MITSUI O.S.K. LINES MARITIME (I) P. LTD, MUMBAI V. DCIT CIR 8(2), MUMBAI

CO 171/MUM/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7057 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 24-11-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 01-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Transfer pricing; Opportunity of being heard; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI N.V.VASUDEVAN, JM ITA NO.1548/MUM/2009 : ASST. YEAR 2004-2005 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 8(2) MUMBAI. M/S.MITSUI O.S.K.LINES MARITINE (INDIA) PRIVATE LIMITED UNIT NO.52, 5 TH FLOOR KAALPATARU SQUARE, KONDIVITA LANE OFF AHDNERI KURLA ROAD ANDHERI (WEST), MUMBAI 400 059 PAN :AAACN3767G. (APPELLANT) VS. (RESPONDENT) CO NO.171/MUM/2009 : ASST. YEAR 2004-2005 M/S.MITSUI O.S.K.LINES MARITINE (INDIA) PRIVATE LIMITED ANDHERI (WEST), MUMBAI 400 059 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 8(2) MUMBAI. (CROSS OBJECTOR) VS. (RESPONDENT) REVENUE BY : SHRI JITENDRA YADAV ASSESSEE BY : SHRI KANCHAN KAUSHAL DATE OF HEARING : 13.02.2012 DATE OF PRONOUNCEMENT : 15.02.2012 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-T AX (APPEALS) ON 19.09.2008, IN RELATION TO THE ASSESSMENT YEAR 2004 -2005. 2. INITIALLY THE REVENUE FILED ONE EFFECTIVE GROUND CHALLENGING THE DELETION OF ADDITION OF ` 40,60,358 TOWARDS UPWARD ADJUSTMENT OF ARMS LENGTH PRICE. SUBSEQUENTLY THE GROUNDS WERE ELABORATED AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE REVENUE REC OVERED FROM THE ASSOCIATE ENTERPRISES (A.E.) FALLS WELL WITHIN + / 5% RANGE OF THE ARMS LENGTH PRICE (ALP) CALCULATED BY THE TRANSFER PRICING OFFICER AS PER PROVISO TO SECTION 92C(2) OF THE I.T .ACT. ITA NO.1548 & CO 171/MUM/2009 M/S.MITSUI O.S.K. LINES MARITIME (INDIA) PVT.LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT CUP DATA SUBMIT TED BY THE APPELLANT SHOWS THAT THE INTERNATIONAL TRANSACTION OF THE APPELLANT ARE AT ARMS LENGTH. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS JU STIFIED IN CARRYING OUT THE WORKING CAPITAL ADJUSTMENT IN ACCO RDANCE WITH T.P.RULES. 3. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT OBJ ECT TO THE ELABORATION OF THE GROUNDS BY THE REVENUE. AT THE VERY OUTSET THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED ON RECORD A COPY OF ORDER PAS SED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING AS SESSMENT YEAR 2003-2004 IN ITA NO.6397/MUM/2006. IT WAS SUBMITTED THAT THE TRANSFER PRICING ADJUSTMENT DELETED BY THE LEARNED CIT(A) IN THE PRE CEDING YEAR HAS BEEN SET ASIDE AND THE MATTER HAS BEEN RESTORED TO FILE OF A .O. FOR TAKING A FRESH DECISION. THE LEARNED A.R. SUBMITTED THAT SOME OF THE FACTS W ERE NOT SIMILAR IN THE CURRENT YEAR. 4. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT SOME OF THE ITEMS CONSID ERED, AS SET OUT IN PAGE 2 OF THE TRIBUNAL ORDER DATED 27.07.2011 FOR THE IMMEDIA TELY PRECEDING YEAR ARE SIMILAR TO THOSE WHICH ARE THERE IN THE CURRENT YEA R AS WELL. EVEN SOME OF THE COMPARABLE CASES CONSIDERED BY THE TPO, AS TAKEN N OTE OF IN THE TRIBUNAL ORDER ON PAGE 3 FOR THE PRECEDING YEAR ARE THE CASES CONS IDERED BY THE TPO FOR THE CURRENT YEAR AS COMPARABLE. IN THE IMMEDIATELY PRE CEDING YEAR THE TRIBUNAL VIDE PARA 13 OF ITS ORDER HAS SET ASIDE THE ORDER O F THE LEARNED CIT(A) AND REMITTED THE MATTER BACK TO THE FILE OF A.O. SO THA T PROPER ARMS LENGTH PRICE MAY BE DETERMINED. SINCE THE DETERMINATION OF ARMS LENGTH PRICE IN THE IMMEDIATELY PRECEDING YEAR HAS GONE BACK TO THE ASS ESSING OFFICER FOR A FRESH DECISION, IN OUR CONSIDERED OPINION, THE ENDS OF JU STICE WILL MEET ADEQUATELY IF ITA NO.1548 & CO 171/MUM/2009 M/S.MITSUI O.S.K. LINES MARITIME (INDIA) PVT.LTD. 3 THE IMPUGNED ORDER IS SET ASIDE ON THIS ISSUE AND T HE MATTER IS RESTORED TO THE FILE OF A.O. THE DETERMINATION OF ARMS LENGTH PRICE TOW ARDS THE INTERNATIONAL TRANSACTIONS FOR THE IMMEDIATELY PRECEDING YEAR WIL L HAVE DIRECT RELEVANCE IN THE DETERMINATION OF ARMS LENGTH PRICE IN THE INTERNAT IONAL TRANSACTION FOR THE CURRENT YEAR DUE TO SIMILARITIES AS DISCUSSED ABOVE . RESPECTFULLY FOLLOWING THE PRECEDENT WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF A.O. FOR FRESH DECISION AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5. GROUND NO.1 OF THE ASSESSEES CROSS OBJECTION IS AGAINST NOT ADJUDICATING THE ASSESSEES GRIEVANCE ABOUT FOREX LOSS ADJUSTMEN T IN CONSIDERING ITS PROFITABILITY. IT HAS BEEN STATED IN THE GROUND THA T THE TPO COMMITTED AN ERROR WHILE ADJUSTING THE ALP ON THIS ISSUE. WHEN THE ENT IRE COMPUTATION OF ARMS LENGTH PRICE HAS BEEN RESTORED BY US TO THE FILE OF A.O., THIS GRIEVANCE OF THE ASSESSEE WOULD BE TAKEN CARE OF BY THE A.O. IN THE FRESH DETERMINATION. 6. GROUND NO.2 IS AGAINST THE CONFIRMATION OF ADHOC DISALLOWANCE OF ` 19,950 OUT OF BUSINESS PROMOTION EXPENSES. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF ` 99,751 BEING BUSINESS PROMOTION EXPENSES ON ACCOUNT OF PAYMENTS MADE TO N EW KENILSWORTH HOTEL, KOLKATA, GOLDEN PARK, KOLKATA, CALCUTTA ROWING CLUB AND CAPT. CHATTOPADHYAY. WHEN THE ASSESSEE WAS CALLED UPON TO FURNISH THE JUSTIFICATION FOR DEDUCTIBILITY OF SUCH EXPENSES, IT WAS REPLIED THAT ALL THE BUSINESS PROMOTION EXPENSES WERE INITIALLY PAID BY THE COMPANYS EMPLO YEES AND SUBSEQUENTLY REIMBURSED BY THE ASSESSEE. THE A.O. MADE DISALLOWA NCE AT THE RATE OF 20% OF SUCH EXPENSES, WHICH CAME TO BE APPROVED IN THE FIR ST APPEAL. 7. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ABOV E EXPENSES WERE INCURRED BY THE EMPLOYEES OF THE ASSESSEE-COMPANY WHICH WERE REIMBURSED. IN SUCH A SITUATION, THERE CANNOT BE ANY QUESTION OF PERSONAL EXPENSES OF THE ASSESSEE IN ITA NO.1548 & CO 171/MUM/2009 M/S.MITSUI O.S.K. LINES MARITIME (INDIA) PVT.LTD. 4 THE ABOVE PAYMENTS BECAUSE THE ASSESSEE IS DISTINC T FROM ITS EMPLOYEES. AS THE EXPENSES WERE INCURRED BY THE EMPLOYEES OF THE COMP ANY, WHICH FACT HAS NOT BEEN DISPUTED, IN OUR CONSIDERED OPINION THE AUTHOR ITIES BELOW WERE NOT JUSTIFIED IN SUSTAINING THIS ADDITION. WE, THEREFOR E, ORDER FOR THE DELETION OF THIS ADDITION. 8. LAST GROUND IS AGAINST DEDUCTIBILITY OF A SUM OF ` 1,40,008 ON ACCOUNT OF FUNERAL AND TRIBUTE EXPENSES. THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY EXPIRED AND THESE EXPENSES WERE INCURRED ON HIS FUN ERAL AS A TOKEN OF GRATITUDE FOR THE BEST SERVICES PROVIDED BY THE M.D. THE A.O. DISALLOWED THIS EXPENDITURE. THE LEARNED CIT(A) ECHOED THE ASSESSME NT ORDER ON THIS POINT. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE MANAGING DIRECTOR OF THE ASSESSEE-COMPANY EXPIRED AND THESE EXPENSES WER E INCURRED ON HIS FUNERAL. IN INCURRING SUCH EXPENSES THE COMPANY HAS RECOGNIZ ED THE VALUABLE SERVICES RENDERED BY THE M.D. IN DOING SO IT EARNED ESTEEM I N THE EYES OF OTHER WORKERS. BY NO STRETCH, THIS EXPENDITURE CAN BE SAID TO BE UNRELATED TO THE BUSINESS PURPOSES. WE, THEREFORE, ORDER FOR THE DELETION OF THIS ADDITION. THIS GROUND IS ALLOWED. 10. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND THE ASSESSEES CROSS OBJECTION IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF FEBRUARY, 2012. SD/- SD/- (N.V.VASUDEVAN) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 15 TH FEBRUARY, 2012. DEVDAS* ITA NO.1548 & CO 171/MUM/2009 M/S.MITSUI O.S.K. LINES MARITIME (INDIA) PVT.LTD. 5 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A)-XXXII, MUMBAI 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.