MONSANTO HOLDINGS P. LTD, V. DCIT RG 8(2),

MA 325/MUM/2011

• Counselvise Citation: [2011] 123 COUNSELVISE.COM (IT) 6985 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 09-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: R R VORA
• Keywords: Transfer pricing; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER MA NO. 325/MUM/2011 (ARISING OUT OF ITA NO. 9130/MUM/2010) (ASSESSMENT YEAR: 2006-07) M/S. MONSANTO HOLDINGS P. LTD. DCIT, RANGE 8(2) 5TH FLOOR, AHURA CENTRE AAYAKAR BHAVAN, M.K. ROAD 96, MAHAKALI CAVES ROAD VS. MUMBAI 400020 ANDHERI (E), MUMBAI 400092 PAN - AAACN 9499 F APPELLANT RESPONDENT APPELLANT BY: SHRI R.R. VORA RESPONDENT BY: SHRI D.S. SUNDER SINGH DATE OF HEARING: 19.08.2011 DATE OF PRONOUNCEMENT: 30.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS MISCELLANEOUS APPLICATION IS ARISING OUT OF TH E ORDER OF THE ITAT IN ITA NO. 9130/MUM/2010 DATED 13.05.2011. 2. IN THIS MISCELLANEOUS APPLICATION ASSESSEE CONTENDS THAT GROUND NOS. 13 TO 15 WERE INADVERTENTLY NOT REPRODUCED AND WHIL E SETTING ASIDE THE ORDER OF THE A.O. IT DID NOT CONSIDER THE ARGUMENTS PLACE D ON RECORD REGARDING TRANSFER PRICING ADJUSTMENTS AS WELL AS THE FACT RE LATING TO DISALLOWANCE OF RESEARCH AND TRIAL EXPENSES COVERED BY GROUND NOS. 14 & 15. 3. THE LEARNED A.R., SHRI RAJAN VORA EXPLAINED THE FAC TS OF THE CASE AND THE MISTAKES OCCURRED IN THE ORDER. IT WAS HIS SUBM ISSION THAT GROUND NOS. 14 & 15 WERE ARGUED AND INADVERTENTLY, SINCE THE GR OUNDS ITSELF WERE NOT PRODUCED, THAT PART OF THE ORDER WAS NOT CONSIDERED EVEN THOUGH THE ENTIRE MA NO. 325/MUM/2011 M/S. MONSANTO HOLDINGS P. LTD. 2 ORDER WAS RESTORED TO THE FILE OF THE A.O. FOR REDO ING ACCORDING TO THE DIRECTIONS OF THE DRP-I. 4. THE LEARNED D.R., WHILE ADMITTING THAT GROUND NOS. 13 TO 15 WERE NOT REPRODUCED, STATED THAT THERE IS NO NEED FOR CONSID ERING THE SUBMISSIONS OF THE LEARNED A.R. AS THE ORDER WAS SET ASIDE TO THE A.O. FOR REDOING ACCORDING TO THE DIRECTIONS OF THE DRP. 5. WE HAVE CONSIDERED THE ISSUE. THERE IS A MISTAKE IN NOT REPRODUCING GROUND NOS. 13 TO 15 IN PARA 2 OF THE ORDER WHICH S HOULD BE INCLUDED AT THE END OF THE PARA AS UNDER: - BENEFIT OF +/- 5% RANGE 13. THE LEARNED AO/TPO ERRED IN COMPUTING THE ALP W ITHOUT CONSIDERING THE 5 PERCENT BANDWIDTH AVAILABLE UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT. DISALLOWANCE OF RESEARCH & DEVELOPMENT EXPENSES 14. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE AO ERRED IN IGNORING THE DIRECTIONS OF THE DRP MAKI NG DISALLOWANCE OF RS.1,03,54,937/- IN RESPECT OF RESE ARCH AND DEVELOPMENT EXPENDITURE CLAIMED BY THE APPELLANT BY TREATING THE SAME AS CAPITAL IN NATURE; 15. WITHOUT PREJUDICE TO ABOVE GROUND NO 14, THE LEARNED AO OUGHT TO HAVE ALLOWED SUCH EXPENDITURE AS A DEDUCTION UND ER SECTION 35(1)(IV) R.W.S. 35(2) OF THE ACT. 6. WITH REFERENCE TO THE MISTAKES REGARDING TRANSFER PRICING ADJUSTMENTS AND RESEARCH & TRIAL EXPENSES, THIS ORDER OF THE A. O. WAS ALREADY SET ASIDE WITH THE DIRECTION TO PASS THE ORDER IN ACCORDANCE WITH THE DIRECTIONS OF DRP-I. IT WAS SUBMITTED THAT THE TPO ARRIVED AT THE COMPARABLES AT 48.83% ON THE BASIS OF THE COMPARABLES OF THE DEPARTMENT A ND THE DRP HAS GIVEN THE MARGIN OF ASSESSEE AS PER THE REVISED ACCOUNTS SUBMITTED AT 50.54%. IT IS ALSO FURTHER SUBMITTED THAT THE AVERAGE GROSS MA RGIN OF COMPARABLES OF THE DEPARTMENT WORKS OUT TO BE 51.40% AS AGAINST 48 .83% CONSIDERED IN THE TPO ORDER AND THIS REVISED STATEMENT WAS PLACED IN THE PAPER BOOK AT MA NO. 325/MUM/2011 M/S. MONSANTO HOLDINGS P. LTD. 3 PAGE 101. IT WAS FURTHER SUBMITTED VIDE PARA 5 ON T HE CONTENTION THAT ASSESSEE HAS NOT FILED FINANCIAL ACCOUNTS OF THE CO MPARABLE COMPANIES AS IT DOES NOT ARISE IN THE CASE OF ASSESSEE AS COMPARABL ES ARE BY THE DEPARTMENT AND ASSESSEES MARGIN WAS ACCEPTED BY THE DRP AT 50 .54% AND THE BENEFIT OF +/- 5% RANGE U/S 92C(2) SHOULD BE AVAILABLE TO T HE ASSESSEE AS CONTENDED IN GROUND NO. 13. 7. WITH REFERENCE TO RESEARCH AND DEVELOPMENT EXPENSES , IT WAS SUBMITTED THAT DRP-I HAS ALREADY RESTORED THE MATTE R TO THE A.O. WITH THE DIRECTION THAT BY THE VERY NATURE OF EXPENSES THE S AME SHALL BE ALLOWABLE UNDER THE ACT AND ACCORDINGLY THE A.O. WAS DIRECTED TO EXAMINE THIS EXPENDITURE AND IF THEY RELATE TO RESEARCH AND DEVE LOPMENT, THE SAME SHOULD BE ALLOWED AS DEDUCTION. HAVING GIVEN THE DIRECTION BY THE DRP TO ALLOW THEM AS REVENUE EXPENDITURE PROVIDED THEY PERTAIN T O RESEARCH AND DEVELOPMENT, THE A.O. DID NOT ALLOW STATING THAT TH E NATURE OF EXPENSES DID NOT SHOW THAT THE EXPENSES ON RESEARCH AND TRIAL AR E OF REVENUE IN NATURE. ATTENTION WAS DRAWN TO THE FACT THAT THESE RESEARCH AND TRIAL ACTIVITIES WERE APPROVED BY THE DEPARTMENT OF SCIENTIFIC AND INDUST RIAL RESEARCH, COPY OF THE RENEWED LICENCE AND NATURE OF EXPENSES SO THAT THESE ARE IN THE NATURE OF RESEARCH AND DEVELOPMENT EXPENSES AND SHOULD BE ALLOWED AS REVENUE EXPENDITURE AS PER THE DIRECTIONS OF THE DRP-I AFTE R DUE VERIFICATION. IN THE ALTERNATE, EVEN IF IT IS HELD THAT THE EXPENSES ARE CAPITAL IN NATURE THE SAME SHOULD BE ALLOWABLE FOR DEDUCTION UNDER SECTION 35( 1)(4) R.W.S. 35(2) OF THE ACT. 8. THESE SUBMISSIONS WERE ALREADY PLACED ON RECORD EAR LIER WHEN THE APPEAL WAS ARGUED AND HEARD, BUT SINCE THE ISSUE WA S RESTORED TO THE FILE OF THE A.O. FOR PASSING ORDERS IN ACCORDANCE WITH THE DIRECTIONS OF THE DRP-I, THESE ARE NOT SPECIFICALLY MENTIONED. NOW THAT THE ASSESSEE HAS COME UP IN M.A., WE PLACE THE OBJECTIONS/ CONTENTIONS OF THE A SSESSEE ON RECORD AS ABOVE. THE ISSUES WERE ENTIRELY RESTORED TO THE FI LE OF THE A.O FOR FOLLOWING THE DIRECTIONS OF DRP-1. WE WOULD MAKE IT CLEAR TH AT A.O. SHOULD CONSIDER ALL THE OBJECTIONS AND PASS THE ORDER IN ACCORDANCE WITH THE DIRECTIONS OF THE MA NO. 325/MUM/2011 M/S. MONSANTO HOLDINGS P. LTD. 4 DRP-I. ASSESSEE SHOULD BE PROVIDED OPPORTUNITY BEFO RE FINALISING THE ORDER. WITH THESE DIRECTIONS THE M.A. IS CONSIDERED ALLOWE D. 9. IN THE RESULT, M.A. OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. CIT/DIT, MUMBAI 4. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P..