DCIT, Bangalore V. M/s IndO Spanish Tasty Foods Pvt. Ltd.,

ITA 194/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8572 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 92E

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI NARENDRA KUMAR CHOUDHRY, JUDICIAL MEMBER IT(TP)A NO.194(BANG) 2015 (ASSESSMENT YEAR : 2010-11) AND C.O.NO.90(BANG)/2015 (ASSESSMENT YEAR 2010-11) (BY ASSESSEE) THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(1)(1)), BANGALORE-560 001. APPELLANT VS M/S INDO SPANISH TASTY FOODS PVT.LTD., PLOT NO.78-81, KIADB INDUSTRIAL AREA, KUNIGAL, TUMKUR DISTRICT, BANGALORE-572 130 RESPONDENT REVENUE BY : SMT NEERA MALHOTRA, CIT ASSESSEE BY : SHRI PADAMCHAND KHINCHA, CA DATE OF HEARING : 17-03-2016 DATE OF PRONOUNCEMENT : 18-03-2016 O R D E R PER SHRI NARENDRA KUMAR CHOUDHRY, JM: THIS APPEAL AND CROSS OBJECTION ARE DIRECTED AGAINS T AN ORDER DATED 27-11-2014 OF DISPUTE RESOLUTION PANEL, FOR T HE ASSESSMENT YEAR 2010-11. ITA NO.194(B)/15 & C.O.NO.90(B)/15 2 2. THE REVENUE RAISED THE FOLLOWING GROUNDS ; 1. THE DIRECTIONS OF THE DRP ARE OPPOSED TO LAW AN D FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER THE DRP IS CORRECT IN DIRECTING THE TPO/AO TO PROVIDE FREIGHT SUBSIDY WHERE THE FIGURE OF FREIGHT SUBSIDY IS NOT SEPARATELY AVAILABLE IN THE ANNUAL R EPORT OF THE ASSESSEE COMPANY NAMELY, GLOBAL GREEN CO.LTD.., 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHET HER THE DRP IS CORRECT IN DIRECTING THE TPO/AO TO PROVI DE WORKING CAPITAL ADJUSTMENT IN THE CASE OF ASSESSEE FOLLOWING JUDICIAL PRONOUNCEMENTS IN VARIOUS CASES WHICH ARE INVOLVED EITHER IN SWD OR ITES BUSINESS. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS O F THE DRP IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MA Y BE REVERSED. 5. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. BRIEF FACTS OF THE CASE ARE AS UNDER ; THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING PR OCESSING AND EXPORT OF VEGETABLES. FOR THE ASSESSMENT YEAR 2 010-11, THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 18-0 9-2010 DECLARING ITA NO.194(B)/15 & C.O.NO.90(B)/15 3 AN INCOME OF RS.,56,66,761/-. HOWEVER, THE SAME WAS SET OFF AGAINST THE CARRIED FORWARD LOSSES. THE RETURN OF INCOME W AS PROCESSED U/S 143(1) OF THE IT ACT, 1961. SUBSEQUENTLY, THE CAS E WAS SELECTED FOR SCRUTINY AND THE NOTICE U/S 143(2) WAS SERVED ON TH E ASSESSEE WITHIN THE DUE TIME. THEREAFTER THE DRAFT ASSESSMENT ORDER WAS SERVED TO THE LD ASSESSEE AND THE ASSESSEE CHALLENGED THE SAI D ORDER BEFORE DRP AND FINALLY THE DRP PASSED AN ORDER DATED 27-11 -2014. 3.1 THAT AGAINST THE DRP ORDER, THE REVENUE FEELING AGG RIEVED FILED THE INSTANT APPEAL AND THE ASSESSE ALSO PREFERRED T O FILE THE CROSS OBJECTIONS 4. IT IS SUBMITTED BY THE LEARNED DR THAT THEY ARE AGG RIEVED MAINLY ON TWO POINTS, WITH REGARD TO THE DIRECTION TO THE TPO TO PROVIDE FREIGHT SUBSIDY IS NOT SEPARATELY AVAILABLE IN THE ANNUAL REPORT OF THE ASSESSEE COMPARABLE NAMELY, GLOBAL GR EEN COMPANY LTD., SECONDLY ON THE POINT WHETHER THE DISPUTE RES OLUTION PANEL (DRP) IS CORRECT IN DIRECTING THE TPO/AO TO PROVIDE WORKING CAPITAL ADJUSTMENT IN CASE OF ASSESSEE FOLLOWING THE JUDICI AL PRONOUNCEMENTS IN VARIOUS CASES WHICH ARE INVOLVED EITHER IN SWD OR ITES BUSINESS. ITA NO.194(B)/15 & C.O.NO.90(B)/15 4 5. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE CONTR ARY SUBMITTED THAT THEY HAVE FILED CROSS OBJECTION TO T HE INSTANT APPEAL OF THE REVENUE, HOWEVER IT WAS FAIRLY SUBMITTED THAT I T WAS JUST FOR ACADEMIC EXERCISE AND DO NOT WANT TO PRESS THE SAME . 6. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSIONS OF THE RIVAL PARTIES AND ALSO RELEVANT ORDER PASSED BY THE DRP, AS THE DRP HELD IN ITS ORDER THAT HAVING HEARD THE OBJECTION, IT IS NOTICED BY US, FROM THE FINDINGS GIVEN IN THE PARAGRAPH 9.3 OF THE ORDER OF THE TPO THAT THE FIGURES OF THE FREIGHT SU BSIDY IS NOT SEPARATELY AVAILABLE IN THE ANNUAL REPORT AND THEREFORE, IN ABSENCE OF SUCH FIGURE, THE ADJUSTMEN T CANNOT BE COMPUTED. WE ARE NOT IN AGREEMENT WITH T HE FINDINGS OF THE TPO, IN VIEW OF THE FACT THAT IN PA RA-20 SCHEDULE TO THE NOTES OF ACCOUNT OF THE ANNUAL REPO RT OF GLOBAL GREEN, IT IS CLEARLY MENTIONED THAT TRANSPOR TATION OUTWARD EXPENSES ARE NET OF FREIGHT SUBSIDY. IT WAS FURTHER OBSERVED THAT BY THE DRP IN SUCH CIRCUMSTAN CES, IN THE ABSENCE OF ANY CONTRADICTORY EVIDENCE, IT CA NNOT BE PRESUMED THAT THE FREIGHT SUBSIDY HAS NOT BEEN REDU CED FROM THE OPERATING COST AND THEREFORE, IN THE ABSEN CE OF INFORMATION EVEN THOUGH ADJUSTMENT IS NOT POSSIBLE, BUT IN SUCH CIRCUMSTANCES, FOR UNIFORM COMPARABILITY, THE FREIGHT SUBSIDY IN THE CASE OF THE ASSESSEE COMPANY HAS TO BE CONSIDERED AS OPERATING IN NATURE. THE AO IS ACCOR DINGLY, ITA NO.194(B)/15 & C.O.NO.90(B)/15 5 DIRECTED TO CONSIDER THE SAID SUBSIDY AS PART OF OP ERATING REVENUE. WITH REGARD TO WORKING CAPITAL ADJUSTMENT, THE DRP HELD AS UNDER; IT IS SUBMITTED THAT THE ASSESSEE HAD MADE WORKING CAPITAL ADJUSTMENT IN THE TP STUDY. BEFORE THE TP O ALSO IT WAS SUBMITTED THAT THE WORKING CAPITAL ADJUSTMENT SHOULD BE GRANTED. THE LD.TPO HAS REJECTED THE WO RKING CAPITAL ADJUSTMENT ON THE GROUND THAT CLAIM OF HUGE ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL ADJUSTMENT IS NOT ALLOWABLE AS SUCH ADJUSTMENT INDICATES THAT PRO FIT MARGIN IS DECIDED MORE DUE TO FINANCIAL ACTIVITIES AND NOT DUE TO OPERATING BUSINESS ACTIVITY. IT IS ALSO SUBMITTED THAT WORKING CAPITAL ADJUSTMEN T SHOULD BE GRANTED WORKING CAPITAL ADJUSTMENT IS IN ATTEMPT TO IRON OUT THE DIFFERENCE IN TIME VALUE OF MONEY BETWEEN THE TESTED PARTY AND COMPARABLE, SINCE THE DIFFERENCE WILL BE REFLECTED IN PROFITS. THE UNDE RLYING REASONING IS THAT; A. A COMPANY WILL NEED FUNDING TO COVER THE TIME G AP BETWEEN THE TIME IT INVESTS MONEY (I.E PAYS MONEY TO SUPPLIERS) AND THE TIME IT COLLECTS THE INVESTME NTS (I.E COLLECTS MONEY FROM CUSTOMER). B. THIS TIME GAP IS CALCULATED AS THE PERIOD NEEDED TO SELL INVENTORIES TO CUSTOMERS + THE PERIOD NEEDED T O COLLECT MONEY FROM CUSTOMERS THE TIME PERIOD GRANTED TO PAY DEBTS TO SUPPLIER. ITA NO.194(B)/15 & C.O.NO.90(B)/15 6 SINCE ASSESSEE IS A CAPTIVE MANUFACTURER SELLING PRODUCTS TO ITS AE. THE PAYMENT CYCLE IN THE CASE OF ASSESSEE IS SHORTER AS AGAINST A CONSIDERABLE TIME LAG IN THE CASE OF COMPARABLE. COMPARABLE COMPANY HAS A CONSIDERABLE WORKING CAPITAL LOAN WHEREAS THE TAXPA YER HAS NO WORKING CAPITAL LOAN. IT MEANS THAT EITHER THE ASSESSEE USES ITS INTERNAL ACCRUALS FOR FINANCING T HE WORKING CAPITAL REQUIREMENT WHICH OTHERWISE WOULD H AVE BEEN INVESTED AND RECEIVED INCOME THERE FROM AND/OR HAS RECEIVED ADVANCES FROM ITS CUSTOMERS TO FINANCE THE WORKING CAPITAL. IN CONTRARY, THE COMPARABLE FINA NCED ITS WORKING CAPITAL REQUIREMENTS BY WAY OF BORROWING FR OM FINANCIAL INSTITUTIONS. IF AN APPROPRIATE ADJUSTM ENT IS NOT DONE FOR THIS DIFFERENCE IN THE FINANCIALS OF THE A SSESSEE AND COMPARABLE COMPANY THE DETERMINATION OF ALP WOU LD GIVE ABSURD RESULTS. IT IS FURTHER SUBMITTED BY THE LEARNED DR THAT THE WORKING CAPITAL MATERIALLY AFFECTS THE AMOUNT OF NE T PROFIT MARGIN IN THE OPEN MARKET AND SAME SHOULD BE ADJUST ED FOR. IN THIS REGARD, THE ASSESSEE HAS DRAWN YOUR H ONOURS ATTENTION TO GUIDANCE NOTE ON REPORT U/S 92E OF THE IT ACT, 1961 WHEREIN IT IS OBSERVED AS FOLLOWS; 6.30 RULE 10B(E)(III) REQUIRES THAT TRANSACTION LE VEL AND ENTERPRISE LEVEL DIFFERENCES SHOULD BE ADJUSTED IF SUCH DIFFERENCES MATERIALLY AFFECT THE AMOUNT OF NET PRO FIT MARGIN. TO SUPPORT THE OBJECTION, THE ASSESSEE RELIED ON THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF M ENTOR GRAPHICS (NOIDA) PVT.LTD VS DCIT 109 ITD 101 AND FOLLOWING OTHER JUDICIAL PRONOUNCEMENTS; ITA NO.194(B)/15 & C.O.NO.90(B)/15 7 - PHILIPS SOFTWARE CENTRE (P) LTD., VS DCIT (2008) 2 6 SOT 226 (BAG) - DEMAG CRANES & COMPONENTS (IND) PVT.LTD VS DCIT (2012) 17 TAXMAN.COM 190(PUNE). - EMERSON PROCESS MANAGEMENT (IND.) PVT.LTD VS DCIT (2011) 13 TAXMANN.COM 149(MUM.) - ACTS ADVISERS PVT.LTD.,VS DCIT TS -688 ITAT- 2012(DEL.)TP HAVING HEARD THE OBJECTIONS AND PERUSAL OF THE JUDICIAL PRONOUNCEMENTS ON WHICH THE RELIANCE HAS B EEN PLACED BY THE ASSESSEE ARE OF THE VIEW THAT THE WOR KING CAPITAL ADJUSTMENT NEEDS TO BE ALLOWED. THE AO IS ACCORDINGLY, DIRECTED TO ALLOW THE WORKING CAPITAL ADJUSTMENT. WE ARE OF THE CONSIDERED OPINION , THAT DRP HAS PASSED THE ORDER ON THE REASONABLE GROUNDS, WHILE CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN ITS PROPER PERSPECTIVE AND THE LEARNED DR FAILED TO DEMONSTRATE ANY MATERIAL TO ESTABLISH THAT THE ORDER OF THE DRP IS ILLOGICAL, UNREASONABLE AND OPPOSED TO L AW AND ACTS OF THE CASE. HENCE, THE APPEAL FILED BY THE REVENUE STAND S DISMISSED. C.O.NO.90(BANG)/2015(AY : 2010-11) THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY SUBMITT ED THAT THE CROSS OBJECTION IS ONLY AN ACADEMIC EXERCISE AND NE EDS NO ITA NO.194(B)/15 & C.O.NO.90(B)/15 8 EMPHASIZE. IN THE AFORESAID FACTS AND CIRCUMSTANCE S THE C.O FILED BY THE ASSESSEE IS DISPOSED OFF AS WITHDRAWN. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED WHEREAS THE CROSS OBJECTION OF THE ASSESSEE STANDS DISPOSED OF. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH, 2016. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER (NARENDRA KUMAR CHOUDHURY) (JUDICIAL MEMBER) BANGALORE: D A T E D : 18-03-2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE