HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR (1) D.B. Income Tax Appeal No. 72 / 2015 C I T Alwar ----Appellant Versus M/S Sakata Inx (India) Ltd ----Respondent Connected With (2) D.B. Income Tax Appeal No. 58 / 2012 C I T Alwar ----Appellant Versus M/S Sakata Inx Ltd ----Respondent (3) D.B. Income Tax Appeal No. 63 / 2012 C I T Alwar ----Appellant Versus M/S Sakata Inx Ltd ----Respondent (4) D.B. Income Tax Appeal No. 64 / 2012 C I T Alwar ----Appellant Versus M/S Sakata Inx Ltd ----Respondent For Appellant(s) : Mrs. Parinitoo Jain with Mr. Mukesh Meena For Respondent(s) : Mr. Sandeep Taneja Mr. Sanjay Jhanwar with Ms. Archana (2 of 9) [ ITA-72/2015] HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH JUDGMENT 18/05/2017 1. In all these appeals, common question of law and facts are involved and as they relate to same assessee, these appeals were heard together and decided by this common judgment. 2. By way of these appeals, appellant has assailed judgment and order of Tribunal whereby Tribunal has dismissed appeal of department and cross objection of assessee as well as appeal of assessee are allowed for statistical purposes. 3. This court while admitting appeal framed following substantial question of law:- 3.1 Appeal No.58/2012 admitted on 19.7.2012, Appeal No.63/2012 admitted on 3.5.2012 & Appeal No.64/2012 admitted on 27.5.2013 "1. Whether Tribunal was legally justified in not holding that Arms Length Price of import of raw material and spares from associated enterprises was to be adjusted for Rs.1,45,52,537/- from income of assessee u/s 92C? 2. Whether Tribunal was legally justified in restoring issue of Rs.40,42,759/- to CIT(A) when CIT(A) specifically held that u/s 154 there was mistake apparent and accordingly operating profits were re-worked by CIT(A) and addition was made?" 3.2 Appeal No.72/2015 admitted on 11.1.2017 (3 of 9) [ ITA-72/2015] "1. Whether Tribunal was legally justified in holding that Arms Length Price of import of raw material and spares from Associated Enterprises was not to be adjusted for Rs.1,37,84,604/- from income of assessee u/s 92C? 2. Whether Tribunal was legally justified in holding that no adjustment was required as per Section 92C(2) at Arms Length specifically when ALP was adjusted by calculating mean margin of 8.64% on operating revenue by taking single year data without any working capital adjustment? 4. Counsel for appellant has taken us to order of AO and contended that comparison which has been made by AO in its order which is reproduced as under:- With regard to identification of comparables explanation furnished by assessee was considered and properly examined. same is summarised below: (1) Camex Intermediaries Ltd.: 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 . segmental data for this company was available for F.Y. 02-03 and accordingly assessee had identified it as comparable. However, date for 03-04 and 04-05 were not available on date, of study as well as on date. As mentioned earlier, comparable companies whose contemporary data was available have been taken in fresh analysis as it best describes economic scenario and identical market condition. Hence, margin of this company is not considered for benchmarking margins of assessee. (2) Atul Ltd.: This company was proposed to be rejected on ground of significant related party transactions, as financial information would not be considering as reasonable representing financial results of uncontrolled transactions. assessee claimed that it had adopted rejection criteria of filtering out companies which had related party transactions in excess of 25%. As per figures available (4 of 9) [ ITA-72/2015] with assessee, this company had 14.26% related party transactions as percentage of sales (Total 99.75 crore related party transaction as against sales of Rs.699.38 crore). India assessee has quoted ITAT (Delhi) decision in case of Sony India (Pvt.) Ltd. which has observed . entity can be taken as uncontrolled if its related party transactions do not exceed 10 to 15% of total revenue... It was claimed by assessee that comparable company s related party transaction did not exceed 15% of sales, same cannot be rejected on account of related party transactions. However, observation regarding 10-15% related party transaction squarely covers case of company which, according to assessee, has 14.26% (i.e. above 10% and almost 15%) related party transaction. As per 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 same is rejected. Further, products of M/s Atul Ltd. show that it has varied group of products, such as Sulpha drug intermediates, pharmaceutical intermediates, disinfectants etc. This clearly chows that even product range of this company are not comparable.. Companies added for benchmarking Manufacturing function margin:. assessee deals in printing inks with NIC Code 24222. However search on CMIE (Prowess) database revealed that 2 companies had not been included in list of comparables. While M/s Indian Toners & Developers Ltd. had been taken out by assessee on basis of non-comparable product , company M/s Rainbow Ink & Varnish Manufacturing Co. Ltd. had not been identified in T.P. Study. Accordingly, it had been proposed to include these two companies as comparables. (1) M/s Indian Toners & Developers Ltd: assessee claimed that this company manufactures toners and developers for photocopies, laser printers and digital printers. (5 of 9) [ ITA-72/2015] same was not considered by assessee to be comparable to printing inks manufactured by Sakata India. However, it is seen that 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 products of assessee. Further, this company as well as assessee both are under same NIC Code 24222. Hence, assessee s objection is not considered valid, and this company needs to be included as comparable. (2) M/s Rainbow Ink & Varnish Manufacturing Co. Ltd: It was accepted by assessee that this company is engaged in manufacture of printing ink. Hence, this is also considered as comparable. Companies identified for Distribution function: Out of 5 comparables identified for distribution function, following 2 companies did not have financial date for March 2005: (1) Madhya Bharat Papers Ltd. (2) Multiflex Laxmi Print Ltd. other companies are: (1) DIC India Ltd: This Company was proposed to be rejected on account of having related party transactions. 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 other hand, this company had been taken out in manufacturing function on account of non-comparable products (by assessee). However, it was seen that this also dealing in printing inks. Hence, this is considered Comparable under both segments. (2) Metrochem Industries Ltd.: It was proposed to be excluded on account of product differences. assessee has objected to 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 comparable in (6 of 9) [ ITA-72/2015] manufacturing segment as well, and hence this is considered as comparable for both segments. 5. conclusion which has been reached by AO ought not to have been disturbed by tribunal and comparison which has been made and amount which has been deducted which reads as under:- "Accordingly, Arm's Length Price of import of raw material and spares by 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/-/. Assessing Officer shall add this amount (Rs.1,45,52,537/-) to income of assessee." 6. She further contended that tribunal has committed error in holding against department. 7. Counsel for respondent Mr. Jhanwar has relied upon 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 under:- "On aforesaid analysis, Tribunal found that it had in case of Carlyle India Advisors (P.) Ltd. (supra) on detailed examination found only one of eight comparables selected by Revenue i.e. IDC (India) Ltd. applicable to arrive at ALP of its services. Revenue in case of respondent-assessee had selected same eight comparables as selected in case of Carlyle India Advisors (P.) Ltd. (supra). However 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 (7 of 9) [ ITA-72/2015] that figures of IDC (India) Ltd. to arrive at ALP were of subject Assessment Year. It may also be pointed out that decision of Tribunal in case of Carlyle India Advisors (P.) Ltd. (supra) was subject matter to challenge by Revenue before this Court. This Court by order dated 22nd February, 2013 refused to entertain appeal of Revenue CIT v. Carlyle India Advisors (P.) Ltd. MANU/MH/0544/2013 : [2013] 357 ITR 584/214 Taxman 492/32 taxmann.com 23 (Bom.). 8. We note that finding of comparable to be adopted to determine ALP as basis of activity conducted by respondent-assessee is essentially finding of fact. view taken by Tribunal is reasonable and possible view. Moreover it has not been shown us to be in any manner perverse. Thus question as raised does not give rise to any substantial questions of law." 7.1 He has also relied upon decision of Commissioner of Income Tax-3 vs. Goldman Sachs (India) Securities (P) Ltd. (2016) 290 CTR (Bom) 236 wherein it has been held as under:- 5. (a) We found that during subject Assessment Year, Respondent- Assessee was providing services of Broking Services, Business Support Services and Investment advisory services to its customers. TPO had adopted list of comparable companies which were primarily engaged in providing services as merchant banker as comparable to determine ALP in respect of Investment Advisory Services rendered by it to its AEs. companies selected by TPO were identical to one selected in Carlyle India Advisors (P) Ltd., aforesaid decision of TPO in Carlyle (I) Advisors (P.) Ltd. v. Asstt. CIT [2012] 24 taxmann.com 176 (Mum.) was subject matter of consideration by Tribunal in ITA No. 7901/Mum/2011. Tribunal after examining business of each of individual comparable concluded that they were different from that of services provided by Carlyle India Advisors (P.) Ltd. (8 of 9) [ ITA-72/2015] {supra). This is so as comparable used were in merchant banking business while M/s. Carlyle India (supra) just like Respondent-Assessee were in Investment Advisory Services. Revenue carried issue from order of Tribunal rendered on 4th April, 2012 in Carlyle India Advisors (P.) Ltd. {supra) to this Court in appeal. appeal being {CIT v. Carlyle India Advisors (P.) Ltd. MANU/MH/0544/2013 : [2013] 32 taxmann.com 23 (Bom.)) - wherein this Court refused to entertain Revenue's appeal as is reflected in order dated 22nd February, 2013. Thus, we see no reason to interfere with impugned order of Tribunal; (b) In circumstance, Tribunal in impugned order adopted same comparable it had adopted in case of Carlyle India Advisors (P.) Ltd. (supra) for purpose of arriving at ALP in respect of its International Transaction; (c) Further, Mr. Kotangale, learned Counsel appearing for Revenue very fairly points out that similar issue as arising herein, was 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 above case also Assessee was engaged in business of advisory services like Respondent here and TPO had relied upon comparable selected by him in case of Carlyle India Advisors (P.) Ltd. {supra) to determine ALP in case of Assessee therein i.e. General Atlantic (P.) Ltd. {supra). Tribunal allowed appeal in General Atlantic (P.) Ltd. {supra) by following its decision in Carlyle India Advisory (P.) Ltd. (supra) just as Tribunal has done in Respondent's appeal by impugned order; and (d) Accordingly, question (c) does not give rise to any substantial question of law. Thus not entertained. (9 of 9) [ ITA-72/2015] 8. issues are answered in favour of assessee and against Department. 9. appeals stand dismissed. copy of this order be placed in each file. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 86-89. CIT, Alwar v. Sakata Inx (India) Ltd