DCIT CIR 1, THANE V. LAXCESS INDIA P.LTD, THANE

ITA 1697/MUM/2016

AI Insights

The case involves Lanxess India Pvt. Ltd., which appealed against the transfer pricing adjustments made by the Deputy Commissioner of Income Tax (DCIT) for the assessment year 2011-12. The adjustments were related to the arm's length price of international transactions concerning the export of finished goods and technical support services. The Tribunal examined the methodology used for these adjustments, particularly the use of internal TNMM, and the selection of comparables for the transfer pricing analysis. The Tribunal's decision addressed the computation of adjustments for manufacturing segments separately for each plant and the acceptance of certain comparables in the analysis.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123760 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: K
• Next Hearing Date: 31-01-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 21-03-2016
• Other Referred Cases: ITA No. 971/M/2015
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Income from undisclosed sources; International transaction; Additional evidence; TDS
• Section: 271(1)(c); 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA No. 1035/MUM/2016 Assessment Year: 2011-12 Lanxess India Pvt. Ltd., Lanxess House, Plot NO. A/162-164, Road No. 27, Wagle Estate, Opp. ITI College, MIDC, Thane (West)-400 604. Vs. Dy. CIT, Circle-1, Room No. 22, 6 th floor, B Wing Asher IT Park, Road, 16-Z, Wagle Industrial Estate, Thane (West)-400604. PAN No. AACCB 3880 A Appellant Respondent ITA No. 1697/MUM/2016 Assessment Year: 2011-12 Dy. CIT, Circle-1, Room No. 22, 6 th floor, B Wing Asher IT Park, Road, 16-Z, Wagle Industrial Estate, Thane (West)-400604. Vs. Lanxess India Pvt. Ltd., Lanxess House, Plot NO. A/162-164, Road No. 27, Wagle Estate, Opp. ITI College, MIDC, Thane (West)- 400 604. PAN No. AACCB 3880 A Appellant Respondent CO No. 89/MUM/2016 (Arising in ITA No. 1697/MUM/2016) Assessment Year: 2011-12 Lanxess India Pvt. Ltd., Lanxess House, Plot NO. A/162-164, Road No. 27, Wagle Estate, Opp. ITI College, MIDC, Thane (West)-400 604. Vs. Dy. CIT, Circle-1, Room No. 22, 6 th floor, B Wing Asher IT Park, Road, 16-Z, Wagle Industrial Estate, Thane (West)-400604. PAN No. AACCB 3880 A Appellant Assessee by Revenue by Date of Hearing Date of pronouncement PER OM PRAKASH KANT, AM These cross-appeals by the assessee and Revenue and cross objection by the assessee are directed against final assessment order dated 28.01.2016 passed by the Ld. Dy. Commissioner of Income-tax, Circle-1, Thane (in short ‘the Assessing Officer’) for assessment year 2011 Resolution Panel-1, Mumbai (in short ‘the DRP’). 2. The grounds raised by the assessee are reproduced as under: 1. On the facts and circumstances of the case and in law, the learned Dy. Commissioner ('the AO') / Jt. Commissioner of Income Tax, Transfer Pricing Officer - 2(3), Mumbai (the TPO') erred in making an adjustment to the arm's length price of the international transaction of export of finished goods under Manu segment D using Internal TMM and thereby in computing transfer pricing adjustment of Rs.2,77.11,082/ Nagda Plant and Rs. 14,96,781/ Plant. ITA Nos. 1035 & 1697/M/2016 & CO No. Respondent Assessee by : Shri Dhanesh Bafna/Chandni Shah/Riddhi Maru by : Ms. Samruddhi Hande, DR Date of Hearing : 01/02/2023 Date of pronouncement : 10/02/2023 ORDER PER OM PRAKASH KANT, AM appeals by the assessee and Revenue and cross objection by the assessee are directed against final assessment order dated 28.01.2016 passed by the Ld. Dy. Commissioner of 1, Thane (in short ‘the Assessing Officer’) for ment year 2011-12, pursuant to the order of Ld. Dispute 1, Mumbai (in short ‘the DRP’). The grounds raised by the assessee are reproduced as under: 1. On the facts and circumstances of the case and in law, the learned Dy. Commissioner of Income Tax, Circle ('the AO') / Jt. Commissioner of Income Tax, Transfer Pricing 2(3), Mumbai (the TPO') erred in making an adjustment to the arm's length price of the international transaction of export of finished goods under Manu segment D using Internal TMM and thereby in computing transfer pricing adjustment of Rs.2,77.11,082/- in respect of Nagda Plant and Rs. 14,96,781/- in respect of Jhagadia Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 2 Shri Dhanesh Bafna/Chandni Ms. Samruddhi Hande, DR appeals by the assessee and Revenue and cross- objection by the assessee are directed against final assessment order dated 28.01.2016 passed by the Ld. Dy. Commissioner of 1, Thane (in short ‘the Assessing Officer’) for 12, pursuant to the order of Ld. Dispute The grounds raised by the assessee are reproduced as under: 1. On the facts and circumstances of the case and in law, the of Income Tax, Circle - 1, Thane ('the AO') / Jt. Commissioner of Income Tax, Transfer Pricing 2(3), Mumbai (the TPO') erred in making an adjustment to the arm's length price of the international transaction of export of finished goods under Manufacturing segment D using Internal TMM and thereby in computing in respect of in respect of Jhagadia It is prayed that the learned AO/TO be directed to consider the international transaction of the Assessee as arm's length and accordingly the transfer pricing adjustment of Rs.292,07.863/ The Appellant prays that the aforesaid additions be deleted. 2. On the facts and circumstances of the case and in la AO erred in granting short credit for Advance Tax (Rs. 1,50,00,000/ The Appellant prays that the credit for Advance Tax and TDS be granted. 3. On the facts and in the circumstances of the case and in law and in law, the AO rectification application letter dt. April 6, 2015 with respect to Ground no. r.w.s. 144C(13) of the Act. 2.1 The grounds raised by the Revenue are reproduced as under: 1.1 Whether on the facts and in the circumstances of the case, and in law, the DRP was justifed in directing the Assessing Officer to include MIs. Microgenetic Ltd & Mis. e4e H comparables despite the fact tha 'health care outsourcing' activities cannot be functionally comparable with the activity of providing technical support (IT) services for the purpose of installation & implementation of the Axapta ERP licenses software. 1.2 Whether on the facts and in the circumstances of the case, and in lay, the DRP was justified in directing the Assessing Officer to include M/s. Jindal Intellicom Pvt. Ltd. As comparables despite the fact that 'call centre services" activity cannot be functio providing technical support (IT) services for the purpose of installation & implementation of the Axapta ERP licenses software. 1.3 Whether on the facts and in the circumstances of the case, and in law, the DR was justified in directing the ITA Nos. 1035 & 1697/M/2016 & CO No. It is prayed that the learned AO/TO be directed to consider rnational transaction of the Assessee as arm's length and accordingly the transfer pricing adjustment of Rs.292,07.863/- should be deleted. The Appellant prays that the aforesaid additions be deleted. 2. On the facts and circumstances of the case and in la AO erred in granting short credit for Advance Tax (Rs. 1,50,00,000/-) and TDS (Rs. 44,881/-). The Appellant prays that the credit for Advance Tax and TDS 3. On the facts and in the circumstances of the case and in law and in law, the AO erred in not giving effect to the rectification application letter dt. April 6, 2015 with respect to 2 while passing the order under section 143(3) r.w.s. 144C(13) of the Act. The grounds raised by the Revenue are reproduced as under: ether on the facts and in the circumstances of the case, and in law, the DRP was justifed in directing the Assessing Officer to include MIs. Microgenetics Systems Pvt Ltd & Mis. e4e Health care business services Put. Ltd as comparables despite the fact that 'medical transcription' and 'health care outsourcing' activities cannot be functionally comparable with the activity of providing technical support (IT) services for the purpose of installation & implementation of the Axapta ERP licenses software. ether on the facts and in the circumstances of the case, and in lay, the DRP was justified in directing the Assessing Officer to include M/s. Jindal Intellicom Pvt. Ltd. As comparables despite the fact that 'call centre services" activity cannot be functionally comparable with the activity of providing technical support (IT) services for the purpose of installation & implementation of the Axapta ERP licenses Whether on the facts and in the circumstances of the case, and in law, the DR was justified in directing the Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 3 It is prayed that the learned AO/TO be directed to consider rnational transaction of the Assessee as arm's length and accordingly the transfer pricing adjustment of The Appellant prays that the aforesaid additions be deleted. 2. On the facts and circumstances of the case and in law, the AO erred in granting short credit for Advance Tax (Rs. The Appellant prays that the credit for Advance Tax and TDS 3. On the facts and in the circumstances of the case and in erred in not giving effect to the rectification application letter dt. April 6, 2015 with respect to 2 while passing the order under section 143(3) The grounds raised by the Revenue are reproduced as under: ether on the facts and in the circumstances of the case, and in law, the DRP was justifed in directing the s Systems Pvt ealth care business services Put. Ltd as t 'medical transcription' and 'health care outsourcing' activities cannot be functionally comparable with the activity of providing technical support (IT) services for the purpose of installation & implementation ether on the facts and in the circumstances of the case, and in lay, the DRP was justified in directing the Assessing Officer to include M/s. Jindal Intellicom Pvt. Ltd. As comparables despite the fact that 'call centre services" nally comparable with the activity of providing technical support (IT) services for the purpose of installation & implementation of the Axapta ERP licenses Whether on the facts and in the circumstances of the case, and in law, the DR was justified in directing the Assessing Officer to include MIs. Jindal Intellicom Pvt. Ltd. as comparable despite the fact that there was substantial expansion of the capacity o relevant year, which has direct impact on the profitability of the said comparable company during the relevant period. 2. Whether on the facts and in the circumstances of the case, and in law, the DRP erred in not confirming ad 97,50,004/- credit balances of two purchase parties despite the fact that the assessee failed to explain even after repeated opportunities during the assessment proceedings. In fact the assessee co proceedings before the DR (para 4.1 on page 16 of order of DRP. 3. The directions of the DR may be vacated and that of the Assessing Officer may be restored. 2.2 The grounds raised in the cross under: “1. On the facts and circumstances of the case, and in law, the Hon'ble DRP / Ld. AO erred in retaining Accentia Technologies Limited as comparable company in its comparability analysis which is functionally dissimilar to the cross-objecto It is therefore prayed that Accentia Technologies Limited ought to be excluded from the final set of comparable companies since it is functionally not comparable to the cross-objector / respondent. 2. On the facts and circumstances of the c the Hon'ble DRP / Ld. AO erred in retaining Acropetal Technologies Limited (IT segment) as comparable company in its comparability analysis which is functionally dissimilar to the cross-objector / respondent. It is therefore prayed that Ac segment) ought to be excluded from the final set of ITA Nos. 1035 & 1697/M/2016 & CO No. Assessing Officer to include MIs. Jindal Intellicom Pvt. Ltd. as comparable despite the fact that there was substantial expansion of the capacity of said comparable during the relevant year, which has direct impact on the profitability of the said comparable company during the relevant period. Whether on the facts and in the circumstances of the case, and in law, the DRP erred in not confirming addition of Rs. in respect of unexplained differences in the credit balances of two purchase parties despite the fact that the assessee failed to explain even after repeated opportunities during the assessment proceedings. In fact the assessee could not explain the differences even during proceedings before the DR (para 4.1 on page 16 of order of The directions of the DR may be vacated and that of the Assessing Officer may be restored. The grounds raised in the cross-objection are repr On the facts and circumstances of the case, and in law, the Hon'ble DRP / Ld. AO erred in retaining Accentia Technologies Limited as comparable company in its comparability analysis which is functionally dissimilar to the objector / respondent. It is therefore prayed that Accentia Technologies Limited ought to be excluded from the final set of comparable companies since it is functionally not comparable to the objector / respondent. On the facts and circumstances of the case, and in law, the Hon'ble DRP / Ld. AO erred in retaining Acropetal Technologies Limited (IT segment) as comparable company in its comparability analysis which is functionally dissimilar to objector / respondent. It is therefore prayed that Acropetal Technologies Limited (IT segment) ought to be excluded from the final set of Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 4 Assessing Officer to include MIs. Jindal Intellicom Pvt. Ltd. as comparable despite the fact that there was substantial f said comparable during the relevant year, which has direct impact on the profitability of the said comparable company during the relevant period. Whether on the facts and in the circumstances of the case, dition of Rs. in respect of unexplained differences in the credit balances of two purchase parties despite the fact that the assessee failed to explain even after repeated opportunities during the assessment proceedings. In fact the uld not explain the differences even during proceedings before the DR (para 4.1 on page 16 of order of The directions of the DR may be vacated and that of the objection are reproduced as On the facts and circumstances of the case, and in law, the Hon'ble DRP / Ld. AO erred in retaining Accentia Technologies Limited as comparable company in its comparability analysis which is functionally dissimilar to the It is therefore prayed that Accentia Technologies Limited ought to be excluded from the final set of comparable companies since it is functionally not comparable to the ase, and in law, the Hon'ble DRP / Ld. AO erred in retaining Acropetal Technologies Limited (IT segment) as comparable company in its comparability analysis which is functionally dissimilar to ropetal Technologies Limited (IT segment) ought to be excluded from the final set of comparable companies since it is functionally not comparable to the cross-objector / respondent. 3. Briefly stated, facts of the case are that is a subsidiary of Lanxess Deutschland GmbH under consideration, the business of manufacturing and trading of chemical and chemical intermediaries, through three plants located at Pradesh), Jhagadia (Gujarat) and Madurai (Tamil Nadu). assessee filed return of income on 28.11.2011 which was revised loss of (-) Rs.116,34,73,438/ filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In view of various international transactions reported by the assessee, the matter of determination length price of those international transactions, Ld. Transfer Pricing Officer (TPO). The Ld. TPO vide his order dated 27.01.2015 in terms of section 92CA(3) of the Act transfer pricing adjustment to manufacturing segment and technical support service. Under manufacturing segment, the Ld. TPO computed adjustment for Nagada plant at Rs.2,77,11,082/ and for Jhagadia Plant at Rs.14,96,781/ adjustment to manufacturing segment was worked out at Rs.2,92,07,863/-. The adjustment to technical support services was proposed at Rs.1,22,69,002/ proposed total adjustment of Rs.4,14,76,865/ ITA Nos. 1035 & 1697/M/2016 & CO No. comparable companies since it is functionally not comparable objector / respondent.” Briefly stated, facts of the case are that the assessee ubsidiary of Lanxess Deutschland GmbH. During the year under consideration, the assessee-company was engaged in the business of manufacturing and trading of chemical and chemical intermediaries, through three plants located at Nagada (Madhya adia (Gujarat) and Madurai (Tamil Nadu). assessee filed return of income on 28.11.2011 which was revised ) Rs.116,34,73,438/- on 13.09.2012. The return of income filed by the assessee was selected for scrutiny and statutory notices tax Act, 1961 (in short ‘the Act’) were issued and complied with. In view of various international transactions reported by the assessee, the matter of determination length price of those international transactions, was d. Transfer Pricing Officer (TPO). The Ld. TPO vide his order dated 27.01.2015 in terms of section 92CA(3) of the Act transfer pricing adjustment to manufacturing segment and technical support service. Under manufacturing segment, the Ld. adjustment for Nagada plant at Rs.2,77,11,082/ and for Jhagadia Plant at Rs.14,96,781/-. In this manner, total adjustment to manufacturing segment was worked out at . The adjustment to technical support services was .1,22,69,002/-. In this manner, the Ld. TPO proposed total adjustment of Rs.4,14,76,865/-. In the Draft Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 5 comparable companies since it is functionally not comparable the assessee-company During the year company was engaged in the business of manufacturing and trading of chemical and chemical Nagada (Madhya adia (Gujarat) and Madurai (Tamil Nadu). The assessee filed return of income on 28.11.2011 which was revised at on 13.09.2012. The return of income filed by the assessee was selected for scrutiny and statutory notices tax Act, 1961 (in short ‘the Act’) were issued and complied with. In view of various international transactions reported by the assessee, the matter of determination of arm’s was referred to the d. Transfer Pricing Officer (TPO). The Ld. TPO vide his order dated 27.01.2015 in terms of section 92CA(3) of the Act, proposed transfer pricing adjustment to manufacturing segment and technical support service. Under manufacturing segment, the Ld. adjustment for Nagada plant at Rs.2,77,11,082/- . In this manner, total adjustment to manufacturing segment was worked out at . The adjustment to technical support services was . In this manner, the Ld. TPO . In the Draft Assessment Order passed on 24.03.2015, the Assessing Officer proposed the transfer pricing adj and also proposed difference in amount of the creditors appearing in the ledger account of the assessee and ledger account of the two parties namely ‘Trans Tech Turnkey Pvt. Ltd. Ltd.’ Against the draft assessment o before the Ld. DRP. The Ld. DRP after considering the submission of the assessee, on the issue of adjustment to manufacturing segment followed finding of the Ld. DRP for immediately preceding assessment year i.e. 2010 support service, the Ld. DRP admitted additional evidence under Rule 46 of the Income after considering report from namely Microgenetics Sy Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. The Ld. DRP also accepted inclusion of the certain comparables by the Ld. TPO including Accentia Technologies Ltd. and Acropetal Technologies Ltd. The Ld. DRP deleted th balance of two companies dated 15.12.2015, the Ld. Assessing Officer passed impugned assessment order, adjustment to manufacturing segment adjustment in respect of technical support service was deleted. The ITA Nos. 1035 & 1697/M/2016 & CO No. Assessment Order passed on 24.03.2015, the Assessing Officer proposed the transfer pricing adjustment computed by the Ld. TPO proposed an addition of Rs.97,50,004/ difference in amount of the creditors appearing in the ledger account of the assessee and ledger account of the two parties Trans Tech Turnkey Pvt. Ltd.’ and ‘Ray Engineering Pvt. Against the draft assessment order, the assessee filed objection before the Ld. DRP. The Ld. DRP after considering the submission of the assessee, on the issue of adjustment to manufacturing segment followed finding of the Ld. DRP for immediately preceding assessment year i.e. 2010-11. In respect of adjustment to technical support service, the Ld. DRP admitted additional evidence under Rule 46 of the Income-tax Rules, 1962 (in short ‘the Rules’) and after considering report from AO/TPO, accepted three comparables Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. The Ld. DRP also accepted inclusion of the certain comparables by the Ld. TPO including Accentia Technologies Ltd. and Acropetal Technologies Ltd. The Ld. DRP deleted the addition for difference in credit companies. Pursuant to the direction of the Ld. DRP the Ld. Assessing Officer passed impugned wherein he upheld the transfer pricing adjustment to manufacturing segment whereas transfer pricing adjustment in respect of technical support service was deleted. The Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 6 Assessment Order passed on 24.03.2015, the Assessing Officer ustment computed by the Ld. TPO ion of Rs.97,50,004/- for being difference in amount of the creditors appearing in the ledger account of the assessee and ledger account of the two parties Ray Engineering Pvt. rder, the assessee filed objection before the Ld. DRP. The Ld. DRP after considering the submission of the assessee, on the issue of adjustment to manufacturing segment followed finding of the Ld. DRP for immediately preceding In respect of adjustment to technical support service, the Ld. DRP admitted additional evidence under tax Rules, 1962 (in short ‘the Rules’) and accepted three comparables stems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. The Ld. DRP also accepted inclusion of the certain comparables by the Ld. TPO including Accentia Technologies Ltd. and Acropetal Technologies e addition for difference in credit . Pursuant to the direction of the Ld. DRP the Ld. Assessing Officer passed impugned wherein he upheld the transfer pricing whereas transfer pricing adjustment in respect of technical support service was deleted. The addition in respect of discrepancy/difference in credit amount of two parties was also deleted pursuant to the direction of the Ld. DRP. 4. Aggrieved with the impu Ld. Assessing Officer appeals and cross-objections. 5. Before us, the Ld. Counsel of the assessee has filed a paper book in two volumes. 6. As regard to the ground No. 1 of th the Ld. Counsel of the assessee submitted that issue covered by the order of the Tribunal for assessment year 2010 ITA No. 971/M/2015. The Ld. DR also could not controvert this fact. 7. We have heard rival sub dispute and perused the relevant material on record. Before the Ld. TPO, the assessee computed transfer pricing adjustment by way of comparing margins of segment of export sales to segment of export sales to associated enterprises each plant whereas the Ld. TPO compared the margin of non segment (export as well as domestic sales export to AE’s. We find that the Ld. DRP following its predecessor uphold the Ld. TPO observing as under: ITA Nos. 1035 & 1697/M/2016 & CO No. addition in respect of discrepancy/difference in credit amount of two parties was also deleted pursuant to the direction of the Ld. Aggrieved with the impugned assessment order passed by the Ld. Assessing Officer, the parties are before us by way of cross objections. Before us, the Ld. Counsel of the assessee has filed a paper book in two volumes. As regard to the ground No. 1 of the appeal of the assessee, the Ld. Counsel of the assessee submitted that issue covered by the order of the Tribunal for assessment year 2010 ITA No. 971/M/2015. The Ld. DR also could not controvert this We have heard rival submission of the parties on the issue dispute and perused the relevant material on record. Before the Ld. TPO, the assessee computed transfer pricing adjustment by way of comparing margins of segment of export sales to third sales to associated enterprises, in respect of the plant whereas the Ld. TPO compared the margin of non segment (export as well as domestic sales) with the segment of . We find that the Ld. DRP following its predecessor Ld. TPO observing as under: Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 7 addition in respect of discrepancy/difference in credit amount of two parties was also deleted pursuant to the direction of the Ld. gned assessment order passed by the parties are before us by way of cross- Before us, the Ld. Counsel of the assessee has filed a paper e appeal of the assessee, the Ld. Counsel of the assessee submitted that issue-in-dispute is covered by the order of the Tribunal for assessment year 2010-11 in ITA No. 971/M/2015. The Ld. DR also could not controvert this mission of the parties on the issue-in- dispute and perused the relevant material on record. Before the Ld. TPO, the assessee computed transfer pricing adjustment by way of third parties with in respect of the plant whereas the Ld. TPO compared the margin of non-AE’s with the segment of . We find that the Ld. DRP following its predecessor “Since there is no change in the facts of the case, following the decision of the DRP in the case of the assessee for A.. 2010 hereby rejected. So far as our alternative plea of the assessee seeking range benefit prescribed under section 92C(2) of the IT Act is concerned, we are not in agreement with the working made by the assessee. The suo motto adjustments made by the assessee have been considered as part of operating income in this working which is incorrect. The TO has correctly worked out the adjustments required to be made under TNMM and after giving set off for the adjustments made by the assessee on its own, the TO has arrived at the correct amount of final adjustments. Therefore, alte of the assessee is also rejected. 7.1 We find that in assessment year 2010 has rejected this approach of the Ld. DRP and directed to accept comparison of margin using internal TNMM for comparison of export sales made to AE’s with the export sales made to 3 (non-AE’s). The relevant finding of the Tribunal reproduced as under: “11. We have considered the rival submissions and perused the material on record. The only grievance raised by the Appellant applying internal TMM for benchmarking the international transactions of export of goods from Thane Plant, the TO had compared OP/OC from total sales to non-AEs (i.e. domestic sales as well as export sales) which stood at 11.90% w from Thane Plant which stood at 3.56%. It was contended on behalf of the Appellant that the segment of export to AEs should have been compared with the segment of export to non available and the margins TNMM broad similarity in FAR is acceptable since the net margins, which are tested, are more tolerant to the ITA Nos. 1035 & 1697/M/2016 & CO No. Since there is no change in the facts of the case, following the decision of the DRP in the case of the assessee for A.. 2010 - 11 objection of the assessee is hereby rejected. So far as our alternative plea of the seeking range benefit prescribed under section 92C(2) of the IT Act is concerned, we are not in agreement with the working made by the assessee. The suo motto adjustments made by the assessee have been considered as part of operating income in this which is incorrect. The TO has correctly worked out the adjustments required to be made under TNMM and after giving set off for the adjustments made by the assessee on its own, the TO has arrived at the correct amount of final adjustments. Therefore, alternative plea of the assessee is also rejected.” We find that in assessment year 2010-11, the Tribunal (supra) has rejected this approach of the Ld. DRP and directed to accept comparison of margin using internal TNMM for comparison of to AE’s with the export sales made to 3 AE’s). The relevant finding of the Tribunal reproduced as under: We have considered the rival submissions and perused the material on record. The only grievance raised by the Appellant before DRP was that while applying internal TMM for benchmarking the international transactions of export of goods from Thane Plant, the TO had compared OP/OC from total sales to AEs (i.e. domestic sales as well as export sales) which stood at 11.90% with the OP/OC of export sales from Thane Plant which stood at 3.56%. It was contended on behalf of the Appellant that the segment of export to AEs should have been compared with the segment of export to non-AEs since the data was available and the margins were not disputed. TNMM broad similarity in FAR is acceptable since the net margins, which are tested, are more tolerant to the Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 8 Since there is no change in the facts of the case, following the decision of the DRP in the case of the 11 objection of the assessee is hereby rejected. So far as our alternative plea of the seeking range benefit prescribed under section 92C(2) of the IT Act is concerned, we are not in agreement with the working made by the assessee. The suo motto adjustments made by the assessee have been considered as part of operating income in this which is incorrect. The TO has correctly worked out the adjustments required to be made under TNMM and after giving set off for the adjustments made by the assessee on its own, the TO has arrived at the correct rnative plea 11, the Tribunal (supra) has rejected this approach of the Ld. DRP and directed to accept comparison of margin using internal TNMM for comparison of to AE’s with the export sales made to 3 rd parties AE’s). The relevant finding of the Tribunal (supra) is We have considered the rival submissions and perused the material on record. The only grievance before DRP was that while applying internal TMM for benchmarking the international transactions of export of goods from Thane Plant, the TO had compared OP/OC from total sales to AEs (i.e. domestic sales as well as export sales) ith the OP/OC of export sales from Thane Plant which stood at 3.56%. It was contended on behalf of the Appellant that the segment of export to AEs should have been compared with the AEs since the data was Under TNMM broad similarity in FAR is acceptable since the net margins, which are tested, are more tolerant to the differences. Assessing Officer and DR was that exports made to different geographical l considered to benchmark export sales to AEs by adopting internal TNMM method since the transactions undertaken with the AEs and Non same industry, and had high level of similarity with respect to products, cost o processes, etc. In our view, the DRP erred in adopting the aforesaid reasoning given by the Appellant to include even the domestic sales made by the Appellant for benchmarking the export sales made to AEs from Thane Plant. Accor pricing addition of IN 54,62,391/ TPO/Assessing Officer to re international transaction of export of goods from Thane Plant by taking OP/OC of the export sales to non In view of the afor by the Appellant allowed. 7.2 Since, the issue identical to issue in assessment year 2010 respectfully following the finding of the Tribunal issue-in-dispute, we direct the Ld. AO/TPO for computing the transfer pricing adjustment to the manufacturing segment for each plant separately using internal comparing the margin of export sales to third parties with t he export sales the AE’s. accordingly allowed for statistical purposes. 8. The ground Nos assessee as the Ld. Counsel submitted already been granted by the Assessing Officer in rectification ITA Nos. 1035 & 1697/M/2016 & CO No. Contention of the Appellant before Assessing Officer and DR was that exports made to different geographical location to non-AEs could be considered to benchmark export sales to AEs by adopting internal TNMM method since the transactions undertaken with the AEs and Non-AEs were in the same industry, and had high level of similarity with respect to products, cost of goods sold, manufacturing processes, etc. In our view, the DRP erred in adopting the aforesaid reasoning given by the Appellant to include even the domestic sales made by the Appellant for benchmarking the export sales made to AEs from Thane Plant. Accordingly, we set aside the transfer pricing addition of IN 54,62,391/- and direct O/Assessing Officer to re-compute ALP of the international transaction of export of goods from Thane Plant by taking OP/OC of the export sales to non In view of the aforesaid directions, Ground No. 1 raised by the Appellant allowed.” Since, the issue-in-dispute in the year under consideration is identical to issue in assessment year 2010 respectfully following the finding of the Tribunal e direct the Ld. AO/TPO for computing the transfer pricing adjustment to the manufacturing segment for each plant separately using internal TNMM as most appropriate method, comparing the margin of export sales to third parties with t he export sales the AE’s. The ground of appeal of the assessee is accordingly allowed for statistical purposes. s. 2 and 3 of the appeal were not pressed by the assessee as the Ld. Counsel submitted that necessary relief has ted by the Assessing Officer in rectification Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 9 Contention of the Appellant before Assessing Officer and DR was that exports made to AEs could be considered to benchmark export sales to AEs by adopting internal TNMM method since the transactions AEs were in the same industry, and had high level of similarity with f goods sold, manufacturing processes, etc. In our view, the DRP erred in adopting the aforesaid reasoning given by the Appellant to include even the domestic sales made by the Appellant for benchmarking the export sales made to AEs from dingly, we set aside the transfer and direct compute ALP of the international transaction of export of goods from Thane Plant by taking OP/OC of the export sales to non-AEs. Ground No. 1 raised dispute in the year under consideration is identical to issue in assessment year 2010-11, therefore, respectfully following the finding of the Tribunal (supra) on the e direct the Ld. AO/TPO for computing the transfer pricing adjustment to the manufacturing segment for each TNMM as most appropriate method, comparing the margin of export sales to third parties with t he The ground of appeal of the assessee is . 2 and 3 of the appeal were not pressed by the necessary relief has ted by the Assessing Officer in rectification proceedings. Accordingly, the ground No assessee are dismissed as infructuous. 9. In ground Nos. 1.1 to 1.3 of the appeal of the Revenue, the Revenue is agitated by way of inclusio namely Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. 10. Brief facts qua the issue under consideration, the assessee provided technical sup services to its associated enterprises and received payment of Rs.7,02,74,760/-. The assessee benchmark transaction of technical support services Margin Method (‘TNMM’) (OP/OC) as the profit level indicator (PLI). The assessee applied certain filters which were partly rejected by the Ld. TPO. The Ld. TPO characterized as the assessee has Technology enabled Services comparables selected by the assessee comparables and mean margin of those comparables was worked out to 35.8% as against assessee’s margin of 15%. The list of final comparables and their margin is reproduced as under: “7.6 Hence that final comparables of the TPO are as under: Sl. No. Name of the comparable ITA Nos. 1035 & 1697/M/2016 & CO No. proceedings. Accordingly, the ground Nos. 2 & 3 of the appeal of the dismissed as infructuous. . 1.1 to 1.3 of the appeal of the Revenue, the Revenue is agitated by way of inclusion of three comparables namely Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. Brief facts qua the issue-in-dispute are that during the year under consideration, the assessee provided technical sup services to its associated enterprises and received payment of . The assessee benchmarked the international of technical support services using the Transaction Net Margin Method (‘TNMM’) and taking operating profit/operatin (OP/OC) as the profit level indicator (PLI). The assessee applied certain filters which were partly rejected by the Ld. TPO. The Ld. TPO characterized as the assessee has providing Information Technology enabled Services (ITeS services). The Ld. TPO comparables selected by the assessee and chosen his own mean margin of those comparables was worked out to 35.8% as against assessee’s margin of 15%. The list of final comparables and their margin is reproduced as under: Hence that final comparables of the TPO are as Name of the comparable Margin (%) Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 10 . 2 & 3 of the appeal of the . 1.1 to 1.3 of the appeal of the Revenue, the n of three comparables namely Microgenetics Systems Ltd., E4e Healthcare Business dispute are that during the year under consideration, the assessee provided technical support services to its associated enterprises and received payment of the international Transaction Net and taking operating profit/operating cost (OP/OC) as the profit level indicator (PLI). The assessee applied certain filters which were partly rejected by the Ld. TPO. The Ld. providing Information (ITeS services). The Ld. TPO rejected chosen his own mean margin of those comparables was worked out to 35.8% as against assessee’s margin of 15%. The list of final comparables and their margin is reproduced as under: Hence that final comparables of the TPO are as Margins Comparable as per 1. Accentia Technologies Ltd. 2. Acropetal Technologies Ltd. (Segmental) 3. TCS e-Serve Ltd. 4. Infosys BPO Ltd. The mean margin of 35.08% as per the departmental comparables is applied in the case of t 10.1 The Ld. TPO then worked out adjustment of Rs.122,69,022/ as under: “7.7 Adjustment: services is 15.00% is lesser than that OP/TC of 35.08% earned by comparable companies. The OP/TC of the software development segment is outside the 5% range available under the regulations. It can thus be concluded that the international transactions of the assessee are not at arm's length price, and therefore an adjustment of Rs. 1,22,69,002 / below working: Working of TP adjustment Particulars Revenue Total Cost Operating Profit OP/TC International Transaction (IT) Arm’s Length Price ITx1.05 ITx0.95 Adjustment In view of the above, the assessee will suffer an adjustment of Rs.1,22,69,002/ received by provision of ITES. ITA Nos. 1035 & 1697/M/2016 & CO No. OP/TO Accentia Technologies Ltd. 29.18% Acropetal Technologies Ltd. (Segmental) 23.95% Serve Ltd. 69.31% Infosys BPO Ltd. 17.86% Mean 35.08 Assessee’s Margin 15.00 The mean margin of 35.08% as per the departmental comparables is applied in the case of the assessee.” The Ld. TPO then worked out adjustment of Rs.122,69,022/ Adjustment: The OP/TC of Technical Support services is 15.00% is lesser than that OP/TC of 35.08% earned by comparable companies. The OP/TC of the software development segment is outside the 5% range available under the regulations. It can thus be d that the international transactions of the assessee are not at arm's length price, and therefore an adjustment of Rs. 1,22,69,002 /- is made as per the below working: Working of TP adjustment Particulars P&L A/c ALP @ 35.05% 7,02,74,760 8,25,43,762 6,11,07,316 6,11,07,316 Operating Profit 91,67,444 2,14,36,446 15.00% 35.08% International Transaction (IT) 7,02,74,760 Arm’s Length Price 8,25,43,762 8,66,70,950 7,84,16,574 Adjustment 1,22,69,002 In view of the above, the assessee will suffer an adjustment of Rs.1,22,69,002/- in respect of fees received by provision of ITES.” Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 11 OP/TO 29.18% TPO 23.95% TPO 69.31% TPO 17.86% TPO 35.08 TPO 15.00 The mean margin of 35.08% as per the departmental he assessee.” The Ld. TPO then worked out adjustment of Rs.122,69,022/- The OP/TC of Technical Support services is 15.00% is lesser than that OP/TC of 35.08% earned by comparable companies. The OP/TC of the software development segment is outside the 5% range available under the regulations. It can thus be d that the international transactions of the assessee are not at arm's length price, and therefore an is made as per the ALP @ 35.05% 8,25,43,762 6,11,07,316 2,14,36,446 35.08% 7,02,74,760 8,25,43,762 8,66,70,950 7,84,16,574 1,22,69,002 In view of the above, the assessee will suffer an in respect of fees 11. Before us, the dispute is in respect of three comp admitted by the Ld. DRP, Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. 11.1 Regarding Microgentics Systems Ltd., contention of the Ld. TPO the assessee being seven times, high turnover is no criteria for rejection of a company. As regard objection of company engaged in the the Ld. DRP accepted industry. 12. We have heard dispute and perused the relevant material on record. Ld. DR could not controvert medical transcription is one of the stream of ITeS Industry as included for the purpose of Rules i.e. Rule10TA of the Income the Rule is reproduced as under: “10TA(e) means the following business process outsourcing services provided mainly with the assistance information technology, namely: i. back office operations: ii. call centres or contact centre services: iii. data processing and data mining: iv. insurance claim processing; v. legal databases: ITA Nos. 1035 & 1697/M/2016 & CO No. Before us, the dispute is in respect of three comp admitted by the Ld. DRP, as additional evidence interalia Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. Regarding Microgentics Systems Ltd., the Ld. DRP rejected the contention of the Ld. TPO for rejection on the ground of seven times, as TPO himself observed that the high turnover is no criteria for rejection of a company. As regard company engaged in the medical transcription services, he Ld. DRP accepted that the company as engaged in heard rival submission of the parties on the issue dispute and perused the relevant material on record. Ld. DR could not controvert medical transcription is one of the stream of ITeS Industry as included for the purpose of ule10TA of the Income-tax Rules. The relevant part of the Rule is reproduced as under: information technology enabled services" means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely: back office operations: call centres or contact centre services: data processing and data mining: insurance claim processing; legal databases: Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 12 Before us, the dispute is in respect of three comparables interalia namely Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. the Ld. DRP rejected the for rejection on the ground of turnover of TPO himself observed that the high turnover is no criteria for rejection of a company. As regard medical transcription services, the company as engaged in ITeS rival submission of the parties on the issue-in- dispute and perused the relevant material on record. Before us, the Ld. DR could not controvert medical transcription is one of the stream of ITeS Industry as included for the purpose of Safe Harbor he relevant part of information technology enabled services" means the following business process outsourcing or use of vi. creation and maintenance of medical transcription excluding medical adv vii. translation services; viii. payroll; ix. remote maintenance, x. revenue accounting xi. support centres xii. website services: xiii. data search integration and analysis; xiv. remote education excluding education content development; or xv. clinical database management services excluding clinical trials. but does not include any research and development services whether or not in the nature of contrac research and development services. 12.1 We also agree with the contention of the Ld. Counsel of the assessee that ‘Accentia Tech providing medical transcription as valid comaparable Microgenetics as justified, Microgenetics on the ground of transcription services uphold the finding of the Ld. DRP on the issue 12.2 Regarding E4e Healthcare Business Services Pvt. Ltd. also the Ld. DRP has rejected the objec dissimilarity being engaged in the healthcare services. We have heard rival submission of the parties on the issue perused the relevant material on record. In view of our finding the comparable Microgen ITA Nos. 1035 & 1697/M/2016 & CO No. creation and maintenance of medical transcription excluding medical advice; translation services; payroll; remote maintenance, revenue accounting support centres website services: data search integration and analysis; remote education excluding education content development; or clinical database management services excluding clinical trials. but does not include any research and development services whether or not in the nature of contrac research and development services.” We also agree with the contention of the Ld. Counsel of the Accentia Technology Ltd.’ which is providing medical transcription has been accepted by the Ld. TPO as valid comaparable, then the AP/TPO is not for exclusion of Microgenetics as justified, there is no reason to object inclusion of Microgenetics on the ground of being engaged in the medical transcription services i.e. functional dissimilarity. We accordingly uphold the finding of the Ld. DRP on the issue-in-dispute. Regarding E4e Healthcare Business Services Pvt. Ltd. also the Ld. DRP has rejected the objection of the Ld. TPO of functionally dissimilarity being engaged in the healthcare services. We have heard rival submission of the parties on the issue perused the relevant material on record. In view of our finding Microgenetics Pvt. Ltd., the contention of the Ld. Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 13 creation and maintenance of medical ice; remote education excluding education content clinical database management services excluding but does not include any research and development services whether or not in the nature of contrac research We also agree with the contention of the Ld. Counsel of the which is engaged in accepted by the Ld. TPO the AP/TPO is not for exclusion of to object inclusion of engaged in the medical . We accordingly, dispute. Regarding E4e Healthcare Business Services Pvt. Ltd. also the tion of the Ld. TPO of functionally dissimilarity being engaged in the healthcare services. We have heard rival submission of the parties on the issue-in-dispute and perused the relevant material on record. In view of our finding on etics Pvt. Ltd., the contention of the Ld. DR of functionally dissimilarity DRP on the issue-in-dispute is upheld. 12.3 Regarding Jindal Intellicom Pvt. Ltd. reproduced as under: “Jindal Intellicom Pvt. Ltd.: The TPO in its remand report rejected this company on the ground that it is engaged only in call centre services. Further the company did major expansion and increased its capacity by 45% which is one of the extraordinary events. The centre services are covered under the definition fITS industry as mentioned in the safe harbour rules. The assessee has also argued that mere expansion of the capacity cannot be a reason to exclude a functionally comparable co demonstrated that the expansion in capacity has any impact on the profit/loss of the company. We have considered the facts of the case and the submissions made. We agree that mere expansion cannot be a reason to reject functionally comparable company. functionally comparable and has passed all TPO filters. TO is directed to accept it as comparable. The objection is therefore accepted 13. We have heard rival submission of the parties and per relevant material on record. The objection of the Ld. DR that centre activity cannot be characterized as ITeS is safe harbor Rules (reproduced above), included as one of ITeS activity of the Ld. DRP that company cannot be ITA Nos. 1035 & 1697/M/2016 & CO No. DR of functionally dissimilarity are rejected and finding of the Ld. dispute is upheld. Regarding Jindal Intellicom Pvt. Ltd., finding of the Ld. DRP is reproduced as under: Intellicom Pvt. Ltd.: The TPO in its remand report rejected this company on the ground that it is engaged only in call centre services. Further the company did major expansion and increased its capacity by 45% which is one of the extraordinary events. The assessee has argued that call centre services are covered under the definition fITS industry as mentioned in the safe harbour rules. The assessee has also argued that mere expansion of the capacity cannot be a reason to exclude a functionally comparable company. The TO has also not demonstrated that the expansion in capacity has any impact on the profit/loss of the company. We have considered the facts of the case and the submissions made. We agree that mere capacity expansion cannot be a reason to reject an olherwise functionally comparable company. The company is functionally comparable and has passed all TPO filters. TO is directed to accept it as comparable. The objection is therefore accepted.” We have heard rival submission of the parties and per relevant material on record. The objection of the Ld. DR that activity cannot be characterized as ITeS is rejected in view of Rules (reproduced above), where call centre as one of ITeS activity. Therefore, we agree with the finding company cannot be rejected for comparison Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 14 rejected and finding of the Ld. finding of the Ld. DRP is The TPO in its remand report rejected this company on the ground that it is engaged only in call centre services. Further the company did major expansion and increased its capacity by 45% which is one of the assessee has argued that call centre services are covered under the definition fITS industry as mentioned in the safe harbour rules. The assessee has also argued that mere expansion of the capacity cannot be a reason to exclude a functionally mpany. The TO has also not demonstrated that the expansion in capacity has any We have considered the facts of the case and the capacity an olherwise The company is functionally comparable and has passed all TPO filters. TO is directed to accept it as comparable. The objection We have heard rival submission of the parties and perused the relevant material on record. The objection of the Ld. DR that call rejected in view of where call centre activity is agree with the finding for comparison on this ground. Accordingly, we upho the issue-in-dispute. 13.1 In view of the above discussion, the ground No. 1.1 to 1.3 of the appeal of the Revenue are dismissed. 14. As regard to ground No. 2 of the appeal of the Revenue is concerned, we find that the Ld. Assessing Officer in draft assessment order worked out negative difference of Rs.97,50,004/ in ledger of two parties “5. Issue of discrepancies found on verification by issuing notices u/s 133(6) of the I.T. Act, 1961: The assessee company has claimed expenses by debiting to Profit & Loss account under that head purchases expenses. The authorized furnished the partywise details giving name, address and amount. To verify the genuineness and reasonableness of these transactions, notices u/s 133(6) of the Act, were sent to certain parties. The analysis of the responses received from var was done and a letter issued to the assessee company vide letter dated 03.02.2015 to reconcile the same with their books of accounts and produce the parties alongwith the documentary evidences to prove the genuineness of transactions. The lett 03.02.2015 is reproduced below: Kindly refer to the above. 2. During the course of assessment proceedings to verify the genuineness of Sundry creditors as shown by you, information u/s 133(6) of the I.T. Act, was called for from some of the cred Details of the same are tabulated as under: Sr. No. Name of the Party ITA Nos. 1035 & 1697/M/2016 & CO No. this ground. Accordingly, we uphold the finding of the Ld. DRP on dispute. In view of the above discussion, the ground No. 1.1 to 1.3 of ppeal of the Revenue are dismissed. As regard to ground No. 2 of the appeal of the Revenue is concerned, we find that the Ld. Assessing Officer in draft assessment order worked out negative difference of Rs.97,50,004/ of two parties, which is reproduced as under: Issue of discrepancies found on verification by issuing notices u/s 133(6) of the I.T. Act, 1961: The assessee company has claimed expenses by debiting to Profit & Loss account under that head purchases expenses. The authorized representative furnished the partywise details giving name, address and amount. To verify the genuineness and reasonableness of these transactions, notices u/s 133(6) of the Act, were sent to certain parties. The analysis of the responses received from various parties s done and a letter issued to the assessee company vide letter dated 03.02.2015 to reconcile the same with their books of accounts and produce the parties alongwith the documentary evidences to prove the genuineness of transactions. The letter dated 03.02.2015 is reproduced below: Kindly refer to the above. During the course of assessment proceedings to verify the genuineness of Sundry creditors as shown by you, information u/s 133(6) of the I.T. Act, was called for from some of the creditors on test check basis. Details of the same are tabulated as under: Name of the Party Reply Sundry Sundry Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 15 ld the finding of the Ld. DRP on In view of the above discussion, the ground No. 1.1 to 1.3 of As regard to ground No. 2 of the appeal of the Revenue is concerned, we find that the Ld. Assessing Officer in draft assessment order worked out negative difference of Rs.97,50,004/- s reproduced as under: Issue of discrepancies found on verification by issuing notices u/s 133(6) of the I.T. Act, 1961: The assessee company has claimed expenses by debiting to Profit & Loss account under that head representative furnished the partywise details giving name, address and amount. To verify the genuineness and reasonableness of these transactions, notices u/s 133(6) of the Act, were sent to certain parties. The ious parties s done and a letter issued to the assessee company vide letter dated 03.02.2015 to reconcile the same with their books of accounts and produce the parties alongwith the documentary evidences to prove the er dated During the course of assessment proceedings to verify the genuineness of Sundry creditors as shown by you, information u/s 133(6) of the I.T. Act, was called itors on test check basis. Sundry Difference (Creditor) 1. Grasim Industries Ltd. 2. Crescent Organics Pvt. Ltd. 3. Trans Tech Turnkey Pvt. Ltd. 4. Jupiter Dyechem Pvt. 5. H.J. Arochem (P) Ltd. 6. Grasim Industries Ltd. S. F. 7. Philips Carbon Black Ltd. 8. Time Technoplast Ltd. 9. Noble Resources and Trading Pvt. Ltd. 10. Turbomach India Pvt. Ltd. 11. Onshore Construction Co. Pvt. Ltd. 12. Abhilasha Tex Chem Pvt. Ltd. 13. ICICI Lombard General Insurance Co. Ltd. 14. Poonam Enterprises 15. Bayer Cropscience Ltd. 16. Acord Shipping Agencies (India) Pvt. Ltd. 17. Cox and Kings India Ltd. 18. Ray Engineering Pvt. Ltd. 19. Hindustan Chemicals Co. 20. Paras Commercial Centre Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. Received Balance as per the assessee balance as per reply of the party Grasim Industries Yes 3,44,83,559 Closing balance not Crescent Organics Yes 3,42,33,938 3,42,31,435 Trans Tech Turnkey No 2,07,71,597 -- Jupiter Dyechem Yes 1,51,11,000 1,54,41,840 H.J. Arochem (P) Yes 1,10,79,478 1,00,06,359 Grasim Industries Yes 86,23,085 1,27,02,374 Philips Carbon Yes 77,21,250 25,17,322 Time Technoplast No 70,04,093 -- Noble Resources and Trading Pvt. No 67,94,167 -- India Yes 67,29,890 69,85,000 Construction Co. No 36,94,367 -- Abhilasha Tex No 34,08,543 -- ICICI Lombard General Insurance Returned back 34,08,543 -- Poonam Enterprises Returned back 31,70,030 -- Bayer Cropscience Yes 28,46,734 31,40,115 Acord Shipping Agencies (India) Pvt. Yes 15,13,107 17,79,355 Cox and Kings India No 14,32,475 28,21,763 Ray Engineering No 13,08,718 52,08,888 Yes 12,99,444 -- Paras Commercial No 10,13,971 -- Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 16 balance as per reply of the party Closing balance not 3,42,31,435 2,503 1,54,41,840 (-)3,30,840 1,00,06,359 10,73,119 1,27,02,374 (-)40,79,289 25,17,322 42,03,928 69,85,000 31,40,115 (-)2,93,381 17,79,355 (-)2,66,248 28,21,763 (-)13,89,288 52,08,888 (-)39,00,170 As discussed above, you are requested to kindly reconcile the same along with supporting necessary documents on or before 10/02/2015 positively. The authorized representative of the assessee company has attended on 10.02.2015 and filed the reconciliation in respect of certain parties vide submissions dated 10.02.2015 and 19.03.2015. After going through the submissions of the assessee, it is seen that in two cases in which the notices u/s 133(6) of the I.T. Act, 1961 were sent on the addresses furnished by differences i.e. party has confirmed more shown by the assessee company. The total amount of such transactions are summarized as under: Sr. No. Name of Sundry Creditors 1. Trans Tech Trunkey Pvt. Ltd. 2. Ray Engineering Pvt. Ltd. Total Negative differences Although the assessee company has identity of these two parties, it has failed to establish the genuineness of the transactions to the extent of Rs.97,50,004/ considered as not genuine to the extent of discrepancies found. Hence, the differ is added to the income of the assessee company as income from undisclosed sources. Penalty proceedings u/s 271(1)(c) of the Act, are hereby initiated separately for furnishing inaccurate particulars of income. 14.1 The Ld. DRP however deleted the addition observing as under: “4.3 Discussion and Directions of DRP: We have considered the submission made by the assessee and the reasons arelof the opinion that in this case no addition was called for because there are only two possible reasons for a creditor showing more amount as receivable from ITA Nos. 1035 & 1697/M/2016 & CO No. As discussed above, you are requested to kindly reconcile the same along with supporting necessary documents on or before 10/02/2015 positively. The authorized representative of the assessee company has attended on 10.02.2015 and filed the reconciliation in respect of certain parties vide submissions dated 10.02.2015 and 19.03.2015. After going through the submissions of the assessee, it is seen that in two cases in which the notices u/s 133(6) of the I.T. Act, 1961 were sent on the addresses furnished by the assessee company, there are negative differences i.e. party has confirmed more amount than shown by the assessee company. The total amount of such transactions are summarized as under: Name of Sundry Creditors Balance as per the assessee Balance as per the reply of the party Trans Tech Trunkey Pvt. 20,771,597 26,621,431 Ray Engineering Pvt. Ltd. 1,308,718 5,208,888 Total Negative differences Although the assessee company has established the identity of these two parties, it has failed to establish the genuineness of the transactions to the extent of Rs.97,50,004/-. Therefore, the transactions are considered as not genuine to the extent of discrepancies found. Hence, the difference amounts of Rs.97,50,004/ is added to the income of the assessee company as income from undisclosed sources. Penalty proceedings u/s 271(1)(c) of the Act, are hereby initiated separately for furnishing inaccurate particulars of income.” DRP however deleted the addition observing as under: Discussion and Directions of DRP: We have considered the submission made by the assessee and the reasons recorded by the AO. We arelof the opinion that in this case no addition was called for because there are only two possible reasons for a creditor showing more amount as receivable from Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 17 As discussed above, you are requested to kindly reconcile the same along with supporting necessary The authorized representative of the assessee company has attended on 10.02.2015 and filed the reconciliation in respect of certain parties vide submissions dated After going through the submissions of the assessee, it is seen that in two cases in which the notices u/s 133(6) of the I.T. Act, 1961 were sent on the addresses the assessee company, there are negative amount than shown by the assessee company. The total amount of ce as per the reply of the party Differences -5,849,834 -3,900,170 -9,750,004 established the identity of these two parties, it has failed to establish the genuineness of the transactions to the extent of . Therefore, the transactions are considered as not genuine to the extent of discrepancies ence amounts of Rs.97,50,004/- is added to the income of the assessee company as income from undisclosed sources. Penalty proceedings u/s 271(1)(c) of the Act, are hereby initiated separately DRP however deleted the addition observing as under: We have considered the submission made by the recorded by the AO. We arelof the opinion that in this case no addition was called for because there are only two possible reasons for a creditor showing more amount as receivable from the assessee than shown by the assessee. The first possibility is that is not reflected in the books of the creditor for the money has been diverted somewhere else and shown as payment to the creditor. In this case since the source of money is explained no addition may be called for. The second possibility is that some bill raised by the creditor has not been recorded by the assessee in its books of account. In this situation also, no addition is called for because there is no allegation of any unexplained payment for the expenditure. Accordin Rs.97,50,004/ 15. We have heard rival submission of the parties on the issue dispute and perused the relevant material on record. It is undisputed that balances assessee in respect of those two parties and balances of the assessee in the ledger accounts of those two respective parties different. The Ld. DRP has presumed possible differences however this is the issue of verification from those two parties as to the reason was on the assessee to reconcile those differences. The Assessing Officer also did not make effort by way of inquiring from those parties for the reasons of difference. In the facts and c we feel appropriate to restore this issue back to the file of the Assessing Officer for verifying from those parties for the reason of discrepancy in the ledger of the assessee and then decide the iss The ground No. 2 is accordingly allowed for statistical purposes. ITA Nos. 1035 & 1697/M/2016 & CO No. the assessee than shown by the assessee. The first possibility is that some payment made by the assessee is not reflected in the books of the creditor for the money has been diverted somewhere else and shown as payment to the creditor. In this case since the source of money is explained no addition may be called for. The nd possibility is that some bill raised by the creditor has not been recorded by the assessee in its books of account. In this situation also, no addition is called for because there is no allegation of any unexplained payment for the expenditure. Accordingly, addition of 97,50,004/- made by the AO is hereby deleted. We have heard rival submission of the parties on the issue dispute and perused the relevant material on record. It is undisputed that balances appearing in the ledger account of the assessee in respect of those two parties and balances of the assessee in the ledger accounts of those two respective parties Ld. DRP has presumed possible differences however this is the issue of verification from those two parties as to the reason for the difference in balances and the onus was on the assessee to reconcile those differences. The Assessing Officer also did not make effort by way of inquiring from those the reasons of difference. In the facts and c we feel appropriate to restore this issue back to the file of the Assessing Officer for verifying from those parties for the reason of ledger balance appearing in the books of account and then decide the issue in accordance with law The ground No. 2 is accordingly allowed for statistical purposes. Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 18 the assessee than shown by the assessee. The first some payment made by the assessee is not reflected in the books of the creditor for the money has been diverted somewhere else and shown as payment to the creditor. In this case since the source of money is explained no addition may be called for. The nd possibility is that some bill raised by the creditor has not been recorded by the assessee in its books of account. In this situation also, no addition is called for because there is no allegation of any unexplained addition of made by the AO is hereby deleted.” We have heard rival submission of the parties on the issue-in- dispute and perused the relevant material on record. It is in the ledger account of the assessee in respect of those two parties and balances of the assessee in the ledger accounts of those two respective parties, are Ld. DRP has presumed possible reasons for differences however this is the issue of verification from those two balances and the onus was on the assessee to reconcile those differences. The Assessing Officer also did not make effort by way of inquiring from those the reasons of difference. In the facts and circumstances, we feel appropriate to restore this issue back to the file of the Assessing Officer for verifying from those parties for the reason of balance appearing in the books of account ue in accordance with law. The ground No. 2 is accordingly allowed for statistical purposes. 16. As far as ground raised in the cross the Ld. Counsel of the assessee submitted that in case finding of the Ld. DRP on the inclusion of Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. is accepted then he would not press the ground of cross order of Ld. DRP in respect of cross-objection of the assessee infructuous. 17. In the result, the appeal of the assessee partly allowed for statistical purposes assessee is dismissed. Order pronounced 1963 on 10/02/2023. Sd/- (KAVITHA RAJAGOPAL JUDICIAL MEMBER Mumbai; Dated: 10/02/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai ITA Nos. 1035 & 1697/M/2016 & CO No. As far as ground raised in the cross-objection are concerned the Ld. Counsel of the assessee submitted that in case finding of the Ld. DRP on the inclusion of the three comparables namely Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. is accepted then he would not press the ground of cross-objection. Since, we have upheld the in respect of those comparables, objection of the assessee are accordingly dismissed as In the result, the appeal of the assessee and Revenue are lowed for statistical purposes and cross-objection ed. Order pronounced under Rule 34(4) of the ITAT Rules, 02/2023. Sd/- KAVITHA RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER forwarded to : Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 19 objection are concerned the Ld. Counsel of the assessee submitted that in case finding of the three comparables namely Microgenetics Systems Ltd., E4e Healthcare Business Services Pvt. Ltd. and Jindal Intellicom Pvt. Ltd. is accepted then he would not objection. Since, we have upheld the those comparables, the ground of accordingly dismissed as and Revenue are objection of the under Rule 34(4) of the ITAT Rules, - OM PRAKASH KANT) ACCOUNTANT MEMBER 6. Guard file. //True Copy// ITA Nos. 1035 & 1697/M/2016 & CO No. BY ORDER, (Assistant Registrar ITAT, Mumbai Lanxess India Pvt. Ltd. ITA Nos. 1035 & 1697/M/2016 & CO No. 89/M/2016 AY 2011-12 20 BY ORDER, Assistant Registrar) ITAT, Mumbai