LUBRIZOL INDIA P. LTD, MUMBAI V. DCIT LTU-2, MUMBAI

ITA 6393/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3754 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 31-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Rule of consistency; Set aside
• Section: 271(1)(c); 143(3); 13

Judgement Text

, , . , & IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER . 6393 //201 7 (. . 2013-14 ) ITA NO. 6393/MUM/2019 (A.Y.2013-14) M/S LUBRIZOL INDIA PVT. LTD. 9/3, THANE BELAPUR ROAD, TURBHE, NAVI MUMBAI-400705. PAN: AAACL 0126H ...... - / APPELLANT VS. THE DCIT, LTU-2, 29 TH FLOOR, CENTRE NO.1, WORLD TRADE CENTRE, CUFFE PAREDE, MUMBAI 400005 ..... .0/ RESPONDENT - 1/ APPELLANT BY : SHRI PERCY J. PARDIWALA .0 1/ RESPONDENT BY : SHRI SUSHIL KUMAR MISHRA 2 / DATE OF HEARING : 15/04/2021 2 / DATE OF PRONOUNCEMENT : 18/05/2021 / ORDER PER VIKAS AWASTHY, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ASSESSMENT ORDER DATED 31.08.2017 PASSED UNDER SECTION 143(3) READ W ITH SECTION 144C(13) OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2013-14. 2 ITA NO. 6393 MUM 2019 (AY 2013-14) -M/S LUBRIZOL INDIA PVT. LTD. 2. SH. PERCY J. PARDIWALLA, APPEARING ON BEHALF OF THE ASSESSEE NARRATING THE FACTS OF CASE SUBMITTED THAT THE ASSESSEE/APPELLANT IS ENGAGED IN THE BUSINESS OF DEVELOPING, MANUFACTURING AND MARKETING ADDITIVE SYSTEMS FOR AUTOMOTIVE, INDUSTRIAL LUBRICANTS AND TREATMENT OF FUELS. THE A SSESSEE-COMPANY IS 50:50 JOINT VENTURE BETWEEN LUBRIZOL CORPORATION USA AND INDIAN OIL CORPORATION LTD. DURING THE PERIOD RELEVANT TO THE ASSESSMENT Y EAR (AY) UNDER APPEAL, THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSAC TIONS WITH ITS ASSOCIATED ENTERPRISES (AE). THE ASSESSEE BENCHMARKED ITS INTE RNATIONAL TRANSACTIONS OF EXPORT OF CHEMICAL ADDITIVES TO ITS ASSOCIATED ENTE RPRISES (AES) BY APPLYING TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST AP PROPRIATE METHOD. THE TRANSFER PRICING OFFICER (TPO) REJECTED TNMM AND AP PLIED CUP. THE TPO DRAWS SUPPORT FROM THE DIRECTIONS OF DRP IN AY 2009-10 FO R REPLACING TNMM WITH CUP. THUS, THE TPO MADE ADJUSTMENT OF RS.1,19,89,04 4/- QUA TRANSACTION OF EXPORT OF CHEMICAL ADDITIVES TO AES. THE DRP ALSO P LACED SUBSTANTIAL RELIANCE ON THE DIRECTIONS OF DRP IN AY 2009-10 AND AY 2012- 13 TO UPHOLD CUP AS THE MOST APPROPRIATE METHOD. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEARS I.E. AY 2005-06 TO 2007-08 AND THE REAFTER IN AY 2009-10, 2010-11 & 2012-13, THE TPO REJECTED TNMM AS THE MOS T APPROPRIATE METHOD AND APPLIED CUP. THE ISSUE TRAVELLED TO THE TRIBUNA L IN ALL THE IMPUGNED AYS, THE TRIBUNAL HELD THAT TNMM APPLIED BY THE ASSESSEE IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTIONS. THE LD. C OUNSEL FURNISHED COPY OF THE TRIBUNAL ORDER DATED 20.11.2019 COMMON FOR ITA NO. 8148/MUM/2010 FOR AY 2006-07, AND ITA NO. 2305/MUM/2012 FOR AY 2007-0 8 AND ORDER OF THE TRIBUNAL IN ITA NO. 882/MUM/2014 FOR AY 2009-10, IT A NO. 396/MUM/2015 FOR AY 2010-11 AND ITA NO. 6667/MUM/2016 FOR AY 2012-13 DECIDED VIDE SINGLE 3 ITA NO. 6393 MUM 2019 (AY 2013-14) -M/S LUBRIZOL INDIA PVT. LTD. ORDER DATED 27.07.2020. THE LD. COUNSEL SUBMITTED T HAT THE TRIBUNAL HAS BEEN CONSISTENTLY HOLDING TNMM AS THE MOST APPROPRIATE M ETHOD FOR BENCHMARKING INTERNATIONAL TRANSACTIONS IN THE CASE OF ASSESSEE. THE NATURE OF INTERNATIONAL TRANSACTIONS WITH AES IN THE IMPUGNED AY ARE SIMILA R, THEREFORE, THE ISSUE RAISED IN GROUND NO.2 OF APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE. 2.1 THE LD. COUNSEL SUBMITTED THAT IN GROUND NO.3 OF APPEAL, THE ASSESSEE SEEKS DIRECTION TO THE AO THAT INTEREST UNDER SECTI ON 234C BE LEVIED ON RETURNED INCOME AND NOT ON ASSESSED INCOME. 2.2 THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAS FILED AN ADDITIONAL GROUND OF APPEAL CLAIMING DEDUCTION IN RESPECT OF E DUCATION CESS ON INCOME TAX. TO SUPPORT HIS CONTENTIONS, THE LD. COUNSEL PL ACED RELIANCE ON FOLLOWING DECISIONS: (I) SESA GOA LTD. VS. JCIT, 117 TAXMANN.COM 96; (II) CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. JCIT, 107 TAXMANN.COM 484; AND (III) DCIT VS. BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. ( ITA NO. 1111 AND 1112/PUN/2017 FOR AY 2013-14 & 2014-15 DECIDED ON 25.07.2019. 3. SHRI SUSHIL KUMAR MISHRA (DR) REPRESENTING THE D EPARTMENT VEHEMENTLY SUPPORTED THE IMPUGNED ORDER. HOWEVER, THE LD. DR F AIRLY ADMITTED THAT THE T.P. ISSUE RAISED BY THE ASSESSEE IN GROUND NO.2 OF APPEAL IS SIMILAR TO THE ONE ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDING AYS. THE LD. DR OPPOSED ADMISSION OF ADDITIONAL GROUND RAISE D BY THE ASSESSEE AT BELATED STAGE. 4. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S, EXAMINED THE ORDERS OF THE AUTHORITIES BELOW AND HAVE CONSIDERED THE DECISIONS ON WHICH 4 ITA NO. 6393 MUM 2019 (AY 2013-14) -M/S LUBRIZOL INDIA PVT. LTD. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANC E. THE GROUND NO.1 OF APPEAL IS GENERAL IN NATURE, HENCE, REQUIRE NO ADJUDICATIO N. 5. THE ASSESSEE IN GROUND NO.2 OF THE APPEAL HAS AS SAILED T.P. ADJUSTMENT OF RS. 1,19,89,044/- IN RESPECT OF EXPORT OF CHEMIC AL ADDITIVES TO ITS AES. THE ASSESSEE APPLIED TNMM AS THE MOST APPROPRIATE METHO D TO BENCHMARK INTERNATIONAL TRANSACTIONS WITH ITS AE. THE TPO REJ ECTED ASSESSEES METHOD OF BENCHMARKING AND APPLIED CUP. WE FIND THAT FOR SIMI LAR UNSUBSTANTIATED REASONS THE TPO REJECTED TNMM AS THE MOST APPROPRIA TE METHOD IN THE PRECEDING AYS. THE SAME WAS UPHELD BY THE DRP. THE CO-ORDINATE BENCH IN APPEAL OF THE ASSESSEE IN ITA NO. 882/MUM/2014, 396 /MUM/2015 & 6667/MUM/2016(SUPRA) DECIDED BY COMMON ORDER REVERS ED THE FINDINGS OF DRP/ASSESSING OFFICER BY OBSERVING AS UNDER: 5. AS SUBMITTED BY LD. SR. COUNSEL, WE FIND THAT T HE ASSESSEES METHODOLOGY TO BENCHMARK THE STATED TRANSACTIONS WAS SUBJECT MATTE R OF DISPUTE BEFORE THIS TRIBUNAL FOR AYS 2005-06 TO 2007-08, ITA NOS. 8148/MUM/2010, 2305/MUM/2012 & 1821/MUM/2011, COMMON ORDER DATED 20/11/2019 WHEREI N THE MATTER WAS CONCLUDED BY THE CO-ORDINATE BENCH IN ASSESSEES FA VOR IN THE FOLLOWING MANNER: - 20. IN OUR CONSIDERED OPINION THE AFORESAID REASONI NG FULLY APPLIES TO THE FACTS OF THE PRESENT CASE. WITHOUT ANY CHANGE IN FACTS AND L AW THE TRANSFER PRICING OFFICER HAS CHANGED THE CONSISTENTLY APPLIED TNMM METHOD TO THE CUP METHOD. WHILE DOING SO HE HAS BLANDLY HELD THAT TNMM METHOD IS NO T FULL PROOF. FURTHERMORE, THE ASSESSEE'S OBJECTION THAT THE COMPARISON OF OTH ER TRANSACTIONS HAVE TO BE CONSIDERED BY ADJUSTMENT OF VARIOUS FACTORS IS ALSO NOT FULLY DISLODGED. 21. IN THE BACKGROUND OF THE AFORESAID DISCUSSION A ND PRECEDENT WE HOLD THAT THE CHANGE IN METHOD FROM TNMM TO CUP METHOD IS NOT JUS TIFIED. HENCE, WE SET ASIDE THE ORDER OF THE ASSESSING OFFICER. ACCORDING LY, THE ORDER OF LEARNED CIT(A) FOR A.Y. 2005-06 IS UPHELD AND THE ORDER OF ASSESSI NG OFFICER PURSUANT TO DRP DIRECTION FOR A.Y. 2006-07 AND 2007-08 IS SET ASIDE . AS IT COULD BE OBSERVED THAT COORDINATE BENCH HELD THAT CONSISTENTLY APPLIED TNMM METHOD COULD NOT BE DISREGARDED WITHOUT THERE BEING ANY CHANGE IN ANY FACTS. UPON PERUSAL OF THE SAID ORDER AND THE CASE RECORDS , WE FIND THAT FACTS ARE PARI- MATERIA THE SAME IN EARLIER AYS AS WELL AS IN AY 20 09-10. IN THIS YEAR ALSO, THE ASSESSEES CONSISTENT TNMM METHODOLOGY HAS BEEN REJ ECTED BY LD. TPO WITHOUT ANY SOUND BASIS. ALTHOUGH THE PRINCIPLE OF RES-JUDICATE ARE NOT APPLICABLE TO INCOME TAX PROCEEDINGS, HOWEVER, THE RULE OF CONSISTENCY WOULD DEBAR THE REVENUE TO CHANGE ITS 5 ITA NO. 6393 MUM 2019 (AY 2013-14) -M/S LUBRIZOL INDIA PVT. LTD. STAND IN DIFFERENCE ASSESSMENT YEARS WITHOUT ANY SO UND BASIS, FACTS AND CIRCUMSTANCES BEING IDENTICAL. THE SAID PROPOSITION IS WELL SUPPORTED BY M/S. LUBRIZOL INDIA PRIVATE LIMITED ASSESSMENT YEARS :2009-10, 20 10-11 & 2012-13 8 THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT V/ S. QUEST INVESTMENT ADVISORS PVT. LTD. REPORTED IN [2018] 409 ITR 545 WHEREIN IT HAS BEEN HELD THAT WHEN A PRINCIPLE HAS BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS A S WELL AS IN SUBSEQUENT YEARS THEN THE REVENUE IS BOUND BY IT UNLESS THERE IS A CHANGE IN LAW OR CHANGE IN FACTS THEREIN, WHICH CHANGE HAS TO BE POINTED OUT IN THE ASSESSMEN T ORDER. IN SO DOING THE JURISDICTIONAL HIGH COURT FOLLOWED THE JUDGMENT OF THE SUPREME COURT IN BHARAT SANCHAR NIGAM LTD. V/S. UNION OF INDIA REPORTED IN [2006] 282 ITR 273 WHERE THE COURT HAD DRAWN A DISTINCTION BETWEEN THE PRINCIPLE OF RES JUDICATA AND CONSISTENCY. WE FIND THAT SIMILAR METHODOLOGY HAS BEEN ACCEPTED BY THE REVENUE FOR AYS 2008-09 & 2011-12. FURTHER, THE APPLICATION OF TNMM METHOD HAS BEEN ACCEPTED BY THE TRIBUNAL FOR AYS 2005-06 TO 2007-08 AND NO CHANGE I N FACTS OR CIRCUMSTANCES HAS BEEN DEMONSTRATED BEFORE US FOR THIS YEAR. THEREFOR E, FOLLOWING THE RULE OF CONSISTENCY AND THE CITED ORDER OF TRIBUNAL IN ASSE SSEES OWN CASE, WE HOLD THAT TNMM METHODOLOGY AS ADOPTED BY THE ASSESSEE TO BENC HMARK THE TRANSACTIONS WAS TO BE ACCEPTED. SINCE, THE MARGIN OF THE ASSESSEE U NDER THIS METHOD HAVE BEEN SHOWN TO BE WITHIN ALP RANGE, THE IMPUGNED ADJUSTME NT OF RS.347.41 LACS STAND DELETED. NO DISTINGUISHING FACTOR OR CONTRARY DECISION HAS B EEN BROUGHT ON RECORD BY THE REVENUE. THE FACTS IN THE IMPUGNED AY ARE IDENT ICAL, THEREFORE, WE FIND NO REASON TO TAKE A DIFFERENT VIEW. RESPECTFULLY FOLLO WING THE DECISIONS OF CO- ORDINATE BENCH, WE HOLD TNMM AS THE MOST APPROPRIAT E METHOD TO BENCHMARK THE TRANSACTIONS IN ASSESSEES CASE AND D IRECT THE ASSESSING OFFICER TO DELETE THE ADJUSTMENT FOR PARITY OF REASONS. THE GROUND NO.2 OF THE APPEAL IS THUS, ALLOWED. 6. IN GROUND NO.3 OF THE APPEAL, THE ASSESSEE HAS A SSAILED THE MANNER OF CHARGING INTEREST UNDER SECTION 234C OF THE ACT. TH E AO IS DIRECTED TO RE- COMPUTE INTEREST UNDER SECTION 234C OF THE ACT, IN ACCORDANCE WITH LAW. THE GROUND NO.3 OF APPEAL IS ALLOWED FOR STATISTICAL PURP OSE. 7. IN GROUND NO.4 OF THE APPEAL, THE ASSESSEE HAS A SSAILED LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. CHALLENGE TO PE NALTY PROCEEDINGS AT THIS 6 ITA NO. 6393 MUM 2019 (AY 2013-14) -M/S LUBRIZOL INDIA PVT. LTD. STAGE IS PREMATURE. CONSEQUENTLY, GROUND NO.4 OF APPEAL IS DISMISSED, AS SUCH. 8. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND CLA IMING DEDUCTION IN RESPECT OF EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION CESS ON INCOME TAX. THE ADDITIONAL GROUND RAISED IN APPEAL BY THE ASSESSEE IS LEGAL IN NATURE AND REQUIRES NO FRESH DOCUMENTARY EVIDENCES FOR ADJUDICATION. IT IS A WELL ACCEPTED LEGAL PRINCIPLE THAT LEGAL GROUND CAN BE RAISED AT ANY STAGE [RE. NTPC VS. CIT 229 ITR 383 (SC)] . THE CLAIM OF ASSESSEE IS BASED ON JUDGEMENT RENDERED BY HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF SESA GOA LTD. (SUPRA). THEREFORE, WE SEE NO IMPEDIMENT IN ADMITTING ADDIT IONAL GROUND. THE ASSESSEE HAS RAISED FRESH CLAIM OF DEDUCTION OF EDUCATION CESS ON INCOME TAX FOR THE FIRST TIME AT SECOND APPELLATE S TAGE, THEREFORE, WE DEEM IT APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF AS SESSING OFFICER FOR DECIDING THE SAME AFTER EXAMINING THE FACTS IN LIGHT OF AFORE ME NTIONED DECISION OF HONBLE JURISDICTIONAL HIGH COURT. CONSEQUENTLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON TUESDAY THE 18 TH DAY OF MAY, 2021. SD/- SD/- (S.RIFAUR RAHMAN ) (VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 7/ DATED: 18/05/2021 S.K., PS 7 ITA NO. 6393 MUM 2019 (AY 2013-14) -M/S LUBRIZOL INDIA PVT. LTD. . 8 . 8 . 8 . 8 COPY OF THE ORDER FORWARDED TO : 1. - / THE APPELLANT , 2. .0 / THE RESPONDENT. 3. 9 ( )/ THE CIT(A)- 4. 9 CIT 5. . , . . . , / DR, ITAT, MUMBAI 6. = / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI