THE PR COMMISSIONER OF INCOME TAX-3 vs. M/S FMC INDIA PVT LTD

THE PR COMMISSIONER OF INCOME TAX-3 KORMANGALA, BANGALORE.

THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 39(1)(1), BMTC COMPLEX, KORMANGALA, BANGALORE. …APPELLANTS (BY SRI. SANMATHI E I.,ADVOCATE A/W NIRMAL MATHEW., ADVOCATE)

THE PR. COMMISSIONER OF INCOME TAX-3 KORAMANGALA, BANGALORE.

THE ASSITANT COMMISSIONER OF INCOME TAX CIRCLE, 391(1), BMTC COMPLEX, KORAMANGALA, BANGALORE. ...APPELLANTS (BY SRI. SANMATHI E I.,ADVOCATE A/W NIRMAL MATHEW., ADVOCATE)

The two appeals under Section 260-A of the Income-tax Act, 1961 (for short, 'the Act') are preferred by the Revenue calling in question the common order dated 29.09.2022 passed by the Income Tax Appellate Tribunal, 'B' Bench, Bengaluru (for short, 'the Tribunal') in ITA Nos.2611/Bang/2018 and 2732/Bang/2018 relating to the assessment year 2013-14.

Since both the appeals arise out of the same order of the Tribunal and concern the same assessee and assessment year, they are heard together and are being disposed of by this common judgment.

Brief facts leading to the filing of these appeals are as under: The assessee sells its finished products to third parties in India and also resells chemicals and formulations imported from FMC Corporation, USA. In addition, it imports raw materials (Lithium Metal) and finished goods for trading from FMC Corporation, USA, and FMC Chemicals Ltd, UK. The assessee further provides various support services to different divisions of FMC. These include development services to API Hong Kong and application support services to the Health & Nutrition (Pharma) division of FMC Corporation, USA. The support services rendered to its Associated Enterprises comprise business development services, SAP application support services, human resource services, and regulatory affairs management services etc.

For Assessment Year 2013-14, the assessee filed its return of income on 30 November 2013, declaring a loss of Rs.14,39,56,613. Its case was taken up for scrutiny and a reference was made to the Transfer Pricing

The Tribunal, by the impugned common order dated 29.09.2022, partly allowed the appeal of the assessee and disposed of the appeal of the Revenue. The Revenue is in appeal before this Court challenging the said order.

In ITA No.580/2023, the Revenue has proposed the following substantial questions of law:

"Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in law in directing the Transfer Pricing Officer to exclude comparable namely to exclude comparable's namely, Rallis India Ltd as on ground of functional dissimilarity without appreciating that the selection of comparables in a case depends on transfer pricing on assessee's specific FAR analysis and specific facts brought out on record by the TPO and as per Rule 10B of I.T.Rules?"

"Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to grant working capital adjustment without an upper limit would make the profit earned within the permitted range even if no operating profit is earned and assesse had also failed to provide details or documentation as to how difference in working capital has impacted the profit margins of the comparable's"?

In ITA No.575/2023, the Revenue has proposed the following substantial questions of law: 1. 'Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature In law in directing Transfer Pricing Officer to exclude companies having earnings in foreign currency exceeding 40% of the turnover when

"Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in law in not without appreciating that the selection of comparables in a case depends on transfer pricing on assessee's specific FAR analysis and specific facts brought out on record by the TPO and as per Rule 10B of I.T.Rules?"

"Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing transfer Pricing Officer to restrict transfer pricing adjustment to international transactions alone contrary to provisions of the Act"?

Per contra, the learned counsel for the respondent-assessee supported the order of the Tribunal and submitted that the findings recorded by the Tribunal are pure findings of fact based on appreciation of material on record and do not give rise to any substantial question of law.

We have heard the learned counsel for the Revenue and the learned counsel for the respondent- assessee and have carefully perused the orders of the authorities below and the material placed on record.

The Revenue seeks to substitute its own assessment of comparability for that of the Tribunal by

In our considered view, it does not. The Tribunal has not excluded Rallis India Ltd. merely on the basis of a broad classification. It has examined the functions performed, the nature of the products manufactured and the raw materials used by the assessee and the comparable. Having found a material functional difference, it has reached a conclusion on comparability. Such a conclusion, founded upon appreciation of the material on record, cannot be characterised as perverse merely because another view may also be possible.

The jurisdiction under Section 260-A is not intended to permit this Court to undertake a fresh comparability analysis or re-appreciate the material which has already been considered by the specialised appellate Tribunal. Unless the finding is shown to be perverse, based on no evidence, or contrary to the statutory scheme, interference is not warranted. The Revenue has not demonstrated any such infirmity.

The next issue is the working-capital adjustment. The Tribunal noticed that the assessee had not initially furnished sufficient details to demonstrate the precise impact of differences in working capital upon the margins. Nevertheless, instead of either allowing the claim mechanically or rejecting it finally, the Tribunal directed the assessee to furnish the requisite details and remanded the matter to the Assessing Officer/Transfer Pricing Officer for consideration in accordance with the principles stated in Huawei Technologies India (P.) Ltd. v. JCIT reported in

The grievance of the Revenue is that the Tribunal directed grant of working-capital adjustment without prescribing an upper limit and that the assessee had not demonstrated the impact of the difference in working capital.

The submission overlooks the nature of the direction actually issued by the Tribunal. The Tribunal has not granted a quantified or unconditional adjustment. It has remanded the issue for examination by the Assessing Officer/Transfer Pricing Officer after requiring the assessee to furnish the relevant details. The very question whether an adjustment is warranted and, if so, the extent to which it can be computed in a reasonably accurate manner has been left open for determination by the competent authority.

Such a direction cannot be regarded as either perverse or contrary to law. The Tribunal has preserved the statutory requirement that the adjustment must be founded upon relevant material and reasonable accuracy.

The Revenue contends that the assessee and the Transfer Pricing Officer had not applied such a filter in the manufacturing segment and that the Tribunal therefore erred in directing exclusion of certain comparables.

Again, the contention does not take into account the actual nature of the Tribunal's order. The Tribunal has not finally determined that a particular filter must invariably be applied. It has found the adoption of 40 per cent by the CIT(A) to lack a proper basis and has directed the Assessing Officer/Transfer Pricing Officer to reconsider the issue consistently and in accordance with law. The Revenue will have full opportunity before the competent authority in the remanded proceedings to establish the appropriate filter on the basis of the material available.

The direction of remand, in the circumstances, is essentially a factual and procedural direction intended to ensure a proper comparability analysis. No question of law of the nature contemplated by Section 260-A arises therefrom.

The second issue concerns restriction of the transfer-pricing adjustment to the relevant international transactions. The Tribunal considered the assessee's contention in the light of the decisions relied upon before it

The Revenue submits that the Tribunal ought not to have so restricted the adjustment. However, the Tribunal's direction proceeds on the principle that the transfer-pricing provisions are concerned with determining the arm's-length price of international transactions with Associated Enterprises. The Tribunal has applied that principle to the facts before it and has issued a consequential direction in respect of the international transactions forming the subject matter of the transfer- pricing exercise.

The Revenue has not demonstrated that the Tribunal's conclusion suffers from perversity or that it has proceeded on an interpretation of the Act which is patently unsustainable. A mere disagreement with the conclusion reached by the Tribunal, particularly when the conclusion is

It is also significant that several of the directions issued by the Tribunal are remand directions. The Tribunal has not finally foreclosed the Revenue from examining the relevant issues. In respect of working capital, the assessee has been directed to furnish the requisite details; in respect of the foreign-exchange filter, the Assessing Officer/Transfer Pricing Officer has been directed to adopt a consistent approach in accordance with law.

The Revenue has, therefore, failed to establish that the findings of the Tribunal are perverse or that the impugned order gives rise to any substantial question of law requiring interference by this Court. The questions proposed in both appeals essentially seek reconsideration of factual determinations made in the course of the transfer-pricing exercise. Such re-appreciation is outside the limited jurisdiction of this Court under Section 260-A.

For the foregoing reasons, we are of the considered view that the questions raised by the Revenue do not warrant interference with the impugned order of the Tribunal. ORDER i) Income Tax Appeal No.580 of 2023 and Income Tax Appeal No.575 of 2023 are dismissed. ii) The common order dated 29.09.2022 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru in ITA No.2611/Bang/2018 and ITA No.2732/Bang/2018 stands confirmed.