MONSANTO HOLDINGS P. LTD ( FORMERLY SEMINIS VEGETABLE SEEDS (I) LTD), MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 9130/MUM/2010

• Counselvise Citation: 913019914 RSA 2010
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIV AGARWAL
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI D. MANMOHAN, V.P. ANDSHRI B. RAMAKOTAIA H (A.M.) ITA NO.9130/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. MONSANTO HOLDINGS PVT. LTD. (FORMERLY SEMINIS VEGETABLE SEEDS (INDIA) LTD.) 5 TH FLOOR, AHURA CENTRE, 96, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400 093 PAN NO: AAACN9499F VS. DEPUTY COMMISSIONER OF INCOME - TAX RANGE 8 (2), AAYAKARBHAVAN, M.K. ROAD,MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJAN R. VORA RESPONDENT BY : S HRI RAJIV AGARWAL O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 28.10.2010 OF THE DCIT-8(2),MUMBAIRELATING TO ASSES SMENT YEAR 2006-07 U/S 144C(13) RWS 143(3) OF THE IT ACT 1961 PASSED CONS EQUENT TO THE ORDERS OF THE DISPUTE RESOLUTION PANEL-1, MUMBAI. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : GENERAL 1. ON THE FACTS AND INTHE CIRCUMSTANCES OF THE CASE AN D IN LAW THE ASSESSING OFFICER (AO) ERRED IN IGNORING THE DIRE CTIONS OF DRP AND 2 ASSESSING THE TOTAL INCOME OF THE APPELLANT AT `. 6,26,71,090/- AS AGAINST LOSS OF `. 4,62,83,970/- COMPUTED BY THE APPELLANT: NON CONSIDERATION OF THE DIRECTIONS OF THE DRP 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE AO ERRED IN NOT GRANTING RELIEF TO THE APPELLANT WI TH REGARDS TO THE TRANSFER PRICING ADJUSTMENTS, AS PER THE DIRECTIONS OF DRP AND CONFIRMING THE ADJUSTMENTS AS PROPOSED IN THE DRAFT ASSESSMENT ORDER ON THE GROUND THAT THE TRANSFER PRICING OFFIC ER (LEARNED TPO) HAS NOT PASSED AN ORDER AS PER DIRECTIONS OF DRP : 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE AO FAILED TO APPRECIATE THAT THE HON'BLEDR{P HAD CL EARLY DIRECTED THE RESALE PRICE METHOD (RPM) TO BE CONSIDERED AS THE MOST APPROPRIATE METHOD (MAM) FOR BENCHMARKING INTERNA TIONAL TRANSACTIONS OF IMPORT OF SEEDS FOR RESALE AND HENC E THE TRANSFER PRICING ADJUSTMENT BASED ON TRANSACTIONAL NET MARGI N METHOD (TNMM) IS IN VIOLATION OF THE PROVISIONS OF SECTI ON 144C(10) AND HENCE LIABLE TO BE QUASHED. TRANSFER PRICING ADJUSTMENTS WITHOUT PREJUDICE TO GROUNDS NO. 2 & 3 4. THE LEARNED TPO HAS ERRED IN MAKING AN TRANSFER PRI CING ADJUSTMENT AND THEREBY MAKING AN ADDITION OF `. 9,86,00,121 TO THE INCOME OF THE APPELLANT, ON THE PREMISE THAT THE IN TERNATIONAL TRANSACTIONS ENTERED BY THE APPELLANT WITH ITS ASSO CIATED ENTERPRISE (AE) WERE NOT AT ARMS LENGTH: 5. ERRED IN INVOKING POWERS UNDER SECTION 92C(3) OF TH E ACT WITHOUT FULFILLING THE CONDITIONS STATED THEREIN AND CONSID ERING THE FACTS AND CIRCUMSTANCES OF THE CASE; 6. ERRED IN DISREGARDING THE ECONOMIC ANALYSIS UNDERTA KEN BY THE APPELLANT WITHOUT PROPER JUSTIFICATION AND CONDUCTI NG A FRESH ECONOMIC ANALYSIS UNDER THE TNMM WITHOUT CONSIDERIN G RULE 10B/ RULE 10D OF THE INCOME TAX RULES, 1962 (RULES), F OR THE DETERMINATION OF THE ARMS LENGTH PRICE IN CONNECTI ON WITH THE IMPUGNED INTERNATIONAL TRANSACTION; 3 7. ERRED IN NOT CONSIDERING THE CERTIFIED SEGMENTAL PR OFITABILITY (BASED ON AUDITED FINANCIALS) SUBMITTED BY THE APPELLANT. 8. ERRED IN CONSIDERING EXCEPTIONAL ITEMS SUCH AS BAD DEBTS WRITTEN OFF, AS AN OPERATING EXPENDITURE IN THE COMPUTATION OF NET PROFIT MARGIN OF THE APPELLANT; 9. ERRED IN COMPUTATION OF NET PROFIT MARGINS OF THE C OMPANIES IDENTIFIED AS COMPARABLES BY HIM; 10.ERRED IN APPLYING THE ADDITION TO THE ENTIRE AMO UNT OF PURCHASES INSTEAD OF RESTRICTING THE SAME TO THE AMOUNT OF PU RCHASES (NET OF INVENTORY) 11.ERRED IN NOT GRANTING RISK ADJUSTMENTS TO ACCOUN T FOR DIFFERENCES IN THE RISK PROFILES OF THE APPELLANT VIS A VIS THE CO MPARABLES; 12.ERRED IN MAKING THE TRANSFER PRICING ADJUSTMENT IN CONNECTION WITH THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT BAS ED ON THE TOTAL TURNOVER INSTEAD OF ADJUSTMENT ATTRIBUTABLE TO THE INTERNATIONAL TRANSACTION. 3. BRIEFLY STATED THE ASSESSEE COMPANY, FORMERLY KN OWN AS SEMINIS VEGETABLE SEEDS (INDIA) LTD. NOW MERGED WITH THE AB OVE NAMED ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF PROCESSING AND MARKETING OF VEGETABLES SEEDS. THE ASSESSEE COMPANY FILED ITS RETURN OF INC OME FOR A.Y. 2006-07 ON 29.11.2006, DECLARING LOSS OF `. 4,62,83,970/- . THE RETURN WAS PROCESSED ON 25.09.2007 U/S.143(1), DETERMINING A REFUND. THE CA SE WAS SELECTED FOR SCRUTINY AND THE DRAFT ASSESSMENT U/S. 144C(1)R.W.S 143(3) OF THE I.T. ACT WAS PASSED ON 24.12.2009, PROPOSING TO ASSESS THE TOTAL INCOME OF THE ASSESSEE AT `. 6,26,71,090/-, AND A COPY OF THE SAME WAS ISSUED TO THE ASSESSEE. THIS DRAFT ORDER WAS PASSED BASED ON THE ORDER OF THE TRANSFER PRICING OFFICER MADE U/S.92CA(1) DATED 30.10.2009. THE ASSESSEE OBJECTED TO THE DRAFT ASSESSMENT ORDER BEFORE DISPUTE RESOLUTION PANEL-I, MUMBAI AND RAISED 15 OBJECTIONS. THE DISPUTE RESOLUTION PANEL-1, MUMBAI ISSUED DIREC TIONS U/S.144C(5) OF THE ACT ON 24.09.2010. THE ASSESSING OFFICER REFERRED T HE DIRECTIONS OF THE DRP-1 TO THE TRANSFER PRICING OFFICER FOR NECESSARY COMPL IANCE. SINCE, THE TRANSFER PRICING OFFICER HAS NOT PASSED ANY ORDER AND NO RE PLY WAS RECEIVED FROM THE TPO, IN VIEW OF THE LIMITATION OF TIME THE ASSESSIN G OFFICER PASSED THE ORDER 4 BASED ON THE DRAFT ORDER PROPOSED EARLIER WITHOUT C ONSIDERING THE DIRECTIONS OF DRP-1,MUMBAI. THE ASSESSEE IS AGGRIEVED AND FILED T HE PRESENT APPEAL. 4. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THA T AO IGNORED THE DIRECTIONS OF THE DRP-1 AND PASSED THE ORDER. HE TH EN REFERRED TO THE DRAFT ASSESSMENT ORDER, DIRECTIONS OF THE DRP-1 DATED 24. 09.2010 AND THE ORDER OF THE AO DATED 28.10.2010 AND SPECIFICALLY AS STATED IN PARA 6.24 OF THE ORDER ABOUT THE LIMITATION. NOT ONLY ON THE ABOVE ISSUE, THE LEARNED COUNSEL ALSO SUBMITTED THAT THE ALTERNATE CONTENTIONS OF THE ASS ESSE RAISED IN THE GROUNDS REQUIRED TO BE ADJUDICATED WITH REFERENCE TO THE TR ANSFER PRICING ISSUES. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORDER OF TH E AO. 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RE CORD. THERE IS NO DOUBT THAT DRP-1 VIDE THE ORDER DATED 24.09.2010 DI RECTED THE AO AFTER CONSIDERING THE ASSESSEES OBJECTIONS, WHICH THE AO ACKNOWLEDGES IN THE ORDER SO PASSED. HOWEVER AS THE TPO HAS NOT PASSED ANY C ONSEQUENTIAL ORDER, THE AO PASSED THE SAME AS PROPOSED IN THE DRAFT ASSESSM ENT ORDER, AS THE MATTER WAS GETTING BARRED BY LIMITATION. THE OBJECTIONS OF THE ASSESSEE WERE CONSIDERED BY THE DRP-1 AND THE ORDER HAS TO BE PAS SED IN COMPLIANCE WITH DIRECTION OF THE DRP-1AS PER THE PROVISIONS OF THE ACT. THE STATUTE IS VERY CLEAR IN PRESCRIBING THAT THE ORDER HAS TO BE PASSED IN C ONFORMITY WITH THE DIRECTIONS WITHOUT PROVIDING ANY FURTHER OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE, WITH IN ONE MONTHFROM THE END OF THE MONT H IN WHICH SUCH DIRECTION IS RECEIVED. SINCE THE ORDER WAS NOT PASSED IN AC CORDANCEWITH THE DIRECTIONS OF THE DRP-1, WE ARE OF THE OPINION THAT THE ORDER HAS TO BE SET ASIDE FOR REDOING THE SAME. THE AO IS DIRECTED TO PASS THE OR DER IN ACCORDANCE WITH THE LAW. NEEDLESS TO SAY THE DIRECTIONS OF THE DRP-1 SH OULD BE KEPT IN MIND WHILE PASSING THE ORDER AFRESH. THE ORDER OF THE AO DATED 28.10.2010 IS THEREFORE, SET ASIDE. 5 6. SINCE THE ORDER IS SET ASIDE, WE DO NOT INTEND T O DEAL WITH ISSUES RAISED BY THE ASSESSEE IN THE ALTERNATE GROUNDS ONMERITS, AS THESE ASPECTS ARE REQUIRED TO BE EXAMINED BY THE AO. THE GROUNDS ARE TREATED AS ALLOWED. 7. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSE. ORDER PRONOUNCED ON THIS 13 TH DAY OF MAY, 2011. SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER MUMBAI, DATED : 13/05/2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI