M/s SD Bio Standard Diagnostice Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 1323/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1125 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: JATIN CHAWLA; MANONEET DALAL SHRI YISHU GOEL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-2 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.1323/DEL/2016 ASSESSMENT YEAR: 2011-12 SD BIO STANDARD DIAGNOSTIC PVT. LTD., 404, 4 TH FLOOR, BPTP PARK CENTRA, NH- 8, OPPOSITE 32 ND MILESTONE, GURGAON, HARYANA 122001. PAN: AAJCS7883F VS ACIT, CIRCLE-22(2), NEW DELHI. ITA NO.741/DEL/2016 ASSESSMENT YEAR: 2011-12 ACIT, CIRCLE-22(2), NEW DELHI. VS. SD BIO STANDARD DIAGNOSTIC PVT. LTD., 404, 4 TH FLOOR, BPTP PARK CENTRA, NH-8, OPPOSITE 32 ND MILESTONE, GURGAON, HARYANA 122001. PAN: AAJCS7883F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANONEET DALAL, ADVOCATE SHRI YISHU GOEL, AR & SHRI JATIN CHAWLA, AR REVENUE BY : SHRI SARABJEET SINGH, SR. DR DATE OF HEARING : 28.02.2019 DATE OF PRONOUNCEMENT : 15.03.2019 ORDER PER R.K. PANDA, AM: THESE ARE CROSS APPEALS - THE FIRST ONE IS FILED B Y THE ASSESSEE AND THE SECOND ONE BY THE REVENUE AND ARE DIRECTED AGAINST THE ORDER DATED 16 TH DECEMBER, 2015 PASSED BY THE ASSESSING OFFICER U/S 144C READ WITH SECTION 143(3) OF THE IT ACT. ITA NOS.1323 & 741/DEL/2016 2 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF PRODUCTION AND TRADING OF IN-VITRO DIAG NOSTIC KITS FOR HUMANS AND ANIMALS, PRODUCTION OF RAW MATERIAL, SUB MATERIAL A ND REAGENTS FOR RESEARCH PURPOSE WITHIN INDIA AND OUTSIDE INDIA. IT FILED ITS RETUR N OF INCOME ON 29 TH MARCH, 2013 DECLARING TOTAL INCOME OF RS.1,18,72,504/-. THE AS SESSING OFFICER REFERRED THE MATTER TO THE TPO U/S 92CA FOR COMPUTATION OF THE ALP OF T HE INTERNATIONAL TRANSACTIONS CARRIED OUT BY IT. THE TPO, VIDE ORDER DATED 23 RD DECEMBER, 2014, PROPOSED AN UPWARD ADJUSTMENT OF RS.3,15,43,083/- TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICER ACCORDINGLY MADE AN ADJUSTMENT OF RS.3,15,4 3,083/- IN THE DRAFT ASSESSMENT ORDER BEING THE DIFFERENCE BETWEEN THE ALP AND THE PRICE SHOWN IN THE BOOKS OF ACCOUNT. THE ASSESSEE APPROACHED THE DRP, WHO, VIDE ORDER DATED 26 TH OCTOBER, 2015, DIRECTED THE ASSESSING OFFICER TO VERIFY THE MARGIN OF THE COMPARABLES IN RESPECT OF THE OBJECTION RAISED BY THE ASSESSEE DURING THE PROCEED INGS BEFORE THE DRP. AFTER CONSIDERING THE DIRECTION OF THE DRP, THE ASSESSING OFFICER DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTION AT RS.2,64,67,179/-. THE DRP ALSO DIRECTED THE ASSESSING OFFICER/TPO TO TREAT THE FOREIGN EXCHANGE GAIN AS O PERATING INCOME IN CASE OF BOTH TESTED PARTY AND COMPARABLES FOR THE PURPOSE OF COM PUTING THE PROFIT MARGIN. AGGRIEVED WITH SUCH ORDER OF THE DRP, THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS:- ASSESSEES APPEAL (ITA NO.1323/DEL/2016) 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ORDER PASSED BY THE LD. ASSESSING OFFICER (AO) IS BAD IN LAW AND VOID-AB- INITIO. ITA NOS.1323 & 741/DEL/2016 3 2. THE LD. AO/ LD. TRANSFER PRICING OFFICER (TPO) ER RED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT TO THE ARMS LENGTH PRI CE OF THE APPELLANTS INTERNATIONAL TRANSACTIONS AND DETERMINING INCOME O F THE APPELLANT AT RS. 38,339,683 IN ORDER U/S 143(3) READ WITH SECTION 14 4C OF THE ACT DATED 16.12.2015 AS AGAINST INCOME DECLARED OF RS. 11,872 ,504. TRANSFER PRICING GROUNDS 3. THE LD. AO/LD. TPO/ LD. DISPUTE RESOLUTION PANEL ( DRP) ERRED ON FACTS AND IN LAW IN MAKING AN UPWARD ADJUSTMENT OF THE ARMS LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANSACTIONS WITH ITS ASS OCIATED ENTERPRISES (AES): 3.1. LD. TPO/AO/DRP ERRED IN SELECTING THE CURRENT YEAR (I.E. FINANCIAL YEAR 2010-11) DATA FOR COMPARABILITY DESPITE THE FACT TH AT THE COMPLETE DATA FOR FINANCIAL YEAR 2010- 11 WAS NOT AVAILABLE WITHIN TH E PUBLIC DOMAIN AT THE TIME OF PREPARING CONTEMPORANEOUS DOCUMENT UNDER RULE 10D O F THE INCOME TAX RULES, 1962; 3.2. LD. TPO/AO/DRP ERRED IN TREATING MISCELLANEOUS EXP ENSES & EXTRA- ORDINARY SELLING AND DISTRIBUTION EXPENSES AS OPERA TING IN NATURE WHILE CALCULATING MARGIN OF TESTED PARTY; 3.3. LD. TPO/AO/DRP ERRED IN REJECTING MOREPEN LABORATOR IES AS COMPARABLE SELECTED BY APPELLANT IN THE TRANSFER PR ICING DOCUMENTATION ON THE BASIS OF PRODUCT DISSIMILARITY BETWEEN THE APPELLAN T AND THE MOREPEN LABORATORIES; 3.4. LD. TPO/AO/DRP ERRED IN NOT APPRECIATING THE BUSINE SS MODEL AND FAR PROFILE OF THE APPELLANT AND CHOSE TO REJECT TWO AD DITIONAL COMPARABLES SELECTED BY THE APPELLANT THAT WOULD EVENTUALLY STRENGTHEN T HE COMPARABILITY ANALYSIS KEEPING IN MIND TRADING TRANSACTIONS OF THE APPELLA NT AND ENTITY LEVEL TESTING APPROACH ADOPTED BY THE APPELLANT. 3.5. LD. TPO/AO/DRP DISREGARDED THE CONTENTIONS OF THE APPELLANT WITH RESPECT TO ADJUSTMENT BASED ON OP/SALES MARGIN OF C OMPARABLE COMPANIES ENGAGED IN MANUFACTURING ACTIVITIES SHOULD BE RESTR ICTED TO RAW MATERIAL PURCHASED FOR MANUFACTURING AND NOT TO THE TRADING TRANSACTIONS OF THE APPELLANT; DIRECT TAX GROUNDS 4. THE LD. AO HAS ERRED ON FACTS AND IN LAWS WITH RESP ECT TO ADJUSTMENT OF MINIMUM ALTERNATE TAX (MAT) CREDIT AS PER THE PRO VISIONS OF SECTION 115JAA OF THE ACT: ITA NOS.1323 & 741/DEL/2016 4 4.1. LD. AO ERRED IN GRANTING THE MAT CREDIT AMOUNTING I NR 3,943,748 AS AGAINST THE ENHANCED INCOME WHEREAS A CREDIT OF INR 7,346,943 FOR THE PRIOR ASSESSMENT YEAR 2010-11 IS AVAILABLE FOR ADJUSTMENT . 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER S ECTION 274 READ WITH SECTION 271(1) (C); 271AA AND 271BA OF THE ACT FOR FURNISHI NG INACCURATE PARTICULARS WITHOUT RECORDING ANY ADEQUATE SATISFACTION FOR SUC H INITIATION. 6. LD. AO/DRP ERRED ON FACTS AND IN LAW IN CHARGING A ND COMPUTING INTEREST UNDER SECTION 234B, 234C AND 234D OF THE A CT; THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY ANY OF THE ABOVE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING AS WE MAY B E ADVISED. THE ARGUMENTS TAKEN HEREINABOVE ARE WITHOUT PREJUDICE TO EACH OTH ER. REVENUES APPEAL (ITA NO.741/DEL/2016) 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE, THE HON'BLE DRP HAS ERRED IN DIRECTING THE ASSESSING OFFICER/ TRANS FER PRICING OFFICER (AO/TPO) TO TREAT FOREIGN EXCHANGE GAIN AS OPERATING INCOME IN CASE OF BOTH TESTED PARTY AND COMPARABLES FOR THE PURPOSE OF COMPUTING PROFIT MARGIN AS FOREIGN EXCHANGE FLUCTUATIONS HAS NOTHING TO DO WITH THE BUSINESS OP ERATIONS OF THE ASSESSEE AND ARE DETERMINED BY THE MARKETS, RBI, MACRO ECONOMIC CONDITIONS, WORLD MARKETS. HENCE GAIN OR LOSS ON FOREIGN EXCHANGE FLUCTUATIONS SHOULD NOT BE CONSIDERED AS PART OF OPERATING REVENUES OR INCOME.' 2. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, ADD O R FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING TH E HEARING OF THIS APPEAL. ADDITIONAL GROUND 'GROUND NO. 7 - THAT THE ASSESSEE COMPANY WAS OPERA TING AT LOW CAPACITY VIS- -VIS COMPARABLE COMPANIES DURING THE YEAR. THEREFO RE, ADJUSTMENT ON ACCOUNT OF UNDERUTILIZATION OF CAPACITY IN DETERMINING THE ARM 'S LENGTH NATURE OF THE TRANSACTION SHOULD BE GRANTED.' 3. RELYING ON VARIOUS DECISIONS INCLUDING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NTPC VS. CIT (1998) 229 ITR 383 (SC) , AND JUTE CORPORATION OF ITA NOS.1323 & 741/DEL/2016 5 INDIA VS. CIT REPORTED IN 1991 AIR 241, THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITIONAL GROUND BEING PURELY A LEGAL GROUND, THE SAME SHOULD BE ADMITTED FOR ADJUDICATION. 4. AFTER HEARING BOTH THE SIDES AND CONSIDERING THE FA CT THAT THE GROUNDS RELATING TO CAPACITY ADJUSTMENT IS A LEGAL ONE, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ADMITTED. 5. SO FAR AS THE VARIOUS GROUNDS RAISED BY THE ASSESSE E IN THE GROUNDS OF APPEAL ARE CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS ANY OF THESE GROUNDS. IN ABSENCE OF ANY OBJECTION FROM THE SIDE OF THE LD. D R, THE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED. 6. SO FAR AS THE ADDITIONAL GROUND IS CONCERNED, THE L D. COUNSEL FOR THE ASSESSEE, REFERRING TO VARIOUS DECISIONS INCLUDING THE DECISI ON OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. CLASS INDIA PVT. L TD. AND VICE VERSA VIDE ITA NO.1783/DEL/2011 AND CO NO.179/DEL/2011, ORDER DATE D 12 TH AUGUST, 2015 FOR ASSESSMENT YEAR 2005-06, SUBMITTED THAT UNDER IDENT ICAL CIRCUMSTANCES THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO WORK OUT THE AMOUNT OF CAPACITY UTILIZATION ADJUSTMENT. HE ACCORDINGLY SUBMITTED THAT HE HAS N O OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER/TPO/DRP FOR TH E LIMITED PURPOSE OF CALCULATING THE CAPACITY UTILIZATION ADJUSTMENT. ITA NOS.1323 & 741/DEL/2016 6 7. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT HE HA S NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE TPO WITH A DIRECTION TO DETERMINE THE CAPACITY UTILIZATION ADJUSTMENT SUBJECT TO SUBSTANTIATION OF THE SAME BY THE ASSESSEE BEFORE THE A.O./TPO AS TO HOW IT IS ELIGIBLE FOR SUCH CAPACITY UTILIZAT ION ADJUSTMENT. 8. AFTER HEARING THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFI CER WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EV IDENCE TO HIS SATISFACTION REGARDING THE CAPACITY UTILIZATION ADJUSTMENT. NEEDLESS TO S AY, THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER FACT AND LAW. WE HOLD AND DIRECT ACCORDINGLY. THE ADDITIONAL GROU ND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL (ITA NO.741/DEL/2016) 9. SO FAR AS THE GROUND RAISED BY THE REVENUE IS CONCE RNED, WE FIND THE LD. DRP AT PARA 7 TO 7.7 OF THE ORDER HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- 7.0 GROUND 5: 7.1 THE ASSESSEE HAS ARGUED THAT FOREIGN EXCHANGE GAIN SHOULD BE TREATED AS OPERATING INCOME AS PER VARIOUS JUDICIAL DECISIONS ON THE ISSUE. 7.2 DRP, RELYING UPON VARIOUS JUDICIAL AUTHORITIE S ON THE ISSUE, DIRECTS TPO/A.O. TO TREAT FOREIGN EXCHANGE GAIN AS OPERATIN G INCOME IN CASE OF BOTH TESTED PARTY AND COMPARABLES FOR THE PURPOSE OF COM PUTING PROFIT MARGIN. THE OBJECTION IS ACCORDINGLY ALLOWED. 10. FROM THE ABOVE, IT IS CLEAR THAT THE ORDER PASSED B Y THE DRP ON THIS ISSUE IS A VERY CRYPTIC ONE. NEITHER THE FACTS ARE COMING OUT PROPERLY NOR THE DECISIONS RELIED ON ITA NOS.1323 & 741/DEL/2016 7 BY THE DRP ARE MENTIONED. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE T HE ISSUE TO THE FILE OF DRP WITH A DIRECTION TO PASS A SPEAKING ORDER ON THIS ISSUE. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL FILED BY THE A SSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 5.03.2019. SD/- SD/- (BEENA A. PILLAI) (R.K. PANDA) JUDICIAL MEMBER AC COUNTANT MEMFBER DATED: 15 TH MARCH, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI