WOCKHARDT LTD., V. ACIT CENT. CIR. - 14,

MA 693/MUM/2010

• Counselvise Citation: [2011] 123 COUNSELVISE.COM (IT) 7038 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 23-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARTHSATHI
• Keywords: Transfer pricing; International transaction
• Section: 92C; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L : MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI R.S. PADVEKAR, J.M. M.A. NO.693/MUM/2010 ARISING OUT OF ITA NO.3556/MUM/2007 ASSESSMENT YEAR: 2003-04 M/S. WOCKHARDT TOWERS, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI-400 051 PAN NO: AAACW 2472 M THE A.C.I.T. CENT.CIR.-14, ROOM NO.1102, 11 TH FLOOR, OLD CGO ANNEXE BLDG., MUMBAI-400 020 (APPELLANT) VS (RESPONDENT) APPELLANT BY : SHRI NIMESH VORA RESPONDENT BY : SHRI PARTHSATHI DATE OF HEARING : 17.06.2011 DATE OF PRONOUNCEMENT : 26..08.2011 O R D E R PER R.S. PADVEKAR, JM THIS M.A. IS FILED STATING THAT THERE IS A MISTAKE APPARENT IN THE ORDER OF THE TRIBUNAL IN APPEAL BEING ITA NO.3556/M UM/2007 DATED 9.7.2010. 2. THE FIRST ISSUE IS IN RESPECT OF GRANT OF DEDUCT ION U/S.80HHC FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT UNDER SECT ION 115JA. IT IS STATED THAT WHILE ALLOWING THE REVENUES GROUND THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF AJANTA PHARMA LTD 318 ITR 252 WAS FOLLOWED. NOW, SAID DECISION HAS BEEN REVERSED BY THE HONBLE SUPREME COURT REPORTED IN 327 ITR 305. 3. WE HAVE HEARD THE PARTIES. THE LD. D.R. FAIRLY CONCEDED THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT HAS B EEN REVERSED. IN MA 693/MUM/2010 M/S. WOCKHARDT TOWERS 2 THE CASE OF ACIT VS. SAURASHTRA KUTCH STOCK EXCHANG E -305 ITR 227 (SC) IT IS HELD THAT THE SUBSEQUENT DECISION OF THE HONBLE SUPREME COURT CAN BE TREATED AS A MISTAKE APPARENT FROM THE RECORD AND ANY ORDER CAN BE SUBJECTED TO THE RECTIFICATION U/S.254 (2). THE REVENUE HAS RAISED THE GRIEVANCES IN ITS APPEAL AGAINST TH E ORDER OF THE LD. CIT (A) IN DIRECTING THE A.O. TO IGNORE THE PHASING OU T PROVISION FOR DEDUCTION U/S.80HHC FOR THE PURPOSE OF COMPUTING TH E BOOK PROFIT U/S.115JB OF THE ACT IN GROUND 1(VIII) (AND NOT 1(I V)). WE, ACCORDINGLY, RECTIFY THE ORDER ON THIS ORDER ON THIS ISSUE AND P ARA 9 OF THE TRIBUNAL ORDER IS SUBSTITUTED AS UNDER:- 9. WE HAVE HEARD THE PARTIES, WE FIND THAT NO ISSU E STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF AJANTA PHARMA LTD. VS. CIT 327 ITR 305 (SC). WE, ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. 4. THE NEXT ISSUE IS FOR THE PURPOSE OF SEC 115 JB FOR COMPUTING THE DEDUCTION U/S.80HH WHETHER THE SAME SHOULD BE O N THE BASIS OF THE BOOK PROFIT OR ON THE PROFITS OF THE BUSINESS C OMPUTED UNDER NORMAL PROVISIONS OF THE ACT?. IT IS STATED IN THE APPLICATION THAT THE DECISION IN THE CASE OF DCIT VS. SYNCOME FORMULATIO NS (INDIA) LTD. 106 ITD 192 (MUM)(SB) STILL HOLDING THE GOOD LAW. IT IS FURTHER STATED THAT THE DECISION OF THE HONBLE HIGH COURT OF BOMB AY IN THE CASE OF AJANTA PHARMA LTD. (SUPRA) HAS BEEN DISTINGUISHED B Y THE OTHER CO- ORDINATE BENCH IN THE CASE OF DY. CIT VS. GLENMARK LABORATORIES LTD. 32 DTR 183. THE DECISION IN THE CASE OF AJANTA PHA RMA LTD. (SUPRA) HAS BEEN REVERSED BY THE HONBLE SUPREME COURT AND HENCE, THE FINDING OF THE TRIBUNAL NEEDS RECTIFICATION. WE HA VE ALSO HEARD THE LD. D.R. 5. THE REVENUE HAS QUESTIONED THE ORDER OF THE LD. CIT (A) ON THE ISSUE WHETHER FOR THE PURPOSE OF SEC. 115JB EXPORT PROFIT SHOULD BE AS MA 693/MUM/2010 M/S. WOCKHARDT TOWERS 3 PER THE BOOK OR NOT AND THIS ISSUE RAISED IN GROUND NO.1(VII) AND WE FIND THAT THE DECISION OF THE HONBLE BOMBAY HIGH C OURT HAS BEEN REVERSED BY THE HONBLE SUPREME COURT AND NOW THE I SSUE STANDS SETTLED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, WE RECTIFY THE ORDER AND PARA NO.17 IS SUBSTITUTED AS UNDER IN PLACE OF EXIS TING PARA NO.17: 17. NOW THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF AJANTA PHARMA LTD. (SUPRA). THE HONBLE SUPREME COURT HAS REVERSED THE DECISION IN THE CASE OF AJANTA PHARMA LTD. (SUP RA) OF THE BOMBAY HIGH COURT CONFIRMING THE DECISION OF THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY. CIT VS. SYNCOME FORMULATIONS (INDIA) LTD. 106 ITD 192. WE THEREFORE CONFIRM THE ORDER OF THE LD. CIT (A) AND DISMISS GROUND NO.1(VII). 6. THE NEXT GRIEVANCE OF THE ASSESSEE IS IN RESPECT OF ACT DETERMINING THE ARMS LENGTHS PRICES (ALP) WMADE U/S .92C OF THE ACT DETERMINING THE ARMS LENGTHS PRICES (ALP) WITH THE AES. IT IS STATED IN THE APPLICATION THAT THE REVENUE HAS TAKEN GROUN D NO.1(V) RAISING THE GRIEVANCE AGAINST THE ACTION OF THE LD. CIT (A) DELETING THE ADDITION MADE U/S.92CA OF RS 23.94 LAKHS. IT IS STATED THAT THE ASSESSEE HAS COMPLETED THE ALP BY ADOPTING THE TRANSACTION NET MARGIN METHOD (TNMM) BY COMPARING THE OPERATING MARGIN OF THE COM PARABLE ENTERPRISES, WHICH WAS ALSO ACCEPTED BY THE TPO. I N THE APPLICATION OF THE ASSESSEE HAS EXPLAINED HOW THE TPO HAS CONSIDER ED THE ISSUE I.E. IN PARA NO.17. IN PARA18, IT IS STATED THAT THE CI T (A) DELETED THE ADDITION ON THE GROUND THAT THE MARGIN COMPUTED BY THE ASSESSEE IS WITHIN + (5%) RANGE EVEN IF THE LOAN MAKING COMPANY IS REJEC TED AND OTHER TWO COMPARABLES ARE ACCEPTED. IT IS PLEADED THAT THERE WAS NO REASON THAT THE A.O. TO EXCLUDE COMPARABLES, HENCE, THE ORDER OF THE LD. CIT (A) IS TO BE UPHELD. IT IS STATED THAT THE TRIBUNAL SENT BACK THE ISSUE TO THE A.O. BY HOLDING THAT NET PROFIT MARGIN S WITH THE TRANSACTION SHOULD BE COMPARED AND THE OPERATING MA RGIN OF THE ENTERPRISE, WHICH IS NOT DONE BY THE A.O.. IT IS F URTHER PLEADED THAT MA 693/MUM/2010 M/S. WOCKHARDT TOWERS 4 SETTING ASIDE THE ORDER TO CONSIDER A NEW ISSUE TAN TAMOUNT TO IN TRUE ENHANCING THE ASSESSMENT AND GIVING SECOND INNINGS TO THE A.O. AND ACCORDING TO THE APPELLANT-ASSESSEE IT IS MISTAKE A PPARENT ON RECORD. THE ISSUE DISCUSSED BY THE TRIBUNAL IN DETAIL IN PARAGRAPH NOS.10(I), 10(II), 10(III), 11, 12, 12(I), 12(II) A ND 12(III). THE OPERATIVE PART OF THE TRIBUNAL ORDER IS FOUND IN PARA NOS. 12 .2 AND 12.3 WHICH IS AS UNDER:- 12.2 A PLAIN READING OF THE ABOVE SHOWS THAT TNMM REQUIRES COMPARISON OF NET PROFIT MARGINS REALIZED BY AN ENT ERPRISE FROM AN INTERNATIONAL TRANSACTION OR AN AGGREGATE OF INT ERNATIONAL TRANSACTIONS AND NOT COMPARISONS OF OPERATING MARGI NS OF ENTERPRISES. FOR ARRIVING AT THIS CONCLUSION, WE DR EW STRENGTH FROM THE DECISION OF MUMBAI L BENCH OF THE TRIBUNAL IN THE CASE OF UCB INDIA P. LTD. VS. ACIT 121 ITD 131 (MUM.) WHERE IT IS HELD THAT SECTION 92C READ WITH RULE 10B(1)(E) DEALS WIT H TRANSACTIONS NET MARGIN METHOD (TNMM) AND IT REFERS TO ONLY NET PROFIT MARGIN REALIZED BY AN ENTERPRISE FROM AN INTERNATIONAL TRA NSACTION OR A CLASS OF SUCH TRANSACTION, BUT NOT OPERATIONAL MARG INS OF ENTERPRISES AS A WHOLE. 12.3 RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR THE REASONS THAT THE AO HAS NOT FOLLOWED PROPERLY AND CORRECTLY ANY OF THE METHOD PRESCRIBED FOR THE PURPOSE OF DETERMINING THE ALP UNDER THE ACT. EVEN THE TRANSACTION AT NET MARGIN METHOD HAS NOT BEEN PROPE RLY AND CORRECTLY APPLIED IN THIS CASE. WE, THEREFORE, SET ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH. 7. WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE ISS UE AND ALSO THE VIEW TAKEN BY THE TRIBUNAL IS SUPPORTED BY THE DECI SION OF THE CO- ORDINATE BENCH IN THE CASE OF USB INDIA P. LTD. 121 ITD 131 (MUM). IN OUR HUMBLE OPINION, THE ASSESSEE IS TRYING TO GE T REVIEW OF THE MA 693/MUM/2010 M/S. WOCKHARDT TOWERS 5 DECISION OF THE TRIBUNAL AND WHICH IS NOT PERMISSIB LE WITHIN THE SCOPE OF SEC. 254(2). WE FIND NO MERIT ON THIS GRIEVANC E. ACCORDINGLY, ALL THE GROUNDS ON THIS ISSUE ARE DISMISSED. 8. IN THE RESULT, M.A. IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 6TH AUGUST 2011. SD/- SD/- ( J. SUDHAKAR REDDY ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 26TH AUGUST 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A).CONCERNED.., MUMBAI. 4) THE CIT-CONCERNED MUMBAI. 5) THE D.R. L BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN MA 693/MUM/2010 M/S. WOCKHARDT TOWERS 6 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 08.08.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 16.08.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER