Ksb Pumps Ltd, Mumbai vs Department Of Income Tax

28th Floor, Centre-1, बनाम 126, Maker Chambers-III, बनाम/ World Trade Centre, Nariman Point, Cuffe Parade, Vs. Mumbai-400021 Mumbai-400005 (राजःव /Revenue) (िनधा()रती /Assessee) P.A. No.AAACT2724P

राजःव क+ ओर से / Revenue by Smt. N. Padmanaban-DR िनधा()रती क+ ओर से / Assessee by): Shri Jitendra Sanghavi

सुनवाई क+ तार-ख / 22/01/2015 Date of Hearing : घोषणा क+ तार-ख / 22/01/2015 Date of Pronouncement : आदे श क+ तार-ख / Date of Order: 28/01/2015

आदे श / O R D E R

PER JOGINDER SINGH (Judicial Member):

The Revenue is aggrieved by the impugned order dated 01/12/2010 of the ld. First Appellate Authority, Mumbai.

2. The first ground raised by the Revenue pertains to deleting the additions made on account of transfer pricing adjustment, being commission payment to KSB Amri (Asia Pacific) pte. Ltd. (M/s KSB Singapore). At 2 M/s KSB Pumps Ltd

the time of hearing, the ld. counsel for the assessee, Shri Jitendra Sanghavi, at the outset, pointed out that the impugned issue is covered by the decision dated 08/08/2013 of the Tribunal in the case of assessee itself. This factual matrix was not controverted by Shri N. Padmanaban, ld. DR.

2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order dated 08/08/2013 for ready reference:-

"12. We have heard both parties and their contentions have carefully been considered. We have carefully gone through TP report field by the assessee which has been made the basis for claiming that all the 14 international transactions of the assessee are at ALP. These transactions have been listed in the order of TPO and for the sake of convenience are reproduced below:

S. NO. Nature of Transaction Amount(Rs.) 1 Purchases 2,81,48,911

a) Purchase of finished goods for trading

b) Purchase of components

2. Export Sales to AE 20,10,53,203/-

3. Income from services received 1,19,52,815/-

4. Commission income (Received) 1,91,38,200/-

5. Order cancellation charges (Received) 1,02,125/-

6. Total Charges received 84,600/-

7. Reimbursement of expenses (actual) 26,66,790/-

8. Commission Paid 3,18,03,660/-

9. Royalty paid 2,00,74,971/-

10. Technical know-how acquired 7,59,248/- 11 Payments for technical and other services 12,18,578/-

12. Testing charges paid 11,26,574/-

13. Expenses repaid 4,614/-

14. Warranty charges paid 55,10,500/-

15. Total 32,36,44,644/-

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Each of the above mentioned international transactions has not been separately considered in the TP report and basis has been adopted as TNMM. As per section 92 of the Act any income arising from an international transaction shall be computed having regard to "ALP". As per section 92C the ALP in relation to an international transaction shall be determined by any of the following methods, being most appropriate method, having regard to the nature of transactions or class of transaction, or class of associate business or functions performed by such persons or such other relevant factors described by the Board; (a) Comparable Uncontrolled Price method(CUP); (b) Resale Price method; (d) Cost plus method; (d) Profit Split method; (e) Transaction Net Margin Method(TNMM); such other method as may be described by the Board." As it can be seen from the above list of international transactions that none of the international transactions match to each other. Therefore, it cannot be said that a common method will be sufficient to compute the ALP as firstly it has to be determined that which method will be appropriate method to compute the ALP of an international transaction.

There is no dispute with regard to other international transactions which have been accepted by the TPO. The dispute is only in respect of commission payment. It is the case of the assessee that TNMM should be applied and it is the case of the revenue that CUP method is appropriate method. Rule 10B(1) describes that for the purpose of sub-section(2) of section 92C, the ALP in relation to an international transaction shall be determined by any of the methods which have already been described in the above part of this order being most appropriate method in the following manner. Sub- clause (a) described CUP method which read as under: (a) comparable uncontrolled price method, by which,- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international 4 M/s KSB Pumps Ltd

transaction; Clause (e) describe TNMM method which is as under:

(e) transactional net margin method, by which,-

(i) the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base;

(ii) the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base;

(iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;

(iv) the net profit margin realized by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii);

(v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction; "

12.1. If we see the mode of computation provided under both these methods for computing ALP in respect of commission the most appropriate method will be comparable uncontrolled price method as the commission is paid by the assessee in respect of services provided by its AE. TNMM method is most appropriate method in the cases where sale and purchase is involved. Therefore, in our opinion the most appropriate method to compute ALP in respect of commission paid by the assessee is CUP method. However, the way in which TPO has applied CUP method is not appropriate. The AO

5 M/s KSB Pumps Ltd

has relied upon the internal transactions for arriving at a conclusion that the commission paid by the assessee is on higher side. Such opinion has been formed by TPO without giving any finding that whether or not any outside comparison is available in similar type of transactions. Such course can be adopted only in the circumstances where it is found that outside comparison is not available. In this view of the situation, we are of the opinion that the matter should be restored back to the file of AO with a direction to provide the assessee a reasonable opportunity to support its case in respect of ALP of commission payment. The assessee may file fresh TP study for this transaction and if the assessee does not desire to do so then the AO at his discretion given in the provisions of law may refer the same to TPO and this issue has to be re-adjudicated in this manner afresh. We direct accordingly. In the result, the aforementioned grounds are allowed for statistical purposes." In view of the above, on identical reasoning, we direct the TPO to re-adjudicate the matter afresh, as discussed hereinabove, thus, this ground of the Revenue is allowed for statistical purposes.

3. The next ground pertains to deleting the additions made on account of difference between sales tax loan liability and actual payment, therefore, at the discounted rate under the scheme announced by Maharashtra Government. This ground was also claimed to be covered by the decision from Hon'ble Bombay High Court in CIT vs M/s KBS Pumps Ltd. (ITA No.909 of 2012). This factual matrix was also consented to be correct by the ld. DR.

3.1. We have considered the rival submissions and perused the material available on record. In view of the 6 M/s KSB Pumps Ltd

above, we are reproducing hereunder the relevant portion from the aforesaid order 5th December, 2014.

"52. We are of the opinion that the Revenue' agreement really misses the point. The incentive to establish a unit or factory in a industrially backward or hilly area is the core of the Sales Tax Deferral Scheme. Some time has to be given to the unit to establish itself before it starts giving corresponding benefit to the state. That opportunity is granted by deferring the remittance of the Sales Tax collected by the unit like the assessee. In that regard, we have perused the compilation of admitted documents placed on record by Shri. Dastur. From a perusal thereof, it is apparent that the Government Resolution dated 4th May, 1983 evolves a package of incentives to disperse the industries from Bombay-Thane-Pune belt and to attract them to underdeveloped and developing areas of the State of Maharashtra. This package evolves several measures to achieve this object. Then, there is a New Package Scheme of incentives, 1988. Both schemes have clauses and paras containing Sales Tax Deferral incentives. To carry this object further and also to achieve the purpose of early remittance of deferred Sales Tax collected by the units availing of the Schemes, the statutory option was incorporated in section 38 by substituting the 4th proviso to sub-section 4 of section 38 of the Bombay Sales Tax Act, 1959. That is informed by the Trade Circular dated 12th December, 2002 issued by the Commissioner of Sales Tax, Maharashtra. A combined reading of the Schemes

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and this Circular reveals the legislative intent as noted above. In such circumstances, a proper understanding of all this by the Tribunal cannot be termed as perverse. The view taken by it is imminently possible. Once this conclusion is reached, the other judgments cited by the Revenue are obviously distinguishable and on facts.

53. As a result of the above discussion, we find that the questions of law formulated by us and termed as substantial will have to be answered in favour of the assessee and against the Revenue. Those are answered accordingly. The appeals are dismissed. Insofar as Income Tax Appeal No.909 of 2012 is concerned, at page 4 of the paper book in that appeal, two additional questions in para 4(B) and 4(c) are termed as substantial questions of law. However, the Counsel appearing for the parties conceded that questions (B) and (C) are covered by two judgments noted by the Tribunal, namely, in the case of Associated Capsules Pvt. Ltd. vs Deputy Commissioner of Income Tax and Anr. Reported in (2011) 332 ITR 42 (BOM) and Commissioner of Income Tax vs vs Saumya Finance and Leasing Company Pvt. Ltd. reported in (2008) 300 ITR 422 (Bom). These are judgments which are rendered in favour of the Assessee bythis court and against the Revenue. Therefore, the additional questions also cannot be termed as substantial question of law. That appeal is also dismissed accordingly. However, in the facts and circumstances, there would be no order as to costs."

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3.2. In view of the above, respectfully following the Hon'ble jurisdictional High Court, we find no merit in this ground of the Revenue, consequently, dismissed.

Finally, the appeal of the Revenue is partly allowed for statistical purposes.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 28/01/2015.

आदे श क+ घोषणा 2दनांकः 28/01/2015 को क+ गई ।

Sd/- Sd/- (N.K.Billaiya) (Joginder Singh) लेखा सदःय / ACCOUNTANT MEMBER याियक सदःय / JUDICIAL MEMBER

मुंबई Mumbai; 2दनांक Dated : 28/01/2015 f{x~{tÜ? P.S/.िन.स.

आदे श क+ ूितिल प अमे षत/Copy षत of the Order forwarded to :

1. अपीलाथ= / The Appellant

2. ू>यथ= / The Respondent.

3. आयकर आयु?(अपील) / The CIT, Mumbai.

4. आयकर आयु? / CIT(A)- , Mumbai

5. वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड( फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स>या पत ूित //True Copy//

उप/ उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण, मुब ं ई / ITAT, Mumbai