Kerala High Court disposed of an income tax appeal challenging the ITAT Cochin Bench's order. The Court held that the remittal for a fresh Transfer Pricing study, despite a variation under 3%, had no infirmity. Consequently, the legal question raised was answered against the assessee and the appeal was dismissed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
WEDNESDAY, THE 21ST DAY OF DECEMBER 2022 / 30TH AGRAHAYANA,
1944
ITA NO.13OF 2019
(AGAINST THE ORDER IN ITA 151/COCH/2015
OF I.T.A.TRIBUNAL, COCHIN BENCH)
APPELLANT/RESPONDENT:
M/S.JOYALUKKAS INDIA LTD.,
(NOW M/S.JOYALUKKAS INDIA PVT.LTD),
MARINE DRIVE, SHANMUGHAM ROAD, KOCHI-682 031.
BY ADVS.
SRI.ANIL D. NAIR
SRI.SREEJITH R.NAIR
SMT. ARYA ANIL
SMT. NILOOFAR O. NIZAM
RESPONDENT/APPELLANT:
THE ASSISTANT COMMISSIONER OF INCOME TAX,
CORPORATE CIRCLE-1(2), KOCHI-682 018.
ADV.NAVNAEETH N. NATH
THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON
21.12.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
I.T.A. No.13/2019
2
JUDGMENT
(Dated: 21st December, 2022)
Basant Balaji, J.
The appellant in this appeal challenges the order of the income Tax Appellate Tribunal, Cochin Bench in ITA No.151/Coch/2015 dated 10.04.2018, whereby the appeal filed by the assessee was dismissed and the appeal filed by the Revenue was partly allowed for statistical purpose.
I.T.A. No.13/2019
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issue of notice under Section 143(2) of the Act. A reference to
the Transfer Pricing Officer was made to determine whether the international transactions have been made at Arm’s Length Price in accordance with Section 92CA of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short).
27.01.2014 determined the TP Adjustment to Arm’s Length Price to the extent of Rs.3,69,19,518/-. The respondent thereafter passed draft order under Section 143(3) read with Section 144C(1) dated 25.03.2014, making the uphold adjustment of Rs.3,69,19,518/- to the value of international transaction entered into by the appellant. Though the appellant filed objections to the draft order before the Dispute Resolution Panel vide order dated 29.12.2014, the Panel directed enhancement to the effect that adjustment to be made to the Associated Enterprise Jewellery Segment is to be taken at 7.8% of the operating cost. In accordance with the direction given by the Dispute Resolution Panel, TP adjustment which was taken at Rs.3,69,19,518/-. As per
I.T.A. No.13/2019
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the order dated 27.01.2014 it is taken as Rs.4,58,99,641/- vide
order under Section 143(3) read with Section 144C(13) of the Act.
16.01.2015, the appellant as well as the revenue filed appeal
before the income tax tribunal. The appeal filed by the appellant was dismissed and the appeal filed by the revenue was partly allowed for statistical purposes. Aggrieved by the appeal allowed by the revenue, this appeal is filed by the appellant.
and held as follows:
“3.1.6.4 Having said that we find that the average mark-up earned by the companies engaged in distribution of jewellery at 2.18% at Page 12 of the TPO is a good example of the margins in distribution. Merely because the companies selected were engaged in distribution of diamond jewellery also does not make them bad comparables as the assets and risk involved are the same. Thus the mark-up attributable to the manufacturing activity for the Non-AE jewellery segment of the assessee has been rightly computed at 4.18% which should be the benchmark or the arm’s length price for the manufacturing activity for the AE segment of the assessee, where the PLI (OP/OC) of the assessee is (-) 3.62% (page 14 of the TPO’s order) and the difference comes to 7.8%. No further exercise is required to determine the ALP of manufacturing activity of the assessee’s AE segment. The assessing Officer/TPO is directed accordingly. Objection of the assessee is rejected.”
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Tribunal was whether the Dispute Resolution Panel, Bangalore, was right in holding the average mark-up earned by the company engaged in the distribution of jewellery was to be fixed at 2.18% instead of (-) 0.02% determined by the TPO and in directing the ALP of the assesses known-AE Segment was to be fixed at 4.18% instead of 7.5% determined by the TPO and the Tribunal held as
follows:
“We have heard the rival submissions and perused the record. The TPO has considered the mark up of MD Overseas Ltd. as comparable and PLI was worked out at (-) 1.14%. Since non AE jewellery segment margin was computed by the assessee at 6.36%, the assessee had to get the non AE jewellery segment margin at 6.36%. Hence by balancing the figure by adding (-) 1.14% of the above, the Assessing Officer got the adjusted margin of assessee’s non AE jewellery segment at 7.5% and made the addition on that basis. In our opinion, it is not appropriate to balance in such a way without making proper TP study on the issue. Accordingly, we remit this issue to the file of the Assessing Officer to refer the matter afresh to the TPO for further TP study and decide accordingly. This ground of appeal is partly allowed for statistical purposes.”
consideration:
In the facts and circumstances of the case, ought not the Tribunal have held that as the variation between arm’s length price
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and the price at which the international transaction was undertaken is less than three per cent, no adjustment towards arm’s length price is called for.
Ongoing through the orders of the Dispute Resolution Panel
as well as that of the Tribunal, it can be seen that the Tribunal has
held that without making a proper TP study on the issue, the addition to be made is without any basis and therefore the matter was remitted to the assessing officer to refer the matter afresh to the TPO for further TP study and decide accordingly. We do not find any infirmity in the order and remitting the matter for fresh study. In view of the above, we are of the considered opinion that the question of law stated for consideration in this appeal does not arise. Hence, the question of law raised is answered against the assessee and the appeal is dismissed.
Sd/-
S.V.BHATTI, JUDGE
Sd/-
BASANT BALAJI, JUDGE
ss
I.T.A. No.13/2019
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APPENDIX OF ITA 13/2019
PETITIONER ANNEXURES:
ANNEXURE ATRUE COPY OF THE ORDER U/S.92CA DATED
27/01/2014 PASSED BY THE TRANSFER PRICING
OFFICER.
ANNEXURE BTRUE COPY OF ORDER OF THE DISPUTE
RESOLUTION PANEL DATED 29/12/2014 UNDER
SECTION 144C(5) OF THE ACT.
ANNEXURE CTRUE COPY OF THE FINAL ASSESSMENT ORDER
PASSED BY THE RESPONDENT U/S.144c
R.W.S.143(3) OF THE ACT DATED 16/01/2015.
ANNEXURE DTRUE COPY OF THE ORDER OF THE INCOME TAX
APPELLATE TRIBUNAL, COCHIN BENCH DATED
01/04/2018.
3 issues framed by the court
Whether the Tribunal erred in remitting the matter for fresh TP study when the variation in arm's length price was less than 3%?
Whether the substantial question of law regarding adjustment for transactions with less than three per cent variation arises in the facts?
Whether the appeal filed by the appellant should be allowed or dismissed?
4 provisions across 1 enactments
M/S.JOYALUKKAS INDIA LTD.
THE ASSISTANT COMMISSIONER OF INCOME TAX
S.V.Bhatti
Basant Balaji
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court