SUMITOMO CHEMICAL (I) P.LTD, MUMBAI V. DCIT 1(3)(1), MUMBAI

ITA 6432/MUM/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5410 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 01-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHOOPATHI
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Unabsorbed depreciation; TDS
• Section: 143(3); 192; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBERAND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 6432 /MUM. /201 7 ( ASSESSMENT YEAR : 20 13 14 ) SUMITOMO CHEMICAL INDIA PVT. LTD. 195/7, 7 TH FLOOR, MOTI MAHAL J.T. ROAD, CHURCHGATE MUMBAI 400 020 PAN AAECS3750L . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCL 13(1), MUMBAI . RESPONDENT ASSESSEE BY : MS. KARISHMA PHATARPHEKAR REVENUE BY : SHRI BHOOPATHI DATE OF HEARING 06.07.2020 DATE OF ORDER 27.07.2020 O R D E R PER SAKTIJIT DEY. J.M. THE CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 29 TH AUGUST 2017, PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2013 14, IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 2, (FOR SHORT THE DRP ). 2. T HE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE SINCE DO NOT REQUIRE INVESTIGATION INTO FRESH FACTS AND CAN BE DECIDED ON THE BASIS OF FACTS AVAILABLE ON RECORD, THEY ARE ADMITTED FOR ADJUDICATION. 2 SUMITOMO CHEMICAL INDIA PVT. LTD. 3. GROUNDS NO.1 AND 2, OF THE MAIN GROUNDS BEING GENERAL IN NATURE DO NOT REQUIRE ADJUDICATION. 4. IN GROUNDS NO.3 TO 6 OF THE MAIN GROUNDS, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE A S A RESULT OF ADJUSTMENT TO ARMS LENGTH PRICE OF TRADING SEGMENT. WHEREAS, IN GROUND NO.9, THE ASSESSEE HAS RAISED AN ALTERNATIVE CONTENTION TO RESTRICT THE ADJUSTMENT TO THE TRANSACTION WIT H THE ASSOCIATED ENTERPRISES (A E) ONLY. 5. BRIEF FACTS ARE, AS STAT ED BY THE ASSESSING OFFICER , THE ASSESSEE, A RESIDENT COMPANY, IS PRIMARILY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF INDUSTRIAL CHEMICAL S , MANUFACTURING AND TRADING OF AGRO CHEMICALS, MANUFACTURING AND TRADING OF PUBLIC HEALTH CHEMICAL S AND MANUFACTURING OF FINE CHEMICALS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTION S WITH ITS OVERSEAS AES INVOLVING BOTH IMPORT AND EXPORT OF CHEMICALS FOR TRADING. ALL THESE TRANSACTIONS WERE REPORTED BY THE ASSESSE E AS PER THE STATUTORY MANDATE AND WERE ALSO BENCH MARKED TO ASCERTAIN THE ARM'S LENGTH NATURE OF TRANSACTION. AS REGARDS INDUSTRIAL CHEMICAL S, THE ASSESSEE BENCH MARKED THE TRANSACTION BY APPLY ING TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH INTERNAL COMPARABLE TRANSACTIONS AS THE MOST APPROPRIATE METHOD. SINCE , A SSESSEES MARGIN SHOWN AT 0.6% WAS WITHIN THE ACCEPTABLE RANGE OF NET MARGIN 3 SUMITOMO CHEMICAL INDIA PVT. LTD. OF COMPARABLE TRANSACTION WORKED OUT AT 1.69%, THE TRANSACTION WITH AE WAS CLAIMED TO BE AT ARM'S LE NGTH. AS REGARDS TRADING IN PUBLIC HEALTH CHEMICAL S , AGRO CHEMICALS AND FINE CHEMICALS, THE AS SESSEE APPLIED RESALE PRI CE METHOD (RPM) TO BENCH MARK SUCH TRANSACTION S . IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER VERIFIED VARIOU S DO CUMENTS INCLUDING THE BENCHMARKING DONE BY THE ASSESSEE. H OWEVER, HE WAS NOT CONVINCED WITH THE SELECTION OF MOST APPROPRIATE METHOD BY THE ASSESSEE. HE REJECTED BOTH INTE RNAL TNMM AS WELL AS RPM APPLIED BY THE ASSE SSEE. AFTER REJECTING THE BENCH MARKING DO NE BY THE ASSESSEE, THE ASSESSING OFFICER PROCEEDED TO DETERMINE THE ARMS LENGTH PRICE UNDER TNMM BY SHORT LISTING EXTERNAL COMPARABLES . B Y APPLYING AVERAGE NET PROFIT MARGIN OF 3.13% OF THE COMPARABLES, THE TRANSFER PRICING OFFICER MADE A TOTAL ADJUSTMEN T OF ` 9,01,93,565, ACROSS ALL THE TRADING SEGMENTS. THE AFORESAID ADJUSTMENT SUGGESTED BY THE TRANSFER PRICING OFFICER WAS ADDED BACK TO THE INCOME OF THE ASSESSEE IN THE DRAFT ASSESSMENT ORDER . 6. WHILE DEALING WITH ASSESSEES OBJECTION S ON THE ISSUE, LEAR NED DRP OBSERVED , INTERNAL TNMM APPLIED BY THE ASSESSEE FOR INDUSTRIAL CHEMICAL S CANNOT BE CONSIDERED AS THE MOST APPROPRIATE METHOD SINCE IT INVOLVES IMPORT FROM AES AS WELL AS EXPORT TO THE A E S. LEARNED DRP OBSERVED , SINCE NONE OF THESE TRANSACTIONS ARE UNCONTROLLED 4 SUMITOMO CHEMICAL INDIA PVT. LTD. TRANSACTION S, INTERNAL TN MM WOULD NOT APPLY. FURTHER, LEARNED DRP OBSERVED , SUCH TRANSACTION S CANNOT BE TREATED AS COMPARABLE AS INBOUND TRANSACTIONS CANNOT BE COMPARED WITH OUTBOUND TRANSACTIONS DUE TO GEOGRAPHICAL DIFFERENCE. AS REGARDS THE APPLICABILITY OF RPM IN RESPECT OF TRADING IN OTHER SEGMENTS , SUCH AS , AGRO CHEMICALS, PUBLIC HEALTH AND FINE C HEMICALS, LEARNED DRP HELD THAT WHILE CONSIDERING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN THE PRECEDING YEAR, THEY HAVE REJECTED RPM AS THE MOST APPROPRI ATE METHOD SINCE THE ASSESSEE HAS NOT MERELY SOLD THE GOODS/PRODUCTS IMPORTED FROM THE AES BUT HAS MADE VALUE ADDITION AND HAS ALSO TAKEN VARIOUS RISKS. ACCORDINGLY, LEARNED DRP UPHELD THE DECISION OF THE ASSESSING OFFICER WITH SLIGHT MODIFICA TION REGARDING ADJUSTMENT IN FINE CHEMICAL SEGMENT. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , IN THE FACTS OF ASSESSEES CASE, INTERNAL TNMM IS THE MOST APPROPRIATE METHOD VIS A VIS EXTERNAL TNMM TO BENCHMARK THE TRANSACTION RELATING TO TRADING IN I NDUSTRIAL CHEMICALS . SHE SUBMITTED , WHILE THE TRANSFER PRICING OFFICER HAS NOT PR OVIDED ANY REASON FOR REJECTING INTERNAL T NMM, THE REASONS PROVIDED BY LEARNED DRP ARE FACTUALLY INCORRECT. SHE SUBMITTED , FIRSTLY, THE ASSESSEE HAS NOT COMPARED TWO CONTROLLE D TRANSACTIONS. SHE SUBMITTED THAT THE ASSESSEE HAS COMPARED ITS AE SEGMENT WITH NON AE SEGMENT . SHE SUBMITTED , AUDITED SEGMENTAL DETAILS OF BOTH THE AE AND THE NON AE SEGMENTS ARE AVAILABLE. DRAWING OUR ATTENTION TO 5 SUMITOMO CHEMICAL INDIA PVT. LTD. PAGE 321 OF THE PAPER BOOK, THE LEARNED COUNSEL SUBMITTED , APART FROM THE FACT THAT ASSESSEE HAD IMPORTED INDUSTRIAL CHEMICALS FROM THE AE FOR SALE TO THIRD PARTIES IN DOMESTIC MARKET, IT HAD ALSO PURCHASED INDUSTRIAL CHEMICALS FROM D OMESTIC THIRD PARTIES AND EXPORTED TO AES . IN THIS CONTEXT, S HE ALSO DREW