Atul Limited, Ahmedabad V. The ACIT.,Range-1, Ahmedabad

ITA 3118/AHD/2010

• Counselvise Citation: 311820514 RSA 2010
• Duration Of Justice: 1 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 15-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 24-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Earning of tax free income; Retrospective amendment; Additional evidence; Fair market value; Corroborative evidences; Avoidance of tax; Unabsorbed depreciation
• Section: 92C; 143(3); 92E; 14A; 37(1); 10B; 144; 92

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , .'# $ ,%& % ' BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A. NO.3118/AHD/2010 ( # ) # ) # ) # ) / / / / ASSESSMENT YEAR : 2006-07 ) M/S.ATUL LIMITED 3 RD FLOOR ASHOKA CHAMBERS RASALA MARG, ELLISBRIDGE AHMEDABAD # # # # / VS. THE ACIT RANGE-1 AHMEDABAD * %& ./+, ./ PAN/GIR NO. : AABCA 2390 M ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 % / APPELLANT BY : SHRI S.N.SOPARKAR (SENIOR ADVOCATE) WITH MS.URVASHI SHODHAN ./*- 1 0 % / RESPONDENT BY : SHRI D.P.GUPTA,CIT D.R.,SHRI ANURAG SHARMA DCIT T.P.O. #2 1 & / / / / DATE OF HEARING : 02/08/2012 3') 1 & / DATE OF PRONOUNCEMENT : 29/10/12 %4 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ON FORM NO . 36B I.E MEMORANDUM OF APPEAL AS PRESCRIBED U/S 253(1)(D) BEING A DIRECT APPEAL EMANATING FROM THE ASSESSMENT ORDER PASSED U /S 143(3) R.W.S.144C DATED 22.10.2010. HOWEVER, THE CHRONOLOG Y OF THE CONNECTED ORDERS PASSED BY THE REVENUE AUTHORITIES IS AS FOLL OWS:- ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 2 - 1. T.P.O. ORDER U/S 92 CA(3) DATED 12.10.09. 2. DRAFT ASSESSMENT ORDER U/S 144 C DATED 22.12.2009. 3. D R P ( DISPUTE RESOLUTION PANEL ) ORDER U/S 144C ( 5) DATED 22.09.2010. 4. ASSESSMENT ORDER U/S 143(3) R.W.S. 144C DATED 22.10 .2010. 2. GROUND-WISE DECISION IS AS UNDER . GROUND NOS.1 TO 6 :- 1. LEARNED AO/DRP HAS ERRED IN LAW AND ON FACTS IN ADD ING RS.4,46,52,496/- ON ACCOUNT OF ADJUSTMENTS TO THE A RMS LENGTH PRICE WITHOUT THERE BEING ANY JURISDICTION AS WELL AS LEGAL AND FACTUAL BASIS FOR THE SAME. 2. LEARNED AO HAS ERRED IN LAW AND ON FACTS IN REFERR ING THE CASE OF THE APPELLANT TO THE TRANSFER PRICING OFFICER. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE WAS NO REASONS TO INTERFERE WITH THE PRICING ADOPTED BY THE APPELLANT AS THE SA ME IS FALLING WITHIN THE PARAMETERS OF TRANSFER PRICING LAID DOWN UNDER THE SCHEME OF THE ACT. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, THE ORDER OF T HE ADDITIONAL COMMISSIONER OF INCOME TAX ACTING AS TRANSFER PRICI NG OFFICER IS WITHOUT JURISDICTION AND AGAINST THE EXPRESS PRO VISIONS OF LAW IN AS MUCH AS COMMISSIONER OF INCOME TAX COULD NOT HAVE ACTED AS TRANSFER PRICING OFFICE3R. 4. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN INVOKING THE PROVISIONS OF CHAPTER X WITHOUT PRIMA FACIE DEMONSTRATING THAT THERE WAS SOME TAX AVOIDANCE . 5. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS IN MAKING A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) U/S.92C(3) R.W.S. 92CA(1) OF THE ACT WITHOUT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 6. IN ANY CASE THE WHOLE REFERENCE AND THE CONSEQUENT ORDERS ARE BAD AND ILLEGAL BECAUSE THE ALLEGED APPROVAL GRANTE D BY CIT U/S.92CA(1) OF THE ACT IS VITIATED IN LAW FIRSTLY B ECAUSE THE APPELLANT WAS NOT HEARD BEFORE ANY SUCH APPROVAL AN D SECONDLY BECAUSE THE SAME HAS BEEN GRANTED MECHANICALLY, WIT HOUT ANY APPLICATION OF MIND AND WITHOUT DUE DILIGENCE. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 3 - 2.1. APART FROM THESE GROUNDS, THE APPELLANT HAS ALSO RAISED AN ADDITIONAL GROUND , REPRODUCED BELOW:- 1. THE LEARNED TRANSFER PRICING OFFICER, AND CONSE QUENTIALLY THE D.R.P. AND THE ASSESSING OFFICER, HAVE NO JURISDICTION TO MAKE ANY ADJUSTMENT IN RELATION TO ALLEGED COMMISSION INCOME OF GBP 3,45,418/- (RS.2,71,82,980/-) IN AS MUCH AS THE SAME WERE NOT SUBJECT MATER OF REFERENCE MADE TO THE TRANSFER PRICING OFFICER UNDER SECTION 92CA(1) OF THE INCOME TAX ACT, 1961. 3. AT THE OUTSET, IT IS WORTH TO MENTION THAT THE APPELLANT HAD ALSO MOVED A PETITION FOR ADMISSION OF ADDITIONAL EVIDENCES AS FOLLOWS:- 1. STATEMENT OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF ATUL EUROPE LTD. FOR A.Y. 2004/05 & F.Y.2005/06 IN SUPPO RT OF THE SUBMISSIONS MADE BEFORE LD. TPO VIDE LETTER DATED 0 1/07/2010 PLACED @ PAGE 351 PARA 1 OF THE PAPER BOOK THAT ASS ESSEE ACCOUNTED FOR THE COMMISSION INCOME ON NET BASIS SINCE ATUL EUROPE LTD. FORWARDED GEB 141714 ONLY AFTER ADJUSTI NG THE EXPENSES FOR THE TRANSACTIONS WITH THE AGRICULTURAL SUPPORT SERVICE COMPANY (ASSC). 2. STATEMENT OF ACCOUNT OF ASSESSEE IN THE BOOKS O F ATUL EUROPE LTD. FROM FINANCIAL YEAR 2000/01 TO FINANCIAL YEAR 2004/05 IN SUPPORT OF THE SUBMISSIONS MADE BEFORE LD.TPO VIDE LETTER DATED 01/07/2010 PLACED @ 351 PARA 2 OF THE PAPER BOOK TH AT THOUGH ATUL EUROPE LTD. ACCOUNTED COMMISSION RECEIVABLE FROM P P SITE IN THEIR BOOKS FOR EARLIER YEARS, IT WAS WRITTEN OFF IN FINANCIAL YEAR 2005/06 AND HENCE NO SUCH COMMISSION INCOME WA S ACCOUNTED FOR IN THE BOOKS OF ASSESSEE AS IT WAS NE VER RECEIVED FROM ATUL EUROPE LTD. 3. RE. SUMMARY OF COMPARATIVE DATA FOR SALES MADE TO AE AND NON AES FOR FINANCIAL YEAR 2005/06 SUBMITTED AS PA RT OF AUDITED ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 4 - ACCOUNTS PLACED @ PAGE 95 OF THE PAPER BOOK REPRODU CED AS ANNEXURE A OF THE ORDER OF TRANSFER PRICING OFFICER , THE ASSESSEE SUBMITS THAT ON VERIFICATION OF THE SALE TRANSACTIO N WITH AE / NON AE, DISCREPANCY IN THE NATURE OF SALE OF PRODUCT CODE 111108 (PRODUCT NAME NOVATIC BROWN R PURE) TO NON AE PARTIES WAS THROUGH OVERSIGHT SHOWN AS SALE OF PRODUCT CODE 110308 (PRODUCT NAME NOVATIC OLIVE R PURE). A CERTIFICATED DATED 6 TH AUGUST 2011 OF M/S.GHANSHYAM PAREKH & CO., CHARTERED ACCOUNTANT S WITH THE SALE INVOICES IN SUPPORT OF THE ABOVE CONTENTION AR E ANNEXED HEREWITH FOR APPRECIATION OF THE HON'BLE BENCH. 3.1 THE ITAT BENCH HAS CONSIDERED THE PETITION AND THEREAFTER VIDE AN ORDER SHEET ENTRY DATED 25.01.2012 HAS DECIDED THAT THE ADDITIONAL EVIDENCES AS MENTIONED AT SERIAL NO. 1 & 2. ARE TO BE ADMITTED , BUT THE ADDITIONAL EVIDENCE AT SERIAL NO. 3 WAS NOT ALLOWED TO BE ADMITTED. WITH THIS BACK GROUND NOW WE SHALL PROCEED TO DECIDE THE CONTROVERSIES RAISED IN THIS APPEAL. 4. BEFORE US IN RESPECT OF THE ABOVE GROUNDS THE A PPELLANT HAS PRIMARILY RAISED THE OBJECTIONS ABOUT THE STAND TA KEN BY THE T.P.O. IN RESPECT OF THE FOLLOWING TWO ADDITIONS:- A) UPWARD ADJUSTMENT IN RESPECT OF THE GOODS SOLD BY THE ASSESSEE TO AE AT LOWER PRICE AS COMPARED TO THE T HIRD PARTY, THE UPWARD ADJUSTMENT OF .. RS.1,74,69,516/- B) COMMISSION RECEIVED FROM M/S.ATUL EUR OPE LTD. ($ 1,54,530 + $ 1,90,888) NOT AT ARMS LENGTH HENCE UPWARD A DJUSTMENT OF .. RS.2,71,82,980/- TOTAL ADDITION CONTESTED IN THE GROUNDS.. RS.4,46,52,496/- ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 5 - 4.1. DUE TO THIS REASON WE SHALL FIRS T DISCUSS THE SAID ORDER OF THE TPO IN RESPECT OF THE SALE PRICE ADJUSTMENT AND THEN THE UPWARD ADJUSTMENT OF COMMISSION, THUS BY DOING SO THE ABOV E GROUND SHALL BE ADJUDICATED COMPLETELY. FACTS IN BRIEF AS PER THE O RDER OF THE T.P.O. PASSED U/S 92CA(3) DATED 12.10.2009 ARE THAT THE AP PELLANT COMPANY IS A MANUFACTURER OF CHEMICALS & DYES. THE TPO HAS NOTE D THEM AS AGROCHEMICALS, BULK DRUGS AND COMMODITY CHEMICALS . THE APPELLANT COMPANY HAS SIX DIVISIONS: - I) AGROCHEMICALS, II) AROMATICS, III) COLORS, IV) PHARMACEUTICALS, V) INTERMEDIATES, VI) POLYMERS . 4.2. THE APPELLANT HAS FOUR WHOLLY OWNED SUBSIDIARIES VIZ. I) ATUL AMERICAS INC., U.S.A. (AAI), II) ATUL EUROPE LTD. U.K.( AEL), III) ATUL DEUTSHLAND GMBH, GERMANY ( A.D.)IV) ATUL INTERNATIONAL TRADING (SANGHAI) CO. LTD, CHINA (AITCL ). THESE WHOLLY OWNED SUBSIDIARIES (IN SHORT WOS) UNDERTOOK THE SELLING OF DYES AND C HEMICALS MANUFACTURED BY THE APPELLANT. ON ACCOUNT OF THIS REASON THE ASSESSEE HAS FURNISHED 3CEB REPORT AND INFORMED ABOUT THE SA LES TO THESE CONCERNS. THE ASSESSEE HAD ALSO CHOSEN THE CUP MET HOD FOR THE PURPOSE OF COMPARISON. THE DETAILS OF THE INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISES( IN SHORT A.ES.) WAS INFOR MED AS UNDER:- S.NO. NAME OF ASSESSEE NATURE OF TRANSACTION VALUE OF TRANSACTION 1. ATUL AMERICANS INC, USA I)SALE OF GOODS II)PURCHASE OF RAW MATERIALS 51,52,71,449 1,11,86,602 ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 6 - 2. ATUL EUROPE LTD, CHESHIRE I) SALE OF GOODS II) COMMISSION 33,23,81,495 65,70,688 3. ATUL DEUTCHLAND GMBH GERMANY I) SALE OF GOODS 30,26,53,941 4. ATUL INTERNATIONAL TRADING (SHANGHAI) CO.LTD., CHINA I) SALE OF GOODS II) PURCHASE OF RAW MATERIALS III) COMMISSION 3,29,35,902 88,097 29,58,248 TOTAL : 120,40,46,422/- 4.3. THE TPO HAS OBSERVED THAT THE ASSESSEE COMP ANY HAD SOLD THE GOODS TO ITS SUBSIDIARIES FOR RE-DISTRIBUTION IN T HE RESPECTIVE MARKETS. IT HAS ALSO BEEN NOTED BY THE TPO THAT ALTHOUGH THE AS SESSEE HAD CHOSEN CUP METHOD BUT DID NOT FURNISH THE COMPARISON OF S ALES WITH SUPPORTING INTERNAL CUP OR EXTERNAL CUP IN RESPECT OF ALL THE PRODUCTS/ TRANSACTION. SO THE TPO HAS ISSUED A SHOW-CAUSE NOTICE ASKING TH E ASSESSEE TO FURNISH INTERNAL/EXTERNAL COMPARABLE UNCONTROLLED PRICE FOR ALL THE PRODUCTS EXPORTED TO THE A.E.S. HENCE FOR THE PURPOSE OF DE TERMINATION OF ARMS LENGTH PRICE IT WAS ASKED TO FURNISH THE COMPARABLE TRANSACTION FOR BENCH-MARKING. 4.4. THE ASSESSEE HAS FURNISHED THE DETAIL S OF THE PRODUCTS SOLD AND ALSO FURNISHED THE INTERNAL & EXTERNAL UNCONTROLLE D PRICES WHICH WERE STATED TO BE AVAILABLE TO THE ASSESSEE. THE ASSESSE E HAD ASKED FOR THE ADJUSTMENTS NAMELY; A) DIFFERENCE IN APPLICATION, B) QUANTITY DISCOUNT, C) MARKETING RISK, D) FINANCIAL RISK. THE ADJUSTMEN TS CLAIMED BY THE ASSESSEE WERE LISTED BY THE TPO AS UNDER :- ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 7 - I) THE ASSESSEE HAS CLAIMED 100% ADJUSTMENTS IN PRICES FOR ISSUE OF DIFFERENCE IN APPLICATIONS. II) THE ASSESSEE HAS CLAIMED QUANTITY DISCOUNT OF 2% AND 5%. III) THE ASSESSEE HAS CLAIMED ADJUSTMENT FOR MARKETING RISK AT 5% AND FOR FINANCIAL RISK AT 2%. IV) THE ASSESSEE HAS CLAIMED ADJUSTMENT IN PRICE DUE TO LONG TERM CONTRACT AT 11%. V) THE ASSESSEE HAS CLAIMED PRICE DIFFERENCE OF 30-50% DUE TO LOWER PRICE PREVAILING IN CHINA MARKET. 4.5. IT IS WORTH MENTIONING THAT THE TPO HAS ACC EPTED THE ADJUSTMENT MENTIONED IN COLUMN NO. III) , IV) AND V) I.E. ADJUSTMENT FOR MARKETING RISK, ADJUSTMENT FOR LONG TERMS CONTRACT AND LOWER PRICE PREVAILING IN CHINA. EXCEPT FOR THE ABOVE ADJUSTMENTS IN COLUMN NO. I) AND II) I.E. ADJUSTMENT FOR DIFFERENCE IN APPLICATION AND ADJUSTMENT ON ACCOUNT OF QUANTITY DISCOUNT , THE TPO HAD ACCEPTED ALL OTHER ADJUSTMENT AS SUGGESTED BY THE ASSESSEE. CORRECTNESS OF THE REJEC TION OF ADJUSTMENTS ARE GOING TO BE DISCUSSED UNDERNEATH. 4.6. AN IMPORTANT FACT HAS ALSO BEEN NOTED BY THE TPO TH AT THE ASSESSEE HAS ITSELF COMPUTED THE UPWARD ADJUSTMENT OF RS.1,09,80,062/-, EVEN AFTER CLAIMING THE ABOVE MEN TIONED ADJUSTMENTS. 4.7. THE TWO ADJUSTMENTS WHICH WERE NOT ACCE PTED BY THE TPO WERE DISCUSSED AS UNDER:- ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 8 - A) DIFFERENT APPLICATIONS : THE ASSESSEE HAS CARRIED OUT SALE OF NOVATIC OLIVE R PURE TO ITS AE M/S.AAI, AMERICA. S IMILAR PRODUCT WAS SOLD TO M/S.DYESTAR, JAPAN AND M/S.DYESTAR, GER MANY. THE PRODUCTS WERE SOLD @ 1745.15 PER KG FOR 990 KG TO D YESTAR, JAPAN AND AT RS.1780.89 PER KG FOR 16830 PER KG TO M/S.DY ESTAR, GERMANY WHEREAS ASSESSEE HAS SOLD ONLY 9259 KG TO ITS AE. THE ASSESSEE HAS CLAIMED ADJUSTMENT ON ACCOUNT OF DIFFERENT APPLICAT ION BY THE CLIENT I.E. FOR PLASTIC AND AUTO PAINT AS COMPARED TO NORM AL PRODUCT USE IN TEXTILE INDUSTRY @ 100%. THERE IS NO ADJUSTMENT PO SSIBLE ON THE BASIS OF PRODUCT APPLICATION. IT IS NOT AN ECONOMIC ADJUSTMENT ON THE BASIS OF FAR ANALYSIS. IF A PRODUCT HAS BEEN MANUFACTURED AND IS SOLD USING SIMILAR FAR ANALYSIS, AN ADJUSTMENT ON T HE BASIS OF NON- ECONOMIC INDICATOR CANNOT BE APPLIED. OECD GUIDELI NES FOR TRANSFER PRICING ADMINISTRATION ALSO DOES NOT SPEAK OF ANY S UCH ADJUSTMENT. NO SUCH ADJUSTMENT HAS BEEN PROVIDED IN RULE-10B OF THE IT ACT, 1962 UNDER CUP METHOD. IN VIEW OF THE ABOVE, CLAIM OF T HE ASSESSEE OF MAKING UPWARD ADJUSTMENT OF 1005 TO ITS PRICE IS RE JECTED. THE ASSESSEE HAS FURTHER CLAIMED QUANTITY ADJUSTMENT ON THESE TRANSACTIONS WHICH IS BEING DISCUSSED IN THE NEXT P ARAGRAPH. B) QUANTITY ADJUSTMENT : THE ASSESSEE HAS CLAIMED QUANTITY ADJUSTMENT OF 5% IN RESPECT OF NOVATIC OLIVE R PURE AND FOR PRODUCT CODE 402141, 403211 AND 152583. FOR THESE PRODUCT S, SALES TO AE IS LESS THAN SALE TO NON-AES. IT CAN BE SEEN FROM THE ABOVE PARAGRAPH, ASSESSEE HAS SOLD 16830 KG OF NOVATIC OLIVE R PURE TO M/S.DYESTAR, GERMANY WHEREAS SALE TO THE AE OF THE SAME PRODUCT IS ONLY 9259 KG. SIMILAR IS THE SITUATION OF OTHER PRODUCTS. IN VIE W OF THE ABOVE, ASSESSEES CLAIM, SPECIFICALLY TO THESE 4 PRODUCTS REGARDING UPWARD QUANTITY ADJUSTMENT IS REJECTED. 4.8. FINALLY THE TPO HAS CONCLUDED THAT T HE UPWARD ADJUSTMENT AS OFFERED BY THE ASSESSEE OF RS. 1,09,80,062/- WAS TO BE INCREASED TO RS. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 9 - 1,74,69,516/-. TO ARRIVE AT THIS FIGURE THERE ARE A NNEXURES TO THE SAID ORDER AS ANNEXURE A TO D IN RELATION TO ALL THE F OUR ASSOCIATE ENTERPRISES, SUMMARISED AS UNDER :- ANNEXURE A RS. 1,11,28,585/- ANNEXURE B RS. 40,46,606/- ANNEXURE C RS. 42,62,272/- ANNEXURE D RS. 18,68,053/- TOTAL RS. 1,74,69,516/- 5. THE MATTER WAS REFERRED TO DISPUTE RESOLUTION PANEL ( IN SHORT DRP ) AND FOR THE SAKE OF COMPLETENESS THE RELEVANT OBSE RVATIONS SHALL ONLY BE DISCUSSED. THE CHIEF OBJECTION OF THE ASSESSEE WAS THAT THE OVER-ALL SALE-PRICE CHARGED FROM THE A.E. WAS MOR E THAN COMPARING THE NON-A.E. SO IT WAS PLEADED THAT NO ADJUSTMENT WAS NEEDED A S THE SAID INTERNATIONAL TRANSACTION WAS AT ALP. SECO NDLY, IT WAS URGED THAT NO PROFIT WAS SHIFTED FROM INDIA TO OUT SIDE COUNT RY, RATHER THE OVER-ALL PROFIT WAS RETAINED IN INDIA BY CHARGING ON THE WH OLE MORE PRICE. THIRDLY, IT WAS ALSO ARGUED THAT THERE WAS NO MOTI VE OR INCENTIVE IN SHIFTING SUCH AN AMOUNT BECAUSE THE ASSESSEE IS A N ELIGIBLE UNDERTAKING FOR THE DEDUCTION THE U/S 80IA. THAT THERE WAS NO TAX BENEFIT TO THE ASSESSEE TO SHIFT PROFIT OUT OF COUNTRY. 5.1. HOWEVER, THE LD. DRP HAS QUOTED CBDT CIRC ULAR NOS. 12 & 14 WHICH SAYS THAT THE PROVISIONS OF TRANSFER PRICING ARE MADE TO ENSURE THAT THE PROFITS TAXABLE IN INDIA ARE NOT UNDERSTATED BY DECLARING LOWER RECEIPTS ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 10 - OR HIGHER OUTGOINGS . THAT THE LOSSES ARE NOT OVERS TATED IN INDIA. THESE TRANSACTION ARE TO BE IN COMPARISON TO THAN THOSE W HICH WOULD HAVE BEEN DECLARED BY THE PERSONS ENTERING INTO SIMILAR TRANS ACTION WITH UNRELATED PARTIES IN THE SAME OR SIMILAR CIRCUMSTANCES. THUS THE BASIC INTENTION UNDERLYING THE TRANSFER PRICING REGULATION IS TO PR EVENT SHIFTING -OUT OF PROFIT BY MANIPULATING PRICES CHARGED OR PAID IN IN TERNATIONAL TRANSACTION, AND THEREBY ERODING THE COUNTRYS TAX BASE. 5.2. AT THIS JUNCTURE IT IS WORTH TO MENTIO N ONE OF THE FINDING OF THE DRP, WHICH WAS IN RESPECT OF THE VALIDITY OF THE I NITIATION OF T.P. PROCEEDINGS WHEN THERE WAS NO TAX BENEFIT TO THE AS SESSEE IN VIEW OF THE TAX INCENTIVE PROVIDED IN INDIA. THE DRP HAS CITED MSS INDIA PVT. LTD. 123 TTJ 657(PUNE), ONE OF US I.E. JM IS A COSIGNATORY, FOR THE REASON THAT ALP COULD BE DETERMINED BECAUSE THE LE GISLATURE DID COMPREHEND THE SITUATION, WHILE INTRODUCING THESE P ROVISIONS, THAT THESE PROVISIONS OF TRANSFER PRICING ARE TO BE APPLIED WHILE THE BENEFIT U/S 10A IS STILL AVAILABLE TO THE ASSESSEE. IN THE SAID DECISION OF MSS INDIA (SUPRA) THAT CREASE WAS STRAIGHTENED WHICH WAS CREA TED BY A VERDICT PRONOUNCED IN THE CASE OF PHILIPS SOFTWARE CENTRE ( 26 SOT 226). IN PHILIPS SOFTWARE(SUPRA) IT WAS OPINED THAT THE BASI C INTENTION FOR THE INTRODUCTION OF TRANSFER PRICING PROVISIONS IS TO P REVENT THE SHIFTING OF PROFIT, BUT IF ASSESSEE IS CLAIMING BENEFIT OF SEC. 10A THEN THERE IS NO MOTIVE TO TRANSFER THE PROFIT, HENCE T.P. PROVISIO NS OUGHT NOT TO BE APPLIED. BUT THIS DECISION OF PHILIPS SOFTWARE CENTRE(P) LTD.{26 SOT 226 (BANG.)} WAS TRANSVERSELY OPPOSITE TO THE FIVE MEMBER DECIS ION OF AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. 162 TAXMA N 119 (BANG.) ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 11 - (S.B.) HENCE IT WAS HELD IN MSS INDIA PVT. LTD (SUPRA ) T HAT THE FIVE MEMBER SPECIAL BENCH DECISION IS REQUIRED TO BE ADO PTED IN PREFERENCE TO A DIVISION BENCH DECISION. 5.3. AN ANOTHER VIEW OF THE DRP IS HEREBY RE QUIRED TO BE MENTIONED THROUGH WHICH IT WAS OPINED THAT THE IMPORTANT FAC TOR IS THE PAYMENT OF TAX QUA INDIA AND NOT QUA THE TAX ALONG-WITH THE A. E. THE RATIONALE BEHIND THE T.P. PROVISIONS IS TO CURTAIL THE AVOIDA NCE OF TAX IN INDIA. INTENT AND PURPOSE IS TO ENSURE THAT THERE IS NO DI MINUTION IN THE TAX LIABILITY OF AN INDIAN ENTERPRISE. HOW MUCH TAX IS PAID BY THE FOREIGN A.E. IS NOT RELEVANT IN THE DETERMINATION OF CORREC T TAX LIABILITY IN THE HANDS OF AN INDIAN ENTERPRISE. THE PAYMENT OF TAX B Y A.E. ABROAD DOES NOT CONTRIBUTE ANYTHING TO INDIAN EXCHEQUER. SO IT IS WRONG TO ARGUE THAT THE TAX LIABILITY OF AN INDIAN ENTERPRISE IS TO BE SEEN ALONG-WITH THE ABROAD TAX LIABILITY OF A.E. ON A TOTAL BASIS. FO R THIS LEGAL PROPOSITION THE CASE LAW RELIED UPON WAS GHARDA CHEMICALS LTD. ( 2009-TIOL -790- ITAT- MUM.) 5.4. ON THE QUESTION OF PROPOSED ADJUSTMENTS OF S LAE-PRICE THE COMMENT OF THE LD. DRP WAS THAT IF A PRODUCT HAS BEEN MANU FACTURED AND SOLD USING SIMILAR FUNCTIONAL ANALYSIS , BY TAKING INTO CONSIDERATION THE ASSETS AND THE RISKS ASSUMED, THEN NO ADJUSTMENT COULD BE ALLOWED ON ACCOUNT OF ANY NON-ECONOMIC INDICATOR . NO SUCH ADJUSTMENT IS ENVISAGED IN 10 B EXCEPT WHERE THE ASSESSEE IS ABLE TO SHOW THAT TH E TRANSACTION ENTERED INTO WITH THE PARTIES COULD MATERIALLY AFFECT THE P RICE IN THE OPEN MARKET. ACCORDING TO DRP NO SUCH PROOF HAD BEEN EITHER FILE D BEFORE THE TPO OR ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 12 - BEFORE THE DRP PROCEEDINGS ON THE BASIS OF WHICH IT COULD BE PROVED BY THE ASSESSEE THAT IN VIEW OF THE TRANSACTIONS ENTER ED INTO WITH THE THIRD PARTY, THE PRICE CHARGED FROM THE A.E. WAS ALSO LE SS. IT WAS COMMENTED , RATHER THE TPO HAS ALREADY ALLOWED THE ADJUSTMENT OF PRICE AFTER DULY CONSIDERING THE LOWER PRICE EFFECT DUE TO THE PRESE NCE OF CHINA MARKET. SINCE THE DRP HAS APPROVED THE UPWARD ADJUSTMENT OF RS. 1,74,69,516/- AS SUGGESTED BY LD.TPO, HENCE THE ASSESSEE IS AGGRI EVED AND NOW BEFORE US. 5.5. FROM THE SIDE OF THE APPELLANT SENIOR ADVOCATE MR.S.N.SOPARKAR APPEARED. TO BE PRCISE, HE HAS RAISED THREE ISS UES. THE FIRST ISSUE IS IN RESPECT OF THE PRINCIPLE OF AGGREGATION. AFTER NARRATING THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE AND THE BRIEF B ACKGROUND OF THE NATURE OF ADJUSTMENT MADE BY THE TPO, LD.AR HAS DIR ECTLY CONFRONTED THAT WHILE MAKING THE ADJUSTMENT THE TPO HAD TAKEN INTO ACCOUNT ONLY SUCH TRANSACTIONS WHERE LESSER AMOUNT WAS CHARGED B Y THE ASSESSEE FROM AE. THE TPO HAD IGNORED THOSE TRANSACTIONS WHERE MORE AMOUNT WAS CHARGED IN COMPARISON TO THE NON-AE. HE HAS THEREFO RE CONTESTED THAT ALL THE TRANSACTIONS SHOULD BE AGGREGATED IN RESPECT OF ALL THE PRODUCTS FOR THE ENTIRE YEAR AND THE RESULT IS TO BE EXAMINED IN THE TOTALITY OF THOSE TRANSACTIONS. IF IT IS FOUND THAT STILL THERE WAS A DIFFERENCE WHICH DEMONSTRATES THAT A LESSER AMOUNT WAS CHARGED BY TH E ASSESSEE FROM THE AE, THEN ONLY THAT COULD HAVE BEEN ADJUSTED. HE HAS VEHEMENTLY CONTESTED THAT HAD THE AO ADOPTED SUCH AGGREGATIO N OF ALL THE TRANSACTION, THEN THERE WOULD BE NO CASE FOR ANY AD JUSTMENT. OUR ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 13 - ATTENTION WAS DRAWN ON PAGE 94 OF THE PAPER-BOOK WHICH CONTAINS SUMMARY OF THE TRANSACTION FOR A.Y. 2006-07 AS FOLL OWS:- SUMMARY OF ADDITIONS FOR TP TRANSACTIONS A.Y. 2006-07 SN AE ADDITION DELETION ADDITION 1. AAI 4652281 7513080 -2860799 2. AEL 426272 18897943 -18471671 3. ADG 4046607 3343034 703573 4. AITSCL 1854903 531090 1323813 10980061 30285147 -19305085 5.6 SO, LD.AR HAS DESCRIBED PAGE 94 THAT UNDER THE HEAD ADDITION THE TOTAL OF THE AMOUNT OF TRANSACTION WITH ALL THE 4 AES WAS AMOUNTING TO RS.1,09,80,061/-, WHICH WAS UNDER CHARGED. HOWEVER, WITH THOSE 4 AES THERE WERE TRANSACTIONS WHICH WERE OVER CHARGED AND TABULATED UNDER THE HEAD DELETION AMOUNTING TO RS.3,02,85,1 47/-. HE HAS SUBMITTED THAT SINCE THE AMOUNT WHICH WAS OVERCHARG ED WAS HIGHER IN FIGURE, THEREFORE THE NET AMOUNT WAS IN THE MINUS F IGURE. THUS SHOWING THAT THERE WAS NO REQUIREMENT OF ANY ADJUSTMENT SIN CE ULTIMATE RESULT OF ALL THE TRANSACTION WAS THAT THERE WAS NO TRANSFER OF PROFIT BY CHARGING LESS FROM THE AES. 5.7. HE HAS ALSO DRAWN OUR ATTENTION ON OECD GUID ELINES WHICH WERE NARRATED TO THE REVENUE AUTHORITIES AND THE EXTRACT OF THE SAME IS AS UNDER:- ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 14 - IN THIS CONTEXT, WE RELY ON THE CLAUSE (D) OF RULE 10A OF THE INCOME TAX RULES 1962 WHICH PERMITS AGGREGATION OF INDIVIDUAL TRANSACTIONS FOR DETERMINATION AND APPLICATION OF ARMS LENGTH PRICE . RULE 10A(D) DEFINES THE TRANSACTION AS FOLLOWS: FOR THE PURPOSES OF THIS RULE AND RULES 10B TO 10E. (A) UNCONTROLLED TRANSACTION MEANS A TRANSACTION BETWEE N ENTERPRISES OTHER THAN ASSOCIATED ENTERPRISES, WHET HER RESIDENT OR NON-RESIDENT. (B) PROPERTY INCLUDES GOODS, ARTICLES OR THINGS AND INT ANGIBLE PROPERTY. (C) SERVICES INCLUDE FINANCIAL SERVICES. (D) TRANSACTION INCLUDES A NUMBER OF CLOSELY LINKED TRANSACTIONS WE ALSO DRAW YOUR HONORS KIND ATTENTION TO PARAGRA PH 1.42 TO OECD GUIDELINES WHICH EXPRESSLY ADVOCATES THE PRINCIPLE OF AGGREGATION IN THE CASES WHERE BUSINESS ENTITIES HAVE LONG TERM ARRANG EMENT FOR SUPPLY OF GOODS OF SERVICES OR WHERE PRICING OF CLOSELY LINKE D PRODUCTS ARE INVOLVED SAID PARAGRAPH 1.42 IS REPRODUCED HEREINAB ELOW FOR THE SAKE OF READY REFERENCE. IDEALLY, IN ORDER TO ARRIVE AT MOST PRECISE APPRO XIMATION OF FAIR MARKET VALUE THE ARMS LENGTH PRINCIPLE SHOULD BE A PPLIED ON TRANSACTION-BY-TRANSACTION BASIS. HOWEVER, THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTIONS ARE CLOSELY LINKED OR C ONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. EXAMPLES MAY INCLUDE 1. SOME LONG TERM CONTRACTS OF SUPPLY OF C OMMODITIES OR SERVICES. 2. RIGHTS TO USE INTANGIBLE PROPERTY, AND 3. PRICING A RANGE OF CLOSELY-LINKED PRODUCTS (E.G. IN A PRODUCT LINE) WH ICH IS IMPRACTICAL TO DETERMINE PRICING FOR EACH INDIVIDUAL PRODUCT OR TR ANSACTION. 5.8. THE ASSESSEE HAS FURNISHED THE COMPARATIVE DAT A FOR SALES MADE TO THE AE AND NON-AES IN THE COMPILATION RUNNING FROM PAGES 95, TO 105. ON THE BASIS OF THOSE COMPARATIVE DATA, LD.AR HAS E XPLAINED THAT IN RESPECT OF NUMBER OF ITEMS THE FOB PER KG. WAS HIG HER THAN THE NON-AE. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 15 - THE ASSESSEE HAS CHARGED HIGHER RATE PER KG. FROM T HE AE THAN THE MARKET PRICE. SO HAS ARGUED THAT THE ALLEGATION WAS WRON G THAT BY CHARGING LESS PRICE THE CORRECT PROFIT WAS NOT DISCLOSED BY THE A SSESSEE. THE ADJUSTMENT WHICH WAS MADE BY THE ASSESSEE WAS IN RE SPECT OF (I) DIFFERENT APPLICATION, (II) QUANTITY DISCOUNT, (III) MARKETIN G AND DISTRIBUTION AND (IV) FINANCIAL RISK. THE LD.AR HAS THUS POINTED OU T THAT AS FAR AS THE ADJUSTMENT IN RESPECT OF DIFFERENCE IN APPLICATION WAS CONCERNED, THE SAME WAS MADE ONLY IN RESPECT OF CW DIVISION OF A P RODUCT CODE 110308. IN RESPECT OF THAT PRODUCT THE SALE TO AE IN QUANTITY WAS 9259 KGS. AS AGAINST THAT THE QUANTITY SOLD TO NON-AE WA S 17820 KGS. THE FOB PER KG.CHARGED WAS 664.47 FROM AE AS AGAINST TH AT THE FOB PER KG.CHARGED FROM NON-AE WAS 1778.79 KGS. THUS, THE D IFFERENCE WAS (-)1114.3. IN RESPECT OF THIS PRODUCT ONLY 100% DIFFERENCE IN APPLICATION WAS ADJUSTED. FURTHER, THERE WAS DIFF ERENCE IN QUANTITY, THEREFORE 5% QUANTITY DISCOUNTED WAS ALSO ADJUSTED. FURTHERMORE, A 5% DISCOUNT ON ACCOUNT OF MARKETING AND DISTRIBUTION W AS GIVEN. HE HAS THUS PLEADED THAT THE ADJUSTMENTS WHICH WERE MADE B Y THE ASSESSEE WERE REASONABLE AND SHOULD HAVE BEEN ALLOWED BY THE TPO. RATHER, HE HAS APPRECIATED THAT THE TPO HAS GIVEN THE CLAIM OF AD JUSTMENT IN RESPECT OF MARKETING RISK AND LOWER PRICE PREVAILING IN CHINA MARKET AS ALSO ADJUSTMENT IN PRICE DUE TO LONG TERM CONTRACT AT 11 %, BUT NOT ALLOWED DIFFERENCE IN APPLICATION AND QUANTITY DISCOUNT . THE ADJUSTMENTS AS MADE BY THE TPO IN ANNEXURE ABC & D ARE HYPOTHETICA L AND WITHOUT ANY BASIS. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 16 - 5.9. LD.AR HAS VEHEMENTLY CONTESTED THAT IT WAS WRO NG ON THE PART OF THE AO AS WELL AS TPO THAT THE ASSESSEE HIMSELF HAS OFFERED UPWARD TRANSFER PRICING ADJUSTMENT OF RS.1,09,80,061/-. HE HAS INFORMED THAT THE AMOUNT WAS NOT OFFERED BUT IT WAS COMPARED WITH THE TRANSACTIONS WITH 4 AES WHERE THE ASSESSEE HAS OVERCHARGED. H E HAS ARGUED THAT THERE WAS NO UNDER CHARGE OF SALE PRICE AS ALLEGE D BY THE TPO BECAUSE THE PRICE WAS FIXED AFTER CONSIDERING SEVERAL FACTO RS AS PRESCRIBED UNDER LAW. IF THOSE FACTORS ARE TO BE TAKEN INTO ACCOUNT AND TO BE ADJUSTED AGAINST THE ALLEGED UNDER CHARGED SALE PRICE, THEN THERE WOULD BE NO DIFFERENCE IN THE SALE PRICE. 5.10. LD.AR HAS PERSUASIVELY DRAWN OUR ATTENTION ON THE PROVISIONS OF RULE 10A(D) OF IT RULES, 1962 WHICH PRESCRIBES THA T FOR THE PURPOSE OF RULE 10B TO 10E THE TERM TRANSACTIONS INCLUDES NUMBER OF CLOSELY LINKED TRANSACTIONS. THE CLOSELY LINKED TRANSACTIONS ARE THE SALES TRANSACTIONS WHICH ARE REQUIRED TO BE AGGREGATED AN D TO BE COMPUTED AS A WHOLE AND NOT BE SEGREGATED WITH EACH OTHER. THE OVERALL PROFITABILITY IS REQUIRED TO BE CONSIDERED BY THE TPO. THE ALLEGATI ON OF TRANSFER OF PROFIT OUGHT TO BE RULED OUT BECAUSE THE FINAL FIGURE CAME TO BE A NEGATIVE FIGURE; MEANS AT THE END NO POSITIVE BENEFIT WAS T RANSFERRED TO THE AES. 5.11. THE SECOND PLANK OF ARGUMENT OF LD.AR WAS THAT THERE WAS NO MOTIVE OF TAX AVOIDANCE. ACCORDING TO HIM, THE REVENUE DEPARTMENT HAS NOT DEMONSTRATED THAT THERE WAS ANY TAX BENEFIT BY TRANSFERRING THE PRODUCT AT LOWER PRICE TO AES. IN THIS CONNECTIO N, HE HAS DRAWN OUR ATTENTION ON SUB-GROUND 4 OF THE MAIN GROUND. LD. AR HAS DRAWN OUR ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 17 - ATTENTION ON PAGE 339 OF THE PAPER-BOOK, WHEREIN TH E PROFITABILITY RATIO OF THE ASSESSEE ALONG WITH THE 4 AES HAS BEEN COMPARED AS FOLLOWS:- PROFITABILITY RATIO ATUL LTD. AAI AEL ADL ACL NET PROFIT RATIO 3.66% 0.39% (7.91)% 0.11% 1.76% 5.12. IN THIS CONNECTION, RELIANCE WAS PLACED ON DCIT VS. INDO AMERICAN JEWELLERY LTD. 41 SOT PAGE 1 (MUM.). HE HAS PLEADED THAT THE TPO/AO WAS EXPECTED TO FIRST DEMONSTRATE THAT T HE ASSESSEE HAD A MOTIVE OF TAX AVOIDANCE WHILE ENTERING INTO CROSS-B OARDER TRANSACTION. LD.AR HAS ALSO REFERRED MASTEK LTD. VS. THE ADDL.CIT OF ITAT A BENCH AHMEDABAD IN ITA NO.3120/AHD/2010 FOR A.Y. 2006-07 DATED 29.02.2012. 5.13. LD.AR HAS ALSO PLEADED THAT THE AO HAD ERRED IN MAKING A REFERENCE TO THE TPO WITHOUT PROVIDING AN OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. 5.14. FROM THE SIDE OF THE REVENUE, LD. CIT-DR MR.D .P.GUPTA AND MR.ANURAG SHARMA TPO APPEARED. ON THE ISSUE OF TRA NSFER PRICING, DCIT MR.ANURAG SHARMA HAS PLEADED THAT THE ARGUMENT ON PRINCIPLE OF AGGREGATION ARE AGAINST THE PROVISIONS OF TRANSFER PRICING AS INCORPORATED UNDER THE STATUTE. AS FAR AS THE MOST APPROPRIATE METHOD IS CONCERNED, THE REVENUE AS ALSO THE ASSESSEE, BOTH, HAVE ADOPTED THE CUP METHOD AND THERE IS NO CONTROVERSY IN THIS REGARD. MR. SH ARMA HAS ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 18 - POINTED OUT THAT ALTHOUGH THE LD.AR HAS PLEADED THE PRINCIPLE OF AGGREGATION, HOWEVER WHILE SUBMITTING THE DOCUMENT IN RESPECT OF TRANSFER PRICING THE ASSESSEE HAS TAKEN INTO ACCOUN T ALL THE SALE TRANSACTIONS TO THE AES FOR THE PURPOSE OF COMPARAB ILITY PERTAINING TO A SINGLE PRODUCT. THE ASSESSEE HAS CALCULATED THE AV ERAGE RATE AND THE SAME WAS COMPARED WITH THE AVERAGE RATE OF SALE TRANSACT ION TO NON-AE. HE HAS PLEADED THAT THE ASSESSEE HAS THEREFORE CONSIDE RED THE PRODUCTS AS A CLOSELY LINKED TRANSACTION FOR THE PURPOSE OF COMPA RABILITY IN ACCORDANCE WITH THE PROVISIONS OF RULE 10A(D), BUT IT WAS AN I NCORRECT UNDERSTANDING OF THE SAID SUB-SECTION. EVEN UNDER RULE 10B(1), THE SUB-RULE(II) SAYS THAT THE PRICE IS TO BE ADJUSTED BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. THE TERM USED IS TRANSACTION HAS SIGNIFICANCE BECAUSE EACH TRANSACTION IS TO BE COMPARED WHICH WOULD MATERIALLY EFFECT THE PRICE IN THE OPEN MARKE T. THE LD. DR HAS ARGUED THAT ONE OF THE CRITERION OF COMPARABILITY IS THE SPECIFIC CHARACTERISTICS OF THE PROPERTY BEING TRANSFERRED. THUS THE AGGR EGATION IS REQUIRED TO BE CARRIED OUT TO SUCH AN EXTENT THA T THE SPECIFIC CHARACTERISTICS OF THE PROPERTY ARE NOT CHANGED SIG NIFICANTLY, OTHERWISE THE AGGREGATED TRANSACTIONS WOULD NO LONGER REMAIN COMPARABLE. IN THIS CONTEXT, IT IS SEEN THAT THE AGGREGATION ADOPTED BY THE ASSESSEE IN TP REPORT AND ACCEPTED BY THE TPO IS CARRIED OUT IN RE SPECT OF ALL THE TRANSACTIONS PERTAINING TO A SINGLE PRODUCT . FOR SUCH AGGREGATION THE CHARACTERISTICS OF THE PRODUCT BEING TRANSFERRED REMAIN THE SAME AS IT IS ONLY A SINGLE PRODUCT AND THE PROVISION OF RULE 10B (2)(A) IS COMPLIED WITH. HOWEVER, IF THE CONTENTION RAISED BY THE AR IS CONSIDERED THEN DIFFERENT PRODUCTS MANUFACTURED BY THE ASSESSEE ARE CLUBBED TOGETHER AND ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 19 - THE COMPARABILITY CRITERION OF SPECIFIC CHARACTERI STICS OF THE PROPERTY TRANSFERRED IS NOT MET-OUT. DETAILS MENTIONED IN PAGES 95 TO 97 IN PAPER-BOOK, AS SUBMITTED BY THE ASSESSEE, CONTAINED THE DETAILS OF QUANTITIES OF DIFFERENT PRODUCTS SOLD TO AES AND NO N-AE. THE PRODUCTS REFERRED WERE PERTAINED TO DIFFERENT DIVISIONS OF T HE ASSESSEE. THE PRODUCTS MANUFACTURED IN DIFFERENT DIVISIONS HAVE D IFFERENT APPLICATIONS. THE AGRO CHEMICAL DIVISION IS UTILIZED AS INSECTICIDE, THE AROMATIC DIVISION IS USED AS FLAVORS AND FRAGRANCES AND THE COLOUR DIVISION IS USED IN TEXTILE, LEATHER INDUSTRY. THEREFORE, THE MANUFACTURING PROCESS, ASSET UTILIZATION AND RISK IS DIFFERENT FOR DIFFERE NT DIVISIONS. ACCORDING TO HIS ARGUMENT, DUE THE SAID DIFFERENTIATIONS, THE FA R ANALYSIS FOR THE PRODUCT OF ONE DIVISION COULD NOT BE COMPARED TO TH E FAR ANALYSIS OF A PRODUCT MANUFACTURED IN OTHER DIVISION. LD.DR HAS C ONCLUDED THAT IF SUCH PRODUCTS MANUFACTURED IN DIFFERENT DIVISIONS AND HA VING DIFFERENT APPLICATIONS, THEN THE AGGREGATION OF SUCH TRANSACT IONS MUST NOT BE SAID TO BE COMPARABLE TRANSACTIONS. 5.15. LD.DR HAS ALSO DRAWN OUR ATTENTION THE AVERAG E PER UNIT RATE CALCULATED BY THE ASSESSEE FOR DIFFERENT PRODUCTS A VAILABLE ON PAGE 95 TO 97 OF ITS PAPER BOOK. IT CAN BE SEEN ON PAGE 95 TH AT THE PRODUCT HAVING CODE 1012108 OF CW DIVISION IS SOLD AT AN AVERAGE P ER UNIT RATE OF 3620.44 WHILE AS PER PAGE 96 THE PRODUCT WITH CODE 16831 OF CO DIVISION IS SOLD AT AN AVERAGE RATE OF 57.52. IF T HE ASSESSEES CONTENTION OF AGGREGATING ALL PRODUCTS IS TAKEN INTO ACCOUNT, IT WOULD LEAD TO SITUATION IN WHICH THE AVERAGE PER UNIT RATE FOR SA LE OF THESE PRODUCTS WOULD BE 1839 ([57.52 + 3620.44]/2). NOW CONSIDER THE SITUATION IN ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 20 - WHICH THE PRODUCT HAVING CODE 16831 IS SOLD BY THE ASSESSEE AT RS.7.52 AND THE OTHER PRODUCT IS SOLD AT 3680.44, GIVING AN AVERAGE PER UNIT RATE OF 1844. IN SUCH A SCENARIO IT MAY BE CLAIMED THAT ON AGGREGATE BASIS THE AVERAGE PRICE CHARGED IN SECOND CASE IS MORE, WHILE THE FACT IS THAT THE FIRST PRODUCT WAS OLD AT A LARGELY DEPRESSED PRICE, WHICH IS CLEARLY NOT ALP. AS PER THE TRANSFER PRICING REGULATIONS, THE ARMS LENGTH PRICE IS REQUIRED TO BE DETERMINED FOR EACH INTERNATIONAL TR ANSACTION AS DEFINED IN SECTION 92(1) OF THE IT ACT WHERE IN THE SECTION TA LKS ABOUT AN INTERNATIONAL TRANSACTION. BY AGGREGATING THE TRAN SACTIONS OF DIFFERENT PRODUCTS, THE NON ARMS LENGTH NATURE OF ONE TRANSA CTION IS MASKED BY THE PRICE OF OTHER, WHICH IS CLEARLY NOT AS PER THE PRO VISIONS OF INDIAN LAW. IN THIS RESPECT RELIANCE IS ALSO PLACED ON THE JUDGMEN T DELIVERED BY ITAT, MUMBAI IN THE ACIT VS. TARA ULTIMO PVT.LTD. 13 TAXMAN.COM 184 (MUMBAI). 5.16. LD.DR HAS ALSO UNDERTOOK TO COUNTER AN ANOTHE R ARGUMENT OF LD. AR WHERE HE HAS REFERRED AN OECD GUIDELINE WHEREIN IT WAS OPINED THAT THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTI ONS ARE SO CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. ACCORDING TO HIM, ALP IS REQUIRED TO BE COMPUTED ON A TRANSACTION-BY-TRANSACTION BASIS. AN AGGREGATION IS ONLY REQUIRED WHEN A TRANSACTION CANNOT BE EVALUATED ON A SEPARATE BASIS . HE HAS QUOTED AZTECH SOFTWARE AND TECHNOLOGY SERVICES LTD. 107 IT D 141 (BANGALORE) (SB) FOR THE LEGAL PROPOSITION THAT THE ASSESSEE I S REQUIRED TO PLACE ON RECORD RELEVANT MATERIAL TO JUSTIFY THE CO MPARABLE TRANSACTIONS BEFORE THE REVENUE AUTHORITIES. AN ANOTHER DECIS ION CITED BY HIM IS ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 21 - ACIT VS. UE TRADE CORPORATION (INDIA) PVT.LTD. 45 S OT 197 (DELHI) FOR THE LEGAL PROPOSITION THAT IT WAS CORRECT ON TH E PART OF THE TPO TO EXAMINE EACH TRANSACTION SEPARATELY. 5.17. IN RESPECT OF THE GROUND PERTAINING TO MOTI VE BEHIND TAX AVOIDANCE, HE HAS QUOTED CERTAIN PORTIONS FROM THE DECISIONS OF AZTECH SOFTWARE AND TECHNOLOGY SERVICES LTD. (SUPRA). EVE N IN THE CASE OF UE TRADE CORPORATION (INDIA) PVT.LTD.(SUPRA) AND IN T HE CASE OF COCA COLA INDIA 301 ITR 194, IT WAS HELD THAT THERE IS NO STATUTORY REQUIREMENT TO ESTABLISH THAT THERE WAS A TRANSFER OF PROFIT OUTSI DE INDIA OR THAT THERE WAS ANY EVASION OF TAX . RATHER IN THE CASE OF M.S.S. INDIA PVT.LTD. 32 SOT 132 (PUNE) THE JUDGEMENT AZTECH SOFTWARE WAS FOLLOWED AND THE JUDGEMENT OF PHILIPS SOFTWARE CENTRE PVT.LTD(SUPRA) WAS DISTINGUISHED. IN THE CASE OF TARA ULTIMO PVT.LTD.(SUPRA), IT WAS HELD THAT THE DEMONSTRATION OF TAX AVOIDANCE MOTIVE IS NOT NECESS ARY. FURTHER IN THE CASE OF GHARDA CHEMICALS 35 SOT 406 (MUM.) , IT WAS HELD THAT THE QUANTUM OF TAX PAID BY AE IS IRRELEVANT IN DETERMIN ATION OF CORRECT TAX LIABILITY IN THE HANDS OF THE INDIAN ENTERPRISE. HE HAS THEREFORE CONCLUDED THAT THE ADJUSTMENT MADE BY THE AO DESERVES TO BE U PHELD. 5.18 WE HAVE HEARD THE ARGUMENTS OF BOTH THE S IDES AT LENGTH IN THE LIGHT OF THE AVAILABLE CASE RECORDS, COMPILATION FI LED AND CASE LAWS CITED. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION ON THE E LABORATE SUBMISSIONS ADVANCED FROM BOTH THE SIDES. IN TERMS OF SEC. 92E A REPORT ON FORM 3CEB WAS FURNISHED INFORMING ABOUT CERTAIN CROSS-BO RDER TRANSACTION WITH FOUR ASSOCIATE ENTERPRISES, STATED TO BE WHOL LY OWED SUBSIDIARIES. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 22 - NAMES OF THOSE A.ES AND THE NATURE OF TRANSACTION H AS BEEN DISCUSSED ABOVE( REF. PARA 4.2 SUPRA). THE ASSESSEE HAS SIX MANUFACTURING DIVISIONS OF DYES, CHEMICALS, AGROCHEMICALS, ETC. THESE MANUF ACTURED PRODUCTS WERE EXPORTED TO A.ES. THROUGH FORM 3 CEB IT WAS I NFORMED THAT THE ASSESSEE WAS SELLING THE PRODUCTS MANUFACTURED BY T HE HOLDING COMPANY, I.E. ASSESSEE. THE ASSESSEE COMPANY WAS THUS CONSIDERED AS THE TESTED PARTY FOR THE PURPOSE OF THE SAID DOCUMENT. ONE MORE FACT HAS ALSO EMERGED THAT A PRELIMINARY SEARCH WAS PERFORME D BY THE ASSESSEE COMPANY TO GET THE POTENTIALLY COMPARABLE UNCONTROL LED TRANSACTION SO IDENTIFIED INTERNAL COMPARABLES. WE HAVE THEREFORE NOTICED THAT THE TRANSACTIONS UNDERTAKEN WITH UNRELATED ENTERPRISES BY THE ASSESSEE COMPANY WERE INTERNALLY COMPARED. IT IS WORTH TO CO MMENT, WHICH SHALL HAVE A BEARING IN OUR DECISION HEREINBELOW, THAT TH OSE WERE SOMEWHAT SIMILAR TRANSACTIONS, BUT NEITHER THE SAME TRANSA CTION NOR IDENTICAL TRANSACTIONS. THERE IS NO DISPUTE THAT THE MOST APPROPRIATE METHOD SELECTED BY THE ASSESSEE WAS THE CUP METHOD THUS FULFILLED THE REQUIREMENT OF RULE 10C OF I.T.RULES . THE ACCEPTED POLICY IS THAT UNDER CUP METHOD , THE ARMS LENGTH PRICE FOR THE T RANSFER OF TANGIBLE PROPERTY BEING TRANSACTED BETWEEN THE RELATED PARTI ES IS TO BE DETERMINED BY THE PRICE PAID FOR THE SAME OR SIMILAR PROPERTY IN A TRANSACTION BETWEEN UNRELATED PARTIES. A LITTLE MORE TO ELABORA TE, SO THAT THE ISSUE RAISED CAN BE DECIDED WITH IN THIS PARAMETER, A TRA NSACTION IS CONSIDERED COMPARABLE ONLY IF BOTH THE TANGIBLE PROPERTY , I.E . THE PRODUCT FOR SALE, AND THE CIRCUMSTANCES SURROUNDING THE CONTROLLED TR ANSACTION , ARE SUBSTANTIALLY THE SAME AS THOSE OF THE UNCONTROLLED TRANSACTION. SO THE COMPARABILITY DEPENDS UPON THE QUALITY OF THE PRODU CT, THE VOLUME OF THE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 23 - SALE, THE MARKET LEVEL, THE GEOGRAPHICAL CONDITIONS , THE DATE , OTHER REALISTIC FACTORS GOVERNING THE SALE PRICE. HENCE T HE COMPARISON IN RESPECT OF EACH TRANSACTION IS AN APPROPRIATE METHOD THAN T HE AVERAGING OR AGGREGATING, WHICH MAY LEAD TO A DISTORTED FIGURE, UNLESS AND UNTIL IT IS FULLY JUSTIFIABLE. OUR ATTENTION WAS DRAWN ON THE C OMMENT OF THE AUDITOR AS APPEARING ON PAGE.77 OF THE PAPER BOOK , QUOTE WE HAVE TO STATE THAT WE HAVE CONSIDERED THE FOB PRICE/ KG. FOR EACH OF THE PRODUCT CATEGORY FOR SALES MADE TO AE AND THOSE MADE TO UNC ONTROLLED ENTERPRISES AS ONE ADJUSTMENT WHILE COMPUTING ARMS LENGTH PRIC E. THIS WILL REMOVE THE VARIATIONS ON ACCOUNT OF FREIGHT AND OTH ER INDIVIDUAL CHARGES AND MAKE THEM COMPARABLE ON ONE TO ONE BASIS. UNQUOTE. SO IT IS ESSENTIAL TO NOTE THAT THE ASSESSEE HAS INITIALLY C HOSEN THE METHOD OF SEGREGATING THE TRANSACTION BUT LATER ON ARGUED , A S DEALT HERE-UNDER, TO AGGREGATE THE TRANSACTIONS. ON GETTING THIS INFORMATION A REFER ENCE WAS MADE BY THE A.O. TO THE TPO. IT IS WORTH TO MENTION THAT UNDISPUTEDL Y THE REFERENCE TO THE TPO WAS MADE ONLY IN RESPECT OF CROSS-BORDER SALE TRANSACTIONS. THERE IS A CONTROVERSY IN THIS CONNECTION THAT WHETHER THE T PO CAN GO ON HIS OWN BEYOND THE TRANSACTIONS REFERRED , HOWEVER, THIS SH ALL BE ADDRESSED BY US IN LATER PARAGRAPHS. THE TPOS OBJECTION IS THA T SOME OF THE PRODUCTS WERE SOLD AT LOWER PRICE COMPARING THE SALE TRANSAC TION WITH THE NON- A.E. TO ARRIVE AT THE ARMS LENGTH PRICE THE ASSESS EE HAS CHOSEN TO ADOPT THE COMPARABLE UNCONTROLLED PRICE ( CUP) METHOD AS PRESCRIBED UNDER SEC.92C OF THE ACT. UNDISPUTEDLY, BOTH THE SIDES HAVE CHOSEN CUP METHOD AS THE MOST APPROPRIATE METHOD AND THERE IS NO DISPUTE IN THIS REGARD. TO ARRIVE AT THE ALP, ON O NE HAND THE ASSESSEE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 24 - WANTED FIVE TYPE OF ADJUSTMENT IN THE SALE PRICE FE TCHED BY THE ASSESSEE FROM THE TRANSACTION WITH ITS AES, BUT ON THE OTHE R HAND THE TPO HAS ALLOWED THREE ADJUSTMENTS I.E.( I) ADJUSTMENT OF 5 % TOWARDS MARKETING & FINANCIAL RISK, (II) ADJUSTMENT OF 11% OF LONG TERM S CONTRACT (III) ADJUSTMENT OF 30% TO 50% OF PRICE DIFFERENCE DUE TO LOWER PRICE OF CHINA MARKET. BUT THE TPO HAS NOT ALLOWED TWO ADJUSTMENT S I.E (1) AN ADJUSTMENT OF 100% TOWARDS DIFFERENCE IN APPLICATI ON AND (2) AN ADJUSTMENT OF 2% TO 5% TOWARDS QUANTITY DISCOUNT. AFTER GIVING HIS REASONS IN THE IMPUGNED REFERRAL ORDER PASSED U/S 92CA(3) , THE TPO HAS ATTACHED FOUR A, B, C & D ANNEXURE GIV ING THE DETAILS OF COMPARATIVE DATA OF SALES MADE TO AE AND NON-AE. ANNEXURE A SUGGESTED THE MAXIMUM UPWARD ADJUSTMENT OF RS.1,11,28,585/- . WE HAVE STUDIED THIS ANNEXURE. THERE ARE FOUR DIVISIONS COVERED IN A ANX. WE HAVE FURTHER NOTIC ED THAT THE MAXIMUM DIFFERENCE IS IN RESPECT OF A PRODUCT ( 110 308) . THE QUANTITY SOLD TO A.E. OF THIS PRODUCT WAS 9,259 KG. BUT TO NON A.E. QUANTITY SOLD WAS 17,820 KG. THE FOB PER KG. RATE WAS FOR A.E. A T RS.664.47 BUT RATE CHARGED FROM NON-A.E. WAS AT RS. 1,778.79. THI S WAS THE BASIC REASON OF OBJECTION RAISED BY THE TPO. SINCE THE RA TE PER CHARGED FROM THE NON-A.E. WAS HIGHER FOR THE SAME PRODUCT THEREF ORE IT WAS OBJECTED THAT WHY THE SAME WAS NOT CHARGED FROM THE ASSESSEE S SUBSIDIARIES. 5.19. ON THE OTHER HAND, FROM THE SIDE OF TH E ASSESSEE, A SUMMARY OF COMPARATIVE DATA FOR THE SALES MADE TO AE AND NON-A E HAVE ALSO BEEN FURNISHED BY THE ASSESSEE AS WELL. THESE DETAILS ARE FROM PAGES 95 TO 105. IN SOME OF THE CASES, THE OVERALL RESULT AFT ER THE ADJUSTMENT WAS ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 25 - THAT THERE WAS NO ADJUSTMENT REQUIRED. RIGHT NOW , WE ARE CONCENTRATING ON ONE PRODUCT, I.E. PRODUCT CODE NUMBER 110308. IN THE FOREGOING PARAGRAPH, WE HAVE NOTED THAT FOR THIS PRODUCT THE TPO HAD MADE THE MAXIMUM ADJUSTMENT. THE CALCULATION OF THE ASSESS EE IN RESPECT OF THIS PRODUCT IS DISTINGUISHABLE BECAUSE OF THE REASON TH AT THE DIFFERENCE IN PRICE AFTER ADJUSTMENT AS PER ASSESSEE WAS ONLY 383 .4, HOWEVER, AS AGAINST THAT, THE DIFFERENCE IN PRICE AFTER ADJUSTM ENT AS PER TPO WAS 1081.1. THEREFORE, THE ASSESSEE HAS CALCULATED TH E SCOPE OF ADJUSTMENT OF RS.35,49,901/-. IN THIS CONNECTION, THE ASSESSE E HAS SOUGHT PERMISSION FOR THE PRODUCTION OF ADDITIONAL EVIDENCE, AS DISCUSSED SUPRA. IT WAS NOTED BY THE ASSESSEE ON VERIFICATION OF SALE TRANS ACTION THAT THERE WAS A DISCREPANCY, INFORMED THROUGH A SEPARATE PETITION S EEKING PERMISSION OF ADMISSION , QUOTE 3. RE. SUMMARY OF COMPARATIVE D ATA FOR SALES MADE TO AE AND NON AES FOR FINANCIAL YEAR 2005/06 SUBMI TTED AS PART OF AUDITED ACCOUNTS PLACED @ PAGE 95 OF THE PAPER BOOK REPRODUCED AS ANNEXURE A OF THE ORDER OF TRANSFER PRICING OFFICER , THE ASSESSEE SUBMITS THAT ON VERIFICATION OF THE SALE TRANSACTION WITH A E / NON AE, DISCREPANCY IN THE NATURE OF SALE OF PRODUCT CODE 1 11108 (PRODUCT NAME NOVATIC BROWN R PURE) TO NON AE PARTIES WAS THROUGH OVERSIGHT SHOWN AS SALE OF PRODUCT CODE 110308 (PRODUCT NAME NOVATI C OLIVE R PURE). A CERTIFICATED DATED 6 TH AUGUST 2011 OF M/S.GHANSHYAM PAREKH & CO., CHARTERED ACCOUNTANTS WITH THE SALE INVOICES IN SUP PORT OF THE ABOVE CONTENTION ARE ANNEXED HEREWITH FOR APPRECIATION OF THE HON'BLE BENCH. UNQUOTE. THE EFFECT OF THIS DISCREPANCY HAS YET TO BE ASCERTAINED AND THE RELEVANT SUPPORTING EVIDENCE IS YET TO BE EXAMINED. THE NET RESULT OF THE TWO DIFFERENCE AS EXPLAINED TO US IS THAT THE TPO H AS WORKED OUT THE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 26 - PRICE DIFFERENCE AT RS.1081.1, AS AGAINST THAT THE ASSESSEE HAD CALCULATED THE PRICE DIFFERENCE AT RS.383.4. THE ASSESSEE HAS SOLD TO A.E. @ 664.47 , HOWEVER THE TPO HAS CALCULATED THE ALP AT 1081.1. HOWEVER, FOR THE PURPOSE OF CLAIMS OF ADJUSTMENT , THE ASSESSEE IS TO DEMONSTRATE SATISFACTORILY THE CORRECT NATURE OF THE PRODUCT, ITS MARKETING STRATEGY AND THE RISK INVOLVED FOR WHICH THE ASSESSEE IS ASKING FOR CERTAIN ADJUSTMENTS. DUE TO THIS REASON, WE DEEM IT PROPER TO RESTORE THIS PART OF THE ADJUSTMENT BACK TO THE STAGE OF THE AO FOR DE NOVO CONSIDERATION, NEEDLESS TO SAY AFTER PROVIDING REASONABLE OPPORTUN ITY TO THE ASSESSEE. 5.19.1 IT IS EXPECTED FROM US TO GIVE A FIND ING IN RESPECT OF ONE OF THE ADJUSTMENT AS DEMANDED BY THE ASSESSEE HOWEVER, REJ ECTED BY THE T.P.O. WE ARE TALKING ABOUT THE CLAIM OF 100% ADJUSTMENT IN PRICE FOR DIFFERENCE IN APPLICATION . THE CLAIM OF THE ASSESSEE WAS THAT THE CLIENTS USE THE PRODUCT PURCHASED DIFFERENTLY AS PE R THEIR BUSINESS REQUIREMENT. IT WAS ARGUED THAT THE PRODUCTS SOLD T O DIFFERENT PARTIES ARE BEING USED DIFFERENTLY BY THEM. IT WAS EXPLAINED TH AT A CHEMICAL CAN BE UTILIZED IN DIFFERENT MANNER. LIKE-WISE AROMATICS O R COLORS WERE USED IN PLASTIC PAINTS AS ALSO CAN BE USED IN AUTO PAINT. SO THE ARGUMENT IS THAT CONSIDERING THE APPLICATION OF A PRODUCT, THE PRICE WAS FIXED BY THE ASSESSEE , WHICH WAS THE CAUSE OF VARIATION. WE ARE NOT CONVINCED BY THIS PROPOSAL. THE END USE OF A PRODUCT BY THE BUYER HAS NO RELEV ANCE IN FIXATION OF SALE PRICE. HOW A MANUFACTURING COMPAN Y, LIKE ASSESSEE, CAN ALTER THE PRICE OF A MANUFACTURED PRODUCT ON THE BA SIS OF ITS UTILIZATION BY A BUYER. FOR E.G. A CAR IS MANUFACTURED BY AN AUTOM OBILE MANUFACTURER . CAN THE PRICE OF A CAR BE DIFFERENT IF USED FOR PRI VATE USE, THAN THE PRICE OF ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 27 - THE IDENTICAL VEHICLE USED FOR COMMERCIAL PURPOSE, I.E. TAXI ETC. NATURALLY IT IS NOT PROBABLE. A MANUFACTURER PRODUCES A C OMMODITY AND SALE THE SAME IN THE MARKET AT THE PRICE FIXED WITHOUT EVEN KNOWING ABOUT THE PRODUCTS USAGE BY THE BUYER. HOW CAN A PRODUCT B E SOLD AT DIFFERENT PRICE TO DIFFERENT CUSTOMERS ? YET AN ANOTHER EXAM PLE OF A PAINT MANUFACTURER IS WORTH MENTIONING WHICH IS BEING USE D FOR PAINTING A HOUSE, OR FOR PAINTING A CAR OR A FURNITURE OR BY A PAINTER FOR MAKING A PICTURE. IS THE USAGE DETERMINE THE PRICE OF A KG. OF PAINT. OBVIOUSLY THE ANSWER IS IN NEGATIVE. WE THEREFORE HOLD THAT THE CLAIM OF SUCH TYPE OF ADJUSTMENT IS UNWARRANTED. NO SUCH ADVANTAGE IN FIX ATION OF ALP PRICE BE GRANTED. 5.19.2 THE ASSESSEE HAS CLAIMED AN ANOTHER ADJUSTMEN T, NAMELY QUANTITY DISCOUNT IN THE RANGE OF 2% TO 5%. THE ASSESSEE HAS FURNISHED ITS CALCULATION OF COMPARATIVE DATA OF A .E. AND NON-AE ON PAGES 95 TO 105 OF THE PAPER BOOK. THERE ARE FEW PR ODUCTS , THE SALES OF THEM TO THE A.E. WAS STATED TO HIGHER. LIKEWISE WE HAVE ALSO PERUSED THE ANNEXURE ATTACHED BY THE T.P.O. WE WANT TO GIVE A D IRECTION THAT THERE SHOULD BE SIMILARITY IN THE CALCULATION OF ADJUSTME NT. BOTH THE SIDES ARE EXPECTED TO ADOPT AN IDENTICAL METHODOLOGY FOR THE CALCULATION. ON AN ENQUIRY IT WAS INFORMED THAT THE T.P.O. HAS MAD E THE ADJUSTMENT ON THE A.E. PRICE. THEREFORE THE ASSESSEE IS ALSO EXPECTED TO MAKE TH E SAME BASIS OF CALCULATION. BOTH OF THEM HAS THE LIB ERTY TO MAKE DIFFERENT ADJUSTMENT BUT THE BASE FIGURES OUGHT TO BE THE SAM E OTHERWISE THE CALCULATION SHALL BECOME MORE COMPLEX, AS MUCH AS T HAT THERE SHALL BE NO MEETING POINT OF THOSE CALCULATIONS . FROM THE ANNE XURE OF THE T.P.O. IT ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 28 - IS NOTICED THAT THERE WERE ADJUSTMENTS OF QUANTITY DISCOUNT RANGING FROM 2% TO 5%, BUT THE COMPARATIVE DIFFERENCE IN ADJUSTM ENT IS NOT UNDERSTANDABLE. AS FAR AS THE MERIT OF THIS ADJUSTMENT IS CONCERNED , WE ARE OF THE VIEW THAT IT IS A COMMON MARKET PRACT ICE THAT THE BULK- PURCHASERS ARE GENERALLY GIVEN SOME DISCOUNT. IF THE A.ES HAVE BEEN GIVEN SALE-PRICE DISCOUNT DUE TO THE HIGH QUANTITY OF PURCHASES THEN THE ASSESSEE IS REQUIRED TO PLACE ON RECORD THE COMMERC IAL POLICY OF THE ASSESSEE-COMPANY, WHETHER BASED UPON SOME AGREEMENT OR RESOLUTION. THE ASSESSEE IS ALSO EXPECTED TO DEMONSTRATE WITH S UPPORTING EVIDENCE THE BASIS OF APPLYING 2% ADJUSTMENT AND IN SOME CAS ES IT WAS FOUND TO BE 5% ADJUSTMENT. A NATURAL QUESTION HAS ALSO COME UP THAT WHETHER SUCH DISCOUNT IN SALE PRICE HAD ALSO BEEN GRANTED BY THE ASSESSEE TO NON-A.E. ON BULK PURCHASES. HOWEVER, WE ARE OF THE VIEW THAT THE T.P.O WAS NOT JUSTIFIED IN REJECTING THAT CLAIM WHICH IS OTHE RWISE PREVALENT IN THE MARKET AND CAN BE SAID TO BE A COMMON MARKET PR ACTICE. BUT BEFORE CLAIMING THIS ADJUSTMENT THE ASSESSEE MUST B E FAIR IN NOT CLAIMING THIS ADJUSTMENT ON SUCH SALE TRANSACTION TO A.ES. WHICH ARE APPARENTLY LOWER THAN THE SALES TO NON-A.E. RATHER BULK- PURCH ASES BY THE A.ES. ARE ONLY REQUIRED TO BE TAKEN INTO ACCOUNT FOR THIS ADJ USTMENT. WE DIRECT ACCORDINGLY. 5.20. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION ON THE ARGUMENT ADVANCED BY BOTH THE SIDES ON THE APPLICATION OF PRINCIPLE OF AGGREGATION. IN THIS REGARD, A REFERENCE OF RULE 10A(D) WAS MADE. THIS SUB-CLAUSE HAS DEFINED THE TERM TRANSACTION WHICH INCLUDES A NUMBER OF CLOSELY LINKED TRANSACTION . IN OUR OPINION, THE CLOSELY LINKED ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 29 - TRANSACTION ARE THOSE TRANSACTION WHERE THEY CANNOT BE SEGREGATED AND IF SEGREGATED, THEN SUCH TRANSACTION CANNOT BE EVALUAT ED ADEQUATELY ON A SEPARATE BASIS. THERE IS A SITUATION WHERE A LONG TERM CONTRACT FOR A SUPPLY OF COMMODITY OR FOR RENDERING THE SERVICE HA S BEEN ENTERED INTO BETWEEN THE PARTIES. IF THE TERM OF THE SAID CONTR ACT SPILL OVER ON NUMBER OF TRANSACTIONS, THEN NATURALLY ALL THOSE TRANSACTI ONS ARE REQUIRED TO BE AGGREGATED, SO THAT THE EVALUATION CAN BE MADE ADEQ UATELY. THERE ARE CERTAIN SITUATIONS, WHERE IT IS ALMOST IMPRACTICAL TO DETERMINE THE PRICE OF EACH INDIVIDUAL PRODUCT OR AN INDEPENDENT TRANSACTI ON. THERE IS A SITUATION WHERE IN A PRODUCT LINE EACH PRODUCT IS INTRICATELY CONNECTE D WITH EACH OTHER, SO THAT IT IS IMPRACTICAL TO DETER MINE THE PRICE OF A SINGLE COMMODITY IN THE LINKED PRODUCTS COMPRISING THE LIN E OF PRODUCT. IN SUCH A SITUATION, THE AGGREGATION IS REQUIRED. T HE OECD GUIDELINES ALSO GIVE AN ANOTHER EXAMPLE, THAT IF A TRANSACTION IS ROUTED FROM ONE AE TO AN ANOTHER, THEN IT IS MORE APPROPRIATE TO CONSIDER THE TRANSACTION WHICH IS BEING ROUTED IN A PART FROM AN ENTITY TO AN ANOTHER ENTIT Y AND, THEREFORE THE ENTIRE TRANSACTION IS TO BE TAKEN INT O ACCOUNT RATHER THAN EVALUATING INDIVIDUAL TRANSACTION ON A SEPARATE BAS IS. THESE FEW EXAMPLES DO NOT MATCH WITH THE FACTS OF THIS APPEAL. THE TRA NSACTIONS UNDER SCRUTINY IN THIS APPEAL WERE NEITHER OF SAME PRODU CT-LINE NOR ROUTED IN-PARTS , NOR WITH THE PURPOSE OF PORTFOLIO-APP ROACH; THEREFORE PRIMA FACIE THIS ADJUSTMENT IS UNCALLED-FOR. IN THE CA SE OF TARA ULTIMO PVT. LTD. 30 TAXMAN.COM 184 (MUM.), THE RESPECTED CO-ORDINATE BENCH HAS AT ONE PLACE OPINED THAT THE APPLICATION OF CPM HAS TO BE ON TRANSACTION BASIS RATHER THAN ON GLOBAL BASIS. ACC ORDING TO THE BENCH, THIS FUNDAMENTAL SCHEME OF COST PLUS METHOD IS ALSO EVIDENT FROM THE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 30 - PLAIN WORDINGS OF RULE 10B AS WELL. EVEN ALSO IN OUR CONSIDERED OPINION, EACH INTERNATIONAL TRANSACTION AS DEFINED IN SECTION 92(1) IS TO BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SECTION 92(1) IS WORDED IN THIS MANNER, QUOTE (1) ANY INCOME ARISIN G FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. UNQUOTE. SO THE ARTICLE AN HAS SIG NIFICANCE. 5.21. WE HAVE EXAMINED THE PRINCIPLE OF AGGREGATIO N IN THE LIGHT OF THE FACTS OF THIS CASE. ON PERUSAL, WE HAVE NOTED THA T THERE ARE SEVERAL PRODUCTS MANUFACTURED BY THE ASSESSEE AT DIFFERENT DIVISIONS. IN THE ABOVE PARAS, WE HAVE DISCUSSED THE EXISTENCE OF SE VERAL DIVISIONS WHICH ARE ENGAGED IN MANUFACTURING DIFFERENT PRODUCTS. WH EN THE MANUFACTURING PROCESS AND RISK FACTORS ARE DIVERSIF IED, THEREFORE IT IS NOT ADVISABLE TO AGGREGATE ALL THOSE PRODUCTS. IN THI S REGARD, FUNCTIONS PERFORMED, ASSETS UTILIZED AND RISK UNDERTAKEN (IN SHORT FAR ANALYSIS) GIVES US CERTAIN GUIDELINES AND, THEREFORE, ON THE BASIS OF FAR ANALYSIS A PRODUCT OF ONE DIVISION CANNOT BE COMPA RED WITH THE PRODUCT MANUFACTURED IN OTHER DIVISION. RATHER, WE HAVE N OTED THAT THERE IS A CONTRADICTION IN THE ARGUMENT OF LD.AR. LD.AR HAS ARGUED AT ONE POINT OF TIME THAT AN ADJUSTMENT IS REQUIRED ON ACCOUNT O F DIFFERENCE IN APPLICATION. IN OTHER WORDS, THE AR HAS ADMITTED THAT THE DIFFERENT PRODUCTS HAVE DIFFERENT END-USE. WHETHER SUCH PRODU CTS CAN BE CONSIDERED AS CLOSELY LINKED PRODUCTS IS A QUESTION MARK?. RATHER, IT IS JUSTIFIABLE TO HOLD, CONSIDERING THE FAR ANALYSIS O F THE CASE, THAT THE ARMS LENGTH PRICE IS REQUIRED TO BE DETERMINED ON A TRANSACTION-BY- ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 31 - TRANSACTION BASIS. AN AGGREGATION, AS SUGGESTED, IS TO BE RULED OUT WHEN ALP CAN BE MORE ACCURATELY DETERMINED OR EVALUATED ON A SEPARATE BASIS. 5.22 FROM THE SIDE OF THE REVENUE, LD.DR MR. AN URAG SHARMA HAS PLEADED THAT THE AGGREGATION IS SUGGESTED WHERE THE TAXPAYERS TRANSACTIONS ARE COMBINED DUE TO THE ADOPTION OF PORTFOLIO-APPROACH. HE HAS EXPLAINED THAT A PORTFOLIO-APPROACH IS A B USINESS STRATEGY. IT CONSISTED OF BUNDLING OF TRANSACTIONS. IT IS A BUSI NESS PLANNING FOR THE PURPOSE OF EARNING AN APPROPRIATE RETURN ACROSS THE PORTFOLIO, RATHER THAN ON ANY SINGLE PRODUCT WITHIN THE PORTFOLIO. THIS ST RATEGY IS THAT SOME PRODUCTS MAY BE MARKETED BY A BUSINESSMAN WITH A LO W PROFIT TO CREATE A DEMAND FOR OTHER RELATED PRODUCTS OR RELATED SERVIC E. THOSE OTHER RELATED PRODUCTS ARE THEN SOLD WITH HIGH PROFIT. FOR INSTAN CE, PER MR. SHARMA, AN EQUIPMENT CONNECTED WITH CAPTIVE AFTERMARKET CONSUM ABLE, FOR E.G. VENDING COFFEE MACHINE ALONG WITH COFFEE POUCHES, O R PRINTERS ALONG WITH PRINTING CARTRIDGES, ARE THE EXAMPLES OF PORTFOLIO APPROACH. HOWEVER FROM THE SIDE OF THE ASSESSEE NOTHING OF THIS SORT HAS BEEN DEMONSTRATED. NO SCIENTIFIC OR CONVINCING REASON HAS BEEN ADVANCE D IN SUPPORT OF THE AGGREGATION OF ALL THE TRANSACTION. ACCORDING TO US EACH SALE IS A SEPARATELY CONTRACTED TRANSACTION, SO NEED TO EVALU ATE SEPARATELY TO ARRIVE AT ARMS LENGTH PRICE. THEREFORE DIFFERENT SALE TRA NSACTIONS HAVING DIFFERENT ECONOMIC LOGIC SHOULD BE SEGMENTED. 5.23. THE CONTROVERSY IN RESPECT OF THE DEMAND OF T HE ASSESSEE TO AGGREGATE ALL THE TRANSACTIONS HAS ALSO BEEN ADDRES SED BY THE TRIBUNAL IN ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 32 - A CITED DECISION OF ACIT VS. UE TRADE CORPORATION ( INDIA) PVT.LTD. 45 SOT 197 (DELHI), WHEREIN VIDE PARA 4.2, IT WAS HELD AS UNDER:- 4.2. THE SECOND GROUND IS THAT THE POSITION SHOUL D BE SEEN AS A WHOLE WITH RESPECT TO ALL THE TRANSACTIONS AND NOT ONLY WITH RESPECT TO THE DISPUTED TRANSACTIONS. IN OTHER WORDS, IF T RANSFER PRICING STUDY IS MADE FOR ALL THE TRANSACTIONS, THE VARIATI ON MADE BY THE AO WOULD BE OF INSIGNIFICANT AMOUNT WARRANTING NO A DDITION. ON THE OTHER HAND, THE CASE OF THE LEARNED DEPARTMENTA L REPRESENTATIVE IS THAT PURCHASES BY WAY OF IMPORT D O NOT CONSTITUTE A SERIES OF CONNECTED TRANSACTIONS, BUT EACH TRANSA CTION IS A SEPARATE TRANSACTION. THEREFORE, THE AO WAS RIGHT IN EXAMINING EACH TRANSACTION SEPARATELY FOR THIS PURPOSE. IT I S SEEN THAT THE ASSESSEE HAS NOT BEEN ABLE TO BRING ANYTHING ON REC ORD THAT VARIOUS PURCHASES WERE A PART OF PRE-ARRANGED SCHEM E OR AGREEMENT SO AS TO CONSTITUTE A PART OF THE INDIVIS IBLE TRANSACTIONS OF PURCHASE. ACCORDINGLY, IT IS HELD THAT THE AO WAS WITHIN HIS RIGHT TO EVALUATE EACH TRANSACTION SEPARATELY. IN THE LIGHT OF THE ABOVE DISCUSSION AND RESPECTFU LLY FOLLOWING THE PRECEDENTS CITED, WE HEREBY REJECT THE PLEADING OF LD.AR THROUGH WHICH IT WAS DEMANDED TO AGGREGATE THE ENTIRE TRANS ACTION WITH THE AE FOR THE WHOLE YEAR. 5.24. MR.SOPARKAR HAS RAISED ONE MORE ISSUE WHIC H WAS IN RESPECT OF TAX AVOIDANCE MOTIVE . IN THIS REGARD, AT THE OUTSET, WE HEREBY PLACE RELIANCE ON AZETC SOFTWARE & TECHNOLOGY SERVICES LTD. VS. ASST. CIT REPORTED AT (2007) 107 ITD 141 (BANG) (SB), WHEREIN VIDE PARA 16 THE RESPECTED TRIBUNAL HAS OPINED THAT AS PER THE MANDA TE OF SECTION 92(1), INCOME FROM INTERNATIONAL TRANSACTION BETWEEN AES H AS TO BE COMPUTED HAVING REGARD TO ARMS LENGTH PRICE. THEREFORE, Q UESTION OF TAX ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 33 - AVOIDANCE IS TO BE ESTABLISHED BY FOLLOWING MANDATO RY PROVISIONS. IN THE OPINION OF THE RESPECTED BENCH, THE LANGUAGE USED B Y THE LEGISLATURE IS PLAIN AND AMBIGUOUS AND THERE IS NOTHING IN THE LAN GUAGE EMPLOYED BY THE LEGISLATURE ON THE BASIS OF WHICH IT CAN BE SAI D THAT AO MUST DEMONSTRATE THE AVOIDANCE OF TAX BEFORE INVOKING TH ESE PROVISIONS. EVEN IN THE CASE OF COCACOLA INDIA INC. 309 ITR 194 (P&H) THE HONBLE COURT HAS EXPRESSED THAT THERE IS NO MERIT IN THE CONTENTION THAT THE PROVISIONS OF CHAPTER-X COULD NOT BE MADE APPLI CABLE TO PARTIES WHICH ARE SUBJECT TO JURISDICTION OF TAXING AUTHORI TIES IN INDIA WITHOUT DEMONSTRATING THAT THERE WAS TAX AVOIDANCE MOTIVE. EVEN IN THE CASE OF TARA ULTIMO PVT.LTD. (SUPRA) THE VIEW EXPRESSED IN THE CASE OF AZTEC SOFTWARE (SUPRA) WAS AFFIRMED WHEREIN IT WAS HELD T HAT IT IS NOT NECESSARY TO DEMONSTRATE TAX AVOIDANCE MOTIVE BEFORE TRANSFER PRICING PROVISIONS CAN BE ENFORCED. WE HAVE ALSO PERUSED A DECISION OF GHARDA CHEMICALS 35 SOT 406, WHEREIN AN OBSERVATION WAS MADE THAT THE PRICE ON WHICH A PARTICULAR PRODUCT IS AVAILABLE IN ONE C OUNTRY MAY VARY FROM THE PRICE PREVAILING IN OTHER COUNTRIES DUE TO HOST OF FACTORS. THE INTENT AND PURPOSE OF THESE PROVISIONS IS NOT TO ENSURE TH AT THERE IS NO DIMINUTION IN THE TAX LIABILITY OF INDIAN ENTERPRIS E AS WELL AS ITS AE ON A TOTAL BASIS. RATHER THE LOGIC IS TO MAKE CERTAIN T HAT THE TRANSACTIONS BETWEEN THE ASSOCIATED ENTERPRISES SHOULD NOT BE AR RANGED IN SUCH A WAY THAT THE ULTIMATE TAX PAYABLE IN INDIA IS ARTIFICIA LLY REDUCED. THE PAYMENT OF TAX BY THE AE ABROAD DOES NOT CONTRIBUTE ANYTHIN G TO THE INDIA EXCHEQUER. IMPORTANT FACTOR IS THE PAYMENT OF TAX QUA INDIA AND NOT QUA THE ASSESSEE ALONG WITH ITS AE ON A WHOLE. IF WE A GREE WITH THIS SUBMISSION OF THE LD.AR THAT AS THE ULTIMATE TAX LI ABILITY OF THE ASSESSEE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 34 - TOGETHER WITH ITS AE DOES NOT VARY EVEN IF THE LOWE R PRICE IS CHARGED INTER- SE, AND HENCE THE EXERCISE DONE BY THE TPO B E HELD AS FRUITLESS, THEN THE PROVISIONS OF SECTION 92 TO 92 F WOULD BEC OME REDUNDANT. SINCE THE PROVISIONS REQUIRE THE DETERMINATION OF THE ALP IN AN INTERNATIONAL TRANSACTION BETWEEN THE ASSOCIATED ENTERPRISES, IT IS IMPERATIVE TO UNDERGO THIS EXERCISE SO AS TO PREVENT ANY LOSS TO THE COFF ERS OF INDIA KITTY. WE THEREFORE, REJECT THIS SUBMISSION MADE ON BEHALF OF THE ASSESSEE AS DEVOID OF ANY MERIT. RESPECTFULLY FOLLOWING THIS DECIS ION, WE HEREBY HOLD THAT THERE WAS NO FORCE IN THIS ARGUMENT OF ESTABLI SHING A TAX AVOIDANCE MOTIVE BY THE REVENUE DEPARTMENT, HENCE W E HEREBY DISMISS THIS PART OF THE ARGUMENT OF THE ASSESSEE. 5.25. IN THE GROUND OF APPEAL IN RESPECT OF TRANSFE R PRICING ADJUSTMENT, THE ASSESSEE HAS RAISED SUB-GROUND NO.5 AND AGITATE D THAT THE AO HAD ERRED IN LAW IN MAKING A REFERENCE TO TPO WITHOUT PROVIDING AN OPPORTUNITY OF HEARING. WE ARE NOT CONVINCED WITH THIS OBJECTION BECAUSE IN THE CASE OF COCA COLA INDIA INC.(SUPRA) IT WAS HELD THAT A DECISION OF THE AO TO REFER THE INTERNATIONAL TRANS ACTION TO TPO FOR DETERMINATION OF ALP DO NOT IN ANY MANNER VISIT THE ASSESSEE WITH ANY CIVIL CONSEQUENCE. A SAFE-GUARD HAS ALREADY BEEN P ROVIDED IN THE STATUTE BY MAKING A COMPULSORY PROVISION ABOUT SEEKING OF P RIOR APPROVAL FROM THE CIT BY THE AO. IT WAS HELD THAT THERE SHOULD NOT BE ANY GRIEVANCE TO THE ASSESSEE BECAUSE THE TPO HAD GIVEN DUE OPPOR TUNITY TO THE ASSESSEE. WE THEREFORE HOLD THAT IN THE ABSENCE OF ANY STATUTORY PROVISION OR A MANDATE OF REQUIREMENT OF GIVING AN OPPORTUNITY BEFORE REFERENCE DO NOT ADVERSELY AFFECT A TAXPAYER BECAU SE THE TPO HAS DEFINITELY GIVEN SUFFICIENT OPPORTUNITY TO THE ASSE SSEE. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 35 - FINALLY, IN THE RESULT, THIS GROUND NO. 1 ALONG WITH THE SUB-GROUNDS OF THE ASSESSEE ARE RESTORED BACK TO THE FILE OF AO TO RE-COMPUTE THE ALP AS PER THE DIRECTION GIVEN HEREINABOVE, HOWEVER SOME OF THE CONTENTIONS ARE REJECTED, THEREFORE MAY BE TREATED AS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. 5.26 THE TPO HAD ALSO MADE AN UPWARD ADJUSTMENT OF RS.2,71,82,980/- ON ACCOUNT OF COMMISSION TRANSACTION. IN THIS REGA RD, AT THE OUTSET, ASSESSEE HAS RAISED AN ADDITIONAL GROUND (SUPRA I.E. PARA 2.1) AND AGITATED THAT A REFERENCE WAS MADE BY THE AO ONLY I N RESPECT OF GOODS SOLD TO AE, HOWEVER THERE WAS NO REFERENCE IN RESPE CT OF COMMISSION TRANSACTION, HENCE THE UPWARD ADJUSTMENT AS SUGGEST ED BY THE TPO FOR UPWARD ADJUSTMENT OF COMMISSION RECEIPT IS WITHOUT JURISDICTION. THEREFORE, IN THE ADDITIONAL GROUND, IT IS SUBMITTE D THAT THE ADJUSTMENT IN RELATION TO COMMISSION RECEIPT OF GBP 345418 WAS WI THOUT JURISDICTION BEING NOT REFERRED BY THE AO TO THE TPO. ON PERU SAL OF 3 CEB REPORT IT WAS FOUND THAT THE ASSESSEE HAD NOT MENTIONED THE INTERNATIONAL TRANSACTION PERTAINING TO PAYMENT OF COMMISSION BY THE ASSESSEE TO ITS AE. THEREFORE, PRIMA-FACIE THE AO WAS NOT AWARE ABOUT THE TRANSACTION OF COMMISSION, HENCE IT WAS NOT MADE THE PART OF TH E REFERENCE. THE TPO HAS ENQUIRED ABOUT THE TRANSACTION OF COMMISSIO N DURING THE COURSE OF TRANSFER PRICING PROCEEDINGS. IN THIS CONNECTIO N, IN SHORT, LD.AR MR.SOPARKAR HAS CITED A DECISION OF AMADEUS INDIA ( P.) LTD. ASST.CIT REPORTED AT [2011] 10 TAXMANN.COM 88 (DELHI) WHICH IS LATER ON AFFIRMED BY HONBLE DELHI HIGH COURT IN AN APPEAL T ITLED AS CIT VS. AMADEUS INDIA (P)LTD. 246 CTR 338 (DELHI) WHEREIN IT WAS HELD THAT IT ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 36 - IS NOT WITHIN THE DOMAIN OF THE TPO TO DETERMINE WH ETHER A PARTICULAR TRANSACTION WHICH HAS COME TO HIS NOTICE BUT HAS NO T BEEN REFERRED TO HIM, IS OR IS NOT AN INTERNATIONAL TRANSACTION AND THEN DETERMINE THE ALP THEREOF; SUB-S. (2A) OF S.92CA CANNOT HAVE RETROSPE CTIVE EFFECT INASMUCH AS IT DEALS WITH THE JURISDICTION OF THE TPO AND CA NNOT BE REGARDED AS A MERE PROCEDURAL PROVISION. RELEVANT PORTION IS, QUO TE THE ROLE OF THE TRANSFER PRICING OFFICER, AS INDICATED IN SECTION 9 2CA, IS RESTRICTED TO DETERMINING THE ARMS LENGTH PRICE IN RELATION TO T HE INTERNATIONAL TRANSACTION WHICH HAS BEEN REFERRED TO HIM BY THE A SSESSING OFFICER AND SUCH COMPUTATION OF THE ARMS LENGTH PRICE IN RELA TION TO THE SAID INTERNATIONAL TRANSACTION HAS TO BE DONE IN TERMS O F SECTION 92C OF THE SAID ACT. ON A PLAIN READING, WE RE OF THE VIEW TH AT IT IS NOT WITHIN THE DOMAIN OF THE TRANSFER PRICING OFFICER TO DETERMINE WHETHER A PARTICULAR TRANSACTION, WHICH HAS COME TO HIS NOTICE, BUT WHIC H HAS NOT BEEN REFERRED TO HIM, IS OR IS NOT AN INTERNATIONAL TRAN SACTION AND THEN TO GO ON AND DETERMINE THE ARMS LENGTH PRICE THEREOF. THAT , WE FEEL, IS IN THE EXCLUSIVE JURISDICTION OF THE ASSESSING OFFICER. IT OUGHT TO BE POINTED OUT THAT THESE VIEWS ARE ON THE BASIS OF THE PROVI SIONS OF SECTION 92CA, AS APPLICABLE TO THE ASSESSMENT YEAR 2006-07, THAT IS, PRIOR TO THE INTRODUCTION OF SUB-SECTION (2A) OF SECTION 92CA B Y VIRTUE OF THE FINANCE ACT, 29011 WITH EFFECT FROM 01.06.2011.UNQ UOTE. RESPECTFULLY FOLLOWING THIS DECISION, WE HEREBY AL LOW THIS ADDITIONAL GROUND OF THE ASSESSEE. 5.27. WHILE READING THE ORDER OF THE HONBLE DEL HI HIGH COURT(SUPRA) IN THE CASE OF AMADEUS INDIA (P) LTD. WE HAVE NOTED THAT IT WAS ALSO ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 37 - PRONOUNCED THAT THE ASSESSMENT IS AN EXCLUSIVE JUR ISDICTION OF THE AO. IN THE PRESENT CASE, THE AO WAS HANDICAPPED ABOUT T HIS INFORMATION BEING NOT REPORTED IN FORM 3CEB. THEREFORE, AT THE TIME OF REFERENCE THE AO COULD NOT KNOW WHETHER THERE WAS A CROSS-ORDER T RANSACTION BETWEEN THE ASSESSEE AND THE AE OF COMMISSION PAYMENT. IN THIS REGARD, FROM THE SIDE OF THE REVENUE LD.DR MR.SHARMA HAD REFERRE D CBDT INSTRUCTION NO.3 OF 2003 WHICH SAYS THAT, QUOTE .. IN ORDER TO MAKE A REFERENCE TO THE TPO, THE ASSESSING OFFICER HAS TO SATISFY HIMSE LF THAT THE TAXPAYER HAS ENTERED INTO AN INTERNATIONAL TRANSACTION WITH AN ASSOCIATED ENTERPRISE. ONE OF THE SOURCES FORM WHICH THE FACTUAL INFORMATI ON REGARDING INTERNATIONAL TRANSACTION CAN BE GATHERED IS FORM N O.2CEB FILED WITH THE RETURN WHICH IS IN THE NATURE OF AN ACCOUNTS REPOR T CONTAINING BASIC DETAILS OF AN INTERNATIONAL TRANSACTION ENTERED INT O BY THE TAXPAYER DURING THE YEAR AND THE ASSOCIATED ENTERPRISE WITH WHICH S UCH TRANSACTION IS ENTERED INTO, THE NATURE OF DOCUMENTS MAINTAINED AN D THE METHOD FOLLOWED. THUS, THE PRIMARY DETAILS REGARDING SUCH INTERNATIONAL TRANSACTIONS WOULD NORMALLY BE AVAILABLE IN THE ACC OUNTANTS REPORT. THE ASSESSING OFFICER CAN ARRIVE AT PRIMA FACIE BELIEF ON THE BASIS OF THESE DETAILS WHETHER A REFERENCE IS CONSIDERED NECESSARY . NO DETAILED ENQUIRIES ARE NEEDED AT THIS STAGE AND THE ASSESSIN G OFFICER SHOULD NOT EMBARK UPON SCRUTINIZING THE CORRECTNESS OR OTHERWI SE OF THE PRICE OF THE INTERNATIONAL TRANSACTION AT HIS STAGE. UNQUOTE. THEREFORE, WE ARE OF THE OPINION THAT THE OBJECTION OF THE REVENUE DEPARTMEN T IS JUSTIFIABLE. THE ASSESSEE CANNOT TAKE AN ADVANTAGE OF ITS OWN MISTAK E. THE ASSESSEE HAS TAKEN AN ARGUMENT IN ITS FAVOUR THAT THERE WAS NO D ELIBERATE ATTEMPT ON HIS PART OF CONCEALING THE INFORMATION OF COMMISSIO N TRANSACTION BECAUSE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 38 - THE NET RESULT WAS A NIL TRANSACTION DURING THE YEA R. LET IT BE AS IT WAS. NOW THE QUESTION IS THAT THE TPO HAD REFERRED AN IN TERNATIONAL TRANSACTION ABOUT THE COMMISSION AND THE AO IS HAVI NG THIS INFORMATION IN HIS POSSESSION. THE REFERENCE BY THE AO TO TPO WAS THE FIRST STEP AND THAT FIRST PROCEDURAL ASPECT HAS ENDED THEN AND THE RE. THE NEXT PROCEDURAL ASPECT IS TO FRAME AN ASSESSMENT ON THE BASIS OF THE INFORMATION FROM ALL THE SOURCES GATHERED BY THE AO , INCLUSIVE OF THE REPORT OF THE TPO. WHETHER THE AO CAN IGNORE A SUB STANTIVE INFORMATION IN HIS KNOWLEDGE, THAT TOO REPORTED BY A REVENUE OF FICER, I.E. TPO. HENCE A VERY SERIOUS QUESTION IS THAT WHAT WOULD BE THE EFFECT OF SUCH ALLEGED EXTRA-JURISDICTIONAL BENCH MARKING CARRIED OUT BY THE TPO WHICH HAD COME NOT ONLY INTO THE KNOWLEDGE OF THE AO BUT NOW IN PUBLIC DOMAIN. AS FAR AS THE PROVISIONS OF SECTION 92C(1 ) R.W.SUB-SECTION (3) IS CONCERNED, THE LANGUAGE OF THIS SUB-SECTION IS THA T WHERE DURING THE COURSE OF ANY PROCEEDING FOR THE ASSESSMENT OF THE INCOME, THE AO IS ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION OF THE OPINION THAT THE PRICE CHARGED OR PAID IN AN INTERN ATIONAL TRANSACTION HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (1)&(2) OF SECTION 92C, THEN THE AO MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION ON T HE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. AS AGAINST THIS PROVISION, A COUNTER ARGUMENT HAS BEEN RAISED BY L D.AR BY REFERRING THE PROVISIONS OF SECTION 92CA SUB-SECTION(4) WHICH SAY S THAT ON RECEIPT OF THE ORDER UNDER SUB-SECTION (3), THE ASSESSING OF FICER SHALL PROCEED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE UNDER SUB- SECTION (4) OF SECTION 92C IN CONFORMITY WITH THE ARMS LENGTH PRICE AS SO DETERMINED BY THE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 39 - TRANSFER PRICING OFFICER. THE ARGUMENT IS THAT THE AO SHALL COMPUTE THE INCOME IN CONFORMITY WITH THE ARMS LENGTH PRICE AS DETERMINED BY THE AO, BUT IF PART OF THE TPOS ADJUSTMENT IS VOID AB INITIO, THEN THAT PART OUGHT NOT TO BE TAKEN INTO ACCOUNT FOR THE COMPUTAT ION OF TOTAL INCOME. LD.AR MR.SOPARKAR HAS VEHEMENTLY PLEADED THAT SUCH AN EXERCISE OF COMPUTING THE TOTAL INCOME BY TAKING INTO ACCOUNT A N ILLEGAL PROCEDURE MUST NOT BE APPROVED AND DESERVES TO BE HELD AS VOI D AB INITIO. IN THE PRESENT SITUATION, AS DISCUSSED HEREINABOVE, SPECIA LLY WHEN THERE WAS A NON-DISCLOSURE ON THE PART OF THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT IN TERMS OF THE PROVISIONS OF SECTION 92C(3) THE AO IS FULLY EMPOWERED TO PROCEED TO DETERMINE AN INTERNATIONAL TRANSACTION WHICH HAD COME TO HIS KNOWLEDGE ON THE BASIS OF ANY MATER IAL OR DOCUMENT AVAILABLE WITH HIM. RATHER, SUB-SECTION(3) HAS APPREHENDED CERTAIN SITUATIONS WHERE THE DOCUMENT RELATING TO AN INTERN ATIONAL TRANSACTION HAS NOT BEEN KEPT OR MAINTAINED BY THE ASSESSEE IN ACCO RDANCE WITH THE OTHER PROVISIONS OR THE DATA USED BY THE ASSESSEE IS NOT RELIABLE OR THE ASSESSEE HAD FAILED TO FURNISH THE INFORMATION WHICH SHE WAS ACQUIRED TO FURNISH. THE ONLY STATUTORY REQUIREMENT IS TO GRANT AN OPPOR TUNITY OF HEARING TO THE ASSESSEE. OUR ATTENTION HAS BEEN DRAWN ON A LATEST DECISION OF HONBLE JURISDICTIONAL HIGH COURT PRONOUNCED IN THE CASE OF M/S.VEER GEMS VS. ACIT (246 CTR 352)[GUJ.] WHEREIN THIS VERY ISSUE HAS BEEN ELABORATELY DISCUSSED ALONG WITH THE RELEVANT PROVI SIONS OF THE ACT VIDE PARAGRAPHS 12 TO 22. THE OBSERVATION WAS THAT UNDE R THE SCHEME OF THE PROVISIONS CONTAINED IN CHAPTER-X, THE AO IS NOT OB LIGED TO GRANT HEARING TO THE ASSESSEE OR INVITE OBJECTION WITH RESPECT TO THE QUESTION WHETHER THERE HAD BEEN ANY INTERNATIONAL TRANSACTION BEFORE MAKING A REFERENCE TO ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 40 - THE TPO. ACCORDING TO THE HONBLE COURT, SUCH OPIN ION OF THE AO WOULD HAVE BEEN FORMED ON THE BASIS OF THE AVAILABLE MATE RIAL ON RECORD. THE COURT HAS FURTHER OBSERVED THAT WHILE FRAMING THE A SSESSMENT THERE IS NOTHING TO PREVENT THE AO FROM CONSIDERING THE OBJE CTIONS OF THE ASSESSEE. IF THE ASSESSEE SUCCEEDS IN ESTABLISHIN G THAT THERE WAS NO INTERNATIONAL TRANSACTION, THEN NATURALLY THE AO IS EMPOWERED TO DROP THE PROCEEDINGS. IN THAT CASE AS WELL THE COUNSEL OF T HE ASSESSEE HAS ARGUED THAT BY VIRTUE OF SECTION 92CA(4) THE ORDER PASSED BY THE TPO IS BINDING ON THE AO AND THE AO IS REQUIRED TO PROCEED IN CONF ORMITY WITH THE ARMS LENGTH PRICE SO DETERMINED BY THE TPO. THIS ASPECT HAS DULY BEEN CONSIDERED AND THEREAFTER IT WAS OPINED THAT THE AO IS NOT AND CANNOT BE STATED TO BE BOUND BY THE OPINION OF THE TPO WITH R ESPECT TO THE QUESTION WHETHER THERE HAD BEEN AN INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND THE AE. THE ISSUE IS WITHIN THE SOLE JURISDICT ION OF THE AO, HELD BY THE HONBLE COURT. A PROCEDURAL ASPECT HAS ALSO B EEN STREAMLINED BY THE HONBLE COURT BY STATING THAT U/S.144C THE AO HAS T O FORWARD A DRAFT OF THE PROPOSED ORDER TO THE ASSESSEE. THE ASSESSEE H AS ONE MORE OPPORTUNITY TO CONTEST THE ADDITION. THE ASSESSEE HAS AN OPTION EITHER TO FILE HIS ACCEPTANCE OF THE VARIATION OF THE ASSESSM ENT OR FILE HIS OBJECTION TO ANY SUCH VARIATION WITH THE DISPUTE RESOLUTION P ANEL. THE DRP IS ALSO AUTHORIZED TO ISSUE DIRECTION AS IT THINKS FIT FOR THE GUIDANCE OF THE AO. AT THAT STAGE AS WELL THE ASSESSEE HAS AN OPPO RTUNITY OF HEARING. THE AO IS THEREAFTER SHALL IN CONFORMITY WITH THE D IRECTIONS OF THE DRP COMPLETE THE ASSESSMENT PROCEEDINGS. ONLY UNDER S UB-SECTION 13 OF SECTION 144C OF THE ACT, SUCH DIRECTION ARE BINDING UPON THE ASSESSEE. SO THE EXISTENCE OF AN INTERNATIONAL TRANSACTION CA N BE EXAMINED BY THE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 41 - DRP AT THE INSTANCE OF THE ASSESSEE. THE COURT HAS SAID THAT THERE IS NOTHING TO LIMIT THE POWERS OF DRP. THEREFORE, FI NALLY THE CONCLUSION WAS DRAWN IN FAVOUR OF THE REVENUE BECAUSE THE ASSE SSEE HAD MORE THAN ONE OPPORTUNITY OF HEARING TO CONTEST AN IMPUGNED A DDITION. THE HONBLE COURT HAS PLACED RELIANCE ON A DECISION OF HONBLE DELHI HIGH COURT PRONOUNCED IN THE CASE OF SONI INDIA PVT.LTD. 288 ITR 52 (DELHI). 5.28. ON THE BASIS OF THE DECISION OF HONBLE JUR ISDICTIONAL HIGH COURT, DISCUSSED HEREINABOVE IN THE CASE OF M/S.VEER GEMS, WE HEREBY HOLD THAT THE AO WITHIN HIS JURISDICTION AND IN TERMS OF THE PROVISIONS OF SECTION 92C(3) IS EMPOWERED TO DETERMINE THE ARMS LENGTH P RICE ON THE BASIS OF THE MATERIAL AVAILABLE TO HIM AND FINALIZED THE ASS ESSMENT ACCORDINGLY. ONCE WE HAVE HELD THIS ISSUE, THEN THE QUESTION ARI SES ABOUT THE MERIT OF THE IMPUGNED INTERNATIONAL TRANSACTION. 5.29. THE TPO HAS RECORDED THAT ON THE BASIS OF THE FINANCIAL STATEMENT OF ATUL EUROPE LTD. THE COMMISSION WAS PAID TO ASS ESSEE. THE ASSESSEE HAS FURNISHED THE DETAILS ABOUT THE COMMISSION AS F OLLOWS:- ATUL LIMITED AGRO DIVISION DETAILS OF COMMISSION RECEIVED FROM ATUL EUROPE LTD . FOR BUSINESS WITH ASSC, IRAN AMOUNT ACCOUNT FY DATE DEBIT NOTE NO. GBP RS. CODE NAME 2004- 05 23.03.2005 23 47,718 3,947,710 302153 COMMISSION RECEIVED 2005- 06 24.11.2005 11 63,088 4,952,250 302153 COMMISSION RECEIVED 2005- 127.03.2006 26 30,908 2,409,278 302154 COMMISSION ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 42 - 06 RECEIVED EXPORT HOUSE ADJUSTED AGAINST EXPENSES PAYABLE 141,714 49,174 38,33,115 TOTAL 190,888 15,142,351 DURING THE COURSE OF PROCEEDING BEFORE US, LD.AR H AS CONTESTED THAT AS FAR AS THE COMMISSION OF GBP 154530 IS CONCERNED, NO COMMISSION WAS PAID BY AEL TO ASSESSEE. RATHER, H E HAS INSISTED THAT THE AEL HAD CHARGED COMMISSION FROM THE ASSESSEE. LATER ON, IT WAS DECIDED THAT NOTHING WAS PAYABLE BY THE ASSESSEE TO AEL. THEREFORE, THE AEL HAD WRITTEN OFF THE AMOUNT IN ITS BOOKS OF ACCO UNT. LD. AR HAS FURTHER EXPLAINED THAT NO ENTRY WAS MADE IN THE BOO KS OF ACCOUNT OF THE ASSESSEE IN THAT REGARD. THERE IS A REFERENCE OF A LETTER OF ONE MR.METCALF, OFFICER OF H.M. , REVENUE IN CUSTOMS U. K. AN ENQUIRY WAS IN RESPECT OF THE SERVICES PROVIDED AND IN TURN COMMISSION PAID THE ATUL EUROPE LTD. HAD CLAIMED PAYMENT OF COMMISSION 391251. THE REVENUE HAS CONTESTED BEFORE US THAT IN RESPONSE TO THE SAID ENQUIRY, THE ATUL EUROPE LTD. HAS ANSWERED THAT AN AMOUNT OF 154530 WAS PAYABLE TO ASSESSEE (ATUL PESTICIDE) AND FURTHER A COMMISSI ON OF 190888 WAS PAYABLE TO ASSESSEE (AGRO DIVISION). AS AGAINST T HAT, THE ASSESSEE HAS VEHEMENTLY CONTESTED THAT THERE WAS NO ACTUAL RECEI PT OF COMMISSION, ON THE CONTRARY THE ASSESSEE WAS SUPPOSED TO PAY THE C OMMISSION TO ATUL EUROPE LTD. IN THIS CONNECTION, FEW CORRESPONDENCE S WITH ATUL EUROPE LTD. ARE NOW PLACED IN THE COMPILATION. IT HAS ALS O BEEN CONTESTED THAT ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 43 - THE ASSESSEE HAD NEVER DEBITED COMMISSION IN ITS BO OKS OF ACCOUNTS AND NEVER CLAIMED EXPENDITURE. FROM THE FACTS AND TH E EVIDENCES NOW PLACED IT IS EVIDENT THAT THE COUNTER-CLAIMS ARE YE T TO BE RE-EXAMINED AFRESH BY THE AO. IF THE ASSESSEE IS IN A POSITION TO DEMONSTRATE THAT NO COMMISSION IN FACT WAS RECEIVED AND ON INVESTIGATIO N THE AO IS SATISFIED, THEN THE IMPUGNED ADDITION/UPWARD ADJUSTMENT IS REQ UIRED TO BE DELETED. WITH THESE DIRECTIONS, WE HEREBY HOLD THAT THE UPWA RD ADJUSTMENT PERTAINING TO THE TRANSFER PRICING TRANSACTION REGA RDING COMMISSION RECEIVED FROM M/S.ATUL EUROPE LTD. OF RS.2,71,82,98 0/- IS TO BE DECIDED AFRESH BY THE AO. THIS GROUND MAY BE TREATED AS PA RTLY ALLOWED BUT FOR STATISTICAL PURPOSES. 6. GROUND NOS.7 & 8 READ AS UNDER: PRIOR PERIOD EXPENSES OF RS.1,11,31,209/- 7. THE LEARNED AO/DRP HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN PROPOSING TO ADD PRIOR PERIOD EXPENDITURE T O THE TUNE OF RS.1,11,31,209/- TO THE TOTAL INCOME OF THE APPELLA NT WITHOUT APPRECIATING THE FACTS THAT THE LIABILITY IN RESPEC T OF THOSE EXPENDITURE WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. 8. ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE, THE L D.AO/DRP OUGHT TO HAVE CONSIDERED THAT THE APPELLANT HAS ALS O RECEIVED INCOME OF RS.71,74,782/- PERTAINING TO EARLIER YEAR AND THEREFORE THE LD.AO/DRP OUGHT TO HAVE PROPOSED TO A DD ONLY NET AMOUNT OF RS.39,56,427/- AS PRIOR PERIOD EXPENDITUR E. 6.1. IT WAS OBSERVED BY THE AO THAT THE TOTAL PRIO R PERIOD EXPENSES WERE AMOUNTING TO RS.1,11,31,209/-. THIS AMOUNT WAS REFLECTED IN THE ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 44 - AUDIT REPORT VIDE SCHEDULE 16 OF THE ACCOUNTS. AC COUNTS OF THE ASSESSEE HAVE ALSO REVEALED THAT THERE WAS EARLIER YEARS INCOME OF RS.71,74,782/-. THEREFORE, THE BALANCE AMOUNT WAS CARRIED OVER TO THE P&L ACCOUNT AND DEBITED AS NET PRIOR PERIOD EXPENS ES OF RS.39,56,427/-. AN ENQUIRY WAS RAISED THAT THE PRIOR PERIOD EXPENSES DID NOT RELATE TO THE CURRENT YEAR, THUS FOLLOWING THE MAGIC PRINCIPLE OF ACCOUNTS, THE SAME WAS PROPOSED TO BE DISALLOWED. ASSESSEES CONTENTION WAS THAT THE SAID RELIABILITY HAD CRYSTA LLIZED DURING THE YEAR. IT HAS ALSO BEEN CONTESTED THAT THERE WAS NO LOSS OF R EVENUE SINCE THE RATE OF TAX FOR THE YEARS INVOLVED WAS SAME. AN ALTE RNATE PLEA OF THE ASSESSEE WAS THAT THE DISALLOWANCE SHOULD BE RESTRI CTED TO THE NET AMOUNT AFTER SETTING OFF PRIOR PERIOD INCOME. THE AO HA S NOT ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND ASSESSED THE ENTIRE PRIOR PERIOD EXPENSES AS PER THE FOLLOWING OBSERVATION:- 5.5. IN VIEW THEREOF THE CLAIM FOR PRIOR PERIOD EX PENDITURE IS DENIED, AND SET OFF OF PRIOR PERIOD INCOME IS NOT A CCEPTED. HENCE AN ADDITION OF RS.1,11,31,209/- IS MADE, BEING PRIO R PERIOD EXPENSES OF RS.39,56,427/- CLAIMED IN THE PROFIT & LOSS ACCOUNT AND RS.71,74,782/- BEING PRIOR PERIOD INCOME AGAINS T WHICH PRIOR PERIOD EXPENSES WERE NETTED. PENALTY U/S.271(1)(C) IS SEPARATELY INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 6.2. EVEN THE DRP HAS AFFIRMED THE ACTION OF THE AO . DRP HAS NOTED THAT THE ASSESSEE HAD NOT FURNISHED ANY EVIDENCE IN SUPPORT OF ITS CLAIM THAT THE LIABILITY IN RESPECT OF THE PRIOR PERIOD E XPENDITURE HAD ACTUALLY BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATI ON. ACCORDING TO DRP, THE APPELLANT HAD ALTHOUGH PLACED RELIANCE ON SAURASHTRA CEMENTS & CHEMICALS INDUSTRIES LTD. REPORTED AT 213 ITR 523 (GUJ.) BUT THE PROOF ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 45 - ABOUT THE CRYSTALLIZATION OF LIABILITY WAS NOT PROD UCED. THE DRP HAS FINALISED THAT SINCE THE ASSESSEE HAD MAINTAINED TH E ACCOUNTS ON MERCANTILE BASIS, THEREFORE AO WAS JUSTIFIED IN PRO POSING TO MAKE THE SAID DISALLOWANCE. 7. FROM THE SIDE OF THE APPELLANT, LD.AR MR.S.N.SOP ARKAR HAS PLEADED THAT THE LIABILITY HAD CRYSTALLIZED DURING THE YEAR , THEREFORE THE EXPENDITURE WAS TO BE ALLOWED IN THE YEAR UNDER CON SIDERATION. HE HAS CITED TOYO ENGG.INDIA LTD. VS. JT.CIT REPORTED AT [2006] 5 SOT 616 (MUM.) AND CIT VS. JAGATJIT INDUSTRIES LTD. REPORTE D AT (2010) 48 DTR (DEL) 104. 8. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LD.DR MR.D.P.GUPTA HAS SUPPORTED ACTION OF THE AO PRIMA RILY ON THE GROUND THAT THE ASSESSEE HAS NEITHER DEMONSTRATED THE NATU RE OF LIABILITY NOR DEMONSTRATED THE BASIS ON WHICH IT WAS CONSIDERED T HAT THE LIABILITY HAD CRYSTALLIZED DURING THE YEAR. 9. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO PERU SED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATI ON FILED. IT IS WORTH TO MENTION THAT THE NEITHER THE REVENUE DEPARTMENT NOR THE APPELLANT, BOTH HAVE EXPLAINED THE FACTS IN RESPECT OF THE NATURE O F THE PRIOR PERIOD EXPENSES. WE HAVE CAREFULLY PERUSED THE RELEVANT ORDERS, BUT UNABLE TO UNDERSTAND THE NATURE OF THE EXPENDITURE WHICH WERE CLAIMED TO HAVE BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATI ON. IT IS ALSO WORTH TO MENTION THAT THE REVENUE DEPARTMENT AS ALSO THE ASS ESSEE HAVE NOT ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 46 - PLACED ON RECORD THE DETAILS OF THE EXPENDITURE ALO NG WITH THE EVIDENCES THROUGH WHICH IT COULD BE DEMONSTRATED THE YEAR FOR WHICH IT PERTAINED BUT IT WAS NOT CLAIMED. IT IS ALSO WORTH TO MENTIO N THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT WHY THE IMPUGNED EXPENDITURE COULD NOT BE CLAIMED IN THE YEAR FOR WHICH IT BELONGED TO. THE CASE LAWS WHICH WERE CITED BY LD.AR, NAMELY JAGATJIT INDUSTRIES LTD.(SUP RA) AND TOYO ENGG. LTD. HAVE BEEN EXAMINED BY US. IN THESE CASES, THE ASSESSEE HAS DEMONSTRATED THE PAST BUSINESS PRACTICE AND THE CON SISTENT POLICY FOLLOWED IN THE ACCOUNTING PRACTICE BY THE ASSESSEE , THEREFORE IT WAS DEMONSTRATED THAT THE EXPENDITURES WERE SPILLED OVE R TO NEXT YEAR. A CASE LAW CAN ONLY BE APPLIED WHEN THE FACTS ARE FOU ND TO BE MORE OR LESS AKIN TO EACH OTHER. HOWEVER, WE HAVE NOTED THAT CE RTAIN ENQUIRY, SAID TO BE BASIC ENQUIRY WAS NOT CONDUCTED AT THE ASSESSMEN T STAGE. THE AO IS THEREFORE DIRECTED TO FIRST OF ALL EXAMINE THE EXAC T NATURE OF THE LIABILITY AND HOW IT RELATED TO THE BUSINESS OF THE ASSESSEE. THE NEXT STEP SHOULD BE TO EXAMINE THE EVIDENCE ABOUT THE CRYSTALLIZATIO N, THAT TOO CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. WHAT WAS THAT EVIDENCE ON THE BASIS OF WHICH THE ASSESSEE HAD CLAIMED THAT THE SAID LIA BILITY HAD IN FACT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. WE HAVE ALSO NOTED THAT THERE WAS AN ALTERNATE PLEA OF ASSESSEE THAT T HE INCOME WHICH PERTAINED TO EARLIER YEARS WAS RECEIVED DURING THE YEAR AMOUNTING TO RS.71,74,782/-. EVEN IN THIS REGARD, THERE IS NO E XPLANATION ABOUT THE NATURE OF THE INCOME. HOW AN INCOME OF EARLIER YEA R HAD ALSO EARNED DURING THE YEAR UNDER CONSIDERATION WAS TO BE DEMON STRATED BY THE ASSESSEE. THERE IS NO EVIDENCE ON RECORD ABOUT T HE SOURCE OF SUCH INCOME AND WHAT WILL BE THE IMPACT OF ITS TAXABILIT Y DURING THE YEAR UNDER ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 47 - CONSIDERATION. HOW IT WAS TERMED AS AN INCOME OF E ARLIER YEARS IF IT WAS EARNED DURING THE YEAR UNDER CONSIDERATION. SINCE ALL SUCH INFORMATION IS NOT AVAILABLE ON RECORD, THEREFORE THE NATURAL JUST ICE DEMANDS TO RESTORE THIS ISSUE BACK TO THE STAGE OF THE AO TO BE DECIDE D IN THE LIGHT OF THE OBSERVATIONS MADE HEREINABOVE, AFTER PROVIDING A RE ASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THE RESULT, BOTH TH E GROUNDS OF THE ASSESSEE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES ONLY. 10. GROUND NO.9 READS AS UNDER: DISALLOWANCE OF RS.2,26,03,000/- U/S.14A OF THE ACT . 9. THE LD. AO/DRP HAS ERRED IN LAW AND ON FACTS OF THE CASE BY PROPOSING TO ADD RS.2,26,03,000/- U/S.14A OF THE AC T BY APPLYING PROVISIONS OF RULE 8 OF THE INCOME TAX RULES, 1962. 10.1. THE DIVIDEND INCOME, WHICH WAS CLAIMED AS AN EXEMPT INCOME, WAS AMOUNTING TO RS.4,26,31,480/-. THE AO HAS PRO POSED TO INVOKE THE PROVISIONS OF SECTION 14A TO DISALLOW THE PROPORTIO NATE EXPENDITURE. THE ASSESSEES CONTENTION WAS THAT IN THE PAST THER E WAS HUGE ACCUMULATION OF PROFITS WHICH WAS NON-INTEREST BEAR ING, HENCE THERE WAS NO REQUIREMENT OF DISALLOWANCE OF PROPORTIONATE INT EREST EXPENSE. IT HAS ALSO BEEN ARGUED THAT THE LOANS TAKEN WERE FOR SPEC IFIC PURPOSES, HENCE NOT UTILIZED FOR EARNING EXEMPTED DIVIDEND INCOME. IT HAS ALSO BEEN CONTENDED THAT IN EARLIER YEARS THE ASSESSEE HAD CL AIMED DEDUCTION U/S.80M BUT NO SUCH ALLOCATION OF EXPENDITURE WAS M ADE FOR DISALLOWANCE. THE AOS OBSERVATION WAS THAT THE E XPLANATION OF THE ASSESSEE ABOUT THE NON-INTEREST BEARING ACCUMULATIO N OF PAST PROFIT WAS ONLY IN RESPECT OF THE INTEREST EXPENDITURE BUT THE RE WAS NO MENTION ABOUT ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 48 - THE INDIRECT EXPENDITURE INCURRED TO EARN THE EXEMP TED INCOME. ACCORDING TO AO, THE INVESTING-ACTIVITY WAS AN INDI VISIBLE BUSINESS ACTIVITY OF THE ASSESSEE, THEREFORE THE NATURAL COR OLLARY AS PER AO WAS THAT OUT OF THE EXPENDITURE INCURRED FOR THE BUSINESS AC TIVITY WOULD HAVE ALSO BEEN INCURRED TOWARDS INVESTMENT ACTIVITY, MAY OR M AY NOT BE A DIRECT EXPENDITURE. IT WAS NOT ESTABLISHED BY THE ASSESSE E THAT NO INDIRECT EXPENDITURE HAD BEEN INCURRED IN RELATION TO THE SA ID EXEMPT INCOME. THE AO HAS QUOTED THAT THERE WERE NUMBER OF CAUSE L IKE INTEREST, ADMINISTRATIVE, MANAGEMENT, ETC. ASSOCIATED WITH TH E EARNING OF THE EXEMPTED INCOME. AN EXPENDITURE INCURRED, ALTHOU GH INDIRECT, FOR EARNING EXEMPT INCOME WAS HELD TO BE COVERED BY THE PROVISIONS OF SECTION 14A OF IT ACT. THE AO HAS REPRODUCED THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2006 (2006) 281 ITR 190 (STATUTE). RELIANCE WAS PLACED ON M/S.HARYANA LAN D RECLAMATION AND DEVELOPMENT CORPORATION 302 ITR 218 (P&H) AND M/S.D AGA CAPITAL MANAGEMENT PVT.LTD. REPORTED AT 117 ITD 169 (MUM.). THE AO HAS THEREFORE HELD THAT THE PROVISIONS OF SECTION 14A W ERE APPLICABLE ON THE FACTS OF THE CASE. THE AO HAS ALSO INVOKED THE PR OVISIONS OF RULE 8 OF IT RULES, 1962 AND MADE THE CALCULATION AS UNDER:- (A) INTEREST EXPENSES RS.2946.12 LAKH (B) AVERAGE VALUE OF INVESTMENT RS.5468.295 LAKH (C) AVERAGE ASSETS RS.81082.055 LAKH AMOUNT TO BE DISALLOWED = (A*B)/C + 0.5% OF AVERAGE VALUE OF INVESTMENT = 198.69 LAKH + 27.341 LAKH = RS.226.03 LAKH ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 49 - 10.2. IN THE LIGHT OF THE ABOVE CALCULATION, THE AO HAS COMPUTED THE DISALLOWANCE OF RS.2,26,03,000/- WHICH IS NOW CHAL LENGED BEFORE US. AS FAR AS THE OBSERVATIONS OF DRP IS CONCERNED, THE S AME REVOLVE AROUND THE FINDINGS OF THE AO AND FEW CASE LAWS AS DISCUSS ED BY THE APPELLANT. MAINLY THE LD.DRP HAS DISCUSSED THE DECISION OF M/S .DAGA CAPITAL MANAGEMENT PVT.LTD. (SUPRA) AND PROPOSED FOR THE S AID DISALLOWANCE. 11. FROM THE SIDE OF THE ASSESSEE, LD.AR HAS CITED TWO DECISIONS; NAMELY, CIT VS. RAGHUVIR SYNTHETICS (TAX APPEAL NO. 829 OF 2007) ORDER DATED 5.12.2011 AND THE DECISION OF CIT VS. GUJARAT POWER CORPORATION LTD. (TAX APPEAL NO.1587 OF 2009) ORDER DATED 28.3. 2011. BOTH THESE ORDERS HAVE BEEN PASSED BY THE HONBLE GUJARAT HIGH COURT. THESE ORDERS REVOLVE AROUND THE ISSUE OF PROPORTIONATE DI SALLOWANCE OF INTEREST AND IN THIS REGARD ON THE BASIS OF THE FACTS ON THO SE CASES IT WAS HELD THAT NO PART OF THE BORROWED FUNDS COULD BE STATED TO HA VE BEEN DIVERTED TO EARN TAX-FREE INCOME. FACTS OF THOSE CASES HAVE R EVEALED THAT THE BORROWED FUNDS WERE UTILIZED FOR ITS OWN BUSINESS P URPOSES AND THAT THE INVESTMENT IN EARNING TAX-FREE INCOME WERE MADE OUT OF OWN INTEREST-FREE FUNDS. THEREFORE, THE LD.AR HAS CONTESTED THAT THE COMPONENT OF INTEREST EXPENSES WAS NOT TO BE TAKEN INTO ACCOUNT IN THE FO RMULA AS APPLIED BY THE AO. 12. FROM THE SIDE OF THE REVENUE, LD.CIT-DR HAS SUP PORTED THE ORDERS OF THE LOWER AUTHORITIES AND ARGUED THAT THE ASSESS EE HAS NOT PLACED ON ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 50 - RECORD THE NEXUS OF INVESTMENT OF NON-INTEREST BEAR ING OWN FUNDS TOWARDS INVESTMENT IN TAX-FREE DIVIDEND INCOME. 13. WE HAVE HEARD BOTH THE SIDES. THE QUESTION OF APPLICABILITY OF SECTION 14A ON THE PRESENT FACTS OF THE CASE MUST N OT BE DOUBTED BECAUSE UNDISPUTEDLY A SUBSTANTIAL AMOUNT WAS RECEIVED AS D IVIDEND INCOME BY THE ASSESSEE. THE ONLY QUESTION IS THAT HOW THE IN VESTMENT WAS MADE TO EARN THE SAID EXEMPTED DIVIDEND INCOME. THE CONTEN TION OF THE ASSESSEE WAS THAT THERE WERE SUFFICIENT NON-INTEREST BEARING OWN FUNDS PAYING ACCUMULATION OF THE PAST PROFITS. BUT THE QUESTION IS THAT WHETHER THE ASSESSEE WAS IN A POSITION TO DEMONSTRATE THAT THE NON-INTEREST BEARING FUNDS WERE UTILIZED TOWARDS SUCH EXEMPTED INVESTMEN T. ON THE OTHER HAND, EVEN THE REVENUE HAS ALSO NOT DISCHARGED THE OBLIGATION TO DEMONSTRATE THAT THE INTEREST-BEARING FUNDS WERE US ED TOWARDS INVESTMENT IN EXEMPTED INCOME ASSETS. THEREFORE THE PROPORTI ONATE DISALLOWANCE OF INTEREST EXPENSE COULD ONLY BE MADE WHEN THE RELEVA NT FACTS WERE CONSIDERED BY THE AO. THE AO HAD DRAWN A PRESUMPTI ON THAT THE INTEREST-BEARING FUNDS COULD HAVE BEEN UTILIZED TOW ARDS EARNING OF NON- TAXABLE DIVIDEND INCOME. THIS IS THE ONE PART OF THE DISALLOWANCE, HOWEVER THE OTHER PART OF THE DISALLOWANCE IS ABOUT THE INDIRECT EXPENSES WHICH WERE ALLEGED TO HAVE BEEN INCURRED TO EARN TH E EXEMPTED DIVIDEND INCOME. ALTHOUGH THE AO HAS RAISED THE QUERY, BU T ULTIMATELY APPLIED THE FORMULA AS PRESCRIBED IN RULE 8D. WE HAVE NOTE D THAT RULE 8D(2)(I) PRESCRIBES THAT THE EXPENDITURE IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 51 - INCOME. HOWEVER, THE APPLICABILITY OF THE RULE 8D VIS--VIS THE APPLICABILITY OF SECTION 14A HAS NOW BEEN SETTLED B Y THE HONBLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. MUMBAI VS. DY.CIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 ORDER DATED 12/08/ 2010 [ NOW REPORTED AS 328 ITR 81(BOM)]. ON CAREFUL READING OF THIS DECISION, WE HAVE CONCLUDED AS FOLLOWS:- IN THIS JUDGEMENT AT THE END, THE HON'BLE COURT HA S RECAPITULATED THE CONCLUSION AND PRONOUNCED THAT A FINDING IS REQ UIRED WHETHER THE INVESTMENT IN SHARES IS MADE OUT OF OWN FUNDS OR OU T OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE ESTABLISHED BETWEEN THE I NVESTMENTS AND THE BORROWINGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED I N RELATION TO EXEMPTED INCOME IS TO BE DISALLOWED ONL Y IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED B Y THE ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RATHER, THE H ONBLE COURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CARRIED OUT BY THE ASSESSING OFFICER THEN THE MATTER IS TO BE REMANDED BACK FOR AFRESH INVESTIGATION. IT HAS ALSO BEEN MADE CLEAR THAT THE PROVISO TO SE CTION 14A OF THE ACT WAS EFFECTIVE FROM 2001-02. THE HO N'BLE COURT HAS ALSO POINTED OUT THE IMPORTANCE OF RULE 8D OF THE I.T.RU LES, 1962. IT WAS MADE CLEAR THAT SUB-SECTION (1) TO SECTION 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 01/04/1962, HOWEVER, SUB- SECTIONS (2) & (3) WERE MADE APPLICABLE WITH EFFECT FROM 01/04/2007. THE PROVISO WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 11/05/2001, HOWEVER RULE 8D WAS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT), RULE S, 2008 BY ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 52 - PUBLICATION IN THE GAZETTE DATED 24/03/2008, RELEVA NT FINDINGS ARE REPRODUCED BELOW:- A) THE ITAT HAD RECORDED A FINDING IN THE EARLIE R ASSESSMENTS THAT THE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEE N MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS AND THAT TH ERE IS NO NEXUS BETWEEN THE INVESTMENTS AND THE BORROWINGS. HOWEVER, IN NONE OF THOSE DECISIONS WAS THE DISALLOWABILITY OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME EARNED OUT OF INVESTMENTS MADE OUT OF OWN FUNDS CONSIDERED. MOREOVER, UNDER SECTION 14A, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME C AN BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS NOT SAT ISFIED WITH THE CORRECTNESS OF THE EXPENDITURE CLAIMED BY THE ASSES SEE. IN THE PRESENT CASE, NO SUCH EXERCISE HAS BEEN CARRIED OUT AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN REMANDING THE MATTER. B) SECTION 14A WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 1962. HOWEVER, I N VIEW OF THE PROVISO TO THAT SECTION, THE DISALLOWANCE THEREUNDE R COULD BE EFFECTIVELY MADE FROM ASSESSMENT YEAR 2001-2002 ONW ARDS. THE FACT THAT THE TRIBUNAL FAILED TO CONSIDER THE APPLI CABILITY OF SECTION 14A IN ITS PROPER PERSPECTIVE, FOR ASSESSMENT YEAR 2001-2002 WOULD NOT BAR THE TRIBUNAL FROM CONSIDERING DISALLO WANCE UNDER SECTION 14A IN ASSESSMENT YEAR 2002-2003. C) THE DECISIONS REPORTED IN SRIDEV ENTERPRISES (SUPRA), MUNJAL SALES CORPORATION (SUPRA) AND RADHASOAMI SATSANG (SUPRA) HOLDING THAT THERE MUST BE CONSISTENCY AND DEFINITE NESS IN THE APPROACH OF THE REVENUE WOULD NOT APPLY TO THE FACT S OF THE PRESENT CASE, BECAUSE OF THE MATERIAL CHANGE INTRODUCED BY SECTION 14A BY WAY OF STATUTORY DISALLOWANCE IN CERTAIN CASES. TH ERE, THE DECISIONS OF THE TRIBUNAL IN THE EARLIER YEARS WOUL D HAVE NO RELEVANCE IN CONSIDERING DISALLOWANCE IN ASSESSMENT YEAR 2002- 2003 IN THE LIGHT OF SECTION 14A OF THE ACT. 73. FOR THE REASONS WHICH WE HAVE INDICATED, WE HA VE COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING OFFICER TO ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 53 - DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE IN RELATION TO THE EARNING OF INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTE NT OF THE DISALLOWANCE. THE ASSESSING OFFICER WOULD HAVE TO ARRIVE AT HIS DETERMINATION AFTER FURNISHING AN OPPORTUNITY TO TH E ASSESSEE TO PRODUCE ITS ACCOUNTS AND TO PLACE ON THE RECORD ALL RELEVANT MATERIAL IN SUPPORT OF THE CIRCUMSTANCES WHICH ARE CONSIDERE D TO BE RELEVANT AND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSERVATIONS MADE EARLIER IN THIS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE PROCEEDINGS BACK TO THE ASSESS ING OFFICER FOR A FRESH DETERMINATION. CONCLUSION : 74. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS ; I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FALLIN G WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TA X ACT 1961, AS WAS APPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASS ESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS OF SECTION 14A (1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115 O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTR IBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF T HE COMPANY. THE COMPANY IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DIS CHARGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT F OR ITS SHAREHOLDERS. IN THE HANDS OF THE SHAREHOLDER AS T HE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DO ES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 54 - III) THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTI ON 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES A S INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) AND DO NOT OFFEND ARTI CLE 14 OF THE CONSTITUTION; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES W HICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 S HALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORC E THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASON ABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE R ECORD; VII) THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHALL S TAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESS ING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RE LATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ( EMPHASIS GIVEN) ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 55 - ON THE BASIS OF ABOVE DECISION, WE ARE ALSO OF TH E VIEW THAT IT DEPENDS ON THE FACTS OF EACH CASE. ADMITTEDLY, THE FACT OF THE PRESENT CASE WAS THAT THE ASSESSING OFFICER HAD NOT ENQUIRE D THE ISSUE IN THE LIGHT OF THE ABOVE LEGAL PRONOUNCEMENT. SPECIALLY THE PRO NOUNCEMENT OF THE HON'BLE BOMBAY HIGH COURT WAS NOT AVAILABLE AT THAT TIME, HENCE, THE ASSESSING OFFICERS ASSESSMENT ORDER WAS DEVOID OF MERITS AS ALSO THE LAW APPLICABLE. NOW WE HAVE GOT CERTAIN GUIDELINES , THOUGH CAN NOT BE SAID TO BE EXHAUSTIVE OR COMPLETE, BUT ON THESE LIN ES, THE ASSESSING OFFICER IS EXPECTED HENCEFORTH TO COMPUTE THE CORRE CT DISALLOWANCE, NEEDLESS TO SAY AFTER PROVIDING AN ADEQUATE OPPORTU NITY OF HEARING TO THE ASSESSEE. IN THE LIGHT OF THE ABOVE DISCUSSION, THEREFORE, TH E MATTER IS RESTORED TO BE DECIDED AFRESH, HENCE, THIS GROUND OF THE ASSESSEE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND NO.10 READS AS UNDER:- DISALLOWANCE OF RS.12,50,444/- IN RESPECT OF IRRECO VERABLE BALANCE WRITTEN OFF 10 THE LD.AO/DRP HAS ERRED IN LAW AND ON FACTS OF THE CASE BY PROPOSING TO DISALLOW RS.12,50,444/- IN RESPECT OF IRRECOVERABLE BALANCE WHICH WERE WRITTEN OFF IN THE BOOKS OF ACCO UNTS. 14.1. THE AO HAS NOTED THAT A SUM OF RS.29,55,870/- WAS DEBITED AS IRRECOVERABLE BALANCES WRITTEN OFF IN THE P&L ACC OUNT. THE ASSESSEE HAS INFORMED THAT OUT OF THE SAID AMOUNT WHICH WAS WRITTEN OFF IN THE P&L ACCOUNT A SUM OF RS.12,50,444/- WAS WRITTEN OFF WHICH WAS IN RESPECT TO M/S.SANDO INDUSTRIES. IT WAS INFORMED T HAT THE ASSESSEE HAD ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 56 - GIVEN AN ADVANCE TO THE SAID PARTY FOR ONE EQUIPMEN T. THE SAID PARTY HAD COMPLETED THE WORK, HOWEVER, THE ASSESSEE-COMPANY H AD AFTERWARDS DECIDED NOT TO TAKE THE SAID EQUIPMENT. THE ASSESS EE HAD ALSO NOT PAID THE BALANCE AMOUNT. ON THE PART OF THE SAID PARTY THE ADVANCE GIVEN WAS RETAINED AND THE ASSESSEE WAS NOT GIVEN BACK THE SA ID ADVANCE. IN THE OPINION OF THE AO THE ADVANCE WAS GIVEN FOR ACQUIRI NG A CAPITAL ASSET. SUCH AN ADVANCE WOULD NOT BE TREATED AS A TRADING L OSS ACCORDING TO AO. PLACING RELIANCE ON MOTIRAM NANDRAM 8 ITR 132 (PRIV Y COUNCIL) AND KHODE INDIA LTD. 33 SOT 178 (BANG.) THE AO HAS DISA LLOWED A SUM OF RS.12,50,444/-. 15. WE HAVE HEARD BOTH THE SIDES. WE HAVE ENQUIRED THAT WHAT WAS THE SPECIFICATION OF THE EQUIPMENT AND WHAT WAS THE PURPOSE OF ADVANCING AN AMOUNT TO THE SAID PARTY, I.E. M/S.SAN DO INDUSTRIES. FROM THE SIDE OF THE ASSESSEE, LD.AR HAS SIMPLY PLACED R ELIANCE ON THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND LEFT THE MATTER TO BE DECIDED BY THE BENCH AS PER LAW. WE HAVE NOTE D THAT THE DESCRIPTION OF THE EQUIPMENT, THE USE OF THE EQUIPMENT AND THE DETAILS ABOUT THE ADVANCE GIVEN TO THE SAID PARTY WAS NOT INFORMED. RATHER, IT APPEARED THAT THE ASSESSEE WANTED TO ACQUIRE A CAPITAL ASSET , AS HELD BY THE AO, THEREFORE THE EXPENDITURE OR ADVANCE BEING RELATED TO AN ACQUISITION OF A CAPITAL ASSET, THEREFORE NOT TO BE ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 37(1) OF IT ACT. WE ALSO ENDORSE THE VIE W OF THE AO THAT THE IMPUGNED AMOUNT COULD ALSO NOT BE ALLOWED U/S.36(1) (VII) OF IT ACT BECAUSE THE SAID AMOUNT WAS NOT A DEBT BUT AN ADV ANCE TO THE SAID ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 57 - PARTY. IN THE RESULT, THIS ADDITION IS HEREBY CO NFIRMED. GROUND IS DISMISSED. 16. GROUND NO.11 READS AS UNDER:- DISALLOWANCE OF RS.17,39,77,179/- IN RESPECT OF DED UCTION CLAIMED U/S.80IA OF THE ACT. 11. THE LD.AO/DRP HAS ERRED IN LAW AND FACTS OF TH E CASE BY PROPOSING NOT TO ALLOW DEDUCTION OF RS.12,07,32,320 /- FOR NEW POWER PLANT, RS.3,70,57,807/- FOR CAPTIVE POWER PLANT AND RS.1,61,87,052 FOR CO-GEN PLANT U/S.80IA OF THE ACT. 16.1. THE ASSESSEE HAS CLAIMED A DEDUCTION U/S.80IA TOTALLING TO RS.22,56,27,448/- AND THE BIFURCATION OF THE SAME I S AS UNDER:- NEW POWER PLANT RS. 12,07,32,320/- CAPTIVE POWER PLANT RS. 8,87,08,076/- CO-GEN PLANT RS. 1,61,87,052/- 16.2. THE AO HAS DISCUSSED THE REASON OF DISALLOWAN CE IN RESPECT OF EACH PLANT. THE DISCUSSION AS PER THE ASSESSMENT ORDER IS DESCRIPTIVE, HOWEVER CONSIDERING THE BACKGROUND OF THE CASE, WE ARE NOT GOING INTO THAT DETAIL. WE HAVE NOTICED THAT IN RESPECT OF N EW POWER PLANT THE DEDUCTION WAS DENIED FOLLOWING THE PAST HISTORY ACC ORDING TO WHICH THE TRIBUNAL HAS UPHELD THE DENIAL OF DEDUCTION IN A.Y. 2001-02. IN RESPECT OF CAPTIVE POWER PLANT, THE AO HAD NOTED THAT IN A.Y. 2005-06, AFTER DETAILED REASONING THE DEDUCTION U/S.80IA WAS DENIE D. FOR THE YEAR UNDER CONSIDERATION, THE AO HAD EXAMINED THE INTERNAL CON SUMPTION AND THE GAIN SHOWN IN THE BOOKS OF ACCOUNT. ACCORDING TO A O, THE PERCENTAGE OF ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 58 - GAIN WAS AT 32.26% WHICH WAS INORDINATELY HIGH. T HE AO HAS ALSO NOTED THAT THE CREDIT FOR ELECTRICITY WAS TAKEN AT RS.5.199 ON THE BASIS OF THE CHARGES OF THE GUJARAT ELECTRICITY BOARD. AS AGAINST THAT, THE ALLEGED NOTIONAL RATE OF CREDIT OF ELECTRICITY CHARGES WAS REDUCED BY THE AO TO RS.3.699 WITH THE RESULT THE AO HAS CALCULATED THE COST OF GENERATION AT RS.5,16,50,269/-. RESULTANTLY, THE CLAIM WAS RESTR ICTED TO THE SAID AMOUNT AS AGAINST THE CLAIM OF THE ASSESSEE. ABOUT THE THIRD UNIT, I.E. CO- GENERATION PLANT, THE AO HAD WORKED OUT THE GAIN AT 19.99% WHICH ACCORDING TO HIM WAS TOWARDS HIGHER SIDE. THE AO H AS CALCULATED THE COST OF GENERATION BY APPLYING THE NOTIONAL RATE OF ELECTRICITY CREDIT AT RS.3.699 WHICH RESULTED INTO A LOSS, HENCE THE ASSE SSEES CLAIM WAS DISALLOWED. 17. AT THE OUTSET, LD.AR HAS INFORMED THAT EARLIER VIDE AN ORDER DATED 16.5.2008 FOR A.Y. 2001-02 IN ASSESSEES OWN CASE TITLED AS ATUL LIMITED VS. THE INCOME-TAX OFFICER (ITA NO.3528/AH D/2004) IT WAS HELD THAT IN RESPECT OF NEW POWER PLANT THAT THE SAME WAS MERELY AN EXPANSION OF THE EXISTING UNDERTAKING. ACCORDING T O THE TRIBUNAL, THERE WAS AN EXISTING UNIT WHEREIN A NEW DEADLINE WAS ADD ED AND SUCH A UNIT COULD NOT BE REGARDED TO BE AS AN ESTABLISHMENT OF A NEW UNDERTAKING FOR QUALIFYING THE DEDUCTION U/S.80IA OF THE ACT. AT THE TIME WHEN THE ASSESSMENT WAS MADE THE SAID ORDER OF THE TRIBUNAL WAS IN THE KNOWLEDGE OF THE AO. HOWEVER, NOW WE HAVE BEEN INF ORMED THAT THE SAID ORDER OF THE TRIBUNAL ON THE FINDING OF 80IA W AS RECALLED BY ITAT D BENCH TITLED AS ATUL LIMITED VS. ITO [MA NO.3 24/AHD/2008 (ARISING FROM ITA NO.3528/AHD/2004 A.Y. 2001-02)] ORDER DATED 11.5.2012 AND THE MATTER IS RECALLED AND THE REGIST RY IS DIRECTED TO FIX A ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 59 - FRESH HEARING IN RESPECT OF THE SAID GROUND. IN TH E SAID MA ORDER, THERE IS A REFERENCE OF A DECISION OF GUJARAT ALKALIES & CHE MICALS 249 ITR 82 (GUJ.), WHEREIN IT WAS HELD THAT ONLY BECAUSE TO A CERTAIN EXTENT THE NEW UNDERTAKING IS DEPENDENT ON THE EXISTING UNIT, IT W ILL NOT DEPRIVE THE NEW UNDERTAKING THE STATUS OF A SEPARATE AND DISTINCT I DENTITY. WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE OF CLAIM OF DEDUC TION U/S.80IA IS NOW REQUIRED TO BE DECIDED IN THE LIGHT OF THE VERDICT OF THE HONBLE GUJARAT HIGH COURT. THEREFORE, WE CONSIDER IT NECESSARY T O RESTORE THE ENTIRE ISSUE BACK TO THE STAGE OF THE AO TO BE DECIDED DE NOVO IN THE LIGHT OF THE VERDICT OF THE HIGH COURT. THIS GROUND IS AL LOWED FOR STATISTICAL PURPOSES ONLY. 18. GROUND NO.12 READS AS UNDER: DISALLOWANCE OF RS.1,21,18,801/- IN RESPECT OF DEPR ECIATION 12. THE LD. ASSESSING OFFICER/DRP ERRED IN LAW AND FACT S OF THE CASE BY PROPOSING TO DISALLOW DEPRECIATION OF RS.1, 21,18,801/- BY REDUCING THE DEPRECIATION FOR A.Y. 2006-07 AFTER ENHANCING DEPRECIATION FOR A.Y. 2001-02 WITHOUT APPRECIATING THE FACTS THAT THE APPELLANT HAD OPTED NOT TO CLAIM DEPRECIAT ION FOR A.Y. 2001-02. 18.1. IN TOTAL THE COMPANY HAD CLAIMED DEPR ECIATION OF RS.25,59,36,573/-. IT WAS NOTED BY THE AO THAT NO DEPRECIATION WAS CLAIMED IN A.Y. 2001-02. HOWEVER, THE AO HAD THRU ST UPON THE DEPRECIATION ON THE ASSESSEE FOR A.Y. 2001-02. T HE ACTION OF THE AO WAS STATED TO BE CONFIRMED BY THE ITAT. IT WAS NO TED BY THE AO THAT STILL THE ASSESSEE CONTINUE TO CLAIM THE DEPRECIATI ON AS PER THE ORIGINAL WORKING, I.E. WITHOUT DEDUCTING DEPRECIATION WHICH HAD ALREADY BEEN ALLOWED IN A.Y. 2001-02. HENCE, A CONCLUSION WAS DRAWN BY THE AO ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 60 - THAT THE CLAIM OF DEPRECIATION FOR THE CURRENT YEAR , I.E. A.Y. 2006-07 WAS REQUIRED TO BE REDUCED BY THE AMOUNT OF DEPRECIATIO N ALREADY ALLOWED FROM A.Y. 2001-02 UPTILL A.Y. 2005-06. THE ASSESS EE HAD SUBMITTED A REVISED WORKING OF DEPRECIATION. ACCORDING TO THE REVISED WORKING, THE DEPRECIATION WAS COMPUTED AT RS.24,38,17,771/-. T HE DIFFERENCE BETWEEN THE TWO, I.E. THE ORIGINAL CLAIM OF DEPRECI ATION AND THE REVISED CLAIM OF DEPRECIATION WAS THUS COMPUTED BY THE AO A T RS.1,21,18,801/-. IN THE RESULT, THE EXCESSIVE CLAIM OF DEPRECIATION WAS DISALLOWED. IN THIS REGARD, THE ONLY ARGUMENT OF THE ASSESSEES COUNSEL WAS THAT THE CLAIM OF DEPRECIATION FOR THE YEAR UNDER CONSIDERATION IS CO NSEQUENTIAL OF EARLIER YEARS JUDGEMENT. WHILE DECIDING THE APPEAL OF TH E ASSESSEE FOR A.Y. 2001-02, RESPECTED COORDINATE BENCH D AHMEDABAD I N ITA NO.3528/AHD/2004 VIDE AN ORDER DATED 16/05/2008 HAS AFFIRMED THE FINDINGS OF THE LD.CIT(A) AND THE DEPRECIATION AS A LLOWED BY THE AO WAS AFFIRMED. DUE TO THIS REASON, WE ARE OF THE VIEW T HAT LD.AR HAS CORRECTLY STATED THAT THE RECALCULATION OF DEPRECIATION FOR T HE YEAR UNDER CONSIDERATION WAS NOTHING BUT A CONSEQUENTIAL EFFEC T OF THE RE-COMPUTATION OF DEPRECIATION. WE HEREBY CONFIRM THE VIEW TAKEN BY THE AO AND DISMISS THIS GROUND. 19. GROUND NO.13 READS AS UNDER: NON CARRIED FORWARD OF UNABSORBED DEPRECIATION LOSS OF RS.9,28,32,049/- 13. THE LD. AO/DRP ERRED IN LAW AND FACTS OF THE CASE B Y PROPOSING NOT ALLOWING TO CARRY FORWARD UNABSORBED DEPRECIATI ON LOSS OF RS.9,28,32,049/- TO SET OFF AGAINST THE INCOME OF T HE YEAR UNDER CONSIDERATION. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 61 - 19.1. THE ASSESSEE HAD CLAIMED A CARRIED FORWARD UN ABSORBED DEPRECIATION OF RS.9,89,30,646/- TO BE SET OFF AGAI NST THE CURRENT INCOME. THE BIFURCATION OF THE UNABSORBED DEPRECIATION WAS AS UNDER:- A.Y. 2004-05 RS.7,97,14,997/- A.Y. 2005-06 RS.1,92,15,649/- 19.2. ON PERUSAL OF PAST RECORD, IT WAS NOTED BY THE AO AS FOLLOWS:- 10.1. PERUSAL OF THE RECORD OF THE ASSESSEE FOR A. Y. 2004-05 SHOWS THAT OUT OF DEPRECIATION CLAIMED BY THE ASSESSEE, A SUM OF RS.3,52,78,787/- WAS DISALLOWED. THUS, THE AVAILAB LE CARRY FORWARD DEPRECIATION FOR THIS YEAR TO A.Y. 2005-06 WAS RS.4,44,36,210/-. 10.2. IN A.Y. 2005-06, THE ASSESSEE HAS CLAIMED UNA BSORBED DEPRECIATION FOR THE YEAR OF RS.1,92,15,649/-. OUT OF THE DEPRECIATION CLAIMED, THE A.O. HAS IN THE ORDER U/S .143(3) DISALLOWED A SUM OF RS.2,66,83,892/-. THUS, THERE WAS NO UNABSORBED DEPRECIATION FOR THE YEAR AVAILABLE TO T HE ASSESSEE FOR CARRY FORWARD IN A.Y. 2006-07. 10.3. FURTHER PERUSAL OF RECORDS OF A.Y.2005-06 REV EALS THAT THE GROSS TOTAL INCOME FOR THE YEAR COMPUTED BY THE A.O . U/S.143(3) WAS RS.3,83,37,613/-. OUT OF THE ABOVE, THE A.O. H AS ALLOWED DEDUCTION UNDER CHAPTER-VIA. HOWEVER, AS PER THE P ROVISIONS OF SECTION 32(2) R.W.S. 72 & 73, THE BROUGHT FORWARD D EPRECIATION SHOULD HAVE BEEN ADJUSTED BEFORE ALLOWING ANY DEDUC TION UNDER CHAPTER-VIA. 19.3. THEREFORE, THE AO HAD CALCULATED THE BALANCE OF UNABSORBED DEPRECIATION AVAILABLE TO THE ASSESSEE TO BE CARRIE D FORWARD, WHICH RESULTED INTO A DISALLOWANCE OF DIFFERENTIAL OF THE CLAIM OF DEPRECIATION OF RS.9,28,32,049/-. WE FIND NO LEGAL FALLACY IN TH E AFORESAID ADJUSTMENT ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 62 - MADE BY THE AO. EVEN BEFORE US, NO LEGAL ARGUMENT WAS RAISED. THE ONLY SUBMISSION IS THAT SINCE FEW PAST YEARS ARE IN VOLVED, THEREFORE IN CASE OF ANY MISTAKE IN CALCULATION OF UNABSORBED DE PRECIATION, THEN THE SAME MAY BE DIRECTED TO BE RECTIFIED. THIS PLEADI NG COULD HAVE BEEN RAISED BEFORE THE AO WHO IS EMPOWERED TO PASS AN OR DER U/S.154 OF IT ACT AND IN CASE OF ANY MISTAKE THE SAME CAN BE RECT IFIED. AT PRESENT, IN THE ABSENCE OF ANY SUPPORTING RE-CALCULATION BY THE ASSESSEE, WE ARE NOT INCLINED TO INTERFERE WITH THE CALCULATION OF THE C ARRIED FORWARD DEPRECIATION AS MADE BY THE AO. THIS GROUND IS D ISMISSED. 20. GROUND NOS.14 & 15 READ AS UNDER: 14. INITIATION OF LEVY OF INTEREST U/S.234B, 234D AND W ITHDRAWAL OF INTEREST U/S.244A OF THE ACT IS NOT JUSTIFIED. 15. INITIATION OF PENALTY U/S.271(1)(C) OF THE ACT IS N OT JUSTIFIED. 20.1. THESE TWO GROUNDS ARE AT PRESENT PRE-MATURE A ND CONSEQUENTIAL IN NATURE, HENCE NOT TO BE ADJUDICATED. 21. REST OF THE GROUNDS ARE COMMON IN NATURE, HENCE NOT ARGUED, THEREFORE DISMISSED. ITA NO.3118/AHD/2010 M/S.ATUL LIMITED VS. ACIT ASST.YEAR 2006-07 - 63 - 22. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED THAT TOO FOR STATISTICAL PURPOSES. SD/- SD/- ( .'# $ ) ( ) %& ( A. MOHAN ALANKAMONY ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIA L MEMBER AHMEDABAD; DATED 29 / 10 /2012 5..#, .#../ T.C. NAIR, SR. PS %4 1 .6 7%6) %4 1 .6 7%6) %4 1 .6 7%6) %4 1 .6 7%6) / COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT 3. 8 / CONCERNED CIT 4. 8() / THE CIT(A)-CONCERNED 5. 6;< .# , , / DR, ITAT, AHMEDABAD 6. < =2 / GUARD FILE. %4# %4# %4# %4# / BY ORDER, /6 . //TRUE COPY// > >> >/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DIRECT DICTATION ON COMPUTER ON 19.10.12/ 23.10.12/26.10.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.10.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S30.10.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.10.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER