MSD Pharmaceuticals Pvt. Ltd., New Delhi V. Addl. CIT, Special Range- 6, New Delhi

ITA 6565/DEL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3458 (ITAT-DELHI)
• Duration Of Justice: 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 31-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Application of stay
• Section: 143(3)

Judgement Text

SA NO.619/DE L/2017 ITA NO. 6565/DEL/2017 ASSESSMENT YEAR: 2013 - 14 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI I - 1 BENCH, NEW DELHI [CORAM: PRAMOD KUMAR AM AND SUCHITRA KAMBLE JM ] SA NO. 619/DEL/2017 IN ITA NO. 6565/DEL/2017 ASSESSMENT Y EAR: 2013 - 14 MSD PHARMACEUTICALS PRIVATE LIMITED ...........................AP PELLANT 1544, LEVEL 15, EROS CORPORATE TOWERS NEHRU PLACE, NEW DELHI 110 019 [PAN: AAECM1106C] VS. ADDITIONAL COMMISSIONER OF INCOME TAX SPECIAL RANGE 6, NEW DELHI ........RESPONDENT ITA NO. 6565/DEL/2017 ASSESSMENT Y EAR: 2013 - 14 MSD P HARMACEUTICALS PRIVATE LIMITED ...........................APPELLANT 1544, LEVEL 15, EROS CORPORATE TOWERS NEHRU PLACE, NEW DELHI 110 019 [PAN: AAECM1106C] VS. ADDITIONAL COMMISSIONER OF INCOME TAX SPECIAL RANGE 6, NEW DELHI ........RESPOND ENT APPEARANCES BY: RASHMI CHOPRA FOR THE A PPELLANT KUMAR PRANAV FOR THE RE SPONDENT DATE OF CONCLUDING THE HEARING : NOVEMBER 10 , 201 7 DATE OF PRONOUNCING THE ORDER : NOVEMBER 10 , 2017 O R D E R PER PRAMOD KUMAR, AM : 1. THIS APPEAL, FILED BY THE AS SESSEE, IS DIRECTED AGAINST THE ORDER DATED 26 TH SEPTEMBER 2017 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C SA NO.619/DE L/2017 ITA NO. 6565/DEL/2017 ASSESSMENT YEAR: 2013 - 14 PAGE 2 OF 5 OF THE INCOME TAX ACT, 1961, AFTER INCORPORATING THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL, FOR THE ASSESSMENT YEAR 2013 - 1 4. AS THE ISSUE S REQUIRING OUR ADJUDICATED IN THIS APPEAL ARE NEATLY IDENTIFIED LEGAL ISSUES WITHIN A VERY NARROW COMPASS OF RELEVANT MATERIAL FACTS, W ITH THE CONSENT OF T HE PARTIES, THIS APPEAL ITSELF HAS BEEN TAKEN UP FOR HEARING AL ONGWITH THE STAY PET ITION WHICH WAS LISTED BEFORE US TODAY . 2. GRIEVANCE OF THE ASSESSEE, IN SUBSTANCE, IS TWOFOLD - FIRST, AGAINST THE ADDITION OF RS 23,83,92,783 MADE BY THE ASSESSING OFFICER, IN RESPECT OF ARMS LENGTH PRICE ADJUSTMENT FOR ADVERTISING PROMOTION AND MARKETI NG (AMP) EXPENSES BY APPLYING THE BRIGHT LINE TEST (BLT), MADE ON PROTECTIVE BASIS; AND - SECOND, AGAINST DENIAL OF SET OFF IN RESPECT OF BROUGHT FORWARD BUSINESS L OSSES T O THE EXTENT OF RS 26,25,85,933 BY HOLDING THAT, IN VIEW OF THE ADDITIONS MADE BY THE ASSESSING OFFICER TO THE RETURNED IN THE PRECEDING ASSESSMENT YEARS, NO PART OF THE BUSINESS LOSSES, INCURRED IN THE PRECEDING YEARS, SURVIVES FOR ADJUSTMENT IN THE PRESENT ASSESSMENT YEAR. 3. SO FAR AS THE PROTECTIVE ADDITION IN RESPECT OF ALP ADJUSTM ENT OF RS 23,83,92,783 IS CONCERNED, WE HAVE NOTED THAT, IN THE TRANSFER PRICING OFFICER HAD HELD THAT AN ALP ADJUSTMENT OF RS 51,06,32,341 IS REQUIRED TO BE MADE TO THE AMP EXPENSES ON THE BASIS OF INTENSITY ADJUSTMENT. HOWEVER, THIS ADJUSTMENT, AS A RES ULT OF THE WORKING CAPITAL ADJUSTMENT ETC DIRECTED BY THE DRP, HAS NOW BEEN DELETED BY THE ASSESSING OFFICER HIMSELF. IN THE TPOS ORDER, HOWEVER, IT HAS BEEN NOTED THAT SO FAR AS THE APPLICATION OF BRIGHT LINE TEST IS CONCERNED, THOUGH THIS ISSUE IS DECID ED AGAINST THE ASSESSEE BY HONBLE JURISDICTIONAL HIGH COURT, THE PROTECTIVE ADDITION IS BEING MADE ON THIS BASIS TO PROTECT THE INTERESTS OF THE REVENUE, SINCE THE MATTER IS PENDING BEFORE HONBLE SUPREME COURT. WHEN MATTER TRAVELLED TO THE DRP, IT WAS NOTED THE DRP CONFIRMED THIS STAND BY OBSERVING AS FOLLOWS: THE TPO/AO HAS CARRIED OUT PROTECTIVE ASSESSMENT IN RESPECT OF AMP ADJUSTMENT. THE SAME IS ALSO RETAINED AS A SECONDARY APPROACH; ACCORDINGLY, IT SHALL REMAIN PROTECTIVE ASSESSMENT. THE TPO HAS CARRIED OUT PROTECTIVE ASSESSMENT BY INVOKING BRIGHTLINE METHOD. THIS IS A SA NO.619/DE L/2017 ITA NO. 6565/DEL/2017 ASSESSMENT YEAR: 2013 - 14 PAGE 3 OF 5 PROTECTIVE ACTION TAKEN BY THE TPO/AO. THE (INCOME TAX) DEPARTMENT IS AGITATING THE ISSUE BEFORE HONBLE SUPREME COURT. THE PANEL FINDS NO INFIRMITY IN THIS (PROTECTIVE ASSESSMENT) . 4. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER REITERATED THE ALP ADJUSTMENT OF RS 23,83,92,783 BY OBSERVING AS FOLLOWS: THUS, THE TRANSFER PRICING ADJUSTMENT USING INTENSITY ADJUSTMENT, APPLYING TNMM IN THE CASE OF THE ASSESSEE STANDS REVISED TO NIL, WHILE RS 23,83,92,783, FOLLOWING THE BRIGHT LINE METHOD, STANDS CONFIRMED FOLLOWING THE DRP ORDER. 5. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 6. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE UNAB LE TO SEE ANY MERITS IN THE IMPUGNED ALP ADJUSTMENT OF RS 23,83,92,783 ON, WHAT HAS BEEN TERMED AS, PROTECTIVE BASIS. LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT EVEN DISPUTED THAT THE ISSUE IS COVERED AGAINST THE REVENUE AUTHORITIES BY BINDING JUDICIAL PR ECEDENTS, BUT HIS WORRY IS ABOUT PROTECTING LEGITIMATE INTERESTS OF THE REVENUE. THESE APPREHENSIONS, HOWEVER, ARE NOT REALLY JUSTIFIED. THERE IS NO DISPUTE THAT THE APPLICATION OF BRIGHT LINE TEST, FOR MAKING ALP ADJUSTMENTS IN RESPECT OF THE AMP EXPENSE S, IS HELD TO BE UNSUSTAINABLE IN LAW BY HONBLE JURISDICTIONAL HIGH COURT, AND THE TPO HIMSELF STATES SO IN SO MANY WORDS. IT IS ALSO ELEMENTARY THAT IT IS NOT, CANNOT BE, OPEN TO US TO DISREGARD THE BINDING JUDICIAL PRECEDENTS AND UPHOLD THE APPLICATION OF BRIGHT LINE TEST, FOR DETERMINING THE ALP ADJUSTMENT IN RESPECT OF AMP EXPENSES, MERELY BECAUSE A BINDING JUDICIAL PRECEDENT FROM HONBLE JURISDICTIONAL HIGH COURT HAS BEEN CHALLENGED BY THE REVENUE AUTHORITIES BEFORE THE HONBLE SUPREME COURT. THE BIND ING NATURE OF A JUDICIAL PRECEDENT, AS LONG AS IT HOLDS THE FIELD I.E. IS NOT OVERTURNED, REMAINS UNAFFECTED BY WHETHER OR NOT IT HAS BEEN CHALLENGED BEFORE A HIGHER FORUM. AS A COROLLARY TO THIS LEGAL POSITION, THE IMPUGNED ADDITION OF RS 23,83,92,783 MUS T STAND DELETED. THE VERY CONCEPT OF PROTECTIVE ADDITION IS RELEVANT ONLY WHEN AN INCOME IS SA NO.619/DE L/2017 ITA NO. 6565/DEL/2017 ASSESSMENT YEAR: 2013 - 14 PAGE 4 OF 5 TO BE ADDED IN THE HANDS OF MORE THAN ONE TAXPAYER, IN A SITUATION IN WHICH THERE IS AN ELEMENT OF AMBIGUITY AS TO IN WHOSE HANDS THE SAID INCOME CAN BE RIGHTLY BR OUGHT TO TAX. THATS NOT THE CASE BEFORE US. IN OUR HUMBLE UNDERSTANDING, THEREFORE, THE CONCEPT OF PROTECTIVE ASSESSMENT, AS IS KNOWN TO THE INCOME TAX LAW, HAS NO APPLICATION IN THE CASES LIKE THE ONE BEFORE US. 7. IN VIEW OF THE ABOVE DISCUSSIONS, T HE ADDITION OF RS 23,83,92,783 STANDS DELETED. 8 . SO FAR AS THE QUESTION OF SET OFF OF THE BROUGHT FORWARD BUSINESS LOSSES IS INCURRED, LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE MATTER IS REQUIRED TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FO R FRESH ADJUDICATION IN THE LIGHT OF THE RESULT OF THE APPELLATE PROCEEDINGS IN RESPECT OF THE PRECEDING ASSESSMENT YEARS IN WHICH THE RELATED DISPUTED ADDITIONS HAVE BEEN MADE. IT IS POINTED OUT BY THE LEARNED COUNSEL THAT , IN ANY EVENT, THE ASSESSEE HAS CLAIMED SET OFF OF THE LOSS OF RS 26,25,85,933 INCURRED IN T HE ASSESSMENT YEAR 2012 - 13 WHICH COULD NOT HAVE BEEN SET OFF FOR THE PRIOR YEARS, AND THE ONLY YEAR FOLLOWING THE SAID ASSESSMENT YEAR IS THE YEAR BEFORE US. IT IS ALSO POINTED OUT THAT THE ALP A DJUSTMENT, IN RESPECT OF AMP EXPENSES BY APPLYING THE BRIGHT LINE TEST (BLT), WHICH IS NOW DECIDED IN FAVOUR OF THE ASSESSEE. WHILE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT REALLY ADDRESS ON ALL THESE AS PECTS, HE FAIRLY AGREED TO OUR SUGGESTION THAT THE MATTER IS REQUIRED TO BE EXAMINED AFRESH BY THE ASSESSING OFFICER IN THE LIGHT OF OUTCOME OF THE APPELLATE PROCEEDINGS FOR THE OTHER ASSESSMENT YEARS AS ALSO BY WAY OF A SPEAKING ORDER DEALING WITH THE SPECIFIC CONTENTIONS OF THE ASSESSEE. IN THE LIGHT OF THIS UNDISPUTED POSITION WITHIN A NARROW COMPASS OF MATERIAL FACTS, WE REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS. WE ALSO DIRECT THE ASSESSEE TO FULLY COOPERATE WITH THE ASSESSING OFFICER IN EXPEDITIOUS DISPOSAL OF THE REMANDED PROCEEDINGS. ORDERED, ACCORDINGLY. 9. IN THE RESUL T, THE APPAL IS PARTLY ALLOWED. SA NO.619/DE L/2017 ITA NO. 6565/DEL/2017 ASSESSMENT YEAR: 2013 - 14 PAGE 5 OF 5 10. AS THE APPEAL ITSELF IS DISPOSED OF, THE STAY PETITION, SEEKING A STAY ON COLLECTION/ RECOVERY OF THE RELATED UNPAID TAX AND INTEREST DEMANDS IMPUGNED IN THIS APPEAL, IS RENDERED INFR UCTUOUS. THE STAY PETITION IS THUS DISMISSED AS INFRUCTUOUS. 11. TO SUM UP, WHILE THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE , THE STAY APPLICATION IS DISMISSED. PRONOUNCED IN T HE OPEN COURT TODAY ON THE 10 TH DAY OF NOVEMBER, 2017 SD/XX SD/XX SUCHITRA KAMBLE PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NEW DELHI , THE 10 TH DAY OF NOVEMBER , 201 7 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CO MMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI