M/s JT Internatiobnal (India) Pvt. Ltd., V. DCIT, New Delhi

ITA 3754/DEL/2008

• Counselvise Citation: 375420114 RSA 2008
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-09-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 24-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: RAJESH MALHOTRA
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH D BENCH D BENCH D BENCH D : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI C.L.SETHI, JM AND SHRI A.N.PAHUJA, AM BEFORE SHRI C.L.SETHI, JM AND SHRI A.N.PAHUJA, AM BEFORE SHRI C.L.SETHI, JM AND SHRI A.N.PAHUJA, AM BEFORE SHRI C.L.SETHI, JM AND SHRI A.N.PAHUJA, AM ITA NO. ITA NO. ITA NO. ITA NO. 3754/DEL/2008 3754/DEL/2008 3754/DEL/2008 3754/DEL/2008 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2004 2004 2004 2004 - -- - 05 0505 05 M/S JT INTERNATIONAL (INDIA) M/S JT INTERNATIONAL (INDIA) M/S JT INTERNATIONAL (INDIA) M/S JT INTERNATIONAL (INDIA) PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., SURVEY NO.581/1, IDA UPPAL, SURVEY NO.581/1, IDA UPPAL, SURVEY NO.581/1, IDA UPPAL, SURVEY NO.581/1, IDA UPPAL, HYDERABAD. HYDERABAD. HYDERABAD. HYDERABAD. VS. VS. VS. VS. DY.C DY.C DY.C DY.C OMMISSIONER OF INCOME TAX, OMMISSIONER OF INCOME TAX, OMMISSIONER OF INCOME TAX, OMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -4(1), 4(1), 4(1), 4(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJESH MALHOTRA, CA. RESPONDENT BY : SHRI N.K.CHAND, SR.DR. ORDER ORDER ORDER ORDER PER C.L.SETHI, JM PER C.L.SETHI, JM PER C.L.SETHI, JM PER C.L.SETHI, JM : :: : THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 14.11.20 08 PASSED BY LEARNED CIT(A) IN THE MATTER OF AN ASSESSMENT MADE BY THE A SSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) FO R THE AY 2004-05. 2. GROUND NOS.1 TO 5 ARE DIRECTED AGAINST THE LEARNED CIT (A)S ORDER IN CONFIRMING THE AOS ACTION IN MAKING ADJUSTMENT OF `7 4,61,683/- TO THE EXPENSES PAID TO AN ASSOCIATE ENTERPRISE, BASED ON THE ORDER OF TRA NSFER PRICING OFFICER DATED 15.12.2006 UNDER SECTION 92CA(3) OF THE ACT. THE ASSESSEE HAS SHOWN INCOME FROM BUSINESS OF MANUFACTURING AND SELLING OF CIGARETT ES IN INDIA. THE ASSESSEE COMPANY IS A PART OF JT INTERNATIONAL GROUP, A LEADIN G TOBACCO COMPANY IN THE WORLD. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD ENTERED INTO CERTAIN INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATED ITA-3754/DEL/2008 2 ENTERPRISE. THE AO, THEREFORE, MADE A REFERENCE TO THE TPO U/S 92CA OF THE ACT TO DETERMINE THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACT IONS. THE TPO PREPARED ITS REPORT DATED 15.12.2006 WHERE HE SUGGESTED AN ADJUSTMENT O F `74,61,683/- ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE AND VALUE OF INTERNATIONAL TRANSACTIONS RELATING TO REIMBURSEMENT OF SALARY TO MR. STUART M. ROD ERICK. THE AO ACCORDINGLY MADE AN ADDITION OF `74,61,683/-. 3. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE L EARNED CIT(A). 4. IN THIS CASE, JT GROUP COMPANIES HAD INCURRED EXPENDI TURE ON SALARY, SAMPLES, PACKING MATERIAL AND OTHER OPERATIONAL EXPENDITU RE ON BEHALF OF THE ASSESSEE COMPANY. SUCH EXPENDITURE WAS REIMBURSED AT COST W ITH MARK UP OF 1% ON COST. IN THE YEAR UNDER CONSIDERATION, GROSS SALARY OF MR. STUART M. RODERICK PRIOR TO THE SECONDMENT WAS EQUIVALENT TO `83,96,250/-. THE REIMBURSEMENT OF SALARY TO MR. STUART M. RODERICK AS MADE BY THE ASSESSEE W AS `1,45,95,377/- WITH AN ADDITIONAL AMOUNT OF `57,24,808/- ON ACCOUNT OF TAX ON SALARY. THE EXPENDITURE ON ACCOUNT OF SALARY OF MR. STUART M. RODERI CK WAS COMPUTED BY THE TPO BY TAKING 10% INCREASE OVER PRE-SECONDMENT SALARY. THE VALUE OF INTERNATIONAL TRANSACTION ON ACCOUNT OF REIMBURSEMENT OF SALARY TO M R. STUART M. RODERICK WAS SHOWN AT `2,03,20,185/-. THE COMPARABLE UNCONTROLLED PRICE OF SECONDMENT FEES WAS DETERMINED BY THE TPO AT `1,28,58,502/-, I.E. PRE-S ECONDMENT SALARY OF `83,96,250/- PLUS 10% INCREASE AGGREGATING TO `92,35, 875/- ALONGWITH TAX COMPONENT OF `36,22,627/- (I.E. `92,35,875 + `36,22,6 27 = `1,28,58,502). THE TPO THUS WORKED OUT THE SALARY OF MR. STUART M. RODERIC K AT `1,28,58,502/- AGAINST THE ACTUAL REIMBURSEMENT OF `2,03,20,185/-. TH E TPO, THEREFORE, WORKED OUT THE DIFFERENCE OF `74,61,683/-. THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A) THAT COMPARISON OF THE PRE-SECONDMENT SALARY, W HICH WAS THREE YEARS OLD ITA-3754/DEL/2008 3 WITH THE CURRENT SALARY, WAS NOT FAIR. IT WAS POINT ED OUT BY THE ASSESSEE THAT THE ASSESSEE HAD REIMBURSED THE SALARY TO ITS ASSOCIATE ENTERPRI SE IN RESPECT OF EMPLOYEE MR. STUART M. RODERICK INCLUDING THE TAX COMPONEN T TO THE EXTENT OF `2,03,20,185/-. THE ASSESSEES EXPLANATION WAS NOT ACCEP TED BY THE LEARNED CIT(A) BECAUSE OF THE REASON THAT ASSESSEE FAILED TO FURNIS H THE BANK ACCOUNT OF MR. STUART M. RODERICK TO WHICH THE PAYMENT WAS DIRECTLY MAD E BY THE ASSESSEES ASSOCIATE ENTERPRISE AND ASSESSEE HAS ALSO FAILED TO PRODUC E THE COPY OF APPOINTMENT LETTER ISSUED TO MR. STUART M. RODERICK. THE LEARNED CIT(A) STATED THAT IN THE ABSENCE OF THE AFORESAID TWO DOCUMENTS, THE PLEA O F THE ASSESSEE THAT PAYMENT MADE BY THE ASSOCIATE ENTERPRISE TO THE BANK ACCOU NT OF MR. STUART M. RODERICK IN HIS HOME COUNTRY AND THAT ASSESSEE WAS JUST REIMBURSING THE AMOUNT WITH ADDITION OF 1% SERVICE CHARGES WHICH IS COMMENSURA TE WITH THE SERVICES RENDERED, RESPONSIBILITIES TAKEN AND EXPERIENCE OF MR. STUART M. RODERICK CANNOT BE ACCEPTED. THE LEARNED CIT(A), THEREFORE, STATED THAT IN THE ABSENCE OF BASIC DOCUMENTS, THE TPO WAS RIGHT IN DETERMINING THE SALARY O F MR. STUART M. RODERICK BY GIVING 10% INCREASE OVER THE PRE-SECONDMENT SALARY. THE LEARNED CIT(A), THEREFORE, UPHELD THE ADJUSTMENT OF `74,61,683/- MADE BY T HE AO. 5. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 6. IN THE COURSE OF HEARING OF THIS APPEAL, IT HAS BEEN S UBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANY HAS ALREADY BEEN C LOSED DUE TO HEAVY LOSSES. THE ACCUMULATED LOSSES AS ON 31.3.2004 WERE AMOU NTED TO `64,63,16,941/-. IT WAS ALSO SUBMITTED THAT THE EMPLO YEES OF THE ASSESSEE COMPANY HAVE CHANGED THEIR JOBS AND DIRECTORS HAD GONE T O THEIR RESPECTIVE COUNTRIES. THEREFORE, IT IS NOT POSSIBLE FOR THE ASSESSEE TO PRODUCE THE VARIOUS DOCUMENTS AS MENTIONED IN THE CIT(A)S ORDER. HOWEVER, H E SUBMITTED THAT THE REIMBURSEMENT OF SALARY WITH 1% MARK UP WAS JUSTIFIED A ND THERE WAS NO BASIS TO ITA-3754/DEL/2008 4 DETERMINE THE SALARY OF MR. STUART M. RODERICK ONLY BY GI VING 10% INCREASE OVER THE PRE-SECONDMENT SALARY. HE FURTHER SUBMITTED THAT ALL TH E RELEVANT DOCUMENTS REMAINING IN THE CUSTODY OF THE ASSESSEE WERE PRODUCED BEFORE THE AO, WHICH ARE ALSO PLACED IN THE PAPER BOOK FILED BEFORE THE TRIBUNAL. 7. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. IN THIS CASE, IT IS SEEN THAT THE TPO HAS ESTIMATED T HE SALARY OF MR. STUART M. RODERICK BY INCREASING THE SALARY BY 10% OVER THE PRE-SEC ONDMENT SALARY. THE ONLY 10% INCREASE OVER THE PRE-SECONDMENT SALARY DONE BY THE TPO IS BASED ON HIS ESTIMATE. HOWEVER, AT THE SAME TIME, THE ASSESSEE, DUE TO UNAV OIDABLE CIRCUMSTANCES AS MENTIONED ABOVE, HAS FAILED TO PRODUCE C ERTAIN DOCUMENTS REQUIRED BY THE TPO. THEREFORE, AN UNDERSTANDING WAS ARR IVED AT TO CONFIRM THE ORDER OF LEARNED CIT(A) IN CONFIRMING THE ADJUSTMENT OF `74,61,683/- WHICH WAS MADE ON ESTIMATE BY THE TPO. IT IS TRUE THAT THERE IS NO DIRECT MATERIAL OR EVIDENCE ON RECORD TO PROVE AND ESTABLISH THAT THE REASONABLE SALA RY PAYABLE TO MR. STUART M. RODERICK WAS THE AMOUNT WITH 10% INCREASE IN THE PRE- SECONDED PERIOD. THE TPO HAS DETERMINED UNCONTROLLED PRICE OF SALARY PAYABLE T O MR. STUART M. RODERICK BY ESTIMATING 10% INCREASE OVER THE PRE-SECONDED SALARY. T HE ASSESSEE HAS EXPLAINED BEFORE US THAT THE ASSESSEE WAS NOT IN A POSITION TO PRODUCE THE DOCUMENTS DUE TO UNAVOIDABLE CIRCUMSTANCES SUCH AS THE C OMPANY HAS ALREADY BEEN CLOSED AND ITS EMPLOYEES HAVE ALSO CHANGED THEIR JOBS AND DIRECTORS HAVE GONE TO THEIR RESPECTIVE COUNTRIES. THE REASON FOR NOT PRO DUCING THE DOCUMENTS GIVEN BY THE ASSESSEE SEEMS TO BE BONA-FIDE AND PLAUSIBLE. W E, THEREFORE, UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 9. GROUND NO.6 RAISED BY THE ASSESSEE IS AS UNDER:- ITA-3754/DEL/2008 5 ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN L AW THE LD.COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CON FIRMING THE DISALLOWANCE OF RS.18,19,368/- MADE BY THE ASSESSING OF FICER ON ACCOUNT OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES, THE AMOUNT HAS BEEN INCURRED DURING NORMAL COURSE OF BUSINES S ACTIVITY TO ENCOURAGE THE SALES, HENCE SHOULD BE ALLOWED. ACTION OF TH E AUTHORITIES BELOW IS WRONG AND UNJUSTIFIED AND MUST BE QUASHED. 10. IN THE COURSE OF HEARING OF THIS APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS NOT INCLINED TO PRESS THIS GROUND FOR THE REASONS GIVEN IN THE ASSESSEES LETTER DATED 29.9.2011 FILED BEFORE US . THE AFORESAID LETTER DATED 29.9.2011 READS AS UNDER:- GROUND NO.6. DISALLOWANCE OF RS.18,19,368/- ON ACC OUNT OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES IS NOT BEING PRESSED DUE TO REASONS CITED BELOW. OUT OF TOTAL DISALLOWANCE RS.5507837/- MADE BY THE LD. AO ON ACCOUNT OF NONE PRODUCTION OF VOUCHERS A SUM OF RS.36 88469/- WERE ALLOWED BY LD. CIT(A) AFTER VERIFICATIONS. ONLY D ISALLOWANCE FOR SUM OF RS.1819368/- WAS CONFIRMED ON ACCOUNT OF NON PRODUCTION OF VOUCHER ETC. THE OPERATIONS OF THIS COMPANY HAVE BEEN CLOSED DUE TO HEA VY LOSSES (ACCUMULATED LOSSES RS.646316941/- AS ON 31.03.2004) AND THE EMPLOYEES OF THE COMPANY HAVE ALSO CHANGED THE JOBS AND EX- DIRECTOR HAVE GONE TO THEIR RESPECTIVE COUNTRY. THEREFORE REL EVANT VOUCHERS COULD NOT BE PRODUCED. IN THE LIGHT OF REASONS CITED ABOVE WE PRAY BEFORE THE HON BLE BENCH FOR A CONSIDERATE VIEW. 11. IN THE LIGHT OF THE ASSESSEES SUBMISSIONS THAT ASSES SEE IS NOT INCLINED TO PRESS THIS GROUND, GROUND NO.6 REGARDING DISALLOWANCE OF EX PENSES ON ACCOUNT OF ADVERTISEMENT AND BUSINESS PROMOTION TO THE EXTENT OF `18 ,19,368/- IS DISMISSED. ITA-3754/DEL/2008 6 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2011. SD/- SD/- ( (( ( A.N.PAHUJA A.N.PAHUJA A.N.PAHUJA A.N.PAHUJA ) )) ) ( (( ( C.L.SETHI C.L.SETHI C.L.SETHI C.L.SETHI ) )) ) ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 14.10.2011 VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR