Hawoth (India) Private Limited, Pune V. Deputy Commissioner of Income-tax,

ITA 281/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7268 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Transfer pricing; International transaction; Additional evidence; Wholly owned subsidiary; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE , , , BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 281 /PUN/201 4 / ASSESSMENT YEAR : 20 0 9 - 10 HAWORTH (INDIA) PRIVATE LIMITED, RAISONI INDUSTRIAL PARK, SITE NO. 276, VILLAGE - MAAN, TALUKA - MULSHI, PUNE 411047 PAN : AAACH8417K ....... / APPELLANT / V S. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE / RESPONDENT ASSESSEE BY : S HRI ASHWANI TANEJA REVENUE BY : SMT. NIRUPAMA KOTRU / DATE OF HEARING : 0 1 - 08 - 2017 / DATE OF PRONOUNCEMENT : 30 - 10 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 01 - 01 - 2014 PASSED U/S. 143(3) R.W.S. 144C(1) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR THE ASSESSMENT YEAR 2009 - 10. 2 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 2. THE B RIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE : THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF HAWORTH INC., USA. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FURNITURE ( PRIMARILY CHAIRS). DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES). THE GIST OF THE TRANSACTIONS AND THE MOST APPROPRIATE METHOD ADOPTED BY ASSESSEE TO BENCHMARK THE TRANSACTION S FOR DETERMINING ARMS LENGTH PRICE (ALP) ARE AS UNDER : SR. NO. PARTICULARS AMOUNT RS. METHOD ADOPTED 1 PURCHASE OF RAW MATERIAL 2,71,48,885 TNMM 2 PURCHASE OF DISPLAY MATERIAL 49,01,106 TNMM 3 PURCHASE OF GOODS FOR RESALE 3,07,30,596 TNMM 4 SALE OF FIXED ASSETS 89,36,707 TNMM 5 SALE OF GOODS 72,48,742 TNMM 6 ALLOCATION OF COSTS FOR MANAGEMENT SERVICES PAID 3,28,68,098 TNMM 7 COMMISSION INCOME RECEIVED 15,17,41,497 TNMM 8 ALLOCATION OF SOFTWARE SUPPORT COSTS PAID 41,57,742 ACTUAL COST 9 ALLOCATION OF TRAINING COSTS PAID 21,92,067 ACTUAL COST 10 REIMBURSEMENT OF EXPENSES PAID 5,79,479 ACTUAL COST 11 REIMBURSEMENT OF EXPENSES RECEIVED 29,88,607 ACTUAL COST TOTAL 27,34,93,527 3. THE BUSINESS ACTIVITIES OF ASSESSEE ARE DIVIDED IN TWO SEGMENTS I.E. (I) MARKETING SUPPORT SERVICES (MSS) SEGMENT INCLUDING MARKETING & DISTRIBUTION ACTIVITIES ; AND (II) MANUFACTURING SEGMENT. THE ASSESSEE 3 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 COMPUTED ITS PLI (OP/TC) FOR MSS SEGMENT AT 24.28%. THE CORRESPONDING AVERAGE PLI OF CO MPARABLES IN RESPECT OF MARKETING AND SALES SEGMENT WAS DETERMINED BY ASSESSEE AT 12.95% (SINGLE YEAR FINANCIAL DATA 11.67%). 4. THE COMPARABLES SELECTED BY THE ASSESSEE UNDER M ARKETING S UPPORT S ERVICES (MSS) CATEGORY ARE AS UNDER : SR. NO. NAME OF THE CO MPANY OP/TC ON THE BASIS OF DATA FOR FY 2008 - 09 1 IDC (INDIA) LTD. 10.91% 2 EMPIRE INDUSTRIES LTD. - TRADING & INDENTING SEGMENT 9.44% 3 ENTERTAINMENT NETWORK (INDIA) LTD. - EVENTS SEGMENT 4.67% 4 PRIYA INTERNATIONAL LTD. - INDENTING SEGMENT 21.67% MEAN 11.67% THE TRANSFER PRICING OFFICER (TPO) EXCLUDED SOME OF THE COMPARABLES SELECTED BY ASSESSEE AND INTRODUCED SOME NEW COMPARABLES. THE FINAL SET OF COMPARABLES SELECTED BY TPO UNDER MSS SEGMENT ARE AS UNDER : S. NO. COMPARABLE PLI ON FY 2008 - 09 DATA ALONE 1 IDC (INDIA) LTD. 10.91% 2 PRIYA INTERNATIONAL LTD. - INDENTING SEGMENT 21.67% 3 AGRIMA CONSULTANTS INTERNATIONAL LTD. 36.21% 4 ICRA ONLINE LTD. INFORMATION SERVICES LTD. 37.69% MEAN 26.62% 4 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 THE TPO FINALLY MADE ADJUSTMENT OF RS.1,97,00,000/ - IN RESPECT OF INTERNATIONAL TRANSACTIONS FALLING UNDER MSS SEGMENT. 5. DURING THE FINANCIAL YEAR ENDED ON 31 - 03 - 2009 THE ASSESSEE HAD OBTAINED MANAGEMENT SUPPORT SERVICES IN THE NATURE OF A DMINISTRATIVE AND M ARKETING SUPPORT FROM ITS AE, HAWORTH HONG KO NG LTD. FOR THE SERVICES RENDERED BY AE , THE ASSESSEE PAID M ANAGEMENT F EE TO THE TUNE OF RS.3,28,68,098/ - . THE TPO OBSERVED THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE EXACT NATURE AND NEED OF THE SERVICES AVAIL ED , THE VALUE ADDITION AND QUANTIFICATION OF BENEFITS DERIVED BY THE ASSESSEE FROM SUCH SERVICES. THE ASSESSING OFFICER THUS DETERMINED THE VALUE OF SUCH SERVICES RECEIVED BY ASSESSEE AS NIL. THE TPO MADE ADJUSTMENT OF RS.3,28,68,098/ - IN RESPECT OF INTERNATIONAL TRANSACTIONS FALLING UNDER MANAGEMENT SERVICES ALLOCATION TRANSACTIONS. 6. ON THE BASIS OF ADJUSTMENT S PROPOSED BY THE TPO , THE ASSESSING OFFICER MADE DRAFT ASSESSMENT ORDER DATED 22 - 03 - 2013. AGGRIEVED BY THE ADJUSTMENT S MADE BY TPO , THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP VIDE DIRECTIONS DATED 30 - 12 - 2013 REJECTED THE OBJECTIONS RAISED BY ASSESSEE. IN LINE WITH THE DIRECTIONS OF DRP , THE ASSESSING OFFICER PASSED IMPUGNED ASSESSMENT ORDER MAK ING DISALLOWANCES/ADDITIONS OF RS. 5,25,68,098/ - IN THE INCOME RETURNED BY THE ASSESSEE. NOW, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND HAS RAISED FOLLOWING GROUNDS ASSAILING THE FINDINGS OF AUTHORITIES BELOW : ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, AND IN LAW ; 1. THE LD. ASSESSING OFFICER (AO) PURSUANT TO THE DIRECTIONS OF THE HONOURABLE DISPUTE RESOLUTION PANEL (HON'BLE PANEL), ERRED IN MAKING A TRANSFER PRICING CTP') ADJUSTMENT OF RS . 5,25,68,098 TO THE INCOME OF THE APPELLANT, BY HOLDIN G THAT THE APPELLANT'S 5 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF MARKETING SUPPORT SERVICES (MSS) AND PAYMENT OF MANAGEMENT SERVICE FEES (MSF) DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE INCOME - TAX ACT, 1961 (THE ACT). ERRONEOUS SEGREGATION OF THE MSS SEGMENT 2. THE HON'BLE DRP / AO ERRED IN SEGREGATING THE APPELLANT'S DISTRIBUTION ACTIVITY FROM THE APPELLANT'S MSS SEGMENT. IN DOING SO, THE HON'BLE DRP /LD. AO HAVE NOT APPRECIATED THE FACT THAT THE DISTRIBUTION ACTIVI TY IS INEXTRICABLY INTERLINKED TO THE MSS SEGMENT AND THUS CANNOT BE SEGREGATED. ERRONEOUS MODIFICATION TO THE SET - OF COMPARABLES SELECTED BY THE APPELLANT IN THE TP STUDY REPORT , FOR THE MSS SEGMENT 3. THE HON'BLE DRP /LD. AO ERRED IN INCLUDING THE F UNCTIONALLY UNCOMPARABLE INFORMATION SERVICES SEGMENT OF ICRA ONLINE LIMITED ('ICRA ISS') AS A COMPARABLE. IN DOING SO, THE HON'BLE DRP /LD. AO HAVE IGNORED THE FACT THAT THE HON'BLE TRIBUNAL HAS IN THE APPELLANT'S OWN CASE FOR AY 2007 - 08, HELD THAT ICRA I SS IS NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT'S MSS SEGMENT. 4. THE HON'BLE DRP /LD. A O ERRED IN INCLUDING THE FUNCTIONALLY UNCOMPARABLE AGRIMA CONSULTANTS INTERNATIONAL LIMITED AS A COMPARABLE. 5. THE HON'BLE DRP /LD. A O ERRED IN EXCLUDING THE FUNCTIONALLY COMPARABLE TRADING AND INDENTING SEGMENT OF EMPIRE INDUSTRIES LIMITED .AND EVENTS SEGMENT OF ENTERTAINMENT NETWORK (INDIA) LIMITED AS A COMPARABLES. ERRONEOUS COMPUTATION OF THE OPERATING MARGIN OF THE APPELLANT'S MSS SEGMENT 6. THE HON'BLE DRP /LD. A O ERRED IN EXCLUDING LIABILITIES WRITTEN BACK AMOUNTING TO RS.1,17,18,963 AND BAD DEBTS RECOVERED AMOUNTING TO RS. 75,29,308 WHILE COMPUTING THE OPERATING MARGIN OF THE APPELLANT'S MSS SEGMENT. ERRONEOUS COMPUTATION OF ARM'S LENGTH PRICE OF MSF PAYMENT TO A E AT 'NIL' 7. THE HON'BLE DRP /LD. A O ) ERRED IN COMPUTING THE ARM'S LENGTH PRICE OF THE APPELLANT'S INTERNATIONAL TRANSACTION PERTAINING TO PAYMENTS OF MSF TO AE AT 'NIL'. IN DOING SO, THE HON'BLE D RP /LD. A O HAVE CONTRAVENED THE SPECIFIC PROVISIONS CONTAINED IN THE INDIAN TP REGULATIONS AS REGARDS COMPUTATION OF THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. 6 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 ERRONEOUS MODIFICATION TO THE SET OF COMPARABLES PERTAINING TO THE MANUFACTURING SEGMENT 8. THE HON'BLE DRP /LD. A O ERRED IN MODIFYING THE SET OF COMPARABLES SELECTED BY THE APPELLANT IN THE TP STUDY REPORT FOR THE MANUFACTURING SEGMENT. ERRONEOUS REJECTION OF THE USE OF MULTIPLE YEAR FINANCIAL DATA FOR COMPUTATION OF THE OPERATING MARGIN OF THE COMPARABLES 9. THE HONBLE DRP/LD. AO ERRED REJECTING THE MULTIPLE YEAR FINANCIAL DATA USED BY THE APPELLANT FOR COMPUTING THE OPERATING MARGIN OF THE COMPARABLES DESPITE TH E FACT THAT THE APPELLANT HAD DEMONSTRATED THE APPLICABILITY OF THE PROVISO TO RULE 10B(4) OF THE INCOME - TAX RULES, 1962 TO THE APPELLANT'S CASE, WHEREIN, BASE D ON THE COMPARABLE DATA AVAILABLE AT THE TIME OF CONDUCTING THE TP STUDY, TH E APPELLANT COMPUTED THE ARM'S LENGTH MARGIN. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, WITHDRAW, MODIFY AND/OR SUBSTITUTE, AND TO WITHDRAW THE ABOVE GROUNDS OF APPEAL . 7. SHRI ASHWANI TANEJA APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT GROUND NO. 1 RAISED IN APPEAL IS GENERAL . THE ASSESSEE IS NOT PRESSING GROUND NO. 9 RAISED IN THE APPEAL. 7.1 IN RESPECT OF GROUND N0. 2 RAISED IN APPEAL , THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN SEGREGATING DISTRIBUTION ACTIVITY FROM MSS SEGMENT MERELY FOR THE REASON THAT THERE HAS BEEN CHANGE IN METHOD OF REMUNERATION. IN EARLIER ASSESSMENT YEARS THE ASSESSEE WAS REMUNERATED BY WAY OF COMMISSION . IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL , FRESH AGREEMENTS WERE EXECUTED. THE METHOD OF REMUNER ATION WAS CHANGED FROM COMMISSION TO COST PLUS MARKUP OF 10%. THE LD. AR EXPLAINED THAT THERE ARE INSTANCES WHERE ON ACCOUNT OF PROCEDURAL AND ADMINISTRATIVE REASONS THE CUSTOMERS COULD NOT DIRECTLY IMPORT THE PRODUCTS OF HAWORTH IN 7 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 THEIR OWN NAME. FOR T HE CONVENIENCE OF SUCH CUSTOMERS WHO WANT TO PURCHASE THE PRODUCTS OF HAWORTH, THE ASSESSEE PURCHASE THE GOODS IN ITS OWN NAME FROM ITS AES AND SUPP LY THE GOODS TO SUCH CUSTOMERS. IF THE CUSTOMERS ARE SATISFIED WITH THE QUALITY OF PRODUCTS THEN THERE IS P OSSIBILITY OF ASSESSEE BEING ABLE TO OBTAIN LARGE CONTRACTS FOR SUPPLY OF FURNITURE AND EARN HIGHER COMMISSION IN FUTURE . THE ASSESSEE PLACE ORDER FOR THE PRODUCTS ONLY ON SPECIFIC DEMAND OF THE CUSTOMERS . SUCH PRODUCTS ARE NOT PROCURE D BY ASSESSEE IN RO UTINE FROM ITS AE AND ARE NOT KEPT AS STOCK - IN - TRADE. THE LD. AR TO SUPPORT HIS CONTENTIONS REFERRED TO SCHEDULE 4 OF BALANCE SHEET AS ON MARCH 31, 2009 AT PAGE 161 OF THE PAPER BOOK. THE LD. AR SUBMITTED THAT TRADING ACTIVITIES CARRIED OUT BY THE ASSESS EE ARE INCIDENTAL TO MANUFACTURING AND MARKETING OF GOODS WHICH IS THE PRIMARY AND MAIN ACTIVIT Y OF THE ASSESSEE. THE ASSESSEE IS NOT DISTRIBUTOR IN REAL SENSE , RATHER IT ACT AS SERVICE PROVIDER. ROUTIN G OF GOODS THROUGH THE BOOKS OF ASSESSEE IS MERELY O N ADMINISTRATIVE CONVENIENCE AND DOES NOT ENTAIL SEPARATE DISTRIBUTION ACTIVITY. THIS IS STRENGTHEN ED BY THE FACT THAT THE ASSESSEE DOES NOT MAINTAIN ANY INVENTORY OF GOODS DISTRIBUTED BY IT . THE LD. AR FURTHER PLACED RELIANCE ON OECD GUIDELINES TO CONTE ND THAT AGGREGATION OF CLOSELY INTERLINKED ACTIVITIES IS PERMISSIBLE. 7.2 THE LD. AR SUBMITTED THAT DURING EARLIER ASSESSMENT YEARS , THE ASSESSEE FOR ITS DISTRIBUTION ACTIVITIES WAS REMUNERATED BY WAY OF COMMISSION. TH IS FACT HAS BEEN ENDORSED BY THE AUTHORITIES BELOW. THE ONLY CHANGE IN THE CURRENT YEAR IS THE MANNER OF DETERMINATION OF COMMISSION. MERE CHANGE IN THE METHOD OF REMUNERATION WOULD NOT IN ANY MANNER RESULT IN CHANGE IN THE NATURE OF DISTRIBUTION ACTIVITY. 8 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 THUS, THE CHANGE IN METHOD OF REMUNERATION CANNOT FROM ANY VALID REASON FOR SEGREGATING DISTRIBUTION ACTIVITY FROM MSS SEGMENT AS WHOLE. 7.3 IN RESPECT OF GROUND NO. 3 RELATING TO EXCLUSION OF ICRA ONLINE LIMITED (ICRA ISS) FROM THE FINAL LIST OF COMPARABLES , THE LD. AR SUBMITTED THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2007 - 08 HAS HELD THAT THE SAID COMPANY IS NOT FUNCTIONALLY COMPARABLE TO MARKETING SUPPORT SERVICES SEGMENT OF THE ASSESSEE AND HAS DIRECTED TO EXCLUDE ICRA ONLINE LIMITE D FROM THE LIST OF COMPARABLES. THE LD. AR PLACED ON RECORD A COPY OF ORDER OF TRIBUNAL IN ITA NO. 1671/PN/2011 FOR ASSESSMENT YEAR 2007 - 08 DECIDED ON 21 - 03 - 2013. THE LD. AR POINTED THAT THE HONBLE BOMBAY HIGH COURT IN APPEAL BY THE REVENUE IN INCOME T AX APPEAL NO. 233 OF 2014 DECIDED ON 01 - 08 - 2016 HAS UPHELD THE ORDER OF TRIBUNAL IN EXCLUDING ICRA ONLINE LTD. FROM THE LIST OF COMPARABLES. 7.4 IN GROUND NO. 4 THE ASSESSEE HAS PRAYED FOR EXCLUDING AGRIMA CONSULTANTS INTERNATIONAL LIMITED FROM THE LIST OF COMPARABLES BEING FUNCTIONALLY DIFFERENT. THE LD. AR SUBMITTED THAT ADMITTEDLY THE ASSESSEE INCLUDED AGRIMA CONSULTANTS INTERNATIONAL LIMITED IN EARLIER ASSESSMENT YEARS BUT THAT WAS DUE TO LACK OF AWARENESS. THE LD. AR REFERRED TO THE LIST OF ACTIVI TIES AS PER WEBSITE OF THE COMPANY AT PAGE 459 OF THE PAPER BOOK . THE LD. AR POINTED THAT AGRIMA CONSULTANTS INTERNATIONAL LIMITED IS PROVIDING CONSULTANCY SERVICES TO FINANCIAL INSTITUTIONS . THUS, THE ASSESSEE COMPANY IS FUNCTIONALLY DIFFERENT FROM AGRI MA CONSULTANTS INTERNATIONAL LIMITED. THE LD. AR FURTHER POINTED THAT THE ASSESSEE HA D TAKEN OBJECTION BEFORE DRP AGAINST INCLUSION OF AGRIMA CONSULTANTS INTERNATIONAL LIMITED. THE ONLY REASON FOR 9 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 INCLUSION OF AGRIMA CONSULTANTS INTERNATIONAL LIMITED IN THE FINAL LIST OF COMPARABLES BY TPO IS , THAT IT WAS ACCEPTED AS COMPARABLE IN THE EARLIER YEARS AND THE NATURE OF ACTIVITY OF THE SAID COMPANY HAS NOT CHANGE D IN THIS YEAR. THE LD. AR CONTENDED THAT THERE IS NO ESTOPPLE ON THE ASSESSEE IN OBJECTI NG TO IN CLUSION OF ANY COMPANY IN THE FINAL LIST OF COMPARABLES , IF THE SAME WAS ORIGINALLY INCLUDED IN THE TP STUDY BY THE ASSESSEE ITSELF. THE ASSESSEE CAN ALWAYS RAISE AN OBJECTION FOR EXCLUDING COMPARABLES IF THE COMPANY DOES NOT FIT IN THE FAR ANALYSIS. THE LD. AR FURTHER REFERRED TO THE ORDER OF HONBLE HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (SUPRA) TO CONTEND THAT WRONGLY SELECTED COMPANY CAN BE EXCLUDED IN SUBSEQUENT ASSESSMENT YEAR. 7.5 IN GROUND NO. 5 THE ASSESSEE HAS ASSAILED EXCLUSION OF EMPIRE INDUSTRIES LIMITED AND ENTERTAINMENT NETWORK (INDIA) LIMITED AS COMPARABLES. THE LD. AR SUBMITTED THAT IN ASSESSMENT YEAR 2007 - 08 , THE ASSESSEE HAD INCLUDED EMPIRE INDUSTRIES LIMITED IN THE FINAL LIST OF COMPARABLES. THE SAME WAS ACCE PTED BY THE TPO. THE TPO EXCLUDED THE SAID COMPANY FROM THE FINAL LIST OF COMPARABLES ON THE GROUND THAT THE SEGMENT CONCERNED IS INDENTING AND TRADING. SINCE, ONLY MARKET SUPPORT SERVICES IS COMPAR ED AND TRADING IS EXCLUDED IN THE CASE OF ASSESSEE, EMPI RE INDUSTRIES LIMITED IS DROPPED AS COMPARABLE FROM THE SEGMENT OF COMPARABLES. THE LD. AR CONTENDED THAT EMPIRE INDUSTRIES LIMITED IS ENGAGED IN AGENC Y BUSINESS COVERING SALES , PROJECT EXECUT ION AND SERVICE SUPPORT OF HIGH - TECH MACHINE S AND PROCESS CONSU LTANCY. THE SAME WAS ACCEPTED AS COMPARABLE IN THE EARLIER YEARS. NEITHER THERE IS ANY CHANGE IN THE ACTIVITIES OF THE ASSESSEE NOR THAT OF EMPIRE INDUSTRIES LIMITED. THE TPO HAS DROPPED EMPIRE INDUSTRIES LIMITED 10 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 FROM THE FINAL LIST OF COMPARABLES MEREL Y ON THE BASIS OF WRONG SEGREGATION OF TRADING ACTIVITIES FROM MSS SEGMENT. THE LD. AR OF THE ASSESSEE STATED AT THE BAR TH AT HE IS NOT PRESSING EXCLUSION OF ENTERTAINMENT NETWORK (INDIA) LIMITED AS COMPARABLE. 7.6 IN RESPECT OF GROUND NO. 6 , THE LD . AR SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN EXCLUDING LIABILITIES WRITTEN BACK AMOUNTING TO RS.1,17,18,963/ - AND BAD DEBTS RECOVERED AMOUNTING TO RS.75,29,308/ - WHILE COMPUTING OPERATING MARGIN OF THE ASSESSEE UNDER MSS SEGMENT. THE LD. AR SUB MITTED THAT THE LIABILITIES WRITTEN BACK AND BAD DEBTS RECOVERED ARE BOTH IN RELATION TO OPERATING INCOME OF ASSESSEE. THE ASSESSEE HAD FURNISHED ALL THE DETAILS BEFORE THE AUTHORITIES BELOW. HOWEVER, BOTH DRP AND TPO HA VE FAILED TO EXAMINE THE DOCUMENTS FURNISHED BY THE ASSESSEE. SIMILAR DISALLOWANCE WAS MADE BY REVENUE IN ASSESSMENT YEAR 2004 - 05. THE COMMISSIONER OF INCOME TAX (APPEALS) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE DEPARTMENT ACCEPTED THE DECISION OF COMMISSIONER OF INCOME TAX (APPEAL S) AND NO FURTHER APPEAL WAS FILED BY THE DEPARTMENT BEFORE HE TRIBUNAL ON THIS ISSUE. THE LD. AR REFERRED TO ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 29 - 07 - 2011 FOR ASSESSMENT YEAR 2004 - 05 AT PAGES 287 TO 305 OF THE PAPER BOOK AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ASSESSMENT YEAR 2004 - 05 BEFORE THE TRIBUNAL IN ITA NO. 1246/PN/2011 AT PAGES 306 TO 308 OF THE PAPER BOOK. THE LD. AR FURTHER SUBMITTED THAT SIMILAR ISSUE HAS ALSO BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE BY DELHI BENC H OF TRIBUNAL IN THE CASE OF SONY INDIA (P) LTD. VS. DCIT REPORTED AS 114 ITD 448. 11 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 7.7 IN RESPECT OF GROUND NO. 7 RELATING TO COMPUTATION OF ARMS LENGTH PRICE OF M ANAGEMENT S ERVICE F EE PAID BY ASSESSEE TO ITS AE AT NIL , T HE LD. AR SUBMITTED , THAT THE TPO HAS ERRED IN COMING TO THE CONCLUSION THAT THE ASSESSEE HAS FAILED TO PLACE ON RECORD DOCUMENTS INDICATING THE NEED OF SERVICES, BENEFIT DERIVED FROM SERVICES AND THE UTILITY OF SERVICES TO ASSESSEE FOR WHICH PAYMENTS HAVE BEEN MADE. THE LD. AR SUBMITTED THAT TPO HAS OVER STEP PED ITS JURISDICTION IN ASKING FOR SUCH DETAILS. THE TPO CANNOT ASK FOR BUSINESS EXPEDIENCY OF THE SERVICES RECEIVED BY THE ASSESSEE. THE TPO CANNOT STEP INTO THE SHOES OF ASSESSEE AND QUESTION THE NEED FOR SERVICES AN D THE QUANTUM OF FEE PAID FOR AVAILING SUCH SERVICES. THE LD. AR CONTENDED THAT THOUGH THE ASSESSEE WAS NOT REQUIRED TO FURNISH THE DETAILS, HOWEVER TO AVOID ANY CONFRONTATION THE ASSESSEE VIDE COMMUNICATION DATED 03 - 01 - 2013 HAD FURNISHED DETAILS OF MANA GEMENT SERVICES PROVIDED TO ASSESSEE BY ITS GROUP COMPANIES. THE ASSESSEE HAD ALSO GIVEN COMPLETE DETAILS OF BENEFITS DERIVED FROM MANAGEMENT SERVICE RENDERED TO THE ASSESSEE. THE DETAILS ARE AT PAGES 260 TO 285 OF THE PAPER BOOK. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS THAT THE TPO CANNOT ASK FOR SUCH DETAILS OR QUESTION EXPEDIENCY OF THE SERVICES, PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . DRESSER RAND INDIA PVT. LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX IN ITA NO. 8753/MUM/2010 FOR ASSESSMENT YEAR 2006 - 07 DECIDED 07 - 09 - 2011; II . HIVE COMMUNICATION (P) LTD. VS. COMMISSIONER OF INCOME TAX, 353 ITR 200 (DELHI); III . COMMISSIONER OF INCOME TAX VS. EKL APPLIANCES LTD., 345 ITR 241 (DELHI); 12 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 7.8 THE LD. AR MADE AN ALTERNATE SUBMISSION THAT ADDITIONAL EVIDENCE IS BEING FILED TO SHOW BENEFIT S DERIVED BY THE ASSESSEE FROM MANAGEMENT SERVICES PROVIDED BY ITS AE. THE SAME CAN BE CONSIDERED BY TPO. 7.9 IN RESPECT OF GROUND NO. 8 THE LD. AR SUBMITTED THAT THE FINDINGS OF TRIBUNAL IN RESPECT OF GROUND NO. 7 WILL H AVE DIRECT BEARING ON THE FINDINGS OF TPO WITH RESPECT TO MANUFACTURING S EGMENT. IN CASE THE FINDINGS OF LOWER AUTHORITIES ARE REVERSED BY THE TRIBUNAL IN GROUND NO. 7, THE GROUND NO. 8 HAS TO BE REMITTED BACK TO TPO/AO FOR FRESH ADJUDICATION. 8. ON TH E OTHER HAND SMT. NIRUPAMA KOTRU REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND THE FINDINGS OF DRP. IN RESPECT OF GROUND NO. 2 RAISED IN THE APPEAL BY THE ASSESSEE THE LD. DR SUBMITTED THAT IN EARLIER ASSESSMENT YEAR S THE ASSESSEE WAS CHARGING COMMISSION. NOW, THE ASSESSEE IS BEING REMUNERATED BY COST PLUS MARKUP @ 10% . THUS, IN VIEW OF CHANGE IN CIRCUMSTANCES DISTRIBUTION ACTIVITIES HAS BEEN SEGREGATED FROM MSS SEGMENT. 8.1 IN RESPECT OF GROUND NOS. 3 AND 4 THE LD. DR CONTEND ED TH AT ICRA ONLINE LIMITED AND AGRIMA CONSULTANTS INTERNATIONAL LIMITED WERE SELECTED BY ASSESSEE IN ITS TP STUDY. IT IS NOT THE CASE OF ASSESSEE THAT THESE COMPANIES WERE INTRODUCED BY TPO AS COMPARABLES. ONCE, HAVING SELECTED AS COMPARABLES , THE ASSES SEE CANNOT DRAW ITS FEET AND ASK FOR EXCLUSION OF THE COMPAN IES WHICH HAVE BEEN SELECTED AS COMPARABLES IN TP STUDY. 13 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 8.2 IN RESPECT OF GROUND NO. 6, THE LD. DR SUBMITTED THAT THE ASSESSEE HA S NOT FURNISHED DETAILS BEFORE THE TPO AND DRP WITH RESPECT TO NATURE OF LIABILITY WRITTEN BACK. THE LD. DR REFERRED TO THE REMARKS AT PAGES 10 AND 11 OF THE DIRECTION OF DRP. 8.3 IN RESPECT OF GROUND NO. 7 RAISED IN APPEAL , THE LD. DR SUBMITTED THAT TH E TPO HAS POWER TO STEP INTO THE SHOES OF ASSESSING OFFICER AND EXAMINE BUSINESS EXPEDIENCY OF ANY EXPENDITURE. THE ASSESSEE COULD NOT PRODUCE DOCUMENT S TO SUBSTANTIATE THE NEED FOR THE SERVICES AND WHETHER THE COST WERE COMMENSURATE WITH THE VALUE OF SER VICES PROVIDED. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE AND UPHOLDING THE IMPUGNED ASSESSMENT ORDER. 9. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE H AVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE. OUR FINDINGS ON THE GROUNDS RAISED IN APPEAL BY THE ASSESSEE ARE AS UNDER : SEGREGATION OF DISTRIBUTION FROM MSS SEGMENT 10. THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SALE OF HIGH END FURNITURE AND CHAIRS. OSTENSIBLY, THE ASSESSEE HAS ALSO BEEN IMPORTING FURNITURE ON SPECIFIC DEMAND OF SOME OF THE CUSTOMERS FROM ITS AES. THE ASSESSEE HAS BEEN IMPORTING ITEMS OF FURNITURE ON SPECIFIC DEMAND OF ITS CUSTOMERS IN EARLIER YEARS AS WELL. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAD ENTERED INTO FRESH AGREEMENTS WITH ITS AES FOR IMPORT OF FURNITURE. ACCORDING TO FRESH AGREEMENT THE ASSESSEE IS T O BE REMUNERATED ON COST PLUS MARK - UP OF 14 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 10% . W HEREAS , IN THE EARLIER ASSESSMENT YEAR S, THE ASSESSEE RECEIVED COMMISSION @ 15% ON SALES AFFECTED ON BEHALF OF THE AES. WE ARE OF CONSIDERED VIEW THAT MERELY FOR THE REASON THAT THE MANNER OF REMUNERATION HA S CHANGED FROM COMMISSION TO COST PLUS MARK - UP , IT WOULD NOT CHANGE THE NATURE OF SERVICES/ACTIVITIES CARRIED OUT BY THE ASSESSEE IN RESPECT OF DISTRIBUTION/TRADING SEGMENT. IN EARLIER YEARS THE DEPARTMENT HAS ACCEPTED DISTRIBUTION ACTIVITY AS PART OF MSS SEGMENT . WE SEE NO VALID REASONING TO SEGREGATE DISTRIBUTION ACTIVITY FROM MSS SEGMENT IN THE IMPUGNED ASSESSMENT YEAR ON THE BASIS OF CHANGE IN THE METHOD OF REMUNERATION ALONE . ACCORDINGLY, THE FINDINGS OF LOWER AUTHORITIES ON THIS ISSUE ARE SET ASIDE AND GROUND NO. 2 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED. INCLUSION/EXCLUSION OF COMPARABLES UNDER MSS SEGMENT ICRA ONLINE LIMITED 11. THE ASSESSEE HAS SOUGHT EXCLUSION OF ICRA ONLINE LIMITED FROM THE FINAL SET OF COMPARABLES ON THE BASIS OF FUNCTIONAL DISPARITY. THE LD. AR HAS POINTED THAT IN ASSESSMENT YEAR 2007 - 08 THE CO - ORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT ICRA ONLINE LIMITED IS FUNCTIONAL LY DIFFERENT FROM THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 READ AS UNDER : 16. IN OUR CONSIDERED OPINION, THE FACTUM OF THE ASSESSEE SELECTING THE SAID CONCERN AS COMPARABLE AT THE TIME OF CARRYING OUT ITS TRANSFER PRICING STUDY, CANNOT BE A GROUND FATAL TO ITS SUBSEQUENT CLAIM THAT SUCH A CONCERN WAS NOT INCLUDIBLE ON ACCOUNT OF FUNCTIONAL DIFFERENCE. PERTINENTLY, THE FUNCTIONAL DIFFERENCES BEING BROUGHT OUT BY THE ASSESSEE ARE NOT IN CH ALLENGE AND IT HAS ALSO EXPLAINED THE CIRCUMSTANCES IN WHICH THE SAID CONCERNS INFORMATION SERVICES SEGMENT WAS INITIALLY ADOPTED AS A COMPARABLE. THE ASSESSEE HAS CLEARLY BROUGHT OUT THAT IT WAS ONLY THE AVAILABILITY OF THE DIRECTORS REPORT SUBSEQUENTL Y WHICH REVEALED THAT THE INFORMATION SERVICES SEGMENT OF 15 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 ICRA ONLINE LTD. WAS HAVING SIGNIFICANT INCOME FROM SALE OF PRODUCTS AND THAT SUCH INFORMATION WAS NOT AVAILABLE AT THE TIME OF CONDUCTING TRANSFER PRICING STUDY. THE LARGER BENCH OF THE TRIBUNAL I N THE CASE OF QUARK SYSTEMS (P) LTD. (SUPRA) HAS NOTICED THAT THE FACT THAT COMPARABLE WAS SELECTED BY THE ASSESSEE CANNOT BE THE SOLE GROUND OF ITS INCLUSION IF IT IS SUBSEQUENTLY DEMONSTRATED BY THE ASSESSEE THAT THE SAME WAS FUNCTIONALLY NOT COMPARABLE. IN THE PRESENT CASE, THE INFORMATION AT THE TIME OF PROCEEDINGS BEFORE THE TPO CLEARLY SHOW THAT THE SAID CONCERN WAS FUNCTIONALLY NOT COMPARABLE TO THE MARKETING SUPPORT SERVICE SEGMENT OF THE ASSESSEE. THEREFORE, ON THIS ACCOUNT, WE FIND THAT THERE IS NO JUSTIFIABLE CASE SET UP BY THE REVENUE TO INCLUDE ICRA ONLINE LTD. (INFORMATION SERVICES SEGMENT) IN THE LIST OF COMPARABLES. THE HONBLE HIGH COURT HAS AFFIRMED THE FINDINGS OF THE TRIBUNAL IN AN APPEAL FILED BY THE DEPARTMENT AGAINST THE ORDER OF TRIBUNAL. THUS, IN THE LIGHT OF THE ORDER OF HONBLE HIGH COURT IN INCOME TAX APPEAL NO. 233 OF 2014 (SUPRA), WE HOLD THAT ICRA ONLINE LIMITED IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. ACCORDINGLY, THE SAME IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN VIEW OF OUR ABOVE FINDINGS , THE GROUND NO. 3 RAISED IN APPEAL BY THE ASSESSEE IS ALLOWED. AGRIMA CONSULTANTS INTERNATIONAL LIMITED 1 2 . THE ASSESSEE HAS SOUGHT EXCLUSION OF AGRIMA CONSULTANTS INTERNATIONAL LIMITED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DIFFERENCE. THE AUTHORITIES BELOW HAVE INCLUDED THE AFORESAID COMPANY IN THE FINAL SET OF COMPARABLES MERELY ON THE GROUND THAT IN THE EARLIER YEARS IT WAS SELECTED IN THE FINAL SET OF COMPARABLES. THE LD. AR OF THE A SSESSEE HAS POINTED THAT AGRIMA CONSULTANTS INTERNATIONAL LIMITED IS ENGAGED IN PROVIDING FINANCIAL CONSULTANCY. OUR ATTENTION HAS BEEN DRAWN TO INFORMATION GIVEN ON WEB PORTAL OF THE SAID COMPANY. A PERUSAL OF THE INFORMATION GIVEN BY THE SAID COMPANY 16 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 I N ITS WEBSITE INDICATE THAT AGRIMA CONSULTANTS INTERNATIONAL LIMITED IS A APPROVED CONSULTANT TO LEADING FINANCIAL INSTITUTION S / BANKS SUCH AS IDBI BANK, EXPORT IMPORT BANK OF INDIA, WORLD BANK, AGRICULTURE DEVELOPMENT BANK, UNITED NATION DEVELOPMENT PROGR AM, COMMON WEALTH PROGRAM, ETC. ON THE CONTRARY THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND MARKETING OF HIGH END FURNITURE. THUS, THERE IS NO COMPARISON BETWEEN THE ACTIVITIES CARRIED OUT BY THE ASSESSEE AND AGRIMA CONSULTANTS INTERNATIONAL LIM ITED. MERELY FOR THE REASON THAT THE ASSESSEE HAD SELECTED AGRIMA CONSULTANTS INTERNATIONAL LIMITED IN EARLIER ASSESSMENT YEAR S CANNOT BE A REASON TO SELECT IN THE SUBSEQUENT ASSESSMENT YEAR. IF THE ASSESSEE HAS COMMITTED ERROR IN SELECTING A COMPARABLES DUE TO LACK OF AWARENESS OR ERROR OF JUDGMENT THE SAME SHOULD NOT BE PERPETUATED IN SUBSEQUENT YEAR EVEN AFTER DISCOVERING THE FACT THAT THE ASSESSEE MADE WRONG SELECTION OF COMPARABLES IN EARLIER YEARS. IT IS A TRITE LAW THAT THE ASSESSEE IS NOT ESTOPPE D FROM EXCLUDING COMPARABLE AT SUBSEQUENT STAGE IF IT HAS BEEN ERRONEOUSLY SELECTED DURING TP STUDY. OUR THIS VIEW IS SUPPORTED BY THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. TATA POWER SOLAR SYS. LTD. REPORTED AS 245 TAXMAN 9 3 (BOM) AND DCIT VS. QUARK LTD., 38 SOT 307 (CHANDIGARH - SB) . THUS, IN VIEW OF OUR ABOVE FINDINGS , THE GROUND NO. 4 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED. EMPIRE INDUSTRIES LIMITED 1 3 . THE ASSESSEE IN GROUND NO. 5 HAS PRAYED FOR INCLUDING EMPIRE I NDUSTRIES LIMITED IN THE FINAL LIST OF COMPARABLES. THE TPO HAS EXCLUDED THE SAID COMPANY FROM THE LIST OF COMPARABLES AFTER SEGREGATION OF TRADING/DISTRIBUTION ACTIVITIES OF THE ASSESSEE FROM MSS SEGMENT. SINCE, WE HAVE ALREADY HELD THAT DISTRIBUTION AC TIVITIES ARE 17 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 NOT TO BE EXCLUDED FROM MSS SEGMENT , THE EXCLUSION OF EMPIRE INDUSTRIES LIMITED FROM THE FINAL SET OF COMPARABLES HAS TO BE REVERSED. THE ASSESSEE IN GROUND NO. 5 HAS ALSO ASSAILED EXCLUSION OF ENTERTAINMENT NETWORK (INDIA) LIMITED. THE LD . AR OF THE ASSESSEE HAS STATED AT THE BAR THAT HE IS NOT PRESSING EXCLUSION OF SAID COMPANY FROM THE FINAL LIST OF COMPARABLES. ACCORDINGLY, GROUND NO. 5 RAISED IN THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. EXCLUSION OF LIABI LITIES WRITTEN BACK AND BAD DEBTS RECOVERED FROM OPERATING MARGIN OF MSS SEGMENT. 1 4 . IN GROUND NO. 6 THE ASSESSEE HAS ASSAILED EXCLUSION OF LIABILITIES WRITTEN BACK AMOUNTING TO RS.1,17,18,963/ - AND BAD DEBTS RECOVERED AMOUNTING TO RS.75,29,308/ - WHILE COMPUTING OPERATING MARGIN OF MSS SEGMENT. THE CONTENTION OF THE REVENUE IS THAT THE ASSESSEE HAS NOT GIVEN DETAILS AND NATURE O F LIABILITIES WRITTEN BACK. THE LD. AR POINTED THAT DURING THE COURSE OF PROCEEDINGS BEFORE THE TPO AND THEREAFTER BEFORE THE DRP THE ASSESSEE HAS FURNISHED THE DETAILS AND NATURE OF LIABILITIES WRITTEN BACK. THE LIABILITIES WRITTEN BACK AND BAD DEBTS RE COVERED ARE PART OF OPERATING INCOME OF THE ASSESSEE. THE LD. AR HAS POINTED THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSMENT YEAR 2004 - 05 AND THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF ASSESSEE. THEREAFTER , THE DEPARTMENT HAS NOT AGIT ATED THIS ISSUE BEFORE THE TRIBUNAL. WE FIND THAT DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SONY INDIA (P) LTD. VS. DCIT (SUPRA) HAS HELD THAT THERE IS NO JUSTIFICATION FOR EXCLUDING PROVISION WRITTEN BACK IN P ROFIT AND L OSS ACCOUNT NOT FORMING PART OF O PERATING PROFITS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN THIS REGARD ARE AS UNDER : 18 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 106.2 AFTER CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT SEE ANY GOOD GROUND FOR NOT PERMITTING THE TAXPAYER TO RAISE THE GROUND BEFORE THE TRIBUNAL WHICH IS CLEARLY ARISING OUT OF THE IMPUGNED ORDER. AS NOTED EARLIER, THE REVENUE HAS NOT CHA LLENGED RELEVANT PART OF THE ORDER OF THE CIT(A). THEREFORE, THE OBJECTION NOW BEING TAKEN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS NOT JUSTIFIED. ON MERIT, WE SEE NO GOOD REASON TO EXCLUDE PROVISIONS WRITTEN BACK AS NOT FORMING PART OF COMPUTING OPER ATING PROFIT OF THE TAXPAYER. IN OUR CONSIDERED OPINION, EXCLUSION OF ABOVE PROVISION IS BASED UPON MISCONCEPTION OF REAL NATURE OF THE ENTRY GENERATING INCOME. IT IS NOT PRACTICALLY POSSIBLE FOR A BUSINESSMAN TO ACTUALLY DISBURSE ALL EXPENSES INCURRED BY IT IN THE FINANCIAL YEAR AND, THEREFORE, A LARGE NUMBER OF BUSINESS LIABILITIES (MANUFACTURING INCLUDED) ARE PROVIDED IN THE ACCOUNTS OF A GIVEN YEAR. IT IS ELEMENTARY THAT THERE IS NO DIFFERENCE BETWEEN ACTUAL DISBURSEMENT OF AN EXPENDITURE OR PROVISION T HEREOF. HOWEVER, RECOVERY OF LIABILITY PROVIDED MAY BECOME BARRED BY LIMITATION OR FOR SOME OTHER REASONS, LIABILITY GETS UNENFORCEABLE OR IS REDUCED OR CEASES TO EXIST WITH THE PASSAGE OF TIME. THEREFORE, IT MAY BE NECESSARY TO WRITE BACK SUCH A LIABILITY . BUT, IT CANNOT FOLLOW THAT THE LIABILITY WAS NOT EXPENDITURE OF BUSINESS OR OPERATING EXPENSE. CESSATION OF A LIABILITY IS A TAXABLE INCOME UNDER S. 41 OF THE IT ACT. THE UNDERLYING PRINCIPLE BEHIND ABOVE PROVISION IS THAT REVENUE TAKES BACK A BENEFIT WH ICH IT GRANTED EARLIER, BUT WHICH, DUE TO SUBSEQUENT EVENTS OR CHANGED CIRCUMSTANCES SHOULD BE CHARGED TO TAX AS 'INCOME'. STATUTORY PROVISION OVERRIDES GENERAL UNDERSTANDING THAT MERE CREATION OF A BENEFIT TO A TAXPAYER BY ADMISSION OR CESSATION OF A DEBT OR A LIABILITY SHOULD NOT RESULT IN AN INCOME. THUS, CREATION OF UNPAID LIABILITY AND ITS WRITE BACK IS A NORMAL INCIDENT OF A BUSINESS OPERATION WHICH IS CARRIED EVERYWHERE IN ACCOUNTS TO HAVE TRUE PICTURE OF PROFITS OF THE RELEVANT PERIOD. IF A LIABILIT Y HAS CEASED TO EXIST AND IS REQUIRED TO BE ACCOUNTED FOR AND SHOWN AS INCOME BY THE TAXPAYER AND, IN CASE IT IS NOT SO SHOWN THE TAXPAYER CAN BE SUBJECTED TO A PENAL ACTION UNDER INDIAN REGULATIONS. IN THIS CONNECTION, WE CAN REFER TO DECISION OF THE SUPR EME COURT IN THE CASE OF CIT VS. S. TEJA SINGH (1959) 35 ITR 408 (SC). HAVING REGARD TO STATUTORY PROVISIONS, IT CANNOT BE SAID THAT PROVISION OR WRITING BACK OF LIABILITY IS NOT PART OF OPERATING PROFIT OR WOULD NOT BE TAKEN INTO CONSIDERATION FOR COMPUTI NG THE SAME. THE ASPECT OF LIABILITIES WRITTEN OFF WAS IGNORED WITHOUT CONSIDERING NATURE AND CHARACTER OF SUCH LIABILITIES. IT WOULD HAVE BEEN DIFFERENT IF A FINDING WAS RECORDED THAT PROVISION WRITTEN BACK DID NOT RELATE TO BUSINESS OPERATIONS OF THE TAX PAYER. THERE IS NO SUGGESTION ON THE ABOVE LINES. FURTHER, IT IS NOT THE CASE OF THE REVENUE THAT LIABILITIES WRITTEN 19 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 BACK WERE WRONGLY PROVIDED FOR. IT IS A SETTLED AND WELL ACCEPTED PROPOSITION THAT ADJUSTMENT CAN BE MADE ONLY ON ACCOUNT OF DIFFERENCES. IT IS NOT POSSIBLE TO BELIEVE THAT OTHER COMPARABLE ENTITIES TAKEN INTO CONSIDERATION ARE NOT MAKING AND WRITING BACK PROVISION OF LIABILITIES NO MORE REQUIRED. THERE IS NO MATERIAL NOR THERE IS ANY FINDING TO SUPPORT ACTION OF THE REVENUE AUTHORITIES. WE CAN THEREFORE MAKE A GENERAL OBSERVATION THAT ALL BUSINESS ENTERPRISES ARE MAKING AND WRITING BACK LIABILITIES AS A NORMAL INCIDENT OF OPERATING BUSINESS. THE EXPENSES FOR WHICH PROVISIONS WERE ORIGINALLY MADE WERE CONSIDERED OPERATING IN NATURE AND ALLOWE D IN ASSESSMENT. THESE PROVISIONS NO LONGER REQUIRED BY THE TAXPAYER DURING THE YEAR UNDER REVIEW WERE REVERSED IN THE BOOKS OF ACCOUNT AS PER MERCANTILE SYSTEM OF ACCOUNTING AND SHOWN AS INCOME. THEREFORE, ON FACTS WE DO NOT SEE ANY JUSTIFICATION FOR EXCL UDING PROVISIONS WRITTEN BACK IN THE P&L A/C AS NOT FORMING PART OF THE OPERATING PROFIT OF THE TAXPAYER. ACCORDINGLY, CLAIM OF THE TAXPAYER IS ACCEPTED. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION RENDERED IN THE CASE OF SONY INDIA (P) LTD. VS. DCIT (SUPRA) WE FIND MERIT IN THE GROUND RAISED BY THE ASSESSEE. ACCORDINGLY, GROUND NO. 6 RAISED IN THE APPEAL BY THE ASSESSEE IS ALLOWED. COMPUTATION OF ARMS LENGTH PRICE OF MANAGEMENT SERVICE FEE PAID BY ASSESSEE TO AE 1 5 . THE ASSESSEE HAS PAI D MANAGEMENT SERVICE FEE TO ITS AE HAWORTH HONG KONG LTD. THE MANAGEMENT TEAM OF HAWORTH GROUP IS PROVIDING GUIDELINES AND STRATEGIC DIRECTION S TO THE GROUP AS WHOLE INCLUDING THE ASSESSEE. IT HAS BEEN CONTENDED THAT THE SALARY AND OVERHEADS ARE POOLED I N HAWORTH HONG KONG LTD. THEN THE COSTS ARE ALLOCATED TO ALL GROUP ENTITIES ON THE BASIS OF SALES. THE LD. AR POINTED THAT CHARGES ARE ALLOCATED ON COST BASIS ALONE AND NO MARK UP IS CHARGE D BY HAWORTH HONG KONG LTD. THE ASSESSEE HAS GIVEN THE DETAILS OF BENEFITS DERIVED BY THE ASSESSEE FROM THE MANAGEMENT SERVICE 20 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 RENDERED BY ITS AE HAWORTH HONG KONG LTD. AT PAGE 282 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO FILED ADDITIONAL EVIDENCE IN RESPECT OF MANAGEMENT SERVICE S PROVIDED BY ITS AE. IN VIEW OF FRES H EVIDENCE FURNISHED BY ASSESSEE , WITHOUT COMMENTING ON THE MERITS , WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO FILE OF ASSESSING OFFICER/TPO FOR DE NOVO ADJUDICATION. THE ASSESSING OFFICER SHALL CONSIDER FRESH DOCUMENTS FILED BY ASSESSEE AND ALL O THER RELEVANT DOCUMENTS. THE ASSESSING OFFICER SHALL ALSO GRANT OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THE ISSUE, IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO. 7 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 1 6 . IN GROUND NO. 8 THE ASSESSEE HAS ASSAILED THE MODIFICATION IN SELECTION OF COMPARABLES UNDER M ANUFACTURING S EGMENT. WE FIND THAT THE TPO HAD MADE NO ADJUSTMENT IN RESPECT OF MANUFACTURING SEGMENT. THE TPO WHILE ADJUDICATING ALP UNDER MANUFACTURING SEGM ENT HAS OBSERVING AS UNDER : 13.1 I HAVE EXAMINED THE ASSESSEE'S CONTENTIONS CAREFULLY. MY COMMENTS IN RESPECT OF SINGLE YEAR DATA AND DATA NOT AVAILABLE AT TIME OF TP STUDY AS WELL AS ON OTHER INCOME SUCH AS LIABILITIES WRITTEN BACK DISCUSSED IN THE MSS SEGMENT IS EQUALLY APPLICABLE HERE. H OWEVER, IT IS NOTED THAT THE ASSESSEE HAS MADE A CONTENTION THAT IN CASE ADJUSTMENT IS MADE IN RESPECT OF MANAGEMENT SERVICES FEES AS SEPARATE TRANSACTION, THE SAME MUST BE EXCLUDED IN THE COMPUTATION OF MARGIN OF ASSESSEE'S MANUFACTURING SEGMENT. THIS IS ACCEPTABLE IN PRINCIPLE. HOWEVER. THE COROLLARY IS THAT IN CASE SEPARATE ADJUSTMENT IS NOT SUSTAINED FOR ANY REASON T HEN THIS WORKING WILL HAVE TO BE ACCORDINGLY REVERSED. TH E DRP HAS ALSO NOT COMMENTED ON THIS ISSUE. WE OBSERVE THAT THE FINDINGS OF TPO ON THIS ISSUE ARE CRYPTIC. WE ARE OF CONSIDERED OPINION THAT THIS ISSUE REQUIRES REVISIT TO TPO/ASSESSING OFFICER FOR 21 ITA NO . 281/PUN/2014, A.Y. 2009 - 10 FRESH ADJUDICATION. THE TPO IS DIRECTED TO PASS A SPEAKING ORDER AFTER AFFORDING OPPORTUNITY OF HEARING TO THE ASSESSEE WHILE ADJUD ICATING THIS ISSUE, IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO. 8 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 17 . THE LD. AR OF THE ASSESSEE HAS STATED AT BAR THAT GROUND NO. 9 IS NOT PRESSED. ACCORDINGLY, THE SAME IS DISM ISSED AS NOT PRESSED. 18 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON MONDAY, THE 30 TH DAY OF OCTOBER, 201 7 . SD/ - SD/ - ( / ANIL CHATURVEDI ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 30 TH OCTOBER, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE DISPUTE RESOLUTION PANEL, PUNE 4. THE CIT (IT/TP), PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE