SEMINIS VEGETABLE SEEDS (INDIA) P.LTD, MUMBAI V. ASST CIT CIR 1, AURANGABAD

ITA 4202/MUM/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9551 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2005-2006
• Appeal Filed On: 10-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN; PADMA RAM MIRDHA
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 4202 / MUM/20 14 ( ASSESSMENT YEAR : 2005 - 06 ) M/S. SEMINIS VEGETABLE SEEDS (INDIA) PVT. LTD., (MERGED WITH MONSANTO HOLDINGS PRIVATE LIM ITED W.E.F. 01 APRI 2007) 5 TH FLOOR, AHURA CENTRE 96, MAHAKALI CAVES ROAD ANDHERI (E) MUMBAI 400 093 VS. DEPUTY COMMISSIONER OF INCOME TAX 8(2) ROOM NO.209, AAYAKAR BHAVAN MUMBAI 400 020 PAN/GIR NO. AAACN9499F APPELLANT ) .. RES PONDENT ) ASSESSEE BY SHRI M.P. LOHIA / SHRI HEMEN CHANDARIYA REVENUE BY SHRI V. JENARDHANAN & SHRI PADMA RAM MIRDHA DATE OF HEARING 14/12 /201 8 DATE OF PRONOUNCEMENT 18 / 12 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS I S AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 15, MUMBAI DATED 30/03/2014 FOR A.Y.2005 - 06 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE GRIEVANCE OF ASSESSEE REVOLVES AROUND CIT(A)S ACTION IN REJECTION OF THE RESALE PRICE METH OD AND CONFIRMING ADOPTION OF THE ITA NO. 4202/MUM/2014 M/S. SEMINIS VEGETABLE SEEDS (INDIA) PVT. LTD., 2 TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING INTERNATIONAL TRANSACTIONS ENTERED BY ASSESSEE WITH ITS A.E . 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE TH AT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING AND MARKETING OF VEGETABLE SEEDS. IT IMPORTS THE SEEDS FROM ITS OVERSEAS AND SELLS THE SAME IN INDIA. DURING THE COURSE OF ASSESSMENT, AO REFERRED THE MATTER TO THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE . D URING THE YEAR , ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AE. PURCHASE OF TRADING GOODS SALE OF PRODUCED GOODS; AND INTEREST PAYMENT. 5. THE INTERNATIONA L TRANSACTIONS IN RESPECT OF SALE OF PRODUCED GOODS AND PAYMENT OF INTEREST HAVE BEEN HELD TO BE AT ARM'S LENGTH BY THE LEARNED TPO. HOWEVER, THE TRANSACTION OF IMPORT OF SEEDS FROM THE AES, THE LEARNED TPO HAS BEEN HELD NOT TO BE AT ARM'S LENGTH AND AN AD JUSTMENT OF RS 77,763,470 WAS PROPOSED TO BE MADE TO THE VALUE OF TRANSACTION OF SEMINIS INDIA . 6. IN RESPECT OF THE INTERNATIONAL TRANSACTION OF IMPORT OF SEEDS FROM THE AES, THE ASSESSEE HAD ADOPTED THE RESALE PRICE METHOD ('RPM') FOR DETERMINING THE ALP . IN ORDER TO DETERMINE THE ARM'S LENGTH NATURE OF THE INTERNATIONAL TRANSACTION, THE MARGIN EARNED BY THE ASSESSEE IN RELATION TO THE SALE OF SEEDS IMPORTED FROM THE AES WAS COMPARED WITH THE MARGINS ITA NO. 4202/MUM/2014 M/S. SEMINIS VEGETABLE SEEDS (INDIA) PVT. LTD., 3 EARNED BY THE ASSESSEE FROM THE SALE OF SEEDS IMPORTED FROM THIRD PARTY. THE LEANED TPO PROPOSED TO REJECT THE RPM USED BY THE ASSESSEE TO BENCHMARK THE INTERNATIONAL TRANSACTION OF IMPORT OF SEEDS FOR THE PURPOSE OF RESALE. FURTHER, THE LEARNED TPO PROPOSED TO ADOPT THE TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD AND IDENTIFIED ONE COMPANY VIZ MAHYCO VEGETABLE SEEDS LIMITED AS BEING COMPARABLE TO THE ASSESSEE AFTER CARRYING OUT AN EXTENSIVE SEARCH ON 'PROWESS' DATABASE. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE SINGLE COMPANY IDENTI FIED BY THE LEARNED TPO SHOULD NOT BE TAKEN FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE AND THEREBY USE THE TN M M FOR T HE PURPOSE OF DETERMINING THE ALP OF THE SUBJECT INTERNATIONAL TRANSACTION. 7. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE MADE DETAILED SUBMISSIONS DATED 15 OCTOBER 2008 WHEREIN THE ASSESSEE CONTENDED THAT ON THE GIVEN FACTS AND CIRCUMSTANCES, THE LEARNED TPO COULD NOT REJECT THE DOCUMENTATION MAINTAINED BY THE ASSESSEE AND JUSTIFIED THAT RPM IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF IMPORT OF SEEDS FOR THE PURPOSE OF RESALE USED BY THE ASSESSEE FOR BENCHMARKING THE INTERNATIONAL TRANSACTION. 8. ASSESSEE JUSTIFIED THE APPLICATION OF THE RPM METHOD APPLIED FOR DETER MINING THE ALP AND SUBMITTED AS UNDER: RPM HAS BEEN CONSISTENTLY APPLIED BY THE APPELLANT IN DETERMINING THE ARM'S, LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF IMPORT OF SEEDS FOR RESALE IN INDIA. ITA NO. 4202/MUM/2014 M/S. SEMINIS VEGETABLE SEEDS (INDIA) PVT. LTD., 4 THE RPM IS APPLICABLE IN A RESALE SITU ATION, WHERE THE PROPERTY OR SERVICES PURCHASED FROM AN AE ARE SOLD TO UNRELATED ENTERPRISE. WITH RESPECT TO SVS INDIA, THE INTERNATIONAL TRANSACTION INVOLVES THE IMPORT OF PRODUCTS FROM AES FOR RESALE IN INDIA AND RELIABLE DATA CONCERNING THE GROSS MARGIN S EARNED BY SVS INDIA OUT OF PURCHASES MADE FROM AES AND THE MARGINS EARNED BY SVS INDIA OUT OF PURCHASES MADE FROM COMPARABLE INDEPENDENT COMPANIES WERE AVAILABLE, THEREFORE THE RPM WAS CONSIDERED THE MOST APPROPRIATE METHOD TO EVALUATE THE TRANSFER PRICE /ARM'S LENGTH PRICE FOR SVS INDIA'S INTER - COMPANY TRANSACTION WITH ITS AES, THE MOST APPROPRIATE METHOD IN THE CONTEXT OF THE IMPORT OF SEEDS IS ONE THAT IS BEST SUITED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE METHOD THAT COMBINES THE GREA TEST DEGREE OF ECONOMIC COMPARABILITY AND DATA RELIABILITY IS CHOSEN AS THE MOST APPROPRIATE METHOD. AS DISCUSSED ABOVE, IN THE PRESENT CASE THE RPM PROVIDED A RELIABLE ANALYSIS AND THUS WAS SELECTED AS THE MOST APPROPRIATE METHOD TO ANALYZE THE TRADING AC TIVITY. SVS INDIA IS ENGAGED IN TRADING ACTIVITY AND IT DOES NOT ADD VALUE TO THE PRODUCTS PURCHASED FROM RELATED PARTY, WHICH ARE RE - SOLD TO UNRELATED PARTIES. AS MENTIONED EARLIER THE RPIVL IS GENERALLY ADOPTED WHERE THE TESTED PARTY I.E., TRADER PURCHASES FROM AN AE AND RESELLS TO AN INDEPENDENT ENTERPRISE WITHOUT ADDING SUBSTANTIALLY TO THE VALUE OF THE PRODUCT; OR DOES NOT CONTRIBUTE SUBSTANTIALLY TO THE CREATION OR MAINTENANCE OF INTANGIBLE PROPERTY ASSOCIATED WITH THE PRODUCT (TRADE MARK OR T RADE NAMES WHICH ARE OWNED BY THE AE. ACCORDINGLY THE RPM WOUID IDEALLY BE THE MOST APPROPRIATE METHOD TO EVALUATE THE TRANSFER PRICE/ARM'S LENGTH PRICE FOR SVS INDIA'S INTER - COMPANY TRANSACTION OF THE IMPORT OF SEEDS FROM ITS AE FOR RESALE IN INDIA. 9. A CCORDINGLY, THE RPM, WITH GROSS PROFIT { G P} MARGIN AS THE APPROPRIATE PL I , WAS SELECTED AS THE MOST APPROPRIATE METHOD TO ANALYSE THE TRADING ACTIVITY. 10. IN RESPECT OF APPLICATION OF TRANSACTIONAL NET MARGIN METHOD (TNMM') TO THE FACTS AND CIRCUMSTANCE O F THE CASE, THE ASSESSEE SUBMITTED AS UNDER : - NORMALLY TNMM IS USED WHEN THE OTHER METHODS DO NOT PROVIDE RELIABILITY OF DATA OR IF IT IS INAPPLICABLE TO USE THE OTHER METHODS SINCE THE FUNCTIONS OF THE TESTED PARTY ARE NOT CLOSELY MATCHED WITH THOSE OF TH E AVAILABLE COMPARABLES. IN THE PRESENT CASE SINCE RPM, PROVIDES A RELIABLE ANALYSIS IT WAS SELECTED, AS THE ITA NO. 4202/MUM/2014 M/S. SEMINIS VEGETABLE SEEDS (INDIA) PVT. LTD., 5 MOST APPROPRIATE METHOD TO ANALYZE THE TRADING ACTIVITY AND THEREFORE THE TNMM WAS NOT CONSIDERED. IN VIEW OF THE ABOVE, THE APPELLANT SUBMITTED TH AT TNMM SHOULD NOT BE APPLIED TO DETERMINE THE ALP OF THE PURCHASE OF SEEDS FOR THE PURPOSE OF RESALE IN INDIA. 11. LEARNED AR RELIED ON FOLLOWING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF CONTENTION OF RPM AS THE MOST APPROPRIATE METHOD OVER TNMM. MATTEL TO YS (I) PVT LTD VS DCIT (2013) MUMBAI ITAT (95 DTR0100) STAR DIAMOND GROUP VS DDIT (2011) MUMBAI ITAT (044 SOT 0532) L'OREAL INDIA PVT LTD VS CIT (2015) 117 DTR 0460 (BOM) COPY OF TRANSFER PRICING ORDER DATED 29 NOVEMBER 2016 EFFECT TO ITATS ORDER) FOR AY 2007 - 08 COPY OF ORDER OF HON'BLE ITAT IN APPELLANT'S OWN CASE FOR AY 2007 - 08 DATED 16 SEPTEMBER 2015 12. ON THE OTHER HAND, LEARNED DR RELIED ON THE DECISION OF THE ITAT DELHI BENCH IN CASE OF ORIFLAME INDIA PVT. LTD., ORDER DATED 24/03/2017 AND M/S. MATT EL TOYS (INDIA) PVT. LTD., ITAT MUMBAI BENCH ORDER DATED 30/10/2015. 13. WE HAVE HEARD RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.2007 - 08 DATED 16/09/2015 AS WELL AS ORDER OF THE TRIBUNAL FOR THE A.Y.2006 - 07. PRECISE OBSERVATION OF THE TRIBUNAL IN ITS ORDER DATED 16/09/2015 WAS AS UNDER: - 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND ALSO MATERIAL ON RECORD. THE ENTIRE TRANSFER PRICING ADJUSTMENT HAS BEEN MADE AFTER REJECTING THE ASSESSEE'S METHOD OF BENCHMARKING THE TRANSACTION; THAT IS RESALE PRICE METHOD AND INSTEAD BY ADOPTING TNMM AS MAM BY THE ITA NO. 4202/MUM/2014 M/S. SEMINIS VEGETABLE SEEDS (INDIA) PVT. LTD., 6 TPO. THIS SELECTION OF M OST APPROPRIATE METHOD OF TNMM BY THE DEPARTMENT HAS BEEN FOUND TO BE INAPPROPRIATE BY THE TRIBUNAL IN THE EARLIER YEARS AND ASSESSEE'S RPM HAS BEEN ACCEPTED. AS A RESULT OF ADOPTING RPM AS MAM, SIMILAR ADJUSTMENTS MADE IN THE EARLIER ASSESSMENT YEARS STAN DS DELETED. THUS, AS A MATTER OF JUDICIAL PRECEDENCE AND WITHOUT THERE BEING ANY CHANGE OF MATERIAL FACTS AND CIRCUMSTANCES, WE ALSO DIRECT THE TPO/ASSESSING OFFICER TO ADOPT RPM AS MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION OF IMPORT OF SEED S TO ITS AE AND CARRY OUT COMPARABILITY ANALYSIS FOR BENCHMARKING THE ASSESSEE'S GROSS MARGIN AND DETERMINED THE APPROPRIATE ALP. 14. WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND FOUND THAT ASSESSEES METHOD OF BENCHMA RKING THE TRANSACTION AT RESALE PRICE METHOD HAS BEEN ACCEPTED BY THE TRIBUNAL. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY MERIT IN THE ORDER PASSED BY AO FOR MAKING ADJUSTMENT BASED ON TNMM METHOD . IT WAS C ONTENTION OF LEARNED AR THAT ONCE THE ISSUE WITH REGARD TO APPROPRIATE METHOD BEING RESALE PRICE METHOD IS BEING DECIDED, THE OTHER GROUNDS RAISED BY ASSESSEE HAS BECOME INFRUCTUOUS. 15. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED IN TERMS INDICATED HERE INABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 12 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 12 /201 8 K ARUNA SR. PS COPY OF THE ORDER FORWARDED TO : ITA NO. 4202/MUM/2014 M/S. SEMINIS VEGETABLE SEEDS (INDIA) PVT. LTD., 7 BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//