POPATLAL NATHALAL SHAH, MUMBAI V. DCIT 16(3), MUMBAI

ITA 5848/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2373 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2007-2008
• Appeal Filed On: 18-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS ARATI VISSANJI
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEORE SHRI SAKTIJIT DEY,JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTNT MEMBER ITA NO. 5848/MUM/2014 (ASSESSMENT YEAR : 2007-08) M/S. POPATLAL NATHALAL SHAH, GW-7022, GTOWER, 7 TH FLOOR, BHARAT DIAMOND BOURSE, BANDRA KURLA COMPLEX, BANDRA(E), MUMBAI 400051 PAN: AAAFP0468K .... APPELLANT VS. THE DY. COMMISSIONER OF INCOME TAX 16(3) MATRU MANDIR, TARDEO, MUMBAI. .... RESPONDENT APPELLANT BY : MRS. ARATI VISSANJI RESPONDENT BY : SHRI PAWAN KUMAR DATE OF HEARING : 19/11/2015 DATE OF PRONOUNCEMENT : 20/11/2015 ORDER PER N.K.BILLAIYA,AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-15, MUMBAI DATED 12/06/2014 PERTAINING T O THE ASSESSMENT YEAR 2007-08. 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE T RANSFER PRICING OFFICER(TPO) HAS ERRED IN PROPOSING ADDITION OF RS. 25,53,906/- IN 2 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) RESPECT OF DELAYED REALIZATION OF EXPORT PROCEEDS F ROM THE ASSOCIATED ENTERPRISE(AE), WHICH ADDITION HAS BEEN CONFIRMED B Y THE CIT(A). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE OF ROUGH DIAMON DS, MANUFACTURING OF POLISHED DIAMONDS AND SALE THEREOF. THE ASSESSE E IS A PARTNERSHIP FIRM. THE INTERNATIONAL TRANSACTION REPORTED BY TH E ASSESSEE WITH ITS AES WAS REFERRED TO THE TPO FOR THE DETERMINATION O F ARMSS LENGTH PRICE. 4. DURING THE COURSE OF TRANSFER PRICING PROCEEDING S, THE ASSESSEE WAS ASKED TO PROVIDE DETAILS OF REALIZATION PERIOD OF SALE PROCEEDS FROM ITS AES AND NON-AES. THE DETAILS WERE FURNISHED BY THE ASSESSEE EXPLAINING THE AVERAGE REALIZATION PERIOD WHICH WEN T UPTO 177 DAYS IN THE CASE OF AES AND 141 DAYS IN THE CASE OF NON-AE S, THEREBY SHOWING A DIFFERENCE OF 36 DAYS IN REALIZATION. 5. THE ASSESSEE WAS ASKED TO EXPLAIN WHY AN ADJUSTM ENT SHOULD NOT BE MADE FOR INTEREST ON SUCH LATE REALIZATION FROM THE AES. THE ASSESSEE FILED DETAILED REPLY VIDE LETTER DATED 8/1 0/2010. IT WAS CONTENDED THAT GENERALLY AES AND NON-AES, BOTH HAVE MADE PAYMENTS AT ABOUT CREDIT OF 180 DAYS ON AN AVERAGE. HOWEVER , IN CASE OF SOME NEW CUSTOMERS, THE SALES HAVE BEEN MADE ON COD BASI S AND IF THESE PARTIES TO WHOM COD SALES WERE MADE ARE REMOVED, TH E REALIZATION OF AES AND NON-AES BECOME COMPARABLE. 3 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) 6. THIS SUBMISSION OF THE ASSESSEE DID NOT FIND FAV OUR WITH THE TPO, WHO PROCEEDED BY COMPUTING THE INTEREST BY TAKING 3 6 DAYS AS THE BENEFIT GIVEN BY THE ASSESSEE TO ITS AES AND COMPUT ED THE INTEREST @ 7% AMOUNTING TO RS.25,53,906/- AND PROPOSED THE SAM E ADJUSTMENT. 7. ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) BU T WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE COUNSEL THAT IF THE SALES MADE ON COD BASIS ARE EXC LUDED FROM THE NON- AES, THE AVERAGE REALIZATION PERIOD WOULD COME TO 165 DAYS AS AGAINST AVERAGE REALIZATION PERIOD OF 177 DAYS FROM AES, W HICH IS REASONABLY COMPARABLE. THE LD. COUNSEL FURTHER STATED THAT THE REVENUE AUTHORITIES HAVE NOT APPRECIATED THE COD SALES IN T HE RIGHT PERSPECTIVE AND, THEREFORE, ERRED IN COMPUTING THE INTEREST ON THE DELAYED REALIZATION. THE LD. COUNSEL FURTHER DREW OUR ATT ENTION TO THE SUMMARY OF EXPORTS TO NON-AES, WHICH IS PLACED AT PAGE-6 OF THE PAPER BOOK. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO THE EXP ORT PAYMENT RECEIVED DURING THE YEAR FROM AES, WHICH IS PLACED AT PAGE-7 OF THE PAPER BOOK AND ALSO TO THE DETAILS OF EXPORT REALIZATION FROM NON-AES EXCLUDING THE COD SALES WHICH IS PLACED AT PAGES 8 TO 11 OF THE P APER BOOK. THE LD. COUNSEL DEMONSTRATED THE AVERAGE REALIZATION PERIOD FROM AES AT 177 DAYS AND FROM NON-AES AT 165 DAYS AND CONCLUDED BY SAYING THAT THESE ARE REASONABLY COMPARABLE. 4 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) 9. PER CONTRA, LD. DR STRONGLY SUPPORTED THE FINDIN GS OF THE REVENUE AUTHORITIES. 10. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW AND WITH THE ASSISTANCE OF THE LD . COUNSEL WE HAVE GONE THROUGH THE RELATED DOCUMENTS BROUGHT TO OUR N OTICE. 10.1 FIRSTLY, LET US UNDERSTAND THE CONCEPT OF COD SALES. COD MEANS CASH ON DELIVERY. THE NAME ITSELF SPEAKS FOR THE FACTS. OBVIOUSLY, THERE CANNOT BE CREDIT IN SO FAR AS COD SALES ARE C ONCERNED. THE ASSESSEEE SELLS GOODS THROUGH COURIER AND THE RELAT ED DOCUMENTS THROUGH BANK. AT THE DESTINATION POINT, THE GOODS LIE WITH THE COURIER COMPANY TILL THE COURIER COMPANY RECEIVES INSTRUCTI ONS FROM THE BANK AND WHEN THE CUSTOMERS TAKE THE DELIVERY ON MAKING PAYMENT THE GOODS ARE DELIVERED. THE REVENUE AUTHORITIES HAVE NOT UNDERSTOOD THIS NATURE OF TRANSACTION IN THE TRUE PERSPECTIVE. THE ASSESSEE HAS NEVER GIVEN ANY CREDIT TO SUCH CUSTOMERS. THE DELAY HAS OCCURRED ONLY BECAUSE THE CUSTOMERS TOOK DELIVERY FROM THE COURIE R COMPANIES BELATEDLY AND IF SUCH TRANSACTIONS ARE EXCLUDED TH EN THE AVERAGE REALIZATION PERIOD OF THE NON-AES GOES TO 165 DAYS AS DEMONSTRATED BY REFERENCE TO THE RELATED DOCUMENTS REFERRED TO ELS EWHERE HEREIN ABOVE. COMPARING THIS AVERAGE PERIOD OF REALIZATIO N WITH THE AVERAGE PERIOD OF REALIZATION FROM AES, WHICH IS 177 DAYS , IN OUR CONSIDERED OPINION THESE ARE DEFINITELY REASONABLY COMPARABLE. 5 ITA NO. 2214/MUM/2015 (ASSESSMENT YEAR : 2009-10) 10.2 SECONDLY AND MORE IMPORTANTLY, THE NORMAL CRED IT PERIOD GIVEN IN SUCH TYPE OF TRANSACTIONS IS SIX MONTHS OR 180 DAYS . ON THIS COUNT ALSO, THE AVERAGE REALIZATION PERIOD OF 177 DAYS SEEMS TO BE VERY REASONABLE. 10.3 CONSIDERING THE FACTS IN TOTALITY, WE DO NOT F IND ANY REASON FOR MAKING ANY UPWARD ADJUSTMENT. WE SET ASIDE THE FIN DING OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDI TION OF RS.25,53,906/-. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/11/201 5. SD/- SD/- (SAKTIJIT DEY) (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 20/11/2015 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS