OWENS CORNING (INDIA) P.LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 8522/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4071 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 22-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2011
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: J D MISTRY
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 92C; 115JB

Judgement Text

, , K, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.8522/MUM/2011 ASSESSMENT YEAR: 2007-08 OWE NS CORNING (INDIA) P. LTD. ALPHA BLDG, 7 TH FLOOR, HIRANANDANI GARDENS, POWAI MUMBAI-400076 / VS. DCIT CIR 7(1) MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AAACO1739M / ASSESSEE BY SHRI J.D. MISTRY & S HRI KETAN VED (AR) / REVENUE BY SHRI N.K. CHAND (DR) / DATE OF HEARING : 07/04/2016 / DATE OF ORDER: 22/04/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER DATED 21.10.2011 PASSED IN P URSUANCE TO THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION P ANEL (IN SHORT REFERRED TO AS DRP) VIDE ITS ORDER DATED 27 .09.2011, ON THE FOLLOWING GROUNDS: OWENS CORNING (INDIA) LTD. 2 1. THE LEARNED ASSESSING OFFICER ('HEREINAFTER REFERRE D TO AS AO') AND THE DRP HAVE ERRED IN PROPOSING A TRANSFER PRICING ADJUSTMENT OF RS. 1,30,72,762 /- U NDER SECTION 92CA(3) OF THE ACT, IN RESPECT OF THE INTER NATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT DURING T HE YEAR ENDED 31 MARCH, 2007. 2. THE LEARNED AO AND THE DRP HAVE ERRED IN REJECTING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS. 2.1 THE LEARNED AO AND DRP HAVE ERRED IN COMPUTING THE AMOUNT OF RELATED PARTY TRANSACTIONS ENTERED INTO B Y THE COMPARABLE COMPANY NAMELY GOA GLASS FIBRE LIMITED A ND ACCORDINGLY ERRED IN REJECTING THE SAID COMPARABLE AS A VALID COMPARABLE. 2.2 THE LEARNED AO AND DRP HAVE ERRED IN REJECTING SIX COMPARABLE COMPANIES SELECTED BY THE APPELLANT ON T HE BASIS OF DIFFERENCE IN PRODUCT MANUFACTURED. AU AND DRP HAVE ERRED IN REJECTING SIX COMPARABLE COMPANIES CONSIDERING THAT IN APPLICATION OF TRANSACTION NET MARGIN METHOD FUNCTIONAL COMPARABILITY OF THE COMPARABLE COMPANIES IS TO BE CONSIDERED INSTEAD OF PRODUCT COMPARABILITY. 3. THE LEARNED AO AND THE DRP HAVE ERRED IN REJECTING COMPARABLE COMPANIES WHICH WERE ACCEPTED BY NOT ONLY THE PREDECESSOR AO BUT ALSO THE SUCCESSOR AO F OR THE ASSESSMENT YEAR 2006-07 AND ASSESSMENT YEAR 2008-09 RESPECTIVELY. 4. WITHOUT PREJUDICE TO THE AFORESAID GROUNDS, THE OWENS CORNING (INDIA) LTD. 3 LEARNED AO HAS ERRED IN NOT GRANTING THE BENEFIT OF THE VARIATION / REDUCTION OF 5% FROM THE ARITHMETIC MEA N WHILE DETERMINING THE ARM'S LENGTH PRICE FOR THE ADJUSTMENTS MADE TO THE INTERNATIONAL TRANSACTION O F THE APPELLANT AS PROVIDED IN THE PROVISO TO SECTION 92C (2) OF THE ACT PRIOR TO THE AMENDMENT BY THE FINANCE ACT ( NO. 2), 2009, EFFECTIVE 1ST OCTOBER, 2009. 5. THE LEARNED AO AND THE DRP HAVE ERRED IN NOT APPRECIATING IN THE PROPER PERSPECTIVE THE WRITTEN SUBMISSION FILED BY THE APPELLANT BEFORE THEM IN RE SPECT OF ALL THE ABOVE GROUNDS. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI J.D. MISTRY AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI N.K. CHAND, DEPARTMENTAL REPRESENTATIVE (CIT-DR) ON BEHALF OF THE REVENUE. 3. THE SOLITARY ISSUE RAISED IN THIS APPEAL IS WITH RE SPECT TO TRANSFER PRICING ADJUSTMENT. 3.1. DURING THE COURSE OF HEARING, LD. SENIOR COUNSEL O F THE ASSESSEE SUBMITTED, AT THE VERY OUTSET THAT ONLY IS SUE INVOLVED IN THIS APPEAL IS THAT SAME COMPARABLES HAVE BEEN A CCEPTED IN ALL PRIOR AND SUBSEQUENT YEARS, THERE IS NO CHANGE IN FACTS OR BUSINESS OF THE ASSESSEE AND IN ANY CASE NO SUCH AL LEGATION HAS BEEN MADE IN THE ORDERS BY ANY OF THE LOWER AUT HORITIES. BUT, IN THE IMPUGNED YEAR I.E. A.Y. 2007-08, SURPRI SINGLY, THE TPO DID NOT ACCEPT THESE VERY COMPARABLES MAINLY ON THE OWENS CORNING (INDIA) LTD. 4 GROUND THAT THEY WERE DEALING IN DIFFERENT PRODUCTS . THE DRP ENDORSED THE ORDER OF THE TPO WITHOUT GIVING ANY PR OPER REASONING. HE DREW OUR ATTENTION ON THE TRANSFER PR ICING REPORT AND TRANSFER PRICING ORDERS OF EARLIER YEARS AS WEL L AS SUBSEQUENT YEARS TO SHOW THAT SAME COMPARABLES WERE CONSIDERED FOR DETERMINATION OF ARMS LENGTH PRICE A ND NO ADJUSTMENT WAS MADE SINCE THE TRANSACTIONS OF THE A SSESSEE WERE FOUND TO BE WITHIN THE RANGE OF ALP DETERMINED BY THE TPO IN ALL THOSE YEARS. OUR ATTENTION HAS ALSO BEEN DRAWN ON THE PAPER BOOK FILED BY THE DEPARTMENT INTERNAL CORRESPONDENCE MADE BETWEEN THE TPO AND THE JURISDI CTIONAL DIRECTOR OF INCOME TAX (TP) TO SHOW THAT IN ALL THE EARLIER YEARS AND SUBSEQUENT YEARS, SAME COMPARABLES WERE CONSIDE RED FOR BENCH MARKING THE TRANSACTIONS OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT REASONING GIVEN BY THE TPO THAT THES E COMPARABLES WERE ENGAGED INTO DEALING OF DIFFERENT PRODUCTS IS ALSO FACTUALLY INCORRECT. IT WAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF FIBER GLASS AND THE SE COMPARABLES WERE ALSO ENGAGED IN THE MANUFACTURING OF GLASS PRODUCTS. IN VIEW OF ALL THESE FACTS, IT WAS SUBMIT TED THAT THE ORDER OF THE TPO IS CONTRARY TO LAW AND FACTS. 3.2. PER CONTRA, IT WAS STATED BY THE LD. CIT-DR THAT M ETHOD ADOPTED FOR BENCHMARKING THE TRANSACTIONS OF THE AS SESSEE WAS TNMM. THE PRODUCT SIMILARITY HAS TO BE SEEN WHI LE APPLYING CUP METHOD AND NOT UNDER TNMM BECAUSE UNDE R THE CUP, THE FOCUS IS ON THE PRICE OF GOODS SOLD OR TRANSFERRED. IN HIS SUPPORT, HE RELIED UPON THE JUDGMENT OF MUMB AI BENCH OWENS CORNING (INDIA) LTD. 5 OF THE TRIBUNAL IN THE CASE OF DIAGEO INDIA (P) LTD . V. DCIT 34 TAXMANN.COM 284 AND OF SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) P. LTD. ACIT 147 ITD 83 (MUM BAI TRIB.) 3.3. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AS WELL AS ORDERS OF THE PRECEDING AND SUBSEQUENT Y EARS AS WERE SHOWN TO US. 3.4. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS J OINT VENTURE BETWEEN M/S. OWENS CORNING, INC. USA AND M/ S. MAHINDRA & MAHINDRA LTD. THE ASSESSEE WAS ENGAGED I N MANUFACTURING AND TRADING OF GLASS FIBRE REINFORCEM ENT PRODUCTS. THE IMPUGNED YEAR (I.E., A.Y. 2007-08) IS THE 5 TH YEAR OF TRANSFER PRICING REFERENCE U/S 92CA OF THE ACT. THE BRIEF HISTORY AS NOTED IN THE TPOS ORDER IS THAT NO ADJU STMENT WAS MADE IN ANY OF THE PRECEDING FOUR YEARS. WITH THE A SSISTANCE OF THE PARTIES, IT HAS ALSO BEEN NOTED FROM THE FACTS BROUGHT BEFORE US BY WAY OF PAPER BOOK BY THE LD. CIT-DR TH AT NO TP ADJUSTMENT HAS BEEN MADE EVEN IN THE SUBSEQUENT FOU R YEARS I.E. A.YS. 2008-09, 2009-10, 2010-11 AND 2011-12. I T HAS BEEN FURTHER SHOWN TO US THAT IN ALL EARLIER YEARS AND SUBSEQUENT YEARS, SAME COMPARABLES HAVE BEEN ACCEPT ED BY THE TPO. BUT, FOR BENCHMARKING INTERNATIONAL TRANSA CTIONS OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION, THESE VERY COMPARABLES HAVE BEEN REJECTED. SURPRISINGLY, NO RE ASON WHATSOEVER HAS BEEN GIVEN AND NOTHING HAS BEEN STAT ED IN THE IMPUGNED ORDER BY THE TPO OR BY THE DRP WHETHER THE RE WAS ANY CHANGE IN THE FACTS OR NATURE OF BUSINESS ACTIV ITIES CARRIED OWENS CORNING (INDIA) LTD. 6 OUT BY THE ASSESSEE COMPANY IN THE YEAR UNDER CONSI DERATION AS COMPARED TO THE OTHER YEARS. NOTHING HAS BEEN ME NTIONED EVEN FOR THE SAKE OF MENTIONING, THEREFORE, UNDER T HESE CIRCUMSTANCES, WE DO NOT FIND IT NECESSARY TO GO AN Y MORE INTO DETAILS OR INTRICACIES OF THE ISSUES. EVEN, DURING THE COURSE OF HEARING BEFORE US NOTHING HAS BEEN BROUGHT OUT BY T HE LD. CIT-DR TO JUSTIFY THE CONTRARY STAND IN THE IMPUGNE D YEAR AND NOTHING HAS BEEN BROUGHT OUT SHOWING ANY CHANGE IN FACTS OR NATURE OF BUSINESS ACTIVITIES OR POSITION OF LAW. U NDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY JUSTIFICATION WIT H THE TPO TO REJECT THESE COMPARABLES. IT IS NOTED BY US THAT DU RING THE COURSE OF TRANSFER PRICING PROCEEDINGS, IT WAS SHOW N BY THE ASSESSEE THAT ASSESSEE DEMONSTRATED THAT TAKING OP/ OI AS ITS PLI, THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES WAS 8.71% WHICH WAS LESS THAN THE MARGIN SHOWN BY THE A SSESSEE AT 12.63%. THE TPO SUGGESTED CHANGING THE PLI AS OP /TC AND IF THE PLI IS TAKEN AS OP/TC THE ARITHMETIC MEAN MA RGIN OF THE COMPARABLES WAS 9.96% WHICH WAS LESS THAN THE MARGI N SHOWN BY THE ASSESSEE AT 13.70%. THUS, UNDISPUTEDLY, ON FACTS, THE MARGIN OF THE ASSESSEE WAS WITHIN THE PE RMITTED RANGE OF ALP. WE FIND THAT ADJUSTMENT MADE BY THE T PO WAS CONTRARY TO LAW, AND THEREFORE, SAME IS DIRECTED TO BE DELETED. SINCE WE HAVE DELETED THE ADJUSTMENT ON PRIMARY GRO UNDS, WE ARE NOT DECIDING OTHER GROUNDS. ACCORDINGLY, GROUND NO.1 TO 5 OF THE MAIN GROUNDS MAY BE TREATED AS PARTLY ALLOWE D. 4. DURING THE COURSE OF HEARING LD. COUNSEL ALSO DREW OUR ATTENTION ON THE ADDITIONAL GROUND WHEREIN THE ASSE SSEE HAS OWENS CORNING (INDIA) LTD. 7 CONTESTED THE ACTION OF AO IN INCREASING THE BOOKS PROFITS FOR THE PURPOSE OF SECTION 115JB BY THE AMOUNT OF TRANS FER PRICING ADJUSTMENT OF RS.1,30,32,762/-, WHILE COMPU TING THE TOTAL INCOME OF THE ASSESSEE UNDER THE NORMAL PROVI SIONS OF THE ACT. 4.1. THE ADDITIONAL GROUND BEING PURELY LEGAL AND NOT REQUIRING ANY INVESTIGATION OF FRESH FACTS, THE SAM E WAS ADMITTED IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF NTPC 229 ITR 383. IT IS NOTED THAT SECT ION 115JB IS SELF CONTAINED CODE. ONLY THOSE ADJUSTMENTS ARE PERMISSIBLE TO THE BOOK PROFIT AS HAVE BEEN PRESCRIBED U/S 115J B. THE ADJUSTMENT/ADDITIONS MADE UNDER THE TRANSFER PRICIN G REGULATIONS ARE GOVERNED BY ALTOGETHER DIFFERENT SE TS OF PROVISION AS CONTAINED IN CHAPTER X OF THE ACT. THE RE IS NO SUCH PROVISION UNDER THE LAW THAT PERMITS THE AO TO MAKE ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING ADDITION TO THE AMOUNT OF PROFIT SHOWN BY THE ASSESSEE IN ITS PROFI T AND LOSS ACCOUNT, FOR THE PURPOSE OF COMPUTING BOOK PROFIT U /S 115JB. THE LAW IN THIS REGARD IS CLEAR. REFERENCE IS MADE TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF AP OLLO TYRES LTD. VS CIT 255 ITR 273. IT IS NOTED FROM THE PERUS AL OF THE ASSESSMENT ORDER THAT THE AO HAS SIMPLY MADE ADDITI ON BY AN AMOUNT OF RS.1,30,72,762/- TO THE AMOUNT OF NET PRO FIT AS PER PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF COMPUTAT ION OF INCOME U/S 115JB WITHOUT EVEN MENTIONING THAT UNDER WHAT PROVISIONS THIS ADDITION WAS BEING MADE. SUCH AN AP PROACH IS HIGHLY UNFAIR AND BRINGS UNDUE AND AVOIDABLE HARDSH IP TO THE OWENS CORNING (INDIA) LTD. 8 TAX PAYERS AND WE RECOMMEND THAT SUCH A CASUAL APPR OACH SHOULD BE AVOIDED BY THE REVENUE OFFICERS, AS IT MA Y TARNISH IMAGE OF THE INCOME TAX DEPARTMENT, WHICH MAY IN TU RN DISCOURAGE VOLUNTARILY COMPLIANCE BY THE TAXPAYERS. THUS, WE DELETE THE ADDITION MADE BY THE AO. AS A RESULT, AD DITIONAL GROUND FILED BY THE ASSESSEE IS ALLOWED. 5. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL, 2016. SD/- (MAHAVIR SINGH) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED: 22/04 /2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI