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Income Tax Appellate Tribunal, ‘K‘ BENCH
Before: SHRI M.BALAGANESH & MS. KAVITHA RAJAGOPAL
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-20, Mumbai in appeal No.CIT(A)-20/ITO-12(2)(3)/IT-10235 dated 30/01/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/03/2013 by the ld. Income Tax Officer- 9(1)(4), Mumbai (hereinafter referred to as ld. AO).
M/s. Ghetia Exports (India) Pvt. Ltd.,
The first ground to be decided in this appeal is challenging the action of the ld. CIT(A) in confirming the disallowance of Rs.99,921/- paid towards transport expenses incurred by the assessee.
2.1. The second ground raised by the assessee is challenging the action of the ld. CIT(A) upholding the transfer pricing adjustment made by the ld. AO to the tune of Rs.21,48,712/- in respect of transaction with associated enterprises.
We have heard rival submissions and perused the materials available on record. We find that assessee company is engaged in the trading and export of food items, kitchenware, packing material and household items. The return of income for the A.Y.2010-11 was filed by the assessee company on 12/10/2010 declaring total income of Rs.3,49,050/-. During the course of assessment proceedings, the ld. AO observed that assessee had incurred vehicle expenses amounting to Rs.99,921/- and was directed to file the details thereon. The assessee submitted that these vehicle expenses were incurred by giving payments to two Directors and employee of the assessee company for using their personal vehicles for the purpose of business of the assessee company. It was categorically stated that the Directors had used their personal vehicle for the purpose of business of the assessee company and one employee had used his personal scooter for the purpose of business of the assessee company. The vehicle expenses comprised of fuel expenses, minor repair expenses, toll charges etc., reimbursed by the company to the owners of their vehicles. The ld. AO did not heed to the contentions of the assessee and proceeded to disallow the entire expenses of Rs.99,921/- as meant not for the purpose of business.
M/s. Ghetia Exports (India) Pvt. Ltd., 3.1. The assessee had entered into an international transaction with its Associated Enterprises (AE) wherein it had made export of trading items to the tune of Rs. 1,87,65,715/-. The assessee had benchmarked this international transaction by using Cost Plus Method (CPM) as the Most Appropriate Method (MAM). The ld. AO observed that Cost Plus Method could be applied only in respect of assessee engaged in manufacturing activity and the same cannot be made applicable to a trader. Accordingly, the ld.AO substituted the Most Appropriate Method from CPM to the Transactional Net Margin Method (TNMM). The ld. AO made benchmarking by introducing six comparable companies and arrived at the arithmetic mean margin of the comparables at 10.87%. This was compared with the assessee’s margin of 1.73% and the ld. AO proceeded to make an addition by way of transfer pricing adjustment of Rs.21,48,712/- in the assessment.
3.2. The assessee challenged the assessment before the ld. CIT(A). Before the ld. CIT(A), none appeared on behalf of the assessee but adjournments were sought by the assessee from time to time and the same were duly granted. Before the ld. CIT(A), the assessee had pleaded that the six comparable companies chosen by the ld. AO were never put to the assessee for its rebuttal and accordingly, sought for inspection of the assessment records to understand the basis of selection of those comparables by the ld. AO and accordingly make proper submissions before the ld. CIT(A) and since the request for inspection of assessment records was not adhered to by the ld. AO, the assessee could not represent before the ld. CIT(A) by making its proper submissions. Ultimately, this resulted in the ld. CIT(A) passing an exparte order merely confirming the action of the ld. AO. Aggrieved assessee is in appeal before us.
M/s. Ghetia Exports (India) Pvt. Ltd., 3.3. We find that both the lower authorities had not considered the contentions of the assessee with regard to incurrence of the vehicle expenses. Ultimately it is a fact that assessee company does not own any vehicles as is evident from the fixed assets schedule of the assessee company enclosed in the financial statements and incurrence of transport expenditure is the obvious business expenditure for the assessee. Since, this issue has not been looked into by the ld. AO in the proper perspective, we deem it fit and appropriate in the interest of justice and fair play and restore this issue to the file of the ld. AO for denovo adjudication in accordance with law. Accordingly, ground No.1 raised by the assessee is allowed for statistical purposes.
We find that assessee before us had placed detailed paper book containing the financials of all the comparable companies selected by the ld. AO together with the transfer pricing study report of the assessee and sought for one opportunity before the ld. AO for explaining its case and to drive home the point that the comparables chosen by the ld. AO are not proper comparables with that of the assessee company. The ld. AR before us also presented a chart wherein it was mentioned that the turnover of all the comparable companies was several times higher than the assessee company’s turnover and that the same would not be good comparables with that of the assessee company.
4.1. From the perusal of the aforesaid facts, we find that assessee deserve to be given one more opportunity in the interest of justice and fair play before the ld. AO. Hence, we deem it fit and appropriate to restore this appeal to the file of the ld. AO for denovo adjudication in accordance with law, qua the issues in dispute before us. The ld. AO is M/s. Ghetia Exports (India) Pvt. Ltd., directed to examine the various materials and evidences submitted by the assessee before us in the form of paper book. The assessee is also at a liberty to furnish further evidences, if any, in support of its contentions. Similarly, the ld. AO is also at liberty to bring any fresh evidences for the purpose of fresh benchmarking, if any, to decide the arm’s length price of the international transaction carried out by the assessee. Accordingly, the ground No. 2 raised by the assessee is allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 25/04/2022 by way of proper mentioning in the notice board.