Income Tax Appellate Tribunal - Mumbai
Audco India Ltd., Mumbai vs Department Of Income Tax on 12 February, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'L' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH,(AM)
ITA No.2642/Mum/2009
Assessment Year : 2002-03
Asstt. Commissioner of Income tax -2(1)
Aayakar Bhavan
Room No.561, 5th Floor
M.K. Road
Mumbai-400 020. .....(Appellant)
Vs.
M/s. Audco India Ltd.
L&T House
N.M. Marg, Ballard Estate
Mumbai-400 001. .....(Respondent)
P.A. No.(AAACA 9647 E)
Appellant by : Ms. Heena Doshi
Respondent by : Shri Ajit Kumar Sinha
ORDER
Per D.K. AGARWAL (JM).
This appeal preferred by the revenue is directed against the order dated 12.2.2009 passed by the ld. CIT(A) for the Assessment Year 2002-03.
2. Briefly stated facts of the case are that the assessee company is engaged in the business of manufacture of industrial valves and oil field equipments of various types, sizes and pressure ratings and actuators, filed return declaring total income of Rs.16,03,84,020/-. The Assessing Officer noted that the assessee has claimed deduction u/s. 80IB of the Income tax Act, 1961 (the Act) in respect of its industrial unit and deduction u/s. 80HHC in respect of its export 2 ITA No.2642/M/09 A.Y:02-03 business. The assessee was asked to show cause as to why deduction u/s.80-HHC shall not be computed after excluding the amount received on sale of DEPB Rs.1,51,93,915/- and the interest on Income tax refund Rs.27,92,000/- in view of the amendment by the Taxation Laws (Amendment) Act, 2005. The Assessing Officer after considering assessee's explanation that the assessee is eligible for deduction on transfer of DEPB u/s. 80HHC as the assessee fulfilled both the conditions as mentioned under 3rd proviso to sub section 3 of sec. 80 HHC of the Act, observed that the assessee has failed to discharge his onus to prove that it had the necessary option and further observed that in view of the DEPB Scheme the assessee is not entitled for deduction u/s.80 HHC in respect of the profit on DEPB as per 1st proviso below sub section 3 of section 80 HHC of the Act. Apart from this the Assessing Officer further observed that the assessee has entered into international transactions with associated parties as per details furnished in Form No.3 CEB filed along with the return of income. The Assessing Officer made reference to the Transfer Pricing Officer (TPO) for computing the arms length price u/s.92CA. The TPO vide his report dated 13.12.2006 has made an order for upward adjustment of Rs.7,28,865/- . The Assessing Officer after considering the assessee's submission in this regard rejected the same and made disallowance of Rs.7,28,865/- u/s. 92CA(3) of the Act and accordingly completed the assessment at an income of Rs.19,97,08,280/- vide order dated 26.12.2006 passed u/s.143(3) r.w.s. 147 of the Act. On appeal, the ld. CIT(A) on the issue of deduction u/s. 80-HHC in respect of profit on DEPB held that assessee has satisfied both the conditions given in the proviso to sec. 80 HHC and hence the assessee is entitled to the deduction u/s.80HHC in respect of profit of Rs.1,51,93,918/- . On the issue of addition of Rs.7,28,865 u/s.92CA(3) he held that there 3 ITA No.2642/M/09 A.Y:02-03 is no case for adjustment of Rs.7,28,865/- and accordingly he deleted the addition made by the Assessing Officer .
3. Being aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us.
4. Ground No. 1 to 3 are against the deletion of disallowance of deduction u/s. 80 HHC in respect of sale of profit on DEPB licence.
5. At the time of hearing both parties have agreed that the issue stands covered by the recent judgment of Hon'ble Jurisdictional High Court in CIT vs. Kalpataru Colours and Chemicals in Income Tax Appeal (Lodg.)No.2887 of 2009 dated 28/29 June, 2010 and also agreed that the matter requires to be restored to the file of the Assessing Officer with a direction to reconsider the issue in line with the view taken in the aforecited decision.
6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the parties that the matter requires to be restored to the file of the Assessing Officer in view of the judgment of Hon'ble Jurisdictional High Court in Kalpataru Colours and Chemicals (supra). This being so and in the absence of any contrary material placed on record by the parties, we respectfully following the judgment of the Hon'ble Jurisdictional High Court supra, since reported in (2010) 328 ITR 451(Bom.), set aside the orders passed by the revenue authorities on this issue and direct the Assessing Officer to reconsider the claim of the assessee in accordance with law i.e. in the light of the recent decision in the case of Kalpataru Colours and Chemicals supra, after 4 ITA No.2642/M/09 A.Y:02-03 providing reasonable opportunity of being heard to the assessee. The grounds taken by the revenue are, therefore, partly allowed for statistical purposes.
7. Ground No.4 is against the deletion of addition of Rs.7,28,865/- made by the Assessing Officer u/s.92CA(3).
8. At the time of hearing the ld. DR supports the order of the Assessing Officer.
9. On the other hand the ld. Counsel for the assessee relied on the order of the ld. CIT(A).
10. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. We further find that the ld. CIT(A) has observed in para 4.4 and 4.8 of his order as under :
"4.4 I have perused the facts of the case, Transfer Pricing Officer's (TPO) order and assessment order thereof on this point. It is observed that the appellant had supplied the gate, globe and check valves to its AE amounting to Rs.2,13,64,571/- . The primary business of the AE is sourcing of valves from the appellant company and marketing them in American markets. The appellant had the confidence to adopt CUP methodology which is the traditional method to justify its Arm's Length. It filed full details, in this regard, before the TPO as well as the undersigned. While passing the order, the TPO ignored this data by dismissing it as general in nature.
...... .... .... .... ..... .... .....
4.8 The aggregate sale to an AE at USA is only
Rs.2,13,64,571/-, which is hardly 1% of the total sales of the company. It does not appear probable that for such a small turnover, which would hardly have any material affect on the income, the appellant would have tried to shift its profits."5 ITA No.2642/M/09
A.Y:02-03 In para 4.9 of his order, he held as under :-
"4.9 More importantly, the aggregate difference of Rs.6,94,310/- between sale of L&T LLC (Rs.2,13,64,571/-) Arm's Length Price (Rs.2,06,70,261/-) is only 3.35% and is well within the 5% of the tolerance limit permitted by the law. It is observed from the details filed by the appellant before the TPO as well as at the appellate stage that the prices realized from unrelated parties for an item is not uniform but higher or lower than the prices charged to related party (L&T LLC). That is to say that there are transactions for which data has been furnished, which shows that the appellant has charged higher rates from its AE as compared to third party uncontrolled transactions. The TPO while making the adjustments took only those figures in which valves were sold at the lower prices to the USA based AE while ignoring those figures and data where the same were sold at the higher price. Thus while making the adjustments, he disregarded the fact that the appellant has also sold valves to its AE at prices higher as compared to the average charged to the third unrelated parties. It would have been fair and reasonable on the part of the TPO to consider the aggregate of the sales made to the AE and then compared it with third parties as against the individual items considered by him. He has been selective in his approach and made the order arbitrary. Had the aggregate of sales made to the AE and that to the third parties been taken into account then the appellant's case squarely falls within 5% tolerance threshold. To my mind, it is appropriate to consider the aggregate sales to AE as against individual items selected arbitrarily. It is not fair for a quasi-judicial authority to pick up those data, which are convenient and suitable to it and ignore the corresponding data which goes against it. Ultimately an order to stand has to have a mark of fairness, resonableness and judiciousness. Taking all the above facts and circumstances, I am of the view that there is no case for adjustments of Rs.7,28,865/- in respect of the export price of finished valves of L&T LLC by selectively utilizing the data where the 5% limit is lower in respect of AE and ignoring those figures/data where sale of valves to the AE are at prices higher as compared to the average prices charged to third unrelated parties. The addition so made on totality of facts is, therefore, deleted."
In the absence of any contrary material placed on record by the revenue against the finding of the ld. CIT(A) and keeping in view that the difference between the sale of L&T LLC and Arm's Length Price is only 3.35% which is well within the limit of 5% , we are inclined to 6 ITA No.2642/M/09 A.Y:02-03 uphold the finding of the ld. CIT(A) in deleting the addition made by the Assessing Officer . The ground taken by the revenue is, therefore, rejected.
11. In the result, revenue's appeal stands partly allowed for statistical purposes.
Order pronounced in the open court on 16.11.2010.
Sd/- Sd/-
(RAJENDRA SINGH) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 16.11.2010.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.