Dismissed

B.Parameswaran Bharathan v. Commissioner of Income Tax

Kerala HC22 Jan 2019ITA/99/2012

Case brief

AI extract

What is this about?

The High Court of Kerala dismissed the Income Tax Appeal filed by a proprietary concern. The Court upheld the Tribunal and lower authorities' findings regarding the addition made under Section 92C(4) based on Transfer Pricing adjustments and the valid exercise by the TPO in fixing Arm's Length Price.

What did the court decide?

Appeal rejected and questions of law answered in favour of Revenue.

B.Parameswaran Bharathan Vs Commissioner of Income Tax — Specific Performance | Kerala HC (2019)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

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THE HONOURABLE MR. JUSTICE ASHOK MENON

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TUESDAY ,THE 22ND DAY OF JANUARY 2019 / 2ND MAGHA, 1940

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ITA.No. 99 of 2012

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AGAINST THE ORDER/JUDGMENT IN ITA 159/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27.02.2012

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APPELLANT/S:

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B.PARAMESWARAN BHARATHAN QUILON EXPORT ENTERPRISES, PARAMESWARA NAGAR, KOLLAM.

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BY ADVS. SRI.P.GOPINATH (SR.) SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.PREMJIT NAGENDRAN

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RESPONDENT/S:

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COMMISSIONER OF INCOME TAX KOWDIAR, THIRUVANANTHAPURAM-695003.

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BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX

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OTHER PRESENT:

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THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.No.99 of 2012

JUDGMENT

Ashok Menon, J.

Aggrieved by the order of the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.159/(Coch)/2007 dated 17.02.2012 the assessee is before us.

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The assessee is a proprietary concern engaged in purchase of raw cashew nuts from abroad and export of processed cashew kernels. This appeal pertains to the assessment year 2003-04. The Assessing Officer (for short “AO”) had made an addition of Rs.23,72,129/vide Annexure B under Section 92C(4) of the Income Tax Act, 1961 (for short “the Act”) as income from international transactions based on the decision of the Transfer Pricing Officer (TPO) under Section 92CA(3) dated 16.03.2006 at Annexure A, wherein Arm's Length Price (ALP) was fixed by the TPO. The appeal before the Commissioner of Income Tax (Appeals),

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Thiruvananthapuram failed and the assessment of the AO was confirmed vide Annexure C order dated 23.11.2006.

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The second appeal preferred by the assessee before the

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ITA.No.99 of 2012

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Tribunal also was in vain and the Commissioner's order was upheld vide Annexure D order dated 29.07.2011.

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The main objection raised by the assessee in this appeal is that being an agricultural commodity, there is no standard bench mark for fixation of price. The ALP for all the transactions were explained with reference to the comparable uncontrolled price method

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and similar transactions with unconnected parties. It is argued that the appellate Tribunal should have found that the appellant had not tried to avoid payment of any tax. The TPO has very conveniently looked into

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only those transactions, which were in favour of the Revenue from out of the data supplied by the appellant. Therefore, the fixation of ALP by TPO is not fair.

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The following substantial questions of law arise for consideration:

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“i) Whether on the facts and circumstances of the case the Hon'ble Tribunal was justified in sustaining the order of the lower authorities for addition of Rs.23,72,139/under Section 92C(4) as income on international transactions ?

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ii) Whether on the facts and circumstances of the case the Hon'ble Tribunal was justified in sustaining the order of the assessing

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ITA.No.99 of 2012

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officer making addition of Rs.23,72,129/merely picking up some of those transactions which were in favour of the revenue?”

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The Tribunal found that the comparison made by

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the TPO of the commodities involved in similar

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purchases from other non-associated enterprises, was at

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variance to the prices at which the appellant had

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purchased the raw-materials. It is then found that the

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difference was more than 5%, and therefore, the

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objection of the assessee regarding fixation of ALP is not sustainable.

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We heard the learned Senior Counsel, Government

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of India (Taxes) and the learned Counsel for the

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appellant.

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The contention raised by the assessee that

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there was an embargo in referring the issue to the TPO

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for reason of the Instructions issued by the CBDT was

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dealt with elaborately, both by the first appellate

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authority and the Tribunal. Instruction No.3 of the

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CBDT dated 20.05.2003 required references to the TPO,

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if the value of international transaction exceeded Rs.5

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crores. There is, however, no prohibition insofar as

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ITA.No.99 of 2012

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the reference being made even when valuation is lower. In the present case, the reference was made with the approval of the Commissioner of Income Tax. We do not find any reason to interfere with the said findings of

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the lower authorities.

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The main objection of the assessee is in the TPO having picked up certain transactions for the purpose of fixing ALP. The assessee had produced the tables showing the prices of imports and exports with the Associated Enterprises as also with unconnected enterprises. The assessee's contention was that in certain cases the import price of the transaction with the Associated Enterprises was lower than that with the unconnected enterprises. The TPO, however, took only

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those transactions where the import price with the Associated Enterprises was higher. We cannot but observe that there was no warrant for the TPO to interfere with the valuation of the transactions; where the assessee had shown lower valuation for imports from

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the Associated Enterprises, since those were the admitted price of the assessee itself.

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ITA.No.99 of 2012

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In those instances where there was a higher valuation shown in the imports from the Associated Enterprises, the ALP was fixed by the AO finding that there was a difference of more than 5% with the

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valuation of transactions with unconnected enterprises. As has been contended by the assessee, the very intention of fixation of ALP is to ensure that by mere manipulation of prices ie: showing higher prices for imports and lower for exports, the actual profit in a transaction shall not be suppressed. Thus resulting in tax being avoided on the income generated in a transaction with an Associated Enterprise; the benefit of which will flow back to the assessee itself. The exercise undertaken by the TPO, according to us, was perfectly in tandem with the intention of the Legislature. There can be no ground taken that there was a pick and choose adopted by the AO. The ALP had to

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be fixed only with respect to those instances of imports, where the valuation was higher when the transaction was with an Associated Enterprise than a similar transaction with unconnected enterprise.

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ITA.No.99 of 2012

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In the light of the above, the questions of law

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raised are answered in favour of the Revenue and

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against the assessee and the appeal would stand

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rejected, leaving the parties to suffer their costs.

Sd/-

K.VINOD CHANDRAN

JUDGE

Sd/-

ASHOK MENON

JUDGE

dkr

ITA.No.99 of 2012

APPENDIX

APPELLANT'S/S ANNEXURES:

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ANNEXURE-A	TRUE COPY PRICING OF 16/3/2006	OF THE FICER UNDE ISSUED TO	ORDER OF THE TRANSFER R SECTION 92CA(3) DATED THE APPELLANT.
ANNEXURE-B	TRUE COPY 29/3/2006 THE DEPUTY THE APPELL	OF THE FOR THE COMMISSI ANT.	ASSESSMENT ORDER DATED YEAR 2003-04 ISSUED BY ONER OF INCOME TAX TO
ANNEXURE-C	TRUE COPY 23/11/2006 THE COMMIS THE APPELL	OF THE FOR THE SIONER OF ANT.	APPELLATE ORDER DATED YEAR 2003-04 ISSUED BY INCOME TAX (APPEALS) TO
ANNEXURE-D	TRUE COPY 29/7/2011 APPELLANT.	OF THE ISSUED B	TRIBUNAL ORDER DATED Y THE TRIBUNAL TO THE
ANNEXURE-E	TRUE COPY 9/8/2011 R MEMBER UND TAX ACT IS	OF THE EFERRING ER SECTIO SUED TO TH	TRIBUNAL ORDER DATED THE MATTER TO THE 3RD N 255(4) OF THE INCOME E APPELLANT.
ANNEXURE-F	TRUE COPY THE 3RD ME	OF THE O MBER ISSUE	RDER DATED 6/1/2012 OF D TO THE APPELLANT.
ANNEXURE-G	TRUE COPY 17/2/2012 APPELLANT.	OF THE ISSUED B	TRIBUNAL ORDER DATED Y THE TRIBUNAL TO THE

B.Parameswaran Bharathan v. Commissioner of Income Tax

Case brief

What is this about?

What did the court decide?

B.Parameswaran Bharathan v. Commissioner of Income Tax

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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