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TMI Blog2014 (10) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... inion on the part of the AO and it could not initiate reassessment proceedings – Decided against revenue. Deletion on account of mould expenses - Expense or rent on moulds relate to M/s Dart India & ITL and not to the assessee company – Held that:- Following the decision in Asstt. Commissioner of Income Tax Versus M/s. Tupperware India Pvt. Ltd. [2014 (3) TMI 725 - ITAT DELHI] - mould rentals was payable by the assessee under a contractual obligation with contract manufacturer - The contract manufacturer have also given a certificate to the extent that mould rentals was to be borne by the assessee pursuant to the agreement - There is no change in the facts, situation or in law – thus, the Revenue cannot be allowed to adopt a different stand - when in earlier asstt. years the revenue accepted the order of the tribunal in favour of the assessee, then Revenue cannot be allowed to flip flop on the issue and it ought let the matter rest rather than spend the tax payers money in pursuing litigation for the sake of it - the expenditure on mould is allowable in the hands of the assessee - The payment of mould rental was done by the assessee under a contractual obligation with the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich read as under: 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law in confirming the action of the Assessing Officer in assuming jurisdiction u/s 147 of the Act more so when there was no escapement of any income. 2. That having regard to the facts and circumstances of the case, assuming the jurisdiction u/s 147 of the Act by the Assessing Officer is bad in law and against the facts and circumstances of the case. 3. Ld. D.R. did not object to the admission of additional grounds, therefore, the same were admitted. 4. Ld. A.R. further submitted that the reassessment in this case was initiated by recording reasons as placed in paper book page 93 and we were taken to paper book page 93. Ld. A.R. submitted that from the reasons recorded as placed at paper book page 93, it is apparent that the Assessing Officer recorded the reasons from the report of statutory auditors in Form 3CD wherein he observed that the assessee had not deducted tax on payments made to Tupperware India P. Ltd. to the extent of ₹ 1,36,89,075/. Ld. A.R. submitted that copy of auditors report was already with the Assessing Officer and was part of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessment year 2003-04 and 2004-05, Ld. D.R. submitted that the mould expenses allowed by Ld. CIT(A) were not verifiable. It was submitted that assessee was provided a number of opportunities but it did not submit the relevant documents as asked for by the Assessing Officer and, therefore, expenses itself could not be substantiated and were rightly disallowed by the Assessing Officer. Inviting our attention to Ld. CIT(A) s findings in assessment year 2003-04, Ld. D.R. submitted that the order passed by him is a non-speaking order. Ld. D.R. submitted that assessee was not a manufacturer and therefore, mould expenses were not expenses which were incurred for the purpose of business and further he heavily relied upon the findings of the Assessing Officer. It was further submitted that tax was not deducted at source and therefore, Assessing Officer keeping in view all facts and circumstances had made the addition. 6. In respect of ground No.2, Ld. D.R. submitted that Ld. CIT(A) has not applied his mind as he wrongly relied upon the case laws of Il Jin Electronics (P) Ltd. as the facts are distinguishable. He further submitted that Ld. CIT(A) in his conclusion has noted certain fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Ld. A.R. submitted that the assessee is ready to provide all the information to the Assessing Officer, therefore, it was prayed that this ground may be allowed for readjudication. 8. As regards 2nd ground, regarding warranty expenses, Ld. A.R. submitted that in assessee s own case, in assessment year 1999-2000, the Tribunal vide its order dated 25.08.2006 has decided the issue against assessee. In this respect, he invited our attention to page 297 of paper book where relevant findings of the Tribunal were placed. Ld. A.R. submitted that the Tribunal had held that claim for expenses be allowed on actual basis and therefore, it was argued that Assessing Officer be directed to allow the claim on actual basis. 9. Ld. D.R. on the other hand submitted that the Tribunal has already dismissed the similar ground in assessment year 1999-2000 and it has held that claim of the assessee can be allowed only on the basis of actual claims whereas the amount debited in the P L account is on account of provision only. 10. We have heard rival parties and have gone through the material placed on record. We first take up additional ground taken by Ld. A.R. in assessment year 2003-04. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The reasons for the notice under section t47 nowhere mentioned that the revenue came up with any other fresh material warranting reopening of assessment. In these circumstances, the Court is of the opinion that mere conclusion of the proceedings under section 143( I) ipso facto does not bring invocation of powers for reopening the assessment. We are satisfied that the Tribunals reasons are justified and do not call for any interference. 11. Similarly, in the case law of CIT Vs Smt. Jyoti Devi 218 CTR 264 the Hon'ble High Court of Rajasthan has held as under: 12. The precise question, therefore is, as to whether in the present case, any subsequent information, or material have come to the notice of the AO, to enable him to form a requisite belief, that any particular income has escaped assessment, which was liable to be assessed, and apart from the fact, that as found by the learned CIT(A), and the learned Tribunal, that there was no subsequent information, or fresh material, we again pointedly asked the learned counsel for the Revenue to point out, as to how these findings are wrong, and to show even to us, if there is any material, which might have come to the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that this issue taken as firsts ground is squarely covered in favour of the assessee by the order of the Tribunal dated 14.03.2014 in I.T.A.Nos. 137 2012/Del/2011 and 2608/Del/2012 for the assessment years 2007-08 and 2008-09. The Tribunal has dealt with the similar issue in para 10-16. For the sake of convenience, the same is reproduced below: 10. We have heard both the counsel and perused the records. Ld. Departmental Representative placed reliance upon the order of the AO. He reiterated that assessee has adopted a colorable device. He submitted that the nature of transaction between the assessee and the contract manufacturer was that all purchasers and seller. Hence, there was no question of payment of moulds rentals by the assessee who is a purchaser. He further submitted that in excise proceedings the matter has gone to the Settlement Commission and excise liability in this regard fastened on the contract manufacturers. Hence, he submitted that the Ld. CIT s inference in this regard is not sustainable. Ld. Counsel of the assessee on the other hand supported the order of the Ld. CIT(A). he reiterated that use of moulds and the payments of rental by the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as stated in the relevant order within the time specified therein. 13. Thus, it is clear that mould rentals was payable by the assessee under a contractual obligation with contract manufacturer. The contract manufacturer have also given a certificate to the extent that mould rentals was to be borne by the assessee pursuant to the agreement. Hence, the expenditure in question cannot be said to be not allowable. 14. The product being dealt by the assessee had to meet international quality and specification of Tupperware world wide which requires use of high quality and specific type of moulds, as the design of products are patent design. The moulds used by manufacturer of products are not available in the open market. Therefore, the company had to import these molds from overseas group company on hire basis and provide the same to contract manufacturers to enable them to manufacture the products. Once the contract manufacturer completes the order placed by the assessee, the molds are returned back to the company and therefrom to the molds owners in case the particular molds, is not required for use of manufacturer. We find that the above contract and molds borrowed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after supplied to contract manufacturers. Moulds are used to press plastic into form and are an essential embodiment of the product design. It was pointed that these moulds are proprietary in nature and are developed and owned by the overseas group entities. It was submitted that the appellant does not add value to the products and carries out the functions of a pure reseller. It merely procures the moulds from the AEs and supplies them to contract manufacturers for use in production. Thereafter, it procures finished goods from the contract manufacturers and sells them in the Indian market without adding any value thereon. According to the appellant, there is a very strong co-relation and interdependence between the transaction of payment of mould lease rentals and the core activity of the appellant, which is that of distribution, i.e., purchase and resale (without adding value), of plastic food storage and serving containers. Without access to these proprietary moulds, the appellant would not have been able to conduct/ carry out its distribution activity. It is submitted that RPM is most appropriate for a distributor who does not add value to the goods by physically altering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an item of receipt or expenditure, which has no direct connection/ nexus with operating profit should be ignored. The appellant has given the following calculation by stating that nonoperating/extraordinary items should be excluded from the computation of the appellant's operating loss percentage. Table 2: Particulars F.Y.2003-04 Sales 564,764,554 Cost of Sales 318,840,248 Service fee 4,794,553 Employee Remuneration benefits 54,176,687 Administration Expenses 73,323,119 Selling Distribution expenses 104,993,775 Depreciation 14,640,476 Total Cost (T.C.) 569,626,964 Operating Profit (O.P.) 4,862,410 OP/Sales -0.86% Particulars FY 2003-04 Reconciliation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transactions entered into by it. As the decision relied by the appellant is the decision of the Hon'ble ITAT Delhi which is binding on the CIT(Appeals) in Delhi, proportionate adjustment is justified in this case. 7.8. Based on the above discussion, the following scenarios emerge. 1. Using the RPM as the most appropriate method, the margin of the appellant is at 42.73% as per the TP report. The margin of the comparables (accepted by the TPO as comparable companies) with the single year data is at (GP/ Sales) 20.66% (see the table-3 below). Table-3: S.No. Company Name GP/Sales (Mar 04) 1 ACI Infocom Ltd. 6.41% 2 Adam Comsof Ltd. 19.05% 3 Blow Plast Ltd. (Merged) 34.61% 4 Positive Electronics Ltd. 11.67% 5 Redington (India) Ltd. Data not available 6 Uniport Computers Ltd. 25.00% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of finished goods by the appellant N=H/K*M 183,746 Payment of mould lease rentals by the appellant O=I/K*M 949,856 Payment of management services fee by the appellant P=J/K*M 102,650 Calculation of +/-5% Table 5: International Transactions Book value (Rs.) Addition to ALP ALP 105% of ALP TP Addition to be made Purchase of finished goods 8,582,423 183,746 8,398,677 8,818,610 Nil since book value is lower than 105% of ALP and therefore within allowable (+/-)5% range Payment of mould lease rentals 44,365,829 949,856 43,415,973 45,586,772 Payment of management services fee 4,794,553 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO was not satisfied with the tax audit report. In view of the above circumstances, I hold that the disallowance of the expenses is correct since assessee has failed to discharge its onus. This ground of the appeal is dismissed 20. Before us, Ld. A.R. has submitted that the assessee was prepared to cooperate with the Assessing Officer in determining the authenticity of purchase of computers and similarly, assessee was ready to submit sufficient evidence regarding the use of such computers in the business of the assessee. Therefore, keeping in view the substantial justice, we remit this ground of C.O. to the file of the Assessing Officer who after being satisfied regarding purchase of computers and its use for the business of the assessee should arrive at the conclusion of allowing depreciation or not as per law. Needless to say that assessee should be afforded a reasonable opportunity of being heard. The assessee is also directed to utilize this opportunity to substantiate its claim as in the absence of sufficient evidence, Assessing Officer has all powers to reject a claim. 21. In ground No.2, the assessee has taken the ground that ITAT in assessment year 1999-2000 had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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