ACIT, Jaipur V. SUPREME TRADELINKS PVT. LIMITED, Jaipur

ITA 726/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5018 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 29-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: RAJEEV SOGANI C A DHK
• Keywords: Transfer pricing; International transaction

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 726/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6, JAIPUR. CUKE VS. M/S. SUPREME TRADELINKS PVT. LTD. 1 ST FLOOR, ANAND BHAWAN, SANSAR CHANDRA ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAGCS 0373 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SMT. PRATIMA KAUSHIK (CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05.10.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 18/10/2016. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL BY THE REVENUE IS FILED AGAINST THE OR DER OF LD. CIT (A)-5, JAIPUR DATED 13.05.2012 PERTAINING TO ASSESSMENT YEAR 2009 -10. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) WAS JUSTIFIED IN REJECTING THE TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD FO R DETERMINING THE ARMS LENGTH PRICE AS REPORTED BY T PO. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) WAS JUSTIFIED IN DELETING THE A DDITION OF RS. 8,30,04,000/- MADE BY AO ON ACCOUNT OF APPLICATION OF TRANSACTIONAL NET MARGIN METHOD IN DETERMINING ARM S LENGTH PRICE. 2 ITA NO. 726/JP/2016 SUPREME TRADELINKS P. LTD. 2. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT UNDER SECTION 14 3(3) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VID E ORDER DATED 08.03.2013. WHILE FRAMING THE ASSESSMENT, THE AO MADE ADJUSTMENT TO A RMS LENGTH PRICE BY OBSERVING THAT LOOKING AT THE NATURE OF INTERNATION AL TRANSACTIONS, TRANSACTIONAL NET MARGIN METHOD (TNMM) IS THE MOST APPROPRIATE METHOD TO COMPUTE ARMS LENGTH PRICE IN THIS CASE. FURTHER, AS PER THE PROVISIONS OF SECTION 92CA(4), THE AO HAS TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE IN CONFORM ITY WITH THE ALP SO DETERMINED BY THE TRANSFER PRICING OFFICER. HE OBSERVED THAT TRANSFER PRICING OFFICER (IN SHORT TPO) HAS CONSIDERED THAT THE ARMS LENGTH PRICE FOR IMPORT OF GOODS COMES TO RS. 1982.74 LACS INSTEAD OF RS. 2812.78 LACS. THE DIFFE RENCE ACCORDINGLY, IS ADDED TO THE RETURNED INCOME OF THE ASSESSEE. THE ASSESSEE AGGR IEVED BY THIS ORDER, PREFERRED AN APPEAL BEFORE LD. CIT (A), WHO AFTER CONSIDERING THE SUBMISSIONS AND FOLLOWING THE JUDGMENT OF COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 857/JP/2009 DELETED THE ADDITION. 3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. THE ONLY EFFECTIVE GROUND OF THE REVENUE IS AGAI NST DELETING THE ADDITION OF RS. 8,30,04,000/- MADE BY THE AO ON ACCOUNT OF APPL ICATION OF TRANSACTIONAL NET MARGIN METHOD IN DETERMINING ARMS LENGTH PRICE. 4.1. THE LD. CIT D/R SUPPORTED THE ORDER OF THE AO. HOWEVER, SHE FAIRLY CONCEDED THAT THE ISSUE HAS BEEN DECIDED AGAINST THE REVENUE BY COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 857/ JP/2009. 3 ITA NO. 726/JP/2016 SUPREME TRADELINKS P. LTD. 4.2. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSES SEE HAS SUPPORTED THE ORDER OF LD. CIT (A). 4.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE ONLY BASIS FOR FILING THE PRESENT APPE AL IS AS PER THE SCRUTINY REPORT, THE ORDER OF THE COORDINATE BENCH HAS BEEN CHANGED BEFO RE THE HONBLE JURISDICTIONAL HIGH COURT. WE FIND THAT THE LD. CIT (A) HAS DECID ED THE ISSUE IN PARA 2.3 OF HIS ORDER AS UNDER :- 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ISSUE REG ARDING MOST APPROPRIATE METHOD (MAM) TO BE ADOPTED IN THE APPEL LANTS CASE HAS BEEN DECIDED IN THE APPELLANTS CASE BY ITAT, JAIPU R BENCH FOR A.Y. 2005-06 IN ITA NO. 857/JP/2009 VIDE ORDER DATED 26. 11.2010 HOLDING THAT RESALE PRICE METHOD (RPM) AS ADOPTED BY THE AP PELLANT IS THE MAM IN CASES LIKE THAT OF THE APPELLANT WHERE ONLY DISTRIBUTION OF FINISHED PRODUCTS IS INVOLVED, WHICH DOES NOT CONTA IN ANY VALUE ADDITION. THE RELEVANT EXTRACT OF THE ORDER IS AS F OLLOWS :- AS THE GROSS PROFIT MARGIN OF THE ASSESSEE (46.33 %) WAS BETTER THAN THE AVERAGE GROSS PROFIT MARGIN OF COMP ARABLES (38.42%), IT IS HELD THAT THE INTERNATIONAL TRANSAC TIONS OF THE ASSESSEE WITH IT ASSOCIATED ENTERPRISES VIZ MARKS A ND SPENCER PLC. UK WERE AT ARMS LENGTH PRICE AND NO ADDITION WAS REQUIRED TO BE MADE IN THE ASSESSEES CASE. ACCORDINGLY, WE CONFIRM THE ORDER PASSED BY THE CIT (A) DELETING THE ADDITION O F RS. 63,27,789/-. THE LD. CIT (A) HAS ALSO TAKEN INTO CONSIDERATION T HAT EVEN IF TNM METHOD IS APPLIED THEN ALSO NO ADDITION CAN BE MADE. WORKING OF THE ADJUSTMENTS ON THE BASIS OF TNM METH OD IS ALSO GIVEN BY WHICH AS ADDITION COMES TO ONLY RS. 13,27, 977/- WHICH IS ABOUT 1.22% OF THE PROFIT SHOWN BY ASSESSEE. THI S DIFFERENCE IS LESS THAN 5% AS PRESCRIBED IN PROVISO TO SECTION 92C(2) OF THE ACT BY WHICH IT HAS BEEN PROVIDED THAT IF THE DIFFE RENCE IS LESS THAN 5% THEN NO ADJUSTMENT CAN BE MADE. THEREFORE, THE CONTENTION OF THE DEPARTMENT THAT TNM METHOD IS MOS T APPROPRIATE EVEN THEN NO ADDITION IS WARRANTED. NOT HING HAS BEEN STATED BY LD. D/R THAT NO THESE FINDINGS OF LD . CIT (A) ARE NOT CORRECT. WITHOUT BRINGING ANY MATERIAL THE FIN DING OF LD. CIT (A) SHOULD NOT BE AND CANNOT BE FAULTED. 4 ITA NO. 726/JP/2016 SUPREME TRADELINKS P. LTD. THE LD. D/R HAS MENTIONED THAT SOME OF THE EXPENSES SHOULD BE EXCLUDED WHILE MAKING ARMS LENGTH PRICE ADJUSTMENT . HOWEVER, ON SPECIFIC QUERY FROM THE BENCH, THE LD. D/R COULD NOT POINT OUT THAT WHICH EXPENSES ARE LIABLE TO BE EXCLUDED. BY MERELY SAYING THAT THE ASSESSEES CASE CANNOT BE COMPARED WITH THE BIG COMPANY LIKE SHOPPERS STOP WHICH HAS BIG INFRAS TRUCTURE AND THEY WANT TO BUILD UP THEIR REPUTATION AND THER EFORE EXPENSES INCURRED BY ASSESSEE WHICH IS A SMALL IN N ATURE AS COMPARED TO BIG COMPANY SHOULD BE EXCLUDED. IN OUR CONSIDERED VIEW THIS SUBMISSION OF LD. D/R ARE WITH OUT ANY BASIS AND CANNOT BE ACCEPTED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES WE HOLD THAT LD. CIT (A) WAS JUSTIFIE D IN HOLDING THAT RPM METHOD IS MOST APPROPRIATE METHOD APPLIED BY ASSESSEE, ACCORDINGLY WE CONFIRM HIS ORDER. THE REVENUE HAS NOT CONTROVERTED THE FINDING OF LD. CIT (A) BY BRINGING ANY CONTRARY MATERIAL ON RECORD. HOWEVER, THE LD. COUNSEL FOR TH E ASSESSEE HAS ALSO FILED WRITTEN SYNOPSIS. IN PARA 3, THE ASSESSEE HAS SUBMITTED AS UNDER :- 3.1. THE ASSESSEES CASE IS SQUARELY COVERED BY DECISION OF THE HONBLE ITAT JAIPUR BENCH IN ASSESSEES OWN CASE FOR AY 2005-06 IN ITA 857/JP/2009 [CASE LAW PG 1-46] , ORDER DATED 26 TH NOVEMBER 2010 , WHEREIN EXACTLY THE SAME ISSUE WAS DECIDED BY THE HONBLE ITAT, DISMISSING DEPARTMENTA L APPEAL AND HOLDING THAT WHERE GOODS ARE RESOLD WITHOUT ANY VALUE ADDITION RPM IS THE MOST APPROPRIATE METHOD. 3.2. AS PER GUIDELINES ISSUED BY OECD AND ICAI, RES ALE PRICE METHOD IS THE MOST APPROPRIATE METHOD WHERE GOODS A RE RESOLD WITHOUT ANY SIGNIFICANT VALUE ADDITION. 3.3. RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: LOREAL INDIA (P) LTD. [2015] 276 CTR 484 (BOMBAY) [CASE LAW PG 47-49] THE HIGH COURT VIDE ITS ORDER DATED 7 TH NOVEMBER 2014 UPHELD THE TRIBUNALS ORDER (LOREAL INDIA (P) LTD, ITA 5423/MUM/2009 ), 5 ITA NO. 726/JP/2016 SUPREME TRADELINKS P. LTD. WHEREIN TRIBUNAL HAS NOTED IN PARA 19 OF THE ORDER THAT RPM IS ONE OF THE STANDARD METHOD AND THE OECD GUIDELINES STATE IN CASE OF DISTRIBUTION OR MARKETING ACTIVITIES WHEN T HE GOODS ARE PURCHASED FROM ASSOCIATED ENTITIES AND THERE ARE SA LES EFFECTED TO UNRELATED PARTIES WITHOUT ANY FURTHER PROCESSING THEN RPM CAN BE ADOPTED. [ CASE LAW PG 49] M/S LUXOTTICA INDIA EYEWEAR (P) LTD [ITA NO. 1115/DEL-TRIB/2014 AND 617/DEL-TRIB/2014] [CASE LAW PG 50-66] TEXTRONIC INDIA PVT.LTD. VS. DCIT (ITA NO. 1334/BA NG/2010), IT IS HELD AS FOLLOWS: 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE DISP UTE IS WITH REGARD TO THE ALP IN RESPECT OF INTERNATIONAL TRANS ACTIONS WHEREBY THE ASSESSEE IMPORTS EQUIPMENT FROM ITS AE AND RESE LLS THEM WITHOUT ANY VALUE ADDITION TO THE INDIAN CUSTOMERS. IN SIMILAR CIRCUMSTANCES, MUMBIA BENCH OF THE TRIBUNAL IN THE CASE OF L'OREAL INDIA PVT.LTD. (SUPRA) HAS TAKEN THE VIEW T HAT THE RPM WOULD BE THE MOST APPROPRIATE METHOD FOR DETERMININ G THE ALP. THE MUMBAI BENCH OF TRIBUNAL IN THIS REGARD, HAS RE FERRED TO THE OECD GUIDELINES WHEREIN A VIEW HAS BEEN EXPRESSED T HAT RPM WOULD BE THE BEST METHOD WHEN A RE- SALE TAKES PLAC E WITHOUT ANY VALUE ADDITION TO A PRODUCT. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE TPO TO ADOPT RSPM AS THE MAM IN THIS CASE. [CASE LAW PG 59] RAYBAN SUN OPTICS INDIA LTD [2016] 179 TTJ 219 (DELHI - TRIB.) [CASE LAW PG 67-78] WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL. THE FIRST ISSUE IS DETERMINATION OF THE M OST APPROPRIATE METHOD, BEING EITHER THE TNMM OR RPM. THE INTERNATI ONAL TRANSACTION UNDER CONSIDERATION IS 'IMPORT OF FINIS HED GOODS' WHICH HAVE BEEN SOLD BY THE ASSESSEE IN INDIA AS SUCH, WI THOUT ANY VALUE ADDITION. THE TPO APPLIED THE RPM, WHICH HAS NOT BEEN DISTURBED BY THE LD. CIT(A) AND FURTHER THERE IS NO CHALLENGE TO IT BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE RPM IS QUITE A USEFUL METHOD WHERE THE GOODS PURCHASED BY THE INDI AN AE ARE SOLD WITHOUT DOING ANY VALUE ENHANCEMENT. WE, THERE FORE, 6 ITA NO. 726/JP/2016 SUPREME TRADELINKS P. LTD. APPROVE THE APPLICATION OF RPM AS THE MOST APPROPRI ATE METHOD. [CASE LAW PG 76] 3.4. TNMM METHOD IS A RESIDUARY METHOD AND IS TO BE APPLIED AS A LAST RESORT WHEN NO OTHER METHOD IS WORKABLE. MANY FACTORS MAY AFFECT NET PROFIT MARGINS BUT MAY HAVE NOTHING TO D O WITH TRANSFER PRICING. 3.5. DURING THE COURSE OF PROCEEDINGS BEFORE THE LD . TPO THE FACT OF HONBLE ITAT DECISION IN ASSESSEES OWN CASE HOLDIN G THE RPM METHOD BEING THE MOST APPROPRIATE METHOD WAS CONVEY ED. (TPO ORDER, PARA 1.4, PG 8) LD. TPO HAS NOT FOLLOWED THE ORDER OF THE HONBLE I TAT FOR THE SOLE REASON THAT THE SAID ORDER IS NOT ACCEPTED BY THE DEPARTMENT AND IT HAS PREFERRED FURTHER APPEAL BEFORE THE HON BLE HIGH COURT. (TPO ORDER PG 11). 3.6. IT WAS ALSO CONVEYED TO THE LD. TPO THAT AS PER GUI DELINES ISSUED BY OECD AND ICAI, RPM IS THE MOST APPROPRIATE METHOD WHERE GOODS ARE SOLD WITHOUT ANY SIGNIFICANT VALUE ADDITI ON. THIS PROPOSITION IS NOT DISPUTED BUT HAS ALSO NOT BEEN A CCEPTED BY THE LD. TPO BY MERELY OBSERVING THAT THE GUIDELINES ISS UED BY OECD AND ICAI ARE ONLY ADVISORY IN NATURE (TPO ORDER PG 11) . 3.7. IT IS SUBMITTED THAT EXCEPT THEORETICAL ASSERTIONS AND GENERALIZED OBSERVATIONS, NO OBJECTIVE FINDINGS HAVE BEEN GIVEN TO COME TO A REASONED CONCLUSION THAT ASSESSEES ADOPTION OF RPM FOR ITS INTERNATIONAL TRANSACTION WAS FACTUALLY AND OBJECTI VELY NOT CORRECT. 3.8. IT IS ALSO SUBMITTED THAT A METHOD ADOPTED BY THE A SSESSEE AS MOST APPROPRIATE METHOD TO JUSTIFY THE ARMS LENGTH PRICE OF ITS INTERNATIONAL TRANSACTIONS CANNOT BE LIGHTLY DISPLA CED AND SUBSTITUTED WITH ANOTHER METHOD WITHOUT POINTING OU T THE FALLACIES IN THE METHOD ADOPTED. RELIANCE IS PLACED ON THE FO LLOWING JUDICIAL PRONOUNCEMENTS: 7 ITA NO. 726/JP/2016 SUPREME TRADELINKS P. LTD. KAILASH JEWELS (P.) LTD. [2015] 59 TAXMANN.COM 473 (DELHI - TRIB.) [ CASE LAW PG 79-97 ] TNMM METHOD CAN ONLY BE APPLIED WHEN DIRECT AND TR ADITIONAL METHODS ARE INCAPABLE OF DETERMINING THE ARM'S LENG TH PRICE OF THE TRANSACTION. TNMM METHOD IS A PROFIT BASED METH OD WHICH MIGHT RESULT IN POSSIBILITY OF VITIATION OF RESULTS BY NUMBER OF FACTORS WHICH ARE NOT RELEVANT TO THE DETERMINATION OF PRICES AT WHICH INTERNATIONAL TRANSACTIONS ARE ENTERED INTO B Y THE ASSOCIATED ENTERPRISES. IT WOULD THUS FOLLOW THAT I N A SITUATION IN WHICH THE ASSESSEE HAS FOLLOWED ONE OF THE STANDARD METHODS OF DETERMINING ALP, SUCH A METHOD CANNOT BE DISCARDED IN PREFERENCE OVER TRANSACTIONAL PROFIT METHODS UNLESS THE REVENUE AUTHORITIES ARE ABLE TO DEMONSTRATE THE FALLACIES I N APPLICATION OF STANDARD METHODS. [CASE LAW PG 96]. PHILIPS SOFTWARE CENTRE (P.) LTD. [2008] 26 SOT 226 (BANG.) [CASE LAW PG 98-172] VERY CLEARLY, IN THE INSTANT CASE, THE TPO/ASSESSI NG OFFICER HAS NOT DISCHARGED THE ONUS OF PROVING THAT THE METHODO LOGY FOLLOWED BY THE ASSESSEE IS ERRONEOUS IN ANY MANNER, BEFORE REJECTING THE SAME. THE LEARNED COUNSEL SUBMITTED THAT TPO IS NOT JUSTIFIED IN CONSIDERING ANOTHER METHOD AS THE MOST APPROPRIATE METHOD, EVEN THOUGH THERE IS NO SHORTCOMING IN THE METHOD A DOPTED BY THE ASSESSEE IN THE TP STUDY. REFERENCE IN THIS CON NECTION CAN ALSO BE MADE TO THE DECISION OF THE DELHI TRIBUNAL IN CASE OF MENTOR GRAPHICS (NOKIA) (P.) LTD.(SUPRA). AT PARA 3 9.4 OF THE SAID ORDER, THE TRIBUNAL HAS OBSERVED AS FOLLOWS : 'THE TPO COULD HAVE CARRIED FRESH SEARCH ONLY OF TH E COMPARABLES DRAWN BY THE TAXPAYER WAS INSUFFICIENT OR HAD OTHER DEFICIENCY.' [CASE LAW PG 149] IN VIEW OF THE ABOVE, THE ORDER OF LD. CIT(A) IS FU LLY JUSTIFIED WHO HAS FOLLOWED THE JUDGMENT OF THE HONBLE ITAT IN ASSESS EES OWN CASE, THEREFORE DESERVES TO BE UPHELD BY DISMISSING THE D EPARTMENTAL APPEAL. THE REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING PR ECEDENT TO OUR NOTICE AND ALSO COULD NOT POINT OUT AS TO HOW THE COORDINATE BENCH DECISION IS NOT APPLICABLE ON THE 8 ITA NO. 726/JP/2016 SUPREME TRADELINKS P. LTD. FACTS OF THE PRESENT CASE. THEREFORE, TAKING A CON SISTENT VIEW, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT (A). TH E GROUND OF THE REVENUE IS DISMISSED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 18/10/2016 . SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 18/10/2016. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE-6, JAIPUR. 2. THE RESPONDENT- M/S. SUPREME TRADELINKS PVT. LTD ., JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 726/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR