TMI Blog2019 (4) TMI 2071X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO in the final analysis applied RPM method and not TNMM method, we direct the TPO / Assessing Officer to verify the stand of assessee in this regard and where the said 6 concerns, which were finally selected by him are comparable, may be adopted for benchmarking the transactions under TNMM method. The margins shown by assessee on an aggregate basis were 8.58% and if on verification, the mean margins of comparables are at 6.28%, then no addition is to be made in the hands of assessee on this count. Hence, grounds of appeal No.2, 4 and 5 as pressed by assessee are allowed. The grounds of appeal No.3, 8 and additional grounds of appeal No.13 and 14 would become academic and hence, the same are dismissed. The issue in ground of appeal No.7 i.e. benefit of +/-5% range is consequential and hence, the same is also dismissed. The ground of appeal No.1 is general and does not need any adjudication. Adjustment made on account of royalty payment, wherein the TPO had applied CUP method by comparing with unit rate of Maruti Udyog Ltd. - The Tribunal in assessment year 2005-06 held that payment of royalty is to be benchmarked along with other transactions by applying TNMM method under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer in the hands of assessee. In view thereof, following the consistency approach, we find no merit in the disallowance made in the hands of assessee. - ITA No. 1468/PUN/2010, ITA No. 10/PUN/2012, ITA No. 298/PUN/2013 - - - Dated:- 30-4-2019 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Assessee : Shri Pramod Achuthan. For the Revenue : Ms. Nandita Kanchan. ORDER PER SUSHMA CHOWLA, JM: This bunch of appeals filed by the assessee are against separate orders of ACIT, Circle-9, Pune, dated 28.10.2010, 19.10.2011 and 30.11.2012 relating to assessment years 2006-07, 2007-08 and 2008-09 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short the Act ). 2. These three appeals relating to same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. First, we shall take up the appeal in assessment year 2006-07. 4. The learned Authorized Representative for the assessee at the outset pointed out that the issues raised in the present appeal are squarely covered by the order of Tribunal in earlier year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant for benchmarking of the international transaction of import of CBUs in AY 2006-07 as if the said activity is an independent activity be accepted. 6. The learned Assessing Officer erred in incorrectly applying Comparable Uncontrolled Price Method ('CUP') for benchmarking of the international transaction of payment of Royalty in AY 2006-07. The Appellant prays that the approach of applying CUP for benchmarking of the international transaction of payment of Royalty in AY 2006-07 be rejected. 7. The learned Assessing Officer erred in not giving benefit of the +/- 5 per cent range as available under the proviso to section 92C(2) of the Income-tax Act, 1961 while carrying out transfer pricing adjustments in AY 2006-07. The Appellant prays that benefit of the +/- 5 per cent range as available under the proviso to section 92C(2) of the Income-tax Act, 1961 be allowed to the Appellant while carrying out transfer pricing adjustments in AY 2006-07. 8. The learned Assessing Officer erred in including the expenditure disallowed during the assessment proceedings of AY 2006-07 while computing the operating margin of the Appellant for AY 2006-07 for ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration, the assessee had furnished return of income declaring total income of ₹ 25,14,19,400/- under regular provisions of the Income Tax Act and taxable income of ₹ 66,65,50,598/- under the provisions of section 115JB of the Act. The assessee was engaged in the manufacture and sale of Mercedes Benz cars, automobile parts, components and consumables. Besides its own manufacturing of Mercedes Benz cars, the assessee also imported Completely Built Units (CBUs) from the parent company M/s. Dailmer Chrysler AG, Germany. The sale of cars was normally done through various dealers. The spare parts were also imported / purchased locally and were sold to the dealers for their after sales activity. During the year under consideration the assessee in addition to manufacture and sale of cars, had also imported 107 CBUs. During the year under consideration, total of 1867 vehicles were sold. The Assessing Officer had made reference to the Transfer Pricing Officer (TPO) under section 92CA(1) of the Act. The TPO in its order passed under section 92CA(3) of the Act proposed an adjustment of ₹ 9,73,98,960/- towards international transaction of purchase of CBUs and ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure having an enduring benefit to the assessee spread out for long period of time. The Assessing Officer further carried out the exercise to determine the nature of expenditure and was of the view that the said expenditure was an unjustified claim of deduction and at best be treated as capital expenditure in the hands of assessee, in view of the Department s stand in earlier years. Consequently, the entire royalty payment of ₹ 6.56 crores was disallowed in the hands of assessee. However, the assessee was held to be eligible for depreciation under section 32 of the Act on the said amount as well as WDV of the disallowance made in earlier assessment years. 10. The Assessing Officer also noted the corporate issue of Third Party Account (TPA adjustment). In the computation, the assessee had added sum of ₹ 12,42,59,727/- under the head Prior period expenses and had claimed identical deduction in its computation. The assessee was asked to explain prior period transactions. The assessee filed explanation which is reproduced in the draft assessment order. The Assessing Officer noted that the receipts payments pertained to assessment years 1995-96 to 2002-03 and hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, against which the assessee is in appeal and we proceed to decide the issues raised in the present appeal vide different grounds of appeal raised by assessee. 11. First, we take up appeal of assessee in assessment year 2006-07. The grounds of appeal No.1 to 8 along with additional grounds of appeal No.13 and 14 were argued by assessee in the first instance. The learned Authorized Representative for the assessee pointed out that in the final assessment order at page 22, the Assessing Officer had made TP adjustment on account of CBUs at ₹ 9.73 crores and on account of royalty at ₹ 2.60 crores. The Assessing Officer has disallowed balance royalty payment of ₹ 3.93 crores separately. He further pointed out that the assessee had selected TNMM method as most appropriate method, wherein the margins of assessee were 8.58%. The assessee had selected 12 concerns as comparables whose mean margins worked out to 4.92%. He then referred to the order of TPO at page 238 of Paper Book and pointed out that the assessee was carrying on manufacture and sale of luxury cars; and was also importing CBUs and were selling the same models as such in order to test the market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorized Representative for the assessee pointed out that the TPO had applied CUP method to benchmark payment of royalty by using rate of Maruti Udyog Ltd. and the said issue has been decided by earlier orders of Tribunal including the order of Tribunal in assessment year 2005-06, wherein the Revenue had raised this issue vide grounds of appeal No.2 and 3, which were dismissed. The issue in ground of appeal No.8 raised by assessee is the benefit of +/-5% range. 12. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 13. We have heard the rival contentions and perused the record. The first issue which is transfer pricing issue raised vide different grounds of appeal by assessee is similar to the issue raised in the case of assessee in assessment year 2005-06. The Tribunal in ITA No.1083/PUN/2013, cross appeal in ITA No.1110/PUN/2013 along with CO No.60/PUN/2014, relating to assessment year 2005-06, vide order dated 25.10.2018 had considered the factual aspects of the case first. The assessee was engaged in manufacture of luxury passenger cars and in order to sell the same, it was engaged in the manufacture of certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration the assessee was engaged only in manufacturing activity of C and E class brands of passenger cars. But in order to make available other brands available worldwide, to its customers in India and in the absence of manufacturing facility developed for such models, the assessee imports CBUs and resells the same to customers. The assessee has placed on record some models which were imported in the year under consideration are being manufactured by the assessee in later years, since the demand for such models had increased. In order to efficiently run its business, the assessee had adopted a methodology, under which the most popular models were being manufactured in India and in order to widen its customer base at par the requirement of customers or otherwise, the assessee was importing other models from its associated enterprises. Such import of CBUs and its resale was closely and interlinked to its basic activity of manufacture of passenger cars. Hence, the same has to be aggregated with import of raw materials and cannot be benchmarked independently. 33. The third segment was import of spare parts which were being imported from associated enterprises in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad applied TNNM method by selecting certain concerns as comparables. Though the TPO in show cause notice had proposed to reject five companies out of total 12 companies identified by assessee in its TP study report, but there are no final observations of TPO / TO in this regard. The same also was not necessitated because the TPO had applied RPM method. In such scenario, where the TPO has failed to look into the comparability aspect of margins of assessee with mean margins of comparables, we remit this issue back to the file of Assessing Officer / TPO to consider submissions of assessee in this regard and after applying aggregation approach, compute the margins of assessee company and compare it with mean margins of concerns which are functionally comparable to the assessee. The assessee shall cooperate and furnish the details and Assessing Officer shall decide the limited issue after affording reasonable opportunity of hearing to the assessee. The Assessing Officer shall pass consequent order applying transfer pricing provisions and determine arm's length price of international transactions undertaken by assessee. Consequently, grounds of appeal No.3 to 6 raised by assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. The ground of appeal No.1 is general and does not need any adjudication. 18. Now, that leave us ground of appeal No.6 i.e. adjustment made on account of royalty payment, wherein the TPO had applied CUP method by comparing with unit rate of Maruti Udyog Ltd. 19. The Tribunal in assessment year 2005-06 has also decided the said issue, which was raised by Revenue vide grounds of appeal No.2 and 3. The Tribunal in paras 55 to 60 at pages 39 to 41 have found no merit in the orders of TPO/Assessing Officer in applying CUP method and comparing the rate of royalty paid by assessee with the rate of royalty paid by Maruti Udyog Ltd. to Suzuki Motors Corporation, which was a controlled transaction. The Tribunal however, held that payment of royalty is to be benchmarked along with other transactions by applying TNMM method under the umbrella of manufacturing activity and the Assessing Officer was directed to include the said payment while applying transfer pricing provisions. The issue raised in the present appeal vide ground of appeal No.6 is identical and following the same parity of reasoning, we accordingly direct the Assessing Officer / TPO to include payment of royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lts in the cars, without which it was impossible to locate any faults / problems in the cars. Star Diagnostic was owned by the parent company of assessee i.e. Daimler AG and was provided to assessee for in-factory testing and for further providing it to dealers for after sales services. For this purpose, the assessee paid certain periodical rental charges to Daimler AG. The assessee recovered charges for usage of Star Diagnostic from its dealer and hence, net expenditure of ₹ 27,06,247/- was booked. The Assessing Officer disallowed the said expenditure as capital expenditure rejecting the plea of assessee that it was only allowed to use the said Star Diagnostic and no new capital asset had come into existence. The Assessing Officer was of the view that where the benefit of expenditure was available for longer period and life of tool was also long, then the same was to be capitalized. The DRP upheld the order of Assessing Officer, against which the Assessing Officer passed final assessment order. 24. The assessee is in appeal against aforesaid disallowance in its hands. 25. The learned Authorized Representative for the assessee pointed out that similar expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits to be allowed as revenue expenditure in the hands of assessee. We further find that similar expenditure has been claimed by assessee starting from assessment year 1999-2000 onwards. The expenditure has been allowed in the hands of assessee either by CIT(A) or DRP in earlier years and from assessment year 2008-09, no disallowance on this account has been made by Assessing Officer in the hands of assessee. In view thereof, following the consistency approach, we find no merit in the disallowance made in the hands of assessee. 28. Now, coming to assessment years 2007-08 and 2008-09, the learned Authorized Representative for the assessee pointed out that limited issue raised in two years is on account of transfer pricing adjustment made on account of sale of CBU units and sale of spare parts and by comparing the margins of CBU units with margins of spare parts. He fairly pointed out that no transfer pricing adjustment was made on account of royalty. However, royalty was held to be capital expenditure. 29. We have already decided the issue of transfer pricing adjustment in the hands of assessee and has directed the Assessing Officer/TPO to apply aggregate approach in b ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
