DCIT, Coimbatore V. India Trimming Private Limited, Coimbatore

ITA 476/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7883 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 15-12-2016
• Assessment Year: misc
• Appeal Filed On: 03-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLEWATH PEERYA
• Keywords: Transfer pricing; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 144C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO. 476/MDS/2016 / ASSESSMENT YEAR : 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1, 63-A, RACE COURSE ROAD, COIMBATORE V. M/S. INDIA TRIMMINGS PRIVATE LIMITED 6/636, PILLAIAPPAN PALAYAM, TELUNGUPALAYAM POST, ANNUR, COIMBATORE 641 653 PAN: AAACI1639N ( /APPELLANT) ( !' /RESPONDENT) # /APPELLANT BY : SHRI PATHLEWATH PEERYA, CIT !' # /RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE # /DATE OF HEARING : 15.12.2016 # /DATE OF PRONOUNCEMENT : 31.01.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE ASSESSING OFFICER SUBSEQUENT TO THE DIRECTION O F THE DISPUTE RESOLUTION PANEL (DRP) DATED 24.11.2015 AND PERTAIN S TO THE ASSESSMENT YEAR 2011-12. 2 I.T.A. NO. 476/MDS/2016 2. SHRI PATHLEWATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DRP BY TAKING M/S . ASHNOOR TEXTILES MILLS LTD., AS A COMPARABLE COMPANY MADE A DJUSTMENT ON ACCOUNT OF PERSONAL COST. ACCORDING TO THE LD. D. R. THE ASSESSEE ITSELF WHILE CALCULATING THE PLI OF M/S. ASHNOOR TE XTILES MILLS LTD., HAS NOT INCLUDED THE OTHER OPERATIONAL EXPENDITURE AMOUNTING TO RS.4.17 CRORES. HOWEVER, THE TRANSFER PRICING OFFI CER (TPO) INCLUDED THE OPERATIONAL EXPENDITURE AND ARRIVED AT THE PROFIT MARGIN AT (-) 5.13%. REFERRING TO THE DRPS DIRECTION MOR E PARTICULARLY AT PARA 3.3.4, THE LD. D.R. SUBMITTED THAT THE UNDER U TILIZATION OF THE ASSET EMPLOYED DUE TO LACK OF TURNOVER WAS NOT ALLO WED FOR THE ASSESSMENT YEAR 2009-10. HOWEVER, IN THE YEAR UND ER CONSIDERATION, THE DRP DIRECTED THE TPO TO DECIDE T HE PERCENTAGE OF RISK ADJUSTMENT AFTER CONSIDERING THE RELEVANT F ACTS. REFERRING TO SECTION 144C OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), THE LD. D.R. SUBMITTED THAT THE DRP WAS EXPECTED TO DEC IDE THE ISSUE BY ITSELF. THE DRP HAS NO JURISDICTION TO DIRECT THE TPO TO DECIDE THE MATTER. ACCORDING TO THE LD. D.R., IT IS FOR THE DRP TO DECIDE THE MATTER BY ITSELF AND DIRECT THE ASSESSING OFFIC ER TO GIVE EFFECT TO THE ORDER AS PROVIDED UNDER SECTION 144 (C) (13) OF THE ACT. 3 I.T.A. NO. 476/MDS/2016 THEREFORE THE DRP ACCORDING TO LD. D.R. EXCEEDED IT S JURISDICTION IN DIRECTING THE TPO TO DECIDE THE PERCENTAGE OF RISK ADJUSTMENT. 3. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE ADOPTED COST P LUS METHOD AS MOST APPROPRIATE METHOD TO DETERMINE THE ARMS LE NGTH PRICE (ALP). DURING THE COURSE OF HEARING, THE ASSESSEE HAS ALSO ALTERNATIVELY SUBMITTED BEFORE THE ASSESSING OFFICE R THAT TRANSACTIONAL NET MARGIN (TNM) METHOD CAN ALSO BE A DOPTED. THE ASSESSEE COMPANY SELECTED 4 COMPARABLES AND DETERMI NED THE AVERAGE MEANS OF PROFIT LINE INDICATOR AT 3.95%. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS NOT OBJECTED THE COMP ARABILITY MARGIN IN THE TRANSFER PRICING DOCUMENT. HOWEVER, REQUESTED THE TPO TO MAKE SOME ADJUSTMENT. FOR THE ASSESSMENT Y EAR 2009-10, THE DRP CONSIDERED THE OBJECTION OF THE ASSESSEE AN D FOUND THAT THE TNM METHOD IS THE MOST APPROPRIATE METHOD. AC CORDING TO THE LD. COUNSEL, SELECTION OF MOST APPROPRIATE METHOD I S NOT IN DISPUTE. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE INCLUDED M/S. ASHNOOR TEXTILE MILLS LTD. AND M/S. RIBA TEXTILES LTD. HAS COMPARABLES. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E. ACCORDING TO 4 I.T.A. NO. 476/MDS/2016 THE LD. COUNSEL, THE ASSESSEE INFACT SELECTED 4 COM PARABLES. THEY ARE AS FOLLOWS: 1. M/S. ASHNOOR TEXTILES MILLS LIMITED 2. M/S. RIBA TEXTILES LIMITED 3. M/S. SR INDUSTRIES LIMITED AND 4. M/S. HERITAGE INDIA EXPORTS PVT. LIMITED 4. OUT OF THE ABOVE 4 COMPARABLES, THE TPO REJECTED M/S. ASHNOOR TEXTILES LTD. AND M/S. SR INDUSTRIES L TD. ON THE GROUND THAT THEY ARE LOSS MAKING COMPANIES. ACCOR DING TO THE LD. COUNSEL FOR THE ASSESSEE, M/S. SR INDUSTRIES LTD. W AS A LOSS MAKING COMPANY AND M/S. ASHNOOR TEXTILES MILLS LTD. , IS A PROFITABLE COMPANY. THEREFORE THE TPO IS NOT JUST IFIED IN REJECTING M/S. ASHNOOR TEXTILES MILLS LTD. THEREFORE THE DR P DIRECTED THE TPO TO INCLUDE M/S. ASHNOOR TEXTILES MILLS LTD., AS ONE OF THE COMPARABLE COMPANY FOR THE PURPOSE OF TRANSFER PRIC ING ADJUSTMENT. REFERRING TO THE DIRECTION OF THE DRP , THE LD. COUNSEL SUBMITTED THAT THE DRP HAS LIBERTY TO DECID E THE ISSUE ITSELF OR CAN DIRECT THE TPO TO RECONSIDER THE MATT ER. THEREFORE, MERELY BECAUSE THE DRP DIRECTED THE TPO TO DECIDE T HE PERCENTAGE OF RISK ADJUSTMENT, IT CANNOT BE SAID TH AT THE DRP EXCEEDED ITS DIRECTION. 5 I.T.A. NO. 476/MDS/2016 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FOR THE ASSESSMENT YEAR 2009-10, THE DRP REJECTED THE CLAIM OF THE ASSESSEE REGARDING UNDER-UTILIZATION OF THE ASSET DUE TO LACK OF TURNO VER ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED THE BREAK-UP DE TAILS OF THE EMPLOYEE COST. DURING THE YEAR UNDER CONSIDERATIO N IT APPEARS THAT THE ASSESSEE HAS FURNISHED THE BREAK-UP DETAILS OF EMPLOYEE COST IN THE PAPER BOOK BEFORE THE DRP. THEREFORE THE DRP D IRECTED THE TPO TO DECIDE THE PERCENTAGE OF RISK ADJUSTMENT TO BE CALCULATED. MOREOVER, THE DRP HAS ALSO DIRECTED THE TPO TO TAKE M/S. ASHNOOR TEXTILES MILLS LTD. AS ONE OF THE COMPARABLE. THE QUESTION UNDER CONSIDERATION IS, CAN THE DRP DIRECT THE TPO TO DEC IDE THE ISSUES ARISE FOR ADJUDICATION BEFORE THE DRP. 6. WE HAVE CAREFULLY GONE THROUGH THE PROVISION OF SECTION 144C OF THE ACT. SECTION 144C (7) CLEARLY SAYS THA T, DRP BEFORE ISSUING ANY DIRECTION UNDER SUB-SECTION (5) OF 144C , MAKE SUCH ENQUIRY AS IT FEELS OR CALLS ANY ENQUIRY TO BE MADE BY ANY INCOME TAX AUTHORITY AND REPORT THE SAME TO IT. SUB-CLAUS E 8 OF 144C THEREFORE SAYS THAT THE DRP MAY CONFIRM, REDUCE OR ENHANCE THE PROPOSED DRAFT ORDER. HOWEVER, IT SHALL NOT SET A SIDE ANY PROPOSED 6 I.T.A. NO. 476/MDS/2016 VARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FOR FURTHER ENQUIRY AND PASSING OF ASSESSMENT ORDER. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING SECTION 144C (7) & (8) OF THE ACT. (7) THE DISPUTE RESOLUTION PANEL MAY, BEFORE ISSUI NG ANY DIRECTIONS REFERRED TO IN SUB-SECTION (5),- (A) MAKE SUCH FURTHER ENQUIRY, AS IT THINKS FIT ; O R (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY INC OME-TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUC E 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) FOR FURTHER ENQUIRY AND PASSING OF THE ASSESSME NT ORDER. 7. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF CONSID ERED OPINION THAT THE DRP HAS NO AUTHORITY EITHER TO DIRECT THE ASSESSING OFFICER OR TPO TO MAKE FURTHER ENQUIRY AND DECIDE THE MATTE R. THE DRP AT THE BEST CALL FOR REMAND REPORT FROM ANY INCOME TAX AUTHORITY NAMELY EITHER THE TPO OR THE ASSESSING OFFICER AND DECIDE THE ISSUE ARISES FOR ADJUDICATION BY ITSELF. IT IS AL SO OPEN TO THE DRP TO MAKE FURTHER ENQUIRY BY ITSELF. HOWEVER, THE DRP H AS NO AUTHORITY OR JURISDICTION TO DIRECT THE TPO TO MAKE ANY ENQUI RY. 8. IN VIEW OF THE ABOVE, AS RIGHTLY SUBMITTED BY TH E LD. D.R. THE DRP HAS NO POWER OR AUTHORITY TO DIRECT THE TPO TO DECIDE THE 7 I.T.A. NO. 476/MDS/2016 PERCENTAGE OF RISK ADJUSTMENT TO BE CALCULATED. IN VIEW OF THE ABOVE, THE ORDER OF THE LOWER AUTHORITIES INCLUDING THE DRP IS SET ASIDE. THE DRP SHALL DECIDE THE ISSUE AFRESH AFTE R CONSIDERING THE RELEVANT MATERIAL ON RECORD. IN THE COURSE OF ADJ UDICATION, IT IS OPEN TO THE DRP TO MAKE FURTHER ENQUIRY BY ITSELF OR CAL L FOR A RELEVANT REPORT EITHER FROM THE ASSESSING OFFICER OR FROM TH E TPO OR FROM ANY OTHER INCOME TAX AUTHORITY AND THEREAFTER THE ISSUE ARISES FOR CONSIDERATION HAS TO BE DECIDED BY THE DRP ITSELF. WITH THE ABOVE OBSERVATION, THE ISSUE IS RESTORED BACK TO THE FILE OF THE DRP. 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED. ORDER PRONOUNCED ON 31 ST JANUARY, 2017 AT CHENNAI. SD/- SD/- ( . . ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, /DATED, THE 31 ST JANUARY, 2017. JR. # ! $ % $ /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. &' ( )/CIT(A) 4. &' /CIT 5. ! $ /DR 6. () /GF.