UNILIVER INDIA EXPORTS LTD, MUMBAI V. DCIT RG 1(3)(2), MUMBAI

ITA 2096/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7014 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 24-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Application of stay; Retrospective amendment; Notional interest; Set aside
• Section: 143(3); 144C; 251; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI M. BALAGANESH , ACCOUNTANT MEMBER ITA NO. 2096 / MUM . /201 7 ( ASSESSMENT YEAR : 2012 13 ) UNILEVER INDIA EXPORTS LTD. UNILEVER HOUSE, B.D. SAWANT MARG CHAKALA, ANDHERI (E), MUMBAI 400 099 PAN AAAC1099ID . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 1(3)(2), MUMBAI . RESPONDENT S.A. NO.29/MUM./2019 ( ARISING OUT OF ITA NO. 2096 /MUM. /2017 ) ( ASSESSMENT YEAR : 2012 13 ) UNILEVER INDIA EXPORTS LTD. UNILEVER HOUSE, B.D. SAWANT MARG CHAKALA, ANDHERI (E), MUMBAI 400 099 PAN AAAC1099ID . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 1(3)(2), MUMBAI . RESPONDENT 2 UNILEVER INDIA EXPORTS LTD. ITA NO. 6648 /MUM. /2017 ( ASSESSMENT YEAR : 2013 14 ) UNILEVER INDIA EXPORTS LTD. UNILEVER HOUSE, B.D. SAWANT MARG CHAKALA, ANDHERI (E), MUMBAI 400 099 PAN AAAC1099ID . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 1(3)(2), MUMBAI . RESPONDENT S.A. NO.30/MUM./2019 ( ARISING OUT OF ITA NO. 6648 /MUM. /2017 ) ( ASSESSMENT YEAR : 2013 14 ) UNILEVER INDIA EXPORTS LTD. UNILEVER HOUSE, B.D. SAWANT MARG CHAKALA, ANDHERI (E), MUMBAI 400 099 PAN AAAC1099ID . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE 1(3)(2), MUMBAI . RESPONDENT REVENUE BY : SHRI BHUPENDRA KUMAR SINGH ASSESSEE BY : SHRI P.J. PARDIWALA DATE OF HEARING 07.05.2019 DATE OF ORDER 31.07.2019 O R D E R PER SAKTIJIT DEY. J.M. THE CAPTIONED APPEALS HAVE BEEN FILED BY THE SAME ASSESSEE CHALLENGING THE FINAL ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) 3 UNILEVER INDIA EXPORTS LTD. IN PURSUANCE TO THE DIRECTIONS OF LEARNED DISPUTE RESOLUTI ON PANEL 2, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR S 2012 13 AND 2013 14 . CORRESPONDING STAY APPLICATIONS ARISE OUT OF THE AFORESAID APPEALS. ITA NO.6648/MUM./2017 ASSESSMENT YEAR : 2013 14 2 . GROUND NO.1, BEING GENERAL IN NATURE DOES NOT REQUIRE ADJUDICATION. 3 . IN GROUNDS NO.2 TO 3.5, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE ON ACCOUNT OF ADJUSTMENT TO THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISE S ( AE S ) RELATING TO EXPORT OF FINISHED GOODS. HOWEVER, IN GRO UND NO.2.2, THE ASSESSEE HAS RAISED A LEGAL ISSUE CHALLENGING THE AUTHORITY JURISDICTION OF LEARNED DRP IN ENHANCING THE INCOME OF THE ASSESSEE. AT THE OUTSET, WE PROPOSE TO DEAL WITH THE AFORESAID LEGAL ISSUE. 4 . BRIEF FACTS ARE, THE ASSESSEE , AN INDIAN COM PANY , IS ENGAGED IN THE BUSINESS OF MANUFACTURE, TRADING AND MARKETING INCLUDING EXPORTS OF FAST MOVING CONSUMER GOODS (FMCG) SUCH AS SOAPS, DETERGENTS, HOME AND PERSONAL CARE ( HPC ) PRODUCTS, ATTA, BEVERAGES ETC. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH NOVEMBER 2013, DECLARING TOTAL INCOME OF ` 188,50,06,120. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT 4 UNILEVER INDIA EXPORTS LTD. IN THE RELEVANT PREVIOUS YEAR, ASSESSEE HAS ENTERED INTO VARIOUS INTERNATIONAL TR ANSACTION S WITH ITS OVERSEAS AE S, MADE A REFERENCE TO THE TRANSFER PRICING OFFICER FOR DETERMINING THE ARMS LENGTH PRICE OF SUCH INTERNATIONAL TRANSACTION . IN THE COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER EXAMINED THE AUDIT REPORT AS WELL AS THE OTHER DETAILS FILED BY THE ASSESSEE INCLUDING THE TRANSFER PRICING STUDY REPORT. HE FOUND , DURING THE YEAR , THE ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTION WITH AE S . SR. NO. NATURE OF TRANSACTION AMOUNT METHOD USED 1 . IMPORT OF RAW MATERIALS ` 450436398 TNMM 2 . EXPORT OF MANUFACTURED HPC PRODUCTS ` 4930372273 TNMM 3 . EXPORT OF BEVERAGES ` 2601936315 TNMM 4 . PAYMENT OF ROYALTY FEES TECHNICAL DOCUMENTATION, INFORMATION AND KNOW HOW ` 100884408 CUP 5 . PAYMENT OF ROYALTY FEES FOR TRADEMARKS ` 15373005 CUP 6 . PAYMENT OF ROYALTY FEES FOR SERVICES ` 4626216 CUP 7 . RECEIVABLES. NOT REPORTED AS A SEPARATE TRAN SACTION 5 . AFTER VERIFYING ALL THE DETAILS, THE TRANSFER PRICING OFFICER ULTIMATELY PROPOSED ADJUSTMENT IN RESPECT OF THE FOLLOWING INTERNATIONAL TRANSACTIONS. 5 UNILEVER INDIA EXPORTS LTD. 1 . ROYALTY FEES FOR TECHNICAL DOCUMENT TARY INFORMATION AND KNOWHOW ` 7,36,96,859 2 . ROYALTY PAID FOR SERVICES ` 46,26,216 3 . INTEREST ON RECEIVABLES ` 2,06,00,671 TOTAL: ` 9,89,23,746 6 . INSOFAR AS THE INTERNATIONAL TRANSACTION S RELATING TO EXPORT OF MANUFACTURE D HPC AND BEVERAGES ARE CONCERNED, THE TRANSFER PRICING OFFICER DID NOT PROPOSE ANY ADJUSTMENT IN RESPECT OF THEM. IN PURSUANCE TO THE ORDER PASSED BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER FRAMED THE DRAFT ASSESSMENT ORDER ADDING THE TRANSFER PRICING ADJUSTMENT S PROPOSED BY THE TRANSFER PRICING OFFICER. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE RAISED OBJECTIONS BEFORE LEARNED DRP. WHILE CONSIDERING THE OBJECTIONS RAISED BY TH E ASSESSEE, LEARNED DRP HAVING FOUND THAT THE TRANSFER PRICING OFFICER HAS ACCEPTED THE ARMS LENGTH PRICE OF THE SUBJECT TRANSACTION , PROCEEDED TO EXAMINE THE BENCHMARKING DONE BY THE ASSESSEE AS WELL AS OTHER RELEVANT ASPECTS RELATING TO SUCH TRANSACTION . HAVING EXAMINED , LEARNED DRP OBSERVED , THE PROFIT MARGIN OF PRODUCTS SOLD TO NON AES IS SIGNIFICANTLY HIGHER THAN THE PROFIT MARGIN ON SALES TO AE S . IN THIS CONTEXT, LEARNED DRP OBSERVED , AS AGAINST THE TOTAL TURNOVER OF ` 1062.54 CRORE, THE EXPORT OF HP C PRODUCTS TO THE AE S WAS ` 494.03 CRORE AND EXPORT OF BEVERAGES TO THE AE S AMOUNT ED TO ` 260.19 CRORE. 6 UNILEVER INDIA EXPORTS LTD. THEREFORE, THE REMAINING TURNOVER OF ` 309.32 CRORE , ACCORDING TO LEARNED DRP , RELATED TO NON - AES . FURTHER, LEARNED DRP OBSERVED , AS PER THE ASSESSEE, THE SALES TO AE S WAS WITH A MARK UP OF 9% OF THE TOTAL COST. IN THAT EVENT, LEARNED DRP OBSERVED , THE COST OF SALES OF ` 753.22 CRORE TO THE AE S COMES TO ` 691.02 CRORE GIVING A MARGIN OF ` 62.19 CRORE, WHICH TRANSLATES INTO NET PROFI T OF 8.256%. WHEREAS, THE TOTAL PROFIT OF THE ASSESSEE AS PER THE PROFIT & LOSS ACCOUNT WAS ` 163.28 CRORE , MEANING THEREBY, THE PROFIT OF ` 101.09 CRORE PERTAINS TO SALES MADE TO THE NON - AES WHICH TRANSLATES INTO A PROFIT MARGIN OF 32.69% . THEREFORE, LEAR NED DRP ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE IN TERMS WITH SECTION 144C(8) OF THE ACT , PROPOSING TO ENHANCE THE INCOME . IN THE SAID NOTICE, LEARNED DRP CALLED UPON THE ASSESSEE TO EXPLAIN WHY EXTERNAL TRANSACTIONAL NET MARGIN METHOD ( TNMM ) SELECTED B Y IT TO BENCHMARK THE TRANSACTION RELATING TO EXPORT OF HPC AND BEVERAGES SHOULD NOT BE REJECTED AND SUCH TRANSACTION SHOULD NOT BE BENCHMARKED BY APPLYING INTERNAL COMPARABLE UNCONTROLLED PRICE( CUP ) / TNMM. IN RESPONSE TO THE AFORESAID SHOW CAUSE NOTICE , ASSESSEE MADE ELABORATE SUBMISSIONS OBJECTING TO THE PROPOSED ENHANCEMENT. I T WAS SUBMITTED BY THE ASSESSEE , LEARNED DRP HAS NO POWER TO ENHANCE THE INCOME OF THE ASSESSEE IN RESPECT OF A TRANSACTION WHE RE NO VARIATION HAS BEEN PROPOSED AND THE ASSESSEE HA S NOT RAISED ANY OBJECTION. FURTHER, THE ASSESSEE ALSO SUBMITTED , IN 7 UNILEVER INDIA EXPORTS LTD. THE GIVEN FACTS AND CIRCUMSTANCES, INTERNAL TNMM CANNOT BE APPLIED AS THE NON AE TRANSACTIONS CANNOT BE COMPARED WITH THE AE TRANSACTIONS BECAUSE OF VARIOUS FACTORS. HOWEVER, LEARNED DRP DID NOT FIND MERIT IN ANY OF THE SUBMISSIONS MADE BY THE ASSESSEE. LEARNED DRP OBSERVED , SECTION 144C(8) R/W ITS EXPLANATION EMPOWERS IT TO ENHANCE THE INCOME EVEN IF THE ASSESSEE HAS NOT RAISED ANY OBJECTION WITH REGARD TO SUCH VARIATION. HAVING HELD SO, LEARNED DRP ALSO REJECTED ASSESSEES CONTENTION WITH REGARD TO NON APPLICAB ILITY OF INTERNAL TNMM AND PROCEEDED TO COMPUTE THE ARMS LENGTH PRICE OF THE SUBJECT TRANSACTION WITH THE AE S BY APPLYING INTERNAL TNMM AND MADE AN ADJUSTMENT OF ` 302.93 CRORE. 7 . SHRI P.J. PARDIWALA, LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE TRANSFER PRICING OFFICER HAS ACCEPTED THE INTERNATIONAL TRANSACTION RELATING TO EXPORT OF HPC AND BEVERAGES TO THE AES BENCHMARKED BY THE ASSESSEE UNDER EXTERNAL TNMM TO BE AT ARM'S L ENGTH, HENCE, HAS NOT PROPOSED ANY VARIATION. HE SUBMITTED , SINCE THE TRANSFER PRICING OFFICER HAS NOT PROPOSED ANY VARIATION REGARDING THE AFORESAID TRANSACTION , IT DOES NOT ARISE OUT OF THE DRAFT ASSESSMENT ORDER, HENCE, THE ASSESSEE HAS NOT RAISED ANY O BJECTION BEFORE LEARNED DRP ON THE ISSUE. DRAWING OUR ATTENTION TO SECTION 144C(8) OF THE ACT, HE SUBMITTED , LEARNED DRP HAS POWER TO ENHANCE ONLY IN RESPECT OF VARIATION S PROPOSED IN THE DRAFT ASSESSMENT ORDER AGAINST WHICH THE 8 UNILEVER INDIA EXPORTS LTD. ASSESSEE HAS RAISED OBJECTI ON S . IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) G.E. INDIA TECHNOLOGY CENTRE PVT. LTD. V/S DRP, [2011] 338 ITR 416 (KAR.); AND II ) DREDGING INTERNATIONAL N.V. V/S ADIT, [2011] 15 TAXMANN.COM 198 (MUM.). 8 . THE LEARNED SR. COUNSEL SUBMITTED , THE EXPLANATION TO SECTION 144C(8) OF THE ACT BROUGHT TO THE STATUTE BY FINANCE ACT, 2012, WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2009, CANNOT EXPAND THE SCOPE OF THE MAIN PROVISION. HE SUBMITTED , THE PURPOSE OF B R INGING AN EXPLANATION IS TO E XPLAIN THE MAIN PROVISION. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) S. SUNDARAM PILLAI &ORS. V/S V.R. PATTAVIRAMAN & ORS. [1985] 1 SCC 591; II ) ZAKIYA BEGUM AND ORS. V/S SHANAZ ALI &ORS., [2010] 9 SCC 280; AND III ) CIT V/S KNIGHT FRANK INDIA PVT. LTD., [2016] 72 TAXMANN.COM 300 (BOM.). 9 . D RAWING OUR ATTENTION TO THE FINANCE BILL 2010, THE LEARNED SR. COUNSEL SUBMITTED , THE MAIN PURPOSE FOR WHICH EXPLANATION TO SUB SECTION (8) OF SECTION 144C OF THE ACT WAS INTRODUCED IS TO NULLIFY THE EFFECT OF THE RATIO LAID DOWN BY THE COURTS AND TRIBUNALS WITH REGARD TO DRPS POWER OF ENHANCEMENT. THUS, HE SUBMITTED , THE EXPLANATION 9 UNILEVER INDIA EXPORTS LTD. WAS INTENDED TO EXPAND THE SCOPE OF THE MAIN PROVISION. WITHOUT PREJUDICE TO THE AFORESAID SUBMISS I ONS, LEARNED SR. COUNSEL SUBMITTED , EVEN AFTER INTRODUCTION OF EXPLANATION TO SECTION 144C(8) OF THE ACT , THE POWER OF ENHANCEMENT IS ONLY WITH REFERENCE TO A VARIATION MADE BY THE TRANSFER PRICING OFFICER AND NOT CHALLENGED BY THE ASSESSEE BEFORE THE DRP. T O BUTTRESS HIS SUBMISSION , LEARNED SR. COUNSEL DREW OUR ATTENTION TO SECTION 251 OF THE ACT AND SUBMITTED , UNLIKE EXPLANATION TO SECTION 144C(8) OF THE ACT , THE POWER OF THE FIRST APPELLATE AUTHORITY IS MUCH WIDER AS IT IS NOT CONFINED TO VARIATION IN INCOME BY THE ASSESSING OFFICER. H E SUBMITTED , THE POWER OF ENHANCEMENT UNDER SECTION 144C(8) OF THE ACT IS MUCH NARROWER THAN THE POWER OF ENHANCEMENT UNDER S ECTION 251 OF THE ACT. THUS, HE SUBMITTED , THE ACTION OF LEARNED DRP IN ENHANCING THE INCOME HAS TO BE DECLARED AS WITHOUT JURISDICTION, HENCE, INVALID. 10 . AS REGARDS THE MERITS OF THE DISPUTED ADDITION, LEARNED SR. COUNSEL SUBMITTED, UNDER NO CIRCUMSTANCES INTERNAL TNMM CAN BE APPLIED TO BENCHMARK THE TRANSACTION. HE SUBMITTED, THE TRANSFER PRICING OFFICER HAS NOT FOUND ANY FAULT WITH THE EXTERNAL TNMM APPLIED BY THE ASSESSEE TO BENCHMARK THE TRANSACTION. HE SUBMITTED, EVEN, LEARNED DRP HAS NOT SPECIFICALLY POINTED OUT ANY FLAW IN THE BENCHMARKING OF THE ASSESSEE. DRAWING OUR ATTENTION TO VARIOUS MATERIALS PLACED IN THE PAPER BOOK INCLUDING THE SUBMISSIONS MADE 10 UNILEVER INDIA EXPORTS LTD. BEFORE LEARNED DRP, HE SUBMITTED, VARIOUS DISTINGUISHING FEATURES MAKE THE AE AND NON - AE TRANSACTIO NS INCOMPARABLE. IN THIS REGARD, LEARNED SR. COUNSEL SUBMITTED A TABULAR CHART TO DEMONSTRATE THE SPECIFIC DIFFERENCES BETWEEN THE AE AND NON - AE TRANSACTIONS. THUS, HE SUBMITTED, INTERNAL TNMM CANNOT BE THE MOST APPROPRIATE METHOD TO DETERMINE THE ARMS LE NGTH PRICE. IN SUPPORT, HE RELIED UPON THE FOLLOWING DECISIONS: - (I) WRIGLEY INDIA PVT. LTD. V/S ACIT, IN ITA NO.5648/DEL./2012, ETC., DATED 31 ST DECEMBER 2014 ; (II) PIAGGIO VEHICLES PVT. LTD. V/S DCIT, [2012] 26 TAXMANN.COM 60 (PUN.) 11 . SHRI BHUPENDRA KUMAR SINGH , T HE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , UNDER SECTION 144C(8) OF THE ACT LEARNED DRP ALWAYS HAD THE POWER TO ENHANCE THE INCOME/VARIATION MADE BY THE TRANSFER PRICING OFFICER AND THE EXPLANATION TO SECTION 144C(8) OF THE ACT HAS FURTHER CLARIFIED THE POSI T ION. HE SUBMITTED , THE EXPLANATION HAVING BEEN BROUGHT TO THE STATUTE WITH RETROSPECTIVE EFFECT WOULD BE APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , WHEN THE EXPLANATION HAS CLAR IFIED THE INTENTION OF LEGISLATURE , BY INTERPRETING THE PROVISION IN A DIFFERENT MANNER THE POWER OF ENHANCEMENT CONFERRED ON LEARNED DRP CANNOT BE RESTRICTED . THE LEARNED DEPARTMENTAL REPRESENTATIVE 11 UNILEVER INDIA EXPORTS LTD. SUBMITTED , THE DECISION OF THE OF THE HONBLE KARNATAKA HIGH COURT IN G.E. INDIA TECHNOLOGY CENTRE (P) LTD. (SUPRA) AND THE DECISION OF THE TRIBUNAL IN DREDGING INTERNATIONAL N.V. (SUPRA) WOULD NOT APPLY TO THE FACTS OF THE PRESENT CASE AS THESE DECISIONS WERE RENDERED PRIOR TO INTRODUCTION OF EXPLANATION TO SE CTION 144C(8) OF THE ACT. HE SUBMITTED , AFTER INTRODUCTION OF EXPLANATION TO SECTION 144C(8) OF THE ACT, THE POSITION HAS CHANGED AND ALL DOUBTS REGARDING THE POWER OF ENHANCEMENT OF DRP HAS BEEN PUT TO REST. IN THIS CONT EXT HE RELIED UPON THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN BAUSCH AND LOMB INDIA PVT. LTD. V/S ACIT, [2017] 85 TAXMANN.COM 163 (DEL.) AND DECISION OF TRIBUNAL , MUMBAI BENCH IN M/S. HAMON SHRIRAM COTTRELL PVT. LTD. V/S ITO, ITA NO.7982/MUM/2011 , DATED. 19.04.2013 . THUS, HE SUBMITTED , AFORESAID DECISION S OF THE TRIBUNAL SQUARELY COVER THE PRESENT DISPUTE. AS REGARDS THE MERITS OF THE ISSUE, LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF LEARNED DRP. 12 . IN REJOINDER, THOUGH , LEARNED SR. COUNSEL FOR THE ASSESSEE AGREED THAT IN THE DECISION S OF THE TRIBUNAL, THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE, HOWEVER, HE SUBMITTED , IN THE SAID DECISION S THE TRIBUNAL HAD NO OCCASION TO DEAL WITH THE ARGUMENT ADVANCED BY HIM TO THE EFFECT THAT THE EXPLANATION CANNOT EXPAND THE SCOPE OF MAIN PROVISION. 12 UNILEVER INDIA EXPORTS LTD. 13 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE INTERNATIONAL TRANSACTION WITH THE AE S RELATING TO EXPORT OF HPC AND BEVERAGES W AS BENCHMARKED BY THE ASSESSEE APPLYING EXTERNAL TNMM. ADMITTEDLY, THE TRANSFER PRICING OFFICER HAS NOT PROPOSED ANY ADJUSTMENT/VARIATION TO THE ARMS LENGTH PRICE OF THE AFORESAID TRANSACTION SHOWN BY THE ASSESSEE. THAT BEING THE CASE, THERE IS NO SCOPE FOR ANY OBJECTION BEING RAISED BY THE ASSESSEE BEFORE LEARNED DRP WITH REGARD TO THE SAID TRANSACTION. IT IS A FACT ON RECORD THAT WHILE DEALING WITH THE OBJECTI ONS RAISED BY THE ASSESSE E IN RELATION TO SOME OTHER VARIATIONS/ADDITIONS , L EARNED DRP , IN EXERCISE OF POWER CONFERRED UNDER SECTION 144C(8) OF THE ACT , HAS MADE ENHANCEMENT/ADJUSTMENT TO THE ARMS LENGTH PRICE OF THE TRANSACTION RELATING TO EXPORT OF HPC AND BEVERAGES WITH T HE AE S . THE ISSUE BEFORE US IS, WHETHER OR NOT LEARNED DRP IS EMPOWERED UNDER THE ACT TO ENHANCE THE INCOME IN RESPECT OF A TRANSACTION FOR WHICH NEITHER ANY VARIATION HAS BEEN PROPOSED IN THE DRAFT ORDER NOR THE ASSESSEE HAS RAISED ANY OBJEC TION? AT THIS STAGE, IT IS RELEVANT TO EXAMINE THE PROVISIONS CONTAI NED UNDER SUB SECTION (8) OF SECTION 144C OF THE ACT, WHICH READS AS UNDER: (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUCE OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISS UE ANY DIRECTION UNDER SUB - SECTION (5) FOR FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. 13 UNILEVER INDIA EXPORTS LTD. 14 . SUBSEQUENTLY, BY FINANCE ACT, 2012, THE FOLLOWING EXPLANATION WAS INTRODUCED TO SECTION 144C(8) OF THE ACT WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2009. EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT THE POWER OF THE DISPUTE RESOLUTION PANEL TO ENHANCE THE VARIATION SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED THE POWER TO CONSIDER ANY MATTER ARISING OUT OF THE ASSESSMENT PROCEEDINGS RELATING TO THE DRAFT ORDER, NOTWITHSTANDING THAT SUCH MATTER WAS RAISED OR NOT BY THE ELIGIBLE ASSESSEE . 15 . A READING OF SECTION 144C(8) OF THE ACT SUGGESTS THAT LEARNED DRP MAY CONFIRM , REDUCE OR ENHANCE THE V A R IA TION PROPOSED IN THE DRAFT AS SESSMENT ORDER. WHEREAS, THE EXPLANATION TO SECTION 144C(8) OF THE ACT CLARIFIES THAT THE POWER OF ENHANCEMENT VESTED WITH LEARNED DRP EXTENDS TO ANY MATTER ARISING OUT OF ASSESSMENT PROCEEDINGS RELATING TO THE DRAFT ASSESSMENT ORDER , NOTWITHSTANDING THE F ACT WHETHER SUCH ISSUE WAS RAISED OR NOT BY THE ASSESSEE BEFORE LEARNED DRP. THUS, A CONJOIN T READING OF SECTION 144C(8) OF THE ACT ALONG WITH ITS EXPLANATION MAKES IT CLEAR THAT THE POWER OF ENHANCEMENT CONFERRED WITH LEARNED DRP EXTENDS TO ALL MATTER S AR ISING OUT OF ASSESSMENT PROCEEDINGS , IRRESPECTIVE OF THE FACT WHETHER ANY VARIATION HAS BEEN PROPOSED THEREIN OR THE ASSESSEE RAISED ANY OBJECTION WITH REGARD TO ANY SUCH ISSUE. AS PER THE SCHEME OF SECTION 144C OF THE ACT, AGAINST THE VARIATION PROPOSED IN THE DRAFT ASSESSMENT ORDER, THE ASSESSEE, AT ITS OWN OPTION MAY EITHER AVAIL THE COMMISSIONER 14 UNILEVER INDIA EXPORTS LTD. (APPEALS) ROUTE OR THE DRP ROUTE. THAT BEING THE CASE, IT WOULD BE INCONGRUOUS TO SAY THAT POWERS OF THE COMMISSIONER (APPEALS) IN THE MATTER OF ENHANCEMENT ARE MUCH WIDER THAN THAT OF THE DRP. IF WE ACCEPT THE P ROPOSITION THAT POWER OF ENHANCEMENT WITH THE COMMISSIONER (APPEALS) IS WIDER THAN THAT OF THE DRP, IT WILL LEAD TO A ANOMALOU S SITUATION, WHERE, IN RESPECT OF AN ASSESSEE OPTING FOR COMMISSIONER (APPEALS) ROUTE , POWER OF ENHANCEMENT IN RESPECT OF ANY INCOME, WHETHER CHALLENGED BY THE ASSESSEE OR NOT, CAN BE EXERCISED WITHOUT ANY FETTERS . W HEREAS, IN RESPECT OF AN ASSESSEE AVAILI NG THE DRP ROUTE , POWER OF ENHANCEMENT WOULD BE RESTRICTED ONLY TO THE VARIATIONS OBJECTED TO BY THE ASSESSEE. IN OUR HUMBLE OPINION , THIS CANNOT BE THE INTENTION OF THE LEGISLATURE WHILE ENACTING THE PROVISION OF SECTION 144C(8) OF THE ACT. T HE POWER OF E NHANCEMENT CONFERRED UPON THE DRP UNDER SECTION 144C(8) OF THE ACT CANNOT BE INTERPRETED IN A MANNER TO RESTRICT IT ONLY TO THE VARI ATIONS OBJECTED BY THE ASSESSEE . I N OUR VIEW, ANY INTERPRETATION OF SECTION 144C(8) OF THE ACT LEADING TO CURTAILMENT OF DRP S POWER OF ENHANCEMENT WOULD DEFEAT THE PURPOSE FOR WHICH SECTION 144C(8) WAS ENACTED . THUS, IN OUR VIEW, THE EXPLANATION BROUGHT TO SECTION 144C(8) OF THE ACT DOES NOT EXPAND THE SCOPE OF THE MAIN PROVISION, BUT ONLY CLARIFIES IT AND BRINGS TO THE FORE T HE INTENTION OF THE LEGISLATURE FOR ENACTING SUCH PROVISION. THAT BEING THE CASE, THE DECISIONS OF THE HON'BLE SUPREME 15 UNILEVER INDIA EXPORTS LTD. COURT IN S. SUNDARAM PILLAI &ORS. (SUPRA) AND IN ZAKIYA BEGUM &ORS. (SUPRA) AND THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S KNIGHT FRANK INDIA PVT. LTD. (SUPRA) WOULD NOT BE HELPFUL TO THE ASSESSEE. AS REGARDS THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN G.E. INDIA TECHNOLOGY CENTRE PVT. LTD. (SUPRA) AND THAT OF THE TRIBUNAL IN DREDGING INTERNATIONAL N.V. (SUPRA), ON A CAREFUL READING, IT IS NOTICED THAT THE AFORESAID DECISIONS WERE RENDERED PRIOR TO THE INTRODUCTION OF EXPLANATION TO SECTION 144C(8) OF THE ACT . T HEREFORE, THEY HAD NO OCCASION TO EXAMINE THE SCOPE OF SECTION 144 C(8) OF THE ACT AFTER INTRODUCTION OF EXPLANATION TO THE SAID PROVISION. THAT BEING THE CASE, THESE DECISIONS W OULD ALSO NOT APPLY TO THE FACTS OF THE PRESENT APPEAL. ON THE CONTRARY, THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN BAUSCH AND LOMB INDIA PVT. LTD. (SUPRA) WOULD CLEARLY APPLY TO THE FACTS OF THE PRESENT APPEAL. IN THE AFORESAID DECISION, THE TRIBUNAL, AFTER TAKING NOTE OF EXPLANATION TO SECTION 144C(8) OF THE ACT, HAS HELD IN THE FOLLOWING MANNER: 10. IT IS CLEAR FROM THE MANDATE OF SUB - SECT ION (8) THAT THE DRP IS EMPOWERED, INTER ALIA, TO ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER. THE EXPLANATION TO THIS SUB - SECTION INSERTED RETROSPECTIVELY FROM 1.4.2000 CLARIFIES THAT THE POWER OF THE DRP TO ENHANCE THE VARIATION SHALL INCLUDE THE POWER TO CONSIDER ANY MATTER ARISING OUT OF THE ASSESSMENT PROCEEDINGS RELATING TO THE DRAFT ORDER, NOTWITHSTANDING THAT SUCH MATTER WAS NOT RAISED BY THE ASSESSEE. WHEN WE CONSIDER THE LANGUAGE OF SUB - SECTION (8) IN CONJUNCTION WITH THE EXPLANATION, IT CL EARLY EMERGES THAT THE DRP HAS A POWER TO ENHANCE VARIATIONS PROPOSED IN THE DRAFT ORDER ON AN INTERNATIONAL TRANSACTION, EVEN IF IT WAS NOT RAISED BY THE ASSESSEE. 'ENHANCE 16 UNILEVER INDIA EXPORTS LTD. THE VARIATIONS' INCLUDE NOT ONLY INCREASING THE AMOUNT OF TRANSFER PRICING ADJUSTM ENT ALREADY PROPOSED, BUT ALSO MAKING A NEW TRANSFER PRICING ADJUSTMENT, WHICH WAS OMITTED TO BE PROPOSED/MADE BY THE AO/TPO. THERE IS NO DOUBT AND CANNOT BE THAT THE POWER OF THE DRP IS CO - TERMINUS WITH THAT OF THE AO/TPO. IN OTHER WORDS, THE DRP CAN ALSO DO ALL SUCH THINGS, WHICH THE AUTHORITIES COULD HAVE DONE BUT OMITTED TO DO. IF THE LANGUAGE OF THE PROVISION IS READ AS DISABLING THE DRP TO EXERCISE THE POWER OF ENHANCEMENT IN THE CIRCUMSTANCES AS ARE OBTAINING IN THE INSTANT CASE, AS HAS BEEN CANVASSE D ON BEHALF OF THE ASSESSEE, IT WOULD AMOUNT TO DILUTING THE POWER, WHICH THE STATUTE HAS EXPRESSLY GRANTED. 11. SUB - SECTION (7) OF SECTION 144C MAKES IT CLEAR THAT THE DRP, BEFORE ISSUING ANY FINAL DIRECTIONS UNDER SUB - SECTION (5), MAY EITHER (A) MAKE SU CH FURTHER ENQUIRY, AS IT THINKS FIT; OR (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY INCOME - TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. IN THE INSTANT CASE, THE DRP HAS IMPLIEDLY TAKEN RECOURSE TO CLAUSE (B) OF SUB - SECTION (7) BY CAUSING THE FURTHER ENQUIRY TO BE MADE BY THE TPO BEFORE ISSUING DIRECTION U/S 144C(5). IN VIEW OF THE FOREGOING DISCUSSION, IT IS CLEAR THAT NO EXCEPTION CAN BE TAKEN TO THE COURSE ADOPTED BY THE DRP IN MAKING THE ENHANCEMENT. 16 . IDENTICAL VIEW WAS EXPRESSED BY THE T RIBUNAL ALSO IN CASE OF _ M/S. HAMON SHRIRAM COTTRELL PVT. LTD. V/S ITO (SUPRA) . IN OUR VIEW, THE AFORESAID DECISION S OF THE TRIBUNAL CLEARLY CLINCH THE ISSUE IN FAVOUR OF THE REVENUE. IN VIEW OF THE AFORESAID, WE HOLD THAT LEARNED DRP HAS VALIDL Y EXERCISE D ITS POWER UNDER SECTION 144C(8) OF THE ACT. G ROUND NO.2.2 IS DISMISSED. 17 . HAVING HELD SO, THE NEXT ISSUE, WHICH ARISES FOR CONSIDERATION IS, WHETHER THE INTERNAL TNMM, AS APPLIED BY LEARNED DRP TO DETERMINE THE ARMS LENGTH PRICE OF THE EXPORT OF HPC AND BEVERAGES TO THE AES, IS THE MOST APPROPRIATE METHOD? A S DISCUSSED EARLIER, THE ASSESSEE HAD BENCHMARKED THE AFORESAID TRANSACTION WITH THE AE S BY APPLYING 17 UNILEVER INDIA EXPORTS LTD. EXTERNAL TNMM. LEARNED DRP HAS REJECTED THE BENCHMARKING OF THE ASSESSEE ON THE REASONING THAT SIMI LAR TRANSACTIONS WERE ENTERED INTO WITH BOTH THE AES AND NON AES, HENCE , THE TRANSACTION WITH NON AES CAN BE CONSIDERED FOR COMPARABILITY ANALYSIS WITH THE AE TRANSACTION TO DETERMINE THE MARGIN. AS COULD BE SEEN, WHILE OBJECTING TO APPLICABILITY OF INTERN AL TNMM, THE ASSESSEE HAS MADE ELABORATE SUBMISSIONS BEFORE LEARNED DRP STATING VARIOUS FACTORS WHICH MAKE BENCHMARKING OF THE TRANSACTION UNDER INTERNAL TNMM IMPOSSIBLE . O N A PERUSAL OF LEARNED DRPS DIRECTIONS , IT APPEARS, LEARNED DRP HAS NOT AT ALL CONS IDERED THE OBJECTIONS OF THE ASSESSEE IN AN OBJECTIVE MANNER. IN FACT, THE SEGMENTAL RESULTS OF AE AND NON AE SEGMENTS FURNISHED BY THE ASSESSEE HAVE BEEN REJECTED BY LEARNED DRP ON THE FLIMSY GROUND THAT THE AUDIT ORS CERTIFICATE SHOWING SUCH SEGMENTAL RE SULTS IS NOT ACCEPTABLE SINCE HE HAD NOT INITIALLY AUDITED THE BOOKS OF ACCOUNT OF THE ASSESSEE. WHAT WAS REQUIRED TO BE EXAMINED BY LEARNED DRP IS THE CORRECTNESS OF ASSESSEES CLAIM AND NOT WHO HAS AUDITED THE BOOKS OF ACCOUNT OF THE ASSESSEE. FURTHER, LEARNED DRP HAS NOT PROVIDED ANY VALID REASON WHY THE BENCHMARKING DONE BY THE ASSESSEE UNDER EXTERNAL TNMM IS NOT ACCEPTABLE. MERELY BECAUSE THE ASSESSEE HAD ENTERED INTO TRANSACTIONS BOTH WITH THE AE S AND NON AE S , IT DOES NOT RENDER APPLICABILITY OF EXTE RNAL TNMM REDUNDANT. MORE SO, WHEN LEARNED DRP HAS RECORDED A FACTUAL FINDING THAT THE PRODUCTS SOLD TO 18 UNILEVER INDIA EXPORTS LTD. AE S AND NON AE S ARE DIFFERENT EXCEPT IN CASE OF ONLY FIVE ITEMS. IT IS RELEVANT TO OBSERVE , IN COURSE OF HEARING OF THE PRESENT APPEAL, THE LEARNED SR. COUNSEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE VARIOUS FACTORS WHICH CAN MAKE A SIGNIFICANT DIFFERENCE BETWEEN THE TRANSACTIONS WITH AE S AND NON AE S AND WOULD HAVE IMPACT ON PROFITABILITY . AS COULD BE SEEN, INSOFAR AS THE AE SEGMENT IS CONCERNED, THE A SSESSEE ACTS AS A CONTRACT MANUFACTURER , ACCORDINGLY , BEARS LIMITED RISK AS THE MAJOR RISK IS TAKEN BY THE AE S. T HE MARKETING AND DISTRIBUTION ARE PERFORMED BY THE AE WHO SOURCE THE PRO DUCTS . WHEREAS, IN CASE OF NON AE SEGMENT, THE ENTIRE RISK AND REWARD I S WITH THE ASSESSEE , AS , IT NOT ONLY HAS TO EXPLORE THE MARKET BUT HAS TO PROMOTE ITS PRODUCT S . IT HAS TO APPOINT DISTRIBUTORS AND INCUR VARIOUS OTHER EXPENDITURES INCLUDING ADVERTISEMENT, SALES PROMOTION, ETC . SIMILARLY, FOR A.E. SEGMENT, ANY NEW CAPACITY IS REQUIRED TO SUPPORT SUPPLIES, THE AE UNDERWRITES THE CAPITAL SPENDS. FURTHER, ANY COST INCURRED BY THE ASSESSEE WITH REGARD TO PLANT AND MACHINERY, MOULDS, ETC., WILL BE AMORTIZED OVER THE PERIOD OF THREE YEARS. WHEREAS, IN CASE OF NON AE SEGMENT, THE ASSESSEE HAS TO ADD NEW CAPACITY IN ANTICIPATION OF GROWING DEMAND AND ANY RISK RELATING TO UNUTILIZED CAPACITY IS BORNE BY THE ASSESSEE AND CANNOT BE RECOVERED FROM CUSTOMER IN ANY EVENTUALITY. FURTHER, WHILE IN CASE OF AE BUSINESS, THE ASSESSEE MANUFACTU RE S THE PRODUCTS IN ACCORDANCE WITH THE 19 UNILEVER INDIA EXPORTS LTD. REQUIREMENT OF THE AE S. H OWEVER, IN CASE OF NON AE S, BUSINESS INNOVATION S HAVE TO BE ON THE BASIS OF ASSESSEES OWN REQUIREMENT AND LOOKING AT MARKET CONDITION/COMPETITION, ETC. THE PRODUCT OFFERING AND SPECIFICATION SHALL BE DETERMINED BY THE ASSESSEE AND IT WILL NOT BE UNDER ANY OBLIGATION TO CONTINUE THE SUPPLY OF ALL OR ANY OF T HE PRODUCTS. FURTHER, IN CASE OF AE BUSINESS, THE AES PROVIDE THE FULL YEAR VOLUME ESTIMATION FOR CAPACITY AND IN CASE OF HUGE INCREASE IN REQUIREMENT COMPARED TO PROJECTIONS, THE ASSESSEE CAN REFUSE TO SUPPORT THE ADDITIONAL DEMAND . W HEREAS , IN CASE OF NO N AE BUSINESS THE ASSESSEE HAS TO MAKE LONG TERM PLANNING INCLUDING CAPACITY , TH OUGH, ALONG WITH THE CUSTOMER BUT IT IS NOT BINDING ON THE CUSTOMER. IT IS NOTICED , TO DEMONSTRATE THAT THE TRANSACTION S BETWEEN THE AES AND NON AES ARE NOT COMPARABLE THE ASSE SSEE HAD FURNISHED VARIOUS DOCUMENTARY EVIDENCE S BEFORE LEARNED DRP. MOREOVER, VARIOUS DOCUMENTARY EVIDENCE S TO SUPPORT THE EXTERNAL TNMM APPLIED TO BENCHMARK THE TRANSACTIONS WERE FURNISHED NOT ONLY BEFORE THE TRANSFER PRICING OFFICER BUT ALSO BEFORE LEAR NED DRP. IN CASE OF WRIGLEY INDIA PVT. LTD. V/S ACIT, IN ITA NO.5648/DEL./2012, ETC., DATED 31 ST DECEMBER 2014, THE TRIBUNAL HAS HELD THAT AS LONG AS BUSINESS MODEL OF SALES TO AE AND SALES TO NON AES ARE DIFFERENT , THE TRANSACTION S UNDER TH ESE BUSINESS MO DEL S CANNOT BE COMPARABLE TRANSACTIONS FOR THE PURPOSE OF TRANSFER PRICING . W HILE IN THE TRANSACTIONS WITH THE AES 20 UNILEVER INDIA EXPORTS LTD. CREATION OF MARKET AND THE END USERS IS NOT THE RESPONSIB ILITY OF THE ASSESSEE BUT IN THE TRANSACTION WITH NON AES, IT IS THE RESPONSIB ILITY OF THE ASSESSEE TO CREATE AND MAINTAIN THE MARKET AND END USERS. THUS, IT AFFECTS THE FAR PROFILE MATERIALLY WHICH ULTIMATELY WOULD HAVE AN IMPACT ON THE PROFITABILITY. IT IS QUITE NOTICEABLE , VARIOUS SUBMISSIONS MADE BY THE ASSESSEE REGARDING NON APPLICA BILITY OF INTERNAL TNMM HAVE BEEN DISREGARDED/IGNORED BY LEARNED DRP WITHOUT PROPER EXAMINATION. SIMILARLY, LEARNED DRP HAS NOT PROVIDED ANY VALID REASONING WHY EXTERNAL TNMM IS NOT APPLICABLE. IT IS RELEVANT TO OBSERVE , IN CA S E OF PIAG G IO VEHICLES PVT. LT D. V/S DCIT, [2012] 26 TAXMANN.COM 60 (PUN.), THE TRIBUNAL, PUNE BENCH, HAS ALSO EXPRESSED THE VIEW THAT UNLESS THE BUSINESS MODEL S OF THE AE AND NON AE ARE COMPLETELY SIMILAR, THEY CANNOT BE TREATED AS COMPARABLE. VIEWED IN THE AFORESAID PERSPECTIVE , THE DECISION OF LEARNED DRP IN DETERMINING THE ARMS LENGTH PRICE OF THE EXPORT OF HPC AND BEVERAGES TO THE AE S BY APPLYING INTERNAL TNMM CANNOT BE SUPPORTED . T HEREFORE, THE ADJUSTMENT PROPOSED BY LEARNED DRP DE SERVES TO BE DELETED. 18 . HAVING HELD SO, IT IS NECE SSARY TO OBSERVE , LEARNED DRP HAS NOT AT ALL GONE INTO THE ASPECT OF ACCEPTAB ILITY OF EXTERNAL TNMM APPLIED BY THE ASSESSEE. HOWEVER, IT IS EVIDENT, BEFORE THE TRANSFER PRICING OFFICER, THE ASSESSEE HAS FURNISHED ALL DOCUMENTARY EVIDENCES TO SUPPORT ITS BE NCHMARKING UNDER EXTERNAL TNMM. OF COURSE, THE 21 UNILEVER INDIA EXPORTS LTD. TRANSFER PRICING OFFICER HAS NOT MADE ANY DISCUSSION ON THE ISSUE AND HAS SIMPLY ACCEPTED ASSESSEES BENCHMARKING. IN VIEW OF THE AFORESAID, THOUGH, WE HOLD THAT EXTERNAL TNMM APPLIED BY THE ASSESSEE HAS TO BE TREATED AS THE MOST APPROPRIATE METHOD IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, HOWEVER, SINCE NEITHER THE TRANSFER PRICING OFFICER NOR LEARNED DRP H AVE EXAMINED THE ACCEPTABILITY OR OTHERWISE OF THE COMPARABLES SELECTED BY THE ASSESSEE, WE RESTO RE THE ISSUE TO THE ASSESSING OFFICER TO EXAMINE THIS ASPECT AND DETERMINE THE ARMS LENGTH PRICE ACCORDINGLY AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . G ROUNDS NO.2 TO 3.5, EXCEPT GROUND NO.2.2, ARE ALLOWED FOR STATISTICAL PURPOSES. 19 . IN GROUNDS NO.4 & 5, THE ASSESSEE HAS CHALLENGED ADDITION MADE OF ` 2,06,00,671, ON ACCOUNT OF NOTIONAL INTEREST ON OVERDUE RECEIVABLES FROM THE AE S . 20 . BRIEF FACTS ARE, IN THE COURSE OF PROCEEDINGS BEFORE HIM , THE TRANSFER PRICING OFFICER NOTICED THAT THE A SSESSEE HAS ALLOWED CREDIT PERIOD TO THE AE S IN RESPECT OF RECEIVABLES FROM THEM. THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY ARM'S LENGTH PRICE OF INTEREST ON THE CREDIT PERIOD ALLOWED TO THE AES SHOULD NOT BE COMPUTED. IN RESPONSE, THE ASSESSEE SUBMITTED, A REASONABLE CREDIT PERIOD IS ALLOWED BOTH TO THE AES AND NON AES. THEREFORE, NO OVERDUE INTEREST 22 UNILEVER INDIA EXPORTS LTD. SHOULD BE CHARGED ON THE CREDIT PERIOD ALLOWED TO THE AE S . THE TRANSFER PRICING OFFICER, HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE A ND PROCEEDED TO DETERMINE THE ARM'S LENGTH PRICE OF THE CREDIT PERIOD ON RECEIVABLES ALLOWED TO THE AE S AND PROPOSED AN ADJUSTMENT OF ` 2,06,00,671. 21 . THE LEARNED D RP ALSO SUSTAINED THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER. 22 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THOUGH , AS PER THE TERMS OF THE CONTRACT WITH THE AE S , THE ASSESSEE IS ENTITLED TO CHARGE INTEREST ON OVERDUE RECEIVABLES BEYOND THE CREDIT PERIOD AND THE SAME IS THE CASE WITH SOME OF THE NON AES , H OWEVER, AS A MATTER O F POLICY THE ASSESSEE DOES NOT CHARGE ANY INTEREST ON THE OVERDUE RECEIVABLES BOTH FROM THE AES AND NON AES. HE SUBMITTED , IN MANY CASES DELAY IN GETTING THE PAYMENT FROM THE AES AS WELL AS NON AES IS ON ACCOUNT OF DELAY IN DELIVERY OF SHIPMENT. HE SUBMITT ED , A DETAILED SUBMISSION IN THIS REGARD WAS FILED BEFORE THE TRANSFER PRICING OFFICER IN COURSE OF THE PROCEEDINGS. DRAWING OUR ATTENTION TO THE MATERIALS PLACED IN THE PAPER BOOK, THE LEARNED SR. COUNSEL SUBMITTED , THE AVERAGE DELAY IN CASE OF AES IS 26. 70 DAYS, WHEREAS , THE AVERAGE DELAY IN CASE OF NON AES IS 35.61 DAYS. HE SUBMITTED , ASSESSEE ALLOWS CREDIT PERIOD OF 30 DAYS IN RESPECT OF NON AES AND 60 DAYS IN RESPECT 23 UNILEVER INDIA EXPORTS LTD. OF AES. HE SUBMITTED , THE ASSESSEE IS A DEBT FREE COMPANY, THEREFORE, WHEN THERE IS NO CHANCE OF ASSESSEE UTILIZING BORROWED FUNDS AND INCURRING EXPENDITURE TO PASS ON THE BENEFIT TO THE AE S , THERE SHOULD NOT BE ANY ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON OVERDUE RECEIVABLES. HE SUBMITTED , SINCE THE ASSESSEE CHARGES THE AE S AT COST PL US 9%, ANY DELAY ON ACCOUNT OF RECEIVABLES IS ALREADY FACTORED IN THE MARK UP CHARGED TO THE AE S . THUS, HE SUBMITTED , THE ADJUSTMENT MADE SHOULD BE DELETED. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) CIT V/S KUSUM HEALTHCARE P VT. LTD., ITA NO.765/2016, ORDER DATED 25.04.2017 (DEL. HC); PCIT V/S BECHTEL INDIA PVT. LTD. ITA NO.379/2 016, DATED 21.07.2016 (DEL. HC); AND II ) BECHTEL INDIA PVT. LTD. V/S DCIT, ITA NO.1478/DEL./2015, DATED 21.12.2015. 23 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF LEARNED DRP AND THE TRANSFER PRICING OFFICER SUBMITTED , THE AE AND THE NON AE TRANSACTIONS CANNOT BE COMPARED FOR DETERMINING THE ARM'S LENGTH PRICE OF THE INTEREST ON OVERDU E RECEIVABLES. 24 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. NO DOUBT, THERE IS A DELAY IN RESPECT OF RECEIVABLES FROM THE AES. HOWEVER, SO IS THE CASE WITH RECEIVABLES FROM NON AES. THE 24 UNILEVER INDIA EXPORTS LTD. LEARNED SR. COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED BEFORE US THAT THE AVERAGE DELAY ON OVERDUE RECEIVABLES FORM THE AE S WORKS OUT TO 26.70 DAYS, AS AGAINST AVERAGE DELAY ON RECEIVABLES FROM NON AE S AT 35.61 DAYS. THUS, FROM THE AFORESAID FACTS, IT IS CLEAR THAT AS A MATTER OF POLICY, THE ASSESSEE DOES NOT CHARGE ANY INTEREST ON OVERDUE RECEIVABLES EITHER FROM THE AES OR NON AES. FURTHER, T HE CONTENTION OF THE ASSESSEE THAT IT IS A DEBT FREE COMPANY HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. IT IS ALSO A FACT THAT THE ASSESSEE RAISES INVOICES ON THE AES AT COST PLUS 9%. THUS, IT CAN BE SAID THAT IN THE MARK UP CHARGED , THE ASSESSEE HAS FACTORED IN THE INTEREST ELEMENT ON THE OVERDUE RECEIVABLES. IN THESE CIRCUMSTANCES, APPLYING THE RATIO LAID DOWN IN THE DECISIONS RELIED UPON BY THE LEARNED SR. COUNSEL FOR THE ASSESSEE, WE ARE OF THE VIEW THAT NO ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON OVERDUE RECEIVABLES FROM THE AE S SHOULD BE MADE. ACCORDINGLY, WE DELETE THE ADDITION. GROUNDS RAISED ARE ALLOWED. 25 . IN GROUNDS NO.6 AND 7, THE ASSESSEE HAS CHALLENGED THE ADJUSTMENT TO THE ARM'S LENGTH PRICE ON ACCOUNT OF PAYMENT OF ROYALTY/FEE FOR SERVICES. 26 . BRIEF FACTS ARE, THE TRANSFER PRICING OFFICER NOTICING THAT THE ASSESSEE HAS PAID AN AMOUNT OF ` 46,26,216, TOWARDS ROYALTY FOR VARIOUS CENTRAL SERVICES PROVIDED VIDE TECHNOLOGY, TRADEMARK LICENSE 25 UNILEVER INDIA EXPORTS LTD. AND CENTRAL SERVICE AGREEMENT EFFECTIVE FROM 1 ST FEBRUARY 2013, CALLED UPON THE ASSESSEE TO JUSTIFY THE ARM'S LENGTH NATURE OF SUCH TRANSACTION. ALLEGING THAT THE ASSESSEE WAS UNABLE TO SPECIFY THE EXACT NATURE OF SERVICES PROVIDED UNDER THE AFORESAID AGREEMENT , THE TRANSFER PRICING OFFICER DETERMINED THE ARM'S LENGTH PRICE OF THE ROYALTY FOR CENTRAL SERVICE AT NIL , THEREBY , PROPOSING ADJUSTMENT OF ` 46,26,216. 27 . LEARNED DRP ALSO AGREED WITH THE DECISION OF THE TRANSFER PRICING OFFICER WHILE DEALING WITH THE OBJECTI ONS OF THE ASSESSEE. 28 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE DRAWING OUR ATTENTION TO THE TECHNOLOGY, TRADEMARK LICENSE AND CENTRAL SERVICES AGREEMENT PLACED IN PAPER BOOK SUBMITTED , THE EXPORT DIVISION OF HINDUSTAN UNILEVER LTD. WAS SPUN OFF AND CONVERTED INTO THE ASSESSEE COMPANY . H E SUBMITTED , INSOFAR AS THE DOMESTIC SALES ARE CONCERNED, HINDUSTAN UNILEVER LTD. IS PAYING ROYALTY FOR AVAILING SERVICES FROM T HE AE. HOWEVER, INSOFAR AS THE EXPORT SALES ARE CONCERNED, THE ASSESSEE AVAILS SERVICES FROM THE AE THOUGH THE AGREEMENT REMAINS THE SAME. HE SUBMITTED , IN CASE OF BOTH HINDUSTAN UNILEVER LTD. AND THE AE , THE TRANSFER PRICING OFFICER HAS ACCEPTED THE ROYAL TY PAYMENT ON SUCH SERVICES TO BE AT ARM'S LENGTH IN THE ASSESSMENT YEAR 2013 14 ITSELF. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE ORDER S PASSED UNDER 26 UNILEVER INDIA EXPORTS LTD. SECTION 92CA(3) OF THE ACT IN CASE OF UNILEVER PLC AND HINDUSTAN UNILEVER LTD., FOR THE ASSESSMENT YE AR 2013 14. THE LEARNED SR. COUNSEL SUBMITTED , THE ASSESSEE IS A CONTRACT MANUFACTURER, HENCE, HAS TO AVAIL CERTAIN SERVICES FROM THE AE. FURTHER, THE ROYALTY PAID TO THE AE ALSO FORMS PART OF ASSESSEES COST BASE ON WHICH IT GETS MARK UP OF 9%. HE SUBMITT ED , IF THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT TO THE AE IS DETERMINED AT NIL, THEN IT HAS TO BE REMOVED FROM THE COST BASE OF THE ASSESSEE THEREBY REDUCING THE INCOME OF THE ASSESSEE TO THAT EXTENT. FURTHER, HE SUBMITTED , IN THE TRANSFER PRICING STUDY R EPORT, THE ASSESSEE HAD BENCHMARKED THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT BY APPLYING CUP METHOD. IF THE ASSESSING OFFICER HAD ANY DOUBT WITH REGARD TO THE BENCHMARKING DONE BY THE ASSESSEE, HE SHOULD HAVE DETERMINED THE ARM'S LENGTH PRICE OF ROYALTY P AYMENT BY APPLYING ANY ONE OF THE PRESCRIBED METHODS , WHICH IS NOT THE CASE. THUS, HE SUBMITTED , TH E ADJUSTMENT MADE SHOULD BE DELETED. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) MERCER CONSULTING INDIA PVT. LTD. V/S DCIT, ITA NO.1085/DEL./ 2016, DATED 25.07.2016; II ) CIT V/S LIVER INDIA EXPORTS LTD., [2017] 78 TAXMANN.COM 88 (BOM.); AND III ) PHILIPS INDIA LTD. V/S ACIT, [2018] 90 TAXMANN.COM 357 (KOL.). 29 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF LEARNED DRP AND THE TRANSFER PRICING OFFICER. 27 UNILEVER INDIA EXPORTS LTD. 30 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSEE HAS BENCHMARKED THE PAYMENT OF ROYALTY UNDER CENTRAL SERVICE AGREEMENT BY APPLYING CUP METHOD. WHEREAS, THE TRANSFER PRICING OFFICER HAS DETERMINED THE ARM'S LENGTH PRICE OF THE ROYALTY PAYMENT AT NIL ON PURE LY CONJECTURE AND SURMISES WITHOUT FOLLOWING ANY PRESCRIBED METHOD. IN FACT, THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER ON THE ISSUE ARE VERY CRYPTIC AND NON SPEAKING. THEREFORE, SIMPLY FOR THE REASON THAT THE DETERMINATION OF ARM'S LENGTH PRICE BY T HE TRANSFER PRICING OFFICER IS NOT IN ACCORDANCE WITH THE STATUTORY PROVISIONS, THE ADJUSTMENT MADE DESERVES TO BE DELETED. IN ANY CASE OF THE MATTER, IT IS NOTICED BY US THAT UNDER THE VERY S AME AGREEMENT, THE AE IS PAID ROYALTY BY HINDUSTAN UNILEVER LTD. FOR DOMESTIC SALES AND BY THE ASSESSEE IN RESPECT OF EXPORT SALES. WHILE EXAMINING THE ROYALTY PAYMENT IN CASE OF HINDUSTAN UNILEVER LTD. IN ASSESSMENT YEAR 2013 14, THE TRANSFER PRICING OFFICER HAS ACCEPTED ROYALTY PAID TO THE AE TO BE AT ARM'S LENGTH. S IMILARLY, IN THE ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT IN RESPECT OF AE, THE TRANSFER PRICING OFFICER HAS ACCEPTED THE ROYALTY PAYMENT TO BE AT ARM'S LENGTH. THAT BEING THE CASE, THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT AT THE HANDS OF THE ASSESSE E CANNOT BE DETERMINED AT NIL. IN ANY CASE OF THE MATTER, IT IS NOT DISPUTED THAT THE ASSESSEE IS REMUNERATED BY THE AE ON COST PLUS MARK UP BASIS. THAT BEING THE 28 UNILEVER INDIA EXPORTS LTD. CASE, ROYALTY PAID TO THE AE FORMS PART OF THE COST BASE OF THE ASSESSEE ON WHICH IT HAS CHAR GED MARK UP @ 9%. IN THE AFORESAID CIRCUMSTANCES, IF THE PAYMENT OF ROYALTY TO THE AE IS DISALLOWED BY DETERMINING THE ARM'S LENGTH PRICE AT NIL, THEN LOGICALLY THE INCOME OF THE ASSESSEE ALSO SHOULD BE REDUCE D . THIS IS THE VIEW EXPRESSED BY THE CO ORDINAT E BENCH IN MER C ER CONSULTING PVT. LTD. (SUPRA). THUS, CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND KEEPING IN VIEW THE RATIO LAID DOWN IN THE DECISIONS CITED BEFORE US, WE ARE OF THE VIEW THAT THE ADJUSTMENT MADE BY DETERMINING THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT AT NIL DESERVES TO BE DELETED. ACCORDINGLY, WE DO SO. GROUNDS ARE ALLOWED. 31 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO.2096/MUM./2017 ASSESSEES APPEAL 32 . GROUND NO.1, IS GENERAL IN NATURE, HENCE, DOES NOT REQUIRE ADJUDICATION. 33 . GROUNDS NO.2 TO 9, ARE ON THE ISSUE OF ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE OF EXPORTS OF HPC PRODUCTS AND BEVERAGES TO THE AES. 34 . THESE GROUNDS ARE IDENTICAL TO GROUND NO.2 TO 3. 5 , RAISED BY THE ASSESSEE IN ITS APPEAL BEING ITA NO.6648/MUM./2017. THE ONLY FACTUAL 29 UNILEVER INDIA EXPORTS LTD. DIFFERENCE IN THE IMPUGNED ASSESSMENT YEAR IS, THE TRANSFER PRICING OFFICER HAS HIMSELF DETERMINED THE ARM'S LENGTH PRICE BY APPLYING INTERNAL TNMM AS AGAINST EXTERNAL TNMM APPLIED BY THE ASSESSEE. HOWEVER, WHILE DE ALING WITH THE OBJECTI ONS OF THE ASSESSEE, LEARNED DRP, TAKING NOTE OF ASSESSEES SUBMISSIONS THAT IN ASSESSMENT YEAR 2013 14 THE TRANSFER PRICING OFFICER HAS ACCEPTED THE BENCHMARKING OF THE ASSESSEE BY APPLYING EXTERNAL TNMM , DIRECTED THE ASSESSING OFFICER/TR ANSFER PRICING OFFICER TO VERIFY ASSESSEES CLAIM AND DELETE THE ADJUSTMENT. NOTABLY, IN ASSESSMENT YEAR 2013 14, LEARNED DRP WHILE DEALING WITH THE ISSUE HAS HELD THAT EXPORT OF HPC PRODUCTS AND BEVERAGES TO AE S HAS TO BE BENCHMARKED BY APPLYING INTERNAL TNMM AND ACCORDINGLY HAS PROPOSED ADJUSTMENT. WHILE IMPLEMENTING THE DIRECTIONS OF LEARNED DRP THE TRANSFER PRICING OFFICER AGAIN DETERMINED THE ARMS LENGTH PRICE APPLYING INTERNAL TNMM AND PROPOSED ADJUSTMENT. NOTABLY, W HILE DEALING WITH IDENTICAL ISSUE IN ASSESSMENT YEAR 2013 14, VIDE ITA NO.6648/MUM./2017 IN THE EARLIER PART OF THE ORDER, WE HAVE HELD THAT INTERNAL TNMM IS NOT APPLICABLE TO THE SUBJECT TRANSACTION. HOWEVER, SINCE NEITHER THE TRANSFER PRICING O FFICER NOR LEARNED DRP HA D EXAMINED THE ACCEPTABILITY OR OTHERWISE OF THE COMPARABLES SELECTED BY THE ASSESSEE UNDER EXTERNAL TNMM, WE HAVE RESTORED THE ISSUE TO THE ASSESSING OFFICER ONLY FOR THE LIMITED PURPOSE OF VERIFYING THE ACCEPTABILITY OR OTHERWISE OF THE EXTERNAL COMPARABLES 30 UNILEVER INDIA EXPORTS LTD. PROPOSED BY THE ASSESSEE. FACTS BEING IDENTICAL, FOLLOWING OUR DECISION THEREIN , THOUGH , WE H O LD THAT EXTERNAL TNMM IS THE MOST APPROPRIATE METHOD TO BENCHMARK THE EXPORT OF HPC AND BEVERAGES TO THE AE S , HOWEVER, WE RESTORE THE ISSUE RELATING TO ACCEPTABILITY OR OTHERWISE OF THE COMPARABLES PROPOSED BY THE ASSESSEE UNDER EXTERNAL TNMM FOR VERIFICATION OF THE ASSESSING OFFICER. IT IS MADE CLEAR , WHILE DECIDING THE ISSUE, THE ASSESSING OFFICER MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 35 . GROUNDS NO.10 AND 11, ARE ON THE ISSUE OF ADDITION OF AN AMOUNT OF ` 76,32,823, MADE ON ACCOUNT OF NOTIONAL INTEREST ON OVERDUE RECEIVABLES FROM THE AES. 36 . THESE GROUNDS ARE IDENTI CAL TO GROUNDS NO.4 AND 5 RAISED BY THE ASSESSEE IN ITS APPEAL BEING ITA NO.6648/MUM./2017. FOLLOWING OUR DECISION THEREIN, WE DELETE THE ADDITION MADE. GROUNDS ARE ALLOWED. 37 . IN GROUNDS NO.12 AND 13, THE ASSESSEE HAS CHALLENGED THE ADJUSTMENT TO THE ARM'S LENGTH PRICE OF ROYALTY PAID TO THE AE ON TECHNICAL DOCUMENT S , INFORMATION AND KNOWHOW . W HEREAS , IN GROUNDS NO.14 TO 16, THE ASSESSEE HAS CHALLENGED THE ADJUSTMENT PROPOSED IN RESPECT OF PROVISIONS OF BUSINESS SERVICE. 31 UNILEVER INDIA EXPORTS LTD. 38 . AT THE OUTSET, WE MUST O BSERVE, THOUGH , THE AFORESAID ADJUSTMENTS WERE PROPOSED BY THE TRANSFER PRICING OFFICER ON WITHOUT PREJUDICE BASIS CONSIDERING THE FACT THAT THE MAIN ADJUSTMENT WAS PROPOSED BY HIM WHILE DETERMINING THE ARM'S LENGTH PRICE OF EXPORT OF HPC AND BEVERAGES TO THE AE S BY APPLYING INTERNAL TNMM. IN FACT, WHILE DOING SO, THE TRANSFER PRICING OFFICER PROPOSED ADJUSTMENT OF ` 85,94,39,962. AFTER THE DIRECTIONS OF LEARNED DRP ON THE ISSUE, THE TRANSFER PRICING OFFICER AGAIN MADE IDENTICAL ADJUSTMENT BY STATING THAT THE ASSE SSEE DID NOT FURNISH ANY EVIDENCE TO DEMONSTRATE THAT FACTS INVOLVED IN THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO ASSESSMENT YEAR 2013 14. WHILE MAKING THE AFORESAID ADJUSTMENT, THE TRANSFER PRICING OFFICER ALSO MADE ADJUSTMENT TO THE ARM'S LENGTH PRIC E OF ROYALTY PAID ON DOCUMENTATION, TECHNICAL KNOWHOW, AS WELL AS PROVISIONS OF BUSINESS SERVICE ON WITHOUT PREJUDICE BASIS. HOWEVER, IT IS OBSERVED , NO ADDITION ON THE AFORESAID ADJUSTMENTS W AS EITHER MADE IN THE DRAFT ASSESSMENT ORDER OR EVEN IN THE FINA L ASSESSMENT ORDER. THEREFORE, THE ISSUE S RAISED IN GROUNDS NO.12 TO 16 ARE OF MERE ACADEMIC IMPORTANCE AS THE ASSESSEE CANNOT HAVE ANY GRIEVANCE IN THE ABSENCE OF ANY ADDITION MADE IN THIS REGARD IN THE FINAL ASSESSMENT ORDER. THEREFOR E , IT IS NOT NECESSARY TO ADJUDICATE THESE GROUNDS. HOWEVER, THE ISSUES RAISED IN THESE GROUNDS ARE LEFT UPON FOR 32 UNILEVER INDIA EXPORTS LTD. ADJUDICATION IF THEY ARISE IN FUTURE. THESE GROUNDS ARE ACCORDINGLY DISMISSED. 39 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. S.A. NO.29 & 30 /MUM./2019 (ARISING OUT OF ASSESSEES APPEAL IN ITA NO.2069 & 6648/MUM.2017) 40 . INSOFAR AS THE SE STAY APPLICATIONS ARE CONCERNED, IN VIEW OF OUR DECISION IN RESPECT OF THE CORRESPONDING APPEALS HEREINBEFORE , THESE STAY APPLICATIONS HAVE BECOME INFRUCTUOUS, HENCE, DISMISSED. 41 . IN THE RESULT, STAY APPLICATIONS ARE DISMISSED. 42 . TO SUM UP, ASSESSEES APPEALS ARE PARTLY ALLOWED AND STAY APPLICATIONS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON 31.07.2019 SD/ - M. BALAGANESH ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 31.07.2019 33 UNILEVER INDIA EXPORTS LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI