JASANI ( FORMELRY KNOWN AS M.S, RATILAL BECHARLAL & SONS), MUMBAI V. ADDL CIT RG 16(3), MUMBAI

ITA 7103/MUM/2012

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9587 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 27-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K AGARWAL CIT LD
• Assessee Lawyers: APURVA R SHAH LD
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction; Revenue expenditure

Judgement Text

ITA NO.7103 /MUM/2012 M/S JASANI ASSESSMENT YEAR: 2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE HONBLE SHRI PAWAN SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A.(TP)NO.7103/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) M/S. JASANI (FORMERLY KNOWN AS M/S. RATILAL BECHARLAL & SONS) H-TOWER WEST CORE 6010 BHARAT DIAMOND BOURSE BANDRA KURLA COMPLEX BANDRA (EAST), MUMBAI-400 051. / VS. ADDL . C IT - RANGE 16(3) ROOM NO,212, 2 ND FLOOR MATRU MANDIR, TARDEO MUMBAI-400 007. ./ ./PAN/GIR NO. AAAFR-7913-B ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ASSESSEE BY : SHRI APURVA R. SHAH- LD. AR REVENUE BY : SHRI V.K. AGARWAL - ADDL.CIT- LD.DR / DATE OF HEARING : 24/06/2019 / DATE OF PRONOUNCEMENT : 03/07/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2008-09 CONTEST FINAL ASSESSME NT ORDER DATED 28/09/2012 PASSED BY LD. ADDL. CIT, RANGE-16(3), MU MBAI U/S.143(3) R.W.S.144C (13) PURSUANT TO THE DIRECTIONS OF LD. D ISPUTE RESOLUTION ITA NO.7103 /MUM/2012 M/S JASANI ASSESSMENT YEAR: 2008-09 2 PANEL-II, MUMBAI [DRP] DATED 31/07/2012. ALTHOUGH T HE ASSESSEE HAS RAISED AS MANY AS 10 GROUNDS OF APPEAL, HOWEVER, LD . AUTHORIZED REPRESENTATIVE FOR ASSESSEE, AT THE TIME OF HEARING , SUBMITTED THAT THE ASSESSEE IS NOT CONTESTING GROUND NOS.1,4,5,7 & 8. ACCORDINGLY, ALL THESE GROUNDS ARE TREATED AS NOT PRESSED. THE REMAINING GROUND AS AGITATED BEFORE US, READS AS UNDER: - THE ADDITIONAL COMMISSIONER OF INCOME TAX - RANGE 16(3) MUMBAI, BASED ON THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL/ ERRED: - 1. NOT PRESSED 2. IN COMPUTING ADJUSTMENT ARISING OUT OF ARMS LENG TH PRICING ON THE ENTIRE TURNOVER OF THE ASSESSEE INSTEAD OF RESTRICTING THE SAME TO THE INT ERNATIONAL TRANSACTIONS WITH THE ASSOCIATE ENTERPRISE. 3. IN COMPUTING THE ADJUSTMENT ARISING OUT OF ARM S LENGTH PRICE BY NOT PROPERLY APPLYING THE PRINCIPLES OF SAFE HARBOR LIMITS I.E. +/- 5% OF THE VALUE OF INTERNATIONAL TRANSACTION 4. NOT PRESSED 5. NOT PRESSED 6. IN MAKING THE SAID ADDITION BY WRONGLY EXCLUD ING SUASHISH DIAMONDS LIMITED AND FLAWLESS DIAMONDS LIMITED AS COMPARABLES 7. NOT PRESSED 8. NOT PRESSED 9. IN DISALLOWING EXPENDITURE ON COMPUTER SOFTWA RE WITHOUT CORRECTLY APPRECIATING THE NATURE OF THE SAID PAYMENTS. 10. IN DISALLOWING DEPRECIATION ON LAPTOP PURCHASE D WITHOUT ADEQUATELY APPRECIATING THE CIRCUMSTANCES AND FACTS OF THE CASE. 2.1 THE RELEVANT FACTS ARE THAT THE ASSESSEE BEING RESIDENT FIRM WAS STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF ROUGH AND POLISHED DIAMONDS. IT REFLECTED TURNOVER OF RS.443. 71 CRORES INCLUDING SALES TO ITS SOLE ASSOCIATED ENTERPRISE [AE] NAMELY M/S INDIGEMS NV, BELGIUM FOR RS.62.30 CRORES. 2.2 THE INTERNATIONAL TRANSACTIONS AS REPORTED BY T HE ASSESSEE IN FORM NO. 3CEB WERE REFERRED FOR DETERMINATION OF ARMS L ENGTH PRICE [ALP] TO LD. TPO. DURING PROCEEDINGS BEFORE LD. TPO, THE TRA NSACTIONS OF SALE & PURCHASE OF ROUGH AND POLISHED DIAMONDS WERE BENCHM ARKED ON AGGREGATE BASIS USING ENTITY-LEVEL TRANSACTIONAL NE T MARGIN METHOD ITA NO.7103 /MUM/2012 M/S JASANI ASSESSMENT YEAR: 2008-09 3 [TNMM], PROFIT LEVEL INDICATOR [PLI] BEING OPERATIN G PROFIT / TOTAL COST, THE ASSESSEE BEING THE TESTED PARTY. THE MEAN PLI O F 6 COMPARABLE ENTITIES WAS WORKED OUT BY THE ASSESSEE TO BE 3.36% AS AGAINST ASSESSEES 4.80% AND THEREFORE, THE TRANSACTIONS WE RE SUBMITTED TO BE AT ARMS LENGTH PRICE. 2.3 HOWEVER, REJECTING 4 COMPARABLE AS SELECTED BY THE ASSESSEE AND ADDING 2 NEW COMPARABLE, LD. TPO WORKED OUT MEAN PL I OF 4 ENTITIES TO BE 5.89% AS PITIED AGAINST ASSESSEES PLI OF 4.80%. ONE OF THE ENTITIES NAMELY M/S SUASHISH DIAMONDS LTD. AS SELECTED BY THE ASSESSEE, WAS REJECTED ON ACCOUNT OF RELATED PARTY TRANSACTIONS [RPT] OF MORE THAN 20%. 2.4 APPLYING THE PLI OF 5.89%, ALP SALES WERE COMPU TED BY LD. TPO TO BE RS.448.33 CRORES AS AGAINST RS.443.71 CRORES AS REFLECTED BY THE ASSESSEE. ACCORDINGLY, TP ADJUSTMENT OF RS.4.62 CRO RES WAS PROPOSED IN TPOS ORDER U/S 92CA (3) DATED 14/10/2011 WHICH WAS INCORPORATED IN DRAFT ASSESSMENT ORDER DATED 12/12/2011. AS PER THE FINDING OF LD. TPO, THE ALP OF THE INTERNATIONAL TRANSACTIONS WAS OUTSI DE TOLERANCE RANGE OF + 5%. 3. THE ASSESSEE RAISED OBJECTIONS AGAINST THE SAME BEFORE LD. DRP, INTER-ALIA, BY DISPUTING THE COMPUTATION OF CORRECT PLI. HOWEVE R, IN THE ABSENCE OF SUFFICIENT DOCUMENTARY EVIDENCES, THE SA ME COULD NOT FIND FAVOR WITH LD. DRP WHO UPHELD THE STAND OF LD. TPO. ACCORDINGLY, FINAL ASSESSMENT ORDER WAS PASSED ON 28/09/2012, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4.1 THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], SHRI APURVA R. SHAH, AT THE OUTSET, PLEADED THAT THE ENTITY NAM ELY M/S SUASHISH ITA NO.7103 /MUM/2012 M/S JASANI ASSESSMENT YEAR: 2008-09 4 DIAMONDS LTD. HAS WRONGLY BEEN EXCLUDED ON RPT FILTER SINCE THE RELATED PARTY TRANSACTIONS OF THIS PARTY DO NOT EXC EED THE THRESHOLD OF 20%. IN SUPPORT, RPT COMPUTATIONS OF THE SAID ENTIT Y HAS BEEN PLACED ON RECORD. THE LD. AR ALSO SUBMITTED THAT IF THIS E NTITY IS INCLUDED IN THE FINAL LIST OF COMPARABLE, THE ALP WOULD BE WITHIN T HE TOLERANCE RANGE OF + 5%. THE LD. AR MADE FURTHER SUBMISSIONS THAT ADJUST MENT HAS BEEN PROPOSED ON THE ENTIRE TURNOVER OF THE ASSESSEE INS TEAD OF RESTRICTING THE SAME TO THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH ITS AE. RELIANCE HAS BEEN PLACED ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08, ITA NO.7876/MUM /2011 ORDER DATED 07/11/2012. IT HAS ALSO BEEN SUBMITTED THAT T HE ASSESSEE IS NOT CONTESTING COMPARABLE NAMELY M/S FLAWLESS DIAMONDS LIMITED AS RAISED IN GROUND NO.6. IN THE AFORESAID BACKGROUND, LD. AR PLEADED FOR RESTORATION OF MATTER BACK TO THE FILE OF LD. TPO/ LD. AO. 4.2 THE LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI V.K. AGARWAL, ON THE OTHER HAND, SUBMITTED THAT COMPUTATIONS SUBMITT ED BY THE ASSESSEE, WOULD REQUIRE REAPPRECIATION BY LOWER AUTHORITIES. 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ENTIT Y NAMELY M/S SUASHISH DIAMONDS LTD. HAS BEEN EXCLUDED ON ACCOUNT OF RPT FILTER. HOWEVER , KEEPING IN VIEW THE SUBMISSIONS MADE BY LD. AR THAT THIS ENTITY HAS NOT CROSSED RPT FILTER, WE DEEM IT FIT TO RESTORE THE M ATTER BACK TO THE FILE OF LD. TPO / LD. AO TO CONSIDER THE RPT COMPUTATIONS A S SUBMITTED BY LD. AR BEFORE US. IF THE SAID COMPARABLE DO NOT CROSS R PT THRESHOLD AS SUGGESTED BY LD. AR, THE SAID ENTITY SHALL BE INCLU DED IN THE FINAL LIST OF COMPARABLE. GROUND NO. 6 STAND PARTLY ALLOWED FOR S TATISTICAL PURPOSES. ITA NO.7103 /MUM/2012 M/S JASANI ASSESSMENT YEAR: 2008-09 5 6. SO FAR AS GROUND NO.2 & 3 ARE CONCERNED, WE FIND THAT BOTH THESE GROUNDS ARE COVERED BY THE DECISION OF THIS TRIBUNA L IN ASSESSEES OWN CASE FOR AY 2007-08, ITA NO. 7876/MUM/2011 ORDER DA TED 07/11/2012. IN THE AFORESAID DECISION, THE CO-ORDINATE BENCH, I N PARA 13, HAS HELD THAT ALP HAS TO BE APPLIED ONLY IN RELATION TO INTE RNATIONAL TRANSACTIONS AND NOT IN RELATION TO ASSESSEES ENTIRE SALES / TU RNOVER. THE BENCH, AT PARA 11, HAS ALSO ENUMERATED THE MODE OF COMPUTATIO N OF THE TOLERANCE RANGE OF + 5%. TAKING A CONSISTENT VIEW, WE DIRECT THE LOWER A UTHORITIES TO RE-COMPUTE THE TP ADJUSTMENT, IF ANY, IN THE LIG HT OF FINDINGS OF TRIBUNAL IN AY 2007-08. BOTH THESE GROUNDS STAND AL LOWED FOR STATISTICAL PURPOSES. 7. GROUND NO. 9 IS RELATED WITH EXPENDITURE ON COMP UTER SOFTWARE. IT TRANSPIRED THAT THE ASSESSEE INCURRED EXPENDITURE O N SOFTWARE CONSULTANCY AMOUNTING TO RS.13.37 LACS. IN AY 2007- 08, SIMILAR PAYMENTS MADE BY ASSESSEE WERE FOUND TO BE IN THE N ATURE OF DEVELOPMENT AND UPGRADATION OF SOFTWARE AND THEREFO RE, NOT HELD TO BE ALLOWABLE AS REVENUE EXPENDITURE. SIMILAR VIEW WAS TAKEN BY LD. AO IN THIS YEAR. THE LD. DRP DIRECTED LD. AO TO VERIFY TH E BILLS / VOUCHERS AND ALLOW THOSE EXPENDITURE AS REVENUE EXPENDITURE WHIC H WERE IN THE NATURE OF AMC / MAINTENANCE AND TREAT THE BALANCE T O BE CAPITAL IN NATURE, ON WHICH DEPRECIATION WOULD BE ALLOWABLE TO THE ASSESSEE. SINCE THE ASSESSEE COULD NOT FILE REQUISITE EVIDENCES, LD . AO ALLOWED RS.6.01 LACS AS REVENUE EXPENDITURE AND DISALLOWED THE BALA NCE AMOUNT OF RS.7.35 LACS. THE DEPRECIATION @60% WAS ALLOWED ON OPENING WDV OF ITA NO.7103 /MUM/2012 M/S JASANI ASSESSMENT YEAR: 2008-09 6 SUCH EXPENDITURE. WE FIND THAT THIS GROUND HAS BEEN ADJUDICATED BY THE TRIBUNAL IN AY 2007-08 IN THE FOLLOWING MANNER: - AFTER HAVING CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS OF THE PARTIES AND THE FINDINGS OF THE DRP, WE FIND THAT INSOFAR AS THE DI RECTIONS ON ACCOUNT OF AMC FOR MAINTENANCE OF SOFTWARE GIVEN BY THE DRP IS CONCERN ED, THE SAME APPEARS TO BE VERY REASONABLE AND NO INTERFERENCE IS CALLED FOR. HOWEVER, WITH REGARD TO OTHER EXPENDITURE, THE ASSESSING OFFICER IS DIRECTED TO V ERIFY THIS CONTENTION OF THE ASSESSEE, IN THE LIGHT OF THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL, DELHI RENDERED IN AMWAY INDIA ENTERPRISES V/S DCIT (2008) 111 ITD 112 (DEL.). THUS, THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. KEEPING IN VIEW THE SAME, THE ISSUE OF DISALLOWANCE OF RS.7.35 LACS STAND REMITTED BACK TO LD. AO FOR ADJUDICATION ON S IMILAR LINES. THIS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES. 8. THE LAST GROUND IS RELATED WITH DEPRECIATION ON SONY VIAO LAPTOP STATED TO BE PURCHASED FOR RS.91,388/- . THE ASSESSEE COULD NOT FURNISH ANY BILL / VOUCHER IN SUPPORT OF THE SAME AND ONLY FILED CREDIT CARD STATEMENT SHOWING THE PAYMENT OF THE SAME. ACCORDIN GLY, DEPRECIATION OF RS.0.54 LACS CLAIMED AGAINST THE SAME WAS DISALL OWED. THE LD. DRP CONFIRMED THE SAME SINCE THE ASSESSEE FAILED TO FIL E REQUISITE DOCUMENTARY EVIDENCES. WE FIND THAT THIS GROUND WOU LD REQUIRE NO INDULGENCE ON OUR PART SINCE THE ASSESSEE COULD NOT DISCHARGE THE ONUS TO SUBSTANTIATE THE EXPENDITURE AND SECONDLY, THIS ISSUE STOOD COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL FOR A Y 2007-08. GROUND NO. 10 STANDS DISMISSED. 9. THE APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD JULY, 2019. SD/- SD/- (PAWAN SINGH) (MAN OJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ITA NO.7103 /MUM/2012 M/S JASANI ASSESSMENT YEAR: 2008-09 7 MUMBAI; DATED : 03/07/2019 SR.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. * ( ) / THE CIT(A) 4. * / CIT CONCERNED 5. + , '%- , - , / DR, ITAT, MUMBAI 6. , ./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.