BG India Energy Private Limited, New Delhi V. ACIT, Gurgaon

ITA 3688/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4284 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-10-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 28-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Corroborative evidences
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `A: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER I.T. A. NO.3688/DEL/2009 ASSESSMENT YEAR : 2004-05 BG INDIA PRIVATE LIMITED, ASSTT. COMMISSIONER OF I NCOME-TAX, (FORMERLY KNOWN AS BRITISH VS. GURGAON RANGE, GURG AON. GAS INDIA PVT. LTD.), 7 TH FLOOR, WORLD TRADE TOWER, BARAKHAMBA LANE, CONNAUGHT PLACE, NEW DELHI. PAN: AAACB7268C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJAN VOHRA, CA & MS. PREETI GOEL, ADVOCATE. RESPONDENT BY: SHRI ASHOK PANDEY, CIT-DR O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 1 6.03.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSING OFFICER UNDER SECT ION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT), DATED 15.12.2006, P ERTAINING TO THE ASSESSMENT YEAR 2004-05. 2. THIS APPEAL WAS HEARD ALONG WITH THE ASSESSEES APPEALS PERTAINING TO THE ASSESSMENT YEARS 2002-03 AND 2003-04. HOWEVER, THE PRESENT APPEAL 2 PERTAINING TO THE ASSESSMENT YEAR 2004-05 IS BEING DISPOSED OF SEPARATELY BY THIS ORDER. 3. GROUND NOS.1 TO 5.8 REVOLVE AROUND THE ADDITION/ ADJUSTMENT OF RS.3,28,65,304/- TO ARMS LENGTH PRICE DETERMINED B Y THE ASSESSEE. 4. IN THIS CASE, THE AO MADE THE ADDITION OF RS.3,2 8,65,304/- AFTER RECTIFYING HIS ORDER UNDER SEC. 154 ON ACCOUNT OF A DJUSTMENT TO THE ARMS LENGTH PRICE DETERMINED BY THE ASSESSEE ON THE BASI S OF TRANSFER PRICING OFFICERS REPORT. THE ASSESSEE FURNISHED TRANSFER PRICING STUDY TAKING 12 COMPARABLES. THE ARITHMETIC MEAN OF 12 COMPARABLES WAS DETERMINED BY THE ASSESSEE AT 4.46%. THE OPERATING PROFIT OF THE ASSESSEE HAS BEEN DETERMINED BY THE ASSESSEE AT 7.61%. SINCE THE OPE RATING MARGIN EARNED BY THE ASSESSEE ON TOTAL COST WAS 7.61% AS COMPARED TO 4.46% OF THE COMPARABLES, THE ASSESSEE CONTENDED BEFORE THE AO A ND TPO THAT ALL THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY IT WITH TH E ASSOCIATED ENTERPRISES WERE AT ARMS LENGTH. HOWEVER, WHILE DETERMINING T HE ARMS LENGTH PRICE, THE TPO EXCLUDED 4 COMPARABLES, AND HAS TAKEN ONLY 8 COMPARABLES OUT OF 12 COMPARABLES TAKEN BY THE ASSESSEE. THE ARITHMET IC MEAN DETERMINED BY THE TPO IN RESPECT OF THE 8 COMPARABLES WAS HIGHER THAN THE OPERATING PROFITS SHOWN BY THE ASSESSEE, AND SO, HE FINALLY S UGGESTED AN ADJUSTMENT OF RS.3,28,65,205/- TO THE PRICE SHOWN BY THE ASSESSEE IN RESPECT OF 3 INTERNATIONAL TRANSACTIONS ENTERED INTO WITH ASSOCI ATED ENTERPRISES. THIS ADJUSTMENT OF RS.3,28,65,304/- WAS DETERMINED AFTER RECTIFYING A CLERICAL/ARITHMETIC MISTAKE COMMITTED BY THE TPO IN HIS EARLIER ORDER. 5. IN THE COURSE OF HEARING OF THIS APPEAL, THE ASS ESSEE HAS SUBMITTED AN APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCES B Y STATING AND CONTENDING AS UNDER:- IN THE TP STUDY, ASSESSEE HAD CONSIDERED 12 COMPAR ABLE COMPANIES AND THEIR PROFITABILITY FOR MULTIPLE YEAR S. THE TRANSFER PRICING OFFICER (TPO) HAD REJECTED THE F OUR COMPARABLE COMPANIES, WHICH ARE LISTED BLOW: ESQUIRE ENGINEERS & CONSULTANTS LIMITED; GILCON PROJECT SERVICES LIMITED; NIS SPARTA LIMITED; AND POWERPLANT PERFORMANCE IMPROVEMENT LIMITED. HOWEVER THEIR ANNUAL REPORTS WERE NOT AVAILABLE IN THE PUBLIC DOMAIN. THEREFORE, TPO AS WELL AS COMMISSIONER OF INCOME- TAX APPEALS [CIT(A)] HAD IGNORED TO ANALYSE THESE COMPARABLE COMPANIES, NAMELY: ESQUIRE ENGINEERS & CONSULTANTS LIMITED; NIS SPARTA LIMITED; AND POWERPLANT PERFORMANCE IMPROVEMENT LIMITED. ARE NOW AVAILABLE IN THE PUBLIC DOMAIN AND THEREFOR E, IT IS RESPECTFULLY SUBMITTED THAT THE SAME MAY NOW BE CON SIDERED FOR WORKING OUT THE ARITHMETIC MEAN MARGIN OF THE COMPA RABLE COMPANIES. SINCE THE ADDITIONAL EVIDENCE IS ESSENT IAL TO DETERMINE THE CORRECT ARMS LENGTH PRICE, THE SAME MAY KINDLY BE TAKEN ON RECORD AS HAS BEEN HELD IN THE FOLLOWIN G CASES: PRABHAVATI S. SHAH 231 ITR 1 (BOM.). CIT VS. GANIBHAI WAHABBHAI (1998) 232 ITR 900 (MP). 4 DWARKA PRASAD 63 ITD 1 (PAT)(TM) ABHAY KUMAR SHROFF 63 ITD 144 (PAT)(TM) K. VENKATARAMIAH VS. A. SEETHARAMA REDDY AIR 1963 (SC) 1526. RAJMOTI INDUSTRIES (1995) 52 ITD 286. WE ARE ENCLOSING HEREWITH THE BALANCE SHEET AND PRO FIT & LOSS ACCOUNTS ALONG WITH DETAILED WORKING OF THE MARGIN ANALYSIS OF THE ABOVE-MENTIONED THREE COMPARABLE COMPANIES. SI NCE THIS ADDITIONAL EVIDENCE, WHICH IS ESSENTIAL FOR WORKING OUT AVERAGE OF ARMS LENGTH PRICE, WE PRAY THAT THE SAME MAY BE ADMITTED AS ADDITIONAL SUPPORTING EVIDENCE. WE HOPE YOUR HONOUR WOULD TAKE THE ABOVE DOCUMENTS ON RECORD. 6. IN SUPPORT OF THE APPLICATION FOR ADDITIONAL EVI DENCES, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT FINANCIAL D ATA OF 3 COMPARABLE COMPANIES, WHICH WERE NOT AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS BEFORE THE AO/TPO AS WELL AS BEFORE THE LEARNED CIT (A), ARE NOW AVAILABLE IN PUBLIC DOMAIN. HE FURTHER SUBMITTED THAT THESE ADDITIONAL EVIDENCES ARE VITAL AND NECESSARY TO RE-WORK THE ARMS LENGTH PRI CE OF INTERNATIONAL TRANSACTIONS. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT THESE COMPARABLES WERE INCLUDED IN THE COMPARABLES TAKEN BY THE ASSESSEE IN THE TRANSFER PRICING STUDY SUBMITTED BY THE ASSESSE E TO THE AO/TPO. 7. THE LEARNED DR ON THE OTHER HAND, SUBMITTED THAT SINCE THE ASSESSEE FAILED TO FURNISH THE FINANCIAL DATA OF THE AFORESA ID 3 COMPARABLE COMPANIES BEFORE THE AO/TPO, THE TPO WAS VERY MUST JUSTIFIED IN EXCLUDING THESE 3 5 COMPANIES FROM COMPARABLES. HE FURTHER SUBMITTED T HAT THE ASSESSEE HAS NOT GIVEN ANY SUFFICIENT REASON FOR NOT SUBMITTING THE SAME BEFORE THE LOWER AUTHORITIES. HE, THEREFORE, CONTENDED THAT THE ASS ESSEES APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCES BE REJECTED. 8. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT T HE ASSESSEE SUBMITTED A TRANSFER PRICING STUDY TAKING 12 COMPARABLES WHICH INCLUDES THE AFORESAID 3 COMPANIES IN RESPECT OF WHICH THE FINANCIAL DATA HA S NOW BEEN COLLECTED BY THE ASSESSEE BEING AVAILABLE IN THE PUBLIC DOMAIN. THE FACT THAT THE FINANCIAL DATA OF THESE 3 COMPANIES OF THE CURRENT RELEVANT Y EAR WERE NOT IN PUBLIC DOMAIN AT THE TIME WHEN THE TPO PASSED THE ORDER, I S NOT IN DISPUTE. UNDER RULE 29 OF THE INCOME-TAX APPELLATE TRIBUNAL RULES, THE TRIBUNAL HAS THE POWER TO ALLOW ADDITIONAL EVIDENCE, NOT ONLY IF IT REQUIRES SUCH EVIDENCE TO ENABLE IT TO PRONOUNCE JUDGMENT BUT ALSO FOR ANY OT HER SUBSTANTIAL CAUSE. THIS DISCRETION OF THE TRIBUNAL, HOWEVER, IS TO BE EXERCISED JUDICIALLY AND NOT ARBITRARILY. IN THE PRESENT CASE, SINCE THESE 3 CO MPARABLES WERE ALREADY CITED BY THE ASSESSEE IN THE TRANSFER PRICING STUDY SUBMI TTED BY IT TO THE TPO AND THE ASSESSEE IS NOT CITING ANY NEW COMPARABLE BY WA Y OF ADDITIONAL EVIDENCE, AND SINCE THE FINANCIAL DATA OF THESE 3 COMPANIES A LREADY RELIED UPON BY THE ASSESSEE BEFORE THE TPO WERE NOT AVAILABLE IN PUBLI C DOMAIN AT THE TIME OF 6 MAKING ASSESSMENT OR TPOS REPORT, AND SINCE WE ARE OF THE VIEW THAT FINANCIAL DATA OF THESE THREE COMPANIES ARE NECESSA RY TO DETERMINE THE ARMS LENGTH PRICE PROPERLY AND JUSTIFIABLY, WE ARE INCLI NED TO ALLOW THE ASSESSEE TO FILE THESE ADDITIONAL EVIDENCES SO THAT THE MATTER MAY BE DECIDED IN ITS RIGHT AND CORRECT PERSPECTIVE AFTER CONSIDERING PROPER CO MPARABLES. IN THIS CONNECTION, WE MAY RELY UPON THE DECISION OF COORDI NATE BENCH OF THE TRIBUNAL I.E. ITAT DELHI BENCH `F IN THE CASE OF U OP LIC VS. ADDL. DIRECTOR OF INCOME-TAX (2007) 108 ITD 186 (DELHI) W HERE THE REVENUES APPLICATION UNDER RULE 29 TO ALLOW ADDITIONAL EVIDE NCES, WHICH CAME INTO THE POSSESSION OF THE REVENUE AFTER FILING OF THE A PPEAL BY THE ASSESSEE, WAS ALLOWED AFTER CONSIDERING THE SCOPE AND OBJECT OF R ULE 29 OF ITAT RULES, 1963. IN THAT CASE, THE REVENUE FILED AN APPLICATI ON UNDER RULE 29 SEEKING ADMISSION OF ADDITIONAL EVIDENCE IN CONNECTION WITH THE MAIN ISSUE WHETHER THE ASSESSEE HAD PE IN INDIA AND THOUGH THE ADDITIO NAL EVIDENCES DID CAME INTO THE POSSESSION OF THE REVENUE AFTER FILING OF THE APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. THE REVENUES APPLICATION WAS ALLOWED AND THE MATTER WAS RESTORED BACK TO THE FILE OF THE AO FOR FRESH D ECISION. THE TRIBUNAL OBSERVED THAT SINCE THE ADDITIONAL EVIDENCES SO PRO DUCED BY THE REVENUE WITH REGARD TO THE ISSUE RELATING TO PE, THE MATTER WAS NECESSARY TO BE RESTORED TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AFT ER EXAMINING THE 7 ADDITIONAL EVIDENCE AS WELL AS EXPLANATION OFFERED BY THE ASSESSEE WHILE REBUTTING THE SAME. 9. IN THIS VIEW OF THE MATTER, WE, THEREFORE, ADMIT THE ADDITIONAL EVIDENCES NOW FURNISHED BY THE ASSESSEE BEFORE US F OR CONSIDERATION AND EXAMINATION BY THE AO/TPO. SINCE THE ADDITIONAL EV IDENCES IN THE FORM OF FINANCIAL DATA OF THREE COMPARABLE COMPANIES WERE N OT BEFORE THE AO/TPO AT THE TIME OF MAKING ASSESSMENT AND THEY WERE NOT EXAMINED ON THEIR MERIT, WE FIND IT FIT AND PROPER TO RESTORE THE MATTER REG ARDING DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S ENTERED INTO BY THE ASSESSEE WITH AE TO THE FILE OF THE AO/TPO FOR FRES H ADJUDICATION AFTER EXAMINING THE ADDITIONAL EVIDENCES AS WELL AS ANY O THER EVIDENCES WHICH MAY ASSESSEE FURNISH BEFORE THE AO OR TPO OR ANY OT HER EVIDENCES THAT THE AO/TPO MAY BROUGHT ON RECORD AND SAME SHOULD BE DEC IDED IN ACCORDANCE WITH THE PROVISIONS OF LAW. THE MATTER REGARDING D ETERMINATION OF ARMS LENGTH PRICE SHALL REMAIN WIDE OPEN FOR THE AO/TPO S DECISION AS PER LAW. THE AO/TPO SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10. FURTHER, THE ASSESSEE HAS TAKEN A GROUND THAT W HILE DETERMINING THE ARMS LENGTH PRICE, WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT CRITERIA MAY ALSO BE TAKEN INTO ACCOUNT. IN THIS CONNECTION , THE ASSESSEE HAS 8 SUBMITTED BEFORE US WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT. SINCE THE MAIN ISSUE REGARDING DETERMINATION OF ARMS LEN GTH PRICE HAS BEEN RESTORED TO THE FILE OF THE AO/TPO FOR FRESH ADJUDI CATION, THESE ISSUES TAKEN BY THE ASSESSEE BEFORE US ARE ALSO TO BE RESTORED T O THE FILE OF THE AO/TPO FOR THEIR DECISION AFTER CONSIDERING THE ASSESSEES CONTENTION AND THE FACTS OF THE CASE. 11. THE ASSESSEE HAS ALSO MADE A PRAYER THAT A BENE FIT OF ADJUSTMENT FOR + OF 5% SHOULD ALSO BE ALLOWED TO THE ASSESSEE WHILE DETERMINING THE ARMS LENGTH PRICE. THIS ISSUE ALSO CLOSELY CONNECTED TO THE DETERMINATION OF ARMS LENGTH PRICE AND THEREFORE, THIS IS ALSO RESTORED T O THE FILE OF THE AO/TPO FOR THEIR DECISION AS PER LAW AFTER PROVIDING OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. 12. THE ASSESSEE HAS ALSO CONTENDED THAT IN COMPUTI NG THE OPERATING MARGIN AND PROFIT MARGIN OF THE ASSESSEE, REIMBURSE MENT OF EXPENSES SHOULD BE EXCLUDED AND IT SHOULD BE WORKED OUT ONLY ON SER VICE FEES RECEIVED BY THE ASSESSEE. HE FURTHER POINTED OUT THAT THE EXPENSES INCURRED BY THE ASSESSEE FOR AND ON BEHALF OF ITS ASSOCIATE ENTERPRISES WERE PURE DISBURSEMENT AGAINST THE ADVANCES RECEIVED BY THE ASSESSEE AND, THEREFOR E, THERE WAS NO QUESTION OF MARK-UP OF 8% BEING CHARGED ON EXPENSES REIMBURS ED. SINCE THIS ISSUE IS ALSO CLOSELY CONNECTED TO THE MAIN ISSUE REGARDING DETERMINATION OF ARMS 9 LENGTH PRICE, WE RESTORE IT BACK TO THE FILE OF THE AO/TPO FOR THEIR FRESH DECISION AFTER CONSIDERING THE ASSESSEES CONTENTIO N AND THE FACTS OF THE CASE AS PER LAW. 13. IN OTHER WORDS, ALL THE ISSUES OR POINTS CONNE CTED TO THE DETERMINATION OF THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACT IONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES SHALL BE F RESHLY DECIDED BY THE AO/TPO AFTER HEARING THE ASSESSEE AND CONSIDERING A LL THE EVIDENCES AND FACTS OF THE CASE AS PER LAW. 14. GROUND NOS. 6 & 7 RELATING TO THE DISALLOWANCE OF STAFF AND TEAM BUILDING EXPENSES AMOUNTING TO RS.6,83,666/- AND PR IOR PERIOD INCOME OF RS.1,73,340/- ARE ALSO BEING RESTORED BACK TO THE F ILE OF THE AO FOR HIS FRESH DECISION ALONG WITH THE MAIN ISSUE OF DETERMINATION OF ALP. ON THESE TWO ISSUES NO SUBSTANTIVE ARGUMENT WAS MADE BY BOTH THE PARTIES AS IT WAS AN UNDERSTANDING THAT THIS MATTER SHALL ALSO GO BACK T O THE FILE OF THE AO FOR HIS FRESH CONSIDERATION. THE AO SHALL DECIDE THESE ISS UES AFRESH IN THE LIGHT OF THE FACTS OF THE CASE AND THE POSITION OF LAW CONTA INED IN THAT BEHALF. THE MATTER SHALL REMAIN WIDE OPEN BEFORE THE AO FOR HIS DECISION AS PER LAW. WE ORDER ACCORDINGLY. 15. IN THE RESULT, THE PRESENT APPEAL FILED BY THE ASSESSEE PERTAINING TO THE ASSESSMENT YEAR 2004-05 IS TREATED TO BE ALLOWED FO R STATISTICAL PURPOSES. 16. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 8 TH APRIL, 2011. SD/- SD/- (G.E. VEERABHADRAPPA) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 8 TH APRIL, 2011. 10 ITA NO.3688/DEL/2009 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.