M/s Kogktv Foods Products India Pvt. Ltd., Chennai V. ITO, New Delhi

ITA 4833/DEL/2010

• Counselvise Citation: 483320114 RSA 2010
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 04-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J MISHRA
• Assessee Lawyers: GVVS MURTHY; T S AJAI
• Keywords: Transfer pricing; International transaction; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) SHRI A.D. JAIN, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.4833/DEL./2010 (ASSESSMENT YEAR : 2006-07) M/S. KOGKTV FOOD PRODUCTS (I) PVT. LTD., VS. ITO, W ARD 5 (3), 48/310, THAMBU CHETTY STREET, NEW DELHI. CHENNAI 600 001. (PAN : AACCK5451A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T.S. AJAI, FCA & SHRI G.V.V.S. MURTHY, ADVOCATE REVENUE BY : SHRI J. MISHRA, CIT DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) READ WITH SECTI ON 144C OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE COMPANY IS A JOINT VENTURE COMPANY FORM BY THE PROMOTERS OF M/S. KUOCK OILS AND GRAINS P. LTD., SI NGAPORE AND KTV OIL MILLS CHENNAI ENGAGED IN IMPORTING, TRADING AND DIS TRIBUTING EDIBLE OILS, SPECIALLY FACTS AND GRAINS, ETC. THE ASSESSEE COMP ANY ENTERED INTO INTERNATIONAL TRANSACTIONS WHICH ARE COVERED BY SEC TION 92CA. A REFERENCE ITA NO.4833/DEL./2010 2 WAS MADE TO THE TRANSFER PRICING OFFICER BY THE ASS ESSING OFFICER WITH THE DUE APPROVAL OF THE CIT. THE TRANSFER PRICING OFFI CER ORDERED FOR THE ADJUSTMENT OF RS.8,79,21,153/- TO WORK OUT THE ARM S LENGTH PRICE BY USING TNMM METHOD. AGAINST THE PROPOSED ASSESSMENT ORDER , THE ASSESSEE FILED OBJECTION BEFORE THE DRP-II, NEW DELHI, WHICH HAS D ISPOSED OFF THE OBJECTION VIDE ITS ORDER DATED 30.09.2010 BY HOLDING AS UNDER :- IN VIEW OF DISCUSSION ON EACH OF THE GROUNDS OF OBJECTION IN PARA 5.1 TO 5.6 ABOVE, THE ASSESSING O FFICER IS DIRECTED TO COMPLETE THE ASSESSMENT AS PER THE DRAF T ORDER FORWARDED BY HIM TO THE ASSESSEE. THE ASSESSING OF FICER MAY INCORPORATE THE REASONS GIVEN BY THE PANEL AT APPRO PRIATE PLACES IN RESPECT OF THE VARIOUS OBJECTIONS WHILE P ASSING THE FINAL ORDER. SHE IS ALSO DIRECTED TO APPEND A COPY OF THESE DIRECTIONS TO THE ASSESSMENT ORDER. THE ASSESSMENT WAS FINALIZED ON 06.10.2010 BY ASSES SING OFFICER. 3. THE ASSESSEE HAS PREFERRED THE APPEAL AGAINST TH AT ORDER BEFORE US. THE GROUNDS OF APPEAL READ AS UNDER :- 1. THE LEARNED ASSESSING OFFICER AND DISPUTE RESOL UTIONS PANEL-II, DELHI, HAVE COMPLETELY ERRED IN LAW AND I N THE FACTS AND CIRCUMSTANCES OF THE CASE IN A) MAKING AN ADDITION OF RS.8,79,21,153 BY DETERMIN ING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANS ACTIONS' CARRIED OUT BY THE ASSESSEE WITH AN ADJUSTMENT OF RS.8,79,2 1,153; B) REJECTING THE CUP METHOD ADOPTED BY THE ASSESSEE AND INSTEAD FOLLOWING TNMM METHOD; AND C) IN COMPUTING THE PLI OF OP/SALES UNDER THE TNMM METHOD, THAT IS THE COMPARABLE NET PROFIT MARGIN, AT 8.0175 %, BY SELECTING TOTALLY UNRELATED AND INCOMPARABLE CASES FOR THE PU RPOSE OF COMPARISON, THEREAFTER INCORRECTLY COMPUTING THE OP ERATING MARGIN ITA NO.4833/DEL./2010 3 OF THE SELECTED CASES, AND TOTALLY DISREGARDING THE ECONOMIC ANALYSIS CARRIED OUT BY THE ASSESSEE. 