Bommidala Enterprises Private Limited, Guntur V. The Deputy Commissioner of Income Tax, Circle-1(1), Guntur

CO 103/VIZ/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6985 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-02-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 30-07-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAVI SHANKAR NARAYAN; V RAMA MOHAN
• Assessee Lawyers: MITHILESH
• Keywords: Related party transaction; Transfer pricing; International transaction; Rule of consistency; Notional interest; Benefit of exemption; TDS; Set aside
• Section: 10AA; 40(a)(ia); 194C; 195; 201; 43; 13; 22

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T. A.NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 ( / ASSESSMENT YEAR : 2012 - 13, 201 3 - 1 4 AND 201 4 - 1 5 ) DY .COMMISSIONER OF INCOME TAX CIRCLE - 1(1) GUNTUR VS. M/S BOMMIDALA ENTERPRISES PVT. LTD. 8 - 24 - 53 , MANGALAGIRI ROAD GUNTUR [PAN : AAACB9064G] ( / APPELLANT) ( / RESPONDENT) CROSS OBJECTION NO. 1 01 - 103 /VIZ/2019 ( ARISING OUT OF I.T. A.NO. 510 /VIZ/201 8, 347/VIZ/2018 AND 53/VIZ/2019 RESPECTIVELY) ( / ASSESSMENT YEAR : 2012 - 13, 201 3 - 1 4 AND 2014 - 15 ) M/S BOMMIDALA ENTERPRISES PVT. LTD. 8 - 24 - 53 , MANGALAGIRI ROAD GUNTUR [PAN : AAACB9064G] VS. DY.COMMISSIONER OF INCOME TAX CIRCLE - 1(1) GUNTUR ( / APPELLANT) ( / RESPONDENT) /REVENUE BY : SHRI RAVI SHANKAR NARAYAN, CIT, DR AND SHRI V.RAMA MOHAN, DR / ASSESSEE BY : SHRI C.SUBRAHMANYAM AND SHRI MITHILESH, AR / DATE OF HEARING : 20 . 01 .20 20 / DATE OF PRONOUNCEMENT : 05 .02 .2020 2 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 1 , GUNTUR IN APPEAL NO. 10061/2016 - 17 , 10136/2016 - 17 BOTH DATED 09 . 07 . 2018 FOR THE ASSESSMENT YEAR (A.Y.) 201 2 - 1 3 AND 201 3 - 1 4 RESPECTIVELY AND APPEAL NO . 10094/ 2018 - 19 DATED 19 . 02 . 2019 FOR THE A.Y. 2014 - 15 . THE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE IN SUPPORT OF THE ORDER OF THE LD.CIT(A). SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THESE APPEALS ARE CLUBBED, HEARD TOGETHER AND A COMMON ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AS UNDER. 2. THE GROUNDS OF APPEAL RAISED BY THE DEPARTMENT IN THE SE APPEALS FOR THE ASSESSMENT YEARS (A.Y.) 2012 - 13 TO 2014 - 15 ARE IDENTICAL . THOUGH GROUND NO.5 AND 6 ARE ON TRANSFER PRICING ISSUES, NO SUCH ISSUES ARE INVOLVED FOR THE A.Y. 2012 - 13 AND 2014 - 15 . F OR THE A.Y.2013 - 14, TRANSFER PRICING ADJUSTMENTS WERE MADE BY TH E ASSESSING OFFICER(AO) WHICH ARE BEING AGITATED BY THE REVENUE IN THIS APPEAL . 3 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 3 DURING THE PENDENCY OF APPEAL PROCEEDINGS, THE DEPARTMENT HAS FILED THE REVISED GROUNDS AND THE LD.DR SUBMITTED THAT THE GROUNDS RAISED ORIGINALLY IN APPEAL MEMO IN FORM NO.36 WERE LENGTHY AND ARGUMENTATIVE, THEREFORE, THE DEPARTMENT HAS FILED THE REVISED GROUNDS AND REQUESTED TO ADMIT THE SAME IN THE PLACE OF ORIGINAL GROUNDS . AFTER HEARING BOTH THE PARTIES, WE TAKE UP THE REVISED GROUNDS FOR ADJUDICATION. THE DEPARTMENT HAS RA I SED THE COMMON GROUNDS IN APPEAL NO S .510/VIZ/2018, 511/VIZ/2018 AND 53/VIZ/2018 AS UNDER: 1 ) THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) GUNTUR, FOR THE AY: 201 3 - 14, IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2 ) THE LD. CIT (APPEALS), GUNTUR, ERRED IN DELETING THEE ADDITION MADE BY AO IN RESPECT OF DISALLOWANCE OF CLAIM U/S.1OAA OF THE ACT AS THE ASSESSEE COMPANY HAS NOT ENGAGED IN ANY MANUFACTURING ACTIVITY IN SEZ. 3 ) THE LD. CIT (APPEALS), GUNTUR, ERRED IN HOLDING THAT TRADING ACTIVITY CARRIED ON BY THE SEZ UNIT OF THE ASSESSEE HAS TO BE CONSIDERED AS SERVICES WITHOUT APPRECIATING THE FACT THAT EXPRESSION 'SERVICES' IS NOT MENTIONED IN IT ACT THEREIN WHEREAS THERE WAS NO SUCH EXPRESS PROVISIONS IN SEC .10A. 4 ) THE LD. CIT (APPEALS), GUNTUR, ERRED IN DELETING THE ADDITION MADE BY AO IN RESPECT OF OCEAN FREIGHT MADE TO AGENTS OF FOREIGN SHIPPING COMPANY FOR NON DEDUCTION OF TDS BASING ON THE BOARD'S CIRCULAR NO. 723 DATED 19 - 09 - 1995 WITHOUT CONSIDERING THE FACT THAT ASSESSEE HAD NOT FURNISHED ANY RETURN WHICH IS REQUIRED TO BE FILED BY THE AGENT U/S 172 OF THE IT ACT. 5 ) THE LD. CIT (APPEALS), GUNTUR, ERRED IN DELETING THE ADDITION MADE FOR AY 2013 - 14 IN RESPECT OF TP ADJUSTMENT ON INTEREST CHARGED ON OUTSTANDING RECEIVABLES THAT WERE RECEIVED BEYOND THE ALLOWED CREDIT PERIOD. 6 ) THE LD. CIT (APPEALS), GUNTUR, ERRED IN DELETING THE ADDITION MADE IN RESPECT OF TP ADJUSTMENT FOR AY 2013 - 14, BY STATING THAT NO TP ADJUSTMENT WAS 4 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR MADE IN TH E AY 2012 - 13 AND 2014 - 15 AS 'RES JUDICATA' IS NOT APPLICABLE TO TAX MATTERS. 7 ) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 4. GROUND NO.1 AND 7 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 5 . GROUND NO.2 AND 3 ARE RELATED TO THE DISALLOWANCE OF CLAIM MADE U/S 10AA OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) AND THIS IS A COMMON ISSUE FOR THE A.Y.2012 - 13 TO 2014 - 15 . 6 . GROUND NO.4 IS RELATED TO THE ADDITION MADE U/S 40(A)(IA) IN RESPECT OF O CEAN F REIGHT TO THE AGENTS OF FOREIGN SHIPPING COMPANY AND TH IS ISSUE IS ALSO COMMON FOR ALL THE ASSESSMENT YEARS I.E. 2012 - 13 TO 2013 - 14 . 7 . GROUND NO.5 AND 6 ARE RELATED TO TRANSFER PRICING ADJUSTMENTS MADE IN RESPECT OF INTEREST RECEIVABLES AND THE ARMS LENGTH PRICE (ALP) ON INTERNATIONAL TRANSACTION. THESE ISSUE S ARE INVOLVED FOR THE A.Y.2013 - 14 . 8 . THE FIRST ISSUE IN COMMON IS THE DISALLOWANCE OF CLAIM U/S 10AA OF THE ACT WHICH IS BEING AGITATED BY REVENUE IN GROUND NO.2 AND 3 . THIS IS A COMMON ISSUE FOR ALL ASSESSMENT YEARS UNDER APPEAL I.E. 2012 - 13 TO 2014 - 15 . F OR THE SAKE OF CONVENIENCE THE FACTS ARE EXTRACTED FROM THE APPEAL OF 5 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR A.Y. 2012 - 13 . T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING OF TOBACCO, MANUFACTURING OF CIGARETTES AND IMPORT AND EXPORT OF CIGARS AND BEVERAGES. THE ASSESSEE COMPANY HAS TWO DIVISIONS, NAMELY TOBACCO DIVISION AND SEZ DIVISION. THE SEZ UNIT IS SET UP IN SPECIAL ECONOMIC ZONE, COCHIN , DURING THE F.Y.2005 - 06 RELEVANT TO THE A.Y.2006 - 07 , AS P ER LETTER OF APPROVAL DATED 14.03.2005 ISSUED BY THE DEVELOPMENT COMMISSIONER, CHOCHIN, SEZ. THE ASSESSEES UNIT IN THE SEZ IS ENGAGED IN THE BUSINESS OF IMPORT OF CIGARETTES AND ALCOHOLIC BEVERAGES AND RE - EXPORT OF THE SAME. THE ASSESSEE MAINTAINED SEPA RATE BOOKS OF ACCOUNT S FOR THE TOBACCO DIVISION AND THE SEZ DIVISION. DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y.2012 - 13, THE ASSESSEE HA S COMPUTED THE PROFITS FROM SEZ UNIT AT RS.5,48,87,579/ - AND CLAIMED 50% OF THE SAME AS DEDUCTION U/S 10AA OF THE ACT, BEING THE 7 TH YEAR , WHICH WORKED OUT TO RS.2,74,21,882/ - . THE AO VIEWED THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 10AA , SINCE , THE ASSESSEE I S NOT ENGAGED IN THE MANUFACTURING ACTIVITY AND ONLY ENGAGED IN THE TRADING ACTIVITY. THEREFORE, THE AO ISSUED SHOW CAUSE NOTICE CALLING FOR THE EXPLANATION OF THE ASSESSEE AS TO WHY THE DEDUCTION CLAIMED U/S 10AA SHOULD NOT BE DISALLOWED AN D ADDED BACK TO THE INCOME ? THE ASSESSEE SUBMITTED ITS EXPLANATION STATING THAT THE TRADING ACTIVITY CARRIED ON BY TH E 6 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ASSESSEE IN IT S SEZ UNIT IS IMPORTING OF GOODS FOR RE - EXPORT FALLS UNDER THE SCOPE OF SERVICES AS STATED IN 10AA OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT THE EXPRESSION SERVICES WAS NOT DEFINED IN THE INCOME T AX ACT, BUT , THE SAME WAS DEFINED IN RULE 76 OF THE SEZ RULES AND FOR THE PURPOSE S OF SEC.2( J )(1) OF THE SEZ RULES , 2005 IT INCLUDES TRADING AND THE TRADING SHALL MEAN IMPORT FOR THE PURPOSE OF RE - EXPORT. THE ASSESSEE THEREFORE, CONTENDED THAT THE ACTIVITY OF IT S SEZ UNIT IMPORTING OF CIGARETTES AND ALCOHOLIC BEVERAGES AND RE - EXPORTING THE SAME SQUARELY FALLS UNDER THE SCOPE OF PROVIDING THE SERVICES AS PER THE PROVISIONS IN SECTION 10AA OF THE ACT, THUS, SUBMI TTED THAT THE ASSESSEE HAS RIGHTLY CLAIMED DEDUCTION U/S 10AA, HENCE REQUESTED TO ALLOW THE SAME . THE ASSESSEE ALSO PLACED RELIANCE ON THE INSTRUCTION NO. 4/2006 DATED 24.05.2006 OF THE DEPARTMENT OF COMMERCE, MINISTRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA . H OWEVER, THE AO DID NOT CONVINCE WITH THE EXPLANATION OFFERED BY THE ASSESSEE AND VIEWED THAT THE TRADING ACTIVITY OF THE ASSESSEE IN SEZ UNIT DOES NT COVER FOR EXEMPTION U/SEC. 10AA OF THE ACT, ACCORDINGLY, DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE AMOUNTING TO RS.2,74,21,882/ - AND ADDE D BACK TO THE INCOME. SIMILAR ADDITIONS WERE MADE IN THE A.Y.2013 - 14 AND 201 4 - 1 5 ALSO AS PER THE DETAILS GIVEN HERE UNDER : 7 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 201 3 - 1 4 RS. 3,10,34,104/ - 201 4 - 15 RS.7,42,73,321/ - 9. AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE FOLLOWING THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NOS.272 TO 274/VIZ/2012 DATED 07.0 4.2017 . AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 10. DURING THE APPEAL HEARING, THE LD.DR RELIED ON THE ORDER OF THE AO AND ARGUED THAT THE INSTRUCTION NO. 4/2006 WAS ISSUED BY THE MINISTRY OF COMMERCE AND CLARIFI ED THAT SEZ UNITS WOULD BE ALLOWED TO CARRY OUT TRADING ACTIVITY AND THE BENEFITS U/S 1 0AA OF THE ACT, IS ALLOWABLE ONLY ON THE TRADING ACTIVITIES OF RE - EXPORT OF IMPORTED GOODS. THE LD.DR ARGUED THAT THE CBDT HAS NOT ISSUED ANY PARALLEL CIRCULAR AUTHORIZING THE FIELD OFFICER S TO ALLOW THE DEDUCTION U/S 10AA IN CASE OF TRADING ACTIVITIES CARRIED ON IN SEZ UNITS. THE LD.DR FURTHER SUBMITTED THAT THE ASSESSEE IS NEITHER MANUFACTURING NOR PRODUCING ANY ARTICLE OR THING NOR RENDERING ANY SERVICES. P RECISELY THIS IS THE MAIN REASON FOR DISALLOWANCE OF CLAIM U/ S 1OAA BY THE ASSESSING OFFICER. I T WAS THE CONTENTION OF THE ASSESSEE THAT THE EXPRESSION SERVICES UNDER RULE 7 1 OF THE SEZ RULES INCLUDE TRADING AND FURTHER THAT 8 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR TRADING MEAN IMPORT FOR THE PURPOSE OF RE - EXPORT. IT WAS ALSO POINTED OUT BY THE ASSESSEE THAT THE CLARIFICATION ISSUED BY THE DEPARTMENT OF COMMERCE , MINISTRY O F COMMERCE AND I NDUSTRY VIDE INSTRUCTION NO. 4/2006 PERMITS THE UNITS IN SEZ IN WHOSE CASE LETTER OF APPROVAL WAS GIVEN FOR CARRYING OUT TRADING ACTIVITIES OF ALL FORMS OF TRADING BUT THE BENEFITS OF U/S 10AA WILL EXCLUDE THE TRADING OTHER THAN TRADING IN THE NATURE OF RE EXPORT OF IMPORT ED GOODS. FROM THE PERUSAL OF THE SAID INSTRUCTION I T CAN BE NOTICED THAT THE SAID INSTR UCTION, WHILE ALLOWING SEZ UNITS TO CARRY OUT ALL FORMS OF TRADING HAD STATED THAT THE BENEFITS OF U/S 10AA WILL EXCLUDE TRADING OTHER THAN TRADING IN THE NATURE OF RE - EXPORT OF IMPORTED GOODS. AT THE SAME TIME IT WA S ALSO MENTIONED IN THE SAME CIRCULAR TH AT 'APPROPRIATE AMENDMENTS IN THIS REGARD ARE BEING ISSUED'. IT IS SUBMITTED THAT NO SUCH AMENDMENTS WHATSOEVER HAVE BEEN ISSUED PURSUANT THERE TO NOR ANY CONSEQUENTIAL AMENDMENT WA S MADE TO UNDER SECTION 10AA OF THE ACT TO INCORPORATE THE CONTENTS/INTENDED BENEFITS AS PER SAID I NSTRUCTION N O . 4/2006 ISSUED BY THE DEPARTMENT OF COMMERCE. 10.1 . THE LD.DR FURTHER SUBMITTED THAT I T IS PERTINENT TO MENTION HERE THAT THE ASSESSING OFFICER UNDER INCOME TAX ACT IS BOUND BY THE PROVISIONS OF INCOME TAX ACT AS WELL AS THE IT RULES AND THE 9 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR INSTRUCTIONS/CIRCULARS/DIRECTIONS ETC., ISSUED THERE UNDER BY THE CBDT. SINCE NO AMENDMENT HAS BEEN MADE U/S 10AA TO EXTEND THE SCOPE OF BENEFITS UNDER THE SECTION TO THE SAID TRADING PROFITS , T HE AO IS VERY WELL JUSTIFIED IN DENYING THE ASSESSEE THE BENEFITS U/S 10AA IN RESPECT OF ITS TRADING PROFITS. THEREFORE ARGUED THAT THE AO HAS RIGHTLY DENIED THE BENEFIT U/S 10AA, HENCE REQUESTED TO SET ASIDE THE ORDER OF THE LD.CIT(A) AND UPHOLD THE ORDE R OF THE AO. THE LD.DR FURTHER SUBMITTED THAT T HE HONBLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. BUHARI SONS(P.) LTD. IN 144 1W 1 2 INTERPRET ED THAT 'DEFINITION GIV EN FOR A TERM IN ONE STATUTE CANNOT AUTOMATICALLY BE IMPORTED IN INTERPRETATION OF SAME TERM IN ANOTHER STATUTE.' SIMILARLY T HE FULL BENCH OF HON BLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. VASAN PUBLICATIONS (P.) LTD. IN 151 ITR 3 81 HELD THAT 'THE DEFINITION OF AN EXPRESSION IN ONE STATUTE CANNOT BE AUTOMATICALLY APPLIED TO ANOTHER STATUTE WHOSE OBJECT AND PURPOSE ARE ENTIRELY DIFFERENT. ' 11. ON THE OTHER HAND, THE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A) AND THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE. 10 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THIS TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ITS ORDER IN I.T.A.NOS.272 TO 274/VIZ/2012 DATED 07.04.20 17 AND HELD THAT AS PER RULE 76 OF SEZ RULES, THE TERM SERVICES INCLUDES TRADING. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT PARA NO. 9 TO 12 OF THE ORDER WHICH READS AS UNDER : 9 . WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABL E ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY QUESTION ARISES FOR OUR CONSIDERATION IS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE BENEFIT OF EXEMPTION U/S 10AA OF THE ACT IS AVAILABLE TO THE ASSESSEE, WHICH IS ENGAGED IN THE BUSINESS OF TRADING ACTIVITY IN THE NATURE OF IMPORT AND RE - EXPORT OF GOODS WHICH FALLS WITHIN THE MEANING OF THE TERM SERVICES AS DEFINED U/S 10AA OF THE ACT. ADMITTEDLY, THE ASSESSEE HAS ESTABLISHED A UNIT AT COCHIN SEZ, WHICH WAS APPROVED BY THE DEVELOPMENT COMMISSIONER VIDE HIS LETTER NO.9/05/2005/IL/CSEZ/1563 DATED 14.3.2005. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING ACTIVITY IN THE NATURE OF IMPORTING CIGARS, CIGARETTES & ALCOHOLIC BEVERAGES AND RE - EXPORTING THE SAME. T HE ASSESSEE CLAIMS THAT UNITS LOCATED IN SEZ, ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT FALLS WITHIN THE DEFINITION OF THE TERM SERVICES AS DEFINED IN CLAUSE Z OF SECTION 2 OF SEZ ACT, 2005 AND RULE 76 OF SEZ RULES, 2006, WHICH DEFINES THE TERM SER VICES, WHICH INCLUDES TRADING. AS PER EXPLANATION GIVEN IN SEZ RULES, 2006, THE EXPRESSION TRADING FOR THE PURPOSE OF SECOND SCHEDULE OF SEZ ACT, SHALL MEAN IMPORT FOR THE PURPOSE OF RE - EXPORT AND SUCH TRADING IS INCLUDED IN THE LIST OF SERVICES FOR T HE PURPOSE OF SECTION (2) OF SEZ ACT. THE TERM SERVICES IS NOT DEFINED U/S 10AA OF THE ACT. SINCE, THE TERM SERVICES HAS NOT BEEN DEFINED U/S 10AA OF THE ACT, THE DEFINITION PROVIDED UNDER THE RELEVANT ACT, HAS TO BE CONSIDERED FOR THE PURPOSE OF THE T ERM SERVICES USED IN THE SECTION 10AA OF THE ACT, FOR THE PURPOSE OF DETERMINATION WHETHER THE UNIT IS ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT. 10. THE LD. A.R. FOR THE ASSESSEE AT THE TIME OF HEARING, SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM IN ASSESSEES OWN CASE IN ITA NO.331/VIZAG/2011, FOR THE ASSESSMENT YEAR 2008 - 09. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEES OWN CASE HAS CONSIDERED THE ISSUE AND AFTER CONSIDERING THE PROVISIONS OF SECTION 10AA OF THE ACT, THE 11 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR DEFINITION OF THE TERM SERVICES AS DEFINED U/S (2) OF SEZ ACT, 2005 AND RULE 76 OF SEZ RULES, 2006, HELD THAT THE ACTIVITY CAR RIED ON BY THE ASSESSEE AMOUNTS TO RENDERING OF SERVICES IN IMPORTING AND RE - EXPORTING OF GOODS AS DEFINED UNDER SEZ RULES, 2006. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. WE HAVE HEARD THE LD. DEP ARTMENTAL REPRESENTATIVE IN THIS REGARD AND CAREFULLY PERUSED THE RECORD. AS PER THE SEZ RULES, ADMITTEDLY THE ACTIVITY CARRIED ON BY THE ASSESSEE HAS TO BE CONSIDERED AS AN ACTIVITY ON WHICH ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 10AA OF THE ACT. IN OUR OPINION, RATIO OF THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES VS. CIT (230 CTR 401) SQUARELY APPLIES TO THE FACTS OF THIS CASE. NO CONTRARY DECISION WAS PLACED BEFORE US BY THE REVENUE TO TAKE A DIFFERENT VIEW ON THIS MATTER. IT IS NO DOUBT TRUE THAT ON A PRINCIPLE OF LAW, RULE OF CONSISTENCY MAY NOT BE APPLICABLE BUT THE FACT REMAINS THAT THE ORDER PASSED BY THE LD. CIT(A) IS BASED ON COGENT REASONS IN THE LIGHT OF THE EXPLANATION GIVEN IN SEZ RULES AS WELL AS THE DEF INITION CONTAINED IN SEZ ACT, 2005 AND FACTS BEING IDENTICAL IN THE EARLIER YEARS, WHICH WAS ACCEPTED BY THE ASSESSING OFFICER, IN ORDER TO DEVIATE FROM THE DECISION TAKEN IN THE EARLIER YEARS, THE BURDEN IS UPON THE A.O. TO SHOW THAT THE VIEW TAKEN BY HIM IS THE ONLY VIEW POSSIBLE IN THE MATTER AND, IN LAW ASSESSEE CANNOT, BY ANY STRETCH OF IMAGINATION, BE ENTITLED TO CLAIM DEDUCTION U/S 10AA OF THE ACT. SINCE THE LD. CIT(A) HAS GIVEN COGENT REASONS IN ARRIVING AT A CONCLUSION THAT THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10AA OF THE ACT ON AN INTERPRETATION OF THE PROVISIONS OF THE INCOME - TAX ACT AS WELL AS THE SEZ ACT AND RULES, APART FROM THE INSTRUCTIONS ISSUED BY THE MINISTRY OF COMMERCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A) AND THUS, THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. 11. THE ASSESSEE RELIED UPON THE DECISION OF ITAT, JAIPUR B BENCH IN THE CASE OF DCIT VS. GOENKA DIAMONDS & JEWELLERS LTD. 509/JP/2011 DATED 31.1.2012, WHEREIN THE COORDINATE BENCH OF TH IS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HAS HELD AS UNDER: WE HAVE ALSO REPRODUCED SECTION 51 OF THE SEZ ACT. AS PER THIS SECTION, IT IS MENTIONED THAT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT, THE PROVISION OF SEZ ACT WILL PREVAIL. THE HONBLE APEX COURT IN THE CASE OF TAX RECOVERY OFFICER, VS. CUSTODIAN APPOINTED UNDER THE SPECIAL COURT, 293 ITR 369 HAD AN OCCASION TO CONSIDER THE MEANING OF LANGUAGE EMPLOYED IN SECTION 13 OF THE SPECIAL COURT ACT. IN SECTION 13 OF THE SPECIAL COURT ACT, IT WAS STATED THAT PROVISION OF THE ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE. THE HONBLE APEX COURT HELD THAT THERE CAN BE NO MANNER OF DOUBT 12 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR THAT THE PROVISION OF SPECIAL COURT ACT WHEREVER THEY ARE APPLICABLE SHALL PREVAIL OVER THE PROVISION OF THE INCOME TAX ACT. THE HONBLE DELHI HIGH COURT IN THE C ASE OF CIT VS. VASISTH CHAY VAAPAR LTD., 330 ITR 440 HELD THAT WHEN THERE IS A PROVISION IN ANOTHER ENACTMENT WHICH CONTAINS A NON OBSTENTE CLAUSE THAN THAT WOULD OVERRIDE THE PROVISIONS OF THE INCOME TAX. THUS ONE WILL HAVE TO CONSIDER THE IMPLICATION OF SECTION 51 OF THE SEZ ACT. IT MEANS THAT ANYTHING IN - CONSISTENT TO THE PROVISION OF THE SEZ ACT WILL NOT BE CONSIDERED. THUS THE WORD SERVICES AS MENTIONED IN SECTION 10AA CANNOT BE CONSTRUED IN - CONSISTENTLY WITH THE DEFINITION OF SERVICES GIVEN IN THE SEZ ACT. UNDER THE SEZ ACT, THE TRADING IS INCLUDED IN THE SERVICES PROVIDED THE TRADING IS EXPORT OF IMPORTED GOODS. WE THEREFORE, FEEL THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10AA OF THE ACT AND THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE EXEMPTION. 12. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO FOLLOWING THE RATIOS OF THE JUDGEMENTS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT PROFIT DERIVED FROM THE UNITS SITUATED AT SEZ, ENGAGED IN THE BUSINESS OF TRADING ACTIVITY IN TH E NATURE OF IMPORT AND RE - EXPORT OF GOODS FALLS WITHIN THE DEFINITION OF THE TERM SERVICES AS DEFINED IN SECTION 10AA OF THE ACT. CONSEQUENTLY, THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT, TOWARDS EXPORT PROFIT DERIVED FROM ELIGIBLE UNIT L OCATED AT SEZ. THE CIT(A), AFTER CONSIDERING THE RELEVANT PROVISIONS OF THE ACT, HAS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF EXEMPTION U/S 10AA OF THE ACT. WE DO NOT FIND ANY ERROR IN THE ORDER PASSED BY THE CIT(A). HENCE, WE UPH OLD CIT(A) ORDER AND REJECT THE GROUND RAISED BY THE REVENUE. 13. DURING THE APPEAL HEARING, THE LD.DR DID NOT PROVIDE ANY DECISION REVERS ING THE DECISION OF THIS TRIBUNAL O F ANY HIGHER COURT. THE LD.DR HEAVILY PLACED RELIANCE ON THE CIRCULAR ISSUED BY THE MINISRTY OF COMMERCE AND ARGUED THAT IN THE ABSENCE OF INSTRUCTIONS AND DIRECTIONS TO IMPLEMENT THE CIRCULAR OF MINISTRY OF COMMERCE (SUPRA) , NO DEDUCTION IS PERMISSIBLE AS PER THE A CT. HOWEVER THE A CT DOES NOT DEFINE THE TERM SERVICES IN SECTION 10AA . T HE SEZ RULES DEFINE THE SERVICES AND THE ACTIVITY OF THE ASSESSEE IS COVERED UNDER THE DEFINITION OF SERVICES. THEREFORE, THE 13 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ARGUMENT ADVANCED BY THE LD.DR IS NOT TENABLE. HENCE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10AA ON THE PROFITS DERIVED BY SEZ UNIT IN RESPECT OF TRADING ACTIVITY OF IMPORTING THE GOODS FOR RE EXPORT . A CCORDING LY, THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED . T HE CROSS OBJECTIONS OF THE ASSESSEE ARE SUPPORTIVE AND BECOME S INFRUCTUOUS HENCE DISMISSED. THE APPEALS OF THE REVENUE AS WELL AS CROSS OBJECTIONS OF THE ASSESSEE ON THIS ISSUE FOR THE A.Y. 2012 - 13 TO 201 4 - 1 5 ARE DISMISSED. 14. GROUND NO.4 IS RELATED TO THE ISSUE OF ADDITION MADE BY THE AO U/S 40(A)(IA) OF THE ACT IN RESPECT OF O CEAN F REIGHT CHARGES PAID TO THE AGENTS OF FOREIGN SHIPPING COMPANY FOR NON DEDUCTION OF TAX AT SOURCE. THIS ISSUE IS ALSO COMMON FOR ALL THE ASSESSMENT YEARS OF 2012 - 13 TO 2014 - 15 . BRIEF FACTS ARE THAT D URING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT FOR THE A.Y.2012 - 13 THE ASSESSEE HAS MADE THE PAYMENT OF RS. 21,51,939/ - TOWARDS TRANSPORTATION & SHIPPING AND OUT OF WHICH TDS WAS DEDUCTED ONLY ON THE SUM OF RS.4,41,606 / - AND ON THE BALANCE AMOUNT OF R S.17,10,263 / - THE ASSESSEE HAS FAILED TO DEDUCT THE TAX AT SOURCE. THE ASSESSEE DID NOT FURNISH ANY EXPLANATION BEFORE THE A.O. AS TO WHY THE ASSESSEE HAS NOT 14 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR DEDUCTED THE TDS. THE DETAILS OF THE AMOUNTS PAID TO THE SHIPPING AGENTS FOR WHICH THE TDS IS MADE PARTY WISE ARE AS UNDER : SL.NO. NAME OF THE PARTY EXPORT AND IMPORT CLEARANCE CHARGES / COURIER POSTAGE CHARGES PAID (RS.) AMOUNT IN RESPECT OF WHICH TDS WAS MADE (RS.) AMOUNT IN RESPECT OF WHICH TDS WAS NOT MADE (RS.) (1) (2) (3) (4) (3 4) 1. M.SHERIFF AND SONS PVT. LTD. 5,88,025 3,69,168 2,18,857 2. SITA SHIPPING PVT.LTD. 5,21,355 6,618 5,14,737 3. UNIQUE SHIPPING AND LOGISTICS PVT. LTD. 7,88,514 16,546 7,71,968 4. ARAMEX INDIA PVT. LTD. 2,53,045 48,344 2,04,701 TOTAL 52,15,062 31,95,636 17,10,263 SINCE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE ON RS.17,10,263/ - , THE AO DISALLOWED THE EXPENDITURE U/S 40(A)(IA) OF THE ACT. 15. AGAINST WHICH THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE LD.CIT(A) EXAMINED THE ISS UED AND FOUND FROM THE COPIES OF INVOICES FILED BEFORE HIM THAT THE INVOICES CONTAIN THE DETAILS OF VARIOUS CHARGES SEPARATELY AND OBSERVED THAT THE PAYMENT OF RS.21,51,939/ - INCLUDE THE O CEAN F REIGHT AND 15 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR TRANSPORTATION CHARGES OF RS.10,10,348/ - IN THE A.Y.2012 - 13 . THE LD.CIT(A) F OUND THAT AS PER CIRCULAR NO.723 DATED 19.09.1995, O CEAN F REIGHT PAID TO AGENT OF FOREIGN SHIPPING COMPANY DOES NOT ATTRACT TDS PROVISIONS. ACCORDINGLY DELETED THE ADDITION MADE BY THE AO IN RESPECT OF OCEAN FREIGHT CH ARGES. 16. AGAINST WHICH THE DEPARTMENT FILED APPEAL CHALLENGING THE ORDER OF THE LD.CIT(A). DURING THE APPEAL HEARING, THE LD.DR ST R ONGLY SUPPORTED THE ORDER OF THE AO AND ALSO ARGUED THAT CIRCULAR NO.723 DATED 19 . 09 . 199 5 HAS NO APPLICATION IN THE ASSESSEES CASE. 17. ON THE OTHER HAND, THE LD.AR SUBMITTED THAT THE ASSESSEE HAD INCURRED O CEAN F REIGHT OF RS.4,14,988 / - FOR THE A.Y.2012 - 13, RS.13,90,000/ - FOR THE A.Y.2013 - 14 AND RS.77,450/ - FOR THE A.Y.2014 - 15, WHICH WAS DIS ALLOWED BY THE AO AND THE LD.CIT(A) GRANTED THE RELIEF. T HE L D.AR ARGUED THAT THE L D.CIT(A) ALLOWED THE RELIEF FOLLOWING THE CIRCULAR NO.723, HENCE, ARGUED THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.CIT(A) . 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSING OFFICER MADE THE ADDITIONS U/S 40(A)(IA) FOR THE A.YS 16 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 2012 - 13 TO 2014 - 15 AND OUT OF WHICH THE LD.CIT(A) GRANTED RELI EF IN RESPECT OF OCEAN FREIGHT CHARGES AS UNDER : A.Y. DISALLOWANCE U/S 40(A)(IA) (RS.) RELIEF GRANTED BY CIT(A) IN RESPECT OF OCEAN FREIGHT CHARGES (RS.) 2012 - 13 RS. 17,10,263/ - RS.4,14,988/ - 2013 - 14 RS. 24,96,779/ - RS.13,90,000/ - 2014 - 15 30% OF RS. 65,13,221/ - RS.77,540/ - = RS. 19,53,967/ - 19 . THERE IS NO DISPUTE THAT THE ASSESSEE HAS PAID THE O CEAN F REIGHT CHARGES TO THE SHIPPING AGENTS . THE PAYMENTS MADE TO SHIPPING AGENTS ARE COVERED BY THE CIRCULAR NO . 723 OF CBDT DATED 19 . 09 . 1995 . AS PER CIRCULAR NO.723, IN CASE OF PAYME N TS MADE TO FOREIGN SHIPPING AGENTS OF NON - RESIDENT SHIP O WNERS OR CHARTERERS FOR CARRIAGE OF PASSENGERS ETC., SHIPPED AT A PORT IN INDIA , T HE AGENT ACTS ON BEHALF OF THE NON - RESIDENT SHIP - OWNER AND STEPS INTO THE SHOES OF THE PRINCIPAL . ACCORDINGLY, THE PROVISIONS OF SECTION 172 SHALL APPLY AND SECTION S 194C AND 195 HA VE NO APPLICATION. 20. THE DEPARTMENT HAS FILED APPEAL STATING THAT THE L D. CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE DID NOT FURNISH THE COPY OF THE RETURN OF INCOME THAT IS REQUIRED TO BE FILED BY AGENT U/SEC. 172 OF THE ACT , AND HENCE UNDER THE IMPRESSION THAT SECTION 194C IS APPLICABLE IN THIS CASE. 17 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR THE L D.AR SUBMITTED THAT THE SAID ISSUES W ERE NOT RAISED BY THE AO DURING THE ASSESSMENT PROCEEDINGS AND THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE TO FURNISH THE RETURN OF INCOME, HENCE THERE IS NO CASE FOR MAKING THE ADDITION U/SEC. 40(A)(IA) OF THE ACT. IN THE INSTANT CASE SECTION 172 IS APPLICABLE, SINCE THE PAYMENT IS MADE TO SHIPPING AGENTS. THE DEPARTMENT HAS NOT CALLED FOR THE RETURN OF INCOME OF THE NON RESIDENT SHIPPING OWNERS AT THE TIME OF ASSESSMENT. THEREFORE, WE ARE OF THE CONSIDER ED OPINION THAT THE PAYMENT IS SQUARELY COVERED BY CIRCULAR N O . 723 OF CBDT AND THERE IS NO CASE FOR DEDUCTION OF TAX U/S 194 C OR 195 AND CONSEQUENT DISALLOWANCE U/S 40(A)(IA) OF THE ACT. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. I.T.A.511/VIZ/20 18, A.Y.2013 - 14 21. THE ADDITIONAL ISSUES INVOLVED FOR THE A.Y.2013 - 14 ARE RELATED TO THE TRANSFER PRICING ISSUES. GROUND NO.5 AND 6 ARE RELATED TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE AO IN THE ASSESSMENT ORDER IN RESPECT OF ARMS LENGTH PRICE ON SALE S AND THE INTEREST CHARGED ON OUTSTANDING RECEIVABLES TREATING THE OUTSTANDING RECEIVABLES AS INTERNATIONA L TRANSACTIONS. 18 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 21.1. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESS EE HAD INTERNATIONAL TRANSACTIONS EXCEEDING RS.30 CRORES, TH EREFORE, REFERRED THE ISSUES TO THE TRANSFER PRICING OFFICER(TPO) FOR DETERMINING THE ALP. AS PER FORM 3CEB AND TP DOCUMENT, THE INTERNATIONAL TRANSACTIONS REPORTED ARE AS UNDER : NATURE OF TRANSACTION AMOUNT (RS.) SALE OF GOODS 45,06,66,714/ - PURCHASE OF MACHINERY 44,55,365/ - TOTAL 45,51,22,079/ - 21.2. THE AO ALSO FOUND THAT THERE WERE OUTSTANDING RECEIVABLES TO THE TUNE OF RS.28,42,54,759/ - WHICH WAS NOT REPORTED IN FORM 3CEB / TP DOCUMENT. THE TAXPAYER SELECTED CPM AS MOST APPROPRIATE METH OD (MAM) AND FURNISHED THE FINANCIALS, AS PER WHICH THE AE SEGMENT IS HAVING MARGIN ON 2.79% AND NON AE SEGMENT WAS HAVING THE MARGIN OF 2.09%. SINCE THE MARGIN OF AE SEGMENT WAS MORE THAN NON AE SEGMENT, THE TAXPAYER HELD THAT THE TRANSACTIONS WE RE AT ARM S LENGTH , HENCE , VIEWED THAT NO ADJUSTMENT WA S REQUIRED. 21.3. THE AO VERIFIED THE FINANCIALS AS PER THE ANNUAL REPORT FOR THE F.Y.2012 - 13 WHICH ARE AS UNDER : 19 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR WITH REGARD TO SALE TRANSACTIONS, THE ASSESSEE HAD ADOPTED THE INTERNAL CPM AS MAM AND IT HAS GIVEN DETAILED ANALYSIS OF AE AND NON AE TRANSACTIONS. FROM THE PERUSAL OF INFORMATION , THE TPO OBSERVED THAT TH E ASSESSEE IS MANUFACTURING DIFFERENT TYPES OF PRODUCTS, I.E. UNPROCESSED TOBACCO, CUT TOBACCO AND PACKING MATERIAL, CHEMICALS AND FLAVOURS. SINCE THE ASSESSEE HAS NOT PROVIDED THE BASIS OF ALLOCATION OF EXPENSES IN IN TERNAL CPM, THE TPO REJECTED THE CPM AS MAM AND ADOPTED TNMM AS MAM. THE TPO SELECTED THE FOLLOWING COMPARABLES FOR BENCH MARKING THE INTERNATIONAL TRANSACTION. SL.NO. NAME OF THE COMPANY OPERATING REVENUE OPERATING COST OPERATING INCOME OP/OR OP/OC 1 V.S.T.INDUSTRIES 668.68 510.88 157.8 23.60 30.89 2. GODFREY PHILIPS 2096.48 1863.25 233.23 11.12 12.52 3. SINNAR BIDI UDYOG 10.6 9.8 0.8 7.55 8.16 4. DHARAMPAL SATYA 2094.96 1699.47 395.49 18.88 23.27 5. ETHINIC TOBACCO 400.19 377.27 22.92 5.73 6.08 6. VIRAT CRANE 34.05 31.59 2.46 7.22 7.79 7. ITC LTD. 29901.27 20049.88 9851.39 32.95 49.13 15.29 19.69 FROM THE COMPARABLES SELECTED , THE TPO FOUND THAT THE AVERAGE MARGIN I.E. OP/OC WORKS OUT TO 19.69% AS AGAINST THE PLI 2.96% OF THE SL.NO. PARTICULARS IN RS. 1. OPERATING REVENUE 248,15,98,792 2. OPERATING COST 241,02,48,082 3. OPERATING PROFIT 7,13,50,710 4. OP/OR*100 2.88 5. OP/OC*100 2.96 20 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ASSESSEE. HENCE, THE AO ISSUED SHOW CAUSE NOTICE PROPOSING TO MAKE THE ADJUSTMENT OF RS.7,32,17,675/ - ON ACCOUNT OF ADJUSTMENT U/S 92CA(3) ADOPTING THE PLI OF 19.69% . THE ASSESSEE HAS OBJECTED FOR ADOPTING TNMM AS MAM INSTEAD OF CPM ADOPTED BY THE ASSESS E E. THE ASSESSEE FURTHER SUBMITTED THAT THE COMPARABLES SELECTED BY THE TPO ARE FUNCTIONALLY DIFFERENT AND DISSIMILAR TO THE BUSINESS CARRIED ON THE ASSESSEE IN RESPECT OF NATURE OF BUSINESS , SIZE, DEPLOYMENT OF ASSETS, CAPITAL EMPLOYED AND RISKS ETC . HO WEVER, THE TPO REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE STATING THAT INTERNAL CPM METHOD IS NOT ACCEPTABLE AS THE DIRECT AND INDIRECT COST CANNOT BE ASCERTAINED RELIABLY. THE ASSESSEE MADE AN ALTERNATE PLEA TO ADOPT THE INTERNAL TNMM AS MAM AND THE TPO VIEWED THAT THERE IS A CHANCE OF COST OF ALLOCATION OF AE AND NON AE TRANSACTIONS TO THE BENEFIT OF THE TAXPAYER IN THE INTERNAL TNMM. THE TPO FURTHER OBSERVED THAT THE TAXPAYER HAS NOT USED INTERNAL TNMM AS MAM IN ITS TP DOCUMENTATION NOR THEY WERE AVAILABLE IN THE AUDITED FINANCIAL STATEMENTS. HENCE, REJECTED THE ASSESSEES OBJECTIONS WITH REGARD TO ADOPTION OF INTERNAL CPM AS WELL AS INTERNAL TNMM AS MAM. WITH REGARD TO COMPARABLES, THE TPO VIEWED THAT MINOR OPERATIONAL DIFFERENCES IN THE ACCOUNT ING AND MINOR FUNCTIONAL DIFFERENCES WOULD NOT BE REASONS FOR 21 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ELIMINATION OF COMPARABLES UNDER TNMM AND REJECTED THE OBJECTION S RAISED BY THE TPO. THE TPO WORKED OUT THE MARGINS ADOPTING THE PLI OF 19.69% ON TOTAL TURNOVER OF THE ASSESSEE AND WORKED OUT T HE MARGIN ON THE TURNOVER OF AE AND ARRIVED AT THE ADJUSTMENTS OF RS.7,32,17,675/ - U/S 92CA (3) A CT AS UNDER: DESCRIPTION AMOUNT ARMS LENGTH MARGIN 19.69% % OF AE TRANSACTIONS ON REVENUE (RS.45,06,66,714 X 100/ RS.248,15,98,792) 18.16% TOTAL OPERATING COST (OC) 241,02,48,062 PROPORTIONATE OPERATING COST (TOTAL OC X 98.35/100) 43,77,01,052 ADJUSTED ARMS LENGTH MARGIN (%) (AALM) 19.69% ARMS LENGTH PRICE (100+AALM)*OC 52,38,84,389 PRICE RECEIVED (OR) 45,06,66,714 ADJUSTMENT U/S 92CA 7,32,17,675 22. ACCORDINGLY, T HE AO MADE ADJUSTMENT OF RS.7,32,17,675/ - TO THE RETURNED INCOME. 23. AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND RAISED THE OBJECTIONS STATING THAT THE TPO ERRED IN REJECTING THE METHOD ADOPTED BY THE ASSESSEE AND REJECTING THE ECONOMIC ANALYSIS OF THE ASSESSEE WITHOUT MAKING ANY FAR ANALYSIS AND WITHOUT MAKING ANY VALID OBSERVATIONS. FURTHER, THE TAXPAYER HAS OBJECTED BEFORE THE CIT(A) STATING 22 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR THAT THERE WERE INTERNAL UNCONTROLLED TRANSACTIONS OF THE COMPANY FOR DETERMINING THE ALP ADOPTING TNMM AS MAM . R EJECTING THE REQUEST OF THE ASSESSEE TO ADOPT INTERNAL TNMM IS NOT CORRECT. THE ASSESSEE FURTHER SUBMITTED BEFORE THE CIT(A) THAT THE AO HAS CHERRY PICKED THE COMPARABLES WHICH ARE FUNCTIONALLY DIFFE RENT WITHOUT FOLLOWING THE INTERNATIONALLY ACCEPTED TRANSFER PRICING PRINCIPLES. THE AO ALSO DID NOT PROVIDE SEARCH ANALYSIS FOR SELECTING THE COMPANIES ON ADHOC BASIS FOR BENCH MARKING THE PROFIT MARGINS. THE AO ALSO FAILED TO PROVIDE RISK ADJUSTMENTS FOR FUNCTIONAL RISKS AND WORKING CAPITAL DIFFERENCES OF THE COMPARABLE COMPANIES VIS - - VIS THE ASSESSEE. THE ASSESSEE HAS SUBMITTED DETAILED NOTE BEFORE THE CIT(A) HIGHLIGHTING DIFFERENCES OF COMPARABLE COMPANIES SELECTED BY THE TPO AND SUBMITTED THAT N ONE OF THE COMPARABLES SELECTED BY THE TPO ARE FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE COMPANY. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT ALL THE COMPARABLES SELECTED BY THE TPO REQUIRED TO BE DELETED AND INTERNAL TNMM OR THE CPM WHICH IS AVAILA BLE IN THE DATA SUBMITTED BY THE ASSESSEE REQUIRED TO BE APPLIED FOR BENCHMARKING THE ALP OF INTERNATIONAL TRANSACTION S . THE ASSESSEE RELIED ON THE DECISIONS OF ITAT, HYDERABAD IN THE CASE OF FOUR SOFT PVT LTD. VS.DCIT, ITA/1903/HYD/11, CYBERTECH SYSTEMS SOFTWARE LTD. VS.ACIT 23 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR (2013) 33 TAXMANN.COM 371 MUMBAI JUSTIFYING THE ADOPTION OF INTERNAL TNMM AS MAM OVER EXTERNAL TNMM. THE LD.CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND OBSERVED THAT THE ASSESS HAS ADOPTED THE INTERNAL TNMM FOR THE A.Y.2012 - 13 AND 2014 - 15 AND NO ADJUSTMENTS WERE SUGGESTED BY TPO IN TRANSFER PRICING. THE METHOD ADOPTED BY THE ASSESS EE FOR THE TP DOCUMENTATION FOR THE A.Y.2012 - 13 & 2014 - 15 WAS ACCEPTED CONSIDERING THE COST AUDIT CERTIFICATE REGULARLY FURNISHED BY THE ASSESSEE ALLOCATING THE VARIOUS COSTS. THE LD.CIT(A) FURTHER OBSERVED THAT THE ASSESS EE IS CONSISTENT IN ITS METHOD AND THE PROFIT RATIOS FOR AE AND NON AES GIVEN BY THE ASSESS EE SUGGEST THAT THE PROFIT MARGIN IS MORE WITH REGARD TO AE AND DO NOT REQUIRE ANY INTE RFERENCE. THE LD.CIT(A) FURTHER OBSERVED THAT THOUGH THE TPO HAS STATED THAT THE ASSESSEE HAS NOT RAISED ANY OBJECTIONS WITH REGARD TO COMPARABLES SELECTED BY THE TPO, THE REPLY SUBMITTED BY THE ASSESSE E BEFORE THE TPO VIDE LETTER DATED 06.10.2016, SHOWS THAT THE ASSESSE E HAS RAISED THE OBJECTIONS FOR TAKING THE EXTERNAL COMPARABLES HAVING DIFFERENT NATURE AND VOLUME OF BUSINESS ETC. THE EXTERNAL COMPARABLES TAKEN BY THE TPO ARE IN MULTIPLE PRODUCTS AND BRANDED ONES. THE VOLUME OF BUSINESS AND NATURE OF BUSINESS DO VARY WITH THE ACTIVITIES AND VIEWED THAT AT ANY STAGE THEY CANNOT BE TREATED AS 24 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR COMPARABLES. THE LD.CIT(A) FOUND THAT THE TPO HAS NOT ADDRESSED THE ISSUE S RAISED BY THE ASSESSEE , HENCE, HELD THAT THE ORDER OF THE TPO IS INCORRECT. THE LD.CIT( A) CONSIDERED THE OECD GUIDELINES AND THE DECISION OF ITAT, HYDERABAD IN THE CASE OF PALRED TECHNOLOGIES LTD (SUPRA) AND HELD THAT DETERMI NI NG THE ALP ADOPTING THE INTERNAL TNMM IS MOST APPROPRIATE FOR BENCHMARKING THE ALP WHEN SEGMENTAL DATA IS AVAILABLE . ACCORDINGLY, HELD THAT THE ORDER OF THE TPO IS INCORRECT AND ACCORDINGLY DELET ED THE ADDITION MADE BY THE TPO/AO. 24. AGAINST WHICH THE DEPARTMENT HAS FILED APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, LD.DR ARGUED THAT THE AO HAS RIGHTLY TAKEN THE COMPARABLES USING VARIOUS FILTERS IN THE SIMILAR TYPES OF PRODUCTS MANUFACTURED BY THE ASSESSEE AND SELECTED THE COMPARABLES WHICH ARE MORE OR LESS COMPARABLE TO THE ASSESSEE COMPANY. THE ASSESSEE DID NOT BRING ANY DIFFERENCES TO ELIMINATE THE COMPARABLES SELECTED BY THE TPO. THE METHOD ADOPTED BY THE ASSESSE E I.E. CPM WAS NOT ACCEPTED SINCE THE DIRECT COSTS AND IN DIRECT COSTS CANNOT BE ASCERTAINED ACCURATELY. THERE IS A POSSIBILITY OF MAKING THE ADJUSTMENT OF COSTS IN INTERNAL COMPARABLES. FOR CONSIDERING THE INTERNAL TNMM AS MAM, THE ASSESSEE HIMSELF HAD STATED IN THE TRANSFER PRICING DOCUMENT THAT THE BLEND A ND MIX OF EACH ORDER IS 25 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR UNIQUE AND PROPRIETY TO THE CUSTOMER AND EXCEPT FOR THE BASIC TOBACCO, IT IS MEANINGLESS TO COMPARE THE PRICE WITH ONE BLEND OF TOBACCO WITH ANOTHER BLE N D OF TOBACCO. THEREFORE, THE TPO HAS RIGHTLY REJECTED THE CONTENTION OF THE A SSESSEE TO ADOPT INTERNAL TNMM AS MAM. THE LD.DR FURTHER SUBMITTED THAT THOUGH THE ASSESSEE HAS SUBMITTED THE OPERATING PROFIT MARGINS SEGMENT WISE IN TRANSFER PRICING DOCUMENTATION, THE ASSESSEE HAS NOT FURNISHED THE BASIS OF COST ALLOCATED TO AES AND N ON AES. THEREFORE, ARGUED THAT THERE IS NO CASE FOR ADOPTING THE INTERNAL TNMM TO THE EXTERNAL TNMM AND THE AO HAS RIGHTLY SELECTED THE EXTERNAL COMPARABLES USING VARIOUS FILTERS AND BENCH MARKED THE MARGINS AND THEREFORE, ARGUED THAT THE ORDER OF THE LD .CIT(A) REQUIRED TO BE SET ASIDE AND THE APPEAL OF THE REVENUE TO BE ALLOWED. 25. PER CONTRA, THE LD.AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE ASSESSE E IS EXPORTING CUT TOBACCO AND UNCUT TOBACCO TO THE AES. THE COMPANYS M ARGIN OP/OC WAS 2.96%. THE ASSESSE E HAS ADOPTED THE CPM AS MAM AS PER WHICH THE AE SEGMENT IS HAVING MARGIN OF 2.79% AND NON AE 2.09%. THE COSTS WERE ALLOCATED TO THE NEAREST POSSIBLE LEVEL ACCURATELY. THE COST ACCOUNTANT HAS GIVEN THE SEGMENT WISE ALLOC ATION OF COSTS AND CERTIFIED THE SAME. THEREFORE, THERE IS 26 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR NO CASE FOR REJECTING THE METHOD ADOPTED BY THE AO. THE AO UNILATERALLY REJECTED THE METHOD ADOPTED BY THE ASSESSEE STATING THAT IN CPM METHOD DIRECT AND INDIRECT COST CANNOT BE ASCERTAINED RELIA BLY WITHOUT CALLING FOR THE INFORMATION WHICH IS READILY AVAILABLE WITH THE ASSESSEE.. ALTERNATIVELY, THE ASSESSE E HAS ASKED THE AO TO ADOPT INTERNAL TNM AND THE TPO HAS REJECTED ALTERNATE PLEA ALSO WITH A PRESUMPTION THAT THERE IS A CHANCE OF ALLOCATION OF COST TO AE AND NON AE TO THE BENEFIT OF THE ASSESSEE WITHOUT ANY MATERIAL. THE OTHER OBJECTION OF THE TPO FOR REJECTING THE ADOPTION OF INTERNAL TNMM WAS THAT THE SAME WAS NOT USED IN TP DOCUMENTATION AND THE SEGMENTAL FINANCIALS WERE NOT AVAILABLE IN THE FINANCIAL STATEMENTS WHICH IS NOT THE CORRECT REASON FOR REJECTION OF INTERNAL TNMM. SINCE THE ASSESSE E HAS ADOPTED THE CPM METHOD THE DATA WAS MADE AVAILABLE WITH REGARD TO THE CPM METHOD. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND BEFORE THE CIT(A), THE ASSESS EE FURNISHED SEGMENTAL FINANCIALS CERTIFIED BY THE COST ACCOUNTANT . THEREFORE, SUBMITTED THAT THOUGH THE SEGMENTAL DETAILS WERE FURNISHED AS PART OF DOCUMENTATION AND SUBSEQUENTLY CERTIFIED BY COST ACCOUNTANT, THE AO HAS REJECT ED THE INTERNAL TNMM METHOD WHICH IS INCORRECT. THE LD.AR FURTHER SUBMITTED THAT THE COMPARABLES SELECTED BY THE TPO ARE DISSIMILAR AND FUNCTIONALLY DIFFERENT. 27 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ALL THE COMPANIES ARE DEALING WITH BRANDED PRODUCTS IN THE BUSINESS TO CONSUMERS AS AGAINST TH E ASSESS EE COMPANY IS IN THE BUSINESS WITH BRANDED CUSTOMERS. THE COMPARABLE COMPANIES ARE SELLING THE GOODS TO CONSUMERS DIRECTLY AS AGAINST ASSESSEES CASE, TO THE BRANDED OWNERS. THE ASSESSE E SUBMITTED THE DISSIMILARITIES OF THE COMPARABLES SELECTED B Y THE TPO WITH REGARD TO MANUFACTURING, FAR ANALYSIS OF EACH COMPANY WHICH WAS REPRODUCED IN THE ORDER OF THE LD.CIT(A) IN PAGE NO.14 AND 15 AND ARGUED THAT NONE OF THE COMPARABLE S SELECTED BY THE TPO ARE COMPARABLE, THEREFORE, REQUESTED TO DELETE THE COM PARABLES SELECTED BY TPO WHICH ARE DISSIMILAR FUNCTIONALLY, SIZE, NATURE OF BUSINESS ETC.. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE SEARCH PROCESS USING VARIOUS FILTERS OF THE ASSESSEES BUSINESS AS MENTIONED IN PAGE NO.28 OF THE PAPER BOOK TO FIND OUT THE EXTERNAL COMPARABLES ON CAPITA LINE TRANSFER PRICE ING DATA BASE BUT COULD NOT FIND ANY EXTERNAL COMPARABLES. THEREFORE, ARGUED THAT IN THE ABSENCE OF EXTERNAL COMPARABLES, SINCE, THE ASSESS EE IS DEALING IN AE AS WELL AS NON AE COMPANIES AN D SEGMENTAL DATA IS AVAILABLE , WHICH IS SUPPORTED BY COST ANALYSIS OF COST ACCOUNTANT IT IS MOST APPROPRIATE AND REASONABLE TO ADOPT INTERNAL TNMM / CPM AS MAM RIGHTLY OBSERVED BY THE LD.CIT(A). IF THE INTERNAL TNMM/INTERNAL CPM IS ADOPTED, THE INTERNATION AL TRANSACTION 28 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ARE AT ALP AND NO ADJUSTMENT ARE REQUIRED. ACCORDINGLY REQUESTED TO UPHOLD THE ORDER OF THE LD.CIT(A). THE ASSESS EE FURTHER SUBMITTED THAT THE ASSESSE E IS EXPORTING TOBACCO TO INTERCONTINENTAL TOBACCO COMPANY FGE AND THEIR OP/OC WAS 3.85%. SIMILARLY, IT HAS EXPORTED THE TOBACCO TO ABEDEEN INTERNATIONAL FZE,UAE AND ITS OP/OC WORKS OUT TO 3.06%. THUS ARGUED THAT THE MARGINS OF THE AE ARE ALSO NOT SIGNIFICANTLY HIGH, HENCE ARGUED THAT THERE WAS NO SHIFTING OF PROFITS TO THE AE. IN ADDITION TO THE ABOVE, THE LD.AR BROUGHT TO OUR NOTICE THAT FOR THE A.Y. 2012 - 13 AND 2013 - 14, THE ASSESSE E HAD ADOPTED CPM AS MAM AND FOR THE A.Y.2014 - 15, TNMM WAS USED AS MAM. THE CPM INDICATES PLI AT GROSS PROFIT LEVEL, WHEREAS INTERNAL TNMM INDICATES PROFIT LE VEL AT NET PROFIT. TNMM IS EXTENSION OF CPM . FOR THE A.Y.2012 - 13 AND 2014 - 15, THE PRODUCTS INVOLVED IN INTERNATIONAL TRANSACTION WITH AES AND NON AES ARE THE IDENTICAL AND THERE WERE NO ADJUSTMENTS SUGGESTED BY THE TPO. THE LD.AR FURTHER SUBMITTED THAT WHEN INTERNAL TNMM IS AVAILABLE AND THE SEGMENTAL DATA IS AVAILABLE, THE APPROACH SHOULD BE TO BENCHMARK THE PROFIT PLI ADOPTING INTERNAL COMPARABLES SINCE IT PROVIDES THE BEST POSSIBLE FAR AND IT WOULD BE EASIER TO COMPARE THE PROFIT MARGINS. THE ASSESS E E RELIED ON THE DECISION OF HONBLE ITAT IN THE CASE OF PALRED TECHNOLOGIES LTD (SUPRA) AND ARGUED 29 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR THAT THE LD.CIT(A) HAS CONSIDERED ALL THE ISSUES AND DELETED THE ADDITION, HENCE, SUBMITTED THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.CIT(A). 26. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAD INTERNATIONAL TRANSACTION OF RS.45,06,66,714/ - IN RESPECT OF SALES . THE OPERATIVE PROFIT OF THE COMPANY WAS 2.96%. THE ASSESSEE ADOPTED THE INTERNA L CPM AS MAM AND ARRIVED AT THE MARGIN OF 2.79% IN CASE OF AE AS AGAINST THE MARGIN OF NON AE SEGMENT AT 2.09%. THE AO REJECTED THE METHOD ADOPTED BY THE ASSESSEE STATING THAT GROSS PROFIT MARGINS OF THE INTERNAL COMPARABLE S CANNOT BE ASCERTAINED ACCURATE LY DUE TO NON AVAILABILITY OF SEGMENTAL DATA AND ADOPTED THE TNMM AS MAM. WHEN THE ASSESSEE HAS REQUESTED THE TPO TO ADOPT THE INTERNAL TNMM AS MAM, THE SAME WAS ALSO REJECTED BY THE TPO STATING THAT THERE IS POSSIBILITY OF ALLOCATION OF COSTS TO THE BENE FIT OF THE TAXPAYER AND ADOPTED TNMM AS MAM. THE TPO SELECTED SEVEN COMPARABLES AND REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE WITH REGARD TO DISSIMILARITIES IN FUNCTIONS , FOREIGN EXCHANGE EARNINGS, RELATED PARTY TRANSACTIONS, DEPLOYMENT OF FIXED ASS ETS , SIZE OF THE COMPANY ETC AND PROCEEDED TO BENCH MARK THE ALP AT RS.7,32,17,675/ - ADOPTING THE PLI AT 19.69% . DURING THE APPEAL HEARING, 30 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR THE LD.AR BROUGHT TO OUR NOTICE THE DISSIMILARITIES IN COMPARABLES SELECTED BY THE TPO AS UNDER : S.NO. NAME OF TH E COMPANY OUR SUBMISSION / ARGUMENTS ON COMPARABILITY 1. VST INDUSTRIES LTD. (30.98%) DEALS IN MANUFACTURING OF CIGARETTES AND IN UNMANUFACTURED TOBACCO (BUT NO SEGMENTAL DETAILS AVAILABLE) WHEREAS BEPL IS ENGAGED IN LIASONING AND TRADING OF TOBACCO PRODU CTS. FAR ANALYSIS FUNCTIONALLY DIFFERENT CONSIDERING THE NATURE, SIZE AND BUSINESS ACTIVITY OF THE COMPANY EARNING IS FOREIGN CURRENCY ACCOUNT CONSTITUTE 7.46 OF TOTAL EARNINGS COMPARED TO 82.6% FOR THE ASSESSEE FIXED ASSETS CONSTITUTE 10.77% OF SALES, WHILE THE ASSESSEES FIXED ASSET CONSTITUTE 4.83% 2. GODFREY PHILLIPS INDIA LTD. (12.52%) DEALS IN MANUFACTURING OF TOBACCO PRODUCTS CIGARETTES AND CUT TOBACCO (BUT NO SEGMENTAL DETAILS AVAILABLE) WHEREAS BEPL IS ENGAGED IN LIASONING AND TRADING OF TOBACCO PRODUCTS. FAR ANALYSIS EARNING IS FOREIGN CURRENCY ACCOUNT CONSTITUTE 17.20% OF TOTAL EARNINGS COMPARED TO 82.6% FOR THE ASSESSEE FIXED ASSETS CONSTITUTE 34.08% OF SALES, 31 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR WHILE THE ASSESSEES FIXED ASSET CONSTITUTE 4.83% 3. SINNAR BIDI UDYOG LTD. (8.16%) THE COMPANY DEALS IN MANUFACTURING BIDIS, IN WHICH BIDI LEAVES IS THE MAIN INGREDIENT AND TOBACCO DUST. BIDI MANUFACTURING IS FUNCTIONALLY DIFFERENT ACTIVITY WITHOUT HIGH COST OF PLANT AND MACHINERY WHEN COMPARED TO CUT TOBACCO AND CIGARETTES, UNMANUFACTURED TOBACCO. FAR ANALYSIS ACTIVITY SIGNIFICANTLY DIFFERENT DOES NOT HAVE ANY EXPORT OPERATIONS, IT DOES NOT EXPORT GOODS HENCE THERE ARE NO EARNING IN FOREIGN CURRENCY WHILE THE SAME ACCOUNT FOR 82.6% IN THE CASE OF THE ASSESSEE. 4. DHARMPAL SATYA (23.27%) DEALS IN MANUFACTURING OF GUTKA WHICH IS DIFFERENT FROM THE PRODUCT DEALT. ANNUAL REPORT IS NOT AVAILABLE IN THE PUBLIC DOMAIN. 5. ETHNIC TOBACCO (6.08%) MANUFACTURE OF UNMANUFACTURED TOBACCO ANNUAL REPORT IS NOT AVAILABLE IN THE PUBLIC DOMAIN. 6. VIRAT CRANE INDUSTRIES LTD. (7.79%) DEALS IN BETEL NUT POWDER AND MOUTH FRESHNERS WHICH ARE TOTALLY DIFFERENT NOT AVAILABLE IN THE WIDE SEARCH CARRIED OUT FAR ANALYSIS IT DOES NOT EXPORT GOODS, HENCE THERE ARE NO EARNING IN FOREIGN CURRENCY WHILE THE SAME ACCOUNT FOR 82.6% IN THE CASE OF THE ASSESSEE 7. ITC LTD. DIVERSIFIED MULTI PRODUCT AND MULTI 32 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR (49.13%) BUSINESS VERTICAL COMPANY VIZ., CIGARETTES, HOTELS, PAPER BOARD, TEXTILES, FMCG AND SUBSTANTIAL HUGE TURNOVER OF RS.29.901 CRORES AS AGA INST COMPANYS TURNOVER OF 315 CORES. FAR ANALYSIS RELATED PARTY TRANSACTIONS ACCOUNT TO 2.99% OF SALES WHEREAS IN THE CASE OF THE ASSESSEE IT IS 63.44%. EARNING IS FOREIGN CURRENCY ACCOUNT CONSTITUTE 12.64% OF TOTAL EARNINGS COMPARED TO 82.6 FOR THE ASSES SEE FIXED ASSETS CONSTITUTE 42.46% OF SALES, WHILE THE ASSESSEES FIXED ASSET CONSTITUTE 4.83% 27. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE LD.AR AND DR AND FIND THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF EXPORT OF CUT AND UNCUT TOBACCO, WH EREAS, THE COMPARABLES SELECTED BY THE TPO ARE EITHER IN MANUFACTURE OF CIGARETTES, BETEL NUT POW D ER, GUTKA AND MANUFACTURING TOBACCO, DIVERSIFIED MULTIPLE PRODUCT BUSINESS ETC . THEREFORE, WE OBSERVE THE DISSIMILARITIES IN MANUFACTURE OF PRODUCT S IN COMPA RABLES SELECTED BY THE TPO. THE COMPARABLES SELECTED BY THE TPO ARE IN THE BUSINESS TO CONSUMERS, WHEREAS, THE ASSESSEE IS SUPPLYING THE TOBACCO TO THE BRANDED CUSTOMERS FOR MANUFACTURE OF THE CIGARETTES. THEREFORE, WE AGREE THAT THE COMPARABLES SELECTE D BY THE TPO ARE FUNCTIONALLY DIFFERENT. THE NATURE AND SIZE OF THE BUSINESS OF COMPARABLES ALSO WAS NOT BROUGHT ON RECORD BY THE 33 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR TPO. WITH REGARD TO EMPLOYMENT OF ASSETS, EARNING OF FOREIGN CURRENCY ALSO, THE COMPARABLES SELECTED BY THE TPO APPEARS TO BE DIFFERENT. IN RESPECT OF DHARMPAL SATYA COMPANY THE COMPANY WAS MANUFACTURING GUTKA AND IN THE CASE OF ETHNIC TOBACCO, THE COMPANY WAS MANUFACTURING UNMANUFACTURED TOBACCO WHICH ARE FUNCTIONAL DIFFERENT. IN BOTH THE CASES, THE ANNUAL REPORT S ALSO NOT AVAILABLE IN THE PUBLIC DOMAIN. WITH REGARD TO VIRAT CRANE INDUSTRIES IT IS IN THE BUSINESS OF BETEL NUT POWDER AND THE MOUTH FRESHENERS AND IT IS ALSO FUNCTIONALLY DIFFERENT. IN THE CASE OF ITC LTD., IT IS ENGAGED IN MULTIPLE PRODUCTS AND MULT IPLE VERTICAL S AND SEGMENTAL DETAILS AND FAR ANALYSIS IS NOT AVAILABLE, HENCE, THE SAME CANNOT BE TAKEN AS COMPARABLE. WITH REGARD TO VST INDUSTRIES WH ICH DEALS IN MANUFACTURING OF CIGARETTES AND UN MANUF AC TURED TOBACCO IS FUNCTIONALLY DIFFERENT IN SIZE AND NATURE OF BUSINESS AND NO SEGMENTAL DETAILS ARE AVAILABLE. THE CASE OF GODFREY PHILIPH IS A LSO IS SAME AS THE CASE WITH VST INDUSTR I ES . THEREFORE, IN VIEW OF THE SUBMISSIONS MADE BY THE ASSESSEE AS DISCUSSED AGAINST EACH COMPANY, THE COMPARABLES SELEC TED BY THE TPO ARE UNCOMPARABLE, HENCE THEY REQUIRED TO BE DELETED. DURING THE APPEAL HEARING, THE LD.DR DID NOT CONTROVERT THE SUBMISSIONS MADE BY THE LD.AR IN RESPECT OF DISSIMILARITIES OF THE COMPARABLES SELECTED BY THE TPO, 34 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR THEREFORE, WE HOLD THAT ALL THESE SEVEN COMPANIES ARE UNCOMPARABLE IN RESPECT OF FUNCTIONS, BUSINESS, FOREIGN EXCHANGE EARNINGS, DEPLOYMENT OF ASSETS ETC AND IN COUPLE OF CASES, ANNUAL REPORTS ARE NOT AVAILABLE IN THE PUBLIC DOMAIN. THEREFORE, WE DIRECT THE TPO TO DELETE THE CO MPAR ABLES SELECTED BY THE TPO. 28. AS PER THE TRANSFER PRICING DOCUMENTATION IN PAGE NO.28, THE ASSESSEE MADE SEARCH PROCESS FOR SELECTION OF COMPARABLES AND FOUND NO EXTERNAL COMPARABLES IN THE PUBLIC DOMAIN BY USING CAPITALINE TRANSFER PRIC ING DATA. DURING THE APPEAL HEARING, FOR A QUERY FROM THE BENCH, BOTH THE LD.DR AND AR REPLIED THAT THERE ARE NO EXTERNAL COMPARABLES AVAILABLE IN THE PUBLIC DOMAIN, THEREFORE, ONLY THE REMEDY AVAILABLE IS SELECTION OF INTERNAL TNMM OR INTERNAL COMPARABLES. AS OBSERVED FROM THE ORDER OF THE LD.CIT(A) FOR THE A.Y.2012 - 13 AND A.Y.2014 - 15 THERE WA S NO MATERIAL CHANGE IN THE PRODUCT, P ROFIT MARGINS AND NO ADJUSTMENTS WERE SUGGESTED BY THE TPO . THE LD.CIT(A) CONSIDERED THE METHOD ADOPTED BY THE ASSESSEE FOR THE A.Y.2012 - 13 TO 2014 - 15 AND OBSERVED THAT THE PRODUCTS, GOODS INVOLVED IN THE INTERNATIONAL TRANSACTIONS, THE TURNOVER, SALE WITH AE AND NON AE. FOR ALL THE YEARS THE DOCUMENTS PREPARED BY THE ASSESSEE WERE ACCEPTED CONSIDERING THE COST AUDIT CERTIFICATE W HICH THE ASSESSEE H AS REGULARLY 35 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR FURNISHED. AS OBSERVED FROM THE ORDER OF THE LD.CIT(A) FOR THE YEAR UNDER CONSIDERATION ALSO, THE ASSESSEE HA D FURNISHED THE COST AUDIT CERTIFICATE BEFORE THE CIT(A) PLACED IN PAGE NO.107 OF THE PAPER BOOK, WHEREIN THE COST ACCOUNTANT HAS GIVEN DETAILED ANALYSIS OF ALLOCATION OF COST AND REVENUE WITH THE BASIS F OR EACH SEGMENT. THE AO REJECTED THE INTERNAL CPM ON THE REASON THAT THE DIRECT COSTS AND INDIRECT COST CANNOT BE READILY ASCERTAINED. SIMILARLY, INTERNAL TNMM W AS ALSO BRUSHED ASIDE WITH A PRESUMPTION THAT THERE IS ALWAYS A CHANCE OF ALLOCATION OF COSTS TO THE BENEFIT OF TAXPAYER WITHOUT ANY DOCUMENTATION. THE ASSESSEE SUBMITTED THAT THE MARGINS IN THE ASSOCIATED ENTERPRISE S WERE 0.43% TO 3.7% AS PER THE DATA COLLECTED FROM FOUR ASSOCIATE COMPANIES CARRYING ON THE SAME BUSINESS IN THE AREA AND WHOSE AVERAGE WORKS OUT TO 2.5% AS AGAINST 2.96% OF THE ASSESSEE . THE ASSESSEE ALSO SUBMITTED THE DATA OF ASSOCIATE ENTERPRISES IN R ESPECT OF WHOM THE EXPORTS WERE MADE AND IN THE CASE OF INTERNATIONAL CONTINENTAL TOBACCO COMPANY FZE, THE OPERATING PROFIT WAS 3.85% AND IN THE CASE OF ABERDEEN INTERNATIONAL FZE THE OP /OC WORKS OUT TO 3.05% AGAINST THE ASSESSEES MARGIN OF 2.96 %, THUS, SUBMITTED THAT THE COMPANY IS NOT SHIFTING ANY PROFITS TO ITS AES. THE ASSESSEE HAS FURNISHED THE COMPUTATION OF ALP WITH SEGMENTAL ACCOUNTS, WHERE THE OP OF THE AE 36 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR WORKS OUT TO 2.79% AND NON AE WORKED OUT TO 2.09% IN PAGE NO.210 OF THE PAPER BOOK. THUS , IN THE INSTANT CASE, THE INTERNAL TNMM COMPARABLES ARE AVAILABLE ALONG WITH SEGMENTAL DATA. EXTERNAL COMPARABLES ARE NOT AVAILABLE AS ADMITTED BY BOTH THE PARTIES DURING THE APPEAL HEARING. THEREFORE, IT IS UNJUSTIFIED TO REJECT THE ECONOMIC ANALYSIS M ADE BY THE ASSESSEE. THE TPO HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT THE INTERNAL SEGMENTAL DETAILS FURNISHED BY THE ASSESSEE ARE INCORRECT AND PLI ADMITTED IN RESPECT OF AE AND NON AE ARE NOT BASED ON FACTS. AS RIGHTLY OBSERVED BY THE LD.CIT(A), ONCE THERE IS AVAILABILITY OF SEGMENTAL FINANCIALS AND INTERNAL COMPARABLES, THE RIGHT APPROACH IS TO BENCH MARK INTERNALLY, AS THE INTERNAL COMPARABLES PROVIDE THE BEST POSSIBLE FAR AND ALSO EASIER TO COMPARE THE PROFIT MARGINS WHERE NON AE TRANSACTION IS MORE THAN THAT OF AE VOLUME. THIS VIEW IS SUPPORTED BY THE DECISION OF HONBLE ITAT IN THE CASE OF PALRED TECHNOLOGIES LTD. (SUPRA) RELIED UP ON BY THE LD.CIT(A) WHEREIN, IT WAS HELD THAT WHEN SEGMENTAL DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE WITH REGARD TO AES AND NON AES, THE SAME SHOULD BE CONSIDERED FOR THE PURPOSE OF ASSESSMENT AND INTERNAL TNMM HAS TO BE APPLIED FOR THE PURPOSE OF BENCH MARKING ALP. IN THE CASE OF FOUR SOFT PVT LTD. VS.DCIT (SUPRA) , IT WAS HELD AS UNDER 37 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR . THEREFORE, WHEN SEGMENTAL DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE THE TPO SHOULD HAVE CONSIDERED THEM PROPERLY INSTEAD OF REJECTING THEM WITH BROAD AND SWEEPING ALLEGATIONS SIMILARLY, IN THE CASE OF ITAT MUMBAI IN THE CASE OF CYBERTECH SYSTEMS SOFTWARE LTD. VS. ACIT (2013) 33 TAXMANN.COM 371 HELD AS UNDER : THUS IN OUR CONSIDERED OPINION, ONCE INTERNAL COMPARABLE WAS AVAILABLE ALONG WITH THE SEGMENTAL DETAILS, TPO WAS REQUIRED TO EXAMINE THE SAME AND CARRY OUT THE COMPARABILITY ANALYSIS. IT IS ONLY WHEN THE INTERNAL TNMM FAILS THE TPO CAN GO INTO SEARCH FOR EXTERNAL TNMM BECAUSE EXTERNAL COMPARABLE REQUIRE LOT OF FUNCTIONALITY TEST AND ADJUSTMENTS. ACCORDINGLY, THE PLEA OF THE LD. COUNSEL IS ACCEPTED. THUS, WE RESTORE THIS MATTER TO THE FILE OF THE AO TO VERIFY THE SEGMENTAL RESULTS OF THE AE AS WELL AS NON - AE AND CARRY OUT COMPARABILITY ANALYSIS FOR ARRIVING AT THE MARGIN OF BOTH PARTIES AND ACCORDINGLY, DETERMINE THE ARM S LENGTH PRICE. IT IS ONLY WHEN THE INTERNAL COMPARABLE AND ITS SEGMENTAL DETAILS ARE NOT FOUN D TO STAND THE TEST OF COMPARABILITY ANALYSIS, THEN EXTERNAL COMPARABLES SHOULD HE LOOKED INTO.... OECD GUIDELINES ALSO SUPPORT THE INTERNAL COMPARABLES WHEN AE AND NON AE TRANSACTIONS ARE INVOLVED. AS PER PARA 3.2 7 OF OECD GUIDELINES, INTERNAL COMPARABL ES ARE MOST RELIABLE FOR BENCH MARKING PURPOSE . 3.27. INTERNAL COMPARABLES MAY HAVE A MORE DIRECT AND CLOSER RELATIONSHIP TO THE TRANSACTION UNDER REVIEW THAN EXTERNAL CO M PARABLES. THE FINANCIAL ANALYSIS MAY BE EASIER AND MOM RELIABLE AS IT WILL PRESUMAB LY RELY ON IDENTICAL ACCOUNTING STANDARDS AND PRACTICES FOR THE INTERNAL COMPARABLE AND FOR THE CONTROLLED TRANSACTION. IN ADDITION, ACCESS TO INFORMATION ON INTERNAL COMPARABLES MAYBE BOTH MORE COMPLETE AND LESS COSTLY. 28 .1. THEREFORE, FOLLOWING THE JUDICIAL PRECEDENTS AND ALSO IN VIEW OF THE FACT THAT THERE ARE NO EXTERNAL COMPARABLES AVAILABLE IN THE PUBLIC DOMAIN, WE HOLD THAT THE ASSESSEE HAS RIGHTLY BENCH MARKED THE ALP ADOPTING THE INTERNAL COMPARABLES AND HOLD THAT THE INTERNATIONAL TRANSACTION IS AT ALP 38 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR AND NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE REVENUE . C ROSS OBJECTIONS FILED BY THE ASSESSEE ON THIS ISSUE ARE ONLY SUP PORTIVE AND BECOMES INFRUCTUOUS, HENCE DISMISSED. 2 9 . THE NEXT ISSUE IN TP ADJUSTMENT IS WITH REGARD TO ADJUSTMENT MADE BY THE TPO IN RESPECT OF INTEREST ON RECEIVABLES. THE TPO FOUND THAT A SUM OF RS.28,42,54,759/ - WAS OUTSTANDING RECEIVABLES WHICH WAS NOT REPORTED IN FORM 3CEB OR IN THE TP DOCUMENT. THE TPO ALSO FOUND THAT SOME RECEIVABLES HAVE BEEN RECEIVED BEYOND CREDIT PERIOD OF 180 DAYS. THEREFORE, THE AO/TPO ISSUED A SHOW CAUSE NOTICE DIRECTING THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST SHOUL D NOT BE CHARGED @14.45. ON THE OUTSTANDING RECEIVABLES. SINCE THE ASSESSEE HAS NOT FILED ANY OBJECTIONS, THE TPO CHARGED THE INTEREST @14.45% ON OUTSTANDING RECEIVABLES AND WORKED OUT THE TP ADJUSTMENT @ RS.7,09,433/ - U/S 92CA(3) OF THE ACT WHICH THE AO MADE ADJUSTMENT. 30 . AGAINST WHICH THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION MADE BY THE AO OBSERVING THAT THE DIFFERENCES IN CREDIT PERIODS WOULD BE TAKEN CARE IN FIXING THE SALE PRICE 39 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR WITH DIFFERENT PRICES. LD.CIT(A) DELETED THE ADDITION MADE BY THE AO OBSERVING AS UNDER : OUTSTANDING RECEIVABLES ARE ONLY AN EXTENSION OR CLOSELY LINKED TRANSACTIONS TO THE SALES AND NOT A SEPARATE INTERNATIONAL TRANSACTION BY ITSELF. THE ABOVE PRINCIPLE HAS BEEN UPHELD BY A NUMBER OF TRIBUNAL DECISIONS INCLUDING HON'BLE HYDERABAD TRIBUNAL DECISION IN THE CASE OF PEGA SYSTEMS AND HEXAGON CAPABILITY CENTER. CONSIDERING THE ARGUMENTS AS ABOVE, THE TPO CANNOT RECHARACTERIZE THE OUTSTANDING RECEIVABLE TO LOAN TRANSACTION AND IMPUTE INTEREST ON THE SAME. FURTHER, IT HAS BEEN OBSERVED THAT THE APPELLANT HAS A CLEAR POLICY OF NOT CHARGING INTEREST TO BOTH AE AND NON AE TRANSACTIONS AND ALSO NOT PAYING INTEREST ON PAYABLES, WHICH BY ITSELF JUSTIFIES THE ARMS LENGTH NATURE OF THE T RANSACTIONS. THIS PRINCIPLE HAS BEEN UPHELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDO AMERICAN JEWELRY AS QUOTED ABOVE. THE DIFFERENCES IN THE CREDIT PERIODS WOULD BE TAKEN CARE IN FIXING THE SALES PRICE OF THE DIFFERENT PARTIES. THUS THE IMPUTATION OF INTEREST AS PROPOSED BY THE TPO IS UNJUST AND NOT AS PER THE INTENTIONS OF THE SEC 92B. HENCE, THE ADDITION MADE BY THE AO ON THE SUGGESTION OF THE TPO IS HEREBY DELETED AND THE GROUND IS ALLOWED. RELIANCE IS PLACED ON THE DECISION OF THE H ON'BLE ITAT, HYDERABAD IN THE CASE OF MIS. HEXAGON CAPABILITY CENTER INDIA PRIVATE LIMITED (ITA NO. 251/HYD/2016) DATED 08 06 - 2018, WHEREIN, IT WAS HELD THAT NOTIONAL INTEREST ON OUTSTANDING RECEIVABLE IS NOT CHARGEABLE AND NO TP ADJUSTMENT CAN BE MADE. IN VIEW OF THIS ALSO, THE APPELLANT SUCCEEDS ON THIS GROUND. GROUND NO. 14 IS WITHOUT PREJUDICE GROUND AND THERE IS NO NEED TO DISCUSS AND DECIDE THIS GROUND, AS THE ISSUE HAS BEEN DECIDED ON MERIT, VIDE GROUND NO. 13 AS ABOVE. 3 1 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THE AO MADE TP ADJUSTMENT IN RESPECT OF INTEREST ON OUTSTANDING RECEIVABLES THAT WERE RECEIVED BEYOND THE PERIOD OF 180 DAYS. THE RECEIVABLES ARE CLOSELY LINKED TO THE PRINCIPAL TRAN SACTION OF SALE OF GOODS. THE AO DID NOT CONSIDER THE CIRCUMSTANCES SURROUNDING 40 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR THE RECE I VABLES AND DID NOT CONSIDER THAT THE OUTSTANDING RECEIVABLES ARE NOT UNSECURED LOANS / ADVANCES GIVEN TO AES. EVEN IF IT IS CONSIDERED THAT THE RECEIVABLES AS INTERNA TIONAL TRANSACTIONS, S INCE, THE SAME ARE TO BE RECEIVED IN FOREIGN EXCHANGE THE INTEREST IF ANY REQUIRED TO BE APPLIED FOLLOWING LIBOR OR LIBRO PLUS METHOD. HOWEVER IN THE INSTANT CASE, RECEIVABLES REPRESENT THE TRADE RECEIPTS BUT NOT THE UNSECURED/ SE CURED LOANS. IN THE CASE OF TRADE RECEIPTS, THE SALE PRICE IS FIXED INCLUDING THE REALIZABLE TIME PERIOD AND HENCE, ONCE THE TRANSACTIONS ARE AT ALP IN RESPECT OF SALES, NO SEPARATE ADJUSTMENT IS REQUIRED TO BE MADE IN OF SALES RECEIVABLES. IDENTICAL ISSUE HAS COME BEFORE THIS TRIBUNAL IN THE CASE OF MAHATI SOFTWARE PVT. LTD. IN I.T.A NO. 67/VIZ/2016& 68 /VIZ/2017 DATED 07 .0 9 .2018. THE TRIBUNAL HELD THAT THE N O INTEREST IS CHARGEABLE ON TRADE ADVANCE ONCE THE SALE PRICE IS AT ALP. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT PARA NO.11 OF THE ORDER OF THIS TRIBUNAL IN THE CITED CASE WHICH READS AS UNDER : 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECO RD. IN THIS CASE, THE AO CHARGED THE INTEREST OF RS.1,38,12,847/ - AND MADE THE ALP ADJUSTMENT CONFIRMED BY THE LD.DRP. THE ASSESSEE CONTENDED THAT THE ASSESSEE HAD THE INTEREST FREE FUNDS IN THE BUSINESS AND OUT OF THE SAID INTEREST FREE FUNDS, THE ASS ESSEE COMPANY HAS MADE THE CERTAIN ADVANCES TO THE AE IN THE INTEREST OF BUSINESS. THE ASSESSEE, FURTHER STATED THAT THE ADVANCE WAS BUSINESS ADVANCE AND RELIED ON THE DECISION OF THE COORDINATE BENCH OF ITAT HYDERABAD IN THE CASE OF CURA TECHNOLOGIES (SU PRA). PERUSAL OF WORK ORDER ENCLOSED IN PAGE NO.117 TO 123 SHOWS THAT THERE IS NO NEED TO MAKE THE 41 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ADVANCE TO AES AS PART OF TRADE ADVANCE OR DEPOSIT. AS PER THE WORK ORDER DATED 03.05.2010, THE ASSESSEE IS REQUIRED TO EXECUTE OFF SHORE PROJECT AS PER THE SPECIFICATIONS AND THE PPK WOULD MAKE THE PAYMENT VIA WIRE TRANSFER AS PER THE AGREED PRICES BETWEEN THE PPK AS WELL AS THE ASSESSEE. THE WORK ORDER BETWEEN THE PPK AND THE ASSESSEE DOES NOT SHOW THE REQUIREMENT OF ANY ADVANCE OR SECURITY DEPOSIT, MARGIN MONEY ETC. IN THIS CASE , THE ASSESSEE IS REQUIRED TO EXECUTE WORK FOR PPK AND THE PPK IS OBLIGED TO MAKE THE PAYMENT AS PER THE BILLS RAISED BY THE ASSESSEE. THE ASSESSEE ALSO DID NOT PLACE ANY EVIDENCE TO ESTABLISH THAT THERE IS OBLIGATION ON THE PART OF THE ASSESSEE TO MAKE THE ADVANCE TO THE AE. THEREFORE, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT IS FOR BUSINESS PURPOSE. WE HAVE GONE THROUGH THE FORM 3CEB REPORT WHICH IS ENCLOSED IN THE PAPER BOOK AT PAGE NO.105 TO 113. THE TRANSFER PRICING DOCUMENT ALSO DOES NOT SHOW ANY SUCH REQUIREMENT OF PAYMENT OF ADVANCE TO THE AE. DURING THE APPEAL HEARING ALSO THE ASSESSEE DID NOT ESTABLISH WITH ANY EVIDENCE TO SHOW THAT THE ASSESSEE IS REQUIRED TO MAKE PAYMENT TO THE AE FOR EX ECUTING THE PROJECT OR FOR TRADE ADVANCE ETC. SINCE THE ADVANCE GIVEN TO PPK IS NOT ESTABLISHED AS TRADE ADVANCE, THE CASE LAW RELIED UPON BY THE ASSESSEE IN THE CASE OF CURA TECHNOLOGIES OF ITAT HYDER A BAD IS NOT APPLICABLE IN THE ASSESSEES CASE. THE LD. DRP RELIED ON THE DECISION OF THE COORDINATE BENCH, ITAT BENGALURU IN THE CASE OF LOGIX MICRO SYSTEM LTD. (SUPRA), AND HELD THAT THE FINANCIAL IMPACT OF INTERNATIONAL TRANSACTION IS APPLICABLE IN THE ASSESSEES CASE. PARKING HUGE FUNDS FOR A LONGER PERIOD WITH AE WITHOUT INTEREST IS NOT ACCEPTABLE. IF THE FUNDS ARE REPATRIATED TO INDIA AS OBSERVED BY THE LD.DRP THERE WOULD BE SUBSTANTIVE REDUCTION IN THE INTEREST COST AND POTENTIAL INCREASE IN THE PROFIT OF THE COMPANY. THEREFORE, THE CASE LAW RELIED UPO N BY THE ITAT BANGALORE IN THE CASE OF LOGIX MICRO SYSTEM LTD. IS SQUARELY APPLICABLE IN THE ASSESSEES CASE. EVEN IN THE CASE LAW RELIED UPON BY THE ASSESSEE IN THE CASE OF CURA LOGISTICS (SUPRA) ALSO, THE COORDINATE BENCH HELD THAT IF THE PURPOSE OF AD VANCE IS TRADE ADVANCE, THE INTEREST IS NOT CHARGEABLE BUT IN CASE OF LOAN THE INTEREST IS CHARGEABLE. HAVING OBSERVED THAT THE ADVANCE IS NOT A TRADE ADVANCE, WE HOLD THAT THE INTEREST IS CHARGEABLE ON THE ADVANCES GIVEN TO THE AE. SINCE THE FACTS ARE IDENTICAL, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. THE APPEAL OF THE REVENUE ON THIS ISSUE IS DISMISSED. ITA NO.233/VIZ/2019 A.Y.2014 - 15 42 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR 32 . THE DEPARTMENT HAS FILED SEPARATE APPEAL FOR THE A.Y.2014 - 15 AGITATING THE ISSUE OF NON DEDUCTION OF TDS ON OCEAN FREIGHT. THE GROUNDS RAISED BY THE DEPARTMENT READS AS UNDER: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) GUNTUR IS ERRONEOUS BOTH IN LAW AND ON THE FACTS OF THE CASE. 2. THE LD.CIT(A) HAS DELETED THE ADDITION MADE BY THE AO FOR NON DEDUCTION OF TDS ON PAYMENTS MADE TO AN AGENT OF FOREIGN SHIPPING COMPANY TOWARDS OCEANIC FREIGHT, THE LD.CIT(A) RELIED HIS DECISION ON THE BASIS OF CBDT CIRCULAR NO.723 DATED 19.09.1995. WHILE DOING SO, THE LD.CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE DID NOT SUBMIT ANY COPY OF RETURN THAT IS REQUIRED TO BE FILED BY THE AGENT U/S 172 OF THE ACT AND THEREFORE, SEC194C IS APPLICABLE IN THIS CASE. 3 . ANY OTHER GROUND THAT MAY BE URG ED AT THE TIME OF HEARING. 3 3 . T HE ISSUE IS ADJUDICATED IN DEPARTMENTS APPEAL IN ITA NOS. 510 & 511/VIZ/2018 AND 53/VIZ/2019 AGAINST THE REVENUE . IN ADDITION, THE DEPARTMENT HAS FILED TWO APPEALS ON THE SAME ISSUE AGAINST THE SAME ORDER OF THE LD.CIT(A) WHICH IS NOT PERMITTED. HENCE, THIS APPEAL BECOMES INFRUCTUOUS, HENCE DISMISSED. 34 . IN THE RESULT, APPEAL S OF THE REVENUE AND THE CROSS OBJECTI ONS FILED BY THE ASSESSEE ARE DISMISSED. 43 I.T.A. NO. 510/VIZ/2018, 511/VIZ/2018, 53/VIZ/2019 AND 233/VIZ/2019 CROSS OBJECTION NO.101 - 103/VIZ/2019, A.Y.2012 - 13 TO 2014 - 15 M/S BOMMIDALA ENTERPRISES PVT. LTD., GUNTUR ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH FEBRUARY 2020. SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 05 . 0 2 .2020 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1 . / THE REVENUE - DY.COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), GUNTUR 2. / THE ASSESSEE M/S BOMMIDALA ENTERPRISES PVT. LTD., 8 - 24 - 53 MANGALAGIRI ROAD, GUNTUR 3. THE PR. COMMISSIONER OF INCOME TAX , GUNTUR 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, GUNTUR 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM