2019 (10) TMI 258 - HC - Income Tax

TP Adjustment - comparable selection - Whether Alphageo (India) Ltd. is not a comparable to the assessee s Research Technical Services business? - HELD THAT - TPO had adopted the functional test. On the basis of the above text, the respondent was right in making a grievance that same test should have been applied to M/s. Alphageo to determine its comparability. M/s. Alphageo is in the business of oil exploration and production of oil. It carries out research activity in seismic data. The respondent does research and chemical analysis for agro chemicals. On the face of it the functions of two entities is different. This being the position, if the Tribunal held that M/s. Alphageo was not comparable, it is a possible view, on analysis of the evidence. No substantial question of law and thus they are not entertained. Computation of Capital gain on relinquishment of its rights in the property - AO added a sum to the sale consideration being the deposit the respondent had made with State Industries Promotion Corporation of Tamil Nadu (SIPCOT) at the time of obtaining the lease and now returned to it - HELD THAT - Tribunal has held that the refundable deposit of ₹ 1,86,46,800/- made by the respondent with SIPCOT, Tamil Nadu is allowable towards cost of acquisition of lease hold rights of the property in Tamil Nadu, which is now sold. The Assessing Officer as well as the Commissioner of Income Tax (Appeals) included this amount as a part of sale consideration while computing capital gains. The Tribunal held that if it is considered as sale consideration then, the respondent assessee was entitled to it as a cost of acquisition for the purpose of computing capital gains. Thus, the entire exercise would be Revenue neutral. In these facts, there is no error in the view taken by the Tribunal. No substantial question of law.

Summary

Issues:
1. Whether M/s. Alphageo (India) Ltd. is comparable to the assessee's Research & Technical Services business for determining Arms Length Price (ALP)?
2. Whether the refundable deposit made by the assessee with SIPCOT is allowable towards cost of acquisition of lease right?

Analysis:
1. The appellant challenged the order passed by the Income Tax Appellate Tribunal regarding the Assessment Year 2008-09. The primary issue was the comparability of M/s. Alphageo with the respondent's business for ALP determination. The respondent, engaged in research and technical services for the Syngenta Group, included M/s. Alphageo in its transfer pricing study. However, the TPO rejected some comparables, including M/s. Alphageo, as functionally different. The Tribunal upheld the respondent's contention that M/s. Alphageo was not comparable, leading to a rework of the ALP. The Court held that the inclusion of M/s. Alphageo by the respondent did not preclude challenging its comparability later. The functions of M/s. Alphageo in oil exploration differed significantly from the respondent's agro chemical research, justifying its exclusion as a comparable.

2. Regarding the second issue, the Assessing Officer added a refundable deposit made by the respondent with SIPCOT to the sale consideration of a property in Tamil Nadu, resulting in additional capital gains tax. However, the Tribunal ruled that the deposit should be considered as part of the cost of acquisition for computing capital gains, leading to a revenue-neutral outcome. The Tribunal's decision was upheld as it did not give rise to any substantial question of law. Consequently, the appeal was dismissed.