DCIT 10(2), MUMBAI V. GODERJ SARA LEE LTD, MUMBAI

ITA 1356/MUM/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2472 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 07-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 27-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F V IRANI
• Assessee Lawyers: N K CHAND
• Keywords: Related party transaction; Depreciation; Transfer pricing; Earning of tax free income; Retrospective amendment
• Section: 143(3); 92B; 14A; 115JB; 37(1); 32; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1251/MUM/2014 (ASSESSMENT YEAR : 2009-10) GODREJ SARA LEE LTD., (NOW AMALGAMATED INTO GODREJ CONSUMER PRODUCTS LTD.) KALYANIWALLA & MISTRY, 3 RD FLOOR,ARMY & NAVY BUILDING, 148, M.G.ROAD, FORT, MUMBAI 400 001. PAN: AACT 1921C ... APPELLANT VS. THE ADDL. COMMISSIONER OF INCOME TAX RANGE 10(2), AAYKAR BHAVAN, ROOM NO.433, 4 TH FLOOR, MK MARG, MUMBAI 400 020 .... RESPONDENT ITA NO.1356/MUM/2014(A.Y. 2009-10) THE DY. COMM. OF INCOME TAX ,RANGE 10(2), MUMBAI. ...... APPEL LANT VS. GODREJ SARA LEE LTD., (NOW AMALGAMATED INTO GODREJ CONSUMER PRODUCTS LTD.) KALYANIWALLA & MISTRY, 3 RD FLOOR,ARMY & NAVY BUILDING, 148, M.G.ROAD, FORT, MUMBAI 400 001. ....... RESPONDENT 2 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) APPELLANT BY : SHRI F.V.IRANI RESPONDENT BY : SHRI N.K.CHAND DATE OF HEARING : 07/07/2015 DATE OF PRONOUNCEMENT : 18/11/2015 ORDER PER G.S. PANNU,AM: THE CAPTIONED ARE CROSS-APPEALS BY THE ASSESSEE A ND THE REVENUE, DIRECTED AGAINST THE ORDER OF THE ASSESS ING OFFICER DATED 30/12/2013 PASSED UNDER SECTION 143(3) R.W.S. 144 C(13) PERTAINING TO THE ASSESSMENT YEAR 2009-10, WHICH IS IN CONFORMITY WITH THE ORDER PASSED BY THE DRP-1, MUMBAI DATED 30/10/2013. THE ASSESSEE AS WELL AS REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPE AL:- GROUNDS OF ASSESSEES APPEAL:- 1) THE LEARNED DRP ERRED IN CONFIRMING THE ALLOCA TION OF INTEREST AND ADMINISTRATIVE EXPENDITURE AGGREGATING TO RS.14,25 ,150/- TOWARDS THE EARNING OF EXEMPT DIVIDEND INCOME AND THEREAFTER REDUCING ONL Y THE NET DIVIDEND INCOME WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB O F THE ACT. 2) THE LEARNED DRP ERRED IN DIRECTING THE ASSESSING OFFICER TO RELY ON THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE RULES WHILE COMPUTING THE AMOUNT LIABLE TO BE ADDED BACK TO THE BOOK PROFITS TO BE COMPUTED UNDER SECTION 115JB OF THE ACT. 3) THE LEARNED DRP AND THE ASSESSING OFFICER ERRE D IN DISREGARDING THE METHOD OF ALLOCATION CONSISTENTLY ADOPTED BY THE APPELLANT AN D IN RE-ALLOCATING 50% OF THE FOLLOWING OVERHEADS OF THE NON-ELIGIBLE UNDERTAKING S OF THE APPELLANT, WHILE COMPUTING THE DEDUCTION U/S 80LB/ 80LC OF THE ACT:- MISCELLANEOUS EXPENSES CONVEYANCE AND TRAVELLING EXPENSES RENT, RATES AND TAXES ADVERTISEMENT AND PUBLICITY SCHEMES AND PROMOTIONS 3 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) 4) THE LEARNED DRP ERRED IN DIRECTING THE ASSESSIN G OFFICE TO RESTRICT THE CLAIM FOR DEPRECIATION UNDER SECTION 32 OF THE ACT ON COMPUTE R PERIPHERALS @15% AS AGAINST THE RATE OF 60% CLAIMED BY THE APPELLANT. 5) THE LEARNED DRP ERRED IN CONFIRMING THE ACTION O F THE TRANSFER PRICING OFFICER 1 ASSESSING OFFICER THAT THE ACTUAL SALES PRICE AND A RMS LENGTH PRICE OF EACH RELATED PARTY TRANSACTION ARE TO BE COMPARED PRODUCT WISE INDEPENDENTLY AND NOT ON AN AGGREGATE COUNTRY-WISE BASIS FOR EXPORTS MADE TO T HE AES. 6) THE LEARNED DRP ERRED IN CONFIRMING THE DISALLO WANCE OF RS. 20 LACS BEING THE REIMBURSEMENT OF ADVERTISEMENT EXPENSES MADE BY THE APPELLANT COMPANY TO ITS ASSOCIATED ENTERPRISE DURING THE YEAR. 7) THE LEARNED DRP ERRED IN DIRECTING THE ASSESSING OFFICER TO MAKE AN ADDITION OF RS.6,27,920/- IN RESPECT OF GUARANTEE COMMISSION IN RESPECT OF THE GUARANTEE GIVEN ON BEHALF OF GODREJ SARA LEE (BANGLADESH) PVT. LTD . 8) THE ASSESSING OFFICER ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE LEARNED DRP IN RESPECT OF PROVISION FOR DIMINUTION IN VALUE OF INV ESTMENTS WHILE COMPUTING THE BOOK PROFITS. GROUNDS OF REVENUES APPEAL:- 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTES RESOLUTION PANEL ERRED IN REDUCING THE GUARANTEE CO MMISSION CHARGED TO ASSOCIATED ENTERPRISE(AE) IN BANGLADESH TO RS.6,27, 920/- AS AGAINST RS.14,82,960/- AS COMPUTED BY THE TRANSFER PRICING OFFICER(TPO) IN ORDER U/S.92CA OF THE INCOME TAX ACT AND PROPOSED BY THE ASSESSING OFFICER(AO) I N DRAFT ASSESSMENT ORDER PASSED UJS.143(3) R.W.S.144C(1) OF THE INCOME TAX ACT. 1.1 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTES RESOLUTION PANEL ERRED IN REJECTING THE AVERAGE YIE LD METHOD ADOPTED BY THE TPO TO DETERMINE THE CREDIT RATING OF THE AE FOR COMPUT ING THE ARMS LENGTH PRICE(ALP) OF GUARANTEE FEE CHARGED FROM THE AE ON PROVIDING T HE GUARANTEE. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE DISPUTES RESOLUTION PANEL ERRED IN DIRECTING THE AO TO EXCLU DE BANK CHARGES AND OTHER FINANCIAL CHARGES WHILE COMPUTING THE EXPENDITURE A TTRIBUTABLE TO EARNING EXEMPT INCOME. 2.1 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTES RESOLUTION PANEL ERRED IN IGNORING LAW THAT THE PRO VISION OF RULE 8D BEING RULE 8(D)(2)(I) THEREOF WHICH CLEARLY DIRECTS TO INCLUDE THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PAR T OF TOTAL INCOME AND THAT THE BANK CHARGES AND OTHER FINANCIAL CHARGES ARE DIRECT LY ATTRIBUTABLE TO EARNING OF EXEMPT INCOME IN THE INSTANT CASE. 4 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTES RESOLUTION PANEL ERRED IN DIRECTING THE AO, WITHOUT ANY SUPPORTIVE JUSTIFICATION, TO NOT TO APPLY THE AVERAGE RATE OF PROFIT MARGIN WITH IN THE 80-IC/80-IE/80-IB ELIGIBLE UNITS OF GUWAHATI WITH THAT OF PONDICHERRY BELONGIN G TO THE ASSESSEE COMPANY. THEREBY ERRED IN ALLOWING THE ASSESSEE TO CLAIM H IGHER DEDUCTION U/S. 80-IC/80- IE/80-IB IN RESPECT OF 2 GUWAHATI UNITS TO THE E XTENT OF RS.52,79,23,037/- AS COMPARED TO THE PRODUCTS MANUFACTURED AT PONDICHE RRY UNITS. 2. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF MANUFACTURING/MARKETING OF MOSQUITO REPELLENT, MATS , COILS, MAT FITTING MACHINE, AIR FRESHENER AND TRADING OF HAIR CARE AND HOUSEHOLD CARE PRODUCTS. FOR THE YEAR UNDER CONSIDERATION, THE AS SESSEE-COMPANY FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS .52,87,89,996/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT. IN AN ASSESSMENT FINALIZED UNDER SECTION 143(3) R.W.S. 144C(1) DATED 30/12/20 13 IN ACCORDANCE WITH THE DIRECTIONS OF THE DRP DATED 30/10/2013, TH E TOTAL INCOME HAS BEEN ASSESSED AT RS.68,31,94,653/-, AFTER MAKING CE RTAIN ADDITIONS/DISALLOWANCES, WHICH ARE SUBJECT MATTER O F CONTROVERSY IN THE CROSS APPEALS OF THE ASSESSEE AND THE REVENUE. 3. IN SO FAR AS GROUND OF APPEAL NOS. 1 TO 2 OF AS SESSEES APPEAL AND GROUND OF APPEAL NOS.2 AND 2.1 OF REVENUES APP EAL ARE CONCERNED, THEY PERTAIN TO THE ISSUE OF DISALLOWANC E UNDER SECTION 14A OF THE ACT. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE WAS FOUND TO HAVE EARNED EXEMPT DIVIDEND INCOME, AND IN THE DRA FT ASSESSMENT ORDER DATED 28/02/2013 PASSED UNDER SECTION 143(3) R.W.S. 144C(1) OF THE ACT, THE ASSESSING OFFICER APPLIED THE PROVISIO NS OF RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) AND C OMPUTED A DISALLOWANCE OF RS.17,40,847/-. THE DRP VIDE ORDER DATED 30/10/2013 DIRECTED THE ASSESSING OFFICER TO REDUCE THE BANK C HARGES AND OTHER 5 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) FINANCIAL EXPENSES, WHICH ARE NOT IN THE NATURE OF INTEREST, WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(II) OF THE RULES. ACCORDINGLY, IN THE FINAL ASSESSMENT ORDER DATED 30 /12/2013, THE DISALLOWANCE WAS SCALED DOWN TO RS.14,25,150/-. 4. IN THIS BACK GROUND, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR OF 2008-09, SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL AND VIDE ORDER DA TED 11/3/2015 IN ITA NO.598/MUM/2013, THE MATTER HAS BEEN RESTORED B ACK TO THE FILE OF THE ASSESSING OFFICER WITH FOLLOWING DIRECTIONS:- 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE INVESTMENT AS ON 31 ST MARCH 2007 WAS RS. 6.74 CRORES WHEREAS THE INVESTMENT AS ON 31.03.2008 IS RS. 61.2 5 CRORES, THEREFORE, THERE IS AN INCREASE IN THE INVESTMENT DURING THE YEAR TO THE EXTENT OF RS. 54.51 CRORES. WE NOTE THAT THIS FRESH INVESTMENT OF RS. 5 4.51 CRORE IS CLEARLY IN THE TWO FOREIGN SUBSIDIARIES OF THE ASSESSEE AND DIVIDE ND FROM THE FOREIGN COMPANY IS TAXABLE, THEREFORE, TO THAT EXTENT THE D RP HAS ALREADY DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE DISALLOWANC E. THE ISSUE BEFORE US IS LIMITED TO THE EXTENT OF DISALLOWANCE IN RESPECT O F THE INVESTMENT IN THE WHOLLY OWNED INDIAN SUBSIDIARIES. THE ASSESSEE HAS RAISED TWO CONTENTIONS IN THIS RESPECT THAT THE INVESTMENT IN QUESTION IS OUT OF THE ASSESSEES OWN FUND AND THAT TOO IN SUBSIDIARIES. IT IS PERTINENT TO NO TE THAT THE FUND FLOW STATEMENT FILED BY THE ASSESSEE IS ONLY REGARDING T HE FRESH INVESTMENT MADE BY THE ASSESSEE DURING THE YEAR WHICH IS OTHERWISE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE U/S 14A BEING THE INVESTMENT IN FOR EIGN COMPANIES. IT IS NOT CLEAR FROM THE RECORD WHETHER ANY DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST EXPENDITURE IN THE EARLIER ASSESSMENT YEAR S. SINCE THE INVESTMENT WAS MADE IN THE EARLIER ASSESSMENT YEARS, THEREFORE , THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE HAS TO BE AS PER TH E FUNDS AVAILABLE WITH THE ASSESSEE AND THE FINDING ON THE ISSUE OF DISALLOWAN CE U/S 14A FOR THE EARLIER YEARS IS RELEVANT FOR THE PURPOSE OF DECIDING THIS ISSUE FOR THE YEAR UNDER CONSIDERATION. SIMILARLY, THE ISSUE OF DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES HAS TO BE DECIDED KEEPING I N VIEW THE FINDING OF THE EARLIER ASSESSMENT YEARS ON THIS ACCOUNT. ACCORDIN GLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE SET ASIDE THIS ISSUE TO THE RECORD OF ASSESSING OFFICER TO DECIDE THIS ISSUE AFRESH BY CONSIDERING THE FINDING OF THE EARLIER A.YS ON THIS ISSUE AND FURTHER IN VIEW OF THE DECIS IONS RELIED UPON BY THE LD. AUTHORIZED REPRESENTATIVE IN CASE OF JM FINANCIAL L TD. VS. ADDL. CIT (SUPRA) AS WELL AS GARWARE WALL ROPES LTD. VS. ADDL. CIT (SUPR A). 6 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) 4.1 IT WAS SUBMITTED THAT, THE MATTER BE RESTORED B ACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN THE LIGHT OF THE PRECEDENT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 (SUPRA). THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT CONTROVERTED TH E FACTUAL MATRIX BROUGHT OUT BY THE ASSESSEE AND ACCORDINGLY THE ISS UES RAISED IN GROUND OF NOS. 1 &2 IN THE APPEAL OF THE ASSESSEE ARE RES TORED TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN ACCORDAN CE WITH THE DECISION OF THE TRIBUNAL DATED 11/3/2015 (SUPRA) FOR ASSESSM ENT YEAR 2008-09. 5. REGARDING THE ISSUE IN REVENUES APPEAL IN CROSS -GROUND NOS. 2.& 2.1, THE DRP DIRECTED THE ASSESSING OFFICER TO EXCL UDE BANK CHARGES AND OTHER FINANCIAL CHARGES WHILE DETERMINING THE FIGUR E OF THE INTEREST EXPENDITURE FOR QUANTIFYING THE DISALLOWANCE UNDER RULE 8D OF THE RULES. THE REVENUE HAS CHALLENGED THE AFORESAID DI RECTION OF THE DRP. AFTER CONSIDERING THE RIVAL STANDS, WE FIND NO INFI RMITY IN THE DECISION OF THE DRP, WHICH IS IN CONFORMITY WITH THE PHRASEOLOG Y OF RULE 8D(2)(II) OF THE RULES. AS A RESULT, THE GROUND NOS. 2 & 2.1 R AISED BY THE REVENUE ARE DISMISSED. 6. BY WAY OF GROUND OF APPEAL NO. 3, ASSESSEE-COMPA NY HAS ASSAILED THE ACTION OF THE ASSESSING OFFICER IN REWORKING TH E DEDUCTIONS U/S. 80IB/80IC OF THE ACT BY RE-ALLOCATING CERTAIN ADMIN ISTRATIVE AND SELLING & MARKETING EXPENSES OF THE NON-ELIGIBLE UNITS TO THE ELIGIBLE UNITS. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THIS DISPUT E WAS A RECURRING 7 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) ISSUE AND IN THE PAST YEARS THE ISSUE HAD BEEN DECI DED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. IN THE LEAD CASE FOR AS SESSMENT YEAR 2006-07, THE TRIBUNAL VIDE ORDER DATED 22.11.2013 IN ITA NO. 7369/MUM/2010 HELD AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT O UT OF THE TOTAL OVERHEADS OF RS.154.63 CRORES INCURRED BY THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION, OVERHEADS TO THE EXTENT OF RS. 141.9 1 CRORES WERE DIRECTLY ALLOCATED BY THE ASSESSEE TO THE ELIGIBLE UNITS BEI NG DIRECTLY ATTRIBUTABLE TO THE SAID SEGMENT. THE BALANCE AMOUNT OF OVERHEADS T O THE EXTENT OF RS. 12.72 CRORES REPRESENTING THE INDIRECT EXPENSES WER E ALLOCATED BY THE ASSESSEE BETWEEN THE ELIGIBLE BUSINESS AND NON-ELIG IBLE BUSINESS IN THE RATIO OF TURNOVER AND THIS BASIS ADOPTED BY THE ASSESSEE WAS ACCEPTED BY THE A.O. EXCEPT IN THE CASE OF ADVERTISEMENT & PUBLICITY EXP ENSES AMOUNTING TO RS. 4.23 CRORES, SCHEMES AND PROMOTIONS EXPENSES AMOUNT ING TO RS. 0.83 CRORES, MISCELLANEOUS EXPENSES AMOUNTING TO RS. 0.72 CRORES , CONVEYANCE AND TRAVELING EXPENSES AMOUNTING TO RS. 0.47 CRORES AND RENT, RATE & TAXES AMOUNTING TO RS. 0.48 CRORES. AS EXPLAINED BY THE L D. COUNSEL FOR THE ASSESSEE BEFORE US, THE EXPENDITURE ON ADVERTISEMENT & PUBLI CITY AND SCHEMES AND PROMOTIONS WAS INCURRED MAINLY TO CREATE AND PROMOT E THE BRAND IMAGE FOR THE COMPANYS PRODUCT AND THIS POSITION WAS ACCEPTE D EVEN BY THE A.O. IN HIS ORDER. THE, A.O., HOWEVER, HELD THAT THE TRADER NOR MALLY WOULD NEVER INCUR EXPENDITURE ON ADVERTISEMENT AND BRANDS OF THE MANU FACTURER OUT OF THE TRADING PROFIT. HE, HOWEVER, APPEARS TO HAVE OVERLO OKED THE FACT THAT GOODS PROCURED FROM THE THIRD PARTY WERE SOLD BY THE ASSE SSEE COMPANY AS A PART OF TRADING ACTIVITY UNDER THE SAME BRAND NAME AND T HE BENEFIT OF THE SAID EXPENDITURE THUS WAS AVAILABLE EQUALLY TO THE TRADI NG SEGMENT. INCIDENTALLY, THE A.O. ALSO IMPLIEDLY ACCEPTED THIS POSITION WHIL E OBSERVING IN HIS ORDER THAT SUCH EXPENSES ON ADVERTISEMENT & PUBLICITY AND SCHEMES HAVE TO BE ALLOCATED TO SOME EXTENT TO THE NON-ELIGIBLE SEGMEN T. HE, HOWEVER, HELD THAT SUCH ALLOCATION COULD NOT BE VERY LARGE AMOUNT AND ACCORDINGLY RE-ALLOCATED 50% OF THE SAID EXPENSES TO ELIGIBLE UNIT ON ADHOC BASIS. IN OUR OPINION, SUCH REALLOCATION MADE BY THE A.O. ON ADHOC BASIS CANNOT BE SUSTAINED HAVING REGARD TO ALL THE FACTS OF THE CASE INCLUDING ESPEC IALLY THE FACT THAT THE EXPENDITURE ON ADVERTISEMENT & PUBLICITY AND SCHEME S WAS IN THE NATURE OF SELLING EXPENSES AND THE ALLOCATION MADE BY THE ASS ESSEE OF THE SAID EXPENSES ON THE BASIS OF TURNOVER WAS QUITE REASONA BLE. THE ALLOCATION SO MADE BY THE ASSESSEE ALSO CANNOT BE SAID TO HAVE RE SULTED IN ALLOCATION OF LARGE AMOUNT OF EXPENSES TO THE NON-ELIGIBLE BUSINE SS AS ALLEGED BY THE A.O. SINCE THE GROSS PROFIT RATIO AS SHOWN BY THE ASSESS EE IN THE TRADING SEGMENT WAS 12.92% AND EVEN AFTER ALLOCATING ADVERTISEMENT, SCHEMES AND PROMOTIONS EXPENSES ON THE BASIS OF TURNOVER, THE P ROFIT OF TRADING SEGMENT WAS 6.59%. 8 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) 9. SIMILARLY, THE OTHER INDIRECT EXPENSES ON CONVEY ANCE AND TRAVELING, RATE AND TAXES AND MISCELLANEOUS WERE INCURRED BY THE AS SESSEE DURING THE NORMAL COURSE OF ITS BUSINESS OF SELLING THE FINISH ED GOODS, WHETHER MANUFACTURED OR PROCURED FROM THIRD PARTY AND SINCE THE SAID EXPENSES WERE INCURRED EQUALLY FOR THE BENEFIT OF ELIGIBLE BUSINE SS AS WELL AS NON-ELIGIBLE BUSINESS OF TRADING, WE ARE OF THE VIEW THAT THE BA SIS OF TURNOVER ADOPTED BY THE ASSESSEE TO ALLOCATE THE SAID EXPENSES WAS MORE SCIENTIFIC AND REASONABLE. ON THE OTHER HAND, THE REALLOCATION OF THE SAID EXPENSES MADE BY THE A.O. ON ADHOC BASIS WAS NOT SUPPORTED OR SUB STANTIATED BY HIM AND THE SAME, IN OUR OPINION, CANNOT BE ACCEPTED AS A R EASONABLE BASIS. IN THE CASE OF CONSOLIDATED COFFEE LTD. V. STATE OF KARNAT AKA (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, IT WAS HELD BY THE HONBL E SUPREME COURT THAT WHEN A BIFURCATION OF EXPENSES IS NOT POSSIBLE, SOME REA SONABLE TEST WILL HAVE TO BE ADOPTED AND THAT ADOPTION OF THE METHOD OF APPORTIO NING ON THE BASIS OF GROSS RECEIPTS COULD NOT BE SAID TO BE A PERVERSE M ETHOD TO APPLY. KEEPING IN VIEW THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF CONSOLIDATED COFFEE LTD. V. STATE OF KARNATAKA (SUPRA) AND HAVIN G REGARD TO THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ALLOCATION OF EXPENSES MADE BY THE ASSESSEE BETWEEN ELIGIBLE BUSINESS AND NON-ELIGIBLE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB/80IC OF THE ACT WAS REASONABLE AND THERE WAS NO JUSTIFIABLE REASON FOR THE A.O. TO DISTURB T HE SAME AND MAKE RE- ALLOCATION ON ADHOC BASIS. WE, THEREFORE, DELETE TH E ADDITION MADE BY THE A.O. BY RESTRICTING THE CLAIM OF THE ASSESSEE FOR D EDUCTION U/S 80IB/80IC OF THE ACT BY REALLOCATING THE COMMON INDIRECT EXPENSE S AND ALLOW GROUND NO. 1 & 2 OF THE ASSESSEES APPEAL. 6.1 THE AFORESAID DECISION WAS FOLLOWED BY THE SUBS EQUENT BENCHES OF THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06 AND 200 8-09 VIDE ORDERS IN ITA NOS. 7227/M/2011 AND 598/M/2013 DATED 19.2.2014 AND 11.3.2015 RESPECTIVELY. FOLLOWING THE AFORESAID PRECEDENTS, THE ISSUE RAISED IN GROUND NO. 3 IN ASSESSEES APPEAL IS ALLOWED. 7. BY WAY OF GROUND NO. 4, ASSESSEE COMPANY HAS ASS AILED THE ACTION OF THE ASSESSING OFFICER IN ALLOWING DEPRECI ATION ON UPS & PRINTERS @ 15% TREATING THEM AS PLANT & MACHINERY I NSTEAD OF 60% CLAIMED BY THE ASSESSEE TREATING THEM AS PART AND P ARCEL OF COMPUTERS. IN ASSESSMENT YEAR 2008-09, THE TRIBUNAL VIDE ORDER DATED 11.3.2015 9 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) (SUPRA), ALLOWED THE CLAIM OF DEPRECIATION @ 60% ON THE COST OF UPS & PRINTERS. FOLLOWING THE PRECEDENT, GROUND OF APPEA L RAISED BY THE ASSESSEE IS ALLOWED. 8. BY WAY OF GROUND NO. 5, ASSESSEE COMPANY HAS ASS AILED AN ADDITION OF RS. 11,72,710/- ON ACCOUNT OF DETERMIN ATION OF ARMS LENGTH PRICE OF THE EXPORTS MADE TO ITS ASSOCIATED ENTERPR ISES. THE ASSESSEE- COMPANY HAD ADOPTED COMPARABLE UNCONTROLLED PRICE ( CUP) METHOD IN ORDER TO BENCHMARK ITS SELLING PRICES OF EXPORTS MA DE TO ASSOCIATED ENTERPRISES, AND IT WAS ASSERTED THAT THE STATED SE LLING PRICES WERE AT ARMS LENGTH. HOWEVER, THE TRANSFER PRICING OFFICE R WORKED OUT AN ADJUSTMENT OF RS. 11,72,710/- IN ORDER TO DETERMINE THE ARMS LENGTH PRICE BECAUSE AS PER THE TPO, THE SELLING PRICES AN D THE ARMS LENGTH PRICE OF EACH RELATED PARTY TRANSACTION WAS TO BE COMPARED PRODUCT- WISE INDEPENDENTLY AND NOT ON AGGREGATE COUNTRY-WIS E BASIS FOR EXPORTS MADE TO ASSOCIATED ENTERPRISES. 8.1 IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL FOR ASSESSMENT YEAR 200 8-09 (SUPRA), AND THE STAND OF THE ASSESSEE WAS UPHELD IN FOLLOWING W ORDS: 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE BENCH MARKED ITS SEL LING PRICE USING COMPARABLE UNCONTROLLED PRICE (CUP ) METHOD. THE TPO FOUND THAT THE ASSESSEE HAS AGGREGATED ALL THE EXPORTS MADE TO A PAR TICULAR COUNTRY FOR THE PURPOSE OF BENCH MARKING AGAINST THE COMPARABLE T RANSACTIONS WITH UNRELATED PARTIES IN THOSE COUNTRIES. THE TPO HELD THAT SUCH BENCH MARKING IS REQUIRED TO BE DONE FOR EACH TRANSACTION AND FOR EACH PARTICULAR PRODUCT. ACCORDINGLY, THE TPO HAS MADE THE ADDITION OF RS. 14, 61,781/- ON THIS ACCOUNT. THERE IS NO DISPUTE REGARDING THE MOST APPR OPRIATE METHOD APPLIED BY THE ASSESSEE AS INTERNAL CUP. THE ONLY CO NTROVERSY BEFORE US IS WHETHER THE VARIOUS INSECTICIDES PRODUCTS SOLD BY THE A SSESSEE TO ITS AES IN VARIOUS COUNTRIES SHOULD BE CLUBBED TOGETHER FOR THE P URPOSE OF BENCH MARKING ALL THE TRANSACTIONS BEING AT ARMS LENGTH AN D COMPARED WITH THE UNCONTROLLED PRICE. IT IS PERTINENT TO NOTE THAT THE PRODUCT SOLD BY THE 10 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) ASSESSEE ARE INSECTICIDE PRODUCTS IN THE VARIOUS FOR MS I.E. COIL, LIQUID- VAPORIZING PRODUCTS, LIQUID REPELLANTS ETC. THERE I S NO DISPUTE THAT SOME OF THE PRODUCTS ARE SOLD AS A PACKAGE ALONG WITH THE ACC ESSORIES WHICH ARE NECESSARY FOR USING THESE INSECTICIDE PRODUCTS. FOR INSTANCE A HEATER IS REQUIRED ALONG WITH GOOD KNIGHT VAPORIZER AS WELL AS MAT AND, THEREFORE, THE PRODUCT SOLD IN A SINGLE PACKAGE COMPRISING HEATE R ALONG WITH THE LIQUID VAPORIZER IS SOLD AT A DIFFERENT PRICE THEN A PRICE OF A REFILLING BOTTLE. THEREFORE, THE VAPORIZER SOLD WITH HEATER CANNOT BE COM PARED WITH A REFILLING VAPORIZER /REFILLING BOTTLE. WE NOTE THAT ALL THE PRODUCTS ARE FALLING IN THE CATEGORY OF INSECTICIDES AND USED AS COMPLIME NTARY TO EACH OTHERS. SOME OF THE PRODUCTS ARE CHEAPEST VERSIONS OF INSECTI CIDE AND MAY BE SOLD BY THE ASSESSEE ONLY FOR THE PURPOSE OF MARKETING STR ATEGY TO PROMOTE OTHER PRODUCTS OF THE ASSESSEE IN A PARTICULAR MARKE T. THEREFORE, ALL THE PRODUCTS ARE FALLING IN THE CATEGORY OF INSECTICIDES AND USED AS SUPPLEMENTARY TO EACH OTHER THEN THESE PRODUCTS MAY BE PRICED BY TAKING A PORTFOLIO APPROACH BY THE ASSESSEE AND NOT CONSIDERIN G THE PROFIT MOTIVE FROM EACH AND EVERY SINGLE PRODUCT WITHIN THE PORTFOL IO. WE NOTE THAT IN THE CASE OF BOSKALIS INTERNATIONAL VS. DY. DIRECTOR OF INCOME TAX (SUPRA), THE TRIBUNAL WHILE CONSIDERING A SIMILAR ISSUE HAS HEL D IN PARA 11 AND 12 AS UNDER 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE LIMITED ISSUE BEFORE US IS W HETHER THE LEASE RENTAL PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTER PRISES IN RESPECT OF VARIOUS DREDGING EQUIPMENTS TAKEN ON LEASE CAN BE R ECORDED AS CLOSELY LINKED OR CONTINUOUS TRANSACTIONS WHICH CANNO T BE EVALUATED SEPARATELY ON INDIVIDUAL BASIS. IF A NUMBER OF TRAN SACTIONS ARE CLOSELY LINKED OR CONTINUOUS IN NATURE AND ARISING FROM A CONTINUOUS TRANSACTIONS OF SUPPLY OF AMENITY OR SER VICES THE TRANSACTIONS CAN BE PERMITTED AS CLOSELY LINKED TRA NSACTIONS FOR THE PURPOSE OF TRANSFER PRICING AND IN TERMS OF RULE 10A (D). AGGREGATION AND CLUBBING OF THE CLOSELY LINKED TRANS ACTION ARE PERMITTED UNDER THE RULES AND IT IS ALSO SUPPORTED B Y OECD TRANSFER PRICING GUIDELINES. IN ORDER TO EXAMINE WHETHER THE NU MBER OF TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS SO AS TO AGGREGATE FOR THE PURPOSE OF EVALUATION IT IS TO BE CONSIDERED THAT ONE TRANSACTION IS FOLLOW-ON OF THE EARLIER TRANSACTION AND THEN THE SUBSEQUENT TRANSACTION IS CARRIED OUT AND DEPENDENT WHOLLY OR S UBSTANTIALLY ON THE EARLIER TRANSACTION. IT CAN BE VICE-VERSA WHEN THE EARLIER TRANSACTION HAS BEEN ENTERED INTO BETWEEN PARTIES BY KEEPING IN MIND THAT A CONTINUOUS TRANSACTION OF SIMILAR NATURE WILL BE ENTERED INTO BETWEEN THE PARTIES THEREAFTER. THEREFORE, WHEN T HE TRANSACTIONS ARE INFLUENCED BY EACH OTHER AND PARTICU LARLY IN DETERMINING THE PRICE AND PROFIT INVOLVED IN THE TRA NSACTIONS THEN THOSE TRANSACTIONS CAN SAFELY BE REGARDED AS CLOSELY LINKED TRANSACTIONS. THE OECD GUIDELINES HAS REFERRED A PORT FOLIO APPROACH AS BUSINESS STRATEGY CONSISTING OF TAX PAYE RS BUNDLING CERTAIN TRANSACTION FOR THE PURPOSE OF EARNING AN AP PROPRIATE RETURN ACROSS PORTFOLIO RATHER THAN SINGLE PRODUCT. F OR INSTANCE 11 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) SOME PRODUCTS MAY BE MARKETED BY THE TAX PAYER WITH A LOW PROFIT OR EVEN AT LOSS BECAUSE THEY CREATE A DEMAND FOR OTHE R PRODUCTS OR RELATED SERVICES OF THE SAME TAX PAYER THAT ARE THEN S OLD OR PROVIDE HIGH PROFIT. SOME OF THE EXAMPLES GIVEN IN THE OECD GU IDELINES FOR TRANSFER PRICING ARE THE EQUIPMENT AND CAPTIVE AFTER MARKET CONSUMABLES SUCH AS VENDING COFFEE MACHINES AND COFFE E CAPSULES, OR PRINTERS AND CARTRIDGES. THUS PORTFOLIO APPROACH I S BUSINESS STRATEGY THAT MAY NEED TO BE TAKEN INTO ACCOUNT IN COMPARABILITY ANALYSIS. THEREFORE, IF TWO OR MORE TRANSACTIONS BET WEEN THE SAME PARTIES I.E., THE ASSESSEE AND ITS ASSOCIATE ENTERPR ISE CAN BE SAID TO BE CLOSELY LINKED IF THE TRANSACTIONS ARE INTERLINKE D AND TERMS AND CONDITION AS WELL AS PRICES BETWEEN THE PARTIES ARE DETERMINED BASED ON THE TOTALITY OF THE TRANSACTIONS AND NOT ON INDIVIDUAL AND SEPARATE TRANSACTIONS. 12. IN THE CASE IN HAND THE ASSESSEE HAS TAKEN A NUMBER OF DREDGING EQUIPMENTS FROM MORE THAN ONE ASSOCIATE ENTERPRISES. IN THE BUSINESS DECISIONS WHEN NUMBER OF TRANSACTIONS ARE E NTERED INTO BETWEEN TWO PARTIES THEN IT IS A VERY IMPORTANT AND MATERIAL FACTOR TO CONSIDER A PORTFOLIO APPROACH RATHER THAN THE INDIV IDUAL TRANSACTION APPROACH FOR DETERMINATION OF PRICE OF T HE TRANSACTIONS BETWEEN THE PARTIES. EVEN OTHERWISE THE SCHEME OF TRANS FER PRICING PROVISIONS IS TO AVOID BASE EROSION AND PROFIT SHIFT ING FROM ONE TAX JURISDICTION TO ANOTHER TAX JURISDICTION. THEREFORE, THE HIRING OF VARIOUS EQUIPMENTS TO BE USED FOR EXECUTION OF A PR OJECT CAN BE AGGREGATED FOR THE PURPOSE OF DETERMINATION OF ALP O NLY TO THE EXTENT OF THE TRANSACTIONS OR TO THE EXTENT OF NUMBE R OF TRANSACTIONS WITH EACH ASSOCIATED ENTERPRISE. IN OTHER WORDS THE TRA NSACTIONS CARRIED OUT WITH DIFFERENT ASSOCIATE ENTERPRISES CAN NOT BE CLUBBED OR AGGREGATED BECAUSE THEY CANNOT BE TERMED AS CLOSE LY LINKED OR CONTINUOUS SO AS TO INFLUENCE THE PRICE IN AGGREGATE OR THE PROFIT OF THE PARTIES ARISING FROM THESE TRANSACTIONS. HENCE, I N PRINCIPLE WE ACCEPT ARGUMENT OF THE LD.AR THAT THE VARIOUS DREDGING EQUIPMENTS HIRED FROM THE ASSOCIATE ENTERPRISES CAN BE AGGREGATE D FOR THE PURPOSE OF DETERMINATION OF ALP IN TERMS OF RULE 10A (D). HOWEVER, THE AGGREGATION OF THE VARIOUS TRANSACTIONS IS POSSIB LE ONLY WITH RESPECT TO THE TRANSACTIONS WHICH ARE CARRIED OUT BETW EEN THE ASSESSEE AND EACH ASSOCIATE ENTERPRISE. SINCE THE AS SESSEE HAS HIRED THESE EQUIPMENTS AND DREDGERS FROM MORE THAN ONE ASSO CIATE ENTERPRISE, THEREFORE, THE AGGREGATION OF THE TRANSACT ION IS PERMITTED ONLY IN RESPECT OF THOSE WHICH ARE BETWEEN T HE ASSESSEE AND ONE ENTERPRISE SEPARATELY. ACCORDINGLY AO/TPO I S DIRECTED TO DETERMINE THE ALP BY AGGREGATING THE VARIOUS TRANSAC TIONS BETWEEN THE ASSESSEE AND EACH ASSOCIATE ENTERPRISE SE PARATELY AND NOT BY CLUBBING THE TRANSACTIONS WITH ALL ASSOCIATE E NTERPRISES. 26. THERE IS NO DISPUTE THAT IF THE NUMBER OF TRANSACT IONS ARE CLOSELY LINKED OR CONTINUOUS IN NATURE AND ARISING FROM A C ONTINUOUS TRANSACTIONS OF SUPPLY OR SERVICES THE TRANSACTIONS CAN BE CLASS IFIED AS CLOSELY LINKED 12 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) TRANSACTIONS FOR THE PURPOSE OF TRANSFER PRICING AND IN TERMS OF RULE 10A(D) OF THE INCOME TAX RULES. THE AGGREGATION AND CLUBBING OF THE CLOSELY LINKED TRANSACTION ARE PERMITTED UNDER THE RULES AND IT IS A LSO SUPPORTED BY OECD TRANSFER PRICING GUIDELINES. THUS THE CONCEPT OF CLU BBING AND AGGREGATING THE TRANSACTION IS BASED ON THE PREMISE THAT SUCH TRAN SACTIONS INFLUENCED BY EACH OTHER AND PARTICULARLY IN DETERMINING THE PRIC E AND PROFIT INVOLVED IN THE TRANSACTIONS THEN SUCH TRANSACTIONS CAN SAFELY BE REGARDED AS CLOSELY LINKED TRANSACTIONS. THE OECD GUIDELINES HAS REFERRE D A PORTFOLIO APPROACH AS BUSINESS STRATEGY CONSISTING OF TAX PAYERS BUNDL ING CERTAIN TRANSACTION FOR THE PURPOSE OF EARNING AN APPROPRIATE RETURN ACR OSS PORTFOLIO RATHER THAN SINGLE PRODUCT. THE ASSESSEE IS SELLING VARIOUS INSECTICIDE PRODUCTS USED IN THE HOUSEHOLD AT VARIOUS STRATA OF THE SOCIET Y AND, THEREFORE, THE PRODUCTS OF THE ASSESSEE ARE CLEARLY FALLING UNDER T HE ONE PORTFOLIO OF SAME CATEGORY OF PRODUCT AND, THEREFORE, THE ASSESSEE CAN HAVE A PORTFOLIO APPROACH AS A BUSINESS STRATEGY. A SIMILAR VIEW HAS BEEN TAKEN BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TAJ SAT S AIR CATERING LTD. VS. ADDITIONAL CIT (SUPRA). IN VIEW OF THE ABOVE FACTS A ND CIRCUMSTANCES OF THE CASE AS WELL AS FROM THE ABOVE DISCUSSION, WE ARE O F THE VIEW CONSIDERED OPINION THAT ALL THE INSECTICIDE PRODUCTS SOLD BY THE ASSESSEE TO ITS AE IN EACH COUNTRY SHALL BE CLUBBED TOGETHER FOR THE PURPOS E OF DETERMINING THE ARMS LENGTH PRICE. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, THE ADDITION MADE BY THE ASSE SSING OFFICER IS DELETED. 8.2 FOLLOWING THE AFORESAID PRECEDENT, THE GROUND NO. 5 IN THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. BY WAY OF GROUND NO. 6, ASSESSEE-COMPANY HAS ASS AILED THE DISALLOWANCE OF RS.20,00,000/- REPRESENTING REIMBU RSEMENT OF ADVERTISEMENT EXPENSES BY THE ASSESSEE TO ITS ASSO CIATED ENTERPRISE. IN BRIEF, THE RELEVANT FACTS ARE THAT THE ASSESSEE COM PANY PAID RS. 20,00,000/- TO KONINKLINJKE DOUWE EGBERTS, NETHERLA NDS, TOWARDS REIMBURSEMENT OF ADVERTISING EXPENSES. AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE-COMPANY, THE TPO OBSERV ED THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE BASIS ON WHICH THE AMOUNT WAS REIMBURSED TO THE ASSOCIATED ENTERPRISE. HE DETERM INED THE ARMS LENGTH PRICE OF THE SAID PAYMENT AT NIL ON ACCOUN T OF NON-FURNISHING OF ANY SUPPORTING DOCUMENT. THE ASSESSING OFFICER PAS SED THE DRAFT ASSESSMENT ORDER IN CONFORMITY WITH THE ORDER OF TH E TPO. BEFORE THE 13 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) DRP, ASSESSEE RAISED OBJECTIONS AGAINST THE PROPOSE D DISALLOWANCE BY CONTENDING THAT (A) IT PAID THE IMPUGNED AMOUNT AS ITS SHARE IN THE ADVERTISEMENT EXPENSES INCURRED AT THE GROUP LEVEL; AND (B) THE REIMBURSEMENT OF COST WAS BASED ON ASSESSEE-COMPAN YS PROPORTIONATE SHARE IN NET SALES VALUE OF THE GLOBA L BUSINESS, IN RELATION TO THE COSTS OF SUCH SERVICES INCURRED UNDER EACH O F THE BRANDS OF THE GROUP. THE DRP AFFIRMED THE ADDITION PROPOSED BY T HE ASSESSING OFFICER FOR THE REASON THAT THE ASSESSEE HAD FAILED TO ESTABLISH HOW THE PRICE OF RS.20,00,000/- WAS DETERMINED BY IT AS A N ARMS LENGTH PRICE. ADDITIONALLY, THE DRP OBSERVED THAT THE ASSESSEE CO MPANY HAD FAILED TO DEMONSTRATE THAT THE AMOUNT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THUS, IT WAS DISALLOWAB LE UNDER SECTION 37(1) OF THE ACT ALSO. ON THE BASIS OF THE AFORESA ID REASONS, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.20,00, 000/- IN THE FINAL ASSESSMENT ORDER DATED 30/12/2013(SUPRA). 9.1 BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE CONTENDED THAT THE IMPUGNED SUM HAS BEEN UNJUSTLY DISALLOWED. EXPLAIN ING THE FACTUAL ASPECT, IT WAS POINTED OUT THAT SARA LEE IS A WOR LD LEADER IN THE HOUSEHOLD AND BODY CARE BUSINESS AND MARKETS PRODUC TS UNDER VARIOUS GLOBAL BRANDS. IT WAS ASSERTED THAT THE GROUP INCU RS COSTS GLOBALLY TO DEVELOP AND MARKET THE SAID BRANDS, AND ALSO PROVID ES MARKETING ASSISTANCE AND SUPPORT CONCERNING THE PRODUCTS UNDE R THE SARA LEE BRAND. THE ASSESSEE-COMPANY PAID RS.20,00,000/- TO KONINKLINJKE DOUWE EGBERTS, NETHERLANDS AS REIMBURSEMENT ON COST TO COST BASIS , AND NO MARK-UP WAS CHARGED. 14 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) 9.2 FURTHER, IT WAS EXPLAINED THAT THE EXPENSES IN CURRED BY THE ASSESSEE-COMPANY IN INDIA FOR THE BENEFIT OF THE S ARA LEE GROUP WAS ALSO RECOVERED FROM THE ASSOCIATED ENTERPRISE AS P ER ACTUAL COSTS AND IN THIS CONNECTION ASSESSEE-COMPANY HAD RECEIVED AN AM OUNT OF RS.55.13 LACS FROM KONINKLINJKE DOUWE EGBERTS, NETHERLANDS, TOWARDS REIMBURSEMENT OF SALARY COST, ETC. IT WAS THEREFO RE, POINTED OUT THAT THE SHARING OF COST BY THE GROUP CONCERNS HAS, IN F ACT, BENEFITED THE ASSESSEE AS THERE IS A EXCESS RECOVERY OF RS.35 .13 LACS FOR THE YEAR UNDER CONSIDERATION. 9.3 ON THE OTHER HAND, LD. CIT-DR VEHEMENTLY POINT ED OUT THAT THE AUTHORITIES BELOW HAVE DISALLOWED THE CLAIM OF THE ASSESSEE BY CLEARLY NOTICING THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE BASIS ON WHICH THE EXPENSE WAS INCURRED. IN NUT-SHELL, LD. CIT-DR HAS RELIED UPON THE FINDINGS OF THE DRP, WHICH HAS FORMED THE BASIS FOR THE DISALLOWANCE BY THE ASSESSING OFFICER. 9.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY, WE FIND THAT THE PRIME REASON WEIGHING WITH THE INCOME TAX AUTHO RITIES TO DISALLOW THE IMPUGNED SUM WAS FAILURE ON THE PART OF THE ASS ESSEE TO ESTABLISH THE INCURRENCE OF SUCH EXPENDITURE WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF BUSINESS. APART THEREFROM, THE TPO HAS ALSO RECORDED A FINDING THAT THE ASSESSEE-COMPANY COULD NOT SUBSTAN TIATE THE BASIS ON WHICH THE IMPUGNED AMOUNT OF RS.20.00 LACS HAS BEEN REIMBURSED TO ITS ASSOCIATED ENTERPRISE, SO AS TO DETERMINE AS TO HOW THE STATED EXPENDITURE OF RS.20.00 LACS COULD BE CONSIDERED AS AN ARMS LENGTH PRICE. THE EXPLANATION RENDERED BY THE ASSESSEE BE FORE US IS ON THE 15 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) SAME LINES AS WAS MADE BEFORE THE LOWER AUTHORITIES . IN OUR CONSIDERED OPINION, THE EXPLANATION RENDERED BY THE ASSESSEE C ONTINUES TO SUFFER FROM THE SAME VICES, AS HAS BEEN NOTED BY THE INCOM E TAX AUTHORITIES. APART FROM MAKING BALD ASSERTIONS, THERE IS NO COG ENT MATERIAL BROUGHT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE THE INCU RRENCE OF THE IMPUGNED EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND, THUS, SUCH AN EXPENDITURE IS CLEARLY DISALLOWABLE IN TERMS OF SECTION 37(1) OF THE ACT. ON THIS PRELIMINARY A SPECT ITSELF WE UPHOLD THE STAND OF THE AO AND ACCORDINGLY, THE ASSESSEE F AILS IN GROUND OF APPEAL NO.6. 10. BY WAY OF GROUND OF APPEAL NO.7, THE ASSESSEE H AS ASSAILED THE ACTION OF THE AO IN MAKING AN ADDITION OF RS.6,27,9 20/- IN RESPECT OF EARNING ON ACCOUNT OF ARMS LENGTH RATE OF GUARANTE E COMMISSION RELATING TO THE GUARANTEE GIVEN BY THE ASSESSEE TO CITI BANK ON BEHALF OF ITS ASSOCIATED ENTERPRISE GODREJ SARA LEE (BANG LADESH) PVT. LTD. 10.1 IN THIS CONTEXT, BRIEF FACTS ARE THAT ASSESSEE HAD GIVEN GUARANTEE TO BANKS ON BEHALF OF ITS SUBSIDIARY IN BANGLADESH. THE SUBSIDIARY HAD RAISED LOANS FROM THE BANK FOR WHICH GUARANTEE HAD BEEN GIVEN BY THE ASSESSEE TO THE CONSTITUENT BRANCHES OF THE BANK IN INDIA. THE TPO CONSIDERED SUCH TRANSACTION AS AN INTERNATIONAL TRA NSACTION WITHIN THE MEANING OF SECTION 92B OF THE ACT. IN THE COMPUTAT ION OF INCOME FILED, ASSESSEE HAD DECLARED THE INCOME FROM GUARANTEE COM MISSION @3%. ACCORDINGLY, IT WAS ASSERTED BEFORE THE TPO THAT SI NCE GUARANTEE COMMISSION RATE CHARGED BY VARIOUS BANKS WAS AROUND 1 TO 1.5%, THE ADJUSTMENT MADE BY THE ASSESSEE @3% ON ACCOUNT OF G UARANTEE COMMISSION WAS JUSTIFIED AND NO FURTHER TRANSFER PR ICING ADJUSTMENT 16 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) WAS CALLED FOR. IT WAS ALSO EXPLAINED THAT THE FIN ANCIAL GUARANTEE WAS ADVANCED BY THE ASSESSEE FOR STRATEGIC REASONS IN FURTHERANCE OF ITS BUSINESS PROSPECTS. THE TPO, HOWEVER, DIFFERED WIT H THE ASSESSEE WHO COMPARED THE GUARANTEE COMMISSION RATE IN TWO DIFFE RENT GEOGRAPHICAL LOCATIONS, NAMELY, IN INDIA AND BANGLADESH AND THE DIFFERENCE BETWEEN THE TWO RATES WAS TREATED AS THE BENEFIT TO THE ASS OCIATED ENTERPRISE. ACCORDINGLY, THE TPO MADE AN ADDITION OF RS.14,82,9 60/- ON THIS ACCOUNT. IN THE DRAFT ASSESSMENT ORDER, THE ASSESS ING OFFICER PROPOSED THE AFORESAID ADDITION IN CONFORMITY WITH THE ORDER OF THE TPO. THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP, WHO UPHE LD THE STAND OF THE TPO IN PRINCIPLE. HOWEVER, THE DRP OBSERVED THAT T HE TPO OUGHT NOT TO HAVE COMPARED THE RATE IN TWO DIFFERENT GEOGRAPHICA LLY AND ECONOMICALLY DIFFERENT COUNTRIES. ACCORDING TO THE DRP, THE RATE OF INTEREST PREVAILING IN INDIA SHOULD NOT HAVE BEEN T AKEN INTO CONSIDERATION FOR THE FACT THAT THE LOAN IN QUESTIO N WAS AVAILED BY THE ASSOCIATED ENTERPRISE AND DISBURSED IN BANGLADESH ONLY. THEREFORE, IT DIRECTED THE AO TO REWORK THE ADDITION ON THIS COUN T BY CONSIDERING THE RATE BORNE BY THE ASSOCIATED ENTERPRISE IN BANGLADE SH, WHICH RESULTED IN SCALING DOWN OF THE ADJUSTMENT TO RS.6,27,920/- INS TEAD OF RS.14,82,960/- PROPOSED IN THE DRAFT ASSESSMENT ORD ER. IN THE FINAL ASSESSMENT ORDER DATED 30/12/2013, AN ADDITION OF R S.6,27,920/- HAS BEEN MADE. THE AFORESAID ADDITION IS IN CHALLENGE BEFORE US BY WAY OF GROUND OF APPEAL NO.7 IN ASSESSEES APPEAL. IN CRO SS APPEAL, REVENUE HAS ALSO CHALLENGED THE DIRECTION OF THE DRP IN RED UCING THE ARMS LENGTH PRICE OF THE GUARANTEE COMMISSION FROM 5.22% PROPOSED IN THE DRAFT ASSESSMENT ORDER TO 0.94%. 17 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) 10.2 SINCE THE CROSS GROUNDS RELATE TO THE SAME ISS UE, THEY ARE BEING TAKEN UP TOGETHER. IN THIS CONTEXT, IT WAS A COMMO N GROUND BETWEEN THE PARTIES THAT THE AFORESAID ISSUE HAD COME UP BE FORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 AND 2005-06 VIDE ORDERS DATED 22/11/2013(SUPRA) AND 19/2/2014 (SUPRA ) RESPECTIVELY. THE LD. CIT-DR APPEARING FOR THE REVENUE HAS ALSO N OT CONTROVERTED THE FACTUAL MATRIX THAT THE ISSUE RELATING TO DETERMINA TION OF ARMS LENGTH PRICE OF THE GUARANTEE COMMISSION HAS BEEN DEALT WI TH BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2005-06 (SUPRA) AND 2006- 07(SUPRA). AS A CONSEQUENCE OF THE AFORESAID, WE R ESTORE THIS MATTER BACK TO THE FILE OF THE AO, WHO SHALL REWORK THE AD DITION ON THIS COUNT, IF ANY, IN CONSONANCE WITH THE PRECEDENTS IN ASSESSEE S OWN CASE VIDE ORDERS OF THE TRIBUNAL DATED 22/11/2013(SUPRA), AND 19/2/2014(SUPRA). THUS, THE GROUND OF APPEAL NO.7 IN THE APPEAL OF TH E ASSESSEE AND GROUND OF APPEAL NO.1 TO 1.1 IN THE APPEAL OF THE R EVENUE ARE ACCORDINGLY DISPOSED OF. 11. BY WAY OF GROUND OF APPEAL NO.8, THE ASSESSEE C OMPANY HAS ASSAILED THE ACTION OF THE AO IN NOT FOLLOWING THE DIRECTIONS OF THE DRP IN RESPECT OF RS.1,24,81,000/- REPRESENTING PROVIS ION OF DIMINUTION IN THE VALUE OF INVESTMENT, WHILE COMPUTING THE BOOK P ROFITS UNDER SECTION 115JB OF THE ACT. 11.1 IN THIS CONTEXT, THE BRIEF FACTS ARE THAT BEFO RE THE DRP ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER ERRED IN NOT GRANTING DEDUCTION OF RS.1,24,81,000/- IN RESPECT OF THE PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT WRITTEN BACK WHILE COMPUTING THE BOOK PR OFIT UNDER SECTION 115JB OF THE ACT. THE ASSESSEE EXPLAINED BEFORE TH E DRP THAT THE 18 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) AFORESAID PROVISIONS HAS BEEN ACCOUNTED AND CLAIME D IN THE YEAR OF ITS CREATION, BEING ASSESSMENT YEAR 2005-06. IN THE AS SESSMENT YEAR 2005- 06 ASSESSEE WAS IN RECEIPT OF A NOTICE UNDER SECTIO N 154 OF THE ACT FROM THE ASSESSING OFFICER PROPOSING ADDING BACK OF SUCH PROVISION IN VIEW OF RETROSPECTIVE AMENDMENT TO THE ACT. THE ASSESSEE E XPLAINED BEFORE THE DRP THAT IT HAD MADE A WRITTEN COMMUNICATION TO ASSESSING OFFICER DATED 18/02/2010 GIVING NO OBJECTION TO SUCH ADJUST MENT, BUT THE SAME WAS PENDING DISPOSAL WITH THE AO. IN THE AFORESAI D LIGHT, THE DRP NOTED THAT IF THE AO WAS TO CARRY OUT THE AMENDMENT UNDER SECTION 154 IN THE ASSESSMENT YEAR 2005-06, THEREBY ADDING BACK SUCH PROVISION, THEN THE CONSEQUENTIAL EFFECT WOULD HAVE TO BE GIV EN IN THE INSTANT ASSESSMENT YEAR, OTHERWISE IT WOULD AMOUNT TO SAME ADDITION IN TWO ASSESSMENT YEARS. THEREFORE, THE DRP DIRECTED THE AO TO VERIFY THE FACTS AND IF THE AMOUNT WAS FOUND TO BE ADDED BACK IN THE ASSESSMENT YEAR 2005-06, THEN THE AO WAS DIRECTED TO GRANT DED UCTION IN THIS YEAR. 11.2 BEFORE US, THE GRIEVANCE OF THE ASSESSEE IS T HAT NO SUCH VERIFICATION EXERCISE HAS BEEN CARRIED OUT BY THE A O SO AS TO GIVE EFFECT TO THE DIRECTIONS OF THE DRP. 11.3 IN OUR CONSIDERED OPINION, THE DIRECTION OF TH E DRP IS UN- EXCEPTIONAL AND WE FIND NO REASON TO INTERFERE WITH IT, WHICH IS AIMED AT REMOVING DOUBLE ADDITION IN TWO ASSESSMENT YEAR S. THE AO IS HEREBY DIRECTED TO VERIFY THE FACTUAL POSITION IN ASSESSMENT YEAR 2005- 06 AND IF IT IS FOUND THAT THE CLAIM STANDS DISALLO WED IN ASSESSMENT YEAR 2005-06, THEN THE AO MAY GRANT THE DEDUCTION IN THE INSTANT ASSESSMENT YEAR AS PER LAW. THUS, IN PRINCIPLE, W E AFFIRM THE STAND OF 19 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) THE DRP ON THIS ASPECT AND DIRECT THE ASSESSING OFF ICER TO EFFECTUATE THE SAME AS PER LAW. THUS, ON THIS ASPECT ASSESSEE SUC CEEDS FOR STATISTICAL PURPOSES. 12. THE ONLY OTHER GROUND REMAINING IS GROUND OF AP PEAL NO.3 IN THE APPEAL OF THE REVENUE, WHICH ARISES FROM THE ACTION OF THE CIT(A) WHEREBY THE RECOMPUTATION OF PROFITS OF TWO UNITS MANUFACTURING MOSQUITO REPELLENT MATS AND LIQUID LOCATED AT GUWA HATI WAS REWORKED BY THE ASSESSING OFFICER. 12.1 IN THIS REGARD, BRIEF FACTS ARE THAT THE ASSES SEE COMPANY HAS VARIOUS MANUFACTURING UNITS SPREAD OVER ASSAM, MEGH ALAYA, TAMIL NADU, PONDICHERRY, ETC. SOME OF THE MANUFACTURING UNITS ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC/80-IE OF THE ACT @100% AND SOME ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB OF T HE ACT @ 30% AND SOME OF THE UNITS ARE NON-ELIGIBLE. IN THIS CONTEX T, THE ASSESSING OFFICER EXAMINED THE PROFIT TO SALE RATIO OF THE DIFFERENT UNITS AND FOUND THAT THE PROFIT MARGIN OF THE TWO UNITS SITUATED AT GUWA HATI WAS ABNORMALLY HIGH AS COMPARED TO THE PROFIT MARGIN OF THE UNITS SITUATED AT PONDICHERRY. THEREFORE, IN THE DRAFT ASSESSMENT ORD ER DATED 28/2/2013, THE CLAIM FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT IN RESPECT OF THE TWO UNITS IN GUWAHATI WAS ALLOWED TO THE EXTENT OF RS.8,36,17,721/- AS AGAINST THE CLAIM OF RS.61,15,40,758/- MADE BY THE ASSESSEE, THEREBY RESULTING IN THE DISALLOWANCE OF THE CLAIM UNDER SECTION 80-IC OF THE ACT TO THE EXTENT OF RS.52,79,23,037/-. 20 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) 12.2 BEFORE THE DRP, THE ASSESSEE POINTED OUT THAT THE ACTION OF THE AO WAS MISPLACED IN AS MUCH AS THE ASSESSING OFFICE R MISTAKENLY ASSUMED THAT GUWAHATI UNIT WAS MANUFACTURING MOSQUI TO REPELLENT COILS, WHEREAS THE GUWAHATI UNIT WAS MANUFACTURING MOSQUITO REPELLENT MATS AND LIQUID, WHICH WAS NOT COMPARABLE WITH THE FINANCIAL RESULTS OF PONDICHERRY UNIT, WHICH WAS MANUFACTUR ING MOSQUITO REPELLENT COILS. THE ASSESSEE ALSO POINTED OUT BEF ORE THE DRP THAT THE ADJUSTMENT WAS PROPOSED BY THE ASSESSING OFFICER WI THOUT APPRECIATING THE SUBMISSIONS MADE AND BY MERELY FOLLOWING THE ST AND IN THE ASSESSMENT YEAR 2008-09. THE DRP FOUND THAT THE AF ORESAID DISPUTE WAS SIMILAR TO THE ASSESSMENT YEAR 2008-09 AND IT U PHELD THE STAND OF THE ASSESSEE. AS PER DRP, ON FACTS, SUCH AN ADDITI ON WAS NOT MERITED. ACCORDINGLY, IN THE FINAL ASSESSMENT ORDER NO SUCH DISALLOWANCE HAS BEEN MADE BUT REVENUE IS IN APPEAL AGAINST SUCH DIR ECTION OF THE DRP. 12.3 AFTER CONSIDERING THE RIVAL STANDS, WE FIND TH AT THE FACTUAL FINDINGS OF THE DRP CLEARLY BELIE THE ACTION OF TH E ASSESSING OFFICER IN PARTIALLY DENYING THE CLAIM OF DEDUCTION UNDER SECT ION 80-IC OF THE ACT IN RESPECT OF THE TWO UNITS AT GUWAHATI MANUFACTURI NG MOSQUITO REPELLENT MATS AND LIQUID. FACTUALLY SPEAKING, THE RESULTS OF THE GUWAHATI UNIT COULD NOT BE COMPARED WITH THE RESULT S OF THE PONDICHERY UNIT SINCE THE PRODUCTS BEING MANUFACTUR ED AT TWO PLACES WERE DIFFERENT. THE PONDICHERY UNIT WAS MANUFACTUR ING MOSQUITO REPELLENT COILS, WHEREAS THE GUWAHATI UNITS WERE MA NUFACTURING MOSQUITO REPELLENT MAT AND LIQUID AND, THEREFORE, T HE TWO SITUATIONS WERE NOT COMPARABLE. FURTHERMORE, WE NOTICE THAT I N THE CURRENT YEAR THE DRP HAS BEEN GUIDED BY THE DETAILED DISCUSSIONS MADE BY IT IN ITS 21 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) ORDER FOR THE ASSESSMENT YEAR 2008-09 DATED 7/09/20 12, A COPY OF WHICH HAS ALSO BEEN PLACED IN THE PAPER BOOK FILED BEFORE US AT PAGES 148 TO 157. THE RELEVANT DISCUSSION IN THE ORDER O F DRP REVEALS THAT APART FROM THE DIFFERENCE IN THE PRODUCTS BEING MAN UFACTURED, IT HAS ALSO BEEN BROUGHT OUT THAT THE MANUFACTURING PROCES S INVOLVED IN MANUFACTURE OF MOSQUITO REPELLENT COILS IS DIFFEREN T THAN THE PROCESS REQUIRED FOR MANUFACTURING MOSQUITO REPELLENT MAT A ND LIQUID. THESE FACTUAL ASPECTS HAVE NOT BEEN NEGATED BY THE REVENU E AND, THEREFORE, THE DECISION OF THE DRP CANNOT BE FAULTED WITH. AP ART FROM THE AFORESAID, WE HAVE CAREFULLY PERUSED THE DISCUSSION MADE BY THE AO IN THE DRAFT ASSESSMENT ORDER AND FIND THAT NO SPECIFI C REASON HAS BEEN PROPOUNDED TO DEMONSTRATE THAT THE PROFITS DECLARED IN THE GUWAHATI UNIT WAS OTHERWISE UNTRUE EXCEPT BY COMPARING IT WI TH THE LEVEL OF PROFIT OF THE PONDICHERRY UNIT, WHICH OSTENSIBLY WA S NOT MANUFACTURING THE SAME COMMODITY. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THERE IS NO MERIT IN THE GROUND RAISED BY THE REVENUE CHALLE NGING THE DIRECTION OF THE DRP FOR ALLOWING THE CLAIM FOR DEDUCTION UND ER SECTION 80-IC OF THE ACT FOR GUWAHATI UNITS IN ACCORDANCE WITH THE CLAIM MADE IN THE RETURN OF INCOME. THUS, REVENUE FAILS ON GROUND OF APPEAL NO.3 ALSO. 13. IN THE RESULT, WHEREAS THE APPEAL OF THE ASSESS EE IS PARTLY ALLOWED, THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/11/2015. SD/- SD/- (AMIT SHUKLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 18/11/2015 22 ITA NO. 1251& 1356/MUM/2014 (ASSESSMENT YEAR : 2009-10) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS