Tweezerman (India) Private Limited, Pondicherry V. ACIT, Pondicherry

CO 171/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9029 (ITAT-CHENNAI)
• Duration Of Justice: 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 18-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Transfer pricing
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.1813/MDS/2013 & C.O.NO.171/MDS/2013 [IN I.T.A.NO. 1813/MDS/2013] ASSESSMENT YEAR : 2008-09 THE ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE I PUDUCHERRY VS M/S TWEEZERMAN (INDIA) PVT. LTD NO.C-24 INDUSTRIAL ESTATE THATTANCHAVDI PUDUCHERRY 605 009 [PAN AABCT 3599 F] (APPELLANT) (RESPONDENT/CROSS OBJECTOR) DEPARTMENT BY : SHRI SHAJI P. JACOB, ADDL. CIT ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 25-11-2013 DATE OF PRONOUNCEMENT : 27-11-2013 O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECT IONS BY ASSESSEE FOR ASSESSMENT YEAR 2008-09, ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, CHE NNAI, DATED 30.7.2013, PASSED IN APPEAL NO.506/13-14, IN PROCEE DINGS UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHOR T THE ACT). I.T.A.NO. 1813/13 & C.O 171/13 :- 2 -: 2. BRIEF FACTS COMMON IN APPEAL AS WELL AS CROSS OBJECTIONS ARE THAT THE ASSESSEE IS A COMPANY, ENGAGED IN MANUF ACTURING OF BEAUTY AND MANICURE IMPLEMENTS. ADMITTEDLY, IT IS A 100% EXPORT ORIENTED UNDERTAKING ENTITLED FOR DEDUCTION U/S 10B OF THE ACT. ON 30.9.2008, IT HAD FILED ITS RETURN DISCLOSING INCOME OF ` 76,90,912/- WHICH WAS SUMMARILY PROCESSED. 3. IN THE COURSE OF SCRUTINY, THE ASSESS ING OFFICER FOUND THAT IN PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMEN T YEAR, THE ASSESSEE HAD ENTERED INTO TRANSACTIONS WORTH ` 15,46,17,951/- WITH ITS ASSOCIATED ENTERPRISE BY THE NAME OF TWEEZERMAN IND IA PVT. LTD. ON BEING MADE A REFERENCE, THE TPO PASSED AN ORDER THA T THE ASSESSEE HAD DECLARED PROFITS BEFORE TAX IN THE AFORESAID TR ANSACTIONS WITH ITS ASSOCIATED ENTERPRISE @ 69% AS ` 10,67,32,318/-. WHEN THE SAME WAS COMPARED WITH OTHER COMPARABLES NAMELY, RAHUL ELECT RICALS AND ELECTRONICS AS WELL AS ITAL BEAUTY NIPPERS PVT. LTD , IT WAS FOUND THAT THE ARITHMETIC MEAN OF THE PROFIT BEFORE TAX IN ALL THREE INSTANCES CAME TO BE 43.60%. ACCORDINGLY, ARMS LENGTH PRICE WAS COMPUTED AS ` 9,62,04,908/- AND THE DIFFERENTIAL AMOUNT I.E ` 3,66,98,317/- I.E ` 10,41,11,744/- (PROFITS ALREADY DECLARED U/S 10B) ` 6,74,13,427/- I.T.A.NO. 1813/13 & C.O 171/13 :- 3 -: PROFITS COMPUTED U/S 10B IN FURTHERANCE TO TPOS O RDER WAS HELD INELIGIBLE AS PROFIT FOR DEDUCTION U/S 10B OF THE ACT. IN THE ASSESSMENT ORDER DATED 26.12.2011, THE ASSESSING OF FICER ADDED THE AFORESAID SUM OF ` 3,66,98,317/- IN ASSESSEES INCOME NOT ENTITLED FOR SECTION 10B DEDUCTION. SIMILARLY, THE ASSESSING OFFICER FOUND THE ASSESS EE TO HAVE INCLUDED A SUM OF ` 26,61,104/- AS INCOME FROM SCRAP SALES. IN HIS VIEW, THE SAME WAS ALSO NOT ENTITLED TO BE TAKEN AS PROFITS AND GAINS DERIVED BY EXPORT ORIENTED UNDERTAKING FROM THE EXP ORT OF ARTICLES OR THINGS. HENCE, THE SAID SUM STOOD ADDED IN TOTAL INCOME. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. IN THE LOWER APPELLATE PROCEEDINGS, THE CIT(A) HAS DELETED THE F ORMER ADDITION, BUT SUSTAINED THE LATTER ONE BY OBSERVING AS FOLLOWS: 4. GROUND NOS.1 TO 10: 5. THESE GROUNDS ARE MAINLY RELATED TO THE ACTION OF A .O. IN DETERMINING THE EXCESS OF APPELLANT'S PROFITS OVER ARMS LENGTH PROFIT DETERMINED BY TPO AND REDUCING THE DEDUCTION CLAIMED U/S 10B OF THE IT ACT BY AN AMOUNT OF 3,66,98,317/- , BEING THE DIFFERENCE OF RS.10,41,11,744 - 6,74,13,427. IT IS STATED BY THE AR OF THE ASSESSEE THAT THE TPO HAS WRONGLY COMPARE D THE FINANCIALS OF M/S RAHUL ELECTRICALS AND ELECTRONICS (REE) WITH THE ASSESSEE COMPANY AS IT WAS NOT FUNCTIONALLY COMPARA BLE TO THE APPELLANT AND ALSO DUE TO THE FACT THAT FINANCIAL D ATA OF THE REE IS NOT AVAILABLE IN PUBLIC DOMAIN. IT IS FURTHER SU BMITTED BY THE AR OF THE ASSESSEE COMPANY THAT ON THE SIMILAR ISSUE O F THE ASSESSEE'S OWN CASE FOR THE A.Y. 2004-05, HONOURABL E ITAT BENCH 'A' CHENNAI VIDE ITS ORDER IN ITA NO.1130/MDS /2009 DATED I.T.A.NO. 1813/13 & C.O 171/13 :- 4 -: 15.4.2010 DECIDED THE VERY SAME ISSUE IN FAVOUR OF THE ASSESSEE WHICH IS REPORTED IN (2010) 4 ITR (TRIB) 130 (CHENN AI). IT IS FURTHER STATED BY THE AR OF THE APPELLANT THAT SIMI LAR ADDITION MADE BY THE A.O. WAS DELETED BY THE ID CIT(A) VIDE ORDER ITA NO.321/2010-2011, DATED 2.12.2011 FOR THE A.Y.2007- 08 ALSO. THUS THE AR OF THE ASSESSEE CITED ABOVE DECISIONS I N SUPPORT OF ITS CLAM ON THE ISSUE OF ALLOWABILITY OF DEDUCTION U/S 10B OF IT ACT. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND ALSO ORDER OF THE HONOURABLE ITAT (SUPRA) AND F IND THAT FACTS OF THE CASE DECIDED BY THE HONOURABLE ITAT FOR THE A.Y. 2004-05 AND THE FACTS IN THE PRESENT CASE ARE EXACTLY SIMIL AR. THEREFORE, BY RESPECTFULLY FOLLOWING THE TRIBUNAL'S ORDER (SUP RA), THE GROUNDS OF APPEAL WITH RESPECT TO REDUCTION IN THE CLAIM O F DEDUCTION U/S 10B IS ALLOWED. 5. GROUND NOS.11 AND 12 ARE WITH RESPECT TO ACTION OF A.O IN EXCLUDING SCRAP SALES WHILE COMPUTING THE DEDUCTION U/S 10B OF THE IT ACT 1961 & TREATING THE SAME AS INCOME FROM OTHER SOURCES. THIS ISSUE ALSO CAME UP BEFORE THE HONOURA BLE ITAT (SUPRA) IN THE ASSESSEE'S OWN CASE FOR THE A.Y. 200 4-05. THE HONOURABLE ITAT (SUPRA) AT PARA 6 OF THE ORDER HELD THAT THE SALE OF SCRAP IS NOT AN EXPORT AND ON THIS GROUND OF ITS ELF, THE ASSESSEE IS NOT ELIGIBLE FOR RELIEF. THEREFORE, BY RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER, THE ACTION OF THE A .O IN EXCLUDING THE SCRAP SALES FOR COMPUTING THE DEDUCTION U/S 10B IS CONFIRMED. IN THIS BACKDROP OF FACTS, THE REVENUE IS IN APPE AL WHEREAS THE ASSESSEE HAS FILED CROSS OBJECTIONS. THE GIST OF REVENUES SUBMISSIONS IS THAT THE CIT(A) HAS WRONGLY HELD THA T THE AMOUNT OF ` 3,66,98,317/-(SUPRA) IS ENTITLED FOR DEDUCTION U/S 10B. SIMILARLY, THE GRIEVANCE OF THE ASSESSEE IN ITS CROSS OBJECTIONS IS THAT THOUGH THE CIT(A) HAS RIGHTLY FOLLOWED THE ORDER OF THE TRIBU NAL FOR ASSESSMENT YEAR 2004-05 ON THE VERY ISSUE DECIDING IT IN FAVOU R OF THE REVENUE, I.T.A.NO. 1813/13 & C.O 171/13 :- 5 -: INCOME FROM SCRAP SALES OUGHT NOT HAVE BEEN ADDED T O THE EXTENT OF GROSS AMOUNT INSTEAD OF THE NET AMOUNT. 6. WE HAVE HEARD BOTH PARTIES AND GONE THRO UGH THE CASE FILE. FIRST, WE COME TO REVENUES APPEAL. THERE IS HARDL Y ANY DISPUTE ON FACTS. THE ASSESSEE IS RUNNING AN EXPORT ORIENTED UNDERTAKING ENTITLED FOR DEDUCTION U/S 10B OF THE ACT. THE ONLY QUESTI ON SOUGHT TO BE RAISED BY THE REVENUE IS THAT THE AFORESAID AMOUNT OF ` 3,66,98,317/- OVER AND ABOVE THE ARMS LENGTH PRICE DERIVED IN TR ANSACTIONS WITH ITS ASSOCIATED ENTERPRISE IS NOT ENTITLED FOR DEDUCTION U/S 10B. IN REPLY, THE ASSESSEE FILES BEFORE US A COPY OF THE ORDER IN I.T.A.NO. 612/MDS/2012 IN ITS CASE FOR ASSESSMENT YEAR 2007-0 8 DATED 24.5.2012 WHEREIN THE VERY ISSUE HAD BEEN DECIDED I N ITS FAVOUR. ON BEING POINTED OUT, THE REVENUE HAS NOT BEEN ABLE TO DRAW ANY DISTINCTION ON FACTS. IN THIS VIEW OF THE MATTER, WE SEE NO REASON TO ADOPT A DIFFERENT APPROACH IN THE IMPUGNED ASSESSME NT YEAR AS WELL. ACCORDINGLY, WE HOLD THAT THE CIT(A) HAS RIGHTLY HE LD THE ASSESSEE ENTITLED FOR DEDUCTION U/S 10B QUA THE AMOUNT OVER AND ABOVE ARMS LENGTH PRICE SO FAR AS ITS TRANSACTIONS WITH ASSOCI ATED ENTERPRISE(SUPRA) ARE CONCERNED. THE CIT(A)S FINDINGS STAND CONFIRM ED. I.T.A.NO. 1813/13 & C.O 171/13 :- 6 -: 7. NOW, WE COME TO ASSESSEES CROSS OBJECTIO NS. AS STATED IN PRECEDING PARAGRAPHS, THE ASSESSEE HAD DECLARED AN AMOUNT OF ` 26,61,104/- AS INCOME FROM SCRAP SALES WHICH HAS NO T BEEN ACCEPTED EITHER BY THE ASSESSING OFFICER OR CIT(A) ON THE GR OUND THAT THE SAME COULD NOT BE TAKEN AS PROFITS AND GAINS DERIVED BY EXPORT ORIENTED UNDERTAKING FROM EXPORT ACTIVITY. THOUGH THE CIT(A ) HAS FOLLOWED THE TRIBUNALS DECISION PERTAINING TO ASSESSMENT YEAR 2 004-05, BUT IN THOSE CASES, THE CONSEQUENTIAL PLEA THAT ONLY NET AMOUNT INSTEAD OF GROSS AMOUNT IS TO BE ADDED HAD NEITHER BEEN RAISED NOR T AKEN INTO CONSIDERATION. IN THESE CIRCUMSTANCES, UPHOLDING T HE ADDITION ON MERITS REGARDING SCRAP SALES IN QUESTION, WE ARE OF THE VIEW THAT INTEREST OF JUSTICE WOULD BE MET IN CASE THE ASSESS ING OFFICER RE- EXAMINES THE MATTER ON NETTING ISSUE I.E ONLY THE NET AMOUNT OF SCRAP SALES IS TO BE ADDED AS INCOME. SO, WE RESTORE THE ASSESSEES CONSEQUENTIAL ALTERNATE PLEA FOR DECISION IN ACCORD ANCE WITH LAW TO THE FILE OF ASSESSING OFFICER. 8. AS A RESULT OF OUR ABOVE DISCUSSION, THE R EVENUES APPEAL STANDS DISMISSED AND ASSESSEES CROSS OBJECTIONS ST AND PARTLY ACCEPTED FOR STATISTICAL PURPOSES. I.T.A.NO. 1813/13 & C.O 171/13 :- 7 -: ORDER PRONOUNCED ON WEDNESDAY, THE 27 TH OF NOVEMBER, 2013, AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (S. S. GODARA) JUDICIAL MEMBER DATED: 27 TH NOVEMBER, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR