K.dushyantha & Associates (Liquidator) v. The Dy. Commissioner Of Income Tax,Corporate Circle - 4(1)Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 21.07.2020CORAM:THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.920 of 2018andCMP No.22216 of 2018 Motonic India Automotive Private Limited(In Liquidation),(earlier Liquidator Saji P.John, SPJ: Legal Advocates),Unit No.1002, 10th Floor,No.30, Prestige Meridian II, M.G.Road,Bengaluru - 560 001. Now K.Dushyantha & Associates (Liquidator),No.44/2, 7th Main, 9th Cross,2nd Block, Jayanagar,Bengaluru - 560 011... Appellant versus The Dy. Commissioner of Income Tax,Corporate Circle - 4(1)Chennai - 600 034... Respondent[cause title accepted vide Court order dated 20.11.2018 madein CMP No.19351/2018 in TCA No.28920/18 [TSSJ & NSKJ]] Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961, against the order made in ITA No.801/Mds/2017dated 17.11.2017 passed by the Income Tax Appellate Tribunal,'D' Bench, Madras, for the Assessment Year 2012-13. Against the order dated 14/12/2016 made in F.No. 181/DRP –2/BANG/2016-17 passed by the Commissioner of Income Tax,Member (DRP-2), Bengaluru 1, 2 and 3 and against the orderdated 30/03/2016 passed by the Assistant commissioner ofIncome Tax, Corporate Circle 4 (1), Chennai made inPAN/GIR.No.AAFCM3603f and against the order dated 28/01/2016passed by the Deputy Commissioner of Income Tax, transferpricing Officer – 2 (2) (i/c) Chennai made in No.M516/TPO – 2(2) Assessment Year 2012-13. For Appellant: Mr.Vikram Vijayaraghavan For Respondent : Mr.Karthick Ranganathanhttps://hcservices.ecourts.gov.in/hcservices/ Senior Standing Counsel T.S.SIVAGNANAM, J. This appeal by the assessee (presently under liquidation),filed under Section 260A of the Income Tax Act, 1961 (the'Act' for brevity), is directed against the order dated17.11.2017 in ITA No.801/MDS/2017 on the file of the IncomeTax Appellate Tribunal, Madras 'D' Bench, for the AssessmentYear 2012-13. 2. The Tax Case Appeal was admitted on 10.12.2018 on thefollowing Substantial Questions of Law."1. Whether on the facts and circumstances ofthe case, the Tribunal has grossly erred in neitherreferring to nor following Appellant's own case inearlier AY with respect to custom duty adjustment asper the provisions of the IT Act r.w. IT Rules? 2. Whether on the facts and circumstances ofthe case, the Tribunal has grossly erred in neitherreferring to nor following Appellant's own case inearlier AY with respect to foreign exchangefluctuation adjustment as per the provisions of theIT Act r.w. IT Rules? 3. Whether on the facts and circumstances ofthe case, the Tribunal erred in not providingworking capital adjustment on the comparables as perthe transfer pricing provisions of IT Act r/w. ITRules? 4. Whether on the facts and circumstances ofthe case, the Tribunal was justified in law inupholding the decision of DRP to apply transferpricing adjustment to all transactions i.e., entitylevel without restricting the same to the proportionof international transactions of the Appellant incontravention to the transfer pricing provisions ofthe IT Act r/w. Rules? 5. Whether on the facts and circumstances ofthe case, the Tribunal erred in rejecting certaincomparables of the Assessee by ignoring availablefinancial date while erroneously upholding it as apersistent loss making company in contravention tothe transfer pricing provisions of the IT Act r/w.Rules? 6. Whether on the facts and circumstances ofthe case, the Tribunal erred in considering foreignhttps://hcservices.ecourts.gov.in/hcservices/exchange loss as an operating item in contravention to the transfer pricing provisions of the IT Act andRules?" 3. We have heard Mr.Vikram Vijayaraghavan, learned counselappearing for the appellant/assessee and Mr.KarthikRanganathan, learned counsel for the respondent/revenue. 5. Whether on the facts and circumstances ofthe case, the Tribunal erred in rejecting certaincomparables of the Assessee by ignoring availablefinancial date while erroneously upholding it as apersistent loss making company in contravention tothe transfer pricing provisions of the IT Act r/w.Rules? 6. Whether on the facts and circumstances ofthe case, the Tribunal erred in considering foreignhttps://hcservices.ecourts.gov.in/hcservices/exchange loss as an operating item in contravention to the transfer pricing provisions of the IT Act andRules?" 3. We have heard Mr.Vikram Vijayaraghavan, learned counselappearing for the appellant/assessee and Mr.KarthikRanganathan, learned counsel for the respondent/revenue. 4.Thelearnedcounselappearingfortheappellant/assessee prefaced his submission by contending thatSubstantial Question of Law Nos.1 and 2, which had beenentertained by this Court, were already considered by thisCourt in the assessee's own case in TCA.No.138 of 2007 dated07.2.2019 for the assessment year 2009-10 wherein there was noTP adjustment made after the matter was remanded to theTransfer Pricing Officer concerned by the Tribunal. 5. Further, it is submitted that for the Assessment Years2010-11 and 2011-12, no TP adjustment was made and therefore,there were no issues. The assessment order which is subjectmatter of this appeal is Assessment Year 2012-13. For theAssessment Year 2013-14, the CIT(A) followed the decision ofthe tribunal for the Assessment Year 2009-10. For theAssessment Year 2014-15, the CIT(A) followed the order of thetribunal for the Assessment year 2009-10 and assessee isawaiting to give effect to the said order. For the AssessmentYear 2015-16, there is no TP adjustment and no reference tothe Transfer Pricing Officer. 6. It is submitted by the learned counsel for theappellant/assessee that though this was the factual position,the tribunal in the impugned order did not refer to thedecision of its Co-ordinate Bench for the Assessment Year2009-10. This is a serious error of law committed by thetribunal. In support of such contention, the learned counselfor the appellant referred to the decision of the Hon'ble ApexCourt in the case of Honda Siel Power Products Lts. Vs. CITreported in [2007] 295 ITR 466 (SC). 7. In the said decision, while considering the scope ofSection 254 of the Act, the Hon'ble Supreme Court pointed outthat non consideration of the decision of the Co-ordinateBench placed before the tribunal, amounts to a mistakeapparent from the record, within the meaning of Section 254(2)of the Act and therefore, the tribunal was justified inexercising its powers under Section 254(2), when it waspointed out that an order of the Co-ordinate Bench placedbefore the tribunal was not considered by it while passing theoriginal order. 8. It is seen that the order passed by the tribunal forthe Assessment Year 2009-10 was subject matter of challenge bythe revenue before the Division Bench of this Court in TCANo.138 of 2017 and the Hon'ble Division Bench by judgmenthttps://hcservices.ecourts.gov.in/hcservices/dated 07.02.2019 has remanded the matter to the Transfer Pricing Officer to consider all issues afresh and pass a freshorder in pursuance of the remand directions (issued by thetribunal therein) uninfluenced by the observations of thetribunal, on the merits of the case and also by giving dueopportunity of hearing to the assessee to make out its casebefore the Transfer Pricing Officer. 8. It is seen that the order passed by the tribunal forthe Assessment Year 2009-10 was subject matter of challenge bythe revenue before the Division Bench of this Court in TCANo.138 of 2017 and the Hon'ble Division Bench by judgmenthttps://hcservices.ecourts.gov.in/hcservices/dated 07.02.2019 has remanded the matter to the Transfer Pricing Officer to consider all issues afresh and pass a freshorder in pursuance of the remand directions (issued by thetribunal therein) uninfluenced by the observations of thetribunal, on the merits of the case and also by giving dueopportunity of hearing to the assessee to make out its casebefore the Transfer Pricing Officer. 9. With regard to Substantial Question of Law No.3, it isthe assessee's contention that the tribunal committed an errorin rejecting the working capital adjustment claimed by theassessee stating that receivables and inventory are notinfluenced by Associated Enterprises, but on the contraryrequiring adjustment to be extended to entire cost base of theassessee including third party costs. Therefore, it issubmitted that this issue also requires to be reconsidered bythe Transfer Pricing Officer. 10. So far as the Substantial Question of Law No.4 isconcerned, the learned counsel has referred to the decision ofthe Delhi High Court, in the case of CIT Vs. Keihin PanalfaLtd, reported in [2016] 381 ITR 407 and the decisions of theBombay High Court in CIT Vs. Alstom Projects India Ltd,reported in [2016] 97 CCH 149 and CIT Vs. FirestoneInternational (P) Ltd in ITA No.1354 of 2013. 11. So far as the Substantial Question of Law No.5 isconcerned, it is the assessee's case that the tribunal erredin rejecting the comparable of Inzi Controls India Limited, onthe ground of non availability of data and the tribunal hasobserved that this fact has not been challenged by theassessee. 12. The learned counsel for the assessee submitted thatsuch finding by the tribunal is perverse, because the data isavailable in the public domain and the assessee had beenagitating the matter right through. 13. So far as Substantial Question of Law No.6 isconcerned, in the assessee's own case for the Assessment Year2013-14, this issue was decided in favour of the assessee bythe CIT(A) by order dated 10.10.2017 in ITA No.409/16-17. 14. Per contra, the learned Senior Standing Counsel forthe revenue would submit that so far as Substantial Questionof Law Nos.1 and 2, are concerned, it is true that the Hon'bleDivision Bench of this Court has remanded the matter toTransfer Pricing Officer for fresh consideration, whereas theother Substantial Questions of Law, viz. 3 to 6 are concerned,the revenue has sufficient material to counter the submissionsof the assessee. 15. In our considered view, the assessee's company is inthe process of liquidation and obviously it would mean that ithttps://hcservices.ecourts.gov.in/hcservices/is in financial difficulty. Two major issues have been remanded to Transfer Pricing Officer for fresh considerationand we are of the view that the other 4 issues viz., theissues raised in Substantial Question of Law Nos.3 to 6 alsomay be remanded to the Transfer Pricing Officer for freshconsideration, uninfluenced by any observations made by thetribunal. 15. In our considered view, the assessee's company is inthe process of liquidation and obviously it would mean that ithttps://hcservices.ecourts.gov.in/hcservices/is in financial difficulty. Two major issues have been remanded to Transfer Pricing Officer for fresh considerationand we are of the view that the other 4 issues viz., theissues raised in Substantial Question of Law Nos.3 to 6 alsomay be remanded to the Transfer Pricing Officer for freshconsideration, uninfluenced by any observations made by thetribunal. 16. For the above reasons, the Tax Case Appeal standsallowed. The impugned order passed by the tribunal is setaside and the matter is remanded to the Transfer PricingOfficer to be considered along with the matter, which has beenremanded to the Transfer Pricing Officer for the AssessmentYear 2009-10 and while deciding the issues arising inSubstantial Question of Law Nos.1 and 2, the Transfer PricingOfficer shall also decide Substantial Question of Law Nos.3to 6, afresh, in accordance with law, uninfluenced by any ofits earlier decision or tribunal's decision and the assesseecan be given due opportunity of personal hearing. No costs.Consequently, the connected Civil Miscellaneous Petition isclosed. Sd/- Assistant Registrar (CCC)//True Copy// Sub Assistant Registrar arsTO 1.The Commissioner of Income Tax, Member (DRP-2) Bengaluru 1, 2 and 3. (3 Copies) Member (DRP-2) Bengaluru 1, 2 and 3. (3 Copies) 2.The Assistant Commissioner of Income Tax, Corporate Circle 4 (1), Chennai. Corporate Circle 4 (1), Chennai. 3.The Deputy Commissioner of Income Tax, Transfer Pricing Officer – 2 (2) (i/c) Chennai. Transfer Pricing Officer – 2 (2) (i/c) Chennai. 4.The Deputy Commissioner of Income Tax, Corporate Circle 4 (1), Chennai 600 034. Corporate Circle 4 (1), Chennai 600 034. 5.The Assistant Registrar, Income Tax Appellate Tribunal, Besant Nagar, Chennai. Income Tax Appellate Tribunal, Besant Nagar, Chennai. 6.The Director, Central Board of Direct Taxes, New Delhi.https://hcservices.ecourts.gov.in/hcservices/ 7.The Income Tax Appellate Tribunal, Madras 'D' Bench. Madras 'D' Bench. TCA No.920 of 2018and CMP No.22216 of 2018 SAI(CO)GN(17/08/2020)