Essilor Manufacturing India Private Limited, Bangalore V. DCIT, Bangalore

ITA 1019/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8644 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 30-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SAMPATH RAGHUNATHAN M R
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 143(3); 92D; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T. (T.P.) A. NO S . 1019 & 1020 /BANG/201 4 (ASSESSMENT YEAR S : 200 8 - 09 & 2009 - 10 ) ESSILOR MANUFACTURING INDIA PVT. LTD., NO.48, L&M, KIADB INDL. AREA, DODDABALLAPUR - 561 203 BANGALORE NORTH DISTRICT. PAN AAACI 4572J VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BANGALORE. APPELLANT RESPONDENT. I.T.(T.P.) A. NO.974/BANG/2014 (ASSESSMENT YEARS : 200 8 - 09) (BY REVENUE) ASSESSEE BY : SHRI SAMPATH RAGHUNATHAN, ADVOCATE. R EVENUE BY : M R S. NEERA MALHOTRA & MS.S. PRAVEENA. DATE OF H EARING : 10.02.2016. DATE OF P RONOUNCEMENT : 24 .2. 201 6 . O R D E R PER SHRI VIJAY P AL RAO, J. M. : THESE ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 2008 - 09 AND APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 AGAINST COMPOS ITE ORDER DT.29.05.2014 OF THE COMMISSIONER OF INCOME TAX (APPEALS) - IV, BANGALORE . 2 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 2. FOR THE ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - 1 ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFFICER ARE BAD IN LAW . A) THE ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 11(3) [ AO ] UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 [ THE ACT ], AND THE ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - IV, BANGALORE [ THE CIT(A) ] UNDER SECTION 250 OF THE ACT A RE BAD IN LAW AND ON FACTS. WITHOUT PREJUDICE TO THE TO THE GENERALITY OF THE ABOVE, THE ORDER ISSUED BY THE AO IS BAD IN LAW INSOFAR AS THE FACT THAT THE AO DID NOT ISSUE TO ESSILOR MANUFACTURING INDIA PRIVATE LIMITED ( THE APPELLANT OR THE COMPANY ), A SHOW CAUSE NOTICE AS PER PROVISO TO SECTION 92C(3) OF THE INCOME - TAX ACT, 1961 [ THE ACT ]. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. B) THE AO ERRED IN LAW IN MAKING A REFERENCE TO THE ASSISTANT COMMISSIONER OF INCOME - TAX (TRANSFER PRICIN G) - VI [ TPO ], INTER ALIA, SINCE HE HAS NOT RECORDED AN OPINION THAT ANY OF THE CONDITIONS IN SECTION 92C(3) OF THE ACT, WERE SATISFIED IN THE INSTANT CASE. THE AO ALSO ERRED IN NOT FOLLOWING THE PROVISION CONTAINED IN SECTION 92CA(1) OF THE ACT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. TPO ERRED IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSIDE INDIA BY MANIPULATING THE PRICES CH ARGED IN THE INTERNATIONAL TRANSACTION, WHICH IS A PRE - REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. D) THE ORDER ISSUED BY THE AO, IS BAD ON FACTS AND IN LAW AND IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. E) THE ORDER PASSED BY THE AO IS WITHOUT JURISDICTION, INTER ALIA, INSOFAR AS IT PURPORTS TO GIVE EFFECT TO AN INVALID ORDER OF THE TPO . THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. 2 COMPARABILITY ANALYSIS ADOPTED BY THE AO/TPO FOR DETERMINATION OF THE ARM S LENGTH PRICE IS BAD IN LAW A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.AO/ TPO ERRED IN DIS REGARDING THE BENCHMARKING ANALYSIS AND COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN THE TRANSFER PRICING STUDY REPORT MAINTAINED AS PER SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME - TAX RULES, 1962 [ THE RULES ] WITHOUT CONSIDERING THE FUNC TIONAL AND RISK PROFILE OF THE COMPANY. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. B) THE AO/ TPO ERRED ON FACTS AND IN LAW IN REJECTING ONE METHOD [ COST PLUS METHOD ] AND SELECTING ANOTHER METHOD [ TRANSACTIONAL NET MARGIN METHOD ] AS THE MOST APPROPRIATE 3 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 METHOD WITHOUT PROVIDING COGENT REASONS TO THE APPELLANT FOR REJECTING THE METHOD ADOPTED BY THE APPELLANT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. C) THE AO/TPO ERRED ON FACTS AND IN LAW IN CONDUCTING A FRESH BENCHMARK ING ANALYSIS USING NON CONTEMPORANEOUS DATA AND SUBSTITUTING THE APPELLANT S ANALYSIS WITH FRESH BENCHMARKING ANALYSIS ON HIS OWN CONJECTURES AND SURMISES AND INTRODUCING NEW COMPARABLE COMPANIES, WITHOUT PROVIDING AN OPPORTUNITY TO THE APPELLANT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. D) THE AO/ TPO ERRED IN REJECTING THE SEGMENT - WISE PROFIT AND LOSS FOR FY 2007 - 08. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. 3 ERRONEOUS DATA USED BY THE AO/TPO A) THE AO/TPO ERRED IN LAW AN D THE LD. CIT(A) FURTHER ERRED IN CONFIRMING USE OF DATA, WHICH WAS NOT CONTEMPORANEOUS AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE TRANSFER PRICING STUDY BY THE APPELLANT. B) THE AO/TPO ERRED IN LAW AND THE LD. CIT(A) FURTH ER ERRED IN CONFIRMING NON - APPLICATION OF MULTIPLE - YEAR DATA WHILE COMPUTING THE MARGIN OF ALLEGED COMPARABLE COMPANIES. 4 NON - ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES, BY THE AO/TPO A) THE AO/TPO ERRED IN LAW AND ON FACTS IN NOT ALLOWIN G APPROPRIATE ADJUSTMENTS UNDER RULE 10B TO ACCOUNT FOR, INTER ALIA, DIFFERENCES IN (A) ACCOUNTING PRACTICES, (B) DEPRECIATION ADJUSTMENTS, (C) RESEARCH AND DEVELOPMENT EXPENDITURE ADJUSTMENT AND (D) CAPACITY UNDER - UTILISATION ADJUSTMENT BETWEEN THE APPELL ANT AND THE COMPARABLE COMPANIES. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. B) THE LD. CIT(A) ERRED IN REJECTING CAPACITY ADJUSTMENT CITING REASONS THAT THE WORKING CAPITAL ADJUSTMENT HAS BEEN ALLOWED TO THE COMPANY. FURTHER, THE LD. CIT(A ) ERRED IN INCORRECTLY OBSERVING THAT THE APPELLANT HAD NOT PROVIDED WORKINGS FOR CAPACITY UNDER - UTILISATION ADJUSTMENT IN RELATION TO COMPARABLE COMPANIES IDENTIFIED BY THE TPO IN HIS ORDER. 5 VARIATION OF 5% FROM THE ARITHMETIC MEAN THE AO/TPO ERRED IN LAW IN NOT GRANTING THE VARIATION AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. 6 DISALLOWANCE OF PRIOR PERIOD EXPENSES A) THE AO ERRED IN DISALLOWING A SUM OF RS.11,03,000 INCURRED BY THE APPELLANT TOWARDS OVERTIME LABOUR CHARGES DEBITED UNDER THE HEAD PRIOR PERIOD EXPENSES . THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. B) THE AO FAILED TO MENTION THE FACT THAT THE EXPENSES THOUGH RELATE TO PRIOR PERIOD, HAS COME UP ONLY DUE TO SETTLEM ENT MADE WITH THE EMPLOYEES DURING THE RELEVANT AY IN CONSIDERATION. THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE ABOVE GROUND. 4 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 7 INITIATION OF PENALTY PROCEEDINGS THE APPELLANT SUBMITS THAT BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE WAS NO BA SIS FOR THE AO TO PROPOSE TO INITIATE PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 8 RELIEF A) THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL SUCH RELIEF ARISING FROM THE ABOVE GROUNDS AND ALSO ALL RELIEF CONSEQUENTIAL THERETO. B) THE APPELLANT CRAVE S LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION, MODIFICATION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, EITHER BEFORE OR DURING THE HEARING OF THE APPEAL. C) FURTHER, THE APPELLANT PRAYS THAT THE ADJUSTMENT IN RELATION TO TRANSFER PRICING MATTERS MADE BY THE AO / TPO AND UPHELD BY THE LD. CIT(A) IS BAD IN LAW AND LIABLE TO BE DELETED. 3. GROUND NO.1 IS GENERAL IN NATURE AND NO ARGUMENT HAS BEEN ADDRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. ACCORDINGLY, NO SPECIFIC ADJUDICATION IS REQUIRED I N RESPECT OF GROUND NO.1. 4. 1 GROUND NO.2 IS REGARDING REJ E CTION OF THE TRANSFER PRICING ANALYSIS AS WELL AS COST PLUS METHOD (IN SHORT CPM ) AND ADOPTING ANOTHER METHOD BEING TNMM AS MOST APPROPRIATE METHOD (IN SHORT MAM ) BY THE TRANSFER PRICING OF FICER (TPO). THE ASSESSEE, ESSILOR MANUFACTURING INDIA PVT. LTD. (E MIL ) IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PLASTIC - OPTHALMIC LENSES. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF ESSILOR INTERNATIONAL S.A., FRANCE. T HE ASSESSEE IS MANUFACTURING LENSES AND SELLING THE SAME TO ITS FOREIGN GROUP COMPANIES AS WELL AS MARKETING AND DISTRIBUTION TO THE GROUP COMPANIES IN INDIA. THE RAW MATERIAL FOR MANUFACTURING OF OPHTHALMIC LENSES IS IMPORTED BY 5 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 THE ASSESSEE FROM ITS OVERSEAS GROUP COMPANIES. THUS THE ASSESSEE IS PURCHASING THE RAW MATERIAL FROM ITS ASSOCIATED ENTERPRISES (AES) AND ALSO SELLING THE PLASTIC OPHTHALMIC LENSES TO ITS AES AS WELL AS IN INDIA GROUP COMPANIES. THE ASSESSEE REPORTED THE INTERNATIONAL TRANSACTIONS CARRIED OUT DURING THE Y EAR UNDER CONSIDERATION AS UNDER : - NATURE OF SERVICES RECEIPTS (RS.) PAYMENT (RS.) PURCHASE OF RAW MATERIAL, SPARES, CONSUMABLES. 4,17,15,955 --- SALE OF FINISHED GOODS. --- 14,84,15,357 PURCHASE OF PLANT & MACHINERY 16,98,775 RECOVERY OF EXPENSES. 37,46,231 TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS, THE ASSESSEE ADOPTED CPM AS MAM AND COMPARED THE AVERAGE GRO SS MARGINS OF THE COMPARABLES AT 34.83% WITH THAT OF THE ASSESSEE AT 45.42%. THUS THE ASSESSEE CLAIMED THAT ITS INTERNATIONAL TRANSACTIO NS ARE AT ARMS LENGTH. THE ASSESSEE HA S ALSO USED THE TNMM AS SUPPLEMENTARY METHOD. THE ASSESSEE SELECTED 5 COMPARABLES TO BENCHMARK THE TRANSACTION UNDER TNMM WITH MEAN PROFIT LEVEL INDICATOR (PLI) OF 7.93% AS AGAINST THE PLI OF THE ASSESSEE AT 7.12% . THE ASSESSEE ALSO ADJUSTED FOR THE UNUTILIZED CAPACITY OF THE PLANT AND ARRIVED AT 15.71% OPERATING PROFIT ON SALE AND CLAIMED THAT THE OPERATING PROFIT O N SALE OF THE 6 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 ASSESSEE IS MORE THAN THE OPERATING PROFIT MARGINS OF ITS COMPARABLES AND THEREFORE T HE TRANSACTION WITH AES ARE CLAIMED TO BE AT ARMS LENGTH. THE TPO OBSERVED THAT CERTAIN PORTIONS OF THE EXPENSES HAVE BEEN RETAINED AS UNAPPORTIONABLE AND THESE EXPENSES PERTAINS TO THE BUSINESS OF THE ASSESSEE AND NEEDS TO BE APPORTIONED ACCORDING TO THE AE AND NON - AE SALES. THUS THE TPO HAS REWORK ED OUT THE OPERATING MARGIN OF THE ASSESSEE AT 4.38% IN RESPECT OF THE INTERNATIONAL TRANSACTIONS. THE TPO REJECTED THE TP ANALYSIS OF THE ASSESSEE AS WELL AS THE CPM AS MOST APPROPRIATE METHOD AND ADOPTED THE TNMM AS MAM FOR DETERMINATION OF THE ARMS LENGTH PRICE (ALP). THE LIST OF COMPARABLES SELECTED BY THE ASSESSEE AS UNDER : - SL.NO. COMPANY GPM 2005 - 06 (%) GMP 2006 - 07 (%) GPM 2007 - 08 (%) WEIGHTED AVERAGE 1. GKB OPTHMALMICS LTD. 45.01 34.86 39.26 39.40 2. JAI MATA GLASS CO. LTD. 9.79 15.88 21.72 17.50 3. LA OPALA R G LTD. 44.16 43.24 41.35 42.84 4. TECHTRAN POLYLENSES LTD. 52.54 55.34 54.62 54.17 5. TRIVENI GLASS LTD. 22.22 16.09 NA 20.23 ARITHMETIC MEAN 34.83 7 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 THE TPO FOUND THAT ONLY TWO OF THE M NAMELY GKB O P THALMIC S LTD. AND TECHTRAN POLYLENSES LTD. ARE FUNCTIONALLY SIMILAR AS THEY ARE IN THE BUSINESS OF MANUFACTURING OF LENSES AND 3 OTHERS ARE IN THE BUSINESS OF MANUFACTURING OF GLASS FOR COMMERCIAL PURPOSE. ACCORDINGLY THE TPO REJECTED THE THREE OF THE COMPARABLES SELECTED BY THE ASSESSEE AS UNDER : 1. JAI MATA GLASS CO. LTD. 2. LA OP A L A RG LTD. 3. TRIVENI GLASS LTD. THE TPO THEREAFTER CARRIED OUT A FRESH SEARCH AND SELECTED TWO MORE COMPARABLES APART FROM TWO SELECTED BY THE ASSESSEE. THE TPO HA S ARRIVED AT ARITHMETIC MEAN (AM) BY CONSIDERING THE FOUR COMPARABLES AS UNDER : SL.NO. COMPARABLE COMPANY SALES OP. PROFIT/ COST (%) OP. PROFIT/ SALES (%) 1. GKB OPHTHALMICS LTD. 18.77 9.89 9.00 2. GKB VISIONLTD. 29.46 22.75 18.53 3. TECHTRAN POLYLEN SES LTD. 24.49 16.45 14.13 4. GENERAL OPTICS (ASIA) LTD. 9.28 42.99 30.06 ARITHMETIC MEAN MARGIN 23.02 17.92 ACCORDINGLY, THE TPO PROPOSED AN ADJUSTMENT OF RS.3.30 CRORES ON ACCOUNT OF ALP OF INTERNATIONAL TRANSACTIONS. THE ASSESSEE CHALLENGED THE A CTION OF THE 8 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 TPO/A.O. BEFORE THE CIT (APPEALS) BUT COULD NOT SUCCEED QUA THE ISSUE OF THE REJECTION OF THE CPM BY THE TPO AND ADOPTING TNMM AS MAM. 4.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS NOT IN FULL FLEDGED MANUFACTURING ACTIVITY BUT MORE INTO PROCESS ACTIVITY WHICH INVOLVES THE PROCESS OF CASTING AND COATING OF PLASTIC OPHTHALMIC LENSES. THE LEARNED AUTHORISED REPRESENTATIVE HAS FURTHER SUBMITTED THAT SINCE RAW MATERIAL IS IMPORTED FR OM THE GROUP COMPANIES AND THE ENTIRE SALE IS MADE TO THE AES AS WELL AS DOMESTIC GROUP COMPANIES, THEREFORE, THE ASSESSEE IS MORE DOING A JOB WORK THAN MANUFACTURING AND SELLING. HE HAS FURTHER SUBMITTED THAT A DIFFERENT RAW MATERIAL USED BY THE VARIOUS COMPARABLE COMPANIES MAKING THEM UNCOMPARABLES UNDER TNMM. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF GE MEDICAL SYSTEMS INDIA PVT. LTD. VS. DCIT 61 TAXMANN.COM 109 AND SUBMITT ED THAT THE TRIBUNAL WHILE DEALING WITH AN IDENTICAL ISSUE HAS MADE A REFERENCE TO THE UN PRACTICAL TRANSFER PRICING MANUAL AND GUIDELINES FOR USE OF CPM. THUS THE CPM IS TYPICALLY APPLIED IN COSTS INVOLVING THE INTER - COMPANY SALE OF TANGIBLE PROPERTY WHE RE THE RELATED PARTY MANUFACTURER PERFORM LIMITED MANUFACTURE FUNCTIONS OR IN THE CASE OF 9 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 INTRA GROUP PROVISIONS OF SERVICES. THE METHOD USUALLY ASSUME THE INCURRENCE OF LOW RISK OF COST WILL THEN BE BETTER REFLECTED THE VALUE BEING ADDED AND HENCE THE M ARKET PRICE. THE CPM IS ALSO GENERALLY USED IN TRANSACTIONS INVOLVING BY CONTRACT MANUFACTURER, TOLL MANUFACTURER OR A LOW RISK ASSEMBLER WHICH DOES NOT OWN PRODUCT INTANGIBLE AS INCURRED LITTLE RISK. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMI TTED THAT IN VIEW OF THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF GE MEDICAL SYSTEMS PVT. LTD. (SUPRA), THE ORDERS OF THE AUTHORITIES BELOW IN REJECTING THE CPM AS MAM BE SET ASIDE AND ALLOW THE CPM AS MAM FOR DETERMINATION OF ALP IN VIEW OF THE IN TERNATIONAL TRANSACTIONS. 4.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE TPO HAS SPECIFICALLY POINTED OUT THAT THE ASSESSEE HAS CATEGORIZED CERTAIN PORTIONS OF THE EXPENSES AS UNAPPORTIONABLE WHEREAS THESE EXPENSES PERTAINS TO THE ASSESSEE AND WERE REQUIRED TO BE APPORTIONED BETWEEN AE AND NON - AE SALES. FURTHER, THE ASSESSEE IS NOT A CONTRACT MANUFACTURER BUT THE ASSESSEE IS PURCHASING THE RAW MATERIAL AND THEREFORE OWNS THE RAW MATERIAL USED FOR MANUFACTURING OF THE OPHTHALMIC PLASTIC LENSES WHICH ARE SOLD TO THE AES AS WELL AS DOMESTIC GROUP COMPANIES. FURTHER, IN ORDER TO ADOPT THE CPM AS MAM THE 10 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 VALUE ADDED BY THE ASSESSEE UNDER THE CONTRACT MANUFACTURING OR JOB WORK IS THE BASIC CRITERIA OF DETERMINING THE ALP WHEREAS IN THE CASE OF THE ASSESSEE, THE ASSESSEE IS PURCHASING RAW MATERIAL WHICH IS A SEPARATE TRANSACTION AND THEREAFTER DOING THE MANUFACTURING WORK AND THEN SELLING THE PRODUCT TO ITS AES AND OTHER GRO UP COMPANIES. EVEN OTHERWISE WHEN THE BUSINESS ACTIVITIES OF THE ASSESSEE AS WELL AS THE COMPARABLES ARE NOT HAVING THE IDENTICAL COMPONENT OF COST THEN THE CPM CANNOT BE APPLIED FOR THE PURPOSE OF DETERMINING THE ALP. THUS THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 4. 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE MAIN THRUST OF THE ARGUMENT OF THE ASSESSEE IS FINDING OF THE TRIBUNAL IN THE CASE OF GE MEDI CAL SYSTEMS INDIA PVT. LTD. (SUPRA) AS WELL AS THE GUIDELINES ENUMERATED IN UN PRACTICAL TRANSFER PRICING MANUAL FOR THE PURPOSE OF USE OF COST PLUS METHOD. THE TRIBUNAL AFTER CONSIDERING THE PECULIAR FACTS OF THE SAID CASE AS WELL AS THE GUIDELINES UND ER THE UN PRACTICAL TRANSFER PRICING MANUAL HAS HELD IN PARAS 49 & 50 ARE AS UNDER : 49. HAVING SAID SO, ONE SHOULD EMBARK UPON THE STAND TAKEN BY THE ASSESSEE AS TO WHY TNMM IS THE MOST APPROPRIATE METHOD TO BE ADOPTED FOR DETERMINING ALP IN THE CASE OF THE ASSESSEE. THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE HAVE ALREADY BEEN SET OUT IN THE EARLIER PART OF THIS ORDER AND ARE NOT BEING REPEATED. THE ARGUMENTS PROCEED ON PURELY THEORETICAL BASIS WITHOUT CITING 11 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 AS TO HOW THE REQUIRED DATA OF DIRECT AND INDIRECT COSTS OF PRODUCTION OF THE PROPERTY IN THE CASE OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO ARE NOT AVAILABLE. NO SPECIFIC INSTANCE AS TO HOW IN THE CASE OF COMPARABLE COMPANIES CHOSEN BY THE TPO, INDIRECT COSTS OF PRODUCTION HAS BEEN TAKEN AT THE NET PROFIT LEVEL. THE OTHER ARGUMENT WAS THAT THE ASSESSEE IS A CONTRACT MANUFACTURER AND THE COMPARABLE COMPANIES SELECTED SHOULD ALSO PERFORM A FUNCTION PERFORMED BY A CONTRACT MANUFACTURER. IF COMPARABLE COMPANIES PERFORM FUNCTIONS BEYOND THAT O F A CONTRACT MANUFACTURER THEN THEY ARE NOT COMPARABLE. THIS ARGUMENT IS AGAIN GENERAL IN NATURE WITHOUT ANY PARTICULARS ON THE THREE COMPARABLE COMPANIES CHOSEN BY THE TPO. 50. ONE OF THE PLEAS RAISED BY THE ASSESSEE WAS THAT FUNCTIONAL SIMILARITY IS TO BE FIRST SEEN BEFORE CHOOSING AN APPROPRIATE METHOD AND THAT THE TPO IN CHOOSING CPM HAS GIVEN WEIGHTAGE TO PRODUCT SIMILARITY RATHER THAN FUNCTIONAL SIMILARITY. THE ASSESSEE HAD FURTHER POINTED OUT THAT THE COMPARABLE CHOSEN BY THE TPO WERE MANUFACTURING MEDICAL CONSUMABLES VIZ., DISPOSAL SYRINGES, DISPOSABLE SUTURES, DISPOSABLE NEEDLES ETC., AND THAT THE SAME CANNOT BE COMPARED WITH CONTRACT MANUFACTURING OF TUBES, INSERTS, DETECTORS, TANKS AND OTHER PARTS AND ACCESSORIES FOR MEDICAL DIAGNOSTIC IMAGING E QUIPMENT WHICH THE ASSESSEE MANUFACTURES AND WHICH ARE INCORPORATED BY THE AE INTO EQUIPMENT WHICH ARE CAPITAL GOODS. ON THE ABOVE SUBMISSION, THE LEARNED DR HAS SUBMITTED THAT IT CANNOT BE SAID THAT PRODUCT SIMILARITY HAS NO RELEVANCE. PRODUCT SIMILARITY IS ALSO IMPORTANT. IF THERE IS NO PRODUCT SIMILARITY THEN EVEN THOUGH THERE MAY BE FUNCTIONAL SIMILARITY THEN CPM MAY NOT BE THE RIGHT METHOD. THE CONCLUSIONS OF THE CIT(A) IN THIS REGARD ARE FOUND TO BE CORRECT IN THE PRESENT CASE. THE TPO IN THE PRESENT CASE HAS GIVEN DUE WEIGHTAGE TO FUNCTIONAL SIMILARITY ALSO. THE ARGUMENT ON BEHALF OF THE ASSESSEE BY PLACING RELIANCE ON PARA 1.41 OF THE OECD GUIDELINES WHICH PROVIDES THAT COMPARABILITY EVEN WHERE PRODUCTS ARE DIFFERENT CAN BE UNDERTAKEN BUT THE FUNCTIO NS UNDERTAKEN SHOULD BE SIMILAR IS NOT APPLICABLE IN THE PRESENT CASE AS THE TPO HAS CONSIDERED BOTH PRODUCT AS WELL AS FUNCTIONAL SIMILARITY OF COMPARABLE. THE DIFFERENCE IN FUNCTIONS PERFORMED BETWEEN THE ASSESSEE AND THE COMPARABLE, IF ANY, CALLS ONLY FOR ADJUSTMENTS TO BE MADE, WHICH IN THE PRESENT CASE CAN BE QUANTIFIED. THEREFORE THE CLAIM OF THE ASSESSEE THAT THE COMPARABLE CHOSEN HAS TO BE REJECTED CANNOT BE ACCEPTED. IT IS CLEAR FROM THE FINDING OF THE TRIBUNAL THAT IN THE CASE OF GE MEDICAL SY STEMS INDIA PVT. LTD. (SUPRA), THE ASSESSEE WAS A CONTRACT MANUFACTURER AND THE RE FORE THE TRIBUNAL WAS OF THE VIEW THAT FOR THE PURPOSE OF TNMM THE COMPARABLE COMPANIES SELECTED SHOULD ALSO PERFORM A FUNCTION PERFORMED BY THE CONTRACT MANUFACTURER. THUS THE BASIC REASON FOR NOT ACCEPTING THE TNMM AS MAM BY THE TRIBUNAL WAS THAT THE ASSESSEE WAS A CONTRACT MANUFACTURER 12 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 AND COMPARABLE S SELECTED BY THE TPO W ERE NOT FUNCTIONALLY SIMILAR TO THE ASSESSEE AND WERE ALSO IN MANUFACTURING THE MEDICAL CONSUMABLES. IN THE CASE ON HAND UNDISPUTEDLY THE ASSESSEE HAS NO T UNDERTAKEN THE JOB WORK OR A CONTRACT MANUFACTURE FOR ITS AES BUT THE ASSESSEE IS CARRYING OUT ITS INDEPENDENT ACTIVITY OF MANUFACTURING THE OPHTHALMIC PLASTIC LENSES BY USING THE RAW MAT E RIAL PURCHASED FROM THE AES AS WELL AS FROM OTHER PARTIES. T HERE IS NO CONTRACT BETWEEN THE ASSESSEE AND ITS AES REGARDING THE REMUNERATION AND MARK UP IN RESPECT OF THE VALUE ADDED BY THE ASSESSEE IN THE MANUFACTURING PROCESS AND FURTHER WHEN THE ASSESSEE IS USING TH E RAW MATERIAL OF ITS OWN AND NOT SUPPLIED BY THE AE FOR JOB WORK OR CONTRACT MANUFACTURING . FURTHER, WE FIND THAT THERE ARE VARIATIONS OF COST COMPONENTS IN RESPECT OF THE MANUFACTURING ACTIVITY OF THE ASSESSEE AS WELL AS THE OTHER COMPARABLES SELECTED EITHER BY THE ASSESSEE OR BY THE TPO. THE ASSESSEE IS ALSO SEEKING ADJUSTMENT ON ACCOUNT OF VARIATION OF DEPRECIATION METHOD APPLIED BY THE ASSESSEE IN COMPARISON TO THE COMPARABLES WHICH ITSELF SHOWS THAT THE COST COMPONENTS OF THE ASSESSEE ARE IN VARIA TIONS WITH THAT OF THE COMPARABLES AND THEREFORE IN OUR CONSIDERED OPINION CPM CANNOT BE REGARDED AS MAM IN THE CASE OF THE ASSESSEE. ACCORDINGLY, WE UPHOLD THE ORDERS OF THE AUTHORITIES 13 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 BELOW ON THIS ISSUE IN REJECTING THE CPM AS MAM AND ADOPTING THE TN MM AS MAM FOR DETERMINATION OF ALP. THIS GROUND IS DECIDED AGAINST THE ASSESSEE. 5.1 GROUND NO.3 IS REGARDING REJECTION OF THE MULTI YEAR DATA ADOPTED BY THE ASSESSEE WHILE COMPUTING THE MARGINS OF THE COMPARABLES AND CONSIDERING THE CURRENT YEAR DAT A BY THE TPO FOR THE PURPOSE OF DETERMINING THE ALP. 5.2 AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS NOT ADVANCED ANY ARGUMENT ON THIS GROUND. HOWEVER, IT IS SETTLED PROPOSITION OF LAW AS WELL AS THE MANDATE OF THE PROVISIONS OF TRANSFER PRICING THAT SO FAR AS IT IS POSSIBLE THE CURRENT YEAR DATA OF THE COMPARABLES ARE TO BE USED FOR THE PURPOSE OF DETERMINATION OF ALP. IT IS PROVIDED UNDER RULE 10B(4) OF THE I.T. RULES THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF THE UNCONTROLLED TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. ONLY AS AN EXCEPTION THE DAT A RELATING TO NOT MORE THAN TWO YEARS PRIOR TO THE SUCH FINANCIAL YE AR MAY BE CONSIDERED , I F SUCH DATA REVEALS FACT, WHICH COULD HAVE AN INFLUENCE ON DETERMINATION OF TRANSFER PRICING IN RELATION TO THE TRANSACTIONS BEING COMPARED. 14 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 5.3 RULE 10D(4) FURTHER STATES THAT THE INFORMATION AND DOCUMENT S SPECIFIED UNDER SUB - RULES (1) AND (2), SHOULD , AS FAR AS POSSIBLE , BE CONTEMPORANEOUS AND SHOULD EXIST LATEST BY THE SPECIFIED DATE. TH EREFORE, IT IS REVEALED BY T HE PROVISIONS OF TRANSFER PRICING THAT UNLESS AND UNTIL THE CURRENT YEAR DATA DOES NOT GIVES A TRUE AND CORRECT PICTURE OF THE UNCONTROLLED COMPARABLE PRICE MORE THAN ONE YEAR DATA ARE NOT REQUIRED TO BE CONSIDERED. ONLY IN THE CASE WHEN THE CURRENT YEAR DATA DOES NOT GIVE A TRUE AND CORRECT PICTURE AND MORE THAN ONE YEAR DATA NOT BEING MORE THAN TWO YEARS PRIOR T O THE FINANCIAL YEAR CAN BE CONSIDERED IF SUCH DATA REVEALS THE FACT WHICH HAVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICING. IN THE CASE ON HAND, THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY FACT TO SHOW THAT THE CURRENT YEAR DATA ARE NOT REFLECTIN G THE CORRECT UNCONTROLLED COMPARABLE PRICE. THEREFORE, THIS GROUND OF THE ASSESSEE'S APPEAL IS DISMISSED. 6.1 GROUND NO.4 IS REGARDING THE ADJUSTMENT FOR DIFFERENCE IN ACCOUNTING POLICIES, DEPRECIATION ADJUSTMENT, ETC. 6.2 AT THE TIME OF HEARI NG, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE GRIEVANCE OF THE ASSESSEE IS CONFINED ONLY TO THE ADJUSTMENT ON ACCOUNT OF DEPRECIATION RATES AND METHOD ADOPTED BY THE 15 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 ASSESSEE IN COMPARISON TO THE COMPARABLES. THUS THE HE ARING ON THIS GROUND WAS LIMITED ONLY ON THE ISSUE OF DEPRECIATION ADJUSTMENT AND THE OTHER CLAIMS HAVE NOT BEEN PRESSED BY THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS POINTED OUT THAT THE ASSESSEE IS FOLLOWING A STRAIGHT LINE METHOD OF DEPRECIATION IN COMPARISON TO THE WRITTEN DOWN METHOD ADOPTED BY THE COMPARABLES AND THEREFORE THE COST OF DEPRECIATION BOOKED BY THE ASSESSEE IS MORE IN COMPARISON TO THE COMPARABLES AND CONSEQUENTLY AN APPROPRIATE ADJUSTMENT IS REQUIRED UNDER RULE 10B ON THIS ACCOUNT. THE LEARNED AUTHORISED REPRESENTATIVE HAS REFERRED THE COMPARABLE DETAILS OF THE DEPRECIATION AT PAGE NO.389 OF THE PAPER BOOK AND SUBMITTED THAT THE AVERAGE DEPRECIATION EXPENSES OF THE COMPARABLES IS 7.60% TO THE TOTAL COST EX CLUDING DEPRECIATION WHEREAS THE ASSESSEE'S DEPRECIATION EXPENSES TO TOTAL COST EXCLUDING DEPRECIATION IS 22.85% WHICH SHOWS THAT THE DEPRECIATION CALCULATED ON STRAIGHT LINE METHOD IS HIGHER THAN THE COMPARABLE COMPANIES AND ACCORDINGLY A SUITABLE ADJUSTM ENT IS REQUIRED TO BE MADE FOR THE PURPOSE OF DETERMINATION OF ALP. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACI WORLDW IDE 16 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 SOLUTION S PVT. LTD. VS. DCIT IN IT (TP) A NO.652/BANG/2 012 AS WELL AS IN THE CASE OF 24/7 CUSTOMER.COM VS. DCIT IN IT(TP)A NO.227/BANG/2010. 6.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THERE IS NO PROVISION UNDER THE RULES THAT PERMITS ANY ADJUSTMENT FOR DEPRECIATI ON. FURTHER, THE ASSESSEE DID NOT CLAIM THE ADJUSTMENT ON ACCOUNT OF DEPRECIATION BEFORE THE TPO AND WHAT WAS CLAIMED BY THE ASSESSEE IS ONLY THE CAPACITY UTILIZATION ADJUSTMENT AND NOT THE DEPRECIATION ADJUSTME NT. T HE CIT (APPEALS) HAS NOT DISCUSSED AN Y SUCH OBJECTION RAISED BY THE ASSESSEE. THUS THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT IN THE ABSENCE OF EXAMINATION OF THIS CLAIM BY THE TPO, IT CANNOT BE ENTERTAINED AT THIS LEVEL. 6.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS CLAIMED THAT THE DEPRECIATION EXPENDITURE OF THE ASSESSEE IS MUCH HIGHER THAN THE COMPARABLE COMPANIES SELECTE D BY THE TPO FOR THE PURPOSE OF DETERMINING THE ALP UNDER TNMM METHOD. THE ASSE SSEE HAS CLAIMED TO HAVE PROVIDED THE DEPRECIATION ON ASSETS AS UNDER : - 17 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 TANGIBLE ASSETS RATE OF DEPRECIATION (%) BUILDINGS 4.00 PLANT & MACHINERY 10.00 COMPUTERS 20.00 OFFICE EQUIPMENT 10.00 FURNITURE & FIXTURES 10.00 MOTOR VEHICLES 20.00 6.5 THE PERIODICAL OPERATIVE DETAILS PROVIDED AT PAGE NOS.4 & 5 IN RESPECT OF THE DEPRECIATION EXPENSES OF THE COMPARABLES AS WELL AS THE ASSESSEE ARE AS UNDER : - SL. NO. NAME OF THE COMPA RABLES SALES (RS.) EXPENSES (RS.) DEP. (RS.) EXPS. EXCLUDING DEP. (RS.) 1. GKB OPTHALMICS LTD. 187,700,000 170,807,000 7,676,107 163,130,893 2. GENERAL OPTICS (ASIA) LTD. 91,422,000 78,629,000 8,867,000 69,762,000 3. TECHTRAN POLYLENSES LTD. 244,900,000 210,295,630 20,250,000 190,045,630 4. GKB VISION LTD. 294,600,0 00 240,010,620 5,479,514 234,531,106 AVERAGE ESSILOR INDIA (WITHOUT CAPACITY ADJ.) 152,298,000 146,123,570 27,174,508 33,348,938 18 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 SL.NO. NAME OF THE COMPARABLES CASH PROFITS (RS.) CASH PROFITS/SALES DEP./ EXPENSES EXCL. DEP. 1. GKB OPTHALMICS LTD. 24,569,107 13.09 4.71 2. GENERAL OPTICS (ASIA) LTD. 21,660,000 23.69 12.71 3. TECHTRAN POLYLENSES LTD. 54,854,370 22.40 10.66 4. GKB VISION LTD. 60,068,894 20.39 2.34 AVERAGE 33,348,938 19.89 7.60 ESSILOR INDIA (WITHOUT CAPACITY ADJ.) 28.04 22 .85 6.6 THOUGH AT THE FIRST LOOK IT IS APPARENT THAT THE DEPRECIATION EXPENDITURE OF THE ASSESSEE IS MUCH HIGHER THAN THE COMPARABLE COMPANIES, HOWEVER, THE EXACT FIGURE HAS TO BE DETERMINED NOT BY TAKING INTO CONSIDERATION THE DEPRECIATION EXPENDIT URE ALONE BUT ALL OTHER RELATED EXPENSES LIKE LEASE RENTAL IF ANY PAID BY THE COMPARABLE COMPANIES ON THE LEASED ASSETS INSTEAD OF USING ITS OWN ASSETS AS WELL AS MAINTENANCE COST OF THE ASSETS. IT IS PERTINENT TO NOTE THAT THERE IS A DIRECT BUT OPPOSITE RELATION BETWEEN THE DEPRECIATION COST AND MAINTENANCE COST OF THE ASSET . W HEN THE ASSETS ARE NEW THE COST OF DEPRECIATION IS MORE AND COST OF MAINTENANCE IS LESS WHEREAS WHEN THE ASSETS/MACHINERY BECOMES OLD, THE DEPRECIATION COST MAY BE LESS OR STATIC BUT THE COST OF MAINTENANCE WILL BE DEFINITELY HIGH. THEREFORE, IN ORDER TO PROVIDE 19 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 ANY ADJUSTMENT ON ACCOUNT OF DIFFERENTIAL DEPRECIATION COST, THE FIGURE OF DEPRECIATION COST ALONE ARE NOT ENOUGH BUT THE COMPOSITE EXPENDITURE RELATING TO THE USE OF THE FIXED ASSETS HAS TO BE TAKEN INTO ACCOUNT LIKE DEPRECIATION, MAINTENANCE, LEASE RENTALS IF ANY, ETC. WE FURTHER NOTE THAT THE COST OF DEPRECIATION DEPENDS ON THE LEVEL OF AUTOMATION OF THE MANUFACTURE PROCESS OF A PARTICULAR ENTITY WHICH IN TURN REDUCE T HE OTHER DIRECT EXPENSES LIKE COST OF SALARY/WAGES. THEREFORE THE COMPARISON OF THE COST OF DEPRECIATION HAS TO BE WORKED OUT IN THE RATIO OF TURNOVER TO THE COST OF DEPRECIATION AND OTHER EXPENDITURE FOR USE OF THE ASSET/MACHINERY. ACCORDINGLY, IN THE FA CTS AND CIRCUMSTANCES OF THE C ASE WHEN THIS ISSUE HAS NOT BEEN DECIDED EITHER BY THE TPO OR BY THE CIT (APPEALS), WE SET ASIDE THE SAME TO THE RECORD OF THE TPO/A.O FOR WORKING OUT THE COMPARATIVE ANALYSIS OF THE COST OF DEPRECIATION/USE OF MACHINERY IN T HE RATIO OF TURNOVER OF THE ASSESSEE AS WELL AS THE COMPARABLE COMPANIES AND THEN GRANT AN APPROPRIATE ADJUSTMENT ON ACCOUNT OF DIFFERENTIAL RATIO OF THE COST OF DEPRECIATION INCLUDING OTHER INCIDENTAL EXPENSES OF USE OF MACHINERY/FIXED ASSETS IN THE MARGI NS OF THE COMPARABLE COMPANIES AND THEN DETERMINE THE ALP. 20 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 6.7 GROUND NO.5 IS REGARDING THE TOLERANCE RANGE OF +/ - 5% AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT. THIS IS A CONSEQUENTIAL BENEFIT AND IF THE DIFFERENCE BETWEEN MEAN MARGIN AND AS SESSEE'S MARGIN ON THE INTERNATIONAL TRANSACTIONS PRICE IS WITHIN THE TOLERANCE RANGE THEN BENEFIT OF THE SAID PROVISO IS AVAILABLE TO THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TPO TO CONSIDER THE SAME DEPENDING UPON THE OUTCOME OF THE RE - DETERMINATION OF THE ALP. 7. GROUND NO.6 IS REGARDING THE PRIOR PERIOD EXPENSES. NEITHER THIS GROUND HAS BEEN ARGUED BY THE LEARNED AUTHORISED REPRESENTATIVE NOR IT WAS PRESSED DURING THE HEARING. THEREFORE, IN THE ABSENCE OF ANY ARGUMENT ADVAN CED BY THE LEARNED AUTHORISED REPRESENTATIVE OR ANY PLEA FOR ADJUDICATION OF THE SAME, WE DISMISS THE GROUND NO.6 BEING NOT PRESSED. 8.1 THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND AS UNDER : A) REJECTION OF GENERAL OPTICS (ASIA) LTD. FROM THE SET OF COMPARABLE COMPANIES SELECTED BY THE LEARNED TRANSFER PRICING OFFICER. B) CLAIM FOR GRANT OF DEPRECIATION ADJUSTMENT; AND C) CLAIM FOR GRANT OF CAPACITY UTILIZATION ADJUSTMENT. 8.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT 21 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 THE TPO HAS SELECTED TWO NEW COMPARABLES INCLUDING GENERAL OPTICS (ASIA) LTD. WHICH IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT THIS COMPANY SERVES THE IN DUSTRIAL CONSUMERS AND HE HAS NOT INDICATED ANY PERSONAL CARE SEGMENT. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY HAS BEEN MANUFACTURING AND EXPORTING PRECISION OPTICAL SYSTEM AND COMPONENTS. IT ALSO DELIVERS INTEGRATED SOLUTIONS TO THE CLIENTS IN THE FIELD OF DESIGN , BUILD AND TEST COMPLEX, OPTO - MECHANIC AL AND OPTO - ELECTRONIC SYSTEM S . IT ALSO CATERS THE NEED OF DEFENSE AND ARMED FORCES AS WELL AS ATMOSPHERIC SCIENCE PRODUCTS AND SPACE REMOTE APPLIC ATION S . THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE MULTIPLE SCHEMES OF WIDE RANGE OF CUSTOM ED PRECISION OPTICAL INSTRUM ENTS, DEVICES AND COMPONENTS BESIDES ASSEMBLIES, SUB - ASSEMBLIES, ETC. WHICH IS NOT SIMILAR TO THE BUSINESS ACTIVITY OF THE ASSESSEE. HE HAS REFERRED THE DECISION OF THE DELHI BENCH OF THE TRI BUNAL IN THE CASE OF ACTIS ADVISERS PVT. LTD. VS. DCIT WHEREIN THE TRIBUNAL HAS HELD THAT THIS COMPANY SERVES THE DIFFERENT LINE OF BUSINESS AND NOT INTO THE SECTOR OF BUSINESS LIKE PERSONAL CARE BUT IT WAS ENGAGED INTO THE INDUSTRIAL USAGE INCLUDING DEFENSE PRODUCTS, NIGHT VISION EQUIPMENT PRODUCTS, THERMAL & IR IMAGING PRODUCTS, OPTICAL TEST SETUPS 22 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 PRODUCTS, ATMOSPHERIC SCIENCES PRODUCTS, GROUND BASED TE LESCOPES AND SPACE APPLICATIONS. THE LEARNED AUTHORISED REPRESENTATIVE HAS ALSO INVITED OUR ATTENTION TO THE ANNUAL REPORT OF THIS COMPANY AND SUBMITTED THAT APART FROM THE VARIOUS PRODUCTS, THIS COMPANY ALSO ENGAGED IN THE R&D OF MANUFACTURE OF CHROME Q UOTED SUBTRACTS, DESIGN AND DEVELOPMENT OF OPTICS FOR DEFENSE EQUIPMENTS. HE HAS ALSO REFERRED TO THE PRODUCT DESCRIPTION OF THE COMPANY AND SUBMITTED THAT APART FROM THE USE OF OPTICAL COMPONENT, THIS COMPANY ALSO USED MILLS FOR THE FINISHED PRODUCTS. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS COMPANY CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE AND THE SAME MAY BE EXCLUDED BY ADMITTING THE ADDITIONAL GROUND OF THE ASSESSEE. 8.3 ON THE OTHER HAN D, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS RAISED THIS OBJECTION ONLY AS ADDITIONAL GROUND AND FUNCTIONAL COMPARABILITY HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW IN THE LIGHT OF THE OBJECTIONS RAISED BY THE ASSESSEE . HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TPO HAS SELECTED THIS COMPANY AS IT IS ENGAGED IN THE SIMILAR BUSINESS THAT OF THE ASSESSEE. 23 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 8.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECO RD, WE FIND THAT THIS COMPANY WAS SELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABLES FOR DETERMINATION OF ALP. THE TPO HAS NOT DISCUSSED ANYTHING IN ITS ORDER REGARDING INVITING THE OBJECTIONS OF THE ASSESSEE ON THE POINT OF FUNCTIONAL COMPARABIL ITY OF THIS COMPANY. THUS IT APPEARS THAT THE TPO HAS CONSIDERED THIS COMPANY WITHOUT DISCUSSING THE RELEVANT FACTS REGARDING THE FUNCTIONAL COMPARABILITY OF THIS COMPANY. THE ASSESSEE HAS BROUGHT BEFORE US THE RELEVANT FACTS REGARDING THE NATURE OF THE BUSINESS ACTIVITY OF THIS COMPANY AS WELL AS THE PRODUCTS MANUFACTURED BY THIS COMPANY. FROM THE SCHEDULE 16 OF THE PROFIT AND LOSS ACCOUNT, THE PRODUCT DESCRIPTION GIVEN INCLUDES PRE - OPTIC COMPONENT, INSTRUMENT ASSEMBLIES/SUB - ASSEMBL I ES . T HE RAW - MATERIA L CONSUMED BY THIS COMPANY INCLUDES GLASS, LENSES AND METALS. THUS IT IS CLEAR THAT THIS COMPANY IS NOT IN THE MANUFACTURING ACTIVITY OF OPTICAL, PLASTIC LENSES OF HUMAN CARE BUT THE PRODUCT OF THIS COMPANY IS CATERING TO THE NEEDS OF THE INDUSTRY, ARME D FORCES AND OTHER ORGANIZATIONS IN THE FIELD OF SPACE APPLICATIONS, NIGHT VISION EQUIPMENTS, ETC. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AND SET ASIDE THE ISSUE OF FUNCTIONAL COMPARA BILITY OF THIS COMPANY TO 24 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 THE RECORD OF THE ASSESSING OFFICER /TPO FOR PROPER EXAMINATION AND VERIFICATION OF THE ISSUE AND DECIDE AFTER CONSIDERING THE RELEVANT FACTS AS WELL AS THE OBJECTIONS OF THE ASSESSEE. 9. FOR THE ASSESSMENT YEAR 2008 - 09, THE ONLY ISSUE RAISED IN THE REVENUE S GROUNDS IS REGARDING THE DIRECTIONS OF THE CIT (APPEALS) IN ALLOWING THE WORKING CAPITAL AND RISK ADJUSTMENT. 10.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LEAR NED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT WHEN THE ASSESSEE HAS NOT CLARIFIED OR IDENTIFIED THE WORKING CAPITAL AND RISK ADJUSTMENT IN THE T.P.STUDY THEN ALLOWING THE CLAIM OF THE ASSESSEE BY THE CIT (APPEALS) WITHOUT GIVING AN OPPORTUNITY TO TH E A.O/TPO IS NOT PERMISSIBLE. SHE HAS FURTHER SUBMITTED THAT IN THE ABSENCE OF ACCURATE COMPUTATION IT IS NOT A MATTER OF ROUTINE TO GRANT SUCH ADJUSTMENT . W HEN THE ASSESSEE HAS NOT BROUGHT ON RECORD THE REQUISITE DETAILS AND QUANTIFICATION FOR ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL AND RISK UNDER RULE 10B THEN THE SAID CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. 10.2 ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT IT IS THE DUTY OF THE TPO TO GRANT THE ELIGIBLE ADJUSTMENT ON 25 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 ACCOUNT OF WORKING CAPITAL AND RISK WHEN THE TPO HAS REJECTED THE T.P. STUDY OF THE ASSESSEE AND ADOPTED DIFFERENT METHOD FOR DETERMINATION OF ALP. HE HAS FURTHER CONTENDED THAT SINCE THE ASSESSEE HAS BENCH MARK ITS TRANSACTIONS BY ADOPTING CPM AND TP O AFTER REJECTING THE CPM ADOPTED TNMM. THEREFORE THERE WAS NO OCCASION FOR THE ASSESSEE TO GIVE THE REQUISITE DETAILS AND QUANTIFICATION IN THE T.P. STUDY IN RESPECT OF THE WORKING CAPITAL AND RISK ADJUSTMENT. 10.3 HAVING CONSIDERED THE RIVAL SUB MISSIONS AND THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSEE HAS PRIMARILY BENCH MARK ITS INTERNATIONAL TRANSACTIONS BY ADOPTING THE CPM AS MAM. THE TPO HAS APPLIED TNMM FOR DETERMINING ALP AND THEREFORE THE ASSESSEE WAS ENTITLED TO RAISE THE OBJECTIONS AS WELL AS THE OTHER CLAIMS UNDER THE PROVISIONS OF TRANSFER PRICING INCLUDING THE WORKING CAPITAL ADJUSTMENT . W E FIND THAT THE TPO HAS NOT DISCUSSED ANYTHING IN THE IMPUGNED ORDER IN RESPECT OF THE WORKING CAPITAL ADJUSTMENT AND THEREFORE THIS ISSUE HAS NOT BEEN EXAMINED BY THE TPO. THE CIT (APPEALS) HAS CONSIDERED THE CLAIM OF THE ASSESSEE AND DIRECTED THE TPO TO GRANT THE WORKING CAPITAL ADJUSTMENT IN PARA 10.2.1 AND 10.2.2 AS UNDER : 26 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 10.2.1 I HAVE EXAMINED T HE TPO S WORKING AND FIND THAT SHE HAS NOT PROVIDED A WORKING CAPITAL ADJUSTMENT IN THE COMPUTATION OF ALP IN HER ORDER. RECENTLY, THE MUMBAI BENCH OF THE HON'BLE TRIBUNAL IN EXXON MOBIL COMPANY INDIA P. LTD. VS. DCIT (15 ITR (TRIB) 353) HAS OBSERVED : - THE OTHER ISSUE IS GRANT OF ADJUSTMENTS, I.E. WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT WHILE ARRIVING AT THE ARM S LENGTH PRICE. IN THIS CASE, THE ASSESSEE IN HIS TRANSFER PRICING STUDY, HAS NOT MADE ANY WORKING CAPITAL ADJUSTMENT OR RISK ADJUSTMEN T. THE ASSESSING OFFICER HAS, IN FACT, GRANTED WORKING CAPITAL ADJUSTMENT. WHEN THE ASSESSEE IS CONFRONTED WITH THE POSSIBLE TRANSFER PRICING ADJUSTMENT DUE TO CHANGE OF SOME COMPARABLES AND ADDITION OF CERTAI N OTHER COMPARABLES BY THE TPO, THIS CLAIM OF RISK ADJUSTMENT IS MADE BY THE ASSESSEE. THOUGH, IN PRINCIPLE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AS THE ASSESSEE HAS NOT WORKED OUT THE RISK ADJUSTMENT AND AS THE ASSESSING OFFICER HAS ALREADY ALLOWED 0.47 PERCENT AS WORKING CAPITAL ADJUSTMENT, WE ARE OF THE OPINION THAT NO FURTHER ADJUSTMENT IS NECESSARY. 1 0 .2.2 ON THE BASIS OF THE AFORESAID LINE OF REASONING, THE TPO IS DIRECTED TO GRANT WORKING CAPITAL ADJUSTMENT, AND THEREAFTER, THERE IS NO NECESSITY OF PROVIDING ANY FURTHER ADJUSTME NTS. IT IS ORDERED ACCORDINGLY. THUS IT IS CLEAR THAT WHILE ISSUING THE DIRECTIONS TO TPO THE CIT (APPEALS) HAS FOLLOWED T HE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF EXXON MOBIL COMPANY INDIA P. LTD. VS. DCIT 15 ITR (TRIB) 353. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT (APPEALS) IN DIRECTING THE A.O/TPO TO GRANT WORKING CAPITAL ADJUSTMENT. HOWEVER, WE CLARIFY THAT THE ASSESSEE SHOULD FURNISH THE RELEVANT DETAILS AND QUANTIFICATION FOR WORKING CA PITAL ADJUSTMENT TO BE ARRIVED BY THE TPO. 27 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 FOR THE ASSESSMENT YEAR 2009 - 10 . 11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFFICER ARE BAD IN LAW A) THE ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME - TAX - CIRCLE 11(3) ( AO ] UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 [ THE ACT ], AND THE ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - IV, BANGALORE [ THE CIT(A) ] UNDER SECTION 250 O F THE ACT, ARE BAD IN LAW AND ON FACTS. WITHOUT PREJUDICE TO THE TO THE GENERALITY OF THE ABOVE, THE ORDER ISSUED BY THE AO IS BAD IN LAW INSOFAR AS THE FACT THAT THE AO DID NOT ISSUE TO ESSILOR MANUFACTURING INDIA PRIVATE LIMITED ( THE APPELLANT OR THE COMPANY ), A SHOW CAUSE NOTICE AS PER PROVISO TO SECTION 92C(3) OF THE INCOME - TAX ACT, 1961 [ THE ACT ]. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. B) THE AO ERRED IN LAW IN MAKING A REFERENCE TO THE ADDITIONAL COMMISSIONER OF INCOME - TAX (TRANSFER PRICING) - I [ TPO ], INTER ALIA, SINCE HE HAS NOT RECORDED AN OPINION THAT ANY OF THE CONDITIONS IN SECTION 92C(3) OF THE ACT, WERE SATISFIED IN THE INSTANT CASE. THE AO ALSO ERRED IN NOT FOLLOWING THE PROVISION CONTAINED IN SECTION 92CA( 1) OF THE ACT. THE C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TPO ERRED IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSIDE INDIA BY MANIPULATING THE PRICES CHARGED IN THE INTERNATIONAL TRANSACTION , WHICH IS A PRE - REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. D) THE ORDER PASSED BY THE AO IS WITHOUT JURISDICTION, INTER ALIA, INSOFAR AS IT PURPOR TS TO GIVE EFFECT TO AN INVALID ORDER OF THE TPO. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. 2 COMPARABILITY ANALYSIS ADOPTED BY THE AO/TPO FOR DETERMINATION OF THE ARM S LENGTH PRICE IS BAD IN LAW A) ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE AO/ TPO ERRED IN DISREGARDING THE BENCHMARKING ANALYSIS AND COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN THE TRANSFER PRICING STUDY REPORT MAINTAINED AS PER SECTION 92D OF THE ACT READ WITH RULE 10D OF THE INCOME - TAX RULES, 1962 [ THE 28 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 RULES ] WITHOUT CONSIDERING THE FUNCTIONAL AND RISK PROFILE OF THE COMPANY. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. B) THE AO/ TPO ERRED ON FACTS AND IN LAW IN REJECTING ONE METHOD [ COST PLUS METHOD ] AND SELECTING ANOTHER METHOD [ TRANSACTIONAL NET MARGIN METHOD ] AS THE MOST APPROPRIATE METHOD WITHOUT PROVIDING COGENT REASONS TO THE APPELLANT FOR REJECTING THE METHOD ADOPTED BY THE APPELLANT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/TPO. C) THE AO/TP O ERRED ON FACTS AND IN LAW IN CONDUCTING A FRESH BENCHMARKING ANALYSIS USING NON CONTEMPORANEOUS DATA AND SUBSTITUTING THE APPELLANT S ANALYSIS WITH FRESH BENCHMARKING ANALYSIS ON HIS OWN CONJECTURES AND SURMISES AND INTRODUCING NEW COMPARABLE COMPANIES, WITHOUT PROVIDING AN OPPORTUNITY TO THE APPELLANT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. D) THE AO/TPO ERRED IN SELECTING COMPARABLES OPERATING UNDER A DISSIMILAR FUNCTIONAL PROFILE AND EARNING ABNORMAL PROFITS. THE LD. CIT(A) ERRE D IN UPHOLDING THE ACTIONS OF THE AO/ TPO. E) THE AO/ TPO ERRED IN REJECTING THE SEGMENT - WISE PROFIT AND LOSS FOR FY 2008 - 09. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. F) THE AO/ TPO ERRED IN SUMMARILY REJECTING THE SUBMISSION MADE BY T HE APPELLANT IN CONNECTION WITH RX BUSINESS AND NO TAKING NOTE OF THE SPECIFIC FACTS PERTAINING TO THE RX BUSINESS SUBMITTED BY THE APPELLANT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. G) THE AO/ TPO ERRED IN APPLICATION OF INCORRECT PR OFIT LEVEL INDICATOR IN CASE OF RX SEGMENT. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. 3 ERRONEOUS DATA USED BY THE AO/TPO A) THE AO/TPO ERRED IN LAW AND THE LD. CIT(A) FURTHER ERRED IN CONFIRMING USE OF DATA, WHICH WAS NOT CONTEMPORA NEOUS AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE TRANSFER PRICING STUDY BY THE APPELLANT. B) THE AO/TPO ERRED IN LAW AND THE LD. CIT(A) FURTHER ERRED IN CONFIRMING NON - APPLICATION OF MULTIPLE - YEAR DATA WHILE COMPUTING TH E MARGIN OF ALLEGED COMPARABLE COMPANIES. 29 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 4 NON - ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES, BY THE AO/TPO A) THE AO/TPO ERRED IN LAW AND ON FACTS IN NOT ALLOWING APPROPRIATE ADJUSTMENTS UNDER RULE 10B TO ACCOUNT FOR, INTER ALIA, DI FFERENCES IN (A) ACCOUNTING PRACTICES, (B) DEPRECIATION ADJUSTMENTS, (C) RESEARCH AND DEVELOPMENT EXPENDITURE ADJUSTMENT AND (D) CAPACITY UNDER - UTILISATION ADJUSTMENT BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. THE LD. CIT(A) ERRED IN UPHOLDING THE ACTIONS OF THE AO/ TPO. B) THE CIT(A) ERRED IN REJECTING CAPACITY ADJUSTMENT CITING REASONS THAT THE WORKING CAPITAL ADJUSTMENT HAS BEEN ALLOWED TO THE APPELLANT. FURTHER, THE LD. CIT(A) ERRED IN INCORRECTLY OBSERVING THAT THE APPELLANT HAD NOT PROVIDED W ORKINGS FOR CAPACITY UNDER - UTILISATION ADJUSTMENT IN RELATION TO COMPARABLE COMPANIES. 5 VARIATION OF 5% FROM THE ARITHMETIC MEAN THE AO/ TPO ERRED IN LAW IN NOT GRANTING THE VARIATION AS PER THE PROVISO TO SECTION 92C(2) OF THE ACT. THE LD. CIT(A) ERRE D IN UPHOLDING THE ACTIONS OF THE AO/ TPO. 6 INITIATION OF PENALTY PROCEEDINGS THE APPELLANT SUBMITS THAT BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE WAS NO BASIS FOR THE AO TO PROPOSE TO INITIATE PROCEEDINGS UNDER SECTION 271(1)(C) OF THE A CT. 7 RELIEF A) THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL SUCH RELIEF ARISING FROM THE ABOVE GROUNDS AND ALSO ALL RELIEF CONSEQUENTIAL THERETO. B) THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION, MODIFICATION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, EITHER BEFORE OR DURING THE HEARING OF THE APPEAL. 30 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 C) FURTHER, THE APPELLANT PRAYS THAT THE ADJUSTMENT IN RELATION TO TRANSFER PRICING MATTERS MADE BY THE AO / TPO AND UPHELD BY THE LD. CIT(A) IS BAD IN LAW AND LIABL E TO BE DELETED. 11.1 THE GROUNDS RAISED FOR THE ASSESSMENT YEAR 2009 - 10 ARE COMMON TO THAT OF THE ASSESSMENT YEAR 2008 - 09 EXCEPT THE GROUND NO.2(G) REGARDING INCORRECT PROFIT LEVEL INDICATOR IN CASE OF REFERENCE (RX) SEGMENT. 11.2 WE HAVE HEAR D THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. FOR THE ASSESSMENT YEAR 2009 - 10, THE ASSESSEE HAS CARRIED OUT THE MANUFACTURING ACTIVITY IN TWO SEGMENTS I.E. (I) MASS PRODUCTION SEGMENT AND (II) REFERENCE MANUFACTURING SEGM ENT. WHILE COMPUTING THE ALP AND MAKING ADJUSTMENT THE TPO HAS APPLIED OPERATING PROFIT/SALES IN RESPECT OF THE MASS PRODUCTION SEGMENT BUT APPLIED OPERATING PROFIT/OPERATING COST AS PROFIT LEVEL INDICATOR (PLI) IN THE REFERENCE SEGMENT. THE GRIEVANCE O F THE ASSESSEE IS THAT THE TPO CANNOT APPLY A DIFFERENT PLI IN RESPECT OF DIFFERENT SEGMENTS OF ACTIVITY OF THE ASSESSEE WHEN THE SAME ARE THE TRANSACTIONS WITH AES OF THE ASSESSEE. IT IS POINTED OUT THAT THOUGH THIS ISSUE/GROUND WAS NOT RAISED BEFORE THE CIT (APPEALS) HOWEVER, IT IS AN APPARENT DEFECT IN THE ORDER OF THE TPO IN APPLYING THE DIFFERENT PLI IN RESPECT OF DIFFERENT SEGMENTS AND FURTHER WHEN THE TPO HAS APPLIED A PARTICULAR PLI FOR THE ASSESSMENT YEAR 31 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 2008 - 09, THEN WITHOUT GIVING AN OPPORTUNIT Y OF HEARING TO THE ASSESSEE, IT IS NOT PERMITTED TO APPLY A DIFFERENT PLI. 11.3 ON THE OTHER HAND, THE LEARNED DEP ARTMENTAL REPRESENTATIVE HAS OBJE CTED TO THIS GROUND OF APPEAL RAISED BY THE ASSESSEE WHEN THE SAME WAS NOT RAISED BEFORE THE CIT (APP EALS). THE LEARNED AUTHORISED REPRESENTATIVE IN REJOINDER HAS SUBMITTED THAT NO SPECIFIC GROUND WAS R AISED HOWEVER, THE ASSESSEE HAS RAISED THIS PLEA BEFORE THE CIT (APPEALS) BUT IT WAS NOT ADJUDICATED BY THE CIT (APPEALS). 11.4 HAVING CO NSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD WE NOTE THAT THOUGH THE TPO HAS COMPUTED BOTH PLI I.E. THE OPERATING MARGIN TO OPERATING COST AS WELL AS OPERATING MARGIN TO SALES IN RESPECT OF BOTH THE SEGMENTS, HOWEVER, WHILE COMPUTING THE ALP AND MAKING THE ADJUSTMENTS THE TPO HAS APPLIED DIFFERENT PLI IN RESPECT OF DIFFERENT SEGMENTS OF ACTIVITIES. WE FURTHER FIND THAT FOR THE ASSESSMENT YEAR 2008 - 09, THE TPO HAS APPLIED OP/SALES AS PLI FOR THE PURPOSE OF DETERMINING THE ALP AND BENCH M ARK ED THE ASSESSEE'S TRANSACTIONS. FOR THE YEAR UNDER CONSIDERATION AS FAR AS THE MASS PRODUCTION SEGMENT IS CONCERNED THE TPO HAS MAINTAINED THE CONSISTENCY OF APPLYING THE PLI AS OPERATING PROFIT TO SALES. 32 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 HOWEVER, ONLY IN RESPECT OF REFERENCE SEGMENT , THE T PO HAS TAKEN THE PLI AS OP TO OPERATING COST. WHEN THERE IS NO FACTS OR CIRCUMSTANCES TO INDICATE THAT THE CHANGE IN PLI IN RESPECT OF REFERENCE SEGMENTS IS APPLIED TO AVOID DISTORTED RESULTS THEN THE TPO IS NOT PERMITTED TO APPLY DIFFERENT PLI AN INTERNATIONAL TRANSACTIONS WHICH ARE SIMILAR EXCEPT THAT IN MASS SEGMENT MANUFACTURING OF OPTICAL PLASTIC LENSES ARE ON STANDARD BASIS WITHOUT A SPECIFIC PERSONAL REQUIREMENTS AND IN THE CASE OF REFERENCE LENSES ARE PREPARED AS PER THE SPECIFIC PERSONAL RE QUIREMENTS. THEREFORE, THE MATERIAL AS WELL AS PROCESS IN BOTH THE SEGMENTS IS NOT SIGNIFICANTLY DIFFERENT EXCEPT THE POWERING OF THE LENSES WHICH IS AS PER THE SPECIFIC REQUIREMENTS UNDER THE REFERRAL SEGMENTS A S AGAINST THE STANDARD POWER OF VARIOUS LEVE LS IN THE MASS PRODUCTION. THIS ITSELF WILL NOT JUSTIFY THE ADOPTION OF DIFFERENT PLI. THEREFORE, THE TPO WAS NOT JUSTIFIED IN NOT MAINTAIN ING THE CONSISTENCY OF APPLYING THE PLI WHILE COMPUTING THE ALP IN RESPECT OF THE INTERNATIONAL TRANSACTIONS. IN V IEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE TPO FOR APPLYING THE UNIFORM PLI AS APPLIED IN THE CASE OF MASS PRODUCTION SEGMENT AS WELL AS IN THE ASSESSMENT YEAR 2008 - 09. 33 IT (T.P) A NO S . 1019, 1020 & 974 /BANG/ 2014 12. OTHER ISSUES FOR THE ASSESSMENT YEAR 2009 - 10 STAND DISPOSED OFF IN TERMS OF OUR FINDINGS FOR THE ASSESSMENT YEAR 2008 - 09. 13. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON THIS 24 TH DAY OF FEB., 201 6 . SD/ - (ABRAHAM P GEORGE) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE