M/s Arrow Electronics India Ltd., Bangalore V. Addl.DIT, Bangalore

ITA 209/BANG/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8457 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-01-2017
• Assessment Year: 2000-2001
• Appeal Filed On: 28-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: GURUNATHAN
• Keywords: Business income; Transfer pricing; International transaction
• Section: 133A; 234B; 148

Judgement Text

IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER 1-2. I.T (TP).A NOS.209 & 210/BANG/2011 (ASSESSMENT YEARS : 2000-01 & 2001-2002) 3-5. CROSS OBJECTION NOS.31 TO 33/BANG/2011 (IN I.T (TP).A NOS.617 TO 619/BANG/2011 (ASSESSMENT YEARS : 2002-03, 2003-04 & 2004-05) M/S. ARROW ELECTRONICS INDIA LTD, INDIA LIAISON OFFICE, NO.26, AKSHAYA COMMERCIAL COM PLEX, 4 TH FLOOR, VICTORIA LAYOUT, BENGALURU 560 047 .. APPELLANT PAN : AAGCA0297G V. ADDITIONAL DIRECTOR OF INCOME TAX, (INTERNATIONAL TRANSACTION) -1, BENGALURU .. RES PONDENT 6-8. I.T (TP).A NOS.617 TO 619/BANG/2011 (ASSESSMENT YEARS : 2002-03, 2003-04 & 2004-05) ADDITIONAL DIRECTOR OF INCOME TAX, (INTERNATIONAL TRANSACTION) -1, BENGALURU .. AP PELLANT V. M/S. ARROW ELECTRONICS INDIA LTD, INDIA LIAISON OFFICE, NO.26, AKSHAYA COMMERCIAL COM PLEX, 4 TH FLOOR, VICTORIA LAYOUT, BENGALURU 560 047 .. RESPONDENT ASSESSEE BY : SHRI. GURUNATHAN, ADVOCATE REVENUE BY : SMT. PREETHI GARG, CIT-DR HEARD ON : 05.01.2017 PRONOUNCED ON : 31.03.2017 O R D E R PER BENCH : TWO APPEALS ARE FILED BY THE ASSESSEE FOR THE A YS. 2000-01, 2001- 02 , THREE APPEALS ARE FILED BY THE REVENUE FOR TH E A Y S. 2002-03 TO 2004- IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 2 05 AND THREE CROSS OBJECTIONS ARE FILED BY THE AS SESSEE AGAINST THOSE THREE APPEALS FILED BY THE REVENUE FOR THE A YS. 20 02-03 TO 2004-05, RESPECTIVELY, AGAINST THE RESPECTIVE ORDERS OF THE CIT(A) IV, BANGALORE WHICH ARE UNDER CONSIDERATION IN THIS PROCEEDINGS . 02. M/S. ARROW ASIA PAC LTD, HONG KONG IS A GROUP C OMPANY OF THE US BASED ARROW GROUP WHICH IS LOOKING AFTER THE ASIA N OPERATIONS. M/S. ARROW ASIA PAC LIMITED HAS SET UP ONE OF ITS BRANCH OFFICES IN SINGAPORE IN THE NAME AND STYLE OF M/S. ARROW ELECT RONICS INDIA LIMITED WHICH IN TURN HAD IMMEDIATELY OPENED A LI AISON OFFICE (LO) IN BANGALORE IN 1994, OBTAINING APPROVAL OF THE RBI . LATER ON, THIS COMPANY OPENED BRANCHES OF THE LO AT HYDERABAD, MUM BAI, NEW DELHI & PUNE. HOWEVER, THE MAIN OPERATIONS AND CONTROL REMA INED WITH BANGALORE OFFICE WHERE 59 EMPLOYEES WERE WORKING AS AGAINST 16 EMPLOYEES IN ALL OTHER BRANCHES PUT TOGETHER. THE S INGAPORE BASED COMPANY WAS EXCLUSIVELY SET UP TO SERVICE THE CUSTOMERS IN INDIA ONLY AND THEY CONSTITUTE THE ENTIRE CUSTO MER BASE OF THE COMPANY. 03. ARROW GROUP STARTED A FULLY OWNED SUBSIDIARY OF M/S. ARROW ASIA PAC LIMITED IN THE NAME OF M/S. ARROW ELECTR ONICS INDIA PRIVATE LIMITED IN DECEMBER 2002. HOWEVER, TILL JULY 2003, NO EFFECTIVE OPERATION WAS CARRIED OUT BY THE SUBSIDIARY. THE LO ITSELF WAS TAKING CARE OF THE OPERATIONS TILL JULY 2003. SUBSEQUENTLY , IT BECAME IN- OPERATIVE. THE SALES OF THE INDIAN SUBSIDIARY ARE S HOWN FROM JULY 2003, IT CONTINUES TILL DATE AND IS REPORT ED TO BE FILING ITS RETURN FROM JULY 2003 . A SURVEY WAS CONDUCTED ON IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 3 28.08.2006 ON THE LIAISON OFFICE PREMISES IN BANG ALORE WHERE THE OFFICE OF THE INDIAN SUBSIDIARY IS ALSO LOCATED . THERE, THE SALES AND EXPENSES DETAILS AND OTHER ACCOUNTS PERTAINING TO THE LO WAS FOUND AND IMPOUNDED. STATEMENTS OF FORMER EMPLOYEES OF LO, WHO WERE LATER ON WORKING FOR THE SUBSIDIARY, WERE REC ORDED. AFTER THE SURVEY, NOTICES U/S 148 WERE ISSUED FOR A YS 2000-01 TO 2004-05. COMPLYING WITH THEM, THE ASSESSEE FILED THE RETURNS DECLARING INCOME ON THE BASIS OF COST + 6% . THE A O HAS RECORDED THE FINDINGS OF THE SURVEY. ACCORDING TO THE A O, THE LO WAS NOT SUPPOSED TO DO BUSINESS IN INDIA AS PER THE APPROVAL FROM THE R BI BUT, IN FACT, THE LO WAS CARRYING ON SOME INCOME EARNING ACTIVITI ES IN INDIA WHICH FACT HAS BEEN RECORDED BY OBTAINING STATEMENTS OF F ORMER EMPLOYEES OF THE INDIAN SUBSIDIARY AND THE EMPLOYEES OF THE E RSTWHILE LO. THE AO NOTICED THAT OUT OF THE TOTAL PROFITS EARNED, A POR TION OF THE PROFIT WAS ATTRIBUTABLE TO THE INDIAN OPERATIONS SINCE THEY HA D LIAISON OFFICES IN LNDIA. AFTER CONCLUDING SO, HE TOOK INTO CONSIDE RATION THE TOTAL SALES AND DEDUCTED THE COST OF SALES TO ARRIVE AT T HE GROSS . PROFIT. THE SINGAPORE EXPENSE WAS TAKEN AS CLAIMED BY THE A SSESSEE AND AFTER DEDUCTING EXPENSES OF SINGAPORE AND OF INDIAN LIAISON OFFICES, NET PROFIT WAS DETERMINED AND 40% OF IT WAS TAKEN A S PROFIT ATTRIBUTABLE TO THE INDIAN LO. BEFORE DECIDING THE 40:60 RATIO, THE AO DETERMINED THE FUNCTIONAL ANALYSIS AFTER FIXING THE RELATIVE WEIGHTAGE OF 50:25:25 TO FUNCTIONS, ASSETS AND RISK S AND FINALLY DETERMINED THE WEIGHTED AVERAGE AFTER TAKING INTO I NTRA SECTIONAL IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 4 RATIO BETWEEN THE LO AND THE HO AND FINALLY ARRIVED AT THE PROFIT ATTRIBUTABLE TO INDIAN OPERATIONS AT 40%. THUS, TH E AO DETERMINED THE PROFIT ATTRIBUTABLE TO THE INDIAN LO AT RS. L,35, 85,005/-, RS.74,90,544/-, RS. L,83,37,555/-, RS. L,42,54,775 /-& RS.92,04,320/-, FOR A YS 2000-01,2001-02,2002-03, 2003-04& 2004-05,RESPECTIVELY. SIMULTANEOUSLY, THE AO REFERR ED THE MATTER TO THE TPO FOR AYS 2002-03 TO 2004-05. THE TPO DETE RMINED ADJUSTMENTS U/S 92CA AT RS.5,65,55,609/-, RS.4, 96,10,165/- & RS.1,70,10,258/-, RESPECTIVELY, FOR AYS 2002-03 TO 2004-05 AND THE AO SUBSTITUTED THESE FIGURES AS AGAINST HIS WORKIN G OF INCOME FOR THESE AYS AS STATED ABOVE AND CONCLUDED THE ASSESSMENTS , IN TER ALIA, CHARGING OF INTEREST U/S. 234B , INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) AND U/S 271B AND ACCORDINGLY ISSUED DEMAND NOTICES . AGGRIEVED BY THE FINDING THAT THE SINGAPORE BRANCH HAD BUSINESS CONNECTION IN INDIA AND AGAINST THE FINDIN G THAT THE SINGAPORE COMPANY HAD A PE IN INDIA AND DETERMINATI ON OF 40% OF THE TOTAL PROFITS AS ATTRIBUTABLE TO THE INDIAN OPE RATIONS ETC, THE ASSESSEE FILED APPEALS BEFORE THE CIT (A). THE CIT (A) DISMISSED THEM FOR AYS 2000-01& 2001-02. HOWEVER, I N THE APPEALS RELATED TO AYS 2002-03 TO 2004-05, THE CIT (A) GAVE PART RELIEF ON THE ADJUSTMENTS MADE BY THE TPO. AGGRIEV ED, THE ASSESSEE FILED TWO APPEALS IN I.T (TP). A NOS. 209 & 210/BANG/2011 FOR AYS 2000-01& 2001-02 WITH SIMILAR GROUNDS OF APPEAL . ONE OF THE APPEAL GROUNDS IS EXTRACTED AS UNDER: IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 5 7. WITHOUT PREJUDICE THE ADDITIONS ARE EXCESSIVE, ARBI TRARY AND UNREASONABLE AND OUGHT TO BE DELETED IN FULL. IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 6 04. THE ASSESSEE ALSO FILED SIMILAR ADDITI ONAL GROUNDS OF APPEALS FOR AYS 2000-01& 2001-02, ONE OF THE APPEAL GROUNDS IS EXTRACTED AS UNDER: ADDITIONAL GROUNDS OF APPEAL NO 2: THE CIT (A) OUGHT TO HAVE APPRECIATED THAT ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE, NO INTEREST WAS CHARGEAB LE U/S.234B OF THE ACT AND CONSEQUENTLY HE OUGHT TO HAVE DIRECTED THE AO TO DELETE THE INTEREST CHARGED U/S.234B OF THE ACT. ADDITIONAL GROUNDS NO 3 : 1. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ASSE SSMENT ORDER U/S.143(3) R.W.S.147 OF THE ACT DT.28.12.2007, WHIC H WAS BASED ENTIRELY ON STATEMENTS RECORDED U/S.133A OF THE ACT , WHICH IS BAD IN LAW. IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 7 ADDITIONAL GROUNDS OF APPEAL NO 4 : IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 8 05. THE AR SUBMITTED THE SAME PLEA WHICH WAS TAKEN BEFORE THE CIT (A) AND ON THE LINES OF THE ABOVE ADDITIONAL GROUNDS . LET US EXAMINE, HOW THE CIT (A) DEALT THOSE ISSUES BY EXTRACTING THE RELEVANT PORTION OF THE ORDER AS UNDER : 4.THE FOLLOWING WERE THE FINDINGS OF A O: I. THE LO COULD NOT MAKE ANY SUPPLIES ON ITS OWN BUT T HE INDIAN SUBSIDIARY COULD DO SO. THIS IS EVIDENT FROM THE STATEMENT OF MR. SINGH, SALES MANAGER WHEREIN HE HAS STATED T HAT THE CUSTOMERS HAD TO IMPORT THEIR REQUIREMENTS FROM THE IR OVERSEAS OFFICE LOCATED AT SINGAPORE. II. SALARIES WERE EARLIER PAID BY THE LO AND LATER BY T HE INDIAN COMPANY. III. EARLIER TO INCORPORATION OF THE SUBSIDIARY THEY WER E PERMITTED TO CANVASS IMPORTED SALES FROM SINGAPORE, BUT AFTER THE INCORPORATION OF THE COMPANY THEY WERE PERMITTED TO DO RUPEE SALE S. IV. REVENUE RECOGNITION WAS ALWAYS THERE BEFORE INCORPO RATION IN THE HANDS OF THE LO AND AFTER THE COMPANY CAME INTO EXISTENCE. V. PROFITS AROSE TO THE INDIAN COMPANY AFTER THE IN CORPORATION AND IT WAS ATTRIBUTABLE TO THE LO BEFORE INCORPORATION. VI. THE NATURE OF THE BUSINESS REMAIN THE SAME BEFO RE AND AFTER THE INCORPORATION SINCE THE LO WAS DEALING WITH THE SAME FUNCTIONS LIKE MARKETING, SALES, SERVICE, ACCOUNTS, ADMINISTRATION ETC. THE LO WAS ALSO ASSIGNED THE TASK OF IDENTIFYING POTENTIAL CUSTOMER S FOR WHICH TECHNICALLY COMPETENT PERSONNEL WERE APPOINTED. VII. THE INDIAN LO WAS INVOLVED IN PROCUREMENT OF ORDERS AND STEP BY STEP EXECUTION INCLUDING COLLECTION OF PAYMENTS. VIII. PRICE NEGOTIATION WAS ALSO ONE OF THE FUNCTIONS ASS IGNED TO LO. IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 9 X.THE LO WAS TAKING THE FINAL DECISION ON THE P RICING WITHOUT EVEN REFERRING THE ISSUE TO SINGAPORE OR HONG KONG. XI.LO WAS RESPONSIBLE FOR CONCLUDING THE CONTRACTS . XII. TARGETS WERE GIVEN TO THE INDIAN LO. 5. AFTER OBSERVING THE ABOVE, THE AO CONCLUDED TH AT THOUGH THE LO WAS NOT DOING ANY TRADING BUSINESS IN THE CO NVENTIONAL SENSE STILL IT WAS INVOLVED IN INCOME EARNING OPERA TIONS BY EMPLOYING TECHNICALLY QUALIFIED PERSONS FOR MARKETI NG, SALES, ADMINISTRATION, ACCOUNTS ETC., IT WAS ALSO INVOLVED IN FINDING POTENTIAL CUSTOMERS, PRICE NEGOTIATIONS, CONCLUDING CONTRACTS, FOLLOWING UP OF PAYMENTS ETC., THE AO FINALLY CONCL UDED THAT THE LO WAS VIRTUALLY DOING THE BUSINESS BUT WAS CAREFULLY AVOIDING THE OUTCOME OF THE ACT BY ENSURING THE GOODS DELIVERY B Y HO AND RECEIPT OF PAYMENTS WAS IN SINGAPORE. LO WAS SURVIVING ON REMI TTANCES RECEIVED FROM SINGAPORE OFFICE AND IT WAS TAKING CA RE OF ITS EXPENSES OUT OF THESE REMITTANCES. THIS WAS ESSENTI ALLY DONE IN ORDER TO ADHERE TO THE STIPULATION OF THE RBI. THE LO WAS NOT PERMITTED TO DO ANY ACTIVITY PERTAINING TO INDUSTRIAL, COMMERCIA L OR TRADING IN NATURE. APART FROM THAT, ANY INCOME ARISING FROM A BUSINESS CONNECTION IN INDIA WAS LIABLE TO BE CHARGED TO TAX IN INDIA AS PER PROVISIONS OF SECTION 9(1)(1). THE APPELLANT WANTED TO AVOID THAT ALSO AS ALSO THE PROVISIONS OF 7 AND ARTICLE 5 OF INDIA SINGAPORE DT AA. THE AO FINALLY CONCLUDED THAT THE APPELLANT SHOULD HAVE APPORTIONE D A PORTION OF THE PROFIT TO SINGAPORE OPERATION AND THE BALANCE TO IN DIAN OPERATIONS SINCE THE LO COULD HAVE BEEN REGARDED AS INDIAN PER MANENT ESTABLISHMENT. THE AO DID EXACTLY THAT, WHICH WAS NOT DONE BY THE APPELLANT. AO HELD THAT THERE IS NO MATHEMATICAL FO RMULA FOR WORKING OUT THE PROFITS OF INDIAN OPERATIONS AND THAT OF SINGAP ORE OPERATIONS AND FINALLY CONCLUDED THAT FUNCTIONS, ASSETS AND RISKS ANALYSIS IS THE BEST WAY TO ARRIVE AT THE PROFITS. AO ASSIGNED RELA TIVE WEIGHTAGE TO THESE FUNCTIONS AND FIXED THE SAME AT 50:25:25 FOR F:A:R, CONSIDERING THE ROLE OF THE LO AND THE ROLE OF THE HO (HEAD OFFICE) IN 8 DIFFERENT FUNCTIONS BEING IDENTIFYING NEW CUSTOMERS , PURSUIT AND FOLLOW UP OF THE CUSTOMERS, CO-ORDINATION WITH THE SUPPLIE RS, PRICE IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 10 NEGOTIATIONS AND FINALIZATION, SECURING ORDERS, PRO CESSING OF ORDERS, DISPATCHING OF MATERIALS, PAYMENT FOR MATERIALS, TH E AO HELD THAT LO COULD BE ASSIGNED 565 POINTS AND THE HO 235 POINTS ON A SCALE OF 800 AND CONCLUDED THAT 70.30 RATIO IS FAIR AND REASONAB LE. AS REGARDS ASSETS ANALYSIS. THE AO HELD THAT LO HAS VIRTUALLY NO ASSETS AND IN VIEW OF THE SAME TUCK THE RATIO OF 10:90 FOR LO : H O. AS REGARDS RISK ANALYSIS, IT WAS HELD THAT MOSTLY IT IS BORNE BY THE HO AND THE LO WAS IN CHARGE OF ONLY THE MANPOWER AND NOT FOR THE STOCK HE ASSIGNED THE RATIO OF 90:10 FOR HO : LO. FINALLY HE WORKED OUT T HE BASIS OF 40:60 BETWEEN LO AND HO AS UNDER: . 8. QUANTIFICATION OF 40% OF THE PROFITS TO- THE LO: THE AO AFTER DETAILED ANALYSIS HAS HELD THAT 40% OF THE PROFITS AS ATTRIBUTABLE TO INDIAN OPERATIONS AND THE BALANCE 6 0% TO ITS SINGAPORE HO. THE APPELLANT HAS ARGUED THAT THE FUN CTIONS PERFORMED PERTAINING TO DETERMINATION, NEGOTIATION AND / OR F IXING OF PRICES OF GOODS, IDENTIFYING NEW CUSTOMERS, DETERMINING SALE PRICES FOR THIRD PARTY CUSTOMERS, DEVELOPING MARKETING STRATEGY, COO RDINATING MARKETING STRATEGY IMPLEMENTATION, PLANNING ADVERTI SEMENT AND PROMOTIONAL MATERIAL AS WELL AS USE OF MEDIA AND PR OCESSING OF SALES ORDER, THE LO HAD VERY LIMITED ROLE AND IN ALL OTHE R SPHERES IT HAS NO ROLE TO PLAY. THEY HAVE LISTED OUT VARIOUS FUNCTION S WHEREIN THE LO HAD NO ROLE AT ALL WHICH ACCORDING TO THE APPL1ANT INCL UDE PURCHASING OF FINISHED GOODS, INVENTORY CONTROL, HANDLING IMPORT, QUALITY CONTROL, IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 11 DISTRIBUTION NETWORK MAINTENANCE, WAREHOUSING, SHIP PING, SELLING TO END USERS, SUB-DISTRIBUTORS, MIDDLEMEN, DETERMINING ITS MARKETING AND REMUNERATION OF SALES PERSONNEL, UNDERTAKING WA RRANTIES AND OTHER FUNCTIONS. IN SUPPORT OF THEIR ARGUMENTS THEY HAVE QUOTED JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F DIT VS. MORGAN STANLEY AND COMPANY INC. IT IS HELD THAT THIS JUDGM ENT WAS APPLICABLE ONLY TO THE FACTS OF THE RELEVANT CASE AND IT HAS N O APPLICATION TO THE FACTS OF THE APPELLANT'S CASE AND HENCE IS NOT RELE VANT. INCIDENTALLY THIS JUDGMENT WAS BASED ON CLARIFICATION ISSUED BY THE C BDT IN CIRCULAR NO.23 OF 1969. SINCE THE CIRCULAR ITSELF IS NOW WITHDRAWN, THE FACTS OF THE CASE ARE NO LONGER RELEVANT TO THE APPELLANT'S CASE. THE APPELLANT HAS ALSO ARGUED THAT PREPARATORY TO THE AUXILIARY ACTIVITIES , THE INDIAN LO CARRIED ON CERTAIN ACTIVITIES AND THEIR CASE IS COV ERED UNDER ARTICLE 5(7) OF THE TAX TREATY BETWEEN INDIA AND SINGAPORE. IT I S HELD THAT THAT THE INDIAN LO WAS CARRYING ON ACTIVITIES RIGHT FROM THE YEAR 1996 AND IT WAS NOT A PREPARATORY ACTIVITY AND ACCORDINGLY THE APPELLANT'S ARGUMENT DOES NOT SURVIVE. THE RESTRICT ION OF THE ACTIVITIES BY THE RBI IS CITED AS ONE OF THE REASON S TO CLAIM THAT THEY HAVE-NOT CONDUCTED ANY BUSINESS OPERATIONS NOR THE Y HAD A PE. INCIDENTALLY THE CONDUCT OF THE APPELLANT AS FOUND OUT AFTER CONDUCTING SURVEY U/S 133A AND THE APPELLANT'S OWN ADMISSION OF EXISTENCE OF PARTIAL INCOME ATTRIBUTABLE TO THE IND IAN OPERATIONS DO NOT SUPPORT THE APPELLANT'S ARGUMENTS THAT THEIR CA SE IS NOT COVERED UNDER SECTION 9(1) (I) AS ALSO THEIR ARGUME NT ABOUT EXISTENCE OF PE IN INDIA. IT IS ALSO FURTHER HELD T HAT THE AO HAS TAKEN ENORMOUS PAINS IN QUANTIFYING THE PERCENTAGE OF PRO FIT ATTRIBUTABLE TO INDIAN OPERATIONS AT 40% AS DEPICTED IN PAGE 16 AND 17 OF THE ASSESSMENT ORDER. IT IS HELD THAT THE AO WAS REASON ABLE IN CONSIDERING SECTORAL WEIGHTAGE AT 50:25:25 FOR FUNC TIONS PERFORMED, ASSETS EMPLOYED AND RISKS INVOLVED. FURTHER IT IS H ELD THAT AU WAS CORRECT IN TAKING ONLY 10% TOWARDS ASSETS AND RISKS IN THE INTRA SECTORAL RATIO PERTAINING TO LO AND THE BALA NCE 90% TO THE HO. IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 12 EVEN IN THE FUNCTIONS PERFORMED, THE 8 BROAD PARAME TERS AS DISCUSSED IN PAGE 16 OF THE ASSESSMENT ORDER PRACTI CALLY COVER EVERY ASPECT OF FUNCTIONS PERFORMED AND RELATIVE WEIGHTAG E ALLOCATION IS ALSO HELD TO BE PROPER AND THE FINAL QUANTIFICATION OF 565 TO LO AND 235 TO HO ON A SCALE OF 800 IS HELD T O BE PERFECTLY JUSTIFIED AND ACCORDINGLY QUANTIFICATION OF 70 : 30 BETWEEN LO AND HO IS UPHELD. THE FINAL QUANTIFICATION OF PROFI TS ATTRIBUTABLE TO LO AND HO AS PER THE TABLE 1 ABOVE AS PER PARA 5 AT 40 : 60 IS ALSO UPHELD. 5.1 WITH REGARD TO THE ISSUES AS TO WHETHER THE ASSESSEE HAD ANY BUSINESS CONNECTION IN INDIA AS PER PROVISIONS OF S ECTION 9(I) AND WHETHER THE APPELLANT HAD A PE IN INDIA, THE ASSES SEE HAS RELIED ON THE FOLLOWING CASES BEFORE THE CIT(A): - CIT VS RD AGGARWAL & CO (SC) [56 ITR 201 - CIT VS. HINDUSTAN SHIPYARD LTD (AP) [109 ITR 158 ] - CIT VS ATLAS STEEL COMPANY LTD (CAL) [164 .ITR 40 11 - CIT VS GULF OIL (GREAT BRITAIN) LTD (BOM) [108 IT R 874] -IMPERIAL CHEMICAL INDUSTRIES LIMITED VS INSPECTING ASSISTANT COMMISSIONER [19 ITD 275] - VDO TACHOMETER WARKE, WEST GERMANY VS CIT (KAR) [117 ITR 804] AND THE CIRCULAR NO 23 OF THE CBDT. AFTER CONSIDER ING THEM, THE CIT (A) HELD AS UNDER: 7.1 .- I. THE CBDT HAS WITHDRAWN CIRCULAR NO 3 DATED 23.07 .1969 ALONG WITH CIRCULAR NO. 163 DATED 29.05.1975 AND CIRCULAR NO. 786 DATED 07.02.2000 VIDE CIRCULAR NO.712009 [F.NO. 500 / 135/2007- FTD-L], DATED 22.10.2009. ACCORDINGLY RELYING ON TH E ABOVE CIRCULAR HAS NO SIGNIFICANCE AS IT IS NO LONGER OPE RATIVE. IT IS IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 13 WORTHWHILE TO MENTION THAT THE APPELLANT THEMSELVES HAVE FILED RETURNS IN RESPONSE TO THE NOTICES U/S 148 BY DECLA RING INCOME ON THE COST +6% BASIS. BY FILING THE RETURNS IN RESPON SE TO THE NOTICES U/S 148 THE APPELLANT HAS CATEGORICALLY ADM ITTED THAT A PORTION OF INCOME WAS EARNED IN INDIA AND WAS TAXAB LE IN INDIA. THE ONLY ISSUE WHICH REMAINED TO BE DECIDED WAS WHE THER THE QUANTIFICATION OF PROFITS OF LO TO HO WAS 40:60 OR OTHERWISE. CONSIDERING THE APPELLANT'S SUBMISSIONS THE AO WAS ASKED TO SUBMIT THE REMAND REPORT AND IN TURN THE AO HAS SUB MITTED THE REMAND REPORT WHERE-IN HE HAS REITERATED WHATEVER I S STATED IN THE ASSESSMENT ORDER. HOWEVER, THE AO HAS REITERATE D THE FACT THAT THE APPELLANT'S THEMSELVES ADMITTED TO THE ACT IVITIES OF THE . LO ARE TAXABLE IN INDIA BY SHOWING INCOME AT COST + 6% BASIS. IN VIEW OF THE APPELLANT'S OWN ADMISSION BY SHOWING IN COME ATTRIBUTABLE TO THE INDIAN OPERATIONS, THE APPELLAN T HAS INDIRECTLY ACCEPTED THE FACT THAT THEY HAD BUSINESS CONNECTION IN INDIA AND ALSO THE INDIAN LO AS THE PE OF ARROW SINGAPORE. THE APP ELLANT'S ARGUMENTS DESERVE NO CONSIDERATION IN VIEW OF THE D ETAILED REASONS GIVEN BY THE AO IN THE ASSESSMENT ORDER AS ALSO IN VIEW OF THE APPELLANT'S OWN ADMISSION OF INCOME HAVING ARISEN I N INDIA AND THE INDIRECT EXISTENCE OF THE PE. ACCORDINGLY, THE CASE LAWS CI TED BY THE APPELLANT ARE HELD TO BE NOT RELEVANT TO THE FACTS OF THE CASE AN D IT IS HELD THAT THE APPELLANTS ARGUMENTS DESERVE NO CONSIDERATION. 06. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GO NE THROUGH RELEVANT MATERIAL. IT IS CLEAR FROM THE ABOVE THAT A SURVEY WAS CONDUCTED ON 28.08.2006 ON THE LIAISON OFFICE PREMISES IN BA NGALORE WHERE THE OFFICE OF THE INDIAN SUBSIDIARY IS ALSO L OCATED. THERE, THE SALES AND EXPENSES DETAILS AND OTHER ACCOUNTS PERTA INING TO THE LO WAS FOUND AND IMPOUNDED. STATEMENTS OF FORMER EMPLO YEES OF LO, WHO WERE LATER ON WORKING FOR THE SUBSIDIARY, WERE RECORDED. ON DUE APPRAISAL OF THOSE FACTS AND MATERIALS , NOTI CES U/S 148 WERE ISSUED IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 14 FOR A YS 2000-01 TO 2004-05. COMPLYING WITH THEM, THE ASSESSEE FILED THE RETURNS DECLARING INCOME ON THE BASIS OF COST + 6%. IT IS SEEN THAT THE AO GAVE DUE OPPORTUNITY TO T HE ASSESSEE IN HIS LETTER DATED 24.12.2007 DRAWING ASSESSE ES ATTENTION TOWARDS USING THE STATEMENTS RECORDED A T THE TIME OF SURVEY, ITS DUE ANALYSIS ETC AND THEREAFTER PAS SED THE IMPUGNED ASSESSMENT ORDERS. THE CIT (A) HAS ALSO GI VEN AN OPPORTUNITY BY WAY OF A REMAND PROCEEDINGS. THE AO HAS REITERATED THE FACT THAT THE APPELLANT'S THEMSELVES ADMITTED TO THE ACTIVITIES OF THE LO ARE TAXABLE IN INDIA BY SHOWIN G INCOME AT COST + 6% BASIS. IN VIEW OF THE ASSESSEE'S OWN ADMISSION BY SHOWING INCOME ATTRIBUTABLE TO THE INDIAN OPERATION S, IT HAS INDIRECTLY ACCEPTED THE FACT THAT THEY HAD BUSINESS CONNECTION IN INDIA AND ALSO THE INDIAN LO AS THE PE OF ARROW SIN GAPORE. THUS, AS HELD BY THE CIT(A) THAT THE ASSESSEE'S ARGUMENTS DESERVE NO CONSIDERATION IN VIEW OF THE DETAILED R EASONS GIVEN BY THE AO IN THE ASSESSMENT ORDER AS ALSO IN VIEW OF T HE APPELLANT'S OWN ADMISSION OF INCOME HAVING ARISEN IN INDIA AND THE INDIRECT EXISTENCE OF THE PE. ACCORDINGLY, THE CASE LAWS CITED BY THE ASSE SSEE AND THE CIRCULAR ARE HELD TO BE NOT RELEVANT TO THE FACTS OF THE CASE AN D IT IS HELD THAT THE APPELLANTS ARGUMENTS DESERVE NO CONSIDERATION. THE CIT (A), INTER ALIA, HELD THAT INCIDENTALLY THE CONDUCT OF THE APPELLANT AS FOUND OUT AFTER THE SURVEY U/S 133A AND THE APPELLANT'S OWN ADMISSI ON OF EXISTENCE OF PARTIAL INCOME ATTRIBUTABLE TO THE INDIAN OPERAT IONS DO IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 15 NOT SUPPORT THE APPELLANT'S ARGUMENTS THAT THEIR CA SE IS NOT COVERED UNDER SECTION 9(1) (I) AS ALSO THEIR ARGUME NT ABOUT EXISTENCE OF PE IN INDIA. IT IS ALSO FURTHER HELD THAT THE AO HAS TAKEN ENORMOUS PAINS IN QUANTIFYING THE PERCENTAGE OF PROFIT ATTRIBUTABLE TO INDIAN OPERATIONS AT 40% AS DEPICTE D IN PAGE 16 AND 17 OF THE ASSESSMENT ORDER. IT IS HELD THAT THE AO WAS REASONABLE IN CONSIDERING SECTORAL WEIGHTAGE AT 50: 25:25 FOR FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS INVO LVED. FURTHER, IT IS HELD THAT AO WAS CORRECT IN TAKING ONLY 10% T OWARDS ASSETS AND RISKS IN THE INTRA SECTORAL RATIO PE RTAINING TO LO AND THE BALANCE 90% TO THE HO. EVEN IN THE FUNCTIONS PE RFORMED, THE 8 BROAD PARAMETERS AS DISCUSSED IN PAGE 16 OF THE ASS ESSMENT ORDER PRACTICALLY COVER EVERY ASPECT OF FUNCTIONS PERFORMED AND RELATIVE WEIGHTAGE ALLOCATION IS ALSO HELD TO BE PROPER AND THE FINAL QUANTIFICATION OF 565 TO LO AND 235 TO HO ON A SCAL E OF 800 IS HELD TO BE PERFECTLY JUSTIFIED AND ACCORDINGLY QUANTIFIC ATION OF 70 : 30 BETWEEN THE LO AND THE HO IS UPHELD. THE FINAL Q UANTIFICATION OF PROFITS ATTRIBUTABLE TO THE LO AND THE HO AS PER TH E TABLE 1 , ABOVE , AS PER PARA 5 AT 40 : 60 IS ALSO UPHELD. BEFORE US, T HE ASSESSEE COULD NOT LAY ANY MATERIAL TO DISLODGE THE ABOVE FINDINGS AND HENCE WE UPHOLD THE ORDERS OF THE CIT(A) FOR AYS 2000-01 & 2001-02. T HE ASSESSEE BY WAY OF ADDITIONAL GROUND PLEADED THAT THE CIT (A) ERRED IN CONFIRMING THE ASSESSMENT ORDERS U/S.143(3) R.W.S.147 DT.28.12.200 7, WHICH WAS BASED ENTIRELY ON STATEMENTS RECORDED U/S.133A , WHICH I S BAD IN LAW. WE HAVE IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 16 CONSIDERED THIS PLEA. IT IS CLEAR FROM THE SURVEY FINDINGS EXTRACTED , SUPRA, IN SUB-PARA 4 UNDER PARA 5 ETC, THAT THE AO HAS RE LIED ON VARIOUS RELEVANT MATERIALS AND HENCE THIS PLEA OF THE ASSESSEE IS HELD AS UNTENABLE. THE CIT (A), APPLYING THE RATIO LAID BY THE SUPREME COURT IN THE CASE OF CIT V ANJUM M H GHASWALA 252 ITR 1, HAS HELD THAT THE LE VY OF INTEREST U/S.234B IS MANDATORY WITH WHICH WE ARE IN AGREEM ENT. IN THE RESULT , ALL THE ABOVE GROUNDS OF THE ASSESSEE ARE DISMIS SED FOR AYS 2000-01 & 2001-02. ITA NOS.617 TO 619/BANG/2011 BY THE REVENUE CO NOS.31 TO 33/BANG/2011 BY THE ASSESSEE : 07. NOW, LET US EXAMINE THE REVENUES THREE APPEALS I.T (TP).A NOS.617 TO 619/BANG/2011FOR ASSESSMENT YEARS 2002 -03, 2003-04 & 2004-05 & ASSESSEES CROSS -OBJECTIONS NOS.31 TO 33/BANG/2011 ON I.T (TP). A NOS.617 TO 619/BANG/2011 ON REVENUE S ABOVE THREE APPEALS AS UNDER: 08. FOR A YS 2002-03, 2003-04 & 2004-05, THE AO DET ERMINED THE PROFIT ATTRIBUTABLE TO THE INDIAN L O AT RS. L, 83,37,555/-, RS. L,42,54,775/-& RS.92,04,320/-, RESPECTIVELY. THE AO NOTICED THAT THE ASSESSEE'S INTERNATIONAL TRANSACTIONS WITH ITS A E BEING MORE THAN 15 CRORES IN EACH YEAR REFERRED THE MATTER TO THE TPO. THE TPO AFTER MAKING A DETAILED ANALYSIS, DETERMINED ARM'S LENGTH MARGIN AT 4.78%, 5.18% AND 5.58% AS MEAN PLI FOR THE THREE YEARS , AND DETERMINED ARM'S LENGTH PROFIT AT RS.5,65,66,609/-, RS.4.96,10,165/- AND RS.1,70,10,258/-, RESPECTIVELY , FOR THE THREE IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 17 ASSESSMENT YEARS. THE TPO TOOK THE TNMM AS THE MOST APPROPRIATE METHOD. THE A O SUBSTITUTED THESE FIGURES AS AGAINS T HIS WORKING OF INCOME FOR THESE AYS AS STATED ABOVE AND CONCLUDED THE A SSESSMENTS , INTER ALIA, CHARGING OF INTEREST U/S. 234B , INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) AND U/S 271B AND ACCORDINGLY ISSUED DEMA ND NOTICES. AGGRIEVED BY THE FINDING THAT THE SINGA PORE BRANCH HAD BUSINESS CONNECTION IN INDIA AND AGAINST THE FI NDING THAT THE SINGAPORE COMPANY HAD A PE IN INDIA AND DETERMINATI ON OF 40% OF THE TOTAL PROFITS AS ATTRIBUTABLE TO THE INDIAN OPE RATIONS AND AGAINST THE DETERMINATION OF ADJUSTMENT U/S 92CA FO R THESE YEARS ETC, THE ASSESSEE FILED APPEALS BEFORE THE CIT( A). THE CIT (A) GAVE A PART RELIEF ON THE ADJUSTMENTS MADE BY THE TPO . AGGRIEVED, THE REVENUE FILED THREE APPEALS I.T (TP) .A NOS.617 TO 619/BANG/2011FOR ASSESSMENT YEARS 2002-03, 2003-0 4 & 2004-05 WITH SIMILAR GROUNDS OF APPEAL. ONE OF THE APPEAL GROUN DS IS EXTRACTED AS UNDER: IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 18 09. THE ASSESSEE FILED THREE CROSS -OBJECTIONS NOS.31 TO33/BANG/2011 ON I.T (TP). A NOS.617 TO 619/BANG /2011 FOR ASSESSMENT YEARS 2002-03, 2003-04 & 2004-05 WITH SIMILAR GROUNDS OF APPEAL. ONE OF THE CROSS -OBJECTIONS GROUNDS IS EXTRACTED AS UNDER: PERCENTAGE ATTRIBUTED TO LO WHICH WAS HELD BY THE D EPARTMENT ITSELF AT 40% OF GLOBAL SALES. IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 19 10. THE ASSESSEE ALSO FILED SIMILAR ADDIT IONAL GROUNDS OF APPEALS FOR AYS 2002-03 TO 2004-05, ONE OF THE ADDITIONAL GROUNDS IS EXTRACTED AS UNDER: ADDITIONAL GROUNDS OF APPEAL NO 2: THE CIT (A) OUGHT TO HAVE APPRECIATED THAT ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE, NO INTEREST WAS CHARGEABLE U/S.234B OF TH E ACT AND CONSEQUENTLY HE OUGHT TO HAVE DIRECTED THE AO TO DELETE THE INTEREST CHARGED U/S.234B OF THE ACT. ADDITIONAL GROUND NO 3 : 1. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ASSE SSMENT ORDER U/S.143(3) R.W.S.147 OF THE ACT DT.28.12.2007, WHICH WAS BASED ENTIRELY ON STATEMENTS RECORDED U/S.133A OF THE ACT, WHICH IS BAD IN LAW. IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 20 ADDITIONAL GROUNDS OF APPEAL : IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 21 10. THE DR SUBMITTED HIS PLEA ON THE LINES OF THE REVENUES GROUNDS OF APPEAL. THE AR SUBMITTED ON THE LINES OF CROSS O BJECTIONS AND THE ADDITIONAL GROUNDS OF APPEAL. LET US EXAMINE, HOW THE CIT (A) DEALT THEM BY EXTRACTING THE RELEVANT PORTION OF THE ORDER AS UNDER : 8 .THE FINAL QUANTIFICATION OF PROFITS ATTRIBUTABLE TO LO AND HO AS PER PARA 42 OF THE ASS ESSMENT ORDERS AND TABLE I ABOVE AS PER PARA 5 AT 40:60 IS ALSO UPHELD. HOWE VER, FOR AY 04-05 THERE IS AN ARITHMETICAL MISTAKE COMMITTED BY THE A O IN NOT ALLOWING SINGAPORE EXPENSES AND ACCORDINGLY FOR AY 04-05 THE IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 22 FIGURES AS DETERMINED UNDER THE HEAD TP ADJUSTMENTS , (WORKED OUT BELOW) OF RS.52,82,613/- IS CONFIRMED. 9. TRANSFER PRICING ADJUSTMENT AS PER SECTION 92CA: 9.1 THE AO NOTICING THAT THE APPELLANT'S INTERNATIO NAL TAXATION WITH ITS AE BEING MORE THAN 15 CRORES IN EACH YEAR REFE RRED THE MATTER TO THE TPO AFTER MAKING A DETAILED ANALYSIS DETERMINED ARM'S LENGTH MARGIN AT 4.78%, 5.18% AND 5.58% AS MEAN PLI FOR THE THREE YE ARS , AND DETERMINED ARM'S LENGTH PROFIT AT RS.5,65,66,609/-, RS.4.96,10,165/- AND RS.1,70,10,258/- FOR THE THREE ASSESSMENT YEARS. THE TPO TOOK THE TNMM AS THE MOST APPROPRIAT E METHOD. 9.2 THE APPELLANT HAS RAISED OBJECTIONS ON THE DETERMIN ATION OF THE ALP ON ITS ENTIRE SALES RATHER THAN APPLYING TH E ABOVE PERCENTAGE ON THE PROFIT ATTRIBUTABLE TO LO. BESIDE S THAT, IT IS ALSO STATED THAT THE WORKING CAPITAL ADJUSTMENT HAS NOT BEEN GIVEN BY THE TPO. IT WAS ALSO POINTED OUT THAT THE AO HAS DETERM INED CERTAIN PROFIT FOR THE SAME YEAR ON PROTECTIVE BASIS BUT THE TPO H AS DETERMINED INCOME AT MUCH HIGHER RATIO WHICH WAS 3.09 TIMES, 3 .48 TIMES AND 1.85 TIMES HIGHER AS COMPARED TO THE AO. THIS IS BECAUSE OF THE FACT, THAT THE TPO HAS NOT CONSIDERED APPLYING THE DETERMINED PERCENTAGES ATTRIBUTABLE TO THE LO WHICH WAS HELD B Y THE DEPARTMENT ITSELF AT 40%. OF THE GLOBAL SALES. BESI DES THAT, IT WAS STATED THAT BY NOT GIVING WORKING CAPITAL ADJUSTMENT OF 2. 75%, 2.81% AND 1.92%, THE TPO HAS ARRIVED AT A MUCH HIGHER FIGURE AS COMP ARED TO WHAT THE AO UNDER IDENTICAL CIRCUMSTANCES HAS COMPUTED. THE APPELLANT HAS ALSO RELIED ON THE FOLLOWING JUDGMENTS IN SUPPORT OF THE WORKING CAPITAL ADJUSTMENT: (A) PHILIPS SOFTWARE CENTRE PVT. LTD VS. ACT (119 T TJ 721) (B) SONY INDIA PVT. LTD VS. CIT (315 ITR 150) (C)EGAIN COMMUNICATIONS PVT. LTD (DELHI TRIBUNAL IN ITA NO.1885/PM/2007). (D) MENTOR GRAPHICS P. LTD., [109 ITD 101] [ 2007] [DELHI] IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 23 AFTER CONSIDERING THE APPELLANT'S ARGUMENTS ON THES E ISSUES ONLY TWO ISSUES HAVE TO BE DETERMINED. (I) WHETHER THE DETERMINED MARGIN OF ALP FOR THREE YEARS ARE TO BE APPLIED ON THE TOTAL TURNOVER OR ON THE TURNOVER OF THE LO WHICH IS DETERMINED TO BE 40% OF THE TOTAL TURNOVER. (II) WHETHER THE APPELLANT CAN BE GIVEN WORKING CAP ITAL ADJUSTMENT AS CLAIMED BY THEM. TO BE IN CONSISTENT WITH THE DEPARTMENTAL STAND FOR AY 00-01 & 01- 02 WHICH IS ALSO CONFIRMED BY THE CIT (A) AS ALSO I N VIEW OF THE AO'S PROTECTIVE ASSESSMENT WHEREIN HE HAS TAKEN 40 : 60 TO LO HO IT IS TO BE HELD THAT THE PERCENTAGE OF ALP AS DETERMINED BY THE TPO SHOULD HAVE BEEN APPLIED ONLY ON 40% OF THE TOTAL SALES AND THE ALP SHOULD HAVE BEEN DETERMINED ACCORDINGLY. COMING TO THE WORKING CAPITAL ADJUSTMENT THE APPELLANT HAS GIVEN A DETAILED WORKI NG BUT ULTIMATELY ARRIVED AT THE FIGURE OF WORKING CAPITAL BY TAKING THE PLR AS DETERMINED BY THE CENTRE FOR MONITORING INDIAN ECONOMY (CMIE). THE APPELLANT HAD ADOPTED PERCENTAGE OF 10.31, 10.21 & 9.81 FOR THE T HREE FY'S RESPECTIVELY. INCIDENTALLY THERE IS NO UNIFORM AGRE EMENT ON THE ADOPTION OF PLR AS ADOPTED BY THE CMIE. THOUGH APPR OXIMATELY THE RBI AND THE CMIE DETERMINED PLR ARE ALMOST THE SAME STILL SBI PLR AND LIBOR RATES VARY. ACCORDINGLY, THERE IS NO UNIF ORMITY IN ADOPTION OF THE PLR RATE AS DETERMINED BY THE CMIE. ACCORDINGLY, IT IS NOT POSSIBLE TO ALLOW WORKING CAPITAL ADJUSTMENT AS REQUESTED BY THE APPE LLANT THOUGH THE APPELLANT IS RIGHT IN ASKING FOR CERTAIN PERCENTAGE OF WORKING CAPITAL ADJUSTMENT. CONSIDERING THE FACT THAT THE AO HAS IN DEPENDENTLY DETERMINED THE PROFIT ATTRIBUTABLE TO THE LO, CORRE SPONDING TO THIS DETERMINATION THE WORKING CAPITAL ADJUSTMENT C OULD BE GIVEN. ACCORDINGLY WORKING CAPITAL ADJUSTMENT OF 0.906% AN D 1.459% COULD BE GIVEN IN AY'S 02-03 & 03-04 RESPECTIVELY. ACCORDING LY, THE ALP MARGIN TO BE RE-DETERMINED FOR AY 02-03 & 03-04 WOR KS OUT AS UNDER: IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 24 AO IS DIRECTED TO ADOPT ALP ADJUSTMENTS OF RS.1,831 37,996/- AND RS.1 1 42,54,781/- FOR AY 02-03 & 03-04 RESPECTIVELY WHICH ARE ALMOST THE SAME AS RS.1,83,37,555/- AND RS.1,42,54,775/- D ETERMINED BY THE AO ON PROTECTIVE BASIS. HOWEVER, FOR AY 04-05 AO HAS DETERMINED ON PROTECTI VE BASIS INCOME ATTRIBUTABLE TO. LO AT RS.92,04,320/- BUT IT IS SEE N FROM HIS TABLE IN PARA 42 THAT HE HAS NOT ALLOWED SINGAPORE EXPENSES WHILE AR RIVING AT THIS FIGURE. FOR AY 04-05, THE AO IS DIRECTED TO ALLOW AN ADHOC FIGU RE OF 1.25% TOWARDS WORKING CAPITAL ADJUSTMENT. HENCE THE ALP MARGIN SH ALL BE TAKEN AT 4.34% ( 5.59% - 1.25%) AND ON 40% OF THE GLOBAL SALES, BEIN G INDIAN LO SALES, ALP IS TO BE DETERMINED. THIS PERCENTAGE IS TO BE ADOPTED ON RS.12,17,19,202/- (BEING 40% OF RS.30,42,98,005/-) AND THE ALP IS TO BE TAKEN AT RS.52,82,613/- FOR AY 04-05. THOUGH THIS FIGURE IS SLIGHTLY LOWER THAN THE INCOME DETERMINED BY THE AO, IN VIEW OF THE AO' S NON ALLOWANCE OF SINGAPORE EXPENSES THE PROFIT WAS DETERMINED AT RS. 92,04,320/- THOUGH IN THE OTHER TWO YEARS AO HAS ALLOWED THE SAME. 11. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL, FROM THE ABOVE, IT IS CLEAR THAT THE CIT (A, CONSI STENT WITH THE DEPARTMENTAL STAND FOR A YS 2000-01 & 01-02 WHICH I S ALSO CONFIRMED BY THE CIT (A) AS ALSO IN VIEW OF THE AO'S PROTECTI VE ASSESSMENT WHEREIN HE HAS TAKEN 40 : 60 TO THE LO :HO, HELD THAT THE PERC ENTAGE OF ALP AS IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 25 DETERMINED BY THE TPO SHOULD HAVE BEEN APPLIED ONLY ON 40% OF THE TOTAL SALES AND THE ALP SHOULD HAVE BEEN DETERMINED ACCORDINGLY. WHEN THERE IS NO UNIFORMITY IN ADOPTI ON OF THE PLR RATE AS DETERMINED BY THE CMIE, IT IS NOT POSSIBLE TO ALLO W WORKING CAPITAL ADJUSTMENT AS REQUESTED BY THE APPELLANT THOUGH THE APPELLANT IS RIGHT IN ASKING FOR CERTAIN PERCENTAGE OF WORKING CAPITAL AD JUSTMENT. CONSIDERING THE FACT THAT THE AO HAS INDEPENDENTLY DETERMINED THE PROFIT ATTRIBUTABLE TO THE LO, CORRESPONDING TO THIS DETERMINATION THE WORKING CAPITAL ADJUSTMENT COULD BE GIVEN. ACCORDINGLY, THE WORKING CAPITAL ADJUSTMENT OF 0.90 6% AND 1.459% COULD BE GIVEN IN AY'S 02-03 & 03-04, RESPECTIVELY. THUS, THE CIT (A) RE-DETERMINED THE ALP MARGIN FOR A YS 02-03 & 0 3-04. FOR A Y 04- 05, THE CIT (A) FOUND THAT THE AO HAS DETERMINED ON PROTECTIVE BASIS INCOME ATTRIBUTABLE TO THE LO AT RS.92,04,320/- BU T IT IS SEEN FROM THE AOS TABLE IN PARA 42 THAT HE HAS NOT ALLOWED SING APORE EXPENSES WHILE ARRIVING AT THIS FIGURE. FOR AY 04-05, THE CIT (A) DIRECTED THE AO TO ALLOW AN ADHOC FIGURE OF 1.25% TOWARDS WORKING CAPITAL A DJUSTMENT. HENCE, THE ALP MARGIN SHALL BE TAKEN AT 4.34% ( 5.59% - 1.25%) AND ON 40% OF THE GLOBAL SALES, BEING INDIAN LO SALES, AND RE-DETERMI NE THE ALP . BEFORE US, THE REVENUE COULD NOT ASSAIL SUCH FINDINGS WITH ANY MATERIAL. THE CIT (A) ORDERS ARE CONSISTENT WITH THE FINDINGS IN AYS 2000-01 & 0 1-02 AND ON THE FACTS AND CIRCUMSTANCES APPEARS REASONABLE . HENCE, THE ORDER S OF THE CIT (A) DO NOT REQUIRE ANY INTERFERENCE AND HENCE WE DISMISS THE R EVENUES APPEAL FOR A YS 02-03, 03-04 & 04-05, RESPECTIVELY. IT(TP)A.209,210,617 TO 619,COS.31 TO 33/B/2011 PAGE - 26 12. WITH REGARD TO ISSUES IN THE ASSESSEES CROSS -OBJECTIONS AND THE ADDITIONAL GROUNDS OF APPEALS FOR A YS 02-03, 03-0 4 & 04-05, RESPECTIVELY, FOR THE ELABORATE REASONS MENTIONED I N PARA 6, SUPRA, THEY FAIL AND HENCE THE CORRESPONDING GROUN DS ARE DISMISSED. 13. IN THE RESULT, THE ASSESSSEES APPEALS ARE DISMISSED, THE APPEALS OF THE REVENUE AND THE CROSS-OBJECTIONS OF THE ASSESSEE ARE ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF MARCH, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR.