Income Tax Appellate Tribunal - Mumbai
Acit Cir 1, Thane vs Lanxess India P.Ltd, Thane on 18 July, 2022
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "K" MUMBAI
BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND
SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
ITA No. 2628/MUM/2014
Assessment Year: 2009-10
Lanxess India Private Limited, Asst. Commissioner of Income-tax,
Lanxess House, Plot No. 162-164, Circle 1,
Road No. 27, Wagle Estate, Opp. ITI Vs. 6th floor, Asher IT Park, Road No.
College, MIDC, 16-Z, Wagle Industrial Estate,
Thane-(West)-400604. Thane.
PAN No. AACCB 3880 A
Appellant Respondent
ITA No. 2788/MUM/2014
Assessment Year: 2009-10
Asst. Commissioner of Income-tax, Lanxess India Private Limited,
Circle 1, Lanxess House, Plot No. 162-164,
6th floor, Asher IT Park, Road No. 16- Vs. Road No. 27, Wagle Estate, Opp. ITI
Z, Wagle Industrial Estate, College, MIDC,
Thane. Thane-(West)-400604
PAN No. AACCB 3880 A
Appellant Respondent
Assessee by : Mr. Pratik Shah/
Mr. Pinnal Chandramaniya, AR
Revenue by : Mr. V.K. Agarwal, CIT-DR
Date of Hearing : 14/06/2022
Date of pronouncement : 18/07/2022
Lanxess India Pvt. Ltd. 2
ITA Nos. 2628 & 2788/M/2014
ORDER
PER OM PRAKASH KANT, AM
These cross appeals by the assessee and the Revenue are directed against final assessment order dated 26/02/2014 passed by the Assistant Commissioner of o Income-tax, tax, Circle Circle-1, Thane (hereinafter hereinafter shall be referred as 'the Assessing Officer Officer') in terms of section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (in short 'the Act') Act for assessment year 2009-10 10, in pursuant to the direction dated 20/12/2013 of the Ld. Dispute Resolution Panel (DRP).
2. The grounds raised by the assessee in its appeal in ITA IT No. 2628/Mum/2014 are reproduced as under:
"1. On the facts and circumstances of the case and in law, the learned Asstt. Commissioner of Income Tax, Circle - 1, Thane ("the AO'Y/Addl. Commissioner of Income Tax, transfer pricing officer - I(5) (the TPO") erred in making an adjustment of Rs.5,96,53,388/-
Rs.5,96,53,388/ off export of in relation to the international transaction in respect o finished goods (Manufacturing segment).
Lanxess India Pvt. Ltd. 3 ITA Nos. 2628 & 2788/M/2014 The Appellant prays that the aforesaid adjustment be deleted.
2. Without prejudice to Ground no. 1, on the facts and in the circumstances of the case and in law, the AO/PO erred in making an adjustment on the total turnover (i.e. controlled as well as uncontrolled) instead of applying only to the controlled transactions of the Appellant.
The Appellant prays that the AO be directed to restrict the adjustment to the controlled transactions of the Appellant.
3. Without prejudice to Ground no. 1 & 2, on the facts and in the circumstances of the case and in law, the AO/TO erred in applying two methods (Transaction Net Margin Method (TNMM') in the first place and then Comparable Uncontrolled Price Method ('CUP') as an alternate) for calculating Arms' Length Price of international transactions and making adjustment based on the higher of two methods followed whereas the law specifically requires selection of Most Appropriate Method.
The Appellant prays that the afo aforesaid resaid additions be deleted.
4. Without prejudice to Ground no. 3, on the facts and circumstances of the case and in law, the AO/PO erred in computing an alternative Transfer Pricing adjustment based on comparison of export prices the product sold to group companies and (using CUP method) for the third parties.
The Appellant prays that the aforesaid additions be deleted Lanxess India Pvt. Ltd. 4 ITA Nos. 2628 & 2788/M/2014
5. Without prejudice to Ground no. 4, on the facts and in the circumstances of the case and in law, the AO/TO erred in not giving lation of adjustment in the assessment order based on revised calculation the directions of Dispute Resolution Panel allowing relief for market level adjustment to calculate alternative transfer pricing adjustment.
The Appellant prays that the aforesaid additions be deleted.
6. On the facts and in the circumstances of the case and in law, the AO erred in making additions of Rs. 55,44,990/- under section 69C of the Act.
The Appellant prays that the aforesaid additions be deleted.
facts and in the 7 Without prejudice to Ground 6 above, on the facts circumstances of the case and in law, the AO erred in invoking Rs.55,44,990/-
section 69C of the Act in respect of addition of Rs.55,44,990/ On the facts and circumstances of the case and in law, the AO erred in not allowing set off of short term capital loss of Rs 55,25,462/ 55,25,462/-
against Long Term Capital Gain of Rs 5.27.20.000/-.
The Appellant prays that the aforesaid adjustment of short term loss against long term capital gain be allowed.
9. On the facts and circumstances of the case and in law, the AO d in not granting credit for tax deducted of Rs 762,232/-
erred 762,232/ withheld by Lanxess Pte. Ltd. Singapore from remittance towards provision of IT services.
The Appellant prays that the credit for withholding tax be granted.
Lanxess India Pvt. Ltd. 5 ITA Nos. 2628 & 2788/M/2014 circumstancess of the case and in law and
10. On the facts and in the circumstance in law, the AO erred in not giving effect to the rectification application letters with respect to Ground no. 8 & 9 while passing Act."
the order under section 143(3) r.w.s. 144C(13) of the Act."
2.1 The grounds raised by the Revenue in its appeal in ITA No. 2788/Mum/2014 are reproduced as under:
1. The Ld. DRP III, Mumbai has allowed relief to the assessee DRP-III, without appreciating the fact that the AO has rightly made the disallowance, since the assessee failed to prove the genuin genuineness of the transactions in respect of negative difference of Rs. 66,90,600/-
66,90,600/ and parties who confirm with positive difference of Rs.4,18,31,261/-
Rs.4,18,31,261/
2. The Ld. DRP Ill, Mumbai erred in allowing relief to the assessee DRP-Ill, without any supporting evidence to prove the genuineness of the transaction disallowed by the AO.
3. Before us the assessee also preferred an additional ground vide letter dated 01/09/2021, which was filed on 11/11/2021 before the Registry of the Tribunal Tribunal.. The said additional ground is reproduced reproduce as under:
"11. On the facts, in law and in circumstances of the present case, the draft assessment order dated 28 March 2013 passed for AY 10 under section 143(3) read with 144C(1) of the Income-tax 2009-10 Income Lanxess India Pvt. Ltd. 6 ITA Nos. 2628 & 2788/M/2014 Act, 1961 (Act') and all proceedings consequent to such draft assessment order including final assessment order passed u/s 143(3) read with 144C(13) of the Act dated 26 February 2014 are initio, illegal and bad in law since the provisions of section void-ab-initio, 144C were applicable only from AY 2010-11 and onwards It is the humble prayer of the Appellant that the assessment order framed without following the due procedure under law, be quashed.
12. On the facts, in law and in circumstances of the present case, the sed after the expiry assessment order dated 26 February 2014 is passed of the time limit prescribed under 153 of the Act and is therefore, time barred and is liable to be quashed.
quashed."
3.1 As regard to the admissibility of the additional grounds, ground the Ld. Counsel of the assessee submitted that ground raised being be purely legal in nature and no investigation of the fresh facts is required, required therefore same might be admitted for adjudication. The Ld. Departmental Representative objected for filing the additional ground after delay of five years after filing the appeal.
appeal.
4. We have heard rival submission of the parties on the issue of the admissibility of the additional ground. We agree with the contention of the Ld. Counsel of the assessee that additional ground Lanxess India Pvt. Ltd. 7 ITA Nos. 2628 & 2788/M/2014 is purely of legal nature and no investigation of the fresh facts is required and therefore same is eligible for admission in view of the decision of the Hon'ble Supreme Court in the case of NTPC Ltd. V. CIT (1998) 229 ITR 383 (SC).
(SC). As regard to the objectio objection of the Ld. DR of delay in raising the additional ground, ground, we find that additional ground has been raised before hearing of the case and copy of the same was supplied to the Ld. DR well in advance ce before hearing of the case, therefore we do not find any vi violation olation of the principle of accordingly we reject objection raised by the Ld. natural justice and, accordingly, DR. We admit the additional ground for adjudication.
5. Briefly stated facts of the case are that during relevant year the assessee was engaged in the business business of manufacturing and trading of chemical cal and chemical intermediaries.
intermediaries. The assessee filed f return of income for the year under consideration i.e. AY 2009-10 2009 on 29/09/2009 declaring total income at ₹9,56,52,080/ 080/-. The return of income filed by the assessee assessee was selected for the scrutiny Lanxess India Pvt. Ltd. 8 ITA Nos. 2628 & 2788/M/2014 assessment and statutory notices under the Act were issued and complied with. During scrutiny proceedings, the Assessing Officer noted the international transactions carried out by the assessee company and therefore determination determination of arms length price of said international transactions was referred to the Ld. Transfer Pricing Officer (TPO). The Ld. TPO in his order dated 28/01/2013 proposed a transfer pricing adjustment of ₹5,96,53,388/-.. After receipt of the order of the Ld. TPO, the Assessing Officer issued a draft assessment 28/03/2013, wherein in addition to the transfer pricing order on 28/03/2013, adjustment, the Assessing Officer also proposed addition in respect of un-verified verified purchases amounting to ₹5,62,65,098/ 98/-. The assessee filed led objection against the draft assessment order before the Ld. DRP. The Ld. DRP,, after taking into consideration remand report from the AO/TPO on the additional evidences evidence submitted by the assessee, issued direction to the Assessing Officer vide order dated 20/12/2013. Pursuant to the direction of the Ld. DRP, the Assessing Lanxess India Pvt. Ltd. 9 ITA Nos. 2628 & 2788/M/2014 Officer has passed the impugned assessment order after making transfer pricing adjustment of ₹5,96,53,388/-and and disallowance of unexplained expenditure of ₹55,44,990/-.. Aggrieved both the assessee and the Revenue are before the Tribunal by way of raising the grounds as reproduced above.
5. The assessee has filed a paperbook in two volumes containing pages 1 to 677.
6. In respect of the additional ground, the Ld. Counsel of the assessee submitted that draft assessment order dated 28/03/2013 under section 143(3) read with section 144C(1) and final assessment order dated 26/02/2014 under section 143(3) read with section 144C(13) of the Act are void ab initio initio, because provisions of section 144C are applicable only from assessment year 2010-11 11 and onwards. He submitted that in view of non-
non applicability of section 14 144C,, the assessment was to be completed Lanxess India Pvt. Ltd. 10 ITA Nos. 2628 & 2788/M/2014 within the limitation provided for scrutiny cases under section 143(3) of the Act,, whereas the assessment has been completed after the said limitation provided under section 153 of the Act, therefore assessments are time-barred time barred and liable to be quashed. The Ld. Counsel referred to para 45.5 of the Circular No. 5/2010 dated 03/06/2010, wherein iitt was explained that section 144C 14 of the Act shall apply from assessment year 2010-11.
2010 The Ld. Counsel also referred to decision of Hon'ble Madras High Court in the case of Vedanta Ltd Vs ACIT in writ Petition No. 1729 of 2011 and submitted that provisions of section 144C 144C have been held to be applicable from om assessment year 2010-11 2010 11 only by the Hon'ble High Court.
7. The Ld. DR on the other hand submitted that the section 144C has provided change in procedure of assessment in case of certain c category of assessees. The section has not created any obligation of tax liability and therefore, therefore, the amendment was in the nature of only Lanxess India Pvt. Ltd. 11 ITA Nos. 2628 & 2788/M/2014 a procedural change. He submitted that section 144C(1) of the Act specifically lays down that changed procedure of forwarding draft assessment order for eligible assessee in case of variation in the income or loss returned, is to be followed on after the first day of October 2009. Further he submitted that Hon'ble Madras High Court in Writ Petition No. 1526 and 1527 of 2014 in the case of Vijay Television Private Limited has affirmed the decision of the Hon'ble Andhra Pradesh High Court in the case of Zuari Cement Income-tax Circle 2(1) in WP Limited Vs Asst Commissioner of Income of 5557 of 2012 dated 21.02.2 21.02.2013. The Hon'ble High Court referring to memorandum explaining the Finance Bill, Bill has held that section 144C would take effect from 01/10/2009. Therefore, Therefore according to the Ld. DR, the decision of Hon'ble Madras High Court in the case of Vijay Television Private Pri Limited has laid down the law clearly and d same should be followed and the subsequent decision in Vedanta Ltd. (supra), cited by assessee, the Hon'ble High Lanxess India Pvt. Ltd. 12 ITA Nos. 2628 & 2788/M/2014 Court of Madras has not taken into consideration the decision in the case of Vijay Television Pvt.
Pvt. Ltd. (supra), therefore, finding in the case of Vedanta Ltd. might be ignored.
8. submissions of the parties on the issue in We have heard rival submission dispute and perused the relevant material on record. The only dispute raised in ground before us is whether procedure of assessment for certain category of assessees assessees specified in section 144C 4C would be applicable from 01/10/2009 or from assessment year 2010-11. By way of section 144C, 144C, alternative dispute resolution mechanism has been introduced for certain n assessees, wh who satisfied specific conditions.. Those assessees have been categori categorized as eligible assessees. Under this mechanism, mechanism, in case of eligible assessees,, if there is a variation in assessed income or loss as compared to the returned income or loss prejudicial to the interest of the assessee, then instead of passing passing final assessment order [[as provided under section 143(3) of the Act], the Assessing Officer is Lanxess India Pvt. Ltd. 13 ITA Nos. 2628 & 2788/M/2014 required to pass a draft assessment order. Against said draft assessment order, the assessee has been given the option to file objections before Dispute Resolution Panel (DRP) (which which consist of three officers of the rank of Commissioner of Income Tax Tax). The Ld. DRP is required to dispose off said objections within specified period. Thus, by way of this is provision under section 144C 144C, procedure of assessment has been modified for certain cert category of the assessees. For ready reference, the said section 144C(1) is reproduced as under:
144C. (1) The Assessing Officer shall, notwithstanding anything to the "144C.
contrary contained in this Act, in the first instance, forwards a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee as if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee."
8.1 Thus, according to the section, notwithstanding anything contrary in the Act, the Assessing Officer has been directed to follow the procedure of forwarding draft assessment order in case of Lanxess India Pvt. Ltd. 14 ITA Nos. 2628 & 2788/M/2014 certain category of assessees, who have been defined as eligible assessee, if the Assessing Officer proposes on or after the first day of October 2009 to very returned income or loss, which is prejudicial to the interest of such assessee assessee. By the Finance Act (No.2), 2009, the legislature legislat has introduced above procedural change of assessment with effect from fr 01/10/2009.
8.2 However, the Central Board of Direct Taxes (CBDT) vide Circular No. 5/2010 dated 03/06/2010 issued explanatory notes to the provisions of the Finance (No. 2) Act, 2009,, wherein para 45.5 mentioned the applicability of said provision, which which reads as under:
45.5 Applicability - These amendments have been made applicable with effect from 1st October, 2009, and will accordingly apply in relation to assessment year 2010-11 2010 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E) dated 20* November, 2009.
8.3 However subsequently, the CBDT issued clarification vide circular No. 9/ 2013 dated 19th No. 2013 wherein withdrawn this th Lanxess India Pvt. Ltd. 15 ITA Nos. 2628 & 2788/M/2014 para 45.5 of circular No. 5/2010 dated 03/06/2010. For ready reference, said circular is reproduced as under:
45.5 Applicability: These amendments have been made applicable with effect from 1s October, 2009 and will accordingly apply in relation to assessment 2010 11 and subsequent assessment years. The ssment year 2010-11 Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009."
In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No.2) Act, 2009 that amendments will apply in relation 2010 11 and subsequent assessment years. to the assessment year 2010-11 Accordingly, para 45.5 is replaced with the following:
"45.5. Applicability: Secti on 144C has been inserted with effect from Section 1st April, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, if he proposes to make, on or after the Is day of October, 2009, any variation ncome or loss returned which is prejudicial to the interest of in the income such assessee. In other words section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after 1st October, 2009 irrespective irrespec of the assessment year to which it pertains. Amendments to other sections of tax Act referred to in para 45.3 of the circular 5/2010 the Income-tax dated 3rd June, 2010 shall also apply from 1st October, 2009"
Lanxess India Pvt. Ltd. 16 ITA Nos. 2628 & 2788/M/2014 8.4 In the case before the Hon'ble Andhra Pradesh High Court in Pradesh the case of Zuari Cement Ltd versus Asst Commissioner of Income Tax (supra), the Assessing Officer did not comply the procedure laid down under section 144C of the Act and instead of issuing draft assessment order, straightway issued a final final assessment order on 22/12/2011. The assessee filed writ petition before the Hon'ble division bench of Andhra Pradesh High Court challenging the final assessment order passed by the Assessing Officer.
Officer Before the Hon'ble High Court, on behalf of the Revenue it was argued that in view of CBDT Circular No. 5/2010, the procedure under section 144C 4C was to apply only from the assessment year 2010-11 2010 and later years. The Hon'ble High Court vide decision dated 21.03.2013 rejected the contention of the Revenue and held that said argument is not tenable. The Hon'ble High Court referred to the memorandum explaining the Finance Bill in the notes and clauses accompanying the Finance Bill and held that amendment relating to section 144C of Lanxess India Pvt. Ltd. 17 ITA Nos. 2628 & 2788/M/2014 rom 01/10/2009. Accordingly, the Act would take effect ffrom Accordingly the Hon'ble High Court held the assessment order issued was contrary to the mandatory provisi provision on of section 144C of the Act Act. The relevant finding of the Hon'ble High Court is reproduced as under:
A reading of the above section shows that if the assessing officer "A proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment rward it to the assessee and after the assessee files his order, forward objections, if any, the assessing officer shall complete assessment within one month. The assessee is also given an option to file objections latter can issue before the Dispute Resolution Panel in which event the latter directions for the guidance of the Assessing Officer to enable him to complete the assessment.
In the case of the petitioner, admittedly the TPO suggested an adjustment of Rs.52.14 crores u/s.92CA of the Act on 20.09.2011 and to the Assessing Officer and to the assessee under sub forwarded it to sub-
section (3) thereof. The assessing officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section sub (1) of S.144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections this has not been done and and then complete assessment. Admittedly, this Lanxess India Pvt. Ltd. 18 ITA Nos. 2628 & 2788/M/2014 the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void.
The contention of the the Revenue that the circular No.5/2010 of the CBDT has clarified that the provisions of S.144C shall not apply for the assessment year 2008-09 2008 09 and would apply only from the assessment 2011 and later years is not tenable in as much as the year 2010-2011 language of Sub-section Sub (1) of Section 144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a riation in the income or loss returned by the assessee which is variation prejudicial to the assessee, after 01.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act,, 2009, would apply if the above condition is satisfied and other provisions, in which similar contrary intention is not indicated, which were introduced by the said enactment, would apply from 01.04.2009 i.e., from the assessment year 2010-2011.
memorandum explaining the Finance Bill It is not disputed that the memorandum and the Notes and clauses accompanying the Finance Bill which Act,, 2009 clearly indicated that the preceded the Finance (No.2) Act effect from 01.10.2009. In amendments relating to S.144C would take effect our view, the circular No.5/2010 issued byt he CBDT stating that S.144C(1) would apply only from the assessment year 2010-2011 2010 and 2008 09 is contrary subsequent years and not for the assessment year 2008-09 S.144C(1) and the said view of the Revenue to the express language in S.144C(1) is unacceptable. The circular may represent only the understanding of the Board/Central Government of the statutory provisions, but it will Lanxess India Pvt. Ltd. 19 ITA Nos. 2628 & 2788/M/2014 not bind this Court or the Supreme Court. It cannot interfere with the iction and power of this Court to declare what the legislature jurisdiction says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). The Revenue has not been able to pursuade pursua us to take a contra view by citing any authority.
In this view of the matter, we are of the view that the impugned order of assessment dated 23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed iin violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside.
aside."
8.5 Subsequently, identical issue of non-compliance non compliance of the procedure laid down under section 144C of the Act came up before the single bench judge of Hon'ble Madras High Court in the case of Vijay Television private Limited (supra), wherein the Hon'ble High Court vide decision dated 29.04.2014, 29.04.2014, followed the finding findi in the case of Zuari cement Ltd (supra) and held as under:
32. As against this order of the Division Bench of the Andhra Pradesh "32.
High Court, the Revenue went on appeal before the Honourable Supreme Court. The record of proceedings of the Supreme Court indicate that the Special Leave Petition was dismissed on 27.09.2013.
Lanxess India Pvt. Ltd. 20 ITA Nos. 2628 & 2788/M/2014
33. The decision of the Division Bench of the Andhra Pradesh High Court deals with an identical issue as that of the present case. In this respondent on 26.03.2013, case, against the order passed by the second respondent the petitioner filed objections before the DRP, the first respondent herein and the first respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had entertain objections only if it is a draft assessment jurisdiction to entertain order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, he website of the department indicate the amount determined by the the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing the corrigendum, the second respondent did not even withdraw wi the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order passed in Act. The corrigendum dated violation of the statutory provisions of the Act. 15.04.2013 is also beyond the period prescribed for limitation. Such a defect or failure on the part of the second respondent to adhere to the statutory provisions is not a curable defect by virtue of the 15.04.2013. By issuing the corrigendum, the corrigendum dated 15.04.2013.
respondents cannot be allowed to develop their own case. Therefore, following the order passed by the Division Bench of the Andhra Pradesh High Court, which was also affirmed by the Honourable Lanxess India Pvt. Ltd. 21 ITA Nos. 2628 & 2788/M/2014 Supreme Court by dismissing the Special Leave Petition filed thereof, on 27.09.2013, the orders, which are impugned in these writ petitions are liable to be set aside."
aside.
8.6 Subsequent to the above decisions, Hon'ble single Bench Judge of Madras High Court in the case of M/s Vedanta Ltd (supra) on 22/10/2019, held that section 14 144C 4C is effective from assessment year 2010-11 11 only. The relevant finding of the Hon'ble High Court is reproduced as under:
"20. constituted as an
20. The Dispute Resolution Panel (DRP) was constituted alternate dispute resolution mechanism, to provide a specialized forum for expeditious disposal of disputes. An assessment involving transfer pricing disputes, is thus taken out of regular track and a fast beforee a panel of three Senior track dispute mechanism evolved befor Commissioners. The Explanatory Circular makes it clear that the scheme of assessment under Section 144C will apply in relation to 11 and subsequent assessment years only. No doubt, this A.Y.2010-11 Court is not bound by the Explanatory Circular, though necessary weightage will have to be accorded to the explanation set forth by the Board, immediate and proximate to the insertion of the provision itself, applicability, scope and width of the newly in order to understand the applicability, inserted provision.
21. Even otherwise, the settled position of law as set out in the case of Karimtharuvi (supra) is to the effect that Income Tax Act Act, as it stands Lanxess India Pvt. Ltd. 22 ITA Nos. 2628 & 2788/M/2014 amended on the first day of April of any financial year, must apply to the assessments of that year. Any amendment in the Act which comes into force after the first day of April of a financial year would not apply the assessment were to be to an assessment for that year, even if the finalized subsequent to the coming into force of the amendment. (see paragrah 6 of Karimtharuvi (supra)).
22. Section 144 C is extracted below to the extent to which it is relevant.
'Reference to dispute resolution panel.
144C (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to hee proposes to make, on or as the draft order) to the eligible assessee if h after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.' section (2) states that on receipt of the draft order, the
23. Sub-section assessee shall, within 30 days either file acceptance of the variations or Sub section (3) states that the objections to the same before DRP. Sub-section Assessing Officer shall complete the assessment on the basis of the draft order, if the assessee intimates acceptance of the variations to im or if no objections are received within 30 days. Sub-section him Sub (4) states that, in any event, the Assessing Officer shall complete the assessment by way of final order of assessment to be passed within one acceptance from the month from the end of the month in which either acceptance assessee is received, or the period of filing of objections expires. Sub Sub-
section (5) onwards deal with the hearing of the objections before the Lanxess India Pvt. Ltd. 23 ITA Nos. 2628 & 2788/M/2014 section (10), states that every direction issued by the DRP DRP and sub-section section (13) thereafter shall be binding on tthe Assessing Officer. Sub-section states that upon receipt of the directions of the DRP, the Assessing Authority shall pass an order of assessment in conformity with the directions issued. Thus by virtue of insertion of Section 144C, 144C the legislature has put in place a distinct, new scheme of assessment in regard to a specified class of assessees.
24. The question as to whether the amendment or change brought about by Section 144C is merely procedural or substantive would stand of assessment, as I have answered by the narration of the Scheme of noticed above. No doubt, Section 144C prescribes a new procedure for assessment. But can it be called a mere shift in procedure? I believe not as that would be an oversimplification of the matter. The procedure inserted is substantive, in that it offers a new scheme of assessment to assessees, that is, those assessee whose assessments a distinct class of assessees, involve the issues of Transfer Pricing and determination of Arms Length Price. The provisions of Section 144C do not, thus merely prescribe procedure but a substantive exercise in assessment.
25. The Supreme Court in the case of R.Sharadamma (supra) after considering an earlier judgment of the Supreme Court in the case of Commissioner of Income Tax V. Dhadi Sahu (199 ITR 610), states as follows:
'5. The assessee filed appeals before the Tribunal contending that by virtue of the amendment effect by Taxation Laws (Amendment) Act, Act 1970, the Inspecting Assistant Commissioner lost jurisdiction to proceed with the said penalty proceedings with effect from April 1, 1971 inasmuch as in the said cases, the amount of income in respect of Lanxess India Pvt. Ltd. 24 ITA Nos. 2628 & 2788/M/2014 which the particulars have been concealed, was less than Rupees twenty five thousand, thousa section (2) of Section within the meaning of Sub-section 274 as amended in 1970 with effect from April 1, 1971. The contention was that penalty proceedings cannot continue before the Inspecting Assistant Comm Commissioner issioner because the essential requirement of amended Sub-section section (2) was not satisfied. The Tribunal accepted the said plea and allowed the appeal. At the instance of the Revenue, the Tribunal stated the following question for the opinion of the Orissa High Hi Court under Section 256(1) of the Act :
Whether, on the facts and circumstances of the case and on a true interpretation of Section 274, as amended by the Taxation Laws (Amendment) Act, Act, 1970 the Inspecting Assistant Commissioner to whom the case was referred prior to April 1, 1971, had jurisdiction to impose penalty.
6. The High Court answered the question in favour of the assessee question whereupon the matter was brought to this Court. This Court at the outset stated the general principle applicable in this behalf in the following words:
It may be stated at the outset the general principle is that a law which brings about a change in the forum does not affect pending actions unless an intention to the contrary is clearly shown. One of the modes by which such an intention is shown is by making a provision for change over of Tribunal where they are pending to proceedings from the court or the Tribunal the court or the Tribunal which, under the new law, gets jurisdiction to try them.
Lanxess India Pvt. Ltd. 25 ITA Nos. 2628 & 2788/M/2014
7. The Court then observed that once a reference was validly made to the Inspecting Assistant Commissioner he did not lose the jurisdiction to deal with the matter on account of the aforesaid Amendment Act.
Act It pointed out that the Amending Act does not does not contain any provision that the references validly pending before the Inspecting Assistant Commissioner should be returned without passing any final order if the amount of income in respect of which the particulars have been concealed did not exceed Rupees twenty five thousand. The said circumstance, it held, supported the inference drawn by the Court that the Inspecting Assistant Commissioner continued to have jurisdiction to impose penalty. The Court observed :
It is also true that no litigant has any vested right in the matter of procedural edural law but, where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a when the proceedings are particular forum. The right becomes vested when initiated in the Tribunal or the court of first instance and, unless the Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue inspite of the change of jurisdiction of the different Tribunals or forums.'
26. Thus, where there is a change in the form of assessment itself, such change is not a mere deviation in procedure but a substantive shift in the manner of framing an assessment. A substantive right has enured ies by virtue of the introduction of Section 144C to the parties 144C, that, bearing in mind the settled position that the law applicable on the first day of assessment year be reckoned as the applicable law for assessment forr that year, leads one to the inescapable conclusion that Lanxess India Pvt. Ltd. 26 ITA Nos. 2628 & 2788/M/2014 the provisions of Section 144C can be held to be applicable only prospectively, from AY 2011-12 2011 only.
27. In J.K.Synthetics Ltd., (supra), the Bench states categorically as Bench follows:
'........... The Board is not competent to give directions regarding the exercise of the any judicial power by its subordinates. The opinions expressed in those communications pertain to the exercise of powers ing authorities, as it is for those authorities to determine as by the taxing to the year in which the undertaking began to "manufacture or to produce articles" within the meaning of Section 80J of the Income tax Act, 1961.
961. The communications sent by the Board and impugned in the Writ Petition are replies sent by the Board to the letters written by the appellant.
They cannot bind the taxing authorities who have to decide the uninfluenced by extraneous question in issue on its own merits, uninfluenced considerations. The question in issue is a question of fact.'
28. In the case of Prasad Productions (P) Ltd. (supra), a Division Bench of this Court has also clarified the position that where a Circular has applicable qua a particular assessment explained a provision to be applicable year, the benefit of such Circular cannot be withdrawn at a later date, so as to deny the assessee the benefit extended earlier. Though in the present case there is no benefit as such that is in question, there is a tantively procedural right that has enured to both parties as on substantively 01.04.2009 that relates to assessments for A.Y.2010 11 onwards. The A.Y.2010-11 relevant portion of the 2013 Circular reads thus:
Lanxess India Pvt. Ltd. 27 ITA Nos. 2628 & 2788/M/2014 'Para 45.5 of the Circular No.5/2010 dated 03.06.2010 reads as under:
.5 Applicability: These amendments have been made applicable "45.5 with effect from 1st October, 2009 and will accordingly apply in 2010 11 and subsequent assessment years.
relation to assessment year 2010-11 The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009." In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No.2) Act Act, 2009 that amendments will apply in relation to the assessment year 2010- 2010 11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following:
"45.5. Applicability: Section 144C has been inserted with effect from 1st April, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, if he proposes to make, ter the 1st day of October, 2009, any variation in the income or on or after loss returned which is prejudicial to the interest of such assessee. In other words section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after 1st October, 2009 irrespective of the assessment year to which it pertains.
Amendments to other sections of the Income-tax Act referred to in para 45.3 of the circular 5/2010 dated 3rd June, 2010 shall also apply from 1st October, 2009" The right that has enured to the parties in 2009 cannot be modified by a Clarification issued by the Board, three years thereafter. It appears to me quite possible that the long silence of the Board followed by the sudden Clarification issued in 2013 might itself be inspired by challenges similar to the one before me now, Lanxess India Pvt. Ltd. 28 ITA Nos. 2628 & 2788/M/2014 perhaps, even the present one. Though the Clarificatory Circular has een challenged, in the light of the detailed discussion as above, I not been am of the view that this Circular will not bind the Assessing Officer, particularly when it does not lay down the correct position of law.
29. Reference by the learned Senior Standing Counsel Coun for the Departmen to the judgment of the Supreme Court in the case of Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire Industries (231 E.L.T.22) will only serve to support the conclusion that the Gujarat High Court in I have arrived at above and the decision of the the case of Commissioner of Income Tax, Vadodara - 2 V. C-Sam (India) (P.) Ltd. (398 ITR 182) referred to by the learned Standing Counsel also does not support his case."
case.
8.7 We find that both both, the Division Bench of the Hon'ble And Andhra Pradesh High Court and Single Bench of the Hon'ble Madras High Court in the case of Vedanta Limited, Limited has given contrary finding and so the issue before us is which findings should be followed. We find that there is no decision on the issue of the jurisdictional jurisdictional High Court.
The judicial discipline demand that decision of the higher forum should be followed. Since the decision of the Hon'ble Andhra Pradesh High Court is of the division bench whereas the decision of the Hon'ble Madras High Court in the cas casee of Vedanta Ltd (supra) is Lanxess India Pvt. Ltd. 29 ITA Nos. 2628 & 2788/M/2014 of the single bench, and therefore we are inclined to follow the decision of the Hon'ble Andhra Pradesh High Court in the case of Zuari Cement Ltd (supra), wherein it is held that procedure of issuing draft assessment ord order laid down in the section 14 144C is to be followed with effect from 01/10/2009. In the instant case, though the assessment year involve is 2009-10, 10, the draft assessment order has been issued on 28/03/2013, much after the specified date of 01/10/2009 and therefore we do not find any violation of the law by the Assessing Officer in issuing the draft assessment order on 28/03/2013 and passing of the final assessment order dated 26/02/2014 by the Assessing Officer.. Therefore Therefore, the final assessment order passed by the Assessing Officer is well within the limitation provided in law. Thus Thus, the additional grounds raised by the assessee are accordingly dismissed.
Lanxess India Pvt. Ltd. 30 ITA Nos. 2628 & 2788/M/2014 8.8 The ground in 1 (one) raised by the assessee in the appeal is general in nature and therefore we are not re required quired to adjudicate upon specifically.
9. 2, the assessee has challenged the finding of the In ground No. 2, Ld. AO in making transfer pricing adjustment on the total manufacturing turnover of the assessee.
10. The facts of the issue in dispute are that assessee assessee reported various international transactions as under:
Lanxess India Pvt. Ltd. 31 ITA Nos. 2628 & 2788/M/2014 10.1 According to the assessee, transactions relating to purchase of raw materials, payment of royalty, payment of indenting commission etc. are closely linked to the primary transactions of 'export of products' and therefore those transactions had not been evaluated separately from the transfer pricing prospective and considered to be combined transactions and evaluated by applying the Transactional Net Margin Method (TNMM) (TNMM), by taking operating operatin profit/sales as profit level indicator. The assessee in its search process for comparable companies included companies engaged in manufacturing of chemicals and identified 10 comparables comparable having arithmetic mean (OP/Sales) of 5.73% using multiple year data.
data The Ld. TPO directed the assessee to use single year data and profit level indicator as operating profit/total cost (OP/TC), because bec according to him the arm's length price of sales i.e. export of finished goods was under determination and therefore same cannot be taken as numerator for profit level indicator. The Ld. TPO retained the list of Lanxess India Pvt. Ltd. 32 ITA Nos. 2628 & 2788/M/2014 the comparables of the assessee, however after updating the margins of the assessee as well as of the company using financial data for financial year 2008 2008-09, computed ed mean margin of comparables at 9.78%, as under:
S. No. Company Name Segment Name OP/Sales OP/TC
1. Alkyl Amines Chemicals Ltd. 12.98% 14.92%
2. Balaji Amines Ltd. 12.80% 14.67%
3. Deepak Nitrite Ltd. 12.01% 13.65%
4. Haryana Leather Chemicals Ltd. 5.50% 5.82%
5. Laffans Petrochemicals Ltd. 7.89% 8.56%
6. Nocil Ltd. 11.59% 13.11%
7. S I Group-India Ltd. 1.19%
-1.19% -1.18%
8. Sadhana Nitro Chem Ltd. 8.59% 9.40%
9. Amines & Plasticizers Ltd. Chemical 6.09% 6.49%
10. Indofil Organic Inds. Ltd. Spcd 11.00% 12.36% Mean 8.73% 9.78% 10.2 The Ld. TPO revised the margin of the manufacturing segment of the assessee on the sales and on the cost, cost as under:
Particulars Amount ((₹)
Operating Income (A) 1,87,48,36,650/-
1,87,48,36,650/
Less : COGS (B) 1,519,452,806/-
1,519,452,806/
Operating Expenses (C) 242,698,805/-
Total Operating Expenses (E=A-B-C)
(E=A 1,762,151,611/-
1,762,151,611/
Operating Profit/(Loss)(F=A-E)
Profit/(Loss)(F=A 11,26,85,039/-
OP/Net Sales (F/A) 6.39%
OP/Total Cost (F/E) 6.01%
10.3 Thereafter the Ld. TPO, computed adjustment of
₹5,96,53,388/- to the international transaction as under:
Lanxess India Pvt. Ltd. 33 ITA Nos. 2628 & 2788/M/2014 Particulars Assessee's Margin Operating Income (A) 1,87,48,36,650/-
1,87,48,36,650/ Total Operating Expenses (B) 1,762,151,611/-
1,762,151,611/
Operating Profit/(Loss)(C=A-B)
Profit/(Loss)(C=A 11,26,85,039/-
OP/Total Cost (F/E) 6.39%
Arm's Length Margin (G) 9.78%
Arm's Length Price (H=G*B) 1,934,490,038/-
1,934,490,038/
Difference between the arm's length price and the 5,96,53,388/-
transfer price (I)
Transaction value of the Assessee (J) 416,006,359/-
5% of Transfer Price (K=J*5%) 20,800,318/-
Adjustment Value 5,96,53,388/-
10.4 The Ld. TPO alternatively also computed adjustment of ₹3,98,23,060/- applying CUP method, however finally did not consider the same for making adjustment.
11. Before the Ld. DRP, the assessee submitted that manufacturing segment consist of local sales as well as export transactions to the AE, and therefore for the purpose of transfer pricing adjustment, only the international transactions with AE should be considered and not entire manufacturing turnover. Before the Ld. DRP, the assessee filed data of local and export segment, though the same was not audited. The Ld. DRP rejected the contention of the assessee of applying adjustment only to the transactions of the export of the th goods observing as under:
Lanxess India Pvt. Ltd. 34 ITA Nos. 2628 & 2788/M/2014 2.5.6 The assessee has contended regarding the proportionate "2.5.6 adjustment only to the extent of international transactions of export of finished goods to the AEs. In this regard the assessee also has relied on the certain decisions of the Hon ble ITAT. In respect of such decisions contentions of the assessee, it is stated that rule 10B(1)(a) to (e) of the IT. Rules, 1962 prescribe five different methods for computation of arm's length price of the international transaction of the assessee.
Each of the method has to be applied as per the provisions given in the rules. After the rules are applied and the consequent adjustment is arrived at, there is no further scope to alter such figure based on any consideration of turnover of AE and non AE transactions.
t 2.5.7 If in the facts of the case, income arising from international transaction can be arrived at on a singular or standalone basis and the comparable or the comparable uncontrolled transaction is searched keeping in view the FAR of the international transaction, then such benchmarking obviously would not require any proportional adjustment after arriving at the adjustment as per rules. Even if income arising from the international transaction cannot be computed on a singular or individual/separate basis and the margin of the individual/separate assessee/ tested party is computed either at segmental or entity level and the comparables are searched having regard to the FAR of the segment or the entity of the assessee, the consequent benchmarking done and adjustment arrived also is not open to be subjected to any alteration on any interpretation. The very concept of applying the aggregate quantum of adjustment arrived to the international transaction, connotes the fact that it is because of the internationa international transaction of the assessee that either at the transaction level or at the Lanxess India Pvt. Ltd. 35 ITA Nos. 2628 & 2788/M/2014 entity level, the margin earned by the assessee is less compared to the margins of the comparables.
2.5.8 The argument regarding the proportionate adjustment would in any case pre-suppose suppose the condition that the margin earned by the assessee from the international transaction and also from the third party transaction are at same levels and still the margins earned from the international transactions are required to be adjusted on oportionate basis. If the basic presumption of proportionate proportionate application or computation of the adjustment in proportion to the international transaction is that the assessee has earned margin from the international transaction and from the third party tran transaction at par, then in the first place there would be no requirement of any adjustment to be made. In the facts of the assessee's case it cannot be said that it has earned margin from the international transaction at third party transactions.
the same level that it earned from third Accordingly, contentions of the assessee regarding adjustment to be computed having regard to the proportion of volume of AE's transaction, to the total transaction is not found to be acceptable. In respect of the reliance on decisions of the Honble ITAT, it is stated that decisions in such decisions, the primary concept acknowledged is that in the TNMM proportionate adjustment is warranted and that in application of such proportionate adjustment, the margins of the assessee from w AE and with third parties are same. However, in the transactions with case of the assessee no such fact has been demonstrated. Accordingly the contention of the assessee regarding proportionate adjustment is not found to be acceptable."
acceptable.
Lanxess India Pvt. Ltd. 36 ITA Nos. 2628 & 2788/M/2014
12. Before us, the Ld. Counsel of the assessee referred to the order of the Tribunal in the case of the assessee for assessment year 2008- 2008 09 in ITA No. 7202/Mum/2012 and submitted that Tribunal has already adjudicated this issue in favour of the assessee with the direction to make adjustment adjustment only in relation to transactions with the AE.
13. The Ld. DR on the other hand relied on the order of the lower authorities.
14. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is whether the transfer pric pricing ing adjustment should be made on the entire manufacturing turnover of the assessee or in respect of international transactions carried out by the assessee with the Associated Enterprises.
Enterprises In our opinion, the entire tire exercise of determination of arm's-length arm's length price is in respect of the international Lanxess India Pvt. Ltd. 37 ITA Nos. 2628 & 2788/M/2014 transactions carried out by the assessee with the Associated Enterprises and therefore adjustment is also should be limited to the international transactions carried ou outt with the Associated Enterprises and cannot be applied over the transactions with unrelated party or domestic parties unless covered under Domestic Transfer Pricing Provisions Provisions.. In the case of the assessee identical issue has been decided in favour of the assessee by the Tribunal in assessment year 2008-09, 2008 observing as under:
7.3 Before us, the learned AR for the assessee submitted that the "7.3 relation to the selection of assessee had no dispute either in relation comparables or in relation to computation of mean margin of comparable or the margin computed by TPO/AO in case of the assessee. The assessee was disputing only the method of computation of TP adjustment. It was pointed out that the AO had made the adjustment to the entire revenue which was not correct as adjustment is required to be made only with respect to transactions with AE. The learned AR placed reliance on the decision of Tribunal in case of P.. LTD Vs. ACIT in ITA No. THYSSENKRUPP INDUSTRIES INDIA P 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said proposition. The learned CIT(D)R on the other hand placed reliance on the order of AO/TPO.
Lanxess India Pvt. Ltd. 38 ITA Nos. 2628 & 2788/M/2014 perused the records and considered matter carefully. The 7.4 We have perused dispute is regarding TP adjustment made by AO/TPO on account of transactions with associate enterprises (AEs) in relation to the manufacturing segment. The AO/TPO have applied TNMM for bench marking thee transaction and seven comparable have been selected which gave arithmetic mean margin of 5.42%. The margin of the assessee has been computed at 1.73%. The assessee had computed the margin at 9.04% after making adjustment for under utilization of under-utilization capacity which has not been accepted by the AO/TPO. The learned AR for the assessee has not disputed before us either the comparables or the arithmetic mean margin of the comparables or the margin of the assessee computed by AO/TPO at 1.73%. Only limited dispute raised r is that AO had made the adjustment with respect to entire revenue of manufacturing segment whereas the adjustment is required only in relation to transaction with associated enterprises. The plea raised by the learned AR for the assessee is quite reasonable and is supported by reasonable the several decisions of the Tribunal as mentioned in para 7.3 of this order. We, therefore, direct the AO to make the adjustment only in relation transactions with the AE."
AE.
14.1 Since identical issue in dispute is involved in the the ground raised before us, respectfully following the finding of the Tribunal (supra), we set aside the finding of the Assessing Officer on the issue in dispute and restore the matter back to him for comparison of export segment of the assessee with the export export segment of comparable Lanxess India Pvt. Ltd. 39 ITA Nos. 2628 & 2788/M/2014 arm's length price of the companies and then determine the arm's-length international transactions with AE applying the mean margin of the comparables. The ground No. 2 of the appeal of the assessee is accordingly allowed for statistical purposes.
pur n alternative basis
15. The ground No. 3 to 5 have been raised on only subject to relief on ground No. 2.. Since we have already allowed the ground No. 2 in favour of the assessee, the ground No. 3 to 5 are rendered merely academic and therefore we ar aree not adjuciating those grounds. Same are dismissed as infructuous.
16. The ground No. 6 and 7 of the appeal of the assessee and ground No. one and two of the appeal of the Revenue relate to the issue of additions made in respect of the purchases purchase by the Assessing Officer.
17. The facts in brief qua the issue in dispute are that in the draft assessment order for verification of the genuineness of the Lanxess India Pvt. Ltd. 40 ITA Nos. 2628 & 2788/M/2014 purchases the Ld. AO issued notice under section 133(6) of the Act and on the basis of outcome of said enquiry enquiry under section 133(6), the Ld. Assessing Officer proposed disallowance of ₹5,62,65,098/-
under four categories. Under fir first st category disallowance of ₹22,08,487/-was was made where 'no reply' of notice issued under section 133(6) was received. According to the Assessing Officer, Officer in those se cases identity of the purchaser and genuineness of the transactions was not established. Under second category, disallowance of ₹55, was made where the notice issued 55,34,750/-was under section 133(6) 'returned back'.. In third category category, disallowance of ₹4,18,31, 4,18,31,261/- has been made where assessee company has 'shown shown more amount of the purchases purchase then the amount confirmed by the party party' i.e. positive difference. In fourth category purchase expenses have ha been reported less by the assessee as compared to the concerned party, for which the Assessing Officer Lanxess India Pvt. Ltd. 41 ITA Nos. 2628 & 2788/M/2014 has made addition of ₹66,90,600/- treating the same as undisclosed income.
18. Before the Ld. Dispute Resolution Panel,, the assessee filed confirmation of the parties as additional evidence. The Ld. DRP obtained remand report from the Assessing Officer Officer. In the remand report the Ld. Assessing Officer accepted the contention of the assessee except in respect of amount of ₹10,240/- in the case of M/s Ashok chemical industry and ₹55,34,750/-in the he case of Arihant Industries (Madras) Madras) Private Limited. The relevant finding of the Ld. DRP reproduced as under:
3.5.1 It is seen from the assessment order that the AO has made "3.5.1 4,95,74,488/- and further addition of Rs.
addition u/s. 69C of Rs. 4,95,74,488/ 66,99,600/- as income from undisclosed sources. It is seen that such addition made by the AO are in respect of the purchases made by the assessee from various parties to whom notice us. 133(6) wer were issued.
In the remand proceedings, the AO has found all the other transactions to be in order except transaction with two parties viz. Arihant Industries (Madras) P. Ltd. and Ashok Chemicals Industry.
Lanxess India Pvt. Ltd. 42 ITA Nos. 2628 & 2788/M/2014 in the case of 3.5.2 In the remand report the AO has reported that in 10,240/ reflected to have Ashok Chemicals Industry, an amount of Rs. 10,240/- been paid on 31.03.2009 is not seen in the bank statement of the un reconciled. The assessee and to that extent this amount remain un-reconciled. assessee in its submission subsequent to the remand proceedings has not been able to reconcile the same. Accordingly, the addition to the 10,240/ made in the case of Ashok Chemicals Industry is extent of Rs. 10,240/-
found to be justifiable.
3.5.3 In the case of Arihant Industries (Madras) P. Ltd., the AO A has 55,34,750/ . In this case, a notice u/s. 133(6) made an addition of Rs. 55,34,750/-. of the Act was returned back. The assessee had submitted zero copies of the bills from this party and contended that party's address had changed. In the additional evidence, Anne Annexure - C submitted by the assessee was only a bank statement of Citi Bank. The AO observed that in the absence of ledger account from the party, the purpose for which payment has been made cannot be ascertained. He further observed through the bank statement, the payment to that though on going through Arihant Intermediates (Madras) P. Ltd. appears to have been made, but the purpose of these payments cannot be established. Even during the proceedings before the panel subsequent to the remand report of ssessee could not produce the reconciliation and the copy the AO, the assessee of ledger account of the assessee in the books of Arihant Industries (Madras) P. Ltd. to arrive at the conclusion that the purchases made by the assessee from these parties were genuine. Accordingly Accordingly, the action 55,34,750/ in respect of this of the AO in making the addition of Rs. 55,34,750/- party is found to be justifiable.
Lanxess India Pvt. Ltd. 43 ITA Nos. 2628 & 2788/M/2014 3.5.4 In the facts of the case and in view of the remand report of the AO except for the aforesaid 2 amounts, the AO is directed not to make ma the addition of the balance amount as proposed in the assessment order under the head disallowance of unexplained expenditure. We direct accordingly."
19. Before us the Ld. Counsel of the assessee submitted that identical issue in the assessment year 2008 2008-09 09 has been set aside by the Tribunal to the file of the Assessing Officer for necessary examination in the light of the observation of the Tribunal Tribunal.
20. The Ld. DR on the other hand hand relied on the draft assessment order and submitted that Ld. DRP has allowed relief to the assessee without proper verification.
21. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is regarding purchase expenses debited in th the profit and loss account.. In the draft assessment order the Assessing Officer has made addition on the basis of the response of the notice under Lanxess India Pvt. Ltd. 44 ITA Nos. 2628 & 2788/M/2014 section 133(6) issued d to those purchase parties. During proceeding before the Ld. DRP, the Assessing Officer again verified the evidence submitted by the assessee and concluded that except ttwo parties, addition was not required.
required. As far as the contention of the Ld. Counsel of the assessee is concerned, concerned the Tribunal (supra) in assessment year 2008-09 2008 09 has restored the issue to the file of the Assessing Officer observing as under:
under "8.4 8.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding addition made by AO on account of creditors, purchases and other expenses u/s 69 C of the IT Act. The AO had issued notices u/s 133(6) to the parties w ith a view to ascertain with the genuineness of the transactions which had been returned in many cases or no reply had been received. In cases where reply had been received, there were discrepancies and amounts confirmed was more some other cases. The total addition made in some cases while less in some 53521277/- on account of these factors as per details given by AO is Rs. 53521277/ in para 8.2 of this order. The learned AR for the assessee has argued that addition u/s 69C could be made only when the expenditure is accounted.. The entire transaction in relation to the category in which replies were not received or the notices were returned back had been unaccounted in the books and, therefore, no addition could be made u/s 69C and accordingly it has been requested that the addition add made Lanxess India Pvt. Ltd. 45 ITA Nos. 2628 & 2788/M/2014 on this account may be deleted. We are however unable to accept the arguments advanced. Merely because the AO has used the wrong section it does not make the addition legally invalid if the addition provisions of the Act. In such could be justified based on some other provisions cases the addition could always be made u/s 68 of the IT Act and, therefore, we reject the arguments advanced. However, we find, substance in the argument of learned AR that the AO/TPO had asked for almost entire details of transactions entered into by the assessee transactions which was voluminous. The assessee before the DRP had filed further material on sample basis covering 89.43% of cases in which replies had not been received and 69.57% cases in which the notices had been returned back. It has been pointed out that the assessee was now having full details and, therefore, in case further details are required the assessee could submit the same before the AO. Similarly in case of discrepancies it has been pointed out that the assessee had given explanation in respect of differences positive or negative pointed out by the parties in the cases in which reply had been received and these explanation had been duly noted by AO at pages 25 to 31 of the assessment order. The assessment order and again at pages 36 to 42 of assessment explanation given had not been examined and the entire difference had not been added. In our view matter requires fresh examination at the level of AO by specifically considering each explanation by the differences found and the assessee may also be assessee in respect of differences given further opportunity to provide details and evidence in respect of cases in which no reply had been received or the notices had been returned back because disallowing the entire amount considering the nature of details is not justified. We, therefore, set aside voluminous nature the order of AO and restore the matter back to him for passing a fresh Lanxess India Pvt. Ltd. 46 ITA Nos. 2628 & 2788/M/2014 order after necessary examination in the light of observations made in this order and after allowing opportunity of hearing to the assessee."
assessee.
21. Thus, we find that, in the case matter is of verification of the parties and the Ld. DRP has provided opportunity to assessee and after taking into consideration the additional evidence submitted by report from the assessee has the assessee and calling for remand report sustained addition in respect of the two parties only, particularly where the assessee failed to substantiate purchase amount recorded in its books of accounts. In our opinion, the exercise of the verification has already been d done duringg the proceeding before the DRP.. The assessee has not provided any justified reasons for restoring the matter back to the file of the Assessing Officer.
Officer The Ld. DRP has duly considered the submission of the assessee and failed to substantiate with evidence in wherever the assessee has failed that case se only additional is sustained. Therefore, the ground No. 6 and 7 of the appeal of assessee are dismissed.
Lanxess India Pvt. Ltd. 47 ITA Nos. 2628 & 2788/M/2014 grounds of the Revenue are concerned, we find that
22. As far as ground during proceeding before the DRP, the matter of verification was remanded to the Ld. Assessing Officer and on the report of the Ld. Assessing Officer only, only, the Ld. DRP has directed to delete part of the additions on the issue in di dispute spute except the two amounts mentioned above. In such circumstances, we do not find any justified reasons for the Revenue agitate when the same Assessing Officer has recommended to the DRP for not making additions in respect of the been contested before us. Before us, nothing amount, which has now be has been brought which could show that any malafide was observed by the Department in the action of the AO in remand proceeding i.e. report of which is normally sent through range head. In such circumstances, the remand report has been a bonafide action by the Ld. AO. The Ld. DR also could not explain as what is the error in direction of the Ld. DRP.
DRP In view of the above discussion, we dismiss the ground Nos. 1 and 2 of the appeal of the Revenue Revenue.
Lanxess India Pvt. Ltd. 48 ITA Nos. 2628 & 2788/M/2014
23. In ground No.. 8, the assessee has raised the issue of not allowing set off of certain capital loss of ₹55,25,462/ 462/- against long term capital gain of ₹5,27,20,000/-. In ground No. 9 (nine), ( the assessee is seeking credit of tax deducted at source of ₹7,62,232/-.
In ground No. 10, the assessee is seeking direction to the Assessing Officer for considering the rectification application of the assessee in respect of ground No. 8 and 9 before us.
24. Before us both the Ld. Counsel of the assessee as well as Ld. DR agreed that issue involved in ground No. 8 and 9 are subject matter of verification at the end of the Assessing Officer and therefore same might be restored to the file of the Assessing Officer Officer. Accordingly both the ground Nos.
No 8 and 9, are restored to the file of the Assessing Officer for deciding afresh afresh after verification from the record. Since, we have already restored the ground No. N 8 and 9, therefore, the ground No. 10 is accordingly rendered infructuous.
infructuous Lanxess India Pvt. Ltd. 49 ITA Nos. 2628 & 2788/M/2014
25. In the appeal of the assessee is allowed partly for he result, the appeal statistical purposes where as the appeal of the Revenue is dismissed.
Order pronounced ounced in the Court on 18/07/2022.
Sd/- Sd/--
(ABY
ABY T VARKEY)
VARKEY OM PRAKASH KANT)
(OM KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 18/07/2022
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Sr. Private Secretary)
ITAT, Mumbai