2021 (1) TMI 1290 - AT - Income Tax

TP Adjustment - Comparable selection - inclusion of CTR Manufacturing Industries Ltd. - HELD THAT - As assessee has shown the revenue operations up to 60% to 70% from the sale of capacitors and resistors whereas there was no segmental information about manufacturing as well as sale of capacitors and resistors in the annual statement of CTR Manufacturing Industries Ltd. Therefore, in our view CTR Manufacturing Industries Ltd. cannot be a comparable to that of assessee. Hence, it should be excluded from the comparables. Therefore, we direct the AO to exclude the CTR Manufacturing Industries Ltd. from the final list of comparables in the category of manufacturing segments. I.T. Enabled Services/Back Office Support Services Segment - Comparability of certain companies in the Back Office Support Segment, this Tribunal remanded the matter to the file of AO/TPO to ascertain the precise nature of services rendered by the assessee under ITES and to examine the comparability or otherwise of the companies challenged in this segment in A.Y. 2010-11.In the light of the above, the AO is directed to ascertain the nature of services rendered by the assessee and examine the comparability of the companies indicated therein. Accordingly, this issue is remanded the file of AO/TPO for fresh examination. The assessee is liberty to file evidences, if any, in support of its claim. TDS u/s 195 - Disallowance u/s. 40(a)(i) - assessee for convenience Vishay India hereafter paid an amount to its Associated Enterprise (AE) i.e. Vishay Intertechnology Asia Pte Ltd., Singapore - HELD THAT - Tribunal in assessee s own case for A.Y. 2012-13 2019 (9) TMI 1683 - ITAT PUNE wherein the issue on hand discussed by this Tribunal, wherein we note that the assessee availed similar services from its holding company in USA for which the Vishay Singapore paid the said amount on behalf of other entities situated worldwide and charged without no markup from the assessee as well as from other entities. No disallowance was made in this regard by the respondent authorities in the earlier years. The Tribunal examined the final assessment orders/TPO s orders of earlier years along with the necessary documentation filed by the assessee therein and held the reimbursement of expenses for leaseline are not in the realm of royalty and section 9 of the Act or Article 12 of DTAA is attracted. The Tribunal further placed reliance in the case of John Deere India Pvt. Ltd 2019 (3) TMI 458 - ITAT PUNE wherein the similar issue was raised and held that the payment made for such leaseline charges was not royalty under DTAA and no obligation to deduct tax at source. Thus the disallowance as confirmed by the AO in accordance with the directions of DRP is not justified and accordingly, deleted. Thus, the assessee ground succeeds and it is allowed.

Issues Involved:
1. Inclusion of CTR Manufacturing Industries Ltd. as a comparable.
2. Exclusion of Gujarat Poly Avx Electronics Limited as a comparable.
3. Disallowance under Section 40(a)(i) of the Income Tax Act for non-deduction of tax.
4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Inclusion of CTR Manufacturing Industries Ltd. as a Comparable:
The assessee challenged the inclusion of CTR Manufacturing Industries Ltd. as a comparable. The Tribunal noted that CTR Manufacturing Industries Ltd. primarily engages in the manufacturing of transformer ancillary products and plastic film capacitors, with no segmental information about the manufacturing and sale of capacitors and resistors, unlike the assessee. The Tribunal referenced its own decision in the assessee’s case for A.Y. 2010-11, where CTR Manufacturing Industries Ltd. was deemed not comparable. Consequently, the Tribunal directed the AO to exclude CTR Manufacturing Industries Ltd. from the final list of comparables in the manufacturing segment.

2. Exclusion of Gujarat Poly Avx Electronics Limited as a Comparable:
The assessee chose not to pursue the inclusion of Gujarat Poly Avx Electronics Limited if CTR Manufacturing Industries Ltd. was excluded. Since the Tribunal decided to exclude CTR Manufacturing Industries Ltd., the adjudication of the inclusion of Gujarat Poly Avx Electronics Limited was deemed unwarranted.

3. Disallowance under Section 40(a)(i) of the Income Tax Act:
The AO disallowed Rs.6,47,15,145/- under Section 40(a)(i) for non-deduction of tax on payments made to Vishay Intertechnology Asia Pte Ltd., Singapore. The assessee argued that the payments were reimbursements for leased line charges and other IT-related costs, which were not taxable in India and thus did not require TDS. The AO, supported by the DRP, treated the payments as royalties under Section 9 and Article 12 of the DTAA between India and Singapore, citing consistency with previous years' assessments.

The Tribunal referenced its decision in the assessee’s case for A.Y. 2012-13, where similar payments were not considered royalties and no TDS was required. The Tribunal concluded that the facts for A.Y. 2014-15 were identical to those of A.Y. 2012-13, and thus, the disallowance under Section 40(a)(i) was not justified. The Tribunal deleted the disallowance.

4. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:
The assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal deemed the challenge premature at this stage and dismissed this ground of appeal.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal directed the exclusion of CTR Manufacturing Industries Ltd. from the list of comparables and deleted the disallowance under Section 40(a)(i). The challenge to the initiation of penalty proceedings was dismissed as premature. The order was pronounced in the open court on 19th January 2021.

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