IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 2152/MDS/2011 (ASSESSMENT YEAR: 2007-08) M/S. HONEYWELL ELECTRICAL DEVICES & SYSTEMS INDIA LTD. CRESCNDO 995, B-II AVENUE, ANNA NAGAR, CHENNAI-600 040. PAN:AAACM4378E VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(2) M.G.ROAD, NEW BLOCK, 7 TH FLOOR, CHENNAI-600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. SUNIL MOTI LALA, C.A., & M R. HARSH R.SHAH RESPONDENT BY : MR. P.B.SEKARAN, C IT & MR.N.PADMANABHAN, TPO DATE OF HEARING : 30 TH OCTOBER, 2013 DATE OF PRONOUNCEMENT : 12 TH DECEMBER, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM : THIS APPEAL IS FILED BY ASSESSEE AGAINST THE ORDE R OF ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCL E-II(2), CHENNAI DATED 28.10.2011 PASSED UNDER SECTION 143( 3) READ WITH SECTION 144C(13) OF THE ACT ON THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. ITA NO.2152/MDS//2011 2 2. GROUND NO.1 OF THE GROUNDS OF APPEAL OF THE ASSE SSEE IS A GENERAL GROUND AGITATING THE ADDITION OF ` 7,18,00,000/- BASED ON THE PROVISIONS OF CHAPTER X OF THE ACT AND ` 4,52,00,000/- BASED ON THE OTHER PROVISIONS OF THE ACT TO THE ASSESSEES TOTAL INCOME. 3. GROUND NOS. 2 TO 9 OF THE GROUNDS OF APPEAL OF T HE ASSESSEE ARE AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRANSFER PRICING OFFICER AND THE ASSESSING OFFICER UNDER THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL: 2 ERRED IN LAW AND FACTS IN DISREGARDING TRANSFER PRICING DOCUMENTATION REPORT PREPARED BASED ON THE SEGMENTAL APPROACH AND THE SEPARATE BOOKS OF ACCOUNTS FOR THE TRANSFER PRICING ANALYSIS. 3. ERRED IN LAW AND FACTS IN ADOPTING ENTITY LEVEL APPROACH WITHOUT CONSIDERING THE FUNCTIONAL DISSIMILARITY BETWEEN THE BUSINESS SEGMENTS OF THE APPELLANT . , 4. ERRED IN FACTS IN PLACING RELIANCE ON THE ERRONEOUS FIGURES / EXPENSE PERCENTAGES ON SEGMENTAL REVENUE AND ERRED IN FACTS IN IGNORING THE REASON FOR DIFFERENCE IN PROPORTION OF COMMON EXPENSES ALLOCATED BETWEEN SEGMENTS WHILE CONCLUDING THAT THE SEGMENTAL ACCOUNTS HAS BEEN PREPARED INCORRECTLY BY WAY OF INAPPROPRIATE ALLOCATION OF COMMON EXPENSES . ITA NO.2152/MDS//2011 3 5. ERRED IN ISSUING DIRECTION BY ARBITRARILY DIRECTING THE LEARNED AO ALONE FOR RECONSIDERING THE DEDUCTION UNDER SECTION 10B OF THE ACT WITHOUT ISSUING ANY DIRECTION TO THE LEARNED TPO FOR CONSIDERING THE SEGMENTAL ACCOUNTS AS RECOMPUTED BY THE LEARNED AO. 6. ERRED IN CONFIRMING THE ACTION OF THE LEARNE D TPO IN DISREGARDING THE SEGMENTAL APPROACH ADOPTED BY HIS PREDECESSOR IN THE TRANSFER PRICING ASSESSMENT FOR AY 200 5 -06 ALTHOUGH THE FACTS WERE THE SAME IN THE RELEVANT AY 2007-08 , THEREB Y DISR E GARDING THE PRINCIPLES OF CONSISTENCY . 7. WITHOUT PREJUDICE TO THE GROUNDS ABO V E , ERRED IN ATTRIBUTING THE LOSSES IN THE DOMESTIC TRANSACTIONS TO THAT O F THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. 8. E RRED IN LAW IN DISREGARDING THE MULTIPLE YEAR APPROACH ADOPTED BY THE ASSESSEE. 9. E RRED IN NOT GRANTING REASONABLE AND ADEQUATE OPPORTUNITY TO THE APPELLANT FOR PRO D UCING SEPARATE BOOKS OF ACCOUNTS BEFORE ISSUING THE DIRECTIONS UNDER SECTION 144C (6) OF THE ACT AND THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT , BEING PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IS LIABLE TO BE QUASHED OR ALTERNATIVELY SET ASIDE . 4. BRIEF FACTS ARE THAT THE ASSESSEE, AN INDIAN COM PANY, ENGAGED IN THE BUSINESS OF PROVIDING SWITCHES AND C ABLE MANAGEMENT SOLUTIONS IN GLOBAL MARKET FOR COMMERCIA L AS WELL AS DOMESTIC APPLICATIONS. THE ASSESSEE FILED R ETURN ELECTRONICALLY ON 30.10.2007 DECLARING LOSS OF ` 1,35,87,570/-. ITA NO.2152/MDS//2011 4 THE CASE WAS SELECTED FOR SCRUTINY, NOTICE UNDER SE CTION 143(2) OF THE ACT WAS ISSUED ON 21.7.2008 AND THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANSFER PRICING OF FICER UNDER SECTION 92A(1) IN RESPECT OF INTERNATIONAL TRANSACT IONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE S. THE TRANSFER PRICING OFFICER PASSED AN ORDER DATED 28.1 0.2010 UNDER SECTION 92CA(3) OF THE ACT DETERMINING THE AR MS LENGTH PRICE OF ASSOCIATED ENTERPRISE SALES AT ` 29.87 CRORES AS AGAINST ` 22.35 CRORES REPORTED BY THE ASSESSEE AND MADE UPWARD ADJUSTMENT OF ` 7.52 CRORES ON THE ASSOCIATED ENTERPRISE SALES. BASED ON THE TRANSFER PRICING OFF ICERS ORDER, THE ASSESSING OFFICER PASSED DRAFT ASSESSMEN T ORDER ON 31.12.2010 UNDER SECTION 143(3) READ WITH SECTI ON 144C(1) OF THE ACT MAKING ADDITION OF ` 7.52 CRORES TOWARDS UPWARD ADJUSTMENT ON DETERMINATION OF ARMS LENGTH PRICE WITH ASSOCIATED ENTERPRISE. ASSESSING OFFICER IN HI S DRAFT ASSESSMENT ORDER ALSO PROPOSED TO DISALLOW PROVISIO N FOR DISCOUNT OF ` 4.12 CRORES TREATING THE SAID PROVISION AS CONTINGENT AND NOT AN ACCRUED LIABILITY. IT WAS ALS O PROPOSED TO EXCLUDE EXPENSES OF ` 40,51,870/- INCURRED IN FOREIGN ITA NO.2152/MDS//2011 5 CURRENCY TOWARDS TRAVEL FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 5. THE TRANSFER PRICING OFFICER SUBSEQUENTLY PASS ED AN ORDER DATED 24.02.2011 REVISING THE UPWARD ADJUSTME NT OF PURCHASE PRICE ON DETERMINATION OF ARMS LENGTH PRI CE WITH ASSOCIATED ENTERPRISE OF THE ASSESSEE AT ` 7.18 CRORES AS AGAINST ` 7.52 CRORES MADE IN THE ORDER DATED 28.10.2010. 6. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DIS PUTE RESOLUTION PANEL (IN SHORT DRP) IN RESPECT OF U PWARD ADJUSTMENT OF ` 7.52 CRORES TOWARDS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE AND THE OTHER DISALL OWANCES I.E. IN RESPECT OF PROVISION FOR DISCOUNT AND EXCLUDING FOREIGN TRAVEL EXPENSES FROM EXPORT TURNOVER AND NOT EXCLUD ING THE SAME FROM TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. THE DRP BY ITS ORDER DATED 28.9.2011 PASSED UNDER SECTION 144C(5) SUSTAINED THE TRANSFE R PRICING OFFICERS ADDITION OF ` 7.18 CRORES IN RESPECT OF TRANSFER PRICING ADJUSTMENT. THE DRP ALSO SUSTAINED DISALLOWANCE OF ITA NO.2152/MDS//2011 6 PROVISION FOR DISCOUNT AND EXCLUSION OF TRAVEL EXPE NSES INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER A ND NOT EXCLUDING THE SAME FROM TOTAL TURNOVER WHILE COMPUT ING DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSIST ANT COMMISSIONER OF INCOME TAX PASSED FINAL ASSESSMENT ORDER DATED 28.10.2011 UNDER SECTION 143(3) READ WITH SEC TION 144C(13) GIVING EFFECT TO DRPS ORDER BY MAKING UPW ARD ADJUSTMENT OF PURCHASE PRICE OF ` 7.18 CRORES ON DETERMINATION OF ARMS LENGTH PRICE WITH ASSOCIATED ENTERPRISE OF THE ASSESSEE . THE ASSISTANT COMMISSIONER ALSO DISALLOWED PROVISION FOR DISCOUNT OF ` 4.12 CRORES AND EXCLUDED FOREIGN TRAVEL EXPENSES INCURRED IN FOREIG N CURRENCY FROM EXPORT TURNOVER WITHOUT EXCLUDING THE SAME FRO M TOTAL TURNOVER AND COMPUTED DEDUCTION UNDER SECTION 10A O F THE ACT. 7. THE LEARNED COUNSEL FOR THE ASSESSEE MR. SUNIL M OTI LALA SUBMITS IN RESPECT OF THE ADDITION OF ` 7.18 CRORES MADE TOWARDS UPWARD ADJUSTMENT IN RESPECT OF INTERNATION AL TRANSACTION WITH ASSOCIATED ENTERPRISE ON EXPORT OF GOODS, THAT THE ASSESSEE IS IN THE BUSINESS OF PROVIDING S WITCHES AND ITA NO.2152/MDS//2011 7 CABLE MANAGEMENT SOLUTIONS FOR COMMERCIAL AS WELL A S DOMESTIC APPLICATIONS. THE ASSESSEE IS HAVING BROAD LY TWO ACTIVITIES MANUFACTURING AND TRADING. THE LEARNED COUNSEL SUBMITS THAT THE MANUFACTURING ACTIVITY IS FURTHER DIVIDED INTO TWO PARTS ONE INTO CONTRACT MANUFACTURING (I.E. EX PORT) WHEREIN THE ASSESSEE MANUFACTURES GOODS FOR ITS ASS OCIATED ENTERPRISES AND THE OTHER IS LOCAL MANUFACTURING, W HEREIN THE ASSESSEE MANUFACTURES GOODS FOR SALE IN DOMESTIC MA RKETS. 8. THE COUNSEL SUBMITS THAT THE ASSESSEE EXPORTED FINISHED GOODS AGGREGATING TO ` 22.35 CRORES IN RESPECT OF ITS CONTRACT MANUFACTURING SEGMENT AND THE TRANSFER PRI CING OFFICER HAS COMPUTED THE ARMS LENGTH PRICE SALES A T ` 29.53 CRORES AND THUS THE TRANSFER PRICING OFFICER HAS M ADE ADJUSTMENT OF ` 7.18 CRORES TO CONTRACT MANUFACTURING SEGMENT. THE LEARNED COUNSEL SUBMITS THAT THE TRANS FER PRICING OFFICER AND DRP REJECTED THE SEGMENTAL REPO RTING MADE BY THE ASSESSEE IN RESPECT OF ITS TRANSACTIONS WITH AE AND NON-AE SALES. THE COUNSEL SUBMITS THAT THE TRAN SFER PRICING OFFICER AND DRP ARE NOT CORRECT IN ADOPTING THE ENTITY ITA NO.2152/MDS//2011 8 LEVEL APPROACH TO PERFORM THE TRANSFER PRICING ANAL YSIS BY DISREGARDING THE SEGMENTED ANALYSIS MAINTAINED BY T HE ASSESSEE. 9. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE NE T COST PLUS MARGIN IN RESPECT OF ITS CONTRACT MANUFACTURI NG SEGMENT WAS 20.89% AND IN THE LOCAL MANUFACTURING SEGMEN T IT WAS (9.87%) AND SINCE THE MARGIN IN RESPECT OF CONTR ACT MANUFACTURING SEGMENT WAS MORE THAN THE LOCAL MANUFACTURING SEGMENT BY FOLLOWING THE INTERNAL TN MM, THE ASSESSEE CLAIMED THAT ITS CONTRACT MANUFACTURING AN D EXPORT SALES TO BE AT ARMS LENGTH PRICE (IN SHORT ALP). HOWEVER, THE TRANSFER PRICING OFFICER REJECTED THE INTERNAL TNMM AND SELECTED EXTERNAL COMPARABLES AND ARRIVED AT THE CO MPARABLE MARGIN AT 8.87% AND THIS MARGIN OF 8.87% WAS COMPA RED WITH THE ENTITY LEVEL MARGIN OF 1.08% OF THE ASSES SEE IGNORING THE SEGMENTAL REPORT RESULTS WHERE NET COST PLUS MA RGIN OF THE ASSESSEE IN CONTRACT MANUFACTURING SEGMENT WAS 20.8 9% WHICH IS MORE THAN 8.87% I.E. MARGIN OF EXTERNAL CO MPARABLES ARRIVED AT BY THE TRANSFER PRICING OFFICER AND IN S UCH ITA NO.2152/MDS//2011 9 CIRCUMSTANCES, THE TRANSFER PRICING OFFICER SHOULD NOT HAVE MADE ANY UPWARD ADJUSTMENT AS THE NET COST PLUS MAR GIN OF THE CONTRACT MANUFACTURING SEGMENT IS MUCH MORE THA N THE PROFIT MARGIN OF THE EXTERNAL COMPARABLES ADOPTED B Y THE TRANSFER PRICING OFFICER. 10. THE COUNSEL SUBMITS THAT THE EXTERNAL COMPARAB LES ADOPTED BY THE TRANSFER PRICING OFFICER HAS BEEN AC CEPTED BY THE ASSESSEE. THE COUNSEL SUBMITS THAT THE TRANSFER PRICING OFFICER HAS ERRED IN COMPARING THE EXTERNAL COMPARA BLES MARGIN OF 8.87% WITH 1.08% MARGIN WHICH IS ENTITY LEVEL MARGIN OF THE ASSESSEE AND THIS APPROACH IS WRONG. THE COUNSEL SUBMITS THAT THE TRANSFER PRICING OFFICER SHOULD HAVE COMPARED THE MARGIN OF CONTRACT MANUFACTURING SEGME NT WITH THAT OF THE MARGIN OF THE EXTERNAL COMPARABLES ARRI VED AND THIS IS THE RIGHT APPROACH. COUNSEL SUBMITS THAT IF THIS IS DONE, NO UPWARD ADJUSTMENT WOULD REQUIRE AS THE REPORTED MARGIN OF THE CONTRACT MANUFACTURING SEGMENT OF THE ASSESS EE WAS 20.89% WHICH IS MORE THAN THE MARGIN OF 8.87% OF TH E EXTERNAL COMPARABLES ARRIVED BY THE TRANSFER PRICIN G OFFICER. ITA NO.2152/MDS//2011 10 11. THE COUNSEL FURTHER SUBMITS THAT THE REASON GIV EN BY THE TRANSFER PRICING OFFICER AND THE DRP FOR REJECT ING THE SEGMENTAL RESULTS IS THAT THE ASSESSEE DID NOT REPO RT SEGMENTAL RESULTS IN FINANCIAL ACCOUNTS, EXPENSES A RE APPORTIONED ON AE AND NON-AE SALES. THE ASSESSEES COMPANY TRADING ACCOUNT ACCOUNTS ONLY 23% OF ITS TO TAL SALES AND FURTHER THERE IS NO SEGMENTATION OF TRADING AND MANUFACTURING ACTIVITY IN ITS FINANCIAL STATEMENTS AND THE SEGMENTATION HAS BEEN DONE IN LINE OF TRADING AND MANUFACTURING ONLY FOR THE PURPOSE OF TRANSFER PRIC ING AND THEREFORE SEGMENTAL RESULTS CANNOT BE ACCEPTED. PL ACING RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF M/S. 3I INFOTECH LTD. VS. ITO IN ITA NO.21/MDS/2013 DATED 7 TH MAY, 2013, THE COUNSEL FOR THE ASSESSEE SUBMITS THAT NON-REPORTING OF SEGMENTAL RE SULTS IN THE AUDITED FINANCIAL ACCOUNTS CANNOT BE A BASIS FO R REJECTING THE SEGMENTAL RESULTS OF THE ASSESSEE. 12. THE COUNSEL FURTHER SUBMITS THAT THE TRANSFER PRICING OFFICER AND THE DRP ACCEPTED THE SEGMENTAL REPORTS FOR ITA NO.2152/MDS//2011 11 COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT FO R THE ASSESSMENT YEAR UNDER CONSIDERATION. HE FURTHER SUB MITS THAT SUCH SEGMENTATION APPROACH HAD BEEN ACCEPTED AS AN IDEAL APPROACH FOR THE OPERATIONS UNDERTAKEN BY THE ASSES SEE IN THE PREVIOUS ASSESSMENT YEAR I.E. 2006-07 AND THER E HAVE BEEN NO DIFFERENCE IN THE OPERATIONS OF THE ASSESSE E FROM THE FINANCIAL YEARS 2005-06 TO 2006-07. THE COUNSEL SU BMITS THAT SINCE THERE ARE NO CHANGE IN THE FACTS AND CIRCUMST ANCES, FOLLOWING THE PRINCIPLE OF CONSISTENCY SEGMENTATION RESULT/ REPORTS OF THE ASSESSEE HAVE TO BE ACCEPTED IN THE ASSESSMENT YEAR 2007-08 ALSO. COUNSEL REFERRING TO COMPILATION OF JUDGEMENTS-III FURNISHED AND PLACING RELIANCE ON VARIOUS DECISIONS INCLUDING THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF RADHA SWAMI SATSANG V S. CIT (1991) 193 ITR 321 SUBMITS THAT IN THE ABSENCE OF A NY MATERIAL CHANGE IN FACTS, A DIFFERENT VIEW THAN TAK EN IN EARLIER YEARS COULD NOT BE TAKEN. HE FURTHER SUBMITS THAT IN THE CURRENT ASSESSMENT YEAR I.E. 2007-08, THE TRANSFER PRICING OFFICER AND DRP HAVING ACCEPTED THE SEGMENT RESULTS FOR COMPUTING RELIEF UNDER SECTION 10A OF THE ACT, THE SAID ITA NO.2152/MDS//2011 12 SEGMENTATION APPROACH SHOULD NOT HAVE BEEN REJECTED IN DETERMINING THE ALP OF SALES OF ASSOCIATED ENTERPRI SE. 13. THE COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 67 OF THE PAPER BOOK FURTHER SUBMITS THAT DRP HAS DIRECTE D THE ASSESSING OFFICER TO EXAMINE THE SEGMENTAL RESULTS FOR CONTRACT MANUFACTURING SEGMENT FOR COMPUTING RELIEF UNDER SECTION 10B OF THE ACT AND THE ASSESSING OFFICER HA S ACCEPTED THE SEGMENT REPORTS AND THE SUBMISSIONS OF THE ASSESSEE BEFORE HIM VIDE LETTER DATED 28.10.2011 IN RESPECT OF SEGMENTATION RESULTS CLAIMING DEDUCTION UNDER S ECTION 10B OF THE ACT. 14. THE COUNSEL FURTHER SUBMITS THAT TNMM DOES NO T PERMIT COMPARISON OF MARGINS ON ANY ENTITY-WIDE BAS IS, ONLY MARGINS FROM THE INTERNATIONAL TRANSACTION OR A CLA SS OF INTERNATIONAL TRANSACTION CAN BE COMPARED. WITHOUT PREJUDICE TO THE ABOVE, THE COUNSEL SUBMITS THAT IF SEGMENTAL DATA OF AE TRANSACTION IS NOT AVAILABLE, THE ADJUSTMENT MADE ON THE BASIS OF THE ENTITY LEVEL MARGIN ON THE TOTAL TURNO VER SHOULD BE ITA NO.2152/MDS//2011 13 RESTRICTED TO THE PROPORTION OF AE SALES TO TOTAL TURNOVER. HOWEVER, ALP HAS TO BE DETERMINED ONLY FOR THE INT ERNATIONAL TRANSACTION AND HENCE SEGMENTAL DATA AND THE MARGIN AS PER THE AE SEGMENT OUGHT TO BE COMPARED/CONSIDERED FOR COMPUTING ALP. THE COUNSEL FURTHER SUBMITS THAT IF THE SEGMENTAL DATA AND THE MARGIN OF THE AE SEGMENT (I. E. 20.89%) IS ACCEPTED AND EVEN IF INTERNAL TNMM ADOP TED BY THE ASSESSEE IS REJECTED, AND THE MARGIN OF COMPARA BLES SELECTED BY THE TRANSFER PRICING OFFICER IS CONSIDE RED (I.E. 8.87%), THE RESULTANT TRANSFER PRICING ADDITION WOU LD BE NIL. 15. THE LEARNED CIT DR MR. P.B.SEKARAN SUPPORTED TH E ORDER OF THE DRP AND THE ASSESSING OFFICER IN MAKIN G UPWARD ADJUSTMENT OF ` 7.18 CRORES TO THE AE SALES. REFERRING TO THE LETTER DATED 29.10.2013 SUBMITTED IN THE COURSE OF HEARING, THE CIT DR SUBMITS THAT SEGMENTAL RESULTS THOUGH AC CEPTED FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07, IT CA NNOT BE ACCEPTED FOR THE ASSESSMENT YEAR 2007-08 AS THE ALL OCATION OF EXPENSES BETWEEN CONTRACT MANUFACTURING SEGMENT AND LOCAL/DOMESTIC SEGMENT ARE NOT DONE SCIENTIFICALLY AND THE ITA NO.2152/MDS//2011 14 ASSESSEE HAS NOT OFFERED ANY SATISFACTORY REASON FO R THIS ABNORMAL ALLOCATIONS, ESPECIALLY IN RESPECT OF OTH ER EXPENSES ALLOCATED TO LOCAL/DOMESTIC SALES SEGMENT WHICH ARE AT 67% AND IN RESPECT OF CONTRACT MANUFACTURING SEGMENT W HICH ARE AT 5.2%. THE DEPARTMENTAL REPRESENTATIVE SUBMITS TH AT IN ANY EVENT THE ALLOCATION IS NOT PROPERLY DONE AND T HE SEGMENTAL REPORTS HAVE TO BE EXAMINED AND FOR THIS PURPOSE, THIS MATTER SHOULD GO BACK TO THE ASSESSING OFFICER FOR VERIFICATION. 16. IN REPLY, THE COUNSEL FOR THE ASSESSEE SUBMITS THAT DRP HAS ALREADY SENT BACK TO THE ASSESSING OFFICER TO VERIFY THE SEGMENTAL REPORTS/RESULTS FOR THE PURPOSE OF COMPUT ING DEDUCTION UNDER SECTION 10B OF THE ACT. THE ASSESSI NG OFFICER HAS EXAMINED SEGMENTAL RESULTS VIS--VIS AL LOCATION OF EXPENSES TO SEGMENTS AND ACCEPTED THE SEGMENTAL REPORTS/RESULTS AND COMPUTED THE RELIEF UNDER SECT ION 10A AND THEREFORE, COUNSEL SUBMITS THERE IS NO NEED FO R SENDING BACK THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION AND ANALYSIS ONCE AGAIN. THE COUNSEL FOR THE ASSES SEE ITA NO.2152/MDS//2011 15 REFERRING TO THE TABLE EXTRACTED IN THE LETTER DATE D 29.10.2013 SUBMITTED BY THE CIT DR BEFORE US WITH RESPECT TO A LLOCATION OF EXPENSES TO MANUFACTURING SEGMENT SUBMITS THAT T HE ALLOCATION OF EXPENSES WERE ACCEPTED FOR COMPUTING RELIEF UNDER SECTION 10B OF THE ACT. 17. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE CASE LAW RELIED ON. THE REASON GIVEN BY THE TRANSFER PRICING OFFICER AND DRP FOR NOT ACCEPT ING THE SEGMENT RESULTS ARE THAT THE ASSESSEE HAS NOT SHOW N THE SAME IN THE AUDITED FINANCIAL ACCOUNTS AND THE SEGM ENT REPORTING WAS DONE ONLY FOR TRANSFER PRICING PURPOS ES. THEY HAVE ALSO STATED THAT ALLOCATION OF EXPENSES BETWEE N THE CONTRACT MANUFACTURING SEGMENT AND NON AE LOCAL/DOM ESTIC SEGMENTS ARE ABNORMAL. IN SO FAR AS THE REASON THAT THE ASSESSEE HAS NOT SHOWN THE SEGMENTAL REPORT/RESULTS IN AUDITED FINANCIAL ACCOUNTS AND THEREFORE, SUCH SEGM ENTAL RESULTS CANNOT BE ACCEPTED FOR ALP HAS NOT BEEN ACC EPTED BY THIS TRIBUNAL IN THE CASE OF 3I INFOTEC LTD. VS. IT O IN ITA NO.21/MDS/2013 VIDE ORDER DATED 7.5.2013. THIS TRIB UNAL IN ITA NO.2152/MDS//2011 16 THE ABOVE CITED CASE HELD THAT EVEN THOUGH SEGMENTA L REPORTS ARE NOT SHOW IN AUDITED FINANCIAL ACCOUNTS, THEY HA VE TO BE ACCEPTED. 18. THIS TRIBUNAL FURTHER HELD, IN VIEW OF THE DECI SION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. STRATEX NET WORKS (INDIA) PVT.LTD., (133 TTJ 365), THAT RAT E OF PROFIT ACHIEVED IN OTHER COMPARABLE CASES ARE TO BE COMPAR ED WITH PROFIT LEVEL DECLARED BY THE ASSESSEE IN RESPECT OF ITS AE TRANSACTIONS AFTER EXCLUDING DOMESTIC TRANSACTIONS. IN THE CASE OF 3I INFOTECH LTD., THIS TRIBUNAL FOUND THAT ON COMPARING THE PROFIT ACHIEVED IN OTHER COMPARABLE CASES TO TH E PROFIT LEVEL DECLARED BY THE ASSESSEE IN RESPECT OF THE AE TRANSACTIONS, PROFIT LEVEL DECLARED BY THE ASSESSEE WAS MORE THAN THE PROFIT LEVEL IN RESPECT OF COMPARABLE CASE S FOUND BY THE TRANSFER PRICING OFFICER. HERE, IN CASE ON HAN D, THE NET COST PLUS MARGIN REPORTED BY THE ASSESSEE IN RESPEC T OF ITS CONTRACT MANUFACTURING SEGMENT STOOD AT 20.89% AND WHEREAS THE NET MARGIN OF THE EXTERNAL COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER STOOD AT 8.87%. THE DRP ON ITA NO.2152/MDS//2011 17 EXAMINING THE SEGMENTAL RESULTS PREPARED BY THE ASS ESSEE OBSERVED IN PARA 7.2 OF THE ORDER AS UNDER:- IT IS VERY PERTINENT TO OBSERVE HERE THAT THE TAXPAYER GENERATED REVENUES OF ` 22.35 CRORES IN ITS CONTRACT MANUFACTURING SEGMENT WITH EMPLOYEE COST OF ` 1.88 CRORES AND DEPRECIATION COST OF ` 18.50 CRORES, WHEREAS IT GENERATED OF ` 43.18 CRORES IN ITS LOCAL MANUFACTURING SEGMENT WITH EMPLOYEE COST OF ` 5.24 CRORES AND DEPRECIATION COST OF ` 1.15 CRORES. FURTHER, THE TAXPAYER COULD NOT SUBSTANTIATE HOW OTHER EXPENSES OF ` 0.59 CRORES AND ` 24.01 CRORES WERE ALLOCATED TO CONTRACT MANUFACTURING SEGMENT AND LOCAL MANUFACTURING SEGMENT RESPECTIVELY. FURTHER, THE LOW EMPLOYEE COST COMBINE WITH HIGHER DEPRECIATION IN THE CONTRACT MANUFACTURING SEGMENT INDICATES THAT THE TAXPAYER DID NOT APPORTION THE EMPLOYEE COST TO CONTRACT MANUFACTURING SEGMENT APPROPRIATELY. THUS, IN THESE CIRCUMSTANCES, THE TRANSFER PRICING OFFICER HAS TO REJECT THE SEGMENTAL RESULTS PREPARED BY THE TAXPAYER. 19. AS COULD BE SEEN FROM THE ABOVE OBSERVATIONS O F THE DRP , THE TRANSFER PRICING OFFICER HAS REJECTED THE SEGMENTAL RESULTS PREPARED BY THE ASSESSEE, AS THE ASSESSEE C OULD NOT SUBSTANTIATE AS TO HOW OTHER EXPENSES WERE ALLOCA TED TO CONTRACT MANUFACTURING SEGMENT AND LOCAL MANUFACTUR ING SEGMENT. IT IS ALSO THE OBSERVATION OF THE DRP THAT LOW EMPLOYEE COST COMBINED WITH HIGHER DEPRECIATION IN CONTRACT ITA NO.2152/MDS//2011 18 MANUFACTURING SEGMENT INDICATES THAT THE ASSESSEE D ID NOT APPORTION THE EMPLOYEE COST TO CONTRACT MANUFACTURI NG SEGMENT APPROPRIATELY. IN THIS REGARD, WE FIND THAT THE FIGURES ADOPTED BY THE TRANSFER PRICING OFFICER / DRP IN TH EIR ORDERS IN ANALYZING THESE FACTS AND COMING TO THE DECISION/CONCLUSION TO REJECT THE SEGMENTAL RESULT S OF THE ASSESSEE IS WRONG. FOR EXAMPLE IN THE ABOVE EXTRAC TED PARA FROM DRP ORDER THE EMPLOYEE COST WAS TAKEN AT 1.88 CRORES AS AGAINST THE CORRECT FIGURE OF 2.10 CRORES. SIMIL ARLY, OTHER EXPENSES AND DEPRECIATION WAS TAKEN AT 0.59 CRORES AND 18.50 CRORES AS AGAINST THE CORRECT FIGURES OF ` 1.88 CRORES AND 0.58 CRORES RESPECTIVELY. THE TRANSFER PRICING OFFICER IN HIS ORDER AT PAGE 9 HAS TAKEN THE FIGURES OF MATE RIAL COST, EMPLOYEE COST AND OTHER EXPENSES AT ` 2.10 CRORES, ` 1.88 CRORES AND ` 0.59 CRORES AS AGAINST THE CORRECT FIGURES OF ` 1.39 CRORES, ` 2.10 CRORES AND ` 1.88 CRORES RESPECTIVELY FOR ANALYSIS. THE TRANSFER PRICING OFFICER AND DRP HAVE TAKEN WRONG FIGURES IN RESPECT OF THESE EXPENSES IN ANAL YZING AND REJECTING THE SEGMENTAL RESULTS. THE FIGURES TAKEN BY THE TRANSFER PRICING OFFICER / DRP IN RESPECT OF MATERI AL COST, ITA NO.2152/MDS//2011 19 EMPLOYEE COST, OTHER EXPENSES, DEPRECIATION ARE NOT MATCHING WITH THE FIGURES GIVEN BY THE ASSESSEE IN SEGMENTAL RESULTS APPEARING AT PAGE 138 OF THE PAPER BOOK SUB MITTED BEFORE US. APPARENTLY, THE TRANSFER PRICING OFFICER / DRP HAVE ADOPTED WRONG FIGURES AND ANALYZED WITH THESE FIGU RES AND CAME TO A CONCLUSION THAT APPORTIONMENT OF EXPENSES WAS NOT PROPERLY DONE AND AT THE SAME TIME, WE FIND THAT TH E ASSESSEE BY LETTER DATED 11.10.2010 SUBMITTED BEFOR E THE TRANSFER PRICING OFFICER IN ANNEXURE A WHERE SEGM ENTAL PROFITABILITY WAS SHOWN AND IT HAS MENTIONED IN T HE NOTE THAT EMPLOYEE COST, OTHER EXPENSES AND DEPRECIATION INCL UDES DIRECT FACTORY COST WHICH IS ALLOCATED BETWEEN CO NTRACT MANUFACTURING AND LOCAL MANUFACTURING SEGMENTS WERE BASED ON THE RESPECTIVE SALES OF THE SEGMENTS. 20. IT IS NOT IN DISPUTE THAT TRANSFER PRICING OF FICER HAS ACCEPTED THE SEGMENTAL RESULTS OF THE ASSESSEE IN T HE ASSESSMENT YEARS 2005-06 AND 2006-07 ON THE CONTRAC T MANUFACTURING TRANSACTIONS WITH THE AE FOR ARRIVING AT ALP WHILE COMPUTING THE RELIEF UNDER SECTION 10A OF THE ACT. THE ITA NO.2152/MDS//2011 20 TRANSFER PRICING OFFICER/ DRP HAS NOT GIVEN ANY REA SON AS TO WHY SEGMENTAL RESULTS SHALL NOT BE CONSIDERED FOR D ETERMINING ALP FOR TRANSACTIONS WITH AE HAVING ACCEPTED VERY S AME SEGMENTAL RESULTS OF THE ASSESSEE FOR THE PURPOSE O F COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT. IN THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY V ALID REASON FOR NOT ACCEPTING THE SEGMENTAL REPORTS IN D ETERMINING THE ALP ON THE AE SALES FOR THIS ASSESSMENT YEAR I .E. 2007- 08 HAVING ACCEPTED THE SEGMENTATION APPROACH FOR TH E EARLIER ASSESSMENT YEARS I.E. 2005-06 AND 2006-07 AND ESPEC IALLY WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTAN CES OF THE CASE IN THE CURRENT YEAR. 21. WE ALSO FIND THAT THE TRANSFER PRICING OFFICER / DRPS APPROACH IN COMPARING EXTERNAL COMPARABLES MARGIN O F 8.87% WITH ENTITY LEVEL MARGIN OF THE ASSESSEE I.E . 1.08% IS WRONG, SINCE SEGMENTAL RESULTS ARE AVAILABLE AND AS PER THIS THE MARGIN IN CONTRACT MANUFACTURING SEGMENT IS 20. 89% AND THIS MARGIN SHOULD HAVE BEEN COMPARED WITH THE COM PARABLE MARGIN OF 8.87% IN DETERMINING THE UPWARD ADJUSTMEN T IN AE ITA NO.2152/MDS//2011 21 SALES. IN OUR VIEW SINCE THE NET COST PLUS MARGIN O F THE ASSESSEE IN CONTRACT MANUFACTURING SEGMENT IS 20.89 % WHICH IS MORE THAN THE OPERATING PROFIT OF 8.87% ON THE E XTERNAL COMPARABLES OF THE TRANSFER PRICING OFFICER, THERE IS NO NEED FOR ANY UPWARD ADJUSTMENT TO BE MADE ON THE AE SALE S OF THE ASSESSEE. HENCE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF ` 7.18 CRORES MADE TOWARDS UPWARD ADJUSTMENT OF PURCHASE PRICE ON DETERMINATION OF AL P WITH ASSOCIATED ENTERPRISE. 22. GROUND NO.10 OF THE GROUNDS OF APPEAL IS WITH REGARD TO DISALLOWANCE OF PROVISION FOR DISCOUNT. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE CONCEDES THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE CO-ORDINATE BEN CH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2005-06 IN ITA NO.1925/MDS/2010 DATED 30.06.2 011. THE COUNSEL FURTHER SUBMITS THAT THIS TRIBUNAL SUST AINED THE DISALLOWANCE OF PROVISION FOR DISCOUNT CLAIMED AS D EDUCTION BY THE ASSESSEE HOLDING THAT IT IS UNASCERTAINED AN D CONTINGENT EXPENSES. HOWEVER, THE COUNSEL SUBMIT S THAT AN ITA NO.2152/MDS//2011 22 ADDITIONAL GROUND WAS PLACED BEFORE THE DRP SUBMIT TING THAT THE ASSESSEE DURING THE ASSESSMENT YEAR 2007-08 HAD ACTUALLY PASSED ON ` 2,73,03,455/- AS DISCOUNTS TO THE CUSTOMERS AND SUCH DISCOUNT WHICH WAS PASSED ON TO THE CUSTOMERS SHOULD BE ALLOWED AS DEDUCTION. THE COUNS EL SUBMITS THAT DRP HAS NOT GIVEN ANY FINDING ON SUCH ADDITIONAL GROUND. THE COUNSEL PLACES COPY OF ASSESSMENT ORDE R FOR THE ASSESSMENT YEAR 2009-10 DATED 13.05.2013 PASSED UND ER SECTION 143(3) READ WITH SECTION 144C(3) AND REFER RING TO PARA 3.4 OF THE ORDER SUBMITS THAT THE ASSESSING OF FICER ALLOWED THE PROVISION ON DISCOUNTS ACTUALLY PASSED ON TO THE CUSTOMERS DURING THE ASSESSMENT YEAR 2009-10. THERE FORE, HE PLEADS THAT A DIRECTION BE GIVEN TO ASSESSING OF FICER TO ALLOW THE ACTUAL DISCOUNTS OF ` 2,73,03,455/-PASSED ON TO THE CUSTOMERS AS DEDUCTION FOR THE ASSESSMENT YEAR 2007 -08 AS WAS ALLOWED IN THE ASSESSMENT YEAR 2009-10. 23. THE DEPARTMENTAL REPRESENTATIVE HAS NO SERIOUS OBJECTION IN DIRECTING THE ASSESSING OFFICER TO VER IFY AND ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF ACTUAL DISC OUNT PASSED ITA NO.2152/MDS//2011 23 ON TO THE CUSTOMERS AS DEDUCTION, AS SIMILAR CLAIM WAS ALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2009-10. 24. HEARD BOTH SIDES. PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. AS FAR AS THE CLAIM OF THE ASSESSEE TH AT PROVISION FOR DISCOUNT SHOULD BE ALLOWED AS DEDUCTION IS CONC ERNED, THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE CO-ORD INATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2005-06, WHEREIN THE TRIBUNAL HELD AS UNDER:- 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE FOUND THAT THE ASSESSEE CAN CLAIM SUCH A PROVISION ONLY IF IT SATISFIES THE FOLLOWING CONDITIONS: AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION; AND A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. 7. IN OUR OPINION, THESE ARE GENERAL OBSERVATIONS MADE BY THE HON'BLE SUPREME COURT IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD (SUPRA). IF THE DECISION IS READ IN TOTO, THESE CONDITIONS COULD BE ITA NO.2152/MDS//2011 24 GIVEN EFFECTIVE MEANING. 8. IN THE CASE OF METAL BOX COMPANY OF INDIA LTD (SUPRA), THE HON'BLE SUPREME COURT HAS HELD AS UNDER: CONTINGENT LIABILITIES DISCOUNTED AND VALUED AS NECESSARY, CAN BE TAKEN INTO ACCOUNT AS TRADING EXPENSES IF THEY ARE SUFFICIENTLY CERTAIN TO BE CAPABLE OF VALUATION AND IF PROFITS CANNOT BE PROPERLY ESTIMATED WITHOUT TAKING THEM INTO CONSIDERATION. AN ESTIMATED LIABILITY UNDER A SCHEME OF GRATUITY, IF PROPERLY ASCERTAINABLE AND ITS PRESENT VALUE IS DISCOUNTED, IS DEDUCTIBLE FROM THE GROSS RECEIPTS WHILE PREPARING THE PROFIT & LOS S ACCOUNT. THIS IS RECOGNIZED IN TRADE CIRCLES AND THERE IS NOTHING IN THE BONUS ACT WHICH PROHIBITS SUCH A PRACTICE. SUCH A PROVISION PROVIDES FOR A KNOWN LIABILITY OF WHICH THE AMOUNT CAN BE DETERMINED WITH SUBSTANTIAL ACCURACY. IT CANNOT, THEREFORE, BE TERMED A RESERVE. THEREFORE, THE ESTIMATED LIABILITY FOR THE YEAR ON ACCOUNT OF A SCHEME OF GRATUITY SHOULD BE ALLOWED TO BE DEDUCTED FROM THE GROSS PROFITS. THE ALLOWANCE IS NOT RESTRICTED TO THE ACTUAL PAYMENT OF GRATUITY DURING THE YEAR. 9. IN THE CASE OF DY. CIT VS BEARDSELL LTD (SUPRA), HON'BLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER: HELD , THAT IF A DEBT HAD BECOME IRRECOVERABLE THE SAME COULD BE WRITTEN OFF AND DEDUCTED FROM THE PROFIT OF THE BUSINESS. A DEBT, THE RECOVERY OF WHICH WAS DOUBTFUL COULD NOT BE TERMED TO BE AN ASCERTAINED LIABILITY AS MENTIONED UNDER SECTION 115J OF THE ACT AND COULD NOT BE EXCLUDED FROM ITA NO.2152/MDS//2011 25 THE BOOK PROFITS. ACCORDINGLY, THE CONCLUSION OF THE TRIBUNAL IN DIRECTING THE ASSESSING OFFICER TO RECTIFY THE ALLEGED MISTAKE OF INCLUSION OF THE UNASCERTAINED LIABILITY IN THE BOOK PROFIT COULD NO T BE UPHELD. 10. THUS, IT BECOMES EVIDENTIALLY CLEAR THAT WHEN THE LIABILITY IS ASCERTAINED AND NOT QUANTIFIABLE DURING THE YEAR AND IS SIMPLY A CONTINGENT BASED ON ESTIMATES, THE SAME CANNOT BE ALLOWED AS DEDUCTION. IN THE GIVEN CASE, THE ASSESSEES VERSION, AS PUT FORTH IN PARA 6.4 OF THE APPELLATE ORDER, CLEARLY STATES THAT THE ONLY REASO N FOR CREATING A PROVISION AND NOT CHARGING THE SAME AS AN EXPENSES IS BECAUSE OF THE FACT THAT THE EXACT QUANTIFICATION COULD NOT BE UNDERTAKEN FOR THE VARIOUS REASONS. IN OUR OPINION, THE BASIS FOR THE PROVISION IS SIMPLY ADHOC AND ARBITRARY. IT DEPENDS ON THE FACTS OF EACH AND EVERY CASE TO COME TO A CONCLUSION AS TO WHETHER THE LIABILITY IS ASCERTAINED OR UNASCERTAINED ONE AND IT CANNOT BE GENERALISED. THE DISCOUNTS GIVEN TO MEET OUT A PARTICULAR TARGET TO THE CHANNEL PARTNERS AND FURTHER DISCOUNTS GIVEN TO THE CUSTOMERS ARE NOT SPECIFICALLY SPECIFIED AND NOBODY KNOWS AS TO WHAT WOULD BE THE EXACT POSITION WHEN TRANSACTIONS TAKE PLACE. THERE IS NO PAST HISTORY OF THIS ASSESSEE. THEREFORE, IN THESE CIRCUMSTANCES, WE ARE UNABLE TO ACCEPT THE VERSION OF THE ASSESSEE. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND REVERSE THE SAME. THE GROUNDS RAISED BY THE REVENUE, IN THIS REGARD, ARE ALLOWED. ITA NO.2152/MDS//2011 26 25. THE FACTS AND CIRCUMSTANCES BEING SIMILAR IN TH E CURRENT ASSESSMENT YEAR ALSO, RESPECTFULLY FOLLOWING THE SA ID DECISION, WE REJECT THE GROUND OF APPEAL OF THE ASSESSEE ON T HIS ISSUE. HOWEVER, IN RESPECT OF THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT DEDUCTION FOR DISCOUNT ACTUALLY PASSED ON TO T HE CUSTOMERS HAS TO BE ALLOWED AS DEDUCTION, WE SEE TH AT THE ASSESSING OFFICER IN SIMILAR CIRCUMSTANCES, ALLOWED THE CLAIM OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10. KE EPING IN VIEW OF THE SAME, WE DIRECT THE ASSESSING OFFICER T O GRANT DEDUCTION FOR THE DISCOUNT ACTUALLY PASSED ON TO TH E CUSTOMERS DURING THIS ASSESSMENT YEAR AFTER VERIFIC ATION OF THE CLAIM OF THE ASSESSEE. THE ASSESSEE SHALL PROVIDE T HE DETAILS OF DISCOUNTS ACTUALLY PASSED ON TO THE CUSTOMERS DU RING THIS ASSESSMENT YEAR AND THE SAME SHALL BE VERIFIED BY THE ASSESSING OFFICER AND DECIDE ACCORDINGLY AFTER PROV IDING OPPORTUNITY TO THE ASSESSEE. 26. GROUND NO.11 IS IN RESPECT OF RECOMPUTATION OF PROFITS OF THE CONTRACT MANUFACTURING UNIT BY ALLOCATING EXPEN SES TO THE ITA NO.2152/MDS//2011 27 CONTRACT MANUFACTURING UNIT ON THE BASIS OF ARMS L ENGTH SALES DETERMINED BY THE TRANSFER PRICING OFFICER. 27. SINCE WE HAVE DELETED THE UPWARD ADJUSTMENT OF ` 7.18 CRORES MADE TOWARDS ALP OF ASSOCIATED ENTERPRISE SA LES, THE QUESTION OF ALLOCATION OF EXPENSES TO CONTRACT MANU FACTURING UNIT ON THE BASIS OF ARMS LENGTH SALES DOES NOT AR ISE AND THIS GROUND BECOMES INFRUCTUOUS, THEREFORE, THIS GROUND IS DISMISSED AS INFRUCTUOUS. 28. THE LAST ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS WITH REGARD TO EXCLUSION OF TRAVELLING EXPENSES INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER AND INCLUDED IN TOTAL TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. SIMILAR ISSUE HAS BEEN DECIDED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.1925/MDS/2010, WHEREIN THE TRIBUNAL FOLLOWING THE SPECIAL BENCH DECISION OF CHENNAI BEN CH IN THE CASE OF SAK SOFT LTD. 313 ITR (TRIB) 353(CHENNAI)(S B) HELD THAT SUCH TRAVEL EXPENSES INCURRED IN FOREIGN CURRE NCY HAVE TO ITA NO.2152/MDS//2011 28 BE EXCLUDED BOTH FROM EXPORT TURNOVER AS WELL AS FR OM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 10A OF THE ACT. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF SAK SOFT LTD. (SUPRA), WE DIRE CT THE ASSESSING OFFICER TO EXCLUDE THE TRAVEL EXPENSES IN CURRED IN FOREIGN EXCHANGE FROM EXPORT TURNOVER AS WELL AS TO TAL TURNOVER FOR THE PURPOSE OF COMPUTING RELIEF UNDER SECTION 10A OF THE ACT. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, TH E 12 TH DAY OF DECEMBER 2013 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY ) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI. DATED THE 12 TH DECEMBER, 2013. SOMU COPY TO: (1) APPELLANT (4 ) CIT(A) (2) RESPONDENT (5 ) D.R. (3) CIT (6 ) G.F.