Ita/13/2019 Of M/S. Joyalukkas India Ltd v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 21 DAY OF DECEMBER 2022 / 30TH AGRAHAYANA, 1944 ITA NO.13OF 2019 OF I.T.A.TRIBUNAL, COCHIN BENCH) APPELLANT/RESPONDENT: M/S.JOYALUKKAS INDIA LTD., (NOW M/S.JOYALUKKAS INDIA PVT.LTD), MARINE DRIVE, SHANMUGHAM ROAD, KOCHI-682 031. (NOW M/S.JOYALUKKAS INDIA PVT.LTD), BY ADVS. SRI.ANIL D. NAIR SRI.SREEJITH R.NAIR SMT. ARYA ANIL SMT. NILOOFAR O. NIZAM RESPONDENT/APPELLANT: THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), KOCHI-682 018. ADV.NAVNAEETH N. NATH THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 21.12.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT (Dated: 21[st] December, 2022) Basant Balaji, J. The appellant in this appeal challenges the order of the income Tax Appellate Tribunal, Cochin Bench in ITA No.151/Coch/2015 dated 10.04.2018, whereby the appeal filed by the assessee was dismissed and the appeal filed by the Revenue was partly allowed for statistical purpose. 2. The appellant is engaged in trading of textile materials, manufacturing and trading of jewellery. During the assessment year 2010-11, the appellant entered into international transactions with Joy Alukkas LLC, Dubai, (Associated Enterprise, hereinafter AE for short) for manufacture and sale of gold jewellery to the Associated Enterprise. The appellant filed its return of income declaring a total income of Rs.1,02,33,29,393/- on 14.10.2010. The return was processed under Section 143(1) and subsequently picked up for scrutiny by issue of notice under Section 143(2) of the Act. A reference to the Transfer Pricing Officer was made to determine whether the international transactions have been made at Arm’s Length Price in accordance with Section 92CA of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short). 3. The Transfer Pricing Officer by order dated 27.01.2014 determined the TP Adjustment to Arm’s Length Price to the extent of Rs.3,69,19,518/-. The respondent thereafter passed draft order under Section 143(3) read with Section 144C(1) dated 25.03.2014, making the uphold adjustment of Rs.3,69,19,518/- to the value of international transaction entered into by the appellant. Though the appellant filed objections to the draft order before the Dispute Resolution Panel vide order dated 29.12.2014, the Panel directed enhancement to the effect that adjustment to be made to the Associated Enterprise Jewellery Segment is to be taken at 7.8% of the operating cost. In accordance with the direction given by the Dispute Resolution Panel, TP adjustment which was taken at Rs.3,69,19,518/-. As per the order dated 27.01.2014 it is taken as Rs.4,58,99,641/- vide order under Section 143(3) read with Section 144C(13) of the Act. 4. Heard counsel on either side. 5. Aggrieved by the order of the respondent dated 16.01.2015, the appellant as well as the revenue filed appeal before the income tax tribunal. The appeal filed by the appellant was dismissed and the appeal filed by the revenue was partly allowed for statistical purposes. Aggrieved by the appeal allowed by the revenue, this appeal is filed by the appellant. 6. The Dispute Resolution Panel considered this issue and held as follows: the order dated 27.01.2014 it is taken as Rs.4,58,99,641/- vide order under Section 143(3) read with Section 144C(13) of the Act. 4. Heard counsel on either side. 5. Aggrieved by the order of the respondent dated 16.01.2015, the appellant as well as the revenue filed appeal before the income tax tribunal. The appeal filed by the appellant was dismissed and the appeal filed by the revenue was partly allowed for statistical purposes. Aggrieved by the appeal allowed by the revenue, this appeal is filed by the appellant. 6. The Dispute Resolution Panel considered this issue and held as follows: “3.1.6.4 Having said that we find that the average mark-up earned by the companies engaged in distribution of jewellery at 2.18% at Page 12 of the TPO is a good example of the margins in distribution. Merely because the companies selected were engaged in distribution of diamond jewellery also does not make them bad comparables as the assets and risk involved are the same. Thus the mark-up attributable to the manufacturing activity for the Non-AE jewellery segment of the assessee has been rightly computed at 4.18% which should be the benchmark or the arm’s length price for the manufacturing activity for the AE segment of the assessee, where the PLI (OP/OC) of the assessee is (-) 3.62% (page 14 of the TPO’s order) and the difference comes to 7.8%. No further exercise is required to determine the ALP of manufacturing activity of the assessee’s AE segment. The assessing Officer/TPO is directed accordingly. Objection of the assessee is rejected.” 7. The main ground raised by the Revenue before the Tribunal was whether the Dispute Resolution Panel, Bangalore, was right in holding the average mark-up earned by the company engaged in the distribution of jewellery was to be fixed at 2.18% instead of (-) 0.02% determined by the TPO and in directing the ALP of the assesses known-AE Segment was to be fixed at 4.18% instead of 7.5% determined by the TPO and the Tribunal held as follows: “We have heard the rival submissions and perused the record. The TPO has considered the mark up of MD Overseas Ltd. as comparable and PLI was worked out at (-) 1.14%. Since non AE jewellery segment margin was computed by the assessee at 6.36%, the assessee had to get the non AE jewellery segment margin at 6.36%. Hence by balancing the figure by adding (-) 1.14% of the above, the Assessing Officer got the adjusted margin of assessee’s non AE jewellery segment at 7.5% and made the addition on that basis. In our opinion, it is not appropriate to balance in such a way without making proper TP study on the issue. Accordingly, we remit this issue to the file of the Assessing Officer to refer the matter afresh to the TPO for further TP study and decide accordingly. This ground of appeal is partly allowed for statistical purposes.” 8. The following substantial question of law arises for consideration: In the facts and circumstances of the case, ought not the Tribunal have held that as the variation between arm’s length price and the price at which the international transaction was undertaken is less than three per cent, no adjustment towards arm’s length price is called for. Ongoing through the orders of the Dispute Resolution Panel as well as that of the Tribunal, it can be seen that the Tribunal has held that without making a proper TP study on the issue, the addition to be made is without any basis and therefore the matter was remitted to the assessing officer to refer the matter afresh to the TPO for further TP study and decide accordingly. We do not find any infirmity in the order and remitting the matter for fresh study. In view of the above, we are of the considered opinion that the question of law stated for consideration in this appeal does not arise. Hence, the question of law raised is answered against the assessee and the appeal is dismissed. Sd/- S.V.BHATTI, JUDGE Sd/- BASANT BALAJI, JUDGE ss PETITIONER ANNEXURES: ANNEXURE A ANNEXURE B ANNEXURE C ANNEXURE D as well as that of the Tribunal, it can be seen that the Tribunal has held that without making a proper TP study on the issue, the addition to be made is without any basis and therefore the matter was remitted to the assessing officer to refer the matter afresh to the TPO for further TP study and decide accordingly. We do not find any infirmity in the order and remitting the matter for fresh study. In view of the above, we are of the considered opinion that the question of law stated for consideration in this appeal does not arise. Hence, the question of law raised is answered against the assessee and the appeal is dismissed. Sd/- S.V.BHATTI, JUDGE Sd/- BASANT BALAJI, JUDGE ss PETITIONER ANNEXURES: ANNEXURE A ANNEXURE B ANNEXURE C ANNEXURE D TRUE COPY OF THE ORDER U/S.92CA DATED 27/01/2014 PASSED BY THE TRANSFER PRICING OFFICER. TRUE COPY OF ORDER OF THE DISPUTE RESOLUTION PANEL DATED 29/12/2014 UNDER SECTION 144C(5) OF THE ACT.TRUE COPY OF THE FINAL ASSESSMENT ORDER PASSED BY THE RESPONDENT U/S.144c R.W.S.143(3) OF THE ACT DATED 16/01/2015. TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 01/04/2018.