Yamaha Motor India Pvt. Ltd, New Delhi V. ACIT, New Delhi

ITA 1790/DEL/2010

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0144 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 22-06-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 19-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Principle of natural justice; International transaction

Judgement Text

DELHI BENCH I - 1 : NEW DELHI BEFORE SHRI J.S.REDDY, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 668/DEL/2010 (ASST. YEAR 2002 - 03) DCIT, CIRCLE - 18(1), ROOM NO.211A, C.R. BUILDING VS. YAMAHA MOTOR PVT. LTD, C - 582, LGF, DEFENCE COLONY, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 4882 /DEL/ 2009 (ASST. YEAR 2002 - 03 ) YAMAHA MOTOR INDIA PVT. LTD., AALIANZ HOUSE, II FLOOR, 273, CAPT. GAUR MARG, SRINIWAS PURI, NEW DELHI - 110065 VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 18(1) NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 1790/DEL/2010 (ASST. YEAR 2003 - 04) YAMAHA MOTOR INDIA PVT. LTD., AALIANZ HOUSE, II FLOOR, 273, CAPT. GAUR MARG, SRINIWAS PURI, NEW DELHI - 110065 VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 18(1) NEW DELHI (APPELLANT) (RESPONDENT) DATE OF HEARING 22 . 06 .2015 DATE OF PRONOUNCEMENT 30. 06 .2015 O R D E R PER A. T. VARKEY, JUDICIAL MEMBER TH ESE ARE THE CROSS APPEAL S FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - XX, NEW DELHI DATED 11.12.2009 FOR APPELLANT BY : SH. VED JAIN, ADV SH.ASHISH GOEL , CA RESPONDENT BY : SH. BHASKAR GOEL, SR. DR PAGE NO. 2 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 ASSESSMENT YEAR 2002 - 03 AND APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003 - 04 AGAINST THE ORDER DATED 30.03.2010 . 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITA NO. 668/DEL/2010 FOR THE ASSESSMENT YEAR 2002 - 03 READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN RESTRICTING THE ADJUSTMENT OF RS.1,32,22,520/ - TO RS.64,39,600/ - IN ALP IN RESPECT OF EXPORTS OF MOTORCYCLES MADE BY THE ASSESSEE COMPANY TO IT ASSOCIATED ENTERPRISES BY APPLYING THE GROSS PROFIT MARGIN ON AGGREGATE BASIS INSTEAD OF APPLYING THE PROFIT MARKUP WORKED OUT BY THE TPO ON THE BASIS OF INDIVIDUAL TRANSACTIONS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION AMOUNTIN G TO RS.1,13,69,946/ - ATTRIBUTABLE TO ASSETS WRITTEN OFF ESPECIALLY WHEN NO EVIDENCE WAS PRODUCED TO THE EFFECT THAT THE SAID ASSETS WERE ACTUALLY USED FOR THE PURPOSE OF BUSINESS DURING THE RELEVANT PERIOD. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.1,01,67,501/ - ATTRIBUTABLE TO ASSETS WRITTEN OFF DURING THE FINANCIAL YEARS 1999 - 00 AND 2000 - 01 IGNORING THE FACT THAT THE SAID ASSETS WERE NOT USED FOR THE PURPOSE OF BUSINESS DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER REFERENCE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.18,90,458/ - ON ACCOUNT SCHOLARSHIP GIVEN TO CHILDREN OF EM PLOYEES OF ASSESSEE COMPANY IGNORING THE FACT THAT THE SAID EXPENDITURE WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED DELETING THE DISALLOWANCE OF RS.3,40,46,541/ - CONSISTING OF RS.3,19,09,209/ - TOWARD ROYALTY PAYMENT AND RS.21,37,332/ - TOWARD FEE FOR TECHNICAL KNOW - HOW MADE BY THE AO ON ACCOUNT OF THE SAID EXPENSES PERTAINING TO FINANCIAL YEAR 2000 - 01 ESPECIALLY WHEN LIABILITY HAS CRYSTALLIZED AND DETERMINED IN FINA NCIAL YEAR 2000 - 01 RELEVANT TO ASSESSMENT YEAR 2001 - 02 ITSELF. THUS THE SAID LIABILITY WAS NOT ALLOWABLE FOR THE FINANCIAL YEAR 2001 - 02 RELEVANT TO ASSESSMENT YEAR 2002 - 03 UNDER REFERENCE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.3,40,46,541/ - IGNORING THE PROVISION OF SECTION 4 OF INCOME TAX ACT 1961 MANDATING THAT INCOME TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR IN RESPECT OF TOTAL INCOME OF THE PREVIOUS YEAR. PAGE NO. 3 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A)HAS A ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF ROYALTY AND FEE TECHNICAL KNOW - HOW AMOUNTING TO RS.3,40,46,541/ - PERTAINING TO FINANCIAL YEAR 2000 - 01 IGNORING THE FACT THAT LIABI LITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR AND THE SAME SHOULD HAVE BEEN CLAIMED/ALLOWED IN THE ACCOUNTING YEAR ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE AS HELD IN THE CASE OF BHARAT EARTH MOVERS VS. CIT,245 I TR 428 (SC) 3. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITA NO. 4882/DEL/2009 FOR ASSESSMENT YEAR 2002 - 03 READS AS UNDER: - I . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE FOLLOWING ADJUSTMENTS IN THE ARM'S LENGTH PRICE FOR INTERNATIONAL TRANSACTIONS CARRIED OUT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISES: - I. ADJUSTMENT IN ARM'S LENGTH PRICE AMOUNTING TO RS.1,89,38,516/ - FOR SPARE PARTS IMPORTED BY THE APPELLANT; II. ADJUSTMENT IN A RM'S LENGTH PRICE AMOUNTING TO RS.1,33,10,887/ - FOR SPARE PARTS EXPORTED BY THE APPELLANT; AND III. ADJUSTMENT IN ARM'S LENGTH PRICE AMOUNTING TO RS.64,39,600/ - FOR MOTORCYCLES EXPORTED BY THE APPELLANT. II. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO FACTS, LAW AND THE PRINCIPLES OF NATURAL JUSTICE. III. EACH GROUND OF APPEAL IS INDEPENDENT OF THE OTHER GROUND. IV. THE APPELLANT RESERVES ITS RIGHT TO ADD, DELETE, AMEND AND/OR SUBSTITUTE ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 4. THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO. 1790/DEL/2010 FOR ASSESSMENT YEAR 2003 - 04 READS AS UNDER: - I. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE FOLLOWING DISALLOWANCES MADE BY THE LEARNED ASSESSING OFFICER: - I. ADJUSTMENT IN ARM'S LENGTH PRICE AMOUNTING TO RS.3,73,70,533/ - FOR SPARE PARTS IMPORTED BY THE APPELLANT; II. ADJUSTMENT IN ARM'S LENGTH PRICE AMOUNTING TO RS. 2,07,62,701/ - FOR SPARE PARTS EXPORTED BY THE APPELLANT; III. DISALLOWANCE OF SCHOLARSHIP FEE AMOUNTING TO RS.13,52,650/ - GIVEN BY THE APPELLANT TO THE CHILDREN OF ITS EMPLOYEES; AND PAGE NO. 4 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 IV. DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.8.167/ - CLAIMED BY THE APPELLANT ON AMOUNT CAPITALIZED IN RESPECT OF UNREALIZED FOREIGN EXCHANGE FLUCTUATION LOSS. II. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS) IS CONTRARY TO FACTS, LAW AND THE PRINCIPLES OF NATURAL JUSTICE. III. EACH GROUND OF A PPEAL IS INDEPENDENT OF THE OTHER GROUND. 5 . FACTS OF THE CASE IS THAT YAMAHA INDIA PRIVATE LIMITED IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT,1956. THE COMPANY WAS INCORPORATED IN NOVEMBER 1935. INITIALLY, THE COMPANY WAS PROMOTED BY ESCORTS LIMITED AND YAMAHA MOTOR CO. LTD., JAPAN AS A JOINT VENTURE COMPANY IN THE NAME OF ESCORTS YAMAHA MOTOR LIMI TED'. BOTH YAMAHA MOTOR CO. LTD., JAPAN AND ESCORTS LIMITED SUBSCRIBED 50% OF THE ISSUED SHARE CAPITAL OF THE COMPANY. SUBSEQUE NTLY, IN JUNE 2001 ESCORTS LIMITED EXITED FROM THE JOINT VENTURE COMPANY, WHEN YAMAHA MOTOR CO., LTD., JAPAN ACQUIRED HUNDRED PERCENT SHARE CAPITAL OF THE COMPANY THROUGH ACQUISITION OF SHARES FROM ESCORTS LIMITED. AFTER THE ACQUISITION OF HUNDRED PERCENT STAKE IN THE SHARE CAPITAL OF THE COMPANY BY YAMAHA MOTOR CO., LTD., JAPAN, THE NAME OF THE COMPANY WAS CHANGED TO YAMAHA MOTOR INDIA PRIVATE LIMITED'. THE COMPANY HAS NOW BEEN IN OPERATION FOR THE LAST SEVEN YEARS AND HAS EMERGED AS ONE OF THE LEADING MA NUFACTURERS AND EXPORTERS OF BI WHEELERS IN THE COUNTRY. FOR THE YEAR ENDED DECEMBER 31, 2001 THE TOTAL REVENUE OF THE COMPANY WERE RS.806.98 CRORES INCLUDING EXPORTS OF RS. 54.32 CRORES. DURING THE FINANCIAL YEAR ENDED MARCH 31, 2002, THE COMPANY ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH RELATED PARTIES. MAJORITY OF THESE INTERNATIONAL TRANSACTIONS WERE CARRIED OUT ON THE BASIS OF AGREEMENTS ENTERED INTO WITH THE PARENT COMPANY I.E. YAMAHA MOTOR CO., LTD., JAPAN, AT THE TIME WHEN ESCORTS LIMIT ED WAS ONE OF THE JOINT VENTURE PARTNERS. THE TERMS AND CONDITIONS OF THESE AGREEMENTS WERE AGREED BETWEEN YAMAHA MOTOR CO., LTD., D ESCORTS LIMITED AFTER DETAILED NEGOTIATIONS. PAGE NO. 5 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 6. IN RESPECT TO GROUND 1 OF THE REVENUE AND GROUND NO.1.3 RELATES TO RELIEF GIVEN BY THE LD CIT(A) IN RESPECT OF ADJUSTMENT IN ARMS LENGTH PRICE ON ACCOUNT OF EXPORT OF MOTOR CYCLE. THE REVENUE HAS PREFERRED AN APPEAL BECAUSE THE LD CIT(A) HAS RESTRICTED THE ADJUSTMENT OF RS.1,32,22,520/ - TO RS.64,39,600/ - IN ARMS LENGTH PRICE IN RESPECT OF EXPORTS OF MOTORCYCLE MADE BY THE ASSESSEE COMPANY TO ITS ASSOCIATED ENTERPRISES BY APPLYING THE GROSS PROFIT MARGIN ON AGGREGATE BASIS INSTEAD OF APPLYING THE PROFIT MARKUP WORKED OUT BY THE TPO ON THE BASIS OF INDIVIDUAL TRANSACTION. WHEREAS THE ASSESSEE IS AGGRIEVED AGAINST THE PARTIAL RELIEF GIVEN BY THE LD CIT(A). THE LD AR SUBMITS THAT THE ASSESSEE HAS COME BEFORE THIS TRIBUNAL AGAINST THE ADDITION CONFIRMED BY THE LD CIT(A) IN RESPECT OF ADJUSTMENT IN ARMS LENGTH PRICE GIVEN PARTIAL RELI EF TO THE ASSESSEE. HE TOOK OUR ATTENTION TO THE ORDER OF THE TPO PLACED AT PG. 340 TO 360. GROUND NO.2 AND 3 OF THE REVENUES APPEAL DEALS WITH DISALLOWANCE OF DEPRECIATION RS.1,13,69,946 / - AND - RS.1,01,67,501 / - AT THE OUTSET ITSELF THE LD AR POINTED OUT TO US THAT THIS ISSUE IS SQUARELY COVERED IN ASSESSEES FAVOUR BY THE ORDER OF COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.1986 AND 1987 - DEL - 2005 DATED 23.05.2008. THE ABOVE ORDER HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT AND SLP FILED HAS BEEN DISMISSED BY APEX COURT AND TOOK OUR ATTENTION TO PB PG 446. GROUND NO. 4 RELATES TO SCHOLARSHIP GIVEN TO CHILDREN OF EMPLOYEES OF RS.18,19.458/ - . HE POINTED OUT TO US THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF TH E ASSESSEE BY THE ITAT ORDER IN ITA NO. 3073/DEL/2004 DATED 10.10.2006 IN ASSESSEE'S OWN CASE. GROUND NO .5 & 6 ARE REGARDING DISALLOWANCE OF RS.3,40,46,541/ - REGARDING PRIOR PERIOD EXPENSES . THE ISSUE HAS BEEN DISCUSSED BY THE CIT(A) IN PARA 11.2 ON PAGE 3 0. ACCORDING TO THE LD AR THE ISSUE IS COVERED BY THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF NONSUCH ESTATE LTD. VS. CIT 98 PAGE NO. 6 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 ITR 189 AND TOOK OUR ATTENTION TO THE SAID ORDER WHERE IN IT HAS BEEN HELD AS UNDER: - '... IN THE INSTANT CASE IT IS ONLY WHEN THE CENTRAL GOVERNMENT CONVEYED ITS APPROVAL TO THE APPOINTMENT OF M/S HARRISONS AND CROSFIELD LIMITED AS MANAGING AGENTS BY ITS LETTER DATED SEPTEMBER 2, 1957 THAT THE APPOINTMENT BECAME EFFECTIVE AND THE COMPANY'S LIABILITY TO PAY THE REMUNERATION OF TH E MANAGING AGENTS ACCRUED. THE POSITION HERE IS NOT THAT THE LIABILITY HAD ARISEN EARLIER AND ITS QUANTIFICATION ONLY DEPENDED ON THE APPROVAL OF THE CENTRAL GOVERNMENT. IT IS TRUE THAT THE LIABILITY BECAME EFFECTIVE FROM APRIL 1, 1956, A DATE ANTERIOR TO THE RELEVANT PREVIOUS YEAR, BUT THAT IS BECAUSE THE CENTRAL GOVERNMENT CHOSE TO GIVE ITS APPROVAL RETROSPECTIVE OPERATION. THE LIABILITY IN THESE CIRCUMSTANCES CANNOT BE SAID TO HAVE ARISEN FROM ANY DATE PRIOR TO SEPTEMBER 2, 1957 WHEN THE APPROVAL WAS GIV EN AS SECTION 326 CONTAINS AN ABSOLUTE PROHIBITION AGAINST THE APPOINTMENT OR RE - APPOINTMENT OF A MANAGING AGENT BEFORE THE APPROVAL OF THE CENTRAL GOVERNMENT WAS OBTAINED. IN OUR OPINION, THE POSITION IS QUITE CLEAR FROM THE TERMS OF SECTION 326 AND WE DO NOT CONSIDER IT NECESSARY TO REFER TO THE AUTHORITIES CITED BY THE LEARNED COUNSEL FOR EITHER SIDE....' NOW COMING TO ITANO. 1790/DEL - 2010 FOR THE ASSESSMENT YEAR 2003 - 04. GROUND NO. 1(I) IS IN RESPECT TO ADJUSTMENT IN ARM'S LENGTH PRICE OF RS.3.73,70.533/ - . THE LD AR POINTED OUT THAT THIS ISSUE IS THE SAME AS IN THE PRECEDING YEAR. ACCORDING TO HIM THE TPO HAS APPLIED GROSS PROFIT MARGIN OF 14.17% ON IMPORT OF SPARE PARTS BY THE ASSESSEE COMPANY FROM ITS ASSOCIATED ENTERPRISES (AE) I.E. YAMAHA MOTOR CO. LTD., JAPAN (YMC, JAPAN) ON THE GROUND THAT THE YMC, JAPAN HAS ALSO MADE SALES TO UNRELATED PARTIES I. E. NORTH EAST TRADING CO. AS AGAINST 24.17% CHARGED ON THE ASSESSEE COMPANY. ACCORDING TO HIM THE CONTENTION OF THE ASSESSEE IN THIS REGARD HAS BEEN TOTALLY REJECTED ARBITRARILY. THE LD AR CONTENDED THAT THE ADDITION IS UNJUSTIFIED ON ACCOUNT OF THE FOLLOW ING REASONS: - I ) RATIO OF THE CKD WHICH IN THE CASE OF SALE BY YMC, JAPAN TO NORKIS, PHILIPPINES WAS 90% AS AGAINST 10% IN THE CASE OF ASSESSEE PAGE NO. 7 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 COMPANY. THIS AFFECTS THE PROFIT PER UNIT AS STATED HEREINABOVE IN THE EXAMPLE. II) VOLUME DISCOUNT HAS NOT BEEN CONSIDERED AS SALES TO NORKIS TRADING CO. WAS 7 TIMES THAN THE SALE TO ASSESSEE COMPANY. III) SALES BY YMC, JAPAN TO NORKIS TRADING CO., PHILIPPINES IS TRADING SALE, NOT MANUFACTURING SALE WHICH DOES NOT REQUIRE DEPUTATION OF ITS PERSON NEL AS AGAINST THE ASSESSEE COMPANY WHICH IS A MANUFACTURING COMPANY REQUIRING DEPUTATION OF PERSONNEL FROM YMC, JAPAN FOR WHICH YMC, JAPAN HAS TO INCUR SUBSTANTIAL EXPENDITURE. IV) IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE, THE MARGIN CHARGED BY THE YMC, JAPAN OF 21.4% IS MUCH LESS AS COMPARED TO THE MARGIN CHARGED BY THE ASSESSEE COMPANY ON EXPORT OF SPARE PARTS AT 53.18% IN RESPECT OF TRANSACTION WITH UNRELATED PARTIES. V) THE FACT THAT ASSESSEE COMPANY IS A LOSS MAKING COMPANY IT DOE S NOT BENEFIT IN CASE IT OVER PAYS BEYOND THE ARM'S LENGTH PRICE TO ITS AE I.E. YMC, JAPAN. THE LD AR SUBMITTED THAT THE FACT THAT MARGIN DECLINED WITH THE INCREASE IN CKD PARTS GETS ESTABLISHED FROM THE TPO ORDER ITSELF WHEREBY HE HAS APPLIED A MARGIN OF 8% IN RESPECT OF MOTOR CYCLES AS AGAINST MUCH HIGHER MARGIN RANGING BETWEEN 30% TO 50% IN RESPECT OF SPARE PARTS. MOTOR CYCLE BEING A COMPLETE PRODUCT, IT IS A HUNDRED PER CENT COMPLETE PRODUCT AND IF THE SAME IS SPLIT INTO CKD THE MARGIN WILL INCREASE AND THE MARGIN WILL FURTHER INCREASE IF THE CKD GOES ON GETTING REDUCED. GROUND NO.1(II) IS REGARDING ADJUSTMENT OF RS.2,07,62 ,701/ - FOR EXPORT OF SPARE PARTS ACCORDING TO THE LD AR THIS ADJUSTMENT HAS BEEN PROPOSED BY THE TPO ON ACCOUNT OF EXPORTS TO IRAN. IN THIS REGARD IT MAY BE RELEVANT TO REFER TO PAPER BOOK PAGE 20 OF THE TP STUDY. THE ASSESSEE HAS EXPORTED 3150 UNITS OF MOTOR CYCLES TO IRAN. THESE MOTOR CYCLES WERE EXPORTED IN CKD F ORM DUE TO CUSTOM DUTY IMPLICATIONS IN IRAN. EACH UNIT WAS EXPORTED AT A PRICE OF USD PAGE NO. 8 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 733.40. THE COST OF THIS MODEL IS RS.31,730/ - . THE SALE VALUE WAS RS.11,03,27,692/ - AND THE COST WAS RS.9,99,49,500. THUS THERE WAS A PROFIT MARGIN OF 9.41%. THIS MARGIN WAS BETTER THAN THE EXPORT OF SIMILAR MOTOR CYCLES TO UNRELATED PARTIES IN BANGLADESH AND SRI LANKA WHERE THE MARGIN WAS 8.67%. ACCORDING TO THE LD AR THE TPO IGNORING THE ABOVE FACTS HAS APPLIED THE GROSS PROFIT MARGIN OF 30% IN RESPECT OF SPARE PARTS. THE ONLY BASIS GIVEN BY THE TPO IS THAT THE ASSESSEE HAVING DECLARED THE SALE AS CKD SPARE PARTS IT CANNOT APPLY THE MARGIN ON SALE OF MOTOR CYCLES. THIS HAS BEEN CONFIRMED BY THE CIT(A) ON THE SAME REASONING. THE ACTION OF THE TPO AND CIT(A) IS AGAINST TH E FACTS. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS EXPORTED 3150 UNITS OF MOTOR CYCLES TO IRAN AND THE MARGIN EARNED BY IT IS 9.41% WHICH IS BETTER THAN THE MARGIN ON EXPORT TO BANGLADESH AND SRI LANKA. MERELY BECAUSE IN THE DOCUMENTS , INSTEAD OF SAYING A COMPLETE M OTOR CYCLE , THE SAME HAS BEEN MENTIONED AS CKD , THAT WILL NOT CHANGE THE SUBSTANCE AND NATURE OF THE TRANSACTION. THE FACT REMAINS THAT IT WAS AN EXPORT OF MOTOR CYCLES AND THE MARGIN EARNED BY IT FROM SALE TO RELATED PARTIES IS BETTER THAN THE MARGIN IT HAS EARNED ON THE SAME PRODUCT SOLD TO UNRELATED PARTIES. THUS THE ADJUSTMENT MADE BY THE TPO IS FACTUALLY INCORRECT AND NEEDS TO BE DELETED. GROUND NO.1(III) IS REGARDING SCHOLARSHIP TO CHILDREN OF THE EMPLOYEES OF RS.13,52,65 0/ - . THE LD AR POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSEE'S OWN CASE IN ITA NO. 3073/D/2004 DATED 10 - 10 - 2006 (PB PG 270). GROUND NO.1(IV) - DISALLOWANCE OF DEPRECIATION - RS.8,167/ - - NOT PRESSED. ITA NO. 4882/DEL - 2009 (ASSESSMENT YEAR 2002 - 03 THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ADDITION CONFIRMED BY THE CIT(A) IN RESPECT OF ADJUSTMENT TO ARM'S LENGTH PRICE AS UNDER - PAGE NO. 9 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 S. NO. PARTICULARS AMOUNT - RS. 1. IMPORT OF SPARE PARTS FROM ASSOCIATED ENTERPRISES 1,89,38,516 2. EXPORT OF SPARE PARTS TO ASSOCIATED ENTERPRISES 1,33,10,887 3. EXPORT OF MOTOR CYCLES TO ASSOCIATED ENTERPRISES 64,39,600 1.0 ADDITION ON ACCOUNT OF IMPORT OF SPARE PARTS - RS.1,89,38,516 ACCORDING TO THE LD AR THE TPO HAS MADE THIS ADJUSTMENT ON THE GROUND THAT THE MARGIN CHARGED BY THE ASSOCIATED ENTERPRISE (AE) I.E. YAMAHA MOTOR CO. LTD., JAPAN ON SALES OF SPARE PARTS IS 21.4% AS AGAINST 16.32% MARGIN CHARGED IN RESPECT OF SPARE PARTS SOLD BY THE YAMAHA MOTOR CO. LTD., JAPAN (YMC, JAPAN) TO UNRELATED PARTY I.E. NORKIS TRADING CO., PHILIPPINES. ON THIS BASIS HE COMPUTED THE ARM'S LENGTH PRICE AT RS.20,19,83,738/ - IN RESPECT OF IMPORT OF SPARE PARTS AS AGAINST RS.22,09,22,254 / - ACTUALLY CHARGED BY THE YMC, JAPAN FROM THE ASSESSEE COMPANY. THE DIFFERENCE AMOUNT OF RS.1,89,38,156/ - HAS BEEN ADDED AS ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE. THE LD AR POINTED OUT THAT THE CIT(A) HAS CONFIRMED THE SAME IN PARA 6.7 ON PAGE 8 OF ITS ORDER. ACCORDING TO HIM THE CONTENTION OF THE ASSESSEE HAS BEEN REJECTED ARBITRARILY BY THE LD CIT(A) . THE ASSESSEE HAS SUBMITTED THE EXPLANATION RECEIVED BY IT FROM YMC, JAPAN TO JUSTIFY THE DIFFERENCE IN THE MARGIN. IT WAS SUBMITTED THAT MARGIN IN THE CASE OF CKD (COMPLETELY KNOCKED DOWN) PART IS MUCH LESS AS COMPARED TO INDEPENDENTLY SALE OF SPARE PARTS. THE YMC, JAPAN IS MAKING SALE TO NORKIS, PHILIPPINES WHEREBY THE RATIO OF CKD IS MORE THAN 90% AS AGAINST RATIO OF CKD IN THE CASE OF ASSESSEE COMPANY BEING 10%. MARGIN IS LESS BECAUSE THE AMOUNT OF MARGIN PER UNIT IN CKD WILL BE MORE THAN AS COMPARED TO MARGIN PER UNIT IN THE CASE OF ASSESSEE COMPANY AS EXPLAINED BY THE FOLLOWING EXAMPLE GIVEN IN THE SYNOPSIS : ASSUMPTIONS: AMOUNT OF TOTAL COM PONENTS PARTS; JPY 100,000. RATIO OF CKD: YML10% / NTC 90% PROFIT MARGIN: FOR YML 21,4% / FOR NTC 14.03% PROFIT MARGIN FOR 1 UNIT: YML: JPY 100,000*W%*21.4% = JPY 2,140 PAGE NO. 10 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 NTC: JPY 100,000*90%*14.03%= JPY 12,627 JPY 12,627/JPY 2,140 = 5 ACCORDING TO THE LD AR, FOR GETTING SAME AMOUNT OF PROFIT MARGIN PER 1 UNIT AS FOR NTC, YMC HAVE TO SELL 5 TIMES TO YML. IT WAS FURTHER SUBMITTED THAT THE SALES MADE TO NORKIS, PHILIPPINES WAS 7 TIMES THAN THE SALES MADE TO ASSESSEE COMPANY AND HENCE THERE WAS A VOLUME DISCOUNT. ON THE BASIS OF THIS IT WAS SUBMITTED THAT EVEN IF A VOLUME DISCOUNT OF 2.3% IS TAKEN INTO CONSIDERATION, THE DIFFERENCE BETWEEN THE MARGINS CHARGED BY YMC, JAPAN TO NORKIS, PHILIPPINES AND THE ASSESSEE COMPANY WILL BE WITHIN THE RA NGE OF 5% ( ). 1.4 THE TPO HAS REJECTED THIS IN PARA 4.5 (PAPER BOOK PAGE 348) BY GIVING FOLLOWING REASONS: - I) ASSESSEE COMPANY IS POSTING HUGE LOSSES IN ITS BOOKS DURING THE CURRENT YEAR AND EARLIER YEARS AND UNDER THESE CIRCUMSTANCES CHARGING OF HIGHER MARGIN BY YMC, JAPAN FROM ASSESSEE COMPANY AS COMPARED TO THE MARGIN CHARGED FROM UNRELATED ENTERPRISES I.E. NORKIS, PHILIPPINES IS NOT JUSTIFIED AND CANNOT BE SAID TO BE AN ARM'S LENGTH PRICE. 1.5 THIS REASONING OF THE TPO IN FACT GOES IN FAVOU R OF THE ASSESSEE COMPANY THAT YMC, JAPAN HAS KEPT MARGIN AT AN ARM'S LENGTH DESPITE ITS AE I.E. ASSESSEE COMPANY INCURRING HUGE LOSSES. HAD THE INTENTION BEING TO DO A TAX PLANNING, IT WOULD HAVE CHARGED A LESSER AMOUNT SO AS TO AVOID HUGE LOSSES IN INDIA AND AT THE SAME TIME PAY LESSER TAX IN JAPAN. THIS FACT OF HUGE LOSSES ITSELF CONFIRMS THAT THERE IS NO OVERCHARGING OF THE PRICES BY THE YMC, JAPAN TO ASSESSEE COMPANY. 1.6 THE OTHER REASONING GIVEN BY THE TPO TO REJECT THE CONTENTION OF THE ASSESSEE COMPANY ABOUT THE VOLUME DISCOUNT IN PARA 4.3 READS AS UNDER - 'THE DIFFERENCE IN THE VOLUMES IS NOT VERY SIGNIFICANT.' PAGE NO. 11 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 THIS IS FACTUALLY INCORRECT AS IS EVIDENT FROM THE FACT THAT THE SALE TO NORKINS, PHILIPPINES BY YMC, JAPAN WAS JPY 378,80,40,612 AS AGAINST SALE TO ASSESSEE COMPANY OF JPY 52,74,68,316. THE DIFFERENCE IN THE TURNOVER IS 7 TIMES WHICH IS QUITE SIGNIFICANT AND THE TPO'S OBSERVATION THAT IT IS NOT SIGNIFICANT IS INCORRECT. 1.7 FURTHER NORKIS, PHILIPPINES IS NOT A MANUFACTURING UNIT BUT I T WAS A TRADING COMPANY AND YMC, JAPAN IS NOT REQUIRED TO SUPPORT THE SALE OF SPARE PARTS AS HAS BEEN DONE IN THE CASE OF THE ASSESSEE COMPANY. BY CHARGING MARGIN OF 21.4% THE YMC, JAPAN IS ALSO INCURRING SUBSTANTIAL COST TOWARDS DEPUTATION OF ITS PERSONNE L TO ASSESSEE COMPANY. THAT COST IS TO BE TAKEN INTO ACCOUNT WHILE COMPARING THE MARGIN WITH NORKIS TRADING CO., PHILIPPINES AS SIMILAR FACILITY IS NOT PROVIDED BY YMC, JAPAN TO NORKIS TRADING CO. 1.8 FURTHER THE ASSESSEE COMPANY HAS SUBMITTED THAT IT HAS BEEN EXPORTING SPARE PARTS TO UNRELATED PARTIES AND WHEREBY IT HAS EARNED A MARGIN OF 53.18%. THUS THE MARGIN CHARGED BY YMC, JAPAN OF 21.4% IS MUCH LESS THAN THE MARGIN CHARGED BY THE ASSESSEE COMPANY ON SALE OF SPARE PARTS. 1.9 ALL THE ABOVE ISSUES HAVE BEEN TOTALLY IGNORED. IT WAS SUBMITTED BEFORE THE TPO THAT A VOLUME DISCOUNT OF 2.37% WILL BRING THE MARGIN WITHIN 5% () RANGE AND NO ADJUSTMENT IN THIS ACCOUNT IS TO BE MADE. 1.10 IN VIEW OF THE ABOVE, THE CIT(A) WAS NOT CORRECT IN CONFIRMING ADJUSTM ENT IN ARM'S LENGTH PRICE ON IMPORT OF SPARE PARTS IGNORING THE FOLLOWING FACTORS: - I) RATIO OF THE CKD WHICH IN THE CASE OF SALE BY YMC, JAPAN TO NORKIS, PHILIPPINES WAS 90% AS AGAINST 10% IN THE CASE OF ASSESSEE COMPANY. THIS AFFECTS THE PROFIT P ER UNIT AS STATED HEREINABOVE IN THE EXAMPLE. II) VOLUME DISCOUNT HAS NOT BEEN CONSIDERED AS SALES TO NORKIS TRADING CO. WAS 7 TIMES THAN THE SALE TO ASSESSEE COMPANY. III) SALES BY YMC, JAPAN TO NORKIS TRADING CO., PHILIPPINES IS TRADING SALE, NOT MANUFACTURING SALE WHICH DOES NOT REQUIRE DEPUTATION OF ITS PERSONNEL AS AGAINST THE ASSESSEE COMPANY WHICH IS A PAGE NO. 12 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 MANUFACTURING COMPANY REQUIRING DEPUTATION OF PERSONNEL FROM YMC, JAPAN FOR WHICH YMC, JAPAN HAS TO INCUR SUBSTANTIAL EXPENDITURE. IV) IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE, THE MARGIN CHARGED BY THE YMC, JAPAN OF 21.4% IS MUCH LESS AS COMPARED TO THE MARGIN CHARGED BY THE ASSESSEE COMPANY ON EXPORT OF SPARE PARTS AT 53.18% IN RESPECT OF TRANSACTION WITH UNRELATED PARTIES . V) THE FACT THAT ASSESSEE COMPANY IS A LOSS MAKING COMPANY IT DOES NOT BENEFIT IN CASE IT OVER PAYS BEYOND THE ARM'S LENGTH PRICE TO ITS AE I.E. YMC, JAPAN. THE FACT THAT MARGIN DECLINED WITH THE INCREASE IN CKD PARTS GETS ESTABLISHED FROM THE TPO ORDER ITSELF WHEREBY HE HAS APPLIED A MARGIN OF 8% IN RESPECT OF MOTOR CYCLES AS AGAINST MUCH HIGHER MARGIN RANGING BETWEEN 30% TO 50% IN RESPECT OF SPARE PARTS. MOTOR CYCLE BEING A COMPLETE PRODUCT, IT IS A HUNDRED PER CENT COMPLETE PRODUCT AND IF THE SAM E IS SPLIT INTO CKD THE MARGIN WILL INCREASE AND THE MARGIN WILL FURTHER INCREASE IF THE CKD GOES ON GETTING REDUCED. 2.0 EXPORT OF SPARE PARTS - RS.1,33,10,887/ - 2.1 THIS COMPRISES THREE PARTS - (A) EXPORT OR SPARE PARTS TO AES AT RS.2,23.16.7877 - : THIS ISSUE HAS BEEN DISCUSSED BY THE TPO IN PARA 5 ON PAPER BOOK PAGE 3497 HE HAS COMPUTED THE ARM'S LENGTH PRICE OF THIS EXPORT OF SPARE PARTS TO AES AT RS.2,58,48,4507 - . AS PER THE TPO THE GROSS PROFIT MARGIN EARNED BY THE ASSESSEE IN R ESPECT OF UNRELATED PARTY IS 53.18% ON SALE WHICH TURNS OUT TO BE 114.65% ON COST AFTER ALLOWING BENEFIT OF THE MARKETING COST. THE ALLEGATION OF THE TPO IS THAT THE GROSS PROFIT MARGIN EARNED ON SALE OF SPARE PARTS BETWEEN AES IS 46.04% WHICH TURNS OUT TO BE 85.32% ON COST. THE DIFFERENCE ON ACCOUNT OF THIS HAS BEEN ADDED AS ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE. DURING THE COURSE OF THE HEARING BEFORE THE TPO THE ASSESSEE WAS ASKED TO SUBMIT THE MARGIN EARNED BY IT IN RESPECT OF SALE OF SPARE PARTS TO RELATED PARTIES AS WELL AS UNRELATED PARTIES. THE COMPLETE LIST WAS SUBMITTED WHICH IS PLACED AT PAPER BOOK PAGE 295 TO PAGE 323. THE TPO HAS QUOTED THIS IN PARA 5.1.1 ON PAGE 350. AS PER THIS LIST THE MARGIN VARIES FROM LOSS TO 98.85% IN THE CASE OF RE LATED PARTIES AND IN THE CASE OF UNRELATED PARTIES AGAINST THE MARGIN RANGE BETWEEN LOSS MARGINS TO PROFIT MARGIN OF 94.24%. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE VOLUME DISCOUNT IS ALSO AN IMPORTANT FACTOR WHILE MAKING SALES TO AES. THE TPO HA S ARBITRARILY REJECTED THESE EVIDENCES AND MADE THE ABOVE ADJUSTMENT WHICH HAS BEEN CONFIRMED BY THE CIT(A). IN THIS REGARD THE CONTENTION OF THE ASSESSEE HAS BEEN TOTALLY IGNORED THAT MARGIN VARIES FROM PRODUCT TO PRODUCT AND AGGREGATE MARGIN PAGE NO. 13 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 CANNOT BE A BASIS FOR MAKING THE ADJUSTMENT. THIS HAS BEEN DONE DESPITE THE TPO GIVING A CATEGORICAL FINDING IN PARA 5.1.1 WHICH READS AS UNDER - 'MARGIN APPEARS TO VARY DEPENDING THE TYPE OF COMPONENT AND NO OTHER FACTORS APPEARS TO BE RELEVANT.' THE ABOVE FINDING HAS BEEN GIVEN BY THE TPO ON REVIEW OF THE LIST OF EXPORT OF VARIOUS SPARE PARTS TO RELATED PARTIES AS WELL AS UNRELATED PARTIES SUBMITTED TO HIM. DESPITE GIVING THE ABOVE FINDING THE TPO HAS MADE THE ADJUSTMENT WHICH IS INCORRECT. SECONDLY, THE TPO HAS REJEC TED THE ARGUMENT OF VOLUME DISCOUNT WHICH PLAYS VERY IMPORTANT PART IN PRICING OF THE SPARE PARTS. (B) MISCELLANEOUS EXPORT OF SPARE PARTS: THE TPO HAS DISCUSSED THIS ISSUE IN PARA 4,5.2 WHEREBY HE HAS MADE AN ADJUSTMENT OF RS.42,60,776/ - . THE ASSESSEE COMPANY HAS EXPORTED THE MISCELLANEOUS PARTS TO AES AT A VALUE OF RS.47,71,351/ - ON A PROFIT MARGIN OF 13.87%. THE TPO HAS APPLIED A GROSS PROFIT MARGIN OF 114.65% ON COST BEING THE SAME MARGIN AS APPLIED FOR EXPORT OF NORMAL SPARE PARTS. ON THIS BASIS, HE HAS COMPUTED THE ARM'S LENGTH PRICE ON THE MISCELLANEOUS EXPORT OF SPARE PARTS AT RS.90,32,127/ - AND MADE AN ADJUSTMENT OF RS.42,60,776/ - . THE TPO HAS ARBITRARILY REJECTED THE CONTENTION THAT THESE ARE THE MISCELLANEOUS ITEMS LYING WITH THE ASSESSEE WHICH HAS BEEN SOLD TO YMC, JAPAN AND STILL ASSESSEE HAS BEEN ABLE TO MAKE A PROFIT MARGIN OF 13.87%. THESE ARE NOT THE SALE IN THE NORMAL COURSE BUT SALES WERE OF MISCELLANEOUS ITEMS FOR WHICH THERE WAS NO DEMAND FOR THESE ITEMS IN INDIA. COMPLETE DETAILS OF T HE SAME WERE GIVEN IN THE TP REPORT AS ANNEXURE E. THE TPO HAS MADE A MENTION THAT - 'IT IS DIFFICULT TO APPRECIATE ANY JUSTIFICATION FOR EXPORTING THESE ITEMS AT PROFIT MARK UP OF 13.87%,' THIS CONFIRMS THAT THERE IS NOTHING ADVERSE BROUGHT ON RECORD BY T HE TPO; NO VERIFICATION HAS BEEN DONE, TO BRING ANY MATERIAL TO CONTROVERT OR REBUT THE REASONING GIVEN BY THE ASSESSEE. THE ABOVE REASONING WAS BASED ON THE BOOKS OF ACCOUNT AND THE RECORDS. THERE IS NO FINDING THAT THE CONTENTION OF THE ASSESSEE THAT THE RE IS NO DEMAND IN THE INDIAN MARKET OF THESE SPARE PARTS WAS NOT CORRECT EXPLANATION. THUS THE ADJUSTMENT PROPOSED BY THE TPO WHICH HAS BEEN CONFIRMED BY THE CIT(A) IS UNSUSTAINABLE. (C) ADDITION OF RS.55.18.448/ - IN RESPECT OF CAMSHAFT: THE ASSESSEE HAS EXPORTED CAMSHAFTS, WHICH IT HAS EARLIER IMPORTED, TO YMC, JAPAN FOR A TOTAL VALUE OF RS.75,93,565/ - . THE TPO HAS VALUED THE SAME AT RS.1,31,12,013 AND HAS MADE AN ADJUSTMENT OF RS.55,18,448/ - . PAGE NO. 14 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 THE ABOVE ADJUSTMENT HAS BEEN PROPOSED IGNORING THE EXPLA NATION OF THE ASSESSEE THAT THE SAME WAS SOLD CONSIDERING THE LOW DEMAND AND HIGH INVENTORY CARRYING COST. THIS WAS DONE DUE TO POOR DEMAND OF YBX MODEL AND THIS SALE WAS MADE TO YMC, JAPAN AT THE REQUEST OF THE ASSESSEE ONLY. THE YMC, JAPAN PURCHASED THES E ITEMS FOR USE IN BRAZIL AND JAPAN AND THAT TOO AFTER IT WAS REQUIRED TO INCUR ADDITIONAL COST TOWARDS ADDITIONAL SURFACE TREATMENT, INSPECTION FOR RUST AND DAMAGED PARTS, SPECIAL TRANSPORTATION BOXES, ETC. DUE TO DIFFERENCE IN TECHNICAL SPECIFICATION OF THE CAMSHAFTS REQUIRED IN INDIA AND THOSE USED IN BRAZIL AND JAPAN. IT WAS FURTHER SUBMITTED THAT YMC, JAPAN IS PURCHASING THESE CAMSHAFTS AT JPY 670 PER UNIT AND ASSESSEE HAS SOLD THE SAME AT JPY 666 AND THUS THERE IS A COMPARABLE UNCONTROLLED PRICE AND H ENCE NO ADJUSTMENT IS REQUIRED. THE TPO HAS ARBITRARILY REJECTED THE EXPLANATION WHICH HAS BEEN CONFIRMED BY THE CIT(A). THE REASONING GIVEN BY THE TPO DOES NOT TAKE INTO CONSIDERATION THAT CAMSHAFT IS PRODUCT SPECIFIC AND HAVING BEEN ONCE PURCHASED THE SA ME CAN BE SOLD BACK AT THE PRICES WHICH THE BUYER WILL OTHERWISE BE PAYING WHEN IT WILL BUY FROM THE MARKET. THERE BEING NO DIFFERENCE IN THE PRICES I.E. JPY 670 AND JPY 666, ADJUSTMENT MADE BY THE TPO IS UNJUSTIFIED AND NEEDS TO BE DELETED. 3.0 EXPORT OF MOTOR CYCLES - RS.64,39,600/ - : THE TPO ON THIS ACCOUNT HAS MADE AN ADJUSTMENT OF RS. 1,32,22,520/ - . THE CIT(A) HAS REDUCED THE SAME TO RS.64,39,600. THE ASSESSEE DURING THE YEAR HAS EXPORTED MOTOR CYCLES TO AES AS WELL AS UNRELATED PARTIES. THE AVERAGE GROSS PROFIT MARK - UP EARNED BY THE ASSESSEE ON EXPORT TO UNRELATED PARTIES IS 6.756% AS AGAINST 8.102% MARGIN EARNED FROM THE SALES TO AES. DESPITE THE MARGIN IN THE CASE OF RELATED PARTIES BEING BETTER THAN THE SALES TO UNRELATED PARTIES, THE TPO CARRIED OUT A BIFURCATION OF EACH MODEL OF THE MOTOR CYCLE AND COMPARED MARGIN MODEL TO MODEL AND ON THAT BASIS ARBITRARILY COMPUTED MARK - UP ON COST IN RESPECT OF UNRELATED TRANSACTION AT 13.72% AND APPLIED THE SAME TO THE SALE TO THE RELATED PARTIES IN SOME OF T HE MODELS AND ON THIS BASIS, HE COMPUTED A DIFFERENCE OF RS.1,32,22,520/ - . THE CIT(A) DID NOT AGREE WITH HIM PARTIALLY ON THE PRODUCT TO PRODUCT MATCHING AND FOUND ERROR THAT MODEL RX 100 36L4 AND RX100 36L5 THE COST IS SAME AND AS SUCH THE MARGIN TO BE AP PLIED SHOULD BE SAME AND ON THAT BASIS HE GAVE A RELIEF OF RS.67,82,9207 - IN PARA 8.9, PAGE 25 TO 27. THE ACTION OF THE TPO IN MAKING THE ADDITION AND THE ACTION OF THE CIT(A) IN CONFIRMING THE PARTIAL ADDITION ON THIS ACCOUNT IS UNJUSTIFIED. THE MARGIN EA RNED BY THE ASSESSEE COMPANY IN RESPECT OF THE SALES TO AES IS BETTER THAN THE MARGIN EARNED BY THE SALE TO UNRELATED PARTIES. THUS THERE WAS NO REASON THAT THE TPO TO TINKER WITH THE RESULTS AND MAKE AN ADJUSTMENT ON ACCOUNT OF THE ARM'S LENGTH PRICE. PAGE NO. 15 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 FUR THER THE MATCHING DONE BY THE TPO FROM MODEL TO MODEL IS WRONG AND IGNORES THE FACT THAT THESE MODELS ARE DIFFERENT THAN THE MODELS FOR WHICH MARGIN OF 13.723% HAS BEEN COMPUTED. THE TPO ON PAPER BOOK PAGE 358 (INTERNAL PAGE 17) HAS APPLIED MARK - UP ON COST OF 13.723% IN RESPECT OF MODEL RX 100 36L5, RX CARGO 5 RAI. FURTHER THE TPO APPLIED MARGIN OF 8.08% IN RESPECT OF MODEL YB 125 T5RE1 IGNORING THE FACT THAT THE MARGIN EARNED ON YB 125 5PY3 IN RESPECT OF SALE TO UNRELATED PARTIES WAS NEGATIVE 0.428%. IN TH IS REGARD THE ADJUSTED COST WORKED OUT BY THE TPO IN RESPECT OF THE YB125 MODEL ON PAPER BOOK PAGE 357 IS ABSOLUTELY INCORRECT AND AGAINST ALL PRINCIPLES OF TRANSFER PRICING. SECONDLY, THE OVERALL MARGIN NEEDS TO BE TAKEN INTO CONSIDERATION AND IN ANY CASE IF MODEL TO MODEL COMPARISON IS TO BE MADE IT HAS TO BE DONE ON A SCIENTIFIC BASIS AND NOT ON ADHOC BASIS TO SUIT AND SUPPORT THE ADJUSTMENT WHICH OTHERWISE ARE NOT JUSTIFIED. THUS THE ACTION OF THE TPO AND CIT(A) IN CONFIRMING THIS ADDITION ON EXPORT OF MOTOR CYCLE IS AGAINST THE FACTS ON RECORD. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THIS APPROACH OF THE TPO IN APPLYING MODEL TO MODEL APPROACH (THAT TOO ON FAULTY BASIS) IS AGAINST ITS OWN FINDING IN RESPECT OF EXPORT OF MISCELLANEOUS SPARE PARTS WHEREBY HE HAS APPLIED THE OVERALL MARGIN IGNORING THE ACTUAL MARKING ON THE MISCELLANEOUS ITEMS. 7. AFTER SUBMITTING THE ABOVE WRITTEN SYNOPSIS BY THE LD COUNSEL FOR THE ASSESSEE, SHRI VED JAIN, SUBMITTED THAT THE ASSESSEE IS A LOSS MAKING UNIT SUFFERING CONTINUOUSLY LOSS FOR MORE THAN 10 YEARS. ON HAVING MAKING SUCH A SUBMISSION THE BENCH QUERIED WHETHER ANY PURPOSE WOULD BE SERVED IF THE ABOVE APPEAL S ARE ADJUDICATED SUBSEQUENTLY WHEN THE ADMITTED POSITION IS THAT THE TPO HAS NOT MADE SIMILAR ADJUSTMENT IN ANY OF THE SUBSEQUENT ASSESSMENT YEARS. THE LD COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT THE LOSS CLAIMED AND ALLOWED TO THE ASSESSEE COULD NOT BE CARRIED FORWARD AS THE PERIOD OF 8 YEARS ELAPSED AND UNDER THOSE CIRCUMSTANCES THE ADJUDICATION OF THE ISSUES LISTED IN THESE APPEALS WOULD BE ACADEMIC IN NATURE. NEVERTHELESS, HE SUBMITTED THAT ON PRINCIPLE, THE ASSESSEE COMPANY CANNOT BE CONCEDE SUCH ADDITIONS AND ON MERITS THE ASSESSEE COMPANY HAS A VERY STRONG CASE AS BOTH THE TPO AS WELL AS AO AND THE LD CIT(A) HAD MISDIRECTED THEMSELVES, REQUESTS FOR ADJUDICATION OF THE APPEALS. THE LD DEPARTMENTAL REPRESENTATIVE PAGE NO. 16 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 ON THE OTHER THAN, THOUGH NOT LEAVE HIS GROUND, BUT AGREED WITH THE BENCH THAT ADJUDICATING THESE CONTENTION WOULD BE ACADEMIC EXERCISE. 8. AFTER HEARING THE RIVAL CONTENTION WE DEEM IT FIT TO DISMISS ALL THESE CASE S AS NO USEFUL PURPOSE WOULD BE SERVED BY ADJUDICATING THE SAME. SIMILAR ADJUSTMENT HAS BEEN MADE IN ANY OTHER ASSESSMENT YEARS EVEN IF IT IS MADE, WHEN THE MATTER IS NOT ADJUDICATED BY US , IT CANNOT BE A BINDING PRECEDENT. WE ARE ALSO INFORMED THAT NO PENALTY PROCEEDING S HAVE BEEN INITIATED IN THESE CASES. EVEN OTHERWISE PENALTY PROCEEDINGS ARE I NDEPENDENT AND THE ISSUES CAN BE CONTESTED ON MERIT. UNDER THIS CIRCUMSTANCE WE DISMISS ALL THE APPEALS FILED BOTH BY THE ASSESSEE AND THE REVENUE AS ACADEMIC IN NATURE. 9. ON A QUERY FROM THE BENCH, IT TRANSPIRED THAT IN SUBSEQUENT YEARS, THE TPO HAS ACC EPTED THE TRANSFER PRICING STUDY MADE BY THE ASSESSEE AND THE ASSESSEE IS RUNNING IN HEAVING LOSS UP TO YEAR 2008. SO THE DECISION IN EITHER WAY IS NOT GOING TO AFFECT THE ASSESSEE. WE FIND THAT THE ADJUDICATION WILL BE MERE ACADEMIC AND TH U S DISMISS AL OF THE APPEAL S WILL NOT BE TREATED AS A PRECEDENT BY EITHER SIDE IN CASE ANY ISSUES REGARDING THE ASSESSEE IS CONCERNED. 8. THE APPEAL FILED BY THE REVENUE AS WELL AS OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 0 / 06/2015. - S D / - - S D / - ( J.S.REDDY ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 0 / 06 / 2015 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT PAGE NO. 17 ITA NO. 668/DEL/2010 ITA NO. 4882/DEL/2009 ITA NO. 1790/DEL/2010 ASSISTANT REGISTRAR ITAT, NEW DELHI