Eaton Fluid Power Ltd., Pune V. Asst. Comm. of Income-tax, Pune

ITA 1623/PUN/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9496 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS M S VERMA
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Capital expenditure
• Section: 143(3); 92B; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1623/PN/2011 (ASSESSMENT YEAR : 2007-08) EATON FLUID POWER LIMITED 145, OFF MUMBAI-PUNE ROAD, PIMPRI, PUNE 411 018 PAN : AAACV8426E . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 8, PUNE . RESPONDENT APPELLANT BY : MR. PERCY PARDIWALLA RESPONDENT BY : MRS. M. S. VERMA, CIT ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE ASSE SSEE PERTAINING TO THE ASSESSMENT YEAR 2007-08, WHICH IS DIRECTED AGAI NST THE ORDER OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE (IN SHORT THE ASSESSING OFFICER) PASSED U/S 143(3) R.W.S. 144C(1) OF THE I NCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 31.12.2010, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHO RT THE DRP) DATED 02.08.2011. 2. IN THIS APPEAL, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER :- 1. THE LEARNED ASSESSING OFFICER ('LD. AO'), PURSU ANT TO THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP'), E RRED IN REJECTING THE APPROACH ADOPTED FOR TRANSFER PRICING ANALYSIS / CO NTEMPORANEOUS DOCUMENTATION MAINTAINED BY THE APPELLANT. THE LD. DRP / AO THEREBY ERRONEOUSLY MADE A TRANSFER PRICING ADJUSTMENT OF R S.52,197,453 TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNA TIONAL TRANSACTIONS OF THE APPELLANT DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME-TAX ACT, 1961 ('THE ACT'). ITA NO.1623/PN/2011 2. THE LD. DRP / AO ERRED IN DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO THE MANUFA CTURING SEGMENT OF THE APPELLANT, BY COMPARING WITH EXTERNAL COMPARABLES W HEN FUNCTIONALLY SIMILAR INTERNAL COMPARABLES ARE AVAILABLE TO DETERMINE THE ARM'S LENGTH PRICE UNDER THE INTERNAL TRANSACTIONAL NET MARGIN METHOD WHICH IS MORE RELIABLE. 3. WITHOUT PREJUDICE TO GROUND 2, THE LD. DRP / AO ERRED IN SELECTING CERTAIN EXTERNAL COMPARABLES WHICH WERE NOT FUNCTIO NALLY COMPARABLE AND IN REJECTING CERTAIN COMPARABLES THAT WERE FUNCTIONALL Y COMPARABLE, AND THEREBY CHOOSING AN INCORRECT SET OF COMPARABLES. 4. WITHOUT PREJUDICE TO GROUND 2, THE LD. DRP / AO ERRED IN NOT GRANTING THE BENEFIT OF +/- 5% RANGE AS ENVISAGED BY THE PRO VISO TO SECTION 92C(2) OF THE ACT. 5. WITHOUT PREJUDICE TO GROUND 2, THE LD. DRP / AO ERRED IN USING DATA WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIM E OF CONDUCTING THE TRANSFER PRICING ANALYSIS FOR COMPUTING THE TRANSFER PRICING ADJUSTMENT, NOT ALLOWING THE USE OF MULTIPLE YEAR DATA AS PRESCRIBED UNDER RULE 10B(4) OF THE RULES THEREBY UNFAIRLY PENALISING THE APPELLANT FOR AN AC T THAT WAS IMPOSSIBLE TO PERFORM ON THE PART OF THE APPELLANT. 6. WITHOUT PREJUDICE TO GROUND 2, THE LD. DRP / AO ERRED IN APPLYING THE ADJUSTMENT MADE TO THE IMPORT PRICES PERTAINING TO AES ACROSS THE ENTIRE RAW MATERIAL CONSUMPTION RATHER THAN APPLYING IT PROPOR TIONATELY BASED ON THE RATIO OF RAW MATERIALS CONSUMED FROM AES TO TOTAL RAW MAT ERIALS CONSUMED. 7. THE LD. DRP/AO ERRED IN DISALLOWING THE EXPENDIT URE INCURRED ON LEASE RENTALS FOR USE OF VEHICLES AMOUNTING TO RS.1 2,14,618 AND RS.3,30,371 ON THE PREMISE THAT THIS EXPENDITURE IS OF CAPITAL NATURE. WITHOUT PREJUDICE TO GROUND NO. 7, THE LD. DRP/AO E RRED IN NOT ALLOWING THE DEPRECIATION UNDER SECTION 32 OF THE ACT ON SUCH LE ASE RENTALS PAID DURING THE YEAR. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO OUGHT TO HAVE CONSIDERED THE FACT THAT THE APPELLAN T PROVIDED ALL THE INFORMATION REQUESTED DURING THE ASSESSMENT PROCEED INGS AND HAS NOT PROVIDED INACCURATE PARTICULARS OF ITS INCOME. THER EFORE, THE LD. AO HAS ERRED IN INITIATING THE PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT ON THE PREMISE THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME. 3. IN THIS APPEAL, ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL BUT THE SUBSTANTIVE DISPUTE IS WITH REGARD T O AN ADDITION OF RS.5,21,97,453/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF TRANSFER PRICING ADJUSTMENT WHILE COMPUTING ARMS LENGTH PRICE OF TH E INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. ON BEHALF OF THE ASSESSEE VOLUMIN OUS PAPER BOOKS HAVE BEEN FILED, WHICH HAS BEEN REFERRED TO DURING THE C OURSE OF HEARING. THE DEPARTMENTAL SIDE HAS ALSO SUPPORTED THE ADJUSTMENT S MADE BY THE INCOME- TAX AUTHORITIES AND HAS ALSO FURNISHED WRITTEN SUBM ISSIONS BY THE ASSESSING ITA NO.1623/PN/2011 OFFICER, WHICH HAVE ALSO BEEN REFERRED TO IN THE CO URSE OF HEARING BEFORE US. THE RIVAL SUBMISSIONS HAVE BEEN HEARD AND THE RELEV ANT RECORD PERUSED. 4. IN ORDER TO APPRECIATE THE CONTROVERSY AND THE R IVAL STANDS IT WOULD BE APPROPRIATE TO BRIEFLY TOUCH UPON THE BACKGROUND AN D THE RELEVANT FACTS. THE APPELLANT BEFORE US IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS INTER-ALIA ENGAGED IN THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF HYDRAULIC COMPONE NTS AND PACKAGED SYSTEMS. IT MANUFACTURES A WIDE RANGE OF VICKERS VANE AND PISTONS, PUMPS, POWER UNITS, CYLINDERS CONTROL VALVES AND FILTERS F OR MOBILE AND INDUSTRIAL APPLICATIONS. THE MANUFACTURING FACILITIES OF THE ASSESSEE ARE LOCATED AT PUNE AND AT MUMBAI. INITIALLY, THE COMPANY WAS INCORPORA TED IN THE YEAR 1965 AS A JOINT VENTURE BETWEEN MAHINDRA & MAHINDRA LTD. AND VICKERS INC., BUT PRESENTLY IT IS A WHOLLY OWNED SUBSIDIARY OF EATON CORPORATION, A FOREIGN BASED ENTITY. 5. DURING THE YEAR UNDER CONSIDERATION, ASSESSING O FFICER NOTED THAT THE ASSESSEE HAD ENTERED INTO CERTAIN INTERNATIONAL TRA NSACTIONS WITH ITS ASSOCIATED ENTERPRISES WITHIN THE MEANING OF SECTION 92B OF TH E ACT. AS THE INCOME ARISING FROM INTERNATIONAL TRANSACTIONS IS REQUIR ED TO BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE IN TERMS OF SECTIO N 92(1) OF THE ACT, THE ASSESSING OFFICER REFERRED THE MATTER OF COMPUTATIO N OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS TO THE TRANSFER PRIC ING OFFICER (IN SHORT THE TPO) IN TERMS OF SECTION 92CA(1) OF THE ACT. THE TPO AF TER ALLOWING THE ASSESSEE REQUISITE OPPORTUNITY OF BEING HEARD DETERMINED THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO THE MANUFA CTURING ACTIVITIES OF THE ASSESSEE AT AN AMOUNT HIGHER THAN THE STATED VALUES BY A SUM OF RS.5,21,97,453/-. IN TERMS THEREOF, THE ASSESSING O FFICER PASSED A DRAFT ASSESSMENT ORDER DATED 31.12.2010 U/S 144(3) R.W.S. 144C(1) OF THE ACT ITA NO.1623/PN/2011 AGAINST WHICH ASSESSEE PREFERRED OBJECTIONS BEFORE THE DRP. BY WAY OF AN ORDER DATED 02.08.2011, THE DRP REJECTED THE OBJECT IONS RAISED BY THE ASSESSEE AND THEREAFTER THE ASSESSING OFFICER PASSE D AN ORDER U/S 143(3) R.W.S. 144C(13) OF THE ACT DATED 30.09.2011 DETERMI NING THE INCOME OF THE INTERNATIONAL TRANSACTIONS IN CONFORMITY WITH THE O RDER OF THE TPO IN TERMS OF SECTION 92CA(4) OF THE ACT AND ACCORDINGLY, HE MADE AN ADDITION OF RS.5,21,97,453/- TO THE RETURNED INCOME ON ACCOUNT OF TRANSFER PRICING ADJUSTMENTS. 6. BY WAY OF PRESENT APPEAL, ASSESSEE HAS CHALLENGE D THE ADDITION OF RS.5,21,97,453/- MADE TO THE RETURNED INCOME. BEFO RE PROCEEDING TO ADJUDICATE THE SPECIFIC GRIEVANCES RAISED BY THE AS SESSEE IT WOULD BE APPROPRIATE TO REFER TO THE SALIENT FEATURES OF THE DISPUTE. AS NOTED EARLIER, ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF EATON CORP ORATION, A GLOBAL, DIVERSIFIED MANUFACTURER OF FLUID POWER SYSTEMS, EL ECTRIC POWER QUALITY, DISTRIBUTION AND CONTROL, AUTOMOTIVE ENGINE AIR MAN AGEMENT AND FUEL ECONOMY SYSTEMS. THE APPELLANT-ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FLUID POWER HYDRAULIC EQUIPMENTS AND RELATED COMPONENTS AND IT MANUFACTURES GEAR PUMPS AND CYLIN DERS, VANE/PISTON PUMPS, POWER UNITS, CYLINDERS CONTROL VALVES AND FI LTERS FOR MOBILE AND INDUSTRIAL APPLICATIONS. DURING THE YEAR UNDER CON SIDERATION, ASSESSEE WAS FOUND TO HAVE ENTERED INTO THE FOLLOWING INTERNATIO NAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES :- SL. NO. DESCRIPTION OF INTERNATIONAL TRANSACTION AMOUNT (RS .) 1. IMPORT OF RAW MATERIALS, TRADING GOODS & COMPONENTS 31,23,60,854 2. PURCHASE OF LICENSE FOR MFGPRO SOFTWARE 13,14,59 8 3. ADMINISTRATIVE AND RELATED SERVICES RENDERED 1,1 0,93,981 4. EXPORT OF FINISHED GOODS 2,35,95,314 ITA NO.1623/PN/2011 7. FOR THE PURPOSES OF DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO THE AFORESAID INTERNATIONAL TRANSACTIONS, ASSESSEE AGGR EGATED THE SAME AND APPLIED THE TRANSACTIONAL NET MARGIN METHOD (I.E. T NM METHOD) AS THE MOST APPROPRIATE METHOD. THE ASSESSEE CONSIDERED OPERAT ING PROFIT TO OPERATING REVENUE AS THE PLI (I.E. PROFIT LEVEL INDICATOR). THE PLI OF THE ASSESSEE WAS WORKED OUT AT 6.87% AND AS THE AVERAGE PLI OF THE E XTERNAL COMPARABLES WAS DETERMINED AT 9.62%, ASSESSEE CONCLUDED THAT THE ST ATED VALUE OF THE INTERNATIONAL TRANSACTIONS ENTERED WITH THE ASSOCIA TED ENTERPRISES WAS AT AN ARM'S LENGTH PRICE CONSISTENT WITH THE REQUIREMENTS OF THE INDIAN TRANSFER PRICING REGULATIONS. IN CARRYING OUT THE AFORESAID BENCHMARKING ANALYSIS, ASSESSEE ADOPTED A SET OF 14 COMPARABLE CONCERNS AN D THE OPERATING MARGINS OF SUCH COMPARABLE CONCERNS WAS TAKEN ON THE BASIS OF THREE YEARS FINANCIAL DATA AND ACCORDINGLY, THE ARITHMETIC MEAN OF THE AV ERAGE OPERATING MARGINS WAS DETERMINED AT 9.62%. AT THIS POINT, IT MAY BE NOTICED THAT THE TPO HAS DIFFERED WITH THE ASSESSEE ON THIS ASPECT AND WHILE ASCERTAINING THE OPERATING MARGINS OF THE COMPARABLE CASES HE HAS NOT CONSIDER ED THE MULTIPLE YEARS DATA AND HAS INSTEAD CONSIDERED THE DATA RELATING T O THE FINANCIAL YEAR IN WHICH INTERNATIONAL TRANSACTIONS HAVE BEEN ENTERED INTO. THE AFORESAID POINT OF DIFFERENCE HAS NOT BEEN AGITATED BY THE ASSESSEE BE FORE US AND IS NOT BEING DEALT WITH FURTHER. ANOTHER ASPECT OF THE ISSUE RE LATES TO THE USE OF DATA BY THE TPO, WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN AT TH E TIME ASSESSEE CONDUCTED ITS TRANSFER PRICING STUDY. THE SAID APP ROACH OF THE TPO HAS ALSO NOT BEEN DISPUTED BY THE ASSESSEE AND WE DO NOT DEA L WITH THE SAME ANY FURTHER. 8. THE MAJOR POINTS OF DIFFERENCE BETWEEN THE ASSES SEE AND THE REVENUE CAN BE UNDERSTOOD AS FOLLOWS. FIRSTLY, THE TPO NOT ICED THAT THE PRINCIPAL ACTIVITY OF THE ASSESSEE WAS THE MANUFACTURE AND TR ADING OF FLUID POWER HYDRAULIC EQUIPMENTS AND RELATED COMPONENTS. THE A SSESSING OFFICER FURTHER ITA NO.1623/PN/2011 NOTICED THAT OUT OF THE TOTAL TURNOVER OF THE ASSES SEE OF RS.121.69 CRORES, APPROXIMATELY 40% INCOME HAS BEEN EARNED FROM TRADI NG ACTIVITY AND ANOTHER 40% INCOME FROM SALE OF PUMPS, GEAR PUMPS AND VALVE S. THUS, AS PER THE TPO, THERE WAS A SUBSTANTIAL ACTIVITY OF TRADING UN DERTAKEN BY THE ASSESSEE. THE TPO FURTHER NOTICED THAT THE ASSESSEE HAD AGGRE GATED THE MANUFACTURING AND THE TRADING SEGMENTS FOR THE PURPOSES OF CARRYI NG OUT THE COMPARABILITY ANALYSIS TO COMPUTE THE ARM'S LENGTH PRICE. AS PER THE TPO, SEPARATE BENCHMARKING WAS REQUIRED TO BE UNDERTAKEN FOR MANU FACTURING AS WELL AS TRADING SEGMENT. ON BEING REQUIRED BY THE TPO, ASS ESSEE PROVIDED SEGMENTAL RESULTS AND ON THE BASIS OF THE SAME IT W AS OBSERVED THAT THE ASSESSEE HAD EARNED AN OPERATING MARGIN OF 1.57% ON SALES IN ITS MANUFACTURING SEGMENT. THE TPO PROCEEDED TO COMPAR E THE OPERATING MARGINS OF THE MANUFACTURING SEGMENT OF THE ASSESSE E WITH THE OPERATING MARGINS OF THE COMPARABLE CASES TO DETERMINE THE AR M LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS FOLLOWING THE TNM METHOD . OSTENSIBLY, THE TPO HAS NOT DIFFERED WITH THE ASSESSEE WITH REGARD TO THE A DOPTION OF THE TNM METHOD AS THE MOST APPROPRIATE METHOD FOR THE PURPOSES OF COMPUTING THE ARM'S LENGTH PRICE AS PER SECTION 92C(1) OF THE ACT. THE TPO, AFTER PROVIDING ASSESSEE AN OPPORTUNITY OF BEING HEARD, ADOPTED A S ET OF 11 COMPARABLE CASES WHOSE ARITHMETIC MEAN OF OPERATING MARGIN WAS DETERMINED AT 14.57%, AS DETAILED BELOW :- SL. NO. NAME OF THE COMPANY PLI (OPERATING PROFIT/ OPERATING INCOME 1. BEMCO HYDRAULICS LTD. 9.52 2. DYNAMATIC TECHNOLOGIES LTD. (HYDRAULICS AND PRECISION ENGINEERING SEGMENT) 11.04 3. K S B PUMPS LTD. (PUMPS SEGMENT AND VALVES SEGMENT) 20.57 4. MATHER & PLATT PUMPS LTD. 10.53 5. ROTO PUMPS LTD. 11.42 6. SCHRADER DUNCAN LTD. (PNEUMATIC PRODUCTS SEGMENT) 10.59 7. SULZER PUMPS INDIA LTD. 12.08 ITA NO.1623/PN/2011 8. YUKEN INDIA LTD. 10.61 9. ASCO (INDIA) LTD. 38.36 10. BEACON INDUSTRIES & PUMPS LTD. 11.34 11. JOHNSON PUMP (INDIA) LTD. 14.17 MEAN 14.57 9. THE ARITHMETIC MEAN OF OPERATING MARGIN OF THE C OMPARABLE CASES ARRIVED AT 14.57% WAS COMPARED WITH THE OPERATING M ARGIN OF THE ASSESSEE IN RESPECT OF MANUFACTURING SEGMENT WHICH WAS 1.57%. ACCORDINGLY, AN ADJUSTMENT OF RS.5,21,97,453/- WAS COMPUTED WHICH W AS REQUIRED TO BE MADE TO THE INTERNATIONAL TRANSACTIONS PERTAINING TO MAN UFACTURING SEGMENT OF THE ASSESSEE SO AS TO BRING IT TO THE LEVEL OF ARM'S LE NGTH PRICE. PERTINENTLY, BIFURCATION OF ASSESSEES FINANCIAL RESULTS INTO MA NUFACTURING AND TRADING SEGMENT WAS DONE ONLY IN THE COURSE OF PROCEEDINGS BEFORE THE TPO AND SO FAR AS THE SEGMENT OF TRADING ACTIVITY IS CONCERNED THE TPO ACCEPTED THE POSITION THAT IT WAS AT ARM'S LENGTH PRICE AND NO A DDITION HAS BEEN PROPOSED. THE ADDITION IN QUESTION HAS BEEN MADE ONLY WITH RE GARD TO THE MANUFACTURING SEGMENT. 10. BY WAY OF GROUND OF APPEAL NO.2, ASSESSEE HAS A SSAILED THE APPROACH OF THE TPO WHILE COMPUTING THE ARM'S LENGTH PRICE I N RELATION TO THE MANUFACTURING SEGMENT BY APPLYING THE EXTERNAL TNM METHOD. AT THE OUTSET, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TPO ERRED IN DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATI ONAL TRANSACTIONS PERTAINING TO THE MANUFACTURING SEGMENT BY IGNORING ASSESSEES PLEA TO CONSIDER INTERNAL TNM METHOD IN PREFERENCE TO THE EXTERNAL COMPARABLE S CONSIDERED BY THE TPO. THE LD. REPRESENTATIVE POINTED OUT THAT INITI ALLY IN THE TRANSFER PRICING STUDY ASSESSEE HAD CONSIDERED THE MANUFACTURING AND TRADING ACTIVITIES AS A SINGLE SEGMENT ON THE GROUND THAT THE TRADING ACTIV ITIES WAS CLOSELY INTERLINKED WITH THE MANUFACTURING ACTIVITY. HOWEVER, ON THE A SKING OF THE TPO, ASSESSEE HAD FURNISHED THE SEGMENTAL PROFITABILITY STATEMENT SHOWING PROFITABILITY FOR THE ITA NO.1623/PN/2011 MANUFACTURING AND TRADING ACTIVITIES SEPARATELY. A T THAT STAGE, ASSESSEE HAD SUBMITTED THAT IT WOULD BE MORE APPROPRIATE TO COMP ARE THE PROFITABILITY FROM THE TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES WI TH THE PROFITABILITY FROM TRANSACTIONS WITH THIRD PARTIES. THE AFORESAID WAS JUSTIFIED ON THE GROUND THAT BOTH THE SEGMENTS ARE FUNCTIONALLY COMPARABLE IN EV ERY RESPECT. THE LD. REPRESENTATIVE POINTED OUT THAT IN SUPPORT OF THE A FORESAID, ASSESSEE FURNISHED A SEGMENTAL PROFITABILITY STATEMENT WHERE BY THE TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES IN THE MANUFACTURING SEGMENT SHOWED AN OPERATING MARGIN OF 3.2% AND THOSE WITH THE THIRD PARTIES SHO WED AN OPERATING MARGIN OF 2.80%. THE RELEVANT DETAILS IN THIS REGARD HAVE AL SO BEEN FURNISHED IN THE PAPER BOOK AT PAGE 114. THE ASSESSEE JUSTIFIED ITS ASSERTION THAT THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH THE ASSOCIATED ENTERPRISES IN THE MANUFACTURING SEGMENT ARE AT AN ARM'S LENGTH PR ICE. WE FIND THAT THE AFORESAID PLEA OF THE ASSESSEE HAS NOT BEEN ACCEPTE D BY THE TPO AS PER THE DISCUSSION CONTAINED IN PARAS 6.2.2 TO 6.2.6 OF HIS ORDER. THE LD. REPRESENTATIVE SUBMITTED THAT THE TPO HAS UNJUSTLY REJECTED THE SUBMISSIONS PUT-FORTH BY THE ASSESSEE WHICH ARE OTHERWISE JUSTI FIABLE HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 11. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE APPEARING FOR THE REVENUE SUBMITTED THAT THE BENCHMARKING ANALYSI S PROPOSED BY THE ASSESSEE BASED ON THE INTERNAL TNM METHOD DID NOT G IVE THE CORRECT PICTURE OF THE TRANSACTIONS BETWEEN THE ASSESSEE AND ITS ASSOC IATED ENTERPRISES. THE CASE MADE OUT BY THE LD. DEPARTMENTAL REPRESENTATIV E IS THAT THE TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES ARE NOT PURELY IDEN TICAL WITH THE TRANSACTIONS WITH THIRD PARTIES AND IN SUPPORT REFERENCE HAS BEE N MADE TO A TABULATION IN PARA 6.2.3 OF THE ORDER OF THE TPO. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, INTERNAL TNM METHOD CANVASSED BY TH E ASSESSEE WAS IN RELATION TO BENCHMARKING ON THE BASIS OF SALES MADE , BUT NOT THAT OF PURCHASES ITA NO.1623/PN/2011 FROM ASSOCIATED ENTERPRISES, WHICH WAS OF A SUBSTAN TIVE VALUE. THE SEGMENTAL STATEMENT BETWEEN ASSOCIATED ENTERPRISES SEGMENT AND THIRD PARTIES SEGMENT WAS BASED ON SALES, AND IN-FACT THE PURCHASES ARE NOT EVALUATED SEPARATELY. IT WAS THEREFORE CONTENDED T HAT THE APPROACH OF THE TPO WAS QUITE JUSTIFIED. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE DISPUTE ON THIS ASPECT RELATES TO A PLEA PUT-FORTH BY THE ASSE SSEE DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO WHEREBY ASSESSEE CANVASS ED THAT THE INTERNATIONAL TRANSACTIONS IN THE MANUFACTURING SEG MENT BE BENCHMARKED BY USING INTERNAL TNM METHOD. NO DOUBT, IN THE TRANSF ER PRICING STUDY CARRIED OUT BY THE ASSESSEE INITIALLY IT HAD ADOPTED THE EX TERNAL COMPARABILITY ON AN AGGREGATED SEGMENT OF MANUFACTURING PLUS TRADING AC TIVITIES. THE TPO HAD REJECTED THE AGGREGATION OF THE TWO ACTIVITIES AND BENCHMARKED THE MANUFACTURING SEGMENT INDEPENDENT OF THE TRADING SE GMENT. AT THAT STAGE, ASSESSEE PUT-FORTH A PLEA THAT THE BENCHMARKING OF THE MANUFACTURING SEGMENT BE CARRIED OUT BY USING THE INTERNAL TNM ME THOD. BEFORE THE TPO, ASSESSEE POINTED OUT THAT IN THE MANUFACTURING SEGM ENT, THE PRODUCTS MANUFACTURED BY ASSESSEE CONSUMED VARIOUS RAW MATER IALS AND COMPONENTS, WHICH WERE PROCURED DOMESTICALLY FROM THIRD PARTIES AS WELL AS IMPORTED FROM ASSOCIATED ENTERPRISES AND OVERSEAS THIRD PARTIES. ASSESSEE SEGREGATED THE PRODUCTS WHICH DID NOT CONSUME RAW MATERIAL AND COM PONENTS PROCURED FROM ASSOCIATED ENTERPRISES FROM THOSE PRODUCTS WHICH CO NSUMED SUCH RAW MATERIAL AND COMPONENTS. SIMILARLY, ASSESSEE SEPAR ATELY IDENTIFIED THE SALES OF THESE PRODUCTS. PRIMARILY, ASSESSEE IDENTIFIED SALES OF PRODUCTS WHICH NEITHER HAD ANY CONSUMPTION OF RAW MATERIAL AND COM PONENTS PROCURED FROM ASSOCIATED ENTERPRISES AND NOR SOLD TO THE ASSOCIAT ED ENTERPRISES. THIS SEGMENT COMPRISED OF GEAR PUMPS AND CYLINDERS AND I T WAS ACCORDINGLY CONSIDERED AS THIRD PARTY SEGMENT. THE OPERATING M ARGIN IN THE SAID SEGMENT ITA NO.1623/PN/2011 WAS DETERMINED AT 2.80% IN TERMS OF THE TABULATION WHICH IS PLACED IN THE PAPER BOOK AT PAGE 114. THE BALANCE SALES COMPRI SING OF OTHER PRODUCTS, NAMELY, VANE/PISTON, PUMPS, POWER UNITS, CYLINDERS CONTROL VALVES, ETC. WHICH ENTAILED CONSUMPTION OF RAW MATERIAL AND COMPONENTS PURCHASED FROM ASSOCIATED ENTERPRISES WERE IDENTIFIED AS THE ASSOC IATED ENTERPRISES SEGMENT. THIS SEGMENT ALSO INCLUDED SOME GEAR PUMPS AND CYLI NDERS WHICH DID NOT CONSUME RAW MATERIAL AND COMPONENTS PROCURED FROM A SSOCIATED ENTERPRISES THOUGH THE SALES WERE TO THE ASSOCIATED ENTERPRISES . THE OPERATING MARGIN IN THE ASSOCIATED ENTERPRISES SEGMENT IN THE MANUFACTU RING SEGMENT WAS THUS COMPUTED AT 3.2% IN TERMS OF THE TABULATION, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGE 114. THE AFORESAID PROFI TABILITY STATEMENT SHOWED THAT THE PROFITABILITY FROM TRANSACTIONS WITH ASSOC IATED ENTERPRISES WAS HIGHER THAN THE PROFITABILITY OF THE TRANSACTIONS WITH THE THIRD PARTIES. WE FIND THAT ASSESSEE ALSO ASSERTED BEFORE THE TPO THAT BOTH THE SEGMENTS, NAMELY, THE ASSOCIATED ENTERPRISES SEGMENT AND THE THIRD PARTIE S SEGMENT WERE FUNCTIONALLY COMPARABLE IN EVERY ASPECT. THEREFORE , IT WAS CANVASSED THAT BASED ON THE AFORESAID INTERNAL TNM ANALYSIS, THE I NTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN THE MANUFACTURING SEGMENT WERE AT A N ARM'S LENGTH PRICE. 13. IN-FACT, THE INTERNAL COMPARABLES DO HAVE A MOR E DIRECT AND CLOSER RELATIONSHIP TO THE TESTED TRANSACTIONS RATHER THAN THE EXTERNAL COMPARABLES. IN OTHER WORDS, THE PROFITABILITY OF AN ASSESSEE FR OM THE CONTROLLED TRANSACTIONS CAN BE BENCHMARKED MORE MEANINGFULLY WITH REFERENCE TO THE ASSESSEES PROFITABILITY FROM SIMILAR TRANSACTIONS CARRIED OUT IN UNCONTROLLED CONDITIONS, I.E. WITH THIRD PARTIES. IN THE PRESENT CASE, ASSESSEE POINTED OUT THAT THE ASSOCIATED ENTERPRISES SEGMENT AND THE THIRD PARTIE S SEGMENT WERE FUNCTIONALLY COMPARABLE AND THEREFORE THE THIRD PAR TIES SEGMENT WAS A GOOD UNCONTROLLED COMPARABLE AVAILABLE TO BENCHMARK THE INTERNATIONAL TRANSACTIONS ENTERED WITH THE ASSOCIATED ENTERPRISES. ITA NO.1623/PN/2011 14. PERTINENTLY, ASSESSEE ALSO UNDERTOOK SIMILAR AN ALYSIS WITH REGARD TO ITS TRADING SEGMENT BEFORE THE TPO. IN THE TRADING SEG MENT ALSO, ASSESSEE TABULATED THE ASSOCIATED ENTERPRISES SEGMENT AND TH E THIRD PARTIES SEGMENT AND POINTED OUT THAT THE OPERATING MARGIN IN THE AS SOCIATED ENTERPRISES SEGMENT WAS HIGHER THAN THE OPERATING MARGIN IN THE THIRD PARTIES SEGMENT. THE SAID CALCULATION IS A PART OF THE TABULATION FU RNISHED TO THE TPO, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGE 114 . THIS APPROACH OF THE ASSESSEE WAS SIMILAR TO THE APPROACH IN RELATION TO THE MANUFACTURING SEGMENT AS DISCUSSED EARLIER. IN SO FAR AS THE INTERNATION AL TRANSACTIONS ENTERED WITH THE ASSOCIATED ENTERPRISES IN THE TRADING SEGMENT A RE CONCERNED, THE TPO WAS SATISFIED THAT THEY ARE AT AN ARM'S LENGTH PRIC E AS NO ADJUSTMENT HAS BEEN PROPOSED BY HIM. HOWEVER, SIMILAR APPROACH TAKEN B Y THE ASSESSEE WITH RESPECT TO THE MANUFACTURING SEGMENT HAS NOT BEEN A CCEPTED BY THE TPO. IN OUR CONSIDERED OPINION, THE GROUNDS TAKEN BY THE TP O TO REJECT THE ASSESSEES PLEA FOR INTERNAL TNM COMPARABLE ARE NEITHER GERMAN E AND NOR JUSTIFIED, APART FROM BEING INCONSISTENT WITH HIS STAND RELATING TO SIMILAR SITUATION IN THE TRADING SEGMENT. WE FIND FROM A COPY OF SUBMISSION S DATED 14.09.2010 ADDRESSED TO THE TPO, A COPY OF WHICH HAS BEEN PLAC ED IN THE PAPER BOOK AT PAGES 599 TO 603 THAT ASSESSEE HAD EXPLAINED THE MA NNER IN WHICH THE BIFURCATION OF MANUFACTURING SEGMENT WAS DONE INTO ASSOCIATED ENTERPRISES SEGMENT AND THE NON-ASSOCIATED ENTERPRISES SEGMENT. THE FOLLOWING AVERMENTS MADE BY THE ASSESSEE ARE WORTHY OF NOTICE :- AS EXPLAINED DURING THE HEARING HELD ON AUGUST 31, 2010, THE COMPANY MANUFACTURES CERTAIN PRODUCTS WHICH DO NOT ENTAIL C ONSUMPTION OF ANY RAW MATERIAL IMPORTED FROM AES. THUS, FURTHER SPLIT OF MANUFACTURING SEGMENT INTO AE AND NON-AEY SEGMENT WAS DONE ON A PRODUCT BASIS I.E. PRODUCTS, MANUFACTURING OF WHICH REQUIRES RAW MATERIAL IMPOR TED FROM AE (CATEGORIZED AS 'AE SEGMENT 1 ) AND PRODUCTS, MANUFACTURING OF WHICH DOES NOT REQUIRE RAW MATERIALS IMPORTED FROM AES (CATEGORIZED AS 'NON-AE SEGMENT). THE NON-AE SEGMENT REPRESENTS THE PROFITABILITY MAD E BY THE COMPANY FROM MANUFACTURE AND SALE OF PRODUCTS WHICH DO NOT ENTAI L CONSUMPTION OF ANY RAW MATERIAL IMPORTED FROM AES. THE AE SEGMENT REPRESEN TS THE PROFITABILITY FROM ITA NO.1623/PN/2011 MANUFACTURE AND SALE OF PRODUCTS WHICH ENTAIL CONSU MPTION OF RAW MATERIALS FROM AES. WHILE PREPARING THE AE AND NON-AE SEGMENT, THE REVE NUE AND COSTS TO THE EXTENT IDENTIFIABLE ARE DETERMINED BASED ON ACTUAL. THE COMMON COSTS I EXPENSES, BEING INSIGNIFICANT PORTION OF TOTAL OPER ATING EXPENSES, AS EXPLAINED ABOVE WERE ALLOCATED CONSIDERING NET SALES OF EACH SEGMENT AS THE REASONABLE ALLOCATION KEY. YOUR GOOD SELF WOULD APPRECIATE THAT TRANSACTIONAL NET MARGIN METHOD ('TNMM') REQUIRES A FUNCTIONAL SIMILARITY RATHER TH AN PRODUCT SIMILARITY. THUS, UNDER BOTH THE AFORESAID SEGMENTS, THERE IS A FUNCT IONAL SIMILARITY VIZ. MANUFACTURING FUNCTION THOUGH THE PRODUCT MAY NOT B E IDENTICAL. IN VIEW OF THE ABOVE, THE INTERNAL COMPARABILITY OF PROFIT FROM SA LE OF MANUFACTURED PRODUCTS UNDER AE AND NON-AE SEGMENT WOULD BE THE MOST APPRO PRIATE METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTIONS PERTAINING TO MANUFACTURING SEGMENT. 15. THE AFORESAID SHOWS THAT THE SEGMENTATION OF MA NUFACTURING SEGMENT INTO ASSOCIATED ENTERPRISES SEGMENT AND THIRD PARTI ES SEGMENT WAS DONE BY THE ASSESSEE ON PRODUCT BASIS, I.E. THE ASSOCIATED ENTERPRISES SEGMENT REFLECT PROFITABILITY ON PRODUCTS WHICH REQUIRE CONSUMPTION OF RAW MATERIAL AND COMPONENTS FROM ASSOCIATED ENTERPRISES WHEREAS THE THIRD PARTIES SEGMENT REFLECTS PROFITABILITY FROM PRODUCTS WHICH DO NOT E NTAIL PURCHASES OF RAW MATERIALS AND COMPONENTS FROM ASSOCIATED ENTERPRISE S. THE TPO HAS POINTED OUT THAT THE SALE OF FINISHED GOODS IN THE ASSOCIAT ED ENTERPRISES SEGMENT INCLUDES A COMPONENT OF SALE OF RS.8,37,000/- OF PR ODUCTS WHICH DO NOT CONSUME ANY RAW MATERIAL OR COMPONENT PURCHASED FRO M ASSOCIATED ENTERPRISES. THE ASSESSEE HAD EXPLAINED THAT THIS WAS A MINOR TRANSACTION INVOLVING GEAR PUMPS & CYLINDERS OUT OF TOTAL SALES OF FINISHED GOODS TO ASSOCIATED ENTERPRISES OF RS.2.36 CRORES (APPROX). IT WAS EXPLAINED THAT PROFITABILITY OF THIS MINOR TRANSACTION WAS INCLUDE D IN THE ASSOCIATED ENTERPRISES SEGMENT TO ENSURE COMPREHENSIVE BENCHMARKING OF INT ERNATIONAL TRANSACTION OF SALES TO THE ASSOCIATED ENTERPRISES. IN OUR CON SIDERED OPINION, THE SAID MINOR TRANSACTION DOES NOT VITIATE THE SEGMENTATION OF MANUFACTURING SEGMENT INTO ASSOCIATED ENTERPRISES SEGMENT AND THIRD PARTI ES SEGMENT DONE BY THE ASSESSEE FOR THE PURPOSE OF INTERNAL TNM METHOD. ITA NO.1623/PN/2011 16. ON THE BASIS OF THE AFORESAID, WE FIND THAT THE BIFURCATION OF MANUFACTURING SEGMENT INTO ASSOCIATED ENTERPRISES A ND THE THIRD PARITIES DONE BY THE ASSESSEE IS FAIR AND APT. THE TNM METHOD DO ES NOT ENVISAGE AN ABSOLUTE PRODUCT SIMILARITY BUT RATHER EMPHASIZES O N FUNCTIONAL SIMILARITY. QUITE CLEARLY, IN THE ASSOCIATED ENTERPRISES SEGMEN T AS WELL AS THE THIRD PARTY SEGMENT IN THE MANUFACTURING SEGMENT THERE IS A FUN CTIONAL SIMILARITY AND THEREFORE THE INTERNAL TNM METHOD COMPARABLE PROFES SED BY THE ASSESSEE WAS WRONGLY REJECTED BY THE TPO. BEFORE WE PARTING ON THIS ISSUE, WE WOULD ALSO REFER TO THE FOLLOWING ANALYSIS OF THE SEGMENT ATION IN MANUFACTURING SEGMENT CANVASSED BY THE ASSESSEE BEFORE THE TPO VI DE COMMUNICATION DATED 28.10.2010 :- THE PROFITABILITY OF THE INTERNATIONAL TRANSACTION PERTAINING TO PURCHASE OF RAW MATERIAL AND COMPONENTS FROM AES (APPROXIMAT E TRANSACTION VALUE RS.8.32 CRORES) IS REFLECTED IN THE OPERATING MARGIN OF THE AE SEGMENT, SINCE THE TRANSACTION FORMS A PART OF THE SAME. (THIS INCLUDES THE PROFITABILITY OF THE MINOR SALE TRANSACTION OF RS.8.37 LAKHS TO AES OF PRODUCTS THAT DO NOT ENTAIL CONSUMPTION OF RAW MATE RIAL AND COMPONENTS PURCHASED FROM AES. THE BALANCE SALES OF RS.2.28 CRORES ENTAIL CONSUMPTION OF RAW MATERIAL AND COMPONENTS P URCHASED FROM AES AND ARE AUTOMATICALLY COVERED IN THIS SEGMENT.) THE PROFITABILITY OF COMPARABLE TRANSACTION PERTAIN ING TO PURCHASE OF RAW MATERIAL AND COMPONENTS PURCHASED FROM THIRD PA RTIES IS REFLECTED IN THE OPERATING MARGIN OF THE THIRD PARTY SEGMENT. THE OPERATING MARGIN DERIVED FROM THE INTERNATIONAL TRANSACTION PERTAINING TO PURCHASE OF RAW MATERIAL AND COMPONEN TS PURCHASED FROM AES (FORMING A PART OF IN THE AE SEGMENT) WOUL D BE BENCHMARKED AGAINST THE COMPARABLE OPERATING MARGIN DERIVED FRO M THE THIRD PARTY TRANSACTIONS (COVERED IN THE AE SEGMENT). THE OPERATING MARGIN DERIVED FROM THE INTERNATIONAL TRANSACTION PERTAINING TO SALE OF FINISHED PRODUCTS TO AES (FOR MING A PART OF IN THE AE SEGMENT) WOULD BE BENCHMARKED AGAINST THE COMPAR ABLE OPERATING MARGIN DERIVED FROM THE THIRD PARTY TRANS ACTIONS (COVERED IN THE AE SEGMENT). 17. ON THE BASIS OF THE AFORESAID FACT ANALYSIS, WH ICH HAS NOT BEEN CONTROVERTED BY THE TPO, WE FIND THAT IN THE PRESEN T CASE INTERNAL COMPARISON OF THE OPERATING MARGINS USING INTERNAL TNM METHOD IS LIABLE TO BE UPHELD IN ORDER TO COMPUTE ARM'S LENGTH FOR THE INTERNATIONAL TRANSACTIONS OF PURCHASE OF ITA NO.1623/PN/2011 RAW MATERIAL AND COMPONENTS FROM ASSOCIATED ENTERPR ISES AS WELL AS SALES OF FINISHED GOODS EFFECTED TO THE ASSOCIATED ENTERPRIS ES. ON THE BASIS OF THE AFORESAID BENCHMARKING, THE PROFITABILITY OF INTERN ATIONAL TRANSACTIONS UNDER THE ASSOCIATED ENTERPRISES SEGMENT COMPUTED AT 3.25% IS HIGHER THAN THE PROFITABILITY OF TRANSACTIONS UNDER THE THIRD PARTI ES SEGMENT COMPUTED AT 2.80%. HENCE, THE INTERNATIONAL TRANSACTIONS ENTER ED WITH THE ASSOCIATED ENTERPRISES UNDER THE MANUFACTURING SEGMENT ON ACCO UNT OF PURCHASE OF RAW MATERIAL AND COMPONENTS AND ALSO SALES ARE CONSISTE NT WITH THE ARM'S LENGTH PRICE AND NO TRANSFER PRICING ADJUSTMENT IS THUS RE QUIRED TO BE MADE. ON THIS ASPECT, WE UPHOLD THE PLEA OF THE ASSESSEE AND ACCO RDINGLY, THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 18. APART FROM THE AFORESAID, ASSESSEE HAS ALSO RAI SED OTHER GROUNDS OF APPEAL CHALLENGING THE ADJUSTMENT MADE, EVEN AS PER THE METHODOLOGY OF THE EXTERNAL TNM METHOD APPLIED BY THE TPO. ON THIS AS PECT, IT HAS BEEN CANVASSED THAT THE TPO HAS ERRED IN REJECTING CERTA IN COMPARABLES ADOPTED BY THE ASSESSEE AND AT THE SAME TIME HE HAS ALSO ER RED IN SELECTING CERTAIN COMPARABLES WHICH WERE NOT OTHERWISE FUNCTIONALLY C OMPARABLE WITH THE ASSESSEE AND THEREBY INCORRECT SET OF COMPARABLES H AS BEEN CHOSEN. FURTHER, WITHOUT PREJUDICE BASIS IT IS CONTENDED BY THE ASSESSEE THAT ADJUSTMENT, IF ANY, SHOULD BE LIMITED TO THE IMPORT PRICES OF RAW MATERIALS CONSUMED WHICH HAVE BEEN IMPORTED FROM ASSOCIATED E NTERPRISES ALONE AND IT CANNOT BE APPLIED TO THE ENTIRE RAW MATERIAL CONSUM PTION AS THE LATTER CONTAINS RAW MATERIAL SOURCED FROM NON-RELATED PARTIES ALSO. ALL THE ABOVE ASPECTS ARE RENDERED ACADEMIC AS THE ASSESSEE HAS SUCCEEDED ON GROUND OF APPEAL NO.2, AND THEREFORE THE SAME ARE NOT BEING ADJUDICA TED FOR THE PRESENT. 19. IN THE LAST GROUND, ASSESSEE HAS ASSAILED THE A CTION OF THE INCOME-TAX AUTHORITIES IN DISALLOWING THE EXPENDITURE INCURRED ON LEASE RENTALS FOR USE OF ITA NO.1623/PN/2011 VEHICLES AND COMPUTERS AMOUNTING TO RS.12,14,618/- AND RS.3,30,371/- RESPECTIVELY BY WRONGFULLY HOLDING THAT SUCH EXPEND ITURE IS OF CAPITAL NATURE. IT IS FURTHER CONTENDED, WITHOUT PREJUDICE TO THE AFOR ESAID, THAT IF THE EXPENDITURE ON LEASE RENTAL WAS TO BE TREATED AS CAPITAL IN NAT URE, DEPRECIATION UNDER SECTION 32(1) OF THE ACT OUGHT TO HAVE BEEN ALLOWED BY THE INCOME-TAX AUTHORITIES. 20. ON THIS ASPECT, BRIEF FACTS ARE THAT IN THE EAR LIER ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 2003-04, ASSESSEE HAD TAKEN ON LEASE VEHICLES AND COMPUTERS FROM M/S KOTAK MAHINDRA PRIMUS LTD. A ND FIRST LEASING CO. OF INDIA LTD. RESPECTIVELY. ASSESSEE HAD CAPITALIZED THE ENTIRE AMOUNT IN ITS BOOKS OF ACCOUNT BUT NO DEPRECIATION WAS CLAIMED, A ND IT CLAIMED DEDUCTION FOR THE PRINCIPAL PORTION OF THE LEASE RENTALS. I N THE ASSESSMENT YEAR 2003-04, ASSESSING OFFICER OBSERVED THAT SINCE THE ASSETS WE RE REGISTERED IN THE NAME OF THE ASSESSEE THEREBY GIVING IT OWNERSHIP, THE EX PENDITURE TOWARDS RE- PAYMENT OF PRINCIPAL VALUES OF THE ASSETS WAS TO BE TREATED AS A CAPITAL EXPENDITURE AND THE AMOUNT WAS DISALLOWED. FOLLOWI NG THE AFORESAID, IN THE PRESENT YEAR ALSO THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE TOWARDS RE-PAYMENT OF PRINCIPAL VALUE OF LEASE RENT ALS AMOUNTING TO RS.12,14,618/- AND RS.5,30,371/- ON ACCOUNT OF VEHI CLES AND COMPUTERS RESPECTIVELY. 21. IN THIS BACKGROUND, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE DISPUTE FOR THE ASSESSMENT YEAR 2003-04 WA S STILL NOT FINAL AND THEREFORE THE MATTER MAY BE SET-ASIDE TO THE FILE O F THE ASSESSING OFFICER WITH THE DIRECTIONS TO DECIDE THE ISSUE IN THE LIGHT OF THE ULTIMATE DECISION WITH REGARD TO SUCH DISPUTE IN THE ASSESSMENT YEAR 2003- 04. THE LEARNED DEPARTMENTAL REPRESENTATIVE APPEARING FOR THE REVEN UE HAS NOT CONTESTED ITA NO.1623/PN/2011 THE AFORESAID FACTUAL MATRIX AND HAS ALSO NOT OPPOS ED THE PLEA OF THE ASSESSEE FOR REMANDING THE ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER. 22. IN VIEW OF THE AFORESAID, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CONSIDER THE CLAIM OF T HE ASSESSEE IN CONFORMITY WITH THE ULTIMATE DECISION ON THIS ASPECT IN THE AS SESSMENT YEAR 2003-04. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS FOR STATIST ICAL PURPOSES. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 27 TH FEBRUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 27 TH FEBRUARY, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE DIT (INTERNATIONAL TAXATION), PUNE; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE