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TMI Blog2015 (12) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... ain and EID Parry Limited in June, 2006, as a joint venture company. In fact, Roca Sanitaria S.A. Spain and EID Parry Limited were having equal shares in the assessee-company. During the assessment year 2009-10, Roca Investment S.L. purchased 47% of stake in the assessee-company from EID Parry Limited, thereby Roca Group's stake in the assessee-company increased to 97%. According to the Ld. counsel, the assessee- company engaged itself in the business of manufacturing and distribution of Parryware and Roca sanitary ware and taps. The assessee, in fact, imported finished goods from its associate enterprise for resale in India. According to the Ld. counsel, to determine the Arm's Length Price of imported finished goods, the assessee adopted Resale Price Method as most appropriate method. The Transfer Pricing Officer, however, adopted Transaction Net Margin Method using Berry Ratio as profit level indicator. According to the Ld. counsel, in the assessment year 2008-09, Resale Price Method was accepted by the Transfer Pricing Officer as most appropriate method. A copy of the order is available at pages 285 to 287 of the paper-book. The business model continued in the years unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee from the associate enterprise. Therefore, according to the Ld. counsel, the Transaction Net Margin Method adopted by the Dispute Resolution Panel cannot be a correct method. According to the Ld. counsel, the Resale Price Method is the most appropriate method in view of the functions performed by the assessee- company. 7. The Ld.counsel for the assessee further submitted that the Assessing Officer adopted Berry Ratio as Profit Level Indicator. Under the Transaction Net Margin Method, by referring to para 2.30 of the OECD guidelines, the Transfer Pricing Officer selectively referred to the OECD Guidelines without completely reading para 2.30 of the OECD Guidelines. Referring to para 2.30 of the OECD Guidelines, the Ld.counsel submitted that the resale price margin is more appropriate where it is realized within a short time of the reseller's purchase of the goods. According to the Ld. counsel, as per the OECD Guidelines, for application of Resale Price Method, the tested party should have minimal time between original purchase and resale. According to the Ld. counsel, the year under consideration is just second year of operation of the assessee's distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP International Sourcing (India) Ltd. v. ACIT (2012) 25 Taxmann.com 414, the Ld.counsel submitted that the Transfer Pricing Officer placed reliance on the decision of Delhi Bench of this Tribunal for application of Berry Ratio. According to the Ld. counsel, in the case before Delhi Bench, the service provider did not have title to the goods. Therefore, the Delhi Bench of the Tribunal found that Berry Ratio is a correct method to determine the profit indicator. In the case before us, the title to the goods rest with the assessee. Therefore, Berry Ratio cannot be applied in respect of functions performed by the assessee- company. 10. On the contrary, Dr. Milind Madhukar Bhusari, the Ld. Departmental Representative, submitted that admittedly the assessee-company is a joint venture of Roca Sanitaria S.A. Spain and EID Parry Limited. Initially, EID Parry Limited had 50% shares. However, on 16th July, 2008, Roca Investment S.L. purchased 47% of the shares from EID Parry Limited. Accordingly, Roca Investment S.L. became 97% shareholder in the assessee- company. The assessee-company claims that it is a distributor for Roca products. Referring to the agreement between Roca Sanitaria S.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . D.R., an independent entrepreneur would do everything in a limit so that gross profit is enough to take care of these expenditures and also leave some residual amount as profit. According to the Ld. D.R., the gross profit is not enough to take care of even the expenditure incurred by the assessee in respect of sale of Roca products. 12. Referring to the order of the Dispute Resolution Panel, more particularly page 9, the Ld. D.R. submitted that the table produced by the Dispute Resolution Panel clearly indicates that the gross profit earned by the assessee is not sufficient to meet the expenditure for distributing the Roca products. The Roca product, being a premium brand, the assessee has no leverage in the resale. Though the assessee claims that it is doing business independently, there is no independence in the affairs of the assessee. The assessee is fairly dependent on associate enterprise to carry out its business. Therefore, the Dispute Resolution Panel has rightly upheld the Transaction Net Margin Method as most appropriate method. 13. We have considered the rival submissions on either side and perused the relevant material available on record. For the purpose of determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute Resolution Panel, this Tribunal is of the considered opinion that the matter needs to be re-examined. Accordingly, the orders of the Assessing Officer are set aside and the Assessing Officer shall refer the matter again to the Dispute Resolution Panel. The Dispute Resolution Panel shall examine the agreement between the parties and other transactions between the assessee and Roca Sanitaria S.A. Spain and thereafter determine the actual function performed by the assessee apart from the assets employed in the transaction, including the risks assumed by the assessee, and thereafter decide the matter in accordance with law. The Dispute Resolution Panel shall give sufficient opportunity to the assessee before giving direction to the Assessing Officer under Section 144C of the Income-tax Act, 1961 (in short 'the Act'). 14. Now coming to Revenue's appeal in I.T.A. No.1169/Mds/2014, the only issue arises for consideration is with regard to disallowance under Section 40(a)(ia) of the Act for short deduction of tax at source. 15. Dr. Milind Madhukar Bhusari, the Ld. Departmental Representative, submitted that the Dispute Resolution Panel directed the Assessing Officer no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the rival submissions on either side and also perused the material available on record. We have also carefully gone through the provisions of section 40(a)(ia) of the Act, which reads as follows: "(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.- For the purposes of this sub-clause.- (i) "commission or brokerage" shall have the same meaning as in clause (i) of the Explanation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deducted was found to be not deducted then interest u/s 201(1A) can be levied in respect of that part of the amount which was not deducted. Whereas the language of section 40(a)(ia) does not say that even for short deduction disallowance has to be made proportionately. Therefore, the legislature has clearly envisaged in section 201(1A) for levy of interest on the amount on which tax was not deducted whereas the legislature has omitted to do so in section 40(a)(ia) of the Act. In other words, the provisions of section 40(a)(ia) does not enable the assessing officer to disallow any proportionate amount for short deduction or lesser deduction. 11. We have carefully gone through the judgment of the Andhra Pradesh High Court in the case of P.V. Rajagopal (supra). While considering the provisions of section 201 which stood for the assessment years 1989-90 to 1993-94, the Andhra Pradesh High Court found that there is nothing in the section to treat the employer as the defaulter where there is a shortfall in the deduction of tax at source. For the purpose of convenience, we are reproducing below paragraphs 34 and 35 of the judgment of the Andhra Pradesh High Court: "34. .......... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default." 12. After considering the provisions of section 201(1A) before amendment by Finance Act, 2001, the Andhra Pradesh High Court found that "as required under this Act" does not refer to mean to deduct tax in accordance with computation under the Act. In fact, the Parliament amended the section 201(1A) after this judgment of Andhra Pradesh High Court by incorporating the words "the whole or any part of tax" by Finance Act, 2001. The Division Bench of the Mumbai Bench of this Tribunal in the case of Chandabhoy and Jassobhoy (supra) had an occasion to consider an identical issue. The Mumbai Bench found that short deduction of TDS, if any, could have been considered as liability under the Income-tax Act as due from the assessee. Therefore, the disallowance of the entire expenditure, whose genuineness was not doubted by the assessing officer is not justified. A similar view was also taken by the Kokatta Bench of this Tribunal in the case of CIT vs M/s S.K. Tekriwal (supra). In this case, on appeal by the revenue, the Calcutta High Court confirmed the order of the Kolkatta Bench of the Tribunal. 13. In view of the above, this Tribunal is of the considered opinion that section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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