Sandvik Asia Pvt. Ltd., Pune V. ACIT, Circle-10, Pune

ITA 1750/PUN/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9329 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-01-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 16-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: JEHANGIR D MISTRI
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Double taxation relief; International transaction; Rule of consistency; Additional evidence; Reasonable cause; Bad and doubtful debts; Corroborative evidences; Reason to believe; Unabsorbed depreciation; Revenue expenditure; Reassessment proceedings
• Section: 43B; 143(3); 14A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI M.K.AG G ARWAL , AM . / ITA NO. 1750 /P U N/20 1 3 / ASSESSMENT YEAR: 200 5 - 0 6 SANDVIK ASIA PVT. LTD., MUMBAI - PUNE ROAD, DAPODI, PUNE 411012 . / APPELLANT PAN: AACCS6638K VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE . / RESPONDENT . / ITA NO. 1804 /P U N/20 13 / ASSESSMENT YEAR: 2005 - 06 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE . / APPELLANT VS. SANDVIK ASIA PVT. LTD., MUMBAI - PUNE ROAD, DAPODI, PUNE 411012 . / RESPONDENT PAN: AACCS6638K ASSESSEE BY : SHRI JEHANGIR D. MISTRI RE SPONDENT BY : SHRI SUHAS KULKARNI / DATE OF HEARING : 2 3 . 0 3 .201 7 / DATE OF PRONOUNCEMENT: 14 . 0 6 .201 7 ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 2 / ORDER PER SUSHMA CHOWLA, J M : THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT(A) - IT/TP, PUNE, DATED 05 . 0 7 . 201 3 RELATING TO ASSESSMENT YEAR 20 0 5 - 0 6 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT). 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE ASSESSEE IN ITA NO.1750/PUN/2013 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. THE LEARNED CIT(A) ERRED IN PASSING THE IMPUGNED ORDER WHICH WAS NOT IN ACCORDANCE WITH LAW, THE STATUTORY PROVISIONS, AND WHICH IS VOID AND OF NO LEGAL EFFECT. 2. THE LD. CIT(A) ERRED IN UPHOLDING AN AD - HOC DIS ALLOWANCE U/S.L4A OF RS.1,00,000. LD. CIT(A) ERRED IN UPHOLDING THAT A DISALLOWANCE U/S. 14A WAS WARRANTED WHEN AN APPELLANT COULD SHOW THAT. (A) IT HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE TO IT (B) ITS CLAIM WAS IN ACCORDANCE WITH THE RULING OF RELI ANCE UTILITIES & POWER LTD. 313 ITR 340 (C) ITS INVESTMENTS WERE IN A GROUP COMPANY SANDVIK STEEL ASIA PRIVATE LTD. AND HAD NO RELEVANCE TO THE ISSUE OF SEC.14A 3. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXCISE DUTY OF RS.60,000 WHICH HAVE BEEN INCLUDED IN THE VALUATION OF CLOSING STOCK AND ACTUALLY PAID BEFORE THE DUE DATE OF FILING OF THE RETURN. 4. THE LD. CIT(A) ERRED IN CONFIRMING AN ADHOC ADDITION OF RS.75,000 BY VALUING STOCK OF SCRAP AS OF 31.03.2005. THE LD. CIT(A) FAILED TO APPREC IATE THAT IT WAS A CONSISTENT ACCOUNTING POLICY OF THE ASSESSEE NOT TO VALUE ANY SCRAP AT THE END OF EACH YEAR IN VIEW OF INSIGNIFICANT VALUE INVOLVED. FURTHER THE CIT(A) FAILED TO APPRECIATE THAT AS AND WHEN THE SCRAP WAS SOLD AND THE PROCEEDS HAVE BEEN O FFERED FOR TAX BY THE APPELLANT AND HENCE THE ACTION OF THE AO/CIT(A) AMOUNTS TO A DOUBLE ADDITION/TAXATION. ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 3 5. THE LD. CIT(A) OUGHT TO HAVE ALLOWED DEPRECIATION OF RS.2,89,808 ON SOFTWARE EXPENSES HELD AS CAPITAL IN THE EARLIER YEARS. 6. THE LD. CIT(A) OUGHT TO HAVE ALLOWED WARRANTY PAYMENTS MADE DURING THE YEAR OF RS.67,67,000 MADE BY THE ASSESSEE WHICH WAS DISALLOWED IN EARLIER YEARS. 7. THE LEARNED CIT(A) ERRED IN REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAKEN BY THE ASSESSEE BY AGGREGATING ITS INTERNATIONAL TRANSACTIONS. 8. THE LEARNED CIT(A) ERRED IN MAKING AN ADDITION OF RS . 625,621 BY HOLDING THAT INTERNATIONAL TRANSACTIONS OF THE MANUFACTURING - WIRES SEGMENT WERE NOT AT ARM'S LENGTH. 9. THE LEARNED CIT(A) ERRED IN REJECTING THE SELECTION OF THE TNMM ADOPTED BY THE ASSESSEE AS THE MOST APPROPRIATE METHOD IN THE CIRCUMSTANCES OF THE CASE AND COMPARING NET PROFIT MARGINS WITH EXTERNAL COMPARABLES FOR COMPUTING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF ITS MANUFACTURING OF WIRE S EGMENT. 10. THE LEARNED CIT(A) ERRED BY MAKING AN ADDITION OF RS.625,621 BY ADOPTING THE COST PLUS METHOD AS THE MOST APPROPRIATE METHOD IN THE CIRCUMSTANCES OF THE CASE FOR COMPUTING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF ITS MANUFACTURI NG OF WIRE SEGMENT. 11. THE LEARNED CIT(A) ERRED BY CONFIRMING THE ADDITION OF RS.12,05,814/ - BY HOLDING THAT THE INTERNATIONAL TRANSACTIONS OF EXPORTS OF SEAMLESS TUBES AND PIPES IS NOT AT ARMS LENGTH BY ERRONEOUSLY APPLYING THE CUP (COMPARABLE UNCONTRO LLED PRICE) METHOD. 12. THE LEARNED CIT(A) ERRED IN FAILING TO APPLY THE PROVISIONS OF THE PROVISO TO S 92C(2) OF THE ACT. 4. THE REVENUE IN ITA NO.1804/PUN/2013 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1A WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCE UNDER RULE 46A, WHEN THE CIT(A) HAS HIMSELF AGREED WITH THE TPO'S OBSERVATION THAT THE ONUS IS ON THE ASSESSEE TO ESTABLISH THE TRANSFER PRICE BY FURNISHING NECESSARY SUPPORTI NG EVIDENCE, AS RULE 10D C L EAR L Y PROVIDED THE NATURE OF DOCUMENTS, WHICH THE ASSESSEE IS REQUIRED TO MAINTAIN FOR THIS PURPOSE? 1B. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) WAS JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCE UNDER RULE 46A WHEN THE CIT(A) HAS HIMSELF AGREED THAT THE TPO HAS PROVIDED ADEQUATE TIME TO THE ASSESSEE FOR SUBMISSION OF EVIDENCE AND WITHOUT ESTABLISHING THE REASONABLE CAUSE WHICH PREVENTED THE ASSESSEE FROM FURNISHING SUCH EVIDENCE BEFORE THE TP O DU RING TP PROCEEDINGS? 2A. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADJUSTMENT MADE TO INTERNATIONAL TRANSACTION OF ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 4 MANAGEMENT SERVICE FEES AMOUNTING TO RS.4,41,44,973/ - IGNORING THE FINDING OF THE TPO AND THE ASSESSING OFFICER THAT NO EVIDENCE IN SUPPORT OF THE CLAIM WAS FURNISHED BY THE ASSEESSEE DURING THE COURSE OF TP PROCEEDINGS? 2B. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING TH E ADJUSTMENT MADE TO INTERNATIONAL TRANSACTION OF MANAGEMENT SERVICE FEES AMOUNTING TO RS.4,41,44,973 / - IGNORING THE FINDING OF THE DDIT(INTERNATIONA L TAXATION) - I , PUNE IN THE CASE OF PARENT AE OF THE ASSESSEE COMPANY I.E. SANDVIK AB, SWEDEN FOR THE A.Y. 2 005 - 06 THAT THE SAID AMOUNT WAS RECEIVED BY SANDVIK AB SWEDEN WITHOUT PROVIDING ANY SERVICES TO SANDVIK ASIA PVT LTD., WHICH WAS ALSO RELIED ON BY THE TPO WHILE DETERMINING THE ARMS' LENGTH PRICE OF THE INTERNATIONAL TRANSACTION IN RESPECT OF PAYMENT OF MA NAGEMENT SERVICE FEES. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THAT SOFTWARE APPLICATION OF RS.60,98,995/ - BE TREATED AS REVENUE EXPENDITURE, BY MERELY RELYING ON ASSESSEE'S SUBMISSION AND WITHO UT VERIFYING THE ENDURING NATURE OF THE SAID SOFTWARE? 4A. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, @ THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.19,52,000/ - TO CL OSING STOCK BEING PROVISION FOR OBSOLETE INVENTORY WHEN THE PROVISION HAS BEEN MADE ON THE BASIS OF INTERNAL GUIDELINES AND NOT AS PER PROVISIONS OF INCOME TAX ACT WHICH PROVIDES FOR VALUATION OF CLOSING STOCK EITHER AT COST OR AT MARKET PRICE, WHICHEVER IS LES S? 4B. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.19,52,000 / - TO CLOSING STOCK BEING PROVISION FOR OBSOLETE INVENTORY BY HOLDING THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS LTD [314 ITR 62] IS APPLICABLE HERE, WHEN THE SAME RELATES TO PROVISION FOR WARRANTY AND HENCE MISPLACED ? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN ESTIMATING THE VAL UE OF CLOSING STOCK OF SCRAP @ RS. 5/ - PER KG ON ADHOC BASIS, WITHOUT ASSIGNING ANY REASON WHATSOEVER AND WITHOUT SUBSTANTIATING THE SAID ALLOWANCE. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN ALLOWIN G THE LOSSES SUFFERED BY NEWLY SET UP EOU AGAINST ITS OTHER BUSINESS INCOME, WHEN THE INCOME OF THE EOU IS EXEMPT U/S 10A/10B OF THE I.T. ACT, 1961?. 5. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS GENERAL AND HENCE, THE SAME IS DISMISSED. 6. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE UNDER SECTION 14A OF THE ACT AT RS.1 LAKH. ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 5 7. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD NOTED THAT THE A SSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.2,61,75,000/ - . THE ASSESSEE HAD MADE LONG TERM INVESTMENT IN SHARES OF M/S. SANDVIK SMITH ASIA LTD. AND THE ASSESSING OFFICER APPLYING THE METHODOLOGY AS PRESCRIBED IN RULE 8D OF THE INCOME TAX RULES, 1962 (I N SHORT THE RULES) , WORKED OUT THE DISALLOWANCE AT RS.4,52,000/ - . 8. THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.1 LAKH, AGAINST WHICH THE ASSESSEE IS IN APPEAL. 9. THE ASSESSEE IS AGGRIEVED BY THE OBSERVATIONS OF THE CIT(A) IN PARA 2.8.11 IN HOLDING THAT THE ASSESSEE HAS TO ESTABLISH THAT IT IS ENTITLED TO FULL EXEMPTION WHERE RULE 8D OF THE RULES IS BASED ON PRESUMPTION AND THE CALCULATION OF EXPENDITURE IS ALSO ON PRESUMPTIVE BASIS. THE CIT(A) LATER ON DISALLOWS THE AMOUNT AT RS.1 LAKH, IN THE ABSE NCE OF APPLICATION OF RULE 8D OF THE RULES. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ADMITTEDLY, THE YEAR UNDER APPEAL IS ASSESSMENT YEAR 2005 - 06 I.E. THE YEAR WHEN THE PROVISIONS OF RULE 8D OF THE RULES WERE NOT ON STATUTE. THE HONBLE BOMBAY HIGH COURT IN GODREJ BOYCE MFG. CO. LTD. VS. DCIT & ANR. (2010) 328 ITR 81 (BOM) HAD HELD THE SAID PROVISIONS TO BE PROSPECTIVE IN NATURE, HENCE THE SAME WE RE NOT APPLICABLE TO THE YEAR UNDER APPEAL. ACCORDINGLY, THE FINDINGS OF CIT(A) IN PARA 2.8.11 NEEDS TO BE REVERSED. THE CIT(A) HIMSELF THOUGH IN THE PARAS THEREAFTER HAVE ADMITTED THAT THE PROVISIONS OF RULE 8D OF THE RULES ARE NOT APPLICABLE AND IN VIE W OF THE PROVISIONS OF SECTION 14A OF THE ACT, ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 6 DISALLOWANCE OF RS.1 LAKH WAS MADE. WE UPHOLD THE SAID DISALLOWANCE OF RS.1 LAKH UNDER SECTION 14A OF THE ACT. ACCORDINGLY, THE GROUND OF APPEAL NO.2 IS DECIDED AS INDICATED ABOVE. 11. THE ISSUE IN GROUND O F APPEAL NO.3 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF EXCISE DUTY OF RS.60,000/ - ON OBSOLETE STOCK . 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT GROUND OF APPEAL IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2004 - 05. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 14. WE HAVE HEARD THE RIVAL CO NTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD MADE PROVISION OF EXCISE DUTY AMOUNTING TO RS.60,000/ - WHICH AS PER THE ASSESSEE, WAS INCLUDED IN THE CLOSING STOCK AND WAS ALSO PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. WE FIND THAT SIMI LAR ISSUE OF PROVISION OF EXCISE DUTY ON OBSOLETE STOCK AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2004 - 05 IN ITA NO.248/PN/2012 IN THE APPEAL FILED BY THE ASSESSEE AND CROSS APPEAL FILED BY THE REVENUE IN ITA NO.2469/PN/2012 . V IDE ORDER DATED 04.12.201 5 , T HE TRIBUNAL HELD THE ASSESSEE TO BE ENTITLED TO CLAIM THE DEDUCTION OBSERVING AS UNDER: - 20. WE FIND SIMILAR ISSUE OF ADVANCE PAYMENT OF EXCISE DUTY IN AN ACCOUNTING YEAR, WHICH IS TO BE ADJUSTED AS AND WHEN GOODS WERE LIFTED BY THE ASSESSEE FROM ITS FACTORY, WAS HELD AS ALLOWABLE AS DEDUCTION UNDER SECTION 43B OF THE ACT, SINCE THE SAID SECTION RECOGNIZED THE DEDUCTION FOR PAYMENT OF TAX, DUTY, ETC. AS ALLOWABLE ON PAYMENT BASIS. THE SAID RATIO WAS LAID DOWN BY THE CHANDIGARH SPECIAL BENCH OF TRIBUNA L IN DCIT VS. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. (SUPRA). FOLLOWING THE SAME PARITY OF REASONING, WE ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 7 HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION OF RS.10,06,000/ - UNDER SECTION 43B OF THE ACT AS THE AFORESAID AMOUNT ADMITTEDLY, WAS PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME FOR THE INSTANT ASSESSMENT YEAR, AS CERTIFIED BY THE AUDITOR IN THE AUDIT REPORT IN ANNEXURE 7 ATTACHED TO THE FORM NO.3CD, WHEREIN IT HAS BEEN CERTIFIED THAT THE AMOUNT OF EXCISE DUTY PAID UP TO DAT E OF FILING THE RETURN OF INCOME, EXCEEDED SUM OF RS.1.86 CRORES. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 15. FOLLOWING THE SAME PARITY OF REASONING, WE ALLOW THE CLAIM OF ASSESSEE AND GROUND OF APPEAL NO.3 IS THUS, ALLOWED. 16. NOW, COMING TO THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE AGAINST ADHOC ADDITION OF RS.75,000/ - BY VALUING THE STOCK OF SCRAP AS ON 31.03.2005. 17. THE ASSESSEE EXPLAINED THAT IT WAS ITS POLICY NOT TO VALUE ANY SCRAP AT THE CLOSE OF THE YEAR AND THE SAID POLICY WAS CONSISTENTLY FOLLOWED FROM YEAR TO YEAR. HOWEVER, THE SALE PROCEEDS OF THE SCRAP WERE OFFERED TO TAX WHEN THE SAME WAS SOLD. THE ASSESSING OFFICER NOTED THAT THE CLOSING STOCK OF ASSESSEE INCLUDED SCRAP OF 14,984 KGS. BUT ITS VALUE W AS NOT CONSIDERED. THE ASSESSEE CLAIMED THAT THE VALUE WAS INSIGNIFICANT TO BE CONSIDERED AS PART OF CLOSING STOCK. THE ASSESSING OFFICER HOWEVER , MADE AN ADDITION OF RS.12,66,148/ - ON ACCOUNT OF VALUE OF CLOSING STOCK OF SCRAP. 18. THE CIT(A) RESTRICT ED THE ADDITION TO RS.75,000/ - BY REVALUING THE STOCK @ RS.5 PER KG., ESTIMATED ON ADHOC BASIS. 19. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRING TO THE PAGES 144 AND 156 OF THE PAPER BOOK, POINTED OUT THAT DURING THE YEAR CONSIDERATI ON, THE ASSESSEE HAD SHOWN THE INCOME FROM SALE OF SCRAP AT ABOUT ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 8 RS.18 CRORES AS AGAINST WHICH THE QUANTITY OF STOCK AS ON THE CLOSE OF THE YEAR WAS MINIMAL. HE FURTHER POINTED OUT THAT CONSISTENT POLICY WAS BEING FOLLOWED, WHEREIN NO SCRAP WAS ADDED TO THE CLOSING STOCK OF EACH OF THE YEAR. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED ON THE ORDERS OF ASSESSING OFFICER AND CIT(A). 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS CONSISTENTLY FOLLOWI NG THE METHOD OF ACCOUNTING, WHEREIN WHENEVER SCRAP WAS SOLD BY THE ASSESSEE, THE RECEIPTS FROM THE SALE OF SUCH SCRAP WE RE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. HOWEVER, SCRAP WHICH WA S AVAILABLE AT THE END OF YEAR HA D NOT BEEN SHOWN AS PART OF THE CLOSING STOCK. THE ESTIMATED VALUE OF THE STOCK WHICH HAS BEEN UPHELD BY THE CIT(A) IS ALSO RS.75,000/ - AS AGAINST THE SAME, THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD SOLD SCRAP FOR ABOUT RS.18 CRORES, WHICH HAS B EEN INCLUDED AS RECEIPTS OF THE BUSINESS FOR THE YEAR UNDER CONSIDERATION BY THE ASSESSEE. IN VIEW THEREOF, WHERE A CONSISTENT APPROACH HAS BEEN FOLLOWED BY THE ASSESSEE, WE FIND NO MERIT IN THE INCLUSION OF VALUE OF SCRAP AS ON THE CLOS E OF THE YEAR AT R S.75,000/ - AS PART OF INCOME OF ASSESSEE. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 22. THE GROUNDS OF APPEAL NO.5 AND 6 RAISED BY THE ASSESSEE HAVE BECOME INFRUCTUOUS AS THE RELIEF HAS BEEN GRANTED IN EARLIER YEARS AND HENCE, TH E SAME ARE DISMISSED. ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 9 23. NOW, COMING TO THE GROUNDS OF APPEAL NO.7 TO 10 RAISED BY THE ASSESSEE WHICH ARE AGAINST THE TRANSFER PRICING ADJUSTMENT OF MANUFACTURING WIRE SEGMENT AT RS.6,25,621/ - . THE GROUND OF APPEAL NO.11 IS AGAINST THE TP ADJUSTMENT OF EXPORT S OF SEAMLESS TUBES AND PIPES AT RS.12.06 LAKHS. 24. BRIEF FACTS OF THE ISSUE ARE THAT, REFERENCE UNDER SECTION 92CA(1) OF THE ACT WAS MADE FOR COMPUTATION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS DETAILED IN THE AUDIT REPORT IN FORM 3CEB. THE TRANSFER PRICING OFFICER (THE TPO) THEREAFTER, ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING CARBIDE TOOLS AND HARD MATERIAL TOOLS THAT WERE USED IN DRILLING AND MACHINING. THE PRODUCTS MANUFACTURED BY THE ASSESSEE WERE USED IN AUTOMOBILES, GENERAL ENGI NEERING, STEEL INFRASTRUCTURE AND MINING INDUSTRIES. THE TOTAL TURNOVER OF THE ASSESSEE FOR THE YEAR ENDING 31.03.2005 WAS RS.568 CRORES, ON WHICH THE ASSESSEE HAD DECLARED NET PROFIT BEFORE TAX AT RS.113.26 CRORES. THE ASSESSEE WAS SUBSIDIARY OF SANDVIK AB, SWEDEN. THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WHICH ARE TABULATED AT PAGE 2 OF THE ORDER OF TPO. FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS, THE ASSESSEE HAD DIVIDED T HE ACTIVITIES UNDER FOUR HEADS AS UNDER: - I) MANUFACTURING TOOLS DIVISION MANUFACTURING OF MACHINE CUTTING TOOLS NEEDED FOR DRILLING AND MACHINING WERE CLASSIFIED UNDER THIS DIVISION; II) MANUFACTURING WIRES FUNCTION MANUFACTURE OF HIGH RESISTANCE ELECTRICAL WIRES, RIBBONS AND HEATING ELEMENTS W ERE CATEGORIZED IN THIS DIVISION; III) MANUFACTURING SEAMLESS TUBES AND PIPES FUNCTION; AND IV) DISTRIBUTION IMPORT OF FINISHED GOODS FOR RESALE IN THE INDIAN MARKET AND PERFORMANCE OF SALES AGENT SERVICE HAVE BEEN CATEGORIZED IN THIS DIVISION. ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 10 25. TH E ASSESSEE HAD APPLIED TNMM METHOD WITH NET PROFIT MARGIN AS THE PROFIT LEVEL INDICATOR (PLI) IN ORDER TO BENCHMARK THE ARM'S LENGTH PRICE OF ITS AFORESAID FOUR DIVISIONS. THE TPO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE IN RESPECT OF EACH OF THE DIVISION S. IN RESPECT OF MANUFACTURING WIRES SEGMENT, THE TPO NOTED THAT THE SAID SEGMENT HAD BEEN BENCHMARKED SEPARATELY BY THE ASSESSEE FOLLOWING TNMM METHOD WITH EXTERNAL COMPARABLES. THE TPO NOTED THAT IN THE SAID SEGMENT I.E. MANUFACTURING OF WIRES, THERE W AS EXPORT SALE TO THE ASSOCIATED ENTERPRISES AND THERE WERE DOMESTIC SALES AND THEREFORE, THE SPLIT FUNCTION RESULTS IN RESPECT OF DOMESTIC SALES AND EXPORT SALES COULD VALIDLY SERVE AS INTERNAL COMPARABLES. THE TPO WAS OF THE VIEW THAT INTERNAL COMPARABL E WOULD BE COMPARABLE THAN THE EXTERNAL COMPARABLES AND FURTHER THE BENCHMARKING DONE BY THE ASSESSEE FOLLOWING THE COMBINED APPROACH METHOD WAS FOUND TO BE NOT ACCEPTABLE. THE TPO PROPOSED TO ADOPT COST PLUS METHOD IN RESPECT OF MANUFACTURING WIRE SEGMEN T TAKING THE INTERNAL COMPARABILITY BETWEEN TWO SEGMENTS OF DOMESTIC SALES AND EXPORT SALES TO ASSOCIATED ENTERPRISES. THE ASSESSEE HA D EARNED GROSS PROFIT FROM THE DOMESTIC SALES AT 3 2 .59% AND IN CASE OF ASSOCIATED ENTERPRISES AT 19.13% AND DIFFERENCE IN GROSS PROFIT LEVEL WORKED OUT TO 13.46%. THE ASSESSEE WAS THUS, SHOW CAUSED TO EXPLAIN AS TO WHY THE DIFFERENCE IN THE EARNING OF GROSS PROFIT BETWEEN THE DOMESTIC SALES AND EXPORT SALES TO TH E ASSOCIATED ENTERPRISES I.E. 13.46%, WHICH COMES TO RS.6,25,621/ - SHOULD NOT BE ADDED ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS RELATING TO EXPORT OF WIRES TO ASSOCIATED ENTERPRISES. IN RESPONSE THERETO, THE ASSESSEE FURNISHED ITS SU BMISSIONS WHICH WERE CONSIDERED BY THE TPO. THE TPO REJECTED THE PLEA OF ASSESSEE OF COMBINED TRANSACTION APPROACH. THE TPO ALSO REJECTED THE PLEA OF ASSESSEE THAT THE CPM CANNOT BE APPLIED OBSERVING AS UNDER: - ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 11 7.4.3 IN VIEW OF THE FACTS OF THE CASE AN D DISCUSSION AS ABOVE AN ADJUSTMENT OF RS.6,25,621/ - IS MADE TO THE INTERNATIONAL TRANSACTION RELATING TO EXPORT TO AE UNDER MANUFACTURED WIRES SEGMENT TO THE AE AND CONSEQUENT TO THIS ADJUSTMENT THE INCOME OF THE ASSESSEE SHALL BE INCREASED BY RS.6,25,621 / - 26. THE ASSESSING OFFICER MADE ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AT RS. 6,19,04,219/ - WHICH CONSTITUTED OF RS.12,05,814/ - + RS.1,59,27,811/ - + RS.4,41,44,973/ - + RS.6,25,621/ - . AT THIS JUNCTURE, WE ARE CONCERNED WITH THE ADDITION OF RS.6,25,621/ - . 27. BEFORE THE CIT(A), THE PLEA OF ASSESSEE WAS THAT CPM CANNOT BE CONSIDERED AS MOST APPROPRIATE METHOD BECAUSE THERE WE RE CONTROLLED TRANSACTIONS IN BOTH ASSOCIATED ENTERPRISES AND NON - ASSOCIATED ENTERPRISES TRANSACT IONS . FURTHER, THERE WERE DIFFERENCES IN FUNCTIONAL AND RISK ADJUSTMENT BETWEEN ASSOCIATED ENTERPRISES AND NON - ASSOCIATED ENTERPRISES SEGMENTS. THE CIT(A) REJECTED THE PLEA OF ASSESSEE THAT ASSOCIATED ENTERPRISES AND NON - ASSOCIATED ENTERPRISES SEGMENT COULD NOT BE COMPARED. THE CIT(A) HELD THAT THE ASSES SEE HAS FAILED TO BRING ON RECORD THE EXTENT OF EXPENSES OF CONTROLLED TRANSACTIONS IN NON - ASSOCIATED ENTERPRISES SEGMENTS. FURTHER, THE ARGUMENTS OF ASSESSEE TO ALLOW ADJUSTMENT ON ACCOUNT OF GEOGRAPHICAL DIFFERENCE S W ERE ALSO REJECTED IN THE ABSENCE OF ANY DETAILS FILED BY THE ASSESSEE. THE CIT(A) THUS, UPHELD THE ADJUSTMENT OF RS.6,25,621/ - MADE TO THE INTERNATIONAL TRANSACTIONS OF MANUFACTURING OF WIRE. 28. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 29. THE LEARNED AUTHORIZED REPRESENTAT IVE FOR THE ASSESSEE POINTED OUT THAT 90% OF ITS SALES WERE IN THE DOMESTIC MARKET. THE LEARNED AUTHORIZED ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 12 REPRESENTATIVE FOR THE ASSESSEE FURTHER STATED THAT THE TOTAL EXPORT SALES WERE TO THE TUNE OF RS.46 LAKHS AND THE SALES IN DOMESTIC MARKET WERE TO THE TUNE OF RS.24.10 CRORES. HE FURTHER POINTED OUT THAT THE TPO HAD COMPARED THE DOMESTIC GP RATE OF 32 .59 % WITH THE GP RATE FROM EXPORT SALES @ 19.13% TO CALCULATE THE ADDITION IN THE HANDS OF ASSESSEE AT RS.6,25,621/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE OBJECTED TO THE USE OF CUP METHOD AND ALSO POINTED OUT HOW CUP METHOD HA D TO BE APPLIED. HE ALSO POINTED OUT THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WERE INTRINSICALLY BUNDLE D AND HENCE, AGGREGATION APPROACH SHOULD H AVE BEEN APPLIED. HE POINTED OUT THAT AGGREGATION APPROACH IS ACCEPTED IN THE EARLIER YEARS AND ALSO IN LATER YEARS. HE ALSO REFERRED TO THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 IN THIS REGARD. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR T HE REVENUE POINTED OUT THAT AGGREGATION IN THE CASE OF ASSESSEE WAS NOT POSSIBLE AND THE TPO HAD APPLIED THE CPM METHOD AND HAD CONSIDERED THE RATE OF GP AS COMPARISON IN ORDER TO BENCHMARK THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RAISED BY THE ASSESSEE UNDER THE TRANSFER PRICING DIVISION IS IN RESPECT OF ADJUSTMENT MADE ON ACCOUNT OF ARM'S LENGTH PRICE OF THE MANUFACTURING DIVISION I.E. EXPORT OF WIRE . THE ASSESS EE HAD AGGREGATED THE INTERNATIONAL TRANSACTIONS UNDER THE SAID SEGMENT I.E. EXPORT OF FINISHED GOODS WITH IMPORT OF RAW MATERIAL, ALLOCATION OF FEES FOR IT SUPPORT AND MANAGEMENT / OPERATIONAL SERVICES AND REIMBURSEMENT / RECOVERY OF EXPENSES. THE ASSESS EE HAD APPLIED TNNM METHOD AND HELD THE TRANSACTION TO BE AT ARMS LENGTH. THE CASE OF ASSESSEE ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 13 WAS THAT AGGREGATION APPROACH SHOULD BE ACCEPTED AND TNNM METHOD SHOULD BE APPLIED. IT WAS ALSO EXPLAINED BY THE ASSESSEE THAT THERE WERE SIGNIFICANT DIFFERENC ES IN ASSESSEES FAR PROFILE WITH RESPECT TO THE DOMESTIC AND EXPORT BUSINESS. THE ASSESSEE ALSO EXPLAINED THAT UNDER THE SAID DIVISION, IT WAS MAJORLY MAKING DOMESTIC SALES TO THE EXTENT OF RS.24.10 CRORES AND THE EXPORT ACTIVITY WAS ONLY TO THE EXTENT O F 2% OF THE OVERALL WIRE MANUFACTURING ACTIVITY AND WAS UNDERTAKEN TO UTILIZE THE SPARE MANUFACTURING CAPACITY. THE TOTAL EXPORT SALES TO THE ASSOCIATED ENTERPRISES WERE ABOUT RS.46 LAKHS. ANOTHER POINT RAISED BY THE ASSESSEE WITH REGARD TO THE SAID TRAN SACTION WAS THAT WHERE IMPORT / SERVICE CHARGES / MANAGEMENT FEES, ETC. WERE THE CONTROLLED TRANSACTIONS IN RESPECT OF BOTH THE ACTIVITIES, THEN BOTH WERE TAINTED AND CPM METHOD COULD NOT BE APPLIED TO COMPARE THE RESULTS SHOWN IN THE DOMESTIC MARKET WI TH THE RESULTS SHOWN OF EXPORT TO ASSOCIATED ENTERPRISES. THE ASSESSEE HAD DECLARED GROSS PROFIT OF 32.59% AGAINST DOMESTIC SALES AND 19.13% AGAINST THE EXPORT SALES TO ASSOCIATED ENTERPRISES AND THE TPO HAD APPLIED THE DIFFERENCE OF 13.46 % TO WORK OUT TH E ADDITION IN THE HANDS OF ASSESSEE. 32. THE FIRST ASPECT OF THE ISSUE RAISED BEFORE US IS THE AGGREGATION APPROACH TO BE APPLIED WHILE BENCHMARKING THE TRANSACTION OF MANUFACTURING OF WIRES. WHERE THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE UNDER THE DIVISION OF MANUFACTURE OF WIR ES ARE INTER - LINKED, THEN THE SAID TRANSACTIONS NEED TO BE AGGREGATED FOR THE PURPOSE OF BENCHMARKING THE ARM'S LENGTH PRICE OF THE SAID INTERNATIONAL TRANSACTIONS. THE AGGREGATION APPROACH HAS BEEN ACCEPTED IN THE HANDS OF ASSESSEE BOTH IN THE EARLIER YE ARS AND ALSO LATER YEARS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS POINTED OUT THAT IN ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 14 ASSESSMENT YEARS 2002 - 03 TO 2004 - 05 , THE SAID APPROACH HAD BEEN ACCEPTED AND THEREAFTER IN ASSESSMENT YEARS 2009 - 10 TO 2012 - 13 HAVE ALSO BEEN ACCEPTED . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE APPEALS ARE PENDING BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 AND IN ASSESSMENT YEAR 2 007 - 08. FURTHER IN ASSESSMENT YEAR 2008 - 09, THE ADDITION WAS MADE IN THE HANDS OF ASSESSEE BY REJECTING TNNM METHOD AND THE AGGREGATION APPROACH, BUT THE APPEAL OF ASSESSEE WAS QUASHED BY THE TRIBUNAL ON TECHNICAL ASPECTS. THE SECOND PLEA RAISED BY THE ASSESSEE IN THIS REGARD IS THAT IF AGGREGATION APPROACH IS APPLIED, THEN NO COMPARIS ON CAN BE MADE BETWEEN DOMESTIC SALES AND EXPORTS TO ASSOCIATED ENTERPRISES AS BOTH THE ACTIVITIES HAVE CONTROLLED TRANSACTIONS OF IMPORTS, SERVICE CHARGES, MANAGEMENT FEES, ETC. AND HENCE, ARE TAINTED. WE FIND MERIT IN THE PLEA OF ASSESSEE THAT WHERE TR AN SACTIONS UNDER THE SAME SEGMENT ARE INTER - LINKED , THEN THEY ARE TO BE AGGREGATED IN THE HANDS OF ASSESSEE. THIS PLEA OF AGGREGATION HAS BEEN ACCEPTED AND ADOPTED IN THE HANDS OF ASSESSEE IN THE EARLIER YEARS AND EVEN IN THE LATER YEARS. ACCORDINGLY, TH E SAME MERITS TO BE APPLIED IN THE YEAR UNDER CONSIDERATION ALSO. 33. THE NEXT PLEA RAISED BY THE ASSESSEE IS AS TO WHETHER AFTER AGGREGATION OF TRANSACTIONS UNDER THE SEGMENT, TNNM METHOD OR CUP METHOD IS THE MOST APPROPRIATE METHOD TO BE APPLIED TO TH E INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE PLEA OF ASSESSEE IS THAT BOTH THE ACTIVITIES I.E. DOMESTIC AND THE EXPORT TO THE ASSOCIATED ENTERPRISES UNDERTAKEN BY THE ASSESSEE HAVE CONTROLLED TRANSACTIONS AND HENCE, CUP METHOD IS NOT THE M OST APPROPRIATE METHOD TO BE APPLIED. WE FIND SUPPORT FROM THE ORDER OF TRIBUNAL IN JOHN DEERE INDIA (P.) LTD. VS. DCIT (2015) 56 TAXMANN.COM 412 (PUNE TRIB.) , WHEREIN THE ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 15 TRIBUNAL VIDE ORDER DATED 20.02.2015 HAD DECIDED THE ISSUE ON BOTH THE ASPECTS I.E. WHERE A METHOD HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE WHY THE SAME SHOULD NOT BE APPLIED TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS AND ALSO THE ISSUE OF APPLICATION OF TNMM METHOD AS COMPARED TO CUP METHOD APPLIED BY THE TPO. THE TRIBUNAL V IDE PARAS 16 TO 21 HAS OBSERVED AS UNDER: - 16. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. WE HAVE ALSO CONSIDERED ALL THE DECISIONS AND PRECEDENTS RELIED ON BY BOTH THE PARTIES. ON THIS GROUND THERE ARE TWO SUB ISSUES F IRST IS REJECTION OF THE TNMM METHOD ADOPTED BY THE ASSESSEE AND SUBSTITUTING THE SAID METHOD WITH CUP BY THE TPO/DRP AND SECOND ISSUE IS IN RESPECT OF THE ALP ADJUSTMENT MADE BY THE ASSESSING OFFICER. IN THIS CASE, THE ALP ADJUSTMENT IS MADE ONLY TO THE EXPORT OF TRACTORS AND IN RESPECT OF OTHER REPORTED TRANSACTIONS THE ASSESSING OFFICER HAS ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE AS WELL AS DETERMINATION OF THE ALP AS PER THE T.P. STUDY FILED BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT IT HAD EXPORTED TRACTORS TO AES FOR LAST SEVERAL YEARS AND THE ASSESSEE HAS ADOPTED TNMM METHOD AS THE MOST APPROPRIATED METHOD FOR DETERMINING THE ALP IN RESPECT OF THE TRANSACTION OF EXPORT OF TRACTORS TO THE AES FROM A.Y. 2004 - 05. THE SAID CONTENTION O F THE ASSESSEE HAS NOT BEEN DISPUTED BEFORE US BY THE REVENUE. ADMITTEDLY, FOR ALL THOSE ASSESSMENT YEARS STARTING FROM 2004 - 05 ONWARDS AND ALSO FOR THE A.Y. 2008 - 09 THE ASSESSING OFFICER HAS ACCEPTED THE TNMM METHOD AS A MOST APPROPRIATE METHOD FOR DETER MINING THE ALP IN RESPECT OF THE SALE OF TRACTORS BY THE ASSESSEE TO THE AES. THE ASSESSEE HAS FILED THE COPIES OF THE ASSESSMENT ORDER FOR THE A.YS. 2004 - 05 AND 2005 - 06 WHICH ARE PLACED IN THE COMPILATION (PAGE NOS. 282 - 285 OF THE P/B - 2). THE ASSESSEE HAS ALSO FILED THE TPOS ORDER FOR THE A.Y. 2008 - 09 WHICH IS PLACED AT PAGE NOS. 353 354 OF THE P/B - 2. THOUGH THE TPO/DRP HAS GONE ON DISCUSSING THE PROVISIONS OF LAW BUT HAVE CONVENIENTLY IGNORED TO PUT OF RECORD HOW THE FACTS OF THE CURRENT YEAR ARE DIFFERENT FROM THE FACT IN A.YS. 2004 - 05 AND 2005 - 06 AS IN THOSE YEARS THE TNMM WAS ADOPTED BY THE ASSESSE FOR DETERMINING THE ALP WHICH HAS BEEN ACCEPTED AS A MOST APPROPRIATE METHOD BY THE TPO WITHOUT ANY OBJECTION OR RESERVATION. THE ASSESSEE HAS ALSO FILED THE COPY OF THE TPO ORDER FOR THE A.Y. 2008 - 09 WHICH IS ALSO PLACED AT PAGE NOS. 353 354 OF THE P/B - 2. 17. THERE IS NO DISPUTE ON THE PROPOSITION THAT THE DOCTRINE OF THE RES JUDICATA IS NOT APPLICABLE TO TAX PROCEEDINGS BUT AT THE SAME TIME IF THERE IS NO CHANGE OF THE FACTS IN RESPECT OF THE A PARTICULAR ISSUE AND THE REVENUE HAS A PARTICULAR APPROACH OR METHOD TO DETERMINE THE TAXABILITY THEN THERE MUST BE CONSISTENCY AND THIS VIEW IS EXPRESSED BY THE HON'BLE SUPREME COURT IN THE CASE OF RADHA SOAMI SATSANG VS. CIT 193 ITR 321 (SC). IT IS ALSO CERTAINLY STRANGE THAT IN THE A.Y. 2008 - 09 THE TPO HAS AGAIN ACCEPTED THE TNMM METHOD AS AN APPROPRIATE METHOD WHICH WAS ADOPTED BY THE ASSESSEE AND HAS NOT DISTURBED THE RESULT. WE MAY REFER HERE TO THE FEW DECISIONS OF THE OTHER CO - ORDINATE BENCHES IN WHICH IT IS HELD THAT WHEN THE FACTS INVOLVED ARE SIMILAR IN VARIOUS YEARS AND THE REVENUE HAS ACCEPTED THE METHOD ADOPTED BY THE ASSESSEE IN SOME YEARS THEN THERE IS NO REASON TO TAKE A DIFFERENT STAND IN THE SUBSEQUENT YEARS WITHOUT EXPLAINING THE REASONS HOW THE FACTS IN THE SAID YEAR ARE DIFFERENT THAN THE PRECEDING YEARS: I . ALFA LAVAL (I) LTD. 149 ITD 285 (PUNE). II . H.A. SHAH & CO. VS. CIT 30 ITR 618 (BOM). ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 16 III . BRINTONS CARPETS ASIA (P) LTD. 139 TTJ 177 (PUNE) IV . DRILBITS INTERNATIONAL PVT. LTD. 62 DTR 171 (PUNE). V . AGILITY LOGISTICS (P) LTD. 145 ITD 566 (MUM). VI . SKOL BREWERIES LTD. 153 TTJ 257 (MUM). 34. THE TRIBUNAL FURTHER DEALT WITH THE SECOND ASPECT OF THE ISSUE I.E. THE APPLICATION OF MOST APPROPRIATE METHOD AND OBSERVED AS UNDER: - 22. LET US DEAL WITH ANOTHER OBJECTION OF THE TPO ON THE APPROPRIATE METHOD WHETHER THE TNMM WHICH IS ADOPTED BY THE ASSESSEE IS A CORRECT APPROPRIATE METHOD OR CUP WHICH IS APPLIED BY THE TPO. THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, PUNE IN THE CASE OF DRILL BITS INTERNATIONAL PVT. LTD. (SUPRA). IN THE SAID CASE THE TPO HAD REJECTED TNMM METHOD AND HAD COMPUTED THE ALP BY ADOPTING THE CPM. THE ASSESSEE EXPLAINED THAT THERE ARE VARIOUS DIF FERENCES IN THE TWO SEGMENTS IN THE FORM OF MARKETING FUNCTIONS, CREDIT RISK, TYPES OF CUSTOMERS, ETC. ETC. AND HENCE, THE CPM COULD NOT APPLIED. THE TRIBUNAL HELD THAT CONSIDERING THE DIFFERENCES IN THE FUNCTIONS PERFORMED AND THE ASSETS UTILIZED, SUITAB LE ADJUSTMENTS ARE NOT POSSIBLE TO BE MADE AND HENCE, THE SAID CASE CPM WAS NOT THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. THE OPERATING PART OF THE DISCUSSION IN THE SAID DECISION IS AS UNDER: 50. CONSIDERING THE ABOVE SUBMISSIONS, VIS - - VIS T HE METHOD I.E. CPM (COST PLUS METHOD) ADOPTED BY THE LEARNED TPO TO DETERMINE THE ALP, WHICH HAS BEEN RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIND THAT THE LEARNED TPO WHILE ADOPTING CPM HAS FAILED TO APPRECIATE SEVERAL MATERIAL ASPECTS OF THE ISSUE AS DISCUSSED ABOVE. IN OUR VIEW, THE LEARNED TPO WAS NOT JUSTIFIED IN COMPARING THE GROSS MARGIN IN EXPORT SEGMENT VIS - A - VIS GROSS MARGINS IN DOMESTIC SEGMENT. THERE ARE VARIOUS DIFFERENCES IN THE FUNCTIONS PERFORMED AND THE RISK ASSUMED IN TH ESE TWO SEGMENTS AND THEREFORE, THE SAME CANNOT BE CONSIDERED AS COMPARABLE CASES FOR DETERMINING THE ALP. THERE IS NO MARKETING RISK IN THE EXPORT SEGMENT, NO RISK OF BAD DEBTS, NO PRODUCT LIABILITY RISK IN EXPORT SEGMENTS WHEREAS THE ASSESSEE HAS TO BEAR ALL THESE RISKS IN THE DOMESTIC SEGMENT. THE CONTRACTUAL STATEMENTS ALSO DEFER IN THE DOMESTIC SEGMENT VIS - A - VIS EXPORT SEGMENTS. THERE ARE DIFFERENT CHARACTERISTICS AND CONTRACTUAL TERMS IN THE TWO SEGMENTS AND FURTHER GEOGRAPHICAL AND MARKED DIFFERENCES ARE ALSO PRESENT. THUS, WE ARE OF THE VIEW THAT IT IS VERY DIFFICULT TO MAKE SUITABLE ADJUSTMENTS FOR THESE DIFFERENCES, HENCE THE CMA METHOD IS NOT APPROPRIATE METHOD FOR DETERMINING THE ALP. THE LEARNED TPO, IN OUR VIEW, HAS THUS ERRED IN ADOPTING THE C MA METHOD AS APPROPRIATE METHOD. 51. WE ALSO FIND SUBSTANCE IN THE ALTERNATIVE PLEA OF THE LEARNED AUTHORISED REPRESENTATIVE IN THE DEFECTIVE WORKING OUT OF THE TOTAL OF PRODUCTION OF THE GOODS SOLD TO THE AE BY THE LEARNED TPO. THE LEARNED TPO HAS COMPUT ED GROSS PROFIT MARGINS IN THE DOMESTIC SEGMENT AT 23.54 PER CENT WHILE IN THE EXPORT SEGMENT AT 5.42 PER CENT. THE DIFFERENCE BETWEEN THE TWO HAS BEEN CALCULATED AT 18.12 PER CENT AND THE SAME IS EMPLOYED TO THE TOTAL COST OF PRODUCTION OF THE GOODS SOLD TO THE AE AND ADDITION OF RS. 58,54,128 HAS BEEN MADE. IN THIS WORKING, THE LEARNED TPO HAS FAILED TO APPRECIATE THAT DURING THE YEAR, THE ASSESSEE HAS PAID PROCESSING CHARGES TO THE LOCAL CONTRACTORS OF RS. 16,98,742 I.E. IN RESPECT OF PRODUCTS SOLD IN TH E DOMESTIC SEGMENT, ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 17 HENCE THE SAME SHOULD NOT HAVE BEEN ALLOCATED TO THE EXPORT SEGMENT. BESIDES, THERE IS NO REASON TO DOUBT THE SUBMISSION OF THE ASSESSEE THAT MAJOR TIME OF THE JUNIOR AND SERIOR STAFF IS UTILIZED FOR THE DOMESTIC SEGMENT SINCE WHILE DEA LING WITH VARIOUS PUBLIC SECTOR UNITS BY THE ASSESSEE SEVERAL FOLLOW UPS LIKE COLLECTION OF THE ORDERS, PHYSICAL DESPATCH OF GOODS, FOLLOW UP FOR THE PAYMENT ETC., ARE REQUIRED TO BE DONE, HENCE MAJOR PART OF THE TOTAL EXPENDITURE IS TO BE ALLOCATED TO THE DOMESTIC UNIT AND BALANCE TO THE EXPORT SEGMENTS. WE ARE THUS OF THE VIEW THAT LEARNED TPO WAS NOT JUSTIFIED IN REJECTING SUCH SUBMISSION OF THE ASSESSEE TREATING THE SAME AS HAVING NO BASIS. IN OUR VIEW, THE APPORTIONMENT OF THESE COSTS IS JUSTIFIED BECA USE MAJOR TIME OF THE EMPLOYEES IS DEVOTED TOWARDS THE DOMESTIC SEGMENT. WE ALSO FIND SUBSTANCE IN THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT ASSESSEE HAS ALSO TO INCUR SELLING AND ADMINISTRATIVE EXPENSES, FREIGHT EXPENSES, BANK INTERESTS ETC., WHICH CANNOT BE IGNORED AS ULTIMATELY THE INCOME - TAX IS LEVIED ON NET PROFIT AND THEREFORE, COMPARISON OF THE NET PROFIT OF THE DOMESTIC EXPORT SEGMENT IS MORE PROPER. THE ASSESSEE AT PAGE NO. 141 OF THE PAPER BOOK HAS GIVEN WORKING OF THE NET PROFI T OF THE TWO DIVISIONS AS PER WHICH, THE NET PROFIT OF THE DOMESTIC SEGMENT IS 13.04 PER CENT AND THAT OF THE EXPORT SEGMENT IS 12.55 PER CENT. WE FIND THAT THERE IS HARDLY ANY DIFFERENCE BETWEEN TWO SEGMENTS. WE ALSO FIND SUBSTANCE IN THE SUBMISSION OF TH E LEARNED AUTHORISED REPRESENTATIVE THAT IN RESPECT OF TRANSACTION WITH AE, THE ASSESSEE ALSO DOES NOT HAVE TO BEAR BAD DEBT RISKS, PRODUCT/WARRANTY RISKS ETC., HENCE SOME PERCENTAGE OF REDUCTION SHOULD HE GIVEN IN THE MARGIN COMPUTED FOR THE DOMESTIC SEGM ENT FOR THE ABOVE RISK. 52. CONSIDERING THE ABOVE MATERIAL FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THE LEARNED TPO WAS NOT JUSTIFIED IN ADOPTING THE CPM AS THE MOST APPROPRIATE METHOD. ON THE BASIS THAT THE ASSESSEE HAD A JOINT FACILITY ARRANGEMENT OR A LONG - TERM BUY AND SUPPLY ARRANGEMENT WITH ITS AE, AS WE HAVE DISCUSSED HEREINABOVE, WE FIND THAT THERE WAS NO SUFFICIENT REASONS WITH THE LEARNED TPO TO REJECT CUP METHOD OR TNMM ADOPTED BY THE ASSESSEE TO DETERMINE THE ARMS LENGTH PRICE (ALP). WE THUS HOLD THAT THE ADDITION MADE BY THE LEARNED TPO AS A RESULT OF INCORRECT APPLICATION OF CPM IS NOT JUSTIFIED. IT IS PERTINENT TO NOTE THAT IN THE SUCCEEDING ASST. YR. 2007 - 08, THE ASSESSEE HAS ADOPTED TNMM FOR DETERMINING THE ALP, WHICH HAS BEEN ACCEPTED BY THE LEARNED TPO. IN THE CASE OF BRINTONS CARPETS ASIA (P) LTD. VS. DY. CIT (SUPRA), PUNE BENCH OF THE TRIBUNAL HAS FOLLOWED THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ASSTT. CIT VS. NGC NETWORK (INDIA) (P) LTD. ITA NO. 5307/MUM/2006, DT. 23RD FEB., 2011 (PARA 15) [REPORTED AT (2011) 56 DTR (MUMBAI)(TRIB) 1 ED.] ON THE RULE OF CONSISTENCY AND NEED FOR NOT TAKING THE DOMESTIC COMPARABLES AND NEED FOR TAKING UP THE EXTERNAL COMPARABLE IN MATTERS OF THE TRANSFER PRICING ADJUSTMENTS. IT WAS H ELD FURTHER THAT THE UNCONTROLLED TRANSACTIONS AND THE EXTERNAL COMPARABLES WHICH WAS ADOPTED BY THE OFFICER IN SUBSEQUENT YEAR HOLDS RELEVANT FOR CURRENT ASSESSMENT YEAR AS WELL. WE THUS WHILE SETTING ASIDE ORDER IN QUESTION OF THE LEARNED TPO, DIRECT THE LEARNED TPO TO ACCEPT CLAIM OF THE ASSESSEE REGARDING THE ALP BASED ON TNMM. THE ISSUE RAISED IN THE RELATED GROUNDS IS DECIDED IN FAVOUR OF THE ASSESSEE. 23. THE LD. COUNSEL HAS ALSO PLACED HIS RELIANCE ON THE DECISION OF THE ITAT, PUNE IN THE CASE OF A LFA LAVAL (I) LTD. (SUPRA). IN THE SAID CASE ALSO THE ASSESSEE HAD EXPORTED INDUSTRIAL PRODUCTS TO ITS AES AS WELL AS SOLD IN THE ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 18 DOMESTIC MARKET. THE ASSESSEE HAD ADOPTED TNMM BUT THE SAID METHOD WAS REJECTED BY THE TPO, AND TPO SUBSTITUTED CPM IN THE P LACE OF TNMM. WHEN THE MATTER REACHED BEFORE THE TRIBUNAL IT IS HELD THAT CPM CANNOT BE APPLIED SINCE THERE WERE VARIOUS DIFFERENCES IN THE EXPORT SEGMENT AND DOMESTIC SEGMENT SUCH AS MARKET FUNCTIONS, GEOGRAPHIC DIFFERENCE, VOLUME DIFFERENCE, CREDIT RISK , RELATED PARTY TRANSACTIONS ETC. IN OUR OPINION THE SAID PRINCIPLES ARE CLEARLY APPLICABLE IN THE PRESENT CASE. AS WE HAVE ALREADY OBSERVED THAT THE ASSESSEE HAS ALSO SHARE IN THE DOMESTIC MARKET AND WE AGAIN COMPARED THE PARAMETERS OF THE DOMESTIC MARK ET WITH THE EXPORT MARKET AS THERE IS A DIFFERENCE IN THE EXPORT SEGMENT AND DOMESTIC SEGMENT ON ACCOUNT OF CREDIT RISKS, MARKETING, WARRANTY, ETC. ETC. WE, THEREFORE, HOLD THAT ON PRINCIPLES AS WELL AS ON THE RULE OF CONSISTENCY, THE TPO/DRP ARE NOT JUST IFIED IN HOLDING THAT THE CPM IS AN APPROPRIATE METHOD FOR DETERMINING THE ALP IN RESPECT OF EXPORT OF THE TRACTORS TO THE AES AND WE APPROVE TNMM AS A MOST APPROPRIATE METHOD ADOPTED BY THE ASSESSEE FOR DETERMINING THE ALP. WE ALSO HOLD THAT EVEN AFTER E XCLUDING KAMCL THE AVERAGE OPERATING PROFIT MARGIN OF THE 7 COMPANIES ARE AT 5.71% AS AGAINST THE 11.70% OF THE EXPORT SEGMENT OF THE ASSESSEE COMPANY. THE ALP DECLARED BY THE ASSESSEE IS WELL WITHIN THE LIMIT. WE, ACCORDINGLY, HOLD SO. IN THE RESULT, T HE GROUND NO. 4 IS ALLOWED. 35. APPLYING THE ABOVE SAID RATIO TO THE PRESENT FACTS, WE HOLD THAT TNNM METHOD IS THE MOST APPROPRIATE METHOD TO BE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF EXPORTS TO ASSOCIATED ENTERPRISES. THE ASSESSEE AGGREGATED ALL THE INTERNATIONAL TRANSACTIONS UNDER THIS DIVISION AND APPLIED TNNM METHOD AND FOUND THE TRANSACTION OF EXPORTS TO ASSOCIATED ENTERPRISES AT ARMS LENGTH. HOWEVER, THE ASSESSING OFFICER IS DI RECTED TO VERIFY THE SAID CLAIM OF ASSESSEE BY APPLYING SINGLE YEARS DATA AND COMPUTE THE ADJUSTMENT, IF ANY, IN THE HANDS OF ASSESSEE AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUNDS OF APPEAL NO.7 TO 10 ARE DISPOSED OF AS INDICATED ABOVE. 3 6 . FURTHER , THE NEXT SEGMENT IN WHICH ADDITION HAS BEEN MADE IN THE HANDS OF ASSESSEE IS EXPORT OF SEAMLESS TUBES AND PIPES OF RS.12,04,814/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT UNDER THE SAID DIVISI ON, THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF SOPHISTICATED PIPES OF DIFFERENT CATEGORIES NUMBERING ABOUT 30. THE ASSESSEE POINTED OUT THAT UNDER THE SAID DIVISION, IT HAD AGGREGATED ALL THE INTERNATIONAL TRANSACTIONS ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 19 AND HAD APPLIED TNNM METHOD TO T HE SEGMENTAL RESULTS. HE FURTHER REFERRED TO THE ORDERS OF TPO IN ASSESSEES OWN CASE, WHEREIN THE SAME AGGREGATION APPROACH AND TNNM METHOD HAS BEEN APPLIED BY THE TPO AND NO ADDITION WAS MADE IN ASSESSMENT YEARS 2002 - 03 TO 2004 - 05 AND THEREAFTER, FROM A SSESSMENT YEARS 2006 - 07 TO 2012 - 13 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE TOTAL EXPORTS WERE TO THE TUNE OF RS.82 CRORES AND THE SALES IN THE DOMESTIC MARKET WERE TO THE TUNE OF RS.11 CRORES. HE REFERRED TO THE ORDER OF TPO, WHEREIN EACH OF T HE CATEGORIES WAS COMPARED AND TO WORK OUT THE ADJUSTMENT OF RS.12,05,814/ - UNFAVOURABLE ITEMS WERE ADDED AND FAVOURABLE ITEMS OF RS. 50 LAKHS W ERE IGNORED. 3 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN THIS REGARD REFERRED TO THE ORDER OF TPO AT PAGE 16. 3 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, THE ASSESSEE HAD APPLIED AGGREGATION APPROACH, WHEREIN IT HAD AGGREGATED INTERNATIONAL TRANSACTIONS OF EXPORT OF FINISHED GOOD S, IMPORT OF RAW M ATERIALS, PAYMENT OF COMMISSION, ALLOCATION OF FEES FOR IT SUPPORT AND MANAGEMENT / OPERATIONAL SERVICES, REIMBURSEMENT / RECOVERY OF EXPENSES AND HAD APPLIED TNNM METHOD TO BENCHMARK THE SAID TRANSACTION. THE PLEA OF ASSESSEE BEFORE THE TPO WAS THAT THERE WAS SIGNIFICANT FAR AND OTHER DIFFERENCES WITH RESPECT TO EXPORTS TO ASSOCIATED ENTERPRISES AND SALE TO THIRD PARTIES IN THE SAID DIVISION OF SEAMLESS TUBES AND PIPES AND THE APPLICATION OF CUP METHOD WAS NOT CORRECT , AS THE AGGREGATE SALE VALUE OF SUCH SALE TO ASSOCIATED ENTERPRISES WAS JUST RS.4.49 CRORES, WHICH WAS LESS THAN 6% OF TOTAL EXPORT OF SEAMLESS TUBE AND PIPES TO ASSOCIATED ENTERPRISES WHICH ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 20 W ERE RS.82.22 CRORES . IT WAS FURTHER POINTED OUT BY THE ASSESSEE BEFORE THE TPO THAT THE TOTAL TRANSACTIONS WHERE CUP DETAILS WERE AVAILABLE, THE AGGREGATE SALES VALUE OF EXPORT TO ASSOCIATED ENTERPRISES FOR ALL SUCH CASES, WAS APPROXIMATELY RS.11.74 CRORES, WHICH WAS LESS THAN 15% OF THE TOTAL SALES VALUE OF EXPORTS O F SEAMLESS TUBES AND PIPES TO THE ASSOCIATED ENTERPRISES AND HENCE, IN SUCH CIRCUMSTANCES, CUP METHOD COULD NOT BE TAKEN AS MOST APPROPRIATE METHOD. THE TPO REJECTING THE SUBMISSIONS OF ASSESSEE HELD THAT THERE WAS NO MERIT IN THE AGGREGATION APPROACH TAK EN BY THE ASSESSEE AS THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE DIFFERENT IN THEIR NATURE AND SCOPE AND THEIR SEPARATE EVALUATION WAS POSSIBLE. THE TPO HELD THAT CUP METHOD TAKES CARE OF THE DIFFERENCE ON ACCOUNT OF TIMING PRICING IN RESPECT OF RAW MATERIAL AND ANY OTHER SUCH DIFFERENCE OF VOLUME. THUS, AVERAGE OVER A LARGER PERIOD COVERING THE ENTIRE YEAR WOULD TAKE CARE OF DIFFERENCE, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTIONS AND THE COMPARABLE UNCONTROLLED PRICE , AS PER TPO . THE TPO THUS, MADE AN ADJUSTMENT OF RS.12,05,814/ - TO THE INTERNATIONAL TRANSACTIONS RELATING TO EXPORT OF SEAMLESS TUBES AND PIPES TO THE ASSOCIATED ENTERPRISES. 3 9 . THE CIT(A) UPHELD THE SAID ADDITION IN THE HANDS OF ASSESSEE BY REJECTING THE PLEA OF AS SESSEE ON ALL COUNTS AND UPHELD THE ADDITION OF RS.12,05,814/ - . 40. THE FIRST ASPECT OF THE ISSUE RAISED IS WHETHER AGGREGATION APPROACH IS TO BE APPLIED IN ORDER TO BENCHMARK THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE SAID AGGREGATION A PPROACH HAS BEEN ACCEPTED BY THE TPO HIMSELF WHILE BENCHMARKING THE SAID INTERNATIONAL TRANSACTIONS FOR WHICH, ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 21 SEGMENTAL DETAILS WE RE AVAILABLE IN ASSESSMENT YEARS 2002 - 03 TO 2004 - 05 AND THEREAFTER, FROM ASSESSMENT YEAR 2006 - 07 ONWARDS. ONLY IN THE YEAR UNDER APPEAL, THE SAID AGGREGATION APPROACH HAS NOT BEEN ACCEPTED. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS IN EARLIER AND SUBSEQUENT YEARS, WE FIND NO MERIT IN THE SAID STAND OF THE TPO. WHERE THE TRANSACTION S ARE INTER - LINKED, THEN AGGREGATION APPROACH IS TO BE APPLIED AS HELD BY US IN THE PARAS HEREINABOVE IN RESPECT OF DIVISION OF MANUFACTURING OF WIRES. THE SAID AGGREGATION APPROACH HAS BEEN APPLIED BY THE TPO HIMSELF IN ASSESSEES OWN CASE IN BOTH THE PRECEDING AND SUCCEEDING YEARS EXCEPT THE YEAR UNDER CONSIDERATION. SINCE THERE IS NO DIFFERENCE IN THE FACTUAL ASPECTS, WE FIND NO MERIT IN THE APPROACH ADOPTED BY THE TPO. ONCE THE AGGREGATION APPROACH IS TO BE APPLIED, THEN THEREAFTER, CUP METHOD CANNOT BE APPLIED BECAUSE BOTH THE ACTIVITIES HAVING CONTROLLED TRANSACTIO NS OF IMPORT OF SERVICE CHARGES, MANAGEMENT FEES, ETC. AND HENCE, ARE TAINTED. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN JOHN DEERE INDIA (P.) LTD. VS . DCIT (SUPRA) AND RECOLD THERMO LTD. VS. DCIT (2015) 63 TAXMANN.COM 215 (PUNE TRIB.) , WHICH HAS BEEN REFERRED IN PARAS ABOVE. ACCORDINGLY, WE ALLOW THE CLAIM OF ASSESSEE IN THIS REGARD. THE TPO IS DIRECTED TO APPLY THE TNNM METHOD ON SINGLE YEARS DAT A AND COMPUTE THE ADJUSTMENT , IF ANY, IN THE HANDS OF ASSESSEE. REASONABLE OPPORTUNITY OF HEARING SHALL BE GIVEN TO THE ASSESSEE IN THIS REGARD. THE GROUND OF APPEAL NO.11 IS ALLOWED AS INDICATED ABOVE. ITA NO.1804/PUN/2013 (REVENUES APPEAL) 41 . THE ISSUE IN GROUNDS OF APPEAL NO.1A AND 1B IS AGAINST THE ADMISSION OF ADDITIONAL EVIDENCE. THE ASSESSEE HAD FURNISHED CERTAIN ADDITIONAL EVIDENCE ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 22 BEFORE THE CIT(A), WHICH WAS FORWARDED TO THE ASSESSING OFFICER AND THE REMAND REPORT WAS OBTAINED FROM THE ASSESSING OFFICER, THE ADDITIONAL EVIDENCE WAS, THUS ADMITTED BY THE CIT(A). UNDER RULE 46A OF THE INCOME TAX RULES, 1962, THE CIT(A) IS EMPOWERED TO ADMIT THE ADDITIONAL EVIDENCE IN CASE THE CONDITIONS LAID DOWN THEREUNDER ARE SATISFIED. IN THE ABSENCE OF REVENUE POINTING OUT ANY NON - FULFILLMENT OF THE SAID CONDITIONS UNDER RULE 46A OF THE INCOME TAX RULES, WE FIND NO MERIT IN THE GROUNDS OF APPEAL NO.1A AND 1B RAISED BY THE REVENUE. 42 . THE ISSUE IN GROUNDS OF APPEAL NOS.2A AND 2B RAISED BY THE REVENU E IS AGAINST THE ORDER OF CIT(A) IN DELETING ADJUSTMENT MADE TO INTERNATIONAL TRANSACTIONS OF MANAGEMENT SERVICE FEES AMOUNTING TO RS.4,41,44,973/ - . 4 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE ASSESSEE HAD FAILED TO PR OVIDE THE DETAILS OF BENEFIT RECEIVED BEFORE THE TPO AND ADDITIONAL EVIDENCE IS PLACED AT PAGES 472 TO 509 OF THE PAPER BOOK FILED BEFORE THE CIT(A). HE MADE REFERENCE TO THE REMAND REPORT AT PAGES 605 AND 607 OF THE PAPER BOOK, WHEREIN PAYMENT TO SANDVIK AB WAS MADE BUT SERVICES WERE PROVIDED BY THE GROUP CONCERN. HE ADMITTED THAT THE SAID AMOUNT WAS TAXED IN THE HANDS OF SANDVIK AB , SWEDEN IN INDIA . 44 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CIT(A) WITH SPECIAL REFERENCE TO PAGES 36 AND 37 OF THE SAID ORDER. ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 23 4 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD PAID MANAGEMENT SERVICE FEES OF RS.4,41,44,973/ - TO SANDVIK AB SWEDEN, BASED ON THE TERMS OF AGREEMENT ENTERED INTO BETWEEN THE PARTIES. THE ASSESSEE HAD RECEIVED VARIOUS MANAGEMENT SERVICES FROM SANDVIK AB SWEDEN. THE SAID SANDVIK AB SWEDEN WAS PROVIDING THE SAID SERVICES WITHIN SANDVIK GROUP AND COST PERTAINING TO THE SERVICES RENDERED WAS ALLOCATED TO ALL THE GROUP COMPANIES ON THE BASIS OF VARIOUS ALLOCATION KEYS, WHICH WERE BASICALLY DRIVERS OF COST. THE ASSESSEE CLAIMED THE SAID EXPENSES TO BE AT ARM'S LENGTH AND IT ALSO POINTED OUT THAT THE REVENUE AUTHORITIE S COULD NOT QUESTION THE BUSINESS NEEDS OF ASSESSEE AND THEIR COMMERCIAL DECISIONS SO LONG AS THE ASSESSEES CLAIM IS PRUDENT AND ACCEPTABLE. THE TPO HOWEVER, WAS OF THE VIEW THAT THE EXISTENCE OF AGREEMENT DOES NOT EVIDENCE THE RECEIPT OF SERVICES. THE TPO ADOPTED THE ARM'S LENGTH PRICE OF THE SAID TRANSACTIONS AT NIL AND MADE AN UPWARD ADJUSTMENT OF RS.4.14 CRORES, IN THE ABSENCE OF ASSESSEE FURNISHING THE EVIDENCE IN SUPPORT OF ITS CLAIM THAT ANY SERVICES RENDERED WERE AVAILED BY IT. THE ASSESSEE BEFO RE THE CIT(A) FURNISHED VOLUMINOUS ADDITIONAL EVIDENCE IN SUPPORT OF ITS CONTENTION THAT IT HAD RECEIVED MANAGEMENT SERVICES FROM SANDVIK AB SWEDEN. SAMPLE COPIES OF DOCUMENTS, PRESENTATION REPORTS, E - MAILS, ADVISES THEREUNDER, MATERIAL, ETC. EVIDENCING T HE RECEIPT OF SERVICES WERE FURNISHED BY WAY OF ADDITIONAL EVIDENCE. THE SAID ADDITIONAL EVIDENCE WAS REFERRED TO THE ASSESSING OFFICER, WHO IN TURN, REFERRED THE SAME TO THE TPO. THE TPO IN PARA (I).(I)(F) OF HIS REMAND REPORT DATED 01.04.2013 ON THE ADDITIONAL EVIDENCE STATED AS UNDER: - IT IS SEEN FROM THE COPIES OF E - MAIL CORRESPONDENCE SUBMITTED BY THE ASSESSEE AS ADDITIONAL IT IS NOTED THAT THE SAID CORRESPONDENCE IS WITH THE PERSONNEL O F SANDVIK GROUP CONCERNS OTHER THAN SANDVIK AB. IN OTHER WORDS THE EVIDENCE PRODUCED BY THE ASSESSEE DO NOT SHOW THAT ANY SERVICE IS RECEIVED FROM ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 24 SANDVIK AB SWEDEN . IN FACT, THE MANAGEMENT FEE AGREEMENT IS WITH SANDVIK AB SWEDEN AND THE ENTIRE MANAGEMEN T FEES OF RS.4.41 CRORES ARE PAID TO SANDVIK AB SWEDEN ONLY. 46. THE CONTENTION OF THE TPO WAS THAT THE SERVICES WERE NOT PROVIDED BY SANDVIK AB SWEDEN AND IN ANY CASE, NO TANGIBLE BENEFITS WERE DERIVED BY THE INDIAN ENTITY FROM SUCH SERVICES CLAIMED TO HAVE BEEN PROVIDED TO THE ASSESSEE. IN REPLY, THE ASSESSEE EXPLAINED THAT AS PER THE TERMS OF AGREEMENT, THE SERVICES COULD BE PROVIDED BY SANDVIK COMPANIES BUT THE MANAGEMENT SERVICES FEES PAID TO SANDVIK AB SWEDEN, IN PURSUANCE TO THE AGREEMENT BETWEEN SANDVIK AB SWEDEN AND THE ASSESSEE WERE CORRECTLY PAID. THE RELEVANT PART OF THE AGREEMENT READS AS UNDER: - THE DEFINITION OF THE TERM PROVIDING PARTIES IN THE DEFINITIONS SECTION OF THE AGREEMENT READS AS ALL OR SOME OF THE SANDVIK COMPANIES, WHICH PROVIDE MANAGEMENT SERVICES (EMPHASIS SUPPLIED) SANDVIK AB REPRESENTS ALL THE LEGAL UNITS WORKING AS COMMISSIONAIRES AS PER THE SWEDISH LEGISLATION, MEANING THAT THE OPERATIONS ARE CONDUCTED ON BEHALF OF SANDVIK AB AND ANY PROFITS OR LOSSES ARE INCLUDED IN THE ACCOUNTS OF SANDVIK AB AND OTHER LEGAL UNITS PROVIDING MANAGEMENT SERVICES. 47. THE ASSESSEE SUBMITTED THAT THE AGREEMENT WAS ENTERED INTO WITH SANDVIK AB SWEDEN , THE SERVICES WERE TO BE PROVIDED NOT ONLY BY SANDVIK AB SWEDEN BUT ALSO BY V ARIOUS COMPANIES FORMING PART OF SANDVIK GROUP, WHEREIN SANDVIK AB SWEDEN ACTED AS CONDUIT. THE COST INCURRED IN PROVIDING THE SERVICES BY THE PROVIDING PARTIES WERE COLLECTED AND POOLED AT SANDVIK AB LEVEL AND FURTHER RECHARGED AS PER THE TERMS OF AGREEM ENT TO THE RECIPIENT SANDVIK GROUP ENTITIES. 48. THE NEXT PLEA OF THE TPO IN REJECTING THE CLAIM WAS THAT THE ASSESSEE HAD NOT DERIVED ANY TANGIBLE BENEFITS FROM THE SERVICES RECEIVED AND IN THIS ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 25 REGARD, REFERENCE WAS MADE TO THE TABLE OF EVIDENCES ON SERVICES RECEIVED AND THE BENEFITS DERIVED THEREFROM. FURTHER, THE PLEA OF ASSESSEE WAS THAT IN SUBSEQUENT YEARS I.E. ASSESSMENT YEARS 2006 - 07 TO 2008 - 09, THE MANAGEMENT FEES PAID BY THE ASSESSEE WER E ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER. RELIANCE WAS PLACED ON SERIES OF DECISIONS IN THIS REGARD. 49. THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE OBSERVING AS UNDER: - 2.6.24 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE LEARNED TPO AND THE LEARNED AO. I HAVE ALSO PERUSED THE ADDITIONAL EVIDENCE FURNISHED BY THE APPELLANT. FIRST OF ALL, I FIND THAT THE LEARNED TPO IN HIS REMAND REPORT ON EXAMINATION OF THE ADDITIONAL EVIDENCE HAS NOT QUESTIONED AS TO WHETHER THE SERVICES WERE NOT RENDER ED AT ALL OR NOT BY THE AE. THE LEARNED TPO HAS OBSERVED THAT THE PAYMENT SHOULD NOT BE ALLOWED BECAUSE THE SERVICES WERE RENDERED BY THE ENTITIES OTHER THAN SANDVIK AB, SWEDEN. THE APPELLANT HAS EXPLAINED THIS PRACTICE BY INVITING ATTENTION TO THE RELEVAN T PROVISION IN ITS AGREEMENT WITH THE AE AND HAS STATED THAT SANDVIK AB, SWEDEN HAS ACTED AS A CONDUIT WHEREAS, ACCORDING TO THE DEFINITION CLAUSE, THE GROUP COMPANIES, WHICH ACTUALLY PROVIDE MANAGEMENT SERVICES THROUGH SANDVIK AB ARE 'PROVIDING PARTY'. TH E TERM 'PROVIDING PARTY' IS ALSO USED IN THE PORTION OF THE AGREEMENT REPRODUCED BY THE LEARNED TPO IN HIS ORDER PASSED U/S 92CA(3). THE DEFINITION CLAUSE 1.1 OF THE AGREEMENT, DEFINES THE TERM 'PROVIDING PARTY AS 'ALL OR SOME OF THE SANDVIK COMPANIES, TO WHICH MANAGEMENT SERVICES ARE PROVIDED'. ACCORDINGLY, THE SERVICES PROVIDED BY THE SANDVIK GROUP ENTITIES IS IN ACCORDANCE WITH THE AGREEMENT AND NO ADVERSE INFERENCE CAN BE DRAWN FOR THE SAME. THEREFORE, THE LEARNED TPO'S OBJECTION WOULD BE WITHOUT BASIS IN VIEW OF THE SPECIFIC PROVISIONS IN THE SERVICE AGREEMENT. 2.6.25 SECONDLY, I FIND THAT THE LEARNED AO HAS TAXED THE SAME AMOUNT AS A MANAGEMENT SERVICE FEES IN THE HANDS OF RECIPIENT I.E. SANDVIK AB, SWEDEN. THE LEARNED AO HAS QUESTIONED RENDERING OF SERVICES BY STATING THAT MOST OF THE E - MAILS ARE PRODUCT INFORMATION FOR THE APPELLANT'S DISTRIBUTION ACTIVITY AND ACCORDINGLY THE SERVICES WERE NOT RENDERED BY SANDVIK AB. HOWEVER, HE HAS REACHED CONTRADICTORY CONCLUSION AND TAXED INCOME ON ACCOUNT OF RE NDERING OF MANAGEMENT SERVICES. IN OTHER WORDS, THE LEARNED AO HAS ACCEPTED THAT THE INCOME HAD ARISEN IN THE HANDS OF SANDVIK AB, SWEDEN ON ACCOUNT OF RENDERING OF MANAGEMENT SERVICES. I FIND THAT THE LEARNED AO HAS DISCUSSED THE TAXABILITY OF THE SAME A MOUNT AS DIVIDEND ON 'WITHOUT PREJUDICE BASIS'. THEREFORE, TAXABILITY OF THE SAME AS DIVIDEND IS NOT THE MAIN BUT AN ALTERNATIVE STAND OF THE LEARNED AO. THEREFORE, THERE IS A CONTRADICTION IN THE POSITION TAKEN BY THE LEARNED AO AND THE LEARNED TPO WITH R ESPECT TO THE SAME TRANSACTION. AS MENTIONED ABOVE, THERE IS ALSO INTERNAL CONTRADICTION IN THE LEARNED ASSESSING OFFICERS DRAFT ASSESSMENT ORDER AS WELL. IT IS NEEDLESS TO SAY THAT THE POSITIONS OF THE BOTH CANNOT BE CORRECT AT THE SAME TIME . THESE CONT RADICTIONS DRASTICALLY REDUCE THE RELIABILITY OF THE OBSERVATION IN THE REMAND REPORT . 2 . 6.26 THIRDLY, I FIND ON PERUSAL OF THE ADDITIONAL EVIDENCE THAT THE MANAGEMENT SERVICES WERE ACTUALLY RENDERED BY THE AE. AS MENTIONED ABOVE, ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 26 THE LEARNED TPO IN REMAND REPORT ALSO NOT DOUBTED THAT THE MANAGEMENT SERVICES WERE NOT RENDERED AT ALL. THE LEARNED TPO HAS STATED THAT MANAGEMENT SERVICES WERE RENDERED BUT WE RE RENDERED BY THE GROUP ENTITIES NOT BY THE AE. IF MANAGEMENT SERVICES WERE IN DEED RENDERED THEN IT FOLLOWS THAT THE ARM'S LENGTH PRICE OF SUCH PAYMENT CANNOT BE NIL. IN SUCH CIRCUMSTANCES, THE ARM'S LENGTH PRICE OF SUCH PAYMENT WILL HAVE TO BE DETERMINED BY USING ONE OF TRANSFER PRICING METHODS. THE LEARNED TPO HAS OBVIOUSLY HAS NOT CARRIED OUT T HIS EXERCISE AS HE HAD DETERMINED ALP OF THIS PAY MENT AS NIL' IN ABSENCE OF SUPPORTING EVIDENCE OF THE RECEIPT OF SERVICES . H OWEVER, AS DISCUSSED, ALP OF THIS PAYMENT CANNOT BE CONSIDERED AS NIL'. 2. 6.27 FOURTHLY, THE LEARNED AO HAS STATED THAT THE INCOME HAS A CHARACTER OF DIVID END IN THE HANDS OF SANDVIK AB. ACCORDING TO THE LEARNED AO, AS FAR AS THE APPELLANT IS CONCERNED, PAYMENT IS MADE IN NATURE OF DIVIDEND. THE TERM DIVIDEND IS D EFINED U/S 2(22) OF THE ACT AND UNDER ARTICLE 10(3) OF THE INDIA - SWEDEN DTAA . COMMERCIALLY DIVIDEND CAN BE DESCRIBED AS DISTRIBUTION OF THE COMPANY'S PROFITS . I DO NOT FIND ANY MATERIAL BROUGHT ON RECORD BY THE LEARNED AO ON THE BASIS OF WHICH HE HAS CONCLUDED THAT IMPUGNED PAYMENT REPRESENTS DISTRIBUTION OF P ROFITS . IT IS FUN DAMENTAL THAT, THE PAYMENT IS DISALLOWED BY THE LEARNED AO WILL NOT ASSUME A PARTICU LAR CHARACTER WITHOUT BASIS AND WITHOUT SUPPORTING EVIDENCE. I DO NOT FIND ANY SU CH SUPPORTING EVIDENCE, IN THESE CIRCUMSTANCE, AT BEST, THE PAYMENT CAN B E DISALLOWED BECAUSE THE APPELLANT DID NOT FURNISH SUPPORTING EVIDENCE, BUT THE AO SHOULD HAVE SUPPORTING EVIDENCE TO STATE THAT THE PAYMENT OF IS OF A PARTICULAR CHARA CTER, WHICH THE LEARNED AO DOES NOT HAVE. THEREFORE, I AM UNABLE TO ACCEPT THE EARNED AO 'S CONCLUSION THAT THIS PAYMENT IS IN NATURE OF DIVIDEND. 2.6.28 IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE VIEW THAT THE ACTION OF THE LEARNED TPO TO DETERMINE ALP OF THE INTERNATIONAL TRANSACTIONS OF THE PAYMENT OF MANAGEMENT SERVICES AS NIL CANNOT BE SUSTAINED. I DELETE THE ADDITION OF RS.4,41,44,973 BASED ON THE TRANSFER PRICING ADJUSTMENT MADE BY THE LEARNED TPO. 50. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHERE THE ASSESSEE HAS ESTABLISHED THE FACTUM OF RECEIPT OF MANAGEMENT SERVICES FROM SANDVIK GROUP ENTITIES, IN ACCORDANCE WITH THE TERMS OF AGREEMENT ENTERED INTO BY THE ASSESSEE WITH SANDVIK AB, SWEDEN AND WHERE THE ADDITIONAL EVIDENCE IN THIS REGARD WAS FILED BEFORE THE CIT(A), WHO IN TURN, HAS CONSIDERED THE SA ME AND HAS HELD THAT SERVICES PROVIDED BY SANDVIK GROUP ENTITIES WERE IN ACCORDANCE WITH THE AGREEMENT AND WERE ACTUALLY RENDERED BY THE ASSOCIATED ENTERPRISES . HE ALSO REFERRED TO THE ORDER OF TPO IN REMAND REPORT, WHO HAD NOT DOUBTED THAT THE MANAGEMENT SERVICES WERE NOT RENDERED AT ALL BUT HAD STATED THAT THE SAME WERE RENDERED BY GROUP ENTITIES AND NOT BY SANDVIK AB, SWEDEN AND NO ADVERSE INFERENCE COULD BE DRAWN FOR THE SAME. IN THE TOTALITY OF THE ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 27 ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND MERIT IN THE CLAIM OF ASSESSEE AND IN VIEW OF GAMUT OF EVIDENCES FILED BY THE ASSESSEE ESTABLISHING ITS CLAIM OF RECEIPT OF MANAGEMENT SUPPORT SERVICES FROM SANDVIK ENTITIES, WHICH IN TURN, WAS AS PER TERMS OF AGREEMENT, THEN THERE IS NO MERIT IN MAKING ANY ADJUST MENT ON ACCOUNT OF PAYMENT OF MANAGEMENT FEES. UPHOLDING THE ORDER OF CIT(A), WE REVERSE THE FINDINGS OF THE TPO IN THIS REGARD AS THE SAME ARE WITHOUT ANY BASIS, IN VIEW OF SPECIFIC COVENANTS OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH SANDVIK AB, SWEDEN . 51. THE SECOND POINT WHICH HAS BEEN CONSIDERED BY THE CIT(A) IS THAT THE SAID MANAGEMENT SERVICE FEES HAVE BEEN TAXED IN THE HANDS OF RECIPIENT SANDVIK AB, SWEDEN. WHERE THE ASSESSING OFFICER INCHARGE OF ASSESSMENT OF SANDVIK AB, SWEDEN HAS ACCE PTED INCOME ARISING ON RENDERING OF MANAGEMENT SERVICES AND THE SAME BEING TAXED IN THE HANDS OF PROVIDER OF SERVICES, THEN THE CLAIM OF ASSESSEE THAT IT HAD PAID MANAGEMENT SERVICES FEES TO SANDVIK AB, SWEDEN, IS TO BE ALLOWED IN THE HANDS OF ASSESSEE. 5 2. ANOTHER ASPECT TO BE SEEN IS THAT WHERE THE MANAGEMENT SERVICES HAVE ACTUALLY BEEN RENDERED, MAY BE, BY SANDVIK ENTITIES, THEN THE ARM'S LENGTH PRICE OF SUCH A TRANSACTION CANNOT BE TAKEN AT NIL. THE ASSESSEE HAS APPLIED TNNM METHOD TO DETERMINE THE AR M'S LENGTH PRICE OF PAYMENT OF MANAGEMENT FEES BY AGGREGATING THE TRANSACTIONS AT NIL. ACCORDINGLY, WE HOLD THAT NO ADDITION IS MERITED IN THE HANDS OF ASSESSEE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ON THE TRANSACTION OF PAYMENT OF MANAGEMENT SERVICES TO SANDVIK AB, SWEDEN. ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 28 53. ANOTHER ASPECT ON WHICH THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM WAS THAT THE PAYMENT WAS IN THE NATURE OF DIVIDEND. ONCE THE AMOUNT HAS BEEN TAXED IN THE HANDS OF RECIPIENT I.E. SANDVIK AB, SWEDEN, AS INCOME ON ACCOUNT OF RENDERING OF MANAGEMENT SERVICES, THERE IS NO MERIT IN THE SAID STAND OF ASSESSING OFFICER IN TREATING THE SAID PAYMENT TO BE DIVIDEND AND ACCORDINGLY, THE SAME IS DISMISSED. THE GROUNDS OF APPEAL NO.2A AND 2B RAISED BY THE REVENUE ARE THUS, DISMISSED. 54. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.3 BY THE REVENUE IS AGAINST DIRECTIONS OF CIT(A) IN TREATING THE SOFTWARE APPLICATION OF RS.60,98,995/ - AS REVENUE EXPENDITURE. 55. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTE D OUT THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2004 - 05. 56. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 57. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. SIMILAR ISSUE OF ALLOWABILITY OF SOFTWARE APPLICATION EXPENDITURE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN VARIOUS YEARS. IN ASSESSMENT YEAR 2004 - 05, THE TRIBUNAL IN ITA NO. 2469/PN/2012 IN THE APP EAL FILED BY THE REVENUE ALONG WITH CROSS APPEAL OF ASSESSEE IN ITA NO.2448/PN/2012, VIDE ORDER DATED 04.12.2015 HAD HELD AS UNDER: - ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 29 31. BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.41,85,871/ - FOR LICENCE TO USE COMPUTER SOFTWARE FOR ITS OPERATIONS. THE ASSESSEE HAD CLAIMED EXPENDITURE AS REVENUE EXPENDITURE SINCE THE AMOUNT WAS USED FOR THE PURCHASE OF VARIOUS APPLICATIONS SOFTWARE. THE ASSESSING OFFICER WAS OF T HE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE RESULTED IN ENDURING BENEFIT AND LUMP SUM PAYMENT WAS MADE AND HENCE, THE SAME WAS EXPENDITURE OF CAPITAL IN NATURE. THE ASSESSING OFFICER FURTHER HELD THAT THERE WAS NO MERIT IN THE CASE LAWS RELIED U PON BY THE ASSESSEE AS THE SAME RELATED TO PERIOD PRIOR TO ASSESSMENT YEAR 2003 - 04 AND FROM THE ASSESSMENT YEAR 2003 - 04, DEPRECIATION @ 60% WAS SPECIFICALLY PROVIDED FOR COMPUTER SOFTWARE. ACCORDINGLY, THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 60% ON T HE AFORESAID EXPENDITURE RESULTING AN ADDITION OF RS.16,74,348/ - . 32. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, IN VIEW OF THE APPELLATE ORDER RELATING TO ASSESSMENT YEAR 2002 - 03. 33. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 34. WE FIND THAT SIMILAR ISSUE OF DISALLOWANCE OF SOFTWARE EXPENSES BEING OF ENDURING NATURE, AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.2053 & 2054/PN/2012 IN REVENUES APPEAL AGAINST THE ASSESSEE. THE TRIBUNAL VIDE ORDER DATED 31.12.2014 WITH LEAD ORDER IN ASSESSEES APPEAL IN ITA NOS.1841 & 1842/PN/2012 ALONG WITH CROSS APPEALS IN ITA NOS.2053 & 2054/PN/2012 VIDE PARS 19 TO 21 CONSIDERED THE IDENTICAL ISSUE OF ALLOWABILITY OF EXPENDITURE INCURRED ON APPLICATIONS SOFTWARE AND ALLOWED THE CLAIM OF T HE ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL VIDE PARAS 22 AND 22.1 ARE AS UNDER: - 22. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE ISSUE STANDS SQUARELY DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LUBRIZOL INDIA LTD. REPORTED IN 37 TAXMANN.COM 294 (BOM.) WHERE IT HAS BEEN HELD THAT EXPENSES INCURRED TO OBTAIN THE APPLICATION SOFTWARE WHICH HAS TO BE UPGRADED FROM TIME TO TIME DUE TO CHANGE IN TECHNOLOGY H AS TO BE ALLOWED AS REVENUE EXPENDITURE. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT AT PARA 3 OF THE ORDER READS AS UNDER : 3. SO FAR AS QUESTION B IS CONCERNED, THE TRIBUNAL HAS HELD THAT THE COMPUTER SOFTWARE EXPENSES INCURRED BY THE RESPONDENT - ASSESSEE WAS REVENUE IN NATURE. THE EXPENSES WERE INCURRED TO OBTAIN THE APPLICATION SOFTWARE WHICH GETS UPGRADED FROM TIME TO TIME DUE TO CHANGE IN TECHNOLOGY. THIS LICENCE BEING FOR LIMITED PERIOD WOULD HAVE TO BE RENEWED FROM TIME TO TIME. IN THE AFORE SAID CIRCUMSTANCES, THE TRIBUNAL HELD THAT CONSIDERING THE NATURE OF THE SOFTWARE LICENCE I.E. APPLICATION SOFTWARE, THE SAME HAS TO BE ALLOWED AS A REVENUE EXPENDITURE. IN VIEW OF THE FINDING OF FACT ARRIVED AT FURTHER BY THE TRIBUNAL THAT THE EXPENSES HA VE BEEN INCURRED ON APPLICATION SOFTWARE WHICH IS FOR A LIMITED TIME FRAME AND HAS TO BE RENEWED FROM TIME TO TIME, WE SEE NO REASON TO ENTERTAIN QUESTION B AS FRAMED BY THE REVENUE. 22.1 RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COU RT CITED (SUPRA), THE ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 30 35. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD ALSO CLAIMED TO HAVE INCURRED THE EXPENDITURE ON APPLICATION SOFTWARE. HOWEVER, TH E CLAIM OF THE ASSESSEE WAS REJECTED BEING OF ENDURING NATURE. WE FIND NO MERIT IN THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE CASE OF ASSESSEE IN VIEW OF THE NATURE OF EXPENDITURE INCURRED AND ALSO IN VIEW OF RATIO LAID DOWN IN ASSESS EES OWN CASE IN EARLIER YEARS. WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING EXPENDITURE INCURRED BY THE ASSESSEE ON APPLICATION SOFTWARE. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS DISMISSED. 58. THE ISSUE ARISING BEFORE US IS ALSO IN RESPECT OF EXPENDITURE INCURRED ON SOFTWARE APPLICATION. IN VIEW OF THE RATIO LAID DOWN IN ASSESSEES OWN CASE IN EARLIER YEARS AND THE FACTS BEING SIMILAR, WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE EXPENDITURE INCURRED ON SOFTWARE APPLICATION. THE GROUND OF A PPEAL NO.3 RAISED BY THE REVENUE IS THUS, DISMISSED. 59. THE ISSUE IN GROUNDS OF APPEAL NO.4A AND 4B RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION OF RS.19,52,000/ - MADE ON ACCOUNT OF CLOSING STOCK OF OBSOLETE INVENTORY. 60. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD ALSO POINTED OUT THAT THE SAID ISSUE IS ALSO COVERED BY THE ORDER OF TRIBUNAL IN REVENUES APPEAL FILED FOR ASSESSMENT YEAR 2004 - 05. 61. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2004 - 05 AND THE TRIBUNAL VIDE PARAS 36 TO 43 DELIBERATED UPON THE ISSUE. THE FINDINGS OF TRIBUNAL ARE AS UNDER: - 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE METHOD OF ACCOUNTING OF ITS OBSOLETE INVENTORY WHICH HAS BEEN CONSISTENTLY FOLLOWED FROM YEAR TO YEAR. WHERE THERE IS RECOGNITION OF THE VALUE OF OBSO LETE STOCK ON A SCIENTIFIC BASIS, THEN PROVISION MADE ON THAT BASIS CANNOT BE OBJECTED TO BY THE ASSESSING OFFICER AS THE DEPARTMENT HAS BEEN ACCEPTING THE CONSISTENT METHOD FOLLOWED BY THE ASSESSEE BOTH IN THE EARLIER AND SUBSEQUENT YEARS. IN VIEW OF THE PRINCIPLE OF CONSISTENCY AND IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD TO DIS - BELIEVE THE METHOD FOLLOWED BY THE ASSESSEE, WE FIND NO MERIT IN THE ORDER OF ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 31 ASSESSING OFFICER IN THIS REGARD. FURTHER, EVEN THE HONBLE SUPREME COURT IN ROTORK CONTROL S INDIA (P) LTD. VS. CIT REPORTED IN 314 ITR 62 (SC) HAD UPHELD THE PROVISION FOR WARRANTY MADE BY THE SAID ASSESSEE IN ITS BOOKS OF ACCOUNT AND ITS ADMISSIBILITY BEING ON SCIENTIFIC BASIS. FOLLOWING THE SAME SIMILI OF REASONING, WE UPHOLD THE ORDER OF CI T(A) IN THIS REGARD AND DISMISS THE GROUNDS OF APPEAL NO.2 AND 4 RAISED BY THE REVENUE. 62. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2004 - 05 AND THE SAID ISSUE RAISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF CIT(A) IN DELETING ADDITION OF RS. 19,52,000/ - MADE ON ACCOUNT OF VALUE OF OBSOLETE INVENTORY AS PART OF CLOSING STOCK. THE GROUNDS OF APPEAL NO.4A AND 4B RAISED BY THE REVENUE ARE THUS, DISM ISSED. 63. THE GROUND OF APPEAL NO.5 RAISED BY THE REVENUE IS AGAINST DELETION OF ADDITION MADE ON ACCOUNT OF ESTIMATION OF VALUE OF CLOSING STOCK OF SCRAP @ RS.5/ - PER KG. ON ADHOC BASIS. THE SAID ISSUE IS LINKED TO THE ISSUE RAISED BY THE ASSESSEE VIDE GROUND OF APPEAL NO.4 AND WE HAVE ALREADY DECIDED THE SAID ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUND OF APPEAL NO.5 RAISED BY THE REVENUE IS DISMISSED. 64. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.6 BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING SET OFF OF LOSSES SUFFERED BY THE NEWLY SET UP EOU UNIT AGAINST ITS OTHER BUSINESS INCOME. 65. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE IS ALSO COVERED BY THE ORDER OF TRIBUNAL IN ASSESSME NT YEAR 2004 - 05, WHEREIN IT WAS DIRECTED THAT THE LOSSES OF EOU UNIT CAN BE SET OFF AGAINST ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 32 OTHER BUSINESS INCOME VIDE PARAS 51 TO 54 OF THE SAID ORDER. THE FINDINGS OF TRIBUNAL ARE AS UNDER: - 51. NOW, COMING TO THE SECOND ASPECT OF THE ISSUE RAISED BY T HE REVENUE I.E. THE LOSSES SUFFERED BY NEWLY SET UP EOU UNIT, WHETHER CAN BE ADJUSTED AGAINST OTHER BUSINESS INCOME OF THE ASSESSEE. UNDER THE PROVISIONS OF SECTION 71 OF THE ACT, WHERE THE ASSESSEE HAS INCURRED LOSSES UNDER ONE PARTICULAR HEAD OF INCOME, THE SAME CAN BE SET OFF AGAINST THE INCOME UNDER ANY OTHER HEAD OF INCOME I.E. INTER - HEAD SET OFF OF PROFIT AND LOSS IS RECOGNIZED BY THE ACT. 52. THE HON'BLE BOMBAY HIGH COURT IN HINDUSTAN UNILEVER LTD. VS. DCIT & ANR. (SUPRA) IN AN APPEAL RELATING TO ASSESSMENT YEAR 2004 - 05 WHERE REASSESSMENT PROCEEDINGS WERE INITIATED UNDER SECTION 147/148 OF THE ACT ON SEVERAL ISSUES, CONSIDERED THE REASON TO BELIEVE RECORDED BY THE ASSESSING OFFICER WITH REGARD TO SET OFF OF LOSS INCURRED BY UNIT ELIGIBLE FOR DEDUC TION U/S. 10B OF THE ACT. THE ASSESSING OFFICER HAD REOPENED THE ASSESSMENT ON THE SURMISE THAT SINCE THE INCOME OF THE CRAB STICK UNIT WAS EXEMPTED FROM TAX UNDER SECTION 10B, THE LOSS OF THAT UNIT WAS WRONGLY SET OFF AGAINST THE NORMAL BUSINESS INCOME. THE HON'BLE HIGH COURT NOTED THAT AFTER THE SUBSTITUTION OF SECTION 10B OF THE ACT BY THE FINANCE ACT OF 2000, THE PROVISIONS PROVIDED FOR DEDUCTION OF SUCH PROFIT OR GAINS AS WERE DERIVED BY 100% EOU FOR THE PERIOD PRESCRIBED UNDER THAT SECTION. THE HON 'BLE HIGH COURT THUS HELD THAT THE BASIS ON WHICH THE ASSESSMENT WAS SOUGHT TO BE REOPENED WAS BELIED BY A PLAIN READING OF THE PROVISIONS AND THE ASSESSING OFFICER WAS IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME WAS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. THE HON'BLE HIGH COURT FURTHER CONSIDERED THAT ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B, OUT OF WHICH THREE UNITS HAD RETURNED PROFITS DURING THE COURSE OF THE ASSESSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNE D A LOSS. THE HIGH COURT FURTHER HELD THAT THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUMST ANCES, THE HON'BLE HIGH COURT HELD THAT THE BASIS ON WHICH THE ASSESSMENT WAS SOUGHT TO BE REOPENED WAS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B OF THE ACT. 53. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BLACK & VEATCH CONSULTING (P.) LTD. (SUPRA), WHICH WAS IN CONNECTION WITH THE DEDUCTION ALLOWABLE UNDER SECTION 10A OF THE ACT. THE HON'BLE BOMBAY HIGH COURT IN CIT VS. BLACK & VEATCH CONSULTIN G PVT. LTD. (SUPRA) ALSO OBSERVED THAT SECTION 10A WAS A PROVISION WHICH WAS IN THE NATURE OF A DEDUCTION AND NOT AN EXEMPTION. THE HON'BLE HIGH COURT FURTHER HELD THAT THE DEDUCTION UNDER SECTION 10A, IN OUR VIEW, WAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SECTION 72 WHICH DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. THE HON'BLE HIGH COURT HELD THAT THE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PROFITS AND GAINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. THE ISSUE BEFORE THE HON'BLE HIGH COURT WAS WITH REGARD TO THE ADJUSTMENT OF BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSS OF THE UNIT, WHICH WERE NOT ELI GIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT AND IT WAS HELD THAT THE SAME COULD NOT BE SET OFF AGAINST THE CURRENT PROFIT OF THE ELIGIBLE UNITS WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 54. FOLLOWING THE ABOVE SAID PROPOSITION LAI D DOWN BY THE JURISDICTIONAL HIGH COURT, WE HOLD THAT THE ASSESSEE IS ENTITLED TO SET OFF OF LOSSES OF EOU UNIT ITA NO.1750/PUN/2013 ITA NO.1804/PUN/2013 SANDVIK ASIA PVT. LTD. 33 AGAINST THE OTHER BUSINESS INCOME, IF ANY, ASSESSED IN THE HANDS OF ASSESSEE FOR THE CAPTIONED ASSESSMENT YEAR. BALANCE LOSS, IF ANY, WOULD BE CARRIED FORWARD TO THE SUCCEEDING YEARS TO BE ADJUSTED AS PER THE PROVISIONS OF THE ACT. ACCORDINGLY, THE GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS ALSO DISMISSED. 66. THE ISSUE ARISING IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2004 - 05 AND FOLLOWING THE SAME PARITY OF REASONING, WE DISMISS THE GROUND OF APPEAL NO.6 RAISED BY THE REVENUE. 67. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF REVENUE IS DISMISS ED. ORDER P RONOUNCED ON THIS 14 TH DAY OF JUNE , 201 7 . SD/ - SD/ - ( M.K.AGGARWAL) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 14 TH JUNE , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A ) - IT/TP, PUNE ; 4. / THE CIT V, PUNE, DIT(TP/IT), PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER, // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE