Subsequently concluded APA which accepted that the taxpayer was not a contract manufacturer for relevant years under appeal have considerable bearing on TP dispute and can be admitted as an evidence before the Tribunal

11.  ITA Nos.
779/Mds/2014, 801 Mds/2015 & 810/Mds/2016

Lotus Footwear Enterprises Ltd (India Branch) vs. DCIT

A.Y.s: 2009-10 to 2011-12,

Date of Order: 21^st September, 2016

Facts

The Taxpayer was engaged in manufacture of footwear for its
associated enterprise (AE) in BVI. For FY 2009-10 to 2011-12, assessment orders
were passed basis the directions of the DRP. Certain adjustments were made
under TP by regarding the taxpayer to be a contract manufacturer. It is not
clear as to what was the claim of the taxpayer and basis on which the TPO
concluded that the taxpayer was a contract manufacturer permitting TP
adjustment during the years under appeal.

Taxpayer appealed against the assessment orders before the
ITAT and assailed the additions made on account of transfer pricing
adjustments.

Taxpayer had signed an APA in 2016 for FY 2014-15 to 2018-19,
with a roll back for three years from FY 2011-12 to FY 2013-14.

The APA was signed on the basis that for the years covered by
APA and the three earlier years for which roll back was claimed, the business
model of the taxpayer was that of a contract manufacturer and such change was
effected only after F.Y. 2010-11 (A.Y. 2011-12) due to multiple labour strikes
in its units. It was also claimed that roll back which was applicable for
earlier 4 years including one of the years under appeal viz. F.Y. 2010-11 (A.Y.
2011-12) was not made applicable, as for the relevant year, as per the facts
which the taxpayer could furnish before APA authorities, the taxpayer was not a
contract manufacturer. Thus, for F.Y. 2010-11, APA authorities had accepted the
contention of the taxpayer that it was not a contract manufacturer as against
departmental contention that the taxpayer was a contract manufacturer.

It is in this background that taxpayer relied on APA and
claimed that its contention about it not being a contract manufacturer during
the relevant years of appeal is to be accepted.

Held

Tribunal concurred that APA should be considered while
deciding the appeal of the Taxpayer, for the following reasons:

–   The APA rollback period was reduced to three
years only after considering and accepting the submissions of the Taxpayer that
it was not a contract manufacturer in FY 10-11 and the years prior to it.

–   Nature of business of the Taxpayer as
determined under APA would have considerable bearing on the ALP study of the
international transactions of the Taxpayer for the FYs under consideration.

–   Since the APA was concluded in May 2016, the
Taxpayer did not have the opportunity to submit it to the lower authorities.

Having regard to the above, the additional evidence was
admitted and the matter was set aside for fresh consideration.