ITO 8(1)(1), MUMBAI v. K.P. SANGHVI JEWELS P. LTD, MUMBAI

ITA 21/MUM/2009 | 2004-2005
Pronouncement Date: 27-04-2015 | Result: Allowed

Appeal Details

RSA Number 2119914 RSA 2009
Assessee PAN AACCA8412D
Bench Mumbai
Appeal Number ITA 21/MUM/2009
Duration Of Justice 6 year(s) 3 month(s) 25 day(s)
Appellant ITO 8(1)(1), MUMBAI
Respondent K.P. SANGHVI JEWELS P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-04-2015
Appeal Filed By Department
Order Result Allowed
Bench Allotted K
Tribunal Order Date 01-05-2015
Date Of Final Hearing 27-04-2015
Next Hearing Date 27-04-2015
Assessment Year 2004-2005
Appeal Filed On 02-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI SANJAY ARORA ACCOUNTANT MEMBER ITA NO.7345/MUM/2008 ASSESSMENT YEAR: 2004-05 K.P. SANGHVI JEWELS PRIVATE LIMITED( FORMERLY KNOWN AS ACE JEWELS PVT. LTD.) 10 TH FLOOR PAREKH MARKET OPERA HOUSE MUMBAI-400004 / VS. INCOME TAX OFFICER WARD-8(1)(1) 2 ND FLOOR AAYAKAR BHAVAN M.K.ROAD MUMBAI-400020 ( ! ' /ASSESSEE) ( # / REVENUE) P.A. NO.AACCA8412D ITA NO.21/MUM/2009 ASSESSMENT YEAR: 2004-05 INCOME TAX OFFICER WARD-8(1)(1) 2 ND FLOOR AAYAKAR BHAVAN M.K.ROAD MUMBAI-400020 / VS. K.P. SANGHVI JEWELS PRIVATE LIMITED( FORMERLY KNOWN AS ACE JEWELS PVT. LTD.) 10 TH FLOOR PAREKH MARKET OPERA HOUSE MUMBAI-400004 ( # / REVENUE) ( ! ' /ASSESSEE) P.A. NO.AACCA8412D # / REVENUE BY SHRI N. PADMAN AVAN DR ! ' / ASSESSEE BY SHRI ROHIT JAIN K.P. SANGHVI JEWELS PRIVATE LIMITED 2 $ #% & ' ' / DATE OF HEARING 27/04/2015 & ' ' / DATE OF ORDER: 01/05/2015 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE ARE IN CROSS APPEAL AGAINST THE IMPUGNED ORDER DATED 20/10/2008 OF THE LD. FIRST APPELLATE AUTHORITY MUMBAI THE ASSE SSEE HAS CHALLENGED THE ORDER THAT THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES DISREGARDING THE FACT THAT TRANSFER P RICING OFFICER (IN SHORT TPO) DID NOT GRANT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BY SERVING SHOW CAUSE NOTICE AS REQUIRED U/S 92C(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER THE ACT) WHEREAS THE REVENUE IS ALSO AGGRIEVED IN DELETING THE ADDITION OF RS.95 47 914/- RELYING UPON THE FACT THAT THE TRANSACTION OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISE (IN SHORT AE) IN U.S.A TO THE EFFECT THA T IT WAS AT ARMS LENGTH (IN SHORT AL) AND NO ADJUSTMENT IS CAL LED FOR WITHOUT APPRECIATING THE FACTS AND FURTHER ERRED IN DELETING THE GP ADDITION OF RS.2 79 86 052/-. 2. DURING HEARING OF THESE APPEALS WE HAVE HEARD S HRI ROHIT JAIN LD. COUNSEL FOR THE ASSESSEE AND SHRI N. PADMANAVAN LD. DR. THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE FIRM WAS FORMED I N THE YEAR 2000 AND IT IS THE SECOND YEAR OF OPERATION. IT WAS CONTENDED THAT COMPARABLES PROVIDED BY THE ASSESSEE ARE RELIABLE AS THE ASSESSEE TOOK THE AVERAGE THEREFOR E NO K.P. SANGHVI JEWELS PRIVATE LIMITED 3 ADJUSTMENT IS REQUIRED. IT WAS ASSERTED THAT OUT O F THE SIXTEEN COMPARABLES ONLY FOUR WERE CHOSEN AND FURT HER 80% ARE NON-AE TRANSACTIONS. IT WAS PLEADED THAT T AX RATE APPLICABLE IN U.S. ARE HIGHER THUS THERE WAS NO A TTEMPT ON THE PART OF THE ASSESSEE TO SHIFT THE PROFIT TO U.S.A. IT WAS EMPATHETICALLY PLEADED THAT PROPER OPPORTUNITY WAS NOT PROVIDED BY THE ASSESSING OFFICER TO PRESENT IT S CASE. IT WAS POINTED OUT THAT THERE IS NO FINDING IN THE IMP UGNED ORDER AS TO HOW MUCH ADJUSTMENT IS NEEDS TO BE MADE ON THE ISSUE. ON THE OTHER HAND THE LD. DR INVITED O UR ATTENTION TO PAGE-15 18 (BACK SIDE) OF THE PAPER-BO OK ALONG WITH PAGE 19 OF THE PAPER-BOOK SHOWING EXTERNAL COMPARABLES. IT WAS POINTED OUT THAT THE ASSESSEE SHOWED THE PROFIT AT 3.65% WHEREAS THE GROSS PROFIT IS 2 2.55% THUS THERE IS SHIFTING OF PROFIT. OUR ATTENTION W AS INVITED TO SECTION 92C(3) OF THE ACT ALONG WITH PAGES 109 T O 111 OF THE PAPER BOOK BY CONTENDING THAT AE WAS IN USA. I T WAS EMPATHETICALLY CONTENDED THAT LD. COMMISSIONER OF I NCOME TAX (APPEALS) WHILE GRANTING RELIEF REJECTED THE CO MPARABLE IGNORING THE OBJECTIONS MADE IN THE REMAND REPORT. IT WAS EXPLAINED THAT TPO HAS NOT APPLIED TNMM METHOD FOR WHICH RELIANCE WAS PLACED UPON 27 TAXMAN.COM 213 (CHENNAI). 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A CLOSELY HELD INDIAN COMP ANY INCORPORATED UNDER THE COMPANIES ACT 1956 ON 30/05/2000 HAVING ITS REGISTERED OFFICE IN MUMBAI. THE K.P. SANGHVI JEWELS PRIVATE LIMITED 4 ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF DIAMOND STUDDED JEWELLERY IN THE FORM OF BANGLES R INGS EARRINGS BRACELETS PENDANTS AND NECKLACE ETC. THE STUDDED DIAMOND JEWELLERY IS SOLD IN THE LOCAL AS W ELL AS OVERSEAS MARKET. THE JEWELLERY MANUFACTURED BY THE ASSESSEE COMPANY SOLD IN THE LOCAL MARKET WAS UNDER THE BRAND NAME ACE. THE TOTAL SALE OF THE ASSESSEE DURING THE YEAR WAS RS.24 69 09 406/- OUT OF THIS THE TOTA L EXPORT TO AE WAS RS.5 23 56 886/- WHICH COMES TO 21.2% OF THE TOTAL SALES OF THE COMPANY. THERE ARE NO PURCHASES FROM ITS AE. DURING THE YEAR THE ASSESSEE ENTERED INTO TRA NSACTION WITH K.P. JEWELLERY USA (AE) AND MADE EXPORT OF STU DDED JEWELLERY AMOUNTING TO RS.5 23 56 886/-. THE ASSESS EE CAUSED LOSS OF RS.1.79 CRORES AS COMPARE TO LOSS OF RS.1.72 CRORES DURING THE PREVIOUS YEAR. THE ASSESSEE COMPA NY ALSO AVAILED GOLD LOAN FACILITY OFFERED BY STATE BANK O F INDIA AND ON THE MATURITY OF THE SAID LOAN THE ASSESSEE INCU RRED LOSS AROUND 12 LAKH. THE COMPANY EXPANDED ITS PRODUCTIO N CAPACITY SIGNIFICANTLY. THE ASSESSEE MADE HUGE INV ESTMENT IN PLANT MACHINERY AND EQUIPMENT FOR FURTHER EXPAN SION. THE ASSESSING OFFICER FOUND THAT THE AVERAGE GROSS PROFIT MARGIN ON COST OF COMPARABLE COMES TO 22.55% AS COM PARE TO ASSESSEES GROSS PROFIT MARGIN ON COST AT 3.65%. HE CONCLUDED THAT THE ADJUSTMENT IN RESPECT OF SALES T O AE IS REQUIRED TO BE MADE. HE OPINED THAT THE ARMS LENG TH PRICE OF SALES MADE TO AE COMES TO RS.6 19 04 700/- AS COMPARED TO THE TRANSACTION VALUE OF RS.5 23 56 886 /-. HE MADE ADJUSTMENT OF RS.95 47 814/- TO THE TOTAL INCO ME OF K.P. SANGHVI JEWELS PRIVATE LIMITED 5 THE ASSESSEE. ON APPEAL THE LD. COMMISSIONER OF IN COME TAX (APPEALS) THE ASSESSEE CHALLENGED THE ASSESSME NT ORDER WITH ONE OF THE GROUND ALONG WITH OTHERS THAT THE TPO DID NOT ISSUE A SHOW CAUSE NOTICE FOR REJECTING TNM M METHOD USED BY THE ASSESSEE BY USING CPM FOR DETERMINING THE ARMS LENGTH PRICE. THE LD. COMMISS IONER OF INCOME TAX (APPEALS) CONSIDERING THE FACTS GAVE PART RELIEF TO THE ASSESSEE AGAINST WHICH THE ASSESSEE A S WELL AS THE REVENUE BOTH ARE AGGRIEVED. IF THE TOTALITY OF FACTS AND THE CONCLUSION DRAWN IN THE IMPUGNED ORDER ARE CONSIDERED ONE CLEAR FACT IS OOZING OUT THAT THE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT PASSE D A REASONED ORDER BECAUSE INTERNAL COMPARABLES SHOULD NOT HAVE BEEN DISCARDED AND THERE IS NO FINDING TO THIS EFFECT IN THE IMPUGNED ORDER. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) PICKED UP CERTAIN COMPARABLES AND DID NOT GIVE ANY FINDING FOR THE REMAINING ONES I.E. HIS ORDER I S NOT SPEAKING ONE. FURTHER IN THE IMPUGNED ORDER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT DEALT WITH THE OBJECTIONS RAISED BY THE TPO AS AT PAGE-4 OF TH E ORDER OF THE TPO BASIC REASON FOR DISCARDING THE INTERNAL COMPARABLES HAVE BEEN MENTIONED. AT THE SAME TIME THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT MA DE ANY DISCUSSION REGARDING THE CASES CITED BY THE ASS ESSEE. MORE SPECIFICALLY WHEN THE ASSESSEE AS WELL AS THE TPO MADE THEIR VALID STAND BUT THE SAME WERE NOT DEALT WITH PROPERLY BY THE LD. COMMISSIONER OF INCOME TAX (APP EALS) CONSEQUENTLY WE REMAND BOTH THESE FILES TO EXAMINE AFRESH K.P. SANGHVI JEWELS PRIVATE LIMITED 6 THE FINDING OF THE TPO ALONG WITH THE ARGUMENTS/OBJ ECTIONS RAISED BY THE ASSESSEE IN ACCORDANCE WITH LAW. THE ASSESSEE MAY BE GIVEN OPPORTUNITY OF BEING HEARD W ITH FURTHER LIBERTY TO THE ASSESSEE TO FURNISH EVIDENCE IF ANY IN SUPPORT OF ITS CLAIM. THUS THE APPEAL OF THE ASSES SEE AS WELL AS OF THE REVENUE IS ALLOWED FOR STATISTICAL P URPOSES. FINALLY APPEAL OF THE ASSESSEE AS WELL AS OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE OF BOTH SIDES AT TH E CONCLUSION OF HEARING ON 27/04/2015. SD/- SD/- ( SANJAY ARORA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER $ % MUMBAI; ) DATED : 01/05/2015 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. + - / THE APPELLANT 2. ./ - / THE RESPONDENT. 3. 0 0 $ 1' ( + ) / THE CIT MUMBAI. P4. 0 0 $ 1' / CIT(A)- MUMBAI 5. 3#4 .' 0 +' 5 $ % / DR ITAT MUMBAI 6. 7% / GUARD FILE. / BY ORDER /3+' .' //TRUE COPY// / (DY./ASSTT. REGISTRAR) $ % / ITAT MUMBAI