The ACIT, Circle-4, Baroda V. Panasonic Energy India Co.Ltd, Baroda

ITA 1036/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1697 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 11-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHM EDABAD , (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) ( , !'# $ , ! %& ) ITA NO. 1036/AHD/2012 (ASSESSMENT YEAR: 2007-08) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, BARODA VS. M/S. PANASONIC ENERGY INDIA CO. LTD. GIDC, MAKARPURA, PB NO.719, BARODA 390 010 PAN NO. AAACL3332K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY AGRAWAL, CIT D. R. RESPONDENT BY : SHRI MILIN MEHTA, A.R. DATE OF HEARING : 04 -04-2 016 DATE OF PRONOUNCEMENT : 17 -05-2016 ( )/ ORDER PER ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-III, BARODA, DATED 10.02.2012 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER: 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN TH E BUSINESS OF MANUFACTURING, TRADING AND EXPORT OF DRY BATTERIES, RAW MATERIALS, MACHINERY AND ITA NO.1036/AHD/12 (ACIT VS. M/S. PANASONIC ENERG Y INDIA CO. LTD.) A.Y. 07-08 2 ITS SPARES USED FOR MANUFACTURING DRY BATTERIES AND TRADING OF DRY BATTERY OPERATED APPLIANCES. ASSESSEE ELECTRONICALLY FILED ITS RET URN OF INCOME FOR A.Y. 2007-08 ON 26.09.2008 DECLARING TOTAL LOSS OF RS.1,58,44,06 4/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, ASSESSMENT WAS FRAMED U/S. 143(3) R.W.S. 92C AND 144C OF THE ACT VIDE ORDER DATED 24.01.2011 AND THE TOTAL I NCOME WAS DETERMINED AT RS. 4,30,53,805/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 10.02.20 12 (IN APPEAL NO. CAB /III- 248/10-11) GRANTED SUBSTANTIAL RELIEF TO THE ASSESS EE. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE ARMS LENGTH P RICE DETERMINED BY THE AO AT NIL IS NOT CORRECT WITHOUT CONSIDERING THE FI NDING AND LEGAL ASPECTS OF THE TRANSACTION ELABORATED BY THE TPO IN HIS ORD ER. 4. BEFORE US, LD. D.R. SUBMITTED THAT THE SOLITARY ISSUE IS WITH RESPECT TO ARMS LENGTH PRICE (ALP) DETERMINED BY THE A.O. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A .O. NOTICED THAT ASSESSEE HAD INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTER PRISE (AE). A REFERENCE U/S.92CA(1) OF THE ACT WAS MADE TO TPO FOR COMPUTAT ION OF ALP. THE TPO VIDE ORDER DATED 21.10.2010 MANDATED TO MAKE UPWARD ADJU STMENT OF RS.5,12,48,366/- TO BE MADE TO THE TOTAL INCOME OF THE ASSESSEE. A. O. ACCORDINGLY MADE AN ADDITION OF THE SAME. 6. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION MADE BY THE A.O. BY HOLDING AS UNDER: ITA NO.1036/AHD/12 (ACIT VS. M/S. PANASONIC ENERG Y INDIA CO. LTD.) A.Y. 07-08 3 4.3 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE F ACTS OF THE CASE, ARGUMENTS ADVANCED BY THE AR AS ALSO THE OBSERVATION OF THE A SSESSING OFFICER AND TPO. IN THIS CASE, THE ADJUSTMENTS U/S.92C ON ACCOUNT OF ROYALTY PAID BY THE APPELLANT AND ITS AE WERE MADE FOR THE A.Y. 2003-04 AND 2004-05 AS THE A PPELLANT COULD NOT FURNISH THE DETAILS ASKED FOR BY THE TPO IN THOSE YEARS. BUT T HE APPELLANT COULD FURNISH SUCH EVIDENCE AND DETAILS FOR THE A.Y. 2006-07 RELYING U PON WHICH NO ADJUSTMENT U/S.92C WAS MADE. NOW, THE CURRENT YEAR I.E., A.Y. 2007-08 THE TPO HAS AGAIN DISALLOWED THE PAYMENT MADE FOR ROYALTY. IN THE SHOW CAUSE NOTICE ISSUE FOR MAKING THIS DISALLOWANCE THE TPO HAS ASKED THE APPELLANT TO SHOW CAUSE AS TO WHY THE ARM'S LENGTH PRICE OF THE ROYALTY PAYMENT SHOULD NOT BE DETERMINED AT NIL AS THE APPELLANT COMPANY HAS MADE LOSS AND ALSO PAID ROYALTY OF 5.12 CRORES TO ITS AE DURING THIS A.Y. THE APPELLANT HAD REPLIED TO THE A.O. THAT ADJUSTMENT U/S 92C OF THE I.T. ACT FOR DETERMINING THE ARM'S LENGTH PRICE CAN BE MADE BY 5 METHODS AS PRESCRIBED UNDER THIS SECTION ONLY. THE ACTION OF THE TPO IN CONSIDERING ARM'S LENGTH PRICE OF ROYALTY AT NIL ON THE BASIS OF LOSS INCURRED BY THE APPELLANT IS NOT SUPPORTED BY ANY O F THE PRESCRIBED METHODS. BESIDES, THE APPELLANT ALSO EXPLAINED THAT THE LOSS WAS ON A CCOUNT OF HIGH RISE IN THE PRICE OF ZINC, WHICH WAS ALMOST ENTIRELY PURCHASED FROM NON AE COMPANIES. THE TPO AT THE END OF HIS ORDER HAS STATED AS FOLLOWS: 'IT IS SEEN FROM THE DOCUMENTS THAT THE ASSESSEE CO MPANY HAS BEEN PAYING ROYALTY SINCE 1973. (1) THE ASSESSEE COMPANY USING SELF GENERATED NOVIN O. SO THERE IS NO ISSUE OF TRADEMARK. (2) THE ASSESSEE COULD NOT EXPLAIN THE BENEFIT OF T HIS TECHNICAL KNOWLEDGE. (3) THE ASSESSEE COULD NOT EXPLAIN WHICH TYPE OF TE CHNICAL KNOWLEDGE RECEIVED. (4) THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURIN G OF ZINC CARBON DRY CELL BATTERIES. FOR THE DRY CELL BATTERIES NEED NOT REQUIRE THE HIGHLY TECHNOLOGICAL SKILL. (5) THE ASSESSEE COMPANY DID NOT PROVIDE THE ROYALT Y AGREEMENT OF THE GROUP COMPANIES. (6) THE TECHNOLOGY OF DRY CELL BATTERIES IS AVAILAB LE EVERYWHERE. WE CAN SEE FROM THE INTERNET, BOOKS ETC. (7) AS PER THE PATENT ACT, 2005, THE PRODUCT PATENT 'IS ONLY FOR 20 YEARS. AFTER 20 YEARS PATENTED PRODUCT IS AVAILABLE FOR EVERYONE . THE ASSESSEE COMPANY HAS BEEN PAYING ROYALTY SINCE 1972. 8) THE CONTENTION OF THE ASSESSEE THAT THE ZINC PRICE INCREASED IN F.Y.2006- 07 AND DUE TO THIS THE ASSESSEE COMPANY HAS MADE LOSS.CONTENTION OF THE ITA NO.1036/AHD/12 (ACIT VS. M/S. PANASONIC ENERG Y INDIA CO. LTD.) A.Y. 07-08 4 ASSESSEE IS CONSIDERED BUT NOT ACCEPTABLE BECAUSE T HERE IS NO RELATIONSHIP BETWEEN ZINC PRICE AND ROYALTY. (9) THE ASSESSES CONTENDED THAT THE SITUATION IS AG GRAVATED BY DUMPING OF CHINESE DRY CELL BATTERIES, THEREFORE THE COMPANY C OULD NOT FULLY PASS ON THE IMPACT OF INCREASED COST OF MANUFACTURING TO THE CU STOMER. IT IS SEEN THAT THE TECHNOLOGY OF DRY CELL BATTERIES IS AVAILABLE EVERY WHERE AND THERE IS NO NEED TO PAY ANY ROYALTY FOR THE TECHNICAL KNOWLEDGE. (10) THE ASSESSEE COMPANY HAS MADE LOSS (OP/SALES = (-2.2%) AND PAID ROYALTY OF 5.12 CRORES (ROYALTY / SALES = 2.24%) TO THE AE, THERE BEING NO BENEFIT ACCORDING TO THE ASSESSEE ON THIS PAYMENT. THEREFORE, THE ARM'S LENGTH PRICE OF THE ROYALTY PAID BY THE ASSESSEE COMPANY TO THE AE IS DETERMINED AS NIL 4.3.1 THE APPELLANT HAS SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS THAT SUBSEQUENT TO THIS ORDER, THE TPO AGAIN FOR THE A.Y . 2008-09, HAS PASSED AN ORDER U/S 92C ON 07.10.2011 IN WHICH NO ADJUSTMENT HAS BEEN M ADE. THUS, ON SIMILAR FACTS THE TPO HAS ACCEPTED THE APPELLANT'S CONTENTION FOR A.Y . 2006-07 AND 2008-09 BUT HAS REJECTED IN THE CURRENT YEAR I.E. A.Y. 2007-08 ONLY BECAUSE IN THIS YEAR, THE APPELLANT HAS SUFFERED A LOSS. SINCE THE APPELLANT HAS BEEN M AKING PAYMENT OF SUCH ROYALTIES FOR MANY YEARS AND THERE HAS BEEN NO CHANGE IN THE FORM ULA EMPLOYED FOR CALCULATING THE ROYALTY PAYMENT, HENCE, THE LOSS IN THE CURRENT YEA R CANNOT BE ATTRIBUTED TO SUCH ROYALTY PAYMENT. ON THE OTHER HAND, THE APPELLANT HAS BEEN ABLE TO EXPLAIN THAT LOSS WAS ON ACCOUNT OF SUDDEN INCREASE IN THE PRICE OF ZINC. NO W DETERMINING THE ALP OF ROYALTY AT NIL ONLY BECAUSE IN THIS PARTICULAR A.Y., THE APPEL LANT HAS SUFFERED A LOSS AND THAT TOO IN CIRCUMSTANCES IN WHICH THE ROYALTY PAYMENT IS NOT M AKING ANY CONTRIBUTION TOWARDS FACTORS LEADING TO LOSS AS COMPARED TO OTHER YEARS, IS CERTAINLY NOT WARRANTED IN ALL THE FIVE METHODS PRESCRIBED U/S 92C FOR THE PURPOSES OF DETERMINING THE ALP. IN SUCH CIRCUMSTANCES, THE ALP DETERMINED BY THE A.O. AT NI L IS NOT CORRECT. ACCORDINGLY, THE ADJUSTMENT MADE BY THE TPO ON OF ROYALTY IS DIRECTE D TO BE DELETED. 7. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 7.1 BEFORE US, D.R. SUPPORTED THE ORDERS OF A.O. AN D FURTHER SUBMITTED THAT IF NO ANALYSIS WAS CARRIED OUT AT THE END OF TPO, THE ANALYSIS SHOULD HAVE BEEN MADE BY THE LD. CIT(A) AS HIS POWERS ARE CO-TERMINU S WITH THAT OF A.O. HE, THEREFORE, SUBMITTED THAT THE ORDER OF ASSESSING OF FICER BE UPHELD OR IN THE ALTERNATIVE, THE MATTER MAY BE SET ASIDE TO THE A.O . LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE HAS BEEN PAYING ROYALTY TO ITS ASSOCIATE ENTERPRISE IN ITA NO.1036/AHD/12 (ACIT VS. M/S. PANASONIC ENERG Y INDIA CO. LTD.) A.Y. 07-08 5 EARLIER YEARS AND HAS ALSO PAID ROYALTY IN SUBSEQUE NT YEARS ALSO, THE PAYMENT OF ROYALTY HAS BEEN ALLOWED IN IMMEDIATE PRECEDING YEA R AND IN SUBSEQUENT YEARS AND THAT THERE IS NO CHANGE IN THE METHOD OF CALCUL ATION OF ROYALTY OR THE ASSOCIATE ENTERPRISE INVOLVED. HE SUBMITTED THAT THE ONLY REASON FOR ADJUSTMENT OF ROYALTY PAYMENT MADE IN A.Y. 2003-04 AND A.Y. 20 04-05 BY THE TPO IN THOSE YEARS WAS THAT THE ASSESSEE HAD NOT FURNISHED THE DETAILS REQUIRED BUT FOR AY 2006-07 ON THE FINISHING OF REQUIRED DETAILS, NO ADJUSTMENT WERE MADE U/S. 92C OF THE ACT. HE FURTHER SUBMITTED THAT THE ADDITION MADE BY THE TPO ON ACCOUNT OF UPWARD ADJUSTMENT ON ACCOUNT OF ROYALTY PAYMENT WA S DELETED BY LD. CIT(A) AND THE ORDER OF LD. CIT(A) HAS BEEN ACCEPTED BY REVENU E AND NO APPEAL HAS BEEN PREFERRED BY THE REVENUE FOR AY 2005-06. HE POINTE D OUT TO THE RELEVANT FINDINGS OF LD. CIT(A) FOR A.Y. 2005-06 AT PAGE NOS . 227-278 OF THE ORDER. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DEL HI) AND PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE, THUS, SUPP ORTED THE ORDER OF LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. 8THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO U PWARD ADJUSTMENT MADE ON ACCOUNT OF ROYALTY PAYMENT BY THE ASSESSEE TO ITS A SSOCIATE ENTERPRISE. BEFORE US, LD. A.R. SUBMITTED THAT ASSESSEE HAS BEEN MAKING PA YMENT OF ROYALTY TO THE SAME ASSOCIATE ENTERPRISE IN EARLIER YEARS AND IN SUBSEQ UENT YEARS AND THERE IS NO CHANGE IN THE METHOD OF CALCULATION OF ROYALTY OR T HE METHOD AND PAYMENT OF ROYALTY HAS BEEN ACCEPTED BY THE REVENUE. WE ALSO FIND THAT ADJUSTMENT ON ACCOUNT OF ROYALTY PAYMENT WAS MADE IN A.Y. 2006-07 BY THE A.O. BUT THE SAME WAS DELETED BY THE LD. CIT(A) VIDE ORDER DATED 28.0 3.2014. THE LD.AR HAS SUBMITTED THAT THE ORDER OF CIT(A) FOR AY 2006-07 H AS BEEN ACCEPTED BY ITA NO.1036/AHD/12 (ACIT VS. M/S. PANASONIC ENERG Y INDIA CO. LTD.) A.Y. 07-08 6 REVENUE HAS ACCEPTED THE ORDER AND HAS NOT PREFERRE D ANY APPEAL BEFORE THE TRIBUNAL. WE FURTHER FIND THAT LD. CIT(A) HAS GIVE N A FINDING THAT THE LOSS IN CURRENT YEAR CANNOT BE ATTRIBUTED TO THE ROYALTY PA YMENT AND IT WAS ON ACCOUNT OF SUDDEN INCREASE IN THE PRICE OF ZINC. BEFORE US, R EVENUE HAS NOT PLACED ANY MATERIAL TO CONTROVERT THE SUBMISSIONS OF LD.AR NOR HAS CONTROVERTED THE FINDINGS OF LD.CIT(A). IN VIEW OF THE AFORESAID FACTS, WE F IND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). THUS, THIS GROUND OF REVE NUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN OPEN COURT ON 17/ 05/ - 2016 SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 17/05/2016 S K SINHA/TC NAIR COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPO NDENT. 3. THE CIT (APPEALS) III, BARODA 4. THE CIT CONCERNED.,5. THE DR., ITAT, AHMEDABAD., 6. GUARD FILE. BY ORD ER //TRUE COPY// DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDAB AD 1.DATE OF DICTATION 04.04.2016 (DICTATION-PAD ATT ACHED WITH THIS APPEAL-FILE) 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E OTHER MEMBER 11-04-2016/13.5.2016 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. .04.2016 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .04.2016 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 17/5/16 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/5/16 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER