M/s. Marathon Electric India Pvt. Ltd., Faridabad V. DCIT, Faridabad

ITA 1060/DEL/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3266 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 02-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; Business expenditure; International transaction
• Section: 234B; 10B; 195; 144C; 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1, NEW DELHI BEFORE SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.5257/DEL./2011 ASSESSMENT YEAR: 2007-08 M/S. MARATHON ELECTRIC INDIA (P) LTD., SECTOR-11, MODEL TOWN, FARIDABAD. VS. ADDL. CIT, RANGE-1, NEW DELHI PAN :AAACG5525H (APPELLANT) (RESPONDENT) AND ITA NO.1060/DEL/2014 ASSESSMENT YEAR: 2009-10 M/S. MARATHON ELECTRIC INDIA (P) LTD., SECTOR-11, MODEL TOWN, FARIDABAD. VS. DCIT, CIRCLE-1, NEW DELHI PAN :AAACG5525H (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI KAMAL SAWHNEY, ADV. SHRI ANSHUL SHARMA, CA SHRI PRASHANT MEHAR CHANDANI, ADV. SHRI DIVYANSH SINGH, ADV. DEPARTMENT BY SHRI SANJAY I. BARA, CIT(DR) DATE OF HEARING 11.12.2019 DATE OF PRONOUNCEMENT 19.02.2020 2 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 ORDER PER O.P. KANT, AM: THESE APPEALS ARE DIRECTED AGAINST SEPARATE FINAL ASSESSMENT ORDERS DATED 23.09.2011 AND 21.01.2014, PASSED BY THE LEARNED ADDL. COMMISSIONER OF INCOME TAX, RANGE -1, FARIDABAD, AND DEPUTY COMMISSIONER OF INCOME TAX, C IRCLE-1, FARIDABAD, FOR ASSESSMENT YEAR 2007-08 AND 2009-10 RESPECTIVELY, PURSUANT TO THE DIRECTION(S) OF THE L EARNED DISPUTE RESOLUTION PANEL (IN SHORT DRP). AS IDENTICAL ISS UE ARE INVOLVED PERMEATING FROM THE SAME SET OF FACTS, WE HAVE HEAR D BOTH THE APPEALS TOGETHER AND DISPOSED OFF BY WAY OF THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.5257/DEL/2011 ASSESSMENT YEAR : 2007-08 2. FIRST WE TAKE UP THE APPEAL BEARING ITA NO. 5257/D EL/2011 FOR ASSESSMENT YEAR 2007-08. THE GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2007-08 ARE REPRODUCED AS UNDER: 1. THAT THE LEARNED ASSESSING OFFICER (AO) ERRED IN PASSING THE IMPUGNED DRAFT ASSESSMENT ORDER DATED NOVEMBER 30, 2010 (THE DRAFT ASSESSMENT ORDER) AND THE HONBLE DISPUTE RE SOLUTION PANEL (HONBLE DRP) ERRED IN PASSING DIRECTIONS U NDER SECTION 144(C) OF THE INCOME TAX ACT, 1961 (THE ACT) CONF IRMING THE DRAFT ASSESSMENT ORDER. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN ASSESSING THE I NCOME OF THE APPELLANT AT RS.342,239,410 AS AGAINST THE RETURNED INCOME OF RS.162,653,930. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONBLE DRP HAS ERRED IN NOT CONSIDERING THE SUBMIS SIONS FILED BY THE APPELLANT AND PASSED A VERY LACONIC AND NON-SPE AKING ORDER CONFIRMING THE DRAFT ASSESSMENT ORDER. 3 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONBLE DRP F URTHER ERRED IN CONFIRMING THE ACTION OF LEARNED AO OF DISALLOWI NG THE APPELLANTS CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT AMOUNTING TO RS. 154,143,267 IN RESPECT OF ITS NEWL Y ESTABLISHED HUNDRED PERCENT EXPORT ORIENTED UNIT (EOU) DESPIT E THE FACT THAT THE APPELLANT SATISFIED WITH ALL THE CONDITIONS LAI D DOWN UNDER SECTION 10B OF THE ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND INN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONBLE D RP FURTHER ERRED IN CONFIRMING THE ACTION OF LEARNED AO IN REL YING UPON IRRELEVANT MATERIAL AND CONSIDERATION AND IGNORING RELEVANT FACTS WHILE ERRONEOUSLY CONCLUDING THAT THE NEW UNIT WAS NOT A NEWLY ESTABLISHED INDEPENDENT AND INTEGRATED UNDERTAKING , WHICH COULD BE ELIGIBLE FOR BENEFIT UNDER SECTION 10B OF THE ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONBLE DRP F URTHER ERRED IN CONFIRMING THE ACTION OF LEARNED AO BY REJECTING THE APPELLANTS CLAIM OF THE DEDUCTION UNDER SECTION 10B OF THE ACT IGNORING THE FACTUAL POSITION THAT THE NEW UNIT IS A 100 PERCENT EOU DULY APPROVED BY THE PRESCRIBED AUTHORITIES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO ERRED IN PROPOSING AND THE HONBLE DRP F URTHER ERRED IN OBSERVING THAT THE APPELLANTS CASE WAS A CASE O F RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE AND THAT THERE WAS NO EMERGENCE OF A NEW PHYSICALLY SEPARATE INDUS TRIAL UNIT, DESPITE ALL THE RELEVANT FACTS PLACED ON RECORD BY THE APPELLANT. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO AS WELL AS HONBLE DRP ERRED IN NOT FOLL OWING THE ORDER PASSED BY HONBLE COMMISSIONER (APPEALS) [HON BLE CIT(A)] FOR PREVIOUS ASSESSMENT YEARS (AY) I.E. AY 2003-0 4 TO AY 2006- 07, WHEREIN HONBLE CIT(A) HAS UPHELD THE APPELLANT S CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT. 8. WITHOUT PREJUDICE TO THE APPELLANTS CONTENTION, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LE ARNED AO AS WELL AS HONBLE DRP, WHILE REJECTING THE APPELLANT S CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT FOR THE SUBJ ECT YEAR, FAILED TO APPRECIATE THAT THE CONDITIONS REQUIRED TO CLAIM THE DEDUCTION UNDER SECTION 10B OF THE ACT ARE REQUIRED TO BE SAT ISFIED IN THE YEAR OF FORMATION OF THE ELIGIBLE UNIT AND NOT IN S UBSEQUENT YEARS. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED (LD.) ASSESSING OFFICER (AO) / TRANSFER PRICING OFFICER (TPO) HAVE 4 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 ERRED IN DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT FOR PAYMENT OF TESTING , WARRANTY REPAIR AND SERVICE CHARGES FEE TO ITS AE TO BE NIL, THEREBY MAKING AN ADDITION TO THE TOTAL INCOME OF RS. 2,54,42,211/ - ON ACCOUNT OF TRANSFER PRICING. 10. THAT THE LD. AO / TPO FAILED TO APPRECIATE THE CHARACTERISATION OF THE ENTITIES INVOLVED IN THE TRANSACTION AND THAT T HE CONDUCT OF THE APPELLANT CONFIRMS TO THE ALLOCATION OF RISK I.E. T HE ENTITY BEARING PRODUCT LIABILITY RISK IS UNDERTAKING DECISIONS IN RELATION TO THE SAME. 11. THAT THE LD. AO / TPO HAVE FAILED IN UNDERSTAN DING THE NATURE OF THE TRANSACTION FOR PAYMENT OF TESTING, WARRANTY RE PAIR AND SERVICE CHARGES FEE AND THE FUNCTIONS BEING PERFORM ED BY THE AE IN RELATION TO THE TRANSACTION UNDER REVIEW. 12. THAT THE LD. AO / TPO HAVE ERRED BY QUESTIONIN G THE COMMERCIAL/BUSINESS WISDOM OF THE APPELLANT FOR UND ERTAKING THE TRANSACTION OF TESTING, WARRANTY REPAIR AND SERVICE CHARGES FEE, WHICH IS IMPERATIVE TO APPELLANTS BUSINESS. 13. THAT THE LD. AO / TPO HAVE FAILED TO APPRECIAT E THE FACT THAT NO BENEFIT HAS BEEN PASSED ON TO THE AE BY PAYMENT OF TESTING, WARRANTY REPAIR AND SERVICE CHARGES AS THE AE IS RE COVERING EXACTLY THE SAME AMOUNT AS HAS BEEN PAID BY THEM TO INDEPENDENT THIRD PARTY FOR AVAILING SUCH SERVICES. 14. THAT THE LD. AO ERRED ON FACTS AND IN LAW IN L EVYING INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT. 15. THAT THE LD. AO ERRED ON FACTS AND IN LAW IN I NITIATING THE PENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271 (1 )(C) OF THE ACT. THAT THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AN D WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER , AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT T HE TIME OF HEARING OF THIS APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT, THE ASS ESSEE FILED RETURN OF INCOME ON 25.10.2017, DECLARING INCOME O F RS.16,27,03,930/-. THE CASE WAS SELECTED FOR SCRUTI NY AND NOTICE UNDER SECTION 143(2) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE 5 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 ACT) WAS ISSUED AND COMPLIED WITH. DURING THE ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE A SSESSEE COMPANY DEALS IN MANUFACTURING OF FRACTIONAL HORSE POWER (FHP) MOTORS, ELECTRIC FANS & LAMINATIONS USED IN MOT ORS. BESIDES, ASSESSEE-COMPANY IS ALSO ENGAGED IN TRADING OF PUMP S AND INTEGRAL HORSE POWER MOTORS AND EXPORT OF COMPUTER SOFTWARE. THE COMPANY WAS REGISTERED WITH THE SOFTWARE TECHNOLOGY PARKS OF INDIA W.E.F. 10.06.2005 AND MANUFACTURING ACTIVITY COMMENCED W.E.F. 01.08.2005 FROM THE UNDERTAKING LOCATED AT L AXMI TOWERS, NAGARJUNA HILLS, HYDERABAD. THE ASSESSEE HAD CLAIME D DEDUCTION OF RS. 1,20,01,770/- UNDER SECTION 10B OF THE ACT F OR THE FIRST TIME FROM THE ASSESSMENT YEAR 2006-07. THE ASSESSE E CARRIED OUT MANUFACTURING FUNCTIONS FROM FACILITY SITUATED AT F ARIDABAD THROUGH TWO PLANTS- AN EXPORT ORIENTED UNIT (EOU) AND DOMESTIC TARIFF AREA (DTA) UNIT. IN THE CASE OF T HE ASSESSEE, THE ASSESSING OFFICER ALSO OBSERVED THAT INTERNATIONAL TRANSACTION OF TESTING AND WARRANTY SERVICE CHARGES PAID TO ASSOCI ATED ENTERPRISES (AES), NAMELY, M/S. REGAL BELAIT ELECTR IC MOTORS INC., USA, AMOUNTING TO RS.2,54,42,211/-. THE ASSESSING O FFICER REFERRED THE BENCHMARKING OF THE INTERNATIONAL TRAN SACTION TO THE LEARNED TRANSFER PRICING OFFICER (IN SHORT TPO). THE LEARNED TPO COMPUTED THE ARMS LENGTH PRICE AT NIL AND ACCORDIN GLY, HE PROPOSED ADJUSTMENT OF RS.2,54,42,211/- VIDE HIS OR DER DATED 06.08.2010. THE LEARNED ASSESSING OFFICER IN THE PR OPOSED DRAFT ASSESSMENT ORDER MADE ADDITION OF TRANSFER PRICING ADJUSTMENT OF RS.2,54,42,211/-. THE ASSESSING OFFICER ALSO PROPOS ED DISALLOWANCE OF DEDUCTION UNDER SECTION 10B OF THE ACT, AMOUNTING TO RS.15,41,43,267/-. IN THIS MANNER, THE LEARNED 6 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 ASSESSING OFFICER PROPOSED TOTAL ADDITION OF RS.17, 95,85,478/- IN THE DRAFT ASSESSMENT ORDER DATED 30.11.2020. AGGRIE VED, THE ASSESSE FILED OBJECTION BEFORE THE LEARNED DRP, BUT COULD NOT SUCCEED AND THE LEARNED DRP UPHELD THE ADDITIONS PR OPOSED BY THE ASSESSING OFFICER IN ORDER DATED 05.07.2011. PU RSUANT TO THE DIRECTION OF THE LEARNED DRP, THE ASSESSING OFFICER PASSED THE IMPUGNED FINAL ASSESSMENT ORDER ON 23.09.2011 WHERE IN FOLLOWING TWO ADDITIONS HAVE BEEN MADE: 1. ON ACCOUNT OF TPO ORDER IN RELATION TO ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS (AS DISCUSSED ABOVE) RS.2,54,42,211/- 2. ON ACCOUNT OF DEDUCTION U/S 10-B (AS DISCUSSED ABOVE) RS.15,41,43,267/- TOTAL RS.17,95,85,478/- 4. ON THE ISSUE OF DISALLOWANCE OF DEDUCTION UNDER SE CTION 10B OF THE ACT, LEARNED COUNSEL SUBMITTED THAT IN ASSES SMENT YEAR 2003-04 2006-07, THE DISALLOWANCE MADE BY THE ASSES SING OFFICER HAS BEEN DELETED BY THE TRIBUNAL AND, THEREFORE, TH E ISSUE IN DISPUTE BEING COVERED IN FAVOUR OF THE ASSESSEE, TH E DISALLOWANCE WAS REQUIRED TO BE DELETED IN THE INSTANT YEAR ALSO . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ELIGIBI LITY CONDITIONS OF EXPANSION OF THE EXISTING UNIT AND PRODUCT MANU FACTURE BY THE ASSESSEE WERE ALREADY EXAMINED IN THE FIRST YEAR OF THE CLAIM OF THE DEDUCTION AND, THEREFORE, IN VIEW OF THE DECISI ON OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. TATA COMMUNI CATION INTERNET SERVICES LTD. (2012) 204 TAXMAN 606 (DEL) DEDUCTION HAS TO BE ALLOWED FOR ENTIRE PERIOD OF 10 YEARS, IF THE CONDITIONS HAVE BEEN FULFILLED IN THE INITIAL YEAR. 7 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 4.1 ON THE CONTRARY, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 4.2 WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE YEA R UNDER CONSIDERATION, THE ASSESSING OFFICER RELYING ON THE ORDER OF THE IMMEDIATELY PRECEDING YEAR HELD THAT EXPORT ORIENTE D UNIT (EOU) IS JUST AN EXPANSION OF THE EXISTING UNIT A ND NOT AN INTEGRATED NEW UNIT. THE LEARNED DRP ALSO UPHELD TH E SAME. WE FIND THAT THE TRIBUNAL IN ITA NO. 3650/DEL/2009 AND 1196/DEL/2010 FOR ASSESSMENT YEARS 2005-06 AND 2006 -07 RESPECTIVELY, FOLLOWING THE EARLIER ORDER DELETED T HE DISALLOWANCE OF DEDUCTION UNDER SECTION 10B OF THE ACT OBSERVING AS UNDER: 4. WE HAVE GONE THROUGH THE ORDER DATED 26.03.2019 PASSED IN ASSESSEES OWN CASE FOR THE AYS 2003-04 AND 2004-0 5 IN THE APPEALS PREFERRED BY THE REVENUE, WHEREIN IN RESPEC T OF THE CLAIM OF DEDUCTION U/S 10B OF THE ACT, A COORDINATE BENCH OF THIS TRIBUNAL FOUND THAT BY APPLYING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT, 107 ITR 195 (SC) LEARNED CIT(A) HAD RIGHTLY EXTENDED THE RELIEF TO T HE ASSESSEE U/S 10B OF THE ACT AND, THEREFORE, THE REVENUE CANNOT H AVE ANY GRIEVANCE AGAINST THE SAME. IT IS NOT THE CASE OF T HE REVENUE THAT ANY APPEAL WAS PREFERRED AGAINST THE ORDER OR THAT THIS POSITION WAS DISTURBED. 5. IT IS NOT THE CASE OF REVENUE THAT THERE IS ANY CHANGE OF FACTS AND CIRCUMSTANCES INVOLVED IN THIS CASE TO TAKEN A DIFFERENT VIEW. WE, THEREFORE, WHILE RESPECTFULLY FOLLOWING THE VIE W TAKEN BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE EAR LIER ASSTT. YEARS HOLD THAT THE ASSESSEE IS ENTITLED TO THE RELIEF U/ S 10B OF THE ACT. 4.3 SINCE IN THE YEAR UNDER CONSIDERATION, THE ASSESSI NG OFFICER HAS FOLLOWED THE EARLIER YEARS ORDER, THEREFORE, T HE ISSUE IN DISPUTE BEING SQUARELY COVERED BY THE DECISION OF T HE TRIBUNAL (SUPRA), WE DELETE THE DISALLOWANCE. THE GROUNDS OF APPEAL OF THE ASSESSEE FROM GROUND NOS. 1 TO 8 ARE ACCORDINGLY A LLOWED. 8 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 5. GROUND NO. 9 TO 13 OF THE APPEAL ARE RELATED TO THE TRANSFER PRICING ADJUSTMENT. THE LEARNED COUNSEL FOR THE ASS ESSEE REFERRED TO PAPER-BOOKS FILED IN TWO VOLUMES FROM PAGES 1 TO 715 AND SUBMITTED THAT INTERNATIONAL TRANSACTION IS IN RESP ECT OF FIREWALL CHARGES REIMBURSEMENT TO AE. HE SUBMITTED THAT WHE N FINISHED GOODS ARE SHIPPED TO THE AE IN US FROM INDIAN PORTS , THERE IS A TIME LAG BEFORE THE PRODUCTS REACH THE DESTINED POR T. AT TIMES, MOTORS CAPTURE MOISTURE DURING THE TRANSIT PERIOD A ND THIS CAN ADVERSELY IMPACT THEIR FUNCTIONING. THE MOISTURE IN THE MOTOR MAY CAUSE SPARKING AT THE TIME OF USAGE AND CAN CAU SE HARM TO THE USER. ON THE REQUEST OF THE ASSESSEE, THE AE EN GAGES A THIRD PARTY THAT TESTS ALL THE MOTORS TO ENSURE THE DESIR ED QUALITY STANDARDS OF THE US MARKET. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN ORDER TO DETERMINE WHETHE R ALL MOTORS MEET THE DESIRED QUALITY STANDARDS, EACH MOTOR NEED S TO BE TESTED INDIVIDUALLY. HE SUBMITTED THAT SUCH TESTING CHARGE S INCURRED ARE PAID BY ASSESSEE TO THE AE WHICH THE AE PAYS TO THE THIRD PARTY ON COST-TO-COST BASIS WITHOUT ANY MARK-UP. HE SUBMI TTED THAT THE THIRD PARTY, I.E., COMMERCIAL WAREHOUSE & CARTAGE I NC. (CWC) USA UNDERTAKES FUNCTIONS OF UNPACKING, TESTING AND REPACKING OF MOTORS. HE SUBMITTED THAT PAYMENT OF FIREWALL CHARG ES WAS MADE BY THE ASSESSEE TO ITS AE WAS AN INTEGRAL PART OF T HE MANUFACTURING FUNCTION, THE SAME WAS AGGREGATED AND BENCHMARKED USING THE TNMM AS THE MOST APPROPRIATE METHOD. THE LEARNED COUNSEL SUBMITTED THAT THE LEARNED TPO REJECTED THE ARGUMENTS PUT-FORTH BY THE ASSESSEE STATING THE FOL LOWING REASONS: A) AN UNRELATED PARTY WOULD NOT MAKE SUCH A PAYMENT; 9 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 B) IF THE AE WISHIES TO TEST ALL THE MOTORS FOR ITS SATISFACTION, THEN IT AMOUNTS TO DUPLICATIVE SERVIC E AND NO SEPARATE PAYMENT IS REQUIRED TO BE MADE BY THE ASSESSEE. C) NO UNRELATED PARTY WOULD MAKE PAYMENT FOR TESTI NG OF MOTORS IN WHICH NO FAULT IS DETECTED; D) NO INDEPENDENT PARTY WOULD PAY SUCH TESTING CHA RGES WHEN GOODS ARE COVERED BY WARRANTY; AND 5.1 THE LEARNED TPO IN VIEW HIS OBSERVATIONS, BENCHMAR KED THE TRANSACTION APPLYING CUP METHOD AND VALUED AT NIL. 5.2 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED TPO/DRP HAS IGNORED THE FOLLOWING POINTS WH ICH ARE PRIMARY REASONS FOR WHICH THE ASSESSEE IS INCURRING SUCH EXPENSES: (I) IMPACT ON THE BRAND REPUTATION: IT IS IMPORT ANT TO UNDERSTAND THAT THE MAIN REASON BEHIND INCURRING SUCH EXPENSES IS TO ENSURE THAT NONE OF THE MOTORS ARE DEFECTIVE WHEN SOLD TO THE CUSTOMER IN THE OVERSEAS MARKET. IT IS PERTINENT TO NOTE THAT T HE PRODUCT LIABILITY RISK, IN A VALUE CHAIN, IS THAT OF A MANUFACTURER. SINCE IN THE INSTANT CASE. MEIPL IS THE MANUFACTURING ENTITY, ANY DEFECT IN THE PRODUCT WILL HAVE A DETRIMENTAL EFFECT ON THE BRAND REPUTAT ION OF MEIPL. IN CASE ANY DEFECT IS IDENTIFIED IN THE GOODS WHICH AR E BEING SOLD IN THE US MARKET, THE REPUTATION OF MEIPL WOULD BE IMPACTE D AND NOT THAT OF THE DISTRIBUTOR AS THE DISTRIBUTOR IS EARNING A GROSS MARGIN BY JUST RENDERING DISTRIBUTION SERVICES. ADVERSE BRAND REPU TATION WOULD LEAD TO DRASTIC REDUCTION IN SALES IN SUBSEQUENT YE ARS AND HENCE THE PROFITABILITY OF THE ASSESSEE. (II) PENAL CHARGES: IT IS IMPORTANT TO UNDERSTAND THAT US BEING THE MOST DEVELOPED COUNTRY IN THE WORLD HAS THE MOST ST RINGENT LAWS AGAINST THE DAMAGES CAUSED BY THE USE OF FAULTY/ DE FECTIVE ITEMS. A COMPANY COULD EVEN FACE TRIAL FOR PROVIDING FAULTY PRODUCTS. IN THE INSTANT CASE, IF THE MOTORS SUPPLIED BY MEIPL TO TH E CUSTOMER IS USED IN A BUILDING AND DUE TO A SHORT CIRCUIT IN TH E MOTOR (BECAUSE OF THE MOISTURE) IT CATCHES FIRE, THEN THIS COULD LEAD TO HUGE PRODUCT LIABILITY CLAIMS BEEN INITIATED AGAINST THE MANUFAC TURER I.E. MEIPL 10 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 AND NOT THE DISTRIBUTOR. THE ASSESSEE COULD ALSO FA CE TRIAL FOR THE SAME APART FROM HUGE DAMAGES CLAIM WHICH WILL IMPAC T THE OVERALL REPUTATION/ FUNCTIONING OF THE ASSESSEE. (III) COST TO COST CHARGES: AN IMPORTANT POINT WHI CH MUST BE CONSIDERED WHILE EVALUATING ARMS LENGTH NATURE OF THIS TRANSACTION IS THAT, ON REQUEST OF MEIPL, THE AE APPOINTS THE T HIRD PARTY THAT PERFORMS UNPACKING, TESTING AND REPACKING OF MOTORS . THE COST OF SUCH ACTIVITIES IS BORNE BY THE AE WHICH THEN RECOV ERS EXACTLY THE SAME FROM MEIPL I.E. WITHOUT CHARGING ANY MARK-UP. IN OTHER WORDS, THIS IS A COST TO COST REIMBURSEMENT AND HENCE THE AE HAS NOT BENEFITTED ANYTHING FROM THIS ARRANGEMENT. THESE MO TORS OUGHT TO HAVE BEEN TESTED IN US ONLY AND COULD NOT HAVE HAPP ENED IN INDIA (AS TESTING IS PERFORMED TO CHECK MOISTURE IN MOTOR S DURING TRANSIT). IF TESTING WAS POSSIBLE IN INDIA, MEIPL WOULD HAVE DIRECTLY APPOINTED THE THIRD PARTY. IN THIS CASE, SINCE THE AE IS FAMILIAR WITH THE US MARKET, HAS APPOINTED THIS THIRD PARTY FOR T HE PURPOSE OF TESTING. BACK TO BACK INVOICES HAVE ALREADY BEEN SU BMITTED BY THE ASSESSEE TO THE LD. TPO / LD. DRP (ON SAMPLE BASIS FOR AY 2007-08) (FOR BACK-TO-BACK INVOICES PLEASE REFER PG 611-693 OF PBII). (IV) COST NOT RELATED TO AE: IT IS HEREBY STATED T HAT THE AE IS A DISTRIBUTOR OF GOODS WHICH ARE MANUFACTURED BY THE ASSESSEE. IT HAS ALSO BEEN STATED BEFORE THE LOWER AUTHORITIES THAT THE AE RETAINS ONLY 10% OF REVENUE AND THE BALANCE IS REMITTED BACK TO THE ASSESSEE. HENCE, THE PROFIT IS THAT OF THE ASSESSEE WITH LIMI TED RETURNS TO THE AE - A GROSS MARGIN OF 10%. UNDER THESE CIRCUMSTANC ES IT THAT THE AE WOULD NOT BEAR SUCH EXPENSE OF TESTING WHEN IT I S EARNING ONLY MINIMAL RETURNS. SHOULD THE AE START TO BEAR THESE EXPENSES ITS MARGINS WOULD TAKE A HIT. IN ANY THIRD PARTY SET-UP SUCH COSTS CAN NEVER BE PASSED ONTO THE DISTRIBUTOR. 5.3 FURTHER, THE LEARNED COUNSEL ALSO SUBMITTED THAT WH Y SUCH TESTING WAS REQUIRED AND HOW IT WAS DIFFERENT FROM WARRANTY AND OTHER EXPENSES, WHICH ARE AS FOLLOWS: 11. THE LD. TPO HAS COMPARED THIS EXPENSE WITH WAR RANTY' EXPENSES. IT IS TRUE THAT ASSESSEE PROVIDES WARRANT Y, BUT THIS EXPENSE IS SEPARATE AND DISTINCT TO FIREWALL CHARGE S. ANY MOTOR THAT DOES NOT CONTAIN MOISTURE MAY ALSO HAVE FUNCTIONAL PROBLEMS (I.E. OTHER PROBLEM RELATING TO FUNCTIONALITY OF THE MOTO R) BECAUSE OF WHICH MEIPL COULD BEAR THE WARRANTY CHARGES. BUT IT IS TH E RESPONSIBILITY OF THE ASSESSEE TO PROVIDE THE MOTORS IN WORKING CO NDITIONS. IT IS ALSO IMPORTANT TO POINT OUT THAT IF PRODUCTS ARE SO LD WITHOUT TESTING, IT CAN LEAD TO EXTRA CLAIMS ON WARRANTY - WHICH NOT ON LY IS 11 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 ECONOMICALLY NON-VIABLE BUT ALSO IMPACTS REPUTATION OF THE COMPANYS BRAND. 12. THE LD. TPO HAS ALSO STATED THAT THIS IS A DUPL ICATIVE SERVICE. AGAIN, THE LD. TPO/LD. DRP HAS NOT APPRECIATED OR U NDERSTOOD THE NATURE OF THE TRANSACTION. THIS TESTING CAN NEVER B E DONE IN INDIA AS THE PURPOSE IS TO CHECK FAULTS DUE TO MOISTURE WHIL E STILL IN TRANSIT. IT IS BEYOND THE UNDERSTANDING HOW THIS CAN TANTAMOUNT TO DUPLICATION. 13. THE LD. TPO HAS MENTIONED THAT 'NO THIRD PARTY WOULD INCUR SUCH EXPENSES IN WHICH NO FAULT IS DETECTED. WHILE SAYING THIS, THE LD. TPO HAS NOT GIVEN ANY REFERENCE TO ANY THIRD PA RTY NOT INCURRING SUCH EXPENSE. IT IS APPARENT, THAT FAULT OR NO FAUL T IN THE MOTORS CAN ONLY BE DETERMINED ONCE ALL THE MOTORS ARE TESTED. HENCE THIS ARGUMENT IS ALSO FLAWED. FURTHER, THE ASSESSEE BELI EVES THAT IT IS THE RESPONSIBILITY OF THE MANUFACTURER TO PROVIDE GOODS IN WORKING CONDITIONS TO ITS DISTRIBUTOR. HENCE ALL THIRD-PART Y MANUFACTURERS ARE LIKELY TO INCUR SUCH EXPENSES. 5.4 THE LEARNED COUNSEL FOR THE ASSESSEE ALSO ARGUED T HAT THIS WAS A GENUINE BUSINESS EXPENDITURE, INCURRED WHOLLY AND SOLELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND CANNOT BE DISALLOWED BY THE LEARNED TPO. HE SUBMITTED THAT TH E AE IS MERELY ACTING AS A DISTRIBUTOR WHO IS NEVER LIABLE FOR THE GOODS MANUFACTURED. ON THE ISSUE OF APPLICATION OF THE CU P METHOD BY THE LEARNED TPO, THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED AS UNDER: 16. THE LEARNED TPO HAS FURTHER REJECTED THE AGGRE GATION APPROACH AND BENCHMARKED THE TRANSACTION USING CUP METHOD. IN THIS REGARD, THE ASSESSEE SUBMITS THAT SUBJECT TRAN SACTION IS INTERLINKED WITH THE PRIMARY TRANSACTION AND THE RE ASON FOR THE SAME IS ALREADY MENTIONED IN THE TP STUDY. HOWEVER, WITH OUT PREJUDICE TO THE ABOVE, EVEN IF THE APPROACH OF THE LD. TPO IS T O BE SELECTED, THE ASSESSEE FURNISHED THIRD PARTY INVOICES WHICH REPRE SENTED CUP FOR THE SUBJECT TRANSACTION. HOWEVER, THE LD. TPO IGNOR ED THE SAME AND DETERMINED THE VALUE TO BE NIL WITHOUT IDENTIFYIN G A SINGLE COMPARABLE. IN RELATION TO THE SAME, THE ASSESSEE W ISHES TO RELY ON THE FOLLOWING JUDICIAL RULINGS, WHEREIN IT HAS BEEN HELD THAT IT IS IMPERATIVE TO HAVE A COMPARABLE UNCONTROLLED TRANSA CTION. 12 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 17. IN THE CASE OF GATES UNITTA INDIA COMPANY PRIVA TE LIMITED (ITA NO. 2745/CHNY/2017) (REFER PARA 8, PAGE 8 OF THE RU LING; TO BE HANDED OVER BY THE COUNSEL) WHEREIN IT WAS HELD THA T: 8. FROM THE ABOVE, IT IS OBVIOUS THAT FOR SELECTIN G A COMPARABLE UNCONTROLLED PRICE METHOD, THE PRICE CHA RGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTION IS TO BE IDENTIFIED. IN THIS CASE, ADMI TTEDLY, NO SUCH COMPANIES WERE IDENTIFIED BY THE TPO OR DRP. T HEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE AUTHORITIES BELOW. 18, IN THE CASE OF SNF (INDIA) PVT. LTD. (ITA NO. 2 79 & 280/VIZ/2017) (REFER PARA 15, PAGE 22 & 23 OF THE R ULING; TO BE HANDED OVER BY THE COUNSEL) WHEREIN IT WAS HELD THA T: 15. DURING THE APPEAL HEARING, THE ID.AR ARGUED TH AT THE PAYMENT OF ROYALTY IS INTERLINKED WITH THE MANUFACT URING ACTIVITY AND OTHER TRADING TRANSITIONS, THEREFORE, THE TNMM IS MOST APPROPRIATE METHOD AT THE ENTITY LEVEL AND IT IS NECESSARY TO AGGREGATE THE ENTIRE TRANSACTIONS WITHOUT DELINK ING WITH THE ROYALTY PAYMENTS. THE DEPARTMENT COULD NOT ESTABLIS H THAT THE ROYALTY IS INDEPENDENT AND SEPARATE TRANSACTION FOR UNBUNDLING THE ROYALTY FROM THE OTHER TRANSACTIONS TO DETERMINE THE ALP INDEPENDENTLY. ONCE IT IS ACCEPTE D THAT THE TECHNICAL SUPPORT IS REQUIRED FOR MANUFACTURING THE PRODUCT AND IT IS INTERRELATED THE PAYMENT OF ROYALTY CANNO T BE SEGREGATED AND THE TRANSACTIONS REQUIRED TO BE AGGR EGATED AT THE ENTITY LEVEL AND THE ALP REQUIRED TO BE DETERMI NED ON THE WHOLE TRANSACTIONS. THOUGH THE TPO HELD THAT THE CU P IS MOST APPROPRIATE METHOD FOR DETERMINING THE TRANSFER PRI CING OF THE ROYALTY BUT DID NOT BRING ANY COMPARABLES FOR DETER MINATION OF THE ROYALTY PAYMENT.. ..IN THE INSTANT CASE ASSESSEE HAS NOT AVAIL ED SIMILAR TECHNOLOGY FROM ANY OTHER THIRD PARTY AND T HE ASSOCIATED ENTERPRISE HAS NOT PROVIDED THE TECHNOLO GY TO ANY OTHER THIRD PARTY. THE LD. TPO HAS NOT BROUGHT ANY COMPARABLE CASES UNDER CUP METHOD FOR DETERMINATION OF ALP. THEREFORE TAKING IN TO CONSIDERATION THE ENTIR E FACTS AND THE MATERIALS PLACED BEFORE US WE, AGREE WITH THE L D.CIT(A) THAT THE TNMM IS MOST APPROPRIATE METHOD TO DETERMI NE THE ALP AT ENTITY LEVEL. 19. FURTHER, RELIANCE IS PLACED ON TRINITI ADVANCE D SOFTWARE LABS PVT. LTD. (ITA NO. 1427/HYD/2014) (REFER PARA 11, P AGE 8 OF THE RULING; TO BE HANDED OVER BY THE COUNSEL) 13 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 20. FURTHERMORE, IN THE CASE OF SPENCER STUART (IND IA) PRIVATE LIMITED (ITA NO. 7117/2012, 1680/2014, 922/2015 AND 1832/20 16) IT WAS HELD THAT IF REIMBURSEMENTS ARE BACK BY THIRD PARTY INVOICES, THE SAME CANNOF-BE BENCHMARKED AS NIL. THE RELEVANT E XTRACT OF THE SAME IS GIVEN BELOW: 20. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWIN G THE DECISION OF THE CO-ORDINATE BENCH IN CASE OF ASSESS EE 'V AE, WE HOLD THAT REIMBURSEMENTS PAID BEING BACKED BY TH IRD PARTY INVOICES WITHOUT ANY ELEMENT OF MARK-UP, CANN OT BE BENCHMARKED AT NIL AS DONE BY TPO. ACCORDINGLY, WE DELETE THE ADDITION SO MADE BY THE AO. 22. IT IS ALSO IMPORTANT TO NOTE THAT THE ASSESSEE HAS PROVIDED BACK TO BACK INVOICES THAT ACT AS CUP. HENCE ASSESSEE HA S DEMONSTRATED ARMS LENGTH USING THIRD PARTY DATA. 5.5 THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE ISSU E IN DISPUTED IN THE CASE OF THE ASSESSEE WAS COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF EKL APPLIANCES LTD. (ITA NO.1068/2011 & ITA NO. 1070/20 11), WHEREIN THE HONBLE COURT HAS HELD THAT THE ASSESSE E IS NOT REQUIRED TO DEMONSTRATE THAT THE EXPENDITURE HAS AC TUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEA R OR IN ANY OF THE SUBSEQUENT YEAR. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE RELEVANT FINDING OF THE HO NBLE HIGH COURT (SUPRA) IS REPRODUCED AS UNDER: 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE RESPONDENT TO SHOW THAT ANY LEGIT IMATE EXPENDITURE INCURRED BY HIM WAS ALSO INCURRED OUT O F NECESSITY. IT IS ALSO NOT NECESSARY FOR THE RESPONDENT TO SHOW THAT ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOTHING MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS 14 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPH S WHICH WE HAVE QUOTED ABOVE. 5.6 ON THE CONTRARY, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE SERVICES ARE IN THE NATURE OF THE DUPLICATE IN VIEW OF COVERED BY THE WARRANTY AN D THUS THE LEARNED TPO HAS CORRECTLY DETERMINED THE ALP AT NIL . 5.7 WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND TH AT THE HONBLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES (SUP RA) HAS HELD THAT THE TPO IS EXPECTED TO EXAMINE THE INTERNATION AL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABL E ADJUSTMENT BUT A WHOLESALE DISALLOWANCE OF THE EXPENDITURE BY THE LEARNED TPO IS NOT AUTHORIZED. THE RELEVANT FINDING OF THE HIGH COURT IS REPRODUCED AS UNDER: 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLO WANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE RESPONDENT TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE RESPONDENT IN HIS BUSINESS, HE COULD HAVE FARED BETTER HAD HE NOT INCURRED SUCH EX PENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RU LE 10B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESS EE TO DECIDE. THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE E NTIRE EXPENDITURE OR A PART THEREOF ON THE GROUND THAT THE ASSESSEE H AS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THER E IS CERTAINLY NO AUTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PR ESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED IN TO THE AGREEMENT TO PAY ROYALTY/ BRAND FEE, BECAUSE IT HAS BEEN SUFF ERING LOSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDE LINES, HE IS EXPECTED TO EXAMINE THE INTERNATIONAL TRANSACTION A S HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BU T A WHOLESALE 15 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 DISALLOWANCE OF THE EXPENDITURE, PARTICULARLY ON TH E GROUNDS WHICH HAVE BEEN GIVEN BY THE TPO IS NOT CONTEMPLATED OR A UTHORISED. 5.8 IN THE INSTANT CASE, THE ASSESSEE HAS INCURRED EXPE NDITURE AND NOT MAKING PAYMENT OF MARK-UP IS NOT ADVERSE TO THE ENTITY IN INDIAN JURISDICTION. THE ASSESSEE HAS CLAIMED TH E EXPENDITURE PAID BY THE AE ON ITS BEHALF. THE CONTENTION OF THE TPO IS THAT THE ASSESSEE WAS NOT REQUIRED TO INCUR THE SAID EXPENSE S. BUT IT WAS UNDER JURISDICTION OF THE ASSESSING OFFICER WHETHER PARTICULAR EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT IN THE DOMAIN OF THE TPO TO HOL D THAT IN VIEW OF THE WARRANTY ETC., THE ASSESSEE WAS NOT REQUIRED TO INCUR EXPENDITURE ON FIREWALL CHARGES. THE CONTENTION OF THE ASSESSEE SEEMS PLAUSIBLE THAT MOTORS WERE REQUIRED TO CHECKE D FOR CONTENT OF MOISTURE ACQUIRED IN TRANSPORT FROM INDIA TO THE USA, I.E., THE DESTINATION POINT AND IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO PROVIDE DEFECT FREE MOTORS TO THE END CUSTOMERS. TH US, RESPECTFULLY FOLLOWING THE FINDING OF THE HONBLE D ELHI HIGH COURT (SUPRA), WE DELETE THE TRANSFER PRICING ADJUSTMENT OF RS. 2,54,42,211/-. ACCORDINGLY, THE APPEAL OF THE ASSES SEE IS ALLOWED. ITA NO.1060/DEL/2014 ASSESSMENT YEAR: 2009-10 6. NOW, WE TAKE UP THE APPEAL BEARING ITA NO. 1060/DE L/2014 FOR ASSESSMENT YEAR 2009-10. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: 1. THAT THE LEARNED ASSESSING OFFICER (LD. AO) ER RED IN PASSING THE IMPUGNED DRAFT ASSESSMENT ORDER AND THE LEARNED DIS PUTE 16 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 RESOLUTION PANEL (LD. DRP) ERRED IN PASSING DIREC TIONS UNDER SECTION 144C OF THE INCOME TAX ACT, 1961 (THE ACT ) CONFIRMING THE DRAFT ASSESSMENT ORDER. ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW, THE LD. AO ERRED IN ASSESSING THE INCOME OF THE APPELLANT AT RS.49,68,88,400 AS AGAINST THE RETURNE D INCOME OF RS.32,37,64,910. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO / TRANSFER PRICING OFFICER (TPO) HAVE ERRED IN DETE RMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF TESTING, WARRANTY REPAIR AND SERVICE CHARGES FEE TO BE NIL, THEREBY MAKING AN ADDITION TO THE TOTAL INCOME OF RS. 1,89, 98,051/- ON ACCOUNT OF TRANSFER PRICING. IN DOING SO THE LD. AO /TPO AND THE LD. DRP HAVE GROSSLY ERRED IN: 2.1 NOT APPRECIATING THE CHARACTERIZATION OF THE EN TITIES INVOLVED IN THE TRANSACTION AND DISREGARDING THE FACT THAT THE COND UCT OF THE APPELLANT CONFORMS TO THE ALLOCATION OF RISK I.E. T HE ENTITY BEARING PRODUCT LIABILITY RISK IS UNDERTAKING DECISIONS IN RELATION TO THE SAME; 2.2 NOT APPRECIATING THE NATURE OF THE TRANSACTION AND THE FUNCTIONS BEING PERFORMED BY THE ENTITIES INVOLVED IN RELATIO N TO THE TRANSACTION; 2.3 QUESTIONING THE COMMERCIAL/BUSINESS WISDOM OF T HE APPELLANT FOR UNDERTAKING THE SAID TRANSACTION; AND 2.4 NOT APPRECIATING THE FACT THAT NO ADJUSTMENT IS WARRANTED AS NO BENEFIT HAS BEEN PASSED ON TO THE ASSOCIATED ENTERP RISE SINCE IT IS RECOVERING EXACTLY THE SAME AMOUNT THAT HAS BEEN PA ID TO INDEPENDENT THIRD PARTY. 3. THAT THE LD. AO / TPO AND THE LD. DRP HAVE GROSS LY ERRED BY APPLYING COMPARABLE UNCONTROLLED PRICE METHOD IN CO NTRAVENTION OF THE PROVISIONS OF RULE 10 B OF THE INCOME TAX RU LES, 1962. 4. THAT THE LD. AO / TPO AND LD. DRP HAVE GROSSLY E RRED BY NOT APPRECIATING THE CORROBORATIVE ANALYSIS FURNISHED B Y THE APPELLANT FOR THE TRANSACTION UNDER QUESTION. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, BOTH THE LD. AO AND THE LD. DRP ERRED IN DENYING TH E APPELLANTS CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT AMO UNTING TO RS.15,41,25,434 IN RESPECT OF ITS NEWLY ESTABLISHED HUNDRED PERCENT EXPORT ORIENTED UNIT DESPITE THE FACT THAT THE APPELLANT SATISFIED ALL THE CONDITIONS LAID DOWN UNDER SECTIO N 10B OF THE ACT. 17 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 5.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, BOTH THE LD. AO AND THE LD. DRP ERRED IN REJECTING THE APPELLANTS CLAIM OF THE DEDUCTION UNDER SECTION 10B OF THE ACT IGNORING THE FACTUAL AND LEGAL POSITION THAT THE NEW UNIT IS A H UNDRED PERCENT EXPORT ORIENTED UNIT DULY APPROVED BY THE PRESCRIBE D AUTHORITIES AND A SEPARATE UNDERTAKING FOR THE PURPOSE OF DEDUC TION UNDER SECTION 10B OF THE ACT. 5.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, BOTH THE LD. AO AND THE LD. DRP ERRED IN HOLDING TH AT NO SEPARATE INDUSTRIAL UNIT CAME INTO EXISTENCE FOR MANUFACTURI NG OF NEW ARTICLES OR THINGS. 5.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, BOTH THE LD. AO AND THE LD. DRP ERRED IN HOLDING TH AT THE NEW HUNDRED PERCENT EXPORT ORIENTED UNIT WAS AN EXPANSI ON OF THE EXISTING UNIT AND NOT AN INTEGRATED NEW UNIT. 5.4 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, BOTH THE LD. AO AND THE LD. DRP ERRED IN HOLDING TH AT THE APPELLANT HAS NOT STARTED A NEW HUNDRED PERCENT EXP ORT ORIENTED UNIT AND THAT THE APPELLANT DID NOT ENTER INTO MANU FACTURING OF ANY NEW PRODUCT BUT ONLY INCREASED THE PRODUCT RANG E OF ELECTRIC MOTORS. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, BOTH THE LD. AO AND THE LD. DRP ERRED IN NOT FOLLOW ING THE ORDER PASSED BY THE HONBLE COMMISSIONER OF INCOME-TAX (A PPEALS) [CIT(A)] FOR PREVIOUS ASSESSMENT YEARS (AY) I.E . AY 2003-04 TO AY 2006-07, WHEREIN THE HONBLE CIT(A) HAS UPHELD T HE APPELLANTS CLAIM OF DEDUCTION UNDER SECTION 10 B O F THE ACT AND DELETED THE ADDITION MADE ON THIS ACCOUNT. 7. THAT THE LD. AO ERRED ON FACTS AND IN LAW IN LEV YING INTEREST UNDER SECTION 234B OF THE ACT. 8. THAT THE LD. AO ERRED ON FACTS AND IN LAW IN INI TIATING THE PENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271 (1)(C) OF THE ACT. 7. IN THE GROUNDS RAISED ALSO THERE ARE TWO ISSUES IN VOLVED, I.E., IS TRANSFER PRICING ADJUSTMENT AND DISALLOWANCE OF DEDUCTION UNDER SECTION 10B OF THE ACT. WE HAVE ALREADY ADJUD ICATED BOTH THE ISSUES IN THE FOREGOING PARAS IN ITA NO. 5257/D EL/2011 (AY: 2007-08). THE FACTS AND CIRCUMSTANCES OF THE CASE I N ITA NO. 18 ITA NO. 5257/DEL./2011 & 1060/DEL./2014 1060/DEL/2014 (AY: 2009-10) ARE IDENTICAL TO THE FA CTS AND CIRCUMSTANCES OF THE CASE IN ITA NO. 5257/DEL/2011 (AY: 2007- 08). THUS, TO HAVE CONSISTENCY IN OUR DECISION, FOL LOWING OUR FINDINGS IN ASSESSMENT YEAR 2007-08, GROUNDS RAISED BY THE ASSESSEE ON BOTH THE ISSUES ARE ALLOWED MUTATIS MUT ANDIS. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. TO SUM UP, BOTH APPEALS OF THE ASSESSEE ARE ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2020. SD/- SD/- (SUDHANSHU SRIVASTAVA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19 TH FEBRUARY, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI