Txa/18/2015 Of The Commissioner Of Income Tax, Panaji v. M/S. Pentair Water India Pvt. Ltd

-1- IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 18 OF 2015 Commissioner of Income Tax“Aaykar Bhavan”,Patto, Panaji, Goa.…Appellant V e r s u s M/s. Pentair Water India Pvt. Ltd.,L-55, Verna Industrial Estate,Verna, Salcete, Goa 403722.PAN: …Respondent Ms. Asha Desai, Advocate for the Appellant. Mr. Jitendra Jain, Advocate with Ms. Sumedha Joshi, Advocate for the Respondent. Coram :-F. M. REIS, K. L. WADANE, JJ. thDate of Reserving Order :7 July, 2015.thDate of Pronouncement of Order :16 September 2015. Date of Pronouncement of Order : ORAL ORDER (Per F. M. Reis, J.) Heard Ms. Asha Desai, learned Counsel appearing for the Appellantand Mr. Jitendra Jain, learned Counsel appearing for the Respondent. 2.Briefly, it is the contention of the Appellant that the Assessee-Respondent is engaged in the business of manufacture of fibre glass pressurevessel used for water treatment, swimming pool equipments and that theRespondent-Company is making three kinds of vessels namely (I) Code Line, (ii)Composite pressure vessels and (iii) FRP pressure vessels and set up an in-house facility for catering to its needs on the area of engineering, designing & productdevelopment. It is further their case that the Company has rendered such servicesin the relevant assessment year 2007-2008 to some of its group companies abroadand that the Respondent is the subsidiary to Pentair INC, USA and is involved inthe same business. The said Respondent-Company has a unit at Verna IndustrialEstate where the said manufacturing activity is taking place. It is further their casethat the Respondent-Assess has filed returns of Income on 30.10.2007 disclosingtotal income of Rs.5,28,09,795/- on which total tax was Rs.1,81,13,280/-. An Orderunder Section 92CA was passed on 27.10.2010 by the TPO and the AO on21.12.2010 added an amount of Rs.1,68,60,877/- in the Order passed underSection 143 (3) of the said Act. It is further the contention of the Appellant thatbeing aggrieved by the said Order, the Respondent-Assessee preferred an Appealbefore the Commissioner Income Tax Appeal and by its Order dated 16.11.2012,directed the AO to compute the TP adjustment by taking the operating margin at thecomparable rate of 22.92%. Being aggrieved by the said Order, both theRespondent as well as the Appellant filed Appeals before the Income Tax AppellateTribunal which came to be disposed of by Order dated 23.05.2014. Beingaggrieved by the said Order, the Appellant has preferred the present Appeal. 3.Ms. Asha Desai, learned Counsel appearing for the Appellant, haspressed for only two substantial questions of law framed at para 5A and 5B of theAppeal Memo. Learned Counsel has further pointed out that the Income TaxAppellate Tribunal has erred in holding that the profits on costs of five comparablecompanies as abnormal without giving reasons how the functions discharged,assets deployed and risks assumed of such companies were different from the Respondent-Company. Learned Counsel further pointed out that the Tribunal hasalso erred in holding that the size and turnover of the company are deciding factorsfor treating a company as comparable and accordingly erred in excluding M/s. HCLComnet Systems & Services Ltd., M/s Infosys BPO Limited and M/s. Wipro Ltd., ascomparables. 3.Ms. Asha Desai, learned Counsel appearing for the Appellant, haspressed for only two substantial questions of law framed at para 5A and 5B of theAppeal Memo. Learned Counsel has further pointed out that the Income TaxAppellate Tribunal has erred in holding that the profits on costs of five comparablecompanies as abnormal without giving reasons how the functions discharged,assets deployed and risks assumed of such companies were different from the Respondent-Company. Learned Counsel further pointed out that the Tribunal hasalso erred in holding that the size and turnover of the company are deciding factorsfor treating a company as comparable and accordingly erred in excluding M/s. HCLComnet Systems & Services Ltd., M/s Infosys BPO Limited and M/s. Wipro Ltd., ascomparables. 4.On the other hand, Shri Jain, learned Counsel appearing for theRespondent, has pointed out that both the Authorities have concurrently come tothe conclusion that the said Companies are not comparable to the Respondent-Assessee Company and, as such, this Court cannot re-appreciate the evidence onrecord to come to any concurrent finding. Learned Counsel further submits thatthese concurrent findings of facts based on the material on record cannot be re-appreciated by this Court in the present Appeal as there is no substantial questionof law which arise therein. Learned Counsel further pointed out that to answer thesaid two substantial questions of law, this Court would have to re-appreciate thematerial on record which is not at all permissible. Learned Counsel further submitsthat the bifurcation intended to be affected by the learned Counsel appearing forthe Appellant was not even raised before the Tribunal and, consequently, the aboveAppeal deserves to be rejected. 5.On perusal of the impugned Order passed by the Tribunal dated23.05.2014, we find that the Tribunal has recorded the reasons for not acceptingthe said three companies are comparable by stating as follows : (I) HCL Comnet Systems & Services Ltd :- Wefind force in the submission of the ld. AR that thisfind force in the submission of the ld. AR that this company cannot be a comparable as the turnover ofthis company is 260.18 crores while in the case ofthe Assessee, the turnover is around Rs.11 croresonly. While making the selection of comparables, theturnover filter, in our opinion, has to be the basis forselection. A company having turnover of Rs.11crores cannot be compared with a company which ishaving turnover of Rs.260 crores which is more than23 times the turnover of the Assessee. Thiscompany cannot be regarded to be in equal size tothe Asseessee. We, accordingly, direct the AO toexclude this company out of the comparables. (ii)Infosys BPO Ltd. :- In this case also we notedthe turnover in respect of this Company is Rs.649.56crores while the turnover of the Asseessee companyis around Rs. 11 crores which is much more than 65times of the Assessee's turnover. We, therefore, donot find any illegality or infirmity in the order of CIT(A)in excluding this Company out of the comparables.Accordingly, we confirm the order of the CIT(A). (iii)Wipro Ltd. :- After hearing the rivalsubmissions, we noted that the CIT(A) applying theturnover filter has excluded this company out of thecomparables. The turnover reported in the case ofWipro Ltd. Is Rs.939.78 crores while in the case ofthe Asseessee the turnover is around Rs. 11 crores.Therefore, on the basis of the turnover filter itself thiscompany cannot be regarded to be comparable tothe Asseessee company and accordingly, we do notfind any infirmity in the finding of CIT(A) while heexcluded this company on the turnover criteria following the decision of this tribunal in : Sony India (P) Ltd. vs. DCIT, 114 ITD 448Delhi,E-Gain Communication, 2008 TIOL 282ITAT (Pune)Deloittee Consulting India Pvt. Ltd. vs.DCIT, ITA No. 1082/Hyd/2010Genisys Integrating System (India)(P.) Ltd.vs DCIT,, 53 Sot 159 (Bang)” following the decision of this tribunal in : Sony India (P) Ltd. vs. DCIT, 114 ITD 448Delhi,E-Gain Communication, 2008 TIOL 282ITAT (Pune)Deloittee Consulting India Pvt. Ltd. vs.DCIT, ITA No. 1082/Hyd/2010Genisys Integrating System (India)(P.) Ltd.vs DCIT,, 53 Sot 159 (Bang)” 6.The said findings of the Tribunal in respect of the said threeCompanies are on the basis of appreciation of evidence on record. We find noinfirmity in the said findings of the Tribunal on that count. In fact, the Tribunal hasendorsed the views of the CIT Appeals whilst coming to such conclusions. Theconcurrent findings of facts arrived at by the Authorities below, cannot be re-appreciated by this Court in the present Appeal. 7.In this connection, the Apex Court in the Judgment reported in2011(1) SCC 673 in the case of Vijay Kumar Talwar vs. CIT, has observed at Para23 thus : “23.A finding of fact may give rise to asubstantial question of law, inter alia, in the event thefindings are based on no evidence and/or whilearriving at the said finding, relevant admissibleevidence has not been taken into consideration orinadmissible evidence has been taken intoconsideration or legal principles have not beenapplied in appreciating the evidence, or when theevidence has been misread. (See Madan Lal v. Gopi,Narendra Gopal Vidyarthi v. Rajat Vidyarthi, Commr.of Customs v. Vijay Dasharath Patel, Metroark Ltd. v.CCE and W.B. Electricity Regulatory Commission v. 8.In the present Appeal, the Appellant-Revenue has not been able tocontrovert or deny the data relied upon by the Authorities below to come to suchconclusion. The said Companies are no doubt large and distinct companies wherethe area of development of subject services are different and as such the profitearned therefrom cannot be a bench-marked or equated with the Respondent-Company. 9.Shri Jain, learned Counsel has rightly relied upon the Judgment ofthe Delhi High Court reported in (2013) 36 taxmann.com 289(Delhi) in the case ofCommissioner of Income-tax vs. Agnity India Technologies (P.) Ltd. LearnedCounsel has also brought to our notice the Order of the Income Tax AppellateTribunal whilst examining similar circumstances for the assessment year 2005-06.He has taken us through the findings therein to point out that the conclusionsarrived at are based on a comparison that the condition in any uncontrolledtransaction between an independent enterprises for the purpose of suchcomparison, economically relevant characteristics must be sufficiently comparableif two parties are to be placed in a similar situation. Learned Counsel as suchsubmitted that it is not open for the appellant to now contend a different criteria toascertain the comparability. In fact the Tribunal whilst passing the impugned Orderhas considered the said principles whilst coming to the conclusion that the saidthree Companies cannot be treated to be comparable to the Respondent-AssesseeCompany. The turn over is obviously a relevant factor to consider thecomparability. 10.In view of the above, we find that the said two substantial questions oflaw proposed by the learned Counsel appearing for the Appellant do not arise in thepresent Appeal taking note of the concurrent findings of fact arrived at by theAuthorities below. The Appeal stands accordingly rejected. K. L. WADANE, J. F. M. REIS, J. arp/*