I.T.O., WARD-11(1), MUMBAI V. EDWARD LIFESCIENCES PVT LTD., MUMBAI

ITA 1843/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3868 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Department
• Bench Allotted: K
• Next Hearing Date: 21-05-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 04-03-2011
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA SHRI N K CHAND
• Keywords: Transfer pricing; International transaction; Retrospective amendment
• Section: 92C; 143(3)

Judgement Text

1 ITA NO. 1843/M/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.1843/MUM/2011 (ASSESSMENT YEAR : 2002-03) THE DY.CIT 8(1), MUMBAI VS M/S EDWARD LIFESCIENCES PVT LTD E, F-201, 202, 203, 204 REMI BIZCOURT, PLOT NO.9, SHAH INDUSTRIAL ESTATE, ANDHERI (WEST), MUMBAI 58 PAN : AAACB4203F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SAMBIT MISHRA SHRI N.K. CHAND, CIT-DR RESPONDENT BY SHRI NEERAJ SHETH DATE OF HEARING : 22-03-2016 DATE OF PRONOUNCEMENT : 27 -04-2016 O R D E R PER SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF LD.CIT(A) DATED 22-12-2010 PASSED AGAINST THE ASSESSMENT ORDE R U/S 143(3) DATED 14- 03-2005 FOR ASSESSMENT YEAR 2002-03. THE SOLITARY ISSUE RAISED BY THE REVENUE IN ITS APPEAL IS WHETHER THE ASSESSEE CAN BE ALLO WED TO HAVE BENEFIT OF SUO 2 ITA NO. 1843/M/2011 2 MOTO ADJUSTMENT SO AS TO BRING THE ACTUAL VALUE OF INTE RNATIONAL TRANSACTION DONE BY IT WITH ITS ASSOCIATED ENTERPRISE WITHIN + / - 5% RANGE AS PERMITTED U/S 92C(2). 2. THE BRIEF FACTS AND HISTORY OF THIS CASE ARE THA T THE ASSESSEE COMPANY, DURING THE YEAR, WAS ENGAGED IN OF DISTRIBUTION OF CARDIO VASCULAR PRODUCTS IN INDIA. IN THE TRANSFER PRICING STUDY REPORT, THE A SSESSEE ADOPTED THE TRANSCTIONAL NET MARGIN METHOD (TNMM) TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS RELATING TO ITS DISTRIBUTION BUSINESS AND SELECTED OPERATING PROFIT TO SALES OP / SALES) AS THE PROFIT LEVEL INDICATOR. THE ARITHMETIC MEAN WAS DETERMINED TO BE 3.76%. AS AGA INST THIS OP / SALES OF THE ASSESSEE COMPANY WORKED OUT AT 13.79%. AS THE OP / SALES OF THE ASSESSEE WAS SIGNIFICANTLY LESSER THAN THE ARITHMETIC MEAN O F OP / SALES OF THE COMPARABLE COMPANIES AS MENTIONED ABOVE, THE ASSESS EE EXERCISED THE OPTION OF 5% RANGE AVAILABLE UNDER THE PROVISO TO SECTION 92C (2) OF THE ACT. ON THE BASIS OF THE ARITHMETIC MEAN OF OP/SALES OF COMPAR ABLE COMPANIES OF 3.76% THE ARM'S LENGTH PRICE OF THE IMPORT OF FINISHED GO ODS WORKED OUT TO RS.122,936,901 AS AGAINST THE TRANSACTION VALUE OF RS.16,63,27,110. UPON EXERCISE OF THE 5% RANGE OPTION AVAILABLE UNDER THE PROVISO TO SECTION 92C(2), THE ARM'S LENGTH PRICE FOR IMPORT OF FINISHED GOODS FROM ASSOCIATED ENTERPRISES WAS DETERMINED TO BE IN THE RANGE OF RS.11,67,90,05 6 TO RS.12,90,83,746. ACCORDINGLY, THE AMOUNT OF RS. 3,72,43,364, BEING T HE AMOUNT OF TRANSACTION VALUE IN EXCESS OF THE ARMS LENGTH PRICE DETERMINE D UNDER THE PROVISIONS OF SECTION 92C(2) [I.E. RS.1,66,327,110 LESS RS.12,90, 83,746] WAS OFFERED BY THE ASSESSEE AS A SUO MOTO ADJUSTMENT IN ITS INCOME TAX RETURN FOR THE ASSESS MENT YEAR 2002-03. 3 ITA NO. 1843/M/2011 3 3. DURING THE ASSESSMENT PROCEEDINGS THE TPO ASKED THE ASSESSEE TO SHOW AS TO WHY AN ADJUSTMENT TO THE EXTENT OF THE DIFFER ENCE BETWEEN THE TRANSACTION VALUE AND THE ARMS LENGTH PRICE DETERM INED BASED ON THE ARITHMETIC MEAN OF OP/SALES OF COMPARABLES COMPANIE S OF 3.76% SHOULD NOT BE MADE, AS THE TRANSACTION VALUE FALLS BEYOND THE + / - 5% RANGE. THE TPO WAS OF THE OPINION THAT THE BENEFIT OF THE 5% RANGE IS ALLOWED ONLY IF THE PRICE PAID BY THE ASSESSEE FALLS WITHIN THE 5% RANGE OF THE AR ITHMETIC MEAN OF THE ARMS LENGTH PRICE, AND ONCE IT BREACHES THAT RANGE, NO S UCH BENEFIT IS TO BE ALLOWED. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE RELIED ON THE RELEVANT PROVISIONS OF THE CIRCULAR NO. 8 AND STATED THAT TH E BENEFIT OF THE 5% RANGE IS AVAILABLE IRRESPECTIVE OF WHETHER THE TRANSACTION V ALUE FALLS WITHIN THE 5% RANGE OF ARITHMETIC MEAN OF THE ARM'S LENGTH PRICE OR OUTSIDE THE SAME. BASED ON SUCH AN INTERPRETATION, THE TPO PROCEEDED TO MAK E AN ADJUSTMENT FOR RS. 61,46,845 IN RESPECT OF THE INTERNATIONAL TRANSACTI ON OF IMPORT OF FINISHED GOODS VIDE ORDER DATED FEBRUARY 18, 2005, BEING THE DIFFERENCE BETWEEN RS. 12,90,83,746 AND THE ARM'S LENGTH PRICE BASED ON TH E ARITHMETIC MEAN I.E. RS.1,22,936,901. THE LD. AO UPHELD THE ABOVE CONCLU SIONS OF THE TPO, AND CONFIRMED THE ADJUSTMENTS PROPOSED BY THE TPO, WHIL E FRAMING THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT. BEING AGGRIEVED, THE ASSESSEE CONTESTED THIS ISSUE BEFORE LD.CIT(A) WHER EIN ASSESSEE WAS GIVEN RELIEF BY THE LD.CIT(A) AFTER CONSIDERING THE AMEND MENT MADE VIDE FINANCE ACT, 2009. 4 ITA NO. 1843/M/2011 4 4. BEING AGGRIEVED, THE DEPARTMENT HAS FILED APPEAL BEFORE US. BOTH THE PARTIES MADE THEIR RESPECTIVE SUBMISSIONS BEFORE US . THE LD.DR SUBMITTED THAT THIS ISSUE WAS COVERED AGAINST THE ASSESSEE BECAUSE OF SUBSEQUENT AMENDMENT MADE UNDER THE LAW BY WAY OF INSERTING SU B SECTION (2A) TO SECTION 92C BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01-04-2002 AND ALSO RELIED UPON THE JUDGMENT OF HONBLE SPECIA L BENCH IN THE CASE OF IHG IT SERVICES (INDIA) PVT LTD VS ITO ITA NO.5890/DEL/ 2010 FOR ASSESSMENT YEAR 2006-07 ORDER DATED 30-04-2013. 5. IT IS NOTED THAT THE LAW HAS BEEN AMENDED ON THI S ISSUE BY WAY OF INSERTION OF SUB-SECTION (2A) TO SECTION 92C W.E.F. 01-04-2002 PROVIDING AS UNDER:- WHERE THE FIRST PROVISO TO SUB-SECTION (2) AS IT STOOD BEFORE ITS AMENDMENT BY THE FINANCE (NO.2) ACT, 2009 (33 OF 2009), IS AP PLICABLE IN RESPECT OF AN INTERNATIONAL TRANSACTION FOR AN ASSESSMENT YEAR AN D THE VARIATION BETWEEN THE ARITHMETICAL MEAN REFERRED TO IN THE SAID PROVISO A ND THE PRICE AT WHICH SUCH TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN EXCEEDS FI VE PER CENT OF THE ARITHMETICAL MEAN, THEN, THE ASSESSEE SHALL NOT BE ENTITLED TO E XERCISE THE OPTION AS REFERRED TO IN THE SAID PROVISO. 6. IT IS THUS CLEAR FROM THE PERUSAL OF ABOVE THAT THE LEGAL POSITION IS VERY CLEAR THAT IN CASE DIFFERENCE BETWEEN THE ALP AND T HE ACTUAL VALUE OF THE TRANSACTION EXCEEDS 5%, THEN THE ASSESSEE IS NOT EN TITLED TO EXERCISE THE OPTION AS WAS AVAILABLE TO IT IN THE PRE-AMENDED PROVISION EXISTING AT THE TIME OF FILING OF RETURN BY THE ASSESSEE. MOREOVER, HONBLE SPECI AL BENCH IN THE CASE OF IHG IT SERVICES (INDIA) PVT LTD (SUPRA) HAS ALSO DECIDE D THIS ISSUE AGAINST THE ASSESSEE HOLDING AS UNDER: COMING BACK TO THE PROVISIONS OF THE INCOME-TAX AC T, WE ARE OF THE OPINION THAT AFTER THE RETROSPECTIVE AMENDMENT TO T HE SECOND PROVISO TO SECTION 92C(2) BY THE FINANCE ACT, 2012, THERE REMA INS NO AMBIGUITY THAT THE 5 ITA NO. 1843/M/2011 5 BENEFIT OF TOLERANCE MARGIN IS AVAILABLE ONLY WHEN THE VARIATION BETWEEN THE ARM'S LENGTH PRICE AS DETERMINED UNDER SECTION 92C( 1) AND THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UND ERTAKEN DOES NOT EXCEED THE TOLERANCE MARGIN. ONCE IT EXCEEDS THE TOLERANCE MAR GIN, NO BENEFIT UNDER THE PROVISO WOULD BE AVAILABLE TO THE ASSESSEE AND THE ALP AS DETERMINED UNDER SECTION 92C(1) SHALL BE CONSIDERED. THE QUESTION RE FERRED TO THE SPECIAL BENCH IS ANSWERED ACCORDINGLY, I.E., IN FAVOUR OF THE REVENU E AND AGAINST THE ASSESSEE. 7. THUS, IN VIEW OF THE ABOVE WE FIND THAT ADJUSTME NT MADE BY THE ASSESSING OFFICER / TPO WAS CORRECT AS PER LAW AND FACTS AND, THEREFORE, ACTION OF LD.CIT(A) IN DELETING THE ADDITION WAS CONTRARY TO LAW. THEREFORE, THE ADDITION MADE BY THE TPO / ASSESSING OFFICER IS UPH ELD. THE GROUND RAISED BY THE REVENUE IS ALLOWED. 8. AS A RESULT, APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE OF H EARING. SD/- SD/- (SAKTIJIT DEY) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 27 TH APRIL, 2016 PK/- COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ,K- BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES