Frigoglass India Private Ltd., Gurgaon V. ACIT, New Delhi

ITA 4398/DEL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7070 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Assessee Lawyers: S SH NAGESHWAR RAO M DALAL S
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction
• Section: 92C; 143(3); 92F

Judgement Text

ITA NO. 4398/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4398/DEL/2010 A.Y. : 2006-07 FRIGOGLASS INDIA PRIVATE LIMITED, PLOT NO. 26A, IMT MANESAR, SECTOR-3,. GURGAON, HARYANA (PAN : (PAN : (PAN : (PAN : AAACF6804G AAACF6804G AAACF6804G AAACF6804G) )) ) VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : S/ SH. NAGESHWAR RAO, M. DALAL, ADVOCATES AND SH. NITIN NARANG, CA DEPARTMENT BY : SHRI KRISHNA, C.I.T. (D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE AO PASSED PURSUANT TO DIRECTIONS U/S 144C OF THE D ISPUTE RESOLUTION PANEL DATED 22.6.2010. 2. THE GROUNDS READ AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ('AO') HAS ERRED IN PASSING THE ASSESSMENT O RDER U/S 143(3) R.W.S 144C OF THE INCOME TAX ACT, 1961 ('THE ACT') AFTER CONSIDERING THE ADJUSTMENTS PROPOSED BY THE LEARNED TRA NSFER PRICING OFFICER ('TPO') IN HIS ORDER PASSED U/S 92CA(3) AND THE REBY APPROVED BY THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP'). ITA NO. 4398/DEL/2010 2 EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH M AY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, 1. THE AO / DRP HAVE ERRED IN CONFIRMING THE ORDER PASSE D U/S 92CA(3) OF THE ACT MAKING AN ADDITION OF ` 2,58,00,882 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGT H PRICE OF THE INTERNATIONAL TRANSACTION ENTERED BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. 1.1 THE DRP HAS ERRED IN CONCURRING WITH FINDINGS OF THE AOI TPO AND DISREGARDING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE A PPELLANT FOR ESTABLISHING THE ARM'S LENGTH PRICE OF THE INTERNA TIONAL TRANSACTIONS WITHOUT APPROPRIATE JUSTIFICATION. 1.2 THE TPO/ AO HAS ERRED IN LAW AND ON FACTS OF THE CASE IN APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD (MOM) OVER THE COST PLUS METHOD (C UP) ADOPTED BY THE APPELLANT FOR THE PURPOSE OF BENCHMAR KING ITS INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES (THE IMPUGNED TRANSACTIONS). 1.3 THE TPO / AO HAS FURTHER ERRED IN LAW AND ON FA CTS OF THE CASE IN NOT CONSIDERING THE AVAILABLE SEGMENTAL DATA AND ADOP TING THE COMPANY-WIDE DATA, WHICH IS CONTRARY TO WELL ACCEPTE D INTERNATIONAL PRINCIPLES AND PRACTICE AS WELL AS THE L AW LAID DOWN IN THIS REGARD BY VARIOUS COURTS. 1.4 THE TPO / AO HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN NOT APPRECIATING THAT THE ADJUSTMENT FOR DEPRECIATION IS FOR COMPARISON PURPOSES WITH COMPARABLES. 1.5 THE TPO / AO HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN USING SINGLE-YEAR DATA FOR DETERMINATION OF ARM'S LENG TH PRICE(ALP) INSTEAD OF MULTIPLE-YEAR DATA, WHICH WOUL D EVEN OUT VARIATIONS IN INDUSTRY AND PRODUCT CYCLES. 1.6 THE TPO / AO HAS SELECTED COMPANIES IN HIS STUDY WHICH WERE ENGAGED IN MANUFACTURE OF PRODUCTS THAT ARE DIFFEREN T FROM THAT ITA NO. 4398/DEL/2010 3 OF THE APPELLANT, AND ON THIS GROUND ITSELF THE ALP DETERMINED BY THE TPO IS VITIATED AND UNTENABLE IN LAW. 1.7 THE TPO / AO HAS ERRED IN LAW AND ON FACTS OF TH E CASE IN NOT MAKING APPROPRIATE ADJUSTMENTS FOR DIFFERENCES IN WORK ING CAPITAL EMPLOYED BY THE APPELLANT VIZ. A. VIZ. THE COMPARABLE COMPANIES. 1.8 THE TPO / AO HAS ERRED IN LAW AND ON FACTS OF THE CASE IN NOT MAKING APPROPRIATE ADJUSTMENTS FOR THE DIFFERENCES IN FUNCTIONS PERFORMED, RISKS ASSUMED AND ASSETS EMPLOYED BY THE APPEL LANT VIZ. A. VIZ. THE COMPARABLE COMPANIES. 1.9 THE TPO/AO HAS ERRED IN NOT PROVIDING THE BENEF IT OF THE ARMS LENGTH RANGE AS PROVIDED UNDER PROVISO TO SECTION 92C OF ACT FOR PURPOSES OF COMPUTING THE ARMS LENGTH PRICE UNDER SECT ION 92F OF THE ACT. 2. THE AO HAS ERRED IN LAW AND ON THE FACTS OF THE CA SE IN TAXING A SUM OF ` 1,03,7801- UNDER SECTION 41 OF THE ACT WHICH WAS ALREADY CREDITED TO THE APPELLANT'S PROFIT AND LOSS AC COUNT, WHICH HAS RESULTED IN DOUBLE TAXATION OF THE SAID AMOUNT. 3. THE AO HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DISALLOWING THE PROVISION FOR WARRANTY AMOUNTING TO ` 18,82,000 UNDER SECTION 40(A)(IA) OF THE ACT WITHOUT APPRECIATING TH AT TAX WAS NOT DEDUCTIBLE AT SOURCE ON SUCH PROVISION. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND 1 OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 3. ASSESSEE COMPANY IN THIS CASE WAS ESTABLISHED IN NOVEMBER , 1998. IT IS A SUBSIDIARY OF NORCOOL HOLDING ASA, NORWAY. ASSESSEE IS IN THE BUSINESS OF GLASS DOOR MERCHANDISING WITH A MANUFACTURING PLANT IN MANESAR, GURGAON, INDIA. DURING THE YEAR UNDER ASSESSMENT, T HE ASSESSEE ENTERED INTO SEVERAL INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIAT ED ENTERPRISES. THE TRANSFER PRICING OFFICER (TPO) IN HIS ORDER U/S 92CA(3 ) OF THE ACT DATED 15.10.2009 AGREED WITH THE ANALYSIS UNDERTAKEN BY THE ASSESSEE IN RESPECT OF ALL INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED EN TERPRISES EXCEPT (A) SALE OF FINISHED GOODS, (B) SALE OF SPARES, (C) PURCHASE OF RA W MATERIALS, (D) ITA NO. 4398/DEL/2010 4 PAYMENT OF COMMISSION. THE TPO HAS CONTENTED THAT T HE TRANSACTIONAL NET MARGIN METHOD IS THE MOST APPROPRIATE METHOD FOR THE IMPUGNED TRANSACTIONS VIS A VIS COST PLUS METHOD USED IN RULE 10D DOCUMENTATION MAINTAINED BY THE ASSESSEE. ACCORDINGLY, THE TPO MADE A TRANSFER PRICING ADJUSTMENT OF ` 25,800,882/-. IN ACCORDANCE WITH TH E TPOS ORDER THE ASSESSING OFFICER MADE THE TRANSFER PRICING ADDITION. 4. AGAINST THIS ADDITION, THE ASSESSEE IS IN APPEAL BE FORE US. 5. AT THE OUTSET, WE NOTE THAT DISPUTE RESOLUTION PANE L HAS NOT AT ALL CONSIDERED THE ASSESSEES SUBMISSIONS AND PASSED A VERY LACO NIC AND NON- SPEAKING DIRECTIONS. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECO RDS. WE FIND THAT SECTION 144C ENVISAGES FOLLOWING ON THE P ART OF THE DRP:- (5) THE DISPUTES RESOLUTION PANEL SHALL, IN CASE W HERE ANY OBJECTION IS RECEIVED UNDER SUB-SECTION (2), IS SUE SUCH DIRECTIONS, AS IT THINKS FIT, FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASSESSMENT. (6) THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DIR ECTIONS REFERRED TO IN SUB-SECTION (5), AFTER CONSIDERING T HE FOLLOWING, NAMELY :- (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT, IF ANY, OF THE ASSESSING OFFICER, VALUA TION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AUTHORITY; (E) RECORDS RELATING TO THE DRAFT ORDER; ITA NO. 4398/DEL/2010 5 (F) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECTE D BY, IT; AND (G) RESULT OF ANY ENQUIRY MADE BY, OR CAUSED TO BE MADE BY, IT. (7) THE DISPUTE RESOLUTION PANEL MAY, BEFORE ISSUING ANY DIRECTIONS REFERRED TO IN SUB-SECTION (5), - (A) MAKE SUCH FURTHER ENQUIRY, AS IT THINKS FIT; OR (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY INCOME TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUCE OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FUR FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. (9) IF THE MEMBERS OF THE DISPUTE RESOLUTION PANEL DIF FER IN OPINION ON ANY POINT, THE POINT SHALL BE DECIDE D ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEMBERS. (10) EVERY DIRECTION ISSUED BY THE DISPUTE RESOLUTIO N PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. (11) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED UNLESS AN OPPORTUNITY OF BEING HEARD IS GIVEN TO TH E ASSESSEE AND THE ASSESSING OFFICER ON SUCH DIRECTI ONS ITA NO. 4398/DEL/2010 6 WHICH ARE PREJUDICIAL TO THE INTEREST OF THE ASSESSE E OR THE INTEREST OF THE REVENUE, RESPECTIVELY. (12) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED AFTER NINE MONTHS FROM THE END OF THE MONTH IN WHICH THE DRAFT ORDER IS FORWARDED TO THE ELIGIBLE ASSESSEE. (13) UPON RECEIPT OF THE DIRECTIONS ISSUED UNDER SU B- SECTION (5), THE ASSESSING OFFICER SHALL, IN CONFO RMITY WITH THE DIRECTIONS, COMPLETE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 153, THE ASSESSMENT WITHOUT PROVIDING ANY FURTHER OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FRO M THE END OF THE MONTH IN WHICH SUCH DIRECTION IS RECEIVED. 7. AS AGAINST THE ABOVE PROVISIONS OF THE ACT HERE THE DRP HAS PASSED A VERY LACONIC ORDER. LD. COUNSEL OF THE AS SESSEE CONTENDED THAT VOLUMINOUS SUBMISSIONS HAVE BEEN MADE BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER. BUT THE DRP HAS BRUSHED THEM ASIDE WITHOUT PROPERLY CONSIDERING THE ASSESSEES OBJECTI ONS AND THE SUBMISSIONS OF THE ASSESSEE. UNDER THE CIRCUMSTAN CES, IN OUR OPINION, THE DIRECTIONS OF THE DRP ARE TOO LACONIC T O BE LEFT UNCOMMENTED. THE DIRECTIONS GIVEN BY THE DRP ALMOST T ANTAMOUNT TO SUPERVISING THE ASSESSING OFFICERS DRAFT ORDER AN D IN THAT SENSE IT CAN BE EQUATED THAT APPELLATE JURISDICTION BEING EXERC ISED. WE FIND THAT H ONBLE APEX COURT IN THE CASE M/S SAHARA INDIA (FARMS) VS. C IT & ANR. ITA NO. 4398/DEL/2010 7 IN [2008] 300 ITR 403 HAS HELD THAT EVEN AN ADMINI STRATIVE ORDER HAS TO BE CONSISTENT WITH THE RULES OF NATURAL JUSTICE . 8. IN THIS REGARD, WE ALSO NOTE THAT HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF VODAFONE ESSAR LTD. VS. DISPUTES RESO LUTION PANEL VIDE ORDER DATED 2.12.2010 THE HONBLE COURT HAS HELD TH AT WHEN A QUASI JUDICIAL AUTHORITY DEALS WITH THE LIS, IT IS OBLIGA TORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASON AS THE SAME IS A HEART AND SOUL OF THE MATTER AND FURTHER THE SAME ALSO FACILITATES APP RECIATION WHEN THE ORDER IS CALLED IN QUESTION BEFORE THE SUPERIOR FOR UM. ACCORDINGLY, THE HONBLE COURT HAS REMANDED THE MATTER FOR FRESH ADJUD ICATION. 9. UNDER THE CIRCUMSTANCES, IN THE BACKGROUND OF TH E AFORESAID DISCUSSION AND PRECEDENT ABOVE, WE FIND CONSIDERAB LE COGENCY IN THE ASSESSEES COUNSEL SUBMISSION THAT THE ASSESSEES SU BMISSION HAS BEEN BRUSHED ASIDE WITHOUT GIVING PROPER CONSIDERAT ION BY THE DRP. 10. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTRO VERT THIS PROPOSITION. 11. UNDER THE CIRCUMSTANCES, IN OUR CONSIDERED OPI NION, THE ISSUE IS REMITTED TO THE FILES OF THE DRP TO CONSIDER THE ISSU E ONCE AGAIN TO PASS A PROPER AND SPEAKING DIRECTION U/S 144C OF TH E IT ACT. SINCE WE ARE REMITTING THE MATTER TO THE FILES OF THE DRP FOR P ASSING A FRESH DIRECTION, OTHER ASPECTS OF MERITS OF THE CASE ARE NOT BEING ITA NO. 4398/DEL/2010 8 ADJUDICATED. NEEDLESS TO ADD THAT THE ASSESSEE SHOU LD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28/10/2011. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [I.P. BANSAL] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/10/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES