Smt. Shobha Devi Kanodia, CHENNAI V. ACIT, Erode

ITA 1533/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58090 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-03-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 09-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Keywords: Transfer pricing; International transaction
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER .. ITA NO.1789/MDS./2011 ASSESSMENT YEAR:2007-08 M/S.MAINETTI INDIA PVT LTD., 3 RD FLOOR,FLORIDA TOWERS, 138/30,NELSON MANICKAM ROAD, CHENNAI 600 029. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(1), CHENNAI. PAN AAACM 6894 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T. BANUSEKAR, CHARTERED ACCOUNTANT DEPARTMENT BY : SHRI R.B.NAIK, C.I.T. DR DATE OF HEARING : 12.03.12 DATE OF PRONOUNCEMENT : 16. 03.12 O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST TH E ASSESSMENT ORDER DATED 27.09.2011 AND ALSO THE ORDE R OF THE DISPUTE RESOLUTION PANEL (DRP) CHENNAI IN ITA.1789 /MDS/11 2 F.NO.DRP/CHENNAI/SECTT./016/2011-12 DATED 19.08.201 1 FOR THE ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS:- 1. FOR THAT THE ORDER OF THE ASSESSING OFFICER IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND AT ANY RATE IS OPPOSED TO THE PRINCIPLES OF EQUITY, NATURA L JUSTICE AND FAIR PLAY. 2. FOR THAT THE ASSESSING OFFICER ERRED IN COMPUTIN G DEDUCTION U/S.10AA AT ` 3,28,00,296 INSTEAD OF 3,42,89,229 AS COMPUTED BY THE ASSESSEE. 3. FOR THAT ASSESSING OFFICER ERRED IN COMPUTING EX PORT TURNOVER FOR THE PURPOSE OF DEDUCTION U/S.10AA BY ADJUSTING THE EXCHANGE GAINS/LOSSES FROM THE EXPORT REALIZATION, INSTEAD OF CONSIDERING THE ACTUAL EXPO RT REALIZATIONS. 4. FOR THAT ASSESSING OFFICER ERRED IN HOLDING THAT WHERE AN ADJUSTMENT HAS BEEN MADE IN THE EXPORT TURNOVER, A CORRESPONDING ADJUSTMENT NEED NOT BE MADE IN THE VALUE OF TOTAL TURNOVER FOR THE PURPOSE OF COMPUTIN G DEDUCTIONU/S.10AA. ITA.1789 /MDS/11 3 5. FOR THAT WHILE DETERMINING ARMS LENGTH PRICE T HE ASSESSING OFFICER ERRED BY TAKING INTO ACCOUNT ONLY THOSE TRANSACTIONS WHERE THE SALE PRICE TO ASSOCIAT ED ENTERPRISE WAS LOWER THAN THE SALE PRICE TO NON- ASSOCIATED ENTERPRISE, IGNORING THE INSTANCES WHERE THE SALE PRICE TO ASSOCIATED ENTERPRISE EXCEEDED THE SA LE PRICE TO NON-ASSOCIATED ENTERPRISE. 6. FOR THAT ASSESSING OFFICER ERRED IN COMPUTING AR MS LENGTH PRICE BY CONSIDERING ONLY THE NEGATIVE DIFFE RENTIAL ON SALES TO ASSOCIATED ENTERPRISE AND IGNORING THE POSITIVE DIFFERENTIAL ON PURCHASES FROM ASSOCIATED ENTERPRISE. 7. FOR THAT ASSESSING OFFICER ERRED IN HOLDING THA T THE 5% TOLERANCE LIMIT PRESCRIBED BY THE SECOND PROVISO TO SECTION 92V(2) WOULD APPLY ONLY IN THOSE CASES WHER E MORE THAN ONE COMPARABLE PRICE HAS BEEN ADOPTED TO ARRIVE AT THE ARMS LENGTH PRICE. 8. FOR THAT, IGNORING THE PRINCIPLES OF RES JUDICAT A, THE ASSESSING OFFICER ERRED IN PLACING RELIANCE ON THE FACT THAT IN THE EARLIER YEAR THE ADJUSTMENT IN SALES HA D NOT BEEN CHALLENGED BY THE APPELLANT. 9. FOR THAT CONSEQUENTLY THE ASSESSING OFFICER ER RED IN DETERMINING DIFFERENCE IN ARMS LENGTH PRICE AT ` 1,06,99,296/-. ITA.1789 /MDS/11 4 10. FOR THAT THE ASSESSING OFFICER ERRED IN COMPUT ING DEMAND PAYABLE BY THE APPELLANT WITHOUT GIVING CRED IT FOR SELF ASSESSMENT TAX OF ` 1,25,00,000/- PAID BY THE APPELLANT. 11. FOR THAT THE APPELLANT OBJECTS TO THE LEVY OF I NTEREST UNDER SECTION 234A, 234B AND 234C OF THE ACT. 12. FOR THESE GROUNDS AND SUCH OTHER GROUNDS THAT M AY BE URGED BEFORE OR DURING THE HEARING OF THE APPEAL IT IS MOST HUMBLY PRAYED THAT THE HONBLE TRIBUNAL MAY BE PLEASED TO (A) ALLOW THE DEDUCTION U/S.10AA AS CLAIMED BY THE APPELLANT. (B) DELETE THE ADJUSTMENT MADE TO THE ARMS LENGTH P RICE MADE BY THE TRANSFER PRICING OFFICER. (C) DIRECT THE ASSESSING OFFICER TO GIVE CREDIT FOR SELF ASSESSMENT TAX PAID BY IT. (D) DELETE THE LEVY OF INTEREST. (E) PASS SUCH OTHER ORDERS AS THE HONBLE TRIBUNAL MAY DEEM FIT. 3. SHRI SHRI T. BANUSEKAR, C.A., REPRESENTED ON B EHALF OF THE ASSESSEE AND SHRI R.B. NAIK, LD. C.I.T. D.R. RE PRESENTED ON BEHALF OF THE REVENUE. ITA.1789 /MDS/11 5 4. AT THE TIME OF HEARING, IT WAS SUBMITTED BY THE LD. A.R. THAT GROUND NO.10 OF THE ASSESSEES APPEAL WAS NOT PRESSED AS NECESSARY RELIEF HAD ALREADY BEEN GRANTED BY THE ASSESSING OFFICER. IN THE CIRCUMSTANCES, THE SAID GROUND NO.10 OF THE ASSESSEE IS DISMISSED. 5. IN REGARD TO GROUND NOS. 2 TO 4, IT WAS SUB MITTED BY THE LD. A.R. THAT THE ISSUE WAS AGAINST THE ACTION OF T HE ASSESSING OFFICER IN RE-COMPUTING DEDUCTION U/S.10AA HOLDING THAT THE FOREIGN EXCHANGE FLUCTUATION WAS NOT PART OF THE SA LE PROCEEDS. HE SUBMITTED THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF AMBA IMPEX [2006] 282 ITR 144 (GUJ.) WHEREIN THE HONBLE GUJARAT HIGH COURT HELD THAT FOREIGN EXCHANGE FLUCTUATION I S LIABLE TO BE TREATED AS PART OF THE SALE PROCEEDS AND CONSEQUENT LY LIABLE TO BE INCLUDED IN THE EXPORT TURNOVER. IN REPLY, LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS I T IS NOTICED THAT THE ISSUE IS NOW SETTLED BY THE DECISI ON OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AMBA IMPE X REFERRED TO SUPRA, THE ASSESSING OFFICER IS DIRECTED TO RE-C OMPUTE THE ITA.1789 /MDS/11 6 DEDUCTION U/S.10AA BY INCLUDING THE EXCHANGE GAIN A ND LOSS WHEN COMPUTING THE EXPORT TURNOVER. 7. IN REGARD TO GROUND NOS.5,6, 8 & 9, IT WAS SUBM ITTED BY THE LD. AR THAT THE ISSUE WAS AGAINST THE DETERMINA TION OF THE ARMS LENGTH PRICE (ALP) BY THE ASSESSING OFFICER. IT WAS THE SUBMISSION THAT WHEN COMPUTING THE ALP, THE ASSESSI NG OFFICER HAD TAKEN INTO ACCOUNT ONLY THOSE TRANSACTI ONS WHERE THE SALE PRICE TO ASSOCIATE ENTERPRISE (AE) WAS LOW ER THAN THE SALE PRICE TO NON-ASSOCIATED ENTERPRISE (NON-AE) AN D IGNORING THE INSTANCES WHERE THE PURCHASE-PRICE FROM AND SAL E PRICE TO AE EXCEEDED THE PURCHASE-PRICE FROM AND THE SALE PR ICE TO NON-AE. IT WAS THE SUBMISSION THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING PLASTIC GARMENT HANGERS. IT WAS SUBMITTED THAT AS THE ASSESSEE WAS PART OF THE GLOB AL GROUP OF MAINETTI, THE ASSESSEE USED TO BUY AND SELL THE HAN GERS. THE ASSESSEE WAS ALSO IN THE BUSINESS OF MANUFACTURING OF THE SAME. IT WAS THE SUBMISSION THAT WHILE APPLYING CU P METHOD FOR DETERMINING THE ALP, TRANSFER PRICING OFFICER ( TPO) HAD CONSIDERED ONLY POSITIVE DEVIATIONS AND HAD IGNORED NEGATIVE DEVIATIONS. IT WAS FURTHER SUBMISSION THAT THE MAR GIN OF PLUS OR MINUS 5% AS PER PROVISO TO SECTION 92C(2) WAS ALSO NOT ITA.1789 /MDS/11 7 CONSIDERED. IT WAS THE SUBMISSION THAT ON A REFERE NCE TO THE DRP, THE DRP HAD HELD THAT THE COMPARABLE UNCONTROL LED PRICE METHOD WAS TO BE APPLIED TO EACH TRANSACTION INDEPE NDENTLY AND THE NETTING OFF BETWEEN SEPARATE TRANSACTIONS W AS NOT CONTEMPLATED UNDER CUP METHOD. IT WAS FURTHER SUBM ISSION THAT THE TPO HAD MADE THE ADJUSTMENTS ONLY IN RESPE CT OF THE SALES MADE BY THE ASSESSEE AND NOT THE PURCHASES, T O WHICH THE DRP HAD HELD THAT THE PURCHASES AND SALES WERE TWO DIFFERENT TRANSACTIONS AND THERE WAS NO SCOPE FOR S UCH NETTING OFF. IT WAS THE SUBMISSION THAT THE DRP HAD ALSO F URTHER REJECTED THE OBJECTIONS OF ASSESSEE IN REGARD TO TH E APPLICABILITY OF THE PROVISO TO SEC.92C(2) BY HOLD ING THAT THE SAID PROVISO SHALL APPLY ONLY IF MOST APPROPRIATE M ETHOD RESULTED IN MORE THAN ONE PRICE. IT WAS FURTHER SU BMISSION THAT THE DRP HAD ALSO HELD THAT SIMILAR ADJUSTMENTS HAD BEEN MADE IN RESPECT OF THE SALES TO THE AE DURING THE E ARLIER YEARS AND NO OBJECTIONS HAD BEEN RAISED BY THE ASSESSEE. IT WAS THE SUBMISSION THAT DURING THE EARLIER YEARS, THE ADJUS TMENTS DID NOT LEAD TO ANY SUBSTANTIAL TAX IMPLICATIONS ON THE ASSESSEE AND ON THE BASIS OF ADVICE GIVE BY THE COUNSEL FOR THE EARLIER ASSESSMENT YEARS, APPEALS HAD NOT BEEN FILED AND NO REFERENCE WAS MADE. IT WAS THE SUBMISSION THAT EVE N WHEN ITA.1789 /MDS/11 8 APPLYING THE CUP METHOD, IT WAS THE NET OF THE TRAN SACTION THAT WAS LIABLE TO BE CONSIDERED. IT WAS THE SUBMISSIO N THAT UNDER THE PROVISIONS OF SEC.92C WHAT WAS BEING DETERMINED WAS THE ALP AND TO VERIFY AS TO WHETHER THERE WAS ANY VARIA TION IN REGARD TO THE SAME AND TO SEE WHETHER THE ASSESSEE WAS UNDER-STATING ITS PROFITS OR TRANSFERRING ITS PROF ITS TO THE AE OUTSIDE THE COUNTRY. IT WAS THE SUBMISSION THAT TH IS IS NOT CASE WHERE THE ASSESSEE IS ONLY PURCHASING THE PRODUCTS OR ONLY SELLING THE PRODUCTS. IT WAS THE SUBMISSION THAT T HE ASSESSEE WAS BUYING AND SELLING THE PRODUCTS TO THE AES. IT WAS THE FURTHER SUBMISSION THAT ON COMPARISON WITH THE NON- AE WHEN THE PRICING IS CONSIDERED BY APPLYING THE CUP METHO D, THE SAME COULD BE DONE ONLY IF A REASONABLE COMPARISON COULD BE MADE AND ONLY IF DIRECT METHODS WERE AVAILABLE. IT WAS FAIRLY AGREED BY THE LD. A.R. THAT ASSESSEE ITSELF AGREES WITH THE APPLICABILITY OF CUP METHOD. IT WAS THE SUBMISSION THAT WHEN APPLYING THE CUP METHOD AS THE TRANSACTION DONE BY THE ASSESSEE WAS CONTINUOUS TRANSACTION WITH THE AES, T HE CONSOLIDATED EFFECT OF ALL THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE AES MUST BE CONSIDERED AS A WHOLE. AS OTHERWISE IT WOULD LEAD TO A SITUATION WHERE THE AS SESSEE WOULD BE MAKING VERY HIGH MARGINS IN SOME CASES AND VERY ITA.1789 /MDS/11 9 LOW MARGINS IN SOME CASES AND WHERE THE TRANSACTION S SHOW HIGH MARGINS, THE SAME WOULD STAND ACCEPTED AND IN THE TRANSACTIONS WERE LOW MARGINS, THE SAME WOULD CALL FOR AN ADJUSTMENT, WHICH WOULD IN EFFECT BE INFLATING THE MARGINS OF THE ASSESSEE TO DISPROPORTIONATE LEVELS. IT WAS TH E SUBMISSION THAT THIS WAS NOT WHAT WAS CONTEMPLATED UNDER THE P ROVISIONS OF SEC.92C OF THE ACT. THE LD. A.R. DREW OUR ATTEN TION TO PAGE-28 OF THE PAPER BOOK, WHICH WAS A COMPUTATION OF GAIN TO THE ASSESSEE ON THE PURCHASE FROM AE AT ` 87,41,490/-, AS ALSO PAGE-36 WHICH SHOWED THE TRANSACTIONS WHICH HAD RES ULTED IN THE LOSS OR A LOWER MARGIN, WHICH WAS TREATED AS A LOSS AT ` 53,11,464/-. IT WAS THE SUBMISSION THE NET OF THE TRANSACTION IN ANY CASE WAS A PROFIT. HOWEVER, IF INDIVIDUAL T RANSACTIONS WERE TAKEN, THEN THE GAIN GENERATED BY THE ASSESSEE OF ` 87,41,490/- WOULD GET COMPLETELY OVERLOOKED AND WHA T WOULD BE HIGHLIGHTED IS ONLY THE TRANSACTIONS WHERE THE A SSESSEE HAS NOT GENERATED THE REQUISITE MARGINS. IT WAS THE S UBMISSION THAT IF THE TRANSACTIONS WHERE THE ASSESSEE HAD MAD E THE HIGHER MARGINS WHEN MAKING PURCHASE FROM THE AE IS EXCLUDED THE TRANSFER PRICING ADJUSTMENT OF ` 1,06,99,296 WOULD COME TO THE FRONT. IT WAS THE SUBMISSION THAT THIS WAS NOT CONTEMPLATED U/S.92C OF THE ACT. IT WAS THE SUBMIS SION THAT ITA.1789 /MDS/11 10 THE ASSESSING OFFICER MAY BE DIRECTED TO TAKE INTO CONSIDERATION ALL THE TRANSACTIONS AS A WHOLE WHEN COMPUTING THE ALP. IT WAS THE SUBMISSION THAT THE PROFIT IS T HE NET OF THE COST OF SALES LESS COST OF PURCHASE AND OTHER EXPEN SES. BY IGNORING THE POSITIVE DEVIATION ON THE PURCHASE FRO M THE AE AND CONSIDERING ONLY THE NEGATIVE DEVIATION ON THE SALE TO AE, THE TRANSACTION ITSELF WOULD NOT BE COMPLETE FOR TH E PURPOSE OF COMPUTING THE ALP. IT WAS THE SUBMISSION THAT THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE MAY BE REVERSE D. IT WAS THE SUBMISSION THAT THE AO MAY ALSO BE DIRECTED TO GRANT THE ASSESSEE THE BENEFIT OF 5% OF TOLERANCE LIMIT PRESC RIBED BY THE SECOND PROVISO TO SEC.92C(2) OF THE ACT. IN REPLY, LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER AND THE DRP. IT WAS THE SUBMISSION THAT THE TRANSACTIO NS INDEPENDENTLY WERE LIABLE TO BE CONSIDERED. IT WAS THE SUBMISSION THAT EACH TRANSACTION WAS A SEPARATE ONE AND NO NETTING COULD BE GRANTED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. PERU SAL OF THE PROVISIONS OF SEC.92C SHOWS THAT THE WORDS USED IS IN RELATION TO AN INTERNATIONAL TRANSACTION - - - - - - HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTIO N OR CLASS OF ITA.1789 /MDS/11 11 ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH P ERSONS . THE TERM CLASS OF TRANSACTION AND NATURE OF TRAN SACTIONS COME TO THE FOREFRONT IN THE PRESENT CASE. IN THE A SSESSEES CASE, THE TRANSACTION WITH THE AE IS NOT ONE OF SIM PLE PURCHASE OR SIMPLE SALE. THE ASSESSEE PURCHASES FROM ONE AN D SELLS TO ANOTHER. THE ASSESSEE HAS PURCHASED FROM ITS AE IN HONGKONG, SRILANKA, MALAYASIA, PAKISTAN AND RANDY ASIA AND HAS SOLD TO ITS AE IN SRILANKA, KOREA, HONGKONG , GULF, EGYPT, BANGLADESH,MALAYASIA, TAIWAN, UK AND PAKISTA N. IN REGARD TO THE SALES MADE BY THE ASSESSEE, THE TRANS ACTION WITH BANGALADESH IS IN POSITIVE, THE TRANSACTION WITH EG YPT IS IN NEGATIVE, THE TRANSACTION WITH GULF IS IN THE POSIT IVE, THE TRANSACTION WITH HONGKONG IS IN NEGATIVE, THE TRANS ACTION WITH KOREA IS IN POSITIVE, THE TRANSACTION WITH SRILANKA IS IN THE NEGATIVE, THE TRANSACTION WITH MALAYASIA IS IN THE NEGATIVE, THE TRANSACTION WITH PAKISTAN IS IN THE NEGATIVE, THE T RANSACTION WITH TAIWAN IS IN THE NEGATIVE AND THE TRANSACTION WITH UK IS IN THE NEGATIVE. THUS, WHAT IS NOTICED IS THAT ON THE PURCHASE THE ASSESSEE HAS A POSITIVE DIFFERENTIAL I.E. THE ASSES SEE PURCHASES AT A LOWER PRICE FROM ITS AE THAN THE NON -AE AND WHEN ITS SALES TO THE AE, ITS SELLING PRICE IS LOWE R THAN THE SELLING PRICE AS COMPARED WITH THE NON-AE. THERE I S NO ITA.1789 /MDS/11 12 QUESTION THAT THE ASSESSEE IS GENERATING PROFITS FR OM THE TRANSACTION. THERE IS NO DISPUTE THAT THE ASSESSEE IS ALSO PAYING TAXES ON THE PROFITS THAT IT HAS GENERATED F ROM ITS TRANSACTION OF PURCHASE AND SALE WITH ITS AE. THE ASSESSEE, THUS IT IS NOTICED, IS DOING THE BUSINESS OF TRADIN G WHEN IT PURCHASED FROM ITS AE FROM ONE COUNTRY AND SELLS TO ANOTHER AE IN ANOTHER COUNTRY. THIS MARGIN COULD BE ON ACC OUNT OF BOTH FOREIGN EXCHANGE FLUCTUATIONS AS ALSO THE MARK UP DONE BY THE ASSESSEE. THESE TRANSACTIONS CLEARLY SHOW TH AT WHAT IS DONE BY THE ASSESSEE IS ONE OF PURCHASE AND SALE. W ITH THIS IN MIND READING OF THE PROVISIONS OF SEC.92C SHOWS THA T THE WORD USED IS NATURE OF TRANSACTION. NATURE OF TRANSAC TION WOULD BE A PARTICULAR SET OF TRANSACTION, WHICH ARE TO BE SE EN TOGETHER. WHEN THE ASSESSEE IS BUYING FROM ONE PLACE AND SELL ING AT ANOTHER THAT WOULD BE A CLASS OF TRANSACTION. W HEN THE ASSESSEE IS DOING THE BUSINESS OF TRADING, IT WOULD NOT BE A RIGHT TO HOLD THAT THE PURCHASE IS ONE CLASS OF TR ANSACTION AND THE SALES ARE ANOTHER CLASS OF TRANSACTION. THE ASSESSEE DEALING WITH THE AES IS A BETTER POSITION TO NEGOTI ATE BETTER PRICES AND CONSEQUENTLY WOULD BE ABLE TO GET A BETT ER BARGAIN. HERE, WHAT IS TO BE SEEN IS WHETHER THE TRANSACTION OF PURCHASE AND SALE BEING THE NATURE OF TRANSACTIONS, WHEN SEEN ITA.1789 /MDS/11 13 IN CONSOLIDATED FROM, GENERATES PROFITS WHICH NORMA LLY WOULD BE GENERATED. FOR THIS BOTH THE PURCHASE AND SALE TRANSACTIONS WOULD HAVE TO BE CONSIDERED. TO EXPLAIN BY AN EXAMPLE, THE ASSESSEE PURCHASES A PRODUCT AT ` 10 FROM ITS AE. THE SAME PRODUCT IS SOLD BY A NON-A E AT ` 12/-. THE ASSESSEE SELLS THE FINISHED PRODUCT TO I TS AE AT ` 15/-. THE SAME FINISHED PRODUCT IS SOLD BY A NON-AE AT ` 17/-. THE PROFITS FROM BOTH TRANSACTIONS, ASSESSEE TO AE, AS ALSO NON-AE TO NON-AE WOULD GIVE ` 5/- BUT FOR THE PURPOSE OF DETERMINING THE ALP AS THE ASSESSEE PURCHASES FROM ITS AE AT A PRICE LOWER THAN NON-AE, THE PURCHASE PRICE WOULD BE ACCEPTED AS THE DEVIATION IS NEGATIVE I.E. ` 10/- IS LOWER THAN ` 12/-, BUT AS THE ASSESSEE SELLS TO ITS AE AT A PRI CE LOWER THAN A NON-AE, THE SALE PRICE WILL BE ADJUSTED TO THE SE LLING PRICE OF THE NON-AE AS THE DEVIATION IS POSITIVE I.E. ` 15/- IS LOWER THAN ` 17/-. THEREFORE, ` 17/- WILL BE CONSIDERED AS ALP. THIS WOULD RESULT IN (I) THE ASSESSEE BUYS FROM THE AE AT ` 10/- (II) THE ASSESSEES SALE PRICE IS AD JUSTED TO ALP AT `17/-. THUS THE PROFIT OF THE ASSESSEE WILL BE DETERMINED AT `7/-. ITA.1789 /MDS/11 14 NOW IF WE COMPARE THE PROFITABILITY, ASSESSEES PURCHASE AND SALE TO AE IS `5/-. PERCENTAGE OF PROFIT 5 X 100 = 33.33% 15 NON-AE PURCHASE & SALE IS `5/- PERCENTAGE OF PROFIT 5 X 100 = 29.41% 17 AFTER ADJUSTMENT PROFIT IS `7/- PERCENTAGE OF PROFIT 7 X 100 = 41.17% 17 THUS THE PROFITABILITY IF CONSIDERED WITHOUT CONSID ERING THE POSITIVE DEVIATIONS WOULD LEAD TO IMPOSSIBLE PROFITABILITY POSITIONS, WHICH IS NOT WHAT IS CONTEMPLATED UNDER THE PROVISIONS OF 92C. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE ALP BY TAKING INTO CONSIDERATION BOTH THE NET D IFFERENCE ON THE SALE FROM THE AE AND PURCHASE FROM THE AE. TH E ASSESSING OFFICER MAY LOOK INTO THE FACT AS TO THE MARGINS OF THE PROFITS IN REGARD TO THE TRANSACTIONS DONE BY T HE ASSESSEE WITH ITS AE, AS ALSO THE NON-AE TRANSACTIONS AND TH EN COMPUTE THE ADJUSTMENT OF ALP, IF ANY. IN THE CIRCUMSTANC ES, THE GROUNDS NOS.5, 6, 8 & 9 OF THE ASSESSEE STAND PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ITA.1789 /MDS/11 15 9. IN REGARD TO GROUND NO.7, THE ASSESSEE HAS ASKE D FOR 5% OF TOLERANCE LIMIT PRESCRIBED BY THE SECOND PROVISO TO SECTION 92C(2) OF THE ACT. THIS CLAIM OF THE ASSESSEE FOR 5% OF TOLERANCE LIMIT CANNOT BE GRANTED AS NO ARITHMETICA L MEAN AS PROVIDED IN THE FIRST PROVISO HAS BEEN DETERMINED. IN THE CIRCUMSTANCES, GROUND NO.7 OF THE ASSESSEES APPEAL STANDS DISMISSED. 10. GROUND NO.11 IS AGAINST THE LEVY OF INTEREST U NDER SECTIONS 234A, 234B AND 234C OF THE ACT. AS THE LE VY OF INTEREST UNDER SECTIONS 234A, 234B AND 234C ARE CONSEQUENTIAL IN NATURE, THE SAME ARE DISMISSED. I N THE CIRCUMSTANCES, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED ON 16 TH MARCH, 2012. SD/- SD/- ( N.S.SAINI ) (GEORGE MATHAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 16 TH MARCH, 2012. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA.1789 /MDS/11 16