DCIT, New Delhi V. M/s. Imsofer Manufacturing India Pvt. Ltd., Pune

ITA 5155/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4236 (ITAT-DELHI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 14-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR PARANAV
• Keywords: Transfer pricing; International transaction; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI BEFORE SH. N.K.SAINI, ACCOUNTANT MEMBER AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 5155/DEL/2015 A.Y.: 2009-10 D CIT CIRCLE-12(1), ROOM NO. 405 C.R.BUILDING, I.P.ESTATE NEW DELHI VS. IMSOFER MANUFACTURING INDIA PVT. LTD. 2 ND FLOOR, PENTAGAON TOWER-I, MAGARPATTA CITY PUNE PAN : AABCI6450N PAN : ITA NO. 5158/DEL/2015 A.Y.: 2009 -10 IMSOFER MANUFACTURING INDIA PVT. LTD. 2 ND FLOOR, PENTAGAON TOWER-I, MAGARPATTA CITY PUNE VS. DCIT CIRCLE-12(1), ROOM NO. 405 C.R.BUILDING, NEW DELHI PAN : AA BCI6450N APPELLANT RESPONDENT ASESSEE BY : NONE REVENUE BY : SH. KUMAR PARANAV, SR. DR. DATE OF HEARING : 13.08.2018 DATE OF PRONOUNCEMENT : 14 .08.2018 O R D E R PER BENCH : ITA NO. 5155/DEL/2015 IS THE DEPARTMENTS APPEAL AG AINST ORDER DATED 29/05/2015 PASSED BY THE LD. CIT (APPEA LS), XLIV, 2 ITA NO.5155, 5158/DEL/2015 (IMSOFER MANUFACTURING INDIA PVT. LTD.) NEW DELHI FOR ASSESSMENT YEAR 2009-10 WHEREAS ITA NO . 5158/DEL/2015 IS THE ASSESSEES CROSS APPEAL FOR TH E SAME YEAR. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF CHOCOLATE S AND CONFECTIONERY PRODUCTS. THE RETURN OF INCOME WAS FI LED DECLARING LOSS OF RS. 13,13,83,846/-. AS THE ASSESSEE COMPAN Y HAD ENTERED INTO INTERNATIONAL TRANSACTIONS RELATED TO PURCHASE S FROM THE ASSOCIATED ENTERPRISES, A REFERENCE WAS MADE TO THE LD. TRANSFER PRICING OFFICER (TPO) AND THE LD. TPO RECOMMENDED A N UPWARD ADJUSTMENT OF RS. 15,20,75,072/- WITH REGARD TO THE ARMS LENGTH PRICE (ALP). THE ASSESSMENT WAS COMPLETED AT AN INCO ME OF RS. 2,09,81,026/- AFTER MAKING THE TRANSFER PRICING ADJ USTMENT OF RS. 15,20,75,072/- AND ALSO AFTER MAKING A DISALLOWANCE OF 10% FROM MISCELLANEOUS EXPENSES. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. CIT (A) WHO, VIDE THE IMPUGNED ORDER, PARTLY ALLOWED THE ASSESSEES A PPEAL. THE LD. CIT (A) UPHELD THE ACTION OF THE AO IN HOLDING THAT THE CUSTOM VALUATION OF THE IMPORTED GOODS COULD NOT BE USED A S CUP FOR BENCHMARKING PURCHASES MADE FROM ASSOCIATED ENTERPR ISES. THE LD. CIT (A) UPHELD THE APPLICATION OF TNMM METHOD I N THIS REGARD 3 ITA NO.5155, 5158/DEL/2015 (IMSOFER MANUFACTURING INDIA PVT. LTD.) BY THE LD. TPO. THE LD. CIT (A) ALSO UPHELD THE ACT ION OF THE LD. TPO IN RETAINING CERTAIN COMPARABLES BUT DIRECTED I NCLUSION OF CERTAIN COMPARABLES AS CONTENDED BY THE ASSESSEE. A PART FROM THIS, THE LD. CIT (A) ALSO GAVE RELIEF TO THE ASSESSEE BY DIRECTING THE LD. TPO TO EXCLUDE FOREIGN EXCHANGE LOSS WHILE COMPUTING THE OPERATING PROFIT OF THE ASSESSEE. THE LD. CIT (A) HELD AGAINS T THE ASSESSEE WITH RESPECT OF CLAIM FOR ADJUSTMENT ON ACCOUNT OF INCRE MENTAL LOSS ASSOCIATED WITH IMPORT OF GOODS AND HELD THAT IMPORT DUTY ADJUSTMENT COULD NOT BE ALLOWED. THE LD. CIT (A), H OWEVER, HELD IN FAVOUR OF THE ASSESSEE WITH RESPECT TO ASSESSEES CL AIM OF WORKING CAPITAL ADJUSTMENT AND DIRECTED THE LD. TPO TO GRAN T WORKING CAPITAL ADJUSTMENT BASED ON OECD FORMULA AND BY TAK ING 10.25% AS THE PRIME LENDING RATE (PLR). THE LD. CIT (A) HE LD AGAINST THE ASSESSEE BY HOLDING THAT CAPACITY UTILIZATION COULD NOT BE GIVEN TO THE ASSESSEE. SIMILARLY THE LD. CIT (A) ALSO UPHELD THE ACTION OF THE AO IN DISALLOWING THE ASSESSEES CLAIM FOR RISK ADJU STMENT. FURTHER, THE LD. CIT (A) HELD IN FAVOUR OF THE ASSESSEE BY D IRECTING THE TPO TO RESTRICT THE TRANSFER PRICING ADJUSTMENT ONLY TO TH E INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES INSTEAD OF THE ENTIRE OPERATING COST. THE LD. CIT (A) ALSO DISMISSED THE ASSESSEES REQUEST 4 ITA NO.5155, 5158/DEL/2015 (IMSOFER MANUFACTURING INDIA PVT. LTD.) FOR ALTERNATE BENCH MARKING. THE LD. CIT (A) ALSO R ULED THAT THE BENEFIT OF +/- 5% COULD NOT BE ALLOWED TO THE ASSESS EE AS IT WAS NOT A STANDARD DEDUCTION TO BE ALLOWED IN EACH AND EVER Y CASE. FURTHER, THE DISALLOWANCE WITH RESPECT TO MISCELLANEOUS EXPENS ES WAS RESTRICTED TO RS. 50,000/- AS AGAINST RS. 2,39,000/ - DISALLOWED BY THE AO. THE AO WAS ALSO DIRECTED TO CONSIDER THE LOS S AS PER THE REVISED RETURN AND RE-COMPUTE THE INCOME AS PER THE LOSS DECLARED IN THE REVISED RETURN. 2.2 AGGRIEVED WITH THE IMPUGNED ORDER OF THE LD. CIT (A), THE DEPARTMENT AS WELL AS THE ASSESSEE IS IN APPEAL BEF ORE THE ITAT. THE ASSESSEE HAS RAISED NUMEROUS GROUNDS OF APPEAL CHALLENGING THE UPHOLDING OF DISALLOWANCES WITH RESPECT TO THE TR ANSFER PRICING ADJUSTMENT BY THE LD. CIT (A) WHEREAS THE DEPARTMENT , IN ITS SOLE GROUND, IS CHALLENGING THE ACTION OF THE LD. CIT (A ) IN DIRECTING THE LD. TPO TO GRANT WORKING CAPITAL ADJUSTMENT BASED ON OECD FORMULA AND BY TAKING 10.25% AS THE PRIME LENDING R ATE. 3. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE WHEN TH E APPEAL WAS CALLED OUT FOR HEARING NOR WAS ANY APPLICATION FO R ADJOURNMENT RECEIVED ON BEHALF OF THE ASSESSEE. A PERUSAL OF TH E ORDER SHEET ENTRY SHOWS THAT THIS APPEAL WAS EARLIER FIXED FOR HEARING ON 5 ITA NO.5155, 5158/DEL/2015 (IMSOFER MANUFACTURING INDIA PVT. LTD.) 19.07.2018 BUT THE ASSESSEE WAS NOT REPRESENTED ON T HAT DATE ALSO. IT IS APPARENT THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING ITS APPEAL AND, THEREFORE, WE HAVE NO OPTION BUT TO DIS MISS THE ASSESSEES APPEAL FOR WANT OF PROSECUTION. SUPPORT I S DRAWN FROM THE ORDER OF TRIBUNAL IN CIT VS. MULTI PLAN INDIA ( P) LTD. REPORTED IN 38 ITD 320 (DEL.) AND OF THE HONBLE M.P. HIGH COUR T IN ESTATE OF LATE TUKOJIRAO HOLKAR VS. CWT REPORTED IN 223 ITR 4 80 (MP). 4. ACCORDINGLY, THE ASSESSEES APPEAL STANDS DISMIS SED. 5. ARGUING FOR THE DEPARTMENTS APPEAL, THE LD. SR. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE LD. CIT (A) HAD E RRED IN DIRECTING THE AO/TPO TO GRANT WORKING CAPITAL ADJUSTMENT BASED ON OECD FORMULA. HE SUBMITTED THAT THE LD. CIT (A) DID NOT CONSIDER THE FACTS OF THE CASE IN THE RIGHT PROSPECTIVE AND HAD ALLOWED THE BENEFIT OF WORKING CAPITAL ADJUSTMENT, ALTHOUGH THE SAME WAS NOT ALLOWABLE TO THE ASSESSEE. THE LD. SR. DR PRAYED THAT THE DIR ECTIONS OF THE LD. CIT (A) SHOULD BE REVERSED AND THAT OF THE AO RESTO RED. 6. WE HAVE HEARD THE LD. SR. DR AND HAVE ALSO PERUS ED THE IMPUGNED ORDER AS WELL AS THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE HAS BEEN ELABORATELY DISCUSSED BY THE LD. CIT (A) IN 6 ITA NO.5155, 5158/DEL/2015 (IMSOFER MANUFACTURING INDIA PVT. LTD.) PARAGRAPH 7.5 AND 7.6 OF THE IMPUGNED ORDER TO WHICH WE ARE IN FULL AGREEMENT. FURTHER, THE REVENUES STAND THAT THE A SSESSEE IS INELIGIBLE FOR ANY ADJUSTMENTS IF HE PROVIDES THE S ET OF COMPARABLE IS NOT CORRECT BECAUSE UNDER RULE 10(3) IT IS THE DUTY OF THE AO/TPO/DRP TO MINIMIZE/ELIMINATE THE DIFFERENCE WHIC H IS LIKELY TO MATERIALLY AFFECT THE PRICE . IT IS THE SETTLED PROPOSITION THAT WORKING CAPITAL ADJUSTMENT IS AN ADJUSTMENT THAT I S REQUIRED TO BE MADE IN TNMM. ALLOWABILITY OF WORKING CAPITAL ADJUST MENT HAS BEEN UPHELD BY THE VARIOUS BENCHES OF THE ITAT. ITAT DEL HI HAS HELD WORKING CAPITAL ADJUSTMENT TO BE ALLOWABLE IN THE CAS ES OF MENTOR GRAPHICS REPORTED IN 109 ITD 101 (DEL) AND SONY IND IA REPORTED IN 114 ITD 448 (DEL). THEREFORE, IN VIEW OF THE SETTLED JUDICIAL PRECEDENTS AND FURTHER IN VIEW OF THE FACT THAT THE LD. SR. DR COULD NOT POINT OUT ANY LEGAL INFIRMITY IN THE DIRECTION OF THE LD. CIT (A) FOR ALLOWING WORKING CAPITAL ADJUSTMENT, WE ARE UNABL E TO AGREE TO THE CONTENTIONS OF THE LD. SR. DR AND WE FIND NO REA SON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) ON THIS ISSUE. WE DISMISS THE GROUNDS RAISED BY THE DEPARTMENT. 7. IN THE RESULT, THE DEPARTMENTS APPEAL STANDS DI SMISSED. 7 ITA NO.5155, 5158/DEL/2015 (IMSOFER MANUFACTURING INDIA PVT. LTD.) 8. IN THE FINAL RESULT, THE ASSESSEES APPEAL AS WE LL AS THE DEPARTMENTS APPEAL STAND DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2018). SD/- SD/- (N.K.SAINI) (SUDHANSHU SRIVASTAVA ) ACCOUNTANT MEMBER JUDICIAL ME MBER DATE: 14.08.2018 BINITA COPY OF ORDER TO: - 1) THE APPELLANT; 2) THE RESPONDENT; 3) THE CIT; 4) THE CIT(A)-, NEW DELHI; 5) THE DR, I.T.A.T., NEW DELHI; TRUE COPY BY ORDER ITAT, NEW DELHI