AVO Carbon India Private Limited, CHENNAI V. DC IT, CHENNAI

ITA 537/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9086 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 15-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 08-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANURAG SAHAY
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence; Reasonable cause

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.537/MDS./2016 / ASSESSMENT YEAR : 2011-12 M/S.AVO CARBON INDIA PVT. LTD ., 25/A2, DAIRY PLANT ROAD, SIDCO INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 098. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(1), NUNGAMBAKKAM, CHENNAI-34. [PAN AABCM 8697 F ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.S.P.CHIDAMBARAM,ADVOCATE /RESPONDENT BY : MR.ANURAG SAHAY, CIT DR / DATE OF HEARING : 15 - 06 - 201 6 / DATE OF PRONOUNCEMENT : 17 - 06 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 28.12.2015 PASSED U/S.143( 3) R.W.S.144C OF THE ACT, WHICH IS EMANATED FROM DIRECTION OF THE DI SPUTE RESOLUTION PANEL (DRP)-2, BANGALORE DATED 24.11.2015 U/S.143(3 ) R.W.S 92CA AND 144C OF THE ACT PERTAINING TO ASSESSMENT YEA 2011- 12. ITA NO.537/MDS./16 :- 2 -: 2. THE ASSESSEE RAISED THE GROUNDS THAT DIRECTION OF THE DRP AND THE CONSEQUENTIAL FINAL ASSESSMENT ORDER IS ERRONEO US IN SO FAR AS DETERMINING AND QUANTIFYING A DOWNWARD ADJUSTMENT O F ` 90,56,929/- TO THE VALUE OF INTERNATIONAL TRANSACTION OF GENERA L ADMINISTRATION AND PURCHASE RELATED MANAGEMENT SERVICE CHARGES. 2.1. THE ASSESSEE ALSO RAISED INTER ALIA GROUNDS THAT THE DRP ERRED IN NOT CONSIDERING THE ADDITIONAL EVIDENCE FILED IN RE LATION TO RECEIPT OF GENERAL ADMINISTRATION AND PURCHASE RELATED MANAGEM ENT SERVICES IN THE PROPER PERSPECTIVE. 2.2. IN ADDITION TO THIS, THE ASSESSEE ALSO RAISED VARIOUS GROUNDS CHALLENGING WHICH ARE MAINLY FOCUSED TP ADJUSTMENTS , MADE BY THE AO. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE, SUPPLY AND EXPORT O F CARBON BRUSHES. IN THIS CASE TRANSFER PRICING ADJUSTMENTS OF ` 90,56,929/- HAS BEEN MADE IN RESPECT OF PAYMENT MADE BY IT TO THE AE FOR MANAGEMENT SERVICES PROVIDED TO IT AND ALL THE OBJECTIONS RAIS ED RELATE TO DOWNWARD ADJUSTMENTS TO MANAGEMENT SERVICE CHARGES AS DONE B Y THE TPO. THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION S AMOUNTING TO ` 33,60,38,729/- DURING THE ASSESSMENT YEAR 2011-12. THIS INCLUDED PAYMENT OF ` 4,04,89,580/- ON ACCOUNT OF MANAGEMENT SERVICES ITA NO.537/MDS./16 :- 3 -: PROVIDED BY THE AE. THE ASSESSEE FURNISHED FOLLOWI NG BREAKUP OF THESE PAYMENTS ON ACCOUNT OF MANAGEMENT SERVICES:- NATURE OF SERVICE VALUE OF SERVICE IN ` GENERAL MANAGEMENT/ADMINISTRATION 47,81,715 MARKETING 1,22,23,710 MANUFACTURING 69,21,332 PURCHASE 42,75,214 RESEARCH & DEVELOPMENT 1,02,24,500 TOTAL 4,04,89,581 (INCLUDE TDS ` `` ` 20,63,110 ) THE ABOVE DETAILS SHOW THAT THE ASSESSEE CLAIMED TH AT AN AMOUNT OF ` 47,81,715/- WAS PAID BY IT TO AE FOR GENERAL MANAGE MENT/ ADMINISTRATION SERVICE AND ANOTHER AMOUNT OF ` 42,75,214/- WAS PAID FOR PURCHASE RELATED SERVICES. THE ASSESSEE WAS TH US CONFRONTED BY THE TPO TO PROVE THAT THE ABOVE TWO SERVICES HAD AC TUALLY BEEN RENDERED BY THE AE TO THE ASSESSEE. IN RESPONSE TO THE SAME VARIOUS DETAILS WERE PRODUCED BY THE ASSESSEE BEFORE TPO BU T IT COULD NOT SATISFY THE TPO AND SO IT WAS HELD BY HIM THAT NO S UCH SPECIAL SERVICES HAD BEEN PROVIDED BY AE TO THE ASSESSEE AND AT THE MOST SUCH SERVICES WERE INCIDENTAL BENEFITS REQUIRING NO PA YMENTS. 4. BEFORE THE DRP, ASSESSEE FILED ADDITIONAL DOCUM ENTS IN SUPPORT OF ASSESSEES CLAIM STATING THAT NO TP ADJUSTMENTS REQUIRED AND PRAYED TO ADMIT THE ADDITIONAL EVIDENCE. HOWEVER, THE DRP GIVEN A FNDING THAT THE ASSESSEE HAS NOT EXPLAINED THE REASONS FOR NOT PRODUCING THE ITA NO.537/MDS./16 :- 4 -: SAME BEFORE THE TPO. ACCORDINGLY, ADDITIONAL EVIDE NCE WAS REJECTED BY THE DRP. 5. BEFORE US, THE LD.A.R PRIMARILY MADE AN ARGUMEN T THAT DIRECTION OF DRP IS VERY CRYPTIC AND ALSO NOT GIVEN ANY FINDI NG ON THE ISSUE. FURTHER, IT WAS THE SUBMISSION OF THE LD.A.R IS THA T ADDITIONAL EVIDENCE WAS REJECTED BY THE DRP IN A SUMMARY MANNER, WHICH IS IMPROPER. 6. ON THE OTHER HAND, LD.D.R RELIED ON THE DIRECTI ON OF DRP AS WELL AS ASSESSMENT ORDER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE PRIMARY OBJECTION OF THE ID. AR IS THAT THE ORDER OF THE DRP IS NOT IN CONSONANCE WITH THE PROVISIONS OF SEC . I 44C OF THE ACT. WE HAVE GONE THROUGH THE PROVISIONS OF SEC.144 C, WHICH READS AS UNDER: (5) THE DRP SHALL, IN CASE WHERE ANY OBJECTION IS RECEIVED UNDER SUB-S.(2), ISSUE SUCH DIRECTIONS, AS IT THINKS FIT, FOR THE GUIDANCE OF THE AO TO ENABLE HIM TO COMPLETE THE ASSESSMENT. (6) THE DRP SHALL ISSUE THE DIRECTIONS REFERRED TO INSUB-S. (5), AFTER CONSIDERING THE FOLLOWING, NAMELY- (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT, IF ANY, OF THE AO, VALUATION OFFICER OR TPO OR ANY OTHER AUTHORITY; (E) RECORDS RELATING TO THE DRAFT ORDER; (F) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECTE D BY, IT; AND (G) RESULT OF ANY ENQUIRY MADE BY, OR CAUSED TO BE MADE BY, IT. (7) THE DRP MAY, BEFORE ISSUING ANY DIRECTIONS REFERRED TO IN SUB-S. (5),- ITA NO.537/MDS./16 :- 5 -: (A) MAKE SUCH FURTHER ENQUIRY, AS IT THINKS FIT; OR (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY IT AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. (8) THE DRP MAY CONFIRM, REDUCE OR ENHANCE THE VARI ATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT S ET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB-S.(5) FO R FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. (9) IF THE MEMBERS OF THE DRP DIFFER IN OPINION ON ANY POINT, THE POINT SHALL BE DECIDED ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEMBERS. (10) EVERY DIRECTION ISSUED BY THE DRP SHALL BE BIN DING ON THE AO. (11) NO DIRECTION UNDER SUB-S. (5) SHALL BE ISSUED UNLESS AN OPPORTUNITY OF BEING HEARD IS GIVEN TO THE ASSESSEE AND THE AO ON SUCH DIRECTIONS WHICH ARE PREJUDICIAL TO THE INTERE ST OF THE ASSESSEE OR THE INTEREST OF THE REVENUE, RESPECTIVELY. (12) NO DIRECTION UNDER SUB-S. (5) SHALL BE ISSUED AFTER NINE MONTHS FROM THE END OF THE MONTH IN WHICH THE DRAFT ORDER IS FORWARDED TO THE ELIGIBLE ASSESSEE. (13) UPON RECEIPT OF THE DIRECTIONS ISSUED UNDER SU BS. (5), THE AO SHALL, IN CONFORMITY WITH THE DIRECTIONS, COMPLETE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN S. 153, THE A SSESSMENT WITHOUT PROVIDING ANY FURTHER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH SUCH DIRECTION IS RECEIVED. 8. WE FIND THAT THE DRP IN THIS CASE, AGAINST THE ABOV E PROVISIONS OF THE ACT, PASSED A VERY NON-SPEAKING ORDER, THOUG H THE ASSESSEES COUNSEL MADE A VOLUMINOUS SUBMISSION BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER DATED 25.02.2015. IT IS TO B E NOTED THAT THE DRP THAT IT HAS TO BE CONSIDERED EVERY POINT OF DIS PUTE AND PASS A SPEAKING ORDER. CONTRARY TO THIS, THE ORDER PASSED BY THE DRP VERY CRITIC AND THERE IS NO ADDRESSING ANY ISSUED RAISED BY THE ASSESSEE AND IT WAS NOT PROPERLY ADJUDICATED. BEING OF, WE ARE N OT IN A POSITION TO UPHOLD THE ORDER OF THE DRP AS IT IS NOT CONSISTENT WITH THE PROVISIONS OF SEC.194 C OF THE ACT. WE FIND THAT THE SUPREME C OURT IN THE CASE OF ITA NO.537/MDS./16 :- 6 -: SAHARA INDIA VS. CIT & ANR. (300 ITR 403) HAS HELD THAT EVEN AN ADMINISTRATIVE ORDER HAS TO BE CONSISTENT WITH THE RULES OF NATURAL JUSTICE. THE SAME VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GAP INTERNATIONAL SOURCING INDIA (P) LTD. VS. DCIT (8 ITR 0177). FURTHER, IN THE CASE OF M/S. ADO BE SYSTEMS INDIA PRIVATE LTD. V. ADDI. CIT IN ITA NO.5043/DEL/2010 D ATED 21.01.2011, THE DELHI BENCH OF THE TRIBUNAL HELD THAT WHEN THE DRP PASSED THE ORDER IN CURSORY AND LACONIC ORDER WITHOUT GOING IN TO THE DETAILS OF THE SUBMISSIONS, IT SHOULD BE DECIDED AFRESH. CONSIDERI NG ALL THESE FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO THE REMIT THE ISSUES BACK TO THE DRP TO PASS A SPEAKING ORDER ON THE DISPUTED ISSUES . SINCE, WE HAVE ADJUDICATED THE PRIMARY GROUND, WE REFRAIN FROM GOI NG TO OTHER ISSUES RAISED BY THE ASSESSEE. 9. FURTHER, IN OUR OPINION WHEN ASSESSEE HAS PLACE D ADDITIONAL EVIDENCE BEFORE THE DRP AND THE ASSESSEE EXPLAINED THE REASONS FOR NOT PLACING THE SAME BEFORE THE TPO, THE DRP SHOULD HAVE CONSIDERED THE SAME AND GIVEN A FINDING ON MERIT. IN THIS CAS E, DRP SUMMARILY REJECTED THE ADMISSION OF THE ADDITIONAL EVIDENCE W HICH IS IMPROPER. AT THIS STAGE, WE ARE OF THE OPINION THAT IT IS PRO PER TO REMIT THE ENTIRE ISSUE TO THE FILE OF THE DRP WITH THE DIRECTION TO EXAMINE WHETHER THERE ANY REASONABLE CAUSE NOT FURNISHING ADDITIONA L EVIDENCE BY ASSESSEE BEFORE THE TPO. IF THE ASSESSEE IS ABLE T O EXPLAIN WITH GOOD ITA NO.537/MDS./16 :- 7 -: AND SUFFICIENT REASONS, THE SAME TO BE CONSIDERED B Y THE DRP FOR EXAMINATION. WITH THIS OBSERVATION, WE REMIT THE EN TIRE ISSUE TO THE FILE OF DRP FOR THEIR FRESH CONSIDERATION. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 17 TH JUNE, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF