M/s. Tasty Bite Eatables Limited, Pune V. Assistant Commissioner of Income-tax, Circle - 7, Pune

ITA 1823/PUN/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4012 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 26-04-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 27-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Question of law
• Section: 143(3); 201; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C , PUNE VIRTUAL COURT BEFORE SH RI R.S. SYAL, VICE PRESIDENT AND SH RI S .S. VISWANETHRA RAVI , J UDICIAL MEMBER I TA NO. 1823 /PUN/20 1 8 / ASSESSMENT YEAR : 20 1 4 - 1 5 M/S. TASTY BITE EATABLES LIMIT ED, 201/202, MAYFAIR TOWERS, WAKDEWADI, SHIVAJINAGAR, PUNE 411005 PAN : AA ACT 2317A VS. A CIT , CIRCLE - 7 , PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL A SSESSMENT O RDER DATED 19.9.2018 PASSED BY THE ASSESSING OFFICER (AO) U/S. 143(3) READ WITH SECTION 144C(13) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER ALSO CALLED T HE ACT) IN RELATION TO THE ASSESSMENT YEAR 201 4 - 1 5 . 2 . SUCCINCTLY, THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE , WHO IS ENGAGED IN THE MANUFACTURE AND SALE OF READY TO EAT FOODS, FILED ITS RETURN DECLARING TOTAL INCOME OF A SSESSEE BY S /S HRI AJIT JAIN AND SIDDHESH CHAUGULE RE VENUE BY S HRI AVADESH KUMAR DATE OF HEARING 0 2 - 0 6 - 202 1 DATE OF PRONOUNCEMENT 03 - 0 6 - 202 1 ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 2 RS.1,88,570 , WHICH WAS SUB SEQUENTLY REVISED TO THE TOTAL INCOME OF RS.9,38,410. THE ASSESSEE REPORTED CERTAIN INTERNATIONAL TRANSACTIONS IN FORM NO.3CEB. THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) OF INTERNATIONAL TRA NSACTIONS. INSTANTLY, WE ARE CONCERNED WITH THE READY T O SERVE FOOD ( RTSF ) SEGMENT , ALBEIT THE ASSESSEE HAS TWO OTHER SEGMENTS ALSO , NAMELY, FROZEN FOODS AND SAUCES . THE ASSESSEE REPORTED E XPORT OF FINISHED GOODS TO ITS A SSOCIATED E NTERPRISES (AES) IN THE USA AND AUSTRALIA AMOUNTING TO RS.71.04 CRORE AND RS.8.20 CRORE RESPECTIVELY UNDER THIS SEGMENT . T HE TRANSACTIONAL NET MARGINAL METHOD (TNMM) WAS APPLIED FOR DEMONSTRATING THE INTERNATIONAL TRANSACTION OF EXPORTS UNDER RTSF SEGMENT AT ALP. FOR DOING SO, THE ASSESSEE SELECTED SIX COMPARABLE COMPANIES WITH AN AVERAGE PROFIT LEVEL INDICATOR ( PLI ) OF OPERATING PROFITS TO OPERATING COSTS AT 6.33% WITH THE DATA OF THE F.YS. 2012 - 13 AND 2013 - 14 AS AGAINST ITS OWN SEGMENTAL PLI AT 14.58%. THOUGH THE BOOKS OF AC COUNTS WERE MAINTAINED ON A CO NSOLIDATED BASIS FOR ALL THE THREE SEGMENTS AND THERE WAS A COMBINED PROFIT AND LOSS ACCOUNT , THE ASSESSEE TRIED TO JUSTIFY RTSF SEGMENTAL ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 3 CLAIM BY SUBMITT ING A SEPARATE INCOME STATEMENT ALLOCATING COST S AND INCOME ON A CERTAI N BASIS AS MENTIONED ON PAGE 4 OF THE TPOS ORDER . THE TPO DID NOT ACCEPT SUCH ALLOCATION AS THE SAME WAS FOUND TO BE VAGUE AND UNRELIABLE . SUCH A SEGMENTAL INCOME STATEMENT WAS REJECTED BY THE TPO, WHO WENT AHEAD WITH THE PLI DETERMINATION OF THE RTSF S EGMENT ON THE BASIS OF ENTITY LEVEL PROFIT AND LOSS ACCOUNT . H E COMPUTED THE ASSESSEES PLI AT 0.83% AND AVERAGE OF THE FOUR SHORTLISTED COMPARABLES FOR THE RELEVANT YEAR ONLY AT 8.08%. THIS LED TO PROPOSING A TRANSFER PRICING ADJUSTMENT OF RS.9,91,05,22 8. THE AO NOTIFIED THE DRAFT ORDER WITH THE ABOVE REFERRED TRANSFER PRICING ADJUSTMENT. THE DISPUTE RESOLUTION PANEL (DRP) DID NOT PROVIDE ANY SUCCOR TO THE ASSESSEE WHICH RESULTED IN PASSING OF THE FINAL ASSESSMENT ORDER WITH TRANSFER PRICING ADDITION O F THE ABOVE AMOUNT. AGGRIEVED THEREBY, THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 3 . WE HAVE HEARD RIVAL SUBMISSIONS THROUGH VIRTUAL COURT IN THE HUE OF RELEVANT MATERIAL ON RECORD. THE FIRST ISSUE IS ABOUT THE COMPUTATION OF THE ALP ON TH E BASIS OF ENTITY LEVEL DATA TAKEN BY THE TPO AS AGAINST THE ASSESSEES PLEA FO R TAKING ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 4 SEGMENTAL LEVEL DATA. T HE ASSESSEE CLAIMED TO HAVE APPROPRIATED CERTAIN DIRECT EXPENSES TO THE RTSF SEGMENT AND ALLOCATED REMAINING EXPENSES ON THE BASIS OF CERTAIN ALL OCATION KEYS. P AGE 4 OF THE TPOS ORDER RECORDS THAT THE ASSESSEE MADE RTSF SEGMENTAL INCOME STATEMENT BY USING THE THREE PRINCIPLES: I) DIRECT COST OBJECTIVE WHICH ARE IN ECONOMICALLY FEASIBLE MANNER; II) TRACEABILITY TO COST DRIVERS; III) `CAUSE AND EFF ECT OR `BENEFITS RECEIVED MANNER. BEFORE PROCEEDING FURTHER, IT IS PERTINENT TO MENTION THA T THE INTERNATIONAL TRANSACTION REQUIRING THE ALP DETERMINATION IS ONLY THE RTSF SEGMENT AND NOT THE OTHERS. THUS, IT BECOMES MORE IMPORTANT TO ENSURE THAT ALL TH E RELEVANT COSTS RELATING TO THE RTSF SEGMENT ARE PROPERLY ACCOUNTED FOR IN THE SEGMENTAL INCOME STATEMENT. ANY ATTEMPT TO ALLOCATE MORE COSTS TO THIS SEGMENT AT THE COST OF THE OTHER SEGMENTS NEED S TO BE ESCHEWED. ON OUR EXAMINATION OF THE RELEVANT MATERI AL ON RECORD, I T TRANSPIRED THAT SOME OF THE IMPORTANT RAW MATER IAL COSTS WERE COMMON TO RTFS AND FROZEN FOODS SEGMENT S . T HE LD. AR COULD NOT SUBSTANTIATE THAT SUCH COMMON MATERIAL COSTS WERE PROPERLY ALLOCATED SEGMENT - WISE. IN O THER WORDS, T HE LD. AR COUL D NOT DEMONSTRATE A RATIONAL ALLOCATION OF COSTS TO RTSF SEGMENT. ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 5 FACED WITH SUCH A SCENARIO, HE GAVE UP THIS ARGUMENT AND DID NOT PRESS THE GROUNDS CHALLENGING THE ORDER OF THE TPO DETERMINING THE ALP ON THE COMBINED ACCOUNTS APPROACH RATHER THAN THE SPL IT APPROACH ADOPTED BY THE ASSESSEE. WE, ERGO, HOLD THAT THE AUTHORITIES BELOW WERE JUSTIFIED IN PROCEEDING WITH THE ALP DETERMINATION ON THE BASIS OF COMBINED ACCOUNTS APPROACH . 4 . THE LD. AR ARGUED FOR INCLUSION OF MADHUR INDUSTRIES LIMITED IN THE LIST OF COMPARABLES. T HE ASSESSEE , IN ITS TRANSFER PRICING STUDY REPORT, INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES WITH THE FINANCIAL FIGURES RELAT ING TO THE PRECEDING YEAR ONLY AND NOT THE YEAR UNDER CONSIDERATION . THE TPO REFUSED TO AC CEPT THE COMPA N IES WITH THE FI NANCIAL DATA OF THE PRECEDING YEAR AND STUCK TO THE COMPARABLES COMPANIES WITH THE FINANCIALS CONCERNING THE CURRENT YEAR ONLY . DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO, THE ASSESSEE SUBMITTED ANNUAL REPORT OF THIS COMPANY WHICH THE TPO DID NOT ACCEPT ON THE GROUND THAT THIS COMPANY WAS NOT INCLUDED BY THE ASSESSEE IN THE LIST OF COMPARABLES FOR EARLIER YEARS. THE DRP DID NOT COUNTENANCE THE SO - CALLED CONSISTENCY APPROACH OF THE TPO BUT APPROVED THE EXCLUSION OF THE ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 6 COMPANY BY O BSERVING THAT BUSINESS OF THIS ENTITY WAS NOT CORRECTLY SPELT OUT OR LEGIBLE. ANOTHER REASON GIVEN BY THE DRP WAS ABOUT THE HIGHER TURNOVER OF THIS COMPANY VIS - A - VIS THE ASSESSEE COMPANY. THE ASSESSEE IS AGGRIEVED BY NON - INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES. 5 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE DRP REFUSED TO ACCEPT THIS COMPANY AS COMPARABLE, INTER ALIA, ON ITS LOWER TURNOVER. OUR ATTENTION WAS INVITED TOWARDS TURNOVER FILTER ADO PTED BY THE ASSESSEE AT EQUAL OR LESS THAN RS.1.00 CRORE AND EQUAL TO OR LESS THAN RS.1000 CRORE. TU RNOVER OF MADHUR INDUSTRIES LIMITED IS RS.9.97 CRORE AS AGAINST THE ASSESSEES TURNOVER FROM RTSF SEGMENT AT RS.86.00 CRORE. WHEN THE TURNOVER FILTER HAS BEEN ACCEPTED BY THE TPO, IN OUR CONSIDERED OPINION, A MERE HIGHER TURNOVER , BUT WITHIN THE PERMISSIBLE FILTER, CANNOT BE A VALID REASON FOR ITS EXCLUSION . 6 . ANOTHER REASON ADVANCED BY THE DRP IS THAT THE BUSINESS OF THIS ENTITY IS NOT CORRECTL Y SPELT OUT OR LEGIBLE . ON A POINTED QUERY, THE LD. AR COULD NOT POINT OUT THE NATURE OF BUSINESS CARRIED ON BY THIS COMPANY FROM THE ANNUAL REPORT TO MERIT ITS INCLUSION OR OTHERWISE IN THE LIST OF COMPARABLES. IT IS ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 7 JUST ELEMENTARY THAT A COMPANY MUST BE FUN CTIONALLY SIMILAR IN ORDER TO QUALIFY FOR INCLUSION. ALL O THER FILTERS COME AFTERWARDS ONLY WHEN THE FUNCTIONAL SIMILARITY IS ESTABLISHED. WE HAVE ALSO GONE THROUGH THE A NNUAL REPORT OF THIS COMPANY FROM WHICH ITS BUSINESS PROFILE CANNOT BE DEDUCED. THE LD . AR SUBMITTED THAT THE ASSESSEE BE GIVEN ONE MORE CHANCE TO ESTABLISH THE FUNCTIONAL COMPARABILITY OF THIS COMPANY BEFORE THE TPO IN THE LIGHT OF OTHER ATTENDING EVIDENCE. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE OVERTURN T HE IMPUGNED ORDER ON THE EXCLUSION OF THIS COMPANY AND DIRECT THE AO/TPO TO RE - DECIDE THE ISSUE AFRESH. AS IT IS A COMPARABLE CHOSEN BY THE ASSESSEE, THE ONUS IS UPON IT TO PROVE THE FUNCTIONAL COMPARABILITY OF THIS COMPANY IN ADDITION TO OTHER FILTERS . IF THE ASSESSEE SUCCEEDS IN DOING SO, THE TPO WILL INCLUDE IT IN THE LIST OF COMPARABLES AND VICE - VERSA. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING. 7 . THE NEXT ISSUE RAISED IN THIS APPEAL IS AGAINST THE TREATMENT OF EX PORT INCENTIVE S AS NON - OPERATING. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE TREATED EXPORT INCENTIVE UNDER RTSF SEGMENT AS OPERATING REVENUE. THE TPO ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 8 ABROGATED THE ASSESSEES CONTENTION AND TREATED THE SAME AS NON - OPERATING. THE DRP DID NOT ALL OW ANY RELIEF EVEN THOUGH IT CATEGORICALLY NOTED THAT FOR THE A.YS. 2012 - 13 AND 2013 - 14 , IT HAD DIRECTED TO CONSIDER EXPORT INCENTIVE AS OPERATING REVENUE. 8 . WE HAVE HEARD TH E RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD . T HE EXPORT INCEN TIVE S PERTAIN TO THE EXPORTS MADE BY THE ASSESSEE UNDER THE RTSF SEGMENT. A COPY OF THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE HAS BEEN PLACED AT PAGE 3 63 OF PAPER BOOK, FROM WHICH IT IS DISCERNIBLE THAT THERE IS AN ITEM OF OTHER OPERATING INCOME AT RS.7 .986 CRORE, WHOSE DETAIL HAS BEEN GIVEN AT PAGE 377 OF PAPER BOOK , WHICH INCLUDES EXPORT I NCENTIVE OF RS.7.62 CRORE. THE ASSESSEE , WHILE CALCULATING ITS SEGMENTAL PLI , CONSIDERED OPERATIONAL INCOME OF RS.7.00 CRORE AS PER APPENDIX F, COPY GIVEN AT PAGE 22 0 OF PAPER BOOK. THE L D. AR POINTED OUT THAT OUT OF TOTAL EXPORT INCENTIVE S OF RS.7.62 CRORE, A SUM OF RS.7.00 CRORES PERTAINED TO THE EXPORT S FROM RTSF SEGMENT TO ITS AES , WHICH WAS CONSIDERED BY THE ASSESSEE AS A PART OF THE OPERATING INCOME. THERE CAN BE NO DOUBT THAT E XPORT INCENTIVES ARE PART AND PARCEL OF EXPORT REVENUE. T HE ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 9 G OVERNMENT OF INDIA ALLOWS INCENTIVES WITH A VIEW TO ENCOURAGE EXPORTS AND MAKE INDIAN EXPORTERS MORE COMPETITIVE IN THE WORLD MARKET . WHILE FINALIZING THE PRICE AT WHICH THE G OODS ARE TO BE EXPORTED IN THE FOREIGN MARKETS, THE EXPORTERS TAKE INTO CONSIDERATION THE EXPORT INCENTIVE S PERMITTED BY THE GOVERN MENT OF INDIA AND ANNOUNCE THE SALE PRICE ACCORDINGLY SO AS TO REMAIN IN FRAY IN THE COMPETITIVE WORLD MARKET. NO EXPORT INC ENTIVE CAN BE EARNED WITHOUT MAKING EXPORTS. IN THAT VIEW OF THE MATTER, EXPORT INCENTIVES ARE NOTHING BUT AN INTEGRAL PART OF EXPORT REVENUE . ON CE THE POSITION IS SO, WE FAIL TO COMPREHEND AS TO HOW EXPORT INCENTIVE CAN BE TREATED AS NON - OPERATING IN NA TURE. THE DRP RECOGNIZE D THIS FACT THAT IT HAD EARLIER DIRECTED TO CONSIDER THE EXPORT INCENTIVE AS OPERATING REVENUE FOR THE PRECEDING TWO YEARS AND STILL FOUND EXPEDIENT TO TAKE A DEPARTURE FROM ITS OWN STAND WITHOUT ANY COGENT REASON. IN FACT, WHILE R ENDERING ITS F INDINGS IN PARA 5.2 OF THE DIRECTIONS, THE DRP WENT ON TO DISCUSS SOME SUBSIDY ISSUE FOR SETTING UP OF INDUSTRY IN BACKWARD AREA AND HELD THAT SUCH SUBSIDY WAS DEFINITELY NOT RELATED TO O PERATIONS OF THE ASSESSEE, AS TH E SAME WAS A TYPE OF FINANCIAL ASSISTANCE TO TIDE OVER THE CRISIS DURING INITIAL PERIOD ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 10 OF OPERATIONS IN THE INDUSTRY AND EVENTUALLY AGREE D WITH THE ANALYSIS MADE BY THE TPO AND CAME TO HOLD IT TO BE IN THE NATURE OF AN EXTRAORDINARY INCOME . FIRSTLY, THE ISSUE BEFORE THE DRP W AS EXPORT INCENTIVE AND NOT ANY SUBSIDY. SECONDLY, IT IS NOT ANY INITIAL PERIOD OF OPERATIONS OF THE ASSESSEE AS TAKEN NOTE OF BY THE DRP . IT APPEARS THAT THE DRP MIXED UP THE FACTS OF SOME OTHER CASE , WHICH EVENTUALLY RESULTED IN MISCARRIAGE OF JUSTICE. IT HAS BEEN BROUGHT TO OUR NOTICE THAT FOR THE A.Y. 2011 - 12, THE TPO TOOK SIMILAR VIEW BY TREATING EXPORT INCENTIVE AS NON - OPERATING. WHEN THE MATTER CAME UP BEFORE THE TRIBUNAL, IT DIRECTED TO CONSIDER THE EXPORT INCENTIVE S AS PART OF OPERATING INCOME. A COPY OF THE TRIBUNAL ORDER DATED 24 - 07 - 2019 PASSED IN ITA NO.449/PUN/2016 AT PAGES 762 ONWARDS OF PAPER BOOK HAS BEEN PLACED ON RECORD. R ELEVANT DISCUSSION HAS BEEN MADE AT PARA 7.C OF THE TRIBUNAL ORDER . IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT OF EXPORT INCENTIVE S IS LIABLE TO BE CONSIDERED AS PART OF OPERATING REVENUE. THE ASSESSEE SUCCEEDS TO THIS EXTENT. 9 . THE NEXT ISSUE RAISED BEFORE THE TRIBUNAL IS ABOUT NOT GRANTING PROPORTIONATE ADJUSTMENT. WE HAV E NOTED THAT THE ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 11 TPO REJECTED THE ASSESSEES SEGMENTAL LEVEL BENCHMARKING AND WENT AHEAD WITH THE ENTITY LEVEL APPROACH. THE CASE OF THE ASSESSEE IS THAT PROPORTIONATE ADJUSTMENT OUGHT TO HAVE BEEN GIVEN AND THE TRANSFER PRICING ADDITION RESTRICTED ONLY T O THE EXTENT OF INTERNATIONAL TRANSACTIONS. 10 . T HIS ISSUE IS FAIRLY SETTLED BY A JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. PHOENIX MECANO (INDIA) PVT. LTD. (2019) 414 ITR 704 (BOM.) , H OLDING THAT THE TRANSFER PRICING ADJUSTMENT MA DE AT ENTITY LEVEL SHOULD BE RESTRICTED TO THE INTERNATIONAL TRANSACTIONS ONLY. I T IS PERTINENT TO MENTION THAT THE DEPARTMENTS SLP AGAINST TH IS JUDGMENT HAS SINCE BEEN DISMISSED BY THE HONBLE SUPREME COURT IN CIT VS. PHOENIX MECANO (INDIA) PVT. LTD. (2 018) 402 ITR 32 (ST.). SIMILAR VIEW HAS BEEN ESPOUSED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. THYSSEN KRUPP INDUSTRIES PVT. LTD. (2016) 381 ITR 413 (BOM.) AND CIT VS. TARA JEWELS EXPORTS (P). LTD. (2010) 381 ITR 404 (BOM.) . WE, ERGO , DIRECT TO RESTR ICT THE TRANSFER PRICING ADDITION ONLY TO THE EXTENT OF INTERNATIONAL TRANSACTIONS IN THIS SEGMENT . 11 . THE NEXT ISSUE RAISED BEFORE THE TRIBUNAL IS ABOUT NOT GRANTING WORKING CAPITAL ADJUSTMENT. SH ORN OF UNNECESSARY ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 12 DETAILS, IT IS NOTED THAT THE DRP VIDE PARA 7.2 OF ITS DIRECTIONS DIRECTED THE AO /TPO TO ALLOW WORKING CAPITAL ADJUSTMENT AFTER VERIFICATION. WHILE GIVING EFFECT TO THE DIRECTIONS OF THE DRP, THE AO FAILED T O GIVE EFFECT TO THE SAME . THE L D. AR SUBMITTED THAT A RECTIFICATION APPLICATION DATED 09 - 10 - 2018 WAS FILED FOR CARRYING OUT THE RECTIFICATION ON THIS ASPECT, WHICH WA S STILL PENDING. 12 . W E FIND THAT THE TPO ORIGINALLY DID NOT GRANT THE WORKING CAPITAL ADJUSTMENT IN HIS ORDER U/S 92CA(3) , AGAINST WHICH THE ASSESSEE RAISED OBJECTION BEFORE THE DRP. ON PAGE 49 OF DIRECTIONS, THE DRP HAS HELD THAT THE AO/TPO IS DIRECTED TO EXAMINE THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT WORKED OUT BY THE ASSESSEE AND RE - COMPUTE THE SAME, IF NECESSARY. IN CASE OF DISPUTE, THE AO IS DIRECTED TO FOLLOW T HE METHODOLOGY OF THE ADJUSTMENT PROVIDED IN EXAMPLE GIVEN IN THE ANNEXURE TO CHAPTER III OF OECD TRANSFER PRICING GUIDELINES, 2010. THERE IS NO MANNER OF DOUBT THAT THE DIRECTION GIVEN BY THE DRP IS BINDING ON THE AO WHO HAS TO NECESSARILY PASS THE ASSE SSMENT ORDER IN CONFORMITY WITH THE DIRECTIONS. THIS IS AMPLY CLEAR FROM THE LANGUAGE OF SECTION 144C(13) OF THE ACT, WHICH PROVIDES IN ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 13 UNAMBIGUOUS TERMS THAT : U PON RECEIPT OF THE DIRECTIONS ISSUED UNDER SUB - SECTION ( 5 ) , THE A SSESSING O FFICER SHALL, IN C ONFORMITY WITH THE DIRECTIONS, COMPLETE, . THE ASSESSMENT. T HE AO HAS NOT ONLY FAILED TO FOLLOW THE DIRECTION GIVEN BY THE DRP IN THIS REGARD BUT IS STILL SITTING OVER THE RECTIFICATION APPLICATION FILED BY THE ASSESSEE FOR OVER TWO AND HALF YEARS. SUC H AN APPROACH NEEDS TO BE CORRECTED. IN SUCH CIRCUMSTANCES, W E DIRECT THE AO/TPO TO GRANT WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE AS PER THE METHODOLOGY SUGGESTED BY THE DRP, AGAINST WHICH THE ASSESSEE IS NOT AGGRIEVED , IN PRINCIPLE . 13 . TO SUM UP , WE SET - ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR RE - DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF RTSF SEGMENT IN ACCORDANCE WITH THE DISCUSSION MADE HEREIN ABOVE. 14 . THE ASSESSEE HAS RAISED TH E FOLLOWING ADDITIONAL GROUND: THAT THE EDUCATION CESS PAID DURING THE RELEVANT ASSESSMENT YEAR AMOUNTING TO INR 373,48 BE ALLOWED AS DEDUCTIBLE EXPENSE WHICH IS NOT COVERED UNDER THE PROVISIONS OF SECTION 40(A)(II) OF THE ACT. 1 5. THE HONBLE SUPREME C OURT IN NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (1998) 229 ITR 383 (SC) HAS OBSERVED ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 14 THAT T HE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON - TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM . ANSWERING THE QUESTION POSED BEFORE IT IN AFFIRMATIVE, THEIR LORDSHIPS HELD THAT ON THE FACTS FOUND BY THE AUTHORITIES BELOW, IF A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE THE AUTHORITIES) WHICH HAS BEARING ON THE TAX LIABILITY OF THE ASSESSEE , THE TRIBUNAL HAS J URISDICTION TO EXAMINE THE SAME. HAVING GONE THROUGH THE SUBJECT MATTER OF THE ADDITIONAL GROUND TAKEN BY THE AS SESSEE, IT IS APPARENT THAT THE SAME RAISES A PURE QUESTION OF LAW. WE, THEREFORE, ADMIT THE SAME. 16 . ON MERITS, IT IS FOUND THAT THE ISSUE RAISED THROUGH THE ADDITIONAL GROUND IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HI GH COURT IN SESA GOA LT. VS. JCIT (2020) 423 ITR 426 (BOM.) IN WHICH IT HAS BEEN HELD ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 15 THAT EDUCATION CESS IS NOT DISALLOWABLE EXPENDITURE U/S.40(A)(II) OF THE ACT. SIMILAR VIEW WAS EARLIER TAKEN BY THE HONBLE RAJASTHAN HIGH COURT IN CH A MBAL FERTILISERS AN D CHEMICALS LTD. AND ANOTHER VS. JCIT (2018) 102 CCH 0202 (RAJ - HC) . WE, THEREFORE, DIRECT THE AO TO ASCERTAIN THE CORRECT AMOUNT OF EDUCATION CESS AND THEN ALLOW A DEDUCTION FOR IT, AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE . 1 7 . IN THE RESULT , THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JUNE , 202 1 . SD/ - SD/ - ( S.S. VISWANETHRA RAVI ) ( R.S.SYAL ) JUDICIAL MEMBER VICE PRESIDENT PUNE ; DATED : 3 RD JUNE , 2021 GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE DRP - 3, MUMBAI 4. THE CIT (IT/TP) , PUNE 5. , , / DR C , ITAT, PUNE 6. / GUARD FILE / BY ORDER, / / TRUE C O PY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO. 2986 /PUN/20 17 ADIENT INDIA PVT. LTD. 16 DATE 1. DRAFT DICTATED ON 02 - 0 6 - 202 1 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 03 - 0 6 - 202 1 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAF T COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *