M/s Reitzel India Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-5(1)(1), Bangalore

ITA 3329/BANG/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4793 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 17-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MAHAVEER C JAIN
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT(TP)A NO.3329/BANG/2018 ASSESSMENT YEAR : 2014-15 M/S REITZEL INDIA PVT. LTD., PLOT NO.98-99, KIADB INDUSTRIAL AREA, KUNIGAL, TUMKUR. PAN AACRP 4566 P VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-5(1)(1), BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI MAHAVEER C JAIN, C.A RESPONDENT BY : SHRI PRADEEP KUMAR, CIT (DR) DATE OF HEARING : 05.11.2019 DATE OF PRONOUNCEMENT : 08.11.2019 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ASSESSMENT ORDER DATED 15-10-2018 PASSED BY THE ASSESSING OFFI CER (AO) FOR ASSESSMENT YEAR 2014-15 U/S 143(3) R.W.S. 144C(13) OF THE ACT IN PURSUANCE OF DIRECTIONS GIVEN BY LD DISPUTE RESOLUT ION PANEL (DRP). 2. ALL THE ISSUES URGED BY THE ASSESSEE RELATE TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE AO. IT(TP)A NO.3329 /BANG/2018 PAGE 2 OF 6 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF G ROWING, PROCESSING AND EXPORTING A VEGETABLE CALLED GHERKINS TO ITS AS SOCIATED ENTERPRISES (AE). DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAS MADE EXPORTED GHERKINS FOR A SUM OF RS .91.62 CRORES TO ITS AE AND ALSO PAID FEE FOR TECHNICAL SERVICES OF RS.1.80 CRORES. THE LD A.R SUBMITTED THAT THE ASSESSEE ADOPTED TNMM METHOD TO BENCH MARK ITS INTERNATIONAL TRANSACTIONS. THE PRO FIT LEVEL INDICATOR (PLI) WAS ADOPTED AS OPERATING PROFIT/OPE RATING COST. THE ASSESSEE SELECTED A SINGLE COMPANY NAMED M/S GL OBAL GREEN COMPANY LTD AS COMPARABLE COMPANY. THE TPO NOTICED THAT THE ABOVE SAID COMPARABLE COMPANY WAS MAKING PERSISTENT LOSSES AND FURTHER NOTICED THAT THE ASSESSEE HAS NOT APPLIED A NY QUALITATIVE FILTER FOR SELECTION OF THE COMPARABLE COMPANIES. ACCORDINGLY THE TPO REJECTED THE T P STUDY CONDUCTED BY THE ASSESSE E. THE TPO SELECTED SEVEN COMPARABLE COMPANIES BY APPLYING VAR IOUS FILTERS, WHOSE AVERAGE MARGIN WORKED OUT TO 10.17%. ACCORDI NGLY HE MADE TRANSFER PRICING ADJUSTMENT OF RS.5,98,07,371/-. T HE SAME WAS CONFIRMED BY LD DRP. 4. THE LD A.R SUBMITTED THAT COMPARABLE COMPANIE S SELECTED BY THE LD TPO ARE ENGAGED IN FOOD PROCESSING, WHICH IS TOTALLY DIFFERENT FROM GHERKINS (VEGETABLE) PROCESSED & EXPORTED BY T HE ASSESSEE. HE FURTHER SUBMITTED THAT THE TPO SHOULD HAVE SELEC TED COMPANIES ENGAGED IN PROCESSING AND EXPORT OF GHERKINS FOR TH E PURPOSE OF BENCH MARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY. HE SUBMITTED THAT THE ASSESSEE IS A MEMBE R OF M/S INDIAN GHERKIN EXPORTERS ASSOCIATION AND FOLLOWING COMPANIES, IT(TP)A NO.3329 /BANG/2018 PAGE 3 OF 6 WHO ARE MEMBERS OF THE ABOVE SAID ASSOCIATION, ARE CARRYING ON IDENTICAL BUSINESS ACTIVITIES:- A) VRD BEST FOODS LTD. B) BNAZRUM AGRO EXPORTS PVT. LTD. C) GARDEN CITY AGRO EXPORTS PVT. LTD. D) GOOD GREENS INDIA PVT. LTD. E) IFG INNOVATIVE FOODS PVT. LTD. F) EXOTIC AGRO PVT. LTD. G) GREEN AGRO PACK PVT. LTD. H) GREEN PICKLES PVT. LTD. I) KEN AGRITECH LTD. J) KOELEMAN INDIA PVT. LTD. K) NEO FOODS PVT. LTD. L) UNICORN PICKLES PVT. LTD. 5. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS G ATHERED ANNUAL REPORTS OF THE ABOVE SAID COMPANIES. ACCORDINGLY, HE SUBMITTED THAT THE TPO MAY BE DIRECTED TO BENCH MARK THE INTE RNATIONAL TRANSACTIONS BY CONSIDERING THE ABOVE SAID COMPANIE S AS COMPARABLE COMPANIES. 6. THE LD A.R FURTHER SUBMITTED THAT THE TPO DI D NOT CONSIDER EXPORT INCENTIVES AS PART OF OPERATING INCOME, WHIL E COMPUTING MARGINS. HE SUBMITTED THAT THE EXPORT INCENTIVES A RE PART OF OPERATING INCOME AS PER THE DECISION RENDERED BY HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. WELSPUN ZUCCHI TE XTILES LTD (391 ITR 211). ACCORDINGLY HE PRAYED THAT THE AO/TPO MA Y BE DIRECTED IT(TP)A NO.3329 /BANG/2018 PAGE 4 OF 6 TO WORK OUT PLI BY TAKING EXPORT INCENTIVES AS PART OF OPERATING INCOME. 7. THE LD A.R FURTHER SUBMITTED THAT THE TPO HA S CONSIDERED OUTSTANDING RECEIVABLES DUE FROM AE AS AN INTERNAT IONAL TRANSACTION. HE SUBMITTED THAT THE SAME CANNOT BE CONSIDERED AS INTERNATIONAL TRANSACTION. 8. WE HEARD LD D.R AND PERUSED THE RECORD. WE FIND MERIT IN THE PRAYER OF THE ASSESSEE TO CONSIDER THE COMPANIE S, WHICH ARE ENGAGED IN THE SIMILAR LINE OF BUSINESS IN THE VERY SAME PRODUCT, AS COMPARABLE COMPANIES. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE COMPARABLES SELECTED BY TPO ARE ENGAGED IN DIFF ERENT ACTIVITIES, THOUGH THEY ARE ENGAGED IN FOOD PROCESSING ONLY. T HE LD A.R SUBMITTED THAT THE ASSESSEE HAS ALREADY GATHERED AN NUAL REPORTS OF COMPANIES DEALING IN THE VERY SAME PRODUCT, I.E., G HERKINS DEALT WITH BY THE ASSESSEE. ACCORDINGLY WE ARE OF THE VI EW THAT THE ISSUE RELATING TO BENCH MARKING OF INTERNATIONAL TRANSACT IONS REQUIRES FRESH EXAMINATION AT THE END OF THE AO/TPO BY CONSI DERING THE FRESH COMPARABLE COMPANIES ALSO CITED ABOVE. 9. THE ISSUE RELATING TO EXPORT INCENTIVES, I. E., WHETHER THEY ARE PART OF OPERATING INCOME OR NOT HAS SINCE BEEN SETT LED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF WELSPUN ZUCCHI TEX TILES LTD (SUPRA). ACCORDINGLY, WE DIRECT THE AO/TPO TO CONS IDER EXPORT INCENTIVES AS PART OF OPERATING INCOME. IT(TP)A NO.3329 /BANG/2018 PAGE 5 OF 6 10. THE NEXT ISSUE CONTESTED BY THE ASSESSEE I S WHETHER THE OUTSTANDING RECEIVABLES DUE FROM AE IS AN INTERNATI ONAL TRANSACTION OR NOT. SINCE WE ARE RESTORING MAIN ISSUE TO THE F ILE OF AO/TPO, WE RESTORE THIS ISSUE ALSO TO THE FILE OF AO/TPO FOR EXAMINING IT AFRESH. 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SE T ASIDE THE ORDER PASSED BY THE AO ON THE ABOVE SAID ISSUES AND RESTO RE THEM TO THE FILE OF AO/TPO. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH NOVEMBER, 2019. SD/- (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/- (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 8TH NOVEMBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.