CLARIANT CHEMICALS (I) LTD ( EARLIER KNOWN AS COLOUR CHEM LTD), MUMBAI V. JT CIT RG 1(1), MUMBAI

ITA 2393/MUM/2011

• Counselvise Citation: 239319914 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 25-11-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 25-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN O P SINGH
• Assessee Lawyers: F V IRANI
• Keywords: Related party transaction; Business income; Transfer pricing; International transaction; Rule of consistency
• Section: 92C; 80HHC

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , ! SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO.2393/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 M/S. CLARIANT CHEMICALS (INDIA) LTD., (EARLIER KNOWN AS M/S. COLOUR CHEM LTD., PO.SANDOZ BAUG, KOLSHET ROAD, THANE 400607 ' ' ' ' / VS. THE JCIT (OSD), RANGE 1(1), AAYKAR BHAVAN, MK ROAD, MUMBAI - 400020 $ ! ./ % ./ PAN/GIR NO. : AAACC 5602P ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) . / ITA NO.2328/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 THE DCIT 1(1), ROOM NO.533, 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 ' ' ' ' / VS. M/S. COLOUR CHEM LTD., PO.SANDOZ BAUG, KOLSHET ROAD, THANE 400607 $ ! ./ % ./ PAN/GIR NO. : AAACC5602P ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) ASSESSEE BY : SHRI F.V.IRANI REVENUE BY : S/SHRI AJEET KUMAR JAIN/ O.P.SINGH ' , -! / DATE OF HEARING : 25/11/2013 ./# , -! / DATE OF PRONOUNCEMENT : 29/11/2013 . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 2 0 / O R D E R PER I.P.BANSAL, J.M: THESE ARE CROSS APPEALS AND THEY ARE DIRECTED AGAI NST ORDER OF LD. CIT(A)-15, MUMBAI DATED 12/1/2011 FOR ASSESSMENT YEAR 2003-04 . THE GROUNDS OF APPEAL RAISED BY ASSESSEE AS WELL AS REVENUE READ AS UNDER : GROUNDS OF APPEAL IN ITA NO.2393/MUM/2011(ASSESSEE S APPEAL): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN C ONFIRMING THE ACTION OF JT. COMMISSIONER OF INCOME-TAX IN REDUCING DEDUCTION AD MISSIBLE UNDER SECTION 80HHC OF THE ACT ON ACCOUNT OF FOLLOWING (I) REDUCING 90% OF THE FOLLOWING INCOME IN COMPUTI NG THE ADJUSTED PROFITS OF THE BUSINESS: (A) INTEREST RECEIVED OF RS.19,79,277 WITHOUT NETTI NG OF THE SAME AGAINST THE INTEREST PAID AMOUNTING TO RS.4,06,17,5821- ; AND (B) DULY ENTITLEMENT PASS BOOK RECEIPTS OF RS.4,93, 68,1361-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE ACTION OF JT. COMMISSIONER OF INCOME TAX I AO/TPO IN MAKING ADJUS TMENT BY APPLYING CUP METHOD IN CASE OF EXPORTS OF MANUFACTURED GOODS ON ACCOUNT OF FOLLOWING: (I) APPLIED COMPARABLE UNCONTROLLED PRICE (CUP) M ETHOD SELECTIVELY FOR CERTAIN INTERNATIONAL TRANSACTIONS OF EXPORTS, WITHOUT REJE CTING TRANSACTIONAL NET MARGIN METHOD (TNMM) METHOD. (II) CONFIRMED THE ORDER PASSED BY THE TPOIAO WITHO UT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C (3) OF THE ACT AR E SATISFIED IN THE CASE. (III) NOT APPRECIATED THE FACT THAT GEOGRAPHICAL DI FFERENCE CAUSES SIGNIFICANT VARIATION IN THE PRICING OF INTERNATIONAL TRANSACTION. (IV) IGNORED THE DIFFERENCES IN SALES VOLUME WHILE APPLYING THE CUP METHOD AND RESTRICTED THE VOLUME DISCOUNT TO 5%. THE APPELLANTS CRAVE LEAVE TO ADD, TO AMEND OR ALTE R THE FOREGOING GROUNDS OF APPEAL OR TO TAKE AN ADDITIONAL GROUND IF NEED BE. GROUNDS OF APPEAL IN ITA NO.2328/MUM/2011(REVENUES APPEAL): 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF INTEREST EXPENSES O F RS. 12,17,900 / - TO THE DIVIDEND INCOME AND THEREBY DISALLOWING THE SAME IN COMPUTIN G THE BUSINESS INCOME AND CONSIDERING ATTRIBUTABLE TO INCOME FROM OTHER SOUR CES AND LIMITING DEDUCTION U/ S.80M BY THE SAID AMOUNT. . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 3 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN APPLYING CUP METHOD INSTEAD OF TRANSACTION NET MARG IN METHOD (TNMM). 3. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR W ITHDRAW THE AFORESAID GROUNDS OF APPEAL. 2. BEFORE PROCEEDING TO ADJUDICATE THESE APPEALS WE MAY MENTION HERE THAT EARLIER THESE APPEALS WERE ADJOURNED VIDE ORDER SH EET ENTRY DATED 1/7/2013 ON THE REQUEST OF ASSESSEES COUNSEL VIDE LETTER DATED 28/ 6/2013, AS ACCORDING TO THAT LETTER ONE OF THE ISSUES RAISED IN THE PRESENT APPE AL IS REFERRED TO SPECIAL BENCH IN ITA NO.5924/D/2012 AND THEREAFTER THE PRESENT CASE WAS FIXED ON 25/11/2013. IT WAS FURTHER INFORMED BY BOTH THE PARTIES THAT THE S AID SPECIAL BENCH HAS BEEN WITHDRAWN AND, THEREFORE, THIS MATTER CAN BE PROCEE DED WITH. LD. CIT-DR HAS SUBMITTED A LETTER STATING THAT THE SAID SPECIAL BE NCH HAS BEEN WITHDRAWN. ACCORDINGLY, WE PROCEED TO DECIDE THE PRESENT CROSS APPEALS. 2. REFERRING TO GROUND NO.1 OF ASSESSEES APPEAL, IT WAS THE CASE OF LD. AR THAT BOTH THE ISSUES RAISED BY THE ASSESSEE ARE NOW COVE RED BY THE DECISIONS OF HONBLE SUPREME COURT AND SINCE THE BENEFIT OF THESE DECISI ONS WERE NOT AVAILABLE TO LD. CIT(A) WHEN THE APPEAL OF THE ASSESSEE WAS DECIDED, THE MATTER MAY BE SENT BACK TO THE FILE OF AO FOR RECALCULATION OF DEDUCTION UNDER SECTION 80 HHC OF THE INCOME TAX ACT,1961 (THE ACT) ON BOTH THESE ISSUES AS PER THE FOLLOWING DECISIONS OF HONBLE SUPREME COURT ON THESE ISSUES. 3. SO FAR AS IT RELATES TO FIRST ISSUE RAISED IN FI RST GROUND OF ASSESSEES APPEAL IT RELATES TO NETTING OF THE INTEREST INCOME. THIS IS SUE WAS STATED TO BE COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AC G ASSOCIATED CAPSULES PVT. LTD. VS. CIT 343 ITR 89, WHEREIN IT HAS BEEN HELD THAT O NLY 90% OF THE NET AMOUNT OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (I) OF EXPLANATION (BAA) WHICH IS ACTUALLY INCLUDED IN THE PROFIT OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING PROFIT OF THE BUSINES S OF THE ASSESSEE UNDER EXPLANATION (BAA) TO SECTION 80 HHC OF THE ACT. . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 4 3.1 LD. DR DID NOT RAISE ANY OBJECTION REGARDING TH IS CONTENTION OF THE ASSESSEE. THEREFORE, AFTER HEARING BOTH THE PARTIES ON THIS I SSUE, SO AS IT RELATES TO THE GROUND REGARDING EXCLUSION OF NET INTEREST IS RESTORED TO THE FILE OF AO WITH A DIRECTION TO REDUCE NET AMOUNT OF INTEREST FROM THE PROFIT IN AC CORDANCE WITH THE AFOREMENTIONED DECISION OF HONBLE SUPREME COURT IN THE CASE OF AC G ASSOCIATED CAPSULES PT. LTD. (SUPRA). THIS PART OF THE GROUND IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 4. SO FAR AS IT RELATES TO GROUND NO.1(I)(B) I.E. R EGARDING DUTY ENTITLEMENT PASS BOOK RECEIPTS THE SAID PART OF THE GROUND WAS STATE D TO BE COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPO RTS VS. CIT, 342 ITR 49(SC). AFTER HEARING BOTH THE PARTIES AND ACCEPTING THE S UBMISSIONS OF LD. AR, THE ISSUE IS RESTORED TO THE FILE OF AO WITH A DIRECTION TO RECA LCULATE DEDUCTION UNDER SECTION 80HHC OF THE ACT ON THE ISSUE OF DEPB AS PER AFOREM ENTIONED DECISION ON HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA) . WE DIRECT ACCORDINGLY. THIS PART OF THE FIRST GROUND IS ALSO CONSIDERED TO BE A LLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 5. GROUND NO.2 OF ASSESSEES APPEAL AND GROUND NO.2 OF REVENUES APPEAL IS REGARDING TRANSFER PRICING (TP) ADJUSTMENT WHICH W AS MADE BY THE AO TO THE TUNE OF RS.38,36,693/-. 5.1 THE ASSESSEE IN THE PRESENT CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DYES AND CHEMICALS, MAINLY PIGMENTS FOR PAINT IN DUSTRIES, AGRO CHEMICAL INTERMEDIARIES, TEXTILE CHEMICALS, LEATHER CHEMICAL S AND FUNCTIONAL CHEMICALS USED IN COSMETIC INDUSTRY. INDUSTRIES. DURING THE YEAR UNDER CONSIDERATION IT HAD ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS W ITH ITS ASSOCIATED ENTERPRISES. S.NO. DETAILS OF TRANSACTION AMOUNT (RS) METHOD USED 1. PURCHASE OF RAW MATERIALS 733.46 LAKHS TNMM . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 5 2. EXPORT OF MANUFACTURED GOODS 5427.68 LAKHS TNM M 3. EXPORT OF FINISHED GOODS-SOURCING (TRADING) 33 69.58 LAKHS COST PLUS 4. PURCHASE OF FINISHED GOODS FOR TRADING 1251.8 5 LAKHS TNMM 5. RECEIPT OF INDENTING COMMISSION 151.18 LAK HS TNMM 6. PAYMENT OF INDENTING COMMISSION 47.37 LAKH S TNMM 7. FEE FOR RESEARCH & DEVELOPMENT RECEIVED 96 .03 LAKHS TNMM 8. MISCELLANEOUS PAYMENTS 119.81 LAKHS TNMM 9. RECEIPT OF SOURCING FEES 45.15 LAKHS COST PLUS 10. RECOVERY OF EXPORT EXPENSES 317.27 LAKHS TN MM THE ASSESSEE USED TNMM AS APPROPRIATE METHOD FOR TH E INTERNATIONAL TRANSACTIONS IN DISPUTE. HOWEVER, AS THE ASSESSEE WAS HAVING SA LES OF SAME PRODUCTS TO RELATED AND UNRELATED PARTIES THE TRANSFER PRICING OFFICER (TPO) REQUIRED THE ASSESSEE TO SUBMIT THE INFORMATION. THE COMPOSITION OF SUCH TR ANSACTION AS SUBMITTED TO THE TPO BY THE ASSESSEE WAS AS UNDER: S.NO. PARTICULARS RS. IN LAKHS PERCENTAGE (%) 1. LOCAL 24,774.23 78.69 2. EXPORTS- GROUP CO, 5,427.68 17.24 3. EXPORTS- NON GROUP 1,280.72 4.07 TOTAL 31,482.63 100.00 5.2 ULTIMATELY, TPO FOUND THAT THE T.P. ADJUSTMENT WAS REQUIRED TO BE MADE IN RESPECT OF THREE TRANSACTIONS AND FOR THAT PURPOSE HE APPLIED CUP METHOD, THE DETAILS OF WHICH IS AS UNDER: THE PRODUCT-WISE ANALYSIS AND COMPUTATION OF ARM S LENGTH PRICE ARE GIVEN BELOW: (II) FOR THE PRODUCTS HOSTAPERM BLUE CBR. HOSTAPERM GREEN GNX, PV FAST GREEN GNX, PERMANENT YELLOW DHG SPL PERMANENT YELLO W P0, PERMANENT ORANGE G-IN. PERMANENT RED F4R-JN, HANSA YELLOW 1OG -IN, BLUE FINE PASTE 611. VERNATAN 2A AND HOSTAPERM BLUE BG. THE SALES T O AES AND NON-AES ARE IN DIFFERENT COUNTRIES. IN THE ANALYSIS, LIKE LAST YEA R, ALL THE SALES ARE TAKEN TOGETHER, IRRESPECTIVE OF THE COUNTRY OF SALE AND QUANTITY SO LD TO INDIVIDUAL ENTITIES. FURTHER, AFTER APPLYING 5% RANGE TO THE WEIGHTED AVERAGE PRICE (HE REINAFTER: WAP) OF SALES MADE TO UNRELATED PARTIES, AS MENTIONED UNDER SECTION 92C(2 ) OF THE INCOME TAX ACT, 1961 IT IS OBSERVED THAT THE WAP CHARGED TO RELATED PARTIES IS AT ARMS LENGTH AND THEREFORE NO ADJUSTMENT IS MADE IN CASE OF THE ABOVE MENTIONED P RODUCTS. . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 6 (III) FOR THE FOLLOWING PRODUCTS WA? CHARGED TO UNR ELATED PARTIES IS NOT WITHIN 5% RANGE OF THE WA? CHARGED TO UNRELATED PARTIES I.E. AVERAG E REALIZATION IN CASE OF RELATED PARTIES IS LOWER THAN THAT IN CASE OF UNRELATED PAR TIES. A. HOSTAPERM GREEN ON B. PERMANENT RUBINE CA-E C. .ACID ORANGE 1O (IV) FOR THE PRODUCTS HOSTAPERM GREEN GN. THE SALES TO RELATED PARTIES IS 29,400 KGS AT A WA? OF RS. 302.38 PER KG. 700 KG IS SOLD TO UNRELATED PARTIES AT WAP OF RS. 3 83.89. THE ASSESSEE HAS CONTENDED THAT CONSIDERING THE HUG E DIFFERENCE IN QUANTITY SOLD TO RELATED AND UNRELATED PARTIES, SALES MADE TO RELATE D PARTIES SHOULD BE ACCEPTED TO BE AT ARMS LENGTH. HOWEVER, IT IS SEEN THAT THE DIFFERENCE OF RS 81.51 PRICE PER KG IS NOT SMALL EITHER, CONSIDERING THE WA? IS BEING USED, NO FURTHER ADJUS TMENTS ARE REQUIRED IN RESPECT OF THE PRICES. THUS CONSIDERING THE WAP CHARGED TO RELATED PARTY A ND THE UNRELATED PARTY, IT IS OBSERVED THAT SALES.MA4ETO RELATED PARTY IS UNDER-P RICED TO THE EXTENT OF RS. 81.51 PER KG. THIS RESULTS INTO AN ADJUSTMENT OF RS. 23,96,394/- RS 81.51 * 29,400 KGS) (V) FOR THE PRODUCTS PERMANENT RUBINE CA-E, THE SAL E TO RELATED PARTIES IN THAILAND IS 2,200 KG AT A WAP OF RS. 336.92 PER KG. 120 KG IS SOLD TO UNRELATED PARTIES IN SRI LANKA AT WAP OF RS. 356.26. THUS CONSIDERING THE WAP CHARGED TO RELATED PARTY A ND THE UNRELATED PARTY, IT IS OBSERVED THAT SALES MADE TO RELATED PARTY IS UNDER- PRICED TO THE EXTENT OF RS. 19.24 PER KG. THIS RESULTS INTO AN ADJUSTMENT OF RS.. 42,548/- (VI) FOR THE PRODUCTS ACID ORANGE 10. THE SALE TO R ELATED PARTIES IN GERMANY IS 3,500 KG AT A WA? OF RS. 170.00 PER KG. 50 KG IS SOLD TO UNRELATED PARTIES IN SOUTH KOREA A T WAP OF RS. 569.36: THUS CONSIDERING THE WAP CHARGED TO RELATED PARTY A ND THE UNRELATED PARTY, IT IS OBSERVED THAT SALES MADE TO RELATED PARTY IS UNDER- PRICED TO THE EXTENT OF RS. 399.36 PER KG. THIS RESULTS INTO AN ADJUSTMENT OF RS. 13,97.751/- THE COMPANY HAS ALSO CONTENTED THAT THE RELATED ENT ITIES ARE TRADERS AND THE UNRELATED ENTITIES ARE THE END - USERS AND TO ACCOUNT FOR THI S DIFFERENCE, 5% GROSS MARGINS SHOULD BE AFFECTED TO SALES MADE TO AES / UNRELATED ENTITI ES TO BRING OUT THIS DIFFERENCE AS REGARDS SALES TO DIFFERENT MARKET SEGMENTS, FOR THE TRANSACTION TO BE COMPARABLE WHEN APPLYING CUP METHOD. 5.3 THE TPO ALSO REJECTED THE CONTENTION OF THE ASS ESSEE REGARDING ADJUSTMENT OF 5% SAFE HARBOUR AS ACCORDING TO TPO THE SAME WAS AV AILABLE TO THE ASSESSEE. ACCORDINGLY, AGGREGATE OF AFOREMENTIONED THREE T.P. ADJUSTMENTS I.E. A SUM OF . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 7 RS.38,36,693/- WAS ADDED TO THE INCOME OF THE ASSES SEE ON ACCOUNT OF T.P. ADJUSTMENT. 5.4 THE AFOREMENTIONED ADDITIONS WERE CHALLENGED IN THE APPEALS FILED BEFORE LD. CIT(A). IN GROUND NO.10 TO 14 THE ASSESSEE HAD AGI TATED THE AFOREMENTIONED TP ADJUSTMENTS. IN GROUND NO.10, THE ASSESSEE OBJECT ED THE METHOD WHICH WAS APPLIED BY THE TPO AS CUP AGAINST TNMM APPLIED BY T HE ASSESSEE. IN GROUND NO.11, THE ASSESSEE SOUGHT REBATE ON ACCOUNT OF VOL UME DIFFERENCE BETWEEN TURNOVER RELATING TO AES AND UNCONTROLLED PARTIES . IN GROUND NO.12, THE ASSESSEE SOUGHT REBATE ON ACCOUNT OF GEOGRAPHICAL REGIONS AS THE SALES OF THE ASSESSEE WERE SPREAD TO THAILAND AND CHINA. IN GROUND NO.13, THE ASSESSEE SOUGHT REBATE ON ACCOUNT OF FUNCTIONAL DIFFERENCE IN THE TRANSACTI ONS AND IN GROUND NO.14, THE ASSESSEE SOUGHT 5% SAFE HARBOUR AS PER PROVISO TO S ECTION 92C(2) OF THE ACT. BRIEFLY; LD. CIT(A) HAS UPHELD THE APPLICATION OF M OST APPROPRIATE METHOD AS CUP. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS GRANTED THE REBATE ON ACCOUNT OF VOLUME DIFFERENCE @5%. LD. CIT(A) DI D NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE REGARDING REBATE ON ACCOUNT OF GEOGRAP HICAL REGIONS AND FUNCTIONAL DIFFERENCE. HOWEVER, LD. CIT(A) HAS PROVIDED THE BENEFIT OF SAFE HARBOUR TO THE ASSESSEE UNDER PROVISO TO SECTION 92C(2). 5.5 IT MAY BE MENTIONED THAT LD. CIT(A) DID NOT UP HELD THE ADJUSTMENT IN RESPECT OF ACID ORANGE SALES AND, THUS, AN ADDITION OF RS .30,97,751/- MADE ON THAT ACCOUNT WAS DELETED. SIMILARLY, AFTER GIVING REBAT E OF 5% ON ACCOUNT OF VOLUME DISCOUNT AND 5% PROVISO BENEFIT, LD. CIT(A) HAS FO UND THAT NO ADJUSTMENT WAS MAINTAINABLE IN RESPECT OF PERMANENT RUBAIN CA-E A ND ADJUSTMENT IN THAT REGARD WAS ALSO DELETED. THEREFORE, THE TP ADJUSTMENT WH ICH IS UPHELD BY LD. CIT(A) IS WITH REGARD TO HOSTAPERM GREEN GN TO THE EXTENT OF RS.12,95,973/- AND DELETED THE BALANCE ADDITION IN THIS RESPECT. AS T HE MAIN CASE OF THE ASSESSEE IS REGARDING GRANT OF DISCOUNT ON ACCOUNT OF DIFFERE NCE IN VOLUME THE FACTS STATED BY . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 8 THE ASSESSEE IN THE STATEMENT OF FACTS SUBMITTED BE FORE LD. CIT(A) WILL BE RELEVANT AND ARE AS FOLLOWS: 5.5.1 IT WAS SUBMITTED THAT OUT OF TOTAL SALES THE MAJOR PORTION IN RESPECT OF HOSTAPERM GREEN GN REPRESENT SALES OF AE WHICH ARE TO THE EXTENT OF 98% AS AGAINST SALES MADE TO UNRELATED PARTIES WHICH ARE O NLY TO THE EXTENT OF 2%. A CHART WAS FURNISHED WHICH READ AS FOLLOWS: PRODUCT NAME QUANTITY SOLD TO CLARIANT GROUP (AES) QUANTITY SOLD TO INDEPENDENT THIRD PARTIES RATIO OF EXPORTS TO AES AS COMPARED TO INDEPENDENT THIRD PARTIES. HOSTAPERM GREEN GN 29,400 700 98:2 PERMANENT RUBINE CA- E 2,200 120 95: 5 ACID ORANGE 10 3,500 50 99: 1 5.5.2 REFERENCE WAS MADE TO THE ORDER PASSED BY TRA NSFER PRICING OFFICER (TPO) DATED 17/3/2005 IN RESPECT OF ASSESSMENT YEAR 2002- 03. FOLLOWING EXTRACT FROM THE SAID ORDER WERE REFERRED : A. POINT (III) - ... PRODUCT HOSTAPERM GREEN GM, T HE SATES TO RELATED PARTIES, MAINLY CLARIANT THAILAND, IS 23,500 KGS. THIS IS SOLD AT A N AVERAGE PRICE OF RS. 310.83. THE SALES TO UNRELATED PARTIES IS ONLY 125 KGS, AND THE AVERAGE SALE PRICE IS RS. 384.66 PER KG. CONSIDERING THE VAST VOLUMES IN CASE OF RELATED ENTITIES, IN COMPARISON TO UNRELATED ENTITY, THE TRANSACTION IS ACCEPTED TO BE AT ARM S LENGTH. B. POINT (V) - ... PRODUCT PERMANENT YELLOW GRY 80, THE SALES TO AES IN GERMANY, CANADA AND CHINE ARE OF 21,504 AT A PRICE OF 283.40 . THE ONLY SALE TO UNRELATED PARTY IS IN IRAN AT RS. 490.06 PER KG, TO WHOM 160 KGS IS SOLD. CONSIDERING THE HUGE QUANTITY VARIATION AND SOLITARY TRANSACTION WITH UNRELATED P ARTY, THE TRANSACTION IS ACCEPTED TO AT ARMS LENGTH 5.6 IN VIEW OF THE ABOVE, IT WAS THE CASE OF LD. AR THAT IF THE VOLUME DISCOUNT IS GIVEN AS WAS GIVEN TO THE ASSESSEE BY TPO IN ASSESS MENT YEAR 2002-03 THEN 20% VOLUME DISCOUNT IS REQUIRED TO BE GIVEN IN RESPECT OF PRODUCT NAMED AS . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 9 HOSTAPERM GN. IT WAS THE SUBMISSION OF LD. AR TH AT IN VIEW OF RULE OF CONSISTENCY, THE ASSESSEE IS ENTITLED TO SUCH RELIE F WHICH HAS WRONGLY BEEN DENIED BY LD. CIT(A). HE SUBMITTED THAT LD. CIT(A) WAS W RONG IN RESTRICTING THE DISCOUNT BENEFIT IN THIS REGARD ONLY TO THE EXTENT OF 5%, W HEREAS THE ASSESSEE IS ENTITLED TO GET IT @20%. IT WAS ALSO THE CONTENTION OF LD. AR THAT 20% DISCOUNT ON ACCOUNT OF VOLUME IS A USUAL DISCOUNT AND HAS BEEN ACCEPTED BY THE TRIBUNAL IN THE CASE OF INTERVET INDIA PVT. LTD. VS. ACIT, 39 SOT 93(MUM) A ND REFERENCE WAS MADE TO THE FOLLOWING OBSERVATIONS: 51. AS FAR AS THE ADJUSTMENT ON ACCOUNT OF VOLUME FACTOR DIFFERENCE IN THE MARKET CONDITIONS AND ECONOMIC DEVELOPMENT LEVEL IS CONCER NED, THE TRANSFER PRICING OFFICER HAS ALLOWED THE ADJUSTMENT TO THE EXTENT TO 10 PER CENT WHILE THE APPELLANT HAS SOUGHT FOR AN ADJUSTMENT OF 50 PER CENT. THERE IS NO DO UBT THAT THE CLAIM OF THE APPELLANT IS RATHER EXCESSIVE, WHILE THAT MADE BY THE TRANSFER P RICING OFFICER IS RATHER ON A LOWER SIDE. HENCE, CONSIDERING THAT IN THE LOCAL TRADING THE APPELLANT IN SIMILAR CIRCUMSTANCES HAS BEEN PROVIDING DISCOUNTS WHILE T ERE IS A CASE FOR HIGHER ADJUSTMENT THAN WHAT HAS BEEN MADE BY THE TRANSFER PRICING OFFICER, IT CANNO T BE AS HIGH AS SOUGHT FOR BY THE APPELLANT. IT WOULD BE REASONABLE IF THE ADJUSTMEN T FOR THE PURPOSE IS RESTRICTED TO 20 PERCENT ON THIS ACCOUNT AS AGAINST 10 PER CENT MAD E BY THE TRANSFER PRICING OFFICER. 5.7 THE SECOND DEFENSE RAISED BY LD. AR WAS THAT A SSESSEE IS ENTITLED TO GET BENEFIT ON ACCOUNT OF GEOGRAPHICAL REGIONS HE IN T HIS REGARD RELIED UPON THE SUBMISSIONS MADE IN STATEMENT OF FACTS AND THE RELE VANT PORTION READ AS UNDER: ARBITRARY COMPARISON OF GEOGRAPHICAL REGIONS. THE AO HAS EQUATED TOTALLY DISSIMILAR GEOGRAPHICAL REGIONS IN APPLYING THE CUP METHOD IN THE CASE OF THE FOLLOWING PRODUCTS. SALES MADE IN DIFFERENT GEOGRAPHICAL REGIONS ARE, NOT SIMPLY COMPARABLE DUE TO DIFFERENC ES IN THE ECONOMIES, MARKETS, CULTURE, RATES OF INFLATION, TARIFF LAWS, ETC. IT I S ADVOCATED BY THE OECD GUIDELINES AND ALSO THE INDIAN TRANSFER PRICING REGULATIONS TO MAK E ADJUSTMENTS FOR THE ABOVE FACTORS TO MAKE TWO TRANSACTIONS COMPARABLE, ESPECIALLY WHI LE APPLYING THE CUP METHOD. C. HOSTAPERM GREEN GN THE PRICES AT WHICH GOODS HAVE BEEN SOLD TO AES IN CHINA AND THAILAND HAS BEEN COMPARED WITH THE PRICES AT WHICH GOODS HAVE BEEN S OLD TO INDEPENDENT THIRD PARTIES IN SRI LANKA. . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 10 HE SUBMITTED THAT ASSESSEE IS ENTITLED TO SUCH REL IEF AS PER OF DECISION OF ITAT IN THE CASE OF ACIT VS. DUFON LABORATORIES, 39 SOT 59 (MUM). THUS, IT WAS PLEADED BY LD. AR THAT IF THE VOLUME DISCOUNT IS GIVEN TO T HE TUNE OF 20% AND 5% OF BENEFIT OF PROVISO IS PROVIDED TO THE ASSESSEE AS IS PROV IDED BY LD. CIT(A) AND THE GRANT OF THE SAME HAS NOT BEEN AGITATED BY REVENUE IN ITS AP PEAL, THEN NO ADDITION ON ACCOUNT OF TP ADJUSTMENT WILL BE LEFT AND THIS GROU ND OF THE ASSESSEE IS LIABLE TO BE ACCEPTED. 5.8 ON THE OTHER HAND, IT WAS THE SUBMISSION OF THE LD. DR THAT ASSESSEE IS NOT ENTITLED TO 20% VOLUME DISCOUNT AS LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS ARRIVED AT A CONCLUSION THAT ASSES SEE IS ONLY ENTITLED TO GET SUCH DISCOUNT @5%. THEREFORE, HE SUBMITTED THAT ASSESSE E DOES NOT DESERVE FURTHER RELIEF IN REGARD TO TP ADJUSTMENT. 5.8.1 LD. DR ALSO RELIED UPON THE DECISION IN THE C ASE OF M/S. ONWARD TECHNOLOGIES LTD. VS. DCIT ORDER DATED 30/04/2013 IN ITA NO.798 5/MUM/2010, COPY OF WHICH WAS FURNISHED BEFORE US. THIS CASE WAS RELIED UPON BY LD. DR TO CONTEND THAT PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOM E TAX PROCEEDINGS AND DIFFERENT VIEW COULD BE TAKEN IF THE EARLIER ORDER IS CONTRA RY TO THE STATUTORY PROVISIONS OF HAVING NO APPROVAL FROM ANY JUDICIAL FORUM. THUS, IT WAS PLEADED BY HIM THAT THE ASSESSEES PLEA FOR RULE OF CONSISTENCY SHOULD NOT BE ACCEPTED. 5.9 ARGUING THE SECOND GROUND OF APPEAL RAISED IN T HE REVENUES APPEAL, IT WAS SUBMITTED BY LD. DR THAT LD. CIT(A) WAS WRONG IN UP HOLDING CUP METHOD INSTEAD OF TNMM. THUS, IT WAS PLEADED BY LD. DR THAT TP ADJUS TMENT MADE BY TPO SHOULD HAVE BEEN CONFIRMED. 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE ALSO CAREFULLY GONE THROUGH THE CASE LAW AND . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 11 DOCUMENTS RELIED UPON BY BOTH THE PARTIES. THE MAI N CONTENTION OF THE ASSESSEE IN THIS REGARD IS GRANT OF 20% DISCOUNT ON VOLUME DIF FERENCE.. THIS CONTENTION OF THE ASSESSEE IS SUPPORTED BY THE ARGUMENTS THAT IN IMME DIATE PRECEDING ASSESSMENT YEAR TPO HAD ACCEPTED SUCH VOLUME DISCOUNT AND REFE RENCE IN THIS REGARD HAS BEEN MADE TO THE ORDER OF TPO RENDERED IN RESPECT OF ASS ESSMENT YEAR 2002-03, THE RELEVANT PORTION OF WHICH HAS BEEN REPRODUCED IN TH E ABOVE PART OF THIS ORDER. THE RELEVANT PORTION OF IMPUGNED TPOS ORDER HAS ALSO B EEN REPRODUCED IN THE ABOVE PART OF THIS ORDER. SO AS IT RELATES TO CHEMICAL HOSTAPERM THE TURNOVER FOR THIS YEAR TO THE RELATED PARTIES IS 29,400 KGS. @ 302.38 PER KG AS AGAINST SIMILAR SALES MADE TO AES IN A.Y 2002-03 TO THE TUNE OF 23,500 K GS. AT THE AVERAGE THE PRICE OF RS.310.83 PER KG. THE UNCONTROLLED PARTY SALES FO R THE YEAR UNDER CONSIDERATION FOR THE SAME CHEMICAL IS 700 KGS. AS AGAINST THE SI MILAR SALES TO UNRELATED PARTIES OF 125KGS. THEREFORE, IT CANNOT BE SAID THAT THERE IS ANY MATERIAL DIFFERENCE IN THE FACTS OF THE TWO YEARS I.E. A.Y 2002-03 AND 2003-04 . WHEN THE FACTS ARE SAME THE QUESTION WILL BE THAT WHETHER ON THE SAME FACTS D EPARTMENT CAN TAKE A DIFFERENT STAND FOR THE YEAR UNDER CONSIDERATION WHICH IS AGA INST THE RULE OF CONSISTENCY. WHEN THERE IS NO DIFFERENCE IN THE FACTS OF PRECED ING YEAR WHERE THE CASE OF ASSESSEE HAS BEEN ACCEPTED BY THE TPO EXPRESSLY, TH EN IN OUR CONSIDERED VIEW TPO CANNOT TAKE A DIFFERENT STAND DURING THE YEAR UNDER CONSIDERATION AS THE ASSESSEE WILL BE ENTITLED TO GET BENEFIT OF THE STAND TAKEN BY THE REVENUE IN IMMEDIATE PRECEDING YEAR. THERE IS INSIGNIFICANT DIFFERENCE IN THE RATES OF THE COMMODITY AND THE VOLUME OF TRANSACTIONS. THE DIFFERENCE, IF A NY, FAVOURS THE ASSESSEE AS THE VOLUME OF RELATED PARTY TRANSACTION IS MUCH MORE THIS YEAR AS IT HAS GONE UPTO 29,400 KGS AGAINST LAST YEARS SALES OF 23,500 KGS. THE CASE LAW RELIED UPON BY LD. DR DOES NOT SUPPORTS THE CASE OF THE REVENUE RATHE R IT SUPPORTS THE CASE OF THE ASSESSEE. IN THE CASE OF ONWARD TECHNOLOGIES LTD. VS. DCIT (SUPRA) RELIED UPON BY LD. DR THIS PROPOSITION HAS CLEARLY BEEN SPELT OUT AS PER FOLLOWING OBSERVATIONS: 16.2. THE HONBLE SUPREME COURT HAS HELD IN SEVERA L CASES INCLUDING M.M. IPOH & ORS. VS. CIT (1968) 67 ITR 106 (SC) THAT: . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 12 THE DOCTRINE OF RES JUDICATA DOES NOT APPLY SO AS TO MAKE A DECISION ON A QUESTION OF FACT OR LAW IN A PROCEEDING FOR ASSESSMENT IN ONE Y EAR BINDING IN ANOTHER YEAR. AT THE SAME TIME, IT IS EQUALLY TRUE THAT THE PRINCIPLE OF CONSISTENCY HAS ALSO BEEN ADVOCATED BY SEVERAL HONBLE COURTS INCLUDING THE HONBLE SUP REME COURT IN RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC) AND THE HONBLE JUR ISDICTIONAL HIGH COURT IN CIT VS. ARTHUR ANDERSEN & CO. (2009) 318 ITR 229 (BOM) BY H OLDING THAT THE DECISION MADE IN EARLIER YEARS IS BINDING IN SUBSEQUENT YEARS AND SH OULD BE FOLLOWED. FROM THE ABOVE DECISIONS, IT FOLLOWS THAT A DELICATE BALANCE NEEDS TO BE MAINTAINED BETWEEN THE PRINCIPLE OF CONSISTENCY AND THE RULE OF RES JUDICA TA DEPENDING UPON THE FACTS AND THE GOVERNING LEGAL POSITION PREVAILING IN EACH CASE. A T THE SAME TIME, WE WANT TO HIGHLIGHT THAT THE DOCTRINE OF ESTOPPEL TOGETHER WITH ITS EXC EPTIONS CANNOT BE IGNORED. IT IS TRITE THAT THERE CAN BE NO ESTOPPEL AGAINST THE PROVISION S OF THE ACT OR THE BINDING INTERPRETATION GIVEN TO SUCH PROVISIONS BY THE JUDI CIAL FORUMS. THIS RULE HAS BEEN CITED WITH APPROVAL BY SEVERAL COURTS INCLUDING THE HONB LE SUPREME COURT IN CIT VS. V.MR.P. FIRM (1965) 56 ITR 67 (SC). WHERE THE FACTS OF A CA SE PRIMA FACIE SHOW THAT THE AUTHORITIES TOOK A CLEARLY INCORRECT VIEW ON THE PR OVISIONS OF THE ACT IN AN EARLIER YEAR, WHETHER FAVORING THE ASSESSEE OR THE REVENUE, IT CA NNOT BE ARGUED IN THE SUBSEQUENT YEAR THAT THE SAME INCORRECT APPROACH SHOULD BE REP EATED. THE HONBLE DELHI HIGH COURT IN CWT VS. MEATTLES (P) LTD. (1984) 156 ITR 5 69 (DEL) HAS HELD THAT THE REVENUE AUTHORITIES CANNOT BE STOPPED FROM TAKING A CORRECT VIEW OF STATUTORY PROVISIONS IN A LATER YEAR. 16.3. WE HAVE ELABORATELY DISCUSSED ABOVE THAT HOW THE METHOD EMPLOYED BY THE ASSESSEE FOR DETERMINING THE ALP IN RESPECT OF IN TERNATIONAL TRANSACTIONS FOR THE YEAR UNDER CONSIDERATION IS CONTRARY) TO THE STATUTORY P ROVISIONS HAVING NO APPROVAL FROM ANY JUDICIAL FORUM. IF SUCH A WRONG METHOD HAS BEEN INADVERTENTLY ACCEPTED BY THE TPO IN AN EARLIER YEAR, WE CANNOT GRANT A LICENSE T O THE ASSESSEE TO CONTINUE CALCULATING THE ALP IN SUCH A GROSSLY ERRONEOUS MAN NER IN PERPETUITY. IT NEEDS TO BE DISCONTINUED FORTHWITH. WE, THEREFORE, REJECT THIS CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE THAT THE APPLICATION OF SUCH A WRONG METHO D BE GRANTED A SEAL OF APPROVAL ON THE BASIS OF ITS ACCEPTANCE BY THE TPO IN A PRECEDI NG YEAR. 6.1 FROM THE ABOVE OBSERVATIONS OF THE TRIBUNAL IT IS CLEAR THAT THE RULE OF CONSISTENCY WILL NOT BE APPLICABLE IN A CASE WHERE IT IS FOUND THAT IN PRECEDING YEAR THE ACTION OF THE REVENUE AUTHORITY IS CONTRARY TO THE STATUTORY PROVISIONS HAVING NO APPROVAL FROM ANY JUDICIAL FORUM. IN SUCH CASE WHERE A WRONG METHOD HAS BEEN INADVERTENTLY ACCEPTED BY THE TPO IN AN EARLIER YEA R THEN ONLY LICENCE CANNOT BE GRANTED TO THE ASSESSEE TO CALCULATE THE ALP IN A G ROSSLY ERRONEOUS MANNER IN PERPETUITY . IN THE PRESENT CASE NO SUCH CIRCUMST ANCES HAVE BEEN BROUGHT TO THE NOTICE OF THE TRIBUNAL BY THE DEPARTMENT. RATHER I T HAS BEEN OBSERVED THAT THE FACTS OF THE PRECEDING ASSESSMENT YEAR ARE IN PARI-MATER IA OF THE PRESENT YEAR. THE RULE OF CONSISTENCY HAS NOT BEEN ADVOCATED ONLY IN TH E DECISION OF HONBLE SUPREME . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 13 COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT(SUP RA) AND THE DECISION HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ARTHUR AND ERSEN & COMPANY(SUPRA) BUT IT HAS ALSO BEEN RECOGNIZED BY HONBLE SUPREME COURT I N THE RECENT DECISION RENDERED BY HONBLE THREE JUDGES OF SUPREME COURT IN THE C ASE OF CIT VS. EXCEL INDUSTRIES LTD. , 358 ITR 295, WHEREIN THEIR LORDSHIPS ON THIS ISSUE HAVE OBSERVED AS UNDER: SECONDLY, AS NOTED BY THE TRIBUNAL, A CONSISTENT V IEW HAS BEEN TAKEN IN 28 FAVOUR OF THE ASSESSEE ON THE QUESTIONS RAISED, STARTING WITH THE ASSESSMENT YEAR 1992-93, THAT THE BENEFITS UNDER THE ADVANCE LICENCES OR UNDER TH E DUTY ENTITLEMENT PASS BOOK DO NOT REPRESENT THE REAL INCOME OF THE ASSES- SEE. CONSEQ UENTLY, THERE IS NO REASON FOR US TO TAKE A DIFFERENT VIEW UNLESS THERE ARE VERY CONVINC ING REASONS, NONE OF WHICH HAVE BEEN POINTED OUT BY THE LEARNED COUNSEL FOR THE REV ENUE. IN RADHASOAMI SATSANG V. CIT [1992] 193 1TR 321 (SC ) THIS COURT DID NOT 29 THINK IT APPROPRIATE TO ALLOW THE RECONSIDERATION OF AN ISSU E FOR A SUBSEQUENT ASSESSMENT YEAR IF THE SAME FUNDAMENTAL ASPECT PERMEATES IN DIFFE RENT ASSESSMENT YEARS. IN ARRIVING AT THIS CONCLUSION, THIS COURT REFERRED TO AN INTER ESTING PASSAGE FROM HOYSTEAD V. COMMISSIONER OF TAXATION [1926] AC 155 (PC) WHEREIN IT WAS SAID (PAGE 328 OF 193 1TR) PARTIES ARE NOT PERMITTED TO BEGIN FRESH LITIGATIO N BECAUSE OF NEW VIEWS THEY MAY ENTERTAIN OF THE LAW OF THE CASE, OR NEW VERSIO NS WHICH THEY PRESENT AS TO WHAT SHOULD BE A PROPER APPREHENSION BY THE COURT O F THE LEGAL RESULT EITHER OF THE CONSTRUCTION OF THE DOCUMENTS OR THE WEIGHT OF CERTAIN CIRCUMSTANCES. IF THIS WERE PERMITTED, LITIGATION WOULD HAVE NO END, EXCEP T WHEN LEGAL INGENUITY IS EXHAUSTED. IT IS A PRINCIPLE OF LAW THAT THIS CANNO T BE PERMITTED AND THERE IS ABUNDANT AUTHORITY REITERATING THAT PRINCIPLE. THIR DLY, THE SAME PRINCIPLE NAMELY, THAT OF A SETTING TO REST RIGHTS OF LITIGAN TS, APPLIES TO THE CASE WHERE A POINT, FUNDAMENTAL TO THE DECISION, TAKEN OR ASSUME D BY THE PLAINTIFF AND TRAVERSABLE BY THE DEFENDANT, HAS NOT BEEN TRAVERSE D. IN THAT CASE ALSO A DEFENDANT IS BOUND BY THE JUDGMENT, ALTHOUGH IT MAY BE TRUE ENOUGH THAT SUBSEQUENT LIGHT OR INGENUITY MIGHT SUGGEST SOME TRAVERSE WHICH HAD NOT BEEN TAKEN. REFERENCE WAS ALSO MADE TO PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1977] 106 1TR 1 (SC) AND THEN IT WAS HELD (PAGE 329 OF 193 ITR): WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING R ES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFEREN T ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTI ES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE OR DER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ON THESE REASONING IN THE ABSENCE OF ANY MATERIAL C HANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER-AND IF THERE WAS NO CHANGE IT . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 14 WAS IN SUPPORT OF THE ASSESSEE- WE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY T HE COMMISSIONER OF INCOME-TAX IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN. 31. IT APPEARS FROM THE RECORD THAT IN SEVERAL ASSE SSMENT YEARS, THE REVENUE ACCEPTED THE ORDER OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND DID NOT PURSUE THE MATTER ANY FURTHER BUT IN RESPECT OF SOME ASSESSMENT YEARS THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE BOMBAY HIGH COURT BUT WITHOUT ANY SUCCES S. THAT BEING SO, THE REVENUE CANNOT BE ALLOWED TO FLIP-FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RATHER THAN SPEND THE TAXPAYERS MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT. 6.2 IN VIEW OF THE ABOVE FACTUAL POSITION AND CASE LAW AVAILABLE ON THE ISSUE OF RULE OF CONSISTENCY, THE ARGUMENTS OF LD. AR HAS TO BE ACCEPTED THAT ASSESSEE IS ENTITLED TO VOLUME DISCOUNT OF 20% ON THE SALES MAD E BY IT TO ITS AES AS THE SAME WAS GIVEN BY THE TPO IN RESPECT OF ASSESSMENT YEAR 2002-03. WE DIRECT ACCORDINGLY AND THE AO IS DIRECTED TO GIVE THAT REBATE. 6.3 SO FAR AS IT RELATES TO CONTENTION OF LD.AR REG ARDING DISCOUNT ON ACCOUNT OF GEOGRAPHICAL DIFFERENCE; THOUGH SIMILAR SUBMISSIO NS WERE RAISED ASSESSEE BEFORE LD. CIT(A), BUT IT HAS NOT BEEN SHOWN THAT HOW MU CH IMPACT WAS ON ACCOUNT OF GEOGRAPHICAL DIFFERENCE. NO FIGURES WERE GIVEN TO AO OR LD. CIT(A) ALSO TO SHOW SUCH IMPACT AND NOTHING WAS PRODUCED BEFORE US TO E NABLE US TO LOOK INTO SUBSTANCE OF SUCH ARGUMENTS. THEREFORE, SUCH ARGUM ENTS OF LD. AR CANNOT BE ACCEPTED. 6.4 SO FAR AS IT RELATES TO GROUND NO.2 OF REVENUE S APPEAL, IT IS OBSERVED THAT TPO HIMSELF HAS APPLIED CUP METHOD FOR DETERMINING THE ALP OF INTERNATIONAL TRANSACTION AND IF TPO HIMSELF HAS APPLIED THAT MET HOD, REVENUE DOES NOT HAVE RIGHT TO AGITATE THE SAME AS THE METHOD APPLIED BY THE TPO HAS BEEN UPHELD BY LD. CIT(A). THEREFORE, THIS GROUND OF THE REVENUE IS R EJECTED. 6.5 IT MAY BE MENTIONED HERE THAT NO OTHER ARGUMENT S WERE ADDRESSED BY BOTH THE PARTIES APART FROM WHICH ARE MENTIONED ABOVE. . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 15 6.6 IN VIEW OF ABOVE DISCUSSION THE SECOND GROUND OF THE ASSESSEES APPEAL IS PARTLY ALLOWED IN THE MANNER AFORESAID AND GROUND N O.2 OF THE REVENUES APPEAL IS DISMISSED. 7. APROPOS GROUND NO.1 OF REVENUES APPEAL; THE ASS ESSEE CLAIMED DEDUCTION UNDER SECTION 80M OF THE ACT TO THE EXTENT OF GRO SS DIVIDEND INCOME RECEIVED AMOUNTING TO RS.94,17,412/-. THE AO FOUND THAT IN TEREST EXPENSES TO THE EXTENT OF RS.11,67,900/- WERE ATTRIBUTABLE TO EXPENDITURE IN CURRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING DIVIDEND INCOME. SIMILARLY, AO OBSERVED THAT RS.50,000/- WAS FURTHER ALLOCATED AS INDIRECT EXPENSES TOWARDS EARN ING OF THE DIVIDEND INCOME . THE AGGREGATE OF BOTH THESE AMOUNTS I.E. A SUM OF RS.12 ,17,900/- WAS REDUCED FROM THE GROSS DIVIDEND INCOME RECEIVED AND DEDUCTION UNDER SECTION 80M WAS ALLOWED AT RS.81,91,512/- AS AGAINST THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.94,17,412/- THE REDUCTION IN THE CLAIM OF DEDUCTION UNDER SECTI ON 80M AMOUNTING TO RS.12,17,900/- WAS AGITATED IN THE APPEAL FILED BE FORE LD. CIT(A). WHO FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF PUNJAB STA TE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. DCIT 102 ITD 1(CHD)(SB) HELD THAT SUCH DISALLOWANCE WAS NOT CALLED FOR. HOWEVER, FINDING THAT IN RESPECT OF A. Y 1995-96 THE ITAT HAD RESTRICTED SUCH DISALLOWANCE AT RS.20,000/-, HE HAS SUSTAINED THE DISALLOWANCE ONLY TO THE EXTENT OF RS.50,000/-. THE REVENUE IS AGGRIEVED, H ENCE, HAS FILED AFOREMENTIONED GROUND. 8. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. WE FOUND THAT THIS ISSUE IS COVERED I N FAVOUR OF ASSESSEE BY THE SPECIAL BENCH DECISION IN THE CASE OF PUNJAB STATE INDUSTR IAL DEVELOPMENT CORPORATION LTD. VS. DCIT(SUPRA) WHEREIN IT HAS BEEN HELD THAT DED UCTION UNDER SECTION 80M IS TO BE ALLOWED ON NET DIVIDEND INCOME COMPUTED AS PER P ROVISIONS OF SECTION 57 TO 59; SHARES HELD BY THE ASSESSEE COMPANY BEING CAPITAL I NVESTMENT AND NOT STOCK-IN- TRADE, DIVIDEND COULD ONLY BE ASSESSED UNDER THE HE AD OTHER SOURCES AND ONLY . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 16 EXPENDITURE REFERRED TO IN SECTION 57 COULD BE DED UCTED TO ARRIVE AT NET DIVIDEND AND, THEREFORE, PROPORTIONATE MANAGEMENT EXPENSES O R INTEREST OR OTHER EXPENSES COULD NOT BE DEDUCTED WHILE COMPUTING DIVIDEND INCO ME FOR THE PURPOSE OF ALLOWING DEDUCTION U/S.80M. ACCORDINGLY, WE DECLINE TO INT ERFERE IN THE RELIEF GRANTED BY LD. CIT(A) AND GROUND NO.1 OF REVENUES APPEAL IS DISMI SSED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/11/2013 0 , ./# ! 1 2'3 29 /11/2013 / , 4 5 SD/- SD/- ( / RAJENDRA ) ( . . / I.P. BANSAL ) ! / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' DATED 29/11/2013 0 0 0 0 , ,, , '-67 '-67 '-67 '-67 87#- 87#- 87#- 87#- / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. 7:4 '-' , , / DR, ITAT, MUMBAI 6. 4; < / GUARD FILE. 0' 0' 0' 0' / BY ORDER, (7- '- //TRUE COPY// = == = / > > > > (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS . / ITA NO.2393 & 2328/MUM/2010 ' ' ' ' # # # # / ASSESSMENT YEAR 2003-04 17 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 25/11/2013 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 26/11/2013 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER