The Pr. Commissioner Of Income Tax-4 v. Wika Instruments India Pvt. Ltd

dik IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1141 OF 2016 The Pr. Commissioner of Income Tax-4 vsWika Instruments India Pvt. Ltd. ...Appellant ...Respondent. ..... Mr Suresh Kumar for the Appellant. ..... CORAM : AKIL KURESHI & B.P.COLABAWALLA, JJ. FEBRUARY 13, 2019. P.C. : This appeal is filed by the Revenue to challenge the Judgment of Income Tax Appellate Tribunal. Learned counsel for theRevenue has filed reframed questions of law for our consideration. These questions read as under; “(1) Whether on the facts and circumstances of the case, the Hon'ble ITAT isjustified in excluding M/s Schrader Duncan Ltd. as comparable ongrounds that the products of the company and assessee are differentwithout appreciating that the assessee had applied transactional netmargin method (TNMM) as Most Appropriate Method (MAM) whichdoes not require product similarity but comparability is analysed on thebasis of Functions performed, Assets employed and Risks taken (FAR)as per Rule 10B(2) and the assessee itself had taken other companies ascomparables which only had similar functions as that of the assessee anddid not have the same products as that of the assessee as is evident fromthe description of final comparables by the assessee as given inAnnexure-5 of its Transfer Pricing Study Report?justified in excluding M/s Schrader Duncan Ltd. as comparable ongrounds that the products of the company and assessee are differentwithout appreciating that the assessee had applied transactional netmargin method (TNMM) as Most Appropriate Method (MAM) whichdoes not require product similarity but comparability is analysed on thebasis of Functions performed, Assets employed and Risks taken (FAR)as per Rule 10B(2) and the assessee itself had taken other companies ascomparables which only had similar functions as that of the assessee anddid not have the same products as that of the assessee as is evident fromthe description of final comparables by the assessee as given inAnnexure-5 of its Transfer Pricing Study Report?(2) Whether on the facts and circumstances of the case, the Hon'ble ITAT isjustified in excluding M/s Shrander Duncan Limited as comparable ongrounds that the company is functionally different without appreciatingthat the assessee itself had selected the company as comparable injustified in excluding M/s Shrander Duncan Limited as comparable ongrounds that the company is functionally different without appreciatingthat the assessee itself had selected the company as comparable in Pg 1 of 5 Transfer Pricing Study Report? 3) Whether on the facts and circumstances of the case, the Hon'ble ITAT isjustified in excluding M/s Areva T & D as comparable on grounds thatthe turnover of the company is very high as compared to that of theassessee company without appreciating the turnover is not one of thecriterion for judging the comparability as per Rule 10B(2) of theIncome Tax Rules, 1962?justified in excluding M/s Areva T & D as comparable on grounds thatthe turnover of the company is very high as compared to that of theassessee company without appreciating the turnover is not one of thecriterion for judging the comparability as per Rule 10B(2) of theIncome Tax Rules, 1962? 2Question Nos. 1 and 2 overlap and revolve around theissue of ascertaining the Arms Length Price ("ALP" for short) throughthe method of Transactional Net Margin Method ("TNMM" for short)with the aid of the results of one M/s Schrader Duncan Limited beingtaken as comparable. In the first question, the Revenue argues thatwhen the assessee itself for the purpose of TNMM, had referred to thesaid M/s Schrader Duncan Ltd as a comparables, it would notthereafter be open for the assessee to take up a different stand duringthe course of the assessment. The second question concerns theRevenue's contention on the exclusion of M/s Schrader Duncan Ltd.as a comparable on the ground that the company was functionallydifferent from that of the assessee. 2Question Nos. 1 and 2 overlap and revolve around theissue of ascertaining the Arms Length Price ("ALP" for short) throughthe method of Transactional Net Margin Method ("TNMM" for short)with the aid of the results of one M/s Schrader Duncan Limited beingtaken as comparable. In the first question, the Revenue argues thatwhen the assessee itself for the purpose of TNMM, had referred to thesaid M/s Schrader Duncan Ltd as a comparables, it would notthereafter be open for the assessee to take up a different stand duringthe course of the assessment. The second question concerns theRevenue's contention on the exclusion of M/s Schrader Duncan Ltd.as a comparable on the ground that the company was functionallydifferent from that of the assessee. 3In this context, the Tribunal in the impugned Judgmentrejected the Revenue's contention that the assessee itself havingshowed M/s Schrader Duncan Ltd. as comparable, could not havelater on argued to the contrary. On merits also the Tribunal held thatM/s Schrader Duncan Ltd. was functionally different from the Pg 2 of 5 2.itxa.1141.2016.db.docassessee. In this context the Tribunal noted that the assessee wasengaged mostly in manufacturing of measuring instrumentswhichwould in turn be used in different industries. They were, however, notpneumatic products. On the other hand M/s Schrader Duncan Ltd.was engaged in the fields of automatic industry and pneumaticindustry.Themain activity undertaken by M/s Schrader Duncan Ltd.was of manufacturing hydraulic and pneumatic equipments. It wasalso engaged in trading of such equipments. Such equipments areused as tyre pressure gauges in automotive sector.The Tribunal,therefore, accepted the assessee's contention that the productsmanufactured by the assessee were vastly different from thosemanufactured by M/s Schrader Duncan Ltd. It was because of thesereasons that the Tribunal held that the marginshown by M/sSchrader Duncan Ltd. cannot be applied in order to benchmark theinternational transaction of the assessee, because in order to do so,the comparable which are selected should be functionally similarwhich in the present case was not the situation. 4Having heard the learned counsel for the Revenue, we arebroadly in agreement with the view of the Tribunal. Firstly, merelybecause the assessee at one stage had referred to M/s SchraderDuncan Ltd. for the purpose of benchmarking, would not meanthat Pg 3 of 5 2.itxa.1141.2016.db.doc the assessee cannot, even though the facts so suggest, take the legalcontention that two were not comparable. On merits also the Tribunalexamined the facts on record, found that the products manufacturedand dealt with by the two companies were vastly different and that,therefore, there was no functional similarity between the assesseeand the suggested comparable. No question of law, therefore, arise. 5Question No.3 pertains to the exclusion of one M/s ArevaT & D as comparable on the ground that the turnover of the saidcompany was high as compared to the assessee. In this respect, therecord would suggest that the Transfer Pricing Officer (“TPO” forshort) had rejected the assessee's objections to the selection of saidcompany on the ground of vast difference in the turnover and dis-similarities of the products between the two companies. The DisputeResolution Panel) (“DRP” for short), however accepted the assessee'sobjections. The Tribunal in appeal upheld the view of the DRP. TheTribunal noted that the said M/s Areva T & D was engaged in PowerTransmission and Distribution Business and dealt in products such ascircuit breakers, transmitters switch gears, distributiontransformers etc.The company was designing, manufacturing,installing complete range of high and medium voltage products andalso secondary distribution equipments for the electricity Pg 4 of 5 Pg 4 of 5 2.itxa.1141.2016.db.doctransmission and distribution networks. On the other hand theassessee company was engaged in the activity of manufacturing andmarketing measuring instruments. The Tribunal also noted that thesaid M/s Areva T & D had turnover of Rs.2,800 Crores as compared tothe assessee's total turnover for the year under consideration beingRs.600 Crores. In totality of such facts, the Tribunal upheld the orderof DRP excluding M/s Areva T & D as comparable and dismissing theground of appeal of the revenue. 6In this context also, we do not find that the Tribunal hascommitted any error. The Tribunal has referred to the relevantmaterials on record and noted that the products manufactured byM/s Areva T & D were firstly different from those manufactured bythe assessee and further ordered that there was substantialdifference in the turnover between the two companies. No question oflaw, therefore, arises. The Income Tax Appeal is dismissed. No orderas to costs. (B.P.COLABAWALLA, J.) (AKIL KURESHI, J.) Pg 5 of 5