DEL MONTE FOODS INDIA P.LTD, MUMBAI V. ASST CIT 9(1), MUMBAI

ITA 2330/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1633 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 06-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2330/MUM/2014 ASSESSMENT YEAR 2008-09 M/S. DEL MONTE FOODS INDIA PVT. LTD., FLAT NO. 1, ADINARAYAN NAIKWADI, GOREGAON (E),MUMBAI- 400 063. VS. THE ACIT-9(1), MUMBAI ROOM NO. 223, AAYAKAR BHAWAN,M.K.ROAD, MUMBAI- 400 020 PAN/GIR NO. AACCD 0271 E APPELLANT ) .. RESPONDENT ) DATE OF HEARING: 22.11.2016 DATE OF PRONOUNCEMENT: 28. 11.2016 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2008-09. IT IS DIRECTED AGAINST THE ORDER OF COMMIS SIONER OF INCOME TAX (APPEALS)-10, MUMBAI AND ARISES OUT OF THE ORDER U/ S. 271 (1) (C) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE SOLE GROUND RAISED BY THE ASSESSEE IN THIS A PPEAL IS THAT THE AO, BEFORE LEVYING PENALTY U/S 271(1)(C), ERRED IN NOT APPRECIATING THAT ALL THE FACTS RELATING TO THE INTERNATIONAL TRANSACTIONS WH ICH ARE MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME HAVE BEEN FULLY DIS CLOSED BY THE APPELLANT AND THE EXPLANATIONS GIVEN BY THE APPELLANT WERE BO NA FIDE. IT IS FURTHER STATED THAT THE AO HAS ERRED IN NOT APPRECIATING TH AT MERE ADDITION TO THE INCOME OF ASSESSEE ON ACCOUNT OF TRANSFER PRICING A DJUSTMENT UNDER SECTION 92CA(3) CANNOT AUTOMATICALLY LEAD TO LEVY OF PENALT Y UNDER SECTION APPELLANT BY: SHRI DEVENDRA JAIN, AR RESPONDENT BY: SHRI M. MURLI, DR ITA NO. 2330/MUM/2014 2 271(1)(C). ALSO IT IS RAISED THAT THE AO HAS ERRED IN PLACING UNDUE RELIANCE ON THE FACT THAT THE APPELLANT COMPANY DID NOT CONT EST THE BASIC ADDITION OF RS. 56,21,491/- MADE U/S 92CA(3) OF THE ACT AND THA T THE AO OUGHT TO HAVE APPRECIATED THAT THE SUBJECT ADDITION WAS NOT CHALL ENGED SINCE IT WAS TAX NEUTRAL AND TO AVOID DELAYING THE PROCESS OF WINDIN G-UP ON ACCOUNT OF PENDING TAX ISSUES. 3 . IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSEE-CO MPANY IS ENGAGED IN BUSINESS OF PROCESSING AND MARKETING OF FRUITS AND VEGETABLE PRODUCTS IN THE FORM OF PULPS AND CONCENTRATES. IT FILED ITS RE TURN OF INCOME FOR THE A.Y. 2008-09 ON 29/09/2008 DECLARING TOTAL LOSS AT RS. 1 ,35,01,345/-. THE AO COMPLETE THE ASSESSMENTS U/S 143(3) ON 24/11/2011 A T A TOTAL LOSS OF RS. 78,79,854/-. IN THE ASSESSMENT ORDER THE AO MADE AN ADDITION OF RS. 56,21,491/- U/S 92CA(3) OF THE ACT. THEN THE AO INI TIATED PENALTY PROCEEDINGS U/S 271(1)(C). THEN CONSIDERING THE SUB MISSION MADE BY THE ASSESSEE DATED 29/05/2012, THE AO IMPOSED A MINIMUM PENALTY OF RS. 19,10,744/- U/S 271(1)(C) OF THE ACT. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A) AGAINST THE ORDER OF THE AO IMPOSING THE ABOVE PENALTY. THE LD. CIT(A) HAS DISMISSED THE SAID APPE AL. 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TS THAT THE DETAILS OF INTERNATIONAL TRANSACTION IN DISPUTE ARE AS UNDER : - PARTY STATUS SALE PRICE CHARGED REMARKS DEL MONTE FOODS INDIA PRIVATE LIMITED APPELLANT COMPANY TO AE-USD 1200PER MT GTL LTD. AE IN SINGAPORE TO ULTIMATE CUSTOMER-USD 1200 PER MT AE HAS NO MARGIN IN THE TRANSACTION AND ACCORDINGLY NO QUESTION OF UNDER INVOICING, CONTRAVENING TP PROVISIONS. M/S. DOHLER HOLLAND B.V. ULTIMATE CUSTOMER IN NETHERLANDS NA ITA NO. 2330/MUM/2014 3 4.1 IT IS FURTHER STATED THAT THE ASSESSEE-COMPANY HAD NO WORKING CAPITAL TO EXECUTE THE ORDERS FROM ULTIMATE CUSTOMER, THUS, THE ORDERS WERE ROUTED THROUGH GTL LTD. (SINGAPORE), ASSOCIATED ENTERPRISE (AE) OF THE ASSESSEE- COMPANY, FOR THE SAME ORDER VALUE. THUS, ASSESSEE-C OMPANY COULD GET WORKING CAPITAL FROM AE IN FORM OF CUSTOMER ADVANCE . TO TAKE CARE OF WORKING CAPITAL REQUIREMENT OF ASSESSEE-COMPANY, PU RCHASE ORDERS BY GTL WERE FINALISED IN MARCH 2007 ITSELF. IN VIEW OF PE CULIAR SITUATION IN WHICH ASSESSEE-COMPANY WAS OPERATING, IT HAD TO RAISE INV OICE ON AE INSTEAD OF ULTIMATE CUSTOMER AT SAME PRICE. THUS, ACTUAL SALE PRICE SHOULD ONLY BE CONSIDERED. THE SHORTFALL IN ALP WAS DUE TO DIFFERE NCE IN EXCHANGE RATE AT THE TIME OF OBTAINING PURCHASE ORDERS AND AT THE TI ME OF ACTUAL EXPORTS. 4.2 THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITS THAT ALL FACTS RELATING TO INTERNATIONAL TRANSACTION WHICH WERE MATERIAL TO COMPUTATION OF TOTAL INCOME HAD BEEN FULLY DISCLOSED. SAMPLE COPIES OF P URCHASE ORDER FROM AE TO ASSESSEE-COMPANY, FROM ULTIMATE CUSTOMER TO AE, INVOICE RAISED BY ASSESSEE-COMPANY ON AE, FORM 3CEB, DETAILED EXPLANA TIONS AS TO THE DETERMINATION OF ALP USING CUP METHOD WAS SUBMITTED TO LOWER AUTHORITIES. IN FACT, THE CUSTOMS DATA ON THE BASIS OF WHICH ADJUSTMENT IS MADE BY TPO, WAS FURNISHED BY THE APPELLANT ITSELF IN THE FORM 3CEB. 5. THE LD. DR SUPPORTS THE ORDER OF THE LD. CIT(A) UPHOLDING THE PENALTY OF RS. 19,10,744/- IMPOSED BY THE AO U/S 271(1)(C) OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS RELEVANT TO REFER HERE T HE ORDER OF THE TPO ON THE ABOVE ASPECTS. THE TPO WENT THROUGH THE INTERNATION AL TRANSACTIONS REPORTED BY THE ASSESSEE-COMPANY WITH ITS AES. THEN THE TPO ASKED THE ASSESSEE-COMPANY TO SHOW-CAUSE AS TO WHY TRANSFER P RICING ADJUSTMENT ITA NO. 2330/MUM/2014 4 SHOULD NOT BE MADE BASED ON CUSTOMS DATA AVAILABLE FROM OTHER CONCERNS DEALING IN THE SAME PRODUCTS. THE TPO HAS MENTIONE D THAT IN RESPONSE TO THE SHOW-CAUSE, THE ASSESSEE HAD SUBMITTED DOCUMENT S AND EVIDENCES EXPLAINING THE LOGIC FOR THE ADJUSTMENTS MADE TO TH E CUSTOMS DATA TO ARRIVE AT THE ARMS LENGTH PRICE. THE TPO HAS ALSO MENTIONE D AT PARA 5 OF HIS ORDER DATED 31/03/2011 THAT AS PER THE ASSESSEES SUBMISS ION OF FORM -3CEB, THERE WAS SHORT FALL IN THE VALUE OF INTERNATIONAL TRANSACTIONS AS PER THE FOLLOWING DETAILS. S. NO. NATURE OF INTERNATIONAL TRANSACTION VALUE OF SALE TO GTL LTD. (RS. CR.) COMPARABLE VALUE (RS. CR.) VALUE OF SALE TO DMPI (RS. CR.) COMPARABLE VALUE (RS. CR.) SHORTFALL (RS. CR) 1 SALE OF TOTAPURI MANGO PUREE (TMP) 3.83 3.79 - - - 2 SALE OF MANGO PUREE (AMP) 4.99 5.55 - - 0.56 3 SALE OF SINDURA MANGO PUREE (SMP) 0.39 0.30 - - - 4 SALE OF TOTAPURI MANGO CONCENTRATE (TMC) 0.16 0.17 - - 0.00 5 SALE OF WHITE GUAVA PUREE (WGP) 0.16 0.15 0.31 0.27 - TOTAL 0.56 6.1 THE TPO HAS ALSO MENTIONED THAT THE ASSESSEE H AD EXPLAINED THAT THE PURCHASE ORDERS FROM GTL LTD. WERE RECEIVED MUCH BE FORE THE MANGO SEASON, TO HELP IT TO GET CUSTOMER ADVANCE FOR FUND ING ITS WORKING CAPITAL, BY ARRIVING AT THE SALE PRICE USING EXCHANGE RATE P REVALENT AT THAT TIME, WHILE AT THE TIME OF ACTUAL EXPORTS THE RUPEE HAD A PPRECIATED VERY MUCH, EFFECTING THE VALUES IN INDIAN RUPEES, AND HENCE TH E SHORTFALL AS COMPARED TO ALP. 6.2 WE FIND THAT THE ASSESSEE-COMPANY HAS PROVED TH AT THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRANSACTION WAS COMPUTE D IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C AND IN THE MANNER PRE SCRIBED UNDER THAT SECTION IN GOOD FAITH AND WITH DUE DILIGENCE. ALSO THE ASSESSEE-COMPANY HAD ITA NO. 2330/MUM/2014 5 FURNISHED ALL THE REQUIRED DETAILS CALLED FOR FROM TIME TO TIME, AND HAD DISCLOSED ALL MATERIAL FACTS BEFORE THE TPO. BEING A DEEMING FICTION EXPLANATION 7 TO SECTION 271 (1) (C ) CANNOT APPLY WHEN THE TRANSFER PRICE IS COMPUTED IN THE PRESCRIBED MANNER IN GOOD FAITH AND WITH DUE DILIGENCE. 7. IN VIEW OF THE FORGOING REASONS, THE ORDER OF TH E LD. CIT(A) UPHOLDING ORDER OF PENALTY OF RS.19,10,744/- IMPOSED BY THE AO IS CANCELLED. 8. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/11/2016 SD/- SD/- (JOGINDER SINGH) (N.K. PR ADHAN) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI; DATED: 28/11/2016 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI PRAMILA