DCIT, CHENNAI V. Greenland Exports Pvt. Ltd., CHENNAI

ITA 428/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9304 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2015
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Transfer pricing

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.400/MDS/2015 / ASSESSMENT YEAR : 2010-11 M/S GREENLAND EXPORTS P. LTD 14, SIR THEYAGARAYA ROAD T. NAGAR, CHENNAI 600 017 VS. THE DY. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 2(1) CHENNAI [PAN AAACG 3488 P ] ( &' / APPELLANT) ( ()&' /RESPONDENT) ./ I.T.A.NO.428/MDS/2015 / ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 2(1) CHENNAI VS. M/S GREENLAND EXPORTS P. LTD 14, SIR THEYAGARAYA ROAD T. NAGAR, CHENNAI 600 017 ( &' / APPELLANT) ( ()&' /RESPONDENT) ASSESSEE BY : SHRI G. SEETHARAMAN, CA DEPARTMENT BY : DR. B NISCHAL, JCIT / DATE OF HEARING : 07 - 0 3 - 2016 / DATE OF PRONOUNCEMENT : 12 - 05 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH ASSESSEE AND REVENUE FILED APPEALS FOR ASSE SSMENT YEAR 2010-11. THEREFORE, WE HEARD THE SAME TOGETHER AND DISPOSING THE SAME BY THIS COMMON ORDER. ITA NO.400 & 428/15 :- 2 -: 2. LET US FIRST TAKE UP ASSESSEES APPEAL I.T.A.NO. 40 0/MDS/ 2015. SHRI G.SEETHARAMAN, LD. REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF PURCHASING GARMENTS FROM THE LOCAL MARKET AND EXPORTING THE SA ME TO ITS ASSOCIATED ENTERPRISES AT SINGAPORE AND MALAYSIA. THE ASSESSEE HAS ALSO EXPORTED GARMENTS TO UNRELATED PARTIES AT SING APORE AND MALAYSIA. THE ASSESSING OFFICER REFERRED THE MATTE R TO THE TRANSFER PRICING OFFICER. ACCORDING TO THE LD. REPRESENTATI VE, THE TPO SELECTED NET TNMM AS THE MOST APPROPRIATE METHOD FOR MAKING TRANSFER PRICING ADJUSTMENT. HOWEVER, WHILE SELECTING COMPARABLES, THE TPO HAS SELECTED THE COMPANIES WHICH ARE SELLING GARMENTS IN THE DOMESTIC MARKET. ACCORDING TO THE LD. REPRESENTATIVE, WHEN THE ASSESSEE WAS EXPORTING GARMENTS OUTSIDE THE COUNTRY, THE COMPANI ES WHICH ARE EXPORTING GARMENTS OUTSIDE THE COUNTRY HAVE TO BE C OMPARED. THE COMPANIES SELLING THEIR PRODUCTS IN THE DOMESTIC MA RKET CANNOT BE COMPARABLE ONE. 3. ON THE CONTRARY, DR.B. NISCHAL, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE COMPARABLES SELEC TED BY THE TPO, NO DOUBT, HAVE ONLY DOMESTIC SALES, HENCE THEY ARE NOT EXPORTING ANYTHING OUTSIDE THE COUNTRY. HOWEVER, THE ASSESS EE HAS ALSO SELECTED THE COMPARABLES WHICH ARE SELLING ITS PROD UCTS IN THE DOMESTIC ITA NO.400 & 428/15 :- 3 -: MARKET. WHEN THE ASSESSEE HAS SELECTED THE COMPAR ABLES WHICH HAVE NO EXPORT SALES, ACCORDING TO THE LD. DR, AT THIS S TAGE, THE ASSESSEE CANNOT MAKE ANY COMPLAINT ABOUT THE SELECTION OF CO MPARABLES BY THE TPO. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS PURCHASING GARMENTS FROM LOCAL MARK ET AND EXPORTING THE SAME TO ITS AES AND NON-AES. FOR MAKING ADJUST MENT, BOTH PARTIES ADOPTED TNMM HAS THE MOST APPROPRIATE METHOD. SELE CTION OF METHOD IS NOT IN DISPUTE. WHAT IS IN DISPUTE IS SELECTION OF COMPARABLES. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE IS EXPORTING GARMENTS OUTSIDE THE COUNTRY, THE COMPARA BLE COMPANIES ALSO SHOULD ENGAGE IN THE SAME LINE OF BUSINESS VIZ . EXPORT OF GARMENTS OUTSIDE THE COUNTRY. IN THE CASE BEFORE U S, THE COMPARABLE COMPANIES ARE ADMITTEDLY SELLING THEIR PRODUCTS IN THE DOMESTIC MARKET AND THEREFORE, NO EXPORT SALES. MERELY BECAUSE THE ASSESSEE HAS SELECTED SUCH COMPANIES FOR COMPARING THE TRANSACTI ON, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THAT WILL NOT MAK E THE COMPANIES WHICH ARE HAVING ONLY DOMESTIC SALES AS COMPARABLE ONE. FUNCTIONAL SIMILARITY IS ONE OF THE FUNDAMENTAL THING WHICH NE EDS TO BE CONSIDERED WHILE SELECTING THE COMPARABLES. THEREF ORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE COMPANIES WHI CH ARE ENGAGED IN ITA NO.400 & 428/15 :- 4 -: THE GARMENTS EXPORT OUTSIDE THE COUNTRY, ALMOST TO SIMILAR COUNTRIES, NEEDS TO BE FIND OUT. IT IS NOBODYS CASE THAT THE ASSESSEE IS NOT EXPORTING GARMENTS OUTSIDE THE COUNTRY. WHEN SUCH IS A CASE, IT IS THE DUTY OF THE ASSESSEE AND THE TPO TO FIND OUT SUCH COMPANIES WHICH ARE EXPORTING GARMENTS AND THEREAFTER MAKE NECESSAR Y ADJUSTMENT. SINCE SUCH AN EXERCISE WAS NOT DONE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECO NSIDERED BY THE ASSESSING OFFICER BY REFERRING THE MATTER ONCE AGAI N TO THE TPO. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE AS SESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE BY REF ERRING THE MATTER ONCE AGAIN TO THE TPO AND DECIDE THE SAME IN ACCORD ANCE WITH LAW. IT IS MADE CLEAR THAT THE ASSESSEE SHALL ALSO FILE NE CESSARY COMPARABLE CASES BEFORE THE TPO. THE TPO SHALL FIND OUT THE COMPANIES WHICH ARE EXPORTING GARMENTS OUTSIDE INDIA FOR MAKING COM PARISON. 5. WITH THE ABOVE OBSERVATION, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. NOW COMING TO THE REVENUES APPEAL I.T.A.NO.428/MDS / 2015, THE ONLY ISSUE ARISES FOR CONSIDERATION IS WH ETHER THE EXPORT INCENTIVE WOULD FORM PART OF THE OPERATING INCOME O R NOT? ITA NO.400 & 428/15 :- 5 -: 7. DR.B. NISCHAL, LD. DR SUBMITTED THAT EXPORT INCENTI VE IS AN INCENTIVE GIVEN BY THE GOVERNMENT FOR EXPORTERS, TH EREFORE, IT CANNOT FORM PART OF THE OPERATING INCOME. HOWEVER, SHRI G .SEETHARAMAN, LD. COUNSEL SUBMITTED THAT THE INCENTIVE WAS GIVEN TO T HE ASSESSEE ONLY BECAUSE OF THE EXPORT, THEREFORE, IT IS A PART OF T HE OPERATING INCOME. THEREFORE, THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SIN CE THE MAIN ISSUE WITH REGARD TO SELECTION OF COMPARABLES IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER IN THE ASSESSEES APPEAL, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ISSUE OF EXPORT INCENTI VE ALSO NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY , THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF EX PORT INCENTIVE IS ALSO REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE IN THE LIGHT OF THE MATERIAL AVAILABLE AND THEREAFTER DECIDE THE SAME AFTER GIVING A REASO NABLE OPPORTUNITY TO THE ASSESSEE. 9. IN THE RESULT, BOTH THE APPEAL OF THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.400 & 428/15 :- 6 -: ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MAY, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER / CHENNAI ! / DATED: 12 TH MAY, 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF