M/s Indian Explosives Private Limited, Kolkata V. DCIT, Cir-11(1), Kolkata, Kolkata

ITA 2336/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6175 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 13-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Keywords: Transfer pricing; International transaction; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA B BENCH, KOLKATA [BEFORE SRI S.S. GODARA, JUDICIAL MEMBER& SRI M. BALAGANESH, ACCOUNTANT MEMBER] I.T.A. NO. 2336/KOL/2016 ASSESSMENT YEAR: 2012-13 INDIAN EXPLOSIVES P. LTD.......................................APPELLANT 16C, BEPIN PAUL ROAD KOLKATA 700 026 [PAN: AAACI 6548 N] DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(1), KOLKATA............RESPONDENT APPEARANCES BY: SHRI RAHUL AGARWAL, CA, APPEARED ON BEHALF OF THE ASSESSEE. SHRI S. DASGUPTA, ADDL. CIT, DR APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JUNE 21 ST ,2018 DATE OF PRONOUNCING THE ORDER : JULY 13 TH ,2018 ORDER PER S.S. GODARA, JM :- THIS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2012-13 ARISES AGAINST THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1) KOLKATAS ASSESSMENT ORDER DATED 30/09/2016 MAKING TRANSFER PRICING ADJUSTMENT OF RS.1,78,49,737/- IN RESPECT OF ITS ROYALTY PAYMENT MADE TO ASSOCIATE ENTERPRISE NAMELY M/S. ORICA INTERNATIONAL PTE. LTD., SINGAPORE TO THE TUNE OF ABOVE STATED AMOUNT BY TAKING NIL ALP AS WELL AS DISALLOWING PROVISION FOR LEAVE ENCASHMENT OF RS.11,03,341/- U/S 43B(F), INVOLVING PROCEEDINGS U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT). 2. BOTH THE LEARNED REPRESENTATIVES INFORM US DURING THE COURSE OF HEARING THAT WE HAVE ALREADY HEARD THESE TWO ISSUES OF NIL ALP IN CASE OF THE VERY PAYEE M/S. ORICA INTERNATIONAL PTE LTD. SINGAPORE GIVING RISE OF IDENTICAL ADJUSTMENT AS WELL AS LEAVE ENCASHMENT PROVISION DISALLOWANCE IN ASSESSEES APPEALS IN ITA NO.418/KOL/2015 & ITA NO. 85/KOL/2016 ON 24.05.2018 . THEY ARE VERY FAIR IN STATING THAT WHATEVER IS THE OUTCOME OF THE TWO ISSUES THEREIN WOULD APPLY MUTATIS MUTANDIS IN THE INSTANT APPEALS. 2 I.T.A. NO. 2336/KOL/2016 ASSESSMENT YEAR: 2012-13 INDIAN EXPLOSIVES P. LTD 3. WE KEEP IN MIND THIS FAIR STAND OF THE PARTIES AND NOTICE THAT OUR DETAILED DISCUSSION IN THE SAID TWO CASES ACCEPTS THE ASSESSEES GRIEVANCE THEREBY DELETING THE ARMS LENGTH PRICE ADJUSMENT IN QUESTION READING AS UNDER:- 4. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE SHORT QUESTION THAT ARISES FOR OUR APT ADJUDICATION IS AS TO WHETHER ACTION OF THE LOWER AUTHORITIES RIGHT FROM THE TPO, DRP TO ASSESSING OFFICER HOLDING THE ASSESSEE NOT TO HAVE DERIVED ANY TANGIBLE AND COMMENSURATIVE BENEFIT OF PAYING ANY OF THE INTEREST SALES THEREBY CULMINATING IN THE IMPUGNED ADJUSTMENT OF THE ENTIRE PAYMENT OF RS.16,24,110/- IS SUSTAINABLE OR NOT. LEARNED CIT D/R VEHEMENTLY SUPPORTS THE ABOVE EXTRACTED FINDINGS UNDER CHALLENGE THAT THE PAYEES PRODUCTS IN QUESTION HAD LONG BEEN ESTABLISHED IN INDIA. HE POINTS OUT THE FACT THAT THIS IS THE FIRST YEAR OF THE IMPUGNED ROYALTY OUTGO FORMING THE POINT OF DISPUTE AS INTERNATIONAL TRANSACTION UNDER THE ACT. WHEREAS THE ASSESSEE HAD BEEN USING THE VERY BRAND NAME/TRADEMARK IN THE PAST WITHOUT INCURRING ANY SUCH EXPENDITURE. HE TERMS THE LOWER AUTHORITIES ACTION UNDER CHALLENGE TO BE STRICTLY AS PER LAW. WE SEE NO REASON TO ACCEPT THE SAME. HONBLE DELHI HIGH COURTS JUDGEMENT IN COMMISSIONER OF INCOME-TAX V. EKL APPLIANCES LTD. [2012] 24 TAXMANN.COM 199 (DELHI), AS WELL AS THIS TRIBUNALS DECISION IN DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1), KOLKATA V. LANDIS+ GYR LTD. [2017] 86 TAXMANN.COM 109 (KOLKATA - TRIB.), DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), HYDERABAD V. AIR LIQUIDE ENGINEERING INDIA (P.) LTD. [2014] 43 TAXMANN.COM 299 (HYDERABAD - TRIB.), DRESSER- RAND INDIA (P.) LTD. V. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE - 6(2), MUMBAI [2011] 13 TAXMANN.COM 82 (MUMBAI) INTERALIA CONCLUDE THAT CHAPTER-X, PROVISIONS IN THE ACT DO NOT REQUIRE THE TAX PAYER TO PROVE ANY EXPENDITURE TO HAVE BEEN INCURRED OUT OF NECESSITY OR FOR THE PURPOSE OF BUSINESS OR THAT IT SHOULD ACTUALLY RESULT IN PROFITS, AN ALP CANNOT BE NIL AMOUNT WHERE THE TPOS ORDER NOWHERE RECORDS THAT THE RELEVANT CONDITIONS INCORPORATED IN SECTION 92C(3) OF THE ACT, ARE SATISFIED, THE TPO WOULD NOT SIT IN JUDGEMENT ON A TAXPAYERS BUSINESS EXPEDIENCY SO AS TO CONCLUDE ITS ALP OF INTERNATIONAL TRANSACTIONS AS UNREASONABLE THEREBY ADOPTING NIL ALP AND THAT IT IS WHOLLY IRRELEVANT THAT THESE ARE NO CORRESPONDING BENEFIT SINCE THE REAL QUESTION IN TRANSFER PRICING REGIME IS AS TO WHAT WOULD BE THE PRICE TO BE PAID BY AN INDEPENDENT ENTERPRISE VIS--VIS THE ONE SHOWN BY THE CONCERNED TAX PAYER; RESPECTIVELY. THE VERY LEGAL POSITION IS REITERATED IN TRIBUNALS OTHER DECISIONS IN MERCK LTD. VS. DCIT 2016 139 DTR 1 (MUM.), AS WELL AS IN L.K. INDIA PVT. LTD. VS DY.CIT, CIRCLE-1(2)IN ITA NO. 209/AHD/2015, DECIDED ON 31 ST MAY, 2017. THE CO-ORDINATE BENCH(ES), HOLD THEREIN THAT IT IS AN ASSESSEES CALL AS TO WHETHER OR NOT THE SERVICES AVAILED IN QUESTION ARE COMMERCIALLY EXPEDIENT RENDERING SAME BENEFITS BEING DERIVED FROM ITS BUSINESS. 4.1 WE KEEP IN MIND THE SAID CASE-LAW TO REVERT BACK TO THE RELEVANT FACTS BEFORE US. IT IS CLEAR FIRST OF ALL THAT THE LOWER AUTHORITIES HAVE BEEN VERY FAIR IN NOT HOLDING THE ASSESSEES ROYALTY TRANSACTIONS TO BE A SHAM ONES. THEY HAVE APPLIED BENEFIT AND COMMERCIAL EXPEDIENCY TEST IN THE INSTANT CASE WHILST COMPUTING NIL ALP. WE SEE NO REASON TO APPROVE THE SAME THESE TWO TESTS OF BENEFITS AND COMMERCIAL EXPEDIENCY ARE NOT TO BE INVOKED AS PER THE ABOVE LEGAL POSITION. THE IMPUGNED ACTION OF THE LOWER AUTHORITIES UNDER CHALLENGE IS THEREFORE HELD TO BE NOT SUSTAINABLE. 5. NEXT COMES THE QUANTIFICATION ASPECT OF THE IMPUGNED ALP. THE TPO ADMITTEDLY APPLIED CUP' METHOD IN HIS ORDER (SUPRA). HE APPEARS TO HAVE TREATED THE TAX PAYER ITSELF AS A VALID COMPARABLE AS IT HAD NOT PAID ANY ROYALTY TO THE VERY PAYEE IN EARLIER ASSESSMENT YEARS. THIS MADE HIM TO ADOPT NIL PRICE OF THE IMPUGNED ROYALTY SO AS TO MAKE THE ADJUSTMENT IN QUESTION. WE SEE NO REASON TO CONCUR WITH SUCH A COURSE OF ACTION SINCE THE ASSESSEE ITSELF HAVING PAID NIL AMOUNT IN THE PAST TO THE AE, CANNOT BE TAKEN AS A VALID COMPARABLE. THIS TRIBUNAL IN THE CASE OF TECHNIMONT ICB INDIA (P) LTD. V. ADDL. CIT (2012) 138 ITD 23(MUMBAI TM) HAS CONCLUDED LONG BACK THAT A TRANSACTION BETWEEN PAYEE AND ITS AE IS NOT AN UNCONTROLLED ONE SO AS TO BE TAKEN AS A COMPARABLE. WE ACCEPT THE ASSESSEES INSTANT FIRST SUBSTANTIVE GROUND BOTH ON LEGALITY AS WELL AS ON QUANTIFICATION THEREFORE. THE IMPUGNED ALP ADJUSTMENT STANDS DELETED ACCORDINGLY. 3 I.T.A. NO. 2336/KOL/2016 ASSESSMENT YEAR: 2012-13 INDIAN EXPLOSIVES P. LTD WE THEREFORE FOLLOW JUDICIAL CONSISTENCY IN FACTS OF THE INSTANT CASE SINCE IT HAS ALREADY COME ON RECORD THAT THERE IS NO DISTINCTION IN FACTS OR LAW INVOLVED HEREIN. THE ASSESSEE SUCCEEDS IN ITS FORMER SUBSTANTIVE GROUND AND THE IMPUGNED ADJUSTMENT OF RS.1,78,49,737/- IS DELETED. 5. BOTH THE LEARNED REPRESENTATIVES NEXT CONTENTION IS THAT WE HAVE RESTORED THE ABOVE LATTER ISSUE OF LEAVE ENCASHMENT PROVISION DISALLOWANCE TO ASSESSING OFFICER IN THE SAID FORMER ASSESSMENT YEAR AS FOLLOWS:- 6. BOTH THE LEARNED REPRESENTATIVES STATE QUA THE ASSESSEES NEXT SUBSTANTIVE GRIEVANCE WITH REGARD TO THE LEAVE ENCASHMENT PROVISION OF RS. 15,97,944/- MADE U/S 43B(F) OF THE ACT DESERVES TO BE REMITTED BACK TO THE ASSESSING OFFICER FOR TAKING A FRESH CALL AFTER THE HONBLE APEX COURTS DECISION IN THE REVENUES SPECIAL LEAVE PETITION CONVERTED TO APPEAL STAYING OPERATION OF HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN EXIDE INDUSTRIES LTD. VS. UOI, 292 ITR 470, DELETING IDENTICAL DISALLOWANCE AS WELL AS HOLDING THE STATUTORY PROVISION ITSELF TO BE UNCONSTITUTIONAL. WE ACCEPT THIS FAIR STAND AND DIRECT THE ASSESSING OFFICER TO KEEP THE INSTANT ISSUE IN ABEYANCE TO BE DECIDED AFTER THE HONBLE APEX COURTS FINAL VERDICT IN THE DEPARTMENTS APPEAL HEREINABOVE. THIS SECOND SUBSTANTIVE GROUND IS TAKEN AS ALLOWED FOR STATISTICAL PURPOSES. 6. WE THEREFORE FOLLOW JUDICIAL CONSISTENCY IN FACTS OF THE INSTANT ISSUE AS WELL SINCE IT HAS COME ON RECORD THAT THERE IS NO DISTINCTION IN FACTS OR LAW INVOLVED HEREIN. THE ASSESSEE SUCCEEDS IN ITS INSTANT SUBSTANTIVE GROUND FOR STATISTICAL PURPOSES. 7. THIS ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED. KOLKATA, THE 13 TH DAY OF JULY, 2018. SD/- SD/- [M. BALAGANESH] [ S.S. GODARA ] ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATED : 13.07.2018 {SC SPS} 4 I.T.A. NO. 2336/KOL/2016 ASSESSMENT YEAR: 2012-13 INDIAN EXPLOSIVES P. LTD COPY OF THE ORDER FORWARDED TO: 1. INDIAN EXPLOSIVES P. LTD 16C, BEPIN PAUL ROAD KOLKATA 700 026 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(1), KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES