M/s. Tatra Vectra Motors Ltd., Bangalore V. DCIT, Bangalore

ITA 1284/BANG/2010

• Counselvise Citation: 128421114 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Assessee Lawyers: ASHUTOSH JAIN
• Keywords: Depreciation; Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.1284/BANG/2010 ASSESSMENT YEAR : 2006-07 M/S. TATRA VECTRA MOTORS LTD., (NOW KNOWN AS KAMAZ VECTRA MOTORS LIMITED), C/O. NANGIA & CO., SUITE-4A, PLAZA M-6, JASOLA, NEW DELHI 110 025. PAN : AAACT 5190R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI ASHUTOSH JAIN, C.A. RESPONDENT BY : SHRI ETWA MUNDA, CIT-III (DR) DATE OF HEARING : 27.12.2011 DATE OF PRONOUNCEMENT : 31.01.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 13.9.2010 PASSED BY THE ASSESSING OFFICER U/S. 143 (3) R.W. SEC. 144C OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S THE ACT IN SHORT]. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL: ITA NO.1284/BANG/10 PAGE 2 OF 15 1. THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW I N DISALLOWING RS.10,67,308 OUT OF ADVERTISEMENT AND S ALES PROMOTION EXPENSES INCURRED BY THE APPELLANT DURING THE RELEVANT ASSESSMENT YEAR ALLEGING THAT THE APPELLANT FAILED TO SUBSTANTIATE THE SAME WITH APPROPRIATE DOCUMENTARY EVIDENCE/ DET AILS. 1.1 THE LD. AO FAILED TO APPRECIATE THAT THE APPEL LANT HAD FURNISHED ALL THE RELEVANT DETAILS / DOCUMENTS IN S UPPORT OF THE ABOVE EXPENDITURE. 2. THAT THE LD. AO HAS ERRED ON FACTS AND IN LAW IN DISALLOWING THE PROVISION FOR WARRANTY OF RS.4,57,9 92 CLAIMED BY THE APPELLANT BY DISREGARDING THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL VIDE THEIR ORDER DATED 27.08.2010 WHEREIN THE ABOVE CLAIM OF THE APPELLANT HAS BEEN DIRECTED TO B E ALLOWED. 3. THAT THE LD. AO HAS ERRED IN MAKING AN ADJUSTME NT OF RS.1,76,56,164 TO THE ARM'S LENGTH PRICE OF THE INT ERNATIONAL TRANSACTIONS BETWEEN THE APPELLANT AND ITS ASSOCIAT ED ENTERPRISE WITHOUT ACCORDING SUFFICIENT OPPORTUNITY OF BEING H EARD TO THE APPELLANT. 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. AO / TPO HAS ERRED IN REJECT COMPARABLES SUBMITTED BY TH E APPELLANT ALLEGING THAT THE APPELLANT HAD FURNISHED COMPARABL E DATA IN RESPECT OF ONLY 36 CKDS OUT OF 120 CKD'S FOR T-163 TRUCKS WITHOUT APPRECIATING THAT THE APPELLANT HAD FURNISH ED THE COMPARABLE DATA IN RESPECT OF ALL THE PURCHASES DUR ING THE YEAR UNDER CONSIDERATION. 3.2 THAT THE AO/TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT THE COMPARABLES SUBMITTED BY THE APPELLANT WERE LIA BLE TO BE REJECTED SINCE THE SAME PERTAINED TO SALES MADE BY THE AE TO OTHER COUNTRIES HAVING DIFFERENT GEOGRAPHICAL AND M ARKET CONDITIONS. 3.3 THAT THE LD. AO / TPO ERRED ON FACTS AND IN LA W IN NOT ACCEPTING THE VALUATION OF GOODS IMPORTED BY THE AP PELLANT AS THE ARM'S LENGTH PRICE HAVING REGARD TO THE FACT THAT T HE SAME WAS ACCEPTED BY THE CUSTOM AUTHORITIES FOR THE PURP OSE OF PAYMENT OF CUSTOM DUTY. 3.4 THAT THE LD. AO / TPO HAVE ERRED ON FACTS AND IN LAW IN NOT ACCORDING TO THE APPELLANT THE BENEFIT OF +/- 5 % IN TERMS OF SECOND PROVISO TO SECTION 92C(2) READ WITH CIRCULAR 12/2001 DATED 23 AUGUST 2001. ITA NO.1284/BANG/10 PAGE 3 OF 15 3.5 THAT THE AO/TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT THE SALARY PAID BY THE APPELLANT DOES NOT FORM PART OF FIXED COST FOR COMPUTING THE DEDUCTION FOR UNDER-UTILIZATION O F CAPACITY DURING THE RELEVANT ASSESSMENT YEAR. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OM IT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL AND/OR THE RELIEF CLAIMED, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE AP PEAL, SO AS TO ENABLE THE LD. ITAT TO DECIDE THIS APPEAL ACCORD ING TO LAW. 3. GROUNDS 1, 1.1 & 3.5 WERE NOT PRESSED, SO THESE ARE DISMISSED AS NOT PRESSED. 4. VIDE GROUND NO.2, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.4,57,992 CLAIMED BY THE ASSESSEE ON ACCOUNT OF PROVISION FOR WARRANTY. 5. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SALE OF DUMPER TRUCKS FOR USE IN MINING, HEAVY CONSTRUCTION, SERVICING OF TRUCKS, SALE OF SP ARE PARTS AND MANUFACTURE AND SALE OF SEATS FOR AUTOMOBILES. THE ASSESSEE FILED THE RETURN OF INCOME ON 30.11.2006 DECLARING A LOSS OF RS.2,81,54,264. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFF ICER REFERRED THE CASE U/S. 92CA OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT] TO THE TRANSFER PRICING OFFICER (TPO) FO R DETERMINING THE ARMS LENGTH PRICE (ALP) IN RELATION TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES (AE S). THE ASSESSEE COMPANY HAS ADOPTED AN AMOUNT OF RS.4,57,992 TOWARD S WARRANTY. THE AO NOTICED THAT IT WAS A PROVISION, BUT THE SAME HA D NOT BEEN ADDED BACK TO THE TOTAL INCOME. ACCORDING TO THE AO, WHEN THE ABOVE FACT WAS BROUGHT TO THE NOTICE OF THE ASSESSEE, IT WAS UNABLE TO SUB STANTIATE THE ABOVE CLAIM ITA NO.1284/BANG/10 PAGE 4 OF 15 WITH DOCUMENT OR EVIDENCE, HE THEREFORE MADE AN ADD ITION OF RS.4,57,992. NOW THE ASSESSEE IS IN APPEAL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS CLAIM WAS ALLOWED BY THE DISPUTE RESOLUTION PANEL (DRP) AND A N APPLICATION DATED 19.10.2010 WAS MOVED BEFORE THE AO U/S. 154 OF THE ACT WHICH IS STILL PENDING. HE REQUESTED THAT A DIRECTION MAY BE GIVE N TO THE AO TO DISPOSE OF THE APPLICATION U/.S 154 OF THE ACT PENDING BEFO RE HIM EXPEDITIOUSLY. 7. THE LD. CIT(DR) DID NOT OBJECT IF A DIRECTION IS GIVEN TO THE AO TO DISPOSE OF THE APPLICATION OF THE ASSESSEE PENDING U/S. 154 OF THE ACT EXPEDITIOUSLY. 8. CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, WE DIRECT THE AO TO DISPOSE OF THE APPLICATION DATED 19.10.2010 OF THE ASSESSEE MOVED U/S. 154 OF THE ACT EXPEDITIOUSLY AFTER CONSIDERING THE DIRECTIONS/OBSERVATIONS DATED 27.8.2010 OF THE DRP, BANGALORE. 9. VIDE GROUND NOS. 3 TO 3.4, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE ADJUSTMENT OF RS.1,76,56,164 TO THE ALP OF THE INTERNATIONAL TRANSACTIONS BETWEEN THE ASSESSEE AND ITS ASSOCIATE D ENTERPRISES (AES). THE TPO PASSED AN ORDER U/S. 92CA OF THE ACT ON 28. 10.2009 PROPOSING ADJUSTMENTS OF RS.2,29,86,949. THE ASSESSEE RAISED VARIOUS OBJECTIONS/ SUBMISSIONS BEFORE THE DRP. IN THE COURSE OF REFER ENCE PROCEEDINGS, THE DRP HAD DIRECTED THE TPO TO CONSIDER THE ASSESSEES SUBMISSIONS OF BEING GIVEN CREDIT OF UNUTILISATION OF CAPACITY WHI LE COMPARING ITS PLI WITH THAT OF COMPARABLES. THE TPO VIDE REPORT DATED 30. 8.2010 WORKED OUT THE NECESSARY ADJUSTMENTS U/S. 92CA OF THE ACT AND ALP OF THE INTERNATIONAL ITA NO.1284/BANG/10 PAGE 5 OF 15 TRANSACTIONS WAS REDETERMINED AT RS.1,76,56,164 (RS .1,76,48,208 FOR RAW MATERIAL AND RS.7,958 FOR SALE PRICE). THE AO MAD E THE SAID ADDITION TO THE INCOME OF THE ASSESSEE. NOW THE ASSESSEE IS IN APPEAL. 10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PURCHASED RAW MATERIAL FOR RS.21.09 CRORES AND ADOP TED TNMM METHOD. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE AS WELL AS THE TPO HAD TAKEN M/S. ASHOK LEYLAND LTD. AND M/S. TATA MOTORS LTD. AS COM PARABLES WHEREIN PBIT/COST WORKED OUT TO 8.55% AND 10.28% RESPECTIVE LY GIVING AN AVERAGE OF 9.42% AS AGAINST THE ASSESSEES OPERATING MARGIN COST WORKED OUT TO 2.58%. IT WAS EXPLAINED THAT THE REASON FOR THE AF ORESAID DIFFERENCE WAS THAT THE ASSESSEE UTILIZED 12.5% CAPACITY AS AGAINS T 84.25% CAPACITY IN THE CASE OF COMPARABLES. IT WAS SUBMITTED THAT THE BENEFIT OF +/- 5% WAS TO BE ALLOWED TO THE ASSESSEE WHICH WAS NOT ALLOWED. IF THAT WAS TO BE ALLOWED, THE PURCHASE TRANSACTIONS WITH AES OF THE ASSESSEE WERE AT ARMS LENGTH PRICE (IN SHORT ALP). IT WAS CONTENDED THAT THE DEDUCTION IN RESPECT OF OPERATING COST WAS BEING GIVEN BY THE AO ONLY FO R COST OF DEPRECIATION, RENT, INSURANCE AND REPAIRS & MAINTENANCE, BUT NO D EDUCTION WAS ALLOWED FOR VARIOUS OTHER COSTS WHICH WERE TREATED AS FIXED COSTS. IT WAS SUBMITTED THAT AS PER PROVISO TO SECTION 92C(2) OF THE ACT, A N OPTION WAS AVAILABLE TO THE ASSESSEE FOR ADJUSTMENT OF +/- 5% VARIATION FOR THE PURPOSES OF COMPUTING ALP. IT WAS FURTHER SUBMITTED THAT THE I SSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER DECISIONS OF THE ITA T IN THE FOLLOWING CASES: (I) SONY INDIA PVT. LTD. V. DCIT 315 ITR (AT) 150 DEL (II) STARNET NETWORKS (INDIA) P. LTD. V. DCIT (ITA NO.1350/PN/2010, ORDER DATED 03.10.2011). ITA NO.1284/BANG/10 PAGE 6 OF 15 11. IN HIS RIVAL SUBMISSIONS, THE LD. CIT(DR) SUBMI TTED THAT INITIALLY THE ASSESSEE DID NOT MENTION IN ITS ECB REPORT AND MERE LY PUT A REMARK NOT ASCERTAINABLE AND ALSO IN ITS TP STUDY FILED BEFOR E THE TPO, THE ASSESSEE NEITHER MENTIONED ANY METHOD TO BE CONSIDERED AS TH E MOST APPROPRIATE METHOD NOR DID IT SHOW HOW THE TRANSACTIONS ENTERED INTO WITH ITS AES WERE AT ARMS LENGTH ONLY, HOWEVER, IN THE SUBMISSIONS DATED 29.1.2009 TNMM HAS BEEN ADOPTED AS THE MOST APPROPRIATE METHOD. I T WAS FURTHER STATED THAT THE ASSESSEE SUBMITTED A NEW TRANSFER PRICING STUDY BEFORE THE DRP AND CONTENDED THAT CUP METHOD (INTERNAL CUP) WAS TH E MOST APPROPRIATE METHOD BY STATING THAT THE ASSESSEE WAS ABLE TO IDE NTIFY RELIABLE INTERNAL CUP WHICH PREVIOUSLY WAS NOT CONSIDERED FOR COMPUTI NG ALP. IT WAS CONTENDED THAT THE TPO IN THE REMAND REPORT REJECTE D THE ASSESSEES CLAIM OF CUP METHOD WHICH CLEARLY SHOWS THAT THE ASSESSEE DID NOT COMPUTE ALP IN ITS TP STUDY, IN FACT, THE TPO COMPUTED THE ALP BY APPLYING TNMM METHOD, THEREFORE NO BENEFIT OF +/- 5% BE GIVEN TO THE ASSESSEE, PARTICULARLY WHEN THE PROVISO TO SECTION 92C(2) HAS BEEN AMENDED W.E.F. 1.10.2009. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF M/S. MARUBENI INDIA PRIVATE LTD. V. ADDL. CIT IN IT A NO.935/DEL/2009. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS (BUT COPIES OF UNREPORTED CASES WERE NOT FURNISHED):- (I) DCTI V. GLOBAL VANTADGE PVT. LTD. (2010-TIOL-24-ITA T- DEL) (II) DCIT V. BASF INDIA LTD. (41 SOT 10) (III) M/S. DELOITTE CONSULTANCY INDIA PVT. LTD. V. DCIT ( ITA NO.1048/HYD/2010) ITA NO.1284/BANG/10 PAGE 7 OF 15 (IV) EXXON MOBIL COMPANY INDIA PVT. LTD. V. DCIT (ITA NO.8311/MUM/2010) (V) ST MICRO ELECTRONICS PVT. LTD. V. CIT(A) (ITA NO.18 06, 1807/DEL/2008) (VI) ADP(P) LTD. V. DCIT, ITA NO.106/HYD/2009 (VII) WRIGLEY INDIA (P) LTD. V. ADDL. CIT, ITA NO.5224/DEL/2010, (2011) 62 DTR (DEL) (TRIB) 201. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT DISPUTED THE ADJUSTMENTS U/S. 92CA OF THE ACT, BUT CHALLENGING THE WORKING OF ALP WITHOUT GIVING B ENEFIT OF THE OPTION AVAILABLE UNDER THE ERSTWHILE PROVISO TO SECTION 92 C(2) OF THE ACT, SO IT BECOMES RELEVANT TO DISCUSS THE PROVISIONS CONTAINE D IN THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT, WHICH WAS INS ERTED BY FINANCE ACT, 2002 W.E.F. 1-4-2002 AND READS AS UNDER: PROVIDED , THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY T HE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHA LL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES, OR, AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETI CAL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PER CENT OF SUCH ARITH METICAL MEAN. 13. FROM THE PLAIN READING OF THE ABOVE PROVISO, IT IS CLEAR THAT THE OPTION IS AVAILABLE TO THE ASSESSEE FOR ADJUSTMENT OF +/- 5% VARIATION FOR THE PURPOSES OF COMPUTING ALP. AS PER THE SAID PROVISO , WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ALP SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES, OR, AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETI CAL MEAN BY AN AMOUNT ITA NO.1284/BANG/10 PAGE 8 OF 15 NOT EXCEEDING FIVE PER CENT OF SUCH ARITHMETICAL ME AN. IN OUR OPINION, THE BENEFIT OF OPTION I.E., ADJUSTMENT OF +/- 5% VARIAT ION, AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT IS AVAILABLE TO THE AS SESSEE. 14. ON A SIMILAR ISSUE, THE ITAT DELHI BENCH IN THE CASE OF SONY INDIA PVT. LTD. V. DCIT (2009) 315 ITR (AT) 150 HAS HELD AS UNDER: THE PROVISO TO SECTION 92C(2) OF THE ACT CONSISTS MAINLY OF TWO PARTS: (A) WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THEN THE ARMS LENGTH PRICE SHA LL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICE; OR (B) AT T HE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETI CAL MEAN BY AN AMOUNT NOT EXCEEDING 5 PER CENT OF SUCH ARITHMET ICAL MEAN. THE FIRST LIMB OF THE PROVISO HAS GENERAL APPLICATI ON. THERE IS NO OPTION WITH NOR ANY SORT OF CONCESSION ALLOWED TO T HE ASSESSEE. THE ARMS LENGTH PRICE SO DETERMINED MAY BE ACCEPTE D OR CONTESTED BY THE ASSESSEE OR BY ANY AGGRIEVED PERSO N IN ACCORDANCE WITH THE STATUTORY PROVISIONS. IT IS A STATUTORY LEVY WITHOUT ANY OPTION. THE SECOND LIMB OF THE PROVISO GIVES AN OPTION TO THE ASSESSEE TO TAKE THE ARMS LENGTH PR ICE WHICH MAY VARY FROM THE ARITHMETIC MEAN BY AN AMOUNT NOT EXCE EDING 5 PER CENT OF SUCH ARITHMETIC MEAN. THE WORD OPTION IS SYNONYMOUS WITH CHOICE OR PREFERENCE. THEREFORE, IT IS TH E CHOICE OF THE ASSESSEE TO TAKE THE ARMS LENGTH PRICE WITH A MARG INAL BENEFIT AND NOT THE ARITHMETICAL MEAN DETERMINED AS THE MOS T APPROPRIATE METHOD. THERE IS NOTHING IN THE LANGUA GE TO RESTRICT THE APPLICATION OF THE PROVISION ONLY TO MARGINAL C ASES WHERE THE PRICE DISCLOSED BY THE ASSESSEE DOES NOT EXCEED 5 P ER CENT OF THE ARITHMETIC MEAN. THE ARMS LENGTH PRICE DETERMINED ON APPLICATION OF THE MOST APPROPRIATE METHOD IS ONLY AN APPROXIMATION AND IS NOT A SCIENTIFIC EVALUATION. THEREFORE, THE LEGISLATURE THOUGHT IT PROPER TO ALLOW MARGINAL BEN EFIT TO ASSESSEES WHO OPT FOR SUCH BENEFIT. IN THE CASE OF AN ASSESSEE WHO EXERCISES THE OPTION AND ACCEPTS THE ARMS LENG TH PRICE EVEN EXCEEDING 5 PER CENT OF THE ARITHMETIC MEAN DETERMI NED BY THE TAX AUTHORITY AS CORRECT AND IS READY TO PAY TAX ON THE DIFFERENCE BETWEEN THE PRICE DISCLOSED BY HIM AND THE ARMS LE NGTH PRICE THE APPLICATION OF THE PROVISO IS NOT EXCLUDED. THE LE GAL POSITION CANNOT BE DIFFERENT IN A CASE WHERE MINOR VARIATION OF 5 PER CENT IS NOT ACCEPTED AND THE ARMS LENGTH PRICE IS FURTH ER CHALLENGED IN APPEAL. THE MERE FACT OF ACCEPTANCE OR NON-ACCE PTANCE OF THE ITA NO.1284/BANG/10 PAGE 9 OF 15 ARITHMETIC MEAN CANNOT BE TAKEN TO BE THE DETERMINI NG FACTOR RELATING TO THE RIGHT TO CONTEST THE ARMS LENGTH P RICE IN APPEAL. SUCH INFERENCE IS NOT SUPPORTED BY THE LANGUAGE OF THE PROVISION. BOTH IN THE FIRST AS ALSO IN THE SECOND LIMB, THE I MPLICATIONS OF THE DETERMINED THE ARMS LENGTH PRICE ARE THE SAME EXCE PT FOR THE MARGINAL BENEFIT ALLOWED TO THE ASSESSEE UNDER THE SECOND LIMB. HENCE, THE SECOND LIMB OF THE PROVISO IS APPLICABLE EVEN TO CASES WHERE THE ASSESSEE INTENDS TO CHALLENGE THE ARMS L ENGTH PRICE TAKEN AS ARITHMETIC MEAN AND DETERMINED THROUGH THE MOST APPROPRIATE METHOD. THEREFORE, THE BENEFIT OF SECO ND LIMB IS AVAILABLE TO ALL ASSESSEES IRRESPECTIVE OF THE FACT THAT THE PRICE OF INTERNATIONAL TRANSACTION DISCLOSED BY THEM EXCEEDS THE MARGIN PROVIDED IN THE PROVISION. 15. IN THE PRESENT CASE, IT APPEARS THAT THE BENEFI T OF +/- 5% ADJUSTMENT HAS NOT BEEN GIVEN TO THE ASSESSEE FOR THE REASON ( AS MENTIONED BY THE TPO) THAT SALES MADE BY THE ASSESSEE TO THIRD PARTI ES WERE HIGHER IN COMPARISON TO THE RATES OF SALE BY AES TO THE ASSES SEE. BUT NOTHING IS BROUGHT ON RECORD TO SUBSTANTIATE THE AFORESAID OBS ERVATIONS OF THE TPO. THE AO HAD ACCEPTED THE RECOMMENDATION OF THE TPO I N HIS REPORT DATED 30.8.2000 AND MADE THE ADDITION OF RS.1,76,56,164, HOWEVER, WHILE DOING SO, HE DID NOT ALLOW THE BENEFIT OF THE ADJUSTMENT AS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE ACT AND THE CONTENTION OF THE LD. CIT(DR) WAS THAT SINCE THE IMPUGNED ASSESSMENT WAS MADE AFTER 1.10.2 009, THE AMENDED PROVISO TO SECTION 92C(2) OF THE ACT SHALL APPLY IN THIS CASE, WHICH ARE APPLICABLE FROM W.E.F. 1.10.2009. AND SHALL ACCORDI NGLY APPLY TO THE CASES IN WHICH THE PROCEEDINGS WERE PENDING BEFORE THE TP O ON OR AFTER SUCH DATE. THEREFORE, THE BENEFIT OF +/- 5% INTENDED BY THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT WAS NOT AVAILABLE TO THE ASSESSEE. ACCORDINGLY THE LD. CIT(DR) HAD STRONGLY DEFENDED THE ASSESSMEN T FRAMED BY THE AO AND HIS METHOD OF DETERMINING THE ALP. ITA NO.1284/BANG/10 PAGE 10 OF 15 16. AS REGARDS TO THE APPLICABILITY OF THE AMENDED PROVISIONS IN PROVISO TO SECTION 92C(2) OF THE ACT WHICH IS APPLICABLE W.E.F . 1.10.2009 IS CONCERNED, IT IS NOTICED THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE ITAT PUNE BENCH A, PUNE IN ITA NO.1350/PN/2010 IN THE CASE OF STARNET NETWORKS (INDIA) P. LTD. V. DCIT (SUPRA), WHEREIN THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARAS 20 TO 23 OF THE ORDER DATED 03.10.2011 AND RE AD AS UNDER: 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS. IN THIS CASE, A PERTINENT ISSUE WHICH HAS BEEN VEHEMENTLY A GITATED BY THE APPELLANT IS WITH REGARD TO ITS CLAIM OF SEEKING BE NEFIT OF THE OPTION AVAILABLE UNDER THE ERSTWHILE PROVISO TO SEC TION 92C(2) OF THE ACT. THE ERSTWHILE PROVISO WHICH WAS INSERTED B Y FINANCE ACT, 2002 WITH EFFECT FROM 1.4.2002 READ AS UNDER: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMI NED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHA LL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES, OR, AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETI CAL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PERCENT OF SUCH ARITHM ETICAL MEAN. AS PER THE SAID PROVISO, AN OPTION IS AVAILABLE TO THE ASSESSEE FOR ADJUSTMENT OF +/-5% VARIATION FOR THE PURPOSES OF C OMPUTING ALP. AS PER THE PROVISO, WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARM S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VA RY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMETICAL MEAN. THE POINT MADE OUT BY THE ASSESS EE IS BASED ON THE LATTER PART OF THE PROVISO WHEREBY AN OPTION IS GIVEN TO THE ASSESSEE TO TAKE AN ALP WHICH MAY VARY FROM THE ARI THMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMET ICAL MEAN. FIRSTLY, THE CLAIM OF THE REVENUE IS THAT SUCH BENE FIT IS NOT AVAILABLE TO THE PRESENT ASSESSEE, BECAUSE THE PRIC E OF INTERNATIONAL TRANSACTION DISCLOSED BY THE ASSESSEE EXCEEDS THE MARGIN PROVIDED IN THE PROVISO. THIS ASPECT OF THE CONTROVERSY, IN OUR VIEW, IS NO LONGER GERMANE IN VIEW OF THE PLETH ORA OF DECISIONS OF OUR CO-ORDINATE BENCHES, NAMELY, SONY INDIA (P) LTD. (SUPRA); ELECTROBUG TECHNOLOGIES LTD. (SUPRA), AND DEVELOPMENT CONSULTANT P LTD V DCIT 115 TTJ 577 (KO L.) WHEREIN IT HAS BEEN OBSERVED THAT THE BENEFIT OF TH E OPTION CONTAINED IN THE LATTER PART OF THE PROVISO TO SECT ION 92C(2) IS AVAILABLE TO ALL ASSESSEES, IRRESPECTIVE OF THE FAC T THAT PRICE OF THE ITA NO.1284/BANG/10 PAGE 11 OF 15 INTERNATIONAL TRANSACTION DISCLOSED BY THEM EXCEEDS THE MARGIN PRESCRIBED IN THE PROVISO. 21. SO, HOWEVER, THE OTHER ARGUMENT SET UP BY THE REVENUE AND WHICH HAS BEEN MORE POTENTLY ARGUED IS TO THE E FFECT THAT THE BENEFIT OF SUCH PROVISO IS NOT AVAILABLE TO THE ASS ESSEE IN THE INSTANT CASE, BECAUSE THE SAID PROVISO HAS BEEN AME NDED BY THE FINANCE (NO 2) ACT, 2009 WITH EFFECT FROM 1.10.2009 WHICH READS AS UNDER: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMI NED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHA LL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNAT IONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT E XCEED FIVE PER CENT OF THE LATTER, THE PRICE AT WHICH THE INTERNAT IONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE. THE CASE SET UP BY THE REVENUE IS THAT THE AMENDED PROVISO SHALL GOVERN THE DETERMINATION OF ALP IN THE PRESENT CASE , INASMUCH AS THE AMENDED PROVISIONS WERE ON STATUTE WHEN THE PRO CEEDINGS WERE CARRIED ON BY THE TRANSFER PRICING OFFICER (TP O). AS PER THE REVENUE, THE AMENDED PROVISO WOULD HAVE A RETROSPEC TIVE OPERATION AND IN ANY CASE, WOULD BE APPLICABLE TO T HE PROCEEDINGS WHICH ARE PENDING BEFORE THE TPO ON INSERTION OF TH E AMENDED PROVISO, WHICH HAS BEEN INSERTED BY THE FINANCE (NO . 2) ACT, 2009 WITH EFFECT FROM 1.10.2009 AND, IN THIS CASE, THE TPO HAS PASSED HIS ORDER ON 30.10.2009. THE LEARNED DEPARTM ENTAL REPRESENTATIVE HAS ALSO REFERRED TO THE CBDT CIRCUL AR NO 5/2010 (SUPRA) READ WITH CORRIGENDUM DATED 30.9.2010 ISSUE D BY THE CBDT IN THIS REGARD. PER CONTRA, THE STAND OF THE A SSESSEE IS THAT THE AMENDED PROVISO WOULD BE APPLICABLE PROSPECTIVE LY AND WOULD NOT APPLY IN RESPECT OF THE STATED ASSESSMENT YEAR, WHICH IS PRIOR TO THE INSERTION OF THE AMENDED PROVISO WITH EFFECT FROM 1.10.2009. 22. WE HAVE CAREFULLY EXAMINED THE RIVAL STANDS ON THIS ASPECT. THE AMENDED PROVISO HAS BEEN BROUGHT ON THE STATUTE BY THE FINANCE (NO. 2) ACT, 2009 WITH EFFECT FROM 1.10 .2009. THE EXPLANATORY NOTES TO THE PROVISIONS OF FINANCE (NO 2) ACT, 2009 CONTAINED IN CIRCULAR NO 5 OF 2010 (SUPRA) PROVIDES THE OBJECTIVE BEHIND THE AMENDMENT OF THE PROVISO. THE LEGISLATUR E NOTICED THE CONFLICTING INTERPRETATION OF THE ERSTWHILE PRO VISO BY THE ASSESSEE AND THE INCOME-TAX DEPARTMENT. THE ASSESSE ES VIEW ITA NO.1284/BANG/10 PAGE 12 OF 15 WAS THAT THE ARITHMETICAL MEAN SHOULD BE ADJUSTED B Y 5% TO ARRIVE AT ALP, WHEREAS THE DEPARTMENTAL VIEW WAS THAT NO S UCH ADJUSTMENT IS REQUIRED TO BE MADE IF THE VARIATION BETWEEN THE TRANSFER PRICE AND THE ARITHMETICAL MEAN IS MORE TH AN 5% OF THE ARITHMETICAL MEAN. WITH A VIEW TO RESOLVING THIS CO NTROVERSY, THE LEGISLATURE SOUGHT TO AMEND THE PROVISO TO SECTION 92C(2), WHICH HAS BEEN REPRODUCED BY US IN THE EARLIER PART OF TH IS ORDER. IN THE SAID CIRCULAR, IT HAS ALSO BEEN ELABORATED THAT THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1.4.2009 AND WILL ACCORDINGLY APPLY IN RESPECT OF ASSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS. IN ANY CASE, THE PROVISO CON TAINS A PRESCRIPTION TO DETERMINE THE ALP AND QUITE CLEARLY IT IS A SUBSTANTIVE PROVISION ENCOMPASSING THE EVENTUAL DET ERMINATION OF AN ASSESSEES TAX LIABILITY. THUS, IT CAN BE SAI D THAT THE PROVISO IS NOT A PROCEDURAL PIECE OF LEGISLATION AND THEREF ORE, UNLESS IT IS SO CLEARLY INTENDED, THE NEWLY AMENDED PROVISO CANN OT BE UNDERSTOOD TO BE RETROSPECTIVE IN NATURE. IN FACT, IT IS A WELL- SETTLED PROPOSITION THAT THE STATUTORY PROVISIONS A S THEY STAND ON THE FIRST DAY OF APRIL OF THE ASSESSMENT YEAR MUST APPLY TO THE ASSESSMENT OF THE YEAR AND THE MODIFICATION OF THE PROVISIONS DURING THE PENDENCY OF ASSESSMENT WOULD NOT GENERAL LY PREJUDICE THE RIGHTS OF THE ASSESSEE. FURTHERMORE, WE ARE FOR TIFIED BY THE INTENTION OF THE LEGISLATURE AS FOUND FROM CIRCULAR NO 5 OF 2010 (SUPRA) WHEREBY IN PARA 37.5, THE APPLICABILITY OF THE ABOVE AMENDMENT HAS BEEN STATED TO BE WITH EFFECT FROM 1. 4.2009 SO AS TO APPLY IN RESPECT OF ASSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS. IN THIS REGARD, WE ALSO FIND THAT THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V UE TRADE CORPORATION INDIA (P) LTD. VIDE ITA NO 4405(DEL)/2009 DT 24.12.2010 HAS O BSERVED THAT THE PROVISO INSERTED BY THE FINANCE (NO 2) ACT , 2009 WOULD NOT APPLY TO AN ASSESSMENT YEAR PRIOR TO ITS INSERT ION. IN THIS VIEW OF THE MATTER, WE THEREFORE FIND NO JUSTIFICATION T O DENY THE BENEFIT OF +/-5% TO THE ASSESSEE IN TERMS OF THE ER STWHILE PROVISO FOR THE PURPOSES OF COMPUTING THE ALP. 23. HOWEVER, BEFORE PARTING WE MAY ALSO REFER TO A CORRIGENDUM DATED 30.9.2010 BY THE CBDT BY WAY OF W HICH PARA 37.5 OF THE CIRCULAR NO 5/2010 (SUPRA) HAS BEE N SOUGHT TO BE MODIFIED. THE CORRIGENDUM READS AS UNDER: CORRIGENDUM IN PARTIAL MODIFICATION OF CIRCULAR NO. 5/2010 DATE D 03.6.2010, (I) IN PARA 37.5 OF THE SAID CIRCULAR, FOR THE LINE S ITA NO.1284/BANG/10 PAGE 13 OF 15 THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1 ST APRIL, 2009 AND WILL ACCORDINGLY APPLY IN RESPECT OF ASSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS. THE FOLLOWING LINES SHALL BE READ; THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1 ST OCTOBER, 2009 AND SHALL ACCORDINGLY APPLY IN RELATION TO ALL CASES IN WHICH PROCEEDINGS ARE P ENDING BEFORE THE TRANSFER PRICING OFFICER (TPO)ON OR AFTE R SUCH DATE. (II) IN PARA 38.3, FOR THE DATE 1ST OCTOBER, 2009 , THE FOLLOWING DATE SHALL BE READ: 1ST APRIL, 2009. IN TERMS THEREOF, IT IS CANVASSED THAT THE AMENDED PROVISO HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1.10.2009 AND SHALL APPLY EVEN TO CASES WHERE PROCEEDINGS WERE PENDING BEFORE THE TPO ON OR AFTER SUCH DATE, IRRESPECTIVE OF THE ASSESSMENT YEAR INVOLVED AND, THEREFORE, IN THE INSTANT CASE THE BENEFIT OF THE ERSTWHILE PROVISO CANNOT BE EXTENDED TO THE ASSESSEE. WE HAVE CAREFULLY PONDERED OVER THE ASSERTION MADE BY THE APPELLANT T HAT THE CORRIGENDUM IS UNTENABLE IN THE EYES OF LAW. FIRSTL Y, THE SAID CORRIGENDUM DOES NOT BRING OUT ANY PREAMBLE SO AS T O THROW LIGHT ON THE CIRCUMSTANCES AND THE BACKGROUND IN WHICH TH E SAME HAS BEEN ISSUED. SECONDLY, IT IS WELL UNDERSTOOD THAT T HE EXPLANATORY NOTES TO THE PROVISIONS OF A FINANCE ACT PASSED BY THE PARLIAMENT SEEKS TO EXPLAIN THE SUBSTANCE OF THE PROVISIONS OF THE ACT AS INTENDED BY THE LEGISLATURE. IN FACT, THE HONBLE S UPREME COURT IN THE CASE OF K.P VARGHESE V ITO 131 ITR 597 (KER) EMPHASIZED THE SANCTITY OF THE STATEMENTS CONTAINED IN THE EXPLANATORY NOTES OF THE PROVISIONS AND STATED THAT THE INTERPRETATION PLACED IN SUCH DOCUMENTS IS BINDING INTERPRETATION OF LAW. THE CONTENTS OF THE CORRIGENDUM ARE QUITE I NEXPLICABLE. NOTWITHSTANDING THE AFORESAID AND WITHOUT GOING INT O THE VALIDITY OF THE CORRIGENDUM DATED 30.9.2010 (SUPRA), WE ARE OF THE VIEW THAT THE SAME WOULD NOT OPERATE TO THE DETRIMENT OF THE ASSESSEE SINCE AT THE RELEVANT POINT OF TIME THE CONTENTS OF THE CIRCULAR NO 5/2010 (SUPRA) WERE IN OPERATION. IN OTHER WORDS, T HE WITHDRAWAL OF THE INTERPRETATION PLACED IN CIRCULAR NO 5 /2010 (SUPRA) ON THE APPLICABILITY OF THE AMENDED PROVISO IS SOUGHT TO B E DONE AWAY BY THE CORRIGENDUM DATED 30.9.2010 AND, THEREFORE, SUCH WITHDRAWAL SHALL BE EFFECTIVE ONLY AFTER 30.9.2010, EVEN IF SUCH CORRIGENDUM IS ACCEPTED AS VALID. WE MAY NOTE HERE THAT THE APPELLANT HAS ASSAILED THE VALIDITY OF THE CORRIGEN DUM ITSELF ON WHICH WE HAVE NOT MADE ANY DETERMINATION. THEREFORE , THE CORRIGENDUM DATED 30.9.2010, IN OUR CONSIDERED OPIN ION, HAS NO BEARING SO AS TO DIS-ENTITLE THE ASSESSEE FROM ITS CLAIM OF THE ITA NO.1284/BANG/10 PAGE 14 OF 15 BENEFIT OF +/-5% IN TERMS OF THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. IN COMING TO THE AFORESAID, WE H AVE BEEN GUIDED BY THE PARITY OF REASONING LAID DOWN IN THE JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT IN THE CASES OF BASF (INDIA) LTD. V CIT 280 ITR 136 (BOM); SHAKTI RAJ FILMS DIST RIBUTORS V CIT 213 ITR 20 (BOM); AND, UNIT TRUST OF INDIA & AN RS. V ITO 249 ITR 612 (BOM). THE HONBLE HIGH COURT HAS OPINE D IN THE CASE OF BASF (INDIA) LTD. (SUPRA) THAT THE CIRCULAR S WHICH ARE IN FORCE DURING THE RELEVANT PERIOD ARE TO BE APPLIED AND THE SUBSEQUENT CIRCULARS EITHER WITHDRAWING OR MODIFYIN G THE EARLIER CIRCULARS HAVE NO APPLICATION. MOREOVER, THE CIRCUL ARS IN THE NATURE OF CONCESSION CAN BE WITHDRAWN PROSPECTIVELY ONLY AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF STATE B ANK OF TRAVANCORE V CIT 50 CTR 102 (SC). CONSIDERING ALL T HESE ASPECTS, WE THEREFORE FIND NO JUSTIFICATION IN THE ACTION OF THE LOWER AUTHORITIES IN DISENTITLING THE ASSESSEE FROM ITS CLAIM FOR THE BENEFIT OF +/-5% TO COMPUTE ALP IN TERMS OF THE ERS TWHILE PROVISO TO SECTION 92C(2) OF THE ACT. WE ORDER ACCO RDINGLY. 17. WE THEREFORE CONSIDERING THE TOTALITY OF THE F ACTS AND RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDERS OF THE C O-ORDINATE BENCHES OF THE ITAT AT DELHI & PUNE, DIRECT THE ASSESSING OFFICER TO ALLOW THE BENEFIT OF +/-5% TO THE ASSESSEE WHILE COMPUTING THE ALP IN TE RMS OF THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. 18. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JANUARY, 2012. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 31 ST JANUARY, 2012. DS/- ITA NO.1284/BANG/10 PAGE 15 OF 15 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.