ACIT 14(1)(2), MUMBAI V. GIA INDIA LABORATORY PVT. LTD., MUMBAI

ITA 1558/MUM/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2654 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 07-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 16-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JEHANGIR D MISTRI
• Keywords: Capital asset; Depreciation; Transfer pricing; International transaction; Non passing of speaking order
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUM BAI BEFORE SHRI SHAMIM YAHYA, A.M AND SHRI RAVISH SOOD, J.M IT(TP)/1558/2015 & C.O NO. 112/MUM/2015 ( / ASSESSMENT YEAR:2010-11) ACIT - 14(1)(2), MUMBAI 460, 4 TH FLOOR, AAYKAR BHAWAN, MUMBAI 400 020. / VS. M/S GIA INDIA LABORATORY PVT. LTD. 10 TH FLOOR, TRADE CENTRE, BANDRA KURLA COMPLEX, BANDRA EAST, BANDRA(W), MUMBAI-400 051. ./ ./ PAN NO. AAICS0137P ( / APPELLANT) : ( / RESPONDENT ) / APPELLANT BY : SHRI. RAJESH DAMOR , D.R / RESPONDENT BY : SHRI. JEHANGIR D. MISTRI , A.R / DATE OF HEARING : 05.11.2018 / DATE OF PRONOUNCEMENT : 09.11.2018 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER: THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTE D AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER (FOR SHORT A.O) U NDER SEC. 143(3) R.W.S 144C(13) OF THE INCOME-TAX ACT, 1961 (FOR SHORT AC T), DATED 30.01.2015. THE REVENUE ASSAILING THE ORDER PASSED BY THE A.O PURSU ANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL-III, MUMBAI(FOR SHORT DRP), DATED 30.01.2015 HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEA L : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE DISPUTE RESOLUTION PANEL ERRED IN DELETING ADJUSTMENT OF RS . 5,49,05,677/- ON ACCOUNT OF INTRA-GROUP SERVICES AS THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN RESPECT OF SERVICES HAVING BEEN RENDERED AND PAS SING NON SPEAKING ORDER. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR A T THE TIME OF HEARING OF THE APPEAL. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET- ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 2. BRIEFLY STATED, THE ASSESSEE COMPANY WHICH IS EN GAGED IN THE BUSINESS OF GRADING OF DIAMONDS, COLOURED STONES, GEMS, PEAR LS AND OTHER PRECIOUS STONES HAD FILED ITS RETURN OF INCOME FOR A.Y 2010- 11 ON 05.10.2010, DECLARING TOTAL LOSS OF RS. 6,21,29,504/-. SUBSEQUE NTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2) OF THE ACT. 3. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS A RE FERENCE UNDER SEC. 92CA(1) WAS MADE TO THE ADDL. CIT, TRANSFER PRICING RANGE 1(5), MUMBAI (FOR SHORT TPO) ON 23.11.2011 FOR DETERMINING THE ARMS LENGTH PRICE (FOR SHORT ALP) OF THE INTERNATIONAL TRANSACTIONS OF T HE ASSESSEE. THE TPO VIDE HIS ORDER PASSED UNDER SEC. 92CA(3) OF THE ACT, DAT ED 29.01.2014 MADE AN ADJUSTMENT OF RS. 5,49,05,677/- TOWARDS THE ALP OF THE MANAGEMENT SERVICES AVAILED BY THE ASSESSEE FROM ITS FOREIGN AE. SUBSEQUENTLY, THE A.O MADE AN ADDITION OF RS. 5,49,05,677/- TO THE TOTAL INCOME OF THE ASSESSEE IN HIS DRAFT ASSESSMENT ORDER PASSED UNDER SEC. 143(3) R.W.S 144C(1) OF THE ACT, DATED NIL. 4. AGGRIEVED, THE ASSESSEE FILED HIS OBJECTIONS WIT H THE DISPUTE RESOLUTION PANEL-III, MUMBAI (FOR SHORT DRP). THE DRP BY ITS ORDER DATED 02.12.2014 ISSUED DIRECTIONS FOR DELETION OF THE TR ANSFER PRICING ADJUSTMENT OF RS. 5,49,05,677/- MADE BY THE TPO. THE A.O AS PE R THE DIRECTIONS OF THE DRP DELETED THE TRANSFER PRICING ADJUSTMENT OF RS. 5,49,05,677/-, AND VIDE HIS ASSESSMENT ORDER UNDER SEC. 143(3) R.W.S 144C(1 3), DATED 30.01.2015 ASSESSED THE INCOME AT A LOSS OF (RS. 2,63,18,627/- ) AND THE BOOK PROFIT UNDER SEC. 115JB AT RS. 36,55,75,196/-. 5. THE REVENUE BEING AGGRIEVED WITH THE ORDER PASS ED BY THE A.O UNDER SEC. 143(3) R.W.S 144C(13) HAS CARRIED THE MATTER I N APPEAL BEFORE US. FURTHER, THE ASSESSEE IS ALSO BEFORE US AS A CROSS- OBJECTOR. THE LD. AUTHORISED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE SHRI. JEHANGIR D. MISTRI, SENIOR COUNSEL, AT THE VERY OUTSET SUBMITTE D THAT THE ASSESSEE HAD AS ON 07.05.2018 ENTERED INTO AN UNILATERAL ADVANCE PR ICING AGREEMENT (FOR SHORT APA) WITH THE CENTRAL BOARD OF DIRECT TAXES (FOR SHORT CBDT) (COPY PLACED ON RECORD). THE LD. A.R DREW OUR ATTENTION T O APPENDIX-1 - PARA 1(B)(II) OF THE APA (PAGE 11-12 OF THE AGREEMENT). IT WAS SUBMITTED BY THE LD. A.R , THAT AS PER THE APA THE INTERNATIONAL TRANSACTION FOR AVAILING OF MANAGEMENT SERVICES BY THE ASSESSEE FROM ITS ASSO CIATE ENTERPRISE (AE) FOR THE PREVIOUS YEAR 2009-10 WAS TO BE CONSIDERED TO BE AT ARMS LENGTH, IF THE PAYMENT MADE BY THE APPLICANT IN RESPECT OF SUC H TRANSACTION DURING THE SAID YEAR DID NOT EXCEED AN AMOUNT OF RS. 8,22, 38,141/-. THE LD. A.R SUBMITTED THAT THE ASSESSEE HAD AS PER THE MANDATE OF SEC. 92CD R.W RULE 10RA(2) FILED THE MODIFIED RETURN OF INCOME FOR T HE ROLLBACK YEAR UNDER CONSIDERATION ON 31.08.2018. IN THE BACKDROP OF THE AFORESAID FACTS THE LD. A.R SUBMITTED THAT AS PER RULE 10RA(5) OF THE INCOM E-TAX RULES, 1963 IT WAS OBLIGATORY ON THE PART OF THE REVENUE TO WITHDRAW T HE PRESENT APPEAL. 6. THE LD. A.R IN ORDER TO FORTIFY HIS CONTENTION T HAT THE PAYMENT MADE BY THE ASSESSEE APPLICANT IN RESPECT OF THE INTERNATIO NAL TRANSACTION OF AVAILING OF MANAGEMENT SERVICES FROM ITS AE FOR THE PREVIOUS YEAR 2009-10 WAS IN CONFORMITY WITH THE AMOUNT MENTIONED IN THE AGREEME NT, TOOK US THROUGH PAGE 31 OF THE ORDER OF THE TPO WHEREIN THE AMOUNT IN RESP ECT OF THE MANAGEMENT SERVICES WAS MENTIONED AT RS. 8,22,38,14 1/-. HOWEVER, A PERUSAL OF THE ORDER OF THE TPO REVEALED THAT AT PA GE 39 THE AMOUNT IN RESPECT OF THE MANAGEMENT CHARGES WAS STATED TO BE RS. 8,22,46,172/-. ON BEING CONFRONTED WITH THE SAID DISCREPANCY, IT WAS AVERRED BY THE LD. A.R THAT THERE APPEARED TO BE SOME MISTAKE ON THE PART OF THE TPO IN MENTIONING THE AMOUNT AT RS. 8,22,46,172/-. IN ORDE R TO DISPEL THE DOUBTS EMERGING THEREFROM, THE LD. A.R DREW OUR ATTENTION TO PAGE 5 PARA 5.2 OF THE ORDER PASSED BY THE DRP WHEREIN THE TOTAL PAYME NT MADE BY THE ASSESSEE TO ITS AE FOR THE PROVISION OF THE MANAGEM ENT SERVICES WAS STATED TO BE RS. 8,22,38,141/-. THE LD. DEPARTMENTAL REPRE SENTATIVE (FOR SHORT D.R) SUBMITTED THAT THE APPEAL OF THE REVENUE BE TREATED AS WITHDRAWN, SUBJECT TO THE VERIFICATION OF THE FACTS BY THE A.O. 7. WE HAVE HEARD THE AUTHORISED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE APA, DATED 07.05.2018. WE FIND THAT THE APA COVERS THE YEAR UNDER CONSIDER ATION I.E PREVIOUS YEAR 2009-10 ON THE ISSUE OF DETERMINING OF THE ARMS LEN GTH PRICE OF THE MANAGEMENT SERVICES AVAILED BY THE ASSESSEE FROM IT S FOREIGN AE DURING THE YEAR. AS AGREED UPON AMONGST THE AUTHORISED REPRESE NTATIVES OF BOTH THE PARTIES THE PRESENT APPEAL OF THE REVENUE IS TREATE D AS WITHDRAWN, SUBJECT TO VERIFICATION OF THE FACTS ON THE PART OF THE A.O. 8. THE APPEAL OF THE REVENUE AS OBSERVED BY US HERE INABOVE IS DISMISSED AS WITHDRAWN. C.O NO.112/MUM/2015 (ARISING FROM ITA NO. 1558/MUM/2015) A.Y 2010-11 9. THE ASSESSEE HAS RAISED BEFORE US THE FOLLOWING EFFECTIVE GROUNDS OF CROSS OBJECTIONS: 1.0. RE: NON-ALLOWANCE OF DEPRECIATION ON MARKET RESEARCH EXPENSES OF RS. 23,50,000/- : 1.1 THE ASSESSING OFFICER HAS ERRED IN NOT FOLLOWING TH E DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. 1.2 THE ASSESSEE HUMBLY SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, IT IS ENTITLED TO DEPRECIATION ON THE MARKET RESEARCH EXP ENSES AS DIRECTED BY THE DISPUTE RESOLUTION PANEL. 1.3 THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE DEPRECIATION ON MARKET RESEARCH EXPENSES AS DIR ECTED BY THE DISPUTE RESOLUTION PANEL. 10. THE LD. A.R SUBMITTED THAT THE A.O WHILE FRAMIN G THE ASSESSMENT UNDER SEC. 143(3) R.W.S 144C(13) HAS FAILED TO GIVE EFFECT TO THE DIRECTIONS OF THE DRP. THE LD. A.R DRAWING OUR ATTENTION TO PAGE 7 - PARA 8 OF THE DRP ORDER SUBMITTED, THAT THOUGH THE A.O WAS SPECIFICAL LY DIRECTED TO ALLOW DEPRECIATION ON THE CAPITALISED VALUE OF THE MARKET RESEARCH EXPENSES AFTER MAKING NECESSARY VERIFICATIONS, HOWEVER HE HAS FAIL ED TO COMPLY WITH THE SAID DIRECTIONS. PER CONTRA, THE LD. D.R DID NOT CO NTROVERT THE SAID CONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE. 11. WE HAVE HEARD THE AUTHORISED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE COURSE OF THE PROCEEDINGS BEFORE THE DRP THE ASSESSEE HAD SOUGHT DEPRECIATION ON THE WRITTEN DOWN VALUE OF TH E MARKET RESEARCH EXPENSES. IT WAS SUBMITTED BY THE ASSESSEE BEFORE T HE DRP THAT IN THE IMMEDIATELY PRECEDING YEAR I.E A.Y 2009-10 DEPRECIA TION WAS ALLOWED ON THE AMOUNT OF THE MARKET RESEARCH EXPENSES OF RS. 23,50 ,000/- BY TREATING THE SAME AS A CAPITAL ASSET. WE FIND THAT THE DRP OBSER VED THAT THE CLAIM OF THE ASSESSEE THAT IT WAS ALLOWED DEPRECIATION ON THE MA RKET RESEARCH EXPENSES IN A.Y 2009-10 WAS IN ORDER. IN THE BACKDROP OF THE AFORESAID FACTS THE DRP HAD DIRECTED THE A.O TO GRANT DEPRECIATION TO THE A SSESSEE ON THE MARKET RESEARCH EXPENSES, AFTER MAKING NECESSARY VERIFICAT IONS ON FACTS. HOWEVER, WE FIND THAT THE A.O WHILE FRAMING THE ASSESSMENT H AD OMITTED TO GIVE EFFECT TO THE AFORESAID DIRECTION OF THE DRP. WE THUS, IN TERMS OF OUR AFORESAID OBSERVATIONS RESTORE THE ISSUE AS REGARDS GRANT OF DEPRECIATION ON THE MARKET RESEARCH EXPENSES TO THE FILE OF THE A.O, FO R GIVING EFFECT TO THE DIRECTION OF THE DRP IN THE SAID CONTEXT. 12. THE CROSS-OBJECTION FILED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE OPEN COURT ON 09.11.2018 SD/- SD/- (SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; % .11.2018 PS. ROHIT KUMAR / 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. ' * //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) ' # , / ITAT, MUMBAI