Pr. Commissioner Of Income Tax, Alwar v. M/S. Sakata Inx (India) Limited, B-1245-1246, Riico Industrial Area, Bhiwadi, Alwar (Raj

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 285 / 2017 Pr. Commissioner of Income Tax, Alwar ----Appellant Versus M/s. Sakata Inx (India) Limited, B-1245-1246, RIICO Industrial Area, Bhiwadi, Alwar (Raj.) ----Respondent _____________________________________________________ For Appellant(s) : Mr. Gaurav Gaur for Mrs. Parinitoo JainFor Respondent(s) : Mr. Sandeep Taneja _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 09/11/2017 1. Defects are waived. 2.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has dismissedthe appeal of the department. 3.Counsel for the department has framed following substantialquestion of law:- “1. Whether the Tribunal was legallyjustified in upholding the non-applicabilityof CUP method and deleting the additionof Rs.2,30,42,000/- made on account ofadjustment of the Arm’s Length price ofthe International transaction on paymentof royalty by assessee to its AssociatesEnterprise, from the income of theassessee u/s 92C? 2. Whether the Tribunal/CIT(A) waslegally justified in deleting the addition ofRs.1,65,25,000/- by holding that the Comparable Uncontrolled Price method(CUP) was not applicable? 3. Whether the Tribunal was legallyjustified in adopting an aggregatedapproach rather than a segregatedapproach, which is against the TransferPricing Guidelines & provisions of Section92, which stipulates that each transactionis to be separately benchmarked?” 4.The facts of the case are that the assessee has declaredbook profit u/s 115JB at Rs.17,31,86,774/- for MAT purposes. Thereturn of income was processed u/s 143(1) of the Act on26.10.2011. The case was selected for scrutiny under CASS. Thestatutory notice u/s 143(2) of the Income Tax Act, 1961 wasissued on 19.9.2012 which was duly served by speed post AD. Anotice u/s 142(1) was issued on 16.9.2013 alongwith detailedquestioner. In response to this notice and other further notices,Sh. M.L. Agarwal, FCA as AR of the assessee attended from timeto time as per the entries of order sheet and filed details anddocuments as placed on record. 4.1The assessee company is a 100% subsidiary of Sakata InxCorporation, Japan. During the year under consideration theassessee Company was engaged in manufacturing & trading ofprinting Inks and allied products. The assessee Companymanufactures printing inks for packing and printing Industry, thereis no change in the maintenance of accounts, business activitiesetc. of the assessee during the years, as compared to thepreceding year. The assessee continues to derive income fromsuch activities. 4.2The accounts of the assessee are audited. The audit reportsin Form No.3CD, 3CEB and other required details were producedby the assessee. The assessee has maintained the Books ofAccount and other related records on computer system the booksof accounts maintained by the assessee comprise cash book, bankbook, stock registered, R.G. Register, bills/vouchers etc. alongwithbills/vouchers. The books of accounts and other documents wereproduced for verification which was examined on test check basis. 5.However, in view of the decision of this court in ITANo.170/2017 (Pr. Commissioner of Income Tax vs. M/s. Sakata Inx(India) Ltd.) decided on 8.8.2017 where considering the case ofthe same assessee, this court observed as under:- “3. However, now issue is covered by thedecision of this Court in the case of sameassessee in D.B. Income Tax Appeal No.71/2015 decided on 26[th]July, 2017wherein it has been held as under:- “4. The issue is now covered by thedecision of this court in Income Tax AppealNo.72/2015 (CIT Alwar Vs. M/S Sakata Inx(India) Ltd. decided on 18.05.2017, wherewhile deciding the issue, this court held asunder:- 5.However, in view of the decision of this court in ITANo.170/2017 (Pr. Commissioner of Income Tax vs. M/s. Sakata Inx(India) Ltd.) decided on 8.8.2017 where considering the case ofthe same assessee, this court observed as under:- “3. However, now issue is covered by thedecision of this Court in the case of sameassessee in D.B. Income Tax Appeal No.71/2015 decided on 26[th]July, 2017wherein it has been held as under:- “4. The issue is now covered by thedecision of this court in Income Tax AppealNo.72/2015 (CIT Alwar Vs. M/S Sakata Inx(India) Ltd. decided on 18.05.2017, wherewhile deciding the issue, this court held asunder:- "4. Counsel for the appellant has taken usto the order of the AO and contended thatcomparison which has been made by theAO in its order which is reproduced asunder:- “With regard to the identification ofcomparables the explanation furnished bythe assessee was considered and properlyexamined. The same is summarisedbelow: (1)Camex Intermediaries Ltd.:Thebusiness activities of this companycomprised of 2 segments in F.Y. 2002-03,out of which one segment wasmanufacturing of dyes and pigments’. Thesegmental data for this company wasavailable for F.Y. 02-03 and accordingly the assessee had identified it as acomparable. However, the date for 03-04 and 04-05were not available on the date, of thestudy as well as on date. As mentionedearlier, the comparable companies whosecontemporary data was available havebeen taken in the fresh analysis as it bestdescribes the economic scenario andidentical market condition. Hence, themargin of this company is not consideredfor benchmarking the margins of theassessee. (2) Atul Ltd.:This company was proposedto be rejected on the ground of significantrelated party transactions, as the financialinformation would not be considering asreasonable representing financial resultsof the uncontrolled transactions. Theassessee claimed that it had adopted therejection criteria of filtering out companieswhich had related party transactions inexcess of 25%. As per the figuresavailable with the assessee, this companyhad 14.26% related party transactions asa percentage of sales (Total 99.75 crorerelated party transaction as against salesof Rs.699.38 crore). India assessee has quoted the ITAT (Delhi)decision in the case of Sony India (Pvt.)Ltd. which has observed….” An entity canbe taken as uncontrolled if its relatedparty transactions do not exceed 10 to15% of total revenue...” It was claimed bythe assessee that the comparablecompany’s related party transaction didnot exceed 15% of sales, the same cannotbe rejected on account of related partytransactions. However, the observation regarding 10-15% related party transaction squarelycovers the case of the company which,according to the assessee, has 14.26%(i.e. above 10% and almost 15%) relatedparty transaction. As per the date forMarch 2008, against total income of Rs.995.43 crore. M/s Atul Ltd. had sale ofgoods of Rs. 153.57 crore to relatedparties, apart from other related partytransactions i.e. it exceeded 15% of totalincome. Hence it is inferred that M/s AtulLtd. has significant related partyTransactions and hence the same is rejected. Further, the products of M/s AtulLtd. show that it has a varied group ofproducts, such as Sulpha drugintermediates,pharmaceuticalintermediates, disinfectants etc. Thisclearly chows that even the product rangeof this company are not comparable.. Companies added for benchmarkingManufacturing function margin:. rejected. Further, the products of M/s AtulLtd. show that it has a varied group ofproducts, such as Sulpha drugintermediates,pharmaceuticalintermediates, disinfectants etc. Thisclearly chows that even the product rangeof this company are not comparable.. Companies added for benchmarkingManufacturing function margin:. The assessee deals in printing inks’ withNIC Code 24222. However a search onCMIE (Prowess) database revealed that 2companies had not been included in thelist of comparables. While M/s IndianToners & Developers Ltd. had been takenout by the assessee on the basis of non-comparable product’, the company M/sRainbow Ink & Varnish Manufacturing Co.Ltd. had not been identified in the T.P.Study. Accordingly, it had been proposedto include these two companies ascomparables. (1) M/s Indian Toners & Developers Ltd:The assessee claimed that this companymanufactures toners and developers forphotocopies, laser printers and digitalprinters. The same was not considered bythe assessee to be comparable to theprinting inks manufactured by SakataIndia. However, it is seen that the othercompanies which have been taken ascomparables deal in dyes and pigments.As far as product similarity is concernedtoners for laser printers, digital printersand photocopiers would be nearer to theproducts of the assessee. Further, thiscompany as well as the assessee both areunder the same NIC Code 24222. Hence,assessee’s objection is not consideredvalid, and this company needs to beincluded as a comparable.(2) M/s RainbowInk & Varnish Manufacturing Co. Ltd: Itwas accepted by the assessee that thiscompany is engaged in manufacture ofprinting ink. Hence, this is also consideredas a comparable. Companies identified for Distributionfunction: Out of the 5 comparables identified fordistribution function, the following 2companies did not have financial date for March 2005: (1) Madhya Bharat Papers Ltd.(2) Multiflex Laxmi Print Ltd.The other companies are: (1) DIC India Ltd:This Company wasproposed to be rejected on account ofhaving related party transactions. Theassessee objected by claiming that DIChad only 6.27% related party transactionsas compared to its sales, and hence thiscannot be considered significant. On the other hand, this company had beentaken out in the manufacturing function onaccount of non-comparable products (bythe assessee). However, it was seen thatthis also dealing in printing inks. Hence,this is considered a Comparable under boththe segments. (2) Metrochem Industries Ltd.: It wasproposed to be excluded on account ofproduct differences. The assessee hasobjected to the same by claiming that thiscompany is dealing in dyes intermediatesand hence should be considered. It isobserved that this company has beentaken as a comparable in themanufacturing segment as well, and hencethis is considered as a comparable for bothsegments.” 5. The conclusion which has been reachedby the AO ought not to have beendisturbed by the tribunal and comparisonwhich has been made and amount whichhas been deducted which reads as under:- "Accordingly, the Arm's Length Price of theimport of raw material and spares by theassesssee from its Associated Enterprisesis considered at Rs.6,38,06,451/- asagainst Rs.7,83,58,988/- declared in Form3CEB, after makingadjustment ofRs.1,45,52,537/-/. The Assessing Officershall add this amount (Rs.1,45,52,537/-)to the income of the assessee." 6. She further contended that tribunal hascommitted an error in holding against thedepartment. 7. Counsel for the respondent Mr. Jhanwarhas relied upon the decision of BombayHigh Court in Commissioner of Income Taxvs. General Atlantic (P) Ltd. (2016) 384ITR 271 (Bom) wherein it has been held as under:- "Accordingly, the Arm's Length Price of theimport of raw material and spares by theassesssee from its Associated Enterprisesis considered at Rs.6,38,06,451/- asagainst Rs.7,83,58,988/- declared in Form3CEB, after makingadjustment ofRs.1,45,52,537/-/. The Assessing Officershall add this amount (Rs.1,45,52,537/-)to the income of the assessee." 6. She further contended that tribunal hascommitted an error in holding against thedepartment. 7. Counsel for the respondent Mr. Jhanwarhas relied upon the decision of BombayHigh Court in Commissioner of Income Taxvs. General Atlantic (P) Ltd. (2016) 384ITR 271 (Bom) wherein it has been held as under:- "On the aforesaid analysis, the Tribunalfound that it had in the case of CarlyleIndia Advisors (P.) Ltd. (supra) on detailedexamination found only one of the eightcomparables selected by the Revenue i.e.IDC (India) Ltd. applicable to arrive at theALP of its services. The Revenue in thecase of the respondent-assessee hadselected the same eight comparables asselected in the case of Carlyle IndiaAdvisors (P.) Ltd. (supra). However theTribunal had in this case also adopted onlyIDC (India) Ltd. as comparable as in itsdecision in Carlyle India Advisors (P.) Ltd.(supra). It must be noted that the figuresof IDC (India) Ltd. to arrive at the ALPwere of the subject Assessment Year. Itmay also be pointed out that the decisionof the Tribunal in case of Carlyle IndiaAdvisors (P.) Ltd. (supra) was the subjectmatter to challenge by the Revenue beforethis Court. This Court by an order dated22nd February, 2013 refused to entertainthe appeal of the Revenue CIT v. CarlyleIndiaAdvisors(P.)Ltd.MANU/MH/0544/2013: [2013] 357ITR 584/214 Taxman 492/32 taxmann.com23 (Bom.). 8. We note that finding of the comparableto be adopted to determine the ALP as thebasis of the activity conducted by therespondent-assessee is essentially afinding of fact. The view taken by theTribunal is a reasonable and possible view.Moreover it has not been shown us to be inany manner perverse. Thus the question asraised does not give rise to any substantialquestions of law." 7.1He has also relied upon the decision ofCommissioner of Income Tax-3 vs.Goldman Sachs (India) Securities (P) Ltd.(2016) 290 CTR (Bom) 236 wherein it hasbeen held as under:- 5. (a) We found that during the subjectAssessment Year, the Respondent-Assessee was providing services of BrokingServices, Business Support Services andInvestment advisory services to itscustomers. The TPO had adopted a list ofcomparable companies which wereprimarily engaged in providing services asmerchant banker as comparable to determine the ALP in respect of theInvestment Advisory Services rendered byit to its AEs. The companies selected by theTPO were identical to one selected inCarlyle India Advisors (P) Ltd., Theaforesaid decision of the TPO in Carlyle (I)Advisors (P.) Ltd. v. Asstt. CIT [2012] 24taxmann.com 176 (Mum.) was a subjectmatter of consideration by the Tribunal inITA No. 7901/Mum/2011. The Tribunalafter examining the business of each of theindividual comparable concluded that theywere different from that of the servicesprovided by Carlyle India Advisors (P.) Ltd.{supra). This is so as the comparable usedwere in the merchant banking businesswhile M/s. Carlyle India (supra) just liketheRespondent-AssesseewereinInvestment Advisory Services. TheRevenue carried the issue from the order ofthe Tribunal rendered on 4th April, 2012 inCarlyle India Advisors (P.) Ltd. {supra) tothis Court in appeal. The appeal being {CITv.CarlyleIndiaAdvisors(P.)Ltd.MANU/MH/0544/2013: [2013] 32taxmann.com 23 (Bom.)) - wherein thisCourt refused to entertain the Revenue'sappeal as is reflected in the order dated22nd February, 2013. Thus, we see noreason to interfere with the impugnedorder of the Tribunal; (b) In the circumstance, the Tribunal in theimpugned order adopted the samecomparable it had adopted in the case ofCarlyle India Advisors (P.) Ltd. (supra) forthe purpose of arriving at the ALP inrespect of its International Transaction; (c) Further, Mr. Kotangale, learned Counselappearing for the Revenue very fairlypoints out that a similar issue as arisingherein, was a subject matter ofconsideration by this Court in Income (CITv.GeneralAtlantic(P.)Ltd.MANU/MH/0759/2016: [2016] 68taxmann.com 88 (Bom.)). In the abovecase also the Assessee was engaged in thebusiness of advisory services like theRespondent here and the TPO had reliedupon the comparable selected by him inthe case of Carlyle India Advisors (P.) Ltd.{supra) to determine the ALP in the case ofAssessee therein i.e. General Atlantic (P.)Ltd. {supra). The Tribunal allowed the appeal in General Atlantic (P.) Ltd. {supra)by following its decision in Carlyle IndiaAdvisory (P.) Ltd. (supra) just as theTribunal has done in the Respondent'sappeal by the impugned order; and(d) Accordingly, question (c) does not giverise to any substantial question of law.Thus not entertained. 8. The issues are answered in favour ofthe assessee and against the Department." 6.Further, in view of another decision of this court in ITANo.72/2015 (CIT, Alwar vs. M/s. Sakata Inx (India) Ltd.) decidedon 18.5.2017 wherein it has been observed as under:- "7. Counsel for the respondent Mr.Jhanwar has relied upon the decision ofBombay High Court in Commissioner ofIncome Tax vs. General Atlantic (P) Ltd.(2016) 384 ITR 271 (Bom) wherein it hasbeen held as under:- "On the aforesaid analysis, the Tribunalfound that it had in the case of Carlyle IndiaAdvisors (P.) Ltd. (supra) on detailedexamination found only one of the eightcomparables selected by the Revenue i.e.IDC (India) Ltd. applicable to arrive at theALP of its services. The Revenue in the caseof the respondent-assessee had selected thesame eight comparables as selected in thecase of Carlyle India Advisors (P.) Ltd.(supra). However the Tribunal had in thiscase also adopted only IDC (India) Ltd. ascomparable as in its decision in Carlyle IndiaAdvisors (P.) Ltd. (supra). It must be noted that the figures of IDC (India) Ltd. to arriveat the ALP were of the subject AssessmentYear. It may also be pointed out that thedecision of the Tribunal in case of CarlyleIndia Advisors (P.) Ltd. (supra) was thesubject matter to challenge by the Revenuebefore this Court. This Court by an orderdated 22nd February, 2013 refused toentertain the appeal of the Revenue CIT v.CarlyleIndiaAdvisors(P.) Ltd. MANU/MH/0544/2013: [2013] 357 ITR584/214 Taxman 492/32 taxmann.com 23(Bom.). 8. We note that finding of the comparable tobe adopted to determine the ALP as thebasis of the activity conducted by therespondent-assessee is essentially a findingof fact. The view taken by the Tribunal is areasonable and possible view. Moreover ithas not been shown us to be in any mannerperverse. Thus the question as raised doesnot give rise to any substantial questions oflaw." 7.1He has also relied upon the decisionof Commissioner of Income Tax-3 vs.Goldman Sachs (India) Securities (P) Ltd.(2016) 290 CTR (Bom) 236 wherein it hasbeen held as under:- Ltd. MANU/MH/0544/2013: [2013] 357 ITR584/214 Taxman 492/32 taxmann.com 23(Bom.). 8. We note that finding of the comparable tobe adopted to determine the ALP as thebasis of the activity conducted by therespondent-assessee is essentially a findingof fact. The view taken by the Tribunal is areasonable and possible view. Moreover ithas not been shown us to be in any mannerperverse. Thus the question as raised doesnot give rise to any substantial questions oflaw." 7.1He has also relied upon the decisionof Commissioner of Income Tax-3 vs.Goldman Sachs (India) Securities (P) Ltd.(2016) 290 CTR (Bom) 236 wherein it hasbeen held as under:- 5. (a) We found that during the subjectAssessment Year, the Respondent- Assesseewas providing services of Broking Services,Business Support Services and Investmentadvisory services to its customers. The TPOhad adopted a list of comparable companieswhich were primarily engaged in providingservices as merchant banker as comparableto determine the ALP in respect of theInvestment Advisory Services rendered byit to its AEs. The companies selected by theTPO were identical to one selected inCarlyle India Advisors (P) Ltd., Theaforesaid decision of the TPO in Carlyle (I)Advisors (P.) Ltd. v. Asstt. CIT [2012] 24taxmann.com 176 (Mum.) was a subjectmatter of consideration by the Tribunal inITA No. 7901/Mum/2011. The Tribunal afterexamining the business of each of theindividual comparable concluded that theywere different from that of the servicesprovided by Carlyle India Advisors (P.) Ltd. {supra). This is so as the comparable usedwere in the merchant banking businesswhile M/s. Carlyle India (supra) just like theRespondent-Assessee were in InvestmentAdvisory Services. The Revenue carried theissue from the order of the Tribunalrendered on 4th April, 2012 in Carlyle IndiaAdvisors (P.) Ltd. {supra) to this Court inappeal. The appeal being {CIT v. CarlyleIndiaAdvisors(P.) Ltd. MANU/MH/0544/2013: [2013] 32taxmann.com 23 (Bom.)) - wherein thisCourt refused to entertain the Revenue'sappeal as is reflected in the order dated22nd February, 2013. Thus, we see noreason to interfere with the impugned orderof the Tribunal; (b) In the circumstance, the Tribunal in theimpugned order adopted the samecomparable it had adopted in the case ofCarlyle India Advisors (P.) Ltd. (supra) forthe purpose of arriving at the ALP in respectof its International Transaction; (c) Further, Mr. Kotangale, learned Counselappearing for the Revenue very fairly pointsout that a similar issue as arising herein,was a subject matter of consideration bythis Court in Income (CIT v. GeneralAtlantic (P.) Ltd.MANU/MH/0759/2016:[2016] 68 taxmann.com 88 (Bom.)). In theabove case also the Assessee was engagedin the business of advisory services like theRespondent here and the TPO had reliedupon the comparable selected by him in thecase of Carlyle India Advisors (P.) Ltd.{supra) to determine the ALP in the case ofAssessee therein i.e. General Atlantic (P.)Ltd. {supra). The Tribunal allowed theappeal in General Atlantic (P.) Ltd. {supra)by following its decision in Carlyle IndiaAdvisory (P.) Ltd. (supra) just as theTribunal has done in the Respondent'sappeal by the impugned order; and (d) Accordingly, question (c) does not giverise to any substantial question of law. Thusnot entertained.” 7.Hence, no substantial question of law arises. 8.The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. Brijesh 39.