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Income Tax Appellate Tribunal, “C” BENCH KOLKATA
Before: SHRI SANJAY GARG & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH KOLKATA आयकर अपीलीय अधीकरण, �यायपीठ – “C” कोलकाता, BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER
ITA No.250/Kol/2021 Assessment Year: 2010-11 Assistant Commissioner of M/s. Cookson India Pvt. Income Tax, Circle-1(1), Vs Ltd., 10, Old Post Office Kolkata. . Street, Room No. 15A, Kolkata-700001. (PAN: AABCC1679B) (Appellant) (Respondent) & Cross Objection No. 02/Kol/2022 In ITA No.250/Kol/2021 Assessment Year: 2010-11 M/s. Cookson India Pvt. Assistant Commissioner of Ltd., 10, Old Post Office Vs Income Tax, Circle-1(1), Street, Room No. 15A, . Kolkata. Kolkata-700001. (Cross Objector) (Respondent)
Present for: Appellant/Revenue by : Smt. Ranu Biswas, Addl. CIT, DR Assessee/ Cross Objector by : Shri Siddhesh Changule, AR Date of Hearing : 15.09.2022 Date of Pronouncement : 31.10.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: Both this appeal by the revenue and Cross Objection by the assessee are arising out of the order of Ld. CIT(A), Kolkata-22 vide Order No. ITBA/APL/S/250/2020-21/1031762923(1) dated 25.03.2021 against the assessment order passed under section 143(3) r.w.s. 144C
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of the Income-tax Act, 1961 (hereinafter referred to as the Act) Act by DCIT, Circle-3, Kolkata, dated 23.04.2014.
At the outset, we note that there is a delay of 54 days in filing the present appeal for which application for condonation of delay is placed on record. The impugned order of Ld. CIT(A) is dated 25.03.2021 which was received in the office of Ld. Pr.CIT-1, Kolkata on 19.04.2021 and accordingly the limitation expired on 18.06.2021. The present appeal has been filed on 11.08.2021. It is noted that the period of delay falls during the time of Pandemic of Covid-19 which has been excluded by the Hon’ble Supreme Court in the case of Suo moto Writ Petition (C) No. 3 of 2020 dated 10.01.2022 by which the period from 15.03.2020 to 28.02.2022 has been directed to be excluded for the purpose of limitation. Vide this order a further period of 90 days has been granted for providing the limitation from 01.03.2022. Accordingly, we condone the delay and proceed to adjudicate upon the matter.
Grounds of appeal taken by the revenue are reproduced as under: “1. Addition of Rs.4,25,78,429/- on account of MSSF 2. Disallowance of Forex Exchange Loss of Rs.50,28,501/-.”
Assessee has filed its Cross Objection which is nothing but in support of the relief granted by the Ld. CIT(A) and hence, is not reproduced for the sake of brevity.
Brief facts of the case are that assessee, M/s. Cookson India Pvt. Ltd., is part of the Electronics division of Cookson Group, and is a 100% subsidiary of Cookson Group PIc, UK. It is engaged in the manufacture and supply of materials to the electronics industry, primarily serving fabricators and assemblers of PCBs, assemblers of semiconductor packaging and the electrical and industrial markets. It has its manufacturing facility at Chennai, and a R & D centre in
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Bangalore. The R&D centre is a 100% EOU and provides contract R&D services to Cookson Group PIc. During the assessment year 2010-11, number of international transactions were entered into by and between the appellant before us with its associated enterprises (AE’s). However, only international transactions pertaining to ‘Management and Support Service Fee’ (hereinafter referred to as the MSSF’) for Infra Group Services (hereinafter referred to as “IGS”) and R & D services is under dispute before us. These transactions were referred to the Transfer Pricing Officer u/s 92CA of the Act for computing Arm’s Length Price (ALP), after obtaining due approval of the Pr.CIT, Kolkata-1, Kolkata. It was held by the TPO that the IGS performed by the AE of the assessee under MSSA falls into the category of stewardship activity and for the reasons given by the TPO, the Arm’s length price of the IGS provided by the assessee under MSSA was determined to be “Nil” and the total income of the assessee upwardly adjusted for infra group services was Rs. 4,25,78,429/- pursuant to the order of Ld. TPO u/s. 92CA(3) dated 27.01.2014. The final assessment order dated 23.04.2014 was passed by DCIT, Circle-3, Kolkata which included the said transfer pricing upward adjustment in the assessed total income.
5.1. The case of the appellant is that, it had signed an Advance Pricing Agreement (APA) dated 17.01.2020 with the Central Board of Direct Taxes (CBDT) for five years i.e. F.Y. 01.04.2015 to 31.03.2020. The appellant also filed for rollback period and the agreement also provides for roll back of the said APA for three previous year i.e. FY 2012-13 to 2014-15. As per the APA, for management fees for IGS is the amount of management charges paid in the manufacturing segment does not exceed 2.95% of operating revenue of the manufacturing segment of the previous year. Similarly computation of revenue of contract R & D segment, shall be the revenue arrived at by considering the mark up of 19.90% on the operating cost of this segment excluding
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the management charges. It is the case of the appellant that all the facts, including functional and risk profile of the company with respect to the year under appeal is identical to the facts and the functional profile of the assessee company for the year’s covered by the APA and that the ALP agreed to between the Government and the assessee for these assessment years may be applied for the impugned assessment year also.
5.2. Other than the above referred transfer pricing adjustment the disallowance of Rs.50,28,501/- was also made by the Ld. AO towards foreign exchange fluctuation loss debited in the P&L Account. Aggrieved, assessee went in appeal before the Ld. CIT(A).
Before the Ld. CIT(A) it was submitted that the issue relating to transfer pricing adjustment in the present appeal are identical in all respect to the assessment years 2009-10, 2011-12 and 2012-13 wherein on the same subject matter, the co-ordinate bench of ITAT, Kolkata in assessee’s own case in ITA No. 633 & 442/Kol/2016 and 387/Kol/2017 order dated 20.11.2020 has decided the appeals in favour of the assessee. Before the Ld. CIT(A) it was submitted that the impugned year i.e. AY 2010-11 is an assessment year which is embedded within four assessment years from AYs. 2009-10 to 2012-13 and that both, the facts and circumstances of the case as well as the position of law has remained unaltered and, therefore, the favourable finding given by the Co-ordinate Bench of ITAT, Kolkata in assessee’s own case for these three assessment years, squarely applies for the remaining one assessment year i.e. AY 2010-11. Considering the submissions made by the assessee, Ld. CIT(A) gave his finding by following the decision of the Co-ordinate bench of ITAT, Kolkata in assessee’s own case, for which the relevant extractions are reproduced as under:
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6.1. Before us, Shri Siddhesh Changule, represented the assessee and Smt. Ranu Biswas, Addl. CIT, DR represented the Department.
Ld. Sr. DR Smt. Ranu Biswas fairly accepted the position in view of the decision of Co-ordinate bench of ITAT, Kolkata in assessee’s own case on the issue under consideration for AY 2010-11.
We have perused the order of the Co-ordinate Bench of ITAT, Kolkata in assessee’s own case (supra) and the findings given by the Ld. CIT(A) on the transfer pricing adjustment of Rs.4,25,78,429/- for the year under consideration. Relevant extracts of the said decision by the Co-ordinate Bench are reproduced as under:
“5. We have heard both the parties and perused the materials available on records. The question arises as to whether, when the factual matrix including the functional and risk profile of the assessee with respect to these three years under appeal is similar, to the factual matrix and functional profile of the assessee considered by the CBDT while determining the ALP in the APA, for the five Financial years 2015-16 to 2019-20 and for the rollback period i.e. FY 2012-13 to 2014-15. In our view the ALP determined and agreed to in the APA should necessarily be applied as the ALP, on the international transaction of IGS and R & D services for the assessment year in appeal. While holding so , we have considered the various judgments one of which is of passed by the Hon’ble Delhi High Court in the case of Ameriprise India Pvt. Ltd. in ITA 206/2016 wherein it was held as under: “5. Additionally, it is pointed out by Deepak Chopra, Learned Counsel for the assessee, that for the subsequent AYs an Advance Pricing Agreement has been entered into between the Assessee and the Central Board of Direct Taxes under Section 92CC of the Act on 22nd January, 2016 whereunder the aforementioned ‘cost plus pricing methodology’ has been
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implicitly accepted. Therefore, in the facts of the present case, the Court is of the view that no substantial question of law arises.”
The Co-ordinate Bench of ITAT, Kolkata in the case of Ixis Technologies Pvt. Ltd. in ITA No. 564/Kol/2014 wherein it was held as under: “7.1 Applying the proposition laid down in these case laws to the facts of our case and as the ALP determined by the assessee had apparent profit mark up of 18.88% in its SDS scheme and as this is within the margin laid down in the APA, this is to be considered as at arm’s length price. Hence, no adjustment is warranted.”
Further the order passed by the Hon’ble Delhi Tribunal in Ranbaxy Laboratoris Ltd. (supra) has also been considered by us. The relevant paragraph is reproduced as under: “28. ………May that be the case, but the concept and the methodology laid down in APA can have the guidance value for the revenue authorities for the purposes of comparability analysis. The main intent of the advance pricing agreements isto protect the fair share of the revenue of the states in simple and efficient manner and to protect the tax base. Need for Advance pricing agreements are emerging out of current global complex economic situations and its impact on revenue of tax compelling governments to intensify and streamline their transfer pricing compliance efforts to reduce the disadvantage in staking their claim for tax. Higher risk of disputes may be reduced by the advance pricing agreements. On the same intentions and objects, the ld. TPO is also required to compute the ALP of the International transactions of the Assessee for this year. Therefore, the agreement entered into by CBDT with the assessee, which has considered all the aspects of the manner of determination of ALP which are also similar for the this year, should be given highest sanctity and therefore mechanism suggest in that agreement should be necessarily followed in determining ALP of the transactions for this year. 30. As the FAR Analysis of the year under APA as well as the year under appeal are similar and it is also an established fact that the tested parties selected by the APA i.e. foreign AEs are least complex and adequate financial data for comparison on region basis / country basis are available and further the financial transactions are same, we hold that based on APA for A Y 2014- 15 the selection of tested party should be taken as Foreign AE for the current year too…….”
Thus, in the absence of any contrary judgment relied upon by the Ld. D.R, we respectfully relying upon the ratio laid down by the judicial forum as stated above, direct the Assessing Officer to adopt the ALP determined in the APA as the ALP of the international transaction of MSSF for IGS and R & D services for all the impugned assessment years.” 9. Considering the factual matrix of the case, finding given by the Ld. CIT(A), decision of the Co-ordinate Bench of ITAT, Kolkata in assessee’s
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own case (supra) and the fair acceptance by the Ld. Sr. DR, we find no reason to interfere with the findings given by the Ld. CIT(A) and accordingly, grounds taken by the revenue on this issue are dismissed.
On the issue relating to disallowance of foreign exchange fluctuation loss of Rs.50,28,501/-, in the course of assessment proceedings Ld. AO noted that loss arising from re-statement of balances of debtors and creditors at the year end is a notional loss which the assessee has not actually suffered and thus, held it to be disallowed for computing the assessed total income. Aggrieved, assessee went in appeal before the Ld. CIT(A) wherein assessee reiterated the submissions made before the Ld. AO that this loss has been arrived at on re-statement of overseas sundry debtors or creditors at the end of the financial year as on 31.03.2010 by following the accounting standard (AS-11) read with accrual basis of accounting. It was also submitted that in the immediately preceding assessment year i.e. AY 2009-10, Ld. CIT(A)-22, Kolkata had granted relief to the assessee on the same issue vide his order dated 21.10.2016 for which the department did not go into the appeal. Assessee also placed reliance on the decision of Hon’ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd. 312 ITR 254 wherein the Forex loss were allowed as permissible claim. Considering the submissions made by the assessee, ld. CIT(A) directed the Ld. AO to examine the claim of the assessee to find if the forex fluctuation for items are in the nature of revenue, then the same may be allowed considering the decision of Hon’ble Supreme Court in the case of Woodward Governor India Pvt. Ltd. (supra) as well as the decision of his predecessor for AY 2009-10. Aggrieved, the revenue is in appeal before the Tribunal.
From the observations made by the Ld. AO while dealing with the issue, we note that the forex loss represents the loss on account of
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restatement of balances of sundry debtors and creditors at the year end. There are no details available in respect of these balances of debtor and creditors from where it can be inferred with certainty that these represent the balances on revenue account and not on the capital account. Accordingly, we direct the Ld. AO to examine the claim of the assessee and allow the same if the forex fluctuation loss pertains to items which are in the nature of revenue and not capital. At this juncture, it is worth noting that Ld. CIT(A) has also given the direction to the AO to examine the claim of the assessee which in our considered understanding is not in accordance with the procedure in appeal as enunciated u/s. 250 of the Act. However, we remit this matter back to the file of Ld. AO in terms of the observation made above. Accordingly, ground taken by the revenue on this issue is allowed for statistical purpose.
Grounds taken in the Cross Objection are in support of the order of Ld. CIT(A). Since we have already dismissed the grounds of the revenue on the transfer pricing adjustment and has remitted the matter on the issue of forex fluctuation loss to the file of the Ld. AO which are in terms of findings given by the Ld. CIT(A) also, the Cross Objection filed by the assessee is rendered infructuous. Accordingly, the Cross Objection filed by the assessee is dismissed as infructuous.
In the result, appeal of the revenue is partly allowed for statistical purpose and the Cross Objection of the assessee is dismissed.
Order is pronounced in the open court on 31st October, 2022 Sd/- Sd/- (SANJAY GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31.10.2022 JD, Sr. P.S.
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Copy to: 1. The Appellant: 2. The Respondent. 3. CIT(A)-22, Kolkata 4. CIT, Kolkata 5. DCIT, Circle-3, Kolkata 6. The DR, ITAT, Kolkata Bench, Kolkata
//True Copy// [ By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata