Itxa/1643/2016 Of The Pr. Commissioner Of Income Tax-4 Pune v. Vishay Components India Pvt Ltd

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1643 OF 2016 The Pr.Commissioner of Income Tax-4, Pune. … Appellant V/s. M/s Vishay Components India Pvt. Ltd.… Respondent --- Mr.Tejveer Singh for the Appellant.Mr.Nitesh Joshi with Ms.Jasmin Amalsadvala i/by M/s MINT &CONFRERES for the Respondent. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : FEBRUARY 18, 2019. P.C.:- 1.This Appeal under Section 260-A of the Income Tax Act,1961 (the Act), challenges the order dated 8[th] October, 2015passed by the Income Tax Appellate Tribunal (the Tribunal). ThisAppeal relates to Assessment Year 2005-06. 2.The Revenue urges the following question of law for ourconsideration: “Whether on the facts and in the circumstances ofthe case and in law, was the Tribunal right in directing Transfer Pricing Officer (TPO) to useTransactional Net Margin Method (TNM Method)to determine the Arms Length Price (ALP) of therespondent's International Transactions on theground that it is the most appropriate method as itis consistently accepted/adopted by the Revenue?” 3.The respondent is engaged in the manufacturing ofresistors and capacitors. The manufacturing facility of therespondent is divided into a Domestic Tariff Area Units (DTAunit) and Export Oriented Units (EOU). In its EOU the respondentmanufactured certain high end resistors which were exported toits Associated Enterprises (AE). During the year the respondentalso commenced providing Information Technology EnabledServices (ITES). In its Transfer Pricing study the respondent hadaggregated all its International Transactions and adopted theTNM method on the aggregated transactions by using profit levelindicator (PLI ) of operating margin over operating revenue at15.29% and 8.4% in its two segments. The respondent workedout the PLI of comparables at 9.31%. However, the TPO was ofthe view that aggregation of all the respondent's transactionswith its AE is not correct. Thus, the TPO applied the Resale Price 314 itxa 1643-16-o-s Method (RPM) for bench marking international transactionrelating to import of finished goods for resale and Cost PlusMethod (CPM ) for bench marking international transactions forexport of its finished goods to AE's. This resulted in transferpricing adjustment of Rs.4.84 crores as reflected in the finalAssessment Order dated 15[th] December, 2008. 4.Being aggrieved with the final order of Assessment dated15[th] December, 2008, the respondent preferred an appeal toCommissioner of Income Tax (Appeals) (CIT(A)). However, byorder dated 16[th] July, 2013, the CIT (A) dismissed the appeal onthe above issue. Thus, upheld the view of the TPO makingTransfer Pricing Adjustment not on the basis of aggregatedinternational transaction on application of TNM method but onapplication of RPM method for imports and CPM method forexports. 5.Being aggrieved the respondent filed a further appeal tothe Tribunal. In appeal the Tribunal in the impugned orderobserved the fact that the TNM method on the aggregated Priya Soparkar 414 itxa 1643-16-o-s international transaction has been consistently applied by theRevenue in determining the ALP of the respondent'sInternational Transactions with its AE's. It noted that theassessment year 2006-07 to assessment year 2008-09 the TPOhad adopted the TNM Method on the aggregated InternationalTransaction as the most appropriate method for benchmarkingthe respondent-assessee's international transactions. In fact inparagraph No.18 the impugned order, the Tribunal observed asunder: 5.Being aggrieved the respondent filed a further appeal tothe Tribunal. In appeal the Tribunal in the impugned orderobserved the fact that the TNM method on the aggregated Priya Soparkar 414 itxa 1643-16-o-s international transaction has been consistently applied by theRevenue in determining the ALP of the respondent'sInternational Transactions with its AE's. It noted that theassessment year 2006-07 to assessment year 2008-09 the TPOhad adopted the TNM Method on the aggregated InternationalTransaction as the most appropriate method for benchmarkingthe respondent-assessee's international transactions. In fact inparagraph No.18 the impugned order, the Tribunal observed asunder: “18. The case of the assessee before us isthat in view of the above said facts andcircumstances, there was no merit indeviating from the TNM Method applied bythe assessee to benchmark its internationaltransactions with its associate enterprises onaggregate basis. Undoubtedly, the doctrineof res judicata is not applicable to the taxproceedings, but at the same time, wherethere is no change in the facts in respect of aparticular transaction and/or issue orproceedings, then it is the requirement of lawthat consistency should be maintained andthe methodolgy adopted by the assessee forbenchmarking its international transactionsshould not be disturbed. Where the Revenuefrom year to year has accepted the methodadopted by the assessee for benchmarking itsinternational transactions with its associateenterprises, in the absence of any reasonsbrought on record, there is no merit in deviating or taking stand contrary to thestand accepted in both the preceding andsucceeding years, while benchmarking theinternational transactions in the hands of theassessee. In the absence of TPO or CIT (A)having been able to demonstrate as to howthe facts of the present year are different fromthe facts of other years, which were beforethe authorities, there is no justification fortaking a different stand. The assessee hastime and again explained the reasons why ithad adopted the TNMM method and had alsoexplained the difference between the exportsmade to the associate enterprises and non-associate enterprises and also sales made inthe domestic market. The assessee has alsoexplained the functional risks which aredifferent for both the segments andconsequently, no comparison could be madeon the gross profit level, as adopted by theTPO for benchmarking internationaltransactions of the assessee with itsassociated enterprises. The explanations ofthe assessee have been rejected by theTPO/CIT(A) without any basis, whereinsimilar explanation has been accepted by theTPO itself in all the other years. The conductof the business and the productsmanufactured are identical in the year underconsideration, when compared to the otheryears i.e. assessment years 2006-07, 2007-08 and 2008-09. In the entirety of the abovesaid facts and circumstances, we are of theview that the adoption of TNMM methodwas the most appropriate method forbenchmarking international transactions withits associate enterprises and we find no meritin the order of Assessing Officer in adoptingRPM/CPM method to benchmark the Priya Soparkar international transactions with its associateenterprises. We hold that the TNMM methodshould be applied on aggregate basis forbenchmarking international transactions ofthe assessee.” It was on the above basis that the Tribunal held that the TNM method on the aggregated international transactions is mostappropriate to benchmark the respondent-assessee's internationaltransaction with its AE's to determine its ALP. 6.Mr. Tejveer Singh, learned counsel appearing in support ofthe appeal submits that: (i)It was for the respondent to establish the facts in the Priya Soparkar international transactions with its associateenterprises. We hold that the TNMM methodshould be applied on aggregate basis forbenchmarking international transactions ofthe assessee.” It was on the above basis that the Tribunal held that the TNM method on the aggregated international transactions is mostappropriate to benchmark the respondent-assessee's internationaltransaction with its AE's to determine its ALP. 6.Mr. Tejveer Singh, learned counsel appearing in support ofthe appeal submits that: (i)It was for the respondent to establish the facts in the present case were identical/similar to the facts for the otherAssessment Years, warranting the same view in this Assessmentyear as in the other years. Therefore, no fault on the part of theRevenue, in deciding the ALP for the subject Assessment Yearon application of RPM and CPM methods and not on TNMmethod. (ii)The Revenue had pointed out that the comparables are notfunctionally similar. Thus, warranting a different view; and (iii)The reliance placed in the impugned order on the decision 714 itxa 1643-16-o-s of its co-ordinate bench in the case of John Deere India (P) Ltd.Vs. DCIT reported in ITA No.1476/PN/2010 decided on 20[th]February, 2015 has been challenged by the Revenue before thisCourt in Income Tax Appeal No.1372 of 2015 and the same hasbeen admitted on 1[st] August, 2018. Therefore, this appeal alsorequires admission. 7.Mr.Joshi, learned counsel opposing the appeal supports theimpugned order and submits that no interference is warranted. Itis further pointed out that TPO has accepted the TNM methodthe most appropriate method in determining ALP of therespondent's transaction with its AE's till the assessment year2015-16. Further, the objection before the revenue has beendealt with by the Tribunal and on examination of the record it hasbeen found that no material difference has been shown for theassessment years 2006-07 and 2008-09 to that existing in thesubject assessment year. 8.We have considered rival submissions. We note that theRevenue has been accepting the TNM method as most proper Priya Soparkar 814 itxa 1643-16-o-s method for benchmarking the aggregated internationaltransactions with AE's over the period of time. The same hasbeen accepted by the Revenue on examination of the issue. It isfound that the TPO had for the other years on same facts hasaccepted the fact that there was no difference in two segmentsinvolved for transfer pricing. Thus, consistently accepting theTNM method as the most appropriate method to determine theALP of the respondent's aggregated International Transaction tillAssessment Year 2015-16. The Revenue has not been able toshow any material difference in the subject assessment yearwhich would justify a change in the most appropriate method(TNM method) adopted while benchmarking the internationaltransactions. So far as the order dated 1[st] August, 2018 of thisCourt in case of John Deere India (P) Ltd. (supra) admitting theappeal of the Revenue is correct, we find that it has not beenadmitted on the question which arises in the present petition,i.e. the effect of the Revenue consistently accepting TNM Methodas the most appropriate method for benchmarking internationaltransactions with AE's in the absence of any material change ofthe facts or law. This is not the issue on which the appeal of the 914 itxa 1643-16-o-s 914 itxa 1643-16-o-s revenue has been admitted by the Court in the case of JohnDeere India (P) Ltd. (supra). Therefore, it will have noapplication to the present facts. The objection to rejection ofcomparables taken by the Revenue before us, does not addressthe issue of the most appropriate method for benchmarking itsinternational transaction. We are also unable to understand thecontention on behalf of the Revenue that it is for the respondentto prove that there is no change/ difference in facts in the subjectAssessment Year from the subsequent Assessment Years. WhereTNM method is accepted to determine the ALP of internationaltransaction. Infact, no change in facts has been asserted by therespondent. Therefore, it would be for the Revenue to show thedifference in facts warranting a different view in this AssessmentYear to that taken in the subsequent Assessment Years. We haveherein above extracted paragraph 18 of the impugned order ofthe Tribunal and on its reading we are of the view that the sameis a finding of fact based on appreciation of evidence. Thus, nointerference is warranted. Priya Soparkar give rise to any substantial question of law. Thus, not entertained. 10.Accordingly, appeal dismissed. No order as to costs. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.) ….