M/s. Bobst India Pvt. Ltd., Pune V. ACIT, Circle 1(1), Pune

ITA 2090/PUN/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7142 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 25-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K RASTOGI
• Keywords: Related party transaction; Capital asset; Transfer pricing; Opportunity of being heard; International transaction; Difference of opinion
• Section: 92C; 143(3); 234B; 10B

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.2090/PUN/2012 % % / ASSESSMENT YEAR : 2008-09 M/S. BOBST INDIA PRIVATE LIMITED, PLOT NO.82, 126-132, VILLAGE KASAR AMBOLI, POST AMBADVET, GHOTAVADE ROAD, TAL. MULSHI, DIST. PUNE 412 108 PAN : AAACB7295F . / APPELLANT V/S ACIT, CIRCLE - 1(1), PUNE . / RESPONDENT / APPELLANT BY : SHRI RAJENDRA AGIWAL / RESPONDENT BY : SHRI S.K. RASTOGI / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 18-09-2012 PASSED U/S.143(3) R.W.S. 144C(13) OF THE A CT BY THE ADDL.CIT, CIRCLE-1(1), PUNE RELATING TO ASSESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING A ND TRADING IN PACKAGING EQUIPMENT AND RECONDITIONING OF PACKAG ING EQUIPMENT AND MACHINES. THE ASSESSEE FILED ITS RETURN OF IN COME ON 28-09-2008 DISCLOSING TOTAL INCOME AT RS.2,52,17,110/-. THE ASSESSING OFFICER MADE A REFERENCE U/S.92CA(1) OF THE I.T. AC T, 1961 / DATE OF HEARING :07.11.2016 / DATE OF PRONOUNCEMENT: 03.02.2017 2 ITA NO.2090/PUN/2012 TO THE TPO FOR COMPUTATION OF ALP IN RELATION TO THE INTER NATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. 3. THE TPO NOTED THAT BOBST INDIA PVT. LTD. IS A 100% A FFILIATE OF THE BOBST GROUP SA, LAUSANNE, SWITZERLAND. BOOBST GROUP HEADQUARTERED IN SWITZERLAND IS THE WORLDS FOREMOST SUPP LIER OF PRODUCTS AND SERVICES FOR THE FOLDING CARTON, CORRUGATED BOARD AND FLEXIBLE PACKAGING INDUSTRIES. BOBST SA MANUFACTURES MAINLY PRODUCTION LINES FOR THE PRINTING AND CONVERTING OF FOLDING CA RTON AND THE CORRUGATED BOARD FOR PACKAGING PRODUCTS, TOGETHER WITH ELECTRONIC EQUIPMENT FOR PRINT TO PRINT REGISTER CONTROL AND OTHER A SPECTS OF QUALITY ASSURANCE. THE BOBST GROUP IS MADE UP OF MORE THAN 30 AFFILIATED COMPANIES AROUND THE GLOBE COMPRISING OF BOBST SA, MARTIN, SCHIAVI SPA ETC. 4. THE TPO FURTHER NOTED THAT THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR HAS UNDERTAKEN THE FOLLOWING INTERNATIONA L TRANSACTIONS AS PER SECTION 92CA OF THE I.T. ACT : S.NO. DESCRIPTION OF TRANSACTION AMOUNT METHOD USED 1 PURCHASE OF COMPONENTS FOR MANUFACTURING MACHINES 5,11,37,775 TNMM 2 SALE OF FINISHED GOODS 20,87,42,15 9 TNMM 3 IMPORT OF CAPITAL ASSETS 1 , 87,492 TNMM 4 RECOVERY OF FREIGHT & CLEARING 1,29,86,846 5 IMPORT OF SPARES FOR TRADING 43,93,305 TNMM 6 RECEIPT OF COMMISSION INCOME 5,59,00,724 TNMM 7 RECEIPT IN RESPECT OF CUSTOMER SUPPORT SERVICES PROVIDED ON BEHALF OF AE-BOBST GP 2,88,76,184 TNMM 8 EXPORT OF SPARES TO AES 26,240 TNMM 9 AMOUNT RECEIVED FOR SUPPLY OF WARRANTY SPARES TO THIRD PARTIES ON BEHALF OF BOBST GP 16,15,747 TNMM 10 IMPORT OF CAPITAL ASSETS FROM BOBST GP 3 , 55,805 TNMM 11 RECOVERY OF EXHIBITION RELATED COSTS IN AGREED PROPORTION 5 , 61,806 -- 3 ITA NO.2090/PUN/2012 12 RE CEIPT OF RE IMBURSEMENT FROM AES FOR COST INCURRED BY INDIAN COMPANY 4 4,45 ,926 -- 13 PAYMENT OF REIMBURSEMENT BY INDIAN COMPANY FOR COST INCURRED BY AES 4,86,275 -- TOTAL 36,97,43,284 5. AFTER EXAMINING THE DETAIL OF BENCHMARKING DONE BY THE ASSESSEE THE TPO ISSUED A DETAILED SHOW CAUSE NOTICE P ROPOSING ADJUSTMENT TO ITS INTERNATIONAL TRANSACTIONS. RELEVANT PO RTION OF THE NOTICE HAS BEEN REPRODUCED AT PAGES 3 TO 12 OF THE OR DER PASSED U/S.92CA(3). IN RESPONSE TO THE SHOW CAUSE NOTICE THE A SSESSEE FILED A DETAILED REPLY JUSTIFYING THE TP STUDY UNDERTAKEN BY IT. THE ASSESSEE ALSO GAVE THE FOLLOWING DETAILS TO THE TPO : 1. TRANSACTIONS RELATING TO DOMESTIC OPERATIONS : THE INTERNATIONAL TRANSACTIONS OF BOBST INDIA IN RELA TION TO THE DOMESTIC OPERATIONS FOR F.Y.2007-08 ARE AS UNDER : SR. NO. DESCRIPTION OF THE INTERNATIONAL TRANSACTIONS AMOUNT (RS.) PERCENTAGE OF EACH INTERNATIONAL TRANSACTION AS COMPARED TO TOTAL INTERNATIONAL TRANSACTION VALUE UNDER DOMESTIC OPERATIONS TRANSACTIONS PERTAINING TO DOMESTIC OPERATIONS 1 IMPORT OF SPARES FOR TRADING IN INDIA FROM BOBST GROUP ENTITIES 4,393,305 4.79& 2 AMOUNT RECEIVED IN RESPECT OF SUPPORT SERVICES PROVIDED TO CUSTOMERS ON BEHALF OF BOBST GROUP ENTITIES 28,876,184 31.48% 3 RECEIPT OF COMMISSION FOR MARKETING THE MACHINES AND SPARES MANUFACTURED BY BOBST GROUP ENTITIES 55,900,724 60.94% 4 EXPORT OF SPARES TO BOBST GROUP ENTITIES 26,240 0.03% 5 AMOUNT RECEIVED BY BOBST GROUP ENTITIES FOR SUPPLY OF WARRANTY SPARES TO THIRD PARTY CUSTOMERS ON THEIR BEHALF 1,615,747 1.76% 6 IMPORT OF CAPITAL ASSETS FROM BOBST GROUP ENTITIES 355,805 0.39% 7 RECOVERY OF EXHIBITION RELATED COSTS 561,806 0.61% TOTAL 91,729,811 100% 4 ITA NO.2090/PUN/2012 6. IT WAS SUBMITTED THAT RECEIPT OF COMMISSION AND RENDER ING OF SUPPORT SERVICES ARE THE MAJOR ACTIVITIES CONSTITUTING AP PROXIMATELY 92% OF THE TOTAL INTERNATIONAL TRANSACTIONS UNDER DOMEST IC OPERATIONS. ALL OTHER INTERNATIONAL TRANSACTIONS ARE INCIDEN TAL AND ANCILLARY TO THESE TRANSACTIONS. 7. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, TH E TPO NOTED THAT ALL THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE COMPANY HAVE BEEN ANALYZED UNDER TWO SEGMENTS VIZ., TR ANSACTIONS RELATING TO EOU OPERATIONS, AND DOMESTIC TARIFF AREA OPERAT IONS (DTA) FOR BENCHMARKING. THE ASSESSEE HAD IDENTIFIED TRANSAC TIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METH OD TO BENCHMARK INTERNATIONAL TRANSACTIONS PERTAINING TO BOTH E OU AND DTA OPERATIONS. OPERATING PROFIT / OPERATING COST (OP/OC ') WAS USED AS THE PROFIT LEVEL INDICATOR ('PLI') FOR TNMM ANALYS IS OF BOTH EOU AND DOMESTIC OPERATIONS, ON APPLICATION OF TNMM, THE AS SESSEE DETERMINED THAT ITS INTERNATIONAL TRANSACTIONS PERTAINING T O BOTH EOU AND DOMESTIC OPERATIONS WERE CONDUCTED AT ARM'S LENGTH. 8. WITH REGARD TO EOU OPERATIONS OF BOBST INDIA, THE TPO CONSIDERED ROLLATAINERS AS COMPARABLE AND REJECTED POLYM ER PAPERS LIMITED ('POLYMER PAPERS'). FURTHER, THE TPO CONSIDERED IN TERNATIONAL COMBUSTION (INDIA) LIMITED ('INTERNATIONAL COMBUSTION') AS COMPARABLE USING COMPANY WISE DATA RATHER THAN CONSIDER ING DATA FOR 'GEAR BOX AND GEARED MOTOR DRIVE SYSTEM' AS DONE BY THE ASSESSEE. FURTHER, WHILE COMPUTING THE OPERATING MARGIN OF THE ASSES SEE FROM EOU OPERATIONS, THE TPO CONSIDERED CERTAIN EXPENSES INCU RRED BY THE ASSESSEE ON BEHALF OF ITS AES AS PART OF OPERATING CO ST AND SUBSEQUENT RECOVERY AS OPERATING INCOME. 5 ITA NO.2090/PUN/2012 9. WITH REGARD TO THE DOMESTIC OPERATIONS, THE TPO DID N OT ACCEPT THE APPROACH FOLLOWED BY THE ASSESSEE FOR BENCHM ARKING INTERNATIONAL TRANSACTION FOLLOWING COMBINED TRANSACTION APPR OACH USING TNMM AS THE MOST APPROPRIATE METHOD. INSTEAD, THE TPO BENCHMARKED INTERNATIONAL TRANSACTION OF THE ASSESSEE PE RTAINING TO MARKETING OF MACHINES BY COMPARING THE SAME WITH MARKETIN G OF SPARES AND PROPOSED AN UPWARD ADJUSTMENT IN RELATION T O THE DOMESTIC OPERATIONS OF THE ASSESSEE. 10. THE TPO FURTHER OBSERVED THAT THIS ISSUE HAD BEEN A SUBJECT MATTER OF TP ADJUSTMENT IN EARLIER ASSESSMENT YEARS. ALL THE OBJECTIONS OF THE ASSESSEE MADE FOR A.Y. 2008-09 WERE ALS O CONSIDERED BY THE DRP FOR A.Y. 2007-08 AND DISCUSSED AT LENGTH IN THEIR ORDER DATED 25-08-2011. DRP HAD GIVEN DETAILED RE ASONS AS TO WHY THE OBJECTIONS RAISED BY THE ASSESSEE ARE NOT ACC EPTABLE. HE OBSERVED THAT ALL THE OBJECTIONS RAISED BY THE ASSESSEE IN THE PRESENT ASSESSMENT YEAR ARE NOT DIFFERENT FROM WHAT WAS CONSIDER ED IN THE EARLIER YEARS. HE, THEREFORE, HELD THAT THERE IS NO REASO N TO DEVIATE FROM THE VIEW TAKEN BY THE TPO IN EARLIER ASSESSMENT YEARS. THE T PO REPRODUCED THE REASONS GIVEN BY HIS PREDECESSOR IN EAR LIER YEARS FOR NOT ACCEPTING THE SUBMISSIONS MADE BY THE ASSESSEE. 11. CONSEQUENTLY, THE TPO PROPOSED AN UPWARD ADJUSTM ENT OF RS.88,544,000/- TO THE DOMESTIC OPERATIONS AND RS.15,238, 300/- TO EOU OPERATIONS OF THE ASSESSEE BY OBSERVING AS UNDER : CONCLUSION : 13.1 IN VIEW OF THE FACTS OF THE CASE, SUBMISSION OF TH E ASSESSEE AND DELIBERATIONS AS ABOVE, THE BENCHMARKING THE ASSESSEES IN TERNATIONAL TRANSACTION FALLING UNDER THE MANUFACTURING ACTIVITY EOU SEGMENT IS REQUIRED TO BE DONE FOLLOWING TNMM AND TAKING COMPA RABLES AS HAVE BEEN DISCUSSED ABOVE IN PARA 11. ACCORDINGLY AN ADJUST MENT OF AN AMOUNT CORRESPONDING TO THE DIFFERENCE IN THE ARITHM ETIC MEAN OF PLIS OF 6 ITA NO.2090/PUN/2012 THE PROPOSED SET OF COMPARABLES AT 11.74% AND THAT OF ASSESSEES EOU SEGMENT BEING AT 5.45%, IS MADE TO THE ASSESSEES INTERNAT IONAL TRANSACTIONS FALLING UNDER THE EOU MANUFACTURING SEGME NT. THE ADJUSTMENT IS WORKED OUT AS UNDER : 13.2 THE NET SALES OF THE MANUFACTURING ACTIVITY AN NEXURE-2 OF ASSESSEES SUBMISSION DATED 30-09-2011 IS RS.25,02,18,415/-. THE DIFFERENCE IN THE ARITHMETIC MEAN OF OPERATING PROFIT MARGIN OF COMPARABLE COMPANIES AND THAT OF THE ASSESSEE FOR THE M ANUFACTURING ACTIVITY 11.74-5.65=6.09%. ADJUSTMENT REQUIRED = 6. 09 X 25,02,18,415 = RS.1,52,38,300/-. 100 13.3 IN VIEW OF THE FACTS OF THE CASE, DISCUSSION AS ABO VE, ADJUSTMENT OF RS.1,52,38,300/- IS MADE TO INTERNATIONAL TRANSACTIONS FALLING UNDER THE EOU MANUFACTURING ACTIVITY OF ASSESSEE, TO ARRIVE AT TH E ARMS LENGTH PRICE OF THESE INTERNATIONAL TRANSACTIONS. CONSEQUENT TO THIS ADJUSTMENT, THE INCOME OF THE ASSESSEE SHALL BE INCREASED BY RS.1,52, 38,300/-. 13.3 IN RESPECT OF COMMISSION INCOME FROM AES, AS DISCUSSE D IN PARA 8 AND 9 OF THIS ORDER, ADJUSTMENT IN RESPECT OF INTERNAT IONAL TRANSACTION RELATING TO RECEIPT OF SALES COMMISSION ON SALE OF MACH INE, IS TAKEN AT 15% INSTEAD OF 5%. THE CORRESPONDING ADJUSTMENT WORKS OUT TO RS.8,85,44,000/-. THE ASSESSING OFFICER THEREAFTER PASSED THE ORDER U/S.14 3(3) R.W.S.144C(1) ON 28-11-2011 MAKING ADDITION OF RS.8,85,44,000/- ONLY AS AGAINST RS.10,37,82,300/- PROPOSED BY THE TPO. 12. THE ASSESSEE APPROACHED THE DRP CHALLENGING THE PRO POSED UPWARD ADJUSTMENT OF RS.8,85,40,000/- TO THE VALUE OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO RECEIPT OF COMMISS ION FOR SALE OF MACHINES ENTERED INTO BY THE ASSESSEE FORMING PAR T OF ITS DOMESTIC OPERATIONS. THE ASSESSEE ALSO SUBMITTED BEFORE THE DRP THAT THE TPO AND THE ASSESSING OFFICER HAVE ERRED IN NOT AGREEING TO THE TP STUDY CONCLUDED BY THE ASSESSEE FOR BENCHMARKIN G THE INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPERATION S OF THE ASSESSEE WHICH WERE BENCHMARKED USING COMBINED TRANSAC TION APPROACH UNDER TNMM. 7 ITA NO.2090/PUN/2012 13. IT WAS ARGUED THAT THE NET MARGIN EARNED BY BOBST INDIA FOR DOMESTIC OPERATIONS EXCLUDING TRADING ACTIVITY AT 43% OF COST WHER EAS THE WEIGHTED AVERAGE MARGIN OF COMPARABLES ENGAGED IN PR OVIDING BUSINESS SUPPORT SERVICES IS 15.28% AND THEREFORE THE TR ANSACTIONS PERTAINING TO DOMESTIC OPERATIONS EXCLUDING TRADING ACTIVI TY IS AT ARMS LENGTH . IT WAS SUBMITTED THAT THE ASSESSEE HAS DONE A CONSERVATIVE COMPUTATION WHICH SHOULD HAVE BEEN ACCEPTE D BY THE TPO RATHER THAN BENCHMARKING THE INTERNATIONAL TRANSACT IONS OF THE ASSESSEE USING CONTROLLED TRANSACTIONS TO ASSESSEE ITSEL F WHICH IS NOT ACCEPTABLE UNDER INDIAN TRANSFER PRICING REGULATION. 14. RELYING ON RULE 10B(2), 10B(3) AND 10B(4) OF THE I.T. RULES IT WAS CONTENDED THAT THE COMPARABILITY ADOPTED BY THE TP O IS ERRONEOUS AS THE TRANSACTION ENTERED INTO BY THE TEST ED PARTY SHOULD BE COMPARED WITH UNCONTROLLED TRANSACTION AND SUCH UNCO NTROLLED TRANSACTIONS DO NOT INCLUDE TRANSACTIONS BETWEEN THE AE S. THE ASSESSEE SUBMITTED THAT TPO HAS HIMSELF COMPARED COMMIS SION EARNED BY THE ASSESSEE FROM MARKETING OF MACHINES WITH C OMMISSION EARNED BY THE ASSESSEE FROM MARKETING OF SPARES. THE T URNOVER EARNED BY THE AES OF THE ASSESSEE FROM SALE OF SPARE IS ALSO FEW CRORES ONLY, I.E. RS.8.14 CRORES WHEREAS THE TPO HAS CON SIDERED THE SAME AS A COMPARABLE TO THE INTERNATIONAL TRANSACTION OF THE ASSESSEE PERTAINING TO COMMISSION EARNED FROM MARKETING O F MACHINES. IT WAS SUBMITTED THAT ASSESSEE HAS PROVIDED ALL THE RELEVANT DETAILS REGARDING THIRD PARTY TRANSACTIONS. 15. DURING THE PROCEEDINGS BEFORE THE DRP IT WAS SEEN BY THE DRP THAT TPO HAS MADE TWO ADDITIONS, I.E. (1) ON ACCOUNT OF EOU MANUFACTURING ACTIVITY RS.1,52,38,300 AND (2) ON ACCOUNT OF RECEIPT 8 ITA NO.2090/PUN/2012 OF SALE COMMISSION ON SALE OF MACHINES AT RS.8,85,40,000. HOWE VER, IN THE DRAFT ASSESSMENT ORDER THE ASSESSING OFFICER HAS M ADE ONLY ONE ADDITION WHICH IS ON ACCOUNT OF RECEIPT OF SALE COMMISSIO N ON SALE OF MACHINES AT RS.8,85,40,000 AND MISSED THE ADDITION ON ACCOUNT OF EOU MANUFACTURING ACTIVITY AT RS.1,52,38,300/- AS PER PROVISIONS OF SECTION 92CA(4) OF THE ACT. SINCE THE ORDER PASSED BY THE TPO IS BINDING ON THE ASSESSING OFFICER, THEREFORE, THE D RP ISSUED AN ENHANCEMENT NOTICE TO THE ASSESSEE BY PROPO SING TO INCORPORATE THE TP ADJUSTMENT IN RELATION TO EOU OPERAT ION TO THE TOTAL INCOME OF THE ASSESSEE. IN RESPONSE TO THE SAME, THE ASSESSEE FILED ITS OBJECTIONS, THE GIST OF WHICH HAS BEEN SUMMARIZED B Y THE DRP AT PARA 12.3 OF THE ORDER AND WHICH READS AS UNDER : 1. THE LD. TPO HAS ERRED ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE IN NOT CONSIDERING THE FINANCIAL DATA PROVIDED B Y THE APPELLANT AND APPROACH ADOPTED IN TRANSFER PRICING STUDY REPORT FRO M TNMM ANALYSIS IN RELATION TO BENCH MARKING THE INTERNATIONAL TRAN SACTION PERTAINING TO EOU OPERATION. 2. THE TPO HAS ERRED BY NOT CONSIDERING MULTIPLE YEAR DATA AND CONTEMPORANEOUS DATA FOR DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION PERTAINING TO EOU OPERATION, 3. THE TPO HAS ERRED BY CONCLUDING THAT ROLLATAINERS LTD., IN COMPARABLE TO THE APPELLANT AND SHOULD BE CONSIDERED FOR ARRIVING AT THE ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRAN SACTION PERTAINING TO EOU OPERATION. 4. THE TPO HAS ERRED BY CONCLUDING THAT INTERNATIONA L COMBUSTION INDIA LTD., IS COMPARABLE TO APPELLANT ON COMPANY VI DE BASIS AND NOT ON SEGMENTAL BASIS AS DONE BY THE APPELLANT. 5. THE TPO HAS ERRED VIDE CONCLUDING THAT POLYMER PA PER LTD. IS NOT COMPARABLE TO THE APPELLANT, HENCE, SHOULD BE EXCLUD ED VIDE ARRIVING AT THE ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION PERTAINING TO EOU OPERATION, 6. THE TPO HAS COMPARED ENTITIES HAVING DIFFERENT WOR KING CAPITAL STRUCTURE WITH THE APPELLANTS OPERATIONS WHICH HAS DIFF ERENT WORKING CAPITAL REQUIREMENT WITHOUT MAKING ANY ADJUSTMENT FO R THE DIFFERENCES BETWEEN THE WORKING CAPITAL OF COMPARABLES VIS-A-VIS THE APPELLANT. 9 ITA NO.2090/PUN/2012 7. THE TPO HAS RAISED IN COMPLETING THE OPERATING MAR GIN OF APPELLANT INCLUDING EXPENSES RECOVERED FROM BOBST GROU P ENTITIES IN THE OPERATING INCOME RATHER THAN APPROPRIATELY RELATING OF THE SAME FROM THE RELEVANT EXPENSES TO WHICH THEY WERE DEBITED. 16. AFTER CONSIDERING THE SUBMISSION MADE BY THE ASSESSEE THE DRP REJECTED THE VARIOUS OBJECTIONS RAISED BEFORE THEM EXCEPT WITH A DIRECTION TO GRANT DEDUCTION U/S.10B PROPERLY. 17. THE ASSESSING OFFICER THEREAFTER PASSED ORDER U/S.143(3 ) R.W.S. 144C(13) MAKING ADDITION OF RS.10,37,82,300/- TO THE ARMS LE NGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ON ACCOUNT OF THE FOLLOWING : A. ADJUSTMENT IN RESPECT OF SALES COMMISSION ON SALE OF MACHINES RS.8,85,44,000 B. ADJUSTMENT IN RESPECT OF EOU MANUFACTURING ACTIVITY RS.1,52,38,300 --------------------- TOTAL RS.10,37,82,300 --------------------- 18. AGGRIEVED WITH SUCH ORDER OF THE DRP THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, BOBST INDIA PRIVATE LIMITED ('APPELLANT') RESPECTFULLY CRAVES LEAVE TO PR EFER AN APPEAL AGAINST THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF I NCOME TAX- CIRCLE 1(1) ('LEARNED AO') UNDER SECTION 143(3) OF I NCOME-TAX ACT, 1961 ('THE ACT') DATED 18 SEPTEMBER 2012 (RECEIVED ON 2 OCTOBER 2012) IN PURSUANCE OF THE DIRECTIONS ISSUED BY DISPUTE RESOLUTION PANEL ('HON'BLE DRP'), PUNE, UNDER SECTION 253(1)(D) OF THE ACT ON THE FOLLOWING GROUNDS, WHICH ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE HON'BLE DRP AND CONSEQUENTIALLY THE LEARNED AO HAVE IN RESPECT OF TRANSFER PRICING ADJUSTMENT ERRED AS UNDER: 1. GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT OF RS. 10,37,82,300. ERRED IN MAKING TRANSFER PRICING ADJUSTMENT TO THE IN TERNATIONAL TRANSACTIONS PERTAINING TO EXPORT ORIENTED UNIT ('EOU ') OPERATIONS AND DOMESTIC OPERATIONS IN RELATION TO RECE IPT OF COMMISSION FROM MARKETING OF MACHINES AND SPARES OF ITS ASSOCIATED ENTERPRISES ('AES'). 10 ITA NO.2090/PUN/2012 2. GENERAL GROUND REGARDING NON ACCEPTANCE OF FINAN CIAL DATA AND ANALYSIS PROVIDED IN THE TRANSFER PRICING STUDY REPORT. ERRED BY NOT ACCEPTING THE FINANCIAL DATA AND APPRO ACH ADOPTED BY THE APPELLANT FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS PERTAINING TO EOU OPERATIONS PROVIDED BY THE APPELLA NT IN ITS TRANSFER PRICING STUDY REPORT AND BY NOT AGREEING TO THE TRANSFER PRICING STUDY CONDUCTED FOR BENCHMARKING THE INTERNA TIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPERATIONS USING COM BINED TRANSACTION APPROACH USING TNMM AS THE MOST APPROPRIATE METHOD. INTERNATIONAL TRANSACTIONS PERTAINING TO EOU OPERAT IONS 3. IN APPROPRIATE USE OF SINGLE YEAR DATA BY THE LE ARNED AO ERRED IN CONSIDERING THE OPERATING MARGINS EARNED BY THE COMPARABLE COMPANIES BASED ON THE FINANCIAL DATA PER TAINING ONLY TO FINANCIAL YEAR ENDED 31 MARCH 2008 AND REJE CTING THE FINANCIAL DATA OF COMPARABLE COMPANIES FOR PRIOR TW O YEARS (31 MARCH 2007 AND 31 MARCH 2006). 4. INAPPROPRIATE USE OF NON CONTEMPORANEOUS DATA BY THE LEARNED AO ERRED IN COMPUTING THE ARM'S LENGTH PRICE USING THE F INANCIAL INFORMATION OF COMPARABLE COMPANIES AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS, ALTHOUGH SUCH INFORMATION WAS NO T AVAILABLE AT THE TIME WHEN THE APPELLANT COMPLIED W ITH THE TRANSFER PRICING REGULATIONS. 5. INAPPROPRIATELY CONSIDERING ROLLATAINERS LIMITED AS COMPARABLE FOR FY 2007-08 WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, ER RED BY CONCLUDING THAT ROLLATAINERS LIMITED IS COMPARABLE TO THE APPELLANT AND HENCE SHOULD BE CONSIDERED WHILE COMPU TING THE OPERATING MARGINS OF COMPARABLE COMPANIES FOR ARRIVIN G AT THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS PERTAINING TO EOU OPERATIONS. 6. INAPPROPRIATELY CONSIDERING INTERNATIONAL COMBUS TION (INDIA) LIMITED AS COMPARABLE ON A COMPANY WIDE BAS IS FOR FY 2007-08. WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, ER RED BY CONCLUDING THAT INTERNATIONAL COMBUSTION (INDIA) LIM ITED IS COMPARABLE TO THE APPELLANT ON A COMPANY WIDE BASIS A ND HENCE COMPANYWIDE OPERATING MARGINS SHOULD BE CONSIDERED FOR ARRIVING AT THE ARM'S LENGTH PRICE IN RELATION TO TH E INTERNATIONAL TRANSACTIONS PERTAINING TO EOU OPERATIONS. 7. INAPPROPRIATELY CONSIDERING POLYMER PAPERS LIMIT ED AS NOT COMPARABLE FOR FY 2007-08. 11 ITA NO.2090/PUN/2012 WITHOUT PREJUDICE TO THE ABOVE GROUNDS OF APPEAL, ER RED BY CONCLUDING THAT POLYMER PAPERS LIMITED IS NOT COMPARA BLE TO THE APPELLANT AND HENCE SHOULD NOT BE CONSIDERED WHILE C OMPUTING THE OPERATING MARGINS OF COMPARABLE COMPANIES FOR ARR IVING AT THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIO NAL TRANSACTIONS PERTAINING TO EOU OPERATIONS. 8. ERRONEOUSLY COMPARING ENTITIES HAVING DIFFERENT WORKING CAPITAL STRUCTURE WITH THE APPELLANT'S OPERATIONS W HICH HAS DIFFERENT WORKING CAPITAL REQUIREMENTS. ERRED BY COMPARING ENTICES HAVING DIFFERENT WORKING CAPITAL STRUCTURE WITH THE APPELLANT'S EOU OPERATIONS HAVING D IFFERENT WORKING CAPITAL REQUIREMENTS, WITHOUT MAKING ANY ADJ USTMENT FOR DIFFERENCES BETWEEN THE WORKING CAPITAL OF COM P ARABLES VIS- A-VIS THE APPELLANT. 9. ERRONEOUSLY COMPUTING THE OPERATING MARGINS OF T HE APPELLANT ERRED IN COMPUTING THE OPERATING MARGINS OF THE APPE LLANT BY INCLUDING EXPENSES RECOVERED FROM BOBST GROUP ENTITIE S (INCURRED ON THEIR BEHALF) IN THE OPERATING INCOME RATHER THAN APPROPRIATELY NETTING OFF THE SAME FROM THE RELEVANT EXPENSE HEAD TO WHICH THEY WERE DEBITED. 10. INAPPROPRIATE COMPUTATION OF TRANSFER PRICING A DJUSTMENT BY COMPUTING THE SAME USING INCORRECT PROFIT LEVEL IND ICATOR ERRED IN COMPUTING THE TRANSFER PRICING ADJUSTMENT IN RELATION TO THE EOU OPERATIONS OF THE APPELLANT FOR A Y 2008-09 BY COMPUTING THE SAME ON REVISED OPERATING INCOME OF THE APPELLANT RATHER THAN THE REVISED OPERATING COST SINCE THE PROF IT LEVEL INDICATOR ADOPTED BY THE APPELLANT AND THE LEARNED TRANSFER PRICING OFFICER ('LEARNED TPO') IS OPERATING PROFIT OPERATING COST. INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC O PERATIONS 11. NON CONSIDERATION OF SUBMISSION OF THE APPELLAN T TO BENCHMARK INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPERATIONS EXCLUDING TRADING ACTIVITIES. ERRED ON THE FACTS AND IN LAW BY NOT CONSIDERING THE APPELLANT'S CONTENTION MADE ON A WITHOUT PREJUDICE BASIS OF BENCH MARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPERATIONS EXCLUDING TRADING ACTIVITIES, WHICH AS PROPOSED BY LE ARNED TPO CANNOT BE CATEGORIZED UNDER BUSINESS SUPPORT SERVICES, US ING TNMM AS MOST APPROPRIATE METHOD. 12. ERRONEOUS COMPARISON OF COMMISSION FROM MARKETI NG OF MACHINES WITH THE COMMISSION FROM MARKETING OF SPAR ES. 12 ITA NO.2090/PUN/2012 ERRED BY COMPARING THE INTERNATIONAL TRANSACTION PER TAINING TO RECEIPT OF COMMISSION FROM MARKETING OF BOBST GROUP'S M ACHINES WITH THE INTERNATIONAL TRANSACTION PERTAINING TO REC EIPT OF COMMISSION FROM MARKETING OF BOBST GROUP'S SPARES I.E. CONTROLLED TRANSACTION OF THE APPELLANT. 13. NON CONSIDERATION OF THE DETAILS IN RELATION TO INTERNAL COMPARABLE UNCONTROLLED PRICE ('CUP') SUBMITTED BY THE APPELLANT. ERRED ON THE FACTS AND IN LAW BY NOT CONSIDERING THE APPELLANT'S SUBMISSION MADE ON A WITHOUT PREJUDICE BASIS PROVIDING D ETAILS OF COMMISSION EARNED BY THE APPELLANT FROM OVERSEAS THIRD PARTY IN RELATION TO MARKETING OF MACHINES IN INDIA ON BEHALF OF OVERSEAS THIRD PARTY WHICH SHOULD BE CONSIDERED AS VALID INTERNAL CUP FOR THE PURPOSE OF BENCHMARKING INTERNATIONAL TRANSACTION PERTAINING TO RECEIPT OF COMMISSION FROM MARKETING OF MACHINES. OTHER GROUNDS 14. SHORT GRANT OF TAX DEDUCTED AT SOURCE ('TDS') C REDIT BY RS. 3,63,997. THE LEARNED AO WHILE COMPUTING THE TAX DEMAND HAS ER RED IN GRANTING TDS CREDIT (AS A PART OF PRE-PAID TAXES) OF RS.6,10,818 AS AGAINST AN AMOUNT OF RS. 9,73,815 CLAIMED BY THE APPE LLANT IN ITS RETURN OF INCOME, WITHOUT EXPLAINING INDICATING THE REASON FOR THE SAME. 15. ERRONEOUS LEVY OF INTEREST UNDER SECTION 234B, 234C AND 234D OF THE ACT. WITHOUT PREJUDICE TO THE GROUNDS ABOVE, IF THE TRANSF ER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B, 234C AND 234D OF THE ACT , WITHOUT CONSIDERING THE FACT THAT THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS DUE TO DIFFERENCE OF OPINION A ND AS AT THE DUE DATE OF PAYMENT OF ADVANCE TAX BY NO MEANS THE A PPELLANT COULD HAVE ESTIMATED SUCH ADJUSTMENTS AND CONSEQUENTIAL TAX ON SUCH ADJUSTMENT. 16. EXCESS LEVY OF INTEREST UNDER SECTION 234B OF T HE ACT BY RS. 14,84,675 WITHOUT PREJUDICE TO THE GROUNDS ABOVE, THE LEARNED AO WHILE COMPUTING THE TAX DEMAND HAS ERRED IN COMPUTING INTE REST UNDER SECTION 234B(2) R.W.S 140A OF THE ACT FOR PERIOD AFTE R PAYMENT OF SELF ASSESSMENT TAX AS THE LEARNED AO HAS REDUCED AMOUNT OF INTEREST PAYABLE UPTO DATE OF PAYMENT OF SELF ASSESSMENT TAX UNDER SECTION 234B AS PER THE ASSESSED INCOME AS AGAINST THE AMOUNT OF INTEREST ACTUALLY PAID WITH PAYMENT OF SELF ASSESSMENT TAX AS PER THE RETURN OF INCOME UNDER SECTION 140A OF THE ACT. 17. EXCESS LEVY OF INTEREST UNDER SECTION 234C OF T HE ACT BY RS. 2,42,204. 13 ITA NO.2090/PUN/2012 WITHOUT PREJUDICE TO THE GROUNDS ABOVE, THE LEARNED AO WHILE COMPUTING THE TAX DEMAND HAS ERRED IN CONSIDERING INT EREST UNDER SECTION 234C OF RS. 4,02,006 INSTEAD OF INTEREST UNDER THE SAID SECTION AS PER RETURN OF INCOME OF RS. 159,802. 18. ERRONEOUS LEVY OF PENALTY UNDER SECTION 271(1)( C) OF THE ACT WITHOUT PREJUDICE TO THE GROUNDS ABOVE, IF THE TRANSF ER PRICING ADJUSTMENT IS SUSTAINED THEN THE LEARNED AO HAS ERRED IN PROPOSING TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT ADJUSTMENT TO TRANSF ER PRICE IS JUST ON ACCOUNT OF DIFFERENCE OF OPINION AND CONSEQUE NTLY RESULTED IN AN ADJUSTMENT TO INCOME. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT , SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR A T THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE LD. AO TO DECIDE THIS APPEAL ACCORDING TO LAW. 19. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME HEARING DID NOT PRESS GROUNDS OF APPEAL NO.3,4,6,7,11 AND 13 FOR WHICH THE L D. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDIN GLY, THE ABOVE GROUNDS BY THE ASSESSEE ARE DISMISSED AS NOT P RESSED. GROUNDS OF APPEAL NO.1 AND 2 BEING GENERAL IN NATURE ARE DISMISSED. 20. SO FAR AS GROUND OF APPEAL NO.5 IS CONCERNED THE SAM E RELATES TO EXCLUSION OF ROLLATAINERS LIMITED AS COMPARABLE FOR A.Y. 2007-08. 21. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE IN ITS TP STUDY HAS INCLUDED ROLLATAINERS LIMITED AS COMPARABLE B Y FOLLOWING MULTIPLE YEAR DATA. THE SAME WAS INCLUDED DURING A.Y . 2006-07 AND 2007-08 ALSO AS A COMPARABLE. DURING THE C OURSE OF TP STUDY PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR WHE N THE ASSESSEE CAME TO KNOW THAT ROLLATAINERS LIMITED IS NOT CO MPARABLE BECAUSE (A) IT HAS SUBSTANTIAL RELATED PARTY TRANSACTIONS DURING F.Y. 2007-08 WHICH IS AT 48.57% (B) IT IS A SICK COMPANY AND HA S BEEN REFERRED TO BIFR AND (C) IT IS FOLLOWING DIFFERENT FINANCIAL YEAR , THEREFORE, IT SHOULD BE EXCLUDED. HOWEVER, THE TPO REJECTED THE C LAIM 14 ITA NO.2090/PUN/2012 OF THE ASSESSEE ON THE GROUND THAT ASSESSEE ITSELF HAS INCLUDED THE SAME AS A COMPARABLE. FURTHER, THE COMPANY WAS ALSO SIC K IN THE PRECEDING YEAR AND THERE ARE NO PURCHASES FROM RELATED PARTY IN THE MANUFACTURING CONCERN. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE INCLUDED CERTAIN COMPANY AS COM PARABLE BUT SUBSEQUENTLY IT WAS POINTED OUT THAT THE SAME IS NOT C OMPARABLE BY GIVING COGENT REASONS THE SAME SHOULD BE EXCLUDED FROM T HE LIST OF COMPARABLES BY THE TPO. 22. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE VS. ACIT VIDE IT A NO.2279/PUN/2012 ORDER DATED 28-01-2015 FOR A.Y. 2008-0 9 THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENC H TO PARA 14 OF THE ORDER AND SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT THE PLEA OF THE ASSESSEE CANNOT BE SHUT OUT MERELY BECAUSE THE SAID CONCERN WAS INITIALLY ADOPTED BY THE ASSESSEE A S COMPARABLE IN ITS TP STUDY. HOWEVER, IT WAS POINTED OUT BY THE TRIBU NAL THAT THE CAUSE AND JUSTIFICATION FOR ITS EXCLUSION IS LIABLE TO BE DEMO NSTRATED BY THE ASSESSEE. ACCORDINGLY, INFOSYS TECHNOLOGY LTD. WA S DIRECTED TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. HE SUBMITT ED THAT ROLLATAINERS LIMITED IS A SICK COMPANY SINCE IT HAS BEEN REFE RRED TO THE BIFR AND HAS NEGATIVE NET WORTH FOR CONTINUOUS 3 Y EARS, I.E. F.YRS. 2005-06 TO 2007-08. FOR THE ABOVE PROPOSITION HE REFERRED TO PAGES 359 AND 360 OF THE PAPER BOOK NO.1 AND PAGES 92 TO 94 AND 100 OF THE TPOS ORDER FOR A.Y. 2008-09. 23. REFERRING TO THE FOLLOWING DECISIONS HE SUBMITTED THAT COMPANIES HAVING NEGATIVE NET WORTH CANNOT BE CONSIDERE D AS COMPARABLE : 15 ITA NO.2090/PUN/2012 1. QUARK SYSTEMS PVT. LTD. VS. ITO ITA NO.115/CHD/20 09 2. CRM SERVICES INDIA PVT. LTD. ITA NO.4068/DEL/20 09 3. MITSUI OSK MARITIME INDIA PVT. LTD. VS. DCIT ITA NO.6397/MUM/2006 24. REFERRING TO THE FOLLOWING DECISIONS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT COMPANIES WITH SIGNIFICANT RELATED PARTY TRANSACTIONS CANNOT BE TAKEN AS COMPARABLE : 1. STARENT NETWORKS (INDIA) PVT. LTD. VS. DCIT ITA NO.1350/PN/2010 2. ACIT VS. SYMANTEC SOFTWARE SOLUTIONS PVT. LTD. ITA NO.8673/MUM/2011 3. GLOBAL LOGIC INDIA PVT. LTD. VS. DCIT ITA NO .6082/DEL/2010 4. DCIT VS. DELOITTE CONSULTING INDIA PVT. LTD. ITA NO.1082/HYD/2010 5. DCIT VS. SONY INDIA PVT. LTD. ITA NO.448/DEL/20 08 6. AVAYA INDIA PVT. LTD. VS. ACIT ITA NO.5150/D EL/2010 25. HE SUBMITTED THAT ROLLATAINERS LIMITED HAS DIFFERENT FINANC IAL YEAR, I.E. YEAR ENDING 30 TH SEPTEMBER AS COMPARED TO 31 ST MARCH ADOPTED BY THE ASSESSEE. REFERRING TO THE FOLLOWING DECISION S HE SUBMITTED THAT COMPANIES WITH DIFFERENT FINANCIAL YEAR ENDING CANNOT BE CONSIDERED AS COMPARABLE : 1. HONEYWELL AUTOMATION INDIA PVT. LTD. VS. DCIT ITA NO.4/PN/08 (PUNE) 2. HAPAG LLOYD GLOBAL SERVICES PVT. LTD. VS. ACIT ITA NO.8499/MUM/2010 (MUMBAI) 3. SANDSTONE CAPITAL ADVISORS PVT. LTD. VS. ACIT ITA NO.6315/MUM/2012 (MUMBAI) 26. WITHOUT PREJUDICE TO THE ABOVE, THE LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT EVEN IF ROLLATAINERS LIMITED IS TO BE CONSIDERED AS COMPARABLE, THEN THE OPERATING MARGIN BASE D ON FINANCIAL YEAR DATA FOR THE YEAR ENDED 30-09-2007 SHOULD BE CONSIDERED WHICH IS 6.30% AS AGAINST 13.32% FOR THE YEAR E NDED 30- 09-2008 WHICH HAS BEEN INADVERTENTLY CONSIDERED BY THE TPO. HE 16 ITA NO.2090/PUN/2012 SUBMITTED THAT IF THE SAME IS ACCEPTED THEN THE ASSESSE E FALLS WITHIN +/-5%. 27. REFERRING TO PAGE 349 OF THE PAPER BOOK THE LD. COUN SEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE COMPU TATION OF OPERATING MARGIN WHICH COMES TO 6.30%. REFERRING TO PAGE 11 OF THE ORDER OF THE TPO HE SUBMITTED THAT THE TPO HAS CONSIDERED THE PL I AT 13.32% BY CONSIDERING 30-09-2008 AS THE YEAR ENDING. RE FERRING TO PAGE 182 OF THE PAPER BOOK HE DREW THE ATTENTION OF TH E BENCH TO THE SEGMENTAL REPORTING OF ROLLATAINERS LIMITED AND SUBMITTED T HAT EVEN IF YEAR ENDING IS TAKEN AS 30-09-2008, THEN ALSO THE MAR GIN IS 10.18%. HOWEVER, FOR THE PURPOSE OF COMPARISON, THE TPO S HOULD ADOPT 30-09-2007 AS THE YEAR ENDING WHICH COMES TO 6.3 0%. HE ACCORDINGLY SUBMITTED THAT THE PLI OF ROLLATAINERS LIMITED SHOULD BE CONSIDERED AT 6.30%. 28. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAV ILY RELIED ON THE ORDER OF THE TPO AND DRP. HE SUBMITTED TH AT ONCE THE ASSESSEE HAS INCLUDED THE COMPANY AS COMPARABLE IN ITS TP STUDY REPORT HE CANNOT REQUEST NOW FOR EXCLUSION OF THE SAME ON THE GROUND THAT THE COMPARABLE COMPANY IS A SICK COMPANY A ND IS FOLLOWING DIFFERENT FINANCIAL YEAR OR ON THE ISSUE OF RELATED PAR TY TRANSACTION. HE SUBMITTED THAT IN THE PRECEDING YEARS A LSO THE COMPANY WAS A SICK COMPANY AND WAS FOLLOWING DIFFERENT FINANC IAL YEAR. FURTHER, THERE ARE NO PURCHASES FROM RELATED PAR TIES IN THE MANUFACTURING CONCERN. THEREFORE, THE ARGUMENTS ADVANCE D BY THE ASSESSEE CANNOT BE ACCEPTED. 17 ITA NO.2090/PUN/2012 29. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER/TPO AN D DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE A LSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIN D THE ASSESSEE IN THE INSTANT CASE HAS INCLUDED ROLLATAINERS LIM ITED AS COMPARABLE FOLLOWING MULTIPLE YEAR DATA. THE SAID COMPANY WAS ALSO CONSIDERED IN THE 2 PRECEDING YEARS AS COMPARABLE. HOWEVER, DURING THE TP ASSESSMENT PROCEEDINGS FOR THE IMPUGNED A SSESSMENT YEAR, THE ASSESSEE POINTED OUT TO THE TPO THAT ROLLATA INERS LIMITED SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES SINCE IT IS A SICK COMPANY, IT IS FOLLOWING DIFFERENT FINANCIAL YEAR AND IT HAS GOT SIGNIFICANT RELATED PARTY TRANSACTIONS. WE FIND THE TPO REJ ECTED THE ARGUMENT ADVANCED BY THE ASSESSEE ON THE GROUND THA T ASSESSEE ITSELF HAD INCLUDED THE SAID COMPANY IN ITS TP STUDY REPORT AND THE COMPANY WAS ALSO A SICK COMPANY IN THE PRECEDING ASSESS MENT YEAR WHEN THE ASSESSEE HAD INCLUDED THE SAME AS A COMPARABLE. 30. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT EVEN IF THE ASSESSEE HAS INCLUDED THE SAME IN ITS TP STUD Y REPORT AS COMPARABLE, THERE IS NO ESTOPPEL TO EXCLUDE THE SAME FROM THE LIST OF THIS COMPARABLES. IT IS ALSO HIS ARGUMENT THAT WHEN THE A SSESSEE HAD INCLUDED THE SAME AS COMPARABLE IN THE TP STUDY REP ORT BUT SUBSEQUENTLY IT IS POINTED OUT THAT IT IS NOT COMPARABLE DUE TO COGEN T REASONS, THEN IN VIEW OF THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA PVT. LTD. (SUPRA), THE PLEA OF THE ASSESSEE FOR EXCLUSION OF THE SAME CANNOT BE SHUT OUT MERELY BECAUSE THE SAID CONCERN WAS INITIALLY ADOPTED BY THE ASSESSEE AS COMPARABLE IN ITS TP STUDY REPORT. 18 ITA NO.2090/PUN/2012 31. WE FIND MERIT IN THE ABOVE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. FROM A PERUSAL OF PAGES 358 AND 359 OF TH E PAPER BOOK WE FIND THE ASSESSEE HAD OBJECTED BEFORE THE DRP FOR EXCLUSION OF ROLLATAINERS LIMITED AS COMPARABLE ON THE GROUND THAT THE PERCENTAGE OF RELATED PARTY TRANSACTION IS 48.57%. 32. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF S TARENT NETWORKS (INDIA) PVT. LTD.(SUPRA) HAS HELD THAT COMPANIES HA VING RELATED PARTY TRANSACTION EXCEEDING 25% CANNOT BE HELD AS COMPARABLE. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PA RA 24 READS AS UNDER : 24. APART FROM THE AFORESAID, THE APPELLANT HAS ASS AILED THE ADDITION ON OTHER ASPECTS ALSO. ONE OF THE ISSUE RAISED IS REGARDIN G THE INCLUSION OF COMPUCOM SOFTWARE LTD. AS A COMPARABLE BY THE TPO . SUCH INCLUSION IS ASSAILED ON THE GROUND THAT THE RELATED PARTY TRANSA CTIONS OF THIS COMPANY EXCEEDED 25% OF THE TOTAL REVENUES FOR FINAN CIAL YEAR 2005- 06. AS PER THE WORKINGS PLACED AT PAGES 244-245 OF THE PAPER BOOK-II, IT IS REFLECTED THAT THE RELATED PARTY TRANSACTIONS OF TH IS COMPANY ARE 28.78%, WHICH IS IN EXCESS OF 25%. IT HAS BEEN POINTED OUT THAT THERE IS AN APPARENT CONTRADICTION IN THE APPROACH OF THE TP O INASMUCH AS HE HAS REJECTED CERTAIN COMPANIES CONSIDERED COMPARABLE B Y THE ASSESSEE, WHICH AS PER THE TPO HAD SUBSTANTIAL RELATED PARTY TRA NSACTIONS. CONSIDERING THE CASE SET-UP BY THE ASSESSEE, IN OUR VIEW, THE FILTER SET-UP BY THE ASSESSEE TO EXCLUDE COMPANIES HAVING RELATED PART Y TRANSACTIONS IN EXCESS OF 25% CANNOT BE CONSIDERED AS UNREASONABLE. M OREOVER, WE DO NOT FIND ANY REASON FOR THE ASSESSING OFFICER TO DO A WAY WITH THE FILTER OF RELATED PARTY TRANSACTIONS EXCEEDING 25% AD OPTED BY THE ASSESSEE, ON A SELECTIVE BASIS. OSTENSIBLY, THE AFORESAID FI LTER HAS BEEN ACCEPTED BY THE TPO IN PRINCIPLE, BUT HAS BEEN IGNOR ED WHILE REVIEWING THE CASE OF COMPUCOM SOFTWARE LTD. CLEARLY, THE SAID FILTER HAS ESCAPED ITS APPLICATION AT THE HANDS OF THE TPO WHILE INCLUDI NG COMPUCOM SOFTWARE LTD. AS A COMPARABLE. THEREFORE, IN THE INST ANT CASE, WE DIRECT THE TPO TO EXCLUDE COMPUCOM SOFTWARE LTD. FROM THE FINAL SET OF COMPARABLES. THE ASSESSEE SUCCEEDS ON THIS ASPECT. 33. SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SYMANTEC SOFTWARE SOLUTIONS PVT. LT D. (SUPRA), DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GLOBAL LOGIC INDIA PVT. LTD ( SUPRA), HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF 19 ITA NO.2090/PUN/2012 DELOITTE CONSULTING INDIA PVT. LTD. SUPRA). THE VARIOUS OTHE R DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ON THIS ISSUE ALSO SUPPORT ITS CASE. IN VIEW OF THE ABOVE DISCUSSION R OLLATAINERS LIMITED CANNOT BE CONSIDERED AS A COMPARABLE ON ACCOUNT OF SIGNIFICANT RELATED PARTY TRANSACTIONS. 34. WE FURTHER FIND ROLLATAINERS LIMITED HAS DIFFERENT FINANCIAL YEAR ENDING AS COMPARED TO THAT OF THE ASSESSEE. A PER USAL OF THE DIRECTORS REPORT AND AUDITORS REPORT OF ROLLATAINERS LIM ITED, COPY OF WHICH IS PLACED AT PAGES 156 TO 214, SHOW THAT THE ACC OUNTING YEAR ENDING FOR THE ABOVE COMPANY IS 30 TH SEPTEMBER WHEREAS THE ACCOUNTING YEAR ENDING FOR THE ASSESSEE COMPANY IS 31 ST MARCH. UNDER THESE CIRCUMSTANCES, IT HAS TO BE SEEN AS TO WHE THER ROLLATAINERS LIMITED, WHICH IS FOLLOWING A DIFFERENT FINANCIAL YEAR THAN THE FINANCIAL YEAR FOLLOWED BY THE ASSESSEE COMPANY, CAN BE CONSIDERED AS COMPARABLE OR NOT. 35. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA PVT. LTD. (SUPRA) HAS HELD THAT D ATE FOR THE RELEVANT FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANS ACTION TOOK PLACE IS TO BE CONSIDERED FOR COMPARABILITY ANALYSIS. SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SANDSTONE CAPITAL ADVISORS PVT. LTD. (SUPRA) WHERE THE TRIBUNAL HAS OBSERVED AS UNDER : 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEV ANT MATERIAL ON RECORD. THE TPO HAS REJECTED THIS COMPARABLE BECA USE THE FINANCIAL DATA FOR THE FINANCIAL YEAR 2007-08 WERE NOT AVAILA BLE IN THE PUBLIC DOMAIN AND HENCE, IT WAS HELD THAT THIS COMPANY IS NOT A SUITABLE COMPARABLE. THERE IS NO DISPUTE THAT THE DATA FURNISH ED BY THE ASSESSEE ARE REGARDING THE FINANCIAL RESULTS AS ON 30.6.2007. T HEREFORE, AS FAR AS THE FINANCIAL YEAR 2007-08 IS CONCERNED, THE DATA A VAILABLE WERE ONLY FOR 3 MONTHS. 20 ITA NO.2090/PUN/2012 10.1 AS PER RULE 10B(4), THE DATA TO BE USED IN ANAL YSING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCI AL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. THER EFORE, IT IS MANDATORY FOR THE PURPOSE OF COMPARING THE DATA OF A N UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION THAT TH E SAME SHOULD BE RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNA TIONAL TRANSACTION HAS BEEN ENTERED INTO. THE INFORMATION, DATA AND DOCUME NTS SHOULD BE CONTEMPORANEOUS. 10.2 UNDISPUTEDLY, THE FINAL ACCOUNTS OF ARIX CONSULT ANTS PVT LTD ARE PREPARED ON 30TH JUNE; THEREFORE, THE OBJECTION RAI SED BY THE TPO HAS MERITS. THE PUNE BENCHES OF THE TRIBUNAL IN THE CASE O F HONEYWELL AUTOMATION INDIA LTD IN ITA NO.4/PN/08 VIDE ORDER D ATED 10TH FEB 2009 HAS ALSO TAKEN A SIMILAR VIEW. 10.3 APART FROM THIS, AS IT HAS BEEN FAIRLY CONCEDED BY THE LD SR COUNSEL FOR THE ASSESSEE THAT THERE ARE RELATED PARTY TR ANSACTION IN THE CASE OF ARIX CONSULTANTS PVT LTD AS IT IS EVIDENT FROM T HE NOTE ON ACCOUNT AT PAGE 89 OF THE PAPER BOOK. THEREFORE, IN VIEW OF THE FACT THAT THIS COMPANY IS HAVING RELATED PARTY TRANSACTIONS, THE SAME CANNOT BE CONSIDERED AS A PROPER COMPARABLE. 36. WE FURTHER FIND THE HONBLE BOMBAY HIGH COURT IN A REC ENT DECISION IN THE CASE OF CIT VS. PTC SOFTWARE INDIA PVT. LT D. IN ITA NO.732 OF 2014 ORDER DATED 26-09-2016 WHILE DECIDING AN ID ENTICAL ISSUE HAS OBSERVED AS UNDER : 11. RE.QUESTION (III) : (A) THE ASSESSING OFFICER ON THE BASIS OF THE ORDER OF THE TP O INCLUDED M/S. TRANSWORKS INFORMATION SERVICES LTD. (TRANSWORKS LTD .) IN HIS COMPARABILITY ANALYSIS. THE GRIEVANCE OF THE RESPONDE NT ASSESSEE BEFORE THE TRIBUNAL WAS THAT TRANSWORK LTD. CANNOT BE COMPARABLE AS THE RESPONDENT ASSESSEES FINANCIAL PERIOD IS FROM IST AP RIL, 2006 TO 31 ST MARCH, 2007 WHILE THE FINANCIAL PERIOD IN RESPECT O F THE COMPARABLE IS FROM IST JULY, 2006 TO 30 TH JUNE, 2007. THIS GRIEVANCE BASED ON FACT WAS NOT DISPUTED BY THE REVENUE BEFORE THE TRIBUNAL OR EVEN BEFORE US. IN TERMS OF RULE 10B(4) OF THE IN COME TAX RULES, 1962, THE ANALYSIS FOR COMPARISON SHALL BE ON THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTIO N HAS BEEN ENTERED INTO. IN THE ABOVE VIEW, THE TRIBUNAL HELD THAT AS THE FINANCIAL PERIOD DURING WHICH THE INTERNATIONAL TRA NSACTION WAS ENTERED INTO IS DIFFERENT, M/S. TRANSWORK LTD. COULD N OT BE TREATED AS COMPARABLE AND THUS NOT INCLUDABLE. 21 ITA NO.2090/PUN/2012 (B) WE FIND THAT THE PROVISIONS OF SECTION 10B(4) OF THE RULES ARE CLEAR IN AS MUCH AS IT OBLIGES THAT THE DATA TO BE USED FOR C OMPARABILITY ANALYSIS SHOULD BE OF THE SAME FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTIONS WERE ENTERED INTO BY THE T ESTED PARTY. IN FACT, THIS PRINCIPLE/MANDATE WAS APPLIED BY THE TPO W HILE CONSIDERING M/S.POWER SOFT GLOBAL SERVICES LTD. AS A CO MPARABLE BECAUSE IT HAD A FINANCIAL YEAR ENDING IN SEPTEMBER, 2006 AND NOT 31 ST MARCH, 2007 AS IN THE CASE OF RESPONDENT ASSESSEE. THE S AME YARDSTICK OUGHT TO HAVE BEEN APPLIED BY THE TPO WHIL E CONSIDERING WHETHER TRANSWORK LTD. WAS COMPARABLE. THE SUBMISSION O N BEHALF OF THE REVENUE THAT THE MANDATE OF RULE 10B OF THE RULES CAN BE IGNORED AS THE DIFFERENCE IS ONLY OF THREE MONTHS IS W ITHOUT ANY BASIS. NO SUCH LIBERTY IS GRANTED IN TERMS OF RULE 10B( 4) OF THE RULES. 37. SINCE IN THE INSTANT CASE THE FINANCIAL YEAR OF ROLLATAINE RS LIMITED IS DIFFERENT FROM THAT OF THE ASSESSEE COMPANY, THER EFORE, IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF PTC SOFTWARE (I) PVT. LTD. (SUPRA) WE HOLD THAT ROLLATAINERS LIMITED CANNOT BE CONSIDERED AS COMPARABLE AND HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 38. AS REGARDS THE OBJECTION OF THE REVENUE THAT THE A SSESSEE ITSELF HAS CONSIDERED ROLLATAINERS LIMITED AS COMPARABLE IN ITS TP STUDY REPORT AND THEREFORE NOW THE ASSESSEE CANNOT REQUEST FOR EXCLUSION OF THE SAME IS CONCERNED, WE FIND THE ARGUMENTS ADVANCED BY THE DEPARTMENTAL REPRESENTATIVE ON THIS ISSUE IS NOT TENABLE. ONCE AN ASSESSEE INCLUDES A COMPANY AS COMPARABLE BUT SUBSEQUE NTLY POINTS OUT THAT THE SAID COMPANY IS NOT COMPARABLE BECA USE OF JUSTIFIABLE REASONS SUCH PLEA OF THE ASSESSEE CANNOT BE S HUT OUT MERELY BECAUSE THE SAID CONCERN WAS INITIALLY ADOPTED BY THE ASSESSEE AS COMPARABLE IN ITS TP STUDY. 39. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA PVT. LTD.(SUPRA) WHILE DECIDING SUCH ARGUMENT HAS OBSERVED AS UNDER : 22 ITA NO.2090/PUN/2012 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN SO FAR AS THE OBJECTION OF THE REVENUE TO THE EFFECT THAT THE SAID CONCERN WAS INITIALLY INCLUDED BY THE ASSESSEE IN ITS TRANSFER PRICIN G STUDY AS A COMPARABLE IS CONCERNED, THE LD. REPRESENTATIVE HAS PO INTED OUT THAT IN THE TRANSFER PRICING STUDY, ASSESSEE CARRIED OUT THE COM PARABILITY ANALYSIS BY ADOPTING MULTIPLE YEARS DATA OF THE COMPA RABLES. HOWEVER, THE TPO HAS DISAGREED WITH THE ASSESSEE ON THIS ASPECT AND INSTEAD HE HAS CARRIED OUT THE COMPARABILITY ANALYSIS AFTER ADOPT ING SINGLE YEAR DATA OF THE COMPARABLES RELATABLE TO THE PERIOD UNDER CON SIDERATION. AT THE TIME OF HEARING, RELIANCE WAS ALSO PLACED ON THE JUDG EMENT OF THE CHANDIGARH SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF QUARK SYSTEMS PVT. LTD., REPORTED IN 2010-TIOL-31-ITAT-CHD.-SB FO R THE PROPOSITION THAT IF SOME INCONSISTENCY IN THE COMPARABLE EXISTS, THE N IT SHOULD BE REMOVED FROM THE FINAL LIST OF COMPARABLES NOTWITHSTAN DING THE FACT THAT ASSESSEE HAD INITIALLY CONSIDERED IT AS A COMPARABLE CONC ERN. IN OUR VIEW, THE PLEA OF THE ASSESSEE FOR EXCLUSION OF INFOSYS T ECHNOLOGIES LTD. CANNOT BE SHUT OUT MERELY BECAUSE THE SAID CONCERN WAS INITIALLY ADOPTED BY THE ASSESSEE AS A COMPARABLE IN ITS TRANSFER PRICING ST UDY. HOWEVER, WE MAY WISH TO POINT OUT THAT THE CAUSE AND JUSTIFICAT ION FOR ITS EXCLUSION IS LIABLE TO BE DEMONSTRATED BY THE ASSESSEE. IN THE PRE SENT CASE, IT HAS BEEN POINTED OUT BY THE ASSESSEE THAT THE SAID CONCERN I S FUNCTIONALLY DIFFERENT AND THAT IT WAS A GIANT COMPANY IN THE ARE A OF DEVELOPMENT OF SOFTWARE SERVICES AND IT ASSUMED ALL THE RISKS LEADING TO HIGHER PROFITS, WHEREAS THE ASSESSEE WAS A CAPTIVE UNIT SERVICING ONLY ITS OWN AFFILIATES AND ASSUMED ONLY A LIMITED RISK. QUITE CLEARLY, THE T URNOVER OF INFOSYS TECHNOLOGIES LTD. STANDS AT RS.15,051 CRORES (APPROX) WH EREAS ASSESSEES TURNOVER FROM SOFTWARE DEVELOPMENT SERVICES IS T O THE TUNE OF RS.73 CRORES (APPROX). IT IS ALSO CLEAR FROM THE TABUL ATION ABOVE, THAT THE SAID CONCERN IS UNDERTAKING DIVERSIFIED ACTIVITIES WHER EAS ASSESSEE IS PROVIDING SOFTWARE SERVICES, AT MINIMAL RISK AS 100% ACT IVITIES ARE TO ITS ASSOCIATED ENTERPRISE. IN-FACT, ASSESSEE HAS RIGHTLY RELI ED UPON THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) WHEREIN IN A SOMEWHAT SIMILAR SITUATION THE ACTION OF THE TRIBUNAL IN EXCLUDING INFOSYS TECHN OLOGIES LTD., FROM THE LIST OF FINAL COMPARABLES WAS AFFIRMED. IN THE CA SE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA), ASSESSEE WAS A WHOLLY OWNE D SUBSIDIARY OF A USA COMPANY, AND WAS ENGAGED IN PROVIDING SOFTWA RE DEVELOPMENT SERVICES FOR ITS ASSOCIATED ENTERPRISES AS A CAPTIVE SERVICE PROVIDER. THE TRIBUNAL HAD FOUND ON THE BASIS OF THE DIFFERENCES IN RISK PROFILE, NATURE OF SERVICES, REVENUE EARNED, OWNERSHIP OF BRANDED/PROP RIETARY PRODUCTS, EXPENDITURE ON RESEARCH AND DEVELOPMENT ETC ., THAT THE CONCERN M/S. INFOSYS TECHNOLOGIES LTD. WAS NOT COMPARABL E WITH AGNITY INDIA TECHNOLOGIES PVT. LTD. THE HONBLE HIGH COURT OF DELHI AFFIRMED THE AFORESAID FINDING OF THE TRIBUNAL. IN THE PRESEN T CASE TOO, THE DIFFERENCES BETWEEN ASSESSEE AND INFOSYS TECHNOLOGIES LTD. AS TABULATED ABOVE, HAVE NOT BEEN CONTROVERTED BY THE REVENUE AN D THEREFORE IN OUR VIEW ASSESSEE HAS JUSTIFIABLY DEMONSTRATED THAT M/S. INFOSY S TECHNOLOGIES LTD. WAS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. WE HOLD ACCORDINGLY. 23 ITA NO.2090/PUN/2012 40. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE CONSIDER ED OPINION THAT ROLLATAINERS LIMITED HAS TO BE EXCLUDED FROM TH E LIST OF COMPARABLES. THE LD. COUNSEL FOR THE ASSESSEE FILED A CHA RT SHOWING THAT IF THE SAME IS EXCLUDED THE ASSESSEE FALLS WITH IN +/-5%. EVEN OTHERWISE ALSO THE LD. COUNSEL FOR THE ASSESSEE BRO UGHT TO OUR NOTICE THAT THE CORRECT PLI FOR THE YEAR ENDING 30-09- 2008 IS 10.18% AS AGAINST 13.32% TAKEN BY THE ASSESSING OFFICER AND ONCE THE CORRECT PLI IS TAKEN THE ASSESSEE FALLS WITHIN +/-5%. SINC E WE HAVE ALREADY HELD THAT ROLLATAINERS LIMITED CANNOT BE CONSIDERE D AS COMPARABLE BECAUSE OF SIGNIFICANT RELATED PARTY TRANSACTION S AND DIFFERENT FINANCIAL YEAR APART FROM BEING A COMPANY HAVING NE GATIVE NETWORTH FOR 3 CONSECUTIVE YEARS, THEREFORE, GROUND OF AP PEAL NO.5 BY THE ASSESSEE IS ALLOWED. 41. GROUND OF APPEAL NO.8 RELATES TO ERRONEOUS COMPARISON OF ENTITIES HAVING DIFFERENT WORKING CAPITAL STRUCTURE WITH THE ASSESS EES OPERATION. 42. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEAR ING SUBMITTED THAT THE TPO HAS ALLOWED THE WORKING CAPITAL AD JUSTMENT IN A.Y. 2006-07. IN A.Y. 2005-06 THE TRIBUNAL HAS SET ASID E THE ISSUE TO THE FILE OF THE CIT(A) AS IT WAS NOT ADJUDICATED BY HIM. HE ACCORDINGLY SUBMITTED THAT IN THE LIGHT OF THE DIRECTION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-06 HE HAS N O OBJECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE TPO. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION FOR THE SAME. 24 ITA NO.2090/PUN/2012 43. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBUNAL IN ASS ESSEES OWN CASE IN ITA NO.512/PN/2012 FILED BY THE ASSESSEE AND ITA NO.557/PN/2012 FILED BY THE REVENUE VIDE ORDER DATED 28- 02-2014 FOR A.Y. 2005-06 WHILE RESTORING THE ISSUE TO THE FILE OF TH E CIT(A) HAS OBSERVED AS UNDER : 16. THE ONLY OTHER GROUNDS REMAINING FOR DETERMIN ATION IS BY WAY OF GROUNDS OF APPEAL NOS. 9 AND 10. IN TERMS OF GROUND OF APPEAL NO.9, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN N OT CONSIDERING THE ASSESSEE'S PLEA TO ALLOW ADJUSTMENT TO TAKE INTO CONSIDERA TION THE DIFFERENCE IN LEVELS OF WORKING CAPITAL EMPLOYED BY THE ASSESSEE VIS--VIS THE COMPARABLE COMPANIES. BY WAY OF GROUND OF APPEA L NO.10, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN N OT CONSIDERING THE ASSESSEE'S PLEA FOR ALLOWING ADJUSTMENT ON ACCOUNT OF DI FFERENCE IN LEVELS OF RISK ASSUMED BY THE ASSESSEE VIS--VIS COMPARABLE COMPAN IES. 17. ON BOTH THESE ASPECTS, THE SUBSTANTIVE GRIEVANCE O F THE ASSESSEE IS THAT THE AFORESAID SPECIFIC PLEAS RAISED BY THE ASSESSEE, H AVE NOT BEEN ADJUDICATED BY THE CIT(A). IN THIS CONNECTION, A REF ERENCE HAS BEEN INVITED TO THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT (A), A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 124 TO 170. IN PARTICULAR, OUR ATTENTION WAS INVITED TO PARA 2.9.2 OF THE WRITTEN SUBMISSIONS WHEREIN ASSESSEE HAD RAISED THE ISSUE OF WORKING C APITAL ADJUSTMENT AND ALSO TO PARA 2.9.3 WHEREIN THE ITA NO. 557/PN/2012 A.Y. 2005-06 ISSUE OF ALLOWING RISK ADJUSTMENT WAS RAISED. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT AFORESAID TWO A SPECTS HAVE NOT BEEN ADJUDICATED BY THE CIT(A) AND THAT THEY HAVE A BEARING ON THE DETERMINATION ON THE FINAL TAX LIABILITY. THE LEARN ED COUNSEL ALSO FURNISHED A COPY OF THE ORDER OF THE TPO U/S 92CA(3) OF THE ACT FOR THE SUBSEQUENT ASSESSMENT YEAR OF 2006-07 WHEREIN THE PLEA O F THE ASSESSEE FOR ALLOWING OF ADJUSTMENT ON ACCOUNT OF WORKING CAP ITAL DIFFERENCES HAS BEEN ACCEPTED. IT WAS THEREFORE CONTENDED THAT OMISSIO N TO DEAL WITH SUCH GROUNDS OF APPEAL BY THE CIT(A) IS UNJUSTIFIED. 18. FACTUALLY SPEAKING, THE POINTS RAISED BY THE LEAR NED COUNSEL FOR THE ASSESSEE HAVE NOT BEEN CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE APPEARING FOR THE REVENUE. 19. IN BACKGROUND OF THE AFORESAID FACTUAL MATRIX, IT IS EVIDENT THAT THE GRIEVANCE RAISED BY THE ASSESSEE IN TERMS OF THE GROU NDS OF APPEAL NOS. 9 AND 10 HAVE NOT BEEN ADJUDICATED BY THE CIT(A ) AND, THEREFORE WE DEEM IT FIT AND PROPER TO RESTORE THE SAME BACK TO TH E FILE OF THE CIT(A) FOR ADJUDICATION AFRESH. NEEDLESS TO SAY, THE CIT(A) SHA LL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND THE REAFTER HE SHALL ADJUDICATE THE PLEAS RAISED BY THE ASSESSEE ON MERITS IN ACCORDANCE WITH LAW. THUS, ON GROUNDS OF APPEAL NOS. 9 AND 10, ASSESSEE SU CCEEDS FOR STATISTICAL PURPOSES. 25 ITA NO.2090/PUN/2012 44. IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 2005-06, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE TPO WITH A DIRECTION TO DECIDE THE ISSUE OF WORK ING CAPITAL ADJUSTMENT. NEEDLESS TO SAY THE ASSESSING OFFICER SHALL GIV E DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE T HE ISSUE AS PER LAW. WE HOLD AND DIRECT ACCORDINGLY. GROUND OF APPE AL NO.8 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE S. 45. IN GROUND OF APPEAL NO.9 THE GRIEVANCE OF THE ASSESSE E IS REGARDING THE ERRONEOUS COMPUTATION OF OPERATING MARGIN OF THE ASSESSEE. 46. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS P ER THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLE, REIMBURSEMENT WHIC H ARE AT ACTUALS WITHOUT ANY MARKUP SHOULD BE NETTED OFF AND THE SAME CANNOT BE CONSIDERED TO BE INCOME. HE SUBMITTED THAT THE ASSESSEE HAS NETTED OFF THE FREIGHT CLEARANCE CHARGES IN ITS FINANCIA L STATEMENTS, INCURRED ON BEHALF OF ITS AES AND SUBSEQUENTL Y RECOVERED FROM ITS AES. FURTHER THE OPERATING MARGINS O F BOTH, I.E. THE ASSESSEE AND THE COMPARABLE COMPANIES ARE COMPUTE D BASED ON THE AUDITED FINANCIAL STATEMENTS AND THE TPO HAS GONE A HEAD TO INCLUDE EXPENSES RECOVERED BY THE ASSESSEE FROM ITS AES IN ITS OPERATING INCOME FOR DETERMINING THE OPERATING MARGINS FROM EOU OPERATIONS THEREBY CONSIDERING 5.65% AS THE OPERATING MA RGIN AS AGAINST 6.05% COMPUTED BY THE ASSESSEE IN ITS TP STUDY REPORT. THUS, THERE IS CERTAIN DIFFERENCE BETWEEN THE ASSESSEE AN D THE COMPARABLE COMPANIES. 26 ITA NO.2090/PUN/2012 47. REFERRING TO PAGES 303, 304, 376 AND 378 OF PAPER BOO K NO.1 THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF T HE BENCH TO THE DETAILS OF OPERATING INCOME AND OPERATING EXPENSES AN D THE RECOVERY OF FREIGHT CLEARANCE CHARGES AND APPROVAL AND O THER EXPENSES. HE SUBMITTED THAT THERE IS NO IMPACT SINCE TH E ASSESSEE HAS TAKEN THE NET EXPENDITURE AS COST. THEREFORE, THE TPO IS WRONG IN SAYING THAT YOU SHOULD HAVE FILED SEPARATELY THE OPERA TING INCOME AND THE OPERATING EXPENDITURE INCLUDING THE RECOVERABLE FR OM THE AES. 48. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER/TPO A ND DRP ON THIS ISSUE. 49. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSEE HA S RECOVERED CERTAIN PART OF ITS EXPENSES FROM ITS AES WHICH IS ATTRIBUTABLE TO THE AES AND THUS DEBITED THE NET AMOU NT OF THE EXPENDITURE TO THE PROFIT AND LOSS ACCOUNT. IT IS THE CA SE OF THE TPO THAT THE ASSESSEE SHOULD HAVE SEPARATELY SHOWN THE R EIMBURSEMENT FROM THE AES AND THE EXPENDITURE INCURRED AND NOT THE NET AMOUNT. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS NO IMPACT IN THE NET PROFIT SINCE THE ASSESSEE HAS TAKEN TH E NET EXPENDITURE AS COST. 50. THE ASSESSEE HAS FILED A CHART SHOWING COMPUTATION OF OPERATING MARGIN FROM EOU OPERATIONS AND DOMESTIC OPERAT IONS AND THE WORKING FOR IMPACT OF OPERATING MARGIN OF THE ASSESSEE COMPANY FROM EOU AND DTA OPERATIONS INCLUDING RECOVERY OF EXPENSE S THAT THERE IS ABSOLUTELY NO IMPACT IN THE OVERALL PROFITABILITY. IN OUR 27 ITA NO.2090/PUN/2012 OPINION, WHEN THE ASSESSEE HAS SHOWN THE NET EXPENDITUR E AFTER CREDITING THE RECOVERIES FROM THE AE AS THE PART OF THE EXPENDITURE IT DOES NOT MAKE ANY DIFFERENCE IF THE RECOVERY IS SHOWN SEP ARATELY IN THE CREDIT SIDE AND THE GROSS EXPENDITURE IS SHOWN IN TH E DEBIT SIDE. NET RESULT WILL BE THE SAME. WE, THEREFORE, FIND MERIT IN THE P LEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TPO HAS ER RED IN COMPUTING THE OPERATING MARGIN OF THE ASSESSEE BY INCLUDIN G EXPENSES RECOVERED FROM BOBST GROUP ENTITIES AS THE OP ERATING INCOME RATHER THAN PROPERLY NETTING OFF THE SAME FROM T HE RELEVANT EXPENSES HEAD TO WHICH THEY HAVE BEEN DEBITED. GROUND OF APPEAL NO.9 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 51. IN GROUND OF APPEAL NO.10 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE TPO/DRP IN COMPUTING THE TP ADJUSTMENT IN RELATION TO THE EOU OPERATIONS OF THE ASSESSEE FOR A.Y. 2008-09 BY C OMPUTING THE SAME ON REVISED OPERATING INCOME OF THE ASSESSEE RA THER THAN THE REVISED OPERATING COST. 52. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURIN G A.Y. 2008-09 ITS MAJOR TRANSACTION IS OF EXPORT OF MANUFACTURIN G MACHINES TO ITS AES AND THEREFORE IT HAS PROPERLY CONSID ERED PLI AS OPERATING PROFIT/OPERATING COST. IT IS ALSO HIS SUBMISSION THAT TPO IN ITS SHOW CAUSE NOTICE COMPUTED THE TP ADJUSTMENT OF T HE ASSESSEE ON ADJUSTED OPERATING COST. HOWEVER, AT THE TIME OF PASSING THE TP ORDER HE HAS ERRONEOUSLY COMPUTED THE TP ADJUSTMEN T ON THE ADJUSTED OPERATING REVENUE INSTEAD OF REVISED OPERATING COST. REFERRING TO PAGE 341 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO IN HIS SHOW CAUSE NOTIC E HAS PROPOSED AN ADJUSTMENT OF RS.1,44,24,000/- BY CONSIDERING 28 ITA NO.2090/PUN/2012 RS.23,68,48,230/- AS THE OPERATING COST. HOWEVER, IN THE FIN AL ORDER HE CHANGED THE FIGURE TO TOTAL REVENUE OF RS.24,02,18,415/- WITHOUT ANY SHOW CAUSE NOTICE. ACCORDING TO HIM HE SHOULD HAVE TAKEN THE OPERATING COST AND NOT THE OPERATING REVENUE. THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE S UBMISSIONS MADE BEFORE THE DRP, COPY OF WHICH IS PLACED AT PAGES 378 AND 379 OF THE PAPER BOOK. HE ACCORDINGLY SUBMITTED THAT SUITAB LE DIRECTION MAY BE GIVEN TO THE TPO FOR CORRECT COMPUTATION OF TH E TP ADJUSTMENT IN RELATION TO THE EOU OPERATIONS OF THE ASSE SSEE FOR A.Y. 2008-09. 53. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE TPO/DRP. 54. AFTER HEARING BOTH THE SIDES, WE FIND THE TPO IN THE SH OW CAUSE NOTICE TO THE ASSESSEE HAD PROPOSED ADJUSTMENT OF RS.1,44,24,000/- ON THE BASIS OF THE TOTAL OPERATING COST OF RS.23,68,48,230/-. HOWEVER, IN THE FINAL ORDER HE HAS CHANGE D THIS FIGURE TO THE TOTAL REVENUE OF RS.25,02,18,415/-. THE SUBMI SSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TPOS ACTION IS NOT JUSTIFIED BECAUSE THE ASSESSEE WAS NOT CONFRONTED REGARDING THE CHANGE IN MIND OF THE TPO FROM OPERATING COST TO OPERATING REVENUE COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE . CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN TH E INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE TPO WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE FOR SUCH CHANGE FROM OPERATING COST TO OPERATING REVENUE. THE T PO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCOR DINGLY. THIS 29 ITA NO.2090/PUN/2012 GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATIST ICAL PURPOSES. 55. IN GROUND OF APPEAL NO.12 THE GRIEVANCE OF THE ASSESS EE IS ERRONEOUS COMPARISON OF COMMISSION FROM MARKETING OF MACH INES WITH THE COMMISSIONER FROM MARKETING OF SPARES. 56. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD RECEIVED COMMISS ION INCOME OF RS. 5,59,00, 724/-, FROM ITS ASSOCIATED ENTERPRISE O N MARKETING OF ITS MACHINES IN INDIA, FORMING PART OF INTERNATION AL TRANSACTION RELATED TO DOMESTIC OPERATIONS. FOR THE PURP OSE OF BENCHMARKING THE ABOVE INTERNATIONAL TRANSACTION RELATED TO DOMESTIC OPERATIONS, THE ASSESSEE COMPANY FOLLOWED COMBINE D TRANSACTION APPROACH USING TNMM AS MOST APPROPRIATE ME THOD TO ARRIVE, AT ARM'S IENGTH PRICE. THE TPO DID NOT ACCEPT TH E METHOD ADOPTED BY THE ASSESSEE AND BENCHMARKED INTERNATIONAL TRANSACTION PERTAINING TO DOMESTIC OPERATIONS ON A TRANSACTION BY TR ANSACTION BASIS AND THEREBY PROPOSED AN UPWARD ADJUSTMENT ON C OMMISSION INCOME RECEIVED BY THE ASSESSEE ON SALE OF MACHINES OF AES, TO ARRIV E AT ARM'S LENGTH PRICE. 57. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS ENTERED INTO AN AGREEMENT WITH ITS ASSOCIATED ENTERPRISES, AS PER WHICH, THE ASSESSEE COMPANY EARNS A COMMISSION AT @ 5% ON SALE VA LUE OF THE MACHINES SOLD ON BEHALF OF THE ASSOCIATED ENTERPRISES. THE ASSESSEE ALSO RECEIVES COMMISSION AT @ 15%, ON SALE VALUE OF THE SPA RE PARTS SOLD ON BEHALF OF THE ASSOCIATED ENTERPRISES. THE ASSESSEE IN ITS SUBMISSION DATED 29.07.2010 , MADE BEFORE THE TPO HAD SUBMITTED 30 ITA NO.2090/PUN/2012 THAT THE COMPANY HAD A SALES AND SERVICE OFFICE IN INDIA WHICH PROVIDED MARKETING SERVICES IN RELATION TO MACHINES AND SP ARES SUPPLIED IN INDIA DIRECTLY BY BOBST GROUP ENTITIES, AND CUS TOMER SUPPORT SERVICES IN RELATION TO SPARES TRADED IN INDIA BY THE ASSESS EE. IT WAS FURTHER STATED BY THE ASSESSEE THAT THE RESOU RCES EMPLOYED INTER-ALIA INCLUDES STAFF, PLACE, ASSETS ETC. FOR TRADING AND MA RKETING ACTIVITY WERE COMMON. THUS IT WAS INFERRED BY THE TPO THA T THE FUNCTIONAL ASSETS EMPLOYED AND THE RISKS ASSUMED BY THE ASSESSEE ARE SAME AS FAR AS THE MARKETING ACTIVITIES OF MACHINES A ND MARKETING ACTIVITY OF SPARES ARE CONCERNED. THE TPO FURTH ER OBSERVED THAT FOR SELLING THE MACHINES ON BEHALF OF THE ASSOCIATED EN TERPRISES, THE FUNCTION UNDER TAKEN ARE MUCH MORE ARDUOUS WHICH IN VOLVES IDENTIFICATION OF CUSTOMERS, IDENTIFICATION OF CUSTOMERS' REQUIR EMENT, UNDER TAKING FULL SALES FUNCTIONS RIGHT FROM THE SUITABILITY OF MACHINES, REQUIREMENTS OF THE CUSTOMERS, PRICING AFTER SALE S SERVICES, CUSTOMER ASSURANCE, ETC. WHEREAS IN RESPECT O F THE ACTIVITY OF MARKETING OF SPARE PARTS, SUPPLY OF WARRANTY SPARES A RE ONLY REQUIRED TO BE DONE IN RESPECT OF THE KNOWN CUSTOMERS AND IS A FUNCTION WHICH IS NOTHING, BUT A SORT OF AFTER SALES SERVICES FUNCTIONS DONE BY THE ASSESSEE TO ITS AES. THE ASSESSEE IN ITS SU BMISSION MADE BEFORE THE TPO STATED THAT THE ASSESSEE HAS PROVIDED A COMMON FUNCTIONAL ASSETS AND RISK ('FAR') ANALYSIS IN TRANSFER PR ICING STUDY REPORT IN RELATION TO THE TRANSACTIONS PERTAINING TO DOM ESTIC OPERATIONS WHICH INTER-ALIA INCLUDE TRANSACTIONS PERTAINING T O MARKETING ACTIVITY CARRIED ON BY IT FOR FY 2006-07. THE TP O OBSERVED THAT THE FAR FOR TRANSACTIONS PERTAINING TO DOMESTIC OPE RATIONS IS COMMON SINCE THE RESOURCES EMPLOYED BY THE COMPANY TH AT INTER- ALIA INCLUDES MARKETING PERSONNEL, PLACE, ASSETS ETC FOR TRAD ING AND 31 ITA NO.2090/PUN/2012 MARKETING ACTIVITY WERE COMMON. IN VIEW THEREOF THE TPO H ELD THAT THE RATE OF COMMISSION RECEIVED BY THE ASSESSEE SHOULD O RDINARILY BE HIGHER THAN THE RATE OF COMMISSION IT RECEIVES IN RELATION T O OTHER ACTIVITIES SUCH AS, MARKETING OF SPARE PARTS AND SUPPLY O F WARRANTY SPARES MAINLY BECAUSE THE FUNCTIONS INVOLVED IN SALES AND MARKETING OF MACHINES ARE MUCH MORE THAN THAT OF MARKETING OF SPAR ES. FURTHER, ON BEING ASKED, THE ASSESSEE ALSO FAILED TO FURNISH THE DETAILS OF THE COST INCURRED BY THE COMPANY IN RELATION T O ACTIVITY PERTAINING TO RECEIPT OF COMMISSION FOR SALE OF MACHINES. BUT, AFTER CONSIDERING THE FACT THAT THE ACTIVITIES HAVE TAKEN PLACE BY EMPLOYING SAME/COMMON ASSETS AND ASSUMING SAME/SIMILAR RISKS, AN ES TIMATE OF HIGHER RATE OF COMMISSION ON THE SALE OF MACHINE MORE THAN 15% HAS NOT BEEN MADE BY TPO. AFTER CONSIDERING ALL THE FACT S AND CIRCUMSTANCES AND DATA AVAILABLE ON RECORD, THE TPO PROP OSED TO TAKE THE RATE OF COMMISSION ON SALE OF MACHINE AT 15% INST EAD OF 5% ADOPTED BY THE ASSESSEE, FOR THE PURPOSES OF BENCHMARK ING THE INTERNATIONAL TRANSACTION RELATING TO RECEIPT OF SALES COMMI SSION ON SALE OF MACHINE, FORMING PART OF DOMESTIC OPERATIONS, TO ARRIV E AT THE ARMS LENGTH PRICE AND UPWARD ADJUSTMENT OF RS.8,85,44,000 /- WAS WORKED OUT. THE DRP UPHELD SUCH ACTION OF THE TPO. TH E ASSESSING OFFICER ACCORDINGLY MADE ADDITION OF THE SAME. 58. AGGRIEVED WITH SUCH ORDER OF TPO.DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 59. AFTER HEARING BOTH SIDES WE FIND IDENTICAL GROUND WAS RAISED BY THE ASSESSEE IN ITS OWN CASE FOR A.Y. 2007-08 WHICH READS AS UNDER : 5. ERRONEOUS COMPARISON OF COMMISSION ON MARKETING OF MACHINES AND COMMISSION ON MARKETING OF SPARES. 32 ITA NO.2090/PUN/2012 ERRED IN COMPARING THE INTERNATIONAL TRANSACTION PER TAINING TO RECEIPT OF COMMISSION FOR MARKETING OF BOBST GROUP MACHINES WITH T HE INTERNATIONAL TRANSACTION PERTAINING TO RECEIPT OF C OMMISSION FOR MARKETING OF SPARES, I.E. CONTROLLED TRANSACTIONS OF TH E APPELLANT ITSELF. 60. WE FIND THE TRIBUNAL IN ITA NO.1295/PN/2011 ORDER DAT ED 28- 02-2013 FOR A.Y. 2007-08 HAS DISCUSSED THE ISSUE FROM PAR A 7.3 ONWARDS AND HAS OBSERVED AS UNDER : 7.3 TPO/AO OBSERVED THAT ASSESSEE IS RECEIVING COMMISSIO N AT THE RATE OF 15% FROM THE AES FOR MARKETING OF SPARES IN INDIA WHILE THE RATE OF COMMISSION FOR MARKETING THE MACHINERIES OF AES, THE STA NDS AT @ 5%. IN THE INSTANT CASE WHEN THE AGGREGATED APPROACH OF B ENCHMARKING AS DONE BY THE ASSESSEE HAS NOT BEEN FOUND TO BE ACCEPTA BLE AND WHEN THE STAND ALONE PROFITABILITY FROM THIS INTERNATIO NAL TRANSACTION HAS NOT BEEN ABLE TO BE WORKED OUT FOR THE REASON THAT THE R ELATED COSTS ARE NOT IDENTIFIABLE BY THE ASSESSEE AND FURTHER THERE CANNOT BE ANY RELIABLE UNCONTROLLED TRANSACTION AVAILABLE IN THE PUBLIC DOM AIN, IT COMPELLED TPO TO LOOK INTO THE DATA AND INFORMATION THAT IS AVAILA BLE. UNDER THE CIRCUMSTANCES, DRP HELD THAT TPO WAS JUSTIFIED IN COMPA RING THE INTERNATIONAL TRANSACTION OF BOBST INDIA WITH A CONTR OLLED TRANSACTION OF BOBST INDIA ITSELF. 7.4 BEFORE US LD. AR REITERATED THE SUBMISSION RAISED BEFORE TPO/DRP AND ALSO RAISED ADDITIONAL CONTENTION TO OPPO SE THE FINDING OF DRP ON ISSUE WHILE ON OTHER HAND SUPPORTED THE ORDER O F TPO WHICH WAS UPHELD BY DRP. ALL THESE RIVAL CONTENTIONS OF BOTH THE PARTIES ON THE ISSUE AT HAND ARE BEING DEALT IN SUCCEEDING SUB PARA. 7.5 THE STAND OF ASSESSEE HAS BEEN THAT IT IS INAPPROPRI ATE TO USE CONTROLLED TRANSACTIONS FOR BENCH MARKING. BASED ON T HE INDIAN TP REGULATIONS INCLUDING RULE 10A(A), RULE 10B(1), RULE 10B(2),RULE 10B (3) AND RULE 10B(4), FOLLOWING POINTS NEED CONSIDERAT ION: A. TRANSACTIONS ENTERED INTO BY TESTED PARTY SHOULD BE COMPARED WITH UNCONTROLLED TRANSACTIONS; AND B. UNCONTROLLED TRANSACTIONS DO NOT INCLUDE TRANSACTI ONS BETWEEN ASSOCIATED ENTERPRISES. INDIAN TP REGULATIONS PRESCRIBE THAT MOST APPROPRIATE METHOD HAS TO BE IDENTIFIED FOR BENCHMARKING AN INTERNATIONAL TRANSAC TION AND COMPARISON HAS TO BE DONE WITH UNCONTROLLED TRANSACTIONS AND NOT CONTROLLED TRANSACTIONS TO ARRIVE AT THE ARM'S LENGTH PRICE. ACCO RDINGLY, THE APPROACH OF BENCHMARKING THE TRANSACTION PERTAINING TO RECEIP T OF COMMISSION FROM MARKETING OF MACHINES BY COMPARING THE SAME W ITH CONTROLLED TRANSACTION OF APPELLANT ITSELF DOES NOT FALL UNDER AN Y OF THE METHODS PRESCRIBED UNDER THE PROVISIONS OF SECTION 92C OF THE A CT. IT IS CONTRARY TO INDIAN TP REGULATIONS AND NOT ACCEPTABLE UNDER TH E INDIAN TP REGULATIONS. SIMILAR VIEW HAS BEEN TAKEN BY ITAT IN CASE OF SKODA AUTO INDIA PVT. LTD. VS. ACIT (122 ITJ 699), M.S.S. INDIA PVT. LTD. (123 ITJ 657) AND BECHTEL INDIA PVT. LTD. VS. DCIT (136 ITJ 212). ITAT IN THE ABOVE 33 ITA NO.2090/PUN/2012 MENTIONED DECISIONS VIEW WAS TAKEN THAT FOR DETERMININ G THE ARM'S LENGTH PRICE AND BENCHMARKING INTERNATIONAL TRANSACT IONS OF AN ASSESSEE, REFERENCE SHOULD BE MADE ONLY TO UNCONTROLLED TRAN SACTIONS. HENCE, BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAININ G TO RECEIPT OF COMMISSION USING INTERNATIONAL TRANSACTION OF APPELLANT ITSELF FOR COMPARISON IS NOT VALID AS PER THE INDIAN TRANSFER PRIC ING REGULATIONS. AS PER PARA 2.3 AND 2.6 OF OECD TP GUIDELINES IT IS OBVI OUS THAT FOR APPLICATION OF ANY TP METHOD FOR BENCHMARKING INTER NATIONAL TRANSACTIONS, COMPARISON HAS TO BE WITH UNCONTROLLED T RANSACTIONS. ACCORDING TO US TPO WAS NOT JUSTIFIED TO NOT TO TAKE T HIS ASPECT INTO CONSIDERATION WHILE DEALING ISSUE AT HAND. 7.7 NEXT ARGUMENT ON BEHALF OF ASSESSEE IS THAT FUNC TIONS INVOLVED IN MARKETING OF SPARES ARE MORE THAN FUNCTIONS INVOLVED I N MARKETING OF MACHINES FOR SALE OF MACHINES, THE NUMBER OF TRANSACTIO NS AND NUMBER OF NEGOTIATIONS ARE LESS AS COMPARED TO SALE OF SPARES WHERE SIGNIFICANT EFFORTS ARE REQUIRED TO BE TAKEN ON A DAY TO DAY BASI S. IT IS DIFFICULT TO CONVINCE THE CUSTOMERS TO KEEP SAFETY STOCK OF SPARE PA RTS AS IT INVOLVES CARRYING COST AND BLOCKAGE OF FUNDS. THE CUSTOMERS HAV E TENDENCY TO PROCURE THE SPARES PURCHASED THROUGH LOCAL SUPPLIERS/ F ABRICATORS ETC AS IT SAVES A LOT OF TIME AS COMPARED TO IMPORTING THESE PARTS AND IS ALSO COST EFFECTIVE AND THEREFORE CONTINUOUS MONITORING / FOLL OW-UP / LIAISONING WITH THE CUSTOMERS IS REQUIRED FOR SALE OF SPARES, ACCORD ING TO ASSESSEE, THE MACHINES OF BOBST GROUP ARE SOLD IN THE MARKET BY ITS BRAND NAME AND QUALITY THAT IT PROVIDES. HOWEVER, IN CASE OF SPA RES, CUSTOMERS HAVE AN OPTION TO PURCHASE SPARES LOCALLY OF TOTALLY DIFFER ENT BRAND. FURTHER, DUE TO PAUCITY OF TIME THE CUSTOMERS PREFER TAKING SPA RES FROM LOCAL SUPPLIERS AND THEY ALSO DO NOT PREFER TO MAINTAIN A SAF ETY STOCK EVEN AFTER CONTINUOUS SUGGESTIONS BY THE APPELLANT REGARDING THE SAME. ACCORDING TO US TPO / AO HAVE NOT LOOKED INTO THIS PRACTICAL/PA RTICULAR ASPECT OF ASSESSEES BUSINESS WHILE DEALING ISSUE AT HAND WHICH IS NOT J USTIFIED. 7.8 NEXT ARGUMENT OF ASSESSEE IS THAT BOBST GROUP ENTIT IES SALE SPARES ON CREDIT BASIS TO CUSTOMERS IN INDIA WHEREAS MACHINES A RE SOLD ONLY WHEN LETTER OF CREDIT IS OPENED BY THE CUSTOMERS. ACC ORDINGLY, FOR EARNING COMMISSION INCOME VIDE MARKETING OF SPARES, THE APPELL ANT IS REQUIRED TO INCUR ADDITIONAL RECOVERY COSTS FOR ASSISTING BOBST GROUP ENTITIES IN RECOVERING THE PAYMENTS FROM CUSTOMERS; THIS ACTIVITY IS NOT INVOLVED IN CASE OF EARNING COMMISSION INCOME FROM MARKETING OF MA CHINES AS THE PAYMENTS ARE RECEIVED IN ADVANCE. THE PARAMETERS DEM ONSTRATING THE FACT THAT FUNCTIONS INVOLVED IN SALE OF SPARES ARE MUCH MORE ARDUOUS AS COMPARED TO THE FUNCTIONS INVOLVED IN SALE OF MACHINE S. ACCORDINGLY, COMMISSION ON SALE OF SPARES SHOULD BE HIGHER THAN THE CO MMISSION ON SALE OF MACHINES. THIS OBJECTIVE ASPECT HAS BEEN IGNOR ED BY TPO/AO. MOREOVER, THE QUANTUM OF SALE OF MACHINES AND SALE OF SPARE PARTS ALSO BEEN IGNORED. IN VIEW OF THE ABOVE, WE FOUND THAT THE FUNCTIONS INVOLVED IN MARKETING OF SPARES ARE MUCH MORE ARDUOUS AS COMPAR ED TO FUNCTIONS INVOLVED IN MARKETING OF MACHINES AND ACCORDINGLY, H IGHER COMMISSION ON MARKETING OF SPARES AS COMPARED TO THE COMMISSION IN MARKETING OF MACHINES IS JUSTIFIED. 7.9 NEXT ARGUMENT OF ASSESSEE IS THAT MARKET RESEARCH ST UDIES AND TECHNICAL PUBLICATIONS SUGGEST THE GENERAL INDUSTRY TR END THAT COMMISSION ON MARKETING OF SPARES IS HIGHER AS COMPARED T O COMMISSION ON MARKETING OF MACHINES. WE DO NOT ACCEPT THIS ARGU MENT OF ASSESSEE IN ISOLATION. THIS IS SUBJECTIVE ASPECT WHICH HAS TO BE APP RECIATED IN ITS FACTS 34 ITA NO.2090/PUN/2012 AND CIRCUMSTANCES. WITHOUT PREJUDICE TO ABOVE WE FIN D THAT ACCORDING TO TPO/AO HAS NOT GIVEN COGENT REASONING FOR REJECTING T NMM IDENTIFIED BY THE APPELLANT AS THE MOST APPROPRIATE METHOD FOR BENC HMARKING ITS INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPE RATIONS. THE APPROACH ADOPTED BY THE TPO I.E. USING CONTROLLED TR ANSACTION OF THE APPELLANT ITSELF (RECEIPT OF COMMISSION ON MARKETING OF SPARES) FOR BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAININ G TO RECEIPT OF COMMISSION FOR MARKETING OF MACHINES IS NOT APPROPRIATE AS PER THE INDIAN TP REGULATIONS. ACCORDINGLY INTERNATIONAL TR ANSACTION OF THE APPELLANT PERTAINING TO RECEIPT OF COMMISSION FOR MAR KETING OF MACHINES BENCHMARKED BY ASSESSEE BY AGGREGATING THE SAME WITH OT HER INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC OPER ATIONS USING TNMM SHOULD NOT BE REJECTED. WE HOLD SO. 61. SINCE THE TRIBUNAL HAS ALREADY DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE ON THIS ISSUE, THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT BEFORE US BY THE LD. DEPARTMENTAL REPRE SENTATIVE, GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED. 62. GROUND OF APPEAL NO.14 RELATES TO SHORT GRANT OF TAX DEDUCTION AT SOURCE CREDIT TO THE EXTENT OF RS.3,63,397/-. 63. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSE SSING OFFICER WITH A DIRECTION TO GIVE CORRECT CREDIT FOR TDS. 64. AFTER HEARING BOTH THE SIDES, AND CONSIDERING THE TOTA LITY OF THE FACTS OF THE CASE, WE RESTORE THIS GROUND TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE RECORDS AND GIVE APP ROPRIATE CREDIT FOR THE TDS. THE ASSESSING OFFICER SHALL GIVE DUE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCO RDINGLY. GROUND OF APPEAL NO.14 BY THE ASSESSEE IS ACCORDINGLY ALLO WED FOR STATISTICAL PURPOSES. 35 ITA NO.2090/PUN/2012 65. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROU NDS OF APPEAL NO.15, 16 AND 18 ARE CONSEQUENTIAL IN NATURE. ACCO RDINGLY, THESE GROUNDS BEING CONSEQUENTIAL IN NATURE ARE DISMISSED. 66. SO FAR AS GROUND OF APPEAL NO.17 IS CONCERNED, THE SAM E RELATES TO LEVY OF INTEREST U/S.234C. 67. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT INTEREST U/S.234C HAS TO BE COMPUTED ON THE BASIS OF TH E RETURNED INCOME AND NOT ON THE BASIS OF THE ASSESSED INCOME. SINC E IN THE INSTANT CASE THE ASSESSING OFFICER HAS COMPUTED THE INT EREST U/S.234C ON THE BASIS OF THE ASSESSED INCOME HE SUBMITT ED THAT APPROPRIATE DIRECTION MAY BE GIVEN TO THE ASSESSING OFFICE R FOR REDUCING THE SAME. 68. AFTER HEARING BOTH THE SIDES, WE ARE OF THE CONSIDERE D OPINION THAT INTEREST U/S.234C HAS TO BE CHARGED ON THE BASIS OF THE RETURNED INCOME AND NOT ON THE ASSESSED INCOME. WE TH EREFORE DIRECT THE ASSESSING OFFICER TO COMPUTE THE INTEREST U/S.2 34C ON THE BASIS OF THE RETURNED INCOME. THIS GROUND RAISED BY THE A SSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 69. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03-02-2017. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 03 RD FEBRUARY, 2017 LRH'K 36 ITA NO.2090/PUN/2012 ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-11, PUNE 4. % S / THE CIT CENTRAL, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , //TRUE COPY// =>/ASSISTANT REGISTRAR , , / ITAT, PUNE