ACIT, New Delhi V. M/s. Timex Watches Ltd., New Delhi

ITA 1652/DEL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3291 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 01-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 09-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B RAMANJANEYULU
• Keywords: Transfer pricing; Opportunity of being heard
• Section: 92C; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 , NEW DELHI BEFORE SH. N. K. SAINI, AM AND MS. SUCHITRA KAMBLE , JM ITA NO. 1652/DEL/2012 : ASSTT. YEAR : 2003 - 04 A CIT, CIRCLE - 16 (1), NEW DELHI VS M/S TIME X WATCHES LTD., 117, GROUND FLOOR, WORLD TRADE CENTRE, BABAR ROAD, NEW DELHI - 110001 (APPELLANT) (RESPONDENT) PAN NO. A A A CT0773C ASSESSEE BY : SH. K. M. GUPTA, ADV. & SH. GAUTAM JAIN, CA REVENUE BY : SH. B. RAMANJAN EYULU , SR. DR DATE OF HEARING : 01 .0 5 . 201 7 DATE OF PRONOUNCEMENT : 05 . 05 .201 7 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 31.01.2012 OF LD. CIT(A) - XX , NEW DELHI . 2. FOLLOWING GRO UNDS HAVE BEEN RAISED IN THIS APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN DELETING DISALLOWANCE OF RS. 5,89,043/ - ON ACCOUNT OF EXCHANGE FLUCTUATION LOSS, WITHOUT APPRECIATING THE FACTS THAT THE LIA BILITY WAS UNASCERTAINED AS ON THE LAST DATE OF THE PREVIOUS YEAR AND HENCE WAS ALLOWABLE.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN DELETING A ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 2 DISALLOWANCE OF RS. 23,30,000/ - MADE ON ACCOUNT OF PROVISIO N OF WARRANTY EXPENSES, WITHOUT APPRECIATING THE FACT THAT THE LIABILITY HAD NOT ACCRUED DURING THE FINANCIAL YEAR RELEVANT TO THE ASSES SMENT YEAR UNDER CONSIDERATION. 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) E RRED IN DELETING THE ADJUSTMENT MADE ON ACC OUNT OF ARM'S LENGTH PRICE OF RS. 6,29,00,000/ - U/S 92C (4) OF THE IT ACT, 1961.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A) ERRED IN RELYING UPON THE SUBMISSIONS OF THE A SSESSEE BY HOLD ING THAT THE COMPARABLES USED BY THE TRANSFER PRICING OFFICER IN ITS ORDER WAS NOT THE CORRECT COMPARABLES AND THE FOREIGN COMPARABLES WERE TO BE USED AND THUS WORKING OUT THE ARM'S L ENGTH PRICE AT LESS THAN +/ - 5% AND THEREBY DELETING THE A DDITION OF RS. 6,29,00,000/ - .' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LA W THE LEARNED CIT (A) ERRED IN OBSERVING THAT THE MARGIN OF THE APPELLANT IS WITHIN +/ - 5% OF THE MEAN GP/SALES OF THE COMPARABLES WITHOUT APPRECIATING THE FACT T HAT THE TRANSFER PRICING OFFICER HAD WORKED OUT THE MARGIN OF MORE THAN +/ - 5%.' 6. 'THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF APPEAL. ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 3 3 . FIRST ISSUE VIDE GROUND NO. 1 RELATES TO THE DELETION OF DISALLOWANCE OF RS.5,89,043/ - MADE BY THE AO ON ACCOUNT OF EXCHANGE FLUCTUATION LOSS. 4. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE IN ASSESSEE S OWN CASE VIDE ORDER DATED 21.06.2016 IN ITA NO. 2769/DEL/2012 AND 258 & 259/DEL/2013 FOR THE ASSESSMENT YEARS 2004 - 05 TO 2006 - 07 WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 11 TO 13. 5 . IN HIS RIVAL S UBMISSIONS THE LD. DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 6 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN DECIDED VIDE ORDER DATED 21.06.2016 IN ITA NOS. 2769/DEL/2012 AND 258 & 259/DEL/2013 FOR THE ASSESSMENT YEARS 2004 - 05 TO 2006 - 07 RESPECTIVELY IN ASSESSEE S OWN CASE WHEREIN THE RELEVANT FINDINGS HAVE BE EN GIVEN IN PARAS 11 TO 13 WHICH READ AS UNDER: 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 4 ISSUE HAS BEEN DECIDED BY THE HON BLE APEX COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA P. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE AS ON THE DATE OF THE BALANCE - SHEET IS AN ITEM OF EXPENDITURE UNDER SE CTION 37(1) OF THE INCOME - TAX ACT, 1961. 12. IT IS ALSO NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF THE DEPARTMENTAL APPEAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 1998 - 99 IN ITA NO. 3561/DEL/2003 WHEREIN VIDE ORDE R DATED 09.12.2005 THE RELEVANT FINDINGS HAVE BEEN GIVEN AS UNDER: 14. THE GROUND NO. 4 OF THE DEPARTMENT IS RELATED TO THE LOSS OF RS.16,25,000/ - DUE TO EXCHANGE RATES FLUCTUATIONS. ASSESSING OFFICER OBSERVED THAT THE SAID AMOUNT WAS DEBITED TO PROFIT A ND LOSS ACCOUNT ON ACCOUNT OF FLUCTUATION AND MADE THE ADDITION. BUT CIT( A) HAS DELETED THE SAID AMOUNT AFTER EXAMINING THE BANK CERTIFICATE AS WELL AS THE STATEMENT OF LOSS OF FOREIGN EXCHANGE.' 15. DURING THE COURSE OF ARGUMENT LD. DR SUPPORTED THE ORDE R OF THE ASSESSING OFFICER. ON THE OTHER HAND, LD. AR RELIED ON THE RATIO LAID DOWN BY THE SPECIAL BENCH ITAT IN THE CASE OF ONGC VS. DCIT, 83 ITD 151 DELHI WHERE IT WAS HELD THAT SUCH LIABILITY IS NOT NOTIONAL BUT ACCRUED. IT WAS ALSO SUBMITTED BY THE LD. AR THAT IN THE IMMEDIATELY SUCCEEDING YEAR, WHILE VALUING UNPAID LIABILITY IN THE YEAR ON THE EXCHANGE RATE PREVAILING AT THAT DATE A GAIN OF RS. 43 LAKHS ACCRUED TO THE ASSESSEE AND THE ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 5 SAME WAS OFFERED TO TAX AND ACTUALLY TAXED BY THE DEPARTMENT. 16. B Y CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE AGREE WITH THE ORDER OF THE CIT(A) FOR THE REASON THAT THE LIABILITY WAS INCURRED ON ACCOUNT OF RAW MATERIAL COMPONENTS ETC. AND HENCE IT WAS REVENUE LOSS. SINCE THE ADDITIONAL LIABIL ITY HAD ARISEN DURING THE CURRENT YEAR, THE LOSS INCURRED BY THE ASSESSEE WAS 'FATE ACCOMPLI''' AND NOT .A NOTIONAL ONE SO THE SAME IS ALLOWABLE AS PER THE RATIO LAID DOWN IN THE CASE OF ONGC VS. DY. CIT, 83 ITD 151 (ITAT - SP. BENCH) DELHI. HENCE, THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD. 13. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 21.06.2016, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 7 . NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DELETION OF DISALLOWANCE OF RS.23,30,000/ - MADE BY THE AO ON ACCOUNT OF PROVISION OF WARRANTY EXPENSES. 8 . AS REGARDS TO THIS ISSUE, THE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS COVERED VIDE ORDER DATED 23.09.2005 IN ITA NO. 3095/DEL/2002 FOR THE ASSESSMENT YEAR 1997 - 98 (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 6 9 . IN HIS RIVAL SUBMISSIONS THE LD. DR SUPPORTED THE ORDER OF THE AO. 1 0 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOTICED THAT A SIMILAR ISSUE HAVING IDENTICAL FACTS HAS BEEN DECIDED BY THE ITAT DELHI BENCH G , NEW DELHI IN ASSESSEE S OWN CASE VIDE AFORESAID REFERRED TO ORDER DATED 29 .03.2005 IN ITA NO.3095/DEL/2002 (SUPRA) WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 3 TO 5 WHICH READ AS UNDER: 3. THE SECOND GROUND TAKEN BY THE REVENUE IS AGAINST THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF RS.5,60,930 MADE BY THE A O ON ACCOUNT OF DISALLOWANCE OF LIABILITY PROVIDED FOR WARRANTY EXPENDITURE. THE AO NOTED THAT THE ASSESSEE HAD CLAIMED PROVISION FOR WARRANTIES OF RS.5,60,930. ACCORDING TO THE AO, NO EXPENDITURE COULD BE ALLOWED ON PROVISIONAL BASIS AS PER THE INCOME TAX ACT. THE PROVISION FOR WARRANTIES RELATED TO THE WARRANTY EXPENSES FOR UNEXPIRED PERIOD OF WATCHES SOLD DURING THE YEAR. THE CIT(A) HAS SINCE ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE ORDER OF HIS PREDECESSOR FOR THE AY 1996 - 97 WHEREBY THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 4. BEFORE US, IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT THE ISSUE STOOD DECIDED IN FAVOUR OF THE ASSESSEE IN TERMS OF THE DECISION OF THE TRIBUNAL IN AN APPEAL PREFERRED BY THE REVENUE FOR THE AY 1996 - 97 IN IT A NO.993/DEL/2000 DATED 29.3.05. WE FIND THAT THE TRIBUNAL IN PARAS 26 TO 31 IN ITS ORDER DATED 29.3.05(SUPRA) HAS AFFIRMED THE STAND OF THE ASSESSEE FOR ALLOWABILITY OF THE IMPUGNED PROVISIONS MADE FOR WARRANTY EXPENSES. THE FACTUAL POSITION REMAINING ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 7 SIM ILAR IN THE IMPUGNED YEAR, RESPECTFULLY CONCURRING WITH THE PRECEDENT NOTED ABOVE, WE HOLD THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 5. ON THIS GROUND, THE REVENUE ACCORDINGLY FAILS. 1 1 . IN THE AFORESAID ORDER , THE ITAT DELHI BENCH G , NEW DELHI FOLLOWED THE EARLIER ORDER DATED 29.03.2005 IN ITA NO. 993/DEL/2000 FOR THE ASSESSMENT YEAR 1996 - 97 (COPY OF WHICH IS PLACED AT PAGE NOS. 1 TO 19 OF THE ASSESSEE S PAPER BOOK). SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDERS IN ASSESSEE S OWN CASE, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 1 2 . THE LAST ISSUE VIDE GROUND NOS. 3 TO 5 AGITATED BY THE DEPARTMENT RELATES TO THE DELETION OF ADJUSTMENT MADE BY THE AO ON ACCOUNT OF ARM S LENGTH PRICE AMOUNTING T O RS.6,29,00,000/ - U/S 92C(4) OF THE INCOME - TAX ACT, 1961. 13 . AS REGARDS TO THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS INVOLVED FOR THE ASSESSMENT YEAR 2002 - 03 IN ITA NO. 4374/D EL/2011 IN ASSESSEE S OWN CASE WHEREIN THE ISSUE HAS BEEN DECIDED VIDE ORDER DATED 22.12.2016 AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 8 WHICH READ AS UNDER: 8. A PERUSAL OF THE ABOVE FINDINGS OF THE ID. CIT(A) SHOWS THAT THE ID. C1T(A) HAS GIVEN RELIEF TO THE ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 8 ASSESSEE ON THE GROUND THAT IN THE ASSESSMENT YEAR 2004 - 05, 2005 - 06, 2006 - 07 AND 2007 - 08, SOME OF THE COMMON FOREIGN COMPARABLE COMPANIES ARE USED AND ACCEPTED BY THE TPO FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIO NS AND IN THOSE YEARS, WHERE THE ASSESSEE ITSELF WAS THE TESTED PARTY. IT IS ALSO OBSERVED THAT THE BUSINESS MODEL IS UNCHANGED FROM YEAR TO YEAR AND THE NATURE OF BUSINESS CONTINUES TO BE THE SAME IN THE SUBSEQUENT YEARS AS WELL. WE, HOWEVER/FIND THAT THE CONTENTION OF THE ID. DR CAN ALSO NOT BE SAID TO BE WITHOUT ANY LOGIC THAT GEOGRAPHICAL LOCATIONS, DIFFERENT MARKETS & THE PREVAILING LAWS AND GOVERNMENT ORDERS, COST OF LABOUR AND CAPITAL, OVERALL ECONOMIC DEVELOPMENT SIZE OF THE MARKETS ETC. ALSO IMPART AN IMPORTANT ROLE IN THE TEST OF COMPARABLES, BEFORE CONSIDERING THE FOREIGN COMPARABLES IN THE INSTANT CASE, THE ID. CIT(A) HAS ALSO NOT CALLED FOR ANY REMAND REPORT FROM THE ASSESSING OFFICER/TPO TO EXAMINE AS TO UNDER WHAT CIRCUMSTANCES, THE FOREIGN CO MPANIES WERE CONSIDERED AS APPROPRIATE COMPARABLES IN THE SUBSEQUENT YEARS AND UNDER WHAT CIRCUMSTANCES, THE AO/TPO EXCLUDED THE SAME FROM THE FINAL SET OF COMPARABLES IN THE YEAR UNDER CONSIDERATION. WE, THEREFORE, CONSIDER IT APPROPRIATE IN THE INTEREST OF JUSTICE THAT THE MATTER SHOULD GO BACK TO THE ID. CIT(A) FOR DECIDING THE ISSUE AFRESH AFTER SEEKING REMAND REPORT FROM THE ASSESSING OFFICER/TPO ON THE COMPARABILITY TEST OF - FOREIGN COMPANIES APPLIED BY THEM IN THE SUBSEQUENT YEARS AND EXCLUDED IN THE YEAR UNDER CONSIDERATION. IN CASE IT IS FOUND THAT COMMON COMPARABLES REFERRED TO BY THE ID. CIT(A) ARE CONSIDERED AS APPROPRIATE IN THE SUBSEQUENT YEARS UNDER THE IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE HAVING SIMILAR FAR ANALYSIS, THEN THE ASSESSE E DESERVES RELIEF ON THIS ISSUE, NO DOUBT, IT FOR THE ASSESSEE TO DEMONSTRATE THE ABOVE FACT. OTHERWISE, THE ID. CIT(A) SHALL DECIDE THE ISSUE IN ACCORDANCE WITH ITA N O. 1652 /DEL /201 2 TIMEX WATCHES LTD. 9 LAW KEEPING IN VIEW VARIOUS NORMS OF COMPARABILITY TESTS, AS ENUMERATED BY THE ID. DR ABOVE. N EEDLESS TO SAY, THE ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 14 . SINCE, THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS INVOLVED IN TH E ASSE SSMENT YEAR 2002 - 03 AND THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE WAS NOT CONTROVERTED BY THE LD. DR. SO, RESPECTFULLY FOLLOWING THE SAID ORDER DATED 22.12.2016 , THIS ISSUE IS RESTORED BACK TO THE FILE OF THE LD. CIT(A) TO BE DECIDED AS HAS BEEN DIRECTED FOR THE ASSESSMENT YEAR 2002 - 03 IN ITA NO. 4374/DEL/2011 (SUPRA). 15 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ( ORDER PRON OUNCED IN THE COURT ON 05 /05 /2017 ) SD/ - SD/ - (SUCHITRA KAMBLE ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DAT ED: 05 /05 /2017 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR