THE ITO-19(1)(3), MUMBAI V. EXQUISITE JEWELLERY, MUMBAI

ITA 3105/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7080 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Transfer pricing; International transaction
• Section: 92A; 234B; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K , MUMBAI BEFORE SHRI B.R. BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 3105 /MUM/2016 ASSESSMENT Y EAR: 2008 - 09 & ITA NO. 3106/MUM/2016 ASSESSMENT Y EAR: 2008 - 09 THE ITO - 19(1)(3), ROOM NO. 220, MAT RU MANDIR MUMBAI - 400007 VS. M/S EXQUISITE JEWELLERY, 615/624, PAREKH MARKET, 39, KENNEDY BRIDGE, OPERA HOUSE, MUMBAI 400004 PAN : AABFE2622D (APPELLANT) (RESPONDENT) REVENUE BY : SHRI V. JENARDHANAN (DR) ASSESSEE BY : DR. K. SHIVRAM (A R) DATE OF HEARING: 21 /05 /201 8 DATE OF PRONOUNCEMENT: 31 / 05 /201 8 / O R D E R PER RAM LAL NEGI, JM THESE APPEALS HAVE BEEN FILED BY THE REVEN UE AGAINST THE TWO ORDER S DATED 22.01.2016 PASSED BY TH E C OMMISSIONER OF INCOME TAX (APPEALS) (FOR SHORT THE CIT (A)) - 5 6 , MUMBAI PERTAINING TO THE ASSESSMENT YEAR 2008 - 09 . VIDE THE FIRST ORDER , THE LD. CIT (A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INC OME TAX ACT, 1961 (FOR SHORT THE ACT) AND VIDE SECOND ORDER THE LD. CIT (A) HAS DIRECTED THE AO TO PASS RECTIFICATION U/S 154 AND DELETED THE CHARGES OF INTEREST U/S 234B ON ADDITIONAL INCOME LEVIED U/S 92CA. SINCE, BOTH THE APPEALS PERTAIN TO THE SAME ASSESSEE FOR THE SAME ASSESSMENT YEAR, THE SAME WERE CLUBBED , HEARD 2 ITA NO S 3105 & 3106 /MUM/201 6 ASSESSMENT YEAR: 20 08 - 09 TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 3105 /MUM/2016 (ASSESSMENT YEAR: 2008 - 09 ) BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF DIAMOND STUDDED JEWELLERY , FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 29,686/ - AFTER CLAIMING EXEMPTION U/S 10A OF THE ACT. DURING THE COURSE OF ASSESSMENT, THE AO REFERRED THE ISSUE RELATING TO THE INTERNATIONAL TRANSACTION WITH ITS ASSOCIATE ENTERPRISES TO TRANSFER PRICING OFFICER (TPO) U/S 92CA (1) OF THE ACT FOR DETERMINING THE ARMS LENGTH PRICE. ACCORDI NGLY, T HE TPO PASSED ORDER U/S 92CA OF THE ACT MAKING ADJUSTMENT ON ACCOUNT OF INTEREST CHARGEABLE ON EXCESS PERIOD OF CREDIT ALLOWED BY THE ASSESSEE TO THE AES AND A SUM OF RS. 2,88,55,648/ - WAS DETERMINED AS ARMS LENGTH COMPENSATION BEING INTEREST @ 18% ON DELAY OF CREDIT PERIOD AND AN ADDITION OF THIS AMOUNT WAS MADE BY THE AO. THE ASSESSEE PREFERRED APPEAL AGAINST THE SAID ORDER BEFORE THE CIT (APPEALS ), THE LD. CIT (APPEALS) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND REDUCED THE INTEREST FROM 18% TO LIBOR RATE + 2 POINTS. THE ASSESSEE FURTHER CHALLENGED THE IMPUGNED ORDER BY FILING APPEAL BEFORE THE ITAT. THE ITAT AFTER HEARING THE ASSESSEE RESTORE THE ISSUE TO THE FILE OF LD. CIT(A) FOR DECIDING THE LEGAL GROUND TAKEN BY THE ASSESSEE TO THE EFFECT THAT M/S COMBINED INTERNATIONAL INC., USA AND ENVISION LLC, USA ARE NOT COVERED WITHIN THE DEFINITION OF AE IN TERMS OF SECTION 92A(2)(I) OF THE INCOME TAX ACT, 1961. 2. AS PER THE DIRECTIONS OF THE OBSERVATIONS/ DIRECTIONS OF THE ITAT, THE LD. CIT(A ) HAS PASSED THE IMPUGNED ORDER AND ALLOWED THE APPEAL O F THE ASSESSEE . THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER. 3 ITA NO S 3105 & 3106 /MUM/201 6 ASSESSMENT YEAR: 20 08 - 09 3. THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUNDS: - . 1. WHETHER LD. CIT (A) IS JUSTIFIED IN DECID ING THAT M/S COMBINE INTERNATIONAL INC USA & M/S ENVISION LLC USA ARE NOT THE ASSOCIATED ENTERPRISE OF ASSESSEE ON THE BASIS OF ASSESSEES SUBMISSION, WHEN THE ASSESSEE HIMSELF HAD STATED THESE ENTITIES AS ASSOCIATED ENTERPRISE IN FORM 3CEB? 2. WHETHER LD. C IT (A) IS JUSTIFIED IN DECIDING THAT M/S COMBINE INTERNATIONAL INC USA & M/S ENVISION LLC USA ARE NOT THE ASSOCIATED ENTERPRISE OF ASSESSEE WITHOUT ASKING FOR TPOS COMMENTS ON THE SUBMISSION PRODUCED BY THE ASSESSEE & THEREBY DENYING JUSTICE TO THE OTP ? 4. AT THE OUTSET, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE LD. CIT(A) HAS PASSED THE IMPUGNED ORDER WITHOUT GIVING ANY FINDINGS WHETHER M/S COMBINED INTERNATIONAL INC., USA AND ENVISION LLC, USA ARE AES WITHIN THE MEANING OF SECTION 92A(2)( I) OF THE ACT. MOREOVER, THE LD. C I T(A) HAS DECIDED THE ISSUE WITHOUT TAKING INTO CONSIDERATION THE TPOS COMMENTS ON THE SUBMISSIONS MADE BY THE ASSESSEE . 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE ORDER PASSED BY THE LD. CIT(A) SUBMITTED THAT THE LD. CIT(A) HAS PASSED THE ORDER U NDER CHALLENGED AFTER TAKING IN TO CONSIDERATION THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. COUNSEL FURTHER SUBMITTED THAT SINCE THE LD. CIT(A) HAS DECIDED THE ISSUE IN THE LIGHT OF THE DIREC TIONS GIVEN BY THE ITAT, THERE IS NO MERIT IN THE DEPARTMENTS APPEAL , HENCE LIABLE TO BE DISMISSED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE RIVAL CONTENTIONS OF THE PARTIES. THE COORDINATE BENCH OF T HE 4 ITA NO S 3105 & 3106 /MUM/201 6 ASSESSMENT YEAR: 20 08 - 09 TRIBUNAL HAS REMANDED THE APPEAL BACK TO THE FILE OF LD. CIT (A) FOR DECIDING THE ISSUE AFRESH VIDE ORDER DATED 05.12.2014 PASSED IN THE ASSESSEES APPEAL ITA NO. 4810/MUM/2012 FOR THE A.Y. UNDER CONSIDERATION. THE RELEVANT PARA OF THE ORDER OF THE CO - O RDINATE BENCH READS AS UNDER: - 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS PERUSED THE RECORD AS WELL AS AFFIDAVIT OF THE ASSESSEE AS REPRODUCED ABOVE. IT IS CLEAR FROM THE AFFIDAVIT THAT IN FORM 3CEB FILED WITH THE DEPARTMENT, THE NAME OF THE TWO PARTIE S WERE MENTIONED BY WAY OF ABUNDANT PRECAUTION. THE ISSUE WAS ALSO RAISED BEFORE THE TPO AND THE AO TO THE FACT THAT THE ASSESSEE IS NOT COVERED BY TRANSFER PRICING PROVISION FOR THE RELEVANT YEAR. THE ISSUE ALSO RAISED BEFORE THE LD. CIT (A), HOWEVER, THI S GROUND WAS NOT DISPOSED BY THE LD. CIT (A) WITHOUT DECIDING THE FACT THAT TWO ENTERPRISES WHETHER COVERED OR NOT BY THE DEFINITION OF AE IN TERMS OF SECTION 92 A)2)(I) OF THE INCOME TAX ACT, 1961, WE DO NOT WISH TO GO INTO THE MERITS OF ADDITION. THE REFORE, WE CONSIDER IT PROPER AND JUST THAT THE LD. CIT (A) SHOULD DECIDE THE LEGAL ISSUE. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, THE ISSUE NEEDS TO BE RESTORED BACK TO THE FILE OF THE CIT (A) FOR FRESH APPLICATION OF MIND AFTER VERIFICATION OF FACT. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT (A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE CIT (A) FOR DECIDING THE LEGAL GROUND TAKEN BY THE ASSESSEE TO THE EFFECT THAT M/S COMBINED INTERNATIONAL INC., USA AND ENVISION LLC, USA AR E NOT COVERED WITHIN THE DEFINITION OF AE IN TERMS OF SECTION 92A(2)(I) OF THE INCOME TAX ACT, 1961. 7. FROM THE DIRECTIONS OF THE CO - ORDINATE BENCH, IT IS AMPLY CLEAR THAT THE CO - ORDINATE BENCH HAS DIRECTED THE LD. CIT (A) TO ASCERTAIN WHETHER M/S C OMBINED INTERNATIONAL INC., USA AND ENVISION LLC, USA AES IN TERMS OF SECTION 92A(2)(I) OF THE ACT. WHEREAS THE LD. CIT (A) HAS HELD IN ITS FIN DING THAT THERE DOES NOT EXIST ANY RELATIONSHIP BETWEEN THE ASSESSEE AND THE SAID ENTERPRISES AS ENVISAGED U/S 92 A (1) AND 92A(2) OF THE ACT, I.E. THESE ARE NOT ASSOCIATED ENTERPRISES AS THERE EXIST S NO RELATIONSHIP OF MUTUAL INTEREST BETWEEN THE ASSESSEE AND THE TWO CONCERN REFERRED ABOVE. SECTION 92A (2) (I) 5 ITA NO S 3105 & 3106 /MUM/201 6 ASSESSMENT YEAR: 20 08 - 09 SAYS THAT FOR THE PURPOSE OF SUB - SECTION (1), THE TWO EN TERPRISES SHALL BE DEEMED TO BE ASSOCIATED ENTERPRISES IF, AT ANY TIME DURING THE PREVIOUS YEAR, THE GOODS OR ARTICLES MANUFACTURED OR PROCESSED BY ONE ENTERPRISE ARE SOLD TO THE OTHER ENTERPRISE OR TO PERSONS SPECIFIED BY THE OTHER ENTERPRISE AND THE PRIC ES AND OTHER CONDITIONS RELATING THERETO ARE INFLUENCED BY SUCH OTHER ENTERPRISE. IT MAY BE NOTED THAT EXISTENCE OF MUTUAL INTEREST RELATIONSHIP OR MANAGEMENT CONTROL OR OWNERSHIP CONTROL IS NOT REQUIRED FOR INVOKING PROVISIONS OF SECTION 92A (2) (I) OF TH E ACT. 8. AS PER THE ASSESSMENT ORDER, VALUE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES EXCEEDED RS. 15 CRORES. ACCORDINGLY, THE ISSUE WAS REFERRED TO THE TPO U/S 92CA (1) OF THE ACT FOR DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. SINCE, THE LD. CIT (A) HAD NOT EXAMINED THE ISSUE IN THE LIGHT OF SUB - SECTION 2 (I) OF SECTION 92A, THE SPECIFIC DIRECTION WAS ISSUED BY THE ITAT TO EXAMINE THE MATTER AFRESH IN THE LIGHT OF THE SAID SECTION. HOWEVER, WE NOTICE THAT THE LD. CIT (A) HAS AGAIN DECIDED THE ISSUE TAKING INTO CONSIDERATION THE CONDITIONS CONTEMPLATED UNDER SUB - SECTION 2 CLAUSE (A) TO (H) AND NOT TAKING INTO CONSIDERATION THE CLAUSE (I) OF THE SAID SUB - SECTION. THE LD. CIT (A) HAS NO WHERE MENTIONED THAT WHILE DEALING WITH THE AES, THE PRICE AND OTHER CONDITIONS RELATING THERETO WERE NOT INFLUENCED BY SUCH OTHER ENTERPRISE. 9. IN VIEW OF THE FACT THAT THE LD. CIT (A) HAS NOT COMPLIED WITH THE DIRECTIONS OF THE CO - ORDINATE BENCH AFORE SAID, WE ARE OF THE CONSID ERED VIEW THAT THE ISSUE IN QUESTION IS REQUIRED TO BE ADJUDICATED BY THE LD. CIT (A) IN ACCORDANCE WITH THE DIRECTION GIVEN BY THE ITAT. WE THEREFORE SET ASIDE THIS ISSUE TO THE FILE OF LD. CIT (A) TO DECIDE THE SAME AFRESH IN TH E LIGHT OF THE DIRECTIONS GIVEN BY THE CO - ORDINATE BENCH VIDE ORDER DATED 05.12.2014 DISCUSSED ABOVE. 6 ITA NO S 3105 & 3106 /MUM/201 6 ASSESSMENT YEAR: 20 08 - 09 ITA NO. 3106 /MUM/2016 (ASSESSMENT YEAR: 2008 - 09 ) THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUNDS: - . WHETHER T HE LD. CIT (A) HAS ERRED IN DIRECTING THE AO TO PASS RECTIFICATION U/S 154 SEPARATELY WHEN THE QUANTUM APPEAL IS ALREADY DECIDED? 1. WHETHER THE LD. CIT (A) ERRED IN DELETING CHARGE OF INTEREST U/S 234B ON ADDITIONAL INCOME LEVIED U/S 92CA WHICH ARE MANDATOR Y AS PER THE DECISION OF HONBLE SUPREME COURT ? 2. SINCE, WE HAVE SET ASIDE THE GROUNDS RAISED BY THE REVENUE IN ITS MAIN APPEAL, TO THE FILE OF THE LD. CIT (A) FOR DECIDING THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE CO - ORDINATE BENCH VI DE ORDER DATED 05.12.2014 , THE ORDER PASSED BY THE LD. CIT(A) IN ASSESSEES APPEAL AGAINST THE ORDER PASSED BY THE AO REJECTING THE APPLICATION OF THE ASSESSEE U/S 154 OF THE ACT ALSO NEEDS TO BE SET ASIDE. HENCE, WE SET ASIDE THE ORDER PASSED BY THE LD. C IT(A) AND SEND THIS APPEAL BACK TO THE LD. CIT (A) FOR CONSIDERING THE MATTER AFRESH. IN THE RESULT, BOTH THE APPEAL S FILED BY THE REVENUE FOR ASSESSMENT YEAR 2008 - 09 ARE ALLOWED FOR THE STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN C OURT ON 31 ST MAY, 2018 . SD/ - SD/ - ( B.R. BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 31 / 05/2018 ALINDRA, PS 7 ITA NO S 3105 & 3106 /MUM/201 6 ASSESSMENT YEAR: 20 08 - 09 / 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 . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI