Cummins India Ltd, Pune V. ACIT, Pune

ITA 2417/PUN/2012

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7263 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-09-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 06-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; International transaction; Earning of tax free income; Initiation of penalty proceedings; Revised return
• Section: 92C; 143(3); 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 2417 /P U N/20 1 2 / ASSESSMENT YEAR : 20 0 8 - 0 9 CUMMINS INDIA LIMITED, KOTHRUD, PUNE 411038 . / APPELLANT PAN: AAAC C7258B VS. THE A SST . COMMISSIONER OF INCOME - TAX , CIRCLE 1 (1) , PUNE . / RESPONDENT / APPELLANT BY : S HRI ARVIND SONDE / RESPONDENT BY : S HRI RAJEEV KUMAR, CIT / DATE OF HEARING : 06 . 0 9 .201 7 / DATE OF PRONOUNCEMENT: 30 . 1 0 .201 7 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY A SSESSEE IS AGAINST ORDER OF T HE A SST . COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE DATED 04 .10.201 2 RELATING TO A SSESSMENT Y EAR 20 0 8 0 9 PASSED UNDER SECTION143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 2 A. TRANSFER PRICING ADJUSTMENT: 1.1 THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN MAKING AN ADJUSTMENT AMOUNTING TO RS. 9 5, 51 , 1 9, 00 0 TO THE VALUE OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES IN RESPECT OF EXPORT OF I C ENGINES AND PROVISION OF PROCUREMENT SUPPORT SERVICES. 1.2 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN DISREGARDING THE BENCHMARKING OF MANUFACTURING ACTIVITY DONE BY THE APPELLANT FOLLOWING 'AGGREGATION OF TRANSACTIONS' APPROACH US ING THIRD PARTY COMPA RABLE COMPANIES WHILST FOLLOWING 'AGGREGATION OF TRANSACTIONS' APPROACH HIMSELF US IN G INTERNAL 'COMPARABLES' . B. INTERNATIONAL TRANSACTION RELATING TO EXPORT OF I C ENGINES 2. REJECTION OF BENCHMARKING DONE BY THE APPELLANT: 2.1 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING THE EXTERNAL COMPARABLE COMPANIES SELECTED BY THE APPELLANT FOR BENCHMARKING THE MANUFACTURING FUNCTION. 3. INAPPROPRIATE COMPARISON OF PROFITABILITY BETWEEN 'EXPORT TO ASSOCIATED ENTERPRISES (AES)' SEGMENT AND 'DOMESTIC SALES' SEGMENT IGNORING DIFFERENCES IN FUNCTIONS, ASSETS AND RISKS (FAR), DIFFERENCES IN PRODUCTS SOLD AND COMPARISON OF CONTROLLED TRANS ACTIONS WITH CONTROLLED TRANSACTIONS 3.1 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPARING SEGMENTAL PROFITABILITY OF THE APPELLANT I.E. BETWEEN 'EXPORT TO AES' SE GMENT AND 'DOMESTIC SALES' SEGMENT IGNORING PRODUCT DIFFERENCES, DIFFERENCES IN MARKETS AS WELL AS DIFFERENCES IN THE FUNCTIONS, ASSETS AND RISKS (FAR). 3.2 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN COMPARING SEGMENTAL PROFITABILITY OF THE APPELLANT 'EXPORTS TO AES' SEGMENT AND 'DOMESTIC SALES' SEGMENT. THIS IS A COMPARISON BETWEEN CONTROLLED TRANSACTIONS, WHICH IS AGAINST THE TRANSFER PRICING REGULATIONS IN INDIA, WHICH STIPULATES COMPARING CONTROLLED TRANSACTIONS WITH UNCONTROLLED TRANSACTIONS. 3.3 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN IGNORING THE ADJUSTED MARGINS SUBMITTED BY THE APPELLANT IN ORDER TO ACCOUNT FOR THE DIFFERENCES BETWEEN TWO SEGMENTS OF 'EXPORT TO AES' AND 'DOMESTIC SALES' ON ACCOUNT OF PRODUCT AND RISK DIFFERENCES. 3.4 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN REJECTING THE FUNCTIONAL ADJUSTMENT CARRIED OUT BY THE APPELLANT ON EXPORT TO AES SEGMENT ON ACCOUNT OF APPRECIATION OF RUPEE AGAINST US DOLLAR IN ORDER TO ACCOUNT FOR THE DIFFERENCES BETWEEN TWO SEGMENTS OF EXPORT TO AES AND DOMESTIC SALES. ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 3 4. INAPPROPRIATE APPROACH ADOPTED BY TPO IN APPLICATION OF 'NET PROFIT TO TOTAL COST' AS PROFIT LEVEL INDICATOR (PL I) 4.1 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND WITHOUT PROVIDING COGENT REASONS IN CONSIDERING PLI AS NET PROFIT TO TOTAL COST AS AGAINST NET PROFIT TO SALES' AS SELECTED BY THE APPELLANT. 5. BENEFIT OF THE VARIATION / REDUCTION OF 5 PERCENT FROM THE ARITHMETIC MEAN 5.1 THE LEARNED AC I T PURSUANT TO THE DIRECTIONS OF LEARNED DRP HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT GRANTING THE BENEFIT OF +/ - 5 PERCENT AS PER PROVISO TO SECTION 92C (2) OF THE ACT . C. INTERNATIONAL TRANSACTION RELATING TO PROCUREMENT SUPPORT SERVICES 6 . INAPPROPRIATE APPROACH ADOPTED BY TPO I N BENCHMARKING PROC UREMENT SUPPORT SERVICES PROVIDED TO ASSOCIATED ENTERPRISES 6 .1 THE LEARNED AC I T PURSUANT TO THE DIRECTION OF THE LEARNED DRP ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE IN REJECTING EXTERNAL COMPARABLE COMPANIES SELECTED BY THE APPELLANT. 7 . DISALLOWANCE OF DEDUCTION U/S. 80IB BY THE AO 7 .1 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP ERRED IN DISALLOWING RS.3, 79 , 144 / - OUT OF THE DEDUCTION U/S. 80IB BY ALLOCATING A PORTION OF DIRECTOR'S EXPENSES TO THE PROFITS OF ELIGIBLE DAMAN UNIT. 8 . DISALLOWANCE OF EXPENSES U NDER SECTION 14A 8 .1 THE LEARNED AC I T , PURSUANT TO THE DIRECTIONS OF THE LEARNED DRP , ERRED IN DISALLOWING AN AMOUNT OF RS.1, 50 , 26,000 / - AS INCURRED IN RELATION TO EXEMPT INCOME U/S.14A OF THE INCOME TAX ACT, 1961. 9 . INITIATION OF PENALTY PROCEEDINGS 9 .1 THE LEARNED ACIT ERRED ON THE FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 1 0 . EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE I SSUE S RAISED IN THE PRESENT APPEAL ARE SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 200 7 - 08 EXCEPT FOR THE ISSUE RAISED VIDE GROUND OF APPEAL NO.8.1 I.E. DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THEREAFTER, TOOK US THROUGH THE ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 4 ISSUES RAISED GROUND - WISE TO POINT OUT HOW THE SAM E ARE COVERED BY THE ORDER OF TRIBUNAL. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW BUT FAIRLY CONCEDED THAT THE SAID ISSUES WERE ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN PRE CEDING YEARS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF IC ENGINES. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED TH E RETURN OF INCOME DECLARING TOTAL INCOME OF RS.311.70 CRORES. THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.341.65 CRORES. THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES, F OR WHICH THE ASSESSING OFFICER MADE REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA(1) OF THE ACT TO DETERMINE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE TPO IN ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT PROPOSED AN UP WARD ADJUSTMENT OF RS.95,51,19,000/ - WHICH WAS ADDED BY THE ASSESSING OFFICER IN ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT , AFTER THE OBJECTIONS FILED BY THE ASSESSEE WERE REJECTED BY THE DISPUTE RESOLUTION PANEL (DRP). 6. THE ASSESSE E IS AGGRIEVED BY THE ORDER OF ASSESSING OFFICER / TPO. THE FIRST ISSUE WHICH WAS ADJUDICATED BY THE TPO WAS THE CLAIM OF AGGREGATION APPROACH ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS MANUFACTURING ACTIVITIES , WHICH W AS REJECTED. THE SECOND ASPECT OF TRANSFER ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 5 PRICING ISSUE WAS THE MOST APPROPRIATE METHOD TO BE APPLIED, WHEREIN THE TPO HAD COMPARED THE PROFITABILITY OF EXPORT TO ASSOCIATED ENTERPRISES UNDERTAKEN BY THE ASSESSEE WITH DOMESTIC SALES. THE ASSESSEE IS AGGRIEVED BY TWO ASPECTS, WHEREIN IT HAS POINTED OUT THAT BECAUSE OF CONTROLLED TRANSACTIONS, NO COMPARISON COULD BE MADE AND ALSO BECAUSE OF FAR ANALYSIS, THE MOST APPROPRIATE METHOD TO BE APPLIED WAS TNMM METHOD AND THE COMPARISON HAD TO BE MADE WITH EXTERNAL COMPARABLES WHICH WERE APPLIED BY THE ASSESSEE IN ITS TP STUDY REPORT. 7. THE ASSESSEE AT THE OUTSET POINTED OUT THAT GROUND OF APPEAL NO.1.1 IS GENERAL IN NATURE AND THE SAME MERITS TO BE DISMISSED. 8. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1.2 IS AGAINST REJECTION OF AGGREGATION APPROACH ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS MANUFACTURING ACTIVITIES. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08 IN ITA NO.1681/PUN/2011 AND VIDE ORDER DATED 21.08.2017, THE T RIBUNAL VIDE PARA 9 AT PAGE 9 OF THE ORDER HAS APPLIED THE RATIO LAID DOWN IN EARLIER YEARS AND HELD THAT AGGREGATION APPROACH IS TO BE APPLIED. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 9. THE TRIBUNAL THUS, HELD THAT WHERE VARIOUS ACTIVITIES WERE SO INTERLINKED TO THE EXPORT OF MANUFACTURED IC ENGINES, THEN THE SAID INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION NEED TO BE AGGREGATED FOR UNDERTAKING B ENCHMARKING ANALYSIS APPLYING TNNM METHOD. THE TRIBUNAL IN THIS REGARD PLACED RELIANCE ON THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN SON Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA) . FOLLOWING THE SAME PRINCIPLE AND WHERE THE ASSESSEE WAS ENGAGED IN SIMILAR ACTIVITY OF MANUFACTURING, WE HOLD THAT VARIOUS A CTIVITIES NEED TO BE AGGREGATED. ACCORDINGLY, WE DIRECT SO. 9. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF ASSESSEE, WHEREIN THE ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 6 ASSESSEE WAS ENGAGED IN MANUFACTURING ACTIVITIES, THEN WE HOLD THAT VARIOUS ACTIVITIES ARE TO BE AGGREGATED FOR DETERMINING THE ARM'S LENGTH PRICE OF ITS INTERNATIONAL TRANSACTIONS. 10. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.2.1 , 3.1 AND 3.3 IS AGAINST THE METHOD TO BE APPLIED AS MOST APPROPRIATE METHOD AND WHETHER INTERNAL COMPARABILITY IS TO BE MADE I.E. COMPARING THE PROF ITABILITY OF EXPORT TO ASSOCIATED ENTERPRISES WITH DOMESTIC SALES. THE SAID ISSUE WAS ALSO ADJUDICATED BY THE TRIBUNAL IN EARLIER YEARS AND VIDE ORDER DATED 21.08.2017, THE TRIBUNAL HELD THAT WHILE APPLYING TNMM METHOD, MARGINS OF ASSESSEE ARE TO BE COMPA RED WITH AVERAGE MARGINS OF EXTERNAL COMPARABLE COMPANIES AS PER PARA 12, WHICH READ AS UNDER: - 12. WE HAVE PERUSED THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2005 - 06 AND NOTED THE FACT THAT THE ASSESSEE HAD NOT PRESSED THE SAID GROUND OF APPEAL BEING ACADEMIC IN NATURE AND HENCE, NO ADJUDICATION WAS MADE ON THE SAID GROUND OF APPEAL. HOWEVER, IN ASSESSMENT YEAR 200 5 - 0 6 , THE ASSESSEE IS NOT AGGRIEVED BY THE FINDINGS OF TRIBUNAL IN DISMISSING THE PLEA OF ASSESSEE SINCE THE ISSUE HAS ALSO BECOME ACADEMIC IN NATURE. HOWEVER, IN THE PRESENT APPEAL, AFTER AGGREGATION APPROACH ADOPTED BY THE ASSESSEE AND ACCEPTED BY THE TRIBUNAL, THERE MAY BE CASE OF CERTAIN ADJUSTMENTS TO BE MADE ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. IN THIS REGAR D, WE FIND THAT THE ISSUE IS COVERED BY THE ORDER OF HONBLE HIGH COURT OF DELHI IN SON Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA), WHEREIN VIDE PARA 91, THE HONBLE HIGH COURT HELD THAT WHILE APPLYING TNNM METHOD AND WHERE THE TRANSAC TIONS ARE INTERLINKED AND COMBINED, THEN FOR THE PURPOSE OF DETERMINING ARM'S LENGTH PRICE, CONTROLLED BUNDLE TRANSACTIONS CANNOT BE ADEQUATELY COMPARED ON AGGREGATE BASIS AND THE COMPARISON, IF ANY, IS TO BE MADE WITH UNCONTROLLED TRANSACTIONS. APPLYING THE SAID PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN SON Y ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (SUPRA), WE HOLD THAT ACCEPTING THE AGGREGATION APPROACH OF THE ASSESSEE OF ITS TRANSACTIONS UNDER THE MANUFACTURING ACTIVITY, WE HOLD THAT WHILE APPLYING TNNM METHOD, THE MARGINS OF ASSESSEE COMPANY ARE TO BE COMPARED WITH THE MARGINS OF EXTERNAL COMPARABLES. HOWEVER, SINCE THE TPO HAD NOT VERIFIED THIS FACTUM OF COMPARISON WITH EXTERNAL COMPARABLES, WE DIRECT THE ASSESSING OFFI CER / TPO TO CONSIDER THE CASE OF ASSESSEE AND DETERMINE THE ARM'S LENGTH PRICE AND RE - COMPUTE ADJUSTMENT, IF ANY, IN THE HANDS OF ASSESSEE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS. IT MAY BE POINTED HEREIN ITSELF THAT THE ADJUSTMENTS WERE MADE IN THE HAN DS OF ASSESSEE IN HHP DIVISION AND NO ADJUSTMENT WAS MADE IN LHP DIVISION. CONSEQUENTLY, THE GROUNDS OF APPEAL NO.1.1, 2 AND 3 A RE DECIDED AS INDICATED ABOVE. ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 7 11. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.2.1, 3.1 AND 3.3 IS THUS, DECIDED IN FAVOUR OF ASSESSEE AND WE HOLD SO. THE ISSUE RAISED IN GROUND OF APPEAL NO.3.4, IN VIEW THEREOF, BECOME S ACADEMIC IN NATURE AND THE SAME IS DISMISSED. 12. THE ISSUE IN GROUND OF APPEAL NO.4.1 IS AGAINST DETERMINATION OF PLI, WHEREIN THE TPO HAD APPLIED NET PROFIT TO COST TO WORK OUT THE PLI. HOWEVER, THE CLAIM OF ASSESSEE WAS THAT PLI OF NET PROFIT TO SALES HAS TO BE APPLIED. THE TRIBUNAL VIDE ORDER DATED 21.08.2017 HAS DECIDED THE ISSUE VIDE PARAS 14 AND 15 AND DIRECTED THE ASSESSING OFFICER TO ADOPT THE NET PRO FIT TO SALES FOR DETERMINING PLI. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 14. THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.4 IS AGAINST THE APPROACH ADOPTED BY THE TPO IN APPLICATION OF NET PROFIT TO COST AS PLI. THE SAID ISSUE WAS ALSO DECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 VIDE PARA 22 AT PAGE 30 OF THE ORDER WHICH READS AS UNDER: - 22. THE NEXT ISSUE RAISED BY WAY OF GROUND OF APPEAL NO.7 IS THE METHODOLOGY ADOPTED BY THE TPO IN APPLICATION OF NET PROFIT TO COST AS PLI. T HE CASE OF ASSESSEE IS THAT WHERE SELLING PRICE OF COMPONENT MANUFACTURED BY IT DERIVES THE PROFITABILITY AND NOT THE COST OF COMPONENTS UTILIZED FOR MANUFACTURING ACTIVITY, THE PLI SHOULD BE ADOPTED AS NET PROFIT TO SALES AND NOT NET PROFIT TO COST. WE F IND MERIT IN THE PLEA OF ASSESSEE IN THIS REGARD THAT WHERE THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF COMPONENTS AND THE MAIN AIM OF UNDERTAKING WAS TO SELL THE SAID COMPONENTS, THEN IT IS THE SALES WHICH DERIVE THE PROFITABILITY AND NOT THE COST OF CO MPONENTS. ACCORDINGLY, WHILE DETERMINING THE PLI, THE TPO IS DIRECTED TO ADOPT NET PROFIT TO SALES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. HENCE, THE GROUND OF APPEAL NO.7 IS ALLOWED. 15. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER THAT WHILE DETERMINING THE PLI TO ADOPT NET PROFIT TO SALES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. 13. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.4.1 IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE ORDERS OF TRIBUNAL IN EARLIER YEARS AND FOLLOWING THE SAME PARITY OF REASONING, WE ALLOW THE CLAIM OF ASSESSEE. ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 8 14. THE NEXT ISSUE VIDE GROUND OF APPEAL NO.5 IS AGAINST THE BENEFIT OF VARIATION / REDUCTION OF 5% FROM THE ARITHMETIC MEAN. 15. THE SAID ISSUE HAS ALSO BEEN DECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08. ACCORDINGLY, WE HOLD THAT THE BENEFIT OF RANGE OF +/ - 5% IS AVAILABLE IF THE VARIATION DOES NOT EXCEED THE SAID TOLERANCE MARGIN. 16. THE ISSUE RAISED VIDE GROUND OF APPEAL N O.6.1 IS AGAINST BENCHMARKING OF PROCUREMENT SUPPORT SERVICES PROVIDED TO ASSOCIATED ENTERPRISES AND WHETHER THE SAME ARE TO BE AGGREGATED WITH THE MANUFACTURING ACTIVITIES. WE FIND THIS ISSUE HAS ALSO BEEN DECIDED BY THE TRIBUNAL VIDE ORDER DATED 21.08.2 017 VIDE PARA 17 HOLDING AS UNDER: - 17. THE NEXT ISSUE RAISED VIDE GROUND OF APPEAL NO.6 IS AGAINST BENCHMARKING OF PAYMENT OF TECHNICAL KNOW - HOW FEES TO ASSOCIATED ENTERPRISES AND VIDE GROUND OF APPEAL NO.7 AGAINST BENCHMARKING OF PROCUREMENT SUPPORT SE RVICES PROVIDED TO ASSOCIATED ENTERPRISES . SIMILAR ISSUE ALSO AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2006 - 07 AND VIDE ORDER DATED 03.03.2017, THE TRIBUNAL HELD THAT TECHNICAL KNOW - HOW AND PROCUREMENT SUPPORT SERVICES HA VE TO BE AGGREGATED ALONG WITH OTHER INTERNATIONAL TRANSACTIONS UNDER THE HEAD MANUFACTURING ACTIVITY AND CONSEQUENTLY, THE ASSESSING OFFICER WAS DIRECTED TO COMPUTE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AFTER AGGREGATING THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE AS SESSEE UNDER THE HEAD MANUFACTURING ACTIVITY. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE IN PARAS 24 AND 25 AT PAGE 31 OF THE ORDER AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD SO. THE GROUNDS OF APPEAL NO.6 AND 7 ARE THUS, ALLOWED. 17. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT INTERNATIONAL TRANSACTIONS OF PROCUREMENT SUPPORT SERVICES PROVIDED TO ASSOCIATED ENTERPRISES ARE TO BE AGGREGATED AND BENCHMARKED ALONG WITH INTERNATIONAL TRANSACTIONS UNDER THE MANUFACTURING ACTIVITIES . 18. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.7.1 IS AGAINST THE DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80IB OF THE ACT. ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 9 19. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE SAID ISSUE IS COVERED AGAINST TH E ASSESSEE BY THE EARLIER ORDER OF TRIBUNAL AND WHEREIN, THE TRIBUNAL FOLLOWING THE SAME PARITY OF REASONING AS IN ASSESSMENT YEAR 2006 - 07 VIDE ORDER DATED 03.03.2017 HAD UPHELD THE ORDERS OF AUTHORITIES BELOW IN ALLOCATING HEAD OFFICE EXPENSES, DIRECTORS SALARY, ETC TO DAMAN UNIT AND UPHELD THE RE - COMPUTATION OF DEDUCTION UNDER SECTION 80IB OF THE ACT. FOLLOWING THE SAME PARITY OF REASONING, WE DISMISS THE GROUND OF APPEAL NO.7.1 RAISED BY THE ASSESSEE. 20. THE LAST ISSUE RAISED BY THE ASSESSEE IS AGAIN ST DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT. THE ASSESSEE IS AGGRIEVED BY THE ORDERS OF AUTHORITIES BELOW IN DISALLOWING EXPENSES RELATABLE TO EXEMPT INCOME UNDER SECTION 14A OF THE ACT. 21. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE POINTED OUT THAT THE ASSESSEE WAS CASH RICH COMPANY AND HAD SURPLUS FUNDS AND THERE WAS NO MERIT IN DISALLOWING ANY PART OF INTEREST EXPENDITURE BEING RELATABLE TO EXEMPT INCOME. HE FURTHER POINTED OUT THAT IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2007 - 08, DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES, WAS UPHELD TO THE EXTENT OF RS.2 LAKHS. HE ALSO REFERRED TO THE DISALLOWANCE MADE BY THE ASSESSEE SUO MOTU AND STATED THAT THERE IS NO MERIT IN MAKING ANY FURTHER DISALLOWANCE IN THE HANDS OF AS SESSEE. DURING THE COURSE OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FILED THE WORKING OF DISALLOWANCE TO BE MADE UNDER SECTION 14A OF THE ACT AT RS.2,80,144/ - . HE FURTHER STRESSED THAT IN THE ABSENCE OF RECORDING OF ANY SATISFACT ION FOR INVOKING PROVISIONS OF SECTION 14A OF THE ACT AS AGAINST THE ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 10 DISALLOWANCE MADE BY THE ASSESSEE, THERE IS NO MERIT IN THE ORDER OF ASSESSING OFFICER IN THIS REGARD. 22. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD RECEIVED INTEREST AND DIVIDEND OF RS.50,88,63,558/ - WHICH WAS CLAIMED AS EXEMPT UNDER SECTIONS 10(15), 10(34) AND 10(35) OF THE ACT. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT IT WAS CASH RICH COMPANY AND HAD RESERVES AND SURPLUS AS ON 31.03.2008 AT RS.1103.69 CRORES AS AGAINST SECURED AND UNSECURED LOANS AT RS.28.87 CRORES ONLY. THE ASSESSEE THUS, CLAIMED THAT INVESTMENTS WERE MADE OUT OF OWN FUNDS OF THE COMPANY. FURTHER CONTENTION OF THE ASSESSEE WAS THAT GENERAL ADMINISTRATIVE EXPENSES COULD NOT BE ATTRIBUTED TO EARNING OF TAX FREE DIVIDEND INCOME AND THE EXPRESSION IN RELATION TO SECTION 14A OF THE ACT WOULD MEAN DOMINANT AND IMMEDIATE CONNECTION. HENCE, THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, IF ANY, IS TO BE RESTRICTED TO THE EXTENT WHICH IS RELATED TO THE INCOME NOT FORMING PART OF TOTAL INCOME. THE ASSESSEE HAD WORKED OUT THE DISALLOWANCE AT RS.19,63,021/ - . THE ASSESSING OFFICER ACCEPTED THE PLEA OF ASSESSEE THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST COST IS TO BE MADE. HOWEVER, SUBMISSIONS OF ASSESSEE WITH REGARD TO GENERAL AND ADMINISTRATIVE EXPENSES WERE FOUND TO BE NOT A CCEPTABLE. THE ASSESSING OFFICER REJECTED THE CONTENTION OF ASSESSEE THAT NO EXPENSES COULD BE ATTRIBUTED TO EARNING OF EXEMPT DIVIDEND INCOME ON THE GROUND THAT THERE MAY NOT BE ANY DIRECT ATTRIBUTABLE EXPENSES UNDER RULE 8D(2)(I) OF THE RULES BUT THE AS SESSEE COMPANY MUST HAVE INCURRED SOME EXPENSES TO EARN TAX ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 11 FREE DIVIDEND INCOME. IN VIEW THEREOF, THE DISALLOWANCE WAS COMPUTED AS PER RULE 8D OF THE RULES @ 0.5% OF AVERAGE VALUE OF INVESTMENTS WHICH WORKS OUT TO RS.1,50,26,000/ - . THE CIT(A) UPHELD THE SAME. THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 24. THE FIRST ISSUE WHICH HAS TO BE CONSIDERED IS THE SATISFACTION RECORDED BY THE ASSESSING OFFICER, IN VIEW OF PROVISIONS OF SECTION 14A(2) OF THE ACT. AS PER SAID SUB - SECTION, WHERE THE ASSESSING O FFICER HAVING REGARD TO THE ACCOUNTS OF ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE IN RESPECT OF SUCH EXPENDITURE, IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME, THEN THE ASSESSING OFFICER HAS TO DETERMINE TH E AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPT INCOME, IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE FIRST STEP IS THE SATISFACTION OF THE ASSESSING OFFICER TO BE RECORDED VIS - - VIS THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE . THE ASSESSEE HAD FURNISHED THE WORKING OF DISALLOWANCE UNDER RULE 8D OF THE RULES AT RS.19,63,021/ - . THE SAID WORKING WAS IN RESPECT OF DISALLOWANCE TO BE MADE UNDER RULE 8D(III) OF THE RULES. THE ASSESSING OFFICER HAVING NOT RECORDED ANY SATISFACTION AS TO THE CORRECTNESS OR OTHERWISE OF THE AFORESAID DISALLOWANCE WORKED OUT BY THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS LAID DOWN IN SUB - SECTION (2) TO SECTION 14A OF THE ACT. ACCORDINGLY, THERE IS NO MERIT IN THE EXERCISE UNDERTAKEN BY THE ASSESSIN G OFFICER. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DURING THE COURSE OF HEARING HAS FILED THE DETAILS IN RESPECT OF DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT AT RS.2,80,144/ - AS AGAINST WORKING FILED BEFORE THE ASSESSING OFFICER, COPY OF WH ICH IS PLACED AT PAGE 680 OF THE PAPER BOOK, UNDER WHICH THE DISALLOWANCE WORKED OUT TO RS.19,63,021/ - . ON PERUSAL OF THE STATEMENT FILED BY THE ASSESSEE, WHICH IS ITA NO. 2417 /P U N/20 1 2 CUMMINS INDIA LIMITED . 12 PLACED AT PAGE 680 OF THE PAPER BOOK, WE DISALLOW SUM OF RS.19,63,021/ - UNDER RULE 8D(III) OF THE RULES BEING DISALLOWANCE TO BE MADE IN VIEW OF PROVISIONS OF SECTION 14A OF THE ACT. THE ASSESSEE IS CASH RICH COMPANY AND THE SHARE CAPITAL AND RESERVES & SURPLUS OF THE SAID CONCERN AS ON 31.03.2008 ARE SUFFICIENT TO TAKE CARE OF INVESTMENTS MADE BY THE ASSESSEE. CONSEQUENTLY, NO DISALLOWANCE IS MADE ON ACCOUNT OF INTEREST EXPENDITURE UNDER RULE 8D(II) OF THE RULES BY THE ASSESSING OFFICER . ACCORDINGLY, THE GROUND OF APPEAL RAISED IN THIS REGARD, IS PARTLY ALLOWED. 2 5 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 30 TH DAY OF OCTOBER , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 30 TH OCTOBER , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE