J.C.I.T. 16(3), MUMBAI V. SANGHAVI EXPORTS, MUMBAI

ITA 24/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71771 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 26-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; International transaction; Retrospective amendment
• Section: 92B; 92F

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , ! SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO.24/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 ASSTT. COMMISSIONER OF INCOME TAX - 16(3), MATRU MANDIR, 2 ND FLOOR, ROOM NO.206, TARDEO ROAD, MUMBAI 400 007 ' ' ' ' / VS. M/S. SANGHAVI EXPORTS, 502, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI 400004 $ ! ./ % ./ PAN/GIR NO. : AAAFS 1073P ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) APPELLANT BY SHRI AJIT KUMAR JAIN RESPONDENT BY SHRI K.SHIVRAM ' 0 1! / DATE OF HEARING : 26/11/2013 23# 0 1! / DATE OF PRONOUNCEMENT : 26/11/2013 4 / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-15, MUMBAI DATED 11/10/2011 FOR ASSES SMENT YEAR 2007-08. GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT(A) ERRED IN CONCLUDING THAT CONTINUING DEBIT BALANCE IN RESPECT OF ASSOCIATED E NTERPRISES IS NOT AN INTERNATIONAL TRANSACTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONCLUDING THAT INTEREST CHARGEABLE ON DELAYED DEBTS, IS NOT AN INT ERNATIONAL TRANSACTION EVEN THOUGH . / ITA NO.24/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 2 INTEREST CHARGEABLE HAS A BEARING ON PROFITS AND EX TENDED CREDIT FACILITY IS A TRANSACTION WITHIN THE DEFINITION OF SECTION 92F. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT TREATING EXTENDED CREDIT FACILITY TO AN AE AS A TRANSACTION WITHIN THE MEANING OF SECTION 92F AND AS AN INTERNATIONAL TRANSACTION UNDER SECTION 9 2B(1), AS THE COMPENSATION FOR EXTENDED CREDIT FACILITY PERIOD HAS A BEARING ON TH E PROFITS OF THE TAXPAYERS. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONCLUDING THAT NO INTEREST IS CHARGEABLE ON THE AE DEBTORS AS THE TAXPAYERS IS NOT CHARGING INTEREST ON THE NON-AE DEBTORS, WHEN THE FACT IS THAT THE AVERA GE REALIZATION OF THE DEBTS FROM THE AE IS 210 DAYS WHILE THE AVERAGE PERIOD OF REALIZAT ION IN RESPECT OF NON-AES WAS 180 DAYS, AN EXCESS DELAY OF 30 DAYS OVER AND ABOVE OF THAT ALLOWED TO NON-AES. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. IN THE PRESENT CASE ADDITION WAS MADE ON ACCOUNT OF T.P. ADJUSTMENT FOR A SUM OF RS.92,03,333/- AS PER TPOS ORDER DATED 27/1 0/2010 PASSED UNDER SECTION 92CA(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2.1 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CUTT ING AND POLISHING OF ROUGH DIAMONDS AND MANUFACTURING OF STUDDED JEWELLERY AND EXPORTING THEM. IT WAS FOUND BY THE TPO THAT AMOUNT RECEIVABLE FROM RELATE D PARTIES WAS SHOWN BY THE ASSESSEE AT RS.127.38 CRORES OUT OF TOTAL SALES OF RS.240.00 CRORES AS ON 31/3/2007. HE ALSO NOTED THAT FOR THE FINANCIAL Y EAR ENDING 31/3/2006 AN AMOUNT OF RS.158.72 CRORES WAS RECEIVABLE OUT OF SA LES OF RS.253.00 CORES. THUS LD. TPO WORKED OUT AVERAGE RECEIVABLE AT RS.138.05 CRORES AND DEBTOR TURNOVER RATIO AT RS.1.738. THE AVERAGE PERIOD OF RECEIVABL E WAS COMPUTED AT 210 DAYS. (365/1.738). FROM THESE FACTS, LD. TPO OBSERVED TH AT ASSESSEE HAS TAKEN ON AN AVERAGE 210 DAYS TO REALIZE ITS DEBTS FROM A.ES WHI CH WAS MORE THAN THE NORMAL CREDIT PERIOD OF 180 DAYS. IN VIEW OF THESE FACTS, HE OBSERVED THAT APPROPRIATE INTEREST NEEDS TO BE CHARGED FOR THE EXCESS PERIOD. BY APPLYING 8% RATE TO AN AMOUNT OF RS.138.05 CRORES FOR EXCESS 30 DAYS, A SUM OF RS.92,03,333/- WAS ADDED AS TP ADJUSTMENT. THE SAID ADDITION HAS BEEN DELETED BY LD. CIT(A) FOLLOWING VARIOUS DECISIONS WHICH INTER-ALIA INCLUDE THE DEC ISIONS OF ITAT IN THE CASE OF NIMBUS COMMUNICATIONS LTD. VS. ACIT, 43 SOT 695 (MU M) AND DECISION OF PATNI . / ITA NO.24/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 3 COMPUTER SYSTEM LTD. VS. DCIT, ITA NO.687& 42/PN/07 . BY RELYING UPON THESE DECISIONS HE OBSERVED THAT CONTINUING DEBIT BALANC E IS NOT A SEPARATE INTERNATIONAL TRANSACTION PER-SE BUT IS RESULT OF INTERNATIONAL TRANSACTION, THEREFORE, AFOREMENTIONED TP ADJUSTMENT COULD NOT BE MADE. TH E DEPARTMENT IS AGGRIEVED WITH THE RELIEF GRANTED BY LD. CIT(A) AND HAS FILED AFOREMENTIONED GROUNDS. 3. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY L D. CIT-DR THAT IN VIEW OF RETROSPECTIVE AMENDMENT BROUGHT INTO SECTION 92B BY WAY OF EXPLANATION INSERTED BY FINANCE ACT 2012 W.E.F. 1/4/2002 THE PAYMENTS RE CEIVABLE AND ANY OTHER DEBIT ARISING DURING THE COURSE OF BUSINESS IS DESCRIBED AS AN INTERNATIONAL TRANSACTION. THE RELEVANT PORTION OF THE EXPLANATION AS RELIED UPON BY LD. CIT-DR IS AS UNDER: EXPLANATION - FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT- (I) THE EXPRESSION INTERNATIONAL TRANSACTION SHA LL INCLUDE - (A) (B) (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITI ES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY O THER DEBT ARISING DURING THE COURSE OF BUSINESS; (D) (E) THEREFORE, LD. CIT-DR PLEADED THAT THE VIEW TAKEN BY LD. CIT(A) SHOULD NOT BE SUSTAINED IN VIEW OF AFOREMENTIONED RETROSPECTIVE AMENDMENT, AS LD. CIT(A) HAS HELD THAT SUCH TYPE OF TRANSACTIONS CANNOT BE CONSI DERED TO BE AN INTERNATIONAL TRANSACTION, WHICH IS CONTRARY TO AFOREMENTIONED AM ENDMENT. HE, THEREFORE, SUBMITTED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF TPO WITH A DIRECTION TO RE-EXAMINE THE ARMS LENGTH PRICE(ALP) OF AFOREMENTIONED TRANSACTION IN VIEW OF AFOREMENTIONED AMENDMENT. . / ITA NO.24/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 4 4. ON THE OTHER HAND, LD. AR DID NOT DISPUTE TO SUC H PROPOSITION OF LD. CIT-DR. HE SUBMITTED THAT HONBLE BOMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. PATNI COMPUTER SYSTEM LTD., 33 TAXMAN.COM 3 (BOM) VIDE OR DER PASSED ON 28/2/2013, REFERRING TO AFOREMENTIONED AMENDMENT HAS RESTORED THE MATTER BACK TO THE FILE OF TRIBUNAL WITH A DIRECTION TO PASS FRESH DECISION O N MERITS. HE REFERRED TO THE FOLLOWING OBSERVATIONS OF HONBLE HIGH COURT. 3. SO FAR AS QUESTION (C) IS CONCERNED, COUNSEL FO R THE PARTIES STATE THAT IN VIEW OF THE AMENDMENT TO SECTION 92B(1) OF THE INCOME TAX ACT, 1961 (ACT FOR SHORT) BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT 1ST APRIL 2002, THE QUESTION AS FRAMED MAY BE RESTORED TO THE FILE OF THE TRIBUNAL FOR FRESH DECI SION IN LIGHT ON THE AMENDMENT. ACCORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION ON MERITS. 5. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. W HILE EVALUATING THE ALP OF AFOREMENTIONED TRANSACTIONS, THE AMENDMENT BROUGHT INTO THE STATUTE BY WAY OF AN EXPLANATION INSERTED BY FINANCE ACT, 2012, WITH RET ROSPECTIVE EFFECT FROM 1/4/2002 IN SECTION 92B(1) HAS TO BE CONSIDERED. THEREFORE, WE FIND FORCE IN THE ARGUMENTS SUBMITTED BY LD. CIT-DR THAT THE MATTER REQUIRED TO BE RESTORED BACK TO THE FILE OF LD. TPO FOR FRESH ADJUDICATION OF ALP OF THE AFOREM ENTIONED TRANSACTION WHICH HAS BEEN DESIGNATED TO BE INTERNATIONAL TRANSACTION BY THE AFOREMENTIONED EXPLANATION WHICH HAS BEEN BROUGHT WITH RETROSPECTIVE EFFECT FR OM 1/4/2002. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF LD. TPO WITH A DI RECTION TO RE-ADJUDICATE THE SAME IN THE LIGHT OF AFOREMENTIONED OBSERVATIONS. WE DIRE CT ACCORDINGLY. 5.1 SINCE WE ARE RESTORING THIS ENTIRE ISSUE TO THE FILE OF TPO FOR RE-ADJUDICATION, THE APPEAL FILED BY THE REVENUE WILL BE CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES, IN THE MANNER AFORE SAID. . / ITA NO.24/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 5 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S TREATED ALLOWED FOR STATISTICAL PURPOSES, IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 26/11/20 13 4 0 23# ! 5 6'7 26 /11/2013 3 0 8 9 SD/- SD/- ( / RAJENDRA ) ( . . / I.P. BANSAL ) ! / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 6' DATED 26/11/2013 4 4 4 4 0 00 0 '1:; '1:; '1:; '1:; <;#1 <;#1 <;#1 <;#1 / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. ;>8 '1' , , / DR, ITAT, MUMBAI 6. 8? @ / GUARD FILE. 4' 4' 4' 4' / BY ORDER, (;1 '1 //TRUE COPY// A AA A / B B B B (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS . / ITA NO.24/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 26/11/2013 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 26/11/2013 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER