B.PARAMESWARAN BHARATHAN V. COMMISSIONER OF INCOME TAX

ITA/99/2012

AI Insights

The case involves B. Parameswaran Bharathan Quilon Export Enterprises, a proprietary concern engaged in the import and export of cashew nuts, appealing against the decision of the Income Tax Appellate Tribunal, which upheld the addition of Rs. 23,72,129 to the assessee's income for the assessment year 2003-04. This addition was based on the ALP fixed by the TPO under Section 92CA(3) of the Income Tax Act, 1961, following an international transaction. The assessee argued that the TPO's fixation of ALP was unfair as it only considered transactions that were advantageous to the revenue. The High Court, however, found that the TPO's method was appropriate and aligned with the legislative intent to ensure fair taxation of profits from international transactions.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 754988 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 22-01-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: P K R MENON; JOSE JOSEPH
• Assessee Lawyers: P GOPINATH; M GOPIKRISHNAN NAMBIAR; K MATHAI; P THOMAS; PREMJIT NAGENDRAN
• Keywords: Arm's Length Price; Assessment year 2003-04; Income Tax; International Transactions; Transfer Pricing Officer
• Section: 92C(4); 92CA(3)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT 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 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27.02.2012 APPELLANT/S: B.PARAMESWARAN BHARATHAN QUILON EXPORT ENTERPRISES, PARAMESWARA NAGAR, KOLLAM. BY ADVS. SRI.P.GOPINATH (SR.) SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.PREMJIT NAGENDRAN RESPONDENT/S: COMMISSIONER OF INCOME TAX KOWDIAR, 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 ON 22.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.No.99 of 2012 - 2 - JUDGMENT Ashok Menon, J. Aggrieved by the order of the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.159/(Coch)/2007 dated 17.02.2012 the assessee is before us. 2. The assessee is a proprietary concern engaged in purchase of raw cashew nuts from abroad and export of processed cashew kernels. This appeal pertains to the 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 the Transfer Pricing Officer (TPO) under Section 92CA(3) dated 16.03.2006 at Annexure A, wherein Arm's Length Price (ALP) was fixed by the TPO. The appeal before the Commissioner of Income Tax (Appeals), Thiruvananthapuram failed and the assessment of the AO was confirmed vide Annexure C order dated 23.11.2006. The second appeal preferred by the assessee before the ITA.No.99 of 2012 - 3 - Tribunal also was in vain and the Commissioner's order was upheld vide Annexure D order dated 29.07.2011. 3. The main objection raised by the assessee in this 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 with reference to the comparable uncontrolled price method and similar transactions with unconnected parties. It is argued that the appellate Tribunal should have found that the appellant had not tried to avoid payment of any tax. The TPO has very conveniently looked into only those transactions, which were in favour of the Revenue 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 law arise for consideration: “i) Whether on the facts and circumstances of the case the Hon'ble Tribunal was justified in sustaining the order of the lower authorities for addition of Rs.23,72,139/- under Section 92C(4) as income on international transactions ? ii) Whether on the facts and circumstances of the case the Hon'ble Tribunal was justified in sustaining the order of the assessing ITA.No.99 of 2012 - 4 - officer making addition of Rs.23,72,129/- merely picking up some of those transactions which were in favour of the revenue?” 5. The Tribunal found that the comparison made by the TPO of the commodities involved in similar purchases from other non-associated enterprises, was at variance to the prices at which the appellant had purchased the raw-materials. It is then found that the difference was more than 5%, and therefore, the objection of the assessee regarding fixation of ALP is not 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 that there was an embargo in referring the issue to the TPO for reason of the Instructions issued by the CBDT was dealt with elaborately, both by the first appellate authority and the Tribunal. Instruction No.3 of the CBDT dated 20.05.2003 required references to the TPO, if the value of international transaction exceeded Rs.5 crores. There is, however, no prohibition insofar as ITA.No.99 of 2012 - 5 - the reference being made even when valuation is lower. In the present case, the reference was made with the approval of the Commissioner of Income Tax. We do not find any reason to interfere with the said findings of the lower authorities. 8. The main objection of the assessee is in the TPO having picked up certain transactions for the purpose of fixing ALP. The assessee had produced the tables showing the prices of imports and exports with the Associated Enterprises as also with unconnected enterprises. The assessee's contention was that in certain cases the import price of the transaction with the Associated Enterprises was lower than that with the unconnected enterprises. The TPO, however, took only those transactions where the import price with the Associated Enterprises was higher. We cannot but observe that there was no warrant for the TPO to interfere with the valuation of the transactions; where the assessee had shown lower valuation for imports from the Associated Enterprises, since those were the admitted price of the assessee itself. ITA.No.99 of 2012 - 6 - 9. In those instances where there was a higher valuation shown in the imports from the Associated Enterprises, the ALP was fixed by the AO finding that there was a difference of more than 5% with the valuation of transactions with unconnected enterprises. As has been contended by the assessee, the very intention of fixation of ALP is to ensure that by mere manipulation of prices ie: showing higher prices for imports and lower for exports, the actual profit in a transaction shall not be suppressed. Thus resulting in tax being avoided on the income generated in a transaction with an Associated Enterprise; the benefit of which will flow back to the assessee itself. The exercise undertaken by the TPO, according to us, was perfectly in tandem with the intention of the Legislature. There can be no ground taken that there was a pick and choose adopted by the AO. The ALP had to be fixed only with respect to those instances of imports, where the valuation was higher when the transaction was with an Associated Enterprise than a similar transaction with unconnected enterprise. ITA.No.99 of 2012 - 7 - In the light of the above, the questions of law raised are answered in favour of the Revenue and against the assessee and the appeal would stand rejected, leaving the parties to suffer their costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON dkr JUDGE ITA.No.99 of 2012 - 8 - APPENDIX APPELLANT'S/S ANNEXURES: ANNEXURE-A TRUE COPY OF THE ORDER OF THE TRANSFER PRICING OFFICER UNDER SECTION 92CA(3) DATED 16/3/2006 ISSUED TO THE APPELLANT. ANNEXURE-B TRUE COPY OF THE ASSESSMENT ORDER DATED 29/3/2006 FOR THE YEAR 2003-04 ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX TO THE APPELLANT. ANNEXURE-C TRUE COPY OF THE APPELLATE ORDER DATED 23/11/2006 FOR THE YEAR 2003-04 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT. ANNEXURE-D TRUE COPY OF THE TRIBUNAL ORDER DATED 29/7/2011 ISSUED BY THE TRIBUNAL TO THE APPELLANT. ANNEXURE-E TRUE COPY OF THE TRIBUNAL ORDER DATED 9/8/2011 REFERRING THE MATTER TO THE 3RD MEMBER UNDER SECTION 255(4) OF THE INCOME TAX ACT ISSUED TO THE APPELLANT. ANNEXURE-F TRUE COPY OF THE ORDER DATED 6/1/2012 OF THE 3RD MEMBER ISSUED TO THE APPELLANT. ANNEXURE-G TRUE COPY OF THE TRIBUNAL ORDER DATED 17/2/2012 ISSUED BY THE TRIBUNAL TO THE APPELLANT. "