ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES `I'BENCH DELHI
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER
AND
SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
ITA No.2329/DEL/2010, ITA No.2330/DEL/2010
ITA No. 1418/D/2008, 1419/DEL/2008
Assessment Years : 2003-04, 2004-05
M/s Panasonic Consumer India vs Asstt. Commissioner of Income Tax,
Pvt. Ltd. (formerly known as Circle 14(1), New Delhi.
Panasonic India Pvt. Ltd.)
K-39, Connaught Circus,
New Delhi.
ITA No. 1374/Del/2008 & ITA No. 1375/Del/2008
Assessment Years : 2003-04, 2004-05
Dy.Commissioner of Income Tax, vs M/s Panasonic Consumer India
Circle 14(1), New Delhi. Pvt. Ltd., New Delhi.
(Appellant) (Respondent)
Appellant by: Shri Pradeep Dinodia, Adv.
Respondent by : Shri Yogesh Verma, CIT, DR
ORDER
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
The aforementioned ITA No. 1418, 1419/Del/2008 have been preferred
by the assessee whereas ITA No. 1374 and 1375/D/2008 have been preferred by
the revenue against the separate two orders of the CIT(A)-XX, New Delhi both
dated 31.1.2008 in Appeal No. 180 & 181/2007-08/CIT(A)-XX for AYs 2003-
04 and 2004-05 respectively. For the sake of brevity, clarity and convenience in
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the proper adjudication, these appeals have been clubbed and are being
adjudicated by this consolidated order.
Asseessee's appeal in ITA No. 1418 & 1419/Del/2008
2. From careful perusal of the grounds raised by the assessee in both these
appeals, we note that except amount, grounds raised in these appeals are similar.
For the sake of clarity and transparency in our findings, the grounds raised by
the assessee in AY 2003-04 read as under:-
"1.0 That the Ld. CIT (A) has grossly erred in law and
on the facts and in the circumstances of the appellant's case in
holding that the segregation of trading functions pertaining to
the CPD and SPD divisions of the assessee were properly
done by TPO although :
i) Functions performed, risk assumed and assets employed
by both the divisions were identical.
ii) Method employed for determining the arm's length
i.e. TNMM was proper.
iii) The PLI of the comparables was alright.
2.0 That the order passed by the CIT (A) is bad in law
and on the facts & in the circumstances of the appellant's case
on the aspect of transfer pricing in which addition of
Rs.l,15,03,254/- has been confirmed by CIT (A) u/s 92CA (3)
of the I.T. Act.
3.0 That the CIT (A) has grossly erred in holding that
segregation of CPD and SPD division of the assessee, which
are two trading divisions was proper, merely on the ground
that the target customers of these two divisions were different.
4.0 The CIT (A) ought to have held that under the
TNMM method it is the broad functions which are required to
be compared and if most of the functions performed by the
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assessee and the comparable cases are identical, the same
cannot be rejected on an isolated reason that the target
customers and product lines of CPD & SPD are different.
5.0 The CIT (A) has grossly erred in law in mis-
interpreting the OECD guidelines pertaining to aggregation
vs. Segregation of the functions.
6.0 The CIT CA) has grossly erred on the facts of the
appellant's case in holding that there exist a distinct difference
between the dynamics of the two divisions of the assessee i.e.
CPD and SPD.
7.0 The CIT CA) ought to have held that once having
accepted the TNMM method, having accepted the comparables
and the PLI of the comparable, the CIT (A) should not have
rejected assessee's trading functions on merely conjectures,
surmises, and erroneous considerations.
8.0 The order of the ,CIT CA) is full of contradictions in as
much as that on the one hand he has accepted the comparables
found by the assessee in its Transfer Pricing study and on the
other hand he has partially rejected the same when it comes to
aggregation and segregation of the two trading divisions of the
assessee.
9.0 The CIT CA) has grossly erred in holding that appellant's
reliance on the Special Valuation Cell of the custom's
department was not proper and he has further erred in
rejecting the same.
10.0 The CIT CA) has erred on law and on the facts of the
circumstances in the appellant's case in confirming the view of
the A.O./TPO for treating the reimbursement of advertisement
expenses by assessee's A.E. as a non-operating revenue
receipt.
11.0 The CIT CA) has grossly erred in holding that the
reimbursement of expenses cannot be considered either as a
revenue receipt or in holding that the same are not to be
"netted" off against the expenditure incurred on the
advertisement by the assessee.
12.0 That the CIT CA) has failed to take a holistic view of the
matter pertaining to the reimbursement of advertisement
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expenses in as much as that the pure reimbursement could not
fall within the purview of transfer pricing.
13.0 The CIT CA) has grossly erred in law and on the facts of
the appellant's case in not entertaining the plea of the assessee
for allowing an adjustment on account of huge advertisement
cost incurred by the assessee whereas the comparable cases
had not incurred the similar amount of advertisement costs for
determining the NPM.
14.0 The CIT (A) has grossly erred in holding that allocation
of the unallocated expenses and income to the ISD division of
the assessee was proper by the TPO
15.0 That the aforesaid grounds of appeal are without
prejudice to one another. "
3. The grounds raised in AY 2004-05 are similar, therefore, these are being
adjudicated by this consolidated order.
Ground no. 1 to 8 of the assessee in both the apepals
4. We have heard arguments of both the sides and carefully perused the
material placed on record. Ld. AR submitted a written synopsis and has drawn
our attention towards decision of ITAT `F' Bench New Delhi in assessee's own
case i.e. ITA No. 1417/D/2008 for AY 2002-03 dated 24.9.2010 reported as
2010-TII-47-ITAT-DEL-TP and submitted that the issue of segregation vs
aggregation of the CPD and SPD divisions and the acceptance with same
comparables for both the divisions has been decided in favour of the assessee
and the present appeals of the assessee are squarely covered in favour of the
assessee by this order of the Tribunal in assessee's own case. Ld. DR submitted
that the department is intending to challenge this order in the higher forum. At
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the same time, the DR fairly accepted that the Tribunal has decided the issue in
favour of the assessee for AY 2002-03 by the order dated 24.9.2010 (supra) but
there is nothing in his hand to controvert the conclusion of the Tribunal or to
show that the decision of the Tribunal (supra) has been either set aside or
modified by any competent or higher forum.
5. On careful consideration of above submissions, we note that on similar
issues and grounds of the assessee raised as ground no. 1 to 8 in AY 2002-03
before `F' Bench of the Tribunal, the Tribunal has decided the issue in favour of
the assessee with the following conclusion:-
"14. These details are also given at pages 89-90 of the Paper
Book of the Transfer Pricing Report submitted by the assessee
on this issue submitting that the functions performed, risks
assumed, and the assets deployed are absolutely the same in
all its trading functions which clearly indicate the fact that
segregation for any other reason is not permitted as per
Statutory Rule 10B(2)(b) of the Rules which are part of the
Transfer Pricing Regulations contained in Chapter X of the
Income Tax Act and the Rules made thereunder. Therefore, the
test for finding whether segregation is required is provided in
the Rules themselves and as is borne out from the facts of the
case, Rule 10B(2(b) clearly is in favour of the proposition that
segregation should not be done. In addition, the comparables
used are also the same for both the Divisions. It also lends
weight to returning the finding that segregation was not called
for. We have given our careful consideration to the issue and
the order of the authorities below and the reconciliation for all
segments and the audited balance sheet was also made
available to him at pages 428-435 of the Paper Book. The
segment-wise details of sales and purchase at GP level were
also made available to him at page 485. All these were also
pointed out to us by the AR during the course of hearing and
the Senior DR could not rebut any factual aspects thereof. On
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Asstt.Year: 2003-04 & 2004-05
a careful consideration thereof, no discrepancy is found in the
figures as reported by the assessee. In any case, TPO, as well
as, the CIT(A) have re-drawn the accounts as has been
categorically found by CIT(A) at pages 13 and 14, para 5.3. of
his order as reproduced above. We, therefore hold that on the
facts and circumstances of the case and as per the provisions
laid down in the Transfer Pricing Regulations in India, the
assessee succeeds on these grounds. The segregation was
totally artificial and uncalled for and the authorities below
were not justified in segregating them. The trading functions
having the same FAR and having closely linked transactions
were to be taken as a whole and not separately, thereby
creating artificial loss in one segment and profit in the other.
Both have to be taken as a whole and the additions made by
TPO and confirmed by CIT(A) for doing this segregation are
required to be deleted."
6. In view of above order of the Tribunal in assessee's own case (supra), we
are inclined to hold that the facts and circumstances of the extant case and as
per provisions of transfer pricing regulations in India, the issue has been
decided in favour of the assessee for AY 2002-03. Therefore, we further hold
that the issue is squarely covered in favour of the assessee and the assessee
succeeds on these grounds as the segregation emanated by the authorities below
was totally artificial and uncalled for and the impugned segregation was not
justified under the factual matrix of the case. We are also in agreement with the
findings of the Tribunal that the trading functions having the same FAR and
having closely linked transactions were to be taken as a whole and not
separately, therefore, creation of artificial loss in one segment and creation of
artificial profit in the other segment is not permissible. We are of the fortified
view that both segments have to be taken as a whole and additions confirmed by
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Asstt.Year: 2003-04 & 2004-05
the CIT(A) on the basis of alleged segregation deserve to be deleted and we
delete the same. Accordingly ground no. 1 to 8 of the assessee in AY 2003-04
and 2004-05 are allowed.
Ground no. 9 of the assessee in both the appeals
7. Apropos ground no. 9, ld. AR has further drawn our attention towards
decision of ITAT `F' Bench in assessee's own case for AY 2002-03 at para 37
page 45 and fairly accepted that the issue has been decided against the assessee
and in favour of the revenue pertaining to the valuation of the Special Valuation
Cell of the Customs department. Ld. AR submitted that without prejudice to the
right of the assessee to agitate this issue before the Hon'ble higher forum, the
assessee fairly accepts that the Tribunal for AY 2002-03 has decided the issue
against the assessee and in favour of the revenue. Ld. DR supported the
impugned orders and submitted that the order of the Tribunal in favour of the
revenue and against the assessee holds field.
8. On careful consideration of above submissions, we note that `F' Bench of
the Tribunal in assessee's own case for AY 2002-03 (supra) has decided the
issue against the assessee and in favour of the revenue with following
conclusion:-
"37. Learned AR's contention was that all its imports from
AEs are based on valuation accepted by the Customs
Department of the Ministry of Finance, Government of India,
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Asstt.Year: 2003-04 & 2004-05
and in one particular case where a charge was levied of
under-invoicing on the assessee, the Special Valuation Bench
of the Customs Department exonerated the assessee, therefore
the valuation made by custom authorities should be guiding
factor for TPO while making adjustment on account of arm's
length price. We do not find any force in this ground and are
of the view that where specific rules of law exist in the Statute
on a particular subject, then they would hold the field. Chapter
X and Rules made thereunder are a self contained code and
answers to all questions must be found in the written law
contained in the Act and Statute. Here we are inclined to agree
with ld CIT DR that that Customs valuation is for different
contained in the Act and Statute. Here we are inclined to
agree with ld. CIT DR that the Customs valuation is for
different purposes and Chapter X of the Income Tax Act is for
different purposes and different criteria are being used.
38. In the result ground no. 9 of assessee's appeal is
dismissed."
9. Accordingly, we concluded that ground no. 9 of the assessee in both the
appeals is squarely covered in favour of the assessee and against the revenue.
Thus, ground no. 9 in both the appeals is dismissed.
Ground no. 10, 11, 12 & 13 of the assessee in both the appeals
10. Apropos these grounds, ld. AR has drawn our attention towards the
decision of the Tribunal for AY 2002-03 (supra) para 23 at page 37 and
submitted that the issue has been decided in favour of the assessee and against
the revenue by holding that the TPO and the CIT(A) were wrong in excluding
the reimbursement of advertisement expenditure while calculating the PLI of the
assessee. Ld. AR has drawn our attention towards para 23 at page 37 and para
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26 at page 40 of the order of the Tribunal for AY 2002-03 (supra) and submitted
that ground no. 10 to 13 in both the appeals are squarely covered in favour of the
assessee. The relevant operative paras viz. Para 23 (at page 37) and para 26 (at
page 40) read thus:-
"23. Rule 10B(2)(c) states "the contractual terms (whether or
not such terms are formal or in writing) of the transactions
which lay down explicitly or implicitly how the
responsibilities, risks and benefits are to be divided between
the respective parties to the transactions." . The transfer
pricing rule itself states that the contractual terms may be
formal or may not be formal, may be in writing, may not be in
writing and may be implicit or explicit. Now here the assessee
has demonstrated by fact that it was in reasonable expectation
of reimbursement of expenditure by the past conduct of its
mother companies, i.e. AEs of receiving at least 2/3rd of its
expenditure in reimbursement. Therefore as per the Rule itself,
this has to be taken cognizance of and could not be ignored
arbitrarily. Once Rule 10B(2)(c) is seen and invoked, then the
objections both of the TPO and CIT(A) would not hold ground
and the conduct of the assessee is based on facts and figures
from the AY 1998-99 on record, the order of the Tribunal on
record accepted by the Revenue, it can be concluded that the
receipt of advertisement reimbursement would form a part of
operating profit either by way of by adding to income or by
way of reduction of advertising expenditure to the extent of
reimbursement. Both have the same effect of increasing
operating profits to this extent. We therefore hold that the TPO
and the CIT(A) wrong in excluding reimbursement of
advertisement expenses while calculating the PLI of the
appellant."
"26. We, therefore, hold that in view of the correct analysis
and working as given above on the comparison between the
assessee and the comparables and by correcting the two errors
committed by the TPO and CIT(A) and confining the financials
to one year only and not to multiple years for the trading
functioning of assessee, the PLI of the assessee comes to
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Asstt.Year: 2003-04 & 2004-05
8.43% and that of the comparables 3.58%. As the PLI of the
assessee is higher of the two, the international trading
transactions entered into by the assessee are held to be at
arm's length price as per transfer pricing regulations in India.
Accordingly the addition made by the TPO and upheld by
CIT(A) amounting to Rs.1,23,48,509/- is ordered to be
deleted."
11. Ld DR submitted that the department is taking up the issue of treatment of
advertisement subsidy received as non-operating and the issue of adjustment on
account of advertisement expenses to level the field between the comparables
and the assessee to the Hon'ble higher forum. At the same time, the DR fairly
accepted that till date, he is unable to show any contrary decision on this issue
which may take us to accept any different view on this issue of advertisement
subsidy, adjustment of advertisement expenses and reimbursement of
advertisement expenses by the assessee's associated enterprises as a non-
operating revenue receipt.
12. In view of above and on careful perusal of the order of the Tribunal for
AY 2002-03 (supra), we note that ground no. 10 to 13 in both the appeals are
squarely covered in favour of the assessee and against the revenue by the order
of the Tribunal for AY 2002-03 (supra). We are of the considered opinion that
under factual matrix of the instant case, we are in agreement with the conclusion
of the Tribunal that Rule 10B(2)(c) states that "the contractual terms (whether or
not such terms are formal or in writing) of the transaction which lay down
explicitly or implicitly how the responsibility, risks and benefits are to be
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divided between the respective parties to the transactions." On careful perusal
of the material placed on record and the order of the Tribunal, we find that the
assessee has demonstrated by substantiating the fact that it was in reasonable
expectation of reimbursement of expenditure by the past conduct of its mother
companies i.e. AEs of receiving at least 2/3rd of its expenditure in
reimbursement. In this situation, Rule 10B(2)(c) is invokable and then the
objection of the TPO and the CIT(A) would not hold the field, especially when
the conduct of the assessee is based on the facts and figures emanating from
record of AY 1998-99.
13. Under these facts and circumstances, it can safely be held that the receipt
of advertisement expenditure would form a part of operating profit either by way
of adding to income or otherwise expenditure has to be reduced from total
advertisement expenditure to the extent of reimbursement; either way we look at
it, the result will be the same. This is a well-established accounting proposition
that both ways, it is having the same effect on operating profits up to this extent,
thus, we are inclined to hold that the TPO and the CIT(A) were not justified in
excluding the advertisement expenditure while calculating the PLI of the
assessee.
14. On the issue of adjustment on account of huge advertisement cost
incurred by the assessee during the financial year under consideration, where
comparable cases had not given a similar amount of expenditure cost for
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Asstt.Year: 2003-04 & 2004-05
determining the Net profit margin (NPM) as per para 11 of the Tribunal for AY
2002-03 as reproduced hereinabove, we are in agreement with the observations
and conclusion of the Tribunal that if the TPO and the CIT(A) were of the
opinion that these two divisions viz. CPD and SPD were separate divisions and
required a different criteria for determining the ALP, then they could not have
compared both the divisions results, as has been done by them, with the same set
of comparable; there is obviously a contradiction between the two.
15. We further note that if for the sake of argument, it is accepted that the
two divisions have separate characteristics, then obviously, different
comparables should have been used. If in the situation where two divisions are
to be treated separately, the department ought not to be used the same set of
comparables which were used by the TPO and the CIT(A) for both the divisions,
then the PLI of comparables for the CPD Division would have to be adjusted as
per provisions of Rule 10B(1)(e)(iii) of the Income Tax Rules, 1962.
16. The Tribunal in assessee's own case for AY 2002-03 concluded that the
trading transactions of the assessee are at arm's length and no adjustment is
required. On specific query from the Bench, ld. DR seems to be unable to
submit any fact or material before us which may compel us to take a different
view on the issue of adjustment on account of huge advertisement cost incurred
by the assessee, specially in the peculiar facts and circumstances of the present
case whereas the comparable cases had not incurred similar huge amount of
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Asstt.Year: 2003-04 & 2004-05
advertisement cost for determining the NPM. From the order of the Tribunal for
AY 2002-03 (supra), in para 26 at page 40, it has been held that in view of the
correct analysis and working as given by the assessee on the comparison
between comparable used by the assessee and the accepted comparables by
correcting the two errors committed by the authorities below and confining the
financial results to one year only and not to the multiple years for the trading
function of the assessee, the PLI of the assessee was calculated at 8.43% and the
PLI of the comparables was calculated at 3.58%.
17. In this situation, we respectfully follow the observations of the coordinate
bench of the Tribunal in assessee's own case for AY 2002-03 (supra) and hold
that as the PLI of the assessee is higher of the two (here it is 8.43% which is
more than 3.58%), international trading transactions entered into by the assessee
are held to be ALP as per transfer pricing regulations in India. Accordingly, we
conclude that ground no. 10, 11, 12 and 13 of the assessee are squarely covered
in favour of the assessee by the order of the Tribunal in AY 2002-03. We order
accordingly to follow the earlier order for AY 2003-04 and 2004-05.
Ground no. 14 of the assessee in both the appeals
18. Apropos ground no. 14, ld. AR also submitted that the issue of allocation
of the unallocated expenses and income to the ISD Division of the assessee was
erroneous and unjustified. Ld. AR has drawn our attention towards para no. 32
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to 34 at page 44 of the order of the Tribunal in assessee's own case for AY
2002-03(supra) and submitted that ground no. 14 of the assessee in both the
appeals is also squarely covered in favour of the assessee by the order of the
Tribunal (supra). Ld. DR submitted that the revenue has not accepted the order
of the Tribunal and we are taking up the issue to the higher forum but at the
same time, ld. AR fairly accepted that the Tribunal has decided the issue in
favour of the assessee and till date, he does not have any order in hand which
can show us that the order of Tribunal (supra) has been set aside or modified by
any competent authority or Hon'ble higher forum which may compel us to take
or accept a different view.
19. The relevant operative part of the order of the Tribunal for AY 2002-03
reads as under:-
"32. Therefore, the PLI of the test party of 33.27% when
compared to the PLI of the comparables at page 40 of
CIT(A)'s order Table 15 of 2.95% clearly show that the
assessee's transaction in the ISD Division were done at arm's
length and addition of Rs. 74,92,166/- is deleted.
33. Next issue is with regard to allocation of expenses. The
CIT(A) has dealt with this issue on page 36 para 9.6 of his
order. The TPO has allocated non--allcoated expenses of
Rs.6.05 crores to the three Divisions CPD, SPD and ISD
whereas the assessee has allocated this entire expenditure to
its trading functions, i.e. to CPD and SPD. The ld. AR
contended that allocation of Rs.20,59,661 to ISD is not correct
as this expenditure has nothing to do with the sales
commission and the service part of the assessee. The assessee
submitted vide its letter dated 25th January 2005 on page 425
PB Vol. II that ISD is an independent Division and no part of
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head office expenditure could be allocated to it as it does not
need head office support. In our view there is substance in the
submissions of the learned AR that out of a total business of
Rs.361 cores, the ISD service and commission income is only
Rs.12,28,831/-. It is unreasonable to allocate Rs.20,59,669/-
as expenditure on such a meager gross receipt. In any case in
view of the fact that three years average is being taken on the
ISD Division on the basic facts of the case following the
Proviso to Rule 10B(a) even if it is taken to the basis of ISD
Division, it will not make any difference."
20. On careful reading and perusal of the above order of the Tribunal on the
above issue, we are compelled to hold that the issue of allocation of unallocated
expenses and income to the ISD Division of the assessee is squarely covered in
favour of the assessee in the immediately preceding year to the assessment year
under consideration. In the light of above decision of the Tribunal, we are of the
considered opinion that the addition cannot be made in the overall facts and
circumstances of the present case on the issue of allocation of unallocated
expenses and income to the ISD Division following the proviso to Rule 10B(a)
of Income Tax Rules 1962. Thus, ground no. 14 of the assessee in both the
appeals is also allowed in consonance with the earlier order of the Tribunal for
AY 2002-03 (supra).
21. Ground no. 15 and 16 of the assessee in both the appeals are general in
nature which require no adjudication and we dismiss the same.
Revenue Appeal in ITA No. 1374, 1375/D/2008 for AY 2003-04 and 2004-05
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22. The revenue has raised sole similar ground in both the appeals which
reads as under:-
"Ld. CIT(A) has erred in law and on facts and
circumstances of the case in holding that only current year
data for 2003-04 is to be used for computation of the Arm's
Length Price."
23. Apropos above ground of the revenue, ld. DR submitted that the CIT(A)
has erred in law and on facts and circumstances of the case in holding that only
current year data for 2003-04 is to be used for computation of the Arm's Length
Price. Ld. DR has drawn our attention towards findings of the CIT(A) in para
9.2.8 and 9.2.9 at page 19 of the order of the CIT(A) for AY 2004-05 and
submitted that the CIT(A) was not justified in holding that the relevant data to
be used for determination of ALP in AY 2003-04 is the data of financial year
2002-03 and for AY 2004-05 the data of financial year 2003-04 is relevant. Ld.
DR further submitted that the data of earlier and subsequent year should also be
considered for computation of ALP and the conclusion of the CIT(A) is not
sustainable on this issue.
24. Replying to the above, ld. AR has drawn our attention towards findings of
the Tribunal in assessee's own case for AY 2003-04 (supra) in para 35 at page
44 and submitted that the data to be used in analysing the comparability of an
uncontrolled transaction with an international transaction shall be the data
relating to the relevant year in which the international transaction has been
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entered into. Ld. AR supported the impugned orders and submitted that the
conclusion of the CIT(A) has been upheld by the Tribunal in AY 2002-03
(supra) and the issue is squarely covered in favour of the assessee.
25. On careful and vigilant reading of the order of the Tribunal for AY 2002-
03 (supra), we note that the issue of data to be used for computation of ALP has
been decided in para 35 by holding that the data to be used for comparability of
an uncontrolled transaction with an international transaction of the assessee shall
be the data of relevant year in which the international transaction has been
entered into. The operative para 35 at page 44 of the order of the Tribunal reads
thus:-
"35. In the appeal of the Revenue the only ground raised is
that "Ld. CITCA) has erred in law and in facts and
circumstances of the case in holding that only current year
data for 2003-04 is to be used for computation of the Arm's
Length Price. The ground raised by the revenue has already
been discussed by us while disposing of the assessee's appeal
in which we have reproduced Rule 10B(4) and Proviso thereto
referred to in para 41-43. The CIT(A) is right in holding that
the data to be used in analyzing the comparability of an
uncontrolled transaction with an international transaction
shall be, the data relating to the relevant year in which the
international transaction has been entered into. The Sr. DR
who appeared on behalf of the Department has not disputed
this proposition of law, neither anything has been brought to
our notice by the Sr. DR to take a contrary view. Therefore, as
far as the trading operations are concerned, use of single year
data is correct and this has been the stand before us by both
the parties. To this extent the Revenue's appeal is dismissed."
17
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05
26. In view of above and on careful perusal of the order of the CIT(A) and the
order of the Tribunal for AY 2002-03 (in assessee's own case), we are unable to
see any cogent reason to take a different view because the CIT(A) was right in
holding that the financial data to be used in analysing the comparability of an
uncontrolled transaction with an international transaction shall be the data
relating to the financial year in which the impugned uncontrolled transaction and
the comparable international transaction have been entered into. Respectfully
following the decision of the coordinate bench in assessee's own case for AY
2002-03(supra), we are inclined to go with the earlier order of the Tribunal and
hold that the CIT(A) was right in holding that only the current year data for the
relevant financial year pertaining to respective assessment year deserve to be
used for computation of ALP an international transaction with the uncontrolled
transaction of the assessee. Accordingly, sole ground of the revenue in both the
appeals being devoid of merits is dismissed.
Assessee's appeals in ITA NO. 2329, 2330/Del/2010 for AY 2003-04 and
2004-05 respectively
27. These appeals of the assessee have been directed against the order of the
CIT(A)-XVII, New Delhi, both dated 23.03.2010 in Appeal no. 05, 06/CIT-
XVII/09-10 for AY 2003-04 and AY 2004-05 respectively by which the penalty
levied by the AO u/s 271(1)(c) of the Act has been upheld and confirmed. Since
the controversy and ground of the assessee are similar, therefore, for the sake of
18
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05
brevity, clarity and convenience, these have been clubbed and we are disposing
them by this consolidated order.
28. Although the assessee has taken as many as nine grounds in both the
appeals but except ground no. 1, other grounds of the assessee are argumentative
and supportive to the main ground no. 1 in both the appeals which reads as
under:-
"That the CIT(A) has grossly erred in law and on facts
and in the circumstances of the appellant case in upholding
the action of the AO in levying the penalty u/s 271(1)( c) of the
Income Tax Act."
29. Brief facts giving rise to these appeals are that the assessee is a subsidiary
company of M/s Matsushita Electric Industrial Co. Ltd. The main object of the
appellant company vide the object clause was given as selling and distributing in
domestic as well as in export market the products having the Matsushita Brand
names of "National Panasonic" manufactured by the Matsushita Group and its
various collaboration companies. The assessment was completed u/s 143(3) of
the Act for AY 2003-04 on total income of Rs.38,91,49,470/- as against returned
negative income (loss) of Rs.16,41,87,090/-. The AO made addition of
Rs.1,79,83,544/- on account of Transfer Pricing adjustment. The CIT(A) vide
its order dated 31.1.2008 confirmed the addition to the extent of
Rs.1,15,03,854/-. Assessment was also completed u/s 143(3) for AY 2004-05 on
total income of Rs.22,16,14,720/- as against returned loss of Rs. 7,24,54,710/-.
19
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05
The AO made addition of Rs.29,40,69,430/- on account of transfer pricing. On
the appeal filed by the assessee, the Id. CIT(A) XX, New Delhi vide his order
dated 31.01.2008 confirmed the addition to the extent of Rs.8,15,01,718/- and
allowed a relief of Rs.21,25,67,712/-. The AO, after giving the assessee an
opportunity of being heard, levied penalty of Rs. 48,27,446/- in AY 2003-04 and
penalty of Rs. 2,92,38,741/- in AY 2004-05.
30. The assessee preferred an appeal before the CIT(A) which was dismissed
upholding the penalty. The relevant operative para of the CIT(A)'s order for
AY 2004-05 reads as under:-
"4.9. In the case under consideration, the transfer
pricing adopted by the appellant was found to be incorrect.
Therefore, the AO had made addition on account of transfer
pricing. The Id. CIT(A) had confirmed the addition made by
the AO to the extent of Rs.8, 15,01,718/-. The appellant has not
been able to satisfactorily explain as to how they had adopted
the rate of transfer pricing. Therefore, the case would be
covered by Explanation 7 to Section 271 (1)(c). In view of the-
facts of the case discussed above and legal position on the
issue, the contentions of ld. AR are rejected. The AO was fully
justified in levying the penalty. I, therefore, confirm the
penalty levied by the AO."
31. In AY 2003-04, the CIT(A) dismissed the appeal with the same
conclusion as above. Now, the aggrieved assessee is before this Tribunal with
the sole similar ground in both the appeals as reproduced hereinabove.
32. We have heard arguments of both the parties and carefully perused the
relevant material placed on record. Ld. AR, at the outset, submitted that the
20
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05
assessee has challenged similar addition made on the basis of recommendations
of the TPO in ITA No. 1418, 1419/Del/2008 on the strength of the decision of
the Tribunal in assessee's own case for AY 2002-03 (supra). Ld. AR further
submitted that the quantum appeals of the assessee for AY 2003-04 and 2004-05
deserve to be allowed and, in this situation, penalty imposed by the AO and
upheld by the CIT(A) is not sustainable. Ld. AR further pointed out that,
without prejudice to the above submissions and the result of the appeal of the
assessee, it is further submitted that on the issue where two views are possible,
penalty is not imposable and in every case where the claim of the assessee was
not accepted or was not found to be acceptable by the revenue authorities, does
not automatically attract penalty. The AR finally prayed that the penalty order
passed by the AO and confirmed by the CIT(A) may kindly be set aside. He
placed reliance on the decision of Hon'ble Apex Court in the case of Reliance
Petroproducts Pvt. Ltd.
33. Ld. DR replied that the result of the assessee's appeal for AY 2003-04 and
AY 2004-05 cannot be noticed or considered at this stage and if the assessee is
providing incorrect data and irrelevant comparables, then the addition made on
the direction of the TPO attracts penalty. Ld. DR supported the orders of the
authorities below.
34. We have considered rival submissions and contentions of both the parties
and gone through the relevant material placed on record. From a careful perusal
21
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05
of the penalty order, specially operative part as reproduced hereinabove, we
observe that the AO has imposed penalty on the issue of addition to the extent of
Rs.1,15,03,254 on account of ALP in the year 2003-04 and on the addition to the
extent of Rs.8,15,01,718 in AY 2004-05. Since by the earlier part of this order,
we have held that the additions made by the TPO and confirmed by the CIT(A)
by segregating the CPD and SPD divisions are not sustainable and following the
decision of the Tribunal in assessee's own case for AY 2002-03 (supra), we
have directed to delete the entire addition in this regard in both the AYs i.e.
2003-04 and 2004-05. Under these circumstances, once impugned addition has
been deleted, the act of imposition of penalty is rudimentary because there
cannot be any tax sought to be evaded on which penalty could be computed and
levied, therefore, no penalty on the assessee is imposable in both the assessment
years on account of additions made by the AO to the extent of Rs.1,15,03,265/-
in AY 2003-04 and to the extent of Rs.8,15,01,718/- in AY 2004-05.
Accordingly, we are inclined to allow both the appeals of the assessee and we
allow the same and AO is directed to delete the impugned penalty in both the
years.
35. In the result, appeals of the assessee ITA No. 1418 & 1419/Del/2008 on
ground no. 9 are dismissed and on ground no. 1 to 8 and 10 to 14 are partly
allowed. The appeals of the Revenue ITA No. 1374 & 1375/Del/2008 are
22
ITA NO. 2329,2330/D/2010
ITA No.1418, 1419,1374,1375/D/2008
Asstt.Year: 2003-04 & 2004-05
dismissed. The appeals of the assessee ITA No. 2329 & 2330/Del/2009 are
allowed.
Order pronounced in the open court on 18.11.2014.
Sd/- Sd/-
(PRAMOD KUMAR) (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DT. 18th NOVEMBER, 2014
`GS'
Copy forwarded to:-
1. Appellant
2. Respondent
3. C.I.T.(A)
4. C.I.T. 5. DR By Order
Asstt. Registrar
23
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