DOW CHEMICALS INTERNATIONAL P.LTD, MUMBAI V. ASST CIT 11(1)(1), MUMBAI

ITA 1786/MUM/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6838 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation; Transfer pricing; International transaction; Transactions in derivatives; Additional evidence; Question of law; Initiation of penalty proceedings; Speculation loss; Corroborative evidences; Assessment record; TDS; Set aside
• Section: 113; 48; 13; 22; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (V I RTUAL COURT DB - II I ), K BENCH MUMBAI BEFORE SHRI PAWAN SINGH, AM & SHRI M.BALAGANESH, AM ITA NO. 1786 /MUM/ 2016 ( ASSESSMENT YEAR : 2011 - 12 ) M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., (DCIPL) AS SUCCESSOR OF ROHM AND HAAS (INDIA) PVT. LTD., (RHIPL) 1 ST FLOOR, BLOCK B 02, GODREJ BUSINESS DISTRICT PIROJSHANAGAR, LBS MARG VIKHROLI (W) MUMBAI 400 079 VS. ASSISTANT COMMISSIONER OF INCOME TAX 11(1)(1) MUMBAI ROOM NO.204, AAYAKAR BHAVAN M.K.ROAD, MUMBAI 400 020 PAN/GIR NO. AAACD4467B & AAACR2855F (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI RAJAN VORA - AR REVENUE BY SHRI ANAND MOHAN CIT DR DATE OF HEARING 17 / 08 /2020 DATE OF PRONOUNCEMENT 10 / 09 /2020 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 1786/MUM/2016 FOR A.Y. 2011 - 12 PREFERRED BY THE ORDER AGAINST THE FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DATED 29/01/2016 U/S.143(3) R.W.S. 144C( 5 ) OF THE INCOME TAX ACT 1961, HEREINAFTER REFERRED TO AS ACT, PURSUANT TO THE DIRECTIONS OF THE ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 2 LD. DISPUTE RESOLUTION PANEL - 2,MUMBAI (DRP IN SHORT) U/S.144C(5) OF THE ACT ,1961 DATED 2 9/12/2015 FOR THE A.Y.201 1 - 1 2 2. THE F IRST ISSUE TO BE DECIDED IN THIS APPEAL IS WITH REGARD TO TRANSFER PRICING ADJUSTMENT. IN RESPECT OF IMPORT OF RAW MATERIALS FROM ASSOCIATED ENTERPRISES (AES) IN THE SUM OF RS.38,29,00,000 / - . 2.1 . THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSE SSEE IS ENGAGED IN MANUFACTURING SPECIALITY CHEMICALS, DISTRIBUTION OF CHEMICALS AND UNDERTAKING MARKETING SUPPORT ACTIVITIES FOR OVERSEAS GROUP COMPANIES. THE ASSESSEES BUSINESS OPERATIONS OF MANUFACTURING SPECIALITY CHEMICALS CAN BE DIVIDED INTO THE FOLLOWING THREE ARE AS. A . PAINT AND COATING MATERIALS B . PACKAGING AND BUILDING MATERIALS C . PERFORMANCE CHEMICALS AND BIOCIDES 2.2 . PURSUANT TO THE ORDER OF THE HONBLE BOMBAY HIGH COURT DATED 22 ND JANUARY 2016, ROHM AND HAAS INDIA PRIVATE LIMITED MERGED WITH DOW CHEMICAL INTERNATIONAL PRIVATE LIMITED. THE EFFECTIVE DATE OF THE MERGER IS 1 ST APRIL 2015.THE ASSESSEE FILED ITS RETURN OF INCOME (ROI) FOR A.Y.2011 - 12 ON 28 TH NOVEMBER 2011 DECLARING TOTAL INCOME AS NIL AFTER ADJUSTING BROUGHT FORWARD LOSSES AMOUNTING TO INR 19,93,40,340/ - . ALONG WITH ITS ROI, THE ASSESSEE FILED ACCOUNTANTS REPORT IN FORM 3CEB [IN ACCORDANCE WITH SECTION 92E) OF THE INCOME - TAX ACT, 1961 (ACT)] REPORTING INTERALIA, TH E PARTICULARS OF INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH ITS ASSOCIATED ENTERPRISES (AES) DURING A.Y.2011 - 12. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 3 2 .3. THE ASSESSEE HAS IMPORTED RAW MATERIALS FROM ITS AES AMOUNTING TO RS.232,45,04,170/ - . THE ASSESSEE BENCHMARKED SAID TRANSACTION IN ITS TRANSFER PRICING REPORT APPLY ING COST PLUS METHOD (CPM) AS MOST APPROPRIATE METHOD (MAM). THE A SSESSEE STATED IN ITS TRANSFER PRICING REPORT THAT IT HAD AGGRE GATED ITS TRANSACTION PERTAINING TO IMPORT OF RAW MATERIALS FOR MANUFACTURING WITH THE TRANSACTION S OF EXPORT OF MANUFACTURED FINISHED GOODS AND BENCHMARKED THE SAID TRANSACTIONS ON AGGREGATED BASIS. THE GROSS PROFIT MA RGIN EARNED BY THE ASSESSEE WAS 23.18% VIDE THAT OF COMPARABLE COMPANIES WAS 22.70%. THE ASSESSEE WAS TAKEN AS THE TESTED PARTY. THE ASS ESSEE IDENTIFIED FOUR COMPANIES AS COMPARABLE COMPANIES WHICH ARE AS UNDER: - A ) SOUTH ASIAN PETROCHEM LTD., B ) APAR INDUSTRIES LTD., C ) AXEL POLYMERS LTD., D ) GUJARAT POLYBUTENESPVT. LTD., 2 .4. THE LD. TPO DID NOT ACCEPT THE ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE USING CPM AND INSTEAD ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIAT E METHOD STATING THAT ASSESSEE I S A LOSS MAKING CONCERN. THE LD. TPO WORKED OUT THE PROFIT LEVEL INDICATOR (PLI) OF THE ASSESSEE USING NET OPERATING MARGIN TO BE 4.09% ON OPERATING REVENUE AND FURTHER REJECTED ALL COMPANIES ADOPTEDAS COMPARABLES BY THE ASSESSEE IN ITS TP STUDY FOR CPM METHOD. THE LD. TPO SELECTED FOUR NEW COMPANIES AS COMPARABLES AND ARRIVED AT THE ARITHMETIC MEAN MARGIN OF 19.86% ON OPERATIN G REVENUE FOR APPLYING TNMM METHOD TO BENCHMARK THE INTERNATIONAL TRANSACTION OF THE ASSESSEE IN RESPECT OF IMPORT OF RAW MATERIALS. MOREOVER, THE LD. TPO IN HIS ORDER REJECTED THE FRESH COMPARABLE COMPANIES GIVEN BY THE ASSESSEE DURING ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 4 THE COURSE OF SUBMI SSIONS ON THE GROUND THAT INFORMATION PERTAINING TO ADOPTION OF FRESH COMPARABLES SHOULD HAVE BEEN MADE AVAILABLE BY THE DUE DATE OF SUBMISSION OF RETURN OF INCOME AND NOT THEREAFTER . T HE LD. TPO ULTIMATELY MADE AN ADJUSTMENT OF ARMS LENGTH PRICE (ALP) I N RESPECT OF IMPORT OF RAW MATERIALS TO THE EXTENT OF RS.38,29,00,000/ - WHICH IS WORKED OUT AS UNDER: - COMPUTATION OF PLI: SALES 5583338370 TOTAL COST 5356846166 OPERATING PROFIT 226492204 OP/OR 4.06% COMPUTATION OF ALP: BASED ON THE ABOVE, IN RELATION TO THE MANUFACTURING SUB - DIVISION, THE ADJUSTMENT IS WORKED OUT BELOW: PARTICULARS AMOUNT SALES 558.33 COST 535.68 PROFIT 22.64 PROFIT% 4.06% ALP PROFIT % 19.86% ALP PROFIT 110.88 ALP COST 447.44 NON - AE COST 303.23 ALP AE COST 144.21 ACTUAL AE COST 232.45 ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 5 DIFFERENTIAL 88.24 +5% 32.97 - 5% 29.83 AS THE ASSESSEES MARGIN IN THE MANUFACTURING FUNCTION OF PPT DIVISION IS LESS AND DOES NOT FALL WITHIN THE +/ - 5% SAFE LIMITS , AN ADJUSTMENT OF RS.88.24 CRORE IS TO BE MADE TOWARDS DETERMINATION OF ALP OF THE TRANSACTION DONE IN THIS DIVISION. THE ABOVE ADJUSTMENT IS PRO - RATED FOR THE VALUE OF INTERNATIONAL TRANSACTIONS (AE COST) AS UNDER: (AE COST/ TOTAL COST)* ADJUSTMENT (232.45 / 535.68) * 88.24= RS.38.29 CRORES . 2 .5. THE LD. TPO DID NOT DISTURB THE ARMS LENGTH DETERMINATION OF ANY OF THE OTHER INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE INCLUDING THE EXPORT OF FINISHED GOODS. 2 .6. BEFORE THE LD. DRP, THE ASSESSEE FILED VARIOUS OBJECTIONS AGAINST DETER MINATION OF ALP BY THE LD. DRP.DURING THE PROCEEDINGS BEFORE THE LD. DRP, THE ASSESSEE ON WITHOUT PREJUDICE BASIS VIDE ITS LETTER DATED 23/09/2015 FILED CERTAIN ADDITIONAL EVIDENCES THAT COULD BE USED AS COMPARABLE UNCONTROLLED PRICE (CUP) FOR CHEMICALS (M ONOMERS) IMPORTED BY THE ASSESSEE FROM ITS AES WHICH WORKED OUT TO 78.11% OF THE TOTAL RAW MATERIALS FROM AES. THE ASSESSEE SUBMITTED DETAILS PERTAINING TO DATE - WISE COMPARISON OF IMPORT PRICE WITH MARKET PRICE, IN THE FORM OF INDEPENDENT C OMMODITY INFORMA TION SERVICES (ICIS) IN THE FORM OF ADDITIONAL EVIDENCE BEFORE THE LD. DRP. THE LD. DRP DID NOT ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 6 COMMENT ON THE ACCEPTABILITY OF ICIS PRICE AS A VALID CUP. THE LD. DRP REJECTED THE METHODOLOGY ADOPTED BY THE ASSESSEE WHILE CALCULATING THE ALP USING ICIS PRI CES BY OBSERVING THAT IMPORTS CANNOT BE CONCRETELY BENCHMARKED ON CUP BASIS AS CUP REQUIRES HIGH DEGREE OF ACCURACY IN TERMS OF COMPARABILITY. ACCORDINGLY, CUP WAS REJECTED AS MAM BY THE LD. DRP. ULTIMATELY, THE LD. DRP UPHELD THE ACTION OF THE LD. TPO WIT H REGARD TO ALP ADJUSTMENT IN RESPECT OF IMPORT OF RAW MATERIAL S . 2.7 . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: - GENERAL 1 . ERRED IN MAKING AN ADJUSTMENT OF RS.38,29,00,000 TO THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 92CA(3) OF THE ACT ON ACCOUNT OF ADJUSTMENT IN THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIALS BY THE APPELLANT FROM AES FOR MANUFACTURING INAPPROPRIATE REJECTION OF COST PLUS METHOD (CPM) AND THEREBY ADOPTING TRANSACT IONAL NET MARGIN METHOD (TNMM) 2 . ERRED IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT UNDER CPM, IN ACCORDANCE WITH PROVISIONS OF THE ACT READ WITH THE RULES FOR DETERMINATION OF THE ARMS LENGTH PRICE AND THEREBY ADOPTING TNMM. INAPP ROPRIATE REJECTION OF COMPARABLE COMPANIES ADOPTED BY APPELLANT 3 . ERRED IN REJECTING THE COMPANIES ADOPTED AS COMPARABLE BY THE APPELLANT IN RELATION TO THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIAL. INAPPROPRIATE ACCEPTANCE OF NON - COMPARABLE CO MPANIES 4 . ERRED IN CONSIDERING NON - COMPARABLE COMPANIES AS COMPARABLE TO THE APPELLANT FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIALS, WITHOUT PROVIDING ANY COGENT REASON FOR REJECTING APPELLANTS ARGUMENT ON NON - COMPARABILITY OF THESE COMPANIES . INAPPROPRIATE REJECTION OF ADDITIONAL COMPARABLE COMPANIES PROPOSED BY THE APPELLANT ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 7 5 . ERRED IN INAPPROPRIATELY CONTENDING THAT SINCE THE ADDITIONAL COMPANIES WERE NOT A PART OF TRANSFER PRICING STUDY REPORT, THEY CANNOT BE CONSIDERED NEW. 6 . ERRED IN INAPPROPRIATELY REJECTING ADDITIONAL COMPARABLE COMPANIES SUBMITTED BY THE APPELLANT (ON A WITHOUT PREJUDICE BASIS) IN RESPONSE TO THE NEW COMPANIES INTRODUCED BY THE TRANSFER PRICING OFFICER AS COMPARABLES DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS. NON - CONSIDERATION OF COMPARABLE UNCONTROLLED PRICE (CUP) AVAILABLE IN THE FORM OF MARKET PRICES PUBLISHED BY INDEPENDENT CHEMICAL INFORMATION SERVICES (ICIS) WHICH REPORTS PRICES BASED ON CONTRACT BETWEEN THIRD PARTIES AND WHICH IS RELIED U PON BY CHEMICAL INDUSTRY TO FIX THEIR PRICES) 7 . ERRED IN REJECTING CUP AVAILABLE IN CASE OF IMPORT OF RAW MATERIALS (I.E.MONOMERS)(AVAILABLE IN ICIS WEBSITE), FURNISHED BY THE APPELLANT FOR JUSTIFYING THE ARMS LENGTH NATURE OF THE TRANSACTION OF IMPORT OF RAW MATERIALS. 8 . ERRED IN INAPPROPRIATELY STATING THAT THE APPELLANT DID NOT PROVIDE ANY DETAILS OF CUP JUSTIFYING THE HIGH DEGREE OF ACCURACY IN TERMS OF COMPARABILITY SUCH AS TERMS OF CONTRACT, GEOGRAPHICAL DIFFERENCE, QUANTITY DETAILS AND OTHER TERMS AND CONDITIONS ETC., 9 . WITHOUT PREJUDICE BASIS, ERRED NOT TAKING COGNIZANCE TO APPELLANTS CONTENTION THAT THERE WILL BE NO TRANSFER PRICING ADJUSTMENT IN CASE OF IMPORT OF RAW MATERIALS (MONOMERS) BASED ON COMPARISON WITH MARKET PRICES PUBLISHED BY ICIS, IN CASE THE VALUE OF ADJUSTMENT FOR EACH OF RAW MATERIALS IMPORTED IS AGGREGATED. 2.8. ASSESSEE HAS ALSO RAISED FOLLOWING ADDITIONAL GROUNDS OF APPEAL VIDE GROUND NO.23 & 24 VIDE ITS LETTER DATED 07/02/2020 FILED BEFORE US. GROUND NO.23: WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL , THE LEARNED AO/DRP OUGHT TO HAVE CONSIDERED CUP AVAILABLE IN CASE OF IMPORT OF RAW MATERIALS ON VARIOUS DATABASES (INCLUDING TIPS DATABASE), FOR JUSTIFYING THE ARMS LENGTH NATURE OF THE TRANSACTION OF IMPORT OF RAW MATERIALS. GROUND 24 : WITHOUT PREJUDICE TO OTHER GROUNDS OF APPEAL , THE LEARNED AO/DRP OUGHT TO FOLLOW PORTFOLIO APPROACH WHILE CONSIDERING APPLICATION OF CUP METHOD IN CASE OF IMPORT OF RAW MATERIALS THEREBY SELLING OFF THE POSITIVE AND NEGATIVE ADJUSTMENTS FOR DET ERMINATION OF ARMS LENGTH PRICE. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 8 2.9 . THE LD. AR DREW OUR ATTENTION TO THE ORDER PASSED BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2199/MUM/2015 FOR A.Y.2010 - 11 AND ITA NO.6577/MUM/2018 FOR A.Y.2014 - 15 DATED 25/0 9 /2019 BY STATING THAT THE ENTIRE GROUNDS RAISED BY THE ASSESSEE IN THE ORIGINAL GROUNDS OF APPEAL AS WELL AS IN THE ADDITIONAL GROUNDS OF APPEAL HAD ALREADY BEEN DULY ADJUDICATED BY THIS TRIBUNAL WHEREIN THIS TRIBUNAL HAD DISMISSED THE ACTION OF THE LD. TPO IN REJECTING THE CUP AND ADOPTI NG TNMM AS MAM USING ICIS DAT A BASE. H E PRAYED FOR FOLLOWING THE SAID ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR DISPOSING OFF THE ENTIRE GROUNDS RAISED BY THE ASSESSEE TOGETHER WITH ITS ADDITIONAL GROUND IN RESPECT OF TRANSFER PRICING ADJUSTMENT. T HE LD. DR FAIRLY AGREED FOR THIS PROPOSITION WITH THE LD. AR, SINCE THE ISSUE HAD ALREADY BEEN DECIDED ON IDENTICAL GROUNDS BY THIS TRIBUNAL AS THERE WAS NO CHANGE IN FACTS AND CIRCUMSTANCES DURING THE YEAR. 2.10 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE REQUIRES TO BE ADMITTED AS IT GOES TO THE ROOT OF THE MATTER. WE FIND THAT THE ENTIRE ISSUE , AS RIGHTLY POINTED OUT BY BOTH THE PARTIES , HAD AL READY BEEN THE SUBJECT MATTER OF ADJUDICATION BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2010 - 11 AND 2014 - 15 VIDE ITS ORDER DATED 25/09/2019 REFERRED TO SUPRA WHEREIN IT WAS HELD AS UNDER: - 5. THE LD. AR FILED ADDITIONAL EVIDENCES BEFORE US IN RESPECT OF FOLLOWING ASPECTS /TRANSACTIONS: - A . JUSTIFICATION OF LOSSES ON NETLEVEL THE LD. AR ARGUED THAT THE PRIMARY REASON FOR REJECTION OF CPM BY THE LD. TPO WAS THAT ASSESSEE HAD INCURRED LOSS DURING THE YEAR. HE ARGUED ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 9 THAT THE LOSS HAD BEEN INCURRED DUE TO SALES MADE TO A THIRD PARTY I.E. ASIAN PAINTS LTD. WHEREIN THE PRICES WERE VERY POOR. THE SELLING PRICE OFFERED BY ASIAN PAINTS LTD. WAS VERY POOR AND LOSS HAD NOT BEEN INCURRED ON ACCOUNT OF IMPORT OF RAW MATERIALS FROM ITS AES. IN SUPPORT OF THIS PROPOSITION, THE LD. AR FILED A LETTER DATED 13/04/2018, WHEREIN ADDITIONAL EVIDENCES WERE FILED IN THIS REGARD WHICH ARE ENCLOSED IN 1044 OF THE PAPER BOOK. THE LD. AR VIDE LETTER DATED 22/10/2018 HAD ALSO FILED ADDITIONAL GROUNDS OF APPEAL TO SUBSTANTIA TE THE COMMERCIAL RATIONALE IN RESPECT OF OPERATING LOSS INCURRED IN ITS MANUFACTURING SEGMENT. HE VEHEMENTLYARGUEDTHATTHEGROSSMARGINSOFTHEASSESSEECANNOTBEIGNORED WHICH ARE DERIVED BASED ON COMMERCIAL DECISIONS TAKEN BY THE ASSESSEE BY ACCEPTING TO THE SEL LING PRICE QUOTED BY ASIAN PAINTS LTD., WHICH IS A THIRD PARTY. B . USAGE OF TIPS DATA BASE FOR APPLICATION OF CUP ASMAM THE LD. AR IN SUPPORT OF APPLICATION OF CUP METHOD AS MAM PROVIDED DATA FROM TIPS DATA BASE IN ADDITION TO ICIS, BASED ON THE ACTION OF THE LD. TPO IN THE SUBSEQUENT YEARS WHEREIN IN ASSESSEES OWN CASE, THE LD. TPO ALTERNATIVELY APPLIED CUP METHOD USING TIPS DATA BASE TO BENCHMARK THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIALS, THOUGH THE SAME WAS REJECTED BY THE LD. TPO AS AVAI LABILITY OF DATA WAS NOT SUBSTANTIAL. IN VIEW OF THIS THE ASSESSEE FILED A REQUEST FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL TO CONSIDER CUP IN THE FORM OF PRICES PUBLISHED BY TIPS DATA BASE WHICH WERE AVAILABLE FOR 94.69% OF THE TOTAL RAW MATERIALS IM PORTED FROM AES. ACCORDING TO THE LD. AR, IF TIPS DATA BASE IS USED FOR VERIFICATION OF COMPARABLE PRICES USING CUP METHOD, IT WOULD COVER 94.69% OF THE TOTAL IMPORT TRANSACTIONS FROM ITS AES FOR WHICH COMPARABLE DATA IS ALSO AVAILABLE THEREON. IN THIS REG ARD, THE LD. AR FILED ADDITIONAL EVIDENCES SUBSTANTIATING THE COMPARISON OF IMPORT PRICES WITH TIPS DATA BASE PRICES WHICH ARE AVAILABLE FOR 94.69% OF THE RAW MATERIAL IMPORTED FROM AES. THE LD. AR VEHEMENTLY PLEADED THAT UNDER CUP METHOD USING TIPS DATA BASE, THERE WERE DAYS WHEREIN THE PRICES OF THE ASSESSEE ARE FAVOURABLE AND THERE WERE DAYS WHEREIN THE PRICES OF THE ASSESSEE ARE ADVERSE WHEN COMPARED TO COMPARABLE PRICES. HE PRAYED THAT A PORTFOLIO APPROACH SHOULD BE ADOPTED AND NO CHERRY PICKING COULD BE DONE THEREON BY CONSIDERING ONLY THOSE DAYS WHERE THE PRICES OF THE ASSESSEE ARE ADVERSE.THEADDITIONALEVIDENCESINTHISREGARDGIVINGCOMPARATIVEWORKING S ARE ENCLOSED IN PAGE 1051 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE LD. AR VEHEMENTLY ARGUED THAT TH E LD. DRP HAD ACCEPTED THE FACT OF FLUCTUATING PRICES BOTH UPWARDS AS WELL AS DOWNWARDS FOR THE SAME PRODUCT DURING THE YEAR. THE LD. DRP STATED THAT DIFFERENCE IN ALP BY ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 10 CUP METHOD AND BY TAKING CHERRY PICKING OF THE TRANSACTIONS RESULTED IN ADDITION OF R S.1.29 CRORES. THE LD. AR REITERATED HIS CONTENTIONS THAT IF PORTFOLIO APPROACH IS FOLLOWED BY THE REVENUE, THEN THERE WILL ONLY BE LOSS OF RS.7.80 CRORES AND ACCORDINGLY, THERE WOULD BE NO NEED TO MAKE ANY ADJUSTMENT TO ALP THEREON. IN THIS REGARD, HE AL SO VEHEMENTLY ARGUED THAT THE LD. DRP HAVING ACCEPTED THE FACT OF FLUCTUATING PRICES OF THE PRODUCT AND HAVING WORKED OUT THE ALP ADJUSTMENT TO THE TUNE OF RS.1.29 CRORES THEREON, OUGHT NOT TO HAVE SUSTAINED THE ADDITION OF RS.35.45CRORES. C . USE OF SEGMENTA L DATA OF COMPANIES IF TNMM IS APPLIED ON WITHOUT PREJUDICEBASIS THE LD. AR ALSO FILED ADDITIONAL GROUND VIDE LETTER DATED 22/10/2018 WHEREIN HE CONTESTED THAT EVEN IF TNMM IS APPLIED AS THE MAM, IN RESPECT OF TWO COMPARABLES CHOSEN BY THE LD. TPO I.E. JUBILIANT LIFE SCIENCES LTD., AND VIVIMED LABS LTD., HE REQUESTED FOR ADOPTION OF OPERATING MARGIN OF THESE TWO COMPANIES AT SEGMENT LEVEL INSTEAD OF ENTITY LEVEL. THE LD. AR REITERATED THE FACT THAT THIS ADDITIONAL GROUND IS RAISED WITHOUT PREJUDICE TO HI S EARLIER CONTENTION THAT CUP SHOULD BE ACCEPTED AS MAM. THE LD. AR ALSO ARGUED THAT LD. DRP HAD ALSO BEEN FOLLOWING THE PROPER METHOD FOR SELECTION OF MAM. BEFORE THE LD. DRP, THE COMBINED PROFITABILITY OF BOTH IMPORTOFRAWMATERIALSANDEXPORTOFFINISHEDGOODS FROM/TOAESFORLAST THREE YEARS WERE AVAILED. THE LD. DRP HAVING ACCEPTED TNMM TO BE MAM CANNOT CHOOSE ONLY FOR ONE TRANSACTION. THIS ARGUMENT WAS ADVANCED BY THE LD. AR IN ORDER TO DRIVE HOME THE POINT THAT THE LD. DRP OUGHT TO HAVE ACCEPTED CUP AS MAM USI NG TIPS DATA BASE WHEREIN 68% OF COMPARABLE DATA WERE AVAILABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTION, IN ADDITION TO ADOPTION OF PORTFOLIO APPROACH THEREON BY CONSIDERING BOTH POSITIVE FIGURES AS WELL AS NEGATIVE FIGURES OF VARIOUS DATES IN RESPE CT OF IMPORT OF MATERIALS FROM AES AND PORTFOLIO APPROACH IN RESPECT OF IMPORT OF MATERIALS FROM AES AND EXPORT OF FINISHED GOODS TO AES TO BE TAKEN TOGETHER FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONALTRANSACTIONS. 5.1. THE LD. AR ARGUED THAT THOUGH ASSESSEE HAD FOLLOWED CPM AS MAM IN EARLIER YEARS AND THE SAME WAS ACCEPTED BY THE LD. TPO IN EARLIER YEARS, THE ASSESSEE FOUND IT DESIRABLE TO CHOOSE CUP AS MAM BEFORE THE LD. DRP IN VIEW OF THE AVAILABILITY OF COMPARABLE DATA FOR ALMOST 68% OF IMPORT TR ANSACTIONS FROM AE. HE ALSO ARGUED THAT EVEN THE LD. TPO HAD CHANGED HIS STAND BY CHOOSING TNMM AS MAM WHICH IS IN CONTRAST TO HIS OWN STAND TAKEN IN EARLIER YEARS WHEREIN CPM WAS ACCEPTED AS MAM. THE LD. AR ALSO PLACED ON RECORD THE ADDITIONAL ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 11 EVIDENCES B EFORE THIS TRIBUNAL BY PROVIDING COMPARABLE DATA BY ADOPTING CUP AS MAM AND BY USING TIPS DATA BASE WHICH COVERS 94.69% OF THE TOTAL TRANSACTIONS IN RESPECT OF IMPORT OF RAW MATERIALS FROM AES AS ADDITIONAL EVIDENCES AND VEHEMENTLY PRAYED FOR ADOPTION OF C UP AS MAM AND FAIRLY STATED THAT LET THIS COMPARABLE DATA WHICH IS AVAILABLE FOR 94.69% OF TRANSACTIONS BE VERIFIED BY THE LD. TPO AS TO ITS VERACITY. BY THIS PROCESS, THE ENTIRE DISPUTE WOULD COME TO REST TO REAL ADJUSTMENT, IF ANY, PURSUANT TO SUCH VERIF ICATION BY THE LD. TPO. THE LD. AR AGAIN REITERATED THE FACT THAT CPM WAS REJECTEDBYTHE LD. TPO ONLY ON THE GROUND THAT ASSESSEE DURING THE YEAR HAD INCURRED LOSS FROM MANUFACTURING BUSINESS. THE REASON FOR THE SAID LOSS WAS STATED TO BE PRIMARILY ON ACCOU NT OF LOWER SALES REALIZATION FROM SUPPLY OF FINISHED GOODS TO A THIRD PARTY CUSTOMER I.E., ASIAN PAINTS LTD. AND THE SAME WAS NOT ON ACCOUNT OF IMPORT OF RAW MATERIALS FROM ITS AES. THE LD. AR PLACED ON RECORD THE ADDITIONAL EVIDENCE TO SUPPORT THIS STATE MENT IN PAGE 1046 OF THE PAPER BOOK. THE LD. AR ALSO STATED THAT THE ASSESSEE IDENTIFIED BUSINESS OPPORTUNITY IN THE SOUTH INDIA MARKET AND INTENDED TO SET UP THE GROUND LEVEL PLAN AT SRIPERUMBUDUR FOR EMULSIONS TO CATER ITS CUSTOMER BASE IN PAINTS AND OTH ER APPLICATIONS, ACCORDINGLY, THE ASSESSEE AND ASIAN PAINTS LTD., ENTERED INTO A MEMORANDUM OF UNDERSTANDING FOR SUPPLY OF BINDERS. EVIDENCES IN THIS REGARD WERE FILED AS ADDITIONAL EVIDENCE VIDE PAGES 1048 AND 1049 OF THE PAPER BOOK. UNDER THE TERMS OF T HE MOU, THE ASSESSEE SOLD BINDERS TO ASIAN PAINTS LTD., DURING THE THREE YEAR PERIOD FROM 2007 TILL 2009 PRIMARILY AT A PRICE LINKED TO ASIAN PAINTS LTD., INTERNAL COST OF MANUFACTURING THE SAME PRODUCT IRRESPECTIVE OF MARKET PRICE AND THE ACTUAL COST OF M ANUFACTURE IN THE HANDS OF THE ASSESSEE. THE SAID COMMERCIAL ARRANGEMENT WITH ASIAN PAINTS LTD., (THIRD PARTY CUSTOMER) WAS A PRIMARY REASON FOR OPERATING LOSS IN THE HANDS OF THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED THE SEGMENTAL INFORMATION WITH RESPECT TO ITS MANUFACTURING BUSINESS VIDE PAGE NO.1050 OF PAPER BOOK ASUNDER: - A . SALEOFPRODUCTS - (PRIMAL RH 4A, BULK AND PIRAMALRH - 1 /BULK) TO ASIAN PAINTS LTD B . SALE OF OTHER PRODUCTS TO ASIAN PAINTS LTD. AND SALE OF PRODUCTS TO OTHERCUSTOMERS THE LD. AR ALSO STATED THAT ASSESSEE HAD INCURRED OPERATING LOSSES OF 29.72% ON ITS OPERATING REVENUE WITH REGARD TO SALE MADE TO ASIAN PAINTS LTD., ON ACCOUNT OF SPECIFIC BUSINESS OF COMMERCIAL ARRANGEMENT MADE WITH M/S. ASIAN PAINTS LTD., WHEREAS THE ASS ESSEE HAD MADE REASONABLE PROFITS OF OTHER MANUFACTURING BUSINESS. FURTHER THE ARRANGEMENT WITH ASIAN PAINTS LTD. CONTINUED TILL F.Y.2014 - 15 POST WHICH, THE ASSESSEE DECIDED TO CHANGE THE PRODUCT PORTFOLIO OWING TO CONTINUOUS LOSS. THE LD. AR STATED THAT P OST SUCH CHANGE IN THE PRODUCT ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 12 PORTFOLIO OF THE ASSESSEE, THE ASSESSEE STARTED MAKINGPROFITS. 5 . 2 . THE LD. AR ARGUED THAT CUP BEING THE MORE DIRECT METHOD, THE SAME SHOULD BE PREFERRED OVER OTHER METHODS. HE ALSO PLACED RELIANCE ON THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SERDIA PHARMACEUTICALS INDIA PVT. LTD. VS. ACIT REPORTED IN 44 SOT 391, MUMBAI WHEREIN IT WAS HELD THAT TRADITIONAL TRANSACTION METHOD SUCH AS CUP, CPM AND RPM SHOULD BE USED, IF DATA IS AVAILABLE, OVER TRADITIONAL PRO FIT METHODS SUCH AS PSM AND TNMM. THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF SONATA SOFTWARE LTD. VS. ACIT IN ITA NO.3514/MUM/2010 WHEREIN IT WAS HELD THAT TNMM AND PROFIT SUPPLY METHOD (PSM) ARE TREATED AS METHODS OF L AST RESORT WHICH ARE PRESSED INTO SERVICE ONLY WHEN THE METHODS I.E. CUP, RESALE PRICE METHOD (RPM) AND COST PLUS METHOD (CPM) CANNOT BE REASONABLY APPLIED. ALL THESE DECISIONS WERE RELIED UPON BY THE LD. AR TO DRIVE HOME THE POINT THAT CUP SHOULD BE ACCEP TED AS THE MAM IN THE INSTANT CASE. THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF DELHI TRIBUNAL IN THE CASE OF TILDA RICELAND PVT. LTD. VS. ACIT REPORTED IN 161 TTJ 213 WHEREIN ACCEPTABILITY OF PRICES FROM TIPS DATA BASE WAS ENGAGED AND IT WAS ALSO H ELD THAT IN ANY EVENT WHAT TIPS SOFTWARE DOES IS TO COLLECT THE DATA, COMPILE THE SAME IN EASYTOREFER FORMAT AND MAKE IT AVAILABLE TO THE END USER OF SUCH DATA ONLINE ( WWW.TIPSAXIM.COM ) OR ON ELECTRICAL MEDIA, BUT THIS DATA NONETHELESS, IS PUBLIC DATA MAINTAINED BY THE CUSTOMS DEPARTMENT AT VARIOUS PORTS. IT WAS ALSO HELD BY THE DELHI TRIBUNAL THAT THE LD. TPO WAS IN ERROR IN REJECTING THE INFORMATION, INPUTS RECEIVED FROM THE TIPS SOFTWARE AND THE DATA BASE MADE AV AILABLE BY THE SAIDENTITY. 5 . 3 . THE LD. AR WITH REGARD TO HIS STATEMENT OF ADOPTING PORTFOLIO APPROACH IN CUP METHOD BY USING TIPS DATA BASE, PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF BOSKALIS INTERNATIONAL DREDGING C.V VS. DDIT REPORTED IN 67 SOT 118. THE LD. AR ALSO SUBMITTED THAT THIS DECISION OF MUMBAI TRIBUNAL IN THE CASE OF BOSKALIS INTERNATIONAL DREDGING C.V, SUPRA HAD BEEN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURTWHICH IS REPORTED IN TS - 1310 - HC - 2018 (MUM). THE LD. AR ALSO SUB MITTED THAT IN THE RECENTLY RELEASED OECD FINAL DELIVERABLES ON THE BASE EROSION AND PROFIT SHIFTING (BEPS), ACTION PLAN 8 TO 10 ON ALIGNING TRANSFER PRICING TP OUTCOMES AS WITH VALUATION CREATION SPECIFICALLY CONTAINS THE CHAPTER OF COMMODITY TRANSACTIONS , WHEREIN THE OECD AS PROFIT GUIDANCE WITH PRICE OBTAINED FROM A RECOGNIZED AND TRANSPARENT PRICE REPORTING OR STATISTICAL AGENCIES OR FROM GOVERNMENTAL PRICE SETTING AGENCIES CAN BE CONSIDERED TO BE VALID FOR CUPMETHOD. 5 . 4 . THE LD. AR ALSO MADE SEVERAL ARGUM ENTS TO PROVE THAT TNMM CANNOT BE CONSIDERED AS MAM IN THE FACTS OF THE INSTANT CASE AND HE ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 13 ALSO VEHEMENTLY OBJECTED TO THE VARIOUS COMPARABLES CHOSEN BY THE LD. TPO. DUE TO FUNCTIONAL DISSIMILARITIES, AMONG OTHERS IN THAT REGARD. THE SAID ARGUMENTS ARE NO T BROUGHT OUT HEREIN IN THIS ORDER IN VIEW OF THE ELABORATE ARGUMENTS MADE BY THE LD. AR FOR ADOPTION OF CUP TO BEMAM. 5 . 5 . PER CONTRA, THE LD. DR VEHEMENTLY OBJECTED TO ADMISSION OF VARIOUS ADDITIONAL EVIDENCES FILED BY THE ASSESSEE DETAILED HEREINABOVE ON THE GROUND THAT ASSESSEE IS IN THE HABIT OF FILING ADDITIONAL EVIDENCES BEFORE THE LD. DRP AS WELL AS BEFORE THIS TRIBUNAL . THE LD. DR VEHEMENTLY ARGUED THAT THE REASONS FOR INCURRING LOSSES BY THE ASSESSEE USING CPM AS MAM DURING THE YEAR WAS STATED TO BE THE COMMERCIAL DECISION TAKEN BY THE ASSESSEE PURSUANT TO MOU ENTERED INTO WITH ASIAN PAINTS LTD. AND THAT THIS WAS STATE D FOR THE FIRST TIME BEFORE THIS TRIBUNAL ONLY BY THE ASSESSEE. THIS WAS NEVER POINTED OUT BEFORE THE LOWER AUTHORITIES. IN OTHER WORDS, THE LD. DR ARGUED THAT ASSESSEE HAD NEVER ADDUCED PROPER REASONING BEFORE THE LOWER AUTHORITIES FOR INCURRENCE OF LOSSE S DURING THE YEAR IN ITS MANUFACTURING BUSINESS THAT IT WAS ATTRIBUTABLE TO LOWER SALES REALIZATION FROM ASIAN PAINTSLTD. 5 . 6 . WITH REGARD TO ADOPTION OF CUP AS MAM, THE LD. DR OBJECTED THAT ASSESSEE HAD TO BE CONSISTENT WITH REGARD TO ONE PARTICULAR METHOD TO BE ADOPTED BY HIM. HE ARGUED THAT THE ASSESSEE CANNOT BE GIVEN A COMPLETE LEEWAY TO CHOOSE DIFFERENT METHODS AT DIFFERENT POINT IN TIME FOR DIFFERENT ASSESSMENT YEARS BEFORE DIFFERENT FORUMS. HE STATED THAT UP TO A.Y.2014 - 15, ASSESSEE HAD BEEN APPLYING O NLY CPM ASMAM. 5 . 7 . THE LD. DR REITERATED THE FINDINGS OF THE LD. DRP THAT THE MARKET PRICE OF RAW MATERIALS WAS FLUCTUATING ON A DAY TO DAY BASIS AND HENCE, THE SET OFF AS PROPOSED BY THE ASSESSEE FOR USING PORTFOLIO APPROACH CANNOT BE CONSIDERED AND THE PRICE PREVAILING ON THE DAY OF TRANSACTION ALONE IS TO BE CONSIDERED. HE ARGUED THAT NO EVIDENCES WERE PRODUCEDBYTHE ASSESSEE TO SHOW THAT THE PRICES WERE INITIATED ON COMBINED BASIS FOR BOTH IMPORT AS WELL AS EXPORT. 5 . 8 . WITH REGARD TO ADOPTION OF CUP AS MAM USING TIPS DATA BASE, THE LD. DR ARGUED THAT THE DATA BASE IN TIPS SOFTWARE IS ONLY CUSTOMS DEPARTMENT DATA MAINTAINED FOR DETERMINING THE LEVY OF DUTY AND THE SAME CANNOT BE USED FOR BENCHMARKING INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE. HE FURTHER ARGUED THAT EVEN IF THE TIPS DATA BASE IS TO BE ACCEPTED, THE DATA ON THE RELEVANT DATE OF TRANSACTION IS TO BE COMPARED. HE VEHEMENTLY OPPOSED THE ACCEPTANCE OF BUNDLED APPROACH CARRIED OUT BY THEASSESSEE. 5 . 9 . WITH REGARD TO ACCEPTABILITY OF TIPS SO FTWARE BY THE LD. TPO IN A.Y.2014 - 15, THE LD. DR ARGUED THAT THE SAME WAS JUST USED BY THE LD. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 14 TPO FOR HIS OWN PURPOSES AND HAS BEEN TAKEN BY THE LD. TPO FOR A.Y.2014 - 15 CANNOT BE APPLIED FOR A.Y.2010 - 11 I.E. YEAR UNDER APPEAL. THE LD. DR VEHEMENTLY OPPOSE D FOR ADMISSION OF ADDITIONAL EVIDENCES FILED BY THE ASSESSEE FOR USAGE OF TIPS DATA BASE WHICH COVERS 94.69% OF THE TOTAL IMPORT TRANSACTIONS FROM AES, AND OPPOSED FOR REMANDING THE SAME FOR VERIFICATION TO THE FILE OF THE LD. TPO ON THE GROUNDS THAT ASS ESSEE CANNOT BE GIVEN A SECOND CHANCE TO IMPROVE ITS CASE. THE LD. TPO FINALLY SUBMITTED THAT EVEN IN TIPS DATA BASE, THE DATA ON THE RELEVANT DATE OF TRANSACTION IS TO BE CONSIDERED OR AT LEAST TO THE NEARBY DATES. HENCE, THE CLAIM OF THE ASSESSEE IS THAT 94.69% OF THE TOTAL IMPORT TRANSACTIONS GETS COVERED USING TIPS DATA BASE IS NOT CORRECT AND ONLY 70% OF THE TOTAL VALUE IS COMPARABLE FROM THE SAID TIPS DATA BASE. HENCE, HE SUBMITTED THAT THE ARGUMENT OF THE LD. AR DESERVES TO BE REJECTED ON THIS GROUND ITSELF. 6 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE PARTIES BEFORE US AT THE TIME OF HEARING. IT IS NOT IN DISPUTE THAT ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING CPM AS MAM IN THE EARLIER YEARS. IT IS NOT IN DISPUTE THAT ASSESSEE HAD INDEED ADOPTED CPM AS MAM IN ITS TP STUDY REPORT AND EVEN BEFORE THE LD. TPO. THE SAID METHOD HAS BEEN REJECTED BY THE LD. TPO ON THE GROUND THAT ASSESSEE HAS INCURRED LOSS FROM ITS MANUF ACTURING BUSINESS DURING THE YEAR UNDER CONSIDERATION. FROM THE ELABORATE ARGUMENTS NARRATED HEREINABOVE OF THE LD. AR, WE ARE CONVINCED THAT THE ASSESSEE HAD INCURRED LOSSES DURING THE YEAR NOT ON ACCOUNT OF IMPORT TRANSACTIONS FROM ITS AES, BUT ON ACCOUN T OF COMMERCIAL REASONS BY HAVING LOWER SALES PRICE REALIZATION FROM A THIRD PARTY CUSTOMER I.E., ASIAN PAINTS LTD., PURSUANT TO MOU ENTERED INTO BY THE ASSESSEE WITH ASIAN PAINTS LTD., THE REASONING GIVEN BY THE LD. AR IN THIS REGARD FOR THE INCURRENCE OF LOSS DURING THE YEAR ARE QUITE CONVINCING AND HENCE, WE DISMISS THE REJECTION OF CPM AS MAM BY THE LD. TPO IN THE INSTANT CASE. HOWEVER, WE FIND THAT ASSESSEE HAD GIVEN UP THE CLAIM OF CPM BEFORE THE LD. DRP AND HAD PRAYED FOR ADOPTION OF CUP IN VIEW OF THE FACT THAT CUP BEING A DIRECT METHOD AND THE COMPARABLE DATA WAS AVAILABLE FOR ALMOST 68% OF THE TOTAL VALUE OF IMPORT TRANSACTIONS USING ICIS SOFTWARE. WE FIND THAT THIS PLEA OF THE ASSESSEE WAS REJECTED BY THE LD. DRP FOR THE REASONS NARRATED HEREINAB OVE AND THE LD. DRP UPHELD THE ACTION OF THE LD. TPO IN APPLYING THE TNMM AS MAM. WE FIND THAT THE LD. DRP HAD CATEGORICALLY ACCEPTED THE FACT OF FLUCTUATING PRICES BOTH UPWARD AND DOWNWARD PRICING FOR THE SAME PRODUCT AT OR NEAR TO THE RELEVANT DATE OF TR ANSACTIONS USING CUP METHOD. WE FIND THAT ULTIMATELY THE PURPOSE OF TP ANALYSIS IS TO BENCHMARK THE INTERNATIONALTRANSACTIONSCARRIED OUT BY THE ASSESSEE WITH AES WITH COMPARABLE CASES USING ANY ONE OF THE PRESCRIBED METHODS. WHEN THE CUP METHOD USING ICIS SOFTWARE COVERS 68% OF THE TOTAL TRANSACTIONS ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 15 THAT TOO BEING A DIRECT METHOD AND A TRADITIONAL TRANSACTION METHOD, THE LD. DRP OUGHT TO HAVE ACCEPTED THE SAME. BEFORE US, WE FIND THAT ASSESSEE BY WAY OF ADDITIONAL EVIDENCES HAD PRODUCED COMPARABLE DATA USI NG TIPS DATA BASE WHICH COVERS EVEN MORE HIGHER PERCENTAGE OF TOTAL VALUE OF IMPORT TRANSACTIONS FROM THE AES. WE HOLD THAT CUP IS A DIRECT METHOD. WE FIND THAT ASSESSEE HAS RAISED ADDITIONAL GROUNDS OF APPEAL FOR ADOPTION OF CUP TO BE MAM WHICH WE ARE INC LINED TO ACCEPT IN THE FACTS OF THE INSTANT CASE. WE FIND THAT ASSESSEE HAD ALSO FILED ADDITIONAL EVIDENCES BEFORE US BY PRODUCING DATA FROM TIPS DATA BASE MAINTAINED BY THE CUSTOMS DEPARTMENT, FOR THE PURPOSE OF COMPARABILITY OF THE PRICES OF IMPORT TRANS ACTIONS CARRIED OUT BY THE ASSESSEE VIS - - VIS COMPARABLE PRICES ON THE RELEVANT DATE OR NEARER TO THE DATE OF TRANSACTIONS. THIS ACCORDING TO THE LD. AR COVERS 94.69% OF THE TOTAL VALUE OF IMPORT TRANSACTION FROM AES, WHICH ACCORDING TO THE LD. DR COVERS O NLY 70% OF THE TOTAL TRANSACTIONS. WE HOLD THAT IN EITHER CASE, SUBSTANTIAL AMOUNT OF TRANSACTIONS GETS COVERED USING TIPS DATA BASE UNDER CUP METHOD. HENCE, WE ADMIT THE ENTIRE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE US IN THIS REGARD AND DEEM I T FIT AND APPROPRIATE TO RESTORE THE ENTIRE ISSUE TO THE FILE OF THE LD. AO WITH THE FOLLOWINGDIRECTIONS: - ( A ) CUP SHOULD BE ADOPTED AS MAM BEING THE DIRECT METHOD AND BEING A TRADITIONAL TRANSACTION METHOD WHICH SHOULD BE PREFERRED OVER TRADITIONAL PROFIT METHOD SUCH AS RPM ANDTNMM. ( B ) TIPS DATA BASE MAINTAINED BY THE CUSTOMS DEPARTMENT WHICH HAS ALSO BEEN ACCEPTED BY THE DELHI TRIBUNAL IN THE CASE OF TILDA RICELANDPVT.LTD. VS. ACIT REPORTED IN 161 TTJ 213 SUPRA, SHOULD BE ACCEPTED AS A VALID DATABASE. ( C ) WHILE COMPARING THE DATA AT OR NEAR TO THE RELEVANT DATE OF TRANSACTIONS WITH THE COMPARABLE PRICES USING TIPS DATA BASE, THE LD. TPO IS DIRECTED TO ADOPT PORTFOLIO APPROACH TO TAKE BOTH THE PRICES THAT ARE FAVOURABLE TO ASSESSEE AS WELL AS THAT ARE ADVERSE TO ASSESSEE IN VIEW OF A CATEGORICAL FINDING OF FLUCTUATING PRICES FOR THE SAME PRODUCT ALREADY GIVEN BY THE LD. DR WHICH IS NOT DISPUTED BY THE LD. DR BEFORE US. WE HOLD THAT THE REVENUE CANNOT DO CHERRY PICKING OF THOSE TRANSACTIONS WHICH ARE FAVOURING THEM AND IGNORE THOSE TRANSACTIONS THAT ARE DETRIMENTAL TO THEM WHILE BENCHMARKING THE TRANSACTIONS OF THE ASSESSEE WITH COMPARABLE CASES. THIS HAS ALREADY BEEN UPHELD BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF BOSKALIS INTERNATIONAL DREDGING C.V VS. DDIT REPORTED IN 67 SOT 118 , WHICH DECISION HAS BEEN SUBSEQUENTLY APPROVED BY THE HONBLE JURISDICTIONAL HIGH COURT REPORTED IN TS - 1310 - HC - 2018 (MUM). ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 16 6 . 1 . BASED ON THE AFORESAID DIRECTIONS, THE LD. TPO IS DIRECTED TO WORK OUT THE ARMS LENGTH PRICE AND MAKE ADJUSTMENT THEREON, IF NECESSARY IN RESPECT OF IMPORT OF RAW MATERIALS MADE BY THE ASSESSEE FROM ITS AES. ACCORDINGLY, THE REVISED GROUND NOS.1 - 7 RAISED BY THE ASSESSEE IN RESPECT OF TRANSFER PRICING ADJUSTMENT TOGETHER WITH ADDITIONAL GROUNDS THEREON ARE ALLOWED FOR STATISTICALPURPOSES. 2.11 . WE FIND THAT DURING THE YEAR UNDER APPEAL ALSO, THE ASSESSEE HAD FILED ADDITIONAL EVIDENCES ON 11 TH FEBRUARY 2020 SUBSTANTIATING THE COMPARISON OF IMPORT PRICE WITH TIPS DATA BASE PRICES AVAILABLE FOR 95.79% OF THE RAW MATERIALS IMPORTED FROM AES . BY USING THE PORTFOLIO APPROACH (WHICH HAD ALREADY BEEN UPHELD BY THIS TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 25/09/2019 REFERRED TO SUPRA), THE IMPORT PRICES OF THE ASSESSEE APPEARED TO BE LESS THAN THE AGGREGATE OF COMPARABLE PRICES RETURNED BY TIPS DATA BASE. WE FIND THAT SIMILAR TYPE OF ADDITIONAL EVIDENCES WERE FILED BY THE ASSESSEE IN EARLIER YEAR AND THIS TRIBUNAL VIDE ITS ORDER DATED 25/09/2019 REFERRED TO SUPRA HAD ADMITTED THOSE ADDITIONAL EVIDENCES AND R EMANDED THE MATTER BACK TO THE FILE OF THE LD. TPO FOR DETERMINATION OF ARMS LENGTH PRICE FOR THE PURPOSE OF MAKING ADJUSTMENT, IF ANY , IN RESPECT OF IMPORT OF RAW MATERIALS MADE FROM AES. RESPECTFULLY FOLLOWING THE DECISION RENDERED BY THIS TRIBUNAL VID E ITS ORDER DATED 25/09/2019 IN ASSESSEES OWN CASE, WE HOLD THAT CUP MUST BE THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF IMPORT OF RAW MATERIALS IN VIEW OF THE FACT THAT DIRECT COMPARABLE PRICES ARE AVAILABLE OF TIPS DATA BASE FOR 95.79% OF THE TOTAL RAW MATERIAL IMPORTS FROM AES BY USING THE PORTFOLIO APPROACH. THE LD. TPO IS DIRECTED TO VERIFY THE ADDITIONAL EVIDENCES FILED BEFORE THIS TRIBUNAL BY THE ASSESSEE PROVIDING CUP DATA ON THE TIPS DATA BASE. NEEDLESS TO MENTION THAT CUP METHOD AND COMPARABLE PRICES AVAILABLE IN TIPS DATA BASE USING PORTFOLIO APPROACH COVERS 95.79% OF TOTAL IMPORT OF RAW MATERIALS TRANSACTION FROM ITS AES , IF ON VERIFICATION, IT IS FOUND BY THE LD. TPO THAT THE IMPORT PRICES OF THE ASSESSEE TO BE LOWER THAN THE ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 17 COMPARABLE PRICES REPORTED BY THE TIPS DATA BASE, THE REMAINING IMPORTS I.E.4.21% ARE ALSO BE CONSIDERED TO BE AT ARMS LENGTH AND THEREFORE, NO ADJUSTMENT TO ALP WOULD BE WARRANTED IN SUCH A SCENARIO. ACCORDINGLY, T HE GROUND NOS 1 - 9 AND AD DITIONAL GROUND NO.23 & 24 ARE ALLOWED FOR STATISTICAL PURPOSES AND DISPOSED OFF IN THE AFORESAID MANNER. CORPORATE TAX ISSUES: 3 . GROUND NOS. 10 & 11 RAISED BY THE ASSESSEE ARE WITH REGARD TO THE ACTION OF THE LD. DRP UPHOLDING THE DISALLOWANCE OF FOREI GN EXCHANGE LOSS AMOUNTING TO RS.8,18,29,149/ - . 3 .1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF CHEMICALS. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF CHEMICALS. IT REGULARLY IMPORTS/ EXPORTS RAW MATERIALS, TRADED PRODUCTS ETC. THE ASSESSEE HAD ALSO TAKEN FOREIGN CURRENCY LOAN FOR THE PURPOSE OF BUSINESS WHICH WAS REPAID DURING THE YEAR UNDER CONSIDERATI ON. 3 .2 . IN ORDER TO MITIGATE THE RISK OF FOREIGN EXCHANGE FLUCTUATION, THE ASSESSEE ENTERS INTO FORWARD EXCHANGE CONTRACTS WITH THE BANKS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INCURRED THE NET FOREIGN EXCHANGE LOSS OF RS 8,18,29,149 O N CANCELLATION OF FORWARD CONTRACTS. THE ASSESSEE HAS CLAIMED THE SAID LOSS AS DEDUCTION IN THE RETURN OF INCOME FILED FOR AY 2011 - 12 SINCE THE SAME W AS RELATED TO BUSINESS OF THE ASSESSEE . 3 .3. THE NET FOREIGN EXCHANGE LOSS DEBITED TO THE PROFIT AND LOSS ACCOUNT IS RS 8,18,29,149 AND THE BREAK - UP OF THE SAME IS AS UNDER: ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 18 PARTICULARS AMOUNT (RS) A. NET EXCHANGE LOSS UNREALIZED 3,32,94,592 B. NET EXCHANGE LOSS REALIZED 4,85,34,557 NET FOREIGN EXCHANGE LOSS DEBITED TO PROFIT AND LOSS ACCOUNT 8,18,29,149 3 .4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILED NOTE AND JUSTIFICATION ON ALLOWABILITY OF LOSS OF RS 8,18,29,149 INCURRED DUE TO FOREIGN EXCHANGE FLUCTUATION ON CANCELLATION OF FORWARD CONTRACTS. IN RESPONSE TO THE SAME, THE ASSESSEE MADE DETAILED SUBMISSION BEFORE THE AO THAT LOSS INCURRED ON CANCELLATION OF FORWARD CONTRACTS WERE RELATED TO IMPORT/EXPORT TRANSACTIONS RELATING TO TRADING OF GOODS. FURTHER, THE ASSESSEE SUBMITTED THAT IT IS NOT IN BUSINESS OF HEDGING FORWARD CONTRACTS. ALSO, FOLLOWING DETAILS WERE SUBMI TTED BEFORE THE AO: A. DETAILS OF LOSS ON CANCELLATION OF FORWARD CONTRACTS INA TABULAR FORMAT ALONG WITH SAMPLE COPIES OF FORWARD CONTRACTS FILED VIDE SUBMISSION DATED 11 FEBRUARY 2015 B. MASTER CIRCULAR OF RBI WHICH STATES THAT COMPANIES ARE ALLOWED TO ENTER INTO FORWARD CONTRACTS TO MITIGATE THE FOREIGN EXCHANGE FLUCTUATIONS 3 .5. HOWEVER, THE AO HELD THAT THE ASSESSEE FAILED TO DEMONSTRATE THAT THE FORWARD CONTRACTS WERE ENTERE D INTO IN RELATION TO ITS BUSINESS. FURTHER, THE LEARNED AO STATED THAT FORECLOSURE OR CANCELLATION OF FORWARD CONTRACT IS A CHARACTERISTIC OF SPECULATION ACTIVITY. THUS, THE AO PROPOSED TO DISALLOW THE IMPUGNED LOSS INCURRED ON CANCELLATION OF FORWARD CON TACTS FOR THE REASON THAT IT WAS NOT RELATED TO BUSINESS ACTIVITY. WITHOUT ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 19 PREJUDICE, THE AO ALSO HELD THAT HAD THE LOSS ON CANCELLATION OF FORWARD CONTRACTS EVEN IF ALLOWED, IT WOULD BE ALLOWED AS SPECULATION LOSS AND NOT NORMAL BUSINESS LOSS . 3 .6. AG GRIEVED BY THE ACTION OF AO, THE ASSESSEE FILED OBJECTIONS BEFORE THE LD. DRP. DURING THE LD. DRP PROCEEDINGS, THE ASSESSEE MADE DETAILED SUBMISSIONS AS TO WHY LOSS INCURRED ON CANCELLATION OF FORWARD CONTRACTS ARE RELATED TO THE BUSINESS ACTIVITY ALONG WI TH FURNISHING THE SUBMISSIONS MADE BEFORE AO AND BY FILING ADDITIONAL EVIDENCE IN THE FORM OF BANK CERTIFICATE FROM CITI BANK EVIDENCING THAT THE FORWARD CONTRACTS ARE ENTERED FOR IMPORTS. 3 .7. BEFORE THE LD. DRP, THE ASSESSEE FURTHER SUBMITTED AS UND ER : - A) FORWARD CONTRACTS ENTERED INTO WITH THE BANK ARE PURELY TO MITIGATE THE FOREIGN EXCHANGE FLUCTUATION RISK AND THEY ARE PURELY FOR THE PURPOSE OF ITS BUSINESS B) THE ASSESSEE IS NOT IN BUSINESS OF HEDGING FORWARD CONTRACTS. THEREFORE, THE EXCHANGE LOSS INCURRED ON CANCELLATION OF FORWARD CONTRACTS CANNOT BE TREATED AS SPECULATION LOSS C) SINCE FORWARD CONTRACTS WERE ENTERED TO SAFEGUARD AGAINST FOREIGN EXCHANGE FLUCTUATION AN D ARE RELATED TO BUSINESS OF THE ASSESSEE , THEY ARE NOT SPECULATIVE IN NATURE. D) RBI SPECIFICALLY ALLOWS IMPORTER/ EXPORTER TO ENTER INTO FORWARD CONTRACTS BASED ON THE EXPOSURE AVAILABLE ON IMPORT/EXPORT TRANSACTIONS AND IT ALSO ALLOWS COMPANY TO HEDGE THE FOREIGN CURRENCY BORROWINGS BASED ON UNDERLYING EXPOSURE. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 20 3 .8. THE LD. DRP AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REMAND REPORT OF THE LD. AO AND ADDITIONAL EVIDENCES FILED, STATED THAT LOSS ON CANCELLATION OF FORWARD CONTRACTS IN RESPE CT OF TRADED GOODS SHOULD BE ALLOWED AS DEDUCTION AND ACCORDINGLY DIRECTED THE LD. AO TO VERIFY THE FORWARD CONTRACTS. 3 .9 . PURSUANT TO LD. DRP DIRECTIONS, THE ASSESSEE VIDE LETTER DATED 12 THN JANUARY 2016 SUBMITTED A BANK CERTIFICATE AND DETAILS OF UNDERLYING EXPOSURE ALONG WITH SAMPLE COPY OF INVOICES WITH THE LD. AO AND EXPLAINED THE PROCESS AND PURPOSE OF ENTERING INTO FORWARD CONTRACTS. THE ASSESSEE ALSO SUBMITTED BEFORE THE LD. AO THAT FO RWARD CONTRACTS ARE EITHER ENTERED FOR IMPORT/ EXPORT TRANSACTION OR IT HAS BEEN REBOOKED ('RBK') FOR EXTENSION FOR FURTHER PERIOD. 3 . 10 . HOWEVER, IN THE FINAL ASSESSMENT ORDER, WITHOUT APPRECIATING THE ASSESSEE 'S EXPLANATION AND NOT FOLLOWING LD. DRP'S D IRECTIONS, THE LD. AO DISALLOWED THE LOSS ON CANCELLATION OF FORWARD CONTRACTS FOR THE REASONS THAT FORWARD CONTRACTS ARE NOT RELATED TO TRADED GOODS AND IS SPECULATIVE IN NATURE. THEREBY, HE DISALLOWED A NET FOREIGN EXCHANGE LOSS ON CANCELLATION OF FORWAR D CONTRACTS AMOUNTING TO RS 8,18,29,149. 3 .11 . AGGRIEVED BY THE ABOVE, THE ASSESSEE IS IN APPEAL BEFORE US. IN THIS REGARD, THE LD. AR SUBMITTED THAT - 3.12. THE ASSESSEE HAS CLAIMED DEDUCTION OF NET FOREIGN EXCHANGE LOSS OF RS 8,18,29,149 INCURRED ON CANCELLATION OF FORWARD CONTRACTS. THE DETAILS OF THE SAME ARE TABULATED AS UNDER : ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 21 SR NO. GI CODE NAME AMOUNT 1 8056001 EXCHANGE LOSS UNREALIZED - 95,02,145.16 2 8057000 EXCHANGE LOSS REALIZED - 4,87,932.01 3 8 057 0 01 EXCHANGE LOSS REALIZED 18,37,36,516.22 4 8057001 EXCHANGE LOSS REALIZED 13,98,97,980,46 5 8056003 FX EXCHANGE GAIN/LOSS UNREALIZED 1,02,12,000.00 6 8256001 EXCHANGE GAIN UNREALIZED 3,25,84,737.22 7 8257000 EXCHANGE GAIN REALIZED - 6,61,621,49 8 8257001 EXCHANGE GAIN REALIZED - 2 7,39,50,384.94 TOTAL 8,18,29,150.30 GL CODES ARE THE LEDGER ACCOUNTS IN THE BOOKS OF THE ASSESSEE. FURTHER AMOUNTS REFLECTING IN POSITIVE ARE LOSSES AND THOSE REFLECTIVE IN NEGATIVE ARE GAINS. 3.13 . THE LD. AR SUBMIT TED THAT THE NET FOREIGN EXCHANGE LOSS OF RS 8,18,29,150 INCURRED ON CANCELLATION OF FORWARD CONTRACTS ENTERED INTO WITH CITIBANK WERE RELATED TO IMPORT/ EXPORT ACTIVITY. THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS WITH BANKS TO MITIGATE THE RISK OF EXCHA NGE LOSS WHILE DISCHARGING THE TRADING LIABILITIES IN FOREIGN CURRENCY. FURTHER THE LD. AR SUBMITTED THAT THE VALUE OF FORWARD CONTRACT DID NOT EXCEED THE VALUE OF THE UNDERLYING EXPOSURES (I.E. VALUE OF IMPORT OF GOODS OR SERVICES) AT THE TIME OF ENTERING INTO CONTRACTS. THE SAID ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 22 FORWARD CONTRACTS WERE ENTERED PURELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE . 3.14. THE LD. AR SUBMITTED THAT THE ABOVE - MENTIONED DETAILS WERE PRODUCED BEFORE THE LD. AO/DRP. HOWEVER, THE LD. AO UPHELD THE DISALLOWANCE OF NET FOREIGN EXCHANGE LOSS INCURRED ON CANCELLATION OF FORWARD CONTRACTS WITHOUT APPRECIATING THE FACT THAT FORWARD CONTRACTS ENTERED INTO WERE RELATED TO BUSINESS OF THE ASSESSEE . 3.15 . THE LD. AR FURTHER SUBMITTED THAT AS A PRACTICE, THE ASSESSEE ENTERS INTO FOREIGN EXCHANGE FORWARD CONTRACTS WITH THE BANKS FOR A PERIOD OF ONE MONTH TO MITIGATE THE RISK OF EXCHANGE FLUCTUATION LOSS WHILE DISCHARGING THE LIABILITIES IN FOREIGN CURRENCY. EVERY MONTH - END , THE ASSESSEE CALCULATES THE LIABILITY IN FOREIGN CURRENCY ON ACCOUNT OF IMPORT OF GOODS AND SERVICES AFTER NETTING OFF RECEIVABLE ON ACCOUNT OF EXPORT OF GOODS AND SERVICES. THE NET LIABILITY IN FOREIGN CURRENCY IS FURTHER SPLIT INTO PAYABLE WITHIN NEXT MONTH AND PAYABLE AFTER N EXT MONTH. 3.16. ON THE 1ST DAY OF EVERY MONTH THE ASSESSEE ENTERS INTO TWO SEPARATE FOREIGN EXCHANGE FORWARD CONTRACTS AS UNDER: A. ONE CONTRACT FOR NET PAYABLE WITHIN NEXT MONTH. THE TERM OF THIS CONTRACT IS FOR ONE MONTH. THIS CONTRACT IS HONO U R ED AS PER THE TERMS OF THE FORWARD CONTRACT. THE ASSESSEE PURCHASES FOREIGN CURRENCY FROM BANK AS PER THIS CONTRACT FOR REPAYMENT OF ITS LIABILITY IN FOREIGN CURRENCY. B. SECOND CONTRACT FOR NET PAYABLE AFTER NEXT MONTH. THE TERM OF THIS CONTRACT IS FOR O NE MONTH PLUS 2 WORKING DAYS {IE T + 2 WORKING DAYS). AT THE END OF THE MONTH THE ASSESSEE CANCELS THIS CONTRACT AND IN NEXT TWO ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 23 DAYS REBOOK THE CONTRACT FOR NET PAYABLE AFTER NEXT MONTH CALCULATED AT THE END OF THAT MONTH. THE LD. AR EXPLAINED BELOW THE CONTRACT TYPE 'B' FROM ONE OF THE FORWARD CONTRACTS SUBMITTED: CONTR ACT NO CONTRACT BOOKING DATE CURR ENCY CONTRA CT VALUE RATE O F BOOKING MATURITY DATE CANCELLAT ION DATE RATE ON CANCELLATIO N EXCHANGE GAIN/ (LOSS) PAPER BOOK REF 10005 71035 26 - FEB - 2010 USD 1,08,00, 000 46.3725 06 - APRIL - 2010 31 - MARCH - 2010 45.1400 (1,33,11,000) 302 THE ABOVE PROCESS IS FOLLOWED MONTH ON MONTH. ACCORDINGLY, LOSS IS ON ACCOUNT OF DIFFERENCE BETWEEN THE EXCHANGE RATE ON THE DATE OF ENTERING INTO THE CONTRACT AND THE EXCHANGE RATE ON THE DATE OF CANCELLATION. THE NET FOREIGN CURRENCY EXCHANGE GAIN/ LOSS ARISES ON CANCELLATION OF FORWARD CONTRACT IS DEBITED/ CREDITED TO PROFIT AND LOSS ACCOUNT AS FOREIGN CURRENCY EXCHANGE LOSS/ GAIN. 3.17. IN ORDER TO FURTHER SUBSTANTIATE ITS CONTENTIONS, THE ASSESSEE SUBMITTED FOLLOWING ADDITIONAL EVIDENCES BEFORE HON'BLE TRIBUNAL VIDE LETTER DATED 11 FEBRUARY 2020 TO SUPPLEMENT THE DETAILS ALREADY FILED: A. CERTIFICATE FROM THE CITI BANK - CERTIF ICATE FROM THE CITIBANK EVIDENC ING THAT FORWARD CONTRACTS WERE RELATED TO TRADING ACTIVITY ALONG WITH ANNEXURE GIVING THE FOLLOWING DETAILS WHICH ARE RELATED TO SAMPLE FORWARD CONTRACTS SUBMITTED WITH THE LD. AO AND LD. DRP DATE OF BOOKING OF CONTRACT {REFER COLUMN DEAL_BOOKED_DATE) DATE OF MATURITY OF CONTRACT (REFER COLUMN DEAL_VALUE_DATE) CONTRACT NUMBER (REFER COLUMN DEAL NO) ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 24 PURPOSE OF FORWARD CONTRACT IE TRADE, IMPORT (REFER COLUMN DEAL_PU_PRODUCT AND DEAL_PU_SUB_PRODUCT) TYPE OF CURRENCY BO UGHT/ SOLD (REFER COLUMN DEAL_BOUGHT_CCY AND DEAL_SOLD_CCY) AMOUNT OF CURRENCY BOUGHT/ SOLD (REFER COLUMN DEAL_BOUGHT_AMT ANDDEAL_SOLD_AMT) THE RELEVANT EXTRACT OF THE UNDERLYING EXPOSURE ATTACHED TO THE BANK CERTIFICATE (ON PAGE NO. 48 OF THE ADDITIONAL EVIDENCE) IS REPRODUCED HEREINUNDER ALONG WITH THE CROSS REFERENCING OF RELATED CONTRACT COPIES AND DETAILS OF EXCHANGE GAIN OR LOSS REALIZED/ UNREALIZED ON SUCH CONTRACT: BASED ONA BOV E BANK CERTIFICATE, ITS CLEARLY EVIDENT THAT FORWARD CONTRACTS ENTERED WERE RELATED TO IMPORT/ EXPORT TRANSACTIONS THE ASSESSEE FOR THE PURPOSE OF TRADES. 3.18 . THE LD. AR SUBMITTED THAT S IMILAR ISSUE HAD COME UP IN A SSESSEE'S OWN CASE FOR AY 2010 - 11, WHEREIN THE HON'BLE TRIBUNAL ADMITTED THE ADDITIONAL EVID ENCE FILED AND DECIDED THE PRINCIPLE ISSUE IN FAVOUR OF THE ASSESSEE AND REMANDED THE MATTER TO LD. AO FOR VERIFICATION OF THE BANK ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 25 CERTIFICATES. THE RELEVANT EXTRACTS OF TH IS TRIBUNALS DECISION IN ASSESSEE 'S OWN CASE FOR AY 2010 - 11, WHEREIN IT WAS ACCEPTE D THAT THE EXCHANGE LOSS ON CANCELLATION OF FORWARD CONTRACTS SHOULD BE ALLOWED AS BUSINESS DEDUCTION IS AS UNDER: . '.......HENCE, WE ARE CONVINCED THAT THESE ADDITIONAL EVIDENCES DESERVE, T O BE ADMITTED ANDACCORDINGL Y DEEM IT FIT AND APPROPRIATE LO REMAND THIS ISSUE TO THE FILE OF THELD. AO TO DECIDE THE IMPUGNED ISSUE IN DISPUTE BEFORE US IN THE LIGHT OF ADDITIONAL EVIDENCES FILED BY THE ASSESSEE TOGETHER WITH LIST OF FORWARD CONTRACTS ON CANCELLATION OF WHICH FOREIGN EXCHANGE FLUCTUATION LOSS HAD BEEN INCU RRED BY THE ASSESSEE NEED TO BE VERIFIED BY THE LD. AO AND, IF IT IS FOUND BY THE LD. AO, THAT THE FORWARD CONTRACT WAS INDEED ENTERED FOR TRADING PURPOSES, THEN THE EXCHANGE FLUCTUATION LOSS SHOULD BE ALLOWED AS DEDUCTION FOR THE ASSESSEE. WITH THESE DIRE CTIONS, THE REVISED GROUND NOS. 9 & 10 AND ADDITIONAL GROUND (REVISED GROUND NO.23) ARE ALLOWED FOR STATISTICAL PURPOSES. IN VIEW OF THE ABOVE DOCUMENTARY EVIDENCES, THE APPELLANT SUBMITS THAT NET FOREIGN EXCHANGE LOSS ON CANCELLATION OF FORWARD CONTRACT S IS ALLOWABLE EXPENDITURE AS THE SAME IS RELATED TO BUSINESS OF THE APPELLANT . 3.1 9 . RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2199/MUM/2015 FOR A.Y.2010 - 11 AND ITA NO.6577/MUM/2018 FOR A.Y.2014 - 15 DATED 25/09/201 9 , WE DEEM IT FIT TO REMAND THIS MATTER TO THE FILE OF THE LD. AO FOR VERIFICATION OF THE BANK CERTIFICATE AND DECIDE THIS ISSUE IN ACCORDANCE WITH THE AFORESAID DIRECTION. ACCORDINGLY, THE GROUND NO. 10 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PUR POSES. 3.19 . IN VIEW OF OUR DISPOSAL OF GROUND NO.10 ABOVE, THE ADJUDICATION OF GROUND NO.11 DOES NOT ARISE. 4 . THE GROUND NO.12 & 13 RAISED BY THE ASSESSEE IS WITH REGARD TO THE ACTION OF THE LD. DRP CONFIRMING THE ADDITION OF RS.6,78,403/ - IN RESPECT OF SUNDRY CREDITORS AS UNEXPLAINED CREDIT. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 26 4 .1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO ESTABLISH IDENTITY / CREDITWORTHINESS OF 2 CREDITOR AGGREGATING TO RS.6,78,403/ - ALONGWITH DETAILS LIKE NAME, ADDRESS, AMOUNT INCURRED , CONFIRMATION ETC., THE ASSESSEE WAS UNABLE TO PROVIDE THE REQUISITE DETAILS BEFORE THE LD. AO AND THEREFORE, THE LD. AO TREATED THE CLOSING BALANCES LYING IN THIS SUNDRY CREDITORS ACCOUNT AS UNEXPLAINED CASH CREDITS U/S.68 OF THE ACT AND MADE ADDITION TO THE TOTAL INCOME. BEFORE THE LD. DRP, THE ASSESSEE PLEADED THAT THE PROVISIONS OF SECTION 68 OF THE ACT CANNOT BE MADE APPLICABLE TO THE SUNDRY CREDITOR. FURTHER, THE ASSESSEE SUBMITTED THAT THE DETAILS OF VARIOUS SUNDRY CREDITORS WERE DULY SUBMITTED BEFO RE THE LD. AO VIDE LETTER DATED 15/01/2015 AND THAT THE DETAILS OF MERELY 2 SUNDRY CREDITORS COULD NOT BE FURNISHED AT THAT TIME. THE LD. DRP HOWEVER, DID NOT HEED TO THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE ACTION OF THE LD. AO. 4 .2. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4 .3. WE HAVE HEARD RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE ADDITION HAD BEEN MADE U/S.68 OF THE ACT IN RESPECT OF AMOUNTS LYING IN THE 2 SUNDRY CREDITORS ACCOUNT IN RESPECT OF 2 CREDITORS. THIS GOES TO PROVE THAT THESE SUNDRY CREDITORS HAD APPARENTLY EMANATED OUT OF PURCHASES O R REVENUE EXPENSES INCURRED BY THE ASSESSEE. WE FIND THAT NOWHERE IN THE ORDERS OF THE LOWER AUTHORITIES, THE REVENUE HAS BROUGHT OUT THE FACT THAT THE CORRESPONDING PURCHASES / EXPENSES TO THE SUNDRY CREDITORS WERE EITHER INGENUINE OR WERE INCORRECT. ONCE, THE PURCHASES MADE FROM THE PARTIES INVOLVED HAS BEEN ACCEPTED BY THE REVENUE, THERE CANNOT BE ANY ADDITION IN RESPECT OF CLOSING BALANCE OF THE VERY SAME SUNDRY CREDITOR BY TREATING IT AS UNEXPLAINED CREDIT WITHIN THE MEANING OF SECTION 68 OF THE ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 27 ACT. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF RITU AGARWAL IN ITA NO.325/2008 DATED 22/07/2008, COPY OF THIS DECISION HAS BEEN PLACED ON REC ORD WHEREIN IT WAS HELD AS UNDER: - THE FINDING OF AO REMAINED UNDISTRIBUTED BEFORE THE CIT(A) AS WELL AND HAS BEEN ACCEPTED BY THE ITAT PROCEEDINGS ON THE BASIS, THE ITAT OBSERVED THAT THE SALES, PURCHASES AS WELL AS GROSS PROFITS AS DISCLOSED BY THE ASS ESSEE HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. ONCE THIS IS ACCEPTED, WE ARE OF THE OPINION THAT THE APPROACH OF THE ITAT WAS CORRECT IN AS MUCH AS THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT WHILE MAKING ADDITIONS OF THE SUNDRY CREDITORS UNDER SECTION 68 OF THE INCOME TAX ACT. AS THERE WAS NO CASE FOR DISALLOWANCE FOR CORRESPONDING PURCHASES, NO ADDITION COULD BE MADE UNDER SECTION 68 IN AS MUCH AS IT IS NOT IN DISPUTE THAT THE CREDITORS OUTSTANDING RELATED TO PURCHASES AND THE TRADING RESULTS W ERE ACCEPTED BY THE AO. WE ARE THEREFORE, OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION IN THIS CASE. THE APPEAL IS ACCORDINGLY DISMISSED. 4 .4. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE LD. AO TO DELETE THE ADDITION MADE IN THE SUM OF RS.6,78,403/ - IN RESPECT OF SUNDRY CREDITORS BALANCE OUTSTANDING AT THE END OF THE YEAR. ACCORDINGLY, THE GROUND NOS.12 & 13 RAISED BY THE ASSESSEE ARE ALLOWED. 5 . THE GROUND NO.14 RAISED BY THE ASSESSEE IS WITH REGARD TO UPHOLDING THE DISALLOWANCE OF LEGAL AND PROFESSIONAL FEES OF RS.1,41,67,242/ - ON ADHOC BASIS. 5 .1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD INCURRED LEGAL AND PROFESS IONAL FEES OF RS.7,08,36,209/ - AND ASSESSEE WAS ASKED TO PRODUCE THE DETAILS OF THE SAME. THE ASSESSEE VIDE LETTER DATED 11/02/2015 SUBMITTED THE ENTIRE DETAILS SUCH AS NAME OF THE ENT ITIES (113 PARTIES), ADDRESS OF THE PARTY, AMOUNT INCURRED THEREON. HOWEVER, THE LD. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 28 AO HOWEVER, PROPOSED TO MAKE ADHOC DISALLOWANCE OF 20% OF TOTAL LEGAL AND PROFESSIONAL FEES INCURRED AMOUNTING TO RS.1,41,67,242/ - U/S. 37 OF THE ACT FOR WANT OF DOCUMENTARY EVID ENCE ON INCURRING SUCH EXPENDITURE. THE LD. AO ALSO STATED THAT SIMILAR DISALLOWANCE MADE IN EARLIER YEAR IN ASSESSEES OWN CASE. BEFORE THE LD. DRP, THE ASSESSEE APART FROM MAKING FACTUAL AND LEGAL SUBMISSIONS, ALSO FILED ADDITIONAL EVIDENCES ON 23/07/2015 FURNISHING COPY OF INVOICES AGGREGATING TO RS.5,24,61,045/ - OUT OF THE TOTAL LEGAL AND PROFESSIONAL FEE EXPENSES OF RS.7,08,36,209/ - . THE LD. DRP HOWEVER, DISREGARDED THE ENTIRE CONTENTIONS OF THE ASSESSEE AND UPHELD THE ACTION OF THE LD. AO. 5 .2. AGGRI EVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5 .3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD INCURRED LEGAL AND PROFESSIONAL FEES IN RESPECT OF 113 PARTIES DURING THE YEAR UNDER CONSIDERATIO N TOTALING TO RS.7 , 08 , 36 , 209/ - . OUT OF THAT , THEASSESSEE HAD PRODUCED COPY OF INVOICE WITH THE RELEVANT DETAILS TO THE EXTENT OF RS.5,24,61,045/ - IN THE FORM OF ADDITIONAL EVIDENCES BEFORE THE LD. DRP VIDE LETTER DATED 23/07/2015. FURTHER, THE ASSESSEE H AD ALSO SUBMITTED ADDITIONAL EVIDENCES VIDE ITS LETTER DATED 11/02/2020 BEFORE US BY ENCLOSING THE DETAILS OF LEGAL AND PROFESSIONAL FEES INCURRED FOR THE PARTIES ABOVE RS.2,00,000/ - WHICH ALONE AGGREGATE D TO RS.6,68,28,187/ - TOGETHER WITH PAN OF THE PARTI ES. FROM THE SAID DETAILS, IT COULD BE SEEN THAT MOST OF THE PAYMENTS WERE MADE FOR SECURING SERVICES IN RESPECT OF TAX AUDIT AND OTHER PROFESSIONAL WORK FROM VARIOUS PARTIES. HOWEVER, THESE EVIDENCES REQUIRE FACTUAL EXAMINATION OF THE LD. AO AND HENCE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE DEEM IT FIT TO REMAND THIS ISSUE TO THE FILE OF THE LD. AO FOR DENOVO ADJUDICATION IN THE LIGHT OF VARIOUS ADDITIONAL EVIDENCE ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 29 SUBMITTED BY THE ASSESSEE WHICH ARE ADMITTED HEREIN AND THE LD.AO IS DIRECTED TO DECID E THE ISSUE IN ACCORDANCE WITH LAW. THE ASSESSEE IS HEREBY GIVEN LIBERTY TO FURNISH FURTHER EVIDENCE, IF ANY, IN SUPPORT OF ITS CONTENTION. IF NO DISCREPANCY HAS BEEN FOUND BY THE LD. AO, IN RESPECT OF ADDITIONAL EVIDENCES SUBMITTED TO THE EXTENT OF RS.6,68 ,28,187/ - TOWARDS LEGAL AND PROFESSIONAL FEES, THEN CONSIDERING THE FACTS THAT NO ADVERSE REPORT HAS BEEN GIVEN BY THE TAX AUDITOR IN ITS TAX AUDIT REPORT IN RESPECT OF INCURRENCE OF THE EXPENDITURE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, NO DISALLOWA NCE OF THE LEGAL AND PROFESSIONAL EXPENDITURE SHOULD BE MADE. 5.4 . THE GROUND NO.14 RAISED BY THE ASSESSEE IS DISPOSED OFF IN THE AFORESAID MANNER. 6 . THE GROUND NO.15 - 17 RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF INTEREST OF RS. 3,80,21,8 68/ - U/S.36(1)(III) OF THE ACT WHICH INCLUDES BANK CHARGES OF RS.32,23,260/ - . 6 .1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD GIVEN LOANS AND ADVANCES AGGREGATING TO RS.74,12,93,913/ - . THE ENTIRE DETAILS OF LOANS AND ADVANCES GIVEN BY THE ASSE SSEE WERE SUBMITTED BEFORE THE LD. AO BY THE ASSESSEE. THE LD. AO OBSERVED THAT CERTAIN LOANS AND ADVANCES WERE GIVEN INTEREST FREE BY THE ASSESSEE. ACCORDINGLY, HE SHOW CAUSED THE ASSESSEE AS TO WHY THE INTEREST PAID ON BORROWED FUNDS SHOULD NOT BE PROPOR TIONATELY DISALLOWED TO THE EXPENDITURE OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. 6 .2. THE LD. AO DISALLOWED THE INTEREST ON PROPORTIONATE BASIS ON THE GROUND THAT ON ONE HAND , ASSESSEE HAS PAID INTEREST ON ITS BORROWINGS AND ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 30 ON THE OTHER HAND, NO INTEREST HAS BEEN CHARGED ON THE ADVANCES GIVEN. BEFORE THE LD. DRP, THE ASSESSEE SUBMITTED THAT OUT OF THE TOTAL LOANS AND ADVANCES OF RS.74,12,93,913/ - , A SUM OF RS.70,31,18,515/ - PERTAINS TO STATUTORY DEPOSITS LIKE DEPOSIT WITH I NDIAN REVENUE AUTHORITY, DEPOSITS FOR OFFICE / HOUSING / ELECTRICITY ETC., AND THE BALANCE ADVANCE OF RS.3,81,75,397/ - PERTAIN TO TRADE ADVANCE TOWARDS PURCHASE OF RAW MATERIAL. THE ASSESSEE FURTHER SUBSTANTIATED THE CLAIM OF TRADE ADVANCE OF RS.3 ,8 1 , 75,39 7/ - FILED ADDITIONAL EVIDENCE BEFORE THE LD. DRP VIDE LETTER DATED 23/07/2015 , FURNISH ED LEDGER ACCOUNTS OF FOUR VENDORS ON SAMPLE BASIS AMOUNTING TO RS.1,91,88,845/ - WHICH WERE ADMITTEDLY INCLUDED IN THE TRADE ADVANCE OF RS.3,81,75,397/ - . ASSESSEE SUBMITTE D THAT IT HAD NOT GIVEN ANY INTEREST FREE ADVANCE TO ANYBODY AND THAT THE ADVANCES WERE MADE ONLY AS A MATTER OF MANDATORY / STATUTORY DEPOSITS AND ADVANCE FOR PURCHASE OF RAW MATERIALS, BOTH OF WHICH WERE APPARENTLY FOR THE PURPOSE OF BUSINESS OF THE ASS ESSEE. IT WAS ALSO PLEADED THAT ASSESSEE IN ANY CASE HAD SUFFICIENT OWN FUNDS TO MAKE THESE ADVANCES AND THAT THE BORROWINGS WERE NOT TOUCHED FOR THE SAME. ACCORDINGLY, IT WAS PLEADED THAT NO DISALLOWANCE OF INTEREST COULD BE MADE IN THE FACTS OF THE INSTA NT CASE. 6 .3. THE LD. DRP DIRECTED THE LD. AO TO VERIFY THE NATURE OF ADVANCE OF RS.70,31,18,515/ - , WHETHER THERE ARE MANDATORY DEPOSITS OR NOT AND ALSO DIRECTED THAT IF THOSE DEPOSITS WERE FOUND TO BE MANDATORY DEPOSIT S, THE SAME MAY BE TREATED AS DEPOS ITS MADE FOR THE PURPOSE OF BUSINESS. FURTHER, THE LD. DRP DIRECTED THE LD. AO TO VERIFY THE EVIDENCES AGGREGATING TO RS.3,81,75,397/ - WHETHER THE SAME ARE FOR PURCHASE OF RAW MATERIAL AND DIRECTED THE LD. AO TO DELETE THE DISALLOWANCE TO THE EXTENT OF EVI DENCES FILED BY THE ASSESSEE IN THIS REGARD. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 31 6 .4. PURSUANT TO THE DIRECTIONS OF THE LD. DRP, THE ASSESSEE SUBMITTED THE FOLLOWING DETAILS WITH THE LD. AO BEFORE PASSING OF THE FINAL ASSESSMENT ORDER : - ( A ) PARTYWISE DETAILS OF NET LOANS AND ADVANCES TOGETHER WITH THE ADDRESS OF PARTIES AND NATURE OF SUCH ADVANCES. ( B ) LEDGER ACCOUNT FOR THESE ALL FOUR VENDORS ON SAMPLE BASIS AMOUNTING TO RS. 1,91,88,845/ - TO JUSTIFY THE FAC T OF TRADE ADVANCE FOR PURCHASE OF RAW MATERIALS. ( C ) TO ESTABLISH THE MANDATORY DE POSITS OF RS.70,31,18,515/ - , THE ASSESSEE SUBMITTED PROOF OF MANDATORY DEPOSITS VIDE ITS SUBMISSION DATED 22/01/2016. THE LD. AO WAS NOT CONVINCED BY THE DETAILS FILED BY THE ASSESSEE AND PROCEEDED TO DISALLOW THE ENTIRE INTEREST OF RS.3,80,21,068/ - FOR WANT OF SUPPORTING DOCUMENTS. 6 .5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6 .6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSEE HAD SUBMITTED THE ADDITIONAL EVIDENCE BEFORE US VIDE LETTER DATED 07/02/2020 GIVING A STATEMENT GIVING THE DETAILS OF MOVEMENT OF VENDOR ADVANCE EXCEEDING RS.5,00,000/ - AGGREGATING TO RS.3,23,18,547/ - OUT OF THE TOTAL TRADE ADVANCE OF RS.3,81,75,397/ - DURING THE YEAR UNDER CONSIDERATION AND SETTLEMENT OF THE SAME IN SUB SEQUENT PERIOD. THESE ADDITIONAL EVIDENCES REQUIRE FACTUAL EXAMINATION BY THE LD. AO AND WE DEEM IT FIT AND APPROPRIATE IN THE ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 32 INTEREST OF JUSTICE AND FOUR PLAY TO REMAND THIS ASPECT OF THE ISSUE TO THE FILE OF THE LD. AO THAT IS FOR THE PURPOSE OF VERIFIC ATION OF TRADE ADVANCE PORTION AFRESH IN ACCORDANCE WITH LAW. WE FIND FROM THE PERUSAL OF THE FINAL ASSESSMENT ORDER PASSED BY THE LD. AO PURSUANT TO DIRECTIONS OF THE LD. DRP, THAT VIDE LETTER DATED 22/01/2016 BEFORE THE LD. AO HAD SUBMITTED SOME COPIES O F EXCISE RETURN S WHICH HAS BEEN MENTIONED BY THE LD. AO IN HIS ORDER. WE FIND THAT THE ASSESSEE HAD PLEADED THAT IT HAS MADE MANDATORY DEPOSITS WITH EXCISE DEPARTMENT, ELECTRICITY DEPARTMENT, RENT ADVANCE FOR HOUSING ETC., THESE DEPOSITS ARE TO BE MADE IN THE COURSE OF RUNNING OF THE BUSINESS OF THE ASSESSEE COMPANY. CONSIDERING THE HUGE VOLUME OF TRANSACTIONS BY THE ASSESSEE COMPANY AND CONSIDERING THE HUGE VOLUME OF MANDATORY DEPOSITS GIVEN BY THE ASSESSEE AS CLAIMED BY THE ASSESSEE, WE DEEM IT FIT AND AP PROPRIATE IN THE INTEREST OF JUSTICE AND FAIR PLAY TO REMAND THIS ISSUE ALSO TO THE FILE OF THE LD. AO FOR GIVING A PROPER FINDING WITH REGARD TO NATURE OF EACH DEPOSITS AFTER DUE VERIFICATION OF THE EVIDENCES SUBMITTED BY THE ASSESSEE IN THAT REGARD. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE ENTIRE LIST OF MANDATORY DEPOSITS (AS CLAIMED BY IT BEFORE THE LD. AO) AFRESH TOGETHER WITH SUPPORTING EVIDENCES THEREON TO JUSTIFY ITS CONTENTIONS. THE LD. AO IS DIRECTED TO GIVE A FACTUAL FINDING IN THIS REGARD. 6 .7. WITH REGARD TO ALTERNATIVE ARGUMENT MADE BY THE LD. AR THAT ASSESSEE HAVING SUFFICIENT OWN FUNDS FOR THE PURPOSE OF MAKING THESE ADVANCES, WE FIND THAT THIS ISSUE IS ALREADY DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK REP ORTED IN 366 ITR 505 AND ACCORDINGLY WE DIRECT THE LD. AO TO VERIFY THE AVAILABILITY OF THE OWN FUNDS WITH THE ASSESSEE. IF THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS, THEN THERE CANNOT BE ANY DISALLOWANCE OF INTEREST ON BORROWED FUNDS , IN ANY CASE . ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 33 6 .8. THE LD. AO IS DIRECTED TO GIVE FINDINGS ON ALL THE AFORESAID ASPECTS BEFORE PROCEEDING TO MAKE ANY DISALLOWANCE OF INTEREST ON BORROWED FUNDS. THE GROUND NO.15 - 17 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES OF DEPOSITS IN THE AFORESAID MANNER. 7 . THE GROUND NO.18 RAISED BY THE ASSESSEE IS WITH REGARD TO UPHOLDING THE DISALLOWANCE OF DEPRECIATION OF RS.2,67,84,398/ - ON ADDITIONS MADE TO FIXED ASSETS. 7 .1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE ADDITION OF RS.14,40,89,459/ - TO THE FIXED ASSETS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED COPY OF AUDIT ED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ALONGWITH ITS SCHEDULES AND TAX AUDIT REPORT VIDE ITS SUBMISSION DATED 13/09/2012. THE ASSESSEE ALSO FURNISHED DETAILS OF FIXED ASSETS VIDE LETTER DATED 11/11/2014. FOR WANT OF REQUISITE DETAILS, THE. LD. AO DISALLOWED THE DEPRECIATION IN RESPECT OF SAID ADDITIONS TO THE FIXED ASSETS TOTALING TO RS.2,67,84,398/ - IN THE DRAFT ASSESSMENT ORDER. BEFORE THE L D. DRP , THE ASSESSEE SUBMITTED THAT BOOKS OF ACCOUNTS WERE AUDITED BY THE STATUTORY AUDITORS UNDER THE COMPANIES ACT AND BY TAX AUDITORS UNDER THE INCOME TAX ACT AND THE AUDITORS HAD NOT GIVEN ANY ADVERSE COMMENTS ON THE GENUINENESS OF ADDITIONS MADE TO FI XED ASSETS AND IT S FACT OF BEING PUT TO USE THEREON. THE ASSESSEE ALSO FILED ADDITIONAL EVIDENCES VIDE LETTER DATED 23/07/2015 BEFORE THE LD. DRP BY FURNISHING COPY OF INVOICES FOR ADDITIONS TO FIXED ASSETS ON SAMPLE BASIS. ACCORDINGLY, THE LD. DRP DIRECTE D THE LD. AO TO VERIFY THOSE ADDITIONAL EVIDENCES AND CONSIDER THE CLAIM OF DEPRECIATION O N ADDITIONS TO FIXED ASSETS SUBJECT TO VERIFICATION. THE ASSESSEE AGAIN SUBMITTED SAMPLE COPY OF INVOICES FOR THE ADDITIONS TO FIXED ASSETS BEFORE THE LD. AO VIDE LET TER DATED 12/01/2016. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 34 THE LD. AO OBSERVED THAT THE CLAIM OF THE ASSESSEE COULD NOT BE ALLOWED MERELY ON THE BASIS OF FURNISHING OF INVOICES AND AND CLAIM OF DEPRECIATION COULD NOT BE ALLOWED FOR WANT OF DETAILS OF EACH OF THOSE ASSETS BEING PUT TO USE , DAT E OF INSTALLATION, ACTUAL START OF PRODUCTION OF GOODS FROM THAT MACHINERY ETC., THE LD. AO OBSERVED THAT ASSESSEE WAS NOT ABLE TO FURNISH THE REQUISITE DETAILS AND ACCORDINGLY, UPHELD THE DISALLOWANCE MADE IN DRAFT ASSESSMENT ORDER TOWARDS DEPRECIATION O N ADDITION S TO FIXED ASSETS IN THE SUM OF RS.2,67,84,398/ - . 7 .2. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 7 .3. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND FROM THE PERUSAL OF THE PAPER BOOK THAT THE ASSESSEE HAD INDEED FURNISHED SAMPLE OF COPY OF INV OICES IN RESPECT OF ADDITIONS TO FIXED ASSETS AS UNDER: - BUILDING - RS.98,91,993/ - (SA MPLE INVOICES ENCLOSED PAGES 358 - 360, 415,418 OF THE PAPER BOOK) COMPUTER - RS.84,09,580/ - (SAMPLE INVOICES ENCLOSED IN PAGES NO.428,429,516, 517 OF THE PAPER BOOK) FURNITURE AND FIXTURES - RS.11,55,186/ - (SAMPLE INVOICES ENCLOSED IN PAGES 348 - 351 OF THE PAPER BOOK) OFFICE EQUIPMENT - RS.91,52,577/ - (SAMPLE INVOICES ENCLOSED IN PAGES 427 & 428 OF THE PAPER BOOK) PLANT AND MACHINERY - RS.11,54,80,123/ - (SAMPLE INVOICES ENCLOSED IN PAGES 361 - 414 AND 416 & 417 OF THE PAPER ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 35 BOOK) TOTAL ADDITION - 11,14,40,89,459 ============ 7 1.4. WE FIND THAT THE DETAILS OF ADDITION STO FIXED ASSETS HAD BEEN SUBMITTED AND SAMPLE COPIES OF INVOICES BEFORE THE LD. AO VIDE LETTER DATED 12/11/2015 AND 22/01/2016. WE FIND THAT THE LD. AR VEHEMENTLY ARGUED THAT DETAILS OF ASSETS BEING PUT TO USE FOR THE PURPOSE OF BUSINESS IS REFLECTED IN POINT NO.14 OF THE TAX AUDIT REPORT FILED BY TH E ASSESSEE AFTER DUE VERIFICATION AND CERTIFICATION OF THE TAX AUDITOR. HE ALSO DREW OUR ATTENTION TO THE RELEVANT EXTRACT OF THE SAID TAX AUDIT REPORT WHICH ARE ENCLOSED ALONGWITH FACT SHEET SUBMITTED BEFORE US. WE FIND THAT NO PROPER FINDING HAS BEEN GIV EN BY THE LD. AO WITH REGARD TO THESE DOCUMENTS CONTAINING THE DAY ON WHICH EACH OF THE ASSETS WERE ACTUALLY PUT TO USE. FROM THE DETAILS OF EACH OF THE ASSETS BEING PUT TO USE, WE FIND THAT INNUMERABLE ASSETS WERE PURCHASED DURING THE YEAR FROM VARIOUS PA RTIES. THE LD. AO SHOULD ALSO BE PRACTICAL IN UNDERSTANDING THE BUSINESS MODEL OF THE ASSESSEE AND WITHOUT THE EXISTENCE OF THESE INNUMERABLE ASSETS, THE ASSESSEE COULD NOT HAVE CONDUCTED ITS MANUFACTURING ACTIVITIES BY PRODUCING THE FINISHED GOODS AND GENE RATING SALES THEREON, WHICH HAS BEEN DULY OFFERED TO TAX. HENCE. WE DEEM IT FIT AND APPROPRIATE IN THE INTEREST OF JUSTICE AND FAIR PLAY TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD. AO FOR DENOVO VERIFICATION IN ACCORDANCE WITH LAW. THE ASSESSEE IS DIREC TED TO FURNISH THE DETAILS OF EACH OF THE ADDITIONS WHICH WERE BEING PUT TO USE AS CERTIFIED BY THE TAX AUDITOR (WHICH ARE FILED BEFORE US ALONGWITH THE FACT SHEET). THE LD. AO IS DIRECTED TO EXAMINE THE SAME IN ACCORDANCE WITH LAW AND GRANT DEPRECIATION O N ADDITION S TO FIXED ASSETS AS PER LAW. ACCORDINGLY, THE GROUND NO.18 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 36 8 . THE GROUND NO.19 RAISED BY THE ASSESSEE IS WITH REGARD TO THE ACTION OF THE LD. AO FOR NOT GRANTING OF SET OFF OF BROUGHT FORWARD UNABSORBED BUSINESS LOSSES OF A.Y.2008 - 09 AND 2009 - 10. 8 .1. WE HAVE HEARD THE RIVAL SUBMISSIONS. THIS MATTER REQUIRES FA CTUAL VERIFICATION FROM FINAL ASSESSMENT RECORDS OF THE RELEVANT ASSESSMENT YEAR. HENCE, WE DIRECT THE LD. AO TO VERIFY THE SA ME AND GRANT SET OFF OF LOSSES AS PER LAW. ACCORDINGLY, THE GROUND NO.19 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9 . THE GROUND NO.20 RAISED BY THE ASSESSEE IS WITH REGARD TO NON - GRANT OF CREDIT FOR TDS GRANTING TO RS.44,87,874/ - . THIS MATTER REQUIRES FACTUAL VERIFICATION WITH THE CORRESPONDING TDS CERTIFICATES OR ANY OTHER SUPPORTING DOCUMENTS THEREON BY THE LD. AO. ACCORDINGLY, WE DIRECT THE LD. AO TO GRANT CREDIT FOR TDS AFTER DUE VERIFICATION OF THE RELEVANT DOCUMENTS AS PER LAW. 1 0 . THE GROUND NO.21 RAISED BY THE ASSESSEE IS WITH REGARD TO CHARGING OF INTEREST U/S.234B OF THE ACT IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 1 1 . THE GROUND NO.22 RAISED BY THE ASSESSEE IS WITH REGARD TO INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT WHICH WOULD BE PREMATURE AT THIS STAGE TO BE ADJUDICATED. ITA NO.1786/MUM/2016 M/S. DOW CHEMICAL INTERNATIONAL PVT. LTD., 37 1 2 . IN THE RESULT, APPEAL OF ASSESSEE FOR A .Y.2011 - 12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 10 / 09 /2020 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( PAWAN SINGH ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 10 / 09 / 2020 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//