ACIT, New Delhi V. M/s. Unipatch Rubber Ltd., New Delhi

ITA 3267/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3544 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 14-06-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 28-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B N GOSWAMI
• Keywords: Transfer pricing; International transaction; Rule of consistency; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I - 2 , NEW DELHI BEFORE SH. H.S. SIDHU , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 3267 /DE L/ 2014 ASSESSMENT YEAR: 2004 - 05 ACIT, CIRCLE - 18(1), NEW DELHI VS. M/S. UNIPATCH RUBBER LTD., 10, SAKET COMPLEX, SAKET, NEW DELHI PAN : AAACU0325P (APPELLANT) (RESPONDENT) APPELLANT BY SH. B.N. GOSWAMI, ADV. RESPONDENT BY SH. SANJAY KUMAR YADAV, SR.DR DATE OF HEARING 23.10.2017 DATE OF PRONOUNCEMENT 06.11.2017 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE R EVENUE IS DIRECTED AGAINST ORDER DATED 31/03/2014 PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - XX, NEW DELHI FOR ASSESSMENT YEAR 2004 - 05, RAISING FOLLOWING GROUNDS: 1. LEARNED CIT(A) HAD ERRED IN DELETING T.P. ADDITION AMOUNTING TO RS.1,26,23,404/ - MADE BY THE A.O. ON ACCOUNT OF DIFFERENTIAL AMOUNT U/S 92CA(3) OF THE I.T. ACT, 1961. 2. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD, OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE IS A JOINT VENTURE BETWEEN TEC H INTERNATIONAL USA AND KHEMKA G ROUP, NEW DELHI. 2 ITA NO . 3267/DEL/2014 THE ASSESSEE COMPANY WAS ENGAGED IN SELLING OF TYRE AND TUBE REPAIR PATCHES MANUFACTURED FROM ITS PLANTS LOCATED AT BHIWADI (RAJASTHAN), GWALIOR (MADHYA PRADESH) AND BANGALORE (KARNATAKA). THE ASSESSEE REPOR TED FOLLOWING INTERNATIONAL TRANSACTIONS: SL. NO. DESCRIPTION OF TRANSACTIONS METHOD VALUE (IN R S. ) 1. PURCHASE OF RAW MATERIAL - 37,58,286 2. SALE OF FINISHED GOODS CUP & CPM 5,04,93,617 2.1 T HE TRANSFER PRICING OFFICER (TPO) , WAS OF THE VIEW THAT THE PRICES CHARGED BY THE ASSESSEE FROM ITS ASSOCIATED ENTERPRISES (AE) WERE SUBSTANTIALLY LOWER THAN THE COMPARABLE UNCONTROLLED PRICES. THE LEARNE D TPO WORKED OUT SIMPLE ARITHMETIC AVERAGE PRICE DIFFERENCE TO 26.2 %. HE FURTHER OBSE RVED THAT THERE WERE NO EXACT DETAILS OF ITEM - WISE SALES MADE TO THE AE. HE FURTHER OBSERVED THAT THERE WERE NO OTHER DETAILS AVAILABLE ON RECORD. THE LEARNE D TPO HELD THAT TO BE FAIR ENOUGH, THERE WAS AT LEAST A PRICE DIFFERENCE OF 25% FROM THE UNCONTROLL ED PRICE AND THE ARM S LENGTH PRICE OF THE INTERNATIONAL TR ANSACTION RELATING TO SALES OF T YRE AND TUBE REPAIRS PATCHES WAS DETERMINED AT A VALUE OF HIGHER BY 25% OF THE SALE VALUE AS UNDER: SALES MADE TO THE AE AS PER FORM NO. 3CEB 5,04,93,617 ARM S LENGTH PRICE @ 125% OF THE SALE PRICE 6,31,17,021 DIFFERENCE 1,26,23,404/ - 2.2 T HE ASSESSING OFFICER INCLUDED THE SAID ADDITION PROPOSED BY THE LEARNE D TPO IN THE ASSESSMENT ORDER PASSED ON 28/12/2006. THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSING OFFICER BEFORE THE LD. CIT - ( A ) AND FILED ADDITIONAL EVIDENCES SUPPORTING ITS CLAIM THAT NO 3 ITA NO . 3267/DEL/2014 ADJUSTMENT WAS REQUIRED TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH ITS AE. THE LD. CIT - ( A ) FORWARDED THE ADDITIONAL EVIDENCES TO THE ASSESSING OFFICER AS WELL AS TO THE LD. TPO , WHO OBJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCES. THE LD. CIT - ( A ) AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE ON THE ISSUE OF ADJUSTMENT TO INTERNATIONAL TRANSACTIONS AND OBJECTION OF THE ASSE SSING OF FICER AND THE LD. TPO ( REPRODUCED IN THE IMPUGNED ORDER FROM PARA - 8 TO PARA - 19) ALLOWED THE ISSUE IN DISPUTE IN FAVOUR OF THE ASSESSEE WITH FOLLOWING OBSERVATIONS: 20. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT. I HAVE ALSO PERUSED THE ITEM - WISE COMPARISON CHART FILED BY THE APPELLANT. ON PERUSAL OF THE CHART AT PAGE 5 & 6 OF THE ORDER DATED 08/ 12/2006 PASSED U/S 92CA(3), IT IS OBSERVED THAT THE TPO HAS NOT CONSIDERED THE PRICES OF THE FOLLOWING ITEMS WHILE DETERMINING THE AVERAGE PRICE FOR COMPUTING THE ALP OF THE INTERNATIONAL TRANSACTIONS RELATING TO SALE OF TYRE AND TUBE REPAIR PATCHES. TUBE PATCHES S. NO. ITEM CODE PRICE CHARGED FROM AE (EXPORT TO AE) A PRICE CHARGED FROM UN - RELATED ENTERPRISE (EXPORT TO NON - AE) B PERCENTAGE DIFFERENCE 1 CYCLE ROUND 0.0075 0.0040 46.6 2 TINY ROUND 0.0124 0.0088 29.0 3 MINI ROUND 0.0189 0.0138 27.0 4 MAIL ROUND 0.0284 0.0228 19.7 5 MEDIUM ROUND 0.0508 0.0428 15.7 6 MINI OVAL 0.0227 0.0140 38.3 7 SMALL OVAL 0.0441 0.0288 34.7 TYRE PATCHES 1 CT - 10 0.1359 0.1289 5.1 2 C - 12 0.2875 0.2578 10.33 3 C - 35 1.4625 1.2943 11.50 4 ITA NO . 3267/DEL/2014 FOR ALL THE ABOVE ITEMS, THE PRICE CHARGED FROM AE (EXPORT TO AE) IS HIGHER THAN THE PRICE CHARGED FROM UN - RELATED ENTERPRISE (EXPORT TO NON - AE). MOREOVER, THERE WAS NO TRANSACTION IN NON - AE EXPORT SEGMENT FOR BP - 6, BP - 7, U/S 250, CT - 22, CT - 24, CT - 26, CT - 46, CT - 50, CT - 52, CT - 80, CT - 82, CT - 84 AND CT - 86 AND THE PRICES OF THESE ITEMS HAV E BEEN WRONGLY INCLUDED BY THE TPO FOR DETERMINING THE AVERAGE PRICE. IT IS EVIDENT THAT THE TPO HAS CONSIDERED ONLY THOSE ITEMS FOR WHICH THE PRICES CHARGED FROM NON - AE EXPORT WERE HIGHER THAN THE PRICES CHARGED FROM AE. AFTER INCLUDING CYCLE ROUND, TINY ROUND, MINI ROUND, MAIL ROUND, MEDIUM ROUND, MINI OVAL, SMALL OVAL, CT - 10, C - 12, C - 35 AND EXCLUDING BP - 6, BP - 7, U/S 250, CT - 22, CT - 24, CT - 26, CT - 46, CT - 50, CT - 52, CT - 80, CT - 82, CT - 84 AND CT - 86, THE AVERAGE PRICE DIFFERENCE BETWEEN THE AE AND THE NON - AE EXP ORT SEGMENTS WOULD BE AROUND 5.1% INSTEAD OF 26.2%. IF THE AVERAGE PRICE DIFFERENCE OF 5.1% INSTEAD OF 25% AS ADOPTED BY THE TPO IS APPLIED IN THE PRESENT CASE, THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT WITH ITS AE WOULD BE AT ARM S LENGTH PRICE AFTER ALLOWING THE ADJUSTMENT OF 26% FOR MARKETING OVERHEADS, SELLING EXPENSES AND PACKING & MATERIAL WITH RESPECT TO THE NON - AE EXPORT SEGMENT. 21. DURING THE COURSE OF THE APPELLATE PROCEEDINGS THE APPELLANT HAS SUBMITTED THAT IN SUBSEQUENT YEARS , THE TPO HAS ACCEPTED THE TRANSFER PRICING STUDY OF THE APPELLANT AND HAS NOT MADE ANY TP ADJUSTMENT. FOR READY REFERENCE, THE ORDER DATED 08/ 12/2006 PASSED U/S 92CA(3) BY THE TPO FOR AY 2005 - 06 IS REPRODUCED AS UNDER: 3. THE MAJOR INTERNATIONAL TRANSA CTIONS REPORTED IN FORM NO. 3CEB ARE SUMMARIZED AS UNDER: S.N. NATURE OF TRANSACTION METHOD USED BY ASSESSEE VALUE OF TRANSACTION (IN RUPEES) METHOD PLI 01 SALES OF GOODS CUP/CPM 52,851,839 02 PURCHASE OF GOODS CUP 2,432,805 4. AFTER EXAMINATION OF THE COMPANY S TRANSFER PRICING DOCUMENTATION AND THE FUNCTION AND ECONOMIC ANALYSIS CONTAINED THEREIN, NO ADVERSE INFERENCE IS DRAWN IN RESPECT OF THE ABOVE INTERNATIONAL TRANSACTIONS FOR THE AY 2005 - 06. IN AY 2005 - 06, THE TPO HAS NOT DRA WN ANY ADVERSE INFERENCE IN RESPECT TO THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT WITH ITS AE. THE FACTS IN THE PRESENT CASE ARE EXACTLY SIMILAR TO THE FACTS AS IN AY 2005 - 06. AFTER ALLOCATING EXPENSES UNDER VARIOUS HEADS AMONG THREE SEGMEN TS, THE APPELLANT HAS 5 ITA NO . 3267/DEL/2014 COMPUTED ITS MARGIN FOR (I) TECH (AE) EXPORT SEGMENT AT 27.11%, (II) NON - TECH (NON - AE) EXPORT SEGMENT AT 17.76% AND (III) DOMESTIC SEGMENT AT 6.41%. AFTER ALLOCATING EXPENSES, THE MARGIN IN TECH (AE) EXPORT SEGMENT IS HIGHER THAN ITS MARGIN IN NON - TECH (NON - AE) EXPORT SEGMENT AS WELL AS IN DOMESTIC SEGMENT. DURING AY 2004 - 05, THE APPELLANT HAS CLAIMED THE ADJUSTMENT OF 26% IN RESPECT TO NON - AE EXPORTS AND 31.77% IN RESPECT TO DOMESTIC SALES ON ACCOUNT OF MARKETING OVERHEADS, SELLING E XPENSES AND PACKING & MATERIAL. IN MY VIEW, THE CLAIM OF THE APPELLANT FOR ADJUSTMENT OF 26% IN RESPECT TO NON - AE EXPORTS AND 31.77% IN RESPECT TO DOMESTIC SALES ON ACCOUNT OF MARKETING OVERHEADS, SELLING EXPENSES AND PACKING 86 MATERIAL IS PROPER. IF THE COMPARABLE UNCONTROLLED PRICE METHOD WITH THE AVERAGE PRICE DIFFERENCE OF 5.1% INSTEAD OF 25% AS PER THE ORDER DATED 08/12/2006 PASSED BY THE TPO U/S 92CA(3) IS APPLIED AND THE ADJUSTMENT OF 26% IN RESPECT TO THE NON - AE EXPORT SEGMENT IS ALLOWED, THE INTER NATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT WITH ITS AE IN TECH (AE) EXPORT SEGMENT ARE AT ARM S LENGTH PRICE AND THERE IS NO REQUIREMENT FOR MAKING ANY ADJUSTMENT IN THIS REGARD. IN MY VIEW THE INTERNATIONAL TRANSACTIONS WITH ITS AE HAVE BEEN UNDERT AKEN BY THE APPELLANT AT ARM S LENGTH PRICE IN THE INSTANT CASE. ACCORDINGLY, THE AO/TPO IS DIRECTED TO DELETE THE TRANSFER PRICING ADJUSTMENT OF RS. 1,26,23,404/ - . THIS GROUND OF APPEAL IS ALLOWED. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. 2.3 A GGRIEVED, WITH THE FINDING OF THE LEARNED CIT - ( A ), THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. THE GROUND NO. 2 OF THE APPEAL, BEING GENERAL IN NATURE , WE ARE NOT REQUIRED TO ADJUDICATE UPON AND ACCORDINGLY , DISMISSED AS INFRUCTUOUS. 4. THE GROUND NO. 1 OF THE APPEAL IS RELATED TO DELETION OF THE ADJUSTMENT OF RS.1,26,23,404/ - TO THE INTERNATIONAL TRANSACTION MADE BY THE ASSESSING OFFICER. 4.1 THE LD. SR. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUB MITTED THAT THE ADJUSTMENT TO THE INTERNATIONAL TRANSACTION MADE BY THE ASSESSING OFFICER WAS APPROPRIATE IN THE CIRCUMSTANCES OF THE CASE. 4.2 THE LD. COUNSEL OF THE ASSESSEE, ON THE OTHER HAND , RELIED ON THE ORDER OF THE LEARNED CIT - A AND SUBMITTED THAT CASE OF THE ASSESSEE HAS BEEN SUBJECTED TO TRANSFER PRICING AUDIT BY THE LEARNED TPO FOR MANY YEARS AND NO ADJUSTMENT HAS BEEN MADE IN THE CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR S 2005 - 06, 2006 - 07, 2010 - 11, 2011 - 12, 2012 - 13, 2013 - 14. ACCORDING TO HIM, IN VIEW OF THE RULE OF CONSISTENCY, AND NO 6 ITA NO . 3267/DEL/2014 CHANGE OF FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION, NO ADJUSTMENT WAS REQUIRED TO THE INTERNATIONAL TRANSACTION CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. 4.3 IN THE REJOINDER, THE LD. SR. DR SUBMITTED THAT RULE OF CONSISTENCY CANNOT BE APPLIED BECAUSE IN EACH YEAR , THE COMPARABLE UNCONTROLLED PRICE MIGHT BE DIFFERENT. 4.4 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL. WE FIND THAT BEFORE THE LD. CIT - ( A ) THE ASSESSEE FIL ED DETAILED OBJECTIONS AGAINST THE ADJUSTMENT MADE TO THE INTERNATIONAL TRANSACTION. THE ASSESSEE FILED DETAILED REASONS FOR LOWER PRICES CHARGED TO THE AE. ACCORDING TO THE ASSESSEE , VARIOUS OVERHEAD INCLUDING FREIGHT, INSURANCE, COMMISSION ON SALES, ADVE RTISING AND SALES PROMOTION, DISCOUNT AND INCENTIVES ETC . WAS NOT INCURRED ON THE SALES MADE TO THE AE. THE ASSESSEE ALSO SUBMITTED THAT IN MANY ITEMS PRICES CHARGED TO THE AE WA S HIGHER THAN THE PRICES CHARGED TO DOMESTIC PARTIES. THE LEARNE D CIT - ( A ) HAS ALSO NOTED THAT NO ADVERSE INFERENCE WAS DRAWN BY THE LD. TPO IN RESPECT OF INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH ITS AE IN ASSESSMENT YEAR 2005 - 06. BEFORE US , THE LD. COUNSEL PRODUCE D TRANSFER PRICING ORDERS FOR ASSESSMENT YEARS 2005 - 0 6, 2006 - 07 2010 - 11, 2012 - 13 AND 2013 - 14. WE FIND THAT IN ALL THOSE YEARS, THE LD.TPO HAS NOT MADE ANY ADJUSTMENT TO THE AMOUNT OF INTERNATIONAL TRANSACTIONS. 4.5 IN VIEW OF THE DETAILED S UBMISSIONS MADE BY THE ASSESSEE , WHICH WERE FORWARDED TO THE ASSESSING OFFICER AND THE LD. TPO , THE LD. CIT - ( A ) CONCLUDED THAT THE AVERAGE PRICE DIFFERENCE BETWEEN THE T R A N S A C T I O N S W I T H AE AND THE DOMESTIC TRANSACTIONS WOULD BE AROUND 5.1% AND IF THE MARKETING OVERHEADS, SELLING EXPENSES, PACKING AND MATERIAL EXPENSES ETC . INCURR ED WITH RESPECT TO THE NON AE EXPORT SEGMENT ARE CONSIDERED , 7 ITA NO . 3267/DEL/2014 THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH THE AE WOULD BE AT ARM S LENGTH PRICE. 4.6 IN OUR OPINION, THE FINDING OF THE LD. CIT - ( A ) ON THE ISSUE IN DISPUTE IS WELL REASONED AN D NO INTERFERENCE IS REQUIRED ON OUR PART, ACCORDINGLY WE UPHOLD THE FINDING OF THE LD. CIT ( A ) ON THE ISSUE IN DISPUTE AND THE GROUND OF THE APPEAL IS DISMISSED. 5. IN THE RESULT, APPEAL OF THE R EVENUE IS DISMISSED. THE DECISION IS PRONOUN CED IN THE OPEN COU RT ON 6 T H NOV . , 201 7 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 6 T H NOVEMBER , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI