PERSTORP CHEMICALS INDIA P.LTD, NAVI MUMBAI V. ITO 10(2)(2), MUMBAI

ITA 2137/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8409 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 27-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 271(1)(c)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI , ! . ,$ % BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI G.MANJUNATHA, ACCOUNTANT MEMBER . 2137 / / 2017 (. 2010-11 ) ITA NO.2137/MUM/2017 (A.Y.2010-11) PERSTORP CHEMICALS INDIA PVT. LTD., 501, 5 TH FLOOR, KESAR SOLITAIRE, PLOT NO.5, SECTOR -19, SANPADA, NAVI MUMBAI -400 705 PAN: AAACP9450G ...... ) / APPELLANT VS. INCOME TAX OFFICER 10(2)(2) AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ..... *+ / RESPONDENT ),/ APPELLANT BY : SHRI MAYUR KISNADWALA *+ ,/ RESPONDENT BY : SHRI UODAL RAJ SINGH -+ / DATE OF HEARING : 20/02/2020 ./0 -+ / DATE OF PRONOUNCEMENT : 29/06/2020 / ORDER PER VIKAS AWASTHY, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-57, MUMBAI (IN SHORT CIT (A)) DATED 28/11/2016 FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO.2137/MUM/2017(A.Y.2010-11) 2. THE ASSESSEE IN APPEAL HAS RAISED TWO GROUNDS. T HE SAME READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING AN UPWARD ADJUSTMENT U/S. 92CA(3) OF THE ACT AGGREGAT ING TO RS.14,24,500/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF A.O OF INITIATING THE PENALTY PROCEEDING S U/S 271(1)(C). 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM TH E RECORDS ARE: THE ASSESSEE IS ENGAGED IN MANUFACTURING OF SPECIALITY CHEMICALS US ED IN VARIOUS PRODUCTS INCLUDING PAINT INDUSTRY. DURING THE PERIOD RELEVANT TO THE ASSESS MENT YEAR UNDER APPEAL THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATED ENTERPRISE (AE) AT GERMANY FOR SALE OF DI-PENTA. THE ASSESSEE APPLIED CUP AS THE MOST APPROPRIATE METHOD TO BENCHMARK INTERNATIONAL TRANSACTIONS WITH ITS AE. THE ASSESS EE SOLD 18,500 KGS OF DI-PENTA HAVING TOTAL VALUE OF RS.47,39,968/- (@ RS.256 PER KG.) TO ITS A E. THE TRANSFER PRICING OFFICER (TPO) ACCEPTED CUP AS MOST APPROPRIATE TO BENCHMARK ASSES SEES INTERNATIONAL TRANSACTIONS. THE TPO MADE ADJUSTMENT OF RS.14,24,500/- TO THE AR MS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION ON THE GROUND THAT THE AS SESSEE HAS SOLD THE SAME PRODUCT TO NON-AE IN INDIA AT A HIGHER PRICE I.E. @ RS.333/- P ER KG. THE TPO MADE ADJUSTMENT OF DIFFERENCE IN THE RATE AT WHICH DI PENTA WAS SOLD T O OVERSEAS AE AND NON-AE IN DOMESTIC MARKET. AGGRIEVED AGAINST THE AFORESAID ADDITION, T HE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISSED THE APPEAL OF ASSESSEE AND UPHELD THE ADDITION. 4. SHRI MAYUR KISNADWALA, APPEARING ON BEHALF OF TH E ASSESSEE MADE THREE FOLD SUBMISSIONS. THE LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT FIRSTLY, DI-PENTA IS A SLOW MOVING ITEM. THE ASSESSEE STOPPED MANUFACTURE OF T HE PRODUCT IN JANUARY 2009. SECONDLY, DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE SOLD 18,500 KGS. OF THE SAID PRODUCT TO ITS AE IN GERMANY. DURING T HE SAME PERIOD THE ASSESSE SOLD MERE 460KGS OF THE SAME PRODUCT IN DOMESTIC MARKET. SINC E THERE WAS HUGE DIFFERENCE IN ORDER QUANTITY, THERE WAS BOUND TO BE DIFFERENCE IN THE P RICING. THE ASSESSEE OFFERED VOLUME DISCOUNT TO ITS AE. THIRDLY, THERE WAS TIME LAG BET WEEN SALE OF PRODUCT TO AE AND DOMESTIC SALE. 3 ITA NO.2137/MUM/2017(A.Y.2010-11) THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE T O BUTTRESS HIS SUBMISSIONS POINTED THAT AS PER RULE -10B, WHILE COMPUTING ALP BY APPLYING CUP AS MOST APPROPRIATE METHOD, THERE IS PROVISION FOR ALLOWING VOLUME DISC OUNT. FURTHER, TO SUPPORT HIS CONTENTIONS IN OFFERING VOLUME DISCOUNT, THE LD. AUTHORISED REP RESENTATIVE PLACED RELIANCE ON FOLLOWING DECISIONS:- (I) CLARIENT CHEMICALS (INDIA) LTD. VS. JCIT, 44 T AXMANN.COM 421 (MUM-TRIB.) (II) ITO VS. ADIDAS INDIA MARKETING (PVT.) LTD., 6 8 TAXMANN.COM 96 (DEL-TRIB.) THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE S UBMITTED THAT IN ASSESSMENT YEAR 2009-10, THE TRIBUNAL HAD RESTORED THE ISSUE TO THE CIT(A), FOR RE-ADJUDICATION AS THE DETAILS OF RATE AND VOLUME WERE NOT FURNISHED BY THE ASSESS EE. 5. PER CONTRA, SHRI UODAL RAJ SINGH, REPRESENTING T HE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DISMISSING THE AP PEAL OF THE ASSESSEE. THE LD.DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN TH E EARLIER ASSESSMENT YEARS VOLUME DISCOUNTS CLAIMED BY THE ASSESSEE WERE NOT ALLOWED. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTA TIVES OF RIVAL SIDES AND HAVE EXAMINED THE ORDERS OF AUTHORITIES BELOW. THE ASSE SSEE IN APPEAL HAS RAISED TWO GROUNDS. IN GROUND NO.1 THE ASSESSE HAS ASSAILED ADJUSTMENT OF RS.14,24,500/- IN RESPECT OF SALE OF DI-PENTA TO AE AT LOWER RATE THAN THE RATE AT WHICH THE SAME PRODUCT IS SOLD TO NON-AE IN DOMESTIC MARKET. THE ASSESSEE HAD SOLD SUBSTANTIALLY LARGE QUANTITY OF DI-PENTA TO ITS AE IN GERMANY I.E. 18,500 KGS @ RS.256/- PER KG, WHEREAS, THE ASS ESSEE SOLD SAME PRODUCT IN THE DOMESTIC MARKET AT RS.333/- PER KG. UNDISPUTEDLY, THE QUANTI TY OF PRODUCT SOLD IN THE DOMESTIC MARKET WAS MERE 460 KGS. THUS, WHERE THERE IS HUGE DIFFERENCE IN THE VOLUME OF SALES TO AE AND NON-AE, COMPARISON OF RATES BETWEEN THE TWO TRA NSACTIONS IS UNFAIR. THE ASSESSEE WAS JUSTIFIED IN OFFERING VOLUME DISCOUNT TO AE, AS THE QUANTITY SOLD TO AE WAS MORE THAN 40 4 ITA NO.2137/MUM/2017(A.Y.2010-11) TIMES THE QUANTITY SOLD TO NON AE IN DOMESTIC MARKE T. FURTHER, THE ASSESSE HAD OFFERED VOLUME DISCOUNT TO AE ON A PRODUCT THAT WAS SLOW MO VING AND HAD MINISCULE DEMAND. THE ASSESSE HAD ALREADY STOPPED MANUFACTURING OF THE SA ID PRODUCT. THIS FACT IS EVIDENT FROM ANNUAL ACCOUNTS OF THE ASSESSE FOR THE FINANCIAL YE AR ENDING ON 31/03/2010. THE AASSESSEE TEMPORARILY STOPPED MANUFACTURING DI-PENTA SINCE JA NUARY 2009, AS THERE WAS GLOBAL ECONOMIC SLOWDOWN AND THE DEMAND FOR THE PRODUCT HA D REDUCED SUBSTANTIALLY. 7. WE FIND THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CLARIENT CHEMICALS (INDIA) LTD. VS. JCIT (SUPRA), IN PRINCIPLE ACCEPTE D VOLUME DISCOUNT TO AE, WHERE THERE WAS SUBSTANTIAL DIFFERENCE IN VOLUME OF SALES TO AE AND NON-AES. IN THE CASE OF ITO VS. ADIDAS INDIA MARKETING (P) LTD. (SUPRA), DELHI BENCH OF THE TRIBUNAL ACCEPTED DISCOUNT ON EXPORT OF GOODS TO AE WHERE THE ASSESSEE HAD SOLD OLD STOCK/ SLOW MOVING ITEMS TO ITS AE. 8. THUS, IN VIEW OF THE FACTS DISCUSSED ABOVE, WE A RE OF THE CONSIDERED VIEW THAT UPWARD ADJUSTMENT MADE IN RESPECT OF SALE OF DI-PEN TA TO AE IS UNJUSTIFIED AND HENCE, DESERVES TO BE DELETED. WE HOLD AND DIRECT ACCORDI NGLY. THE GROUND NO.1 OF THE APPEAL IS ALLOWED. 9. IN GROUND NO.2, THE ASSESSEE HAS ASSAILED INITIA TION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. CHALLENGE TO INITIAT ION OF PENALTY PROCEEDINGS AT THIS STAGE IS PREMATURE, THE GROUND NO.2 OF THE APPEAL IS DISMISSED AS PREMA TURE . 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . 11. THIS APPEAL WAS HEARD ON 20/02/2020. AS PER RU LE 34(5) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963, (ITAT RULES, 1963 ), THE ORDER WAS REQUIRED TO BE ORDINARILY PRONOUNCED WITHIN A PERIOD OF 90 DAYS FROM THE DATE OF CONCLUSION OF THE HEARING OF APPEAL. THE INSTANT APPEAL WAS HEARD PRI OR TO THE LOCKDOWN DECLARED BY THE HONBLE PRIME MINISTER ON 24-03-2020 IN VIEW OF COV ID-19 PANDEMIC. THE LOCKDOWN WAS 5 ITA NO.2137/MUM/2017(A.Y.2010-11) FORCED DUE TO EXTRA ORDINARY CIRCUMSTANCES CAUSED B Y WORLD WIDE SPREAD OF COVID-19. THEREAFTER, THE LOCKDOWN WAS EXTENDED FROM TIME TO TIME. THEREFORE, THE PRONOUNCEMENT OF ORDER BEYOND THE PERIOD OF 90 DAYS FROM THE DATE OF HEARING IS NOT UNDER ORDINARY CIRCUMSTANCES. THE CO-ORDINATE BENCH OF THE TRIBUN AL IN THE CASE OF DCIT VS. JSW LTD., ITA NO.6264/MUM/2018 FOR A.Y 2013-14 DECIDED ON 14/05/2 020, UNDER IDENTICAL CIRCUMSTANCES, AFTER CONSIDERING THE PROVISIONS OF RULE 34(5) OF T HE ITAT RULES, 1963, JUDGEMENTS RENDERED BY HONBLE APEX COURT AND THE HONBLE BOMBAY HIGH C OURT ON THE ISSUE OF TIME LIMIT FOR PRONOUNCEMENT OF ORDERS BY THE TRIBUNAL AND THE CIR CUMSTANCES LEADING TO LOCKDOWN HELD:- 10. IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT RATHER THAN TAKING A PEDANTIC VIEW OF THE RULE REQUIRING P RONOUNCEMENT OF ORDERS WITHIN 90 DAYS, DISREGARDING THE IMPORTANT FACT THAT THE ENTI RE COUNTRY WAS IN LOCKDOWN, WE SHOULD COMPUTE THE PERIOD OF 90 DAYS BY EXCLUDING A T LEAST THE PERIOD DURING WHICH THE LOCKDOWN WAS IN FORCE. WE MUST FACTOR GROUND RE ALITIES IN MIND WHILE INTERPRETING THE TIME LIMIT FOR THE PRONOUNCEMENT OF THE ORDER. LAW IS NOT BROODING OMNIPOTENCE IN THE SKY. IT IS A PRAGMATIC TOOL OF THE SOCIAL OR DER. THE TENETS OF LAW BEING ENACTED ON THE BASIS OF PRAGMATISM, AND THAT IS HOW THE LAW IS REQUIRED TO INTERPRETED. THE INTERPRETATION SO ASSIGNED BY US IS NOT ONLY INCONS ONANCE WITH THE LETTER AND SPIRIT OF RULE 34(5) BUT IS ALSO A PRAGMATIC APPROACH AT A TI ME WHEN A DISASTER, NOTIFIED UNDER THE DISASTER MANAGEMENT ACT 2005, IS CAUSING UNPREC EDENTED DISRUPTION IN THE FUNCTIONING OF OUR JUSTICE DELIVERY SYSTEM. UNDOUBT EDLY, IN THE CASE OF OTTERS CLUB VS DIT [(2017) 392 ITR 244 (BOM)], HONBLE BOMBAY HIGH COURT DID NOT APPROVE AN ORDER BEING PASSED BY THE TRIBUNAL BEYOND A PERIOD OF 90 DAYS, BUT THEN IN THE PRESENT SITUATION HONBLE BOMBAY HIGH COURT ITSELF HAS, VID E JUDGMENT DATED 15TH APRIL 2020, HELD THAT DIRECTED WHILE CALCULATING THE TIME FOR DISPOSAL OF MATTERS MADE TIME- BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CONTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY . THE EXTRAORDINARY STEPS TAKEN SUO MOTU BY HONBLE J URISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT ALSO INDICATE THAT THIS PERIO D OF LOCKDOWN CANNOT BE TREATED AS AN ORDINARY PERIOD DURING WHICH THE NORMAL TIME LIMITS ARE TO REMAIN IN FORCE. IN OUR CONSIDERED VIEW, EVEN WITHOUT THE WORDS ORDINA RILY, IN THE LIGHT OF THE ABOVE ANALYSIS OF THE LEGAL POSITION, THE PERIOD DURING W HICH ITA NO. 6103 AND LOCKOUT WAS IN FORCE IS TO EXCLUDED FOR THE PURPOSE OF TIME LIM ITS SET OUT IN RULE 34(5) OF THE APPELLATE TRIBUNAL RULES, 1963. VIEWED THUS, THE EX CEPTION, TO 90-DAY TIME-LIMIT FOR PRONOUNCEMENT OF ORDERS, INHERENT IN RULE 34(5)(C), WITH RESPECT TO THE PRONOUNCEMENT OF ORDERS WITHIN NINETY DAYS, CLEARLY COMES INTO PLAY IN THE PRESENT CASE. OF COURSE, THERE IS NO, AND THERE CANNOT BE A NY, BAR ON THE DISCRETION OF THE BENCHES TO REFIX THE MATTERS FOR CLARIFICATIONS BEC AUSE OF CONSIDERABLE TIME LAG BETWEEN THE POINT OF TIME WHEN THE HEARING IS CONCL UDED AND THE POINT OF TIME WHEN THE ORDER THEREON IS BEING FINALIZED, BUT THEN, IN OUR CONSIDERED VIEW, NO SUCH EXERCISE WAS REQUIRED TO BE CARRIED OUT ON THE FACTS OF THIS CASE. 6 ITA NO.2137/MUM/2017(A.Y.2010-11) THUS, IN LIGHT OF ABOVE FACTS AND THE DECISION OF C OORDINATE BENCH, THE PRESENT ORDER IS PRONOUNCED BEYOND THE PERIOD OF 90 DAYS. 12. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS ON THE NOTICE BOARD. ORDER PRONOUNCED ON MONDAY THE 29 TH DAY OF JUNE, 2020. SD/- SD/- (G.MANJUNATHA) (VIKAS AW ASTHY) $ / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 2 #/ DATED 29/06/2020 VM , SR. PS(O/S) COPY OF THE ORDER FORWARDED TO : 1. ) / THE APPELLANT , 2. *+ / THE RESPONDENT. 3. 3+ ( )/ THE CIT(A)- 4. 3+ CIT 5. 45 *+# , . . . , / DR, ITAT, MUMBAI 6. 567 89 / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI