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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: HON’BLE SHRI PAWAN SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2008-09 contest final assessment order dated 28/09/2012 passed by Ld. Addl. CIT, Range-16(3), Mumbai u/s.143(3) r.w.s.144C (13) pursuant to the directions of Ld. Dispute Resolution
M/s Jasani Assessment Year: 2008-09 Panel-II, Mumbai [DRP] dated 31/07/2012. Although the assessee has raised as many as 10 Grounds of appeal
, however, Ld. Authorized Representative for assessee, at the time of hearing, submitted that the assessee is not contesting Ground Nos.1,4,5,7 &
8. Accordingly, all these grounds are treated as not pressed. The remaining ground as agitated before us, reads as under: - “The Additional Commissioner of Income Tax - Range 16(3) Mumbai, based on the directions of the Dispute Resolution Panel/ erred: -
1. Not Pressed 2. in computing adjustment arising out of arms length pricing on the entire turnover of the assessee instead of restricting the same to the international transactions with the Associate Enterprise.
3. In computing the adjustment arising out of arms length price by not properly applying the principles of safe harbor limits i.e. +/- 5% of the value of international transaction
4. Not Pressed
5. Not Pressed
6. In making the said addition by wrongly excluding Suashish Diamonds Limited and Flawless Diamonds Limited as Comparables
7. Not Pressed
8. Not Pressed 9. in disallowing expenditure on computer software without correctly appreciating the nature of the said payments. 10. in disallowing depreciation on laptop purchased without adequately appreciating the circumstances and facts of the case. 2.1 The relevant facts are that the assessee being resident firm was stated to be engaged in the business of manufacturing of rough and polished diamonds. It reflected turnover of Rs.443.71 Crores including sales to its sole Associated Enterprise [AE] namely M/s Indigems NV, Belgium for Rs.62.30 Crores. 2.2 The international transactions as reported by the assessee in Form No. 3CEB were referred for determination of Arm’s Length Price [ALP] to Ld. TPO. During proceedings before Ld. TPO, the transactions of sale & Purchase of Rough and Polished diamonds were benchmarked on aggregate basis using entity-level Transactional Net Margin Method M/s Jasani Assessment Year: 2008-09 [TNMM], Profit Level indicator [PLI] being Operating Profit / Total Cost, the assessee being the tested party. The mean PLI of 6 comparable entities was worked out by the assessee to be 3.36% as against assessee’s 4.80% and therefore, the transactions were submitted to be at Arm’s Length Price. 2.3 However, rejecting 4 comparable as selected by the assessee and adding 2 new comparable, Ld. TPO worked out mean PLI of 4 entities to be 5.89% as pitied against assessee’s PLI of 4.80%. One of the entities namely M/s Suashish Diamonds Ltd. as selected by the assessee, was rejected on account of Related Party Transactions [RPT] of more than 20%. 2.4 Applying the PLI of 5.89%, ALP sales were computed by Ld. TPO to be Rs.448.33 Crores as against Rs.443.71 Crores as reflected by the assessee. Accordingly, TP adjustment of Rs.4.62 Crores was proposed in TPO’s order u/s 92CA (3) dated 14/10/2011 which was incorporated in draft assessment order dated 12/12/2011. As per the finding of Ld. TPO, the ALP of the international transactions was outside tolerance range of +5%.
3. The assessee raised objections against the same before Ld. DRP, inter-alia, by disputing the computation of correct PLI. However, in the absence of sufficient documentary evidences, the same could not find favor with Ld. DRP who upheld the stand of Ld. TPO. Accordingly, final assessment order was passed on 28/09/2012, against which the assessee is in further appeal before us. 4.1 The Ld. Authorized Representative for Assessee [AR], Shri Apurva R. Shah, at the outset, pleaded that the entity namely M/s Suashish M/s Jasani Assessment Year: 2008-09 Diamonds Ltd. has wrongly been excluded on RPT filter since the Related Party Transactions of this party do not exceed the threshold of 20%. In support, RPT computations of the said entity has been placed on record. The Ld. AR also submitted that if this entity is included in the final list of comparable, the ALP would be within the tolerance range of +5%. The Ld. AR made further submissions that adjustment has been proposed on the entire turnover of the assessee instead of restricting the same to the international transactions carried out by the assessee with its AE. Reliance has been placed on the decision of this Tribunal in assessee’s own case for AY 2007-08, order dated 07/11/2012. It has also been submitted that the assessee is not contesting comparable namely M/s Flawless Diamonds Limited as raised in Ground No.6. In the aforesaid background, Ld. AR pleaded for restoration of matter back to the file of Ld. TPO/ Ld. AO. 4.2 The Ld. Departmental Representative [DR], Shri V.K. Agarwal, on the other hand, submitted that computations submitted by the assessee, would require reappreciation by lower authorities.
5. We have carefully heard the rival submissions and perused relevant material on record. We find that the entity namely M/s Suashish Diamonds Ltd. has been excluded on account of RPT filter. However, keeping in view the submissions made by Ld. AR that this entity has not crossed RPT filter, we deem it fit to restore the matter back to the file of Ld. TPO / Ld. AO to consider the RPT computations as submitted by Ld. AR before us. If the said comparable do not cross RPT threshold as suggested by Ld. AR, the said entity shall be included in the final list of comparable. Ground No. 6 stand partly allowed for statistical purposes.
M/s Jasani Assessment Year: 2008-09
So far as Ground No.2 & 3 are concerned, we find that both these grounds are covered by the decision of this Tribunal in assessee’s own case for AY 2007-08, order dated 07/11/2012. In the aforesaid decision, the co-ordinate bench, in para 13, has held that ALP has to be applied only in relation to international transactions and not in relation to assessee’s entire sales / turnover. The bench, at para 11, has also enumerated the mode of computation of the tolerance range of +5%. Taking a consistent view, we direct the lower authorities to re-compute the TP adjustment, if any, in the light of findings of Tribunal in AY 2007-08. Both these grounds stand allowed for statistical purposes.
Ground No. 9 is related with expenditure on computer software. It transpired that the assessee incurred expenditure on software consultancy amounting to Rs.13.37 Lacs. In AY 2007-08, similar payments made by Assessee were found to be in the nature of development and upgradation of software and therefore, not held to be allowable as revenue expenditure. Similar view was taken by Ld. AO in this year. The Ld. DRP directed Ld. AO to verify the bills / vouchers and allow those expenditure as revenue expenditure which were in the nature of AMC / Maintenance and treat the balance to be capital in nature, on which depreciation would be allowable to the assessee. Since the assessee could not file requisite evidences, Ld. AO allowed Rs.6.01 Lacs as revenue expenditure and disallowed the balance amount of Rs.7.35 Lacs. The depreciation @60% was allowed on opening WDV of M/s Jasani Assessment Year: 2008-09 such expenditure. We find that this ground has been adjudicated by the Tribunal in AY 2007-08 in the following manner: - After having carefully considered the rival submissions of the parties and the findings of the DRP, we find that insofar as the directions on account of AMC for maintenance of software given by the DRP is concerned, the same appears to be very reasonable and no interference is called for. However, with regard to other expenditure, the Assessing Officer is directed to verify this contention of the assessee, in the light of the decision of the Special bench of the Tribunal, Delhi rendered in Amway India Enterprises V/s DCIT (2008) 111 ITD 112 (Del.). Thus, this ground is partly allowed for statistical purposes.
Keeping in view the same, the issue of disallowance of Rs.7.35 Lacs stand remitted back to Ld. AO for adjudication on similar lines. This ground stands allowed for statistical purposes.
The last ground is related with depreciation on Sony Viao Laptop stated to be purchased for Rs.91,388/-. The assessee could not furnish any bill / voucher in support of the same and only filed credit card statement showing the payment of the same. Accordingly, depreciation of Rs.0.54 Lacs claimed against the same was disallowed. The Ld. DRP confirmed the same since the assessee failed to file requisite documentary evidences. We find that this ground would require no indulgence on our part since the assessee could not discharge the onus to substantiate the expenditure and secondly, this issue stood covered against the assessee by the order of Tribunal for AY 2007-08. Ground No. 10 stands dismissed.