors involve supply of servicing spares and are purely in the realm of after-sale distribution. The assessee which manufactures vehicles and sells the same, also undertakes supply of spares and components required for servicing of such vehicles sold by it. Quite clearly, the supplies so undertaken are from already firmed-up sources, inasmuch as the assessee is the manufacturer of vehicles in which such components are used, and at the time of procurement for manufacturing the assessee has mandated the dies, design, quality, warranties, etc. Thus, supply of spare-parts and components as purely after-sales distribution results in higher margins. In contrast, the sourcing of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2013-14, the same position holds good as can be seen from the tabulation enumerated by the TPO at Para 6 of his order. Therefore, following the aforesaid precedent, the adjustment computed by the TPO with regard to the export to associated enterprises of spares and components required for the purpose of servicing of vehicles sold by assessee is untenable, as the transactions undertaken with third-party distributors are comparable to the transaction with the associated enterprises. 8. That further regarding other part of the transactions relating to export of spares and components which are required by the associated enterprises for manufacture of two and three wheelers undertaken by them and the components which are required by the overseas associated enterprises for manufacture of four wheelers, namely, New, Quadracycle Poker. For these two categories of transactions, the Tribunal negated the invoking of internal TNM mechanism by the TPO and instead remanded the matter back to the file of the Assessing Officer to examine the plea setup by the assessee. The relevant portion of the decision of the Tribunal for assessment year 2006-07 reads as follows: 13. Now, we are left ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee submitted that since main grounds in this appeal are being remanded to the file of the Assessing Officer, similarly ground No. 5 may also be restored to the file of the Assessing Officer for the sake of completeness and re-adjudication while complying with the principles of natural justice. 10. The Ld. DR conceded to the arguments put forth by the Ld. Senior Counsel for the assessee. 11. After hearing the parties herein, we remand ground No. 5 also to the file of the Assessing Officer for re-adjudication as indicated hereinabove. Thus, Ground No. 5 raised in appeal by the assessee is allowed for statistical purposes. 12. Ground No. 6 raised in appeal by the assessee is premature at this stage and hence, no adjudication is required. ADJUDICATION OF ADDITIONAL GROUNDS 13. Now coming to the additional ground in appeal, the first ground pertains to whether education cess can be allowed as deduction? 14. The Ld. Senior Counsel for the assessee has placed strong reliance on the decision of the Hon'ble Bombay High Court in the case of Sesa Goa Limited Vs. Joint Commissioner of Income Tax, (2020) 107 CCH 0376 MumHC, Tax Appeal No. 17 of 2013/18 of 2013 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. DR conceded to the submissions put forth by the Ld. Senior Counsel for the assessee. 18. After hearing both the parties herein, this additional ground in respect of 'Education cess' is also remanded to the file of the Assessing Officer to adjudicate the issue in view of the principles laid down by the Hon'ble Jurisdictional High Court in the case of Pr. Commissioner of Income Tax, Kota Vs. Sesa Goa Limited Vs. JCIT (supra.) and Hon'ble Rajasthan High Court in the case of M/s. Chambal Fertilizers and Chemicals Ltd. (supra.). Thus, additional ground No. 1 raised in appeal by the assessee is allowed for statistical purposes. 19. Referring to the other Additional Ground No. 8.1 8.2, the Ld. Senior Counsel for the assessee submitted that this issue requires factual verification in respect of the various DTAA agreements involved therein and after verification of such facts in pursuance to those DTAA agreements, a conclusive finding can be arrived at. Therefore, in the interest of justice, these additional grounds may also be restored to the file of the Assessing Officer. 20. The Ld. DR conceded to this argument put forth by the Ld. Senior Counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
