Demag Cranes & Components, Pune V. Deputy Commissioner of Income-tax, Satara

ITA 263/PUN/2013

• Counselvise Citation: 26324514 RSA 2013
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 28-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Initiation of penalty proceedings
• Section: 92C; 92B; 234B; 10B; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.263/PN/2013 (A.Y.2008-09) DEMAG CRANES & COMPONENTS (INDIA) PVT. LTD., GAT NO.330, 332, 333, 334, NANEKARWADI, CHAKAN, TALUKA KHED, PUNE - 410501 PAN: AABCM9351Q APPELLANT VS. DY. CIT, CIRCLE 1(2), PUNE RESPONDENT APPELLANT BY : SHRI M.P. L OHIA RESPONDENT BY : SMT. M.S. VERMA DATE OF HEARING : 12.12.2013 DATE OF ORDER : 24.12.2013 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 21.11.2012 PASSED U/S.143(3) R.W.S. 144C(1) O F I.T ACT BY DCIT, CIRCLE 1(2), PUNE. 2. THE GROUNDS RAISED BY ASSESSEE ARE AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO BASED ON DIRECTIONS OF HON'BLE DRP H AS: GENERAL GROUND CHALLENGING THE TRANSFER PRICING ADJUSTMENT 2 1. ERRED IN MAKING TRANSFER PRICING ADJUSTMENT OF RS.10,30,07,800 TO THE INTERNATIONAL TRANSACTIONS OF PROVISION OF MATERIAL HANDLING SOLUTIONS; NON CONSIDERATION OF COMPARABILITY ANALYSIS AS DOCUMENTED IN THE TRANSFER PRICING STUDY REPORT 2. ERRED IN NOT CONSIDERING/ ACCEPTING THE COMPARABILI TY ANALYSIS UNDERTAKEN IN THE TRANSFER PRICING STUDY R EPORT FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF MATERIAL HANDLING SOLUTI ONS; REJECTING THE AGGREGATION OF INTERNATIONAL TRANSACT IONS ENTERED INTO BY THE APPELLANT PERTAINING TO MANUFACTURING ACTIVITY 3. ERRED IN REJECTING THE AGGREGATION APPROACH ADOPTED BY THE APPELLANT IN ITS TRANSFER PRICING STUDY FOR BENCHMA RKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVIS ION OF MATERIAL HANDLING SOLUTIONS; NON INCLUSION OF SERVICES INCOME FOR THE PURPOSE OF COMPUTING THE APPELLANT'S MARGIN FOR MANUFACTURING ACTIVITY 4. ERRED IN NOT INCLUDING SERVICES INCOME FOR THE PURP OSE OF COMPUTING THE APPELLANT'S MARGIN FROM MANUFACTURING ACTIVITY WHILE COMPUTING ARM'S LENGTH PRICE; NON GRANT OF ADJUSTMENT 5. ERRED IN NOT PROVIDING ADJUSTMENT ON ACCOUNT OF HIG H IMPORT DUTY INCURRED FOR IMPORT OF RAW MATERIALS, COMPONENTS AND SPARES, WHILE BENCHMARKING THE IMPUGNED TRANSACTION FOR COMPUTING ARM'S LENGTH PRI CE; 6. ERRED IN NOT GRANTING WORKING CAPITAL ADJUSTMENT IN RESPECT OF ONE OF THE COMPARABLE I.E. ELECON ENGINE ERING COMPANY LIMITED, WHILE DETERMINING THE WORKING CAPI TAL ADJUSTED WEIGHTED AVERAGE OPERATING PROFIT MARGIN O F COMPARABLE COMPANIES DISREGARDING THE DIRECTION GIV EN BY DRP IN THIS REGARD; INCORRECT COMPUTATION OF TRANSFER PRICING ADJUSTMEN T TO THE MANUFACTURING ACTIVITY 7. ERRED IN COMPUTING THE TRANSFER PRICING ADJUSTMENT ON THE ENTIRE MANUFACTURING SEGMENT SALES INSTEAD OF COMPU TING 3 THE TRANSFER PRICING ADJUSTMENT ON MANUFACTURING SEGMENT SALES PERTAINING TO IMPORT OF COMPONENTS AN D SPARES FROM ASSOCIATED ENTERPRISES ONLY: USE OF MULTIPLE YEAR DATA 8. ERRED IN CONSIDERING THE OPERATING MARGINS EARNED B Y COMPARABLE COMPANIES BASED ON THE FINANCIAL DATA PERTAINING TO THE YEAR ENDED 31 MARCH 2008 ONLY AND REJECTING THE FINANCIAL DATA OF COMPARABLES FOR FY 2005-06 AND FY 2006-07 CONSIDERED BY THE APPELLANT USE OF CONTEMPORANEOUS DATA 9. ERRED IN COMPUTING THE ARM'S LENGTH PRICE USING THE FINANCIAL INFORMATION OF THE COMPARABLE COMPANIES AVAILABLE AT THE TIME OF ASSESSMENT, ALTHOUGH SUCH INFORMATION WAS NOT AVAILABLE AT THE TIME WHEN THE APPELLANT COMPLIED WITH THESE REGULATIONS BENEFIT OF +/-5% RANGE 10. ERRED IN COMPUTING THE ARM'S LENGTH PRICE OF TH E INTERNATIONAL TRANSACTIONS PERTAINING TO MANUFACTUR ING ACTIVITY WITHOUT TAKING INTO ACCOUNT THE BENEFIT OF +/- 5 PER CENT VARIATION FROM THE MEAN, WHICH IS PERMITTED AN D OPTED FOR BY THE APPELLANT UNDER THE PROVISIONS OF SECTION 92C(2) OF THE ACT; ERRONEOUS LEVY OF INTEREST UNDER SECTION 234B OF TH E ACT 10. ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT ON TRANSFER PRICING ADJUSTMENT BASED ON THE UPD ATED FINANCIAL DATA FOR THE COMPARABLE COMPANIES; ERRONEOUS LEVY OF INTEREST UNDER SECTION 234C OF TH E ACT 12. ERRED IN WRONGLY LEVYING INTEREST UNDER SECTION 234 C OF THE ACT; SHORT GRANT OF CREDIT FOR TAXES DEDUCTED AT SOURCE 13. ERRED IN GRANTING SHORT CREDIT FOR TAXES DEDUCTED A T SOURCE OF RS.8,00,582. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 (L)(C) OF THE ACT 4 14. ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTI ON 271(L)(C) OF THE ACT THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEA L, SO AS TO ENABLE THE LEARNED AO TO DECIDE THIS APPEAL ACCORDI NG TO LAW. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING DID NOT PRESS GROUNDS OF APPEAL NO.1, 2 & 3 BEING GENERAL I N NATURE. HE ALSO DID NOT PRESS GROUNDS OF APPEAL NO.8, 9 & 10. LD. DR HAS NO OBJECTION FOR THE SAME. THEREFORE, THE GROUNDS OF APPEAL NO.1, 2, 3, 8, 9 AND 10 ARE DISMISSED AS NOT PRESSED. 4. SO FAR AS GROUND OF APPEAL NO.4 IS CONCERNED, WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIN D SIMILAR ISSUE HAD ARISEN BEFORE THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2007-08. WE FIND THE TRIBUNAL VIDE ITA NO.1683/PN/2011 ORDER DATED 31.12 .2012 HAS DISCUSSED THE ISSUE AND RESTORED THE MATTER TO THE FILE OF THE AO WITH CERTAIN DIRECTIONS BY OBSERVING AS UNDER: 30. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. SECTION 92B OF THE ACT PROVIDES THE MEANING OF EXPR ESSION INTERNATIONAL TRANSACTION AS A TRANSACTION BETWEE N TWO OR MORE ASSOCIATED ENTERPRISES. RULE 10A(D) OF THE RU LES EXPLAINS THE MEANING OF THE EXPRESSION TRANSACTION FOR THE PURPOSES OF COMPUTATION OF ALP AS TO INCLUDE A NUMBER OF CLOSEL Y LINKED TRANSACTIONS. RULE 10B OF THE RULES PRESCRIBES THE MANNER IN WHICH THE ALP IN RELATION TO AN INTERNATIONAL TRANS ACTION IS TO BE DETERMINED BY FOLLOWING ANY OF THE METHODS PRESC RIBED. SHORN OF OTHER DETAILS, IT WOULD SUFFICE TO OBSERVE THAT ON A COMBINED READING OF RULE 10A(D) AND 10B OF THE RULE S, A NUMBER OF TRANSACTIONS CAN BE AGGREGATED AND CONSTR UED AS A SINGLE TRANSACTION FOR THE PURPOSES OF DETERMININ G THE ALP, PROVIDED OF COURSE THAT SUCH TRANSACTIONS ARE CLOS ELY LINKED. OSTENSIBLY THE RATIONALE OF AGGREGATING CLOSELY LI NKED TRANSACTIONS TO FACILITATE DETERMINATION OF ALP ENV ISAGED A SITUATION WHERE IT WOULD BE INAPPROPRIATE TO ANALYS E THE TRANSACTIONS INDIVIDUALLY. THE PROPOSITION THAT A N UMBER OF 5 INDIVIDUAL TRANSACTIONS CAN BE AGGREGATED AND CONST RUED AS A COMPOSITE TRANSACTION IN ORDER TO COMPUTE ALP ALSO FINDS AN ECHO IN THE OECD GUIDELINES UNDER CHAPTER III WHERE IN THE FOLLOWING EXTRACT IS RELEVANT:- IDEALLY, IN ORDER TO ARRIVE AT THE MOST PRECISE AP PROXIMATION OF ARMS LENGTH CONDITIONS, THE ARMS LENGTH PRINCIPLE SHOULD BE APPLIED ON A TRANSACTION-BY-TRANSACTION BASIS. HOW EVER, THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTIONS AR E SO CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. EXAMPLES MAY INCLUDE 1. SOME LONG TERM CONTRACTS FOR THE SUPPLY OF COMMODITIES OR SERVICES ; 2. RIGHTS TO USE INTANGIBLE PROPERTY; AND 3. PRICING A RANGE OF CLOSELY LINKED PRODUCTS (E.G. IN A PRODUCT LINE) WHEN IT IS IMPRAC TICAL TO DETERMINE PRICING FOR EACH INDIVIDUAL PRODUCT OR TR ANSACTION. ANOTHER EXAMPLE WOULD BE THE LICENSING OF MANUFACTU RING KNOW- HOW AND THE SUPPLY OF VITAL COMPONENTS TO AN ASSOCI ATED MANUFACTURER; IT MAY BE MORE REASONABLE TO ACCESS T HE ARMS LENGTH TERMS FOR THE TWO ITEMS TOGETHER RATHER THAN INDIVIDUALLY. SUCH TRANSACTIONS SHOULD BE EVALUATED TOGETHER USIN G THE MOST APPROPRIATE ARMS LENGTH METHOD. A FURTHER EXAMPLE WOULD BE THE ROUTING OF A TRANSACTION THROUGH ANOTHER ASSOCI ATED ENTERPRISE; IT MAY BE MORE APPROPRIATE TO CONSIDER THE TRANSACTION OF WHICH THE ROUTING IS A PART IN ITS E NTIRETY, RATHER THAN CONSIDER THE INDIVIDUAL TRANSACTIONS ON A SEPA RATE BASIS. 31. IN THIS BACKGROUND, CONSIDERING THE LEGISLATIVE INTENT MANIFESTED BY WAY OF RULE 10A(D) READ WITH RULE 10B OF THE RULES, IT CLEARLY EMERGES THAT IN APPROPRIATE CIRCU MSTANCES WHERE CLOSELY LINKED TRANSACTIONS EXIST, THE SAME S HOULD BE TREATED AS ONE COMPOSITE TRANSACTION AND A COMMON T RANSFER PRICING ANALYSIS BE PERFORMED FOR SUCH TRANSACTIONS BY ADOPTING THE MOST APPROPRIATE METHOD. IN OTHER WORDS, IN A GIVEN CASE WHERE A NUMBER OF CLOSELY LINKED TRANSACTIONS ARE S OUGHT TO BE AGGREGATED FOR THE PURPOSES OF BENCH MARKING WITH C OMPARABLE UNCONTROLLED TRANSACTIONS, SUCH AN APPROACH CAN BE SAID TO BE WELL ESTABLISHED IN THE TRANSFER PRICING REGULATION HAVING REGARD TO RULE 10A(D) OF THE RULES. THOUGH IT IS NOT FEAS IBLE TO DEFINE THE PARAMETERS IN A WATER TIGHT COMPARTMENT AS TO W HAT TRANSACTIONS CAN BE CONSIDERED AS CLOSELY LINKED, SINCE THE SAME WOULD DEPEND ON FACTS AND CIRCUMSTANCES OF EAC H CASE. SO HOWEVER, AS PER AN EXAMPLE NOTED BY THE INSTITUT E OF CHARTERED ACCOUNTANTS OF INDIA (IN SHORT THE ICAI ) IN ITS GUIDANCE NOTES ON TRANSFER PRICING IN PARA 13.7, IT IS STATED THAT TWO OR MORE TRANSACTIONS CAN BE SAID TO BE CL OSELY LINKED, IF THEY EMANATE FROM A COMMON SOURCE, BEING AN ORDE R OR CONTRACT OR AN AGREEMENT OR AN ARRANGEMENT, AND THE NATURE, CHARACTERISTIC AND TERMS OF SUCH TRANSACTIONS SUBST ANTIALLY FLOW FROM THE SAID COMMON SOURCE. THE FOLLOWING EXTRACT FROM THE SAID GUIDANCE NOTES IS WORTHY OF NOTICE:- 6 13.7 THE FACTORS REFERRED TO ABOVE ARE TO BE APPLI ED CUMULATIVELY IN SELECTING THE MOST APPROPRIATE METH OD. THE REFERENCE THEREIN TO THE TERMS BEST SUITED AND M OST RELIABLE MEASURE INDICATES THAT THE MOST APPROPRIATE METHOD WILL HAVE TO BE SELECTED AFTER A METICULOUS APPRAISAL OF THE FAC TS AND CIRCUMSTANCES OF THE INTERNATIONAL TRANSACTION. FUR THER, THE SELECTION OF THE MOST APPROPRIATE METHOD SHALL BE F OR EACH PARTICULAR INTERNATIONAL TRANSACTION. THE TERM TR ANSACTION ITSELF IS DEFINED IN RULE 10A(D) TO INCLUDE A NUMBER OF CL OSELY LINKED TRANSACTIONS. THEREFORE, THOUGH THE REFERENCE IS T O APPLY THE MOST APPROPRIATE METHOD TO EACH PARTICULAR TRANSACT ION, KEEPING IN VIEW, THE DEFINITION OF THE TERM TRANSACTION, THE MOST APPROPRIATE METHOD MAY BE CHOSEN FOR A GROUP OF CLO SELY LINKED TRANSACTIONS TWO OR MORE TRANSACTIONS CAN BE SAID TO BE LINKED WHEN THESE TRANSACTIONS EMANATE FROM A COMMON SOURC E BEING AN ORDER OR A CONTRACT OR AN AGREEMENT OR N ARRANGE MENT AND THE NATURE, CHARACTERISTICS AND TERMS OF THESE TRANSACT IONS ARE SUBSTANTIALLY FLOWING FROM THE SAID COMMON SOURCE. FOR EXAMPLE, A MASTER PURCHASE ORDER IS ISSUED STATING THE VARIOUS TERMS AND CONDITIONS AND SUBSEQUENTLY INDIVIDUALS O RDERS ARE RELEASED FOR SPECIFIC QUANTITIES. THE VARIOUS PURC HASE TRANSACTIONS ARE CLOSELY LINKED TRANSACTIONS. 13.8 IT MAY BE NOTED THAT IN ORDER TO BE CLOSELY LI NKED TRANSACTIONS, IT IS NOT NECESSARY THAT THE TRANSACT IONS NEED BE IDENTICAL OR EVEN SIMILAR. FOR EXAMPLE, A COLLABORATION AGREEMENT MAY PROVIDE FOR IMPORT OF RAW MATERIALS, SALE OF FI NISHED GOODS, PROVISION OF TECHNICAL SERVICES AND PAYMENT OF ROYA LTY. DIFFERENT METHODS MAY BE CHOSEN AS THE MOST APPROPRIATE METHO DS FOR EACH OF THE ABOVE TRANSACTIONS WHEN CONSIDERED ON A STANDALONE BASIS. HOWEVER, UNDER PARTICULAR CIRCUMSTANCES, ON E SINGLE METHOD MAYBE CHOSEN AS THE MOST APPROPRIATE METHOD COVERING ALL THE ABOVE TRANSACTIONS AS THE SAME ARE CLOSELY LINKED. (UNDERLINED FOR EMPHASIS BY US). 32. IN THIS BACKGROUND, WE MAY NOW EXAMINE THE FACT S OF THE PRESENT CASE. THE PRIMARY ACTIVITY OF THE ASSESSEE IS TO MANUFACTURE MATERIAL HANDLING EQUIPMENTS VIZ. CRANE S AND HOISTS. IT IS SEEN FROM THE DOCUMENTS PLACED IN TH E PAPER BOOK THAT THE ASSESSEE ENTERS INTO A SINGLE NEGOTIATION WITH THE CUSTOMERS, WHICH, INTER-ALIA, INCLUDES MANUFACTURIN G AND SUPPLY OF THE MATERIAL HANDLING EQUIPMENT, PROVISIO N OF COMMISSIONING AND INSTALLATION SERVICES, ETC. THOU GH THE ASSESSEE RAISES DIFFERENT INVOICES FOR SUPPLY OF EQ UIPMENTS AND SEPARATELY FOR ERECTION AND COMMISSIONING CHARGES, HOWEVER, IT IS EVIDENT THAT THE NEGOTIATIONS FOR THE SAME ARE C ARRIED ON AT ONE GO. IN FACT, AT THE TIME OF HEARING, IT WAS SP ECIFICALLY QUERIED FROM THE LEARNED COUNSEL AS TO WHETHER THE ASSESSEE IS UNDERTAKING INSTALLATION/COMMISSIONING ACTIVITIES I NDEPENDENT OF ITS OWN-SUPPLIED MATERIAL HANDLING EQUIPMENTS. I T WAS 7 CLARIFIED THAT THE SERVICING AND COMMISSIONING CHAR GES ARE EARNED ONLY IN RELATION TO SERVICES PERFORMED FOR O WNSUPPLIED MANUFACTURE/ASSEMBLED MATERIAL HANDLING EQUIPMENTS. THE AFORESAID FACTUAL ASSERTION IS NOT DISPUTED. FACTU ALLY, IT IS THE ACTIVITY OF MANUFACTURING/ASSEMBLING OF CRANES ETC. DONE BY THE ASSESSEE AND SALES THEREOF, WHICH BRINGS INTO PLAY THE ACTIVITIES OF INSTALLATION AND COMMISSIONING OF SUCH PRODUCTS. THEREFORE, IT IS QUITE EVIDENT THAT SUCH SERVICES ARE NOT INDE PENDENT BUT IN-EFFECT ARE AS A RESULT OF MANUFACTURING OF MATER IAL HANDLING EQUIPMENT UNDERTAKEN BY THE ASSESSEE AND AS A THEY ARISE FROM A SINGLE NEGOTIATION WITH THE CUSTOMERS, THE SOURCE OF ALL SUCH TRANSACTIONS IS ALSO TO BE UNDERSTOOD AS COMMON. 33. THE TPO IN THIS REGARD HAS OBSERVED THAT ASSESS EE HAS INVOICED SEPARATELY FOR SUCH ACTIVITIES AND THEREFO RE, THEY HAVE TO BE UNDERSTOOD AS DIFFERENT TRANSACTIONS. THE TP O HAS ALSO OBSERVED IN HIS ORDER THAT IN A CASE WHERE PROFITS OF EACH INDIVIDUAL TRANSACTION CAN BE SEGREGATED THEN THE A GGREGATION OF TRANSACTION IS NOT INTENDED BY THE TRANSFER PRIC ING REGULATIONS. THE LEARNED TPO HAS ALSO REFERRED TO THE SEGMENTAL PROFITABILITY IN THIS REGARD COMPUTED BY THE ASSESSEE DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS B EFORE HIM. IN OUR CONSIDERED OPINION, THE POINT MADE OUT BY THE L EARNED TPO IS NOT JUSTIFIED, INASMUCH AS, SEPARATE INVOICING O F AN ACTIVITY, FLOWING FROM A SINGULAR CONTRACT/ NEGOTIATION, WOUL D NOT IPSO FACTO LEAD TO AN INFERENCE THAT THEY ARE INDIVIDUAL/INDE PENDENT TRANSACTIONS. IN-FACT, IT IS THE NATURE AND CHARACT ERISTIC OF THE ACTIVITIES WHICH WOULD BE REQUIRED TO BE ANALYZED H AVING REGARD TO THE FACTS AND CIRCUMSTANCES OF EACH CASE AS TO W HETHER THEY CAN BE CONSIDERED AS INDIVIDUAL/INDEPENDENT TRANSAC TIONS OR A SINGLE TRANSACTION FOR THE PURPOSE OF TRANSFER PRIC ING REGULATION. IN THE PRESENT CASE, AS WE HAVE NOTED EARLIER, IT I S ONLY ON ACCOUNT OF THE MANUFACTURING ACTIVITY THAT THE ACT IVITY OF COMMISSIONING AND INSTALLATION OF THE EQUIPMENT ARI SES AND PERTINENTLY ALL THE AFORESAID ACTIVITIES ARE NEGOTI ATED AND CONTRACTED FOR AT ONE INSTANCE. WITH REGARD TO THE SEGMENTAL PROFITABILITY REFERRED BY THE ASSESSING OFFICER, TH E POSITION HAS BEEN CLARIFIED BY THE ASSESSEE. ACCORDING TO THE AS SESSEE, IN THE FINANCIAL STATEMENTS AFFIRMED BY THE AUDITORS, THE ACTIVITIES HAVE BEEN CLUBBED TOGETHER IN ACCORDANCE WITH THE A CCOUNTING STANDARDS PRESCRIBED BY THE ICAI. IT WAS CLARIFIED THAT THE SEGMENTAL PROFITS WERE WORKED OUT BY THE ASSESSEE O NLY AT THE ASKING OF THE TPO DURING THE PROCEEDINGS BEFORE HIM . THE LEARNED COUNSEL POINTED OUT WITH REFERENCE TO THE C HART IN THIS REGARD PLACED IN THE PAPER BOOK AND SUBMITTED THAT THE SEGMENTAL PROFITABILITY WAS NOT COMPUTED ON THE BAS IS OF ANY SEPARATELY MAINTAINED RECORDS VIZ. BOOKS OF ACCOUNT OR VOUCHERS BUT WAS COMPUTED BY UNDERTAKING A STATISTI CAL EXERCISE. THE COSTS WERE ALLOCATED AS A PROPORTION OF SALES/REVENUES AND NOT AN ACTUAL BASIS. IN VIEW OF THE 8 AFORESAID FACT SITUATION, WE DO NOT FIND THAT THE A VAILABILITY OF SEPARATE SEGMENTAL PROFITS IN THE PRESENT CASE CAN BE A JUSTIFIABLE GROUND FOR THE TPO TO SAY THAT THE TRAN SACTIONS ARE NOT CLOSELY LINKED WITHIN THE MEANING OF RULE 10A (D) OF THE RULES. THUS, THE ACTIVITY OF INSTALLATION AND COMM ISSIONING / ENGINEERING SERVICES IS CLOSELY LINKED WITH THE M ANUFACTURING ACTIVITY AND DESERVES TO BE AGGREGATED AND CONSTRUE D AS A SINGLE TRANSACTION FOR THE PURPOSES OF DETERMINING THE ALP AS PER THE METHOD ADOPTED. 34. IN VIEW OF THE AFORESAID DISCUSSION, IN OUR OPI NION, THE APPROACH OF THE TPO, IN OUT-RIGHTLY REJECTING THE A GGREGATION OF ALL THE TRANSACTIONS ITEMIZED AT 1 TO 7 IN PARA 7 I S FLAWED HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. FURTHER, IT IS NOTICED FROM THE TABULATION IN PARA 7 OF THIS ORDER , THAT THE ASSESSEE IS ALSO RENDERING MARKETING SERVICES, TECH NICAL KNOW- HOW AND PROFESSIONAL SERVICES, ETC., WHICH HAVE ALS O BEEN AGGREGATED. FOR SUCH ACTIVITIES NO SPECIFIC POINT H AS BEEN MADE OUT BY THE ASSESSEE AS TO WHY THEY CAN BE CLASSIFIE D AS CLOSELY LINKED TRANSACTIONS FOR THE PURPOSES OF RULE 10A( D) OF THE RULES. CONSIDERING THE ENTIRETY OF THE FACTS AND CI RCUMSTANCES, WE ARE OF THE OPINION THAT THE ISSUE BE REVISITED B Y THE AO/TPO IN THE LIGHT OF OUR AFORESAID DISCUSSION. THE AO/T PO SHALL TAKE INTO CONSIDERATION THE PLEAS AND THE MATERIAL SOUGH T TO BE PLACED BY THE ASSESSEE IN THE LIGHT OF THE AFORESAI D DISCUSSION AND THEREAFTER ADOPT A COMBINED TRANSACTION APPROAC H AFTER CONSIDERING EACH OF THE TRANSACTION ITEMIZED AT 1 T O 7 AS TO WHETHER THE SAME ARE TO BE BENCH MARKED AFTER AGGR EGATION OR NOT. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL A LLOW THE ASSESSEE A REASONABLE OPPORTUNITY TO PUT FORTH MATE RIAL AND SUBMISSIONS IN SUPPORT OF ITS STAND AND ONLY THEREA FTER THE ASSESSING OFFICER SHALL PASS AN ORDER AFRESH ON TH E ABOVE ASPECT IN ACCORDANCE WITH LAW. THUS, ON THIS GROUND , ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 5. RESPECTFULLY FOLLOWING THE DECISION OF THE COORD INATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIA TELY PRECEDING ASSESSMENT YEAR, WE RESTORE THE ISSUE TO THE FILE O F THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT O F THE DIRECTIONS OF THE TRIBUNAL MENTIONED ABOVE AND IN ACCORDANCE WITH THE LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WE HOLD AND DIRECT ACCORDINGLY. GROUND NO.4 OF THE APPEAL IS A CCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 9 6. SO FAR AS GROUND NO.5 BY THE ASSESSEE IS CONCERN ED, BOTH PARTIES FAIRLY CONCEDED THAT IDENTICAL ISSUE HAD AR ISEN IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR AND THE TRIBUNAL HAD DISCUSSED THE ISSUE AND RESTORED THE M ATTER TO THE FILE OF THE AO BY OBSERVING AS UNDER: 23. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS . OSTENSIBLY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 VIDE ITS ORDER DATED 4-1-2012 (SUPRA) HAD CONSIDERE D A SIMILAR PLEA OF THE ASSESSEE AND AFTER RELYING ON THE DECIS ION OF CO- ORDINATE BENCH IN THE CASE OF SKODA AUTO INDIA P. L TD (SUPRA) UPHELD THE PLEA OF THE ASSESSEE RELATING TO ADJUSTM ENT ON ACCOUNT OF ADDITIONAL IMPORT COST IN ORDER TO FACIL ITATE BENCHMARKING WITH THE COMPARABLE COMPANIES. FOLLOW ING DISCUSSION IN OPERATIVE PORTION OF THE ORDER IS REL EVANT:- THE PERUSAL OF THE IMPUGNED ORDERS SHOWS THAT THE ABOVE CITED GUIDELINES BY WAY OF DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF SKODA AUTO INDIA P. LTD. (SUPRA) WERE NOT A VAILABLE TO THE REVENUE AUTHORITIES. THEREFORE, WE ARE OF THE OPIN ION, THE ISSUE SHOULD BE SET ASIDE TO THE FILES OF THE TOP WITH DI RECTION TO EXAMINE THE CLAIM OF THE ASSESSEE RELATING TO THE I MPORT COST FACTOR AND ELIMINATE THE DIFFERENCE, IF ANY. HOWEV ER, THE TPO/AO/DRP SHALL SEE TO IT THAT THE DIFFERENCE IN Q UESTION IS LIKELY TO MATERIALLY AFFECT THE PRICE/PROFIT IN T HE OPEN MARKET AS ENVISAGED IN SUB RULE (3) OF RULE 10B OF THE INCOME -TAX RULES 1962. ACCORDINGLY, GROUND 4(B) IS ALLOWED PRO TANTO . 24. FOLLOWING THE AFORESAID PRECEDENT, FACTS BEING SIMILAR IN THIS YEAR, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL ADJU DICATE ASSESSEES PLEA IN THE LIGHT OF DIRECTIONS OF THE T RIBUNAL CONTAINED IN ITS ORDER DATED 4-1-2012 (SUPRA). NEED LESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A RE ASONABLE OPPORTUNITY TO PUT FORTH MATERIAL AND SUBMISSIONS I N SUPPORT OF ITS STAND AND ONLY THEREAFTER THE ASSESSING OFFICER SHALL PASS AN ORDER AFRESH ON THE ABOVE ASPECT IN ACCORDANCE W ITH LAW. THUS, ON THIS GROUND, ASSESSEE SUCCEEDS FOR STATIST ICAL PURPOSES. 7. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE, WE RESTORE THE ISSUE TO THE FILE OF THE A O WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH THE LAW IN THE LIGHT OF THE DIRECTIONS OF TRIBUNAL IN ASSESSEES OWN CASE I N THE IMMEDIATELY 10 PRECEDING ASSESSMENT YEAR. THE AO SHALL GIVE DUE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER LAW. WE HOLD AN D DIRECT ACCORDINGLY. THIS GROUND BY THE ASSESSEE IS ACCORD INGLY ALLOWED FOR STATISTICAL PURPOSES. 8. SO FAR AS GROUND NO.6 IS CONCERNED, THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT THE AO WHILE EXAMINING THE TP STUDY REPORT NOTED THAT SEGMENTAL ACCOUNTS IN CASE OF ELECON ENG INEERING CO. LTD. WAS CONSIDERED AS COMPARABLE. HE SUBMITTED TH AT THE DRP HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AT PARA 13 OF THE ORDER BY HOLDING AS UNDER: 13. WITH RESPECT TO OBJECTION NO.6 FOR NON GRANTIN G OF WORKING CAPITAL ADJUSTMENT, THE PANEL CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND PERUSED THE ORDER O F THE TPO AND GONE THROUGH THE MATERIAL ON RECORD. THE AO/TP O IS DIRECTED TO ALLOW THE WORKING CAPITAL ADJUSTMENT AF TER VERIFICATION ON THE BASIS OF PUNE, ITAT DECISION IN THE CASE OF THE ASSESSEE AND ALSO DECISION OF THE DELHI BENCH O F ITAT IN THE CASE OF VEDARIS TECHNOLOGIES PVT. LTD. VS. ACIT (20 10) 41 DTR 73. AS PER THE OECD VIEW AND THE ECONOMIC RATIONAL ITY THAT MARGINS ARE AFFECTED BY EXTENDING CREDIT AND HOLDIN G INVENTORY, THE WORKING CAPITAL ADJUSTMENT IS REQUIRED TO BE AL LOWED FOR COMPUTING PROFIT MARGINS. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALTHOUGH FULL DETAILS WERE GIVEN, THE AO DID NOT ALLOW ANY ADJUST MENT ON THE GROUND THAT FULL DETAILS WERE NOT AVAILABLE. REFER RING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DHL EXPRESS LTD. REPORTED IN 46 SOT 379, HE SUBMITTED THAT IF SEGMEN TAL RESULTS ARE NOT AVAILABLE OR RELIABLE, THE AO CAN REMOVE THAT S EGMENT FROM THE COMPARABLE AND PROCEED WITH OTHER COMPARABLES WHICH ARE SUBMITTED. HE ACCORDINGLY, SUBMITTED THAT HE HAD N O OBJECTION IF ELECON ENGINEERING CO. LTD. IS REMOVED FROM THE LIS T OF COMPARABLES. THE LD. DR HAS NO OBJECTION FOR THE SAME. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE MUMBAI BENCH TRIBUNAL IN THE CA SE OF DHL 11 EXPRESS (SUPRA) HAS HELD THAT WHEN DIRECT COMPARABL ES ARE AVAILABLE, THERE IS NO NEED TO CONSIDER SEGMENTED RESULTS OF A NY OTHER COMPANY. WE FIND IN THE INSTANT CASE, THE AO HIMSE LF HAS OBSERVED THAT EITHER RELEVANT DETAILS FOR THIS SEGMENT MUST BE CONSIDERED OR IN CASE THESE DETAILS ARE NOT AVAILABLE, NO ADJUSTMENT SHOULD BE MADE BASED ON A COMPANY AS A WHOLE AS THE ADJUSTMENT COM PUTED WILL NOT BE ACCURATE AND RELIABILITY WILL NOT BE ENHANCED. HE ACCORDINGLY REJECTED THE ADJUSTMENTS COMPUTED FOR ELECON ENGINE ERING COMPANY HOLDING THE SAME AS NOT APPROPRIATE. HAVING HELD S O, THE AO CONSIDERED ELECON ENGINEERING CO. LTD. FOR COMPUTIN G THE ADJUSTED PLI AS PER PAGE NO.10 OF THE ASSESSMENT ORDER. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF DHL EXPRESS (CITED SUPRA), WE DIRECT THE AO TO REMOVE ELECON ENGINEERING CO. FROM THE LIST OF C OMPARABLES AND RE-COMPUTE THE PLI. WE HOLD AND DIRECT ACCORDINGLY . THIS GROUND OF THE ASSESSEE IS ACCORDINGLY, ALLOWED FOR STATISTICA L PURPOSES. 12. SO FAR AS GROUND NO.7 IS CONCERNED, WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN C ASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. WE FIND THE TRIBUNAL HAS DISCUSSED THE ISSUE FROM PARAS 7 TO 15 OF THE ORDER AND FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS U NDER: 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS ON THIS ASPECT AND FIND OURSELVES INCLINED TO UPHOLD THE PL EA OF THE ASSESSEE. OSTENSIBLY, THE OBJECTIVE OF DETERMINING THE ARMS LENGTH PRICE U/S 92C OF THE ACT IN RELATION TO AN I NTERNATIONAL TRANSACTION CARRIED OUT BY AN ASSESSEE WITH ITS AE IS TO SUPPLANT THE PROVISIONS OF SECTION 92(1) OF THE ACT , WHICH PRESCRIBES THAT INCOME ARISING FROM AN INTERNATIONA L TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP, AND THE MEANING OF THE EXPRESSION INTERNATIONAL TRANSA CTION IS CONTAINED IN SEC. 92B OF THE ACT TO MEAN A TRANSACT ION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES. THEREFORE, IT I S A NATURAL COROLLARY THAT THE ADJUSTMENT ARISING AS A RESULT O F TRANSFER PRICING ANALYSIS IS TO BE CONFINED TO INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH THE AES ALONE AND NOT IN RELATION T O NON-AE TRANSACTIONS. SIMILAR POINT AROSE IN ASSESSEES OW N CASE FOR THE 12 A.Y. 2006-07 IN ITA NO. 120/PN/2011 (SUPRA) WHEREIN TRIBUNAL AFTER REFERRING TO SUB-CLAUSES (I) AND (II) OF RULE 10B(1)(E) OF THE RULES AND CERTAIN PRECEDENTS BY WAY OF DECISIONS OF THE CO- ORDINATE BENCHES, FINALLY ACCEPTED THE PLEA OF THE ASSESSEE IN THE FOLLOWING WORDS: 49. ALL THESE CITED DECISIONS IN GENERAL AND THE D ECISION IN THE CASE OF M/S. JT. JIN ELECTRONICS I P. LTD. VS. ACIT 36 SOT 227, IN PARTICULAR ARE UNIFORM IN ASSERTING THAT THE TP ADJ USTMENTS ARE TO BE COMPUTED NOT CONSIDERING THE ENTITY LEVEL SALES. RATHER IT SHOULD BE DONE IDEALLY CONSIDERING THE RELATABLE SA LES DRAWING THE QUANTITATIVE RELATIONSHIP TO THE IMPORTS FROM T HE AES, I.E. CONTROLLED COST. THE PRINCIPLE OF PROPORTIONALITY IS RELEVANT HERE AND IT IS A SETTLED LAW IN THIS REGARD. IN THE SITU ATION LIKE THE ONE IN THE INSTANT CASE OF THE ASSESSEE, THERE IS DATA RELATING TO CONTROLLED AND UNCONTROLLED COST PARTICULARS. THIS UNDISPUTED DATA IS SUFFICE TO ARRIVE THE PROPORTIONATE SALES R ELATABLE TO THE INTERNATIONAL TRANSACTION WITH THE AES I.E. CONTROL LED COST. ACCORDINGLY, THE GROUND NO. 10 RELATING TO INCORREC T COMPUTATION OF TRANSFER PRICING ADJUSTMENT TO THE MANUFACTURING ACTIVITY IS ALLOWED PRO TANTO. 15. IN VIEW OF AFORESAID DISCUSSION WE THEREFORE, H OLD THAT THE ASSESSEE HAS TO SUCCEED ON THE SAID PLEA AND AS A R ESULT GROUND NO. 7 RAISED BY THE ASSESSEE STANDS ALLOWED. 13. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT Y EAR WHICH IN TURN HAS FOLLOWED THE ORDER FOR ASSESSMENT YEAR 200 6-07, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 14. SO FAR AS GROUND NOS.11 & 12 ARE CONCERNED, WE FIND THE SAME RELATES TO LEVY OF INTEREST U/S.234B AND 234C. CHA RGING OF INTEREST UNDER THE ABOVE PROVISIONS ARE MANDATORY AND CONSEQ UENTIAL. ACCORDINGLY THE ABOVE GROUNDS ARE DISMISSED. 15. SO FAR AS GROUND NO.13 IS CONCERNED, THE LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT A DIRECTION MAY BE GIVEN TO THE AO TO VERIFY THE SHORT CREDIT FOR TAXES DEDUCTED AT SOURCE AMOUN TING TO RS.8,00,582/-. THE LD. DR HAS NO OBJECTION FOR THE SAME. WE, THEREFORE, RESTORE THIS GROUND TO THE FILE OF THE A O WITH A DIRECTION TO VERIFY THE RECORDS AND GIVE NECESSARY CREDIT FOR TD S AS PER LAW. 13 16. GROUND NO.L4 RELATES TO INITIATION OF PENALTY U /S.271(1)(C), WHICH IN OUR OPINION IS PRE-MATURE AT THIS STAGE. ACCORDINGLY, THIS GROUND IS DISMISSED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DAY OF 24 TH DECEMBER 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 24 TH DECEMBER, 2013 GCVSR COPY TO:- 1. ASSESSEE 2. DEPARTMENT 3. THE DRP, PUNE 4. THE DR, A BENCH, I.T.A.T., PUNE. 5. GUARD FILE //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE