Income Tax Appellate Tribunal - Cochin
M/Shic-Abf Special Foods P. Ltd, ... vs The Acit, Cochin on 7 February, 2017
I.T.A. No.115 /Coch/2016
आयकर अपीलीय अिधकरण
कोिचन पीठ,
पीठ कोिचन
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
सव ौी बी
बी.पी
पी.
पी जैन, लेखा सदःय एवं जोज जोज के., याियक
याियक सदःय के सम!
BEFORE S/SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM
आयकर अपील संख./I.T.A.
् No. 115/Coch/2016
($◌नधा रण वष /Assessment Year : 2011-12)
M/s. HIC-ABF Special Foods P. Ltd., Vs The Assistant Commissioner of
11/B, Project Colony Road, Income-tax, Corporate Circle-1(2),
Industrial Development Area, Aroor Kochi.
Post,
Alappuzha-688534.
अपीलाथ(/Assessee-
अपीलाथ(
(अपीलाथ( Appellant) ू*यथ(
(ू*यथ(/Revenue
थ( -Respondent)
ःथा. ले. संख./PAN
् No. AAACH 9887R
अपीलाथ( क+ ओर से/Assessee By Shri A.K. Jain, CA
ू*यथ( क+ ओर से/Revenue By Shri Shantanu Bose, CIT( DR)
सुनवाई क+ तार0ख/ Date of Hearing 15/11/2016
घोषणा क+ तार0ख/Date of pronouncement 07th /02/2017
ORDER
PER GEORGE GEORGE K., JM
This appeal at the instance of the assessee is directed against the final assessment order dated 29/01/2016 passed in pursuance of the DRP directions dated 10/12/2015. The relevant assessment year is 2011-12.
1
I.T.A. No.115 /Coch/2016
2. The brief facts of the case are as follows:
The assessee is an Indian company engaged in the business of processing and export of freeze dried shrimps. It is a subsidiary of Higashimaru International Corporation, Japan (HIC Japan). The assessee exports the freeze dried shrimps to its AE i.e., HIC, Japan. The assessee justified the ALP of its international transactions of exports to AE using CUP method in its TP documentation. 2.1 The return of income was filed on 12/09/2011 declaring loss of Rs.21,91,804/-
. Notice u/s. 143(2) was issued and served. Details and explanations were provided during the assessment. Reference was made to TPO for computation of ALP of international transactions. The TPO vide order passed u/s. 92CA(3) on 30/01/2015 and determined the TP adjustment at Rs.13,22,27,883/-. The TPO rejected the assessee's TP study and proceeded to make an independent search of comparable transactions. Only one company viz., Accelerated Freeze Drying Company Ltd. (AFDC) was identified by the TPO as the comparable company in the search process. As per the TPO, this company was also involved in export of freeze dried shrimps from India. The TPO collected the export details and corresponding invoices of this company u/s. 133(6). As per the TPO, the assessee was exporting freeze dried shrimps from India. The TPO collected the export details and corresponding invoices of this company u/s. 133(6). As per the TPO, the assessee was exporting freeze dried shrimps at an average price of $18 per kg whereas the 2 I.T.A. No.115 /Coch/2016 comparable company was exporting the same at approximately $25 per kg. The TPO therefore inferred that the exports of the assessee to its parent company being an AE are not at arms length. When the assessee was confronted with the proposed TP adjustment, the assessee argued that AFDC cannot be considered as a comparable at all for multiple reasons. As these reasons are not germane for deciding this appeal, we are not reproducing the same for the sake of brevity. The TPO finally considered the comparable price at $25.15 per kg based on the sales made by AFDC to another entity viz., International Creative Foods Inc (ICF, USA). The TPO determined the TP adjustment at Rs.13,22,27,883/- in the order passed u/s. 92CA(3) dated 30/01/2015.
2.3 The Assessing Officer passed the draft assessment order on 6.3.2015 determining the total income at Rs. 13,00,36,080. The assessee filed objections before the DRP on 15/04/2015. The DRP rejected the assessee's objections and passed the directions on 10/12/2015. The Assessing Officer passed the final assessment order in conformity with the DRP directions on 29/01/2016 assessing the total income at Rs.13,00,36,080/-. Against this final assessment order, the assessee has filed the present appeal.
3. Ground No. 1.1 to 1.4 deals with the contentions that the (i) assessment order was passed in violation of principles of natural justice (ii) Assessing Officer erred in making a reference to TPO, (iii) Assessing Officer erred in not demonstrating that 3 I.T.A. No.115 /Coch/2016 the motive of the appellant was to shift profits outside India and (iv) the draft order passed by the Assessing Officer is without jurisdiction in so far as it purports to give effect to an invalid order of the TPO. No arguments were made in respect of these grounds. Hence, these grounds are not considered and decided.
4. Ground No. 2 and 3 deals with the contention that the TPO erred in considering the transaction entered by AFDC with its AE, ICF, USA as a CUP for determining the TP adjustment. These grounds also deal with the other facets of TP adjustment like the products dealt by ICF, USA were not dealt with by the assessee and the TPO erred in not giving appropriate adjustment for the difference in transactions of assessee and that of ICF, USA.
5. The assessee has also filed an additional ground dealing with the contention that the ALP of international transactions of the assessee should be computed using the TNMM as the margins earned by the assessee fall within the range of acceptable range as provided under second proviso to section 92C(2) of the IT Act and hence the international transactions are at arms length.
6. We have considered the material on record and the rival contentions. During the course of hearing, the learned DR submitted a report of the Ad. CIT(TP), Range 2(3), Kochi dated 07/11/2016 wherein it was stated that both AFDC and ICF, USA are associated enterprises in terms of section 92A(2)(b) as Ms. Kamli Tharakan is 4 I.T.A. No.115 /Coch/2016 indirectly holding more than 25% of share capital in both AFDC and ICF, USA. The assessee also reiterated that both AFDC and ICF, USA are AEs u/s. 92A in its application for additional evidence and ground under Rule 29 of the ITAT Rules. As both assessee as well as the revenue agree that AFDC and ICF, USA are associated enterprises, the transaction between them cannot be considered as comparable uncontrolled transaction in terms of Rule 10B of the IT Rules. As per Rule 10A(ab), uncontrolled transaction means a transaction between enterprises other than associated enterprises, whether resident or non-resident. In the present case, it is an agreed fact that both AFDC and ICF, USA are associated enterprises. Thus, transactions between them cannot be considered as the uncontrolled transaction. Consequently, the entire basis of TP adjustment is incorrect and bad in law. The TP adjustment using the CUP method is accordingly deleted. However, the tribunal being the final fact finding authority, has to necessarily examine whether the international transaction entered by the assessee with its AE is at Arms Length using the other methodology prescribed under Rule 10B of the IT Rules. Moreover, the assessee has filed additional ground of appeal regarding computation of ALP under TNMM, hence, we remit this issue to the file of TPO for computation of ALP of international transactions as per TNMM and in accordance with law. Other grounds regarding levy of interest are consequential in nature. 5
I.T.A. No.115 /Coch/2016
7. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Pronounced in the open court on 7th-02-2017.
sd/- sd/-
बी.पी
बी पी.
(बी पी जैन) जोज जोज के.)
(जोज
(B. P. JAIN) (GEORGE GEORGE K.)
लेखा सदसय/ACCOUNTANT
् MEMBER नयाियक
् सदसय/JUDICIAL
् MEMBER
2दनांक/dated: 7th February 2017
GJ
Copy to:
1. M/s. HIC-ABF Special Foods P. Ltd., 11/B, Project Colony Road, Industrial Development Area, Aroor Post, Alappuzha-688534.
2. The Assistant Commissioner of Income-tax, Corporate Circle-1(2),Kochi.
3. The Principal Commissioner of Income-tax-I, Kochi.
4. The DR/ITAT, Cochin Bench.
5. Guard File.
By order Assistant Registrar ITAT, COCHIN 6 I.T.A. No.115 /Coch/2016 7