Putzmeister Concrete Machines P. Ltd., Goa V. Dy. CIT, Circle 1, Margao

ITA 107/PAN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84705 (ITAT-PANAJI)
• Duration Of Justice: 1 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHA DESAI LD
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 107 /PNJ/2012 (ASSESSMENT YEAR - 2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT. LTD. PHASE IV, PLOT NO. N4, VERNA INDL ESTATE, VERNA SALCETE, GOA 403722 PAN:AACCD2090G (APPELLANT) VS. THE DEPUTY COMMISSIONER OF INCOME TAX - CIRCLE - 1, MARGAO, GOA. (RESPONDENT) APPELLANT BY : SHRI P.J. PARDIWALLA, SR. ADV. RESPONDENT BY : SMT. ASHA DESAI, LD. DR. DATE OF HEARING : 09/05 /2014 DATE OF PRONOUNCEMENT : 08 /08 /2014 O R D E R PER: D.T. GARASIA THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF ACIT, CIRCLE - 1, MARGAO ORDER DATED 28.09.2012 FOR THE ASSESSMENT YEAR 2008 - 09 . 2. THE FOLLOWING GROUNDS ARE RAISED IN THIS APPEAL AS UNDER: - GROU ND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER (AO ) GROSSLY E RRE D, IN CONFORMITY WITH THE DIRECTIONS OF H ONBLE DISPUTE RESOLUTION PANEL - II (DRP), MUMBAI UN DER SECTION 144C(5) OF THE INCOME - TAX ACT, 1961 (THE ACT), IN MAKING THE UPWARD TRANSFER PRI CING ADJUSTMENT U/S. 92 OF RS. 2,45,35,296/ - IN RESPECT OF APPELLANTS INTERNATIONAL TRANSACTION OF PUR CHASE OF CONCRETE PUMP UNITS IN COMPLETELY KNOCKED DOWN (CKD) OR SEMI - KNOCKED DOWN SKD) FORM ITS ASSOCIATED ENTERPRISE (AE) PUTZMEISTER CONCRETE PUMPS GMBH, GERMANY PCPG). G ROUND NO. 2 I N THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAWS, THE LD. AO, PURSUANT TO DIRECTION OF DRP, G ROSSLY ERRED IN CONSIDERING THE SERVER UPS SYSTEMS AS A PART OF PLA NT & M ACHINERY AND NOT AS THE COMPUTER SYSTEM, AND THEREBY ALLOWING DEPRECIATION ONLY AT THE RATE OF 15% AS AGAINST THE RATE OF 60% CLAIMED BY THE APPELLANT. GROUND NO. 3: THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. 2 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT 2. THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADING IN CONCRETE PUMPS. THIS WAS FIRST YEAR OF OPE RATIONS OF THE COMPANY. COMMERCIAL PRODUCTION BEGAN DURING THE YEAR AND THE FIRST PUMP ASSEMBLED IN INDIA WAS SOLD IN FEBRUARY 2008. THE PUMPS ARE IMPORTED FROM THE PARENT COMPANY, THE AE, IN CKD OR SEMI CKD STATE. THESE ARE ASSEMBLED BY THE ASSESSEE AND S OLD IN THE MARKET. THE ASSESSEE RETURNED A LOSS DURING THE DURING THE YEAR OF RS.4,78,71,047/ - . THE ASSESSEE BENCHMARKED ITS INTERNATIONAL TRANSACTION USING THE RESALE PRICE METHOD. THE TPO HOWEVER REJECTED THE ANALYSIS MADE BY THE ASSESSEE AND CARRIED OUT SEPARATE BENCHMARKING ANALYSES OF THE TRADING AND MANUFACTURING SEGMENTS AFTER WHICH AN ADJUSTMENT WAS MADE OF RS.2,45,35,396/ - . THE TPO COMPARED THE MARGINS OF COMPARABLE COMPANIES WITH THAT THE ASSESSEE. THE ASSESSEES MARGIN WAS - 4% IN THE MANUFACTURING SEGMENT WHEREAS THE AVERAGE MARGIN OF THE COMPARABLE COMPANIES WORKED OUT TO 12.04% OF THE OPERATING REVENUE. THE TPO HAS ACCEPTED THE GROSS PROFIT @ 12.04% FOR THE PURPOSE OF ARRIVING AT ARMS LENGTH COST AND HAS MADE AN ADJUSTMENT U/S. 92CA OF RS. 2,45, 35,296/ - THEREBY REDUCING LOSS TO THAT EXTENT. THE ASSESSING OFFICER HAS SERVED THE DRAFT ORDER AND MADE THE ASSESSMENT. 2.1. THE ASSESSEE CARRIED THIS MATTER TO DISPUTE RESOLUTION PENAL - II (DRP - II) AND THEY HAVE DISMISSED THE APPEAL OF THE ASSESSEE. 2.2. THE LEARNED AR SUBMITTED THAT WHILE CONSIDERING THE GROSS PROFIT @ 12.04% FOR THE PURPOSE OF ARRIVING AT ARMS LENGTH COST, THE TRANSFER PRICING OFFICER (TPO) HAS NOT CONSIDERED THAT THIS YEAR WAS FIRST YEAR OF COMPANY OPERATION. SINCE, THE COMPANY WA S NEW TO THE INDIAN MARKET, INITIALLY IT PROCURED PUMPS IN CKD/SKD SETS AND STARTED ASSEMBLING THE SAME. SINCE ALMOST 80% OF MATERIALS WERE IMPORTED FROM GERMANY, THE MATERIAL COST WAS HIGHER DUE TO HIGH VALUE ADDITION IN GERMANY, FRIGHT AND HANDLING CHARG ES AND BASIC CUSTOMS DUTY OF 7.5% AND EDUCATION CESS. 3 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT THE COMPANYS PRODUCTS WERE SUBSTANTIALLY DESIGNED AND MADE IN GERMANY CONTAINING MANY FEATURES NOT OFFERED BY THE COMPETITION IN INDIA. THE ESTABLISHED PLAYERS IN THE INDUSTRY WERE OFFERING A NO - FRIL L BASIC MACHINE, LOWER BUILD DIMENSIONS, ETC WITH SUBSTANTIALLY HIGHER LOCAL CONTENT. IN COMPARISON TO COMPETITION, THE COMPANYS MATERIAL COSTS WERE THEREFORE HIGHER. THE SELLING PRICE IN THE MARKET WAS DICTATED BY THE PRICING POLICIES OF THE ESTABLISHE D MARKET PLAYERS LIKE SANY HEAVY INDUSTRIES, SCHWING STETTER, GREAVES. THE COMPANY MANUFACTURED AND SOLD MACHINES OF A STRONGER BUILD, BETTER FEATUES BUT HAD TO COMPETE WITH SIMILAR MACHINE MODELS OFFERED BY COMPETITION. DUE TO THIS, THE SALES REALIZATION WAS GIVEN BY THE MARKET AND THE COMPANY INCURRED LOSS AT GROSS MARGIN LEVEL. THE COMPARABLE COMPANIES LIKE BEML, L&T, ACE ARE IN THE BUSINESS FOR A VERY LONG TIME. IN ENGINEERING INDUSTRY, IT TAKES A FEW YEARS TO DEVELOP RELIABLE VENDORS TO SUPPLY MATERI ALS AS PER REQUIRED DESIGN AND MATERIALS AT LOWER COSTS. BEING THE FIRST YEAR OF OPERATION, THE COMPANY DID NOT HAVE THE VENDOR BASE LIKE THE COMPARABLE COMPANIES IN ORDER TO CONTROL THE HIGH MATERIAL COSTS. THE COMPANY STARTED DEVELOPING AND PROCURING M ATERIALS LOCALLY IN THE SUBSEQUENT YEARS. THE COMPANY GROSS PROFIT5 IN FY 09 - 10 WAS 14.73% AND IN F.Y 10 - 11 IT WAS 20.84% WHICH SHOWS AN IMPROVEMENT IN THE PERFORMANCE OF THE COMPANY ONCE WE WERE ABLE TO GET A FOOTHOLD IN THE MARKET. THE LEARNED AR WAS A SKED TO PROVIDE THE INFORMATION RELATING TO THE PRICE CHARGE BY ASSOCIATE ENTERPRISES IN RESPECT OF MATERIAL, COMPONENT OR OTHER PARTS SUPPLIED B Y ASSESSEE IN F.Y. 07 - 08 AND SAME PRODUCTS IN SUBSEQUENT YEAR. THE ASSESSEE HAS SUBMITTED THE DETAILS AS UNDER: 1. DETAILS IN RESPECT OF MATERIAL, COMPONENTS OR PARTS PURCHASED BY THE APPELLANT FROM ITS AE DURING THE FINANCIAL YEAR 2007 - 08 AND CORRESPONDING PARTICULARS OF TRANSACTIONS (VIZ, INVOICE NUMBER, PARTY NAME, INVOICE VALUE IN INR AND EURO, ETC) IS GIVEN IN ANNEXURE # 1. THE WORKINGS GIVEN IN ANNEXURE # 1 CONTAINS DETAILS OF PURCHASE MADE 4 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT BY APPELLANT COMPANY FROM ITS ASSOCIATED ENTERPRISE AS EXTRACTED FROM THE PURCHASE ACCOUNT OF THE APPELLANT COMPANY. 2. DETAILS OF MATERIAL, COMPONENTS OR PARTS PURCHASED BY THE APPELLANT FROM ITS AE DURING THE FINANCIAL YEAR 2007 - 08 AND CORRESPONDING PRICE CHARGED BY THE AE FOR THE SAME PRODUCTS IN SUBSEQUENT YEAR IS GIVEN IN ANNEXURE # 2. THE WORKING GIVEN IN THIS ANNEXURE CONTAINS DETAILS IN RESPECT OF PRODUCTS PROCURE D BY THE APPELLANT COMPANY FROM ITS ASSOCIATED ENTERPRISE IN FY 2007 - 08 AS WELL AS IN SUBSEQUENT YEAR. ON PERUSAL OF THIS COMPARATIVE STATEMENT, YOUR HONOURS WOULD APPRECIATE THAT THERE IS NO MATERIAL CHANGE IN PRICE PER UNIT IN SUBSEQUENT YEAR VIS - - VIS P RICES CHARGED BY AE IN FY 2007 - 08. 3. COMPARATIVE ANALYSIS OF PRICE PER UNIT CHARGED FOR COMPONENTS FORMING PART OF SEMI - KNOCKED DOWN (SKD) UNIT (BSA 140X - D, RS 905A) SOLD BY THE AE TO THE APPELLANT COMPANY IN THE FINANCIAL YEAR 2007 - 08 AND CORRESPONDING P RICE PER UNIT CHARGED FOR THE INDIVIDUAL COMPONENTS SUPPLIED BY THE AE IN SUBSEQUENT YEAR IS GIVEN IN ANNEXURE # 3 . THE WORKING GIVEN IN THIS ANNEXURE CONTAINS DETAILS IN RESPECT OF COMPONENTS WHICH FORMED PART OF SKD UNITS (I.E. ASSEMBLY DONE IN GERMANY BY AE) PROCURED BY THE APPELLANT COMPANY IN FY 2007 - 08 BUT IN SUBSEQUENT YEAR THESE COMPONENTS WERE INDIVIDUALLY IMPORTED AND ASSEMBLED IN INDIA. THE AVERAGE DIFFERENCE (I.E. DECREASE ) IN PRICE IN SUBSEQUENT YEAR VIS - - VIS COMPARATIVE UNIT PRICE IN FY 20 07 - 08 IS APPROXIMATELY 11% ONLY AND IT IS DUE TO NO ASSEMBLY COST INVOLVED FOR AE IN SUBSEQUENT YEAR WHERE PARTS HAVE BEEN PURCHASED INDIVIDUALLY AND NOT IN SKD FORM. 4. COMPARATIVE ANALYSIS OF PRICE PER UNIT CHARGED FOR COMPONENTS FORMING PART OF SEMI - KNO CKED DOWN (SKD) UNIT (SKD BSA 140X - D, PH.3) SOLD BY THE AE TO THE APPELLANT COMPANY IN THE FINANCIAL YEAR 2007 - 08 AND CORRESPONDING PRICE PER UNIT CHARGED FOR THE INDIVIDUAL COMPONENTS SUPPLIED BY THE AE IN SUBSEQUENT YEAR IS GIVEN IN ANNEXURE # 4 . THE WORKING GIVEN IN THIS ANNEXURE CONTAINS DETAILS IN RESPECT OF COMPONENTS WHICH FORMED PART OF SKD UNITS (I.E. ASSEMBLY DONE IN GERMANY BY AE) PROCURED BY THE APPELLANT COMPANY IN FY 2007 - 08 AND SUBSEQUENT YEAR THESE COMPONENTS WERE INDIVIDUALLY IMPORTED AN D ASSEMBLED IN INDIA. FROM THE COMPARATIVE PRICE ANALYSIS SUBMITTED IN ANNEXURE 3 & 4 FOR THE SKD UNITS PURCHASED BY THE APPELLANT IN F.Y. 2007 - 08, IT CAN BE OBSERVED THAT APPELLANT HAS NOT PURCHASED THE MACHINES BSA 1404D & BSA 1407D IN SKD FORM IN SUBSEQ UENT YEARS AND THEREFORE AS SUCH THE PRICE PER UNIT CANNOT BE COMPARED. HOWEVER, AS INSTRUCTED BY YOUR HONOURS, THE APPELLANT HAS PREPARED A COMPARATIVE WORKING OF THE PRICE PER UNIT IN SUBSEQUENT YEARS AND THE REDUCTION AS CAN BE SEEN FROM THE WORKING OF PRICE PER UNIT IS ON ACCOUNT OF FOLLOWING REASONS: I ) CHANGE IN FORM: APPELLANT HAD PURCHASED MACHINES IN SKD FORM IN THE YEAR UNDER CONSIDERATION AND SUBSEQUENTLY, IT HAS MANUFACTURED/ASSEMBLED THESE MACHINES IN INDIA AND THEREFORE ONLY PARTS AND COMPONEN TS HAVE BEEN PURCHASED. THEREFORE, DUE TO THE CHANGE IN ASSEMBLY LOCATION, THE PRICE PER UNIT IN SUBSEQUENT YEAR APPEARS TO BE 5 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT REDUCED. HOWEVER, THE COST OF ASSEMBLY IS SEPARATELY RECORDED IN THE BOOKS OF THE APPELLANT COMPANY. II) CHANGE IN SPECIFICATION : THE MACHINERY PURCHASED BY THE APPELLANT COMPANY IN FINANCIAL YEAR 2007 - 08 IN SKD FORMAT HAS UNDERGONE CHANGE IN SUBSEQUENT YEARS CONSIDERING THE REQUIREMENTS OF THE DOMESTIC MARKET IN INDIA. IN THIS CONTEXT, WE STATE THAT COST FOR NEW MACHINE HAS REDUCED SUBSTANTIALLY DUE TO REPLACEMENT OF METAL BODY BY FIBRE REINFORCED PLASTIC (FRP). THE COST OF METAL AS COMPARED TO FRP IS VERY HIGH. IN THIS REGARD, WE HEREBY SUBMIT THE BROCHURE OF THE MACHINERY BEFORE AND AFTER CHANGE IN SPECIFICATION IN ANNEXURE #5. II I) INDIGENIZATION OF PRODUCT: AS EVIDENT FROM THE DETAILS, APPELLANT COMPANY HAS SUBSEQUENTLY REPLACED CERTAIN PARTS AND COMPONENTS FORMING PART OF SKD UNITS PURCHASED FROM THE AE BY PARTS AND COMPONENTS PROCURED LOCALLY THEREBY RESULTING INTO REDUCTION IN COST OF MACHINERY. THE LEARNED AR HAS CITED THE DECISION OF ITAT, PUNE BENCH IN THE CASE OF SKODA AUTO INDIA (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX, 122 ITJ 699 (PUNE) AND SUBMITTED THAT IN THAT CASE, THE TRIBUNAL HAS SET ASIDE THE MATTER TO FILE OF TPO TO CONSIDER WHEN IF THE ASSESSEE IS IN FIRST YEAR OF HIS BUSINESS AND IF HE IMPORTS THE SKD OR CKD FOR MANUFACTURING THE S KODA CAR THE PRICE OF THIS IMPORTED MATERIAL WHICH WAS HIGH AT 98.5% WHEREAS THE IMPOR T CONTENT IN RAW MATERIAL IN CASE OF COMPARABLES SELECTED BY REVENUE AUTHORITIES RANGED FROM 26% TO 56.83 %. WHETHER THE AFORESAID VARIATION WAS PARTICULAR IMPORTANT BECAUSE BUSINESS MODEL OF A CAR MARKER HAVING 98.5% IMPORT CONTENT IN RAW MATERIAL NORMALLY COULD NOT BE SAME AS OF A CAR M AKER HAVING IMPORT CONTENT OF 26 PER CENT TO 56.84% AND THUS, NO COMPARISONS WERE POSSIBLE BETWEEN THEM, UNLESS IMPACT OF IMPORT CONTENTS WAS ELIMIN ATED. THE TRIBUNAL REMITTED BACK THIS MATTER TO TPO T O CONSIDER THE ELEMENT OF HIGH COSTS OF RAW MATERIAL D UE TO IMPORT. THE LEARNED AR HAS SIMILARLY RELIED UPON THE DECISION IN ITA NO. 120/PUNE/2011, IN THE CASE OF DEMAG CRANES & COMPONENTS (INDIA) PVT. LTD. VS.DCIT, WHEREIN THE SIMILAR ISSUE HAS ARISEN AND FOLLOWING THE DECISION OF SKODA AUTO INDIA (P.) LT D., THE MATTER WAS RESTORED TO THE TPO/AO/DRP TO CONSIDER THE SAME IN ACCORDANCE WITH THE LAW. 6 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT 2.3. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. 3 . WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE C ASE, WE FIND THAT THE DURING THE COURSE OF HEARING THE ASSESSEE HAS SUBMITTED THE DETAILS IN RESPECT OF MATERIALS, COMPONENTS OR PARTS PURCHASED BY THE ASSESSEE FROM ITS AE DURING THE FINANCIAL YEAR 2007 - 08 AND CORRESPONDING PARTICULARS OF TRANSACTIONS IS GIVEN IN ANNEXURE - 1. T HE WORKINGS GIVEN IN ANNEXURE - 1 CONTAINS DETAILS OF PURCHASES MADE BY APPELLANT COMPANY FROM ITS ASSOCIATE ENTERPRISE AS EXTRACTED FROM THE PURCHASE ACCOUNT OF THE ASSESSEE COMPANY. THE DETAILS OF MATERIAL, COMPONENTS OR PARTS PURCHASED BY THE ASSESSEE FROM ITS AE DURING THE FINANCIAL YEAR 2007 - 08 AND CORRESPONDING PRICE CHARGED BY THE AE FOR THE SAME PRODUCTS IN SUBSEQUENT YEAR IS GIVEN IN ANNEXURE - 2. THE WORKING GIVEN IN THIS ANNEXURE CONTAINS DETAILS IN RESPECT OF PRODUCTS PR OCURED BY THE ASSESSEE COMPANY FROM ITS ASSOCIATE ENTERPRISE IN FY 2007 - 08 AS WELL AS IN SUBSEQUENT YEAR. THE ASSESSEE HAS ALSO SUBMITTED THE COMPARATIVE ANALYSIS OF PRICE PER UNIT CHARGED FOR COMPONENTS FORMING PART OF SEMI - KNOCKED DOWN (SKD) UNIT (BSA 14 0X - D, RS 905A) SOLD BY THE AE TO THE ASSESSEE COMPAN Y IN THE FINANCIAL YEAR 2007 - 08 BY ANNEXURE - 3 AND ANNEXURE - 4 IS WORKING IS GIVEN IN DETAILS IN RESPECT OF COMPONENT WHICH FORMING PART OF SEMI - KNOCKED DOWN(SKD) UNITS AND PROCURED BY THE ASSESSEE INDIVIDU ALLY IMPORTED AND ASSEMBLED IN INDIA. WE FIND THAT THE TPO HAS NO OCCASION TO VERIFY THIS ALL DOCUMENTARY EVIDENCE. WE FIND THAT THE ASSESSEE HAS PRODUCED ALL THESE DOCUMENTARY EVIDENCE BEFORE US AND THE DOCUMENTARY EVIDENCE SHOWS THAT IF THE TPO CONSIDER THAT THE ASSESSEE HAS TO INCUR THE HIGHER COSTS ON ACCOUNT OF HIGHER IMPORT DUTY. WE FIND THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SKODA AUTO INDIA (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX, 30 SOT 319 (PUNE) HAS HELD THAT THE TRANSFER PRICING OFFICER (TPO) HAS DECI DED THE ARMS LENG TH PRICE. HE HAS NOT RELIED UPON SIX COMPARAB LE CASES AS ONE COMPARABLE DATA WAS REJECTED ON THE GROUND THAT COMPANY WAS INCURRING LOSSES AND ANOTHER COMPARABLE DATA WAS REJECTED AS THE 7 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT ASSESSEE HAS NOT PRODU CED THE COMPARABLE DAT A BEFORE HIM. THE TRIBUNAL HAS HELD THAT WHERE THERE IS IMPORT ED CONTENT OF RAW MATERIAL AND IF THE PRICE VARIATION IS DUE TO IMPORT ED RAW MATERIALS, IF IT IS THE FIRST YEAR OF OPERATION IT WILL HAVE IMPACT FOR DECIDING THE ARMS LENGT H PRICE BUT IN THAT SITUATION IMPORT ED CONTENTS OF RAW MATERIALS WHICH H AS SUBSTANTIALLY COME DOWN IN SUCCEEDING YEAR HAS TO BE CONSIDERED WHILE DECIDING THE TRANSFER PRICING ARMS LENGTH PRICE AND MATTER WAS RESTORE D TO THE AO BY OBSERVING AS UNDER: NO DOUBT, A HIGHER IMPORT CONTENT OF RAW MATERIAL BY ITSELF DOES NOT WARRANT AN ADJUSTMENT IN OPERATING MARGINS, AS WAS HELD IN SONY INDIA (P) LTD. S CASE (SUPRA), BUT WHAT IS TO BE REALLY SEEN I S WHETHER THIS HIGH IMPORT CONTENT WAS NECESSITATED BY THE EXTR AORDINARY CIRCUMSTANCES BEYOND ASSESSEE S CONTROL. AS WAS OBSERVED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF E - GAIN COMMUNICATION (P) LTD. (SUPRA) THE DIFFERENCES WHICH ARE LIKELY TO MATERIALLY AFFECT THE PRICE, COST CHARGED OR PAID IN, OR T HE PROFIT IN THE OPEN MARKET ARE TO BE TAKEN INTO CONSIDERATION WITH THE IDEA TO MAKE REASONABLE AND ACCURAT E ADJUSTMENT TO ELIMINATE THE DI FFERENCES HAVING MATERIAL EFFECT. WE DO NOT AGREE WITH THE AO THAT EVERY TIME THE ASSESSEE PAYS THE HIGHER IMPORT D UTY, IT MUST BE PASSED ON TO THE CUSTOMERS OR IT MUST BE ADJUSTED FOR IN NEGOTIATING THE PURCHASING PRICE. ALL THESE THINGS COULD BE RELEVANT ONLY WHEN HIGHER IMPORT CONTENT IS A PART OF THE BUSINESS MODEL WHICH THE ASSESSEE HAS CONSCIOUSLY CHOSEN BUT THEN (FIT IS A BUSINESS MODEL TO IMPORT THE SKD KITS OF THE CARS, ASSEMBLE IT AND SELL IT IN THE MARKET, THAT IS CERTAINLY NOT THE BUSINESS MODELS OF THE COMPARABLES THAT THE TPO HAS ADOPTED IN THIS CASE. THE ADJUSTMENTS THEN ARE REQUIRED TO BE MADE FOR FUNCTI ONALLY DIFFERENCES. THE OTHER WAY OF LOOKING AT THE PRESENT SITUATION IS TO ACCEPT THAT BUSINESS MODEL OF THE ASSESSEE COMPANY AND THE COMPARABLE COMPANIES ARE THE SAME AND IT IS ON ACCOUNT OF INITIAL STAGES OF BUSINESS THAT THE UNUSUALLY HIGH COSTS ARE IN CURRED. THE ADJUSTMENTS ARE THUS REQUIRED EITHER WAY. IT IS, THEREFORE, PERMISSIBLE IN PRINCIPLE TO MAKE ADJUSTMENTS IN THE COSTS AND PROFITS IN FIT CASES. WE ALSO DO NOT AGREE WITH THE AUTHORITIES BELOW THAT THE ONUS IS ON THE ASSESSEE TO GET ALL SUCH DET AILS OF THE COMPARABLE CONCERNS SO AS TO MAKE THIS COMPARISON POSSIBLE. THE ASSESSEE CANNOT BE EXPECTED TO GET THE DETAILS AND PARTICULARS WHICH ARE NOT IN PUBLIC DOMAIN. IN SUCH A SITUATION, I.E. WHEN INFORMATION AVAILABLE IN PUBLIC DOMAIN IS NOT SUFFICIE NT TO MAKE THESE COMPARISONS POSSIBLE, IT IS INEVITABLE THAT SOME APPROXIMATIONS ARE TO BE MADE AND REASONABLE ASSUMPTIONS ARE TO BE MADE. THE ARGUMENT BEFORE US WAS THAT IT WAS FIRST YEAR OF ASSESSEES OPERATIONS AND COMPLETE FACILITIES ENSURING A REASONA BLE INDIGENOUS RAW MATERIAL CONTENT WAS NOT IN PLACE. THE ASSESSEE S CLAIM IS THAT IT WAS IN THESE CIRCUMSTANCES THAT THE ASSESSEE HAD TO SELL THE CARS WITH SUCH HIGH IMPORT CONTENTS, AND ESSENTIALLY HIGH COSTS, WHILE THE NORMAL SELLING PRICE OF THE CAR W AS COMPU TED IN THE LIGHT OF THE COSTS AS WOULD APPLY WHEN THE COMPLETE FACILITIES OF REGULAR PRODUCTION ARE IN PLACE. NONE OF THESE ARGUMENTS WERE BEFORE ANY OF THE AUTHORITIES BELOW. WHAT WAS ARGUED BEFORE THE AO WAS MERE FACT OF 8 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT HIGHER COSTS ON ACCOUNT O F HIGHER IMPORT DUTY BUT THEN THIS ARGUMENT PROCEEDED ON THE FALLACY THAT AN OPERATING PROFIT MARGIN FOR HIGHER IMPORT DUTY IS PERMISSIBLE MERELY BECAUSE THE HIGHER COSTS ARE INCURRED FOR THE INPUTS. THAT ARGUMENT HAS BEEN REJECTED BY A CO - ORDINATE BENCH A ND WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEWS OF OUR ESTEEMED COLLEAGUES. THIS ADDITIONAL ARGUMENT WAS NOT AVAILABLE BEFORE THE AUTHORITIES BELOW AND IT WILL INDEED BE UNFAIR FOR US TO ADJUDICATE ON THIS FACTUAL ASPECT WITHOUT ALLOWING THE TPO TO EXAMI NE ALL THE RELATED RELEVANT FACTS. WE, THEREFORE, DEEM IT FIT AND PROPER TO REMIT THIS MATTER TO THE FILE OF THE TPO FOR FRESH ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSE R VATIONS. WE ARE OF THE VIEW THAT THE SAID GUIDELINES BY WAY OF DECISION OF THE BENC H OF TRIBUNAL IN THE CASE OF SKODA AUTO INDIA (P.) LTD. WAS AVAILABLE TO REVENUE AUTHORITIES, THEREFORE, WE ARE OF THE VIEW THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF TPO WITH THE DIRECTION TO ELIMINATE THE DIFFERENCE , IF ANY . H OWEVER, TPO/AO/DRP SHALL SEE TO IT WHETHER THE DIFFERENCES IN QUESTION IS LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET AS ENVISAGED IN SUB - RULE 3 OF RULE 10B OF INCOME TA X RULE 1962. THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE ON THIS GROUND. . 4. SECOND GROUND: - THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE UPS @ 60%, TAKING IT AS PART OF COMPUTER . THE ASSESSEE SUBMITTED THAT THE UPS SYSTEM FORM PART OF THEIR SERVER AND IT IS NOT STAND ALONE AND ACCORDINGLY REQUESTED TO ALLOW THE DEPRECIATION AS CLAIMED BY IT. THE AO HELD THAT UPS IS NOT AN INTEGRAL PART OF THE COMPUTER, THEREFORE HIGHER RATE OF D EPRECIATION CANNOT BE ALLOWED. 4.1. THE MATTER CARRIED TO DRP AND DRP HAS UPHELD THE ACTION OF THE AO. 4.2. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE UPS SYSTEM IS DESIGNE D SP ECIAL FOR COMPUTERS FOR BOTH LOW AND HIGH USERS AND IT FORMS PART OF ENTIRE INFORMATION TECHNOLOGY INFRASTRUCTURE OF THE COMPANY. THE UPS IS ENTITLED FOR DEPRECIATION @ 60% AS HELD IN DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. B SES RAJ DHANI POWERS LTD., IN ITA NO. 1266 /2010. WE FIND THAT ISSUE IN CONTROVERSY IS 9 . ITA NO. 107/PNJ/2012(A.Y.2008 - 09 ) PUTZMEISTER CONCRETE MACHINES PVT . LTD. VS. DCIT COVERED BY THE DECISION OF DELHI HIGH COURT AND W E ARE OF THE VIEW THAT ASSESSEE COMPANY IS ELIGIBLE FOR DEPRECIATION @ 60% ON UPS. THE APPEAL IS ALLOWED ON THIS GROUND. 5. IN THE RESULT, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSE AND GROUND NO.2 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 8 .08 .2014. S D / - S D / - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANA JI / GOA DATED : 0 8 . 0 8 .2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER