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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by Assessee is directed against the order of AO and Ld. (DRP-2), Mumbai dated 24.01.2022 and 30.12.2021 respectively passed u/s. 143(3) r.w.s.
M/s. Naturex India Pvt. Ltd. 144C (13) and 144C (5) of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2017-18. The assessee has raised the following grounds of appeal:-
General Ground 1. The order of the learned Assessing Officer, National Faceless Assessment Centre, ('AO'), in pursuance of the order of the learned Transfer Pricing Officer, Assistant Commissioner of Income Tax Transfer Pricing 3(1)(1) ("TPO'), and the directions of learned Dispute Resolution Panel ('DRP'); is contrary to law, facts and circumstances of the case and is liable to be quashed. Without prejudice to the generality of the foregoing, we raise following grounds:
Transfer Pricing
2. That the learned AO/DRP erred both in facts and law in confirming the action of the learned TPO of making an adjustment to the transfer price of the Appellant in respect of the payment of management service fee of INR 3, 01, 42,197/- to Associated Enterprises ('AEs'), holding that this international transaction does not satisfy the arm's length principle envisaged under the Act and in specific in doing so grossly erred in: 2.1 Disregarding the evidence placed on record by labelling them as 'regular common communication between AEs' and thereby adopting the prejudicial approach in concluding that the Appellant failed to furnish the proof of expenses incurred by AEs along with the proof of benefits derived. 2.2 Ignoring the principle that it is not the domain of learned TPO to question the rendition of service and benefit arising there from; 2.3 Concluding the arm's length price of this international transaction to be NIL without following any of the prescribed methods and disregarding the Transactional Net Margin Method ("TNMM') analysis undertaken by the Appellant in its TP Study; 2.4 Holding that the comparable companies selected by the Appellant are not similar by wrongly trying to find similarity between business of comparables and the business of the Appellant while the business of comparables ought to have been compared with the intra- group services received. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.
M/s. Naturex India Pvt. Ltd. Additional Ground:- Ground No. 3: On the facts and in the circumstances of the case and in law, the final assessment order dated 24 January 2022 passed by the Ld. AO under section 143(3) read with section 144C(13) of the Act is barred by limitation and therefore, is void-ab-initio, bad in law and is liable to be quashed. It is humble prayer of the Appellant that the draft assessment order and the final assessment order are bad in law, null and void and liable to be quashed. The Appellant craves leave to add, alter, amend or withdraw all or any of the grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.
2. The brief facts of the case are that assessee filed its return of income on 29.11.2017 declaring total loss of Rs. (-) 13, 01, 48,964/-. The assessee company is engaged in the business of manufacturing of natural ingredients and colours using proprietary techniques provided by the Naturex Group. The assessee has manufacturing facility at Roha, Maharashtra where it processes fruits and vegetables to produce powdered and liquid pigments and powdered fruits and vegetables. The assessee is also distributing of finish goods in India. The products produced and distributed by the assessee are used in food, health and cosmetic industries. Case of the assessee was selected for scrutiny on the following issues:- i) Depreciation claim ii) Custom duty paid iii) Foreign remittance iv) International transactions
During the year under consideration, the assessee company has made the international transactions of Rs. 15, 77,45,102/- with the associate enterprises
M/s. Naturex India Pvt. Ltd. (AE), hence a reference was made to the TPO u/s. 92 CA(3) of the Act. The TPO vide his order dated 18.01.2021 purposed an adjustment of Rs. 3, 01, 42,197/- on account of receipt of management services. Based on this order of TPO, the assessing officer issued a draft order u/s. 144C of the Act. Against this draft order, assessee preferred a petition before the Ld. DRP, which in turn confirmed the draft order of AO passed in consequence to the adjustments purposed by the TPO u/s. 92CA(3) of the Act. Ultimately a final assessment order u/s. 143(3) r.w.s. 144C(13) and 144B of the Act was passed making an adjustment /addition of Rs. 3,01,42,197/-. The assessee being aggrieved with the order of AO and directions of the Ld. DRP passed u/s. 144C (5) preferred the present appeal before us.
We have gone through the draft assessment order alongwith the report of TPO, directions of the Ld. DRP, final assessment order and submissions of the assessee alongwith grounds raised
in Form No. 36 and additional ground raised vide application dated 06.09.2023. The application filed for additional ground is rejected as the same is not pressed by the assessee. Our adjudication is limited to the extent of the grounds incorporated in Form No.
36. Assessee raised 2 grounds of appeal. Ground no. 1 is general in nature and Ground no. 2 is specific to the facts of the matter, hence the same is being adjudicated in this order.
5. For better understanding of the issue involved in this matter as raised by the assessee in ground no. 2 alongwith sub grounds, we deem it fit to reproduce section 92CA of the Act for ready reference as under:-
[Reference to Transfer Pricing Officer. 92CA. (1) Where any person, being the assessee, has entered into an international transaction [or specified domestic transaction] in any previous year, and the Assessing
M/s. Naturex India Pvt. Ltd. Officer considers it necessary or expedient so to do, he may, with the previous approval of the [Principal Commissioner or] Commissioner, refer the computation of the arm's length price in relation to the said international transaction [or specified domestic transaction] under section 92C to the Transfer Pricing Officer. (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm's length price in relation to the international transaction [or specified domestic transaction] referred to in sub-section (1). [(2A) Where any other international transaction [other than an international transaction referred under sub-section (1)], comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1).] [(2B) where in respect of an international transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this Chapter shall apply as if such transaction is an international transaction referred to him under sub- section (1).] [(2C) nothing contained in sub-section (2B) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012.] (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm's length price in relation to the international transaction [or specified domestic transaction] in accordance with sub- section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee.
M/s. Naturex India Pvt. Ltd. [(3A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires:] [Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation 1 to section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly.] [(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer.] (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly. (6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such order of the Transfer Pricing Officer. (7) The Transfer Pricing Officer may, for the purposes of determining the arm's length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133 [or section 133A]. [(8) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of determination of the arm's length price under sub-section (3), so as to impart greater efficiency, transparency and accountability by—
(a) eliminating the interface between the Transfer Pricing Officer and the assessee or any other person to the extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional specialisation;
M/s. Naturex India Pvt. Ltd. (c) Introducing a team-based determination of arm's length price with dynamic jurisdiction. (9) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (8), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification: Provided, that no direction shall be issued after the 31st day of March, [2025]. (10) Every notification issued under sub-section (8) and sub-section (9) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.] Explanation.—For the purposes of this section, "Transfer Pricing Officer" means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons.] 6. The above provisions of section 92CA of the Act need to be analysed with reference to the facts of the case and relevant grounds raised by the assessee as under:-
“2.1 Disregarding the evidence placed on record by labelling them as 'regular common communication between AEs' and thereby adopting the prejudicial approach in concluding that the Appellant failed to furnish the proof of expenses incurred by AEs along with the proof of benefits derived. 2.2 Ignoring the principle that it is not the domain of learned TPO to question the rendition of service and benefit arising there from.” We have analysed the provisions of section 92CA of the Act and observed that once a matter is falling in the jurisdiction of the TPO {apparently only for determining the arm’s length price (ALP) by applying appropriate method}, we do not see any authority vested with the TPO for examining the matter with reference to section 37 of the Act.
M/s. Naturex India Pvt. Ltd.
Once a matter is referred to the TPO by the Assessing Officer ("AO") to determine the ALP of an international transaction or specified domestic transaction ("SDT") (hereinafter collectively referred to as "covered transactions") entered into by the taxpayer during the given financial year under review, he would then examine the facts and circumstances surrounding the covered transactions. Transfer Pricing Officer (TPO) is an integral part of the whole assessment proceedings where international transaction or specified domestic transaction (“SDT”) is involved. Although role of the TPO is, certainly limited upto the “Covered Transactions” only.
The intention of the legislature is to examination of covered transaction by a specific authority established solely for those transaction, this view further fortify by the fact that, report of the TPO on specific transactions are binding in nature on jurisdictional AO and he can’t have any deviation from the same. In that case, once report of TPO is limited upto determination of ALP only, a challenge by the assessee can be there that the report of TPO is meant for determination of ALP only and not beyond.
We have gone through the order of TPO and observed that no exercise relating to determination of ALP with reference to method adopted by the assessee along with records submitted by him has been carried out. Rather, his questionnaire is there on record which he issued keeping in view the provisions of section 37 of the Act, which certainly not in his domain. The whole order is silent on the working of ALP and rather determined the benchmarking value at Rs. NIL. This is not possible from any angle of accounting or the intention of the statute also.
M/s. Naturex India Pvt. Ltd. 10. In view of the above, we find force in the grounds taken by the assessee. In these terms Ground Nos. 2.1 and 2.2 raised by the assessee are allowed and matter is restored back to the file of TPO for determination of ALP as per the scheme of law after giving a reasonable opportunity to the assessee to present its transfer pricing study report alongwith documents and comparables relied upon.
Ground Nos. 2.3 and 2.4 became academic as the matter has been restored to the file of TPO for determination of ALP afresh keeping in view the scheme of law and our findings on the scope of power (supra). In view of this, Ground Nos. 2.3 and 2.4 are dismissed.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 8th day of May, 2024.