,
IN THE INCOME TAX APPELLATE TRIBUNAL "K" BENCH, MUMBAI
.. ,, ,
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
/ I.T.A. No.1255/Mum/2014
( / Assessment Year : 2009-10
The DCIT-2(1), / M/s. Federal Mogul
Aayakar Bhavan, Bearing India Ltd.
Vs.
Mumbai-400 020 4 t h Floor, Magnet House,
N.M. Road,
Mumbai-400 038
C.O. No. 129/Mum/2014
(Arising out of I.T.A. No.1255/Mum/2014
( / Assessment Year : 2009-10
M/s. Federal Mogul Bearing / The DCIT-2(1),
India Ltd. 4 t h Floor, Aayakar Bhavan,
Vs.
Magnet House,N.M. Road, Mumbai-400 020
Mumbai-400 038
. / . /PAN/GIR No. : AAGCA 3784Q
( /Appellant) .. ( / Respondent)
/ Revenue by: Shri N.K. Chernd
/Assessee by: Shri Tolani
Shri Darpan Kirpalani
/ Date of Hearing
:13.07.2015
/Date of Pronouncement :17.07.2015
/ O R D E R
PER N.K. BILLAIYA, AM:
2 ITA. No. 1255/M/14
C.O. No. 129/M/2014
These are appeals by the Revenue and the cross objection by the
assessee against the very same order of the DRP-I Mumbai dt. 01.11.2013
pertaining to assessment year 2009-10.
2. The sole grievance of the Revenue is that the DRP has erred in
rejecting the entity level TNMM adopted by the TPO and directed to
compute the adjustment at transaction level only.
2.1. The assessee is engaged in the business of manufacturing and
trading of components like bi-metal engine bearings, bushes, washers,
flanges for automotive, industrial, agricultural, earthmoving, marine and
stationary engines. More than 50% of the shares are held by Federal
Mogul Corporation, USA. The Associated Enterprises of the assessee
are:-
1) Federal Mogul Corporation, U.S.
2) Federal Mogul S.A.R.L, Italy
3) Federal Mogul Operations France S.A.S
4) Federal Mogul Wiesbaden GmbH, Germany
5) Federal Mogul Bimet, S.A.
2.2. During the year, the assessee entered into the following
international transactions:
S. No. Particulars Amount in Method
Rs.
1 Import of Raw material 44,55,962/- TNMM
2. Purchase/sale of 4,88,52,809/- -do-
traded/finished goods
3. Import of capital goods 4,86,45,466/- -do-
4. Reimbursement paid 46,96,735/- -do-
3 ITA. No. 1255/M/14
C.O. No. 129/M/2014
5. Reimbursement received 1,712/-
2.3. A reference was made to the TPO for determination of Arms
Length Price with reference to all the transactions reported in Form 3CD
which has been filed by the assessee. The TPO made adjustments to the
tune of Rs. 89,07,470/-.
3. The assessee carried the matter before the DRP. It was strongly
contended before the DRP, the TP adjustment should be restricted to the
value of International Transaction with AE only and should not be made
at entity level. The DRP was convinced with this claim of the assessee
and directed the AO to compute the adjustment at transaction level only.
The AO in the final assessment order carried out the directions of the
DRP and recomputed the adjustment at Rs. 3,16,022/-.
4. Aggrieved by this, the Revenue is before us.
5. Insofar as the grievance of the Revenue is concerned, the
undisputed fact is that the TP adjustments have to be made only for the
transaction with the Associated Enterprises. A similar view was taken by
the Tribunal in the case of Ratilal Becharlal & Sons in ITA No.
7876/M/11 wherein the Tribunal at para-13 of its order has held that "
adjustment arising out of ALP cannot be made on the entire turnover and
the same has to be restricted to the International transaction with the
AE." Thus the ALP has to be at International Transaction and not in
relation to assessee's entire sales/turnover.
6. Considering the facts in totality in the light of the decision of the
Tribunal (supra), we do not find any error in the directions of the DRP.
Appeal filed by the Revenue is accordingly dismissed.
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C.O. No. 129/M/2014
7. Coming to the Cross objection of the assessee, it is seen that the
Cross objection is late by 80 days. We find that the assessee has filed an
application for the condonation of delay which is supported by an
affidavit.
8. We have carefully gone through the contents of the affidavit. We
find that the assessee was prevented by reasonable and sufficient cause
for not filing the appeal on time. The delay is condoned.
9. The issues raised vide ground No. 1.1 to 5.2 become otiose as we
have dismissed Revenue's appeal in ITA No. 1255/M/2014.
10. The next grievance relates to not allowing the benefit of the
proviso to Sec. 92C of the Act.
11. A perusal of the assessment order shows that following the
directions of the DRP, the AO has made TP adjustment of Rs. 3,16,022/-.
We find force in the contention of the Ld. Counsel that the benefit of
proviso i.e. the difference is within the range of +/ - 5% should be
allowed to the assessee. We direct the AO to verify this contention of the
assessee and decide the issue as per the provisions of the law.
12. The next grievance relates to the disallowance of Rs. 26,31,060/-
being loan written off. As mentioned elsewhere, the DRP has confirmed
the findings of the AO holding that the loan was granted in the field of
capital and for capital purposes and the assessee is not in the business of
granting loan nor any part of the loan was offered for taxation in the
earlier years . Therefore, the write off made by the assessee is not
allowable. The AO further noticed that the assessee has written of Rs.
5 ITA. No. 1255/M/14
C.O. No. 129/M/2014
26,31,060/- being deduction of loan to Micron Surface Treaters which
was written off as unrecoverable.
13. Before the DRP, the assessee strongly contended that the amount
was advanced for the purpose of business, therefore the same should be
allowed as a revenue loss. The DRP observed that loan was granted in
capital field and for capital purposes. Further granting of loan is not a
business of the assessee Neither is the loan or any part thereof was
credited in the P&L account and offered for taxation before such a write
off. The DRP declined to allow deduction.
14. Before us, the Ld. Counsel for the assessee relied upon the decision
in the case of CIT Vs Honda Siel Power Products 165 ITR 577.
15. Per contra, the Ld. Departmental Representative relied upon the
decision of the Tribunal, Mumbai Bench in the case of DCM Ltd. Vs
DCIT 123 TTJ 114, Hon'ble Bombay High Court in the case of Salem
Mangnesite (P) Ltd. Vs CIT 321 ITR 43 and the decision of the Tribunal
Mumbai Bench in the case of JCIT Vs Rallis India Ltd. 3 ITR 01.
16. We have given a thoughtful consideration to the orders of the
authorities below. We find that the assessee company was looking at
outsourcing a process to an external vendor for which it identified
Micron Surface Treaters (MST). Since MST did not have LTC plating
facility which was required by the assessee company, the assessee
entered into an agreement by which MST agreed to set up the LTC
plating facility for undertaking work to be done for the assessee and for
this assessee agreed to provide advance of Rs. 30 lakhs. Subsequently,
the assessee discontinued this line of business. The assessee also took
6 ITA. No. 1255/M/14
C.O. No. 129/M/2014
back the machinery from MST and recovered Rs. 3.50 lakhs out of sale of
scrap and wrote off the balance amount outstanding in the name of MST.
17. The analysis of the aforementioned fact shows that firstly the
assessee lended money to MST knowing fully well that MST is not in a
position to carry on the work of the assessee as it does not possess the
necessary facilities. Yet the assessee advanced money to MST. The
recovery of machinery from MST was nothing but recovery on account of
adjustment of loan since the assessee has grossly failed to establish any
commercial expediency in giving advance to MST, we do not find any
reason to allow the write off as expenditure. We, therefore confirm the
findings of the DRP.
18. Before closing, the reliance on various judicial decisions by the
assessee is misplaced as the decisions are on different set of facts.
19. The last grievance relates to the brought forward losses. In our
considered opinion, this issue has to be relooked as we have confirmed
the findings of the DRP in so far as Transfer Pricing adjustments is
concerned in Revenue's appeal. The AO is directed to decide this issue
afresh as per provisions of the law.
20. In the result, the appeal filed by the Revenue is dismissed and the
cross objection filed by the assessee is partly allowed.
Order pronounced in the open court on 17th July, 2015
(A.D. JAIN ) (N.K. BILLAIYA)
/JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai; Dated :17 July , 2015
th
. ../ RJ , Sr. PS
7 ITA. No. 1255/M/14
C.O. No. 129/M/2014
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)-
4. / CIT
5. , ,
/ DR, ITAT, Mumbai
6. / Guard file.
/ BY ORDER,
//True Copy//
/
(Dy./Asstt. Registrar)
, / ITAT, Mumbai
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