OUR ATTENTION TO PAGE S 314 TO 316 OF THE PAPER BOOK TO EMPHASIZE THAT AVAILABILITY OF AUDITED SEGMENTAL RESULTS OF BOTH AE AND NON AE SEGMENTS MAKE INTERNAL TNMM THE MOST APPROPRIATE METHOD . FURTHER DRAWING OUR ATTENTION TO SUCH STATEMENT, THE LEARNED COUNSEL SUBMITTED , THE MARGINS OF AE AND NON AE SEGMENTS CLEARLY DEMONSTRATE ARM'S LENGTH NATURE OF THE TRANSACTION. FURTHER, SHE SUBMITTED , THE ALLEGATION OF LEARNED DRP THAT INBOUND AND OUTBOUND TRANSACTION S CANNOT BE COMP ARED IS UNTENABLE CONSIDERING THE FACT THAT THE COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER ALSO HAVE BOTH INBOUND AND OUTBOUND TRANSACTIONS. THUS, S HE SUBMITTED , INTERNAL TNMM HAS TO BE ACCEPTED IN THE FACTS OF THE PRESENT CASE AS THE MOST APPROPRIATE M ETHOD. IN SUPPORT OF SUCH CONTENTION, THE LEARNED COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I) TECNIMONT ICB PVT. LTD. V/S ACIT, 92012 24 TAXMANN.COM 28 (MUM.)(TM) ; II) CYBERTECH SYSTEMS & SOFTWARE LTD. V/S ACIT, (2013) 33 TAXMANN.COM 371 (MUM.) (TRIB.); III) D CIT V/S ELARA SECURITIES INDIA PVT. LTD., ITA NO.39 06 3907/ MUM./2017, DATED 06.01.2020 ; AND 6 SUMITOMO CHEMICAL INDIA PVT. LTD. IV) HUGHES SYSTIQUE INDIA PVT. LTD. V/S ACIT, (2013) 36 TAXMANN.COM 41 (DEL.)(TRIB.). 8. WITHOUT PREJUDICE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , THE TRANSFER PRICING OFFICER HAS ATTRIBUTED THE ENTIRE SHORTFALL IN PROFITS TO ASSESSEES INTERNATIONAL TRANSACTION , WHICH IS UNFAIR. SHE SUBMITTED , ANY ADDITION HAS TO BE RESTR ICTED TO THE PROPORTION OF INTER NATIONAL TRANSACTION WITH THE A ES. IN THIS CONTEXT, S HE RELIED UPON THE FOLLOWING DECISIONS : I) CIT V/S HINDUSTAN UNILIVER LTD., (2018) 99 TAXMANN.COM 135 (SC); II) CIT V/S HINDUSTAN UNILIVER LTD., (2016) 72TAXMANN.COM325 (BOM.); III) HINDUSTAN UNILIVER LTD. V/S ACIT, (2012) 28 TAXMANN.COM 142 (MUM.); IV) CIT V/S ALSTOM PROJECTS INDIA LTD., (2017) 88 TAXMANN.COM 465 (BOM.); V) ALSTOM PROJECTS INDIA LTD. V/S ACIT, (2013) 36 TAXMANN.COM 130 (MUM.); VI) CIT V/S TARA JEWELS EXPORTS PVT. LTD., (2017) 80 TAXMANN.COM 117 (BOM.); VII) CIT V/S RATILALBECHARLAL& SONS , [2016] 107 TAXMANN.COM 131 (BOM.); VIII) PCIT V/S BUNGE INDIA PVT. LTD., (2019) 107 TAXMANN.COM 131 (BOM.); AND IX) CIT V/S LANXESS INDIA PVT. LTD., (2016) 74 TAXMANN.COM 167 (BOM.). 7 SUMITOMO CHEMICAL INDIA PVT. LTD. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , IN CASE SUCH PROPORTIONATE ADJUSTMENT IS MADE, THERE WOULD BE NO ADDITION AS ASSESSEES MARGIN WILL BE WITHIN 3%. 10. AS REGARDS THE ADJUSTMENT MADE TO AGRO CHEMICALS, PUBLIC HEALTH CHEMICALS AND OTHER SEGMENTS, SHE SUBMITTED , WHILE APPLYING EXTERNAL TNMM AND REJECTING RPM, THE TRANS FER PRICING OFFICER HAS NOT PROVIDED ANY REASON. SHE SUBMITTED , SINCE THE ASS ESSEE IS A MERE DISTR IBUTOR OF GOODS IMPORTED FROM A ES WITHOUT MAKING ANY VALUE ADDITION, THE MOST APPROPRIA TE METHOD TO BENCH MARK SUCH TRANSACTION IS RPM. SHE SUBMITTED , LEARNED DRP HAS ALSO WRONGLY REJECTED RPM BY RELYING UPON ITS EARLIER ORDER. REFERRING TO THE OBSERVATIONS OF THE DRP IN THE EARLIER ORDER , SHE SUBMITTED , THE FUNCTIONS CARRIED OUT AND THE RISKS BORNE BY THE ASSESSEE ARE NORMAL FOR ANY DISTRIBUTOR, THEREFORE, FOR THAT REASON ALONE, RPM CANNOT BE REJECTED. IN SUPPORT OF SUCH CONTENTION, THE LEARNED COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I) CIT V/S LOREAL INDIA LTD., (2015) 53 TAXMANN.COM 432 (BOM.); II) ITO V/S LOREAL INDIA LTD., (2012) 24 TAXMANN.COM 192 (MUM. ); III) VIDEOJET TECHNOLOGIES INDIA PVT . LTD. V/S ACIT, ITA NO.6956/MUM ./2012, DATED .28.05.2019; IV) DCIT V/S HAZIRA LNG PVT. LTD., ITA N O.1056/AHD./2014, DATED 27.12.2016 ; V) CIT V/S LUXOTTICA INDIA EYEWEAR PVT. LTD., ITA NO.852/2015 (DEL. HC); 8 SUMITOMO CHEMICAL INDIA PVT. LTD. VI) LUXOTTICA INDIA EYE WEAR PVT. LTD. V/S DCIT, ITA N O.1115/DEL./2014, DATED 05.11.2014 ; VII) AIRPORT RETAIL PVT. LTD. V/S JCIT, (2017) 80 TAXMANN.COM 165 (MUM.) (TRIB.); VIII) ECOLAB FOOD SAFETY & HYGIENE PVT. LTD. V/S ACIT, (2019) 108 TAXMANN.COM 381 (MUM.); IX) RANDOX LABORATORIES INDIA PVT. LTD. V/S ITO, (2019) 107 TAXMANN.COM 136 (MUM.); AND X) MATTEL TOYS INDIA PVT. LTD. V/S DCIT, [2013] 34 TAXMANN.COM 203 (MUM.). 11. WITHOUT PREJUDICE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED , IF RPM IS ACCEPTED , EVEN IF THE GROSS MARGIN OF TRANSFER PRICING OFFICERS COMPARABLES ARE USED, THERE WOULD BE NO SCOPE FOR ANY ADJUSTMENT IN AGRO CHEMICAL AND PUBLIC HEALTH CHEMICAL SEGMENTS. WITHOUT PREJUDICE, SHE SUBMITTED , IF TNMM IS HELD TO BE AS THE MOST APPROPRIATE M ETHOD , THEN, AN Y ADJUSTMENT HAS TO BE RESTRICTED TO THE PROPORTION OF AE TRANSACTION S. I N THIS CONTEXT, SHE AGAIN RELIED UPON T HE DECISIONS AS NOTED IN PARA 8 ABOVE. FINALLY, SHE SUBMITTED , THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE BENEFIT OF SUO MOTU ADJUSTMENT MADE BY THE ASSESSEE , IF IT ARISES. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED DRP. 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AT THE OUTSET, WE WOUL D DEAL WITH THE ADJUSTMENT MADE TO 9 SUMITOMO CHEMICAL INDIA PVT. LTD. TRADING IN INDUSTRIAL CHEMICALS. IT IS EVIDENT , THE ASSESSEE HAS BENCH M ARKED THE AFORESAID TRANSACTION BY APPLYING INTERNAL TNMM. WHILE THE TRANSFER PRICING OFFICER HAS NOT PROVIDED ANY REASON WHY INTE RNAL TNMM IS NOT ACC EPTABLE, LEARNED DRP HAS OBSERVED THAT THE ASSESSEE HAS COMPARED ONE CONTROLLED TRANSACTION WITH ANOTHER CONT ROLLED TRANSACTION. FURTHER, LEARNED DRP HAS OBSERVED THAT INBOUND TRANSACTION CANNOT BE COMPARED WITH OUTBOUND TRANSACTION AS THEY ARE IN DIFFEREN T GEOGRAPHICAL LOCATION S . WE FIND THE AFORESAID FINDING S OF LEARNED DRP NOT ONLY FACTUALLY INCORRECT BUT UNACCEPTABLE . ON A PERUSAL OF THE DOCUMENTS FURNISHED IN THE PAPER BOOK , MORE PARTICULARLY , AT PAGE 321 AS WELL AS THE SEGMENTAL DETAILS AT PAGE S 314 A ND 316 , AS WELL AS THE TRANSFER PRICING STUDY REPORT (TPSR), WE HAVE NOTICED THAT THE ASSESSEE HA D IMPORTED INDUSTRIAL CHEMICALS FROM AE FOR RESALE TO DOMESTIC THIRD PARTIES. SIMILARLY, ASSESSEE HAD ALSO PURCHASED INDUSTRIAL CHEMICALS FROM DOMESTIC THIRD P ARTIES AND EXPORTED THEM TO AES . FURTHER, THE AUDITED SEGMENTAL RESU LTS OF SUCH TRANSACTIONS BOTH WITH AES AND NON AES ARE AVAILABLE. AS PER THE SEGMENTAL DETAILS, W HILE THE NET P ROFIT MARGIN OF PURCHASE FROM AE FOR RESALE TO DOMESTIC THIRD PARTIES IS 0.6% , IT HAS EARNED A NET PROFIT MARGIN OF 1.69% IN RESPECT OF PURCHASES MADE FROM DOMESTIC THIRD PARTIES AND EXPORTED TO AE. HOWEVER , IT IS WITHIN THE ACCEPTABLE RANGE. TH EREFORE, THE OBSERVATIONS OF LEARNED DRP DO NOT REFLECT THE CORRECT FACTUAL POSITION. TH E LEGAL PRINCIPLE IS FAIRLY WELL SETTLED THAT IF INTERNAL 10 SUMITOMO CHEMICAL INDIA PVT. LTD. COMPARABLE S ARE AVAILABLE, THEN THEY HAVE TO BE PREFERRED OVER EXTERNAL COMPARABLES . THEREFORE, WHEN THE ASS ESSEE HAS SOLD PRODUCTS BOTH TO AES AND NON A ES AND AUDITED SEGMENTAL RESULTS OF THE AE AN D NON A.E. SEGMENTS ARE AVAILABLE , THEN , THE NET MARGIN EARNED ON NON AE TRANSACTION CAN BE CONSIDERED FOR DETERMINING THE ARMS LENGTH PRICE OF THE TRANSACTION WITH THE A E. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE , REFERRED TO ABO VE , CLEARLY SUPPORT THIS VIEW. EVEN OTHERWISE ALSO, THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ADJUSTMENT, IF ANY , HAS TO BE RESTRICTED TO THE AE TRANSACTION IS ACCEPTABLE AS IT IS SUPPORTED BY A NUMBER OF JUDICIAL PRECEDENTS. IN VIEW OF THE AFORESAID, THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT TO THE TRADING IN INDUSTRIAL CHEMICAL DESERVES TO BE DELETED. ACCORDINGLY, WE DO SO. 14. AS REGARDS THE ADJUSTMENT MADE IN TRADING IN AGRO CHEMICALS AND PUBLIC HEALTH CHEMICALS, IT IS EVIDENT , THE ASSESSEE HAS BENCH MARKED THE TRANSACTION BY APPLYING RPM. WHEREAS, THE TRA NSFER PRICING OFFICER HAS BENCH MARKED THEM BY APPLYING TNMM WITHOUT ASCRIBING ANY REASON WHY RPM CANNOT BE TREATED AS MOST APPROPRIATE METHOD. LEARNED DRP HAS APPROVED THE ACTION OF THE TRANSFER PRICING OFFICER BY SIMPLY RELYING UPON THEIR OBSERVATION IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR. ON PERUSING THE FUNCTIONAL ANALYSIS OF THESE SEGMENTS AS MENTIONED IN THE TPSR, A COPY OF WHICH I S AT PAGE 85 OF THE PAPERBOOK, IT IS NOTICED THAT THE ASSESSEE HAS IMPORTED 11 SUMITOMO CHEMICAL INDIA PVT. LTD. CERTAIN CHEMICALS IN BULK FROM THE AE AND AFTER REPACKAGING THEM IN SMALL QUANTITIES HAS SOLD THEM TO DOMESTIC THIRD PARTIES. THERE IS NOTHING IN THE TPSR TO SUGGEST THAT THE ASSES SEE HAS MADE ANY VALUE ADDITION TO THE IMPORTED GOODS BEFORE RESELLING THEM TO DOMESTIC THIRD PARTIES . THUS, THE FUNCTIONS OF THE ASSESSEE, PRIMAF ACIE, APPEARS TO BE THAT OF A DISTRIBUTOR. ON A PERUSAL OF PARA 10.2.6 OF LEARNED DRPS ORDER, IT IS SEEN THAT IT HAS REPRODUCED ITS OBSERVATIONS MADE IN THE PRECEDING ASSESSMENT YEAR, WHEREIN , IT IS STATED THAT THE TRADING FUNCTIONS UNDERTAKEN BY THE ASSESSEE ARE AS UNDER: I) THE PACKAGE OF GOODS IN SMALL QUANTITY; II) RE LAB ELING BEFORE SELLING TO THIRD PARTIES; III) INSPECTION OF CHEMICALS AND ENSURE THAT THE GOODS SUPPLIED MEET THE SPECIFICATIONS OF THE ASSESSEE; AND IV) FURTHER IT HAS BEEN OBSERVED BY THE DRP THAT THE ASSESSEE ALSO APPEARS TO BEAR THE MARKET, FOREIGN EXCHANGE AND CREDIT REGULATORY RISKS. 15. OBSERVING THU S , LEARNED DRP HAS HELD THAT THE AFORESAID FUNCTIONS AND RISKS UNDERTAKEN BY THE ASSESSEE SHOWS THAT IT IS NOT ACTING AS A NORMAL TRADER, BUT IS A LSO DOING SOME VALUE ADDITION TO THE PRODUCTS SOLD IN THE INDIAN MARKET. THEREFORE , THEY UPHELD REJECTION OF RPM. WE FIND THE AFORESAID REASON ING OF LEARNED DRP QUITE VAGUE AND GENERAL IN NATURE. UNDISPUTEDLY, THE ASSESSEE IS IMPORTING THESE CHEMICALS IN BULK AND SELLING THEM TO CUSTOMERS BY RE PACKAGIN G IN SMALL QUANTITIES . THESE FUNCTIONS CARRIED OUT BY THE ASSESSEE CERTAINLY 12 SUMITOMO CHEMICAL INDIA PVT. LTD. DO NOT ADD ANY VALUE TO T HE PRODUCTS IMPORTED FROM THE A E. FURTHER , INSPECTION OF CHEMICALS TO ENSURE THEIR QUALITY OR DESIRED SPECIFICATION DOES NOT ADD VALUE TO THE PRODUCT. EVEN , THE RISKS UNDERTAK EN BY THE ASSESSEE, AS NOT ED BY LEARNED DRP, WOULD NORMALLY BE TAKEN BY AN Y OTHER DISTRIBUTOR. THOUGH, LEARNED DRP HAS OBSERVED THAT THE ASSESSEE IS MAKING SOME VALUE ADDITION TO THE PRODUCTS SOLD IN INDIAN MARKET, HOWEVER, THEY HAVE NOT ELABORATED OR SUBSTANTIATED THE NATURE OF SU CH VALUE ADDITION. IN OUR CONSIDERED OPINION, THE TRADING FUNCTION S CARRIED OUT BY THE ASSESSEE AS PER TPSR DO NOT AMOUNT TO VALUE ADDITION , UNLESS , THERE ARE SOME OTHER FUNCTION S CARRIED OUT BY THE ASSESSEE EITHER TO CHANGE THE NATURE OF PRODUCT IMPO RTED FROM THE AE OR IMPROVE ITS QUALITY . WE MAY OBSERVE, IN THE FACTS OF THE PRESENT APPEAL, THE REVENUE HAS FAILED TO BRING ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE ASSESSEE HAS MADE ANY VALUE ADDITION TO THE IMPORTED GOODS. THUS, THE REASONING ON THE BA SIS OF WHICH LEARNED DRP HAS SUSTAINED REJECTION OF RPM AS THE MOST APPROPRIATE METHOD IS NOT VALID , AT LEAST, IN THE IMPUGNED ASSESSMENT YEAR. IT IS FAIRLY WELL SETTLED THAT IN A CASE OF IMPORT OF GOODS FOR RESALE IN DOMESTIC MARKET MERELY AS A RESELLER/ D ISTRIBUTOR , THE MOST AP PROPRIATE METHOD TO BENCH MAR K I S RPM. EVEN, A READING OF RULE 10B(1)(B) MAKES THE AFORESAID POSITION CLEAR. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CLEARLY SUPPORT THIS VIEW. IN CONTRAST , THE DEPARTMENT HAS NOT BROUGHT ANY MATERIAL ON RECORD TO EITHER SHOW 13 SUMITOMO CHEMICAL INDIA PVT. LTD. THAT TH E ASSESSEE HAS MADE ANY VALUE ADDITION TO THE PRODUCTS IMPORTED FROM AES OR ESTABLISH TH E NATURE OF SUCH VALUE ADDITION. PRIMA FACIE, IT APPEARS, RPM HAS BEEN REJECTED MERELY ON UNSUBSTANTIATED ALLEGATION. THE DECISION S CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORT THIS VIEW. FURTHER, IN THE CITED DECISION S , IT HAS ALSO BEEN HELD THAT RE PACKA GING AND RE LABELING OF GOODS DO NOT AMOUNT TO VALUE ADDITION. FOR THE AFORESAID REASONS, WE HOLD THAT RPM IS THE M OST APPROPRIATE METHOD TO BENCH MARK THE TRANSACTION. EVEN , OTHERWISE ALSO, WE ACCEPT THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ADJUSTMENT, IF ANY , HAS TO BE RESTRICTED TO THE AE TRANSACTION. GROUNDS RAISED ARE ACCORDINGLY DISPOSED OFF. 16. IN GROUND NO.7, THE ASSESSEE HAS CHALLENGED THE ADJUSTMENT MADE TO THE ARMS LENGTH PRICE OF FEE PAID TOWARDS MANAGEMENT SERVICE S . 17. BRIEF FACTS ARE, THE TRANSFER PRICING OFFICER HAVING FOUND THA T THE ASSESSEE HAS PAID AN AMOUNT OF ` 60,60,103, TOWARDS MANAGEMENT AND ACCOUNTING SERVICE S, CALLED UPON THE ASSESSEE TO JUSTIFY THE ARM'S LENGTH NATURE OF SUCH PAYMENT. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THA T THE PAYMENT WAS MADE TO THE AE FOR AVAILING MANAGEMENT AND ACCOUNTING SERVICE S IN TERMS OF AGREEMENT ENTERED WITH THE A E. IT WAS SUBMITTED THAT THE ASSESSEE HAD ALLOCATED THE PAYMENT FOR MANAGEMENT AND ACCOUNTING SERVICE S TO ALL ITS SEGMENTS 14 SUMITOMO CHEMICAL INDIA PVT. LTD. AFTER PROPER BENCH MARKING OF THE RESPECTIVE SEGM ENTS. THE TRANSFER PRICING OFFICER, HOWEVER, WAS NOT CONVINCED WITH SUCH SUBMISSIONS OF THE ASSESSEE AND PROCEEDED TO DETERMINE THE ARMS LENGTH PRICE OF MANAGEMENT AND ACCOUNTING SERVICE S AT NIL BY ALLEGING THAT THE ASSESSEE FAILED TO PR OVE THAT EITHER TH E SERVICES WERE NOT RENDERED OR THEY WERE NOT RECEIVED. ACCORDINGLY, HE DETERMINED THE ARMS LENGTH PRICE AT NIL , THEREBY , MAKING ADJUSTMENT OF ENTIRE AMOUNT OF ` 60,60,104. 18. LEARNED DRP ALSO UPHELD THE DECISION OF THE TRANSFER PRICING OFFICER. 19. THE LEARNE D COUNSEL FOR THE ASSESSEE REITERATING THE SUBMISSIONS MADE BEFORE THE DRP SUBMITTED THAT THE TRANSFER PRICING OFFICER CANNOT DETERMINE THE ARMS LENGTH PRICE AT NIL , THAT TOO , ON AD HOC BASIS WITHOUT FOLLOWING ANY PRESCRIBED METHOD. IN THIS CONTEXT, S HE R ELIED UPON THE FOLLOWING DECISIONS: 20. CIT V/S MERCK LTD., (2016) 389 ITR 70 (BOM.); 21. CIT V/S LEVER INDIA EXPORTS LTD., (2017) 78 TAXMANN.COM 88 (BOM.); 22. CIT V/S JOHNSON & JOHNSON LTD.,(2017) 80 TAXMANN.COM 337 (BOM.); 23. WARTSILA INDIA LTD. V/S ACIT, (2018) (10) TMI 1669, ITAT, MUMBAI; 24. CIT V/S KODAK INDIA PVT. LTD. (2016) 288 CTR 46 (BOM.); 15 SUMITOMO CHEMICAL INDIA PVT. LTD. 25. KODAK INDIA PVT. LTD. V/S ACIT, (2013) 155 TTJ 697 (MUM.); AND 26. UT WORLDWIDE INDIA PVT. LTD. V/S DCIT, (2019) 103 TAXMANN.COM 422. 27. THE LEARNED DEPARTMENTAL REPRESENTAT IVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND DRP. 28. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. PRIMA FACIE , WE FIND THAT THE ASSESSEE HAS NOT BENCH MARKED THE TRANSACTION RELATING TO PAYMENT OF MANAGEMENT AND ACCOUNTING SERVICE FEE INDEPENDENTLY, BUT , HAS ALLOCATED SUCH PAYMENT TO ALL THE SEGMENTS. THIS, IN OUR VIEW, IS NOT A CORRECT APPROACH. THE ASSESSEE SHOULD HAVE BENCH MARKED THE AFORESAID TRANSACTION INDEPENDENTLY. ON THE OTHER HAND, THE TRANSFER PRIC ING OFFICER HAS DETERMINED THE ARMS LENGTH PRICE AT NIL PURELY ON AD HOC BASIS WITHOUT FOLLOWING ANY PRESCRIBED METHOD. THIS, IN OUR VIEW, IS ALSO NOT ACCEPTABLE, AS HELD IN VARIOUS DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. 29. THOUGH, THE ASSE SSEE MAY NOT BE REQUIRED TO PROVE THE BENEFIT DERIVED BY IT, HOWEVER, IT IS REQUIRED TO FURNISH THE BASIC DOCUMENTARY EVIDENCE S AS WELL AS PROPER BENCH MARKING TO SHOW THE ARM'S LENGTH NATURE OF THE TRANSACTION . S INCE , THE AFORESAID EXERCISE HAS NEITHER BEE N DONE BY THE ASSESSEE NOR BY THE TRANSFER PRICING OFFICER, WE ARE INCLINED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR D E NOVO ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 16 SUMITOMO CHEMICAL INDIA PVT. LTD. 30. IN GROUND NO.8, THE ASSESSEE HAS CHALLENGED THE DISALL OWANCE OF DEPRECIATION ON GOODWILL ACQUIRED FROM BILAG INDUSTRIES PVT. LTD., IN THE ASSESSMENT YEAR 2006 07. 31. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS A COMMON POINT BETWEEN THE LEARNED COUNSEL S APPEARING FOR THE PARTIES THAT THE ISSUE IS COVERED BY VARIOUS DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 07 TO 2010 11, WHICH ARE AS UNDER: I) ITA N O.3078/MUM./2012, DATED 28.03.2014 FOR ASSESSMENT YEAR 2006 07; II) ITA NO.3077 /MUM./2012, ETC., DATED 25.03.2015 FOR ASSESSMENT YEAR 2007 08 ; III) ITA N O.3915/MUM./2015, DATED 15.03.2017 ; IV) ITA NO.578/MUM./2017, DATED 25.06.2018 ; 32. HAVING PERUSED THE RELEVANT FACTS AND GONE THROUGH THE EARLIER DECISIONS OF THE TRIBUNAL, WE FIND THAT THIS IS A RECURRING ISSUE BETWEEN THE ASSESSEE AND THE REVENUE SINCE ASSESSMENT YEAR 2006 07 ONWARDS. WHILE DECIDING THE ISSUE IN EARLIER ASSESSMENT YEARS , IN THE ORDERS REFERRED TO ABOVE, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM OF DEPRECIAT ION ON GOODWILL. RESPECTFULLY FOLLOWING THE AFORESAID DECISION S OF THE TRIBUNAL, WE ALLOW ASSESSEES CLAIM OF DEPRECIATION. THIS GROUND IS ALLOWED. 17 SUMITOMO CHEMICAL INDIA PVT. LTD. 33. AS REGARDS GROUND NO.10, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHE WOULD NOT LIKE TO PRESS TH E GROUND IN THE IMPUGNED ASSESSMENT YEAR, HOWEVER, THE ISSUE SHOULD BE LEFT OPEN TO BE AGITATED BY THE ASSESSEE IN FUTURE. 34. IN VIEW OF THE AFORESAID SUBMISSIO N OF LEARNED COUNSEL FOR THE ASSESSEE, THE GRO UND IS DISMISSED AS NOT PRESSED. H OWEVER, IT IS OPEN FOR THE ASSESSE E TO RAISE THE ISSUE IF IT ARISES IN ANY OTHER ASSESSMENT YEAR IN FUTURE. 35. IN GROUND NO.11, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIA TION, WHEREAS , IN GROUND NO.12, THE ASSESSEE HAS RAISED THE ISSUE OF NON GRANTING CREDIT FOR ADVANCE TAX AND TDS. 36. HAVING CONSIDERED RIVAL SUBMISSIONS, WE DIRECT THE ASSESSING OFFICER TO VERIFY ASSESSEE S CLAIM AND DECIDE THE ISSUE OF SET OFF OF BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION AS WELL AS PROPER CREDIT TO ADVANCE TAX AND TDS BY VERIFYING RELEVANT RECORD S AND IN ACCORDANCE WITH LAW. THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 37. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 18 SUMITOMO CHEMICAL INDIA PVT. LTD. ORDER PRONOUNCED BY PLACING IN THE NOTICE BOARD UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 ON 27.07.2020 SD/ SD/ SDS S. RIFAUR RAHMAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMB AI, DATED: COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI