M/s DRHL India Services Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1022/BANG/2011

• Counselvise Citation: 102221114 RSA 2011
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 08-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIIIDR
• Assessee Lawyers: P DINESH
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Bonafide belief; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1022/BANG/2011 ASSESSMENT YEAR : 2007-08 M/S. DRHL INDIA SERVICES PVT. LTD., NO.14, 7 TH MAIN, 80 FEET ROAD, SUBBANAPALYA EXTN., BANGALORE 560 033. PAN : AABCD 5225A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI P. DINESH, ADVOCATE RESPONDENT BY : SHRI ETWA MUNDA, CIT-III(DR) DATE OF HEARING : 27.09.2012 DATE OF PRONOUNCEMENT : 05.10.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 25.08.2011 OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(1) , BANGALORE PASSED U/S. 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 , RELATING TO ASSESSMENT YEAR 2007-08. ITA NO.1022/BANG/11 PAGE 2 OF 6 2. THE MAIN GRIEVANCE OF THE ASSESSEE AS PROJECTED IN THE GROUNDS OF APPEAL IS WITH REGARD TO THE ACTION OF THE ASSESSIN G OFFICER IN MAKING AN ADDITION OF Q 1,88,86,325 BY WAY OF ADJUSTMENT TO ARMS LENGTH P RICE ( ALP ) IN RESPECT OF AN INTERNATIONAL TRANSACTION CARRI ED OUT BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE ( AE ). 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF FREIGHT FORWARDING ACTIVITIES. IT IS A WHOLLY OWNED SUBSID IARY OF DRH LOGISTICS INTERNATIONAL, SRI LANKA. DURING THE PREVIOUS YEA R, THE ASSESSEE PAID TO DRH INTERNATIONAL PVT. LTD., SRI LANKA A SUM OF Q 1,88,86,235 AS FRANCHISEE COMMISSION FOR SERVICES RENDERED TO THE ASSESSEE. THE NATURE OF THE SERVICES RENDERED WAS THAT THE HOLDING COMPA NY WHICH HAS A NETWORK ALL OVER SOUTHWEST ASIA AS WELL AS ITS CONN ECTIONS WORLDWIDE WITH AGENTS, PROCURES ORDERS FROM THE CUSTOMERS FOR FORW ARDING THE GOODS TO INDIA OR FROM INDIA. THE FRANCHISEE COMMISSION PAI D BY THE ASSESSEE TO THE HOLDING COMPANY WAS FOR SUCH SERVICES RENDERED. THE QUESTION BEFORE THE ASSESSING OFFICER WAS WITH REGARD TO THE ALP WI TH REGARD TO THE AFORESAID TRANSACTION. THE ASSESSEE SUBMITTED THAT 50% OF THE GROSS PROFIT WAS PAID TO THE HOLDING COMPANY AND THAT THE SAME W AS AT ARMS LENGTH. THIS WAS NOT ACCEPTED BY THE TPO FOR THE REASON THA T THE ASSESSEE DID NOT PROVE THAT SERVICES WERE ACTUALLY RENDERED AND THAT THE ASSESSEE DERIVED SUBSTANTIAL COMMERCIAL BENEFIT BY MAKING THE PAYMEN T TO THE HOLDING COMPANY. THE TPO THEREFORE APPLYING THE CUP METHO D, WAS OF THE VIEW THAT THE VALUE OF THE INTERNATIONAL TRANSACTION HAS TO BE ADOPTED AT NIL AND CONSEQUENTLY THE ENTIRE PAYMENT OF FRANCHISEE COMMI SSION OF Q ITA NO.1022/BANG/11 PAGE 3 OF 6 1,88,86,235 WAS TO BE TREATED AS ADJUSTMENT U/S. 92 CA OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE DRP CONFIRMED THE ORDER OF THE AO GIVING RIS E TO THE PRESENT APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING OF THIS APPEAL, THE LD. C OUNSEL FOR THE ASSESSEE FILED BEFORE US THE FOLLOWING DOCUMENTS:- 1. BRIEF NOTE TRANSFER PRICING NOTE ON COMPARABLE S. 2. ANNEXURE 3. SANCTION LETTER FROM HSBC 4. INSURANCE POLICY COPY FROM UNION ASSURANCE LTD. 5. POLICY NOTE SRILANKA EXPORT CREDIT INSURANCE CORPORATION 6. PERFORMANCE GUARANTEE PAPERS 7. FRANCHISE AGREEMENT 6. AN APPLICATION UNDER RULE 29 OF THE APPELLATE TR IBUNAL RULES, 1963 WAS ALSO FILED IN WHICH IT HAS BEEN SUBMITTED THAT THE AFORESAID DOCUMENTS ARE VERY CRUCIAL FOR DECIDING THE ALP OF THE INTERN ATIONAL TRANSACTIONS IN QUESTION AND THAT THE SAME WAS NOT PRODUCED BEFORE THE LOWER AUTHORITIES. IT HAS BEEN CLAIMED THAT THE ASSESSEE WAS UNDER A B ELIEF THAT THE EXPLANATION GIVEN BY IT BEFORE THE TPO AND DRP WOUL D BE SUFFICIENT. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT FOR A.Y. 2006-07 IN ITA NO. BANG/ , BY ORDER DATED 10.07.2012 IN RESPECT OF IDENTICAL TRAN SACTION WITH AN AE, SIMILAR ADJUSTMENT WAS MADE BY THE REVENUE AND THE ASSESSEE FILED ADDITIONAL EVIDENCE BEFORE THE TRIBUNAL. THE TRIBUN AL WAS PLEASED TO ACCEPT THE PRAYER OF THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE AND FURTHER THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO DECIDE THE ISSUE WITH REGARD TO THE ALP AFRESH. IT WAS THEREFORE PRAYED THAT SIMILAR ORDERS MAY BE PASSED IN THE PRESENT ASSESSMENT YEAR ALSO. ITA NO.1022/BANG/11 PAGE 4 OF 6 7. THE LD. DR HOWEVER RELIED ON THE ORDER OF THE AO AND FURTHER OPPOSED THE PRAYER FOR ADMISSION OF ADDITIONAL EVID ENCE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN ID ENTICAL CIRCUMSTANCES, THIS TRIBUNAL CONSIDERED AN IDENTICA L PLEA OF THE ASSESSEE IN A.Y. 2006-07 AND BY ORDER DATED 10.07.2012, THE TRI BUNAL HELD AS FOLLOWS:- 02. AT THE TIME OF HEARING THE LEARNED COUNSEL FO R THE ASSESSEE PLACED ON RECORD A PAPER BOOK CONSISTING OF 150 PAG ES COMPRISING THEREIN THE FOLLOWING MATERIALS : I) TRANSFER PRICING NOTE ON COMPARABLES II) ANNEXURES TO NOTE III) SANCTION LETTER FROM HSBC IV) INSURANCE POLICY COPY FROM UNION ASSURANCE LTD V) POLICY NOTE SRILANKA EXPORT CREDIT INSURANCE CORPORATION VI) FORM 36B VII) COPY OF ASSESSMENT ORDER VIII) COPY OF PROCEEDINGS OF THE DRP, BANGALORE IX) FORM 35A X) ORDER U/S.92CA XI) TRANSFER PRICING CORRESPONDENCES XII) FRANCHISE AGREEMENT XIII) FORM 3CEB XIV) FINANCIAL STATEMENTS BY PLACING THE ABOVE PAPER BOOK ON RECORD, THE LEAR NED COUNSEL FOR THE ASSESSEE WAS FAIR ENOUGH TO SUBMIT THAT ALL THESE MATERIAL ARE ADDITIONAL EVIDENCES FILED BEFORE THE TRIBUNAL FOR THE FIRST TIME. HE HAS ALSO MADE AN APPLICATION UNDER RULE 29 , WHEREIN IT IS STATED THAT EXCEPT FRANCHISE AGREEMENT, NONE OF THE OTHER DOCUMENTS FORMING PART OF THE ADDITIONAL EVIDENCES, COMPILED IN ITA NO.1022/BANG/11 PAGE 5 OF 6 THE PAPER BOOK COULD BE PRODUCED BEFORE THE LOWER A UTHORITIES SINCE THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF TH AT HAVING FURNISHED THE REQUIRED EXPLANATION, IT WAS ABLE TO CONVINCE THE ASSESSING OFFICER AND FURTHER SINCE THE ASSESSING O FFICER DID NOT ASK FOR FURTHER DETAILS, THE ASSESSEE ASSUMED THAT NO FURTHER DOCUMENTS ARE REQUIRED. IT WAS ALSO MENTIONED IN TH E APPLICATION THAT THE DOCUMENTS (ADDITIONAL EVIDENCES FILED) ARE VERY CRUCIAL IN ORDER TO JUSTIFY THE ALP AS ADMITTED BY THE APPELLA NT AND THE NON- PRODUCTION OF THESE DOCUMENTS BEFORE THE LOWER AUTH ORITIES ON ACCOUNT OF BONAFIDE REASONS NARRATED SUPRA AND NOT DUE TO MALAFIDE INTENTION. THUS, IT WAS PRAYED THAT THE AB OVE DOCUMENTS MAY BE ADMITTED IN THE INTEREST OF JUSTICE AND EQUI TY. 03. WE HAVE ALSO HEARD THE LEARNED DR WHO SUBMITTE D THAT IN CASE THESE ADDITIONAL EVIDENCES ARE ADMITTED THE MA TTER HAS TO BE REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH DE CISION FOR DETERMINING THE ALP. WE HAVE GONE THROUGH THE ADDIT IONAL EVIDENCES FILED BEFORE US IN THE LIGHT OF THE SUBMI SSIONS OF BOTH THE PARTIES. IN OUR CONSIDERED OPINION, THESE MATER IALS FILED FOR THE FIRST TIME BEFORE US ARE CRUCIAL IN DETERMINING THE ALP AND HENCE WE ADMIT THESE ADDITIONAL EVIDENCES. 04. HAVING ADMITTED THE ADDITIONAL EVIDENCES, WE D EEM IT FIT AND PROPER IN THE INTEREST OF NATURAL JUSTICE TO RE STORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION IN RESPECT OF DETERMINATION OF ALP. THE ASSESSEE SHALL PRODUCE COPIES OF THE ADDITIONAL EVIDENCES FILED BEFORE US TO THE ASSESSING OFFICER AND THE ASSESSING OFFICER AFTER CONSIDERING THESE MATERIALS AND AFTER GIVING EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE, DECIDE THE ISSUE IN RESPECT OF THE ALP. T HE ASSESSEE SHALL ALSO COOPERATE WITH THE ASSESSING OFFICER BY PRODUCING THE MATERIALS THAT MAY BE REQUIRED BY HIM. 05. THE ASSESSEE HAS ALSO TAKEN A GROUND IN RESPEC T OF LEVY OF INTEREST U/S.234D OF THE IT ACT. SINCE WE HAVE REST ORED THE MATTER TO DECIDE THE MAIN ISSUE RELATING TO TRANSFER PRICI NG, WE DIRECT THE ASSESSING OFFICER TO REDECIDE THIS ISSUE RELATING T O INTEREST U/S.234D OF THE ACT WHILE GIVING EFFECT TO OUR DIRE CTION IN RESPECT OF TRANSFER PRICING. 06. IN THE RESULT, THE ASSESSEE'S APPEAL IS ALLOWE D FOR STATISTICAL PURPOSE. 9. IT IS NOT IN DISPUTE BEFORE US THAT THE FACTS & CIRCUMSTANCES IN THE PRESENT ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS & CIRCUMSTANCES AS IT ITA NO.1022/BANG/11 PAGE 6 OF 6 PREVAILED IN THE A.Y. 2006-07. IN THE CIRCUMSTANCE S, WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE AFFORDED AN OPPORTUNITY TO SUBSTANTIATE THE ALP. WE THEREFORE ADMIT THE ADDITIONAL EVIDENCE AN D RESTORE THE MATTER BACK TO THE AO FOR FRESH DECISION WITH REGARD TO TH E ALP. THE ASSESSING OFFICER WILL DECIDE AFRESH AS PER THE DIRECTIONS GI VEN BY THE TRIBUNAL IN A.Y. 2006-07. 10. FOR STATISTICAL PURPOSES, THE APPEAL OF THE ASS ESSEE IS TREATED AS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF OCTOBER, 2012. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDICIAL MEMB ER BANGALORE, DATED, THE 5 TH OCTOBER , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.