ACIT, Bangalore V. M/s. Transpac Asia Pvt. Ltd., Bangalore

ITA 520/BANG/2009

• Counselvise Citation: 52021114 RSA 2009
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 21-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Transfer pricing; International transaction; Additional evidence; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.520/B/2009 (ASSESSMENT YEAR : 2004-05) THE ASST. COMMISSIONER OF INCOME TAX , CIRCLE-12(4), BANGALORE. APPELLANT VS M/S TRANSPAC ASIA PVT.LTD., NO.150, 6 TH MAIN, INDUSTRIAL SUBURB, YESHWANTHPUR, BANGALORE-560 058 PAN NO.AABCT5429N RESPONDENT AND C.O.NO.41/B/2009 (ARISING OUT OF ITA NO.520/B/2009) ASSESSMENT YEARS : 2004-05) M/S TRANSPAC ASIA PVT.LTD., NO.150, 6 TH MAIN, INDUSTRIAL SUBURB, YESHWANTHPUR, BANGALORE-560 058 CROSS OBJECTOR VS THE ASST. COMMISSIONER OF INCOME TAX , CIRCLE-12(4), BANGALORE. RESPONDENT REVENUE BY : SMT. ETWA MUNDA, CIT-III ASSESSEE BY : SHRI S. RAMASUBRAMANIAN, CA DATE OF HEARING ON : 28-03-2012 DATE OF PRONOUNCEMENT : 28-03-2012 ITA NO.520 & C.O.NO.41(B)/2009 2 O R D E R PER BENCH: THE APPEAL IS BY THE REVENUE AND THE CROSS OBJECTIO N IS BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2004-05. THE REVENUE HAS RAIS ED THE FOLLOWING GROUNDS OF APPEAL; 1.THE ORDER OF THE LD. CIT(A) IS OPPOSED TO LAW A ND FACTS OF THE CASE. 2. THE LD. CIT(A) HAS ERRED IN RESTRICTING THE COM PARABILITY EXERCISE ONLY TO THE COMPARABLES SELECTED BY THE TA X PAYER RATHER THAN DOING A FRESH FUNCTIONAL ANALYSIS WHICH WOULD HAVE RESULTED IN A BETTER COMPARABILITY ANALYSIS WI TH LARGER SAMPLE SIZE AS HELD BY THE ITAT, BANGALORE IN THE C ASE OF AZTEC SOFTWARE CASE (294 ITR (AT) 32). 3. THE CIT(A) HAS ERRED IN ACCEPTING ONLY ONE COMP ANY AS FINAL COMPARABLE WHICH IS TOO LOW A SAMPLE SIZE AS SIZE OF THE SAMPLE OR NUMBER OF THE FINAL COMPARABLES SHOULD BE ADEQUATE FOR A MEANINGFUL COMPARABILITY EXERCISE AS HELD BY THE ITAT, BANGALORE, IN THE CASE OF AZTEC SOFTWARE (294 ITR 9 AT) 32). 4. THE CIT(A) HAS ERRED IN NOT DIRECTING THE LOWER REVENUE AUTHORITIES TO CARRY OUT DETAILED COMPARABILITY ANA LYSIS AFRESH OR NOT CARRYING OUT THIS EXERCISE HIMSELF BASED ON THE SEARCH OF PUBLIC DATABASES (PROWESS & CAPITALINE) 5. THE CIT(A) ERRED IN NOT CONSIDERING SUFFICIENT NUMBER OF COMPANIES RESULTED BY WAY OF SEARCH OF PRODUCT KEYW ORD COMMISSION AND BROKERAGE IN PUBLIC DATABASE PRO WESS. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. ITA NO.520 & C.O.NO.41(B)/2009 3 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY WHICH IS A 100% SUBSIDIARY OF CODEFINE SA, SWITZERL AND AND IS ENGAGED IN THE JOB WORK OF STITCHING OF PP WOVEN SACKS AND ALSO TRADING OF PP WOVEN SACKS. THE ASSESSEE IS ALSO ENGAGED IN THE M ANUFACTURE OF JUMBO PLASTIC BAGS ON JOB WORK BASIS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL ON 25-10-2004 DECLARING A LOSS OF RS.78,46,890/-. DURING THE ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAD ENTERED INTO AN INTERNATIONAL TRANSACTION FOR THE EXPORT OF HDPE/PP WOVEN SACKS FOR RS.7,85,50,164/-. THEREFORE, A REFERENCE U/S 92CA WAS MADE TO THE TPO TO DETERMINE THE ARMS LENGTH PRICE (ALP). DURING THE PROCEEDINGS U/S 92CA OF T HE ACT, THE TPO OBSERVED THAT THE ASSESSEE ADOPTED THE CUP METHOD F OR ARRIVING AT THE ALP. HE HELD THAT THE TNMM IS THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP. HE CONDUCTED THE SEARCH ON THE D ATABASES AVAILABLE IN THE PUBLIC DOMAIN AND ADOPTED THREE COMPANIES A S COMPARABLES TO THE ASSESSEE AND ARRIVED AT THE NET MARGIN ON SALES AT 11.74% AS AGAINST NEGATIVE MARGIN OF 2.93% SHOWN BY THE ASSES SEE AND SUBMITTED THE TP REPORT TO THE AO. THE AO MADE THE ADJUSTMEN T TO THE ALP ACCORDINGLY AND AGGRIEVED BY THE SAME, THE ASSESSEE PREFERRED AN APPEAL TO THE CIT(A). THE CIT(A) AFTER CONSIDERING THE ASS ESSEES SUBMISSIONS FOUND THAT TWO OF THE COMPANIES TAKEN AS COMPARABLE S ARE NOT COMPARABLE BY THE TPO TO THE ASSESSEE AS THE NATURE OF THEIR ITA NO.520 & C.O.NO.41(B)/2009 4 TRANSACTIONS WERE DIFFERENT. THEREAFTER, HE CONSID ERED THE NET MARGIN OF THE LONE COMPARABLE I.E M/.S SKY INDUSTRIES LTD., A ND ARRIVED AT THE MARGIN SHOWN BY THE M/S SKY INDUSTRIES LTD., AT 0.9 2% AS THE ALP AND SUSTAINED THE ADDITION MADE BY THE AO TO THE TOTAL INCOME ONLY TO THE EXTENT OF THE SAID MARGIN. 2.1 WITH REGARD TO THE OTHER ISSUE, THE CIT(A) CON FIRMED THE ADDITION AND THE ASSESSEE IS IN CROSS OBJECTION BEF ORE US. THE CROSS OBJECTION RAISED BY THE ASSESSEE ARE AS UNDER; 1.0 THAT THE ORDERS OF THE AUTHORITIES BELOW, IN SO FAR AS ARE PREJUDICIAL TO THE INTERESTS OF THE CROSS OB JECTOR, IS BAD AND IMPERATIVE IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.0 GROUNDS REGARDING ALLEGED INTERNATIONAL TRANSACTION; 2.1 THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ARRANGEMENT BETWEEN THE APPELLANT AND CODEFINE IS AN INTERNATIONAL TRANSACTION IGNORI NG THE VITAL FACT THAT THE APPELLANT IS A MERE PASS TH ROUGH. 2.2 THAT THE LD. AUTHORITIES OUGHT TO HAVE HELD TH AT THE TRANSACTION IS A TRANSACTION BETWEEN CODEFINE A ND INDIAN SUPPLIERS BY VIRTUE OF DEFINITION OF TRANSAC TION IN RULE 10A(D) OF INCOME TAX RULES, 1962(RULES.) 3.0 JURISDICTION 3.1 THAT THE LD. ASSESSING OFFICER ERRED IN LAW AN D ON FACTS IN MAKING A REFERENCE U/S 92CA(1) WITHOUT COMING TO A PRIMA FACIE CONCLUSION THAT IT IS NECES SARY OR EXPEDIENT SO TO DO. ITA NO.520 & C.O.NO.41(B)/2009 5 3.2 THAT THE ASSESSING OFFICER ERRED IN LAW AND O N FACTS IN NOT FURNISHING THE COPIES OF RELEVANT MATE RIALS, IF ANY, RELIED UPON BY HER TO COME TO ANY PRIMA FAC IE CONCLUSION ON THE NEED TO REFER THE COMPUTATION OF ALP TO ADDL. DIRECTOR OF INCOME-TAX ( TRANSFER PRICING) 3.3.THAT THE ASSESSING OFFICER HAS MERELY ADOPTED THE ALP DETERMINED BY THE LD. ADDL. DIRECTOR OF INC OME- TAX (TRANSFER PRICING) WITHOUT INDEPENDENTLY DETERMINING THE SAME AND WITHOUT FORMING AN OPINION OF HER OWN. 4.0 GROUNDS REGARDING DETERMINATION OF ALP. 4.1 THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS I N HOLDING THAT CUP METHOD IS NOT THE MOST APPROPRIATE METHOD AND TNMM IS THE MOST APPROPRIATE METHOD. 4.2 THAT THE LD. LOWER AUTHORITIES ERRED IN LAW AN D ON FACTS IN HOLDING THAT THE APPELLANT HAD NOT FURNISH ED THE PRICES IN THE COMPARABLE TRANSACTIONS AND SUCH A FINDING IS PERVERSE AS BEING CONTRARY TO THE EVIDEN CES FURNISHED BY THE APPELLANT AND THE MATERIALS ON REC ORD. 4.3 THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE REIMBURSEMENT OF LOSS IS NOT A PA RT OF BOOK VALUE OF THE INTERNATIONAL TRANSACTION. 4.4 THE LD. LOWER AUTHORITIES ERRED IN LAW AND ON FACTS IN ADOPTING DIFFERENT BASES WHILE CALCULATING THE NET MARGIN I.E A) DETERMINING THE NET MARGIN ON COMMISSION IN CAS E OF COMPARABLE ENTITIES AND B) DETERMINING THE NET MARGIN ON TURNOVER IN CASE OF APPELLANT. ITA NO.520 & C.O.NO.41(B)/2009 6 4.5 THE PROCEDURE ADOPTED BY THE LOWER AUTHORITIES IS PLAINLY CONTRARY TO RULE 10B(1)(E)(II) OF THE RULES . 5.0 GROUNDS REGARDING LOSS REIMBURSEMENT; 5.1 WITHOUT PREJUDICE TO GROUND NO.4.3 THE LD. CIT( A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE LOSS OF RS.1,33,61,950/- REIMBURSED BY CODEFINE IS INCOME CHARGEABLE TO TAX. 2.2 IN SUPPORT OF THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITS APPEAL, THE LEARNED DR SUBMITTED THAT THE CIT(A ) OUGHT TO HAVE CONDUCTED THE SEARCH ANALYSIS AFRESH AND ARRIVED AT SOME MORE COMPARABLES FOR DETERMINING AT THE ALP INSTEAD OF R ESTRICTING THE COMPARABILITY TO THE LONE COMPARABLE COMPANY REMAIN ED AFTER REJECTION OF THE OTHER TWO COMPANIES. 3. THE LEARNED DR ALSO SUBMITTED THAT IN THE ALTER NATIVE, THE CIT(A) SHOULD HAVE CALLED FOR A REMAND REPORT FROM THE AO/TPO WITH REGARD TO THE OTHER COMPARABLES TO BE TAKEN INTO CO NSIDERATION INSTEAD OF RELYING UPON THE NET MARGIN OF THE LONE COMPARAB LE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S.RAM ASUBRAMANIAN, WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE A UTHORITIES BELOW AND PLACING THE RELIANCE UPON THE ORDER OF THE CIT(A) S TATED THAT THE CIT(A) HAS NOT EXCEEDED HIS JURISDICTION OR HAS CONSIDERED ANY EVIDENCE NOT BEFORE THE TPO. THEREFORE, ACCORDING TO HIM, THERE WAS NO NEED TO CALL FOR A REMAND REPORT FROM THE AO/TPO AS THE CIT(A) H AS NOT CONSIDERED ANY OTHER COMPANY OTHER THAN THOSE CONSIDERED BY TH E TPO. HE ALSO ITA NO.520 & C.O.NO.41(B)/2009 7 SUBMITTED THAT THE REVENUE HAS NOT CHALLENGED THE R EJECTION OF THE TWO COMPARABLES ADOPTED BY THE TPO. THEREFORE, IT IS CL EAR THAT THESE COMPANIES WERE NOT COMPARABLE TO THE ASSESSEE COMPA NY AND THE ASSESSEE CANNOT BE PUT TO HARDSHIP MERELY BECAUSE, THE TPO HAS NOT CONDUCTED PROPER SEARCH ANALYSIS BEFORE MAKING THE TP ADJUSTMENTS. FOR THIS PURPOSE, HE PLACED RELIANCE UPON THE DECIS ION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF RAJKUMAR REPORTED I N 208 ITR 89(AT) 28 DELHI. 5. AS REGARDS GIVING THE TPO ANOTHER OPPORTUNITY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO WAS SERVED WITH A NOTICE OF HEARING BY THE CIT(A) AS TO THE DATE OF H EARING AND HE/SHE HAVE NOT CHOSEN TO APPEAR BEFORE THE CIT(A) AT THE TIME OF PROCEEDINGS, IT IS NO LONGER REQUIRED TO GIVE HIM ANOTHER OPPORTUNI TY OF HEARING OR TO CALL FOR REMAND REPORT. 6. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD, WE FIND THAT THE ONLY QUESTION BEFORE US IS WHETHER IT WAS NECESSARY FOR THE CIT(A) TO MAKE A FRESH ANALYS IS BY HIMSELF OR CALL FOR A REMAND REPORT FROM THE TPO BEFORE MAKING THE ALP ADJUSTMENT. AS PER SUB-SECTION(1) OF SEC.250 OF THE IT ACT, THE CIT(A) SHALL FIX A DAY AND PLACE FOR THE HEARING OF THE APPEAL AND SHALL G IVE NOTICE OF THE SAME TO THE AO AGAINST WHOSE ORDER THE APPEAL IS PREFER RED AND ALSO THE ASSESSEE. THEREFORE, IT CANNOT BE NOW SAID OR PLEA DED ON BEHALF OF THE REVENUE THAT THE AO WAS NOT GIVEN AMPLE OPPORTUNITY . SUB-SEC.(4) OF ITA NO.520 & C.O.NO.41(B)/2009 8 SEC.250 EMPOWERS THE FIRST APPELLATE AUTHORITY BEFO RE DISPOSING OF APPEAL, TO MAKE SUCH ENQUIRY HIMSELF AS HE THINKS F IT OR TO DIRECT THE AO TO MAKE FURTHER ENQUIRY ON THE LINES REQUIRED BY HI M AND IN THE LATTER CIRCUMSTANCES, THE AO CONDUCTS SUCH ENQUIRY AND REP ORTS THE RESULTS THEREOF TO THE FIRST APPELLATE AUTHORITY AND THE LA TTER DISPOSES THE APPEAL AFTER CONSIDERING SUCH REPORT. THE DIRECTION OF TH E CIT(A) TO THE AO TO CONDUCT FURTHER ENQUIRY WOULD BE JUSTIFIED ONLY IF THE CIRCUMSTANCES FOR THE SAME EXITS AND WHETHER SUCH CIRCUMSTANCES EXIST S OR NOT HAS TO BE DECIDED BY THE CIT(A) HIMSELF. IN THE CASE BEFORE US, THE CIT(A) HAS CONSIDERED THE ORDER OF THE AO AND HAS REJECTED TWO COMPARABLES SELECTED BY THE TPO AND HAS SEEN NO REASONS TO MAKE FURTHER ENQUIRY HIMSELF OR CALL FOR A REMAND REPORT FROM THE AO. ON LY WHEN THE APPELLATE AUTHORITY IS CALLING FOR ADDITIONAL EVIDENCE, IS HE BOUND TO CALL FOR A REMAND REPORT FROM THE ASSESSING AUTHORITY ON THE S AME. IN THE CASE ON HAND, THE CIT(A) HAS NOT CALLED FOR ANY ADDITION AL EVIDENCE NOR AS HE MADE THE SEARCH HIMSELF AND THEREFORE, THERE WAS NO NECESSITY TO CALL FOR A REMAND REPORT FROM THE ASSESSING AUTHORITY. IN V IEW OF THE SAME, WE ARE SATISFIED THAT THE CIT(A) HAS NEITHER OVER STEP PED HIS JURISDICTION NOR IS THERE ANY DEFAULT ON HIS PART IN DECIDING THE AP PEAL. IN VIEW OF THE SAME, WE SEE NO MERIT IN THE REVENUES APPEAL. 7. COMING TO THE CROSS OBJECTION OF THE ASSESSEE T HE LEARNED COUNSEL FOR THE ASSESSEE SHRI S. RAMASUBRAMANIAN SU BMITTED THAT IF THE REVENUES APPEAL IS DISMISSED THE ASSESSEE IS NOT G OING TO PRESS ITS CROSS ITA NO.520 & C.O.NO.41(B)/2009 9 OBJECTION. THIS STATEMENT IS MADE AT THE BAR. AS THE REVENUES APPEAL IS DISMISSED, WE SEE NO REASON TO GO INTO THE MERIT S OF THE CROSS OBJECTIONS RAISED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 28 TH MARCH, 2012. SD/- SD/- (N. BARATHVAJA SANKAR) (S MT. P. MADHAVI DEVI) VICE PRESIDENT JUDICIAL MEMBER PLACE: BANGALORE DATED: 28-03-2012 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR, ITAT, BANGALORE