Ahlers India Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1071/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7588 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 31-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Keywords: Transfer pricing; TDS
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 40(a)(ia); 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.1071/MDS./2016 / ASSESSMENT YEAR : 2011-12 M/S.AHLERS INDIA PVT LTD ., THE TRAPEZIUM 2 ND FLOOR, NO.39, NELSON MANICKAM ROAD, AMINJIKARAI, CHENNAI 600 029. VS. THE DCIT, COMPANY CIRCLE 1(1), CHENNAI 600 034. [PAN AAECA 5688 H ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.VIKRAM VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR.PATHLAVATH PEERYA, CIT D.R / DATE OF HEARING : 31 - 01 - 201 7 / DATE OF PRONOUNCEMENT : 03 - 03 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST A SSESSMENT ORDER DATED 16.02.2016 FOR A.Y 2011-12, CONSEQUENT TO THE DIRECTIONS ITA NO.1071/16 :- 2 -: OF THE DISPUTE RESOLUTION PANEL-2 (DRP), BANGALORE, DATED 29.12.2015 U/S. 143(3) R.W.S.92CA OF THE ACT. 2. THE FIRST GROUND FOR OUR CONSIDERATION IS WITH REGARD TO DISALLOWANCE U/S.40(A)(I) OF THE ACT TOWARDS EXPENS ES OF 2,26,73,426/- PAID TO VARIOUS RESIDENT PARTIES. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE MA DE THESE PAYMENTS TO VARIOUS RESIDENT PARTIES WITHOUT DEDUCT ION OF TAX DEDUCTION AT SOURCE (TDS). THE SAME WAS DISALLOWED BY THE AO BY INVOKING THE PROVISIONS OF THE SECTION 40(A)(I) OF THE ACT. AT THE TIME OF HEARING, IT WAS SUBMITTED BEFORE US THAT IN VIEW OF PROVISIONS OF THE SECTION 40(A)(I) OF THE ACT WHERE THE RECIPIENT OF ABOVE PAYMENTS HAVE INCLUDED THE SAME AS INCOME IN THEIR RETURN OF INCOME AND DISCHARGED THEIR OBLIGATION BY DULY FILING THE RETU RN OF INCOME FOR RELEVANT TO ASSESSMENT YEAR, THE DISALLOWANCE CANNO T BE MADE IN THE HANDS OF ASSESSEE. 3.1 WE FIND FORCE IN THE ARGUMENT OF THE LD.A.R. A S HELD BY THE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD., REPORTED IN 377 ITR 635(DEL.) IS THAT THE INS ERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FI NANCE ACT, 2012 WITH ITA NO.1071/16 :- 3 -: EFFECT FROM 1 ST APRIL 2013 WHEREIN THE ASSESSEE FAILED TO DEDUCT T AX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER-XVII B AS LONG AS THE PAYEE OR RESIDENT HAS FILED ITS RETURN OF INCOME DISCLOSI NG THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NO T BE TREATED AS A PERSON IN DEFAULT. HENCE, IN OUR OPINION, IF THE R ECIPIENT OF THE PAYMENT HAS DISCLOSED THE IMPUGNED RECEIPT AS THEIR INCOME, THEN THE ASSESSEE CANNOT BE CONSIDERED AS THE ASSESSEE IN DE FAULT IN TERMS OF SEC.201(1) OF THE ACT SO AS TO INVOKE THE PROVISION S OF THE SECTION 40(A)(I) OF THE ACT. ACCORDINGLY, WE REMIT THIS IS SUE TO THE FILE OF AO TO EXAMINE THE APPLICABILITY OF THE SAID PROVISO TO SE C.40(A)(I) OF THE ACT AND DECIDE ACCORDINGLY. THEREFORE, THE ISSUE IS REM ITTED TO THE FILE OF AO FOR FRESH CONSIDERATION. THIS GROUND IS PARTLY A LLOWED. 4. THE SECOND GROUND IS WITH REGARD TO DISALLOWANC E U/S.40(A)(I) OF THE ACT FOR PAYMENTS MADE TO AGENTS OF NON-RESIDENT SHIP OWNERS/CHARTERS - ` 1,01,83,321/-. 5. THE LD.A.R SUBMITTED THAT PAYMENTS MADE TO FORE IGN SHIPPING AGENT WILL NOT BE SUBJECT TO TDS AS THE SA ID RECIPIENT WILL FALL U/S.172 OF THE ACT WHICH IS A SEPARATE CODE BY ITSE LF. HE PLACED RELIANCE ON CBDT CIRCULAR NO.723 DATED 19.09.1995. ACCORDING TO HIM, ITA NO.1071/16 :- 4 -: THE RATIO LAID DOWN IN THE CASE OF POOMPUHAR SHIPPI NG CORPN. VS. ITO IN 360 ITR 257 (MAD.)CANNOT BE APPLIED. THE ASSESSE E IS MERELY PROVIDES CARGO HANDLING AND FREIGHT FORWARDING SERV ICES AS EVIDENCED BY ITS DECLARATION IN FORM 3 CD AS SERVICE SECTOR AND FURTHER THE NATURE OF PAYMENTS, THE QUANTUM OF SUCH PAYMENTS MA DE AS NUMBER OF PAYMENTS MADE THROUGHOUT THE YEAR BY THE ASSESSE E TO FOREIGN SHIP OWNERS AND AGENTS CLEARLY SHOW THAT THIS IS ONLY FOR BOOKING CARGO AND NOT FOR CONTROLLING THE ENTIRE VESSEL, CREW, TI ME AND SCHEDULE (TIME CHARTER) AS ENVISAGED IN POOMPUHAR SHIPPING (SUPRA ). HE SUBMITTED THE ISSUE MAY BE REMITTED TO THE FILE OF AO TO EXAM INE THE ABOVE FACTS AND DECIDE ACCORDINGLY. HE ALSO RELIED ON THE ORDER OF TRIBUNAL IN THE CASE OF SICAL LOGISTICS LTD., IN ITA NO.1074/MDS./ /2015 VIDE ORDER DATED 14.12.2016 WHICH CLEARLY OBSERVED THAT THERE IS A DIFFERENCE BETWEEN BOOKING CONTAINER CARGO/FREIGHT IN A SHIP A S OPPOSED TO CONTROLLING THE SHIP; THE FORMER WILL NOT BE ROYAL TY AS IS IN THE INSTANT CASE AND HENCE THERE IS NO TDS REQUIRED UNDER THE ACT AND RELEVANT ACT. 6. LD.D.R RELIED ON THE ORDER OF LOWER AUTHORITIES . 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF LD.A.R IS THAT IN T HESE CASES, THE ITA NO.1071/16 :- 5 -: AMOUNT PAID BY THE ASSESSEE TO FOREIGN SHIPPING COM PANY ON TIME CHARTER AGREEMENT WOULD NOT AMOUNT TO ROYALTY NEI THER UNDER EXPLANATION-2 OR U/S.9(1)(B)(II) OF THE ACT. IN TH IS CASE SEC.172 ONLY APPLIES AND THERE IS NO NECESSITY OF DEDUCTION ON T HE ABOVE PAYMENTS AS IT IS NOT A ROYALTY. IN OUR OPINION, THE APPLI CABILITY OF SEC.172 TO BE EXAMINED AFTER VERIFYING THE RELEVANT AGREEMENT ENTERED BY THE ASSESSEE WITH FOREIGN SHIPPING COMPANY AND ACCORDIN GLY, WE REMIT TO THE FILE OF AO TO EXAMINE THE CONCERN AGREEMENT WIT H THE FOREIGN SHIPPING COMPANY ENTERED BY THE ASSESSEE AND DECIDE IN THE LIGHT OF THE ORDER OF TRIBUNAL CITED IN THE CASE OF SICAL LO GISTICS LTD. (SUPRA). ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILE OF LD. ASSESSING OFFICER TO CONSIDER AFRESH AND DECIDE ACCORDINGLY. 8. THE THIRD GROUND FOR OUR CONSIDERATION IS WITH REGARD TO REJECTING THE FOLLOWING COMPARABLES BY THE TPO/DRP, WHICH ARE SUBMITTED BY THE IN ITS TRANSFER PRICING DOCUMENTS: I. M/S.GORDON WOODROFFEE LOGISTICS LTD., II.M/S.HINUDSTAN CARGO LTD., & M/S.TIGER LOGISTICE (INIA) LTD. ITA NO.1071/16 :- 6 -: 8.1 M/S.GORDON WOODROFFEE LOGISTICS LTD., THIS COMPANY HAS BEEN REJECTED BY THE TPO ON THE REASON THAT THIS COMPANY HAS BEEN MAKING PERSISTENT LOSS. HOWEVER, AT THE TIME OF HEARING, LD.A.R DREW OUR ATTENTION TO THE P APER BOOK SHOWING THAT THE ASSESSEE INCURRED LOSS ONLY IN THE FINANCI AL YEARS 2009-10 AND 2010-11. HOWEVER, IT MADE PROFITS IN THE FINANCIAL YEARS 2011-12, 2012-13 & 2013-14. 8.2 WE HAVE CAREFULLY GONE THROUGH THE ABOVE SUBMI SSIONS OF LD.A.R. AS SEEN FROM THE FINANCIAL DETAILS SUBMITTE D BY LD.A.R, THAT ASSESSEE MADE LOSS IN FINANCIAL YEARS 2009-10 & 201 1-12 AND THERE WAS A SMALL PROFIT OF RS.1/- CRORE IN FINANCIAL YE AR 2009-10. THE FINANCIAL YEAR INVOLVED HEREIN IS 2010-11 RELEVANT TO ASSESSMENT YEAR 2011-12. SINCE THE GORDON WOODROFFE LOGISTICS IS IN CURRED LOSS IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO IN THE EARLIER YEAR , IN OUR OPINION IT CANNOT BE CONSIDERED AS COMPARABLES TO THE ASSESSEE COMPANY. ACCORDINGLY, THE REJECTION OF THE TPO IS J USTIFIED. 8.3 M/S.HINUDSTAN CARGO LTD., & M/S.TIGER LOGISTI CE (INIA) LTD. THIS COMPANY WAS REJECTED BY THE TPO ON THE REASON THAT THIS COMPANY IS FOLLOWING DIFFERENT FINANCIAL YEAR. IN OUR OPINION AS HELD BY THE CO-ORDINATE BENCH IN THE CASE OF RR DON NELLEY INDIA ITA NO.1071/16 :- 7 -: OUTSOURCE IN ITA NO.678/MDS./2015 VIDE ORDER DATED 18.08.2016, WHEN THE COMPARABLES FOLLOWING THE DIFFERENT ACCOUN TING YEAR TO PRESENT THEIR FINANCIAL STATEMENT, IT IS APPROPRIAT E TO RECAST THE FINANCIALS FOR THE RELEVANT PERIOD AS COMPARABLE TO THE ASSESSEES CASE, THEN TO COMPARE WITH THE ASSESSEE. ACCORDINGLY, TH E ASSESSEE IS DIRECTED TO FURNISH THE DATA FOR THE FINANCIAL YEAR 2010-11 (FIRST APRIL, 31 ST MARCH) TO THE TPO, WHO AFTER DUE VERIFICATION, SHA LL CONSIDER THE SAME AS COMPARABLE TO THE ASSESSEES CASE SO AS TO DETERMINE THE ALP AS HELD BY THE TRIBUNAL IN THE CASE OF RR DONNELLY INDIA OUTSOURCE PVT LT. VS. DCIT (SUPRA) 9. THE FOURTH GROUND IS WITH REGARD TO WRONGLY SEL ECTING THE FOLLOWING COMPARABLES:- I) NR INTERNATIONAL LTD. II) NATURA HUE CHEM L TD. 9.1 ACCORDING TO LD.A.R, NR INTERNATIONAL LTD . WAS WRONGLY SELECTED AS COMPARABLE TO THE ASSESSEES CASE. HE S UBMITTED THAT THIS COMPANY WAS HAVING INVENTORY OF COMMERCIAL VEHICLES (PAPER BOOK 2, AT PAGE NO.137) AND THE OPERATING EXPENSES RELATED TO THE SAME A PAGE 141 OF PAPER BOOK. AS PER ANNUAL REPORT, THIS COMPANY, VIZ. M/S.NR INTERNATIONAL LTD. IS INTO BULK IMPORT OF CO AL AND HAVING DIFFERENT PROFILE FROM THE ASSESSEE WHICH DOES NOT CARRY ANY INVENTORY ITA NO.1071/16 :- 8 -: AND MERE HANDLES CARGO/BOOKS FREIGHT IN CONSIGNMENT S. HE SUBMITTED THAT IT CANNOT BE COMPARED TO THE ASSESSEES CASE. 9.2 ON THE OTHER HAND, LD.D.R SUBMITTED THAT ONLY SEGMENTAL DATA WAS CONSIDERED FOR COMPARISON. AS SUCH IT CAN NOT BE REJECTED. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THOUGH THE COMPANY IS ENGAGED VARIOUS OTH ER BUSINESS, THE TPO CONSIDERED THE DATA RELEVANT TO THE CARGO HANDL ING, LOGISTICS AND FREIGHT. THE SEPARATE SEGMENTAL DETAILS WAS AVAILAB LE IN THE FINANCIAL STATEMENT. BEING SO, WE DO NOT FIND ANY INFIRMITY I N CONSIDERING THE SAME AS COMPARABLE. THIS PLEA OF THE ASSESSEE IS RE JECTED. 11. ACCORDING TO LD.A.R, NATURA HUE CHEM LTD. , IT IS ONLY HANDLING LOCAL CARGO AT VIZAG PORT. THE COMPANYS MAIN BUSIN ESS WAS HERBAL PLANTATION AND ONLY IN THIS YEAR THE COMPANY HAS DI VERSIFIED INTO CARGO HANDLING. ACCORDING TO LD.A.R, IT CANNOT BE CONSID ERED AS COMPARABLE IN THE ASSESSEES CASE. THIS COMPARABLE IS ENGAGED IN CARG O HANDLING, LOGISTICS AND FREIGHTS, SEGMENTAL WISE DETAILS ARE AVAILABLE FOR COMPARING WITH THE ASSESSEE COMPANY. HENCE, WE DO NOT FIND ANY INFIRMI TY IN CONSIDERING THIS COMPANY AS COMPARABLE WITH THE ASSESSEES CASE. ITA NO.1071/16 :- 9 -: 12. HENCE, THE FOURTH GROUND RAISED BY THE ASSESSE E IN PARA NO.9 IS REJECTED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 03 RD MARCH, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 03 RD MARCH, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 4. - 1 / CIT 2. / RESPONDENT 5. /23- 4 / DR 3. - 1-!' / CIT(A) 6. 3&-5 / GF