M/s Sura Leathers Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-6(1)(2), Bangalore

ITTPA 2727/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7707 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 01-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ES C , BANGALORE BEFORE SHRI B.R.BASKARAN , ACCOUNTANT MEMBER AND SHRI P AV AN KUMAR GADALE, JUDICIAL MEM B E R IT (TP) A NO. 2727 / BANG / 2018 ASSESSMENT YEAR : 20 14 - 15 SURA LEATHERS PVT LTD., NO. 11/1, 24 TH A CROSS, KR ROAD, BANASHANKARI 2 ND STAGE, BANGALORE - 560070 PAN AABCS9829F VS. THE DY. CIT, CIRCLE 6(1)(2 ), BANGALORE 560 095 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SRIPADA M, CA RESPONDENT BY : SHRI PRADEEP KUMA R, CIT DATE OF HEARING : 26 .03 .2019 DATE OF PRONOUNCEMENT : 24 .04 .2019 O R D E R PER SHRI B.R. BASKARAN, A M : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER PASSED BY THE A.O U/S 143(3) R.W.S 144C(1) OF THE ACT FOR THE A.Y 2014 - 15 IN PURSUANCE OF DIRECTIONS ISSUED BY THE LD. DISPUTE RESOLUTION PANEL (DRP). 2. THOUGH THE ASSESSEE HAS RAISED MANY GROUNDS, THE LD. AR RESTRICTED IS ARGUMENT S WITH REGARD TO GROUND NO. 3, WHICH RELATES TO SELECTION OF MOST APPROPRIATE METHOD FOR BENCH MARKIN G THE SPECIFIED DOMESTIC TRANSACTIONS. 3. T HE ASSESSEE I S ENGAGED IN THE TANNERY BUSINESS I.E PROCESSING OF RAW LEATHER. IT PURCHASES RAW LEATHER FROM ITS ASSOCIATED ENTERPRISE (AE) IT (TP) A NO. 2727 / BANG /2018 . SUR A LEAHERS PVT LTD , BANGALORE. 2 NAMED M/S. SUPREME OVERSEAS EXPORTS PVT LTD.,(SOEPL). THE RAW LEATHER IS SENT FOR FIRST STAGE OF PROCESSING TO JOB WORKERS. THEREAFTER, THE ASSESSEE COMPANY DOES SECONDARY PROCESS ING IN ORDER TO CONVERT THE SAME INTO FINISHED LEATHER. THEREAFTER, THE ASSESSEE SALES THE FINISHED LEATHER TO ITS ASSOCIATED ENTERPRISE SOEPL . 4. THE SPECIFIED DOMESTIC TRANSACTIONS REPORTED BY THE ASSESSEE, INTER - ALIA, CONSISTED OF PURCHASE OF LAW LEATHER FORM SOEPL. THE ASSESSEE BENCH MARKED THE TRANSACTIONS BY ADOPTING THE TNMM METHOD. THE PROFIT LEVEL INDICATOR (PLI) WAS TAKEN AS OPERATING PR OFIT TO OPERATING REVENUE. THE PLI OF THE COMPARABLE COMPANIES WAS WORKED OUT TO 1.26%. SINCE THE ASSESSEE EARNED THE PLI OF 2. 1%, IT WAS SUBMITTED THAT TRANSAC TIONS OF PURCHASE OF LEATHER WAS CARRIED OUT AT ARMS LENGTH. 5. THE TPO, HOWEVER, REJECTED MA NY COMPARABLES SELECTED BY THE ASSESSEE AND FINALLY SELECTED A COMPANY NAMED M/S. SUPER HOUSE LTD. THE PLI OF M/S SUPER HOUSE LTD., WAS 3.57%. ACCORDINGLY, THE LD. TPO MADE AN ADJUSTMENT OF RS. 240.46 LAKHS U/S 92CA OF THE ACT. THE LD. DRP CONFIRMED THE SAME. ACCORDINGLY THE AO PASSED THE FINAL ASSESSMENT ORDER. 6. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN PURCHASING RAW MATERIAL , NOT ONLY FROM ASSOCIATED ENTERPRISE BUT ALSO FROM UNRELATED PARTIES. ACCORDINGLY THE LD. AR SUBMITTED THAT THE CUP ME THOD WAS THE MOST APPROPRIATE METHOD TO BENCH MARK THE SPECIFIED DOMESTIC TRANSACTION , SINCE INTERNAL CUP IS AVAILABL E. THOUGH THE ASSESSEE HAD INI TIALLY BENCH MARK ED THE TRANSACTIONS UNDER TNMM METHOD , YET IT PLEADED B EFORE THE LD. DRP THAT THE CUP METHO D SHOULD BE ADOPTED IN IT (TP) A NO. 2727 / BANG /2018 . SUR A LEAHERS PVT LTD , BANGALORE. 3 THE FACTS AND CIRCUMSTANCES OF THE CASE, AS IT IS THE MOST APPROPRIATE METHOD. THE LD. AR SUBMITTED THAT THE LD. DRP DID NOT ADJUDICATE THE OBJECTION RAISED BY THE ASSESSEE IN THIS REGARD. 7. THE LD. AR ALSO FURNISHED FOLLOWING WRIT TEN SUBMISSIONS TO BUTTRESS HIS CONTENTIONS. IT (TP) A NO. 2727 / BANG /2018 . SUR A LEAHERS PVT LTD , BANGALORE. 4 IT (TP) A NO. 2727 / BANG /2018 . SUR A LEAHERS PVT LTD , BANGALORE. 5 IT (TP) A NO. 2727 / BANG /2018 . SUR A LEAHERS PVT LTD , BANGALORE. 6 8. TH E LD. DR, ON THE CONTRARY SUPPOR TED THE ORDERS PASSED BY THE A.O. 9. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICED THAT THE ASSESSEE HAS RAISED A SPECIFIC OBJECTION REQUESTING FOR CHANGE OF METHOD FOR BENCH MARKING THE TRANSACTION BY S UBMITT ING THAT CUP METHOD IS THE MOST APPROPRIATE METHOD. AS S UBMITTED BY THE LD. AR, WE NOTI CED THAT T HE LD. DRP HAS FAILED TO ADJUDICATE THE SAME. BEFORE US THE ASSESSEE MADE STRONG SUBMISSIONS EXPLAINING THE REASON AS TO WHY THE CUP ME THOD IS THE MOST APPROPRIATE METHOD IN THE FACTS AND CIRCUMSTANCES OF THE CASE . SINCE, THE SAID OBJECTION OF THE ASSESS EE HAS NOT BEEN ADDRESSE D BY THE LD. DRP, WE DEEM IT PROPER TO RESTORE THE SAME TO THE FILE OF THE A.O/DRP FOR ADJUDICATING THE ABOVE SAID OBJECTION RAISED BY THE ASSESSEE BEFORE IT. FURTHER , THE C HANGE IN METHOD GOES TO THE ROOT OF THE MATTER AND HENCE T HE SAME REQUIRES FOR FRESH EXAMINATION. ACCORDINGLY , WE SET ASIDE THE ORDER PASSED BY THE A.O ON THIS ISSUE AND RESTORE ALL THE MATTERS RELATING TO DETERMINATION OF ALP OF SPECIFIC DOMESTIC TRANSACTION RELATING TO PURCHASE OF RAW MATERIAL TO THE FILE OF T HE A.O/DRP FOR EXAMINING IT AFRESH. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 24 TH APRIL , 2019 . SD/ - ( PAVAN KUMAR GADALE ) JUDICIAL MEMBER SD/ - (B.R. BASKARAN) ACCOUNTANT MEMEBR BANGALORE ; DATED : 24 TH APRIL , 2019 . IT (TP) A NO. 2727 / BANG /2018 . SUR A LEAHERS PVT LTD , BANGALORE. 7 RAVI KUMAR, PS, HYDERABAD * COPY OF THE ORDER FORWARDED TO : BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE 1. THE APPELLANT 2. THE RESPONDENT. 3. THE D CIT, CIRCLE - 2(2)1, BENGALURU . 4. DISPUTE R ESOLUTION PANEL - 2 , BENGALURU 5. DR, ITAT, BANGALORE 6. GUARD FILE.