Emerson Process Management Power & ... vs Assessee

Emerson Process Management Vs. ACIT, Ward 18(3) Power & Water Solutions India New Delhi Pvt. Ltd., Windsor IT Park, Tower A, Ground & 1st Floor, A-I, Sector 125, Noida-201301

(PAN AAACW 2693 N)

(Appellant) (Respondent) Date of hearing : 25.03.2015 Date of Pronouncement : 26.03.2015

Appellant by : Sri Kapil Goel, Advocate Respondent by: Shri J. James, Standing Counsel DR.

ORDER

PER SHRI GEORGE GEORGE K, JM:

1. This appeal, at the instance of the assessee, is directed against the CIT(A)'s

order dated 29.04.2010. The relevant assessment year is AY 2002-03.

2. The grounds raised reads as follows:-

"1. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in not deleting the addition amounting to Rs 574,398 as made by Ld AO (as also Ld TPO), on account of adjustment in arm's length price (ALP).

2. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in not deleting the addition amounting to Rs 574,398 as made by Ld AO (as also Ld TPO), by disregarding the aggregation of marketing ITA No.3264/Del /2010 2

'services provided by appellant to group company with the technical services rendered by the appellant to group companies.

3. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in not deleting the addition amounting to Rs 574,398 as made by Ld AO (as also Ld TPO) by ignoring the provisions of Rule 10B(2) and considering an improper set of comparables without taking into account comparability factors listed therein.

4. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in not deleting the addition amounting to Rs 574,398 as made by Ld AO (as also Ld TPO) in omitting to allow for a variation/reduction of 5% from arithmetic mean to 'arrive at ALP, as per provisions of proviso to section 92C(2) of the Act."

3. The assessee is a company. For the relevant year, return of income was filed

disclosing a taxable income of Rs.1,64,160/-. The assessment was taken up for

scrutiny by issuance of notice u/s 143(2) of the Act. The scrutiny assessment was

concluded u/s 143(3) of the Act vide order dated 28.03.2005, determining the total

income at Rs.32,14,630/- as against the return of income at Rs.1,64,160/-. In the

assessment so completed, the following addition/disallowances were made:-

(i) Income enhanced as per order passed by the Transfer Pricing Officer-II vide order passed under section 92CA(3) of the Act: Rs.5,74,398/-

(ii) Disallowance under section 37(1) being:

Expenditure in relation software Rs.19,40,409/- Less: depreciation allowed on the same Rs.11,64,245/- Rs.7,76,164/-

(iii) Disallowance under section 37(1) being:

Leasehold improvements Rs.16,99,910/-

4. Aggrieved by the addition/disallowances, the assessee preferred an appeal to

the First Appellate Authority. The CIT(A) confirmed the addition made by the TPO

to the arm's length price in respect of the international transactions entered by the

assessee with its AE.

ITA No.3264/Del /2010 3

5. Aggrieved by the CIT(A)'s order in confirming the TPO's order in making

adjustment to the Arm's length price of the International transactions, the assessee

has preferred the present appeal before us.

6. Ld. counsel for the assessee submitted that the CIT(A) has passed very

cryptic order without considering submissions of the assessee company. It was

submitted that the adjustment made to the arm's length price was challenged on

various grounds namely,

(i) the TPO has disregarded the aggregation of marketing services with the technical services.

(ii) considering improper set of comparable companies in respect of marketing services.

(iii) to allow reduction of 5 percent from arithmetic mean to arrive at the arm's length price, as per provisions of proviso of Section 92C(2) of the Act.

7. It was prayed that the CIT(A) having not considered the submissions of the

assessee, the case may be restored to the CIT(A) for de novo consideration.

8. The Ld. DR present was duly heard. He fairly submitted that the matters

needs to be restored by the CIT(A) for fresh consideration.

9. We have heard rival submissions and perused the material on record. The

TPO vide order dated 16.03.2005 u/s 92CA(3) determined the arm's length price in

respect of the international transactions entered by the assessee with its AE, namely,

Fisher Rosemount Singapore Pvt. Ltd. (now known as Emerson Process

Management Asia Pacific Pvt. Ltd.) at Rs.43,53,026/-, instead of the book value of ITA No.3264/Del /2010 4

the transactions shown by the assessee at Rs.37,78,628/-. The TPO thereby made an

upward adjustment of Rs.6,29,291/-( 15,84,455/-- 9,55,164/-).

10. On appeal, the CIT(A) after reproducing the submission of the assessee at

para 4.5 of the impugned order, confirmed the adjustment made to the arm's length

price. The relevant finding of the CIT(A) on the same reads as follows:-

"4.6 I have considered the above submission of the appellant and the comments of the AO. I am of the view that, in order to arrive at most precise approximation of fair market value the arm's length principle should be applied on transaction to transaction basis. Thus the AO correctly segregated marketing services from other services being rendered by the appellant for analysis to arrive at their arm's length price. Also the AO has selected the comparable companies for marketing activity of the appellant from the comparable companies identified by the appellant itself. This was done by selecting the companies which were engaged in rendering marketing services out of the comparable companies identified by the appellant.

On the issue of providing marginal relief of +5%, I agree with the TPO that since the variation being 13.2% exceeds the maximum permissible limit, no relief can be granted. Therefore the above ground fails."

11. From the above finding of the CIT(A), it is clear that the CIT(A) has not

elaborately considered the submissions of the assessee nor given a proper reasoning

for his conclusions. The order of the CIT(A) being non speaking order, we deem it

appropriate, in the interest of justice and equity to restore the issue to the files of the

CIT(A) for de novo consideration. It is ordered accordingly.

12. In the result, appeal filed by the assessee is allowed for statistical purposes.

The decision was pronounced in the open Court on 26th March, 2015.

Sd/- Sd/- (J.S. REDDY) (GEORGE GEORGE K.) Accountant Member Judicial Member

Dated: 26th March, 2015. Aks/- ITA No.3264/Del /2010 5

Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi