Rieter India Pvt. Ltd. (Formerly suessen Asia P. Ltd.), Satara V. Asst. CIT,Circle-6, Pune

ITA 1374/PUN/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84882 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Depreciation; Transfer pricing; International transaction; Retrospective amendment; Additional evidence
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1374/PN/2010 (ASSESSMENT YEAR : 2006-07) RIETER INDIA PRIVATE LIMITED, ( FORMERLY SUESSEN ASIA PVT. LTD. ) MAHAD PANDHARPUR ROAD, TALUKA KHANDALA, DIST. SATARA 412 801. PAN : AAECS1310G . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 6, PUNE. . RESPONDENT ASSESSEE BY : MR. (DR.) RAKESH GUPTA DEPARTMENT BY : MR. A. K. MODI DATE OF HEARING : 12-06-2014 DATE OF PRONOUNCEMENT : 25-08-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE PERTAINING TO THE ASSESSMENT YEAR 2006-07, WHICH IS DIRECTED AGAI NST THE ORDER OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE- 6, PUNE (IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT) DATED 23.09.2010, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHORT THE D RP) DATED 30.08.2010. 2. IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELL ANT COMPANY (FORMERLY KNOWN AS SUESSEN ASIA PVT. LTD.) WAS INCORPORATED O N 21.09.1992 AS A SUBSIDIARY OF SPINDELFABRIK SUESSEN GMBH, GERMANY. IN 2005, SPINDELFABRIK SUESSEN BECAME A SUBSIDIARY OF RIETER GROUP, SWITZE RLAND. SUESSEN ASIA PVT. LTD. WAS A SICK COMPANY AND SUBSEQUENTLY, PURS UANT TO THE SCHEME OF MERGER AS SANCTIONED BY THE BOARD FOR INDUSTRIAL AN D FINANCIAL RECONSTRUCTION ITA NO.1374/PN/2010 A.Y. : 2006-07 (BIFR) VIDE ITS ORDER DATED 22.12.2008, IT WAS MERG ED WITH RIETER INDIA PVT. LTD. WITH RETROSPECTIVE EFFECT FROM 01.04.2007. TH E ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US IS 2006-07. THE APPELLANT COMPANY IS ENGAGED IN THE MANUFACTURING OF TEXTILE SPINNING MACHINES, PARTS A ND COMPONENTS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT FILED A RET URN OF INCOME ON 28.11.2006 SHOWING A NET LOSS OF RS.3,71,99,855/-. APART FROM BEING ENGAGED IN THE BUSINESS OF MANUFACTURE OF TEXTILE SPINNING MACHINE S, PARTS AND COMPONENTS, ITS ACTIVITIES ALSO COMPRISED OF POST-SALES SERVICE S SUPPORT FOR SUCH PRODUCTS IN INDIA AND ABROAD. THE ASSESSEE COMPANY ALSO IMPORT S COMPONENTS AND PARTS FOR MANUFACTURING RING SPINNING MACHINES, AND OTHER PARTS AND COMPONENTS NAMELY TOP ROLLERS, BOTTOM ROLLERS, TOP ARMS INSERT S. COMPONENTS ARE ALSO IMPORTED AS PER THE REQUIREMENTS OF CUSTOMERS WHO P URCHASE THE TEXTILE MANUFACTURING MACHINES. FOR THE ASSESSMENT YEAR UN DER CONSIDERATION, ASSESSEE WAS FOUND TO HAVE ENTERED INTO INTERNATION AL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES ON ACCOUNT OF IMPORT OF TEXT ILE MACHINERY, COMPONENTS AND PARTS; EXPORT OF TEXTILE MACHINERY, COMPONENT A ND PARTS; MISCELLANEOUS SERVICES AVAILED AND ALSO PROVIDED TO ASSOCIATED EN TERPRISES; INTEREST PAYMENT; RECOVERY OF EXPENSES; AND, PROVISION FOR D OUBTFUL DEBTS. AS PER THE TRANSFER PRICING STUDY, ASSESSEE REPORTED THAT IT H AD BENCHMARKED ALL THE TRANSACTIONS EXCEPT FOR EXPORT OF GOODS, BY USING T HE TRANSACTIONAL NET MARGIN (TNM) METHOD. THE TRANSACTION OF EXPORT OF GOODS W ERE BENCHMARKED BY USING COST PLUS METHOD. HOWEVER, THE TRANSFER PRIC ING OFFICER (TPO) OBSERVED THAT ASSESSEE HAD AGGREGATED ALL THE TRANS ACTIONS AND APPLIED THE TNM METHOD ON AGGREGATE LEVEL CONSIDERING THE DATA OF THE ENTIRE COMPANY AS A WHOLE. FOR THIS PURPOSE, ASSESSEE HAD IDENTIFIED SEVEN COMPARABLE COMPANIES BY CARRYING OUT SEARCH ON THE ORBIS DATAB ASE. THE PROFIT LEVEL INDICATOR (PLI) ADOPTED WAS PROFIT BEFORE TAX/TOTAL TURNOVER. SINCE THE ARITHMETICAL MEAN OF THE MARGIN OF THESE SEVEN COMP ARABLES WORKED OUT TO 1.92%, WHICH WAS LESS THAN THE ASSESSEES MARGIN OF 8.1%, ASSESSEE SUBMITTED THAT THE INTERNATIONAL TRANSACTIONS UNDER TAKEN BY IT WERE AT ARM'S ITA NO.1374/PN/2010 A.Y. : 2006-07 LENGTH PRICE. THE TPO NOTED THE SEVEN COMPARABLES ADOPTED BY THE ASSESSEE WHICH ARE AS UNDER :- SR.NO. NAME OF THE COMPANY PROFIT MARGIN (%) (OPERATING PROFIT/SALES) 1 LAKSHMI AUTOMATIC LOOM WORKS LTD. 1.55 2 SCHLAFHORST ENGINEERING (INDIA) LTD. 5.93 3 VEEJAY LAKSHMI ENGINEERING WORKS LTD. 12.60 4 W.H. BRADY & COMPANY LTD. 12.19 5 U M W INDUSTRIES LTD. -25.93 6 LAKSHMI MACHINE WORKS LTD. 14.25 7 SM ENERGY TEKNIK & ELECTRONICS LTD. -7.12 AVERAGE 1.92 3. IN THE COURSE OF TRANSFER PRICING PROCEEDINGS, T HE TPO EXCLUDED THE COMPARABLE AT ITEM NO.4, I.E. W.H. BRADY & COMPANY LTD. FROM THE LIST OF COMPARABLES BECAUSE IT WAS FOUND TO BE FUNCTIONALLY INCOMPARABLE. ACCORDINGLY, THE TPO CONSIDERED THE BALANCE SIX COM PARABLES AND COMPUTED AVERAGE PLI AT 0.36%. SIMILARLY, THE MARGIN OF ASS ESSEE WORKED OUT AT 8.1% WAS ALSO NOT ACCEPTED BY THE TPO. THE TPO EXAMINED THE COMPUTATION OF ASSESSEES MARGIN AND FOUND THAT ASSESSEE HAD INCLU DED AN AMOUNT OF RS.14,77,02,000/- AS OPERATING INCOME WHEREAS SUCH AMOUNT REPRESENTED WRITE-BACK OF AN UNSECURED LOAN PURSUANT TO WAIVER GRANTED BY ASSESSEES ASSOCIATED ENTERPRISES. AS PER THE TPO, SUCH INCOM E COULD NOT BE CONSIDERED AS A PART OF OPERATING INCOME AND HE ACCORDINGLY RE -WORKED ASSESSEES NET PROFIT MARGIN AFTER EXCLUDING THE AFORESAID INCOME. THIS RESULTED IN OPERATING MARGIN OF THE ASSESSEE AT (-) 24.55%. AS A RESULT, THE TPO WORKED OUT AN UPWARD ADJUSTMENT OF RS.8,11,47,490/- TO THE INTERN ATIONAL TRANSACTIONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS ADOPTED THE AF ORESAID ADJUSTMENT FOR THE PURPOSES OF COMPUTING TOTAL INCOME OF THE ASSES SEE WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTE RPRISES. THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE DRP WERE DISMISSE D AND ACCORDINGLY THE FINAL ASSESSMENT ORDER MADE BY THE ASSESSING OFFICE R U/S 143(3) R.W.S. 144C OF THE ACT DATED 2309.2010 CONTAINED AN ADDITION OF RS.8,11,47,419/- TO THE RETURNED INCOME. THE SAID ADDITION IS THE SUBJECT- MATTER OF DISPUTE BEFORE US. ITA NO.1374/PN/2010 A.Y. : 2006-07 4. AT THE TIME OF HEARING, LEARNED REPRESENTATIVE F OR THE ASSESSEE REFERRED TO AN APPLICATION DATED 07.03.2012 MADE BY THE ASSE SSEE UNDER RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 (IN SHO RT THE APPELLATE TRIBUNAL RULES) SEEKING PERMISSION TO PRODUCE ADDITIONAL EVI DENCE IN SUPPORT OF ITS GROUND CHALLENGING THE ADDITION OF RS.8,11,47,419/- MADE TO THE TOTAL INCOME BY WAY OF UPWARD ADJUSTMENT TO THE STATED VALUE OF ASSESSEES INTERNATIONAL TRANSACTIONS ENTERED INTO WITH ITS ASSOCIATED ENTER PRISES. THE PARTICULARS OF ADDITIONAL EVIDENCE SOUGHT TO BE FILED AND ITS RELE VANCE, AS CANVASSED BY THE APPELLANT IS AS UNDER :- PARTICULARS OF EVIDENCE BEING FILED RELEVANCE ANNUAL REPORTS OF THE COMPARABLES FOR THE YEAR UNDER CONSIDERATION. ANNUAL REPORTS OF THE COMPARABLES FOR EARLIER YEARS. EVIDENCE AS REGARDS THE NET WORTH OF THE COMPARABLES TO SUPPORT THE ASSESSEES ARGUMENT REGARDING SELECTION OF COMPARABLES. TO DEMONSTRATE THE DIFFERENCES IN THE DEPRECIATION POLICIES FOLLOWED BY THE APPELLANT VIS--VIS THE COMPARABLES, ON ACCOUNT OF WHICH IT WOULD BE MORE APPROPRIATE TO USE CASH PROFIT LEVEL INDICATOR (PLI) SO AS TO ELIMINATE SUCH DIFFERENCES. TO DEMONSTRATE THE DIFFERENCES IN THE WORKING CAPITAL EMPLOYED BY THE APPELLANT VIS--VIS THE COMPARABLES, ON ACCOUNT OF WHICH A WORKING CAPITAL ADJUSTMENT IS WARRANTED. TO DEMONSTRATE THE DIFFERENCES IN THE CAPACITY UTILIZATION OF THE APPELLANT VIS-- VIS THE COMPARABLES, ON ACCOUNT OF WHICH AN ADJUSTMENT FOR CAPACITY UTILIZATION WOULD BE REQUIRED TO BE MADE. A COPY OF LAKSHMI MACHINE WORKS LTD. BUSINESS PROFILE AS AVAILABLE ON ITS WEBSITE. TO PROVE THAT LAKSHMI MACHINE WORKS LTD. IS AN INDUSTRY BEHEMOTH AND SHOULD NOT BE CONSIDERED AS COMPARABLE TO THE APPELLANT, WHO, IN FACT WAS A SICK COMPANY. AUDITED SEGMENTAL PROFITABILITY STATEMENT OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. TO SUBSTANTIATE THE APPELLANTS CONTENTION THAT THE PROFITABILITY OF THE APPELLANT, FROM EXPORT TO ASSOCIATED ENTERPRISE (AES) BETTER THAN THAT FROM THE APPELLANTS SALES OF THIRD PARTIES. COPY OF THE WAIVER LETTER PERTAINING TO LOAN AND INTEREST WAIVED OFF BY THE AE. SUBSTANTIATING THE FACT THAT THE WAIVER OF LOAN AND INTEREST PAYABLE WAS DONE BY THE AE OWING TO THE FINANCIAL SICKNESS OF THE APPELLANT AND WAS WITH THE INTENTION OF SUPPORTING THE OPERATIONS OF THE APPELLANT AND SHOULD BE THEREFORE CONSIDERED OPERATING IN NATURE. ITA NO.1374/PN/2010 A.Y. : 2006-07 5. AS PER THE APPELLANT, THE AFORESAID ADDITIONAL E VIDENCES ARE RELEVANT AND NECESSARY FOR AN APPROPRIATE DISPOSAL OF ASSESS EES APPEAL BEFORE THE TRIBUNAL. IN RESPONSE, THE LEARNED CIT-DR HAS FURN ISHED TWO SETS OF WRITTEN COMMENTS OF THE ASSESSING OFFICER ON ADMISSION OF S UCH ADDITIONAL EVIDENCES. ORIGINALLY, WRITTEN COMMENTS DATED 07.05.2012 HAVE BEEN FILED AND AT THE TIME OF FINAL HEARING ON 12.06.2014, ANOTHER WRITTEN COM MENTS DATED 24.09.2013 MADE BY THE ASSESSING OFFICER HAVE ALSO BEEN FURNIS HED BY THE LEARNED CIT- DR APPEARING FOR THE REVENUE. WE DEEM IT FIT AND P ROPER TO REPRODUCE THE RELEVANT EXTRACT FROM THE COMMENTS OFFERED BY THE A SSESSING OFFICER ON TWO DIFFERENT OCCASIONS I.E. OF 07.05.2012 AND 24.09.20 13 (SUPRA). THE COMMENTS DATED 07.05.2012 READ AS UNDER :- 1. THE ADDITIONAL EVIDENCES MENTIONED AT SR. NO. 1 , 2, 3 AND 5 IN THE ABOVE TABLE MAY BE PERMITTED TO FILE. HOWEVE R, THE APPELLANT HAS NOT SUBMITTED THE SPECIFIC DETAILS ALONGWITH THE AMOUNT S WHICH ARE SOUGHT TO BE USED AND ITS IMPACT ON THE DETERMINATION OF ARM' S LENGTH PRICE. THEREFORE, AT THIS STAGE, IT IS DIFFICULT TO COMMEN T ON THE RELEVANCE AS WELL AS ACCURACY OF THE DATA SOUGHT TO BE USED BY THE AP PELLANT. 2. FURTHER, THE APPELLANT HAD NOT RAISED THE GROUND OF WORKING CAPITAL ADJUSTMENT EITHER BEFORE THE TPO/AO OR BEFORE THE DRP, PUNE OR BEFORE ITAT. THEREFORE, THE SAME MAY NOT BE ALLOWED AT THIS STAGE BEFORE ITAT. 3. THE ADDITIONAL EVIDENCES MENTIONED AT SR. NO. 4 IN THE ABOVE TABLE SHALL NOT BE ALLOWED AS THE APPELLANT HAD NOT SUBMITTED THE SAID DOCUMENT EITHER BEFORE THE TPO/AO OR BEFORE THE DRP , PUNE. MOREOVER, AUDITED SEGMENTAL PROFITABILITY STATEMENT FILED BY THE APPELLANT IS PREPARED ON 01.01.2012, I.E., AFTER THE ORDER PASSED BY THE TPO/AO AND ALSO THE DRP, PUNE. FURTHER, THE APPELLANT HAD NOT RAISED SU CH GROUND EITHER BEFORE THE TPO/AO OR BEFORE THE DRP, PUNE OR BEFORE ITAT. 6. THE COMMENTS DATED 24.09.2013 READ AS UNDER :- ADDITIONAL EVIDENCE REMARKS ANNUAL REPORTS OF THE COMPARABLES FOR THE YEAR UNDER CONSIDERATION. ASSESSEE HAS SOUGHT TO PRESENT THE NET WORTH OF THE COMPARABLE COMPANIES TO SUPPORT THE ASSESSEE'S ARGUMENT REGARDING SELECTION OF COMPARABLES. THERE IS NO OBJECTION FOR SUBMISSION OF THE ADDITIONAL EVIDENCE. HOWEVER, IT MAY BE BROUGHT TO BE NOTICE TO THE HON'BLE ITAT THAT THIS COMPARABLE WAS SELECTED BY THE ASSESSEE HIMSELF RELEVANT PAGES FROM TP DOCUMENTATION, SUBMITTED BY THE ASSESSEE ARE ENCLOSED. ANNUAL REPORTS OF THE WITH THIS GROUND, ASSESSEE IS ITA NO.1374/PN/2010 A.Y. : 2006-07 COMPARABLES FOR EARLIER YEARS SEEKING CHANGE IN ITS BENCHMARKING ANALYSIS. WITH THIS EVIDENCE : I) ASSESSEE IS SEEKING COMPARISON OF PROFIT BEFORE DEPRECIATION. II) ASSESSEE IS SEEKING WORKING CAPITAL ADJUSTMENT. III) ASSESSEE IS SEEKING BENEFIT OF CAPACITY UTILIZATION. THIS EVIDENCE OF THE ASSESSEE IS NOTHING BUT AN AFTERTHOUGHT. AS PER THE 3CEB REPORT, THE ASSESSEE COMPANY HAD BENCHMARKED ALL THE TRANSACTIONS EXCEPT FOR EXPORT OF GOODS BY USING THE TNMM METHOD. THE TRANSACTIONS OF EXPORT OF GOODS WERE BENCHMARKED BY USING COST PLUS METHOD. HOWEVER, ON VERIFICATION OF THE TRANSFER PRICING REPORT SUBMITTED BY THE ASSESSEE DURING THE COURSE OF PROCEEDINGS, THE TPO OBSERVED THAT THE ASSESSEE HAD AGGREGATED ALL THE TRANSACTIONS AND HAD APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) ON AGGREGATE LEVEL CONSIDERING THE DATA OF THE ENTIRE COMPANY AS A WHOLE. NOW THE ASSESSEE ONCE AGAIN SEEKING TO CHANGE THE ANALYSIS METHOD. THIS EVIDENCE SHOULD NOT BE ALLOWED AND MUST BE OPPOSED. A COPY OF LAKSHMI MACHINE WORKS LTD. BUSINESS PROFILE AS AVAILABLE ON ITS WEBSITE. COMPANY LAKSHMI MACHINE WORKS LTD. WAS SELECTED BY THE ASSESSEE AS ITS COMPARABLE. THE ASSESSEE HAS SOUGHT EXCLUSION OF LAKSHMI MACHINE WORKS LTD. ON THE GROUND THAT THE ASSESSEE IS A SICK COMPANY. THERE IS NO OBJECTION FOR SUBMISSION OF THE ADDITIONAL EVIDENCE. HOWEVER, IT MAY BE BROUGHT TO BE NOTICE TO THE HON'BLE ITAT, THAT SIMILAR SITUATION HAS BEEN DEALT WITH BY PUNE ITAT IN THE CASE OF VISHAY COMPONENTS, AY 2006-07 (ITA 133/PN/11), IN THIS CASE, TPO HAD REJECTED ONE OF THE COMPARABLE ON THE GROUD THAT IT WAS A SICK COMPANY AND REFERRED TO BIFR. THE ITAT HAS REJECTED THE CONTENTION OF THE DEPARTMENT AND HAS DIRECTED TO INCLUDE THE COMPANY IN COMPARABILITY ANALYSIS. AUDITED SEGMENTAL PROFITABILITY STATEMENT OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION. AS PER THE 3CEB REPORT, THE ASSESSEE COMPANY HAD BENCHMARKED ALL THE TRANSACTIONS EXCEPT FOR EXPORT OF GOODS BY USING THE TNMM METHOD. THE TRANSACTIONS OF EXPORT OF GOODS WERE BENCHMARKED BY USING COST PLUS METHOD. HOWEVER, ON VERIFICATION OF THE TRANSFER PRICING REPORT SUBMITTED BY THE ASSESSEE DURING THE COURSE OF PROCEEDINGS, THE TPO OBSERVED THAT THE ASSESSEE HAD AGGREGATED ALL THE TRANSACTIONS AND HAD APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) ON AGGREGATE LEVEL CONSIDERING THE DATA OF THE ENTIRE COMPANY AS A WHOLE. NOW THE ASSESSEE ONCE AGAIN WANT TO CHANGE THE ANALYSIS METHOD. WITH THIS EVIDENCE ASSESSEE IS SEEKING APPLICABILITY OF INTERNAL TNMM. VIDE ADDITIONAL EVIDENCE AT S.NO. 2 ASSESSEE IS SEEKING CHANGE OF THE METHOD IN BENCHMARKING ANALYSIS. HERE AGAIN, ITA NO.1374/PN/2010 A.Y. : 2006-07 ASSESSEE IS SEEKING PERMISSION FOR INTERNAL TNMM. THIS INDICATES THAT ASSESSEE IS CHANGING ITS STAND ABOUT THE COMPARABILITY ANALYSIS AND HE WANT TO SELECT THE METHOD THAT SUITS HIS RESULTS. COPY OF THE WAIVER LETTER PERTAINING TO LOAN AND INTEREST WAIVED OFF BY THE AE. PRIMA-FACIE THERE IS NO OBJECTION FOR ADMISSION THIS GROUND. 7. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY POINTED OUT THAT THE AFORESAID ADDITIONAL EVIDENCES SOUGHT TO BE RELIED UPON BY THE ASSESSEE ARE NOT ONLY RELEVANT BUT ARE NECESSARY IN ORDER TO DETERMINE THE CORRECT TAX LIABILITY OF THE ASSESSEE IN THE CONTEX T OF THE TRANSFER PRICING ADJUSTMENT. THE LEARNED COUNSEL POINTED OUT THAT T HE ASSESSEE WAS A SICK COMPANY, HAVING MADE AN APPLICATION BEFORE THE BIFR . DUE TO THE WEAK FINANCIAL POSITION, IT WAS NOT IN A POSITION TO HIR E PROFESSIONALLY QUALIFIED CONSULTANTS TO ASSIST IT IN THE TRANSFER PRICING AS SESSMENT PROCEEDINGS BEFORE THE TPO AND THE DRP AND THEREFORE IT TOOK THE DECIS ION OF HANDLING THE PROCEEDINGS IN-HOUSE. THE INTERNAL STAFF WHO HANDL ED PROCEEDINGS BEFORE THE LOWER AUTHORITIES WAS OBVIOUSLY NOT WELL VERSED WIT H TRANSFER PRICING MATTERS WHICH WAS A NEW SUBJECT IN INDIA; THUS, ASSESSEE WA S PREVENTED BY THE SUFFICIENT REASONS FOR NOT APPROPRIATELY PRESENTING ITS CASE BEFORE THE LOWER AUTHORITIES. AT THE PRESENT STAGE, ASSESSEE HAS AP POINTED PROFESSIONALLY QUALIFIED STAFF, HAVING EXPERTISE IN THE TRANSFER P RICING MATTERS AND THEREFORE IT IS IN THIS BACKGROUND IT HAS BEEN REALIZED BY THE A SSESSEE THAT THE AFORESAID ADDITIONAL EVIDENCE WAS NECESSARY TO DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. IT WAS THEREFORE CONTE NDED THAT THE AFORESAID EVIDENCE BE ADMITTED FOR PROPER ADJUDICATION OF ASS ESSEES TAX LIABILITY. IT WAS ALSO SUBMITTED THAT ASSESSEE WOULD HAVE NO OBJECTIO N IF THE TRIBUNAL ADMITS THE ADDITIONAL EVIDENCE AND THE MATTER IS RESTORED BACK TO THE FILE OF THE LOWER AUTHORITIES IN ORDER TO ALLOW APPROPRIATE OPPORTUNI TY FOR THE REVENUE OF CONSIDERING THE NEW EVIDENCE. ITA NO.1374/PN/2010 A.Y. : 2006-07 8. ON THE OTHER HAND, LEARNED CIT-DR APPEARING FOR THE REVENUE HAS CONTENDED THAT THE ADDITIONAL EVIDENCE NOW SOUGHT T O BE PRODUCED BY THE ASSESSEE IS NOTHING BUT AN AFTERTHOUGHT AND IF THE SAME IS ADMITTED FOR ADJUDICATION IT WOULD AMOUNT TO ALTERING THE ENTIRE TRANSFER PRICING ANALYSIS ORIGINALLY CARRIED OUT BY THE ASSESSEE IN ITS TRANS FER PRICING STUDY. 9. WE HAVE HEARD THE RIVAL PARTIES WITH RESPECT TO THE PRELIMINARY PRAYER OF THE ASSESSEE SEEKING ADMISSION OF THE AFORESAID ADD ITIONAL EVIDENCE IN TERMS OF RULE 29 OF THE APPELLATE TRIBUNAL RULES. AT THE OUTSET, WE MAY REPRODUCE HEREINAFTER RULE 29 OF THE APPELLATE TRIBUNAL RULES WHICH READS AS UNDER :- 29. PRODUCTION OF ADDITIONAL EVIDENCE BEFORE THE TR IBUNAL.- THE PARTIES TO THE APPEAL SHALL NOT BE ENTITLED TO PROD UCE ADDITIONAL EVIDENCE EITHER ORAL OR DOCUMENTARY BEFORE THE TRIBUNAL, BUT IF THE TRIBUNAL REQUIRES ANY DOCUMENTS TO BE PRODUCED OR ANY WITNESS TO BE EXAMI NED OR ANY AFFIDAVIT TO BE FILED TO ENABLE IT TO PASS ORDERS OR FOR ANY OTH ER SUBSTANTIAL CAUSE, OR, IF THE INCOME-TAX AUTHORITIES HAVE DECIDED THE CASE WITHOU T GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO ADDUCE EVIDENCE EITH ER ON POINTS SPECIFIED BY THEM, OR NOT SPECIFIED BY THEM, THE TRIBUNAL, FOR R EASONS TO BE RECORDED, MAY ALLOW SUCH DOCUMENT TO BE PRODUCED OR WITNESS TO BE EXAMINED OR AFFIDAVIT TO BE FILED OR MAY ALLOW SUCH EVIDENCE TO BE ADDUCED. A PERUSAL OF THE ABOVE RULE WOULD SHOW THAT THE PA RTIES TO THE APPEAL BEFORE THE TRIBUNAL ARE NOT ENTITLED TO PRODUCE ADD ITIONAL EVIDENCE, EITHER ORAL OR DOCUMENTARY, AS A MATTER OF VESTED RIGHT. HOWEV ER, IF THE TRIBUNAL REQUIRES ANY DOCUMENT TO BE PRODUCED OR ANY WITNESS TO BE EX AMINED OR ANY AFFIDAVIT TO BE FILED, IT MAY PERMIT SO FOR THE REASONS TO BE RECORDED. NEVERTHELESS, IT HAS TO BE UNDERSTOOD THAT THE DISCRETION VESTED IN THE TRIBUNAL IS NOT WITHOUT FETTERS. WE SAY SO FOR THE REASON THAT THE RULE IT SELF CARVES OUT SITUATIONS, WHERE THE EXERCISE OF SUCH DISCRETIONARY POWER BY T HE TRIBUNAL IS PERMISSIBLE. SHORN OF OTHER DETAILS, SO FAR AS IT IS RELEVANT FO R THE PRESENT PURPOSE, ONE SUCH SITUATION WHICH IS PRESCRIBED IS ADMISSION OF ADDIT IONAL EVIDENCE WHICH ENABLES THE TRIBUNAL TO PASS ORDERS OR FOR ANY OTHER SUBSTANTIAL CAUSE . THE PRESENCE OF THE AFORESAID EXPRESSION IN RULE 29 OF THE APPELLATE TRIBUNAL RULES, SHOWS THAT THE TRIBUNAL IS COMPETENT TO ADMI T ADDITIONAL EVIDENCE IN ITA NO.1374/PN/2010 A.Y. : 2006-07 SITUATIONS WHICH ENABLE THE TRIBUNAL TO PASS ORDERS OR FOR ANY OTHER SUBSTANTIAL CAUSE. IN THE PRESENT CASE, ASSESSEE HAD MADE AN A PPLICATION UNDER RULE 29 OF THE APPELLATE TRIBUNAL RULES SEEKING ADMISSION O F ADDITIONAL EVIDENCE. AT THIS STAGE, WE MAY ALSO NOTICE THAT ADMITTING ADDIT IONAL EVIDENCE FOR ANY OTHER SUBSTANTIAL CAUSE WOULD ALSO ENCOMPASS WITHIN ITS FOLD, A SITUATION WHERE TRIBUNAL FINDS THAT IN THE INTEREST OF JUSTICE SOME THING WHICH REMAINS OBSCURE IS REQUIRED TO BE FILLED UP SO THAT THE ADJUDICATIO N OF ASSESSEES TAX LIABILITY IS DONE IN A MORE SATISFACTORY MANNER. IN THIS CONTEX T, A REFERENCE MAY BE MADE TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN TH E CASE OF K. VENKATARAMIAH VS. A. SEETHARAMA REDDY, AIR 1963 SC 1526. IN THE SAID JUDGEMENT, THE HONBLE SUPREME COURT HAD AN OCCASIO N TO CONSIDER RULE 27 OF ORDER 47 OF THE CIVIL PROCEDURE CODE, 1908. THE AF ORESAID JUDGEMENT OF THE HONBLE SUPREME COURT WAS REFERRED TO BY THE TRIBUN AL IN THE CASE OF ABHAY KUMAR SHROFF VS. ITO, (1997) 63 ITD 144 IN THE CONT EXT OF RULE 29 OF THE APPELLATE TRIBUNAL RULES BECAUSE THE LANGUAGE OF RU LE 27 OF ORDER 47 OF THE CIVIL PROCEDURE CODE, 1908 IS ALMOST SIMILAR TO THA T OF RULE 29 OF THE APPELLATE TRIBUNAL RULES. THE HONBLE SUPREME COURT HELD AS UNDER :- UNDER RULE 27(1), THE APPELLATE COURT HAS THE POWE R TO ALLOW ADDITIONAL EVIDENCE NOT ONLY IF IT REQUIRES SUCH EV IDENCE TO ENABLE IT TO PRONOUNCE JUDGEMENT, BUT ALSO FOR ANY OTHER SUBST ANTIAL CAUSE. THERE MAY WELL BE CASES WHERE EVEN THOUGH THE COURT FINDS THA T IT IS ABLE TO PRONOUNCE JUDGEMENT ON THE STAGE OF RECORD AS IT IS, AND SO I T CANNOT STRICTLY SAY THAT IT REQUIRES ADDITIONAL EVIDENCE TO ENABLE IT TO PRONOU NCE JUDGEMENT, IT STILL CONSIDERS THAT IN THE INTEREST OF JUSTICE SOMETHING WHICH REMAINS OBSCURE SHOULD BE FILLED UP SO THAT IT CAN PRONOUNCE ITS JU DGEMENT IN A MORE SATISFACTORY MANNER. SUCH A CASE WILL BE ONE FOR A LLOWING ADDITIONAL EVIDENCE FOR ANY OTHER SUBSTANTIAL CAUSE UNDER RULE 27(1)(B) OF THE CODE. SUCH REQUIREMENT OF THE COURT IS NOT LIKELY TO ARIS E ORDINARILY UNLESS SOME INHERENT LACUNA OR DEFECT BECOMES APPARENT ON AN EXAMINATION OF THE EVIDENCE. IT MAY WELL BE THAT THE DEFECT MAY BE PO INTED OUT BY A PARTY, OR THAT A PARTY MAY MOVE THE COURT TO SUPPLY THE DEFECT, BU T THE REQUIREMENT OF THE COURT UPON ITS APPRECIATION OF THE EVIDENCE IT STAN DS. 10. IT IS IN THIS BACKGROUND, WE MAY NOW PROCEED TO CONSIDER EFFICACY OF THE ASSESSEES INSTANT PLEA FOR ADMISSION OF ADDITIONAL EVIDENCE. THE ADDITIONAL EVIDENCE SOUGHT TO BE PRODUCED BY THE ASSESSEE HAS BEEN ENUMERATED BY US ITA NO.1374/PN/2010 A.Y. : 2006-07 IN THE EARLIER PART OF THIS ORDER. IN SO FAR AS EV IDENCES STATED AT SL. NO. 1, 2, 3 AND 5 IN THE TABULATION IN PARA 4 IS CONCERNED, THE WRITTEN COMMENTS OF THE ASSESSING OFFICER REVEAL THAT REVENUE HAS NO OBJECT ION FOR ITS ADMISSION. THE ONLY ADDITIONAL EVIDENCE, WHICH HAS BEEN OBJECTED T O IS CONTAINED IN SL.NO.4, WHICH IS AUDITED SEGMENTAL PROFITABILITY STATEMENT OF THE A PPELLANT FOR THE YEAR UNDER CONSIDERATION . 11. IN OUR CONSIDERED OPINION, ALL THE EVIDENCES SO UGHT TO BE CANVASSED FOR ADMISSION ARE RELEVANT AND GERMANE TO APPROPRIATELY DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTE RED BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. CONSIDERING THE CIRCUMSTAN CES EXPLAINED BY THE ASSESSEE, AND THE BONAFIDES OF THE REASONS NOT HAVI NG BEEN ASSAILED BY THE REVENUE, THE SAME DESERVE TO BE ADMITTED. THEREFOR E, WE DEEM IT FIT AND PROPER TO ADMIT THE ADDITIONAL EVIDENCES HAVING REG ARD TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 12. ONCE ADDITIONAL EVIDENCE IS REQUIRED TO BE ADMI TTED, THERE IS NO GAINSAYING THAT AN APPROPRIATE OPPORTUNITY TO THE D EPARTMENT IS REQUIRED TO BE AFFORDED TO CONSIDER AND EVALUATE THE EVIDENCE FOR THE PURPOSES OF WORKING OUT THE APPROPRIATE TAX LIABILITY OF THE ASSESSEE. THEREFORE, WE DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDERS OF THE AUTHORITIES B ELOW ON THE ASPECT OF THE TRANSFER PRICING ASSESSMENT, AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL RE-VISIT THE DETERMINAT ION OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS HAVING REGARD TO THE MATERIAL AND SUBMISSIONS THAT ASSESSEE MAY PUT-FORTH IN SUPPORT OF ITS STAND , INCLUDING THE AFORESAID ADDITIONAL EVIDENCE. NEEDLESS TO SAY, THE ASSESSIN G OFFICER SHALL ALLOW AN APPROPRIATE OPPORTUNITY TO THE ASSESSEE OF BEING HE ARD AND TO FURNISH APPROPRIATE MATERIAL AND EVIDENCE IN SUPPORT OF ITS PLEA THAT THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH THE ASSOCIATED ENTER PRISES DURING THE YEAR UNDER CONSIDERATION ARE AT AN ARM'S LENGTH PRICE. THE AS SESSING OFFICER SHALL ITA NO.1374/PN/2010 A.Y. : 2006-07 CONSIDER THE SUBMISSIONS AND MATERIAL PUT-FORTH BY THE ASSESSEE AND THEREAFTER PASS AN APPROPRIATE ORDER IN ACCORDANCE WITH LAW. IN THE RESULT, THE GROUND OF APPEAL NO.1 OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES ONLY. 13. THE SECOND GROUND IN THE APPEAL IS WITH RESPECT TO AN ADDITION OF RS.8,95,141/- MADE BY THE ASSESSING OFFICER WHICH R EPRESENTED ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF PRODUCT WARRANTY LIABILITY. THE CLAIM OF THE ASSESSEE WAS THAT THE PROVISION FOR WARRANTY WAS CL AIMED AS A DEDUCTION IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF ROTORK CONTROLS INDIA P. LTD. VS. CIT, (2009) 314 ITR 62 ( SC). THE DRP DEALT WITH THE ISSUE IN THE FOLLOWING MANNER :- 6.5. WARRANTY PROVISION: THE OBJECTIONS RAISED IN THIS MATTER HAVE BEEN ALRE ADY NOTED. THE ASSESSING OFFICER HAS DISALLOWED THE ASSESSEE'S CLA IM ON ACCOUNT OF PROVISION FOR WARRANTY MAINLY ON THE GROUND THAT TH E SAID PROVISION WAS ONLY AN ARRANGEMENT FOR SETTING APART OF MONEY FOR A CONTINGENT LIABILITY AND TILL THAT LIABILITY BECAME REAL, THERE WAS NO EXPEN DITURE. WE CANNOT CONFIRM THE STAND THUS TAKEN BY THE ASSESSING OFFICER, MORE SO WHEN HE HAS NOT CONSIDERED SUCH RELEVANT FACTORS AS (A) WHETHER OR NOT THE WARRANTY IN TERMS OF THE CONTRA CT AS WELL AS PAST RESULTS COULD BE TREATED AS AN INTEGRAL PART OF THE SALE PRICE, (B) WHETHER OR NOT THE ASSESSEE IN VIEW OF THE PAST EX PERIENCE / RECORDS COULD BE SAID TO HAVE HAD A PRESENT OBLIGATION RESU LTING IN OUTFLOW OF RESOURCES, (C) WHETHER OR NOT THE PRESENT VALUE OF THE FUTURE LIA BILITY COULD BE PROPERLY ASCERTAINED AND DISCOUNTED ON AN ACCRUAL B ASIS SO AS TO BECOME DEDUCTIBLE U/S. 37 ETC. WITHOUT HAVING SUCH FACTS AND WITHOUT EXAMINING THE NATURE OF THE BUSINESS, THE NATURE OF SALES AND THE NATURE OF THE PRODUCT MANUFACTURED; PAST HISTORY OF WARRANTY CLAI MS MADE AND MET; METHOD ADOPTED FOR QUANTIFYING THE PROVISIONS; A CL AIM WITH REGARD TO WARRANTY PROVISIONS CANNOT BE BRUSHED ASIDE IN A RO UTINE MANNER AS HAS BEEN DONE BY THE ASSESSING OFFICER. IN THIS CONNEC TION, THE ASSESSING OFFICER'S ATTENTION IS INVITED TO THE DECISION OF T HE HONBLE SUPREME COURT'S DECISION IN THE CASE OF ROTORK CONTROLS INDIA P. LTD. V. CIT, (2009) 314 ITR 62. THE ASSESSING OFFICER SHALL APPLY THE PRINCIPLE LAI D DOWN BY THE HONBLE APEX COURT IN THE ABOVE-CITED CASE TO THE F ACTS OF THE ASSESSEE'S CASE AND DECIDE THE MATTER AFRESH, AS PER LAW. NEED LESS TO SAY, THE ASSESSEE SHALL FURNISH ALL THE RELEVANT FACTS AS MA Y BE REQUIRED BY THE ASSESSING OFFICER IN ORDER TO ENABLE THE LATTER TO TAKE A PROPER DECISION IN THIS MATTER. ITA NO.1374/PN/2010 A.Y. : 2006-07 14. A PERUSAL OF THE AFORESAID DIRECTIONS OF THE DR P SHOW THAT THE ASSESSING OFFICER WAS DIRECTED TO CONSIDER SUCH REL EVANT FACTORS AS TO WHETHER OR NOT THE WARRANTY PROVIDED IN TERMS OF THE SALE C ONTRACTS AS WELL AS PAST RESULTS COULD BE TREATED AS AN INTEGRAL PART OF THE SALES PRICE REALIZED FROM CUSTOMERS. SECONDLY, THE ASSESSING OFFICER WAS DIR ECTED TO CONSIDER WHETHER OR NOT THE ASSESSEE IN VIEW OF THE PAST EXPERIENCE/ RECORDS COULD BE SAID TO HAVE HAD A PRESENT OBLIGATION RESULTING IN OUTFLOW OF RESOURCES ON ACCOUNT OF IMPUGNED PROVISION. THIRDLY, THE DRP REQUIRED THE ASSESSING OFFICER TO EXAMINE WHETHER OR NOT THE PRESENT VALUE OF THE FUT URE LIABILITY COULD BE PROPERLY ASCERTAINED AND DISCOUNTED ON AN ACCRUAL B ASIS SO AS TO BECOME DEDUCTIBLE U/S 37(1) OF THE ACT. FOR THE AFORESAID PURPOSE, THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE THE NATURE OF THE B USINESS, THE NATURE OF SALES AND NATURE OF THE PRODUCT MANUFACTURED; PAST HISTOR Y OF WARRANTY CLAIMS, METHOD ADOPTED BY THE ASSESSEE FOR QUANTIFYING THE PROVISION, ETC. AND TO DECIDE THE ISSUE THEREAFTER KEEPING IN MIND THE JUD GEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROL INDIA P . LTD. (SUPRA). 15. HOWEVER, WE FIND THAT IN PARA 5 OF THE ASSESSME NT ORDER, THE ASSESSING OFFICER HAS SUMMARILY SUSTAINED THE DISALLOWANCE OF RS.8,95,141/- ON ACCOUNT OF PROVISION OF WARRANTY EXISTENCE WITHOUT DETERMIN ATION THE ISSUES, WHICH THE DRP REQUIRED HIM TO ADDRESS. THEREFORE, WE ARE UNAB LE TO UPHOLD THE ORDER OF THE ASSESSING OFFICER ON THIS ASPECT ALSO. AS A CO NSEQUENCE, WE SET-ASIDE THE ASSESSMENT ORDER ON THIS ASPECT ALSO AND DIRECT THE ASSESSING OFFICER TO PASS A SPEAKING ORDER AFTER TAKING INTO CONSIDERATI ON EACH OF THE POINTS ENUMERATED BY THE DRP IN ITS ORDER DATED 30.08.2010 ON THIS ASPECT. NEEDLESS TO MENTION, THE ASSESSEE SHALL FURNISH REL EVANT MATERIAL AS WOULD BE REQUIRED BY THE ASSESSING OFFICER TO CARRY OUT THE DIRECTIONS OF THE DRP. THE ASSESSING OFFICER SHALL CONSIDER THE MATERIAL AND S UBMISSIONS PUT-FORTH BY THE ASSESSEE AND THEREAFTER PASS AN ORDER ON THIS ASPEC T AFRESH IN ACCORDANCE ITA NO.1374/PN/2010 A.Y. : 2006-07 WITH LAW. THUS, ON THIS GROUND ALSO ASSESSEE SUCCE EDS FOR STATISTICAL PURPOSES. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH AUGUST, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 25 TH AUGUST, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE DR B BENCH, I.T.A.T., PUNE; 5) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE