Jay Chemical Industries Ltd. v. DCIT

Case snapshot

Sections / provisions: 92c

Questions before the Court / Tribunal

• The AO cannot her self make TP addition case is to be referred to TPO in view of madnatory direction of
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

The present cross appeals filed by the Assessee & Revenue, relate to the same assessee, and are against separate orders passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad, (in short referred to as CIT(A)), u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) , pertaining to ITA Nos. 1724 & 2256/Ahd/2016 Assessment Year: 2012-13 & ITA Nos. 1725 & 2257/Ahd/2016 Assessment Year: 2013-14

I.T.A No. 1724 & 2256/Ahd/2016 A.Y. 2012-13 & 2013-14 Page No Jay Chemical Industries Ltd.. vs. DCIT/ACIT 2 Assessment Year (A.Ys.) 2012-13 & 2013-14 dated 14-06-2016 and 15-06-2016 respectively.

2.1. At the outset, it was pointed out that there are primarily three issues involved in these cross appeals: (i) relating to transfer pricing adjustment made on account of determination of Arm’s Length Price of the reimbursement made by the assessee to its Associate Enterprise (AE) in lieu of cost sharing agreement entered into with it (ii) disallowance of commission expenses paid to non-residents for non-deduction of tax at source thereon as per the provisions of Section 40(a)(i) of the Act. (iii) disallowance of expenses pertaining to earning of incomes which are exempt from tax as per the provisions of Section 14A of the Act.

3. It was pointed out that while the Assessee and the Revenue are in appeal before us on account of first issue relating to transfer pricing adjustment, for the remaining issues the Revenue is in appeal before us. The issues being identical in both the years, for the sake of convenience we shall be dealing with the facts relating to assessment year 2012-13 and our decision rendered therein will apply Mutates Mutandis to the other appeal also.

4. We shall first be dealing with the issues relating to the transfer pricing adjustment made on account of determination Arm’s Length Price (ALP) of transaction of the assessee with its related entity.

Appellant / petitioner / assessee submissions

I.T.A No. 1724 & 2256/Ahd/2016 A.Y. 2012-13 & 2013-14 Page No Jay Chemical Industries Ltd.. vs. DCIT/ACIT 15 29. The last issue relates to the disallowance of expenses u/s. 14A of the Act read with Rule 8D of the Income Tax Rules,1962,(Rules) pertaining to those incurred for the purpose of earning exempt income. The A.O. had made the disallowance amounting to Rs. 10,16,640/- for the reason that the assessee had not submitted the details of exact source of investment made which amounted to 4.51 crores as on 31.03.2012 as opposed to 4.20 crores as on 31.03.2013.In the absence of any detail of source of investment, the A.O. inferred that the assessee had invested interest bearing funds for making investment in shares. Further he disallowed administrative and office expenses invoking Rule 8D(2)(iii) of the Rules.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

2. It was common ground that the issues involved in both the set of cross appeals were identical, therefore they were taken up together for hearing and are being disposed off by a common consolidated order.

Ld. Counsel for the assessee pointed out that the Hon’ble Supreme Court in the case of Pr. CIT-4 vs. S.G. Asia Holding (India) Pvt. Ltd. reported in [2019] 108 taxmann.com 213 has held that the determination of Arm’s Length Price by the Assessing Officer in breach of the mandatory instructions issued by the CBDT was not as per law and that the matter ought to be restored to the file of the A.O. to make appropriate reference to the TPO. He therefore started that his solitary pleading on the issue and was that the issue be restored back to the A.O. to make necessary reference to the TPO for determination of the ALP of the transaction.

I.T.A No. 1724 & 2256/Ahd/2016 A.Y. 2012-13 & 2013-14 Page No Jay Chemical Industries Ltd.. vs. DCIT/ACIT 5 documents and also the conduct of Transfer Pricing study. He noted that with respect to reimbursement of cost agreed for the purpose of development of the Textile Ink Market, the assessee derived no benefit from the same since it dealt only in its raw material i.e. reactive dyes and had nothing to do with the business of Textile Ink. With respect to the cost sharing agreement for brand promotion of reactive dyes and monitoring the sales of the assessee, he observed that no documents relating to services provided by the AE in this regard were submitted by the assessee. He therefore held that there was no reason for reimbursing any cost to the AE at all and determined the ALP of the transaction at Nil disallowing the entire claim of expenditure relating to reimbursement of cost.

I.T.A No. 1724 & 2256/Ahd/2016 A.Y. 2012-13 & 2013-14 Page No Jay Chemical Industries Ltd.. vs. DCIT/ACIT 7 12. We have gone through the said decision and we find that the Hon’ble Apex Court in clear terms held that ALP determined by AO in breach of mandatory instructions issued by CBDT, required the matter to be restored back to the AO to make appropriate reference to the TPO. Following the said decision of the Hon’ble Apex Court, the ITAT, we find, has in the backdrop of identical set of facts where the ALP of international transactions was found to have been determined not in accordance with the Instructions issued by the CBDT in this regard, in a number of decisions, as cited by the Ld.Counsel for the assessee before us and reproduced in our order above, restored the matter to the AO for making appropriate reference to the TPO.

14. Therefore, the ALP of the international transaction of reimbursement of cost to the AE having been admittedly not determined in accordance with the guidelines issued by the CBDT in this regard by the AO making a reference to the TPO, the issue we hold, is squarely covered by the decision of the apex court in S.G Asia Holdings (supra) following which we restore the issue to the file of the AO to make appropriate reference to the TPO for determination of the ALP of the transaction.

1.3 Without prejudice to the above, the Ld. CIT(A) has failed to appreciate that such payments are chargeable to tax in India under the provisions of Section 9(1)(vii) of the IT. Act and, therefore, the assessee was required to deduct TDS on such remittances.

Operative decision and relief

35. In effect the appeal of the Revenue is partly allowed for statistical purposes with Ground nos. 1 to 1.3 and ground no. 2 of being dismissed while ground no. 3 being allowed for statistical purposes.

36. The solitary ground of appeal of the Assessee being allowed for statistical purposes., the appeal of the assessee is allowed for statistical purposes.

I.T.A No. 1724 & 2256/Ahd/2016 A.Y. 2012-13 & 2013-14 Page No Jay Chemical Industries Ltd.. vs. DCIT/ACIT 17 37. In effect both the appeals of the Revenue in ITA Nos. 2256 & 2257/Ahd/2016 are partly allowed for statistical purposes.

38. In effect both the appeals of the Assessee in ITA Nos. 1724 & 1725/Ahd/2016 are allowed for statistical purposes.

Ratio and legal principle

The narrow proposition associated with Jay Chemical Industries Ltd. v. DCIT concerns the ao cannot her self make tp addition case is to be referred to tpo in view of madnatory direction of The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in ITA Nos. 1724 & 2256/Ahd/2016.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Dismissed” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: The AO cannot her self make TP addition case is to be referred to TPO in view of madnatory direction of Its practical value lies in the way the ITAT Ahmedabad connected the governing provisions—92c—to the procedural posture and evidence before it.

The authority level is ITAT / Tribunal. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 92c and the decision date 2022-04-29; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Jay Chemical Industries Ltd. v. DCIT, the proceeding is ITA Nos. 1724 & 2256/Ahd/2016, and the decision is dated 2022-04-29. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as Ms. Annapurna Gupta, Accountant Member; Shri Siddhartha Nautiyal, Judicial Member. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 92c. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Dismissed. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is RECTIFICATION_HIGH_COURT_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 92c — apply the exact version considered in the judgment.

Case network

• NOIDA v. Anand Sonbhadra — Supreme Court of India · Dismissed
• DCIT, Central Circle 2 v. Bhagyalaxmi Rolling Mills Pvt. Ltd. — ITAT Pune · Dismissed
• Noel Harper & Ors v. Union of India & Anr — Supreme Court of India · Dismissed
• DCIT v. Credtalpha Alternative Investment Advisors Pvt. Ltd. — ITAT Mumbai · Dismissed

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