Tyco Valves & Controls (India) Pvt. Ltd., Baroda V. The Dy.CIT, Baroda Cir- 4, Baroda

ITA 2993/AHD/2011

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8360 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-10-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 01-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Assessee Lawyers: PARIN SHAH ARS
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Bad and doubtful debts; Arm length price; TDS; Set aside
• Section: 92C; 80HHC; 10B; 143(1); 43; 48; 13

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ./ITA NO.2993/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) M/S. TYCO VALVES & CONTROLS (I) P.LTD. 302-A, IVORY TERRACE RC DUTT ROAD ALKAPURI,BARODA-390 007 / VS. THE DCIT CIRCLE-4 BARODA ./ ./ PAN/GIR NO. : AAACK 8809 L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S.N. SOPARKAR, SR.ADV. MS.URVASHI SHODHAN & SHRI PARIN SHAH, ARS / RESPONDENT BY : SHRI MAHESH SHAH, CIT-DR / DATE OF HEARING 21/01/2020 !'# / DATE OF PRONOUNCEMENT 22/01/2020 / O R D E R PER BENCH: THE APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF DISPUTE RESOLUTION PA NEL, AHMEDABAD [DRP IN SHORT] PASSED UNDER SECTION 144C(5) OF THE ACT DATED 12/09/2011 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143( 3) R.W.S.92C AND R.W.S.144C OF THE ACT DATED 10/10/2011 FOR AY 2007- 08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 2 - GROUND NO.1 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE AO FOLLOWING THE DIRECTIONS OF THE DRP ERRED IN MAKING AN ADJUSTMENT OF RS.2,20,69 ,862 IN RELATION TO DETERMINATION OF ARM'S LENGTH PRICE RELATING TO THE APPELLANT'S INTERNATIONAL TRANSACTIONS OF MANUFACTURING OF VALVES; 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE AO FOLLOWING THE DIRECTIONS OF THE DRP ERRED IN MAKING AN ADJUSTMENT OF RS.2,38,65 ,077 IN RELATION TO DETERMINATION OF ARM'S LENGTH PRICE RELATING TO THE APPELLANT'S INTERNATIONAL OF ENGINEERING DESIGN SERVICES; 1.3 ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE AO FOLLOWING THE DIRECTIONS OF THE DRP ERRED IN MAKING AN ADJUSTMENT OF RS. 2,07,2 1,181 IN RELATION TO DETERMINATION OF ARM'S LENGTH PRICE RELATING TO THE APPELLANT'S INTERNATIONAL TRANSACTIONS OF REIMBURSEMENT OF MANAGEMENT FEE EXP ENSES; 1.4 ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE AO FOLLOWING THE DIRECTION OF THE DRP ERRED IN DENYING THE (+/-) 5% RANGE BENEFIT AVAILABLE UNDER PROVISO TO SECTION 920(2) OF THE ACT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO CON SIDER THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE AS ARM'S LENGTH AND ACCORDINGLY THE TOTAL TRANSFER PRICING ADJUSTMENT OF RS.6,66,56,120 SHOULD BE DELETED. GROUND NO. 2 2.1 THE AO FOLLOWING THE DIRECTIONS OF THE D RP HAS ERRED IN LAW AND IN FACTS OF THE CASE IN NOT ALLOWING THE DEDUCTION UNDER SECTIO N 10B OF THE ACT OF RS. 7,14,80,242 AS CLAIMED BY THE APPELLANT IN RESPECT OF THE PROFI TS EARNED BY ITS CHENNAI UNIT. 2.2 ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE AO FOLLOWING THE DIRECTIONS OF THE DRP HAS ERRED IN HOLDING THAT THE CHENNAI UNIT OF YOUR APPELLANT IS NOT CARRYING ON ANY MANUFACTURING ACTIVITY. YOUR APPELLANT SUBMITS THAT THE HON'BLE JURISDICTIO NAL INCOME TAX APPELLATE TRIBUNAL IN THE APPELLANT'S OWN CASE HAS HELD THAT THE CHENNAI UNIT IS CARRYING ON MANUFACTURING ACTIVITY RELYING ON THE DECISION OF T HE HON'BLE GUJARAT HIGH COURT IN THE APPELLANT'S OWN CASE. 2.3 ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE AO FOLLOWING THE DIRECTIONS OF THE DRP HAS ERRED IN CONCLUDING THAT THE MACHINERY TAKEN ON LEASE FROM SAKHI ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 3 - RAIMONDI VALVE INDIA LTD. IN THE EARLIER YEARS WAS NOT TAKEN ON LEASE BUT AS AN OUTRIGHT PURCHASE. YOUR APPELLANT SUBMITS THAT THE MUMBAI BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF SAKHI RAIMONDI VALVE INDIA LTD. HAS HELD THAT THE MACHINERY HAS BEEN GIVEN ON LEASE AND NOT ON OUTRIGHT SALE. GROUND NO. 3 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE AO FOLLOWING THE DIRECTIONS OF THE DRP HAS ERRED IN ADDING BACK AN AMOUNT OF RS. 7 9,684 BEING ASSETS COSTING LESS THAN RS. 5,000 AND DEPRECIATED FULLY IN THE BOOKS O F ACCOUNT. YOUR APPELLANT SUBMITS THAT THE SAID AMOUNT FORMED PART OF THE BOOK DEPRECIATION WHICH HAD ALREADY BEEN DISALLOWED BY THE APPELLANT IN THE COMPUTATION OF INCOME. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, TO ALT ER, TO SUBSTITUTE, TO MODIFY AND / OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AS THE Y MAY BE ADVISED TO DO SO AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE TIME OF HEARING OF THE APPEAL. THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL VIDE LETTER DATED 17- 02-2019 REPRODUCED AS UNDER: THE APPELLANT CRAVES LEAVE TO RAISE THIS ADDITIONAL GROUND OF APPEAL BEFORE THE HON'BLE ITAT. THIS IS A LEGAL GROUND AND THEREFORE AS PER THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. (229ITR 383), IT CAN BE RAISED BEFORE THE HON'BLE ITAT. 1. WITHOUT PREJUDICE TO THE OTHER GROUNDS IN AP PEAL, IT IS RESPECTFULLY SUBMITTED TO EXCLUDE THE AMOUNT OF MANAGEMENT FEE WHILE COMPUTIN G MARGINS OF BARODA UNIT, AS INCLUSION OF MANAGEMENT FEE IN PROFIT LEVEL INDICAT OR OF BARODA UNIT IS RESULTING INTO DOUBLE TAXATION OF MANAGEMENT FEE. 2. IT IS FURTHER RESPECTFULLY SUBMITTED THAT EV EN IF ADJUSTMENT IS MADE, SAME OUGHT TO BE RESTRICTED TO THE AMOUNT OF INTERNATIONAL TRANSA CTIONS ONLY AND SHALL NOT BE MADE ON ENTIRE COST OF THE ASSESSEE'S BARODA UNIT. THE APPELLANT ALSO CRAVES LEAVE TO ADD, AMEND, ALTE R, CHANGE, DELETE AND EDIT THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF TH E HEARING OF THE APPEAL. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 4 - 2. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NU MBER 1.1 AND THE ADDITIONAL GROUND NO. 1 VIDE LETTER DATED 17 TH FEBRUARY, 2019 IS INTERCONNECTED, THEREFORE WE HAVE CLUBBED BOTH OF T HEM FOR THE PURPOSE OF THE ADJUDICATION. 2.1. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO 1.1 IS THAT THE LD. DRP ERRED IN CONFIRMING THE ALP ADJUSTMENT OF RS. 2 ,20,69,862/- IN RELATION TO MANUFACTURING OF VALVES TRANSACTIONS WI TH ITS AE. THE ASSESSEE ALSO CLAIMED THAT IF ANY DISALLOWANCE IS CONFIRMED FOR THE MANAGEMENT EXPENSES, THEN THE MARGIN OF THE ASSESSEE SHOULD BE ENHANCED BY SUCH AMOUNT. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS PRIVATE LIMITED COMPANY AND ENGAGED IN THE ACTIVITIES AS DETAILED UNDER: I. BUSINESS OF MANUFACTURING OF VALVES, VALVES PARTS, ACTUATORS, COMPONENTS AND ACCESSORIES IN THE NAME AND STYLE OF TYCO VALVES & CONTROLS INDIA PVT LTD. THE PRODUCTS OF TH E ASSESSEE ARE USED IN THE INDUSTRIES LIKE CHEMICAL AND PETRO CHEMICAL INDUSTRIES, ELECTRIC UTILITIES, WATER AND WASTE WAT ER SYSTEM. THE ASSESSEE PRIMARILY IS INTO MANUFACTURING OF BUTTERF LY VALVES, BALL VALVES, CONTROL VALVES AND VALVES FOR WATER MA RKET. II. DISTRIBUTION OF THE PRODUCTS TO THE 3 RD PARTIES. ITS ACTIVITIES ARE NOT LIMITED TO ITS AE ONLY. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 5 - III. DESIGNING SERVICES TO ITS AE NAMELY TYCO THERMAL BE LGIUM. IV. AGENCY COMMISSION FROM ITS AE FOR PROVIDING SERVICE S IN CONNECTION WITH THE INSTALLATION, COMMISSIONING, MA RKET SERVICES AND CUSTOMER SUPPORT SERVICES TO ITS INDIA N CUSTOMERS. 3.1. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF TYCO INDIA (SINGAPORE) PVT. LTD. THE ASSESSEE CARRIES OUT ITS BUSINESS THROUGH TWO DIVISIONS SITUATED IN BARODA AND CHENNAI. BOTH THE DIVISIONS ARE ENGAGED IN THE MANUFACTURING ACTIVITY OF THE PRODUCTS AS DE SCRIBED ABOVE. THE SALES OPERATIONS OF BARODA UNIT ARE PRIMARILY CONFI NED TO THE LOCAL MARKET WHEREAS THE CHENNAI UNIT IS EOU WHICH WAS SETUP IN 1999. 3.2. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DATED 08-11-2007 DECLARING AN INCOME OF RS. 29,76,18,120/- WHICH WAS PROCESSED U/S 143(1) O F THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED UNDER SCRUTINY ASSESSMENT. ACCORDINGLY THE AO REFERRED THE CASE TO THE TPO. 3.3. THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION HAS ENTERED INTO VARIOUS TRANSACTIONS WITH ITS RELATED PARTIES AS SH OWN IN THE TP STUDY WHICH ARE IN DETAILED AS UNDER: S.NO. DESCRIPTION OF THE TRANSACTIONS AMOUNT PAID (IN RUPEES) AMOUNT RECEIVED (IN RUPEES) 1. IMPORT OF RAW MATERIALS, PARTS ETC. 235766,610 - 2. IMPORT OF FINISHED GOODS FOR RESALE 183,087,977 - 3. EXPORT OF VALVES AND VALVE - 447,290,344 ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 6 - COMPONENTS 4. EXPORT OF FINISHED GOODS FOR RESALE - 25,435,903 5. AGENCY COMMISSION - 4,747,935 6. PROVISION OF DESIGN RELATED SERVICES - 163,117,922 7 PAYMENT OF MANAGEMENT FEE AND PROFESSIONAL CHARGES 45,980,354 - 8 SERVICE CHARGES - 1,969,725 9 REIMBURSEMENT OF OTHER EXPENSES 16,117,651 - 3.4. FURTHER, THE ASSESSEE HAS CATEGORIZED THE AB OVE TRANSACTIONS INTO 5 DIFFERENT HEADS FOR THE PURPOSE OF TP STUDY. THE DE TAILS OF THE CATEGORIZATION OF THE TRANSACTIONS ARE AS UNDER: 4.2. OVERVIEW 4.2.1. DURING THE YEAR ENDED MARCH 31, 2007, TVCI PL ENGAGED IN THE FOLLOWING INTERNATIONAL TRANSACTIONS: I. ACTIVITIES CARRIED OUT IN RELATION TO VALVES, CO MPONENTS ETC. IMPORT OF RAW MATERIALS, PARTS ETC; IMPORT OF FINISHED GOODS FOR RESALE; EXPORT OF VALVES AND VALVE COMPONENTS; EXPORT OF FINISHED GOODS (RESALE); AND RECEIPT OF COMMISSION. II. PROVISION OF SUPPORT SERVICES RECEIPT OF SERVICE CHARGES FOR SUPPORT SERVICES. III. SERVICES RECEIVED PAYMENT OF MANAGEMENT CHARGES. IV. PROVISION OF DESIGN RELATED SERVICES V. REIMBURSEMENTS 4.2.2. FOR THE PURPOSES OF OUR ANALYSIS, THIS REPOR T IS DIVIDED INTO FIVE SECTIONS NAMELY, ACTIVITIES CARRIED OUT IN RELATION TO VALVE S, COMPONENTS, ETC.; PROVISION OF SUPPORT SERVICES; RECEIPT OF MANAGEMENT CHARGE; PRO VISION OF DESIGN RELATED SERVICES AND REIMBURSEMENTS. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 7 - 3.5. THE ASSESSEE FOR BENCHMARKING ITS TRANSACTI ONS CLASSIFIED UNDER THE HEAD IN RELATION TO VALVES, COMPONENT ETC IN CO NNECTION WITH THE DETERMINATION OF ALP HAS USED THE FOLLOWING BASIS. I. THE ASSESSEE HAS AGGREGATED THE ACTIVITY OF THE BOT H BARODA AND CHENNAI UNIT FOR DETERMINING THE ALP WITH RESPE CT TO THE FOLLOWING TRANSACTIONS: A. IMPORT OF RAW MATERIALS, PARTS ETC. B. IMPORT OF FINISHED GOODS FOR RESALE C. EXPORT OF VALVES AND VALVES COMPONENTS D. EXPORT OF FINISHED GOODS (RESALE) AND E. RECEIPT OF COMMISSION II. THE ASSESSEE SELECTED ITSELF AS TESTED PARTY. III. THE ASSESSEE APPLIED THE TNMM AS MOST APPROPRIATE METHOD AT ENTITY LEVEL AND ALSO COMPARED THE SAME A T ENTITY LEVEL WITH THE COMPARABLES. IV. THE ASSESSEE USED OPERATING PROFIT MARGIN TO SALES AS ITS PLI. 3.6. ACCORDINGLY, THE ASSESSEE SELECTED 5 COMPAR ABLE AFTER APPLYING THE FOLLOWING FILTERS: A) SELECT VALVES AND PUMP MANUFACTURING CO. B) EXCLUDE THE COMPARABLE HAVING RELATED PARTY TRAN SACTIONS C) USED MORE THAN 1 YEAR DATA D) SALES > ZERO E) MANUFACTURING SALE TO SALES > 90% ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 8 - 3.7. THUS, THE ASSESSEE DETERMINED THE OPERAT ING PROFIT MARGIN @ 9.65% OF THE COMPARABLE CASES WHICH WAS COMPARED WI TH OPERATING MARGIN OF IT (THE ASSESSEE) I.E. 15.91%. THUS THE A SSESSEE CLAIMED ITS MARGIN ON THE TRANSACTIONS WITH THE AE IS AT ARM LE NGTH AND NO ADJUSTMENT IN THE INTERNATIONAL TRANSACTIONS WITH T HE AE IS REQUIRED. 3.8. HOWEVER, THE TPO WAS NOT SATISFIED WITH TH E FILTERS USED/ APPLIED BY THE ASSESSEE FOR DETERMINING THE ALP. SIMILARLY, THE AO WAS ALSO UNSATISFIED FROM THE ACTION OF THE ASSESSEE FOR AGG REGATING THE TRANSACTION IN WORKING OUT THE ALP FOR THE INTERNATIONAL TRANSA CTIONS WITH THE AE. ACCORDINGLY, THE TPO REJECTED THE COMPARABLE SELECT ED BY THE ASSESSEE AND CONDUCTED FRESH SEARCH BY CONSIDERING THE BAROD A AND CHENNAI UNIT SEPARATELY AND BY USING THE FOLLOWING FILTERS: 1) ONLY SELECT VALVES MANUFACTURING COMPANIES. 2) SALE > 25 CRORES. 3) SIMILAR FINANCIAL YEAR DATA 4) TURNOVER MORE THAN 25 CRORES AND LESS THAN 25 CRORE . 5) RELATED PARTY TRANSACTION UP TO 25% SHOULD BE ACCEP TED. 3.9. IN VIEW OF THE ABOVE, THE TPO FOUND THREE C OMPARABLE AS DISCUSSED BELOW: S.NO. NAME OF THE COMPARABLE/COMPANY OP TO SALES 1. ASCO 36.49% 2. KSB (SEGMENT) 23.95% ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 9 - 3. VIRGO ENGINEERS LTD. 12.59% 3.10. ACCORDINGLY, THE TPO DETERMINED THE AVERAGE P LI OF THE COMPARABLE AT 25.88% FOR COMPARING THE SAME WITH TH E PLI OF BARODA AND CHENNAI UNIT SEPARATELY. HOWEVER, THE TPO HAS M ADE RISK ADJUSTMENT ON ACCOUNT OF BAD DEBTS, LOWER INVENTORY , CAPACITY UTILIZATION AND MARKET PLAN IN THE AVERAGE MEAN OF PLI OF THE C OMPARABLES WHILE WORKING OUT THE ALP OF THE CHENNAI UNIT BY 2%. THUS THE PLI OF THE COMPARABLE WAS TAKEN AT 23.88% IN CASE OF CHENNAI U NIT. 3.11. THE TPO FURTHER WORKED OUT THE PLI OF BARO DA AND CHENNAI UNIT AT 18.42% AND 17.01% RESPECTIVELY. 3.12. HOWEVER, THE ASSESSEE OBJECTED ON THE WORKI NG OF THE AO BY OBSERVING AS UNDER: 1) PUMPS AND VALVES ARE INTRINSICALLY CONNECTED TO EAC H OTHER AS THEY ARE USED TOGETHER. THEREFORE PUMP MANUFACTURING COMPANY SHOULD ALSO BE CONSIDERED/ SELECTED AS COMPARABLE. 2) TURNOVER FILTER OF RS. 25 CRORE IS NOT ACCEPTABLE. AS SUCH IT SHOULD BE OF RS. 1 CRORE. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 10 - 3) ASCO INDIA LIMITED IS MANUFACTURER OF SOLENOID VALV ES AND ITS 30 % TURNOVER FROM SALE OF SPARES AND OTHERS. THEREFORE THE SAME SHOULD NOT BE SELECTED AS COMPARABLE. 4) ALL THREE COMPARABLE CANNOT BE ACCEPTED FOR BOTH TH E UNIT. BOTH THE UNIT HAVE DIFFERENT FAR. 3.13. HOWEVER, THE TPO REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING AS UNDER: 1) ASSESSEE FAILED TO PROVIDE ANY TECHNICAL JUSTIFICAT ION IN SUPPORT OF ITS CONTENTION THAT THE PUMP MANUFACTURING COMPANIES AR E SIMILAR TO VALVES MANUFACTURING. 2) ASSESSEE DID NOT GIVEN ANY ECONOMIC JUSTIFICATION T O ADOPT THE FILTER OF TURNOVER FOR RS. 1 CRORE INSTEAD OF 25 CRORE. 3) IN CASE OF ASCO INDIA IT IS NOT CLEAR FROM THE FINA NCIAL STATEMENT THAT THAT 30% TURNOVER IS FROM SPARES PARTS ONLY. IT IS BECAUSE IN THE FINANCIAL STATEMENT OF ASCO LIMITED THERE IS NO MEN TIONED ABOUT THE SALES OF THE SPARES. 4) THE ASSESSEE HAS NOT SUBMITTED ANY ECONOMIC ANALYSI S SUGGESTING THAT THE COMPARABLE SELECTED BY HIM (THE TPO) ARE NOT AC CEPTABLE FOR BOTH ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 11 - UNIT. IT IS VERY CLEAR THAT PROPOSED COMPARABLE MAY NOT BE EXACTLY SIMILAR TO THE BOTH UNIT BUT THESE ARE BROADLY SIMI LAR. 3.14. ACCORDINGLY, THE TPO DETERMINED THE PLI FOR BOTH THE UNITS SEPARATELY I.E. FOR BARODA UNIT PLI COMPUTED AS 25. 88% AND FOR CHENNAI UNIT PLI COMPUTED AS 23.88%. ( AFTER 2% RISK ADJUST MENT AS DISCUSSED ABOVE). THUS THE TPO HAS MADE ADDITION IN CASE OF B ARODA UNIT AMOUNTING TO RS. 6,70,07,374/- AND IN CASE OF CHENN AI UNIT AMOUNTING TO RS. 4,71,42,168/-. 3.15. AGGRIEVED ASSESSEE, PREFERRED AN APPEAL BE FORE THE LD. DRP AND REITERATED THE SUBMISSIONS AS MADE BEFORE THE TPO. HOWEVER THE LD. DRP REJECTED THE CONTENTION OF THE ASSESSEE AND CON FIRMED THE ORDER OF THE TPO IN PART BY OBSERVING AS UNDER: 33. THE MAIN ISSUE, APART FROM THE OTHER LEGAL ISSUES WHICH WOULD BE DISCUSSED LATER, RELATED TO THE INCLUSION OF THE RE JECTION OF THE AGGREGATION APPROACH AND INCLUSION OF THE ASCO PNEUMATICS (INDI A) PVT. LTD IN THE COMPARABLES. BOTH THE ISSUES WERE DISCUSSED IN DETA IL WITH THE ASSESSES. THE PANEL ALSO DELIBERATED ON THIS IN DETAIL. THE ASSES SEE IS ENGAGED HI THE BUSINESS OF MANUFACTURING (NAMELY MACHINING, ASSEMB LY AND TESTING) OF VALVES, VALVE PARTS, ACTUATORS, COMPONENTS AND ACCE SSORIES. ITS BUSINESS OPERATIONS ARE CONDUCTED THROUGH TWO MAJOR BUSINESS DIVISIONS; NAMELY THE BARODA UNIT WHICH MAINLY CATERS TO THE DOMESTIC MAR KET AND THE CHENNAI UNIT, WHICH BEING A 100% EOU, CATERS TO EXPORT OF C OMPONENTS TO ASSOCIATED ENTERPRISES. THE ACTIVITIES CARRIED OUT IN RELATION TO MANUFACTURING OF VALVES ARE: IMPORT OF RAW MATERIALS, PARTS ETC; IMPORT OF FINISHED GOODS FOR RESALE; EXPORT OF VALVES AND VALVE COMPONENTS; EXPORT OF FI NISHED GOODS (RESALE); AND RECEIPT OF COMMISSION. THE ASSESSEE IS PRIMARIL Y ENGAGED IN MANUFACTURING ACTIVITIES AND IS ALSO ENGAGED IN DIS TRIBUTION BASED, ON VARIED CUSTOMER DEMANDS. THE MANUFACTURE OF A VALVE AND DI STRIBUTION OF SPARES ACCORDINGLY TO THE ASSESSEE, IS AN INTEGRATED ACTIV ITY- WITHIN THE VALVE INDUSTRY AND. ACCORDINGLY WANTS ITS OPERATIONS TO BE VIEWED AS ONE CONSOLIDATED ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 12 - FUNCTION. BUT, DISTRIBUTION FORMS A SMALL FRACTION OF THE TOTAL REVENUE OF THE COMPANY AND IS ESSENTIALLY UNDERTAKEN TO SUPPLEMENT THE PRODUCT RANGE ALREADY OFFERED TO CUSTOMER. ALL THESE SUGGEST THAT THE ASSESSEE COMPANY IS BASICALLY A NORMAL COMPANY. THERE IS NO TRANSACTION WHICH CAN BE STATED TO BE DIFFERENT AND BE CONSIDERED TO BE INTERLINKED. E VERY BUSINESS ENTERPRISE HAS PURCHASES AND SALES. BUT THEY ARE NOT INTERLINKED. PARAGRAPH 1.42 OF THE OECD GUIDELINES PROVIDE FOR EVALUATION OF COMBINED TRANSACTIONS WHERE SUCH TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS AND C ANNOT BE EVALUATED SEPARATELY. AS PER THE OECD GUIDELINES, EXAMPLES MA Y INCLUDE, (A) LONG-TERM CONTRACTS FOR THE SUPPLY OF COMMODITIES OR SERVICES , (B) RIGHTS TO USE INTANGIBLE PROPERTY, (C) PRICING A RANGE OF CLOSELY LINKED PRODUCTS (E.G., IN A PRODUCT LINE) WHEN IT IS IMPRACTICAL TO DETERMINE P RICING FOR EACH INDIVIDUAL PRODUCT OR TRANSACTION. ANOTHER EXAMPLE WOULD BE T HE LICENSING OF MANUFACTURING KNOW-HOW AND THE SUPPLY OF VITAL COMP ONENTS TO AN ASSOCIATED MANUFACTURER; IT MAY BE MORE REASONABLE TO ASSESS T HE ARM'S LENGTH TERMS FOR THE TWO ITEMS TOGETHER RATHER THAN INDIVIDUALLY. AS PER THE OECD GUIDELINES COMBINING MORE THAN ONE TRANSACTIONS BECOMES ALL TH E MORE NECESSARY WHERE THERE EXISTS AN INTENTIONAL SET-OFF - ONE ASSOCIATE D ENTERPRISE PROVIDES A BENEFIT TO ANOTHER ASSOCIATED ENTERPRISE WHICH IS BALANCED TO SOME EXTENT BY- DIFFERENT BENEFITS RECEIVED FROM THAT ENTERPRISE IN RETURN. IN SUCH SITUATION THE ENTERPRISES MAY CLAIM THAT THE BENEFIT RECEIVED BY THE RESPECTIVE ENTERPRISES SHOULD BE SET-OFF AGAINST THE BENEFIT EACH ENTERPRI SE HAS PROVIDED AS FULL OR PART PAYMENT OF THOSE BENEFITS AND ONLY NET GAIN OR LOSS OF THE TRANSACTIONS NEEDS TO BE CONSIDERED. BUT THE ASSESSEE'S CASE DOE S NOT FALL- IN THE AMBIT OF ANY OF THE ABOVE EXAMPLES GIVEN ABOVE. THUS, THE PA NEL IS OF THE VIEW THAT THE AGGREGATION APPROACH WOULD NOT BE THE RIGHT APPROAC H FOR THE TP STUDY AS ADOPTED BY THE ASSESSEE. THE ACTION TAKEN BY THE TP O IN THIS RESPECT WAS APPROPRIATE AND NEEDS NO INTERFERENCE. 34. THE OTHER OBJECTION WAS ON THE INCLUSION OF THE ASCO PNEUMATICS (INDIA) PVT. LTD IN THE COMPARABLES. THE PANEL LOOKED INTO ALL THE COMPARABLES. THE PANEL DECIDED TO LOOK INTO THE COMPARABLE SET ADOPT ED BY THE TPO, AND DECIDED TO ASCO AS THE SAME WAS CONSIDERED HAVING H IGH MARGIN AND SO LIABLE TO BE NOT INCLUDED M THE SET. THE COMPARABLE IS GIV EN BELOW: SR. NO. COMPANY NAME COMPARABLES FOR BARODA UNIT COMPARABLES FOR CHENNAI UNIT 1. KSB PUMPS LTD (VALVES SEGMENT) 23.95% 23.95% 2. VIRGO ENGINEERS LTD. 17.19% 17.19% MEAN 20.57% 20. 57% ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 13 - THE AO/TPO IS DIRECTED TO RECOMPUTE THE ADJUSTMENT ON THE BASIS OF THE ABOVE COMPARABLES FOR EACH UNIT OF THE ASSESSEE, TH E APPROACH ADOPTED BY THE TPO. THE TPO HAD ALLOWED 2% RISK ADJUSTMENT ON COMP ARABLE FOR BARODA UNIT WHILE COMPARING THEM WITH CHENNAI UNIT, AS THE TPO ACCEPTED THAT THERE WAS DIFFERENCE IN RISK PROFILE OF CHENNAI UNI T AND BARODA UNIT AS COMPARABLES TYPICALLY ASSUME HIGHER RISK AS COMPARE D TO CHENNAI UNIT WHICH .IS CATERING TO THE AES ONLY. IN THIS REGARD, ASSES SEE HAS SUBMITTED TO THE TPO THAT THE BAD DEBT RATIO TO SALES OF, COMPARABLES WA S 0.23% WHEREAS SAME FOR THE CHENNAI UNIT WAS NIL. SIMILARLY, CHENNAI UNIT H AD LOWER INVENTORY, CAPACITY UTILIZATION RISK AS IT IS CATERING TO AES AND ITS MARKETING PLAN ARE BASED ON FORECAST RECEIVED FROM THE AES. CONSIDERIN G THE SAME, THE SAME RISK ADJUSTMENT IS ALSO ALLOWED. THE PANEL DECIDED TO AD OPT THE ABOVE AVERAGE PLIS AND DIRECTS THE TPO/AO TO COMPUTE THE ALPS AND THE COMPUTE TP ADJUSTMENTS. BEING AGGRIEVED BY THE ORDER OF THE LD. DRP THE ASS ESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED AR BEFORE US FILED THREE PAPER BOOK RUNNING FROM PAGES 1 TO 704, 1 TO 1041 AND 1 TO 122 AND PROPOSED TO INCLUDE ONE COMPANY NAMELY KAR MOBILE IN THE LIST OF COMPARABLE FINALLY DECIDED BY THE LEARNED DRP. THE LEARNED AR IN SUPPORT OF HI S CONTENTION FURTHER SUBMITTED THAT THE IMPUGNED COMPANY WAS PASSED IN T HE SEARCH FILTERS APPLIED BY THE TPO FOR THE ASSESSMENT YEAR 2011-12. THEREFORE SUCH COMPANY SHOULD ALSO BE CONSIDERED FOR THE YEAR UNDE R CONSIDERATION. THE LEARNED AR DREW OUR ATTENTION ON PAGES NO 178 OF VO LUME I PAPER BOOK WHERE THE COPY OF THE TPO ORDER FOR THE ASSESSMENT YEAR 2011-12 WAS PLACED. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 14 - 4.1. THE LEARNED AR ALSO SUBMITTED THAT THE NAME OF SUCH COMPANY ( KAR MOBILE ) WAS ACCEPTED BY THE TPO IN THE ASSESSM ENT YEARS 2009- 10, 2010-11, 2011-12, 2012-13, 2013-14 AND 2014-15. THE LEARNED AR ALSO PLACES THE COPIES OF THE ASSESSMENT ORDERS WHI CH ARE PLACED ON RECORD. 4.2. THE LEARNED AR ALSO SUBMITTED THAT THE ASSE SSEE IS ENTITLED TO PLACE NEW COMPANY AS COMPARABLE EITHER BEFORE THE AO OR A PPELLATE PROCEEDINGS AS HELD BY THE BANGALORE TRIBUNAL IN TH E CASE OF NTT DATA GLOBAL DELIVERY SERVICES LTD REPORTED IN 69 TAXMANN .COM 7. 4.3. THE LEARNED AR ALTERNATIVELY SUBMITTED THAT THE ASSESSEE SHOULD BE ALLOWED PROPORTIONATE ADJUSTMENTS IN THE EVENT ANY ADJUSTMENT MADE IN THE MANAGEMENT EXPENSES WHILE DETERMINING THE ALP. THE LEARNED AR ACCORDINGLY SUBMITTED THAT THE DRP IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14 HAS GRANTE D SUCH PROPORTIONATE ADJUSTMENTS. 4.4. THE LEARNED AR FURTHER ALTERNATIVELY SUBMIT TED THAT THE ASSESSEE HAS FILED FRESH TP STUDY REPORT IN LINE OF THE SEAR CH PROCESS OF THE TPO BEFORE THE DRP BUT THE DRP HAS NOT CONSIDERED THE S AME WHILE ADJUDICATING THE ISSUE BEFORE IT. ACCORDINGLY THE L EARNED AR PRAYED BEFORE US TO REMIT THE MATTER TO THE FILE OF THE TP O FOR FRESH ADJUDICATION AFTER CONSIDERING THE FRESH TP REPORT/SUCH FILTERS FILED BY THE ASSESSEE BEFORE THE DRP. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 15 - 5. ON THE CONTRARY, THE LEARNED DR BEFORE US SU BMITTED THAT EACH ASSESSMENT YEAR IS A DIFFERENT ASSESSMENT YEAR AND THE SEARCH FILTERS USED IN ONE YEAR IS NOT NECESSARY TO BE USED IN THE ANOT HER YEAR. IT IS BECAUSE THE SEARCH FILTERS ARE USED/APPLIED DEPENDING UPON VARIOUS FACTORS SUCH AS THE TURNOVER, CAPITAL EMPLOYED, RELATED PARTY TRANS ACTION, ETC. THUS THE COMPANY NAMELY KAR MOBILES SELECTED BY THE TPO IN T HE OTHER ASSESSMENT YEARS CANNOT BE USED AS COMPARABLE IN TH E YEAR UNDER CONSIDERATION AUTOMATICALLY. ACCORDINGLY, THE LEARN ED DR OBJECTED ON THE INCLUSION OF THIS NEW COMPANY AS COMPARABLE IN THE YEAR UNDER CONSIDERATION. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE 1 ST ISSUE ARISES FOR OUR CONSIDERATION WHETHER THE COMPANY KAR MOBILES SHOUL D BE CONSIDERED AS ONE OF THE COMPARABLE FOR THE YEAR UNDER CONSIDE RATION IN THE GIVEN FACTS AND CIRCUMSTANCES. 6.1. ADMITTEDLY, THE NAME OF THE IMPUGNED COMP ANY WAS PROPOSED BY THE ASSESSEE 1 ST TIME BEFORE THE LEARNED DRP IN THE LIST OF COMPARA BLE COMPANIES SELECTED IN PURSUANCE TO THE FRESH SEARCH FILTERS AS ADOPTED BY THE TPO. KEEPING IN VIEW THE FACT THAT SUCH COMPAN Y HAS ALREADY BEEN INCLUDED AS ONE OF THE COMPARABLE IN THE OWN CASE O F THE ASSESSEE IN ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 16 - SEVERAL ASSESSMENT YEARS AS MENTIONED ABOVE, WE FIN D CONSIDERABLE FORCE IN THE ARGUMENT OF THE ASSESSEE. 6.2. HOWEVER, THERE IS NO LAW SUGGESTING THAT THE COMPARABLE SELECTED ONE YEAR SHOULD NECESSARILY BE SELECTED IN THE OTHE R. IT IS BECAUSE THE FILTER APPLIED CAN BE DIFFERENT FROM ONE YEAR TO OT HER DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH YEAR. THEREFORE, WE CANNOT DIRECT THE AO TO INCLUDE SUCH COMPANY AS COMPARABLE BUT HE CAN CE RTAINLY CONSIDER THE INCLUSION OF SUCH COMPANY IN THE LIST OF COMPARABLE COMPANIES IN THE LIGHT OF SEARCH FILTERS ADOPTED BY HIM FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, IN THE INTEREST OF JUSTICE AND FAIR PL AY WE REMIT THE IMPUGNED ISSUE TO THE FILE OF THE AO FOR FRESH ADJU DICATION AS PER THE PROVISIONS OF LAW AND IN THE LIGHT OF THE ABOVE STA TED DISCUSSION. 6.3. COMING TO THE ARGUMENT OF THE ASSESSEE FO R GRANTING THE PROPORTIONATE ADJUSTMENT OF THE MANAGEMENT EXPENSES , IN THIS REGARD WE FIND CONSIDERABLE FORCE IN THE ARGUMENT OF THE LEAR NED COUNSEL FOR THE ASSESSEE. THEREFORE IT IS PERTINENT TO NOTE THAT WE HAVE MADE THE DISALLOWANCE OF MANAGEMENT EXPENSES THE TUNE OF RS 1,35,96,799/- VIDE PARAGRAPH NUMBER 12 OF THIS ORDER. ACCORDINGLY, WE DIRECT THE TPO/AO TO WORK OUT THE PLI OF THE ASSESSEE AFTER CONSIDERI NG THE DISALLOWANCE OF THE MANAGEMENT EXPENSES CONFIRMED BY US. IN THIS C ONNECTION WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE I TAT HYDERABAD IN CASE OF TNS INDIA(P) LTD. VS ACIT REPORTED IN 48 TA XMANN.COM 80 WHEREIN IT WAS HELD AS UNDER: ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 17 - III) WE HAVE CONSIDERED THE SUBMISSIONS OF THE PAR TIES AND PERUSED THE MATERIALS ON RECORD. IT IS THE CONTENTION OF THE LEARNED AR T HAT THOUGH THE TPO HAS DISALLOWED THE PAYMENT OF MANAGEMENT FEES BY DETERM INING THE ALP AT NIL, BUT, AT THE SAME TIME, HE HAS CONSIDERED THE SAME WHILE COMPUTING OPERATING MARGIN OF THE ASSESSEE. WE ARE OF THE VIEW THAT WHEN THE T PO IS DISALLOWING THE PAYMENT OF MANAGEMENT FEES, IT CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF OPERATING MARGIN, OTHERWISE, IT WILL AMOUNT TO DOUB LE ADDITION. WE, THEREFORE, REMIT THIS ISSUE BACK TO THE FILE OF THE AO/TPO TO LOOK INTO THIS ASPECT AND DECIDE THE ISSUE AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6.4. IN VIEW OF THE ABOVE, WE DIRECT THE TPO/AO TO DECIDE THE ISSUE RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND OF APPEAL IN THE LIGHT OF THE ABOVE STATED DISCUSSION AND AS PER THE PROVISIO NS OF LAW. 7. THE LAST ALTERNATE CONTENTION OF THE ASSESS EE FOR ADMITTING THE FRESH COMPARABLE SELECTED BY IT IN PURSUANCE TO THE SUCH FILTERS ADOPTED BY THE TPO, IN THIS REGARD WE FIND THAT THE ASSESSEE HAS N OT CHALLENGED THE SUCH FILTERS ADOPTED BY THE TPO IN FINDING OUT THE COMPA RABLE COMPANIES IN THE DETERMINATION OF ALP AS DISCUSSED ABOVE. HOWEVE R, WE FIND THAT THERE ARE CERTAIN DIFFERENCES IN THE COMPANIES SELE CTED BY THE TPO VIZ A VIZ SELECTED BY THE ASSESSEE IN PURSUANCE TO THE SE ARCH FILTERS APPLIED BY THE TPO. THE ASSESSEE IN THIS CONNECTION HAS MADE D ETAILED REPRESENTATION BEFORE THE DRP BUT THE SAME WAS NOT CONSIDERED WHILE ADJUDICATING THE ISSUE BY IT. AS SUCH, WE ARE OF TH E VIEW THAT THE COMPANIES SELECTED BY THE ASSESSEE AS PER THE SEARC H FILTERS ADOPTED BY THE TPO, REQUIRES CONSIDERATION. THEREFORE, WE SET ASIDE THE ORDER OF THE LEARNED DRP TO THE FILE OF THE TPO FOR FRESH ADJUDI CATION AS PER THE PROVISIONS OF LAW. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 18 - 7.1. IT IS ALSO PERTINENT TO NOTE THAT THE COMPA NY NAMELY KAR MOBILES SUGGESTED BY THE ASSESSEE FOR INCLUSION IN THE LIST OF COMPARABLES, IS ALSO AVAILABLE IN THE FRESH COMPARABLES FURNISHED BY THE ASSESSEE BEFORE THE LEARNED DRP WHICH, WE HAVE ALREADY SET ASIDE THE FI LE OF THE TPO FOR FRESH ADJUDICATION AS DISCUSSED ABOVE. IN CASE THE AO/TPO AGREES TO INCLUDE THE ABOVE COMPANY I.E. KAR MOBILE, THEN THE RE IS NO NEED FOR THE AO/TPO TO CONSIDER THE FRESH TP STUDY FILED BY THE ASSESSEE BEFORE THE LD. DRP. 7.2. IN VIEW OF THE ABOVE, AND AFTER CONSIDERI NG THE FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THE ENTIRE ISSUE RAISED IN THE MAIN GROUND OF APPEAL IS SET ASIDE TO THE FILE OF THE TPO FOR FRES H ADJUDICATION IN THE LIGHT OF THE ABOVE STATED DISCUSSION AND AS PER THE PROVI SIONS OF LAW. HENCE THE MAIN GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FO R THE STATISTICAL PURPOSES. HOWEVER, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7.3. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1.2 IS THAT THE LD. DRP ERRED IN CONFIRMING THE ALP ADJUSTMENT OF RS. 2 ,20,69,862/- IN RELATION TO ENGINEERING DESIGN SERVICE. 7.4. THE ASSESSEE HAS TWO SEPARATE DESIGN UNITS AT NOIDA AND VASHI WHICH CARRIED OUT DESIGN RELATED SERVICES. THE ASSE SSEE DURING THE YEAR PROVIDED ENGINEERING DESIGN SERVICE TO ITS AE NAMEL Y TYCO THERMAL CONTROLS NV BELGIUM (TYCO BELGIUM) AND INCURRED COS T AMOUNTING TO RS. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 19 - 16,31,17,922/- ONLY WITHOUT CHARGING ANY MARKUP. HO WEVER THE ASSESSEE SUO-MOTO DECLARED MARKUP AMOUNTING TO RS. 1,82,03,0 35/- EQUIVALENT TO 11.15% ON COST. THE ASSESSEE IN PROVIDING THESE SER VICES USES CAD/CAM SOFTWARE AND HIGH QUALIFIED TECHNICAL PERSO N. 7.5. THE ASSESSEE APPLIED TNMM METHOD FOR DETERM INING THE ALP FOR SUCH ENGINEERING DESIGN SERVICE PROVIDED TO AE AND USED PLI AS RETURN ON TOTAL COST. ACCORDINGLY, THE ASSESSEE SELECTED 5 COMPARABLES AND CALCULATED PLI AT 11.87%. THE DETAILS OF COMPARABLE S ARE AVAILABLE AS UNDER: S.NO. NAME OF THE COMPANY DATA SOURCE MARK - UP ON TOTAL COST 1. ACE SOFTWARE EXPORTS LTD. P 10.91% 2. GEOMETRIC SOFTWARE SOLUTIONS CO.LTD. P 12.46% 3. ONWARD TECHNOLOGIES LTD. P 6.65% 4. TATA TECHNOLOGIES LTD. P 15.79% 5. INFOTECH ENTERPRISES LTD. SEG - P 13.53% MEAN 11.87% MEDIAN 12.46% UPPER QUARTILE 10.91% LOWER QUARTILE 14.10% 7.6. HOWEVER, THE TPO WAS NOT SATISFIED WITH T HE TP STUDY CONDUCTED BY THE ASSESSEE. ACCORDINGLY THE TPO REJECTED THE C OMPARABLES SELECTED BY THE ASSESSEE AND CARRIED OUT THE FRESH SEARCH. T HUS THE TPO PROPOSED 4 COMPARABLE AND DETERMINED THE PLI OF SUCH COMPARA BLES AS 23.18%. THE NECESSARY DETAILS STAND AS UNDER: SR.NO. NAME OF THE COMPANY MARGIN FOR FY 2006 - 07 % 1. ACE SOFTWARE EXPORTS LIMITED 16.32 ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 20 - 2. KLG SYSTEJ LTD 22.25 3. POWERSOFT GLOBAL SOLUTIONS LTD. 15.35 4. ROLTA INDIA LTD. 38.79 ARITHMETIC MEAN 23.18 7.7. HOWEVER, THE ASSESSEE HAS RAISED THE OBJECTION IN RELATION TO THE COMPARABLES SELECTED BY THE TPO AS DETAILED UNDER: 1) IN CASE OF ROLTA INDIA LIMITED, THE STANDALONE SEGM ENT RESULTS ARE NOT AVAILABLE. AS SUCH THE CONSOLIDATED FINANCIAL S TATEMENTS HAVE BEEN PREPARED BY THE COMPANY AS PER AS-21 AND IFRS. THEREFORE THIS IS NOT A SUITABLE COMPARABLE. 2) IN CASE OF OTHER COMPARABLE NAMELY POWER SOFT GLOBA L SOLUTION LIMITED, THE ASSESSEE SUBMITTED THAT THIS COMPANY I S ENGAGED IN IT SERVICE, OUTSOURCING ENGINEERING SOURCES, GIS SERVI CES RFID SERVICES. FURTHER IT HAS NOT REPORTED SEGMENTAL RES ULT THEREFORE IT SHOULD NOT BE TREATED AS SUITABLE COMPARABLE. 7.8. HOWEVER, THE LD. TPO REJECTED THE CONTENTI ON OF THE ASSESSEE BY OBSERVING THAT - 1) IN CASE OF ROLTA INDIA LIMITED THE ASSESSEE DID NOT PROVIDE ANY DIFFERENCE IN INDIAN AS AND IFRS WHICH AFFECTED THE PROFIT. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 21 - 2) IN CASE OF POWER SOFT GLOBAL SOLUTION, ALL THE SEG MENTS OF THE COMPANY ARE THE PARTS OF ENGINEERING DESIGN SERVICE OR ENGINEERING SERVICE. 7.9. ACCORDINGLY, THE AO DETERMINED THE ALP OF RS . 20,09,28,656/- BY USING PLI OF 23.18% AND MADE THE ADDITION OF RS. 1, 96,07,699/- TO THE TOTAL INCOME OF THE ASSESSEE. 7.10. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD. DRP AND REITERATED THE SUBMISSION BEFORE THE LD. DRP. HOWEV ER THE LD. DRP PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERV ING THAT THE POWER SOFT GLOBAL SOLUTION WAS A SOFTWARE DEVELOPMENT COMPANY AND IT WAS NOT A SUITABLE COMPARABLE. ACCORDINGLY THE LD. DRP EXCLUD ED FROM THE SET OF COMPARABLE. THEREFORE THE DRP DIRECT TO THE TPO/AO COMPUTE THE ALP ACCORDINGLY. BEING AGGRIEVED BY THE ORDER OF THE LD. DRP THE ASS ESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED AR BEFORE US SUBMITTED THAT THE MARGIN COMPUTED BY THE TPO IN CASE OF ACE SOFTWARE WAS INCORRECT. AS S UCH THE MARGIN ADOPTED BY THE TPO IS 16.32% WHEREAS CORRECT MARGIN IS -6.79%. THIS FACT WAS BROUGHT TO NOTICE OF THE LEARNED DRP BUT T HE SAME WAS NOT CONSIDERED BY IT. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 22 - 8.1. THE LEARNED AR IN SUPPORT OF HIS CONTENTIO N REFERRED THE ORDER OF DELHI ITAT IN THE CASE OF TECH BOOKS ELECTRONICS RE PORTED IN 65 TAXMAN.COM 241 WHERE THE MARGIN OF -6.79% WAS ACCEP TED. 8.2. THE LEARNED AR FURTHER SUBMITTED THAT THE C OMPARABLE SELECTED BY THE TPO NAMELY ROLTA SHOULD BE REJECTED FOR THE REA SONS DETAILED UNDER: I. THE RELATED PARTY TRANSACTIONS IS OF 26.80% WHICH I S QUITE HIGH THAN THE STANDARD PERCENTAGE. THEREFORE THE SAME NE EDS TO BE REJECTED. IN THIS REGARD THE LEARNED AR HAS RELIED ON THE JUDGMENT AS UNDER: 1. UNITED ENGINEERS (MADRAS) BERHA QUARUM (2016) 74 TA XMANN.COM 175 (BANGALORE-TRIB.) 2. DBOI GLOBAL SERVICES (P.) LT. (2016) 74 TAXMANN.CO M 83 (MUMBAI TRIB.) 3. YODLEE INFOTECH (P.) LTD. (2016) 75 TAXMANN.COM 258 (BANGALORE TRIB.) 4. SONY INDIA PVT.LTD. (ITA NOS.1189/DEL/2005, 819/DEL /2007 & 820/DEL/2007) AND (2008) 114 ITD 448 (DELHI) 5. GLOBAL LOGIC INDIA PVT.LTD. (023) 31 TAXMANN.COM 81 (DELHI TRIB.) II. THE COMPARABLE COMPANY IS FOLLOWING FINANCIAL YEAR BEGINNING FROM JULY TO JUNE WHEREAS THE ASSESSEE BEING THE TE STED PARTY IS FOLLOWING THE FINANCIAL YEAR FROM APRIL TO MARCH. T HEREFORE THE SAME SHOULD BE REJECTED AS A COMPARABLE. THE LEARNE D AR IN SUPPORT OF HIS CONTENTION HAS REFERRED TO THE FOLLO WING JUDGMENTS: 1. TESCO HINDUSTAN SERVICE CENTRE PVT.LTD. (ITA (T P) A NO.1285/BANG/2011) (PARA 41.42) 2. DOVER INDIA PRIVATE LIMITED (2015) 59 TAXMANN. COM 52 (PARA 13) IN THIS CASE ROLTA WAS REJECTED 3. PTC SOFTWARE (INDIA) PRIVATE LIMITED (ITA NO.160 5/PN/2011, PRONOUNCED IN APRIL 2013) (PARA 23), ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 23 - 4. SOFTBRANDS INDIA PRIVATE LIMITED (IT(TP)A NO.10 94/BANG/2011) PRONOUNCED IN AUGUST 2016 (PARA 18.2) III. THE FINANCIAL STATEMENTS OF ROLTA USED BY THE TPO A RE CONSOLIDATED, INCLUDING THE RESULTS OF THE FOREIGN SUBSIDIARIES. AS SUCH THE FINANCIAL STATEMENT OF ROLTA FOR THE ST AND ALONE SEGMENT FOR THE YEAR UNDER CONSIDERATION WAS NOT AV AILABLE. ACCORDINGLY THE ASSESSEE CLAIMED THAT SUCH CONSOLID ATED FINANCIAL STATEMENTS CANNOT BE USED AS COMPARABLE. THE LEARNED AR ALSO DREW OUR ATTENTION ON PAGES 611 VOLUME III WHERE THE FINANCIAL STATEMENTS OF THE COMPARABLE WERE PLACED. THE LEARNED AR IN SUPPORT OF HIS CONTENTION REFERRED TO THE FOLLOWING JUDGMENTS: 1. AMERICAN EXPRESS (44 TAXMANN.COM 389 (DELHI TRIB.) (PARA 21) PAGE 749 2. 3DPLM SOFTWARE SOLUTIONS LTD. VS. DY.CIT (2014) 42 TAXMANN.COM 333 (BANG. TRIB.) (PARA 12.4.1.) PAGE 777 8.3. THE LEARNED AR ALSO ALTERNATIVELY SUBMITTED THAT THE TPO HAS ACCEPTED A COMPARABLE NAMELY KLG SYSTEL LTD. WHICH IS ENGAGED IN LIFE CYCLE MANAGEMENT. ACCORDINGLY IT CLAIMED THAT THE S IMILAR COMPANY ENGAGED IN PRODUCT LIFE CYCLE SERVICES NAMELY GEOME TRIC SHOULD ALSO BE CONSIDERED AS ONE OF THE COMPARABLE. THE LEARNED AR ALSO CLAIMED THAT THE IMPUGNED COMPANY IS ALSO OFFERING ENGINEERING S OLUTION SERVICES. THUS THE LEARNED AR PRAYED FOR THE INCLUSION OF THI S AS COMPARABLE COMPANY. HOWEVER, THE LEARNED AR FURTHER SUBMITTED THAT IF ROLTA IS REJECTED FROM THE SET OF COMPARABLES, THEN HE WILL NOT PRESS FOR THE INCLUSION OF GEOMETRIC IN THE LIST OF COMPARABLES. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 24 - 9. ON THE OTHER HAND, THE LEARNED DR SUBMITTED TH AT THE MATTER FOR WORKING OUT THE CORRECT MARGIN IN CASE OF ACE SOFTW ARE CAN BE SET ASIDE TO THE FILE OF THE TPO FOR FRESH ADJUDICATION. 9.1. THE LEARNED DR ALSO CLAIMED THAT THE RELATED PARTY TRANSACTIONS IN THE CASE OF ROLTA IS LESS THAN 25% AND THEREFORE TH E SAME SHOULD BE INCLUDED. 9.2. THE LEARNED DR FURTHER SUBMITTED THAT THE A SSESSEE IN THE ASSESSMENT YEAR 2005-06 HAS OFFERED THE MARGIN AT T HE RATE OF 20.96% AND THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTAN CES. ACCORDINGLY, THE LD. DR CLAIMED THAT THE MARGIN AT THE RATE OF 20.96 % SHOULD ALSO BE APPLIED FOR WORKING OUT THE ALP FOR THE YEAR UNDER CONSIDERATION. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AU THORITIES BELOW. 9.3. THE LEARNED AR IN HIS REJOINDER SUBMITTED T HAT THE MARGIN IN THE EARLIER ASSESSMENT 2005-06 WAS COMPUTED DEPENDING U PON THE FACTS AND FIGURES OF THAT YEAR. THEREFORE, THE SAME BASIS CAN NOT BE ADOPTED IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF CHANGES IN T HE FACTS AND FIGURES BETWEEN THE COMPARABLES VIZ A VIZ THE ASSESSEE. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDI NG DISCUSSION, WE NOTE THAT FOLLOWING ISSUES ARISING FOR OUR CONSIDERATION AND ADJUDICATION. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 25 - I. WHETHER ACE SOFTWARE EXPORTS LTD. MARGIN COMPUTED B Y THE TPO IS CORRECT IN THE GIVEN FACTS AND CIRCUMSTANCES . II. WHETHER THE COMPARABLE NAMELY ROLTA NEEDS TO BE REJ ECTED IN THE GIVEN FACTS AND CIRCUMSTANCES. III. WHETHER THE COMPARABLE NAMELY GEOMETRIC SHOULD BE I NCLUDED IN THE LIST OF COMPARABLE. 10.1. REGARDING THE QUESTION NO. 1, WE FIND THAT THE ISSUE IS FACTUAL IN NATURE AND ACCORDINGLY WE SET ASIDE TO THE FILE OF THE TPO TO WORK OUT THE ACTUAL MARGIN OF ACE SOFTWARE AND ADJUDICATE THE IS SUE ACCORDINGLY. 10.2. REGARDING THE COMPARABLE NAMELY ROLTA, WE NOTE THAT IT IS A GROUP OF COMPANIES COMPRISING 7 ASSOCIATED ENTERPRI SES AND OPERATING IN DIFFERENT PARTS OF WORLD AS DETAILED UNDER: NAME OF THE ENTITY COUNTRY OF INCORPORATION EFFECTIVE GRO UP SHAREHOLDING(%) ROLTA INTERNATIONAL INC. (RUS) USA 100 ROLTA SAUDI ARABIA LIMITED (RSA) SOUTH ARABIA 75 ROLTA MIDDLE EAST (FZ LLC (RME) UAE 100 ROLTA UK LIMITED (RUK) UK 100 ROLTA BENEULX B.V. NEHTERLANDS 100 ROLTA CANADA LIMITED CANADA 100 ROLTA DEUTSCHLAND GMBH GERMANY 100 10.3. THE FINANCIAL STATEMENT OF ROLTA INDIA LTD WAS FOR THE ENTIRE GROUP WHICH WAS USED AS COMPARABLE IN THE CASE OF T HE ASSESSEE COMPANY. IN OUR CONSIDERED VIEW THE CONSOLIDATED FI NANCIAL STATEMENTS ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 26 - CANNOT BE COMPARED WITH THE ASSESSEE. IT IS BECAUSE THE CONSOLIDATED FINANCIAL STATEMENT OF ROLTA INDIA LTD. ALSO CONTAI N THE INFORMATION/FINANCIAL RESULT OF THE ENTIRE GROUP. A S SUCH, THE PROVISIONS OF THE ACT REQUIRES THAT ONLY THE INDIAN COMPANY OF ROLTA GROUP CAN BE CONSIDERED AS ONE OF THE COMPARABLE FOR WORKING OUT THE ALP OF THE ASSESSEE. THE CONSOLIDATED FINANCIAL STATEMENTS OF ROLTA ARE PLACED ON PAGE NO. 603 OF THE PAPER BOOK. 10.4. IN HOLDING SO WE ALSO DRAW SUPPORT AND GU IDANCE FROM THE ORDER OF HONBLE MUMBAI TRIBUNAL IN THE CASE OF CAPGEMINI INDIA PRIVATE LIMITED, ITA NO 7861/MUM/2011 DATED 28-02-2013 WHER EIN IT WAS HELD AS UNDER: 5.3.3 WE FIRST DEAL WITH THE PLEAS RAISED BY THE L D. SR. COUNSEL FOR USING CONSOLIDATED RESULTS FOR THE PURPOSE OF COMPARISON OF MARGINS. THE LD. CIT-DR HAS POINTED OUT THAT THE FOUR COMPARABLES HAVING SUBSTA NTIAL RELATED PARTY TRANSACTIONS I.E., CG-VAK, MASCON GLOBAL LIMITED, MASTEK LTD. AN D PATNI COMPUTER SYSTEMS LTD. HAVE SUBSTANTIAL REVENUE'S FROM OVERSEAS MARKET AND , THEREFORE, THE CONSOLIDATED RESULTS WHICH HAVE PROFIT FROM DIFFERENT MARKETS WI LL NOT BE COMPARABLE. IT WAS POINTED OUT IN CASE OF MASCON GLOBAL LIMITED, 75% O F THE REVENUE CAME FROM USA, MOSCOW AND UK AND IN CASE OF CG-VAK 75% OF THE REVE NUE CAME FROM OTHER JURISDICTIONS. IN CASE OF PATNI COMPUTER SYSTEMS LT D., 61% OF THE REVENUE CAME FROM USA, UK, GERMANY AND BRAZIL WHEREAS IN CASE OF MAST EK LTD. SUBSTANTIAL PART OF THE REVENUE CAME FROM OTHER COUNTRIES. THESE CLAIMS OF LD. CIT-(DR) WHICH WERE BASED ON THE ANNUAL REPORTS OF THE COMPANIES WHICH WERE P LACED ON RECORD WERE NOT DISPUTED BY THE LD. SR. COUNSEL. UNDER THE PROVISIO NS OF RULE 10B(2)(D), COMPARABILITY OF TRANSACTIONS HAS TO BE CONSIDERED AFTER TAKING INTO ACCOUNT THE PREVAILING MARKET CONDITIONS INCLUDING GEOGRAPHICAL LOCATIONS, SIZE OF MARKET AND COST OF CAPITAL AND LABOUR ETC. THEREFORE, WE AGREE WITH THE LD. CIT-(DR) THAT THE CONSOLIDATED RESULTS WHICH INCLUDE PROFIT FROM DIFF ERENT OVERSEAS JURISDICTIONS HAVING DIFFERENT GEOGRAPHICAL AND MARKETING CONDITIONS WIL L NOT BE COMPARABLE. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT ANY OF THE COMPARABLES WERE HAVING BRANCHES ABROAD IN ADDITION TO SUBSIDIA RIES. WE ALSO NOTE THAT IN CASE OF AMERICAN EXPRESS (INDIA) PVT. LTD. (SUPRA), THE TPO HAD TAKEN CONSOLIDATED RESULTS TO NULLIFY THE RESULTS OF AY .07-08 RELATED PARTY T RANSACTIONS BUT THE TRIBUNAL IN A SIMILAR SITUATION HAD NOT ALLOWED THE SAME ON THE G ROUND THAT SUBSTANTIAL REVENUE CAME FROM OTHER MARKETS WHICH WERE NOT COMPARABLE. WE, THEREFORE, UPHOLD THE VIEW TAKEN BY THE AUTHORITIES BELOW TO ADOPT STANDALONE RESULTS FOR THE PURPOSE OF ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 27 - COMPARISON OF MARGINS. CONSEQUENTLY WE ALSO UPHOLD THE ORDER OF TPO FOR REJECTING THE ABOVE MENTIONED FOUR COMPARABLES WHICH HAVE SUB STANTIAL RELATED PARTY TRANSACTIONS BECAUSE THE TRANSACTIONS IN THESE CASE S COULD NOT BE CONSIDERED AS FULLY UNCONTROLLED. 10.5. IN VIEW OF THE ABOVE, WE HOLD THAT THE COM PANY NAMELY ROLTA INDIA LTD. CANNOT BE CONSIDERED AS COMPARABLE. ACCO RDINGLY, WE REVERSE THE FINDING OF THE LEARNED DRP AND DIRECT THE TPO N OT TREAT THIS COMPANY AS THE COMPARABLE FOR THE PURPOSE OF WORKING OUT TH E ALP OF THE ASSESSEE WITH RESPECT TO THE TRANSACTIONS CARRIED OUT WITH I TS ASSOCIATED ENTERPRISES. AS, WE HAVE REJECTED ROLTA INDIA LTD AS ONE OF THE COMPARABLE, WE DO NOT FIND ANY REASON TO ADJUDICATE THE ISSUE FOR THE INC LUSION OF GEOMETRIC SOFTWARE SOLUTION CO LTD. HENCE, THE GROUND OF APPE AL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10.6. THE ISSUE RAISED BY THE ASSESSEE IN GROUN D NO. 1.3 IS THAT THE LD. DRP ERRED IN CONFIRMING THE ALP ADJUSTMENT OF RS. 2 ,07,21,181/- IN RELATION TO REIMBURSEMENT OF MANAGEMENT FEES EXPENS ES. 10.7. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH TYCO FLOW CONTROL OTE. LTD. SINGAPORE (TFCA) TO RECEIVE THE M ANAGEMENT AND MARKETING SERVICES AS DETAILED UNDER: S.NO. TYPE OF SERVI CE NATURE OF SERVICE PROVIDED 1. MANAGEMENT FEE 1 A IT DEPARTMENT DATA NETWORK/INFRASTRUCTURE CONSULTANCY DESKTOP HARDWARE/SOFTWARE CONSULTANCY EMAIL ACCOUNTS AND ACCESS REMOTE ACCESS (VPN/DIALUP) SUPPORT TECHNOLOGY & INFRASTRUCTURE CONSULTATION 1 B HR DEPARTMENT STRATEGIC INITIATIVES PROVIDES LEADERSHIP AND PARTNERS WITH BUSINESS UNIT ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 28 - IN ALL CORPORATE INITIATIVES/PROJECTS COORDINATES WITH THE US HEADQUARTER AND LIAISON BETWEEN 5 BUSINESSES AND THE CORPORATE EVALUATE AND LEAD TO INCREASE EMPLOYEE ATTITUDE SURVEY SCORES SUCCESSION PLANNING & ORGANIZATION LEADERSHIP REVIEW SPAN LAYERS ANALYSIS TO ACCESS ORGANIZATION EFFICIENCY CORE BUSINESS FUNCTIONS ESTABLISH POLICY AND GUIDELINES TO ASSIST EFFECTIVE AND EFFICIENT HUMAN CAPITAL MANAGEMENT. COORDINATES WITH THE US FOR EXPATRIATE COMPENSATION & BENEFITS MATTERS. DRIVE AND LEAD THE ANNUAL BONUS PAYOUTS AND COMPENSATION REVIEWS PROCESSES UP TO EXECUTION AND COMPLETE IMPLEMENTATION OF THE CHANGES. 1 C TA X DEPARTMENT ASSIST THE TAXATION WORKING AND ASSESSMENT AS PER INDIA LAWS WHICH HELPS TO SUBMIT THE SUBMISSION TO TAX AUTHORITIES. VICE PRESIDENT OF TAX HELPS TO TVCIPL IN INDIAN TAX MATTERS. HE REVIEWS THE ASSESSMENT ORDERS AND SUBMISSIONS AND LIAISONING WITH LOCAL TAX CONSULTAN TS FOR SUBMISSIONS IN CASE OF APPEAL TO TAX DEPARTMENT S. 1 D LEGAL DEPARTMENT LEGAL DEPARTMENTS HAS LEGAL COUNSEL WHO HELP IN PREPARING/REVIEWING THE AGREEMENTS/CONTRACTS TO BE SIGNED/ENTERED WITH CUSTOMERS/VENDOR OR THIRD PARTY . LEGAL DEPARTMENT ALSO HELPS IN FILING LEGAL SUBMISSION BEFORE STATUTORY AUTHORITIES. 1 E TREASURY DEPARTMENT TREASURY DEPARTMENTS HELPS IN CASH MANAGEMENT BY PROVIDING SUPPORT FOR ISSUE OF BANK GUARANTEE/LETTE R OF CREDIT WITH BANKS. PROVIDES ASSISTANCE IN TAKING FORWARD COVER IN FORE X AS AND WHEN REQUIRED. FACILITIES IN GETTING BETTER FOREX RATES. 1 F FINANCE DEPARTMENT TO ENSURE THAT ALL PROCESSES SURROUNDING THE ACCOUNTING AND CLOSING PROCESSES ARE PERFORMED EFFICIENTLY AND EFFECTIVELY. COORDINATING, COMPILING AND ANALYZING MONTHLY REPORTING MATTERS FOR ACTUAL AND FORECAST, QUARTERL Y REPORTING AND BUDGETING F ACILITATE THE INTERCOMPANY & INT RACOMPANY RECONCILIATION PROCESS FOR BOTH SEGMENT COMPANIES AND TYCO COMPANIES. CONSULTING SUPPORT ON IMPROVEMENTS TO INTERNAL CONTROLS (DOCUMENTATION, ACTION ITEM EVALUATION, IMPLEMENTATION) AND COORDINATING RESOURCES THEREON. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 29 - 2 MARKETING FEES 2 A PRODUCT MANAGEMENT TRANSFER PRICE ADMINISTRATION TRANSFER OF TECHNOLOGY INCREASE PRODUCT PENETRATION PRODUCT INNOVATION & TECHNOLOGY PRODUCT BENCHMARKING EXPAND PRODUCT APPLICATIONS 2 B MARKETING SERVICES MAINTAIN CORPORATE IDENTITY PRINT COLLATERALS LITERATURE, POSTERS, LAUNCH MANUALS ADMINISTERS THE TYCO VALVES WEBSITE EVENTS MANAGEMENT SALES CONFERENCES, EXHIBITIONS BRANDING & POSITIONING THE TFCA CHARGE MARKUP 5% ON COST. 10.8 HOWEVER, THE TPO FOUND FROM THE DETAILS FILED BY THE ASSESSEE THAT THE ASSESSEE DID NOT FILE THE INVOICE OF MANAGEMENT EXPENSES AMOUNTING TO RS. 1,25,56,602/-. THEREFORE THE TPO ACCORDINGLY BENCHMARKED SUCH EXPENSES AT RS. NIL. ACCORDINGLY THE TPO MADE UPWAR D ADJUSTMENT OF RS. 1,25,56,602/- ONLY. 10.9 THE TPO FURTHER FOUND FROM THE DETAILS FILED B Y THE ASSESSEE THAT THE SOME OF THE INVOICES PERTAINS TO EARLIER YEAR. HOWE VER THE ASSESSEE DID NOT MAKE ANY PROVISION OF THESE SERVICES IN THE REL EVANT FY. THEREFORE THE TPO BENCHMARKED THESE INVOICES AT NIL. ACCORDIN GLY THE TPO MADE UPWARD ADJUSTMENT OF RS. 10,40,197/- ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 30 - 10.10 THE TPO FURTHER FOUND FROM THE DETAILS FIL ED BY THE ASSESSEE FOR THE REMAINING MANAGEMENT EXPENSES OF RS. 3,23,83,55 5 THAT THESE ARE IN THE NATURE OF FOLLOWINGS: (I) POLICIES AND PROCEDURES (II) INTERNAL MIS AND FORECASTING (III) SUPPORT OF TAX & LEGAL MATTERS (IV) SUPPORT OF INTERNAL AUDIT (V) TREASURY SUPPORT MAINTAINING BANKING LIMITS AND BANKING FACILITIES ON GLOBAL BASIS. (VI) MANAGEMENT SUPPORT TO INDIAN OPERATION. (VII) INSURANCE SUPPORT (VIII) SUPPORT ON SARBANS-OXLEY IMPLEMENTATION. 10.11 IT IS CLEAR FROM THE ABOVE DETAILS THAT TH E SERVICES PROVIDED BY THE AE ARE DUPLICATE IN NATURE AND REPETITIVE. THE SERV ICE RENDERED BY THE AE TO ASSESSEE WAS THE REQUIREMENT OF HOLDING COMPANY IN ITS STEWARDSHIP CAPACITY. THESE SERVICES ARE BENEFICIAL TO SHAREHOL DER, GROUP ENTITIES, AND COMPLIANCE OF LAW AND REGULATION OF OTHER COUNTRIES . THERE WAS NO EVIDENCE THAT THE ASSESSEE REQUIRED THESE SERVICES FOR ITS BUSINESS. ACCORDINGLY THE TPO SOUGHT CLARIFICATION FROM THE A SSESSEE ON HIS OBSERVATION AS DISCUSSED ABOVE. THE REPLY OF THE ASSESSEE STANDS AS UNDER: 1) THE SERVICES RECEIVED BY IT (THE ASSESSEE) ARE CLOS ELY CONNECTED WITH ITS BUSINESS. IT ENABLE TO IT (THE ASSESSEE) T O PERFORM ITS FUNCTION EFFECTIVELY IN AN EFFICIENT MANNER. 2) IF THE ASSESSEE WOULD NOT HAVE RECEIVED THESE SERVI CES FROM ITS AE THEN IT (THE ASSESSEE) WOULD HAVE PROCURED THE SAME FROM THIRD PARTY SERVICE PROVIDER. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 31 - 3) THESE SERVICES HELP IN MAINTAINING BETTER INTERNAL CONTROLS IN THE COMPANY. 10.12 HOWEVER, THE TPO REJECTED THE CONTENTION OF THE ASSESSEE AND DISALLOWED PART OF THE MANAGEMENT FEES OF RS. 64,76 ,711/- BEING 20% OF RS. 3,23,83,555/- BY TREATING THE SAME AS THE EXPEN SES NOT REQUIRED FOR ITS BUSINESS. THE TPO FURTHER MARKED-UP 10% OF THESE EX PENSES FOR RS. 6,47,671.00. THEREFORE THE TPO MADE THE UPWARD ADJU STMENT OF RS. 71,24,382/- ONLY. 10.13 AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD. DRP. 10.14 THE ASSESSEE BEFORE THE LD. DRP REITERATE D THE SUBMISSIONS AS MADE BEFORE THE TPO. HOWEVER THE LD. DRP DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING THAT DISALLOWANCE WAS MADE ON THE BASIS OF THE FACT RATHER THAN ANY ADJUSTMENT. BEING AGGRIEVED BY THE ORDER OF THE LEARNED DRP, TH E ASSESSEE IS IN APPEAL BEFORE US. 10.15. THE LEARNED AR BEFORE US SUBMITTED THAT T HE ASSESSEE HAS CLAIMED TOTAL MANAGEMENT FEE EXPENSES IN THE YEAR U NDER CONSIDERATION AMOUNTING TO RS. 4,59,80,354/-ONLY. THE LD. AR FOR THE ASSESSEE HAS FURTHER FILED THE BREAKUP OF SUCH EXPENSES AS DETAI LED UNDER: ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 32 - I. MANAGEMENT FEE OF RS. 1,25,56,602/- WHERE THE DEBIT NOTES OR NOT AVAILABLE. II. MANAGEMENT FEES OF RS. 10,40,197/- WHERE THE DEBIT NOTE OF THE EARLIER YEARS ARE AVAILABLE. III. MANAGEMENT FEES OF RS. 3,23,83,555/- BEING 20% OF A D HOC DISALLOWANCE ALONG WITH 10% MARKUP THEREON. 10.16. AT THE OUTSET, THE LEARNED AR, BEFORE US SUBMITTED THAT HE DOESNT WANT PRESS FOR THE MANAGEMENT FEES OF RS. 1 0,401,97/- WHERE THE DEBIT NOTE OF THE EARLIER YEAR WERE NOT AVAILABLE. 10.17. THE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAS ALREADY MADE THE DISALLOWANCE OF MANAGEMENT FEES AMOUNTING TO RS. 1,25,56,602/- ON ACCOUNT OF NON-DEDUCTION OF TD S. ACCORDINGLY THE LEARNED AR CLAIMED THAT THERE CANNOT BE FURTHER DIS ALLOWANCE TO THE EXTENT OF SUCH MANAGEMENT FEE EXPENSES. 10.18. THE LEARNED AR FURTHER SUBMITTED THAT THE TPO HAS NO JURISDICTION TO MAKE THE DISALLOWANCE ON AD HOC BAS IS. AS SUCH THE TPO IS UNDER THE OBLIGATION TO DETERMINE THE ARM LENGTH PRICE. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED ON THE FOLLO WING ORDERS: A) FLAKT INDIA LTD. ITA NO 1032/MDS/2014 B) NESS TECHNOLOGIES (INDIA) PVT LTD. REPORTED IN 76 T AXMANN.COM 209 C) DEBT NORSKE VERITAS REPORTED IN 67 TAXMANN.COM 16 ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 33 - 10.19. THE LEARNED AR FURTHER SUBMITTED THAT THE IN AY 2009-10 THE LD. DRP DELETE THE SAME ADDITION MADE BY THE LD. TPO ON AD HOC BASIS. 11. ON THE OTHER HAND, THE LEARNED DR REGARDING THE MANAGEMENT FEES OF RS. 1,25,56,602/- SUBMITTED THAT THE IMPUGNED AM OUNT NEEDS TO BE DETERMINED ON ARM LENGTH BASIS IRRESPECTIVE OF THE FACT THAT THE SAME WAS DISALLOWED ON ACCOUNT OF NON-DEDUCTION OF TDS. THE LEARNED DR FURTHER SUBMITTED THAT THE DETERMINATION OF THE ARM LENGTH PRICE FOR SUCH MANAGEMENT FEES IS ESSENTIAL IN THE SENSE THAT THE ASSESSEE IN FUTURE WILL DEPOSIT THE AMOUNT OF TDS AND CLAIMED THE DEDUCTION OF THE ENTIRE AMOUNT. 11.1. THE LEARNED DR FURTHER SUBMITTED THAT THE A SSESSEE HAS NOT FURNISHED SUFFICIENT DOCUMENTARY EVIDENCE WITH RESP ECT TO THE BALANCE MANAGEMENT FEES EXPENSES AMOUNTING TO RS. 3,23,83,5 55/-. THEREFORE, THE TPO IN THE ABSENCE OF SUFFICIENT DOCUMENTARY EV IDENCE HAD NO ALTERNATE EXCEPT TO MAKE THE DISALLOWANCE ON AD HOC BASIS. 11.2. THE LEARNED DR ALSO CLAIMED THAT IF THE AD DITION IS DELETED THAT THE ASSESSEE WILL GET THE DOUBLE BENEFIT. AS SUCH T HE ASSESSEE ON ONE HAND HAS NOT FURNISHED THE DOCUMENTARY EVIDENCE IN SUPPO RT OF SUCH MANAGEMENT FEE EXPENSES AND ON THE OTHER HAND THERE WILL NOT BE ANY ADDITION FOR THE DISALLOWANCE OF SUCH EXPENSES WHIC H IS LOSS TO THE GOVERNMENT EXCHEQUER. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 34 - 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. REGARDING THE MA NAGEMENT FEES OF RS. 1,25,56,602/- WE NOTE THAT THE ASSESSEE WAS UNDER T HE DUTY TO PROVIDE THE DOCUMENTS AS DESIRED BY THE TPO DURING THE PROCEEDI NGS. BUT THE ASSESSEE FAILED TO DO SO. THEREFORE, THE TPO HAS MA DE THE DISALLOWANCE OF ENTIRE EXPENSES. NOW THE CONTROVERSY ARISES WHET HER THERE IS A NEED TO DETERMINE THE ALP OF THE IMPUGNED EXPENSES WHICH HA S ALREADY BEEN DISALLOWED IN THE COMPUTATION OF INCOME ON ACCOUNT OF NON-DEDUCTION OF TDS. 12.1. IF WE ACCEPT THE ARGUMENT OF THE LEARNED C OUNSEL FOR THE ASSESSEE, THEN THE IMPUGNED EXPENSES WILL BE ALLOWED AS DEDUC TION TO THE ASSESSEE IN THE YEAR IN WHICH THE ASSESSEE COMPLIES THE PROV ISIONS OF TDS. THUS WE DISAGREE WITH THE CONTENTION OF THE ASSESSEE FOR NOT COMPUTING THE ARM LENGTH PRICE OF SUCH MANAGEMENT FEES AS DISCUSS ED ABOVE. FURTHERMORE, THERE WAS NO DOCUMENTARY EVIDENCE FILE D BY THE ASSESSEE IN SUPPORT OF SUCH EXPENSES. THEREFORE, WE ARE INCLINE D TO CONFIRM THE SAME BY UPHOLDING THE ORDER OF THE AUTHORITIES BELOW. WE ARE ALSO NOT OBLIVION TO THE FACT THAT THERE CAN NOT BE DOUBLE ADDITION OF THE SAME AMOUNT BY TREATING THE ALP AT NIL AND O N ACCOUNT OF NON- DEDUCTION OF TDS UNDER THE PROVISIONS OF THE ACT. A S SUCH, THERE WILL BE THE ADDITION OF ONE-TIME FOR THE AMOUNT OF RS. 1,25 ,56,602.00 ONLY. MOREOVER, IT IS NOT THE CASE OF THE ASSESSEE THAT T HERE WAS THE DOUBLE ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 35 - ADDITION FOR THE AMOUNT AS DISCUSSED ABOVE AND FOR THE REASONS ELABORATED IN THE PRECEDING PARAGRAPH. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE WILL NOT GET THE BENEFIT BY WAY OF DEDUCTION OF THE IMPUGNED AMOUNT EVEN AFTER COMP LYING THE PROVISIONS OF TDS IN FUTURE YEARS. IT IS BECAUSE TH E ALP OF SUCH TRANSACTION HAS BEEN DETERMINED AT NIL FOR THE YEAR UNDER CONSIDERATION. 12.2. REGARDING THE ADDITION OF RS. 10,40,197/-, WE FIND THAT THE ASSESSEE HAS NOT PRESSED THE SAME AT THE TIME OF HE ARING. THEREFORE WE DISMISS THE SAME AS NOT PRESSED. REGARDING THE AD HOC DISALLOWANCE OF MANAGEMENT FEE EXPENSES, WE NOTE THAT THERE IS NO POWER UNDER THE PROVISIONS OF THE ACT WHICH ALLOWS TO THE TPO TO MAKE THE DISALLOWANCE ON AD HOC BASIS. AS SU CH THE LAW IS FAIRLY CLEAR AND REQUIRES THE TPO TO DETERMINE THE ARM LEN GTH PRICE OF THE INTERNATIONAL TRANSACTION WITH THE AE. AS SUCH THER E IS NO POWER AVAILABLE TO THE TPO TO MAKE THE AD HOC DISALLOWANCE WHILE CO MPUTING THE INCOME UNDER THE HEAD BUSINESS AND PROFESSION. IN THIS REG ARD WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE MUMBAI TR IBUNAL IN CASE DCIT VS. FLAKT (INDIA) LTD. REPORTED IN 76 TAXMANN. COM 209 WHERE IN IT WAS HELD AS UNDER: ANOTHER ASPECT WHICH EMERGES FROM THE ORDER OF THE TPO IS AS FOLLOWS. AFTER CONSIDERING THE FACTUAL MATRIX, THE TPO HAS PROCEED ED TO DETERMINE THE ARM'S LENGTH PRICE FOR THE SERVICE CHARGES AT 10% OF THE EXPENSE S RECOVERED. OSTENSIBLY, THE INCOME ARISING FROM AN INTERNATIONAL TRANSACTION IS LIABLE TO BE COMPUTED, HAVING REGARD TO THE ARM'S LENGTH PRICE AS MANDATED IN SEC TION 92(1) OF THE ACT. SECTION 92C ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 36 - PRESCRIBES THE MANNER OF DETERMINATION OF THE ARM'S LENGTH PRICE AND SUB-SECTION (1) THEREOF SPECIFICALLY LAYS DOWN VARIOUS METHODS BY W HICH THE DETERMINATION OF ARM'S LENGTH PRICE HAS TO BE MADE. IT IS QUITE CLEAR THAT THERE IS NO ADHOCISM PERMISSIBLE IN THE MANNER OF COMPUTATION OF ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION, WHEREAS THE ACTION OF THE TRANSFER PRICING OFFICER IN CONSIDERING THE ARM'S LENGTH PRICE @10% OF THE EXPENSES RECOVERED IS NOT ONLY AD HOC BUT IT ALSO DOES NOT CONFORM TO ANY OF THE METHODS PRESCRIBED IN SECTION 92C(1) OF THE ACT. ON THIS COUNT ITSELF, THE ACTION OF THE TPO IS SUSPECT, EVEN IF, IT IS TO BE UNDERSTOOD THAT THE IMPUGNED TRANSACTION WAS AN INTERNATIONAL TRANSACTION REQUIR ING COMPUTATION OF INCOME HAVING REGARD TO ITS ARM'S LENGTH PRICE . 12.3. IN VIEW OF THE ABOVE, WE HOLD THAT THE TPO HAS ERRED BY MAKING THE DISALLOWANCE ON AD HOC BASIS. ACCORDINGLY WE DE LETE THE ADDITION MADE BY THE AUTHORITIES BELOW. 12.4. WE ARE ALSO CONSCIOUS TO THE FACT THAT THE ASSESSEE IN THE SAID FACTS AND CIRCUMSTANCES WILL GET DOUBLE BENEFIT. FIRST OF ALL THE ASSESSEE DID NOT FURNISH THE BASIC REQUIREMENTS AS DESIRED BY THE IN COME TAX DEPARTMENT AND AT THE SAME TIME IT HAS NOT BEEN PENALIZED. BUT , THE PROVISIONS OF LAW IS SUPREME WHICH REQUIRES THAT THE TPO TO DETERMINE THE ALP OF THE TRANSACTIONS REFERRED BY THE AO. THE TPO AS SUCH CA NNOT MAKE THE DISALLOWANCE ON AD HOC BASIS. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 13. THE 2 ND ISSUE RAISED BY THE ASSESSEE IN THE ADDITIONAL GRO UND OF APPEAL DATE 09-02-2019 REQUESTED TO DIRECT THE TPO TO RESTRICT THE ADJUSTMENTS IF ANY TO THE AMOUNT OF INTERNATIONAL T RANSACTIONS ONLY. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 37 - 13.1. THE PROVISIONS OF SECTION 92(1) OF THE ACT REQUIRES TO DETERMINE THE INCOME ARISING FROM THE INTERNATIONAL TRANSACTI ONS HAVING REGARD TO THE ARMS LENGTH PRICE. FURTHER THE MEANING OF INTE RNATIONAL TRANSACTION HAS BEEN DEFINED UNDER SECTION 92B(1) OF THE ACT I. E. BETWEEN 2 OR MORE ASSOCIATED ENTERPRISES. THUS FROM THE ABOVE PROVISI ONS IT IS CLEAR THAT THE ADJUSTMENT IN DETERMINING THE INCOME SHALL BE LIMIT ED TO THE EXTENT OF INTERNATIONAL TRANSACTIONS ENTERED BETWEEN THE ASSO CIATED ENTERPRISES. ACCORDINGLY, WE DIRECT THE AO IF ANY ADJUSTMENT NEE DS TO BE MADE THEN IT SHOULD BE LIMITED TO THE EXTENT OF INTERNATIONAL TR ANSACTION BETWEEN THE ASSOCIATE ENTERPRISES. IN THIS REGARD WE FIND SUPPO RT AND GUIDANCE FROM THE JUDGMENT OF MUMBAI TRIBUNAL IN CASE OF PHOEINX MACANO (INDIA PVT LTD) ITA NO 7361/MUM/2012 VIDE ORDER DATED 7 TH JANUARY 2014 WHERE IN IT WAS HELD AS UNDER: 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TION HAVE CAREFULLY BEEN CONSIDERED. SO FAR IT RELATES TO GRIEVANCE OF THE A SSESSEE THAT THE TP ADJUSTMENT CAN ONLY BE APPLIED TO INTERNATIONAL TRANSACTIONS OF TH E ASSESSEE WITH THE AE AND IT CANNOT BE APPLIED AT ITA NO.7361/2012 ENTITY LEVEL, THE ISSUE IS FOUND TO BE COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL IN T HE CASE OF THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. (SUPRA). THEREFORE, WE H OLD THAT DETERMINATION OF ARMS LENGTH PRICE SHOULD BE RESTRICTED ONLY TO INTERNATI ONAL TRANSACTION OF THE ASSESSEE WITH ITS AE. IT WAS POINTED OUT THAT THE FIGURES AR E AVAILABLE WITH THE AO, DETAIL OF WHICH HAS ALSO BEEN FILED BEFORE US AT PAGE 170 OF THE PAPER BOOK. THEREFORE, WE DIRECT THE AO TO TAKE ONLY THE INTERNATIONAL TRANSA CTIONS OF THE ASSESSEE WITH ITS AE FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE. W E DIRECT ACCORDINGLY. 13.2. IN VIEW OF THE ABOVE, WE DIRECT THE TPO TO MAKE THE ADDITION FOR THE ADJUSTMENTS IF ANY LIMITED TO THE EXTENT OF INT ERNATIONAL TRANSACTIONS BETWEEN THE SPECIFIED PERSONS. WE ORDER ACCORDINGLY . HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 38 - 13.3. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1.4 IS THAT THE AO HAS DENIED THE BENEFIT AVAILABLE UNDER PROVISO TO S ECTION 92C(2) OF THE ACT FOR +/- 5% BENEFIT. 13.4. THE ASSESSEE DURING THE PROCEEDINGS ALSO C LAIMED THE BENEFIT OF +/- 5% RANGE AS PROVIDED IN PROVISO TO SECTION 92C( 2) OF THE INCOME TAX ACT. THE ASSESSEE IN SUPPORT OF THE CLAIM REFER THE PRESS NOTE ISSUED BY THE MINISTRY OF FINANCE (DEPT. OF REVENUE) WHICH WA S RELEASED AT THE TIME WHEN THE TP PROVISION HAD BEEN BROUGHT INTO TH E STATUTE I.E. FINANCE ACT 2001. THE MINISTRY OF FINANCE THROUGH ITS PRESS RELEASE SPECIFICALLY EXPRESSED THAT TP ADJUSTMENT WOULD NOT BE MADE WHER E PRICE TAKEN UP BY THE ASSESSEE EITHER 5% LESS OR UPTO 5% MORE THAN TH E ALP DETERMINED BY THE AO. 13.5. THE ASSESSEE ALSO REFERRED THE CIRCULAR ISS UED BY THE CBDT VIDE CIRCULAR NO. 12 DATED 23-08-2001 WHERE IT WAS CLARI FIED THAT THE AO SHALL ACCEPT THE PRICE DECLARED BY THE ASSESSEE IF SUCH P RICE DOES NOT VARIED UP TO 5% LESS OR MORE THAN WITH THE ALP DETERMINED BY THE AO. 13.6. HOWEVER, THE AO OBSERVED THAT THE PRICE CL AIMED BY THE ASSESSEE IS ABOVE 5% OF THE ALP DETERMINED IN ITS CASE. THER EFORE THE ASSESSEE DOES NOT FALL IN THE PROVISO AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT. THE AO ACCORDINGLY REJECTED THE CLAIM OF T HE ASSESSEE. 13.7. AGGRIEVED ASSESSEE, PREFERRED AN APPEAL BEF ORE THE LD.DRP WHO CONFIRM THE ACTION OF THE TPO/AO BY OBSERVING AS UN DER: ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 39 - SR.NO. COMPANY NAME COMPARABLES FOR BARODA UNIT COMPARABLES FOR CHENNAI UNIT 1. KSB PUMPS LTD (VALVES SEGMENT) 23.95% 23.95% 2. VIRGO ENGINEERS LTD. 17.19% 17.19% MEAN 20.57% 20.57% .. 35. ON THE 5% MARGIN, THE PANEL RELIED ON THE DECI SION OF THE ITAT HYDERABAD BENCH IN THE CASE OF M/S.DELOITTEE CONSUL TING INDIA PVT.LTD. (ITA NOS.1082 & 1084 OF 2010). IN THIS CASE THE ITAT ST ATED THAT FROM THE INSTRUCTIONS NOS.12 AND 14/2001, 8/2002 AND 5/2010 THE INTENTION OF THE LAWMAKERS AND THE STAND OF THE DEPARTMENT IS CLEAR THAT 5% MARGIN IS NOT, AND NEVER WAS A STANDARD DEDUCTION. REASONS, MINUS REL IANCE ON CASE LAW CITED HEREIN ABOVE, THE ITAT DELHI BENCH IN THE CASE OF S T MICROELECTRONICS PVT.LIMITED, IN A DECISION DATED 34D JUNE, 2011 RUL ED THAT THE ASSESSEE WAS NOT ENTITLED TO SUCH AN INTERPRETATION OF THE THEN PROV ISO TO SECTION 92C(2) OF THE ACT AS IS BEING CLAIMED IN THE PRESENT CASE. THE I TAT ALSO AVERRED THAT THE TRANSFER PRICING LEGISLATION CANNOT BE SEEN AS INCE NTIVE PROVISIONS ADMITTING OF LIBERAL CONSTRUCTION. IT SEEKS TO PROTECT A NAT IONS TAX BASE BY CORRECTING AN ARTIFICIAL ASSUMPTION OF MARGIN MADE POSSIBLE IN TH E FIRST PLACE BY THE FACT THAT TRANSACTING PARTIES ARE BUT LIMBS OF THE SAME ENTER PRISE, THOUGH LEGALLY DISTINCT ENTITIES ACROSS SEPARATE SOVEREIGN TAXING NATIONS. THUS THE CLAIM OF THE ASSESSEE FOR 5% MARGIN WAS REJECTED. 36 AS REGARDS THE USE OF MULTIPLE YEAR DATA, THE PA NEL ONCE AGAIN RELIED ON THE DECISION OF ITAT HYDERABAD BENCH IN THE CASE OF M/S DELOITTEE CONSULTING INDIA PVT.LTD. (ITA NOS.1082 & 1-84 OF 2010). THE ITAT IN THE ABOVE CASE STATED THAT THE LOWER AUTHORITIES WERE RIGHT IN CON SIDERING THE DATA OF ONLY ONE YEAR. THE EXPRESSION SHALL USED IN THE SAID RULE MAKES IT CLEAR THAT IT IS MANDATORY TO USE THE CURRENT YEAR DATA FIRST, AND I F ANY CIRCUMSTANCES REVEAL AN INFLUENCE ON THE DETERMINATION OF ALP IN RELATIO N TO THE TRANSACTION BEING COMPARED THAN OTHER DATAS FOR PERIOD NOT MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY BE USED. THIS ISSUE IS COVERED IN FAVOUR OF THE REVENUE IN A CATENA OF CASES INCLUDING THE RECENT DECISION OF DE LHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.ST MICROELECTRONICS PRIVATE LIMITED VS. CIT(A) XX, NEW DELHI AND OTHERS (ITA NOS.1806, 1807/DEL/2008 AND OTHERS) DATED 30-6-2011, THE ITAT STATED. ACCORDINGLY, IN THIS CASE THE ASSESSE E DID NOT SHOW WHY THE ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 40 - MULTIPLE YEAR DATA NEEDS TO BE SUED FOR DETERMINATI ON OF ALP. THAT BEING SO, THE ACTION OF THE TPO IS UPHELD. BEING AGGRIEVED BY THE ORDER OF THE LD. DRP THE ASS ESSEE IS IN APPEAL BEFORE US. 14. THE LD. AR BEFORE US HAS NOT ADVANCED ANY A RGUMENT ON THIS GROUND OF APPEAL. 15. SIMILARLY, THE LD. DR BEFORE US HAS NOT ADV ANCED ANY ARGUMENT. 16. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT DURING THE COURSE OF HEARING OF THIS APPEAL, NEITHER THE LD. COUNSEL FOR THE ASSESSEE NOR THE LD. D.R. FOR THE REVENUE HAVE BEEN ABLE TO POINT OU T ANY BASIS OR MATERIAL OR CRITERIA TO CONTROVERT OR TO REBUT THE FINDINGS AND CONCLUSION ARRIVED AT BY THE LD. DRP. THOUGH THE LD. COUNSEL FOR THE ASSE SSEE MADE A SPECIFIC GROUND OF APPEAL FOR THE BENEFIT OF ADJUSTMENT OF + 5% TO BE GIVEN WHILE DETERMINING THE ARM LENGTH PRICE, THE LD. COUNSEL F OR THE ASSESSEE HAS NOT BEEN POINT OUT AS TO HOW AND IN WHAT MANNER, TH E ORDER OF LD. DRP IN REJECTING THIS CLAIM OF THE ASSESSEE IS IMPROPER AN D UNJUSTIFIED. SINCE BOTH THE PARTIES HAVE NOT BEEN ABLE TO CONTROVERT T HE FINDINGS RECORDED BY THE LD DRP OR POINT OUT ANY MATERIAL TO ENABLE US T O TAKE A VIEW OTHER THAN VIEW TAKEN BY THE LD. DRP, WE DO NOT WANT TO I NTERFERE IN THE ORDER OF THE LD. DRP. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 41 - 16.1 WE ALSO DRAW OUR SUPPORT AND GUIDANCE FROM THE JUDGMENT HONBLE DELHI ITAT BENCH IN THE CASE OF GLOBLE VENT EDGE PVT LTD V/S DCIT REPORTED IN 37 SOT 1 WHERE IN IT WAS HELD AS U NDER: DURING THE COURSE OF HEARING OF THIS APPEAL, NEITHE R THE LD. COUNSEL FOR THE ASSESSEE NOR THE LD. D.R. FOR THE REVENUE HAVE BEEN ABLE TO POINT OUT ANY BASIS OR MATERIAL OR CRITERIA TO CONTROVERT OR TO REBUT THE FINDINGS AND CONCLUSION ARRIVED AT BY THE LD. CIT(A) EXCEPT BY RELYING UPON THEIR RESPECTIVE STAN D TAKEN BEFORE THE LD. CIT(A). THOUGH THE LD. COUNSEL FOR THE ASSESSEE MADE A SPEC IFIC SUBMISSION ABOUT THE BENEFIT OF ADJUSTMENT OF + 5% TO BE GIVEN WHILE DETERMINING THE ARMS LENGTH PRICE, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN POINT OUT AS TO HOW AND IN WHAT MANNER, THE ORDER OF LD. CIT(A) IN REJECTING THIS CLAIM OF THE ASSESSEE IS IMPROPER AND UNJUSTIFIED. SINCE BOTH THE PARTIES HAVE NOT BEEN ABLE TO CONTRO VERT THE FINDINGS RECORDED BY THE LD CIT(A) OR POINT OUT ANY MATERIAL TO ENABLE US TO TAKE A VIEW OTHER THAN VIEW TAKEN BY THE LD. CIT(A), WE ARE INCLINED TO UPHOLD THE OR DER OF LD. CIT(A) ON THE POINT OF DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF TH E TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES, NAMELY, RC S CENTRE CORP. THEREFORE, THE ORDER OF LD. CIT(A) IS UPHELD, AND THE GROUNDS RAIS ED BY THE ASSESSEE AS WELL AS BY THE REVENUE ON THIS ISSUE ARE REJECTED. IN VIEW OF THE ABOVE WE DO NOT ANY REASON TO INTERF ERE IN THE FINDING OF THE DRP AND ACCORDINGLY UPHOLD THE ORDER OF THE AO. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 16.3. THE INTERCONNECTED ISSUE RAISED BY THE AS SESSEE IN GROUND NO. 2.1 TO 2.3 IS THAT THE LD. DRP ERRED IN DENYING THE DED UCTION U/S 10B OF THE ACT FOR RS. 7,14,80,242/- IN RESPECT OF PROFIT OF C HENNAI UNIT. 16.4. THE ASSESSEE IN THE YEAR UNDER CONSIDERATI ON HAS CLAIMED DEDUCTION U/S 10B AMOUNTING TO RS. 7,14,80,242.00. HOWEVER THE AO DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE BY OBSERVING THAT SUCH DEDUCTION IN THE EARLIER YEAR ASSESSMENT YEAR WAS D ISALLOWED BY THE RESPECTIVE AO. THE DISALLOWANCE MADE BY THE AO IN E ARLIER YEAR WAS BASED ON THE FOLLOWING POINTS: ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 42 - 1) THE CHENNAI UNIT HAD MORE THAN 20% OLD PLANT & MACH INERY WHICH WAS EARLIER USED FOR PRODUCTION PURPOSE. 2) THE ASSESSEE CLAIMED THAT DURING FY 2001-02 IT HAD TAKEN PLANT & MACHINERY FOR CHENNAI UNIT ON LEASE FROM SAKHI RAIM ONDI VALVES (INDIA) LTD. HOWEVER AT THE TIME OF ASSESSMENT OF SAKHI RAIMONDI VALVES (INDIA) LTD, THE RESPECTIVE AO HAS GIVEN FIN DING THAT THE SAKHI RAIMONDI VALVES (INDIA) LTD HAD TRANSFERRED T HE MACHINERY TO THE ASSESSEE ON OUTRIGHT PURCHASE. 16.5. IN VIEW OF THE ABOVE THE AO DENIED THE DEDU CTION CLAIMED BY THE ASSESSEE UNDER SECTION 10B OF THE ACT. 16.6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD. DRP WHO CONFIRMED THE ORDER OF THE AO. BEING AGGRIEVED BY THE ORDER OF THE LEARNED DRP, TH E ASSESSEE IS IN APPEAL BEFORE US. 17. THE LEARNED AR BEFORE US SUBMITTED THAT THI S TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR 2003-04 IN ITA NUMBER 2981 & 246/AHD/2008 VIDE ORDER DATED 23-0-20 12 HAS DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE. 18. ON THE OTHER HAND, THE LEARNED DR VEHEMENTL Y SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 43 - 19. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE IMPUGNED ISSUE HAS ALREADY BEEN DECIDED IN FAVOR OF THE ASSE SSEE IN ITS OWN CASE (SUPRA). THE RELEVANT EXTRACT OF THE ORDER IS REPRO DUCED AS UNDER: 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO PERUSED THE ORDERS REFERRED BEFORE US. BEFORE WE APPRECIATE THE FACTS OF THE CASE, WE MAY LIKE TO PLACE ON RECORD THE SCOPE OF THE INTRODUCTI ON OF SECTION 10B IN THE STATUTE. UNDER THE PROVISIONS OF SECTION 10A OF THE INCOME-TAX ACT, A FIVE YEAR TAX HOLIDAY IS ALLOWED TO INDUSTRIAL UNDERTAKINGS M ANUFACTURING OR PRODUCING ARTICLES OR THINGS IN A FREE TRADE ZONE SUBJECT TO CERTAIN CONDITIONS. THE EXEMPTION IS AVAILABLE TO INDUSTRIAL UNDERTAKINGS W HICH HAVE BEGUN OR BEGIN TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AF TER APRIL 1, 1981. THE TAX HOLIDAY IS AT THE OPTION OF THE ASSESSEE FOR FIVE C ONSECUTIVE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT YEARS BEGINNING W ITHIN THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRI AL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. THE TERM 'MANUFACTURE' INCLUDES PROCESSING OR ASSEMBLING OR RECORDING OF PROGRAMMES ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E. THE ABOVE TAX HOLIDAY WAS NOT AVAILABLE TO A HUNDRED PER CENT EXPORT-ORIE NTED UNDERTAKING. SUCH UNDERTAKINGS WERE ELIGIBLE ONLY FOR DEDUCTION OUT O F THEIR EXPORT PROFITS UNDER SECTION 80HHC OF THE INCOME-TAX WITH A VIEW TO PROVIDING FURTHER INCENTIVE FOR EARNING FOREIGN EXCHANGE, A NEW SECTION 10B HAS BEEN INSERTED BY THE ACT, SO AS TO SECURE THAT THE INCOME OF A HU NDRED PER CENT, EXPORT- ORIENTED UNDERTAKING SHALL BE EXEMPT FROM TAX FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEAR FALLING WITHIN THE BLOCK OF EIGHT A SSESSMENT YEARS. THE EXEMPTION PROVIDED UNDER THE NEW SECTION IS SIMILAR TO THE ONE PROVIDED TO INDUSTRIAL UNDERTAKINGS OPERATING IN FREE TRADE ZON ES. THE EXEMPTION UNDER THE NEW PROVISIONS WILL BE SUBJECT TO THE FOLLOWING CONDITIONS:- (I) THAT THE UNIT MANUFACTURES OR PRODUCES ANY ARTI CLES OR THINGS. THE TERM 'MANUFACTURE' WILL INCLUDE ANY PROCESSING OR ASSEMB LING OR RECORDING OF PROGRAMMES ON DISC, TAPE, PERFORATED, MEDIA OR OTHE R INFORMATION STORAGE DEVICE; (II) THAT THE UNIT HAS NOT BEEN FORMED BY THE SPLIT TING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS; (III) THAT IT HAS NOT BEEN FORMED BY THE TRANSFER T O A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 44 - UNLIKE THE PROVISIONS OF SECTION 10A OF THE INCOME-TAX ACT, EVEN THE EXISTING HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKINGS WILL BE ELIGIBLE TO AVAIL OF THE TAX HOLIDAY FOR A FULL PERIOD OF FIVE ASSESSMENT YE ARS IN A BLOCK OF EIGHT YEARS. THEREFORE, THE START POINT OF THE LIMITATION FOR CL AIMING THE BENEFIT FLOWING FROM SECTION 10B WOULD COMMENCE FROM THE YEAR OF MANUFACTURE OR PRODUCTION OF THE UNDERTAKING. IF THE CONDITIONS PR ESCRIBED IN THE SECTION ARE NOT SATISFIED IN THE YEAR OF COMMENCEMENT OF PRODUC TION, IT WOULD NOT BE ABLE TO CLAIM SUCH DEDUCTION IN THE SUBSEQUENT YEARS, UN LESS THE SAID INITIAL TEST ON THE DATE OF THE STARTING POINT HAS BEEN SATISFIED. SECTION 10B THEREFORE DO NOT GIVE ANY INDICATION THAT IN EACH YEAR OF CLAIM IT'S ELIGIBILITY SHOULD BE NEWLY ESTABLISHED; BECAUSE THE RELEVANCE OF THE PHRASE 'N EWLY ESTABLISHED UNDERTAKING' IS ONLY TO IDENTIFY INITIAL YEAR OF PE RIOD FOR WHICH ASSESSEE IS ELIGIBLE FOR CLAIM OF EXEMPTION U/S.10 B OF IT ACT . THEREFORE, AT THE OUTSET, IT IS JUSTIFIABLE TO CONCENTRATE ON THE FACT THAT WHETHER THE CHENNAI UNIT WAS ESTABLISHED IN THE YEAR UNDER CONSIDERATION OR NOT. ON EXAMINATION OF THE FACTS RECORDED BY THE AO, IT WAS NOTICED THAT THE C HENNAI UNIT WAS ESTABLISHED/ACQUIRED IN THE YEAR 2000-01. THIS FACT WAS RATHER NOTED BY THE HON'BLE GUJARAT HIGH COURT IN THE AFORECITED DECISI ON DATED 11.4.2008 AND MADE AN OBSERVATION THAT THE YEAR 2001-02 WAS FOUND TO BE THE FIRST YEAR OF THE CLAIM OF DEDUCTION U/S.10 B OF IT ACT . DUE TO THIS REASON, RELIANCE CAN BE PLACED ON SAURASHTRA CEMENT & CHEMICAL INDUSTRIES 1 23 ITR 669 (GUJ.) AND THUS WE HOLD THAT IN THE ABSENCE OF ANY DISTURBANCE IN RESPECT OF RELIEF GRANTED IN INITIAL YEAR, THERE WAS NO LEGAL JUSTIFICATION T O DISTURB THE CONTINUOUS DEDUCTION OF SECTION 10B IN ANY OF THE SUBSEQUENT ASSESSMENT YEAR. THE FIRS T YEAR IS THE YEAR IN WHICH THE INQUIRY ABOUT THE FOR MATION OF THE UNDERTAKING IS REQUIRED TO BE MADE BY THE AO. ALTHOUGH IT IS POSSI BLE, AS IN THE PRESENT CASE, THAT IN ANY OF THE SUBSEQUENT YEARS THE ASSESSEE HA D ACQUIRED NEW PLANT & MACHINERY, MAY BE OF SUBSTANTIAL VALUE, AS ALSO MAY BE INCREASE THE TURNOVER OR EFFICIENCY, NONETHELESS THE ACT SUBSCRIBES THAT THE UNDERTAKING MUST NOT BE FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE ACT ALSO SUBSCRIBES THAT THE PROFITS SHALL NOT TO BE I NCLUDED IN THE TOTAL INCOME IN RESPECT OF THE PRESCRIBED CONSE CUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEARS UNDERTAKING BEG INS TO MANUFACTURE AN ARTICLE. THEREFORE, THE INITIAL YEAR IS THE YEAR TO ESTABLISH THE ELIGIBILITY OF THE CLAIM. EVEN THE AHMEDABAD BENCHES ARE ALSO CONSISTE NTLY SUBSCRIBING THIS VIEW AS HELD IN THE CASE OF GATEWAY TECHNOLABS PVT. LTD., ITAT 'C' BENCH AHMEDABAD (IN ITA NO.2473 & 2519/AHD/2006 - AY 2003 -04) ORDER DATED 4.9.2009. 6.1. AS FAR AS THE QUESTION OF ALLEGED PURCHASE OF THE MACHINERY IN QUESTION IS CONCERNED, THERE ARE FEW FACTS WHICH INDICATE THAT THE AO HAS WRONGLY HELD THAT IT WAS AN OUTRIGHT PURCHASE BY THE CHENNAI UNI T. IN THIS REGARD, THE FIRST ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 45 - APPELLATE AUTHORITY HAS GIVEN A FINDING OF FACT THA T IT WAS NOT EVIDENT FROM THE RECORDS THAT THE TRANSACTION RELATING TO THE MACHIN ERY CONSTITUTED OUTRIGHT SALE. LIKEWISE, AS ALSO SIMULTANEOUSLY IN THE CASE OF M/S.SAKHI RAIMONDI THE FIRST APPELLATE AUTHORITY HAS GIVEN A CLEAR-CUT FIN DING THAT LEASE-RENTALS WERE RECEIVED, RELEVANT ORDER OF LD.CIT(A) HAS ALREADY B EEN REFERRED SUPRA. BECAUSE OF THESE FACTS AND OTHER EVIDENCES, SUCH AS THE AGREEMENT, ETC. WE HEREBY HOLD THAT THE AO HAS WRONGLY PRESUMED THAT T HE TRANSACTION IN QUESTION WAS A PURCHASE OF MACHINERY BY CHENNAI UNI T. BECAUSE OF THIS FINDING ON FACTS A CONCLUSION CAN BE DRAWN THAT THE REJECTION OF DEDUCTION U/S.10B WAS BAD IN LAW. 6.2. AN ALTERNATE PLEA HAS ALSO BEEN RAISED BY LD.A R THAT THE MACHINERY WHICH WAS TAKEN ON HIRE HAD COSTED LESS THAN THE 20% OF T HE TOTAL VALUE OF THE MACHINERY, THEREFORE THE IMPUGNED RESTRICTIVE CLAUS E OF SECTION 10(B) WAS OTHERWISE INCORRECTLY INVOKED BY THE AO. FOR THIS P ROPOSITION CASE LAWS CITED WAS CIT VS. NAYYARS MINERALS EXPORTS PVT.LTD . 231 ITR 864 (H.P.). A CALCULATION IN THIS REGARD HAS ALSO BEEN FURNISHED; HOWEVER, AT THIS STAGE OF SECOND APPEAL NO VERIFICATION ABOUT THE CORRECTNESS OF THE SAID CALCULATION IS POSSIBLE. LET IT BE AS IT IS; NOTWITHSTANDING THIS ALTERNATE PLEA DO NOT SURVIVE ANYMORE BECAUSE WE HAVE ALREADY TAKEN A VIEW IN ASS ESSEE'S FAVOUR AS DISCUSSED IN ABOVE PARAS. IN THE RESULT, WE HEREBY CONFIRM THE FINDINGS OF LD.CIT(A), THEREFORE THE CLAIM OF DEDUCTION U/S.10B IS DIRECTED TO BE ALLOWED. 19.1. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY R EASON TO UPHOLD THE FINDING OF THE LEARNED DRP. ACCORDINGLY, WE SET ASI DE THE ORDER OF THE LEARNED DRP AND DIRECT THE AO TO ALLOW THE BENEFIT TO THE ASSESSEE FOR THE DEDUCTION UNDER SECTION 10B OF THE ACT. HENCE THE G ROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 19.2. THE INTERCONNECTED ISSUE RAISED BY THE ASS ESSEE IN GROUND NO 3 IS THAT THE LD. DRP ERRED IN CONFIRMING THE ADDITION O F RS.79,684/- ON ACCOUNT OF FULL DEPRECIATION CHARGED BY ASSESSEE ON ASSET COSTING LESS THAN RS. 5000/-. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 46 - 19.3. THE AO OBSERVED FROM SCHEDULE 18 CLAUSE 1(B ) OF THE FINANCIAL STATEMENT OF THE ASSESSEE THAT THE ASSESSEE CLAIMED FULL DEPRECIATION ON THE ASSETS COSTING LESS THAN RS. 5000/-. HOWEVER, T HE AO WAS OF THE VIEW THAT THERE IS NO PROVISION UNDER THE ACT TO ALLOW 1 00% DEPRECIATION ON ASSETS COSTING LESS THAN RS. 5000/-. THEREFORE THE AO DISALLOWED THE DEPRECIATION OF RS. 79,684/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. . AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE L D. DRP. 19.4. THE ASSESSEE BEFORE THE LEARNED DRP FILED T HE DETAILS OF PURCHASE OF ASSETS AMOUNTING TO RS 79,684/- WHICH ARE DULY C APITALIZED IN THE BOOKS OF ACCOUNTS AND CLAIMED DEPRECIATION U/S 32 O F THE INCOME TAX ACT. THE LD. DRP DIRECTED TO AO ALLOW THE CLAIM OF THE A SSESSEE AFTER NECESSARY VERIFICATION. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) , THE ASSESSEE IS IN APPEAL BEFORE US. 20. THE LEARNED AR BEFORE US REITERATED THE SUBM ISSION AS MADE BEFORE THE LEARNED DRP. 21. ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 47 - 22. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT CASE RELATES WHETHER THE ASSESSEE HAS CLAIMED 100% DEDUCTION IN RESPECT OF THE ASSETS COSTING LESS THAN RS. 5,000.00 OR IT HAS CLAIMED DE PRECIATION THEREON AS PER THE PROVISIONS OF LAW. IN THIS REGARD, WE NOTE THAT THE LEARNED DRP HAS GIVEN A DIRECTION TO ALLOW THE CLAIM OF THE ASS ESSEE AFTER NECESSARY VERIFICATION. WE FIND NO INFIRMITY IN THE DIRECTION OF THE LEARNED DRP IN VIEW OF THE FACT THAT THE ISSUE INVOLVED IS FACTUAL IN NATURE. ACCORDINGLY WE HOLD THAT NO SEPARATE ADJUDICATION IS REQUIRED I N THE GIVEN FACTS AND CIRCUMSTANCES. THUS, WE DISMISS THE GROUND OF APP EAL RAISED BY THE ASSESSEE. 23. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. THIS ORDER PRONOUNCED IN OPEN COURT ON 22/01/2020 SD/- SD/- (MS. MADHUMITA ROY) (W ASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 22/01/2020 &.., .(.. / T.C. NAIR, SR. PS ITA NO.2993/AHD/2011 ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD.VS . DCIT ASST. YEAR - 2007-08 - 48 - !'#' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-DRP, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 21.1.2020 ( WORD PROCESSED BY HONBLE AM IN HIS COMPUTER BY DRA GON ) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21.01.2020 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.22.1.2020 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 22.1.2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER