DCIT, CHENNAI V. M/s. Oracle Trading Company Pvt. Ltd., Kancheepuram

ITA 2274/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8079 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 01-08-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: N SUNDAR
• Keywords: Transfer pricing
• Section: 154; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , !.. # $% , & '( ) [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. S. SUNDER SINGH, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2274/MDS/2016 / ASSESSMENT YEAR : 2007-08 THE DY. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 5(1) CHENNAI VS. M/S ORACLE TRADING COMPANY PVT. LTD MO.50, THIRUPORUR ROAD KAYARAMBEDU VILLAGE GUDUVANCHERRY KANCHEEPURAM DISTRICT 603 202 [PAN AAACO 3241 N ] ( *+ / APPELLANT) ( ,-*+ /RESPONDENT) / APPELLANT BY : SHRI SUPRIYOPAL, JCIT /RESPONDENT BY : SHRI N. SUNDAR, CA / DATE OF HEARING : 20 - 10 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 11 - 2016 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3, CHENNA I, DATED 31.3.2016 FOR ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING A LOSS OF ` 3,11,77,116/-. THE ASSESSEE WAS CARRYING ON THE B USINESS OF ITA NO. 2274/16 :- 2 -: MANUFACTURING AND EXPORT OF PAPPADUMS, VEGETABLES A ND FRUITS. THE ASSESSEE IS HAVING TWO UNITS ONE UNIT IS 100% EXPOR T ORIENTED UNIT(EOU) AND ANOTHER UNIT IS NON-EOU. IN THE CASE OF EOU, THE ASSESSEE IS SHOWING HUGE PROFITS WHEREAS IN NON-EOU UNIT, THE ASSESSEE IS SHOWING SUBSTANTIAL LOSSES ON SIMILAR B USINESS. SINCE THE ASSESSEE HAS ENTERED INTO AN INTERNATIONAL TRANSACT IONS, THE CASE WAS REFERRED TO THE TPO TO DETERMINE THE ALP OF EOU. T HE ASSESSEE HAS DECLARED THE SALES OF ` 4,08,72,530/- AND THE TPO DETERMINED THE ALP AT ` 2,77,21,753/- THERE BY MAKING DOWANWARD ADJUSTMENT OF THE TURNOVER TO THE EXTENT OF `1,31,50,777/-. THE ASSESSING OFFICER TREATED THE DIFFERENCE OF ` 1,31,50,777/- AS INCOME FROM OTHER SOURCES AND BROUGHT TO TAX. 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE WENT ON APPEAL BEFORE THE CIT(A). THE LD. CIT(A) DELETED THE ADDITION. THE LD. CIT(A) HAS OBSERVED THAT TH E ASSESSING OFFICER HAS NOT UNDERSTOOD THE CALCULATION GIVEN BY THE TPO WHILE DETERMINING THE ALP. THE TPO HAS OBSERVED THAT IT IS ONLY AN A RITHMETICAL MEANS OF THE PLI OF THE COMPARABLE COMPANIES RATHER THE ALP REPORTED BY THE ASSESSEE IS HIGHER THAN THE ARITHMETICAL MEAN OF THE PLI OF THE COMPARABLE COMPANIES AND HENCE THERE IS NO UPWARD A DJUSTMENT BY THE TPO AND FURTHER THERE IS NO UPWARD ADJUSTMENT B Y THE TPO, THE ASSESSING OFFICER SHOULD HAVE ADOPTED THE ALP AS RE PORTED BY THE ITA NO. 2274/16 :- 3 -: ASSESSEE IN ITS TRANSFER PRICING REPORT. THE LD.CI T(A) HAS ALSO RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF TWE EZERMAN INDIA PVT LTD VS ACIT, REPORTED IN TAXINTERNATIONAL.COM 2010- TII-45 ITAT-MAD- TP. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE DEPARTMEN T IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. DR RELIED ON THE ASSESSMENT ORDER. 6. ON THE OTHER HAND, THE LD. AR APPEARING FOR THE AS SESSEE SUBMITTED THAT THE FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER HAS NOT MADE ANY ADJUSTMENT IN ALP HAVING E FFECT ON TURNOVER. THE A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS F ILED AN APPLICATION BEFORE THE TPO U/S 154 ON 9.12.2010 AND THE TPO HA S PASSED ORDER U/S 154 DATED 14.2.2011 WHEREIN SHE HAS STATED IN P ARA 2 AS UNDER: 2. APPLICABILITY OF SECTION 92(3) THE ASSESSEE HAS STATED VIDE PARA 7 OF ITS APPLICATION DATED 6.12.10 THAT IN TPO'S ORDER, TPO HAS DETERMINED THE LESS ARM'S LENGTH PRICE WHILE COMPAR ED TO THE ARM'S LENGTH PRICE REPORTED BY THE ASSESSEE IN THE CASE OF FRUITS AND VEGETABLES. AS A RESULT, THE RE HAS BEEN REDUCTION IN TURNOVER BY RS.128059979/- WHICH HAS A CASCADING EFFECT OF REDUCTION IN INCOME WHICH VIO LATES THE PROVISIONS OF SECTION 92 (3) OF THE ACT. I, AS A TPO, IN THE ORDER U/S 92 CA (3) DATED 28.10.10, DETERMINED THE ARMS LENGTH PRICE OF ASSOCIATED ENTERPRISE TRANSACTION OF FRUITS AND VEGETABLES AT RS.27721753/-, ONLY BY CONSIDERING TH E ARITHMETIC MEAN OF PROFIT LEVEL INDICATOR OF ITA NO. 2274/16 :- 4 -: COMPARABLES OF THE ASSESSEE COMPANY AND ALSO I HAVE NOT RECOMMENDED FOR ANY ADJUSTMENT LEADING TO REDUCTION OF TURNOVER AS STATED BY YOU IN YOUR APPLICATION U/S. 154. I HAVE MERELY DETERMINED THE ARM'S LENGTH PRICE OF YOUR SALE OF FRUITS AND VEGET ABLES TO THE ASSESSEE'S ASSOCIATED ENTERPRISE IN THE LIGH T OF THE ARITHMETIC MEAN OF PROFIT LEVEL INDICATOR OF ASSESSEE'S COMPARABLES, HENCE THERE IS NO VIOLATION OF PROVISIONS OF SECTION 92 (3) OF THE ACT AS POINTED OUT BY THE ASSESSEE. 7. THEREFORE, THE LD. AR ARGUED THAT THE TPO HAS NOT M ADE ANY DOWNWARD ADJUSTMENT OF THE TURNOVER AND HENCE, THE ACTION OF THE ASSESSING OFFICER IN REDUCING THE TURNOVER AND TAXI NG THE DIFFERENCE IN INCOME FROM OTHER SOURCES IS ILLEGAL REQUIRED TO BE DELETED. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL PLACED BEFORE US. WE FIND THAT THE ORDER PASSED U /S 154 BY THE TPO WAS NOT CONSIDERED BY THE ASSESSING OFFICER AS WELL AS BY THE CIT(A). THE TPO HAS GIVEN A FINDING IN THE ORDER U/S 154 T HAT SHE HAS NOT RECOMMENDED DOWNWARD ADJUSTMENT OF THE TURNOVER. TH EREFORE, WE DEEM IT FIT TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE ORDER U/S 154 DATED 14.2.2011 PASS ED BY THE TPO AND PASS AN APPROPRIATE ORDER ON MERITS AFTER GIVING OP PORTUNITY TO THE ASSESSEE. ITA NO. 2274/16 :- 5 -: 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . . # $% ) (D.S. SUNDER SINGH) & / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH NOVEMBER, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF