Sumitomo Corporation India Private Limited, New Delhi V. DCIT, New Delhi

ITA 3516/DEL/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77748 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 04-06-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 10-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ONE AGAINST QUA NTUM
• Keywords: Transfer pricing; International transaction
• Section: 54; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I : NEW DELHI BEFORE SHRI R.S. SYAL, A.M. AND SHRI A.T. VARKEY, J.M. ITA NO.3516/DEL/2009 ASSESSMENT YEAR : 2004-05 SUMITOMO CORPORATION INDIA PRIVATE LIMITED, 4 TH FLOOR, DLF CENTRE, SANSAD MARG, NEW DELHI. PAN : AABCS1887M VS. DCIT, RANGE-9, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.6720/DEL/2013 ASSESSMENT YEAR : 2004-05 SUMITOMO CORPORATION INDIA PRIVATE LIMITED, 4 TH FLOOR, DLF CENTRE, SANSAD MARG, NEW DELHI. PAN : AABCS1887M VS. ACIT, CIRCLE 9(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE B Y : SHRI C.S. AGGARWAL, SR. ADVOCATE, SHRI HIMANSHU SHEKHAR SINHA, ADVOCATE DEPARTMENT B Y : S HRI YOGESH KUMAR VERMA, CIT, DR ITA NO.3516/DEL/2009 ITA NO.6720/DEL/2013 2 ORDER PER R.S. SYAL, AM: THESE TWO APPEALS BY THE ASSESSEE ONE AGAINST QUA NTUM AND THE OTHER AGAINST PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) - ARE DIRE CTED AGAINST THE SEPARATE ORDERS PASSED BY THE LD. CIT(A) IN RELATIO N TO THE ASSESSMENT YEAR 2004-05. ITA NO.3 ITA NO.3 ITA NO.3 ITA NO.3516 516 516 516/DEL/2009 /DEL/2009 /DEL/2009 /DEL/2009 - -- - QUANTUM QUANTUM QUANTUM QUANTUM 2. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT (A) ON 7.7.09 IN RELATION TO THE ASSESSMENT YEAR 2004-05. 3. BEFORE TAKING UP THE ISSUE ON MERITS, WE CONSIDE R IT EXPEDIENT TO OBSERVE THAT THIS APPEAL OF THE ASSESS EE WAS TAGGED WITH THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2003 -04. BOTH THE APPEALS INVOLVING SOME COMMON ISSUES WERE SIMUL TANEOUSLY ARGUED. IN FACT, IT WAS ONLY THE APPEAL FOR THE A. Y. 200304 WHICH WAS ARGUED AT LENGTH AND THE SAME ARGUMENTS FOR ADO PTED FOR THE PRESENT APPEAL WITHOUT ANY FURTHER SUBMISSIONS INSO FAR AS THE COMMON ISSUES ARE CONCERNED. VIDE A SEPARATE ORDER PASSED BY US FOR THE ASSESSMENT YEAR 2003-04, WE HAVE, INTER ALIA, HELD THAT: (I) INTEREST INCOME ON FDRS CANNOT BE INCLUDED IN T HE OPERATING REVENUE; AND ITA NO.3516/DEL/2009 ITA NO.6720/DEL/2013 3 (II) DEDUCTION FOR ADMINISTRATIVE AND OTHER EXPENSE S SHOULD BE ALLOWED @ 0.50% ON THE AMOUNT OF INVESTMENTS STANDING AT THE END OF THE YEAR. 4. AS THE FACTS AND CIRCUMSTANCES OF THE INSTANT AP PEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE FOR THE ASSESSMEN T YEAR 2003- 04 ON THE ABOVE DISCUSSED TWO ISSUES, WE HOLD THAT THE INTEREST INCOME SHOULD NOT BE INCLUDED IN THE OPERATING REVE NUE FOR THE PURPOSE OF CALCULATING NET OPERATING PROFIT MARGIN OF THE ASSESSEE UNDER TNMM. THE VIEW TAKEN BY THE LD. CIT (A) IS, THUS, UPHELD AND THIS GROUND OF THE ASSESSEE IS REJECTED. 5. INSOFAR AS THE OTHER ISSUE ABOUT THE ALLOWING OF DEDUCTION FOR ADMINISTRATIVE AND OTHER EXPENSES ON INVESTMENT MAD E IN THE FDRS ON WHICH SUCH INTEREST INCOME WAS EARNED, WE H AVE HELD THAT SUCH DEDUCTION SHOULD BE ALLOWED AT 0.50% OF T HE BALANCE OF INVESTMENTS IN FDRS AT THE END OF THE YEAR. THE TP O/AO ARE HEREBY DIRECTED TO RECOMPUTE THE NET OPERATING PROF IT MARGIN BY ALLOWING SUITABLE DEDUCTION IN ACCORDANCE WITH OUR ABOVE DIRECTION. 6. THE ONLY OTHER ISSUE WHICH WAS ARGUED BY THE LD. AR WAS AGAINST NOT ALLOWING OF ANY WORKING CAPITAL ADJUSTM ENT. HERE, IT IS RELEVANT TO NOTE THAT INITIALLY THE TP ADJUSTMENT W AS MADE TO THE TUNE OF ` 3.54 CRORE. THE TPO VIDE HIS ORDER U/S 1 54 REDUCED THE AMOUNT OF TP ADJUSTMENT TO ` 2.41 CRORE. DURING TH E COURSE OF PROCEEDINGS U/S 154, THE ASSESSEE PLEADED FOR THE G RANT OF WORKING CAPITAL ADJUSTMENT. THIS CONTENTION WAS RE JECTED WITHOUT ITA NO.3516/DEL/2009 ITA NO.6720/DEL/2013 4 GIVING ANY REASONS. IN OUR CONSIDERED OPINION, IT WOULD BE JUST AND FAIR IF THE QUESTION OF ALLOWING WORKING CAPITA L ADJUSTMENT, IF ANY, IS RESTORED TO THE TPO FOR FRESH DETERMINATION . HE WILL DECIDE THIS ISSUE AFRESH AFTER ALLOWING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE AND THEN PASS SPEAKING ORDER ON IT. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NO.67 ITA NO.67 ITA NO.67 ITA NO.6720 2020 20/DEL/2013 /DEL/2013 /DEL/2013 /DEL/2013 PENALTY U/S 271(1)(C) PENALTY U/S 271(1)(C) PENALTY U/S 271(1)(C) PENALTY U/S 271(1)(C) 8. THE ASSESSEE, VIDE THIS APPEAL, IS AGGRIEVED AGAINST CONFIRMATION OF PENALTY AMOUNTING TO ` 1,26,75,090/ - IMPOSED BY THE AO U/S 271 (1)(C) OF THE ACT. THE AO IMPOSED T HE PENALTY WITH REFERENCE TO THE TRANSFER PRICING ADDITION. THE SAI D PENALTY CAME TO BE UPHELD BY THE IMPUGNED ORDER. THE ASSESSEE I S AGGRIEVED AGAINST THE IMPOSITION OF THIS PENALTY. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THERE ARE BASICALLY THREE ISSUES INVOLVED IN THE QUANTUM APPEAL, VIZ., (I) EXCLUSION OF INTEREST INCOME FROM THE OPERATING REVENUE; (II) DEDUCTION OF ADMINISTRATIVE EXPENSES INCURRED IN RELATION TO SUCH INTEREST INCOME; AND (III) RECONSIDERATION OF THE QUESTION OF ALLOWING WORKING CAPITAL ADJUSTMENT. ITA NO.3516/DEL/2009 ITA NO.6720/DEL/2013 5 10. AFTER DECIDING THE FIRST ISSUE OF THE EXCLU SION OF INTEREST INCOME FROM THE OPERATING REVENUE AGAINST THE ASSES SEE AND THE SECOND ISSUE PARTLY IN FAVOUR OF THE ASSESSEE BY HO LDING THAT DEDUCTION FOR ADMINISTRATIVE AND OTHER COSTS SHOULD BE ALLOWED AT 0.5% OF THE INVESTMENTS IN FDRS, WE HAVE REMITTED THE MATTER TO THE TPO/AO FOR CONSIDERING AS TO WHETHER THE ASSESS EE IS ENTITLED TO ANY WORKING CAPITAL ADJUSTMENT. IF IT TURNS OUT THAT SOME WORKING CAPITAL ADJUSTMENT IS CALLED FOR, THEN THE SAME SHOULD BE GIVEN EFFECT TO FOR THE PURPOSES OF CALCULATING ALP OF THE ASSESSEES INTERNATIONAL TRANSACTIONS. IN VIEW OF T HE FACT THAT WE HAVE SENT THE MATTER BACK TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF ADDITION WHICH CONSTITUTES THE BED ROCK OF THE PRESENT PENALTY, THE FATE OF PENALTY CANNOT BE DECI DED AT THIS JUNCTURE. FOLLOWING THE VIEW TAKEN BY US FOR THE A .Y.2003-04, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER T O THE AO FOR DECIDING THE QUESTION OF PENALTY AFRESH AFTER TAKIN G DECISION IN THE QUANTUM PROCEEDINGS ABOUT THE ADDITION, IF ANY, ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 11. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.06.201 4. SD/- [ A.T. VARKEY ] [ R.S. SYAL ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 11 TH JUNE, 2014. ITA NO.3516/DEL/2009 ITA NO.6720/DEL/2013 6 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.