Floressence Perfumes Pvt. Ltd., Pune V. Income - tax Officer,

ITA 1805/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2006 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Business income; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Corroborative evidences

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1805/PN/2013 #& & / ASSESSMENT YEAR : 2008-09 FLORESSENCE PERFUMES PVT. LTD., A/5, SIDDHARTH COMPLEX, NAGAR ROAD, PUNE 411006 PAN NO.AAACF9151G . / APPELLANT V/S ITO, WARD-1(4), PUNE . / RESPONDENT / ASSESSEE BY : SHRI KISHOR PHADKE / REVENUE BY : SHRI HITENDRA NINAWE / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31-07-2013 OF THE CIT(A)-IT/TP, PUNE RELATIN G TO ASSESSMENT YEAR 2008-09. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL RELATES TO THE ORDER OF CIT(A) IN UPHOLDING THE T.P. ADJUSTMENT OF RS.88,65,121/-. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A DOMESTIC COMPANY ENGAGED IN THE BUSINESS OF / DATE OF HEARING :20.04.2016 / DATE OF PRONOUNCEMENT:22.04.2016 2 ITA NO.1805/PN/2013 MANUFACTURING/BLENDING OPERATIONS OF PERFUMES. IT FILED ITS RETURN OF INCOME ON 29-09-2008 DECLARING TOTAL INCOME OF RS.2,07,377/-. THE AO MADE A REFERENCE U/S.92CA(1) OF THE I.T. ACT TO THE TPO FOR COMPUTING THE ARMS LENGTH PRICE (ALP) IN RELATION TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE TPO DURING THE T.P. ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS CARRIED OUT T HE FOLLOWING INTERNATIONAL TRANSACTIONS : S.NO. DESCRIPTION AMOUNT (IN RUPEES) METHOD 1 PURCHASE OF RAW MATERIAL & PACKING MATERIAL 56,28,845 CUP 2 SALE OF FINISHED PRODUCT, I.E. PERFUMES, ROLL-ONS & DEODORANTS 7,68,19,408 CUP TOTAL 8,24,48,153 3.1 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE TH E TPO NOTED THAT THE ASSESSEE IS A MANUFACTURER OF PERFUM ES, DEODORANTS AND ROLL-ONS. THE COMPANY WAS INCORPORATED IN AUGUST 2005. THE ASSESSEE HAS ENTERED INTO 2 INTERNAT IONAL TRANSACTIONS, I.E. PURCHASE OF RAW MATERIAL AND SALE OF FINISHED GOODS. TO BENCHMARK THE AFORESAID TRANSACTIONS, INTERNAL CUP METHOD IS SELECTED AS MOST APPROPRIATE METHOD. OUT OF TOTAL EXPORT SALES OF RS.12.13 CRORES, 37% SALES ARE MADE TO THE NON-AES AND 63% ARE MADE TO AES NAMELY, NATURAL FRAGRANCE LLC. IN RESPECT OF EXPORT OF FINISHED GOODS T HE MAJOR PRODUCT IS 15 ML SMART COLLECTION WHERE THE SALE PR ICE CHARGED TO NON-AE IS ALMOST 20% MORE THAN THE PRICE C HARGED TO AE. SIMILARLY, IN RESPECT OF PURCHASE OF RAW MATERIALS TH E ASSESSEE HAS TAKEN AVERAGE PRICE CHARGED BY NON-AE IN STEAD OF COMPARING THE PRICE TRANSACTION-WISE. THE TPO CALLED FO R VARIOUS DETAILS FROM THE ASSESSEE FOR JUSTIFICATION OF THE AL P. 3 ITA NO.1805/PN/2013 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE HE NO TED THAT THE ASSESSEE HAS EXPORTED FINISHED PRODUCTS OF PE RFUMES, DEODORANTS AND ROLL-ONS WORTH RS.12,13,39,306/-, THE DET AILS OF WHICH ARE AS UNDER : SR. NO. PRODUCT CONTROLLED TRANSACTIONS UNCONTROLLED TRANSACTIONS TOTAL SALES % OF TOTAL SALES NATURAL FRAGRANCE, LLP LOVE IN PARIS, LLP 1 15 ML SMART COLLECTION 4,49,63,279 3,72,21,469 8,21,84,748 68% 2 10 ML ROLL - ON 14,38,447 73,86,366 88,24,813 7% 3 10 ML FRENCH COLLECTION 1,67,41,749 -- 1,67,41,749 14% 4 50ML FRENCH COLLECTION 1,35,87,996 -- 1,35,87,996 11% TOTAL 7,67,31,471 4,46,07,835 12,13,39,306 100% 63% 37% 4. SIMILARLY, HE NOTED THAT OUT OF THE TOTAL EXPORT TRANSACTIONS THE ASSESSEE HAS FURNISHED JUSTIFICATION OF TH E TRANSFER PRICE OF THE EXPORT TRANSACTIONS OF 15 ML SMART COLLECTION BY REDUCING THE ADDITIONAL PACKING COST FROM THE SELLING PRICE WHICH IS AS UNDER : (ALL AMOUNTS IN RS.) SR. NO. PRODUCT NATURAL FRAGRANCE, LLP CONTROLLED TRANSACTIONS) LOVE IN PARIS, LLP, DUBAI (UNCONTROLLED TRANSACTIONS) TOTAL 1 SALE 4,49,63,279 3,72,21,469 8,21,84,748 2 % OF SALES 37.06% 30.685 67.73% 3 QUANTITY SOLD 31,70,106 21,92,250 53,62,362 4 AVERAGE SELLING PRICE/UNIT 14.18 16.98 LESS 5 PRINTED DISPLAY TRAY COST/UNIT 0.84 6 PRINTED DISPLAY BOX COST/UNIT 1.84 7 AVERAGE COMPARABLE SELLING PRICE/UNIT 14.18 14.30 8 DIFFERENCE 0.11 9 % OF DIFFERENCE 1% 4 ITA NO.1805/PN/2013 5. THE TPO NOTED THAT OUT OF THE TOTAL SALES OF RS.12.13 CRORES, 63% OF SALES WERE MADE TO ASSESSEES AE, I.E. NATU RAL FRAGRANCES, LLP AND 37% SALES WERE MADE TO THE UNCONT ROLLED PARTY NAMELY LOVE IN PARIS, LLP, DUBAI. HE NOTED THAT WITH RESPECT TO 15ML SMART COLLECTION THE AVERAGE PRICE CHARG ED TO AE IS OF RS 14.18 PER UNIT, WHEREAS AVERAGE RATE CHARGED TO THIRD PARTY IS OF RS 16.98 PER UNIT. ON BEING QUESTIONED BY THE TPO IT WAS SUBMITTED BY THE ASSESSEE THAT THE DIFFERENCE IN PRICE IS DUE TO THE PACKAGING COST. IT WAS STATED THAT THE PERFUME BOTTLES WERE SUPPLIED TO NATURAL FRAGRANCES IN CORRUGATED BOXES, WHEREAS THE SAME WERE SUPPLIED TO, TH E THIRD PARTY, LOVE IN PARIS IN INDIVIDUAL UNIT BOXES AND ALSO WITH THE DISPLAY TRAY, EACH TRAY ACCOMMODATING 18 PERFUME BOTTLES. THE DIFFERENCE IN PRICE OF THIS PACKAGING CAME TO RS 2.8 PER UNIT AND IN TERMS OF PERCENTAGE, THE DIFFERENCE AMOUNTED TO 20% LESSER PRICE CHARGED TO THE AE THEN THE PRICE CHARGED TO THE THIRD PARTY. 6. THE TPO EXAMINED THE MONTHLY STOCK OF THE PACKING MATERIAL USED FOR 15ML SMART COLLECTION AND NOTED THE FOLLOWING DISCREPANCIES : I. DURING F.Y. 2007-08, NO SALES OF 15ML WERE MADE TO UNCONTROLLED PARTY TILL NOV . 07. THE SALES OF 5,52,960 UNITS WAS MADE IN DEC.07 AND SALES OF 5 , 87,520 UNITS WAS MADE IN MONTH OF JAN 08. FOR THIS SALE, TOTAL 63,360 PACKING TRAYS WER E REQUIRED SINCE THE CAPACITY OF ONE TRAY IS 18 UNITS AS PER THE SAMPLE TRAY ATTACHED WITH SUBMISSION BY THE ASSESSEE. BUT THE ASSESSEE HAD PURCHASED ONLY 16,000 TRAYS TILL JAN 08. THIS SHOWS THA T SPECIAL PACKING TRAYS ARE NOT USED FOR PACKING THE MATERIAL SO LD TO UNCONTROLLED PARTY AS CLAIMED BY THE ASSESSEE. II. THE TOTAL UNITS OF 15ML SOLD TO UNCONTROLLED PART Y IS 21,92,256 DURING THE YEAR , HOWEVER, THE SPECIAL PRINTED BOXES PURCHASED DURING THE YEAR IS 32,93,250. AS PER SCHEDULE TO PROFIT AND LOSS ACCOUNT FOR A . Y . 2008-09, THE CLOSING STOCK OF PACKING MATERIAL IS NIL . THIS SHOWS THAT THE SPECIAL PRINTED BOXES OF 32,93,250 HAVE BEEN USED BY THE ASSESSEE FOR THE SALES. T HE SALES 5 ITA NO.1805/PN/2013 TO UNCONTROLLED PARTY IS 21 , 92,250 ONLY . THUS THE REMAINING PRINTED BOXES MUST HAVE BEEN USED BY THE ASSESSEE FOR EXPO RT SALES TO AE, AS THE CLOSING STOCK PACKING MATERIAL IS NI L . IN VIEW OF THE ABOVE DISCREPANCIES, THE CLAIM OF THE ASSESSEE THAT DUE TO USE SPECIAL PACKING MATERIAL, THE HIGHER PRICE IS CHARGED TO UNCONTROLLED PARTY IS IN NOT CORRECT AND HENCE N OT ACCEPTABLE. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE TPO MADE ADJUSTMENT OF RS.88,65,121/- TO THE INTERNATIONA L TRANSACTION OF EXPORT. 7. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE TPO WAS IN ERROR TO ARRIVE AT THE CONCLUSION ADVERSE TO THE ASS ESSEE. THIS IS BECAUSE HE DID NOT PROPERLY PERUSE THE MONTHLY STOCK STATEMENTS. IT WAS STATED THAT THE ASSESSEE HAS DUL Y MAINTAINED ACTUAL STOCK REGISTER SHOWING .PURCHASE, ISSUE A ND CLOSING STOCK OF PACKING MATERIAL, STATEMENT SHOWING CONSUMPTION OF TRAY AND INVOICE-WISE BOXES TO THIRD PARTY , IMPORT PURCHASE STATEMENT WITH BILLS OF PACKING MATERIAL CONSUMED, SALES REGISTER SHOWING INVOICE NUMBER, NAME OF THE PARTY, PRODUCT, QUANTITY, SALE PER UNIT AND SALE VALUE. ALL THESE DOCUMENTS AND REGISTERS ARE VERIFIED BY THE INDEPENDENT AUDITOR. THE ASSESSEE FURNISHED ALL SUCH EVIDENCE DURING TH E APPELLATE PROCEEDINGS. 8. THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE AO WHICH WAS FORWARDED TO THE ASSESSEE FOR HIS COMMENTS. AFTER CONSIDERING THE ASSESSMENT ORDER, THE REMAND REPORT OF THE AO/TPO AND THE COMMENTS OF THE ASSESSEE TO SUCH REMA ND REPORT, THE LD.CIT(A) UPHELD THE ACTION OF THE AO BY OBSE RVING AS UNDER : 6 ITA NO.1805/PN/2013 2.1.19 I HAVE CONSIDERED THE FACTS AND THE ARGUMEN TS OF THE APPELLANT. AS FAR AS ADMISSION OF THE ADDITIONAL EVIDEN CE IS CONCERNED, THE APPELLANT HAS FURNISHED ADDITIONAL EVI DENCE IN TERMS OF COPIES OF THE STOCK STATEMENT, COPIES OF INVOIC ES AND BREAKUP OF DIFFERENT AMOUNTS. IN OTHER WORDS, THE APP ELLANT HAS SUBMITTED DETAILED INFORMATION OF THE INFORMATION FU RNISHED DURING THE TP ASSESSMENT PROCEEDINGS. STRICTLY SPEAKING, IT IS NOT ADDITIONAL EVIDENCE AS SUCH. CONSIDERING THIS FACT, I ADMIT THE ADDITIONAL EVIDENCE FURNISHED BY THE APPELLANT U/R.4 6A(C). 2.1.20 WITH RESPECT TO THE TRANSFER PRICING ADJUSTMENT , THE APPELLANT'S ARGUMENT IS THAT THE DIFFERENCE OF 20% O F PRICE BETWEEN AE AND NON-AE WAS BECAUSE OF THE PACKING MATE RIAL COST. THE LEARNED TPO HAS QUESTIONED THIS EXPLANATION O N THE BASIS OF THE INFORMATION AVAILABLE FROM THE MONTHLY ST OCK STATEMENT OF THE PACKING MATERIAL. AFTER CAREFULLY G OING THROUGH THE DETAILS, I FIND MYSELF IN AGREEMENT WITH THE' CON CLUSION DRAWN BY THE LEARNED TPO. THE REASONS FOR MY CONCLUSI ON ARE AS UNDER: 2.1.21 FIRST OF ALL, I FIND THAT THE APPELLANT HAD, EXPORTED 30% OF ITS TOTAL SALES TO THE THIRD PARTY I.E. LOVE IN PARIS, LLP, DUBAI. THE APPELLANT ALSO CONTENDS THAT IT HAS SUPPLIED PERFUMES BO TTLES TO THIRD PARTY IN SPECIAL PRINTED UNIT BOXES ALONG WITH DISPLAY TRAY. SUCH PACKAGING WAS NOT DONE FOR THE AE. THIS FACT SHOW S THAT THE APPELLANT HAD SOLD SIGNIFICANT QUANTITY OF THE PERFUM E BOTTLES ON SPECIAL TERMS AND CONDITIONS ON PACKAGING. HOWEVER, TH E APPELLANT HAS NOT FURNISHED COPY OF THE AGREEMENT WI TH THE THIRD PARTY, IT IS NOT CONCEIVABLE THAT THE SIGNIFICANT AMO UNT OF SALES TRANSACTION, WHICH REQUIRE SPECIAL TREATMENT WERE BEI NG TRANSACTED WITHOUT THE AGREEMENT ESPECIALLY WHEN THE APPELLANT HAS FURNISHED SO CALLED AGREEMENT WITH THE AE BUT IRON ICALLY NO AGREEMENT WAS ENTERED WITH THE THIRD PARTY. BE THAT AS IT MAY. LET ME DEAL WITH THE OTHER ASPECTS OF THE ADJUSTMENT : 2.1.22 AS FAR AS THE APPELLANT'S REPLY TO THE ISSUES RAI SED BY THE LEARNED TPO IN THE TRANSFER PRICING ORDER AND REMAND REPORT ARE CONCERNED, I FIND THAT THE APPELLANT HAS NOT ANSWERED AT ALL SOME OF THE ISSUES RAISED BY THE LEARNED TPO. FOR EXAMPLE, T HE LEARNED TPO STATED THAT THE APPELLANT HAD PURCHASED ONLY 1600 0 TRAYS TILL JANUARY 2008. HOWEVER, REQUIREMENT WAS OF 63,36 0 TRAYS IN VIEW OF THE NUMBER OF PERFUME BOTTLES ACTUALLY EXPO RTED. THE APPELLANT HAS SOUGHT TO EXPLAIN THIS OBSERVATION BY FI LING THE MONTHLY STOCK STATEMENT, ACCORDING TO WHICH, IT HAD P URCHASED SUFFICIENT NUMBER OF TRAYS IN NOVEMBER AND DECEMBER 2 007 FOR EXPORTING THE PERFUME BOTTLES. HOWEVER, THE APPELLAN T'S THIS EXPLANATION IS IN CONTRADICTION WITH THE APPELLANT'S OWN MONTH- WISE STOCK DETAILS, WHICH WERE FURNISHED BY THE APPELLA NT DURING THE TRANSFER PRICING ASSESSMENT PROCEEDINGS. THESE DETAIL S ARE REPRODUCED BY THE LEARNED TPO ON PAGE 10 AND 11 OF THE ORDER. THEREFORE, THE APPELLANT'S SUBSEQUENT EXPLANATION APPE ARS TO BE AN AFTERTHOUGHT. THE APPELLANT HAS SOUGHT TO EXPLAIN THIS CONCLUSION BY STATING THAT THE LEARNED TPO DID NOT CO NSIDER DOMESTIC PURCHASE OF PACKING MATERIAL. I FIND THAT TH E APPELLANT HAS FURNISHED ALL THE INVOICES OF EXPORT BUT HAS NOT FU RNISHED ALL THE INVOICES OF PACKING MATERIAL PURCHASED FROM THE D OMESTIC MARKET. IF THERE IS A VARIATION BETWEEN THE TWO STATE MENTS OF THE 7 ITA NO.1805/PN/2013 APPELLANT, THEN IT CAN BE RESOLVED ONLY WITH THE ACT UAL COMPUTATION OF STOCK BY TAKING INTO ACCOUNT PURCHASES AND CONSUMPTION. THIS HAS NOT BEEN DONE BY THE APPELLANT. THEREFORE, IT IS NOT PROVED THAT THE APPELLANT HAD U SED SPECIAL PACKING MATERIAL FOR THE EXPORTS MADE TO NON-AE. 2.1.23 SECONDLY, I FIND THAT THE APPELLANT HAS FURNI SHED THE LEDGER ACCOUNT OF THE PURCHASE OF PACKING MATERIAL ( IMPORTS)'. HOWEVER, THE LEDGER ACCOUNT FOR PURCHASE OF 'PACKING MATERIAL (DOMESTIC)' IS NOT FURNISHED. THIS ASSUMES SIGNIFICANCE BEC AUSE, AS MENTIONED ABOVE, THE APPELLANT'S ENTIRE CASE DEPEN DS ON THE ARGUMENT THAT IT HAD PURCHASED PACKING' MATERIAL FRO M THE DOMESTIC MARKET TO COVER THE SHORTFALL OF IN AVAILABI LITY OF THE PRINTED BOXES IN THE MONTH OF DECEMBER 2007. 2.1.24 THIRDLY, THE APPELLANT HAS STATED THAT THE DI FFERENCE IN CLOSING STOCK OF RS.26,46,640 PERTAIN TO THE TWO BILLS DATED 23.02.2008 AND 09.03.2008 . ACCORDING TO THE APPELL ANT, THESE INVOICES CONTAIN PURCHASES OF PRINTED BOXES NOT RELATED TO 15ML PRINTED BOXES. THE PERUSAL OF THE APPELLANT'S PROFIT A ND LOSS ACCOUNT SHOWS THAT THE APPELLANT'S ALMOST 92% OF THE TO TAL PACKING MATERIAL PURCHASES ARE BY WAY OF IMPORT TOTAL PURCHASES OF PACKING MATERIAL RS. 1,,90,10,472 OUT OF WHICH, IMPORTED PACKING MATERIAL IS OF RS, 1,74,85,793 AND DOMESTIC PURCHASE OF PACKING MATERIAL IS OF RS.15,34,679. THE APPELLANT HAS CONTENDED THAT PACKING MATERIAL FOR EXPORTS MADE IN DECEMBER 2007 AND JANUARY 2008 WERE MADE OUT OF THE PACKING MATERIAL PARTLY PURCHASED DOMESTICALLY. THEREFORE, PA CKING MATERIAL FOR THE 15ML PRINTED BOXES, IF AT ALL WAS PU RCHASED FROM THE DOMESTIC MARKET THEN THE APPELLANT OUGHT TO HAVE FURNISHED SUPPORTING EVIDENCE TO SUBSTANTIATE ITS EXPLANATION. 2.1.25 FOURTHLY, I FIND THAT-THE APPELLANT HAS FURNI SHED PRINT- OUTS OF ONLY ONE BILL OF LADING AND COPIES OF TWO BIL LS OF ENTRY FOR WAREHOUSE IN SUPPORT OF ITS CONTENTION THAT SOME OF THE PACKING MATERIAL WAS IMPORTED. HOWEVER, THESE DOCUMENTS ARE NO T STAMPED BY THE INDIAN CUSTOMS AUTHORITIES. THEREFORE, T HESE DOCUMENTS DO NOT APPEAR TO THE COPIES OF THE DOCUMEN TS VIDE WHICH IMPORT HAS TAKEN PLACE. IT IS INTERESTING TO NO TE THAT PACKING MATERIAL FOR 15 ML PERFUME BOTTLES IS SPECIAL PACKING MATERIAL, WHICH IS DOMESTICALLY PROCURED AND 'ORDINAR Y' PACKING MATERIAL BY IMPORTING IT, PRESUMABLY AT HIGHER THAN DOMESTIC PRICE. 2.1.26 FIFTHLY, I FIND THAT THE APPELLANT HAS NOT SUB STANTIATED ITS EXPLANATION BY LINKING TOTAL PACKING COST WITH TOTAL NUMBER OF PERFUME BOTTLES SOLD TO ARRIVE AT THE DIFFERENTIAL PA CKAGING COST OF RS 2.8 PER UNIT. IN FACT, BY KEEPING THE DETAILS O F DOMESTIC PURCHASE OF PACKING MATERIAL TO ITSELF EVEN WHILE SUBM ITTING ADDITIONAL EVIDENCE, IT HAS KEPT THE ENTIRE PICTURE HAZY FROM WHICH, NO, RELIABLE CONCLUSIONS CAN BE DRAWN. 2.1.27 THE APPELLANT HAS ASKED FOR THE VOLUME DISCOUNT AND RISK ADJUSTMENT. I DO NOT ACCEPT THE APPELLANT'S ARGUMENTS BECAUSE MERELY BECAUSE THE FACT THAT GRANTING OF DISCOUNT IS W IDELY PREVALENT COMMERCIAL PRACTICE, IT DOES NOT MEAN THAT THE APPELLANT GRANTED DISCOUNT-TO ITS AE. THE FACT OF THE VOLUME 8 ITA NO.1805/PN/2013 DISCOUNT AND THE FACTS JUSTIFYING RISK' ADJUSTMENT ARE R EQUIRED TO BE ESTABLISHED BY THE ASSESSEE. THE ADJUSTMENTS CANNOT BE GRANTED ON THEORETICAL ARGUMENTS BUT CAN BE GRANTED ONLY WHEN IT IS DEMONSTRATED WITH EVIDENCE THAT THE 'SAME IS DUE TO THE APPELLANT. THIS HAS NOT BEEN DONE BY THE APPELLANT. H ENCE, I DO NOT GRANT THESE ADJUSTMENTS. 2.1.28 AS FAR AS VOLUME DISCOUNT IS, CONCERNED, THE AP PELLANT HAS TRIED TO SUBSTANTIATE ITS CASE BY TAKING SUPPORT FROM THE MOU WITH THE AE. HOWEVER, GENUINENESS OF THE MOU ITSELF IS DOUBTED BECAUSE THE APPELLANT HAD CATEGORICALLY DENIED THE E XISTENCE OF SUCH AN AGREEMENT DURING SUBSEQUENT YEARS TRANSFER PRICI NG ASSESSMENT PROCEEDINGS. SECONDLY, THE APPELLANT HAS GIVEN EXPLANATION THAT IT WAS NOT FURNISHED AS IT WAS AT THE DUBAI OFFICE. THIS EXPLANATION IS BIT ILLOGICAL CONSIDERING THE IMPO RTANCE OF THE DOCUMENT. THEREFORE, I HOLD THAT THE APPELLANT HAS N OT BEEN ABLE TO ESTABLISH CASE FOR VOLUME DISCOUNT. 2.1.29 IN VIEW OF THE ABOVE, I CONCLUDE THAT THE AP PELLANT HAS NOT BEEN ABLE TO ESTABLISH WITH THE NECESSARY EVIDENCE THAT IT HAD USED SPECIAL PACKING MATERIAL FOR THE EXPORTS MADE TO THE NON- AE. MY PRESUMPTION IS THAT APPELLANT TRIED TO JUSTIFY THE DIFFERENCE IN PRICES BY TAKING HELP OF THE ARGUMENT OF PACKAGING, HOWEVER; IT COULD NOT BE SUBSTANTIATE ITS ARGUMENT LA TER, WHEN THE LEARNED TPO WENT DEEPER INTO THE FACTS. 2.1.30 ACCORDINGLY, I DO NOT FIND ANY ERROR IN THE ADJUSTMENT MADE BY THE LEARNED TPO. I CONFIRM THE ADJUSTMENT O F RS.88,65,121/-. 9. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 10. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGE D THE ORDER OF THE AO AND THE CIT(A). HE SUBMITTED THAT T HE ASSESSEE SUPPLIES ONLY BOTTLES WITH PERFUME IN CORRUGATED BOXES WITHOUT ANY TRAY TO THE AES. HOWEVER, WHILE SUPPL YING TO THE NON AES, THE PERFUME BOTTLES ARE PUT INSIDE THE T RAY AND THEREAFTER IN BOXES. THE BOTTLES PUT INSIDE THE BOXE S FOR SALE TO NON AE ARE TRAY SPECIFIC AND BOX SPECIFIC. REFERRING TO PAGE 103 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSE SSEE DREW THE ATTENTION OF THE BENCH TO THE PARTICULARS OF QUANTITATIVE DETAILS OF RAW MATERIALS CONSUMED. REFERRING TO PAGE 105 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSE SSEE 9 ITA NO.1805/PN/2013 DREW THE ATTENTION OF THE BENCH TO THE MONTH-WISE SALES MADE TO THE NON-AES AND THE PRICE OF PURCHASE OF PACKING MAT ERIAL USED FOR EXPORT TO SUCH NON AES. REFERRING TO PAGE 167 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE INVOICES RAISED BY CONTRAC TOR GENERAL TRADING COMPANY WHEREIN THE PRINTED UNIT BOXES ( 15 ML) FOR 4,25,600 NOS. @ RS.1.63/- PER UNIT WHICH AMOUNTS TO RS.6,95,367/-. SIMILARLY, AS PER THE SAID INVOICE, THE PRINTED DISPLAY TRAY 15 ML FOR 1800 NOS. @ RS.17.29/- PER UNIT COM ES TO RS.3,11,308/-. 11. REFERRING TO PAGE 168 OF THE PAPER BOOK HE SUBMITTE D THAT AS PER THE INVOICE OF CONTRACTOR GENERAL TRADING COMPANY (LLC) DATED 28-11-2007 COST OF 4,25,600 PIECES OF PRINTED BOX @ 0.041 US$ PER PIECE COMES TO 17,449.60 US $. REFERRING TO THE SAID INVOICE HE DREW THE ATTENTION OF THE BENCH TO THE COST OF 18,000 PIECES OF PRINTED BOXES @ 0 .434 US$ PER PIECE COMES TO 7812 US$. REFERRING TO PAGE 1 58 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW T HE ATTENTION OF THE BENCH TO THE INVOICE RAISED BY CONTRACT OR GENERAL TRADING COMPANY (LLC) DATED 09-11-2007 ACCORDING TO WHICH THE COST OF 18,000 PIECES OF PRINTED BOXES @ 0.041 US$ PER PIECE COMES TO 19,926 US$. REFERRING TO THE SAI D INVOICE HE DREW THE ATTENTION OF THE BENCH TO THE COST OF 8000 PIECES OF PRINTED BOXES @ 0.35 US$ PER PIECE COMES TO 2,8 00 US$. HE ACCORDINGLY SUBMITTED THAT DUE TO MISUNDERSTAN DING OF THE AO/TPO AND THE CIT(A) REGARDING THE COST OF PRINTE D BOXES, ALL THIS CONFUSION HAS AROSE. HE ACCORDINGLY SUBMITT ED THAT IN THE INTEREST OF JUSTICE THE MATTER MAY BE RESTO RED TO 10 ITA NO.1805/PN/2013 THE FILE OF THE AO/TPO WITH A DIRECTION TO GIVE AN OPPORTUN ITY TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE SATISFACTION OF THE REVENUE AUTHORITIES REGARDING THE JUSTIFICATION OF THE ALP AND CLARIFY THE MISUNDERSTANDING. 12. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT TH ERE APPEARS TO BE SOME MISUNDERSTANDING REGARDING COST OF T HE ERRONEOUS BILLING PATTERN FOR THE PRINTED BOXES WHICH GIVES DIFFERENT PRICE FOR THE SAME NOMENCLATURE. THEREFORE, HE HA S NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE TPO. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO/TPO/CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND SOME FORC E IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THA T DUE TO MISUNDERSTANDING IN THE NOMENCLATURE USED FOR PRINTED BOXES, THE REVENUE AUTHORITIES HAVE CONFUSED AND REJEC TED THE EXPLANATION GIVEN BY THE ASSESSEE. FROM THE VARIOUS PAG ES OF THE PAPER BOOK WE FIND THERE ARE DIFFERENT RATES FOR TH E PRINTED BOXES; WHILE SOME PRINTED BOXES ARE SPECIFICALLY USED FOR EXPORT TO THE AES THERE ARE SOME PRINTED BOXES WHICH ARE SPECIFICALLY USED FOR EXPORT TO THE NON AES. THERE IS SUBSTANTIAL DIFFERENCE IN THE PRICE OF THE 2 TYPES OF PRINTE D BOXES IN THE SAME INVOICE. THEREFORE, CONSIDERING THE TOT ALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE TPO/AO WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE SATISFACTION OF THE REV ENUE 11 ITA NO.1805/PN/2013 AUTHORITIES REGARDING THE DIFFERENCE IN SALE PRICE OF MANUFACTURED GOODS BETWEEN THE AE COMPANY AND NON AE COMPANY DUE TO USAGE OF SPECIAL PACKAGING MATERIAL FOR PRODUCTS SOLD TO NON AE COMPANY. WE HOLD AND DIRECT ACCORDINGLY. ACCORDINGLY, THE FIRST ISSUE RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14. THE SECOND ISSUE RAISED BY THE ASSESSEE RELATES TO THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF RS.1,91,008/- ON ACCOUNT OF IMPORT OF RAW MATERIAL AT HIGHER RATE FROM A E COMPARED TO THE OTHER PARTIES. 15. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAS IMPORTED RAW MATERIAL AND SPRAY PUMPS FROM THE AE, I.E. NATURAL FRAGRANCES, LLC AS WELL AS NON-AE. HE NOTED THE PRICE PAID TO AE WAS HIGHER THAN THE PRICE PAID TO THIRD PARTY. THE DETAILS OF THE TWO TRANSACTIONS OF IMPORT ARE AS UNDER : SR. NO. DESCRIPTION QUANTITY PURCHASED PRICE PER KG PAID TO AE PRICE PER KG PAID TO NON-AE DIFFERENCE PER KG 1 FRAGRANCE COMPOUND 1749 KG RS.1892.08 RS.1703.05 RS.188.58 2 15MM SPRAY PUMPS 9,10,000 RS.2 PER UNIT RS.1.8 PER UNIT RS.0.20 PER UNIT 16. ON BEING CONFRONTED BY THE AO THE ASSESSEE STATED THAT THE COMPARATIVE TRANSACTION FOR BENCH MARKING IS A SINGLE TRANSACTION. THEREFORE, BENEFIT OF +/- 5 % OF SAFE HARBOUR A S PER THE PROVISO TO THE SECTION 92C(1) IS NOT AVAILABLE TO T HE ASSESSEE AND THE ADJUSTMENT WAS REQUIRED TO BE MADE FOR THESE DIFFERENCES. THE TPO NOTED THAT THE ASSESSEE HAD APPLIED INTERNAL CUP AND HAS TAKEN AVERAGE PRICE OF THE 12 ITA NO.1805/PN/2013 UNCONTROLLED TRANSACTIONS, WHEREAS THERE IS ONLY ONE TRANSACTION OF PURCHASE WITH THE AE. THE ASSESSEE DID NO T APPLY CUP ON TRANSACTION TO TRANSACTION. THE TPO THERE FORE DID NOT ACCEPT THE METHOD, IN WHICH CUP WAS APPLIED BY TH E ASSESSEE AND ACCORDINGLY HE MADE DOWNWARD ADJUSTMENT OF RS.5,11,826, WHICH WAS ADDED TO THE ASSESSEE'S INCOME. 17. BEFORE CIT(A) THE ASSESSEE STATED THAT THE TPO SHO ULD HAVE COMPARED THE PRICE PAID TO NON-AE WITH THE PRICE PA ID IN THE IMMEDIATELY PRECEDING OR SUCCEEDING MONTH. SINCE THE TRANSACTION WITH THE AE HAD TAKEN PLACE IN THE MONTH O F MAY 2007, THE LEARNED TPO SHOULD HAVE COMPARED THE PRICE PAID IN APRIL 2007 OR JUNE 2007. THE LEARNED TPO STATED IN HIS REMAND REPORT THAT IF THIS METHOD IS FOLLOWED THEN THE ADJUSTMENT WOULD BE OF RS.1,91,008. 18. WITH RESPECT TO THE AMOUNT OF ADJUSTMENT OF RS.1,82,000, THE ASSESSEE STATED THAT THIS DIFFERENCE MAINL Y ARISES BECAUSE OF THE EXCHANGE RATE DIFFERENCE. IF THE SA ME IS TAKEN INTO ACCOUNT THEN THE DIFFERENCE WOULD BE NEGLIGIBLE. THE TPO IN THE REMAND REPORT STATED THAT THIS ARGUMEN T WAS NOT TAKEN BEFORE HIM NOR WAS IT A PART OF THE T.P. STUDY REPORT . THEREFORE, THE CONTENTIONS-RAISED NOW BY THE ASSESSEE D URING THE APPELLATE PROCEEDINGS ARE NOT ACCEPTABLE. 19. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND THE REMAND REPORT OF THE AO THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.1,91,008/- BY OBSERVING AS UNDER : 13 ITA NO.1805/PN/2013 2.2.6 I HAVE CONSIDERED THE FACTS AND ARGUMENTS OF TH E APPELLANT. I FIND FORCE IN THE ARGUMENT OF THE APP ELLANT THAT FOR APPLICATION OF CUP, CONTROLLED AND UNCONTROLLED TRA NSACTIONS SHOULD HAVE TAKEN PLACE DURING THE SAME TIME PERIOD. THIS EXERCISE WAS CARRIED OUT BY THE LEARNED TPO DURING TH E REMAND REPORT PROCEEDINGS. I FIND THAT THE AMOUNT OF ADJUST MENT WORKED OUT BY THE LEARNED TPO IN THE REMAND REPORT IS FAIR . ACCORDINGLY, I RESTRICT THE AMOUNT OF ADDITION ON AC COUNT OF IMPORT OF RAW MATERIAL TO RS.1,91,008/-. 20. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 21. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE REMAND REPORT OF THE TPO DREW THE ATTENTION OF THE BEN CH TO THE FOLLOWING OBSERVATION OF THE TPO : THE SUBMISSION OF THE ASSESSEE IS CONSIDERED. SINCE THERE WAS TRANSACTION OF PURCHASE OF FRAGRANCE IN THE MONTH OF APRIL 2007, THE TRANSACTION OF JULY,2007 WAS ADOPTED FOR COMPARISO N AND ACCORDINGLY ADJUSTMENT WAS MADE. HOWEVER, EVEN, THE AVERAGE PRICE PAID IN SUCCEEDING 3 TRANSACTIONS, I.E. TAKEN PL ACE IN THE MONTH OF JUNE, 2007 & JULY, 2007, THE AVERAGE PRICE PAID TO NON- AE COMES AS UNDER : SR.NO. DATE OF INVOICE FOR PURCHASE OF FRAGRANCE COMPOUND FROM THIRD PARTY RATE PER KG IN USD RATE PER KG IN INR 1 07/06/2007 44.50 1820.05 2 09/07/2007 41.50 1703.57 3 24/07/2007 45 1824.75 AVERAGE RATE 43.67 1782.79 REFERRING TO THE REPLY GIVEN TO THE CIT(A) ON THE REMAND REPORT, A COPY OF WHICH IS PLACED AT PAGES 108 TO 119 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO CLAUSE 5 OF THE SUBMISSION WHICH IS IN RESPECT OF ADJUSTMENT OF RS.3,29,826/- ON ACCOUNT OF PURCHASE OF FRAGRANCES. REFERRING TO THE SAME HE SUBMITT ED THAT THE TPO CONSIDERED THE AVERAGE PRICE PAID IN SUCC EEDING 3 TRANSACTIONS AND CONSIDERED THE DISALLOWANCE OF 14 ITA NO.1805/PN/2013 RS.1,91,008/- AS COMPARED TO HIS EARLIER DISALLOWANCE OF RS.3,29,826/-. REFERRING TO THE CHART GIVING RATE OF FRAGRA NCE HE SUBMITTED THAT THE RATE OF FRAGRANCE FLUCTUATES ON A CCOUNT OF MARKET CONDITIONS AS WELL AS THE FLUCTUATION IN FOREIGN CURRENCY. HE SUBMITTED THAT IF THE RATE PER KG IN USD A RE CONSIDERED IT CAN BE SEEN THAT THE NON AE PARTIES HAV E BEEN GIVEN HIGHER PRICE. SINCE THE TPO HAS ACTED UNREASONABL Y IN DENYING THE DIFFERENCE ON ACCOUNT OF MARKET RATE FLUCTUATIO N AND EXCHANGE RATE FLUCTUATION, THEREFORE, THE ADDITION SUSTAINED BY THE CIT(A) SHOULD BE DELETED. HE SUBMITTED T HAT SINCE THE TRANSACTIONS ARE IN DOLLAR AND THE ASSESSEE IS PAYING AT A LESSER PRICE TO THE AE AS COMPARED TO NON AE PAR TIES, THEREFORE, NO ADDITION IS REQUIRED. HE ACCORDINGLY SUBMITTE D THAT THE ORDER OF CIT(A) BE SET ASIDE AND THE GROUND S RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 22. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND SUBMITTED THAT THIS ISSUE MAY ALSO BE RESTORED TO THE FILE OF THE TPO FOR ADJUDICATION OF THE ISSUE AFRESH. 23. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER REFERRED TO PAGE 12 OF THE TPOS ORDER AND SUBMITTED TH AT HE IS COMPARING THE PURCHASE PRICE OF APRIL 2007 WITH THAT OF THE PURCHASE PRICE IN JULY 2007. FOR PROPER COMPARISON OF TH E ISSUE, THERE SHOULD BE COMPARISON FOR THE SAME MONTH AND NOT FOR A DIFFERENT MONTH. 24. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE TPO/CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE TPO IN THE 15 ITA NO.1805/PN/2013 INSTANT CASE HAD MADE ADDITION OF RS.3,29,826/- ON ACCOUN T OF HIGHER PRICE PAID TO AE TOWARDS PURCHASE OF RAW MATER IAL THAN THE PRICE PAID TO THIRD PARTY. WE FIND THE LD.CIT(A) RESTRICTED SUCH DISALLOWANCE TO RS.1,91,008/- ON THE BASIS OF THE REMAND REPORT FROM THE AO. IT IS THE SUBMISSION OF T HE LD. COUNSEL FOR THE ASSESSEE THAT SINCE HE IS PAYING LESS PRICE TO THE AE TOWARDS PURCHASE OF RAW MATERIAL THAN THE PR ICE PAID TO THE NON AE, THEREFORE, THERE IS NO JUSTIFICATION FOR ANY ADDITION. IN OUR OPINION, THIS MATTER ALSO REQUIRES A REVIS IT TO THE FILE OF THE TPO FOR PROPER ADJUDICATION OF THE ISSUE. T HE ASSESSEE HAS TO CONCLUSIVELY PROVE BEFORE THE TPO THAT THE PRICE PAID TO THE NON AE TOWARDS PURCHASE OF RAW MATER IAL IS MORE THAN THE PRICE PAID TO THE AE. THE AO SHALL GIVE DU E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE T HE ISSUE AS PER FACT AND LAW. WE HOLD AND DIRECT ACCORDINGLY . THE SECOND ISSUE RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 25. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22-04-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 22 ND APRIL, 2016. 16 ITA NO.1805/PN/2013 ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - IT/TP , PUNE 4. 5. 6. THE CIT-IT/TP, PUNE $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // TRUE COPY // // $ ' //TRUE /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE