M/s Obulapuram Mining Co., Pvt. Ltd., Bellary V. DCIT, Bangalore

ITA 135/BANG/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3763 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 01-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-02-2015
• Court: TRIBUNAL
• Assessee Lawyers: LAKSH MI NARAYAN
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 92B; 92A; 153A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SRI. SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI. ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT(TP)A 135/BANG/15 (A.Y : 2008 09) M/S. OBULAPURAM MINING CO., PVT. LTD., NO. 123, VEERANNA GOWDA COLONY, CLUB ROAD, GANESH NAGAR, BELLARY 583 103. --- APPELLANT PAN NO : AAACO5753D VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(3), INCOME TAX DEPARTMENT, C.R. BUILDINGS, QUEENS ROAD, BANGALORE 560 001. --- RESPONDENT APPELLANT BY: SRI. LAKSHMI NARAYAN, ADVOCATE RESPONDENT BY: MS. NEERA MALHOTRA, CIT(DR) DATE OF HEARING: 29.08.2016 DATE OF PRONOUNCEMENT: 17.10.2016 O R D E R PER SUNIL KUMAR YADAV, J.M THIS APPEAL IS PREFERRED BY THE ASSESSEE, AGAINST T HE ORDER OF THE CIT(A) INTER ALIA ON THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED ASSESSING OFFICER UNDER SE CTION 143(3) R.W.S 263 & 144C(13) OF THE ACT IS OPPOSED TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE, AND THEREFORE LIABLE TO BE CANCELLED. IT(TP)A 135/BANG/15 PAGE 2 OF 6 2. THE LEARNED LOWER AUTHORITIES ERRED IN MAKING A REF ERENCE U/S. 144C WITHOUT MEETING THE ARGUMENTS/OBJECTIONS OF THE APP ELLANT AS NOTED IN PARA 6.1 TO 6.4 OF PAGES 3,4,5,6 & 7 OF THE ORDER O F THE LEARNED DRP AND AS SUCH, THE REFERENCE U/S. 144C IS INVALID AND THE ENTIRE ASSESSMENT ITSELF IS INVALID. 3. THE LEARNED AO SHOULD HAVE APPRECIATED THAT THE APP ELLANT IS NOT AN ELIGIBLE ASSESSEE AS DEFINED IN SECTION 144C(15)( B), SINCE IT IS NOT A FOREIGN COMPANY BUT AN INDIAN/DOMESTIC COMPANY, AND THEREFORE THE PROVISIONS OF SECTION 144C DO NOT APPLY. 4. THE LEARNED AO HAS FAILED TO APPRECIATE THAT THE DR P HAS NO JURISDICTION U/S. 144C ON ORDERS THAT HAVE MERGED IN THE ORDER U /S. 263 AND HENCE THE REFERENCE IS INVALID. 5. THE LEARNED AO SHOULD HAVE CONSIDERED THE FACT THAT THE ORDER U/S. 263 IS SUBJECT MATTER OF APPEAL TO ITAT AND HENCE REFERENC E TO THE DRP ON THE ISSUES CONSIDERED BY THE CIT U/S. 263 IS NOT REFERA BLE U/S. 144C TO THE DRP AND HENCE, THE DRP LACKS THE JURISDICTION. 6. THE LEARNED A.O SHOULD HAVE APPRECIATED THAT THE DR P CANNOT DECIDE THE DISPUTES ARISING FROM THE FINDINGS AND ORDERS OF TH E CIT U/S 263 AND A REFERENCE TO THE DRP U/S 144C THEREFORE CANNOT BE M ADE, WHEN PASSING THE ASSESSMENT ORDER IN PURSUANCE OF THE ORDER U/S 263. 7. THE ORDER UNDER SECTION 144C IS BARRED BY LIMITATIO N IN VIEW SECTIONS 144C (12) AND 153, AND THEREFORE LIABLE TO BE CANCELLED. 8. THE ORDER OF THE ASSESSING OFFICER PASSED AFTER OBT AINING THE APPROVAL OF THE JOINT COMMISSIONER OF INCOME TAX AS MENTIONED IN PARA-6 OF PAGE- 10 OF THE IMPUGNED ASSESSMENT ORDER IS BAD IN LAW B ECAUSE THE ORDERS/DIRECTIONS OF THE DRP U/S. 144C ARE BINDING ON THE ASSESSING OFFICER AND CANNOT BE APPROVED BY THE JCIT WHO IS N OT A SUPERIOR AUTHORITY OVER THE DRP. 9. APPLICATION OF TP PROVISIONS: A) THE LEARNED DISPUTE RESOLUTION PANEL (DRP) AND THE LOWER AUTHORITIES OUGHT TO HAVE HELD THAT THERE IS NO A.E . SINCE THE AUTHORITIES ARE UNABLE TO SHOW THAT THE PROVISIONS OF SUB SECTION (1) OF SEC. 92A ARE ATTRACTED AND ALSO THE CRITERIA IN SUB SECTION TO IT(TP)A 135/BANG/15 PAGE 3 OF 6 92A ARE ALSO SATISFIED AND THEREFORE, OUGHT TO HAVE CONCLUDED THAT THE TRANSFER PRICING (TP) PROVISIONS DO NOT APPLY T O THE FACTS OF THE APPELLANT. B) THE LEARNED DRP AD THE LOWER AUTHORITIES ERRED IN H OLDING THAT THE DEEMING PROVISION IN SE. 92B(2) IS ATTRACTED WITHOU T FIRST POINTING OUT HOW THE PROVISIONS OF SEC. 92A(1) IS ATTRACTED AND ALSO CRITERIA LAID DOWN IN SEC. 92A(2) IS ALSO SIMULTANEOUSLY ATT RACTED. C) THE LEARNED AUTHORITIES FAILED TO APPRECIATE THAT I N THE ABSENCE OF AN A.E. AS DEFINED IN SEC. 92A, THERE CAN BE NO APP LICATION OF SEC. 92B(2) OF THE ACT. D) THE LEARNED DRP HAS ERRED IN HOLDING THAT THERE IS NO BASIS FOR THE ARGUMENT OF THE APPELLANT THAT THE TRANSFER PRICING OFFICER (THE TPO) HAS NO JURISDICTION TO RESORT TO AN IMPLIED PR OVISIONS OF LAW OR A DEEMING PROVISION FOR THE PURPOSE OF DETERMINATIO N OF THE ACTUAL STATE OF AFFAIRS IN A BUSINESS ARRANGEMENT WITHOUT APPRECIATING THE SETTLED LEGAL POSITION. E) THE LEARNED AUTHORITIES FAILED TO APPRECIATE THAT W HEN THE CONTRACT WAS ENTERED INTO WITH M/S. GLA LTD., AND AS SUCH, T HERE WAS NO COMMON DIRECTOR AND THEREFORE, THE TRANSACTIONS MAD E IN PURSUANCE OF THE CONTRACT ARE MADE UNDER UNCONTROLL ED CONDITIONS. F) THE LEARNED AUTHORITIES HAVE GROSSLY FAILED TO MEET THE ARGUMENTS AND THE OBJECTIONS RAISED BY THE APPELLANT BECAUS E THAT IS THE ONLY VIEW POSSIBLE IN LAW AND AS SUCH SHOULD HAVE HELD IN FAVOUR OF THE APPELLANT REGARDING THE APPLICATION OF TRANS FER PRICING PROVISIONS. G) THE PARTICIPATION IN MANAGEMENT OR CONTROL OR CAPIT AL ENVISAGED IN CLAUSES (A) OR (B) OF SECTION 92A(1) CAN BE EXERCIS ED ONLY BY VIRTUE OF SHARE HOLDING SPECIFIED IN CLAUSES (A) AND (B) O F SECTION 92A(2) AS PER THE SETTLED LAW, AND WHEN SHRI. GALI JANARDH AN REDDY IS ONLY A DIRECTOR WITHOUT ANY SHARE HOLDING IN M/S. GLA LT D., AND FURTHER WITHOUT ATTRACTING EITHER CLAUSE (E) OR CLAUSE (F) OF SECTION 92A(2), SUCH RIGHT OF PARTICIPATION OR MANAGEMENT OF CONTRO L DID NOT EXIST AND THEREFORE, THERE WAS NO A.E U/S. 92A. H) NO INDIVIDUAL OR OTHER PERSON HAVING ANY CONTROL OR CONTROLLING INTEREST IN M/S. GLA INTERNATIONAL PTE LTD., HAS AN Y CONTROL OVER THE APPELLANT AND THEREFORE CLAUSE (J) OR CLAUSE (K) OF SECTION 92A(2) IS ALSO NOT SATISFIED AND AS SUCH IT IS NOT RELEVANT T HAT SRI. GALI JANARDHANA REDDY BECAME ONE OF THE DIRECTORS OF M/S . GLA INTERNATIONAL PTE LTD., FOR THE PURPOSE OF SECTION 92A. 10. DETERMINATION OF ALP: WITHOUT PREJUDICE THAT A) THE AUTHORITIES SHOULD HAVE APPRECIATED THAT THE CO NTRACTUAL TERMS IS MATERIAL TO THE DETERMINATION OF ALP AS PER CLAU SE (C) OF RULE 10B (2) AND THEREFORE, THE ARMS LENGTH PRICE (ALP) SHOULD BE DETERMINED BY TAKING ONLY SUCH UNCONTROLLED TRANSAC TIONS WHICH ALSO HAD SIMILAR CONTRACTUAL TERMS, AS NMDC AND MMT C, WHOSE FINANCIAL DATA IS AVAILABLE IN PUBLIC DOMAIN. IT(TP)A 135/BANG/15 PAGE 4 OF 6 B) IT SHOULD HAVE BEEN APPRECIATED THAT NMDC AND MMTC COULD NOT BE ACCUSED OF ENTERING INTO TAINTED AGREEMENTS OR EXER CISING UNDUE INFLUENCE FOR THE PURPOSE OF AVOIDING OR SHIFTING O F PROFITS AND THEREFORE COMPARABLE UNCONTROLLED TRANSACTIONS DE FINED IN RULE 10B(2) READ WITH RULES 10B(3) AND 10C OF THE I.T. R ULES FOR DETERMINATION OF ALP. C) THE ALP DETERMINED IS NOT IN ACCORDANCE WITH THE RU LES PRESCRIBED AND THEREFORE LIABLE TO BE CANCELLED AND TREATING T HE PURPORTED INTERNATIONAL TRANSACTIONS AS AT ARMS LENGTH. D) 5 PERCENT STANDARD DEDUCTION OUGHT TO HAVE BEEN GIV EN WHILE DETERMINING THE ALP. E) THE AUTHORITIES ERRED IN NOT APPRECIATING THAT M/S. GLA INTERNATIONAL PTE LTD., IS RESPONSIBLE FOR THE PAYMENT, DELIVERY OF GOODS AND FURTHER OBLIGED TO PAY MINIMUM OF 35% ON COST, WHIC H IS A SIGNIFICANT RISK WHILE EVALUATING THE ALP. F) THE AUTHORITIES SHOULD HAVE APPRECIATED THAT THE PR ICE/PROFIT MARGIN OF MINIMUM OF 35% ON COST AT ALL TIMES EVEN UNDER D EPRESSED MARKET CONDITIONS IS WHAT THE APPELLANT COULD NOT H AVE SECURED FROM ANY OTHER IMPORTER AND THEREFORE, SUCH A PRICE EVEN UNDER ALLEGED CONTROLLED CONDITIONS, IS AT ARMS LENGTH. G) THE AUTHORITIES SHOULD HAVE APPRECIATED THAT THERE ARE NO DEEMED INTERNATIONAL TRANSACTIONS U/S. 92B AND THEREFORE, THE QUESTION OF DETERMINATION OF THE ARMS LENGTH PRICE OF SUCH ALLE GED INTERNATIONAL TRANSACTIONS DID NOT ARISE. 11. THE AUTHORITIES FAILED TO APPRECIATE THAT THERE WERE NO PAYMENTS/EXPENSES TO BE DISALLOWED U.S.37(1) AND THEREFORE, NO INCOME WAS ADMITTED IN THE RETURN FILED U/S. 153A ON THIS ISSUE AND THE LEARNE D A.O IS ALSO NOT ABLE TO IDENTIFY ANY SUCH PAYMENT IN THE BOOKS OF ACCOUNT O F THE APPELLANT ASSESSEE. 12. THE LEARNED A.O AND THE DRP FAILED TO APPRECIAT E THERE WAS NO EXCESS STOCK AND OUGHT TO HAVE ACCEPTED THE EXPLANATION OF THE ASSESSEE WHICH RECONCILED THE STOCK FIGURES/DETAILS. 13. THE LEARNED ASSESSING OFFICER ERRED IN INITIATI NG PENALTIES AFRESH IN THE ORDER WHEN THE PENALTIES WERE DROPPED BY THE ASSESS ING OFFICER ON COMPLETING OF THE ORIGINAL ASSESSMENT U/S 143(3) DA TED 32/12/2009 AND FURTHER WHEN THERE ARE NO DIRECTIONS OF THE CIT U/S 263 IN THIS REGARD. THE APPELLANT SEEKS YOUR LEAVE TO ADD, ALTER AMEND OR DELETE ANY OF THE GROUNDS URGED AT THE TIME OF HEARING. IT(TP)A 135/BANG/15 PAGE 5 OF 6 2 DURING THE COURSE OF HEARING LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACTS THAT THE PRESENT APPEAL IS EMANATED FROM THE ORDER OF THE ASSESSING OFFICER PASSED CONS EQUENT TO THE ORDER OF CIT PASSED U/S. 263 OF THE ACT. 3 THE ORDER PASSED BY THE CIT U/S. 263 OF THE ACT H AS BEEN CHALLENGED BY THE ASSESSEE BEFORE THE TRIBUNAL IN I TA 545/BANG/12 AND TRIBUNAL VIDE ITS ORDER DATED 29/07/2016 QUASHED TH E ORDER OF THE CIT PASSED U/S. 263 OF THE ACT. SINCE THE ORDER OF CIT , CONSEQUENT TO WHICH THE ASSESSING OFFICER HAS PASSED THE IMPUGNED ORDER FROM WHICH THE PRESENT APPEAL HAS BEEN EMANATED, IS SET ASIDE/QUAS HED BY THE TRIBUNAL, THE ENTIRE PROCEEDINGS CONSEQUENT BECOMES INVALID A ND DESERVES TO BE SET ASIDE. COPY OF THE ORDER OF TRIBUNAL DATED 29/ 07/2015 IS PLACED ON RECORD. 4 THE LEARNED DR DID NOT DISPUTE THIS FACT. 5 HAVING CAREFULLY EXAMINED THE ORDER OF TRIBUNAL P ASSED IN APPEAL FILED AGAINST THE ORDER OF CIT U/S. 263 OF ACT. WE ARE THE VIEW THAT ONCE THE ORDER OF CIT PASSED U/S. 263 IS QUASHED, CONSEQ UENTIAL PROCEEDINGS ARE NOT SUSTAINABLE IN THE EYES OF LAW. WE THEREFO RE SET ASIDE THE ORDER IT(TP)A 135/BANG/15 PAGE 6 OF 6 OF ASSESSING OFFICER AS WELL AS CIT(A). ACCORDINGL Y THE APPEAL OF ASSESSEE IS STANDS ALLOWED. 6 IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH OCTOBER, 2016. SD/- SD/- (ARUN KUMAR GARODIA) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : BANGALORE DATED : 17/10/2016 /MK/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL BANGALORE