COIM INDIA PVT. LTD., NEW DELHI V. DCIT NATIONAL E- ASSESSMENT, NEW DELHI

ITA 495/DEL/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5183 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2016-2017
• Appeal Filed On: 05-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: CHAKARBORTY
• Keywords: Transfer pricing; International transaction; Application of stay
• Section: 92; 92B; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DLEHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 495/DEL/2021 ASSESSMENT YEAR: 2016-17 AND S.A. NO. 136/DEL/2021 (IN ITA NO.495/DEL/2021) COIM INDIA PRIVATE LIMITED, VS. DY. COMMISSIONER O F INCOME TAX SHOP NO. 4, GROUND FLOOR, NATIONAL E-ASSESSMENT C ENTRE, RAJENDRA BHAWAN, PATEL NAGAR EAST, DELHI. CENTRAL DELHI (DELHI) PAN : AABCC4026E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. NAGESHWAR RAO, ADV. & SH. CHAKARBORTY, ADVOCATE RESPONDENT BY: SH. SURENDER PAL, CIT/DR & SH. BHAGWATI CHARAN, SR. DR DATE OF HEARING: 03.08.2021 DATE OF ORDER : 27.09.2021 ORDER PER K. NARASIMHA CHARY, J.M. THIS IS AN APPEAL BY COIM INDIA PRIVATE LIMITED (T HE ASSESSEE) BEING AGGRIEVED BY THE ASSESSMENT ORDER DATED 31/03/2021 PURSUANT TO THE DIRECTIONS DATED 04/02/2021 OF THE DISPUTE RESOLUTI ON PANEL -I, NEW DELHI (FOR SHORT HEREINAFTER CALLED LD. DRP) FOR THE ASSESSMENT YEAR 2 2016-17. BY WAY OF STAY APPLICATION, THE ASSESSEE A LSO SEEKS STAY OF THE OUTSTANDING DEMAND. 2. BRIEF FACTS OF THE CASE, AS COULD BE CULLED OUT FROM THE ORDERS OF THE AUTHORITIES BELOW, ARE THAT THE ASSESSEE IS A 1 00% SUBSIDIARY COMPANY OF COIM S.P.A. COIM INDIA WAS INCORPORATED ON 7TH JUNE 2000. THE COMPANY IS ENGAGED IN TRADING IN POLYADDITIONS (POLYURETHANES) PRODUCTS AND MANUFACTURE AND TRADING OF POLYCONDENS ATION (ESTER) PRODUCTS AND LAMINATING ADHESIVES FOR PACKAGING IND USTRY UNDER THE BRAND NAME NOVACOTE AND IMUTHANE-HOT CAST POLYURE THANE ELASTOMERS. COIM INIDA ALSO PROVIDES CUSTOMER SUPPO RT FOR THE DIRECT SALES MADE BY COIM GROUP TO INDIA FOR WHICH THE COM PANY EARNS A COMMISSION AS A PERCENTAGE OF DIRECT SALES, BASED O N A CONTRACTUAL AGREEMENT. 3. FOR THE ASSESSMENT YEAR 2016-17, ASSESSEE FILED THE RETURN OF INCOME ON 30/11/2016 DECLARING AN INCOME OF RS.1,44 ,11,480/-, AND DURING THE COURSE OF ASSESSMENT, LEARNED ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD UNDERTAKEN TRANSACTION WITH ITS ASSOCIATED ENTERPRISES, AND TH EREFORE, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WITH THE ASSOCIATES ENTERPRISES (AES) WERE REFERRED TO THE L D. TRANSFER PRICING OFFICER (LD. TPO) FOR DETERMINING THE ARMS LENGTH PRICE. SUBSEQUENTLY, BY ORDER PASSED UNDER SECTION 92CA(3) OF THE INCOME TA X ACT, 1961 (FOR SHORT THE ACT) LD. TPO PROPOSED AN ADJUSTMENT OF RS.5,41,06,552/- U/S 92CA OF THE ACT, THE DETAILS OF WHICH ARE AS FOLLOW S: 1. PAYMENT OF ROYALTY 9,17,045/- 2. RECEIPT OF COMMISSION 5,21,98,254/- 3 3. INTEREST ON RECEIVABLES 9,91,253/- TOTAL 5,41,06,552/- 4. ACCORDING TO THE LEARNED ASSESSING OFFICER, THIS AMOUNT OF RS.5,41,06,552/- IS BEING PROPOSED AS AN ADJUSTMENT TO THE PRICE SHOWN BY THE TAXPAYER IN ITS BOOKS OF ACCOUNT, AND HAS TO BE TREATED AS THE CUMULATIVE ADJUSTMENT U/S 92CA OF THE ACT. 5. ASSESSEE FILED OBJECTIONS BEFORE THE LD. DRP AND SUBMITTED THAT IN SO FAR AS THE ROYALTY IS CONCERNED, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURING OF CHEMICALS; THAT THE COMPANY PAYS ROYALTY FOR THE NON-EXCLUSIVE LICENSE TO MANUFACTUR E, SELL AND USE THE TRADEMARK NOVACOTE IN INDIA; AND THAT SINCE THE P ROFITABILITY FROM PAYMENT OF ROYALTY IS INTER-LINKED WITH OTHER TRANS ACTIONS IN ITS CHEMICAL BUSINESS, THE SAME WAS BENCHMARKED WITHIN THE BUSIN ESS ACTIVITIES USING TRANSACTION NET MARGIN METHOD (TNMM). SO ALSO THE A SSESSEE SUBMITTED THAT IN RESPECT OF THE COMMISSION, IT CONSTITUTES A ROUND 0.42% OF THE TOTAL REVENUE OF THE ASSESSEE WHEREAS 99.58% OF THE INCOME IS FROM THE TRADING OF CHEMICALS, WHEREAS A PERUSAL OF THE QUAN TUM OF SUCH SALES MAKES IT CLEAR THAT SUCH SALES ARE NOT UNDERTAKEN A S THE PRINCIPAL BUSINESS ACTIVITY, BUT BOTH THE ACTIVITIES ARE PART OF THE TRADING ACTIVITIES OF THE ASSESSEE. IT WAS FURTHER SUBMITTED BY THE AS SESSEE THAT THE SAME RESOURCES, NAMELY, EMPLOYEES, ADMIN RESOURCES, ARE INTERCHANGEABLY USED FOR COORDINATING WITH THE AES IN RELATION TO B USINESS OPERATION AS WELL AS FOR GENERATING COMMISSION INCOME; THAT BIFU RCATION OF COST FOR EACH ACTIVITY IS NOT FEASIBLE AS NO SEPARATE COST C ENTRE IS MAINTAINED AND NO SEGMENTAL REPORTING IS PRESENTED IN AUDITED FINA NCIAL STATEMENTS AND ACCORDINGLY SEPARATE PROFITABILITY CANNOT BE ASCERT AINED ACCURATELY; AND THAT FOR DAY TO DAY ACTIVITIES, THE COMMISSION OPER ATION IS CARRIED ONLY AS 4 ANCILLARY/SUPPLEMENTARY ACTIVITY AND IS CLOSELY LIN KED WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. 6. ASSESSEE ALSO SUBMITTED BEFORE THE AUTHORITIES T HAT BENCHMARKING OF THE INTERNATIONAL TRANSACTION BY APPLYING TNMM A S MOST APPROPRIATE METHOD IS UPHELD BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2013-14 IN ITA NO. 7260/DEL/2017 IN THE CASE OF ASSESSEE. FURTHER IN THE SAME ORDER, THE TRIBUNAL AGREED WITH THE ASSESSEE ON THE ASPECT S OF ROYALTY AND COMMISSION. AUTHORITIES BELOW DID NOT AGREE WITH TH E ASSESSEE ON THIS ASPECT, STATING THAT THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2013-14 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A FURTHER APPEAL TO THE HONBLE HIGH COURT HAS BEEN FILED AND PENDIN G. 7. FINAL ASSESSMENT ORDER WAS PASSED BY THE ASSESSI NG OFFICER ON 31.03.2021 IN TUNE WITH THE DRAFT ASSESSMENT ORDER IN SO FAR AS THIS PARTICULAR ADDITION TO THE TUNE OF RS.5,41,06,552/- IS CONCERNED. HENCE, THIS APPEAL. 8. IT IS SUBMITTED BY THE LEARNED AR THAT THE LD. T PO MADE ADDITION IN RESPECT OF ROYALTY ON THE GROUND THAT NO BENEFIT WA S ACCRUED TO THE ASSESSEE BY THE USE OF THE BRAND NOVACOTE; THAT S O ALSO IN RESPECT OF THE COMMISSION, THE REDUCTION OF THE SAME FROM 4% TO 1% DOES NOT FIT IN THE EXPENDITURE AND INCOME MATRIX OF THE ASSESSEE, IN A S MUCH AS, IN THE OPINION OF THE TPO, ANY PERSON AT FIRST MAKES EFFOR TS IN DEVELOPING THE MARKET EVEN THOUGH IT INCURS LOSSES OR EARNS MEAGRE NET MARGIN IN THE INITIAL YEARS SO THAT IN FUTURE YEARS IT CAN REAP T HE BENEFIT AND EQUALIZE ITS EFFECTIVE RETURN OVER A SPAN OF TIME. LD. AR SUBMIT S THAT THIS CONTENTION OF THE TPO IS REJECTED BY THE TRIBUNAL ON THE GROUN D THAT IF THE ASSESSING OFFICER IS OF THE OPINION THAT THE EXPENDITURE INCU RRED BY THE ASSESSEE DOES NOT COMMENSURATE TO THE BUSINESS OF ASSESSEE T HEN THERE ARE 5 SEPARATE AND DISTINCT PROVISIONS OF THE ACT, UNDER WHICH THE ASSESSING OFFICER CAN MAKE APPROPRIATE DISALLOWANCES; THAT TH E TPO CANNOT ENTER INTO THE MERITS OF THE CLAIM OF THE EXPENDITURE VIS A VIS THE BUSINESS NEEDS OF THE ASSESSEE AND HIS DOMAIN IS RESTRICTED TO THE DETERMINATION OF ARMS LENGTH PRICE ONLY. 9. LEARNED DR PLACES RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CONTENTIONS OF THE ASSESSEE ARE AGAINST THE ORDINARY CONDUCT OF BUSINESS AND, THEREFORE, AUTHOR ITIES RIGHTLY REJECTED THE SAME. LEARNED DR SOUGHT REMAND OF THIS MATTER T O THE FILE OF LD. TPO FOR VERIFICATION OF THE FACTS AND JUSTIFICATION OF THE EXPENSES OR THE REDUCTION OF THE COMMISSION RATE. 10. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF SUBMISSIONS MADE ON EITHER SIDE. IN SO FAR AS THE TP ADJUSTMENTS IN RESPECT OF THE ROYALTY AND COMMISSION ARE CONCERNED, IT REMAINS AN ADMITTE D FACT THAT THE ISSUES ARE COVERED BY THE ORDER DATED 07.05.2018 IN ITA NO. 7260/DEL/2017 IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2013-14 PASSED BY A COORDINATE BENCH OF THIS TRIBUNAL. AS R EFERRED TO EARLIER, THE TRIBUNAL HELD THAT IT WOULD BE BEYOND THE DOMAIN OF THE LD. TPO TO TEST THE CLAIM OF EXPENDITURE INCURRED BY THE ASSESSEE V IS A VIS THE BUSINESS NEEDS OF THE ASSESSEE. 11. IT IS ALSO AN ADMITTED FACT THAT IN THE SAID OR DER, THE TRIBUNAL IN CLEAR AND UNEQUIVOCAL TERMS HELD THAT BENCH-MARKING OF THE TRANSACTION BY THE ASSESSEE BY USING THE COMBINED TRANSACTION A PPROACH BY APPLYING TNMM AS AGAINST THE APPROACH OF TPO IN BENCH MARKIN G THE TRANSACTION SEPARATELY, IS A CORRECT APPROACH. 12. THERE IS NO DISPUTE ON THE FACTS AS TO THE ASSE SSEE PURCHASING THE MATERIAL/TRADED GOODS FROM COIM ASIA PACIFIC PTE LT D. WHEREAS THE 6 ROYALTY TO COIM SPA. RELEVANT AGREEMENTS WERE PRODU CED BEFORE THE AUTHORITIES BELOW TO SHOW THAT THE ASSESSEE IMPORTE D CERTAIN CHEMICALS UNDER THE TRADEMARK NOVACOTE AND PAID THE ROYALTY FOR USE OF SUCH TRADEMARK TO A SEPARATE ENTITY AND SINCE THE LICENS E OWNER TO WHOM ROYALTY IS PAID, NAMELY COIM SPA IS DIFFERENT FROM THE SELLER OF THE MATERIAL/GOODS, NAMELY COIM ASIA PACIFIC PTE LTD., IT CANNOT BE SAID THAT THE ROYALTY IS INGRAINED IN THE PURCHASE OF GOODS. IT IS ALSO NOT IN DISPUTE THAT THE COMMISSION SALES BY THE ASSESSEE CONSTITUT ES ONLY ABOUT 0.42% OF THE TOTAL REVENUE OF THE ASSESSEE WHEREAS 99.58% OF INCOME IS FROM TRADING OF CHEMICALS, AS PLEADED BY THE ASSESSEE. F URTHER, THE TPO COMPARED THE RATE OF COMMISSION CHARGED BY THE ASSE SSEE TO ONE AE WITH THE RATE OF COMMISSION CHARGED BY THE ASSESSEE TO O THER AES. SUCH AN EXERCISE IS NOT PERMISSIBLE UNDER THE PROVISIONS OF SECTION 92F(II) READ WITH SECTION 92 OF THE ACT, AS HAS BEEN HELD BY THE CO-ORDINATE BENCH IN THE CASE OF ASSESSEE FOR THE ASSESSMENT YEAR 2013-1 4 SINCE THE TPO WAS SUPPOSED TO COMPARE THE CONTROLLED TRANSACTION WITH OTHER UNCONTROLLED TRANSACTIONS. 13. FOR THESE REASONS, WE ARE OF THE CONSIDERED OPI NION THAT THE ORDERS OF THE AUTHORITIES BELOW DO NOT STAND THE TE ST OF JUDICIAL SCRUTINY IN SO FAR AS THE ADJUSTMENT ON THE ASPECT OF ROYALT Y AND COMMISSION ARE CONCERNED AND SINCE THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FROM THE ASSESSMENT YEAR 2013-14, WHILE RE SPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL IN THE ORDER DATED 07. 05.2018 IN ITA NO. 7260/DEL/2017, WE HOLD THAT THE ADJUSTMENT IN RESPE CT OF ROYALTY AND COMMISSION CANNOT BE SUSTAINED AND THE SAME SHALL B E DELETED. WE DIRECT SO. 7 14. NOW, COMING TO THE INTEREST ON RECEIVABLES, THE ASSESSING OFFICER WAS OF THE OPINION THAT ANY DELAY BEYOND THE CREDIT PERIOD SHALL BE BENCH MARKED AS AN INTERNATIONAL TRANSACTION AND BY APPLY ING THE SAME, THE ASSESSING OFFICER CALCULATED THE INTEREST CHARGEABL E ON RECEIVABLES BY TAKING THE CREDIT PERIOD AS 30 DAYS AND THE LD. TPO SUGGESTED ADJUSTMENT OF RS.9,91,252/-. 15. ON THIS ASPECT, THE CASE OF THE ASSESSEE IS THA T THE ASSESSEE DOES NOT CHARGE ANY INTEREST RECEIVABLE BY THEM FROM THE AES AND IT IS THEIR POLICY NOT TO CHARGE SO IN RESPECT OF INTEREST BOTH PAYABLE AND RECEIVABLE. IT IS FURTHER SUBMITTED THAT THE INTEREST PAYABLE B Y THE ASSESSEE IS MORE THAN THE INTEREST RECEIVABLE AND SUCH INTEREST ON R ECEIVABLES IS INGRAINED IN SALES ITSELF, AND THE LD. ASSESSING OFFICER TOOK INTO CONSIDERATION ONLY THE INTEREST CHARGEABLE, BUT DID NOT CONSIDER THE I NTEREST PAYABLE AND IF BOTH THE INTEREST CHARGEABLE AND INTEREST PAYABLE A RE TAKEN INTO CONSIDERATION AND SET OFF IS ALLOWED, THAT WOULD LE AD TO NO ADJUSTMENT AT ALL. 16. LEARNED AR DREW OUR ATTENTION TO PAGE NO. 416 O F THE APPEAL SET WHERE THE ASSESSEE DEMONSTRATED THAT THE RELATED PA RTY RECEIVABLES OF THE ASSESSEE AS ON 31.03.2016 WERE RS.4,79,88,545/- , WHEREAS RELATED PARTY PAYABLE STOOD AT RS.1,60,23,22,774/- WHICH ES TABLISHES THAT THE BALANCE OF PAYABLES TO COIM ASIA PACIFIC PTE LTD. A ND COIM SPA AS ON 31.03.2016 IS MUCH HIGHER THAN THE RECEIVABLES. BAS ING ON THIS, HE ARGUED THAT THE ASSESSEE IS AVAILING MORE CREDIT PERIOD VI S A VIS CREDIT PERIOD IT GRANTS TO ITS AES. IT IS FURTHER ARGUED ON BEHALF O F THE ASSESSEE THAT THE OUTSTANDING RECEIVABLE IS NOT SEPARATE INTERNATIONA L TRANSACTION, INASMUCH AS, IT IS INCIDENTAL TO THE TRANSACTIONS O F SALES/SERVICES AND INGRAINED INTO THE SAME. LD. AR PLACES RELIANCE ON THE DECISION DATED 8 25/04/2017 OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KUSUM HEALTH CARE PVT. LTD. IN ITA NO. 765 OF 2016. 17. IT IS LASTLY CONTENDED THAT THE ASSESSEE FOLLOW S SIMILAR CREDIT POLICY FOR BOTH THE AES AND NON-AES AND SINCE NO INTEREST IS CHARGED FROM UNCONTROLLED TRANSACTIONS WITH NON-AES, THE TRANSAC TION DISCLOSED BY THE ASSESSEE HAS TO BE HELD AS AT ARMS LENGTH. 18. LEARNED DR INVITED OUR ATTENTION TO THE TABLE R EGARDING CALCULATION OF INTEREST CHARGEABLE ON RECEIVABLES AND SUBMITTED THAT IN RESPECT OF CERTAIN ENTRIES, THE PAYMENT TOOK PLACE MORE THAN 3 65 DAYS AFTER IT HAD FALLEN PAYABLE AND THEREFORE, THE AUTHORITIES ARE J USTIFIED IN MAKING ADJUSTMENT. 19. IN SO FAR AS THE FACTS ARE CONCERNED, THE SAME ARE NOT DISPUTED. IT IS NOT THE CASE OF REVENUE THAT THE ASSESSEE IS CHA RGING INTEREST FROM ITS AES FOR ANY DELAY IN PAYMENT FOR MORE THAN 30 DAYS. FOR THAT MATTER, IT IS NOT THE CASE OF THE REVENUE THAT EVEN IN RESPECT OF NON-AES ALSO, THE ASSESSEE IS CHARGING ANY INTEREST. IT IS THE POLICY OF THE ASSESSEE, AS SUBMITTED (SUPRA) THAT THE ASSESSEE DOES NOT CHARGE INTEREST EITHER FROM AES OR NON-AES AND ACCORDINGLY DOES NOT PAY INTERES T FROM AES. FURTHER, THE ASSESSEE DEMONSTRATED THAT AS ON 31.03.2016, A SUM OF RS.4,79,88,545/- WAS RECEIVABLE FROM AES WHEREAS TH E SUM OF RS.1,65,03,11,319/- WAS PAYABLE BY THE ASSESSEE, RE SULTING IN NET PAYABLE OF RS.1,60,23,22,774/- AS PER THEIR BOOKS. THERE IS NOTHING CONTRARY TO THIS AVERMENT MADE BY THE ASSESSEE WITH REFERENCE T O THE BOOKS. IN KUSUM HEALTH CARE PVT. LTD. (SUPRA), HONBLE HIGH C OURT HELD THAT THE COURT IS UNABLE TO AGREE WITH THE ABOVE SUBMIS SIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EX PRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM O F RECEIVABLES 9 APPEARING IN THE ACCOUNTS OF AN ENTITY, WHICH MAY H AVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF F ACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CASE BASIS.......... 20. HAVING REGARD TO THIS SET OF FACTS AND CIRCUMST ANCES, WE ARE OF THE CONSIDERED OPINION THAT THE AUTHORITIES BELOW ARE N OT JUSTIFIED IN MAKING ADJUSTMENT ON ACCOUNT OF INTEREST RECEIVABLE AND TH EREFORE, IMPUGNED ADJUSTMENT OF RS.9,91,253/- ON ACCOUNT OF INTEREST RECEIVABLE IS DIRECTED TO BE DELETED. CONSEQUENTLY, THE APPEAL OF THE ASSE SSEE DESERVES TO BE ALLOWED. 21. SINCE THE APPEAL OF THE ASSESSEE STANDS DISPOSE D OF, THE STAY PETITION FILED BY THE ASSESSEE IS DISMISSED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND STAY APPLICATION IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF SEPTEMBER, 2021. SD/- SD/- (ANIL CHATURVEDI) (K. NARSIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 27/09/2021 AKS