M/sHIC-ABF Special Foods P. Ltd, Alappuzha V. The ACIT, Cochin

ITA 115/COCH/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7308 (ITAT-COCHIN)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 15-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Additional evidence
• 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; 92; 92A; 10B; 143(2)

Judgement Text

I.T.A. NO.115 /COCH/2016 1 , IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN . . , ., ! ! ! ! BEFORE S/SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM ' ' ' ' ./I.T.A. NO. 115 / COCH/2016 ( $% & /ASSESSMENT YEAR : 2011-12) M/S. HIC - ABF SPECIAL FOODS P. LTD., 11/B, PROJECT COLONY ROAD, INDUSTRIAL DEVELOPMENT AREA, AROOR POST, ALAPPUZHA-688534. VS THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-1(2), KOCHI. ( '( '( '( '( /ASSESSEE APPELLANT) ( )* )* )* )* '( '('( '( /REVENUE -RESPONDENT) ' . . ' ./PAN NO. AAACH 9887R '( + , /ASSESSEE BY SHRI A.K. JAIN, CA )* '( + , /REVENUE BY SHRI SHANTANU BOSE, CIT( DR) -. + /0 / DATE OF HEARING 15/11/2016 1 & + /0 /DATE OF PRONOUNCEMENT 07 TH /02/2017 ORDER PER GEORGE GEORGE K., JM TH IS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIRECT ED AGAINST THE FINAL ASSESSMENT ORDER DATED 29/01/2016 PASSED IN PURSUANCE OF THE D RP DIRECTIONS DATED 10/12/2015. THE RELEVANT ASSESSMENT YEAR IS 2011-12. I.T.A. NO.115 /COCH/2016 2 2. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF PROCESSING AND EXPORT OF FREEZE DRIED SHRIMPS. IT IS A SUBSIDIARY OF HIGASHIMARU INTERNATIONAL CORPORATION, JAPAN (HIC JAPAN). THE ASSESSEE EXPOR TS THE FREEZE DRIED SHRIMPS TO ITS AE I.E., HIC, JAPAN. THE ASSESSEE JUSTIFIED THE ALP OF ITS INTERNATIONAL TRANSACTIONS OF EXPORTS TO AE USING CUP METHOD IN I TS TP DOCUMENTATION. 2.1 THE RETURN OF INCOME WAS FILED ON 12/09/2011 DECLARING LOSS OF RS.21,91,804/- . NOTICE U/S. 143(2) WAS ISSUED AND SERVED. DETAIL S AND EXPLANATIONS WERE PROVIDED DURING THE ASSESSMENT. REFERENCE WAS MADE TO TPO FOR COMPUTATION OF ALP OF INTERNATIONAL TRANSACTIONS. THE TPO VIDE OR DER PASSED U/S. 92CA(3) ON 30/01/2015 AND DETERMINED THE TP ADJUSTMENT AT RS.1 3,22,27,883/-. THE TPO REJECTED THE ASSESSEES TP STUDY AND PROCEEDED TO M AKE AN INDEPENDENT SEARCH OF COMPARABLE TRANSACTIONS. ONLY ONE COMPANY VIZ., AC CELERATED FREEZE DRYING COMPANY LTD. (AFDC) WAS IDENTIFIED BY THE TPO AS TH E COMPARABLE COMPANY IN THE SEARCH PROCESS. AS PER THE TPO, THIS COMPANY WAS AL SO INVOLVED IN EXPORT OF FREEZE DRIED SHRIMPS FROM INDIA. THE TPO COLLECTED THE EX PORT DETAILS AND CORRESPONDING INVOICES OF THIS COMPANY U/S. 133(6). AS PER THE T PO, THE ASSESSEE WAS EXPORTING FREEZE DRIED SHRIMPS FROM INDIA. THE TPO COLLECTED THE EXPORT DETAILS AND CORRESPONDING INVOICES OF THIS COMPANY U/S. 133(6). AS PER THE TPO, THE ASSESSEE WAS EXPORTING FREEZE DRIED SHRIMPS AT AN AVERAGE PR ICE OF $18 PER KG WHEREAS THE I.T.A. NO.115 /COCH/2016 3 COMPARABLE COMPANY WAS EXPORTING THE SAME AT APPROX IMATELY $25 PER KG. THE TPO THEREFORE INFERRED THAT THE EXPORTS OF THE ASSE SSEE TO ITS PARENT COMPANY BEING AN AE ARE NOT AT ARMS LENGTH. WHEN THE ASSESSEE WAS CONFRONTED WITH THE PROPOSED TP ADJUSTMENT, THE ASSESSEE ARGUED THAT AF DC CANNOT BE CONSIDERED AS A COMPARABLE AT ALL FOR MULTIPLE REASONS. AS THESE R EASONS ARE NOT GERMANE FOR DECIDING THIS APPEAL, WE ARE NOT REPRODUCING THE SA ME FOR THE SAKE OF BREVITY. THE TPO FINALLY CONSIDERED THE COMPARABLE PRICE AT $25. 15 PER KG BASED ON THE SALES MADE BY AFDC TO ANOTHER ENTITY VIZ., INTERNATIONAL CREATIVE FOODS INC (ICF, USA). THE TPO DETERMINED THE TP ADJUSTMENT AT RS.13,22,27 ,883/- IN THE ORDER PASSED U/S. 92CA(3) DATED 30/01/2015. 2.3 THE ASSESSING OFFICER PASSED THE DRAFT ASSESS MENT ORDER ON 6.3.2015 DETERMINING THE TOTAL INCOME AT RS. 13,00,36,080. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP ON 15/04/2015. THE DRP REJECTED THE ASSESSEES OBJECTIONS AND PASSED THE DIRECTIONS ON 10/12/2015. THE ASSESSING OFFICER PASSED THE FINAL ASSESSMENT ORDER IN CONFORMITY WITH THE DRP DIRECTI ONS ON 29/01/2016 ASSESSING THE TOTAL INCOME AT RS.13,00,36,080/-. AGAINST THI S FINAL ASSESSMENT ORDER, THE ASSESSEE HAS FILED THE PRESENT APPEAL. 3. GROUND NO. 1.1 TO 1.4 DEALS WITH THE CONTENTIO NS THAT THE (I) ASSESSMENT ORDER WAS PASSED IN VIOLATION OF PRINCIPLES OF NATURAL JU STICE (II) ASSESSING OFFICER ERRED IN MAKING A REFERENCE TO TPO, (III) ASSESSING OFFICER ERRED IN NOT DEMONSTRATING THAT I.T.A. NO.115 /COCH/2016 4 THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OU TSIDE INDIA AND (IV) THE DRAFT ORDER PASSED BY THE ASSESSING OFFICER IS WITHOUT JURISDIC TION IN SO FAR AS IT PURPORTS TO GIVE EFFECT TO AN INVALID ORDER OF THE TPO. NO ARGUMENT S WERE MADE IN RESPECT OF THESE GROUNDS. HENCE, THESE GROUNDS ARE NOT CONSIDERED A ND DECIDED. 4. GROUND NO. 2 AND 3 DEALS WITH THE CONTENTION TH AT THE TPO ERRED IN CONSIDERING THE TRANSACTION ENTERED BY AFDC WITH ITS AE, ICF, US A AS A CUP FOR DETERMINING THE TP ADJUSTMENT. THESE GROUNDS ALSO DEAL WITH THE OT HER FACETS OF TP ADJUSTMENT LIKE THE PRODUCTS DEALT BY ICF, USA WERE NOT DEALT WITH BY THE ASSESSEE AND THE TPO ERRED IN NOT GIVING APPROPRIATE ADJUSTMENT FOR THE DIFFERENCE IN TRANSACTIONS OF ASSESSEE AND THAT OF ICF, USA. 5. THE ASSESSEE HAS ALSO FILED AN ADDITIONAL GROUN D DEALING WITH THE CONTENTION THAT THE ALP OF INTERNATIONAL TRANSACTIONS OF THE A SSESSEE SHOULD BE COMPUTED USING THE TNMM AS THE MARGINS EARNED BY THE ASSESSEE FALL WITHIN THE RANGE OF ACCEPTABLE RANGE AS PROVIDED UNDER SECOND PROVISO T O SECTION 92C(2) OF THE IT ACT AND HENCE THE INTERNATIONAL TRANSACTIONS ARE AT ARM S LENGTH. 6. WE HAVE CONSIDERED THE MATERIAL ON RECORD AND THE RIVAL CONTENTIONS. DURING THE COURSE OF HEARING, THE LEARNED DR SUBMITTED A R EPORT OF THE AD. CIT(TP), RANGE 2(3), KOCHI DATED 07/11/2016 WHEREIN IT WAS STATED THAT BOTH AFDC AND ICF, USA ARE ASSOCIATED ENTERPRISES IN TERMS OF SECTION 92A( 2)(B) AS MS. KAMLI THARAKAN IS I.T.A. NO.115 /COCH/2016 5 INDIRECTLY HOLDING MORE THAN 25% OF SHARE CAPITAL I N BOTH AFDC AND ICF, USA. THE ASSESSEE ALSO REITERATED THAT BOTH AFDC AND ICF, US A ARE AES U/S. 92A IN ITS APPLICATION FOR ADDITIONAL EVIDENCE AND GROUND UNDE R RULE 29 OF THE ITAT RULES. AS BOTH ASSESSEE AS WELL AS THE REVENUE AGREE THAT AFD C AND ICF, USA ARE ASSOCIATED ENTERPRISES, THE TRANSACTION BETWEEN THEM CANNOT BE CONSIDERED AS COMPARABLE UNCONTROLLED TRANSACTION IN TERMS OF RULE 10B OF TH E IT RULES. AS PER RULE 10A(AB), UNCONTROLLED TRANSACTION MEANS A TRANSACTION BETWEE N ENTERPRISES OTHER THAN ASSOCIATED ENTERPRISES, WHETHER RESIDENT OR NON-RES IDENT. IN THE PRESENT CASE, IT IS AN AGREED FACT THAT BOTH AFDC AND ICF, USA ARE ASSO CIATED ENTERPRISES. THUS, TRANSACTIONS BETWEEN THEM CANNOT BE CONSIDERED AS T HE UNCONTROLLED TRANSACTION. CONSEQUENTLY, THE ENTIRE BASIS OF TP ADJUSTMENT IS INCORRECT AND BAD IN LAW. THE TP ADJUSTMENT USING THE CUP METHOD IS ACCORDINGLY D ELETED. HOWEVER, THE TRIBUNAL BEING THE FINAL FACT FINDING AUTHORITY, HAS TO NECE SSARILY EXAMINE WHETHER THE INTERNATIONAL TRANSACTION ENTERED BY THE ASSESSEE W ITH ITS AE IS AT ARMS LENGTH USING THE OTHER METHODOLOGY PRESCRIBED UNDER RULE 1 0B OF THE IT RULES. MOREOVER, THE ASSESSEE HAS FILED ADDITIONAL GROUND OF APPEAL REGARDING COMPUTATION OF ALP UNDER TNMM, HENCE, WE REMIT THIS ISSUE TO THE FILE OF TPO FOR COMPUTATION OF ALP OF INTERNATIONAL TRANSACTIONS AS PER TNMM AND IN AC CORDANCE WITH LAW. OTHER GROUNDS REGARDING LEVY OF INTEREST ARE CONSEQUENTIA L IN NATURE. I.T.A. NO.115 /COCH/2016 6 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE O PEN COURT ON 7 TH -02-2017. SD/- SD/- ( . . ) (B. P. JAIN) ( . ) (GEORGE GEORGE K.) ' /ACCOUNTANT MEMBER ' ' /JUDICIAL MEMBER 2 /DATED: 7 TH FEBRUARY 2017 GJ COPY TO: 1. M/S. HIC-ABF SPECIAL FOODS P. LTD., 11/B, PROJEC T COLONY ROAD, INDUSTRIAL DEVELOPMENT AREA, AROOR POST, ALAPPUZHA-688534. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPO RATE CIRCLE-1(2),KOCHI. 3. THE PRINCIPAL COMMISSIONER OF INCOME-TAX-I, KOC HI. 4. THE DR/ITAT, COCHIN BENCH. 5. GUARD FILE. BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN I.T.A. NO.115 /COCH/2016 7