ACIT Rg. - 16(2), MUMBAI V. M/s. IMPEX ASSOCIATES, MUMBAI

ITA 2347/MUM/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7857 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 30-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 17-04-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARSI PRASAD
• Assessee Lawyers: VIJAY KUMAR S BIYANI
• Keywords: Transfer pricing; International transaction
• Section: 80HHC

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI D. MANMOHAN (VP) AND SHRI RAJENDRA SIN GH(AM) ITA NO.2347/M/2006 ASSESSMENT YEAR 2002-03 THE ACIT RANGE 16(2), MATRU MANDIR, M/S. IMPEX ASS OCIATES TARDEO ROAD, MUMBAI 400 007. 302, DHARAM PALACE HUGHES ROAD, MUMBAI 400 026. PAN : AAFI 0610 E APPELLANT RESPONDENT REVENUE BY : SHRI ARSI PRASAD ASSESSEE BY : SHRI VIJAY KUMAR S.BIYANI O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 31.1.2006 OF CIT(A) FOR ASSESSMENT YEAR 2002-03. THE REVENUE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING ADDITION OF RS.68 ,08,879/- MADE BY THE AO ON ACCOUNT OF INTERNATIONAL TRANSACTIONS WITH ASSOC IATED ENTERPRISES AS PER THE ORDER OF THE TPO. THE TPO HAD ADOPTED ENTERPRISES L EVEL OPERATING MARGINS AS TNMM FOR THE PURPOSE OF COMPARISON. IN APPEAL CIT(A ) AFTER DETAILED EXAMINATION NOTED THAT PROFIT MARGIN OF COMPARABLE CASES TO SALES WORKED OUT TO 5.46% AND TO COST AT 5.80% AND OPERATING PROFIT TO SALES AT 6.45% AND OPERATING PROFIT TO COST AT 6.46% ADMITTED BY THE A SSESSEE. THEREFORE HE 2 OBSERVED THAT THE VERY BASIS OF ADDITION OF RS.68,0 8,879/- CALCULATED BY THE AO WOULD CEASE TO EXIST. CIT(A) ACCORDINGLY DELETED TH E ADDITION AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 2.1 WE HAVE HEARD BOTH THE PARTIES. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT IDENTICAL ISSUE HAD BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF DCIT VS M/S. K. RAJANIKANT & CO. IN ITA NO.6432/M/2 005 IN WHICH THE TRIBUNAL FOLLOWING THE IDENTICAL CASE OF DCIT VS STARLIT IN ITA NO.2279/M/2006 HAD SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE MATTER T O THE FILE OF AO FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW AND AFTER A LLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. THE LEARNED AR SUBMITTED T HAT HIS ARGUMENTS WERE SAME AS ADVANCED IN CASE OF M/S. K. RAJANIKANT & CO . (SUPRA). IN THAT CASE THE ASSESSEE HAD SUBMITTED THAT THE DIAMONDS EXPORTED F ROM INDIA WERE ASSESSED BY THE CUSTOM AUTHORITIES WHO HAD A SEPARATE SET UP WITH TRAINED VALUERS/ ASSESSORS FOR DIAMONDS AND THEREFORE ONCE THE SALE VALUE OF EXPORTS HAD BEEN ACCEPTED BY THE CUSTOM AUTHORITIES IT WAS NOT OPEN FOR THE TPO TO DISPUTE THE TRANSACTIONS. THESE FACTORS WERE NOT CONSIDERED IN CASE OF DCIT VS STARLIT (SUPRA) AND THEREFORE THOSE DECISIONS COULD NOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. IT WAS ALSO SUBMITTED THAT THE AE WAS RESIDENT OF BELGIUM WHERE PROVISIONAL TAX RATE WAS 40.17% AND SINCE THE ASSES SEE WAS 100% EXPORTER AND ENTITLED TO DEDUCTION OF 70% OF THE ELIGIBLE PR OFIT, EFFECTIVE TAX RATE WAS ONLY 13.17% AND THEREFORE THERE WAS NO PLAUSIBLE RE ASON TO SHIFT THE PROFIT TO THE AE. IT WAS ALSO SUBMITTED THAT TPO HAD NOT GIVE N THE BENEFIT OF PLUS/ MINUS 5% ADJUSTMENT STIPULATED IN SECTION 92C(2). THE LEA RNED DR PLACED RELIANCE ON THE ORDER OF TRIBUNAL IN CASE OF DCIT VS STARLIT (S UPRA). IN CASE OF DCIT VS STARLIT (SUPRA), THE TRIBUNAL HELD THAT THE TPO HAD ADOPTED ENTERPRISES LEVEL OPERATING MARGIN AS TNMM METHOD WHICH WAS NOT PERMI TTED. THE TRIBUNAL 3 THEREFORE RESTORED THE ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER IN ACCORDANCE WITH THE LAW. THE TRIBUNAL IN CASE OF DC IT VS M/S.K. RAJANIKANT & CO (SUPRA) OBSERVED THAT IT HAD NO REASON TO TAKE A DIFFERENT VIEW FROM THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF M/S. STARLIT (SUPRA). ACCORDINGLY THE ISSUE WAS RESTORED TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION AND OPPORTUNITY TO THE ASSESSEE. BOTH T HE PARTIES HAD NO OBJECTION IF THE ISSUE WAS RESTORED TO THE FILE OF AO FOLLOWI NG THE DECISION OF THE TRIBUNAL IN CASE OF DCIT VS M/S. K. RAJANIKANT & CO. (SUPRA) . WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF O BSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESS EE. 3. THE SECOND DISPUTE IS REGARDING COMPUTATION OF D EDUCTION UNDER SECTION 80HHC IN RELATION TO INCOME OF RS.7,43,735/- ARISIN G ON ACCOUNT OF EXCHANGE RATE DIFFERENCE. THE ASSESSEE HAD TREATED THE FOREI GN EXCHANGE DIFFERENCE INCOME ON ACCOUNT OF EXPORT MADE IN THE EARLIER YEA R AS PART OF THE EXPORT REALIZATION AND INCLUDED THE SAME IN THE EXPORT TUR NOVER TO CLAIM DEDUCTION UNDER SECTION 80HHC. THE CLAIM WAS DISALLOWED BY T HE AO AS THE INCOME RELATED TO EARLIER YEAR. HOWEVER, CIT(A) DIRECTED T HE AO TO INCLUDE THE FOREIGN EXCHANGE GAIN OF EARLIER YEARS IN THE EXPORT TURNOV ER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. AGGRIEVED BY THE SAI D DECISION THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. BOTH THE PARTIES AGREED THAT THE ISSUE WAS COVERED BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN CASE O F PRAKASH L. SHAH (306 ITR 01(AT). IN THE SAID CASE THE TRIBUNAL HELD THAT GAI N DUE TO FOREIGN EXCHANGE 4 FLUCTUATION HAS TO BE TREATED AS PART OF THE TURNOV ER AND PROFIT OF THE YEAR IN WHICH THE EXPORT HAD BEEN MADE. WE THEREFORE SET AS IDE THE ORDER OF CIT(A) AND HOLD THAT THE FOREIGN EXCHANGE GAIN HAS TO BE C ONSIDERED FOR THE PURPOSE OF TURNOVER AS WELL AS PROFIT IN THE YEAR OF EXPORT. T HE GROUND OF REVENUE IS ACCORDINGLY ALLOWED. 4. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED I N TERMS OF THE ORDER ABOVE. 5. THE DECISION PRONOUNCED IN THE OPEN COURT TODAY I.E. 30.03.2011. SD/- SD/- ( D. MANMOHAN ) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBE R DATE : 30.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR L BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK