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Income Tax Appellate Tribunal, DELHI BENCH “I”: NEW DELHI
Before: SHRI G.S. PANNU & SHRI KUL BHARAT
O R D E R PER KUL BHARAT, JM:
In this case the assessee has filed stay application seeking stay of impugned outstanding demand of Rs. 60,58,17,089/-.
2 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT 2. Facts giving rise to the stay application are that for the assessment year 2017-18, the assessee filed its return of income on 30.11.2017 declaring total income of INR 254,90,10,347. The assessee had entered into various international transactions as described in the stay application. For the purposes of benchmarking its international transactions within the segment, the assessee used TNMM as the most appropriate method. The issues were referred to the Transfer Pricing Officer (“TPO” in short). On the basis of analysis the TPO proposed an adjustment of Rs. 108,25,75,978 to the total income of the assessee. Thereafter, the Assessing Officer passed a draft assessment order, proposing to assess the income of the assessee at INR 363,15,86,325 as against the returned income of INR 254,90,10,347. Aggrieved against this, the assessee filed objections before the DRP. The DRP rejected the objections vide directions dated 19.01.2022, without considering the facts, submissions and additional grounds submitted by the assessee company.
Pursuant to the DRP directions the TPO passed an order dated 8.02.2022, giving effect to the directions given by the DRP. Thereafter, the Assessing Officer passed the final assessment order dated 17.02.2022, assessing the total income of the assessee at INR 363,15,86,320.
3 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT 4. Aggrieved against the directions of the DRP, the assessee filed a writ petition before the Hon’ble High Court of Delhi being W.P. (C) No. 3001/2022, on 15.02.2022. However, the Assessing Officer had passed the final assessment order on 17.02.2022. In view thereof, the High Court directed the assessee to withdraw its writ petition and follow the appellate remedy available under law.
It is stated that on account of the impugned addition, the Assessing Officer raised a demand of INR 60,58,17,094. It was submitted that assessee had determined refunds totaling to Rs. 30,57,66,844/-. It is contended that direction issued by the DRP and the consequential final assessment order passed by the Assessing Officer are in complete violation of principles of natural justice as the DRP has blindly upheld the adjustments proposed by the TPO without even referring to the objections filed by the assessee. It is contended that the direction issued by the DRP is cryptic, non-speaking, laconic and has been issued in complete ignorance of the objections/ grounds preferred by the assessee. It is submitted that the DRP while issuing directions has made a complete mockery of the safeguards enshrined in the statute and had closed their eyes to the claims made by the assessee. Even the additional evidences and additional ground preferred by the assessee have not been addressed by the DRP.
Learned counsel for the assessee drew our attention to the direction issued by the DRP. He contended that on perusal of directions it can be clearly seen that 4 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT there was no discussion/ finding given in respect of the objections raised by the assessee qua ‘distribution segment’, ‘light processing segment’, ‘provision of research and engineering’, ‘provision of administrative services’ and ‘import of Rynaxpyr Technical’. He contended that there is no discussion regarding the objections raised by the assessee. In fact the assessee vide letter dated 12.11.2021 had filed additional ground in respect of the light processing segment and had also filed additional evidences for claiming working capital adjustment, risk adjustment and custom duty adjustment, however, no finding or discussion has been made regarding them. This stoic silence by the DRP evidences complete non-application of mind by them and renders the directions issued by them along with the final assessment order non-est in the eyes of law. He contended that not only that, the DRP has not given any finding regarding adjustment proposed in respect of other segments also. The direction of the DRP goes to demonstrate that no finding/ discussion has been made in respect of 5 segments. Thus, directions passed by the DRP violate the test of passing a speaking order and deserves to be quashed and set aside for re-adjudication before the DRP.
Learned DR opposed the submissions and supported the orders of the authorities below. He contended that the DRP has considered the objections of the assessee.
5 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT 8. We have heard rival contentions, perused the material on record and gone through the orders of authorities below. We find merit in the contention of the assessee that before DRP the assessee had raised various objections, regarding ‘light processing segment’, ‘distribution segment’, ‘provision of research and engineering’, ‘provision of administrative services’ and ‘import of Rynaxpyr Technical’. The assessee also filed additional evidences in support of its contention.
it is noteworthy that before DRP the assessee had made submissions against the remand report, as reproduced herein below:
“It is humbly submitted that we had filed additional evidences and additional grounds vide our submission dated Nov 12, 2021 and Nov 10, 2021 respectively. Your goodself had called for remand report from the Ld. Transfer Pricing Officer. We are in receipt of the said remand report vide your email dated 05th Jan, 2022. We would like to submit that the Ld. TPO has made generalised statements without commenting specifically on the grounds and evidences submitted, which we understand is the essential requirement of any remand report. We submit the following in relation to the remand report: - a) In Para 3 of remand report, the Ld. TPO has stated that additional evidences submitted by the Assessee at this stage is not acceptable as the Assessee had given sufficient opportunities during the course of TP proceedings. We understand that there is no embargo in Law to submit additional evidences before DRP and even additional evidences can be submitted before the Income Tax Appellate Tribunal, which is the last fact finding authority Since the comment made by TPO is without any sound basis, we request your office to kindly take on record the additional evidences and consider the same while adjudicating on the objections raised by us.
6 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT b) On fresh search under light processing segment, the Ld. TPO has vaguely mentioned following comments:
“The criteria to consider the companies as comparable for one particular assessment year may be different for any other assessment year. Every year a separate benchmarking is carried out considering various factors which cannot be adopted for another year." The above comment is very vague as Assessee has carried out fresh search for AY 2017-18 not for any other assessment year. "The Assessee cherry picked the 10 comparable companies which least weighted average NPM for financial years (FY) 2014-15, 2015-16 and 2016-17 and left other companies with greater margin for assessee's convenience. The TPO in its order has a search on the database & identified the set of comparables companies based on functional profile and risks assumed by the tested party."
The Assessee duly submitted search process and its results as part of submission for additional ground however Ld. TPO has not highlighted any company which is functionally comparable but left out by Assessee due to higher NPM. The Ld. TPO, instead of giving his comments on functional comparability of 10 additional comparables, has provided generalised comment saying that Assessee has done cherry picking selecting companies with least weighted NPM. It is settled law that comments from the Revenue Authorities should be based on facts and not on assumptions. Without even looking into the matrix and methodology adopted by the assessee to carry out the search, TPO proceeded to make comments on assumptions with a pre set notion to reject the contentions of the assessee.
During Transfer Pricing Assessment, the Ld. TPO added 12 fresh comparables in addition to the comparables selected by the Assessee, ignoring the fact that those companies were functionally dissimilar and Assessee has not been provided with the search strategy/ strings applied by the Ld. TPO despite having specifically requested for the same vide its email dated 27 December, 2020 (enclosed at Pg. 647 -
7 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT 649 of Vol. B). Further, it is also highlighted that 5 companies out of 12 companies were not even present in search dump when the Assessee carried out the search which means that Ld. TPO has himself done cherry picking of higher margin companies during assessment proceedings. Hence in view of above, we shall humbly request your office to consider the fresh comparable as presented by the assessee and oblige. c) Purchase of Rynaxpyr Technical - uncontrolled price of transaction between DIOSA and third party (CUP).
The Assessee has submitted Invoices for transaction between DIOSA and Shenzhen Noposion Agrochemicals Co Ltd, ("SNACL") i.e. third party customer. The Ld. TPO has stated that the Assessee has furnished only 4-5 Invoices and criteria of CUP do not satisfy merely furnishing 4-5 invoices between common parties. It is submitted that DIOSA sold only 10,000 kgs to Assessee whereas total 32,000 kgs (4 Invoices) were sold to third party. Thus, Assessee has submitted complete data available for CUP to arrive arm's length price and as such there is no requirement to submit complete sale listing of DIOSA. The criteria to reject CUP on the basis of distance of delivery location is incorrect and unjustified. Ld. TPO has factually made mistake in stating that Huangpu, China is at larger distance than Mumbai, India from Alabama, USA whereas Mumbai, India is at larger distance than Huangpu, China from Alabama, USA. d) The Assessee submitted additional evidences w.r.t. following points: Adjustment on account of difference in Risk Profile Adjustment on account of difference in working capital Claim for Custom Duty Adjustment in Light Processing and Distribution Segment No interest charged from third party customer and vendors
Ld. TPO has vaguely stated that documents submitted in the form of additional evidence are irreverent and not admitted. He has not made
8 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT effort to go through the submission and workings furnished by Assessee. Hence, we request Hon'ble Panel to allow us relief on above points. We hope that your goodself would find the abovementioned information in order. It is humbly prayed that the additional grounds/ evidences should be considered and necessary relief may be given to the Assessee Company. We shall be please to furnish such other information as you may require in this regard.”
It is seen from the records that there is no discussion by the learned DRP in respect of additional evidences and the objections raised by the assessee before the DRP.
Learned DR could not point out from the direction of learned DRP about the disposal of the additional grounds and submissions of the assessee company.
During the course of hearing learned representatives of the parties stated that the matter may be remanded to the learned DRP for deciding the additional grounds.
Therefore, looking to the totality of facts and to sub-serve the interests of principles of natural justice, we hereby set aside the impugned order and restore the issues to the learned DRP to decide the additional grounds raised by the assessee company and pass direction afresh in accordance with law. Thereafter the Assessing Officer would make the assessment afresh in pursuance to the directions of the learned DRP. Accordingly, grounds of appeal in are allowed for statistical purposes.
9 SA 84/D/2022 & Corteva Agriscience India P. Ltd. Vs. DCIT 12. Since at the instance of the assessee, was taken up for hearing for the limited purpose to examine whether the objections raised by the assessee before the learned DRP were adjudicated or not and it was found that the objections of the assessee were not adjudicated, accordingly, the impugned order was set aside and the matter was restored to the learned DRP for disposal of the objections and the additional grounds as taken before it by the assessee. Hence, the stay application no. 84/Del/2022 has become infructuous and stands dismissed as such being infructuous.
In the result, S.A. no. 84/Del/2022 stands dismissed being infructuous and is allowed for statistical purposes Order pronounced in open court on 28th July, 2022.