DIC Fine Chemicals Pvt. Ltd., Kolkata V. DCIT, Cir-11(1), Kolkata, Kolkata

ITA 446/KOL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1666 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 06-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Transfer pricing; International transaction
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA [BEFORE HONBLE SHRI J. SUDHAKAR REDDY, AM & HONBLE SHRI S.S. VISWANETHRA RAVI, JM] I.T.A. NO. 446/KOL/2017 ASSESSMENT YEAR: 2012-13 M/S. DIC FINE CHEMICALS PVT. LTD...............................APPELLANT TRANSPORT DEPOT ROAD KOLKATA 700088 [PAN: AACCD6812G] DCIT, CIRCLE-11(1) RESPONDENT AAYAKAR BHAWAN, 6 TH FLOOR P-7 CHOWRINGHEE SQUARE KOLKATA - 700069 APPEARANCES BY: SHRI AKKAL DUDHWEWALA, AR APPEARING ON BEHALF OF THE ASSESSEE. SHRI G. MALLIKARJUNA, CIT DR APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : AUGUST 08, 2017 DATE OF PRONOUNCING THE ORDER AUGUST 25, 2017 ORDER PER J. SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE ASSESSEE CHALLENGING THE DIRECTIONS OF THE DRP ON THE FOLLOWING GROUNDS: 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP WAS UNJUSTIFIED IN UPHOLDING THE ADJUSTMENT ON ACCOUNT OF ALP OF INTERNATIONAL TRANSACTIONS WITH AES TO THE EXTENT OF RS. 1,88,93,725/-. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITION OF RS. 1,88,93,725/- SUSTAINED BY THE TPO BE HELD TO BE UNTENABLE AND BE DELETED SINCE THE ADDITION HAS BEEN MADE BY TAKING THE GROSS PROFIT MARGIN ON COST TO BE THE APPROPRIATE PROFIT LEVEL INDICATOR (PLI) AND THEREBY THE ARMS LENGTH MARGIN IS CALCULATED @ 15.11% EVEN THOUGH AS PER THE ADVANCE PRICING AGREEMENT (APA) EXECUTED ON 6 TH FEBRUARY, 2017 AND APPLICABLE FOR THE YEAR UNDER CONSIDERATION, THE OPERATING PROFIT MARGIN IS STATED TO BE THE APPROPRIATE PLI AND THE ARMS 2 I.T.A. NO. 446/KOL/2017 ASSESSMENT YEAR: 2012-13 M/S. DIC FINE CHEMICALS PVT. LTD. LENGTH OP MARGIN IS AGREED AT 4.5% ON THE ENTITY LEVEL WHICH WAS BINDING ON THE TPO AS WELL AS THE AO IN TERMS OF SECTION 92CD OF THE INCOME TAX ACT, 1961. 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITION OF RS. 1,88,93,725/- MADE BY THE AO IN THE IMPUGNED ORDER U/S 144C/143(3) DATED 30.01.2017 BE DELETED. 4. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, BOTH THE DRP AS WELL AS THE AO ERRED ON FACTS & IN LAW IN NOT ALLOWING DEDUCTION IN RESPECT OF SUM OF RS. 5,22,302/- ACTUALLY PAID TOWARDS LEAVE ENCASHMENT U/S 43B OF THE ACT. 5. FOR THAT THE APPELLANT RESERVES THE RIGHT TO ADD TO, ALTER OR AMPLIFY THE ABOVE GROUNDS OF APPEAL. THE ASSESSEE IS A COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF PRINTING INKS PRODUCTS. FOR AY 2012-13 THE APPELLANT HAD FILED THE RETURN OF INCOME ON 22.11.2012 DECLARING TOTAL LOSS OF RS. (-) 5,92,27,903/-. THE CASE WAS SELECTED FOR SCRUTINY U/S 143(3) AND THE AO REFERRED THE MATTERS FOR TRANSFER PRICING SCRUTINY U/S 92CA(2) OF THE ACT. VIDE ORDER DATED 29.01.2016, THE TPO KOLKATA HAD PROPOSED TRANSFER PRICING ADJUSTMENT OF RS. 17,99,88,935/-. THEREAFTER, THE AO PASSED A DRAFT ASSESSMENT ORDER DATED 18.03.2016 ASSESSING TOTAL INCOME AT RS. 12,52,00,918/- AFTER MAKING ADDITIONS/DISALLOWANCES INTER ALIA INCLUDING TRANSFER PRICING ADJUSTMENT OF RS. 17,99,88,935/-. AGGRIEVED BY THE AOS DRAFT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP-II, DELHI. THE HONBLE DRP VIDE ORDER DATED 16.12.2016 ISSUED DIRECTIONS PARTIALLY ALLOWING THE ASSESSEES OBJECTIONS BOTH THE AO AS WELL AS THE TPO. AS PER THE DIRECTIONS OF THE HONBLE DRP, THE LD. TPO RECOMPUTED THE TRANSFER PRICING ADDITION BY ADOPTING PROFIT LEVEL INDICATOR (PLI) TO BE GROSS PROFIT MARGIN TO COST AT 11.51% AND THEREBY MAKING TRANSFER PRICING ADJUSTMENT OF RS. 1,88,93,725/- INSTEAD OF RS. 17,99,88,935/- AS PROPOSED IN HIS ORIGINAL ORDER DATED 29.01.2016. THE AO THEREAFTER PASSED THE FINAL ASSESSMENT ORDER DATED 31.01.2017 MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES UNDER THE DIRECTIONS OF HONBLE DRP.: I) TRANSFER PRICING ADDITION RS. 1,88,93,725/- II) PRIVISION FOR LEAVE ENCASHMENT RS. 2,11,905/- 3 I.T.A. NO. 446/KOL/2017 ASSESSMENT YEAR: 2012-13 M/S. DIC FINE CHEMICALS PVT. LTD. 2. AFTER HEARING RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSEE HAS ENTERED INTO AN ADVANCE PRICING AGREEMENT (APA) WITH THE CBDT ON 06.02.2017. UNDER THE APA THE APPROPRIATE PLI IS AGREED TO BE OPERATING PROFIT MARGIN TO SALES AND THE ARMS LENGTH MARGIN IS AGREED AT 4.5% AT THE ENTITY LEVEL. THIS APA ALSO CONTAINS PROVISIONS FOR ROLLBACK FOR THE A.Y. 2010-11 TO 2013-14. THUS THE CURRENT F.Y. 2012- 13 IS COVERED BY THE ROLLBACK PROVISIONS OF THE APA. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED A STATEMENT THAT THE ASSESSEES ENTITY LEVEL PLI FOR THE IMPUGNED ASSESSMENT YEAR 2012-13 IS 6.43% AS AGAINST 4.5% AGREED TO IN THE APA. THUS HE CONTENDS THAT THE TRANSFER ADJUSTMENT MADE IN THE FINAL ASSESSMENT ORDER HAS TO BE DELETED. THE LEARNED DR SUBMITTED THAT THE ISSUE SHOULD BE SENT BACK TO THE FILE OF THE AO FOR VERIFICATION OF THE CLAIMS OF THE ASSESSEE, AS THE APA IN QUESTION HAS BEEN ENTERED INTO SUBSEQUENT TO THE PASSING OF THE FINAL ASSESSMENT ORDER. 4. AFTER HEARING RIVAL CONTENTIONS WE SET ASIDE THIS ISSUE THE FILE OF THE ASSESSING OFFICER FOR VERIFYING THE CLAIM OF THE ASSESSEE THAT ITS ENTITY LEVEL PLI FOR THE ASSESSMENT YEAR 2012-13 IS 6.43% AS AGAINST THE PLI OF 4.5% AGREED TO IN THE APA. IN THE RESULT, GROUND NO 1, 2 AND 3 ARE ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO 4 IS ON THE ISSUE OF THE CLAIM FOR DEDUCTION BY THE ASSESSEE ON PROVISION OF LEAVE ENCASHMENT. THE ASSESSEE CREATED A PROVISION FOR LEAVE ENCASHMENT OF RS. 7.59 LAKHS. IN THE RETURN OF 4 I.T.A. NO. 446/KOL/2017 ASSESSMENT YEAR: 2012-13 M/S. DIC FINE CHEMICALS PVT. LTD. INCOME THE ASSESSEE WROTE BACK THE PROVISION TO THE EXTENT OF RS. 5.47 LAKHS U/S 43B(F) OF THE ACT. THE AO DISALLOWED THE BALANCE AMOUNT OF RS. 2,11,905/- IN HIS ORDER U/S 143(3) OF THE ACT. BEFORE THE DRP, THE ASSESSEE CLAIMED THAT THE DEDUCTION SHOULD BE ALLOWED ON ACTUAL PAYMENT OF RS. 5,22,302/-U/S 43B(F) OF THE ACT. THE DRP REFUSED TO ENTERTAIN TIS NEW CLAIM OF THE ASSESSEE. THE ASSESSEE PLACED RELIANCE ON THE RATIO OF THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. 229 ITR 383 AND JUTE CORPORATION OF INDIA LTD. VS CIT (SUPRA). 5. AFTER HEARING RIVAL CONTENTION WE FIND THAT THIS IS A LEGAL CLAIM FOR DEDUCTION. AS ALL THE FACTS ARE ON RECORD, WE ADMIT THIS GROUND OF THE ASSESSEE. WE SET ASIDE THE MATTER OF THE FILE OF THE AO WITH A DIRECTION THAT THE AO SHALL ADJUDICATE THIS ISSUE DE-NOVO, IN ACCORDANCE WITH LAW. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 25 TH , 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25/08/2017 BISWAJIT, SR. PS 5 I.T.A. NO. 446/KOL/2017 ASSESSMENT YEAR: 2012-13 M/S. DIC FINE CHEMICALS PVT. LTD. COPY OF ORDER FORWARDED TO: 1. M/S. DIC FINE CHEMICALS PVT. LTD., KOL - 700088 2. DCIT, CIRCLE 11(1), KOLKATA 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA