M/S GILLETE INDIA LTD., BHIWADI V. ACIT, Alwar

ITA 1378/JPR/2010

• Counselvise Citation: 137823114 RSA 2010
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Related party transaction; Gift; Depreciation; Transfer pricing; Business expenditure; Residential status; International transaction; Bad and doubtful debts; Corroborative evidences; Non compliance; Onus to prove; Revenue expenditure
• Section: 92C; 92E; 115JB; 37(1); 194C; 154; 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : JAIPUR BENC H : JAIPUR BEFORE SHRI HARI OM MARATHA, HONBLE JUDICIAL MEMBE R AND SHRI N.K. SAINI, HONBLE ACCOUNTANT MEMBER ITA NO. 1378/JP/2010 (A.Y. 2009-10) M/S. GILLETE INDIA LTD. VS. A.C.I.T., CIRCLE-2 C/O.KALANI & COMPANY, ALWAR. CHARTERED ACCOUNTANTS VTH FLOOR, MILESTONE BUILDING, GANDHI NAGAR TURN, TONK ROAD, JAIPUR. AAACI3924J (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI P.C. PARWAL DEPARTMENT BY : SHRI SUBHASH CHANDRA. DATE OF HEARING : 23/01/2014. DATE OF PRONOUNCEMENT : 28/02/2014 PER SHRI HARI OM MARATHA: J.M. ORDER THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ASSESS MENT ORDER DATED 29.10.2010 PASSED U/S 143(3)/144C(13) PERTAINING TO A.Y. 06-07 ON THE FOL LOWING GROUNDS:- 1. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING AN ADJUSTMENT OF `15,75,28,786/- U/S 92C(3) IN RESPECT OF IMPORT OF FINISHED GOODS F OR RESALE. SHE HAS FURTHER ERRED IN MAKING THE SAID ADJUSTMENT BY : I) RELYING ON THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER IN ITS ORDER U/S 92CA(3) DATED 29.10.2009 WITHOUT MAKING ANY IND EPENDENT EXAMINATION OF FACTS BY HERSELF. II) INCORRECTLY APPLYING SECTION 92C(3) OF THE ACT AND REJECTING THE TRANSFER PRICING STUDY SUBMITTED BY THE ASSESSEE. III) RECOMPUTING THE ARMS LENGTH PRICE OF THE INTERNATIO NAL TRANSACTION IN RELATION TO THE IMPORT OF FINISHED GOODS BY DISREGARDING THE TP DOCUMENTATION, SEGMENTAL 2 ANALYSIS, AND THE COMPARABLES SELECTED BY THE ASSES SEE AND INSTEAD FOLLOWING THE AGGREGATION OF ALL TRANSACTIONS, CARRYING OUT EVALU ATION OF OPERATION AT THE ENTITY LEVEL AND NOT PROVIDING THE BENEFIT OF PROVISO TO S EC. 92C(2). 1.1 THE LD. DRP HAS ALSO ERRED ON IN FACTS AND IN L AW IN SUMMARILY HOLDING THAT THE ORDER OF TPO IS BASED ON SOUND REASONING AND AS PER LAW W ITHOUT DISCUSSING THE VARIOUS OBJECTIONS RAISED BY THE ASSESSEE BEFORE IT AND NOT GIVING DIRECTION TO DELETE THE ADDITION PROPOSED BY THE AO IN THIS REGARD. 2. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN NOT ALL OWING THE CLAIM OF INVENTORIES WRITTEN OFF AT `8,28,35,757/- AND THE LD. DRP HAS E RRED IN NOT GIVING DIRECTION TO DELETE THE ADDITION PROPOSED BY THE AO IN THIS REGARD. BO TH THE AUTHORITIES HAVE ALSO ERRED IN MAKING VARIOUS OBSERVATIONS WHICH IS NOT CORRECT ON FACTS AND ALSO NOT CONSIDERED THE SUBSEQUENT DECISION OF HONBLE ITAT ON THIS ISSUE. 3. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING LUMPSUM DISALLOWANCE OF 50,00,000/- OUT OF TRAVELLING AND CONVEYANCE EXPEN SES AND THE LD. DRP HAS ERRED IN NOT GIVING DIRECTION TO DELETE THE DISALLOWANCE PRO POSED BY THE AO IN THIS REGARD. 4. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF `52,87,28,092/- IN RESPECT OF ADVERTISEMENT AND SALE PROMOTION EXPENS ES AND LD. DRP HAS ERRED IN NOT GIVING DIRECTION TO DELETE THE DISALLOWANCE PROPOSE D BY THE AO IN THIS REGARD. BOTH THE AUTHORITIES HAVE ERRED IN: I) OBSERVING THAT ON PAYMENT MADE TO GROUP-M MEDIA (P) LTD. FOR `36,70,04,056/- , THE LIABILITY OF DEDUCTION OF TAX AT SOURCE ARISE S U/S 195 AND THEREFORE IT ATTRACTS PROVISIONS OF SEC.40(A)(I). II) NOT ALLOWING THE CLAIM OF TRADE INCENTIVES PAID TO DISTRIBUTORS FOR `16,17,24,036/- HOLDING IT AS NOT INCURRED WHOLLY A ND EXCLUSIVELY FOR BUSINESS PURPOSE AND PRESUMING THAT THE PAYMENT IS AGAINST S ERVICES RECEIVED ON WHICH TAX OUGHT TO HAVE BEEN DEDUCTED AT SOURCE. 5. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF `30,57,894/- IN RESPECT OF DEPRECIATION ON VEHICLES ON THE GROUND T HAT ASSESSEE FAILED TO SUBMIT EVIDENCE THAT THESE VEHICLES ARE IN THE NAME OF ASSESSEE AND LD. DRP HAS ERRED IN NOT GIVING DIRECTION TO DELETE THE DISALLOWANCE PROPOSED BY TH E AO IN THIS REGARD. BOTH THE AUTHORITIES HAVE FURTHER ERRED IN IGNORING THE FACT THAT IN RESPECT OF THREE VEHICLES AT SL . 3 NO. 1,2 AN 8 OF THE TABLE GIVEN AT PAGE 14 OF THE O RDER, THE VALUE OF THE VEHICLE HAS BEEN DISALLOWED AT `30,13,079 INSTEAD OF DEPRECIATION TH EREON. 6. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF `2,15,95,884/- IN RESPECT OF DDA PROVISION BY HOLDING THAT THE ASSESS EE COULD NOT FURNISH THE DETAILS IN SUPPORT OF THE SAID CLAIM AND LD. DRP HAS ERRED IN NOT GIVING DIRECTION TO DELETE THE ADDITION PROPOSED BY THE AO IN THIS REGARD. 7. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING LUMPSUM DISALLOWANCE OF `50,00,000/- OUT OF MISCELLANEOUS EXPENSES CLAIMED BY THE ASSESSEE AND LD. DRP HAS ERRED IN NOT GIVING DIRECTION TO DELETE THE DISALLO WANCE PROPOSED BY THE AO IN THIS REGARD. 8. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN MAKING ADJUSTMENT OF `39,92,973/- IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND ADVANCES AND ALSO IN RESPECT OF THE ALLEGED CLAIM OF EXCESS DEPRECIATION TO THE BOOK PR OFIT U/S 115JB. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF PRODUCTS FOR PERS ONAL CARE AND USE INCLUDING BLADES, RAZORS, SHAVING PREPARATIONS, ORAL CARE PRODUCTS, H AIR EPILATING DEVICES, ELECTRIC SHAVERS AND OTHER APPLIANCES. IT FILED E-RETURN OF INCOME O N 14.10.2006 DECLARING TOTAL INCOME OF RS.64,48,03,480/-. SINCE THE ASSESSEE HAS ENTERED I NTO INTERNATIONAL TRANSACTION WITH ITS ASSOCIATE ENTERPRISES (AES) AS PER SECTION 92 OF TH E ACT, IT HAS FURNISHED AUDIT REPORT U/S 92E IN FORM NO. 3CEB. THE AO MADE A REFERENCE U/S 9 2CA TO THE TPO TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION ENTERED BY THE ASSESSEE WITH ITS AES. THE TPO VIDE ITS ORDER DATED 29.10.2009 PROPOSED AN ADJUSTMENT O F RS. 15,75,28,786/- IN RESPECT OF IMPORT PRICE OF TRADED GOODS PURCHASED BY THE ASSES SEE FROM THE AES. THEREAFTER, THE AO PASSED THE DRAFT ASSESSMENT ORDER ON 30.12.2009 BY DETERMINING THE TOTAL INCOME AT RS. 150,46,47,000/-. AGAINST THIS ORDER, ASSESSEE PREFE RRED REFERENCE U/S 144C(2)(B)(I) OF THE ACT TO THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE ITS ORDER DATED 08.09.2010, GAVE CERTAIN DIRECTION TO THE AO IN PURSUANCE OF WH ICH THE AO PASSED THE IMPUGNED ORDER UNDER APPEAL DETERMINING THE TOTAL INCOME AT RS. 144,85,49,890/- AND THE BOOK PROFIT U/S 115JB AT RS.94,73,52,452/-. IT IS AGAINS T THIS ORDER; THE ASSESSEE HAS PREFERRED APPEAL BEFORE US BY TAKING VARIOUS GROUNDS AS REPRO DUCED ABOVE. 4 3. THE FIRST GROUND OF APPEAL IS AGAINST THE ADJUST MENT OF RS.15,75,28,786/- MADE U/S 92C(3) IN RESPECT OF THE IMPORT OF FINISHED GOODS FOR RESA LE. THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES DURING THE YEAR U/S 92 AS PER THE ORDER OF THE TPO IS AS UNDER:- S. NO. DESCRIPTION OF THE TRANSACTIONS METHOD/FUNCT ION AMOUNT (IN RS.) 1 IMPORT OF RAW MATERIALS TNMM/MGF. 15,76,85,072 2 PURCHASE OF STORES AND SPARES TNMM/MGF. 56,98,098 3 PURCHASE OF SUPPLIES TNMM/MGF. 1,09,93,744 4 IMPORT OF GOODS FOR RESALE TNMM/DISTRIBUTION 64,67,82,336 BULK IMPORTS OF GOODS FOR PACKAGING AND SALE TNMM/MGF. 5 SALE OF FINISHED GOODS TNMM/MGF. 8,19,63,318 6 SALE OF RAW MATERIALS TNMM/MGF. 32,39,254 7 PURCHASE OF CAPITAL GOODS TNMM/MGF. 16,25,90,341 8 SALE OF FIXED ASSETS 2,94,874 9 REIMBURSEMENT OF EXPENSES 1,31,44,106 3.1 THE ASSESSEE HAS ANALYZED THESE TRANSACTIONS UN DER TWO DISTINCT FUNCTIONS I.E. DISTRIBUTION FUNCTION AND THE MANUFACTURING FUNCTION FOR WHICH I T HAS IDENTIFIED SEPARATE SET OF COMPARABLES. IN DISTRIBUTION FUNCTION, IT CALCULATE D THE NET PROFIT MARGIN (NPM) ON SEGMENTAL SALE AT 18.86% WHICH IS COMPARED WITH THE MEAN NPM OF 6 COMPARABLES GIVING WEIGHTED AVERAGE MARGIN OF 5.72%. THE OTHER TRANSACTIONS WERE ANALYZED UNDER THE MANUFACTURING FUNCTION. THIS SEGMENT INCLUDED T HE TRANSACTION PERTAINING TO PURCHASE OF BULK GOODS SOLD AFTER REPACKAGING AND ALSO GOODS MANUFACTURED BY THE ASSESSEE. THE NPM UNDER MANUFACTURING SEGMENT IS CALCULATED BY AS SESSEE AT 11.76% WHICH IS COMPARED WITH THE MEAN NPM OF 14 COMPARABLES GIVING WEIGHTED AVERAGE MARGIN OF 6.16%. THUS, THE ASSESSEE CLAIMED THAT ITS TRANSACT IONS WITH AES ARE AT ALP. 3.2 THE TPO REJECTED THE TRANSFER PRICE STUDY UNDER TAKEN BY THE ASSESSEE ON THE GROUND THAT ASSESSEE IMPORTED TRADED GOODS OF RS.64.67 CRORES O UT OF WHICH PURCHASE OF RS.30.63 CRORES HAS BEEN CONSIDERED UNDER DISTRIBUTION FUNCT ION AND BALANCE OF RS.34.04 CRORES UNDER MANUFACTURING SEGMENT BUT THE TURNOVER OF SUC H BULK PURCHASE SOLD AFTER REPACKAGING HAS NOT BEEN PROVIDED, SEGMENTAL ACCOUN TS HAVE NOT BEEN DRAWN ON ACTUAL 5 BASIS AND THEREFORE HE CARRIED OUT A FRESH SEARCH T O IDENTIFY THE COMPANIES COMPARABLE WITH THE ASSESSEE AT THE ENTITY LEVEL. IN THE PROCE SS, HE SELECTED 5 COMPANIES WHOSE OPERATING MARGIN WAS WORKED OUT AT 16.50% AS AGAINS T ASSESSEES OPERATING MARGIN AT ENTITY LEVEL WORKED OUT AT 12.67%. ACCORDINGLY, HE WORKED OUT A DIFFERENCE OF RS.15.75 CRORES WHICH IS REDUCED FROM THE PURCHASE OF TRADED GOODS OF RS.64.67 CRORES TO WORK OUT THE ALP OF THE IMPORT FROM AE OF TRADED GOODS AT RS .48.92 CRORES AND THUS AN ADDITION OF RS.15.57 CRORES WAS PROPOSED BY HIM. THE AO THEREFO RE MADE THIS ADDITION WHICH IS CONFIRMED BY THE DRP BY OBSERVING THAT THE ORDER OF THE TPO SUFFICIENTLY ANSWERS ALL THE OBJECTION OF THE ASSESSEE, IS BASED ON SOUND REASON ING AND AS PER THE PROVISIONS OF THE LAW. 3.3 A PERUSAL OF THE RECORD SHOWS THAT THE ASSESSEE HAS ANALYZED THE INTERNATIONAL TRANSACTION ENTERED WITH THE AE IN DISTRIBUTION SEGMENT AND THE MANUFACTURING SEGMENT AS UNDER:- (RS. IN CRORE) PARTICULARS ALLOCATION KEY DISTRIBUTION SEGMENT MANUFACTURING SEGMENT (DOMESTIC AND EXPORT) SALES ACTUAL 75.46 336.68 OTHER INCOME ACTUAL 1.10 4.93 DIRECT COSTS ACTUAL 30.63 150.59 GROSS PROFIT 44.82 186.08 LESS: SELLING AND DISTRIBUTION SEGMENT GROSS SALES 18.59 82.97 ADVT AND SALES PROMOTION GROSS SALES 12.11 54.04 OTHER OPERATING EXPENSES GROSS SALES 0.77 13.81 OPERATING PROFIT (OP) 14.43 40.18 OM 18.86% 11.76% 6 OM OF COMPARABLE COMPANIES 5.72% 6.16% 3.4. THE TPO HAS DISREGARDED THE SEGMENTAL FINANCIA LS AND ANALYZED THE OPERATING MARGIN OF THE ASSESSEE AT ENTITY LEVEL BY SELECTING THE FOLLO WING 5 COMPANIES. S. NO PARTICULARS OM RATIO OF MFG. TO TRADING AS PER ASSESSE 1 DABUR INDIA LTD. 14.51% 77:23 2 COLGATE-PALMOLIVE (INDIA) LTD. 13.43% 99:10 3 PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. 19.31% 99:1 4 EMAMI LTD. 15.01% 90:10 5 INTERNATIONAL FLAVOURS & FRAGARANCES (INDIA) LTD. 20.28% 99:1 MEAN OM 16.50% GIL OM (ENTITY LEVEL) 12.67% ADJUSTMENT APPLIED TO THE IMPORT OF FINISHED GOODS 15.75 (CRS.) THE PROFIT MARGIN OF THE ASSESSEE COMPANY IS COMPU TED BY TPO AS UNDER:- GROSS SALES 412, 14, 38,500/- PROFIT BEFORE INCOME TAX 67,32,33,662/- LESS: NON OPERATING INCOME BEING INTEREST AND RENT 15,07,25,096/- OPERATING MARGIN 52,25,08,566/- PROFIT BEFORE INCOME TAX BY APPLYING MARGIN OF 16.5 % 68,00,37,352/- (ON GROSS SALES) DIFFERENCE 15,75,28,786/- THE TPO HELD THAT AS THE MAJOR TRANSACTION UNDERTA KEN BY THE ASSESSEE PERTAINS TO PURCHASE OF TRADED GOODS FROM AE AT RS.64.67 CRORES , THE DIFFERENCE OF RS.15.75 CRORES IS 7 ADJUSTED TO THE IMPORT PRICE OF TRADED GOODS TO DET ERMINE THE ALP OF IMPORT FROM AE AT RS.48.92 CRORES. THIS DIFFERENCE IS 24.35% OF THE I NTERNATIONAL TRANSACTION I.E. ABOVE 5% AND THEREFORE ADDITION OF RS.15.75 CRORES IS MADE T O THE INCOME OF THE ASSESSEE. 3.5 THE LD. AR IN RESPECT OF GROUND NO. 1(I) REFERR ED TO THE EXPLANATION GIVEN IN PARA 10.1 TO 10.18 (PAGE 9-13) OF FORM NO. 35A. IN RESPECT OF GR OUND NO. 1(II), HE REFERRED TO HIS EXPLANATION GIVEN IN PARA 10.1 TO 10.36 (PAGE 15-20 ) OF FORM NO. 35A. IN RESPECT OF GROUND NO. 1(III), HE REFERRED TO THE EXPLANATION GIVEN IN PARA 10.1 TO 10.57 (PAGE 27-4 2) OF FORM NO. 35A. THE LD. AR ALSO POINTED OUT CERTAIN MISTAKES IN WORKING OF THE ADDI TION AND ALSO RAISED CERTAIN CONTENTIONS IN HIS SUBMISSION AS UNDER:- I. AS PER THE TPO, OPM OF ASSESSEE AT ENTITY LEVEL IS 16.5% AS AGAINST 12.68% DECLARED BY THE ASSESSEE. ON THIS BASIS, ON TURNOVER OF RS. 412.14 CRORES, HE WORKED OUT THE DIFFERENCE AT RS. 15.75 CRORES. EVEN IF THE RATE DE TERMINED BY TPO IS ACCEPTED, ON IMPORT OF TRADED GOODS FROM ASSOCIATED ENTERPRISES AT RS. 64.68 CRORES, THE PROPORTIONATE DIFFERENCE WOULD BE RS. 2.47 CRORES. HENCE ADJUSTMENT AT BEST CAN BE FOR RS. 2.47 CRORES AS AGAINST 15.75 CRORES MADE BY A O / TPO. IN MAKING ADDITION OF RS. 15.75 CRORES, IT IS IGNORED THAT ADJUSTMENT FOR ARMS LENGTH PRICE IS TO BE MADE WITH REFERENCE TO INTERNATIONAL TRANSACTION WI TH ASSOCIATE CONCERN AND NOT WITH REFERENCE TO THE ENTIRE TRANSACTION OF THE ENTITY. RELIANCE IN THIS CONNECTION IS PLACED IN CASE OF DCIT VS. ANKIT DIAMONDS 8 ITR (TRIB) 487 (MUM). FURTHER THE SAME TPO IN CASE OF VIJAY SOLVEX LTD. FOR AY 2007-08 HAS ACC EPTED SUCH OBJECTIONS AND RESTRICTED THE ADJUSTMENT ONLY WITH REFERENCE TO IN TERNATIONAL TRANSACTION WITH ASSOCIATE CONCERN AS AGAINST WITH REFERENCE TO TURN OVER PROPOSED BY HER (COPY ENCLOSED). HE ALSO RELIED ON THE FOLLOWING CASES IN SUPPORT OF HIS CONTENTION THAT IN MAKING THE ADJUSTMENT, TURNOVER RELATING TO THE TRA NSACTION WITH AE IS TO BE CONSIDERED AND NOT THE TOTAL TURNOVER OF THE ASSESS EE. DCIT VS. STARLITE (2010) 133 TTJ 425 (MUM.) (TRIB.) DCIT VS. ANKIT DIAMONDS (2011) 8 ITR (TRIB.) 487 (M UM.) GEODIS OVERSEAS (P) LTD. VS. DCIT (2011) 57 DTR 191 (DEL) (TRIB.) HUNTSMAN ADVANCED MATERIALS (INDIA) (P.) LTD. VS. D CIT (MUM.)(TRIB.) 16 TAXMANN.COM 213 ALSTOM PROJECTS INDIA LTD. VS. ACIT (2013) 26 ITR ( TRIB.) 322 (MUM.) ACIT VS. ALUMECO INDIA EXTRUSION LTD. (2013) 26 ITR (TRIB.) 381 (HYD.) 8 LIONBRIDGE TECHNOLOGIES PVT. LTD. VS. DCIT (2012) 1 37 ITD 197 (MUM.) II. IF ADJUSTMENT OF 2.47 CRORES IS CONSIDERED, IT IS O NLY 3.82% OF RS. 64.68 CRORES IN RELATION TO WHICH THE A O / TPO MADE THE ADJUSTMENT S. THIS IS WITHIN A PERMISSIBLE RANGE OF 5% AS PROVIDED IN PROVISO TO SECTION 92C(2 ). HENCE NO ADJUSTMENT U/S 92C IS REQUIRED. THIS IS ACCEPTED BY HONBLE ITAT IN CASE OF RAVI KUMAR RAWAT VS. ITO 47 DTR 470(JP). III. IN DETERMINING THE OPERATING MARGIN AT 52.25 CRORES , A O / TPO EXCLUDED NON- OPERATING OTHER INCOME OF RS. 15.07 CRORES. HOWEVER , SHE HAS NOT EXCLUDED NON- OPERATING OTHER EXPENSES / ABNORMAL EXPENSES OF RS. 236.96 LACS COMPRISING OF DEPRECIATION ON LET OUT BUILDING RS. 99.77 LACS, LO SS ON WRITE OFF OF FIXED ASSETS RS. 17.24 LACS AND VRS EXPENSES OF RS. 119.95 LACS (PB 287) . IF THIS IS CONSIDERED, THE OPERATING MARGIN OF THE ASSESSEE WOULD INCREASE TO 54.62 CRORES AND DIFFERENCE WORKED OUT BY TPO / A O WOULD COME DOWN TO RS. 13.3 8 CRORES (RS. 15.75 RS. 2.37). EVEN THIS DIFFERENCE OF RS. 13.38 CRORES IS FULLY EXPLAINABLE AND HAS NO RELATION WITH THE INTERNATIONAL TRANSACTION ON ACCO UNT OF FOLLOWING: - INCREASE IN INVENTORY WRITTEN OFF FROM RS. 3.70 CRO RES TO RS. 8.28 CRORES I.E. RS. 4.58 CRORES. - INCREASE IN ADVERTISEMENT AND SALES PROMOTION EXPEN SES FROM 14.10% TO 16.05% I.E. 1.95% ON SALE, WHICH IN TERMS OF THE VALUE ON SALE SHOWS INCREASE OF RS. 9.20 CRORES (PB 316 ) . IV. EVEN IF THE AGGREGATION APPROACH ADOPTED BY TP O IS ACCEPTED AS CORRECT, THE COMPARABLE CASES SELECTED BY HIM ARE NOT CORRECT AS HE FAILED TO TAKE INTO CONSIDERATION THE MANUFACTURING/TRADING RATIO OF AS SESSEE VIS-A-VIS THE COMPARABLE CASES SELECTED BY HIM. THE MANUFACTURING / TRADING RATIO OF ASSESSEE IS 82: 18. HENCE ONLY THOSE COMPARABLE WHICH HAVE A MINIMUM TRADING SALES OF 10% NEEDS TO BE SELECTED FOR COMPARISON. ON THIS BASIS THE OPERATIN G MARGIN OF COMPARABLE CASES WORKS OUT AS UNDER: SR.NO COMPANY NAME RATIO OF MFG/SALES : TRADING/SALES OP (AS PER TP STUDY AND TPO'S ORDER) 1 ADOR MULTIPRODUCTS LTD. 70:30 1.97% 9 2 COLGATE-PALMOLIVE (INDIA) LTD. 90:10 13.43% 3 DABUR INDIA LTD. 77:23 14.51% 4 EMAMI LTD. 90:10 15.01% MEAN 11.22% THE ABOVE COMPANIES INCLUDE THREE COMPANIES WHICH I S SELECTED BY THE TPO. P & G HYGIENIC & HEALTHCARE LTD. CANNOT BE SELECTED FOR C OMPARISON, SINCE IT IS AN ASSOCIATE CONCERN AND ITS MANUFACTURING TURNOVER CO NSTITUTE 99% OF TOTAL TURNOVER. SIMILARLY INTERNATIONAL FLAVOURS & FRAGRANCES (INDI A) LTD. CANNOT BE SELECTED FOR COMPARISON AS ITS MANUFACTURING TURNOVER IS ALSO 99 % OF TOTAL TURNOVER. ON THE ABOVE BASIS, THE MEAN OPERATING MARGIN OF THE COMPARABLE COMPANIES AT 11.23% IS LOWER THAN THE MARGIN OF THE ASSESSEE AT 12.67% WORKED OU T BY THE TPO / A O. HENCE THE INTERNATIONAL TRANSACTION OF THE ASSESSEE MEETS THE ARMS LENGTH STANDARD. EVEN THE COMPARABLE SELECTED BY TPO ARE NOT COMPARABLE AS EX PLAINED BY THE ASSESSEE BEFORE THE TPO REPRODUCED AT PARA 8.2 OF HIS ORDER. THE TP O AT PARA 8.3.3 OF HIS ORDER HAS HIMSELF STATED THAT ASSESSEE IS A MARKET LEADER IN ITS SEGMENT AND IT WOULD BE EXTREMELY DIFFICULT TO IDENTIFY COMPARABLES WITH EX ACTLY IDENTICAL PRODUCTS AND ALSO HAVE SUCH HIGH TURNOVER. 3.6 THE LD. DR FILED A WRITTEN SUBMISSION WHERE HE MADE PARA WISE REPLY TO THE SUBMISSION MADE BY THE ASSESSEE AT PARA 5 OF HIS SUBMISSION, T HE SAME IS REPRODUCED FOR READY REFERENCE AS UNDER:- 5.1 GOAL: GENERAL IN NATURE, THE TP ORDER WAS PAS SED AFTER GIVING AMPLE OPPORTUNITIES TO THE TAXPAYER. MOREOVER, SECTION 92CA(4) OF THE I .T ACT,1961, STATES THAT ASSESSING OFFICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME O F THE ASSESSEE UNDER SUB-SECTION (4) OF SECTION 92C IN CONFORMITY WITH THE ARM'S LENGTH PRI CE AS SO DETERMINED BY THE TRANSFER PRICING OFFICER'. THE T.P. ORDER WAS PASSED ON 29-1 0-2009 WHILE THE LAW CAME INTO EFFECT ON 01-06-2007. THE TAXPAYER CAN HAVE NO GRIE VANCE ON THIS ISSUE. 10 5.2 THE CASE LAWS RELIED UPON THE ASSESSEE DO NOT HOLD ANY WATER AFTER THE AMENDMENT IN ACT. THERE WAS NO INCORRECTNESS IN THE ACTION OF TH E AO. 5.3 GOA2: THE TPO WAS WELL WITHIN HER RIGHTS IN REJ ECTING THE T. P. STUDY REPORT OF THE ASSESSEE. THE VARIOUS REASONS HAVE BEEN DETAILED BY THE TPO IN HER ORDER. PAGE NO.4 PARA NO.5 PAGE NO.5,PARA NO.6, PAGE NO.6 PARA NO.7, PAGE NO.11 PARA NO.8.1.2 OF THE T.P. ORDER HAS DETAILED DISCUSSION ON THE SAME AND THIS MAY KINDLY BE PERUSED. 5.4 THE DETAILED ANALYSIS GIVEN IN THE ORDER AS TO THE SUBMISSION BY THE ASSESSEE OF INCORRECT SEGMENTAL ACCOUNTS ETC. VERY CLEARLY BRIN G OUT THE REASONS FOR REJECTION OF THE T. P. STUDY REPORT OF THE ASSESSEE. THE CASE LAWS AND CIRCULARS OF CBDT QUOTED BY THE ASSESSEE TALK OF RELIABLE AND CORRECT DATA TO BE US ED. TO CALL FOR CORRECT INFORMATION FROM THE ASSESSEE TIME AND AGAIN CAN IN NO WAY BE CONSTR UED TO CAUSE UNDUE HARDSHIP TO THE ASSESSEE. CIRCULAR NO.12 OF CBDT DOES NOT MEAN TO E NCOURAGE NON COMPLIANCE BY THE ASSESSEE. CIRCULAR NO.14 OF CBDT TALKS OF USAGE OF RELIABLE AND CORRECT DATA. THE ASSESSEE DID NOT SUBMIT CORRECT DATA DURING TP PROC EEDINGS. THE ORDER QUOTED AS AAC (56 ITR 198) ONLY SPEAKS OF CIRCULARS BEING BINDING ON THE DEPARTMENT. 5.5 SUBMISSION OF THE TP STUDY REPORT AND SEGMENTAL INFORMATION BY THE ASSESSEE DOES NOT PRECLUDE THE TPO FROM EXAMINING THE DETAILS SUB MITTED. MERELY SUBMITTING INFORMATION DOES NOT GIVE IT SANCTITY. THE CORRECTN ESS OF THE CALCULATION SUBMITTED BY THE ASSESSEE HAS TO BE EXAMINED BY TPO. ON EXAMINATION OF THE DETAILS, SEVERAL SHORT COMINGS WERE FOUND WHICH HAVE BEEN DETAILED IN THE TPO ORDER. 5.6 GOA3: ADJUSTMENT OF RS.15.75 CRORES WAS MADE BY THE TPO AFTER DUE DILIGENCE AND PROPER APPRECIATION OF FACTS, SUBMISSIONS AND ON ME RITS. PROPER DETAILED REASONING HAS BEEN GIVEN BY THE TPO IN THE ORDER DATED 29-10-2009 . THE CASE LAWS QUOTED BY THE ASSESSEE SPEAK OF ARBITRARY REJECTION OF ASSESSEE'S ANALYSIS. BUT WHEN THE TPO HAS EXAMINED ALL ASPECTS AND ISSUED A SHOW CAUSE NOTICE , GIVEN ALL REASONS FOR REJECTION OF THE TP STUDY REPORT OF THE ASSESSEE, THE CITED CASE LAWS DO NOT COME TO THE ASSESSEE'S HELP. 5.7 IT IS SURPRISING TO NOTE THAT THE ASSESSEE HAS CLAIMED THAT THE COMPARABLE SELECTED BY THE TPO WERE NOT PROPER. THIS IS ESPECIALLY WHEN TH E ASSESSEE HAD ITSELF IN THE REPLY TO 11 THE SHOW CAUSE NOTICE STATED THAT THE COMPARABLE SE LECTED BY THE TPO HAD ALL BEEN EXAMINED BY THE ASSESSEE (PAGE NO.12 PARA-8.2) ITSE LF AND REJECTED ON ACCOUNT OF FUNCTIONAL DIFFERENCES. THE OBJECTIONS OF THE ASSES SEE HAVE BEEN DEALT IN THE ORDER ITSELF (PAGE NO.12 TO 16). THE SEARCH CRITERIA FOR IDENTIF YING THE COMPARABLE WAS PROVIDED TO THE ASSESSEE ALONGWITH THE SHOW CAUSE NOTICE. IT IS THEREFORE, NOT UNDERSTOOD AS HOW THE ASSESSEE CAN NOW CLAIM THAT THE DETAIL OF THE SEARC H CONDUCTED BY THE TPO WAS NOT PROVIDED TO THEM. 5.8 AS FAR AS THE BENEFIT OF +/ - 5% MARGIN IS CONC ERNED BY INSERTION OF THE SECOND PROVISO TO SECTION 92C(2), THE POSITION OF THE DEPA RTMENT IS VERY CLEAR. THERE ARE MANY CASE LAWS WHICH CLEARLY STATE THAT + - 5% BENEFITS MARGIN CANNOT BE CLAIMED AS STANDARD DEDUCTION. GLOBAL VANTEDGE PVT. LTD. 2010-TIOL-24-I TAT-DEL BENEFITS OF + / - 5% IS NOT AVAILABLE AS A STANDARD DEDUCTION. ADP PRIVATE LTD. (2011-TII-44-ITAT-HYD-TP), MARUBENI INDIA PVT. LTD. (2011-TII-36-ITAT-DEL-TP) ALSO REITERATES THE SAME VIEW. 5.9USE OF SINGLE/CURRENT YEAR DATA IS BY NOW ALMOST SETTLED LAW. IN ASTECH SOFTWARE TECHNOLOGY 294 ITR(AT)(32)(BANG.) (SB) USE OF CURRE NT YEAR'S DATA WAS UPHELD. SEVERAL OTHER CASE LAWS IN FAVOUR OF THE REVENUE ARE MENTOR GRAPHICS, GOEDIS OVERSEAS(P) LTD. (2011-TII-34-ITAT-DEL-TP), HONEYWELL LTD. -2009-TIO L-104-ITAT-PUNE, NGC NETWORK(INDIA) (P) LTD. (2011-TII-45-ITAT-M UM-INTL .) 5.10THE REASON FOR EVALUATING THE OPM AT ENTITY HAS BEEN DETAILED IN THE TRANSFER PRICING ORDER. THE MEAN OPM OF COMPARABLES HAS BEEN TAKEN A T 16.48% COMPARED WITH THE OPM OF THE ASSESSEE AT THE ENTITY LEVEL. AS CORRECT SEGMENTAL HAS NOT BEEN DRAWN BY THE ASSESSEE, IT WILL NOT MEAN THAT THE OPM OF EACH SEG MENT OR EACH TRANSACTION IS 12.67%(OPM OF THE ASSESSEE AT THE ENTITY LEVEL). HE NCE, THE MEAN MARGIN OF THE COMPARABLES HAS TO BE NECESSARILY APPLIED AT THE EN TITY LEVEL. IN ABSENCE OF THE CORRECT SEGMENTAL FINANCIALS SUBMITTED BY THE TAXPAYER, IT IS NOT POSSIBLE TO APPLY THE MEAN OPM OF 16.48% TO ANY ONE TRANSACTION OF THE ASSESSEE. I N ORDER TO MAKE ANY CHANGES, THE CORRECT DATA/CALCULATION SHOULD HAVE BEEN SUBMITTED BY THE ASSESSEE; WHICH WOULD HAVE CHANGED THE OPM OF THE ASSESSEE(AS CALCULATED AT EN TITY LEVEL AT 12.67%). THUS, WHAT THE TPO DID I.E. APPLIED THE MEAN MARGIN OF 16.48% AT T HE ENTITY LEVEL IS CORRECT. 12 3.7. ON FURTHER CLARIFICATION SOUGHT BY THE BENCH, THE LD. AR FILED THE FOLLOWING SUBMISSION ON 11.04.2012 WHICH IS REPRODUCED AS UNDER:- 1. THE ASSESSEE HAS ENTERED INTO 10 TYPE OF TRANSACTIO NS WITH THE ASSOCIATE ENTERPRISES AS MENTIONED ON PAGE 2 OF THE TPO ORDER (PB 128) . OUT OF IT, IN RESPECT OF TRANSACTION OF REIMBURSEMENT OF EXPENSES, PURCHASE OF CAPITAL GOOD S AND SALE OF FIXED ASSETS, ASSESSEE HAS MADE DETAILED SUBMISSIONS BEFORE THE TPO VIDE L ETTER DATED 15.9.2009 (PB 280-283) AND LETTER DATED 15.10.2009 (PB 308 313) . IN THESE LETTERS IT WAS CLARIFIED THAT REIMBURSEMENT IS OF ACTUAL EXPENSES TO AE AND VALUE OF IMPORT / EXPORT OF CAPITAL EQUIPMENT IS ACCEPTED BY CUSTOM AUTHORITIES. THE TP O HAS NOT FOUND ANYTHING ADVERSE IN THESE SUBMISSIONS AND THE DOCUMENTS PRODUCED IN REL ATION THERETO. 2. THE REMAINING TRANSACTION CAN BE BROADLY CLASSIFY I N FOUR PARTS AS UNDER: A. IMPORT OF RAW MATERIAL / STORES AND SPARES / SUPPLI ES, RS. 17,43,76,914/- B. IMPORT OF GOODS FOR RESALE / FOR PACKAGING AND SALE , I. DISTRIBUTION FUNCTION RS. 30,63,79,946/- II. MANUFACTURING FUNCTION RS. 34,04,02,390/- RS. 64,6 7,82,336/- C. SALE OF FINISHED GOODS RS. 8,19,63,318/- D. SALE OF RAW MATERIAL RS. 32,39,254/- TOTAL RS. 90,63,61,822/- 3. THE IMPORT OF GOODS FOR RESALE OF RS. 30,63,79,946/ - (TRADED GOODS), IS SOLD FOR RS. 75,46,30,409/- GIVING A GROSS PROFIT MARGIN OF 59.4 0% AND NET PROFIT MARGIN OF 18.85% (PB 400) . THE IMPORT OF GOODS FOR REPACKAGING OF RS. 34,04, 02,390/- IS SOLD FOR RS. 68,18,95,813/- GIVING A GROSS PROFIT MARGIN OF 50.0 8% AND NET PROFIT MARGIN OF 10.32%. COMBINED TOGETHER THE IMPORT OF GOODS OF RS. 64,67, 82,336/- IS SOLD FOR RS. 143,65,26,222/- GIVING A NET PROFIT MARGIN OF 15.01 %. 4. THE EXPORT OF FINISHED GOODS TO AE OF RS. 8,19,63,3 18/- HAS RESULTED INTO A GROSS PROFIT MARGIN OF 65.27% AND NET PROFIT MARGIN OF 27 .58% (PB 400) . THE EXPORT TO AE IS OUT OF THIRD PARTY PURCHASES IN INDIA OR OF MANUFAC TURED GOODS AS POINTED TO THE TPO VIDE LETTER DATED 15.9.2009 (PB 285) . 5. THE SALE OF RAW MATERIAL OF RS. 32,39,254/- REPRESE NTS RETURN OF THE RAW MATERIAL OF DURACELL BATTERIES PURCHASED FROM AE IN THE EARLIER YEAR. THE TRANSACTION IS FLOWING FROM 13 AY 2004-05 AND REPRESENTS THE RESIDUAL AMOUNT OF RE -EXPORT. JUST AS A BACKGROUND, IT MAY BE NOTED THAT THE ASSESSEE COMPANY HAS AMALGAMATED ITSELF DURACELL INDIA EFFECTIVE AY 2000-01, HOWEVER THE SAID BUSINESS WAS CLOSED BY TH E COMPANY IN THE YEAR 2002-03. THE PLANT AND MACHINERY AND RAW MATERIAL RELATED TO DUR ACELL BATTERY WAS RE-EXPORTED TO DURACELL CHINA / SA IN THE YEAR RELEVANT TO AY 2004 -05 EXCEPT FOR SOME ITEMS WHICH WERE DELIVERED IN THE YEAR RELEVANT TO AY 2005-06 A ND AY 2006-07. THE TRANSACTION IS FLOWING FROM A.Y. 04-05 & 05-06. THE DETAILS WERE P ROVIDED TO THE AO IN A.Y. 05-06 VIDE LETTER DT. 15.10.2008 WHERE IT WAS ACCEPTED & NO ADJUSTMENT WAS MADE. CONSIDERING THE SAME, AO IN THE YEAR UNDER CONSIDERATION HAS AL SO NOT TAKEN ANY ADVERSE VIEW ON THE SALE OF RAW MATERIAL VIS-A-VIS THE ALP OF THE SAME. 6. THE IMPORT OF RAW MATERIAL, STORES AND SPARES AND S UPPLIES OF RS. 17,43,76,914/- IS CONSUMED BY THE ASSESSEE IN MANUFACTURING OF THE GO ODS WHICH HAS BEEN SOLD TO NON- RELATED PARTIES IN INDIA. ON GOODS MANUFACTURED IN INDIA AND SOLD TO NON-RELATED PARTIES, THE GROSS PROFIT MARGIN IS RS. 56.63% AND THE NET P ROFIT MARGIN IS 11.59%. THE OVERALL NET PROFIT MARGIN OF THE MANUFACTURING FUNCTION IS 11.7 5% (PB 400) . 7. THE ABOVE DISTINCT DISTRIBUTION FUNCTION AND MANUFA CTURING FUNCTION WAS ANALYSED IN THE TP STUDY FOR WHICH THE REPORT IS SUBMITTED TO T HE TPO (PB 194 TO 269) . IN DISTRIBUTION FUNCTION, AFTER CONCLUSION OF SEARCH PROCESS AS DES CRIBED IN PARA 4.1.4 (PB 219 TO 226) , SIX INDEPENDENT COMPARABLE COMPANIES WERE IDENTIFIE D. THE ARITHMETIC MEAN OF THE NET PROFIT MARGIN OF THESE COMPANIES IS WORKED OUT AT 5 .72% AS AGAINST THE MARGIN OF THE ASSESSEE AT 18.86% AS ABOVE. SIMILARLY, IN MANUFACT URING FUNCTION, AFTER CONCLUSION OF SEARCH PROCESS AS DETAILED IN PARA 4.2.4 (PB 233-243) , 14 INDEPENDENT COMPARABLE COMPANIES WERE IDENTIFIED (PB 241) . THE ARITHMETICAL MEAN OF THE NET PROFIT MARGIN OF THESE COMPANIES IS WORKED OUT AT 6.16% AS AGAINST T HE MARGIN OF THE ASSESSEE IN THIS FUNCTION AT 11.76%. ACCORDINGLY, IT IS CLAIMED THAT THE TRANSACTION WITH AE ARE AT ARMS LENGTH PRICE. 8. THE TPO, SUMMARILY, DISREGARDED THE TP DOCUMENTATIO NS INCLUDING THE SEGMENTAL FINANCIALS SUBMITTED BY THE ASSESSEE AND PROPOSED A GGREGATING THE TWO SEGMENTS AND ANALYSING THE RESULTS OF THE ASSESSEE AT ENTITY LEV EL, HE CONDUCTED FRESH SEARCH WITHOUT PROVIDING DETAILS REGARDING SEARCH PROCESS AND ARRI VED AT 5 OTHER COMPANIES AS 14 COMPARABLE. HE WORKED OUT THE OPERATING MARGIN OF T HESE COMPARABLES AT 16.5% AND THAT OF THE ASSESSEE COMPANY AT 12.67%. EVEN THIS WORKIN G SUFFERS FROM FOLLOWING DEFECTS: A. THE MANUFACTURING AND TRADING RATIO OF THE ASSESSEE IS 82:18. AGAINST THIS, OUT OF THE 5 COMPANIES SELECTED BY TPO, TWO COMPANIES HAS MANUFACTURING AND TRADING RATIO OF 99:1. THEREFORE, THESE COMPANIES ARE NOT C OMPARABLE. EXCLUDING THESE COMPANIES, THE OPERATING MARGIN OF OTHER THREE COMP ANIES WORKS OUT AT 14.32% (13.43 + 14.51 + 15.01 / 3). B. IN RESPECT OF THESE THREE COMPANIES, DABUR INDIA LT D. IS IN PHARMACEUTICALS AND HEALTHCARE PRODUCTS WHICH IS ALTOGETHER A DIFFERENT SEGMENT AS AGAINST MALE GROOMING AND PERSONAL CARE PRODUCTS IN WHICH ASSESS EE IS ENGAGED. HENCE RESULTS OF THIS COMPANY IS NOT COMPARABLE WITH THAT OF THE ASSESSEE. SIMILARLY, EMAMI LTD. IS IN DIFFERENT BUSINESS SEGMENT I.E. FEMALE C ARE WHEREAS THE ASSESSEE IS IN MALE GROOMING SEGMENT. THIS LEAVES COLGATE PALMOLIV E INDIA LTD. WHOSE OPERATING MARGIN IS 13.43% AS AGAINST 12.67% WORKED OUT IN ASSESSEES CASE BY TPO. THE DIFFERENCE THUS IS ONLY 0.76% WHICH IS MAR GINAL. C. IN WORKING OUT THE OPERATING MARGIN OF THE ASSESSEE AT 12.67%, THE TPO HAS EXCLUDED THE OTHER INCOME BUT HAS NOT EXCLUDED OTHE R EXPENSES / UNRELATED EXPENSES OF RS. 2.37 CRORES COMPRISING OF DEPRECIAT ION ON LET OUT BUILDING, 99.77 LACS, WRITE OFF OF FIXED ASSETS, RS. 17.24 LACS AND VRS EXPENSES OF 119.95 LACS (PB 400) . IF THESE EXPENSES ARE CONSIDERED, THE OPERATING M ARGIN OF THE ASSESSEE BECOME 13.25% (52.25 + 2.37 / 412.14) WHICH IS COMP ARABLE WITH THAT OF COLGATE PALMOLIVE INDIA LTD. THE ASSESSEE HAS ALSO SUBMITTE D ITS WORKING REGARDING EXCLUSION OF SUCH NON-OPERATING EXPENSES IN ITS SEG MENTAL ANALYSIS SUBMITTED TO THE TPO (PB 400) BUT THE SAME IS NOT CONSIDERED BY HIM THOUGH THE N ON-OPERATING INCOME HAS BEEN EXCLUDED. D. IF A COMPARISON IS MADE OF THE PROFIT BEFORE TAX TO THE GROSS TURNOVER OF THE ASSESSEE AND THE COMPANIES SELECTED BY THE TPO, IT CAN BE NOTED THAT THE MARGIN OF THE ASSESSEE IS 16.33% AS AGAINST MARGIN OF 16.05% IN CASE OF COLGATE PALMOLIVE INDIA LTD., 16.65% IN CASE OF EMAMI LTD. AND 15.90% IN CASE OF DABUR LTD. THUS THE NET RESULT SHOWN BY THE ASSESSEE IS COMPARABLE WITH THE OTHER COMPANIES SELECTED BY TPO (PB 397) . 9. IN THE SEGMENTAL ANALYSIS SUBMITTED BY THE ASSESSEE , IT HAS CONSIDERED ALL THE REVENUE RELATED TRANSACTIONS WITH AE IN AS MUCH AS THE TOTA L AMOUNT OF SEGMENTAL WORKING TALLIES WITH THE FIGURES OF THE FINANCIAL STATEMENTS AS PER FOLLOWING STATEMENTS: PARTICULARS DISTRIBUTION FUNCTION MANUFACTURING FUNCTION OTHERS TOTAL (PB 400) TOTAL AS PER FINANCIAL STATEMENTS 15 (PB 60) GROSS SALES 754630409 3366808091 - 4121438500 4121438500 COST OF GOODS SOLD - TRADE 306379946 340402390 - 646782336 1525159078 COST OF GOODS SOLD- MFG. ITEMS - 862776663 - 862776663 EXCISE DUTY - 302760758 - 302760758 287160679 DIRECT EXPENSES 306379946 1505939811 - 1812319757 1812319757 GROSS MARGIN 448250463 1860868280 2309118743 2309118743 OTHER INCOME 10957715 48888202 151225154 211071071 211071071 TOTAL INCLUDING GROSS MARGIN 459208178 1909756482 151225154 2520189814 2520189814 EXPENSES ADVERTISEMENT AND SALES PROMOTION 121142841 540482723 - 661625564 1679078116 LOSS ON WRITE OFF OF FIXED ASSETS - - 1723746 1723746 SELLING AND DISTRIBUTION EXPENSES 185978717 829750089 - 1015728806 DEPRECIATION 7794164 138111903 9977208 155883275 15 5883275 VRS EXPENSES - - 11994761 11994761 11994761 TOTAL EXPENSES 314915722 1508344715 23695715 1846956152 1846956152 NET PROFIT 144292456 401411767 127529439 673233662 673233662 NPM 18.85% 11.75% 15.54% 16.33% GROSS PROFIT MARGIN 59.40% 55.27% 56.03% 56.03% CORRECT NPM 19.12% 11.92% 16.33% 16.33% 16 10. IT MAY BE NOTED THAT THE TPO HAS APPLIED THE DIFFER ENCE OF THE OPERATING MARGIN OF 5 COMPARABLES SELECTED BY HIM AND THAT OF THE ASSESSE E WORKED OUT BY HIM ON THE ENTIRE TURNOVER. THE LD. D/R HAS JUSTIFIED THE ACTION OF T PO ON THE GROUND THAT ASSESSEE HAS NOT PROVIDED THE SEPARATE SEGMENTAL WORKING IN RESPECT OF IMPORT OF RAW MATERIAL, STORES AND SPARES AND SUPPLIES AGGREGATING TO RS. 17,43,76,914 /-. IT IS TO BE NOTED THAT THESE IMPORTED RAW MATERIAL FROM AE HAS BEEN CONSUMED IN MANUFACTU RING OF GOODS AND THEREFORE IT HAS BEEN CONSIDERED IN THE MANUFACTURING SEGMENT IN THE TP STUDY SUBMITTED BY THE ASSESSEE. THEREFORE IN THE ABSENCE OF ANY MATERIAL THAT THESE PURCHASES ARE NOT AT ARMS LENGTH, NO ADJUSTMENT FOR THE SAME IS OTHERWISE REQUIRED. FURT HER CONSIDERING THE VARIOUS JUDGMENTS ALREADY RELIED UPON AS WELL AS THE FACT THAT TPO HA S MADE ADJUSTMENTS ONLY WITH REFERENCE TO THE IMPORT OF GOODS FOR RESALE, THE DIFFERENCE C ANNOT BE APPLIED TO THE TOTAL TURNOVER. 11. IT IS ALSO PERTINENT TO NOTE THAT NO ADJUSTMENTS HA VE BEEN MADE BY THE TPO ON THIS ISSUE EITHER IN EARLIER YEARS OR IN SUBSEQUENT YEAR S TILL DATE. THIS IS THE ONLY YEAR WHERE ADJUSTMENT HAS BEEN MADE WHICH IS ALSO BY MAKING WR ONG COMPARISON AND NOT CORRECTLY APPRECIATING THE CONTENTIONS OF THE ASSESSEE. 12. BOTH THE TPO & ASSESSEE HAVE ACCEPTED THAT ALP IS T O BE DETERMINED BY APPLYING TRANSITIONAL NET MARGIN METHOD (TNMM). RULE 10B(1)( E) PROVIDES THAT THE NET PROFIT MARGIN ARISING IN COMPARABLE UNCONTROLLED TRANSACTI ON SHOULD BE ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCE IF ANY BETWEEN THE INTERNATI ONAL TRANSACTION & THE COMPARABLE UNCONTROLLED TRANSACTION, WHICH COULD MATERIALLY EF FECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET. THEREFORE, IN TNMM, THE GROSS MARG IN CAN ALSO BE ONE OF THE PROFIT LEVEL INDICATOR (PLI) TO RULE OUT THE EFFECT OF OPE RATIVE & ADMINISTERING EXPENSES. IF GROSS PROFIT MARGIN IS CONSIDERED, THEN THE SAME IS BETTE R AS COMPARED TO THE CASES TAKEN BY THE TPO (PB 397) . FURTHER RELIANCE IS PLACED ON THE DETAILED SUBMIS SIONS GIVEN BEFORE DRP AS APPENDIX I TO X OF FORM NO. 35A PARTICULARLY AT PAGE 28-42 WHICH GIVES EACH & EVERY OBSERVATION OF THE TPO & THE CONTENTION OF THE ASSE SSEE. IN THESE FACTS, THE TRANSACTION ENTERED BY THE ASSESSEE WITH ASSOCIATE CONCERNS ARE AT ALP & NO ADJUSTMENT IS REQUIRED. 3.8 THE LD. DR, ON THE ABOVE SUBMISSION OF THE ASSE SSEE HAS GIVEN HIS REMARK ON 18.04.2012 WHICH IS REPRODUCED AS UNDER:- 17 1. IN PARAS 1 TO 7 OF HIS ABOVE SUBMISSION LD. AR HAS EXPLAINED THE TP STUDY SUBMITTED BY THE ASSESSEE BEFORE THE TPO. HE HAS CLAIMED THAT THE TPO SUMMARILY DISREGARDED THE SEGMENTAL TP STUDY OF THE ASSESSEE AND ADOPTED THE ENTITY LEVEL TP STUDY WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE. 1.1 IN THIS REGARD, IT IS SUBMITTED THAT THE TPO DID N OT REJECT THE TP STUDY OF THE ASSESSEE WITHOUT ANY REASONS OR BASIS. THE TPO HAS EVALUATED THE TP STUDY OF THE ASSESSEE IN PARA 6 & 7 OF HER ORDER (APB PG. 131 ONWARDS). IT IS WRO NG TO SAY THAT BEFORE REJECTING THE TP ANALYSIS OF THE ASSESSEE THE TPO DID NOT GIVE ANY O PPORTUNITY. KIND ATTENTION IS DRAWN TO PARA 7 OF TPO ORDER (APB PG. 132). THE TPO HAS REPR ODUCED THE LETTERS DATED 07.09.2009 AND 18.09.2009 IN WHICH THE DEFICIENCIES IN THE SEGMENTAL ANALYSIS OF THE ASSESSEE HAVE BEEN SPECIFICALLY POINTED OUT. THE TP O ISSUED FURTHER LETTERS ON 30.09.2009 AND 15.10.09 AND WHEN THE ASSESSEE COULD NOT FURNISH FURTHER DETAILS/CLARIFICATIONS CALLED BY THE TPO IN RESPECT OF THE SEGMENTAL ANALYSIS, THE TPO HAD TO REJECT THE TP STUDY OF THE ASSESSEE. 1.2 THE ASSESSEE COMPARED ITS SEGMENTAL RESULTS WITH 6 COMPARABLE COMPANIES UNDER DISTRIBUTION SEGMENT AND 14 COMPARABLE COMPANIES UN DER THE MANUFACTURING SEGMENT. IN PARA 6.3 OF HER ORDER, TPO HAS POINTED OUT THAT EVE N THESE COMPARABLES WERE NOT ACCEPTABLE BECAUSE SOME OF THE COMPANIES HAD BEEN F ILTERED BY THE ASSESSEE ON THE ASSUMPTION OF POSSIBLE RELATED PARTY TRANSACTIONS' WHILE THE ACTUAL EXAMINATION OF THE SAME HAD NOT BEEN UNDERTAKEN. 1.3 IN VIEW OF THE ABOVE DISCUSSION AND IN VIEW OF THE SUBMISSIONS MADE IN MY WRITTEN SUBMISSION DATED 24.01.2012 IT IS SUBMITTED THAT TH E SEGMENTAL ANALYSIS OF THE ASSESSEE WAS RIGHTLY DONE AT THE ENTITY LEVEL. 2. IN PARA 8 OF HIS SUBMISSION, LD AR HAS POINTED OUT DEFECTS IN THE TP ANALYSIS OF THE TPO. 2.1 IN PARA 8(A) HE HAS REQUESTED FOR EXCLUSION OF TWO COMPANIES WHICH HAVE BEEN USED BY THE TPO AS COMPARABLES ON THE GROUND THAT THEY A RE ALMOST FULLY MANUFACTURING CONCERNS WHEREAS FOR THE ASSESSEE THE MANUFACTURING TO DISTRIBUTION RATIO IS 88:12. 18 THIS CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE PARTIC ULARLY AT THIS STAGE, AS THE SAME IS DEVOID OF ANY MERIT THE ASSESSEE'S CLAIM IS ACTUALL Y ONLY CHERRY PICKING I.E. REJECTION OF COMPANIES WITH HIGH PROFIT MARGIN AND INCLUSION OF COMPARABLE WITH LOWER MARGIN, SO AS TO MAKE THE MEAN MARGIN MUCH LOWER FOR MAKING IT CO MPARABLE TO THAT OF THE ASSESSEE. TRANSACTIONAL NET MARGIN METHOD IS EXPECTED TO TAKE INTO ACCOUNT VARIOUS DYNAMIC FACTORS INVOLVED AND WIDER DIFFERENCES. AS THE NET LEVEL MARGIN IS TO BE COMPARED UNDER TNMM, USE OF SUCH A FILTER AS SUGGESTED BY THE ASSE SSEE, IS NOT NECESSARY. FURTHER, THE COMPARABLES HAVE NOT BEEN IDENTIFIED BY THE TPO FOR COMPARISONS WITH TWO SEPARATE FUNCTIONS BUT OF THE ENTITY AS A WHOLE. HENCE, THE CLAIM/SUBMISSION TO INCLUDE THIS ADDITIONAL FILTER IS NOT CORRECT AND ALSO NOT PERMI SSIBLE AT THIS STAGE. IT IS REITERATED THAT THE COMPARABLES IDENTIFIED BY THE TPO ARE ENGAGED IN FU NCTIONALLY SIMILAR SECTOR AND ARE OF COMPARABLE MAGNITUDE. ACCORDINGLY, THE ASSESSEE'S O BJECTIONS ARE DEVOID OF MERIT AND ARE NOT MAINTAINABLE IN THE FACTS OF THE CASE. 2.2 IN PARA 8(B), LD. AR HAS FURTHER REQUESTED FOR EXCLUSION OF TWO OTHER COMPANIES VIZ. DABUR INDIA AND EMAMI LTD. ON THE GROUND THAT THEIR PRODUCTS ARE NOT SIMILAR TO PRODUCTS OF THE ASSESSEE. IN THIS REGARD, IT IS SUBMITTED THAT WHENEVER ANY T P STUDY IS DONE USING TNMM METHOD, IT IS NOT POSSIBLE TO HAVE EXACTLY THE SAME COMPARABLES. HERE THE TPO HAS PICKED UP COMPARABLES UNDER THE FMCG SEGMENT INVOLV ING PERSONAL CARE PRODUCTS WHICH IS THE RIGHT SEGMENT TO COMPARE. FURTHER, IN ITS OWN SEGMENTAL TP STUDY THE ASSESSEE HAS ITSELF TAKEN COMPANIES WHICH HAVE VAST LY DIFFERENT PRODUCTS FROM THE PRODUCTS IN WHICH THE ASSESSEE DEALS (APB 250 DIS TRIBUTION SEGMENT COMP. AND APB 255- MANUFACTURING SEGMENT COMP.) 2.3 IN PARA 8(C) LD.AR HAS POINTED OUT THAT IN CALCULAT ING OPERATING MARGIN THE TPO HAS EXCLUDED OTHER INCOME BUT HAS NOT EXCLUDED OTHER EX PENSES. IN THIS REGARD, FIRST OF ALL IT MAY BE NOTED THAT THIS OBJECTION WAS NEVER RAISED B Y THE ASSESSEE BEFORE THE TPO. SECONDLY, THE TPO HAS NOT EXCLUDED THE OTHER EXPENS ES EVEN FOR THE COMPARABLE COMPANIES THEREFORE, IF THE OTHER EXPENSES ARE TO B E EXCLUDED FOR THE ASSESSEE COMPANY THEY HAVE TO BE EXCLUDED FOR COMPARABLES ALSO. 19 2.4 IN PARA 8(D), THE ID. AR IS REQUESTING EVEN FOR COM PLETE CHANGE OF PROFIT LEVEL INDICATOR (PLI) WHICH CANNOT BE DONE AT THIS STAGE. 2.5 IN PARA 10, LD. AR HAS ARGUED THAT IN RESPECT OF TH E IMPORTED RAW MATERIAL NO ADJUSTMENT FOR ARMS LENGTH PRICE IS REQUIRED BECAU SE THIS MATERIAL HAS BEEN USED IN THE MANUFACTURING FUNCTION. THE IMPORTED RAW MATERIAL I S A PART OF THE REVENUE EXPENDITURE OF THE ASSESSEE AND IS AN IMPORTANT PART OF THE ARM 'S LENGTH PRICE ANALYSIS. INFLATION OF IMPORTED RAW MATERIAL FROM THE AE DOES LEAD TO ARTI FICIAL REDUCTION OF ASSESSEE'S PROFITS IN INDIA. THEREFORE, IT WAS NECESSARY FOR THE ASSES SEE TO HAVE GIVEN SEPARATE DETAILS ABOUT THE PROFITABILITY RESULTING FROM THESE TRANSACTIONS WITH THE AE. SINCE THE ASSESSEE COULD NOT GIVE THIS INFORMATION THEREFORE THE TPO HAD TO MAKE COMPARISON AT ENTITY LEVEL. 3. IN PARA 10 LD AR HAS ALSO ARGUED THAT AT ENTITY LEV EL THE DIFFERENCE IN THE RATES OF OPM CAN BE APPLIED ONLY TO THE VALUE OF IMPORTED GO ODS FOR RESALE AND NOT TO THE TOTAL TURNOVER. IN THIS RESPECT, IT IS SUBMITTED THAT THE ASSESSEE HAS HAD A NUMBER OF INTERNATIONAL TRANSACTIONS WITH AES AND ALL THESE HAVE HAD EFFECT ON THE PROFITABILITY OF THE ASSESSEE. THE NET EFFECT OF THESE TRANSACTIONS ON THE PROFITA BILITY OF THE ASSESSEE GETS REFLECTED IN THE OPM OF THE ASSESSEE AT ENTITY LEVEL AND IT GIVE S A CLEAR PICTURE ABOUT THE IMPACT OF THESE TRANSACTIONS. WHEN THE TNMM METHOD IS BEING APPLIED AT THE ENTITY LEVEL THE DIFFERENCE IN OPM OF THE ASSESSEE AND THE MEAN OPM OF THE COMPARABLES HA S TO BE APPLIED ON THE WHOLE TURNOVER ONLY. APPLYING THIS DIFFERENCE ON THE INTE RNATIONAL TRANSACTIONS WILL BE ILLOGICAL AS IN SUCH A CASE WE WILL BE COMPARING THE INCOMPAR ABLE. THE MEAN OPM OF COMPARABLES HAS BEEN TAKEN AT 16.48 % COMPARED WITH THE OPM OF THE ASSESSEE AT THE ENTITY LEVEL. AS CORRECT SEGMEN TAL HAS NOT BEEN DRAWN BY THE ASSESSEE, IT WILL NOT MEAN THAT THE OPM OF EACH SEGMENT OR EA CH TRANSACTION IS 12.67% (OPM OF THE ASSESSEE AT THE ENTITY LEVEL). HENCE, THE MEAN MARGIN OF THE COMPARABLES HAS TO BE NECESSARILY APPLIED AT THE ENTITY LEVEL. IN ABSENCE OF THE CORRECT SEGMENTAL FINANCIALS SUBMITTED BY THE TAXPAYER, IT IS NOT POSSIBLE TO AP PLY THE MEAN OPM OF 16.48% TO ANY 20 ONE TRANSACTION OF THE ASSESSEE. IN ORDER TO MAKE A NY CHANGES, THE CORRECT DATA/CALCULATION SHOULD HAVE BEEN SUBMITTED BY THE ASSESSEE; WHICH WOULD HAVE CHANGED THE OPM OF THE ASSESSEE (AS CALCULATED AT ENTITY LE VEL AT 12.67%). THUS, WHAT THE TPO DID I.E. APPLIED THE MEAN MARGIN OF 16.48% AT THE E NTITY LEVEL IS CORRECT. 4. THE ARGUMENT OF LD. AR IN PARA 11 IS NOT ACCEPTABLE BECAUSE IN INCOME TAX PROCEEDINGS EACH YEAR IS DIFFERENT FROM OTHER. IF T HE ARM'S LENGTH PRICE ADJUSTMENT HAS NOT BEEN MADE IN SOME YEARS IT DOES NOT MEAN IT CAN NOT BE APPLIED IN ANY OTHER YEAR. 5. IN PARA 12 AGAIN LD. AR HAS RAISED THE ISSUE OF USI NG GROSS MARGIN INSTEAD OF THE NET MARGIN. HERE AGAIN LD. AR IS REQUESTING FOR CHANGIN G THE PLI ITSELF WHICH CANNOT BE DONE AT THIS STAGE IN APPEAL. 3.9. WE HAVE GONE THROUGH THE ENTIRE MATERIAL ON RE CORD WITH THE ASSISTANCE OF THE LD. AR AND THE LD. DR. SO FAR AS GROUND NO. 1(I) IS CONCER NED, THE MAIN THRUST OF THE ASSESSEE IS THAT AS PER SEC. 92CA(4), THE AO ON RECEIPT OF ORDE R FROM TPO U/S 92CA(3) SHALL COMPUTE THE TOTAL INCOME OF THE ASSESSEE U/S 92C(4) HAVING REGARD TO ALP DETERMINED BY THE TPO. HOWEVER, THERE IS AN AMENDMENT IN THIS SEC TION BY FINANCE ACT, 2007 W.E.F. 01.06.2007 WHERE THE WORD HAVING REGARD TO ALP DE TERMINED BY THE TPO HAS BEEN SUBSTITUTED BY THE WORD, IN CONFORMITY WITH THE AL P AS SO DETERMINED BY THE TPO. IN OUR VIEW, THIS AMENDMENT IS MERELY PROCEDURAL IN NA TURE. FURTHER, THE AO AFTER RECEIPT OF THE ORDER OF THE TPO HAS AGAIN REQUIRED THE ASSESSE E TO SUBMIT HIS OBJECTION TO THE ADDITION PROPOSED BY THE TPO AND AFTER CONSIDERING SUCH OBJECTIONS, THE AO HAS MADE THE ADJUSTMENT. THEREFORE, THE GROUND OF THE ASSESSEE T HAT AO HAS MADE THE ADDITION WITHOUT MAKING ANY INDEPENDENT EXAMINATION IS DEVOID OF ANY MERIT AND IS DISMISSED. IN GROUND NO. 1(II), THE ASSESSEE HAS CONTENDED THAT AO HAS I NCORRECTLY APPLIED SEC. 92C(3) AND REJECTING THE TRANSFER PRICING STUDY SUBMITTED BY T HE ASSESSEE. WE ARE NOT IMPRESSED WITH THE SUBMISSION MADE BY THE ASSESSEE AS THE AO/TPO A RE WELL WITHIN THEIR RIGHTS TO REJECT THE TP STUDY FILED BY THE ASSESSEE AND DETERMINE TH E ALP OF THE TRANSACTION INDEPENDENTLY, THOUGH SUCH DETERMINATION MAY BE CHA LLENGED BY THE ASSESSEE. HENCE, THIS GROUND IS DISMISSED. 21 3.10.IN GROUND NO. 1(III), THE ASSESSEE HAS CHALLEN GED THE RE-COMPUTATION OF ALP OF INTERNATIONAL TRANSACTION IN RELATION TO IMPORT OF FINISHED GOODS BY DISREGARDING THE TP DOCUMENTATION, SEGMENTAL ANALYSIS ETC. AND INSTEAD EVALUATING THE OPERATION AT ENTITY LEVEL AND THEREBY MAKING ADJUSTMENT OF RS.15,75,28,786/-. AFTER CONSIDERING THE RIVAL SUBMISSION, WE NOTED THAT THE TPO HAS ACCEPTED THE ALP OF ALL OTHER INTERNATIONAL TRANSACTIONS EXCEPT IN RESPECT OF IMPORT OF GOODS F OR RESALE/FOR PACKAGING AND SALE. THE TPO BY REJECTING THE SEGMENTAL ANALYSIS AND THE COM PARABLES SELECTED BY THE ASSESSEE HAS DETERMINED THE OPERATING MARGIN AT ENTITY LEVEL BY CONSIDERING 5 OTHER COMPARABLES. ON THIS BASIS, HE HAS DETERMINED THE DIFFERENCE BETWEE N THE OPERATING MARGIN OF THE ASSESSEE AND THE COMPARABLE CASES AT 3.83% (16.50% - 12.67%) AND APPLIED THIS DIFFERENCE TO TOTAL TURNOVER OF RS.412.14 CRORES TO MAKE ADJUSTMENT OF 15.75 CRORES IN THE ALP OF THE FINISHED GOODS IMPORTED BY THE ASSESSEE. THE ADJUST MENT SO MADE BY CONSIDERING THE ENTIRE TURNOVER IS INCORRECT AS THE TPO HAS NO AUTH ORITY TO DETERMINE THE TOTAL INCOME OF THE ASSESSEE BUT ONLY THE ALP OF THE INTERNATIONAL TRANSACTIONS. THEREFORE, ADJUSTMENT IS TO BE RESTRICTED TO THE INTERNATIONAL TRANSACTION A ND NOT TO THE ENTIRE TURNOVER OF THE ASSESSEE. IN CASE OF DCIT VS. STARLITE 133 TTJ 425 (MUM.) (TRIB.), IT WAS HELD THAT ADJUSTMENTS, IF ANY, ARISING DUE TO COMPUTATION OF ALP SHOULD BE RESTRICTED ONLY TO THE INTERNATIONAL TRANSACTIONS & NOT TO THE ENTIRE TURN OVER OF THE ASSESSEE COMPANY. NO ADDITION CAN BE MADE TO TOTAL TRANSACTIONS UNDER CH APTER X. SUCH THINGS ARE DONE ONLY WHEN AO INVOKES SECTION 144. THEREFORE, AO WAS DIRE CTED TO RESTRICT ADJUSTMENTS, IF ANY, ONLY TO INTERNATIONAL TRANSACTIONS, WHICH ARE FOUND BY HIM TO HAVE TAKEN PLACE AT A PRICE OTHER THAN ALP. IN CASE OF DCIT VS. ANKIT DIAMONDS 8 ITR (TRIB.) 487 (MUM.), IT WAS HELD THAT DETERMINATION OF ALP OF AN INTERNATIONAL TRANSACTION HAS TO BE ONLY AT THE TRANSACTION LEVEL OR AT THE LEVEL OF A CLASS OF TRA NSACTIONS. TPO IS NOT AUTHORIZED TO DETERMINE THE NET OPERATIONAL PROFITS AT THE ENTERP RISE LEVEL BUT HE SHALL DETERMINE ONLY ALP OF INTERNATIONAL TRANSACTION. THEREFORE, TRANSF ER PRICING ADJUSTMENTS SUGGESTED BY TPO IS ILLEGAL & AGAINST THE LAW. IN CASE OF HUNTSM AN ADVANCED MATERIALS (INDIA) (P.) LTD. VS. DCIT (MUM.) (TRIB.), IT WAS HELD THAT ADJU STMENT FOR ARM'S LENGTH PRICE IS TO BE MADE ONLY IN RESPECT OF ASSESSEE'S TRANSACTIONS WIT H ASSOCIATED ENTERPRISES INSTEAD OF ITS ENTIRE TURNOVER OF TRADING SEGMENT. THE OTHER CASES RELIED BY THE ASSESSEE ARE ALSO TO THE SAME EFFECT. THEREFORE, IF THE OPERATING MARGIN DIF FERENCE OF 3.83% IS APPLIED TO THE TRANSACTION WITH THE AE OF RS.64.68 CRORES, THE ADJ USTMENT WOULD BE OF RS.2.47 CRORES WHICH IS WITHIN THE PERMISSIBLE RANGE OF 5% (5% OF RS.64.08 CRORES IS 3.23 CRORES) AS 22 PROVIDED IN PROVISO TO SEC. 92C(2). HENCE, THE ADJU STMENT MADE BY THE TPO IS NOT SUSTAINABLE. 3.11 WE ARE ALSO CONVINCED WITH THE OTHER ARGUMENTS OF LD. AR THAT OUT OF THE 5 COMPANIES SELECTED BY THE TPO, 2 COMPANIES NAMELY, PROCTER AN D GAMBEL HYGIENE AND HEALTHCARE LTD. AND INTERNATIONAL FLAVOURS AND FRAGRANCES (IND IA) LTD. CANNOT BE CONSIDERED AS PROPER COMPARABLES AS THEIR MANUFACTURING AND TRADI NG RATIO OF 99:1 WHEREAS THE ASSESSEES MANUFACTURING AND TRADING RATIO IS 82:18 . FURTHER, PROCTER AND GAMBEL HYGIENE AND HEALTHCARE LTD. IS ASSOCIATE CONCERN OF THE ASS ESSEE. THE OBJECTION OF THE LD. DR THAT ASSESSEE IS ONLY CHERRY PICKING I.E. REJECTION OF C OMPANIES WITH HIGH PROFIT MARGIN IS NOT ACCEPTABLE SINCE AS PER RULE 10B(2), COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION IS TO BE JUDGED WITH REFER ENCE TO FUNCTIONS PERFORMED, ASSET EMPLOYED AND THE RISK ASSUMED BY THE RESPECTIVE PAR TIES OF THE TRANSACTION. THEREFORE, FOR COMPARISON, THE RESULTS OF A MANUFACTURING COMPANY OR A RELATED CONCERN CANNOT BE COMPARED WITH A COMPANY WHO IS BOTH IN TRADING AND MANUFACTURING. IN CASE OF TCL HOLDINGS (P.) LTD. VS. ACIT (2013) 35 TAXMANN.COM 1 47 (MUM.) (TRIB.), IT WAS HELD THAT UNDER TNM METHOD, COMPARABLES SELECTED SHOULD BE FU NCTIONALLY SIMILAR AND THEREFORE, WHERE THE ASSESSEE WAS A TRADING CONCERN, MANUFACTU RING CONCERNS COULD NOT BE TAKEN AS COMPARABLE. SIMILARLY, EMAMI LTD. IS ALTOGETHER IN A DIFFERENT BUSINESS SEGMENT OF FEMALE CARE WHERE TRADITIONALLY THE MARGINS ARE HIGHER. DA BUR INDIA LTD. IS IN PHARMACEUTICALS AND HEALTHCARE PRODUCT WHICH IS AGAIN AN ALTOGETHER DIFFERENT SEGMENT AS AGAINST MALE GROOMING AND PERSONAL CARE PRODUCTS IN WHICH THE AS SESSEE IS ENGAGED. AFTER EXCLUDING THESE FOUR COMPANIES, ONLY COLGATE PALMOLIVE INDIA LTD. REMAINS AS A COMPARABLE COMPANY WHERE THE NET OPERATING MARGIN IS 13.43% AS AGAINST OPERATING MARGIN OF 12.67% OF THE ASSESSEE AS DETERMINED BY THE TPO. EV EN THE DETERMINATION OF OPERATING MARGIN OF 12.67% BY THE TPO WITHOUT EXCLUDING THE O THER UNRELATED EXPENSES OF RS.2.37 CRORES COMPRISING OF DEPRECIATION ON LET OUT BUILDI NG RS.99.7 LACS, WRITE OFF OF FIXED ASSETS OF RS.17.24 LACS AND VRS EXPENSES OF RS.119. 95 LACS IS NOT CORRECT. IF THESE EXPENSES ARE EXCLUDED, THE OPERATING MARGIN OF ASSE SSEE BECAME 13.25%. THIS MARGIN IS COMPARABLE WITH THE MARGIN OF 13.43% OF COLGATE PAL MOLIVE INDIA LTD. CONSIDERING ALL THESE FACTORS AND ALSO THE FACT THAT THE TPO HIMSEL F HAS ADMITTED THAT ASSESSEE IS A MARKET LEADER AND IT WILL BE EXTREMELY DIFFICULT TO IDENTI FY THE COMPARABLES AND THE FACT THAT NEITHER IN EARLIER YEARS NOR IN SUBSEQUENT YEARS AN Y ADJUSTMENT HAS BEEN MADE BY COMPARING THE RESULTS AT ENTITY LEVEL, WE HOLD THAT THE INTERNATIONAL TRANSACTION ENTERED BY 23 THE ASSESSEE WITH THE AE EVEN AT ENTITY LEVEL IS AT ARMS LENGTH AND THEREFORE THE ADJUSTMENT MADE BY THE AO IS NOT JUSTIFIED. HENCE, THE ADDITION OF RS.15,75,28,786/- MADE BY THE AO IS DELETED. GROUND NO. 1(III) OF THE ASSESSEE IS THEREFORE ALLOWED. 4. THE SECOND GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF CLAIM OF INVENTORIES WRITTEN OFF AT RS.8,28,35,757/-. THIS DISALLOWANCE IS MADE BY THE AO OBSERVING THAT CLAIM OF INVENTORY WRITTEN OFF IS NOT SUPPORTED BY ITEM WISE DETAILS, CIRCUMSTANCES IN WHICH IT WAS DAMAGED, PROCEDURE SUPPORTED WITH DOCUMENTS ETC. THE DRP CON FIRMED THE ORDER OF THE AO ON THE GROUND THAT IN EARLIER YEARS THE WRITE OFF OF INVEN TORY HAS NOT BEEN ALLOWED BY THE DEPARTMENT. AS AGAINST THIS LD. AR ARGUED THAT THE COMPLETE DETAILS WERE PROVIDED AND THAT THE ISSUE IS DECIDED IN ITS FAVOUR BY THE HON BLE ITAT IN EARLIER YEARS. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AO. 4.1. AFTER CONSIDERING THE RIVAL SUBMISSION, WE NOT ED THAT THE DETAILS OF INVENTORY WRITTEN OFF AS WELL AS PROCEDURE FOR WRITTEN OFF IS EXPLAINED B EFORE THE AO AND THE SAME IS ALSO PLACED BEFORE US AT PB PAGE 421-664. WE ALSO FIND T HAT SIMILAR ISSUE IS DECIDED BY THIS BENCH IN A.Y. 03-04 IN ITA NO. 188/JP/07 DATED 09.0 8.2010 IN ASSESSEES FAVOUR AND FOLLOWED IN A.Y. 04-05 IN ITA NO. 180/JP/09 DATED 2 7.05.2011 AND IN A.Y. 05-06 IN ITA NO. 1234/JP/2010 DATED 11.02.2011. THE RELEVANT POR TION OF THE DECISION OF TRIBUNAL IN PARA 16 IN A.Y. 03-04 IS REPRODUCED AS UNDER:- AS REGARD TO THE DISALLOWANCE OF RS 8,37,10,704/- IN RESPECT OF DAMAGED GOODS RETAIL AND RS 3,64,71,703/- IN RESPECT OF PROVISION FOR OB SOLESCE MADE BY THE AO FOR WANT OF ITEM WISE DETAILS AND THE PROCEDURE THEREOF, THE LD. CIT(A) AFTER CONSIDERING THE ITEM WISE DETAILS AND CONSIDERING THE PROCEDURE ADO PTED FOR DISPOSAL AND DESTRUCTION OF SUCH STOCK, COPY OF WHICH IS PLACED IN THE PAPER BOOK HAS RIGHTLY DELETED THE DISALLOWANCE OF RS 8,37,10,704/- BUT AT THE SAME TI ME HE DID NOT ALLOWED THE CLAIM OF RS.3,64,71,703/- ON THE GROUND THAT IT IS ONLY A PR OVISION AND NOT ACTUALLY DESTROYED. WE FIND THAT IN RESPECT OF BOTH THESE AMOUNTS ITEM WISE DETAILS IS FILED. THE PROCEDURE ADOPTED AND THE RECOMMENDATION OF APPROPRIATE AUTHO RITIES IS PLACED ON RECORD. THE DISALLOWANCE OF RS 3,64,71,703/- CONFIRMED BY THE L D. CIT(A) ONLY FOR THE REASON THAT THESE ITEMS ARE NOT ACTUALLY DESTROYED AND IS ONLY A PROVISION CANT BE UPHELD FOR THE REASON THAT ITEM WISE DETAILS OF THE SAME IS FILED, THESE ARE THE IDENTIFIED ITEMS AND HAVE BEEN SUBSEQUENTLY DESTROYED AS PER THE REGULAR PROCEDURE FOLLOWED. THE WRITE 24 OFF FOR OBSOLESCE OF SUCH IDENTIFIED ITEMS IS ALLOW ABLE DEDUCTION AS PER THE CASE LAWS RELIED BY THE LD. AR. IN FACT NO PROVISION IS CREAT ED IN BOOKS OF ACCOUNTS BUT ONLY THE NOMENCLATURE OF PROVISION FOR OBSOLESCE IS USED. IN THE BALANCE SHEET ALSO NO SUCH PROVISION IS APPEARING EITHER IN THE LIABILITIES SI DE OR AS REDUCTION FROM ASSET SIDE NOT THE LD. D/R COULD POINT OUT ANY SUCH PROVISION IN T HE BALANCE SHEET. THEREFORE THE DISALLOWANCE OF RS 3,64,71,703/- CONFIRMED BY THE L D. CIT(A) IS DELETED. FOLLOWING THE ORDERS OF THE TRIBUNALS IN CASE OF T HE ASSESSEE, THE CLAIM OF THE INVENTORY WRITTEN OFF OF RS. 8,28,35,757/- IS ALLOWED AND HEN CE THE ADDITION MADE BY THE AO IS DELETED. THIS GROUND IS THEREFORE ALLOWED. 5. THE THIRD GROUND OF APPEAL IS AGAINST DISALLOWAN CE OF RS. 50 LACS OUT OF TRAVELLING AND CONVEYANCE EXPENSES. WE NOTED THAT AO MADE LUMPSUM DISALLOWANCE OUT OF EXPENSES OF RS.9,94,33,712/- ON THE GROUND THAT ASSESSEE HAS NO T FILED SUPPORTING EVIDENCE TO JUSTIFY THE CLAIM WHICH IS APPROVED BY THE DRP. THE LD. AR CONTENDED THAT THE AO HAS WRONGLY STATED THAT ASSESSEE HAS NOT FILED SUPPORTING EVIDE NCE TO JUSTIFY THE CLAIM AND FAILED TO EXPLAIN THE NATURE AND PURPOSE OF EXPENSES AND THER EFORE IT LACKS VERIFICATION. THE SYSTEM OF INTERNAL CONTROL IS SUCH THAT NO EXPENSES ARE BO OKED WITHOUT APPROPRIATE APPROVAL AND EVIDENCE OF EXPENSES. TO PRODUCE THE VOLUMINOUS FIL ES OF VOUCHERS SERVES NO PURPOSE. THERE IS NO ADVERSE COMMENT FROM THE AUDITORS ON TH E EXPENSES INCURRED UNDER THIS HEAD. THE AO HAS NOT REQUIRED ASSESSEE TO PRODUCE VOUCHER S FOR ANY SPECIFIC EXPENDITURE. IN THE PAST, NO DISALLOWANCE OUT OF THESE EXPENSES WER E MADE BY AO. IN A.Y. 07-08, THE DRP HAS ALSO DELETED SUCH ADHOC DISALLOWANCE. IT IS FURTHER CONTENDED THAT ON TRAVELING AND CONVEYANCE EXPENSES, FRINGE BENEFIT TAX HAS BEE N PAID BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT. THE CBDT IN CIRCULAR NO. 8/2005 DATED 29.8.2005 IN REPLY TO QUESTION NO. 35 & 36 HAS CLARIFIED THAT IF ANY EXPE NDITURE IS NOT ALLOWED U/S 37, THEN THE SAME CANNOT BE CONSIDERED FOR FRINGE BENEFIT TAX. C ONVERSELY IF ANY EXPENDITURE IS CONSIDERED FOR FRINGE BENEFIT TAX, IT CANNOT BE DIS ALLOWED U/S 37. FOR THIS PROPOSITION, RELIANCE IS PLACED ON THE DECISION OF JAIPUR ITAT I N CASE OF ACIT VS. NATURAL SLATE AND STAND STONE PVT. LTD. IN ITA NO. 1090/JP/10 DT. 04. 02.2011. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER OF THE AO. 5.1 AFTER CONSIDERING THE RIVAL SUBMISSION, WE FOUN D THAT AO AT PAGE 2 OF ITS ORDER HAS STATED THAT ASSESSEE HAS PRODUCED ENTIRE MODULE, BILL AND VOUCHERS OF EXPENSES FOR VERIFICATION AS 25 DESIRED. HOWEVER, IN MAKING DISALLOWANCE OUT OF THE ABOVE EXPENSES AFTER SUBMISSION OF MONTH WISE DETAILS OF THE EXPENSES BY THE ASSESSEE, AO HAS NOT REQUIRED ASSESSEE TO FURNISH THE DETAILS OF ANY SPECIFIC EXPENSES. WE AL SO NOTE THAT ON THESE EXPENSES, FBT IS PAID AND THAT SUCH ADHOC DISALLOWANCE IS NOT MADE I N THE PAST AND IN A.Y. 07-08, THE DRP HAS DIRECTED THE AO NOT TO MAKE SUCH ADHOC DISALLOW ANCE. IN THESE FACTS AND CIRCUMSTANCES, WE DIRECT THE AO TO DELETE THE DISAL LOWANCE OF RS. 50 LACS MADE BY HIM. 6. GROUND NO. 4 IS AGAINST DISALLOWANCE OF RS.52,87 ,28,092/- IN RESPECT OF ADVERTISEMENT AND SALES PROMOTION EXPENSES. THE EXPENSES COMPRISES OF TWO AMOUNTS, ONE RS.36,70,04,056/- PAID TO GROUP M MEDIA PVT. LTD. F OR ADVERTISEMENT AND ANOTHER RS.16,17,24,306/- PAID TOWARDS TRADE INCENTIVE TO T HE VARIOUS DISTRIBUTORS. THE AO MADE THE DISALLOWANCE FOR THE FOLLOWING REASONS:- ADVERTISEMENT EXPENSES GROUPM MEDIA PVT. LTD. RS . 36,70,04,056/- THE PAYMENT MADE BY ASSESSEE TO GROUP M MEDIA P. LT D. IS ON BEHALF OF MINDSHARE, SINGAPORE, WHICH IS A NON RESIDENT ENTITY AND HENCE IS COVERED BY THE PROVISIONS OF SECTION 195 OF THE ACT. AS THE SAID PAYMENTS WERE M ADE WITHOUT DEDUCTING TAX AT SOURCE, IT IS DISALLOWED U/S 40(A)(I) OF THE ACT. NO AGREEMENT HAS BEEN SUBMITTED FOR THE ADVERTISEME NT WORK DONE BY GROUP M MEDIA P. LTD. FOR THE ASSESSEE. TRADE INCENTIVE TO VARIOUS DISTRIBUTORS RS. 16,17,2 4,306/- SINCE THE AMOUNTS CLAIMED IS NOT SUPPORTED BY ANY D OCUMENTS TO INDICATE THAT THESE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSI NESS OF THE ASSESSEE, THESE AMOUNTS ARE DISALLOWED U/S 37 OF THE ACT. THE SERVICES HAVE BEEN RECEIVED AGAINST THESE PAYME NTS AND THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE ON THE VALUE OF THE GIFTS. THE DRP APPROVED THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT TAX IS NOT DEDUCTED AT SOURCE AND THEREFORE SAME IS DISALLOWAB LE U/S 40(A)(IA). 6.1 THE LD. AR MADE DETAILED WRITTEN SUBMISSION AND ALSO ADVANCE THE ORAL ARGUMENTS. FOR THE SAKE OF COMPLETENESS, THE WRITTEN SUBMISSION MA DE BY THE AR IS REPRODUCED AS UNDER:- ADVERTISEMENT EXPENSES GROUP M MEDIA PVT. LTD. 26 1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD MANDATED THE MEDIA PLANNING ACTIVITIES I.E. ADVERTISEMENT OF ITS VARIOUS PRODUC TS TO GROUP M MEDIA PVT. LTD (GROUPM). FOR THE SAID PURPOSES, VARIOUS INVOICES WERE RAISED FROM TIME TO TIME ON THE ASSESSEE, AGGREGATING TO RS. 36,70,04,056. A SA MPLE COPY THEREOF WAS PROVIDED TO THE AO VIDE LETTER DATED DECEMBER 7, 2009 . FURTHER , IN RESPECT OF THE PAYMENT FOR THE SAID ADVERTISEMENT EXPENSES TO GROUPM, THE ASSESSEE HAD DEDUCTED TAX AS PER PROVISIONS OF SECTION 194C OF THE ACT. THE AO HAS D ISALLOWED THE SAME, ON THE ALLEGED GROUND THAT THE PAYMENT MADE BY THE ASSESSE E TO GROUPM WAS FOR AND ON BEHALF OF MINDSHARE, SINGAPORE (WHICH IS A NON-RESI DENT ENTITY) AND THEREOF THE TRANSACTION IS COVERED BY THE PROVISIONS OF SECTION 195 OF THE ACT. SINCE, THE PAYMENTS WERE MADE WITHOUT DEDUCTING TAX AT SOURCE PURSUANT TO SECTION 195 OF THE ACT, THE SAID AMOUNT IS DISALLOWABLE U/S 40(A)(I) OF THE ACT. THE ASSESSEE SUBMITS THAT THE PAYMENT MADE BY THE ASSESSEE TO GROUPM HAS NO C ONNECTION WITH MINDSHARE, SINGAPORE TO GILLETE PTE. LTD., SINGAPORE (GILLETE , SINGAPORE) AND ITS AFFILIATES PURSUANT TO AGENCY OF RECORD SERVICES FILED IN PROC EEDINGS DATED DECEMBER 1, 2009 (PB 670 TO 672) . 2. DURING THE YEAR UNDER CONSIDERATION GROUPM WAS THE MAIN MEDIA ADVERTISING COMPANY FOR THE ASSESSEE. THE ENTIRE SCOPE OF WORK AND TERMS AND CONDITIONS WERE MUTUALLY AGREED BETWEEN THE ASSESSEE AND GROUPM WIT H NO INTERFERENCE OF THIRD PARTY WHICH ALSO INCLUDES MINDSHARE, SINGAPORE. THE ADVER TISEMENT IN RESPECT OF VARIOUS PRODUCTS OF THE ASSESSEE WERE TELECASTED ON VARIOUS INDIAN TV CHANNELS VIZ. MAA TV, SURYA CHANNEL, E TV, STAR, SUN, ETC. AS PER THE AOR CONTRACT, WHICH WAS ENTERED INTO BETWEEN GILLETE, SINGAPORE AND MINDSHARE, SING APORE DATED JANUARY 1, 2006. MINDSHARE HAD AGREED TO PROVIDE MEDIA PLANNING SERV ICES WHICH INCLUDED THE IDENTIFICATION AND ESTABLISHMENT OF MOST EFFECTIVE MEDIA NECESSARY TO CONTRIBUTE AND ENHANCE THE MARKETING OBJECTIVES OF GILLETE, SINGAP ORE FOR A MINIMUM PERIOD OF SIX MONTHS FROM JANUARY 1, 2006 TO JUNE 30, 2006 FOR TH E ASEAN COUNTRIES AS LISTED IN THE AOR CONTRACT IN APPENDIX 1. THESE COUNTRIES ALS O INCLUDED INDIA. FURTHER, NO SERVICES WERE RENDERED BY MINDSHARE, SINGAPORE TO T HE ASSESSEE IN INDIA. THE SERVICES WERE RENDERED BY GROUPM (AN INDIAN COMPANY) TO TH E ASSESSEE IN INDIA. 3. THE ASSESSEE SUBMITS THAT IT HAD AVAILED SERVICES F ROM GROUPM INDIA PVT. LTD. FOR ADVERTISEMENT WORK BUT NOT PURSUANT TO THE AOR CONT RACT, REFERRED TO ABOVE. IT HAD 27 INDEPENDENTLY AVAILED THE SERVICES FROM GROUPM AS A N INDEPENDENT ENTITY AND NOT AS AN AFFILIATE OF MINDSHARE, SINGAPORE. THE AO CONFUS ED SINCE GROUPM IS ALSO AN AFFILIATE OF MINDSHARE, SINGAPORE, WHO HAD AGREED T O PROVIDE SERVICES IN INDIA TO GILLETE, SINGAPORE ON BEHALF OF MINDSHARE, SINGAPOR E. 4. FURTHER, THE ASSESSEE INVITES ATTENTION TO THE FACT THAT DURING THE YEAR UNDER CONSIDERATION, VARIOUS INVOICES WERE RAISED BY GROU PM, IN RESPECT OF THE ADVERTISEMENT WORK EXECUTED FROM APRIL 1, 2005 BY G ROUPM. THE AO HAS FAILED TO APPRECIATE THE FACT THAT THE AOR CONTRACT WAS EXECU TED ONLY ON JANUARY 1, 2006 AND WAS EFFECTIVE ONLY FOR THE PERIOD JANUARY 1, 2006 T O JUNE 30, 2006 WHEREAS GROUPM, INDEPENDENT OF THE SAID AOR CONTRACT WAS CARRYING O UT ADVERTISEMENT WORK FOR THE ASSESSEE FOR A PERIOD MUCH PRIOR TO EXECUTION OF TH E AOR CONTRACT. HENCE, THIS CLEARLY DEFIES THE AOS CONCLUSION THAT THE SERVICES WERE R ENDERED PURSUANT TO THE SAID AOR CONTRACT AND ALSO HIS ASSUMPTION THAT IT WAS FOR AN D ON BEHALF OF MINDSHARE, SINGAPORE, A NON-RESIDENT ENTITY. 5. FURTHER, THE ASSESSEE WANTS TO HIGHLIGHT AN IMPORTA NT FACT THAT THE INVOICING FOR THE MEDIA PLANNING SERVICES WHICH THE AFFILIATES OF MIN DSHARE, SINGAPORE WILL BE RENDERING TO THE GILLETTE, SINGAPORE AND ITS OTHER RELATED PARTY AS STATED IN THE APPENDIX 1 OF THE AOR CONTRACT, WILL BE DONE BY THE AFFILIATES OF MINDSHARE, SINGAPORE ON GILLETTE, SINGAPORE ONLY AND THE PAYME NT WILL BE MADE BY GILLETTE, SINGAPORE ONLY. IN THIS REGARD, ATTENTION IS INVITE D TO THE FOLLOWING EXTRACT OF THE AOR CONTRACT (PB 670-672): 2. APPOINTMENT AND TERM ........................................ .. GILLETE WILL PAY OR FEES AS SPECIFIED IN APPENDIX 1 TO MINDSHARE AND THE ALLOCATION OF FEES BETWEEN MINDSHARE AND MEDIACOM SHALL BE MUT UALLY AGREED BETWEEN THE 2 AGENCIES IN INDIA. 28 4. AOR FEES A).. B).. C) APPLICABLE LOCAL TAXES (INCLUDING GST, VAT ETC) WILL BE INVOICED IN ADDITION TO THE FEE. INVOICING FOR THE FEE SHALL BE DONE BY EACH LO CAL MARKET TO GILLETTE, SINGAPORE. PAYMENTS SHALL MADE BY GILLETTE, SINGAPORE TO EACH LOCAL ENTITY AS STATED IN APPENDIX 1. THUS, IF THE PAYMENT IS REQUIRED TO BE MADE BY THE GILLETTE, SINGAPORE AS PER THIS CONTRACT, IS TO BE IN RELATION TO SERVICES, IF ANY, IT MAY RECEIVE FROM THE AFFILIATES AND IT HAS TO DO NOTHING WITH THE SERVICES GROUPM HAS PROV IDED TO THE ASSESSEE IN INDIA. IN OTHER WORDS THE ADVERTISEMENT WORK DONE BY GROUPM F OR THE ASSESSEE IS INDEPENDENT OF THE AOR CONTRACT AND IS DONE BY IT IN ITS INDEPE NDENT CAPACITY. THUS, THE AOS INFERENCE THAT THE PAYMENT MADE BY ASSESSEE TO GROU P M, WAS ON BEHALF OF MINDSHARE, SINGAPORE AS PER THE AOR CONTRACT IS NOT CORRECT AND JUSTIFIED IN THE FACTS AND IN THE CIRCUMSTANCES OF THE PRESENT CASE. 6. FURTHER, THE ASSESSEE HAD DULY DISCHARGED ITS TDS O BLIGATION IN RESPECT OF PAYMENT TOWARDS ADVERTISEMENT WORK DONE BY GROUPM BY DEDUCT ING A SUM OF RS. 1,58,30,034/- U/S 194C OF THE ACT. THE DETAILS OF T AX DEDUCTED AT SOURCES WERE FURNISHED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON DECEMBER 7, 2009. THIS CLEARLY DEMONSTRATES THAT THE ASSESSEE H AS NOT DEFAULTED IN DISCHARGING ITS TDS OBLIGATIONS. 7. FURTHER, ONE OF THE REASONS FOR DISALLOWANCE BY THE AO WAS THE ABSENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND GROUPM IN RESPEC T OF THE ADVERTISEMENT WORK. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT GROU PM HAD RAISED DETAILED INVOICES ON THE ASSESSEE AND THE ASSESSEE AFTER HAVING BEEN SAT ISFIED WITH THE DETAILS OF THE WORK DONE AND CHARGES LEVIED BY GROUPM, IT HAD DISCHARG ED ITS PART OF OBLIGATION BY MAKING THE PAYMENT FOR THE SAID ADVERTISEMENT WORK. HENCE, THE CONDUCT OF GROUPM OF RAISING THE INVOICES AND THAT OF THE ASSESSEE OF DISCHARGING THE SAME HAS ALL THE ATTRIBUTES OF AN AGREEMENT. IT IS FURTHER SUBMITTED THAT HAVING AN AGREEMENT IS NOT A PRE-REQUISITE FOR INCURRENCE AND ALLOW ABILITY OF A NY EXPENSES. WHAT IS REQUIRED IS, TO DEMONSTRATE THAT THE EXPENSE HAVE BEEN INCURRED BY THE ASSESSEE WHOLLY AND SOLELY FOR 29 THE PURPOSE OF ITS BUSINESS. IN THIS REGARD, FROM THE PERUSAL OF THE DETAILS MENTIONED IN THE INVOICE OF GROUPM, IT MAY BE NOTED THAT THE ADVERTISEMENT WORK HAS BEEN CARRIED OUT BY GROUPM, AS THE SAME HAS BEEN TELECAS TED IN INDIA FOR VARIOUS PRODUCTS OF THE ASSESSEE; AND THE ASSESSEE HAS BEEN BENEFITE D BY SUCH ADVERTISEMENT. THE AO ALSO HAS NOT DISPUTED THE FACT OF INCURRENCE OF EXP ENDITURE AND THAT IT IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HENCE, IT IS SUBMITTED THAT THE SAID ADVERTISEMENT EXPENSES WERE INCURRED WHOLLY AND SOL ELY FOR THE ASSESSEES BUSINESS AND ARE THEREFORE ALLOWABLE AS DEDUCTION. FOR THIS PROPOSITION ASSESSEE RELIES ON THE FOLLOWING DECISIONS TO PROVE ITS CLAIM: CIT V. ASSOCIATED ELECTRICAL AGENCIES (266 ITR 63)( MAD.)- IT IS HELD THAT PAYMENTS MADE, HAVING REGARD TO THE COMMERCIAL EXP EDIENCY, NEED NOT NECESSARILY HAVE THEIR ORIGIN IN CONTRACTUAL OBLIGA TIONS. IF THE ASSESSEE, WHICH CARRIES ON A BUSINESS FINDS THAT IT IS COMMERCIALLY EXPEDIENTS TO INCUR CERTAIN EXPENDITURE DIRECTLY OR INDIRECTLY, IT WOULD BE OPE N TO SUCH AN ASSESSEE TO DO NOTWITHSTANDING THE FACT THAT A FORMAL; DEED DOES N OT PRECEDE THE INCURRING OF SUCH EXPENDITURE. JAMSHEDPUR MOTOR ACCESSORIES STORES VS. CIT (95 ITR 664)(PAT.)- IT IS HELD THAT MERELY BECAUSE THERE WAS NO AGREEMENT IN WRIT ING, THE ARRANGEMENT BETWEEN PARTIES, IF OTHERWISE IT WAS FIT TO BE BELI EVED AND AS IT WAS EVIDENCED BY THE ENTRIES IN THE BOOKS OF ACCOUNTS, COULD NOT BE DISBELIEVED. CIT VS. METAL PRODUCTS OF INDIA (150 ITR 714)( P& H )- IT IS HELD THAT STRICT RULES OF EVIDENCE, AS ARE KNOWN TO THE INDIAN EVIDE NCE ACT, ARE NOT APPLICABLE TO THE INCOME-TAX PROCEEDINGS, AND THUS THE WORD E VIDENCE IN THE QUESTION UNDER REFERENCE HAS TO BE UNDERSTOOD IN THE GENERIC SENSE, AND NOT THE ARRESTED SENSE SO AS TO BE EITHER ORAL OR DOCUMENTARY EVIDEN CES, OR BOTH. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS: CIT VS. GOODLAS NAROLAC PAINTS LTD. (188 ITR 1)(BOM ) CIT VS. THOMAS & CO. LTD. (55 ITR 312)(CAL.) CIT VS. ELECTRIC CONSTRUCTION EQUIPMENT CO. LTD.(18 2 ITR 510)(DEL) INSPECTING ASSISTANT COMMISSIONER VS. BRITISH PHARM ACEUTICAL LABORATORIES (39 ITD 105) (BOM.) LAXMI FEEDS & EXPORTS LTD. VS. ACIT (62 ITD 315)(BO M.) DEVANBABU PVT. LTD. VS.ITO (36 TTJ 664)(AHD.) 8. FURTHER, A DOUBT WAS RAISED DURING THE ASSESSMENT P ROCEEDINGS ABOUT THE RELATIONSHIP BETWEEN GROUPM AND THEIR GROUP COMPANY MINDSHARE, S INGAPORE, THEIR INDEPENDENT AND DEPENDENT RELATIONSHIP, ETC. IN THIS REGARD, IT IS SUBMITTED TO AO DURING THE ASSESSMENT PROCEEDINGS TO OBTAIN SUCH INFORMATION D IRECTLY FROM GROUPM. BUT THE 30 AO CHOOSE TO NOT EXERCISE HIS UNFETTERED POWER TO A SCERTAIN THE GENUINENESS OF THE ASSESSEES CLAIM. HENCE, IN THE ABSENCE OF ANY INFO RMATION TO THE CONTRARY, THE AO WAS NOT JUSTIFIED IN REJECTING THE GENUINE CLAIM OF THE ASSESSEE. FOR THIS PROPOSITION ASSESSEE RELIES ON THE FOLLOWING DECISION TO PROVE ITS CLAIM: ASSTT. CIT VS. METALIZING EQUIPMENT PVT. LTD. (100 TTJ 449)(JD.) - IT IS HELD THAT-IF THE AO WAS NOT SATISFIED WITH THE BILLS PR ODUCED BEFORE HIM, HE WAS FULLY AUTHORIZED TO EXAMINE THE GENUINENESS OF THE PARTIES AND BILLS ISSUED. HAVING NOT DONE SO, HE WAS UNDER OBLIGATION TO ACCE PT THE GENUINENESS OF THE BILLS FOR THE OBVIOUS REASON THAT THE ONUS TO PROVE THE APPARENT AS UNREAL IS ONE WHO SO ALLEGES. 9. ON MERITS ASSESSEE SUBMITS THAT THE ADVERTISEMENT E XPENDITURE IS INCURRED FOR THE PURPOSE OF ITS BUSINESS, THUS IT SHOULD BE ALLOWABL E AS BUSINESS EXPENDITURE. FOR THE PURPOSE OF DETERMINING THE ALLOWABILITY OF EXPENSES U/S 37(1), IT NEEDS TO BE CONSIDERED WHETHER THE EXPENDITURE INCURRED IS FOR THE PURPOSE OF BUSINESS OR NOT. YOUR HONOURS KIND ATTENTION IS INVITED TO THE FOLLO WING DECISIONS WHEREIN IT HAS BEEN HELD THAT THE EXPRESSION FOR THE PURPOSE OF BUSINE SS IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS AND , THEREFORE, EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS IS DULY ALLOWABLE AS A DEDU CTION U/S 37(1) OF THE IT ACT: CIT VS. MALAYALAM PLANTATIONS LTD. (53 ITR 140)(SC) BRLCO METAL INDUSTRIES P. LTD. (206 ITR 477)(BOM.) JCIT VS. ITC LTD. (112 ITD 57)(KOL.)(SB) CIT VS. LAKE PALACE HOTELS & MOTELS PVT. LTD. (293 ITR 281)(RAJ.) CIT VS. BALAJI ENTERPRISES (236 ITR 589)(MAD.) 10. THE ASSESSEE FURTHER SUBMITS THAT IN RESPECT OF PAY MENTS MADE TO GROUPM, IT HAS DEDUCTED TAX AT SOURCE U/S. 194C OF THE ACT. SECTIO N 195 OF THE ACT, APPLIES WHEN A PAYMENT IS MADE TO A NON-RESIDENT OR TO A FOREIGN C OMPANY. IN THE PRESENT CASE, PAYMENT IS MADE TO GROUPM MEDIA INDIA (P) LTD. IT I S A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 (PB 17). IT IS AN INDIAN CO MPANY AS DEFINED IN SEC. 2(26) AND A COMPANY RESIDENT IN INDIA U/S 6(3). AO WAS PR OVIDED WITH THE PAN, ADDRESS AND TELEPHONE NUMBER OF GROUPM. FURTHER, IT BEING A N INDIAN COMPANY, IT IS A RESIDENT OF INDIA AND THEREFORE SUBJECT TO TAX AND ASSESSMENT UNDER THE PROVISIONS OF THE ACT. ACCORDINGLY, IT IS SUBMITTED THAT SINCE TH E PAYMENT WAS MADE TO A RESIDENT 31 INDIAN COMPANY THE PROVISIONS OF SECTION 195 OF THE ACT ARE NOT APPLICABLE TO FACTS OF THE ASSESSEES CASE. IN VIEW OF THE FOREGOING, IT IS RESPECTFULLY SUBMIT TED THAT: ASSESSEE HAS GOT ADVERTISEMENT WORK DONE FROM AND GROUPM AND NOT MINDSHARE, SINGAP ORE DURING THE YEAR UNDER CONSIDERATION, INVOICES WERE DULY RAISED BY THE GRO UPM ON THE ASSESSEE FOR THE ADVERTISEMENT WORK AND TDS WAS DEDUCTED BY THE ASSESSEE IN ACCORD ANCE WITH SECTION 194C OF THE ACT AND SINCE THE EXPENDITURE IS INCURRED WHOLLY AND SOLELY FOR THE PURPOSE OF ITS BUSINESS IT IS AN ALLOWABLE EXPENSES U/S 37 OF THE ACT. TRADE INCENTIVE 11. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D PROVIDED TRADE INCENTIVE OF RS. 16,17,24,303/- TO ITS DISTRIBUTORS PURSUANT TO THE SALES PROMOTION SCHEME OF THE ASSESSEE. THESE INCENTIVES WERE GIVEN TO VARIOUS LO CAL DISTRIBUTORS ON ACHIEVING THEIR SALES TARGETS DURING THE YEAR. THE REIMBURSEMENT MA DE TO VARIOUS DISTRIBUTORS INCLUDE THE FOLLOWING EXPENSES: I. LOCAL PROMOTION EXPENSES REPRESENTS PAYMENTS MADE TO DISTRIBUTORS FOR EXPENSES INCURRED BY THEM ON LOCAL PROMOTIONS. II. TEMPORARY PRICE REDUCTION REPRESENTS AMOUNTS REIM BURSED ON ACCOUNT OF PRICE ADJUSTMENT DUE TO TEMPORARY REDUCTION IN PRIC E ON SCHEME, IF ANY. III. DAMAGE CONCESSION REPRESENTS FIXED AMOUNT OF DISC OUNT ON SALE INVOICES. 12. THE AFORESAID EXPENSES ARE DISALLOWED BY THE AO ON THE ALLEGED GROUND THAT SINCE THE AMOUNTS CLAIMED ARE NOT SUPPORTED BY ANY DOCUMENTS TO INDICATE THAT THESE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF T HE ASSESSEE, THESE AMOUNTS CANNOT BE DISALLOWED U/S 37. THE ASSESSEE SUBMITS THAT THE SIMILAR INCENTIVES WERE GIVEN TO THE DISTRIBUTORS ON ACHIEVING THEIR SALES TARGETS A S PER VARIOUS SCHEMES IN EARLIER YEARS ALSO. THE A O WITHOUT CONSIDERING THE NATURE OF EXP ENSES HAS MADE THE DISALLOWANCE, THOUGH IN ALL EARLIER YEARS SUCH EXPENSES HAVE BEEN ALLOWED. IT IS NOT IN DISPUTE THAT ADVERTISEMENT AND SALES PROMOTION EXPENSES ARE INCU RRED FOR THE PURPOSE OF BUSINESS. HENCE, SUCH EXPENSES ARE FULLY ALLOWABLE UNDER SECT ION 37(1) OF THE IT ACT. RELIANCE IS PLACED ON FOLLOWING CASES: HEMRAJ NEBHIOMAL VS. UOI(306 ITR40)(MP) HEMRAJ NEBHIOMAL SONS VS. CIT(278 ITR 345)(MP) 32 13. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAD PRODU CED THE BILLS AND VOUCHERS BEFORE THE AO AND THE SAME HAVE BEEN VERIFIED BY THE AO ON TES T CHECK BASIS. THUS, AFTER HAVING VERIFIED THE BILLS AND VOUCHERS, THE A O WAS NOT JU STIFIED IN HOLDING THAT THE AFORESAID CLAIM MADE BY THE ASSESSEE IS WITHOUT ANY SUPPORTIN G DOCUMENTS. 14. THE SCHEMES UNDER WHICH THEIR TRADE INCENTIVES WERE PROVIDED ARE PREVALENT SCHEME IN THIS LINE OF BUSINESS OF CONSUMER GOODS AND ARE NOT IN RELATION TO OR IN CONNECTION WITH ANY SERVICE RENDERED WHICH MAY CONTEMPLATES IN VOKING OF TDS PROVISION. 6.2 THE LD. DR RELIED ON THE ORDER OF THE AO. 6.3 AFTER CONSIDERING THE RIVAL SUBMISSION, WE FIND THAT GROUP M MEDIA INDIA PVT. LTD. IS AN INDIAN CO. AS IS EVIDENT FROM THE COMPANY MASTER DE TAILS PLACED AT PAPER BOOK PAGE 17. FROM THE SAME, IT IS NOTED THAT THIS COMPANY IS INC ORPORATED ON 29.11.2001 HAVING REGISTERED OFFICE AT MUMBAI. THEREFORE, IT IS AN IN DIAN CO. AS DEFINED U/S 2(26) AND IS A COMPANY RESIDENT IN INDIA U/S 6(3). ALL PAYMENT MAD E TO THIS COMPANY TOWARDS ADVERTISEMENT CHARGES IS IN INDIAN CURRENCY. TAX IS DEDUCTED AT SOURCE ON SUCH PAYMENT U/S 194C. SEC. 195 IS APPLICABLE WHEN PAYMENT IS MA DE TO A NON RESIDENT. ADMITTEDLY, PAYMENT TO GROUP M MEDIA INDIA PVT. LTD. IS A PAYME NT TO RESIDENT AND NOT A NON RESIDENT. THEREFORE, SECTION 195 IS NOT ATTRACTED. THE AO HAS NOT DISPUTED THE GENUINENESS OF THE PAYMENT AND THEREFORE ONLY BECAUSE THERE IS NO AGREEMENT FOR THE ADVERTISEMENT WORK WITH THIS COMPANY CANNOT BE VIEWED ADVERSELY. THEREFORE, THE DISALLOWANCE OF RS.36,70,04,056/- MADE BY THE AO IS INCORRECT, AGAI NST LAW AND THE SAME IS DELETED. SO FAR AS EXPENSES ON TRADE INCENTIVE IS CONCERNED, WE FIND THAT SIMILAR INCENTIVES GIVEN AS PER VARIOUS SCHEMES IN EARLIER YEARS HAS BEEN ALLOW ED. THE AO AT PAGE 2 OF THE ORDER HAS ADMITTED THAT BILLS AND VOUCHERS OF EXPENSES, AS DE SIRED, WERE PRODUCED FOR VERIFICATION WHICH WAS TEST CHECKED. THE OBSERVATION OF AO THAT SERVICES HAS BEEN RECEIVED BY THE ASSESSEE AGAINST THESE PAYMENT AND THEREFORE HE SHO ULD HAVE DEDUCTED TAX AT SOURCE ON THE VALUE OF THE GIFT IS ILL FOUNDED IN AS MUCH AS THE PAYMENT IS NOT AGAINST THE SERVICES BUT AGAINST THE SALE OF GOODS TO THE DISTRIBUTORS AND T HEREFORE TDS PROVISIONS ARE NOT APPLICABLE. THEREFORE, THE DISALLOWANCE OF RS.16,17 ,24,303/- MADE BY THE AO ON THIS ACCOUNT IS DELETED. 7. GROUND NO. 5 IS AGAINST DISALLOWANCE OF RS.30,5 7,894/- IN RESPECT OF DEPRECIATION ON VEHICLES. THE AO OBSERVED THAT THESE VEHICLES ARE P URCHASED IN THE NAME OF THE 33 EMPLOYEES, AND NO EVIDENCE THAT THEY ARE IN THE NAM E OF THE ASSESSEE IS FILED. ACCORDINGLY HE DISALLOWED THE AMOUNT OF DEPRECIATION. THIS IS A PPROVED BY DRP BY HOLDING THAT ASSESSEE IS NOT THE OWNER OF THESE VEHICLES. 7.1 THE LD. AR SUBMITTED THAT THE AO IN COURSE OF ASSESSMENT PROCEEDINGS NEVER REQUIRED ASSESSEE TO EXPLAIN AS TO IN WHOSE NAMES THE VEHICL ES, WHICH ARE GIVEN TO THE EMPLOYEES, ARE REGISTERED. IN FACT THE PURCHASE BILLS OF THESE VEHICLES ARE IN THE NAME OF THE ASSESSEE AND THEY ARE REGISTERED IN THE NAME OF THE COMPANY AS PER THE REGISTRATION CERTIFICATE (PB 679 - 713). THUS IT IS ESTABLISHED THAT ASSESSEE IS THE OWNER OF THE VEHICLES. THE LD. AR ALSO POINTED OUT THAT IN RESPECT OF VEHICLES AT S.N O. 1, 2 & 8 ON PAGE 14 OF THE ASSESSMENT ORDER, THE AO DISALLOWED THE COST OF THE VEHICLES AND NOT THE AMOUNT OF DEPRECIATION CLAIMED ON THE VEHICLES. SIMILARLY AT S.NO. 3 TO 7 THE AMOUNT MENTIONED ARE IN RESPECT OF ADDITION TO VEHICLE LIKE STEREO, SPEA KERS ETC. WHICH ITSELF HAS BEEN DISALLOWED AND NOT THE DEPRECIATION THERE ON. THE L D. AR FURTHER SUBMITTED THAT SIMILAR DISALLOWANCE MADE IN A.Y. 04-05 IS DELETED BY HONB LE ITAT IN ITA NO. 180/JP/09 DATED 27.05.2011. ON THE OTHER HAND, THE LD. DR SUP PORTED THE ORDER OF THE AO. 7.2 AFTER CONSIDERING THE RIVAL SUBMISSION AND PERU SING THE MATERIAL ON RECORD, WE FIND THAT ALL THE VEHICLES WHICH ARE REFERRED IN THE ASSESSME NT ORDER ARE REGISTERED IN THE NAME OF THE ASSESSEE AS PER THE DOCUMENTS PLACED AT PAPER B OOK PAGE 679 TO 713. THUS, ASSESSEE IS THE OWNER OF THESE VEHICLES AND IT IS ENTITLED T O DEPRECIATION ON THESE VEHICLES. THIS ISSUE IS ALSO DECIDED BY THIS BENCH IN A.Y. 04-05 I N ITA NO. 180/JP/09 DATED 27.05.2011 IN FAVOUR OF THE ASSESSEE. THEREFORE, TH E DISALLOWANCE MADE BY THE AO IS DELETED BY ALLOWING THE GROUND OF THE ASSESSEE. 8. GROUND NO. 6 IS AGAINST ADDITION OF RS.2,15,95, 884/- IN RESPECT OF DDA PROVISION. THE AO ON PERUSAL OF THE DETAILS OF OTHER LIABILITIES N OTED THAT AN AMOUNT OF RS.2,15,95,884/- IS APPEARING AS DDA PROVISION-OLD FOR WHICH DETAILS WERE NOT FURNISHED. HE, THEREFORE, MADE THE ADDITION WHICH IS APPROVED BY DRP. 8.1 THE LD. AR SUBMITTED THAT DELHI DEVELOPMENT AUT HORITY HAS RAISED CERTAIN DEMAND IN THE EARLIER YEARS FOR WHICH PROVISION WAS MADE BY DEBIT ING THE LAND ACCOUNT AND CREDITING THE DDA PROVISION ACCOUNT IN EARLIER YEARS. THIS PROVIS ION IS COMING FROM EARLIER YEARS. IN EARLIER YEAR, NO EXPENDITURE WAS CLAIMED BY MAKING SUCH PROVISION AS THE DEBIT WAS TO THE 34 LAND ACCOUNT. IN A.Y. 1996-97 ALSO, THE AO MADE ADJ USTMENT FOR THIS LIABILITY WHILE PROCESSING THE RETURN U/S 143(1)(A). HOWEVER WHEN P OINTED OUT, HE VIDE ORDER U/S 154 DATED 30.6.1998 (PB 715) RECTIFIED THE MISTAKE HOLDING THAT ASSESSEE HAS NOT CLAIMED ANY DEDUCTION FOR THIS AMOUNT OR DEBITED IN THE PROFIT & LOSS ACCOUNT. THUS WHEN NO EXPENDITURE CLAIMED IN THIS YEAR OR EARLIER YEAR, D ISALLOWANCE MADE IS UNJUSTIFIED AND BE DELETED. ON THE OTHER HAND, THE LD. DR SUPPORTED TH E ORDER OF THE AO. 8.2 AFTER CONSIDERING THE RIVAL SUBMISSION AND PERU SING THE MATERIAL ON RECORD, WE NOTED THAT THIS AMOUNT IS APPEARING IN THE DETAILS OF OTHER LI ABILITIES AS OLD PROVISION. NO MATERIAL IS PLACED BY THE DEPARTMENT THAT THIS PROVISION IS MAD E DURING THE YEAR BY DEBIT TO P&L A/C. WE ALSO NOTED THAT SIMILAR ADDITION MADE IN A.Y. 96 -97 WHILE PROCESSING THE RETURN WAS DELETED BY THE AO HIMSELF IN ORDER U/S 154 DATED 30 .06.1998. SINCE NO AMOUNT IS DEBITED TO THE P&L A/C DURING THE YEAR ON ACCOUNT OF THE SA ID PROVISION, THE ADDITION MADE BY THE AO IS DELETED. 9. GROUND NO. 7 IS AGAINST LUMPSUM DISALLOWANCE OF RS. 50 LACS OUT OF MISCELLANEOUS EXPENSES. THE AO MADE THE DISALLOWANCE FOR THE REAS ON THAT THE ASSESSEE COULD NOT FURNISH DETAILS IN SUPPORT OF THE CLAIM OF THE EXPE NSES. THE DRP APPROVED THE ORDER OF THE AO. 9.1 THE LD. AR CONTENDED THAT THE LOWER AUTHORITIES HAVE WRONGLY STATED THAT ASSESSEE COULD NOT FURNISH DETAILS IN SUPPORT OF THE CLAIM AND THE REFORE IT LACKS VERIFICATION. IN FACT SUCH DETAILS WERE FILED AND BILLS AND VOUCHERS FOR EXPEN SES WERE PRODUCED FOR HIS VERIFICATION WHICH WERE EXAMINED BY AO ON TEST CHECK BASIS. THIS IS ACCEPTED BY AO ON PAGE 2 OF HIS ORDER. ALL EXPENSES ARE FULLY VERIFIABLE AND SUPPOR TED BY BILLS. THE SYSTEM OF INTERNAL CONTROL IS SUCH THAT NO EXPENSES ARE BOOKED WITHOUT APPROPRIATE APPROVAL AND EVIDENCE OF EXPENSES. THERE IS NO ADVERSE COMMENT FROM THE AUDI TORS ON THE EXPENSES INCURRED UNDER THIS HEAD. THE AO HAS NOT REQUIRED ASSESSEE TO PROD UCE VOUCHERS FOR ANY SPECIFIC EXPENDITURE. HONBLE ITAT IN ITA NO. 188/JP/07 DATE D 09.08.2010 (PB 40 42) HAS ALSO DELETED SIMILAR ADHOC DISALLOWANCE MADE OUT OF MISC ELLANEOUS EXPENSES IN AY 2003-04 AS PER FINDING GIVEN IN PARA 42 OF THE ORDER. THE D RP HAS ALSO DELETED SUCH DISALLOWANCE IN A.Y. 07-08. 35 9.2 AFTER CONSIDERING THE RIVAL SUBMISSION AND PERU SING THE MATERIAL ON RECORD, WE FIND THAT AO HAS MADE THE DISALLOWANCE WITHOUT SPECIFYING ANY PARTICULAR EXPENSES WHICH IS NOT VERIFIABLE OR NOT INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS WHEN HE HAS GIVEN A FINDING AT PAGE 2 OF THE ORDER THAT BILLS A ND VOUCHERS OF EXPENSES AS DESIRED WERE PRODUCED FOR VERIFICATION AND EXAMINED ON TEST CHEC K BASIS. WE ALSO NOTED THAT SUCH ADHOC DISALLOWANCE IS NOT APPROVED BY THE DRP IN A. Y. 07-08. CONSIDERING THE SAME, THE ADHOC DISALLOWANCE MADE BY AO IS DELETED. THIS GROU ND OF ASSESSEE IS THEREFORE ALLOWED. 10. THE LAST GROUND OF APPEAL IS MAKING ADJUSTMENT OF RS.39,92,973/- IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBT AND ADVANCES AND IN RESPE CT OF CLAIM OF EXCESS DEPRECIATION IN COMPUTING THE BOOK PROFIT U/S 115JB. 10.1 AFTER GOING THROUGH THE STATEMENT OF TOTAL INC OME FILED BY THE ASSESSEE, WE NOTED THAT THE TAX PAYABLE ON THE REGULAR INCOME IS MUCH MORE THAN THE TAX PAYABLE ON THE BOOK PROFIT EVEN AFTER THE ADJUSTMENT MADE TO THE BOOK PROFIT B Y THE AO. THEREFORE, THE GROUND RAISED BY ASSESSEE IS ONLY ACADEMIC AND THUS IT IS DISMISS ED AS INFRUCTUOUS. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON_28/02/2014. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28/02//2014 AN COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR ITAT, JAIPUR.