M/s. Bobst India Pvt. Ltd., Pune V. DCIT, Circle 1(1), Pune

ITA 1380/PUN/2010

• Counselvise Citation: 138024514 RSA 2010
• Duration Of Justice: 3 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 23-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Difference of opinion
• Section: 10B; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.1380/PN/2010 (A.Y: 2006-07) M/S. BOBST INDIA PRIVATE LIMITED PLOT NO.82, 126-132, VILLAGE KASAR AMBOLI, POST AMBADVET, GHOTAVADE ROAD, TAL. MULSHI, DIST. PUNE-412108 PAN: AAACB7259F APPELLANT VS. DY.CIT, CIRCLE1(1), PUNE RESPONDENT APPELLANT BY : SHRI M.P. LO HIA RESPONDENT BY : SMT.M.S. VERMA, CIT ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF DY. COMMISSIONER OF INCOME TAX, [IN SHORT DY.CIT ], CIRCLE1(1), PUNE, DATED 27.09.2010 FOR A.Y. 2006-07 ON THE FOLL OWING GROUNDS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE DRP AND CONSEQUENTIALLY THE LEARNE D AO HAVE IN RESPECT OF TRANSFER PRICING ADJUSTMENT: 1. GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT OF RS. 83,177,072/- ERRED IN MAKING TRANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS PERTAINING TO EXPORT ORI ENTED UNIT ('EOU') OPERATIONS AND DOMESTIC OPERATIONS IN RELATION TO THE RECEIPT OF COMMISSION ON SALES AND IMPORT OF SPARES FOR TRADING. 2 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. 2. GENERAL GROUND REGARDING NON ACCEPTANCE OF THE DATA PROVIDED IN THE TRANSFER PRICING STUDY REPORT ERRED BY NOT ACCEPTING THE DATA PERTAINING TO EOU OPERATIONS PROVIDED IN THE TRANSFER PRICING STUDY R EPORT BY APPELLANT AND BY NOT AGREEING TO THE TRANSFER PR ICING STUDY CONDUCTED FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPERATIONS USIN G COMBINED TRANSACTION APPROACH UNDER TNMM. INTERNATIONAL TRANSACTIONS PERTAINING TO EOU OPERAT IONS 3. NON APPLICABILITY OF TRANSFER PRICING PROVISIONS TO EOU OPERATIONS OF THE APPELLANT ERRED IN MAKING AN ADJUSTMENT TO THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT WITHOUT CONSIDERING T HE FACT THAT THE TRANSFER PRICING PROVISIONS SHOULD NOT APP LY IN RELATION TO EOU OPERATIONS OF THE APPELLANT SINCE T HE SAME IS ENTITLED TO TAX HOLIDAY UNDER SECTION 10B O F THE ACT. 4. STOVEC INDUSTRIES LIMITED IS A COMPARABLE COMPANY ERRED BY CONCLUDING THAT STOVEC INDUSTRIES LIMITED IS NOT COMPARABLE TO THE APPELLANT AND HENCE SHOULD BE EXCLUDED FOR COMPUTING THE OPERATING MARGINS OF COMPARABLE COMPANIES FOR ARRIVING AT ARM'S LENGTH P RICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS PERTA INING TO EOU OPERATIONS. 5. USE OF MULTIPLE YEAR DATA ERRED IN CONSIDERING THE OPERATING MARGINS EARNED B Y COMPARABLE COMPANIES BASED ON THE FINANCIAL DATA PERTAINING TO THE YEAR ENDED 31 MARCH 2006 ONLY AND REJECTING THE FINANCIAL DATA OF COMPARABLE COMPANIE S FOR PRIOR TWO YEARS. 6. USE OF CONTEMPORANEOUS DATA ERRED IN COMPUTING THE ARM'S LENGTH PRICE USING THE FINANCIAL INFORMATION OF THE COMPARABLE COMPANIES AVAILABLE AT THE TIME OF ASSESSMENT, ALTHOUGH SUCH INFORMATION WAS NOT AVAILABLE AT THE TIME WHEN THE APPELLANT COMPLIED WITH THESE REGULATIONS. 7. COMMERCIAL REASONS ATTRIBUTABLE TO LOWER MARGINS 3 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. ERRED BY NOT CONSIDERING THE COMMERCIAL REASONS ATTRIBUTABLE TO LOWER MARGINS OF APPELLANT AS SUBMI TTED BY THE APPELLANT IN THE TP REPORT AND DURING THE ASSESSMENT PROCEEDINGS. 8. ADJUSTMENT FOR DIFFERENCE IN FUNCTIONAL AND RISK PR OFILE OF COMPARABLE COMPANIES VIS-A-VIS OF THE APPELLANT ERRED BY COMPARING FULL-FLEDGED RISK BEARING ENTITI ES WITH THE APPELLANT'S EOU OPERATIONS, WITHOUT MAKING ANY RISK ADJUSTMENT FOR DIFFERENCES BETWEEN THE RISK PROFILE S OF COMPARABLES VISA-VIS THE APPELLANT. 9. APPLICABILITY OF +/-5% RANGE ERRED BY COMPUTING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO EOU OPERAT IONS AS THE MEAN ARM'S LENGTH PRICE DETERMINED, WITHOUT TAKING INTO ACCOUNT THE LOWER 5% VARIATION FROM THE MEAN ARM'S LENGTH PRICE DETERMINED, WHICH IS PERMITTED T O AND WHICH HAS BEEN OPTED FOR BY THE APPELLANT UNDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT. 10. ERRONEOUS COMPARISON OF THE GROSS MARGINS AND SALE PRICE OF THE APPELLANT FROM THE SALE OF CL-450 MACH INES TO ASSOCIATED ENTERPRISES AND DOMESTIC THIRD PARTIE S ERRED BY COMPUTING AND COMPARING THE GROSS PROFIT MARGIN AND SALE PRICE EARNED BY THE APPELLANT FROM INTERNATIONAL TRANSACTION PERTAINING TO MANUFACTURI NG AND SALE OF CL-450 MACHINE TO ASSOCIATED ENTERPRISE S WITH THE GROSS PROFIT MARGIN AND SALE PRICE EARNED FROM MANUFACTURING AND SALE OF CL-450 MACHINE TO DOMESTI C THIRD PARTY. INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPERATIONS 11. ERRONEOUS COMPARISON OF COMMISSION ON MARKETING OF MACHINES AND COMMISSION ON MARKETING OF SPARES ERRED BY COMPARING THE INTERNATIONAL TRANSACTION PERTAINING TO RECEIPT OF COMMISSION FOR MARKETING O F BOBST GROUP MACHINES WITH THE INTERNATIONAL TRANSAC TION PERTAINING TO RECEIPT OF COMMISSION FOR MARKETING O F SPARES I.E. CONTROLLED TRANSACTIONS OF THE APPELLAN T ITSELF. 4 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. 12. BENCHMARKING OF INTERNATIONAL TRANSACTIONS PERTAINI NG TO DOMESTIC OPERATIONS EXCLUDING TRADING ACTIVITIES ERRED ON THE FACTS AND IN LAW BY NOT CONSIDERING TH E APPELLANT'S CONTENTION MADE ON A WITHOUT PREJUDICE BASIS OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPERATIONS EXCLUDING TRADING ACTIVITIES, WHICH AS PROPOSED BY TPO CANNOT BE CATEGORIZED UNDER BUSINESS SUPPORT SERVICES, USING TNMM AS MOST APPROPRIATE METHOD. 13. BENCHMARKING OF INTERNATIONAL TRANSACTION PERTAININ G TO IMPORT OF TRADING SPARES ERRED BY COMPARING THE INTERNATIONAL TRANSACTION PERTAINING TO IMPORT OF TRADING SPARES WITH CONTROL LED TRANSACTIONS OF THE APPELLANT ITSELF AND BENCHMARKI NG THE SAID TRANSACTION USING RESALE PRICE METHOD ('RPM') AS THE MOST APPROPRIATE METHOD AND ALSO BY NOT AGREEING TO THE FACT THAT THE INTERNATIONAL TRANSACTION PERTAINING TO IMPORT OF TRADING SPARES FORMS PART OF THE DOMESTIC OPERATIONS. 14. APPLICABILITY OF +/- 5% RANGE ERRED BY COMPUTING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO RECEIPT OF COMMISSION AND IMPORT OF SPARES FOR TRADING AS THE MEAN ARM'S LENGTH PRICE DETERMINED, WITHOUT TAKING INTO ACCOUNT THE LOWER 5% VARIATION FROM THE MEAN ARM'S LENGTH PRICE DETERMINED, WHICH IS PERMITTED TO THE APPELLANT UNDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT. 15. ERRONEOUS LEVY OF PENALTY UNDER SECTION 271(L)(C) O F THE ACT WITHOUT PREJUDICE TO THE GROUNDS ABOVE, IF THE TRAN SFER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED ASSESSING OFFICER HAS ERRED IN PROPOSING TO LEVY PE NALTY UNDER SECTION 271(L)(C) OF THE ACT, WITHOUT CONSIDE RING THE FACT THAT ADJUSTMENT TO TRANSFER PRICE IS JUST ON A CCOUNT OF DIFFERENCE OF OPINION AS TO APPLICATION OF SELEC TION CRITERIA FOR COMPARABLE COMPANIES, ETC AND CONSEQUE NTLY RESULTED IN AN ADJUSTMENT TO INCOME. 16. ERRONEOUS LEVY OF INTEREST UNDER SECTION 234B, 234C AND 234D OF THE ACT 5 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. WITHOUT PREJUDICE TO THE GROUNDS ABOVE, IF THE TRAN SFER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED ASSESSING OFFICER HAS ERRED IN LEVYING INTEREST UND ER SECTION 234B, 234C AND 234D OF THE ACT TO THE EXTEN T THE ADDITION IS MADE BASED ON THE UPDATED FINANCIAL DAT A FOR THE COMPARABLE COMPANIES AND ADOPTION OF CONTROLLED TRANSACTIONS OF THE APPELLANT ITSELF FOR COMPARISON . THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEA L, SO AS TO ENABLE THE LEARNED AO TO DECIDE THIS APPEAL ACCORDI NG TO LAW. 2. AT THE OUTSET OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT HE IS NOT PRESS ING THE GROUND NOS.1, 3, 5, 6, 7, 8, 9, 10, 12 AND 14, SO T HEY ARE DISMISSED AS NOT PRESSED. 3. BOBST INDIA PRIVATE LIMITED (BOBST INDIA) WAS IN CORPORATED ON 14.08.1995 AS A WHOLLY OWNED SUBSIDIARY OF BOBST GROUP SA, SWITZERLAND (BOBST SA). DURING A.Y. 2006-07, THE B OBST INDIA WAS PRIMARILY ENGAGED IN MANUFACTURE AND SALE OF PA CKAGING MACHINES AND MODULES FOR PRINTING AND PACKAGING MAC HINES (MANUFACTURING OPERATIONS). THE BOBST INDIA WAS AL SO INVOLVED IN MARKETING BOBST GROUPS MACHINES AND SPARE PARTS FO R COMMISSION AS WELL AS TRADING OF BOBST GROUPS SPAR ES. FURTHER, BOBST INDIA WAS ENGAGED IN PROVIDING WIDE RANGE OF SUPPORT SERVICES I.E. INSTALLATION, MACHINE BREAK DOWN REPA IR SERVICES, MACHINE HEALTH CHECK-UPS, MAINTENANCE SERVICES, WAR RANTY REPAIR SERVICES TO CUSTOMERS ON BEHALF OF BOBST GRO UP ENTITIES. 4. FIRST ISSUE AS RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE WHEREIN HAS POINTED OUT THAT DISPUTE RESOLUTION PANEL (IN SHORT DRP) HAS ERRED IN CONCLUDING THAT S TOVEC INDUSTRIES LIMITED WAS NOT COMPARABLE TO THE ASSESS EE AND HENCE SHOULD BE EXCLUDED FOR COMPUTING THE OPERATING MARG INS OF 6 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. COMPARABLE COMPANIES FOR ARRIVING AT ARM'S LENGTH P RICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS PERTAINI NG TO EOU OPERATIONS. THE ASSESSEE HAS IDENTIFIED STOVEC IND USTRIES LIMITED AS ONE OF THE COMPARABLES IN ITS TRANSFER PRICING R EPORT FOR F.Y. 2005-06. HOWEVER, THE SAME WAS REJECTED FOR THE RE ASONS THAT; A) BOTH COMPANIES WERE MANUFACTURING DIFFERENTLY B) STOVEC WAS A LOSS MAKING COMPANY C) THERE WERE DIFFERENT RISK PERCEPTIONS / RISK ASSUME D THE SAME HAS BEEN MENTIONED IN THE SHOW CAUSE NOTIC E. STOVEC WAS IN MANUFACTURING OF ROTARY SCREEN PRINTI NG MACHINE COMPONENTS AND SPARES WHILE THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF MACHINE MODULES REQUIRED FOR MACHI NE USE IN PRINTING PACKAGING AND ANCILLARY TO PACKAGING INDUS TRIES AND ALSO THAT FUNCTIONS OF BOBST COMPANY IS OF MODULE / PART OF MANUFACTURING OF MACHINES AND SELL ITS PRODUCTS TO ASSOCIATE ENTERPRISES AND NOT TO ULTIMATE CUSTOMERS AS AGAINS T STOVEC INDUSTRIES LIMITED WHICH SELLS ITS PRODUCTS TO ULTI MATE PRODUCTS. 4.1 FURTHER, THE TRANSFER PRICING OFFICER (IN SHORT TPO) HAS MENTIONED IN SHOW CAUSE NOTICE THAT STOVEC INDUSTRI AL MACHINERY SEGMENT HAS INCURRED LOSSES FOR F.Y. 2004-05 AND F. Y. 2005-06 AND WHEREAS THE ASSESSEE IS A COST PROTECTED ENTITY AND HENCE CANNOT INCUR LOSSES. THEREFORE, THE STOVEC HAS DIF FERENT RISK PERCEPTION / RISK ASSUMED VIS--VIS OF THE ASSESSEE . THE DRP, HAVING CONSIDERED THE ARGUMENTS OF ASSESSEE, HAD OB SERVED THAT STOVEC INDUSTRIAL LIMITED, WHICH WAS IDENTIFIED AS COMPARABLE IN TP REPORT BY THE ASSESSEE AND REJECTED BY THE TPO, HAD INCURRED LOSSES DURING F.Y. 2004-05 AND 2005-06 AND WHEREAS, THE ASSESSEE COMPANY IS A COST MITIGATED ENTITY AND HEN CE, CANNOT INCUR LOSSES. THE STOVEC HAS DIFFERENT PERCEPTION AND FUNCTIONALLY ALSO IS DIFFERENT. THEREFORE, THE DRP HELD THAT THE TPO WAS JUSTIFIED IN REJECTING THE STOVEC INDUSTRIE S LIMITED AS COMPARABLE. 7 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. 4.2 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIV E HAS SUBMITTED THAT STOVEC INDUSTRIES LIMITED HAS FOUR S EGMENTS WHICH ARE SCREEN, INDUSTRIAL MACHINERY, GRAPHIC PRO DUCTS AND CHEMICALS. THE ASSESSEE HAS CONSIDERED INDUSTRIAL MACHINERY SEGMENT COMPRISING OF ROTARY SCREEN PRINTING MACHIN E COMPONENTS AND SPARES AS COMPARABLE TO ITS MANUFACT URING DIVISION AS DETAILED ON PAGE 93 OF THE PAPER BOOK. THE ASSESSEE IN ITS TP STUDY REPORT TOOK WEIGHTED AVERAGE MARGIN OF THREE YEARS FOR STOVEC WHICH WAS (-) 1.10% AND ALSO SUBMI TTED A SINGLE YEAR MARGIN FOR STOVEC FOR F.Y. 2005-06 AS (-) 1.81 % TO THE TPO. REGARDING FUNCTIONAL DIFFERENCE FOR F.Y. 2005-06 I. E. A.Y. 2006- 07, THE TPO IN ITS ORDER HELD THAT STOVEC IS FUNCTI ONALLY DIFFERENT FROM THE ASSESSEE AND HAS DIFFERENT RISK PERCEPTION / RISK ASSUMED VIS--VIS OF THE ASSESSEE. IN THIS REGARD, THE STAND OF THE ASSESSEE BEFORE THE TPO HAS BEEN THAT IT IS IN THE MANUFACTURING OF MACHINE MODULE AS WELL AS MANUFACT URING OF MACHINES AND THAT STOVEC ALSO HAS COMPONENT MANUFAC TURING ACTIVITY ALONG WITH MACHINE MANUFACTURING AS COMPAR ED TO THE ASSESSEE WHICH ALSO MANUFACTURES MODULES WHICH ARE USED IN MANUFACTURING OF MACHINES. THE DRP IN ITS DIRECTIO N UPHELD THE ORDER OF TPO / AO AND DID NOT PROVIDE ANY ADDITIONA L CONTENTION FOR REJECTING STOVEC. IN ADDITION TO THE ABOVE, TH E ASSESSEE HAS SUBMITTED THAT THE TPO AND DRP HAVE CONSIDERED CPEC LIMITED ENGAGED IN MANUFACTURING OF WORM AND HELICAL REDUCT ION GEARS, ETC. AS COMPARABLE AND INTERNATIONAL COMBUSTION (IN DIA) LTD AS COMPARABLE FOR ITS GEAR BOX AND GEAR MOTOR DRIVE SY STEM SEGMENT AS TAKEN BY THE ASSESSEE IN ITS TP STUDY. THE ASSE SSEE FURTHER HAS SUBMITTED THAT IN ASSESSEES OWN CASE FOR A.Y. 2009-10, THE DRP HELD INDUSTRIAL MACHINERY SEGMENT OF STOVEC AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. 8 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. 4.3 WE ARE AWARE THAT EVERY YEAR IS INDEPENDENT, BU T THE DECISION TAKING IN SIMILAR SET OF CIRCUMSTANCES HAS STRONG PERSUASIVE VALUE OF OTHER YEARS. IN A.Y. 2009-10, THE DRP HAS DIRECTED TO TAKE INDUSTRIAL MACHINE SEGMENT OF STOV EC INDUSTRIES LIMITED FOR COMPARABILITY. THERE IS NOTHING ON REC ORD TO SUGGEST THAT THERE IS FUNCTIONAL DIFFERENCE IN CASE OF STOV EC INDUSTRIAL LIMITED FOR THE YEAR UNDER CONSIDERATION I.E. A.Y. 2006-07 WITH THAT OF A.Y. 2009-10, SO THE TPO IS DIRECTED TO TAK E INDUSTRIAL MACHINERY SEGMENT OF STOVEC INDUSTRIES LIMITED FOR COMPARABILITY. HE HAS DIRECTED ACCORDINGLY. 5. COMING TO THE MARGINS OF STOVEC INDUSTRIES LIMIT ED. THE ASSESSEE IN ITS TP STUDY REPORT CONSIDERED WEIGHTED AVERAGE MARGIN OF THREE YEARS MARGINS AS (-) 1.10% AND SUBM ITTED SINGLE YEAR MARGIN FOR F.Y. 2005-06 AS (-) 1.81% TO THE TP O. THE TPO ALLOWED WORKING CAPITAL ADJUSTMENT SOUGHT BY THE AS SESSEE. THE WORKINGS FOR COMPUTING THE WORKING CAPITAL ADJUSTED , MARGIN OF THE COMPARABLE COMPANIES WAS PROVIDED TO THE TPO. A CCORDINGLY, THE MARGIN OF STOVEC AFTER WORKING CAPITAL ADJUSTME NT, HAS COME TO (-)1.27% FROM-1.81%. 5.1 ON THE POINT OF PERSISTENT LOSS MAKER, THE ASSE SSEE IN ITS TP REPORT CONSIDERED STOVEC AS COMPARABLE CONSIDERING ITS OPERATING MARGINS BASED ON MULTIPLE YEAR DATA AS DETAILED ON PAGE 94 OF THE PAPER BOOK FILED BY THE ASSESSEE WHICH IS AS UN DER: IN THIS BACKGROUND, THE ASSESSEE SUBMITTED THAT STO VEC HAS EARNED A MARGIN OF 2.39% IN THE COMPARABLE SEGMENT IN FY 2003-04 AND HENCE IT CANNOT BE CONSIDERED AS A PERS ISTENT LOSS MAKER. THE STAND OF THE ASSESSEE HAS BEEN THAT IN RETURNING FINANCIAL YEAR (FY) OP/OC 2005 - 06 - 1.81% 2004 - 05 - 3.06% 2003 - 04 2.39% 9 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. ARMS LENGTH PRICE NATURE OF INTERNATIONAL TRANSACT ION PERTAINING TO IMPORT OF COMPONENTS, EXPORT OF MACHINE MODULES AND MACHINES, RECOVERY OF FRIGHT CHARGES AND PAYMENT OF RE-WORK FRIGHT CHARGES RELATING TO EOU OPERATIONS ENTERED I NTO BY BOBST COMPANY, THE DATA PERTAINING TO F.Y. 2005-06 FOR CE RTAIN COMPARABLE COMPANIES WAS NOT AVAILABLE AT THE TIME OF COMPLYING WITH DOCUMENTATION REQUIREMENT. THEREFORE, THE COM PANY HAS USED AN AVERAGE OF 2/3 YEARS DATA (WHEREVER AVAILAB LE) TO JUSTIFY ARMS LENGTH PRICE NATURE OF INTERNATIONAL TRANSACT IONS PERTAINING TO EOU OPERATIONS BECAUSE OF CERTAIN FACTORS WHICH ARE EXPLAINED BELOW: A) GIVEN THE NATURE OF INDUSTRY AND ECONOMIC CONDITION S, BOBST INDIA HAS USED MULTIPLE YEAR DATA (I.E. 2/3 Y EARS AVERAGE) TO REDUCE THE VARIABILITY / DISTORTION TO FUNCTION RESULTS ARISING FROM USE OF SINGLE YEAR DATA. THE USE OF SINGLE YEAR DATA OF COMPARABLE COMPANIES MAY NOT ADEQUATE CAPTURE MARKET AND BUSINESS CYCLE REFLECTE D IN THE INDUSTRY. B) THE USE OF MULTIPLE YEAR DATA SHOWN CAPTURES MARKET CYCLE AND REDUCES LIKELIHOOD THAT FUNCTION RESULTS OF ANOMALOUS YEAR WILL DISTORT ARMS LENGTH RANGE. IN CONSIDERATION OF COMPANYS BUSINESS CYCLE, INDUSTRY S PROFILE AND ECONOMIC CONDITIONS, 2-3 YEAR DATA IS APPROPRIATE RATHER THAN USE OF A SINGLE YEAR DATA. THE USE OF SINGLE YEAR DATA FOR UNDERTAKING COMPARABILI TY ANALYSIS WOULD ALSO BE CONTRARY TO WHAT IS PRESCRIB ED UNDER THE PROVISIONS OF RULE FOR FOLLOWING REASONS. (I) PROVISIONS OF CLAUSE (D) OF SUB-RULE 2 OF RULE 10B STATES THAT COMPARABILITY OF INTERNATIONAL TRANSACTION WITH UNCONTROLLED TRANSACTIONS SHALL BE JUSTIFIED TO REFERENCE TO CONDITIONS PREVAILING IN THE MARKET IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTION OPERATE AND ALSO THE OVERALL ECONOMIC DEVELOPMENT AND (II) RULE 10B(4) SPECIFIES THAT MOST APPROPRIATE DATA TO BE USED (WHICH MUST BE AVAILABLE WHEN RULES ARE TO BE COMPLIED WITH) SHALL BE THE DATA RELATING TO FINANCIAL YEAR IN WHICH TRANSACTION IS ENTERED INTO AND WHERE RELEVANT DATA RELATING TO TWO YEARS PRECEDING SUCH FINANCIAL YEAR. THIS ALSO SUPPORTS 10 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. BY OECD GUIDELINES AND TRANSFER PRICING RULE OF OTHER COUNTRIES. 5.2 IN THIS REGARD, THE ASSESSEE HAS PLACED RELIANC E ON VARIOUS JUDICIAL PRONOUNCEMENTS TO SUPPORT THE FACT THAT A COMPANY CAN BE REJECTED AS PERSISTENT LOSS MAKER IF IT HAS INCU RRED LOSSES FOR MORE THAN 3 YEARS. IN THE CASE OF QUARK SYSTEMS (P ) LIMITED VS. DCIT (2010) 38 SOT 307 (CHD.) (SB) OBSERVED THAT ME RELY BECAUSE A COMPARABLE IS MAKING LOSS, IT CANNOT BE E XCLUDED FROM THE LIST OF COMPARABLE FOR THE PURPOSE OF COMPUTATI ON OF ARMS LENGTH PRICE. ITAT, MUMBAI K BENCH IN THE CASE O F ADVANCE POWER DISPLAY SYSTEMS LIMITED VS. ACIT HELD THAT PE RSISTENT LOSS MAKING COMPANY CANNOT BE CONSIDERED AS GOOD COMPARA BLE FOR THE PURPOSE OF DETERMINING ALP. ITAT, HYDERABAD A BENCH IN THE CASE OF BRIGADE GLOBAL SERVICES PRIVATE LIMITED VS. ITO HELD THAT IN CASE THERE IS CONTINUOUS LOSS YEAR BY YEAR, IN SUCH A SITUATION, THAT COMPANYS DATA CANNOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE COMPANY. 5.3 WE ALSO FIND THAT ITAT, PUNE A BENCH IN THE C ASE OF CUMMINS TURBO TECHNOLOGIES LIMITED VS. DDIT IN ITA NO.118/PN/2011 FOR A.Y. 2006-07 HELD THAT SOME OF T HE COMPARABLES FOR THE PURPOSE OF PLI ADOPTED BY THE A SSESSEE WAS SHOWING LOSS, BUT BURDEN WAS ON TPO TO PROVE WHERE THOSE COMPANIES WERE CONSISTENTLY LOSS MAKING COMPANIES. MOREOVER, EXCEPT UNSUPPORTED REASONING, NO DATA WAS BROUGHT O N RECORD BY THE TPO FOR EXCLUDING COMPARABLES SELECTED BY THE A SSESSEE IN TRANSFER PRICING STUDY. THEREFORE, THE TRIBUNAL HE LD THAT NO JUSTIFICATION TO ADJUSTMENT MADE U/S.92CA(3) OF THE ACT AND DIRECTED TO DELETE THE SAME. 5.4 FURTHER, WE FIND IN THE CASE OF GOLDMAN SACHS ( INDIA) SECURITIES PVT. LTD. VS. ACIT, WHICH HAS BEEN DECID ED BY ITAT, MUMBAI K BENCH, WHEREIN THE TPO REJECTED CAPITAL TRUST AS 11 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. COMPARABLE BECAUSE OF TWO OUT OF LAST THREE YEARS T AKEN INTO CONSIDERATION. CAPITAL TRUST WAS IN THE RED AND NO T BECAUSE THE NATURE OF BUSINESS HAD ANY VARIANCE WITH THAT OF TH E ASSESSEE. THE TRIBUNAL LOOKED INTO THE BUSINESS SEGMENT OF CA PITAL TRUST AND FOUND THAT IN THE FOREIGN CONSULTANCY SEGMENT W ITH WHICH THE BENCH WAS CONCERNED IN THE YEAR 2004-05, IT HAD OPERATIVE PROFIT / OPERATIVE COST AT 27.25%. SINCE THE NATUR E OF SERVICES RENDERED BY COMPARABLE WERE EXACTLY ON SIMILAR LINE S AS THAT OF THE ASSESSEE, THOUGH, DURING THE YEAR, IT WAS IN TH E LOSS COULD NOT BE DISQUALIFIED AS NON-LEGITIMATE COMPARABLE. THE TRIBUNAL DREW STRENGTH FROM BRIGADE GLOBAL SERVICES (SUPRA) FOR R EACHING THIS CONCLUSION AND HELD THAT THE ASSESSEE HAD RIGHTLY T AKEN CAPITAL TRUST AS VALID COMPARABLE AND THE REVENUE AUTHORITI ES HAVE ERRED IN EXCLUDING THE SAME. A SIMILAR VIEW HAS BE EN TAKEN BY ITAT, MUMBAI K BENCH IN THE CASE OF TEMASEK HOLDI NGS ADVISORS VS. DCIT. IN SUM AND SUBSTANCE, ALL THE A BOVE CASES IS THAT THE COMPANY MAKING PERSISTENT LOSS FOR PAST 3 YEARS IS NOT GOOD COMPARABLE. ACCORDING TO US, WHEN LOSS MAKING COMPANY HAS BEEN SELECTED FOR COMPARISON IN TP STUDY FOR NE CESSARY, WHICH IS PROFIT MAKING ONE, THERE IS A NEED FOR MOR E ATTENTION QUA THE CONDITIONS PRESCRIBED IN CLAUSE (A) TO (D) OF R ULE 10B(2) OF IT RULES, 1962 FOR AN ULTIMATE JUDGMENT OF COMPARABILI TY OF IMPUGNED TRANSACTION. SO, THE PERSISTENT LOSS MAKI NG MEANS CONTINUOUS LOSS MAKING FOR MORE THAN 3 YEARS BUT IN THE CASE BEFORE US I.E. STOVEC HAS EARNED A MARGIN OF 2.39% IN COMPARABLE SEGMENT IN F.Y. 2003-04. HENCE, IT COULD NOT BE CO NSIDERED AS LOSS MAKING, SO THE SAME SHOULD BE EXCLUDED FOR COM PUTING OPERATIVE MARGIN OF COMPARABLE COMPANIES FOR ARRIVI NG AT ALP IN RELATION TO INTERNATIONAL TRANSACTIONS PERTAINING T O EOU OPERATIONS. THE ASSESSING OFFICER IS DIRECTED ACCO RDINGLY. 6. THE NEXT ISSUE AS RAISED BY GROUND NO.11 IS WITH REGARD TO COMMISSION ON MARKETING OF MACHINES AND COMMISSION OF 12 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. MARKETING OF SPARES. THE GROUND NOS.11, 13 AND 2 A RE DEALT AS UNDER: 6.1 THE ASSESSEE HAS EARNED COMMISSION ON SALE OF M ACHINERY AT 5% WHILE ON SPARES AT 15%, SO THE TPO APPLIED 15 % OF COMMISSION OF THE SPARES TO MACHINERY WHILE MAKING ADJUSTMENT ACCORDINGLY. IN THIS REGARD, THE LEARNED AUTHORIZE D REPRESENTATIVE HAS POINTED OUT THAT THIS ISSUE HAS BEEN DISCUSSED AND DECIDED IN ASSESSEES OWN CASE FOR A. Y. 2007-08, WHEREIN ON THE POINT OF COMPARISON OF COMMISSION FR OM MARKETING OF MACHINES WITH COMMISSION FOR MARKETING OF SPARES, THE TRIBUNAL HELD AS UNDER: 7.9 .. WITHOUT PREJUDICE TO ABOVE WE FIND THAT A CCORDING TO TPO/AO HAS NOT GIVEN COGENT REASONING FOR REJECT ING TNMM IDENTIFIED BY THE APPELLANT AS THE MOST APPROP RIATE METHOD FOR BENCHMARKING ITS INTERNATIONAL TRANSACTI ONS PERTAINING TO DOMESTIC OPERATIONS. THE APPROACH AD OPTED BY THE TPO I.E. USING CONTROLLED TRANSACTION OF THE APPELLANT ITSELF (RECEIPT OF COMMISSION ON MARKETING OF SPARE S) FOR BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINI NG TO RECEIPT OF COMMISSION FOR MARKETING OF MACHINES IS NOT APPROPRIATE AS PER THE INDIAN TP REGULATIONS. ACCO RDINGLY INTERNATIONAL TRANSACTION OF THE APPELLANT PERTAINI NG TO RECEIPT OF COMMISSION FOR MARKETING OF MACHINES BENCHMARKED BY ASSESSEE BY AGGREGATING THE SAME WIT H OTHER INTERNATIONAL TRANSACTIONS PERTAINING TO DOME STIC OPERATIONS USING TNMM SHOULD NOT BE REJECTED. 6.2 WHILE IN THE SAME ORDER, THE TRIBUNAL ON THE PO INT OF BENCHMARKING OF INTERNATIONAL TRANSACTION PERTAININ G TO IMPORT OF TRADING SPARES HELD AS UNDER: 6.3.8 .. ACCORDINGLY, IT WAS NOT POSSIBLE TO SEPA RATELY DETERMINE THE COST INCURRED BY THE APPELLANT IN REL ATION TO COMMISSION INCOME EARNED DURING FY 2006-07. ACCORDI NGLY, IT WAS NOT POSSIBLE TO DETERMINE PROFIT FROM EACH INTERNATIONAL TRANSACTION FORMING PART OF DOMESTIC OPERATIONS INCLUDING COMMISSIONING AND MARKETING AC TIVITY. ACCORDINGLY, BOTH THE CONDITIONS WHICH JUSTIFY AGGR EGATION OF TRANSACTIONS I.E. WHEN IT IS IMPRACTICAL TO ANALYZE THE PROFITS OF EACH INDIVIDUAL TRANSACTION OR WHEN THE INTERNAT IONAL 13 ITA NO.1380 OF 10 M/S. BOBST INDIA P. LTD. TRANSACTIONS ARE CLOSELY LINKED, ARE MET IN APPELLA NT'S CASE IN RELATION TO INTERNATIONAL TRANSACTIONS PERTAININ G TO DOMESTIC OPERATIONS. 6.3 THE TRIBUNAL FURTHER HELD THAT THE INTERNATIONA L TRANSACTIONS PERTAINING TO RECEIPT OF COMMISSION FR OM MARKING OF MACHINES BENCHMARKED BY THE ASSESSEE AGGREGATING WI TH DOMESTIC OPERATIONS USING TNMM SHOULD NOT BE REJECT ED. 6.4 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLE DGE ON BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWI NG THE SAME REASONING, ASSESSING OFFICER IS DIRECTED TO GRANT O F RELIEF TO THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION I.E. A.Y. 2006-07 ON THE LINE OF A.Y. 2007-08 DISCUSSED ABOVE. THE LAST ISSUE IS WITH REGARD TO INTEREST U/S.234B, 234C AND 234D, WHICH I S CONSEQUENTIAL. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 09 TH OF OCTOBER, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 09 TH OCTOBER, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE DRP, PUNE 4) THE DR, A BENCH, I.T.A.T., PUNE. 5) GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR, I.T.A.T., PUNE