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2024 Supreme(Online)(ITAT) 2993
INCOME TAX APPELLATE TRIBUNAL (HYDERABAD BENCH)
SHRI LALIET KUMAR, J, SHRI MADHUSUDAN SAWDIA, AC
R A K CEREMICS INDIA PRIVATE LIMITED HYDERABAD – Appellant
Versus
DCIT CIRCLE-3(1) HYDERABAD – Respondent
ITA 61/HYD/2023[2014-15]
For the Appellants/Petitioners: None
For the Respondents: None
Assessment adjustments should be based on comparable functions and financial metrics, with flexibility in product diversity considered under Transfer Pricing regulations.
Headnote:(A) Income Tax Act, 1961 - Sections 143(3), 144C(13), 254 - Assessment year 2014-15 - Appeal against the consequential assessment order passed by the Deputy Commissioner of Income Tax, challenged on the basis of errors in comparables used for Transfer Pricing adjustments - The Tribunal held that the inclusion of HSIL Limited and Cera Sanitaryware Limited in the comparable set was justified, as their functional profiles were sufficiently aligned with the appellant’s business model, despite the appellant's objections based on R&D expenditures and product diversification. - The Tribunal directed the Assessing Officer to exclude Cera Sanitaryware from comparables based on financial performance metrics and variability in revenue applicable to distinct product lines. - Appeal partly allowed. (Paras 3-17)
| Table of Content |
|---|
| 1. assessment and appeal initiation based on the income tax act. (Para 1 , 2) |
| 2. details on comparable companies and the taxpayer's objection to included companies. (Para 3 , 6) |
| 3. analysis and reasoning behind comparability acceptance. (Para 5 , 9) |
| 4. direction to assessing officer regarding mat credit. (Para 16 , 17) |
ORDER
PER LALIET KUMAR, J.M.
The appeal of the assessee for A.Y. 2014-15 arises from the assessment order of the Deputy Commissioner of Income Tax, Circle – 3(1), Hyderabad passed u/s 143(3) r.w.s. 144C(13) r.w.s. 254 of the Income Tax Act dated 28.11.2022.
2. The grounds raised by the assessee read as under :
“1. On the facts and in the circumstances of the case and in law, the consequential assessment order passed by Deputy Commissioner of Income Tax, Circle 3(1) pursuant to directions of the Hon'ble Dispute Resolution Panel ('Hon'ble Panel') and order of Hon'ble Income Tax Appellate Tribunal ('Hon'ble ITAT') under Section 143 (3) read with Sections 144C (13) and 254 of the Income Tax Act, 1961 ('the Act') to the extent prejudicial to the Appellant, is bad in law and is liable to be quashed.
2. On the facts and in the circumstances of the case and in law, Hon'ble Panel erred in upholding the action of the learned Transfer Pricing Officer ('Ld. TPO') / Learned Assessing Officer ('Ld. AO') in proposing an adjustment of INR 3,33,61,422 to the international transactions pertaining to purchase of raw materials / finished goods by the Appellant to its Associated Enterprises ('AEs').
3. On the facts and in the circumstances of the case and in law, Ld. AO / Ld. TPO / Hon'ble Panel has erred in including companies in the comparable set which are not comparable to the Appellant's functions, asset base and risk profile, viz., (a) Cera Sanitary Ware Limited and (b) HSIL Limited.
4. On the facts and in the circumstances of the case and in law, Ld. AO / Ld. TPO / Hon'ble Panel has erred in considering certain cost elements as non-operating in nature while computing operating margins of tested party and comparable companies.
5. On the facts and in the circumstances of the case and in law, Ld. AO has erred in crystalizing tax demand by ignoring the MAT credit carried forward from previous assessment years.”
3. The brief facts of the case are that assessee is a wholly owned subsidiary of RAK Ceramics PSC, UAE and was engaged in the business of manufacturing and sale of ceramic tiles and sanitary wares. Assessee company e-filed its return of income on 30.11.2014 declaring total income of Rs.4,74,96,090/-. The case was selected for scrutiny under CASS and notice u/s 143(2) dt.28.08.2015 was issued and served upon the assessee. In response, assessee furnished the information. Thereafter, the case was referred to TPO on 20.10.2016, who passed order dt.31.10.2017 u/s 92CA(3) of the Act computing the adjustment for the purpose of arms length price at Rs.2,87,68,954/-. Accordingly, the total adjustments amounting to Rs.2,87,68,954/- were added to the income of the assessee. Thereafter, penalty proceedings u/s 271BA were initiated separately. 3.1. Aggrieved to the addition, assessee company filed objection before the Dispute Resolution Panel, Bangalore, who directed to recompute the adjustments. As per the directions of DRP, Assessing Officer vide order dt.24.10.2018 has recomputed the final adjustment for the purpose of arms length price at Rs.2,87,68,954/- and the same was added to the income of the assessee company. Thus, assessment was completed u/s.143(3) r.w.s 144C(13) on 30.10.2018 determining total taxable income at Rs.7,62,65,040/-. Subsequently, the assessee preferred an appeal against the assessment order before ITAT. The Hon'ble ITAT restored the issue back to the Hon'ble DRP to adjudicate the same afresh. The DRP vide order u/s.144C(5) r.w.s. 260A dated.31.10.2022 directed to recompute the adjustments. Accordingly, as per the direction of the DRP, the DCIT/ACIT, TP3 Hyderabad has recomputed and revised arms length pric
