PERSTORP CHEMICALS INDIA P.LTD, NAVI MUMBAI vs. ITO 10(2)(2), MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-57, Mumbai (in short ‘CIT (A)) dated 28/11/2016 for the assessment year 2010-11.

The brief facts of the case as emanating from the records are: The assessee is engaged in manufacturing of speciality chemicals used in various products including paint industry. During the period relevant to the assessment year under appeal the assessee entered into International Transactions with its Associated Enterprise (AE) at Germany for sale of Di-Penta. The assessee applied CUP as the most appropriate method to benchmark International Transactions with its AE. The assessee sold 18,500 Kgs of Di-Penta having total value of Rs.47,39,968/- (@ Rs.256 per Kg.) to its AE. The Transfer Pricing Officer (TPO) accepted CUP as most appropriate to benchmark assessee’s International Transactions. The TPO made adjustment of Rs.14,24,500/- to the Arms Length Price (ALP) of the International Transaction on the ground that the assessee has sold the same product to Non-AE in India at a higher price i.e. @ Rs.333/- per Kg. The TPO made adjustment of difference in the rate at which Di Penta was sold to overseas AE and non-AE in domestic market. Aggrieved against the aforesaid addition, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of assessee and upheld the addition.

Shri Mayur Kisnadwala, appearing on behalf of the assessee made three fold submissions. The ld. Authorised Representative submitted that firstly, Di-Penta is a slow moving item. The assessee stopped manufacture of the product in January 2009. Secondly, during the period relevant to assessment year under appeal, the assessee sold 18,500 Kgs. of the said product to its AE in Germany. During the same period the assesse sold mere 460Kgs of the same product in domestic market. Since there was huge difference in order quantity, there was bound to be difference in the pricing. The assessee offered volume discount to its AE. Thirdly, there was time lag between sale of product to AE and domestic sale.

Per contra, Shri Uodal Raj Singh, representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of the assessee. The ld.Departmental Representative submitted that in the earlier assessment years volume discounts claimed by the assessee were not allowed.

We have heard the submissions made by representatives of rival sides and have examined the orders of authorities below. The assessee in appeal has raised two grounds. In ground No.1 the assesse has assailed adjustment of Rs.14,24,500/- in respect of sale of Di-Penta to AE at lower rate than the rate at which the same product is sold to non-AE in domestic market. The assessee had sold substantially large quantity of Di-Penta to its AE in Germany i.e. 18,500 Kgs @ Rs.256/- per Kg, whereas, the assessee sold same product in the domestic market at Rs.333/- per Kg. Undisputedly, the quantity of product sold in the domestic market was mere 460 kgs. Thus, where there is huge difference in the volume of sales to AE and non-AE, comparison of rates between the two transactions is unfair. The assessee was justified in offering volume discount to AE, as the quantity sold to AE was more than 40 times the quantity sold to non AE in domestic market. Further, the assesse had offered volume discount to AE on a product that was slow moving and had miniscule demand. The assesse had already stopped manufacturing of the said product. This fact is evident from annual accounts of the assesse for the Financial Year ending on 31/03/2010. The aassessee temporarily stopped manufacturing Di-Penta since January 2009, as there was global economic slowdown and the demand for the product had reduced substantially.

We find that the Mumbai Bench of the Tribunal in the case of Clarient Chemicals (India) Ltd. vs. JCIT (supra), in principle accepted volume discount to AE, where there was substantial difference in volume of sales to AE and Non-AEs. In the case of ITO vs. Adidas India Marketing (P) Ltd. (supra), Delhi Bench of the Tribunal accepted discount on export of goods to AE where the assessee had sold old stock/ slow moving items to its AE.

Thus, in view of the facts discussed above, we are of the considered view that upward adjustment made in respect of sale of Di-Penta to AE is unjustified and hence, deserves to be deleted. We hold and direct accordingly. The ground No.1 of the appeal is allowed.

In ground No.2, the assessee has assailed initiation of penalty proceedings under section 271(1)(c) of the Act. Challenge to initiation of penalty proceedings at this stage is premature, the ground No.2 of the appeal is dismissed as premature.

In the result, appeal of the assessee is partly allowed.

This appeal was heard on 20/02/2020. As per Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963, (ITAT Rules, 1963), the order was required to be “ordinarily” pronounced within a period of 90 days from the date of conclusion of the hearing of appeal. The instant appeal was heard prior to the lockdown declared by the Hon’ble Prime Minister on 24-03-2020 in view of COVID-19 pandemic. The lockdown was forced due to extra ordinary circumstances caused by world wide spread of COVID-19. Thereafter, the lockdown was extended from time to time. Therefore, the pronouncement of order beyond the period of 90 days from the date of hearing is not under “ordinary” circumstances. The Co-ordinate Bench of the Tribunal in the case of DCIT vs. JSW Ltd., for A.Y 2013-14 decided on 14/05/2020, under identical circumstances, after considering the provisions of Rule 34(5) of the ITAT Rules, 1963, judgements rendered By Hon’ble Apex Court and the Hon’ble Bombay High Court on the issue of time limit for pronouncement of orders by the Tribunal and the circumstances leading to lockdown held:- “10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only inconsonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which ITA No. 6103 and lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.”

The appeal of the assessee is partly allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.