Ita/99/2012 Of B.parameswaran Bharathan v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 22ND DAY OF JANUARY 2019 / 2ND MAGHA, 1940 ITA.No. 99 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 159/2007 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 27.02.2012 APPELLANT/S: B.PARAMESWARAN BHARATHANQUILON EXPORT ENTERPRISES, PARAMESWARA NAGAR, KOLLAM. BY ADVS.SRI.P.GOPINATH (SR.)SRI.M.GOPIKRISHNAN NAMBIARSRI.K.JOHN MATHAISRI.P.BENNY THOMASSRI.PREMJIT NAGENDRAN RESPONDENT/S: COMMISSIONER OF INCOME TAXKOWDIAR, THIRUVANANTHAPURAM-695003. BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON22.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.No.99 of 2012 - 2 - Ashok Menon, J. JUDGMENT Aggrieved by the order of the Income Tax AppellateTribunal, Cochin Bench in I.T.A.No.159/(Coch)/2007dated 17.02.2012 the assessee is before us. 2.The assessee is a proprietary concern engagedin purchase of raw cashew nuts from abroad and exportof processed cashew kernels. This appeal pertains tothe assessment year 2003-04. The Assessing Officer(for short “AO”) had made an addition of Rs.23,72,129/-vide Annexure B under Section 92C(4) of the Income Tax Act, 1961 (for short “the Act”) as income from international transactions based on the decision of theTransfer Pricing Officer (TPO) under Section 92CA(3) dated 16.03.2006 at Annexure A, wherein Arm's LengthPrice (ALP) was fixed by the TPO. The appeal beforetheCommissionerofIncomeTax(Appeals), Thiruvananthapuram failed and the assessment of the AOwas confirmed vide Annexure C order dated 23.11.2006. The second appeal preferred by the assessee before the Tribunal also was in vain and the Commissioner's orderwas upheld vide Annexure D order dated 29.07.2011. 3.The main objection raised by the assessee inthis appeal is that being an agricultural commodity,there is no standard bench mark for fixation of price.The ALP for all the transactions were explained withreference to the comparable uncontrolled price methodand similar transactions with unconnected parties. Itis argued that the appellate Tribunal should have foundthat the appellant had not tried to avoid payment ofany tax. The TPO has very conveniently looked intoonly those transactions, which were in favour of theRevenue from out of the data supplied by the appellant. Therefore, the fixation of ALP by TPO is not fair. 4. The following substantial questions of lawarise for consideration: “i) Whether on the facts and circumstances ofthe case the Hon'ble Tribunal was justifiedin sustaining the order of the lowerauthorities for addition of Rs.23,72,139/-under Section 92C(4) as income oninternational transactions ? ii) Whether on the facts and circumstances ofthe case the Hon'ble Tribunal was justifiedin sustaining the order of the assessingthe case the Hon'ble Tribunal was justifiedin sustaining the order of the assessing officer making addition of Rs.23,72,129/-merely picking up some of thosetransactions which were in favour of therevenue?” 5.The Tribunal found that the comparison made bythe TPO of the commodities involved in similarpurchases from other non-associated enterprises, was at variance to the prices at which the appellant hadpurchased the raw-materials. It is then found that thedifference was more than 5%, and therefore, theobjection of the assessee regarding fixation of ALP isnot sustainable. 6.We heard the learned Senior Counsel, Government of India (Taxes) and the learned Counsel for the appellant. officer making addition of Rs.23,72,129/-merely picking up some of thosetransactions which were in favour of therevenue?” 5.The Tribunal found that the comparison made bythe TPO of the commodities involved in similarpurchases from other non-associated enterprises, was at variance to the prices at which the appellant hadpurchased the raw-materials. It is then found that thedifference was more than 5%, and therefore, theobjection of the assessee regarding fixation of ALP isnot sustainable. 6.We heard the learned Senior Counsel, Government of India (Taxes) and the learned Counsel for the appellant. 7. The contention raised by the assessee thatthere was an embargo in referring the issue to the TPOfor reason of the Instructions issued by the CBDT wasdealt with elaborately, both by the first appellateauthority and the Tribunal. Instruction No.3 of theCBDT dated 20.05.2003 required references to the TPO,if the value of international transaction exceeded Rs.5crores. There is, however, no prohibition insofar as the reference being made even when valuation is lower.In the present case, the reference was made with theapproval of the Commissioner of Income Tax. We do notfind any reason to interfere with the said findings ofthe lower authorities. 8. The main objection of the assessee is in the TPOhaving picked up certain transactions for the purposeof fixing ALP. The assessee had produced the tablesshowing the prices of imports and exports with theAssociated Enterprises as also with unconnectedenterprises. The assessee's contention was that incertain cases the import price of the transaction withthe Associated Enterprises was lower than that with theunconnected enterprises. The TPO, however, took onlythose transactions where the import price with theAssociated Enterprises was higher. We cannot butobserve that there was no warrant for the TPO tointerfere with the valuation of the transactions; wherethe assessee had shown lower valuation for imports from the Associated Enterprises, since those were theadmitted price of the assessee itself. 9.In those instances where there was a highervaluation shown in the imports from the AssociatedEnterprises, the ALP was fixed by the AO finding thatthere was a difference of more than 5% with thevaluation of transactions with unconnected enterprises.As has been contended by the assessee, the veryintention of fixation of ALP is to ensure that by meremanipulation of prices ie: showing higher prices forimports and lower for exports, the actual profit in atransaction shall not be suppressed. Thus resulting intax being avoided on the income generated in atransaction with an Associated Enterprise; the benefitof which will flow back to the assessee itself. Theexercise undertaken by the TPO, according to us, wasperfectly in tandem with the intention of theLegislature. There can be no ground taken that therewas a pick and choose adopted by the AO. The ALP had tobe fixed only with respect to those instances ofimports, where the valuation was higher when thetransaction was with an Associated Enterprise than asimilar transaction with unconnected enterprise. ITA.No.99 of 2012 - 7 - In the light of the above, the questions of lawraised are answered in favour of the Revenue andagainst the assessee and the appeal would standrejected, leaving the parties to suffer their costs. Sd/- K.VINOD CHANDRANJUDGE dkr Sd/-ASHOK MENONJUDGE ITA.No.99 of 2012 APPENDIX APPELLANT'S/S ANNEXURES: ANNEXURE-A TRUE COPY OF THE ORDER OF THE TRANSFERPRICING OFFICER UNDER SECTION 92CA(3) DATED16/3/2006 ISSUED TO THE APPELLANT.PRICING OFFICER UNDER SECTION 92CA(3) DATED16/3/2006 ISSUED TO THE APPELLANT. ITA.No.99 of 2012 - 7 - In the light of the above, the questions of lawraised are answered in favour of the Revenue andagainst the assessee and the appeal would standrejected, leaving the parties to suffer their costs. Sd/- K.VINOD CHANDRANJUDGE dkr Sd/-ASHOK MENONJUDGE ITA.No.99 of 2012 APPENDIX APPELLANT'S/S ANNEXURES: ANNEXURE-A TRUE COPY OF THE ORDER OF THE TRANSFERPRICING OFFICER UNDER SECTION 92CA(3) DATED16/3/2006 ISSUED TO THE APPELLANT.PRICING OFFICER UNDER SECTION 92CA(3) DATED16/3/2006 ISSUED TO THE APPELLANT. ANNEXURE-BTRUE COPY OF THE ASSESSMENT ORDER DATED29/3/2006 FOR THE YEAR 2003-04 ISSUED BYTHE DEPUTY COMMISSIONER OF INCOME TAX TOTHE APPELLANT.29/3/2006 FOR THE YEAR 2003-04 ISSUED BYTHE DEPUTY COMMISSIONER OF INCOME TAX TOTHE APPELLANT. ANNEXURE-CTRUE COPY OF THE APPELLATE ORDER DATED23/11/2006 FOR THE YEAR 2003-04 ISSUED BYTHE COMMISSIONER OF INCOME TAX (APPEALS) TOTHE APPELLANT.23/11/2006 FOR THE YEAR 2003-04 ISSUED BYTHE COMMISSIONER OF INCOME TAX (APPEALS) TOTHE APPELLANT. ANNEXURE-DTRUE COPY OF THE TRIBUNAL ORDER DATED29/7/2011 ISSUED BY THE TRIBUNAL TO THEAPPELLANT.29/7/2011 ISSUED BY THE TRIBUNAL TO THEAPPELLANT. ANNEXURE-ETRUE COPY OF THE TRIBUNAL ORDER DATED9/8/2011 REFERRING THE MATTER TO THE 3RDMEMBER UNDER SECTION 255(4) OF THE INCOMETAX ACT ISSUED TO THE APPELLANT.9/8/2011 REFERRING THE MATTER TO THE 3RDMEMBER UNDER SECTION 255(4) OF THE INCOMETAX ACT ISSUED TO THE APPELLANT. ANNEXURE-FTRUE COPY OF THE ORDER DATED 6/1/2012 OFTHE 3RD MEMBER ISSUED TO THE APPELLANT.THE 3RD MEMBER ISSUED TO THE APPELLANT. ANNEXURE-GTRUE COPY OF THE TRIBUNAL ORDER DATED17/2/2012 ISSUED BY THE TRIBUNAL TO THEAPPELLANT.17/2/2012 ISSUED BY THE TRIBUNAL TO THEAPPELLANT.