M/s. Reitzel India Private Limited, Tumkur V. Assistant Commissioner Of Income Tax, Circle-5(1)(1), Bangalore

ITA 2341/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7007 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 11-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: MAHAVEER C. JAIN
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IT(TP)A NO.2341/BANG/2019 M/S. REITZEL INDIA PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.2341/BANG/2019 ASSESSMENT YEAR : 2015-16 M/S. REITZEL INDIA PVT. LTD. PLOT NO.98-99, KIADB INDUSTRIAL AREA KUNIGAL TUMKUR 572126 KARNATAKA PAN NO : AACCR4566P VS. ACIT CIRCLE-5(1)(1) BANGALORE APPELLANT RESPONDENT A PPELLANT BY : SHRI MAHAVEER C. JAIN, A.R. RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, D.R. DATE OF HEARING : 24.08.2021 DATE OF PRONOUNCEMENT : 26.08.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER DATED 26-09-2019 PASSED BY THE ASSESSING OFFI CER (AO) FOR ASSESSMENT YEAR 2015-16 U/S 143(3) R.W.S. 144C(13) OF THE INCOME- TAX ACT,1961 ['THE ACT' FOR SHORT] IN PURSUANCE OF DIRECTIONS GIVEN BY LD DISPUTE RESOLUTION PANEL (DRP). 2. ALL THE ISSUES URGED BY THE ASSESSEE RELATE TO THE TRANSFER PRICING ADJUSTMENTS MADE BY THE AO. IT(TP)A NO.2341/BANG/2019 M/S. REITZEL INDIA PVT. LTD., BANGALORE PAGE 2 OF 6 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF G ROWING, PROCESSING AND EXPORTING A VEGETABLE CALLED GHERKINS TO ITS AS SOCIATED ENTERPRISES (AE). AS PER THE ORDER OF TRANSFER PRI CING OFFICER (TPO), THE ASSESSEE HAS EXPORTED PICKLED GHERKINS AND PRES ERVED GHERKINS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS EXPORTED GHERKINS FOR A SUM OF RS.90.78 CRORES TO ITS AE AND ALSO PAID FEE FOR TECHNICAL SERVICES OF RS.2.32 CRORES. THE ASSESSEE ADOPTED TNMM METHOD TO BENCH MARK ITS INTERNATIONAL TRANSACTIONS . THE PROFIT LEVEL INDICATOR (PLI) WAS ADOPTED AS OPERATING PROFIT/OPE RATING COST. THE TPO REJECTED THE T P STUDY CONDUCTED BY THE ASSESSE E. THE TPO SELECTED EIGHTEEN COMPARABLE COMPANIES BY APPLYING VARIOUS FILTERS. THE 35 TH PERCENTILE MARGIN OF COMPARABLE COMPANIES WORKED O UT TO 9.14%, WHICH WAS MORE THAN THE PLI DECLARED BY THE ASSESSEE. HENCE THE TPO HELD THAT THE TRANSFER PRICING ADJUSTMENT I S CALLED FOR. THE MEDIAN MARGIN OF COMPARABLE COMPANIES WAS 9.43%. ACCORDINGLY, THE PRESCRIBED FORMULA, THE TPO MADE TRANSFER PRICI NG ADJUSTMENT OF RS.8,99,22,585/-. THE TPO ALSO MADE TRANSFER PR ICING ADJUSTMENT OF RS.1,66,592/- ON ACCOUNT OF DELAYED RECEIVABLES. THE SAME WAS CONFIRMED BY LD DRP. 4. THE LD A.R SUBMITTED THAT COMPARABLE COMPANIE S SELECTED BY THE LD TPO ARE ENGAGED IN FOOD PROCESSING, WHICH IS TOTALLY DIFFERENT FROM GHERKINS (VEGETABLE) PROCESSED & EXPORTED BY T HE ASSESSEE. HE FURTHER SUBMITTED THAT THE TPO SHOULD HAVE SELECTED COMPANIES ENGAGED IN PROCESSING AND EXPORT OF GHERKINS FOR TH E PURPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY. HE SUBMITTED THAT THE ASSESSEE IS A MEMBE R OF M/S INDIAN GHERKIN EXPORTERS ASSOCIATION AND FOLLOWING COMPANI ES, WHO ARE MEMBERS OF THE ABOVE SAID ASSOCIATION, ARE CARRYING ON IDENTICAL BUSINESS ACTIVITIES:- IT(TP)A NO.2341/BANG/2019 M/S. REITZEL INDIA PVT. LTD., BANGALORE PAGE 3 OF 6 1. VRD BEST FOODS LTD. 2. BNAZRUM AGRO EXPORTS PVT. LTD. 3. GARDEN CITY AGRO EXPORTS PVT. LTD. 4. GOOD GREENS INDIA PVT. LTD. 5. INDUS VEGPRO PVT. LTD. 6. EXOTIC AGRO PVT. LTD. 7. GREEN AGRO PACK PVT. LTD. 8. GREEN PICKLES PVT. LTD. 9. KEN AGRITECH LTD. 10. KOELEMAN INDIA PVT. LTD. 11. NEO FOODS PVT. LTD. 12. UNICORN PICKLES PVT. LTD. 13. RIVIANA FOODS PVT. LTD. 14. RAJSHREE INDUSTRIAL AND COMMERCIAL CO. PVT. LTD. 5. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS G ATHERED ANNUAL REPORTS OF THE ABOVE SAID COMPANIES. ACCORDINGLY, HE SUBMITTED THAT THE TPO MAY BE DIRECTED TO BENCH MARK THE INTERNATI ONAL TRANSACTIONS BY CONSIDERING THE ABOVE SAID COMPANIE S AS COMPARABLE COMPANIES. 6. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS F OLLOWED NET COST PLUS MARGIN METHOD, BUT THE ASSESSEE IS AGREEING FO R ADOPTING TNM METHOD. 7. THE LD A.R FURTHER SUBMITTED THAT THE TPO DI D NOT CONSIDER EXPORT INCENTIVES AS PART OF OPERATING INCOME, WHIL E COMPUTING MARGINS. HE SUBMITTED THAT THE EXPORT INCENTIVES A RE PART OF OPERATING INCOME AS PER THE DECISION RENDERED BY HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. WELSPUN ZUCCHI TE XTILES LTD (391 ITR 211). HE FURTHER SUBMITTED THAT THE SCRAP SALE S RECEIPTS HAVE IT(TP)A NO.2341/BANG/2019 M/S. REITZEL INDIA PVT. LTD., BANGALORE PAGE 4 OF 6 BEEN HELD BY THE TPO AS NON-OPERATING INCOME. HE S UBMITTED THAT THE SCRAP IS GENERATED OUT OF ITS BUSINESS ACTIVITI ES ONLY. ACCORDINGLY, HE PRAYED THAT THE AO/TPO MAY BE DIRECTED TO WORK O UT PLI BY TAKING EXPORT INCENTIVES AND SCRAP SALES RECEIPTS AS PART OF OPERATING INCOME. 8. THE LD A.R FURTHER SUBMITTED THAT THE TPO HA S CONSIDERED OUTSTANDING RECEIVABLES DUE FROM AE AS AN INTERNAT IONAL TRANSACTION. HE SUBMITTED THAT THE SAME CANNOT BE CONSIDERED AS INTERNATIONAL TRANSACTION. 9. HE SUBMITTED THAT THE CO-ORDINATE BENCH HAS CONSIDERED IDENTICAL ISSUES IN THE ASSESSEES OWN CASE RELATIN G TO AY 2014-15 IN IT(TP)A NO.3329/BANG/2018 DATED 08.11.2019 AND THE MATTER RELATING TO TRANSFER PRICING ADJUSTMENT HAS BEEN RE STORED TO THE FILE OF AO/TPO FOR EXAMINING IT AFRESH. 10. WE HEARD LD D.R AND PERUSED THE RECORD. W E FIND MERIT IN THE PRAYER OF THE ASSESSEE TO CONSIDER THE COMPANIE S, WHICH ARE ENGAGED IN THE SIMILAR LINE OF BUSINESS IN THE VERY SAME PRODUCT, AS COMPARABLE COMPANIES. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE COMPARABLES SELECTED BY TPO ARE ENGAGED IN DIFFEREN T ACTIVITIES, THOUGH THEY ARE ENGAGED IN FOOD PROCESSING ONLY. T HE LD A.R SUBMITTED THAT THE ASSESSEE HAS ALREADY GATHERED AN NUAL REPORTS OF COMPANIES DEALING IN THE VERY SAME PRODUCT, I.E., G HERKINS DEALT WITH BY THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW T HAT THE ISSUE RELATING TO BENCH MARKING OF INTERNATIONAL TRANSACT IONS OF EXPORT OF GHERKINS REQUIRES FRESH EXAMINATION AT THE END OF T HE AO/TPO BY CONSIDERING THE FRESH COMPARABLE COMPANIES CITED AB OVE. IT(TP)A NO.2341/BANG/2019 M/S. REITZEL INDIA PVT. LTD., BANGALORE PAGE 5 OF 6 11. THE ISSUE RELATING TO EXPORT INCENTIVES, I .E., WHETHER THEY ARE PART OF OPERATING INCOME OR NOT HAS SINCE BEEN SETT LED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF WELSPUN ZUCCHI TEX TILES LTD (SUPRA). ACCORDINGLY, WE DIRECT THE AO/TPO TO CONS IDER EXPORT INCENTIVES AS PART OF OPERATING INCOME. IF SCRAPS A RE GENERATED DURING THE COURSE OF PROCESSING OF GHERKINS, WE DO NOT FIN D ANY REASON NOT TO CONSIDER IT AS PART OF OPERATING PROFIT. ACCORD INGLY, WE DIRECT THE AO/TPO TO TAKE SCRAP SALES AS PART OF OPERATING INC OME, IF THE SCRAP IS GENERATED DURING OUT OF ITS BUSINESS ACTIVITIES. 12. THE NEXT ISSUE CONTESTED BY THE ASSESSEE I S WHETHER THE OUTSTANDING RECEIVABLES DUE FROM AE IS AN INTERNATI ONAL TRANSACTION OR NOT. SINCE WE ARE RESTORING MAIN ISSUE TO THE F ILE OF AO/TPO, WE RESTORE THIS ISSUE ALSO TO THE FILE OF AO/TPO FOR E XAMINING IT AFRESH. 13. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SE T ASIDE THE ORDER PASSED BY THE AO ON THE ABOVE SAID ISSUES AND RESTO RE THEM TO THE FILE OF AO/TPO. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUG, 2021 SD/- (GEORGE GEORGE K. ) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 26 TH AUG, 2021. VG/SPS IT(TP)A NO.2341/BANG/2019 M/S. REITZEL INDIA PVT. LTD., BANGALORE PAGE 6 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.