INDIAN ADDITIVES LTD vs. THE DEPUTY COMMISSIONER OF I

Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 1/12 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 16.4.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARI AND THE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case Appeal Nos.28 & 29 of 2019 M/s.Indian Additives Ltd., Express Highway, Manali, Chennai 600 068. PAN: AAACI 1445G Appellant in both Appeals Vs. The Deputy Commissioner of Income Tax Corporate Circle-II(3) Chennai 600 034. Respondent in TCA 28/2019 The Deputy Commissioner of Income Tax Corporate Circle-2(2) Chennai 600 034. Respondent in TCA 29/2019 Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai, dated 17.2.2017 made in ITA Nos.2579/Mds/2016 and 610/Mds/2016. For Appellant : Ms.Sree Lakshmivalli For Respondents : Mr.Karthik Ranganathan Senior Standing Counsel assisted by Mr.S.Rajesh http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 2/12 COMMON JUDGMENT (Delivered by DR.VINEET KOTHARI,J) The Assessee has filed these Appeals under Section 260A of the Income Tax Act by raising the following purported substantial questions of law arising from the order passed by the Income Tax Appellate Tribunal dated 17.2.2017 for the Assessment Years 2009- 2010 and 2010-2011:- "i) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not adjudicating even after recording the submission on the criteria with regard to the comparable M/s.Lubrizol? ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not holding that Lubrizol was not comparable or in the alternative, should have directed the Assessing Officer to provide adjustment in respect of the criteria due to which the appellant was differentiated from Lubrizol? iii) Whether on the facts and in the http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 3/12 circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the adjustment for transportation cost while computing the arm's length price of the international transaction of the Appellant?" 2. The relevant findings of the Income Tax Appellate Tribunal for determination of Arms Length Price and Transportation Cost in the case of the Assessee comparable to M/s.Lubrizol, who entered into international transactions are given below for ready reference:- "6. We have heard both the parties and perused the material on record. According to learned AR, Lubrizol is procuring raw materials at lower cost as Lubrizol is a JV promoted by M/s.Indian Oil Corporation (IOCL), and M/s.Chevron Oronite Company LLC USA, IOCL has given better discount in Lube Oil price/MT to Lubrizol, which is not available to the assessee. In our opinion, it is reflected in the financial statement of Lubrizol, it is appropriate to give credit to the same and computation of T.P. adjustments thereafter while determining the ALP. Accordingly, we remit the issue to the file of AO for reconsideration and give proper http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 4/12 adjustments on account of raw materials cost of Lubrizol and mineral oil. This issue is remitted to the file of AO for fresh consideration. 6.1 Regarding Tolling fee for ZINC, it was submitted that Lubrizol toll had their own Zinc and on other hand, the assessee entered into sub contract agreement with UPL Ltd. in Gujarat for making Zinc. Therefore, the cost of Zinc in the case of assessee is higher compared to the cost incurred by the Lubrizol towards the Zinc. In our opinion, if the details of cost of procurement of Zinc by tolling, the same by Lubrizol is available and if the AO finds that the cost price of the Zinc incurred by the Lubrizol is lesser as compared to the assessee's case, then the suitable adjustments to be made while determining the ALP. Accordingly, this issue is also remitted to the file of AO for fresh consideration. It is needless to say that opportunity of hearing to be given to assessee by AO/TPO before deciding the above issues. 6.2 Regarding transportation cost, it is submitted that the assessee incurred additional cost for http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 5/12 transportation from Gujarat to Chennai whereas the cost of transportation in case of Lubrizol is less. However, we find that the assessee has not able to establish that the cost of transportation in case of Lubrizol is lesser than the assessee and Lubrizol is selling its goods only in local and thus arguments of assessee cannot be upheld. This ground is rejected." 3. As far as the two issues are concerned regarding the Arms Length Price and cost of Transportation in the hands of the Assessee and M/s.Lubrizol, it is clear from the order passed by the learned Tribunal, which is quoted above, that the matter stands remanded back to the Transfer Pricing Officer. 4. However, the learned counsel for the Appellant-Assessee pointing out para 6.2 of the order passed by the learned Income Tax Appellate Tribunal regarding Transportation Cost, submitted that since the Assessee had incurred additional cost for Transportation from Gujarat to Chennai, whereas the cost of transportation in the comparable case of M/s.Lubrizol was less and therefore, suitable adjustment should be made in this regard while determining the Arms Length Price in the case of the Assessee. http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 6/12 5. The learned Tribunal has found that since the Assessee has not been able to establish the cost of transportation in the comparable case of M/s.Lubrizol lesser than the Assessee, the argument of the Asessee that suitable adjustment should be made was not upheld. 6. Having heard the learned counsel for the parties, we are of the opinion that the said finding of the learned Tribunal does not give rise to any substantial question of law requiring our consideration under Section 260A of the Act. A Division Bench of Karnataka High Court, where one of us (Dr.Justice Vineet Kothari) was a party in the case of Principal Commissioner of Income Tax v. Softbrands India P. Ltd. ((2018) 406 ITR 513 (Karn.) has held by a detailed judgment that in the case of determination of Arms Length Price, unless a perversity in the order passed by the learned Tribunal is established, no substantial question of law will arise requiring interference under Section 260A of the Act. The relevant portion of the decision of the Division Bench Bench of Karnataka High Court is quoted below for ready reference:- "44. This Court cannot be expected to undertake the exercise of comparison of the comparables itself which is essentially a fact finding exercise. Neither the sufficient Data nor factual informations http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 7/12 nor any technical expertise is available with this Court to undertake any such fact finding exercise in the said appeals under Section 260-A of the Act. This Court is only concerned with the question of law and that too a substantial one, which has a well defined connotations as explained above and findings of facts arrived at by the Tribunal in these type of assessments like any other type of assessments in other regular assessment provisions of the Act, viz. Sections 143, 147 etc. are final and are binding on this Court. While dealing with these appeals under Section 260-A of the Act, we cannot disturb those findings of fact under Section 260-A of the Act, unless such findings are ex-facie perverse and unsustainable and exhibit a total non- application of mind by the Tribunal to the relevant facts of the case and evidence before the Tribunal. 45. Otherwise if the High Court takes the path of making such a comparative analysis and pronounces upon the questions as to which Filter is http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 8/12 good and which comparable is really comparable case or not, it will drag the High Courts into a whirlpool of such Data analysis defeating the very purpose and purport of the provisions of Section 260-A of the Act. Therefore what we observed above appears to us to be the sustainable view that the key to the lock for entering into the jurisdiction of High Court under Section 260-A of the Act is the existence of a substantial question of law involved in the matter. The key of ex-facie perversity of the findings of the Tribunal duly established with the relevant evidence and facts. Unless it is so, no other key or for that matter, even the in-consistent view taken by the Tribunal in different cases depending upon the relevant facts available before it cannot lead to the formation of a substantial question of law in any particular case to determine the aspects of determination of 'Arm's Length Price' as is sought to be raised before us. http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 9/12 Need for giving Primacy to the Tribunal in the area of fact finding: 46. Undoubtedly, the Income Tax Tribunal is the final and highest fact finding body under the Act. It is manned by Expert Members (Judicial Members are selected from District Judges or Advocates and Accountant Members selected from practicing Chartered Accountants or persons of CIT level in the Department). Therefore this quasi-judicial forum is expected and as some of the nicely articulated Judgments and Orders from the Tribunal would indicate, the Orders passed by the Tribunal should normally put an end and quietus to the findings of facts and factual aspects of assessment. The lower Revenue Authorities cannot be allowed to make it their prestige issue, if their stand is not upheld by the Tribunal and agitate against their Orders before the higher Courts by resort to Section 260-A or Section 261 of the Act merely because they are dissatisfied with the findings of facts by the Tribunal. http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 10/12 47. In the case before us now, the pick of comparables, short-listing of them, applying of filters, etc., are all fact finding exercises and therefore the final Orders passed by the Tribunal are binding on the lower Authorities of the Department as well as High Court. 48. The Tribunal of course is expected to act fairly, reasonably and rationally and should scrupulously avoid perversity in their Orders. It should reflect due application of mind when they assign reasons for returning the particular findings." 7. In view of the above, we are of the clear opinion that no substantial question of law arises in the present Appeal requiring our consideration under Section 260A of the Act. The Appeals are devoid of merit and are liable to be dismissed. Accordingly, they are dismissed. No costs. (V.K.,J.) (C.V.K.,J.) 16.4.2019 Index : Yes/No Internet : Yes/No ssk. http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 11/12 To 1. The Deputy Commissioner of Income Tax Corporate Circle-II(3) Chennai 600 034. 2. The Deputy Commissioner of Income Tax Corporate Circle-2(2) Chennai 600 034. http://www.judis.nic.in Judgt. dt. 16.4.19 in T.C.A.28 & 29/2019 Indian Additives Ltd v. DCIT 12/12 DR.VINEET KOTHARI, J. and C.V.KARTHIKEYAN, J. ssk. TCA Nos.28 & 29 of 2019 16.4.2019. http://www.judis.nic.in