Income Tax Appellate Tribunal - Chennai
Indian Additives Ltd., Chennai vs Dcit, Chennai on 28 February, 2019
आयकर अपीलीय अिधकरण, 'डी' ायपीठ,चे ई
IN THE INCOME TAX APPELLATE TRIBUNAL , 'D' BENCH, CHENNAI
ीएन.आर.एस. गणेशन, ाियक सद एवं ी ए.सजयरामन, लेखा सद के सम#
BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER
AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER
आयकरअपीलसं/I.T.A. No.1289/Chny/2017
िनधा'रणवष'/Assessment Year : 2007-08
M/s. Indian Additives Ltd., Vs The Deputy Commissioner of
Express Highway, Manali, Income Tax,
Chennai600 068. Corporate Circle-2(2),
Chennai.
PAN: AAACI1445G
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओरसे/ Appellant by : Mr. M.Viswanathan,Advocate
यथ क ओरसे/Respondent by : Mr.M.Srinivasa Rao, CIT
सुनवाईक तार ख/Da t e of he ar in g : 22.01.2019
घोषणाक तार ख /D at e of Pr on oun c e m ent : 28.02.2019
आदे श/O R D E R
Per S.JAYARAMAN, AM:
This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals)-9, Chennai, in ITA No. 36/CIT(A)-9/2010-11 dated 31.03.2017 for assessment year 2007-08.
2. M/s. Indian Additives Ltd., the assessee company, is engaged in the business of manufacture and sale of lubricating oil additives, which is used for automobiles. While making the assessment for the assessment year 2007-08, the Transfer Pricing Officer/ Assessing Officer, inter-alia, determined the arm's length price at ₹7,52,00,000/- adopting TNMM by 2 ITA No.1289/Chny/2017 comparing three companies. Aggrieved, the assessee filed an appeal and the learned CIT(A) enhanced the same. Aggrieved against that order, the assessee raised the following grounds in this appeal:-
"1. Arms Length Price - Rs.1.74 Crores subsequently reduced by AO by way of Rectification Order Rs.1.22 Crores and further enhanced to Rs.0.52 Crores by the CIT(A):
The appellant submits that the appellant is in the manufacture of lubricating oil additives which is used for Automobile Industry. Whereas the company selected by TPO in his order dated 28.10.2010 is not comparable as the line of business is entirely different. Moreover, the size and nature of comparable's business varies with appellant company.
The same issue has already been allowed in the earlier Assessment Years namely AY 2005-06 and 2006-07.Further the appellant submits that the enhancement made by the CIT is without any basis as the company adopted by the TPO is not in line with the Appellant's company in all respects."
3. The learned AR submitted that the assessee is a joint venture between Chevron Oronite Company LLC, US and Chennai Petroleum Corporation Limited, Chennai with each entity holding 11,83,401 shares of the face value of Rs.100/- each, amounting to a total paid up share capital ofRs.23,66,80,200/-.The assessee supplies additives directly to fuel and lubricant companies which use ssuch additive to blend lubricants and either supply the same to Original Equipment Manufacturers ( OEM's )directly or market them under their own brand names through their retail distribution channels. The assessee is licensed to manufacture, market and supply Oronite fuel and lubricant 3 ITA No.1289/Chny/2017 products in India. The products sold to Chevron, Singapore Oronite are Over-based Sulfurised Calcium Phenate and Calcium salt of a mannich based Alkyl Phenol. The method adopted in respect of costing the same is a sum of the following;
1. Cost of raw materials consumed in the process of manufacture based on actual purchase prices and actual usage in process
2. Cost of actual overheads incurred allocated over the actual plant output based on audited data available for the year ended 31st March 2007. Overheads include Employee costs, Power-Water-Fuel costs, Repairs & Maint costs, Depreciation, Transport, Rent, Rates & taxes, Insurance, Security expenses, Printing & Stationery and Telephone costs.
3.1 Thus, the Ld AR continued his submissions stating that it is apparent from the above that the raw materials used by the appellant are subjected to a proprietary process in order to arrive at the specifications of the semi-finished products sold to Chevron Oronite, Singapore. Further processing is carried on by Chevron Oronite, Singapore, in order to meet the specifications required by their end customers. Such semi-finished products have never been sold to any other customer in large quantities as result of which there are no instances of comparative sales that could be furnished. The Transfer Pricing Study done by the assessee is in accordance with Sec.10 B of the Income Tax Rules contains the basis of the prices adopted by it which was the market accepted, contemporaneous market rates. The 4 ITA No.1289/Chny/2017 pricing was with reference to the material available as on the date when the study was made, i.e 24-10-2007. The TPO was of the opinion that the pricing adopted by the Appellant was not at arms length. No reasoning whatsoever was adduced by the TPO for the arbitrary rejection of the justification provided by the Assessee Company. Thereafter, the TPO initiated a search , identified four companies viz M/s.Amines Ltd, Ciba India Ltd (Merged), Iftex Oil & Chemicals Ltd, Pondy Oxides & Chemicals Ltd as the comparables to the Assessee Company. The Ld AR submitted that the Companies viz:- M/s.Amines Plasticizers Ltd, Ciba India Ltd (Merged), Iftex Oil & Chemicals Ltd, Pondy Oxides & Chemicals Ltd are not comparable with the Appellant for the following reasons;
Basis Assessee Amines & Ciba India Iftex Oil & Pondy Oxides
Company Plasticizers Ltd Chemicals & Chemicals
Indian Additives Ltd Ltd Ltd
Ltd(IAL)
1) Structure of Joint Venture Listed Listed Information not Listed
Entity between Company Company Available Company
Chennai Petroleum
Corporation Ltd
(CPCL) and
Chevron Oronite
USA
(COCL). CPCL is a
Government
Company and
holds 50% of
equity in IAL.
IAL is
Unlistedcompany.
2) Capital Equally held by 100% Held by 100% 100%
Structure Indian shareholding Foreign entity shareholding shareholding
Company (CPCL) Indian, no (BASE Group) Indian, no Indian, no
and foreign foreign foreign
foreign participation participation participation
Collaborator
(CCCL)
5
ITA No.1289/Chny/2017
3) Related Yes Nil Yes Nil Nil
Party
Transactions
forAY
2007-08
4) Nature of Manufacture, sale, Manufacture, Manufacture, Manufacture, Manufacture,
Activities trading and testing trading and trading of trading Lube trading of Zinc
analysis, both with Technical Synthetic oil additives Oxides
related and Services of Colouring
unrelated parties. Plasticides Substance
5) Scope of International Domestic International Domestic Domestic
Business
activities
6) Type of Govt owned Oil
customers companies
cum Lubricant
manufacturers like
IndianOil, BPCL,
HPCL and
private lubricant
manufacturers like
Gulf Oil,
Tidewater, Shell,
etc...
6) Nature of Additive packages Ethanolamines, Coating Additives for Metallic
Product for Lubricant Plasticizers for Chemicals, Lubricating oil Oxides, Plastic
Industry the Plastic textile for Additives for
Industry Chemicals for the Automobile the Plastic
the Synthetic Industry Industry
Colouring
Substances
7) Volume of Operating Income Operating Operating Operating Operating
Business as Rs.156.99 Crores Income Income Income Rs.8.47 Income
computed by Operating Rs.101.30 Rs.527.44 Crores Rs.1 10.40
TPO Cost Rs.156.63 Crores Crores Operating Crores
Crores Operating Operating Cost Rs.7.28 Operating
Operating Profit Cost Cost Rs.501.83 Crores Cost Rs.104.04
Rs.0.36 Rs.95.96 Crores Operating Crores
Crores Crores Operating Profit Operating
Operating Profit Rs.1.19 Crores Profit
Profit Rs.25.61 Rs.6.36 Crores
Rs.5.34 Crores
Crores
8) Profit 0.23% 5.27% 4.86% 14.05% 5.76%
Margin 0.23%
as per TPO
The aforesaid Companies have never competed with IAL in any of the businesses since IAL's inception and on account of the fact that they are engaged in totally different streams of businesses. Hence, these 6 ITA No.1289/Chny/2017 Companies are not comparable companies. Thus, neither in terms of the industry serviced, products dealt with, size of business operations, the volume of transactions engaged in nor turnover earned was there any comparable parameter between the Appellant and these companies. The Ld AR submitted that 40% sales are made to Government companies Viz BPCL,HPCL& IOC , the sales are made on competitive basis through tender, the same transactions have taken place in the earlier years and it has been decided in its favour by the CIT(A) and it has been accepted. Further, there are discrepancies in the figures taken by the TPO from its financials . The Ld AR relied on various case laws and emphasized that only likes can be with like etc. Per contra, the Ld DR supported the orders of the Lower authorities.
4. We heard the rival submissions and gone through relevant materials. It is clear from the submissions of the Ld AR , extracted supra, there are apparent variations in terms of the industry serviced, products dealt with, size of business operations, the volume of transactions engaged , turnover earned etc between the impugned comparables and the assessee. Further, the assessee pleaded that the same transactions have taken place in the earlier years and it has been decided in its favour by the CIT(A) and it has been accepted etc. In the facts and circumstances, we deem it fit to remit these 7 ITA No.1289/Chny/2017 issues back to the TPO/AO for a fresh examination and due decision in accordance with law. The assessee shall place all the materials in support of its contentions before the AO and comply to the AO's requirements as per law. The A O shall furnish adequate opportunity to the assessee and decide these issues in accordance with law . The assessee's appeal is treated as allowed for statistical purposes.
5. In the result, the assessee's appeal is treated as allowed for statistical purposes.
Order pronounced on 28th February, 2019 at Chennai.
Sd/- Sd/-
(एन.आर.एस. गणेशन) (एस.जयरामन)
(N.R.S.Ganesan) (S.Jayaraman)
( या यक सद!य /Judicial Member) (लेखा सद!य / Accountant Member)
चे नई/Chennai,
$दनांक/Dated 28th February, 2019
somu
आदे श क त(ल)प अ*े)षत/Copy to:
1. Appellant 2. Respondent 3. आयकर आयु+त (अपील)/CIT(A)
4. आयकर आयु+त/CIT 5. )वभागीय त न/ध/DR 6. गाड2 फाईल/GF