ACIT, Alwar V. SALATA INX INDIA LIMITED, Alwar

ITA 646/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4858 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 09-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHATANIK CHAKRAWARTIADV DH RKJ
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH HKKXPAN] YS[KK LNL; ,OA JH DQY HKKJR ] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 646 & 647/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2009-10 & 2010-11 A.C.I.T., CIRCLE-2, ALWAR. CUKE VS. M/S SAKATA INX. INDIA LIMITED, B-1245-1246, RIICO INDUSTRIAL AREA, BHIWADI, ALWAR (RAJ). LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCS 4797 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI ANIL KUMAR (CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI PARTH & SHRI SHATANIK CHAKRAWARTI(ADV) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 01/12/2016 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 09/12/2016 VKNS'K@ ORDER PER: KUL BHARAT, J.M. THESE ARE THE APPEALS FILED BY THE REVENUE ARISE AG AINST THE TWO SEPARATE ORDERS DATED 18/03/2016 PASSED BY THE LD. CIT(A)-2, JAIPUR FOR THE A.Y. 2009-10 AND 2010-11. THE SOLE EFFECTIVE GRO UND TAKEN BY THE REVENUE IN APPEALS ARE AS UNDER:- 1. THAT THE LD. CIT(A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 1,65,25,000/- IN A.Y. 2009-10 AND RS. ITA 646 & 647/JP/2016_ ACIT VS SAKATA INX INDIA LTD. 2 2,07,49,000/- IN A.Y. 2010-11 MADE BY THE A.O. ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 2. BOTH THE APPEALS OF THE REVENUE ARE BEING HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE AND BREVITY, COMMON ORDER I S BEING PASSED. 3. FIRSTLY WE TAKE REVENUES APPEAL FOR A.Y. 2009-10 I.E. ITA NO. 646/JP/2016. BRIEFLY STATED FACTS OF THE CASE ARE T HAT THE ASSESSEES CASE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESS MENT U/S 143(3) READ WITH SECTION 144C(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) WAS FRAMED ON 28/03/2013, THERE BY THE A.O. COMPUTED THE INCOME AT RS. 12,91,60,380/- AGAINST T HE RETURNED INCOME OF RS. 11,17,42,180/-. WHILE FRAMING THE ASSESSMENT , THE A.O. MADE ADDITION ON ACCOUNT OF TPO ADJUSTMENT OF RS. 1,65,25 ,000/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION GAIN AND ADDITION O N ACCOUNT OF SCRAP GENERATION. SIMILAR IDENTICAL FINDINGS HAS ALSO BEEN GIVEN BY THE A.O. IN THE APPEAL FOR A.Y. 2010-11. 4. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING T HE SUBMISSIONS, PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPEAL, THE LD. CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF TRANS FER PRICING ITA 646 & 647/JP/2016_ ACIT VS SAKATA INX INDIA LTD. 3 ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY OF AN AMOUNT OF RS. 1,65,25,000/- BY FOLLOWING THE D ECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE PERTAINING TO A.Y. 2007-08 IN ITA NO. 376/JP/2012 AND THE DECISION OF THE PREDECE SSOR OF THE LD. CIT(A) PERTAINING TO A.Y. 2007-08 AND 2008-09. SIMILAR IDENTICAL FINDINGS HAS ALSO BEEN GIVEN BY THE LD. CIT(A) IN THE APPEAL FOR A.Y. 2010-11. 5. NOW THE REVENUE IS IN APPEALS BEFORE US. THE LD. C IT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. ON THE CONTRARY, THE LD AR OF THE ASSESSEE HAS REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSIONS THAT THE ISSUE IS SQ UARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HONBLE ITAT OF JAIPUR BENCH. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD. CIT(A) HA S DECIDED THE ISSUE BY FOLLOWING THE DECISION OF THE COORDINATE BENCH, T HE FINDING OF THE LD. CIT(A) IS AS UNDER:- 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASSE SSMENT ORDER AND THE WRITTEN SUBMISSIONS OF THE APPELLANT. IN ITA 646 & 647/JP/2016_ ACIT VS SAKATA INX INDIA LTD. 4 THIS CASE THE ISSUE IS REGARDING ADJUSTMENT OF INR 1,65,25,000 TO THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 92CA(3) OF THE I.T. ACT, 1961 ON ACCOUNT OF ADJUSTMENT IN ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY BY SAKATA INDIA TO ITS AE. THE APPELLANT COMPANY IS A 100% SUBSIDIARY OF SAKATA INX CORPORATION JAPAN (SAKATA JAPAN) WHICH IS ONE OF THE LARGEST PRODUC ER OF PRINTING INK GLOBALLY. DURING THE YEAR THE APPEL LANT COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING PRINTING INK AND RESINS. THE ASSESSING OFFICER HAD MADE A REFERENCE TO THE TPO TO DETERMINE THE ARMS LENGTH PRICE U/'S 92CA(3) OF I. T. ACT. FURTHER, ON PERUSAL OF ORDER PASSED U/S 92CA ( 3) OF I.T. ACT BY TPO-1, JAIPUR IT IS SEEN THAT IN T.P. DOCUMENTATION THE APPELLANT COMPANY HAS CONSIDERED TRANSACTIONAL NET MARGIN METHOD KNOWN AS TNMM AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT MARGIN AS THE PROFIT LEVEL INDICATOR. IN THE TP DOCUMENTATION OF SAKATA INDIA, IT WAS FOUND THAT SAKATA INDIA OPERATING MARGIN (7.12%) WAS HIGHER THAN THE ARITHMETIC MEAN OF THE NET OPERATING MARGI N OF THE COMPARABLE COMPANIES (5.96%) AND HENCE THE INTERNATIONAL TRANSACTIONS WERE CONSIDERED TO BE AT ARMS LENGTH. HOWEVER, THE TPO/AO MADE AN ADJUSTMENT TO THE ARMS LENGTH VALUE BY REJECTING TNMM AS THE MOST APPROPRIATE METHOD AND USING THE ITA 646 & 647/JP/2016_ ACIT VS SAKATA INX INDIA LTD. 5 CUP METHOD AND HELD THE ARMS LENGTH VALUE TO BE NIL . THE TPO THUS PROPOSED AN ADJUSTMENT TO THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY OF AN AMOUNT OF RS. 1,65,25,000/- TO THE TOTAL INCOME OF THE APPELLANT. IT IS SEEN THAT SIMILAR ADJUSTMENTS TO PAYMENT OF ROYALTY BY THE APPELLANT TO ITS AE FOR THE ASSESSME NT YEARS 2007-08 & 2008-09 HAD ALSO BEEN MADE AND THE CIT(A)-2, JAIPUR VIDE ORDERS DATED 12.1.2012 AN D 05.07.2012 RESPECTIVELY, HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. IN THE PRESENT PROCEEDINGS, THE APPELLANT SUBMITTE D THAT THE ISSUE HAD NOW BEEN DECIDED BY THE JURISDICTIONAL BENCH IN ITS FAVOUR. THE HON'BLE ITAT, JAIPUR BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 VIDE ITS ORDER ITA NO.376/JP/2012 DATED 14.11.2014 ON THE ISSUE OF ROYALTY PAYMENT HELD AS REPRODUCED BELOW: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIE W 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 METHOD TO ARMS LENGTH WORKING. (II) THE PRODUCTS MANUFACTURED BY THE APPELLANT WERE DEVELOPED FROM TECHNOLOGY SUPPORT PROVIDED BY THE AE, IT WOULD NOT HAVE BEEN POSSIBLE SO WITHOUT ITA 646 & 647/JP/2016_ ACIT VS SAKATA INX INDIA LTD. 6 THE CONTINUOUS AE SUPPORT. THE RIGHTS OF ACCESS TO THE ONGOING TECHNICAL SUPPORT AND DEVELOPMENT OF NEW PRODUCTS RECEIVED BY THE APPELLANT WERE CLEARLY PROVIDED IN THE AGREEMENTS ENTERED INTO WITH THE AE. (III) THE COST BENEFIT TEST AS WORKED OUT BY THE TPO WAS NOT BASED ON PROPER APPRECIATION OF THE FACTS AND THUS CUP METHOD APPLIED BY THE AO/TPO WAS NOT JUSTIFIED. (IV) THE JUDICIAL CITATIONS RELIED ON BY THE LD. CI T(A) AS WELL AS FURTHER JUDGEMENTS RELIED ON BY THE ASSES SEE INCLUDING HONBLE HIGH COURT IN THE CASE OF DELHI EKL APPLIANCES LTD. (SUPRA) SUPPORT THE VIEW TAKEN BY LD. CIT(A). IN VIEW OF THE FOREGOING, WE UPHOLD THE ORDER OF L D. CLT(A) AND DISMISS REVENUES APPEAL. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE ITA T THE ADDITION MADE IS DELETED. THE GROUND OF APPEAL I S ALLOWED. THE FACTS ARE IDENTICAL AS WERE IN THE ASSESSMENT YEA R 2007-08 AND 2008-09. THE REVENUE HAS NOT POINTED OUT ANY ADVERSE FACTS AND CIRCUMSTANCES AND HAS ALSO NOT BROUGHT TO OUR NOTIC E ANY OTHER CONTRARY BINDING PRECEDENT; THEREFORE, TAKING A CONSISTENT V IEW, WE DO NOT SEE ANY REASON TO INTERVENE IN THE ORDER PASSED BY THE LD. CIT(A). THEREFORE, THE SAME IS AFFIRMED. ACCORDINGLY, THE GR OUND RAISED IN APPEAL FOR A.Y. 2009-10 IS REJECTED. ITA 646 & 647/JP/2016_ ACIT VS SAKATA INX INDIA LTD. 7 THE SAME AND SIMILAR FINDING IS ALSO APPLICABLE ON THE CASE OF THE REVENUE FOR THE A.Y. 2010-11. ACCORDINGLY, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE BOTH THE APPEALS OF THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/12/2016. SD/- SD/- HKKXPAN DQY HKKJR (BHAGCHAND) (KUL BHARAT) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 09 TH DECEMBER, 2016 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE A.C.I.T., CIRCLE-2, ALWAR. 2. IZR;FKHZ @ THE RESPONDENT- M/S SAKATA INX. INDIA LIMITED, ALWAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 646 & 647/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. 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