M/s.Seiko Watch India Pvt. Ltd., Bangalore V. DCIT- Circle-6(1)(1), Bangalore

ITA 2047/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8591 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 25-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS
• Assessee Lawyers: CHYTHANYA K K
• Keywords: Transfer pricing; Opportunity of being heard
• Section: 234B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.2047 (BANG) 2016 (ASSESSMENT YEAR : 2012-13) M/S SEIKO WATCH INDIA PVT.LTD. NO.874, GROUND FLOOR, TEMPLE VISTA, SRI KRISHNA TEMPLE ROAD, INDIRA NAGAR, 1 ST STAGE, BANGALORE -560 038 PAN NO.AAKCS6484K APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCL;E-6(10(1), BMTC BUILDING, KORAMANGALA, 6 TH BLOCK, BANGALORE-560 095 RESPONDENT ASSESSEE BY : SHRI CHYTHANYA, K.K. ADVOCATE REVENUE BY : SMT. SWAPNA DAS, JCIT DATE OF HEARING : 24-01-2017 DATE OF PRONOUNCEMENT : 07-02-2017 O R D E R PER SHRI A.K.GARODIA, AM THIS APPEAL IS FILED BY THE ASSESSEE AND IT IS DIRE CTED AGAINST THE ORDER OF THE LD. CIT(A)-VI, BANGALORE DATED 25-08-2016 FO R ASSESSMENT YEARS : 2012-13. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- 1. THE ORDER OF THE LEARNED COMM I SSIONER ( APPEALS ) I S NOT J USTIFIED I N LAW AND ON FACTS AND CIR C UMSTANCES OF T HE CASE . ITA NO.2047(B)/2016 2 2. THE CASE OF THE APPELLANT HAS BEEN SELECTED FOR SCRU TINY IN DEF I A NCE OF THE INSTRUCTION ! GUIDELINE ISSUED BY THE CBDT ; THEREBY E NT IRE ASSESSMENT I S VOID AB INITIO AND BAD I N LAW 3.THE NOTICE UNDER SECTION 143(2) BEING IN STANDARD FORMAT IS NOT COMPATIBLE FOR A SCRUTINY UNDER CASS AND THE REFORE I NVALID AND IMPUGNED ASSESSMENT BEING BASED ON SUCH INVALID NOTIC E I S ALSO I NVALID . 4. AS REGARDS DISALLOWING 50 % OF SALE INCENTIVES & FORE I GN TRAV EL EXPENSES CLAIMED BY THE APPELLANT : 4.1 THE LEARNED COMMISSIONER (APPEALS ) IS NOT JUSTIFIED IN UPHOLDIN G THE ACTION OF THE LEARNED ASSESSING OFFICER IN DI S ALLO W IN G 50 % OF S A LE INCENTIVES AND FOREIGN TRA V EL EXPENDITURE ON THE G ROUND S TH AT THE SAID EXPENSES ARE UNREASONABLE , EXCESSIVE AND W ITHOUT B A S IS . 4.2 THE LOWER AUTHORITIES HAVING NOT DOUBTED THE G E NU I NENESS O F TH E SAID EXPENDITURES INCURRED B Y THE APPELLANT AND HA V IN G N OT BROUGHT OUT ANY CONTRARY EVIDENCE OUGHT NOT TO HA V E DIS A LLO WE D TH E SAID EXPENDITURE . 4.3 THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTI FI E D IN F A ILIN G TO APPRECIATE THAT THE ' SALES INCENTI V ES ' & ' FOREIGN TRA V EL E XPENSE ' A R E PART OF THE MARKETING STRATEGY ADOPTED B Y THE APPELLANT TO IN C R EASE THE MARKET SHARE AND ACHI E VE GREATER SALES OF TH E IR PRODU C TS B Y MOTIVATING THE DEALERS . IN OTHER WORDS , THE LOWER AUTHORITIES H AVE FAILED TO APPRECIATE THAT THE AFORESAID EXPENSES INCURRED B Y T HE APPELLANT WERE OUT OF THE COMMERCIAL/BUSINESS EXPEDIENC Y AND HENCE THE SAME CANNOT BE DISALLOWED. 4.4 THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN HOLD ING THAT THE APPELL A N T HAS BROUGHT DOWN ITS PROFIT B Y INCURRING TH E IMPU G N E D EXPENDITURES WITHOUT ANY EVIDENCE AND BEING OBLIVIO US TO ITA NO.2047(B)/2016 3 BUSIN E SS REALITIES. 4.5 TH E LOWER AUTHORITIES ARE NOT JUSTIFIED IN FAILING TO A PPR EC I A TE TH AT I T IS SETTLED LAW THAT THE REVENUE CANNOT JUSTIFIABL Y CLAIM TO PUT ITS E LF IN THE ARM - CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BO A RD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASON A BL E EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF TH E C ASE A ND COMPEL A BUSINESSMAN TO MAXIMIZE HIS PROFIT . 4.6 THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN DIS A LLOWING THE SA L ES INCENTIVES AND FOREIGN TRAVEL EXPENSES CLAIMED B Y THE APPELL A NT UNDER SECTION 37 WITHOUT SPECIF Y ING THE VIOLATION OF AN Y PRE C ISE CONDITIONS OF THE SAID SECTION. 4.7 THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN DIS A LLOWING THE SA L E S INCENTIVES AND FOREIGN TRAVEL EXPENSES CLAIMED B Y THE APPELL A NT UNDER SECTION 37 OF THE IT ACT WITHOUT REJECTING TH E BOOK S O F ACCOUNTS MAINTAINED BY THE APPELLANT . 4.8 WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTHO RITIES ARE N O T JUSTIFIED IN IMPLIEDLY APPLYING TRANSFER PRICING PR INCIPLES IN TH E ABSENCE OF APPLICABILITY OF PROVISIONS OF SECTION 4 0A(2)(B) & S EC TION 92BA . 4.9 THE FINDINGS OF LOWER AUTHORITIES ARE PERVERSE AS TH E Y H AVE UNREASONABLY IGNORED THE EVIDENCE FILED IN THE FORM OF PRE- AGREED TARGET LETTERS, INCENTIVE ENTITLEMENT LETTERS, COP IES OF INVOICES ALONG WITH LEDGER EXTRACTS DEPICTING TARGE T ACHIEVEMENT , AIR TICKETS , TRA V EL AGENTS' INVOICES, VISA AND PASSPORTS OF THE DEALERS WHO TRAVELLED TO AUSTRALIA , JAPAN ETC. 4.10 THE LEARNED COMMISSIONER (APPEALS) IS NOT JUST IFIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER IN ITA NO.2047(B)/2016 4 PERVERSELY STATING THAT APPELLANT HAS NOT FURNISHED THE BASIS FOR APPLYING RATE OF INCENTIVE OF 3% ON SALES OF RS. 15 LAKHS. 4.11 THE LEARNED COMMISSIONER (APPEALS) IS NOT JUST IFIED IN UPHOLDIN G THE ACTION OF THE LEARNED ASSESSING OFFICER IN PERVERSELY STATING THE AFORESAID EXPENSES HAVE NOT BEEN INCURRED BY THE APPELLANT DURING THE EARLIER YEARS. 4.12 THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN STA TING THAT THERE WAS INCONSISTENCY IN THE NUMBER OF PEOPLE TRAVELLIN G IN THE CASE OF 'PRIME' AND 'ETHOS', WITHOUT CONSIDERING/ APPREC IATING THE SUBMISSION MADE BY THE APPELLANT. 4.13 THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN NOT APPRECIATING THAT THE APPELLANT HAD INCURRED LUMP SUM EXPENDITUR E FOR GROUP TRAVEL AND NO EXPENSE WAS INCURRED INDIVIDUALLY FOR EACH DEALER SEPARATEL Y. 4.14. THE LOWER AUTHORITIES HAVE ERRED IN NOT CONSI DERING THE SUBMISSION MADE BY THE APPELLANT THAT , AS MAJORITY OF ELIGIBLE DEALERS OPTED OUT OF FOREIGN TRAVEL TO DUBAI, THE T RIP WOULD BECOME UN-ECONOMICAL ON ACCOUNT OF INSUFFICIENT PEO PLE AND HENCE THE APPELLANT DECIDED TO ISSUE CREDIT NOT TO ELIGIBLE DEALERS. 4.15 WITHOUT PREJUDICE TO THE ABOVE, THE LOWER AUTH ORITIES ARE NOT JUSTIFIED IN DISALLOWING THE SALES INCENTIVES A ND FOREIGN TRA V EL EXPENSES ON AD HOC BASIS AT 50 % WITHOUT SPECIF Y ING AN Y REASON/METHOD WHATSOEVER FOR ARRIVING AT SUCH BASIS 5. THE LEARNED COMM I SSIONER (APPEALS ) IS NOT JUST I FI E D I N S UMM ARILY DISM I SSING THE APPEAL OF THE APPELLANT WITHOUT ADDUCING ANY CO GENT REASONS . 6. THE LEARNED COMMISSIONER (APPEALS) IS NOT JUSTIF IED I N UPHOL DING THE LEVY OF INTEREST UNDER SECTIONS 234B WHEN THE CONDI TI ONS FOR LEVYING SUCH INTEREST DID NOT EXIST IN THE PRESENT CASE . ITA NO.2047(B)/2016 5 7. THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN FAILI NG TO APP R EC I ATE T HAT THE LEVY OF INTEREST UNDER SECTIONS 234C IS TO BE CALCU LA T ED O N ' RETURNED INCOME ' AND NOT ON ' ASSESSED INCOME '. FOR THE ABO V E REASONS AND FOR SUCH OTHER REASONS W HICH M AY B E A LLOWED B Y T H E HONOURA B LE MEM B ERS TO B E URGED AT THE TIME OF HEARING , IT IS PRA Y ED TH A T THE AFORESAI D A PP EA L B E A LLO W ED. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THA T GROUND NO.1 IS GENERAL AND GROUND NO.2 IS NOT PRESSED AND HE ALSO SUBMITTED THAT GROUND NO.6 IS CONSEQUENTIAL. REGARDING GROUND NO.7, HE SU BMITTED THAT AS PER PROVISIONS OF SEC.234C OF THE IT ACT, INTEREST HAS TO BE CHARGED BASED ON THE RETURN OF INCOME AND NOT BASED ON ASSESSED INCOME A S HAS BEEN HELD BY THE LOWER AUTHORITIES. 3. REGARDING GROUND NO.5, HE SUBMITTED THAT THE ORD ER OF THE LD. CIT(A) IS VERY CRYPTIC. AT THIS JUNCTURE, THIS PROPOSITION WAS PUT FORWARD BY THE BENCH THAT UNDER THESE FACTS THAT THE ORDER OF THE LD. CIT(A) IS NOT A SPEAKING ORDER, THE MATTER HAS TO GO BACK TO THE FILE OF THE LD. CIT(A) FOR A FRESH DECISION BY WAY OF SPEAKING AND REASONED ORDER. HE SUBMITTE D IN REPLY THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE LD. CIT(A) BUT WITH LIBERTY TO THE ASSESSEE THAT THE ASSESSEE CAN RAISE ALL ISSUES BEF ORE THE LD. CIT(A) INCLUDING THE ISSUE OF JURISDICTION WHICH IS RAISED BY THE AS SESSEE BEFORE THE TRIBUNAL AS GROUND NO.2 & 3. AS AGAINST THIS, THE LD. DR OF TH E REVENUE SUPPORTED THE ORDER OF THE LD. CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST , WE EXAMINE AS TO WHETHER THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) IS A SPEAKING AND ITA NO.2047(B)/2016 6 REASONED ORDER TO DECIDE THIS AS TO WHETHER THE MAT TER HAS TO GO BACK TO THE FILE OF THE LD. CIT(A) FOR FRESH DECISION BY WAY OF SPEAKING AND REASONED ORDER. WHEN WE GO THROUGH THE ORDER OF THE LD. CIT(A), WE FIND THAT THE ORDER IS A CRYPTIC ORDER AND IT IS NOT A SPEAKING AND REASONED ORDER. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE M ATTER BACK TO HIS FILE FOR FRESH DECISION BY WAY OF SPEAKING AND REASONED ORDE R AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. WE WANT TO MAKE IT CLEAR THAT WE ARE NOT EXPRESSING ANY OPINION ON ANY OF THE ISSUES AND THE ASSESSEE IS AT LIBERTY TO RAISE ALL ISSUES INCLUDING THE ISSUE REG ARDING JURISDICTION BEFORE THE LD. CIT(A). 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (VIJAY PAL RAO) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : .02.2017 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 ITA NO.2047(B)/2016 7 1. DATE OF DICTATION 2. , , DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !', + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !', ' , - ) IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .