Fosroc Chemicals (India) P. Ltd. vs Deputy Commissioner Of Income-Tax

Jayant Patel, J.—The assessee has preferred I. T. A. No. 15 of 2016 by raising various questions. In our view, the only question that may arise is question No.l, which can be reformulated as under :

"Whether the Tribunal could make any further observations exceeding the observations already made by the Tribunal in respect of the very assessee vide order dated April 5, 2013 in ITA(TP) No. 1256(BNG.)/2011 ?"

As such since the only question to be considered is relating to the further observations made by the Tribunal after having recorded a finding that the case is covered by the earlier decision of the Tribunal for the purpose of remand or not, we need not narrate the facts but in our considered view in order to examine the controversy and the question referred to herein above, the reasoning of the Tribunal so recorded in the order would be sufficient.

The perusal of the order passed by the Tribunal, which is impugned in I.T. A. No. 712 of 2015 shows that the Tribunal after extracting its earlier decision in I.T.A. No. 1256 of 2011, at para. 32 has inter alia observed as under :

"32. In fact in the assessee''s own case the Tribunal on identical facts remanded the issue of determination of the arm''s length price to the Transfer Pricing Officer. The direction of the Tribunal has already been extracted in the earlier part of this order. The facts and circumstances are identical in the present assessment year and therefore the order of the Assessing Officer is set aside and the issue remanded to the Transfer Pricing Officer/Assessing Officer with identical directions as was given in the assessee''s own case in the assessment year 2007-08.

(emphasis supplied)

Since the Tribunal after making the aforesaid observation, has further proceeded to express the view about the mode and the manner in which a Transfer Pricing Officer/Assessing Officer should exercise the power, the assessee is in the present appeal I.T.A. No. 712 of 2015. We may also record that in I. T. A. No. 712 of 2015 after the aforesaid order dated April 10, 2015 was passed by the Tribunal, a Misc. petition for rectification was preferred by the assessee being M.P. No. 47/Bang/2015, which came to be dismissed by the Tribunal, vide order dated August 14, 2015 and hence, for challenging the legality and validity of the said subsequent order, separate I. T. A. No. 15 of 2016 has been preferred.

As I. T. A. No. 15 of 2016 is dependent upon the outcome of I. T. A. No. 712 of 2015, both are considered simultaneously.

We have heard Mr. T. Suryanarayana, learned counsel appearing for the assessee and Mr. Aravind, learned counsel appearing for the Revenue in both the matters.

As such in our view, the question need not detain us further inasmuch as it is well settled that the Tribunal would be bound by its earlier view more particularly in respect of the very same assessee. The second aspect is that if the Tribunal was to make any further observation or to make a departure from its earlier view, there should be valid reasons so recorded by the Tribunal. When we state for the valid reasons, it is with the clarification that if the observations are considered the power of the Transfer Pricing Officer/Assessing Officer after remand in a particular manner which may prejudice the rights of the assessee, then such observations arc no valid reasons. Further, once the finding is recorded to remand with a particular direction, the Tribunal should refrain itself from making any observation with regard to the mode and the manner in which the direction is to be complied with.

The learned counsel appearing for the assessee contended that the Tribunal ought to have ended after having found that the order of the Assessing Officer deserved to be set aside and the matter deserved to be remanded with the identical direction as was given in case of the assessee''s own case for the assessment year 2007-08. Whereas Mr. Aravind learned counsel appearing for the Revenue contended that the Tribunal has just elaborated about various aspects to be examined by the Transfer Pricing Officer/Assessing Officer while complying with the direction of remand and therefore, there is no contradiction as sought to be canvassed in the order of the Tribunal vis-a-vis the earlier direction given by the Tribunal for the assessment year 2007-08. Therefore, it was submitted that this court may dismiss the appeal by not interfering with that part of the order of the Tribunal, which is challenged in the appeal.

We may record that in the earlier order in respect of the very assessee for the assessment year 2007-08 the Tribunal itself has reproduced the directions, which are at para 17 of the impugned order. We need not reproduce the complete paragraph but the relevant portion of the earlier direction reads as under :

"Since these findings of the Transfer Pricing Officer on the rendering of services and allocation of expenses arc erroneous, we set aside and remand the matter to the Transfer Pricing Officer with a direction to recompute the arm''s length price by taking into consideration the allocated expenses by the associated enterprises to the assessee. Further, it is also to be observed that the Revenue authorities have to adopt a uniform and consistent approach in the case of the assessee on the same set of facts for each year. Though, the assessee has been receiving the services from its associated enterprises from the year 2003 onwards, the Transfer Pricing Officer has not made any transfer pricing adjustment till the assessment year 2006-07 and even for the subsequent assessment year 2008-09 where the assessee has received the services from its associated enterprises. Once the Transfer Pricing Officer has accepted the arm''s length price computed by the assessee by virtue of the very same licence agreement dated October 31, 2003 (as per which the assessee has been receiving services year after year), it cannot take a contrary'' view only for the assessment year 2007-08 holding that the assessee is not receiving any services. In view of the same, we deem it fit and proper to remand the issue to the file of the Transfer Pricing Officer for recomputing of the arm''s length price without insisting upon the quantification of each of the services received by the assessee and the commensurate benefit that has accrued to the assessee. The entire payment made by the assessee towards ''management services'' shall be taken as the aggregate payment for all the services rendered by the associated enterprises. The Transfer Pricing Officer is also directed to again reconsider the issue on the adoption of the most appropriate method and shall arrive at the arm''s length price before making the adjustment after taking the appropriate comparables, as even for computation of the arm''s length price by adopting CUP method, identifying comparables is essential."

The aforesaid observations made by the Tribunal if read with the observations made by the Tribunal in para 32 which are already reproduced earlier, it can be concluded that the Tribunal should maintain the principle that the Revenue authorities had to adopt a uniform and consistent approach in the case of the assessee on the same set of facts for each year. Further the Tribunal has also concluded that the facts and circumstances are identical in the present assessment year and therefore, the order of the Assessing Officer is set aside and the issue remanded to the Transfer Pricing Officer/Assessing Officer with identical directions as was given in the assessee''s own case for the assessment year 2007-08, deserved to be honoured. In our view it was not open to the Tribunal thereafter to control the power of the Transfer Pricing Officer/Assessing Officer after the remand at par with the remand order already made for the assessment year 2007-08.

It is hardly required to be stated that in any judicial forum like the Tribunal is to decide the matter or controversy, if it would express the view in respect of the subject, which is required to be decided and it shall not make any observation or expression for academic purpose. Once the Tribunal having found that the matter deserves to be remanded to the Transfer Pricing Officer/Assessing Officer with the identical direction as was given in the case of the assessee for the assessment year 2007-08, the Tribunal ought to have ended there.

In our considered view any observation thereafter may not only control the power of the Transfer Pricing Officer/Assessing Officer, but would also demonstrate the contradictory approach on the part of the Tribunal, which the Tribunal itself has not followed the advise raised in the earlier order for uniform approach of the Revenue.

The aforesaid is coupled with the circumstances that the Revenue being unsatisfied with the very order of the Tribunal in ITA(TP) No. 1256(BNG.)/ 2011 dated April 5, 2013 had carried the matter before this court in I. T. A. No. 492 of 2015 (CIT v. Fosroc Chemicals India P. Ltd. [2016] 7 ITR-OL 324 (Karn)) and connected matters and this court by order dated March 22, 2016 dismissed the appeal of the Revenue. We find it appropriate to record that this court, in the aforesaid decision at paras 6 and 7 observed thus (page 329 of 7 ITR-OL) :

"Mr. K. V. Aravind, learned counsel appearing for the appellants contended that the comparable aspects of the quantum of the services rendered vis-a-vis the expenses incurred, is not left open by the Tribunal and the Tribunal has concluded the same and therefore, there is a valid grievance of the appellants-Revenue. He submitted that such an exercise is permissible under section 92 of the Income-tax Act. He also relied upon the decision of the Delhi High Court in the case of CIT v. EKL Appliances Ltd. reported in (2012] 345 ITR 241 (Delhi) ; [2012] 81 CCH 0027 Delhi HC, which was brought to the notice of the Tribunal, more particularly, by relying upon the observations made at paragraphs 39 and 40, he submitted that when the expenses are incurred in respect of the related concern, the scrutiny should have been left open by the Tribunal even while remanding the matter to the Transfer Pricing Officer and therefore, the Tribunal has committed an error and this court may consider substantial questions of law in the present appeals.

Even if we consider that under section 92 of the Income-tax Act, such an exercise is available read with the decision of Delhi High Court in the case of EKL Appliances Ltd. (supra) then also, the Tribunal after examining the record has found that the services rendered "were concerning the business and once the nexus is found and the factual aspect is considered by the Tribunal, it cannot be said that the Tribunal ought to have remanded the matter by keeping that question once again open for consideration by the Transfer Pricing Officer. Further, the Tribunal has rightly considered and examined the decision of the Delhi High Court in case of EKL Appliances Ltd. (supra)."

The aforesaid observation would show that this court had not accepted the contention of the Revenue that the Tribunal ought to have remanded the matter by keeping that question once again open for consideration by the Transfer Pricing Officer.

In view of the aforesaid circumstances we do find that the further observations made by the Tribunal after recording the finding that the matter is required to be remanded to the Transfer Pricing Officer/Assessing Officer with identical directions as was given in case of the assessee for the assessment year 2007-08, were not called for. The Tribunal, after having found that an identical direction deserved to be issued at par with the direction given for the assessment year 2007-08, the Tribunal ought to have ended the discussion with the same direction. Hence, the question needs to be answered in the negative in favour of the assessee and against the Revenue. Resultantly the order passed by the Tribunal making observation exceeding the identical direction given in case of the assessee for the assessment year 2007-08 would no more operate. The Transfer Pricing Officer/Assessing Officer will be required to consider this matter in the same manner as was considered earlier and is to be considered at par with the direction issued in case of the assessee for the assessment year 2007-08.

I. T. A. No. 712 of 2015 shall stand disposed of accordingly.

In view of the order passed in I. T. A. No. 712 of 2015, we find that no 15 useful purpose would be served in further examining the question raised in I. T. A. No. 15 of 2016 since the order for which the rectification was sought, is partly modified by this court in I. T. A. No. 712 of 2015. Hence, I.T. A. No. 15 of 2016 shall stand disposed of accordingly.