S.b. & t designs limited , MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 8(1)(2), MUMBAI

ITA 5347/MUM/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3690 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHANDRA VIJAY
• Assessee Lawyers: DR P DANIEL
• Keywords: Transfer pricing; International transaction; Reasonable cause
• Section: 143(3); 201; 13

Judgement Text

1 ITA NO.5347/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI RAJESH KUMAR (ACCOUNTANT MEMBER) I.T.A. NO. 5347 /MUM/201 7 (ASSESSMENT YEAR : 201 2 - 1 3 ) M/S S.B. & T DESIGNS LTD 9, YUSUF BUILDING, ROOM NO.15 1 ST FLOOR, A.R. STREET PYDHONIE, MUMBAI - 400 003 PAN : AAICS6223L VS THE ASSTT. COMMISSIONER OF INCOME - TAX, CIRCLE 8(1)(2), MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY DR . P . DANIEL (AR) RESPONDENT BY SHRI CHANDRA VIJAY (DR) DATE OF HEARING 0 9 - 0 2 - 2021 DATE OF PRONOUNCEMENT 24 /0 2 /2021 O R D E R THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 30 - 0 1 - 201 7PASSED U NDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT, 1961 FOR THE ASSESSMENT YEAR 201 2 - 1 3 , IN PURSUANCE TO THE DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL (DRP) , MUMBAI . 2. REGISTRY HAS POINTED OUT A DELAY OF 121 DAYS IN FILING THE APPEAL. THE ASSESSEE HAS FILED AN APPLICATION SEEKING CONDONATION OF DELAY. ON PERUSING THE SAID APPLICATION, W E FIND THAT THE ASSESSEE HAS STATED THAT THE DELAY WAS DUE TO 2 ITA NO.5347/MUM/2017 THE HOSPITALIZATION OF THE FATHER OF THE MANAGING DIRECTOR AND SUBSEQUENTLY , THE MARRIAGE OF HIS DAUGHTER. IT HAS FURTHER BEEN STATED THAT THE CHARTERED ACCOUNTANT OF THE COMPANY WAS ALSO HOSPIT ALIZED AND ULTIMATELY DIED. AFTER EXAMINING THE CAUSE OF DELAY , AS EXPLAINED BY THE ASSESSEE, WE ARE SATISFIED THAT THE DELAY IN FILING THE APPEAL WAS DUE TO A REASONABLE CAUSE; HENCE, WE ARE INCLINED TO CONDONE THE DELAY AND ADMIT THE APPEAL FOR ADJUDICAT ION ON MERIT S . 3. A T THE OUTSET , DR. P . DANIEL, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, THE PRIMARY ISSUE RAISED BY THE ASSESSEE RELATES TO APPLICABILITY OF INTERNAL TRANSACTIONAL NET MARGIN METHOD (TNMM) AS ADOPTED BY THE ASSESSEE AS AGAINST EXTER NAL TNMM SELECTED BY THE TRANSFER PRICING OFFICER (TPO). IN THIS CONTEXT, HE DREW OUR ATTENTION TO GROUND 3(V). HE SUBMITTED, IN CASE THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE ALL OTHER GROUNDS RAISED BY THE ASSESSEE WOULD BE COME ACADEMIC. PROCEEDIN G FURTHER, HE SUBMITTED, THE APPLICABILITY OF INTERNAL TNMM , AS ADOPTED BY THE ASSESSEE , HAS BEEN ACCEPTED BY THE TRIBUNAL IN ASSESSEES OWN CASE WHILE DECIDING APPEALS FOR ASSESSMENT YEARS 2011 - 12 AND 2012 - 13. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE ORDERS PASSED. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE , THOUGH , AGREED THAT THE ISSUE OF MOST APPROPRIATE METHOD APPLICABLE TO DETERMINE THE ARMS LENGTH PRICE (ALP) HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR S ; HOWEVER, HE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP. 5. WE HAVE CONSIDERED RIVAL SUBMIS SIONS AND PERUSED MATERIALS ON RECORD. AS STATED BY THE TPO, THE ASSESSEE, A RESIDENT COMPANY, IS ENGAGED IN THE BUSINESS OF IMPORTING RAW MATERIALS LIKE DIAMOND, GOLD, COLOUR STONES FROM ASSOCIATED 3 ITA NO.5347/MUM/2017 ENTERPRISES (AE) . FOR BENCHMARKING THE INTERNATIONAL TR ANSACTIONS WITH THE AES, THE ASSESSEE HAD AGGREGATED ALL THE TRANSACTIONS AND APPLIED INTERNAL TNMM TO DETERMINE THE ALP. SINCE , THE PROFIT MARGIN OF THE ASSESSEE WAS WITHIN THE AVERAGE MARGIN OF THE SELECTED COMPARABLES (NON - AE TRANSACTION S ), THE ASSESSEE CLAIMED THE TRANSACTION WITH AE TO BE AT ARMS LENGTH. HOWEVER, THE TPO, ON VERIFYING RECORD FOUND THAT IN ASSESSMENT YEAR 2011 - 12 ASSESSEES BENCHMARKING APPLYING INTERNAL TNMM HAS BEEN REJECTED AND EXTERNAL TNMM HAS BEEN APPLIED FOR DETERMINING THE ALP AND ADJUSTMENT HAS BEEN PROPOSED. THEREFORE, CONSISTENT WITH THE VIEW TAKEN BY HIM IN ASSESSMENT YEAR 2011 - 12, THE TPO REJECTED ASSESSEES TRANSFER PRICING ANALYSIS AND PROCEEDED TO DETERMINE THE ALP BY APPLYING EXTERNAL TNMM. WHILE DOING SO, HE PROPOSED A N ADJUSTMENT OF RS.3,32,88,161/ - WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMEN T ORDER. THOUGH , THE ASSESSEE OBJECTED TO THE AFORESAID ADDITION BEFORE THE LEARNED DRP; HOWEVER, IT WAS UN SUCCESSFUL. AS WE FIND, WHILE DECIDING THE ISSUE OF APPLICABILITY OF INTERNAL TNMM AS OPPOSED TO EXTERNAL TNMM, THE TRIBUNAL IN ASSESSEES OWN CASE FOR A SSESSMENT Y EAR 2011 - 12, VIDE ITA NO.5189/MUM/2015 DATED 03 - 05 - 2017, HAS HELD THAT INTERNAL TNMM AS ADOPTED BY THE ASSESSEE IS THE MOST APPROPRIATE METH OD TO BENCHMARK THE TRANSACTION WITH THE AE. FOLLOWING THE AFORESAID DECISION, THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL FOR A SSESSMENT Y EAR 2012 - 13 IN IT(TP)ANO.51/MUM/2017 DATED 26 - 11 - 2019 HAS REITERATED THAT INTERNAL TNMM IS THE MOST APPROPRIATE MET HOD TO BENCHMARK THE TRANSACTION WITH AE. THUS, FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE , AS REFERRED TO ABOVE, WE HOLD THAT THE INTERNATIONAL TRANSACTION WITH THE AE HAS TO BE BENCHMARKED BY APPLYING INTERNAL TNMM AS ADOPTED BY THE ASSESSEE. ACCORDINGLY, WE RESTORE THE ISSUE BACK TO THE 4 ITA NO.5347/MUM/2017 A SSESSING O FFICER FOR EXAMINING ASSESSEES BENCHMARKING UNDER INTERNAL TNMM AND IN CASE THE ASSESSEE IS ABLE TO JUSTIFY ITS OWN BENCHMARKING, THEN IT HAS TO BE ACCEPTED. OF COURSE, THE A SSESSING O FFICER WHILE DECIDING THE ISSUE MUST PROVIDE DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN VIEW OF OUR DECISION ABOVE, THE OTHER GROUNDS RAISED BY THE ASSESSEE HAVING BECOME ACADEMIC , AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE , T HERE IS NO NEED TO ADJUDICATE THEM IN THIS ORDER. 7. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 /0 2 /2021. SD/ - SD/ - (RAJESH KUMAR) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 24 / 0 2 /2021. PAVANAN, SR.P.S (ON CONTRACT) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONENT. 3. THE CIT(A) 4. 4. THE CIT 5. D.R., ITAT, MUMBAI. 6. GUARD FILE. //TRUE COPY// BY ORDER I.T.A.T., MUMBAI. 5 ITA NO.5347/MUM/2017