Sandvik Asia P. Ltd., Pune V. ACIT,

ITA 2545/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72217 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M S VERMA
• Assessee Lawyers: J D MISTRY
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Additional depreciation
• Section: 92C; 143(3); 10; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.2545/PN/2012 (ASSESSMENT YEAR : 2008-09) SANDVIK ASIA PRIVATE LIMITED MUMBAI-PUNE ROAD, DAPODI, PUNE 411 012. PAN : AACCS6638K . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 10, AKURDI, PUNE. . RESPONDENT APPELLANT BY : MR. J. D. MISTRY RESPONDENT BY : MS. M. S. VERMA DATE OF HEARING : 02-09-2013 DATE OF PRONOUNCEMENT : 27-09-2013 ORDER PER G. S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE (IN S HORT THE ASSESSING OFFICER) PASSED UNDER SECTION 143(3) READ WITH SEC TION 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30. 10.2012, WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL, PUNE (IN SHORT THE DRP) DATED 05.09.2012 FOR THE ASSESSMEN T YEAR 2008-09. 2. IN THIS APPEAL, GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER: - 1. THE LEARNED AO ERRED IN PASSING THE IMPUGNED OR DER WHICH WAS NOT IN ACCORDANCE WITH LAW, THE STATUTORY PROVI SIONS, AND WHICH IS VOID AND OF NO LEGAL EFFECT. 2. THE LEARNED AO ERRED IN REJECTING THE TRANSFER P RICING ANALYSIS UNDERTAKEN BY THE ASSESSEE BY AGGREGATING ITS INTER NATIONAL TRANSACTIONS. 3. THE LEARNED AO ERRED IN REJECTING THE SELECTION OF THE TNMM ADOPTED BY THE ASSESSEE AS THE MOST APPROPRIATE MET HOD IN THE ITA NO.2545/PN/2012 A.Y. 2008-09 CIRCUMSTANCES OF THE CASE AND COMPARING NET PROFIT MARGINS WITH EXTERNAL COMPARABLES FOR COMPUTING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 4. THE LEARNED AO ERRED IN REJECTING THE SELECTION OF THE TNMM/NET PROFIT MARGINS ADOPTED BY THE ASSESSEE WIT HOUT PROPERLY GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD IN THIS REGA RD AND ALSO WITHOUT ASSIGNING VALID REASONS FOR THE SAME. 5. THE LEARNED AO ERRED IN ADOPTING THE COST PLUS M ETHOD AS THE MOST APPROPRIATE METHOD IN THE CIRCUMSTANCES OF THE CASE FOR COMPUTING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 6. THE LEARNED AO ERRED IN ADOPTING THE COST PLUS M ETHOD FOR COMPUTING THE ARMS LENGTH PRICE WITHOUT PROPERLY GI VING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD IN THIS REGARD AND ALSO WITHOUT ASSIGNING VALID REASONS FOR THE SAME. 7. THE LEARNED AO ERRED IN MAKING AN ADDITION OF RS.30,70,02,006/- BY HOLDING THAT INTERNATIONAL TRA NSACTIONS OF THE MANUFACTURING TOOLS SEGMENT WERE NOT AT ARMS LENG TH. 8. IN MAKING ADDITION OF RS.30,70,02,006/- BY HOLDI NG THAT INTERNATIONAL TRANSACTIONS OF THE MANUFACTURING T OOLS SEGMENT WERE NOT AT ARMS LENGTH, THE LEARNED AO ERRED IN :- A. REJECTING CERTAIN SEGMENTS OF RAJASTHAN UDYOG & TOOLS LTD. AND HITTCO TOOLS LTD. WHICH HAD BEEN USED AS A COMPARABLE BY THE ASSESSEE, B. CONSIDERING A SUM OF RS.2.8 CRORES BEING LOSS O N IMPAIRMENT OF ASSETS AS OPERATING EXPENDITURE OF T HE ASSESSEE. C. CONSIDERING THE ENTIRE SEGMENT LEVEL PROFITABILI TY OF THE ASSESSEE DESPITE THE FACT THAT THE SEGMENT COMPRISE D TRANSACTIONS WITH BOTH ASSOCIATED AND NON-ASSOCIATED ENTERPRISES . 9. THE LEARNED AO ERRED IN MAKING AN ADDITION OF RS .60,48,143/- BY HOLDING THAT INTERNATIONAL TRANSACTIONS OF THE M ANUFACTURING WIRES SEGMENT WERE NOT AT ARMS LENGTH. 10. IN MAKING ADDITION OF RS.60,48,143/- BY HOLDING THAT INTERNATIONAL TRANSACTIONS OF THE MANUFACTURING W IRES SEGMENT WERE NOT AT ARMS LENGTH, THE LEARNED AO ERRED IN CONSIDERING TH E ENTIRE SEGMENT LEVEL PROFITABILITY OF THE ASSESSEE DESPITE THE FACT THAT THE SEGMENT COMPRISED TRANSACTIONS REGARDING BOTH WIRES AND HEATING SYSTE MS, THEREBY NOT COMPARING LIKE WITH LIKE. 11. THE LEARNED AO ERRED IN FAILING TO APPLY THE PR OVISIONS OF THE PROVISO TO S. 92C(2) OF THE ACT. 12. THE LEARNED AO ERRED IN FAILING TO APPLY MULTIP LE YEAR DATA FOR COMPARABLES AS APPLIED BY THE ASSESSEE AND AS MANDA TED BY RULE 10B(4) OF THE INCOME-TAX RULES, 1962. 3. IN BRIEF, THE BACKGROUND OF THE DISPUTE IS THAT ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE INDIAN COM PANIES ACT, 1956 AND ITS PRINCIPAL ACTIVITIES COMPRISED MANUFACTURING, TRADI NG AND REGRINDING OF TUNGSTEN CARBIDE TOOLS, ROCK PROCESSING EQUIPMENTS, THERMOSTATIC ELECTRICAL BIMETAL STRIPS, WIRES, RIBBONS, HEATING ELEMENTS, C OLD FINISHED TUBES/PIPES AND ITA NO.2545/PN/2012 A.Y. 2008-09 MANUFACTURING OF HOT EXTRUDED SEAMLESS STAINLESS ST EEL TUBES/PIPES, ETC.. THE BUSINESS OF THE COMPANY WAS DIVIDED INTO THREE SEGM ENTS, WHICH READ AS UNDER :- (I) TOOLING-SPECIALISES IN TOOLS FOR METAL CUTTING. (II) MINING AND CONSTRUCTION FOCUSES ON TOOLS AND SERVICE FOR MINING AND CONSTRUCTION CONTRACTS WITH RESPECT TO COMPRISSIONG OF CRUSHING PLANTS USED IN MINES. (III) MATERIALS TECHNOLOGY-SPECIALISES IN HIGH VALU E ADDED PRODUCTS METALLIC MATERIALS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESS EE-COMPANY FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.104 ,06,33,924/- WHICH WAS SUBJECT TO SCRUTINY ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE ACT, WHEREIN BY WAY OF ORDER DATED 30.10.2012 THE TOTAL INCOME HAS BEEN DETERMINED AT RS.134,81,22,200/-. T HE SUBSTANTIVE DIFFERENCE BETWEEN THE RETURNED AND THE ASSESSED IN COME IS ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT WHILE DETERMINING THE A RMS LENGTH PRICE (IN SHORT ALP) OF THE INTERNATIONAL TRANSACTIONS CARRIED OU T BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES (IN SHORT AES). THE ASSESS EE-COMPANY HAD UNDERTAKEN CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS AES FOR WHICH THE INCOME IS REQUIRED TO BE COMPUTED HAVING REGARD TO THE ALP , AS PROVIDED IN SECTION 92(1) OF THE ACT. A REFERENCE UNDER SECTION 92CA(1) OF THE ACT WAS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFIC ER (I.E. TPO) FOR COMPUTATION OF ALP IN RELATION TO THE INTERNATIONAL TRANSACTION S CARRIED OUT BY THE ASSESSEE. IN TERMS OF THE ORDER PASSED BY THE TPO UNDER SECTI ON 92CA(3) OF THE ACT DATED 28.10.2011, THE FOLLOWING ADJUSTMENTS WERE PR OPOSED TO THE ALP STATED BY THE ASSESSEE :- SR NO DESCRIPTION OF INTERNATIONAL TRANSACTION PROP OSED ADJUSTMENT 1 EXPORT OF FINISHED GOODS IN RESPECT OF MANUFACTURING OF TOOLS DIVISION 30,70,02,0661 2 MANUFACTURING OF WIRE SEGMENT 60,48,143/- TOTAL ADJUSTMENTS PROPOSED 31,30,50,209 ITA NO.2545/PN/2012 A.Y. 2008-09 4. THE ASSESSING OFFICER PROPOSED A DRAFT ASSESSMEN T ORDER UNDER SECTION 143(3) READ WITH SECTION 144C(1) OF THE ACT PROPOSING ADJUSTMENTS TO THE VALUE OF INTERNATIONAL TRANSACTIONS AS DETERMIN ED BY THE TPO AND AGAINST SUCH DRAFT ASSESSMENT ORDER ASSESSEE PREFERRED OBJE CTIONS BEFORE THE DRP. THE DRP VIDE ITS ORDER DATED 05.09.2012 AFFIRMED TH E ADJUSTMENTS TO THE ALP OF THE INTERNATIONAL TRANSACTIONS AS PROPOSED BY TH E TPO. ACCORDINGLY, THE ASSESSING OFFICER FINALIZED ASSESSMENT UNDER SECTIO N 143(3) READ WITH SECTION 144C(3) OF THE ACT DATED 30.10.2012 DETERMI NING THE ALP OF THE INTERNATIONAL TRANSACTIONS IN CONFORMITY WITH THE O RDER OF THE TPO PASSED UNDER SECTION 92CA(3) OF THE ACT. 5. THE DISPUTE BEFORE US PRIMARILY RELATES TO THE A DJUSTMENTS MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF RE-DETER MINING THE ALP OF THE INTERNATIONAL TRANSACTIONS OVER AND ABOVE THE VALUE OF SUCH TRANSACTIONS STATED IN THE ACCOUNT BOOKS. WITH REGARD TO THE WIRE MANUF ACTURING SEGMENT, THE STATED VALUES HAVE BEEN ENHANCED BY A SUM OF RS.60, 48,143/- AND IN RESPECT OF THE TOOLS MANUFACTURING SEGMENT THE ADJUSTMENT T O THE STATED VALUES HAS BEEN MADE TO THE EXTENT OF RS.30,70,02,006/-. 6. AT THE OUTSET, WE MAY DISPOSE OF GROUNDS OF APPE AL NO. 3, 5, 6, 9, & 10 IN SO FAR AS THEY RELATE TO THE ADJUSTMENT PROPOSED BY THE TPO OF RS.60,48,143/- IN RESPECT OF INTERNATIONAL TRANSACT IONS OF THE MANUFACTURING WIRE SEGMENT. 7. IN THIS CONTEXT, THE LEARNED COUNSEL FOR THE ASS ESSEE EXPLAINED THAT THE TPO IN HIS ORDER DATED 28.10.2011 HAD PROPOSED AN A DDITION OF RS.60,48,143/- IN RESPECT OF INTERNATIONAL TRANSACT IONS OF THE ASSESSEES MANUFACTURING WIRE SEGMENT WHICH WAS ALSO PROPOSED BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 144C(1) DATED 26.12.2011 AND ALSO UPHELD BY THE DRP . FURTHER, IN PARA 7.3 OF ITA NO.2545/PN/2012 A.Y. 2008-09 THE FINAL ASSESSMENT ORDER DATED 30.10.2012 THE ASS ESSING OFFICER NOTED THE SAID ADJUSTMENT PROPOSED BY THE TPO. SO, HOWEVER, I T IS CONTENDED THAT WHILE COMPUTING THE INCOME AT THE END OF THE ASSESSMENT O RDER, THE ASSESSING OFFICER HAS NOT ACTUALLY ADDED THE SAID SUM IN THE RETURNED INCOME AND NO TAX THEREON HAS BEEN DEMANDED. THE LEARNED COUNSEL EXPL AINED THAT IN ORDER TO BE CAUTIOUS AND NOT TO BE DENIED AN ADJUDICATION ON TECHNICALITY, THE ASSESSEE STILL PREFERRED THE AFORESAID GROUNDS WHILE FILING THE APPEAL BEFORE THE TRIBUNAL. 8. THE ABOVE FACTUAL MATRIX BROUGHT OUT BY THE LEAR NED COUNSEL IS NOT DISPUTED BY THE LEARNED CIT(DR) AND IT IS POINTED O UT THAT THE ADJUSTMENT WAS DISCUSSED IN THE BODY OF THE ASSESSMENT ORDER BUT I T REMAINED TO BE CONSIDERED IN THE COMPUTATION OF INCOME, WHICH WAS MERELY A MISTAKE RECTIFIABLE UNDER SECTION 154 OF THE ACT BY THE ASS ESSING OFFICER. 9. BE THAT AS IT MAY, IT IS QUITE CLEAR THAT NO SUC H ADDITION HAS BEEN ULTIMATELY MADE IN THE COMPUTATION OF INCOME BY THE ASSESSING OFFICER AND TAX LIABILITY IN RELATION TO SUCH ADJUSTMENT HAS NOT BE EN DETERMINED AGAINST THE ASSESSEE. IN THIS BACKGROUND, THE ONLY PREMISE THAT CAN BE DRAWN IS THAT THE GRIEVANCES RAISED IN THE GROUNDS OF APPEAL NOS. 3, 5, 6, 9, & 10 RELATING TO THE ADDITION OF RS.60,48,143/- IN RESPECT OF INTERNATIO NAL TRANSACTIONS OF THE MANUFACTURING WIRE SEGMENT, AS PROPOSED BY THE TPO IN HIS ORDER DATED 28.10.2012, DO NOT ARISE OUT OF THE IMPUGNED ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C( 13) OF THE ACT DATED 30.10.2012. THEREFORE, THE AFORESAID GROUNDS DO NOT REQUIRE ANY ADJUDICATION FOR THE PRESENT. SO, HOWEVER, WE MAY MAKE IT CLEAR THAT IF IN FUTURE THE ASSESSING OFFICER TAKES STEPS TO GIVE EFFECT TO THE SAID ADDITION AND DETERMINE TAX LIABILITY THEREOF, ASSESSEE SHALL BE AT LIBERTY TO APPEAL AGAINST SUCH ADDITION, IF SO ADVISED IN LAW. THEREFORE, WITH THE AFORESAID REMARKS, WE DISMISS THE GROUNDS OF APPEAL NOS. 3, 5, 6, 9 & 10 IN RESPECT OF INTERNATIONAL ITA NO.2545/PN/2012 A.Y. 2008-09 TRANSACTIONS OF MANUFACTURING WIRE SEGMENT AS THEY DO NOT ARISE OUT OF IMPUGNED ORDER OF THE ASSESSING OFFICER DATED 30.10 .2012 (SUPRA). 10. NOW, WE MAY TAKE-UP THE REMAINING GROUNDS OF AP PEAL WHICH PRIMARILY DEAL WITH THE GRIEVANCE OF THE ASSESSEE WITH REGARD TO THE ADJUSTMENTS MADE TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTIO NS IN THE TOOLS MANUFACTURING SEGMENT. IN THIS REGARD, IT IS TO BE NOTED THAT THE TOOLS MANUFACTURING SEGMENT OF THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF CE MENTED CARBIDE AND HIGH SPEED STEEL TOOLS FOR METALWORKING APPLICATIONS AND TOOLS FOR MINING AND CONSTRUCTION. THE INTERNATIONAL TRANSACTIONS PERTAI NING TO THE TOOLS MANUFACTURING SEGMENT COMPRISED OF :- (I) IMPORT OF RAW MATERIAL, SPARES, CONSUMABLES, E TC.; (II) IMPORT OF PROMOTIONAL MATERIAL; (III) IMPORT OF FIXED ASSETS (IV) EXPORT OF FINISHED GOODS (V) PROVISION FOR TECHNICAL SERVICES; (VI) PAYMENT OF IT SUPPORT SERVICES FEES; (VII) PAYMENT OF MANAGEMENT FEES; AND, (IX) PAYMENT OF TECHNICAL AND TRAINING FEES. 11. IN RESPECT OF ABOVE TRANSACTIONS PERTAINING TO THE TOOLS MANUFACTURING SEGMENT, ASSESSEE CONTENDED THAT THE PRINCIPAL ACTI VITY WAS OF MANUFACTURING OF TOOLS. SINCE THE AFORESTATED INTERNATIONAL TRANS ACTIONS FORMED AN INTEGRAL AND INTEGRATED PART OF ITS MANUFACTURING TOOLS BUSI NESS, THE AFORESAID TRANSACTIONS WERE CONSIDERED TO BE CLOSELY LINKED W ITH THE ACTIVITY OF MANUFACTURING OF TOOLS AND THUS ASSESSEE ADOPTED A COMBINED TRANSACTIONS APPROACH IN ORDER TO CARRY OUT THE BENCHMARKING ANA LYSIS. ACCORDINGLY, ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHO D (TNM METHOD) AS THE MOST APPROPRIATE METHOD IN ORDER TO BENCHMARK THE I NTERNATIONAL TRANSACTIONS OF THE TOOLS MANUFACTURING SEGMENT. THE TPO HAS ACC EPTED THE TNM METHOD OF BENCHMARKING, AS ADOPTED BY THE ASSESSEE SUBJECT TO CERTAIN VARIATIONS WHICH ARE DISPUTED BEFORE US. ITA NO.2545/PN/2012 A.Y. 2008-09 12. IN SO FAR AS THE GROUND OF APPEAL NO. 1 IS CONC ERNED THE SAME IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION AND HENCE IT DISMISSED. 13. IN GROUND OF APPEAL NO. 2, THE GRIEVANCE OF THE ASSESSEE IS THAT WHILE DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO NS WITH ITS AES, THE ASSESSING OFFICERS JURISDICTION IS LIMITED TO MAKI NG ADJUSTMENT IN RESPECT OF TRANSACTIONS WITH AES ALONE AND NOT IN RESPECT OF N ON-AE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. IT IS CONTENDED THAT IN THE PRESENT CASE, THE ADJUSTMENT DETERMINED IN RESPECT OF TOOLS MANUFACTU RING SEGMENT IS WITH RESPECT TO THE TOTAL SALES UNDERTAKEN BY THE ASSESS EE, INCLUDING THE TRANSACTIONS WITH THE NON-AES. IN THIS CONTEXT, THE LEARNED COUNSEL SUBMITTED THAT THE AFORESAID PLEA IS NOTWITHSTANDING THE PRIM ARY GRIEVANCE OF THE ASSESSEE THAT THE DETERMINATION OF ALP BY THE ASSES SING OFFICER IS ALSO OTHERWISE UNJUSTIFIED. THE LEARNED COUNSEL REFERRED TO THE FOLLOWING COMPUTATION OF ADJUSTMENT MADE BY THE TPO IN PARA 7 .1 OF HIS ORDER :- SR NO PARTICULARS FIGURES 1 TOTAL COST OF MANUFACTURING OF TOOLS SEGMENT 547, 02,63,000 2 OPERATING MARGIN OF THE ASSESSEE (PLI) 2.01% 3 OPERATIONAL MARGIN ADOPTED BY TPO 7.63% 4 DIFFERENCE BETWEEN THE PLI 5.62% 5 ARMS LENGTH PROFIT @ 7.63% ON COST 41,73,81,066 6 ARMS LENGTH PROFIT SHOWN BY THE ASSESSEE 11,03,7 9,000 7 95% OF THE ALP DETERMINED (PROFIT) 36,31,60,213 8 ALP ADJUSTMENT (41,73,81,066 (-) 11,03,79,000 30, 70,02,066 14. THE LEARNED COUNSEL SUBMITTED EVEN AFTER ASSUMI NG THAT TRANSFER PRICING ADJUSTMENT WAS WARRANTED, THE TPO HAS ERRONEOUSLY M ADE ADJUSTMENT IN RESPECT OF ALL TRANSACTIONS OF THE ASSESSEES TOOLS MANUFACTURING SEGMENT AND NOT LIMITED THE ADJUSTMENT TO THE TRANSACTIONS WITH ITS AES. IN SUPPORT OF HIS PROPOSITION THE LEARNED COUNSEL RELIED UPON THE FOL LOWING DECISIONS OF THE TRIBUNAL : - (I) IL JIN ELECTRONICS INDIA (P) LTD. VS. ACIT (2010) 36 SOT 227 (DELHI); (II) KYUNGSHIN INDUSTRIAL MOTHERSON LIMITE D VS. DCIT, ITA ITA NO.2545/PN/2012 A.Y. 2008-09 NO.1396(DEL)/2009 DATED 21.10.2010; AND, (III) DEMA G CRANES & COMPONENTS (INDIA) PVT. LIMITED VS. DCIT, ITA NO. 120/PN/2011 DATED 04.01.2012. 15. ON THIS ASPECT, THE LEARNED CIT(DR) REITERATED THAT THE ADJUSTMENT WAS APPROPRIATELY DETERMINED BY THE LOWER AUTHORITIES A ND POINTED OUT THAT THE ASSESSEE HAD ITSELF ADOPTED THE METHODOLOGY OF COMP ARING THE SEGMENTAL NET MARGINS WITH THOSE OF THE COMPARABLE CASES AND THER EFORE ADJUSTMENT HAS TO BE MADE TO THE PROFIT/MARGINS AT THE ENTITY/SEGMENT AL LEVEL. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN OUR CONSIDERED OPINION, THE TPO HAS CLEARLY MISDIRECTED HIMSELF IN COMPUTING THE TRANSFER PRICING ADJUSTMENT IN RESPECT OF ALL TRANSACTIONS O F THE ASSESSEES TOOLS MANUFACTURING SEGMENT AND NOT LIMITING IT TO THE TR ANSACTIONS WITH THE AES. PERTINENTLY, THE ENTIRE EXERCISE OF CONDUCTING A TR ANSFER PRICING ANALYSIS IS TO COMPUTE ALP OF AN INTERNATIONAL TRANSACTION ALONE. SECTION 92(1) OF THE ACT PRESCRIBES THAT ANY INCOME ARISING FROM AN INTERNAT IONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP. THEREFORE, THE O BJECTIVE OF THE COMPUTING ALP IS TO DETERMINING THE INCOME ARISING FROM AN IN TERNATIONAL TRANSACTION. THEREFORE, THE ADJUSTMENT THAT IS REQUIRED TO BE MA DE IS TO BE LIMITED TO THE INTERNATIONAL TRANSACTIONS WITH THE AES AND NOT TO THE ENTITY/SEGMENTAL LEVEL TRANSACTIONS. SIMILAR VIEW HAS BEEN EXPRESSED BY OU R COORDINATE BENCHES IN THE CASES OF (I) IL JIN ELECTRONICS INDIA (P) LTD. (SUPRA); (II) KYUNGSHIN INDUSTRIAL MOTHERSON LIMITED (SUPRA); AND, (III) DEMAG CRANES & COMPONENTS (INDIA) PVT. LIMITED (SUPRA). FOLLOWING THE AFORESAID PRECEDENTS , WE THEREFORE FIND ENOUGH MERIT IN THE PLEA OF THE ASSESSEE AND CONCLUDE BY D IRECTING THE ASSESSING OFFICER TO RE-COMPUTE THE ADJUSTMENT, IF SO WARRANT ED, ONLY WITH REGARD TO THE TRANSACTIONS IN THE TOOLS MANUFACTURING SEGMENT CAR RIED OUT WITH THE AES AND NOT TO THE ENTIRE TRANSACTIONS IN THE SEGMENT WHICH INCLUDE THE TRANSACTIONS WITH THE NON-AES ALSO. IN OTHER WORDS, THE ADDITION IS TO BE CONFINED, IF OTHERWISE WARRANTED, TO THE COMPONENT OF TRANSACTIO NS WITH THE AES ALONE AND ITA NO.2545/PN/2012 A.Y. 2008-09 NOT TO THE ENTIRE SEGMENTAL RESULTS. THUS, ON GROUN D OF APPEAL NO. 2, ASSESSEE SUCCEEDS AS ABOVE. 17. IN GROUND OF APPEAL NO. 4, THE POINT MADE OUT I S THAT IN ITS TRANSFER PRICING STUDY (IN SHORT TP STUDY) ASSESSEE HAD CO NSIDERED THE PROFIT LEVEL INDICATOR (I.E. PLI) AS OPERATING PROFIT/OPERATING REVENUE. ACCORDINGLY, THE PLI OF ASSESSEES TOOLS MANUFACTURING SEGMENT WAS C ALCULATED AT 1.98% AS DETAILED AT PAGE 172 OF THE PAPER BOOK. THE LEARNED COUNSEL POINTED OUT THAT THE PLI ADOPTED BY THE ASSESSEE IN ITS TP STUDY, BE ING OPERATING PROFIT/OPERATING REVENUE HAS BEEN ALTERED BY THE TP O WITHOUT GIVING ANY OPPORTUNITY OF BEING HEARD IN THIS MATTER. IN THIS CONTEXT, THE LEARNED COUNSEL REFERRED TO THE COMPUTATION OF ADJUSTMENTS MADE TO THE ALP CONTAINED IN THE ORDER OF THE TPO WHEREBY THE PLI ADOPTED BY THE TPO IS OPERATING PROFIT/OPERATING COST. LEARNED COUNSEL POINTED OUT THAT AT NO STAGE THE TPO HAD CALLED UPON THE ASSESSEE TO JUSTIFY THE PLI ADO PTED BY IT IN THE TP STUDY DURING THE COURSE OF TRANSFER PRICING PROCEEDING. 18. IN THE ABOVE BACKGROUND, THE LEARNED COUNSEL SU BMITTED THAT ASSESSEE WOULD BE SATISFIED IF THE MATTER IS REMANDED BACK T O THE FILE OF THE ASSESSING OFFICER/TPO TO ALLOW THE ASSESSEE A REASONABLE OPPO RTUNITY OF BEING HEARD ON THIS ASPECT AND THEREAFTER IT MAY BE DECIDED BY THE SAID AUTHORITIES AS PER LAW. POINTING OUT THAT SUCH AN INFIRMITY WAS RAISED BEFO RE THE DRP, A REFERENCE WAS MADE TO PARA 5.3 OF THE DRP ORDER AND IT IS CONTEND ED THAT THE ISSUE OF DENIAL OF NATURAL JUSTICE TO THE ASSESSEE HAS NOT BEEN APP ROPRIATELY ADDRESSED. 19. ON THE OTHER HAND, THE LEARNED CIT(DR) APPEARIN G FOR THE REVENUE HAS POINTED OUT THAT THE ASSESSEE HAD RAISED OBJECTIONS BEFORE THE DRP AND THE PLI ADOPTED IN THE TP STUDY HAS NOT BEEN ACCEPTED B Y THE DRP. ITA NO.2545/PN/2012 A.Y. 2008-09 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AT THE LEVEL OF AO/TPO IT IS QUITE EVIDENT THAT WITH REGARD TO THE ALTERING OF PLI FROM THE RETURN OF SALES, AS ADOPTED BY THE ASSESSEE TO TH E RETURN ON COST DONE BY THE TPO, NO OPPORTUNITY WAS ALLOWED TO THE ASSESSEE . IN-FACT, IT IS ALSO PERTINENT TO NOTE FROM THE ORDERS OF THE TPO/AO THA T NO REASONS HAVE ASSIGNED FOR CHANGING THE PLI AS USED BY THE ASSESS EE IN THE TP STUDY. IN OUR CONSIDERED OPINION, SUCH AN APPROACH IMPINGES ON TH E PRINCIPLES OF NATURAL JUSTICE AND THE ASSESSEE IS RIGHTFULLY AGGRIEVED. I N SO FAR AS THE OPPORTUNITY OF RAISING OBJECTIONS BEFORE THE DRP IS CONCERNED, IN OUR VIEW, THE SAME CANNOT TAKE THE PLACE OF AN OPPORTUNITY THAT WAS REQUIRED TO BE ALLOWED BEFORE THE TPO/AO. THE ASSESSEE HAD AN OPPORTUNITY BEFORE THE DRP IS OF NO CONSEQUENCE FOR IT IS THE FAIRNESS AND REASONABLENE SS OF FURNISHING OF AN EXPLANATION BEFORE THE TPO/AO WHICH IS THE ISSUE. I N-FACT, IN A SOMEWHAT SIMILAR SITUATION THE HONBLE SUPREME COURT IN THE CASE OF TIN BOX COMPANY VS. CIT (2001) 249 ITR 216 (SC) HELD THAT ONCE IT I S ESTABLISHED THAT THE ASSESSING OFFICER HAD NOT GIVEN TO THE ASSESSEE AN APPROPRIATE OPPORTUNITY OF BEING HEARD, THAT THE ASSESSEE HAD AN OPPORTUNITY B EFORE THE HIGHER APPELLATE AUTHORITIES WAS REALLY OF NO CONSEQUENCE, FOR IT WA S THE ASSESSMENT ORDER THAT COUNTED INASMUCH AS THE ASSESSMENT ORDER WAS REQUIR ED TO BE MADE ONLY AFTER THE ASSESSEE HAD BEEN ALLOWED A REASONABLE OP PORTUNITY OF BEING HEARD. CONSIDERED IN THE AFORESAID LIGHT, IN THE PRESENT C ASE IT IS AXIOMATIC THAT SO FAR AS THE ISSUE OF THE PLI ADOPTED BY THE ASSESSEE IN RESPECT OF TOOLS MANUFACTURING SEGMENT OF OPERATING PROFIT/OPERATING REVENUE IS CONCERNED, THE SAME HAS BEEN ALTERED BY THE TPO WITHOUT GIVING THE ASSESSEE ANY OPPORTUNITY OF BEING HEARD AND THEREFORE IN OUR VIE W THE MATTER OUGHT TO BE REMANDED BACK TO THE AO/TPO FOR CONSIDERATION AFRES H. WE HOLD SO. THUS, ON THIS ASPECT ALSO ASSESSEE SUCCEEDS. 21. BY WAY OF GROUND OF APPEAL NOS. 7 AND 8, ASSESS EE HAS ASSAILED THE ADDITION OF RS.30,70,02,006/- MADE BY THE ASSESSING OFFICER BY HOLDING THAT ITA NO.2545/PN/2012 A.Y. 2008-09 INTERNATIONAL TRANSACTIONS OF THE TOOLS MANUFACTURI NG SEGMENT WERE NOT AT ARMS LENGTH. THE APPELLANT-COMPANY HAS ASSAILED TH E SAID ADDITION ON THREE ASPECTS. THE FIRST ASPECT IS THAT THE ASSESSING OFF ICER ERRED IN REJECTING THE SEGMENTAL RESULTS OF RAJASTHAN UDYOG & TOOLS LIMITE D AND HITTCO TOOLS LIMITED, WHICH HAVE BEEN ADOPTED BY THE ASSESSEE AS COMPARABLE CASES. ON THE SAID ASPECT, PLEA OF THE ASSESSEE IS THAT OUT O F THE FIVE COMPARABLES CASES CONSIDERED BY IT IN ITS TP STUDY, ASSESSING OFFICER ACCEPTED THREE OF THEM AND EXCLUDED TWO, NAMELY, RAJASTHAN UDYOG & TOOLS LIMIT ED AND HITTCO TOOLS LIMITED. A COMMON POINT RAISED AGAINST THE EXCLUSIO N OF THE TWO COMPANIES FROM THE LIST OF COMPARABLES IS THAT THE SAID COMPA NIES WERE ADOPTED BY THE ASSESSEE AS COMPARABLES IN THE TP STUDY FOR THE EAR LIER TWO ASSESSMENT YEARS OF 2006-07 AND 2007-08 IN RESPECT OF TOOLS MA NUFACTURING SEGMENT AND THE SAME WAS ACCEPTED BY THE REVENUE IN THE SAID YE ARS. IT WAS, THEREFORE, CONTENDED THAT THE ASSESSING OFFICER ERRED IN REJEC TING THE SAID CONCERNS FROM THE LIST OF COMPARABLES IN THIS YEAR. APART FROM TH E AFORESAID WITH REGARD TO THE M/S RAJASTHAN UDYOG & TOOLS LIMITED, THE LEARNED CO UNSEL POINTED OUT THAT THE REASONS ADVANCED BY THE ASSESSING OFFICER TO RE JECT THE SAME ON THE GROUND OF CONTINUOUS LOSSES AND LACK OF FUNCTIONAL COMPARABILITY WAS FACTUALLY INCORRECT. WITH REGARD TO THE EXCLUSION OF HITTCO T OOLS LIMITED, THE LEARNED COUNSEL POINTED OUT THAT THE REASONS ADVANCED BY TH E ASSESSING OFFICER FOR THE SAME WERE ALSO UNJUSTIFIED. THE SEGMENTAL RESUL TS OF THE SAID CONCERN HAVE BEEN REFERRED IN THE PAPER BOOK TO POINT OUT T HAT THE CONCERN WAS DECLARING PROFITS AND WAS NOT A CONSISTENTLY LOSS-M AKING CONCERN AS OBSERVED BY THE TPO. IN SUM AND SUBSTANCE, THE PLEA OF THE A SSESSEE IS THAT THE TWO CONCERNS HAVE BEEN UNJUSTLY EXCLUDED FROM THE LIST OF COMPARABLES. 22. THE ASSESSEE HAD COMPUTED ITS PLI AT 1.98% WITH RESPECT TO ITS TOOLS MANUFACTURING SEGMENT. THE ASSESSEE BENCHMARKED THE SAME AGAINST THE ARITHMETIC MEAN OF THE AVERAGE OPERATING MARGINS OF THE FOLLOWING FIVE COMPARABLES AS PER WHICH THE OPERATING MARGIN OF TH E ASSESSEE WAS HIGHER ITA NO.2545/PN/2012 A.Y. 2008-09 AND THEREFORE THE INTERNATIONAL TRANSACTIONS BETWEE N THE ASSESSEE AND ITS AES IN RESPECT OF THE ACTIVITY OF TOOLS MANUFACTURING S EGMENT WAS CONSIDERED TO BE AT AN ARMS LENGTH FROM INDIAN TRANSFER PRICING PER SPECTIVE. THE DETAILS OF THE FIVE COMPARABLE CASES SELECTED BY ASSESSEE IS AS UN DER :- NAME OF THE COMPANY AVERAGE OPERATING MARGIN ON OPERATING REVENUE (%) ELECTRONICA MACHINE TOOLS LTD. 1.30% HITTCO TOOLS LTD. -7.48% RAJASTHAN UDYOG & TOOLS LIMITED -18.18% RAPICUT CARBIDES LTD. 8.89% ZENITH BIRLA (INDIA) LTD. 15.03% ARITHMETIC MEAN -0.09% 23. HOWEVER, THE ASSESSING OFFICER HAS EXCLUDED M/ S RAJASTHAN UDYOG & TOOLS LIMITED AND HITTCO TOOLS LIMITED FROM THE LIS T OF COMPARABLES. AS PER THE DISCUSSION IN PARA 7.1 OF THE ORDER OF THE TPO, M/S RAJASTHAN UDYOG & TOOLS LIMITED HAS BEEN EXCLUDED ON ACCOUNT OF IT BEING IN CONTINUOUS LOSSES AND FUNCTIONALLY INCOMPARABLE. IN THIS CONTEXT, WE FIND THAT THE TOOLS MANUFACTURING SEGMENT OF THE ASSESSEE IS ENGAGED IN THE MANUFACTU RE OF CEMENTED CARBIDE AND HIGH SPEED STEEL TOOLS FOR METALWORKING APPLICA TIONS AND TOOLS FOR MINING AND CONSTRUCTION. M/S RAJASTHAN UDYOG & TOOLS LIMIT ED IS ENGAGED IN THE MANUFACTURING OF DIAMONDS TOOLS, CASTINGS AND CUTTI NG MACHINES STONE EDGE AND SPARE PARTS. IT HAS PRIMARILY THREE SEGMENTS DIAMOND TOOLS AND GANG SAW BLADES, STONE CUTTING MACHINES AND DIAGA MONO B LADE CRANES. THE ASSESSEE CONSIDERED THE DIAMOND TOOLS AND GANG SAW BLADES SEGMENT AS COMPARABLE FOR THE PURPOSE OF BENCHMARKING OF ITS I NTERNATIONAL TRANSACTIONS IN TOOLS MANUFACTURING SEGMENT. A SIMILAR POSITION HAS BEEN TAKEN BY THE ASSESSEE IN ITS TP STUDY FOR ASSESSMENT YEAR 2006-0 7 AS WELL AS FOR ASSESSMENT YEAR 2007-08, WHEREBY THE DIAMOND TOOLS AND GANG SAW BLADES SEGMENT OF THE SAID CONCERN WAS CONSIDERED AS COMPA RABLE FOR PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS CARRIED OUT IN ITS TOOLS MANUFACTURING SEGMENT. IN THE PAPER BOOK FILED BEFO RE US, ASSESSEE HAS FURNISHED COPIES OF ORDERS PASSED BY THE TPO FOR AS SESSMENT YEAR 2006-07 ITA NO.2545/PN/2012 A.Y. 2008-09 AND 2007-08 UNDER SECTION 92CA(3) OF THE ACT DATED 30.10.2009 AND 29.10.2010 RESPECTIVELY WHEREBY NO ADJUSTMENTS WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS IN THE TOOLS MANUFACTURI NG SEGMENT HAVE BEEN MADE. IN OTHER WORDS, THE ADOPTION OF SEGMENTAL RES ULT OF M/S RAJASTHAN UDYOG & TOOLS LIMITED AS A COMPARABLE CASE HAS BEEN ACCEPTED. IN THE CURRENT YEAR TOO WE FIND THAT FUNCTIONAL ANALYSIS O F THE SAID CONCERN MADE IN THE TP STUDY, COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK, IS SIMILAR TO WHAT WAS CONSIDERED BY THE ASSESSEE IN THE OTHER TW O ASSESSMENT YEARS 2006-07 AND 2007-08. 24. THE LEARNED CIT(DR) HAS ARGUED THAT MERELY BECA USE THE SAID CONCERN WAS USED AS A COMPARABLE IN THE IMMEDIATELY TWO PRE CEDING YEARS CANNOT BE A REASON TO ADOPT THE SAID CONCERN IN THE INSTANT Y EAR ALSO BECAUSE EACH YEAR IS INDEPENDENT AND COMPARABILITY OF THE CASE IS TO BE TESTED FOR EACH AND EVERY YEAR SEPARATELY. 25. IN OUR CONSIDERED OPINION, THE PROPOSITION ADVA NCED BY THE LEARNED CIT(DR) CANNOT BE FAULTED BECAUSE FOR THE PURPOSE O F DETERMINATION OF ALP, AN INTERNATIONAL TRANSACTION HAS TO BE COMPARED WIT H UNCONTROLLED AND UNRELATED TRANSACTIONS BY USING THE DATA RELATING T O THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO . IN OTHER WORDS, THE CONTEMPORANEOUS INFORMATION AND DOCUMENTS ARE LIABL E TO BE CONSIDERED AS FAR AS POSSIBLE FOR THE PURPOSES OF COMPARING UNCON TROLLED TRANSACTIONS WITH THE INTERNATIONAL TRANSACTIONS SOUGHT TO BE TESTED. SO, HOWEVER, IT IS ALSO TO BE NOTED IN THE PRESENT CASE, THAT THE REVENUE HAS NOT MADE OUT ANY CASE AS TO IN WHAT MANNER, THE DIAMOND TOOLS AND GANG SAW BLAD ES SEGMENT OF M/S RAJASTHAN UDYOG & TOOLS LIMITED IS CARRYING OUT DIF FERENT ACTIVITIES THEN THOSE CARRIED OUT IN ASSESSMENT YEARS 2006-07 AND 2007-08 . THE AFORESAID ASPECT BECOMES IMPORTANT BECAUSE FACTUALLY SPEAKING IN THE ASSESSMENT YEARS 2006-07 AND 2007-08, THE SAID CONCERNS DIAMOND TOO LS AND GANG SAW ITA NO.2545/PN/2012 A.Y. 2008-09 BLADES SEGMENT HAS BEEN ACCEPTED AS FUNCTIONALLY CO MPARABLE TO ASSESSEES TOOLS MANUFACTURING SEGMENT. FROM THE IMPUGNED ORDE RS OF THE LOWER AUTHORITIES, WE DO NOT FIND ANY SUCH DISTINCTION BE ING BROUGHT OUT. ON THE BASIS OF THE MATERIAL ON RECORD, IT IS EVIDENT THAT THE A SSERTION OF THE TPO THAT THE SAID CONCERN IS FUNCTIONALLY INCOMPARABLE IS A MERE BALD ASSERTION DEVOID OF FACTUAL SUPPORT. THEREFORE, THE ACTION OF THE TPO I N EXCLUDING THE SAID CONCERN, IN OUR VIEW, IS NOT WELL FOUNDED AND IS LI ABLE TO BE SET-ASIDE. 26. ANOTHER REASON ADVANCED BY THE TPO TO REJECT TH E SAID COMPARABLE IS THAT THE SAID CONCERN IS IN CONTINUOUS LOSSES. ON T HIS ASPECT, WE FIND THAT AS PER THE DATA CONTAINED IN THE TP STUDY FOR ASSESSME NT YEAR 2006-07, COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK, THE DIAMON D TOOLS AND GAND SAW BLADES SEGMENT OF THE SAID CONCERN WAS DECLARING PR OFITS IN 2004, 2005 AND 2006 ALSO. HOWEVER, IT IS ONLY FOR THE YEAR UNDER C ONSIDERATION THAT THE RELEVANT SEGMENT OF THE SAID CONCERN HAS BEEN DECLA RED A LOSS. THEREFORE, IT CANNOT BE FACTUALLY TENABLE TO HOLD THAT THE RELEVA NT SEGMENT OF THE SAID CONCERN HAS BEEN CONTINUOUSLY MAKING LOSSES, AS SOU GHT TO BE MADE OUT BY THE TPO. FOR BOTH THE ABOVE REASONS ADVANCED BY THE TPO WE HAVE NOT FOUND ANY FACTUAL SUPPORT AND THEREFORE WE DIRECT T HE ASSESSING OFFICER TO INCLUDE THE RESULTS OF THE DIAMOND TOOLS AND GANG S AW BLADES SEGMENT OF M/S RAJASTHAN UDYOG & TOOLS LIMITED AS COMPARABLE F OR THE PURPOSES OF CARRYING OUT THE BENCHMARKING ANALYSIS OF THE INTER NATIONAL TRANSACTIONS PERTAINING TO TOOLS MANUFACTURING SEGMENT OF THE AS SESSEE. 27. THE OTHER DISPUTE IS WITH REGARD TO THE EXCLUSI ON OF M/S HITTCO TOOLS LIMITED FROM THE LIST OF COMPARABLES. THE SAID CONC ERN IS SAID TO BE ENGAGED IN THE MANUFACTURING OF DRILL BITS AND FOR THE SAID REASON ASSESSEE TREATED IT AS A COMPARABLE FOR THE PURPOSES OF TRANSFER PRICING A NALYSIS OF ITS TOOLS MANUFACTURING SEGMENT. THE LEARNED COUNSEL POINTED OUT THAT INITIALLY ASSESSEE HAD MADE AN ERROR WHILE STATING THE OPERAT ING MARGINS OF THE SAID ITA NO.2545/PN/2012 A.Y. 2008-09 CONCERN BUT IT RECTIFIED ITS MISTAKE IN THE COURSE OF PROCEEDINGS BEFORE THE TPO. THE LEARNED COUNSEL SUBMITTED THAT THE SAID CO NCERN WAS MAKING PROFITS IN ASSESSMENT YEAR 2006-07 AND IT IS NOT A CASE WHE RE IT WAS MAKING LOSSES CONTINUOUSLY. THE LEARNED COUNSEL POINTED OUT THAT EVEN FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE CORRECTED THE ER ROR BY MAKING AN APPROPRIATE ADJUSTMENT TO THE FIGURE OF PROFIT OF M /S HITTCO TOOLS LIMITED SO AS TO EXCLUDE THE EXTRAORDINARY PROFITS ON ACCOUNT OF WRITE-BACK OF LOANS WAIVED BY BANKS. IT WAS THEREFORE, CONTENDED THAT THE SAID CONCERN HAS BEEN REJECTED ON MERE SURMISES WITHOUT APPRECIATING THE CORRECT F ACTUAL POSITION. IT WAS FURTHER CONTENDED THAT EVEN IN THE ASSESSMENT YEAR 2006-07 AND 2007-08 THE SAID CONCERN HAS BEEN TAKEN AS A COMPARABLE CASE AN D THE SAME HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER/TPO. 28. ON THIS ASPECT, THE LEARNED CIT(DR) HAS REFERRE D TO THE DISCUSSION MADE BY THE TPO IN THE IMPUGNED ORDER AND HAS POINT ED OUT THAT ASSESSEE HAD HIMSELF SUBMITTED THE PROFIT MARGIN OF THE SAID CONCERN DIFFERENTLY ON DIFFERENT OCCASIONS. APART THEREFROM IT IS SOUGHT T O BE MADE OUT THAT THE SAID CONCERN IS ALSO STATED BY THE TPO TO BE FUNCTIONALL Y INCOMPARABLE. 29. WE CONSIDERED THE RIVAL STANDS AND FIND THAT NO COGENT REASONS HAVE BEEN ADVANCED BY THE TPO TO EXCLUDE THE SAID CONCER N FROM THE LIST OF COMPARABLES. OSTENSIBLY, THE SAID CONCERN WAS ACCEP TED AS FUNCTIONALLY COMPARABLE IN ASSESSMENT YEARS 2006-07 AND 2007-08 AND THERE IS NO MATERIAL TO DEPART FROM THE SAID PROPOSITION ESPECI ALLY WHEN NO CASE HAS BEEN MADE OUT THAT IN THE INSTANT ASSESSMENT YEAR THAT T HE ACTIVITIES OF THE SAID CONCERN HAVE UNDERGONE ANY CHANGE. THE OTHER POINT MADE BY THE TPO TO THE EFFECT THAT THE SAID CONCERN IS CONSISTENTLY LOSS M AKING IS ALSO NOT BORNE OUT OF THE RECORD. IT IS ONLY IN 2004 AND 2005 THAT THE SA ID CONCERN HAD LOSSES BUT IT HAD PROFITS IN 2006 AND ALSO FOR THE SUBSEQUENT YEA RS ENDING ON 31.03.2010 AND 31.03.2011 THE SAID CONCERN IS MAKING PROFITS, AS PER THE MATERIAL PLACED ITA NO.2545/PN/2012 A.Y. 2008-09 IN THE PAPER BOOK. THEREFORE, IT CANNOT BE SAID THA T THE SAID CONCERN IS CONSISTENTLY LOSS-MAKING AND ACCORDINGLY, WE DO NOT FIND ENOUGH REASONS TO SUSTAIN THE ACTION OF THE TPO IN EXCLUDING THE SAID CONCERN FROM THE LIST OF COMPARABLE. 30. ANOTHER ASPECT MADE OUT BY THE ASSESSEE IS THAT THE TPO DID NOT ALLOW THE PLEA OF THE ASSESSEE TO REMOVE AN EXTRAORDINARY DEBIT MADE IN ITS PROFIT AND LOSS ACCOUNT OF RS.2.8 CRORES WHILE COMPUTING T HE OPERATING MARGIN FOR DETERMINING THE PLI. THE ASSESSEE CLAIMED THAT THIS AMOUNT HAS BEEN WRITTEN- OFF FROM THE VALUE OF ASSETS OF ITS TITEX DIVISION, WHICH HAD THE EFFECT OF DEBITING ADDITIONAL DEPRECIATION TO THE PROFIT AND LOSS ACCOUNT RESULTING IN REDUCTION OF PROFITS. AS PER THE APPELLANT, IT IS A N EXTRAORDINARY AND NON- RECURRING CHARGE AND REPRESENTS A ONE TIME DEBIT IN PROFIT AND LOSS ACCOUNT TO REFLECT THE ABNORMAL REDUCTION IN THE VALUE OF THE ASSETS OF TITEX DIVISION. THUS, THE SAID IMPAIRMENT LOSS WAS REQUIRED TO BE REMOVED SO AS TO COMPUTE THE NORMAL PROFITS. 31. AT THE OUTSET, IT IS SUBMITTED THAT IF SUCH EXT RAORDINARY IMPAIRMENT LOSS IS REDUCED FROM THE COST AND THE PROFIT MARGIN IS E NHANCED, THE PLI OF TOOLS MANUFACTURING SEGMENT WOULD BE ENHANCED AND IN COMP ARISON TO THE AVERAGE MEAN OF THE PLIS OF THE COMPARABLE CASES AS DETERM INED BY THE TPO IT WOULD BE HIGHER AND THEREFORE NO ADJUSTMENT WOULD BE REQU IRED TO BE MADE FOR DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTI ONS IN THE TOOLS MANAGEMENT SEGMENT. 32. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL POINTED OUT THAT EVEN IF ONE OF THE COMPARABLES FROM THE COMPANIES R EJECTED BY THE TPO I.E. M/S RAJASTHAN UDYOD & TOOLS LIMITED OR M/S HITTCO T OOLS LIMITED IS ACCEPTED AS COMPARABLE AND EVERY OTHER ASPECT OF THE TPO AND THE DRP ORDER IS ACCEPTED I.E. CHANGE IN THE MANNER OF DETERMINATION OF PLI IS ACCEPTED AND ITA NO.2545/PN/2012 A.Y. 2008-09 THE IMPAIRMENT LOSS IS CONSIDERED AS PART OF OPER ATING EXPENDITURE AND NO OTHER ADJUSTMENT FAVOURABLE TO THE ASSESSEE IS MADE EVEN THEN NO TRANSFER PRICING ADJUSTMENT CAN BE MADE IN RESPECT OF TOOLS MANUFACTURING SEGMENT, SINCE THE OPERATING MARGINS OF THE ASSESSEE WOULD F ALL WITHIN THE + MARGINS PERMITTED BY SECTION 92C OF THE ACT AND A WORKING I N SUPPORT OF THE AFORESAID PLEA HAS ALSO BEEN FURNISHED DURING THE COURSE OF H EARING. IN TERMS OF THE SAID WORKING, WHICH IS REPRODUCED BELOW, THE PLI OF ASSE SSEES TOOLS MANAGEMENT SEGMENT OF 1.98% IS HIGHER THAN THE ARITHMETIC MEAN OF COMPARABLE MARGINS, THUS THE INTERNATIONAL TRANSACTIONS BETWEEN THE ASS ESSEE AND THE AES IN RESPECT OF TOOLS MANAGEMENT SEGMENT CAN BE CONSIDER ED TO BE AT ARMS LENGTH PRICE FROM THE INDIAN TRANSFER PRICING PERSP ECTIVE :- SANDVIK ASIA PRIVATE LIMITED A.Y. 2008-09 OPERATING PROFIT/SALES PLI OPERATING PROFIT/TOTA L COST - PLI COMPARABLES % OP/SALES HITTCO TOOLS IS ADDED RAJASTHAN UDYOG ADDED % OP/COST HITTCO TOOLS IS ADDED RAJASTHAN UDYOG ADDED ELECTRONICA MACHINE TOOLS LTD. 0.04 0.04 0.04 0.05 0.05 0.05 HITTCO TOOLS LTD. -18.95 -18.95 -15.93 -15.93 RAJASTHAN UDYOG & TOOLS LIMITED -63.25 -63.25 -38.75 -38.75 RAPICUT CARBIDES LTD. 10.60 10.60 1060 11.85 11.85 11.85 ZENITH BIRLA (INDIA) LTD. 9.92 9.92 9.92 11.01 11.01 11.01 AVERAGE -12.33 0.04 -10.67 -6.35 1.75 -3.96 33. THE AFORESAID PLEA OF THE ASSESSEE HAS NOT BEEN FACTUALLY FAULTED BY THE REVENUE BEFORE US. SINCE WE HAVE ALREADY UPHELD ASSESSEES PLEA TO INCLUDE THE TWO COMPANIES I.E. M/S. RAJASTHAN UDYOG & TOOLS LIMITED AND M/S HITTCO TOOLS LIMITED AS COMPARABLES IN ORDER TO BEN CHMARK ITS INTERNATIONAL TRANSACTION TRANSACTIONS OF THE TOOLS MANUFACTURING SEGMENT, THE OTHER ASPECT OF EXCLUDING THE DEBIT OF RS.2.8 CRORES REPRESENTIN G IMPAIRMENT LOSS IN ORDER TO CALCULATE THE PLI OF THE ASSESSEE IS NOT BEING A DJUDICATED AS THE SAME IS RENDERED ACADEMIC. THUS, GROUNDS OF APPEAL NO. 7 & 8 ARE ALLOWED TO ABOVE EXTENT. ITA NO.2545/PN/2012 A.Y. 2008-09 34. IN SO FAR AS THE GROUNDS OF APPEAL NOS. 11 AND 12 ARE CONCERNED RELATING TO THE APPLICATION OF THE PROVISO OF SECTI ON 92C OF THE ACT AND NON-USE OF MULTIPLE YEARS DATA OF THE COMPARABLES AS CANVAS SED BY THE ASSESSEE ARE CONCERNED, THE LEARNED COUNSEL POINTED OUT THAT IN CASE OF THE DECISION ON THE PLEA OF THE ASSESSEE CONTAINED IN GROUNDS OF APPEAL NOS. 2, 4, 7 & 8 IS TAKEN IN FAVOUR OF THE ASSESSEE OR THE MATTER IS SET-ASID E IN VIEW OF THE VIOLATION OF PRINCIPLE OF NATURAL JUSTICE, THE AFORESAID TWO GRO UNDS WILL BECOME INFRUCTUOUS AND WOULD NOT REQUIRE ANY ADJUDICATION. FOR THE AFO RESAID REASONS, THE AFORESAID GROUNDS ARE TREATED AS INFRUCTUOUS AND AR E ACCORDINGLY DISPOSEE- OFF. 35. THUS, IN CONCLUSION, WE DIRECT THE ASSESSING OF FICER TO RE-COMPUTE THE ALP OF THE INTERNATIONAL TRANSACTIONS IN RESPECT OF THE TOOLS MANUFACTURING SEGMENT AS PER OUR ABOVE DISCUSSION. 36. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 27 TH SEPTEMBER, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE DR, A BENCH, I.T.A.T., PUNE; 5) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE