M/s. AB Mauri India Pvt Limited, CHENNAI V. ACIT, CHENNAI

ITA 1970/CHNY/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9556 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADHUKAR BHUSARI
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1970/MDS/2011 ( )( / ASSESSMENT YEAR : 2007-08 M/S AB MAURI INDIA PVT. LTD., 2/15, GANAPATHY COLONY, TEYNAMPET, CHENNAI - 600 018. PAN : AAECA 9923 H V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE -.+, / 0 / RESPONDENT BY : DR. MILIND MADHUKAR BHUSARI, C IT 1 / 2% / DATE OF HEARING : 09.03.02016 3') / 2% / DATE OF PRONOUNCEMENT : 05.05.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER CONSEQUENT TO THE DIRECTION O F THE DISPUTE RESOLUTION PANEL, FOR THE ASSESSMENT YEAR 2007-08. 2 I.T.A. NO.1970/MDS/11 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF ` 55,23,653/- TOWARDS MANAGEMENT FEES PAID BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISE. 3. SHRI S.P. CHIDAMBARAM, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE ENTERED INTO AN INTRA-G ROUP SERVICES AGREEMENT WITH AB MAURI (UK) LTD. TO AVAIL SUPPORT SERVICES PRIMARILY IN THE NATURE OF MARKETING, FINANCE, TECH NOLOGY AND HUMAN RESOURCE. THE MANAGEMENT TEAMS LIKE THE CHIEF EXEC UTIVE OFFICER, DIRECTOR (MARKETING & FINANCE) BESIDES DIRECTOR (TE CHNICAL & HR) WHO VISIT THE MANUFACTURING LOCATIONS AND OFFICES I N INDIA REGULARLY TO ASSIST AND ADVISE ON THE MANAGEMENT. THE ASSESSEE PAID COST PLUS 5% AS MANAGEMENT CHARGES TO AB MAURI (UK) LTD. FOR AVAILING THE ABOVE MANAGEMENT SERVICES. IN THE TRANSFER PRI CING DOCUMENTATION, THE ASSESSEE HAS BENCHMARKED ITS INT ERNATIONAL TRANSACTIONS BY AGGREGATING ALL THE TRANSACTIONS UN DER TRANSACTION NET MARGIN METHOD. THE LD.COUNSEL FURTHER SUBMITTE D THAT THE MARGIN EARNED BY THE ASSESSEE IS 8.06%. HOWEVER, T HE COMPARABLE COMPANIES WAS 7.18%. THE TRANSFER PRIC ING OFFICER WHILE COMPLETING THE TRANSFER PRICING ASSESSMENT, F OUND THAT THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IS AT AR MS LENGTH. 3 I.T.A. NO.1970/MDS/11 HOWEVER, THE TRANSFER PRICING OFFICER FOUND THAT TH ERE WAS ONLY A MARGINAL IMPROVEMENT IN THE REVENUE. THEREFORE, SH E CONCLUDED THAT THE PAYMENT OF MANAGEMENT FEES IS NOT REQUIRED AND CONSEQUENTLY HELD THE ARM'S LENGTH PRICE AS NIL. REFERRING TO THE ORDER OF THE TRANSFER PRICING OFFICER, THE LD.COUNS EL SUBMITTED THAT THE MANAGEMENT FEES PAID BY THE ASSESSEE WAS DETERM INED 0 AND THERE WAS AN UPWARD ADJUSTMENT OF ` 1,35,94,560/-. HOWEVER, THE DISPUTE RESOLUTION PANEL REDUCED THE SAME TO ` 55,23,653/-. THE LD.COUNSEL SUBMITTED THAT THE TRANSFER PRICING OFFI CER AS WELL AS THE DISPUTE RESOLUTION PANEL HAVE NOT COMPARED THE PAYMENT MADE BY THE ASSESSEE WITH COMPARABLE COMPANIES. WI THOUT MAKING COMPARISON, MERELY BECAUSE THERE WAS NO IMPR OVEMENT IN THE REVENUE, THE TRANSFER PRICING OFFICER MADE UPWA RD ADJUSTMENT. ACCORDING TO THE LD. COUNSEL, IT IS FOR THE ASSESSE E TO DECIDE WHETHER THE PAYMENT IS REQUIRED OR NOT AND NOT BY T HE TRANSFER PRICING OFFICER. IRRESPECTIVE OF THE IMPROVEMENT IN REVENUE OR PROFIT, IT HAS TO BE SEEN WHETHER THE PAYMENT OF MA NAGEMENT FEES IS MADE FOR BUSINESS PURPOSE. WHEN THE PAYMENT IS MAD E FOR BUSINESS PURPOSE, IT IS NOT FOR THE TRANSFER PRICIN G OFFICER OR DISPUTE RESOLUTION PANEL TO DISALLOW THE CLAIM OF THE ASSES SEE OR TO MAKE 4 I.T.A. NO.1970/MDS/11 ADJUSTMENT WITHOUT CONSIDERING ANY COMPARABLE CASES AS FOUND IN THE INCOME-TAX ACT AND RULES MADE THEREAFTER. 4. ON THE CONTRARY, DR. MILIND MADHUKAR BHUSARI, TH E LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEE HAS NOT DEMONSTRATED EITHER BEFORE THE TRANSFER PRICING OFF ICER OR BEFORE THE DISPUTE RESOLUTION PANEL WHAT ECONOMIC AND COMMERCI AL BENEFITS WERE RECEIVED FROM ITS ASSOCIATE ENTERPRISE ON PAYM ENT OF MANAGEMENT FEES. ACCORDING TO THE LD. D.R., EVEN A FTER SPECIFICALLY REQUIRED BY THE TRANSFER PRICING OFFICER, THE ASSES SEE COULD NOT FILE ANY MATERIAL TO SUGGEST TANGIBLE GROWTH IN THE ECON OMIC FRONT. THEREFORE, IN THE ABSENCE OF ANY IMPROVEMENT IN THE REVENUE ON PAYMENT OF MANAGEMENT FEES, THE TRANSFER PRICING OF FICER HAS RIGHTLY FOUND THAT THERE IS NO JUSTIFICATION IN MAK ING THE PAYMENT, THEREFORE, SHE MADE THE ADJUSTMENT. AFTER CONSIDER ING THE SUBMISSION OF THE ASSESSEE, THE DISPUTE RESOLUTION PANEL HAS RESTRICTED THE UPWARD ADJUSTMENT TO THE EXTENT OF ` 55,23,653/-. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR MAKING ADJUSTMENT IN TRANSFER PRICING MATTER, FIVE METHODS PRESCRIBED UNDER RULE 10B OF INCOME-TAX RULES, 1962 HAVE TO BE FOLLO WED. IN THE 5 I.T.A. NO.1970/MDS/11 CASE BEFORE US, THE ASSESSING OFFICER HAS NOT FOLLO WED ANY METHOD. THOUGH THE ASSESSEE CLAIMED THAT THE TRANSACTION NE T MARGIN METHOD IS THE MOST APPROPRIATE METHOD, THE TRANSFER PRICING OFFICER HAS NOT DISCUSSED IN HER ORDER WITH REGARD TO APPRO PRIATE METHOD AND SHE SIMPLY FOUND THAT SINCE THERE WAS NO IMPROV EMENT IN THE REVENUE, THE PAYMENT OF MANAGEMENT FEES IS NOT JUST IFIED. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE CLAIMS THAT MANAGEMENT FEE WAS PAID IN RESPECT OF THE SERV ICES PROVIDED BY THE ASSOCIATE ENTERPRISE OUTSIDE THE COUNTRY, TH E PAYMENT MADE BY THE ASSESSEE HAS TO BE COMPARED WITH SIMILARLY P LACED COMPANIES IN INDIA AND WHETHER THE PAYMENT MADE BY THE ASSESSEE IS AT ARMS LENGTH. THE TRANSFER PRICING OFFICER A ND THE DISPUTE RESOLUTION PANEL ARE EXPECTED TO COMPARE THE PAYMEN T WITH THAT OF THE COMPARABLE COMPANIES IN INDIA ON THE BASIS OF M ETHOD PRESCRIBED UNDER RULE 10B. UNFORTUNATELY, BOTH THE TRANSFER PRICING OFFICER AND THE DISPUTE RESOLUTION PANEL HAVE NOT T AKEN SUCH PAIN IN COMPARING THE PAYMENT MADE BY THE ASSESSEE WITH THAT OF THE COMPARABLE COMPANIES IN INDIA BY APPLYING PROVISION S OF RULE 10B. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF PAYMENT OF MANAGEMENT 6 I.T.A. NO.1970/MDS/11 FEE IS REMITTED BACK TO THE FILE OF THE ASSESSING O FFICER. THE ASSESSING OFFICER SHALL REFER THE MATTER TO THE TRA NSFER PRICING OFFICER FOR RECONSIDERATION. THE TRANSFER PRICING OFFICER SHALL COMPARE THE PAYMENT MADE BY THE ASSESSEE WITH THAT OF PAYMENT MADE BY COMPARABLE COMPANIES IN INDIA AND POINT OUT WHETHER THE PAYMENT MADE BY THE ASSESSEE IS REALLY AT ARMS LEN GTH. THE TRANSFER PRICING OFFICER SHALL EXAMINE THE ISSUE IN THE LIGHT OF THE METHOD PRESCRIBED UNDER RULE 10B FOR THE PURPOSE OF DETERMINATION OF THE ARM'S LENGTH PRICE. 6. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DEPRECIATION ON NON-COMPETE FEE. 7. SHRI S.P. CHIDAMBARAM, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE CLAIMED DEPRECIATION ON THE PAYMENT MADE TO VARIOUS PERSONS. ACCORDING TO THE LD. COUN SEL, THE IDENTICAL PAYMENT MADE BY THE ASSESSEE IN ASSESSMEN T YEAR 2003- 04 WAS CONFIRMED BY THIS TRIBUNAL VIDE ORDER DATED 10.07.2009. EVEN THOUGH THE DISPUTE RESOLUTION PANEL REFERRED T HE ORDER OF THE TRIBUNAL, HAS CONFIRMED THE ORDER OF THE TRANSFER P RICING OFFICER, ONLY ON THE GROUND THAT THE AN APPEAL FILED BY THE REVENUE BEFORE THE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL IS PENDING BEFORE 7 I.T.A. NO.1970/MDS/11 THE HIGH COURT. ACCORDING TO THE LD. COUNSEL, MERE PENDENCY OF APPEAL BEFORE THE HIGH COURT CANNOT BE A REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. 8. ON THE CONTRARY, DR. MILIND MADHUKAR BHUSARI, TH E LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT NO DOUB T, FOR THE ASSESSMENT YEAR 2003-04, THIS TRIBUNAL ALLOWED SIMI LAR DEPRECIATION ON NON-COMPETE FEE. NOW, THE MATTER IS PENDING BEF ORE THE HIGH COURT. THEREFORE, THE DRP HAS CONFIRMED THE ORDER OF THE TRANSFER PRICING OFFICER. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR THE ASSESSMENT YEAR 2003-04, ON IDENTICAL SET OF FACTS, THIS TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. EVEN THOUGH THI S FACT WAS BROUGHT TO THE NOTICE OF THE DISPUTE RESOLUTION PAN EL, DISPUTE RESOLUTION PANEL SIMPLY REJECTED ON THE GROUND THAT THE ISSUE HAS NOT REACHED FINALITY. THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT DUE TO PENDENCY OF THE APPEAL BEFORE THE HIGH COURT , THIS TRIBUNAL CANNOT TAKE A DIFFERENT VIEW ON THE ISSUE. WHEN TH IS TRIBUNAL IN THE EARLIER ASSESSMENT YEAR ALLOWED THE CLAIM OF THE AS SESSEE DEPRECIATION ON NON-COMPETE FEE, MERE PENDENCY OF A PPEAL BEFORE 8 I.T.A. NO.1970/MDS/11 THE HIGH COURT CANNOT BE A GROUND TO DISALLOW THE C LAIM OF THE ASSESSEE. IT IS NOBODYS CASE THAT THE ORDER OF TH IS TRIBUNAL IS STAYED BY THE HIGH COURT. IN THOSE CIRCUMSTANCES, WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORD INGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSE SSING OFFICER IS DIRECTED TO ALLOW THE DEPRECIATION ON NON-COMPETE F EE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 5 TH MAY, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 5 TH MAY, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. SECRETARY, DRP, CHENNAI 4. 79 -2 /DR 5. ( : /GF.