Momentive Performance Materials (India) Private Limited, Bangalore V. Asst.C.I.T., Bangalore

ITA 250/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8607 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 02-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA SHRI G R
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C

Judgement Text

IT(TP)A250 & 423/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAY PAL RAO, JUDICIAL MEMBER I.T(TP).A NO.250/BANG/2015 (ASSESSMENT YEAR : 2010-11) MOMENTIVE PERFORMANCE MATERIALS (INDIA) P. LTD, SURVEY NO.6, ELECTRONIC CITY WEST, HOSUR ROAD, BANGALORE 560 008 .. APPELLANT PAN : AAACG9931F V. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE -4(1)(2), BANGALORE .. RESPONDENT I.T(TP).A NO.423/BANG/2015 (ASSESSMENT YEAR : 2010-11) (BY THE REVENUE) ASSESSEE BY : SHRI. T. SURYANARAYANA, ADVOCATE REVENUE BY : SHRI. G. R. REDDY, CIT DR-I HEARD ON : 09.02.2016 PRONOUNCED ON : 09.03.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS BY ASSESSEE AND REVENUE RESPECTI VELY DIRECTED AGAINST THE ASSESSMENT DONE ON THE ASSESSEE ON 30.1 2.2014 PURSUANT TO IT(TP)A250 & 423/BANG/2015 PAGE - 2 DIRECTIONS OF DRP U/S.144C OF THE INCOME-TAX ACT, 1 961 (THE ACT IN SHORT). 02. APPEAL OF THE REVENUE IS TAKEN UP FIRST FOR DIS POSAL. GROUNDS TAKEN BY REVENUE HAVE BEEN DIVIDED INTO TWO CATEGORIES, N AMELY SELECTION OF COMPARABLES AND APPLICATION OF FILTERS. THESE A RE REPRODUCED HEREUNDER : READING OF THE ABOVE GROUNDS SHOW THAT REVENUE IS A GGRIEVED ON THE DIRECTIONS GIVEN BY THE DRP WHICH, AS PER THE REVEN UE WERE BEYOND THE POWERS VESTED WITH DRP U/S.144C OF THE ACT. IT(TP)A250 & 423/BANG/2015 PAGE - 3 03. WE FIND THIS GROUND CLOSELY RELATED TO GROUND 7 OF ASSESSEE IN ITS APPEAL WHERE IT IS AGGRIEVED THAT TPO DID NOT CARRY OUT ADJUSTMENTS DIRECTED BY THE DRP FOR UNDER UTILISATION OF MANUFA CTURING CAPACITY AND CHANGE IN COMPOSITION OF RAW MATERIAL. 04. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN MANU FACTURE AND DISTRIBUTION OF SILICON AND SILICON BASED PRODUCTS HAD FILED ITS RETURN DECLARING INCOME OF RS.63,96,93,030/-. SINCE ASSES SEE FILED AUDIT REPORT IN FORM 3CEB AND CONSIDERED THE INTERNATIONAL TRANSACT IONS IT HAD WITH ITS AE EXCEEDING RS.50 CRORES, REFERENCE WAS MADE BY AO TO THE TPO FOR ANALYSING THE PRICES OF SUCH INTERNATIONAL TRANSACT IONS. 05. INTERNATIONAL TRANSACTIONS OF THE ASSESSEE DURI NG THE RELEVANT PREVIOUS YEAR WERE AS UNDER : SL NO DESCRIPTION AMOUNT PAID (RS) AMOUNT RECEIVED (RS.) 1. PURCHASE OF RAW MATERIALS 20,43,57,512 2. PURCHASE OF TRADED GOODS 106,75,85,917 3. SALE OF TRADED GOODS 55,95,208 4 IT ENABLED SERVICES 3,41,59,554 IT(TP)A250 & 423/BANG/2015 PAGE - 4 06. SEGMENTAL RESULTS OF THE ASSESSEE OF ITS INTERN ATIONAL TRANSACTIONS READ AS UNDER : DESCRIPTION MANUFACTURING (RS.) TRADING (RS.) ITES (RS.) OPERATING REVENUE (OR) 34,97,46,124 145,27,98,268 3,41,59,554 OPERATING COST (OC) 35,53,73,132 134,36,96,995 2,94,80,952 OPERATING PROFIT (OP) 56,27,008 10,01,01,273 46,69,602 OP / OC 15.83% OP / OR -1.61% 7.51% 07. IN RELATION TO TRADING SEGMENT, AO FOUND THAT P LI WAS AT ARMS LENGTH AND HENCE DID NOT RECOMMEND ANY ADJUSTMENT. HOWEVE R WITH REGARD TO THE MANUFACTURING AND ITES SEGMENTS HE WAS NOT OF THE S AME OPINION. SINCE THE GROUNDS OF THE REVENUE REPRODUCED AT PARA TWO A BOVE RELATES TO MANUFACTURING SEGMENT, OUR EFFORTS FOR NOW, IS TO A SSIMILATE THE FACTS RELATING TO SUCH SEGMENT. 08. ASSESSEE FOR JUSTIFYING THE VALUE OF INTERNATIO NAL TRANSACTIONS RELATING TO MANUFACTURING SEGMENT, HAD TAKEN THE AE AS A TES TED PARTY. HOWEVER, TPO WAS OF THE OPINION THAT AE COULD NOT BE CONSIDE RED AS A TESTED PARTY SINCE DATA BASE OF FOREIGN COMPANIES, FOR MAKING A COMPARATIVE STUDY WAS NOT AVAILABLE. TPO THEREFORE MADE AN ANALYSIS OF THE PRICING OF THE IT(TP)A250 & 423/BANG/2015 PAGE - 5 INTERNATIONAL TRANSACTIONS OF THE MANUFACTURING SEG MENT CONSIDERING ASSESSEE ITSELF TO BE A TESTED PARTY. THE TPO WAS OF THE OPINION THAT ASSESSEE HAVING MADE PURCHASES BOTH FROM AES AND NO N-AES, IT WAS NECESSARY TO BIFURCATE THE REVENUE AND COST BETWEEN THESE TWO SEGMENTS. THIS BIFURCATION WAS DONE BASED ON THE RATIO OF PUR CHASES FROM AE TO TOTAL PURCHASES. MARGIN OF THE ASSESSEE ON ITS MANUFACTU RING SEGMENT, IN SO FAR AS IT CONCERNED TRANSACTIONS WITH ITS AE ABROAD WAS COMPUTED BY THE TPO AS UNDER : DESCRIPTION MANUFACTURING ON PRORATA BASIS (RS.) OPERATING REVENUE (OR) 22,01,30,210 OPERATING COST (OC) 22,36,71,849 OPERATING PROFIT (OP) -35.41.639 OP / OR -1.61% 09. COMPARABLES CONSIDERED BY ASSESSEE CAME TO 17 A ND THIS WAS ACCEPTED BY THE TPO. THE AVERAGE OP, OVER SALES OF SUCH COMPARABLES CAME TO 5.11%. SINCE ASSESSEE ITSELF HAD NOT CLAIM ED ANY WORKING CAPITAL ADJUSTMENT IN ITS TP DOCUMENTATION, TPO DID NOT GI VE ANY. HE WORKED OUT A SHORTFALL OF RS.1,47,90,293/- U/S.92CA FOR THE MA NUFACTURING SEGMENT AS UNDER : IT(TP)A250 & 423/BANG/2015 PAGE - 6 PARTICULARS AMOUNT IN RS. OPERATING REVENUE (OR) 22,01,30,210 ARMS LENGTH MEAN MARGIN 5.11% ARMS LENGTH PRICE (94.89% OF OR) 20,88,81,556 OPERATING COST 22,36,71,849 EXCESS BEING ADJUSTMENT U/S.92CA 1,47,90,293 10. WHEN A DRAFT ASSESSMENT ORDER PROPOSING THE ABO VE WAS ISSUED, ASSESSEE PREFERRED TO MOVE THE DRP. ARGUMENT OF AS SESSEE BEFORE THE DRP WAS THAT LOSSES IN THE MANUFACTURING SEGMENT ON INT ERNATIONAL TRANSACTIONS WERE DUE TO REPLACEMENT OF A LOW-PRICED RAW MATERIA L CALLED B-STREAM WITH A COSTLIER VIRGIN RAW MATERIAL. AS PER THE ASSESSE E, B-STREAM MATERIAL WHICH WAS EARLIER SOURCED FROM ITS AE ABROAD, HAD T O BE SUBSTITUTED BY VIRGIN AND MORE EXPENSIVE RAW MATERIAL SO AS TO MA INTAIN THE QUALITY OF ITS PRODUCTS. FURTHER AS PER THE ASSESSEE, INCREASED C OST COULD NOT BE PASSED ON TO ITS THIRD PARTY CUSTOMERS. ASSESSEE POINTED OUT THAT AVERAGE COST OF B- STREAM WAS RS.43/- PER KG, AGAINST RS.178/- PER KG FOR VIRGIN MATERIAL. MONETARY IMPACT ON ACCOUNT OF THE CHANGE CAME TO RS .42,65,078/-. AGAIN AS PER THE ASSESSEE, DURING THE RELEVANT PREVIOUS Y EAR, IT WAS RELOCATING ITS MANUFACTURING PLANT FROM BANGALORE TO CHENNAI AND T HE CHENNAI PLANT IT(TP)A250 & 423/BANG/2015 PAGE - 7 WORKED AT A LOWER CAPACITY OF 47%. AS PER ASSESSEE , AVERAGE CAPACITY UTILISATION OF THE COMPARABLE COMPANIES CAME TO 65. 21% AND THIS ALSO REQUIRED AN ADJUSTMENT WHILE WORKING OUT ITS PLI. ASSESSEE POINTED OUT THAT SIGNIFICANT INVESTMENTS WERE MADE IN CHENNAI P LANT FOR EXPANSION. AS PER THE ASSESSEE, ITS PROFIT MARGIN HAD INCREASED I N THE SUBSEQUENT YEARS TO ABOUT 5% AND THE NEGATIVE MARGINS FOR THE RELEVANT PREVIOUS YEAR WAS DUE TO THE SPECIFIC ISSUES MENTIONED ABOVE. 11. DRP WAS APPRECIATIVE OF THESE CONTENTIONS. IT HELD AS UNDER AT PARAS 3.5 AND 3.6 OF ITS ORDER : IT(TP)A250 & 423/BANG/2015 PAGE - 8 12. NOW BEFORE US, LD. DR STRONGLY ASSAILING THE DI RECTIONS OF THE DRP SUBMITTED THAT DRP EXCEEDED THE POWERS VESTED U/S.1 44C OF THE ACT. ACCORDING TO THE LD. DR, DRP HAD NO POWER TO SET AS IDE A PROPOSED VARIATION OR ISSUE ANY DIRECTION FOR FURTHER VERIFI CATION. ACCORDING TO THE LD. DR THE EFFECT OF DIRECTIONS OF DRP WAS TO SET A SIDE THE PROPOSED DRAFT ASSESSMENT ORDER AND TP ORDER. FURTHER ACCORDING T O THE LD. DR, ASSESSEE COULD NOT SHOW THAT WHETHER RAW MATERIAL USED BY TH E COMPARABLES WAS OF SIGNIFICANTLY CHEAPER VARIETY. IN SO FAR AS CAPACI TY UTILISATION WAS IT(TP)A250 & 423/BANG/2015 PAGE - 9 CONCERNED, LD. DR SUBMITTED THAT THE DRP HAD SIMPLY ACCEPTED THE CONTENTIONS OF THE ASSESSEE WITHOUT GIVING ANY CHAN CE TO THE TPO FOR VERIFYING THE ARGUMENTS AND SUBMISSIONS OF THE ASSE SSEE WITH REGARD TO THE COMPUTATION OF CAPACITY UTILISATION. AS PER THE LD . DR, TPO WAS NOT GIVEN AN OPPORTUNITY TO VERIFY THE CLAIMS OF THE AS SESSEE. LD. DR SUBMITTED THAT DURING THE COURSE OF PROCEEDINGS BEF ORE THE DRP, IT OUGHT HAVE GIVEN AN OPPORTUNITY TO THE AO/ TPO BEFORE IT PASSED DIRECTIONS WHICH WERE PREJUDICIAL TO THE INTERESTS OF THE REVE NUE. THUS ACCORDING TO HIM, DRP DIRECTIONS EXCEEDED THE POWERS VESTED ON I T U/S.144C OF THE ACT. 13. PER CONTRA AND IN SUPPORT OF ITS GROUND 7, LD. AR SUBMITTED THAT THE DIRECTIONS GIVEN BY DRP WERE VERY CLEAR. AS PER TH E LD. AR ASSESSEE HAD BEFORE THE TPO POINTED OUT THE SUBSTANTIAL INVESTME NTS MADE BY IT FOR EXPANSION TO ITS CHENNAI PLANT IN THE RELEVANT PREV IOUS YEAR WHICH RESULTED IN HUGE FIXED COST AND CONSEQUENT DEPRESSION IN MAR GIN. ACCORDING TO HIM THOUGH THE LOWER CAPACITY UTILISATION DURING THE RE LEVANT PREVIOUS YEAR DUE TO THE ESTABLISHMENT OF NEW PLANT AT CHENNAI, WAS N OT BROUGHT TO THE NOTICE OF TPO, EVERY DETAIL WITH REGARD TO SUCH CLAIM WAS MADE BEFORE THE DRP. LD. AR SUBMITTED THAT ASSESSEE HAD GIVEN DETAILED C ALCULATION BEFORE THE DRP WHICH EXACTLY GAVE THE DIFFERENCE ARISING DUE T O USE OF VIRGIN RAW IT(TP)A250 & 423/BANG/2015 PAGE - 10 MATERIAL IN PLACE OF B-STREAM RAW MATERIAL. MONETA RY IMPACT WAS WORKED OUT CONSIDERING THE B-STREAM RAW MATERIAL AND QUANT ITY OF VIRGIN RAW MATERIAL USED DURING THE RELEVANT PREVIOUS YEAR IN THE MATERIAL MIX. IF THE IMPACT OF RS.42,65,078/- ON ACCOUNT OF USE OF VIRGI N MATERIAL WAS ADJUSTED, LOSS OF THE ASSESSEE IN THE MANUFACTURING SEGMENT C AME DOWN TO 0.39%. 14. AGAIN ACCORDING TO LD. AR, UNDER UTILISATION OF CAPACITY WAS CLEARLY DEMONSTRATED BY THE ASSESSEE BEFORE THE DRP. AS PE R THE LD. AR AGAINST THE INSTALLED CAPACITY OF 3,400 METRIC TONNES, ACTU AL PRODUCTION WAS ONLY ABOUT 1700 METRIC TONNES RESULTING IN UNDER- UTILIS ATION OF CAPACITY BY 52.26%. IN OTHER WORDS, ACTUAL UTILISATION OF CAPA CITY WAS ONLY 47.74%. LD. AR POINTED OUT THAT THE CAPACITY UTILISATION OF EACH OF THE COMPARABLES CONSIDERED WERE ALSO AVAILABLE IN THE PUBLIC DOMAIN FROM THE PUBLISHED FINAL ACCOUNTS OF THE RESPECTIVE COMPARABLES AND FU RNISHED TO THE LOWER AUTHORITIES. RELYING ON EXHIBIT-1, PLACED AT PAPER BOOK PAGE 9, HE SUBMITTED THE AVERAGE CAPACITY UTILISATION OF COMPA RABLES CAME TO 65.21%. IT WAS AFTER CONSIDERING THESE ASPECTS, DRP GAVE TH E DIRECTIONS. ACCORDING TO HIM, AO FAILED TO GIVE EFFECT TO THE DIRECTIONS GIVEN BY THE DRP. DRP HAVING CONSIDERED THE VERACITY OF THE FACTS AND FIG URES GIVEN BY THE ASSESSEE, AS PER THE LD. AR, WAS JUSTIFIED IN GIVIN G THE DIRECTIONS. IT(TP)A250 & 423/BANG/2015 PAGE - 11 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. CASE OF THE ASSESSEE IS THAT THERE WAS CONSIDERABLE IMPACT ON ITS PROFIT DUE TO CHANGE IN COMPOSITION OF RAW MATERIAL FROM B-STREAM TO VIRGIN DURING THE RELEVANT PREVIOUS YEAR AND ALSO DUE TO UNDER UTILIS ATION OF MANUFACTURING CAPACITY WHEN COMPARED TO THOSE OF THE COMPARABLES SELECTED BY THE TPO. NO DOUBT IN ITS SUBMISSIONS BEFORE THE TPO PLACED A T PAPER BOOK PAGE 72, IT HAD MENTIONED THAT IT WAS INTO THE PROCESS OF BU ILDING A NEW PLANT DURING THE PREVIOUS YEAR WHICH COULD RESULT IN INCREASED M ANUFACTURING CAPACITIES AND VOLUMES. NEVERTHELESS, THE QUESTION WHETHER AS SESSEE HAD FACED ANY EXTRA-ORDINARY CIRCUMSTANCE UNIQUE TO IT, LEADING TO THE NEGATIVE PROFIT MARGIN, CONSIDERING THE CHANGE IN COMPOSITION OF RA W MATERIAL AND UNDER UTILISATION OF CAPACITY WAS NEVER AN ISSUE BEFORE T HE TPO. THE DATA IN THIS REGARD AND THE SPECIFIC PLEA WERE BROUGHT BY THE AS SESSEE BEFORE THE DRP FOR THE FIRST TIME. POWERS OF THE DRP U/S.144C OF THE ACT IS REPRODUCED HEREUNDER : 144C : REFERENCE TO DISPUTE RESOLUTION PANEL (1) THE ASSESSING OFFICER SHALL, NOTWITHSTANDING AN YTHING TO THE CONTRARY CONTAINED IN THIS ACT, IN THE FIRST INSTANCE, FORWA RD A DRAFT OF THE PROPOSED ORDER OF ASSESSMENT (HEREAFTER IN THIS SEC TION REFERRED TO AS THE DRAFT ORDER) TO THE ELIGIBLE ASSESSEE IF HE PROPOSE S TO MAKE, ON OR AFTER THE 1ST DAY OF OCTOBER, 2009, ANY VARIATION IN THE INCOME OR LOSS RETURNED WHICH IS PREJUDICIAL TO THE INTEREST OF SU CH ASSESSEE. IT(TP)A250 & 423/BANG/2015 PAGE - 12 (2) ON RECEIPT OF THE DRAFT ORDER, THE ELIGIBLE ASS ESSEE SHALL, WITHIN THIRTY DAYS OF THE RECEIPT BY HIM OF THE DRAFT ORDER,- (A) FILE HIS ACCEPTANCE OF THE VARIATIONS TO THE AS SESSING OFFICER ; OR (B) FILE HIS OBJECTIONS, IF ANY, TO SUCH VARIATION WITH,- (I) THE DISPUTE RESOLUTION PANEL ; AND (II) THE ASSESSING OFFICER. (3) THE ASSESSING OFFICER SHALL COMPLETE THE ASSESS MENT ON THE BASIS OF THE DRAFT ORDER, IF- (A) THE ASSESSEE INTIMATES TO THE ASSESSING OFFICER THE ACCEPTANCE OF THE VARIA-TION ; OR (B) NO OBJECTIONS ARE RECEIVED WITHIN THE PERIOD SP ECIFIED IN SUB- SECTION (2). (4) THE ASSESSING OFFICER SHALL, NOTWITHSTANDING AN YTHING CONTAINED IN SECTION 153, PASS THE ASSESSMENT ORDER UNDER SUB-SE CTION (3) WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH,- (A) THE ACCEPTANCE IS RECEIVED ; OR (B) THE PERIOD OF FILING OF OBJECTIONS UNDER SUB-SE CTION (2) EXPIRES. (5) THE DISPUTE RESOLUTION PANEL SHALL, IN A CASE W HERE ANY OBJECTION IS RECEIVED UNDER SUB-SECTION (2), ISSUE SUCH DIRECTIO NS, AS IT THINKS FIT, FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASSESSMENT. (6) THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DI RECTIONS REFERRED TO IN SUB-SECTION (5), AFTER CONSIDERING THE FOLLOWING, N AMELY :- (A) DRAFT ORDER ; (B) OBJECTIONS FILED BY THE ASSESSEE ; (C) EVIDENCE FURNISHED BY THE ASSESSEE ; (D) REPORT, IF ANY, OF THE ASSESSING OFFICER, VALUA TION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AUTHORITY ; (E) RECORDS RELATING TO THE DRAFT ORDER ; IT(TP)A250 & 423/BANG/2015 PAGE - 13 (F) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECTE D BY, IT ; AND (G) RESULT OF ANY ENQUIRY MADE BY, OR CAUSED TO BE MADE BY, IT. (7) THE DISPUTE RESOLUTION PANEL MAY, BEFORE ISSUIN G ANY DIRECTIONS REFERRED TO IN SUB-SECTION (5),- (A) MAKE SUCH FURTHER ENQUIRY, AS IT THINKS FIT ; O R (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY INC OME-TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUC E OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FOR FURTHER ENQUIRY AND PASSING OF THE ASSESSME NT ORDER. (9) IF THE MEMBERS OF THE DISPUTE RESOLUTION PANEL DIFFER IN OPINION ON ANY POINT, THE POINT SHALL BE DECIDED ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEMBERS. (10) EVERY DIRECTION ISSUED BY THE DISPUTE RESOLUTI ON PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. (11) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED UNLESS AN OPPORTUNITY OF BEING HEARD IS GIVEN TO THE ASSESSEE AND THE ASSESSING OFFICER ON SUCH DIRECTIONS WHICH ARE PREJUDICIAL TO THE INTEREST OF THE ASSESSEE OR THE INTEREST OF THE REVENUE, RESPECTIVE LY. (12) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED AFTER NINE MONTHS FROM THE END OF THE MONTH IN WHICH THE DRAFT ORDER IS FORWARDED TO THE ELIGIBLE ASSESSEE. (13) UPON RECEIPT OF THE DIRECTIONS ISSUED UNDER SU B-SECTION (5), THE ASSESSING OFFICER SHALL, IN CONFORMITY WITH THE DIR ECTIONS, COMPLETE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 153, THE ASSESSMENT WITHOUT PROVIDING ANY FURTHER OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH SUCH DIRECTION IS RECEIVED. IT(TP)A250 & 423/BANG/2015 PAGE - 14 (14) THE BOARD MAY MAKE RULES FOR THE PURPOSES OF T HE EFFICIENT FUNCTIONING OF THE DISPUTE RESOLUTION PANEL AND EXP EDITIOUS DISPOSAL OF THE OBJECTIONS FILED UNDER SUB-SECTION (2) BY THE E LIGIBLE ASSESSEE. (15) FOR THE PURPOSES OF THIS SECTION,- (A) 'DISPUTE RESOLUTION PANEL' MEANS A COLLEGIUM CO MPRISING OF THREE COMMISSIONERS OF INCOME-TAX CONSTITUTED BY THE BOAR D FOR THIS PURPOSE ; (B) 'ELIGIBLE ASSESSEE' MEANS,- (I) ANY PERSON IN WHOSE CASE THE VARIATION REFERRED TO IN SUB-SECTION (1) ARISES AS A CONSEQUENCE OF THE ORDER OF THE TRA NSFER PRICING OFFICER PASSED UNDER SUB-SECTION (3) OF SECTION 92C A ; AND (II) ANY FOREIGN COMPANY. 16. NO DOUBT, DRP VIDE SUB-SECTION 8 ABOVE HAS NO POWER TO SET ASIDE A PROPOSED VARIATION IN A DRAFT ORDER NOR CAN IT ISSU E DIRECTIONS FOR FURTHER ENQUIRY. WHERE A DIRECTION IS ISSUED WHICH AFFECTS THE ASSESSEE OR THE REVENUE PREJUDICIALLY, IT IS BOUND TO GIVE AN OPPOR TUNITY TO THE CONCERNED PARTY. OBVIOUSLY, THE DIRECTIONS ISSUED BY THE DRP REPRODUCED BY US AT PARA ELEVEN ABOVE WOULD HAVE A BEARING ON THE PLI O F THE ASSESSEE COMPANY AND WILL DETRIMENTALLY AFFECT THE PROSPECTS OF THE REVENUE. THE QUESTION WHETHER THERE WAS AN ACTUAL UNDER UTILISAT ION OF MANUFACTURING CAPACITY, FOR THE ASSESSEE WHEN COMPARED TO THE COM PARABLES, WAS NEVER CONSIDERED BY AO / TPO. AN ADJUSTMENT CAN BE GIVEN TO THE TESTED PARTY FOR SUCH UNDER UTILISATION, ONLY IF IT IS POSSIBLE FOR THE ASSESSEE TO ESTABLISH IT(TP)A250 & 423/BANG/2015 PAGE - 15 THAT THE COMPARABLES CONSIDERED FOR THE TP STUDY HA D AN UTILISATION SIGNIFICANTLY ABOVE ITS OWN. DATA FURNISHED BY THE ASSESSEE BEFORE THE DRP WITH REGARD TO CAPACITY UTILISATION OF THE COMPARAB LES, READ AS UNDER : : AT LEAST IN RESPECT OF THREE COMPARABLES, WORK OUT OF CAPACITY UTILISATION IS NOT MENTIONED IN THE ABOVE TABLE RENDERING ASSESSEE S WORK-OUT UNRELIABLE. AS PER THE ASSESSEE IT HAD INSTALLED CAPACITY OF 43 04 MTS AGAINST WHICH ACTUAL PRODUCTION WAS ONLY 1623 MTS. IN OUR OPINIO N CORRECTNESS OF THE FIGURES CONSIDERED BY THE ASSESSEE FOR ITSELF AS WE LL AS FOR THE COMPARABLES, AND WHETHER THERE WAS A SIGNIFICANT UNDER UTILISATI ON FOR ASSESSEE WHEN COMPARED TO THE COMPARABLES ARE ASPECTS WHICH REQUI RE DETAILED STUDY. IT(TP)A250 & 423/BANG/2015 PAGE - 16 17. COMING TO THE ISSUE OF MONETARY IMPACT OF CHANG E IN COMPOSITION OF RAW MATERIAL, DETAILS GIVEN BY THE ASSESSEE BEFORE THE TPO READ AS UNDER: THOUGH ASSESSEE HAS GIVEN DETAILS AS MENTIONED ABOV E, IT COULD NOT ESTABLISH THAT RAW MATERIALS USED BY THE COMPARABLE S WERE CONSISTENTLY OF A LOWER OR CHEAP VARIETY. VARIATION IN COST OF RAW MATERIAL UNLESS SUBSTANTIAL ENOUGH TO ESTABLISH EXTRA-ORDINARY CIRC UMSTANCES WOULD NOT, IN OUR OPINION, BE A REASON FOR MAKING AN ADJUSTMEN T OF MARGINS. ESPECIALLY SO WHEN, ASSESSEE COULD NOT SHOW HOW ITS COMPETITORS OR COMPARABLES WERE AFFECTED BY SIMILAR VARIATIONS, IF ANY. IT ALSO COULD NOT ESTABLISH THAT PRODUCTS OF THE COMPARABLES WERE OF INFERIOR QUALITY IT(TP)A250 & 423/BANG/2015 PAGE - 17 WHEN COMPARED TO ITS OWN DUE TO USE OF LOW QUALITY RAW MATERIAL. SINCE VARIATION IN RAW MATERIAL COST IS NORMAL IN A NY INDUSTRY AND CHANGE OF MATERIAL MIX IS ALSO NOT AN ABNORMAL EVEN T, THESE FACTORS IN OUR OPINION, CANNOT BE TAKEN INTO CONSIDERATION FOR MAKING AN ADJUSTMENT IN THE PLI, UNLESS ASSESSEE CAN ESTABLI SH THAT THE CHANGE IN RAW MATERIAL COST WAS EXTRA ORDINARY ENOUGH TO TAK E ITS RESULTS AWAY FROM THE REALM OF COMPARABILITY, WITH THAT OF THE C OMPARABLES CONSIDERED. ASSESSEE IN OUR OPINION COULD NOT HAVE BEEN ALLOWED ANY PLI ADJUSTMENT FOR CHANGE IN COST OF RAW MATERIAL U SED BY IT. WE ARE OF THE OPINION THAT DRP ERRED IN GIVING DIRECTION TO A O / TPO TO REVISE THE WORKING OF PLI OF THE ASSESSEE CONSIDERING THE EXCESS COST CLAIMED TO HAVE BEEN INCURRED BY IT ON RAW MATERIALS. WE THEREFORE DELETE THE DIRECTIONS GIVEN BY DRP WITH REGARD TO RAW MATERIAL MIX AND WE HOLD THAT NO SUCH ADJUSTMENT AS RECOMMENDED BY THE DRP N EED BE GIVEN TO THE ASSESSEE. AS FOR THE ISSUE REGARDING ADJUSTMEN T IF ANY NECESSARY ON ACCOUNT UNDER UTILISATION OF CAPACITY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT IT BACK TO THE FILE OF THE AO / TPO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. IT(TP)A250 & 423/BANG/2015 PAGE - 18 18. NOW WE TAKE UP APPEAL OF THE ASSESSEE. LD. COU NSEL FOR THE ASSESSEE AT THE OUT SET SUBMITTED THAT GROUNDS 1 TO 6, 9 AND 10 COULD BE CONSIDERED AS GENERAL IN NATURE. WE FIND THAT GROU ND 11 IS CONSEQUENTIAL BEING ON CHARGE OF INTEREST U/S.234B AND 234D OF TH E ACT. GROUND 7 HAS ALREADY BEEN CONSIDERED BY US WHILE DEALING WITH TH E APPEAL OF REVENUE. BASED ON OUR DISCUSSION AT PARA 15 TO 17 ABOVE, THI S GROUND IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 19. GROUND.8 OF THE ASSESSEE WHICH IS ON TP ADJUSTM ENT DONE BY THE TPO IN THE ITES SEGMENT TO THE EXTENT CONFIRMED BY THE DRP. 20. LD. AR AT THE OUT SET SUBMITTED THAT HE HAD NO GRIEVANCE ON THE COMPARABLES SELECTED BY THE TPO NOR THE METHOD ADOP TED BY TPO FOR THE ITES SEGMENT. ACCORDING TO HIM, HE WAS SEEKING EXC LUSION OF INFOSYS BPO LTD, AND INCLUSION OF MICROLAND LTD IN THE LIST OF COMPARABLES. AS PER THE LD. AR HE HAS RAISED AN ADDITIONAL GROUND IN TH IS REGARD BEFORE THIS TRIBUNAL, SINCE INFOSYS BPO LTD, WAS A PART OF ASSE SSEES OWN SET OF 15 COMPARABLES. NEVERTHELESS AS PER THE LD. AR, ASSESS EE HAD BEFORE THE DRP TAKEN A GROUND FOR EXCLUSION OF INFOSYS BPO LTD. R ELYING ON THE DECISION OF COORDINATE BENCH IN THE CASE OF MINDTEK INDIA LT D V. DCIT [IT(TP)A.70/BANG/2014], LD. AR ALSO SOUGHT INCLUS ION OF M/S. MICROLAND IT(TP)A250 & 423/BANG/2015 PAGE - 19 LTD, IN THE LIST OF COMPARABLES THOUGH IT DID NOT F ALL IN THE MATRIX OF COMPARABLES ORIGINALLY SELECTED BY THE ASSESSEE. A S PER THE LD. AR, ALL DETAILS REGARDING MICROLAND LTD, WAS AVAILABLE IN P UBLIC DOMAIN IT PASSED ALL FILTERS ADOPTED BY THE TPO. RELIANCE WAS PLAC ED BY THE LD. AR ON THE DECISION OF SPECIAL BENCH IN THE CASE OF DCIT V. Q UARK SYSTEMS PVT. LTD. [42 DTR 414]. 21. PER CONTRA LD. DR SUBMITTED THAT INFOSYS BPO LT D, WAS A PART OF ASSESSEES OWN TP STUDY AND HENCE IT COULD NOT NOW SEEK ITS EXCLUSION. VIS-A-VIS INCLUSION OF MICROLAND LTD, LD. DR SUBMIT TED THAT TPO HAD NO OPPORTUNITY TO VERIFY THE COMPARABILITY OF THE SAID COMPANY WITH THAT OF THE ASSESSEE. 22. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN SO FAR EXCLUSION OF INFOSYS BPO LTD, IS CONCERNED, IT IS T RUE THAT THE SAID COMPANY WAS A PART OF ITS OWN COMPARABLES. HOWEVER, ASSESS EE HAD RAISED A GROUND BEFORE THE DRP FOR EXCLUSION OF THE SAID COMPANY. THIS TRIBUNAL HAS BEEN CONSISTENTLY HOLDING THAT INFOSYS BPO LTD COULD NOT BE CONSIDERED AS COMPARABLE DUE TO ITS HUGE BRAND VALUE AND SUBSTANT IAL OWNERSHIP OF INTANGIBLES, WITH A COMPANY HAVING ITES SEGMENT WI TH MUCH LESSER REVENUE. IN RELATION TO SOFTWARE DEVELOPMENT SERVI CE SEGMENT, HONBLE IT(TP)A250 & 423/BANG/2015 PAGE - 20 DELHI HIGH COURT IN THE CASE OF CIT VS AGNITY INDIA TECHNOLOGIES PVT LTD [(2013) 93 DTR 0375], HAD FOUND THAT THE RISK PROFI LE, OWNERSHIP OF PROPRIETARY PRODUCTS AND EXPENDITURE ON R & D, TOOK INFOSYS TECHNOLOGIES LTD, OUT OF THE LIST OF COMPARABLE COMPANIES. NO D OUBT THE SAID JUDGMENT WAS RENDERED FOR SOFTWARE DEVELOPMENT SERVICES, BUT NEVERTHELESS, EVEN IN BPO SEGMENT OF INFOSYS, THE EXCEPTIONAL CIRCUMSTANC ES MENTIONED BY HONBLE DELHI HIGH COURT IN AGNITY INDIA TECHNOLOG IES PVT LTD (SUPRA), IN OUR OPINION, WOULD SUBSIST. THUS, WE ARE OF THE OPINION THAT INFOSYS BPO LTD, OUGHT NOT HAVE BEEN CONSIDERED AS A COMPAR ABLE. WE DIRECT EXCLUSION OF THE SAID COMPANY FROM THE LIST OF COMP ARABLES. 23. IN SO FAR AS INCLUSION OF MICROLAND LTD IS CONC ERNED, DRP HAD NOT GIVEN ANY SPECIFIC DIRECTIONS ON THIS PLEA. BY VI RTUE OF THE SPECIAL BENCH DECISION IN THE CASE OF QUARK SYSTEMS PVT. LTD, (SU PRA) ASSESSEE IS JUSTIFIED IN SEEKING INCLUSION OF A FRESH COMPANY, EVEN BEFOR E THIS TRIBUNAL. HOWEVER WHEN ASSESSEE IS GIVEN A FREEDOM OF INCLUDI NG A FRESH COMPANY IN THE LIST OF COMPARABLES, WE ARE OF THE OPINION THAT TPO CANNOT BE DIVESTED OF SUCH A RIGHT FOR CONSIDERING OTHER COMPANIES WHI CH SATISFIED THE FILTERS APPLIED BY HIM, EVEN IF IT DID NOT FORM A PART OF ORIGINAL LIST OF COMPARABLES CONSIDERED BY HIM. WE THEREFORE SET ASIDE THE ORDE RS OF AUTHORITIES BELOW IT(TP)A250 & 423/BANG/2015 PAGE - 21 IN RELATION TO THE ITES SEGMENT AND DIRECT THE AO / TPO TO MAKE A FRESH ANALYSIS OF THE COMPARABLES CONSIDERING THE SUBMISS IONS OF THE ASSESSEE AND ALSO VERIFYING THE DATA AVAILABLE IN PUBLIC DOM AIN. 24. IN THE RESULT, GROUND.8 AND ADDITIONAL GROUND R AISED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 25. TO SUMMARISE THE RESULT, APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DAY OF MARCH, 2016. SD/- SD/- (VIJAY PAL RAO) (ABRA HAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER