M/s. Terex India Private Limited, Pune V. Deputy Commissioner of Income-tax, Pune

CO 18/PUN/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3900 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 09-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings
• Section: 92C; 143(3); 92B; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 583 /P U N/20 1 6 / ASSESSMENT YEAR : 20 11 - 12 TEREX INDIA PVT. LTD. (AS SUCCESSOR OF DEMAG CRANES AND COMPONENTS (INDIA) PVT. LTD.) GAT NO.330, 332, 333, 334, NANEKARWADI, CHAKAN, TALUKA KHED, PUNE 41 0501 . / APPELLANT PAN: A A BCM9351Q VS. THE DY . COMMISSIONER OF INCOME TAX, CIRCLE 1 (2 ), PUNE . / RESPONDENT . / ITA NO. 552 /P U N/20 16 / ASSESSMENT YEAR : 2011 - 12 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE . / APPELLANT VS. TEREX INDIA PVT. LTD. (AS SUCCESSOR OF DEMAG CRANES AND COMPONENTS (INDIA) PVT. LTD.) GAT NO.330, 332, 333, 334, NANEKARWADI, CHAKAN, TALUKA KHED, PUNE 410501 . / RESPONDENT PAN: AABCM9351Q 2 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 . /CO NO. 18 /PUN/201 8 / ASSESSMENT YEAR : 2011 - 12 (OUT OF ITA NO.552/PUN/2016 ) TEREX INDIA PVT. LTD. (AS SUCCESSOR OF DEMAG CRANES AND COMPONENTS (INDIA) PVT. LTD.) GAT NO.330, 332, 333, 334, NANEKARWADI, CHAKAN, TALUKA KHED, PUNE 410501 / CROSS OBJECT OR PAN: AAAAK7390L VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE . / RESPONDENT ASSESSEE BY : SHRI M.P. LOHIA REVENUE BY : MS. NIRUPAMA KOTRU, CIT / DATE OF HEARING : 1 0 . 0 4 .201 8 / DATE OF PRONOUNCEMENT: 0 6 . 0 6 .201 8 / ORDER PER SUSHMA CHOWLA, JM: OUT OF THIS BUNCH OF APPEALS, CROSS APPEAL S FILED BY THE ASSESSEE AND REVENUE ARE AGAINST ORDER OF D CIT, CIRCLE 1( 2 ), PUNE, DATED 2 9 . 0 1 .201 6 RELATING TO ASSESSMENT YEAR 20 11 - 12 PASSED UNDER SECTION 143(3) R.W.S. 144C (13) OF INCOME TAX ACT 1961 (IN SHORT THE ACT) . THE ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . TH E CROSS AP PEAL S FILED BY THE ASSESSEE AND REVENUE AND CROSS OBJECTIONS FILED BY ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 3. THE ASSESSEE IN ITA NO.583/PUN/2016 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO PURSUANT TO THE ISSUANCE OF DIRECTIONS OF DRP AND BASED THE DRAFT ORDER HAS: G ROUND CHALLENGING THE VALIDITY OF THE ORDER 1. ERRED IN PASSING THE ORDER UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE ACT WITHOUT GIVING EFFECT TO ANY OF THE DIRECTIONS PASSED BY THE DRP THEREBY PASSING A VOID ORDER. 2. ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DRP WHICH WERE BASED ON THE ORDERS PASSED BY THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS. GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT 3. ERRED IN MAKING TRANSFER PRICING ADJUSTMENT OF RS.31,93,76,5 39 TO THE TOTAL INCOME OF THE APPELLANT BY NOT CONSIDERING / ACCEPTING THE COMPARABILITY ANALYSIS UNDERTAKEN IN THE TRANSFER PRICING STUDY REPORT FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS; SELECTION OF INAPPROPRIATE SET OF COMPARABLES AND NOT REJECTING INAPPROPRIATE COMPANY CONSIDERED AS COMPARABLE 4. ERRED IN ACCEPTING CERTAIN NON - COMPARABLE COMPANIES AND REJECTING A COMPARABLE COMPANY TREATMENT OF EXCEPTIONAL RENT EXPENSES AS OPERATING EXPENSE INSTEAD OF NON - OPERATING EXPENSE AND NON - GRANT OF ADJUSTMENT ON ACCOUNT OF BUSINESS REASONS FOR LOSS DUE TO PRC CRANES 5. ERRED IN TREATING EXCEPTIONAL RENT EXPENSES AS OPERATING EXPENSES AND NOT GRANTING ADJUSTMENT ON ACCOUNT OF LOSS DUE TO PRC CRANES USE OF CONTEMPORANEOUS AND MULTIPLE YEAR DATA 6 . ERRED IN COMPUTING THE ARM'S LENGTH PRICE USING THE FINANCIAL INFORMATION OF THE COMPARABLE COMPANIES AVAILABLE AT THE TIME OF ASSESSMENT, ALTHOUGH SUCH INFORMATION WAS NOT AVAILABLE AT THE TIME WHEN THE APPELLANT COMPLIED WITH THESE REGULATIONS AND IN N OT CONSIDERING MULTIPLE YEAR DATA FOR DETERMINING THE ARM'S LENGTH PRICE BENEFIT OF +/ - 5% RANGE 7. ERRED IN COMPUTING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO MANUFACTURING ACTIVITY WITHOUT TAKING INTO ACCOUNT THE BENEFIT O F +/ - 5 PERCENT, WHICH IS PERMITTED AND OPTED FOR BY THE APPELLANT UNDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT; ERRONEOUS CALCULATION OF TOTAL ASSESSED INCOME 8. ERRED IN CALCULATING THE TOTAL ASSESSED INCOME AT RS.31,93,76,540 INSTEAD OF LOSS RETUR NED AS RS.15,20,73,963 4 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 ERRONEOUS LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT 9. ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234C OF THE ACT INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT 10. ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO ONE ANOTHER. 4. THE REVENUE IN ITA NO.552/PUN/2016 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE HON'BLE DRP HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IN ALLOWING FOR THE AGGREGATION OF THE 'INSTALLATION AND COMMISSIONING/ENGINEERING SERVICES' WITH THE MANUFACTURING ACTIVITY WHEN ( I ) THE MANUFACTURING AGREEMENT SIGNED BY THE ASSESSEE COMPANY WITH THE AE DOES NOT INCLUDE THE SO CALLED 'INSTALLATION AND COMMISSIONING/ENGINEERING SERVICES' IN ITS AMBIT; ( II ) THE ASSESSEE COMPANY ITSELF HAS RECOGNIZED THE SERVICE INCOME AS A SEPARATE REVENUE STREAM IN THE FINANCIALS, WHICH SHOWS THAT IT HAS SEPARATE REVENUE AND COST CENTRE RELATED TO MANUFACTURING AND SERVICING; ( III ) THE IT TRANSFER PRICING LAW AND THE OECD GUIDELINES MAKES AGGREGATION APPROACH AN EXCEPTION RATHER THAN A RULE I.E. RULE 10A(D) AND OECD GUIDELINES PARA 1.42 MANDATE THAT ASSESSEE SH OULD USE TRANSACTION WISE ARMS LENGTH ANALYSIS AND THE EXCEPTION COULD BE CASES WHERE IT IS DIFFICULT TO ANALYZE ALL PROFITS OF EACH INDIVIDUAL TRANSACTIONS OR IF SUCH TRANSACTIONS ARE SO INTER - RELATED; ( IV ) THE COMPARABILITY CRITERION OF SPECIFIC CHARA CTERISTICS OF THE PRODUCTS/SERVICES TRANSFERRED IS NOT MET WHEN THE ASSESSEE COMPANY AGGREGATES THE DISTINCTLY SEPARATE MANUFACTURING AND SERVICES SEGMENTS; ( V ) THE ASSESSEE COMPANY ITSELF HAS PROVIDED DISTINCT AND SEPARATE SEGMENTS FROM ITS FINANCIALS AND STICKING TO THE AGGREGATION APPROACH WOULD MEAN THAT THERE IS CONTAMINATION OF THE PROFITS EARNED FROM SEPARATE TRANSACTIONS OF MANUFACTURING, TRADING AND SERVICING; THE FUNCTIONS PERFORMED, ASSETS USED AND RISKS UNDERTAKEN OF THE SERVICE SEGMENT IS TOTAL LY DIFFERENT AS OPPOSED TO THE MANUFACTURING SEGMENT. 2. THE HONBLE DRP HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IN ALLOWING ADJUSTMENT TO THE PROFIT LEVEL INDICATOR OF COMPARABLES FOR HIGHER COSTS TOWARDS IMPORT OF MATERIALS WHEN 5 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 I ) IT WAS NOT DEMONSTRATED THAT THERE WERE ANY DIFFERENCES IN FUNCTIONS, ASSETS OR RISKS IN THE CASE OF COMPARABLES AND THE ASSESSEE; II ) IT IGNORED THE FACT THAT SOME DIFFERENCE IN COSTS OR EXPENSES IS LIKELY TO BE THERE ON EACH OF THE HEADS OF EXPENSES AND ACCEP TING THE PLEA OF ASSESSEE WILL REQUIRE BOTH UPWARD AND DOWNWARD ADJUSTMENTS ON SEVERAL ITEMS WHICH WILL NOT BE AS PER RULE 10B(1)(E)(III). 5. THE ASSESSEE IN CROSS OBJECTION NO.18/PUN/2018 HAS RAISED THE FOLLOWING GROUNDS OF OBJECTIONS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER ('AO') HAS ERRED IN OBJECTING TO THE ORDER OF THE HON'BLE DISPUTE RESOLUTION PANEL, PUNE [DRP], WHEREIN THE HON'BLE DRP BASED ON THE ORDER OF HONORABLE ITAT IN APPELLANT'S OWN CASE HAS : - A ) DIRECTED TO INCLUDE SERVICES INCOME FOR THE PURPOSE OF COMPUTING THE APPELLANT'S OPERATING MARGIN FROM MANUFACTURING ACTIVITY WHILE COMPUTING ARM'S LENGTH PRICE. B ) DIRECTED TO GRANT AN ADJUSTMENT ON ACCOUNT OF HIGH COST INCURRED BY THE APPELLANT ON IMPORT OF RAW MATERIALS, COMPONENTS AND SPARES FOR COMPUTING ARM'S LENGTH PRICE. 2. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE HON'BLE DRP/ THE LEARNED ASSESSING OFFICER HAS: - A ) ERRED IN REJECTING THE COMBINED TRANSACTI ON APPROACH (AGGREGATION OF MANUFACTURING, SERVICE AND TRADING ACTIVITY) FOR THE BENCHMARKING OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF MATERIAL HANDLING SOLUTIONS UNDER TRANSACTIONAL NET MARGIN METHOD. B ) ERRED IN NOT RESTRICTING / PROPOR TIONATING THE TP ADJUSTMENT TO INTERNATIONAL TRANSACTIONS WITH AES ONLY, PERTAINING TO MANUFACTURING AND SERVICE ACTIVITY. 6. FIRST, WE TAKE UP THE APPEAL OF ASSESSEE, WHEREIN VARIOUS GROUNDS OF APPEAL HAVE BEEN RAISED. HOWEVER, GROUNDS OF APPEAL NO.1, 2 , 5, 6 AND 8 ARE NOT PRESSED. THE GROUND OF APPEAL NO.3 IS GENERAL IN NATURE. HENCE, THE ABOVE SAID GROUNDS OF APPEAL ARE DISMISSED. FURTHER, GROUND OF APPEAL NO.9 RAISED BY THE ASSESSEE IS AGAINST LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT , WHICH IS CONSEQUENTIAL, HENCE DISMISSED. THE ISSUE IN GROUND OF APPEAL NO.10 IS PREMATURE, HENCE THE SAME IS ALSO DISMISSED. 6 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 7. NOW, EFFECTIVE GROUND OF APPEAL TO BE DECIDED IS GROUND OF APPEAL NO.4 I.E. IN RESPECT OF SELECTION OF INAPPROPRIATE SET OF COMPARABLES AND NOT REJECTING INAPPROPRIATE COMPANY CONSIDERED AS COMPARABLE. 8. THE ISSUE IN GROUND OF APPEAL NO.7 IS CONSEQUENTIAL I.E. ALLOWING BENEFIT OF +/ - 5% RANGE. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS COVERED BY VARIOUS ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO DIFFERENT YEARS STARTING FROM ASSESSMENT YEAR 2007 - 08 TO 2010 - 11. HE ALSO POINTED OUT THAT THE ASSESSEE IS AGGRIEVED BY INCLUSION OF WMI CRANES LTD. AND EXCLUSION OF BRADY & MORRIS ENGINEERING COMPANY LTD. IN THIS REGARD, HE STATED THAT THE TRIBUNAL ADOPTED AGGREGATION APPROACH IN ASSESSMENT YEAR 2007 - 08 ONWARDS. FURTHER, THE TRIBUNAL IN ITA NO.521/PUN/2015, RELATING TO ASSESSMENT YEAR 2010 - 11, VIDE ORDER DATED 07.06.2017 DIRECTED THE EXCLUSION OF WMI CRA N ES LTD. ON ACCOUNT OF EXTRAORDINARY EVENT OF DEMERGER. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE VI DE PARAS 6 AND 7 AT PAGE 5 OF THE TRIBUNALS ORDER. HE ALSO POINTED OUT THAT EVEN DURING THE YEAR UNDER CONSIDERATION, THERE WAS DEMERGER AS IS EVIDENT FROM THE AUDIT REPORT OF THE SAID CONCERN PLACED AT PAGE 439 OF PAPER BOOK AND THE SAME MERITS TO BE EX CLUDED. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN MANUFACTURING OF MATERIAL HANDLING EQUIPMENTS. THE ACTIVITIES OF THE ASSESSEE WE RE CLASSIFIED IN THREE SEGMENTS VIZ. MANUFACTURING, TRADING AND SERVICE. THE ISSUE IN PRESENT APPEAL IS WITH RESPECT TO MANUFACTURING 7 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 ACTIVITY. DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES . THEREFORE, REFERENCE UNDER SECTION 92CA OF THE ACT WAS MADE TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF ARMS LENGTH PRICE OF THE TRANSACTIONS REPORTED IN FORM - 3CEB FILED BY THE ASSESSEE. TO BENCHMARK THE TRANSACTIONS , THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM). THE ASSESSEE SELECTED FOUR COMPANIES AS COMPARABLES WITH AVERAGE MARGIN OF 5.94%. THE TRANSFER PRICING OFFICER ADDED TWO MORE COMPANIES IN THE LIST OF COMPARABLES I.E . ELECON ENGINEERING COMPANY PVT. LTD. AND W.M.I CRANES LTD. THE ASSESSEE BEFORE US IS AGGRIEVED BY INCLUSION OF WMI CRANES LTD. BEING NOT FUNCTIONALLY COMPARABLE BECAUSE OF EXTRAORDINARY EVENT S DURING THE YEAR. THE TRIBUNAL VIDE PARAS 6 AND 7 HAS ALREADY DELIBERATED UPON THE ISSUE AND DIRECTED THE EXCLUSION OF WMI CRANES LTD. IN ASSE SSMENT YEAR 2010 - 11. FOLLOWING THE SAME PARITY OF REASONING AND BECAUSE OF SIMILAR EVENT OF DEMERGER IN THE INSTANT YEAR, THE SAID CONCERN IS TO BE EXCLUDED. 11. NOW, COMING TO THE NEXT CONCERN I.E. BRADY & MORRIS ENGINEERING COMPANY LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TRANSFER PRICING OFFICER (TPO) HAD ADMITTED THE SAID CONCERN TO BE FUNCTIONALLY COMPARABLE BUT BECAUSE OF EXCEPTIONAL INCREASE IN THE TURNOVER, THE SAID CONCERN WAS NOT INCLUDED. OUR ATTENTIO N WAS DRAWN TO THE ANNUAL REPORT OF THE SAID CONCERN, WHICH IS PLACED AT PAGE 511 OF PAPER BOOK, WHEREIN THE GROSS TURNOVER HAD ONLY INCREASED FROM 28.61 CRORES TO 30.24 CRORES AND IT WAS POINTED OUT THAT THERE WAS NOTHING EXCEPTIONAL IN THE SAID INCRE ASE. FURTHER, THE SAID CONCERN WAS NOT PERSISTENT LOSS MAKING. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHERE THE TPO HAD ACCEPTED THE SAID CONCERN AS 8 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 FUNCTIONALLY COMPARABLE, THEN THE SAME CANNOT BE EXCLUDED ON THE GROUND THAT THERE WA S EXCEPTIONAL INCREASE IN THE TURNOVER BECAUSE THE INCREASE FROM 28.61 CRORES TO 30.24 CRORES I.E. TURNOVER SHOWN IN THE LAST YEAR AS AGAINST THE TURNOVER OF THIS YEAR , CANNOT BE SAID TO BE EXCEPTIONAL. ACCORDINGLY, WE FIND NO MERIT IN THE FINDINGS OF TPO AND DIRECT THE ASSESSING OFFICER / TPO TO INCLUDE THE SAID CONCERN IN THE FINAL LIST OF COMPARABLES. THE ASSESSING OFFICER / TPO IS DIRECTED TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AND IN CASE THE MARGINS SHOWN BY THE ASSESSEE ARE WITHIN THE RANGE OF +/ - 5% OF MEAN MARGINS OF COMPARABLES, THEN NO ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE IS TO BE MADE IN THE HANDS OF ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 12. NOW, COMING TO THE APPEAL FILED BY THE REVENUE. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS AGAINST AGGREGATION APPROACH DIRECTED BY THE DRP. 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR VIEW HAS BEEN TAKEN IN ASSESSMENT YEARS 2007 - 08, 2008 - 09 AND 2009 - 10. 14. WE FIND THAT SAME IS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF TRIBUNAL; FIRST IN ASSESSMENT YEAR 2007 - 08 I.E. ITA NO.1683/PN/2011, ORDER DATED 31.12.2012. SIMILAR APPROACH WAS APPLIED IN THE SUBSEQUENT YEARS AND APPLYING THE SAME PARITY OF REASONING AS IN PARA 34 OF ORDER IN ASSESSMENT YEAR 2007 - 08, WE FIND NO MERIT IN THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 9 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 15. NOW, COMING TO THE ISSUE RAISED BY THE REVE NUE IN GROUND OF APPEAL NO.2 I.E. AGAINST ORDER OF DISPUTE RESOLUTION PANEL (DRP) IN ALLOWING ADJUSTMENT TO THE PROFIT LEVEL INDICATOR OF COMPARABLE FOR HIGHER COST TOWARDS IMPORT OF MATERIALS I.E. THE ASSESSEE HAD SOUGHT ADJUSTMENT ON ACCOUNT OF IMPORT DU TY WHICH WAS DENIED BY THE TPO BUT ALLOWED BY THE DRP. THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 ALLOWED THE CLAIM OF ASSESSEE VIDE PARAS 20 TO 24 OF ORDER RELATING TO ASSESSMENT YEAR 2007 - 08 . THE TRIBUNAL HAS REFERRED TO EARLIER DECISION OF TRIBUNAL IN AS SESSMENT YEAR 2006 - 07, ORDER DATED 04.01.2012 AND HAD REMITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO ADJUDICATE THE ASSESSEES PLEA IN THE LIGHT OF DIRECTIONS OF THE TRIBUNAL IN THE ORDER DATED 04.01.2012 AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. FURTHE R, SIMILAR DIRECTIONS HAVE BEEN GIVEN IN ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. IN VIEW OF THE ISSUE BEING SET ASIDE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS TO DETERMINE THE ADJUSTMENT TO THE PLI ON ACCOUN T OF IMPORT DUTY, WE FIND NO MERIT IN THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE AND THE SAME IS DISMISSED. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 16. NOW, COMING TO THE CROSS OBJECTIONS FILED BY THE ASSESSEE, WHEREIN THE L EARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT GROUND OF OBJECTION NO.1 IS IN SUPPORT OF ORDER OF DRP. SINCE, WE HAVE DISMISSED THE GROUNDS OF APPEAL RAISED BY THE REVENUE, GROUND OF OBJECTION NO.1 IS ALLOWED. 17. THE GROUND OF OBJECT ION NO.2A IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 10 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 18. NOW, COMING TO GROUND OF OBJECTION NO.2B, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 IN PARA 14. THE IS SUE IS AGAINST DIRECTIONS OF DRP IN NOT RESTRICTING TP ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES ONLY PERTAINING TO MANUFACTURING AND SERVICE ACTIVITY. 19. THE ISSUE STANDS COVERED BY THE ORDER OF TRIBUNAL IN DEMAG CRANES & COMPONENTS (INDIA) PVT. LTD. VS. DCIT IN ITA NO.1683/PN/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 31.12.2012, WHEREIN IT WAS HELD AS UNDER: - 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ON THIS ASPECT AND FIND OURSELVES INCLINED TO UPHOLD THE PLEA OF THE ASSESSEE. OSTENSIBLY, THE OBJECTIVE OF DETERMINING THE ARM'S LENGTH PRICE U/S 92C OF THE ACT IN RELATION TO AN INTERNATIONAL TRANSACTION CARRIED OUT BY AN ASSESSEE WITH ITS AE IS TO SUPPLANT THE PROVISIONS OF SECTION 92(1) OF THE ACT, WHICH PRESCRIBES THAT INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP, AND THE MEANING OF THE EXPRESSION 'INTERNATIONAL TRANSACTION' IS CONTAINED IN SEC. 92B OF THE ACT TO MEAN A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES. THEREFORE, IT IS A NATURAL COROLLARY THAT THE ADJUSTMENT ARISING AS A RESULT OF TRANSFER PRICING ANALYSIS IS TO BE CONFINED TO INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH THE AES ALONE AND NOT IN RELATION TO NON - AE TRANSACTIONS. SIMILAR POINT AROSE IN ASSESSEE'S OWN CASE FOR THE A.Y. 2006 - 07 IN ITA NO. 120/PN/2011 (SUPRA) WHEREIN TRIBUNAL AFTER REFERRING TO SUB - CLAUSES (I) AND (II) OF RULE 10B(1)(E) OF THE RULES AND CERTAIN PRECEDENTS BY WAY OF DECISIONS OF THE CO - ORDINATE BENCHE S, FINALLY ACCEPTED THE PLEA OF THE ASSESSEE IN THE FOLLOWING WORDS: '49. ALL THESE CITED DECISIONS IN GENERAL AND THE DECISION IN THE CASE OF M/S. JT. JIN ELECTRONICS I P. LTD. VS. ACIT 36 SOT 227, IN PARTICULAR ARE UNIFORM IN ASSERTING THAT THE TP ADJUSTMENTS ARE TO BE COMPUTED NOT CONSIDERING THE ENTITY LEVEL SALES. RATHER IT SHOULD BE DONE IDEALLY CONSIDERING THE RELATABLE SALES DRAWING THE QUANTITATIVE RELATIONSHIP TO THE IMPORTS FROM THE AES, I.E. CONTROLLED COST. THE PRINCIPLE OF PROPORTIONALIT Y IS RELEVANT HERE AND IT IS A SETTLED LAW IN THIS REGARD. IN THE SITUATION LIKE THE ONE IN THE INSTANT CASE OF THE ASSESSEE, THERE IS DATA RELATING TO CONTROLLED AND UNCONTROLLED COST PARTICULARS. THIS UNDISPUTED DATA IS SUFFICE TO ARRIVE THE PROPORTIONAT E SALES RELATABLE TO THE INTERNATIONAL TRANSACTION WITH THE AES I.E. CONTROLLED COST. ACCORDINGLY, THE GROUND NO.10 RELATING TO INCORRECT COMPUTATION OF TRANSFER PRICING ADJUSTMENT TO THE MANUFACTURING ACTIVITY IS ALLOWED PRO TANTO.' 15. IN VIEW OF AFORE SAID DISCUSSION WE THEREFORE, HOLD THAT THE ASSESSEE HAS TO SUCCEED ON THE SAID PLEA AND AS A RESULT GROUND NO. 7 RAISED BY THE ASSESSEE STANDS ALLOWED. 11 ITA NO. 583 /PUN/20 16 ITA NO. 552 /PUN/20 16 CO NO.18/PUN/2018 20. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TPO TO RESTRICT THE ADJUSTMENT, IF ANY, ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS ONLY TO THE EXTENT OF INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES. 21 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED, APPEAL OF REVENUE IS DISMISSED AND CROSS OBJECTIONS OF ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED ON THIS 6 T H DAY OF JUNE , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 6 T H JUNE , 201 8 . G G C C V V S S R R / COPY OF THE O RDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE