The Commissioner Of Income Tax, Alwar v. M/S Sakata Inx (India) Limited, 1245/1246, Riico Indl. Area,Bhiwadi, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 71 / 2015 The Commissioner of Income Tax, Alwar. ----Appellant Versus M/S Sakata Inx (India) Limited, 1245/1246, RIICO Indl. Area,Bhiwadi, Alwar. ----Respondent Connected With D.B. Income Tax Appeal No. 128 / 2016 Pr Commissioner of Income Tax, Alwar. ----Appellant Versus M/S Sakata Inx (India) Limited, B-1245-46, Phase-I, Industrial Area Ghatal, Bhiwadi. ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo Jain with Ms. Shiva Goyal.For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana. _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHOrder 26/07/2017 1.In both the appeals, common questions of law and facts areinvolved, hence they are decided by this common judgment. 2.By way of these appeals, the appellant has challenged thejudgment and order of the Tribunal whereby the tribunal hasdismissed the appeals of the department confirming order ofCIT(A) which has modified the order of AO. 3.This Court admitting the appeal on 11.01.2017, framed the following substantial questions of law:- Income Tax Appeal No.71/2015 “(i)Whether the Tribunal was legally justified indeleting the addition of Rs.1,02,91,000/- made onaccount of adjustment of the Arm’s Length Price of theinternational transaction on payment of royalty byassessee to its Associated Enterprise, from the incomeof the assessee u/s 92C? (ii)Whether the Tribunal was legally justified inholding the working of operating margin at 5.18% asagainst 7.85% made by the TPO and also holding thenon-applicability of the CUP method without anyjustification and reasons?” Income Tax Appeal No.128/2016 “Whether the Tribunal was legally justified inupholding the non-applicability CUP method anddeletingtheadditionofadjustmentofRs.1,49,99,000/- made on account of adjustment ofthe Arm’s Length Price of the International transactionon payment of royalty by assessee to its AssociatedEnterprise, from the income of the assessee u/s 92C? (ii)Whether the Tribunal was legally justified indeleting the addition of RS.1,49,99,000/- by holdingthat the Comparable Uncontrolled Price method (CUP)was not applicable?” 4.The issue is now covered by the decision of this court inIncome Tax Appeal No.72/2015 (CIT Alwar Vs. M/S Sakata Inx(India) Ltd. decided on 18.05.2017, where while deciding theissue, this court held as under:- "4.Counsel for the appellant has taken us to theorder of the AO and contended that comparison whichhas been made by the AO in its order which isreproduced as under:- “With regard to the identification of comparables theexplanation furnished by the assessee was consideredand properly examined. The same is summarisedbelow: (1) Camex Intermediaries Ltd.:The business activitiesof this company comprised of 2 segments in F.Y. 2002-03, out of which one segment was manufacturing ofdyes and pigments’. The segmental data for this company was available for F.Y. 02-03 and accordinglythe assessee had identified it as a comparable. However, the date for 03-04 and 04-05 were notavailable on the date, of the study as well as on date.As mentioned earlier, the comparable companieswhose contemporary data was available have beentaken in the fresh analysis as it best describes theeconomic scenario and identical market condition.Hence, the margin of this company is not consideredfor benchmarking the margins of the assessee. (1) Camex Intermediaries Ltd.:The business activitiesof this company comprised of 2 segments in F.Y. 2002-03, out of which one segment was manufacturing ofdyes and pigments’. The segmental data for this company was available for F.Y. 02-03 and accordinglythe assessee had identified it as a comparable. However, the date for 03-04 and 04-05 were notavailable on the date, of the study as well as on date.As mentioned earlier, the comparable companieswhose contemporary data was available have beentaken in the fresh analysis as it best describes theeconomic scenario and identical market condition.Hence, the margin of this company is not consideredfor benchmarking the margins of the assessee. (2) Atul Ltd.: This company was proposed to berejected on the ground of significant related partytransactions, as the financial information would not beconsidering as reasonable representing financialresults of the uncontrolled transactions. The assesseeclaimed that it had adopted the rejection criteria offiltering out companies which had related partytransactions in excess of 25%. As per the figuresavailable with the assessee, this company had 14.26%related party transactions as a percentage of sales(Total 99.75 crore related party transaction as againstsales of Rs.699.38 crore). India assessee has quoted the ITAT (Delhi) decision inthe case of Sony India (Pvt.) Ltd. which hasobserved….” An entity can be taken as uncontrolled ifits related party transactions do not exceed 10 to 15%of total revenue...” It was claimed by the assessee thatthe comparable company’s related party transactiondid not exceed 15% of sales, the same cannot berejected on account of related party transactions. However, the observation regarding 10-15% relatedparty transaction squarely covers the case of thecompany which, according to the assessee, has14.26% (i.e. above 10% and almost 15%) relatedparty transaction. As per the date for March 2008,against total income of Rs. 995.43 crore. M/s Atul Ltd.had sale of goods of Rs. 153.57 crore to relatedparties, apart from other related party transactions i.e.it exceeded 15% of total income. Hence it is inferredthat M/s Atul Ltd. has significant related partyTransactions and hence the same is rejected. Further,the products of M/s Atul Ltd. show that it has a variedgroup of products, such as Sulpha drug intermediates,pharmaceutical intermediates, disinfectants etc. Thisclearly chows that even the product range of thiscompany are not comparable.. CompaniesaddedforbenchmarkingManufacturing function margin:. The assessee deals in printing inks’ with NIC Code24222. However a search on CMIE (Prowess) database revealed that 2 companies had not been included inthe list of comparables. While M/s Indian Toners &Developers Ltd. had been taken out by the assesseeon the basis of non-comparable product’, the companyM/s Rainbow Ink & Varnish Manufacturing Co. Ltd. hadnot been identified in the T.P. Study. Accordingly, it hadbeen proposed to include these two companies ascomparables. (1) M/s Indian Toners & Developers Ltd:The assesseeclaimed that this company manufactures toners anddevelopers for photocopies, laser printers and digitalprinters. The same was not considered by the assesseeto be comparable to the printing inks manufactured bySakata India. However, it is seen that the other companies whichhave been taken as comparables deal in dyes andpigments. As far as product similarity is concernedtoners for laser printers, digital printers andphotocopiers would be nearer to the products of theassessee. Further, this company as well as theassessee both are under the same NIC Code 24222.Hence, assessee’s objection is not considered valid,and this company needs to be included as acomparable.(2) M/s Rainbow Ink & VarnishManufacturing (1) M/s Indian Toners & Developers Ltd:The assesseeclaimed that this company manufactures toners anddevelopers for photocopies, laser printers and digitalprinters. The same was not considered by the assesseeto be comparable to the printing inks manufactured bySakata India. However, it is seen that the other companies whichhave been taken as comparables deal in dyes andpigments. As far as product similarity is concernedtoners for laser printers, digital printers andphotocopiers would be nearer to the products of theassessee. Further, this company as well as theassessee both are under the same NIC Code 24222.Hence, assessee’s objection is not considered valid,and this company needs to be included as acomparable.(2) M/s Rainbow Ink & VarnishManufacturing Co. Ltd: It was accepted by the assessee that thiscompany is engaged in manufacture of printing ink.Hence, this is also considered as a comparable. Companies identified for Distribution function: Out of the 5 comparables identified for distributionfunction, the following 2 companies did not havefinancial date for March 2005: (1) Madhya Bharat Papers Ltd. (2) Multiflex Laxmi Print Ltd. The other companies are: (1) DIC India Ltd: This Company was proposed to berejected on account of having related partytransactions. The assessee objected by claiming thatDIC had only 6.27% related party transactions ascompared to its sales, and hence this cannot beconsidered significant. On the other hand, this company had been taken outin the manufacturing function on account of non-comparable products (by the assessee). However, itwas seen that this also dealing in printing inks. Hence,this is considered a Comparable under both thesegments. (2) Metrochem Industries Ltd.: It was proposed to beexcluded on account of product differences. The assessee has objected to the same by claiming thatthis company is dealing in dyes intermediates andhence should be considered. It is observed that thiscompany has been taken as a comparable in themanufacturing segment as well, and hence this isconsidered as a comparable for both segments.” 5.The conclusion which has been reached by theAO ought not to have been disturbed by the tribunaland comparison which has been made and amountwhich has been deducted which reads as under:-"Accordingly, the Arm's Length Price of the import ofraw material and spares by the assesssee from itsAssociatedEnterprisesisconsideredatRs.6,38,06,451/- as against Rs.7,83,58,988/- declaredin Form 3CEB, after makingadjustment ofRs.1,45,52,537/-/. The Assessing Officer shall addthis amount (Rs.1,45,52,537/-) to the income of theassessee." 6.She further contended that tribunal hascommitted an error in holding against the department. 7.Counsel for the respondent Mr. Jhanwar hasrelied upon the decision of Bombay High Court inCommissioner of Income Tax vs. General Atlantic (P)Ltd. (2016) 384 ITR 271 (Bom) wherein it has beenheld as under:- 6.She further contended that tribunal hascommitted an error in holding against the department. 7.Counsel for the respondent Mr. Jhanwar hasrelied upon the decision of Bombay High Court inCommissioner of Income Tax vs. General Atlantic (P)Ltd. (2016) 384 ITR 271 (Bom) wherein it has beenheld as under:- "On the aforesaid analysis, the Tribunal found that ithad in the case of Carlyle India Advisors (P.) Ltd.(supra) on detailed examination found only one of theeight comparables selected by the Revenue i.e. IDC(India) Ltd. applicable to arrive at the ALP of itsservices. The Revenue in the case of the respondent-assessee had selected the same eight comparables asselected in the case of Carlyle India Advisors (P.) Ltd.(supra). However the Tribunal had in this case alsoadopted only IDC (India) Ltd. as comparable as in itsdecision in Carlyle India Advisors (P.) Ltd. (supra). Itmust be noted that the figures of IDC (India) Ltd. toarrive at the ALP were of the subject Assessment Year.It may also be pointed out that the decision of theTribunal in case of Carlyle India Advisors (P.) Ltd.(supra) was the subject matter to challenge by theRevenue before this Court. This Court by an orderdated 22nd February, 2013 refused to entertain theappeal of the Revenue CIT v. Carlyle India Advisors(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 to beadopted to determine the ALP as the basis of theactivity conducted by the respondent-assessee isessentially a finding of fact. The view taken by the Tribunal is a reasonable and possible view. Moreover ithas not been shown us to be in any manner perverse.Thus the question as raised does not give rise to anysubstantial questions 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) 236wherein it has been held as under:- 5. (a) We found that during the subject AssessmentYear, the Respondent- Assessee was providing servicesof Broking Services, Business Support Services andInvestment advisory services to its customers. TheTPO had adopted a list of comparable companies whichwere primarily engaged in providing services asmerchant banker as comparable to determine the ALPin respect of the Investment Advisory Servicesrendered by it to its AEs. The companies selected bythe TPO were identical to one selected in Carlyle IndiaAdvisors (P) Ltd., The aforesaid decision of the TPO inCarlyle (I) Advisors (P.) Ltd. v. Asstt. CIT [2012] 24taxmann.com 176 (Mum.) was a subject matter ofconsideration by the Tribunal in ITA No.7901/Mum/2011. The Tribunal after examining thebusiness of each of the individual comparableconcluded that they were different from that of theservices provided by Carlyle India Advisors (P.) Ltd.{supra). This is so as the comparable used were in themerchant banking business while M/s. Carlyle India(supra) just like the Respondent-Assessee were inInvestment Advisory Services. The Revenue carriedthe issue from the order of the Tribunal rendered on4th April, 2012 in Carlyle India Advisors (P.) Ltd.{supra) to this Court in appeal. The appeal being {CITv.CarlyleIndiaAdvisors(P.)Ltd.MANU/MH/0544/2013 : [2013] 32 taxmann.com23 (Bom.)) - wherein this Court refused to entertainthe Revenue's appeal as is reflected in the order dated22nd February, 2013. Thus, we see no reason tointerfere with the impugned order of the Tribunal; (b) In the circumstance, the Tribunal in the impugnedorder adopted the same comparable it had adopted inthe case of Carlyle India Advisors (P.) Ltd. (supra) forthe purpose of arriving at the ALP in respect of itsInternational Transaction; (b) In the circumstance, the Tribunal in the impugnedorder adopted the same comparable it had adopted inthe case of Carlyle India Advisors (P.) Ltd. (supra) forthe purpose of arriving at the ALP in respect of itsInternational Transaction; (c) Further, Mr. Kotangale, learned Counsel appearingfor the Revenue very fairly points out that a similarissue as arising herein, was a subject matter ofconsideration by this Court in Income (CIT v. GeneralAtlantic (P.) Ltd. MANU/MH/0759/2016: [2016] 68taxmann.com 88 (Bom.)). In the above case also theAssessee was engaged in the business of advisory services like the Respondent here and the TPO hadrelied upon the comparable selected by him in the caseof Carlyle India Advisors (P.) Ltd. {supra) to determinethe ALP in the case of Assessee therein i.e. GeneralAtlantic (P.) Ltd. {supra). The Tribunal allowed theappeal in General Atlantic (P.) Ltd. {supra) by followingits decision in Carlyle India Advisory (P.) Ltd. (supra)just as the Tribunal has done in the Respondent'sappeal by the impugned order; and (d) Accordingly, question (c) does not give rise to anysubstantial question of law. Thus not entertained. 8.The issues are answered in favour of theassessee and against the Department." 5.In view of the above, both the issues are answered in favour of assessee against the department. 6.The appeals stand dismissed. A Copy of this judgment be placed in each file. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Mohit Grover Sr. No.138-139