PCL FOODS PRIVATE LIMITED,NEW DELHI V. ACIT, CIRCLE-19(1), DELHI

ITA 1199/DEL/2023

AI Insights

The case involves PCL Foods Private Limited, which filed two appeals against the final assessment order and the rectification order for the assessment year 2017-18. The appeals were filed due to issues related to transfer pricing adjustments and the computation of income. The tribunal examined the reasons for the delay in filing the appeals, which were attributed to the impact of the COVID-19 pandemic and subsequent financial difficulties faced by the assessee's holding company. The tribunal found the reasons sufficient to condone the delay. However, on the merits of the case, the tribunal upheld the adjustments made by the Assessing Officer under the Income Tax Act, particularly concerning the arm's length price of international transactions and the computation of operating profit.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312910 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHARM VEER SINGH
• Keywords: Condonation of delay; Opportunity of being heard; Transfer pricing; International transaction; Reasonable cause; Rectification of order; Liquidation
• Section: 143(3); 154; 234B; 92C

Judgement Text

"ITA Nos.1199 & 1200/Del/2023 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “I” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER आ.अ.सं/.I.T.A Nos.1199 & 1200/Del/2023 िनधा रणवष /Assessment Year:2017-18 PCL Foods Private Limited, E-5, F/F, Left Side, (Old No.133) Western Marg Lane No.1, Saidulajab, New Delhi. बनाम Vs. ACIT Circle 19(1), C.R. Building, I.P. Estate, ITO, New Delhi. PAN No. AAHCP3493L अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent िनधा\u0005\u0006रतीक ओरसे /Assessee by None राज\u0010वक ओरसे /Revenue by Shri Dharm Veer Singh, CIT DR सुनवाईक तारीख/ Date of hearing: 21.04.2025 उ\u0016ोषणाक तारीख/Pronouncement on 30.04.2025 आदेश /O R D E R PER C.N. PRASAD, J.M. These two appeals are filed by the assessee against the final assessment order dated 01.11.2021 passed u/s 143(3) r.w.s. 144C(13) of the Act and against rectification order dated 28.10.2022 passed u/s 154 r.w.s. 143(3)/144C(13) of the Act for the AY 2017-18. 2. The notice issued by the registry by speed post with acknowledgment due returned un-served with the postal endorsement that “no such firm” and therefore these appeals are disposed of on hearing the Ld. DR and perusing the record. ITA Nos.1199 & 1200/Del/2023 2 3. The assessee filed these appeals with 60 days delay and explained the reason for the delay as under: - “The Company is the wholly-owned Subsidiary of a Foreign Entity (i.e., Phoenix Global DMCC). During the period of widespread pandemic, i.e., COVID-19, the holding company of the assessee incurred a heavy loss on account of its high financial exposure and accordingly, went into liquidation under the foreign laws. Pursuant to the order to initiate the insolvent voluntary winding up of M/s Phoenix Global DMCC (supporting document 1 enclosed as Annexure I), the Joint Liquidators were appointed in UAE for the Holding Company in June, 2020. One of the Liquidators also resigned from the Liquidator position in March, 2021. Subsequently, the one of the erstwhile Directors of PCL Foods resigned on 6th May, 2021 and another erstwhile director passed away on 8th May, 2021. Further, the then financial controller/ Accountant of the Company also resigned from the company on 11th May, 2021 without sharing any documents and details of the Company. The Assessee Company was left without any books and records. After various follow ups and legal proceedings and pursuant to the order of National Company Law Tribunal, New Delhi (copy of order enclosed as Annexure II), new directors were inducted on the Board of the Company in February, 2021, who also left the Company subsequently in July, 2021 due to unavoidable circumstances of the Company. In these circumstances, the company did not have any records to enable the Management to know about the status of Income-tax Assessments, and undertake appropriate compliances on part of the Company. On top of such difficult situation, COVID-19 situation adversely impacted the information gathering process of the Company. After the COVID-19 situation normalized in India and the UAE, the Company, through its new management, started approaching the Auditors, Consultants and other statutory bodies to collate the information about the state of affairs of the Company. With the information coming together to the Management in bits and pieces, it was noticed that the assessee is in receipt of a rectification ITA Nos.1199 & 1200/Del/2023 3 order. Subsequently, the assessee instigated the necessary course of action. It took a great amount of time to co- ordinate and to decide the further course of action, and then to prepare for filing of the appeal to Hon’ble Tribunal. Accordingly, the appeal could not be filed at the required time for reasons beyond the control of the Company. An affidavit in support of this application for condonation of delay is enclosed with the memorandum of the appeal. It can be further observed from the master data available on MCA’ website that the assessee could not even furnish its financial details to MCA on time on account of the aforementioned genuine hardship. The MCA master data (as on 23.02.2023) is enclosed as Annexure III for your honour’ reference which further provides the directory/signatory details of the company. Hence delay in filing the appeal had occurred due to bona fide reasons and there was sufficient cause for not presenting the appeal within the prescribed time period. Your honour would appreciate that delay in filing the appeal was not caused due to any deliberate act on the part of the assessee account of bona fide reasons and sufficient cause.” 4. On going through the reasons explained by the assessee, we observe that the assessee had reasonable causes in filing these appeals and the delay in filing these appeals is condoned. 5. Coming to the merits in the appeal against rectification order the assessee contended as under: - “Rectification order is invalid and void ab initio 2. That the rectification order passed by Ld. TPO is void ab initio in view of the fact that the notice dated 02.12.2021 [DIN & Notice No: ITBA/COM/F/17/2021- 22/1037445143(1)] issued ITA Nos.1199 & 1200/Del/2023 4 by Ld. TPO in this regard sought to rectify the adjustment proposed in the transfer pricing order dated 29.01.2021 forming part of draft assessment order and not the transfer pricing order dated 25.10.2021 passed by Id. TPO giving effect to the directions of Hon’ble DRP. Mistake apparent from records in Id. AO* rectification order 3. That, without prejudice to any other ground, the Ld. AO grossly erred on facts and circumstances of the case in inadvertently determining the total income at Rs.25,71,74,004/- instead of Rs.15,16,78,329/- thereby making an inadvertent addition of Rs.10,54,95,675/- in the computation sheet annexed with rectification order and raising the consequential demand of tax and interest thereon. 4. That of the difference of Rs.10,54,95,675/- mentioned in ground taken herein above, a difference of Rs.2,28,52,648/- is on account of the returned loss of the assessee not considered by the Id. AO and the remaining difference of Rs.8,26,43,027/- is as a consequence of making transfer pricing adjustments twice. Mistake apparent from records in Id. TPO’ rectification order 5. That, without prejudice to any other ground, the Id. TPO and consequently the ld. AO have grossly erred in not appreciating the fact that the variation between the arm’s length price determined in the rectification order1 and the price at which the international transaction was actually undertaken does not exceed three percent of the latter and accordingly, no adjustment is warranted in terms of third proviso to section 92C(2) of the Act. 6. That, without prejudice to any other ground, the Id. TPO and consequently Id. AO have grossly erred in re-determining the transfer pricing adjustment considering wrong amounts of operating cost and operating revenue of the assessee.” 6. Perusal of the submissions and the grounds, we noticed that assessee is pointing out certain inadvertent mistakes in the rectification order passed by the Assessing Officer. Therefore, all ITA Nos.1199 & 1200/Del/2023 5 the grounds raised in the appeal before us are restored to the file of the Assessing Officer/TPO who shall examine the contentions of the assessee and decide afresh after providing adequate opportunity of being heard. 7. In the result, appeal of the assessee in ITA No. 1199 of 2023 filed against rectification order is allowed for statistical purpose. 8. Coming to the appeal filed by the assessee against the assessment order passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act the assessee raised the following grounds: - “Rejection of assessee’s original search 2. That the Id. TPO/DRP and consequently the Id. AO have grossly erred in law and on the facts of the case by rejecting the search process carried out by the assessee in its transfer pricing study without any cogent reason. Fresh search process carried out by the Ld. TPO 3. That the Ld. TPO/DRP and consequently the Ld. AO have grossly erred in law and on the facts of the case by carrying out a fresh search process without providing any justifiable reason for rejecting the assessee’s search process. Incorrect computation of PLIs of the Comparables from Fresh Search Process 4. That without prejudice to other grounds, the Id. TPO and consequently the ld. AO have grossly erred in ignoring the directions issued by ld. DRP and not considering the correct PLIs of the comparables. 5. That the Id. DRP has erred in law and in facts and circumstances of the case, in directing the Ld. TPO/AO to ITA Nos.1199 & 1200/Del/2023 6 treat export incentive as non-operating item while computing the PLI of the appellant. Adjustment for interest free advances 6. That the ld. TPO/DRP and consequently the Id. AO have grossly erred in facts and in law in not granting the adjustment in respect of interest free advances granted by the AE to the assessee. Application of CUP method using TIPS database 7. That the Id. DRP has grossly erred in law and in facts and circumstances of the case in not even adjudicating the grounds of objections relating to application of TIPS database prices as comparable data under direct method viz. CUP method. The Id. DRP and consequently the Id. TPO/ld. AO have erred in law in not passing a speaking order in respect of above ground. 8. That Id. TPO/DRP and consequently the Id. AO have grossly erred in not appreciating that transaction listed on TIPS database are product-wise and functionally similar with the assessee's international transactions. Further Id. TPO/DRP and consequently the Id. AO have erred in not appreciating that TIPS database has been upheld by various judicial courts and also accepted by revenue as valid database for application of CUP method and is also permitted as per Rule 10D(3). 9. It is prayed before the Hon'ble Tribunal that assessee’s benchmarking analysis under the CUP method using the TIPS database may be upheld and hence relief be granted by deleting the transfer pricing adjustment. Mistake apparent from records 10. That, without prejudice to any other ground, the Id. TPO and consequently the Id. AO have grossly erred in not appreciating the fact that the variation between the arm's length price determined in transfer pricing/assessment order and the price at which the international transaction was actually undertaken does not exceed three percent of the latter and accordingly, no adjustment is warranted in terms of third proviso to section 92C(2) of the Act. ITA Nos.1199 & 1200/Del/2023 7 11. That, without prejudice to any other ground, the Ld. AO grossly erred on facts and circumstances of the case in inadvertently considering the total income at Rs.13,90,81,570/- in the computation sheet annexed with final assessment order instead of Rs.11,62,28,927/- as determined in the final assessment order.” 9. The Assessing Officer while passing the order pursuant to the directions of the DRP decided the issues as under: - “Transfer Pricing adjustments u/s 92CA(3) of the IT Act,1961:- 3. In view of Board's instruction No.3/2016 dated 10.03.2016, the case of the assessee company was referred to the Transfer Pricing Officer in terms of Section 92C of Income tax Act, 1961 for computing the Arm's Length Price in respect of International Transactions undertaken by the assessee during the year 2016-17 relevant to assessment year 2017-18. The reference has been made with the prior approval of the worthy Commissioner of Income Tax. 4. Accordingly, the TPO called for the documentation as prescribed u/s 92CA(2) of Income tax Act, 1961. After hearing the assessee, the TPO passed order u/s 92CA(3) of Income tax Act, 1961 on 29.01.2021. In the said order, the TPO has suggested adjustment of Rs. 129184138/- u/s92CA of the I.T Act,1961. The relevant portion of TPO is reproduced as under:- 10. The computation of adjustment u/s 92CA(3) of the Act: \"Thus based on the aforementioned judicial precedents the computation of proportionate transfer pricing adjustment is as under:- Particulars Amount Operating cost 7199733468 Arm's Length Margin OP/OC 3.96% Arm's Length Margin 285109445 Arm's Length Revenue 7484842907 ITA Nos.1199 & 1200/Del/2023 8 Operating Revenue 7263166510 Difference 221676397 International Transaction 4232682932 Proportionate International Transaction 58.28% Proportionate adjustment 129184138 The Assessing Officer will accordingly enhance the income of the taxpayer by Rs. 129184138/-. This shall be treated as the adjustment u/s 92CA of the I. T. Act, 1961.” In view of above, the total income of the assessee is enhanced by Rs. 129184138/- by way of adjustment u/s 92CA(3) of Income tax ACt,1961. [Addition: Rs.129184138/-] 5. In this case draft assessment order u/s 143(3) r.w.s 144C of Income tax was passed on 21.03.2021 and same was served upon the assessee company online electronically. The assessee company has filed objections before the Hon'ble DRP. The Hon'ble DRP has issued its directions u/s 144C (5) dated 22.09.2021. The Ld. TPO has given appeal effect to the order of DRP u/s 144C(5) of Income tax Act, which is reproduced as under:- \"2. The adjustment was made in this case on TP issue by TPO u/s 92CA(3) dated 29.01.2021 was Rs.12,91,84,138/-. 3. In this case assessee has filed objections before the Hon'ble DRP. The Hon'ble DRP has issued its directions u/s 144C (5) dated 22.09.2021 and effect of these directions on TP issues too include/exclude the comparables. The action taken by TPO on the directions of the Hon'ble DRP is as below: Companies selected by the assessee and TPO and objected to by the assessee as well as TPO: S.No. Comparable Hon’ble DRP direction TPO’s remarks 1. DRRK Foods Pvt. DRRK is as leading Rice As per directions ITA Nos.1199 & 1200/Del/2023 9 Ltd. Manufacturers and Exporters. Sophisticated milling plants Functionally different. Should be excluded of the Hon’ble DRP, the comparable is excluded. 2. KTCF Foods Pvt. Ltd. The company is a leading processor and exporter of super Basmati rice having rice milling and processing units having processing capacity of more than 150 M.ton per day. It also has quality testing lab and warehousing facility. Functionally different. Should be excluded. As per directions of the Hon’ble DRP, the comparable is excluded. 3.1 In the light of Hon'ble DRP direction, final set of comparables, with updated margin computation of the comparable companies after working capital adjustment works out to be as under: S.No. Company Name OP/OC 1. Sakuma Exports Ltd. 1.21% 2. Shri Lal Mahal Ltd. 2.49% 3. Harman Rice Pvt. Ltd. 2.70% 4. Sanwaria Consumer Ltd. 3.96% 5. Alia Rice Mills Pvt. Ltd. 6.26% Average 3.32% 3.2 Further, as per para 3.3 of the Hon'ble DRP order, the DRP has given remarks that \"by exclusion of the above two comparables, only five comparables will be left to be considered and therefore, Rule 10CA(7) could apply in this case for computing the adjustment.\" 3.3 The Hon'ble DRP has further directed that bank charges are related to the business transactions of the assessee and therefore should be treated as operating. Interest income on working capital loan to related party should be considered as operating. 3.4 According to the directions given of the Hon'ble DRP the calculation of operating profit is revised as under: Particulars Amount Total Revenue 7,32,77,88,700 Less: Non Operating Revenue 92,37,640 Interest Income 38,09,209 ITA Nos.1199 & 1200/Del/2023 10 Export Incentive 21,83,214 Excess Provision Written back 13,800 Miscellaneous Income 32,31,417 Operating Income 7,31,85,51,060 Total Cost 7,29,37,76,549 Less: Non Operating Cost 7,20,79,004 Finance Cost 14,16,491 Donation 5,00,000 Exchange Flunctuation 7,01,23,859 Fixed asset w/o 38,654 Operating Cost 7,22,16,545 Operating Profit 9,68,53,5115 OP/OC 1.34% Therefore, OP/OC of the assessee after giving effect to the Hon'ble DRP's direction is revised to 1.34%. However, as per Rule 10CA(7) & Rule 10CA(4), the average of the comparables after giving effect to the Hon'ble DRP's directions comes to 3.32%. Accordingly the adjustment is made with the revised margin of 3.32% as given below- Particulars Amount Opening Cost 7,22,16,97,545 Arm’s Length Margin OP/OC 3.32% Arm’s Length Margin 23,97,60,358 Arm’s Length Revenue 7,46,14,57,903 Operating Revenue 7,31,85,51,060 Difference 14,29,06,843 International Transaction 4,23,26,82,932 Proportionate of International Transaction 57.83% Proportionate Adjustment 8,26,43,027 4. In view of the above, the assessing officer is requested to make an adjustment of Rs.8,26,43,027/-.\" In view of above, addition of Rs.8,26,43,027/- is made to the total income of the assessee company. [Addition: Rs.82643027/-] Penalty proceedings u/s 270A of Income tax Act, 1961 for under reporting of income has been initiated separately. 6. Subject to the above remarks the total income of the assessee is computed as under:- ITA Nos.1199 & 1200/Del/2023 11 Returned Income Rs.33585900-00 Add: Addition of Rs.82643027/- is made as discussed above Rs.82643027-00 Assessed Income Rs.116228927-00 Assessed. Charge interest under section 234B and 234C for deferment of payment advance tax. Issue requisite documents to the assessee company along with a copy of this order.” 10. None of the above findings of the Assessing Officer were rebutted with evidences before us. Thus, we see no infirmity in the order passed by the Assessing Officer. The grounds raised by the assessee are rejected. 11. In the result, appeal in ITA No.1199 is allowed for statistical purpose and appeal in ITA No.1200 is dismissed. Order pronounced in the open court on 30/04/2025 Sd/- Sd/- (MANISH AGARWAL) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30.04.2025 *Kavita Arora, Sr. P.S. Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ITA Nos.1199 & 1200/Del/2023 12 ASSISTANT REGISTRAR ITAT, NEW DELHI "