The ACIT, Circle-4, Ahmedabad V. Hitachi Home & Life Solutions(I) Limited, Ahmedabad

ITA 2361/AHD/2008

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67711 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-09-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 20-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Keywords: Depreciation; Transfer pricing; Business expenditure; Principle of natural justice; International transaction; Competent authority
• Section: 246; 144; 92C; 43B; 143(3); 10B

Judgement Text

, , , , B, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . .. . , , , , !' !' !' !' ! !! !. .. . . .. .#$ #$ #$ #$, , , , % % % % & & & & BEFORE SHRI D.K. TYAGI, JUDICIAL MEMBER AND A.K. GARODIA, ACCOUNTANT MEMBER ITA. NO.2361 AND 2362/AHD/2008 [ASSTT. YEAR : 2000-2001 AND 2001-2002] AND ITA NO.2881/AHD/2007 WITH CO NO.304/AHD/2007 [ASSTT.YEAR : 2003-2004] AND ITA NO.2363/AHD/2008 WITH CO NO.176/AHD/2008 [ASSTT.YEAR : 2004-2005] ACIT, CIR.4 AHMEDABAD. ' /VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LTD. 9 TH FLOOR, ABHIJEET MITHAKHALI SIX ROAD AHMEDABAD. ( (( ()* )* )* )* / APPELLANT) ( (( (+)* +)* +)* +)* / RESPONDENT) , - . / REVENUE BY : SHRI O.P. VAISHNAV, CIT-DR 4 ' 01 - . / ASSESSEE BY : SHRI S.N. SOPARKAR WITH SHRI VARTIK CHOKSHI 2'3 - 1%/ DATE OF HEARING : 3 RD SEPTEMBER, 2013 4#5 - 1%/ DATE OF PRONOUNCEMENT : 24.09.2013 6 / O R D E R PER BENCH: OUT OF THIS BUNCH OF APPEALS AND COS, FOUR APPEALS ARE FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2000- 2001, 2001-2002, ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -2- 2003-2004 AND 2004-2005 AND TWO COS ARE FILED BY TH E ASSESSEE FOR THE ASSESSMENT YEARS 2003-2004 AND 2004-2005. SINCE SOME COMMON ISSUES ARE INVOLVED, ALL THESE WERE HEARD TOGETHER, AND AR E BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE FOR A .Y.2000-2001 I.E. ITA NO.2361/AHD/2008. THE GROUNDS RAISED BY THE R EVENUE ARE AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN HOLDING THAT THE ASSESSMENT SHOULD NOT HAVE BEEN MA DE EX-PARTE U/S.144. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.7,18,64,900/- OUT O F SALES AND WARRANTY COMMISSION. 3 . THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE DISALLOWANCE OF RS.19,40,400/- OUT OF STORES AND SPARES, RS.76,68,400/- OUT OF EXPENSES ON SERVICE OPERATORS AND RS.88,10,800/- OUT OF SALARY AND WAGES AND STAFF WE LFARE EXPENSES, AFTER ADMITTING FRESH EVIDENCE IN VIOLATION OF RULE 46A. 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS.1,36,61,795/- BEING ADJ USTMENT U/S.145A. 5 . ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 6. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAYBE CANCELLED AND THAT OF THE AO MAYBE RESTORED TO THE ABOVE EFFECT. 3. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER. HE ALSO SUBMITTED THAT NO REMAND REPORT WAS OBTAINED BY THE LEARNED C IT(A) AND THE DETAILS FILED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) WER E NOT CONFRONTED TO THE AO FOR HIS COMMENTS. AS AGAINST THIS, THE LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). HE ALSO SUB MITTED THAT AD HOC DISALLOWANCE WAS MADE BY THE AO, AND HENCE, NO DETA IL IS REQUIRED TO BE GIVEN FOR SUCH AD HOC DISALLOWANCE. HE ALSO SUBMITTED THAT THE AO DID N OT ASK FOR DETAILS AT ALL, AND HENCE, ORDER OF THE CIT (A) SHOULD BE CONFIRMED. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -3- HE ALSO SUBMITTED THAT, IF AT ALL REQUIRED, THE MAT TER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR LIMITED PURPOSE OF VERIFICAT ION. 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT FIRST GROUND IS THIS THAT THE CIT(A) SHOULD NOT HAV E COMMENTED THAT THE AO SHOULD NOT HAVE MADE THE ASSESSMENT EX PARTE UNDER SECTION 144 OF THE ACT. WE FEEL THAT WHEN ALL THE ISSUES ON MERIT ARE DECID ED BY THE CIT(A), AND ALSO RAISED BEFORE US, WE SHOULD DECIDE THE ISSUES ON MERIT, AND NO SEPARATE ADJUDICATION IS CALLED FOR, REGARDING THIS FINDING OF THE CIT(A) THAT THE AO SHOULD NOT HAVE MADE THE ASSESSMENT EX PARTE UNDER SECTION 144 OF THE ACT. 5. REGARDING GROUND NO.2, WE FIND THAT THIS ISSUE W AS DECIDED BY THE LD.CIT(A) ON THIS BASIS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE BANGALORE BENCH OF THE TRIBU NAL RENDERED IN THE CASE OF IBM INDIA LTD. VS. CIT, 290 ITR 183 (AT) (BANG). BY NOW, THIS ISSUE IS ALSO COVERED BY THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF ROTORK CONTROLS INDIA P. LTD V. COMMISSIONE R OF INCOME-TAX, 314 ITR 62 (SC). AS PER THESE JUDGMENTS OF THE HONBL E APEX COURT RENDERED IN THE CASE OF ROTORK CONTROLS INDIA P. LTD (SUPRA) , IT WAS HELD THAT THE PROVISION MADE FOR INCURRING WARRANTY EXPENSES IS A LLOWABLE ON PROVISION BASIS ALSO, IF SUCH PROVISION IS MADE BY THE ASSESS EE ON SOME SCIENTIFIC BASIS. BEFORE US, THE ASSESSEE HAS NOT FURNISHED D ETAILS REGARDING THE BASIS OF THIS PROVISION. AS PER THE JUDGMENT OF THE HON BLE APEX COURT, IT WAS HELD THAT THE ASSESSEE-COMPANY SHOULD SCRUTINISE TH E HISTORICAL TREND OF WARRANTY PROVISION MADE AND THE ACTUAL EXPENSES INC URRED AGAINST IT, AND ON THIS BASIS, A SENSIBLE ESTIMATE SHOULD BE MADE. IN THE PRESENT CASE, WE FEEL THAT THE EXPENSES PROVIDED FOR BY THE ASSESSEE IN R ESPECT OF WARRANTY SHOULD BE ALLOWED TO THE EXTENT THE PROVISION IS MADE ON A SCIENTIFIC BASIS, AS HELD BY THE HONBLE APEX COURT IN THIS JUDGMENT RENDERED IN THE CASE OF ROTORK CONTROLS INDIA P. LTD. (SUPRA). SINCE THESE DETAIL S ARE NOT AVAILABLE BEFORE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -4- US, AND IT WAS NOT EXAMINED BY THE AUTHORITY BELOW ALSO, WE FEEL IT PROPER TO RESTORE THIS MATTER BACK TO THE FILE OF THE LEARNED CIT(A) FOR FRESH DECISION AFTER EXAMINING THE DETAILS, ON THE BASIS OF WHICH, THE PROVISION HAS BEEN MADE BY THE ASSESSEE, AND IF IT IS FOUND THAT SUCH PROVISION WAS MADE ON SCIENTIFIC BASIS, AS HAS BEEN APPROVED BY THE HONB LE APEX COURT, IN THE JUDGEMENT RENDERED IN THE CASE OF ROTORK CONTROL IN DIA P. LTD. (SUPRA), THEN NO DISALLOWANCE SHOULD BE MADE OUT OF THIS PROVISIO N IN RESPECT OF WARRANTY EXPENSES. BUT IF IT IS FOUND THAT THE PROVISION IS EXCESSIVE, THEN SUCH EXCESS PROVISION, IF ANY, SHOULD BE DISALLOWED. WITH THES E OBSERVATIONS, WE RESTORE THIS MATTER BACK TO THE FILE OF THE LD.CIT( A) FOR FRESH DECISION. THE GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSE. 6. REGARDING GROUND NO.3, IT WAS SUBMITTED BY THE L EARNED DR OF THE REVENUE THAT THE DECISION OF THE LEARNED CIT(A) IS IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962. WHEN WE GO THROUGH THE ORDERS OF THE AUTHORITY BELOW, WE FIND THAT IT WAS OBSERVED BY TH E AO AT PAGE NO.8 OF THE ASSESSMENT ORDER THAT NOBODY HAS ATTENDED IN PERSON BEFORE HIM, AND EXCEPT ONE LETTER DATED 26.11.2007, ALL LETTERS WERE SENT THROUGH DESPATCH SECTION. HE HAS ALSO OBSERVED ON THE SAME PAGE OF THE ASSESS MENT ORDER THAT AS PER THE NOTICE UNDER SECTION 142(1), THE ASSESSEE WAS R EQUIRED TO FURNISH DETAILS OF EXPENDITURE INCURRED FOR RENDERING OF SERVICES I NCLUDING CHANGE/REPLACEMENT OF PARTS DURING THE WARRANTY PER IOD, BUT NO COMPLIANCE HAS BEEN MADE. BECAUSE OF THIS NON-COMPLIANCE BY T HE ASSESSEE, THE AO HAS MADE AD HOC 10% DISALLOWANCE OUT OF VARIOUS EXPENSES CLAIMED B Y THE ASSESSEE UNDER THE HEAD STORES & SPARES, EXPENSES O N SERVICE OPERATORS, AND OUT OF SALARY & WAGES AND STAFF WELFARE EXPENSES. THIS DISALLOWANCE WAS DELETED BY THE CIT(A), ON THIS BASIS THAT THE ASSES SEE HAS SUBMITTED DETAILS AND BREAK UP OF VARIOUS EXPENSES, AS PER ENCLOSURE TO THE STATEMENT OF FACTS. THIS GOES TO SHOW THAT THESE DETAILS WERE SUBMITTED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LEARNED CIT(A), AND THE SAME WERE NOT SUBMITTED BEFORE THE AO. IT IS ALSO SEEN THAT THE LD.CIT(A) HAS NOT OBTAINED ANY ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -5- REMAND REPORT FROM THE AO IN THIS REGARD. HENCE, W E ARE OF THE CONSIDERED OPINION THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE LD.CIT(A) FOR FRESH DECISION AFTER OBTAINING REMAND REPORT FROM THE AO ON THIS ASPECT. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) O N THIS ISSUE, AND RESTORE THIS ISSUE BACK TO HIS FILE FOR FRESH DECISION AFTE R OBTAINING THE REMAND REPORT FROM THE AO, AND AFTER PROVIDING ADEQUATE OP PORTUNITY OF HEARING TO BOTH THE SIDES. THIS GROUND OF THE REVENUE IS ALSO ALLOWED FOR STATISTICAL PURPOSE. 7. REGARDING GROUND NO.4, WE FIND THAT THIS WAS DEC IDED BY THE LEARNED CIT(A) VIDE PARA 6.1 OF HIS ORDER, WHEREIN IT WAS H ELD BY HIM THAT ADDITION OF THIS AMOUNT OF RS.1,36,61,795/- WAS MADE IN ASSE SSMENT YEAR 1999-2000 IN RESPECT OF UNDER VALUATION OF CLOSING STOCK, AND THEREFORE, THE DEDUCTION TO THAT EXTENT HAS TO BE ALLOWED IN THE PRESENT BY INCREASING THE OPENING STOCK OF THE PRESENT YEAR. CONSIDERING THESE FACTS , WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON T HIS ASPECT. ACCORDINGLY, THE GROUND NO.4 OF THE REVENUES APPEAL IS REJECTED . 8. THE GROUND NOS.5 AND 6 OF THE APPEAL OF THE REVE NUE ARE GENERAL IN NATURE, AND NO SEPARATE ADJUDICATION IS CALLED FOR. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSE. 10. WE NOW TAKE UP THE REVENUES APPEAL FOR ASSTT.Y EAR 2001-2002 I.E. ITA NO.2362/AHD/2008. 11. THE GROUNDS RAISED BY THE REVENUE IN THIS YEAR ARE AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN HOLDING THAT THE ASSESSMENT SHOULD NOT HAVE BEEN MA DE EX-PARTE U/S.144. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -6- 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.9,45,75,000/- OUT O F SALES AND WARRANTY COMMISSION. 3 . THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE DISALLOWANCE OF RS.91,73,700/- OUT OF SERVICE OPERATION EXPENSES AND RS.1,20,50,800/- OUT OF SALARY AND WAG ES AND STAFF WELFARE EXPENSES, AFTER ADMITTING FRESH EVIDENCE IN VIOLATION OF RULE 46A. 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWNACE OF RS.14,94,000/- OUT OF PRIOR PERIOD EXPENSES. 5 . THE LD.CIT(A) AHS ERRED IN LAW AND ON THE FACTS I N DIRECTING TO ALLOW VOLUNTARY DONATION OF RS.50,000/- AS BUSINESS EXPENDITURE U/S.37. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 7. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAYBE CANCELLED AND THAT OF THE AO MAYBE RESTORED TO THE ABOVE EFFECT. 12. IT WAS AGREED BY BOTH THE SIDES THAT THE GROUND NOS.1, 2 AND 3 ARE IDENTICAL TO THE GROUNDS RAISED BY THE REVENUE FOR A.Y.2000-2001, AND THE SAME CAN BE DECIDED ON SIMILAR LINE. IN A.Y.2000-2 001, WE HAVE HELD THAT NO SEPARATE ADJUDICATION IS CALLED FOR REGARDING TH E FINDING OF THE LEARNED CIT(A) THAT THE AO SHOULD NOT HAVE MADE THE ASSESSM ENT EX PARTE UNDER SECTION 144. REGARDING GROUND NO.2 I.E. REGARDING THE DISALLOWANCE OF RS.9,45,75,000/- OUT OF SALES AND WARRANTY COMMISSI ON, IN A.Y.2000-2001, WE HAVE RESTORED BACK THE ISSUE TO THE FILE OF THE LD.CIT(A) FOR FRESH DECISION AFTER PROCURING THE DETAILS FROM THE ASSES SEE REGARDING THE BASIS OF MAKING THIS PROVISION, AND IF IT IS FOUND THAT THE PROVISION IS MADE ON SOME SCIENTIFIC BASIS, AS HAS BEEN APPROVED BY THE HONB LE APEX COURT IN THE JUDGMENT RENDERED IN THE CASE OF ROTORK CONTROLS IN DIA P. LTD. (SUPRA), THEN NO DISALLOWANCE IS CALLED FOR OUT OF SUCH PROVISION , BUT IF THE PROVISION MADE BY THE ASSESSEE IS EXCESSIVE, THEN THE DISALLO WANCE SHOULD BE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -7- RESTRICTED TO SUCH EXCESSIVE AMOUNT ONLY. ACCORDIN GLY, IN THE PRESENT YEAR ALSO, WE RESTORE THIS ISSUE BACK TO THE LEARNED CIT (A) FOR FRESH DECISION ON SIMILAR LINE AS PER THE DECISION ON THIS ISSUE IN A .Y.2000-2001. THE GROUND NO.2 OF THE REVENUE IS ALLOWED FOR STATISTICAL PURP OSE IN THE PRESENT YEAR ALSO. 13. REGARDING GROUND NO.3, WE HAVE HELD IN A.Y.2000 -2001 THAT MATTER SHOULD GO BACK TO THE FILE OF LD. CIT(A) FOR FRESH DECISION AFTER OBTAINING REMAND REPORT FROM THE AO, AND AFTER PROVIDING ADEQ UATE OPPORTUNITY OF HEARING TO BOTH THE SIDES, BECAUSE, THE DECISION OF THE LEARNED CIT(A) ON THIS ISSUE IS IN VIOLATION OF PROVISION OF RULE 46A OF THE I.T.RULES, 1962. ACCORDINGLY, IN THE PRESENT YEAR ALSO, THIS ISSUE I S ALSO RESTORED TO THE FILE OF LEARNED CIT(A) FOR FRESH DECISION IN LINE WITH OUR DECISION ON THIS ISSUE IN A.Y.2000-2001. THIS GROUND OF THE REVENUE IS ALSO ALLOWED FOR STATISTICAL PURPOSE. 14. FOR THE GROUND NO.4 OF THE REVENUE IN THE PRESE NT YEAR, THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER, WHEREAS THE LEAR NED AR SUPPORTED THE ORDER OF THE LEARNED CIT(A). 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT IT IS OBSERVED BY THE LEARNED CIT(A) AT PAGE NO.11 OF HIS ORDER TH AT THIS REQUEST WAS ALSO MADE BY THE ASSESSEE BEFORE THE AO THAT THIS EXPENS E, RELATED TO PRIOR PERIOD, SHOULD BE EITHER ALLOWED IN THE PRESENT YEA R OR IF IT IS NOT ALLOWED IN THE PRESENT YEAR, THEN THE SAME SHOULD BE ALLOWED I N THE EARLIER YEAR, TO WHICH SUCH EXPENSES ARE RELATED TO. HE ALSO NOTED THAT THE AO HAS TOTALLY IGNORED THIS ASPECT, ALTHOUGH, HE HAS PASSED THE AS SESSMENT ORDER FOR THE PRECEDING YEAR I.E. A.Y.2000-2001 ON THE SAME DATE. WE ARE OF THE CONSIDERED OPINION THAT WHEN THERE IS NO OTHER OBJE CTION OF THE AO, REGARDING ALLOWABILILTY OF EXPENSES RELATING TO PRI OR PERIOD, THE SAME SHOULD BE ALLOWED EITHER IN THE PRESENT YEAR OR IN THE PRE CEDING YEAR, TO WHICH SUCH ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -8- EXPENSES ARE RELATED TO. THE ASSESSEE HAS DISCLOSE D A LOSS OF RS.6,92,700/- IN THE PRESENT YEAR, AND IN A.Y.2000-2001, THE ASSE SSEE HAS FILED RETURN OF INCOME DISCLOSING NIL INCOME AFTER SETTING OFF OF B ROUGHT FORWARD LOSS OF EARLIER YEARS TO THE EXTENT OF RS.303.11 LAKHS. HE NCE, EVEN IF THIS EXPENSES ARE ALLOWED IN THE EARLIER YEARS I.E. A.Y. 2000-200 1, IT WILL ULTIMATELY BE ADJUSTED IN THE PRESENT YEAR, BY WAY OF SET OFF OF BROUGHT FORWARD LOSS, AND THEREFORE, IT WILL MAKE NO DIFFERENCE EVEN IF DEDUC TION IS ALLOWED IN THE PRESENT YEAR. HENCE, WE FEEL THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LEARNED CIT(A) ON THIS ASPECT. THE GROUND N O.4 OF THE REVENUE IS REJECTED. 16. REGARDING THE GROUND NO.5, THE LEARNED DR OF TH E REVENUE SUPPORTED THE ASSESSMENT ORDER. THE LEARNED AR SU BMITTED THAT AS PER HIS INFORMATION, THERE IS NO PLANT OF THE ASSESSEE AT S ILVASSA, AND THEREFORE, HE IS NOT IN A POSITION TO ESTABLISH THAT ANY BUSINESS PU RPOSE WAS SERVED BY MAKING THIS DONATION OF RS.50,000/- AT SILVASSA. H ENCE, ON THIS ISSUE, WE REVERSE THE ORDER OF THE LEARNED CIT(A), AND RESTOR E THAT OF THE AO. THE GROUND NO.5 OF THE REVENUE IS ALLOWED. 17. THE GROUND NOS.6 AND 7 OF THE APPEAL OF THE REV ENUE ARE GENERAL IN NATURE, AND NO SEPARATE ADJUDICATION IS CALLED FOR. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. 19. NOW WE TAKE UP APPEAL OF THE REVENUE FOR A.Y.20 03-2004 I.E. ITA NO.2881/AHD/2007. 20. THE GROUND NO.1 IS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN GIVING DIRECTION TO ALLOW EMPLOYERS CONTRIBUTION O F RS.1,33,219/- PAID AFTER THE DUE DATE OF CONCERN ACT THOUGH THE P ROVISION OF 43B WAS AMENDED W.E.F. 1.4.2004. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -9- 21. THE LEARNED DR OF THE REVENUE SUPPORTED THE ASS ESSMENT ORDER, WHEREAS, IT IS SUBMITTED BY THE LEARNED AR OF THE A SSESSEE THAT THIS ISSUE IS INTERCONNECTED WITH THE GROUND NO.1 OF THE ASSESSEE S CO FOR THE SAME ASSESSMENT YEAR. HE ALSO SUBMITTED THAT THE ISSUE INVOLVED IN THE REVENUES APPEAL IS COVERED IN FAVOUR OF THE ASSESS EE BY THE JUDGMENT OF THE HONBNLE APEX COURT RENDERED IN THE CASE OF ALO M EXTRUSIONS, AS REPORTED IN 319 ITR 306 (SC). REGARDING GROUND NO.1 OF THE ASSESSEES CO, THE LEARNED AR SUBMITTED THAT THIS GROUND IS NOT PR ESSED, IN VIEW OF SMALLNESS OF THE AMOUNT, AND ACCORDINGLY, THE GROUN D NO.1 OF THE CO OF THE ASSESSEE IS REJECTED. 23. THE GROUND NO.1 OF THE REVENUE IS ALSO REJECTED BECAUSE, THIS ISSUE REGARDING DELAYED PAYMENT OF EMPLOYERS CONTRIBUTIO N TO PF IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONB LE APEX COURT RENDERED IN THE CASE OF ALOM EXTRUSIONS (SUPRA). 24. THE GROUND NO.2 OF THE REVENUE IS APPEAL IS AS UNDER: 2. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN GIVING DIRECTION TO ALLOW CLAIM OF RS.35,15,610/- B EING OLD BALANCE WRITTEN OFF. THE ASSESSEE HAD WRITTEN OFF ONLY RS. 3,76,296/- IN P&L A/C. AND REMAINING AMOUNT WAS SET OFF AGAINST CREDI T BALANC3E WRITTEN OFF, THOUGH IT WAS REQUIRED TO TREAT THE AL LOWABILITY OF SUNDRY CREDIT BALANCE WRITTEN OFF AS PER SECTION 41(1) AND DEBIT BALANCE WRITTEN OFF AS PER SECTION 36(1)(VII). 25. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER, WHEREAS, THE LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF T HE LEARNED CIT(A). HE ALSO SUBMITTED THAT THIS ISSUE IS NOW COVERED IN FA VOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF TRF LTD., AS REPORTED IN 323 ITR 397 (SC). 26. WE HAVE CONSIDERED RIVAL SUBMISSIONS, AND SINCE THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE J UDGMENT OF THE HONBLE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -10- APEX COURT RENDERED IN THE CSE OF TRF LTD. (SUPRA), THIS GROUND OF THE REVENUE IS REJECTED. 27. THE GROUND NO.3 OF THE REVENUE IS AS UNDER: 3. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN GIVING DIRECTION TO ALLOW CONSULTANCY FEES OF RS.11 .66 LAKHS IN A.Y.2003-04 AND RS.58.34 LACS IN A.Y.2004-05, THOUG H ASSESSEE HAS FAILED TO ESTABLISH THAT ANY SERVICES WERE RENDERED TO IT. 28. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER, WHEREAS IT WAS SUBMITTED BY THE AR OF THE ASSESSEE THAT THIS ISSUE IS INTERCONNECTED WITH GROUND NO.2 RAISED BY THE ASSESSEE IN THE CO. HE S UBMITTED THAT OUT OF TOTAL AMOUNT PAID BY THE ASSESSEE OF RS.70 LAKHS, T HE CIT(A) HAS ALLOWED DEDUCTION IN THE PRESENT YEAR OF ONLY RS.11.66 LAKH S AND THE BALANCE AMOUNT OF RS.58.34 LAKHS WAS DISALLOWED BY THE LD.C IT(A). HE SUBMITTED THAT SINCE ENTIRE AMOUNT WAS PAID BY THE ASSESSEE I N THE PRESENT YEAR, AS PER THE AGREEMENT EXECUTED IN THE PRESENT YEAR, AND THE ASSESSEE IS NOT ELIGIBLE TO GET ANY REFUND, EVEN IF THE ASSESSEE TERMINATES THE AGREEMENT, THE ENTIRE AMOUNT SHOULD BE ALLOWED IN THE PRESENT YEAR ITSELF . 29. WE HAVE CONSIDERED RIVAL SUBMISSIONS, AND WE HA VE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. AS PER THE FA CTS OF THE PRESENT CASE, NOTED BY THE AUTHORITIES BELOW, THE AGREEMENT WAS E NTERED INTO BY THE ASSESSEE FOR CONSULTANCY FOR CONSIDERATION OF RS.70 LAKHS ON 21.1.2003 AND AS PER THIS AGREEMENT, ENTIRE AMOUNT WAS REQUIRED T O BE PAID IN THE PRESENT YEAR, AND WAS PAID BY THE ASSESSEE ACCORDINGLY. BU T THE AGREEMENT IS FOR A PERIOD OF 12 MONTHS. ACCORDINGLY, THE LEARNED CIT( A) HAS ALLOWED THE DEDUCTION TO THE EXTENT OF RS.11.66 LAKHS ON PROPOR TIONATE BASIS, AND IT WAS HELD BY HIM THAT THE BALANCE AMOUNT OF RS.58.34 LAK HS IS ALLOWABLE IN THE NEXT YEAR I.E. A.Y.2004-2005. THE ENTIRE AMOUNT WA S DISALLOWED BY THE AO ON THIS REASONING THAT AS PER THE RECIPIENT I.E. EQUINOX BRANDS PVT. LTD., ONLY AN AMOUNT OF RS.11.66 LAKHS WAS DECLARED AS IN COME BY THAT PARTY IN ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -11- THE PRESENT YEAR. WE HAVE ALSO NOTED FROM THE ASSE SSMENT ORDER THAT ONE OF THE DIRECTORS OF THAT COMPANY I.E. SHRI NAISHAD PAR IKH WAS ERSTWHILE MD OF THE ASSESSEE-COMPANY. THIS IS ONE OF THE OBJECTION S OF THE AO THAT THE ASSESSEE NEITHER EXPLAINED THE BUSINESS EXPEDIENCY OF THE PAYMENT NOR HE HAS PROVIDED ANY COGENT EVIDENCE REGARDING THE ACTU AL SERVICES RENDERED BY EQUINOX BRANDS P. LTD. BEFORE US, IT WAS SUBMITTED BY THE AR OF THE ASSESSEE THAT SERVICES WERE RENDERED IN THE FORM OF CONSULTANCY, ADVISORY SERVICES ETC. FOR WHICH THERE CANNOT BE ANY EVIDENC E IN THE FORM OF ANY PAPER ETC., AND THEREFORE, THIS REASONING IS NOT VA LID FOR MAKING DISALLOWANCE. REGARDING THIS ASPECT THAT ONLY AN A MOUNT OF RS.11.66 LAKHS WAS SHOWN AS INCOME BY THE RECIPIENT, IT WAS SUBMIT TED BEFORE US BY THE AR THAT THE PARTY HAS ACCOUNTED FOR INCOME ON ACCRU AL BASIS, WHEREAS THE ASSESSEE HAS CLAIMED THE ENTIRE AMOUNT AS EXPENDITU RE ON THIS BASIS THAT ENTIRE AMOUNT IS SPENT IN THE PRESENT YEAR ITSELF A ND AS PER THE AGREEMENT, THE ASSESSEE IS NOT ELIGIBLE FOR ANY REFUND, EVEN I N CASE OF TERMINATION OF THE AGREEMENT BY THE ASSESSEE. IN OUR CONSIDERED OPINI ON, IN THE FACTS OF THE PRESENT CASE, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE, BECAUSE, IT IS NOT THE CASE OF THE R EVENUE THAT THIS PARTY IS A RELATED PARTY, AND HENCE, IT CANNOT BE ACCEPTED THA T THE ASSESSEE HAS ENTERED INTO THIS AGREEMENT AND PAID THIS AMOUNT TO THIS PA RTY WITHOUT OBTAINING ANY SERVICES ESPECIALLY, WHEN THE ASSESSEE HAS INCURRED A LOSS OF RS.32,87,13,169/- IN THE PRESENT YEAR. EVEN AFTER MAKING VARIOUS ADJUSTMENTS, THE INCOME ASSESSED BY THE AO IS ALSO AT A LOSS AND HENCE, IT IS NOT ACCEPTABLE THAT IN THE FACTS OF THE PRESENT CAS E, THIS EXPENSE BY THE ASSESSEE IS BOGUS EXPENSE. 30. REGARDING THE ARGUMENT THAT FULL AMOUNT TO BE A LLOWED IN THE PRESENT YEAR, WE FEEL THAT THE LD.CIT(A) HAS ALLOWED THE PR OPORTIONATE AMOUNT OF RS.11,66,670/- IN THE PRESENT YEAR, AND HELD THAT T HE BALANCE AMOUNT IS ALLOWABLE IN THE NEXT YEAR. WE, THEREFORE, CONFIRM THE ORDER OF THE LD. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -12- CIT(A) ON THIS ISSUE, AND ACCORDINGLY, THE GROUND N O.3 OF THE REVENUE AND THE GROUND NO.2 OF THE ASSESSEES CO ARE REJECTED. 31. THE GROUND NO.4 OF THE REVENUES APPEAL IS AS U NDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN GIVING DIRECTION TO REDUCE INVENTORY BY RS.3.70 CRO RES BEING PROVISION FOR OBSOLESCENCE OF INVENTORY THOUGH ASSE SSEE ITSELF HAS ADDED BACK THE SAME IN STATEMENT OF INCOME WHICH WA S CLAIMED ORIGINALLY IN P&L A/C. BY IT. 32. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER, AND THE AR SUPPORTED THE ORDER OF THE LEARNED CIT(A). 33. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY THE LEARNED CIT(A) ON THIS BASIS THAT TH E ASSESSEE HAS CLAIMED THIS AMOUNT AS PER THE NORMAL PRACTICE OF VALUATION OF CLOSING STOCK AS PER THE AUDITED ACCOUNTS AND IT IS AN OMISSION ON THE P ART OF THE AO NOT TO HAVE DEALT WITH THIS ISSUE. THE LD.CIT(A) HAS DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE SUBJECT TO THE ASSESSEE FURNISHING THE COMPLETE PARTICULARS IN THIS REGARD, IF NECESSARY, WITH ADEQUATE PROOF. HE NCE, IN OUR CONSIDERED OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE, BECAUSE HE HAS TAKEN PROPER CARE TO ENSURE T HAT ALL THE DETAILS AND EVIDENCES ARE OBTAINED AND ARE EXAMINED BY THE AO A ND ONLY THEREAFTER, DEDUCTION IS TO BE ALLOWED, IF THE ASSESSEE IS ABLE TO ESTABLISH BEFORE THE AO THAT SUCH WRITE OFF IN RESPECT OF PROVISION FOR OBS OLESCENCE OF INVENTORY CLAIMED BY THE ASSESSEE IS IN LINE WITH THE ACCEPTE D METHOD OF VALUATION OF STOCK, I.E. AT COST OR MARKET PRICE, WHICHEVER IS L OWER. HENCE, THIS GROUND NO. 4 OF THE REVENUE IS ALSO REJECTED. 34. THE GROUND NOS.5, 6, 7 AND 8 OF THE REVENUES A PPEAL ARE IN RELATION TO VARIOUS ADJUSTMENTS MADE BY THE AO IN RESPECT OF TRANSFER PRICING AS PER THE ORDER OF THE TPO, WHICH HAS BEEN DELETED BY THE LEARNED CIT(A). THEREFORE, THESE GROUNDS ARE DECIDED TOGETHER. R EGARDING THIS ISSUE, THE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -13- LEARNED DR OF THE REVENUE HAS FURNISHED WRITTEN SUB MISSIONS DATED 7.12.2012, AND THE SAME ARE REPRODUCED BELOW FOR TH E SAKE OF READY- REFERENCE. A. ADDITION ON ACCOUNT OF ROYALTY PAYMENT: A.I IN THIS CASE ADDITION WAS MADE BY THE TPO, AFT ER COMPARING THE RATE OF ROYALTY PAID BY OTHER ASSOCIATE ENTERPR ISES WITH THE RATE PAID BY THE ASSESSEE, USING INTERNAL COMPARABLE UNC ONTROLLED TRANSACTION (CUP) METHOD. IN THE TP ANALYSIS, THE A SSESSEE DID NOT BENCHMARK THIS TRANSACTION AND SUBMITTED THAT THE R OYALTY RATE IS COMPARABLE TO THE ROYALTY PAYMENTS IN INTERNATIONAL MARKET. IT WAS FURTHER SUBMITTED THAT THE PAYMENT IS APPROVED BY T HE RBI. THESE ARGUMENTS WERE REJECTED BY THE TPO. A.2 IN THE TP ANALYSIS THE ASSESSEE DID NOT BRING ANY DOCUMENTS TO JUSTIFY ITS CLAIM OF THE ROYALTY RATE BEING IN C ONSONANCE WITH THE INTERNATIONAL ROYALTY RATES. THE ONUS FOR SELECTING THE MOST APPROPRIATE METHOD AND DEMONSTRATE THE CARRYING OUT TRANSACTIONS AT ARM'S LENGTH PRICE LIES ON THE ASSESSEE. THE SAME I S FORTIFIED BY THE JUDGEMENT DELIVERED IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD VS ACIT CIR.11 (1) (2007) 107 ITO 141 (BANG) (SB). THE RELEVANT PORTION IS REPRODUCED BELOW: THE BURDEN IS ON THE ASSESSEE TO SELECT THE MOST AP PROPRIATE METHOD (MAM). THIS DECISION OF SELECTING MAM IS TO HE SUBSTANTIATED BY THE ASSESSEE BY AN APPROPRIATE DOC UMENTATION AS WELL AS BY SUBSTANTIATING WHY A PARTICULAR METHOD I S CONSIDERED TO BE BEST SUITED IN THE FACTS AND CIRCUMSTANCES OF TH E INTERNATIONAL TRANSACTION AND AS TO HOW IT PROVIDES THE MOST RELI ABLE RESULT OF A LP. RULE 10C(2) OF THE INCOME-TAX RULES LAYS DOWN T HE FACTORS TO HE CONSIDERED IN SELECTION OF MAM. [PARA 121].... HAVING REGARD TO ABOVE STATUTORY PROVISIONS, IT IS CLEAR THAT HUNTER TO ESTABLISH THAT INTERNATIONAL TRANSACTION WAS CAR RIED AT ALP IS ON THE TAXPAYER. HE HAS ALSO TO FURNISH COMPARABLE TRA NSACTIONS, APPLY APPROPRIATE METHOD FOR DETERMINATION OF ALP A ND JUSTIFY THE SAME BY PRODUCING RELEVANT MATERIAL AND DOCUMENTS B EFORE THE REVENUE AUTHORITIES [PARA 127] A.3 BY FAILING TO PROVIDE THE APPROPRIATE DOCUMENT ATION, THE BENCH MARKING CARRIED OUT BY THE ASSESSEE IS INCORR ECT AND FLAWED. FURTHER THE CLAIM THAT IT131 APPROVAL IS SUFFICIENT FOR TREATING IT AS A COMPARABLE UNCONTROLLED TRANSACTION IS ALSO INCOR RECT, AS HAS ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -14- BEEN HELD IN A SERIES OF JUDGEMENTS, AS DESCRIBED B ELOW: I. CUSTOM'S VALUATION HAS NO RELEVANCE FOR THE PURPOSE S OF CHAPTER X AS BOTH ARE FILE DIFFERENT PURPOSES AND D IFFERENT CRITERIA ARE USED (PARA 37). PANASONIC INDIA P. LTD . 43 SOT 68(DEL) II. THE CONTENTION THAT ACCORDING TO THE PERMISSION GRA NTED BY THE RESERVE FLANK OF INDIA UNDER THE FERA, THE ASSE SSEE CANNOT CHARGE MORE THAN PARTICULAR PRICE, CAN ALSO NOT CONTROL THE PROVISIONS OF THE ACT, WHICH PROVIDES F OR TAXING THE INCOME AS PER THE SAID PROVISION OR COMPUTATION OF INCOME, HAVING REGARD TO ARM'S LENGTH PRICE IN ANY INTERNAT IONAL TRANSACTION, AS DEFINED.(PARA 54). COCA COLA INDIA INC. VS ACIT 309 ITR 194. III. ........ WE ARE. OF THE VIEW THAT THE TRIBUNAL IS N OT CORRECT IN OBSERVING THAT SINCE THE PERMISSION IS GIVEN BY THE RESERVE BANK OF INDIA, THE REASONABLENESS AND GENUINENESS O F THE EXPENDITURE COULD NOT HAVE BEEN GONE INTO BY THE AS SESSING OFFICER. THE PURPOSE FOR WHICH SUCH PERMISSION IS G IVEN BY THE RBI IS TOTALLY DIFFERENT. THE RBI IS ONLY CONCERNED WITH THE FOREIGN EXCHANGE AND. THEREFORE, WOULD LOOK INTO TH E MATTER FROM THAT POINT OF VIEW. THE RBI, AT THE TIME OF GI VING SUCH PERMISSION WOULD NOT KEEP IN MIND THE PROVISIONS OF THE INCOME-TAX ACT AND THAT IS THE FUNCTION OF THE INCO ME-TAX AUTHORITIES AND, THEREFORE, THEY CAN VALIDLY GO INT O SUCH AN ISSUE. (PARA 15). CIT VS NESTLE INDIA LTD, 337 ITR 103 (DEL). V. MERELY BECAUSE ANOTHER ARM OF THE GOVERNMENT CON SIDERS THE PRICE AT AN ALP (CUSTOMS EVALUATION), THE 'A' CANNO T BE RELIEVED OF THE BURDEN OF ESTABLISHING THAT ITS PRI CE WAS AT THE ARM'S LENGTH, UNDER THE IT ACT. SERDIA PHARMACEUTIC ALS (INDIA) P. LTD., 44 SOT 391 (MUM) V. 'FURTHERMORE, AS RIGHTLY OBSERVED BY THE ID. CI T(A) RBI'S APPROVAL DOES NOT PUT A SEAL OF APPROVAL ON THE TRI TE CHARACTER OF THE TRANSACTION FUME THE PERSPECTIVE OF TRANSFER PRICING REGULATION AS THE SUBSTANCE OF THE TRANSACTION HAS TO BE JUDGED AS TO WHETHER THE TRANSACTION IS AT ARM'S LENGTH OR NOT. ' PEROT SYSTEMS TSI (INDIA) LTD VS DCIT 37 SOT 358, A.4 THUS THE ASSESSEE DID NOT BENCHMARK THE INTERN ATIONAL TRANSACTION PROPERLY AND THUS THE TPO UTILIZED THE INFORMATION AVAILABLE WITH HIM FOR DETERMINING THE ALP FOR WHIC H HE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -15- UTILIZED THE ROYALTY PAYMENTS MADE BY OTHER ASSOCIA TE ENTERPRISES. IN THE ABSENCE OF CORRECT DETERMINATIO N BY THE ASSESSEE AND INSISTENCE ON INCORRECT POSITION ADOPT ED BY IT THE TPO HAD NO CHOICE BUT TO UTILIZE THE INFORMATION AV AILABLE WITH HIM. SUCH USE OF INFORMATION IS APPROVED IN THE CAS E OF AZTEC TECHNOLOGICS(SUPRA). THERE WOULD BE CASES, INHERE TAXPAYER DOES NOT COOP ERATE AND FAILS TO FURNISH ALP OR DISCLOSE FURL/ INFORMATION, RELEVANT/OR DETERMINATION OF ALP WHEN CALLED UPON TO DO SO BY T AX AUTHORITIES. THE TAXPAYER FLAILS TO DISCHARGE BURDE N PLACED ON THE TAXPAYER. IN SIMILAR ENACTMENTS OF OTHER COUNTR IES, IT IS PROVIDED THAT BURDEN ON THE REVENUE AUTHORITIES IN SUCH A CASE WOULD HE REDUCED. WE HAVE NOT COME ACROSS SIMILAR P ROVISION IN CHAPTER X OF THE ACT. THE TAX AUTHORITIES THERE/ ORE, HAVE TO RESORT TO PROVISION OF, SECTION 144 OF THE INCOME-T AX ACT AND DETERMINE THE ALP ON THE BASIS OF THE MATERIAL COLL ECTED OR AVAILABLE ON RECORD. IN SUCH CIRCUMSTANCES. THE ALP DETERMINED WOULD HE ON THE PARITY WITH A BEST JUDGM ENT ASSESSMENT. SUCH ASSESSMENT (DETERMINATION OF ALP) WOULD HAVE SOME APPROXIMATIONS AND ESTIMATIONS.[PARA 134] A.5 SINCE THE ASSESSEE COULD NOT PRODUCE ANY COMPAR ABLE CASE, THE TPO COULD NOT FIND ANY EXTERNAL COMPARABLES, HE RESORTED TO THE USE OF INTERNAL COMPARABLES, EVEN THOUGH CON TROLLED AND BENCHMARKED THE ROYALTY PAYMENT. THE USE OF CONTROL LED TRANSACTIONS IN THE ABSENCE OF ANY COMPARABLES IS A PPROVED BY THE HONBLE TRIBUNAL IN THE CASE OF BAYER MATERIALS SCIENCE PVT. LTD., 46 SOT 46 (MUM) A.6 AS FAR AS THE CONTENTION OF THE ASSESSES BEFORE THE CIT (A) THAT IT HAD PAID LESS ROYALTY AFTER TAKING OUT CERTAIN FROM THE CALCULATION, IT IS SEEN THAT THE CIT(A)DELETED THE ADDITION AFTER OBSERVING THAT ON THE BASIS OF THE CHART SUBM ITTED BY THE ASSESSEE, THE ROYALTY PAID BY IT WAS LESS THAN THE PAYMENT MADE BY THE OTHER ASSOCIATE ENTERPRISES. FIRST OF ALL TH E ASSESSEE DID NOT PRODUCE THE ROYALTY AGREEMENTS ENTERED INTO WIT H OTHER ENTITIES FOR COMPARISON AND THE BASIS, REASON AND C ALCULATION OF THE DEDUCTIONS FOR ASSESSEE AND OTHERS WERE NOT PROVIDED. THUS THE OBSERVATION OF THE ID CIT(A) THAT THE ASSE SSEE HAD DEMONSTRATED ITS ROYALTY PAYMENT TO BE LESS IS INCO RRECT AS WAS IT STILL UNSUBSTANTIATED AND THE ID CIT(A) DELETED THE ADDITION, ON THE BASIS OF THE CHART PRODUCED BY (LIE ASSESSEE , WITHOUT ASCERTAINING THE BASIS OF THE CALCULATION OR SENDIN G ANY REPORT TO THE AO/TPO. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -16- A.7 IN ADDITION TO THE ABOVE, IN RESPECT OF ROYALTY PAYMENTS IT IS ABSOLUTELY IMPORTANT TO KNOW THAT THE ROYALTY IS GE NERALLY PAID AS REMUNERATION FOR THE GRANT OF INTANGIBLES SUCH A S LICENSES. TECHNICAL KNOW-HOW, TECHNICAL ASSISTANCE, TRADE MAR KET ETC. BY ONE ENTITY TO THE OTHER. THE REASON FOR PAYMENT OF ROYALTY IS TO COMPENSATE THE ENTITY DEVELOPING THE INTANGIBLES FO R THE EFFORTS PUT IN BY IT FOR THE DEVELOPMENT OF SUCH INTANGIBLE S. SINCE THE PAYMENT OF ROYALLY IS FOR THE USAGE OF SUCH INTANGI BLES, THE CALCULATION FOR PAYMENT OF ROYALTY SHOULD BE SUCH T HAT IT SHOULD TAKE INTO ACCOUNT THE USAGE FOR THE INTANGIBLE ASSE TS PROVIDED BY THE ENTITY RECEIVING ROYALTY, THE ROYALLY CALCUL ATION CANNOT AND SHOULD NOT TAKE INTO ACCOUNT THE REVENUES EARNE D BY THE ENTITY PAYING ROYALTY, ON ACCOUNT OF ITS OWN EFFORT S. THEREFORE, IN ORDER TO COMPARE THE ROYALTY PAYMENTS MADE BY TW O DIFFERENT ENTITIES, THE MOST IMPORTANT ASPECT IS TO FIND OUT THE EXTENT OF VALUE ADDITION IN THE SALE OF PRODUCT WHI CH MANDATES THE PAYMENT OF ROYALTY. SINCE DIFFERENT TECHNOLOGIE S, DIFFERENT TECHNICAL KNOW-HOW FOR THE MANUFACTURE OF THE PRODU CTS MAY BE INVOLVED IN THE ROYALTY AGREEMENTS: THE ROYALTY PAYMENT FOR MANUFACTURING IS MADE AS PERCENTAGE OF DIFFERENT SA LES BASE. HOWEVER IT MUST BE KEPT IN MIND THAT THE RELEVANT B ASE SHOULD BE SUCH WHICH SHOULD BEST CAPTURE THE VALUE ADDITIO N INCURRED AS A RESULT OF THE USE OF INTANGIBLES. A.7.1 THE METHODS FOR CALCULATION OF SUCH VALUE ADD ITION VARY IN DIFFERENT COUNTRIES. THE METHOD FOR SUCH CALCULA TION FOR ENTITIES SITUATED IN INDIA IS PRESCRIBED BY THE GOV ERNMENT AUTHORITIES AND THE BASIS OF ROYALTY CALCULATION IS NET SALES SUBJECT' TO TAXES'. THE PHRASE 'NET SALES SUBJECT T O TAXES' MEAN THAT ROYALTY IS PAYABLE ON NET SALES SUBJECT TO WIT HHOLDING TAXES AS APPLICABLE. FURTHER THE WORDS 'NET SALES' MEAN N ET EX FACTORY SALE PRICE OF THE PRODUCT EXCLUSIVE OF EXCI SE DUTIES MINUS THE COST OF STANDARD BOUGHT OUT COMPONENTS AN D LANDED COST OF IMPORTED COMPONENTS, IRRESPECTIVE OF THE SO URCE OF PROCUREMENT INCLUDING OCEAN FREIGHT, INSURANCE, CUS TOM DUTIES ETC. FROM THE PRESCRIBED CALCULATION IT CAN BE SEEN THAT THE VALUE OF SALE OF FINAL PRODUCT IS REDUCED BY THE AM OUNT CORRESPONDING TO THE PRODUCTS/SERVICES NOT UTILIZIN G THE ROYALTY PAID INTANGIBLES. SINCE THE COST OF STANDARD BOUGHT OUT COMPONENTS AND COST OF IMPORTED GOODS HAVE NO ROLE TO PLAY IN VALUE ADDITION TO THE FINAL PRODUCT ON THE BASIS OF THE INTANGIBLES RECEIVED THROUGH ROYALTY AGREEMENT, THE SAME ARE REDUCED FOR CALCULATING THE APPROPRIATE BASE. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -17- A.8 THEREFORE IT IS IMPERATIVE THAT THE ROYALTY AG REEMENTS OF THE ROYALTY PAYMENTS MADE BY OTHER AES BE EXAMIN ED AND THE BASIS AND APPROPRIATENESS OF THE CALCULATION MA DE BY THE ASSESSEE IS ESTABLISHED. SINCE THE ID CIT(A) HAS DE LETED THE ADDITION WITHOUT SUCH EXAMINATION, THE DELETION IS UNJUSTIFIED. IT IS PERTINENT TO MENTION THAT MERELY BY FINDING F AULTS WITH THE BENCHMARKING EXERCISE BEING CARRIED OUT BY THE TPO, THE BENCHMARKING CARRIED OUT BY THE ASSESSEE CAN'T BE A CCEPTED. THE APPELLATE AUTHORITIES ARE REQUIRED TO RECORD A FINDING THAT THE BENCHMARKING CARRIED OUT BY THE ASSESSEE IS COR RECT BEFORE DELETING THE ADDITION. THIS PROPOSITION IS ENUMERAT ED BY THE JUDGEMENT DELIVERED BY THE HONBLE TRIBUNAL IN THE CASE OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. VS. ACIT CIR.11 (1) (2007) 107 ITO 141 (BANG) (SB). THE RELEVANT PO RTION OF THE SAME IS REPRODUCED BELOW: HAVING REGARD TO THE PURPOSE OF THE LEGISLATION AND APPLICATION OF SIMILAR ENACTMENT WORLD OVER, IT MUS T FURTHER BE HELD THAT ADJUSTMENTS MADE ON ACCOUNT OF ALP BY TAX AUTHORITIES CAN HE DELETED IN APPEAL AL ONLY IF THE APPELLATE AUTHORITIES ARE SATISFIED AND RECORD FINDING THAT A LP SUBMITTED BY THE ASSESSEE IS FAIR AND REASONABLE. M ERELY FINDING FAULTS WITH THE TRANSFER PRICE DETERMINED B Y THE REVENUE AUTHORITIES (AO/TPO) ADDITION ON ACCOUNT OF 'ADJUSTMENTS' CANNOT HE DELETED. THIS IS BECAUSE TH E MANDATE OF SECTION 92(1) IS THAT IN EVERY CASE OF INTERNATI ONAL TRANSACTION, INCOME HAS TO BE DETERMINED HAVING REG ARD TO ALP. THEREFORE, UNLESS ALP FURNISHED BY THE TAXPAYE R IS SPECIFICALLY ACCEPTED, THE APPELLATE AUTHORITIES ON THE BASIS OF MATERIAL AVAILABLE ON RECORD HAVE TO DETERMINE ALP THEMSELVES. SUBJECT TO STATUTORY PROVISIONS, APPEL LATE AUTHORITIES CAN DIRECT LOWER REVENUE AUTHORITIES TO CARNE THIS EXERCISE IN ACCORDANCE WITH LAW. THE MATTER CANNOT HE LEFT HANGING IN BETWEEN. ALP OF INTERNATIONAL TRANSACTIO N HAS TO HE DETERMINED IN EVERY CASE. [PARA 133]' A.9 IN THIS CASE, AS DISCUSSED ABOVE, THE ID CIT(A ) HAS WRONGLY HELD THAT THE BENCHMARKING CARRIED OUT BY T HE ASSESSEE IS CORRECT, WITHOUT MAKING APPROPRIATE EXA MINATION OF THE CALCULATIONS SUBMITTED BY THE ASSESSES. THUS IT IS PRAYED THAT THE APPEAL OF THE REVENUE RELATED TO THE DELET ION OF ROYALTY BY THE CIT'(A) BE UPHELD. B. ADDITION ON ACCOUNT OF PURCHASES ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -18- B.1I THE ASSESSEE BENCH MARKED PURCHASE TRANSACTION S, FROM ASSOCIATE ENTERPRISE USING COMPARABLE UNCONTRO LLED PRICE (CUP ) METHOD. IN THE PROCEEDING, THE TPO THA T THE ASSESSEE RELIED ON SINGLE OR AT BEST TWO QUOTATIONS FOR BENCH MARKING. IT WAS FURTHER OBSERVED THAT THE SAME WER E UNSUBSTANTIATED AND COULD NOT CONSIDER AS REPRESENT ATIVE OF PRICE PREVAILING IN THE MARKET. ON THIS BASIS COMPA RABLE UNCONTROLLED PRICE METHOD WAS REJECTED AS THE MOST APPROPRIATE METHOD AND TNMM WAS CONSIDERED AS THE M OST APPROPRIATE METHOD FOR BENCH MARKING THE PURCHASE TRANSACTIONS. COMPARABLE UNCONTROLLED PRICE METHOD REQUIRES VERY STRICT CONDITIONS OF COMPARABILITY AS EVEN THE SLIGHT DIFFERENCE IN THE CONDITIONS LEAD TO HUGE DIFFERENC E IN THE PRICE: THUS AFFECTING THE RELIABILITY OF CUP METHOD . IN THIS RESPECT, RELIANCE IS PLACED ON PARA 2.15 OF OECD TR ANSFER PRICING GUIDELINES FOR MULTI-NATIONAL ENTERPRISE AN D TAX ADMINISTRATION JULY 2010. IT MAY BE DIFFICULT TO FIND A TRANSACTION BETWEEN I NDEPENDENT ENTERPRISES THAT IS SIMILAR ENOUGH TO A CONTROLLED TRANSACTION SUCH THAT NO DIFFERENCE HAVE A MATERIAL EFFECT ON P RICE. FOR EXAMPLE, A MINOR DIFFERENCE IN THE PROPERTY TRANSFE RRED IN THE CONTROLLED AND UNCONTROLLED TRANSACTIONS COULD MATERIALLY AFFECT THE PRICE EVEN THOUGH THE NATURE OF THE BUSINESS ACTIVITIES UNDERTAKEN MAR BE SUFFICIENTLY SIMILAR TO GENERATE THE SAME OVERALL PROFIT MARGIN. B.2 FURTHER, AS PER PROVISIONS OF RULE 10 B(3)(I) T HE COMPARABILITY OF THE UNCONTROLLED TRANSACTIONS IS T O BE EXAMINED IN LIGHT OF SUCH DIFFERENCES WHICH SHOULD NOT AFFECT THE PRICE IN THE OPEN MARKET. IT IS A COMMON KNOWLE DGE THAT THE FACTORS SUCH AS VOLUME OF TRANSACTION, CREDIT PERIO D, ETC. AFFECT THE PRICE OF THE PRODUCT IN THE MARKET BY OBTAINING QUOTATIONS, THE EFFECT OF SUCH FACTORS IS NOT QUANTIFIED AND AS CERTAINED. FURTHER, THE ASSESSEE ALSO DID NOT PROVIDE ANY DOCU MENT TO SUBSTANTIATE THAT WHILE OBTAINING THE QUOTATIONS, A LL SUCH FACTORS WERE TAKEN INTO ACCOUNT AS PER THE REQUIREM ENT OF RULE 10B(3) OF THE ACT. AS A RESULT OF THE SAME, THE USE OF CUP AS THE MOST APPROPRIATE METHOD IS INCORRECT IN THIS CA SE. THE SELECTION OF THE MOST APPROPRIATE METHOD BY THE ASS ESSEE IS INCORRECT AND IT IS ALSO IMPORTANT TO NOTE THAT THE CHOICE OF MOST APPROPRIATE METHOD BY THE ASSESSES IS NOT AN U NFETTERED RIGHT OF THE ASSESSEE. THE SAME NEEDS TO BE SUSTAIN ABLE IN LAW. THIS PROPOSITION IS HELD IN FOLLOWING JUDGEMENTS: ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -19- I. COCA COLA INDIA INC VS. ACIT (2009) 177 TAXMAN 1 03 (PUNJ. & HAR.) ..............THE INCOME ARISING FROM INTERNATIONAL TRANSACTION IS TO BE COMPUTED HAVING REGARD TO ARM 'S LENGTH PRICE AS PER GUIDELINES LAID DOWN IN SECTION 92C BY ADOPTING ONE OF THE LAID CLOWN METHODS, AT THE DISCRETION OF THE COMPETENT A UTHORITY. ALERT' FACT THAT THE ASSESSEE HAS CHOSEN ONE OF THE SAID METHODS, DOES NOT TAKE AWAY THE DISCRETION OF T THE COMPETENT AUTHORITY TO SELECT ANY OTHER METHOD WHICH MAY BE C ONSIDERED TO HE MORE APPROPRIATE FOR THE PURPOSE OF DETERMINING THE TRUE INCOME ................[PARA 52] II. SAP LABS INDIA (P.) LTD. VS ACIT [2011] SOT 156 (BANG.) SECTION 92C OF THE INCOME-TAX ACT, 1961 TRANSFER PRICING - COMPUTATION OF UNIT ARM'S LENGTH PRICE - ASSESSMENT YEAR 2003-04 - WHETHER WHILE DETERMINING ALP, SHIFTING F ROM ONE METHOD TO ANOTHER METHOD IN SELECTION PROCESS OF MO ST APPROPRIATE METHOD IS INHERENT IN A TRANSFER PRICIN G CASE - HELD, YES III. SERDIA PHARMACEUTICALS (INDIA) (P.) LTD VS ACIT [20 11] 44 SOT 391 (MUM.) SECTION 92C, READ WITH SECTION 92CA, OF THE INCOME- TAX ACT, 1961, AND RULE 10C OF THE INCOME-TAX RULES, 1962 - TRANSFER PRICING - COMPUTATION OF ARM'S LENGTH PRICE - ASSES SMENT YEARS 2002-03 TO 2004-05 - WHETHER IN A SITUATION WHERE A SSESSING OFFICER FINDS THAT SELECTION OF MOST APPROPRIATE ME THOD FOR DETERMINING ARMS LENGTH PRICE (ALP) BY ASSESSEE IS NOT APPROPRIATE TO ALL RELEVANT 7BCTORS, HE HAS POWERS AND INDEED A CORRESPONDING DUTY TO SELECT MOST APPROPRIATE MET HOD, AND COMPUTE ARM'S LENGTH PRICE BY APPLYING THAT METHOD - HELD. YES - WHETHER IT IS NOT NECESSARY FOR ASSESSING OFFICER TO DEMONSTRATE ALP COMPUTED BY ASSESSEE IS NOT COMPUTE D IN MANNER PRESCRIBED BY REGULATIONS, SO AS TO REJECT M ETHOD CHOSEN BY ASSESSEE HELD, YES -WHETHER SELECTION O F MOST APPROPRIATE METHOD OF COMPUTING ARM'S LENGTH PRICE IS A SIGNIFICANT COMPONENT OF PROCESS OF DETERMINING ARM 'S LENGTH PRICE AND ASSESSEE HAS TO JUSTIFY SAME ON SOUND REA SONING AND HE CANNOT SIMPLY PICK UP ANY OF SPECIFIED METHOD WI THOUT DISCHARGING ONUS OF DEMONSTRATING THAT METHOD SO SE LECTED IS ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -20- INDEED MOST APPROPRIATE TO FACTS OF CASE - HELD, YE S - WHETHER ONCE ASSESSEE PLACES ON RECORD REASONS FOR SELECTIN G A PARTICULAR METHOD OF DETERMINING ARMS LENGTH PRICE THAT REASONING CAN BE DECLINED, THOUGH FOR COGENT REASON S, BY TRANSFER PRICING OFFICER, AND THAT ASPECT OF MATTER CAN BE CHALLENGED BEFORE APPELLATE AUTHORITIES - HELD, YES - WHETHER THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS AN U NLETTERED CHOICE OF CHOOSING METHOD FOR DETERMINATION OF ALP - HELD YES B.3 AS A RESULT OF THE ABOVE DISCUSSION IT BECOMES CLEAR THAT THE ASSESSEE HAS INCORRECTLY APPLIED THE MOST APPROPRIATE METHOD FOR BENCH MARKING THE TRANSACTIONS RELATED T O PAYMENT OF PURCHASES. IN THE TP PROCEEDINGS, THE TPO CHOSE TNMM AS THE MOST APPROPRIATE METHOD FOR BENCH MARKING THE P URCHASE PAYMENTS SINCE THE ASSESSEE FAILED TO PROVIDE THE D ETAILS ABOUT THE FACTORS AFFECTING THE COST IN OPEN MARKET AND T HUS MAKING CUP AS INAPPROPRIATE METHOD. AS DISCUSSED ABOVE. IN THE CASE OF AZTEC SOFTWARE AND TECHNOLOGY SERVICE LTD, THE S PECIAL BENCH HELD THAT THE BURDEN FOR SELECTION OF MOST AP PROPRIATE METHOD LIES ON THE ASSESSES. IN THIS CASE THE USE O F CPM (COST PLUS METHOD) AND RPM (RESALE PRICE METHOD) IS RULED OUT AS IT DOES NOT INVOLVE THE SALE OF PRODUCTS TO THE AE OR SIMPLY DISTRIBUTION OF THE PRODUCTS PURCHASED FROM THE AE. FURTHER SINCE THE ASSESSEE DOES NOT HAVE SUBSTANTIAL INTANG IBLES, THE USE OF PSM (PROFIT SPLIT METHOD) IS ALSO RULED OUT. THUS THE USE OF TNMM IS MOST APPROPRIATE IN THIS CASE. THE APPRO ACH OF THE TPO IN MAKING THE SELECTION OF COMPARABLE UNCONTROL LED TRANSACTION METHOD SIGNIFIES THE BEST POSSIBLE APPR OACH. IT IS ALSO PERTINENT TO MENTION HERE THAT TRANSFER PRICIN G IS NOT AN EXACT SCIENCE, IT IS AN ERRAND THEREFORE THE RIGOUR S SHOULD NOT BE APPLIED VERY STRICTLY. THIS PROPOSITION IS SUPPO RTED BY THE OBSERVATION MADE BY HON'BLE TRIBUNAL FOR JUDGEMENT IN THE CASE OF MENTOR GRAPHICS (NOIDA) (P.) LTD. VS. DEPUT Y COMMISSIONER OF INCOME-TAX, CIRCLE 6(1), NEW DELHI [2007] 109 ITD 101 (DELHI). HE RELEVANT HEAD NOTE FROM THE JUDGEMENT IS REPRODUCED BELOW: WHETHER 'TRANSFER PRICING' IS NOT ALL EXACT SCIENCE , EVALUATION OF TRANSACTIONS THROUGH WHICH PROCESS OF DETERMINAT ION IS CARRIED IS AN ART WHERE MATHEMATICAL CERTAINLY IS I NDEED NOT POSSIBLE AND SOME APPROXIMATION CANNOT BE RULED OUT , YET IT HAS TO BE SHOWN THAT ANALYSIS CARRIED WAS 'JUDICIAL ' AND WAS DONE AFTER TAKING INTO ACCOUNT ALL RELEVANT FACTS A ND CIRCUMSTANCES OF CASE - HELD, YES ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -21- B.4 THE ID. CIT(A) DELETED THE ADDITION BY OBSERVIN G THAT THE APPROACH FOLLOWED BY THE TPO IS INCORRECT AS THERE WERE DIFFERENCE IN THE CONSUMPTION OF RAW MATERIAL AS PE RCENTAGE OF SALE LIAR THE ASSESSEE AND THE COMPARABLES SELECTED BY THE TPO. THE TPO COMPARED THE PROFITS INSTEAD OF COST O F THE ITEMS, THE ARITHMETICAL MEAN WAS USED FOR DETERMINING THE ARMS LENGTH PRICE AND THE DIFFERENCE IN PROFIT MARGIN OF THE COMPARABLE SELECTED BY THE ASSESSING OFFICER WAS LA RGE. B.4. IN THIS RESPECT, IT IS SEEN THAT TRANSACTIONAL NET MARGIN METHOD (TNMM) IS BASED ON COMPARISON OF NET MARGIN EARNED BY THE ASSESSEE IN CONTROLLED TRANSACTION WITH THE NET MARGIN OF SIMILAR COMPARABLE UNCONTROLLED TRANSACTIONS. TH EREFORE, ONCE THE TNMM IS FOUND TO BE THE MOST APPROPRIATE M ETHOD, THE COMPARISON IS BOUND TO BE BETWEEN THE PROFIT MA RGIN AND NOT ON COST. THEREFORE THE OBSERVATION OF THE CIT(A ) IN THIS REGARD THAT THE TPO SHOULD HAVE COMPARED COST INSTE AD OF MARGIN IS MISPLACED. IT IS FURTHER SEEN THAT AS PE R THE PROVISIONS OF RULE 10B(2) THE COMPARABILITY OF TRAN SACTIONS IS DEPENDENT ON FUNCTIONS PERFORMED, ASSETS UTILISED, AND RISKS, UNDERTAKEN. IN TNMM, THE FUNCTIONS CARRIED OUT BY T HE COMPARABLES ARE MOST IMPORTANT AND IN CASE THE FUNC TIONS ARE FOUND TO BE COMPARABLE, THE VARIATIONS IN DIFFERENT LINE EXPENDITURES IN THE P & L ACCOUNT ARE NOT TAKEN INT O ACCOUNT. THIS IS BECAUSE IN TNMM. PROFITS ARE COMPARED AND T HE INDIVIDUAL EFFECT OF DIFFERENT EXPENDITURES OF PROF IT IS LESS. AS A MATTER OF FACT BECAUSE OF THIS REASON, TRANSACTIONA L NET MARGIN METHOD IS MORE RESILIENT TO EVEN SLIGHT DIFFERENCE IN THE FUNCTIONAL PROFILE. RELIANCE FOR THIS IS PLACED ON PARA 2.62 OF OECD GUIDELINES 2010. ONE STRENGTH OF THE TRANSACTIONAL NET MARGIN MET HOD IS THAT NET PROFIT INDICATORS (E.G. RETURN ON ASSET S, OPERATING INCOME TO SALES, AND POSSIBLY OTHER MEASURES OF NET PROFIT) ARE LESS AFFECTED BY TRANSACTIONAL DIFFERENCES THAN IS THE CASE WITH PRICE, AS USED IN THE CUP METHOD. NET PROFIT INDICA TORS ALSO MAY BE HE MORE TOLERANT TO SOUSE FUNCTIONAL DIFFERE NCE BETWEEN THE CONTROLLED AND UNCONTROLLED TRANSACTION S THAN GROSS PROFIT MARGINS. DIFFERENCES IN THE FUNCTIONS PERFORMED BETWEEN ENTERPRISES ARE OFTEN REFLECTED IN VARIATIO NS IN OPERATING EXPENSES. CONSEQUENTLY, THIS MAY LEAD TO A WIDE RANGE OF GROSS PROFIT MARGINS HILL STILL BROADLY SI MILAR LEVELS OF NET OPERATING PROFIT INDICATORS. IN ADDITION, IN SO ME COUNTRIES THE LACK CLARITY IN THE PUBLIC DATA WITH RESPECT TO THE CLASSIFICATION OF EXPENSES IN THE GROSS OR OPERATIN G PROFITS MAY ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -22- MAKE IT DIFFICULT TO EVALUATE THE COMPARABILITY OF GROSS MARGINS, WHILE THE USE OF NET PROFIT INDICATORS MAY AVOID THE PROBLEM. B.4.2 THEREFORE, THE OBSERVATION OF THE CIT(A) REGA RDING DIFFERENCE IN THE PERCENTAGES OF RAW MATERIAL VIS-A -VIS SALES BEING DIFFERENT IN CASE OF COIN PARABLES WILL NOT B E A SIGNIFICANT DETERMINANT IN THE TNMM ANALYSIS. B.4.3 THE CIT(A) ALSO OBSERVED THAT THERE WAS LARGE DIFFERENCE IN THE MARGIN OF COMPARABLES. IN THIS RE SPECT, IT IS AGAIN EMPHASIZED THAT THE COMPARABILITY IS DEPENDEN T UPON FAR ANALYSIS I.E. FUNCTIONS PERFORMED, ASSETS UTILI ZED, AND RISKS UNDERTAKEN. IN CASE THE ENTITIES ARE CONSIDERED COM PARABLE ON THESE GROUNDS, THE FACT THAT SOME OF THE COMPARABLE S HAVE VERY LOW OR VERY HIGH MARGIN DOES NOT IN ITSELF BECOME A FACTOR FOR NOT CONSIDERING THOSE ENTITIES AS COMPARABLE ENTITI ES. THIS PROPOSITION WAS UPHELD IN THE CASE OF EXXON MOBIL C O. INDIA PVT. LTD., 46 SOT 294 (MUM). 33 .... (XI)....... A GENERAL ARGUMENT THAT YOU HAVE TO EXC LUDE UNITS WHICH HAVE HIGH PROFIT RANGE, IN CASE YOU EXCLUDE U NITS HAVE MADE LOSS IS A GENERAL SUBMISSION WHICH CANNOT HE A CCEPTED, IN OTHER WORDS, AS A GENERAL PRINCIPLE, BOTH LOSS M AKING UNIT AND HIGH PROFIT MAKING UNIT CANNOT BE ELIMINATED FR OM THE COMPARABLES UNLESS, THERE ARE SPECIFIC REASONS FOR ELIMINATING THE SAME WHICH IS OTHER THAN THE GENERA L REASON THAT A COMPARABLE HAS INCURRED LOSS OR HAS MADE ABN ORMAL PROFITS. THUS, THIS GROUND IS DISMISSED' B.4.4 THEREFORE, THE OBSERVATION OF THE CIT(A) REG ARDING LARGE VARIATION IN THE PROFITS OF THE COMPARABLE IS ALSO NOT A FACTOR TO ASSAIL THE METHODOLOGY ADOPTED BY THE TPO . B.4.5 THE CIT (A) HAS OBSERVED THAT THE TPO HAS TAK EN ARITHMETIC MEAN OF THE PROFIT MARGINS OF THE COMPAR ABLES WHICH IS INCORRECT. IN THIS REGARD AGAIN IT IS SEEN THAT THE PROVISIONS OF THE PROVISO TO SECTION 92C(2) MANDATE S THE USE OF ARITHMETIC MEAN OF THE COMPARABLES FOR ASCERTAIN ING THE ALP AS SHOWN BELOW: 92C....... ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -23- (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB- SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED: [PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMI NED BY THE MOST APPROPRIATE METHOD THE ARM'S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES. THUS AGAIN THE RELIANCE OF THE CIT(A) ON THIS ISSUE FOR DELETION IS ALSO MISPLACED B.5 IT IS ALSO IMPORTANT TO NOTE THAT THE ASSESSES HAS NOT DISPUTED THE SELECTION OF COMPARABLE MADE BY THE TR ANSFER PRICING OFFICER. SINCE THE 1D. CIT(A) HAS DELETED THE ADDITIONS BY PLACING MIS-PLACED RELIANCE ON ISSUES EXTRANEOUS TO TRANSACTIONAL NET MARGIN METHOD AND THERE IS NO DIS PUTE IN RESPECT OF THE COMPARABLES SELECTED BY THE TPO IT I S PRAYED THAT THE APPEAL OF THE REVENUE AGAINST APPEALS, THE ADDITIONS BY THE CIT(A) MAY BE UPHELD. 35. AS AGAINST THIS, THE LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A). 36. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD, AND GONE THROUGH THE ORDERS OF THE AUTHORIT IES BELOW. WE FIND THAT THE ISSUE REGARDING PAYMENT OF ROYALTY AT THE RATE OF 3.75% TO THE AE BY THE ASSESSEE, AS AGAINST THE ROYALTY AT THE RATE OF 3% BY OTHER GROUP ENTITIES, IT WAS EXPLAINED BY THE ASSESSEE BEFORE THE AO THAT TH E ROYALTY AT 3.75% WAS APPLIED AFTER REDUCING VARIOUS EXPENSES FROM EX-FAC TORY SALE VALUE OF THE CONCERNED PRODUCTS. IT WAS ALSO EXPLAINED BEFORE T HE LEARNED CIT(A) THAT IF THE EFFECTIVE RATE IS CONSIDERED, THEN THE EFFECTIV E RATE OF ROYALTY IS LESS THAN THE ROYALTY PAID BY OTHER AES TO HITACHI LIMITED I. E. PARENT COMPANY. IN OUR CONSIDERED OPINION, ONLY STATED RATE IS NOT DEC ISIVE AND EFFECTIVE RATE HAS TO BE CONSIDERED, AND WHEN THE AMOUNT OF ROYALT Y PAID BY THE ASSESSEE IS CONSIDERED WITH EX-FACTORY SALE VALUE, WITHOUT D EDUCTING VARIOUS EXPENSES, SUCH AS DEALER COMMISSION, SPECIAL COMMIS SION, WARRANTY ETC., AS HAS BEEN NOTED BY THE LEARNED CIT(A) AT PAGE NO.4 O F HIS ORDER, THEN THE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -24- EFFECTIVE RATE WORKED OUT IS ONLY 2.3% ON SALE, AS AGAINST 3% PAID BY OTHER GROUP ENTITIES. THIS FINDING OF THE FACT GIVEN BY LEARNED CIT(A) COULD NOT BE CONTROVERTED BY THE LEARNED DR OF THE REVENUE, A ND HENCE, ON THIS ASPECT, WE HOLD THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LEARNED CIT(A), AND ACCORDINGLY, THE GROUND NO.5 OF THE REV ENUE IS REJECTED. 37. REGARDING PURCHASE OF COMPONENTS OF RS.13 CRORE S, WE FIND THAT THE TPO HAS DECIDED THE ISSUE BY ADOPTING TNMM METHOD, WHEREAS THE ASSESSEE HAS ADOPTED CUP METHOD, AS MOST APPROPRIAT E METHOD. THE CUP METHOD WAS NOT ACCEPTED BY THE TPO ON THIS BASIS TH AT ONLY ONE COMPARABLE HAS BEEN PROVIDED BY THE ASSESSEE AND TH AT TOO WAS UNSUBSTANTIATED AND THEREFORE CANNOT BE CONSIDERED AS A REPRESENTATIVE OF PRICE PREVAILING IN THE MARKET. BEFORE US, IT WAS CONTENDED BY THE LEARNED AR THAT THERE IS NO REQUIREMENT IN LAW THAT COMPARA BLE FOR THE PURPOSE OF CUP METHOD SHOULD BE NECESSARILY MORE THAN ONE. AS PER RULE 10B, THERE IS NO REQUIREMENT THAT COMPARABLE UN CONTROLLED TRA NSACTION SHOULD NECESSARILY BE MORE THAN ONE, BECAUSE, AS PER RULE 10B(1)(A)(I) IT IS DESCRIBED THAT THE PRICE CHARGED OR PAID FOR PROPER TY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANSACTIONS, IS IDENTIFIED. THIS VERY LANGUAGE OF THE CLAUSE IN RULE 10B CLEARLY SHOWS THAT COMPARABLE UNCONTROLLED TRANSACT IONS MAY BE ONE OR MORE THAN ONE. HENCE, THIS OBJECTION OF THE TPO IS NOT VALID THAT BECAUSE, THE ASSESSEE HAS ADOPTED ONLY ONE OR AT BEST TWO QU OTATIONS, AND THEREFORE, THE SAME ARE NOT ACCEPTABLE. BUT WE FIND FORCE IN THE OBJECTION THAT SUCH PRICE AS PER QUOTATION IS NOT SUBSTANTIATED AND HEN CE CANNOT BE CONSIDERED AS A PRICE BEING REPRESENTATIVE OF PREVAILING MARKE T PRICE. THE PRICE AS PER QUOTATION ONLY NOT SUPPORTED BY REASONABLE AMOUNT O F ACTUAL TRANSACTION CAN BE CONSIDERED AS A PROPOSED PRICE OR INDICATIVE PRICE BUT NOT ACTUAL PRICE. THEREFORE, IT CANNOT BE USED AS CUP. BUT A T THE SAME TIME, WE FEEL THAT NO OPPORTUNITY WAS PROVIDED TO THE ASSESSEE BY MAKING A SPECIFIC QUERY AS TO WHETHER THIS PRICE AS PER QUOTATION IS SUPPOR TED BY PRICE OF ACTUAL ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -25- TRANSACTION OF A REASONABLE AMOUNT. HENCE, WE FEEL THAT THIS ISSUE SHOULD GO BACK TO THE CIT(A) FOR A FRESH DECISION. WE SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO HIM FOR A FRESH DECISION. THE BURDEN IS ON THE ASSESSEE TO ESTABLI SH THAT SUCH QUOTATION PRICE IS SUPPORTED BY PRICE OF ACTUAL TRANSACTION A LSO. IF THE ASSESSEE IS ABLE TO ESTABLISH THAT THEN SUCH PRICE SHOULD BE ACCEPTE D AS CUP, OTHERWISE, THE METHOD ADOPTED BY TPO/AO SHOULD BE ADOPTED. NEEDLE SS TO SAY, ADEQUATE OPPORTUNITY OF HEARING BE PROVIDED TO BOTH SIDES. GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSES. 38. REGARDING GROUND NO.7, WE FIND THAT THIS ISSUE WAS DECIDED BY THE LEARNED CIT(A) ON THIS BASIS THAT THE AO AND THE TP O HAVE FOLLOWED THE SAME BASIS AND THE REASONING FOR MAKING THE DISALLO WANCE OF DEPRECIATION, AS PER WHICH THE ADDITION IN RESPECT OF PURCHASE OF RAW-MATERIAL WAS DELETED BY THE LEARNED CIT(A). IT WAS HELD THAT ON THE SAM E BASIS AND ON SAME REASONING, ADJUSTMENTS EFFECTED ON CAPITAL COST OF IMPORTED GOODS IS ALSO NOT JUSTIFIABLE. HENCE, THIS ISSUE IS ALSO RESTORE D BACK TO LD. CIT(A) FOR FESH DECISION IN LINE WITH DECISION ON THE ISSUE AS PER GROUND NO.6. ACCORDINGLY, THE GROUND NO.7 OF THE REVENUE IS ALSO ALLOWED FOR STATISTICAL PURPOSE. 39. THE GROUND NO.8 OF THE REVENUE IS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN ADJUDICATING ISSUES DECIDED BY TPO IN ORDER PASSED BY HIM U/S.92CA(3) CONTRARY TO THE DECISION GIVEN BY ALLAH BABAD HIGH COURT IN THE CASE OF CWT VS. DR.H. RAHMAN REPORTED IN 189 ITR 307 AND ITAT SPECIAL BENCH DELHI IN THE CASE OF PRO MAIN LTD. VS. DCIT, 95 TTJ 825 WHEREIN IT IS HELD THAT CIT(A) CAN ADJUDICATE THOSE ISSUE WHICH AO CAN DECIDE. SINCE ORDER PASSE D BY TPO IS BINDING ON AO, THE CIT(A) CANNOT ADJUDICATE THE ISS UES DECIDED BY TPO. 40. REGARDING GROUND NO.8 OF THE REVENUE, WE FIND T HAT IN THIS GROUND THE REVENUE HAS DISPUTED THE POWER OF THE LEARNED C IT(A) FOR ADJUDICATING THE ISSUE REGARDING THE TP ADJUSTMENTS MADE BY THE AO AS PER THE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -26- DIRECTIONS OF THE TPO, BECAUSE, IT IS CLAIMED BY TH E REVENUE THAT SINCE THE AO IS BOUND BY THE TPOS ORDER, THE CIT(A) CANNOT A DJUDICATE THE ISSUE DECIDED BY THE TPO. WE DO NOT FIND ANY MERIT IN TH ESE CONTENTIONS OF THE REVENUE, BECAUSE, AS PER SECTION 246 OF THE IT ACT, 1961, ANY ASSESSMENT ORDER UNDER SECTION 143(3) IS APPEALABLE ORDER BEFO RE THE LEARNED CIT(A), AND IT IS IMMATERIAL AS TO WHETHER THE DECISION TAK EN BY THE AO IN SUCH ASSESSMENT, IS AS PER THE DIRECTIONS OF THE TPO OR AS PER THE DIRECTIONS OF THE JOINT COMMISSIONER OF INCOME TAX UNDER SECTION 144A, AND THEREFORE, THIS GROUND OF THE REVENUE IS REJECTED. 41. THE GROUND NOS.9 AND 10 ARE GENERAL AND DO NOT CALL FOR ANY SEPARATE ADJUDICATION. 42. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 43. NOW, WE TAKE UP THE CO FILED BY THE ASSESSEE FO R A.Y.2003-2004 I.E. CO NO.304/AHD/2007. 44. WHILE DECIDING THE APPEAL OF THE REVENUE, WE HA VE ALREADY DECIDED THE GROUND NO.1 AND 2 OF THE ASSESSEES CO AND BOTH THESE GROUNDS WERE REJECTED. THE GROUND NO.3 OF THE CO IS AS UNDER: 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E RESPONDENTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN TREAT ING GROUND NO. 8 OF THE RESPONDENTS APPEAL READING AS UNDER AS BEING TOO GENERAL AND IN DISMISSING IT AS INFRUCTUOUS. '8. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANT'S CASE, THE ORDER DATED 23-3-2006 PASSED BY THE LEARNED TPO U/S. 92CA(3) IS VOID AND DESERVES TO BE CANCELLED INTER ALIA, FOR THE REASON THAT THE LEARN ED TPO HAS EXCEEDED HIS JURISDICTION (WHICH WAS CONFINED T O HIS HAVING MERELY TO DETERMINE THE ARM'S LENGTH PRICES OF THE GOODS AND/OR SERVICES PURCHASED OR SOLD BY THE APPE LLANT FROM OR TO ASSOCIATED ENTERPRISES) AND FOR THE REAS ON THAT IT HAS BEEN PASSED WITHOUT OBSERVING ELEMENTARY ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -27- PRINCIPLES OF NATURAL JUSTICE AND BEING SUCH, IT WA S NOT OPEN TO THE LEARNED ASSESSING OFFICER TO HAVE REGAR D TO IT WHILE COMPUTING THE APPELLANT'S TOTAL INCOME.' 45. THE LEARNED AR OF THE ASSESSEE DID NOT PRESS TH IS GROUND, AND ACCORDINGLY THIS GROUND OF THE ASSESSEES CO IS ALS O REJECTED. 46. THE GROUND NO.4 OF THE CO IS AS UNDER: 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E RESPONDENT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOL DING THE ADDITION OF RS. 9,48,408 MADE BY THE LEARNED ASSESSING OFFIC ER ON THE BASIS OF THE ORDER OF THE TRANSFER PRICING OFFICER FOR AN AD JUSTMENT BY WAY OF AN ADDITION ON ACCOUNT OF ADDITIONAL EXPORT VALUE O F THAT AMOUNT. 47. IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSES SEE, IN THE COURSE OF HEARING BEFORE US THAT IN VIEW OF THE SMALLNESS OF THE AMOUNT, THIS GROUND IS ALSO NOT PRESSED, AND ACCORDINGLY, THIS GROUND OF T HE CO IS ALSO REJECTED AS NOT PRESSED. 48. IN THE RESULT, THE CO OF THE ASSESSEE IS DISMIS SED. 49. NOW, WE TAKE UP THE APPEAL OF THE REVENUE FOR A .Y.2004-2005 I.E. ITA NO.2363/AHD/2008. 50. THE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.2,08,015/- OUT OF R OYALTY PAID BY THE ASSESSEE, AS DETERMINED BY THE TPO IN ORDER PAS SED U/S 92CA(3). 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.3,39,48,000/- OUT O F PURCHASE OF RAW MATERIALS AND COMPONENTS FROM ASSOCIATED ENTERP RISES, AS DETERMINED BY THE TPO IN THE ORDER PASSED U/S 92CA( 3). 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN ADJUDICATING ISSUES DECIDED BY TPO IN ORDER PASSED BY HIM U/S 92CA(3) CONTRARY TO THE DECISION GIVEN BY ALLAHABAD HIGH COURT IN THE CASE OF CWT VS. DR. H.RAHMAN REPORTED IN 189 ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -28- ITR 307 AND ITAT SPECIAL BENCH DELHI IN THE CASE OF PROMAIN LTD. VS. DCIT 95 TTJ 825 WHEREIN IT IS HELD THAT CI T(A) CAN ADJUDICATE THOSE ISSUE WHICH 4.0 CAN DECIDE . SINCE ORDER PASSED BY TPO IS BINDING ON A.O., THE CIT(A) CANNOT ADJUDI CATE THE ISSUES DECIDED BY TPO. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE DISALLOWANCE OF DEDUCTION OF RS.81,69,000/- ON ACCO UNT OF PROVISION FOR OBSOLESCENCE OF INVENTORY. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE DISALLOWANCE OF WARRANTY EXPENSES OF RS.1,39,35,979 /-. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DIRECTING THE A.0 TO ALLOW DEDUCTION OF RS.16,25,243/- ON ACCOUNT OF PROVISION FOR TDS ON ROYALTY IN CONTRAVENTION TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF GOETZE(INDIA) LTD, 284 ITR 323. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 8. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.C IT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. 51. IT WAS AGREED BY BOTH THE SIDES THAT THE GROUND NOS.1, 2 AND 4 ARE IDENTICAL TO GROUND NO.5, 6 AND 4 OF THE REVENUES APPEAL FOR A.Y.2003- 2004, AND THE SAME CAN BE DECIDED ON SIMILAR LINE. IN A.Y.2003-2004, WE HAVE REJECTED TWO GROUNDS OF THE REVENUE IN THAT YE AR, I.E. GROUND NO.5 AND 4, IN RELATION TO DISALLOWANCE OUT OF ROYALTY PAYME NT AND IN RELATION TO DISALLOWANCE ON ACCOUNT OF PROVISION FOR OBSOLESCEN CE OF INVENTORY, AND ON THE SIMILAR LINE, IN THE PRESENT YEAR ALSO, THESE T WO ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE, AND AGAINST THE REVENUE, ON SIMILAR LINE. GROUND NO.1 AND 4 ARE REJECTED. FOR GROUND NO.2, THE MAT TER IS REFERRED TO THE CIT(A) FOR FRESH DECISION WITH THE SAME DIRECTIONS, AS GIVEN IN A.Y.2003- 2004 IN RELATION TO GROUND NO.6 OF THAT YEAR. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -29- 52. REGARDING GROUND NO.3 ALSO, IT WAS AGREED BY BO TH THE SIDES THAT THIS GROUND IS IDENTICAL TO GROUND NO.8 RAISED BY THE RE VENUE IN A.Y.2003- 2004, AND THE SAME CAN BE DECIDED ON SIMILAR LINE. IN THAT YEAR, THE GROUND NO.8 OF THE REVENUE WAS REJECTED, AND ACCORDINGLY, IN THIS PRESENT YEAR ALSO, THE GROUND NO.3 RAISED BY THE REVENUE IS REJECTED. 53. REGARDING GROUND NO.5, BOTH SIDES AGREED THAT T HE ISSUE IS IDENTICAL TO GROUND NO.2 RAISED BY THE REVENUE IN A.Y.2000-20 01 AND 2001-2002, AND THE SAME MAY BE DECIDED ON SIMILAR LINE. WHILE DECIDING THE GROUND NO.2 IN A.Y.2000-2001 AND 2001-2002, THE ISSUE WAS RESTORED BY US TO THE FILE OF THE LEARNED CIT(A) FOR FRESH DECISION AFTER OBTAINING THE DETAILS REGARDING THE BASIS FOR MAKING PROVISION IN RESPECT OF WARRANTY EXPENSES AND IF IT IS FOUND THAT SUCH PROVISION IS MADE ON S CIENTIFIC BASIS, AS HAS BEEN APPROVED BY THE HONBLE APEX COURT IN THE CASE OF R OTORK CONTROLS INDIA P. LTD. (SUPRA) THEN NO DISALLOWANCE IS CALLED FOR, BUT IF PROVISION MADE IS EXCESSIVE, THEN SUCH EXCESSIVE AMOUNT SHOULD BE DIS ALLOWED. ACCORDINGLY, IN THE PRESENT YEAR ALSO, THIS ISSUE IS ALSO DECIDE D ON SIMILAR LINE, AND THE MATTER IS RESTORED TO THE FILE OF THE LEARNED CIT(A ) FOR FRESH DECISION IN LINE WITH OUR DIRECTIONS GIVEN ON THIS ISSUE IN A.Y.2000 -2001 AND 2001-2002, AND THE GROUND NO.5 OF THE REVENUE IS ALLOWED FOR S TATISTICAL PURPOSE. 54. REGARDING GROUND NO.6, THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER, AND THE LEARNED AR SUPPORTED THE ORDER OF TH E LEARNED CIT(A). 55. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY THE LEARNED CIT(A) AT PARA NO.13.2 OF HI S ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 13.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY. THE A.R. HAS SUBMITTED THAT THE APPELLANT HAD MADE A WR ONG CALCULATION OF ROYALTY FOR THE PERIOD FROM 1.4.2003 TO 30.6.200 3 AND DEDUCTED EXCESS TDS AND HAD PAID THE SAME. THEREFORE, THE EX CESS TDS TO BE RECOVERED FROM THE INCOME TAX DEPARTMENT WAS WORKED TO BE ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -30- RS.16,25,243/- AND THE SAME WAS SHOWN ON THE ASSET SIDE OF THE BALANCE SHEET. THIS AMOUNT WAS NOT DEBITED TO P & L ACCOUNT BUT THE APPELLANT HAD WRONGLY DISALLOWED THE SAME IN THE ST ATEMENT OF TOTAL INCOME AND IT WAS CLAIMED AS DEDUCTION BEFORE THE A .O. BUT THE A.O. HAS NOT DISCUSSED THE SAME IN THE ASSESSMENT ORDER AND HAD NOT ALLOWED THE DEDUCTION. THE A.O. IS DIRECTED TO ALLO W THE SAME AS DEDUCTION. 56. FROM THE ABOVE PARA OF THE ORDER OF THE LEARNED CIT(A), WE FIND THAT A CLEAR FINDING IS GIVEN BY THE LEARNED CIT(A) THAT THIS AMOUNT OF RS.16,25,243/- WAS SHOWN ON THE ASSETS SIDE OF THE BALANCE SHEET, AND THE AMOUNT WAS NOT DEBITED TO P&L ACCOUNT, BUT STILL TH E ASSESSEE HAS WRONGLY DISALLOWED THE SAME IN THE STATEMENT OF TOTAL INCOM E. ADMITTEDLY, THE CLAIM OF THE ASSESSEE FOR EXCLUDING THIS AMOUNT BEF ORE THE AO COULD NOT BE ACCEPTED BY HIM AS PER THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF GOETZE (INDIA) LTD., 284 ITR 323, BU T AS PER THIS JUDGMENT OF THE HONBLE APEX COURT, THERE IS NO RESTRICTION ON LEARNED CIT(A) OR ON THE TRIBUNAL TO ADMIT SUCH ISSUE AND DECIDE THE SAME ON MERIT. IN THE PRESENT CASE, NO DEFECT HAS BEEN POINTED OUT BY THE REVENUE IN THE DECISION OF THE LEARNED CIT(A), AND ONLY CONTENTION RAISED IS THAT, THE DECISION IS IN CONTRAVENTION OF THE JUDGMENT OF THE HONBLE APEX C OURT RENDERED IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA). IN OUR CONSID ERED OPINION, THIS DECISION OF THE LEARNED CIT(A) IS NOT IN CONTRAVENTION OF TH IS JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CSE OF GEOTZE (I NDIA) LTD., (SUPRA), AND HENCE, WE DO NOT INTERFERE IN THE ORDER OF THE LEAR NED CIT(A) ON THIS ISSUE, AND THIS GROUND NO.6 OF THE REVENUE IS REJECTED. 57. THE GROUND NOS.7 AND 8 ARE GENERAL IN NATURE AN D DO NOT REQUIRE ANY SEPARATE ADJUDICATION. 58. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ACIT VS. HITACHI HOME AND LIFE SOLUTIONS (INDIA) LT D. (6 APPEALS) -31- 59. WE NOW TAKE UP THE CO FILED BY THE ASSESSEE FOR A.Y.2004-2005 I.E. CO NO.176/AHD/2008. 60. THE GROUNDS RAISED ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CS E, THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF SHIFTING CHA RGES IN A SUM OF RS.5,36,946/- 2. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTIONS EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE SAME. 61. IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSES SEE THAT THERE IS ONLY ONE EFFECTIVE GROUND, AND BECAUSE OF SMALLNESS OF T HE AMOUNT, HE DID NOT PRESS THIS GROUND. ACCORDINGLY, THIS GROUND IS REJ ECTED AS NOT PRESSED. 62. IN THE RESULT, THE CO OF THE ASSESSEE IS DISMIS SED. 63. IN COMBINED RESULT, FOUR APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE, AND BOTH COS OF THE ASSESS EE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( . .. . . .. . /D.K.TYAGI) /JUDICIAL MEMBER ( ! !! !. .. . . .. .#$ #$ #$ #$ /A.K. GARODIA) % % % % /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD