Racold Thermo Ltd., Pune V. Dy.CIT,Cir.10, Pune, Pune

ITA 1454/PUN/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1114 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KETAN VED AND
• Assessee Lawyers: AMIT SINGHAL S H
• Keywords: Related party transaction; Transfer pricing; International transaction; Rule of consistency; Initiation of penalty proceedings; Bad and doubtful debts; Difference of opinion
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 1454 /PN/201 0 / ASSESSMENT YEAR : 200 6 - 0 7 RACOLD THERMO LIMITED, GAT NO.265/374 - 375, KHARABWADI, CHAKAN TALEGAON ROAD, PUNE 410501 . / APPELLANT PAN: A A B CM8423H VS. THE DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE 10, PUNE . / RESPONDENT / APPELLANT BY : S /S HRI KETAN VED AND / APPELLANT BY : S /S HRI KETAN VED AND AMIT SINGHAL / RESPOND ENT BY : S HRI S.K. RASTOGI, CIT / DATE OF HEARING : 1 4 .0 7 .2015 / DATE OF PRONOUNCEMENT: 11 .0 9 .2015 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF D EPUTY CIT, CIRCLE - 10 , PUNE, DATED 0 8 . 1 0 .201 0 RELATING TO ASSESSMENT YEAR 2006 - 07 PASSED U NDER SECTION 143(3) R.W.S. 1 44 C(13) OF THE INCOME - TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 2 1 . GENERAL: 1 . 1 . THE LEARNED DCIT ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANC E S OF TH E CA SE PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP IN MAKING AN A DJUSTMENT A MOUNTIN G T O RS.6 , 82 , 60 , 528 TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTER E D INTO B Y TH E APPELLANT PERTAINING TO EXPORT OF WATER TRANSACTIONS ENTER E D INTO B Y TH E APPELLANT PERTAINING TO EXPORT OF WATER HEATERS AND SPARES B Y REJE CTING TH E A NAL YS I S UNDERTAKEN BY THE APPELLANT IN THE TRANSFER PRICING REPORT TO DET E RMIN E THE A RM 'S LENGTH PRICE FOR ITS INTERNATIONAL TRANSACTIONS PERTAINING TO MANUF A CTURIN G AC TI V IT Y. 1 . 2 . THE LEARNED DCIT ERRED IN LAW AND ON THE FACTS AND I N CIRCUMSTANCES O F TH E CA S E PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP IN REJECTING THE M ET HODOLO GY F OLLO WE D FOR BENCHMARKING OF INTERNATIONAL TRANSACTIONS WHILE IT HAS B EE N ACCE PT E D IN TH E PRECEDING ASSESSMENT YEAR AS WELL AS SUCCEEDING ASSESSMENT Y EAR I .E . A Y 2005 - 06 AND AY 2007 - 08 RESPECTIVELY. 2. REJECTION OF BENCHMARKING ANALYSIS PERFORMED BY T HE APPELLANT: 2.1. THE LEARNED DCIT ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CAS E 2.1. THE LEARNED DCIT ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CAS E PURSU A NT TO TH E DIRECTIONS OF THE LEARNED DRP IN REJECTING THE AGGREGATION METHODOLO G Y FOLLOW E D FOR THE MANUFACTURING ACTIVITY OF THE APPELLANT PRESENTED IN ITS TR A NS FER PR I CIN G DOCUMENTATION WITHOUT GIVING ANY COGENT BASIS . 2.2 THE LEARNED DCIT ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE C A SE PURSU A NT TO TH E DIRECTIONS OF THE LEARNED DRP IN REJECTING THE AGGREGATION METHODOLOG Y FOLLO WE D F OR THE MANUFACTURING ACTI VITY OF THE APPELLANT PRESENTED IN I T S T RAN S F E R PRI C IN G DOCUMENTATION WITHOUT ESTABLISHING THE DEFICIENCY O R INE FF ICIEN CY IN TH E DOCUMENTATION OF THE APPELLANT AS REQUIRED UNDER SECTION 92C(3 ) O F THE IN C OM E - TAX ACT, 1961 [ ' THE ACT ' ]. 2 . 3 THE LEARNED DC I T ERRED ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE IN 2 . 3 THE LEARNED DC I T ERRED ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE IN R E J E CTIN G T H E AGGREGATION METHODOLOGY FOLLOWED BY THE APPELLANT WHILE TH E L EA RN E D D C I T HIM SELF FOLLOWED AGGREGATION METHODOLOGY IN BENCHMARKING INTERNATIONAL TR A NSACTIONS. 2 . 4. THE LEA R NED DCIT ERR E D ON THE F A CTS AND IN CIRCUMSTANCES O F THE C A S E P URS U A N T T O T H E DIR ECT IONS OF TH E LE A RNED DRP IN REJ E CTING THE TRANS A CTIONA L N ET MARG I N MET H OD ( 'TN MM') A S TH E 'MOST APPROPR I ATE METHOD ' OF TH E APP E LL A NT FOR B E N C HM AR KIN G T H E INT E RN A TIONAL TR A NSACTIONS . 2. 5 TH E LE AR N E D DCIT ER R E D ON THE FACTS A ND IN CIRCUMSTANC E S O F TH E CASE PURSU A NT T O TH E DIR EC TIONS O F TH E LEARNED DRP IN CONFIRMING TH E R E JECTION OF T H E IND E P EN D E N T COMPARABL E COMPANIES S E LECTED BY TH E APPELL A NT IN I T S T R A N S F ER P RI C IN G DOCUMENTATION WITHOUT PRO V IDING ANY COGENT R E ASONS. I T S T R A N S F ER P RI C IN G DOCUMENTATION WITHOUT PRO V IDING ANY COGENT R E ASONS. 3. INAPPROPRIATE APPROACH ADOPTED BY THE TPO 3 . 1 TH E L EAR N E D DCIT E RR E D ON THE FACTS AND IN CIRCUMST A NC ES O F TH E CA S E IN SE L EC TIN G TH E C OST PLUS M E THOD ['CPM ' ] AS THE 'MOST APPROPRI A T E M E THOD ' FO R B E N C HMA RKI N G TH E INT E RNATIONAL TR A NS A CTION OF E XPORT OF WATER HEATERS A ND SP A R E S . 3.2 TH E L EA RN E D DCIT E R RED ON THE FACTS A ND IN CIRCUM S TANCES O F TH E C ASE IN U SI N G INT ER NAL COMP A RABLES HAVING CONTROLLED TRANSACTIONS F OR B E N C HM AR KIN G TH E INT E RN A TIONAL TRANSACTIONS PERTAINI NG TO MANUFACTU R IN G A C TI V IT Y. ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 3 3. 3 T H E L E ARN E D DCIT ERRED ON TH E FACTS A ND IN CIRCUMST A N CE S OF T H E C A S E IN M AK IN G INT ER N A L COMPARISON WITHOUT APPRECIATING THE SIGNIFICANT A ND M A TE R I A L DI FFE R E N CES IN THE F UNCTIONS PERFORMED , ASSETS EMPLOYED AND RISKS A S SUMED . 4. INCORRECT APPLICATION OF CPM - FAULTY CALCULATION MECHANISM OF 4. INCORRECT APPLICATION OF CPM - FAULTY CALCULATION MECHANISM OF GROSS PROFIT 4 .1 T H E L EA RNED D C IT ERRED IN LAW A ND ON FACTS A ND IN CIRCU MSTA NC E S OF THE CASE IN W RONGLY A PPLYING CPM AS THE 'MOST APPROPRIAT E METHOD ' I G NORIN G S EC TION 92C O F THE INCOM E - T AX A C T , 1961 READ WITH RULE 10B(1)(C) O F TH E I NCOM E - TA X RUL ES, 1 962 [ ' TH E RULES'] WHICH WARRANTS COMPARISON O F ' NORMAL GROSS PRO F IT MAR K U P ' O N ' DIR E CT AND INDIRECT COST O F PRODUCTION '. 4. 2 T H E L EAR N E D DCIT ERRED IN L A W A ND ON FACTS AND IN CIR C UMST A NC ES OF T H E CASE I N A RRI V IN G A T GRO S S PROFIT BY DEDUCTIN G TH E ' COST OF G OOD S SO LD ' FRO M 'SA L ES PR I C E' W HICH A MOUNTS TO C I RCUL A R R E FE R ENCIN G. 4.3 T H E L EA RN E D D CI T ERRED IN L A W AND ON FACTS AND IN C IRCUMST A N CES O F TH E 4.3 T H E L EA RN E D D CI T ERRED IN L A W AND ON FACTS AND IN C IRCUMST A N CES O F TH E CASE IN C OMP A RIN G UNADJ UST E D 'G ROSS PRO F IT ' TO ' COST OF GOOD S SOLD ' . 4 . 4 TH E L E ARN E D DCIT E R RE D IN STATING THAT TH E RE C OULD B E D IFFERE N CE IN FU N CT I ONS A S F A R AS M A RK E TIN G AS P EC T S A R E CON CE RN E D , B UT TH E S E FU NC T IO N S R E PRESENTED BY TH E IR O P E R A TIN G EXPENSES DOES N O T AFF EC T TH E G RO S S PROF I T M ARGIN CO M P U TED HAVING R E GARD TO A LL D I RECT AND INDIRECT COST OF PROD U C T ION. 5. DISREGARD OF RULE 10B(2) AND RULE 10B(3) OF THE RULES 5.1 THE LEARNED DCIT ERRED IN LAW AND FACTS AND IN CIRCUMSTANCES OF THE CASE IN DISREGARDING THE COMPARABI LITY FACTORS SPECIFIED UNDER RULE 10B(2) OF THE RULES AND THE PROVISIONS CONTAINED IN RULE 10B(3) OF THE RULES THAT THE RULES AND THE PROVISIONS CONTAINED IN RULE 10B(3) OF THE RULES THAT SPECIFY THAT AN ADJUSTMENT SHOULD BE MADE TO ACCOUNT FOR DIFFERENCES BETWEEN THE TRANSACTIONS THAT MAY MATERIALLY AFFECT THE PRICE OF SUCH T RANSACTIONS. 5.2 THE LEARNED DCIT ERRED IN LAW AND FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT ALLOWING ADJUSTMENTS FOR THE SIGNIFICANT AND MATERIAL DIFFERENCES IN FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK ASSUMED BY THE APPELLANT WHILE MAKING INTE RNAL COMPARISON. 6. BENEFIT OF THE VARIATION / REDUCTION OF 5 PERCENT FROM THE ARITHMETIC MEAN 6.1 WITHOUT PREJUDICE TO THE AFORESAID GROUNDS, THE LEARNED DCIT PURSUANT TO 6.1 WITHOUT PREJUDICE TO THE AFORESAID GROUNDS, THE LEARNED DCIT PURSUANT TO THE DIRECTIONS OF DRP HAS ERRED IN NOT GRANTING THE BENEFIT OF THE VARIATION/ REDUCTION OF 5 PERCENT FROM THE ARITHMETIC MEAN AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT, WHILE DETERMINING THE ARM'S LENGTH PRICE FOR THE ADJUSTMENTS MADE TO THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT. 7. INITIATION OF PENALTY PROCEEDINGS 7.1 THE LEARNED DCIT ERRED ON THE FACTS AND IN LAW IN PROPOSING TO INITIATE PENALTY PROCEEDINGS SECTION 271(1)(C) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT, ADJUSTMENT TO TRANSFER PRICE IS JUST ON ACCOUNT OF DIFFERENCE OF OPINION AS TO APPLICATION O F SELECTION CRITERIA FOR COMPARABLE COMPANIES, ETC AND CONSEQUENTLY ON THE COMPUTATION OF ARM'S LENGTH PRICE AS DETERMINED BY THE LEARNED TRANSFER PRICING OFFICER VIS - A - VIS ARM'S LENGTH PRICE DETERMINED BY THE APPELLANT. PRICE DETERMINED BY THE APPELLANT. ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 4 8. EACH ONE OF THE ABOVE GROUNDS O F APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 9. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO THE GROUNDS OF APPEAL. 3. THE ASSESSEE HAS RAISED SEVERAL GROUNDS OF APPEAL, BUT THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE TRANS FER PRICING ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER (IN SHORT TPO) AND APPLIED BY THE ASSESSING OFFICER AMOUNTING TO RS.6,82,60,528/ - TO THE VALUE OF INTERNATIONAL TRANSACTION S ENTERED INTO BY THE ASSESSEE PERTAINING TO EXPORT OF WATER HEATERS AN D SPARES. 4. THE ASSESSEE IS AGGRIEVED BY THE ORDERS OF AUTHORITIES BELOW IN REJECTING THE METHODOLOGY FOLLOWED BY THE ASSESSEE FOR BENCHMARKING OF INTERNATIONAL TRANSACTIONS WHILE THE SAME METHODOLOGY HAD BEEN ACCEPTED IN THE PRECEDING AS WELL AS SUCCEED ING ASSESSMENT YEARS I.E. 2005 - 06, 2007 - 08, 2008 - 09 AND 2010 - 11. 5. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN THE MANUFACTUR ING OF WATER HEATERS AND INSTANTANEOUS GEYSERS. THE ASSESSEE WAS AN INDIRECT SUBSIDIARY OF MERLONI THERMOSANITARI PTE LTD. (IN SHORT MTS) . THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES I.E. PURCHASE OF COMPONENTS AND RAW MATERIALS, SALE OF WATER HEATERS AND SPARE PARTS, PAYMENT OF MANAGEMENT FEES AND REIMBURSEMENT OF PAYROLL , TRAVELLING, TELEPHONE, PROMOTIONAL AND OTHER EXPENSES FOR EXPORTS. THE ASSESSEE IN RESPECT OF FIRST THREE TRANSACTIONS HAD FOLLOWED TNMM METHOD AND HAD APPLIED CUP METHOD FOR BENCHMARKING INTERNATIONAL TRANSACTIONS FOR REIMBURSEM ENT OF PAYROLL, TRAVELLING, TELEPHONE, PROMOTIONAL AND OTHER EXPENSES FOR EXPORTS. THE ASSESSEE HAD BENCHMARKED THE INTERNATIONAL TRANSACTIONS BY ADOPTING TNMM METHOD ON AGGREGATE BASIS . ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 5 D URING THE FINANCIAL YEAR , THE ASSESSEES OPERATING PROFIT MARGINS WERE 6.57 % , WHEREAS THE OPERATING PROFIT / SALES OF THE COMPARABLE COMPANIES WAS 4.64%. BASED ON THE SAID ANALYSIS, THE ASSESSEE HAD CONCLUDED THAT ITS INTERNATIONAL TRANSACTIONS WERE AT ARM'S LENGTH PRICE . THE TPO ON THE PERUSAL OF DETAILS AND DOCUMENTS FILED BY THE ASSESSEE WAS OF THE VIEW THAT EACH OF THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE DIFFERENT IN ITS NATURE AND SCOPE AND AS PER THE TP REGULATIONS, EACH OF THESE TRANSACTIONS SHOULD HAVE BEEN BENCHMARKED SEPARATELY. THE TPO WAS OF THE VI EW THAT UNDUE SHELTER HAD BEEN TAKEN BY THE ASSESSEE BY AGGREGATING THESE TRANSACTIONS TOGETHER BY DETAILING THEM TO BE CLOSELY INTER - LINKED WITH EACH OTHER. THE TPO SHOW CAUSED THE ASSESSEE IN THIS REGARD THAT AGGREGATION OF THE TRANSACTIONS AND BENCHMAR KING THEM TOGETHER, FOLLOWING TNMM METHOD WAS NOT ACCEPTABLE. THE TPO FURTHER NOTED THAT THE TP STUDY RE PORT REVEALS THAT THE COMPANY IS SPECIALIZED IN MANUFACTURING OF ELECTRICAL APPLIANCES I.E. WATER HEATERS, WHICH WERE SOLD IN THE DOMESTIC MARKET AS WE LL AS WE RE EXPORTED TO THE ASSOCIATE ENTERPRISES AND ALSO TO NON - ASSOCIATE ENTERPRISES . FROM THE PERUSAL OF THE DETAILS FILED BY THE ASSESSEE ON 22.09.2009, THE TPO NOTED THAT THE TOTAL THIRD PARTY SALES OF WATER HEATERS WERE RS.98.85 CRORES AND THE TOTAL RECEIPTS FROM THE EXPORT OF WATER HEATERS TO THE ASSOCIATE ENTERPRISES WAS RS.34.25 CRORES. THE GROSS MARGINS TO THE COST IN RESPECT OF THIRD PARTY SALES OF WATER HEATERS AND SPARE PARTS WAS 38.94% COMPARED TO 15.85% GROSS MARGINS GENERATED BY THE ASSESS EE FROM EXPORTS TO ITS ASSOCIATE ENTERPRISES . THE TPO THUS, OBSERVED THAT THERE WAS INTERNAL COMPARABLE AVAILABLE FOR BENCHMARKING THE TRANSACTIONS RELATING TO EXPORT OF WATER HEATERS AND SPARE PARTS TO ASSOCIATE ENTERPRISES AND THEREFORE, HE PROPOSED TO ADOPT COST PLUS METHOD (IN SHORT CPM) FOR THE PURPOSE OF BENCHMARKING, AS MOST APPROPRIATE METHOD AND GROSS PROFIT AS PROFIT LEVEL INDICATOR. THE ASSESSEE WAS THUS, SHOW CAUSED AS TO WHY AN ADJUSTMENT OF AN AMOUNT CORRESPONDING TO THE DIFFERENCE IN THE ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 6 GROSS MARGINS AS IND ICATED ABOVE BE NOT MADE TOWARDS INTERNATIONAL TRANSACTION S UNDERTAKEN BY THE ASSESSEE IN RESPECT OF EXPORT OF WATER HEATERS TO ASSOCIATE ENTERPRISES . IN RESPONSE, FIRST ISSUE RAISED BY THE ASSESSEE WAS THAT COMPARISON OF ASSOCIATE E NTERPRISES AND NON - ASSOCIATE ENTERPRISES SEGMENT WAS NOT APPROPRIATE DUE TO PRODUCT DIFFERENCES. WRITTEN SUBMISSIONS WERE MADE BY THE ASSESSEE IN THIS REGARD, WHICH ARE INCORPORATED UNDER PARA 8.1 AT PAGES 5 AND 6 OF THE ORDER OF TPO. THE ASSESSEE WAS OF THE VIEW THAT THERE WAS BRAND DIFFERENCE BETWEEN PRODUCTS SOLD TO THIRD PARTIES AND ASSOCIATE ENTERPRISES AND THE SAME COULD NOT BE COMPARED. 6. FURTHER, THE TPO NOTED THAT THE ASSESSEE HAD BENCHMARKED ITS INTERNATIONAL TRANSACTIONS PERTAINING TO EXPORT OF WATER HEATERS BY USING EXTERNAL COMPARABLES AS ENLISTED AT PAGE 6 OF THE TPOS ORDER AND ON VERIFICATION OF THE FUNCTIONAL PROFILE OF THE SAID COMPANIES. THE TPO OBSERVED THAT THE ASSESSEES PRODUCT PORTFOLIO INVOLVES WATER HEATERS AND GEYSERS, BUT NON E OF THE COMPARABLES CHOSEN BY THE ASSESSEE WERE INTO MANUFACTURING OF NON E OF THE COMPARABLES CHOSEN BY THE ASSESSEE WERE INTO MANUFACTURING OF WATER HEATERS AND / OR GEYSERS. THUS, THE TNMM ANALYSIS INVOLVING THE COMPARABLES SO CHOSEN BY THE ASSESSEE, AS PER THE TPO, DID NOT SEEM TO BE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTION S OF THE ASSESSEE. ANOTHER ASPECT NOTED BY THE TPO WAS THE CONTENTION OF THE ASSESSEE THAT NON - ASSOCIATE ENTERPRISES SEGMENT WAS CONTROLLED TRANSACTION AND AS SUCH, THE EXPORT TO ASSOCIATE ENTERPRISES COULD NOT BE COMPARED WITH T HE SALE T O NON - ASSOCIATE ENTERPRISES. THE TPO CONSIDERED THE SUBMISSIONS OF ASSESSEE THAT THOUGH THE ASSESSEE HAD USED THE IMPORTED RAW MATERIAL IN CASE OF PRODUCTS SOLD TO NON - ASSOCIATE ENTERPRISES, BUT THE SAME WERE ALSO USED IN RESPECT OF PRODUCTS SOLD TO ASSOCIATE ENTERPRISES. THUS, EVENTUALLY, THE BASE REMAINED THE SAME, BUT EVEN THEREAFTER, THE MARGINS IN RESPECT OF SALES TO ASSOCIATE ENTERPRISES WERE SUBSTANTIALLY THINNER THAN THE MARGINS ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 7 DERIVED FROM SALES TO NON - ASSOCIATE ENTERPRISES. THE TPO FU RTHER OBSERVED THAT WHERE THE MARGINS FROM ASSOCIATE ENTERPRISES SALES WERE COMPARED WITH THE MARGINS FROM NON - ASSOCIATE ENTERPRISES SALES AND EVEN IF THE CHANCES OF CONTROLLED TRANSACTIONS AFFECTING THE PURCHASE PRICE W ERE CONSIDERED, THE SAME WAS NEUTR ALIZED BY STARTING AT THE SAME BASE. THE TPO WAS OF THE VIEW THAT MERELY BECAUSE THE ENTERPRISES WERE ENGAGED IN CONTROLLED TRANSACTION S, THE SAME SHOULD NOT BE THE REASON OF AUTOMATIC REJECTION CRITERION. AFTER ANALYZING OF OTHER DIFFERENCES POINTED OUT BY THE ASSESSEE I.E. IN FUNCTIONS AND RISK I.E. PRODUCT DIFFERENCES, PRODUCT RISK AND CREDIT RISK, THE TPO WAS OF THE VIEW THAT THE INTERNAL COMPARABLES W OULD BE BETTER PLACED FOR THE PURPOSE OF COMPARABILITY THAN THE EXTERNAL COMPARABLES, WHICH WOULD HAV E FAR MORE DIFFERENCES BASED ON THE FAR ANALYSIS OF THE ASSESSEES INTERNATIONAL TRANSACTION, RELATING TO EXPORT OF IC ENGINES TO ASSOCIATE ENTERPRISES VIS - - VIS FAR ANALYSIS OF THE INDIVIDUAL EXTERNAL COMPARABLES. THUS, THE CONTENTION OF THE ASSESSEE TH AT THERE WAS DIFFERENCE IN THE PRODUCTS FUNCTIONS AND RISKS BETWEEN THE EXPORT AND DOMESTIC SEGMENT AND IT ADOPTED TNMM METHOD WITH EXTERNAL COMPARABLES, WAS NOT FOUND TO BE ACCEPTABLE BY THE TPO. 7. THE TPO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE TNMM METHOD WAS THE MOST APPROPRIATE METHOD IN THE FACTS OF THE CASE AND SINCE INTERNAL DATA WAS AVAILABLE, CUP METHOD SHOULD BE APPLIED TO BENCHMARK INTERNATIONAL TRANSACTIONS . T HE ASSESSEE STRESSED THAT SIMILAR ISSUE WAS DISCUSSED IN THE EARLIER YEA R AND THE CONTENTION OF THE ASSESSEE WAS ACCEPTED. THE SAID CONTENTION OF THE ASSESSEE WAS REJECTED BY THE TPO ON THE PREMISE THAT EACH YEAR WAS AN INDEPENDENT YEAR FOR TRANSFER PRICING ANALYSIS AND RESULTS OF THE EARLIER YEARS COULD NOT RESTRICT OR COMPE L THE TPO TO FOLLOW THE APPROACH AND ADOPT IN THE PREVIOUS YEAR. THE ASSESSING OFFICER IS SUED THE DRAFT ASSESSMENT ORDER. THE ASSESSEE FILED OBJECTIONS BEFORE THE ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 8 DISPUTE RESOLUTION PANEL (IN SHORT DRP). THE MAIN OBJECTION RAISED BY THE ASSESSEE WAS A GAINST THE APPLICATION OF CPM METHOD BY THE TPO FOR BENCHMARKING THE TRANSACTIONS CARRIED ON BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE BEFORE THE DRP WAS THAT THERE WERE MAJOR DIFFERENCES BETWEEN THE TRANSACTION OF SALES TO ASSOCIATE ENTERPRISES AND SALES TO THIRD PARTIES AND THEREFORE, THE COMPARISON DONE BY THE TPO WAS NOT JUSTIFIED. THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD, ARE REPRODUCED BY THE DRP UNDER PARA 4.2.5 AT PAGES 11 TO 14 OF THE DIRECTIONS OF DRP AND THE SAME ARE BEING REFERRED TO, BUT NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. THE PLEA OF THE ASSESSEE BEFORE THE DRP WAS THAT COMBINED TRANSACTION APPROACH SHOULD BE ADOPTED AND TNMM METHOD SHOULD BE ACCEPTED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRA NSACTION S OF THE ASSESSEE PERTAINING TO MANUFACTURING ACTIVITY. THE DR P OBSERVED THAT THE TPO HAD LAID DOWN NUMBER OF REASONS FOR REJECTION OF TNMM METHOD APPLIED BY THE ASSESSEE. THE DRP FURTHER OBSERVED THAT WHERE THE ASSESSEE HAD SELECTED FUNCTIONALLY NON - COMPARABLE COMPANIES FOR TNMM ANALYSIS AND BENCHMARKED ITS INTERNATIONAL TRANSACTIONS ON ENTITY LEVEL, WHEN INTERNAL COMPARABLES WERE AVAILABLE FOR BENCHMARKING AT GROSS MARGIN LEVEL. IT FURTHER HELD THAT THE DATA USED BY THE ASSESSEE FOR BENCHMARKIN G WAS NOT RELIABLE AND THEREFORE, THE TPO WAS JUSTIFIED TO PROCEED FURTHER TO DETERMINE THE ARM'S LENGTH PRICE AS PER CLAUSE (C) OF SECTION 92C(3) OF THE ACT. THE DRP FURTHER HELD THAT NONE OF THE COMPARABLES CHOSEN BY THE ASSESSEE WERE INTO MANUFACTURING OF WATER HEATERS AND / OR GEYSERS. THUS, THE TNMM ANALYSIS INVOLVE S THE COMPARABLES SO CHOSEN BY THE ASSESSEE WAS NOT THE MOST APPROPRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS . WHILE DEALING WITH THE OBJECTIONS OF THE ASSESSEE AS TO WHY TH E CPM METHOD ADOPTED BY THE TPO CANNOT BE HELD AS THE MOST APPROPRIATE METHOD, THE DRP HELD THAT HOWEVER, IF WE SEE THE BROAD PICTURE, IT SEEMS THAT IN TERMS OF FUNCTIONS, ASSETS AND RISKS, THE INTERNAL ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 9 COMPARABLE IN ANY CASE WOULD BE BETTER AND CLOSER FOR THE PURPOSES OF BENCHMARKING THAN THE EXTERNAL COMPARABLES HAVING NO FUNCTIONAL SIMILARITY. MOREOVER, THE MARGINS ADOPTED ARE GROSS MARGINS AND AS SUCH THEY ARE NOT HAMPERED BY THE EXTERNAL FACTORS. AS SUCH, WE UPHOLD THAT IN THE GIVEN CIRCUMSTANCES ADO PTING THE CPM METHOD WITH THE INTERNAL COMPARABLES OF THE ASSESSEE IS THE MOST APPROPRIATE METHOD THAN THE TNMM METHOD USING EXTERNAL COMPARABLES. THE OTHER OBJECTIONS RAISED BY THE ASSESSEE ON ACCOUNT OF PRODUCT DIFFERENCES, RISKS, ETC. WAS ALSO CONSIDER ED BY THE DRP, BUT THE CONTENTIONS OF THE ASSESSEE ON ALL REGARDS WERE REJECTED. THE ASSESSING OFFICER CONSEQUENT THERETO, PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT MAKING AN ADDITION ON ACCOUNT OF A DJUSTMENT AS PER TRANSFER PRICING ORDER UNDER SECTION 92CA(3) OF THE ACT AT RS. 6,82,60,528/ - . 8. THE ASSESSEE IS IN APPEAL AGAINST THE AFORESAID ORDER OF ASSESSING OFFICER. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE MAIN ISSUE ARISING IN THE PRESENT APPEAL IS THE APPLICATION OF PRINCIPLE OF CONSISTENCY AND NON - APPLICATION OF CPM METHOD FOR BENCHMARKING INTERNATIONAL TRANSACTIONS OF EXPORT TO THE ASSOCIATE ENTERPRISES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THIS WAS TH E ONLY YEAR IN WHICH THE TPO HAD CHANGED THE METHOD TO BE APPLIED AND IN ANY OF THE OTHER YEARS I.E. BOTH FOR THE PRECEDING AND SUCCEEDING YEARS, THE TNMM METHOD APPLIED BY THE ASSESSEE ON AGGREGATE BASIS, HAD BEEN ACCEPTED BY THE TPO / AO. SINCE THE FACT S OF THE PRESENT YE AR WERE IDENTICAL, THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US WAS THAT THERE WAS NO MERIT IN NOT APPLYING TNMM METHOD ON AGGREGATE BASIS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FUR THER ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 10 POINTED OUT THAT IDENTICAL ISSUE AROSE BEFORE THE TRIBUNAL IN JOHN DEERE INDIA (P.) LTD. VS. DCIT (2015) 56 TAXMANN.COM 412 (PUNE TRIB.) AND IN M/S. DRILBITS INTERNATIONAL P. LTD. VS. DCIT IN ITA NO.1361/PN/2010, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 23.08.2011 , WHEREIN, THE FACTS OF THE CASE ARE SIMILAR TO THOSE IN THE CASE OF THE ASSESSEE AND SIMILAR ARGUMENTS WERE RAISED. WITH REGARD TO THE APPLICATION OF CPM METHOD VERSUS TNMM METHOD, THE TRIBUNAL IN JOHN DEERE INDIA (P.) LTD. VS. DCI T (SUPRA) HAD UPHELD THE APPLICATION OF TNMM METHOD. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF WATER HEATERS AND GEYSERS. IT HAD ENTERED INTO FOUR INTERNA TIONAL TRANSACTIONS, UNDER WHICH, MATERIAL WAS IMPORTED AND THE FINISHED PRODUCTS WERE EXPORTED BOTH TO ASSOCIATE ENTERPRISES AND NON - ASSOCIATE ENTERPRISES . I N ADDITION, THERE WERE DOMESTIC SALES OF THE PRODUCTS MANUFACTURED BY THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE DRP HAD DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE DRP HAD REJECTED THE ADOPTION OF TNMM METHOD AS NATURE AND SCOPE OF TRANSACTIONS WERE DIFFEREN T AND THEIR SEPARATE MARGINS COULD BE WORKED OUT. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR TH E REVENUE FURTHER POINTED OUT THAT THE ASSESSEE HAD PICKED UP FIVE COMPARABLES AND IN NONE OF THE CASES, COMPARABLES ENGAGED IN SIMILAR BUSINESS AS THAT OF THE ASSESSEE. 11. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT IN ASSESSMENT YEAR 2011 - 12, IDENTICAL TRANSACTIONS WERE CONDUCTED BY THE ASSESSEE AND THE TPO HAD ACCEPTED THE METHOD APPLIED BY THE ASSESSEE AND ALSO THE AGGREGATION OF INTERNATIONAL TRANSACTIONS. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE RECORD. THE LIMITED ISSUE ARISING BEFORE US IS THE APPROPRIATE METHOD TO BE APPLIED FOR ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 11 BENCHMARKING THE INTERNATIONAL TRANSACTION S ENTERED INTO BY THE ASSESSEE AND WHETHER THE SAME HAS BEEN APPLIED ON AGGREGATION BASIS. THE ASSESSEE DURING THE YE AR UNDER CONSIDERATION HAD ENTERED INTO FOUR DIFFERENT INTERNATIONAL TRANSACTIONS I.E. PURCHASE OF COMPONENTS AND RAW MATERIALS, SALE OF WATER HEATERS AND SPARE PARTS, PAYMENT OF MANAGEMENT FEES AND REIMBURSEMENT OF PAYROLL, TRAVELLING, TELEPHONE, PROMOTIO NAL AND OTHER EXPENSES FOR EXPORTS . THE ASSESSEE HAD APPLIED TNMM METHOD IN RESPECT OF FIRST THREE TRANSACTIONS AND HAD APPLIED CUP METHOD FOR THE FOURTH TRANSACTION OF REIMBURSEMENT OF EXPENSES FOR EXPORTS. THE PERUSAL OF ORDER OF THE TPO REFLECTS THAT THE ONLY OBJECTION HAS BEEN RAISED TO THE EXPORT OF WATER HEATERS AND SPARE PARTS AND THE ADJUSTMENT IS PROPOSED IN THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES IN RESPECT OF THE SAID TRANSACTIONS OF EXPORT OF WATER HEATERS A ND SPARE PARTS. WITH REGARD TO OTHER TRANSACTIONS, APPARENTLY THE SAME HAS BEEN ACCEPTED BY THE TPO AND NO ADJUSTMENT IS PROPOSED IN THE AFORESAID INTERNATIONAL TRANSACTIONS. THE FIRST OBJECTION OF THE TPO WAS WITH REGARD TO THE METHOD TO BE EMPLOYED FOR BENCHMARKING INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ASSESSEE HAD APPLIED TNMM METHOD AT THE ENTITY LEVEL, WHEREAS THE TPO WAS OF THE VIEW THAT SINCE INTERNAL COMPARABLES WERE AVAILABLE, THE N CPM SHOULD BE ADOPTED FOR BENCHMARKING AS THE MOST APPROPRIATE METHOD AND GROSS PROFIT SHOULD BE ADOPTED AS PROFIT LEVEL INDICATOR . THE SECOND OBJECTION RAISED BY THE TPO WAS ON THE AGGREGATION OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES WHEN THE PROFITS OF EACH O F THE TRANSACTIONS COULD BE INCLUDED SEPARATELY. 13. THE CASE OF THE ASSESSEE BEFORE US IS THAT THE TNMM METHOD HAS BEEN APPLIED AS THE APPROPRIATE METHOD BY THE ASSESSEE IN ALL THE YEARS I.E. F ROM THE YEAR WHEN IT STARTED ITS BUSINESS TILL UP TO ASSESS MENT YEAR 2010 - 11. THE ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 12 LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT SIMILAR METHOD HAS BEEN APPLIED BY THE TPO IN THE CASE OF THE ASSESSEE WHILE BENCHMARKING ITS INTERNATIONAL TRANSACTIONS IN ASSESSMENT YEARS 2005 - 06, 2007 - 08, 2008 - 09 AND 2010 - 11 . THE COPIES OF THE ORDERS PASSED UNDER SECTION 92CA(3) OF THE ACT RELATING TO ASSESSMENT YEAR 2005 - 06, DATED 09.09.2008, HAS BEEN FILED ON RECORD. THE PERUSAL OF THE SAID ORDERS REFLECT THAT IN THE SAID YEAR, THE ASSESSEE HAD ENTERED INTO IDE NTICAL FOUR INTERNATIONAL TRANSACTIONS I.E. PURCHASE OF COMPONENTS / RAW MATERIALS, SALE O F WATER HEATERS AND SPARE PARTS, PRODUCT DEVELOPMENT AND ANCILLARY SERVICES AND REIMBURSEMENT OF EXPENSES FOR EXPORTS. THE ASSESSEE HAD FOLLOWED THE TNMM METHOD IN R ESPECT OF FIRST THREE TRANSACTIONS AND CUP METHOD IN RESPECT OF FOURTH TRANSACTION. NO ADJUSTMENT HAS BEEN PROPOSED BY THE TPO AND THE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATE ENTERPRISES HAVE BEEN FOUND TO BE AT ARM'S LENGTH PRICE. SIMILARLY, IN AS SESSMENT YEAR 2007 - 08, ORDER OF THE TPO UNDER SECTION 92CA(3) OF THE ACT IS DATED 29.10.2010 AND FOR ASSESSMENT YEAR 2008 - 09 IS DATED 31.10.2011 AND THE VALUE OF THE INTERNATIONAL TRANSACTIONS WITH REGARD TO THE ARM'S LENGTH PRICE HAS NOT BEEN DISTURBED BY THE TPO. THE PERUSAL OF THE ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2010 - 11 , DATED 20.01.2015, THE TPO HAS REFERRED TO THE FIVE INTERNATIONAL TRANSACTIONS AS REPORTED BY THE ASSESSEE IN ITS TP STUDY REPORT I.E. IMPORT OF COMPONENTS AND RAW MATERIALS, IMPORT OF WATER HEATERS AND SPARE PARTS, EXPORT OF WATER HEATERS AND SPARE PARTS, PAYMENT OF MANAGEMENT FEES AND REIMBURSEMENT OF EXPENSES. THE FIRST FOUR TRANSACTIONS REPORTED BY THE ASSESSEE WERE BENCHMARKED AS PER TNMM METHOD AND THE LAST TRANSACTION I.E. REIMBURSEMENT OF EXPENSES WAS BENCHMARKED AT COST. THE TPO HAS NOT PROPOSED ANY ADJUSTMENT TO THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. UNDOUBTEDLY, THE DOCTRINE OF RES JUDICATA IS NOT APPLICABLE TO THE TAX PROCEEDINGS, BUT AT THE SAM E TIME, WHERE THERE IS NO ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 13 CHANGE IN THE FACTS IN RESPECT OF A PARTICULAR TRANSACTION AND / OR ISSUE OR PROCEEDINGS, THEN IT IS THE REQUIREMENT OF LAW THAT CONSISTEN CY SHOULD BE MAINTAINED AND THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS INT ERNATIONAL TRANSACTIONS SHOULD NOT BE DISTURBED. WHERE THE REVENUE FROM YEAR TO YEAR HAS ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATE ENTERPRISES, IN THE ABSENCE OF ANY REASONS BROUGHT ON R ECORD, THERE IS NO MERIT IN DEVIATING OR TAKING STAND CONTRARY TO THE STAND ACCEPTED IN BOTH THE PRECEDING AND SUCCEEDING YEARS, WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS IN THE HANDS OF THE ASSESSEE. IN THE ABSENCE OF TPO OR DRP HAVING BEEN ABLE TO DEMONSTRATE AS TO HOW THE FACTS OF THE PRESENT YEAR ARE DIFFERENT FROM THE FACTS OF OTHER YEAR, WHICH WERE BEFORE THE AUTHORITIES, THERE IS NO JUSTIFICATION FOR TAKING A DIFFERENT STAND. THE ASSESSEE HAS TIME AND AGAIN EXPLAINED THE REASONS WHY IT HAD ADOPTED THE TNMM METHOD AND HAD ALSO EXPLAINED THE DIFFERENCE BETWEEN THE EXPORTS MADE TO THE ASSOCIATE ENTERPRISES AND NON - ASSOCIATE ENTERPRISES AND ALSO SALES MADE IN THE DOMESTIC MARKET. THE ASSESSEE HAS ALSO EXPLAINED THE FUNCTIONAL RISKS WHICH ARE DI FFERENT F O R BOTH THE SEGMENTS AND CONSEQUENTLY, NO COMPARISON COULD BE MADE ON THE GROSS PROFIT LEVEL, AS ADOPTED BY THE TPO FOR BENCHMARKING INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE ASSESSEE HAS POINTED OUT THAT IN C ASE THE COMPARISON IS MADE ON THE NET PROFIT LEVEL, THEN THE PROFIT EARNED FROM THE ASSOCIATE ENTERPRISES SEGMENT WAS MORE PROFITABLE THAN THE NON - ASSOCIATE ENTERPRISES FOR SALES BOTH TO ASSOCIATE ENTERPRISES AND NON - ASSOCIATE ENTERPRISES . ANOTHER CONTENT ION OF THE ASSESSEE WAS THAT THE ASSOCIATE ENTERPRISES SEGMENT ALSO INCLUDES CONTROLLED TRANSACTIONS, WHEREIN MATERIAL IMPORTED HAD BEEN USED FOR MANUFACTURING GEYSERS / WATER HEATERS, WHICH IN TURN, W ERE SOLD BOTH TO ASSOCIATE ENTERPRISES AND NON - ASSOCIA TE ENTERPRISES. ALL THESE ABOVE SAID EXPLANATIONS HAVE BEEN REJECTED BY THE ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 14 TPO/DRP WITHOUT ANY BASIS, WHEREIN SIMILAR EXPLANATION HAS BEEN ACCEPTED BY THE TPO ITSELF IN ALL THE OTHER YEARS. THE CONDUCT OF THE BUSINESS AND THE PRODUCTS MANUFACTURED ARE I DENTICAL IN THE YEAR UNDER CONSIDERATION, WHEN COMPARED TO THE OTHER YEARS I.E. ASSESSMENT YEAR 2005 - 06, 2007 - 08, 2008 - 09 AND 2010 - 11 . IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ADOPTION OF TNMM METHOD WAS THE M OST APPROPRIATE METHOD FOR BENCHMARKING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES AND WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN ADOPTING CUP METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES. WE HOLD THAT THE TNMM METHOD SHOULD BE APPLIED ON AGGREGATE BASIS FOR BENCHMARKING INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 14. WE FIND SUPPORT FROM THE ORDER OF TRIBUNAL IN JOHN DEERE INDIA (P.) LTD. VS. DCIT (SUPRA) , WHEREIN THE TRIBUNAL VIDE ORDER DATE D 20.02.2015 HAD DECIDED THE ISSUE ON BOTH THE ASPECTS I.E. WHERE A METHOD HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE WH Y THE SAME SHOULD NOT BE APPLIED TO CONSISTENTLY FOLLOWED BY THE ASSESSEE WH Y THE SAME SHOULD NOT BE APPLIED TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS AND ALSO THE ISSUE OF APPLICATION OF TNMM METHOD AS COM PARED TO CUP METHOD APPLIED BY THE TPO. THE TRIBUNAL VIDE PARAS 16 TO 21 HAS OBSERVED AS UNDER: - 16. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. WE HAVE ALSO CONSIDERED ALL THE DECISIONS AND PRECEDENTS RELIED ON BY BOTH TH E PARTIES. ON THIS GROUND THERE ARE TWO SUB ISSUES FIRST IS REJECTION OF THE TNMM METHOD ADOPTED BY THE ASSESSEE AND SUBSTITUTING THE SAID METHOD WITH CUP BY THE TPO/DRP AND SECOND ISSUE IS IN RESPECT OF THE ALP ADJUSTMENT MADE BY THE ASSESSING OFFICER. IN THIS CASE, THE ALP ADJUSTMENT IS MADE ONLY TO THE EXPORT OF TRACTORS AND IN RESPECT OF OTHER REPORTED TRANSACTIONS THE ASSESSING OFFICER HAS ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE AS WELL AS DETERMINATION OF THE ALP AS PER THE T.P. STUDY FILED BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT IT HAD EXPORTED TRACTORS TO AES FOR LAST SEVERAL YEARS AND THE ASSESSEE HAS ADOPTED TNMM METHOD AS THE MOST APPROPRIATED METHOD FOR DETERMINING THE ALP IN RESPECT OF THE TRANSACTION OF EXPORT OF TRACTO RS TO THE AES FROM A.Y. 2004 - 05. THE SAID CONTENTION OF THE ASSESSEE HAS NOT BEEN DISPUTED BEFORE US BY THE REVENUE. ADMITTEDLY, FOR ALL THOSE ASSESSMENT YEARS STARTING FROM 2004 - 05 ONWARDS AND ALSO FOR THE A.Y. 2008 - 09 THE ASSESSING OFFICER HAS ACCEPTED THE TNMM METHOD AS A MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF THE SALE OF TRACTORS BY THE ASSESSEE TO THE AES. THE ASSESSEE HAS FILED THE COPIES OF THE ASSESSMENT ORDER FOR THE A.YS. 2004 - 05 AND 2005 - 06 WHICH ARE ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 15 PLACED IN THE COMPIL ATION (PAGE NOS. 282 - 285 OF THE P/B - 2). THE ASSESSEE HAS ALSO FILED THE TPOS ORDER FOR THE A.Y. 2008 - 09 WHICH IS PLACED AT PAGE NOS. 353 354 OF THE P/B - 2. THOUGH THE TPO/DRP HAS GONE ON DISCUSSING THE PROVISIONS OF LAW BUT HAVE CONVENIENTLY IGNORED TO PUT OF RECORD HOW THE FACTS OF THE CURRENT YEAR ARE DIFFERENT FROM THE FACT IN A.YS. 2004 - 05 AND 2005 - 06 AS IN THOSE YEARS THE TNMM WAS ADOPTED BY THE ASSESSE FOR DETERMINING THE ALP WHICH HAS BEEN ACCEPTED AS A MOST APPROPRIATE METHOD BY THE TPO WITHOU T ANY OBJECTION OR RESERVATION. THE ASSESSEE HAS ALSO FILED THE COPY OF THE TPO ORDER FOR THE A.Y. 2008 - 09 WHICH IS ALSO PLACED AT PAGE NOS. 353 354 OF THE P/B - 2. 17. THERE IS NO DISPUTE ON THE PROPOSITION THAT THE DOCTRINE OF THE RES JUDICATA IS NOT APPLICABLE TO TAX PROCEEDINGS BUT AT THE SAME TIME IF THERE IS NO CHANGE OF THE FACTS IN RESPECT OF THE A PARTICULAR ISSUE AND THE REVENUE HAS A PARTICULAR APPROACH OR METHOD TO DETERMINE THE TAXABILITY THEN THERE MUST BE CONSISTENCY AND THIS VIEW IS EXPR ESSED BY THE HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC). IT IS ALSO CERTAINLY STRANGE THAT IN THE A.Y. 2008 - 09 THE TPO HAS AGAIN ACCEPTED THE TNMM METHOD AS AN APPROPRIATE METHOD WHICH WAS ADOPTED BY THE ASSESSEE AND HAS NOT DISTURBED THE RESULT. WE MAY REFER HERE TO THE FEW DECISIONS OF THE OTHER CO - ORDINATE BENCHES IN WHICH IT IS HELD THAT WHEN THE FACTS INVOLVED ARE SIMILAR IN VARIOUS YEARS AND THE REVENUE HAS ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE IN SOME YEA RS THEN THERE IS NO REASON TO TAKE A DIFFERENT STAND IN THE SUBSEQUENT YEARS WITHOUT EXPLAINING THE REASONS HOW THE FACTS IN THE SAID YEAR ARE DIFFERENT THAN THE PRECEDING YEARS: I . ALFA LAVAL (I) LTD. 149 ITD 285 (PUNE). II . H.A. SHAH & CO. VS. CIT 30 ITR 618 ( BOM). III . BRINTONS CARPETS ASIA (P) LTD. 139 TTJ 177 (PUNE) IV . DRILBITS INTERNATIONAL PVT. LTD. 62 DTR 171 (PUNE). V . AGILITY LOGISTICS (P) LTD. 145 ITD 566 (MUM). VI . SKOL BREWERIES LTD. 153 TTJ 257 (MUM). 18. NOW, LET US LOOK INTO THE T.P. STUDY REPORT FI LED BY THE ASSESSEE BEFORE THE TPO. THE TPO HAS REJECTED THE COMPARABLE ENTITIES SELECTED BY THE ASSESSEE COMPANY. IT IS SEEN THAT IN THE A.Y. 2005 - 06 OUT OF THE 8 COMPARABLE SELECTED BY THE ASSESSEE, 7 COMPARABLE WERE COMMON AND THE TPO HAS NOT DISPUTED THOSE IN THAT YEAR. IN THIS YEAR, THE TPO EXPRESSED THE RESERVATION ON THE COMPARABLE SELECTED BY THE ASSESSEE TO SUPPORT HIS WORKING OF THE ALP. THERE CANNOT BE TWO STANDARDS FOR THE ASSESSING OFFICER ONE STANDARD IN ONE ASSESSMENT YEAR AND DIFFERENT S TANDARD IN THE SUBSEQUENT YEAR WITHOUT EXPLAINING HOW FACTS DIFFER. IT IS SEEN THAT THE TPO HAS GONE ON THE TURNOVER FOR REJECTING THE COMPARABLE OF THE ASSESSEE BUT IN THE PRECEDING YEAR A.Y. 2005 - 06 THE TPO HAD ACCEPTED THE VERY SAME COMPANIES AS COMPAR ABLE. IF TPO DESIRES TO REJECT THE COMPARABLE AS THERE IS A CHANGE IN THE PARAMETERS OR FAR ANALYSIS THEN HE SHOULD HAVE BROUGHT ON RECORD HOW THE PARAMETERS OF THE FAR ARE DIFFERENT IN THIS YEAR AS COMPARED TO A.Y. 2005 - 06. THERE IS A MERIT IN THE CONTE NTION OF THE ASSESSEE THAT THE TRACTORS SEGMENT IS NICHE SEGMENT AND THERE IS NO MUCH DIFFERENCE IN THE TURNOVER OF THE COMPARABLE ENTITIES SELECTED BY THE ASSESSEE. 19. THE TPO HAS EXPRESSED HIS RESERVATION ON THE ESCORTS LTD. AND HMT LTD. COMPARABLE S ELECTED BY THE ASSESSEE ON THE GROUND THAT THOSE TWO COMPANIES HAVE INCURRED LOSSES. IT IS SEEN THAT IN THE A.Y. 2005 - 06 THOSE TWO COMPANIES HAS INCURRED THE LOSSES BUT IN SPITE OF THE LOSSES IN THAT YEAR, THE TPO HAS NOT REJECTED THOSE TWO COMPANIES AS A COMPARABLE. WE FAIL TO UNDERSTAND WHY THERE IS INCONSISTENCY APPROACH OF THE TPO IN THE NEXT ASSESSMENT YEAR I.E. A.Y. 2006 - 07 WHICH IS BEFORE US, EVEN THOUGH THERE IS NO CHANGE IN THE PARAMETERS OF THE FAR. THE LD. COUNSEL ARGUES THAT THOSE TWO COMPANI ES HAD INCURRED LOSSES IN THEIR NORMAL DAY TO FUNCTIONING AND THE ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 16 LOSSES WERE NOT ON ACCOUNT OF ANY EXCEPTIONAL FACTORS. IN OUR OPINION THE APPROACH OF THE TPO IN RESPECT OF THOSE TWO COMPARABLE COMPANIES SELECTED BY THE ASSESSEE IS ERRONEOUS AND THERE IS NO JUSTIFICATION FOR THE TPO TO REJECT THOSE TWO COMPARABLE. THE TPO HAS ALSO OBJECTED TO THE INCLUSION OF ANOTHER ENTITY I.E. KERALA AGRO MACHINERY CORPORATION LTD. (KAMCL) ON THE GROUND THAT THE SAID COMPANY IS MANUFACTURING POWER TILLERS AND POWER REA PERS AND NOT ENGAGED IN THE BUSINESS OF MANUFACTURING TRACTORS. ACCORDING TO THE TPO THE SAID COMPANY CANNOT BE CONSIDERED AS A COMPARABLE FOR DETERMINING THE ALP IN THE CASE OF THE ASSESSEE. THE TPO HAS ALSO STATED THAT KAMCL IS A PSU AND HENCE, ON THE POINT OF MANAGEMENT, THE TPO EXPRESSED HIS RESERVATION TO ACCEPT THE SAID COMPANY AS A COMPARABLE. IN RESPECT OF HMT LTD., THE TPO STATES THAT THE SAID COMPANY IS NOT ONLY MANUFACTURING OF TRACTORS BUT ALSO ENGAGED IN OTHER ACTIVITY. THE TPO HAS FURTHER NOTED THAT VST TILLERS IS ALSO ENGAGED IN DIFFERENT BUSINESS AND THEREFORE AND CANNOT BE ACCEPTED AS A COMPARABLE. ON ONE MORE COMPARABLE ENTITY I.E. A ESCORTS LTD. THE TPO HAS STATED THAT ESCORT IS ALSO SELLING FARM EQUIPMENTS ALONG WITH TRACTORS AND THE REFORE THE SAID COMPANY CANNOT BE CONSIDERED AS A COMPARABLE ENTITY. 20. THE MAIN OBJECTION OF THE ASSESSEE IS ON THE APPROACH OF THE TPO IT IS SUBMITTED THAT IN THE PRECEDING YEAR THE TPO ACCEPT THOSE COMPANIES AS A COMPARABLE HAVE DETERMINING THE ALP WH EN IN THAT YEAR ALSO ALL THE FACTS AND FIGURES WERE BEFORE HIM IN THE A.Y. 2006 - 07 THE TPO ADOPT THE DIFFERENT APPROACH. IN RESPECT OF THE RESERVATION OF THE TPO TO ACCEPT THE ESCORTS AS A COMPARABLE, THE ASSESSEES CONTENTION IS THAT THE MAIN BUSINESS IS OF SELLING TRACTORS AND HENCE, THE ASSESSEE HAS CONSIDERED SAID COMPANY AS A COMPARABLE ENTITY AND THIS WAS DEMONSTRATED BEFORE THE TPO ALSO. IN RESPECT OF THE HMT ALSO THE TURNOVER OF THE TRACTORS ACCOUNTS FOR 90% OF THE TOTAL TURNOVER HENCE, EVEN IN TH E BUSINESS OF THE SEGMENTAL RESULTS HMT SHOULD BE CONSIDERED AS A COMPARABLE ENTITY. THE ALTERNATE CONTENTION OF THE ASSESSEE IS THAT EVEN IF THE TPO IS CORRECT WITH REGARD TO THE FOUR COMPANIES CITED (SUPRA) BUT STILL BALANCE FOUR COMPANIES ARE COMPARABL E TO THE ASSESSEE COMPANY AND IN THE SAME BUSINESS AS NO SPECIFIC OBJECTION IS NOTED BY THE TPO, THOSE COMPANIES SHOULD BE CONSIDERED AS COMPARABLE. THE ASSESSEE TPO, THOSE COMPANIES SHOULD BE CONSIDERED AS COMPARABLE. THE ASSESSEE STATES THAT NET OPERATING MARGINS (NOM) OF THE BALANCE FOUR COMPANIES IS WITHIN PLUS OR MINUS 5% OF THE NET OPERATING MARGIN OF THE EXPORT SEGMENT AND HENCE, THE TRANSACTIONS ARE AT ALP. THE ASSESSEE HAS FILED THE WORKING ON THE ABOVE CONTENTION WHICH IS AS UNDER: SR. NO. NAME OF THE COMPANY NET OPERATING MARGIN 1 TRACTORS & FARM TRACTOR LTD . 11.90% 2 MAHINDRA & MAHINDRA LTD. 8.65% 3 PUNJAB TRACTORS LTD. 11.50% 4 INTERNATIONAL TRACTORS LTD. 15.41% AVERAGE NET OPERATING MARGIN 11.87% NET OPERATING MARGIN OF EXPORT SEGMENT 11.17% 21. IT IS SEEN THAT OUT OF THE 8 COMPANIES SELECTED AS A COMPARABLE IN THIS YEAR I.E. A.Y. 2006 - 07, 7 COMPANIES WERE ALSO SELECTED IN A.Y. 2005 - 06 AND ONLY KAMCL IS ADDED AS A NEW COMPARABLE COMPANIES IN THIS YEAR. ON PERUSAL OF THE DATA IN OUR OPINION KAMCL CANNOT BE CONSIDERED AS A COMPARABLE IN THE A.Y. 200 6 - 07 AS SAID COMPANY IS NOT ADMITTEDLY IN THE BUSINESS OF MANUFACTURING TRACTORS. BUT IN RESPECT OF THE REMAINING 7 COMPANIES AS PER THE DATA PLACED BEFORE US, ALL THOSE COMPANIES ARE IN THE LINE OF SAME BUSINESS I.E. TRACTOR MANUFACTURING. IF WE PUT THE REMAINING 7 COMPANIES SELECTED BY THE ASSESSEE, THE PICTURE IS AS UNDER: ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 17 SR. NO. NAME OF THE COMPANY OPERATING TURNOVER PROFIT MARGIN 1 ESCORTS LTD. 1320.32 - 12.02% 2 TRACTORS & FARM TRACTOR LTD. 1391.20 11.90% 3 MAHINDRA & MAHINDRA LTD. 3441.82 8.6 5% 4 VST TILLERS TRACTORS LTD. 131.14 9.40% 5 PUNJAB TRACTORS LTD. 958.55 11.50% 6 INTERNATIONAL TRACTORS LTD. 953.25 15.41% 7 HMT LTD. 281.24 - 4.84% AVERAGE 5.71 THE AVERAGE OPERATING MARGIN OF 7 COMPANIES IS AT 5.71% AS AGAINST 11.17% OF THE E XPORT SEGMENT OF THE ASSESSEE COMPANY. IT IS ALSO SEEN THAT THE ASSESSEE HAS SHARE IN THE SALE OF TRACTORS IN DOMESTIC MARKET ALSO. WE, ACCORDINGLY, HOLD THAT THE TRANSACTION OF EXPORT OF TRACTORS TO ITS AES IS AT ALP WITHIN THE SETTLE PARAMETERS. 15. T HE TRIBUNAL FURTHER DEALT WITH THE SECOND ASPECT OF THE ISSUE I.E. THE APPLICATION OF MOST APPROPRIATE METHOD AND OBSERVED AS UNDER: - 22. LET US DEAL WITH ANOTHER OBJECTION OF THE TPO ON THE APPROPRIATE METHOD WHETHER THE TNMM WHICH IS ADOPTED BY THE ASSE SSEE IS A CORRECT APPROPRIATE METHOD OR CUP WHICH IS APPLIED BY THE TPO. THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, PUNE IN THE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, PUNE IN THE CASE OF DRILL BITS INTERNATIONAL PVT. LTD. (SUPRA). IN THE SAID CASE THE TPO HAD REJECTE D TNMM METHOD AND HAD COMPUTED THE ALP BY ADOPTING THE CPM. THE ASSESSEE EXPLAINED THAT THERE ARE VARIOUS DIFFERENCES IN THE TWO SEGMENTS IN THE FORM OF MARKETING FUNCTIONS, CREDIT RISK, TYPES OF CUSTOMERS, ETC. ETC. AND HENCE, THE CPM COULD NOT APPLIED. THE TRIBUNAL HELD THAT CONSIDERING THE DIFFERENCES IN THE FUNCTIONS PERFORMED AND THE ASSETS UTILIZED, SUITABLE ADJUSTMENTS ARE NOT POSSIBLE TO BE MADE AND HENCE, THE SAID CASE CPM WAS NOT THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. THE OPERATIN G PART OF THE DISCUSSION IN THE SAID DECISION IS AS UNDER: 50. CONSIDERING THE ABOVE SUBMISSIONS, VIS - - VIS THE METHOD I.E. CPM (COST PLUS METHOD) ADOPTED BY THE LEARNED TPO TO DETERMINE THE ALP, WHICH HAS BEEN RELIED UPON BY THE LEARNED DEPARTMENTAL REPR ESENTATIVE, WE FIND THAT THE LEARNED TPO WHILE ADOPTING CPM HAS FAILED TO APPRECIATE SEVERAL MATERIAL ASPECTS OF THE ISSUE AS DISCUSSED ABOVE. IN OUR VIEW, THE LEARNED TPO WAS NOT JUSTIFIED IN COMPARING THE GROSS MARGIN IN EXPORT SEGMENT VIS - A - VIS GROSS MA RGINS IN DOMESTIC SEGMENT. THERE ARE VARIOUS DIFFERENCES IN THE FUNCTIONS PERFORMED AND THE RISK ASSUMED IN THESE TWO SEGMENTS AND THEREFORE, THE SAME CANNOT BE CONSIDERED AS COMPARABLE CASES FOR DETERMINING THE ALP. THERE IS NO MARKETING RISK IN THE EXPOR T SEGMENT, NO RISK OF BAD DEBTS, NO PRODUCT LIABILITY RISK IN EXPORT SEGMENTS WHEREAS THE ASSESSEE HAS TO BEAR ALL THESE RISKS IN THE DOMESTIC SEGMENT. THE CONTRACTUAL STATEMENTS ALSO DEFER IN THE DOMESTIC SEGMENT VIS - A - VIS EXPORT SEGMENTS. THERE ARE DIFFE RENT CHARACTERISTICS AND CONTRACTUAL TERMS IN THE TWO SEGMENTS AND FURTHER GEOGRAPHICAL AND MARKED DIFFERENCES ARE ALSO PRESENT. THUS, WE ARE OF THE VIEW THAT IT IS VERY DIFFICULT TO MAKE SUITABLE ADJUSTMENTS FOR THESE DIFFERENCES, HENCE THE CMA METHOD IS ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 18 NOT APPROPRIATE METHOD FOR DETERMINING THE ALP. THE LEARNED TPO, IN OUR VIEW, HAS THUS ERRED IN ADOPTING THE CMA METHOD AS APPROPRIATE METHOD. 51. WE ALSO FIND SUBSTANCE IN THE ALTERNATIVE PLEA OF THE LEARNED AUTHORISED REPRESENTATIVE IN THE DEFECTIVE WOR KING OUT OF THE TOTAL OF PRODUCTION OF THE GOODS SOLD TO THE AE BY THE LEARNED TPO. THE LEARNED TPO HAS COMPUTED GROSS PROFIT MARGINS IN THE DOMESTIC SEGMENT AT 23.54 PER CENT WHILE IN THE EXPORT SEGMENT AT 5.42 PER CENT. THE DIFFERENCE BETWEEN THE TWO HAS BEEN CALCULATED AT 18.12 PER CENT AND THE SAME IS EMPLOYED TO THE TOTAL COST OF PRODUCTION OF THE GOODS SOLD TO THE AE AND ADDITION OF RS. 58,54,128 HAS BEEN MADE. IN THIS WORKING, THE LEARNED TPO HAS FAILED TO APPRECIATE THAT DURING THE YEAR, THE ASSESSE E HAS PAID PROCESSING CHARGES TO THE LOCAL CONTRACTORS OF RS. 16,98,742 I.E. IN RESPECT OF PRODUCTS SOLD IN THE DOMESTIC SEGMENT, HENCE THE SAME SHOULD NOT HAVE BEEN ALLOCATED TO THE EXPORT SEGMENT. BESIDES, THERE IS NO REASON TO DOUBT THE SUBMISSION OF TH E ASSESSEE THAT MAJOR TIME OF THE JUNIOR AND SERIOR STAFF IS UTILIZED FOR THE DOMESTIC SEGMENT SINCE WHILE DEALING WITH VARIOUS PUBLIC SECTOR UNITS BY THE ASSESSEE SEVERAL FOLLOW UPS LIKE COLLECTION OF THE ORDERS, PHYSICAL DESPATCH OF GOODS, FOLLOW UP FOR THE PAYMENT ETC., ARE REQUIRED TO BE DONE, HENCE MAJOR PART OF THE TOTAL EXPENDITURE IS TO BE ALLOCATED TO THE DOMESTIC UNIT AND BALANCE TO THE EXPORT SEGMENTS. WE ARE THUS OF THE VIEW THAT LEARNED TPO WAS NOT JUSTIFIED IN REJECTING SUCH SUBMISSION OF THE ASSESSEE TREATING THE SAME AS HAVING NO BASIS. IN OUR VIEW, THE APPORTIONMENT OF THESE COSTS IS JUSTIFIED BECAUSE MAJOR TIME OF THE EMPLOYEES IS DEVOTED TOWARDS THE DOMESTIC SEGMENT. WE ALSO FIND SUBSTANCE IN THE SUBMISSION OF THE LEARNED AUTHORISED REPRES ENTATIVE THAT ASSESSEE HAS ALSO TO INCUR SELLING AND ADMINISTRATIVE EXPENSES, FREIGHT EXPENSES, BANK INTERESTS ETC., WHICH CANNOT BE IGNORED AS ULTIMATELY THE INCOME - TAX IS LEVIED ON NET PROFIT AND THEREFORE, COMPARISON OF THE NET PROFIT OF THE DOMESTIC EX PORT SEGMENT IS MORE PROPER. THE NET PROFIT OF THE DOMESTIC EX PORT SEGMENT IS MORE PROPER. THE ASSESSEE AT PAGE NO. 141 OF THE PAPER BOOK HAS GIVEN WORKING OF THE NET PROFIT OF THE TWO DIVISIONS AS PER WHICH, THE NET PROFIT OF THE DOMESTIC SEGMENT IS 13.04 PER CENT AND THAT OF THE EXPORT SEGMENT IS 12.55 PER CENT. WE FIND THAT THERE IS HARDLY ANY DIFFERENCE BETWEEN TWO SEGMENTS. WE ALSO FIND SUBSTANCE IN THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT IN RESPECT OF TRANSACTION WITH AE, THE ASSESSEE ALSO DOES NOT HAVE TO BEAR BAD DEBT RISKS, PRODUCT/WARRAN TY RISKS ETC., HENCE SOME PERCENTAGE OF REDUCTION SHOULD HE GIVEN IN THE MARGIN COMPUTED FOR THE DOMESTIC SEGMENT FOR THE ABOVE RISK. 52. CONSIDERING THE ABOVE MATERIAL FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THE LEARNED TPO WAS NOT JUSTIFIED IN ADOPTI NG THE CPM AS THE MOST APPROPRIATE METHOD. ON THE BASIS THAT THE ASSESSEE HAD A JOINT FACILITY ARRANGEMENT OR A LONG - TERM BUY AND SUPPLY ARRANGEMENT WITH ITS AE, AS WE HAVE DISCUSSED HEREINABOVE, WE FIND THAT THERE WAS NO SUFFICIENT REASONS WITH THE LEARNE D TPO TO REJECT CUP METHOD OR TNMM ADOPTED BY THE ASSESSEE TO DETERMINE THE ARMS LENGTH PRICE (ALP). WE THUS HOLD THAT THE ADDITION MADE BY THE LEARNED TPO AS A RESULT OF INCORRECT APPLICATION OF CPM IS NOT JUSTIFIED. IT IS PERTINENT TO NOTE THAT IN THE S UCCEEDING ASST. YR. 2007 - 08, THE ASSESSEE HAS ADOPTED TNMM FOR DETERMINING THE ALP, WHICH HAS BEEN ACCEPTED BY THE LEARNED TPO. IN THE CASE OF BRINTONS CARPETS ASIA (P) LTD. VS. DY. CIT (SUPRA), PUNE BENCH OF THE TRIBUNAL HAS FOLLOWED THE DECISION OF MUMBA I BENCH OF THE TRIBUNAL IN THE CASE OF ASSTT. CIT VS. NGC NETWORK (INDIA) (P) LTD. ITA NO. 5307/MUM/2006, DT. 23RD FEB., 2011 (PARA 15) [REPORTED AT (2011) 56 DTR (MUMBAI)(TRIB) 1 ED.] ON THE RULE OF CONSISTENCY AND NEED FOR NOT TAKING THE DOMESTIC COMPARA BLES ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 19 AND NEED FOR TAKING UP THE EXTERNAL COMPARABLE IN MATTERS OF THE TRANSFER PRICING ADJUSTMENTS. IT WAS HELD FURTHER THAT THE UNCONTROLLED TRANSACTIONS AND THE EXTERNAL COMPARABLES WHICH WAS ADOPTED BY THE OFFICER IN SUBSEQUENT YEAR HOLDS RELEVANT FOR CURRENT ASSESSMENT YEAR AS WELL. WE THUS WHILE SETTING ASIDE ORDER IN QUESTION OF THE LEARNED TPO, DIRECT THE LEARNED TPO TO ACCEPT CLAIM OF THE ASSESSEE REGARDING THE ALP BASED ON TNMM. THE ISSUE RAISED IN THE RELATED GROUNDS IS DECIDED IN FAVOUR OF THE ASSESSEE. 23. THE LD. COUNSEL HAS ALSO PLACED HIS RELIANCE ON THE DECISION OF THE ITAT, PUNE IN THE CASE OF ALFA LAVAL (I) LTD. (SUPRA). IN THE SAID CASE ALSO THE ASSESSEE HAD EXPORTED INDUSTRIAL PRODUCTS TO ITS AES AS WELL AS SOLD IN THE DOMESTIC MARKE T. THE ASSESSEE HAD ADOPTED TNMM BUT THE SAID METHOD WAS REJECTED BY THE TPO, AND TPO SUBSTITUTED CPM IN THE PLACE OF TNMM. WHEN THE MATTER REACHED BEFORE THE TRIBUNAL IT IS HELD THAT CPM CANNOT BE APPLIED SINCE THERE WERE VARIOUS DIFFERENCES IN THE EXPO RT SEGMENT AND DOMESTIC SEGMENT SUCH AS MARKET FUNCTIONS, GEOGRAPHIC DIFFERENCE, VOLUME DIFFERENCE, CREDIT RISK, RELATED PARTY TRANSACTIONS ETC. IN OUR OPINION THE SAID PRINCIPLES ARE CLEARLY APPLICABLE IN THE PRESENT CASE. AS WE HAVE ALREADY OBSERVED TH AT THE ASSESSEE HAS ALSO SHARE IN THE DOMESTIC MARKET AND WE AGAIN COMPARED THE PARAMETERS OF THE DOMESTIC MARKET WITH THE EXPORT MARKET AS THERE IS A DIFFERENCE IN THE EXPORT SEGMENT AND DOMESTIC SEGMENT ON ACCOUNT OF CREDIT RISKS, MARKETING, WARRANTY, ET C. ETC. WE, THEREFORE, HOLD THAT ON PRINCIPLES AS WELL AS ON THE RULE OF CONSISTENCY, THE TPO/DRP ARE NOT JUSTIFIED IN HOLDING THAT THE CPM IS AN APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF EXPORT OF THE TRACTORS TO THE AES AND WE APPROVE TNM M AS A MOST APPROPRIATE METHOD ADOPTED BY THE ASSESSEE FOR DETERMINING THE ALP. WE ALSO HOLD THAT EVEN AFTER EXCLUDING KAMCL THE AVERAGE OPERATING PROFIT MARGIN OF THE 7 COMPANIES ARE AT 5.71% AS AGAINST THE 11.70% OF THE EXPORT SEGMENT OF THE ASSESSEE CO MPANY. THE ALP DECLARED BY THE ASSESSEE IS WELL WITHIN THE LIMIT. WE, ACCORDINGLY, HOLD SO. IN THE RESULT , THE GROUND NO. 4 IS ALLOWED. 16. WHILE DECIDING THE SECOND ISSUE OF APPLICATION OF TNMM METHOD, THE TRIBUNAL IN TURN RELIED ON THE RATIO LAID DO WN BY THE PUNE BENCH OF TRIBUNAL IN M/S. DRILBITS INTERNATIONAL P. LTD. VS. DCIT (SUPRA) AND ALFA LAVAL (I) LTD. VS. DCIT (2014) 149 ITD 285 (PUNE TRIB.). APP LYING THE ABOVE SAID RATIO TO THE FACTS OF THE PRESENT CASE, WE HOLD THAT FOR BENCHMARKING INTE RNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES ON AGGREGATE BASIS, TNMM METHOD SHOULD BE APPLIED AND SINCE THE MARGINS DECLARED BY THE ASSESSEE ARE HIGHER THAN THE MARGINS DECLARED BY THE COMPARABLES PICKED UP BY THE ASSESSEE IN ITS TP STUDY REPORT AND CONSEQUENTLY, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES BEING AT ARM'S LENGTH PRICE, NO ADDITION IS WARRANTED IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE DELETE THE ADDITION OF RS.6,82,60,528/ - . THE ASSESSEE HAS FURTHER RAISED RELATED ISSUE WITH REGARD TO THE DETERMINATION OF ARM'S LENGTH PRICE DETERMINED BY THE ITA NO. 1454 /PN/201 0 RACOLD THERMO LTD. 20 TPO AND IN VIEW OF OUR DELETING THE ADDITION MADE IN THE HANDS OF THE ASSESSEE BY APPLYING THE METHOD ADOPTED BY THE ASSESSEE ON AGGREGATION BASIS, WE DO NOT PROCEED TO ADJUDICATE THE OTHER ISSUES RAISED IN THE CASE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 1 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER P RONOUNCED ON THIS 11 TH DAY OF SEPTEMBER , 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 11 TH SEPTEMBER , 2015 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1 ) THE ASSESSEE; 2 ) THE DEPARTMENT; 2 ) THE DEPARTMENT; 3 ) THE DRP , PUNE; 4 ) THE CIT /DIT ( I T ) , PUNE; 5 ) THE DR A BENCH, I.T.A.T., PUNE; 6 ) GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE