M/s. Perfetti Van Melle India Pvt. Ltd., Gurgaon V. DCIT, Gurgaon

ITA 1073/DEL/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3202 (ITAT-DELHI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 22-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: PARTH S
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.1073/DEL/2017 ASSESSMENT YEAR : 2012-13 PERFETTI VAN MELLE INDIA PVT. LTD., 47 TH MILESTONE, DELHI-JAIPUR HIGHWAY, MANESAR, GURGAON. ]PAN: AAACP2626A VS. DCIT, CIRCLE-3, GURGAON. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESWAR RAO, SHRI SANDEEP KARHAIL & SHRI PARTH, ADVOCATES DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR & SHRI NEERAJ KUMAR, SR. DR DATE OF HEARING : 22.05.2017 DATE OF PRONOUNCEMENT : 24.05.2017 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (A O) ON 30.01.2017 ITA NO.1073/DEL/2017 2 U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2012-13. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS THE ADD ITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.308,19,55,684/- M ADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVERTISING, MARKETING AND PR OMOTION (AMP) EXPENSES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A SUBSIDIARY OF PVM AND STARTED ITS OPERATIONS IN 199 4. IT IS ENGAGED IN MANUFACTURING A VARIETY OF CONFECTIONARY PRODUCTS F ROM ITS FACTORIES IN TAMIL NADU, HARYANA AND UTTARAKHAND. THE ASSESSEE S PRODUCTS INCLUDE BIG BABOOL, ALPENLIEBE, CENTRE FRESH, CENTRE FRUIT, ETC. THESE BRANDS ARE OWNED BY THE ASSOCIATED ENTERPRISES (AE) OF THE ASS ESSEE AND ARE LICENSED TO IT. DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE REPORTED CERTAIN INTERNATIONAL TRANSACTIONS IN FORM NO.3CEB. ON A REFERENCE MADE BY THE AO FOR THE DETERMINATION OF THE ARMS L ENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS, THE TRANSFER PRICIN G OFFICER (TPO) ITA NO.1073/DEL/2017 3 OBSERVED THAT THE ASSESSEE INCURRED AMP EXPENSES AM OUNTING TO RS.223.05 CRORE AND ALSO PAID ROYALTY OF RS.24.50 C RORE TO ITS AE AT VARYING RATES DEPENDING ON THE PRODUCTS. CONSIDERI NG THE AGREEMENT BETWEEN THE ASSESSEE AND ITS AE, THE TPO NOTICED TH AT PARA 3 OF IT PROVIDES FOR EXTENSIVE SUPPORT IN MARKETING ACTIVIT Y BY THE AE THROUGH ITS SPECIALIZED BRAND TEAMS. PARA 10 OF THE AGREEM ENT WAS FOUND TO ENTITLE THE ASSESSEE FOR COMPENSATION IN LIEU OF AD VERTISING EXPENSES, BUT, NOT ON THE TERMINATION OF THE AGREEMENT. CONSIDERI NG ALL THESE FACTS, THE ASSESSING OFFICER CAME TO HOLD THAT THE ASSESSEE IN CURRED AMP EXPENSES FOR PROMOTING THE BRAND/TRADE NAME WHICH WAS OWNED BY ITS AE AND, HENCE, THE SAME CONSTITUTED AN INTERNATIONAL TRANSA CTION. APPLYING THE BRIGHT LINE TEST, THE TPO DETERMINED THE AMOUNT OF ROUTINE ADVERTISING, MARKETING AND PROMOTIONAL EXPENSES AND PROPOSED TRA NSFER PRICING ADJUSTMENT ON PROTECTIVE BASIS FOR A SUM OF RS.298, 84,99,682/-. IN COMPUTING THE ABOVE AMOUNT OF TRANSFER PRICING ADJU STMENT, THE TPO APPLIED MARK-UP OF 38.27%, BEING THE GROSS PROFIT R ATE OF THE ASSESSEE ITSELF. THEREAFTER, HE PROCEEDED TO WORK OUT THE TR ANSFER PRICING ADJUSTMENT TOWARDS AMP EXPENSES ON SUBSTANTIVE BASI S BY USING COST ITA NO.1073/DEL/2017 4 PLUS METHOD TAKING THE AMOUNT OF AMP EXPENSES AT RS .122.72 CRORE, AFTER REDUCTION OF SELLING EXPENSES FROM THE TOTAL AMP EXPENSES. HERE AGAIN, HE APPLIED MARK-UP OF 38.27%, BEING THE GROS S PROFIT RATE OF THE ASSESSEE ITSELF AND CONSEQUENTLY, COMPUTED THE AMOU NT OF TRANSFER PRICING ADJUSTMENT AT RS.169.69 CRORE. THE DRAFT O RDER WAS PASSED BY THE ASSESSING OFFICER ON 30.03.2016 MAKING ADDITION , INTER ALIA , ON ACCOUNT OF TP ADJUSTMENT AMOUNTING TO RS.169.69 CRO RE. THE ASSESSEE ASSAILED THE DRAFT ORDER BEFORE THE DISPUTE RESOLUT ION PANEL (DRP). THE DRP PRIMARILY APPROVED THE ACTION OF THE TPO IN MAK ING THE SUBSTANTIVE AND PROTECTIVE TP ADJUSTMENTS, INTER ALIA , BY HOLDING THAT THERE WAS AN INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS AE ON ACCOUNT OF AMP EXPENSES. IN VIEW OF THE FACT THAT THE DEPARTME NT HAS NOT ACCEPTED THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS INDIA (P) LTD. VS. CIT (2015) 374 IT R 118 (DEL), DIRECTING THE EXCLUSION OF SELLING EXPENSES FROM TH E TOTAL AMP EXPENSES, THE DRP HELD THAT THE SELLING EXPENSES EXCLUDED BY THE TPO OUGHT TO HAVE BEEN INCLUDED FOR CALCULATING THE ALP OF AMP E XPENSES. WITHOUT PREJUDICE TO ITS FINDINGS UPHOLDING THE ACTION OF T HE TPO, THE DRP HELD ITA NO.1073/DEL/2017 5 THAT IF THE TP ADJUSTMENT IS NOT APPROVED BY THE HI GHER JUDICIAL FORUMS, THEN, THE AMP INTENSITY ADJUSTMENT SHOULD BE MADE. FOR DOING THIS, THE DRP LAID DOWN A MECHANISM, AS HAS BEEN DISCUSSED AT PAGES 65 ONWARDS OF ITS DIRECTION, TO BE FOLLOWED BY THE TPO FOR MAK ING AMP INTENSITY ADJUSTMENT IN THE PROFIT RATE OF COMPARABLES. THE TPO, VIDE ITS ORDER DATED 25.01.2017, GIVING EFFECT TO THE DIRECTIONS I SSUED BY THE DRP, WORKED OUT TRANSFER PRICING ADJUSTMENT ON PROTECTIV E BASIS, BY APPLYING THE BRIGHT LINE TEST, AT RS.298.84 CRORE; AND TRANS FER PRICING ADJUSTMENT ON SUBSTANTIVE BASIS AT RS.308.19 CRORE BY APPLYING COST PLUS METHOD AND WITHOUT EXCLUDING THE SELLING EXPENSES. HOWEVE R, IT WAS FOUND BY HIM THAT NO ADJUSTMENT WAS REQUIRED BY USING AMP IN TENSITY AS DIRECTED BY THE DRP IN VIEW OF THE FACT THAT THE OPERATING M ARGIN EARNED BY THE ASSESSEE WAS HIGHER THAN THE AVERAGE MARGIN OF COMP ARABLES, AFTER USING AMP INTENSITY. THE ASSESSING OFFICER, IN HIS FINAL ORDER, MADE AN ADDITION OF RS.308.19 CRORE WHICH WAS PROPOSED BY T HE TPO ON SUBSTANTIVE BASIS. THE ASSESSEE IS AGGRIEVED AGAINS T THIS ADDITION. ITA NO.1073/DEL/2017 6 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR CONTENDED THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AT ALL AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRIC E OF THIS TRANSACTION OR MAKING ANY ADDITION THEREON. HE RELIED ON THE J UDGMENTS OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 129 DTR 25 (DEL) AND CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 DEL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. IN THE LIGHT OF THESE JUDGMENTS AND SOME OTHER TRIBUNAL ORDERS, IT WAS SU BMITTED THAT THERE WAS NO INTERNATIONAL TRANSACTION OF AMP EXPENSES ON THE BASIS OF PRINCIPLES LAID DOWN IN THESE JUDGMENTS AND, HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, CONSEQUENTLY, MAKING TR ANSFER PRICING ADJUSTMENT, BE SET ASIDE. 5. AU CONTRAIRE , THE LD. DR, RELIED ON THE JUDGMENT OF THE HONBL E DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE ITA NO.1073/DEL/2017 7 BEEN HELD TO BE AN INTERNATIONAL TRANSACTION AND TH E MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. HE ALSO RELIED ON A LATER JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSE IS AN INTERNATIONAL TRANSACTION HAS BEEN RESTORED FOR A FRESH DETERMINA TION. IT WAS ARGUED, THAT THE JUDGMENT IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON (FOR AY 2010-11) DELIVERED IN JANUARY, 2016 IS LATER IN POINT OF TI ME TO THE EARLIER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL, ETC. AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FRESH DE TERMINATION. IT WAS FURTHER SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS A NON-INTERNATIONAL TRANSACTION. HE STATED THAT THE HONBLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PROPERLY WEIGHED FOR ASCERTAINING IF AN INTERNATION AL TRANSACTION OF AMP EXPENSE, EXISTS. IT WAS ARGUED THAT THE TRIBUNAL I N SEVERAL CASES, INCLUDING THE ASSESSEES OWN CASE, HAS RESTORED THI S ISSUE TO THE FILE OF ITA NO.1073/DEL/2017 8 TPO TO BE DECIDED AFRESH IN THE LIGHT OF THE JUDGME NT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) AND OTHERS . HE ALSO RELIED ON ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DEL HI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EX PENSE IS AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. HE STILL FURTHER REFERRED TO THE THREE LATER JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . THE LD. DR ARGUED THAT THE HONBLE DELHI HIGH COU RT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION. IT WAS ARGUED THE MATTE R SHOULD BE RESTORED FOR A FRESH DETERMINATION. ITA NO.1073/DEL/2017 9 6. WE FIND THAT WHEN THE TPO HELD AMP EXPENSES T O BE AN INTERNATIONAL TRANSACTION, HE HAD THE BENEFIT OF ON LY SOME OF JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT. NOW, SEVE RAL OTHER JUDGMENTS ON THE ISSUE, INCLUDING THOSE WHICH HAVE BEEN DELIV ERED AFTER THE PASSING OF THE ORDER BY THE TPO, ARE AVAILABLE FOR CONSIDER ATION. AS THE ENTIRETY OF THE JUDICIAL POSITION AS LAID DOWN BY THE HONBL E HIGH COURT IS NOW REQUIRED TO BE APPLIED TO THE FACTUAL POSITION PREV AILING IN THIS CASE, WE DIRECT THAT A FRESH DETERMINATION OF THE ALP OF AMP EXPENSE BE DONE AT THE END OF THE TPO/AO. 7. IT HAS BEEN BROUGHT TO OUR NOTICE THAT SIMILA R ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2011-12. VID E ITS ORDER DATED 28.04.2017 IN ITA NO.789/DEL/2016, THE TRIBUNAL HAS RESTORED SUCH MATTER TO THE FILE OF TPO/A.O. FOR A FRESH CONSIDER ATION. IT HAS ALSO BEEN INFORMED THAT SIMILAR VIEW HAS BEEN TAKEN BY THE TR IBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER TWO ASSESSMENT YEARS AS WE LL. ITA NO.1073/DEL/2017 10 8. DESPITE THE ABOVE CONSISTENT POSITION SETTLED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING T HREE ASSESSMENT YEARS RESTORING THE MATTER TO THE TPO/AO FOR A FRES H DETERMINATION, THE LD. AR ARGUED THAT THE MATTER BE DECIDED BY THE TR IBUNAL ITSELF AS, IN HIS OPINION, THERE WERE CERTAIN DISTINGUISHING FEATURES PREVALENT FOR THIS YEAR VIS-A-VIS THE PRECEDING YEARS. 9. THE FIRST SUCH ISSUE BROUGHT TO OUR NOTICE BY TH E LD. AR IS THE VIEW CANVASSED BY THE DRP ON AMP INTENSITY ADJUSTMENT. THE LD. AR ARGUED THAT IN NONE OF THE EARLIER YEARS, THE DRP DIRECTED TO CARRY OUT AMP INTENSITY ADJUSTMENT TO THE FINANCIALS OF THE COMPA RABLES FOR DETERMINING THE OVERALL APPLICATION OF THE TNMM. 10. IT IS TRUE THAT THE ISSUE OF AMP INTENSITY ADJU STMENT HAS BEEN CONSIDERED BY THE DRP, AS AN ALTERNATE, FOR THE FIR ST TIME IN THE PROCEEDINGS FOR THE INSTANT YEAR WHICH WAS NOT THER E IN EARLIER YEARS. HOWEVER, THE PERTINENT FACT TO BE NOTED IS THAT THE TPO, WHILE GIVING EFFECT TO THE DRPS DIRECTION, CAME TO HOLD THAT EV EN AFTER APPLYING AMP INTENSITY ADJUSTMENT, THE OPERATING PROFIT MARG IN EARNED BY THE ITA NO.1073/DEL/2017 11 ASSESSEE DURING THE YEAR IS HIGHER THAN THE AVERAGE MARGIN OF COMPARABLE COMPANIES. THAT IS THE REASON THAT THE TPO HELD TH AT NO ADJUSTMENT ON ACCOUNT OF AMP INTENSITY IS CALLED FOR. IN THIS VIE W OF THE MATTER, IT BECOMES OBVIOUS THAT NO ADDITION BY APPLYING AMP IN TENSITY ADJUSTMENT HAS BEEN EVENTUALLY MADE IN THE IMPUGNED ORDER. WI THOUT GOING INTO THE MERITS OF THE DECISION OF THE DRP ON THIS ISSUE, WE FIND THAT THE SAME HAS NO IMPACT IN THE PROCEEDINGS FOR THE YEAR UNDER CON SIDERATION. THIS CONTENTION OF THE LD. AR, ERGO, FAILS. 11. THE OTHER POINT URGED BY THE LD. AR IMPRESSING UPON US TO DECIDE THIS ISSUE AT OUR END WAS THAT THE TPO PASSED ORDER ON 28.01.2006 IN WHICH HE CONSIDERED CERTAIN HIGH COURT JUDGMENTS ON THE POINT. ONCE SUCH JUDGMENTS WERE TAKEN INTO CONSIDERATION, THE L D. AR ARGUED THAT THERE WAS NO POINT IN AGAIN DIRECTING THE TPO TO CO NSIDER THE EFFECT OF THE JUDGMENTS DELIVERED BY THE HON'BLE HIGH COURT O N THE POINT. THE ARGUMENT PUT FORTH ON BEHALF OF THE ASSESSEE IN THI S REGARD IS PARTLY CORRECT. IT IS SEEN THAT THOUGH THE TPO HAS REFERR ED TO CERTAIN RULINGS OF THE HON'BLE JURISDICTIONAL HIGH COURT ON THE POINT IN COMING TO THE ITA NO.1073/DEL/2017 12 CONCLUSION THAT THERE WAS A SEPARATE INTERNATIONAL TRANSACTION, YET, THERE ARE CERTAIN OTHER IMPORTANT JUDGMENTS OF THE HON'BL E HIGH COURT, DELIVERED AFTER THE PASSING OF THE ORDER BY THE TPO , WHICH COULD NOT BE CONSIDERED, AS THOSE WERE NOT IN EXISTENCE AT THAT POINT OF TIME. IN THIS REGARD, IT IS NOTED THAT THERE ARE AT LEAST THREE L ATER JUDGMENTS OF THE HONBLE DELHI HIGH COURT, REFERRED TO ABOVE, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN R ESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . THE CONTENTION OF THE LD. AR, CLAIMING DEPARTURE FROM THE EARLIER YEARS O N THIS SCORE, IS NOT TENABLE. 12. IN THE LIGHT OF THE NON-SUSTAINABILITY OF TH E OBJECTIONS TAKEN BY THE LD. AR AND FOLLOWING THE CONSISTENT VIEW TAKEN BY T HE TRIBUNAL IN THE PRECEDING THREE YEARS OF THE ASSESSEE, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF TPO/AO FOR A FR ESH DETERMINATION OF ITA NO.1073/DEL/2017 13 THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNAT IONAL TRANSACTION OF AMP EXPENSES. IF THE EXISTENCE OF SUCH AN INTERNAT IONAL TRANSACTION IS NOT PROVED, THE MATTER WILL END THERE AND THEN, CAL LING FOR NO TRANSFER PRICING ADDITION. IF, ON THE OTHER HAND, THE INTERN ATIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO WILL DETERMINE T HE ALP OF SUCH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF THE RELEV ANT JUDICIAL POSITION, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 13. WE WANT TO CLARIFY THAT IF A SITUATION FOR D ETERMINING THE ALP OF AMP EXPENSES ARISES, THEN NO TRANSFER PRICING ADJUS TMENT SHOULD BE MADE BY APPLYING THE BRIGHT LINE TEST, AS HAS BEEN DONE ON PROTECTIVE BASIS, BECAUSE THE HONBLE HIGH COURT HAS NOT APPRO VED THE APPLICATION OF THE BRIGHT LINE TEST IN SEVERAL DECISIONS. 14. IN CASE, THE FACTS AND CIRCUMSTANCES JUSTIF Y THE APPLICATION OF COST PLUS METHOD, AS HAS BEEN APPLIED BY THE TPO ON SUBS TANTIVE BASIS, THEN THE FOLLOWING TWO INCONSISTENCIES SHOULD NOT BE REP EATED. FIRSTLY, THE TPO HAS INCLUDED SELLING EXPENSES IN THE AMBIT OF T HE OVERALL AMP EXPENSES, ALBEIT, AT THE INSTANCE OF THE DRP, FOR W ORKING OUT THE TP ITA NO.1073/DEL/2017 14 ADJUSTMENT. THE HON'BLE JURISDICTIONAL HIGH COURT HAS CONSISTENTLY HELD THAT THE SELLING EXPENSES INCURRED BY THE ASSESSEE CANNOT BE INCLUDED IN THE AMBIT OF AMP EXPENSES. THERE IS NOT EVEN A SING LE ORDER IN WHICH THE SELLING EXPENSES HAVE BEEN DIRECTED TO BE INCLU DED IN THE OVERALL AMP EXPENSES. SIMPLY BECAUSE THE DEPARTMENT HAS NO T ACCEPTED THE JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT AND SLPS HAVE BEEN ADMITTED, THE BINDING NATURE OF SUCH JUDGMENTS IS N OT MITIGATED IN ANY MANNER. UNLESS THE HON'BLE SUPREME COURT REVERSES THE JUDGMENT OF ANY HIGH COURT, THE SAME HOLDS THE FIELD AND REMAIN S BINDING ON ALL THE AUTHORITIES WORKING UNDER ITS JURISDICTION. WE, TH EREFORE, HOLD THAT SELLING EXPENSES ARE LIABLE TO BE EXCLUDED FROM THE AMP EXPENSES AS WAS INITIALLY DONE BY THE TPO. 15. SECONDLY, THE TPO HAS APPLIED MARK-UP OF 38. 27% FOR COMPUTING THE AMOUNT OF TRANSFER PRICING ADJUSTMENT, WHICH IS THE ASSESSEES OWN GROSS PROFIT RATE TO SALES. APPLICATION OF THE ASS ESSEES OWN GROSS PROFIT RATE IS NOT CONTEMPLATED UNDER THE COST PLUS METHOD AS IS EVIDENT FROM ITA NO.1073/DEL/2017 15 RULE 10B(1)(C) WHICH CONTAINS THE MODUS OPERANDI FO R DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION, READING AS UND ER:- `(C) COST PLUS METHOD, BY WHICH, (I) THE DIRECT AND INDIRECT COSTS OF PRODUCTION IN CURRED BY THE ENTERPRISE IN RESPECT OF PROPERTY TRANSFERRED OR SE RVICES PROVIDED TO AN ASSOCIATED ENTERPRISE, ARE DETERMINED ; (II) THE AMOUNT OF A NORMAL GROSS PROFIT MARK-UP T O SUCH COSTS (COMPUTED ACCORDING TO THE SAME ACCOUNTING NORMS) A RISING FROM THE TRANSFER OR PROVISION OF THE SAME OR SIMILAR PR OPERTY OR SERVICES BY THE ENTERPRISE, OR BY AN UNRELATED ENTERPRISE, I N A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANS ACTIONS, IS DETERMINED ; (III) THE NORMAL GROSS PROFIT MARK-UP REFERRED TO IN SUB-CLAUSE (II) IS ADJUSTED TO TAKE INTO ACCOUNT THE FUNCTIONAL AND OT HER DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND T HE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRIS ES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT SU CH PROFIT MARK- UP IN THE OPEN MARKET ; (IV) THE COSTS REFERRED TO IN SUB-CLAUSE (I) ARE I NCREASED BY THE ADJUSTED PROFIT MARK-UP ARRIVED AT UNDER SUB-CLAUSE (III) ; (V) THE SUM SO ARRIVED AT IS TAKEN TO BE AN ARMS LENGTH PRICE IN RELATION TO THE SUPPLY OF THE PROPERTY OR PROVISION OF SERVICES BY THE ENTERPRISE ; 16. A BARE PERUSAL OF THE MANDATE OF RULE 10B(1) (C) POSTULATES UNDER SUB-CLAUSE (II) THAT: THE AMOUNT OF A NORMAL GROS S PROFIT MARK-UP TO ITA NO.1073/DEL/2017 16 SUCH COSTS ... IN A COMPARABLE UNCONTROLLED TRANSA CTION IS DETERMINED. SUCH GROSS PROFIT MARK-UP OF COMPARABL E UNCONTROLLED TRANSACTIONS IS ADJUSTED UNDER SUB-CLAUSE (III) TO TAKE INTO ACCOUNT THE FUNCTIONAL AND OTHER DIFFERENCES, IF ANY, BETWEEN T HE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSAC TIONS. THUS, IT IS VIVID THAT IT IS THE ADJUSTED GROSS PROFIT MARK UP OF THE COMPARABLES WHICH IS APPLIED TO THE DIRECT AND INDIRECT COST IN CURRED BY THE ASSESSEE IN RESPECT OF INTERNATIONAL TRANSACTION, FOR DETERM INING THE ALP UNDER COST PLUS METHOD AND THERE IS NO MANDATE FOR CONSID ERING THE ASSESSEES OWN GROSS PROFIT RATE FOR THIS PURPOSE. WE, THEREF ORE, DO NOT COUNTENANCE THE WORKING DONE BY THE TPO IN THIS REG ARD. 17. TO SUM UP, THE IMPUGNED ORDER ON THIS SCORE IS SET ASIDE AND THE MATTER IS SENT BACK TO THE TPO/AO FOR A FRESH DETER MINATION OF THE ALP OF AMP EXPENSES, IF WARRANTED, IN THE INSTANT CASE IN THE LIGHT OF THE DETAILED DISCUSSION MADE ABOVE. 18. THE ONLY OTHER GROUND RAISED IN THIS APPEAL IS AGAINST THE DENIAL OF DEDUCTION U/S 80IC OF THE ACT. ITA NO.1073/DEL/2017 17 19. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE TH AT THE ASSESSEE CLAIMED DEDUCTION U/S 80IC AMOUNTING TO RS.132.95 CRORE. T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTIO N U/S 80IC TO THE EXTENT OF RS.132.95 CRORE AS AGAINST THE TOTAL INCO ME FROM BUSINESS AND PROFESSION TO THE TUNE OF RS.42.63 CRORE. IT WAS NOTICED THAT THE ASSESSEE HAD NOT MAINTAINED BOOKS OF ACCOUNT IN A PROPER MAN NER. THE AO NOTICED THAT THE ASSESSEE DECLARED HUGE PROFIT FROM THE ELIGIBLE UNIT AT RUDRAPUR AS AGAINST THE LOSSES IN THE NON-ELIGIBLE UNITS AT MANESAR AND CHENNAI. AS AGAINST THE PROFIT OF 8.51% IN THE ELI GIBLE UNIT, THE ASSESSEE HAD SHOWN LOSSES IN THE NON-ELIGIBLE UNITS AT 0.66% AND 18.49%. THE ASSESSING OFFICER DREW A CHART OF PROFITS EARNED B Y THE NON-ELIGIBLE UNITS IN EARLIER YEARS WHEN THE BENEFIT OF SECTION 80IC WAS NOT AVAILABLE. HE, THEREFORE, OPINED THAT THE ASSESSEE NEEDLESSLY SHIFTED ITS PROFIT FROM CHENNAI AND MANESAR UNITS TO UTTARAKHAND UNIT AND, HENCE, THE CLAIM OF DEDUCTION U/S 80IC WAS NOT ELIGIBLE. WITHOUT PREJU DICE TO THE ABOVE, THE ASSESSING OFFICER HELD THAT THE CLAIM OF THE ASSESS EE WAS EXCESSIVE. HE AGGREGATED INCOME FROM ALL THE THREE UNITS AT RS.4 2.63 CRORE AND APPORTIONED IT TO THE RUDRAPUR UNIT IN THE RATIO OF ITS TURNOVER TO THE TOTAL ITA NO.1073/DEL/2017 18 TURNOVER FROM ALL THE THREE UNITS. IN THIS WAY, IN COME PERTAINING TO THE RUDRAPUR UNIT ON THE BASIS OF THE TURNOVER WAS DETE RMINED AT RS.24.78 CRORE. THE AO ALSO OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IC IN RESPECT OF ITEMS OF INCOME FALLING UNDE R THE HEAD INCOME FROM OTHER SOURCES. HE HELD THAT NO DEDUCTION WAS ALLOWABLE IN RESPECT OF SUCH ITEMS OF INCOME. IN THE ULTIMATE CONCLUSION , HE REFUSED TO GRANT ANY DEDUCTION U/S 80IC OF THE ACT, AGAINST WHICH TH E ASSESSEE HAS COME UP IN APPEAL BEFORE US. 20. WE HAVE HEARD THE PARTIES AND PERUSED THE RELEV ANT MATERIAL ON RECORD. IT IS PALPABLE THAT THE ONLY ISSUE UNDER C ONSIDERATION FOR THIS YEAR IS THE QUANTIFICATION OF INCOME FOR THE PURPOSE OF GRANTING DEDUCTION U/S 80-IC. THE ELIGIBILITY CONDITION IS NOT DISPUTED A S IS APPARENT FROM PARA 5.1 OF THE FINAL ORDER, IN WHICH THE AO CONSIDERED GRANTING OF DEDUCTION U/S 80IC(A)(2). 21. IT IS OBSERVED THAT THE CLAIM OF DEDUCTION U/ S 80IC CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2011-12 AS WE LL. THE BENCH ITA NO.1073/DEL/2017 19 RECORDED THAT THE AO NOTICED FOR SUCH PRECEDING YEA R ALSO THAT THE ASSESSEE DECLARED PROFIT @ 19.75% FROM THE RUDRAPUR UNIT AND LOSS OF 11.62% FROM MANESAR UNIT AND 9.68% FROM CHENNAI UNI T. THE ASSESSING OFFICER DID NOT ALLOW DEDUCTION ON THE SI MILAR FACTS AS ARE PREVALENT IN THE INSTANT YEAR. APART FROM THAT, TH E ASSESSING OFFICER ALSO DISPUTED THE ELIGIBILITY CLAIM OF THE ASSESSEE ON A CCOUNT OF THE COMPUTATION OF DEDUCTION U/S 80IC(2)(A). THE TRIBU NAL VIDE PARA 8.2 OF ITS ORDER HELD THAT: THE ASSESSING OFFICER HAS ONL Y DISALLOWED THIS CLAIM AS THE ASSESSEE WAS NOT INVOLVED IN MANUFACTURE OF ANY ITEM COVERED BY SCHEDULE XIV, WHEREAS THE ASSESSEE HAS REFERRED SCH EDULE XIII AND SUBMITTED THAT IT IS NOT CONSIDERED. THEREAFTER, THE TRIBUNAL FOUND THAT THE ASSESSEES ADDRESS WAS NOT PROPERLY VERIFIED. THE MATTER HAS BEEN SENT BACK FOR EXAMINATION AS TO THE APPLICABILITY O F SCHEDULE XII. THOUGH THE ISSUE OF QUANTIFICATION WAS THERE BEFOR E THE TRIBUNAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AS HAS BEEN D ISCUSSED IN PARAS 3 AND 4 OF ITS ORDER, BUT, INADVERTENTLY, THE FINDING HAS BEEN TENDERED ONLY ON THE ELIGIBILITY CONDITION AND NOT THE QUANTIFIC ATION ASPECT. THE LD. DR PLACED ON RECORD A COPY OF HIS LETTER DATED 05.0 5.2017 WRITTEN TO THE ITA NO.1073/DEL/2017 20 PRINCIPAL CIT, PROPOSING TO FILE A MISCELLANEOUS A PPLICATION FOR THE RECALL OF THE TRIBUNAL ORDER FOR ASSESSMENT YEAR 20 11-12 ON THIS COUNT. THOUGH THE FILING OF THE MISCELLANEOUS APPLICATION IS IN PROCESS, WHAT IS EMPHATICALLY CLEAR IS THAT THE ISSUE OF QUANTIFICAT ION OF DEDUCTION WAS VERY MUCH THERE IN THE PRECEDING YEAR AS WELL. IT I S FOUND THAT THE SAME ISSUE WAS THERE BEFORE THE TRIBUNAL FOR THE A.Y. 20 09-10 AS WELL. THE TRIBUNAL, IN ITA NO.892/DEL/2017, HAS FOLLOWED THE TRIBUNAL ORDER FOR ASSESSMENT YEAR 2011-12 AND MADE RESTORATION ON THE SAME TERMS. THE LD. DR SUBMITTED THAT A MISCELLANEOUS APPLICATION W ILL BE FILED AGAINST THIS ORDER AS WELL. IT HAS FURTHER BEEN BROUGHT TO OUR NOTICE THAT THOUGH THE ASSESSING OFFICER ALLOWED DEDUCTION U/S 80IC FO R THE ASSESSMENT YEAR 2010-11, BUT, THE SAID ORDER HAS BEEN REVISED BY THE CIT U/S 263 AND APPEAL AGAINST THE SAME IS PENDING ADJUDICATION BEFORE THE TRIBUNAL. IN VIEW OF THE FOREGOING DISCUSSION, IT IS CLEAR TH AT THE ISSUE OF QUANTIFICATION OF DEDUCTION U/S 80IC HAS NOT ATTAIN ED FINALITY IN AT LEAST THE IMMEDIATELY PRECEDING THREE ASSESSMENT YEARS. IN THE ABSENCE OF ANY DECISION ON SUCH ISSUE FOR THE EARLIER YEARS, IT IS NOT POSSIBLE TO INDEPENDENTLY EVALUATE AND EXAMINE THE ISSUE IN THE INSTANT APPEAL. ITA NO.1073/DEL/2017 21 UNDER THESE CIRCUMSTANCES, WE SET ASIDE THE IMPUGNE D ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF THE ASSES SING OFFICER FOR A DE NOVO DETERMINATION OF THE AMOUNT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 24.05.201 7. SD/- SD/- [SUDHANSHU SRIVASTAVA] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 24 TH MAY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.