Bekaert Industries P.Ltd., Pune V. ACIT, Pune

ITA 2478/PUN/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0987 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMRAT RAHI
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE ! ' , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA NOS.2477 TO 2479/PN/2012 ASSESSMENT YEARS : 2005-06 TO 2007-08 BEKAERT INDUSTRIES PVT. LTD., AMAR PARADIGM, NEAR D MART, S.NO.110/11/3, BANER ROAD, BANER, PUNE 411 045. PAN: AAACB8571E .. APPELLANT VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), PUNE. ... RESPONDENT / APPELLANT BY : SHRI SUNIL PATHAK / DEPARTMENT BY : SHRI SAMRAT RAHI / DATE OF HEARING : 05.07.2016 / DATE OF PRONOUNCEMENT: 31.08.2016 % / ORDER PER VIKAS AWASTHY, JM : THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DA TED 16.10.2012 COMMON FOR THE ASSESSMENT YEARS 2005-06 TO 2007-08. SINCE COM MON ISSUES ARE INVOLVED IN THESE APPEALS, THE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF N. V. BEKAE RT S.A., BELGIUM. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE OF S TEEL TYRE CORDS AND HOSE 2 ITA NOS.2477 TO 2479/PN/2012 REINFORCEMENT WIRES. THE STEEL TYRE CORDS MANUFACT URED BY THE ASSESSEE ARE USED AS REINFORCING MATERIAL FOR THE REDIAL TYRES U SED IN PASSENGER CARS AND TRUCKS. DURING THE PERIOD RELEVANT TO ASSESSMENT YEARS UNDE R APPEAL, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE S FOR IMPORT OF RAW MATERIAL, TRADING MATERIAL, SPARES, MACHINES, DIES, ETC. AND EXPORT OF PACKING MATERIALS AND STEEL CORDS. THE ASSESSEE FOR BENCHMARKING THE TRA NSACTIONS WITH ITS AES APPLIED COST PLUS METHOD IN ALL THE THREE IMPUGNED ASSESS MENT YEARS IN RESPECT OF EXPORT OF PACKING MATERIALS (SPOOLS) AND IN RESPECT OF IMP ORT OF TRADING MATERIAL THE ASSESSEE APPLIED COST PLUS METHOD IN ASSESSMENT Y EAR 2005-06 AND 2006-07 AND RESALE PRICE METHOD IN ASSESSMENT YEAR 2007-08. DURING THE ASSESSMENT PROCEEDINGS UNDER APPEAL, THE TRANSFER PRICING OFFI CER (TPO) INTER-ALIA MADE ADJUSTMENT ON ACCOUNT OF IMPORT OF TRADING MATERIAL S AND EXPORT OF PACKING MATERIALS (SPOOLS). THE INTERNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN RESPECT OF IMPORT OF TRADING AND EXPORT OF PACKING MATERIALS IN THE ASSESSMENT YEAR 2005-06, 2006-07 AND 2007-08 ARE AS UNDER :- NATURE OF TRANSACTIONS AMOUNT (IN RS.) A.Y. 2005-06 A.Y. 2006-07 A.Y. 2007-08 EXPORT OF PACKING MATERIALS 23,44,060.00 46,26,403.58 30,14,711.00 IMPORT OF TRADING MATERIALS 1,34,60,019.00 1,86,18,801.58 9,82,64,251.00 3. DURING THE PROCEEDINGS BEFORE THE TPO UNDER SECT ION 92CA(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT), THE TPO MADE UPWARD ADJUSTMENT IN RESPECT OF IMPORT OF TRADING MATERIAL AND EXPORT OF PACKING MATERIAL AS UNDER :- AMOUNT IN RS. AY 2005-06 AY 2006-07 AY 2007-08 IMPORT OF TRADING MATERIAL 16,81,200 13,56,146 1,25,75,849 EXPORT OF PACKING MATERIALS 6,04,374 13,16,271 8,67,055 3 ITA NOS.2477 TO 2479/PN/2012 4. ON THE BASIS OF ADJUSTMENT MADE BY THE TPO, THE ASSESSING OFFICER MADE ADDITION IN THE INCOME RETURNED BY THE ASSESSEE. A GAINST THE ASSESSMENT ORDERS FOR THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE F ILED APPEALS BEFORE THE CIT(A). THE FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER C OMMON FOR THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 UPHELD THE FINDI NGS OF THE TPO AND DISMISSED THE APPEALS OF THE ASSESSEE. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF CIT(A) BY RAISING F OLLOWING GROUNDS OF APPEAL :- 1.1 ON THE FACTS OF THE CASE AN D IN L AW, THE LEARNED CIT(A) IT/ TP , PUNE ERRED IN CON F IRMING TRA N SFER P RICING AD D ITION OF RS.6,04,374/- IN RESPECT OF INTERNATIONAL TRANSACTION OF EXPORT OF SPOOLS AGGREGATING TO RS. 23,44,060/- MADE BY THE APPE L LANT COMPANY TO ITS ASSOCIATED ENTERPRISES. 1.2 THE LEARNED CIT(A) ERRED IN HOLDING THAT 0 . 47% OF THE MANUFACTURING AND OTHER EXPENSES OF RS. 11,69 , 00,247/ - INCURRED BY THE ASSESSEE COMPANY WAS ATTRIBUTABLE TO THE ACTIVITY OF EXPORT OF SPOOLS (W HICH WAS 0 . 4 7 % OF THE TOTAL TURN O VER OF THE APPELLANT COMPANY) TO THE ASSOCIATED ENT ERPRISES AND HENCE, AS A CONSEQUENCE , HE ERRED IN HOLDING THAT THE MARK UP OF 10% SHOULD HAVE BEEN LEVIED BY CONSIDERING THE PROPORTIONATE PORTION OF THE AF OR ESA I D MANUFACTURING AND OTHER EXPENSES INCURRED BY THE ASSESSEE COMPANY . 1 . 3 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE MANUFACTURING AND OTHER EXPENSES AGGREGATING TO RS . 11,69, 0 0,247/- ARE NOT INCURRED IN RELATION TO ACTIVITY OF EXPORT OF SPOOLS TO ASSOCIATED ENTERPRI SES AND HENCE NO PART OF ABOVE EXPENSES WERE REQUIRED TO BE CONSIDERED WHILE WORKI NG OUT THE 'COST' OF THE SP O OLS EXPORTED TO THE APPELLANT COMPANY'S ASSOCIATED ENTERPRISES AS PER COST P L US METHOD . 1 . 4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT - A) EXPORT OF SPOOLS IS A SECONDARY AND ANCILLARY ACTIV ITY OF THE APPELLANT COMPANY. B) THE APPELLANT COMPANY IS NOT THE OWNER OF SPOOLS EX PORTED. C) THE ASSOCIATED ENTERPRISES HAVE ALLOWED THE APPELLA NT COMPANY TO USE THE SPOOLS COLLECTED FROM THE ASSOCIATED E NTERPRISE ' S CUSTOMERS FOR PACKING THE APPELLANT COMPANY ' S OWN MANUFACTURED PRODUCTS FOR WHICH NO CHARGES ARE LEVIED BY THE ASSOCIATED ENTERPRISES AND HENCE , WHEN THE ASSESSEE COMPANY HAD CHARGED A MARK-UP OF 10% ON THE DIRECT COSTS INCURRED BY IT FOR COLLECTION OF SPOOLS CLEAR L Y INDICATED THAT THE ASSESSEE'S TRANSACTION OF EXPORT OF SPOOLS WAS AT ALP. D) ONLY THE EXCESS SPOOLS COLLECTED (WHICH ARE NOT USED BY THE APPELLANT COMPANY) ARE EXPORTED AND ON THE FACTS OF THE CASE, THE PRICE CHARGED BY THE APPELLANT COMPANY I.E . DIRECT COSTS FOR COLLECTING AND E X PORTING SPOOLS PLUS 10% MARK UP IS THE ARM ' S LENGTH PRICE. 4 ITA NOS.2477 TO 2479/PN/2012 1.5 WITHOUT PREJUDICE TO THE APPELLANT COMPANY'S SU BMISSION THAT THE EXPORT OF POOL S IS AT ARM'S LENGTH PRICE, THE LEARNED CIT(A) IT/ TP , PUNE , ERRED IN NOT RANTING SET OFF TO THE E X TENT OF VALUE OF SPOOLS USED BY THE APPELLANT COMPA NY WHILE WORKING OUT THE ARM'S LENGTH PRICE OF THE SPO OLS E X PORTED TO THE ASSOCIATED ENTERPRISES AS BOTH THE ABOVE TRANSACTIONS WERE CLO SELY LINKED TRANSACTIONS. 1.6 WITHOUT PREJUDICE TO ABOVE, THE LD.CIT(A) ERRED IN NOT APPRECIATING THAT THE UPWARD ADJUSTMENT HAD TO BE RESTRICTED TO RS.1, 00 , 569/- AS PER THE BASIS ADOPTED BY THE LEARNED TPO IN HIS ORDE R U/S 92CA(3) FOR ASSE S SMENT YEAR 2004-05 AND BY THE LEARNED CIT(A) IN HIS ORDER FOR ASSESSME NT YEAR 2002-03 AND 2003-04 . 1.7 THE ASSESSEE SUBMITS THAT WITHOUT PREJUDICE TO ITS CONTENTION THAT THE ADDITION MADE IN RESPECT OF EXPORT OF SPOOLS OF RS. 6,04 , 374 / - IS NOT WARRANTED AT ALL , IT IS SUBMITTED THAT THE LEARNED CIT(A) OUGHT TO HA V E GRANTED THE BENEFIT O F + / - 5 % TO THE ASSESSEE COMPANY AS PER THE PROVI S O TO SECTION 92C(2). 2.1 THE LEARNED CIT APPEAL ERRED IN CONFIRMING THE ADDITION OF RS.16 , 81 , 200/ - TO THE INTERNATIONAL TRAN S ACTION OF IMPORT OF TRADING FINISHED GOOD S AMOUNTING TO RS.1,34 , 60,019 / - WHILE ARRIVING AT THE ARM'S LENGTH PRICE OF ABOVE INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THAT THE TRANSACTI ONS OF IMPORT OF TRADING FINISHED GOODS WAS AT ARM ' S LENGTH PRICE AND HENCE , NO ADJUSTMENT WAS WARRANTED. 2.2 THE LEARNED CIT(A) ERRED IN CONFIRMING THAT THE TPO WAS JUSTIFIED IN HOLDING THAT THE APPELLANT COMPANY OUGHT TO HAVE EA RNED A MARGIN OF 11% ON THE COST OF THE GOODS IMPORTED AND THEREFORE , THE ADDITION MADE WAS JUSTIFIED. 2.3 THE LEA R NED CIT APPEAL ERRED IN NOT APPRECIATING THAT APPEL LANT COMPANY HAD G IV EN THE COMPARATIVE CHART OF CIF PRICE CHARGED BY AE TO UNRELATED INDIAN CUSTOMERS IN RESPECT OF 71% OF THE TOTAL IMPORT OF TRADING FINISHED GODS WHICH CLEARLY INDICATED THAT THE PRICE CHARGED BY THE AE TO THE APPELLATE COMPANY WAS MUCH LESS THAN THE PRICE CHARGED TO THE UNRELATED P ARTIES AND HENCE, THE INTERNATIONAL TRANSACTION OF IMPORT OF TRADING FINI SHED GOODS WAS AT ARMS LENGTH PRICE AS PER CUP METHOD. 2.4 THE LD.CIT(A) FAILED TO APPRECIATE THAT THE MARK UP @ 11 % ON COSTS CHARGED BY OUR AE FO R COMMERCIAL PARTS VIZ. PARTS COMMONLY AVAILABLE IN THE OPEN MARKET AND PUR CHASED BY OUR AE ' S ENGINEERING DIVISION AND SUPPLIED TO V ARIOUS GROUP CONCERNS , BEING A CONTROLLED TRANSACTION COULD NOT BE USED FO R BENCHMARKING THE INTERNATIONAL TRANSACTION OF IMPORT OF TRADING FINI SHED GOODS; THE SALES COMMISSION OF 5% PLUS RECOVERY OF E X PENSES @ 3.72% THUS IN ALL AGGREGATING TO 8 . 72% CHARGED BY OUR COMPANY TO OUR AE FOR SALES REPRESENTATION IN RESPECT OF STEEL WIRE AND STEEL W IRE PRODUCTS COULD NOT BE USED FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF IMPORT OF TRADING FINISHED GOODS . IMPORT OF TRADING FINISHED GOODS IS FOR ONLY MEETIN G THE CUSTOMER PRODUCTION SCHEDULES AND TO ENSURE THE TIMELY DELIV ERY OF THE ENTIRE QUANTITY OF ORDERS ACCEPTED BY THE APPELLANT COMPAN Y . 2.5 WITHOUT PREJUDICE TO ABOVE GROUNDS , THE APPELLANT SUBMITS THAT THE MARK UP OF 11% ON COSTS CONSIDERED BY THE LEARNED TPO IS E X CESSIVE AND HENCE , THE ADDITION MADE MAY BE REDUCED SUBSTANTIALLY . 5 ITA NOS.2477 TO 2479/PN/2012 2.6 THE ASSESSEE SUBMITS THAT WITHOUT PREJUDICE TO ITS CONTENTION THAT THE ADDITION MADE IN RESPECT OF IMPORT OF T R ADING FINISHED GOODS OF RS . 16 , 81,200/ - IS NOT WARRANTED AT ALL , IT IS SUBMITTED THAT THE LEARNED CIT(A) OUGHT TO HA VE GRANTED THE BENEFIT OF +/ - 5 % TO THE ASSESSEE COMPANY AS PER THE PROVISO T O SECTION 92C(2) . 3. THE APPELLANT COMPANY C R AVES LEAVE TO ADD TO, ALTER , AMEND , MODIFY AND / OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL . SIMILAR GROUNDS HAVE BEEN RAISED IN ALL THE THREE I MPUGNED ASSESSMENT YEARS. 5. SHRI SUNIL PATHAK APPEARING ON BEHALF OF THE ASS ESSEE SUBMITTED THAT THE TYRE CORDS AND WIRES MANUFACTURED BY THE ASSESSEE A RE WOUND ON THE SPOOLS. SPOOLS ARE THE PACKING MATERIAL AND ARE REUSABLE UN LESS SEVERELY DAMAGED. THE ASSESSEE COLLECTS THE SPOOLS FROM ITS DOMESTIC CUST OMERS FREE OF CHARGE. THE ONLY COST ASSESSEE HAS TO BEAR THE COLLECTION COST. THE SPOOLS ARE USED AS PACKING MATERIAL FOR PRODUCTS MANUFACTURED BY THE ASSESSEE. THE SPOOLS COLLECTED WHICH ARE IN EXCESS OF THE ASSESSEES REQUIREMENT ARE EXP ORTED. THIS IS THE SECONDARY AND ANCILLARY ACTIVITY OF THE ASSESSEE COMPANY. TH E PACKING MATERIALS (SPOOLS) ARE EXPORTED AT COST PLUS 10% MARK-UP. THE LD. AR CONT ENDED THAT IDENTICAL ISSUE HAD CAME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2002-03 AND 2003-04. THE TRIBUNAL IN ITA NOS.1093 & 1094/P N/2011 VIDE ORDER DATED 31.01.2013 DELETED THE ADDITION MADE BY THE TPO. T HE LD. AR PLACED ON RECORD THE COPY OF THE ORDER OF THE TRIBUNAL IN ITA NOS.10 93 & 1094/PN/2011 (SUPRA) AT PAGES 1 TO 12 OF THE PAPER BOOK. THE LD. AR FURTHE R FURNISHED THE WORKING SHEET TO SUBSTANTIATE THAT THE BENEFIT TO THE ASSESSEE IS MU CH MORE THAN THE INDIRECT COST INCURRED BY THE ASSESSEE ON COLLECTING THE SPOOLS. IN RESPECT OF IMPORT OF TRADING FINISHED GOODS, TH E LD. AR SUBMITTED THAT THE RATE CHARGED BY THE OVERSEAS COMPANY FROM THE ASSES SEE IS FAR LESS THAN THE PRICE CHARGED FROM THE OTHER COMPANIES. THE LD. AR REFER RED TO INVOICES AT PAGES 33 TO 47 OF THE PAPER BOOK TO SHOW THAT THE PRICE CHARGED BY THE OVERSEAS ASSOCIATE ENTERPRISES FROM THE ASSESSEE IS LESS THAN THE PRIC E CHARGED FROM THE THIRD PARTIES. 6 ITA NOS.2477 TO 2479/PN/2012 THE LD. AUTHORIZED REPRESENTATIVE FURTHER REFERRED TO THE DETAILS OF PRODUCTS MANUFACTURED AND TRADED FOR SALES, TURNOVER, STOCK AND RAW MATERIAL CONSUMED ETC. AT PAGE 84 FOR THE PERIOD RELEVANT TO ASSESSME NT YEAR 2005-06, PAGE 118 FOR ASSESSMENT YEAR 2006-07 AND PAGE 156 FOR ASSESSMENT YEAR 2007-08. THE LD. AR FURTHER REFERRED TO AT PAGE 62 AND 25 OF THE PAPER BOOK TO SHOW THAT THE PROFIT MARGIN OF COMPARABLES AND THE PROFIT MARGIN OF THE ASSESSEE. THE LD. AR CONTENDED THAT THE CIT(A) WITHOUT PROPERLY APPRECIA TING THE DOCUMENTS ON RECORD AND THE FACTS OF THE CASE MADE ADJUSTMENT IN RESPEC T OF IMPORT OF TRADING MATERIAL. THE LD. AR SUBMITTED THAT THE REASONS GIVEN BY THE TPO FOR DISALLOWING FOR MAKING ADJUSTMENT IS NOT SUSTAINABLE. THE AUTHORITIES BEL OW HAVE ERRED IN NOT APPRECIATING THE DOCUMENTS ON RECORD. THE LD. AR MADE AN ALTERN ATE PRAYER THAT THE ISSUE CAN BE REMITTED BACK TO CIT(A) FOR FRESH ADJUDICATION A FTER CONSIDERING OF DOCUMENTS ON RECORD. THE LD. AUTHORIZED REPRESENTATIVE FURTHER CONTENDED THAT THE AUTHORITIES BELOW HAVE ERRED IN NOT GRANTING THE BENEFIT OF 5 % ADJUSTMENT TO THE ASSESSEE IN RESPECT OF IMPORT OF TRADING FINISHED GOODS. THE L D. AR RELIED ON THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SK ODA AUTO INDIA P. LTD. VS. ACIT REPORTED AS 122 TTJ 699 (PUNE) TO EMPHASIS THAT THE BENEFIT OF 5% ADJUSTMENT SHOULD BE GRANTED TO THE ASSESSEE. 6. ON THE OTHER HAND, SHRI SAMRAT RAHI REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE CIT(A). T HE LD. DR CONTENDED THAT THE ASSESSEE HAS NOT FURNISHED THE RELEVANT DOCUMENTS B EFORE THE AUTHORITIES BELOW. HOWEVER, WHEN CONFRONTED WITH THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN CASE IN RESPECT OF EXPORT OF PACKING MATERIALS. THE LD. DR FAIRLY ADMITTED THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL. HOWEVER, IN RESPECT OF GROUND NO.2, THE LD. DR CONTENDED THAT HE HAS NO OBJECTION IF THE MATTER IS BACK TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION. 7 ITA NOS.2477 TO 2479/PN/2012 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRES ENTATIVES OF THE RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE RELEVANT DOCUMENTS REFERRED FROM THE PAPER BOOK DURING THE COURSE OF SUBMISSIONS BY THE LD. AR. IN APPEALS FOR ALL T HE THREE ASSESSMENT YEARS, THE ASSESSEE HAS ASSAILED THE FINDINGS OF THE CIT(A) ON TWO ISSUES. FIRSTLY, ADJUSTMENT IN RESPECT OF EXPORT OF PACKING MATERIALS AND SECON DLY, ADJUSTMENT IN RESPECT OF IMPORT OF TRADING MATERIALS. 8. IN SO FAR AS THE FIRST ISSUE RELATING TO EXPORT OF PACKING MATERIALS IS CONCERNED, WE OBSERVE THAT AN IDENTICAL ISSUE WAS R AISED IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2002-03 AND 2003-04. THE CO-ORD INATE BENCH OF THE TRIBUNAL DECIDED THE ISSUE AS UNDER :- 10. AFTER GOING THROUGH THE ABOVE MATERIAL AND SUB MISSIONS, WE FIND THAT ADDITION OF RS.49,62,075/- MADE BY THE ASSESSING OF FICER ON THE BASIS OF ORDER OF THE TPO PASSED U/S.92CA(3) FOR EXPORT OF SPOOLS. T HE ASSESSEE WAS INCORPORATED IN 1996 AS WHOLLY OWNED SUBSIDIARY OF N.V.BEKAERT S .A. BELGIUM AND WAS ENGAGED IN THE MANUFACTURING OF STEEL TYRE CORD AND HOSE RE INFORCEMENT WIRE, USED AS A REINFORCING MATERIAL IN RADIAL TYRES ETC. THE MAJO R PURCHASERS IN INDIA ARE CEAT, J.K.INDUSTRIES, MRF ETC. THESE TYRE MANUFACTURING COMPANIES HAD BEEN SOURCING THESE MATERIALS FROM BEKAERT GROUP COMPANIES LOCATE D OUTSIDE INDIA. IN THIS BACKGROUND, THE ASSESSEE COMPANY THOUGHT IT PRUDENT TO ESTABLISH A UNIT IN INDIA ITSELF TO MEET THE MARKET REQUIREMENT TO THE EXTENT POSSIBLE. ACCORDINGLY, PLANT WAS ESTABLISHED AT MIDC RANJANGAON PUNE. SPOOLS ARE PA CKAGING MATERIAL MADE OF EITHER STEEL OR PLASTIC ON WHICH THE STEEL TYRE COR D IS WOUND AND PACKAGED. THESE SPOOLS ARE REUSABLE. THESE WERE USED FOR THE SUPPL Y OF GOODS MADE BY THE ASSESSEE AS WELL AS OTHER COMPANIES OF THIS GROUP E NGAGED IN MANUFACTURING OF SIMILAR PRODUCTS. THE GOODS BEING MANUFACTURED BY THE ASSESSEE COMPANY ARE AN IMPORT SUBSTITUTION AND THEREFORE, FOREIGN GROUP CO MPANIES DO SUPPLY SIMILAR PRODUCTS TO THE INDIAN CONSUMERS. AS THE SPOOLS AR E REUSABLE AND HAS NO UTILITY TO THE BUYERS, AS A MEASURE TO BENEFIT LOCAL GROUP COM PANIES, WHEREVER POSSIBLE, ARE INVOLVED IN COLLECTION OF EMPTY SPOOLS FOR FREE FRO M BUYERS FOR THE PACKAGING OF THEIR OWN PRODUCTS AND ITS EXPORT IN CASE THE SAME ARE IN EXCESS OF THEIR REQUIREMENT. THE ASSESSING OFFICER MADE THE ADDITION ON THE BASI S OF THE ORDER OF THE TPO U/S.92CA(3) OF THE ACT ON EXPORT OF SPOOLS. SPOOLS ARE REUSABLE AND HAVE A CONSIDERABLE VALUE AND THEREFORE THE ARRANGEMENT BY WHICH THE ASSESSEE COMPANY GETS THE SAME FREE BY ONLY MAKING EXPENSES RELATING TO COST OF COLLECTION, IS BENEFICIAL TO THE BUSINESS OF THE ASSESSEE. THE CO LLECTION OF SPOOLS, THEREFORE IS INCIDENTAL BUT FOR THE PURPOSE OF THE BUSINESS. TH E ASSESSEE HAS NOT INVOLVED IN THE PROCESS IN AN ACTIVITY WHICH IS SEPARATE FROM T HE REGULAR ACTIVITY. THERE IS NOTHING ON RECORD TO SUGGEST THAT HUGE ACTIVITIES I NVOLVING COST WOULD BE INVOLVED. IN THE INITIAL YEARS THE ASSESSEE HAD LESSER REQUIR EMENT OF THESE SPOOLS AS THE BUSINESS WAS IN THE PROCESS OF BEING ESTABLISHED AN D STABILIZED. THE SYSTEM OF COLLECTING THESE SPOOLS ALSO HAD TO BE PUT IN PLACE AND STABILIZED TO ENSURE ITS SUPPLY ON A SUSTAINED BASIS. THE SYSTEM ADOPTED BY THE TPO TO ALLOCATE INDIRECT EXPENSES ON THE BASIS OF TURNOVER IN INITIAL ASSESS MENT YEARS WAS NOT JUSTIFIED. THERE IS NOTHING ON RECORD TO SUGGEST ANY INDIRECT EXPENSES FOR DETERMINING THE ALP OF EXPORT OF SPOOLS. HOWEVER, NO SUCH ADJUSTME NTS WERE MADE BY THE TPO IN 8 ITA NOS.2477 TO 2479/PN/2012 A.Y. 2004-05. ACCORDINGLY, THE CIT(A) WAS NOT JUS TIFIED IN RESTRICTING THE ADDITION TO RS.5,07,651/- AS THERE WAS NO ELEMENT OF INDIRECT C OST INVOLVED. 9. WE FIND THAT THE FACTS IN ASSESSEES OWN CASE FO R A.Y. 2002-03 & 2003-04 ARE SIMILAR TO THE FACTS IN PRESENT APPEALS. THE A DDITION QUA EXPORT OF PACKING MATERIAL MADE BY THE TPO IN A.Y. 2002-03 & 2003-04 WAS FOR SIMILAR REASONS. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE TRIBUNAL ON THE ISSUE. THUS, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORD INATE BENCH THE ADDITION CONFIRMED BY THE CIT(A) IN RESPECT OF EXPORT OF PAC KING MATERIALS IS DELETED. THE GROUND NO.1 RAISED BY THE ASSESSEE IN APPEALS IS AL LOWED, ACCORDINGLY. 10. IN SO FAR AS GROUND NO.2 RELATING TO ADJUSTMENT WITH RESPECT TO IMPORT OF TRADING MATERIAL IS CONCERNED, THE LD. AR HAS REFER RED TO THE INVOICES TO SHOW THAT THE OVERSEAS AES OF THE ASSESSEE COMPANY IS CHARGIN G LESS FROM THE ASSESSEE AS COMPARED TO THE PRICE CHARGED FROM THE THIRD PARTIE S. THE LD. AR HAS PLACED ON RECORD SUMMARY OF IMPORT OF TRADING MATERIAL DURING THE ASSESSMENT YEARS UNDER APPEAL. THE SAME IS REPRODUCED HEREUNDER :- BEKAERT INDUSTRIES PVT. LTD. SUMMARY OF IMPORT OF TRADING MATERIAL ASSESSMENT YEAR 2005-06 2006-07 2007-08 METHOD ADOPTED CPM CPM RESALE PRICE METHOD TRADING TURNOVER A 18,300,000 8,086,510 126,120,724 TRADING COST B 18,000,000 8,641,290 126,198,123 TRADING MARKUP 300,000 (554,780) (77,399) TRADING MARKUP / TRADING TURNOVER 1.66 (6.42) (0.06) BASIS OF ADDITION BY TPO C 11.00 11.00 11.00 VARIANCE D 9.34 ._ - ADDITION BY TPO E = B*D/100 1,681,200 E = B - (A* 111/100) 1,356,146 12,575,849 9 ITA NOS.2477 TO 2479/PN/2012 ARITHMATIC MEAN OF COMPARABLE 4.64% 0.82% 3.21% COMPANIES HAVING TRADING SALE 100% TO TOTAL SALE DIFFERENCE - 4.64% - 1.66% 0.82% - (6.42) 3.21 % - 0.06% = 2.98% = 7.24% = 3.21% DIFFERENCE FOR AYS. 2005 - 06 & 2007 -08 IS LESS THAN 5%. HENCE, NO ADDITION WARRANTED. FOR AY. 2006 - 07, DIFFERENCE IS 7.24% = 5,85,463/-. 11. A PERUSAL OF THE IMPUGNED ORDER SHOW THAT THE C IT(A) HAS REJECTED THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ITS ARGUMENTS WITH NECESSARY EVIDENCE. ON THE OTHER HAND, THE LD. AR HAS CONTENDED THAT ALL THE RELEVANT DOCUMENTS ARE A VAILABLE ON RECORD AND THE ASSESSEE CAN DEMONSTRATE THAT THE ASSESSEE HAS IMPO RTED TRADING MATERIAL FROM ITS AES AT A PRICE THAT IS LOWER THAN THE PRICE CHARGED FROM OTHER COMPETITORS OF THE ASSESSEE IN INDIA. IN OUR CONSIDERED OPINION, THIS ISSUE NEEDS A RE-VISIT TO THE CIT(A). THE CIT(A) AFTER CONSIDERING THE DOCUMENTS ON RECORD AND THE SUBMISSIONS OF THE ASSESSEE SHALL DECIDE THE ISSUE AFRESH, IN ACCORDANCE WITH LAW. THE GROUND NO.2 RAISED IN THE APPEALS BY THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, ALL THE THREE APPEALS OF THE ASS ESSEE ARE PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON WEDNESDAY, THE 31 ST DAY OF AUGUST, 2016. SD/- SD/- ( R.K. PANDA ) ( VIKAS AWASTHY ) / ACCOUNTANT MEMBER # / JUDICIAL MEMBER PUNE ; DATED : 31 ST AUGUST, 2016. 10 ITA NOS.2477 TO 2479/PN/2012 %&'#()!*!+( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-IT/TP, PUNE; 4) THE DIT-(TP/IT), PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE