The case titled ‘Sumitomo Corporation India Pvt. Ltd vs NeAC, New Delhi’ pertains to the assessment year 2016-17 and was filed on 2021-05-12. The final tribunal order was pronounced on 2021-11-24. This case was filed to challenge the addition to the arm’s length price determined by the National e-Assessment Centre (NeAC), New Delhi.
Case Number: ITA 508/DEL/2021
Appellant: Sumitomo Corporation India Pvt. Ltd, New Delhi
Respondent: NeAC, New Delhi
Assessment Year: 2016-17
Case Filed On: 2021-05-12
Order Type: Final Tribunal Order
Date of Order: 2021-11-24
Pronounced On: 2021-11-24
Judges: Sudhanshu Srivastava, Judicial Member and Prashant Maharishi, Accountant Member
This appeal in ITA No. 508 (Del) of 2021 is filed by Sumitomo Corporation India Private Limited against the assessment order passed by the National e-Assessment Centre, Delhi, on 30th April, 2021, under Section 143(3) read with Section 144B of the Income Tax Act, 1961 (the Act) for assessment year 2016-17.
The appellant, a subsidiary of Sumitomo Corporation, Japan, is engaged in providing trade facilitation and support services to its AE as well as non-AE parties. It earns revenue from indenting transactions where it facilitates the import and export of goods to and from India. The services include coordination, communication, collection of information, and liaison with customers. It also carries out trading of goods without maintaining any inventory and purchases are made based on confirmed sale orders.
The appellant filed its return of income on 27.11.2016 at Rs. 9,40,97,200/-. The assessment year is one of the covered years as per the bilateral advance pricing agreement under the category of rollback years. The appellant revised its return of income at Rs. 19,70,11,810/- to give effect to such an agreement on 18.10.2016. The appellant has entered into international transactions and domestic transactions with its AE and, therefore, reference was made to the Transfer Pricing Officer for determination of Arms Length price of its international transaction.
The appellant argued that the substantive addition made using the CUP method has already been dealt with by the co-ordinate bench in the appellant’s case in prior 8 assessment years starting from assessment year 2008-09 to assessment year 2014-15. It was submitted that the addition made of Rs. 21,31,41,987/- is covered in favour of the appellant in the appellant’s own case. The appellant further argued that the TPO has failed to follow the binding directions of the DRP.
The appellant also argued that both protective adjustment and substantive adjustment could not be made in the hands of the same assessee with respect to the same source of income, relying on various judicial precedents. The appellant further submitted that the TNMM applied by the TPO is also not correct as the TPO has used the FOB value of goods transacted by the Associated Enterprises on which commission income has been earned which the Assessing Officer had added to the commission income as well as to the operating expenses.
The departmental representative supported the order of the TPO and DRP and argued that the adjustments made are justified.
The Tribunal observed that the substantive addition made by adopting the CUP method cannot be applied in the case of the appellant for making an adjustment to the commission income. The co-ordinate bench has also held that TNMM is the only method, which can be applied. Accordingly, the addition made by the Transfer Pricing Officer of Rs. 21,31,41,987/- on substantive basis adopting the CUP method is deleted.
The Tribunal also addressed the protective addition of Rs. 3,16,09,462/- made by the Transfer Pricing Officer pursuant to the direction of the Dispute Resolution Panel adopting the TNMM method. The Tribunal found that while calculating the steps, there is no justification given by the Transfer Pricing Officer for making an addition to the operating expenses of the free on-board value of goods on which the commission is earned. Similarly, there is no justification for adding the free on-board value of goods to the operating income. Thus, the Tribunal directed the Transfer Pricing Officer to not adopt the CUP method for computation of the arm’s-length price of the indent in business from non-Japan associated enterprises.
In conclusion, the Tribunal partly allowed the appeal of the appellant in ITA number 508/Del/2021 for the assessment year 2016-17. The substantive addition made by adopting the CUP method was deleted, and the Transfer Pricing Officer was directed to adopt the TNMM method for computing the arm’s-length price.
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