The DCIT, Circle-4, Ahmedabad V. GMM Pfaulder Pvt. Limited, Ahmedabad

ITA 1370/AHD/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 2923 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Depreciation; Transfer pricing; International transaction; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NOS.: 951 AND 1370/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: JUSTICE P P BHATT, PRESIDENT AND PRAMOD KUM AR VICE PRESIDENT] ITA NO.: 1370/AHD/2015 ASSESSMENT YEAR: 2010-11 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), AHMEDABAD .....APPELLAN T VS. GMM PFAUDLER LIMITED ..........RESPONDENT 3 RD FLOOR, B JADAV CHAMBERS ASHRAM ROAD, AHMEDABAD 380 009 [PAN: AABCG0563A] ITA NO.: 951/AHD/2015 ASSESSMENT YEAR: 2010-11 GMM PFAUDLER LIMITED .....APPELLANT 3 RD FLOOR, B JADAV CHAMBERS ASHRAM ROAD, AHMEDABAD 380 009 [PAN: AABCG0563A] VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), AHMEDABAD ..........RESPO NDENT APPEARANCES BY S N SOPARKAR ALONG WITH PARIN SHAH, FOR THE ASSESSEE LALIT P JAIN FOR THE REVENUE DATE OF CONCLUDING THE HEARING : DECEMBER 5, 2018 DATE OF PRONOUNCEMENT : MARCH 4, 2019 O R D E R PER PRAMOD KUMAR, VP: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER DATED 13 TH FEBRUARY 2015 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010-11. 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE AS SESSING OFFICER. 3. IN THE FIRST GROUND OF APPEAL, THE ASSESSING OFF ICER HAS RAISED THE FOLLOWING GRIEVANCE: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE UPWARD ADJUSTMENT OF RS 1,83,53,946 MADE ON INTERNATIONAL TRANSACTION S. ITA NOS.: 951 AND 1370/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 2 OF 5 4. WHEN THIS GROUND WAS TAKEN UP FOR ADJUDICATION, LEARNED COUNSEL FOR THE ASSESSEE RAISED A PRELIMINARY OBJECTION. HE POINTED OUT THAT THE TOTAL VALUE OF INTERNATIONAL TRANSACTIONS IS RS 8,36,38,775, AS EVIDENT FROM THE STATEMENT OF FACTS BEFORE THE CIT(A)- AN ASPECT WHICH IS NOT IN DISPUTE ANYWAY, AND THAT, SO FAR AS THE R ELEVANT ASSESSMENT YEAR IS CONCERNED, THE REFERENCE TO THE TRANSFER PRICING OFFICER, FOR ASCE RTAINMENT OF ARMS LENGTH PRICE, WAS REQUIRED TO BE MADE ONLY IN THE CASES WHERE VALUE O F INTERNATIONAL TRANSACTIONS EXCEEDED RS 15 CRORES. THE ASSESSING OFFICER SHOULD HAVE, AS SU CH, TAKEN A CALL ON THE DETERMINATION OF ARMS LENGTH PRICE OF THESE INTERNATIONAL TRANSACTI ONS ON HIS OWN RATHER THAN REFERRING THE MATTER TO THE FILE OF THE TRANSFER PRICING OFFICER. OUR ATTENTION IS THEN INVITED TO THE CBDT CIRCULAR NO. 3 OF 2003 DATED 20 TH MAY 2003 HIGHLIGHTING THE SCHEME OF REFERENCE TO B E MADE TO THE TPO. IT IS THEN POINTED OUT THAT THIS PLEA W AS SPECIFICALLY TAKEN, AS EVIDENT FROM THE SUBMISSIONS OF THE ASSESSEE REPRODUCED AT PAGE 14 O F THE CIT(A)S IMPUGNED ORDER, BUT THAT PLEA WAS NOT DISPOSED OF BY THE CIT(A). OUR ATTENTI ON WAS THEN INVITED TO A COORDINATE BENCH DECISION IN THE CASE OF CALANCE SOFTWARE PVT LTD VS DCIT [(2018) 92 TAXMANN.COM 164 (DEL)] HOLDING THAT A REFERENCE BEING MADE TO THE T PO IN VIOLATION OF THE CBDT CIRCULAR IS NOT GOOD IN LAW. WE WERE THUS URGED TO HOLD THAT TH E VERY REFERENCE TO THE TPO WAS VITIATED IN LAW, AND, AS A COROLLARY THERETO, THE IMPUGNED A LP ADJUSTMENTS ARE VITIATED IN LAW. LEARNED DEPARTMENTAL REPRESENTATIVE, WHILE FAIRLY A CCEPTING THAT THIS PLEA OF THE ASSESSEE WAS NOT DISPOSED OF BY THE CIT(A), PRAYED THAT THE MATTER MAY AT BEST BE REFERRED TO THE FILE OF THE CIT(A) ON THIS SHORT POINT. 5. HAVING HEARD THE RIVAL CONTENTIONS, AND HAVING P ERUSED THE MATERIAL ON RECORD, WE SEE MERITS IN THE PLEA OF THE LEARNED COUNSEL IN PRINCI PLE BUT THEN NO DOCUMENT WAS CITED BEFORE US SHOWING A THRESHOLD LIMIT OF RS 15 CRORES BEING IN FORCE AT THE RELEVANT POINT OF TIME. AS FAR THE CALANCE SOFTWARE CASE (SUPRA), THAT WAS A C ASE IN WHICH THE VALUE OF TRANSACTIONS WAS LESS THAN RS 5 CRORES AND THE CBDT CIRCULAR HOLDING THE THRESHOLD LIMIT, FOR REFERENCE TO THE TPO, WAS PLACED ON RECORD. THIS WILL BE EVIDENT FRO M THE FOLLOWING OBSERVATIONS MADE IN THE SAID ORDER:- 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE TIME OF HEARING THE LD. AR HAS TAKEN A GROUND W HICH IS ON LEGAL POINT THAT AS PER THE INSTRUCTION NO. 3/2003 ISSUED BY THE CBDT, THE ASSESSING OFFICER SHOULD HAVE DECIDED THE ISSUE OF INTERNATIONAL TRANSACTION HIMSELF INSTEAD OF REFERRING IT TO TRANSFER PRICING OFFICER AS THE QUANTUM OF INTERNAT IONAL TRANSACTION IS BELOW THE MONETARY LIMIT OF RS.5 CRORE. PRIMA FACIE, IT APPEA RS THAT THE CONTENTION OF THE LD. AR IS SUPPORTED BY THE INSTRUCTION NO. 3/2003. THER EFORE, WE HAVE TO VERIFY WHETHER THAT INSTRUCTION HAS A BINDING FORCE OR IT IS JUST AN ADMINISTRATIVE INSTRUCTION WITHIN THE DEPARTMENTS DAY TO DAY ACTIVITIES. THE CIRCULAR HAS BEEN CONSIDERED BY THE ANDHRA PRADESH HIGH COURT IN CASE OF CIT V. SMT. NA YANA P DEDHIA [2004] 270 ITR 572/141 TAXMAN 603 WHEREIN IT IS HELD THAT THE AUTHORITIES RESPONSIBLE FOR ADMINISTRATION OF THE ACT SHALL OBSERVE AND FOLLOW ANY SUCH ORDERS, INSTRUCTIONS AND DIRECTIONS OF THE BOARD. THIS IS ACTUALLY REITERATE D FROM THE DECISION OF THE HON'BLE APEX COURT IN CASE OF UCO BANK V. CIT [1999] 237 IT R 889/104 TAXMAN 547. BUT AT THE SAME TIME THE HON'BLE SUPREME COURT ALSO HEL D THAT THE CIRCULARS CAN BE ADVERSE TO THE IT DEPARTMENT BUT STILL ARE BINDING ON THE AUTHORITIES OF THE INCOME TAX DEPARTMENTS BUT CANNOT BE BINDING ON THE ASSESS EE IF THEY ARE ADVERSE TO THE ASSESSEE. THESE RATIO LAID DOWN BY THE APEX COURT H AS AN IMPACT ON THE ARGUMENT OF THE LD. AR REGARDING THE BOARD'S INSTRUCTION TO BE FOLLOWED. THE SPECIAL BENCH ITA NOS.: 951 AND 1370/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 3 OF 5 OF THIS TRIBUNAL ALSO IN CASE OF AZTEC SOFTWARE & T ECHNOLOGY SERVICES LTD. V. ASSTT. CIT [2007] 162 TAXMAN 119/107 ITD 141 (BANG.) (SB) HELD THAT CBDT DIRECTIONS ARE MANDATORY AND BINDING ON THE ASSESSING OFFICER AND CIT. FURTHER THE JURISDICTIONAL HIGH COURT IN CASE OF SPL'S SIDDHART HA LTD. (SUPRA) HELD THAT 'SECTION 116 OF THE ACT ALSO DEFINES THE INCOME-TAX AUTHORITIES AS DIFFERENT AND DISTINCT AUTHORITIES. SUCH DIFFERENT AND DISTINCT A UTHORITIES HAVE TO EXERCISE THEIR POWERS IN ACCORDANCE WITH LAW AS PER THE POWERS GIV EN TO THEM IN SPECIFIED CIRCUMSTANCES. IF POWERS CONFERRED ON A PARTICULAR AUTHORITY ARE ARROGATED BY OTHER AUTHORITY WITHOUT MANDATE OF LAW, IT WILL CREATE CH AOS IN THE ADMINISTRATION OF LAW AND HIERARCHY OF ADMINISTRATION WILL MEAN NOTHING. SATISFACTION OF ONE AUTHORITY CANNOT BE SUBSTITUTED BY THE SATISFACTION OF THE OT HER AUTHORITY. IT IS TRITE THAT WHEN A STATUE REQUIRES, A THING TO BE DONE IN A CERTAIN MA NNER, IT SHALL BE DONE IN THAT MANNER ALONE AND THE COURT WOULD NOT EXPECT ITS BEI NG DONE IN SOME OTHER MANNER.' THEREFORE, THE ADDITIONAL GROUND OF THE AS SESSEE IS ALLOWED. 6. THERE IS NOTHING BEFORE US TO SUGGEST THE THRESH OLD LIMIT OF RS 15 CRORE IN SUCH CASES BEING IN FORCE AT THE RELEVANT POINT OF TIME. IN AN Y CASE, THE PLEA OF THE ASSESSEE IS NOT DISPOSED OF BY WAY OF A SPEAKING ORDER. IN THIS VIE W OF THE MATTER, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR ADJUDICATION ON THIS SHORT POINT BY WAY OF A SPEAKI NG ORDER, IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. AS THE MATTER IS BEING REMITTED TO THE FILE OF THE CIT(A) ON THIS TECHNICAL PLEA, IT WILL BE PREMATURE TO DEAL WITH GRIEVANCES RAISED BY THE ASSESSING OFFICER. 7. GROUND NO. 1 IS THUS ALLOWED FOR STATISTICAL PUR POSES. 8. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RAISE D THE FOLLOWING GRIEVANCE: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS 1,90,05,000 MADE ON ACCOUNT OF INTEREST EXPENSES UN DER SECTION 36(1)(III) OF THE ACT WITHOUT APPRECIATING THE FACT THAT ONCE THE FUNDS A RE PUT INTO BUSINESS THEY LOSE THEIR IDENTITY. 9. SO FAR AS THIS GRIEVANCE OF THE ASSESSING OFFICE R IS CONCERNED, THE MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, IT WAS NOTICED THAT THE ASSESSEE HAS MADE INVESTMENTS OF RS 15,83,75,000 IN VARIOUS SUBS IDIARIES. IT WAS CONTENDED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE ADVANCES TO M AKE THESE INVESTMENTS. THE ASSESSING OFFICER HOWEVER BRUSHED ASIDE THE PLEA AND PROCEEDE D TO COMPUTE INTEREST @12%, ON NOTIONAL BASIS, ON SUCH INTEREST FREE ADVANCES AND ALLOW THE INTEREST DEDUCTION UNDER SECTION 36(1)(III) TO THAT EXTENT. AGGRIEVED, ASSESSEE CARR IED THE MATTER IN APPEAL BEFORE THE CIT(A) AND THE LEARNED CIT(A), FOLLOWING THE VIEW TAKEN BY HIM FOR THE ASSESSMENT YEAR 2009-10, DELETED THE SAID DISALLOWANCE. THE ASSESSING OFFICE R IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO INTERFERE IN THE MATTER AS LEARNED CI T(A)S ORDER FOR THE ASSESSMENT YEAR 2009- 10, BASED ON WHICH IMPUGNED RELIEF WAS GIVEN, HAS S INCE BEEN CONFIRMED BY A COORDINATE BENCH VIDE ORDER DATED 6 TH SEPTEMBER 2016 AND THE LEARNED DEPARTMENTAL REPRE SENTATIVE HAS NOT BEEN ABLE TO POINT OUT ANY MATERIAL DIFFERENCE IN THE FACTS OF THE CASE OF THE SAID ASSESSMENT YEAR VIS--VIS THE FACTS OF THE CASE OF THIS YEAR. AS A MATTER OF FACT, THERE IS NO ITA NOS.: 951 AND 1370/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 4 OF 5 DISPUTE THAT MATERIAL FACTS OF THE CASE ARE SAME. I N VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLU SIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 11. GROUND NO. 2 IS THUS DISMISSED. 12. IN GROUND NO. 3, THE ASSESSING OFFICER HAS RAIS ED THE FOLLOWING GRIEVANCE: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS 56,35,500 ON ACCOUNT OF ROYALTY PAYMENT WITHOUT APP RECIATING THE FACTS THAT THE SAID PAYMENT WAS MADE FOR THE USE OF LANDMARK. 13. SO FAR AS THIS DISALLOWANCE IS CONCERNED, THE A SSESSING OFFICER NOTED THAT THE ASSESSE HAS MADE A ROYALTY PAYMENT OF RS 75,10,000, BUT IN THE ASSESSMENT YEARS 2005-06 TO 2009- 10, THE SIMILAR PAYMENTS HAVE BEEN DISALLOWED AS CA PITAL EXPENDITURE. THE ASSESSING OFFICER ALSO NOTED THAT THE CIT(A) HAS, IN THOSE YEARS, ALL OWED THE CLAIMS IN APPEAL BUT THAT FACT DID NOT IMPRESS THE ASSESSING OFFICER, AS HE WAS OF THE VIEW THAT THE RELIEF SO GRANTED BY THE CIT(A) IS UNDER CHALLENGE IN APPEAL BEFORE THE CIT( A). HE, IN LINE WITH THE STAND TAKEN AT THE ASSESSMENT STAGE IN THOSE YEARS, TREATED THE SAID E XPENDITURE AS CAPITAL EXPENDITURE BUT ALLOWED DEPRECIATION @ 25% ON THE SAME. THE NET DIS ALLOWANCE WAS THUS MADE AT RS 56,35,500. THE ASSESSING OFFICER IS AGGRIEVED OF TH E RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 14. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO INTERFERE IN THE MATTER AS LEARNED CI T(A)S ORDER FOR THE ASSESSMENT YEAR 2009- 10, BASED ON WHICH IMPUGNED RELIEF WAS GIVEN, HAS S INCE BEEN CONFIRMED BY A COORDINATE BENCH VIDE ORDER DATED 6 TH SEPTEMBER 2016 AND THE LEARNED DEPARTMENTAL REPRE SENTATIVE HAS NOT BEEN ABLE TO POINT OUT ANY MATERIAL DIFFERENCE IN THE FACTS OF THE CASE OF THE SAID ASSESSMENT YEAR VIS--VIS THE FACTS OF THE CASE OF THIS YEAR. AS A MATTER OF FACT, THERE IS NO DISPUTE THAT MATERIAL FACTS OF THE CASE ARE SAME. I N VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLU SIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 14. GROUND NO.3 IS THUS DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSIN G OFFICER IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 16. WE NOW TAKE UP THE APPEAL FILED BY THE ASSESSEE . 17. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT CALL FOR ANY SPECIFIC ADJUDICATION. 18. GROUND NO. 2 HAS A GRIEVANCE WITH RESPECT TO NO N ADJUDICATION ON GROUND NO. 2 (D) BEFORE THE CIT(A). LEARNED REPRESENTATIVES FAIRLY D ONOT DISPUTE ON THIS FACTUAL LAPSE, WHICH WE FIND TO BE IN CORRECT ANYWAY, AND, THEREFORE, TH IS ISSUE IS BEING REMITTED TO THE FILE OF THE CIT(A) FOR ADJUDICATION ON MERITS IN ACCORDANCE WIT H THE LAW, BY WAY OF A SPEAKING ORDER AND AFTER GIVING YET ANOTHER OPPORTUNITY OF HEARING TO THE ASSESSEE. AS TO WHETHER THIS GROUND NEEDS TO BE ADJUDICATED AT ALL WILL, OF COURSE, DEP END ON THE OUTCOME OF THE POINT ON WHICH THE REVENUES APPEAL IS REMITTED TO THE CIT(A). SUF FICE TO SAY, FOR THE TIME BEING, THAT THE PLEA ITA NOS.: 951 AND 1370/AHD/2015 ASSESSMENT YEAR: 2010-11 PAGE 5 OF 5 IS ACCEPTED IN PRINCIPLE AND THE MATTER IS ACCORDIN GLY REMITTED TO THE FILE OF CIT(A) FOR ADJUDICATION ON THIS POINT. TO THIS EXTENT, PLEA OF THE ASSESSEE IS UPHELD AND THE GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 19. SO FAR AS GROUND NOS. 3,4,5 AND 6 ARE CONCERNED , AS THE VERY VALIDITY OF REFERENCE TO TPO IS TO BE ADJUDICATED UPON BY THE CIT(A)- IN TER MS OF OUR DIRECTIONS ON GROUND NO. 1 IN THE APPEAL FILED BY THE ASSESSING OFFICER, IT WILL BE PREMATURE TO DEAL WITH THESE GRIEVANCES AT THIS STAGE. THESE GRIEVANCES ARE ACADEMIC AS ON THI S STAGE, AND WE, THEREFORE, DECLINE TO DEAL WITH THE SAME. 20, GROUND NO. 7 IS NOT PRESSED, AND IS, THEREFORE, DISMISSED FOR WANT OF PROSECUTION. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL SO PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 4 TH DAY OF MARCH, 2019. SD/- SD/- JUSTICE P P BHATT PRAMOD KUMAR (PRESIDENT) (VI CE PRESIDENT) AHMEDABAD, DATED THE 4 TH DAY OF MARCH, 2019 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD