Philips Electronics India Limited, Kolkata V. Addl. CIT, Circle - 11, Kolkata, Kolkata

ITA 1460/KOL/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4860 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-03-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 21-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Capital asset; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Bad and doubtful debts; Competent authority; Notional interest; Revenue expenditure
• Section: 92C; 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUSDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO.1460 & 1545/KOL/2009 ASSESSMENT YEAR :2004-05 PHILIPS ELECTRONICS LTD. 7, JUSTICE CHANDRA MADHAB ROAD, KOLKATA-700 020 [ PAN AABCP 9487 A ] DCIT, CIRCLE-11, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 V/S . V/S . ACIT, CIRCLE-11, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 M/S PHILIPS ELECTRONICS INDIA LTD., 7, JUSTICE CHANDRA MADHAB ROAD, KOLKATA-20 /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI K.R.VASUDEVAN, ADVOCATE /BY RESPONDENT SHRI G. MALLIKARJUNA, CIT-DR /DATE OF HEARING 14-03-2016 /DATE OF PRONOUNCEMENT 11-05-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE CROSS-APPEALS BY THE ASSESSEE AND REVENUE ARE ARISING OUT OF COMMON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS )-XI, KOLKATA DATED 30.06.2009. ASSESSMENT WAS FRAMED BY ACIT, RANGE-II , KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 29.12.2006 FOR ASSESSMENT YEAR 2004-05. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 2 FIRST WE TAKE UP THE ASSESSEE APPEAL ITA 1460/KOL/2 009 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. REFERENCE TO TRANSFER PRICING OFFICER 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICE (AO) OF NOT INFORMING THE APPELLANT ABOUT THE REASONS FOR DISRE GARDING THE ARMS LENGTH PRICE COMPUTED BY THE APPELLANT AND REFERRIN G THE COMPUTATION OF ARM S LENGTH PRICE TO THE LEANED TRANSFER PRICING OFFICER (LD. TPO) 1.2 THE APPELLANT PRAYS THAT THE TRANSFER PRICING A NALYSIS CONDUCTED BY THE APPELLANT BE ACCEPTED AS THE REFERENCE MADE BY THE AO TO THE LD. TPO IS INVALID AND BAD IN LAW. 2. EXPORT OF FINISHED GOODS IN CE DIVISION 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION TO INCOME ON ACCOU NT OF TRANSFER PRICING ADJUSTMENT FOR EXPORT OF CONSUMER ELECTRONICS PRODU CTS. 2.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) IN CONCLUDING THAT THE APPELLANT DID NOT HAVE SURPLUS STOCK AS THERE IS NO MATERIAL ON RECORD WITH THE APPELLANT TO DEMONSTRAT E THE EXCESS CAPACITY. 2.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN COMPARING THE EXPORT PROFITABILITY WITH TH E PROFITABILITY OF THE OTHER SEGMENT OF CE DIVISION TO BENCHMARK THE APPELLANT S ARMS LENGTH PRICE. 2.4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) FAILED TO APPRECIATE THAT FOR THE SAID EXPORT, THE APPELLANT DID NOT HAVE T INCUR INDIRECT OVERHEADS LIKE ADVERTISEMENT, SELLIN G AND DISTRIBUTION EXPENSES ETC. 2.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN NOT MAKING THE ADJUSTMENT OF FUNCTIONAL DI FFERENCES WHILE DETERMINING THE ARMS LENGTH EXPORT PRICE. 2.6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE LEARNED TPO HAS OVERL OOKED THE COMPARABILITY CRITERIA LAID DOWN IN RULE 10B(2) AND 10(B)(3) OF THE RULES WHILE PERFORMING COMPARABILITY ANALYSIS. 3. USE OF +/-5% RANGE ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 3 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN NOT GRANTING THE BENEFIT OF =/-5% RANGE WH ILE COMPUTING THE ARMS LENGTH PRICE AND CONSEQUENT ADJUSTMENT TO THE TOTAL INCOME. 4. WRITE BACK OF SALES TAX DEFERRAL LOAN 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AS SESSING OFFICER. 4.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. FAILED TO APPRECIATE THAT THE ON RAISING LOAN LIABILITY IN BO OKS OF ACCOUNT OF THE ASSESSEE IN ACCORDANCE WITH PACKAGE SCHEME OF INCE NTIVES, 1993 (PSI) FROM GOVERNMENT OF MAHARASHTRA AND CIRCULAR N O.674 ISSUED BY CBDT, SALES TAX SHALL BE TREATED AS ACTUALLY PAID. 4.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD CIT(A) ERRED I HOLDING THAT THE REMISSION WAS PERTAINING T O SALES TAX AND NOT LOAN. 4.4 WITHOUT PREJUDICE TO THE ABOVE MENTIONED GROUND S, ON THE FACT AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILE D TO APPRECIATE THAT THE INCENTIVE WAS GIVEN FOR BRINGING ABOUT NECESSAR Y INFRASTRUCTURE IN PROCESSING/DEVELOPING OF THE BACKWARD AREA AND HENC E CAPITAL IN NATURE. 4.5 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN HOLDING THAT THERE WAS NOTIONAL INTEREST B Y PREPAYMENT OF LOAN AT NET PRESENT VALUE (NPV). 4.6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN HOLDING THE INCENTIVE AS OPERATIONAL SUBSI DIES WITHOUT GIVING COGNIZANCE TO THE INCENTIVE SCHEME. SHRI K.R.VASUDEVAN, LD. AUTHORIZED REPRESENTATIVE A PPEARING ON BEHALF OF ASSESSEE AND SHRI G.MALLIKARJUNA, LD. DEPARTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 3. THE 1 ST ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THA T THE FIRST APPELLATE AUTHORITY [CIT(A) FOR SHORT] ERRED IN CON FIRMING THE ORDER OF AO WITH REGARD TO THE ARMS LENGTH PRICE (ALP FOR SHORT) CO MPUTED BY THE TRANSFER ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 4 PRICING OFFICER (TPO FOR SHORT) WITHOUT FURNISHING THE REASON FOR DISREGARDING THE ALP COMPUTED BY THE ASSESSEE. 3.1 THE FACTS IN BRIEF AS CULLED OUT FROM THE RECOR DS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A SUBSIDIARY OF ROYAL PHILIPS E LECTRONICS, N.V. AND ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ELECTRONIC GOODS. THE AO HAS MADE THE VARIOUS ADDITIONS INCLUDING THE ADJUST MENTS UNDER SECTION 92CA(3) OF THE ACT FOR TRANSFER PRICING BY REJECTIN G THE ALP OF THE ASSESSEE. THE ADJUSTMENTS FOR TRANSFER PRICING UNDER SECTION 92CA(3) OF THE ACT INCLUDE THE FOLLOWING : 1. EXPORT OF FINISHED GOODS IN CONSUMER ELECTRONICS DIVISION. 2. PAYMENT FOR IT CHARGES IN THIS GROUND OF APPEAL THE ASSESSEE HAS CHALLENGE D THE VALIDITY OF THE ASSESSMENT PROCEEDINGS BY THE AO WITH REGARD TO THE INTERNATIONAL TRANSACTION WITH ASSOCIATED ENTERPRISES (AE FOR SHO RT) ON THE GROUND THAT THE REASONS FOR DISREGARDING THE ALP WORKED OUT BY THE ASSESSEE WERE NOT FURNISHED. ACCORDING TO ASSESSEE THE REASONS FOR RE FERRING THE MATTER TO THE TPO BY THE AO WERE NOT FURNISHED. THEREFORE THE ORD ER PASSED BY THE AO/TPO FOR MAKING THE ADJUSTMENT IN ALP WAS INVALID AND BAD IN LAW. HOWEVER FROM THE PROVISIONS OF THE ACT, WE FIND THA T THERE IS NO SUCH REQUIREMENT UNDER THE ACT TO FURNISH THE REASON FOR REJECTING COMPUTATION OF ASSESSEE FOR THE DETERMINATION OF ALP AND ACCORDING LY FOR REFERRING THE MATTER TO TPO. THE RELEVANT EXTRACT OF THE PROVISIONS OF S ECTION 92CA(1) OF THE ACT READS AS UNDER : [REFERENCE TO TRANSFER PRICING OFFICER.] 92CA(1) WHERE ANY PERSON, BEING THE ASSESSEE, HAS ENTERED INTO AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TR ANSACTION] IN ANY PREVIOUS YEAR, AND THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT SO TO DO, HE MAY, WITH THE PREVIOUS APPRO VAL OF THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER, REFER THE COMPUTATIO N OF THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] UNDER SECTION 92C TO THE TRAN SFER PRICING OFFICER. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 5 92CA.(2) WHERE A REFERENCE IS MADE UNDER SUB-SECTIO N (1), THE TRANSFER PRICING OFFICER SHALL SERVE A NOTICE ON THE ASSESSE E REQUIRING HIM TO PRODUCE OR CASE TO BE PRODUCED ON A DATE TO BE SPECIFIED TH EREIN, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE COMPU TATION MADE BY HIM OF THE ARMS LENGTH PRICE IN RELATION TO THE INTERNATI ONAL TRANSACTIONS [OR SPECIFIED DOMESTIC TRANSACTIONS] REFERRED TO IN SUB-SECTION ( 1). FROM A PLAIN READING OF THE SECTION, WE FIND THAT THERE IS NO REQUIREMENT FOR FURNISHING THE REASONS TO THE ASSESSEE FOR REFERRIN G THE MATTER TO THE TPO. HOWEVER, AS PER SECTION 92CA(2) OF THE ACT THE TPO HAS SERVED THE NOTICE TO THE ASSESSEE BEFORE MAKING ANY ADJUSTMENT IN THE AL P. THE FACT FOR GIVING THE OPPORTUNITY OF BEING HEARD IS VERY MUCH RECORDED IN THE ORDER OF THE TPO. FROM A PLAIN READING OF THE SECTION, WE FIND THAT T HE AO FOR REFERRING THE MATTER TO TPO SHOULD CONSIDER WHETHER IT IS NECESSA RY OR EXPEDIENT SO TO DO AND AFTER APPROVAL FROM THE COMPETENT AUTHORITY. BU T IT IS NOT AOS OBLIGATION TO COMMUNICATE TO THE ASSESSEE WHAT MAKES AO TO MAKE N ECESSARY OR EXPEDIENT TO REFER THE MATTER TO TPO. AS SUCH WE FI ND THAT THERE IS NO REQUIREMENT FOR FURNISHING THE REASONS TO THE ASSES SEE FOR REFERRING THE MATTER TO THE TPO. IN THIS BACKGROUND OF THE CASE, WE UPHO LD THE ORDER OF LD. CIT(A). HENCE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DIS MISSED. 4. THE 2 ND ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT TH E LD CIT(A) ERRED IN DISREGARDING THE WORKING OF THE ASSESSEE F OR THE DETERMINATION OF ALP WITH ITS AE IN RELATION TO THE EXPORT OF GOODS. 5. THE ASSESSEE HAS EXPORTED THE FINISHED GOODS TO ITS AE FOR A VALUE OF RS. 2,02,32,909/- AND CLAIMED TO HAVE EXPORTED THE GOODS TO AE TO UTILIZE THE EXCESS STOCK AND EXCESS CAPACITY. THE ASSESSEE FURT HER CLAIMED THAT THE GOODS WERE EXPORTED TO AE AT MARGINAL COSTING I.E. AT A PRICE WHICH COVERS A MARGIN ON VARIABLE COST AND EARNED CONTRIBUTION MAR GIN OF 2.44% ON SALE OF EXPORTS AND 2.50% ON COST. HOWEVER THE AO REFERRED THE MATTER TO TPO FOR VALUING THE ABOVE INTERNATIONAL TRANSACTIONS AT ARM S LENGTH PRICE. ACCORDINGLY THE TPO VALUED THE ALP OF RS. 2,37,71,6 76/- FOR EXPORT OF FINISHED GOODS. THE ASSESSEE REGARDING THE ALP OF EXPORT OF FINISHED GOODS SUBMITTED THAT THE ACTIVITY FOR THE EXPORT OF GOODS TO THE AE WAS UNDERTAKEN TO UTILIZE THE EXCESS CAPACITY. HOWEVER, ASSESSEE FAILED TO SUBSTA NTIATE ITS CLAIM THAT IT ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 6 REALLY HAD ACTUALLY EXCESS CAPACITY. ACCORDINGLY TH E TPO DISREGARDED THE CLAIM OF THE ASSESSEE FOR THE ALP OF THE FINISHED G OODS. THE TPO ALSO OBSERVED THAT SIMILAR ADJUSTMENT WAS ALSO MADE ON T HIS ACCOUNT IN THE IMMEDIATE PREVIOUS YEAR FOR THE DETERMINATION OF TH E ALP. ACCORDINGLY THE TPO DETERMINED THE ALP BY THE USING THE GROSS PROFI T MARGIN AS SUBMITTED BY THE ASSESSEE AS DETAILED UNDER: COST OF EXPORT OF FINISHED GOODS RS.1,97,38,999 (CE COMMERCIAL AND INDUSTRIAL DIVISION) THE GROSS PROFIT MARGIN OF THIS DIVISION IS 16.97% ON SALES HENCE 20.43% ON COST (SINCE THE ALP IS BEING DETERMINED F OR THE SALE PRICE) GROSS PROFIT MARGIN IN RS. 4012677 THE SALE PRICE FOR EXPORTS 23771676 SALES PRICE RECORDED BY THE ASSESSEE IN BOOKS 20232 908 TOTAL ADJUSTMENT REQUIRED ON THIS TRANSACTION 35,38 ,769 THE AO IS REQUIRED TO TAKE THE SALE PROCEEDS OF EXP ORTS ON THESE TWO ITEMS AT RS.23771676 THEREBY MAKING AN ADJUSTMENT O F RS.35,38,769 6. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD.CI T(A) WHO HAS CONFIRMED THE ADDITION BY OBSERVING AS UNDER : 2. EXPORT OF GOODS IN CE DIVISION (GROUND NO.2): SIMILAR ISSUE AROSE FOR CONSIDERATION IN COURSE OF THE APPEAL IN THIS CASE FOR AY 2003-04 IN APPEAL NO.51/CIT(A)-XI/CIR-11/06- 07/KOL. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE FACT S, THE ADDITION WAS CONFIRMED. UNLESS IT IS SHOWN THAT THE AE WOULD HAV E MADE LESS THAN NORMAL PROFIT, HAD THE GOODS BEEN EXPORTED TO IT AT THE SAME PRICE AT WHICH THEY WERE SOLD BY THE ASSESSEE LOCALLY, THE M ISCHIEF OF TRANSFER PRICING CANNOT BE REMOVED THAT HAS NOT BEEN DONE. S INCE THE FACTUAL MATRIX REMAINS THE SAME AS FOR AY 2003-04, THE ADDI TION IS CONFIRMED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 7. THE LD. AR BEFORE US SUBMITTED THAT THE TURNOVER OF THE ASSESSEE IS OF RS. 688 CRORES FOR THE YEAR UNDER APPEAL AND THE EX PORT MADE TO THE AE IS JUST APPROXIMATE OF RS. 2.00 CRORES ONLY. THE LD.CIT(A) IN THE PREVIOUS AY 2003- ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 7 04 HAS DELETED THE ADDITION ON THE GROUND OF SMALLN ESS OF AMOUNT. AS THE GOODS WERE EXPORTED OUT OF THE TRADING BUSINESS SO THE RPM METHOD IS SUITABLE FOR DETERMINATION OF ALP AND DREW OUR ATTE NTION ON PAGE 11 OF THE PAPER BOOK WHERE THE DETAILS OF THE OP IN PERCENTAG E TERMS IS GIVEN. ON THE OTHER HAND LD. DR SUBMITTED THAT ASSESSEE HAS NOT D ONE TP STUDY. THE ASSESSEE HAS JUST FILED A GLOBALLY BASED TRANSFER P RICING POLICY OF THE PARENT COMPANY. THE SMALLNESS AMOUNT INVOLVED IS CANNOT BE A REASON FOR NOT DETERMINING THE ALP. THE DR REQUESTED THE BENCH TO RESTORE THE FILE TO THE AO FOR FRESH ADJUDICATION AND RELIED IN THE ORDER O F LOWER AUTHORITIES. 8. AT THE OUTSET, WE OBSERVED THAT SIMILAR ISSUED W AS ALSO RAISED BY THE ASSESSEE IN ITS APPEAL IN ITA 1075/KOL/2009 FOR THE ASSESSMENT YEAR 2003-04 DATED 11.10.2011 WHERE THIS TRIBUNAL RESTORED THE F ILE TO AO WITH A DIRECTION TO ADJUDICATE THE MATTER AS PER LAW BY OBSERVING AS UN DER:- 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL CONSIDERATION OF THE MATERIALS AVAILABLE ON RECORD WE HAVE OBSERVED THAT THE TRANSFER PRICING OFFICER HAS TAKEN SUFFICIENT TIME WHILE PRE PARING ARMS LENGTH PRICE IN RESPECT OF THE ENTERPRISE TRANSACTION. SIN CE THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE TRANSFER PRICING OFFICE R HAS NOT GIVEN SUFFICIENT OPPORTUNITY WE ARE OF THE CONSIDERED VIE W THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE AO WITH THE DIRECTI ON TO OBTAIN FRESH REPORT FROM THE TPO AND THE TPO IS DIRECTED TO RE-COMPUTE THE TRANSFER PRICE AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. BEFORE US NEITHER LD. AR NOR LD. DR BROUGHT ANYTHIN G TO THE NOTICE OF THE BENCH ABOUT THE OUTCOME OF THE ASSESSEES APPEAL IN ITA NO1075/KOL/2009 . THEREFORE RELYING IN THE AFORESAID DECISION OF THE BENCH, WE RESTORED THE FILE TO AO FOR FRESH ADJUDICATION AS PER LAW. ACCORDINGLY, ASSESSEES GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 9. THE 3 RD ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT TH E LEARNED CIT(A) ERRED IN NOT GRANTING THE BENEFIT OF +/-5 % ALLOWED FOR THE COMPUTATION OF ALP. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 8 10. THE TPO HAS NOT GRANTED THE BENEFIT OF +/-5% RA NGE AS PROVIDED UNDER SECTION 92C(2) OF THE ACT WITH REGARD TO THE DETERM INATION OF ALP OF THE INTERNATIONAL TRANSACTION WITH AE. 11. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A) WHO HAS UPHELD THE ORDER OF THE TPO BY OBSERVING AS UNDER:- . ANOTHER GROUND (GROUND NO.5) IS THAT, WHILE MAK ING TRANSFER PRICING ADJUSTMENT, THE TRANSFER PRICING OFFICER DID NOT GI VE THE BENEFIT OF PLUS MINUS 5% RANGE AS PROVIDED IN SECTION 92C(2) OF THE INCOME-TAX ACT. ACCORDING TO THE SAID PROVISION, WHERE MORE THAN ON E PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ALP WOULD BE ARITHMETICAL MEAN OF SUCH PRICE OR, AT THE OPTION O F THE ASSESSEE, THE PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMETICAL MEAN. IT IS NOT T HAT, EVEN WHEN THE MOST APPROPRIATE METHOD YIELDS ONLY ONE PRICE, THE BENEFIT OF 5% VARIATION HAS TO BE ALLOWED TO THE ASSESSEE. IN THI S CASE, ACCORDING TO THE MOST APPROPRIATE METHOD ADOPTED BY THE TRANSFER PRICING OFFICER, THE PRICE DETERMINED WAS ONE, AND NOT MORE THAN ONE IN EACH CASE. HENCE THERE WAS NO OCCASION TO ALLOW 5% VARIATION T HEREIN. HENCE, THIS GROUND IS REJECTED. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) ASSESSEE CAME IN SECOND APPEAL BEFORE US. 12. AT THE OUTSET WE OBSERVED THAT SIMILAR ISSUED W AS ALSO RAISED BY THE ASSESSEE IN ITS OWN APPEAL IN ITA 1075/KOL/2009 (SU PRA) IN IDENTICAL GROUND WHERE THIS TRIBUNAL DECIDED THE ISSUE AGAINST THE A SSESSEE BY OBSERVING AS UNDER:- 12. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAR EFUL CONSIDERATION OF THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS RELIED UPON BY THE ASSESSEE WE ARE OF THE CONSIDERED OPINION THAT WHEN ONLY ONE PRICE HAS BEEN DETERMINED UNDER (MOST APPROPRIATE METHOD) FOR EVALUATING ARMS LENGTH PRICE, THE QUESTION OF APPLICABILITY OF PROVISO 2 OF SECTION 92C(2) DOES NOT ARISE. THEREFORE ASSESSEE, WAS NOT ENTITLED TO THE CONCESSION OF PLUS OR MINUS 5% AS PRESCRIBED IN THE SAID PROVISION. TAKING A CONSISTENT VIEW IN ASSESSEES OWN CASE IN EARLIER YEAR, WE DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 9 13. THE 4 TH ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT TH E LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE PAYMENT OF DEFERRAL SALES TAX LOAN AT ITS NET PRESENT VALUE (FOR SHORT NPV) AS REMISSION OF TRADING LIABILITY AND TREATED THE SAME AS INCOME BY AN AMOU NT OF RS. 7,92,43,000/- UNDER SECTION 41(1) OF THE ACT. BEFORE CARVING OUT THE SPECIFIC ISSUE, A BRIEF NOTE ABOUT THE BACKGROUND OF THE CASE IS REPRODUCED BELOW. THE ASSESSEE DURING THE YEAR HAS CREDITED ITS PROFI T & LOSS ACCOUNT BY AN AMOUNT OF RS.7,92,43,000/- AS INCOME WHICH AROSE ON ACCOUNT OF DIFFERENCE BETWEEN THE AMOUNT OF ACTUAL LOAN AND DISCOUNT AVAI LED FOR THE PREPAYMENT OF SALES TAX DEFERRED LOAN. THIS AMOUNT WAS CLAIMED AS NON-TAXABLE AND WAS DEDUCTED IN THE COMPUTATION OF INCOME. THE ASSESSEE , AS PER THE 'PACKAGE SCHEME OF INCENTIVES, 1993' (FOR SHORT PSI), ANNOUN CED BY GOVERNMENT OF MAHARASHTRA (FOR SHORT GOM), WAS PERMITTED TO DEFER ITS SALES TAX LIABILITY FOR THE AYS 2001-02 AND 2002-03 FOR RS.11,63,61,000/-. THE GOM ALSO ARRANGED THAT THE STATE INVESTMENT CORPORATION OF MAHARASHTR A (FOR SHORT SICOM) WOULD RAISE LOAN LIABILITY IN ORDER TO ENABLE THE ASSESSE E/ OTHER BENEFICIARIES OF THE SCHEME TO AVAIL THE BENEFIT OF DEDUCTION U/S. 43B O F THE INCOME-TAX ACT IN RESPECT OF SUCH UNPAID AMOUNT OF SALES TAX. ACCORDI NGLY THE DEFERRED SALES TAX WOULD BE DEEMED TO HAVE BEEN PAID TO THE GOVERNMENT . UNDER THIS ARRANGEMENT, THE ASSESSEE AVAILED DEDUCTION U/S.43B OF THE INCOME-TAX ACT IN RESPECT OF THE DEFERRED SALES TAX FOR AN AGGREGATE AMOUNT OF RS.11,63,61,000/- FOR A.YS. 2001-02 AND 2002-03. FU RTHER THE STATE GOVERNMENT OFFERED TO THE ASSESSEE (AS ALSO TO THE OTHER BENEFICIARIES OF THE SCHEME) TO PREPAY THE DEFERRED TAX AT A DISCOUNTED VALUE, REFERRED TO AS THE NET PRESENT VALUE (NPV) AND AS A RESULT THE ENTIRE AMOUNT OF THE DEFERRED TAX LIABILITY WOULD BE DEEMED TO HAVE BEEN PAID. UNDER THIS ARRANGEMENT, THE ASSESSEE PAID AN AMOUNT OF RS.3,71,20,0101/- IN LIE U OF THE DUES OF RS.11,63,61,000/-. THUS, IT GOT BENEFIT OF RS.7,92 ,43,000/- WHICH WAS ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 10 RECOGNIZED AS INCOME IN THE ACCOUNTS BUT THE SAME W AS CLAIMED TO BE NON- TAXABLE IN THE RETURN OF INCOME. ACCORDING TO THE A SSESSEE THE AMOUNT OF DEFERRED TAX WAS FIRST CONVERTED INTO A LOAN BY THE GOVERNMENT OF MAHARASHTRA AND ACCORDINGLY THE SALES TAX ITSELF WAS DEEMED TO HAVE BEEN PAID. SUBSEQUENTLY, INSTEAD OF RECOVERING THE LOAN AT THE FUTURE DATE, THE GOVERNMENT ALLOWED IT TO PREPAY THE SAME AT THE DIS COUNTED VALUE. THUS, ACCORDING TO THE ASSESSEE, THE REMISSION THAT IT GO T WAS IN THE LOAN LIABILITY AND NOT IN THE TAX LIABILITY. AS THE DEFERRED LOAN LIAB ILITY WAS NOT ALLOWED AS DEDUCTION IN THE FIRST PLACE, THE REMISSION THEREIN WAS NOT TAXABLE U/S. 41 OF THE INCOME-TAX ACT. IN FACT THE GOM ALLOWED THE REM ISSION OF THE LOAN LIABILITY RAISED BY THE ASSESSEE FROM SICOM, THEREFORE THE QU ESTION FOR TAXING THE REMISSION AMOUNT U/S 41(1) OF THE ACT DOES NOT ARIS E. 14. NOW COMING TO THE SPECIFIC ISSUE OF THE CASE, T HE AO DURING THE YEAR OBSERVED THAT THE ASSESSEE PREPAID A LOAN UNDER THE SCHEME OF SALES TAX DEFERRAL LOAN AT ITS NPV. AS A RESULT THERE AROSE A DIFFERENCE AMOUNT OF RS. 7,92,43,000/- WHICH WAS CREDITED IN THE PROFIT & LO SS ACCOUNTS BY THE ASSESSEE BUT IT WAS CLAIMED AS NON-TAXABLE IN THE COMPUTATIO N OF INCOME. HOWEVER THE AO AT THE TIME OF FRAMING THE ASSESSMENT OMITTED TO GIVE THE EFFECT OF THE AFORESAID AMOUNT WHILE DETERMINING THE INCOME UNDER SECTION 143(3) OF THE ACT. ACCORDING TO THE ASSESSEE THE ASSESSING OFFICE R, IN COMPUTATION OF INCOME, DID NOT GIVE EFFECT TO THE DEDUCTION AND AL SO DID NOT- GIVE ANY REASON FOR NOT DOING SO. THUS, IN EFFECT, ADDITION OF RS.7 ,92,43,000/- WAS MADE WITHOUT ANY DISCUSSION OR ASSIGNING ANY REASON. AS A RESULT THE AO DID NOT ALLOW THE DEDUCTION OF THE AFORESAID AMOUNT FROM TH E TOTAL INCOME OF THE ASSESSEE AT THE TIME OF FRAMING THE ASSESSMENT. 15. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A) WHERE THE ASSESSEE SUBMITTED THAT THERE WERE TWO TRANSACTIONS INVOLVED IN THE SALES TAX LOAN DEFERRAL SCHEME. THE FIRST WAS THAT OF COLLECT ION OF SALES TAX BY IT FROM ITS CUSTOMERS AND ITS DEEMED PAYMENT TO THE GOVERNMENT, AS DISCUSSED ABOVE. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 11 THE SECOND WAS THAT OF RAISING OF LOAN LIABILITY IN LIEU OF THE DEFERRAL SALES TAX LIABILITY AND PRE-PAYMENT OF THE SAME AT NPV. THE A SSESSEE SUBMITTED THAT THE TWO TRANSACTIONS SHOULD BE TREATED AS SEPARATE AND THE SECOND TRANSACTION SHOULD BE CONSIDERED IN ISOLATION WHILE DETERMINING WHETHER THE BENEFIT OF REMISSION IN LIABILITY GAVE RISE TO A TAXABLE EVENT UNDER THE INCOME-TAX ACT OR NOT. HOWEVER THE LD. CIT(A) OBSERVED THAT IN FACT NO LOA N WAS ACTUALLY GRANTED BY SICOM TO THE ASSESSEE AS CLAIMED BY IT. IN COURSE O F THE APPEAL, THE ASSESSEE WAS ASKED SPECIFICALLY TO SUBMIT DOCUMENTA RY EVIDENCE TO SUBSTANTIATE THE CONTENTION THAT SICOM HAD ACTUALLY RAISED A LOAN LIABILITY AGAINST THE SALES TAX OF THE ASSESSEE AND HAD TREAT ED THE SAME AS LOAN GIVEN TO THE ASSESSEE. IN RESPONSE TO THIS QUERY, IT WAS SUBMITTED THAT NO SUCH DOCUMENT IS AVAILABLE WITH THE ASSESSEE AND THAT TH E ASSESSEE HAD CONVERTED THE DEFERRED TAX LIABILITY INTO LOAN LIABILITY IN I TS OWN BOOKS OF ACCOUNT BY A UNILATERAL ACTION. ACCORDINGLY THE LD. CIT(A) DISRE GARDED THE CLAIM OF THE ASSESSEE AND UPHELD THE ORDER OF THE AO. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 16. THE LD. AR BEFORE US SUBMITTED THAT ACTUALLY TH E REMISSION OF LIABILITY WAS THE LOAN LIABILITY AND IT WAS NOTHING TO DO WIT H THE SALES TAX DEFERRAL LIABILITY. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 16.1 WE HAVE HEARD THE RIVAL PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE CLAIMED THAT THE SALES TAX LIABILITY FIRST WAS CONVERTED INTO LOAN F ROM SICOM AND THEREAFTER IT WAS ALLOWED TO REPAY AT NPV AFTER GIVING THE DISCOU NT. THE ASSESSEE CLAIMED THE DISCOUNT AS REMISSION OF LOAN LIABILITY BUT THE LOWER AUTHORITIES CLAIMED THE ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 12 SAME AT REMISSION OF SALES TAX LIABILITY AND THEREF ORE AS SUCH IT IS LIABLE TO TAX UNDER SECTION 41(1) OF THE ACT. THE LD. CIT(A) ALSO OBSERVED THAT THE LOAN FROM SICOM WAS NOT RAISED BY THE ASSESSEE BUT IT WAS THE ARRANGEMENT TO PROVIDE THE RELIEF TO THE BENEFICIARIES OF THE SCHEME FROM THE PROVISION OF SECTION 43B OF THE ACT. NOW THE QUESTION EMERGES BEFORE US ARE AS UNDER : 1. WHETHER SALES TAX LIABILITY WAS CONVERTED INTO L OAN FROM SICOM. 2. IF YES, WHETHER THE PREPAYMENT TO SICOM AND AVAI LING DISCOUNT ON THE SAME IS SUBJECT TO TAX UNDER SECTION 41(1) OF THE A CT. IF NO, WHETHER THE PREPAYMENT SALES TAX DEFERRAL LOAN AND AVAILING DIS COUNT ON THE SAME IS SUBJECT TO TAX UNDER SECTION 41(1) OF THE ACT. IN THIS FACTUAL BACKGROUND, IT WOULD BE IMPORTANT T O READ THE PROVISIONS OF SECTION 41(1) OF THE ACT WHICH IS REPRODUCED BELOW: (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE I N THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRA DING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR,- (A) THE FIRST-MENTIONED PERSON HAS OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEME D TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHA RGEABLE TO INCOME- TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER TH E BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DED UCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; FROM THE PROVISIONS OF SECTION, WE FIND THAT THE PR OVISIONS OF SECTION 41 APPLY WITH REGARD TO THE TRADING LIABILITY WHERE THE ASSE SSEE HAS CLAIMED THE DEDUCTION/ ALLOWANCE IN THE EARLIER YEARS. IN THE I NSTANT THE ASSESSEE CLAIMED NO SUCH DEDUCTION/ ALLOWANCE IN THE EARLIER YEARS. THEREFORE, IN OUR CONSIDERED VIEW THE PROVISIONS OF SECTION 41(1) OF THE ACT DOES NOT ATTRACT TO THE ASSESSEE. IN THE INSTANT CASE, AS PER THE SCHEM E HE WAS ALLOWED TO RETAIN THE SALES TAX AS DETERMINED BY THE COMPETENT AUTHOR ITY AND PAY THE SAME 15 YEARS THEREAFTER. THE TAX COLLECTED WAS DEEMED TO H AVE BEEN PAID AND, ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 13 THEREFORE, THE TAX SO COLLECTED CANNOT BE CONSTRUED AS INCOME IN THE HANDS OF THE ASSESSEE. THE TAX SO RETAINED BY THE S IS IN TH E NATURE OF A LOAN GIVEN BY THE GOVERNMENT AS AN INCENTIVE FOR SETTING UP THE I NDUSTRIAL UNIT IN A RURAL AREA. THE SAID LOAN HAD TO BE REPAID AFTER 15 YEARS . AGAIN IT IS AN INCENTIVE. HOWEVER, BY A SUBSEQUENT SCHEME, A PROVISION WAS MA DE FOR PREMATURE PAYMENT. WHEN THE ASSESSEE HAD THE BENEFIT OF MAKIN G THE PAYMENT AFTER 15 YEARS, IF HE IS MAKING A PREMATURE PAYMENT, THE SAI D AMOUNT EQUAL TO THE NPV OF THE DEFERRED TAX WAS DETERMINED AT RS.4,25,79,68 4/- AND ON SUCH PAYMENT THE ENTIRE LIABILITY TO PAY TAX/LOAN STOOD DISCHARG ED. AGAIN IT IS NOT A BENEFIT CONFERRED ON AN ASSESSEE. THEREFORE, SECTION 41(1) OF THE ACT IS NOT ATTRACTED TO THE FACTS OF THE PRESENT CASE. RELYING ON THE JU DGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MCDOWELL & CO. LTD. (SUPRA) ASSESSEES APPEAL IS ALLOWED. 17. IN THE RESULT, ASSESSEES APPEAL PARTLY ALLOWED FOR STATISTICAL PURPOSE. NOW COMING REVENUES APPEAL ITA 1545/KOL/2009. 18. GROUNDS RAISED BY REVENUE ARE REPRODUCED AS UND ER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD. CIT(A) ERRED IN DELETING THE ADDITION OF PAYMENT OF IT SERVICES WHEREAS THE TRANSFER PRICING OFFICER HAD SUGGESTED ADJUSTMENT AFTER ADOP TING THIRD PARTY QUOTATION AS TO ARMS LENGTH PRICE AND BY APPLYING THIRD PARTY QUOTES FOR BENCHMARK THE PAYMENT GIVEN BY THE ASSESSEE HIM SELF. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LE. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.50 LAKHS TOWAR DS DEDUCTION AS LEASE RENTAL ON CARS WHEREAS IT WAS CORRECTLY CONCLUDED B Y THE AO ON VERIFICATION OF AGREEMENT THAT THE ASSESSEE BECAME THE ACTUAL OWNER AND THE EXPENDITURE WAS CAPITAL ONE INSTEAD OF REVE NUE AS CLAIMED BY THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,80,00,000/- BEING THE BAD DEBT OF WHICH NO DETAILS WERE FILED BY THE ASSESSEE DURING THE ASSESSMENT OR APPEAL PROCEEDINGS AS WAS DONE DURING ASSESSMENT YE AR 2003-04. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 14 19. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS.2,29 ,09,327/- ON ACCOUNT OF IT SERVICES IN ACCORDANCE WITH THE ORDER OF THE TPO. 20. THE PARENT COMPANY OF THE ASSESSEE IS LOCATED I N NETHERLAND AND PROVIDES IT SERVICES TO ALL THE GROUP COMPANIES ACR OSS THE WORLD FROM THE COMMON IT FACILITIES. THE PARENT COMPANY CHARGES FO R THE COMMON IT FACILITIES FROM ALL THE GROUP COMPANIES CONSISTENTLY ON THE BA SIS OF ACTUAL COST PLUS 5%. THE ASSESSEE HAS MANY PRODUCT DIVISIONS AND PROFITA BILITY FOR EACH DIVISION IS SEPARATELY BENCH MARKED AND THAT TOO AT ARMS LENGT H. SO ACCORDINGLY THE IT CHARGES FOR EACH DIVISION TO DETERMINE THE ALP NEED TO BE WORKED OUT SEPARATELY. 20.1 THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS INCURRED A SUM OF RS.6,11,98,127/- AS IT CHARGES FOR ALL ITS PRODUCT DIVISIONS BY USING THE COMPARABLE UNCONTROLLED PRICE (CUP FOR SHORT) METHO D TO DETERMINE THE ALP OF THE IT CHARGES WITH ITS AE. FOR THE USE OF CUP M ETHOD IT WAS SUBMITTED THAT THE ASSESSEE OBTAINED QUOTE FROM THE COMPANIES PROV IDING THE IT SERVICES AND THAT QUOTE WAS CONSIDERED AS BENCH MARK FOR THE PAYMENT MADE TO AE TO DETERMINE THE ALP FOR AFORESAID IT SERVICES. ACCORD INGLY THE ASSESSEE HAS WORKED OUT THE COST OF IT CHARGES PER PERSON PER MO NTH AS EURO 98.00 BASED ON THE QUOTE OF THE COMPANY AND WORKED OUT THE ACTU AL COST OF IT CHARGES PER PERSON OF EURO AT 25.00 ONLY BASED ON THE PAYMENT T O AE. ACCORDINGLY THE ASSESSEE SUBMITTED THAT PAYMENT MADE TO THE AE IS Q UITE LESS IN COMPARISON TO THE QUOTE OF THE COMPANY. THE ASSESSEE SUBMITTED THE COST PER PERSON WAS WORKED OUT ON THE BASIS OF ALL EMPLOYEES OF THE COM PANY IRRESPECTIVE OF THE FACT WHETHER IT SERVICES ARE BEING USED BY THESE EM PLOYEES OR NOT. HOWEVER THE AO FOUND THAT IN THE PREVIOUS YEAR THE ALP WAS DETERMINED ON BASIS OF ACTUAL USERS RATHER THAN THE TOTAL NUMBER OF EMPLOY EES. IF THE ACTUAL USERS ARE LESS THEN WHY THE ASSESSEE NEEDS TO PAY THE IT CHAR GES TO ITS AE ON THE BASIS OF THE TOTAL NUMBER OF EMPLOYEES. IT IS A FACT THAT ASSESSEE WOULD NOT HAVE ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 15 PAID TO THE THIRD PARTIES ON THE BASIS OF ACTUAL NU MBER OF EMPLOYEES. THE AO FURTHER OBSERVED THAT SIMILAR ADJUSTMENT WAS MADE I N THE LAST PREVIOUS YEAR AS WELL ON THE SIMILAR REASONS. THE LAST YEAR IT CHARG ES WERE WORKED OUT AS UNDER : S/W COMP UNIT PRICE USER TOTAL PRICE WIN 2K CLIENT 1275 1572 2004300 MS OFFICE PROFESSIONAL 12000 1572 18864000 NOTES CLIENT 5000 1328 6640000 VISIO PROFIT 16416 150 24622400 MS PROJECT 19625 300 5887500 MCA FEE ANTI VIRUS 1250 1572 1965000 MS FRONT PAGE 4656 100 465600 TOTAL IN INR 3,88,28,800 ACCORDINGLY THE AO WORKED OUT THE ALP FOR IT CHARGE S TO BE PAID TO AE ON THE BASIS OF ACTUAL USERS WHICH IS COMING RS. 3,88,28,8 00/- BUT IN THE INSTANT CASE THE ASSESSEE HAS PAID RS. 6,11,98127/-. ACCORDINGLY THE TPO MADE THE ADJUSTMENT FOR RS.2,29,09,327/- AND ADDED TO THE TO TAL INCOME OF THE ASSESSEE. 21. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO HAS DELETED THE ADDITION BY OBSERVING AS UNDER: - 3. PAYMENT FOR IT SERVICES (GROUND NO.3) THIS ISSUE CAME UP FOR CONSIDERATION IN COURSE OF A PPEAL IN THIS CASE FOR AY 2003-04. IT WAS NOTED THAT PARENT COMPANY PHILIP S INTERNATIONAL B.V. NETHERLANDS CHARGES 5% MARK UP ON THE COST OF THE S ERVICES PROVIDED TO THE GROUP ENTITIES ALL OVER THE WORLD AND THAT T HE AMOUNT CHARGES FROM THE ASSESSEE COMPANY WAS BASED ON ACTUAL USER. IT W AS ALSO NOTED THAT THE MARK UP OF 5% WAS REASONABLE IN THE LIGHT OF VA RIOUS STUDIES ON THE AVERAGE MARK UP EARNED BY UNRELATED ENTITIES ELSEWH ERE IN EUROPE. IN VIEW OF THIS, THE TRANSFER PRICING ADJUSTMENT WAS F OUND TO BE UNREASONABLE AND THE ADDITION WAS DELETED. SINCE TH E FACTS ARE THE SAME, THE SAME REASONING IS FOLLOWED AND THE ADDITI ON IS DELETED. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) REVENUE IS IN APPEAL BEFORE US. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 16 22. AT THE OUTSET, WE OBSERVED THAT SIMILAR ISSUED WAS ALSO RAISED BY THE ASSESSEE IN ITS APPEAL IN ITA 1075/KOL/2009 FOR THE ASSESSMENT YEAR 2003-04 DATED 11.10.2011 WHERE THIS TRIBUNAL RESTORED THE F ILE TO AO WITH A DIRECTION TO ADJUDICATE THE MATTER AFRESH AS PER LAW. BEFORE US NEITHER LD. AR NOR LD. DR BROUGHT ANYTHING TO THE NOTICE OF THE BENCH ABOUT T HE OUTCOME OF THE ASSESSEES APPEAL IN ITA 1075/KOL/2009. THEREFORE R ELYING IN THE AFORESAID DECISION OF THE BENCH, WE RESTORED THE FILE TO AO F OR FRESH ADJUDICATION AS PER LAW. ACCORDINGLY, REVENUES GROUND IS ALLOWED FOR S TATISTICAL PURPOSE. 23. THE 2 ND ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR RS. 50 LACS ON ACCOUNT OF TREATING THE LEASE RENTAL AS CAPITAL IN NATURE. 23.1 THE ASSESSEE DURING THE YEAR HAS CLAIMED THE D EDUCTION OF LEASE RENTALS EXPENSES INCURRED FOR THE PURCHASE OF MOTOR CARS. THE AO DURING ASSESSMENT PROCEEDINGS OBSERVED THAT IN THE IMMEDIA TE PRECEDING YEAR IT WAS ESTABLISHED THAT LEASE RENTALS WERE NOTHING BUT THE INSTALLMENTS PAID FOR THE PURCHASE OF MOTOR CARS WHICH ARE CAPITAL ASSET. ACCORDINGLY THE LEASE RENTALS WERE NOT TREATED AS REVENUE EXPENDITURE. TH EREFORE THE AO DISALLOWED THE DEDUCTION AND MADE THE ADDITION TO THE TOTAL IN COME OF THE ASSESSEE. 24. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO HAS DELETED THE ADDITION BY OBSERVING AS UNDER:- THIS ISSUE AROSE FOR CONSIDERATION IN COURSE OF TH E APPEAL FOR AY 2003- 04. AFTER ELABORATE DISCUSSION OF THE FACTS AND CIR CUMSTANCES OF THE CASE, IT WAS HELD THAT THE DEDUCTION SHOULD BE ALLO WED AND THE ADDITION WAS DELETED. SINCE THE FACTUAL MATRIX OF THE ISSUE IS THE SAME, THE SAME REASONING IS FOLLOWED AND THE ADDITION IS DELETED. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) REVENUE IS IN APPEAL BEFORE US. 25. AT THE OUTSET WE OBSERVED THAT SIMILAR ISSUE FO R THE AY 2003-04 WAS ALLOWED IN FAVOUR OF REVENUE BY THIS HONBLE BENCH OF KOLKATA IN ASSESSEES ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 17 OWN CASE IN ITA NO.1075/KOL/2009. THE RELEVANT EXTR ACT OF THE ORDER IS REPRODUCED BELOW:- 16.5 ON THE BASIS OF ABOVE, THE A/R SUBMITTED BEF ORE THE BENCH THAT THE CIT(A) HAS RIGHTLY DIRECTED THE AO IN DELETING THE DISALLOWANCE AND ALLOWING THE LEASE RENTAL OF RS.7,000,000/- AND THE SAME MAY BE UPHELD. HE FURTHER POINTED OUT THAT THIS IS THE ONL Y YEAR IN WHICH SUCH ISSUE AROSE AS SIN THE SUBSEQUENT YEARS AS LATE AS AY 2007-08 THE ISSUE WAS CONSISTENTLY ALLOWED BY THE AO. 17. AFTER HEARING THE RIVAL SUBMISSIONS AND ON PERU SAL OF THE PAGE NUMBERS OF THE PAPER BOOK REFERRED BY ASSESSEE AS W ELL AS AO WE ARE OF THE VIEW THAT THE ACTION OF THE ASSESSING OFFICE R IS QUIRE JUSTIFIABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN COMPAR ED TO THAT OF LD. CIT. THEREFORE, WE SET ASIDE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THAT OF AO. CONSIDERING THE TOTALITY OF THE CIRCUMSTANCES WE AR E OF THE OPINION TO INCLINE TO REVERSE THE ORDER OF THE LD. CIT(A). HENCE THIS GRO UND OR REVENUES APPEAL IS ALLOWED. 26. THE THIRD AND LAST ISSUE RAISED BY REVENUE IN T HIS APPEAL IS THAT LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FO R RS. 2.80 CRORES ON ACCOUNT OF BAD DEBTS WRITTEN OFF IN THE BOOKS. 26.1 THE ASSESSEE CLAIMED BAD DEBTS FOR RS. 2.80 CR ORES IN THE COMPUTATION OF INCOME BUT FAILED TO FURNISH THE DETAILS OF THE SAME AND THE YEAR IN WHICH THE AMOUNT WAS INCLUDED IN THE TOTAL INCOME. ACCORD INGLY THE AO HAS DISALLOWED THE CLAIM AND MADE THE ADDITION TO THE T OTAL INCOME OF THE ASSESSEE. 27. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO HAS DELETED THE ADDITION BY OBSERVING AS UNDER : THIS ISSUE AROSE FOR CONSIDERATION IN COURSE OF T HE APPEAL FOR AY 2003- 04. AFTER ELABORATE DISCUSSION OF THE FACTS AND CIR CUMSTANCES OF THE CASE, IT WAS HELD THAT, IN THE FACTS OF THE CASE, D EDUCTION FOR BAD DEBTS WRITTEN OFF SHOULD BE ALLOWED TO THE ASSESSEE. SINC E THE FACTUAL MATRIX ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 18 OF THE ISSUE IS THE SAME, THE SAME REASONING IS FOL LOWED AND THE ADDITION IS DELETED. BEING AGGRIEVED BY THIS ORDER OF LEARNED CIT(A) REV ENUE IS IN APPEAL BEFORE US. 28. BEFORE US LD. DR SUBMITTED THAT FOR THE ASSESSM ENT YEAR 2003-04, THE LD. CIT(A) ALLOWED THE DEDUCTION BUT REVENUE WENT I NTO APPEAL AGAINST THAT ORDER AND HONBLE TRIBUNAL OF KOLKATA RESTORED THE ISSUE TO THE AO FOR FRESH ADJUDICATION. THE LD. DR FURTHER SUBMITTED THAT THE BAD DEBTS WRITTEN OFF SHOULD BE ALLOWED ONLY IN ACCORDANCE WITH THE PROVISIONS O F THE ACT AND RELIED ON THE ORDER OF AO. ON THE OTHER HAND THE LD. AR DREW OUR ATTENTION ON PAGES FROM 191 TO 197 OF THE PB WHERE THE PARTY WISE DETAILS O F THE BAD DEBTS WERE PLACED. THE LD. AR ALSO FURTHER DREW OUR ATTENTION ON PAGES 200 TO 231 WHERE THE DETAILS OF THE WRITE- OFF APPLICATIONS WERE PLA CED WITH REGARD TO THE PARTIES AND THEIR INVOICE DETAILS. 28.1 FROM THE AFORESAID DISCUSSION, WE FIND THAT TH E AO DISALLOWED THE BAD DEBTS ON THE GROUND THAT THE ASSESSEE FAILED TO PRO VIDE THE DETAILS WHEN SUCH BAD DEBTS WERE TAKEN IN THE INCOME OF THE ASSESSEE. BUT THE LD. CIT(A) HAS GIVEN THE RELIEF TO THE ASSESSEE ON THE BASIS OF FI RST APPELLATE ORDER OF THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2003-04. HOWEVER THE SAME ORDER WAS CHALLENGED AND RESTORED TO AO FOR FRESH A DJUDICATION. THE RELEVANT EXTRACT OF THE ORDER IN ITA NO. 1075/KOL/2009 DATED 11.10.2011 OF THIS TRIBUNAL IS REPRODUCED AS UNDER:- 28. AFTER HEARING THE RIVAL SUBMISSIONS AND KEEPIN G IN VIEW OF THE ARGUMENTS MADE BY THE LD. COUNSEL ON BEHALF OF ASSE SSEE, WE ARE OF THE VIEW THAT THESE SUBMISSIONS REQUIRE FRESH VERIFICAT ION. THEREFORE, IN THE INTEREST OF JUSTICE WE CONSIDER IT FIT TO RESTORE T HIS ISSUE TO THE FILE OF AO FOR FRESH VERIFICATION AND DECIDE THE SAME AS PER L AW AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. THE ASSESSEE IS ALSO AT LIBERTY TO FILE THE ADDITIONAL EVIDENCES IN SUPPORT OF HIS SUBMISSIONS. ITA NO.1460 &1545/KOL/2009 A.Y. 2004-05 PHILIPS ELECTRONICS INDIA LTD. V. ACIT, CIR-11 K OL. PAGE 19 THE DECISION OF THE AO AS DISCUSSED AFORESAID FOR R ESTORING THE MATTER HAS NOT BEEN BROUGHT TO OUR NOTICE. BESIDES FOR THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAS SUBMITTED SEVERAL DETAILS FOR WRITING OFF THE BAD DEBTS ARE GIVEN ON PAGES 200 TO 231. HOWEVER WE FIND IN MANY CASES THE DETAILS FOR TREATING THE BAD DEBTS AS INCOME IN THE EARLIER YEARS WERE N OT GIVEN. THEREFORE IN VIEW OF ABOVE WE ARE INCLINED TO RESTORE THE MATTER TO T HE FILE AO FOR FRESH ADJUDICATION AS PER LAW AND ASSESSEE IS ALSO AT LIB ERTY TO FILE THE ADDITIONAL EVIDENCES IN SUPPORT OF ITS SUBMISSIONS ACCORDINGLY . THIS GROUND OR REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 29. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 30. IN COMBINED RESULT, APPEAL OF ASSESSEE AND THAT OF REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT 11 /05/2016 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !' - 11/05/2016 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-PHILIPS ELECTRONICS INDIA LTD., 7, JUSTIC E CHANDRA MADHAB ROAD, KOL-20 2. /REVENUE-ACIT, CIRCLE-11, P-7, CHOWRINGHEE SQ., KO LKATA-69 3. !$!%& ' / CONCERNED CIT KOLKATA 4. ' - / CIT (A) KOLKATA 5. ()* ++%& , %& , / DR, ITAT, KOLKATA 6. *,- / GUARD FILE. BY ORDER/ , /TRUE COPY/ / ! %& ,