The Pr.Commissioner of Income-tax­-4, Pune v. Vishay Components India Pvt. Ltd
[Citation -2019-LL-0218-58]

Citation 2019-LL-0218-58
Appellant Name The Pr.Commissioner of Income-tax­-4, Pune
Respondent Name Vishay Components India Pvt. Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 18/02/2019
Assessment Year 2005-06
Judgment View Judgment
Keyword Tags transactional net margin method • transfer pricing adjustment • international transaction • rejection of comparables • most appropriate method • profit level indicator • operating margin • cost plus method • alp
Bot Summary: The Revenue urges the following question of law for our consideration: Whether on the facts and in the circumstances of the case and in law, was the Tribunal right in ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 2 14 itxa 1643 16 o s directing Transfer Pricing Officer to use Transactional Net Margin Method to determine the Arms Length Price of the respondent's International Transactions on the ground that it is the most appropriate method as it is consistently accepted/adopted by the Revenue 3. In its Transfer Pricing study the respondent had aggregated all its International Transactions and adopted the TNM method on the aggregated transactions by using profit level indicator of operating margin over operating revenue at 15.29 and 8.4 in its two segments. In appeal the Tribunal in the impugned order observed the fact that the TNM method on the aggregated ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 4 14 itxa 1643 16 o s international transaction has been consistently applied by the Revenue in determining the ALP of the respondent's International Transactions with its AE's. Where the Revenue from year to year has accepted the method adopted by the assessee for benchmarking its international transactions with its associate enterprises, in the absence of any reasons brought on record, there is no merit in ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 5 14 itxa 1643 16 o s deviating or taking stand contrary to the stand accepted in both the preceding and succeeding years, while benchmarking the international transactions in the hands of the assessee. In the entirety of the above said facts and circumstances, we are of the view that the adoption of TNMM method was the most appropriate method for benchmarking international transactions with its associate enterprises and we find no merit in the order of Assessing Officer in adopting RPM/CPM method to benchmark the ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 6 14 itxa 1643 16 o s international transactions with its associate enterprises. No fault on the part of the Revenue, in deciding the ALP for the subject Assessment Year on application of RPM and CPM methods and not on TNM method. So far as the order dated 1 st August, 2018 of this Court in case of John Deere India Ltd. admitting the appeal of the Revenue is correct, we find that it has not been admitted on the question which arises in the present petition, i.e. the effect of the Revenue consistently accepting TNM Method as the most appropriate method for benchmarking international transactions with AE's in the absence of any material change of the facts or law.


Priya Soparkar 1 14 itxa 1643 16 o s IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1643 OF 2016 Pr.Commissioner of Income Tax 4, Pune. Appellant V/s. M/s Vishay Components India Pvt. Ltd. Respondent Mr.Tejveer Singh for Appellant. Mr.Nitesh Joshi with Ms.Jasmin Amalsadvala i/by M/s MINT & CONFRERES for Respondent. CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : FEBRUARY 18, 2019. P.C.: 1. This Appeal under Section 260 of Income Tax Act, 1961 (the Act), challenges order dated 8 th October, 2015 passed by Income Tax Appellate Tribunal (the Tribunal). This Appeal relates to Assessment Year 2005 06. 2. Revenue urges following question of law for our consideration: Whether on facts and in circumstances of case and in law, was Tribunal right in ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 2 14 itxa 1643 16 o s directing Transfer Pricing Officer (TPO) to use Transactional Net Margin Method (TNM Method) to determine Arms Length Price (ALP) of respondent's International Transactions on ground that it is most appropriate method as it is consistently accepted/adopted by Revenue? 3. respondent is engaged in manufacturing of resistors and capacitors. manufacturing facility of respondent is divided into Domestic Tariff Area Units (DTA unit) and Export Oriented Units (EOU). In its EOU respondent manufactured certain high end resistors which were exported to its Associated Enterprises (AE). During year respondent also commenced providing Information Technology Enabled Services (ITES). In its Transfer Pricing study respondent had aggregated all its International Transactions and adopted TNM method on aggregated transactions by using profit level indicator (PLI ) of operating margin over operating revenue at 15.29% and 8.4% in its two segments. respondent worked out PLI of comparables at 9.31%. However, TPO was of view that aggregation of all respondent's transactions with its AE is not correct. Thus, TPO applied Resale Price ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 3 14 itxa 1643 16 o s Method (RPM) for bench marking international transaction relating to import of finished goods for resale and Cost Plus Method (CPM ) for bench marking international transactions for export of its finished goods to AE's. This resulted in transfer pricing adjustment of Rs.4.84 crores as reflected in final Assessment Order dated 15th December, 2008. 4. Being aggrieved with final order of Assessment dated 15th December, 2008, respondent preferred appeal to Commissioner of Income Tax (Appeals) (CIT(A)). However, by order dated 16th July, 2013, CIT (A) dismissed appeal on above issue. Thus, upheld view of TPO making Transfer Pricing Adjustment not on basis of aggregated international transaction on application of TNM method but on application of RPM method for imports and CPM method for exports. 5. Being aggrieved respondent filed further appeal to Tribunal. In appeal Tribunal in impugned order observed fact that TNM method on aggregated ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 4 14 itxa 1643 16 o s international transaction has been consistently applied by Revenue in determining ALP of respondent's International Transactions with its AE's. It noted that assessment year 2006 07 to assessment year 2008 09 TPO had adopted TNM Method on aggregated International Transaction as most appropriate method for benchmarking respondent assessee's international transactions. In fact in paragraph No.18 impugned order, Tribunal observed as under: 18. case of assessee before us is that in view of above said facts and circumstances, there was no merit in deviating from TNM Method applied by assessee to benchmark its international transactions with its associate enterprises on aggregate basis. Undoubtedly, doctrine of res judicata is not applicable to tax proceedings, but at same time, where there is no change in facts in respect of particular transaction and/or issue or proceedings, then it is requirement of law that consistency should be maintained and methodolgy adopted by assessee for benchmarking its international transactions should not be disturbed. Where Revenue from year to year has accepted method adopted by assessee for benchmarking its international transactions with its associate enterprises, in absence of any reasons brought on record, there is no merit in ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 5 14 itxa 1643 16 o s deviating or taking stand contrary to stand accepted in both preceding and succeeding years, while benchmarking international transactions in hands of assessee. In absence of TPO or CIT (A) having been able to demonstrate as to how facts of present year are different from facts of other years, which were before authorities, there is no justification for taking different stand. assessee has time and again explained reasons why it had adopted TNMM method and had also explained difference between exports made to associate enterprises and non associate enterprises and also sales made in domestic market. assessee has also explained functional risks which are different for both segments and consequently, no comparison could be made on gross profit level, as adopted by TPO for benchmarking international transactions of assessee with its associated enterprises. explanations of assessee have been rejected by TPO/CIT(A) without any basis, wherein similar explanation has been accepted by TPO itself in all other years. conduct of business and products manufactured are identical in year under consideration, when compared to other years i.e. assessment years 2006 07, 2007 08 and 2008 09. In entirety of above said facts and circumstances, we are of view that adoption of TNMM method was most appropriate method for benchmarking international transactions with its associate enterprises and we find no merit in order of Assessing Officer in adopting RPM/CPM method to benchmark ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 6 14 itxa 1643 16 o s international transactions with its associate enterprises. We hold that TNMM method should be applied on aggregate basis for benchmarking international transactions of assessee. It was on above basis that Tribunal held that TNM method on aggregated international transactions is most appropriate to benchmark respondent assessee's international transaction with its AE's to determine its ALP. 6. Mr. Tejveer Singh, learned counsel appearing in support of appeal submits that: (i) It was for respondent to establish facts in present case were identical/similar to facts for other Assessment Years, warranting same view in this Assessment year as in other years. Therefore, no fault on part of Revenue, in deciding ALP for subject Assessment Year on application of RPM and CPM methods and not on TNM method. (ii) Revenue had pointed out that comparables are not functionally similar. Thus, warranting different view; and (iii) reliance placed in impugned order on decision ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 7 14 itxa 1643 16 o s of its co ordinate bench in 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 Revenue before this Court in Income Tax Appeal No.1372 of 2015 and same has been admitted on 1st August, 2018. Therefore, this appeal also requires admission. 7. Mr.Joshi, learned counsel opposing appeal supports impugned order and submits that no interference is warranted. It is further pointed out that TPO has accepted TNM method most appropriate method in determining ALP of respondent's transaction with its AE's till assessment year 2015 16. Further, objection before revenue has been dealt with by Tribunal and on examination of record it has been found that no material difference has been shown for assessment years 2006 07 and 2008 09 to that existing in subject assessment year. 8. We have considered rival submissions. We note that Revenue has been accepting TNM method as most proper ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 8 14 itxa 1643 16 o s method for benchmarking aggregated international transactions with AE's over period of time. same has been accepted by Revenue on examination of issue. It is found that TPO had for other years on same facts has accepted fact that there was no difference in two segments involved for transfer pricing. Thus, consistently accepting TNM method as most appropriate method to determine ALP of respondent's aggregated International Transaction till Assessment Year 2015 16. Revenue has not been able to show any material difference in subject assessment year which would justify change in most appropriate method (TNM method) adopted while benchmarking international transactions. So far as order dated 1 st August, 2018 of this Court in case of John Deere India (P) Ltd. (supra) admitting appeal of Revenue is correct, we find that it has not been admitted on question which arises in present petition, i.e. effect of Revenue consistently accepting TNM Method as most appropriate method for benchmarking international transactions with AE's in absence of any material change of facts or law. This is not issue on which appeal of ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 9 14 itxa 1643 16 o s revenue has been admitted by Court in case of John Deere India (P) Ltd. (supra). Therefore, it will have no application to present facts. objection to rejection of comparables taken by Revenue before us, does not address issue of most appropriate method for benchmarking its international transaction. We are also unable to understand contention on behalf of Revenue that it is for respondent to prove that there is no change/ difference in facts in subject Assessment Year from subsequent Assessment Years. Where TNM method is accepted to determine ALP of international transaction. Infact, no change in facts has been asserted by respondent. Therefore, it would be for Revenue to show difference in facts warranting different view in this Assessment Year to that taken in subsequent Assessment Years. We have herein above extracted paragraph 18 of impugned order of Tribunal and on its reading we are of view that same is finding of fact based on appreciation of evidence. Thus, no interference is warranted. 9. For above reasons, question as proposed does not ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Priya Soparkar 10 14 itxa 1643 16 o s 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.) . ::: Uploaded on - 22/02/2019 ::: Downloaded on - 03/04/2019 15:25:50 ::: Pr.Commissioner of Income-tax-4, Pune v. Vishay Components India Pvt. Ltd
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