Carraro India Ltd., Pune V. DCIT, Circle 1(1), Pune

ITA 1328/PUN/2010

• Counselvise Citation: 132824514 RSA 2010
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-02-2014
• Assessment Year: misc
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: K K KHANIJO
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; Non passing of speaking order
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1328/PN/2010 (A.Y: 2006-07) CARRARO INDIA LTD., B2/2, MIDC, RANJANGAON, PUNE - 412210 PAN: AAACC5292M APPELLANT VS. DCIT, CIRCLE 1(1), PUNE RESPONDENT APPELLANT BY : S/SHRI VED J AIN AND K.K. KHANIJO RESPONDENT BY : SMT. M.S. VERMA DATE OF HEARING: 23.06.2014 DATE OF ORDER : 27.06.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL-1, NEW DELHI [IN SHORT DRP] DATED 23.08.2010 FOR A.Y. 2006-07 ON THE FOLLOWING GROUND S. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER PASSED BY LEARNED DCIT UNDER SECTION 143(3) READ WI TH SECTION 144C (13) OF THE ACT IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER PASSED BY THE A.O UNDER SECTION 144C (13) IS BAD IN LAW AND LIABLE TO BE QUASHED AND THE DIRECTION GIVEN BY THE DRP WERE IN GROSS VIOLATION OF THE PRINCIPLE OF NATURAL JUSTICE AND PROVISION OF SECTION 144C OF THE ACT. 3. THAT THE DIRECTION GIVEN BY DRP ARE NOT VALID AND B AD IN LAW AS THE SAME HAS BEEN GIVEN WITHOUT CONSIDERI NG THE ARGUMENT EVIDENCES AND FACTUAL ERRORS POINTED OUT B Y THE ASSESSEE AND WITHOUT GIVING ANY REASONS TO NOT ACCE PTING OR REJECTING THE SAME. 2 ITA NO.1328/PN/10 CARRARO INDIA LTD. 4(I). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED DCIT HAS ERRED BOTH ON FACTS AND IN LAW IN TAKING T HE RETURNED INCOME AT RS.9,11,99,130/- INSTEAD OF RS. 8,97,24,006/- DECLARED BY THE ASSESSEE. (II). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED DCIT HAS ERRED BOTH ON FACTS AND IN LAW IN ASSESSIN G THE INCOME AT RS.13,91,00,800/- AS AGAINST RS.8,97,24,0 06/- DECLARED BY THE ASSESSEE. 5(I). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED DCIT HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING A N ADDITION OF RS.4,73,14,991/- AS DIFFERENCE IN ARM'S LENGTH PRICE DETERMINED BY THE TRANSFER PRICING OFFICER, (II). THAT THE ABOVE ADDITION HAS BEEN MADE IGNORI NG THE DETAILED TRANSFER PRICING STUDY MADE BY THE APPELLA NT FOR DETERMINING THE ARM'S LENGTH PRICE. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED DCIT HAS ERRED BOTH ON FACTS AND IN LAW IN DISALLOW ING AN AMOUNT OF RS.5,63,234/- TREATING THE SAME AS PRIOR PERIOD EXPENSES. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED DCIT HAS ERRED BOTH ON FACTS AND IN LAW IN MAKING A N ADDITION OF RS.23,445/- BY RESTRICTING DEPRECIATION ON COMPUTER PERIPHERALS @ 25 PER CENT AS AGAINST 60 PE R CENT ALLOWABLE AS PER LAW. 8. THE LEARNED DRP AND THE AO HAS ERRED IN HOLDING THA T THE TRANSACTIONAL NET MARGIN (TNM) OF THE COMPARABL E CASES CARRIES TO 13.12% AS AGAINST THE CORRECT TNM 9.81% AS PER PUBLISHED DATA OF THE COMPARABLE CASES . 9. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL. 2. THE LEARNED AUTHORIZED REPRESENTATIVE DREW OUR A TTENTION TO THE ORDER OF DRP AND HIS MAIN CONTENTION IS THAT TH E DRP WHILE GIVING ITS DIRECTION HAS NOT CONSIDERED THE ARGUMEN TS, EVIDENCE AND FACTUAL ERROR AS POINTED OUT BY THE ASSESSEE AN D WITHOUT GIVING ANY REASON FOR NOT ACCEPTING OR REJECTING TH E SAME. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE DREW OUR ATTENTION TO THE ORDER OF DRP WHICH READS AS UNDER: 3 ITA NO.1328/PN/10 CARRARO INDIA LTD. SHRI HIMANSHU GOYAL APPEARED AND ARGUED THAT THE ARMS LENGTH PRICE DETERMINED BY THE TRANSFER PRICE OFFICER (TPO) IS NOT CORRECT. HE ARGUED THAT RANE TRW SHOU LD NOT HAVE BEEN CHOSEN AS COMPARABLE AND THAT COMPANY IS IN DIFFERENT SCALES OF OPERATION. OTHER ARGUMENTS WER E TAKEN. ASSESSEE HAS FILED ALTERNATE COMPUTATION ALSO. THE ORDER OF TPO HAS BEEN PERUSED. THE OBJECTION RAISED BEFORE US HAS BEEN ANSWERED BY TPO IN PARA 7 .4 AND 7.7. THE ORDER NEEDS NO DIRECTIONS. GROUND NO.5 RELATES TO RS.5,63,234/- IN THE FACT OF THE CASE HAVE BEEN RELATED IS AS UNDER: - DURING THE FINANCIAL YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06, THE ASSESSEE COMPANY HAS M ADE SALES TO ESCORTS LTD. FOR A SUM OF RS.19,08,23,179/ - AT A PARTICULAR PRICE. HOWEVER THE PRICE FOR THE SAME WA S SETTLED IN THE CURRENT FINANCIAL YEAR, WHEREBY THERE WAS A REDUCTION BY RS.5,63,234/- ACCORDINGLY THE ASSESSEE COMPANY A LLOWED REBATE TO ESCORTS LTD. TO THAT EXTENT. SINCE THE RE BATE ON ACCOUNT OF ADJUSTMENT IN PRICE HAS TAKEN PLACE DURI NG THE YEAR UNDER CONSIDERATION FINANCIAL YEAR 2005-06 I.E . ASSESSMENT YEAR 2006-07, THE SAME WAS CLAIMED AS EXPENDITURE OF THE CURRENT YEAR. IT IS SEEN FROM THE ASSESSMENT ORDER THAT AO HAS RE LIED ON AUDITOR REPORT. THE CASE LAWS RELIED BY THE ASSE SSEE HAVE BEEN DISTINGUISHED. NO DIRECTION IS WARRANTED. GROUND NO.6 RELATES TO DISALLOWANCE OF DEPRECIATION ON COMPUTERS OF RS.23,445/-. AO HAS GIVEN CLEARLY A C HART AND DISALLOWED THE EXCESS DEPRECIATION CLAIMED BY THE A SSESSEE. NO INTERFERENCE IS CALLED FOR. 3. IN THIS BACKGROUND, IT WAS SUBMITTED BY THE LEAR NED AUTHORIZED REPRESENTATIVE THAT THE ORDER OF DRP HAS NOT TAKEN INTO CONSIDERATION OF ARGUMENTS OF ASSESSEE AND HAV ING ERROR POINTED OUT BY THE ASSESSEE, WHICH IS NOT JUSTIFIED , SO THE ORDER OF DRP SHOULD BE SET-ASIDE. ACCORDING TO THE LEARNED AUTHORIZED REPRESENTATIVE, THE ORDER OF DRP IS LACUNA AND NON- SPEAKING ORDER, SUCH AN ORDER IS NOT LEGALLY TENABLE, SO THE ORDER OF DRP SHOULD BE SET-ASIDE. ON THE OTHER HAND, THE LEARNE D DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF DRP AND REQUESTED TO HOLD THE SAME. 4 ITA NO.1328/PN/10 CARRARO INDIA LTD. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT AS REPRODUCED ABOVE, THE MAIN GRIEVANCE OF THE PETITIONER IS AGAINST THE ORDER OF DRP, WHICH W AS PASSED IN THE ABSENCE OF NON APPRECIATION OF ARGUMENTS, EVIDE NCE IN SUPPORT OF ASSESSEES CLAIM AS AGITATED BEFORE THE PANEL. ACCORDING TO US, THE ORDER OF TPO MAY BE UPHELD IN CASE THE ARGUMENTS OF LEARNED AUTHORIZED REPRESENTATIVE BEFO RE DRP ARE SAME AS BEFORE THE TPO. IN CASE BEFORE US, THE FAC T IS OTHERWISE AS THE ASSESSEE HAS RAISED FURTHER ARGUMENTS, GAVE FURTHER EVIDENCE BEFORE THE DRP. IN SUCH A SITUATION, UPHO LDING THE ORDER OF TPO IGNORING VARIOUS CONTENTIONS ALONG WIT H EVIDENCE TO THAT EFFECT IS NOT JUSTIFIED. THE REASONING IS THE SOUL OF THE ORDER, WHICH IS MISSING IN THIS CASE. SUCH AN APPROACH CA NNOT BE ENCOURAGED. THE ESSENCE OF PRINCIPLES OF NATURAL J USTICE IS TO PROVIDE AN OPPORTUNITY OF BEING HEARD TO THE ASSESS EE AND AFTER HEARING, THE SAME SHOULD BE DULY INCORPORATED IN TH E ORDER OF JUDICIAL AUTHORITY. IN THE ABSENCE OF REASONED FIN DING ON THE CONTENTIONS/EVIDENCE OF THE ASSESSEE, THE ORDER AMO UNTS TO NON- SPEAKING ONE WHICH CANNOT BE UPHELD. THIS VIEW IS FORTIFIED BY THE DECISION OF ITAT DELHI A BENCH IN THE CASE OF ATOTECH INDIA LTD. VS. ACIT (2011) 45 SOT 96 (DEL), WHEREIN IT WA S HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GO NE THROUGH THE ORDER OF AO AS WELL AS THE ORDER OF DRP . BEFORE EXAMINING THE FACTS OF THE PRESENT CASE, WE EXAMINE THE TRIBUNAL DECISION RENDERED IN THE CASE OF GAP INTER NATIONAL SOURCING INDIA (P) LTD. (SUPRA). IN THAT CASE, THE DRAFT ORDER OF THE AO WAS DT. 24TH NOV., 2009 AND DRP PASSED DIRECTIONS UNDER S. 144C ON 31ST MAY, 2010. IN THAT CASE, THE TRIBUNAL HAS REPRODUCED THE PROVISIONS OF SUB-S S. (5) TO (13) OF S. 144C AND THEREAFTER, IT HAS BEEN OBSERVE D BY THE TRIBUNAL IN THAT CASE THAT THE DIRECTIONS OF THE DR P ARE TOO LACONIC TO BE LEFT UNCOMMENTED. THE TRIBUNAL HAS CONSIDERED THE JUDGMENT OF HON'BLE APEX COURT RENDE RED IN THE CASE OF SAHARA INDIA (FIRM) VS. CIT & ANR. (200 8) 216 CTR (SC) 303 : (2008) 7 DTR (SC) 27 : (2008) 300 IT R 403 (SC), IN WHICH, IT WAS HELD THAT EVEN AN ADMINISTRA TIVE ORDER 5 ITA NO.1328/PN/10 CARRARO INDIA LTD. HAS TO BE CONSISTENT WITH THE RULES OF NATURAL JUST ICE. IN THAT CASE, THE TRIBUNAL HAS RESTORED THE MATTER BACK TO THE FILE OF THE DRP TO CONSIDER THE ISSUE ONCE AGAIN AND TO PAS S A PROPER AND SPEAKING DIRECTION UNDER S. 144C OF THE IT ACT, 1961. THE BASIS OF THAT ORDER IS THAT THE TRIBUNAL WAS IN AGREEMENT WITH THE SUBMISSIONS OF THE LEARNED AUTHO RISED REPRESENTATIVE OF THE ASSESSEE THAT THE ASSESSEE'S SUBMISSION HAS BEEN BRUSHED ASIDE WITHOUT GIVING PR OPER CONSIDERATION BY THE DRP. 7. NOW, WE EXAMINE THE FACTS OF THE PRESENT CASE. I N THE PRESENT CASE ALSO, IT IS ADMITTED POSITION THAT AS PER APPENDIX-10 TO FORM NO. 35A FILED BEFORE DRP, VARIO US FACTUAL AND LEGAL ARGUMENTS AGAINST THE ADDITION PR OPOSED BY THE AO HAS BEEN RAISED BY THE ASSESSEE WHICH RUN INTO ALMOST NINE PAGES AND IN THE IMPUGNED ORDER, THE DR P HAS MADE NO COMMENTS ABOUT THOSE ARGUMENTS OF THE ASSES SEE AND THE MATTER HAS BEEN DISPOSED OF BY WAY OF CRYPT IC AND NON SPEAKING ORDER. THE RELEVANT PORTION OF THE IMP UGNED ORDER OF THE DRP UNDER S. 144C IS BEING REPRODUCED BELOW: 'WE HAVE CONSIDERED THE ARGUMENTS OF THE ASSESSEE'S REPRESENTATIVE AND ALSO THE ORDER OF THE TPO/AO. IT IS HELD THAT THE AMOUNT IS A TRANSACTION UNDER SUB- CLAUSE OF S. 92F(V). ASSESSEE HAS HIMSELF SUGGESTED THAT THIS IS AN OVERALL ARRANGEMENT/ UNDERSTANDING/ ACTION OF BUSINESS STRATEGY BEFORE AES. THE TPO HAS GIVEN HIS FINDING AFTER CONSIDERING ALL THE ARGUMEN TS OF THE ASSESSEE. WHILE ANSWERING THE ASSESSEE'S OBJECT ION THE TPO HAS GIVEN DETAILED REASONS SUPPORTED BY JUDICIAL DECISIONS AS TO HOW THE TRANSACTION IS INTERNATIONAL AND HOW HE HAS DETERMINED THE ALP OF GOODS SUPPLIED FREE OF COST. THE DRP THEREFORE, DOES NOT FIND ANY INFIRMITY WITH THE PROPOSED ORDER. THE LEVY OF INTEREST IS CONSEQUENTI AL AND IN ANY CASE AT THIS STAGE IS PREMATURE AS IS INITIATIO N OF PENALTY UNDER S. 271(1) (C).' 8. FROM THE ABOVE ORDER OF DRP, IT IS APPARENT THA T THE SAME IS WITHOUT CONSIDERING VARIOUS OBJECTIONS RAIS ED BY THE ASSESSEE BEFORE DRP AND HENCE, WE ARE IN A GREEMENT WITH LEARNED AUTHORISED REPRESENTATIVE OF THE ASSE SSEE THAT THE ASSESSEE'S SUBMISSIONS HAD BEEN BRUSHED ASIDE W ITHOUT GIVING PROPER CONSIDERATION BY DRP. 9. UNDER THIS FACTUAL POSITION AS DISCUSSED ABOVE, WE RESPECTFULLY FOLLOW THE JUDGMENT OF HON'BLE DELHI H IGH COURT RENDERED IN THE CASE OF VODAFONE ESSAR LTD. (SUPRA) AND THE 6 ITA NO.1328/PN/10 CARRARO INDIA LTD. TRIBUNAL DECISION RENDERED IN THE CASE OF GAP INTER NATIONAL SOURCING INDIA (P) LTD. (SUPRA) AND RESTORE THE ENT IRE MATTER BACK TO THE FILE OF DRP TO CONSIDER THE ISSU E AGAIN AND TO PASS A PROPER, SPEAKING AND REASONED ORDER U NDER S. 144C OF THE IT ACT, 1961 AFTER CONSIDERING ALL OBJE CTIONS OF THE ASSESSEE. SINCE WE ARE REMITTING THE MATTER TO THE FILES OF DRP FOR PASSING FRESH DIRECTION, WE DO NOT MAKE ANY COMMENT ABOUT THE MERITS OF THE CASE. NEEDLESS T O SAY, THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. WE WOULD ALSO LIKE TO OBSERVE THAT AS PER TH E JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN TH E CASE OF VODAFONE ESSAR LTD. (SUPRA), IT WAS HELD THAT FO R A QUASI JUDICIAL AUTHORITY, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL OF THE MATTER AND FURTHER THE SAME ALSO FACILI TATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION B EFORE THE SUPERIOR FORUM. THESE OBSERVATIONS OF HON'BLE DELHI HIGH COURT SHOULD BE KEPT IN MIND BY DRP AND SHOULD BE FOLLOWED WHILE DISPOSING OF THE MATTER. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED FOR STATISTICAL PURPOSES. SIMILAR VIEW HAS BEEN TAKEN BY ITAT, MUMBAI B BEN CH IN THE CASE OF SYMANTEC SOFTWARE SOLUTIONS (P) LTD. VS . ACIT (2012) 77 DTR (MUMBAI)(TRIB) 161. FURTHER THE SAME VIEW H AS BEEN TAKEN BY ITAT, DELHI C' BENCH IN THE CASE OF GEODI S OVERSEAS (P) LTD. VS. DCIT (2012) 14 ITR (TRIB) 325. 4.1 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING WE SET- ASIDE THE ORDER OF DRP AND RESTORE THE ISSUE TO THE DRP WITH A DIRECTION TO DECIDE THE SAME AS PER FACT AND LAW AF TER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. TH E ASSESSEE IS DIRECTED TO CO-OPERATE IN THE PROCEEDINGS BEFORE TH E DRP. SINCE WE ARE RESTORING THE MATTER TO THE DRP ON PRELIMINA RY GROUND AS DISCUSSED ABOVE, WE ARE REFRAINING FROM COMMENTING ON THE MERIT OF THE ISSUE AT HAND. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. 7 ITA NO.1328/PN/10 CARRARO INDIA LTD. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 27 TH OF JUNE, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH JUNE, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE DRP, NEW DELHI 4) THE DR, A BENCH, I.T.A.T., PUNE. 5) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE