FUGRO SURVEY INDIA P.LTD, NAVI MUMBAI V. ADDL CIT 10(3), MUMBAI

ITA 7694/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4964 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 22-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 43B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , / !' , # $ % BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 7694/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 FUGRO SURVEY INDIA PRIVATE LIMITED, PLOT NO.D-222/30, TTC INDUSTRIAL AREA, MIDC, NERUL, NAVI MUMBAI 400706 / VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX 10(3), MUMBAI. ( # ./ )* ./ PAN/GIR NO. : AAACF 5243R ( (+ / APPELLANT ) .. ( ,-(+ / RESPONDENT ) APPELLANT BY MS. AARTI VISSANJI & SHRI SHALIN S.DIVATIA RESPONDENT BY : SHRI AJIT KUMAR JAIN . /# / DATE OF HEARING : 22/08/2013 01' . /# / DATE OF PRONOUNCEMENT : 22/08/2013 2 / O R D E R PER I.P.BANSAL, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS D IRECTED AGAINST THE ORDER OF LD. CIT(A)15, MUMBAI DATED 19/08/2011 FOR ASSESSMEN T YEAR 2007-08. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE LEARNED CIT (A)-15 ERRED IN TREATING THE AMO UNT OF RS. 19,75,868/- BEING THE SERVICE TAX CHARGED ON INVOICES RAISED ON CUSTO MERS AS TRADING RECEIPT FORMING . / ITA NO. 7694/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 2 PART OF THE INCOME OF THE APPELLANT AND CONSEQUENTL Y MAKING AN ADDITION OF THE AFORESAID AMOUNT TO THE TOTAL INCOME OF THE APPELLA NT. 2. THE LEARNED CIT(A)- 15 ERRED IN CONFIRMING THE A DDITION OF RS.21,73,468/- MADE BY THE ASSESSING OFFICER PURSUANT TO THE ORDER OF THE TRANSFER PRICING OFFICER U/S 92CA(3) OF THE INCOME TAX ACT, 1961. 2. APROPOS GROUND NO.1, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING OFFSHORE AND ONSHORE SURVEY, NAVIGATIONAL SERVICES DATA PROCESSING AND SURVEY VESSEL CHARTER. THESE SERVICES ARE LIAB LE FOR SERVICE TAX. THE SERVICE TAX IS PAID BY THE ASSESSEE COMPANY AS AND WHEN THE INVOICE IS COLLECTED FROM THE CUSTOMERS AS PER RULE 6(1)(I) OF THE SERVICE TA X RULES, 1994. AS ON 31/3/2007 THE AMOUNT OUTSTANDING TO THE CREDIT OF SERVICE TAX ON THE LIABILITY SIDE OF BALANCE SHEET WAS A SUM OF RS.5,21,80,109/- , WHICH WAS RECEIVABLE FROM THE CUSTOMERS. OUT OF SUCH TOTAL SERVICE TAX LIABILITY AN AMOUNT AGGREGATING TO RS.5,02,04,240/- WAS COLLECTED AND P AID BEFORE THE DUE DATE OF FILING THE RETURN I.E. 30/11/2007. THE BALANCE AM OUNT OF RS.19,75,868/- WAS NOT PAID AS THE SAME DID NOT BECOME PAYABLE AS PER AFOREMENTIONED RULE OF SERVICE TAX AS THE DEBT AMOUNT INCLUDING SERVICE TA X WAS NOT RECEIVED BY THE ASSESSEE. THE AO INVOKED THE PROVISIONS OF SECTION 43B OF THE ACT AND AN ADDITION OF RS.19,75,868/- IS MADE ON ACCOUNT OF UN PAID SERVICE TAX. 3. AS AGAINST SUCH ADDITION IT IS CASE OF THE ASSES SEE THAT LIABILITY TO PAY THE AFOREMENTIONED AMOUNT DID NOT ARISE DURING THE ASSE SSMENT YEAR 2007-08, THEREFORE, DISALLOWANCE COULD NOT BE MADE UNDER SEC TION 43B. SIMILAR SUBMISSIONS WERE MADE BEFORE LD. CIT(A), WHO HAS UP HELD THE DISALLOWANCE. 4. AFTER NARRATING THE FACTS, IT WAS THE CASE OF LD . AR THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, MUMBAI IN THE CASE OF PHARMA SEARCH VS. ACIT (2013) 82 DTR (MUM)(TRIB) 30 3, WHEREIN IT HAS BEEN HELD THAT AO WAS NOT RIGHT IN ADDING SERVICE TAX TO THE GROSS RECEIPTS AS THE AMOUNT OF FEE WAS NOT RECEIVED TILL THE END OF THE YEAR; SERVICE TAX CANNOT BE . / ITA NO. 7694/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 3 SAID TO BE PAYABLE, THEREFORE, PROVISIONS OF SECT ION 43B ALSO COULD NOT BE INVOKED. COPY OF THIS ORDER WAS GIVEN TO LD. DR. 5. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. T HE ABOVE MENTIONED FACTS ARE NOT CONTROVERTED BY THE REVENUE, THEREFORE, THE DECISION RENDERED IN THE CASE OF PHARMA SEARCH(SUPRA) WILL BE EQUALLY APPLIC ABLE TO THE PRESENT CASE. ACCORDINGLY, WE HOLD THAT AS THE AMOUNT ON WHICH S ERVICE TAX IS PAYABLE WAS NOT RECEIVED BY THE ASSESSEE TILL THE END OF THE YE AR, SERVICE TAX CANNOT BE SAID TO BE PAYABLE, THEREFORE, PROVISIONS OF SECTION 43B COULD NOT BE INVOKED. ACCORDINGLY, WE DELETE THE ADDITION AND THIS GROUND OF THE ASSESSEE IS ALLOWED. 6. APROPOS GROUND NO.2, IT WAS THE COMMON CONTENTI ON OF BOTH THE PARTIES THAT THIS ISSUE IS REQUIRED TO BE RESTORED BACK TO THE FILE OF AO AS PER THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 2005-06. REFERENCE WAS MADE TO THE ORDER DATED 23/01/2013 RE NDERED IN ITA NO.5847/MUM/2010. COPY OF SUCH ORDER WAS PLACED ON OUR RECORD AND A COPY WAS GIVEN TO LD. DR AND REFERENCE WAS MADE TO THE F OLLOWING OBSERVATIONS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITI ON ON ACCOUNT OF BUSINESS CONDITION OF TWELVE COMPANIES UPON WHICH T PO RELIED AND IN HOLDING THAT THE SAID COMPANIES ARE NOT COMPARAB LE WITH THE ASSESSEE COMPANY, WHICH IS IN ITS FIRST YEAR AND SU PPORTED BY THE AE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ADD ITION ONLY TO AN AMOUNT OF RS. 94,766/- OUT OF THE TOTAL ADDITIONS O F RS. 49,87,060/- ON THE GROUND THAT THE ASSESSEE HAS REFLECTED A SUB STANTIAL MARGIN. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE FACTS AS NARRATED BY THE DR ARE THAT THE ASS ESSEE IS IN THE BUSINESS OF PROVIDING BPO SERVICES TO ITS PARENT, H AVING ITS HEADQUARTERS IN NETHERLANDS. SINCE THE ASSESSEE HAS BEEN PROVIDING SPECIALIZED SERVICES TO ITS PARENT, CERTA IN INTERNATIONAL TRANSACTION EMANATED, WHICH WERE ENTERED BY THE ASS ESSEE WITH ITS PARENT AE. ACCORDINGLY, THE AO MADE REFERENCE U/S 92CA(1) TO TPO . / ITA NO. 7694/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 4 FOR DETERMINING THE ALP IN RESPECT OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE. 3. THE DR POINTED OUT THAT TILL DECEMBER 2004, THE ASSESSEE WAS ALLOWED COST PLUS 7.5% MARK UP BY ITS PARENT AE, WH ICH WAS LATER ON REVISED TO COST PLUS 15% FROM JANUARY TO MARCH 2 005, RELEVANT FOR THE CURRENT FINANCIAL YEAR. 4. IT HAS BEEN ACCEPTED BY BOTH THE PARTIES BEFORE US, THAT NO PARTICULAR METHOD HAS BEEN APPLIED FOR COMPUTING TH E ALP. ON THE QUERY BY THE BENCH, IT WAS INFORMED BY THE DR AND A CCEPTED BY THE AR THAT NO TP STUDY WAS SUBMITTED BEFORE THE TPO, W HICH WOULD ACCORD THE ASSESSEE TO BENCHMARK ITS ALP. 5. AT THIS STAGE, IT HAS BEEN ARGUED BY THE AR THAT NEITHER TP STUDY COULD BE MADE AVAILABLE NOR ANY COMPARABLE COULD BE ASCERTAINED TO BENCHMARK ITS ALP, BECAUSE THE ASSESSEE WAS THE ONLY AND THE FIRST COMPANY WHO IS RENDERING THIS PARTICULAR TYPE OF SERVICE, WHICH IS BEING DONE AT THE COST, SUPERVISION, RISK AND RE VIEW OF ITS PARENT AE. THE AR PLEADED THAT AS THERE WAS NO OTHER COMP ANY DOING THE TYPE OF DATE PROCESSING, AS WAS BEING DONE BY THE A SSESSEE, IT WAS NOT POSSIBLE FOR CREATING ANY SORT OF BENCHMARK. 6. THE AR STRENUOUSLY ARGUED THAT THE COMPARABLES P ROVIDED BY THE TPO PERTAINED TO ENTIRELY DIFFERENT FIELDS OF BUSIN ESS. THE AR FINALLY SUBMITTED THAT THE VARIATION BETWEEN THE PRICE AT W HICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO AND ALP WOULD IN ANY CASE BE LESS THEN 5% OF INTERNATIONAL TRANSACTI ON PRICE. 7. HAVING HEARD THE ARGUMENTS AT LENGTH, AT THE OUTSET, THE ASSESSEE HAS NOT CROSSED THE FIRST BARRIER AS PER SECTION 92C(1) AND (2), WHEREIN ALP HAS TO BE DETERMINED FOLLOWING ANY ONE OF THE PRESCRIBED METHODS AND THEN APPLYING THE MOST APPROPRIATE METH OD TO DETERMINE THE ALP. THIS BARRIER HAVING NOT BEEN CR OSSED BY THE ASSESSEE, ALP, AS SUCH CANNOT BE DETERMINED OR IN E XTREME CIRCUMSTANCE, THE ADJUSTMENT AS ARRIVED BY THE TPO SHALL HAVE TO BE ACCEPTED. 8. IN THE INSTANT CASE, THE AR HAD REPEATEDLY PRESS ED THE POINT THAT THERE WERE NO COMPARABLE AVAILABLE DOMESTICALLY. WE ARE UNABLE TO ACCEPT THIS ARGUMENT BECAUSE THE TYPE OF WORK BEING PERFORMED BY THE ASSESSEE COMPANY WAS BEING CARRIED OUT, EVEN TH OUGH NOT AS COMMERCIAL ENTERPRISE, BUT ON ORGANIZATIONAL LEVEL, HENCE, IN OUR OPINION, THE DATA CAN BE PROCURED. 9. IN THESE CIRCUMSTANCES, WE RESTORE THE ISSUE BAC K TO THE FILE OF THE AO, WHO SHALL PROCURE THE METHOD FOR BENCH MARKING THE ALP AND ARRIVE AT THE MOST APPROPRIATE METHOD TO BE APPLIED , NEEDLESS TO SAY THAT ADEQUATE OPPORTUNITY BE GIVEN TO THE ASSES SEE TO PRESENT ITS CASE ON THE METHOD TO BE ADOPTED BY IT. . / ITA NO. 7694/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2007-08 5 10. THE GROUND IS ALLOWED FOR STATISTICAL PURPOS ES ACCORDINGLY, AFTER HEARING BOTH THE PARTIES WE REST ORE THIS ISSUE TO THE FILE OF AO WITH THE SIMILAR DIRECTIONS AS ARE GIVEN IN RESP ECT OF ASSESSMENT YEAR 2005- 06 BY THE AFOREMENTIONED ORDER OF THE TRIBUNAL. FO R STATISTICAL PURPOSES THIS GROUND IS ALLOWED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS C ONSIDERED AS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 22/08/2013 2 . 01' # 3 45 22 /08/2013 1 . 6 % SD/- SD/ - ( !' / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) # / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 4 DATED 22 /08/2013 2 2 2 2 . .. . ,/78 ,/78 ,/78 ,/78 98'/ 98'/ 98'/ 98'/ / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. 8;6 ,/ , , / DR, ITAT, MUMBAI 6. 6< = / GUARD FILE. 2 2 2 2 / BY ORDER, -8/ ,/ //TRUE COPY// > >> > / ? ? ? ? ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS