ARYSTA LIFESCIENCE INDIA LIMITED (SUCESSOR ENTITY TO CHEMTURA CHEMICALS INDIA PVT. TLD., MUMBAI V. ACIT - CIRCLE - 3 (1)(1), MUMBAI

ITA 5594/MUM/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3010 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 03-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL DESH
• Assessee Lawyers: KIRIT KAMDARLD AR
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 154

Judgement Text

1 ITA NO.5594/MUM/2018 M/R ARYSTA LIFESCIENCE INDIA LIMITED ASSESSMENT YEAR: 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE HONBLE SHRI VIKAS AWASTHY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO.5594/MUM/2018 ( *- ,.- / ASSESSMENT YEAR: 2012-13) ARYSTA LIFESCIENCE INDIA LIMITED (SUCCESSOR ENTITY TO CHEMTURA CHEMICALS INDIA PVT. LTD.) ARYSTA: 301, A WING, 3 RD FLOOR KANAKIA ZILLION, CST ROAD, LBS MARG KURLA (WEST), MUMBAI-400 070 * / VS. A CIT CIRCLE - 3(1)(1) AAYKAR BHAVAN, ROOM NO.609 CHURCHGATE MUMBAI. /0123./3./PAN/GIR NO. AACCC-5796-Q ( ! /APPELLANT ) : ($% ! / RESPONDENT ) !'/ APPELLANT BY : SHRI KIRIT KAMDAR-LD. AR $% !'/ RESPONDENT BY : SHRI SUNIL DESHPANDE & SHRI SUSHIL KUMAR MISHRA-LD. DRS / DATE OF HEARING : 15/06/2021 / DATE OF PRONOUNCEMENT : 17/06/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER):- 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR (AY) 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF IN COME-TAX (APPEALS)-44, MUMBAI, {CIT(A)} DATED 29/06/2018. TH E EFFECTIVE GROUNDS URGED BEFORE US ARE GROUND NOS. 2 & 3 WHICH READ AS UNDER: - 2 ITA NO.5594/MUM/2018 M/R ARYSTA LIFESCIENCE INDIA LIMITED ASSESSMENT YEAR: 2012-13 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON TH E FACTS OF THE CASE IN MAKING AN ADDITION OF INR 14,89,54,216 TO THE INCOM E OF THE APPELLANT SIMPLY FOLLOWING THE PREDECESSOR CIT(A) WITHOUT APPRECIATI NG THE FACTS OF THE CASE. THE ADDITION MADE BY LD. CIT(A) IS BASED ON CONJECT URES, SURMISES AND ALLEGATIONS CONTRARY TO THE MATERIAL ON RECORD. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ARBITRARILY ENHANCING THE INCOME BY IN R 148,954,216 WHICH WAS ALREADY OFFERED TO TAX, THUS, LEADING TO TAXING HE INCOME TWICE IN THE HANDS OF THE APPELLANT AS EVIDENT, THE ASSESSEE IS AGGRIEVED BY ENHANCEMEN T OF CERTAIN INCOME BY LD. CIT(A). 2. THE LD. AR, DRAWING OUR ATTENTION TO THE FACTUAL PAPER-BOOK, ASSAILED THE ENHANCEMENT MADE BY LD. CIT(A) AND SUB MITTED THAT THE OBSERVATIONS MADE IN THE IMPUGNED ORDER ARE CON TRARY TO FACTS ON RECORD. TO SUBSTANTIATE THE SAME, LD. AR TOOK US THROUGH FINANCIAL STATEMENTS OF THE ASSESSEE. THE LD. DR, O N THE OTHER HAND, SUBMITTED THAT THE MATTER IS FACTUAL ONE AND MAY BE REMITTED BACK FOR VERIFICATION. 3. HAVING HEARD RIVAL SUBMISSIONS AND AFTER DUE CON SIDERATION OF MATERIAL ON RECORD, OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS PER SUCCEEDING PARAGRAPHS. 4.1 THE MATERIAL FACTS ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE WAS ASSESSED U/S 143(3) R.W.S. 1 44C ON 29/04/2016. THE ASSESSMENT WAS FRAMED AFTER CONSIDE RING THE TRANSFER PRICING ADJUSTMENT OF RS.62.24 LACS AS PRO POSED BY LD. TRANSFER PRICING OFFICER IN ITS ORDER U/S 92CA(3) D ATED 29/01/2016. THE ADJUSTMENT WAS PROPOSED BY LD. TPO IN INTERNATI ONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN THE MAN UFACTURING SEGMENT. DURING PROCEEDINGS BEFORE LD. TPO, IT TRAN SPIRED THAT THE 3 ITA NO.5594/MUM/2018 M/R ARYSTA LIFESCIENCE INDIA LIMITED ASSESSMENT YEAR: 2012-13 ASSESSEE AGGREGATED THE INTERNATIONAL TRANSACTIONS IN MANUFACTURING SEGMENT AS WELL AS IN BUSINESS SUPPOR T SERVICE SEGMENT FOR THE PURPOSE OF BENCHMARKING. THE LD. TP O OPINED THAT THE TRANSACTIONS WAS TO BE BENCHMARKED SEPARATELY A S THESE SEGMENTS HAVE DIFFERENT FUNCTIONAL PROFILE. ACCORDI NGLY, THE RESULTS OF TWO SEGMENTS WERE RE-WORKED WHICH ARE GIVEN IN P ARA 6.3 OF LD. TPOS ORDER. UPON PERUSAL OF THE SAME, IT COULD BE SEEN THAT THE ASSESSEE HAD REVENUE FROM OPERATIONS UNDER SERVICE SEGMENT FOR RS.1489.54 LACS AND THIS SEGMENT HAD MARGIN OF 77.9 2%. THE LD. TPO PROPOSED ADJUSTMENT UNDER MANUFACTURING SEGMENT ONLY WHICH IS NOT RELEVANT FOR THIS APPEAL. 4.2 UPON FURTHER APPEAL, LD. CIT(A) WHILE ADJUDICAT ING ASSESSEES GROUNDS, OBSERVED THAT THE ASSESSEE EARNED MANAGEME NT FEES OF RS.1489.54 LACS FROM TWO OF ITS ASSOCIATED ENTERPRI SES (AE) NAMELY CHEMTURA SALES EUROPE GMBH AND CHEMTURA CORP ORATION USA. THESE TRANSACTIONS WERE REPORTED IN NOTE NO.19 OF THE AUDITED FINANCIAL STATEMENTS. HOWEVER, THE SAID AMO UNT WAS REFLECTED AS RS.1002.13 LACS IN FORM 3CEB AS FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME. THUS THER E WAS UNDER REPORTING OF INCOME IN FORM NO.3CEB TO THE EXTENT O F RS.487.41 LACS. SIMILAR DISCREPANCY WAS NOTED IN APPELLATE OR DER FOR AY 2011- 12 WHEREIN THE AMOUNT REPORTED IN PROFIT & LOSS ACC OUNT WAS FOUND TO BE LESS THAN THE FIGURE REPORTED IN FORM NO.3CEB AS WELL AS NOTES TO THE ACCOUNT AND ACCORDINGLY, DIFFERENTIAL OF RS.159.95 LACS WAS ADDED TO THE INCOME OF THE ASSESSEE IN THAT YEA R. 4 ITA NO.5594/MUM/2018 M/R ARYSTA LIFESCIENCE INDIA LIMITED ASSESSMENT YEAR: 2012-13 4.3 IN THE ABOVE BACKGROUND, THE ASSESSEE WAS ISSUE D ENHANCEMENT NOTICE WHEREIN IT WAS PROPOSED TO MAKE ADDITION OF CONCEALED INCOME FOR RS.1489.54 LACS. HOWEVER, THE ASSESSEE, VIDE REPLY DATED 26/04/2018, EXPLAINED THAT IT INCU RRED MANAGEMENT SERVICE FEE EXPENSES OF RS.427.54 LACS WHICH FORMED PART OF SELLING AND DISTRIBUTION EXPENSES AS WAS EVIDENT FR OM ITEM NO.17 OF NOTE NO.26 OF THE NOTES TO THE ACCOUNTS OF THE FINA NCIAL STATEMENTS. THE ASSESSEE ALSO FILED THE DETAILED BREAKUP OF THE SELLING & DISTRIBUTION EXPENSES TO DEMONSTRATE THE SAME. IT W AS SUBMITTED THAT THERE WAS INADVERTENT AND BONA-FIDE ERROR IN R EPORTING THE CORRECT NUMBERS IN FORM NO.3CEB. SUBSEQUENTLY, THE ASSESSEE FILED DETAILS OF TAX DEDUCTED AT SOURCE ON MANAGEME NT FEES EXPENSES TO BOLSTER ITS STAND. 4.4 HOWEVER, NOT CONVINCED, LD. CIT(A) CHOSE TO MAK E THE ENHANCEMENT WITH FOLLOWING OBSERVATIONS: - 5.30 THE CONTENTION OF THE APPELLANT IS NOT ACCEPTE D SINCE THE APPELLANT HAS NOT REPORTED THE CORRECT INCOME IN ITS FORM 3CEB. T HE INCOME OF THE APPELLANT IS, THEREFORE, ENHANCED BY RS.148,954,216. THE ASSESSEE PREFERRED RECTIFICATION APPLICATION U/ S 154 BUT THE SAME WAS ALSO DISMISSED VIDE ORDER DATED 31/10/2018 . AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. OUR FINDINGS & ADJUDICATION 5. GOING BY THE FACTUAL MATRIX, WE FIND THAT THE AS SESSEE HAS EARNED MANAGEMENT FEES OF RS.1489.54 LACS FROM TWO OF ITS ASSOCIATES ENTERPRISES. THE SAID INCOME HAS BEEN CR EDITED IN ASSESSEES PROFIT & LOSS ACCOUNT AS OTHER OPERATING REVENUES UNDER THE HEAD REVENUE FROM OPERATIONS. THE SAME IS EVIDENT FROM 5 ITA NO.5594/MUM/2018 M/R ARYSTA LIFESCIENCE INDIA LIMITED ASSESSMENT YEAR: 2012-13 NOTE-19 OF ASSESSEES FINANCIAL STATEMENTS. SIMILAR FIGURE HAS BEEN REPORTED AS EARNINGS IN FOREIGN EXCHANGE (RENDERING SERVICES) IN SCHEDULE ANNEXED TO AND FORMING PART OF THE BALA NCE SHEET. SIMILAR FIGURE WAS NOTED BY LD. TPO WHILE RE-WORKIN G SEGMENTAL RESULTS WHICH HAS ALREADY BEEN ENUMERATED BY US IN PRECEDING PARA-4.1 OF THIS ORDER. QUITE CLEARLY, THE SAID INC OME OF RS.1489.54 LACS STOOD CREDITED TO ASSESSEES PROFIT & LOSS ACC OUNT AND FORM PART OF THE ASSESSEES FINANCIAL STATEMENTS. THE SA ME HAS ALREADY BEEN CONSIDERED WHILE COMPUTING ASSESSEES INCOME. 6. PROCEEDING FURTHER, THE ASSESSEE HAS DEBITED SEL LING & DISTRIBUTION EXPENSES OF RS.1133.89 LACS WHICH IS E VIDENT FROM ITEM NO.17 OF NOTE NO.26 OF THE NOTES FORMING PART OF THE BALANCE SHEET. THE BREAK-UP THE SAME WAS ALREADY PROVIDED B Y THE ASSESSEE IN ITS SUBMISSIONS DURING APPELLATE PROCEE DINGS. THIS AMOUNT INCLUDE INTER-COMPANY SERVICE FEES EXPENSE O F RS.427.54 LACS WHICH AFTER INCLUDING FOREIGN EXCHANGE DIFFERE NCE OF RS.56.20 LACS COMES TO RS.483.74 LACS. THE ASSESSEE HAS REMI TTED RS.483.74 LACS AFTER DEDUCTION OF TAX AT SOURCE, TH E DETAILS OF WHICH HAVE ALREADY BEEN GIVEN BY THE ASSESSEE IN THE IMPU GNED ORDER. 7. THUS, IT IS QUITE CLEAR THAT THE IMPUGNED AMOUNT OF RS.1489.54 LACS ALREADY FORMS PART OF ASSESSEES INCOME AND TH ERE IS NO CONCEALMENT OF INCOME AS ALLEGED BY LD. CIT(A) IN T HE IMPUGNED ORDER. THE FIGURES IN FORM NO.3CEB HAS BEEN REPORTE D ON NET BASIS WHICH AT THE MOST, COULD BE AN INADVERTENT / BONA-FIDE / OVERSIGHT ERROR. BUT ON THE GIVEN FACTUAL MATRIX, T HERE WOULD BE NO CASE TO MAKE IMPUGNED ADDITIONS IN THE HANDS OF THE ASSESSEE. 6 ITA NO.5594/MUM/2018 M/R ARYSTA LIFESCIENCE INDIA LIMITED ASSESSMENT YEAR: 2012-13 THE LD. CIT(A), WITHOUT CONSIDERING ASSESSEES SUBM ISSIONS, ERRED IN MAKING ENHANCEMENT IN THE HANDS OF THE ASSESSEE. THE FACTS IN AY 2011-12 WERE QUITE DIFFERENT SINCE IN THAT YEAR THE FIGURE AS REPORTED IN PROFIT & LOSS ACCOUNT WAS FOUND TO BE L ESS THAN THE FIGURE REPORTED IN FORM NO.3CEB. HOWEVER, THE SAME IS NOT THE CASE IN THIS YEAR. THEREFORE, WE HAVE NO HESITATION IN DELETING THE SAME. WE ORDER SO. THE GROUND NOS. 2 & 3 STAND ALLO WED. THE OTHER GROUNDS ARE NOT URGED AND HENCE DISMISSED. 8. THE APPEAL STAND PARTLY ALLOWED. ORDER PRONOUNCED ON 17 TH JUNE, 2021 SD/- SD/- (VIKAS AWASTHY) ( MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 17/06/2021 SR.PS:-JAISY VARGHESE D1EFGH1.G / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. $% ! / THE RESPONDENT 3. . ( ) / THE CIT(A) 4. . / CIT CONCERNED 5. /0$)1 , 1 , / DR, ITAT, MUMBAI 6. 0234 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.