Wrigley India Pvt Ltd vs. ACIT (ITAT Delhi)

DATE: December 31, 2014 (Date of pronouncement)
DATE: January 1, 2015 (Date of publication)
AY: 2003-04 to 2006-07
FILE: Click here to download the file in pdf format
The Transfer Pricing study and certification by the CA does not inspire any confidence. The level of professionalism is “pathetic”. No purpose is served by relying on such reports

The transfer pricing reports with respect to the impugned determination of ALP leave a lot to be desired. Just because the action of the authorities below, in adopting cost plus method in the above manner, is legally unsustainable, the ALP determination by the assessee cannot be taken as correct. These TP reports as also certifications by the chartered accounts inspire no confidence and, quite to the contrary, raise doubts about efficacy of the built in checks and balances in transfer pricing regulations. It is somewhat fashionable to criticize the revenue authorities for their lack of objectivity or even inefficiency but what in the world can justify such a pathetic level of professional work relied upon by even the large corporate entities. If the tax judicial system is clogged by frivolous litigation today and if the tax finality still takes decades to reach, these saviours of taxpayers are as much to be blamed for this situation as anybody else. No purpose can be served in reporting by a chartered accountant when such reports do not even point out glaring infirmities in taxpayer’s approach vis -à-vis the transfer regulation, in a comparison of budgeted profits margin with actual profit margins realized by the comparables which is stated to be ascertainment of ALP on the basis of the TNMM. It appears that in an alarming number cases, these audit reports, rather than painting a true and fair picture of the relevant facts, tend to epitomize the art of constant hedging and manoeuvring by the professionals so as they stay within the confines of permissible professional conduct and are yet able to sidestep the inconvenient realities. Of course, it will be much worse a situation if they are actually so naïve as to be oblivious of simple provisions of law, of their onerous responsibilities or of the legitimate public expectations. It is not to belittle the brilliant work being done by many a professionals but it is just to point out the dilemma of those who explore the possibilities of relying upon such audit reports and certifications, and also the inertia of those who can do something to salvage this situation and, to thus avoid an inevitable systemic rejection of the ritualistic certifications. We are particularly pained today as the financial period before us is mostly even more than a decade old and yet since the TP reports and certifications before us are, in our considered view, are so much devoid of credibility that, instead of deciding the things one way or the other, we have no choice except to remit the matter to the file of the TPO for fresh ascertainment of ALP on the basis of residuary method, i.e. TNMM.

Note: When the ITAT first sounded a warning in Vijay V Meghani vs. DCIT, the ICAI, instead of taking the criticism in the right spirit and taking remedial steps, adopted a belligerent stand and called the ITAT’s observations “sweeping” and “unwarranted”. It also promised that it would take steps to get the ITAT’s observations “expunged”. Thereafter, the CAG made the shocking revelation of the utterly careless manner in which CAs have issued audit reports and caused a revenue loss of several thousands of crores. Now, the present judgement also exposes serious short-comings in the functioning of CAs. It requires to be seen what remedial steps, if any, the ICAI adopts now to salvage the noble profession
17 comments on “Wrigley India Pvt Ltd vs. ACIT (ITAT Delhi)
  1. ca manoj gupta says:

    I still beleive that remarks in Vijay V Meghnani case were out of context and unneccesary. So far as report of CAG is concerned i have gone through the report. The CAG pointed out that CAs allowed claim for additional depreciation in two years whereas it is allowable for one time. The ITAT benches have also held recently that claim for additional depreciation is allowable in two years if in the first year period of use of asset is less than 180 days. CAG in its report have also cited some cases where qualification by CAs was not taken care of by ITOs in assessment and pointed out revenue loss thereupon.

  2. ca manoj gupta says:

    Further in Vijay case a condonation of delay was prayed for. It is within the powers of ITAT to allow that or not. In every case two sides are there. I know a lot of cases where appeal is the remedy but lawyers advise to file writ. No court has ever passed any remark over that.

  3. View of on some CAs must be accepted by any CA…CAG is indeed certainly much better stuff than CAs. it clearly says that ICAI should revamp if it is concerned of the CAs as a Profession…comments at hon tribunals surfaced be fellow members of ICAI as AM (Account Member).

    if some CA aggrieved personally in the referred cases can move against CAG v/s the concerned which did some pathetic work to prove it is not wrong under judicial review under Art 226, that is right cure, no point some CAs not really involved in the relevant audits certainly cannot have any say.

    i have seen several cases some seemed to be experienced CAs really do not understand what is sec 143(2)(ii) and that way they made several assesses in unnecessary protracted litigation and a lot of sleepless nights such CAs gave to their own clients.

    Such CAs are not contested before High courts for defamation and for liquidated damages just because of goodness of taxpayers.

    please understand if there is some rotten apples just discard them by removing their ICAI membership by very ICAI, if ICAI wants to maintain its real professionalism , else people would shun CAs as untrustworthy taxation accountants, prudence requires in ICAI , IF IT is devoid of prudence, many would not join the CA course sooner or later;

    Always one need to be humble if one is called a great professional. Else professionalism dies a natural death.

    it seems some such rotten members might have used some backdoor way even passing the very CA course and that aspect may be probed by ICAI to weed out rots please

    this comment is not attacking very good CAs n profession but only says please protect your profession by proper self introspection please!

  4. Nem Singh says:

    It is true that our CAs are not properly reporting or certificating of financials of an organisations and reason by there the most of the organisation faces litigation with revenue department.

  5. Ramesh Ranka says:

    Black sheep is present in every business/profession (including judiciary) and NO profession is immune to it. It has become fashionable these days to blacken the fraternity in entirety. Fate of the member who was caught while taking bribe in kolkata is known to all. In every bench, there are certain members before whom people prefer to take adjournments and not to argue for obvious reasons. In every bench, there are certain professionals who are known to bring the positive orders.

    • sir,

      Never pay any bribe to any. If one pays bribe money,then he is equally liable under prevention of corruption Act. if none gives bribes then corruption would die a natural death.
      true some black sheep in every profession such black sheep need to be removed by the relevant associations, then black sheep number number would fall.. there are touts too in every profession but touts only create confusion.. i saw some touts appear as advocates in some courts,true some advocates knowing one is a tout among them , but if real advocate would not attempt to remove touts boldly, how can we all other advocates in that court as good advocates… like that even among CAs… after all touts in every profession are liaison men and the psuedo real professionals use these touts to do illegal work… that way some real professional if uses such touts, how can you call such professional as a good professional pls… agn see how these men survive when some clients are only responsible… i may say there was a rich man who had to be petitioner in a case, he told an advocate, he would pay 5 lacs or 10 lacs, if the advocate can see how to bribe a judge of a court…so rots emerge from clients as well, while some new practicing professional not knowing to present his matter,attempts to use these touts too, as young professionals not having reasonable exposure to really handle matters but yet he or she wants to get a roaring practice or big income resort to touts and the like…seeing touts earning higher income, many incompetent professionals themselves indulge in liaison work…so you can know how corruption survives…so any one finds such liaison men either in touts or professionals should ensure to act against such rot, is it not sir!

  6. R Shashidhara says:

    CAGs report is naive. Of the total of some 60,000 reports filed if there are mistakes in 600 cases, the CAG is highlighting the same as though everything is wrong. 1% mistakes are not material. I would like to know, for the same year, how many CAG audit paras were issued by its staff about the assessments, and how many out of such paras have sustained the demand from ITO level to the Courts. It must be pointed out that most of the audit paras issued by CAG are without considering any court judgements but only plain reading of the act that too from a revenue angle only. So lets not come to any conclusion based on CAG reports per se.

    • vishnu says:

      CAG has not verified all the 60000 reports filed. It may verified only reports of the cases which has come up for assessment and that to random selection of assessment orders. so the percentage of 1% as quoted by you is not correct.

  7. DS says:

    @Ramesh Ranka

    Very true; no generalizations. Black sheep are everywhere and it should be seen as part of overall deterioration in the society rather than about a specific profession.

  8. A Reader says:

    Itat talks about ‘brilliant work’ by CAs as well but recognizes, as perhaps in all professions, some disturbing trends also. Would it mean that all CAs are bad or all advocates are good? Why generalize?

    • R Shashidhara says:

      More than that, TP reports are subjective and department has always taken extreme view on these. That is why majority of the TP prices have been disputed by either the department or the assessee and there are conflicting decisions of all the ITATs and courts. Just because there are difference of opinions does it mean TP reports are wrong or not of good quality. I beg to defer from this view of ITAT.

  9. lalit says:

    The basic lacking in CA Study is class room studies. The CA aspirants just rote the syllabus to pass the examination. They also pass the examination and become members. The learning process requires overhauling – out of 3 years, 1 yr should be made compulsorily class room reading. English should be made a compulsory subject at all levels of examination. Recently I was appalled to see the English of a very senior member who had held a very high position in ICAI. Case studies should be given to them to be solved like MBA students. And when one passes the same, they should be allowed to enrol for practical training under a practising chartered accountant.
    Encouragement should be made to CAs to disperse to mofussil areas too because high concerntration of CAs at single place causes new CAs succumb to give reports which may not be correct. Efforts should be made for equal distribution of professinal opportunities to all practising chartered accountants.
    Only a deeper thought process can save the profession from such unwanted comments.

  10. ca manoj gupta says:


  11. Always every professional should see no where he fails..there is nothing called i failed in one out of ten or 100 i am yet great idea should get out of mind of every profession including CAs…when you see your load is high do not take up more audits that would preserve your professional competence please is my view, it is up to any one to accept or reject pls.

    • R Shashidhara says:

      I agree that professionalism has perfection as Goal. But every professional is a human being, hence, would make judgemental errors while discharging his duties. Except when things are well defined, there is always scope for interpretation and different points of view and the one taken by the certifing professional may not be the perfect view. Hence, some errors would definitely creep in which depends on individual efficiencies. Otherwise there would be perfect world and there were not be some professionals in every field who does much better their peers with the same degree. eg. Doctor, teacher, engineers, architects who have achieved great name than their peers. Does that mean that the said profession is not well organised or trained? I tend to disagree.

  12. CA Ray says:

    This is what is it looks like from the order. Looks like a very specific issue.

  13. CA Ray says:

    If there is one mistake, one alarming trend or there is mistake by some people or in some areas, and someone points that out, it is not to say that entire profession is bad. Too much is being read into this.

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