Income Tax Appellate Tribunal - Ahmedabad
Khs Machinery Pvt.Ltd.,, Ahmedabad vs Department Of Income Tax on 10 February, 2012
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ ''C'', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD,
"C" BENCH
सव[ौी ौी जी.
जी.सी.
सी.गुƯा,ा माननीय उपाÚय¢,
उपाÚय¢, एवं ौी बी.
बी.पी.
पी.जैन, लेखा सदःय के सम¢ ।
BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND
B.P. JAIN, ACCOUNTANT MEMBER)
MA No.74/Ahd/2012
IN
ITA No.79/Ahd/2008
[Asstt.Year : 2004-2005]
The ITO, Ward-4(2) बनाम/Vs. KHS Machinery P. Ltd.
Ahmedabad. 53, Madhuban
Nr. Madalpur, Underbridge
Ahmedabad 380 006.
(अपीलाथȸ / Appellant) (ू×यथȸ / Respondent)
राजःव कȧ ओर से/ :
Revenue by Shri K.C. Mathew, Sr.DR
िनधा[ǐरती कȧ ओर से/ :
Assessee by Shri J.P. Shah with
Shri M.J. Shah
सुनवाई कȧ तारȣख/ :
Date of Hearing 20th September, 2013
घोषणा कȧ तारȣख/ :
Date of Pronouncement 27.09.2013
आदे श / O R D E R
PER B.P. JAIN, ACCOUNTANT MEMBER: This Misc.
Application of the Revenue is arising from the order of the ITAT in ITA No.79/Ahd/2008 dated 10.02.2012. The assessee's MA is reproduced hereinbelow for the sake of convenience:
"2. The Hon.ITAT,'C' Bench, Ahmedabad pronounced order MA No.74/Ahd/2012 in above mentioned case for AY 2004-05 on 10-02-2012 for which the supporting material/briefing for arguments was provided by the Ld. DR. The issues decided by the Hon'ble ITAT inter-alia included disallowance of payment of royalty made by the assessee to its Associate Enterprise amounting to Rs.74,63,975/-. The addition made by the AO and confirmed by Ld CIT(A) was deleted by the Hon. Tribunal. The discussion on the issue is made in para 10-17 of the ITAT's order while the findings are contained in para -16-17. From perusal of para-17 of the order, it becomes clear that the Hon'ble Tribunal has delivered the judgment in context of section 92 of the I.T. Act as it existed prior to amendment made by the Finance. Act,2001 w.e.f 01-04-2002. The same is fortified by the observation of the Hon'ble Tribunal where it is held that--
".....it is necessary to establish the course of business between resident and non resident is so arranged that the business transacted between them provides to the resident either (i) no profits or (ii) less than ordinary profits which might be expected to arise in the business. In the present case, the assessee had declared income and therefore it is not case of" no profit ". So as regards the adequacy of profits vis-a-vis ordinary profits which might be expected to arise in the business, the sane can be found out only, when exercise is done to compare the income of the assessee with other comparable enterprises in India. "
3. In this context, it is seen that the transfer pricing provision relevant for A.Y.2004-05 are contained in Chapter-X of the Income tax Act starting from section 92-32F. These very section were substituted for section 92 by Finance Act 2001 w.e.f 01-04-2002 and the explanatory memoranda for the same is available in para-55 of circular No. 14 of 2001, a fact which was pointed out by the Ld. DR and which is available at page - 16 of departmental paper book as mentioned by the Hon'ble Tribunal in its order in pars-15. Para-55. I to 55.3 of the circular are reproduced below:
"New Legislation to curb tax avoidance by abuse of transfer pricing"
55.1 The increasing participation of multi- national groups in economic activities in the county has given rise to new and -2- MA No.74/Ahd/2012 complex issues form transactions entered into between two or more enterprises carrying belonging to the same mum-national group. The profits derived by such enterprises carrying on business in India can be controlled by the multi-national group, by manipulating the prices charged and paid in such intra- group transactions, thereby, leading to erosion of tax revenues. 55.2 Under the existing section 92 of the Income-tax Act, which was the only section dealing specifically with cross border transactions, an adjustment could be made to the profits of a resident arising from a business carried on between the resident and a non-resident, if' it appeared to the Assessing Officer that owing to the close connection between them, the course of business was so arranged so as to produce less than expected profits to the resident. Rule I1 prescribed under the section provided a method of estimation of reasonable profits in such cases. However, this provision was of a general nature and limited in scope. It did not allow adjustment of income in the caser of non-residents. It referred to a "close connection "
which was undefined and vague. It provided for adjustment of profits rather than adjustment of prices, and the rule prescribed fin estimating profits was not scientific. It also did not apply to individual transaction such as payment of royalty, etc., which are not part of a regular business carried on between a resident and a non-resident. There were also no detailed rules prescribing the documentation required to be maintained.
55.3 With a view to provide a details statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, the Act has substituted section 92 with a new section and has introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an international transaction having regard to the arm's length price, meaning of associated enterprise, meaning of international transaction by persons entering into international transactions and definitions of certain expressions occurring in the said sections. "
3.1 From perusal of these paragraphs, it becomes absolutely clear that in order to overcome the difficulties posed by the erstwhile section 92, these new provision were introduced. Further from perusal of the judgment, it becomes absolutely -3- MA No.74/Ahd/2012 clear that the Hon'ble Tribunal has incorrectly relied on the pre-amended provision of law to decide the issue of royalty payment, even though the relevant portions of circular discussed above were available in department paper book and this fact was mentioned in the order itself.
4. The Hon'ble Tribunal has also misunderstood the connection raised by the Ld D.R. wherein it was submitted that the royalty payment cannot be bench marked by clubbing the same with other transactions of the assessee. The case laws in support of the same, cited by the revenue was misunderstood by the Hon'ble Tribunal to be a contention being against the payment of royalty on aggregate amount. Such a contention was never raised by the revenue. The Hon'ble Tribunal has also placed misplaced reliance on the provision of section 37(l) of the Act as the determination of Arms Length Price is done under the provision of Chapter X being special provision to deal with the Transfer Pricing issues wherein the concepts of "commercial expediency" and "business expediency" can't be invoked. Such a proposition is discussed by the Hon'ble Delhi Tribunal In the case of Perot System TSI( India) Ltd. [2010]37 SOT358 (DELHI). The relevant portion of the judgement is reproduced below:
"10. We have carefully considered the submissions and the records. The primary contention before us, as submitted by the Id. Counsel of the assessee is that it was commercially expedient for assessee to advance interest free loans to the AEs and that since no interest has actually been charged, there is no real income eligible to tax. As observed by the Id. CIT(A) the agreements show that these are loan amounts given by the assessee to Associated Enterprises (AEs). This in fact is an admitted position. There is no case that any special feature in the contract make the transaction as capital in nature. It is also an admitted proposition that the assessee has extended the loan to its AE's who are 100 per cent subsidiaries. The assessee 's case is that it has actually not earned any interest and it was commercially expedient to extend these interest free loans. Now it is noted that this is not a case of ordinary business transaction. The question relate to scrutiny of international transaction to determine whether or not the -4- MA No.74/Ahd/2012 same it as amt's length. The principle of transfer pricing aims at determining the pricing in the situations of cross border international transaction, where two enterprises which are subject to the same centre or direction or control (associated enterprise) maintain commercially or financially relation with other. In such a situation, the possibility exist that by way of intervention from the centre or otherwise, business conditions mast be accepted by the acting units which dyers Ji•otn those which in the same circumstances would have agreed upon between unrelated parties. The aim is to examine whether there is anomaly in the transaction which arise out of special relationship between the creditor and the debtor. Hence the contention of having actually not earned any income cannot come to the rescue of the assessee in this scenario. The case laws from the Apex Court cited by the Id. Counsel of the assessee are in the context of the proposition that only the real income has to be taxed and interest free advances can be given by companies (domestic) to their subsidiaries on the ground of commercial expediency. But these decisions are not in the context of Chapter X of the IT Act which relates to special prevision relating to computation of income from international having regard to arm's length price. Other case laws cited by the assessee are not germane to the facts of this case. Hence in our considered opinion they do not help the case of the assessee."
5. Since the judgement has been delivered on the basis of erstwhile section 92 not applicable for A.Y. 2004-05, even when this fact was pointed out through written submissions submitted by the Revenue, the non-consideration of the same is an error apparent from the record. It is, therefore, requested that the Hon'ble ITAT may kindly rectify the order passed in ITA No.79/Ahd/2008 dated 10.02.2012 to the above extent."
2. The learned DR agued that section 92 of the I.T.Act. does not apply to the assessment year 2004-2005, and argued that Transfer Pricing provisions relating to the assessment year 2004- 2005 are contained in Chapter-X of the Income Tax Act. These -5- MA No.74/Ahd/2012 very sections were substituted for section 92 by the Finance Act, 2001 w.e.f. 1.4.2002 and the explanatory memoranda for the same is available in para-55 of the circular no.14 of 2001. The learned DR argued that the ITAT in its order dated 10.2.2012 has incorrectly relied on the pre-amended provision of law to decide the issue of royalty payment, even though, the relevant portion of the circular discussed above, is available in the department's paper book. Therefore, the learned DR prayed that there is a mistake apparent from the record.
3. The ld.counsel for the assessee argued and relied on para- 16 and 17 of the ITAT order to point out that the order has been passed on merit, and there is no mention of any wrong law which has been applied by the ITAT, in para-16 and 17 of this order. Therefore, the learned DR is seeking review of the order of the ITAT, which is outside the scope of section 254(2) of the Act.
4. We have considered rival contentions and perused the facts of the case. We are of the view that the matter has been decided on merit, and we find no mistake apparent from the record. Moreover, the learned DR could not point out in para 16 and 17 of our order that any wrong law has been applied by us in the order dated 10.2.2012. Therefore, the MA filed by the Revenue and arguments made by the learned DR suggest review of our own order. The scope of section 254(2) of the Act is limited and power of rectification does not empower to review of our own -6- MA No.74/Ahd/2012 order. Therefore, in the circumstances and facts of the cases, the MA filed by the Revenue is dismissed.
5. In the result, the MA No.74/Ahd/2008 is dismissed.
Order pronounced in Open Court on the date mentioned hereinabove.
Sd/- Sd/-
जी.
जी.सी.
(जी सी.गुƯा/G.C.
ा GUPTA) बी.
बी.पी.
(बी पी.जैन / B.P.JAIN)
उपाÚय¢ /VICE-PRESIDENT लेखा सदःय/ACCOUNTANT
सदःय MEMBER
-7-