THE PR COMMISSIONER OF INCOME TAX ALWAR vs. M/S SAKATA INX INDIA LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 285 / 2017 Pr. Commissioner of Income Tax, Alwar ----Appellant Versus M/s. Sakata Inx (India) Limited, B-1245-1246, RIICO Industrial Area, Bhiwadi, Alwar (Raj.) ----Respondent _____________________________________________________ For Appellant(s) : Mr. Gaurav Gaur for Mrs. Parinitoo Jain For Respondent(s) : Mr. Sandeep Taneja _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 09/11/2017 1. Defects are waived. 2. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department. 3. Counsel for the department has framed following substantial question of law:- “1. Whether the Tribunal was legally justified in upholding the non-applicability of CUP method and deleting the addition of Rs.2,30,42,000/- made on account of adjustment of the Arm’s Length price of the International transaction on payment of royalty by assessee to its Associates Enterprise, from the income of the assessee u/s 92C? 2. Whether the Tribunal/CIT(A) was legally justified in deleting the addition of Rs.1,65,25,000/- by holding that the

(2 of 11) Comparable Uncontrolled Price method (CUP) was not applicable? 3. Whether the Tribunal was legally justified in adopting an aggregated approach rather than a segregated approach, which is against the Transfer Pricing Guidelines & provisions of Section 92, which stipulates that each transaction is to be separately benchmarked?” 4. The facts of the case are that the assessee has declared book profit u/s 115JB at Rs.17,31,86,774/- for MAT purposes. The return of income was processed u/s 143(1) of the Act on 26.10.2011. The case was selected for scrutiny under CASS. The statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued on 19.9.2012 which was duly served by speed post AD. A notice u/s 142(1) was issued on 16.9.2013 alongwith detailed questioner. In response to this notice and other further notices, Sh. M.L. Agarwal, FCA as AR of the assessee attended from time to time as per the entries of order sheet and filed details and documents as placed on record. 4.1 The assessee company is a 100% subsidiary of Sakata Inx Corporation, Japan. During the year under consideration the assessee Company was engaged in manufacturing & trading of printing Inks and allied products. The assessee Company manufactures printing inks for packing and printing Industry, there is no change in the maintenance of accounts, business activities etc. of the assessee during the years, as compared to the preceding year. The assessee continues to derive income from such activities.

(3 of 11) 4.2 The accounts of the assessee are audited. The audit reports in Form No.3CD, 3CEB and other required details were produced by the assessee. The assessee has maintained the Books of Account and other related records on computer system the books of accounts maintained by the assessee comprise cash book, bank book, stock registered, R.G. Register, bills/vouchers etc. alongwith bills/vouchers. The books of accounts and other documents were produced for verification which was examined on test check basis. 5. However, in view of the decision of this court in ITA No.170/2017 (Pr. Commissioner of Income Tax vs. M/s. Sakata Inx (India) Ltd.) decided on 8.8.2017 where considering the case of the same assessee, this court observed as under:- “3. However, now issue is covered by the decision of this Court in the case of same assessee in D.B. Income Tax Appeal No. 71/2015 decided on 26th July, 2017 wherein it has been held as under:- “4. The issue is now covered by the decision of this court in Income Tax Appeal No.72/2015 (CIT Alwar Vs. M/S Sakata Inx (India) Ltd. decided on 18.05.2017, where while deciding the issue, this court held as "4. Counsel for the appellant has taken us to the order of the AO and contended that comparison which has been made by the AO in its order which is reproduced as “With regard to the identification of comparables the explanation furnished by the assessee was considered and properly examined. The same is summarised below: (1) Camex Intermediaries Ltd.: The business activities of this company comprised of 2 segments in F.Y. 2002-03, out of which one segment was manufacturing of dyes and pigments’. The segmental data for this company was available for F.Y. 02-03 and accordingly

(4 of 11) the assessee had identified it as a comparable. However, the date for 03-04 and 04-05 were not available on the date, of the study as well as on date. As mentioned earlier, the comparable companies whose contemporary data was available have been taken in the fresh analysis as it best describes the economic scenario and identical market condition. Hence, the margin of this company is not considered for benchmarking the margins of the assessee. (2) Atul Ltd.: This company was proposed to be rejected on the ground of significant related party transactions, as the financial information would not be considering as reasonable representing financial results of the uncontrolled transactions. The assessee claimed that it had adopted the rejection criteria of filtering out companies which had related party transactions in excess of 25%. As per the figures available with the assessee, this company had 14.26% related party transactions as a percentage of sales (Total 99.75 crore related party transaction as against sales of Rs.699.38 crore). India assessee has quoted the ITAT (Delhi) decision in the case of Sony India (Pvt.) Ltd. which has observed….” An entity can be taken as uncontrolled if its related party transactions do not exceed 10 to 15% of total revenue...” It was claimed by the assessee that the comparable company’s related party transaction did not exceed 15% of sales, the same cannot be rejected on account of related party transactions. However, the observation regarding 10- 15% related party transaction squarely covers the case of the company which, according to the assessee, has 14.26% (i.e. above 10% and almost 15%) related party transaction. As per the date for March 2008, against total income of Rs. 995.43 crore. M/s Atul Ltd. had sale of goods of Rs. 153.57 crore to related parties, apart from other related party transactions i.e. it exceeded 15% of total income. Hence it is inferred that M/s Atul Ltd. has significant related party Transactions and hence the same is

(5 of 11) rejected. Further, the products of M/s Atul Ltd. show that it has a varied group of products, such as Sulpha drug intermediates,

pharmaceutical intermediates, disinfectants etc. This clearly chows that even the product range of this company are not comparable.. Companies added for benchmarking Manufacturing function margin:. The assessee deals in printing inks’ with NIC Code 24222. However a search on CMIE (Prowess) database revealed that 2 companies had not been included in the list of comparables. While M/s Indian Toners & Developers Ltd. had been taken out by the assessee on the basis of non- comparable product’, the company M/s Rainbow Ink & Varnish Manufacturing Co. Ltd. had not been identified in the T.P. Study. Accordingly, it had been proposed to include these two companies as comparables. (1) M/s Indian Toners & Developers Ltd: The assessee claimed that this company manufactures toners and developers for photocopies, laser printers and digital printers. The same was not considered by the assessee to be comparable to the printing inks manufactured by Sakata India. However, it is seen that the other companies which have been taken as comparables deal in dyes and pigments. As far as product similarity is concerned toners for laser printers, digital printers and photocopiers would be nearer to the products of the assessee. Further, this company as well as the assessee both are under the same NIC Code 24222. Hence, assessee’s objection is not considered valid, and this company needs to be included as a comparable.(2) M/s Rainbow Ink & Varnish Manufacturing Co. Ltd: It was accepted by the assessee that this company is engaged in manufacture of printing ink. Hence, this is also considered as a comparable. Companies identified for Distribution function: Out of the 5 comparables identified for distribution function, the following 2 companies did not have financial date for

(6 of 11) March 2005: (1) Madhya Bharat Papers Ltd. (2) Multiflex Laxmi Print Ltd. The other companies are: (1) DIC India Ltd: This Company was proposed to be rejected on account of having related party transactions. The assessee objected by claiming that DIC had only 6.27% related party transactions as compared to its sales, and hence this cannot be considered significant. On the other hand, this company had been taken out in the manufacturing function on account of non-comparable products (by the assessee). However, it was seen that this also dealing in printing inks. Hence, this is considered a Comparable under both the segments. (2) Metrochem Industries Ltd.: It was proposed to be excluded on account of product differences. The assessee has objected to the same by claiming that this company is dealing in dyes intermediates and hence should be considered. It is observed that this company has been taken as a comparable in the manufacturing segment as well, and hence this is considered as a comparable for both segments.” 5. The conclusion which has been reached by the AO ought not to have been disturbed by the tribunal and comparison which has been made and amount which has been deducted which reads as under:- "Accordingly, the Arm's Length Price of the import of raw material and spares by the assesssee from its Associated Enterprises is considered at Rs.6,38,06,451/- as against Rs.7,83,58,988/- declared in Form 3CEB, after making adjustment of Rs.1,45,52,537/-/. The Assessing Officer shall add this amount (Rs.1,45,52,537/-) to the income of the assessee." 6. She further contended that tribunal has committed an error in holding against the department. 7. Counsel for the respondent Mr. Jhanwar has relied upon the decision of Bombay High Court in Commissioner of Income Tax vs. General Atlantic (P) Ltd. (2016) 384 ITR 271 (Bom) wherein it has been held as

(7 of 11) "On the aforesaid analysis, the Tribunal found that it had in the case of Carlyle India Advisors (P.) Ltd. (supra) on detailed examination found only one of the eight comparables selected by the Revenue i.e. IDC (India) Ltd. applicable to arrive at the ALP of its services. The Revenue in the case of the respondent-assessee had selected the same eight comparables as selected in the case of Carlyle India Advisors (P.) Ltd. (supra). However the Tribunal had in this case also adopted only IDC (India) Ltd. as comparable as in its decision in Carlyle India Advisors (P.) Ltd. (supra). It must be noted that the figures of IDC (India) Ltd. to arrive at the ALP were of the subject Assessment Year. It may also be pointed out that the decision of the Tribunal in case of Carlyle India Advisors (P.) Ltd. (supra) was the subject matter to challenge by the Revenue before this Court. This Court by an order dated 22nd February, 2013 refused to entertain the appeal of the Revenue CIT v. Carlyle

Ltd. MANU/MH/0544/2013 : [2013] 357 ITR 584/214 Taxman 492/32 taxmann.com 23 (Bom.). 8. We note that finding of the comparable to be adopted to determine the ALP as the basis of the activity conducted by the respondent-assessee is essentially a finding of fact. The view taken by the Tribunal is a reasonable and possible view. Moreover it has not been shown us to be in any manner perverse. Thus the question as raised does not give rise to any substantial questions of law." 7.1He has also relied upon the decision of Commissioner of Income Tax-3 vs. Goldman Sachs (India) Securities (P) Ltd. (2016) 290 CTR (Bom) 236 wherein it has 5. (a) We found that during the subject Assessment Year, the Respondent- Assessee was providing services of Broking Services, Business Support Services and Investment advisory services to its customers. The TPO had adopted a list of comparable companies which were primarily engaged in providing services as merchant banker as comparable to

(8 of 11) determine the ALP in respect of the Investment Advisory Services rendered by it to its AEs. The companies selected by the TPO were identical to one selected in Carlyle India Advisors (P) Ltd., The aforesaid decision of the TPO in Carlyle (I) Advisors (P.) Ltd. v. Asstt. CIT [2012] 24 taxmann.com 176 (Mum.) was a subject matter of consideration by the Tribunal in ITA No. 7901/Mum/2011. The Tribunal after examining the business of each of the individual comparable concluded that they were different from that of the services provided by Carlyle India Advisors (P.) Ltd. {supra). This is so as the comparable used were in the merchant banking business while M/s. Carlyle India (supra) just like the

Respondent-Assessee

were inInvestment Advisory Services. The Revenue carried the issue from the order of the Tribunal rendered on 4th April, 2012 in Carlyle India Advisors (P.) Ltd. {supra) to this Court in appeal. The appeal being {CIT v.

Carlyle

Ltd. MANU/MH/0544/2013 : [2013] 32 taxmann.com 23 (Bom.)) - wherein this Court refused to entertain the Revenue's appeal as is reflected in the order dated 22nd February, 2013. Thus, we see no reason to interfere with the impugned order of the Tribunal; (b) In the circumstance, the Tribunal in the impugned order adopted the same comparable it had adopted in the case of Carlyle India Advisors (P.) Ltd. (supra) for the purpose of arriving at the ALP in respect of its International Transaction; (c) Further, Mr. Kotangale, learned Counsel appearing for the Revenue very fairly points out that a similar issue as arising herein, was a subject matter of consideration by this Court in Income (CIT v.

General

Atlantic

Ltd. MANU/MH/0759/2016 : [2016] 68 taxmann.com 88 (Bom.)). In the above case also the Assessee was engaged in the business of advisory services like the Respondent here and the TPO had relied upon the comparable selected by him in the case of Carlyle India Advisors (P.) Ltd. {supra) to determine the ALP in the case of Assessee therein i.e. General Atlantic (P.) Ltd. {supra). The Tribunal allowed the

(9 of 11) appeal in General Atlantic (P.) Ltd. {supra) by following its decision in Carlyle India Advisory (P.) Ltd. (supra) just as the Tribunal has done in the Respondent's appeal by the impugned order; and (d) Accordingly, question (c) does not give rise to any substantial question of law. Thus not entertained. 8. The issues are answered in favour of the assessee and against the Department." 6. Further, in view of another decision of this court in ITA No.72/2015 (CIT, Alwar vs. M/s. Sakata Inx (India) Ltd.) decided on 18.5.2017 wherein it has been observed as under:- "7. Counsel for the respondent Mr. Jhanwar has relied upon the decision of Bombay High Court in Commissioner of Income Tax vs. General Atlantic (P) Ltd. (2016) 384 ITR 271 (Bom) wherein it has "On the aforesaid analysis, the Tribunal found that it had in the case of Carlyle India Advisors (P.) Ltd. (supra) on detailed examination found only one of the eight comparables selected by the Revenue i.e. IDC (India) Ltd. applicable to arrive at the ALP of its services. The Revenue in the case of the respondent-assessee had selected the same eight comparables as selected in the case of Carlyle India Advisors (P.) Ltd. (supra). However the Tribunal had in this case also adopted only IDC (India) Ltd. as comparable as in its decision in Carlyle India Advisors (P.) Ltd. (supra). It must be noted that the figures of IDC (India) Ltd. to arrive at the ALP were of the subject Assessment Year. It may also be pointed out that the decision of the Tribunal in case of Carlyle India Advisors (P.) Ltd. (supra) was the subject matter to challenge by the Revenue before this Court. This Court by an order dated 22nd February, 2013 refused to entertain the appeal of the Revenue CIT v. Carlyle

(10 of 11) Ltd. MANU/MH/0544/2013 : [2013] 357 ITR 584/214 Taxman 492/32 taxmann.com 23 (Bom.). 8. We note that finding of the comparable to be adopted to determine the ALP as the basis of the activity conducted by the respondent-assessee is essentially a finding of fact. The view taken by the Tribunal is a reasonable and possible view. Moreover it has not been shown us to be in any manner perverse. Thus the question as raised does not give rise to any substantial questions of law." 7.1 He has also relied upon the decision of Commissioner of Income Tax-3 vs. Goldman Sachs (India) Securities (P) Ltd. (2016) 290 CTR (Bom) 236 wherein it has 5. (a) We found that during the subject Assessment Year, the Respondent- Assessee was providing services of Broking Services, Business Support Services and Investment advisory services to its customers. The TPO had adopted a list of comparable companies which were primarily engaged in providing services as merchant banker as comparable to determine the ALP in respect of the Investment Advisory Services rendered by it to its AEs. The companies selected by the TPO were identical to one selected in Carlyle India Advisors (P) Ltd., The aforesaid decision of the TPO in Carlyle (I) Advisors (P.) Ltd. v. Asstt. CIT [2012] 24 taxmann.com 176 (Mum.) was a subject matter of consideration by the Tribunal in ITA No. 7901/Mum/2011. The Tribunal after examining the business of each of the individual comparable concluded that they were different from that of the services provided by Carlyle India Advisors (P.) Ltd. {supra). This is so as the comparable used were in the merchant banking business while M/s. Carlyle India (supra) just like the Respondent-Assessee were in Investment Advisory Services. The Revenue carried the issue from the order of the Tribunal rendered on 4th April, 2012 in Carlyle India Advisors (P.) Ltd. {supra) to this Court in appeal. The appeal being {CIT v. Carlyle

(11 of 11) Ltd. MANU/MH/0544/2013 : [2013] 32 taxmann.com 23 (Bom.)) - wherein this Court refused to entertain the Revenue's appeal as is reflected in the order dated 22nd February, 2013. Thus, we see no reason to interfere with the impugned order of the Tribunal; (b) In the circumstance, the Tribunal in the impugned order adopted the same comparable it had adopted in the case of Carlyle India Advisors (P.) Ltd. (supra) for the purpose of arriving at the ALP in respect of its International Transaction; (c) Further, Mr. Kotangale, learned Counsel appearing for the Revenue very fairly points out that a similar issue as arising herein, was a subject matter of consideration by this Court in Income (CIT v. General Atlantic (P.) Ltd. MANU/MH/0759/2016 : [2016] 68 taxmann.com 88 (Bom.)). In the above case also the Assessee was engaged in the business of advisory services like the Respondent here and the TPO had relied upon the comparable selected by him in the case of Carlyle India Advisors (P.) Ltd. {supra) to determine the ALP in the case of Assessee therein i.e. General Atlantic (P.) Ltd. {supra). The Tribunal allowed the appeal in General Atlantic (P.) Ltd. {supra) by following its decision in Carlyle India Advisory (P.) Ltd. (supra) just as the Tribunal has done in the Respondent's appeal by the impugned order; and (d) Accordingly, question (c) does not give rise to any substantial question of law. Thus not entertained.” 7. Hence, no substantial question of law arises. 8. The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. Brijesh 39.