ACIT, Alwar V. SAKATA INX (INDIA) LIMITED, Alwar

ITA 1035/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2138 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 28-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: PARTH DHK
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 1035/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 THE ACIT, CIRCLE - 2, ALWAR. CUKE VS. M/S SAKATA INX (INDIA) L T D . B-1245-1246, RIICO INDUSTRIAL AREA, BHIWADI, ALWAR (RAJ.) LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCS 4797 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SMT. PRATIMA KAUSHIK (CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI PARTH (ADVOCATE) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 21.04.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 24 /4/2017 . VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT (A)-2, JAIPUR, DATED 23.09.2016 PERTAINING TO ASSESSMENT Y EAR 2011-12. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL . APPEAL IS FILED ON THE FOLLOWING GROUNDS AGAINST T HE ORDER OF LD. CIT(A)-2, JAIPUR IN APPEAL NO. 158/2015-16 DATED 23 .09.2016 IN THE CASE OF M/S SAKATA INX (INDIA) LTD., B-1245-1246, RIICO IND USTRIAL AREA, BHIWADI, ALWAR (RAJ.) (AACCS4797D) FOR THE AY 2011-12:- 1. THAT THE LD. CIT(A) HAS ERRED ON THE FACTS AND CIRC UMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 2,30,42,000/- MADE BY THE AO ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR AL TER THE GROUNDS OF APPEAL ON OR BEFORE THE DATE THE APPEAL IS FINALLY HEARD FOR DISPOSAL. 2 ITA NO. 1035/JP/2016 M/S SAKATA INX (INDIA) LTD. 2. AT THE TIME OF HEARING LD. CIT (DR) SOUGHT ADJOU RNMENT ON THE GROUND THAT THE ORDER IMPUGNED HAS BEEN PASSED BY HER. THE REQU EST WAS REJECTED, AS POINTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN EARLIER YEARS. THEREFORE, THE ISSUE IS COVERED. CONSIDERING THESE FACTS, THE REQ UEST FOR ADJOURNMENT WAS REJECTED AND THE APPEAL WAS TAKEN UP FOR HEARING. 3. ONLY EFFECTIVE GROUND IS AGAINST DELETING THE AD DITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE LD. COUNSEL FOR THE ASSESS EE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SYNOPSIS. THE WRITTEN SUBMISSI ONS ARE REPRODUCED AS UNDER:- RESPONDENTS SUBMISSION THE RESPONDENT RESPECTFULLY SUBMITS BEFORE THIS HON BLE TRIBUNAL: THE DISPUTE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE RESPONDENT BY ORDERS OF THIS HONBE TRIBUNAL IN RESPONDENTS OWN CE FOR AYS 2007-08 (ITA NO. 376/JP/2012) 2008-09 (ITA NO. 799/JP/2012) , 2009-10 (ITA NO. 646/JP/2016) AND 2010-11 (ITA NO. 647/JP/2016). THE HONBLE TRIBUNAL FOR AY 2007-08, AFTER CONSIDER ING ALL THE MATERIALS AVAILABLE ON RECORD, HELD THAT (PARA 2.9, PAGES 8-9 OF TRIBUNAL ORDER): O THE ORDER OF CIT(A) SUFFERED FROM NO INFIRMITY. O APPLICATION OF CUP METHOD WAS UNJUSTIFIED TO DETERM INE THE ARMS LENGTH PRICE OF RESPONDENTS TRANSACTION OF R OYALTY PAYMENT. O PRODUCTS MANUFACTURED BY RESPONDENT WERE DEVELOPED FROM CONTINUOUS TECHNOLOGY SUPPORT PROVIDED BY AE. O THE COST BENEFIT TET WORKED OUT BY TPO WA NOT BASED ON PROPER APPRECIATION OF FACTS AND CHOICE OF CUP METHOD BY T PO WAS UNJUSTIFIED. 3 ITA NO. 1035/JP/2016 M/S SAKATA INX (INDIA) LTD. O THE JUDICIAL PRECEDENTS RELIED UPON CIT(A) IN ITS O RDER AND BY RESPONDENT BEFORE HONBLE TRIBUNAL CONCLUSIVELY SUP PORT THE STAND TAKEN BY CIT(A). SIMILARLY FOR AY 2008-09, THE HONBLE TRIBUNAL HELD IN FAVOUR OF THE RESPONDENT BY FOLLOWING ITS EARLIER ORDER FOR AY 20 07-08. (PARA 4.1, PAGES 3-4 OF TRIBUNAL ORDER) A SIMILAR FINDING HAS BEEN GIVEN BY HONBLE TRIBUNA L IN ITS ORDERS FOR AYS 2009-10 AND 2010-11. (PAGES 6-7 OF TRIBUNAL ORD ER) FURTHER RELIANCE IS PLACED ON THE FOLLOWING JUDGMEN TS/ORDERS: O CIT VS. EKL APPLIANCES LTD. ITA 1068 AND 1070 OF 2011- HONBLE DELHI HIGH COURT (PARAS 18-22) O CIT VS. CUSHMAN & WAKEFIELD (INDIA) PVT. LTD. ITA 475 OF 2012- HONBLE DELHI HIGH COURT (PARA 36) O TOYOTA KIRLOSKAR MOTOR (PVT.) LTD. VS. ACIT- ITA 1315/BANG/2011- ITAT (PARA 48) O DCIT VS. AIR LIQUIDE ENGINEERING INDIA PVT. LTD. ITA 1040/HYD/2011- ITAT (PARA 21) THERE IS NO CHANGE IN RELEVANT FACTS OF LAW COMPARE D TO EARLIER YEARS. ON BEHALF OF RESPONDENT ASSESSEE, IT IS RESPECTFULL Y PRAYED THAT THE DECISION OF COORDINATE BENCH IN THE ASSESSEES OWN CASE DESERVE S TO BE FOLLOWED AND THE ADJUSTMENT DELETED FOR WHICH WE RESPECTFULLY PRAY. 4. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE, IT IS CONTENDED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE VARIOUS CO- ORDINATE BENCHES OF THIS TRIBUNAL IN ASSESSEES OWN CASE PERTAINING TO THE EARLIER ASSESSMENT YEARS. THE LD. CIT(A) FOLLOWED THE DECIS ION OF THE CO-ORDINATE BENCH AND HELD AS UNDER:- 4 ITA NO. 1035/JP/2016 M/S SAKATA INX (INDIA) LTD. 2.3.1 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSME NT ORDER AND THE WRITTEN SUBMISSIONS OF THE APPELLANT. IN THIS CASE THE ISSUE IS REGARDING ADJUSTMENT OF INR 2,30,42,000 (TAKEN BY THE ASSESSE E AT 20,749,000 IN GROUND NO. 2) TO THE TOTAL INCOME OF THE APPELLANT UNDER S ECTION 92CA(3) OF THE IT ACT, 1961 ON ACCOUNT OF ADJUSTMENT IN ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY BY SAKATA INDIA T O ITS AE. THE APPELLANT COMPANY I A 100% SUBSIDIARY OF SAKATA INX CORPORATI ON JAPAN (SAKATA JAPAN) WHICH IS ONE OF THE LARGEST PRODUCER OF PRINTING IN K GLOBALLY. DURING THE YEAR THE APPELLANT COMPANY WAS ENGAGED IN THE BUSINESS OF MA NUFACTURING AND SELLING PRINTING INK AND RESINS. THE ASSESSING OFFICER HAD MADE A REFERENCE TO THE TPO TO DETERMINE THE ARMS LENGTH PRICE UNDER SECTION 9 2CA(3) OF IT ACT. FURTHER, ON PERUSAL OF ORDER PASSED UNDER SECTION 92CA(3) OF IT ACT BY TPO-1, JAIPUR IT I SEEN THAT IN THE TRANSFER PRICING DOCUMENTATION THE APPELLANT COMPANY HA CONSIDERED TRANSACTIONAL NET MARGIN METHOD KNOWN AS TNMM AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT MARGIN AS THE PROFIT LEVEL INDICTOR. IN THE TRANSFER PRICING DOCUMENTATION OF SAKATA INDIA, IT WAS FOUND THAT SAKATA INDIAS OPERATING MARGIN WAS HIGHER THAN THE ARITHM ETIC MEAN OF THE NET OPERATING MARGIN OF THE COMPARABLE COMPANIES AND HE NCE THE INTERNATIONAL TRANSACTIONS WERE CONSIDERED TO BE AT ARMS LENGTH B Y THE ASSESSEE. HOWEVER, THE TPO/ASSESSING OFFICER MADE AN ADJUSTMENT TO THE ARMS LENGTH VALUE BY REJECTING TNMM AS THE MOST APPROPRIATE METHOD AND U SING THE CUP METHOD. THE SAME HAS BEEN DISCUSSED IN DETAIL IN THE ORDER OF THE TPO PARA 13.5 TO17 AND FINALLY IT HAS BEEN HELD THAT THE ARMS LENGTH P RICE OF THE PAYMENT OF ROYALTY FOR OFFSET INK AS ALSO FOR GRAVURE INK IS NIL. IT WAS INFERRED THAT THE ASSESSEE HA NOT BEEN ABLE TO JUSTIFY THE PAYMENT OF ROYALTY DUR ING THE YEAR ON THE SALE OF OFFSET INK AS WELL AS GRAVURE INK AND AS ADJUSTMENT OF RS. 2,30,42,000/- WAS MADE U/S 92CA OF THE IT ACT, 1961. THE TPO THUS PR OPOSED AN ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY OF AN AMOUNT OF RS. 2,30,42,000/- TO THE TOTAL INCOME OF THE APPELLANT. IT IS SEEN THAT SIMILAR ADJUSTMENTS TO PAYMENT OF R OYALTY BY THE ASSESSING OFFICER HAS BEEN MADE FOR ASSESSMENT YEARS 2007-08 & 2008-0 9 WHICH HAD BEEN 5 ITA NO. 1035/JP/2016 M/S SAKATA INX (INDIA) LTD. ADJUDICATED BY CIT(A)-2, JAIPUR VIDE HIS ORDER DATE D 12.01.2012 AND 05.07.2012 RESPECTIVELY, DECIDING THE ISSUE IN FAVOUR OF THE A PPELLANT. IN THE PRESENT PROCEEDINGS, THE APPELLANT SUBMITTED THAT THE ISSUE HAD NOW BEEN DECIDED BY THE JURISDICTIONAL BENCH OF ITAT IN ITS FAVOUR. THE HONBLE ITAT, JAIPUR BENCH IN ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2007-08 VIDE ITS ORDER ITA NO. 376/JP/2012 DATED 14.11.2014 ON THE I SSUE OF ROYALTY PAYMENT HELD AS FOLLOWS: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) IN AS MUCH AS: (I) LD. DR COULD NOT JUSTIFY THE APPLICATION OF CUP MET HOD TO ARMS LENGTH WORKING. (II) THE PRODUCTS MANUFACTURED BY THE APPELLANT WERE DEVELO PED FROM TECHNOLOGY SUPPORT PROVIDED B6Y THE AE. IT WOULD NO T HAVE BEEN POSSIBLE SO WITHOUT THE CONTINUOUS AE SUPPORT. THE RIGHTS OF ACCESS TO THE ONGOING TECHNICAL SUPPORT AND DEVELOPMENT OF NEW PRODUCTS REC EIVED BY THE APPELLANT WERE CLEARLY PROVIDED IN THE AGREEMENTS ENTERE D INTO WITH THE AE. (III) THE COST BENEFIT TEST AS WORKED OUT BY THE TPO WAS N OT BASED ON PROPER APPRECIATION OF THE FACTS AND THUS CUP METHOD APPLIE D BY THE AO/TPO WAS NOT JUSTIFIED. (IV) THE JUDICIAL CITATIONS RELIED ON BY THE LD. CIT(A) A S WELL AS FURTHER JUDGMENTS RELIED ON BY THE ASSESSEE INCLUDING HONBL E HIGH COURT IN THE CASE OF DELHI EKL APPLIANCES LTD. (SUPRA) SUPPORT THE VIEW TAKEN BY THE LD. CIT(A). IN VIEW OF THE FOREGOING, WE UPHOLD THE ORDER OF LD. C IT(A) AND DISMISS REVENUES APPEAL. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE IT AT, THE ADJUSTMENT MADE TO THE ARMS LENGTH PRICE ON THE ISSUE OF ROYALTY IS D ELETED. THE GROUND OF APPEAL IS ALLOWED. 6 ITA NO. 1035/JP/2016 M/S SAKATA INX (INDIA) LTD. 4.1 THE FACTS ARE IDENTICAL IN THIS YEAR ALSO, THE REVENUE HAS NOT POINTED OUT ANY CHANGED INTO THE FACTS AND CIRCUMSTANCES. THEREFOR E, WE DO NOT SEE ANY REASON TO INTERFERE INTO THE ORDER OF THE LD. CIT(A), SAME IS HEREBY AFFIRMED. THEREFORE, TAKING A CONSISTENT VIEW, APPEAL OF THE REVENUE IS DISMISSED. 5. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 1035/JP/2016 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY THE 24TH DAY OF APRIL 2017. SD/- SD/- ( HKKXPUN ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 24 /04/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- ACIT, CIRCLE-2, ALWAR. 2. THE RESPONDENT- M/S SAKATA INX (INDIA) LTD., ALW AR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 1035/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR