India Trimmings P. Ltd., CHENNAI V. DCIT, Coimbatore

ITA 190/CHNY/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6949 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 04-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 20-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR D KUMUDHA
• Assessee Lawyers: S SRIDHAR
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.190/CHNY/2017 / ASSESSMENT YEAR: 2012-13 M/S. INDIA TRIMMINGS P. LTD., 6/636, PILLAIAPPAMPALAYAM, TELUNGUPALAYAM, P.O., ANNUR, COIMBATORE 641 659. [PAN: AAACI 6394N] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1, COIMBATORE. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : DR. D. KUMUDHA, JCIT / DATE OF HEARING : 01.01.2019 /DATE OF PRONOUNCEMENT : 08.01.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT] DATED 29.12.2016 RELEVANT TO THE ASSESSMENT YEAR 2012-13. THE MAIN GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE IS THAT (I) THE ASSESSING OFFICER HAS ERRED IN MAKING AN UPWARD ADJUSTMENT OF .1,26,75,315/- UNDER TRANSFER PRICING REGIME RELATING TO THE TRANSACTIONS/SALE MADE TO THE AE AND ERRED CONSEQUENTLY IN MAKING THE ADDITION IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION AND (II) THE I.T.A. NO. 190/CHNY/17 2 ASSESSING OFFICER HAS ERRED IN MAKING AN ADDITION OF .70 LAKHS BEING THE VALUATION OF THE OBSOLETE STOCK AT 20% OF THE COST OF THE MATERIAL IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 2. WITH REGARD TO THE ISSUE OF MAKING AN UPWARD ADJUSTMENT OF UNDER TRANSFER PRICING REGIME RELATING TO THE TRANSACTIONS/SALE MADE TO THE AE, AT THE OUTSET, BY FILING COPY OF THE ORDER, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SIMILAR ISSUE WAS SUBJECT MATTER IN APPEAL BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 VIDE ORDER IN I.T.A. NO. 591/MDS/2014 DATED 29.04.2016 AND PRAYED THAT THE ABOVE DECISION MAY BE FOLLOWED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. TO THE ABOVE PLEA OF THE LD. COUNSEL, THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION. 3. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ONE RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AGAINST THE DRAFT ASSESSMENT ORDER PASSED UNDER SECTION 144C(1) R.W.S. 143(3) OF THE ACT, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP-2, BANGALORE. THE ASSESSEE OBJECTED TO TWO COMPARABLES SELECTED BY THE TPO VIZ., JINDAL WORLDWIDE LIMITED ON THE BASIS OF TURNOVER AS ITS TURNOVER WAS MORE THAN .500 CRORES AS AGAINST THE TURNOVER OF .18 CRORES OF THE ASSESSEE. THE ASSESSEE COMPANY ALSO OBJECTED TO SANGEET SYNTEX LTD. ON THE GROUND OF FUNCTIONAL I.T.A. NO. 190/CHNY/17 3 DISSIMILARITY. THE DRP-2, VIDE ITS ORDER DATED 26.09.2016 ALLOWED THE ASSESSEES APPEAL WITH REGARD TO THE JINDAL WORLDWIDE LIMITED WITH A DIRECTION TO EXCLUDE JINDAL WORLDWIDE LTD. FROM THE LIST OF COMPARABLES AND REGARDING THE SECOND COMPARABLE M/S. SANGEET SYNTEX LTD., THE DRP UPHELD THE COMPARABLE BY HOLDING THAT FOR A TNMM COMPARABILITY STUDY BROAD FUNCTIONAL SIMILARITY IS ACCEPTABLE AND A STRICT PRODUCT TO PRODUCT COMPARISON IS NOT NECESSARY. ACCORDINGLY, THE ASSESSING OFFICER REVISED THE UPWARD ADJUSTMENT IN SALES AT .1,26,75,315/- AS AGAINST .2,50,77,920 MADE BY THE TPO, AGAINST WHICH THE ASSESSEE PREFERRED FURTHER APPEAL BEFORE THE TRIBUNAL. AS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE, WE HAVE ALSO PERUSED THE COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 AND FIND THAT ON AN IDENTICAL ISSUE IN SIMILAR FACTS AND CIRCUMSTANCES, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 3. SHRI S.SRIDHAR, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF ORNAMENTAL TRIMMINGS, TASSELS AND TIEBACKS. IN THE COURSE OF THE BUSINESS ACTIVITY, THE ASSESSEE ENTERED INTO BUSINESS TRANSACTIONS WITH M/S CONSO INTERNATIONAL CORPORATION, BRITISH TRIMMINGS LTD. AND WIND MILLS WRIGHTS COMPANY, WHICH ARE ASSOCIATED ENTERPRISES OF THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSEES INTERNATIONAL TRANSACTIONS EXCEEDED ` 15 CRORES, THEREFORE, THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF ARMS LENGTH PRICE. THE TPO AFTER CONSIDERING VARIOUS COMPARABLES, SUGGESTED UPWARD ADJUSTMENT. REFERRING TO THE ORDER OF THE TPO, THE LD. COUNSEL SUBMITTED THAT THE COMPARABLES SELECTED BY THE TPO ARE MANUFACTURING TOWELS, FABRICS, GARMENTS AND OTHER TEXTILE ITEMS. WHEREAS THE ASSESSEE IS MANUFACTURING ORNAMENTAL TRIMMINGS WHICH IS USED AS CURTAIN IN THE WINDOWS AND DOORS, THEREFORE, THE COMPARABLES SELECTED BY THE TPO HAS FUNCTIONAL DIFFERENCE, HENCE, THE SAME CANNOT BE COMPARABLES FOR MAKING ADJUSTMENT. THE LD. COUNSEL FURTHER SUBMITTED THAT WHAT IS TO BE COMPARED IS ONLY ORNAMENTAL TRIMMING OR A SIMILAR PRODUCT OF THE OTHER COMPANIES. SINCE SUCH AN EXERCISE WAS NOT DONE BY THE AUTHORITIES BELOW, ACCORDING TO THE LD. I.T.A. NO. 190/CHNY/17 4 COUNSEL, THE MATTER NEEDS TO BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-EXAMINATION. 4. ON THE CONTRARY, DR. B. NISCHAL, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE COMPARABLES SELECTED BY THE ASSESSEE ARE ALSO NOT MANUFACTURING ORNAMENTAL TRIMMINGS, THEREFORE, THE ASSESSEE CANNOT NOW CLAIM THAT THE COMPANIES SELECTED BY THE TPO ARE NOT COMPARABLES. MOREOVER, THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF FABRICS. THE COMPARABLES SELECTED BY THE TPO ARE ALSO IN THE BUSINESS OF MANUFACTURING FABRICS WHICH MAY BE USED AS TOWELS OR GARMENTS OR OTHERWISE. THE BASIC PRODUCTION OF THE COMPARABLE IS ONLY FABRICS, THEREFORE, THE ASSESSEE CANNOT NOW CLAIM THAT THE COMPANIES SELECTED BY THE TPO ARE NOT COMPARABLES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE IS MANUFACTURING AND EXPORTING ORNAMENTAL TRIMMINGS, TASSELS AND TIEBACKS. THE ASSESSEE IS NOT MANUFACTURING ANY OTHER PRODUCT. THE COMPARABLE SELECTED BY THE TPO IS MANUFACTURING TOWELS, FABRICS AND GARMENTS. ORNAMENTAL TRIMMINGS MAY BE A SPECIES OF FABRICS. HOWEVER, WHEN ORNAMENTAL FABRICS ARE MANUFACTURED BY THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ORNAMENTAL FABRICS MANUFACTURED BY THE OTHER COMPANIES WHICH ARE EXPORTED, NEEDS TO BE COMPARED FOR MAKING TRANSFER PRICING ADJUSTMENT. THIS FACT WAS NOT CONSIDERED BY THE DRP. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE AUTHORITIES BELOW. IT IS OPEN TO THE ASSESSING OFFICER TO REFER THE MATTER ONCE AGAIN TO THE TPO FOR CONSIDERING THE EXACT PRODUCT MANUFACTURED BY THE ASSESSEE WITH THAT OF THE COMPANIES WHICH ARE MANUFACTURING AN IDENTICAL/SIMILAR PRODUCT. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ISSUE RAISED BY THE ASSESSEE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REFER THE MATTER ONCE AGAIN TO THE TPO/DRP AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW. 4. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL REFER THE MATTER ONCE AGAIN TO THE TPO/DRP AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 190/CHNY/17 5 5. WITH REGARD TO THE ADDITION MADE ON ACCOUNT OF OBSOLETE INVENTORY OF .70,00,000/-, AGAINST THE PRAYER OF THE AR OF THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO VALUE THE STOCK AT .10/- PER KG, THE ASSESSING OFFICER VALUED THE STOCK AT 20% OF THE COST OF THE MATERIAL AND BROUGHT TO TAX. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE COMPANY IS A 100% EXPORT ORIENTED UNIT, WHICH IS ENGAGED IN THE MANUFACTURING AND EXPORTING OF VARIOUS TYPES OF DECORATIVE TRIMMINGS SUCH AS TIE-BACKS, TASSELS, APART FROM SPECIALS AND WOVEN PRODUCTS. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT THE PRODUCTS ARE MANUFACTURED ACCORDING TO CUSTOMER SPECIFICATIONS. THE NATURAL YARN IS DYED ACCORDING TO STANDARDS AND SPECIFICATIONS OF THE CUSTOMER. THE CUSTOMERS OF THE ASSESSEE ARE MAINLY HOTELS AND OFFICERS. HOWEVER, THE ASSESSEE WRITTEN OFF THE VALUE OF BULK QUANTITIES MANUFACTURED EXTRA AND KEPT IDLE AND CLAIMED ITS VALUE AS NIL. THE ASSESSING OFFICER CONSIDERED VARIOUS SUBMISSIONS OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE HAS STATED THAT THE STOCKS CAN BE VALUED AT .10 PER KG. HOWEVER, THE ASSESSING OFFICER HAS VALUED THE STOCKS AT 20% OF THE COST OF THE MATERIAL AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 6.1 IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN MANUFACTURING THE I.T.A. NO. 190/CHNY/17 6 ITEMS AT THE EXCLUSIVE REQUIREMENT OF THE CUSTOMERS AND THEREFORE, THE QUESTION ARISES AS TO WHY SUCH BULK QUANTITIES WERE MANUFACTURED AND KEPT IDLE AND CLAIMING ITS VALUE AS NIL. IF AT ALL TO ACCEPT THAT OVER PRODUCTION WAS HAPPENED, THE STOCK SHOULD HAVE SOME VALUE, WHEREAS, THE ASSESSEE HAS CLAIMED THE VALUE AS NIL. MOREOVER, IN THE ABSENCE OF ANY TECHNICAL OPINION STATING THE SPECIFIC NATURE OF HOW THE STOCK BECAME OBSOLETE AND IN THE ABSENCE OF PROOF THAT THE MATERIAL WAS NOT SUITABLE FOR WASTES, THE LD. CIT(A)/DRP ALSO TOOK THE SAME VIEW. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE VIEW TAKEN BY THE REVENUE AUTHORITIES. THUS, THE GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 08 TH JANUARY, 2019 IN CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 08.01.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.