DANIA ORO JEWELLERY P.LTD, MUMBAI V. DCIT 9(3)(1), MUMBAI

ITA 7002/MUM/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8410 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 30-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Assessee Lawyers: AMOD PRABHUDESAI
• Keywords: Transfer pricing; International transaction; Question of law; Notional interest
• Section: 92C; 143(3); 10AA; 201; 92CA

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL K BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER IT (TP) A NO.7002/MUM/2016 (ASSESSMENT YEAR 2012-13 ) (VIRTUAL HEARING IN VIRTUAL COURT NO.2) DANIA ORO JEWELLERY PVT. LTD. UNIT NO. 601 & 602, BLOCK NO.I, SEEPZ-SEZ, SEEPZ++, ANDHERI (EAST), MUMBAI -400096. P AN: AACCD3214E VS. THE DCIT- 9(3)(1) ROOM NO. 215, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDENT APPELLANT BY : SHRI AMOD PRABHUDESAI (AR) RESPONDENT BY : SHRI AKHTAR H. ANSARI (DR) DATE OF HEARING : 29.06.2020 DATE OF PRONOUNCEMEN T : 29.06.2020 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ASS ESSMENT ORDER DATED 30.09.2019 PASSED IN PURSUANCE OF DIRECTIONS OF DIS PUTE RESOLUTION PENAL (DRP) DATED 12.07.2016 FOR ASSESSMENT YEAR (AY) 201 2-13. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER (AO) AND THE HON'BLE MEMBERS OF DISPUTE RE SOLUTION PANEL (DRP) RESPECTIVELY, ERRED IN PASSING THE IMPUGNED ASSESSM ENT ORDER U/S. 143(3) R.W.S. 92CA AND 144C(5) OF THE INCOME TAX ACT, 1961 (THE ACT), WHICH IS ILLEGAL AND BAD IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. AO AND DRP RESPECTIVELY, OUGHT TO HAVE HELD THAT- IT (TP) A NO. 7002 MUM 2 016-DANIA ORO JEWELLERY PVT. LTD. 2 2.1 ADJUSTMENT OF RS. 39,75,839/- U/S. 92CA OF THE ACT BEING NOTIONAL INTEREST ON ACCOUNT OF DELAY IN REALIZATION OF DEBTS FROM AS SOCIATED ENTERPRISES (AES), SHOULD BE IMPUTED IN COMPUTING THE OPERATING MARGIN OF THE APPELLANT AND NOT AS AN INDEPENDENT INTERNATIONAL TRANSACTION. CONSEQ UENT TO WHICH, SINCE THE MARGIN (9.03%) EARNED BY THE APPELLANT EVEN AFTER R EDUCING SUCH NOTIONAL INTEREST IS MUCH HIGHER THAN THE MARGIN OF 3.82% EA RNED BY THE COMPARABLE COMPANIES, THE TRANSFER PRICING ADJUSTMENT OF RS. 3 9,75,839/- SHOULD NOT HAVE BEEN MADE. THEREFORE, THE ADJUSTMENT OF RS. 39,75,8 39/- MADE U/S. 92CA OF THE ACT SHOULD BE DELETED. 2.1.1 WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALT ERNATE, SINCE THE APPELLANT ENJOYS THE DEDUCTION U/S. 10AA OF THE ACT AND SHIFT ING OF PROFITS IS NOT POSSIBLE, TRANSFER PRICING ADJUSTMENT SHOULD NOT HA VE BEEN MADE. 3. THE ABOVE GROUNDS OF APPEAL ARE DISTINCT AND SEPARA TE AND WITHOUT PREJUDICE TO EACH OTHER. 4. IT IS HUMBLY PRAYED THAT THE RELIEFS AS PRAYED FOR HEREINABOVE AND/OR SUCH OTHER RELIEFS AS MAY BE JUSTIFIED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS MAY MEET THE ENDS OF JUSTICE SHOULD BE GRANTED. 2. THE ASSESSEE VIDE APPLICATION DATED 10.06.2020, RAI SED FOLLOWING ADDITIONAL GROUNDS OF APPEAL; 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF GOLD AND SILVER AND AL SO EXPORT OF STUDDED JEWELLERY, FILED ITS RETURN OF INCOME FOR AY 2012-1 3 ON 23.11.0212. THE ASSESSEE WHILE FILING RETURN OF INCOME REPORTED INT ERNATIONAL TRANSACTION WITH IT (TP) A NO. 7002 MUM 2 016-DANIA ORO JEWELLERY PVT. LTD. 3 ITS ASSOCIATED ENTERPRISES (AE) AND FURNISHED REPOR T UNDER FORM 3CED. THE ASSESSEE REPORTED THE FOLLOWING INTERNATIONAL TRANS ACTIONS WITH ITS AES; SR NO. NATURE OF TRANSACTION AMOUNT ( RS.) 1 SALE OF STUDDED JEWELRY TO JEWEL AMERICA INC USA 37,70,79,824/- 2 SALE OF STUDDED JEWELRY TO BARJON JEWELLERY INC USA 11,45,801/- 3 PURCHASE OF JEWELRY FOR REMAKING FROM JEWEL AMERICA INC USA 2,68,494/- 37,84,94,119/- 4. CONSEQUENT UPON REPORTING OF INTERNATIONAL TRANSACT ION, THE ASSESSING OFFICER (AO) MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH PRICE (ALP). THE TPO WHILE DETERMINI NG THE APL SUGGESTED APL OF RS. 38,23,702/- ON ACCOUNT OF NOTIONAL INTER EST FOR DELAY IN THE EXPORT REALIZATION FROM AES IN ITS ORDER DATED 15. 01.2016 PASSED UNDER SECTION 92CA(3) OF THE INCOME TAX ACT. ON RECEIPT OF REPORT OF TPO, THE AO PASSED DRAFT ASSESSMENT ORDER AND MADE ADDITIONS OF RS. 38,23,702/- ON ACCOUNT OF NOTIONAL INTEREST FOR DELAY IN REALISING THE DEBTS FROM AES AS SUGGESTED BY TPO. THE ASSESSEE EXERCISED ITS OPTION FOR FILING OBJECTIONS BEFORE DISPUTE RESOLUTION PENAL (DRP). THE DPR AFTE R HEARING THE OBJECTIONS OF THE ASSESSEE DIRECTED THE AO TO APPLY LIBOR RATE PLUS 3% AS APL FOR INTEREST ON LOAN BORROWED BY AES. THE TPO WHILE GIV ING EFFECT TO THE DIRECTION OF DRP RE-COMPUTED THE WORKING OF TP ADJ USTMENT AND REVISED THE ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST TO R S. 39,75,839/- AS AGAINST RS. 38,23,702/- AS SUGGESTED INITIALLY BY TPO IN IT S DIRECTIONS DATED 15.01.2016. ON RECEIPT OF DIRECTIONS OF THE DRP, TH E AO PASSED THE FINAL IT (TP) A NO. 7002 MUM 2 016-DANIA ORO JEWELLERY PVT. LTD. 4 ASSESSMENT ORDER BY MAKING THE ADDITIONS OF RS, RS. 39,75,839/- ON ACCOUNT OF NOTIONAL INTEREST FOR DELAY IN REALISING THE DEB TS FROM AES. THUS, FURTHER AGGRIEVED THE ASSESSEE HAS FILED THIS APPEAL BEFORE THIS TRIBUNAL. 5. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED AUTHOR ISED REPRESENTATIVE (LD AR) FOR THE ASSESSEE AND THE LEARNED SENIOR DEPARTM ENTAL REPRESENTATIVE (LD. DR) FOR THE REVENUE AND PERUSED THE ORDER OF T HE LOWER AUTHORITIES. AT THE OUTSET OF HEARING THE LD. AR FOR THE ASSESSEE S UBMITS THAT THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE COVERED IN FAVOUR OF THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 IN I TA NO. 802/MUM/2016 DATED 29.07.2016 AND AGAIN FOR AY 2010-11 IN ITA NO . 7635/MUM/2014 DATED 03.01.2018. THE LD. AR FOR THE ASSESSEE FURT HER SUBMITS THAT THERE WAS AVERAGE DELAY OF 138 DAYS FOR RECOVERY MONEY OF SALES FROM AES DURING THE YEARS. SIMILARLY THERE WAS DELAY IN RECOVERY OF SIMILAR RECEIVABLE FROM NON AES OF 146 DAYS. THE ASSESSEE HAS ADOPTED UNIFO RMITY IN NOT CHARGING INTEREST FOR AES OR NON AES FOR DELAY IN REALIZATIO N OF MONEY OF SALES. AS THE ASSESSEE HAS NOT CHARGES ANY INTEREST FROM NON AES, THUS, NO NOTIONAL INTEREST ADJUSTMENT WAS WARRANTED AGAINST THE ASSES SEE. THE LD. AR FOR THE ASSESSEE ALSO FURNISHED THE WORKING OF AVERAGE CRED IT PERIOD FOR AE AND NON AES. AS PER WORKING THE DELAY FROM AES IS 138 DAYS, HOWEVER FOR NON AES IS 146 DAYS. 6. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. IT (TP) A NO. 7002 MUM 2 016-DANIA ORO JEWELLERY PVT. LTD. 5 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND GONE THROUGH THE RECORD CAREFULLY. WE HAVE SEEN THAT IN APPEAL F OR AY 2008-09 ON ALMOST SIMILAR DELAY IN REALISING THE AMOUNT FROM THE AES THE TPO MADE SIMILAR ADDITIONS AND ON OBJECTIONS BEFORE DRP, THE ADJUSTM ENT ON ACCOUNT NOTIONAL INTEREST WAS DELETED. ON FURTHER APPEAL BY REVENUE BEFORE THE TRIBUNAL THE APPEAL OF THE REVENUE WAS DISMISSED VI DE ORDER DATED 29.07.2016. THE RELEVANT PART OF THE ORDER IS EXTRA CTED BELOW; 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E FINDINGS OF THE AUTHORITIES BELOW AS WELL AS MATERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF CIT-9 VS. INDO AMERICAN JEWELLERY LTD.. THE SAID HEAD NOTE IS EXTRACTED BELOW: ' SECTION 92C OF THE INCOME-TAX ACT, 1961- TRANSFER PRICING- COMPUTATION OF ARM'S LENGTH PRICE [COMPARABLES AND ADJUSTMENTS] - IN TRANSFER PRICING PROCEEDINGS, TPO WHILE DETERM INING ALP OF INTERNATIONAL TRANSACTIONS, NOTICED THAT OUTSTANDIN G BALANCE FROM ASSOCIATED ENTERPRISES WAS AMOUNTING TO RS.8.76 CRO RES - SAID AMOUNT WAS OUTSTANDING FOR MORE THAN YEAR AND, THUS, TAK ING RATE OF INTEREST AT 10 PER CENT, TRANSFER PRICING OFFICER DETERMINED IN TEREST RECEIVABLE AT RS.87.66 LAKHS AND ADDED SAME TO INTERNATIONAL TRAN SACTION COST - TRIBUNAL NOTED THAT THERE WAS COMPLETE UNIFORMITY I N ACT OF ASSESSEE IN NOT CHARGING INTEREST FROM BOTH ASSOCIATED ENTERP RISES AND NON- ASSOCIATED ENTERPRISES DEBTORS FOR DELAY IN REALIZA TION OF EXPORT PROCEEDS - TRIBUNAL THUS DELETED ADDITION OF NOTION AL INTEREST ON OUTSTANDING AMOUNT OF EXPORT PROCEEDS REALIZED BELA TEDLY WHETHER ON FACTS, NO SUBSTANTIAL QUESTION OF LAW AROSE FROM T RIBUNAL'S ORDER - HELD, YES [PARA5] [ IN FAVOUR OF ASSESSEE] 6.1 THE ABOVE DECISION SQUARELY APPLIES TO THE PRES ENT CASE. THIS IS THE ONLY DECISION OF A HIGH COURT APPLICABLE TO THE CASE AT HAND WHICH HAS BEEN CITED BEFORE US. IN THE CASE OF DR. T.P. KAPADIA VS. CIT [1973] 87 ITR 511 (MYS.) IT HAS BEEN HELD THAT A DECISION OF A HIGH COURT WOULD HAVE BINDING FORCE IN THE STATE IN WHICH IT HAS JURISDICTION. IT (TP) A NO. 7002 MUM 2 016-DANIA ORO JEWELLERY PVT. LTD. 6 6.2 EVEN IN THE CASE OF THE ASSESSEE FOR THE ASSESS MENT YEAR 2008-09 ( DANIA ORO JEWELLERY PVT. LTD. VS. ITO ) RELIED ON BY THE LD. DR, WE FIND THAT IN SOME OF THE CASES THE TERMS OF CREDIT HAS BEEN EXTENDED BEYOND 700 DAYS AND IN SOME OF THE CASES, IT HAS GONE BEYOND 1200 DAYS WHEREAS IN THE CASE OF NON-AE, THE MAXIMUM DELAY IS OF 203 DAYS. IN VIEW OF THE ABOVE, THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2008-09 IS NOT APPLICABLE TO THE ISSUE AT HAND FOR THE A.Y. 2009-10. 6.3 LET US NOW EXAMINE THE FACTS IN THE PRESENT CA SE. IN A CASE LIKE THIS THE PROPER METHOD IS TO TAKE A SIMPLE AVERAGE. IF WE T AKE A SIMPLE AVERAGE THEN THERE HAS BEEN A DELAY OF 132 DAYS IN THE CASE OF AE AN D 130 DAYS IN THE CASE OF NON- AES IN REALIZATION OF THE EXPORT PROCEEDS. THUS THE RE IS UNIFORMITY IN THE ACT OF THE ASSESSEE IN NOT CHARGING INTEREST FROM BOTH AE AND NON-AE DEBTORS FOR DELAYED REALIZATION OF EXPORT PROCEEDS. 7. RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE B OMBAY HIGH COURT IN THE CASE OF INDO AMERICAN JEWELLERY LTD. THE APPEAL FIL ED BY THE REVENUE IS DISMISSED.' 8. FURTHER WE HAVE NOTED THAT IN AY 2010-11, SIMILAR A DJUSTMENT WAS SUGGESTED BY TPO DUE TO DELAY IN REALIZATION OF DEB TS. THE ASSESSEE FILED OBJECTION BEFORE DRP, WHEREIN THE ASSESSEE WAS ALLO WED PARTIAL RELIEF. HOWEVER ON FURTHER APPEAL TO THE TRIBUNAL, THE ENTI RE ADJUSTMENT/ ADDITION ON ACCOUNT NOTIONAL INTERESTS FOR DELAY IN REALIZAT ION OF SALES WAS DELETED VIDE ORDER DATED 03.01.2018 IN ITA NO. 7635/MUM/201 4. IN APPEAL FOR AY 2010-11, THE TRIBUNAL FOLLOWED THE ORDER FOR AY 200 9-10. 9. FROM THE DETAILS FURNISHED BY LD. AR FOR THE ASSESS EE ABOUT THE DELAY IN REALIZING THE MONEY OF SALES FROM AES AND NON AES, WE HAVE OBSERVED THAT ON THE WORKING OF DELAY OF CREDIT PERIOD FOR AE AND NON AES AS138 DAYS AND FOR NON AES ARE 146 DAYS; THE LD. HAS NOT DISPU TED THE FACTUAL MATRIX. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 IT (TP) A NO. 7002 MUM 2 016-DANIA ORO JEWELLERY PVT. LTD. 7 AND 2010-11, WE FIND MERIT IN THE SUBMISSIONS OF TH E ASSESSEE THAT NO NOTIONAL INTEREST ADJUSTMENT WAS WARRANTED AGAINST THE ASSESSEE. IN THE RESULT THE GROUND NO. 2.1 OF THE APPEAL IS ALLOWED. 10. AS WE HAVE ALLOWED THE PRIMARY CONTENTION OF THE LD . AR FOR THE ASSESSEE, THEREFORE, THE DISCUSSIONS ON THE ALTERNATIVE GROUN D OF APPEAL HAVE BECOME ACADEMIC. EVEN OTHERWISE AT THE TIME OF MAKING SUBM ISSIONS THE L D. AR FOR THE ASSESSEE SUBMITS THAT HE IS NOT PRESSING GROUND NO. 2.1.1 WHICH RELATES TO ALTERNATE GROUND FOR DEDUCTION UNDER SECTION 10A A OF THE ACT. THUS, THIS GROUND OF APPEAL IS DISMISSED AS NOT PRESSED 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 /06/2020. SD/- SD/- S. RIFAUR RAHMAN PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 29 .06.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR K BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI