HOYA LENS INDIA PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 15(2)(1), MUMBAI

ITA 127/MUM/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3706 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 05-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR; AJIT PAL SINGH DAIA
• Keywords: Transfer pricing; International transaction
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/ SHRI B.R.BASKARAN (AM) & AMARJIT SINGH (JM) I.T.A. NO. 127 /MUM /20 1 8 (ASSESSMENT YEAR 20 11 - 12 ) M/S. HOYA LENSE INDIA PVT. LTD. D 28/5, TTC INDUSTRIAL AREA TURBHE, NAVI MUMBAI - 400705. PAN : AABCH7092K VS. DCIT 15(2)(1) AAYAKAR BHAVAN ROOM NO. 357 M.K. ROAD MUMBAI - 400020. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI GIRISH DAVE DEPARTMENT BY SHRI JAYANT KUMAR & SHRI AJIT PAL SINGH DAIA DATE OF HEARING 2 . 8 . 201 8 DATE OF PRONOU NCEMENT 8 . 8 . 201 8 O R D E R PER B.R. BASKARAN (A M) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 4.4.2017 PASSED BY THE LEARNED CIT(A) - 56, MUMBAI AND IT RELATES TO A.Y. 2011 - 12. 2. T HE APPEAL IS BARRED BY LIMITATION BY S IX DAYS. THE ASSESSEE HAS MOVED AN APPLICATION REQUESTING THE BENCH TO CONDONE THE DELAY. IT I S S TA TED THEREIN THAT THE DOCUMENTS WERE GIVEN TO A FIRM OF THE CHARTERED ACCOUNTANT S FOR FILING THE APPEAL AND THE APPEAL PAPERS COULD NOT BE FILE D IN TIME DUE T O INTERVE NING HOLIDAYS. THE LEARNED AR REITERATED THE SUBMISSIONS MADE IN THE AFFIDAVIT AND ALSO SUBMITTED THAT THE APPEAL FEE WA S , HOWEVER, PAID BY THE ASSESSEE WITHIN THE DUE DATE . A CCORDINGLY HE PRAYED THAT THE MARGINAL DELAY IN FILING THE APPEAL MAY B E CONDONED. 3. WE HAVE HEARD LEARNED DR ON THIS PRELIMINARY ISSUE. HAVING REGARD TO THE SUBMISSIONS MADE IN THE AFFIDAVIT FILED BY THE ASSESSEE AS WELL AS SUBMISSIONS MADE BY LEARNED AR, WE ARE OF THE VIEW THAT THERE IS REASONABLE M/S. HOYA LENSE INDIA PVT. LTD. 2 CAUSE FOR FILING THE AP PEAL BELATEDLY. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 4. T HE ASSESSEE IS CONTESTING THE TRANSFER PRICING ADJUSTMENT OF ` 896.91 LAKHS MADE BY THE TPO AND CONFIRMED BY THE LEARNED CIT(A). 5. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING/PROCESSING OF SPECTACLE LENSES. IT ALSO TRADES IN IMPORTED SPECTACLE LENSES. THE ASSESSEE IS AN ASSOCIATED ENTERPRISES (AE) OF JAPANESE COMPANY. THE ASSESSEE FOLLOWED COST PLUS METHOD FOR BENCHMARKING MANUFACTURING/PROCESSING TRA NSACTION S AND RESALE PRICE METHOD FOR TRADING TRANSACTION S . THE ASSESSEE ADOPTED OPERATIVE PROFIT/OPERATIVE REVENUE AS PROFIT LEVEL INDICATOR. T HE TPO , HOWEVER, ADOPTED OPERATING PROFIT/OPERATING COST AS PROFIT LEVEL INDICATOR AND PROPOSED ADJUSTMENT OF ` 896.91 LAKHS. THE A O ADDED THE SAME TO THE TOTAL INCOME DECLARED BY THE ASSESSEE. THE LEARNED CIT(A) ALSO CONFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6 . THE L EARNED AR SUBMITTED THAT THERE IS COMPUTATIONAL ERROR IN THE WORK ING MADE BY THE TPO . EVEN AS PER THE METHOD ADOPTED BY HIM THE TRANSFER PRICING ADJUSTMENT WILL WORK OUT TO ` 780.18 LAKHS ONLY AS AGAINST ` 896.91 LAKHS PROPOSED BY HIM. EVEN THOUGH THE SAID MISTAKE WAS POINTED OUT TO THE LEARNED CIT(A) AND W AS ALSO APPRE CIATED BY HIM, YET HE DID NOT GIVE ANY RELIEF IN THIS REGARD, I.E., HE HAS CONFIRMED THE TRANSFER PRICING ADJUSTMENT OF ` 896.91 LAKHS MADE BY THE TPO. 7 . THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS GIVEN THREE COMPARABLES FOR MANUFACTURING SEGMENT A ND ONE COMPARABLE FOR TRADING SEGMENT. THE TPO HAS ACCEPTED ALL COMPARABLES BUT PROCEEDED TO COMPUTING ARMS LENGTH PRICE BY ADOPTING OPERATIVE PROFIT/OPERATIVE COST AND ALSO WITHOUT CONSIDERING THE FOLLOWING ADJUSTMENTS REQUESTED BY THE ASSESSEE: (A) ADJ USTMENT FOR STARTUP PHASE OF OPERATION. (B) ADJUSTMENT FOR ABNORMAL EXPENSES. M/S. HOYA LENSE INDIA PVT. LTD. 3 THE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAS GIVEN SEGMENTAL RESULTS ALSO FOR BOTH THE ACTIVITIES. ACCORDINGLY, HE CONTENDED THAT THE ADJUSTMENT SOUGHT BY THE ASSESSEE SHOULD BE DIRECTED TO BE GIVEN. 8 . ON THE CONTRARY, THE LEARNED DR SUBMITTED THAT RULE 10B(1)(B) OF THE I.T. ACT RELATING TO RESALE PRICE METHOD AND RULE 10B(1)(C) RELATING TO COST PLUS METHOD DO NOT PROVIDE FOR ADJUSTMENT AS SOUGHT BY THE ASSESSEE. LEA RNED DR FURTHER SUBMITTED THAT THE ASSESSEE HAS PAID HUGE MANAGEMENT FEES TO ITS ASSOCIATED ENTERPRISES AND HENCE THE ASSESSEE HAS INCURRED LOSS. 9 . IN THE REJOINDER, LEARNED AR SUBMITTED THAT THE ASSESSEE HAS FURNISHED A LETTER DATED 15.12.2014 BEFORE T HE TPO, WHEREIN IT WAS POINTED OUT THAT CERTAIN EXPENSES HAS BEEN ACCOUNTED TWICE IN THE COMPUTATION AND CERTAIN NON - OPERATING EXPENSES HAVE NOT BEEN EXCLUDED. HE SUBMITTED THAT THE ASSESSEE HAS ALSO POINTED CERTAIN ABNORMAL EXPENSES AND CERTAIN ABNORMAL E VENTS LIKE REVERSAL OF SALES. HE SUBMITTED THAT THE ASSESSEE HAS ALSO CLAIMED THAT IT IS INCURRING LOSSES, SINCE IT IS STILL IN THE STARTING PHASE . HENCE THE ASSESSEE HAS SOUGHT FOR ADJUSTMENTS FOR THE ABOVE SAID EXCEPTIONAL ITEMS. 10 . WE HAVE HEARD TH E RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE GONE THROUGH THE PROVISIONS OF RULE 10B(1)(B) AS WELL AS RULE 10B(1)(C) OF THE ACT. BOTH THE PROVISIONS SPECIFICALLY STATE THAT PRICE ARRIVED AT UNDER BOTH METHOD IS ADJUSTED TO TAKE INTO ACCOUNT THE FUNC TIONAL AND OTHER DIFFERENCE, INCLUDING DIFFERENCE IN ACCOUNTING PRACTICE, IF ANY, BETWEEN INTERNATIONAL TRANSACTION S . THE OTHER DIFFERENCES REFERRED IN THOSE PROVISIONS SHOULD, IN OUR VIEW, INCLUDE ABNORMAL ITEMS, IF ANY. HENCE SUBJECT TO VERIFICATION OF THE CLAIM OF THE ASSESSEE , IN OUR VIEW , ADJUSTMENT SOUGHT BY THE ASSESSEE SHOULD BE CONSIDERED ON ITS MERITS. T HE ASSESSEE HAS ALSO CLAIMED DEDUCTION TOWARDS START UP PHASE ADJUSTMENT. HOWEVER WE NOTICE THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE SAI D CLAIM WITH ANY CREDIBLE MATERIAL. THE TPO HAS OBSERVED THAT THE ASSESSEE COMPANY HAS STATED ITS OPERATION IN THE YEAR 2006 AND ACCORDINGLY, IT HAS GOT ABOUT FOUR YEARS OF EXPERIENCE IN THIS FIELD. BEFORE US ALSO, THE ASSESSEE COULD NOT PROVIDE ANY MATER IAL TO SHOW THAT IT IS CONTINUE TO M/S. HOYA LENSE INDIA PVT. LTD. 4 FACE THE DIFFICULTIES PECULIAR TO THE START UP PHASE. THERE SHOULD NOT BE ANY DOUBT THAT THE RESPONSIBILITY TO SUBSTANTIATE THE CLAIM PUT FORTH LIES UPON OF THE ASSESSEE. A CCORDINGLY WE ARE OF THE VIEW THAT THE TAX AUTHOR ITIES ARE JUSTIFIED IN REJECTING THIS CLAIM OF THE ASSESSEE. 11. WITH REGARD TO ADJUSTMENT CLAIMED TOWARDS ABNORMAL ITEMS, WE HAVE ALREADY HELD THAT THE SAME IS REQUIRED TO BE CONSIDERED ON MERITS. ACCORDINGLY THIS CLAIM OF THE ASSESSEE REQUIRES EXAMINATI ON AT THE END OF THE ASSESSING OFFICER/TPO . ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER/TPO TO EXAMINE THE SAID CLAIM OF THE ASSESSEE. IN THE SET ASIDE PROCEEDING S, THE ASSESSING OFFICER/TPO SHOULD ALSO CONSIDER THE MISTAKES POINTED OUT BY THE ASSESSEE WITH REGARD TO COMPUTATION MADE BY THE TPO. 12. THE N EXT GROUND RELATES TO NON ADJUDICATION OF GROUND NO. 2 URGED BEFORE THE LEARNED CIT(A) . WE NOTICE THAT THE SA ID GROUND RELATES TO NON - ADJUSTMENT OF BROUGHT FORWARD BUSINESS LOSS OF EARLIER YEAR S . SINCE THIS MATTER REQUIRES EXAMINATION AT THE END OF THE ASSESSING OFFICER, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR EXAMININ G THE SAME IN ACCORDANCE WITH LAW. 13. THE G ROUND NO. 3 RELATES TO CHARGING OF INTEREST U/S. 234B OF THE ACT. SINCE IT IS CONSEQUENTIAL IN NATURE, THE SAME DOES NOT REQUIRE ADJUDICATION. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS PAR TLY ALLOWED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 8 . 8 .201 8 . SD/ - SD/ - (AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 8 / 8 / 20 1 8 M/S. HOYA LENSE INDIA PVT. LTD. 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, MUMBAI