PHOENIX COMTRADE PRIVATE LIMITED,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX 4(3)(1), MUMBAI

This appeal is filed for AY 2014-15 by Phoenix Comtrade private limited (the appellant/assessee) against the assessment order passed by The Deputy Commissioner Of Income Tax – 4 (3) (1) Mumbai (the learned AO) passed under section 143 (3) read with section 144C (13) read with section 92CA of the Income tax act [ The Act] dated 28 November 2018 raising following grounds of appeal :-

The at the Ld. AO has erred in law in initiating penalty proceedings u/s. 271(1)(c) alleged concealment of income.

Brief facts of the case shows that assessee is a company engaged in trading of comedy, it filed its return of income on 30/11/2014 declaring a loss of ₹ 361,072,457/–. Assessee is trader in rice, coal, manganese ore and turmeric etc. The return was picked up for scrutiny.

As assessee has entered into international transaction of sale of traded goods to its holding company for commodities private limited BVI amounting to ₹ 4,168,706,476 , sale of traded goods to its associated concern at Dubai DMCC, Mumbai of Rs 35,74,44,143. The assessee has sold non-basmati rice to its holding company amounting to ₹ 391,63,78,384, basmati rice of Rs. 25,23,28,092 and Non basmati Rice to Dubai entity of Rs. 35,74, 44,143/–. The assessee has selected itself

The learned transfer-pricing officer held that when CUP method is available assessee has wrongly selected transactional net margin method as Most Appropriate method. Accordingly, he issued a show cause notice stating that transactional net margin method is not the most appropriate method. He also carried out search on TIPS database and found that as per TIPS database on sale of non-basmati rice to the holding company results in an adjustment of ₹ 109,166,426, sale of basmati rice to the holding company adjustment of ₹ 955,975 and sale of Basmati rice to Dubai adjustment of ₹ 6,430,518.

Assessee objected to the same challenging CUP as MAM, rates used by the TIPS database, comparability data used by the TPO, and mainly stating that there are different varieties of rice and prices vary based on its quality. Therefore, no adjustment is warranted. The learned TPO rejected the argument of the assessee holding that there is no reason submitted by the assessee that why the transactional net margin method selected by the assessee should not be rejected and cup to be adopted as most appropriate method. Therefore, according to him, the cup method is the most appropriate method. He further held that TIPS database is the best suited for the comparability analysis. It was for the comparability analysis it was held that TIPS data has been extracted based on quality only. He also rejected the contention of the assessee with respect to the bundled approach and held that cup method is applied on each transaction. The learned TPO also noted that in assessment year 2012 – 13 the assessee has submitted that the rates adopted by the Indian customs official for export of rice should be considered for cup analysis as the same would be reliable. He

He also found that the assessee has outstanding receivable from Dubai entity of ₹ 357,444,143 that is a transaction of capital financing and therefore interest is required to be benchmarked on the outstanding receivable. After considering the objection of the assessee, it was found that there is in ordinary delay in receiving payment for outstanding dues. In some of the cases, the outstanding was extended beyond 60 days and therefore he considered the 60 days as normal credit. And thereafter computed the interest of ₹ 1,069,963. Accordingly the learned TPO made the total adjustment on account of sale of rice of ₹ 75,004,711/– and on account of interest on overdue receivable of ₹ 1,059,963/– by passing an order under section 92CA (3) of the act on 31/10/2017.

The learned assessing officer incorporated the adjustment proposed by the learned TPO. The learned AO further found that assessee has delayed payment of employees contribution to the provident fund account amounting to ₹ 107,214 and therefore applying the provisions of section 2 (24) (x) read with section 36 (1) (va) of the act disallowed the above sum.

The learned AO further found that assessee has debited provision for doubtful debts of ₹ 61,477,582 which is not allowable. AO further made a disallowance of ad hoc expenditure amounting to ₹ 373 lakhs as assessee did not furnish the requisite information. Accordingly the

Aggrieved assessee preferred objections before the learned dispute resolution panel. With respect to the transfer pricing adjustment the learned DRP upheld the applicability of the transactional net margin method accepting the objections of the assessee. However, it held that foreign exchange loss incurred by the assessee is an operating item while computing the profit level indicator of the assessee. Accordingly, as per direction of the learned dispute resolution panel the learned TPO made an adjustment of ₹ 313,418,824 because of sale of agricultural commodities to associated enterprises. The learned dispute resolution panel also upheld the disallowance of provision of doubtful debts of ₹ 61,477,582, disallowance of employee's contribution to provident fund and ESIC because of delay in deposit. With respect to ad hoc disallowances of ₹ 373 lakhs was deleted subject to verification whether the tax has been deducted from the payments whenever required.

Consequent to that the learned AO passed assessment order on 28/11/2018 wherein the adjustment of ₹ 313,418,824/– on account of transfer pricing adjustment, ₹ 107214 on account of late payment of provident fund and provision for doubtful debts of ₹ 61,477,582 were repeated determining the total income of the assessee at ₹ 13,931,163/–. Assessee is aggrieved with that and has preferred this appeal.

Despite notice, none appeared On behalf of the assessee on last several occasions. The earlier letter of authority was also withdrawn. The notices sent to the assessee through post were also returned with remark 'left". Therefore, we do not have any other alternative but to decide the appeal on the merits of the case as per information available on record.

We have carefully considered contention of learned departmental representative and perused the orders of the lower authorities.

Ground no 1 is general in nature Ground no 11 and 12 are consequential and premature and hence dismissed.

Ground no 2 is with respect to dispute of transfer pricing adjustment. Assessee claims that Foreign exchange loss is not to be considered as operating expense while computing profit level indicator with respect to the computation of arm's-length price with respect to the sale of agricultural commodities to its associated enterprise. The learned dispute resolution panel has accepted that for benchmarking most appropriate method is TNMM as adopted by the assessee. However the only dispute is with respect to considering the foreign exchange loss of ₹ 56.93 crores debited by the assessee as part of operating expenses or not. The claim of the assessee is that it should not be considered part of the operating expenditure. The learned dispute resolution panel held that case of the assessee is a typical case where the sales and forex losses are intrinsically linked to each other and both of them cannot be separated. Main reason being that assessee has received advance against sale from its AE and at the time of sales is booked as

There is no justification available with us with respect to computation of PLI or Search process of the assessee. In absence of any argument before lower authorities and any representation before us, we dismiss ground no 4, 5 and 6 of the Appeal.

Ground no 2 is combines ground of TP adjustments, hence it is also dismissed.

Grounds of appeal are numbered incorrectly. There is no ground no 7.

According appeal of the assessee is partly allowed.