BASF COATINGS (I) P. LTD, MUMBAI V. ADDL CIT RG 6(1), MUMBAI

ITA 8895/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75274 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 20-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 21-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Assessee Lawyers: P J PARDIWALA
• Keywords: Transfer pricing; International transaction; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUM BAI . . , , BEFORE SHRI I. P. BANSAL, J.M. AND SHRI SANJAY ARO RA, A.M. ./ I.T.A. NO. 8895/MUM/2010 ( / ASSESSMENT YEAR: 2006-07) BASF COATINGS (INDIA) PVT. LTD. VIBGYOR TOWERS, UNIT NO.101, 1 ST FLOOR, G BLOCK, C-62, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. ASST. CIT, RANGE 6(1), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, CHURCHGATE, MUMBAI400 020 ./ ./PAN/GIR NO. AABCB 2364 G ( /APPELLANT ) : ( !' / RESPONDENT ) # $ / APPELLANT BY : SHRI P. J. PARDIWALA !' # $ / RESPONDENT BY : SHRI AJEET KUMAR JAIN % &'( # )* / DATE OF HEARING : 20.01.2014 +,- # )* / DATE OF PRONOUNCEMENT : 20.01.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF IT S ASSESSMENT U/S.143(3) READ WITH DIRECTION U/S.144(C) BY THE DISPUTE RESOLUTION PANEL-I, MUMBAI (DRP FOR SHORT) DATED 28.10.2010 FOR THE ASSESSMENT YEAR (A.Y.) 2006-07. 2. THE APPEAL RAISES TWO ISSUES, PER ITS TWO GROUND S, GD. # 1 & 2, WHICH WE SHALL TAKE UP IN SERIATIM. VIDE ITS FIRST GROUND, THE ASSESSEE CONTESTS THE DISALLOWANCE IN THE SUM OF RS.21,44,720/- CLAIMED U/S.36(1)(III) ON ACCOUNT OF THE SAME BEING ATTRIBUTABLE TO THE CAPITAL WORK-IN-PROGRESS (WIP) (AT RS.268.09 LACS) AS AT THE YEAR-END. 2 ITA NO. 8895/MUM/2010 (A.Y. 2006-07) BASF COATINGS (INDIA) PVT. LTD. VS. ASST. CIT 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. EVEN AS OBSERVED DURING THE COURSE OF HEARING, I.E., UPON HEARING TH E PARTIES AND BEING TAKEN THROUGH THE RELEVANT PARTS OF THE ORDERS BY THE AUTHORITIES BEL OW, WE ARE OF A CLEAR VIEW THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS ON IT TO ESTAB LISH, AS CONTENDED BEFORE US, THAT NO PART OF ITS BORROWINGS STAND UTILIZED TOWARD CAPITA L WORK-IN-PROGRESS, SO THAT NO PART OF THE INTEREST THEREON IS PROPERLY ATTRIBUTABLE THERE TO, SO AS TO WARRANT BEING DISALLOWED U/S.36(1)(III) READ WITH PROVISO THERETO. ACCORDINGLY, WE DO NOT FIND ANY SUBSTANCE IN THE ASSESSEES CASE AS SOUGHT TO BE MADE OUT BEFORE US; THE ONUS TO PROVE ITS RETURN AND THE CLAIMS PREFERRED THEREBY BEING ONLY ON THE ASSESSEE (REFER: CIT V. CALCUTTA AGENCY LTD . [1951] 19 ITR 191 (SC)). SO HOWEVER, THE ASSESSEE HAVING CLAIMED BEFORE THE ASSESSING OFFICER (A.O.) OF HAVING SUFFICIENT FREE RESERVES, WHICH STOOD DEPLOY ED FOR THE PURPOSE, WE, IN THE INTEREST OF JUSTICE, ONLY CONSIDER IT FIT AND PROPER THAT TH E MATTER IS RESTORED BACK TO ALLOW THE ASSESSEE AN OPPORTUNITY TO SUBSTANTIATE ITS CASE BE FORE THE ASSESSING AUTHORITY, WHO SHALL DECIDE THE SAME IN ACCORDANCE WITH THE LAW PER A SP EAKING ORDER. WE DECIDE ACCORDINGLY. 4. THE SECOND AND THE ONLY OTHER ISSUE ARISING IN T HE INSTANT CASE IS THE TRANSFER PRICING (TP) ADJUSTMENT IN THE SUM OF RS.1,49,53,47 5/- MADE IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTERPRISE/S (AE), PURSUANT TO AN ORDER U/S.92CA(3) DATED 28.10.2009. THE ASSESSEES OBJECTIONS BEFORE THE DR P HAVING BEEN SINCE DISMISSED, THE ASSESSEE IS IN APPEAL. 5. EXPLAINING THE BACKGROUND FACTS OF THE CASE, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUN SEL, THAT AFTER TAKING NOTE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE DURING THE RELEVANT YEAR, THE TRANSFER PRICING OFFICER (TPO) FOUND THE ASSESSEES OPERATING MARGIN, AT 5.74% , AS BELOW THE ARITHMETIC MEAN OF 6.97% IN RESPECT OF THE COMPARABLE COMPANIES, TAKING US TO PG.6 OF THE TPOS ORDER U/S. 92CA(3) (SUPRA). THE R EVENUE HAS ERRED IN, FIRSTLY, APPLYING THE DIFFERENCE ON THE ENTITY LEVEL, RATHER THAN ON THE INTERNATIONAL TRANSACTIONS ONLY. TWO, 3 ITA NO. 8895/MUM/2010 (A.Y. 2006-07) BASF COATINGS (INDIA) PVT. LTD. VS. ASST. CIT NO ADJUSTMENT IN FACT IS CALLED FOR IN VIEW OF THE FACT THAT THE DIFFERENCE FALLS WITHIN THE MARGIN OF 5%. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) COULD NOT REBUT THE SAID SUBMISSIONS BY THE LD. AR. 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE PRIMARY FACTS OF THE CASE. WE FI ND THAT THE ASSESSEE HAD BEFORE THE DRP OBJECTED TO THE INTRODUCTION OF TWO NEW COMPARABLES , M/S. ASIAN PAINTS LTD. AND M/S. GOODLAC NEROLAC PAINTS LTD. BY THE TPO, AND WHICH I T FOUND AS OF NO MOMENT INASMUCH AS THE SAID COMPARABLES WERE ON A VERY LOGICAL BASI S. THE ASSESSEE, HOWEVER, BEFORE US DID NOT REST ITS CASE THEREON. THE DIFFERENCE IN TH E OPERATING MARGIN, AS PER THE TPOS ORDER ITSELF, IS WITHIN THE RANGE OF 5% AND, ACCORD INGLY, NO ADJUSTMENT UNDER LAW IS REQUIRED TO BE MADE. NO DOUBT, THE SAFE HARBOR RULE OF 5% IS WITH REFERENCE TO THE ARMS LENGTH PRICE; THE SAME HOWEVER TRANSLATES TO AN EQU IVALENT DIFFERENCE IN THE OPERATING MARGIN, AS THE COSTS TOWARD THE SAME ARE NOT DISTUR BED. IN FACT, IF A PART OF THE INTEREST COST, AS CONTENDED BY THE REVENUE, IS TO BE EXCLUDE D FROM THE OPERATING COST, BEING A PART OF THE CAPITAL COST, THE ASSESSEES PROFIT MARGIN W OULD RATHER STAND FURTHER IMPROVED. WE, THEREFORE, CONSIDER THE SUSTENANCE OF THE SAID ADJU STMENT, AS DIRECTED BY THE DRP, AS NOT VALID IN LAW AND, ACCORDINGLY, DIRECT ITS DELETION. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. /-)0 &12/) # 3. ' 4 ) 5 6# 789 3 : 3. ' 4 ) # ) ;< ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 20, 2 014 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; =& DATED : 20.01.2014 4 ITA NO. 8895/MUM/2010 (A.Y. 2006-07) BASF COATINGS (INDIA) PVT. LTD. VS. ASST. CIT '.&../ ROSHANI , SR. PS ! ' #$%& '&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % >) ( ) / THE CIT(A) 4. % >) / CIT CONCERNED 5. A'BC !)&D1 , * D1- , % ( / DR, ITAT, MUMBAI 6. CE2 F( / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI