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Income Tax Appellate Tribunal, DELHI BENCH ‘I-2’, NEW DELHI
Before: SH. R. K. PANDAMS. SUCHITRA KAMBLE
Appellant by Sh. Salil Aggarwal, Advocate Sh. Shailesh Gupta, Advocate Respondent by Sh. H. K. Choudhary, CIT DR Date of hearing: 24/09/2019 Date of Pronouncement: 31/10/2019 ORDER PER R.K PANDA, AM:
This appeal filed by the assessee is directed against the order dated 06.10.2010 passed u/s. 143 (3) r.w.s. 144 C of the IT Act, 1961 for A.Y. 2006-07.
Facts of the case, in brief, are that the assessee is a company engaged in the business of import and export of precious metals, toys, stationery items etc. It filed its return of income on 30.11.2006 declaring total income of Rs. 5,46,75,382/-. Since the assessee has entered into certain international transactions with its AE, the AO referred the matter to the TPO for determination of the ALP of the international transaction. The TPO during the course TP assessment proceedings noted that the assessee has undertaken the following international transactions
Export of platinum of Rs.213.60 Crores. 1. Export of gold Rs. 17.95 Cores 2.
He noted that the AE namely Prudential Precious Metals, FZE is a wholly owned subsidiary company and is located in Sharjah, UAE. The assessee during the impugned assessment year has entered into the international transaction related to sale of 2058.34 kilograms of platinum to its overseas subsidiary worth Rs.240.72 crores. The assessee has applied CUP method for benchmarking the international transaction. He noted that the company sources platinum from the third parties and sells them to its subsidiary. The sale price is fixed on the London Bullion Market Associates Rates (LBMA). The assessee has charged a premium of USD 2 per ounce over the rates fixed by LBMA. He noted that the assessee had purchased platinum by opening letter of credit. Assessee had sold the goods purchased to its AE on the basis of spot rate. From the various details furnished by the assessee the TPO noted that for comparing the rate, the assessee had used date of fixing as the date for comparing the prices with London Bullion Market Association Rates. The TPO noted that the date of invoice and date of shipment are same whereas the date of fixing is different than these two dates. He observed that the date of invoice and date of shipment are verifiable piece of information whereas the date of fixing cannot be verified. According to the TPO although the assessee had used the date of fixing as the date on which the sale price was to be benchmarked, however, assessee had not furnished any credible evidences to suggest how the date of fixing was arrived. In view of the above the TPO rejected the TP analysis done by the assessee and used the date of invoice being the date on which the goods were sold to the AE and used the same for benchmarking the international transaction. Accordingly the TPO used the external CUP as available on date of sale invoice for comparability analysis and for benchmarking of the international transactions and rejected the T. P. analysis of the assessee pertaining to an imaginary date of fixing. Accordingly, the TPO made an upward adjustment of Rs.48,33,697/-. The assessee approached the DRP and the DRP upheld the action of the TPO. The AO in the order passed u/s. 143 (3) r.w.s144 C of the Act made addition of the same to the total income of the assessee.
3. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal :-
1. That the learned Deputy Commissioner of Income Tax, Circle-4(1), New Delhi has grossly erred both in law and on facts in determining the income of the appellant company at Rs. 5,96,09,634/- as against declared income of Rs. 5,46,75,382/- in an order of assessment under section 143(3)/144C of the Act dated 6.10.2010.
2. That the learned Deputy Commissioner of Income Tax has further erred both in law and on facts in making an addition of Rs. 48,33,697/- on account of alleged understatement of arm’s length price in respect of transactions between the assessee company and, its wholly owned subsidiary company M/s Prudential Precious Metals Pvt. Ltd. under section 92CA(3) of the Act 2.1 That in making the aforesaid addition, the learned Dy. Commissioner of Income Tax has erred in referring the matter to the Additional Commissioner of Income Tax (Transfer Pricing Officer-I (3), New Delhi (hereinafter referred to as ‘TPO’) u/s 92CA of the Act on the following grounds:
a) As none of the conditions precedent laid down under section 92C(3) of the Act were satisfied, there was no occasion for determination of arm’s length price by the AO and the value of the international transactions ought to have been accepted; b) As the reference made by the learned AO to the learned TPO is not in accordance with the provisions of Section 92CA(1) of the Act; c) As no opportunity of being heard was granted at any stage of the proceedings for this purpose, whether at the proposal or the approval stage; d) As no initial opinion was formed u/s 92C(3) of the Act which is a jurisdictional precondition ; e) By not furnishing the Letter of Reference (LOR) to appellant. That since the reference by the learned AO was bad in law and void-ab-initio, consequentially the entire proceedings by the learned TPO, order of learned TPO dated October 23, 2009 order of Dispute Resolution Panel dated 08.09.2010 and, also the impugned addition of Rs.48,33,697/- were vitiated, invalid, illegal and hence, a nullify.
2.2 That the learned Deputy Commissioner of Income Tax has even other-wise failed to appreciate that provision of section 92CA of the Act were wholly inapplicable to the transactions of the appellant company with M/s Prudential Precious Metals Ltd. (hereinafter referred to as “PPML”)
2.3 That the learned Deputy Commissioner of Income Tax has further mechanically and on complete misconstruction of provisions contained in section 92CA(4) of the Act made the impugned addition without appreciating that arm’s length price determined by the learned Transfer Pricing Officer in an order under section 92CA(3) of the Act and, affirmed by Dispute Resolution Panel was based on complete disregard of the facts of the case of the appellant and the statutory provisions of law. Infact, the entire approach of the authorities below for making the aforesaid addition is based upon inherent contradictions and factual misassumptions as is evident from the following: a) That finding of the learned TPO that date of fixing is not supported by any evidence is factually incorrect and, is in disregard of the documentary evidence maintained by the appellant company; b) That further even going by the basis adopted by the authorities below though the same is disputed, they have considered transactions which result into positive variance only but ignored where there was a negative variance and as such, apparently too addition made on pick and choose policy is entirely untenable; c) That since M/s PPML had been wound up in the instant year and as a result all the sums were remitted to the appellant company and, entire dividend was offered for tax at the maximum marginal rate, there was no loss of revenue and as such, the addition made is perse illegal and, not sustainable; and d) That no valid and proper opportunity was granted by the DRP before disposing of the objections of the appellant against the draft order.
That the learned DCIT has further erred both in law and, on facts in framing the order of assessment without granting any opportunity much less and, valid proper opportunity and, therefore, the order so made is vitiated and, unsustainable.
The Ld. Counsel for the assessee strongly objected to the addition made by the AO. Referring to the notice issued u/s. 92 CA (2) and 92 D(3) vide letter dated 10.12.2008, copy of which is placed at paper book pages 49 and 50, the Ld. Counsel for the assessee drew the attention of the bench to clause No.-L wherein the TPO had asked the assessee to furnish the details of all international transaction alognwith segment wise break up of such transactions. Referring to the reply given by the assessee vide letter dated 12.01.2009 copy of which is placed at paper book page 51 to 53, the Ld. Counsel for the assessee drew the attention of the bench to clause No. 2 (l) and 2 (m) wherein he had filed the details of international transactions alongwith copy of correspondence of one of sale made by the assessee company in respect of such internal transaction. Referring to page 91 to 94 of the paper book the Ld. Counsel for the assessee drew the attention of the bench to the various e-mails received from its AE and the reply given by the assessee to such e-mails. Referring to pages 95 to 98 of the paper book the Ld. Counsel for the assessee drew the attention of the bench to the reply given by the assessee to the AO on various issues raised by him. He submitted that thereafter the assessee was never called upon to explain anything about the issue relating to the price. Referring to pages 158 to 159 of the paper book the Ld. Counsel for the assessee drew the attention of the bench to the reply given by the assessee at para 4 which reads as under :-
“It may be pertinent to state here and, as submitted in the last hearing 3. that, M/s PPML is wholly owned subsidiary company of the assessee company and, the entire profits of M/s PPML are taxable only in India. It is submitted that, there is no tax liability of M/s PPML outside India. The detail of dividend received and profit repatriated in India is enclosed herewith as per Annexure -I. In this regard, it is reiterated at the risk of repitition that, entire dividend and profits repatriated in India was offered for tax at Maximum Marginal Rate. It is thus submitted that, there is no erosion of tax base, which is in consonance with intention behind the transfer pricing provisions contained in the Act.”
Referring to the order of the TPO wherein he has adopted the rates of sale price as per LBMA he submitted that the difference is only in respect of four transactions. He submitted that the TPO has accepted the rates wherever they are higher whereas he has rejected the TP analysis of the assessee when the rate is less. He submitted that the approach adopted by the AO/TPO is purely on the basis of summarizes and conjectures. He submitted that the TPO cannot adopt a pick and choose method. Further if the same method is adopted then there will still be positive income and no addition can be made. Relying on various decisions he submitted that the department cannot direct the assessee as to how to conduct its business. He also relied upon various decisions especially decisions reported in 1. 176 ITR 169 2. 358 ITR 295 3. 73 ITD 125 4. 230 CTR 601 5. 254 ITR 377 6. 280 RR 1 7. 371 ITR 118 8. 184 taxmann.com 352
The Ld. DR on the other hand heavily relied on the order of the AO, TPO and DRP. He submitted that the date of fixing cannot be taken as the date of transfer of right in the property. Only the date on which the property is transferred has to be taken. He accordingly submitted that the order of the AO/TPO/DRP being in consonance with law should be upheld. In his alternate contention he submitted
that the matter may be restored to the file of AO/ TPO/ DRP for verification and direction to the assessee to substantiate its case.
We have considered the rival arguments made by both the sides, perused the orders of the AO/TPO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case has made addition of Rs.48,33,697/- on the ground that the assessee for benchmarking the transactions has used the date of fixing as the date for comparing the prices with LBMA and used date of fixing as the date on which the sale price is to be benchmarked. According to the TPO although the date of invoice and date of shipment are verifiable piece of information, however, the date of fixing is different from these two dates and is not verifiable. The AO/TPO accordingly used the external CUP as available on the date of sale for comparability analysis and for benchmarking of the international transaction and accordingly made addition of Rs.48,33,697/-. It is the submission of the Ld. Counsel for the assessee that out of the total 11 transactions there is profit in 7 transactions and loss in 4 transactions and the net result is positive and the AO cannot pick and choose the method that suits him and cannot compel the assessee to do its business in a particular manner.
We find some force in the above arguments of the Ld. Counsel 9. for the assessee. From the various details furnished by the assessee in the paper book as well as the order of the TPO/AO we find while the AO has accepted the rates applied as per invoice value which is more than the LBMA, however, he did not accept the invoice value where the rate applied is less than the LBMA. In our opinion the approach should be consistent and the AO cannot pick and choose. We find the assessee before the DRP had given the following submissions :-
“It is further submitted that, even if the method is adopted as a basis, though the same is seriously disputed then too, there is no understatement of sale price as would be evident from the chart extracted above. The perusal of the chart would show that, if the aforesaid method is adopted then there is a positive difference of Rs. 48,33,697/-and negative difference of Rs. 55,99,923/- and thereby, there is negative difference of Rs. 7,66,226/- is enclosed at page 18 of Annexure ‘A ’ to this objection and hence, apparently even going by the method adopted by the learned Transfer Pricing Officer there is no basis to warrant adjustment under section 92C of the Act. ”
From the various details furnished by the assessee we find 10. merit in the arguments of the Ld. Counsel for the assessee that the observation of the TPO and the DRP that assessee has not filed any credible evidence to suggest how the date of fixing was arrived at is factually incorrect.
The Hon’ble Supreme Court in the case of CIT Vs. Excel Industries Limited reported in 358 ITR 295 has held that income tax cannot be levied on hypothetical income. Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then it can be said that for the purpose of taxability that the income is not hypothetical and it has really accrued to the assessee.
Considering the totality of the facts of the case and considering the fact that assessee has filed the requisite details and the TPO/AO/DRP cannot pick and choose a part of the method which is acceptable to them and reject a part of the same method which is not acceptable to them and that there should be consistency in the approach, we are of the opinion that no addition, is warranted on account of the ALP of the international transaction in the instant case. The grounds raised by the assessee are accordingly allowed.
In the result the appeal filed by the assessee is allowed. 13.
Order pronounced in the open court on 31.10.2019.