P.N.Gadgil Jewellers Pvt.Ltd, Pune V. Assistant Commissioner of Income-tax, Circle - 4, Pune

ITA 1891/PUN/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2490 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-06-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 13-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMOL KAMAT
• Keywords: Transfer pricing; Corroborative evidences
• Section: 143(3); 201; 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 1891 /P U N/201 8 / ASSESSMENT YEAR : 20 1 4 - 1 5 P.N. GADGIL JEWELLERS PVT. LTD., PNG HOUSE, 694, NARAYAN PETH, LAXMI ROAD, PUNE . / APPELLANT PAN: AA HCP4162E VS. THE ASST . COMMISSIONER OF INCOME TAX , CIRCLE 4 , PUNE . / RESPONDENT ASSESSEE BY : S /S HRI M.P. LOHIA AND RAJENDRA AGIWAL REVENUE BY : SHRI AMOL KAMAT / DATE OF HEARING : 19 . 0 6 . 201 9 / DATE OF PRONOUNCEMENT: 04 . 0 9 .201 9 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY ASSESSEE IS AGAINST THE ORDER OF A CIT , CIRCLE 4 , PUNE , DATED 16 . 1 0 .201 8 RELATING TO ASSESSMENT YEAR 20 1 4 - 1 5 PASSED UNDER SECTION 143(3) R.W.S. 144C(1 3 ) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. AT T HE OUTSET, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT GROUND OF APPEAL NO.1 IS GENERAL. FURTHER, HE DID NOT PRESS GROUNDS OF APPEAL NO.2 TO 6, 10 AND ADDITIONAL GROUND OF APPEAL NO.13. THE ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 2 GROUND OF APPEAL NO.11 WAS AGAINST L EVY OF INTEREST UNDER SECTION 234A , 234 B & 234 C WAS SAID TO BE CONSEQUENTIAL AND GROUND OF APPEAL NO.12 WAS POINTED OUT TO BE PREMATURE. HENCE, THE ISSUES WHICH NEED TO BE ADJUDICATED ARE AGAINST TRANSFER PRICING ADJUSTMENT MADE IN THE SPECIFIED DOMESTIC TRANSACTIONS, VIDE GROUNDS OF APPEAL NO.7, 8 AND 9, WHICH READ AS UNDER: - 7 . INAPPROPRIATE CONSIDERATION OF SEGMENTAL OPERATING PROFIT MARGINS OF THE APPELLANT. ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW IN CONSIDERING SEGMENTAL OPERATIN G PROFIT MARGINS RELATED TO GOLD AND SILVER SEGMENT OF THE APPELLANT WHILE APPLYING TNMM INSTEAD OF ENTITY WIDE MARGINS. 8 . INAPPROPRIATE COMPUTATION OF TRANSFER PRICING ADJUSTMENT ON THE ENTIRE SEGMENTAL REVENUE OF THE APPELLANT INSTEAD OF ADJUSTMENT, IF A NY ONLY ON THE VALUE OF INTERNATIONA L / SPECIFIED DOMESTIC TRANSACTIONS OF THE APPELLANT . ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW BY COMPUTING THE TRANSFER PRICING ADJUSTMENT ON THE ENTIRE SEGMENTAL REVENUE OF THE APPELLANT INSTEAD OF ADJUSTMENT, IF ANY ONLY ON THE VALUE OF INTERNATIONAL/ SPECIFIED DOMESTIC TRANSACTIONS OF THE APPELLANT. 9 . INAPPROPRIATELY NOT AGGREGATING THE SPECIFIED DOMESTIC TRANSACTION PERTAINING TO PAYMENT OF DIRECTOR'S REMUNERATION WHILE APPLYING TNMM. ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW BY NOT AGGREGATING THE SPECIFIED DOMESTIC TRANSACTION PERTAINING TO PAYMENT OF DIRECTOR'S REMUNERATION WHILE APPLYING TNMM. 3. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDE RATION HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF 33,61,11,590/ - . THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CARRYING ON JEWELLERY BUSINESS. THE ASSESSEE COMPANY WAS INCORPORATED ON 28.10.2013 AND IT TOOK OVER AS A GOING CONCERN THE BUSINES S CARRIED ON BY TWO FIRMS M/S. PN GADGIL & CO. AND M/S. PN GADGIL & CO. (SILVER). THE ASSESSING OFFICER NOTES THAT PARTNERSHIP FIRMS WERE CONTROLLED BY THE MEMBERS OF GADGIL FAMILY WHO WERE ENGAGED IN THE BUSINESS OF JEWELLERY FOR MORE THAN 1 5 0 YEARS. TH E ASSESSEE HAD SHOWN TOTAL RECEIPTS FROM ITS OPERATIONS AT 503.30 CRORES AND ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 3 HAD SHOWN GROSS PROFIT OF 73.57 CRORES, WHICH WORKED OUT TO 14.62%. THE NET PROFIT SHOWN WAS AT 4.70%. THE ASSESSING OFFICER MADE REFERENCE UNDER SECTION 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO). THE TPO NOTED THAT THE ASSESSEE HAD UNDERTAKEN VARIOUS DOMESTIC TRANSACTIONS DURING THE YEAR. THE ASSESSEE HAD BENCHMARKED ALL THE TRANSACTIONS BY APPLYING CUP METHOD AS MOST APPROPRIATE METHOD EXCEPT THE TRANSACTION PERTAINING TO REMUNERATION TO DIRECTORS . THE TRANSACTION WITH WHICH WE ARE CONCERNED IS PURCHASE OF GOLD, SILVER AND DIAMOND JEWELLERY, BULLION STOCK OF FIRM AT 2,32,29,60,348/ - . THE ASSESSEE COMPANY HAD ACQUIRED THE BUSINESS OF PN GADGIL JEWELLERS THROUGH BUSINESS TRANSFER AGREEMENT DATED 16.11.2013. THE ASSESSEE CLAIMED IT TO BE IN THE NATURE OF SLUMP SALE WHEREBY ALL ASSETS AND LIABILITIES OF JEWELLERY BUSI NESS OF THE FIRM WERE TAKEN OVER BY THE COMPANY AT BOOK VALUE. THEREAFTER, JEWELLERY BUSINESS WAS CARRIED OUT BY ASSESSEE COMPANY INSTEAD OF PARTNERSHIP FIRM. THE TOTAL OF BULLION AND JEWELLERY INVENTORY OF THE VALUE AT 232.29 CRORES AS REFLECTED IN TH E BOOKS OF FIRM WAS TAKEN OVER BY THE ASSESSEE COMPANY AND THE ASSESSEE CLAIMED IT TO BE MERE BOOK ENTRY FROM ONE ENTITY TO ANOTHER AND THERE WAS NO PROFITABILITY MOTIVE LIKE IN AN INDEPENDENT PURCHASE / SALE TRANSACTION BETWEEN TWO DIFFERENT PARTIES. THE TPO VIDE PARA 7.2.2 AT PAGE 18 OF HIS ORDER NOTES THAT AS PER ARTICLE 3, CONSIDERATION AT PAGE 8 OF THE SAID AGREEMENT WAS DISCLOSED AT 85,83,31,999/ - INSTEAD OF AMOUNT OF 232.29 CRORES. ON FURTHER VERIFICATION, THE TPO FOUND THAT AS PER FORM NO.3CEB, ASSESSEE COMPANY HAD TAKEN OVER ASSETS AND LIABILITIES OF THE FIRM AT AGREED CONSIDERATION OF 9091.82 LA KHS, WHEREAS ASSESSEE IN THE AGREEMENT HAS MENTIONED SUM OF 8583.32 LAKHS AND HENCE, THERE WAS DIFFERENCE OF 508 LAKHS. THE EXTRACT OF FORM NO.3CEB IS REPRODUCED AT PARA 7.2.3 AT PAGE 19 OF TPOS ORDER. THE VARIATION OF AMOUNT ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 4 OF CONSIDERATION IN DIFFERENT DOCUMENTS WAS CONFRONT ED TO THE ASSESSEE AND THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME ALONG WITH DOCUMENTARY EVIDENCE. THE SECOND PLEA OF ASSESSEE THAT THE TRANSACTION WAS NOT REPORTED AS EXPENDITURE WAS ALSO FOUND TO BE INCORRECT AS THE ASSESSEE IN CLAUSE NO.23 OF FORM NO.3 CD HAD MADE CERTAIN REPORTS AND THE TPO WAS OF THE VIEW THAT WHERE THE ASSESSEE HAD SHOWN IT AS PURCHASES, THEREFORE THE SAME FIGURE MIGHT HAVE BEEN REFLECTED IN EXPENSES OF THE ASSESSEE COMPANY, THEREBY REDUCING THE MARGINS OF ASSESSEE. THE ASSESSEE WAS ASKED TO EXPLAIN THAT HOW THE FIGURE OF 23,229.60 LAKHS WAS WORKED OUT AND WHAT WERE THE SUPPORTING EVIDENCE S . THE TPO OBSERV ED THAT IN THE ABSENCE OF ANY JUSTIFICATION, THE TRANSACTION AMOUNT OF 2,32,29,60,348/ - FOR PURCHASE OF GOLD, SILVER AND DIAMO ND JEWELLERY AND BULLION STOCK OF ASSOCIATED ENTERPRISE AS MENTIONED IN FORM NO.3CD AND FORM NO.3CEB WAS CONSIDERED AS CONSIDERATION, HIT BY PROVISIONS OF SECTION 40A(2) OF THE ACT AND WAS TO BE CONSIDERED FOR BENCHMARKING. THE TPO ALSO OBSERVED THAT THOU GH THE ASSESSEE HAD SHOWN THE ABOVE SAID PURCHASES FROM THE FIRM AND HAD BENCHMARKED BY APPLYING CUP METHOD AS MOST APPROPRIATE METHOD; HOWEVER, THE ASSESSEE HAD NOT JUSTIFIED THE TRANSACTION AND THE METHOD IN TP STUDY REPORT AND THE SUBSEQUENT SUBMISSIONS , THE ONLY SUBMISSION MADE WAS OF COPY OF BUSINESS TRANSFER AGREEMENT . THE CLAIM OF ASSESSEE THAT STOCK WAS TRANSFERRED AT THE BOOK VALUE , WAS ALSO WITHOUT ANY JUSTIFICATION , AS PER TPO . IN THE ABSENCE OF THE SAME, THE TPO OBSERVED THAT CUP METHOD WAS NO T MOST APPROPRIATE METHOD TO BENCHMARK THE TRANSACTION AND TNMM METHOD WAS SOUGHT TO BE APPLIED FOR VERIFICATION OF BENCHMARKING. THE TPO FIRST COMPUTED PLI COMPUTATION OF NET MARGINS AND FIVE CONCERNS WERE FINALLY SELECTED AS COMPARABLES A S TABULATED UND ER PARA 9 AT PAGE 30 OF TPOS ORDER. THE TPO ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 5 THEN WORKED OUT PLI OF ASSESSEE UNDER TNMM METHOD I.E. OP/OC AT 7.55% AND OP/OR AT 7.02%. THE MEAN MARGINS OF FIVE COMPARABLES W ERE 11.22%. THE TPO MADE UPWARD ADJUSTMENT ON THIS ACCOUNT. 4. THE SECOND POI NT WHICH WAS RAISED WAS THE REMUNERATION PAID TO THE DIRECTORS I.E. SAURABH GADGIL OF 2.25 CRORES AND PARAG GADGIL OF 82 LAKHS. THE TPO WAS OF THE VIEW THAT SINCE THE COMPANY HAD STARTED ITS BUSINESS ACTIVITY FROM 03.12.2013, THE DIRECTORS SHOULD BE R EMUNERATED OVER THE PERIOD FROM 03.12.2013 TO 31.03.2014 AND REMUNERATION SHOULD BE ONLY FOR FOUR MONTHS. THE ASSESSEE HAD APPLIED CUP METHOD BEING PAYMENT MADE ON ACTUAL BASIS BUT THE SAME WAS HELD TO BE NOT JUSTIFIED, SINCE THE ASSESSEE HAD PAID REMUNER ATION TO THE DIRECTORS ONLY FOR FOUR MONTHS, REMUNERATION OF COMPARABLE COMPANIES WAS ALSO ACCORDINGLY ADJUSTED. THE ARM'S LENGTH PRICE OF REMUNERATION WAS WORKED OUT AT 1,04,33,333/ - , WHEREAS THE REMUNERATION TO DIRECTORS WAS 3,07,50,000/ - , WHICH WAS IN EXCESS OF 2,03,16,667/ - . THE ASSESSEE WAS SHOW CAUSED IN THIS REGARD. THE TPO DID NOT FIND FAVOUR WITH THE SUBMISSIONS OF ASSESSEE AND REJECTED THE SAME. 5. TH E CLAIM OF ASSESSEE THAT THE BUSINESS TRANSFER WAS NOT PART OF FORM NO.3CEB WAS REJECTED AS THE RELATED TRANSACTION WAS REPORTED AS PURCHASES. THE ASSESSEE HAD ALSO OBJECTED TO PLI COMPUTATION. THE TPO ACKNOWLEDGED THAT THERE WERE SOME MISTAKES IN COMPUT ATION AND HE TOOK INTO CONSIDERATION THE SEGMENTAL INFORMATION IN NOTES 22(A) OF THE NOTES AND COMPUTED PLI ON THE BASIS OF SEGMENTAL S AVAILABLE. THE TPO THUS, COMPUTED SEGMENTAL RATIO OF OP/OC AT 5.29%. THE TPO ALSO RE - COMPUTED THE PLI OF COMPARABLES AN D IN T HE FINAL, HE TOOK THREE CONCERNS AS COMPARABLES, WH OSE MEAN MARGINS AS PER ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 6 WORKING OF ASSESSEE WERE 8.74%, BUT THE MARGINS AS WORKED OUT BY TPO WERE 8.98%. THE TPO THUS, PROPOSED AN ADJUSTMENT OF 17,76,98,384/ - . THE ASSESSEE HAD NOT SUBMITTED ANY DETAILS WITH REGARD TO DIRECTORS REMUNERATION AND HENCE, AN ADJUSTMENT OF 2.03 CRORES WAS TREATED AS ACCEPTED BY ASSESSEE. THUS, THE TPO PROPOSED TOTAL ADJUSTMENT OF 19.80 CRORES IN RESPECT OF TRANSACTION ENTERED INTO BY THE ASSESSEE. THE ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP) , WHICH GAVE CERTAIN DIRECTIONS VIDE ITS ORDER DATED 24.09.2018. THE TPO GAVE EFFECT TO THE AFORESAID DIRECTIONS OF DRP AND RE - WORK ED THE PLI OF COMPARABLES TRIBHOVANDAS BHIMJI ZAVERI LTD. AND KP SANGHVI INTERNATIONAL LTD. CONSEQUENT TO THE ORDER OF TPO, THE ASSESSING OFFICER MADE AN ADJUSTMENT OF 16,56,59,198/ - ON ACCOUNT OF TRANSACTION OF GOLD, SILVER AND DIAMOND JEWELLERY AND BULLION STOCK AND DIRECTORS REMUNERATION OF 2,03,16,667/ - TOTALING 18,59,75,865/ - . 6 . THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 7 . THE FIRST ISSUE WHICH IS AGITATED BEFORE US IS VIDE GROUND OF APPEAL NO.7, WHEREIN THE ASSESSEE IS AGGRIEVED BY THE ORDER OF TPO IN CONSIDERING THE SEGMENTAL OPERATING PROFIT MARGINS RELATED TO GOLD AND SILVER SEGMENTS WHILE APPLYING TNMM METHOD INSTEAD OF ENTITY - WISE MARGINS. VIDE GROUND OF APPEAL NO.9, THE ASSESSEE IS AGGRIEVED BY ORDERS OF ASSESSING OFFICER AND TPO IN NOT AGGREGATING THE SPEC IFIED DOMESTIC TRANSACTIONS PERTAINING TO PAYMENT OF DIRECTORS REMUNERATION WHILE APPLYING TNMM METHOD. VIDE GROUND OF APPEAL NO.8, THE ISSUE WHICH IS RAISED IS THE ADJUSTMENT TO BE MADE ON THE VALUE OF ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 7 INTERNATIONAL / SPECIFIED DOMESTIC TRANSACTIONS OF T HE ASSESSEE INSTEAD OF ENTIRE SEGMENTAL REVENUE OF THE ASSESSEE. 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE IN THE FIRST ANALYSIS HAD APPLIED CUP METHOD, WHEREAS THE ASSESSING OFFICER / TPO HAD APPLIED TNMM M ETHOD. HE FURTHER POINTED OUT THAT THE ASSESSEE WAS ACCEPTING TNMM METHOD , WAS THE MOST APPROPRIATE METHOD WHEREIN PLI OF OP/OR IS TO BE APPLIED. IT WAS FURTHER POINTED OUT THAT TPO CHOOSES THREE COMPANIES AS COMPARABLES WHOSE MEAN MARGINS WERE COMPUTED AT 8.98%, BUT AFTER THE DIRECTIONS OF DRP, SAME WERE RE - COMPUTED AT 8.73%. AS AGAINST THE SAME, THE TPO HAD INITIALLY COMPUTED PLI OF ASSESSEE AT 7.02% AND THEN APPLYING SEGMENTAL S HAD FINALLY COMPUTED AT 5.29%. HOWEVER, THE ASSESSEES MARGINS AS PER ITS CALCULATION WORKS TO 8.47%. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT TOLERANCE DURING THE YEAR WAS +/ - 3%, HENCE NO TP ADJUSTMENT TO BE MADE IN THE HANDS OF ASSESSEE. AFTER TAKING US THROUGH VARIOUS PORTIONS OF ORD ER OF TPO, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FIRST REFERRED TO THE FINANCIALS OF K.P. SANGHVI INTERNATIONAL LTD. PLACED AT PAGES 357 TO 361 OF PAPER BOOK AND POINTED OUT THAT ACCOUNTING STANDARD 17 WAS NOT FOLLOWED AND SEGMENTAL DETAIL S WERE ALSO NOT AVAILABLE. IN RESPECT OF PC JEWELLER LTD. ALSO, WHOSE FINANCIALS ARE PLACED AT PAGES 364 TO 379 OF PAPER BOOK, IT WAS POINTED OUT THAT THE SAID CONCERN WAS ENGAGED IN EXPORT S AND ALSO THERE WAS DEMERGER DURING THE YEAR AND FURTHER, NO ITEM - WISE SEGMENTAL DETAILS WERE AVAILABLE, THOUGH THE SAID CONCERN WAS ENGAGED IN SALE OF GOLD AND SILVER AND JEWELLERY, DIAMOND JEWEL L ER Y . WITH REGARD TO COMPARABLE TRIBHOVANDAS BHIMJI ZAVERI LTD., HE MADE REFERENCE TO THE FINANCIALS AT PAGES 382 TO 398 OF PAPER BOOK AND ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 8 POINTED OUT TO THE BREAKUP OF REVENUE EARNED BY THE SAID CONCERN, WHEREIN NO SEGMENTAL S WERE AGAIN AVAILABLE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IF THE MARGINS OF ABOVE COMPARABLES ARE APPLIED , THEN ALL OF THEM WE RE ENGAGED IN THE BUSINESS OF GOLD, SILVER AND DIAMOND JEWELLERY AND IN CASE SAME SIMILE APPLIED, THEN THE ENTITY - WISE ASSESSEES MARGINS WE RE TO BE APPLIED, WHICH WORKED OUT TO 8.47%. OUR ATTENTION WAS DRAWN TO PAGE 251 OF PAPER BOOK IN THIS RE GARD. IN CASE THE MARGINS OF ASSESSEE WE RE CORRECTLY COMPUTED AT 8.47% AND THE MEAN MARGINS OF COMPARABLES AFTER DRP DIRECTIONS ARE 8.73%, THEN THE MARGINS SHOWN BY ASSESSEE WERE WITHIN TOLERANCE LEVEL AND NO ADJUSTMENT NEEDS TO BE MADE IN THE HANDS OF AS SESSEE. 9 . COMING TO SECOND ISSUE VIDE GROUND OF APPEAL NO.9, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STATED THAT ONCE ENTITY LEVEL RESULTS ARE TAKEN UP, THEN THE MARGINS ARE HIGHER AND THE DIRECTORS REMUNERATION WOULD GET SUBSUMED IN THE S AME AND NO SEPARATE ADJUSTMENT IN THIS REGARD IS TO BE MADE. FOR THIS, HE PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF HINDUSTAN UNILEVER LIMITED VS. ADDL.CIT IN ITA NO.7868/MUM/2010, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDE R DATED 10.12.2012. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN CASE GROUNDS OF APPEAL NO.7 AND 9 ARE DECIDED IN FAVOUR OF ASSESSEE, THEN THE ISSUE OF PROPORTIONATE ADJUSTMENT RAISED VIDE GROUND OF APPEAL NO.8 WOULD BECOME A CADEMIC. 10 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, STRONGLY PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW WITH SPECIAL REFERENCE TO THE ORDER OF DRP. ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 9 1 1 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS WITH REGARD TO ADJUSTMENT MADE ON ACCOUNT OF DOMESTIC TRANSACTIONS. THE ASSESSEE COMPANY WAS INCORPORATED ON 28.10.2013. AS PER THE BUSINESS TRANSFER AGREEMENT, ASSESSEE COMPANY TOOK OVER THE BUSINESS OF PARTNERSHIP FIRMS WHICH WERE ENGAGED IN THE AFORESAID BUSINESS FOR THE PAST 150 YEARS. THE ASSESSEE HAD TAKEN OVER THE ENTIRE STOCK OF GOLD, SILVER AND DIAMOND JEWELLERY AND THE STOCKS WERE THUS, TRANSFERRED FROM THE PARTNERSHIP FIRM S TO A PRIVATE LIMITED COMPANY CONSTITUTED OF THE SAME PERSON S . THERE WAS TRANSFER OF GOODS OF ABOUT THE VALUE AT 23 2 CRORES ON APPROXIMATE BOOK VALUE OF 17.76 CRORES. 1 2 . THE QUESTION WHICH ARISES IS BENCHMARKING OF AFORESAID TRANSACTION BETWEEN TWO ENTITIES, WHICH CON STITUTED THE SAME PERSON. THE PARTNERS OF PARTNERSHIP FIRMS HAVE BECOME DIRECTORS OF ASSESSEE COMPANY, WHICH IN TURN, HAS TAKEN OVER THE SAID CONCERN. THE ASSESSEE HAD APPLIED CUP METHOD IN THIS REGARD AND CLAIMED ITS TRANSACTIONS TO BE AT ARM'S LENGTH P RICE. THE TPO HOWEVER, WAS OF THE VIEW THAT TNMM METHOD WAS MOST APPROPRIATE METHOD. DURING THE COURSE OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS STATE D THAT IT ACCEPTS THE APPLICATION OF TNMM METHOD, WHEREIN THE PLI IS TO BE DETERMINED BY APPLYING PLI OF OP/OR. THE FIRST ISSUE WHICH ARISES IS THE CALCULATION OF MARGINS OF ASSESSEE. THE ASSESSEE CLAIMS THAT ITS MARGINS FOR THE YEAR WE RE AT 8.47%, WHEREAS THE TPO INITIALLY WORKED OUT THE SAME AT 7.02% AND THEN APPLYING THE SEGMENTALS AT 5.29%. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO PAGE 251 OF PAPER BOOK. THE PERUSAL OF SAME REFLECTS THAT THE ASSESSEE HAD WHILE COMPUTING OPERATING PROFIT MARGINS HAD TAKEN THE TOTAL INCOME AS PER PROFIT AND ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 10 LOSS ACCOUNT AND AFTER EXCLUDING THE NON - OPERATING INCOME I.E. INTEREST INCOME HAD ADOPTED THE OPERATING INCOME AT 504.52 CRORES (APPROX.) AS AGAINST WHICH THE TOTAL EXPENSES EXCLUDING NON - OPERATING EXPENSES WERE DEDUCTED AND THE BALANCE OPERATING E XPENSES WORKED OUT TO 4.62 CRORES (APPROX.). THE TOTAL OPERATING PROFITS WERE 42,73,12,390/ - AND OP/OR WORKED OUT TO 8.47%. 1 3 . THE TPO HOWEVER, COMPUTED THE MARGINS OF ASSESSEE BY APPLYING SEGMENTAL DETAILS AT 481.56 CRORES. THE SEGMENTAL INFORMA TION IN NOTE 22(A) OF THE NOTES WAS TAKEN AND THE MARGINS (OP/OR) WERE COMPUTED AT 5.29%. INITIALLY, PLI OF ASSESSEE UNDER PARA 10 WAS COMPUTED BY TAKING REVENUE FROM OPERATIONS (GROSS) AT 503.30 CRORES AND OP/OR WORKED OUT TO 7.02%. 1 4 . THE ASSESS EE IS AGGRIEVED BY THE ORDER OF TPO IN COMPUTING PLI. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT FOR SEGMENTAL REPORTING, THE ASSESSEE HAD SHOWN REVENUE FROM GOLD AND SILVER DIVISION AT 481.56 CRORES AND THE SECOND SEGMENT UNDER THE HEAD UN - ALLOCATED CORPORATE ITEMS AT 23.39 CRORES, TOTALING 504.96 CRORES. THE SECOND SEGMENT WAS ON ACCOUNT OF SALE OF DIAMOND JEWELLERY. WHILE MAKING SEGMENTAL REPORTING UNDER NOTE 22(A) OF THE NOTES, WHICH HAS BEEN RELIED UPON BY THE TPO FOR PICKING UP THE FIGURES ONLY, THE ASSESSEE HAD REPORTED THAT IT WAS PRIMARILY ENGAGED IN TRADING OF GOLD AND JEWELLERY. IT WAS FURTHER REPORTED THAT COMPANY ALSO ENGAGED IN TRADING OF DIAMONDS OF PRECIOUS AND SEMI PRECIOUS STONES. THE REVENUE GENERATED FROM TRADING OF DIAMOND AND OTHER PRECIOUS AND SEMI PRECIOUS STONES HAS BEEN CLASSIFIED AS UN - RECONCILED ITEMS AS PER THE REQUIRED AS - 17 SEGMENT REPORTING . IN OTHER WORDS, THE ASSESSEE IN SEGMENTAL REPORTING ITSELF HAS REPORTED THAT IT I S SHOWING TWO SEGMENTS OF GOLD ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 11 AND SILVER DIVISION AND THE DIAMOND AND OTHER PRECIOUS AND SEMI PRECIOUS STONE S DIVISION SEPARATELY AS PER THE REQUIREMENT OF AS - 17 AND THE TOTAL TURNOVER WAS 504 CRORES (APPROX.). IN SUCH SCENARIO, THE PLEA OF ASSESSEE TH AT ENTIRE TURNOVER IS TO BE CONSIDERED AND NOT THE SEGMENT AL PART OF ONLY GOLD AND SILVER, BOTH FOR REVENUE AND COST, HAS MERIT AND THE SAME IS ACCEPTED. THE ASSESSING OFFICER HAS PICKED UP THE FIGURES OF SEGMENTAL REVENUE BUT HAS FAILED TO TAKE COGNIZANC E THE REPORTING MADE UNDER THE HEAD SEGMENT REPORTING, WHEREIN THE ASSESSEE FOLLOWING THE REQUIREMENT OF AS - 17 HAS SEGREGATED TWO SEGMENTS I.E. THE TRANSACTION OF GOLD AND SILVER DIVISION AND TRANSACTION OF DIAMOND AND OTHERS. ANOTHER ANALOGY WHICH HAS TO BE CONSIDERED IN THE APPROACH OF ASSESSING OFFICER THAT WHILE PICKING UP THE MARGINS OF COMPARABLES, IT HAD CONSIDERED THE REVENUE EARNED BY SAID COMPARABLES FROM GOLD AND SILVER AND DIAMOND JEWELLERY TRANSACTIONS. SO, SIMILARLY, THE SAID APPROACH SHOU LD HAVE BEEN APPLIED IN THE HANDS OF ASSESSEE. OUR ATTENTION WAS DRAWN TO THE FINANCIAL STATEMENTS OF PC JEWELLER LTD. AT PAGE 375 OF PAPER BOOK, WHEREIN IT IS REPORTED THAT REVENUE ARISES FROM THE SALE OF GOLD, DIAMOND AND SILVER JEWELLERY. SIMILARLY, I N THE CASE OF TRIBHOVANDAS BHIMJI ZAVERI LTD., THE ENTITY - WISE MARGINS WERE APPLIED WHEREIN NO BREAKUP OR NO SEGMENTAL OF ITEMS DEALT IN HA D BEEN GIVEN. IN THE CASE OF KP SANGHVI INTERNATIONAL LIMITED, AT PAGE 361 OF PAPER BOOK , THE SALE OF PRODUCTS ON AC COUNT OF CUT AND POLISHED DIAMONDS AT 75.93 CRORES, JEWELLERY AT 135 CRORES AND OTHER RAW MATERIALS AT 79 LAKHS HAS BEEN REPORTED. THE MARGINS OF THIRD CONCERN HA VE BEEN GIVEN BUT NO SEGMENTAL S IN THAT CONCERN HA S BEEN GIVEN AND THE TOTAL REVENUE HA S BEEN APPLIED TO COMPUTE THE MARGINS OF SAID COMPARABLE. IN SUCH SCENARIO, THE TPO HAS ERRED IN APPLYING TWO DIFFERENT APPROACHES I.E. FIRST IN COMPUTING MARGINS OF ASSESSEE BY ONLY TAKING ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 12 SEGMENTAL S OF GOLD AND SILVER DIVISION AND EXCLUDING THE SECOND D IVISION OF DIAMONDS AND SEMI PRECIOUS STONES. ON THE OTHER HAND, IN THE CASE OF TH REE COMPARABLE S , REVENUE FROM ALL THE DIVISIONS HAS BEEN APPLIED AS NO SEGMENTALS HAVE BEEN SUPPLIED OR MADE AVAILABLE TO THE TPO IN THIS REGARD. ACCORDINGLY, WE HOLD THAT THE ASSESSEES ENTITY - WISE MARGINS I.E. IT S DEALING S IN GOLD, SILVER AND DIAMOND JEWELLERY IN ENTIRETY IS TO BE APPLIED AND IN THIS REGARD, THE MARGINS OF ASSESSEE WOULD WORK OUT TO 8.47%. THE TPO HAS AFTER THE DIRECTIONS OF DRP WORKED OUT THE MEAN MARGIN S OF COMPARABLES AT 8.73%. IN SUCH SCENARIO, THE MARGINS SHOWN BY ASSESSEE WERE AT ARM'S LENGTH PRICE OF ITS DOMESTIC TRANSACTIONS AND NO ADJUSTMENT IS WARRANTED IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE HOLD SO. 1 5 . NOW, COMING TO THE LINKED ISSUE OF P AYMENT OF DIRECTORS REMUNERATION, IN CASE ENTITY LEVEL RESULTS ARE TAKEN AND WHERE THE MARGINS WE RE WITHIN ARM'S LENGTH PRICE, THEN NO SEPARATE ADJUSTMENT MERITS TO BE MADE ON ACCOUNT OF DIRECTORS REMUNERATION , AS THE SAID EXPENDITURE SUBSUMED. IN THIS RE GARD, WE FIND THAT MUMBAI BENCH OF TRIBUNAL IN THE CASE OF HINDUSTAN UNILEVER LIMITED VS. ADDL.CIT (SUPRA) HAD DELIBERATED ON THE ISSUE AND HELD THAT IF BENCHMARKING WAS BEING DONE AT THE ENTITY LEVEL EITHER FOR THE AE TRANSACTIONS OR FOR THE ENTIRE TRANSA CTIONS, THEN THERE WAS NO REQUIREMENT FOR FURTHER ADJUSTMENT AS ALL THE ADJUSTMENTS MADE BY ASSESSING OFFICER / TPO WOULD GET AUTOMATICALLY SUBSUMED INCLUDING THOSE ADJUSTMENTS ALSO RELATING TO ROYALTY, ETC. AS DONE BY THE TPO. APPLYING THE SAID PRINCIPLE , WE HOLD THAT NO SEPARATE ADJUSTMENT IS TO BE MADE ON ACCOUNT OF DIRECTORS REMUNERATION IN THE HANDS OF ASSESSEE. IN VIEW THEREOF, WE ALLOW GROUNDS OF APPEAL NO.7 AND 9 RAISED BY ITA NO. 1891 /P U N/20 1 8 P N GADGIL JEWELLERS P VT. LTD. 13 ASSESSEE AND GROUND OF APPEAL NO.8 BECOMES ACADEMIC AND THE SAME IS DISMISS ED. 1 6 . THE GROUND OF APPEAL NO.1 RAISED BY ASSESSEE BEING GENERAL IN NATURE, DOES NOT NEED ANY ADJUDICATION. THE GROUNDS OF APPEAL NO.2 TO 6, 10 AND ADDITIONAL GROUND OF APPEAL NO.13 ARE NOT PRESSED AND HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. T HE GROUND OF APPEAL NO.11 IS CONSEQUENTIAL AND THE GROUND OF APPEAL NO.12 BEING PREMATURE, IS DISMISSED. 1 7 . IN THE RESULT, THE APPE AL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 4 TH DAY OF SEPTEMBER , 201 9 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 4 TH SEPTEMBER , 201 9 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP - 3, MUMBAI ; 4. THE CONCERNED CIT - 2, PUNE ; 5. THE DR C , ITAT, PUNE; 6. GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE