D.C.I.T.,Circle-8(2), Kolkata V. M/s R.P.Comtrade Ltd., Kolkata

ITA 207/KOL/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1723 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 16-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; Additional evidence; Reasonable cause; Condonation of delay
• Section: 143(3); 40(a)(ia); 10B; 69A

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ, कोलकाता । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI MANISH BORAD, ACCOUNTANT MEMBER I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 DCIT, Circle-8(2), Kolkata Vs M/s. R.P. Comtrade Ltd. 3B&C, Everest House 3 rd Floor, 46C Jawahar Lal Nehru Road Kolkata - 700071 PAN : AADCR9801L अपीलाथȸ/ (Appellant) Ĥ× यथȸ/ (Respondent) Assessee by : Shri Akkal Dudhewala, A/R Revenue by : Shri G.H. Sema, Addl. CIT, D/R स ु नवाई कȧ तारȣख/Date of Hearing : 06/04/2022 घोषणा कȧ तारȣख /Date of Pronouncement: 20/05/2022 आदेश/O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER : The present appeals are directed at the instance of the revenue against the separate orders of the Learned Commissioner of Income Tax (Appeals)- 22, Kolkata (hereinafter the “ld. CIT(A)”), even dt. 31/10/2019, passed u/s 250 of the Income Tax Act, 1961 (“the Act”), for Assessment Years 2012-13 & 2013-14. 2. The revenue has raised the following grounds of appeal for the Assessment Year 2012-13:- “1. The Ld. CIT(A) has erred on the facts and in law in deleting the ALP adjustment made by the TPO, which was based on the facts of the case. 2. The Ld. CIT(A) has erred on the facts and in law in holding that CUP method as the MAM to determine the ALP of the AE transactions of the I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 2 assessee, in spite of the fact that the assessee itself considered TNMM as the MAM for benchmarking the AE transactions in TP documentation and adhered to the same during TP proceeding before the concerned TPO. 3. The Ld. CIT(A) has erred on the facts and in law in not examining the merits of the application TNMM for benchmarking the impugned transactions, which was done by the TPO based on the facts involved in the instant case. 4. The Ld. CIT(A) has erred on the facts and in law in changing the MAM adopted by the assessee without giving opportunity to the Assessing officer/TPO which is in violation of the rule 10B and 10C of the Income Tax Rules, 1962. 5. That the department craves leave to add to and/or alter, amend, modify or rescind the grounds herein above before or hearing of this appeal.” 3. The revenue has raised the following grounds of appeal for the Assessment Year 2012-13:- “1. The Ld. CIT(A) has erred on the facts and in law in deleting the ALP adjustment made by the TPO, which was based on the facts of the case. 2. The Ld. CIT(A) has erred on the facts and in law in holding that CUP method as the MAM to determine the ALP of the AE transactions of the assessee, in spite of the fact that the assessee itself considered TNMM as the MAM for benchmarking the AE transactions in TP documentation and adhered to the same during TP proceeding before the concerned TPO. 3. The Ld. CIT(A) has erred on the facts and in law in not examining the merits of the application TNMM for benchmarking the impugned transactions, which was done by the TPO based on the facts involved in the instant case. 4. The Ld. CIT(A) has erred on the facts and in law in deleting the addition of Rs 1,08,09,367/- made u/s 69A of the Income Tax Act. 5. The Ld. CIT(A) has erred on the facts and in law in deleting the addition of Rs 2,28,145/- made on account commission and brokerage I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 3 6. That the department craves leave to add to and/or alter, amend, modify or rescind the grounds herein above before or hearing of this appeal.” 4. These revenue’s appeals are time barred by 27 days and the petition seeking condonation of delay has been filed. After perusing the same, and find that there is reasonable cause for delay in filing of these appeals on time. Hence we condone the delay and admit these appeals for hearing. ITA No. 207/Kol/2020 [AY 2012-13] 5. First, we take up the appeal for AY 2012-13 in in ITA No.207/Kol/2020 arising out of the order of the Ld. CIT(A) -22, Kolkata [here-in-after ‘Ld. CIT(A)’] dated 31 st October 2019 passed against the assessment order under section 143(3) passed by the A.O. dated 22 nd March 2016. Ground Nos. 1 to 3 of the appeal of the Revenue is against the Ld. CIT(A)’s action of deleting the ALP adjustment of Rs.4,95,36,222/- made in relation to the purchases made by the assessee from its foreign Associated Enterprise (‘AE’), M/s P L Global Impex Pte Ltd (‘PLG Singapore’). Briefly stated, the facts of the case are that the assessee is engaged in the business of trading in pulses and handicrafts. The assessee procures different varieties of pulses from PLG Singapore. The assessee originally benchmarked the purchases made from the AE under the Transactional Net Margin Method (‘TNMM’). In the course of proceedings u/s 92CA(3) of the Act, the assessee furnished its TPSR, which contained the manner and basis of benchmarking under TNMM. The TPO, however, was not agreeable to the same and issued a show cause notice wherein he set out his own benchmarking I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 4 analysis in terms of which the TPO determined the Profit Level Indicator (‘PLI’) i.e. OP/OR of the assessee at (-)6.57% and the Arm’s Length PLI at 10.11%. The assessee was required to explain as to why TP adjustment should not be made with reference to the ALP PLI. In response, the appellant furnished detailed submissions vide letter dated 08.12.2015 in which several infirmities were highlighted in the benchmarking methodology proposed by the TPO. Additionally, the assessee submitted that PLG Singapore was selling the same pulses to the assessee and other unrelated parties as well. The assessee provided the complete details of the sales made by the foreign AE to the assessee and third parties, according to which the prices at which the pulses were being sold to the assessee were comparable with the prices at which the same pulses were being sold to unrelated parties. The assessee thus, alternatively suggested that CUP Method may be taken as the Most Appropriate Method (‘MAM’), in terms of which the international transactions involving purchases of pulses from AE were at arm’s length. The TPO however rejected the CUP method analysis of the assessee. Taking TNMM as the MAM, the arm’s length PLI of the final list of comparables was computed at 6.58% as against the actual PLI of the assessee of (-) 6.57%. Accordingly the TPO made transfer pricing adjustment of Rs.4,95,36,222/- to the total income of the assessee. Aggrieved by the action of the TPO, the assessee preferred appeal before the Ld. CIT(A). 6. On appeal, the Ld. CIT(A) took cognizance of the CUP method analysis of the assessee. He noted that the assessee had furnished reliable internal CUP data of its foreign AE inter alia including month-wise statement of sales made by PLG Singapore to the assessee and unrelated I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 5 parties along with sample invoices. Upon examining the data furnished, the Ld. CIT(A) held the internal CUP Method to be the Most Appropriate Method. Having regard to the data on record, the Ld. CIT(A) recorded his categorical finding that the prices at which pulses were being sold by PLG Singapore to the assessee were comparable with the prices at which the same variety of pulses were being sold to unrelated parties. Aggrieved by the order of Ld. CIT(A), the Revenue is now in appeal before us. 7. At the time of hearing, the Ld. DR appearing on behalf of the Revenue submitted that, the assessee had originally reported TNMM as the Most Appropriate Method in the TPSR and it was only in the course of transfer pricing assessment that the assessee put forth CUP data before the TPO. According to him, since the Ld. CIT(A) had held CUP to be the Most Appropriate Method, then in the fitness of things, the matter deserves to be remitted back to the TPO for verifying the CUP data. Per contra, the Ld. AR of the assessee opposed the request of the Ld. DR and supported the order of Ld. CIT(A). 8. We have heard both the parties. The first issue for our consideration is whether the assessee could have sought application of CUP Method on the given facts of the present case, when the assessee itself had claimed TNMM to be the MAM in the TPSR. It is by now well settled that, there is no estoppel in income-tax law and therefore the assessee cannot be precluded from raising a new contention which it otherwise did not claim in the return of income. The Revenue thus cannot be permitted to take advantage of ignorance or mistake of the assesse. In the facts of the present case, the assessee had originally taken TNMM as the MAM in the TPSR. In the course of assessment, it noted that the international transactions with I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 6 the AE could be better benchmarked using the CUP Method and therefore furnished its CUP analysis to justify the ALP. In our considered view, the assessee cannot be estopped from changing its benchmarking methodology to CUP Method and establishing that TNMM was wrongly taken as the MAM in the TP Study Report. In this context, we rely on the decision of the Special Bench of this Tribunal in the case of DCIT Vs Quark Systems (P) Ltd (132 TTJ 1) in which the assessee was permitted to exclude the comparables which were wrongly included in the Transfer Pricing Study Report. 9. Gainful reference may also be made to the decision of the coordinate Bench of this Tribunal at Kolkata in the case of Almatis Alumina Pvt Ltd Vs DCIT in ITA Nos. 726 & 2631/Kol/2017 dated 16.04.2019 which also allowed the new FAR analysis put forth by the assessee before the lower authorities adopting its AE as the tested party, as opposed to the assessee which was taken as the tested party in the TPSR. This decision has since been affirmed by the Hon’ble jurisdictional Calcutta High Court which is reported in 137 taxmann.com 202. The relevant extracts of the judgment is as follows: “...The correctness of this submission was tested by the Tribunal and held that the assessee cannot be non suited from treating the AE as a tested party. The characteristics of the AE were also taken note of and it was found on facts that the AE was a least complex entity than that of the assessee. The Tribunal placed reliance on the decision in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 (Chd.). In the said decision it was held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done due to some mistake on its part...” 10. Coming to the merits of the CUP analysis, it is observed that the foreign AE was engaged in selling the same variety of pulses, both to the assessee as well as to unrelated third parties. The Ld. CIT(A) after going I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 7 through the CUP data along with supporting invoices found merit in the claim of the assessee that the same variety of pulses were being sold by PLG Singapore to the assessee as well as to unrelated parties in the same period. Since there was strict product comparability and there was no material timing difference, we do not find any infirmity in the order of the Ld. CIT(A) in holding CUP Method to be the MAM. The relevant findings of the Ld. CIT(A) are as under: “2. In the appellate proceedings the appellant objected to the Ld. TPO’s action of arbitrarily rejecting the application of internal CUP when reliable data was available with the appellant. Referring to the CUP analysis performed by the appellant. Referring to the CUP analysis performed by the appellant and also the certification given by the Chartered Accountant that the rates at which similar pulses were supplied by AEs to the appellant were comparable with the rates at which similar pulses were sold by the AEs to unrelated external parties the appellant pleaded that CUP be held to be the MAM and that the international transactions with AE be held at arm's length. The Ld. AR of the appellant also pointed out several infirmities in the TNMM analysis performed by the Id. TPO and contended that even the comparable identified by the Ld. TPO were not functionally comparable. 3. After perusing the submissions of the appellant and the details placed on record, 1 however note that the Ld. TPO's observation that the CUP was not the most appropriate method was erroneous on given facts of the case. During the relevant year the appellant traded in several types of pulses which were procured from AEs as well as non-AEs. From the month-wise break-up of purchases as well as the comparative statement and sample invoices, it is noted that the variety of pulses which were purchased by the appellant from the AEs were comparable with the rates at which pulses purchased from non-AEs. Moreover I note that even the AE, M/s P.L. Global Impex Pvt Ltd had sold similar items of pulses to the appellant and external third parties. The products were comparable on 'apple to apple' basis. 1 therefore hold that the Ld. TPO grossly erred in rejecting the CUP analysis of the appellant. For instance, in April 2011 the AE sold 'Black Matpe' at the rate of USD 920/MT to unrelated party, M/s R.R, Agri Impex and in the same month it sold 'Black Matpe' to the appellant at USD 900/MT. Similarly in February 2012, the AE sold "Toor I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 8 Whole Linkey' at the rate of USD 640/MT to unrelated party, M/s Arab & India Spice Ltd whereas it sold the same item to the appellant at the rate of USD 642/MT, which was within the permitted range of +/-5%. I find that similar data for all other months have been provided by the appellant in respect of the pulses sold by the AE to the appellant and unrelated independent parties. Having regard to these facts, I therefore find that reliable data for application of internal CUP was made available before the Ld. TPO. In my considered view the CUP Method was the Most Appropriate Method to benchmark the transaction Involving purchase of pulses from AES and having regard to the data furnished by the appellant, the aforesaid transactions involving purchase of pulses from the AEs are held to be on arm's length. 4. In view of the reasons discussed in the foregoing paragraphs, since I have already held that the international were at arm's length under the internal CUP Method, it is no longer be necessary to examine the alternate contention of the appellant regarding the merits of the application of TNMM for benchmarking the impugned transaction. Accordingly the transfer pricing adjustment of Rs.4, 95, 36,222/ proposed by the Ld. TPO was not sustainable on facts and in law. The Ld. AO/TPO is therefore directed to delete the same. These grounds therefore stands allowed” 11. We note that the Ld. DR was unable to dislodge the above factual findings of the Ld. CIT(A) nor was he able to pin point any defect in the CUP analysis of the assessee. It is also not the Revenue’s case that there was any fresh material or additional evidence adduced before the Ld. CIT(A). Instead, it is noted that the CUP analysis was furnished before the TPO in the course of assessment. Hence, the Ld. DR’s request for setting aside the matters back to the TPO cannot be entertained. For the reasons discussed in the foregoing therefore, we do not see any reason to interfere with the order of the Ld. CIT(A). Ground Nos. 1 to 3 of the appeal is therefore dismissed. ITA No. 208/Kol/2019 [AY 2013-14] I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 9 12. Ground Nos. 1 to 3 of the appeal relates to the Ld. CIT(A)’s action of deleting the transfer pricing addition of Rs.5,73,75,965/- made by the TPO in relation to the purchases made from AE, PLG Singapore. After considering the rival submissions, it is observed that the issue involved in this ground is identical to the Ground Nos. 1 to 3 of Revenue’s appeal in A.Y. 2012-13. Following our conclusion drawn in A.Y. 2012-13, we dismiss these grounds of the Revenue. 13. Ground No. 4 of the appeal is against the action of adding the aggregate cash deposits of Rs.1,08,09,367/- u/s 69A of the Act. Heard both the parties. It is noted that in the course of assessment, the AO has required the assessee to explain the source of cash deposited on several dates by the assessee in its regular HDFC Bank Account. Before the AO, the assessee had produced its cash book along with the list of names of customers from whom it had received cash proceeds upon sale of pulses. According to the AO, however, the PAN of the customers along with sales invoices were not furnished, and therefore he treated the entire cash deposits as unexplained monies u/s 69A of the Act. On appeal the Ld. CIT(A) noted that the cash book of the assessee contained the names and addresses of the customers who had paid the sale proceeds in cash. He took note of the fact that cash sales is a common phenomenon in trading of agricultural commodities and the impugned cash deposits formed part of the total sales credited in the P&L A/c of the assessee. Having regard to the foregoing, we note that the Ld. CIT(A) had rightly held that there was no reason to disbelieve the genuineness of cash deposits, particularly when it was recorded in the books of accounts and also formed part of the total income credited in the I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 10 P&L A/c. The Ld. DR was also unable to refute the Ld. CIT(A)’s alternate finding that provisions of Section 69A of the Act could not be applied in the facts of the present case as it was not a case that the cash deposits in question were not recorded in the books of accounts and therefore the condition precedent for invoking rigors of Section 69A of the Act were not met. For the reasons as aforesaid, we do not see any reason to interfere with the order of Ld. CIT(A) on this issue. Accordingly this Ground No. 4 stands dismissed. 14. Ground No. 5 of the appeal relates to disallowance of commission/brokerage of Rs.2,28,145/- for want of details of payment and deduction of tax at source thereon. According to the AO, the assessee did not withhold tax on the impugned sum and therefore disallowed the same by invoking Section 40(a)(ia) of the Act. In appeal before the ld. CIT(A), it was pointed out that the impugned disallowance was made by the AO on mistaken understanding of the facts. The impugned sum actually represented the debit notes issued to the brokers for reducing their commission/brokerage in relation to the short realization of sales made through them. Hence, these debit notes of Rs.2,28,145/- actually represented amounts credited to the brokers’ accounts which resulted in reduction of the overall brokerage expense. It was therefore not a case that any brokerage was incurred or that any payment was made, which would warrant withholding of tax on the impugned sum of Rs.2,28,145/-. Upon examination of the facts on record, the Ld. CIT(A) found merit in the aforesaid contentions of the assessee and deleted the impugned disallowance by observing as under: I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 11 “1. I have carefully considered the submissions of the Ld. A.R. in the backdrop of the impugned assessment order. The Ld. AO in his impugned order has observed that the appellant had withheld taxes on all brokerage payments except in four instances aggregating to Rs.2,28,145/- (Rs.1,198/-+Rs.65,832/- +Rs.91,861/-+Rs.69,254/-) and therefore disallowed the aforesaid amount by invoking the rigors of Section 40(a)(ia) of the Act. On examination of the ledger of brokerage as well as the submissions of the appellant, it is however noted that the ld. AO had wrongly appreciated the facts of the case and incorrectly concluded that the appellant was an assessee-in-default for not deduction taxes on the sum of Rs.2,28,145/- u/s 194H of the Act. On perusal of the details it is noted that the sum of Rs.2,28,145/- represented debit notes issued by the appellant to the brokers in respect of the short realization of sales made by them. It thus represented reversal of the brokerage expenditure earlier charged to the Profit & Loss Account. The issuance of debit notes aggregating to Rs.2,28,145/- by the appellant resulted in the reduction of the overall brokerage expenses. It was therefore not a case that the appellant had incurred or paid brokerage cost on which it had failed to deduct taxes. Instead it was exactly the opposite. The appellant had reversed the excess brokerage earlier booked on account of short realization of sales made through the broker and hence such sum of Rs.2,28,145/- in sum and substance represented write back of liabilities no longer payable. On these facts I therefore find that the ld. AO grossly erred in assuming that the debit notes of Rs.2,28,145/- represented payment to brokers whereas the facts clearly showed these debit notes were actually issued by the appellant towards write back of expenses. I therefore find merit in the contention of the appellant that provisions of Section 40(a)(ia) did not have any application in the given facts of the present case. The impugned disallowance of Rs.2,28,145/- therefore stands deleted.” 15. We do not find any infirmity in the above findings of the Ld. CIT(A) and therefore dismiss this Ground No. 5 raised by the Revenue. 16. In the result, both the appeals filed by the revenue are dismissed. Order pronounced in the Court on 20 th May, 2022 at Kolkata. Sd/- Sd/- (RAJPAL YADAV) (MANISH BORAD) VICE-PRESIDENT ACCOUNTANT MEMBER I.T.A. No. 207/Kol/2020 Assessment Year: 2012-13 & I.T.A. No. 208/Kol/2020 Assessment Year: 2013-14 M/s. R.P. Comtrade Ltd. 12 Kolkata, Dated 20/05/2022 *SC SrPs आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent 3. संबंͬधत आयकर आय ु Èत / Concerned Pr. CIT 4. आयकर आय ु Èत)अपील (/ The CIT(A)- 5. ͪवभागीय ĤǓतǓनͬध ,आयकर अपीलȣय अͬधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाड[ फाईल /Guard file. आदेशान ु सार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलȣय अͬधकरण ITAT, Kolkata