Income Tax Appellate Tribunal - Mumbai
Colour Chem Ltd, Mumbai vs Department Of Income Tax on 25 November, 2013
आयकर अपील य अ धकरण,
धकरण मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES 'K' MUMBAI
सव ी आय.पी. बंसल, या यक सद य एवं
/एवं
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND
सव ी राजे , लेखा सद य
SHRI RAJENDRA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.2393/MUM/2011
नधारण वष /Assessment Year 2003-04
M/s. Clariant Chemicals (India) बनाम The JCIT (OSD), Range 1(1),
बनाम/
Ltd., (earlier known as M/s. Aaykar Bhavan, MK Road,
Vs.
Colour Chem Ltd., Mumbai - 400020
PO.Sandoz Baug,
Kolshet Road, Thane 400607
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACC 5602P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं. / ITA No.2328/MUM/2011
नधारण वष /Assessment Year 2003-04
The DCIT 1(1), बनाम M/s. Colour Chem Ltd.,
बनाम/
Room No.533, 5th Floor, PO.Sandoz Baug,
Vs.
Aaykar Bhavan, MK Road, Kolshet Road, Thane 400607
Mumbai 400 020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACC5602P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by : Shri F.V.Irani
Revenue by : S/Shri Ajeet Kumar Jain/ O.P.Singh
सनवाई
ु क तार ख / Date of Hearing : 25/11/2013
घोषणा क तार ख /Date of Pronouncement : 29/11/2013
2 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010
नधारण वष /Assessment Year 2003-04
आदे श / O R D E R
PER I.P.BANSAL, J.M:
These are cross appeals and they are directed against order of Ld. CIT(A)-15, Mumbai dated 12/1/2011 for assessment year 2003-04. The grounds of appeal raised by assessee as well as revenue read as under:
Grounds of appeal in ITA No.2393/Mum/2011(Assessee's appeal):
"On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of Jt. Commissioner of Income-tax in reducing deduction admissible under section 80HHC of the Act on account of following
(i) Reducing 90% of the following income in computing the adjusted profits of the business:
(a) Interest received of Rs.19,79,277 without netting of the same against the interest paid amounting to Rs.4,06,17,5821- ; and
(b) Duly entitlement pass book receipts of Rs.4,93,68,1361-.
2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in confirming the action of Jt. Commissioner of Income Tax I AO/TPO in making adjustment by applying CUP method in case of exports of manufactured goods on account of following:
(i) Applied Comparable Uncontrolled Price ('CUP") method selectively for certain international transactions of exports, without rejecting Transactional Net Margin Method ("TNMM") method.
(ii) Confirmed the order passed by the TPOIAO without appreciating that none of the conditions set out in section 92C (3) of the Act are satisfied in the case.
(iii) Not appreciated the fact that geographical difference causes significant variation in the pricing of International transaction.
(iv) Ignored the differences in sales volume while applying the CUP method and restricted the volume discount to 5%.
The appellants crave leave to add, to amend or alter the foregoing grounds of appeal or to take an additional ground if need be."
Grounds of appeal in ITA No.2328/Mum/2011(Revenue's appeal):
"1. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in restricting the disallowance of interest expenses of Rs. 12,17,900 / - to the dividend income and thereby disallowing the same in computing the business income and considering attributable to 'income from other sources' and limiting deduction u/ s.80M by the said amount."
3 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04
2. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in applying CUP method instead of transaction net margin method (TNMM).
3. The appellant craves leave to add to, amend or withdraw the aforesaid grounds of appeal."
2. Before proceeding to adjudicate these appeals we may mention here that earlier these appeals were adjourned vide order sheet entry dated 1/7/2013 on the request of assessee's counsel vide letter dated 28/6/2013, as according to that letter one of the issues raised in the present appeal is referred to Special Bench in ITA No.5924/D/2012 and thereafter the present case was fixed on 25/11/2013. It was further informed by both the parties that the said Special Bench has been withdrawn and, therefore, this matter can be proceeded with. Ld. CIT-DR has submitted a letter stating that the said Special Bench has been withdrawn. Accordingly, we proceed to decide the present cross appeals.
2. Referring to ground No.1 of assessee's appeal, it was the case of Ld. AR that both the issues raised by the assessee are now covered by the decisions of Hon'ble Supreme Court and since the benefit of these decisions were not available to Ld. CIT(A) when the appeal of the assessee was decided, the matter may be sent back to the file of AO for recalculation of deduction under section 80 HHC of the Income Tax Act,1961 (the Act) on both these issues as per the following decisions of Hon'ble Supreme Court on these issues.
3. So far as it relates to first issue raised in first ground of assessee's appeal it relates to netting of the interest income. This issue was stated to be covered by the decision of Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. vs. CIT 343 ITR 89, wherein it has been held that only 90% of the net amount of any receipt of the nature mentioned in clause (i) of Explanation (baa) which is actually included in the profit of the assessee is to be deducted from the profits of the assessee for determining "profit of the business" of the assessee under Explanation (baa) to section 80 HHC of the Act.
4 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 3.1 Ld. DR did not raise any objection regarding this contention of the assessee. Therefore, after hearing both the parties on this issue, so as it relates to the ground regarding exclusion of net interest is restored to the file of AO with a direction to reduce net amount of interest from the profit in accordance with the aforementioned decision of Hon'ble Supreme Court in the case of ACG Associated Capsules Pt. Ltd. (supra). This part of the ground is considered to be allowed for statistical purposes in the manner aforesaid.
4. So far as it relates to Ground No.1(i)(b) i.e. regarding duty entitlement pass book receipts the said part of the ground was stated to be covered by the decision of Hon'ble Supreme Court in the case of Topman Exports vs. CIT, 342 ITR 49(SC). After hearing both the parties and accepting the submissions of Ld. AR, the issue is restored to the file of AO with a direction to recalculate deduction under section 80HHC of the Act on the issue of DEPB as per aforementioned decision on Hon'ble Supreme Court in the case of Topman Exports (supra). We direct accordingly. This part of the first ground is also considered to be allowed for statistical purposes in the manner aforesaid.
5. Ground No.2 of assessee's appeal and Ground No.2 of Revenue's appeal is regarding Transfer Pricing (TP) adjustment which was made by the AO to the tune of Rs.38,36,693/-.
5.1 The assessee in the present case is engaged in the business of manufacturing of Dyes and Chemicals, mainly Pigments for Paint Industries, Agro chemical Intermediaries, Textile Chemicals, Leather Chemicals and Functional Chemicals used in Cosmetic Industry. industries. During the year under consideration it had entered into following international transactions with its Associated Enterprises.
S.No. Details of Transaction Amount (Rs) Method used
1. Purchase of Raw Materials 733.46 lakhs TNMM 5 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04
2. Export of Manufactured Goods 5427.68 lakhs TNMM
3. Export of finished Goods-Sourcing (Trading) 3369.58 lakhs Cost Plus
4. Purchase of finished goods for trading 1251.85 lakhs TNMM
5. Receipt of Indenting Commission 151.18 lakhs TNMM
6. Payment of Indenting Commission 47.37 lakhs TNMM
7. Fee for research & Development Received 96.03 lakhs TNMM
8. Miscellaneous Payments 119.81 lakhs TNMM
9. Receipt of Sourcing Fees 45.15 lakhs Cost Plus
10. Recovery of Export Expenses 317.27 lakhs TNMM The assessee used TNMM as appropriate method for the international transactions in dispute. However, as the assessee was having sales of same products to related and unrelated parties the Transfer Pricing Officer (TPO) required the assessee to submit the information. The composition of such transaction as submitted to the TPO by the assessee was as under:
S.No. Particulars Rs. In Lakhs Percentage
(%)
1. Local 24,774.23 78.69
2. Exports- Group co, 5,427.68 17.24
3. Exports- Non Group 1,280.72 4.07
Total 31,482.63 100.00
5.2 Ultimately, TPO found that the T.P. Adjustment was required to be made in
respect of three transactions and for that purpose he applied CUP method, the details of which is as under:
" The product-wise analysis and computation of Arm's Length Price are given below:
(ii) For the products HOSTAPERM BLUE CBR. HOSTAPERM GREEN GNX, PV FAST GREEN GNX, PERMANENT YELLOW DHG SPL PERMANENT YELLOW P0, PERMANENT ORANGE G-IN. PERMANENT RED F4R-JN, HANSA YELLOW 1OG-IN, BLUE FINE PASTE
611. VERNATAN 2A and HOSTAPERM BLUE BG. the sales to AE's and non-AE's are in different countries. In the analysis, like last year, all the sales are taken together, irrespective of the country of sale and quantity sold to individual entities. Further, after applying 5% range to the Weighted Average Price (hereinafter: WAP) of sales made to unrelated parties, as mentioned under section 92C(2) of the Income Tax Act, 1961 it is observed that the WAP charged to related parties is at Arm's length and therefore no adjustment is made in case of the above mentioned products.
6 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04
(iii) For the following products WA? charged to unrelated parties is not within 5% range of the WA? charged to unrelated parties i.e. average realization in case of related parties is lower than that in case of unrelated parties. a. HOSTAPERM GREEN ON b. PERMANENT RUBINE CA-E c. .ACID ORANGE 1O
(iv) For the products HOSTAPERM GREEN GN. the sales to related parties is 29,400 kgs at a WA? of Rs. 302.38 per kg.
700 kg is sold to unrelated parties at WAP of Rs. 383.89.
The assessee has contended that considering the huge difference in quantity sold to related and unrelated parties, sales made to related parties should be accepted to be at Arms Length.
However, it is seen that the difference of Rs 81.51 price per KG is not small either, Considering the WA? is being used, no further adjustments are required in respect of the prices.
Thus considering the WAP charged to related party and the unrelated party, it is observed that sales.ma4eto related party is under-priced to the extent of Rs. 81.51 per kg.
This results into an adjustment of Rs. 23,96,394/- Rs 81.51 * 29,400 kgs)
(v) For the products PERMANENT RUBINE CA-E, the sale to related parties in Thailand is 2,200 kg at a WAP of Rs. 336.92 per kg.
120 kg is sold to unrelated parties in Sri Lanka at WAP of Rs. 356.26. Thus considering the WAP charged to related party and the unrelated party, it is observed that sales made to related party is under-priced to the extent of Rs. 19.24 per kg.
This results into an adjustment of Rs.. 42,548/-
(vi) For the products ACID ORANGE 10. the sale to related parties in Germany is 3,500 kg at a WA? of Rs. 170.00 per kg.
50 kg is sold to unrelated parties in South Korea at WAP of Rs. 569.36:
Thus considering the WAP charged to related party and the unrelated party, it is observed that sales made to related party is under-priced to the extent of Rs. 399.36 per kg.
This results into an adjustment of Rs. 13,97.751/-
The company has also contented that the related entities are traders and the unrelated entities are the end - users and to account for this difference, 5% gross margins should be affected to sales made to AEs / unrelated entities to bring out this difference as regards sales to different market segments, for the transaction to be comparable when applying CUP Method."
5.3 The TPO also rejected the contention of the assessee regarding adjustment of 5% safe harbour as according to TPO the same was available to the assessee. Accordingly, aggregate of aforementioned three T.P. adjustments i.e. a sum of 7 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 Rs.38,36,693/- was added to the income of the assessee on account of T.P. Adjustment.
5.4 The aforementioned additions were challenged in the appeals filed before Ld. CIT(A). In ground No.10 to 14 the assessee had agitated the aforementioned TP adjustmentS. In Ground No.10, the assessee objected the method which was applied by the TPO as CUP against TNMM applied by the assessee. In ground No.11, the assessee sought rebate on account of volume difference between turnover relating to AE's and uncontrolled parties. In ground No.12, the assessee sought rebate on account of geographical regions as the sales of the assessee were spread to Thailand and China. In ground No.13, the assessee sought rebate on account of functional difference in the transactions and in Ground No.14, the assessee sought 5% safe harbour as per proviso to section 92C(2) of the Act.
Briefly; Ld. CIT(A) has upheld the application of most appropriate method as CUP. Ld. CIT(A) after considering the submissions of the assessee has granted the rebate on account of volume difference @5%. Ld. CIT(A) did not accept the submissions of the assessee regarding rebate on account of geographical regions and functional difference. However, Ld. CIT(A) has provided the benefit of safe harbour to the assessee under proviso to section 92C(2).
5.5 It may be mentioned that Ld. CIT(A) did not upheld the adjustment in respect of ACID ORANGE sales and, thus, an addition of Rs.30,97,751/- made on that account was deleted. Similarly, after giving rebate of 5% on account of volume discount and 5% proviso benefit, Ld. CIT(A) has found that no adjustment was maintainable in respect of Permanent Rubain CA-E and adjustment in that regard was also deleted. Therefore, the TP adjustment which is upheld by Ld. CIT(A) is with regard to HOSTAPERM GREEN GN to the extent of Rs.12,95,973/- and deleted the balance addition in this respect. As the main case of the assessee is regarding grant of discount on account of difference in volume the facts stated by 8 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 the assessee in the statement of facts submitted before Ld. CIT(A) will be relevant and are as follows:
5.5.1 It was submitted that out of total sales the major portion in respect of HOSTAPERM GREEN GN represent sales of AE which are to the extent of 98% as against sales made to unrelated parties which are only to the extent of 2%. A chart was furnished which read as follows:
Product Name Quantity sold to Quantity sold to Ratio of exports to AEs Clariant Group (AEs) independent third as compared to parties independent third parties.
Hostaperm Green GN 29,400 700 98:2 Permanent Rubine CA- 2,200 120 95: 5 E Acid Orange 10 3,500 50 99: 1
5.5.2 Reference was made to the order passed by Transfer Pricing Officer (TPO) dated 17/3/2005 in respect of assessment year 2002-03. Following extract from the said order were referred :
"a. Point (iii) - ... product Hostaperm Green GM, the sates to related parties, mainly Clariant Thailand, is 23,500 Kgs. This is sold at an average price of Rs. 310.83. The sales to unrelated parties is only 125 kgs, and the average sale price is Rs. 384.66 per kg. Considering the vast volumes in case of related entities, in comparison to unrelated entity, the transaction is accepted to be at Arm's Length.
b. Point (v) - ... product Permanent yellow GRY 80, the sales to AEs in Germany, Canada and Chine are of 21,504 at a price of 283.40. The only sale to unrelated party is in Iran at Rs. 490.06 per kg, to whom 160 kgs is sold. Considering the huge quantity variation and solitary transaction with unrelated party, the transaction is accepted to at Arm's Length"
5.6 In view of the above, it was the case of Ld. AR that if the volume discount is given as was given to the assessee by TPO in assessment year 2002-03 then 20% volume discount is required to be given in respect of product named as 9 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 HOSTAPERM GN. It was the submission of Ld. AR that in view of rule of consistency, the assessee is entitled to such relief which has wrongly been denied by Ld. CIT(A). He submitted that Ld. CIT(A) was wrong in restricting the discount benefit in this regard only to the extent of 5%, whereas the assessee is entitled to get it @20%. It was also the contention of Ld. AR that 20% discount on account of volume is a usual discount and has been accepted by the Tribunal in the case of Intervet India Pvt. Ltd. vs. ACIT, 39 SOT 93(Mum) and reference was made to the following observations:
"51. As far as the adjustment on account of volume factor difference in the market conditions and economic development level is concerned, the Transfer Pricing Officer has allowed the adjustment to the extent to 10 per cent while the appellant has sought for an adjustment of 50 per cent. There is no doubt that the claim of the appellant is rather excessive, while that made by the Transfer Pricing Officer is rather on a lower side. Hence, considering that in the local trading the appellant in similar circumstances has been providing discounts while t ere is a case for higher adjustment than what has been made by the Transfer Pricing Officer, it cannot be as high as sought for by the appellant. It would be reasonable if the adjustment for the purpose is restricted to 20 percent on this account as against 10 per cent made by the Transfer Pricing Officer."
5.7 The second defense raised by Ld. AR was that assessee is entitled to get benefit on account of geographical regions He in this regard relied upon the submissions made in statement of facts and the relevant portion read as under:
"Arbitrary Comparison of Geographical Regions.
The AO has equated totally dissimilar geographical regions in applying the CUP method in the case of the following products. Sales made in different geographical regions are, not simply comparable due to differences in the economies, markets, culture, rates of inflation, tariff laws, etc. It Is advocated by the OECD guidelines and also the Indian transfer pricing regulations to make adjustments for the above factors to make two transactions comparable, especially while applying the CUP method. c. HOSTAPERM GREEN GN The prices at which goods have been sold to AEs in China and Thailand has been compared with the prices at which goods have been sold to independent third parties in Sri Lanka".
10 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 He submitted that assessee is entitled to such relief as per of decision of ITAT in the case of ACIT vs. Dufon Laboratories, 39 SOT 59 (Mum). Thus, it was pleaded by Ld. AR that if the volume discount is given to the tune of 20% and 5% of benefit of proviso is provided to the assessee as is provided by Ld. CIT(A) and the grant of the same has not been agitated by revenue in its appeal, then no addition on account of TP adjustment will be left and this ground of the assessee is liable to be accepted.
5.8 On the other hand, it was the submission of the Ld. DR that assessee is not entitled to 20% volume discount as Ld. CIT(A) after considering the submissions of the assessee has arrived at a conclusion that assessee is only entitled to get such discount @5%. Therefore, he submitted that assessee does not deserve further relief in regard to TP adjustment.
5.8.1 Ld. DR also relied upon the decision in the case of M/s. Onward Technologies Ltd. vs. DCIT order dated 30/04/2013 in ITA No.7985/Mum/2010, copy of which was furnished before us. This case was relied upon by Ld. DR to contend that principle of res judicata does not apply to Income Tax proceedings and different view could be taken if the earlier order is contrary to the statutory provisions of having no approval from any judicial forum. Thus, it was pleaded by him that the assessee's plea for Rule of Consistency should not be accepted.
5.9 Arguing the second ground of appeal raised in the Revenue's appeal, it was submitted by Ld. DR that Ld. CIT(A) was wrong in upholding CUP method instead of TNMM. Thus, it was pleaded by Ld. DR that TP Adjustment made by TPO should have been confirmed.
6. We have heard both the parties on this issue and their contentions have carefully been considered. We have also carefully gone through the case law and 11 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 documents relied upon by both the parties. The main contention of the assessee in this regard is grant of 20% discount on volume difference.. This contention of the assessee is supported by the arguments that in immediate preceding assessment year TPO had accepted such volume discount and reference in this regard has been made to the order of TPO rendered in respect of assessment year 2002-03, the relevant portion of which has been reproduced in the above part of this order. The relevant portion of impugned TPO's order has also been reproduced in the above part of this order. So as it relates to chemical HOSTAPERM the turnover for this year to the related parties is 29,400 Kgs. @ 302.38 per Kg as against similar sales made to AE's in A.Y 2002-03 to the tune of 23,500 Kgs. at the average the price of Rs.310.83 per Kg. The uncontrolled party sales for the year under consideration for the same chemical is 700 kgs. as against the similar sales to unrelated parties of 125Kgs. Therefore, it cannot be said that there is any material difference in the facts of the two years i.e. A.Y 2002-03 and 2003-04. When the facts are same the question will be that whether on the same facts Department can take a different stand for the year under consideration which is against the rule of consistency. When there is no difference in the facts of preceding year where the case of assessee has been accepted by the TPO expressly, then in our considered view TPO cannot take a different stand during the year under consideration as the assessee will be entitled to get benefit of the stand taken by the revenue in immediate preceding year. There is insignificant difference in the rates of the commodity and the volume of transactions. The difference, if any, favours the assessee as the volume of related party transaction is much more this year as it has gone upto 29,400 kgs against last years sales of 23,500 kgs. The case law relied upon by Ld. DR does not supports the case of the Revenue rather it supports the case of the assessee. In the case of Onward Technologies Ltd. vs. DCIT (supra) relied upon by Ld. DR this proposition has clearly been spelt out as per following observations:
"16.2. The Hon'ble Supreme Court has held in several cases including M.M. Ipoh & Ors. vs. CIT (1968) 67 ITR 106 (SC) that:
12 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 'The doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year.' At the same time, it is equally true that the principle of consistency has also been advocated by several Hon'ble courts including the Hon'ble Supreme Court in Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) and the Hon'ble jurisdictional High Court in CIT vs. Arthur Andersen & Co. (2009) 318 ITR 229 (BoM) by holding that the decision made in earlier years is binding in subsequent years and should be followed. From the above decisions, it follows that a delicate balance needs to be maintained between the principle of consistency and the rule of res judicata depending upon the facts and the governing legal position prevailing in each case. At the same time, we want to highlight that the doctrine of estoppel together with its exceptions cannot be ignored. It is trite that there can be no estoppel against the provisions of the Act or the binding interpretation given to such provisions by the judicial forums. This rule has been cited with approval by several courts including the Hon'ble Supreme Court in CIT vs. V.MR.P. Firm (1965) 56 ITR 67 (SC). Where the facts of a case prima facie show that the authorities took a clearly incorrect view on the provisions of the Act in an earlier year, whether favoring the assessee or the Revenue, it cannot be argued in the subsequent year that the same incorrect approach should be repeated. The Hon'ble Delhi High Court in CWT vs. Meattles (P) Ltd. (1984) 156 ITR 569 (Del) has held that the Revenue authorities cannot be stopped from taking a correct view of statutory provisions in a later year.
16.3. We have elaborately discussed above that how the method employed by the assessee for determining the ALP in respect of international transactions for the year under consideration is contrary) to the statutory provisions having no approval from any judicial forum. If such a wrong method has been inadvertently accepted by the TPO in an earlier year, we cannot grant a license to the assessee to continue calculating the ALP in such a grossly erroneous manner in perpetuity. It needs to be discontinued forthwith. We, therefore, reject this contention advanced on behalf of the assessee that the application of such a wrong method be granted a seal of approval on the basis of its acceptance by the TPO in a preceding year."
6.1 From the above observations of the Tribunal it is clear that the rule of consistency will not be applicable in a case where it is found that in preceding year the action of the Revenue Authority is contrary to the statutory provisions having no approval from any judicial forum. In such case where a wrong method has been inadvertently accepted by the TPO in an earlier year then only licence cannot be granted to the assessee to calculate the ALP in a grossly erroneous manner in perpetuity . In the present case no such circumstances have been brought to the notice of the Tribunal by the department. Rather it has been observed that the facts of the preceding assessment year are in pari-materia of the present year. The rule of consistency has not been advocated only in the decision of Hon'ble Supreme 13 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 Court in the case of Radhasoami Satsang vs. CIT(supra) and the decision Hon'ble Bombay High Court in the case of CIT vs. Arthur Andersen & Company(supra) but it has also been recognized by Hon'ble Supreme Court in the recent decision rendered by Hon'ble three Judges of Supreme Court in the case of CIT vs. Excel Industries Ltd. , 358 ITR 295, wherein Their Lordships on this issue have observed as under:
"Secondly, as noted by the Tribunal, a consistent view has been taken in 28 favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the asses- see. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue.
In Radhasoami Satsang v. CIT [1992] 193 1TR 321 (SC) this court did not 29 think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect" permeates in different assessment years. In arriving at this conclusion, this court referred to an interesting passage from Hoystead v. Commissioner of Taxation [1926] AC 155 (PC) wherein it was said (page 328 of 193 1TR) "Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle--
namely, that of a setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken."
Reference was also made to Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 1TR 1 (SC) and then it was held (page 329 of 193 ITR):
"We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
On these reasoning in the absence of any material change justifying the Revenue to take a different view of the matter-and if there was no change it 14 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 was in support of the assessee- we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken."
31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the taxpayers' money in pursuing litigation for the sake of it."
6.2 In view of the above factual position and case law available on the issue of rule of consistency, the arguments of Ld. AR has to be accepted that assessee is entitled to volume discount of 20% on the sales made by it to its AEs as the same was given by the TPO in respect of assessment year 2002-03. We direct accordingly and the AO is directed to give that rebate.
6.3 So far as it relates to contention of Ld.AR regarding discount on account of geographical difference; though similar submissions were raised assessee before Ld. CIT(A), but it has not been shown that how much impact was on account of geographical difference. No figures were given to AO or Ld. CIT(A) also to show such impact and nothing was produced before us to enable us to look into substance of such arguments. Therefore, such arguments of Ld. AR cannot be accepted.
6.4 So far as it relates to ground No.2 of revenue's appeal, it is observed that TPO himself has applied CUP method for determining the ALP of international transaction and if TPO himself has applied that method, Revenue does not have right to agitate the same as the method applied by the TPO has been upheld by Ld. CIT(A). Therefore, this ground of the Revenue is rejected.
6.5 It may be mentioned here that no other arguments were addressed by both the parties apart from which are mentioned above.
15 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 6.6 In view of above discussion the second ground of the assessee's appeal is partly allowed in the manner aforesaid and Ground No.2 of the Revenue's appeal is dismissed.
7. Apropos Ground No.1 of Revenue's appeal; the assessee claimed deduction under section 80M of the Act to the extent of gross dividend income received amounting to Rs.94,17,412/-. The AO found that interest expenses to the extent of Rs.11,67,900/- were attributable to expenditure incurred by the assessee for the purpose of earning dividend income. Similarly, AO observed that Rs.50,000/- was further allocated as indirect expenses towards earning of the dividend income . The aggregate of both these amounts i.e. a sum of Rs.12,17,900/- was reduced from the gross dividend income received and deduction under section 80M was allowed at Rs.81,91,512/- as against the claim of the assessee to the extent of Rs.94,17,412/- The reduction in the claim of deduction under section 80M amounting to Rs.12,17,900/- was agitated in the appeal filed before Ld. CIT(A). who following the decision of Special Bench in the case of Punjab State Industrial Development Corporation Ltd. vs. DCIT 102 ITD 1(Chd)(SB) held that such disallowance was not called for. However, finding that in respect of A.Y 1995-96 the ITAT had restricted such disallowance at Rs.20,000/-, he has sustained the disallowance only to the extent of Rs.50,000/-. The revenue is aggrieved, hence, has filed aforementioned ground.
8. We have heard both the parties and their contentions have carefully been considered. We found that this issue is covered in favour of assessee by the Special Bench decision in the case of Punjab State Industrial Development Corporation Ltd. vs. DCIT(supra) wherein it has been held that deduction under section 80M is to be allowed on net dividend income computed as per provisions of section 57 to 59; shares held by the assessee company being capital investment and not stock-in- trade, dividend could only be assessed under the head "other sources" and only 16 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010 नधारण वष /Assessment Year 2003-04 expenditure referred to in section 57 could be deducted to arrive at net dividend and, therefore, proportionate management expenses or interest or other expenses could not be deducted while computing dividend income for the purpose of allowing deduction u/s.80M. Accordingly, we decline to interfere in the relief granted by Ld. CIT(A) and ground No.1 of Revenue's appeal is dismissed.
9. In the result, the appeal filed by the assessee is partly allowed and appeal filed by the Department is dismissed.
Order pronounced in the open court on 29/11/2013 आदे श क घोषणा खले ु यायालय म दनांकः 29 /11/2013 को क गई ।
Sd/- Sd/-
(राजे / RAJENDRA) (आय.पी. बंसल / I.P. BANSAL)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मंुबई Mumbai; दनांक Dated 29/11/2013
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT(A)-
4. आयकर आयु / CIT
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / DR, ITAT,
Mumbai
6. गाड फाईल / Guard file.
आदे शानसार
ु / BY ORDER,
स या पत त //True Copy//
उप/सहायक
उप सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण,
धकरण मंब
ु ई / ITAT, Mumbai
व. न.स./Vm, Sr. PS
17 आयकर अपील सं. / ITA No.2393 & 2328/MUM/2010
नधारण वष /Assessment Year 2003-04
Details Date Initials Designation
1 Draft dictated on 25/11/2013 Sr.PS/PS
2 Draft Placed before author 26/11/2013 Sr.PS/PS
3 Draft proposed & placed before JM/AM
the Second Member
4 Draft discussed/approved by JM/AM
Second Member
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 the file goes to the
Head clerk
9 Date of Dispatch of order