9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (6) TMI 208 - AT - Income TaxTransfer pricing adjustment - existence of associate enterprises - connection between the two concerns by way of management, control or capital in either of two enterprises - Held that - The assessee had entered into a purchase agreement with Cummins for the supply of Shroud Plates in August, 2005. The perusal of terms of the agreement reflects the understanding between the assessee with its purchaser Cummins for the supply of goods within time frame and the pricing of said goods. The pricing has been fixed as per mutual understanding of the parties and further, there was a clause to negotiate the price in the event of any engineering changes. In this regard, the assessee has stressed that in assessment year 2007-08, when there was design change made by Cummins, the additional cost for the same was reimbursed by it by way of one time additional cost settlement. Much emphasis has been laid on clause 4.7 of the said agreement, under which it was agreed upon that the supplier i.e. assessee had to offer goods at competitive market rates and in case an alternate supplier was found, who offers more competitive cost, then the assessee would get 30 days time to respond to the competitive threat and in case, the assessee is unable to meet the competitive threat and then, mutually acceptable phase out would be negotiated between the parties. The aforesaid clause agreed upon between the parties is used by the authorities below to imply that Cummins regulates the price at which the goods have to be sold and hence, it fulfills the conditions of deemed AE as provided in section 92A(2)(i) of the Act. We find no merit in the said stand of revenue authorities, where the understanding between the parties is for the purpose of carrying on the business at competitive rates and where there is an alternate provided in the purchase agreement to determine the cost of goods, the same does not lead to the conclusion that the price is controlled by purchaser. In any case, the total exports of the assessee to Cummins constitute 18.76% of the total turnover and the extent of exports cannot be held to influence the price of assessee s goods. The TPO while starting the TP proceedings had observed that the assessee has shown total earning in foreign currency at ₹ 9.40 crores, against which the export sales made to Cummins were to the tune of ₹ 9.33 crores. However, in view of the entirety of the facts, where the exports to Cummins constitute about 18.76% of the total export turnover, we find no merit in the stand taken by the Revenue authorities. In the present case the total turnover of the assessee was ₹ 48.45 crores. However, Cummins Turbo Technologies, USA was a subsidiary of Cummins INC, USA, which is a Multinational Fortune 500 Companies, whose turnover of Turbo chargers was close to about ₹ 3500 crores. In the entirety of the above said facts and circumstances, we hold that since both the enterprises have not fulfilled the conditions laid down in section 92A(1) of the Act and where there is no connection whatsoever by way of participation in management or control or capital by the entities or its subsidiaries, either directly or indirectly the assessee and Cummins cannot be said to be associate enterprises in order to apply the provisions of Chapter X of the Act. In the absence of assessee having entered into any international transactions with any associate enterprises, there is no requirement for making a reference to the TPO in the present facts of the case. Accordingly, reference made by the Assessing Officer though with the prior permission of CIT-III, Pune is not justified since the assessment to be completed in the hands of assessee was a normal assessment, hence the assessment order should have been passed by 31.12.2010. However, the present assessment order having been passed on 30.12.2011 is barred by limitation and is invalid. Before parting, we would like to clarify herein that admittedly, in case the two concerns satisfy the conditions of section 92A(1) of the Act to be deemed associate enterprises of each other, then on fulfillment of such preliminary conditions, the Assessing Officer has the power on prima facie satisfaction that the international transaction between two such enterprises is required to be benchmarked, can make a reference to the TPO, but the first condition to be satisfied is whether the connection between the two concerns by way of management, control or capital in either of two enterprises makes them associate enterprises. In the absence of such finding, the reference made by the Assessing Officer to the TPO even with prior permission of the concerned CIT would not justify the action of Assessing Officer in this regard. Accordingly, we hold so. Consequently, the addition made in the hands of assessee does not stand. Apportionment of ₹ 3 lakhs out of administrative expenses to the EOU unit does not survive in view of our holding the assessment order passed to be beyond limitation. - Decided in favour of assessee.
Issues Involved:
1. Validity of the assessment order dated 30.12.2011. 2. Validity of the reference to the Transfer Pricing Officer (TPO). 3. Deduction under section 80IA(5) of the Income-tax Act, 1961. 4. Apportionment of administrative expenses to the EOU unit. 5. Disallowance under section 14A read with Rule 8D. Issue-wise Detailed Analysis: 1. Validity of the Assessment Order Dated 30.12.2011: The assessee argued that the assessment order dated 30.12.2011 was barred by limitation. The CIT(A) held that the reference to the TPO was valid, and thus, the time limit for completion of the assessment was extended to 31.12.2011. The Tribunal found that the assessment should have been completed by 31.12.2010 since the assessee did not have an Associated Enterprise (AE) and no international transactions were carried out. Consequently, the assessment order dated 30.12.2011 was held to be invalid and barred by limitation. 2. Validity of the Reference to the Transfer Pricing Officer (TPO): The CIT(A) justified the reference to the TPO based on the agreement between the assessee and Cummins Turbo Technologies, USA, considering Cummins as a deemed AE under section 92A(2)(i) of the Act. However, the Tribunal found that the assessee and Cummins did not fulfill the conditions laid down in section 92A(1) of the Act to be considered as associate enterprises. Therefore, the reference to the TPO was not justified, and the assessment should have been completed by 31.12.2010. 3. Deduction Under Section 80IA(5) of the Income-tax Act, 1961: The Revenue's appeals challenged the deduction claimed under section 80IA(5) by the assessee for profits from windmill operations. The Tribunal upheld the CIT(A)'s decision that the assessee had the option to pick the initial assessment year and only the losses from the initial assessment year were to be carried forward, not the losses of earlier years. The Tribunal dismissed the Revenue's appeals, citing the CBDT Circular No.1/2016 and the precedent set by the Pune Bench of the Tribunal. 4. Apportionment of Administrative Expenses to the EOU Unit: The assessee challenged the apportionment of ?3 lakhs out of administrative expenses to the EOU unit. However, this issue did not survive as the Tribunal held the assessment order to be beyond limitation. 5. Disallowance Under Section 14A Read with Rule 8D: The assessee's appeal included a challenge to the disallowance of ?1,07,837/- under section 14A read with Rule 8D. However, this ground was not pressed by the assessee and was dismissed as not pressed. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeal. The assessment order dated 30.12.2011 was held to be invalid and barred by limitation. The reference to the TPO was not justified as there was no AE involved. The deduction under section 80IA(5) was upheld in favor of the assessee, and the apportionment of administrative expenses issue did not survive. The disallowance under section 14A was dismissed as not pressed.
|
