M/s. GlaxoSmithKline Asia Pvt. Ltd., Gurgaon V. ACIT (LTU), New Delhi

ITA 4361/DEL/2010

• Counselvise Citation: 436120114 RSA 2010
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 24-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K GUPTA
• Assessee Lawyers: AJAY VOHRA SHRI NEERAJ JAIN; ABISHEK AGGARWAL S
• Keywords: Transfer pricing; Application of stay; Wholly owned subsidiary; Non passing of speaking order
• Section: 143(3); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.4361/DEL/202010 ASSESSMENT YEAR : 2006-07 AND STAY APPLICATION NO.66/DEL/10 IN I.T.A. NO.4361/DEL/202010 ASSESSMENT YEAR : 2006-07 GLAXO SMITHKINE ASIA PVT. LTD., ACIT(LTU), DLF PLAZA TOWER, NEW DELHI. DLF CITY, PHASE-I, GURGAON. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AABCS AABCS AABCS AABCS- -- -3237 3237 3237 3237- -- -R RR R APPELLANT BY : SHRI AJAY VOHRA, SHRI NEERAJ JAIN & SHRI ABISHEK AGGARWAL, ADVOCA TES. RESPONDENT BY : SHRI D.K. GUPTA, CIT-DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER U/S 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS CTAKEN NUMBER OF GROUNDS RELATING TO VARIOUS ADDITIO NS MADE BY THE ITA NO4361 STAY NO.66/DEL/10-11 2 ASSESSING OFFICER. THE ADDITIONS MADE BY THE ASSESSING OFFIC ER CONSISTS OF TP MATTERS AND NON TP MATTERS. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COM PANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND IS ENG AGED IN THE BUSINESS OF MANUFACTURE, MARKETING AND DISTRIBUTION AND SALE OF RANGE OF OVER THE COUNTER PHARMACEUTICALS PRODUCTS, VACCIN ES AND ORAL HEALTHCARE PRODUCTS. IT IS WHOLLY OWNED SUBSIDIARY OF GLAXO SMITHKINE PLC. PORT LOUIS, MAURITIUS WHICH IS ONE OF THE WORLDS LEADING RESEARCH BASED PHARMACEUTICALS & HEALTHCARE CONGLOMERATE. FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE FILED RETURN OF INCO ME ON 20.11.2006 DECLARING INCOME OF ` .76,34,37,360/-. THE ASSESSMENT ORDER WAS HOWEVER COMPLETED VIDE ORDER DATED 27.7.20 10 PASSED U/S 143(3) READ WITH SECTION 144C OF THE ACT AT A TOTAL INCOME OF ` .120,26,89,900/- AFTER MAKING FOLLOWING MAJOR DISAL LOWANCES:- 1. DISALLOWANCE OF ADMINISTRATIVE CHARGES TO THE EXTENT O F ` .15,97,76,000/-. 2. DISALLOWANCE OF ADVERTISEMENT EXPENSES TO THE EXTENT OF ` .6,12,00,000/-. 3. DISALLOWANCE OF ` .19,80,75,340/- BEING PAYMENT TO M/S GLAXO SMITH KINE BIOLOGICAL SA FOR PURCHASE OF VACCINE INV OKING SECTION 40(A)(IA) OF THE ACT. 4. DISALLOWANCE OF PROVISION OF STOCK OBSOLESCENCE OF ` .1,33,92,000/-. 5. ADDITION OF ` . 36,54,196/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 3. THE ASSESSEE HAD FILED OBJECTIONS AGAINST PROPOSED ASSESSME NT BEFORE THE DISPUTES RESOLUTION PANEL (DRP). THE DRP H AS DISPOSED OFF ITA NO4361 STAY NO.66/DEL/10-11 3 THE DRAFT ASSESSMENT ORDER AND DEALT WITH OBJECTIONS FIL ED BY THE ASSESSEE IN TWO PAGES AND UPHELD THE PROPOSED ADDITIONS MA DE BY THE ASSESSING OFFICER WITHOUT DISCUSSING ANY OF THE OBJECTIONS. A PART OF THE ORDER OF DRP IS REPRODUCED BELOW:- DURING THE RELEVANT ASSESSMENT YEAR SEVERAL ADDITIONS AGGREGATING ` .43,92,52,536/- INCLUDING A TP ADJUSTMENT OF ` .36,54,196/- WAS MADE BY THE ASSESSING OFFICER. THESE ARE SUMMARIZED BELOW:- A) DISALLOWANCE OF ADMINISTRATIVE CHARGES REIMBURSED. 15,97,76,000/-. B) DISALLOWANCE OUT OF ADVERTISEMENT EXPENSE. 6,,12, 00,000/- C) DISALLOWANCE U/S 40(A)(IA) PAYMENT TO GSK BELGIUM 19,80,75,340/- D) ADDITION ON ACCOUNT OF TP ADJUSTMENT. 36, 54,196/- E) DISALLOWANCE OF PROVISION OF STOCK OBSOLESCENCE. 1,33,92,000/- F) DISALLOWANCE OF PROJECT DEV. EXPENSES. 14,55 ,000/- G) DIS. OF PROVISIONS OF STOCK WRITTEN OFF. 2, 69,000/- H) DISALLOWANCE OF ADVANCE WRITTEN OFF. 14,1 2,000/- I) DIS. OF FIXED ASSETS WRITTEN OFF. 19,000/- ASSESSEE HAS FURNISHED DETAILED SUBMISSION IN SUPPORT OF GROUNDS OF OBJECTIONS. IT HAS ALSO BEEN BROUGHT OUT TH AT ALL THE ADDITIONS EXCEPT THE ADDITION AT SL. NO. (H) ARE REC URRING AND WERE MADE IN THE PAST AS WELL. THE ADDITION RELATING TO THE ISSUE OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS PENDING BE FORE THE HON'BLE SUPREME COURT. THE OTHER ADDITIONS ARE PENDI NG BEFORE OTHER JUDICIAL AUTHORITIES. HOWEVER, AFTER GOING THROUGH THE ORDER OF ASSESSING OFF ICER, SUBMISSION OF THE ASSESSEE AND MATERIAL AVAILABLE ON RECOR D, WE ARE OF THE OPINION THAT THE TP ADJUSTMENT MADE BY TH E TPO IS BASED ON CORRECT APPRECIATION OF FACTS AND LAW AND H AS BEEN MADE AFTER RECORDING REASONABLE OPPORTUNITY TO THE A SSESSEE. AS REGARDS THE OTHER DISALLOWANCES ON NON TP ISSUES, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE ASSESSING OFFICER AND WE DECLINE TO INTERFERE. SD/- SD/- SD/- (VIJAY SHARMA) (J.P. MASSAR) (GOPAL KAMAL) CIT-I, NEW DELHI. CIT-II, NEW DELHI. DIT(IT-I), N EW DELHI. ITA NO4361 STAY NO.66/DEL/10-11 4 4. DISSATISFIED WITH THE ORDER U/S 143(3) READ WITH SECT ION 144C, THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. 5. AT THE OUTSET, HE LD AR SUBMITTED THAT DRP HAS NOT CONSIDERED ALL OBJECTIONS OF THE ASSESSEE AND HAS PASSED TWO PAGE ORD ER WHICH IS A NON SPEAKING ORDER. IN VIEW OF THE ABOVE, THE LD A R ARGUED THAT THE MATTER MAY BE REMANDED BACK TO DRP FOR FRESH ADJUDIC ATION AFTER GOING THROUGH THE OBJECTIONS FILED BY THE ASSESSEE. 6. ON THE OTHER HAND, THE LD DR RELIED UPON THE ORDER OF ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD FILED OBJECTIONS BEFORE DRP RUNNING INTO 12 3 PAGES WHICH ARE PLACED AT PAPER BOOK PAGES 72 TO 195. THE DRP HA S NOT CONSIDERED ANY OF THE OBJECTION HAS PASSED THE ORDER WHICH IS NOT A SPEAKING ORDER. FROM THE PERUSAL OF THIS ORDER, IT NO WHERE SUG GEST THAT LD DRP HAS CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, NATURE OF DISPUTE AND THE DEFENCE OF THE ASSESSEE. THE ORDER IS RUN NING INTO TWO PAGES AND DOES NOT DISCLOSE THE MIND APPLIED BY LD ADJU DICATORS. THUS, IT CAN SAFELY BE SAID THAT IT IS TOTALLY A NON SPEAKI NG ORDER. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ROAD MASTE R INDUSTRIES OF INDIA V. INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX REPORTED IN 303 ITR 138 HAS CONSIDERED THE NECESSITY OF ASSIGNING REA SON IN SUPPORT OF AN ORDER ADJUDICATING THE CONTROVERSY BETW EEN THE PARTIES. THE HON'BLE COURT HAS MADE REFERENCE TO A LARGE NUMB ER OF DECISIONS OF HON'BLE SUPREME COURT AS WELL AS HON'BLE HIGH COUR TS IN ORDER TO DEMONSTRATE THAT IN THE PAST HON'BLE SUPREME COURT H AS EMPHASIZED ITA NO4361 STAY NO.66/DEL/10-11 5 TIME AND AGAIN THAT ADJUDICATING AUTHORITY SHOULD GI VE REASON FOR DISPOSING OFF THE RIGHTS OF THE PARTIES. FOR THE SAKE OF FACILITY OF REFERENCE WE TAKE NOTE OF THE FOLLOWING FINDINGS FRO M THE HIGH COURTS ORDER:- IN TRAVANCORE RAYONS LTD. V. UNION OF INDIA, AIR 19 71 SC 862, THE HON'BLE SUPREME COURT OBSERVED (PAGE 866) : THE COURT INSISTS UPON DISCLOSURE OF REASONS IN SUPPORT O F THE ORDER ON TWO GROUNDS : ONE, THAT THE PARTY AGGRI EVED IN A PROCEEDING BEFORE THE HIGH COURT OR THIS COURT HAS TH E OPPORTUNITY TO DEMONSTRATE THAT THE REASONS WHICH PERSU ADED THE AUTHORITY TO REJECT HIS CASE WERE ERRONEOUS : THE OTHER, THAT THE OBLIGATION TO RECORD REASONS OPERATES AS A DETERREN T AGAINST POSSIBLE ARBITRARY ACTION BY THE EXECUTIVE AUTHORITY INVESTED WITH THE JUDICIAL POWER. IN MAHABIR PRASAD SANTOSH KUMAR V. STATE OF U. P., A IR 1970 SC 1302, THE HON'BLE SUPREME COURT WHILE QUASHI NG THE CANCELLATION OF THE PETITIONER'S LICENCE BY THE DISTR ICT MAGISTRATE, OBSERVED (PAGE 1304) : RECORDING OF REASONS IN SUPPORT OF A DECISION ON A DISPUTED CLAIM BY A QUASI-JUDICIAL AUTHORITY ENSURES T HAT THE DECISION IS REACHED ACCORDING TO LAW AND IS NOT THE RE SULT OF CAPRICE, WHIM OR FANCY OR REACHED ON GROUNDS OF POLI CY OR EXPEDIENCY. A PARTY TO THE DISPUTE IS ORDINARILY ENTI TLED TO KNOW THE GROUNDS ON WHICH THE AUTHORITY HAS REJECTED HIS C LAIM. IF THE ORDER IS SUBJECT TO APPEAL, THE NECESSITY TO RECORD RE ASONS IS GREATER, FOR WITHOUT RECORDED REASONS THE APPELLATE A UTHORITY HAS ITA NO4361 STAY NO.66/DEL/10-11 6 NO MATERIAL ON WHICH IT MAY DETERMINE WHETHER THE F ACTS WERE PROPERLY ASCERTAINED, THE RELEVANT LAW WAS CORRECTLY APPLIED AND THE DECISION WAS JUST. IN WOOLCOMBERS OF INDIA LTD. V. WOOLCOMBERS WORKERS' UNION, AIR 1973 SC 2758, THE HON'BLE SUPREME COURT QUASHED THE AWARD PASSED BY THE INDUSTRIAL TRIBUNAL ON THE GR OUND THAT IT WAS NOT SUPPORTED BY REASONS AND OBSERVED (PAGE 2761): THE GIVING OF REASONS IN SUPPORT OF THEIR CONCLUSION S BY JUDICIAL AND QUASI-JUDICIAL AUTHORITIES WHEN EXERCISIN G INITIAL JURISDICTION IS ESSENTIAL FOR VARIOUS REASONS. FIRST, IT IS CALCULATED TO PREVENT UNCONSCIOUS, UNFAIRNESS OR ARBITRARINESS IN REACHING THE CONCLUSIONS. THE VERY SEARCH FOR REASONS WILL PUT TH E AUTHORITY ON THE ALERT AND MINIMISE THE CHANCES OF UN CONSCIOUS INFILTRATION OF PERSONAL BIAS OR UNFAIRNESS IN THE CON CLUSION. THE AUTHORITY WILL ADDUCE REASONS WHICH WILL BE REGARDED AS FAIR AND LEGITIMATE BY A REASONABLE MAN AND WILL DISCARD IRREL EVANT OR EXTRANEOUS CONSIDERATIONS. SECOND, IT IS A WELL-KNOWN P RINCIPLE THAT JUSTICE SHOULD NOT ONLY BE DONE BUT SHOULD ALSO A PPEAR TO BE DONE. UNREASONED CONCLUSIONS MAY BE JUST BUT THEY MAY N OT APPEAR TO BE JUST TO THOSE WHO READ THEM. REASONED CON CLUSIONS, ON THE OTHER HAND, WILL HAVE ALSO THE APPEARANCE OF JUSTICE. THIRD, IT SHOULD BE REMEMBERED THAT AN APPEAL GENERA LLY LIES FROM THE DECISION OF JUDICIAL AND QUASI-JUDICIAL AUTH ORITIES TO THIS COURT BY SPECIAL LEAVE GRANTED UNDER ARTICLE 136. A JUDGMENT WHICH DOES NOT DISCLOSE THE REASONS WILL BE OF LITTLE ASSI STANCE TO THE COURT. THE SAME VIEW WAS REITERATED IN AJANTHA INDUSTRIES V. ITA NO4361 STAY NO.66/DEL/10-11 7 CENTRAL BOARD OF DIRECT TAXES [1976] 102 ITR 281 (SC ) ; AIR 1976 SC 437 AND SIEMENS ENGINEERING AND MANUFACTURING CO. OF INDIA LTD. V. UNION OF INDIA, AIR 1976 SC 1785. IN TESTEELS LTD. V. N. M. DESAI CONCILIATION OFFICER, AIR 1970 GUJ 1, A FULL BENCH OF THE GUJARAT HIGH COURT SPEAK ING THROUGH P. N. BHAGWATI, C.J. (AS HIS LORDSHIP THEN WAS) MADE A LUC ID ENUNCIATION OF LAW ON THE SUBJECT IN THE FOLLOWING W ORDS (HEADNOTE) : THE NECESSITY OF GIVING REASONS FLOWS AS A NECESSARY COROLLARY FROM THE RULE OF LAW WHICH CONSTITUTES ONE OF THE BASIC PRINCIPLES OF THE INDIAN CONSTITUTIONAL SET UP. THE AD MINISTRATIVE AUTHORITIES HAVING A DUTY TO ACT JUDICIALLY CANNOT T HEREFORE DECIDE ON CONSIDERATIONS OF POLICY OR EXPEDIENCY. THEY MUST D ECIDE THE MATTER SOLELY ON THE FACTS OF THE PARTICULAR CASE, SOLE LY ON THE MATERIAL BEFORE THEM AND APART FROM ANY EXTRANEOUS CONSIDERATIONS BY APPLYING PREEXISTING LEGAL NORMS TO F ACTUAL SITUATIONS. NOW, THE NECESSITY OF GIVING REASONS IS AN I MPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE DUTY TO ACT JUD ICIALLY. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTRAN EOUS OR IRRELEVANT CONSIDERATIONS AND EXCLUDES OR, AT ANY RATE MINIMISES ARBITRARINESS IN THE DECISION-MAKING PROCESS. ANOTHER REASON WHICH COMPELS MAKING OF SUCH AN ORDER IS BASED ON THE POWER OF JUDICIAL REVIEW WHICH IS POSSESSED BY THE HIGH COURT UNDER ARTICLE 226 AND THE SUPREME COURT UNDER ARTICLE 32 OF THE CONSTITUTION. THESE COURTS HAVE THE POWER UNDER THE SAID PROVISIONS TO QUASH BY CERTIORARI A QUASI-JUDI CIAL ORDER MADE BY AN ADMINISTRATIVE OFFICER AND THIS POWER OF R EVIEW CAN ITA NO4361 STAY NO.66/DEL/10-11 8 BE EFFECTIVELY EXERCISED ONLY IF THE ORDER IS A SPEAKI NG ORDER. IN THE ABSENCE OF ANY REASONS IN SUPPORT OF THE ORDER, THE SAID COURTS CANNOT EXAMINE THE CORRECTNESS OF THE ORDER UND ER REVIEW. THE HIGH COURT AND THE SUPREME COURT WOULD BE POWERLESS TO INTERFERE SO AS TO KEEP THE ADMINISTRATIVE OFFICER WITHIN THE LIMITS OF THE LAW. THE RESULT WOULD BE THA T THE POWER OF JUDICIAL REVIEW WOULD BE STULTIFIED AND NO REDRESS BE ING AVAILABLE TO THE CITIZEN, THERE WOULD BE INSIDIOUS ENCOURAGEMEN T TO ARBITRARINESS AND CAPRICE. IF THIS REQUIREMENT IS INSISTE D UPON, THEN THEY WILL BE SUBJECT TO JUDICIAL SCRUTINY AND CO RRECTION. IF WE LOOK AT THE ORDER OF LD DRP EXTRACTED (SUPRA) IN THE LIGHT OF ABOVE PROPOSITION, IT WILL REVEAL THAT DRP HAS NOT APPLIED ITS MIND. THE ASSESSEE HAS FILED OBJECTIONS RUNNING INTO MORE THAN 123 PAGES AND NOT A SINGLE OBJECTION HAS BEEN DISCUSSED BY THE LD DRP . THEREFORE, WE SET ASIDE THE ORDER OF LD DRP AND REMIT THE ISSUE BA CK TO THE FILE OF LD DRP FOR RE-ADJUDICATION. 8. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES AND IN VIEW OF OUR DISPOSAL OF THE APPEAL THE STAY APPLICATION FILED BY THE ASSESSEE BECOMES INFRUCTUOU S AND HENCE DISMISSED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH DAY O F DECEMBER, 2012. SD/- SD/- (A.D. JAIN) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT.14.12.2012. HMS ITA NO4361 STAY NO.66/DEL/10-11 9 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 11.10.2012 DATE OF DICTATION 7.12.2012 DATE OF TYPING 7.12.2012 DATE OF ORDER SIGNED BY 14.12.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 17.12.2012 & SENT TO THE BENCH CONCERNED.