2 THE LEARNED ASSESSING OFFICER AND DISPUTE RESOLUT IONS PANEL- II, DELHI, HAVE ERRED IN LAW AND IN THE FACTS CIRCU MSTANCES OF THE CASE BY NOT TAKING INTO COGNIZANCE THE DETAILED INF ORMATION AND EXPLANATIONS FILED DURING THE VARIOUS STAGES OF ASS ESSMENT AND THE ADDITIONAL EVIDENCE AND EXPLANATIONS FILED BY THE A SSESSEE THOUGH ADMITTED, AND CONSEQUENTLY FAILING TO APPRECIATE TH E FACTS AND CIRCUMSTANCES OF THE CASE FULLY AND PROPERLY. 3 A) THE LEARNED ASSESSING OFFICER AND DISPUTE RESO LUTIONS PANEL-II, DELHI, OUGHT TO HAVE NOTED THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF IMPORT OF COMMODITIES (EDIBLE OIL), FOR WHICH COMPARABLE PRICES ARE AVAILABLE IN THE PUBLIC DOMAI N, AND HENCE CUP METHOD IS THE MOST SUITABLE METHOD AND HAS BEEN PROPERLY FOLLOWED BY THE ASSESSEE BASED UPON THE DATA AVAILA BLE IN THE PUBLIC DOMAIN. 3 B) THE LEARNED ASSESSING OFFICER AND THE DISPUTE RESOLUTION PANEL HAVING OBSERVED, THAT IT AGREES WITH THE ASSE SSEE'S CONTENTION THAT INTERNATIONAL CONTRACT PRICE (PRICES PUBLISHED BY THE MALAYSIAN GOVERNMENT IN WEBSITE), IS THE PRICE AVAILABLE WITH ALL COMPANIES DEALING IN THE VARIOUS FORMS OF PALM OIL, TRADERS, BANKERS ETC AND THAT DEALINGS TAKE PLACE BETWEEN THE INDEPENDENT PA RTIES AT THESE PRICES, FAILED IN NOT APPLYING THE SAID PRICES FOR THE PURPOSE OF CUP METHOD MERELY ON THE GROUND THAT THE ASSESSEE HAS N OT BEEN ABLE TO SUBSTANTIATE THE SAME WITH DOCUMENTARY EVIDENCE. TH E LEARNED AUTHORITIES OUGHT TO HAVE NOTED THAT THE NECESSARY DETAILS AND DOCUMENTARY EVIDENCE HAVE BEEN FILED AT VARIOUS STA GES OF THE ASSESSMENTS, PART OF WHICH ARE IN FACT EXTRACTED IN THE ORDER OF THE TRANSFER PRICING OFFICER. 3 C) THE LEARNED ASSESSING OFFICER AND DISPUTE RESO LUTIONS PANEL-II, DELHI, OUGHT TO HAVE ALSO NOTED THAT FURT HER THE ASSESSEE COMPANY HAS ALSO FILED ADDITIONAL COMPARISONS BY WA Y OF A) DATA PUBLISHED BY THE SOLVENT EXTRACTORS ASSOCIATION OF INDIA OF THE DAY- TO-DAY LANDED PRICES OF THE EDIBLE OILS AND B) TARI FF VALUE NOTIFIED BY THE GOVERNMENT OF INDIA FOR THE PURPOSE OF LEVY OF CUSTOMS DUTY, ALL OF WHICH JUSTIFY THE CUP METHOD AND THE C OMPUTATION OF ALP AS MADE BY THE ASSESSEE. 3 D) THE LEARNED ASSESSING OFFICER AND DISPUTE RESO LUTIONS PANEL-II, DELHI, HAVE COMPLETELY ERRED IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN OBSERVING THAT THERE A RE SIGNIFICANT ITA NO.4833/DEL./2010 4 DIFFERENCES FOR WHICH RELIABLE ADJUSTMENT CAN NOT B E QUANTIFIED IN THE CUP METHOD JUSTIFYING THE REJECTION OF THE CUP METHOD. THE LEARNED AUTHORITIES OUGHT TO HAVE NOTED THAT THE IN THE PRESENT CASE THERE ARE NO SIGNIFICANT DIFFERENCES SINCE THE PROD UCT IS THE SAME NAMELY EDIBLE OIL AND THAT DUE ADJUSTMENT HAS BEEN MADE FOR THE OCEAN FREIGHT TO INDIA. 3 E) THE LEARNED AUTHORITIES HAVE BASED THEIR CONCL USIONS ON INCORRECT UNDERSTANDING AND ASSUMPTION OF FACTS SUC H AS THAT THE TRANSACTIONS ARE IN SINGAPORE WHEREAS THE PRICES AR E PUBLISHED IN MALAYSIA, THAT THE ACTUAL 'SHIPMENT DATE IS DIFFERE NT FROM CONTRACT DATE BY WHICH TIME THE PRICES WOULD HAVE CHANGED ET C, THOUGH ALL THE ABOVE SAID OBJECTIONS HAVE BEEN EXPLAINED AND C LARIFIED BY THE ASSESSEE. 3 F) THE LEARNED AUTHORITIES HAVE REJECTED THE CUP METHOD ON THE BASIS OF INCORRECT UNDERSTANDING OF FACTS, MERE SUR MISES AND SUSPICIONS, IN TOTAL DISREGARD TO THE INDUSTRY PRAC TICE, AND IN TOTAL DISREGARD TO THE FACTUAL EXPLANATIONS, INFORMATION AND EVIDENCE FILED BY THE ASSESSEE. G) THE LEARNED AUTHORITIES HAVE FAILED IN NOT APPRE CIATING THE PRECEDENT CASES LAW RELIED UPON BY THE COMPANY WHIC H ARE SQUARELY AND DIRECTLY APPLICABLE TO THE FACTS OF THE CASE AN D INSTEAD FOLLOWING THE DECISIONS WHEREIN CERTAIN GENERAL OBSERVATIONS REGARDING THE CUP METHOD HAVE BEEN MADE. 4.A) THE LEARNED ASSESSING OFFICER AND DISPUTE RESO LUTIONS PANEL-II, DELHI, HAVE ERRED IN REJECTING THE ALTERN ATE SUBMISSIONS OF THE ASSESSEE THAT EVEN UNDER THE TNMM METHOD THE SE LECTION OF COMPARABLE COMPANIES HAS BEEN DONE INCORRECTLY, IN AS MUCH AS AVT NATURAL PRODUCTS LTD ONE OF THE COMPANIES SELEC TED FOR COMPARISON IS DEALING IN TOTALLY DIFFERENT COMMODIT Y OLEORESIN, WITH VERY HIGH LEVEL OF PROFIT MARGIN ( 20.84%), AS AGAINST THE AVERAGE OF 3.74% FOR THE REST OF THE COMPANIES, VIT IATING THE PROCESS OF COMPARISON. 4 B) THE LEARNED AUTHORITIES HAVE ALSO ERRED IN INC ORRECTLY COMPUTING THE OPERATING MARGINS OF THE SELECTED COM PANIES WITHOUT EXCLUDING NON OPERATING INCOME, FOREX FLUCTUATIONS AND OTHER USUAL AND APPROPRIATE ADJUSTMENTS REQUIRED TO MAKE THEM C OMPARABLE. 4 C) THE LEARNED AUTHORITIES HAVE ERRED IN REJECTIN G THE CONTENTION OF THE ASSESSEE THAT THE ADJUSTMENT TO THE ARM'S LE NGTH PRICE SHOULD BE LIMITED TO THE LOWER END OF 5% RANGE, AND FURTHE R HOLDING THAT THE ITA NO.4833/DEL./2010 5 ISSUE IS WELL SETTLED IN VIEW OF THE CLARIFICATORY AMENDMENT TO PROVISO TO SEC.92 C(2). 5. FOR THESE AND ANY OTHER GROUND OR GROUNDS OF APP EAL THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED T HAT THE IMPUGNED ASSESSMENT ORDER, PASSED IN PURSUANCE OF THE DIRECT IONS OF DISPUTE RESOLUTIONS PANEL-II, DELHI AND THE ORDER OF THE AD DITIONAL COMMISSIONER OF INCOME TAX AND TRANSFER PRICING OFF ICER, I (3 ) NEW DELHI BE QUASHED AND THE ADDITIONS MADE IN THE ASSESSMENT ORDER BE DELETED, AND THE ASSESSING OFFICER BE DIRE CTED TO ADOPT THE CUP METHOD FOR BENCHMARKING THE INTERNATIONAL TRANS ACTIONS OF THE ASSESSEE AND THE COMPUTATION OF ALP AS MADE BY THE ASSESSEE. 4. AT THE OUTSET OF THE HEARING, THE LEARNED AR SUB MITTED THAT THE DRP HAS OBSERVED IN PARA 4 OF ITS ORDER THAT SUBMISSIONS OF THE ASSESSEE WERE MORE OR LESS SAME AS RAISED BY THE ASSESSEE BEFORE THE ASSE SSING OFFICER AND TRANSFER PRICING OFFICER. FOR THIS OBSERVATION, LEARNED AR SUBMITTED THAT THIS OBSERVATION IS FACTUALLY INCORRECT. HE DRAW OUR AT TENTION TO PAGE NOS.48 TO 51 OF THE PAPER BOOK WHICH IS A SUBMISSION MADE BY ASS ESSEE BEFORE THE DRP. LEARNED AR PLEADED THAT THE ASSESSEE HAS EXPLAINED AND CLARIFIED THE OBJECTIONS RAISED BY THE TRANSFER PRICING OFFICER A ND ADDITIONAL EVIDENCES AND EXPLANATIONS WERE ALSO SUBMITTED. THE TPO HAS REPR ODUCED THE RULES AND OECD GUIDELINES BUT HE HAS NOT BROUGHT ON ANY INSTA NCES WHY THE CUP METHOD SHOULD NOT BE APPLIED. FURTHER LEARNED AR S UBMITTED THAT AS PER OECD GUIDELINES, THE DIFFERENCES IN TERMS OF TRANSP ORTATION AND INSURANCE GENERALLY HAVE A DEFINITE AND REASONABLE ASCERTAINA BLE EFFECT ON THE PRICE, THEREFORE, TO DETERMINE THE UNCONTROLLED SALES PRIC E, ADJUSTMENT SHOULD BE MADE TO THE PRICE FOR THE DIFFERENCE IN DELIVERY TE RMS. HE ALSO PLEADED THAT ITA NO.4833/DEL./2010 6 THE ALL THE RELEVANT DOCUMENTS WERE SUBMITTED IN SU PPORT OF INTERNATIONAL CONTRACT PRICE WHICH ARE AVAILABLE TO ALL COMPANIES DEALING IN THE VARIOUS FORMS OF PALM OIL, TRADERS, BANKERS AND DEALINGS TA KE PLACE BETWEEN INDEPENDENT PARTIES. HOWEVER, DRP HAD NOT CONSIDER ED THE SAME. THE RELEVANT DOCUMENTS LIKE BILL OF LADING WAS ALSO SUB MITTED BUT THE DRP HAS NOT CONSIDERED ALL THESE DOCUMENTS. HE PLEADED THAT TH E MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER AS VARIOUS ADD ITIONAL EVIDENCES AND EXPLANATIONS SUBMITTED BY THE ASSESSEE HAVE NOT BEE N APPRECIATED OR CONSIDERED FULLY AND PROPERLY. 5. THE LEARNED DR WAS NOT HAVING ANY SERIOUS OBJECT ION TO THIS PROPOSITION. 6. AFTER HEARING RIVAL SUBMISSIONS AND CONSIDERING FACTS ON RECORD, WE ARE OF THE VIEW THAT THE ENTIRE MATTER NEEDS A RE-LOOK, HENCE, ISSUES ARE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DI RECTION TO CONSIDER ALL THE PLEADINGS AND DOCUMENTS AND DECIDE DE NOVO. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 4 TH DAY OF OCTOBER, 2011 AFTER THE CONCLUSION OF THE HEARING. SD/- SD/- (A.D. JAIN) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 4 TH DAY OF OCTOBER, 2011/TS ITA NO.4833/DEL./2010 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.DRP-II, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.