BASELL POYOLEFINSINDIA PVT. LTD., MUMBAI V. ACIT 15(1)(2), MUMBAI

ITA 2659/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8079 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 11-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: INDRA ANAND
• Keywords: Unexplained cash credit; Transfer pricing; Principle of natural justice; International transaction; Rule of consistency
• Section: 143(3)

Judgement Text

P A G E | 1 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX IN THE INCOME TAX APPELLATE TRIBUNAL ' K ' BENCH, MUMBAI BEFORE SHRI G. MANJUNATHA ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 2659/MUM/2016 (ASSESSMENT YEAR: 2011 - 12 ) M/S BASELL POLYOLEFINS INDIA PVT. LTD., 303/305, DELPHI B WING, HIRANANDANI BUSINESS PARK,HIRANANDANI GARDENS, POWAI, MUMBAI - 400 076 VS. ASST. COMMISSIONER OF INCOME TAX - 15(1)(2), ROOM NO. 459, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 PAN AACCB5368D ( APPELLANT ) ( RESP ONDENT ) APPELLANT BY : SHRI MADHUR AGGARWAL & MS. INDRA ANAND RESPONDENT BY : SHRI RAJ NE ESH YADAV, D.R DATE OF HEARING : 05.12.2018 DATE OF PRONOUNCEMENT: 19 . 12.2018 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE OR DER PASSED BY THE A SSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 ( FOR SHORT I.T. ACT ), DATED 27/01/2016. THE ASSESSEE ASSAILING THE OR DER OF THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE US : P A G E | 2 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX GROUND NO. 1: 1. THE ORDER OF THE LEARNED ASSESSING OFFICER ('LD. AO') / LEARNED TRANSFER PRICING OFFICER ('LD. TPO') IS BAD IN LAW AND VOID AB INITIO AS IT HAS BEE N PASSED IN GROSS VIOLATION OF PRINCIPLE OF NATURAL JUSTICE AND WITHOUT COMPLYING WITH THE MANDATORY CONDITIONS OF SECTION 92CA(3) R.W.S. 92C(3) OF THE INCOME TAX ACT, 1961 ('THE ACT') FOR THE REASON THAT LD. TPO DID NOT SERVE UPON THE APPELLANT ANY WRITTE N SHOW CAUSE NOTICE AS REQUIRED AND MANDATED IN TERMS OF PROVISO TO SECTION 92C(3) R.W.S. 92CA(3) OF THE ACT. GROUND NO. 2: 2. THE LD. AO / LD. TPO [FOLLOWING THE DIRECTIONS OF DISPUTE RESOLUTION PANEL - 1 {'DRP') UNDER SECTION 144C(5) OF THE ACT] GROSSL Y ERRED, IN LAW AND IN FACTS, IN MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT OF RS. 93,57,7107 - IN RESPECT OF APPELLANT'S IMPUGNED INTERNATIONAL TRANSACTION OF PROVISION OF BUSINESS FACILITATION SERVICES TO ITS ASSOCIATED ENTERPRISES ('AE') AND IN DOING S O, THE LD. AO/ TPO GROSSLY ERRED IN - 2.1. REJECTING THE FOLLOWING NINE COMPANIES IN THE APPELLANT'S COMPARABLE COMPANY SET WHICH ARE FUNCTIONALLY COMPARABLE TO APPELLANT'S 'BUSINESS FACILITATION SERVICES' SEGMENT: I. AOK IN - HOUSE BPO SERVICES LTD. II. C ALIBER POINT BUSINESS SOLUTIONS LTD. III. CYBER MEDIA RESEARCH LTD. IV. ICRA ONLINE LTD. V. JINDAL INTELLICOM LTD. VI. M C S LTD. VII. P L WORLDWAYS LTD. VIII. PIPAL RESEARCH ANALYTICS AND INFORMATION SERVICES INDIA PRIVATE LTD. IX. SPARSH BPO SERVICES LTD . 2.2. NOT CONSIDERING THE INFRASTRUCTURE COST RE - IMBURSEMENTS RECEIVED BY THE APPELLANT FROM ITS AES AS 'OPERATING REVENUES' AND THEREBY ERRED IN COMPUTING OP/OC MARGIN OF APPELLANT'S 'BUSINESS FACILITATION SERVICES' SEGMENT AT 10.01% INSTEAD OF 19.41% AS WORKED OUT BY APPELLANT. GROUND NO. 3: 3. THE LD. AO / LD. TPO [PURSUANT TO NON - ADJUDICATION BY THE DRP IN ITS ORDER UNDER SECTION 144C(5) OF THE ACT] GROSSLY ERRED, IN LAW AND IN FACTS, IN - 3.1. NOT ALLOWING WORKING CAPITAL ADJUSTMENT WHEREAS SUC H COMPARABILITY, ADJUSTMENT IS APPROPRIATE AND NECESSARY WHILE APPLYING THE TRANSACTIONAL NET MARGIN METHOD ('TNMM') TO ELIMINATE MATERIAL DIFFERENCES IN WORKING CAPITAL DEPLOYED BY THE APPELLANT VIS - A - VIS COMPARABLES AND IS ALSO PERMITTED BY LAW. P A G E | 3 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX 3.2. N OT ALLOWING THE COMPARABILITY ADJUSTMENT FOR MATERIAL DIFFERENCES IN RISK PROFILE AND FUNCTIONAL PROFILE OF THE APPELLANT VIS - A - VIS THE COMPARABLE COMPANIES WHEN SUCH COMPARABILITY ADJUSTMENTS ARE MANDATED BY LAW. GROUND NO. 4: 4. THE LD. AO GROSSLY ERR ED, IN FACTS AND IN LAW, IN ADDING AS INCOME AN AMOUNT OF RS. 3,53,5507 - BEING DIFFERENCE BETWEEN CLOSING STOCK AND OPENING STOCK AND HAS FURTHER ERRED IN TREATING THE SAME AS UNEXPLAINED CREDITS. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE AL L OR ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING. 2 . BRIEFLY STATED , THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF RENDERING ENGINEERING AND POLYOLEFINS PRODUCTS RELATED SERVICES , TECHNICAL SUPPORT AND OTHER CONSULTANCY SERVICES HA D E - FILED ITS RETURN OF INCOME FOR A . Y 2011 - 12 ON 09.11.2011, DECLARING TOTAL INCOME AT RS.94,78,512/ - . SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT U NDER SEC. 143( 2 ) OF THE I.T. ACT. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER MADE A REFERENCE UNDER SEC. 92CA( 1 ) OF THE I.T. ACT TO THE TRANSFER PRICING OFFICER - 2(1), MUMBAI (FOR SHORT TPO) FOR COMPUTING THE ARMS LENGTH PRICE (FOR SHORT ALP) OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY TH E ASSESSEE COMPANY WITH ITS ASSOCIATE ENTERPRISES ( FOR SHORT AES ). THE TPO OBSERVED THAT A PERUSAL OF THE TRANSFER PRICING STUDY REPORT (TPSR) OF THE ASSES S E E REVEALED THAT IT HAD DURING THE YEAR UNDER CONSIDERATION ENTERED INTO THE FOLLOWING INTERNATION AL TRANSACTIONS WITH ITS AES. SR. NO. NATURE OF TRANSACTIONS AMOUNT (RS.) METHOD ADOPTED BY ASSESSEE 1 PURCHASE OF RAW MATERIALS FOR MANUFACTURE OF FINISHED PRODUCTS - PAYMENT 13,094,976 CUP 2 PURCHASE OF FINISHED PRODUCTS OF RESALE - PAYMENT 39,635 ,061 RPM 3 BUSINESS FACILITATION SERVICES - RECEIPT 177,580,287 TNMM 4 REIMBURSEMENT OF INFRASTRUCTURE COST RECEIPT 15,171,875 TNMM P A G E | 4 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX 3 . IT WAS NOTICED BY THE TPO THAT THE ASSESSEE HAD BENCHMARKED THE INTERNATIONAL TRANSACTIONS OF PROVISION OF BUSINESS FAC ILITATION SERVICES TO ITS AES USING TRANSACTION NET M ARGIN METHOD ( FOR SHORT TNMM ). THE ASSESSEE COMPANY WAS SELECTED AS A TESTED PARTY. THE ALP WAS DETERMINED BY THE ASSESSEE USING PROWESS DATABASE AND FOURTEEN COMPANIES WERE SELECTED AS COMPARABLES . TH E ARITHMETIC MEAN OPERATING PROFIT (OP)/OPERATING COST (OC) MARGIN OF THE COMPARABLE COMPANIES WORKED OUT AT 10.56% VIS - A - VIS THE OP / OC MARGIN OF THE ASSESSEES BUSINESS FACILITATION SERVICE SEGMENT OF 19.41%. THE TPO REJECTED 13 COMPARABLES ON THE GR OUND THAT THEIR FUNCTIONAL PROFILES WERE DIFFERENT FROM THAT OF THE ASSESSEE. ONE OF THE COMPARABLE VIZ M/S GENINS INDIA INSURANCE TPA LTD. WAS HOWEVER ACCEPTED BY THE TPO . THE TPO FURTHER SELECTED CERTAIN FRESH COMPARABLES AND CAME UP WITH A FINAL SET UP OF COMPARABLES , AS UNDER: - S. N O . NAME OF THE COMPARABLE COMPANY OP/OC MARGIN 1 EMPIRE INDUSTRIES LTD.(SEGMENTAL) 22.63% 2 HSCC (INDIA) LTD. - CORRECTED OP/OC MARGIN 16.72% 3 HCCA BUSINESS SERVICES PVT. LTD. 13.99% 4 ICRA MANAGEMENT CONSULTING SERVICES L TD. - CORRECTED OP/OC MARGIN 15.34% 5 INDIA CEMENTS CAPITAL LTD. - CORRECTED OP/OC MARGIN 18.00% 6 SPECTRUM BUSINESS SOLUTIONS LTD. 10.25% 7 GENINS INDIA TPA LTD. 19.52% ARITHMETIC MEAN 16.63% 4 . FURTHER, IT WAS OBSERVED BY THE TPO THAT THE ASSESSEE WHI LE CALCULATING THE OP/OC HAD INCLUDED REIMBURSEMENT OF INFRASTRUCTURE COST AS A PART OF ITS OP ERATING REVENUE . HOWEVER, T HE TPO WAS OF THE VIEW THAT AS THE REIMBURSEMENT OF INFRASTRUCTURE COST WAS TOWARDS THE COST OF THE FIXED ASSETS AND WAS NETTED OFF FROM THE FIXED ASSETS , HENCE THE SAME COULD NOT HAVE BEEN CONSIDERED AS OP ERATING P A G E | 5 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX REVENUE . IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS THE TPO REVISED THE OPERATING MARGIN OF THE ASSESSEE AT 10.01%. AS THE MARGIN OF THE FINAL SET OF COMPARABLES AD OPTED BY THE TPO WAS 16.63% AGAINST THE RECALCULAT ED MARGIN OF 10.01% OF THE ASSESSEE, T HEREFORE, HE MADE AN ADJUSTMENT OF RS.1,06,81,490/ - TO THE ALP OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AES. 5 . THE ASSESSING OFFICER, AFTER CONSIDERING THE ORDER PASSED BY THE TPO UNDER SEC. 92CA(3) OF THE I.T. ACT , D ATED 28/01/2015 , PASSED A DRAFT ASSESSMENT ORDER AND MADE AN ADJUSTMENT OF RS.1,06,81,490/ - TO THE TOTAL INCOME OF THE ASSESSEE U/S 92CA(4) OF THE ACT. APART THEREFROM, THE ASSESSING OFFICER ALSO MADE AN ADDITION OF AN AMOUNT OF RS.3,53,550/ - TOWARDS DIFFERENCE IN STOCK IN THE HANDS OF THE ASSESSEE. 6 . AGGRIEVED, THE ASSESSEE FILED OBJECTIONS WITH THE DISPUTE RESOLUTION PANEL - 1, MUMBAI ( FOR SHORT DRP ). THE DRP AFTER DELIB ERATING ON THE CONTENTION S ADVANCED BY THE ASSESSEE OBSERVED AS UNDER: - (I) . THE DRP BEING OF THE VIEW THAT AS THE REIMBURSEMENT OF INFRASTRUCTURE COST COULD NOT BE CONSIDERED AS OPERATING INCOME AS THE SAME WAS REIMBURSEMENT AGAINST FIXED ASSETS , THEREF ORE, UPHELD THE TPOS ACTION IN EXCLUDING THE SAME WHILE CALCULATING THE OPERATING MARGIN OF THE ASSESSEE. (II) THE DRP AFTER DELIBERATING UPON THE FUNCTIONAL PROFILES OF THE COMPARABLES SELECTED BY THE TPO , THEREIN EXCLUDED FIVE COMPARABLES VIZ (I). EMP IRE INDUSTRIES LTD. ; (II). HSCC (INDIA) LTD. ; (III). HCCA BUSINESS SERVICE PVT. LTD. ; (IV). ICRA MANAGEMENT CONSULTING SERVICE LTD. ; AND (V). INDIA CEMENT CAPITAL LTD. FURTHER, THE DRP AFTER CONSIDERING THE COMPARABLES WHICH WERE SELECTED BY THE ASSESSEE B UT P A G E | 6 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX WERE REJECTED BY THE TPO , ACCEPTED FOUR OF SUCH COMPARABLES A S BEING FUNCTIONALLY SIMILAR . O N THE BASIS OF HIS AFORESAID DELIBERATIONS THE DRP ARRIVED AT A FINAL LIST OF COMPARABLES AS UNDER: - SR. NO. NAME MARGIN 1 ADITYA BIRLA INSURANCE BROKERS LTD. 1 6.98% 2 ALMONDZ INSURANCE BROKERS PVT. LTD. 21.79% 3 BAJAJ CAPITAL INSURANCE BROKING LTD. 14.15% 4 INDIA INFOLINE INSURANCE BROKERS LTD. 12.20% 5 GENINS INIDA TPA LTD. 19.52% 6 SPECTRUM BUSINESS SOLUTIONS LTD. 10.25% MEAN MARGIN 15.81% 7 . INSOFAR THE ADDITION OF RS.3,53,550/ - THAT WAS PROPOSED BY THE ASSESSING OFFICER IN RESPECT OF DIFFERENCE IN CLOSING STOCK AND OPENING STOCK SHOWN BY THE ASSESSEE WAS CONCERNED, I T WAS THE CONTENTION OF THE ASSESSEE BEFORE THE DRP THAT THE SAID DIFFERENCE HAD ARISEN DUE TO SOFTWARE SYSTEM WHILE PREPARING THE STATEMENT OF STOCK IN THE FORMAT IN WHICH THE SAME W AS REQUIRED BY THE A.O . IT WAS OBSERVED BY THE DRP THAT THE ASSESSEE HAD FURNISHED ITEM - WISE DETAILS OF THE CLOSING STOCK WITH THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE DRP DIRECTED THE ASSESSING OFFICER TO EXAMINE THE WORKING SUBMITTED BY THE ASSESSEE AND DELETE THE ADDITION IF THE VARIATION WAS RECONCILED . 8 . THE ASSESSING OFFICER AFTER RECEIVING THE ORDER OF THE DRP REFERRED T HE MATTER TO THE TPO FOR REWORKING OF THE ALP AS PER THE DIRECTIONS OF THE DRP. THE TPO VIDE HIS ORDER DATED 12/01/2016 GAVE EFFECT TO THE DIRECTION S OF THE DRP AND RECALCULATED THE ADJUSTMENT TOWARDS ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE W ITH ITS AES AT AN AMOUNT OF RS. 93,57,710/ - . THE ASSESSING OFFICER, ON THE BASIS OF THE AFORESAID ORDER OF THE TPO MADE AN ADDITION OF RS.93,57,710/ - IN THE HANDS OF THE ASSESSEE U/S 92CA( 4 ) OF THE ACT. FURTHER, THE ASSESSING OFFICER NOTICED THAT AS THE AS SESSEE COUL D NOT P A G E | 7 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX RECONCILE THE DISCREPANCY /DIFFERENCE OF INVENTORIES AS WAS BROUGHT OUT BY THE THEN A.O IN THE DRAFT ASSESSMENT ORDER, THEREFORE, HE MADE AN ADDITION OF RS.3,53,550/ - TO THE TOTAL INCOME OF THE ASSESSEE. ON T H E BASIS OF HIS AFORESAID DELIBE RATIONS THE A.O PASSED THE ASSESSMENT ORDER U/S 143(3) R.W.S 144C(13) OF THE I.T ACT. 9 . THE ASSESSEE BEING AGGRIEVED WITH THE ORDER PASSED BY THE A.O U/S 143(3) R.W.S. 144C(13) OF THE I.T. ACT. HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORI ZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE AT THE VERY OUTSET TO THE HEARING OF THE APPEAL SUBMITTED THAT IF THE EXCLUSION OF TWO OF THE ASSESSES COMPARABLES BY THE TPO VIZ (I) CYBER MEDIA RESEARCH LTD. [ FORMERLY IDC(INDIA)LTD. ] ; AND (II) ICRA ON LINE LTD. WAS SET - ASIDE , THEN ITS ALP WOULD FALL WITHIN THE PARAMETER OF AND NO ADJUSTMENT WOULD BE CALLED FOR IN ITS HANDS. THE LD. A . R TOOK US THROUGH THE OBSERVATIONS OF THE TPO ALONG WITH THE REASONS ASSIGNED BY HIM FOR REJECTING THE AFO REMENTIONED TWO COMPARABLES WHICH WERE SELECTED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS IN THE TPSR REPORT. IT WAS SUBMITTED BY THE LD. A . R THAT BOTH OF THE AFOREMENTIONED COMPARABLES VIZ (I) CYBER MEDIA RESEARCH LTD.; (II) ICRA ONL INE LTD. HAD WRONGLY BEEN EXCLUDED BY THE TPO FROM THE FINAL LIST OF THE COMPARABLES ON THE GROUND THAT THEY WERE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE LD. AR IN ORDER TO BUTTRESS HIS AFORESAID CONTENTION TOOK US THROUGH THE FUNCTIONAL PROFILE OF T HE ASSESSEE AT P AGE 4 OF THE ORDER PASSED BY THE TPO. THE LD. A . R SUBMITTED THAT BOTH OF THE AFOREMENTIONED PARTIES VIZ (I) CYBER MEDIA RESEARCH LTD.; AND (II) ICRA ONLINE LTD. HAD BEEN ACCEPTED BY THE TPO AS A COMPARABLE IN THE IMMEDIATE LAST TWO PRECEDIN G YEARS I.E. A . Y S 2009 - 10 AND 2010 - 11. THE LD. D . R IN ORDER TO FORTIFY HIS AFORESAID CONTENTION TOOK US THROUGH THE ORDER OF THE TPO FOR A . Y 2010 - 11 ( P AGE 705 ) OF THE ASSESSEES P APER BOOK ( FOR SHORT AP B ). THE LD. A . R DREW OUR ATTENTION TO THE FACT T HAT BOTH OF THE AFORESAID P A G E | 8 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX PARTIES WERE ACCEPTED BY THE TPO AS COMPARABLE IN THE AFORESAID YEAR S . FURTHER, THE LD. A . R TOOK US THROUGH THE ORDER OF THE TPO IN THE CASE OF THE ASSESSEE FOR A . Y 2009 - 10 ( P AGE 692 OF AP B ). THE LD. A . R DREW OUR ATTENTION TO TH E FACT THAT THE AFOREMENTIONED COMPARABLES I.E . (I) CYBER MEDIA RESEARCH LTD. ; AND (II) ICRA ONLINE LTD. WERE ACCEPTED BY THE TPO AS A COMPARABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES. THE LD. A . R TAKING SUPPORT FROM THE AFORE SAID FACTS SUBMITTED , THAT NOW WHEN THE AFOREMENTIONED COMPARABLES WERE ACCEPTED BY THE TPO FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES IN THE IMMEDIATELY PRECEDING YEARS , T HEREFORE, WITHOUT POINT ING OUT ANY SHIFT IN THE FUNCTIONAL PROFILE OF THE EITHER THE ASSESSEE OR THAT OF THE AFOREMENTIONED COMPARABLES THE SAID PARTIES COULD NOT HAVE BEEN WHIMISICAL LY REJECTED AS COMPARABLE FOR THE YEAR UNDER CONSIDERATION . IN SUPPORT OF HIS CONTENTION T HE LD. A . R PLACED RELIAN CE ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF PR. CIT - 1 VS APTARA TECHNOLOGY PVT. LTD. (ITA NO.1209 OF 2015), DATED 26/03/2018 . FURTHER, THE LD. AR ALSO RELIED UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF THOMAS COOK (INDIA) LTD. VS DCIT - 1(3)(2), MUMBAI, (2016) 70 TAXMANN.COM 322(MUM. TRIB.) . INSOFAR THE ADDITION OF RS.3,53,550/ - THAT WAS MADE BY THE A . O TOWARDS STOCK VARIANCE , IT WAS SUBMITTED BY THE LD. A . R THAT THE SAME WAS ON ACCOUNT OF LOSS OF STOCK. IT WAS SUBMITTED BY THE L D. A . R THAT KEEPING IN VIEW THE SUBSTANTIAL S ALES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THE MINISCULE LOSS OF STOCK COULD JUSTIFIABLY BE IGNORED. ALTERNATIVELY, IT WAS SUBMITTED BY THE LD. A . R THAT EVEN IN CASE THE ADDITION WAS TO BE SUSTAINED THEN THE CLOSING STOCK OF THE ASSESSEE WOULD BE RAISED BY THE SAID AMOUNT , AND A CONSEQUENTIAL E FFECT TO ITS OPENING STOCK OF THE IMMEDIATELY SUCCEEDING YEAR WOULD RENDER THE ADDITION AS TAX NEUTRAL. P A G E | 9 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX 10 . PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) TOOK US THROUGH THE OBSERVATIONS OF THE LOWER AUTHORITIES . I T WAS SUBMITTED BY THE LD. D . R THAT THE DRP HAD RIGHTLY UPHELD THE EXCLUSION OF THE REIMBURSEMENT OF INFRASTRUCTURE COST FROM THE OPERATING INCOME OF THE ASSESSEE. FURTHER, IT WAS AVERRED BY THE LD. D . R THAT THE DRP HAD RIGHTLY RESTRICTED THE INCLUSION OF ONLY THOSE PARTIES AS COMPARABLES IN THE FINAL LIST, WHICH WERE FUNCTIONALLY SIMILAR TO THE ASSESSEE. THE LD. D . R RELIED O N THE ORDER S OF THE LOWER AUTHORITIES. 11 . WE HAVE HE ARD THE A UTHORISED R EPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE SHALL FIRST ADVERT TO THE ADJUSTMENT OF RS. 93,57,710/ - MADE BY THE A . O TOWARDS THE ALP OF THE INTERNATIONAL TRANSA CTIONS OF THE ASSESSEE. WE SHALL FIRST FOCUS ON THE CONTENTION OF THE LD. A . R THAT IN CASE THE EXCLUSION OF TWO COMPARABLES WHICH WERE SELECTED BY THE ASSESSEE VIZ (I) CYBER MEDIA RESEARCH LTD; AND (II) ICRA ONLINE LTD. IS SET - ASIDE , THEN ITS ALP WOULD FAL L WITHIN AND NO ADJUSTMENT WOULD BE CALLED FOR IN ITS HANDS. WE HAVE PERUSED THE FUNCTIONAL PROFILE OF THE ASSESSEE AND THAT OF THE AFOREMENTIONED COMPARABLES VIZ (I) CYBER MEDIA RESEARCH LTD; AND (II) ICRA ONLINE LTD. INSOFAR CYBER MEDIA RES EARCH LTD. IS CONCERNED , IT IS THE CLAIM OF THE ASSESSEE THAT THE COMPANY OFFER S RESEARCH - BASED INSIGHTS AND CONSULTING SERVICES VIZ. MARKET INTELLIGENCE, MARKET SIZING, STAKEHOLDER SATISFACTION, GROWTH OPPORTUNITY IDENTIFICATION, INCUBATION ADVISORY, AND GO - TO - MARKET SERVICES , WHICH WERE SIMILAR TO THE SERVICE S PROVIDED BY THE ASSESSEE TO ITS AES. IT IS THE CLAIM OF THE ASSESSEE THAT AS THE SAID COMPANY WAS FUNCTIONALLY SIMILAR TO THE ASSESSEE, THEREFORE , THE SAME WAS RIGHTLY SELECTED BY THE ASSESSEE AS A COMPARABLE. IT WAS AVERRED BY THE LD. A.R THAT THE TPO HA D WRONGLY REJECTED THE SAID COMPANY I.E. CYBER MEDIA LTD. AS A COMPARABLE ON THE GROUND THAT IT P A G E | 10 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX WAS FUNCTIONALLY DIFFEREN T FROM THE ASSESSEE. THE LD. A.R TAKING US THROUGH THE ORDER OF THE TPO SUBMIT TED, THAT HE HAD OBSERVED THAT THE SAID COMPANY BEING PART OF CYBER MEDIA , SOUTH ASIAS LARGEST SPECIALITY MEDIA AND MEDIA SERVICES GROUP VIZ. CYBER MEDIA RESEARCH (CMR) HAD BEEN A FRONT RUNNER IN MARKET RESEARCH , CONSULTING AND ADVISORY SERVICES SINCE 198 6. INSOFAR AS THE OTHER COMPARABLE I.E. ICRA ONLINE LTD. IS CONCERNED, IT WAS AVERRED BY THE LD. A.R THAT THE SAID COMPANY PROVIDES OUTSOURCING SUPPORT TO ITS CLIENT S IN DATA SERVICES , RESEARCH AND ANALYTICS. FURTHER, THE KNOWLEDGE PROCESS OUTSOURCING (KPO ) DIVISION OF THE COMPANY PROVIDED FINANCIAL AND ANALYTICAL SERVICES AND SUPPORT TO ITS CLIENT S IN THE AREAS OF DATA EXTRACTION, AGGREGATION , ELECTRONIC CONVERSION OF FINANCIAL STATEMENTS, VALIDATION AND ANALYSIS, ACCOUNTING AND FINANCE , RESEARCH AND ANALY TICS ETC . IN THE BACKDROP OF THE AFORESAID SERVICES OF THE ABOVEMENTIONED COMPANY, IT WAS THE CLAIM OF THE ASSESSEE THAT THE SAME WERE SIMILAR TO THE SERVICES THAT WERE PROVIDED BY THE ASSESSEE TO ITS AES. HOWEVER, THE SAID COMPANY WAS REJECTED BY THE TPO FOR THE REASON THAT AS IT WAS IN THE KNOWLEDGE PROCESS OUTSOURCING BUSINESS, THUS, IT WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. 12 . WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDER CONSIDERATION , AND ARE UNABLE TO COMPREHEND THAT NOW WHEN IT IS A MATT ER OF RECORD THAT BOTH OF THE AFOREMENTIONED COMPAN IES VIZ. (I) CYBER MEDIA RESEARCH LTD; AND (II) ICRA ONLINE LTD., WERE ACCEPTED BY THE TPO AS COMPARABLES IN THE IMMEDIATELY LAST TWO PRECEDING YEARS I.E. A . Y S 2009 - 10 AND 2010 - 11, THEN ON WHAT PREMISE OR REASON THE SAME HAD BEEN REJECTED AS COMPARABLES FOR THE YEAR UNDER CONSIDERATION. IN THIS REGARD, WE MAY HEREIN OBSERVE THAT IT IS NOT THE CLAIM OF THE TPO/DRP THAT THE FUNCTIONAL PROFILE OF EITHER OF THE AFOREMENTIONED COMPARABLES OR T HAT OF THE ASSESSEE COMPANY HAD WITNESSED A CHANGE DURING THE YEAR UNDER CONSIDERATION AS AGAINST THAT OF THE AFOREMENTIONED P A G E | 11 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX PRECEDING YEARS, WHICH WOULD HAVE JUSTIFIED THE REJECTION OF THE SAID COMPAN IES AS COMPARABL ES FOR THE YEAR UNDER CONSIDERATION. WE ARE OF THE CONSIDE RED VIEW THAT IN THE ABSENCE OF ANY CHANGE IN THE CIRCUMSTANCES A COMPANY WHICH HAS BEEN ACCEPTED AS A GOOD COMPARABLE BY THE REVENUE IN THE EARLIER YEARS CANNOT BE WHIMSICALLY REJECTED IN A SUBSEQUENT YEAR. OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF PR. CIT - 1 VS APTARA TECHNOLOGY PVT. LTD. (ITA NO.1209 OF 2015), ORDER DATED 26/03/2018 , WHEREIN IT WAS OBSERVED AS UNDER: - 5. RE. QUESTION NO. (C): (A) THE IMPUGNED ORDER OF THE TRIBUNAL INCLUDED PEN TAMEDIA GRAPHICS LTD. AS COMPARABLE. THIS, AFTER RENDERING FINDING OF FACT THAT FOR EARLIER ASSESSMENT YEAR 2007- 08 ON IDENTICAL FACT SITUATION WHEN EXPENDITURE ON ACCOUNT OF MULTIMEDIA DEVELOPMENT AND WEB CASTING WAS INCURRED BY IT, M/S. PENTAMEDIA GRA PHICS LTD. WAS INCLUDED BY THE TPO AS A COMPARABLE TO ARRIVE AT ALP OF THE TRANSACTION ENTERED INTO BY THE RESPONDENT WITH ITS AE. IN THE ABSENCE OF REVENUE BEING ABLE TO ESTABLISH ANY DIFFERENCE IN THE FACTS FROM THAT EXISTING IN THE EARLIER ASSESSMENT YEAR 2007-08 TO THAT EXISTING IN THE SUBJECT ASSESSMENT YEAR, THERE IS NO WARRANT TO EXCLUDE THE SAME. (B) BEFORE US, THE REVENUE IS NOT ABLE TO INDICATE ANY REASON AS TO WHY IN THE ABSENCE OF ANY CHANGE IN THE CIRCUMSTANCES IN THE SUBJECT ASSESSMENT YEAR TO THAT IN THE EARLIER ASSESSMENT YEAR THE EXCLUSION OF PENTAMEDIA GRAPHICS LTD. AS COMPARABLE WAS JUSTIFIABLE. WE FIND THAT THE VIEW TAKEN BY THE TRIBUNAL IN THE IMPUGNED ORDER OF INCLUDING PENTAMEDIA GRAPHICS LTD. AS A COMPARABLE IS A POSSIBLE VIEW. 13 . STILL FURTHER, WE FIND THAT A SIMILAR VIEW HAD ALSO BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF THOMAS COOK (INDIA) LTD. VS DCIT - 1(3)(2), MUMBAI, (2016) 70 TAXMANN.COM 322(MUM ) . IN THE AFOREMENTIONED CASE, IT WA S OBSERVED THAT WITHOUT ASSIGNING ANY VALID REASON OF THE EARLIER YEARS STAND THE TPO CANNOT REJECT THE COMPARABLES THAT WERE FOUND AS VALID COMPARABLES IN THE PREVIOUS YEAR. THE TRIBUNAL WHILE CONCLUDING AS HEREINABOVE HAD OBSERVED THAT THOUGH THE PRINCIP LE OF RES - JUDICATA DO NOT APPLY TO THE INCOME TAX PROCEEDINGS , BUT THE RULE OF CONSISTENCY APPLIES. P A G E | 12 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX 14 . WE ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE AFORESAID OBSERVATIONS AND THE SETTLED POSITION OF LAW , THE WHIMSICAL REJECTION OF THE AFOREM ENTIONED COMPANIES VIZ (I) CYBER MEDIA RESEARCH LTD; AND (II) ICRA ONLINE LTD. BY THE TPO FOR BENCHMARKING THE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES DURING THE YEAR UNDER CONSIDERATION NOT BEING JUSTIFIED, THUS CANNOT BE SUSTAI NED AND IS LIABLE TO BE VACATED. IN TERMS OF OUR AFORESAID OBSERVATIONS WE DIRECT THE AO/TPO TO RE - WORKOUT THE ALP IN THE HANDS OF THE ASSESSEE AFTER INCLUDING THE AFOREMENTIONED COMPANIES I.E. (I) CYBER MEDIA RESEARCH LTD; AND (II) ICRA ONLINE LTD. AS COM PARABLE S IN THE FINAL LIST OF COMPARABLES. IN CASE, THE CLAIM OF THE ASSESSEE THAT AFTER INCLUDING THE AFOREMENTIONED COMPANIES ITS ALP WOULD FALL WITHIN THE RANGE OF IS FOUND TO BE IN ORDER THEN NO ADJUSTMENT TO THE ALP WOULD BE CALLED FOR I N THE HANDS OF THE ASSESSEE. 15 . WE SHALL NOW ADVERT TO THE CONTENTION ADVANCED BY THE LD. A . R THAT THE LOWER AUTHORITIES HAD ERRED IN ADDING AN AMOUNT OF RS.3,53,550/ - IN RESPECT OF DIFFERENCE BETWEEN THE CLOSING STOCK AND OPENING STOCK , AND HAS FURT HER ERRED IN TREATING THE SAME AS AN UNEXPLAINED CREDIT IN THE HANDS OF THE ASSESSEE. IT WAS OBSERVED BY THE A . O THAT ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE AS REGARDS THE VALUATION OF STOCK, IT WAS NOTICED THAT THERE WAS PERCEPTIBLE DIFFERENCE IN THE VALUATION OF THE CLOSING STOCK AS AGAINST THAT OF THE OPENING STOCK AND THE PURCHASE PRICE OF THE GOODS. IT WAS NOTICED BY THE A . O THAT ON A PERUSAL OF THE DETAILS FILED BY THE ASSESSEE , IT EMERGED THAT IN RESPECT OF CERTAIN COMMODITIES THE AVERAG E PRICE OF THE COMMODITIES IN THE CLOSING STOCK WAS LOWER AS AGAINST THE PURCHASE PRICE DURING THE YEAR AS WELL AS ITS VALUATION IN THE OPENING STOCK . OBSERVING THAT THE ACCOUNTING STANDARD LAID DOWN BY THE ICAI REQUIRED THAT THE CLOSING STOCK NEED S TO BE VALUED AT LOWER OF THE COST P A G E | 13 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX OR THE MARKET PRICE, T HE A . O DIRECTED THE ASSESSEE TO PRODUCE THE STOCK DETAILS IN A SPECIFIED FORMAT WHICH CONTAINED IN DETAIL THE OPENING VALUATION, PURCHASE PRICE AND CLOSING VALUE OF EACH COMMODITY THAT WAS USED BY T HE ASSESSEE COMPANY FOR MANUFACTURING AND TRADING PURPOSE. ON VERIFICATION OF DETAILS FURNISHED BY THE ASSESSEE, IT WAS OBSERVED BY THE A . O THAT THERE WAS A DIFFERENCE OF RS.3,53 , 550/ - BETWEEN THE CLOSING STOCK AND OPENING STOCK SHOWN BY THE ASSESSEE. AS THE ASSESSEE FAILED TO RECONCILE THE AFORESAID DIFFERENCE, THEREFORE, THE A . O IN THE DRAFT ASSESSMENT ORDER PROPOSED AN ADDITION OF RS.3,53,550/ - AS AN UNEXPLAINED CREDIT IN THE HANDS OF THE ASSESSEE. 16 . THE ASSESSEE ASSAILED THE AFORESAID PROPOSED AD DITION OF RS.3,53,550/ - TOWARDS STOCK VALUATION BEFORE THE DRP. THE DRP, AFTER DELIBERATING UPON THE FACTS DIRECTED THE A . O TO DELETE THE ADDITION IF THE VARIATION IN THE STOCK WAS RECONCILED BY THE ASSESSEE. THE A . O GIVING EFFECT TO THE DIRECTIONS OF THE DRP CALLED UPON THE ASSESSEE TO RECONCILE THE DIFFERENCE OF RS.3,53,550/ - ON ACCOUNT OF VALUATION OF INVENTORIES. HOWEVER, AS THE ASSESSEE FAILED TO RECONCILE THE DISCREPANCY/DIFFERENCE IN THE STOCK, THEREFORE, THE AO MADE AN ADDITION OF RS.3,53,550/ - . 17 . WE HAVE DELIBERATED AT LENGTH ON THE ISSUE UNDER CONSIDERATION IN THE BACKDROP OF CONTENTIONS ADVANCED BY THE A UTHORIZED R EPRESENTATIVES FOR BOTH THE PARTIES. ADMITTEDLY, THE ASSESSEE DESPITE HAVING BEEN AFFORDED AN OPP ORTUNITY BY THE AO WHILE GIVING EFFE CT TO THE DIRECTIONS OF THE DRP, HOWEVER MISERABLY FAILED TO RECONCILE THE DISCREPANCY/DIFFERENCE IN THE INVENTORIES AS WAS EARLIER BROUGHT OUT BY THE THEN A . O IN THE DRAFT ASSESSMENT ORDER. RATHER, THE O BSERVATIONS OF THE A . O THAT THE AVERAGE PRICE OF T HE COMMODITIES IN THE CLOSING STOCK WAS FOUND TO BE LOWER THAN ITS PURCHASE PRICE DURING THE YEAR , P A G E | 14 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX AS WELL AS ITS VALUATION IN THE OPENING STOCK COULD NOT BE SUCCESSFULLY DISLODGED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. WE FIND THAT THE ASSESSEE HAD SUBMITTED BEFORE THE DRP THAT THE CLOSING STOCK WAS VALUED ON F IRST IN F IRST OUT (FIFO) BASIS AND THE VALUATION WAS AS PER ACCOUNTING STANDARDS LAID DOWN BY ICAI. IT WAS THE CLAIM OF THE ASSESSEE THAT AS THERE IS FLUCTUATION IN PRICES DURING T HE YEAR, AND RESULTANTLY THE PURCHASE PRICE PER UNIT OF THE GOODS WOULD NOT TALLY WITH THE PER UNIT COST OF THE CLOSING STOCK , THEREFORE, THE AO WAS IN ERROR IN DRAWING ADVERSE INFERENCES ON THE SAID COUNT IN THE HANDS OF THE ASSESSEE . IT WAS FURTHER SUB MITTED BY THE ASSESSEE BEFORE THE DRP THAT THE DIFFERENCE IN THE VALUATION OF STOCK HAD ARISEN ONLY DUE TO SOFTWARE SYSTEM WHILE PREPARING THE STOCK STATEMENT AS PER THE FORMAT THAT WAS REQUIRED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THE LD. A . R HAD SUBMITTED BEFORE US THAT THE VARIANCE IN THE VALUATION OF STOCK WAS ON ACCOUNT OF LOSS OF STOCK. WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE AFORESAID CONTENTION OF THE LD. A . R. IN THE COURSE OF PROCEEDINGS BEFORE THE DRP, IT WAS CLAIM OF T HE ASSESSEE THAT THE VARIANCE IN THE VALUATION OF STOCK WAS ON ACCOUNT OF THE SOFTWARE SYSTEM WHILE PREPARING THE STATEMENT OF STOCK IN THE FORMAT AS WAS REQUIRED DURING THE ASSESSMENT PROCEEDINGS . HOWEVER, IN SHARP CONTRADICTION OF ITS EARLIER STAND , IT I S NOW SUBMITTED BEFORE US THAT THE SAID VARIANCE HAD ARISEN ON ACCOUNT OF LOSS OF STOCK. BE THAT AS IT MAY, IN THE ABSENCE OF ANY PLAUSIBLE EXPLANATION AS REGARD S THE DIFFERENCE OF RS.3,53,550/ - IN THE VALUATION OF THE STOCK, WE FIND NO REASON TO DISLODGE THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT THE ASSESSEE HAD FAILED TO RECONCILE THE VARIANCE IN THE STOCK . HOWEVER, WE FIND OURSELVES TO BE IN AGREEMENT WITH THE CONTENTION OF THE LD. A . R THAT IN CASE THE EXPLANATION OF THE ASSESSEE AS REGARDS THE DISC REPANCY IN STOCK OF RS.3,53,550/ - WAS NOT TO BE ACCEPTED, THEN THE ADDITION TO THE SAID EFFECT COULD ONLY HAVE BEEN MADE BY INCREASING P A G E | 15 ITA NO.2659/MUM/2016 A.Y. 2011 - 12 M/S BASELL POLYOLEFINS INDIA PVT. LTD. VS. ASST. COMMISSIONER OF INCOME TAX THE VALUE OF THE CLOSING STOCK IN THE HANDS OF THE ASSESSEE. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS UPH O LD THE ADDITION OF RS . 3,53,550/ - . 18 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 19 /12/2018 SD/ - SD/ - ( G. MANJUNATHA ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 19.12.2018 PS. SASHI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI