BUNGE INDIA PVT. LTD., MUMBAI V. ACIT, CIR 8(1), MUMBAI

CO 234/MUM/2014

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7142 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-04-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 20-09-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-10-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUNIL DESH
• Assessee Lawyers: VISPI T PATEL LD
• Keywords: Depreciation; Transfer pricing; International transaction; Question of law; Revenue expenditure; Capital expenditure
• Section: 143(3); 13; 22; 92CA

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI , , BEFORE HONBLE SHRI SAKTIJIT DEY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) 1. ./ I.T.A. NO.7738/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) & 2. ./ I.T.A. NO.4771/MUM/2015 ( / ASSESSMENT YEAR: 2009-10) A DDL . C IT - 8 (1) ROOM NO.260A, 2 ND FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. / VS. M/S BUNGE INDIA PVT.LTD. 601 C & 601 D, 6 TH FLOOR THE CAPITAL, C-70, G-BLOCK BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI-400 051 PAN/GIR NO. AAACG - 7034 - K ( '# /APPELLANT ) : ( $%'# / RESPONDENT ) & 3. CROSS OBJECTION NO.234/MUM/2014 (ARISING OUT OF ITA NO.7738/MUM/2012) ( / ASSESSMENT YEAR: 2008-09) & 4. CROSS OBJECTION NO.149/MUM/2015 (ARISING OUT OF I.T.A. NO.4771/MUM/2015) ( / ASSESSMENT YEAR: 2009-10) BUNGE I NDIA PVT.LTD. 601 C & 601 D, 6 TH FLOOR THE CAPITAL, C-70, G-BLOCK BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI-400 051. / VS. ADDL. CIT - 8(1) ROOM NO.260A, 2 ND FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020. PAN/GIR NO. AAACG - 7034 - K ( '# /APPELLANT ) : ( $%'# / RESPONDENT ) ASSESSEE BY : SHRI VISPI T. PATEL LD. AR REVENUE BY : SHRI SUNIL DESHPANDE-LD. SR. DR / DATE OF HEARING : 23/03/2021 / DATE OF PRONOUNCEMENT : 08/04/2021 2 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY REVENUE FOR ASSESSMENT YEAR S [IN SHORT REFERRED TO AS AY] 2008-09 AND 2009-10 CONTEST TH E ORDERS OF LEARNED FIRST APPELLATE AUTHORITY ON COMMON GROUNDS OF APPE AL. THEREFORE, THE APPEALS WERE HEARD TOGETHER AND ARE NOW BEING DISPO SED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE & BRE VITY. THE ASSESSEE HAS FILED CROSS-OBJECTIONS AGAINST BOTH THE APPEALS . FIRST WE TAKE UP APPEAL AS WELL AS CROSS-OBJECTION FOR AY 2008-09. 2. THE REVENUES APPEAL FOR AY 2008-09 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-15, MUMBAI, [ CIT(A)] DATED 16/10/2012 ON FOLLOWING GROUNDS : - 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.10,81,45,504/- (11417658660 31082) OUT OF RS.11,41,76,586/- U/S. 92CA OF THE I.T. ACT, 1961, MADE BY THE TRANSFER PRICING OFFICER/ASSESSING OFFICER, IGNORING THE FACT THAT T HE TPO HAD APPLIED TNMM METHOD IN RESPECT OF INTERNATIONAL TRANSACTION AS ENTERED INTO BY THE ASSESSEE WITH ITS AES. 2. THE LD. CIT(A) ERRED IN TREATING MARKET RESEARC H EXPENSES OF RS.58,03,853/- AS REVENUE EXPENDITURE AS AGAINST CAPITAL EXPENDITURE TREATED BY THE A.O.AS THE BENEFIT OF THE SURVEY REPORT WAS FOR LONG-TERM BENEFIT OF T HE ASSESSEES BUSINESS. THE GROUND OF ASSESSEES CROSS-OBJECTION READ AS UN DER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) ERRED IN NOT GRANTING BENEFIT OF (+/-) 5 PERCENT AVAILABLE UNDER THE PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT, 1961 (ACT) TO THE INTERNATIONAL TRA NSACTION OF IMPORT OF CRUDE DEGUMMED SOYABEAN OIL FROM THE ASSOCIATED ENTERPRIS E (AE), ON THE GROUND THAT THE INTERNAL THIRD PARTY CONTRACT AND THE DAILY RAT E QUOTED IN WORLD OIL MARKET (WOM), WHICH WAS USED UP AS THE COMPARABLE UNCONTROLLED P RICE (CUP) FOR THE PURPOSE OF BENCHMARKING, IS A SINGLE OR ONE PRICE. WE HAVE CAREFULLY HEARD THE ARGUMENTS, ORAL AS WELL AS WRITTEN, AS ADVANCED BY BOTH THE REPRESENTATIVES AND PERUSED RE LEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLACED IN PAPER BOOK. WE HAVE ALSO 3 DELIBERATED UPON JUDICIAL PRONOUNCEMENTS AS CITED B EFORE US DURING THE COURSE OF HEARING. THE ORDER OF TRIBUNAL IN ASSESSE ES OWN CASE FOR AYS 2005-06 TO 2007-08 (ITA NOS.4336/M/2009 & ORS, COMM ON ORDER DATED 18/05/2016), DEALING WITH SIMILAR ISSUES, HAS ALSO BEEN PLACED BEFORE US. OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WO ULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. ASSESSMENT PROCEEDINGS 3.1 THE MATERIAL FACTS ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE IS STATED TO BE ENGAGED IN MANUFACTURING A ND TRADING OF VARIOUS EDIBLE OILS. AN ASSESSMENT WAS FRAMED FOR THE YEAR U/S 143(3) ON 23/12/2011 WHEREIN THE ASSESSEE WAS SADDLED WITH CE RTAIN TRANSFER PRICING ADJUSTMENT OF RS.1141.76 LACS. THIS WAS IN VIEW OF THE FACT THAT THE ASSESSEE CARRIED OUT CERTAIN INTERNATIONAL TRAN SACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE). ACCORDINGLY, THESE TRA NSACTIONS WERE REFERRED TO LD. TRANSFER PRICING OFFICER (TPO) U/S 92CA(1) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP). THE LD. TPO PROPOSED IMPUGNED ADJUSTMENT OF RS.1141.76 LACS VIDE ITS ORD ER U/S 92CA(3) ON 20/11/2011 AGAINST IMPORT TRANSACTIONS OF RS.6571.8 6 LACS. THE ASSESSEE IMPORTED SOYABEAN OIL, PALM OIL FROM SINGA PORE AES AND BENCHMARKED THE TRANSACTIONS USING COMPARABLE UNCON TROLLED PRICE (CUP) METHOD. FOR THE SAID PURPOSE, THE PRICE AT WH ICH THE IMPORTED PRODUCTS WERE SOLD BY ITS AE (BUNGE SINGAPORE) TO I NDEPENDENT PARTIES IN INDIA WAS COMPARED TO THE IMPORT PRICES PAID BY THE ASSESSEE. 3.2 ANOTHER SET OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE WERE MERCHANTING TRADE OF PURCHASE AND EXPORTS WHICH WER E BENCHMARKED USING TRANSACTIONAL NET MARGIN METHOD (TNMM). MERCH ANTING TRADING WAS SAID TO BE AN ACTIVITY OF PURCHASE AND SALE OF COMMODITIES DURING ITS 4 VOYAGE FROM PORT OF LOADING TO DESTINATION PORT. TH E ASSESSEE REFLECTED OPERATING PROFIT OF 0.99% AS A % OF TOTAL COSTS WHI CH WERE SHOWN TO BE HIGHER THAN COMPARABLE ENTITIES. HOWEVER, AFTER EXC LUDING INTEREST INCOME FROM FDR, THE OPERATING PROFIT TURNED INTO OPERATIN G LOSS OF -1.89%. HOWEVER, SINCE BOTH THE WORKINGS WERE WITHIN TOLERA NCE RANGE OF + 5%, THE MERCHANTING TRANSACTIONS WERE ACCEPTED TO BE AT ARMS LENGTH. 3.3 HOWEVER, DISPUTE AROSE WITH RESPECT TO BENCHMAR KING OF IMPORT TRANSACTIONS OF CRUDE DEGUMMED SOYABEAN OIL AND SUN FLOWER SEED OIL. IT WAS NOTED THAT THE ASSESSEE IMPORTED CRUDE OIL FOR CAPTIVE CONSUMPTION IN PRODUCTION OF REFINED OIL. IT HAD ALSO SOLD DEGU MMED SOYABEAN OIL TO UNRELATED ENTITIES IN INDIA. SINCE NO SPECIFIC SHIP MENT COULD BE INDENTIFIED WITH CONSUMPTION IN MANUFACTURING OR RESALE IN LOCA L MARKET, LD. TPO OPINED THAT CUP WAS NOT MOST APPROPRIATE METHOD (MA M) BUT TNMM WOULD BE MORE APPROPRIATE TO BENCHMARK THE TRANSACT IONS AS DONE IN EARLIER YEARS. ACCORDINGLY, APPLYING CERTAIN FILTER S, LD. TPO IDENTIFIED 33 COMPARABLE ENTITIES HAVING MEAN MARGIN OF 3.02% ON SALES. THE ASSESSEE OPPOSED ADOPTION OF TNMM BY SUBMITTING THA T EXCEPT FOR AYS 2005-06 TO 2007-08, THESE TRANSACTIONS WERE ACCEPTE D USING CUP METHOD. THE LD. CIT(A) ACCEPTED CUP AS MAM IN AY 20 06-07. HOWEVER, THE SAME COULD NOT CONVINCE LD. TPO, WHO FINALLY AP PLIED TNMM AND REWORKED ASSESSEES SEGMENTAL ACCOUNTS AND ARRIVED AT OPERATING MARGIN OF 2.07% AS AGAINST 3.02% REFLECTED BY COMPARABLE E NTITIES. ACCORDINGLY, AN ADJUSTMENT OF RS.1141.76 LACS WAS PROPOSED WHICH WAS INCORPORATED BY LD. AO WHILE FRAMING ASSESSMENT ON 23/12/2011. 3.4 ANOTHER ISSUE THAT ARISES OUT OF ASSESSMENT ORD ER IS DISALLOWANCE OF MARKET RESEARCH EXPENSES OF RS.58.07 LACS PAID BY T HE ASSESSEE TO M/S A.C.NEILSON FOR PROVIDING THE COMPANY DATA ON MARKE T SHARE OF ITS 5 PRODUCTS ON MONTHLY BASIS. THESE EXPENSES WERE STAT E TO BE INCURRED FOR OBTAINING THE DATA ON A MONTH-TO-MONTH BASIS AND TH EREFORE, REVENUE IN NATURE. HOWEVER, LD. AO REJECTED THIS PLEA BY HOLDI NG THAT THE EXPENDITURE WAS CAPITAL IN NATURE. APPELLATE PROCEEDINGS 4.1 BEFORE LD. CIT(A), THE ASSESSEE ELABORATED THE BENCHMARKING METHODOLOGY ADOPTED FOR THREE CATEGORIES OF IMPORT VIZ. (I) IMPORT OF CRUDE DEGUMMED SOYABEAN OIL (6 CONTRACT WITH AES); (II) IMPORT OF CRUDE DEGUMMED SOYABEAN OIL (4 CONTRACT WITH AES); (III) IMPORT OF SUNFLOWER SEED OIL. THE SAME HAS BEEN SUMMARIZED BY LD. CIT(A) IN PARA 5.3(IV) OF THE IMPUGNED ORDER. ON THE BASIS OF THE SAME, THE ASSESSEE CONTENDED THAT IT HAD FULFILLED THE CONDITIONS PRES CRIBED IN TRANSFER PRICING (TP) PROVISIONS WHILE APPLYING CUP. THIS METHOD WAS MOST DIRECT METHOD AS SUPPORTED BY VARIOUS DECISIONS OF THE TRIBUNAL. SIMILAR METHODOLOGY WAS ACCEPTED BY LEARNED FIRST APPELLATE AUTHORITY I N AY 2007-08. THE ASSESSEE ALSO SUBMITTED THAT KEEPING IN VIEW THE BE NEFIT OF TOLERANCE RANGE OF + 5%, ALL THE THREE CATEGORIES OF TRANSACTIONS WERE A T ARMS LENGTH AND THEREFORE, NO ADJUSTMENT COULD BE MADE. 4.2 THE LD. CIT(A), WITH RESPECT TO FIRST CATEGORY OF TRANSACTIONS, OBSERVED THAT SINCE VALID INTERNAL CUP WAS AVAILABL E, THIS METHOD WOULD BE MOST APPROPRIATE METHOD (MAM). IN RESPECT OF TRA NSACTIONS NOS. 1, 4 & 6, DIFFERENCE IN RATES WERE FOUND. SINCE THE BENEFI T OF TOLERANCE RANGE OF + 5%, AS PER SECTION 92C(2) WOULD APPLY ONLY WHEN MOR E THAN ONE PRICE WAS DETERMINED, THE ASSESSEE WOULD NOT BE ENTITLED FOR THE SAME. RESULTANTLY, THE ADDITIONS TO THE EXTENT OF RS.59.3 3 LACS WERE CONFIRMED UNDER THIS CATEGORY OF TRANSACTIONS. 6 REGARDING SECOND CATEGORY, SIMILAR WAS THE OBSERVAT ION THAT VALID EXTERNAL CUP EXISTED AND THEREFORE, THE SAME WAS TO BE ADOPTED FOR BENCHMARKING THE TRANSACTIONS. HOWEVER, THE ASSESSE E WOULD NOT BE ENTITLED FOR TOLERANCE RANGE OF + 5%. RESULTANTLY, THE ADDITIONS TO THE EXTENT OF RS.0.90 LACS WERE CONFIRMED. REGARDING THIRD CATEGORY, IT WAS AGAIN OBSERVED THA T VALID INTERNAL AS WELL AS EXTERNAL CUP EXISTED AND THEREFORE, IT WOULD BE PREFERRED OVER TNMM. HOWEVER, THE ASSESSEE WOULD NOT BE ENTITLED FOR TOL ERANCE RANGE OF + 5%. RESULTANTLY, THE ADDITIONS TO THE EXTENT OF RS.60.3 1 LACS WERE CONFIRMED. AGGRIEVED AS AFORESAID THE REVENUE IS IN FURTHER AP PEAL BEFORE US BY WAY OF GROUND NO.1. ON THE OTHER HAND, THE ASSESSEE, IN ITS CROSS-OBJECTIONS, IS SEEKING BENEFIT OF TOLERANCE RANGE OF + 5% UNDER CUP METHOD SINCE THE BENEFIT OF THE SAME HAS BEEN DENIED BY LEARNED FIRS T APPELLATE AUTHORITY. 4.3 THE EXPENDITURE OF RS.58.03 LACS ON MARKET RESE ARCH, AS DISALLOWED BY LD. AO, WAS DELETED BY FOLLOWING APPE LLATE ORDERS FOR AYS 2005-06 TO 2007-08. AGGRIEVED, THE REVENUE IS BEFOR E US BY WAY OF GROUND NO.2. OUR FINDINGS AND ADJUDICATION 5. THE LEARNED AR SUPPORTED THE ADOPTION OF CUP MET HOD BY SUBMITTING THAT THIS METHOD HAS BEEN ACCEPTED IN EA RLIER AS WELL AS SUBSEQUENT ASSESSMENT. FURTHER, THE BENCHMARKING AN ALYSIS CARRIED OUT BY THE COMPANY WAS IN ACCORDANCE WITH PROVISIONS OF SECTION 92C(1) READ WITH RULE 10B(1)(A) AND HAVING REGARDS TO BENE FIT OF TOLERANCE RANGE AS AVAILABLE UNDER SECOND PROVISO TO SECTION 92C(2) OF THE ACT. IT WAS ALSO SUBMITTED THAT SINCE THE ASSESSEE WAS IN POSSE SSION OF VALID INTERNAL AS WELL AS EXTERNAL CUP, THE SAID METHODOLOGY WAS M OST APPROPRIATE METHOD TO BENCHMARK THE TRANSACTIONS. 7 6. HOWEVER, THE LD.AR WAS CONFRONTED WITH TRIBUNAL ORDER FOR AYS 2005-06 TO 2007-08 WHICH UPHELD THE APPLICATION OF TNMM TO BENCHMARK THESE TRANSACTIONS. IN THAT EVENTUALITY, LD.AR ALTE RNATIVELY ASSAILED THE BENCHMARKING DONE BY LD. TPO USING TNMM METHOD. IT WAS SUBMITTED THAT THE ADJUSTMENTS, IF ANY, WAS TO BE RESTRICTED TO THE EXTENT OF INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSES SEE ONLY AND NOT TO THE ENTIRE SEGMENT OF MANUFACTURING ACTIVITY. THE LD. A R SUBMITTED THAT IT THE ADJUSTMENTS WERE SO RESTRICTED, THE MARGIN WOULD BE WITHIN PERMISSIBLE LIMIT OF + 5% AND THEREFORE, THE ADDITIONS WOULD NOT BE SUSTAI NABLE. THE WORKING OF THE SAME HAS BEEN PLACED ON RECORD. THE LD. AR SUBMITTED THAT NO ADJUSTMENT SHALL REMAIN AS PER THE ABOVE CA LCULATION, DULY FOLLOWING THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR AY 2005-06. THE LD. DR, ON THE OTHER HAND, ASSAILED THE IMPUGNE D ORDER BY SUPPORTING THE BENCHMARKING DONE BY LD. TPO BY ADOP TION TNMM METHOD. THE LD. DR DREW OUR ATTENTION TO PARA-10 OF THE TRIBUNAL ORDER. 7. WE FIND THAT THE IMPUGNED ISSUE IS RECURRING IN NATURE IN ASSESSEES CASE. THE DISPUTE AS TO ADOPTION OF MOST APPROPRIAT E METHOD AS WELL AS COMPUTATION OF MARGINS ETC. USING TNMM METHOD WAS T HE SUBJECT MATTER OF REVENUES APPEALS AS WELL AS ASSESSEES CROSS-OB JECTIONS BEFORE THIS TRIBUNAL IN AYS 2005-06 TO 2007-08 (ITA NOS.4336/M/ 2009 & ORS. COMMON ORDER DATED 18/05/2016). UPON PERUSAL OF THE SAME, WE FIND THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL FOR AY 2005-06 IN THE FOLLOWING MANNER: - 7. NEXT TWO GROUNDS DEAL WITH DELETING OF ADDITIONS BY THE FAA WITH REGARD TO IMPORT OF RAW MATERIAL AND RELATED ISSUES INCLUDING THE TREATMENT TO BE GIVEN TO THE SEGMENTAL ACCOUNTS. DURING THE TP PROCEEDINGS, THE TPO FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION RELATING TO IMPORT OF SOYABEAN OIL, PALM OIL AND PALMOLINE OIL AS WELL AS EXPORT OF SOYA BEAN ME AL AND RAPESEED MEAL, THAT IT HAD USED CUP METHOD WITH REGARD TO THE INTERNATIONAL TR ANSACTIONS. HOWEVER TPO WAS OF THE OPINION THAT CUP WAS NOT THE MAM. SO, HE APPLIE D TNMM. HE DREW SEGMENTED 8 ACCOUNT AND EXAMINED THE PERFORMANCE OF SEGMENT OTH ER THAN MTA AND OTHER INCOMES. ACCORDING TO THE TPOS WORKING OPERATING P ROFIT OF THE ASSESSEE WAS (- )6.94%. FOR APPLYING TNMM HE TOOK 26 COMPARABLES BU T LATER ON EXCLUDED 5.IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY TPO, TH E ASSESSEE CONTENDED THAT IT HAD CORRECTLY USED THE CUP METHOD, THAT IN THE EARL IER TWO YEARS TPO HAD ACCEPTED THE SAID METHOD FOR DETERMINING THE ALP, THAT THE R ATES OF CUP WITH REGARD TO IMPORT OF CRUDE OIL COULD NOT BE COMPARED TO RATES OF MERC HANTING TRADE OF THE SAME COMMODITY. THE TPO OBSERVED UNDER THE TP REGULATION ALP OF A TRANSACTION COULD VARY YEAR TO YEAR DEPENDING UPON ECONOMIC CONDITION S AND COMPARABILITY OF THE PROVISIONS, THAT CUP RATES, APPLIED BY THE ASSESSEE , WERE NOT EXACTLY IDENTIFIABLE, THAT THE SAME COMMODITY WAS TRANSACTED AT DIFFERENT RATE S IN MTA, THAT ASSESSEE WAS NOT ABLE TO PROVIDE THE RESALE MARGIN OF THE CRUDE OIL SOLD IN THE LOCAL MARKET, THAT SOYABEAN MEAL WAS SOLD AT A DIFFERENT RATE AS COMPA RED TO THE EXPORT TO THE AES. 8. DURING THE APPELLATE PROCEEDINGS, THE FAA DIRECTED THE TPO TO SUBMIT A REMAND REPORT. THE TPO ISSUED A SHOW CAUSE NOTICE AND PROP OSED OPERATING PROFIT MARGIN OF RS.2.92 CRORES TO BE APPLIED ON THE OPERATING INCOM E OF RS.806.56 CRORES AS AGAINST ASSESSEES OPERATING LOSS OF RS.56.01 CRORES. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE TPO RE-WORKED THE OPERATING MARGIN OF COMPARABLE COMPANIES@ 2.63%. AFTER MAKING ADJUSTMENT TO THE OPERATING EXP ENSES (UNUTILIZED CAPACITY AND NON OPERATING EXPENSES) OF THE ASSESSEE, THE OPERAT ING LOSS WAS REDUCED TO RS.29.54 CRORE.ACCORDINGLY, THE MEAN OPERATING MARG IN OF THE COMPARABLES, I.E. 2.36% WAS APPLIED TO THE OPERATING INCOME OF RS.809 .54 CRORE RESULTING IN ARMS LENGTH PROFIT OF RS.19.10 CRORE. HE ADJUSTED THE LO SS, ENTERED BY THE ASSESSEE, OF RS.29.54 CRORES AND MADE AN ADJUSTMENT OF RS.48.65 CRORE TO THE IMPORT PRICE. AS A RESULT THERE WAS AN OVERALL REDUCTION IN THE IMPORT PRICE OF THE ASSESSEE . AS IT WAS MORE THAN 5% (54.27%) ALLOWABLE UNDER THE PROVISO T O SECTION 92C(2) OF THE ACT, SO, THE ASSESSEE WAS NOT GIVEN THE BENEFIT. BEFORE THE FAA, IT WAS ARGUED THAT CUP WAS MAM, THA T THE IMPORTS MADE WERE FOR ITS OWN CONSUMPTION, THAT IT WAS NOT POSSIBLE FOR THE A SSESSEE TO IDENTIFY SPECIFIC SHIPMENT WITH CONSUMPTION IN MANUFACTURING OR RE-SA LE, THAT THE TPO HAD FAILED IN APPLYING CUP, THAT HE HAD NOT BROUGHT ANY EVIDENCE OR DOCUMENT TO REJECT OTHER COMPARABLE TRANSACTION AS PROVIDED BY THE ASSESSEE, THAT WHILE APPLYING THE TNMM HE HAD NOT ACCEPTED ALL THE ADJUSTMENT PROPOSED BY THE ASSESSEE, THAT THE UNUTILIZED CAPACITY IN RESPECT OF POWER, FUEL ETC, WAS CONSIDE RED AT NIL AS AGAINST 20% CLAIMED BY THE ASSESSEE, THAT IT RESULTED IN A HIGHER OPERA TING LOSS BY RS.3.81CRORE, THAT FACTORY, SALARY AND WAGES ON ACCOUNT OF UNDER UTILI SATION CAPACITY WAS ALSO TAKEN AT NIL BY THE TPO AS AGAINST 70% CLAIMED BY THE ASSESS EE, THAT IT RESULTED IN A HIGHER OPERATING LOSS BY ABOUT RS.5.46 CRORE, THAT THE DEP RECIATION ON TANGIBLE ASSETS AND UNDER UTILISATION RESULTED IN HIGHER LOSS OF RS.2.2 0 CRORE, THAT THE DEFERRED REVENUE EXPENDITURE OF RS.1.05 CRORES RESULTED IN A REDUCTI ON OF OPERATING EXPENSES BY RS.1.05 CRORES, THAT THE CLAIM MADE BY THE ASSESSEE TO ACCEPT REVISED MARGIN OF 1.07% WAS NOT CONCEDED BY THE TPO. THE FAA HELD THAT THE COMPUTATION OF REVISED MARGIN WAS NOT CONSIDERED BY THE TPO, THAT TPO WAS NOT CORRECT IN HIS REMAND REPORT THAT NO REASONS WERE GIVEN BY THE ASSESSEE FOR TAKING SEGMENTAL RESULTS OF SIX COMPAN IES WHEREAS WHOLE COMPANY RESULTS FOR REMAINING 20 COMPANIES, THAT FOR REJECT ING THE CUP METHOD TPO HAD GIVEN VALID REASONS, THAT TNMM WAS MORE APPROPRIATE METHO D WITH REGARD TO ADJUSTMENT TO BE MADE. THE FAA HELD THAT THE TPO IN THE REMAND RE PORT HAD SUMMARILY CONCLUDED THAT NON OPERATING EXPENSES, RESULTING FROM ABNORMA L ITEMS, WERE CORRECTLY ACCOUNTED FOR, THAT THE CONTENTION OF THE TPO WAS N OT FACTUALLY CORRECT, THAT THE TPO 9 HAD ALLOWED, WHILE CONSIDERING THE CLAIM FOR REDUCT ION OF OPERATING EXPENDITURE, DUE TO UNUTILISED CAPACITY AS ABNORMAL DEPRECIATION ON TANGI-BLE ASSETS, THAT HE HAD ADOPTED 50% OF THE TOTAL EXPENDITURE, THAT HE HAD C ONSIDERED THE OPTIMUM CAPACITY AT 60% AND NOT 100% THAT HE HAD ARRIVED AT ABNORMAL EX PENSE OF 50% OF TOTAL EXPENSES BY THE ASSESSEE AS AGAINST 70%. THE FAA ALLOWED RS. 3.81 CRORES UNDER THE HEAD POWER AND FUEL, REPAIRS AND MAINTENANCE OF BUILDING PLANT AND MACHINERY TO THE EXTENT OF 5/7TH OF THE EXPENSES AND OBSERVED THAT T HE LOSS WOULD BE REDUCED BY RS.2.72CRORE.THE FAA ALLOWED RS.5.46 CRORE UNDER TH E HEADS SALARY AND WAGES(5/7TH OF THE EXPENSES) FURTHER REDUCING THE L OSS BY RS.3.90 CRORE. DEFERRED REVENUE EXPENDITURE OF RS.1.05 CRORE WAS ALSO ALLOW ED, INCREASING THE LOSS BY THE SAME AMOUNT. THE FAA RE-WORKED THE SEGMENT ACCOUNT TO DETERMINE THE ALP AND ARRIVED AT THE CONCLUSION THAT THERE WAS A DIFFEREN CE OF RS.43.07CRORE TO THE OPERATING COST OF THE ASSESSEE. HE OBSERVED THAT IF THE DIFFE RENCE WAS TO BE ALLOCATED ON IMPORT OF GOODS FROM AES, AS DONE BY THE TPO, THE ADJUSTME NT WOULD LEAD TO AN OVERALL REDUCTION OF 31.15% TO THE IMPORT PRICE OF GOODS FR OM THE AES. IT WAS FURTHER OBSERVED BY THE FAA THAT WHILE MAKING ADJUSTMENT TO ALP OF EXPORT VIS-A-VIS MTA THE TPO HAD APPLIED ARITHMETIC MEAN OF OPERATING MARGIN ON COST ON UNCONTROLLED COMPANIES OF 6.44%, THAT IT WAS APPLIED TO INTERNAT IONAL TRANSACTION OF SALE TO THE AES, THAT SAME RESULTED IN ADJUSTMENT OF 6.24% OF T HE VALUE, THAT THE TPO HAD DENIED THE BENEFIT OF PROVISO TO SECTION 92C(2),THAT WHEN COMPARABLE TRADING COMPANIES OPERATING MARGIN ON COST OF 0.94%WAS APPLIED IT WA S CLEAR THAT ASSESSEES OPM WAS HIGHER THAN COMPARABLE MARGIN, THAT THE EXPORT TO A ES WAS AT ARMS LENGTH, THAT THE ALP FOR EXPORT WAS LOWER THAN THE EXPORT RECORDED I N THE BOOKS OF ACCOUNT, THAT THE TPO HAD MADE ADJUSTMENT VIS-A-VIZ ONLY THE IMPORT O F GOODS FROM THE AES, THAT MANUFACTURING OPERATIONS HAD RESULTED IN LOSS AFTER THE ASSESSEE ACQUIRED VARIOUS BUSINESSES DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD REQUESTED THAT ADJUSTMENT OF RS.43.07CRORE SHOULD BE SPARED OVER T HE TOTAL OPERATING COST OF RS.790.44 CRORE AFTER GIVING EFFECT TO 5% RANGE. FINALLY, THE FAA CONCLUDED THAT THE ADJUSTMENT MADE BY TPO RESULTED IN OVERALL REDUCTIO N TO THE IMPORT PRICE OF GOODS BY 54%, THAT EVEN AFTER PROVIDING ADDITIONAL RELIEF TH ERE WAS ONLY PARTIAL REDUCTION IN THE TP ADJUSTMENT, THAT IT WENT AGAINST THE VERY PRINCI PLE OF PROFIT BASED METHOD, THAT THE ADJUSTMENT HAD NO CONSONANCE TO THE REALITY OF THE SITUATION, THAT THE TPO HAD APPROACHED AN INCORRECT METHOD, THAT THE APPLICATIO N OF CUP ANALYSIS SHOWED THAT FLUCTUATION IN PRICES OF AGRICULTURAL COMMODITIES W AS AT MAXIMUM 5%,THAT ADJUSTMENT OF HIGH DISCOUNT OF 54% OR LOWER COULD NOT BE SAID TO BE IN JUSTIFIABLE, THAT TRANSFER PRICING WAS NOT AN EXACT SCIENCE, THAT IT WAS AN AR T WHEREIN PRINCIPLES OF LAW, ECONOMICS AND BUSINESS WERE APPLIED TO ACHIEVE EQUI TABLE RESULTS, THAT APPLICATION OF CUP AND TNMM GAVE VERY WIDE VARIATION, THAT TNMM LE D TO ADJUSTMENT OF 31.15% EVEN AFTER ALLOWANCE OF PARTIAL RELIEF AS COMPARED TO AN ADJUSTMENT UNDER CUP OF ABOUT 5%, THAT ASSESSEE WAS JUSTIFIED IN CLAIMING T HAT WHILE APPLYING TNMM TOTALITY OF THE OPERATIONS SHOULD BE CONSIDERED, THAT THE EXERC ISE SHOULD NOT BE CENTERED ON INTERNATIONAL TRANSACTIONS. AFTER MAKING ABOVE OBSE RVATIONS, THE FAA REWORKED THE ALP OF INTERNATIONAL TRANSACTION OF IMPORT OF GOODS IN MANUFACTURING ACTIVITY AS UNDER: RUPEES ADJUSTED OPERATING EXPENSES OF THE ASSESSEE SHOWN I N (E) ABOVE. 7,90,44,26,285 105% OF THE ABOVE (APPLYING 5% AS PER PROVISO TO SECTION 92C(2)-ARMS LENGTH OPERATING COST-(F) 8,29.96,47,599 TOTAL OPERATING EXPENSES OF THE ASSESSEE AS PER (B) ABOVE 8,33,51,92,616 10 DIFFERENCE TO BE ADJUSTED TOWARDS INTERNATIONAL TRA NSCTIONS OF IMPORT OF GOODS FROM AES ASSESSEE (F-B)ASSESSEEG (3,55,45,017) INTERNATIONAL TRANSACTIONS OF GOODS IMPORTED FROM A ES (H) 138, 28,94,614 ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF GOODS IMPORTED FROM AES ASSESSEE (H-G)ASSESSEEI 134,73,49,597 ON THE BASIS OF ABOVE ADJUSTMENT, THE IMPORT PRICE OF GOODS WAS DETERMINED AT RS.3.55 CRORE AS AGAINST RS.48.65 CRORES DETERMINED BY THE TPO.AS A RESULT, THE ASSESSEE GOT A RELIEF OF RS.45.09 CRORES. 9. BEFORE US,THE DR RELIED UPON THE ORDER OF THE TPO. THE AR ARGUED THAT THE ASSESSEE HAD ACQUIRED DALDA BRAND FROM HLL, THAT TH E SAID ACQUISITION WOULD TAKE SOME YEARS TO FRUCTIFY, THAT THE ASSESSEE HAD TO BE EXTRA ORDINARY COSTS IN THAT REGARD, THAT IT HAD TO INCUR SIGNIFICANT START-UP COSTS TO ESTABLISH THE NEWLY ACQUIRED BRANDS IN THE INITIAL YEARS OF ACQUISITION, IT WAS NOT ABLE T O FULLY UTILISE ITS MANUFACTURING CAPACITY, THAT THERE WAS EXTRAORDINARY UNUTILISED CAPACITY, T HAT IT HAD CALCULATED REVISED MARGIN OF 20 COMPARABLES SELECTED BY THE TPO AND HAD ARRIV ED AT THE ARITHMETIC MEAN OF 1.07% (PAGE 222 OF THE PAPER BOOK),THAT THE SAME WA S NOT CONSIDERED BY THE TPO, THAT THOUGH THE FAA HAD STATED THAT REVISED MARGIN (1.07%) HAD TO BE TAKEN HE HAD ERRONEOUSLY, BY OVERSIGHT, TOOK 2.36% WHILE CALCULA TING THE ADJUSTMENT, THAT IF THE CORRECT MARGIN(1.07%) OF COMPARABLES WAS TAKEN THEN THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE OF IMPORT OF OIL WOULD BE WITHIN TH E PERMISSIBLE LIMIT OF +/-5%, THAT TP ADJUSTMENT SHOULD HAVE BEEN MADE ONLY ON INTERNATIO NAL TRANSACTIONS, THAT THE FAA HAD CALCULATED THE AMOUNT OF ADJUSTMENT TO RS. 3.55 CRORES, THAT IF THE CORRECT MARGIN OF 1.07% OF THE COMPARABLES WAS ADAPTED THEN THE AS SESSEES INTERNATIONAL TRANSACTION OF IMPORT OF OIL WOULD BE WITHIN THE PE RMISSIBLE LIMIT OF+/-5%. 10 .WE FIND THAT THE TPO HAD MADE AN ADJUSTMENT OF RS. 48.65 CRORES TO THE ENTIRE SEGMENT OF MANUFACTURING ACTIVITIES INSTEAD OF MAKI NG THE ADJUSTMENT TO ONLY INTERNATIONAL TRANSACTIONS, THAT IT HAD AN EFFECT O F REDUCING THE IMPORT PRICE BY 54.27%, THAT THE FAA HAD REWORKED THE ADJUSTMENT AFTER CONS IDERING THE EXTRA ORDINARY ITEMS THAT WOULD AFFECT THE PROFIT MARGIN OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THAT THE FACTORS LIKE UNDERUTILISATION OF CAPACITY AND NON-OPERATING EXPENDITURE WAS GIVEN DUE IMPORTANCE BY THE FAA, THAT THE ASSESSEE HAD CALCULATED REVISED MARGIN OF THE 20 COMPARABLES SELECTED BY THE TPO, THAT THE AR ITHMETIC MEAN ARRIVED AT BY THE ASSESSEE WAS NOT CONSIDERED BY HIM, THAT FAA HAD HE LD THAT TPO WAS INCORRECT IN NOT CONSIDERING THE REVISED CALCULATION OF MARGINS, THAT THE FAA HAD OBJECTED TO THE TREATMENT GIVEN TO THE SIX COMPARABLE WHERE THE TPO HAD NOT TAKEN THE SEGMENTS BASED ON THEIR ECONOMY PROFILE, THAT THE FAA HAD ME NTIONED THAT REVISED MARGIN (1.07%) HAD TO BE ADAPTED FOR DETERMINING ADJUSTMEN TS AND THE RESULTANT ALP. IN OUR OPINION, THE TPO WAS NOT JUSTIFIED IN MAKING ADJUSTMENT TO THE ENTIRE SEGMENT OF MANUFACTURING ACTIVITY AND NOT RESTRICTING THE S AME TO THE INTERNATIONAL TRANSACTIONS. WE FIND THAT IN THE CASES OF TARA JEWELS EXPORTS PV T. LTD(ITA NO.1814 OF 2013) AND THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD.(ITA NO. 22 01 OF 2013),THE HONORABLE BOMBAY HIGH COURT HAS HELD THAT FOR MAKING ADJUSTME NT AS PER THE PROVISIONS OF CHAPTER X OF THE ACT TRANSACTION WITH AES OF AN ASS ESSEE HAD TO BE CONSIDERED. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE JUDGEMENT OF THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. (SUPRA) 11 WE FIND THAT IN TERMS OF CHAPTER X OF THE ACT, THE DETERMINATION OF THE CONSIDERATION IS TO BE DONE ONLY WITH REGARD TO INC OME ARISING FROM INTERNATIONAL TRANSACTIONS ON DETERMINATION OF ALP. THE ADJUSTMENT WHICH IS MANDATED IS ONLY IN RESPECT OF INTERNATIONAL TRANSA CTION AND NOT TRANSACTIONS ENTERED INTO BY ASSESSEE WITH INDEPENDENT UNRELATED THIRD PARTIES. THIS IS PARTICULARLY SO AS THERE IS NO ISSUE OF AVOIDANCE O F TAX REQUIRING ADJUSTMENT IN THE VALUATION IN RESPECT OF TRANSACTIONS ENTERED IN TO WITH INDEPENDENT THIRD PARTIES. THE ADJUSTMENT AS PROPOSED BY THE REVENUE IF ALLOWED WOULD RESULT IN INCREASING THE PROFIT IN RESPECT OF TRANSACTIONS EN TERED INTO WITH NON-AE. THE ADJUSTMENT IS BEYOND THE SCOPE AND AMBIT OF CHAPTER X OF THE ACT. WE FIND THAT WHILE REWORKING THE ADJUSTMENT, THE FA A HAD TAKEN THE MARGIN AT THE RATE OF 2.36%.WE FIND THAT THE ASSESSEE HAD NOT FILED AN Y APPLICATION BEFORE THE FAA POINTING OUT THE APPARENT MISTAKE IN ADOPTING THE R EVISED MARGIN I.E. ADOPTING THE RATE OF 2.36% INSTEAD OF RATE OF 1.07%.CONSIDERING THESE FACTS, WE ARE OF THE OPINION THAT MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE A O/TPO TO VERIFY THE FACT AND DECIDE THE VALUE OF THE ADJUSTMENT BY TAKING APPROPRIATE R EVISED MARGIN RATE. GROUNDS NO 2 AND 3 ARE DECIDED ACCORDINGLY. 8. WE FIND THAT REVENUE ASSAILED THE AFORESAID ADJU DICATION OF TRIBUNAL BEFORE HONBLE BOMBAY HIGH COURT VIDE ITA NOS.445 O F 2017, AY 2005- 06; DATED 03/06/2019 WHEREIN HONBLE COURT HAS REFU SED TO ADMIT SUBSTANTIAL QUESTION OF LAW WITH FOLLOWING OBSERVAT IONS: - 2. THE ISSUES ARISE OUT OF THE TRIBUNAL'S JUDGMENT CONCERNING THE CORRECT METHOD TO BE APPLIED FOR DETERMINING ARM'S LENGTH PRICE OF TH E INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISE. THE TRA NSFER PRICING OFFICER (TPO FOR SHORT) HAD MADE THE ADJUSTMENT TO THE ENTIRE SEGMEN T OF THE MANUFACTURING ACTIVITY INSTEAD OF MAKING THE ADJUSTMENT FOR ONLY INTERNATI ONAL TRANSACTION. THE TRIBUNAL HELD THAT THE TPO WAS NOT JUSTIFIED IN MAKING ADJUSTMENT TO THE ENTIRE SEGMENT OF MANUFACTURING ACTIVITY WITHOUT RESTRICTING THE SAME TO THE MANUFACTURING TRANSACTION. THE TRIBUNAL IN THE PROCESS RELIED UPON AND REFERRE D TO THE DECISION OF THE DIVISION BENCH OF THIS COURT IN CASE OF COMMISSIONER OF INCOME TAX VS. TARA JEWELS EXPORTS P. LIMITED1 . THE PRINCIPLES LAID DOWN IN THE SAID DECISION HAV E BEEN FOLLOWED CONSISTENTLY IN LATER DECISIONS SUCH AS IN CASES OF COMMISSIONER OF INCOME TAX VS. THYSSENKRUPP INDUSTRIES INDIA P. LTD. AND C OMMISSIONER OF INCOME TAX VS. ALSTOM PROJECTS INDIA LTD. . IN THE RESULT, DO NOT FIND ANY ERROR IN VIEW OF T HE TRIBUNAL. THE APPEAL IS DISMISSED. THEREFORE, WE FIND THAT THE ISSUE OF ADOPTION OF TN MM AND THE ISSUE OF MANNER OF TP ADJUSTMENT WHICH IS TO BE DONE, AS OF NOW, HAS ATTAINED FINALITY AND THE AFORESAID DECISION IS BINDING UPON US. 12 9. PROCEEDING FURTHER, STRAIGHTWAY GOING TO THE ALT ERNATIVE PLEA OF LD. AR THAT EVEN IF TNMM METHOD IS ACCEPTED, THE ASSESS EES MARGIN, AFTER PROVIDING BENEFIT OF TOLERANCE RANGE OF + 5%, WOULD BE WITHIN ARMS LENGTH PRICE. THE WORKING OF THE SAME HAS BEEN PLACED IN T HE PAPER-BOOK. KEEPING IN VIEW THE EARLIER DECISION OF TRIBUNAL AS REFERRED TO IN PARAS 7 & 8, THE BENCH IS INCLINED TO ACCEPT THIS PLEA. THERE FORE, WITHOUT DELVING MUCH DEEPER INTO THE ISSUE, WE DIRECT LD. TPO TO AP PLY TNMM BUT RESTRICT THE ADJUSTMENTS ONLY TO THE EXTENT OF INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE AND NOT TO ENTIRE SEGMENT OF MANUFA CTURING ACTIVITY. THE LD. TPO IS DIRECTED TO VERIFY THE COMPUTATIONS MADE BY THE ASSESSEE AND DECIDE ACCORDINGLY. THE BENEFIT OF TOLERANCE RANGE OF + 5%, AS PROVIDED IN LAW, WOULD BE AVAILABLE TO THE ASSESSEE. CONSEQUENTLY, THE REVENUES GROUND, TO THAT EXTENT, STANDS ALLOWED WHICH WOULD RENDER ASSESSEES CROSS-OBJECTION INFRUCTUOUS . 10. SO FAR AS THE ISSUE OF MARKET RESEARCH EXPENSES IS CONCERNED, WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN ASSESSE ES FAVOR BY THE DECISION OF THIS TRIBUNAL FOR AYS 2005-06 TO 2007-08 (ITA N OS.4336/M/2009 & ORS, COMMON ORDER DATED 18/05/2016). IN VIEW OF THIS UNC ONTROVERTED FACT, THIS GROUND STAND DISMISSED. 11. THE REVENUES APPEAL STANDS PARTLY ALLOWED. THE ASSESSEES CROSS- OBJECTION STAND DISMISSED AS BEING INFRUCTUOUS. ASSESSMENT YEAR 2009-10 12. SIMILAR ARE THE FACTS IN AY 2009-10. WHILE BENC HMARKING THE IMPORT TRANSACTIONS UNDER TNMM, LD. TPO PROPOSED AN ADJUST MENT OF RS.4649.92 LACS WHICH WAS INCORPORATED IN ASSESSMEN T ORDER DATED 25/02/2013. ANOTHER DISALLOWANCE WAS FOR RS.116.91 LACS ON ACCOUNT OF MARKET RESEARCH EXPENSES. THE LD. CIT(A), ON SIMILA R LINES, APPLIED CUP 13 METHOD AND ALLOWED PARTIAL RELIEF TO THE ASSESSEE. THE MARKET RESEARCH DISALLOWANCE WAS DELETED BY FOLLOWING EARLIER YEARS . AGGRIEVED, THE REVENUE IS BEFORE US WITH SIMILAR GROUNDS OF APPEAL . THE ASSESSEE HAS ALSO FILED CROSS-OBJECTION ON SIMILAR LINES. 13. IT IS ADMITTED POSITION THAT FACTS AS WELL AS I SSUES ARE QUITE IDENTICAL IN THIS YEAR. THEREFORE, OUR FINDINGS AS WELL AS AD JUDICATION AS FOR AY 2008-09 SHALL MUTATIS-MUTANDIS APPLY TO THIS YEAR. 14. CONSEQUENTLY, THE REVENUES APPEAL STANDS PARTL Y ALLOWED. THE ASSESSEES CROSS-OBJECTION STAND DISMISSED AS BEING INFRUCTUOUS. CONCLUSION 15. BOTH THE APPEALS OF THE REVENUE STANDS PARTLY A LLOWED. THE ASSESSEES CROSS-OBJECTIONS STAND DISMISSED AS BEIN G INFRUCTUOUS. ORDER PRONOUNCED ON 08 TH APRIL, 2021 SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 08/04/2021 SR.PS:-JAISY VARGHESE !' #' / COPY OF THE ORDER FORWARDED TO : 1. '# / THE APPELLANT 2. $%'# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. + ,$- , - , / DR, ITAT, MUMBAI 6. , ./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.