JAS Forwarding Worldwide Private Limited, New Delhi V. ITO, New Delhi

ITA 5587/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0309 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND SENIOR
• Assessee Lawyers: MANOJ NAGRATH
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Unabsorbed depreciation
• Section: 92C; 92E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.5587/DEL./2010 (ASSESSMENT YEAR : 2006-07) M/S. JAS FORWARDING WORLDWIDE PVT. LTD., VS. ITO, WARD 4 (2), C/O S.P. NAGRATH & CO., NEW DELHI. A 380, DEFENCE COLONY, NEW DELHI 110 024. (PAN : AABCJ5564A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANOJ NAGRATH, CA REVENUE BY : SHRI N.K. CHAND, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 20.10.2010 PASSED U/S 143(3 ) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE COMPANY WAS INCORPORATED ON 14 TH JUNE, 2005. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FREI GHT OPERATORS, FORWARDING AGENTS, LOGISTICS PROVIDERS, WAREHOUSING OPERATORS, SHIPPERS AND SHIPPING AGENTS, HANDLING AND HAULAGE, ETC. THE RETURN WAS FILED ELECTRONICALLY ON 15.11.2006 AND A CLAIM WAS MADE FOR CARRY FORWARD O F LOSS ON ACCOUNT OF ITA NO.5587/DEL./2010 2 UNABSORBED DEPRECIATION OF RS.8,30,084/-. THE RETU RN WAS PROCESSED AND SELECTED FOR SCRUTINY. THE NOTICE U/S 143(2) WAS S ERVED UPON THE ASSESSEE. THE ASSESSEE HAS ALSO FILED A COPY OF RETURN AS REQ UIRED U/S 92E IN RELATION TO THE INTERNATIONAL TRANSACTIONS IN A PRESCRIBED FORM 3CEB DATED 15.11.2006. A REFERENCE WAS MADE TO THE TPO WITH THE APPROVAL OF CIT FOR COMPUTATION OF ARMS LENGTH PRICE U/S 92C OF INCOME-TAX ACT. 3. THE GROUNDS OF APPEAL READ AS UNDER :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW : 1. THE HON'BLE DRP ON ERRONEOUS AND INSUFFICIENT GR OUNDS HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING AN ADDITION OF RS.1,75,11,207 IN THE INCOME OF THE APPELLANT, BY H OLDING THAT ITS INTERNATIONAL TRANSACTIONS DOES NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT. IN DOING SO, THE HON'BLE DRP HAS GROSSLY ERRED IN AGREEING WITH THE LD. TPO S OF : A) DISREGARDING MULTIPLE YEAR/PRIOR YEARS DATA AS USED BY THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION MAINTAINED HOLDING THAT THE CURRENT YEAR DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FAC T THAT THE SAME WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION, EVEN BEING NOT IN THE PUBLIC DOMAIN, B) FAILING TO APPRECIATE THAT THE ACTUAL REASONS BE HIND THE INCURRENCE OF LOSSES AT NET LEVEL WERE HIGH START-U P COSTS, INCURRED BY THE APPELLANT DURING THE IMPUGNED ASSESSMENT YEAR, OWING TO ITS FIRST PERIOD OF OPERA TIONS OF SEVEN MONTHS ONLY, C) FAILING TO APPRECIATE THAT THE APPELLANT HAD REP ORTED POSITIVE RESULTS AT GROSS LEVELS, WHICH WERE TRULY REPRESENTATIVE OF THE VARIOUS CONTROLLED TRANSACTIO NS UNDERTAKEN BY THE APPELLANT. ITA NO.5587/DEL./2010 3 D) FAILING TO APPRECIATE THE ROLE OF APPELLANT'S FU NCTIONS, ASSETS AND RISK (FAR) ANALYSIS, BUSINESS STRATEGIES AND COMMERCIAL REALITIES IN TRANSFER PRICING. E) FAILING TO APPRECIATE THE IMPORTANCE OF BUDGETS IN TRANSFER PRICING; AND THE DOCUMENTATION REQUIREMENT S UNDER RULE 10D(1)(F) OF THE INCOME TAX RULES, 1962 . F) FAILING TO APPRECIATE THAT THE APPELLANT, BEING A NEWLY- ESTABLISHED COMPANY, COULD NOT BE COMPARED AS-IT-IS WITH THE COMPARABLE COMPANIES, WHICH WERE QUITE OLD AND WELL-ESTABLISHED IN THE INDUSTRY. G) DENYING THE BENEFIT OF (+/-) 5 PERCENT RANGE MEN TIONED IN PROVISO TO SECTION 92C(2) OF THE ACT WHILE COMPUTIN G THE ALP. H) DENYING THE APPELLANT, THE BENEFIT OF A WORKING CAPITAL ADJUSTMENT. I) GROSSLY VIOLATING THE PRINCIPLE OF NATURAL JUSTI CE BY FAILING TO GIVE ANY SHOW CAUSE NOTICE AND/OR PROVIDE ANY REASONABLE OPPORTUNITY TO THE APPELLANT TO REBUT TH E ARGUMENTS EVIDENCE RELIED UPON AND/OR THE GROUNDS T AKEN FOR MAKING THE ADJUSTMENT IN THE ARM'S LENGTH PRINC IPLE. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. 2. THE LD. AO HAS ERRED IN NOT GIVING CREDIT OF THE PREPAID TAXES CONSISTING OF TDS AMOUNTING TO RS.12,41,849/- THOUGH DULY SUPPORTED BY THE CERTIFICATES IN TERMS OF RETU RN OF INCOME FILED BY THE APPELLANT. 3. THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER S ECTION 234 B OF THE ACT AMOUNTING TO RS.30,78,768. 4. THE LD. AO HAS ERRED IN LAW AND ON FACTS OF THE CASE IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1 )(C) OF THE ACT. ITA NO.5587/DEL./2010 4 5. THAT THE APPELLANT CRAVES TO PRAY TO ADD, ALTER, REVISE, MODIFY OR WITHDRAW ANY GROUND(S) OF APPEAL AND ALSO ADDUCES EVIDENCE DURING THE PENDENCY OF THE APPEAL. THAT THE ASSESSMENT ORDER IS AGAINST THE LAW AND TH E FACTS OF THE CASE AND MERITS TO BE QUASHED. 4. IN THE GROUND NO.1 (I), THE ASSESSEE HAS TAKEN A GROUND THAT THERE WAS GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE BY FAILING TO GIVE ANY SHOW CAUSE NOTICE AND/OR PROVIDE ANY REASONABLE OPPORTUN ITY TO THE APPELLANT TO REBUT THE ARGUMENTS/EVIDENCE RELIED UPON AND/OR THE GROUNDS TAKEN FOR MAKING THE ADJUSTMENT IN THE ARM'S LENGTH PRINCIPLE . 5. THE LEARNED AR PLEADED THAT PAGE 254 AND 255 OF THE PAPER BOOK ARE THE COPIES OF THE ORDER SHEET BEFORE THE TPO WHICH CLEARLY SHOWS THAT THE ASSESSEE WAS NOT PROVIDED OPPORTUNITY AS PER THE PR OVISIONS OF LAW, NO SHOW CAUSE NOTICE WAS ISSUED AND NO MATERIAL GATHERED BY THE TPO WERE MADE AVAILABLE TO THE ASSESSEE TO REVERT BACK. THEREFOR E, THERE IS GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AS PROVIDED IN LAW. 5.1 THE LEARNED AR PLEADED ON THIS GROUND AND SUBMI TTED THAT AS PER THE PROVISIONS OF LAW, THE ASSESSEE WAS NOT PROVIDED AN OPPORTUNITY BY ISSUING THE SHOW CAUSE NOTICE BEFORE MAKING THE ADJUSTMENTS. T HIS IS A GROSS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. HE RELIED ON THE DE CISIONS OF HON'BLE DELHI HIGH COURT IN THE CASES OF MOSER BAER (I) LIMITED VS. AD DL.CIT 316 ITR 1 AND MARUTI SUZUKI INDIA LTD. 328 ITR 210. HE ALSO REL IED ON THE DECISION OF ITA NO.5587/DEL./2010 5 ITAT IN THE CASE OF CONVERSE NETWORK SYSTEMS INDIA PVT. LTD. VS. DCIT ITA NO.2686/DEL/2008 WHERE THE TRIBUNAL HELD THAT THE M ATTER BE REMANDED BACK TO THE FILE OF ASSESSING OFFICER TO ALLOW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ON THE ISSUE AND THEN DECIDE THE MA TTER AFRESH IN ACCORDANCE WITH LAW. HE ALSO RELIED ON DECISION OF VODAFONE E SSAR LIMITED REPORTED IN 2010-TII-22-HIGH COURT-DEL-INTL AND PLEADED THAT WH EN A QUASI JUDICIAL AUTHORITY DEALS WITH A LIS, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL O F THE MATTER AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORD ER IS CALLED IN QUESTION BEFORE THE SUPERIOR FORUM. HE ALSO RELIED ON THE D ECISION OF GAP INTERNATIONAL SOURCING INDIA PVT. LTD. VS. DCIT, NEW DELHI, ITA N O.4073/DEL/2010 WHERE IT WAS HELD BY THE ITAT THAT VOLUMINOUS SUBMISSIONS HAVE BEEN MADE BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER. BUT TH E DRP HAS BRUSHED ASIDE EVERYTHING WITHOUT EVEN A WHISPER OF THE ASSESSEES OBJECTIONS AND THE SUBMISSIONS OF THE ASSESSEE. THEREFORE, THE ISSUE IS REMITTED TO THE FILES OF THE DRP TO CONSIDER THE ISSUE ONCE AGAIN AND PASS A PRO PER AND SPEAKING DIRECTION U/S 144C OF THE INCOME-TAX ACT. HE PLEAD ED THAT THE OPPORTUNITY GIVEN TO THE ASSESSEE MUST BE REAL AND REASONABLE. FOR THIS PROPOSITION HE RELIED UPON THE DECISION IN THE CASE OF DWIJENDER K UMAR BHATTACHARJEE VS. SUPERINTENDENT OF TAXES (1990) 78 STC 393 (GAU.). HE ALSO RELIED ON THE FOLLOWING CASE LAWS : ITA NO.5587/DEL./2010 6 (I) CHOCKALINGAM (M) & MEYYAPPAM (M) VS. CIT, (1963 ) 48 ITR 34 (SC); (II) AZTEC SOFTWARE 249 ITR (AT) 32; (III) CARGILL (I) PVT. LTD. 110 ITD 616 (DEL.); (IV) CIT VS. SIMON CARVES LTD. (1976) 105 ITR 212 (SC) 6. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE REPLY WHICH HAS BEEN SUBMITTED BY THE ASSESSEE IN RESPONSE TO QUERI ES MADE ON 4.9.2009 WHICH ARE AVAILABLE AT PAGES 203 TO 206 OF THE PAPE R BOOK AND FURTHER REPLY TO THE QUERY SUBMITTED ON 11.9.2009 WHICH IS AVAILABLE AT PAGES 207 TO 211 OF THE PAPER BOOK CONSTRUCTIVELY SHOWS THAT ASSESSEE W AS PROVIDED WITH AN OPPORTUNITY PRIOR TO PASSING AN ORDER U/S 92CA(3) O F THE INCOME-TAX ACT AND HE SUBMITTED THAT ADEQUATE OPPORTUNITY WAS PROVIDED WHICH CAN BE CLEARLY OBSERVED FROM THE REPLIES FILED BY THE ASSESSEE WHI CH ARE AVAILABLE IN THE PAPER BOOK, AS STATED. 7. AFTER HEARING BOTH THE SIDES ON THE ISSUE, WE FI ND THAT ADMITTEDLY NO SHOW CAUSE NOTICE WAS ISSUED BY THE TPO PRIOR TO MA KING ADJUSTMENTS. THERE ARE NOTINGS IN THE ORDER SHEET ON 4.9.2009 WHERE IT HAS BEEN MENTIONED THAT CERTAIN FURTHER CLARIFICATIONS ARE REQUIRED. IN NO TINGS DATED 8.9.2009, IT HAS BEEN NOTED THAT REPLIES WERE SUBMITTED AND CERTAIN OTHER REMAINING DETAILS WERE TO BE FILED ON NEXT DATE OF HEARING, I.E. 11.9 .2009. ON 11.9.2009, THE ASSESSEE HAS MADE CERTAIN SUBMISSIONS IN THE REPLY DATED 11.9.2009. THEREAFTER, THE ORDER SHEET SHOWS THAT NO OPPORTUNI TY WAS PROVIDED TO THE ASSESSEE BY WAY OF ISSUING SHOW CAUSE NOTICE PRIOR TO MAKING THE ORDER U/S ITA NO.5587/DEL./2010 7 92CA(3) OF THE INCOME-TAX ACT. THE ASSESSEE HAS RA ISED THE ISSUE BEFORE THE DRP IN GROUND NO.5 WHICH HAS BEEN DEALT WITH BY THE DRP IN PARA NO.5.5 IN THEIR DIRECTIONS WHICH READ AS UNDER :- 5.5 ON THE ISSUE RAISED IN GROUND NO.(V) I.E. FAIL URE TO GRANT A REASONABLE OPPORTUNITY OF BEING HEARD, IT IS REITER ATED BY THE ASSESSEE THAT THE TPO HAS FAILED TO SERVE ANY SHOW CAUSE NOR INTIMATE THE ASSESSEE FOR THE ADJUSTMENTS TO BE MAD E IN RESPECT OF ESTABLISHMENT OF ARMS LENGTH PRICE, EVEN THOUGH THERE WAS A GAP OF MORE THAN A MONTH BETWEEN LAST HEARING ON 11 .09.2009 AND THE DATE OR ORDER I.E. 14.10.2009, AND THUS CON TRAVENED THE PRINCIPLES OF NATURAL JUSTICE. IN THE TPO ORDER, IT HAS HOWEVER BEEN STATED THAT, THE ASSESSEE VIDE ORDER SHEET DATED 4.9.09 WAS ASKED TO FURNISH REASONS AS TO WHY IT HAS INCURRED LOSES IN THE CURR ENT YEAR. THE ASSESSEE VIDE SUBMISSION DATED 11.9.09 HAS SUBMITTE D VARIOUS REASONS FOR INCURRING LOSES IN CURRENT YEAR. THUS, ASSESSEE WAS MADE AWARE OF THE TPOS STAND BY WAY OF THIS SHOW C AUSE LETTER AND SEVERAL OPPORTUNITIES OF HEARING. THE PANEL DO ES NOT FIND THE OBJECTION OF THE ASSESSEE AS TENABLE. THUS, THE DRP HAS ALSO TREATED THE ORDER SHEET NOTI NGS AS SHOW CAUSE NOTICE AND THE OPPORTUNITIES OF BEING HEARD AS A SUFFICIEN T COMPLIANCE OF PROVIDING OPPORTUNITY OF HEARING HEARD. 7.1 AFTER HEARING BOTH THE SIDES AND CONSIDERING TH E CASE LAWS RELIED UPON, WE ARE OF THE VIEW THAT ASSESSEE SHOULD HAVE BEEN G IVEN A SHOW CAUSE NOTICE AND ALSO COPY OF MATERIAL GATHERED BY TPO PRIOR TO MAKING ADJUSTMENTS. NO PREJUDICE SHALL BE CAUSED TO EITHER PARTY IF ISSUE IS RESTORED TO ASSESSING OFFICERS FILED. IN THE INTEREST OF JUSTICE AND EQ UITY, THE ASSESSEE SHOULD HAVE BEEN GIVEN A SHOW CAUSE NOTICE PRIOR TO MAKING ADJU STMENTS. THEREFORE, IN ITA NO.5587/DEL./2010 8 THE INTEREST OF JUSTICE AND EQUITY, THE MATTER IS R EMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO COMPLY WITH THE PROVISIONS OF LAW AND PROVIDE ADEQUATE AND MEANINGFUL OPPORTUNITY OF BEING HEARD ON THE IS SUES AND THEN DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW. 8. AS WE HAVE RESTORED THE MATTER TO THE FILE OF TH E ASSESSING OFFICER ON THE ISSUE OF NON-PROVIDING OF ADEQUATE OPPORTUNITY OF BEING HEARD, WE NEED NOT TO DECIDE THE OTHER GROUNDS ON MERITS. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 4 TH DAY OF MARCH, 2011. SD/- SD/- (R.P. TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 4 TH DAY OF FEBRUARY, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.DRP-II, DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.