Asstt.CIT,Cir.1, Aurangabad, V. M/s. Endress+Hauser Flowtec (I) Pvt.Ltd., Aurangabad

ITA 256/PUN/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1123 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 14-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAVE
• Keywords: Transfer pricing; International transaction; Wrong claim
• Section: 143(3); 80HHC; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 254 /PN/201 1 / ASSESSMENT YEAR : 200 5 - 0 6 ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD., PLOT NO.M - 174/175, MIDC, WALUJ, AURANGABAD. . / APPELLANT PAN: AA ACE4919M VS. THE A SST . COMMISSIONER OF INCOME TAX, CIRCLE - 1, AURANGABAD . / RESPONDENT . / ITA NO. 256 /PN/201 1 / ASSESSMENT YEAR : 200 5 - 0 6 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, AURANGABAD . / APPELLANT VS. ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD., PLOT NO.M - 174/175, MIDC, WALUJ, AURANGABAD. . / RESPONDENT PAN: AA ACE4919M ASSESSEE BY : SHRI ABHAY AVCHAT DEPARTMENT BY : SHRI HITENDRA NINAVE / DATE OF HEARING : 2 0 .0 8 .2015 / DATE OF PRONOUNCEMENT: 11 .0 9 .2015 2 ITA NO. 254 /PN/201 1 ITA NO. 256 /PN/201 1 ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD. / ORDER / ORDER PER SUSHMA CHOWLA, JM : THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT(A) , AURANGABAD , DATED 2 7 . 12 .201 0 RELATING TO ASSESSMENT YEAR 200 5 - 0 6 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . SHORT THE ACT) . 2. THE CROSS - APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE ASSESSEE IN ITA NO. 254 /PN/201 1 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - APPEAL : - 1. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 3,58,878/ - . 2. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN APPLYING THE TNM METHOD INSTEAD OF RMP METHOD. 3. THE APPELLANT CRAVES FOR LEAVE TO ADD, TO ALTER AND / OR TO WITHDRAW ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL , IF NECESSARY. 4. THE REVENUE IN ITA NO. 256 /PN/201 1 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED BY ALLOWING THE APPEAL OF THE ASSESSEE AND CONSIDERED EXCISE DUTY PAID / PAYABLE BY THE ASSES SEE AS NOT PART OF THE TOTAL TURNOVER WITHIN THE MEANING OF SECTION 10 B, FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT, BOMBAY IN THE CASE OF CIT VS. SUDARSHAN CHEMICAL INDUSTRIES LTD.,(245 ITR 769) IGNORING THE FACT THAT THE DECISION OF SUDARSHAN CHEMICAL INDUSTRIES WAS GIVEN IN RELATION TO DEDUCTION U/S.80HHC AND DOES NOT APPLY TO SEC. 10 B, AS IS CLEAR FROM THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS (290 ITR 667) WHERE THE HON'BLE SUPREME COURT HAS CATEGORI CALLY CLARIFIED THAT THIS DECISION HAS BEEN GIVEN ONLY IN RESPECT OF DEDUCTION U/S. 80HHC. ONLY IN RESPECT OF DEDUCTION U/S. 80HHC. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION FROM TOTAL TURNOVER WHILE COMPUTING THE TOTAL TURNOVER U/S. 10 B, WHEREAS, NO SUCH DEDUCTION IS CONTEMPLATED IN CLAUSE (III) OF EXPLANATION (2) OF SECTION 10 B FOR THE PURPOSES OF SECTION 10 B 3 ITA NO. 254 /PN/201 1 ITA NO. 256 /PN/201 1 ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS COMMITTED AN ERROR IN ALLOWING THE DEDUCTION FROM TOTAL TURNOVER U/S. 10 B BY IMPUTING DEDUCTIONS INTO THE PROVISIONS OF THE ACT, WHICH ARE EXPLICIT IN NOT ALLOWING SUCH DEDUCTIONS. 4) WHETHER OR NOT EXCISE DUTY SALES TAX RECOVERED IN FOREIGN EXCHANGE HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER AS DEFINED IN CLAUSE (III) OF EXPLANATION (2) OF SECTION 10 B OF THE ACT. 5) THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A) BE VACATED. 6) THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL. 5. THE ASSESS EE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: - A) WITHOUT CONSIDERING PROVISIONS OF SECTION 10B OF THE INCOME TAX ACT, 1961, THE COMPUTATION OF EXEMPTION/DEDUCTION, SALES TURNOVER, EXPENSES AND PROFITS OF THE EXPORT ORIENTED UNDERTAKING ARE NOT CONSIDERED AND INSTEAD THESE FIGURES HAVE BEEN CONSIDERED FOR THE ENTIRE BUSINESS OF THE ASSESSEE COMPANY. B) THERE IS ERROR IN ASSESSMENT OF INCOME WHILE CONSIDERING DEDUCTION/EXEMPTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961, SALES TURNOVER, EXPE NSES AND PROFITS OF INTERNATIONAL OUTSOURCING ACTIVITY HAS NOT BEEN EXCLUDED AND THAT SOLELY OF THE EXPORT ORIENTED UNDERTAKING HAS NOT BEEN CONSIDERED. C) THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF C) THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL. 6 . THE LEARNED AUT HORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD. VS. CIT (1998) 229 ITR 383 (SC) FOR THE ADMISSION OF ADDITIONAL GROUND S . THE LEARNED AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE POINTED OUT THAT IT HAD MADE A WRONG CLAIM IN THE RETURN OF INCOME VIS - - VIS DEDUCTION UNDER SECTION 10B OF THE ACT. HE FURTHER CONTENDED THAT FACTS NEED TO BE VERIFIED BY THE ASSESSING OFFICER AND ADMITTEDLY IT IS THE FACTUAL ISSUE, WHICH HAS BEEN RAISED BY WAY OF ADDITIONAL GROUNDS OF APPEAL. WHEN CONFRONTED, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY ADMITTED THAT THE ISSUE WAS FACTUAL AND AS PER THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN NATIONAL THERMAL POW ER CO. LTD. VS. CIT (SUPRA), ONLY LEGAL ISSUE CAN BE ADMITTED AS ADDITIONAL GROUND OF APPEAL. IN VIEW THEREOF, WE DISMISS THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 4 ITA NO. 254 /PN/201 1 ITA NO. 256 /PN/201 1 ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD. 7 . THE ASSESSEE IS IN APPEAL BEFORE US ONLY ON THE ISSUE OF THE TRANSFER PRICING OFFICER (TPO) NOT ALLOWING THE ADJUSTMENT OF +/ - 5% WHILE COMPUTING THE ADDITION IN THE HANDS OF ASSESSEE ON ACCOUNT OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. 8 . THE PERUSAL OF GROUNDS OF APPEAL REVEALS THAT THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.1 HAS RAISED THE ISSUE WITH REGARD TO ADDITION OF RS.3,58,878/ - . THE TPO WHILE PASSING THE ORDER UNDER SECTION 92CA(3) OF THE ACT HAD APPLIED THE TNMM METHOD AND WORK ED OUT ADJUSTMENT OF RS. 3,58,878/ - TO BE MADE TO THE VALUE OF INTERNATIONAL TRANSACTION RELATING TO FINISHED GOODS TRADING EXPORTS, TO ARRIVE AT ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. BY WAY OF GROUND OF APPEAL NO.2, THE ASSESSEE HAS RAISED THE ISSUE THAT THE AUTHORITIES BELOW HAVE ERRED IN APPLYING TNMM METHOD INSTEAD OF RMP METHOD. HOWEVER, BEFORE US, THE ONLY GRIEVANCE OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT THE TPO HAD NOT ALLOWED +/ - 5% ADJUSTMENT BEFORE MAKIN G THE AFORESAID ADDITION. THE PLEA OF THE ASSESSEE BEFORE US IS THAT IN VIEW OF PROVISO TO SECTION 92C(2) OF THE ACT, NO ADJUSTMENT IS TO BE MADE SINCE THE VARIATION BETWEEN THE PRICE PAID IN RESPECT OF THE INTERNATIONAL TRANSACTION AND THE ARM'S LENGTH P RICE DETERMINED BY THE TPO DID NOT EXCEED 5% . W E FIND MERIT IN THE PLEA OF THE ASSESSEE AND BENEFIT OF PROVISO TO SECTION 92C(2) OF THE ACT, CAN BE ALLOWED ONLY IF VARIATION BETWEEN PRICE CHARGED/PAID IN RESPECT OF INTERNATIONAL TRANSACTION AND ARM'S LENG TH PRICE DETERMINED BY TAKING RESULTS OF COMPARABLES CASES DOES NOT EXCEED 5% AND, IN CASE SUCH VARIATION IS MORE THAN 5%, THEN NO SUCH BENEFIT CAN BE ALLOWED ON STANDARD BASIS. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY MUMBAI BENCH OF TRIBUNAL IN THYSS ENKRUPP INDUSTRIES INDIA (P.) LTD. VS. ADDL.CIT (2013) 33 TAXMANN.COM 107 (MUMBAI TRIB.) . IN VIEW THEREOF, THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED AND THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS DISMISSED. 5 ITA NO. 254 /PN/201 1 ITA NO. 256 /PN/201 1 ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD. 09 . NOW, COMING TO THE APPEAL FILED BY THE REVENUE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE CONTEN D ED THAT THE ISSUE RAISED IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08. 1 0 . THE ISSUE RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN HOLDING THAT THE EXCISE DUTY PAID / PAYABLE WAS NOT PART OF THE TOTAL TURNOVER WITHIN THE MEANING OF SECTION 10B OF THE ACT. 1 1 . WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN AS SESSEES OWN CASE IN ITA NO.1215/PN/2011 RELATING TO ASSESSMENT YEAR 2007 - 08, WHICH WAS HEARD ALONG WITH BUNCH OF APPEALS WITH LEAD ORDER IN ITA NO.1206/PN/2011. THE TRIBUNAL VIDE ORDER DATED 25.02.2015 HELD THAT EXCISE DUTY IS TO BE EXCLUDED FROM TOTAL T URNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. THE RELEVANT T URNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. THE RELEVANT FINDING OF THE TRIBUNAL VIDE PARAS 46 AND 47 IS AS UNDER: - 46. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. LAXMI M ACHINE WORKS (SUPRA). THE HONBLE SUPREME COURT HELD THAT WHILE INTERPRETING THE WORDS 'TOTAL TURNOVER' IN THE FORMULA IN SECTION 80HHC OF THE ACT, ONE HAS TO GIVE A SCHEMATIC INTERPRETATION AND THE VARIOUS AMENDMENTS MADE THEREIN SHOW THAT RECEIPTS BY WA Y OF BROKERAGE , COMMISSION, INTEREST, RENT, ETC. DO NOT FORM PART OF BUSINESS PROFITS, AS THEY HAVE NO NEXUS WITH THE ACTIVITY OF EXPORT, AND THEREFORE, EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TOTAL TURNOVER' UNDER SECTION 80HHC(3) OF THE A CT. 47. WE ALSO FIND THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1597/PN/2007 RELATING TO ASSESSMENT YEAR 2003 - 04, ORDER DATED 31 - 07 - 2009 AND IN ITA NO.1441/PN/2007 RELATING TO ASSESSMENT YEAR 2004 - 05, ORDER DATED 07 - 09 - 2011 HAD HELD THAT THE EXCISE DUTY IS TO BE EXCLUDED FROM TOTAL TURNOVER WHILE COMPUTING EXEMPTION UNDER SECTION10B OF THE ACT. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE DEDUCTION UNDER SECTION10B OF THE ACT. GROUND OF APPEAL NO.5 RAISE D BY THE ASSESSEE IS THUS, ALLOWED. 1 2 . THE ISSUE RAISED BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08 AND FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF CIT(A) IN DIREC TING THE ASSESSING OFFICER TO EXCLUDE THE EXCISE DUTY PAID / PAYABLE BEING NOT PART OF THE TOTAL TURNOVER WHILE 6 ITA NO. 254 /PN/201 1 ITA NO. 256 /PN/201 1 ENDRESS + HAUSER FLOWTEC (INDIA) PVT. LTD. COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 1 3 . IN THE RESULT, THE APPE AL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 11 TH DAY OF SEPTEMBER , 2015. SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 11 TH SEPTEMBER , 2015 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT ; 3. ( ) / THE CIT(A), AURANGABAD ; 4. / THE CIT , AURANGABAD ; 5. , , / DR B , ITAT, PUNE ; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE