KASHIKEY DIAMOND (I) P.LTD, MUMBAI V. ITO 5(2)(2), MUMBAI

ITA 963/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4077 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 23-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2015
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: KEYUR KHAMI
• Keywords: Transfer pricing; International transaction

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.963/MUM/2015 ASSESSMENT YEAR: 2010-11 KASH IKEY DIAMONDS INDIA P. LTD., 610/1611, PRASAD CHAMBER, OPERA HOUSE, MUMBAI-400004 / VS. ITO 5(2)(2) MUMBAI- (ASSESSEE ) (REVENUE) P.A. NO. AACCK3666P / ASSESSEE BY SHRI MAYUR KIS N A DWALA & SHRI KEYUR KHAMI (AR) / REVENUE BY SHRI N.K. CHAND ( CIT - 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 27 TH FEBRUARY, 2014, PASSED IN PURSUANCE TO THE DIRECTIONS GIVEN BY THE DISPUTE RE SOLUTION PANEL (IN SHORT REFERRED TO AS DRP) VIDE ITS ORDE R DATED 14.11.2014, FOR A.Y. 2010-11 ON THE FOLLOWING GROU NDS: KSHIKEY DIAMOND P. LTD. 2 AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER/TRANSFER PRICING OFFICER (FOLLOWING THE DIR ECTIONS GIVEN BY HON'BLE DISPUTE RESOLUTION PANEL I (DRP)) , YOUR APPELLANT PREFERS AN APPEAL AGAINST THE SAME ON FOLLOWING GROUNDS, WHICH IT IS PRAYED MAY BE CONSID ERED WITHOUT PREJUDICE TO ONE ANOTHER: (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE AO/TPO (FOLLOWING THE DIRECTIONS OF HON'BLE DRP ) ERRED IN MAKING UPWARD TRANSFER PRICING ADJUSTMENT RS.3 8,2O,727/-. (2) (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO (FOLLOWING THE DIRECTIONS OF HON'BL E DRP) ERRED IN MAKING ADACDDITION10 % OF SALES PROMOTION EXPENSES OF RS.48,831/-. (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE AO/TPO (FOLLOWING THE DIRECTIONS OF HON'BLE DRP ) ERRED IN MAKING AD-HOC ADDITION OF 10% OF FOREIGN TRAVELLING EXPENSES OF RS.90,766/- 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI MAYUR KISANDWALA & SHRI KEYUR KHAMI, AUTHORISE D REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND B Y SHRI N.K. CHAND, DEPARTMENTAL REPRESENTATIVE (CIT-DR) ON BEHA LF OF THE REVENUE. 3. GROUND NO.1: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE UPWARD TRANSFER PRICING ADJUSTMENT RS.38,2O,727 /-. 3.1. DURING THE COURSE OF HEARING, IT HAS BEEN STATED A T THE VERY OUTSET BY THE LD. COUNSEL THAT ARMS LENGTH PRI CE (IN SHORT ALP) DETERMINED BY THE TRANSFER PRICING OFFIC ER (IN SHORT TPO) FALLS WITHIN THE RANGE OF (+/-) 5%, AND THEREF ORE, WITHOUT PREJUDICE TO HIS OTHER SUBMISSIONS, EVEN IF THE ALP DETERMINED BY THE TPO IS ACCEPTED NO ADJUSTMENT WAS POSSIBLE U NDER THE KSHIKEY DIAMOND P. LTD. 3 LAW, IN VIEW OF SPECIFIC AND CLEAR PROVISIONS OF SE COND PROVISO TO SUB-SECTION (2) OF SECTION 92C. IN RESPONSE, THE LD. CIT-DR WAS NOT ABLE TO NEGATE THE FACT STATED BY THE LD. C OUNSEL OF THE ASSESSEE. 3.2. IN VIEW OF THE ABOVE SUBMISSIONS, BEFORE DECIDING OTHER ISSUES, WE FIND IT APPROPRIATE TO DECIDE THE PRELIM INARY ISSUE AS RAISED ABOVE. 3.3. THE BRIEF FACTS ARE THAT THE ASSESSEE IS 100% SUBS IDIARY OF ITS AE I.E. KASHIKEY CO. LTD. JAPAN. THE ASSESSEE I S ENGAGED IN THE BUSINESS OF TRADING OF CUT AND POLISHED DIAMOND S. IT HAS MADE 99.61% OF ITS SALE TO ITS AFORESAID AE HOLDING COMPANY. THUS, THE INTERNATIONAL TRANSACTION BENCHMARKED DUR ING THE COURSE OF TRANSFER PRICING PROCEEDINGS WAS SALE OF GOODS TO THE AE. THE BUSINESS MODEL OF THE ASSESSEE WAS THAT IT PROCURED DIAMONDS FROM LOCAL SUPPLIERS AS PER THE BUYERS CO NFIRMED REQUIREMENTS AND ACCORDING TO THEIR SPECIFICATIONS. THE ASSESSEE ADOPTED PROFIT LEVEL INDICATOR (PLI) AS PB DITA/SALES WHICH WAS CHANGED BY THE TPO TO OP/OC AND CARRIED O UT A FRESH SEARCH OF ALL THE COMPARABLES. THE TPO COMPUT ED ARMS LENGTH MEAN MARGIN (TAKING OP/OC AS PLI) AT 1.80% A S AGAINST ASSESSEES MARGIN OF 0.41% AND ACCORDINGLY, HE MADE AN ADJUSTMENT U/S 92CA OF RS.33,61,273/-. 3.4. DURING THE COURSE OF PROCEEDINGS BEFORE US, LD. CO UNSEL OF THE ASSESSEE SUBMITTED A CHART SHOWING THAT SALE S OF THE ASSESSEE WAS RS.24,18,18,184/- AND ITS 105% IS EQUA L TO RS.25,39,09,093/-. ON THE OTHER HAND, ALP COMPUTED BY THE KSHIKEY DIAMOND P. LTD. 4 TPO IS RS.24,56,38,911/-. IT IS THUS NOTED THAT THE ALP DETERMINED BY THE TPO IS LESS THAN 105% OF THE ACTU AL AMOUNT OF THE TRANSACTION. UNDER THESE CIRCUMSTANCES, AS P ER SECOND PROVISO TO SUB-SECTION (2) OF SECTION 92C, THE PRIC E AT WHICH THE INTERNATIONAL TRANSACTIONS HAS ACTUALLY BEEN UN DERTAKEN, SHALL BE DEEMED TO BE THE ALP. NO CONTRARY FACTS OR LEGAL POSITION WAS BROUGHT OUT BEFORE US BY THE LD. CIT-D R. UNDER THESE CIRCUMSTANCES, WE FIND THAT NO TRANSFER PRICI NG ADJUSTMENT WAS CALLED FOR, AND THEREFORE, THE ADDIT ION MADE BY THE TPO/AO IS DIRECTED TO BE DELETED. SINCE WE HAVE DECIDED THIS ISSUE ON THE PRELIMINARY GROUND ITSELF, OTHER ISSUES RAISED BY THE ASSESSEE BY WAY OF WRITTEN NOTE SUBMITTED BY HIM, ARE NOT BEING DECIDED. ACCORDINGLY, THIS GROUND MAY BE TREATED AS PARTLY ALLOWED. 4. GROUND NO.2 & 3 : THESE GROUNDS HAVE NOT BEEN PRESSED BY THE LD. COUNSEL DURING THE COURSE OF HEARING FOR TH E REASON THAT AMOUNT INVOLVED IN THESE TWO GROUNDS ARE NOT M ATERIAL. ACCORDINGLY, THESE GROUNDS ARE DISMISSED. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 ND APRIL, 2016. SD/- (MAHAVIR SINGH) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED: 22/04/2016 CTX? P.S/. .. KSHIKEY DIAMOND P. LTD. 5 # $%&'&($ / 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