Chandni Bedi, New Delhi V. ACIT, New Delhi

ITA 271/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7909 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 19-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDHARY
• Keywords: Business income; Transfer pricing; International transaction; Working capital adjustments; Set aside
• Section: 133(6); 10B; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T .A S . NO. 960 /DEL/2014, 184, 271/DEL/2016 & 328 /DEL/201 7 ASSESSMENT YEAR S : 200 9 - 10, 2010 - 11, 2011 - 1 2 & 2012 - 13 ORIFLAME INDIA PVT. LTD., GROUND FLOOR, CORPORATE ONE PLOT NO.5, NHCC, JASOLA, NEW DELHI. V. ACIT, CIRCLE-13(1), NEW DELHI. TAN/PAN: AAACO0256B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI HIMANSHU SINHA, ADV. RESPONDENT BY: SHRI H.K. CHAUDHARY, CIT-.D.R. DATE OF HEARING: 11 10 2018 & 12.02.2019 DATE OF PRONOUNCEMENT: 15 04 2019 O R D E R PER AMIT SHUKLA, JM: ALL THE AFORESAID APPEALS HAVE BEEN FILED BY THE AS SESSEE AGAINST THE SEPARATE IMPUGNED ORDERS FOR THE ASSESS MENT YEARS 2009-10, 2010-11, 2011-12 AND 2012-13. IN ALL THE APPEALS, THE ASSESSEE HAS CHALLENGED FOLLOWING TRAN SFER PRICING ADJUSTMENT IN THE DISTRIBUTION AND SALES OF THE COSMETICS PRODUCT, I.E., DIRECT SALE:- ASSESSMENT YEAR 2009-10 RS.14,29,24,000/- ASSESSMENT YEAR 2010-11 RS.45,44,16,384/- ASSESSMENT YEAR 2011-12 RS.41,77,85,066/- ASSESSMENT YEAR 2012-13 RS.48,90,27,914/- I.T.A. NO.4750/DEL/2015 2 2. SINCE THE FACTS AND ISSUE INVOLVED ARE EXACTLY S AME, THEREFORE, ALL THE AFORESAID APPEALS WERE HEARD TOG ETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED O RDER. THE KEY CONTENTION RAISED IN ALL THE APPEALS IS WITH RE GARD TO THE INCLUSION OR EXCLUSION OF ONE COMPARABLE COMPANY, N AMELY, MODICARE LTD . FOR THE SAKE OF READY REFERENCE, WE ARE TAKING UP THE APPEAL FOR THE ASSESSMENT YEAR 2009-10 AND O UR FINDING GIVEN THEREIN WILL APPLY MUTATIS MUTANDIS IN ALL THE YEARS. 3. THE BRIEF BACKGROUND AND FACTS OF THE CASE ARE THAT ORIFLAME INDIA PVT. LTD. IS A COMPANY INCORPORATED IN INDIA, AND IS A PART OF ORIFLAME GROUP FOUNDED IN 1967. TH IS GROUP PROVIDES ABOUT 1000 PRODUCTS IN SKINCARE, MAKE UP, FRAGRANCES AND TOILETRIES THROUGH ITS VARIOUS SUBSI DIARIES ACROSS 60 COUNTRIES ALL OVER THE WORLD WITH 3.6 MIL LION INDEPENDENT CONSULTANTS ALL OVER THE WORLD. THE ASS ESSEE COMPANY IS INTER ALIA ENGAGED IN TRADING OF COSMETI C PRODUCTS AND THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE WAS PURCHASE OF FINISHED GOODS FROM ITS ASSOCIATED ENTERPRISES A ND RESALE IN INDIA WITHOUT ANY VALUE ADDITION ACTIVITIES. AS A S ALES STRATEGY, THE ASSESSEE SELLS ITS PRODUCTS THROUGH I TS SALES CONSULTANTS, THAT IS, IT IS INTO DIRECT SELLING MOD EL. BEGINNING FROM F.Y. 2011-2 THE ASSESSEE WAS ALSO ENGAGED IN MANUFACTURING ACTIVITIES AND HENCE FOLLOWED A SEGME NTAL APPROACH FOR THE TRANSFER PRICING ANALYSIS IN THE T P DOCUMENTATION FROM THIS YEAR. I.T.A. NO.4750/DEL/2015 3 4. THE ASSESSEE FOR ITS TRADING OF GOODS IN ITS TR ANSFER PRICING STUDY REPORT HAS SHOWN GROSS PROFIT MARGIN OF:- I) A.Y. 2009-10: 45.58% II) A.Y. 2010-11: 46.79% III) A.Y. 2011-12: 48.72% IV) A.Y. 2012-13: 45.31% TO BENCH MARK ITS GROSS PROFIT MARGIN, ASSESSEE ADO PTED RESALE PRICE METHOD RPM TO JUSTIFY ITS ARMS LENGTH MARGIN OF ITS INTERNATIONAL TRANSACTION. IN ITS T.P. STUDY RE PORT, ASSESSEE SELECTED 5 COMPARABLE COMPANIES, VIZ., I) AVON BODY PRODUCTS LTD.; II) BODYLINE INTERNATIONAL PVT. LTD.; III) J. K. HELENE CURTIS LTD.; IV) PARAMOUNT COSMETICS (INDIA) LTD.; AND V) SURYA VINAYAK INDUSTRIES LTD. THE AVERAGE GROSS PROFIT MA RGIN OF FIVE COMPARABLES WAS ARRIVED AT 29.95%, WHEREAS ASSESSEE S GROSS PROFIT MARGIN DURING THE RELEVANT FINANCIAL YEAR WA S AT 45.58%, HENCE IT WAS REPORTED THAT ASSESSEES GROSS PROFIT MARGIN WERE AT ARMS LENGTH. THE TPO REJECTED ONE O F THE COMPARABLE, AVON BODY PRODUCTS LTD., ON THE GROUND THAT RPT TRANSACTIONS WERE MORE THAN 25%. FOR THE BALANC E COMPARABLE COMPANIES, HE HELD THAT NONE OF THESE CO MPANIES WERE INTO DIRECT MARKETING AS COMPARED TO THE ASSES SEE, THEREFORE, SAME CANNOT BE TAKEN FOR COMPARABILITY A NALYSIS UNDER RPM. HE WAS OF THE OPINION THAT ONLY DIRECT S ELLERS SHOULD BE TAKEN AS COMPARABLE AND IN HIS SEARCH ANA LYSIS, HE SHORTLISTED MODICARE LTD. WHICH WAS A DIRECT SELLIN G COMPANY AND HAS TAKEN TO BE A SOLE COMPARABLE FOR BENCH MAR KING THE SAME UNDER RPM. THE GROSS PROFIT MARGIN OF MODICARE LTD. I.T.A. NO.4750/DEL/2015 4 WAS 76.74% AND ACCORDINGLY FOLLOWING THE SAME ANALY SIS BY TAKING THIS COMPARABLE FOR ALL THE YEARS UNDER DISP UTE, TP ADJUSTMENT HAS BEEN MADE IN ALL THE YEARS AMOUNTING TO RS.14,29,23,995/- FOR THE ASSESSMENT YEAR 2009-10; RS.45,44,16,384/- FOR THE ASSESSMENT YEAR 2010-11; RS.41,77,85,066/- FOR THE ASSESSMENT YEAR 2011-12; AND RS.48,90,27,914/- FOR THE ASSESSMENT YEAR 2012-13. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DISPUTE RESOLUTION PANEL (DRP) FOR ASSESSMENT YEAR 2009-10 AND IN THE ASSESSMENT YEAR 2011-12; AND BEFORE COMMISSIONE R OF INCOME TAX (APPEALS) IN THE ASSESSMENT YEAR 2010-11 FOR ASSESSMENT YEAR 2012-13. 5. AGGRIEVED BY THESE ORDERS, THE ASSESSEE PREFERR ED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 24 TH MARCH, 2017 FOR THE ASSESSMENT YEARS 2009-10 TO 201 1-12 AND VIDE ORDER DATED 13 TH JUNE, 2017 FOR THE ASSESSMENT YEAR 2012-13, THOUGH HELD THAT MODICARE LTD. IS NOT AN APPROPRIATE COMPARABLE TO THE ASSESSEE DUE TO SEVER AL REASONS, HOWEVER, REMANDED THE MATTER BACK TO THE F ILE OF LD. TPO TO RETAIN THE SOLE COMPARABLE AND EXAMINE THE COMPARABILITY ADJUSTMENT ON MODI CARE LTD. TO ENHAN CE ITS COMPARABILITY WITH THE ASSESSEE. AGGRIEVED BY THE O RDER OF THE TRIBUNAL, ASSESSEE HAS PREFERRED AN APPEAL BEFORE T HE HON'BLE HIGH COURT, WITH THE SOLE ISSUE, AS TO WHETHER UNDE R THE FACTS AND CIRCUMSTANCES OF THE CASE THE DIRECTION OF THE TRIBUNAL TO INCLUDE MODICARE LTD. AND THE EXCLUSION OF OTHER CO MPARABLES CHOSEN BY THE ASSESSEE WERE CORRECT. THE HON'BLE HI GH COURT I.T.A. NO.4750/DEL/2015 5 VIDE ITS JUDGMENT AND ORDER DATED 10THE APRIL, 2018, IN VERY DETAIL JUDGMENT OBSERVED THAT THE FINDINGS OF THE T RIBUNAL WERE INCONSISTENT IN SO FAR AS SELECTION OF MODICAR E LTD. IS CONCERN, BECAUSE, DESPITE NOTING VARIOUS SIGNIFICANT DIFFERENCES BETWEEN THE ASSESSEE AND MODICARE LTD., STILL THE TRIBUNAL CHOSE NOT TO ADDRESS HOW SUCH DIFFERENCE C AN BE ADJUSTED WHILE CARRYING OUT THE COMPARABILITY ANALY SIS. AFTER CONSIDERING THE ENTIRE GAMUT OF FACTS AND CONTENTIO NS RAISED, THE HON'BLE HIGHT COURT REMANDED THE ISSUE BACK TO THE TRIBUNAL TO RECONSIDER THE APPEAL IN VIEW OF THE SE LECTION OF MODICARE LTD. WHILE REMITTING BACK THE MATTER TO TH E TRIBUNAL, THEIR LORDSHIPS HELD THAT THE TRIBUNAL SH OULD EXAMINE THE AVAILABILITY OF DATA FOR VARIOUS PRODUC T SEGMENTS OF MODICARE LTD. AND TO EXAMINE THE FUNCTIONAL DIFF ERENCES WITH RESPECT TO ITS MARKETING STRATEGY. THE HON'BLE HIGH COURT FURTHER OBSERVED THAT THE COMPARABLES ADOPTED BY TH E ASSESSEE SHOULD BE TO BE CONSIDERED WITH APPROPRIAT E WORKING CAPITAL ADJUSTMENT. THE APPLICABILITY OF TNMM SHOULD ALSO BE EXAMINED BY THE TRIBUNAL AND UNDER IN SUCH CIRCUMST ANCES, NO ENLARGING OF THE EXISTING COMPARABLES SHOULD BE CARRIED OUT, THAT IS, NO FURTHER COMPARABLES SHOULD BE SEAR CHED. THE RELEVANT OBSERVATIONS AND THE FINDINGS OF THE HON'B LE HIGH COURT IN THIS REGARD WERE AS UNDER:- THE APPELLANT'S GRIEVANCE IS THAT THE ITAT NOTED TH E SIGNIFICANT DIFFERENCE BETWEEN THE ENTITIES WHICH W ERE INVOLVED IN MARKETING THE PRODUCTS THROUGH DIRECT M ARKETING BETWEEN THE LOAN DIRECT MARKETING COMPARABLES I.E. MODICARE LTD. AND THE ASSESSEE. THE GRIEVANCE NEVERTHELESS, THE ITAT I.T.A. NO.4750/DEL/2015 6 DIRECTED A REMAND CATEGORICALLY RULING OUT THE CASE OF MODICARE LIMITED (SUPRA). IT IS HIGHLIGHTED ON BEHALF OF THE ASSESSEE IN THIS REGARD THAT THE SIGNIFICANT DIFFER ENCES BETWEEN THE TWO, I.E., MODICARE AND THE ASSESSEE ARE INCAPABLE OF ADJUSTMENT. LEARNED COUNSEL HIGHLIGHTED UPON THIS FUNCTIONAL DISSIMILARITY WITH RESPECT TO THE DIFFERENTIAL PRODUCTS RANGE IN WHICH BOTH THE ENTITIES WERE INVOLVED; THE LOW PROPORTION OF T OTAL PRODUCT TURNOVER ATTRIBUTABLE TO COSMETIC AND RELATED LINE (PERSONAL CARE) AND THE MOST SEGMENTAL DATA. IT IS SUBMITTED THAT H AVING REGARD TO THESE CIRCUMSTANCES, THE ITAT'S FINDINGS ARE BOTH INCONSISTENT AND CONTRARY TO LAW ON FUNCTIONAL DIFFERENCES. IT WAS ALSO SUBMITTED THAT HAVING REGARD TO THESE FUNCTIONAL DI FFERENCES, THE ASSESSEE HAD OFFERED OTHER COMPARABLES THAT DID NOT INVOLVE DIRECT MARKETING BUT WERE TRADING ENTITIES WITH APPROPRIATE ADJUSTMENTS HAVING REGARD TO THE DISSIMILARITIES TH AT COULD BE ELIMINATED AND APPROPRIATELY ADJUSTED. THESE ISSUES WERE, HOWEVER, NOT CONSIDERED AND NO FINDINGS WERE RETURN ED. . 4 THE ITAT'S FINDINGS PERTINENTLY WITH RESPECT TO THE APPROPRIATENESS OR OTHERWISE OF MODICARE LTD. AS A COMPARABLE ARE CONTAINED IN PARAS 5.9, 5.11 AND 5.12 OF THE IMPUGN ED ORDER. THE TRIBUNAL NOTED THAT MODICARE LTD. AS A STANDALONE COMPARABLE (SINCE ALL OTHER COMPARABLES WERE ELIMINATED BY THE REVENUE AUTHORITIES AT THE EARLY STAGE OF THE PROCEEDINGS) WAS 'IDEALLY NOT AN APPROPRIATE COMPARABLE' AND HAS ALSO CANVASSED T HAT THE COMPARABLES SELECTED BY THE TAXPAYER HAVE WRONGLY B EEN REJECTED BY THE TAX AUTHORITIES. IN PARAS 5.8 AND 5.9 IT IS STATED AS FOLLOWS: 5.8 THUS WHEN CONSIDERED IN THE LIGHT OF THE AFORE SAID STATUTORY RULES, WE FIND THAT THE TAX AUTHORITIES WHILE CONSI DERING THE GRIEVANCE OF THE TAX PAYER ADMITTEDLY HAVE TAKEN A POSITION CONTRARY TO WHAT HAS BEEN ENVISAGED UNDER THE RULES . I.T.A. NO.4750/DEL/2015 7 5.9. HAVING SO ADDRESSED, WE FIND THAT OVER THE YEA RS PRIMARILY THE TAXPAYER HAS RAISED THE ISSUE THAT MODI CARE LT D. AS A STAND-ALONE COMPARABLE WAS IDEALLY NOT AN APPROPRIA TE COMPARABLE AND HAS ALSO CANVASSED THAT THE COMPARAB LES SELECTED BY THE TAXPAYER HAVE WRONGLY BEEN REJECTED BY THE TAX AUTHORITIES. ONE OF THE MANY LINES OF ARGUMENTS TAK EN BY THE TAXPAYER IS THAT FIRSTLY MODI CARE LTD. HAS A VERY LIMITED COSMETIC AND PERSONAL CARE PRODUCT CATEGORY THUS IT LACKS PR ODUCT SIMILARITY; SECONDLY IT ALSO HAS INCOME FROM FRANCH ISEES, HENCE IT IS NOT A SIMILAR SERVICE, THIRDLY ITS DISCOUNTS ARE BELOW THE LINE EXPENSE AND REVENUE RECOGNITION POLICIES ARE ALSO S IGNIFICANTLY INCOMPARABLE; FOURTHLY IT HAS HIGH AMP SPEND; FIFTH LY IT HAS FLUCTUATING SALES; ITS INCENTIVES SCHEMES ARE DIFFE RENT IT HAS WIDE VARIATION BETWEEN ITS GROSS MARGINS AND NET MARGINS THEREBY GIVING WEIGHT TO THE ALLEGATION THAT HEAVY FUNCTION S ARE BEING PERFORMED AT THE OPERATING LEVEL'. 5 ITS FINAL CONCLUSIONS WITH RESPECT TO MODICARE LT D. INCLUDE THE OBSERVATIONS THAT THE COMPARABLE COMPANY DIFFERED F ROM THE ASSESSEE IN REPORTING ITS COST. THE HIGHLIGHTED DIF FERENCES WERE IN REGARD TO THE DISCOUNT; TRANSPORTATION COSTS, INSUR ANCE AND PERFORMING THE WARRANTY FUNCTION AS OPERATING EXPEN SES OR ITS COSTS OF GOODS SOLD OR THE DIFFERENCE IN THE INVENTORY VA LUATION METHOD. THESE VARIATIONS WILL AFFECT THE GROSS MARGIN. THE TRIBUNAL THEN CONCLUDED IN PARA 5.12 AS FOLLOWS: ''ACCORDINGLY, IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT IDEALLY THE TAX AUTHORITIES SHOULD NOT HAVE SE LECTED MODI CARE PVT. LTD. AS A STANDALONE COMPARABLE. THE TAX AUTHORITIES SHOULD HAVE CARRIED OUT A SEARCH OR DIRECTED THE AS SESSEE TO CARRY OUT A FRESH SEARCH ENSURING THAT THE COMPARAB LES SELECTED WERE PRIMARILY ENGAGED IN DIRECTS SALES WITH NO MEA NINGFUL VALUE ADDITION ACTIVITIES. TO THE EXTENT POSSIBLE PRODUCT SIMILARITIES I.T.A. NO.4750/DEL/2015 8 SHOULD HAVE BEEN ASPIRED FOR AND IF IT WAS FOUND IN A PARTICULAR YEAR THAT IT WAS NOT AVAILABLE THEN CARRYING OUT TH E NECESSARY ADJUSTMENTS ON THE COMPARABLES SELECTED ATTEMPTED T O APPROACH NEAR COMPARABLE FAR. THUS COMPLYING WITH THE REQUIR EMENTS OF SUB-RULE (2) AND (3) OF RULE 10B AND SUB-CLAUSE (IV ) OF CLAUSE (B) OF SUB-RULE (1) OF RULE 10B IDEALLY MORE COMPARABLE S SHOULD HAVE BEEN SELECTED. WE NOTE THAT THERE IS SUFFICIEN T GUIDANCE AND CLARITY IN THE AFORESAID STATUTORY PROVISIONS TO EN SURE THAT THE GRIEVANCE OF THE ASSESSEE CAN BE ADDRESSED AS IT HA S AMPLY BEEN PROVIDED THAT WHEREVER THE GROSS MARGINS ARE DEMONSTRATED TO BE IMPACTED WITH EITHER INCOMPARABL E ACTIVITIES; FUNCTIONS, ACCOUNTING PRACTICES; PRODUCT DISSIMILAR ITIES; ETC. THEN NECESSARY ADJUSTMENTS SHOULD BE MADE. HEREIN NOTING THAT THE TAX PAYER'S FIRST GRIEVANCE IS THAT WITH NECESSARY ADJUSTMENTS, EVEN IF MODI CARE LIMITED IS TAKEN AS A STANDALONE COMPARABLE AS HAS BEEN DONE BY THE TAX AUTHORITIES EVEN THEN A DJUSTMENTS PROPOSED BY THE TAX PAYER ON VALID GROUNDS NAMELY INCOMPARABLE ACTIVITIES, FUNCTIONS ACCOUNTING AND R EVENUE RECOGNITION POLICIES ETC. IS NECESSITATED. WE ARE G IVEN TO UNDERSTAND THAT SERVICE INCOME HAS BEEN EXCLUDED BY THE TPO HIMSELF IN THE SUBSEQUENT YEARS AND IN FACT IN ONE OF THE YEARS IN THE PRESENT PROCEEDINGS. IT HAS BEEN ARGUED THAT IF THE ADJUSTMENTS ARE THUS MADE THEN NO ADJUSTMENTS TO BE ARM'S LENGTH PRICE OF THE ASSESSEE WOULD BE NECESSITATED. WE NOTE THAT THE TAX AUTHORITIES HAVE NOT CONSIDERED THE CALCULA TIONS AS PRINCIPALLY THEY HAVE BEEN OF THE OPINION THAT NO R ELIEF WAS WARRANTED. HOLDING THE SAID APPROACH OF THE TAX AUT HORITIES CONTRARY TO THE STATUTORY POSITION WE DIRECT THE TP O TO LOOK INTO THE CLAIM OF ADJUSTMENTS REQUIRED TO BE MADE TO MOD I CARE LIMITED. WHILE SO DIRECTING IT IS MADE CLEAR THAT T HE RESPONSIBILITY FOR PROVIDING THE SUPPORTING DATA TO THE SATISFACTI ON OF THE TPO RESTS WITH THE ASSESSEE. THE TPO CANNOT BE BURDENED TO LOOK FOR I.T.A. NO.4750/DEL/2015 9 POSSIBLE ADJUSTMENTS. IN CASE THE TAX PAYER DOES NO T SUCCEED ON THIS GROUND THEN THE TPO MAY CONSIDER DIRECTING THE ASSESSEE TO CARRY OUT A SEARCH OF COMPARABLE COMPANIES FROM THE LIST OF DIRECT SELLERS IN THE MARKET, AS HAS BEEN REFERRED TO IN T HE TPO IN THE RESPECTIVE YEARS AND THE CIT(A) HAS ALSO SPECIFICAL LY MENTIONED THE DIRECT SELLERS AT PAGES 8 AND 9 OF HIS ORDER. T HE COMPARABLE COMPANIES WITH SUITABLE ADJUSTMENTS ADHERING TO THE REQUIREMENTS AS SET OUT IN SUB-RULE (1), (2) AND (3 ) OF RULE 10B OF THE IT RULES MAY BE SELECTED.' 6 IT IS NOTABLE AT THE OUTSET FROM THE ABOVE QUOTA TION THAT THE TRIBUNAL WAS CONSCIOUS OF THE SIGNIFICANT DIFFERENC ES YET IT DID NOT ADDRESS HOW THESE DIFFERENCES COULD BE ADJUSTED SO TO SPEAK. THE ASSESSEE IS INVOLVED SOLELY IN THE MARKETING OF COS METICS. HOWEVER, MODICARE LTD. IS ALSO ENGAGED IN THE MARKETING OF O THER PRODUCTS, 'LAUNDRY AND HOME CARE, PERSONAL CARE, TEA, AGRICUL TURE, JEWELLERY, COSMETICS AND HEALTH CARE' AND 'OTHERS'. EACH ONE O F THESE HAVE A SEPARATE PROPORTION TO THE TOTAL PRODUCT TURNOVER. A TABULAR CHART IN THIS REGARD APPEARS TO HAVE BEEN NOTICED BY THE TRI BUNAL IN ITS IMPUGNED ORDER, THE SAME IS REPRODUCED HEREIN AS BE LOW.., 7 THE ASSESSEE ARGUED THAT THE DISSIMILARITY WITH RESPECT TO THE PRODUCTS SOLD AND THE. PROPORTION BORNE BY EACH OF THE TURNOVER CANNOT BUT IMPACT THE PROFITABILITY OF THE ENTITY A S A WHOLE AND FURTHER EMPHASIZED THAT SEGMENTAL LAID FOR EACH OF THESE PRODUCT LINES IS MISSING FOR THE RELEVANT YEAR (WITH RESPEC T TO THE DATA AVAILABLE VIS-A-VIS MODICARE LTD.). IN THE OPINION OF THIS COURT, IT IS OF VITAL IMPORTANCE AND WAS NOT ADDRESSED BY THE ITAT WHICH EVEN WHILE NOTICING THE SIGNIFICANT DIFFERENCES AND SEEM INGLY ACCEPTING THE ASSESSEE'S ARGUMENTS NEVERTHELESS DID NOT EXCLU DE MODICARE LTD. ALTOGETHER. IN THE OPINION OF THIS COURT, THIS IS A VERY VITAL INFIRMITY WHICH NEEDS TO BE CORRECTED. 8. AS FAR AS THE REASONING OF THE REVENUE AUTHORITI ES, WHICH HAS I.T.A. NO.4750/DEL/2015 10 NOT BEEN COMMENTED UPON BY THE ITAT FOR EXCLUDING T HE OTHER COMPARABLES OFFERED BY THE ASSESSEE GOES, FOR ONE, IT WAS STATED THAT MERE ACCEPTANCE IN THE PAST OF SUCH COMPARABLE DID NOT BIND THE REVENUE. THE OTHER WAS WITH RESPECT TO THE DIFFERENTIAL MARK ETING STRATEGY ADOPTED FOR THE TWO SETS OF ENTITIES I.E. THE TRADI NG ENTITY/COMPARABLE ON THE ONE HAND AS OPPOSED TO THE DIRECT MARKETING ENTITY I.E. ASSESSEE ON THE OTHER HAND. T HE ASSESSEE HAD STRESSED THAT IF APPROPRIATE MARKETING WAS MADE FRO M THE DATA AVAILABLE, THE DIFFERENTIAL MARKETING STRATEGY PER SE WOULD NOT POSE A DIFFICULTY WITH RESPECT TO THE TRANSFER PRICING A DJUSTMENT. THE COURT FINDS SOME MERITS IN THE ARGUMENTS, ESPECIALL Y SINCE WHAT THE REVENUE AUTHORITIES WOULD BE LEFT WITH IF THE ITAT' S ORDER WAS NOT TO BE DISTURBED, WOULD BE WHAT A COMPARABLE IN THE FORM OF MODICARE LTD (SUPRA). 9 IN VIEW OF THE ABOVE REASONS, THIS COURT IS OF THE OPINION THAT THE APPEAL SHOULD BE RE-EXAMINED BY TH E ITAT; IT SHOULD BE ADDRESSED ON THESE TWO ASPECTS I.E. FI RSTLY, THE APPROPRIATENESS OF INCLUDING MODICARE LTD. HAVING R EGARD TO THE AVAILABILITY OF DATA WITH RESPECT TO THE DIFFER ENT PRODUCT SEGMENTS, AND SECONDLY, INVOLVING THE COMPARABLE, T HE FUNCTIONAL DIFFERENCE WITH RESPECT TO ITS MARKETING STRATEGY (I.E. DISCOUNT, TRANSPORTATION COSTS, INSURANCE AND PERFORMING THE WARRANTY FUNCTION). HAVING REGARD TO THE FACTORS MENTIONED IN CLAUSE 5.10 OF THE IMPUGNED OR DER, THE ITAT IS ALSO DIRECTED TO RE-EXAMINE WHETHER AND TO WHAT EXTENT ADJUSTMENT CAN BE REASONABLY MADE, HAVING RE GARD TO THE AVAILABLE DATA IN RESPECT TO THE TRADING COMPAR ABLES OFFERED FOR ALP DETERMINATION , FOR ALL THE RELEVANT YEARS BY THE ASSESSEE. IT IS ALSO DIRECTED TO CONSIDER THE F EASIBILITY AGAIN HAVING REGARD TO THE AVAILABLE DATA FOR ALL T HE CONCERNED ASSESSMENT YEARS- MARKING APPROPRIATE I.T.A. NO.4750/DEL/2015 11 ADJUSTMENTS (INCLUDING WITH RESPECT TO THE WORKING CAPITAL ADJUSTMENTS AS IS SOUGHT TO BE URGED. 10 THIS COURT IS OF THE OPINION THAT THE ITAT MAY TASK BY THE ASSESSEE) IN REGARD TO THE TRADING COMPARABLES OFFE RED BY THE ASSESSEE FOR THESE GIVEN YEARS. THE TRANSFER PRICIN G OFFICER (TPO) WITH SPECIFIC REMAND REPORT ON THESE ISSUES AND SEE K A REPORT IN A TIME BOUND MANNER AND THEREAFTER PROCEED TO RETURN ITS FINDINGS HAVING REGARD TO THE PARTIES' SUBMISSIONS. ALL THE RIGHTS AND CONTENTIONS OF THE PARTIES ARE KEPT OPEN. HAVING REGARD TO THE ABOVE DIRECTIONS, IT IS OPEN TO THE ASSESSEE TO URG E THAT TNMM IS THE MOST APPROPRIATE METHOD INSTEAD OF RPM IN THESE CIRCUMSTANCES, IT IS ALSO CLARIFIED THAT IN T HE EVENT THE SUBMISSION IS ACCEPTED THERE WOULD BE NO ENLARGING OF A COMPARABLE OFFERED . [EMPHASIS IN BOLD IS OURS] 6. BEFORE US, LEARNED COUNSEL HAD SUBMITTED THAT MO DI CARE LTD., FIRST OF ALL CANNOT BE CONSIDERED AS COM PARABLE TO THE ASSESSEE COMPANY, BECAUSE OF MULTI FUNCTIONAL A ND PRODUCT DIFFERENCE BETWEEN THE TWO COMPANIES AND TH E FACT THAT SUCH DIFFERENCES ARE INCAPABLE OF COMPARABILIT Y ADJUSTMENT, THEREFORE, IT CANNOT BE INCLUDED AS COM PARABLE. IN SUPPORT OF HIS CONTENTION, DETAIL FUNCTIONAL ANA LYSIS AND DIFFERENCES BETWEEN THE ASSESSEE COMPANY AND MODI C ARE LTD. WAS POINTED OUT BEFORE US TO HIGHLIGHT THAT IN WAKE OF SUCH DIFFERENCES AND LACK OF AVAILABILITY OF DATA, ADJUSTMENTS CANNOT BE MADE. THIS BENCH ON THE EARLIER DATE OF H EARING HAD NOTED THESE DIFFERENCES IN FAR BETWEEN THE ASSE SSEE AND MODICARE LTD. IN THE FOLLOWING MANNER:- I.T.A. NO.4750/DEL/2015 12 PARTICULARS ORIFLAME INDIA MODICARE LTD. WHETHER ADJUSTMENT CAN BE MADE- YES/NO PRODUCT PORTFOLIO COSMETIC PRODUCTS DIVERSIFIED - LAUNDRY AND HOMECARE, PERSONAL CARE, AGRICULTURE, TEA, JEWELLERY, HEALTHCARE, OTHERS APART FROM COSMETICS. NO FUNCTIONAL PROFILE TRADING I.E. BUYING AND RE- SELLING WITHOUT ANY VALUE ADDITION ACTIVITIES DIVERSIFIED - HAS BUSINESS APART FROM TRADING SINCE IT RECOGNIZES SERVICE INCOME IN ITS P/L ACCOUNT, INCURS FRANCHISEE EXPENSES, COGS IS NOT A DOMINANT COMPONENT OF ITS TOTAL OPERATING EXPENSES NO DIFFERENT BUSINESS MODEL DOES NOT UNDERTAKE ANY VALUE ADDITION FUNCTIONS SUBSTANTIAL VARIANCE IN THE GROSS AND NET LEVEL MARGINS - EVIDENCING THAT IT IS INCURRING HEAVY FUNCTIONS AT OPERATING LEVEL NO DIFFERENTIAL ACCOUNTING TREATMENT FOR INCENTIVES/ DISCOUNTS SHOWS THE SALES NET OF INCENTIVES INCENTIVES/ DISCOUNTS ARE SHOWN AS A PART OF OPERATING EXPENSES NO MARKETING AND BUSINESS PROMOTION EXPENSES / SALES RATIO LESS THAN 1% OF SALES MORE THAN 10% OF SALES- EVIDENCING THAT IT IS ENGAGED IN VALUE ADDITION ACTIVITY YES. HOWEVER, UNDER TRANSFER PRICING NORMS A TRADER PERFORMING VALUE ADDITION CANNOT BE COMPARED WITH A LOW RISK DISTRIBUTOR NOT PERFORMING ANY VALUE ADDITION. I.T.A. NO.4750/DEL/2015 13 COST OF GOODS SOLD / TOTAL OPERATING COST RATIO IN THE RANGE OF 50% TO 60% IN THE RANGE OF 20% TO 30% - EVIDENCING THAT'S ITS FUNCTIONAL PROFILE IS DIFFERENT FROM A NORMAL TRADER YES. THOUGH AN ADJUSTMENT CAN BE MADE FOR COGS, UNDER TRANSFER PRICING NORMS SUCH A COMPARABLE IS NOT APPROPRIATE. 7. IT WAS ALSO SUBMITTED BY THE LEARNED COUNSEL THA T; FIRSTLY, IF RPM METHOD IS TO BE APPLIED, THEN IT SH OULD BE APPLIED ON ALL THE COMPARABLES CHOSEN BY THE ASSESS EE AND AFTER WORKING CAPITAL ADJUSTMENT, MOST OF THE DIFFERENTIAL FACTORS WOULD BE REMOVED AND; SECONDLY, IN CASE ADJUSTMENT CANNOT BE MADE UNDER RPM, THEN TNMM SHOULD BE ADOPTED AS MOST APPROPRIATE METHOD AS OBSERVED BY THE HON'BLE HIGH COURT, THEN ALL THE COMPARABLES SELECTED BY THE ASS ESSEE SHOULD BE TESTED UNDER TNMM AND THAT IS THE MANDATE OF THE DIRECTION OF THE HON'BLE HIGH COURT. 8. ON THE OTHER HAND, THE OBJECTION OF THE LD. CIT- DR WAS THAT THE HON'BLE HIGH COURT HAS AGAIN DIRECTED THE TRIBUNAL TO EXAMINE THE APPROPRIATENESS OF INCLUDING MODICAR E LTD. AFTER TAKING INTO CONSIDERATION THE AVAILABILITY OF DATA WITH RESPECT TO THE DIFFERENT PRODUCTS SEGMENT ETC. HENC E, THIS ISSUE SHOULD BE EXAMINED BY THE TPO AND ALL THE DAT A CAN BE PROVIDED BY THE ASSESSEE AND THE REMAND REPORT CAN BE CALLED UPON BY HIM IN THE TIME BOUND MANNER. REGARDING I.T.A. NO.4750/DEL/2015 14 COMPARABILITY OF TNMM, HE SUBMITTED THAT AGAIN SAME NEEDS TO BE VERIFIED AND EXAMINED BY THE TPO, BECAUSE THI S PLEA WAS ONLY TAKEN AT THE STAGE OF DRP. 9. DURING THE COURSE OF HEARING, WE HAD CALLED U PON THE REMAND REPORT OF THE TPO IN LINE WITH DIRECTION AND OBSERVATION OF THE HONBLE HIGH COURT, AFTER OBSERV ING AND HOLDING AS UNDER:- 7. AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND IN LIGHT OF THE DIRECTIONS GIVEN BY THE HONBLE HIGH COURT, WE PERC EIVE THAT THE SCOPE OF THE REMAND IS TO CARRY OUT COMPARABILITY ANALYSI S; FIRSTLY, WHETHER THE MODICARE LTD. CAN AT ALL BE INCLUDED AS COMPARA BLE SUBJECT TO AVAILABILITY OF THE DATA IN RESPECT OF VARIOUS DIFF ERENT PRODUCTS SEGMENTS DEALT BY THE MODICARE LTD.; SECONDLY, TO W HAT EXTENT ADJUSTMENT CAN EASILY BE MADE WITH RESPECT TO THE M ODICARE LTD. HAVING REGARD TO THE ADJUSTABILITY FACTORS UNDER RP M AND NOT ONLY IN THE CASE OF MODICARE LTD. BUT ALSO IN THE CASE OF O THER COMPARABLES WHAT KIND OF ADJUSTMENTS ARE PERMISSIBLE WHILE DETE RMINING THE GROSS MARGINS OF THE COMPARABLES FOR ALL THE RELEVANT YEA RS IMPUGNED BEFORE US; AND LASTLY, IF TNMM IS BE CONSIDERED MOST APPRO PRIATE METHOD, THEN SAME NEEDS TO BE EXAMINED WITHIN THE SCOPE OF THE COMPARABLES ALREADY THERE ON RECORD, I.E., CHOSEN BY THE ASSESS EE/TPO AND THERE SHOULD NOT BE ANY ENLARGEMENT OF COMPARABLES. IN LI GHT OF THIS BACKGROUND, FIRST OF ALL WE HAVE TO EXAMINE WHETHER THE RELEVANT DATA WITH REGARD TO VARIOUS DIFFERENT SEGMENT OF THE MOD ICARE LTD. IS AVAILABLE OR NOT AND TO WHAT EXTENT ADJUSTMENT CAN BE MADE. IN THIS REGARD THE DIFFERENCES AS HIGHLIGHTED BY THE COUNSE L NEED TO BE SEEN BY THE TPO AND BOTH ASSESSEE AND TPO WILL PROVIDE R ELEVANT DATA IN THIS REGARD. IN CASE THE RELEVANT DATA ARE NOT AVAI LABLE THEN AS PER OBSERVATIONS MADE BY THE HONBLE HIGH COURT MODICAR E LTD. NEEDS TO BE EXCLUDED IN CASE RPM IS TO BE APPLIED. REGARDING OTHER I.T.A. NO.4750/DEL/2015 15 COMPARABLES CHOSEN BY THE ASSESSEE IN RPM, IT WOULD BE VERY DIFFICULT TO CARRY OUT VARIOUS ADJUSTMENTS DUE TO LIMITATION UNDER THE RPM METHOD. THEREFORE, WE ARE OF THE OPINION THAT THESE COMPARABLES CAN BE EXAMINED UNDER THE TNMM AND ALL THE RELEVANT DAT A WOULD BE PROVIDED BY THE ASSESSEE WHICH SHALL BE VERIFIED BY THE TPO. LET THE REMAND REPORT FROM THE TPO BE PLACED BEFORE THIS BE NCH ON OR BEFORE 18TH JULY, 2018. THE ASSESSEE IS DIRECTED TO PROVID E ALL THE RELEVANT DATA WITHIN TWO DAYS, I.E., BY 11TH JULY, 2018; AND THEREAFTER TPO SHOULD GIVE THIS COMMENT BY 18TH JULY, 2018. LIST T HIS MATTER ON 18TH OF JULY, 2018. A COPY OF THIS ORDER SHEET SHALL BE SERVED TO THE TPO BY TODAY OR TOMORROW. 10. IN PURSUANCE OF THE AFORESAID DIRECTION, THE TP O HAS SUBMITTED HER REMAND REPORT, WHEREIN SHE HAS STATED THAT SEGMENTAL DATA FOR VARIED PRODUCTS OF MODICARE LTD. IS NOT AVAILABLE; AND FURTHER OBSERVED THAT THE SEGMENTAL CANNOT BE CONSTRUCTED DUE TO NON AVAILABILITY OF DATA FOR APP ORTIONMENT OF COST IN VARIOUS SEGMENTS. THE TPO HAS ALSO REJEC TED THE COMPARABILITY ADJUSTMENT SOUGHT BY THE ASSESSEE TO ENHANCE THE COMPARABILITY BETWEEN THE ASSESSEE AND MODICARE LTD. APART FROM THAT, THOUGH TPO ACCEPTED THE FUNCTIONAL COMPARABILITY OF THE COMPARABLES OFFERED BY THE ASS ESSEE, HOWEVER, REJECTED THE COMPARABLES OF THE ASSESSEE O N PRODUCT COMPARABILITY STATING THAT, THESE COMPANIES DO NOT DEAL IN COSMETICS AND OTHER BROADLY SIMILAR PRODUCTS. THE T PO DURING THE COURSE OF REMAND PROCEEDINGS HAD ALSO IS SUED NOTICE U/S. 133(6) TO MODICARE LTD., IN RESPONSE TO WHICH THEY HAVE CLARIFIED THAT, MODICARE LTD. WAS INTO DIRECT SELLING BUSINESS. THE RELEVANT CONTENT OF THE TPOS REMAND REPORT IS I.T.A. NO.4750/DEL/2015 16 REPRODUCED HEREUNDER:- 1.2 MODICARE LTD. HAS NOT DISCLOSED ANY SEPARATE B USINESS SEGMENTS (AS REQUIRED BY ACCOUNTING STANDARD 17) IN ITS AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 2009. THIS MAKES IT CLEAR THAT THE COMPANY DOES NOT DIFFERENTIATE ITS P RODUCTS INTO SEPARATE REPORTABLE SEGMENTS. IN THE ABSENCE OF AVA ILABILITY OF DIFFERENT SEGMENTS, THE GENERAL OVERALL FUNCTIONS A ND PRODUCTS OF THE COMPANY IS TO BE CONSIDERED, I.E., SUPPLIER OF D CO SMETIC PRODUCTS. 1.5 .. ACCORDINGLY, IN THE ABSENCE OF ANY APPROPR IATE ALLOCATION OF TOTAL COSTS INTO SEPARATE SEGMENTS/PRODUCTS AND SER VICES, MODICARE LTD. IS CONSIDERED COMPARABLE ON THE ENTITY LEVEL. 1.7 MOREOVER, MODICARE LTD. ITSELF, IN A RESPON SE TO A NOTICE ISSUED TO IT U/S 133(6) HAS CONFIRMED THAT ITS SALES AND M ARKETING PLAN IS BASED ON DIRECTS SELLING MODEL, WHICH INVOLVES MOVI NG PRODUCTS FROM MANUFACTURERS TO CONSUMERS DIRECTLY....... 1.8. THE OTHER ARGUMENTS OF THE ASSESSEE WITH RESP ECT TO VARIANCE IN GROSS AND NET LEVEL MARGINS AND COGS NO T BEING A DOMINANT COMPONENT OF TOTAL OPERATING EXPENSES ARE FOUND TO BE BASELESS. FOR ANY COMPANY, IT CAN BE ARGUED THAT IT S GROSS AND NET MARGINS ARE NOT MATCHING WITH ANOTHER COMPANY AND T HEREFORE IT HAS A DIFFERENT BUSINESS MODEL. HOWEVER, THIS IN ITSELF SHOULD NOT BE THE FACTOR TO DIFFERENTIATE. THE ASSESSEE MUST ESTABLIS H THAT BUSINESS MODEL OF THE TWO COMPANIES IS DIFFERENT BY GIVING C OGENT REASONS AND NOT BY POINTING OUT TO DIFFERENCES IN PROFIT MARGIN S AND EXPENSES MARGINS. 1.9. IN VIEW OF THE ABOVE DISCUSSION, IT CAN BE CO NCLUDED THAT MODICARE LTD. IS AN APPROPRIATE COMPARABLE AS IT IS A DIRECT MARKETER LIKE ASSESSEE AND EARNS MAJORITY OF THE REVENUES FR OM SALE OF I.T.A. NO.4750/DEL/2015 17 PRODUCTS SIMILAR TO ASSESSEE. FURTHER. IN CASE OF D IRECT MARKETERS, BUSINESS MODEL COMPARABILITY IS MORE IMPORTANT THAN PRODUCTS COMPARABILITY....... 2.4. HENCE, IN VIEW OF THE SIGNIFICANT DIFFERENCES IN THE FUNCTIONAL PROFILE AND PRODUCT PROFILE BETWEEN ASSESSEE'S COMP ARABLES AND ORIFLAME INDIA, IT IS NOT POSSIBLE TO MAKE REASONAB LE ACCURATE ADJUSTMENTS UNDER RPM AS CAN BE SEEN FROM THE TABLE AND EXPLANATIONS ABOVE, AND ACCORDINGLY NONE OF THEM CA N BE CONSIDERED COMPARABLE TO THE ASSESSEE. 2.5. WITH RESPECT TO MODICARE LTD., FUNCTIONAL AND PRODUCT SIMILARITY HAS ALREADY BEEN ESTABLISHED IN THE ABOVE. S. NO. FACTORS WHETHER ADJUSTMENT CAN BE MADE - YES/NO 1 ADVERTISING, MARKETING, PROMOTION (AMP) NO. MODICARE LTD. HAS INCURRED EXPENSES UNDER THE } HEAD 'MARKETING AND SALES PROMOTION EXPENSES' I OF RS. 29,552,604. OUT OF THESE, AS CONFIRMED BY MODICARE LTD. IN A RESPONSE TO A NOTICE ISSUED TO IT U/S 133(6), [RE FER ANNEXURE A] THERE IS NO ADVERTISEMENT EXPENSE. HENC E, MODICARE LTD. ; HAS NOT INCURRED ANY ACTUAL AMP EXPENSES, THEREBY ELIMINATING THE NEED FOR COMPARABILITY ADJU STMENT. 2. VAE NO. AS DISCUSSED IN THE PRECEDING PARAGRAPHS, ASSESSEE HAS NOT SUBMITTED ANYTHING SUBSTANTIAL THAT PROVES WHY COGS SHOULD BE A DOMINANT S EXPENSE AND WHY MODICARE LTD'S HIGH VAE CANNOT BE ACCEPTED. 3. WORKING CAPITAL YES. AS PER ANNEXURE B. I.T.A. NO.4750/DEL/2015 18 3.3. ON THE BASIS OF THE ABOVE, IT CAN BE ESTABLISH ED THAT THOUGH WHILE APPLYING TNMM THE STANDARD OF COMPARABILITY IS LESS STRINGENT, HOWEVER, SOME EXTENT OF COMPARABILITY MUST BE ESTAB LISHED. APPLICATION OF TNMM CANNOT JUSTIFY COMPARISON BETWE EN TWO ENTITIES WHICH ARE NEITHER FUNCTIONALLY SIMILAR, NOR DEALING IN BROADLY SIMILAR PRODUCTS. TNMM IS LESS DEPENDENT ON PRODUCT AND FUN CTIONAL COMPARABILITY BECAUSE NET MARGINS ARE LESS INFLUENC ED BY DIFFERENCES IN PRODUCTS AND FUNCTIONS. HOWEVER, EVEN THE NET MA RGINS OF TWO SEPARATE ENTITIES WHICH ARE NOT EVEN BROADLY SIMILA R WILL TEND TO HAVE VARIATIONS. MOREOVER, TNMM IS NORMALLY USED WHEN TH E OTHER METHODS DO NOT PROVIDE RELIABILITY OF DATA, MAKING IT DIFFI CULT TO APPLY THE COST PLUS METHOD OR RESALE PRICE METHOD. AS HAS BEEN ALREADY DISCUSSED IN THE PRECEDING PARAGRAPHS, THE COMPARABLES CHOSEN BY THE ASSESSEE ARE NEITHER DIRECT SELLER OF PRODUCTS, MAKING THEM FUNCTIONALLY DISSIMILAR, NOR ARE THEY DEALING IN COSMETICS, MAKI NG THEIR PRODUCTS ALSO DISSIMILAR. ACCORDINGLY, TNMM CANNOT BE CHOSEN AS THE MOST APPROPRIATE METHOD WITH RESPECT TO THE COMPARABLES CHOSEN BY THE ASSESSEE. HAVING REGARD TO MODICARE LTD., BOTH MEDI CARE LTD. AND ORIFLAME INDIA ARE DIRECT RESELLERS OF COSMETIC PRO DUCT, MAKING IT AN APPROPRIATE SITUATION FOR THE APPLICATION OF RPM. T HE DETAILED DISCUSSION FOR SELECTION OF MODICARE LTD. UNDER RPM HAS ALREADY BEEN DONE IN THE PRECEDING PARAGRAPHS. AND SINCE RPM IS MORE SUITED IN THIS SITUATION, IT ELIMINATES THE NEED FOR APPLICAT ION OF TNMM. 3.5. THUS, IT CAN BE CONCLUDED THAT TNMM CANNOT BE CONSIDERED AS THE MOST APPROPRIATE METHOD AND IT IS MORE APPRO PRIATE TO APPLY RESALE PRICE METHOD AFTER MAKING COMPARABILITY ADJU STMENT ON ACCOUNT OF WORKING CAPITAL DIFFERENCES. I.T.A. NO.4750/DEL/2015 19 FURTHER, ON REQUEST OF THE LD. DEPARTMENTAL REPRESE NTATIVE (DR), LD. TPO ALSO ISSUED NOTICE U/S 131 OF THE INCOME TAX AC T 1961 TO MODICARE LTD. TO SOUGHT CLARIFICATION WITH RESPECT TO CERTAI N ISSUES. IN RESPONSE TO THE NOTICE, WHEREIN THE FINANCE DIRECTOR OF MODICAR E WAS EXAMINED ON OATH, MODICARE LTD. HAS CLARIFIED THAT IT IS NOT PO SSIBLE TO DRAW PRODUCT SEGMENTAL IN ITS CASE. THE RELEVANT EXTRACT FROM TH E RESPONSE FROM MODICARE LTD. U/S 131 IS GIVEN BELOW : 1. RECASTING OF CERTAIN SEGMENTS OF M/S MODICARE LT D. IN ORDER TO RECAST THE SEGMENTS OF LAUNDRY AND HOME CARE, PERSONAL CARE, COSMETICS AND HEALTH CARE, THE COMPANY WAS IS SUED NOTICE U/S 131 WHEREIN HE WAS REQUIRED TO FURNISH 'SEGMENTAL I NFORMATION {CLEARLY INDICATING ALL INCOME & EXPENSE} UNDER THE FOLLOWING HEADS: I. LAUNDRY, II. HOME CARE, III. PERSONAL CARE, IV. COSMETICS AND V. HEALTH CARE IN THE SUBMISSION DATED 18.09.2018 REF. NIL, THE COMPARABLE ASSESSEE HAS CLEARLY DENIED THE POSSIBILITY OF SUCH BIFURCAT ION STATING THAT 'BIFURCATION OF OTHER MAJOR EXPENSES IN SEPARATE PR ODUCT CATEGORIES IS NOT FEASIBLE DUE TO NATURE OF THESE EXPENSES, WHICH ARE INCURRED FOR TOTAL BUSINESS OF THE COMPANY.' THE MAJOR HEADS OF EXPENSES HAVE ALSO BEEN DISCUSSED IN THE SUBMISSION WHICH IS ENCL OSED FOR READY REFERENCE. 11. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT T HERE ARE HUGE PRODUCT AND FUNCTIONAL DIFFERENCES BETWEEN THE ASSESSEE AND MODICARE LTD., WHICH FOR THE SAKE OF READY REFE RENCE CAN BE SUMMARIZED IN THE FOLLOWING MANNER:- I.T.A. NO.4750/DEL/2015 20 1. DIVERSE PRODUCT PROFILE MODICARE LTD. HAD A DIVERSIFIED PRODUCT PORTFOLIO R ANGING FROM LAUNDRY AND HOMECARE, PERSONAL CARE, AGRICULTURE, TEA, JEWE LLERY, HEALTHCARE, COSMETICS, OTHERS APART FROM COSMETICS. THE SHARE O F COSMETICS RANGES FROM 12% TO 18% FOR THE YEARS UNDER CONSIDERATION, EVEN IF PERSONAL CARE IS AGGREGATED THEN ALSO MORE THAN 50% COMPRISE DIVERSE PRODUCTS. THE APPELLANT DOES NOT DEAL IN ANY OF THE SE PRODUCT CATEGORIES. DIFFERENT PRODUCT ITEMS WOULD INVOLVE D IFFERENT LEVEL OF ASSETS, RISKS AND MARKETS AND ACCORDINGLY THIS COMP ANY CANNOT BE SELECTED AS A STANDALONE COMPARABLE ON A GROSS BASI S UNDER RPM. 2. DIFFERENTIAL TREATMENT OF EXPENSES INCURRED ON INCENTIVES/ DISCOUNTS BETWEEN THE APPELLANT AND MODICARE LIMITE D. IN ANY DIRECT SELLING BUSINESS, THE AGENTS/CONSULTA NTS WHO ACT AS RETAILERS ARE PAID INCENTIVES OR DISCOUNTS TO REMUN ERATE THEM FOR THEIR CONTRIBUTION. THIS ARRANGEMENT VARIES FROM ONE COMP ANY TO ANOTHER AND THE CORRESPONDING ACCOUNTING ENTRIES ALSO DIFFE R ACCORDINGLY. IN THIS CASE, ORIFLAME INDIA RECORDS THE SALES NET OF DISCOUNTS/INCENTIVES PAID TO ITS AGENTS/CONSULTANTS AND HENCE SHOWS A LO WER GROSS MARGIN AS PER ITS ACCOUNTING TREATMENT. ON THE OTHER HAND, THE DISCOUNT GIVEN TO THE CONSULTANTS/AGENTS IS CATEGORIZED AS 'INCENT IVES' BY MODICARE LIMITED. THIS IS BEING SHOWN AS BELOW THE LINE IN P ROFIT & LOSS ACCOUNT AS A PART OF OPERATING EXPENSES. THIS DOES NOT FORM PART OF THE COMPUTATION OF GROSS PROFIT MARGIN OF MODICARE. 3. MODICARE LTD. HAS SUBSTANTIAL VARIATION BETWEEN GROSS MARGIN AND NET MARGIN THE APPELLANT WOULD LIKE TO STATE THAT MODICARE LTD HAS A GROSS MARGIN OF 76.47% (AS PER TPO) WHEREAS, ITS NET MARG INS ARE 2.25% FOR FY 2008-09 AND SIMILAR PERCENTAGES FOR SUBSEQUENT Y EARS UNDER I.T.A. NO.4750/DEL/2015 21 CONSIDERATION. THE SUBSTANTIAL VARIANCE IN THE GROSS AND NET LEVEL MARGINS ESTABLISHES THE FACT THAT THE COMPANY IS IN CURRING HEAVY OPERATING EXPENSES, WHICH SUBSTANTIATES HEAVY FUNCT IONS AT THE OPERATING LEVEL THAT ARE NOT COMPARABLE TO ORIFLAME INDIA. THIS GIVES SUPPORT TO THE ARGUMENT THAT MODICARE LTD. IS NOT J UST A DIRECT MARKETER AND RESELLER. ORIFLAME INDIA ON THE OTHER HAND DOES NOT UNDERTAKE VALUE ADDITION FUNCTIONS. 4. SIGNIFICANT ADVERTISING, MARKETING AND PROMOTIO N (AMP) SPEND MODICARE LTD. HAS SIGNIFICANT AMP/ SALES OF 7.32% (10.21% AS PER SCN ISSUED BY THE TPO) FOR FY 2008-09 AS COMPARED T O ORIFLAME INDIA WHICH IS ONLY 0.49% AND SIMILAR PERCENTAGES FOR SUB SEQUENT YEARS UNDER CONSIDERATION. THIS CLEARLY SHOWS THAT THIS C OMPANY HAS SIGNIFICANTLY DIFFERENT FUNCTIONS AS COMPARED TO TH E APPELLANT AND IS ENGAGED IN VALUE ADDITION ACTIVITIES AND IS BEING R EMUNERATED ON A PREMIUM PRICING. 5. DIFFERENCE IN COST OF GOODS SOLD (COGS) RATIO A ND VALUE ADDED EXPENSE (VAE) RATIO THE TOTAL COGS, AS PER THE FINANCIAL STATEMENTS, FO R MODICARE LTD RANGES FROM 22% TO 28% OF ITS TOTAL OPERATING COSTS FOR YEARS UNDER CONSIDERATION. VALUE ADDED EXPENSES/OPERATING EXPEN SES ARE MORE THAN 70%. THIS IS UNLIKE A TRADING COMPANY WHERE CO GS SHOULD BE THE DOMINANT COMPONENT OF TOTAL COSTS, HENCE, THE C OST PROFILE OF MODICARE LIMITED IS NOT SIMILAR TO THE APPELLANT. 6. FRANCHISE BUSINESS MODEL MODICARE LTD. HAS RECORDED FRANCHISEE EXPENSES IN I TS FINANCIAL STATEMENTS. THUS, MODICARE LTD. IS OPERATING AS A F RANCHISE BUSINESS AND IS NOT WHOLLY A DIRECT SELLER. THE SEGMENTAL AC COUNTS GIVEN IN THE ANNUAL REPORT IS ONLY IN RESPECT OF PRODUCTS AND TH ERE IS NO SEGMENTAL I.T.A. NO.4750/DEL/2015 22 ACCOUNT AVAILABLE FOR FRANCHISE BUSINESS. THE REVEN UES FROM FRANCHISE BUSINESS ARE PRESUMABLY BEING INCLUDED IN THE SALES FIGURES AS THERE IS NO SEPARATE LINE ITEM SHOWING ANY INCOME FROM FR ANCHISE BUSINESS. THE SUMMARY OF THE FUNCTIONAL AND PRODUCT DIFFERENC ES BETWEEN MODICARE LTD AND APPELLANT HAVE BEEN PROVIDED IN TH E FOLLOWING TABLE: TABLE: DIFFERENCES IN FUNCTIONS. ASSETS AND RISK AN D PRODUCT PROFILE OF THE APPELLANT VIS-A- VIS MODICARE LIMITED AND COMPA RABILITY ADJUSTMENTS (RECOGNIZED BY THE IT AT IN PARAS 5.9 & 5.11) PARTICULARS ORIFLAME INDIA MODICARE LTD. WHETHER ADJUSTMENT CAN BE MADE YES/NO PRODUCT PORTFOLIO COSMETIC PRODUCTS DIVERSIFIED - LAUNDRY AND HOMECARE, PERSONAL CARE, AGRICULTURE, TEA, JEWELLERY, HEALTHCARE, OTHERS APART FROM COSMETICS. NO FUNCTIONAL PROFILE TRADING I.E. BUYING AND RE- SELLING WITHOUT ANY VALUE ADDITION ACTIVITIES DIVERSIFIED - HAS BUSINESS 1 APART FROM TRADING SINCE IT RECOGNIZES SERVICE INCOME IN ITS P/L ACCOUNT, INCURS FRANCHISEE EXPENSES, COGS IS NOT A DOMINANT COMPONENT OF ITS TOTAL OPERATING EXPENSES NO DIFFERENT BUSINESS MODEL DOES NOT UNDERTAKE ANY VALUE ADDITION FUNCTIONS SUBSTANTIAL VARIANCE IN THE GROSS AND NET LEVEL , MARGINS - EVIDENCING THAT IT IS INCURRING HEAVY FUNCTIONS AT OPERATING 1 LEVEL NO I.T.A. NO.4750/DEL/2015 23 DIFFERENTIAL ACCOUNTING TREATMENT FOR INCENTIVES/ DISCOUNTS SHOWS THE SALES NET OF INCENTIVES INCENTIVES/ DISCOUNTS ARE SHOWN AS A PART OF OPERATING EXPENSES YES MARKETING AND BUSINESS PROMOTION EXPENSES / SALES RATIO LESS THAN 1% OF SALES MORE THAN 10% OF SALES EVIDENCING THAT IT IS ENGAGED IN VALUE ADDITION ACTIVITY YES. HOWEVER, UNDER TRANSFER PRICING NORMS A TRADER PERFORMING VALUE ADDITION CANNOT BE COMPARED WITH A LOW RISK DISTRIBUTOR NOT PERFORMING ANY VALUE ADDITION COST OF GOODS SOLD / TOTAL OPERATING COST RATIO IN THE RANGE OF 50% TO 60% IN THE RAGE OF 20% TO 30%- EVIDENCING THAT'S ITS FUNCTIONAL PROFILE IS DIFFERENT FROM A NORMAL TRADER YES. THOUGH AN ADJUSTMENT CAN BE MADE FOR COGS, UNDER TRANSFER PRICING NORMS SUCH A COMPARABLE IS NOT APPROPRIATE. 12. HE FURTHER RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTOR ADVISORS (INDIA) PVT. LTD. VS. CIT , REPORTED IN (2015) 376 ITR 183 (DEL), WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT ONLY WHEN THE MATERIAL DIFFERENCE CAN BE ELIMINATED THROUGH REASONABLE ADJUSTMENT, COMPANY CA N BE TAKEN AS COMPARABLE, IF THERE ARE DISSIMILARITIES W HICH MATERIALLY AFFECT THE PRICE CHARGED, ETC, THEN FIRS T ATTEMPT HAS TO BE ELIMINATE THE COMPONENTS WHICH SO MATERIALLY AFFECT THE PRICE OR COST AND IF SUCH FACTORS ARE NOT AVAILABLE IN THE DATA I.T.A. NO.4750/DEL/2015 24 THEN SAME HAS TO BE REJECTED. HE ALSO GAVE POINT-WI SE REBUTTAL TO THE REMAND REPORT OF THE TPO IN THE FOLLOWING MA NNER: THE LD. TPO IN HER REMAND REPORT HAS STATED THAT S EGMENTAL DATA FOR DIFFERENT PRODUCTS IS RIOT AVAILABLE IN THE ANNUAL REPORT OF MODICARE LTD. HOWEVER, SHE HAS STATED THAT THE DATA FOR THE COMPANY AT AN ENTITY LEVEL CAN BE TAKEN INTO ACCOUNT BECAUSE PERS ONAL CARE, COSMETICS AND HEALTHCARE PRODUCTS COMPRISES 59.88% OF THE TOTAL SALES FOR FY 2011-12 AND SIMILAR PERCENTAGES FOR OT HER YEARS UNDER CONSIDERATION. IT IS PERTINENT TO NOTE THAT LD. TPO HAS NOT BEEN ABLE TO REBUT THE CLAIM OF THE APPELLANT REGARDING INCOMPAR ABLE PRODUCT PROFILE OF APPELLANT AND MODICARE LTD. AND HAS ALSO NOT BEEN ABLE TO SHOW THAT COMPARABILITY ADJUSTMENTS ARE POSSIBLE ON ACCOUNT OF DIFFERENT PRODUCT PROFILES. MODICARE LTD. HAS A DIFFERENT BUSINESS MODEL AS COM PARED TO THE APPELLANT AS IT IS ALSO INCURRING SUBSTANTIAL FRANC HISE EXPENSES AND EARNING SERVICE FEE BY ENTERING INTO ANNUAL MAINTEN ANCE CONTRACT. LD. TPO IN PARA NO. 1.4 & 1.5 IN HER REMAND REPORT HAS MENTIONED LI IDL SINCE THE APPELLANT IS ALSO DERIVING SERVICE FEE, S IMILAR TO MODICARE LTD., THERE IS NO FUNCTIONAL DIFFERENCE, IN THIS RE SPECT. LD. TPO HAS FAILED TO APPRECIATE THAT THE SERVICE T EE EARNED BY THE APPELLANT IS ON ACCOUNT OF RENEWAL FEES (INR 38.09 LACS FOR FY 2011 12 AND SIMILAR AMOUNT FOR OTHER YEARS UNDER CONSIDERAT ION) AND HANDLING FEES (INR 67.32 LACS FOR FY 2011-12 AND SIMILAR AMO UNT FOR OTHER YEARS UNDER CONSIDERATION) RECEIVED FROM INDIVIDUAL CONSULTANTS WHO WERE ENGAGED IN THE BUSINESS OF DISTRIBUTION OF THE APPELLANT'S PRODUCTS AND IS THUS DIRECTLY RELATED TO THE DISTRI BUTION ACTIVITIES CARRIED OUT BY THE APPELLANT. ON THE OTHER HAND, TH E SERVICE FEE EARNED BY MODICARE LTD. AMOUNTING TO INR 300.84 LACS FOR F Y 2011-12 AND I.T.A. NO.4750/DEL/2015 25 SIMILAR AMOUNT FOR OTHER YEARS UNDER CONSIDERATION, IS ON ACCOUNT OF ANNUAL MAINTENANCE CONTRACTS (AMC). THEREFORE, NO V ALID COMPARISON CAN BE MADE BETWEEN THE TWO COMPANIES FOR TRANSFER PRICING PURPOSES. THE LD. TPO IN HER REMAND REPORT IN PARA 1.6 HAS EMPHASIZED ABOUT MODICARE LTD. AND THE APPELLANT BE ING DIRECT SELLING COMPANIES. IT HAS BEEN POINTED OUT BY THE LD. TPO I N THIS PARAGRAPH THAT BOTH MODICARE LTD. AS WELL AS APPELLANT SELL T HEIR GOODS THROUGH INDIVIDUAL CONSULTANTS AND ARE MEMBERS OF INDIAN DI RECT SELLING ASSOCIATION (IDSA). IN PARA 1.7 OF THE REMAND REPOR T, THE LD. TPO HAS STATED THAT SHE HAD ISSUED A NOTICE UNDER SECTION 1 33(6) OF THE INCOME TAX ACT TO MODICARE LTD. TO CONFIRM WHETHER IT IS O PERATING ON A DIRECT SELLING MODEL. AN ABSTRACT OF THE REPLY RECEIVED FR OM M/S. MODICARE LTD. HAS BEEN REPRODUCED IN PARA 1.7 OF REMAND REPO RT WHERE M/S. MODICARE LTD. HAS CONFIRMED THAT IT IS A DIRECT SEL LING COMPANY WHEREBY THE GOODS ARE MOVED FROM MANUFACTURERS TO C ONSUMERS DIRECTLY WITHOUT INVOLVING ANY INTERMEDIARIES. IT I S SUBMITTED THAT AT NO STAGE HAS THE APPELLANT DENIED THAT MODICARE LTD. I S NOT A DIRECT SELLING COMPANY. ITS CONTENTION ALL ALONG HAS BEEN THAT MODICARE LTD., DESPITE BEING A DIRECT SELLING COMPANY CANNOT BE CH OSEN AS A SOLITARY COMPARABLE BECAUSE OF NUMEROUS DIFFERENCES IN PRODU CT DIVERSITY, DIFFERENCE IN FUNCTIONS AND DIFFERENCE IN BUSINESS MODEL AS WELL AS DIFFERENCES IN ACCOUNTING POLICIES. THESE DIFFERENCES CANNOT BE ADJUSTED BY WAY OF REAS ONABLY ACCURATE ADJUSTMENTS. THE LD, TPO HAS FAILED TO PROVIDE ANY JUSTIFICATION IN THIS REGARD, THEREBY CONFIRMING THE APPELLANT CONTENTION THAT IF MATERIAL DIFFERENCE CANNOT BE ADJUSTED, COMPARABLE HAS TO BE EXCLUDED. IT WAS FURTHER SUBMITTED THAT COMPARABILITY CANNOT BE ESTABLISHED MERELY ON THE GROUNDS OF MEMBERSHIP OF IDSA. IT SHO ULD BE NOTED THAT IDSA HAS A VERY DIVERSE GROUP OF MEMBERS AND INCLUD ES COMPANIES I.T.A. NO.4750/DEL/2015 26 WHICH ARE ENGAGED IN FINANCIAL SERVICES (FOR EG MAX LIFE INSURANCE) AND VERY LARGE FMCG COMPANIES (FOR EG HINDUSTAN LEV ER LTD). IT ALSO HAS COMPANIES LIKE TUPPERWARE (DEALING IN PLASTIC P RODUCTS) AND HERBAL LIFE (NUTRITION OF WEIGHT MANAGEMENT). IT IS QUITE EVIDENT THAT ALL THESE COMPANIES HAVE NOT BEEN TAKEN AS A COMPAR ABLE DESPITE BEING MEMBERS OF IDSA. FURTHER, IN THE CASE OF TUPPERWARE INDIA PVT LTD VS DCIT FITA NO, 2140/DEL/20HAND ITA NO. 1323/DEF/2012), THE DELHI I TAT HAS CONSIDERED NON- DIRECT SELLERS/ NORMAL TRADING COMP ANIES AS COMPARABLES EVEN THOUGH TUPPERWARE IS A DIRECT SELL ER. IN PARA 1.8 OF THE REMAND REPORT, THE LD. TPO HAS S TATED THAT NO ADVERSE CONCLUSION CAN BE DRAWN REGARDING MODICARE ON ACCOUNT OF THE FACT THAT THERE IS A VERY BIG DIVERGENCE BETWEE N GROSS MARGIN AND OPERATING PROFIT MARGIN AND THIS FACT BY ITSELF DOE SN'T SHOW DIFFERENCE IN BUSINESS MODEL. IT IS SUBMITTED THAT MODICARE LT D. HAS A HIGH GROSS PROFIT MARGIN AND NEGATIVE OPERATING PROFIT MARGIN BECAUSE IT IS INCURRING SUBSTANTIAL OPERATING EXPENSES MAINLY BY WAY OF ADVERTISEMENTS AND MARKETING. THE TABLE BELOW GIVES A COMPARATIVE FIGURE OF THE FOUR FINANCIAL YEARS. GROSS PROFIT (%) OPERATING PROFIT (%) FINANCIAL YEAR MODICARE LTD. (AS DETERMINED BY TPO) APPELLANT MODICARE LTD. APPELLANT 2008 - 09 76.47% 45.58% 1.14% -0.63% 2009 - 10 70.33% 46.79% 4.99% 6.53% 2010-11 67% 48.72% -0.26% 5.60% 2011-12 69.35% 45.31% -6.50% 5.89% IT IS SUBMITTED THAT UNDER THE TRANSFER PRICING GUI DELINES (BOTH UNDER OECD AS WELL AS UNITED NATIONS MANUAL), THE DISTRIB UTOR WHICH IS ENGAGED IN SIGNIFICANT ADVERTISEMENT AND MARKETING CANNOT BE COMPARED WITH A ROUTINE DISTRIBUTOR UNDER RESALE PR ICE METHOD I.T.A. NO.4750/DEL/2015 27 BECAUSE OF THE VALUE ADDITION FUNCTION CARRIED OUT BY THE FORMER. PLEASE REFER TO PARA NO 2.35, 2.37 AND 2.38 OF OECD TP GUIDELINES, 2017 AND PARA NO B,3.2.7.1 AND B.3.2.7.2, B.3.2.9.6 OF UN GUIDELINES. SAME VIEW HAS BEEN TAKEN BY THE HON'BLE BANGALORE T RIBUNAL IN M/S. ABOTT MEDICAL OPTICS PRIVATE LTD. VS. DCIT FOR AY 2 007-08 (I.T.(T.P) A, NO.LLL6/BANG/2011) (PARA 8, PAGE7-8), WHICH HAS BEE N FURTHER UPHELD IN THE SAME APPELLANT'S CASE IN AY 2008-09 IN 2018 (I.T.(T.P) A. NO.08/BANG/2014). IN PARA 1.9, THE LD. TPO HAS CONCLUDED THAT MODICAR E IS AN APPROPRIATE COMPARABLE TO THE APPELLANT BOTH IN TER MS OF PRODUCT COMPARABILITY AS WELL AS BUSINESS MODEL. IT IS SUBM ITTED THAT ON BOTH THESE ACCOUNTS, THE LD. TPO HAS FAILED TO REBUT THE ELABORATE CONTENTIONS AND EVIDENCE SUBMITTED BY THE APPELLANT TO SHOW THERE ARE NO SUITABLE METHODS TO CARRY OUT THE ADJUSTMENT S TO ACCOUNT AIL THESE MATERIAL DIFFERENCES. AS PER THE ESTABLISHED PRINCIPLES OF TRANSFER PRICING ENDORSED BY THE DELHI HIGH COURT I N CHRYSCAPITAL INVESTOR ADVISORS (INDIA) PRIVATE LTD. VS. VS. DCIT (ITA 417/2014) [2015], IF REASONABLE ADJUSTMENTS ARE NOT POSSIBLE TO ACCOUNT ANY MATERIAL DIFFERENCES THEN THE COMPARABLE CANNOT BE TAKEN AND HAS TO BE NECESSARILY EXCLUDED. HENCE, IN VIEW OF THE SIGNIFICANT DIFFERENCES IN TH E PRODUCT PROFILE, FUNCTIONAL PROFILE AND ACCOUNTING DIFFERENCE BETWEE N MODICARE LTD AND ORIFLAME INDIA IT IS NOT POSSIBLE TO MAKE REASONABL E ACCURATE ADJUSTMENTS AS CAN BE SEEN FROM THE TABLE ABOVE, MO DICARE LTD. SHOULD BE REJECTED. 13. HE FURTHER SUBMITTED THAT THE COMPANIES DEALING IN THE BUSINESS OF COSMETICS OPERATE IN AN INDEPENDENT ECO NOMIC ENVIRONMENT, WHETHER THEY ARE ENGAGED IN DIRECT SEL LING OR I.T.A. NO.4750/DEL/2015 28 RETAIL SELLING, THEY ARE ALL COMPETING AGAINST EACH OTHER FOR CAPTURING THE ATTENTION OF THE SAME CUSTOMERS IN TH E MARKET AND THE MODE OF SELLING DOES NOT TAKE AWAY FUNCTION AL COMPARABILITY OF BUYING AND RESELLING IN THE COSMET ICS ARENA. FOR APPLYING RPM, THOUGH CLOSER PRODUCT COMPARABILI TY PRODUCES A BETTER RESULT, BUT THE COMPARABLES CHOSE N BY THE ASSESSEE DEAL IN COSMETICS ONLY. COMPARABLE COMPANI ES SELECTED BY THE ASSESSEE HAVE BEEN PROVIDED BEFORE US SEPARATELY. FURTHER, A TABLE SHOWING SIMILARITIES B ETWEEN A DIRECT MARKETER AND NON-DIRECT MARKETER AND COMPARI SON BETWEEN ORIFLAME INDIA, MODICARE LTD. AND OTHER COM PANIES SELECTED BY THE ASSESSEE WAS GIVEN IN THE FOLLOWING MANNER TO DEMONSTRATE THAT THERE IS NO SIGNIFICANT DIFFERENCE BETWEEN THEM:- PARTICULARS ORIFLAME INDIA MODICARE LTD. OTHER COMPARABLE COMPANIES SELECTED BY THE BUY-SELL TRADING OPERATIONS SOMEWHAT AS ALSO HAVE FRANCHISE BUSINESS MODEL AND SERVICE TRADING IN COSMETICS DIVERSIFIED PRODUCT PROFILE WITH COSMETICS COMPRISING ONLY 12 - 18 % OVER VARIOUS YEARS SELLS THROUGH : INTERMEDIARIES INCENTIVES/DISCOUNTS ACCOUNTED FOR BELOW THE GROSS PROFIT X X SIGNIFICANT AMP EXPENSES X I.T.A. NO.4750/DEL/2015 29 FROM THE ABOVE TABLE, IT WAS CONTENDED THAT, A DIRE CT SELLING TRADER LIKE THE ASSESSEE IS IN ALL RESPECTS SIMILAR TO ANY OTHER TRADER EXCEPT FOR THE HIGHER WORKING CAPITAL REQUIR EMENT WHICH A DIRECT SELLER MAY HAVE. THIS MATERIAL DIFFE RENCE CAN BE ADJUSTED BY WAY OF A REASONABLY ACCURATE ADJUSTMENT IN THE MANNER PROVIDED IN THE OECD AND UN GUIDELINES. SINC E A DIRECT SELLER MUST STORE INVENTORY IN SUCH A MANNER THAT IT IS ABLE TO MATCH THE DEMAND OF THE CUSTOMERS THROUGH INDIVIDUAL CONSULTANTS, THE INVENTORY COST OF A DIR ECT SELLER WOULD ORDINARILY BE HIGHER THAN THAT OF A DISTRIBUT OR. ONCE AN INVENTORY ADJUSTMENT USING WORKING CAPITAL ADJUSTME NT IS MADE TO ACCOUNT FOR THE WORKING CAPITAL DIFFERENCES AS PER THE STANDARD ADJUSTMENT METHODOLOGY (ACCEPTED IN INDIA AND GLOBALLY) A DIRECT SELLER STANDS AT THE SAME ECONOM IC FOOTING AS ANY OTHER TRADER/WHOLESALER/DISTRIBUTOR. THE OEC D, UN MANUAL AND GUIDANCE NOTE ISSUED BY THE ICAI ON SECT ION 92, HAS APPROVED THIS WORKING CAPITAL ADJUSTMENT APPROA CH. IN PARA 2.1 TO 2.5 OF THE REMAND REPORT FOR FY 2008-09 (SIMILAR PARAS FOR OTHER YEARS UNDER CONSIDERATION), THE LD. TPO HAS STATED THAT THE COMPANIES ADOPTED BY THE ASSESSEE A S COMPARABLE SHOULD NOT BE ACCEPTED AS VALID COMPARAB LE UNDER RPM BECAUSE THESE COMPANIES ARE NOT DEALING I N COSMETICS AND ARE NOT OPERATING UNDER THE DIRECT SE LLING MODEL. SHE HAS FURTHER STATED THAT REASONABLE ADJUST MENTS CANNOT BE CARRIED OUT TO ACCOUNT FOR ALL THESE DIFF ERENCES. SHE HAS HOWEVER ACCEPTED THAT WORKING CAPITAL ADJUSTMEN T IS I.T.A. NO.4750/DEL/2015 30 POSSIBLE AND CAN BE MADE TO ACCOUNT FOR THE WORKING CAPITAL DIFFERENCES. IT IS SUBMITTED THAT THE LD. TPO IN HE R REMAND REPORT HAS ARRIVED AT THE ABOVE CONCLUSION DESPITE ACCEPTING THAT THE COMPANIES CHOSEN BY THE ASSESSEE ARE NOT E NGAGED IN TRADING OF SIMILAR PRODUCTS. IT WAS FURTHER SUBMITT ED THAT THE HON'BLE HIGH COURT HAD ENDORSED ARGUMENTS TAKEN BY THE ASSESSEE WITH THE DIFFERENCE BETWEEN DIRECT SELLING COMPANY AND NORMAL DISTRIBUTOR IS IN RESPECT OF WORKING CAP ITAL. A DIRECT SELLING COMPANY UNDERTAKES MUCH HIGHER INVEN TORY RISK AS COMPARED TO NORMAL TRADERS, WHO WOULD BE SELLING TO ANOTHER INTERMEDIARY. SINCE THIS DIFFERENCE CAN BE ADJUSTED BY WAY OF A WORKING CAPITAL ADJUSTMENTS USING THE METH OD RECOMMENDED BY OECD AND UN (AND ACCEPTED BY THE LD. TPO IN HERE REMAND REPORT), THESE COMPARABLE SHOULD BE ACCEPTED AFTER MAKING WORKING CAPITAL ADJUSTMENTS. THE ASSESS EE HUMBLY SUBMITS THAT IT IS AN IRONY THAT ON ONE HAND , THE SELECTION OF AN NON- COMPARABLE COMPANY FOR WHICH A DEQUATE ADJUSTMENTS CANNOT BE MADE HAS BEEN UPHELD AND ON T HE OTHER HAND, COMPANIES ON WHICH COMPARABILITY ADJUSTM ENTS PERMISSIBLE IN RULE 10B(3) CAN BE MADE TO BRING THE M AT PAR WITH THE APPELLANT HAVE BEEN OUTRIGHTLY REJECTED. 14. LASTLY, HE SUBMITTED THAT DRP IN THE SUBSEQUENT ASSESSMENT ORDER FOR THE A.Y.2014-15 HAS ITSELF REJ ECTED MODICARE LTD. ON FUNCTIONAL GROUND BASED ON THE OBS ERVATION OF HONBLE HIGH COURT AND, THEREFORE, ON THIS COUNT ALSO MODI CARE LTD. SHOULD BE EXCLUDED. I.T.A. NO.4750/DEL/2015 31 15. ON THE OTHER HAND, LD. CIT-DR, SUBMITTED THAT T HE MANDATE OF THE HON'BLE HIGH COURT WAS; FIRSTLY, TO CONSIDER THE APPROPRIATENESS OF INCLUDI NG MODICARE LTD. HAVING REGARD TO THE AVAILABILITY OF DATA WITH RESPECT TO DIFFERENT PRODUCTS SEGMENT AND; SECONDLY, THE FUNCTIONAL DIFFERENCE WITH RESPECT T O MARKETING STRATEGY, ETC. THERE CANNOT BE ANY DISPUTE THAT MODICARE LTD. IS I NTO DIRECT SELLING AND IS ALSO INTO SIMILAR KIND OF PRODUCTS W ITH THE ASSESSEE. UNDER RPM BROADER DIFFERENCE CAN BE ALLOW ED AS THE PROPERTY TRANSACTION IN THE CONTROL TRANSACTION MUS T BE COMPARED TO THAT BEING TRANSFERRED IN THE UNCONTROL LED TRANSACTION. UNDER RPM, THE FOCUS IS NOT MUCH ON PR ODUCT COMPARABILITY. HERE OTHER ATTRIBUTES OF COMPARABILI TY LIKE FUNCTIONS, PERFORMED, ECONOMIC CIRCUMSTANCES, ETC W HICH REQUIRED TO BE SEEN WHEN THE PROFIT MARGIN RELATES FAMILIAR TO THOSE OTHER ATTRIBUTES AND ONLY SECONDARILY TO THE PARTICULAR PRODUCTS BEING TRANSFERRED. EVEN IF MODI CARE LTD. WAS DEALING IN MORE PRODUCTS BUT IT DOES NOT MEAN THAT SAME SHOULD BE REJECTED SIMPLY ON THE GROUND THAT ASSESS EE IS NOT DEALING IN SUCH KIND OF PRODUCT. THUS, MODI CARE LT D. CANNOT BE REJECTED SIMPLY ON THE GROUND THAT IT DEALS IN M ORE PRODUCTS. WHAT IS REQUIRED TO BE SEEN THE GROSS COM PENSATION RECEIVED ON SALE OF THE PRODUCTS AND NOT THE PRODUC T SIMILARITY. HE THUS, STRONGLY RELIED UPON THE REMAN D REPORT SUBMITTED BY THE LD. TPO. I.T.A. NO.4750/DEL/2015 32 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARING. AS STATED ABOVE, IN THE FIRST ROUND OF PROCEEDINGS, TRIBUNAL THOUGH HAD ENLISTED VARIOUS FACTORS AND DISTINGUISH ING FEATURES TO HOLD VARIOUS DIFFERENCES BETWEEN THE MO DICARE LTD. AND ASSESSEE, HOWEVER REMANDED THE MATTER BACK TO T HE TPO TO EXAMINE THE COMPARABILITY ADJUSTMENTS BETWEEN TH E ASSESSEE COMPANY AND MODI CARE LTD. THE SAID ORDER OF THE TRIBUNAL HAS BEEN SET ASIDE BY THE HON'BLE HIGH COU RT, WHEREIN HON'BLE HIGH COURT, FIRST OF ALL AGREED WIT H THE CONTENTION OF THE ASSESSEE THAT LOOKING TO SUCH A D IFFERENCE, MODICARE LTD. CANNOT BE THAT STRAIGHTAWAY TAKEN AS A COMPARABLE COMPANY, WHAT IS REQUIRED TO BE SEEN IS: - FIRSTLY , WHETHER IT WOULD BE APPROPRIATE TO INCLUDE MODICARE LTD. HAVING REGARD TO THE AVAILABILITY OF DATA WITH RESPECT TO THE DIFFERENT PRODUCT SEGMENTS; AND SECONDLY , THE FUNCTIONAL DIFFERENCES WITH RESPECT TO ITS MARKETING STRATEGY, I.E., DISCOUNT, TRANSPORTATION COST, INSURANCE AND PERFORMING THE WARRANTY FUNCTIONS; THEIR LORDSHIPS FURTHER DIRECTED THAT THE TRIBUNAL SHOULD RE- EXAMINE, TO WHAT EXTENT ADJUSTMENT CAN BE REASONABL Y MADE HAVING REGARD TO THE AVAILABLE DATA IN RELATION TO TRADING COMPARABLE OFFERED FOR ALP DETERMINATION FOR ALL TH E RELEVANT YEARS BY THE ASSESSEE. FURTHER, THE TRIBUNAL WAS DI RECTED TO I.T.A. NO.4750/DEL/2015 33 CONSIDER THE FEASIBILITY HAVING REGARD TO AVAILABLE DATA FOR ALL THE CONCERNED YEARS FOR MAKING APPROPRIATE ADJUSTME NT. ANOTHER VERY IMPORTANT OBSERVATION MADE BY THE HON BLE COURT WAS THAT IT WAS OPEN TO THE ASSESSEE TO URGE THAT TNMM CAN BE TAKEN AS MOST APPROPRIATE METHOD INSTEAD OF RPM AND THERE WOULD BE NO ENLARGING OF COMPARABLE ALREADY S ELECTED BY THE ASSESSEE. 17. IT WAS IN THIS BACKGROUND, WE HAD REQUIRED THE LD. TPO TO SUBMIT A REMAND REPORT, WHETHER RELEVANT DATA WI TH REGARD TO VARIOUS SEGMENT OF MODICARE LTD. IS AVAILABLE OR NOT; AND TO WHAT EXTENT ADJUSTMENT CAN BE MADE. THE DIFFERENCES HIGHLIGHTED BY THE ASSESSEE WAS DIRECTED TO BE EXAM INED BY THE TPO. FURTHER, IT WAS ALSO DIRECTED THAT THE COM PARABLES GIVEN BY THE ASSESSEE SHOULD ALSO BE EXAMINED UNDER TNMM FOR WHICH RELEVANT DATA WOULD BE PROVIDED BY THE AS SESSEE AND SAME SHOULD BE VERIFIED BY THE TPO. NOW AS IS E VIDENT FROM THE CONTENT OF THE REMAND REPORT, THE LD. TPO HAS ADMITTED THAT, MODICARE LTD. HAS NOT DISCLOSED ANY BUSINESS SEGMENT FOR ITS VARIOUS PRODUCTS AND FROM THIS SHE HAS INFERRED THAT THE COMPANY DOES NOT DIFFERENTIATE IT S PRODUCTS INTO SEPARATE REPORTABLE SEGMENTS AND ACCORDINGLY, DIFFERENT SEGMENT CANNOT TO BE CONSIDERED. AS PER THE LD. TPO , SINCE MODI CARE LTD. IS ALSO INTO DIRECT SELLING MODEL AS THAT OF THE ASSESSEE, THEREFORE, IT IS A MOST APPROPRIATE COMPA RABLE. SHE HAS ALSO REFERRED TO MARKETING AND SELLING FUNCTION OF THE ASSESSEE-COMPANY AND ALSO THAT OF MODICARE LTD. REG ARDING THEIR SALE AND MARKETING PATTERN AND CONCLUDED THAT I.T.A. NO.4750/DEL/2015 34 MODICARE LTD. IS AN APPROPRIATE COMPARABLE AS IT HA S DIRECT SELLING LIKE ASSESSEE AND HENCE MAJORITY OF REVENUE IS FROM THE SALE OF PRODUCTS SIMILAR TO THAT OF ASSESSEE. APART FROM THAT, SHE HAS REJECTED ALL THE COMPARABLES SHOWN BY THE A SSESSEE ON THE GROUND THAT THEY WERE DEALING IN DIFFERENT K IND OF PRODUCT SEGMENTS. 18. FIRST OF ALL, THE ENTIRE EXERCISE OF REMAN D PROCEEDINGS WAS CIRCUMSCRIBED BY THE DIRECTION OF THE HONBLE H IGH COURT AS THERE WAS CLEAR-CUT DIRECTION THAT THE APPROPRIA TENESS OF INCLUDING THE MODICARE LTD. AS COMPARABLE HAS TO BE SEEN ONLY WHEN THERE IS AVAILABILITY OF DATA WITH RESPEC T TO DIFFERENT PRODUCT SEGMENT AND THE FUNCTIONAL DIFFERENCE WITH RESPECT TO ITS MARKETING STRATEGY. IF IT IS AN ADMITTED FACT T HAT NO DATA OF MODI CARE LTD. IS AVAILABLE WITH REGARD TO DIFFEREN T PRODUCT SEGMENT, THEN AT THE VERY THRESHOLD, IT WOULD VERY DIFFICULT TO INCLUDE MODICARE LTD. AS A COMPARABLE COMPANY; AND IF DATA ITSELF IS NOT AVAILABLE, THEN ADJUSTMENT ALSO CANNO T BE MADE. SIMPLY BECAUSE MODICARE LTD. IS ALSO INVOLVED IN DI RECT SELLING, CANNOT BE TAKEN AS A GOOD COMPARABLE, ESPE CIALLY IN THE LIGHT OF THE OBSERVATION AND FINDING OF THE HON 'BLE HIGH COURT AS REPRODUCED ABOVE. APART FROM THAT, WE AGRE E WITH THE CONTENTION OF THE LEARNED COUNSEL THAT, MODI CA RE LTD. HAD A HUGE DIVERSIFIED PRODUCT PORTFOLIO RANGING FR OM PERSONAL CARE, AGRICULTURE, TEA, JEWELLERY, HEALTHCARE, COSM ETICS, ETC. WHICH HAD DIFFERENT PROFITABILITY DEPENDING UPON MA RKET FACTORS. DIFFERENT PRODUCT ITEMS WOULD INVOLVE DIFF ERENT LEVEL OF ASSETS, RISKS AND MARKET WHICH MAY AFFECT GROSS MAR GINS. I.T.A. NO.4750/DEL/2015 35 THOUGH IT IS NOT ALWAYS NECESSARY UNDER RESALE PRIC E ANALYSIS THAT EACH PRODUCT LINE DISTRIBUTED SHOULD BE EXAMIN ED, BUT THERE SHOULD BE BROADLY SIMILAR PRODUCTS SO THAT GR OSS COMPENSATION OF THE FUNCTIONS PERFORMED, THAT IS, M ARKETING AND SELLING FUNCTIONS CAN BE ANALYSED. IF RELIABLE DATA FOR THE VARIOUS PRODUCT AND MARKETING STRATEGY IS NOT AVAIL ABLE, THEN ACCURATE COMPARABILITY ADJUSTMENTS WOULD BE VERY DI FFICULT TO CARRY OUT. ANOTHER DISTINCTIVE FEATURE, WHICH WE HA VE NOTED IS THAT, ORIFLAMME INDIA RECORDS THE SALE, NET OF DISC OUNTS/ INCENTIVES PAID TO ITS AGENT/CONSULTANT AND THAT IS THE REASON WHY THE GROSS PROFIT MARGIN IS LOWER. ON THE OTHER HAND, IN THE CASE OF MODICARE LTD. DISCOUNT GIVEN TO THE CONSULTANTS/AGENTS HAS BEEN CATEGORIZED AS INCENTI VES WHICH HAS BEEN TAKEN BELOW THE LINE IN THE PROFIT & LOSS ACCOUNT TREATING TO BE A PART OF OPERATING EXPENSES. BECAUS E OF THE DIFFERENCE IN ACCOUNTING TREATMENT, THERE IS A GAP BETWEEN GROSS PROFIT MARGIN AND NET PROFIT MARGIN DISCLOSED BY THE MODICARE LTD., WHICH CAN BE SEEN FROM THE ANNUAL AC COUNT THAT THE GROSS PROFIT MARGIN OF MODICARE LTD HAS BE EN SHOWN AT 76.47%, WHEREAS THE NET PROFIT MARGIN IS AT ONLY 2.25%. THUS, THERE IS SUBSTANTIAL VARIANCE IN THE GROSS AN D NET PROFIT MARGIN LEVELS, WHICH INDICATES THAT MODICARE LTD. I S INCURRING HEAVY OPERATING EXPENSES AND ALSO SUBSTANTIATES HEA VY FUNCTIONS AT THE OPERATING LEVEL. FURTHER, MODICARE LTD. HAS SIGNIFICANT AMP EXPENSES OF 7.32% WHICH IN THE CASE OF THE ASSESSEE IS ONLY 0.94%. IF A DISTRIBUTOR IS INCURRI NG SUBSTANTIAL AMP EXPENSES THEN IT CANNOT BE COMPARED WITH I.T.A. NO.4750/DEL/2015 36 ROUTINE DISTRIBUTOR UNDER RPM AS IT TANTAMOUNT TO V ALUE ADDITION. THIS ALSO GOES TO SHOW MODICARE LTD. HAS DIFFERENT FUNCTIONS AS COMPARED TO THE ASSESSEE. THERE IS ALS O DIFFERENCE IN THE CASE OF GOODS SOLD RATIO AND VALU E-ADDED EXPENSES WHICH IS APPARENT FROM THE FACT THAT IN CA SE OF MODI CARE LTD. THE COST OF GOODS SOLD RANGES FROM 22% TO 28% OF ITS TOTAL OPERATING COST AND VALUE-ADDED EXPENSES/OPERA TING EXPENSES ARE MORE THAN 70%. MODICARE LTD. HAS ALSO RECORDED FRANCHISEE EXPENSES AND HENCE IT CANNOT BE INFERRED WHOLLY AS A DIRECT SELLER. IN VIEW OF SUCH DIFFERENCES, IT WO ULD BE VERY DIFFICULT TO CARRY OUT ADJUSTMENT ESPECIALLY WITH RE GARD TO THE PRODUCT PORTFOLIO, FUNCTIONAL PORTFOLIO, ETC. ADJUS TMENT IF AT ALL CAN BE MADE WOULD BE TO SOME EXTENT OF DIFFERENTIAL ACCOUNTING TREATMENT FOR INCENTIVE/ DISCOUNT. EVEN THE TPO IN HER REMAND REPORT HAS UNABLE TO DEMONSTRATE INCOMPARABLE PRODUCT PROFILE OF MODI CARE LTD. AND ASSESSEE AND HOW THE COMPARABILITY ADJUSTMENT IS POSSIBLE ON ACCOUNT OF SUCH HUGE DIFFERENCE IN PRODUCT PROFILE. FURTHER , THE SERVICE FEE EARNED BY THE ASSESSEE IS ON ACCOUNT OF RENEWAL FEES AND HANDLING FEES RECEIVED FROM THE INDIVIDUAL CONSULTA NTS, ENGAGED IN DISTRIBUTION OF ASSESSEES PRODUCT AND D IRECTLY RELATED TO ASSESSEES BUSINESS. WHEREAS, THE SERVIC E FEE EARNED BY MODI CARE LTD. IS ON ACCOUNT OF ANNUAL MAINTENANCE CONTRACT (AMC). THIS FACTOR ALSO VITIAT ES THE COMPARABILITY ANALYSIS. 19. WE ARE THUS IN TANDEM WITH THE CONTENTION RA ISED BY THE LEARNED COUNSEL THAT DUE TO NON-COMPARABLE PROD UCT I.T.A. NO.4750/DEL/2015 37 PROFILE AND OTHER DIFFERENCES AND LACK OF DATA FOR VARIOUS FACTORS, REASONABLY ACCURATE ADJUSTMENT CANNOT BE MA DE. AS WAS DIRECTED BY THE HON'BLE HIGH COURT. HENCE MODI CARE LTD. CANNOT BE TAKEN AS A COMPARABLE COMPANY UNDER RPM. 20. ONCE, MODI CARE LTD. WHICH IS THE SOLE COMP ARABLE IS REMOVED, THEN AS PER THE OBSERVATION OF THE HON'BLE HIGH COURT, TNMM HAS TO BE ADOPTED AS THE MOST APPROPRIA TE METHOD AND THAT TOO BE WITHOUT ENLARGING THE COMPAR ABLES, I.E., THE COMPARABLES SELECTED BY THE ASSESSEE HAS TO BE EXAMINED UNDER TNNM. THE TPO WHO WAS REQUIRED TO EXAMINE THE COMPARABLES SELECTED BY THE ASSESSEE UN DER TNMM, HAS INSTEAD STATED THAT TNNM CANNOT BE APPLIE D UNDER THIS CASE, BECAUSE IT REQUIRES A HIGH DEGREE OF SIMILARITY OF FUNCTIONS AND NONE OF THE COMPARABLES ARE DIRECT SELLER OF THE PRODUCT. IN OUR OPINION, SUCH AN APPROACH OF TH E LD. TPO HOWEVER CANNOT BE UPHELD, BECAUSE THE HONBLE HIGH COURT HAS DIRECTED THAT IF RELIABLE DATA FOR MODICARE IS NOT AVAILABLE FOR VARIOUS FACTORS AS HIGHLIGHTED BY THEIR LORDSHI PS THEN IT CANNOT BE TAKEN AS COMPARABLE UNDER RPM AND THE ONL Y TNMM HAS TO BE ANALYSED. ONE OF THE STRENGTHS OF TN NM IS THAT NET PROFIT INDICATORS ARE LESS AFFECTED BY TRA NSACTIONAL DIFFERENCES AND NET PROFIT INDICATORS ARE MORE TOLE RANT TO SOME FUNCTIONAL DIFFERENCES BETWEEN THE CONTROLLED AND UNCONTROLLED TRANSACTION THAN GROSS MARGIN PROFITS. THE DIFFERENCES IN THE FUNCTIONS PERFORMED BETWEEN THE ENTERPRISES ARE OFTEN REFLECTED IN VARIATIONS IN OP ERATING EXPENSES. THOUGH THIS MAY LEAD TO WIDE RANGE OF GRO SS PROFIT MARGIN BUT STILL BROADLY SIMILAR LEVELS OF NET OPER ATING PROFIT INDICATORS. UNDER THE TNMM STANDARD OF COMPARABILIT Y IS I.T.A. NO.4750/DEL/2015 38 RELAXED RELATIVE TO OTHER METHODS WITH ONLY BROADLY SIMILARITY OF FUNCTIONS REQUIRED. THUS, IN OUR OPINION AS OBSE RVED BY THE HONBLE HIGH COURT, TNMM CAN BE ADOPTED AS MOST APPROPRIATE METHOD. ACCORDINGLY, WE DIRECT THE TPO TO APPLY TNMM ON THE COMPARABLE SELECTED BY THE ASSESSEE WIT H SUITABLE WORKING CAPITAL ADJUSTMENT. 21. WITH THIS DIRECTION, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED IN THE MANNER INDICATED ABOVE. 22. THE AFORESAID FINDING WILL APPLY MUTATIS MUTAND IS FOR ALL THE APPEALS. 23. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH APRIL, 2019. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15 TH APRIL, 2019 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR