Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 64695 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 11 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-12-2012
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
03-12-2012
Assessment Year
2006-2007
Appeal Filed On
07-01-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.2207, 2212 & 2213/MDS/2007 (ASSESSMENT YEARS: 2002-03 TO 2004-05) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I, MADURAI. VS. M/S. MADURA COATS LTD., 35,NEW JAIL ROAD, MADURAI-625 001. PAN: AABCM8279K (APPELLANT) (RESPONDENT) & ITA NOS.19 & 2032/MDS/2011 (ASSESSMENT YEARS: 2006-07 & 2007-08) M/S. MADURA COATS LTD., 35,NEW JAIL ROAD, MADURAI-625 001. PAN: AABCM8279K VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I, MADURAI. (APPELLANT) (RESPONDENT) REVENUE BY : DR. S.MOHARANA, CIT DR ASSESSEE BY : M R. GIRISH DAVE, ADVOCATE DATE OF HEARING : 3 RD DECEMBER, 2012 DATE OF PRONOUNCEMENT : 21 ST DECEMBER, 2012 O R D E R PER BENCH: THE PRESENT SET OF THREE APPEALS ITA NO.2207/MDS/2007 RELEVANT TO THE ASSESSMENT YEAR 20 02-03, ITA NO.2212/MDS/2007 RELEVANT TO THE ASSESSMENT YEA R 2003-04 AND ITA NO.2213/MDS/2007 RELEVANT TO THE ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 2 ASSESSMENT YEAR 2004-05 HAVE BEEN FILED BY THE RE VENUE IMPUGNING THE ORDER OF THE CIT(A) FOR THE RESPECTIV E ASSESSMENT YEARS. THE OTHER SET OF TWO APPEALS IN ITA NO.19/MDS/2011 AND 2032/MDS/2011 RELEVANT TO THE ASSESSMENT YEARS 2006-07 AND 2007-08 RESPECTIVELY HAVE BEEN FILED BY THE ASSESSEE ASSAILING THE ORDER OF T HE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS DRP) . SINCE COMMON ISSUE IS INVOLVED IN ALL THESE FIVE APPEALS, THEY ARE TAKEN UP TOGETHER FOR ADJUDICATION. 2. THE REVENUE HAS IMPUGNED THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2002-03 TO 2004-05 ON THE GROUN D THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE TPO UNDER THE HEAD EXPORT SALE OF THREADS. THE CI T(A) DID NOT FOLLOW COMPARABLE UNCONTROLLED PRICE METHOD (HE REINAFTER REFERRED TO AS CUP METHOD) WITH REGARD TO EXPORT OF THREAD INSTEAD CIT(A) HAS FOLLOWED TRANSACTIONAL NET MA RGIN METHOD (HEREINAFTER REFERRED TO AS TNMM) AS ADOPT ED BY THE ASSESSEE FOR DETERMINING ALP. 3. FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05, THE REVENUE HAS TAKEN ADDITIONAL GROUND THAT THE CIT(A) HAS ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 3 ERRED IN HOLDING THAT ASSESSEE COMPANY HAS NOT TRAN SFERRED ANY DEPB LICENSE, THE ENTIRE AMOUNT REPRESENTS DEP B ACCRUALS AND IS ENTITLED FOR DEDUCTION UNDER SECTI ON 80HHC AS AN EXPORT INCENTIVE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ONE OF THE LARGEST TEXTILE COMPANY. IT I S OPERATING THROUGH ITS THREE DIVISIONS VIZ: 1. COATS INDIA; 2. MADURA INDUSTRIAL TEXTILES; & 3. GLOBAL THREAD SUPPLY, INDIA COATS INDIA DIVISION IS A MARKETER OF SEWING THREAD S THROUGHOUT THE WORLD. MADURA INDUSTRIAL TEXTILES MANUFACTURES WIDE RANGE OF TEXTILE PRODUCTS AND THE GLOBAL THREAD SUPPLY INDIA DIVISION MANAGES THE DAY-TO-DAY OPERATIONS AND ADMINISTRATION OF THE SPINNING AND T WISTING FACILITIES . THE ASSESSEE IS AN EXPORTER OF THREAD AND OTHER ANCILLARY PRODUCTS. THE ASSESSEE HAD ADOPTED TNM ME THOD TO ARRIVE AT ARMS LENGTH PRICE FOR THE EXPORT OF T HREADS. AS REGARDS EXPORT OF GREY COTTON CANVASS, THE ASSESSE E HAD APPLIED CUP METHOD. THE TPO VIDE ORDER DATED 8.3.20 05 FOR ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 4 THE ASSESSMENT YEAR 2002-03 HELD THAT THE ASSESSEE HAS WRONGLY APPLIED TNMM FOR DETERMINING ARMS LENGTH PRICE FOR THE EXPORT OF THREADS. THE TPO REJECTED THE METHOD APPLIED BY THE ASSESSEE FOR DETERMINING THE ARMS LENGTH PR ICE AND ADOPTED CUP METHOD STATING IT TO BE MOST PREFERRED METHOD OVER THE OTHER METHODS. THE TPO ALSO REJECTED THE A RMS LENGTH PRICE DETERMINED BY THE ASSESSEE ON ACCOUNT OF EXPORT OF GREY COTTON CANVASS AS IT WAS DETERMINED FOR REPRESENTATIVE SAMPLE OF 52.68% OF THE TURNOVER. T HE ASSESSEE HAD ASKED FOR VOLUME DISCOUNT OF 15% IN CA SE CUP METHOD IS TO BE ADOPTED FOR DETERMINING THE ALP FOR EXPORT OF THREADS. THE TPO REJECTED THE CONTENTION OF THE AS SESSEE ON THE GROUND THAT VOLUME DISCOUNT OFFERED ON THE LO CAL SALES CANNOT BE ACCEPTED AS COMPARABLE FOR EXPORT SALES, ON ACCOUNT OF DIFFERENT MARKET CONDITIONS ESPECIALLY WHEN THE ASSESSEE HAS NOT COMPARED LOCAL SALES TO EXPORT SAL ES OF ASSOCIATED ENTERPRISE IN THE TRANSFER PRICING DOCUMENTATIONS. THE TPO REJECTED THE ALP DETERMINE D BY THE ASSESSEE ON TNMM ON ACCOUNT OF EXPORT OF THREA DS AS ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 5 WELL AS CUP METHOD ADOPTED FOR EXPORT OF GREY COTTO N CANVASS. 5. AGGRIEVED AGAINST THE ORDER OF TPO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND ALLOWED THE APP EALS OF THE ASSESSEE DELETING THE ADDITIONS MADE BY THE TPO . NOW, THE REVENUE HAS COME IN SECOND APPEAL BEFORE THE TR IBUNAL ASSAILING THE ORDERS OF THE CIT(A). 6. FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08, TH E ASSESSEE TOOK THE MATTER TO THE DRP. THE DRP WHILE DISPOSING OF THE OBJECTIONS OF THE ASSESSEE RELEVA NT TO THE ASSESSMENT YEAR 2006-07 AND 2007-08 VIDE ORDER DAT ED 31.8.2010 AND 19.8.2011 RESPECTIVELY, AFFIRMED THE FINDINGS OF THE TPO. THE ASSESSEE HAS ASSAILED BOTH THE ORD ERS OF DRP IN TWO SEPARATE APPEALS BEFORE THE TRIBUNAL. 7. THE ASSESSEE HAS FILED ITA NO.2032/MDS/2011 FOR THE ASSESSMENT YEAR 2007-08 WITH THE DELAY OF THREE DAY S. THE ASSESSEE HAS FILED AN AFFIDAVIT FOR CONDONATION OF DELAY, CITING REASONS FOR THE DELAY. WE ARE SATISFIED WITH THE REASONS CITED FOR CAUSING DELAY IN FILING OF THE APPEAL. IN THE I NTEREST OF JUSTICE, ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 6 WE CONDONE THE DELAY OF 3 DAYS IN FILING OF THE APP EAL AND ADMIT THE SAME FOR DISPOSAL ON MERITS ALONG WITH OTHER CO NNECTED APPEALS. 8. DR. S.MOHARANA APPEARING ON BEHALF OF THE REVENU E SUBMITTED THAT THE ASSESSEE HAS ADOPTED TNMM WITH REGARD TO EXPORT OF THREAD INSTEAD OF CUP METHOD. THE CU P METHOD IS ALWAYS A PREFERRED METHOD THAN OTHER ME THODS UNDER RULE 10B(2) OF THE INCOME TAX RULES. THE TPO RIGHTLY DISCARDED THE SAME AND HELD THAT CUP METHOD SHOULD HAVE BEEN ADOPTED. THE DR FURTHER SUBMITTED THAT THE TPO HAS GIVEN COGENT REASONS FOR NON-APPLICABILITY OF TNMM IN THE PRESENT CASE. ON THE CONTRARY, THE CIT(A) WITHOUT GIVING PLAUSIBLE REASONS HAS REVERSED THE FINDINGS OF THE TPO. THE DR FURTHER CONTENDED THAT THE SALE TO ASSOCIATED EN TERPRISES AS WELL AS DOMESTIC SALES HAS NOT BEEN CONSIDERED B Y THE TPO WHILE DETERMINING THE ARMS LENGTH PRICE AND ADOPTING CUP METHOD. MOREOVER, 15% BULK DISCOUNT CLAIMED BY THE ASSESSEE IS NOT JUSTIFIABLE WHILE DETERMINING THE A LP AS NO EXTERNAL COMPARABLE WERE MADE AVAILABLE TO THE TPO AT THE TIME OF DETERMINATION OF ARMS LENGTH PRICE. THE D R SUBMITTED ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 7 THAT A COMPARISON BETWEEN EXPORT SALES TO NON-ASSOC IATED ENTERPRISES AND ASSOCIATED ENTERPRISES SHOWS THAT V OLUME OF EXPORT SALES TO NON-ASSOCIATED ENTERPRISES IS SIGNI FICANT IN THE FINANCIAL YEAR 2001-02. DESPITE THAT NO VOLUME DISC OUNT HAS BEEN OFFERED ON THE EXPORT SALES TO NON-ASSOCIATED ENTERPRISES. AS SUCH, NO VOLUME DISCOUNT CAN BE OFF ERED ON THE EXPORT SALE TO ASSOCIATED ENTERPRISES AS WELL. AS REGARDS GREY COTTON CANVASS IS CONCERNED, THE DR SUBMITTED THAT IT MAY NOT BE END PRODUCT BUT IT IS AN INTERMEDIARY PRODUCT. THE ASSESSEE HAS TAKEN ONLY REPRESENTATIVE SAMPLE OF 52.68% OF THE TURNOVER. TH E TPO HAD ASKED THE ASSESSEE COMPANY TO APPLY CUP METHOD ON THE ENTIRE TURNOVER OF GREY COTTON CANVASS WHICH HA S BEEN SOLD TO ASSOCIATED ENTERPRISE AS WELL AS NON-ASSOC IATED ENTERPRISES. THE DR STRONGLY SUPPORTED THE ORDER O F THE TPO. 9. ON THE OTHER HAND, MR. GIRISH DAVE, LEARNED COU NSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS PASSED A WELL REASONED AND DETAILED ORDE R. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT TPO HAS ERR ED IN SWITCHING OVER TO CUP METHOD. NO VALID JUSTIFICATIO N WAS ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 8 GIVEN BY THE TPO TO REJECT THE METHOD ADOPTED BY TH E ASSESSEE IN DETERMINING ARMS LENGTH PRICE. EVEN IF THE CUP METHOD IS TO BE APPLIED FOR DETERMINING ARMS LENGT H PRICE ON EXPORT OF THREAD, THE ASSESSEE IS ENTITLED FOR VOLU ME DISCOUNT. HE SUBMITTED THAT A PERUSAL OF INTERNATIONAL TRANSA CTION FOR THE ASSESSMENT YEAR 2002-03 SHOWS THAT SUBSTANTIAL PART OF THE EXPORT EARNINGS IS FROM THE EXPORT OF THREAD. THE COUNSEL SUBMITTED THAT THE ASSESSEE CAN DETERMINE NET MARGI N ON EXPORTS FOR BOTH ASSOCIATED ENTERPRISES AND NON-ASS OCIATED ENTERPRISES ON THE BASIS OF ALLOCATION OF DIRECT AN D INDIRECT COSTS. ACCORDINGLY INTERNAL TNMM SHOULD HAVE BEEN A DOPTED BY THE TPO TO DETERMINE THE ARMS LENGTH PRICE. TH E COUNSEL SUBMITTED THAT TPO HAS NOT APPRECIATED THE FACT THA T FOR APPLYING CUP METHOD CERTAIN FACTORS ARE TO BE TAKEN INTO CONSIDERATION VIZ. SIMILARITY BETWEEN THE PRODUCT F EATURES, VOLUME OF PRODUCTS SOLD, GEOGRAPHICAL MARKETS AND O THER ECONOMIC TERMS OF ASSOCIATED ENTERPRISES AND NON- ASSOCIATED ENTERPRISES AND IN THE ABSENCE OF THE SA ME, THE CUP METHOD CANNOT BE APPLIED. THE DIFFERENCE IN GEOGRAPHICAL MARKETS BETWEEN THREAD EXPORTED TO ASS OCIATED ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 9 ENTERPRISES AND NON-ASSOCIATED ENTERPRISES CANNOT G IVE RELIABLE RESULTS UNDER CUP METHOD. HE CONTENDED TH AT EVEN IF CUP METHOD HAS TO BE FOLLOWED, THE DIFFERENCE IN VOLUME OF PRODUCTS EXPORTED TO ASSOCIATED ENTERPRISES AND NON - ASSOCIATED ENTERPRISES SHOULD BE NEUTRALIZED CONSID ERING THE SALES IN VOLUMES AND THUS VOLUME DISCOUNTS AS CLAIM ED BY THE ASSESSEE SHOULD HAVE BEEN GRANTED TO THE ASSESS EE BY THE TPO. THE COUNSEL FOR THE ASSESSEE STRONGLY SU PPORTED THE ORDERS OF THE CIT(A). 10. FOR THE ASSESSMENT YEAR 2006-07 AND 2007-08, TH E LEARNED COUNSEL DEFENDING APPEALS OF THE ASSESSEE S UBMITTED THAT THE DRP HAS UPHELD THE FINDINGS OF THE TPO, TH EREFORE, HIS SUBMISSIONS WOULD REMAIN THE SAME WHAT HE HAS S TATED WHILE DEFENDING THE ORDER OF THE CIT(A) RELEVANT T O THE ASSESSMENT YEARS 2002-03 TO 2004-05. 11. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPE CTIVE PARTIES. WE HAVE ALSO PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE DOCUMENTS REFERRED TO. DU RING THE COURSE OF SUBMISSIONS, A QUERY WAS PUT TO THE LEARN ED COUNSEL FOR THE ASSESSEE AS TO WHY ONLY INTERNAL CO MPARABLES ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 10 WERE GIVEN TO THE TPO FOR DETERMINING CUP METHOD. T HE COUNSEL FOR THE ASSESSEE STATED THAT AT THAT TIME O NLY INTERNAL COMPARABLES WERE AVAILABLE. HE FURTHER SUBMITTED, N OW IF REQUIRED, EXTERNAL COMPARABLES CAN BE PLACED ON REC ORD FOR DETERMINING THE INTERNATIONAL PRICING UNDER CUP MET HOD. A PERUSAL OF THE ORDER OF THE CIT(A) SHOWS THAT TH E SAME IS SKETCHY AND NON-SPEAKING. THE FINDINGS OF THE CIT(A) IN ASSESSMENT YEAR 2002-03 ARE REPRODUCED HE REIN BELOW:- 1. 2. 3. 4. I HAVE CAREFU LL Y CONS IDERED THE FAC T S A ND S U BM I S S I ONS M ADE BY THE R EPRESEN TATIVE S. THE A O I T P O IN THEIR ORDE R S HA V E NO T DISCUSSED AS TO WHY TNMM IS N O T APP LIC ABLE IN THE CASE O F EXP O RT O F TH REA D S A N D AS TO WHY CUP ME THOD IS TH E MOST APPROPRI A TE M E THOD . THE BA S IC RE QU I REMENT OF CUP METHOD IS THAT THE PRODUCT SHOU L D B E SOLD I N S I M IL AR COMM ER CE : ENV I RONME N T I . E . I N SI MILAR QU ANTITIES, SIMILAR L OCAT I ON WITH SI MILAR QUALITY EVE N TH E O ECD GUIDELINES DESCRIBES THE CUP ME TH OD AS A TRANS F E R P RICING ME THOD THAT COMP A RE S THE PRICE F OR P R OPE RTY OR SE RV IC E S TR ANS FERR E D IN A COMPARABLE UN CO N TRO LL ED TRANSACTIONS IN COMPARABLE CIRCUMSTANCES. BUT IN T H E P R ESENT CASE AS CA N B E S EEN FROM THE S U B MI S SI O N S MA DE . TH E PRODUCTS SOLD TO AE S A R E NOT COMPARABLE TO WHAT IS B E I N G SO LD T O N ON-A E ' S . 7 . 1 IN TH E CIRC UMST A N C ES I A M INCLINED TO ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 11 A GR E E WITH TH E A PPELLANTS CO NT EN TION THAT CU P IS NOT APP L ICABL E A S RE G AR DS EXP O RT OF TH R EADS IN THE INSTAN T C ASE DUE TO THE FOLLOWING F ACTO RS. T H E M ARKETS ARE DIFFER E NT C OND I TIONS OF T H E T RA N S A C T IO N S ARE DIFF EREN T A FEW TRAN S ACTI O NS CANNOT BE S EL E C T ED IN I S OLATION AND CUP CANN O T BE SELEC TIVELY APPLI E D . ACCORDINGLY I AGREE W I TH THE METHOD OF TNMM ADOP T ED BY TH E AP P ELLANT WITH REGARD T O TH E EXPORT OF T H RE A D . AP PLYING THE TNMM M ET H OD THE APPE L LANT HAS DEMONSTRATED THAT THE IN TER N ATION AL T R ANSACT I O N O F E X P O RT OF TH READ WITH AES ARE AT ARMS LENGTH PRICE. THIS G R O UND IS DEC ID E D I N FAV O UR OF T HE ASSESSE E. T HE ADDITION OF ` 1 1 3,32 , 042 . IS DELETED . 7 . 2 EVE N IF CU P W ERE T O BE A PPLIED . I AGRE E WITH THE APPELL A NT S CONT E NTION T HAT THE PRICE IS TO BE A D JU S TED F O R VOLUME DISCO U N T IN M Y OPINION , THE VO L UM E D ISCOUNT IS AN ACCEPT E D IN D U ST RY PRACTICE, T HA T I S WELL RECOGNISED. RELYING O N THE S U P REM E COURT JUDGEMENTS IN THE CASE OF MIRAH EXPORTS PRIVAT E LIMITED VS. C O LL E CTO R OF CUSTOM S -(098 J - EL T -0003 AND BASANT INDUSTRIES VS. ADDL CC [1996 (66 ) ECR 227 AN D ALSO ON T H E INTERNATIONAL GUIDELINES VI Z. TH E O ECD A N D T HE U S TP REGULATIONS, VOLUME DISCOUNTS A R E NOT U N U S UA L AND THAT THEY N EED TO B E CONSID E RED AS A VA L I D F ACTO R. A S I H AVE HEL D THAT CU P C A N N OT BE APPLIED TO T HE EXPORT O F T H R E AD S IN THE P R ESEN T CAS E . THE ALTER N ATI V E S UBMI SSIO N S AR E OF A C A D E ME V A LUE ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 12 EXPORT OF GRE Y COTT O N CAN V AS ` 48,71,239/- 7 . 3 TH E AP P E LLAN T APPLIED CUP METHOD F O R THE PUR P OSE OF DETERMINING THE ALP I N THE CA S E OF EXPORT OF GR E Y CA NVA S . HOWEVER, , THE APPELLANT COMPANY HAS APPL I ED THE C UP METHOD ON A R EPRESENTATIVES S AMPLE OF 52.68 % OF THE TU R NOVER T H E A . O/ T PO AS K ED T HE AP P ELLANT CO MPANY TO APPLY THE CUP M ET H OD T O THE ENT I RE TURNOVER OF G R E Y C OT T ON CAN V AS BY TAKIN G O NLY T HOSE P R OD U C T S W H I C H HAS A L SO B EEN S OL D TO AE ' S AN D NO N - AES . 7 . 4 T H E L EA RN ED REPRESENTA T I VES C ON T END E D T H AT TH E C UP M ETHOD CO UL D NOT B E A P PL I E D TO A LL T RAN S ACT I ONS A S THE APPELLAN T CO M PA NY W AS I N TH E P R OC ESS O F CLOS I NG DO WN ITS C ANV A S DIVIS I ON AND HE NCE TH E A S S ESSE E W AS DISPOSING OFF THE S T O CK AT A DI SCO U N TED P RIC E . THE APP E L L AN T SUBM IT TED T H AT TRA NS A C T ION S O F DI ST R ESS SALES ENT E R ED IN T O BY TH E A PP ELL A NT COUL D N O T BE R EGAR D ED UN DE R NORMAL CIRCUM S TA N C ES AND T HUS THE WORK I NGS A L R EA DY SUBMI TTE D B Y T HE APPE LL A NT HO L D GOOD . TH E A .O I TPO A PPLI ED THE CUP METHOD TO T H E E N T IR E T U RNO V ER AND HAS ARRIVED A T A TRANSFER P RI C I NG AD J UST ME NT O F ` 48 , 71 , 2 39 . 8 . I HAVE CAREFULLY CO N S I DE R E D THE FACTS A N D S U BM I S S I ONS PU T FORT H BY THE A PPEL LANT ' S REPRESE NT ATIVE S . IT IS CLEAR FROM THE FACTS T H AT TH E A PP E LL ANT HAD A PPLIED T H E CUP M ETHOD O N LY TO 52 . 68 % O F T H E TRAN SACT I ONS BE I NG EXPORTS O F G R EY C A NV AS IN AR R IV I NG A T THE ALP . T H E APPEL L A N T W HEN ASKED BY T H E TPO W AS UNABLE TO APP L Y A N Y ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 13 A PPROPR I ATE M ETHODOLOGY FOR THE BA L A N CE T R AN S ACTION S . AS S U C H, I H A V E T O AGRE E WI TH T H E DEC I S I ON O F TOE T PO I N APPL YI N G T HE C U P M E THOD F OR TH E R EST O F TH E T U R NOVER H OW EV E R , I T I S A LS O TRU E T HAT THE APPELLANT W AS I N THE PROC E SS OF CLOSING DOWN ITS DIVIS IO N O F GR E Y C AN VAS AND AS SUCH THE SA LES WERE DIS T R E SS SA L E S . IN C ASE S O F D I S T R ESS SALE S A SELLE R IS NO T B O T HER E D ABOUT THE PR I CE HE R EA LI S ES , I NSTEAD H E I S MORE CONCE RN E D WI T H D I S PO S ING O F F TH E G O O D S . A S SUCH, TH E SELLE R T E N DS T O SE LL TH E G OODS AT M U CH LOW E R RATE S THA N NORMAL . W HE RE A S I U PHO LD TH E D E C IS I ON OF THE A . O . IN AP PL Y I NG CUP FO R T H E ENT IR E TU R N OVER OF E XP O RT OF GR E Y COTTON C AN VAS , H O W E VER W H I LE A R RIV I NG A T TH E T R A N S FE R PRIC I NG ADJU ST M E NT T O BE MADE THE A 0 SHAL L GRANT A PPR O PR I A T E REL I E F TO FA C TOR I N T H E C ON DI T ION O F D IS T RESS SAL E A FT E R G IVIN G O P PORT UNITY OF HEAR I NG TO TH E A PP E L L A NT. THE CIT(A) HAS PASSED SIMILAR ORDER IN SUBSEQUENT ASSESSMENT YEARS. THE CIT(A) HAS NOT GIVEN ANY PLA USIBLE REASON FOR ACCEPTING THE SUBMISSIONS OF THE ASSESSE E AND REJECTING THE CONTENTIONS OF THE REVENUE. IT SEEMS THAT CIT(A) HAS LOST SIGHT OF THE FACT THAT IT HAS GOT CONCURRE NT JURISDICTION TO MAKE ASSESSMENT, IN CASE THE AUTHORITIES BELOW H AVE NOT EXERCISED THEIR JURISDICTION. THE CIT(A) IN PARA 7 OF HIS ORDER STATED THAT THE ASSESSING OFFICER /TPO IN THEIR OR DERS HAVE NOT DISCUSSED AS TO WHY TNMM IS NOT APPLICABLE IN T HE CASE ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 14 OF EXPORT OF THREADS AND AS TO WHY CUP METHOD IS T HE MOST APPROPRIATE METHOD. SIMILAR IS THE SITUATION WITH THE ORDER OF THE CIT(A). THE CIT(A) HAS ALSO FAILED TO GIVE VAL ID REASON FOR REVERSING THE FINDINGS OF THE TPO AND HAS MERELY PL ACED RELIANCE ON THE SUBMISSIONS MADE BY THE ASSESSEE WI THOUT ASSIGNING ANY VALID AND PLAUSIBLE REASONS. THE HON BLE MADRAS HIGH COURT IN THE CASE OF VODAFONE ESSAR LTD . VS. DISPUTE RESOLUTION PANEL & OTHERS REPORTED AS 340 I TR 352 (DEL) HAS HELD AS UNDER:- BE IT NOTED, WHEN A QUASI-JUDICIAL AUTHORITY DEALS WITH A LIS, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL OF THE MATTER, AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BEFORE THE SUPERIOR FORUM. NEEDLESS TO SAY THAT THE COMPETENT AUTHORITY, WHILE PASSING THE ORDER, SHALL KEEP IN MIND THE ORDER DATED NOVEMBER 29, 2010, WHEREIN WE HAD DIRECTED THAT THE PERIOD FROM THE DATE OF FILING TH E WRIT PETITION AND FOUR WEEKS AFTER ITS DISPOSAL SHA LL STAND EXCLUDED, WHILE COMPUTING THE LIMITATION FOR THE DEPARTMENT TO PASS AN ASSESSMENT ORDER. ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 15 12. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER REQUIRES FRESH ADJUDICATION. THE O RDER PASSED BY THE DRP IS IN SUBSEQUENT YEARS TO THE ORDER OF C IT(A), THE ORDERS PASSED BY CIT(A) IN ASSESSMENT YEAR 2002-03 TO 2005-06 WILL HAVE BEARING IN LATER YEARS. WE, THER EFORE, REMIT THE MATTER BACK TO THE CIT(A) FOR THE ASSESSMENT YE ARS 2002- 03 TO 2005-06 AND DRP FOR THE ASSESSMENT YEARS 200 6-07 AND 2007-08 FOR DECIDING THE MATTER AFRESH BY PASS ING A DETAILED AND SPEAKING ORDER. THE CIT(A)/DRP WHILE ADJUDICATING THE MATTER AFRESH SHALL INTER-ALIA, TA KE INTO ACCOUNT EXTERNAL COMPARABLES WHILE DETERMINING THE INTERNATIONAL PRICING. THE COUNSEL FOR THE ASSESSEE HAS MADE A STATEMENT AT THE BAR THAT THE ASSESSEE WOULD PRO VIDE DETAILS OF INTERNATIONAL COMPARABLES. THE CIT(A)/DR P SHALL ALSO TAKE INTO CONSIDERATION THE DIFFERENT MARKET C ONDITIONS. THE MARKET CONDITIONS DOES NOT MEAN GEOGRAPHICAL CO NDITION ALONE BUT ALSO INCLUDES THE SIZE OF THE MARKET, DE MAND AND OTHER RELEVANT FACTORS INFLUENCING THE MARKET CONDI TIONS AS A WHOLE. ITA NOS.2207, 2212 & 2213/MDS/2007 & ITA NOS.19 & 2032/MDS/2011 16 13. FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05 THE REVENUE HAS RAISED ADDITIONAL GROUND OF EXPORT INCE NTIVE PROVIDED TO THE ASSESSEE UNDER SECTION 80HHC. THE D .R. HAS FAIRLY CONCEDED THAT NOW THIS ISSUE IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF THE HON BLE SUPREME COURT OF INDIA IN THE CASE OF TOPMAN EXPORT S VS. CIT., REPORTED AS 342 ITR 49(SC). ACCORDINGLY, WE D ISMISS THIS GROUND OF APPEAL OF THE REVENUE. 14. RESULTANTLY, APPEAL OF THE REVENUE IN ITA NO.2207/MDS/2007 IS ALLOWED FOR STATISTICAL PURPOSE S AND ITA NOS.2212 & 2213/MDS/2007 ARE PARTLY ALLOWED FOR STA TISTICAL PURPOSES. BOTH THE APPEALS OF THE ASSESSEE ARE ALL OWED FOR STATISTICAL PURPOSES ON THE ABOVE TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, 21 ST DAY OF DECEMBER , 2012 AT CHENNAI. SD/- SD/- ( N.S. SAINI ) ( VIKAS AWASTHY ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 21 ST DECEMBER, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.
Mehul