DCIT, Bangalore V. M/s Essilor Manufacturing India Pvt. Ltd., Bangalore

ITA 211/BANG/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5309 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIKAS K SURYAWANSHI; C H SUNDAR RAO C IT DR I
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Question of law; Revenue expenditure
• Section: 92C; 143(3); 37(1); 10B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI LALIET KUMAR, JUDICIAL MEMBER APPEAL NO. APPELLANT ASSESSMENT YEAR RESPONDENT IT(TP)A NO. 239/BANG/2015 M/S. ESSILOR MANUFACTURING (INDIA) PVT. LTD., #4A, L&M, KIADB INDUSTRIAL AREA, DODDABALLAPUR, BANGALORE, KARNATAKA 561 203. PAN: AAACI4572J 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3 (1) (2), BANGALORE. IT(TP)A NO. 2124/BANG/2016 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2 (1) (2), BANGALORE. IT(TP)A NO. 2125/BANG/2016 2009-10 IT(TP)A NO. 211/BANG/2015 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3 (1) (2), BANGALORE. 2010-11 M/S. ESSILOR MANUFACTURING (INDIA) PVT. LTD., #4A, L&M, KIADB INDUSTRIAL AREA, DODDABALLAPUR, BANGALORE, KARNATAKA 561 203. PAN: AAACI4572J IT(TP)A NO. 1166/BANG/2015 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2 (1) (2), BANGALORE. ASSESSEE BY : SHRI CHAVALI NARAYAN, CA REVENUE BY : SHRI C.H. SUNDAR RAO, CIT (DR-I) & SHRI VIKAS K. SURYAWANSHI, ADDL. CIT (DR) DATE OF HEARING : 1 0 .01.2019 DATE OF PRONOUNCEMENT : 25 . 01 .201 9 O R D E R PER BENCH: OUT OF THIS BUNCH OF 5 APPEALS, TWO APPEALS ARE DIR ECTLY FILED BY THE ASSESSEE BEFORE THE TRIBUNAL AGAINST THE ORDER PASSED BY THE AO ON 30.09.2016 AS ORDER GIVING EFFECT TO ITATS ORDER FOR ASSESSMENT YEARS 2008-09 AND 2009-10. REMAINING THREE APPEALS ARE FOR ASSESSMENT YEAR 201 0-11 AND OUT OF THESE THREE APPEALS, TWO APPEALS ARE FILED BY THE REVENUE OUT OF WHICH ONE APPEAL IS FILED IN COURSE OF PROCEEDINGS U/S. 154 R.W.S. 144C (5) OF IT ACT, 1961. THE REMAINING APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2010-11 IS AGAINST THE DIRECTION OF THE DRP DATED 21.11.2014. THE APPEAL FILED BY THE ASSESSEE FOR THIS YEAR IS AGAINST THE ASSESSMENT ORDER DATED 30.12.20 14 FOR ASSESSMENT YEAR 2010-11 PASSED BY THE AO U/S. 143(3) R.W.S. 144C OF IT ACT, 1961 AS PER THE DIRECTIONS OF DRP. ALL THESE APPEALS WERE HEARD TO GETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 2 OF 20 2. REGARDING THE TWO APPEALS OF THE ASSESSEE FOR AS SESSMENT YEARS 2008-09 AND 2009-10, IT WAS POINTED OUT BY THE BENCH THAT H OW THESE APPEALS CAN BE FILED DIRECTLY BEFORE THE TRIBUNAL. IN REPLY, I T WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THE RELEVANT TRIBUNAL ORDER DATED 24. 02.2016 IN IT (TP) A NOS. 1019 & 1020/BANG/2014 IS AVAILABLE ON PAGES 3 TO 35 OF THE APPEAL MEMO IN BOTH THESE APPEALS AND IN PARTICULAR, OUR A TTENTION WAS DRAWN TO PARA NO. 6.6 AND 8.4 OF THIS TRIBUNAL ORDER. HE AL SO SUBMITTED A COPY OF A TRIBUNAL ORDER RENDERED IN THE CASE OF MERCEDES BEN Z RESEARCH & DEVELOPMENT VS. DCIT IN IT (TP) A NO. 348/BANG/2014 DATED 31.03.2017 AND OUR ATTENTION WAS DRAWN TO PAGES 4 AND 5 OF THI S TRIBUNAL ORDER. IT WAS POINTED OUT BY THE BENCH THAT IN THIS CASE, IT WAS HELD BY THE TRIBUNAL THAT IN CASE WHERE THE TRIBUNAL REMANDED THE MATTER BACK TO THE RECORD OF THE TPO/AO WITH SPECIFIC DIRECTION, THE TPO/AO HAD NO D ISCRETION BUT TO STRICTLY FOLLOW THE DIRECTIONS OF THE APPELLATE AUTHORITY ON AN ISSUE AND THEIR ROLE IS RESTRICTED ONLY FOR RECOMPUTATION OF THE AMOUNTS OR VERIFICATION OF CERTAIN FACTS FOR DECIDING THE ISSUE ON MERITS OR ON LEGAL POINT THEN IN SUCH A SITUATION, IF THE TPO/AO HAS NOT GIVEN PROPER EFFEC T TO THE DIRECTIONS OF THE TRIBUNAL, THE APPEAL AGAINST SUCH ORDER OF THE TPO/ AO WOULD LIE BEFORE THE TRIBUNAL AS HELD BY THE CO-ORDINATE BENCH OF THE TR IBUNAL IN THE CASE OF TALLY SOLUTIONS PVT. LTD. VS. DCIT AS REPORTED IN 30 ITR (TRIB) 591 (BANGALORE). HE SUBMITTED THAT IN THE PRESENT CASE ALSO, SPECIFI C DIRECTIONS WERE GIVEN BY THE TRIBUNAL IN ITS ORDER DATED 24.02.2016 WHICH AR E NOT GIVEN PROPER EFFECT TO BY THE AO AND THEREFORE, THE APPEAL IS CORRECTLY FILED BEFORE THE TRIBUNAL. THE LD. DR OF REVENUE SUBMITTED THAT THE APPEAL FIL ED BY THE ASSESSEE DIRECTLY BEFORE THE TRIBUNAL IS NOT MAINTAINABLE. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL WE REPRODUCE PARA NO. 8.4 OF THE IMPUGNED TRIBUNAL ORDER DATED 24.02. 2016 IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09 AND 2009-10. THI S PARA READS AS UNDER. 8.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS COMPANY WAS S ELECTED BY THE TPO AND INCLUDED IN THE LIST OF COMPARABLES FOR DET ERMINATION OF ALP. THE TPO HAS NOT DISCUSSED ANYTHING IN ITS ORDE R REGARDING INVITING THE OBJECTIONS OF THE ASSESSEE ON THE POIN T OF FUNCTIONAL IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 3 OF 20 COMPARABILITY OF THIS COMPANY. THUS IT APPEARS THAT THE TPO HAS CONSIDERED THIS COMPANY WITHOUT DISCUSSING THE RELE VANT FACTS REGARDING THE FUNCTIONAL COMPARABILITY OF THIS COMP ANY. THE ASSESSEE HAS BROUGHT BEFORE US THE RELEVANT FACTS REGARDING THE NATURE OF THE BUSINESS ACTIVITY OF THIS COMPANY AS WELL AS THE PR ODUCTS MANUFACTURED BY THIS COMPANY. FROM THE SCHEDULE 16 OF THE PROFIT AND LOSS ACCOUNT, THE PRODUCT DESCRIPTION GIVEN INC LUDES PRE-OPTIC COMPONENT, INSTRUMENT ASSEMBLIES/SUB-ASSEMBLIES. TH E RAW-MATERIAL CONSUMED BY THIS COMPANY INCLUDES GLASS, LENSES AND METALS. THUS IT IS CLEAR THAT THIS COMPANY IS NOT IN THE MANUFACTUR ING ACTIVITY OF OPTICAL, PLASTIC LENSES OF HUMAN CARE BUT THE PRODU CT OF THIS COMPANY IS CATERING TO THE NEEDS OF THE INDUSTRY, ARMED FOR CES AND OTHER ORGANIZATIONS IN THE FIELD OF SPACE APPLICATIONS, N IGHT VISION EQUIPMENTS, ETC. ACCORDINGLY, IN THE FACTS AND CIRC UMSTANCES OF THE CASE, WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AND SET ASIDE THE ISSUE OF FUNCTIONAL COMPARABILITY OF THIS COMPANY TO THE RECORD OF THE ASSESSING OFFICER/TPO FOR PROPER EXAM INATION AND VERIFICATION OF THE ISSUE AND DECIDE AFTER CONSIDER ING THE RELEVANT FACTS AS WELL AS THE OBJECTIONS OF THE ASSESSEE. 4. FROM THIS PARA OF THE TRIBUNAL ORDER, IT COMES O UT THAT THE MATTER WAS REMANDED BY THE TRIBUNAL TO THE FILE OF AO/TPO FOR PROPER EXAMINATION AND VERIFICATION OF THE ISSUE TO DECIDE AFTER CONSIDERI NG THE RELEVANT FACTS AS WELL AS THE OBJECTION OF THE ASSESSEE. HENCE, IT IS SEE N THAT IN THE PRESENT CASE, THERE IS NO SPECIFIC DIRECTION RESULTING INTO NO DI SCRETION TO THE AO/TPO. HENCE, IN OUR CONSIDERED OPINION, THIS TRIBUNAL ORD ER RENDERED IN THE CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT VS. DCIT (SUPR A) IS NOT APPLICABLE IN THE PRESENT CASE. WE ARE OF THE CONS IDERED OPINION THAT IN THE FACTS OF PRESENT CASE, THE ASSESSEE SHOULD HAVE FIL ED APPEAL BEFORE LD. CIT(A) BUT SINCE THIS WAS NOT DONE BY ASSESSEE AND ASSESSEE FILED APPEAL DIRECTLY BEFORE THE TRIBUNAL UNDER MISUNDERSTANDING , WE FEEL IT PROPER TO DISMISS THESE TWO APPEALS OF ASSESSEE FOR ASSESSMEN T YEARS 2008-09 AND 2009-10 FOR THIS REASON THAT THE APPEAL CANNOT BE F ILED BY ASSESSEE DIRECTLY BEFORE THE TRIBUNAL BUT THE ASSESSEE IS AT LIBERTY TO FILE THE APPEAL BEFORE LD. CIT(A) IF THE ASSESSEE IS SO ADVISED AND IF THE ASS ESSEE DOES SO THEN THE TIME CONSUMED IN FILING THE APPEAL BEFORE THE TRIBU NAL AND DISMISSAL THEREOF SHOULD NOT BE CONSIDERED FOR COMPUTING THE DELAY IN FILING THE APPEAL BEFORE CIT(A). ACCORDINGLY, THE ASSESSEES APPEALS FOR AS SESSMENT YEARS 2008- 09 AND 2009-10 ARE DISMISSED. IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 4 OF 20 5. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR AS SESSMENT YEAR 2010-11 IN IT(TP)A NO. 239/BANG/2015. THE GROUNDS RAISED B Y THE ASSESSEE ARE AS UNDER. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, ESSILOR MANUFACTURING (INDIA) PRIVATE LIMITED RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 3(1)(2) (-A0'), DATED 30 DECEM BER 2014, UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (ACT') ('IMPUGNED ORDER'), IN PURSUANCE OF THE DIRE CTIONS ISSUED BY DISPUTE RESOLUTION PANEL (`DRP'), BANGALORE DATED 2 1 NOVEMBER 2014 UNDER SECTION 144C(5) OF THE ACT ON THE FOLLOW ING GROUNDS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE ORDER OF THE LEARNED AO AND DIRECTIONS OF TH E HON'BLE DRP ARE BASED ON INCORRECT INTERPRETATION OF LAW AND THEREF ORE ARE BAD IN LAW. 2. THE LEARNED AO HAS ERRED IN ASSESSING THE TOTAL INCOME AT RS. 61.201,389 AS AGAINST RETURNED LOSS OF RS. 88,618,9 41 COMPUTED BY THE APPELLANT. CORPORATE TAX GROUNDS 3. THE LEARNED AO ('AO')/ LEARNED DRP ('DRP') HAS E RRED IN LAW AND IN FACTS BY DISALLOWING EXPENSES OF RS. 70.653, 000 (BEING MOULDS WRITTEN OFF) ON THE BASIS THAT SUCH EXPENDITURE IS CAPITAL IN NATURE WITHOUT APPRECIATING THE FACT THAT MOULDS ARE IN TH E NATURE OF CONSUMABLES AND FORM AN INTEGRAL PART OF THE PRODUC TION PROCESS AND HENCE, ARE IN THE NATURE OF INVENTORY. 4. THE AO/ DRP HAS FAILED TO APPRECIATE THAT THE LO SS INCURRED ON ACCOUNT OF MOULDS WRITTEN OFF IS A LOSS INCIDENTAL TO THE BUSINESS CARRIED ON BY THE APPELLANT. 5. WITHOUT PREJUDICE TO THE ABOVE, IN CASE THE MOUL DS ARE CONSIDERED/ TREATED AS CAPITAL ASSETS, THEN DEPRECIATION ON THE SAME SHOULD BE PROVIDED FROM THE YEAR OF ACQUISITION UNDER THE WRI TTEN DOWN VALUE ('WDV') METHOD FOR THE RESPECTIVE AYS. 6. THE AO HAS ERRED IN DISALLOWING EXPENSES OF RS. 735,000 (BEING CONSUMPTION OF MOULDS) WITHOUT APPRECIATING THE FAC T THAT THE SAME IS A REVENUE EXPENDITURE AND ALLOWABLE AS DEDUCTION UN DER SECTION 37(1) OF THE ACT. 7. THE AO/ DRP HAVE FAILED TO APPRECIATE THE FACT T HAT MOULDS DO NOT SATISFY THE ESSENTIAL FEATURES OF A FIXED ASSET (EG , 'USEFUL LIFE' OF THE MOULDS CANNOT BE DETERMINED; MOULDS DO NOT PROVIDE ANY ENDURING BENEFIT). IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 5 OF 20 8. THE LEARNED AO/ DRP HAS ERRED, IN LAW, AND IN FA CTS, IN SETTING OFF THE BROUGHT FORWARD LOSSES WITH THE ADJUSTMENT MADE AND CONSEQUENTIAL INCORRECT CARRY FORWARD OF LOSSES. 9. THE LEARNED AO HAS ERRED, IN LAW, AND IN FACTS. IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 274 READ WITH SECTION 271 (1)(C) OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HA S NOT CONCEALED OR FURNISHED ANY INACCURATE PARTICULARS OF INCOME. TRANSFER PRICING GROUNDS 10. THE IMPUGNED ORDER HAS ERRED IN MAKING AN ADDIT ION OF RS. 83,421,123 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE OF THE INTERNA TIONAL TRANSACTIONS U/S 92CA OF THE INCOME-TAX ACT. 1961. 11. THE LEARNED TPO/AO/DRP HAS ERRED, IN LAW AND IN FACTS, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE A SSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERM INATION OF THE ALP IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANS ACTIONS OF MASS PRODUCTION AND RX BUSINESS ACTIVITY AND HOLDING THA T THE ASSESSEE'S INTERNATIONAL TRANSACTIONS ARE NOT AT ARM'S LENGTH. 12. THE LEARNED TPO/AO/DRP HAS ERRED, IN LAW AND IN FACTS. BY WRONGLY REJECTING 2 COMPANIES VIZ TRIVENI GLASS LIM ITED AND IAG COMPANY LIMITED AS COMPARABLES. 13. THE LEARNED TPO/AO/DRP HAS ERRED, IN LAW AND FA CTS, BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFEREN CES IN THE ACCOUNTING TREATMENT FOR DEPRECIATION, CAPACITY ADJ USTMENT AND RISK PROFILE OF THE ASSESSEE VIS--VIS THE COMPARABLES. 14. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED TPO /AO HAS ERRED IN COMPUTING THE TRANSFER PRICING ADJUSTMENTS FOR BOTH MASS PRODUCTION BUSINESS AND RX BUSINESS ACTIVITY POST DRP DIRECTIO NS. 15. THE LEARNED TPO/AO/DRP HAVE ERRED, IN LAW AND F ACTS, IN COMPUTING THE ALP WITHOUT GIVING BENEFIT OF +/- 5 P ERCENT UNDER THE PROVISO TO SECTION 92C OF THE ACT. EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY KINDLY BE CONSIDERED INDEPENDENT AND WITHOUT PREJUDICE OF EAC H OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND. VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. SO AS TO ENAB LE THE HONBLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 6. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUN D WHICH READS AS UNDER. IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 6 OF 20 16. THE LEARNED TPO/AO/DRP HAVE ERRED, IN LAW AND I N FACTS, BY NOT PROVIDING WORKING CAPITAL ADJUSTMENT BENEFIT TO THE ASSESSEE. 7. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ASSE SSEE HAS FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUND ALON G WITH THE ADDITIONAL GROUNDS IN WHICH IT IS STATED THAT THE ADDITIONAL G ROUND RAISES AN ISSUE WHICH IS FUNDAMENTAL TO THE APPEAL AND THE NON-ADMISSION AND NON-ADJUDICATION OF THE SAME WOULD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATION OF THE MATTER. RELIANCE HAS BEEN PLACED ON TWO TRIBUNAL O RDERS RENDERED IN THE CASE OF ESSILOR MANUFACTURING (INDIA) PVT. LTD. VS. DCIT IN IT(TP)A NOS. 1019 & 1020/BANG/2014 AND IN THE CASE OF TNT INDIA PVT. LTD. VS. ACIT IN ITA NO. 1442/BANG/2008. HE ALSO SUBMITTED IN THE S AID APPLICATION THAT THE ISSUE RAISED IN THE ADDITIONAL GROUND IS LEGAL ISSU E AND ARISE OUT OF THE ORDER OF THE LOWER AUTHORITIES AND IN THIS REGARD, RELIAN CE HAS BEEN PLACED ON THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CAS E OF NATIONAL THERMAL POWER CORPORATION VS. CIT (229 ITR 383). HE SUBMIT TED THAT THIS ADDITIONAL GROUND SHOULD BE ADMITTED. THE LD. DR OF REVENUE S UBMITTED THAT NECESSARY FACTS REGARDING THE ADDITIONAL GROUND ARE NOT AVAILABLE ON RECORD. THEREFORE, THIS ADDITIONAL GROUND SHOULD NOT BE ADM ITTED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS PE R THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AS REPRODUCED ABOVE, THE ASS ESSEE IS REQUESTING FOR GRANTING OF WORKING CAPITAL ADJUSTMENT BENEFIT TO T HE ASSESSEE. THIS IS ADMITTED POSITION OF FACT THAT THIS ISSUE WAS NEVER RAISED BY ASSESSEE BEFORE TPO/AO/DRP. THIS IS ALSO TRUE THAT FOR DECISION RE GARDING ALLOWABILITY OF WORKING CAPITAL ADJUSTMENT, CERTAIN FACTS ARE TO BE LOOKED INTO AS TO WHAT IS THE WORKING CAPITAL IN THE CASE OF TESTED PARTY AND IN THE CASE OF COMPARABLES. THE ASSESSEE HAS FILED THREE PAPER BO OKS. PAPER BOOK I CONTAINS 374 PAGES BUT IT DOES NOT CONTAIN THE TP S TUDY UNDERTAKEN BY THE ASSESSEE OR ANY WORKING OF WORKING CAPITAL ADJUSTME NT BEING REQUESTED BY THE ASSESSEE AS PER ADDITIONAL GROUND. THE PAPER B OOK II IS CONTAINING 177 PAGES FROM PAGES 375 TO 551 AND THIS CONTAINS COPY OF ANNUAL REPORT OF GKB OPHTHALMIC LTD., GKB VISION LTD. AND TECHTRON P OLYLENSES LTD. FOR FINANCIAL YEAR 2009-10 AND THIS PAPER BOOK ALSO DOE S NOT CONTAIN THE AMOUNT OF WORKING CAPITAL OR WORKING CAPITAL ADJUST MENT BEING REQUESTED BY IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 7 OF 20 THE ASSESSEE AS PER ADDITIONAL GROUND. PAPER BOOK III IS FROM PAGES 552 TO 781 AND THIS PAPER BOOK CONTAINS 12 JUDICIAL PRONOU NCEMENTS, SOME PHOTOS OF MOULDS AND EXTRACT OF FINANCIALS OF THE COMPANY FOR THE YEAR ENDED 31.03.2008 AND 31.03.2009 AND THIS ALSO DOES NOT CO NTAIN THE POSITION OF WORKING CAPITAL OF THE TESTED PARTY OR OF THE COMPA RABLES. HENCE, IT IS SEEN THAT IN THE PRESENT CASE, THE RELEVANT FACTS TO BE EXAMINEDFOR THE PURPOSE OF DECIDING THE ISSUE IN RESPECT OF THE REQUESTED WORK ING CAPITAL ADJUSTMENT IS NOT AVAILABLE BEFORE THE TRIBUNAL AND THIS IS ADMIT TED POSITION THAT THIS CLAIM WAS NEVER MADE BY THE ASSESSEE BEFORE THE AO/TPO OR DRP AND THE ORDERS OF LOWER AUTHORITIES ALSO DO NOT CONTAIN ANY THING ON THIS FACTUAL ASPECT. IN LIGHT OF THIS FACTUAL POSITION, NOW WE EXAMINE THE APPLICABILITY OF THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF NATIONAL THERMAL POWER CORPORATION VS. CIT (SUPRA). IN THIS CASE, HONBLE APEX COURT HAS ALSO CONSIDERED ITS EARLIER JUDGEMENT REN DERED IN THE CASE OF JUTE CORPORATION OF INDIA VS. CIT (187 ITR 688) AND THER EAFTER HELD THAT THE TRIBUNAL HAS JURISDICTION TO EXAMINE THE QUESTION O F LAW WHICH ARISES FROM THE FACTS AS FOUND BY THE AUTHORITIES BELOW AND HAV ING A BEARING ON THE TAX LIABILITY OF THE ASSESSEE. IN OUR HUMBLE UNDERSTAN DING, AS PER THIS JUDGEMENT OF HONBLE APEX COURT, THE TRIBUNAL HAS J URISDICTION TO EXAMINE THE QUESTION OF LAW WHICH ARISES ON THE FACTS AS FO UND BY THE AUTHORITIES BELOW. WE HAVE SEEN THAT IN THE PRESENT CASE, THER E IS NO FINDING OF FACTS OF THE AUTHORITIES BELOW IN RESPECT OF WORKING CAPITAL OF THE TESTED PARTY AND OF THE COMPARABLES. IN OUR CONSIDERED OPINION, THIS J UDGEMENT DOES NOT HELP THE CASE OF THE ASSESSEE IN RESPECT OF ADMISSION OF ADDITIONAL GROUND. IN VIEW OF THE FACTS OF THE PRESENT CASE AS DISCUSSED ABOVE AS PER WHICH THE NECESSARY FACTS WERE NEITHER AVAILABLE BEFORE THE A UTHORITIES BELOW NOR MADE AVAILABLE BEFORE THE TRIBUNAL, THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE CANNOT BE ADMITTED. ACCORDINGLY WE DO NOT ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. 9. IT IS SUBMITTED BY LD. AR OF ASSESSEE THAT GROUN D NOS. 1 AND 2 ARE GENERAL AND OUT OF REMAINING GROUNDS, HE SUBMITTED THAT GRO UND NO. 9 IS PREMATURE AND REGARDING THE REMAINING GROUND NOS. 3 TO 7, HE SUBMITTED THAT ONLY ONE ISSUE IS INVOLVED IN THESE GROUNDS I.E. REGARDING D ISALLOWANCE MADE BY THE IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 8 OF 20 AO OF RS. 706.53 LAKHS BEING MOULDS WRITTEN OFF ON THIS BASIS THAT SUCH EXPENDITURE IS CAPITAL IN NATURE. THIS IS ALSO SUB MITTED THAT THIS IS THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT EVEN IF THE MOULDS ARE CONSIDERED AS CAPITAL ASSET THEN DEPRECIATION ON THE SAME SHOULD BE ALLOWED FROM THE YEAR OF ACQUISITION UNDER THE WRITTEN DOWN VALUE WDV M ETHOD FOR THE RESPECTIVE AYS. HE DRAWN OUR ATTENTION TO NOTE NO. 17 IN THE AUDITED ACCOUNTS FOR THE PRESENT YEAR AS AVAILABLE ON PAGE NO. 249 OF PAPER BOOK AND POINTED OUT THAT IN THIS NOTE NO. 17, THIS IS S TATED THAT THE COMPANY HAS DISCONTINUED THE CASTING PROCESS FROM 01.07.2009 AN D THE COATING BUSINESS W.E.F. 15.01.2010 WHICH CAN BE REFERRED TO AS THE MASS PRODUCTION BUSINESS AND THE COMPANY STARTED THE NEW RX BUSINE SS AS AN EOU W.E.F. 01.01.2009. HE FURTHER SUBMITTED THAT IN THE SAME NOTE, THIS IS ALSO NOTED THAT TECHNICAL FEASIBILITY STUDY WAS CARRIED OUT TO DETERMINE THE USEFULNESS OF THE FIXED ASSETS AND INVENTORIES USED IN THE MASS P RODUCTION BUSINESS THAT HAS BEEN EXISTING UP TO THE DATE OF DISCONTINUANCE AND BASED ON THIS STUDY, THE MANAGEMENT HAS DECIDED WRITE-OFF OF CERTAIN FIX ED ASSETS AND INVENTORY, WHICH ARE NO LONGER USEFUL. AT THIS JUN CTURE, THE BENCH WANTED TO KNOW AS TO WHETHER THIS TECHNICAL FEASIBILITY STUDY REPORT WAS SUBMITTED BEFORE THE LOWER AUTHORITIES AND WHETHER THE SAME I S AVAILABLE IN THE PAPER BOOK BEFORE THE TRIBUNAL. IN REPLY, IT WAS SUBMITT ED BY LD. AR OF ASSESSEE THAT THE SAME WAS NOT SUBMITTED BEFORE THE LOWER AU THORITIES AND THE SAME IS NOT AVAILABLE BEFORE THE TRIBUNAL ALSO. HE SUBM ITTED THAT SINCE THE DEDUCTION ON ACCOUNT OF MOULDS PURCHASE IN EACH YEA R WERE ALLOWED IN EARLIER YEARS, AS PER THE PRINCIPLE OF CONSISTENCY, IT SHOULD BE ALLOWED IN THE PRESENT YEAR ALSO AND FOR EXAMINING THE TECHNICAL F EASIBILITY STUDY REPORT, THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO/TPO F OR FRESH DECISION. IT IS ALSO SUBMITTED BY LD. AR OF ASSESSEE THAT COPY OF S UBMISSIONS FILED WITH THE AO ON 12.02.2014 IN COURSE OF ASSESSMENT PROCEEDING S IS AVAILABLE ON PAGES 106 TO 117 OF PAPER BOOK THAT INCLUDES LEGAL OPINION ON ACCOUNTING TREATMENT OF MOULDS BY COMPARABLE COMPANY. HE PO INTED OUT THAT AS PER LEGAL OPINION PROVIDED BY SHRI AMARCHAND MANGALDAS ON 02.08.2006, IT WAS STATED THAT MOULDS COULD BE TREATED AS INVENTORIES AND NOT AS FIXED ASSETS. HE DRAWN OUR ATTENTION TO PAGE NO. 239 OF PAPER BOO K WHICH CONTAINS IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 9 OF 20 SCHEDULE 11 TO THE FINANCIAL AUDITED ACCOUNTS AND P OINTED OUT THAT AS PER THE SAME, STORES AND SPARES CONSUMED IN THE PRESENT YEAR IS OF RS. 146.87 LAKHS AND IT DOES NOT INCLUDE ANY AMOUNT OF GLASS MOULDS. WHEREAS IN THE PRECEDING YEAR, THE TOTAL AMOUNT OF STORES AND SPARES CONSUMED WAS RS. 154.11 LAKHS INCLUDING GLASS MOULD S OF RS. 29.06 LAKHS. THE LD. AR OF ASSESSEE PLACED RELIANCE ON T HE FOLLOWING JUDICIAL PRONOUNCEMENTS. A) CIT VS. MYSORE SPUN CONCRETE PIPE (P) LTD. (KAR) , 1991 194 ITR 159 B) CT VS. JAGATJIT INDUSTRIES LTD. (DELHI) 2000 241 ITR 556 C) CIT VS. ADITYA FERRO ALLYOS (P) LTD. (2014) 51 T AXMANN.COM 529 (MADRAS HC) D) CIT VS. MALERKOTLA STEEL & ALLOYS (P) LTD. (2011 ) 10 TAXMANN.COM 278 (PUNJAB & HARYANA HC) E) B.R. LTD. VS. V.P. GUPTA, CIT 113 ITR 647 (SC) F) CIT VS. MARGARINE & REFINED OILS CO. LTD. (KAR) 2006 154 TAXMAN 95 (KARNATAKA HC) 10. AS AGAINST THIS, LD. DR OF REVENUE SUPPORTED TH E ORDERS OF AUTHORITIES BELOW. THIS IS ALSO SUBMITTED BY LD. DR OF REVENUE THAT MA NUFACTURING IS CONTINUING AND ASSESSEE IS IN BUSINESS AND THEREFORE, IT SHOUL D BE HELD THAT MOULDS ARE PART OF PLANT AND MACHINERY. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THIS IS TRUE THAT AS PER THE ASSESSEE ITSELF, THE ASSESSEE HAS STATED IN NOTE NO. 17 OF AUDITED ACCOUNTS AVAILABLE ON PAGE NO. 249 OF PAPER BOOK TH AT THE MANAGEMENT HAS CARRIED OUT A TECHNICAL FEASIBILITY STUDY TO DE TERMINE THE USEFULNESS OF THE FIXED ASSETS AND INVENTORIES USED IN THE MASS P RODUCTION BUSINESS THAT HAD BEEN EXISTING UP TO THE DATE OF DISCONTINUANCE. BASED ON THIS STUDY, MANAGEMENT HAS DECIDED TO WRITE-OFF CERTAIN FIXED A SSETS AND INVENTORY WHICH ARE NO LONGER USEFUL. THIS TECHNICAL FEASIBI LITY STUDY REPORT WAS NEITHER MADE AVAILABLE TO THE LOWER AUTHORITIES NOR BEFORE THE TRIBUNAL. MOREOVER IN EARLIER YEARS, THE MOULDS WERE CONSIDER ED AS INVENTORY AND THE SAME WAS ACCEPTED BY THE REVENUE ALSO. AS PER PRIN CIPLE OF CONSISTENCY, IN THE PRESENT YEAR ALSO, THE SAME SHOULD BE ACCEPTED AS INVENTORY AND NOT AS IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 10 OF 20 FIXED ASSET BUT IN ORDERTO QUANTIFY THE ALLOWABILIT Y OF ASSESSEES CLAIM IN RESPECT OF WRITE-OFF OF INVENTORY OF MOULDS, ITS M ARKET VALUE AT THE TIME OF VALUING THE SAME HAS TO BE CONSIDERED IN THE CLOSIN G INVENTORY AND THE INVENTORY THEREOF AT THE END OF THE PRECEDING YEAR SHOULD BE CONSIDERED AS OPENING INVENTORY IF ALREADY NOT CONSIDERED AS SUCH . AS PER THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CAS E OF CIT VS. MYSORE SPUN CONCRETE PIPE (P) LTD. (SUPRA), IT WAS HELD TH AT EXPENDITURE ON REPLACEMENT OF MOULDS IS REVENUE EXPENDITURE. RESP ECTFULLY FOLLOWING THIS JUDGEMENT, WE HOLD THAT MOULDS HAS TO BE TREATED AS INVENTORY AND NOT AS CAPITAL ASSET BUT THE ASSESSEES CLAIM FOR WRITE-OF F OF ENTIRE AMOUNT OF MOULDS AS INVENTORY IS NOT ALLOWABLE AND EVEN IF TH E MOULDS ARE NO MORE USABLE, IT WILL HAVE SAME VALUE AND SUCH FAIR MARKE T VALUE OF THE MOULDS HAS TO BE CONSIDERED AS AN ASSET IN THE BALANCE SHEET. THE BALANCE AMOUNT CAN BE ALLOWED AS WRITE OFF AND FOR DOING THIS EXER CISE, WE DEEM IT PROPER TO RESTORE BACK THE MATTER TO THE FILE OF AO FOR FRESH DECISION WITH THE DIRECTION THAT THE ASSESSEE SHOULD BRING ON RECORD THE TECHNI CAL FEASIBILITY STUDY REPORT UNDERTAKEN BY THE ASSESSEE FOR THE PURPOSE O F WRITE-OFF OF INVENTORY. THE ASSESSEE SHOULD ALSO BRING ON RECORD THE FAIR M ARKET VALUE OF THE INVENTORY OF THE MOULDS AS ON 31.03.2010 AND THEREA FTER, THE AO SHOULD DECIDE THE ISSUE AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. GROUND NO. 5 IS REJECTED. THIS ALTERNATIVE CLAIM DOES NOT SURVIVE ONCE WE HOLD THAT THE MOULDS ARE PART OF INVENTORY. GROUND NOS. 3, 4, 6 AND 7 ARE ALLOWED FOR STATISTICAL PURPOSES. 12. REGARDING GROUND NOS. 8 AND 9, IT WAS SUBMITTED BY ASSESSEE IN THE CHART THAT THESE ARE GENERAL GROUNDS AND HENCE, NOT REQUI RED TO BE ADJUDICATED UPON. 13. REGARDING VARIOUS GROUNDS RAISED BY THE ASSESSE E IN RESPECT OF TP ADJUSTMENT ALSO, IT IS SUBMITTED BY ASSESSEE IN THE CHART THAT GROUND NOS. 10, 11 AND 14 ARE GENERAL GROUNDS AND GROUND NOS. 1 2 AND 15 ARE NOT CONTESTED. HENCE THESE GROUNDS ARE REJECTED ACCORD INGLY. 14. REGARDING GROUND NO. 13, HE SUBMITTED THAT THE ASSESSEES CLAIM IS THIS THAT SUITABLE ADJUSTMENT SHOULD BE MADE ON ACCOUNT OF DI FFERENCES IN THE IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 11 OF 20 ACCOUNTING TREATMENT FOR DEPRECIATION OF THE ASSESS EE VIS--VIS THE COMPARABLES. IT IS SUBMITTED IN THE CHART THAT TPO DID NOT ACCEPT THE ASSESSEES CONTENTION IN THIS REGARD AND DRP DIRECT ED TO REMOVE DEPRECIATION FROM COST BASE FOR BOTH ASSESSEE AS WE LL AS COMPARABLES TO REMOVE ANOMALY IN DEPRECIATION RATES AS PER ITS REC TIFICATION ORDER AND THE ASSESSEE SUPPORTS THE SAME. IT IS ALSO SUBMITTED B Y THE ASSESSEE IN THE CHART THAT THE COMPARABLES FOLLOWED SLM AND CHARGED DEPRECIATION AS PER THE RATES PRESCRIBED UNDER SCHEDULE XIV OF THE COMP ANIES ACT, 1956 WHEREAS THE ASSESSEE COMPANY HAS A POLICY OF CHARGI NG DEPRECIATION ON SLM EACH YEAR AT RATES HIGHER THAN THE COMPANIES AC T DUE TO ITS OVERALL GROUP POLICY AND THEREFORE, DEPRECIATION SHOULD BE REMOVED FROM THE COST BASE AS DIRECTED BY THE DRP. THIS IS ALSO THE CLAI M OF THE ASSESSEE THAT TPO/AO OR DRP HAS ERRED BY NOT MAKING SUITABLE ADJU STMENTS TO ACCOUNT FOR DIFFERENCES IN THE ACCOUNTING TREATMENT FOR CAP ACITY ADJUSTMENT OF THE ASSESSEE VIS--VIS THE COMPARABLES. IT IS SUBMITTE D THAT THE TPO DID NOT ACCEPT THE ASSESSEES CONTENTION AND THE DRP ALSO U PHELD THE ACTION OF TPO AS PER ORIGINAL ORDER BUT AS PER ORDER U/S 154, IT WAS HELD BY THE DRP THAT PROFIT BEFORE DEPRECIATION SHOULD BE CONSIDERE D FOR THE ASSESSEE AS WELL AS COMPARABLES. THE ASSESSEE SUPPORTS THIS ORDER OF DRP U/S 154 AND IN ADDITION TO THIS, THIS IS THE REQUEST OF THE ASSESS EE THAT APPROPRIATE CAPACITY ADJUSTMENT SHOULD BE ALLOWED AS RELEVANT INFORMATIO N FOR CAPACITY UTILISED BY ASSESSEE AND COMPARABLES IS AVAILABLE. RELIANCE WA S PLACED ON TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. CLAAS INDIA PVT. LTD. IN ITA NO. 1783/DEL/2011. 15. WE FIND THAT THIS ISSUE REGARDING DEPRECIATION ADJUSTMENT AND CAPACITY UTILIZATION ADJUSTMENT DECIDED BY THE DRP AS PER PA RA NO. 7.2 OF ITS DIRECTIONS WHICH IS REPRODUCED HEREINBELOW FOR READ Y REFERENCE. 7.2 THE ASSESSEE FOLLOWS A METHOD OF CHARGING DEPRE CIATION ON ITS ASSETS ON A STRAIGHT LINE BASIS AT A HIGHER RATE TH AN PROVIDED FOR COMPANIES ACT. AS DIFFERENT METHODS ARE FOLLOWED IN THIS REGARD BY COMPARABLES, IT WOULD BE DIFFICULT TO MAKE ACCURATE ADJUSTMENTS FOR THIS PURPOSE SIMILARLY ADJUSTMENT FOR UNDERUTILIZAT ION OF CAPACITY CANNOT BE CONSIDERED IN THE ABSENCE OF INFORMATION IN THIS REGARD IN THE PUBLIC DOMAIN. WE ARE IN AGREEMENT WITH THE FIN DINGS OF THE TPO. NO INTERFERENCE CALLED FOR. THIS OBJECTION IS REJEC TED. IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 12 OF 20 16. FROM THE ABOVE PARA OF THE DRP DIRECTIONS, IT C OMES OUT THAT REGARDING THE CLAIM FOR DIFFERENCE IN METHOD OF DEBITING DEPRECIA TION OF ITS ASSETS BY THE TESTED PARTY AND THE COMPARABLES, DRP HAS COME TO T HE CONCLUSION THAT IT WOULD BE DIFFICULT TO MAKE ACCURATE ADJUSTMENT FOR THIS PURPOSE. WE ARE OF THE CONSIDERED OPINION THAT IF THE OPERATING PROFIT BEFORE DEPRECIATION IS CONSIDERED FOR THE COMPARISON OF THE PROFIT OF THE TESTED PARTY AND THE COMPARABLES, THE EFFECT OF DIFFERENT METHOD OF CHAR GING DEPRECIATION BY THE TESTED PARTY AND THE COMPARABLES WILL BE NEUTRALIZE D. WE DIRECT ACCORDINGLY. 17. REGARDING THE CLAIM OF ADJUSTMENT FOR UNDER UTI LIZATION OF CAPACITY, WE FIND THAT AS PER GROUND OF OBJECTION NO. 5 RAISED BY THE ASSESSEE BEFORE DRP, IT WAS THE GRIEVANCE OF THE ASSESSEE THAT THE TPO/AO H AVE ERRED IN LAW AND IN FACTS BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCO UNT FOR DIFFERENCES IN THE ACCOUNTING TREATMENT FOR DEPRECIATION, CAPACITY ADJ USTMENT AND RISK PROFILE OF THE ASSESSEE VIS--VIS THE COMPARABLES. THIS OB JECTION OF THE ASSESSEE WAS DECIDED BY DRP AS PER PARA 7.2 AS REPRODUCED AB OVE AND IN THIS REGARD, IT IS STATED BY DRP THAT ADJUSTMENT FOR UND ER UTILIZATION OF CAPACITY CANNOT BE CONSIDERED IN THE ABSENCE OF INFORMATION IN THIS REGARD IN THE PUBLIC DOMAIN. IN THIS REGARD, LD. AR OF ASSESSEE HAS PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. CLA AS INDIA PVT. LTD. (SUPRA) AS PER THE CHART SUBMITTED BEFORE THE TRIBUNAL. CO PY OF THIS TRIBUNAL ORDER IS AVAILABLE ON PAGES 617 TO 642 OF THE PAPER BOOK. PARAS 9.1 TO 10.3 OF THIS TRIBUNAL ORDER ARE RELEVANT IN RESPECT OF ALLO WANCE OF CAPACITY ADJUSTMENT. FOR READY REFERENCE, THESE PARAS OF TH IS TRIBUNAL ORDER ARE REPRODUCED HEREINBELOW FROM PAGES 628 TO 637 OF THE PAPER BOOK. I. CAPACITY ADJUSTMENT SHOULD BE ALLOWED IN WHOSE H ANDS ? 9.1. IT HAS BEEN NOTICED ABOVE THAT THE ASSESSEE CL AIMED IDLE CAPACITY ADJUSTMENT BY REDUCING ITS OWN OPERATING COSTS. IT IS FURTHER OBSERVED THAT THE AUTHORITIES BELOW HAVE REDUCED THE AMOUNT OF ADJUSTMENT BY EXCLUDING CERTAIN COSTS FROM THE AMBIT OF THE COSTS QUALIFYING FOR ADJUSTMENT. HOWEVER, THE ADJUSTMENT HAS BEEN ULTIMA TELY ALLOWED FROM THE OPERATING COSTS INCURRED BY THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE QUESTION ARISES AS TO WHETHER TH E ACTION OF THE AUTHORITIES IN ALLOWING THE REDUCTION OF THE OPERAT ING COSTS INCURRED BY THE ASSESSEE, IS IN ACCORDANCE WITH LAW? IN ORDE R TO FIND ANSWER TO THIS QUESTION, WE NEED TO REFER TO THE MANNER OF CO MPUTATION OF THE ARM'S LENGTH PRICE UNDER TNMM, WHICH HAS BEEN SET O UT IN RULE IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 13 OF 20 10B(1)(E) AS UNDER:- '(E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH,-- (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPRIS E FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFF ECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD TO ANY OTHER RELEVANT BASE ; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO T HE SAME BASE ; (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAU SE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN TH E ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERI ALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET ; (IV) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE AND REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III) ; (V) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION.' 9.2. SUB-CLAUSE (I) IN THE PROCESS OF DETERMINATION OF THE ALP UNDER THE TNMM TALKS OF THE COMPUTATION OF NET OPERATING PROFIT MARGIN REALIZED BY THE ASSESSEE FROM AN INTERNATIONAL TRAN SACTION. SUB-CLAUSE (II) IS THE COMPUTATION OF NET OPERATING PROFIT MAR GIN REALIZED BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION. THISREFERS TO DETERMINING THE OPERATING PROFIT MARG IN OF COMPARABLES WITH THE SAME BASE AS THAT OF THE ASSESSEE. SUB-CLA USE (III) PROVIDES THAT THE NET PROFIT MARGIN REALIZED BY A COMPARABLE COMPANY, DETERMINED AS PER SUB-CLAUSE (II) ABOVE, 'IS ADJUST ED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, ..... WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN I N THE OPEN MARKET.' IT IS THIS ADJUSTED NET PROFIT MARGIN OF THE UNRELA TED TRANSACTIONS OR OF THE COMPARABLE COMPANIES, AS DETERMINED UNDER SUB-C LAUSE (III), WHICH IS USED FOR THE PURPOSES OF MAKING COMPARISON WITH THE NET PROFIT MARGIN REALIZED BY THE ASSESSEE FROM ITS INT ERNATIONAL TRANSACTION AS PER SUB-CLAUSE (I). 9.3. SUB-RULE (2) OF RULE 10B PROVIDES THAT THE COM PARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO CERTAIN FACTORS WHICH HAVE BEEN ENUMERATED THEREIN. RULE 10B(3) STATES THAT AN UNCONTROLLED TR ANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION, IF EITH ER THERE ARE NO DIFFERENCES BETWEEN THE TWO OR A 'REASONABLY ACCURA TE ADJUSTMENT CAN BE MADE TO ELIMINATETHE MATERIAL EFFECTS OF SUCH DI FFERENCES.' WHEN WE IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 14 OF 20 READ SUB-CLAUSES (II) & (III) OF RULE 10B(1)(E) IN JUXTAPOSITION TO SUB- RULES (2) & (3) OF RULE 10B, THE POSITION WHICH EME RGES IS THAT THE NET OPERATING PROFIT MARGIN OF COMPARABLE COMPANIES CAL LS FOR ADJUSTMENT IN SUCH A MANNER SO AS TO BRING BOTH THE INTERNATIO NAL TRANSACTION AND COMPARABLE CASES AT THE SAME PEDESTAL. IN OTHER WOR DS, IF THERE ARE NO DIFFERENCES IN THESE TWO, THEN THE AVERAGE OF THE N ET OPERATING PROFIT MARGIN OF THE COMPARABLE COMPANIES BECOMES A BENCHM ARK. HOWEVER, IN CASE THERE ARE SOME DIFFERENCES BETWEEN THE COMPARABLES AND THE ASSESSEE, THEN THE EFFECT OF SUCH DIFFERENC ES SHOULD BE IRONED OUT BY MAKING SUITABLE ADJUSTMENT TO THE OPERATING PROFIT MARGIN OF COMPARABLES. THAT IS THE WAY FOR BRINGING BOTH THE TRANSACTIONS, NAMELY, THE INTERNATIONAL TRANSACTION AND THE COMPA RABLE UNCONTROLLED TRANSACTIONS, ON THE SAME PLATFORM FOR MAKING A MEANINGFUL AND EFFECTIVE COMPARISON. THE ABOVE ANAL YSIS OVERTLY TRANSPIRES THAT THE LAW PROVIDES FOR ADJUSTING THE PROFIT MARGIN OF COMPARABLES ON ACCOUNT OF THE MATERIAL DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTION OF THE ASSESSEE AND COMPA RABLE UNCONTROLLEDTRANSACTIONS. IT IS NOT THE OTHER WAY A ROUND TO ADJUST THE PROFIT MARGIN OF THE ASSESSEE. IN OTHER WORDS, THE NET OPERATING PROFIT MARGIN REALIZED BY THE ASSESSEE FROM ITS INTERNATIO NAL TRANSACTION IS TO BE COMPUTED AS SUCH, WITHOUT ADJUSTING IT ON ACCOUN T OF DIFFERENCES WITH THE COMPARABLE UNCONTROLLED TRANSACTIONS. THE ADJUSTMENT, IF ANY, IS REQUIRED TO BE MADE ONLY IN THE PROFIT MARG INS OF THE COMPARABLES. 9.4. REVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE AUTHORITIES BELOW HAVE ADJUSTED THE OPERATING COSTS OF THE ASSESSEE IN ALLOWING THE CAPACITY ADJUSTMENT. AS AGAINST THAT, THE CORRECT COURSE OF ACTION PROVIDED UNDER THE LAW IS TO ADJUST THE O PERATING COSTS OF THE COMPARABLE AND THEIR RESULTANT OPERATING PROFIT. TH ERE IS HARDLY NEED TO ACCENTUATE THAT THERE CAN BE NO ESTOPPEL AGAINST THE LAW. ONCE THE LAW ENJOINS FOR DOING A PARTICULAR THING IN A PARTI CULAR MANNER ALONE, IT IS NOT OPEN TO ANYONE TO ADOPT A CONTRARY OR DIF FERENT APPROACH. AS THE AUTHORITIES BELOW HAVE ADOPTED A COURSE OF ACTI ON IN ALLOWING ADJUSTMENT, WHICH IS NOT IN CONSONANCE WITH LAW, WE CANNOT APPROVE THE SAME. THE IMPUGNED ORDER IS SET ASIDE AND THE M ATTER IS RESTORED TO THEFILE OF THE TPO/AO FOR GIVING EFFECT TO THE A MOUNT OF IDLE CAPACITY ADJUSTMENT IN THE OPERATING PROFIT OF THE COMPARABLES AND NOT THE ASSESSEE. II. HOW TO COMPUTE CAPACITY UTILIZATION ADJUSTMENT UNDER TNMM : - 10.1. UNDER THE TNMM, THE ALP OF AN INTERNATIONAL T RANSACTION IS DETERMINED BY COMPUTING AND COMPARING THE PERCENTAG E OF OPERATING PROFIT MARGIN REALIZED BY THE ASSESSEE WITH THAT OF THE COMPARABLES. WE HAVE NOTICED ABOVE THAT THE DIFFERENCE IN THE CA PACITY UTILIZATIONS IS AN IMPORTANT FACTOR, WHICH NEEDS TO BE ADJUSTED. NO MECHANISM HAS BEEN GIVEN UNDER THE ACT OR THE RULES FOR COMPUTING THE AMOUNT OF CAPACITY UTILIZATION ADJUSTMENT. IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 15 OF 20 10.2. ON AN OVERALL UNDERSTANDING, WE FEEL THAT UND ER THE TNMM, THE FIRST STEP IN GRANTING CAPACITY UTILIZATION ADJUSTM ENT IS TO ASCERTAIN THE PERCENTAGE OF CAPACITY UTILIZATION BY THE ASSESSEE AND COMPARABLES. THERE CAN BE NO DIFFICULTY IN WORKING OUT THESE PER CENTAGES. THE SECOND STEP IS TO GIVE EFFECT (POSITIVE OR NEGATIVE ) TO THE DIFFERENCE IN THE PERCENTAGE OF CAPACITY UTILIZATIONS OF THE ASSE SSEE VIS--VIS COMPARABLES,ONE BY ONE, IN THE OPERATING PROFIT OF COMPARABLES BY ADJUSTING THEIR RESPECTIVE OPERATING COSTS. OPERATI NG COSTS CAN BE EITHER FIXED OR VARIABLE OR SEMI-VARIABLE. ONE NEED S TO SPLIT SEMI- VARIABLE COSTS INTO THE FIXED PART AND VARIABLE PAR T. IN SO FAR AS THE VARIABLE COSTS AND THE VARIABLE PART OF THE SEMI-VA RIABLE COSTS ARE CONCERNED, THESE REMAIN UNAFFECTED DUE TO ANY UNDER OR OVER UTILIZATION OF CAPACITY. ACCORDINGLY, SUCH VARIABLE OPERATING COSTS REMAIN UNCHANGED. THE ADJUSTMENT IS CALLED FOR ONLY IN RESPECT OF THE FIXED OPERATING COSTS AND FIXED PART OF SEMI-VARIAB LE COSTS. SUCH COSTS ARE SCALED UP OR DOWN BY CONSIDERING THE PERCENTAGE OF CAPACITY UTILIZATION BY THE ASSESSEE AND SUCH COMPARABLE. IT CAN BE ILLUSTRATED WITH THE HELP OF A SIMPLE EXAMPLE. SUPPOSE THE FIXE D COSTS INCURRED BY A COMPARABLE (SAY, A) ARE RS. 100 AND IT HAS CAPACI TY UTILIZATION OF 50% AS AGAINST THE CAPACITY UTILIZATION OF 25% BY T HE ASSESSEE. THE ABOVE PERCENTAGES SHOW THAT THE ASSESSEE HAS INCURR ED FULL FIXED COSTS WITH 25% OF THE UTILIZATION OF ITS CAPACITY, AS AGA INST A INCURRING FULL FIXED COSTS WITH 50% OF ITS CAPACITY UTILIZATION. T HIS DIVULGES THAT THE ASSESSEE HAS INCURRED RELATIVELY MORE FIXED COSTS A ND AHAS INCURRED LOWER COSTS. IN ORDER TO MAKE AN EFFECTIVE COMPARIS ON, THERE ARISES A NEED TO OBLITERATE THE EFFECT OF THIS DIFFERENCE IN CAPACITY UTILIZATIONS. IT CAN BE DONE BY PROPORTIONATELY SCALING UP THE FI XED COSTS INCURRED BY A SO AS TO MAKE IT FULLY COMPARABLE WITH THE ASS ESSEE. THIS WE CAN DO BY INCREASING THE FIXED COSTS OF A TO RS. 200 (R S.100 INTO 50/25) AS AGAINST THE ACTUALLY INCURRED FIXED COSTS BY IT AT RS.100. WHEN WE COMPUTE OPERATING PROFIT OF A BY SUBSTITUTING THE F IXED COSTS AT RS.200 WITH THE ACTUALLY INCURRED AT RS.100, IT WOULD MEAN THAT THE FIXED COSTS INCURRED BY THE ASSESSEE AND A ARE AT THE SAME CAPA CITY UTILIZATION. THERE CAN BE CONVERSE SITUATION AS WELL. SUPPOSE TH E FIXED COSTS INCURRED BY A COMPARABLE (SAY, B) ARE RS. 100 AND I T HAS CAPACITY UTILIZATION OF 25% AS AGAINST THE CAPACITY UTILIZAT ION OF 50% BY THE ASSESSEE. THE ABOVE PERCENTAGES SHOW THAT THE ASSES SEE HAS INCURRED FULL FIXED COSTS AT 50% OF THE UTILIZATION OF ITS C APACITY, AS AGAINST B INCURRING FULL FIXED COSTS AT 25% OF THE CAPACITY U TILIZATION. THIS DECIPHERS THAT THE ASSESSEE HAS INCURRED RELATIVELY LOWER FIXED COSTS AND B HAS INCURRED HIGHER COSTS. THIS DIFFERENCE IN CAPACITY UTILIZATIONS CAN BE ELIMINATED BYPROPORTIONATELY SC ALING DOWN THE FIXED COSTS INCURRED BY B SO AS TO MAKE IT FULLY CO MPARABLE. THIS WE CAN DO BY REDUCING THE FIXED COSTS OF B TO RS. 50 ( RS.100 INTO 25/50) AS AGAINST THE ACTUALLY INCURRED FIXED COST BY IT A T RS.100. WHEN WE COMPUTE OPERATING PROFIT OF B BY SUBSTITUTING THE F IXED COSTS AT RS.50 WITH THE ACTUALLY INCURRED AT RS.100, IT WOULD MEAN THAT THE FIXED COSTS INCURRED BY THE ASSESSEE AND B ARE AT THE SAME CAPA CITY UTILIZATION IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 16 OF 20 LEVEL. 10.3. TURNING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT BOTH THE TPO AS WELL AS THE LD. CIT(A) HAVE PROCEEDED ON A W RONG PREMISE NOT ONLY BY ALLOWING CAPACITY UTILIZATION ADJUSTMENT IN THE ASSESSEE'S PROFIT, WHICH IS CONTRARY TO THE LEGAL POSITION AS DISCUSSED ABOVE, BUT ALSO BY CONSIDERING ALL THE COMPARABLES AS ONE UNIT WITH THE AVERAGE PERCENTAGE OF THEIR RESPECTIVE CAPACITY UTILIZATION S. IT IS FURTHER OBSERVED THAT IN THE CALCULATION OF SUCH CAPACITY U TILIZATION ADJUSTMENT, THE LD. CIT(A) HAS CONSIDERED FOUR COMP ANIES AS COMPARABLE, WHICH VIEW HAS BEEN MODIFIED BY US SUPR A INASMUCH AS WE HAVE HELD THAT M/S EICHER MOTORS AND M/S. FORCE MOTORS ARE INCOMPARABLE. NATURALLY, THEY WOULD ALSO GOOUT OF R ECKONING IN THE COMPUTATION OF IDLE CAPACITY UTILIZATION ADJUSTMENT . IN THE ABSENCE OF THE AVAILABILITY OF FINANCIALS OF ALL THE COMPARABL E COMPANIES, IT IS NOT POSSIBLE AT OUR END TO WORK OUT THE AMOUNT OF CAPAC ITY ADJUSTMENT IN THE MANNER DISCUSSED ABOVE. ERGO, WE SET ASIDE THE IMPUGNED ORDER AND DIRECT THE TPO/AO TO WORK OUT THE AMOUNT OF CAP ACITY UTILIZATION ADJUSTMENT AFRESH IN TERMS OF OUR ABOVE OBSERVATION S. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNI TY OF HEARING IN SUCH FRESH PROCEEDINGS. 18. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, IN THE PRESENT CASE ALSO, WE RESTORE THIS ISSUE TO THE FILE OF AO/TPO TO DECIDE THIS ISSUE AFRESH AS PER THE DIRECTIONS IN THIS TRIBUNAL ORDER AFTER PROVIDING A DEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 19. GROUND NO. 15 IS NOT CONTESTED BY THE ASSESSEE AS PER THE CHART SUBMITTED BEFORE THE TRIBUNAL AND THEREFORE, REJECTED ACCORDI NGLY. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2010-11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERM S INDICATE ABOVE. 21. NOW WE TAKE UP THE REVENUES APPEAL FOR ASSESSM ENT YEAR 2010-11 IN IT(TP)A NO. 211/BANG/2015. THE GROUNDS RAISED BY T HE REVENUE ARE AS UNDER. 1. THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL A RE OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE RESOLUTION PANEL ERRED IN HOLDING THAT FOREIGN EXCH ANGE LOSS/GAIN IS OPERATING IN NATURE WITHOUT ASCERTAINING ITS NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND WITHOUT APPRECIATING T HE FACT THAT SUCH LOSS/GAIN THAT IS ATTRIBUTABLE TO THE OPERATING ACT IVITY IS NOT DERIVED FROM THE OPERATING ACTIVITY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE DISPUTE IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 17 OF 20 RESOLUTION PANEL ERRED IN CONCLUDING THAT FOREX GAI N/LOSS ARE TO BE TREATED AS OPERATING IN NATURE AS WHILE THEY MAY BE INCIDENTAL BUT CANNOT BE DEEMED AS OPERATING IN NATURE SINCE, THEY ARE NOT CRITICAL TO OPERATIONAL ACTIVITIES OF THE BUSINESS CONDUCTED BY THE ASSESSEE. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE DIRECTIONS OF THE DI SPUTE RESOLUTION PANEL IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 22. IT WAS SUBMITTED BY LD. DR OF REVENUE THAT GROU ND NO. 1 IS GENERAL. REGARDING GROUND NO. 2, HE SUBMITTED THAT THIS IS N OT A FINDING OF DRP THAT FOREIGN EXCHANGE LOSS/GAIN IS IN RESPECT OF TURNOVE R OF THE PRESENT YEAR AND WITHOUT THIS FINDING, THIS DECISION OF DRP CANNOT B E APPROVED. THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF DRP ON THIS ISSUE. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT AS PER GROUND OF OBJECTION NO. 3 RAISED BY ASSESSEE BEFORE DRP, THIS IS THE GRIEVANCE OF THE ASSESSEE THAT THE LD. TPO AND AO HAVE ERRED BY TAKI NG INTO CONSIDERATION FOREIGN EXCHANGE FLUCTUATION GAIN / LOSS AS NON-OPE RATING IN NATURE WHILE COMPUTING THE OPERATING MARGIN OF THE ASSESSEE AS W ELL AS THE COMPARABLE COMPANIES. AS PER PARA 5.1 OF ITS DIRECTIONS, IT W AS HELD BY DRP THAT THE AO IS DIRECTED TO CONSIDER THE FOREIGN EXCHANGE FLU CTUATION IN RESPECT OF THE ASSESSEE COMPANY AS WELL AS THE COMPARABLE COMPANIE S AS OPERATING IN NATURE WHILE DETERMINING THE MARGIN IN THE CASE OF THE ASSESSEE COMPANY AND THE COMPARABLES. WHILE DOING SO, THE DRP HAS F OLLOWED THE TRIBUNAL ORDER RENDERED IN THE CASE OF SAP LABS INDIA PVT. L TD. VS. ACIT [2010] 6 ITR (TRIB) 81 (BANG.-ITAT). AS PER THIS TRIBUNAL O RDER, IT WAS HELD THAT FOREIGN EXCHANGE FLUCTUATION GAINS TO BE ADDED TO T HE OPERATING REVENUE. THERE IS NO QUARREL OF THIS ASPECT BUT FOR THE PURP OSE OF TP ANALYSIS, WE HAVE TO WORK OUT NOT ONLY THE OPERATING PROFIT BUT THE OPERATING PROFIT MARGIN PERCENTAGE WHICH CAN BE COMPUTED BY DIVIDING THE OP ERATING PROFIT BY CORRESPONDING TURNOVER. HENCE, IN OUR CONSIDERED O PINION, IF THE TURNOVER IN RESPECT OF ANY PART OF THE OPERATING PROFIT IS NOT INCLUDED IN THE DENOMINATOR THEN SUCH PART OF PROFIT CANNOT BE INCLUDED IN THE NUMERATOR FOR THE PURPOSE OF COMPUTING OPERATING PROFIT MARGIN PERCENTAGE BEC AUSE IT WILL GIVE IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 18 OF 20 IMPROPER RESULT. FOR THIS PURPOSE, IT IS VERY ESSE NTIAL TO FIND OUT AS TO WHETHER FOREIGN EXCHANGE FLUCTUATION GAIN / LOSS IS IN RESPECT OF TURNOVER OF THE PRESENT YEAR OR IN RESPECT OF TURNOVER OF AN EA RLIER YEAR AND WHETHER THE SAME CAN BE CONSIDERED FOR THE PURPOSE OF COMPUTING OPERATING PROFIT MARGIN PERCENTAGE BECAUSE IT CAN BE SO CONSIDERED O NLY IF SUCH FOREIGN EXCHANGE FLUCTUATION GAIN / LOSS IS IN RESPECT OF T HE TURNOVER OF THE PRESENT YEAR ONLY. IF IT IS FOR AN EARLIER YEARS TURNOVER, THEN SUCH TURNOVER IS NOT FORMING PART OF DENOMINATOR AND AS A CONSEQUENCE, S UCH FLUCTUATION GAIN / LOSS CANNOT BE FORMING PART OF THE NUMERATOR. SINC E ON THIS ASPECT, THERE IS NO FINDING OF ANY OF THE AUTHORITIES BELOW, WE FEEL IT PROPER TO RESTORE THIS MATTER TO THE FILE OF AO/TPO FOR FRESH DECISION IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO ASSESSEE. ACCORDINGLY GROUND NOS. 2 AND 3 OF REVEN UES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. REMAINING GROUND NOS. 1, 4 AND 5 ARE GENERAL WHICH DO NOT CALL FOR ANY ADJUDICATION. TH IS APPEAL OF THE REVENUE IN IT(TP)A NO. 211/BANG/2015 IS ALLOWED FOR STATISTICA L PURPOSES. 24. NOW WE TAKE UP THE SECOND APPEAL OF THE REVENUE IN IT(TP)A NO. 1166/BANG/2015. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL ARE AS UNDER. 1. THE ORDER OF THE LD. DRP IS CONTRARY TO THE FACT S AND CIRCUMSTANCES OF THE CASE AND HENCE NOT SUSTAINABLE . 2. BY DIRECTING TO ADOPTED OPERATING MARGIN EXCLUDI NG DEPRECIATION THE HON'BLE DRP HAS ERRED IN DIRECTING THE TPO/AO T O ADOPT CASH PROFIT METHOD TO COMPUTE PROFIT LEVEL INDICATOR(PLI ) 3. THE HON'BLE DRP HAS ERRED IN DIRECTING THE TPO/A O TO COMPUTE THE OPERATING MARGINS OF THE ASSESSEE AND THAT OF C OMPARABLES EXCLUDING THE DEPRECIATION AMOUNT FROM THE OPERATIN G COST. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE DRP IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE A SSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANT OF THE GROUNDS MENTIONED ABOVE. 25. IT IS SUBMITTED BY LD. DR OF REVENUE THAT THE I MPUGNED ORDER PASSED BY DRP U/S. 154 R.W.S. 144C(5) OF IT ACT, 1961 ON 25.02.20 15 IS NOT PROPER BECAUSE IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 19 OF 20 THERE WAS NO APPARENT MISTAKE IN THE EARLIER ORDER OF DRP WHICH WAS RECTIFIED BY DRP AS PER THIS ORDER. HE SUBMITTED T HAT THEREFORE, THIS ORDER OF DRP SHOULD BE SET ASIDE. THE LD. AR OF ASSESSEE SU PPORTED THIS ORDER OF DRP. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN O UR CONSIDERED OPINION, THIS APPEAL OF THE REVENUE HAS BECOME ACADEMIC ONLY BECA USE WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE SAME ASSESSMENT YEAR, IN RESPECT OF GROUND NO. 13, WE HAVE HELD THAT AS PER PARA NO. 16 ABOVE THAT THE OPERATING PROFIT OF THE TESTED PARTY AND THE COMPAR ABLES SHOULD BE CONSIDERED BY TAKING PROFIT BEFORE DEPRECIATION. A S PER THE IMPUGNED ORDER PASSED BY THE DRP U/S. 154 ALSO, THE DRP HELD THAT PROFIT BEFORE DEPRECIATION SHOULD BE CONSIDERED. SINCE THIS ISSU E IS DECIDED BY US ON THE SAME LINE WHILE DECIDING THE APPEAL OF THE ASSESSEE , THE APPEAL OF THE REVENUE HAS BECOME OF ACADEMIC INTEREST ONLY AND HE NCE, WE DISMISS THE SAME. 27. IN THE RESULT, THIS APPEAL OF THE REVENUE IS DI SMISSED 28. IN THE COMBINED RESULT, THE APPEAL OF THE ASSES SEE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 ARE DISMISSED WHEREAS THE APPEA L OF THE ASSESSEE FOR ASSESSMENT YEAR 2010-11 IS PARTLY ALLOWED FOR STATI STICAL PURPOSES AND OUT OF THE TWO APPEALS OF REVENUE FOR ASSESSMENT YEAR 2 010-11, THE APPEAL OF THE REVENUE IN IT(TP)A NO. 211/BANG/2015 IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IN IT(TP)A N O. 1166/BANG/2015 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 25 TH JANUARY, 2019. /MS/ IT(TP)A NOS. 211, 239 & 1166/BANG/2015 & 2124 & 2125/BANG/2016 PAGE 20 OF 20 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.