Gulbrandsen Chemicals Pvt. Ltd., Baroda V. The Dy.CIT.,Circle-1(1), Baroda

ITA 916/AHD/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4983 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM S SHARMA
• Keywords: Transfer pricing; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ./ITA NO. 916/AHD/2015 ( / ASSESSMENT YEAR : 2007-08) GULBRANDSEN CHEMICALS PVT.LTD. ON COASTAL HIGHWAY PO MUJPUR TAL. PADRA VADODARAE 391 440 / VS. THE DCIT CIRCLE-1(1) BARODA ./ ./ PAN/GIR NO. : AABCG 0812 A ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUKUND BAKSHI, AR / RESPONDENT BY : SHRI VIKRAM S.SHARMA, SR.DR / DATE OF HEARING 06/05/2019 !'# / DATE OF PRONOUNCEMENT 14/05/2019 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX(APPEALS)-1, VADODARA [CIT(A) IN SHORT] DATED 22/12/2014 IN THE MATTER OF ASSESSMENT ORDER UNDER S.143(3) R.W.S. 1 44C(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT' ) DATED 02/02/2011 RELEVANT TO ASSESSMENT YEAR (AY) 2007-08. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- 1. BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL S)-I, ITA NO.916/AHD/2017 GUJBRANDSEN CHEMICALS VS. DCIT ASST .YEAR - 2007-08 - 2 - BARODA HAS ERRED IN UPHOLDING THE PENALTY ORDER PAS SED BY THE LD.DCIT, CIRCLE 1(1), BARODA (LD.AO) LEVYING PENALT Y OF RS.1,01,50,000 ON THE APPELLANT UNDER SECTION 271(1 )(C) OF THE INCOME TAX ACT, 1961. 2. BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEA LS) HAS ERRED IN UPHOLDING THE ORDER OF THE LD.AO THAT THE APPELLANT HAS FURNISHED INACCURATE DOCUMENTATION AND FAILED TO PR OVDE A BONAFIDE EXPLANATION IN RESPECT OF ADDITION OF RS.2 ,78,02,502/- REPRESENTING THE ADJUSTMENT MADE ON TRANSFER PRICIN G AS MADE TO THE RETURNED INCOME. 3. BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN UPHOLDING THE ORDER OF THE LD.AO THAT THE APPELL ANT HAS FURNISHED INACCURATE PARTICULARS AND FAILED TO PROV IDE A BONAFIDE EXPLANATION WITH RESPECT TO DISALLOWANCE OF RS.23,1 4,803/- REPRESENTING THE ADDITION MADE ON ACCOUNT OF REVENU E EXPENDITURE TREATED AS CAPITAL EXPENDITURE WHICH IS ADDED TO TH E RETURNED INCOME. 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE LD. AR FOR THE ASSESSEE POINTED OUT THAT PENALTY OF RS.1,01,50,000 /- WAS IMPOSED ON TWO COUNTS; (I) ADDITION OF RS.2,78,02,502/- REPRESENTI NG THE ADJUSTMENT MADE ON TRANSFER PRICING AND (II) DISALLOWANCE OF RS.23, 14,803/- REPRESENTING ADDITIONS MADE ON ACCOUNT OF REVENUE EXPENDITURE TR EATED AS CAPITAL EXPENDITURE. 4. IN THE CONTEXT, LD.AR POINTED OUT THAT BOTH THE ADDITIONS HAVE BEEN DELETED BY COORDINATE BENCH OF TRIBUNAL IN THE QUANTUM PROCEEDINGS VIDE PARA NOS.20 AND 33 RESPECTIVELY IN ITA NO.874/AHD/2012 AND ORS. ORDER DATED 12/02/2019 WHI CH READ AS UNDER: ITA NO.916/AHD/2017 GUJBRANDSEN CHEMICALS VS. DCIT ASST .YEAR - 2007-08 - 3 - 20. WE HAVE NOTED THAT THE ASSESSEE HAS APPLIED TN MM BY COMPARING THE PROFITS ON TRANSACTIONS WITH AES AND THE NON AE S AND NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE ALLOCATION OF COSTS IN THE SEGMENTAL ACCOUNTS WHICH ARE DULY RECONCILED WITH ENTITY LEVE L CONSOLIDATED ACCOUNTS. WE HAVE ALSO NOTED THAT DEALING WITH THE INTERNAL TNMM ADOPTED BY THE ASSESSEE THE TPO HAD EXPRESSED THE V IEW THAT THE BASIS OF ALLOCATING THE OVERHEADS WAS NOT CLEAR, IN RESPO NSE TO WHICH IT WAS EXPLAINED BY THE ASSESSEE THAT REVENUE AND EXPENSES HAVE BEEN ALLOCATED ON ACTUAL BASIS WHEREVER THESE ARE DIRECT LY ALLOCABLE, AND WHEREVER THESE ARE NOT DIRECTLY ALLOCABLE, THE ALLO CATION HAS BEEN DONE ON THE BASIS OF APPROPRIATE ALLOCATION KEY SUCH AS RATION OF SALES QUANTITY, SALES REVENUE, TOTAL REVENUE. IT WAS ALSO EXPLAINED THAT THE SEGMENTAL DETAILS HAVE BEEN RECONCILED WITH ENTITY LEVEL AUDITED ACCOUNTS. THE ASSESSEE HAD FURTHER SUBMITTED THAT ' IN CASE IF IN YOUR VIEW THERE ARE ANY INAPPROPRIATE COST ALLOCATIONS, WE WOULD APPRECIATE IF YOU CAN KINDLY LET US KNOW WHICH COST ALLOCATION S ARE NOT APPROPRIATE AND WHY THESE ARE NOT APPROPRIATE SO THAT WE CAN AC CORDINGLY CLARIFY AND EXPLAIN ON THOSE ASPECTS'. WE HAVE NOTED THAT T HE TPO DID NOT HAVE ANY SPECIFIC COMMENT ON THIS REQUEST AND HE SIMPLY REJECTED THE EXPLANATION OF ASSESSEE AS 'NOT ACCEPTED'. IN APPEA L ALSO, NO SPECIFIC ADJUSTMENTS WERE SUGGESTED TO THE ALLOCATIONS MADE IN THE SEGMENTAL ACCOUNTS AND THE DISCUSSIONS WERE CONFINED TO GENER ALITIES. IN THESE CIRCUMSTANCES, WE SEE NO REASONS TO DISTURB THE INT ERNAL TNMM ADOPTED BY THE ASSESSEE. WE, THEREFORE, DELETE THE IMPUGNED ALP ADJUSTMENT OF RS.2,78,02,502. . . 33. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THIS PLEA OF THE ASSESSEE AS WELL. AS EVIDENCE FROM A PLAIN LOOK AT THE NATUR E OF EXPENDITURE, OVERWHELMING PART OF THE EXPENSES IS CLEARLY IN THE NATURE OF REPLACEMENT AND REPAIRS AND THE MERE FACT THAT ITS BENEFIT WILL BE BEYOND ONE YEAR CANNOT BE REASON ENOUGH TO DECLINE THE TREATMENT AS REVENUE EXPENDITURE. THIS THRESHOLD OF BENEFIT BEIN G BEYOND ONE YEAR FOR AN EXPENSE TO BE TREATED AS CAPITAL EXPENDITURE IS ALIEN TO THE TAX JURISPRUDENCE. ENDURING BENEFIT IS A TEST OFTEN RES ORTED TO BUT ENDURING BENEFIT DOES NOT MEAN BENEFIT BEYOND ONE YEAR AND I T IS NOT OF UNQUALIFIED APPLICATION SUCH AS IN REPLACEMENT REPA IRS. GLASS LINE REPLACEMENT CANNOT BE AN ACQUISITION OF INDEPENDENT ASSET OR ANYTHING ITA NO.916/AHD/2017 GUJBRANDSEN CHEMICALS VS. DCIT ASST .YEAR - 2007-08 - 4 - OTHER THAN REPLACEMENT REPAIRS. SIMILARLY, BATTERY AND VALVE CANNOT BE TREATED AS STANDALONE ASSETS AND ARE IN THE NATURE OF REPLACEMENTS. THE REMAINING EXPENSES ARE SMALL EXPENSES AND INTEGRAL TO THE R&D FACILITIES MAINTENANCE. IN ANY CASE, THE AUTHORITIE S BELOW HAVE NOT . ASSIGNED ANY SPECIFIC REASONS, BEYOND THE VAGUE GEN ERALITIES, FOR TREATING THESE EXPENSES AS CAPITAL EXPENDITURE. IN VIEW OF THESE DISCUSSIONS AND BEARING IN MIND ENTIRETY OF THE CAS E, WE UPHOLD THIS PLEA OF THE ASSESSEE AS WELL. THE ASSESSING OFFICER IS, ACCORDINGLY, DIRECTED TO, DELETE THE DISALLOWANCE OF RS. 23,14 ,803 ON ACCOUNT OF REPAIRS AND REPLACEMENT. 5. THE LD.DR DID NOT CONTROVERT THE AFORESAID ASSER TIONS ON BEHALF OF THE ASSESSEE. 6. IN VIEW OF THE FACT THAT WHERE THE QUANTUM ADDIT IONS / DISALLOWANCES / ADJUSTMENTS ITSELF HAVE BEEN DISLO DGED, THE VERY EDIFICE FOR IMPOSITION PENALTY UNDER S.271(1)(C) CEASES TO EXIST AND DOES NOT SURVIVE ANY MORE. THE CONSEQUENTIAL PENALTY IMPOSE D UNDER S.271(1)(C) THUS STANDS VACATED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 14/05/2019 SD/- SD/- (MS. MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 14 /05/2019 ITA NO.916/AHD/2017 GUJBRANDSEN CHEMICALS VS. DCIT ASST .YEAR - 2007-08 - 5 - &.., .(.. / T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)- 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION (DICTATION PAD PAGES ATTA CHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.14.5.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.5.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER