M/s Ecom Gill Coffee Trading Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 853/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63648 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: K K CHYTHANYA
• Keywords: Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V.VASUDEVAN, JUDICIAL MEMBER I.T.A.NO.853(B)/2011 (ASSESSMENT YEAR : 2007-08) M/S ECOM GILL COFEE TRADING PVT.LTD., , ECOM HOUSE, NO.489/11, BOREWELL ROAD, WHITEFIELD, BANGALORE-560 066 PAN NO.AAACE7863N APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(3), BANGALORE. RESPONDENT ASSESSEE BY : SHRI K.K.CHYTHANYA, ADVOCATE REVENUE BY : SHRI ETWA MUNDA, CIT-III DATE OF HEARING : 12 -09-2012 DATE OF PRONOUNCEMENT : O R D E R PER SHRI N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R OF THE DCIT, BANGALORE, PASSED U/S 143(3) OF THE ACT, 1961 R.W.S.144C OF THE ACT. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E AS FOLLOWS; 1. THE ASSESSEE IS A CO., REGD. UNDER THE COS AC T, 1956 HAVING ITS REGD. OFFICE AT BANGALORE. THE ASSESEE E COMMENCED TRADING ACTIVITIES IN THE YEAR 20000, TRA DING COFFEE, COTTON, COCOA AND OTHER COMMODITIES. 2. DURING THE IMPUGNED YEAR, THE ASSESSEE HAS TRAD ED ONLY IN COFFEE. THE ASSESSEE PROCURES GREEN COFFEE BEANS FROM COFFEE PLANTERS OR TRADERS LOCATED IN KARNATAK A. ITA NO.853(B)/2011 2 3. FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSEE F ILED ITS RETURN OF INCOME ON 28-10-2007 DECLARING TOTAL INCOME OF RS.1,53,72,954/-. THE LD. DCIT SELECTED THE ASS ESSEES RETURN FOR SCRUTINY BY ISSUING A NOTICE UNDER SECTI ON 143(2) ON 09-008-2008. 4. AS THE ASSESSEES INTERNATIONAL TRANSACTION EX CEEDED RS.15.00 CRORES THE LD. DCIT MADE A REFERENCE TO TH E LD.TRANSFER PRICING OFFICER (TPO0 5. THE LD. TPO VIDE HIS ORDER DATED 06-10-2010 CAL LED FOR AN ADJUSTMENT IN THE ALP TO THE EXTENT OF RS.71,82, 407/- 6. SUBSEQUENTLY, THE LD. DCIT, PASSED A DRAFT ASSE SSMENT ORDER, DATED 16-12-2010 U/S 143(3) R.W.S.144C INCORPORATING THE ADJUSTMENT TO THE ALP A SUGGESTED BY THE LD. TPO AND RAISED A DEMAND OF RS.1,18,67,167/- 7. THE ASSESSEE AGGRIEVED BY THE AFORESAID DRAFT ASSESSMENT ORDER FILED ITS OBJECTION BEFORE THE HON BLE DISPUTE RESOLUTION PANEL (DRP) IN FORM 35A ON 19-01 - 2011. THE HONBLE DRP UPHELD THE ALP ADJUSTMENT A S CARRIED OUT BY THE LD.TPO IN ITS ORDER DATED 0509- 2011, PASSED U/S144C R..W.S.144C(8). 8. THE LD. DCIT PASSED AN ASSESSMENT ORDER U/S 143 (3) R.W.S.144C CONSIDERING THE DIRECTION OF THE HONBLE DRP AND RAISED A DEMAND OF RS.1,26,38,959/-. 3. THE ASSESSEE IS A COMPANY ENCAGED IN THE BUSINE SS OF TRADING IN COFFEE, COTTON, COCOA AND OTHER COMMODIT IES. DURING THE PREVIOUS YEAR, THE ASSESSEE PROCURED GREEN COFFEE B EANS FROM COFFEE PLANTERS AND TRADERS LOCATED IN KARNATAKA. T HE ASSESSEE SOLD GREEN COFFEE BEANS TO ONE OF ITS ASSOCIATED ENTERPR ISES BY NAME M/S ECOM AGRO INDUSTRIAL CORPN.LTD., SWITZERLAND ( EACL ). SINCE THERE WAS A INTERNATIONAL TRANSACTION WITH AN ASSOC IATED ENTERPRISES ( AE ) THE ASSESSEE HAD TO SUPPORT THE PRICE AT WHICH IT SOLD GREEN COFFEE BEANS TO ITS ASSOCIATED ENTERPRIS ES. IN VIEW OF THE PROVISIONS OF SEC.92C OF THE ACT, THE ASSESSEE FILE D A REPORT IN FORM NO.3CEB IN SUPPORT OF ARMS LENGTH PRICE ( ALP ) IN RESPECT OF THE INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTER PRISES. THE ITA NO.853(B)/2011 3 ASSESSEE SELECTED CUP METHOD AS THE MOST APPROPRIAT E METHOD FOR DETERMINING THE ALP. THE ASSESSEE RELIED ON THE MO NTHLY PRICES QUOTED BY THE COFFEE BOARD AND COMPARED IT WITH THA T OF THE PRICES PAID BY THE AE TO THE ASSESSEE. THE TPO FOUND THAT THE T.P DOCUMENTS DID NOT CONTAIN THE DETAILS OF HOW THE CU P METHOD WAS APPLIED. THE TPO ALSO FOUND THAT THE ASSESSEE HA D CHARGED PRICES TO THE AE WHICH WERE LESS THAN THE PRICE AT WHICH C OFFEE BOARD SUPPLIED GREEN COFFEE. THE TPO THEREFORE, WORKED OUT THE ALP AND BY BENCH MARKING THE PRICE AT WHICH THE COFFEE BOAR D SOLD DIFFERENT VARIETIES OF COFFEE SEEDS AND ARRIVED AT A SUM OF R S.71,82,407.84 AS DIFFERENCE IN PRICE WHICH THE ASSESSEE OUGHT TO HAV E CHARGED THE AE. ACCORDINGLY, THE TPO PROPOSED ADDITION OF THE AFORESAID SUM TO THE TOTAL INCOME OF THE ASSESSEE. BEFORE THE DRP, THE ASSESSEE TOOK A STAND THAT TH E CUP METHOD S NOT THE MOST APPROPRIATE METHOD FOR DETERM INING THE ALP. IN THIS REGARD, THE ASSESSEE POINTED OUT THAT IN ASSESSMENT YEAR 2006-07 IN ASSESSEES OWN CASE THE REVENUE ADO PTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD REJECTING THE CUP METHOD ADOPTED BY THE ASSE SSEE. THE ASSESSEE POINTED OUT THAT IN ASSESSMENT YEAR 2006-0 7, WHILE WORKING OUT THE ALP ON THE BASIS OF CUP METHOD THE ASESEE RELIED ON THE PUBLIC PRICE OF THE COFFEE BOARD WHICH WAS R EJECTED BY THE REVENUE. THE ASSESSEE THUS, SUBMITTED THAT THE REVE NUE CANNOT BLOW HOT AND COLD IN THE SAME BREATHE. THE DRP DID NOT ACCEPT THE AFORESAID PLEA OF THE ASSESSEE AND HELD WHEN THE AS SESSEE HIMSELF ITA NO.853(B)/2011 4 HAS APPLIED CUP METHOD THERE IS EVERY JUSTIFICATION FOR THE TPO TO ACCEPT THE SAME. THE DRP ALSO HELD THAT IT IS A M ERE FACT THAT THE CUP METHOD WAS ALSO REJECTED IN ASSESSMENT YEAR 200 6-07 BY THE TPO DOES NOT MEAN IN ASSESSMENT YEAR 2007-08 THE SA ID METHOD SHOULD NOT BE ACCEPTED Y THE TPO. THE DRP ALSO HELD THAT THE ASSESSEE TRADES IN COFFEE BEANS, COFFEE BEANS ARE A N AGRICULTURAL PRODUCT. IT IS A FACT OF COMMON KNOWLEDGE IN MICRO -ECONOMICS THAT MOST HOMOGENOUS MARKET EXISTS IN CASE OF AGRICULTUR AL PRODUCTS. THAT IS WHY IN CASE OF AGRICULTURAL PRODUCTS IN THE SAME MARKET, THE PRICES ARE ALMOST SAME FROM ONE TRADER TO ANOTH ER. IF ONE TRADER CHARGES HIGHER PRICE HE CANNOT SELL HIS STOCK AS CO NSUMERS WILL GO TO OTHER TRADERS. LIKEWISE, IF ONE TRADER CHARGES LESS PRICE HE MAY ATTRACT MORE CONSUMERS IN SHORT RUN BUT ULTIMATELY HE WILL BE OUT OF BUSINESS IN VIEW OF THE FACT THAT HE WILL SUSTAI N LOSS. THIS BEING THE POSITION N CASE OF AGRICULTURAL PRODUCTS, MONTH LY PRICE LIST ISSUED BY THE COFFEE BOARD OF INDIA IN RESPECT TO D IFFERENT QUALITIES OF COFFEE BEANS IS RELIABLE AND CAN BE USED AS UNCO NTROLLED COMPARABLE PRICE IN CUP METHOD. THE DECISION OF HO N. ITAT IN THE CASE OF AZTECH SOFTWARE & TECH. SERVICES DOES NOT C ONTRADICT OUR OBSERVATION IN CASE OF COFFEE BEANS. THE TRIBUNAL DECIDED THAT INDUSTRY AVERAGE BILLING RATES CANNOT BE CONSIDERED IN CASE OF SOFTWARE CASES WHEREAS WE ARE ARGUING THAT COFFEE B OARD PRICES CAN BE CONSIDERED AS THEY ARE RELATED TO AGRICULTURAL S ECTOR. SOFTWARE BILLING RATE IS CASE OF EACH VENDOR VARY SIGNIFICAN TLY AS IT INVOLVES A NUMBER OF VERTICALS EACH ONE QUITE DIFFERENT FROM T HE OTHER AND ITA NO.853(B)/2011 5 HENCE, NOT COMPARABLE. THEREFORE, AVERAGE BILLING R ATE IS NOT THE RIGHT BASIS FOR COMPARISON IN CASE OF SOFTWARE SECT OR. BUT WE DO NOT CONSIDER THAT IT EQUALLY TRUE IN CASE OF AGRICULTUR AL PRODUCTS. THE DRP THUS, CONFIRMED THE ADDITION PROPOSED BY T PO. AGGRIEVED BY THE ORDER OF DRP, THE ASSESSEE HAS FI LED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE TIME OF HEARING BEFORE US, IT WAS BROUGHT T O OUR NOTICE THAT IN THE ASSESSMENT YEAR 2006-07 IN ITA NO.1389( B)/2010, THE TRIBUNAL IN ASSESSEES OWN CASE ON AN IDENTICAL ISS UE HELD AS FOLLOWS; 6. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THE RIVAL CONTENTIONS, WE FIND THAT BOTH THE TPO AS WELL AS THE DRP HAVE NOT CONSIDERED THE OBJECTIONS RAISED B Y THE ASSESSEE AGAINST THE COMPARABLES SELECTED BY THE TP O FOR ARRIVING AT THE ALP. AS SEEN FROM THE SUBMISSIONS OF THE ASSESSEE, THE GLARING DIFFERENCES THAT APPEARS TO U S ARE THAT INDIA PRODUCTS LTD., IS IN THE BUSINESS OF P ROCESSING AND TRADING IN SPICES, WHEREAS THE ASSESSEE IS IN T HE BUSINESS OF TRADING IN COFFEE. FURTHER, THE TPO HA S ALSO OBSERVED IN HIS REMAND REPORT TO THE DRP THAT THE A NNUAL ACCOUNTS OF THE COMPANY INDIA PRODUCTS LTD ARE NO T AVAILABLE IN THE PUBLIC DOMAIN. THUS, IN OUR VIEW W ITHOUT PROPER INFORMATION RELATING TO THE ACTIVITIES CARRI ED ON BY THE COMPANY INDIA PRODUCTS LTD., AND ALSO THE SEG MENTAL INFORMATION RELATING ITS INCOME FROM VARIOUS SOURCE S AND ACTIVITIES, THE SAID COMPANY CANNOT BE TAKEN AS COMPARABLE FOR COMPUTING THE ALP. ACCORDING TO US, THE DRP HAS NOT DEALT WITH THE ISSUE IN A JUDICIOUS MAN NER. IN ITA NO.853(B)/2011 6 VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMI T THE ISSUE TO THE FILE OF THE AO/TPO FOR RECONSIDERATION OF THE OBJECTIONS RAISED BY THE ASSESSEE AGAINST THE METHO D OF COMPUTING THE ALP I.E. WHAT IS THE MOST APPROPRIATE METHOD, CUP OR TNMM AND ALSO THE COMPARABLES ADOPTE D BY THE TPO. THUS, THE ISSUES ARE SET ASIDE FOR DE- NOVO CONSIDERATION. NEEDLESS TO MENTION THAT THE ASSESS EE SHALL BE GIVEN AMPLE OPPORTUNITY OF HEARING. AS CAN BE SEEN FROM THE AFORESAID ORDER OF THE TRIB UNAL, THE TRIBUNAL HAS RESTORED THE ISSUE AS O WHICH IS THE M OST APPROPRIATE METHOD FOR COMPUTING THE ALP IN THE CASE OF THE ASS ESSEE TO THE TPO FOR FRESH CONSIDERATION. IN OUR VIEW, IN THE P RESENT ASSESSMENT YEAR ALSO IT WOULD BE APPROPRIATE TO CON SIDER AS TO WHICH THE MOST APPROPRIATE METHOD FOR DETERMINING T HE ALP TO THE TPO FOR FRESH CONSIDERATION. WE ARE ALSO OF THE VI EW THAT THE FACT THE ASSESSEE ADOPTED CUP METHOD AS THE MOST APPROPR IATE METHOD WILL NOT BE CONCLUSIVE AND THE ENDEAVOUR OF THE ASS ESSEE AND THE REVENUE SHOULD BE TO ARRIVE AT THE CORRECT ALP. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO MADE SUBM ISSIONS BEFORE US THAT THE PRICE AT WHICH THE COFFEE BOARD SELLS COFFEE SEEDS SHOULD NOT BE TAKEN AS BENCH MARK. WE ARE OF THE VIEW THAT IT IS OPEN TO THE ASSESSEE TO PUT FORTH HIS CONTENTIONS I N THIS REGARD, BEFORE THE TPO, WHO SHALL CONSIDER THE SAME IN ACCO RDANCE WITH LAW. RESPECTFULLY FOLLOWING THE DECISION OF THE T RIBUNAL REFERRED TO ABOVE, WE SET ASIDE THE ORDER OF THE AO AS CONFIRME D Y THE DRP AND REMAND THE MATTER TO THE TPO FOR FRESH CONSIDERATIO N IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE AND IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ASSESSMENT YEAR 2006-07. FOR STA TISTICAL PURPOSE, THE APPEAL FILED Y THE REVENUE IS TREATED AS ALLOWED. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE ITA NO.853(B)/2011 7 (N. BARATHVAJA SANKAR) (N.V.VASUDEVAN) VICE PRESIDENT JUDICIAL MEMBER PLACE: BANGALORE DATED: AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) 7. GF(DELHI) BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE