BAYER MATERIAL SERVICES P. LTD, V. ADDL CIT RG 10(3),

MA 647/MUM/2012

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 0680 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 18-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R R VORA
• Keywords: Transfer pricing

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER M.A. NO. 647/MUM./2012 (ITA NO. 7977/MUM./2010) (ASSESSMENT YEAR : 200607) M/S BAYER MATERIAL SCIENCE P. L TD . BAYER HOUSE, CENTRAL AVENUE, HIRANANDANI GARDENS, POWAI, MUMBAI- 400 076 PAN: AAACB2419H APPLICANT V/S ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-10(3) MUMBAI RESPONDENT ASSESSEE BY : SHRI R.R. VOR A (AR) REVENUE BY : SHRI AJIT KUM AR JAIN (CIT-DR) DATE OF HEARING 07.06.2013 DATE OF ORDER .06.2013 ORDER PER R. S. SYAL AM:- THIS MISCELLANEOUS APPLICATION U/S 254(2) OF THE IN COME TAX ACT, 1961 HAS BEEN MOVED BY THE ASSESSEE PRAYING FO R RECTIFICATION OF THE ORDER OF THE TRIBUNAL DATED 16.12.11 IN ITA NO. 7977/MUM/2010. 2. A REVISED MISCELLANEOUS APPLICATION HAS BEEN FIL ED BY THE ASSESSEE. THE MAIN GRIEVANCE THROUGH SUCH APPLICATI ON IS AGAINST PARA NO. 13 OF THE IMPUGNED ORDER BY WHICH THE ADOP TION OF CUP METHOD HAS BEEN APPROVED BY THE TRIBUNAL AS AGAINST THE M/S BAYER MATERIAL SCIENCE P. LTD 2 ASSESSEES CLAIM OF TNMM. THE LD. AR SUBMITTED THAT THE TPO WRONGLY SEGREGATED TRADING ACTIVITY FROM INDENTING ACTIVITY OF THE ASSESSEE AND PROCEEDED TO BENCHMARK THE INTERNATION AL TRANSACTIONS OF INDENTING ACTIVITY UNDER THE CUP ME THOD, WHICH WAS WRONGLY APPROVED BY THE TRIBUNAL. HE SUBMITTED THAT THE ASSESSEE HAD SHOWN MARGIN OF 3.6% IN ITS CONSOLIDAT ED PROFIT STATEMENT OF INDENTING AND TRADING ACTIVITY WHICH W AS MORE THAN 0.04% AS CALCULATED ON PAGE 5 OF THE TRIBUNAL ORDER IN RELATION TO THE INDENTING ACTIVITY. IT WAS, THEREFORE, URGED TH AT FIRSTLY, THE APPLICATION OF TNMM BE ACCEPTED AND SECONDLY, THE H IGHER OVERALL PROFIT RATE SHOULD BE CONSIDERED AT ARMS LENGTH WI THOUT GOING SEPARATELY INTO INDENTING ACTIVITY. THE LD. DR OPPO SED THE ASSESSEES CONTENTION BY SUBMITTING THAT BOTH THE A CTIVITIES WERE DIFFERENT. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSES SEES ARGUMENT THAT BOTH THE INDENTING AND TRADING ACTIVITIES BE T AKEN AS ONE COMPOSITE UNIT, CAME TO REJECTED BY THE TRIBUNAL. I T IS NATURALLY SO BECAUSE BOTH THESE ACTIVITIES ARE POLES APART AND F UNCTIONALLY QUITE DIFFERENT FROM EACH OTHER. AS SUCH, THEY CANNOT BE CONSIDERED AS ONE COMPOSITE UNIT FOR THE PURPOSES OF DETERMINING THE ARMS LENGTH PRICE. FURTHER, THE TRIBUNAL HAS UPHELD THE TPOS A CTION IN APPLYING THE CUP METHOD FOR BENCHMARKING THE INTERN ATIONAL TRANSACTIONS UNDER THE INDENTING SEGMENT. ONCE IT I S SO, THERE REMAINS NO RELEVANCE OF TAKING INTO CONSIDERATION T HE PROFIT OF THE ASSESSEE FROM INDENTING AND TRADING ACTIVITY. IN S UCH A SITUATION, THE ALP IS REQUIRED TO BE DETERMINED AS PER RULE 1 0B(1)(A) OF THE I.T. RULES, 1962, WHICH CONTEMPLATE THE COMPARISON INTER ALIA OF THE PRICE CHARGED OR PAID FOR SERVICES PROVIDED IN A CO MPARABLE UNCONTROLLED TRANSACTION AND NOT OF THE PROFIT. IN SUCH A CASE, THE COMPARABILITY OF THE PROFIT LOOSES ITS SIGNIFICANCE . IT IS OBVIOUS THAT M/S BAYER MATERIAL SCIENCE P. LTD 3 THE TRIBUNAL HAS GIVEN ELABORATE REASONS IN REACHIN G THE CONCLUSION FOR SEGREGATING INDENTING ACTIVITY FROM TRADING ACT IVITY AND ALSO APPLYING THE CUP METHOD QUA THE INDENTING ACTIVITY. THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE FOR RE SORTING TO THE COMPARISON OF PROFIT INSTEAD OF PRICE AND FURTHER C OMPARING THE COMBINED PROFIT FROM TRADING AND INDENTING ACTIVITY WITH THE INDENTING ACTIVITY, AMOUNT TO TAKING A POSITION FOR REVIEWING OUR ORDER PASSED U/S 254(1), WHICH IS IMPERMISSIBLE. S COPE OF SECTION 254(2) OF THE ACT IS RESTRICTED TO RECTIFYING ANY M ISTAKE WHICH IS APPARENT FROM RECORD AND NOT REVIEWING THE EARLIER ORDER. AS SUCH, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO M ISTAKE, MUCH LESS, A MISTAKE APPARENT FROM RECORD IN THE IMPUGNE D ORDER REQUIRING ANY RECTIFICATION. 4. THE SECOND ISSUE RAISED BY THE ASSESSEE IN THIS MISCELLANEOUS APPLICATION IS ABOUT THE ALLOWING OF + - 5% ADJUSTM ENT. THE LD. AR WAS FAIR ENOUGH TO CONCEDE THAT THIS ISSUE WOULD AR ISE FOR CONSIDERATION IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ONLY IF HIS SUBMISSION ON THE FIRST ISSUE, BEING TH E APPLICATION OF TNMM INSTEAD OF CUP METHOD WAS ACCEPTED. AS WE HAVE REJECTED THIS CONTENTION OF THE ASSESSEE IN THE EARLIER PARA , THE GRIEVANCE RAISED ON THE SECOND ASPECT, THUS BECOMES ACADEMIC. 5. THE LD. ARS NEXT ARGUMENT OF NOT CONFRONTING TH E SELECTION OF COMPARABLE CASES IN APPLYING CUP METHOD BY THE TPO, IS MEANINGLESS IN VIEW OF DETAILED DISCUSSION MADE IN PARA-6 OF THE IMPUGNED ORDER. IT HAS BEEN SPECIFICALLY RECORDED O N PAGE 6 OF THE ORDER THAT THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO GIVE NAMES OF THE COMPARABLE COMPANIES WHICH WERE INDULGING IN SU CH KIND OF INDENTING BUSINESS IN CHEMICALS FOR PROVING THAT IT S PRICE WAS AT ALP, BUT THE ASSESSEE FAILED TO DISCHARGE THIS BURD EN. IT WAS ONLY THEREAFTER, THAT THE TPO SELECTED COMPARABLE CASES. IT IS NOTICED M/S BAYER MATERIAL SCIENCE P. LTD 4 THAT THE ASSESSEE GOT AMPLE OPPORTUNITY TO OBJECT T O THE SELECTION OF SUCH COMPARABLE CASES BY WAY OF PROCEEDINGS BEFORE AO AND DRP TAKING PLACE AFTER THE PASSING OF THE ORDER BY THE TPO. AS SUCH, WE ARE OF THE CONSIDERED OPINION THAT THIS CONTENTION IS NOT SUSTAINABLE. 6. THE OTHER MINOR FACTUAL ISSUES RAISED BY THE ASSESSEE IN THIS MISCELLANEOUS APPLICATION WERE ADMITTED TO BE RELEV ANT ONLY IF ITS CONTENTION OF THE ACCEPTANCE OF TNMM WAS ACCEPTED. AS WE HAVE ALREADY HELD THAT THE APPLICATION OF CUP METHOD IS APPROPRIATE IN THE CIRCUMSTANCES PREVAILING IN THE INSTANT CASE, W E ARE OF THE CONSIDERED OPINION THAT SUCH OTHER POINTS SO RAISED IN THE PRESENT MISCELLANEOUS APPLICATION ARE OF NO SIGNIFICANCE. 7. IN THE RESULT, THE MISCELLANEOUS APPLICATION IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 2013 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- R.S.SYAL ACCOUNTANT MEMBER MUMBAI, DATED: JUNE 2013 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; M/S BAYER MATERIAL SCIENCE P. LTD 5 (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE. SK/- TRUE COPY BY ORDER (DY./ASSTT. REGISTRAR) ITAT, MUMBAI