Cummins India Ltd., Pune V. Addl. Comm.of Income-tax, Pune

ITA 1681/PUN/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7701 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J R CHANDREKAR
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Initiation of penalty proceedings; Revenue expenditure
• Section: 92C; 92B; 14A; 80IB; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1681 /P U N/20 1 1 / ASSESSMENT YEAR : 20 0 7 - 0 8 CUMMINS INDIA LIMITED, KOTHRUD, PUNE 411038 . / APPELLANT PAN: AAAC C7258B VS. THE ADDL . COMMISSIONER OF INCOME - TAX , RANGE 1, PUNE . / RESPONDENT / APPELLANT BY : S /S HRI ARVIND SONDE, AMIT SINGHAL, GOPAL AGARWAL / RESPONDENT BY : S HRI J.R. CHANDREKAR / DATE OF HEARING : 23 . 0 5 .201 7 / DATE OF PRONOUNCEMENT: 21 . 0 8 .201 7 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY A SSESSEE IS AGAINST ORDER OF T HE A DDL. COMMISSIONER OF INCOME TAX, RANGE - 1 , PUNE DATED 25.10.2011 RELATING TO A SSESSMENT Y EAR 20 0 7 0 8 PASSED UNDER SECTION143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - A. TRANSFER PRICING ADJUSTMENT: 1.1 THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN MAKING AN ADJUSTMENT AMOUNTING TO RS.55,23,59,930 TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES IN RESPECT OF EXPORT OF 1C ENGI NES, PAYMENT OF TECHNICAL KNOW - HOW FEES AND PROCUREMENT SUPPORT SERVICES. 1.2 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN DISREGARDING THE BENCHMARKING OF MANUFACTURING ACTIVITY DONE BY THE APPELLANT FOLLOWING 'AGGREGATION OF TRANSACTIONS' APPROACH USING THIRD PARTY COMPA RABLE COMPANIES WHILST FOLLOWING 'AGGREGATION OF TRANSACTIONS' APPROACH HIMSELF US IN G INTERNAL 'COMPARABLES') . B. INTERNATIONAL TRANSACTION RELATING TO EXPORT OF 1C ENGINES 2. REJECTION OF BENCHMARKING DONE BY THE APPELLANT: 2.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING THE EXTERNAL COMPARABLE COMPANIE S SELECTED BY THE APPELLANT FOR BENCHMARKING THE MANUFACTURING FUNCTION. 3. INAPPROPRIATE COMPARISON OF PROFITABILITY BETWEEN 'EXPORT TO ASSOCIATED ENTERPRISES (AES)' SEGMENT AND 'DOMESTIC SALES' SEGMENT IGNORING DIFFERENCES IN FUNCTIONS, ASSETS AND RISKS (FAR), DIFFERENCES IN PRODUCTS SOLD AND COMPARISON OF CONTROLLED TRANSACTIONS WITH CONTROLLED TRANSACTIONS 3.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPARIN G SEGMENTAL PROFITABILITY OF THE APPELLANT I.E. BETWEEN 'EXPORT TO AES' SEGMENT AND 'DOMESTIC SALES' SEGMENT IGNORING PRODUCT DIFFERENCES, DIFFERENCES IN MARKETS AS WELL AS DIFFERENCES IN THE FUNCTIONS, ASSETS AND RISKS (FAR). 3.2 THE LEARNED AC I T PURSUA NT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPARING SEGMENTAL PROFITABILITY OF THE APPELLANT 'EXPORTS TO AES' SEGMENT AND 'DOMESTIC SALES' SEGMENT. THIS IS A COMPARISON BETWEEN CONTROLLED TRANSACT IONS, WHICH IS AGAINST THE TRANSFER PRICING REGULATIONS IN INDIA, WHICH STIPULATES COMPARING CONTROLLED TRANSACTIONS WITH UNCONTROLLED TRANSACTIONS. 3.3 WITHOUT PREJUDICE TO ABOVE, THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPARING SEGMENTAL PROFITABILITY OF THE APPELLANT 'EXPORTS TO AES' SEGMENT AND 'DOMESTIC SALES' SEGMENT, WITHOUT ADJUSTING FOR INTERNATIONAL TRANSACTIONS WITH AES VIZ., PAYMENT OF ROYALTY AND IMPORT OF MATERIAL & COMPONENTS, WHICH ARE FORMING PART OF SEGMENTAL PROFITABILITY. ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 3 3.4 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN IGNORING THE ADJUSTED MARGINS SUBMITTED BY THE APPE LLANT IN ORDER TO ACCOUNT FOR THE DIFFERENCES BETWEEN TWO SEGMENTS OF 'EXPORT TO AES' AND 'DOMESTIC SALES' ON ACCOUNT OF PRODUCT AND RISK DIFFERENCES. 4. INAPPROPRIATE APPROACH ADOPTED BY TPO IN APPLICATION OF 'NET PROFIT TO TOTAL COST' AS PROFIT LEVEL INDICATOR (PL I) 4.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP 'ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN CONSIDERING PLI AS 'NET PROFIT TO TOTAL COST' AS AGAINST 'NET PROFIT TO SALES' AS SELECTED BY THE APPELLANT WITHOUT PROVIDING COGENT REASONS. 5. BENEFIT OF THE VARIATION / REDUCTION OF 5 PERCENT FROM THE ARITHMETIC MEAN 5.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN CONFIRMING THE COMPUTATION OF ARM'S LENGTH PRICE UNDERTAKEN BY THE TPO WITHOUT CONSIDERING LOWER +/ - 5 PERCENT RANGE FROM THE PRICE COMPUTED BASED ON ARITHMETIC MEAN AS PROVIDED IN PROVISO TO SECTION 92C (2) OF THE ACT. C. INTERNATIONAL TRANSACTION RELA TING TO PAYMENT OF TECHNICAL KNOW - HOW 6 . IN APPROPRIATE APPROACH ADOPTED BY TPO M BENCHMARKING PAYMENT OF TECHNICAL KNOW - HOW FEES TO ASSOCIATED ENTERPRISES 6.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN FACTS AND IN CIRCUMSTANCES OF THE CASE IN DETERMINING THE VALUE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF TECHNICAL KNOW - HOW AS 'NIL', CHALLENGING THE BASIS OF TRANSACTION ITSELF. 6.2 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN FACTS AND IN CIRCUMSTANCES OF THE CASE IN DETERMINING THE VALUE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF TECHNICAL KNOW - HOW AS 'NIL' WITHOUT APPLYING ANY OF THE PRESCRIBED METHODS UNDER SECTION 92C(2) OF THE ACT. 6.3 THE LEARNED AC I T PURSUANT TO THE DIRE CTIONS OF THE LEARNED DRP ERRED IN FACTS AND IN CIRCUMSTANCES OF THE CASE IN TREATING RS.8,86,15,435 AS 'INCOME' OF THE APPELLANT WHILE THE AFORESAID AMOUNT IS ACCOUNTED AS 'CAPITAL WORK IN PROGRESS', PENDING CAPITALIZATION. CONSEQUENTLY NO DEPRECIATION IS CLAIMED IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08. 6.4 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE M ETHOD OF THE APPELLANT FOR BENCHMARKING THE PAYMENT OF TECHNICAL KNOW - HOW. D . INTERNATIONAL TRANSACTION RELATING TO PROCUREMENT SUPPORT SERVICES 7 . INAPPROPRIATE APPROACH ADOPTED BY TPO I N BENCHMARKING PROC UREMENT SUPPORT SERVICES PROVIDED TO ASSOCIATED ENTERPRISES ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 4 7.1 THE LEARNED AC I T PURSUANT TO THE DIRECTION OF THE LEARNED DRP ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE IN WRONGLY REJECTING THE FOLLOWING COMPARABLE COMPANIES WITHOUT GIVING ANY COGENT REASONS - @ KIRLOSKAR CONSULTANTS LIMITED MAHINDRA CONSULTING ENGINEERS LIMITED AGRIMA CONSULTANTS INTERNATIONAL LIMITED SERVOTECH ENGINEERING INDUSTRIES LIMITED 8. DISALLOWANCE OF DEDUCTION U/S. 80IB BY THE AO 8.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED I N DISALLOWING RS.3,65,365/ - OUT OF THE DEDUCTION U/S. 80IB BY ALLOCATING A PORTION OF DIRECTOR'S EXPENSES TO THE PROFITS OF ELIGIBLE DAMAN UNIT. 8.2 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN NOT APPRECIATING THAT THE ELIGI BLE UNIT OF THE APPELLANT COMPANY AT DAMAN WAS AN INDEPENDENT UNIT MANAGED INDEPENDENTLY WITHOUT ANY INTERFERENCE BY OTHER DIVISIONS OF THE APPELLANT COMPANY AND THEREFORE NO PART OF THE COMMON EXPENSES / EXPENSES ON DIRECTORS COULD BE ATTRIBUTED TO THE SA ID UNIT OF THE APPELLANT COMPANY. 9. DIS ALLOWANCE IN RESPECT OF INTANGIBLES BY THE A O 9.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN DISALLOWING DEPRECIATION ON INTANGIBLES OF RS.3,01,39,687/ - IN RESPECT OF GLOBAL SOURCING CONSIDERATION BY FOLLOWING THE DECISION OF MUMBAI HIGH COURT IN TH E CASE OF CIT V TECHNO SHARES & STOCKS LTD. (2009) 225 ITR 337 (MUM.). THE H'BLE DISPUTE RESOLUTION PANEL, PUNE AND THE LEARNED ASSESSING OFFICER ERRED IN NOT APPRECIATING THAT THE ABOVE DECISION IS REVERSED BY THE HON'BLE SUPREME COURT IN 2010. 9.2 WITHOUT PREJUDICE TO ABOVE, THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN NOT APPRECIATING THAT THE GLOBAL SOURCING CONSIDERATION REPRESENTED DISCOUNT ON THE VA LUE OF PROPOSED/ FUTURE SALES IN THE SUBSEQUENT PERIOD OF FIVE YEARS AND THE PRORATA DISCOUNT ALLOWABLE ON THE ACTUAL SALES FOR THE RELEVANT PREVIOUS YEAR SHOULD HAVE BEEN ALLOWED AS A REVENUE EXPENDITURE. 9.3 WITHOUT PREJUDICE TO ABOVE, THE H'BLE DISPUTE RESOLUTION PANEL, PUNE AND THE LEARNED ASSESSING OFFICER ERRED IN NOT ALLOWING AMORTIZATION @ 1/5 TH OF THE TOTAL EXPENDITURE ON GLOBAL SOURCING CONSIDERATION EVERY YEAR FOR THE SPECIFIED PERIOD OF FIVE YEARS FOR WHICH THE AGREEMENT WAS ENTERED INTO. 10. DISALLOWANCE OF EXPENSES U NDER SECTION 14A 10.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN DISALLOWING AN AMOUNT OF RS.16,84,392/ - AS INCURRED IN RELATION TO EXEMPT INCOME U/S. 14A OF THE INCOME TAX ACT, 1961. 10.2 THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE LEARNED URP ERRED IN NOT APPRECIATING THAT THERE WAS NO DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND EXEMPTED INCOME AND THEREFORE THERE CANNOT BE ANY ADHOC DISALLOWANCE OUT OF GENERA L EXPENSES. THEY ERRED IN NOT FOLLOWING THE RATIO OF THE FOLLOWING DECISIONS: ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 5 A ) C I T V HERO CYCLES LTD (2010) 323 ITR 518 (P & H) B ) CIT V PRINTERS HOUSE (P.) LTD (2010) 188 TAXMAN 70 (DELHI) C ) I TO V M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. (SB - MUM ITAT) D ) CIT V GENERA L INSURANCE CORPORATION OF INDIA (2002) 254 ITR 203 (BOM.) E ) CIT V BSES LTD. (2008) 113 TTJ 227 (MUM.) F ) SPACE FINANCIAL SERVICES V ACIT (2008) 115 TTJ I65 (DEL.) 11. INITIATION OF PENALTY PROCEEDINGS 11.1 THE LEARNED ACIT ERRED ON THE FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 12. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS COVERED BY THE ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2005 - 06 AND 2006 - 07, WHEREIN THE AGGREGATI ON APPROACH ADOPTED BY THE ASSESSEE FOR BENCHMARKING VARIOUS INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE HAS BEEN ACCEPTED. HE HOWEVER, POINTED OUT THAT IN THE PRECEDING YEARS, AFTER THE APPLICATION OF AGGREGATION APPROACH, NO ADJUSTMENT HAD T O BE MADE IN THE HANDS OF ASSESSEE AND HENCE, THE OTHER ISSUES WERE PLEADED TO BE ACADEMIC IN NATURE. HE FURTHER REFERRED TO THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2005 - 06, WHEREIN THE ISSUE BEING ACADEMIC WAS NOTED BY THE TRIBUNAL BUT BY AN ERROR, WHILE DISMISSING THE SAID GROUND OF APPEAL IT WAS MENTIONED THAT THE SAME WAS NOT PRESSED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL WHILE DECIDING THE APPEAL IN ASSESSMENT YEAR 2006 - 07 HAD APPLIED AGGREGATION AP PROACH FOR BENCHMARKING ARM'S LENGTH PRICE OF VARIOUS INTERNATIONAL TRANSACTIONS AND HAD ALSO ALLOWED APPROPRIATION OF COSTS , AFTER WHICH NO ADDITION SURVIVES. HOWEVER, THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 HAD HELD THAT IN VIEW OF WITHDRAWAL OF SIMILAR ISSUES BY THE ASSESSEE BEFORE THE TRIBUNAL IN EARLIER ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 6 YEAR, WE ARE NOT REFERRING TO THE RATIOS LAID DOWN BY THE SAID DECISION I.E. WHETHER THE MARGINS OF ASSESSEE WERE TO BE COMPARED TO THE EXTERNAL COMPARABLES. HE STRESSED THAT ONCE THE AGGREGATION APPR OACH IS ACCEPTED, THEN BOTH THE TRANSACTIONS I.E. EXPORT TO ASSOCIATED ENTERPRISES AND SALE IN DOMESTIC MARKET CANNOT BE COMPARED BECAUSE NO COMPARISON CAN BE MADE BETWEEN CONTROLLED TRANSACTIONS WITH ANOTHER CONTROLLED TRANSACTIONS. IN SUCH CIRCUMSTANCES , COMPARISON IS TO BE MADE TO EXTERNAL COMPARABLES ONLY AS LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN SON Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (2015) 231 TAXMAN 113 (DELHI) / 374 ITR 118 (DEL) . HE FURTHER POINTED OUT THAT THE BALAN CE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006 - 07. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT IN THE CASE OF SO N Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA) VIDE PARA 89 OF THE JUDGMENT, THE HONBLE HIGH COURT OF DELHI HAS HELD THAT FOR COMPARISON OF MARGINS, INTERNAL COMPARABLE WAS PREFERABLE. HE STRESSED THAT WHERE THE ASSESSEE WAS OPERATING BOTH IN DOMESTIC SEGMENT AND EXPORT, THEN FOLLOWING THE DICTATE OF THE HONBLE HIGH COURT OF DELHI, WHERE AGGREGATION OF TRANSACTIONS HAS BEEN ACCEPTED, THEN INTERNAL COMPARABLES WERE THE BEST TO BE COMPARED WITH. HE FURTHER STATED THAT IN ANY CASE THE CO ST OF GOODS HAD BEEN TAKEN AND THE TRIBUNAL HAD DIRECTED THAT NET PROFIT BE APPLIED. IN THIS REGARD, HE PLACED RELIANCE ON THE ORDERS OF DISPUTE RESOLUTION PANEL (DRP) AND THE ASSESSING OFFICER / TRANSFER PRICING OFFICER (TPO). HE FURTHER PLACED RELIANCE ON THE ORDER OF TPO IN RESPECT OF GROUND OF APPEAL NO.4. ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 7 5. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER REFERRED TO PARA 91 OF THE JUDGMENT IN THE CASE OF SON Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA) AND POINTED OUT THAT THE HONBLE HIGH COURT OF DELHI HAD UPHELD THAT WHILE APPLYING TNNM METHOD AND AGGREGATING VARIOUS INTERNATIONAL TRANSACTIONS, THEN THE MARGINS HAD TO BE COMPARED WITH EXT ERNAL COMPARABLES. HE FURTHER POINTED OUT THAT THE ASSESSEE IN THE TP STUDY REPORT HAD APPLIED AGGREGATION APPROACH AND HAD FURTHER MADE COMPARISON WITH FUNCTIONALLY COMPARABLE EXTERNAL CONCERNS AND NO ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERN ATIONAL TRANSACTIONS WAS WARRANTED IN THE HANDS OF ASSESSEE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE GROUNDS OF APPEAL NO.1.1, 12 AND 13 ARE GENERAL IN NATURE AND HENCE, THE SAME ARE DISMISSED. 7. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1.2 IS AGAINST REJECTION OF AGGREGATION APPROACH ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS IN THE MANUFACTURING ACTIVITIES. VIDE GROUND OF APPEAL NO.2.1, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF DRP AND TPO/ASSE SSING OFFICER IN REJECTING BENCHMARKING DONE BY THE ASSESSEE BY WAY OF COMPARISON WITH EXTERNAL COMPARABLES. BY WAY OF GROUND OF APPEAL NO.3, THE ASSESSEE HAS POINTED OUT THAT THE TPO HAS ERRED IN COMPARING THE PROFITABILITY OF EXPORT TO ASSOCIATED ENTERP RISES AND DOMESTIC SALES IGNORING THE DIFFERENCES IN FAR I.E. ON ACCOUNT OF GEOGRAPHICAL DIFFERENCES AND PRODUCT DIFFERENCES. THE ASSESSEE IS ALSO AGGRIEVED BY THE COMPARISON OF CONTROLLED TRANSACTIONS WITH CONTROLLED TRANSACTIONS. ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 8 8. THE ASSESSEE WAS EN GAGED IN THE MANUFACTURE AND SALE OF IC ENGINES FOR POWER GENERATION AND ALSO FOR INDUSTRIAL APPLICATION IN THE DOMESTIC MARKET. THE ASSESSEE IS ALSO ENGAGED IN THE MANUFACTURE AND SALE OF IC ENGINES AND ITS COMPONENTS TO THE EXPORT MARKET. THE ASSESSEE ALSO IMPORTS ENGINE PARTS AND COMPONENTS WHICH IN TURN, WERE UTILIZED FOR MANUFACTURING THE ITEMS BOTH FOR DOMESTIC MARKET AND ALSO FOR EXPORT TO ASSOCIATED ENTERPRISES. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS AND IN ITS TP STUDY REPORT HAD AGGREGATED ALL THE TRANSACTIONS AND HAD APPLIED TNNM METHOD AND HAD FOUND THE MARGINS DECLARED BY THE ASSESSEE TO BE AT ARM'S LENGTH WHEN COMPARED WITH THE MARGINS OF EXTERNAL COMPARABLES. THE FIRST ISSUE WHICH IS RAISED IN THE PRESENT APPEAL IS WHETHER THE ASSESSEE CAN ADOPT AGGREGATION APPROACH TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS I.E. GROUP TOGETHER ALL THE TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES WHICH RELATE TO MANUFACTURING ACTIVITY IN HHC DIVISI ON. SIMILAR ISSUE OF AGGREGATION OF CLOSELY INTERLINKED TRANSACTIONS AND BENCHMARKING OF INTERNATIONAL TRANSACTIONS APPLYING TNNM METHOD AS THE MOST APPROPRIATE METHOD AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2005 - 06. THE RATIO LAID DOWN BY THE TRIBUNAL IN ASSESSMENT YEAR 2005 - 06 WAS FURTHER APPLIED BY THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07. THE FIRST ISSUE WHICH WAS ADDRESSED BY THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 WAS THE AGGREGATION APPROACH, WHETHER TO BE APPLIED OR NOT. THE TRIBUNAL AFTER DELIBERATING ON THE SAID ISSUE IN PARAS 14 AND 15 AND MAKING REFERENCE TO THE ORDER OF TRIBUNAL DATED 31.12.2014 RELATING TO ASSESSMENT YEAR 2005 - 06 I.E. ENTITY WHICH WAS ENGAGED IN AFTER MARKET SUPPORT FOR IC ENGINES SOLD BY CUMMINS E NTITY, HELD AS UNDER: - 16. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION BEFORE US IS ENGAGED IN THE MANUFACTURING ACTIVITY ALONG WITH OTHER RELATED ACTIVITIES AND HAD AGGREGATED INTERNATIONAL TRANSACTIONS AS TABULATED HEREINABOVE AND HAD ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 9 BENCHMARKED THE INTERNATIONAL TRANSACTIONS BY USING TNNM METHOD AS MOST APPROPRIATE METHOD BY TAKING EXTERNAL COMPARABLES AND ADOPTED PLI AS OPERATING MARGINS TO SALES. THE TPO ON THE OTHER HAND, HAD MADE ADJUSTMENT AFTER REJECTING THE CLAIM OF AGGREGATION AND ALSO WHILE APPLYING THE TNNM METHOD HAD COMPARED THE SAME WITH INTERNAL COMPARABLES I.E. DOMESTIC SALES MADE BY THE ASSESSEE. UNDER SECTION 92B OF THE ACT, MEANING OF EXPRESSION INTERNATIONAL TRANSACTION IS PROVIDED I.E. A TRANSACTION BETWEEN TWO OR MORE ASSOCIAT E ENTERPRISES. RULE 10A(D) OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) EXPLAINS THE MEANING OF EXPRESSION TRANSACTION FOR COMPUTING THE ARM'S LENGTH PRICE TO INCLUDE NUMBER OF CLOSELY LINKED TRANSACTIONS. RULE 10B OF THE RULES PRESCRIBED THE M ANNER IN WHICH THE ARM'S LENGTH PRICE IS TO BE DETERMINED BY FOLLOWING ANY OF THE METHOD PRESCRIBED. THE COMBINED READING OF RULE 10A(D) AND 10B OF THE RULES REFLECT THAT NUMBER OF TRANSACTIONS CAN BE GROUPED AND CONSTITUTED AS SINGLE TRANSACTIONS FOR THE PURPOSE OF DETERMINING ARM'S LENGTH PRICE, PROVIDED THAT SUCH TRANSACTIONS ARE CLOSELY INTER - LINKED. FURTHER, EVEN UNDER THE OECD GUIDELINES UNDER THE CHAPTER III, THE PROPOSITION OF AGGREGATION OF INDIVIDUAL TRANSACTIONS IS TAKEN NOTE OF. IN SUCH BACKG ROUND, IT EMERGES THAT IN APPROPRIATE CIRCUMSTANCES, WHERE THERE IS EXISTENCE OF CLOSELY LINKED TRANSACTIONS, THE SAME COULD BE CONSIDERED AS ONE COMPOSITE TRANSACTION AND FOR THIS, COMMON TRANSFER PRICING ANALYSIS NEEDS TO BE CARRIED OUT BY ADOPTING MOST APPROPRIATE METHOD. DEPENDING ON THE FACTS AND CIRCUMSTANCES OF EACH CASE, IT NEEDS TO BE SEEN AS TO WHICH TRANSACTIONS ARE TO BE HELD TO BE CLOSELY LINKED. APPLYING THE SAID PRINCIPLE TO THE FACTS OF THE PRESENT CASE, WHERE THE PRIMARY ACTIVITY OF ASSES SEE WAS TO MANUFACTURE AND SELL IC ENGINES AND COMPONENTS BOTH FOR DOMESTIC MARKET AND FOR EXPORTS, THEN THE ACTIVITY OF IMPORTING ENGINE PARTS AND COMPONENTS, PAYMENT OF ROYALTY FOR GETTING KNOW - HOW, PROVISION OF MISCELLANEOUS SERVICE I.E. PROCUREMENT SUP PORT SERVICES TO THE ASSOCIATE ENTERPRISES TO HELP THE SOURCING OF COMPONENTS, RECEIPT OF IT SUPPORT SERVICES, DESIGN SERVICES AND PAYMENT OF TECHNICAL KNOW - HOW FEES, ETC. IS CLOSELY LINKED TO THE EXPORT OF MANUFACTURED IC ENGINES. THE PRINCIPLE OF AGGREG ATION OF CLOSELY LINKED TRANSACTIONS FOR UNDERTAKING BENCHMARKING ANALYSIS APPLYING TNNM METHOD HAS BEEN APPROVED BY THE HONBLE HIGH COURT OF DELHI IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT REPORTED IN 374 ITR 118 (DEL). ACCORDINGLY, WE HOLD THAT FOR BENCHMARKING INTERNATIONAL TRANSACTIONS, VARIOUS ACTIVITIES UNDERTAKEN BY THE ASSESSEE UNDER THE HEAD MANUFACTURING ACTIVITIES NEED TO BE AGGREGATED. THE ASSESSING OFFICER / TPO IS DIRECTED SO. 9. THE TRIBUNAL THUS, HELD THAT WHERE VARIOUS ACTIVITIES WERE SO INTERLINKED TO THE EXPORT OF MANUFACTURED IC ENGINES, THEN THE SAID INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION NEED TO BE AGGREGATED FOR UNDERTAKING B ENCHMARKING ANALYSIS APPLYING TNNM METHOD. THE TRIBUNAL IN THIS REGARD PLACED RELIANCE ON THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN SON Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA) . FOLLOWING THE SAME PRINCIPLE AND WHERE THE ASSESSEE WAS ENGAGED IN SIMILAR ACTIVITY OF MANUFACTURING, WE HOLD THAT VARIOUS A CTIVITIES NEED TO BE AGGREGATED. ACCORDINGLY, WE DIRECT SO. ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 10 10. THE SECOND ISSUE WHICH ARISES IS THAT WHILE APPLYING THE TNNM METHOD WHETHER THE MARGINS EARNED BY THE ASSESSEE FROM EXPORTS TO ASSOCIATED ENTERPRISES IS TO BE COMPARED WITH MARGINS EARNED FROM SALES IN DOMESTIC MARKET OR THE SAME HAVE TO BE COMPARED WITH EXTERNAL COMPARABLES. THE TRIBUNAL HAD NOTED THE PLEADINGS OF ASSESSEE IN THIS REGARD VIDE PARA 17 , WHICH READ AS UNDER: - 17. NOW, COMING TO THE SECOND RELATED ISSUE ARISEN TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. THE TPO HAD ISSUED VARIOUS SHOW CAUSE NOTICES TO THE ASSESSEE. IN THE FIRST SHOW CAUSE NOTICE, THE ASSESSEE WAS ASKE D TO BENCHMARK THE INTERNATIONAL TRANSACTIONS BY FOLLOWING TNNM METHOD BY TAKING THE MARGINS OF COMPARABLES OF CURRENT YEAR. IN THE SECOND SHOW CAUSE NOTICE, THE TPO HAD PROPOSED CUP METHOD TO BE APPLIED BY TAKING GROSS PROFITS AS THE PLI. IN THE NEXT SH OW CAUSE NOTICE, THE TPO HAD PROPOSED INTERNAL TNNM METHOD TO BE APPLIED, WHEREIN THE BENCHMARKING HAD TO BE DONE BY COMPARING THE MARGINS EARNED BY THE ASSESSEE FROM EXPORTS TO ASSOCIATE ENTERPRISES IN COMPARISON WITH THE MARGINS EARNED FROM SALES IN THE DOMESTIC MARKET. IN THE FORTH SHOW CAUSE NOTICE, CERTAIN ADJUSTMENTS WERE MADE TO THE COSTS I.E. ALLOCATION OF CERTAIN COSTS TO THE SEGMENTAL DETAILS OF EXPORTS DIVISION IN ORDER TO WORK OUT THE PLI. IN THIS REGARD, THE ASSESSEE HAD ELABORATELY TOOK US T HROUGH VARIOUS SUBMISSIONS MADE BEFORE THE TPO / DRP AND HAS ARGUED THAT THERE IS NO COMPARISON BETWEEN IC ENGINES SOLD IN THE DOMESTIC MARKET AND IC ENGINES EXPORTED BY THE ASSESSEE. HE HAS ALSO STRESSED THAT COMPARISON, IF ANY HAS TO BE MADE WITH UNCONT ROLLED TRANSACTIONS. THE ASSESSEE PLEADED THAT THE TWO PRODUCTS I.E. MANUFACTURED BY THE ASSESSEE ARE DIFFERENT AND ARE FUNCTIONALLY DIFFERENT AND ALSO THERE IS DIFFERENCE OF RISK, HENCE, THEY DO NOT FALL WITHIN FAR ANALYSIS. THE CASE OF AUTHORITIES IS T HAT THE ASSESSEE IS ENGAGED IN MANUFACTURE OF IC ENGINES WHICH IS MAJOR ACTIVITY CARRIED ON BY THE ASSESSEE AND THE SAID ENGINES WERE OF DIFFERENT CAPACITY. THE ASSESSEE HAS STRESSED THAT THE GROSS MARGINS EARNED FROM SALE OF IC ENGINES IN THE DOMESTIC MA RKET ARE AT VARIANCE TO THE GROSS MARGINS EARNED BY THE ASSESSEE FROM EXPORT OF IC ENGINES TO ASSOCIATE ENTERPRISES. THE ASSESSEE HAS ALSO STRESSED THAT COMPARABILITY, IF ANY, IS TO BE MADE WITH UNCONTROLLED TRANSACTIONS. ANOTHER ASPECT RAISED IN APPEAL IS THAT THE NET PROFIT MARGINS OF CONTROLLED TRANSACTIONS HAS TO BE COMPARED WITH NET PROFIT MARGINS OF UNCONTROLLED TRANSACTIONS, WHEREAS THE TPO HA S APPLIED GROSS PROFIT MARGINS. 11. THEREAFTER, THE TRIBUNAL DID NOT DECIDE THE ISSUE OF APPLICATION OF TNNM METHOD AND COMPARISON WITH EXTERNAL COMPARABLES ON THE GROUND THAT THE SIMILAR ISSUE IN ASSESSMENT YEAR 2005 - 06 WAS WITHDRAWN BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US HAS POINTED OUT THAT IN ASSESSMENT YEAR 20 05 - 06 AND EVEN IN ASSESSMENT YEAR 2006 - 07, ONCE THE AGGREGATION APPROACH IS APPLIED IN THE CASE OF ASSESSEE, ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 11 NO ADJUSTMENT NEEDS TO BE MADE TO THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AND CONSEQUENTLY, THE COMPARISON OF NET MARGINS EARNED BY TH E ASSESSEE TO BE COMPARED WITH THE MARGINS OF UNCONTROLLED TRANSACTIONS OF EXTERNAL COMPARABLES BECAME ACADEMIC IN NATURE, HENCE, THE SAME WAS DISMISSED. IT IS NOT THE CASE THAT THE ASSESSEE HAD NOT PRESSED THE ABOVE SAID GROUND OF APPEAL BUT THE SAME WER E DISMISSED BECAUSE THEY WERE ACADEMIC IN NATURE. HOWEVER, HE FURTHER POINTED OUT THAT ONCE THE AGGREGATION APPROACH IS ADOPTED BY THE ASSESSEE IS ACCEPTED, THEN THE PROFIT MARGINS EARNED BY THE ASSESSEE NEED TO BE COMPARED WITH EXTERNAL COMPARABLES AS HA S BEEN DONE IN THE TRANSFER PRICING STUDY REPORT. THERE CAN BE NO COMPARISON OF THE MARGINS EARNED FROM DOMESTIC SALES WITH THE MARGINS EARNED FROM EXPORTS DUE TO THE FACT THAT THE MANUFACTURING SEGMENT INCLUDES IMPORT OF COMPONENTS, WHICH ARE USED FOR MA NUFACTURING OF GOODS WHICH ARE SOLD LOCALLY AS WELL AS EXPORTED. HENCE, SUCH A COMPARISON BETWEEN THE MARGINS EARNED FROM DOMESTIC SALES WITH THE MARGINS EARNED FROM EXPORTS WOULD MEAN COMPARING A CONTROLLED TRANSACTION WITH ANOTHER CONTROLLED TRANSACTION WHICH IS NOT PERMITTED. 12. WE HAVE PERUSED THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2005 - 06 AND NOTED THE FACT THAT THE ASSESSEE HAD NOT PRESSED THE SAID GROUND OF APPEAL BEING ACADEMIC IN NATURE AND HENCE, NO ADJUDICATION WAS MADE ON THE SAID GROUND OF APPEAL. HOWEVER, IN ASSESSMENT YEAR 200 5 - 0 6 , THE ASSESSEE IS NOT AGGRIEVED BY THE FINDINGS OF TRIBUNAL IN DISMISSING THE PLEA OF ASSESSEE SINCE THE ISSUE HAS ALSO BECOME ACADEMIC IN NATURE. HOWEVER, IN THE PRESENT APPEAL, AFTER AGGREGATION APPROACH ADOP TED BY THE ASSESSEE AND ACCEPTED BY THE TRIBUNAL, THERE MAY BE CASE OF CERTAIN ADJUSTMENTS TO BE MADE ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. IN THIS REGARD, WE FIND THAT ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 12 THE ISSUE IS COVERED BY THE ORDER OF HONBLE HIGH COURT OF D ELHI IN SON Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA), WHEREIN VIDE PARA 91, THE HONBLE HIGH COURT HELD THAT WHILE APPLYING TNNM METHOD AND WHERE THE TRANSACTIONS ARE INTERLINKED AND COMBINED, THEN FOR THE PURPOSE OF DETERMINING ARM' S LENGTH PRICE, CONTROLLED BUNDLE TRANSACTIONS CANNOT BE ADEQUATELY COMPARED ON AGGREGATE BASIS AND THE COMPARISON, IF ANY, IS TO BE MADE WITH UNCONTROLLED TRANSACTIONS. APPLYING THE SAID PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN SON Y ER ICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA), WE HOLD THAT ACCEPTING THE AGGREGATION APPROACH OF THE ASSESSEE OF ITS TRANSACTIONS UNDER THE MANUFACTURING ACTIVITY, WE HOLD THAT WHILE APPLYING TNNM METHOD, THE MARGINS OF ASSESSEE COMPANY ARE TO BE COMPARED WITH THE MARGINS OF EXTERNAL COMPARABLES. HOWEVER, SINCE THE TPO HAD NOT VERIFIED THIS FACTUM OF COMPARISON WITH EXTERNAL COMPARABLES, WE DIRECT THE ASSESSING OFFICER / TPO TO CONSIDER THE CASE OF ASSESSEE AND DETERMINE THE ARM'S LENGTH PR ICE AND RE - COMPUTE ADJUSTMENT, IF ANY, IN THE HANDS OF ASSESSEE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS. IT MAY BE POINTED HEREIN ITSELF THAT THE ADJUSTMENTS WERE MADE IN THE HANDS OF ASSESSEE IN HHP DIVISION AND NO ADJUSTMENT WAS MADE IN LHP DIVISION. CONSEQUENTLY, THE GROUNDS OF APPEAL NO.1.1, 2 AND 3 ARE DECIDED AS INDICATED ABOVE. 13. BEFORE PARTING, WE MAY ALSO MENTION THAT ANOTHER ASPECT OF TRANSFER PRICING ADJUSTMENT WAS WHETHER GROSS MARGINS EARNED FROM THE SALE OF IC ENGINES IN THE DOMESTIC M ARKET ARE TO BE COMPARED WITH THE GROSS MARGINS EARNED BY THE ASSESSEE FROM EXPORT OF IC ENGINES TO ASSOCIATED ENTERPRISES. THE TRIBUNAL VIDE PARA 18 HAD LAID DOWN THAT THE COMPARISON OF GROSS MARGINS WAS NOT ENVISAGED UNDER THE INCOME TAX RULES AND THE N ET MARGINS HAVE TO ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 13 BE APPLIED. HOWEVER, WE HAVE ALREADY HELD IN THE PARAS HEREINABOVE THAT THE MARGINS OF ASSESSEE ARE TO BE BENCHMARKED AGAINST AVERAGE MARGINS OF EXTERNAL CONCERNS WHICH ARE FUNCTIONALLY COMPARABLE AND CONSEQUENTLY, THIS ISSUE BECOMES ACADEMIC IN NATURE. HOWEVER, THE TPO IS DIRECTED TO APPLY THE NET PROFIT MARGINS EARNED BY THE ASSESSEE FOR BENCHMARKING INTERNATIONAL TRANSACTIONS. 14. THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.4 IS AGAINST THE APPROACH ADOPTED BY THE TPO IN APPLIC ATION OF NET PROFIT TO COST AS PLI. THE SAID ISSUE WAS ALSO DECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 VIDE PARA 22 AT PAGE 30 OF THE ORDER WHICH READS AS UNDER: - 22. THE NEXT ISSUE RAISED BY WAY OF GROUND OF APPEAL NO.7 IS THE METHODOLOGY ADOPTE D BY THE TPO IN APPLICATION OF NET PROFIT TO COST AS PLI. THE CASE OF ASSESSEE IS THAT WHERE SELLING PRICE OF COMPONENT MANUFACTURED BY IT DERIVES THE PROFITABILITY AND NOT THE COST OF COMPONENTS UTILIZED FOR MANUFACTURING ACTIVITY, THE PLI SHOULD BE ADOP TED AS NET PROFIT TO SALES AND NOT NET PROFIT TO COST. WE FIND MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD THAT WHERE THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF COMPONENTS AND THE MAIN AIM OF UNDERTAKING WAS TO SELL THE SAID COMPONENTS, THEN IT IS THE SALES WHICH DERIVE THE PROFITABILITY AND NOT THE COST OF COMPONENTS. ACCORDINGLY, WHILE DETERMINING THE PLI, THE TPO IS DIRECTED TO ADOPT NET PROFIT TO SALES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. HENCE, THE GROUND OF APPEAL NO.7 IS ALLOW ED. 15. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER THAT WHILE DETERMINING THE PLI TO ADOPT NET PROFIT TO SALES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. 16. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.5 I.E. BENEFI T OF VARIATION / REDUCTION OF 5% FROM THE ARITHMETIC MEAN IS NOW DECIDED AGAINST THE ASSESSEE BY THE SPECIAL BENCH OF DELHI TRIBUNAL IN IHG IT SERVICES (INDIA) (P.) LTD. VS. ITO (2013) 33 TAXMANN.COM 1 (DELHI TRIB) (SB) , WHEREIN IT HAS BEEN HELD THAT THE BENEFIT OF 5% TOLERANCE MARGIN IS AVAILABLE ONLY WHEN VARIATION BETWEEN ARM'S LENGTH PRICE AS DETERMINED UNDER SECTION 92C(1) OF ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 14 THE ACT AND PRICE AT WHICH INTERNATIONAL TRANSACTIONS HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED THE SAID TOLERANCE MARGIN. ACCORDINGLY, WE HOLD SO. 17. THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.6 IS AGAINST BENCHMARKING OF PAYMENT OF TECHNICAL KNOW - HOW FEES TO ASSOCIATED ENTERPRISES AND VIDE GROUND OF APPEAL NO.7 AGAINST BENCHMARKING OF PROCUREMENT SUPPORT SERVICES PROVIDED TO ASSOCIATED ENTERPRISES . SIMILAR ISSUE ALSO AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 AND VIDE ORDER DATED 03.03.2017, THE TRIBUNAL HELD THAT TECHNICAL KNOW - HOW AND PROCUREMENT SUPPORT SERVICES HA VE TO BE AGGREGATED ALONG WITH OTHER INTERNATIONAL TRANSACTIONS UNDER THE HEAD MANUFACTURING ACTIVITY AND CONSEQUENTLY, THE ASSESSING OFFICER WAS DIRECTED TO COMPUTE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AFTER AGGREGATING THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE UNDER THE HEAD MANUFACTURING ACTIVITY. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE IN PARAS 24 AND 25 AT PAGE 31 OF THE ORDER AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD SO. THE GROUNDS OF APPEAL NO.6 AND 7 ARE THUS, ALLOWED. 18. THE GROUND OF AP PEAL NO.8 RAISED BY THE ASSESSEE IS AGAINST RE - WORKING OF DEDUCTION UNDER SECTION 80IB OF THE ACT. 19. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IB OF THE ACT AT RS.11.34 CRORES IN RESPECT OF PROFITS DERIVED BY ITS INDUSTRIAL UNDERTAKING LOCATED AT DAMAN. THE ASSESSING OFFICER ALLOCATED PART OF HEAD OFFICE EXPENSES, DIRECTORS SALARY, SITTING FEES AND COMMISSION, ETC. TO THE ACTIVITIES OF DAMAN UNIT AND RE - COMPUTED THE PROFITS OF ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 15 ELIGIBLE BUSINESS AND CONSEQUENT LY, REDUCED DEDUCTION CLAIMED UNDER SECTION 80IB OF THE ACT. 20. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE ISSUE STANDS COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEA R 2006 - 07. 21. WE FIND THAT THE TRIBUNAL WHILE DECIDING THE ISSUE IN ASSESSMENT YEAR 2006 - 07 VIDE PARA 53 AT PAGES 44 AND 45 OF ORDER DATED 03.03.2017 HAD UPHELD THE ORDERS OF AUTHORITIES BELOW IN ALLOCATING HEAD OFFICE EXPENSES, DIRECTORS SALARY, ETC. TO THE DAMAN UNIT AND THUS, UPHELD THE RE - COMPUTATION OF DEDUCTION UNDER SECTION 80IB OF THE ACT. FOLLOWING THE SAME PARITY OF REASONING, WE FIND NO MERIT IN THE ISSUE RAISED VIDE GROUND OF APPEAL NO.8 AND THE SAME IS DISMISSED. 22. THE GROUND OF APPEA L NO.9 RAISED IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 23. THE GROUND OF APPEAL NO.10 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT. 24. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE AS SESSEE POINTED OUT THAT SIMILAR ISSUE OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES UNDER SECTION 14A OF THE ACT AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 AND THE TRIBUNAL HAS UPHELD THE DISALLOWANCE OF RS.2 LAKHS, FOLLOWING THE ORDER IN EARLIER YE ARS. FOLLOWING THE SAME PARITY OF REASONING, AS IN PARA 50 AT PAGE 43 OF THE ORDER DATED 03.03.2017 AND THE YEAR OF APPEAL BEING ASSESSMENT YEAR ITA NO. 1681 /P U N/20 1 1 CUMMINS INDIA LIMITED . 16 2007 - 08 I.E. THE YEAR IN WHICH PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 WERE NOT APPLICABLE, WE RES TRICT THE DISALLOWANCE TO RS.2 LAKHS. THE GROUND OF APPEAL NO.10 IS THUS, PARTLY ALLOWED. 25. THE GROUND OF APPEAL NO.11 IS AGAINST INITIATION OF PENALTY PROCEEDINGS IS PREMATURE AND HENCE, THE SAME IS DISMISSED. 26. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 21 ST DAY OF AUGUST , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 21 ST AUGUST , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE