GE Medical Systems India Private Limited, Bangalore V. DCIT, Bangalore

ITA 333/BANG/2011

• Counselvise Citation: 33321114 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 29-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction; Competent authority
• Section: 143(3); 80HHC; 10B; 32; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE , ACCOUNTANT MEMBER IT (TP) A NO S . 332 & 333 / BANG/20 1 1 (ASSESSMENT YEAR S : 2004 - 05 & 2005 - 06 ) M/S.GE MEDICAL SYSTEMS INDI A PVT. LTD. 122, PART - 1, EPIP, WHITEFIELD R OAD, BANGALORE - 560006. APPELLANT PAN:AAACG7655G VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11(3), BANGALORE. RESPONDENT AND IT (TP) A NO.337/BANG/2011 (ASSESSMENT YEAR: 2004 - 05) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11(3), BANGALORE. APPELLANT VS. M/S.GE MEDICAL SYSTEMS INDIA PVT. LTD. BANGALORE. RESPONDENT A SSESSEE BY: SHRI K.R.VASUDEVAN, ADVOCATE. REVENUE BY: SHRI C.H.SUNDAR RAO , CIT(DR). DATE OF HEARING : 15 / 06 /2015 . DATE OF PRONOUNCEMENT: 30 /06/2015. O R D E R PER SMT. P.MADHAVI DEVI, JM : ITA NOS. 332 AND 337/BANG/2011 ARE CROSS APPEALS BOTH BY THE ASSESSEE AND THE REVENUE RESPECTIVELY AGAINST THE ORDER OF THE CIT(A) - LTU, BANGALORE, DATED 28/01/2011 FOR THE ASSESSMENT IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 2 OF 39 YEAR 2004 - 05 WHILE ITA NO.333/BANG/2011 IS THE APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - LTU, BANGALORE, DATED 31/01/2011 FOR THE ASSESSMENT YEAR 2005 - 06. 2. ASSESSMENT YEAR: 2004 - 05 : TH IS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER (AO) AS REGARDS MOST APPROPRIATE METHOD FOR COMPUTATION OF ARM S LENGTH PRICE (ALP) AND THE COMPARABLE S SELECTED BY THE AO ON THE BASIS OF PRODUCT C OMPARABILITY AS AGAINST THE FUNCTIONAL COMPARABILITY ADOPTED BY THE ASSESSEE. IN ADDITION THERETO, THE ASSESSEE IS ALSO IN APPEAL AGAINST THE ADJUSTMENT MADE TO THE EXPORT TURNOVER AND PROFITS OF THE BUSINESS IN COMPUTING THE DEDUCTION U/S 10A OF THE INCO ME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] AND ALSO ON THE DEPRECIATION ALLOWED BY THE AO ONLY ON THE NET CONSIDERATION RECEIVED FROM M/S.ELPRO INTERNATIONAL LTD. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY FILE D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004 - 05 ON 31/08/2014 DECLARING TOTAL INCOME OF RS.3,73,56,980/ - . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO NOTICED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) AND THEREFORE REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF THE ALP U/S 92CA OF THE ACT. FURTHER, WHILE EXAMINING THE ASSESSEE S CLAIM OF DEDUCTION U/S 10A OF THE ACT TO THE TUNE OF IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 3 OF 39 RS.29,87,49 ,995/ - , THE AO NOTICED THAT IT CONSISTS OF (I) EXPORT TURNOVER OF A SUM OF RS.58,87,090/ - NOT RECEIVED DURING THE RELEVANT FINANCIAL YEAR; (II) TELECOMMUNICATION EXPENSES OF RS.68,41,559/ - ; AND (III) INCOME OF RS.27,25,570/ - FROM TRADING ACTIVITY . (I) HE OBSERVED THAT AS REGARDS THE SUM OF RS.58,87,090/ - T HE ASSESSEE S AUDITOR HAS QUALIFIED FORM 56F TO THE TUNE OF RS.58,87,090/ - STATING THAT THE APPROVAL IS SOUGHT FROM THE COMPETENT AUTHORITY. THE ASSESSEE WAS ASKED TO PRODUCE PROOF IN THIS REGARD TO SUBS TANTIATE THEIR CLAIM BUT SINCE ASSESSEE COULD NOT PRODUCE THE SAID EVIDENCE, THE AO DID NOT CONSIDER THE SUM OF RS.58,87,090/ - AS EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. (II) FURTHER, THE AO OBSERVED THAT THE EXPE NSES OF RS.68,41,559/ - INCURRED FOR TELECOMMUNICATION EXPENSES ARE ATTRIBUTABLE TO THE DELIVERY OF THE PRODUCT OR SOFTWARE OUTSIDE INDIA AND THEREFORE SHOULD BE REDUCED FROM THE EXPORT TURNOVER. THE ASSESSEE CONTENDED THAT IF THE SAME IS EXCLUDED FROM THE EXPORT TURNOVER, THEN IT SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL. THE AO, HOWEVER, DID NOT AGREE WITH THE ASSESSEE S CONTENTION AND HELD THAT THE TELE COMMUNICATION EXPENSES OF RS.68,41,559/ - ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE IND IA IS TO BE EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 4 OF 39 (III) FURTHER, THE AO OBSERVED THAT THE ASSESSEE - COMPANY WAS EXPORTING SPARES/COMPONENT/PARTS IN AS SUCH CONDITION WITHOUT SUBJECTING THEM TO ANY FURT HER ACTIVITY DUE TO WHICH , THE SAID ACTIVITY AMOUNTED TO TRADING. THE ASSESSEE WAS REQUIRED TO OFFER ITS COMMENTS. THE ASSESSEE FILED ITS LETTER DATED 05/10/2006 , STATING THAT THE SALE OF SPARE PARTS AND COMPONENTS ARE INEXTRICABLY INTERLINKED WITH THE S ALE OF MEDICAL EQUIPMENTS MANUFACTURED BY THE ASSESSEE AND FORMED INTEGRAL PART OF THE BUSINESS OF THE UNDERTAKING AND THEREFORE, IT HAS TO BE TREATED AS BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. THE AO, HOWEVER, HELD THAT THE SUM OF RS.2 7,25,570/ - BEING PROFIT IN TRADING ACTIVITY IS NOT ELIGIBLE TO BE CONSIDERED AS PROFIT OF ELIGIBLE UNIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10 A OF THE ACT. 4. HE ACCORDINGLY COMPUTED THE DEDUCTION U/S 10A OF THE ACT. IN ADDITION TO THE ABO VE, THE AO CONSIDERED THE ASSESSEE S CLAIM OF DEPRECIATION ON PLANT AND MACHINERY PURCHASED FROM M/S.ELPRO INTERNATIONAL LTD IN THE ASSESSMENT YEAR 1998 - 99. THE AO OBSERVED THAT DURING THE ASSESSMENT YEAR 1998 - 99, ADDITION TO THE PLANT AND MACHINERY WAS T O THE TUNE OF RS.1,71,94,000/ - WHICH INCLUDED A SUM OF RS.57,57,000/ - WHICH DOES NOT REPRESENT THE VALUE OF ANY PLANT MACHINERY PURCHASED BY THE ASSESSEE. IN REPLY TO THE AO S QUERY, ASSESSEE SUBMITTED THAT AS PER SPA AGREEMENT, ASSESSEE HAD TAKEN OVER TH E PLANT AND MACHINERY OF THE COMPANY M/S. ELPRO INTERNATIONAL LTD., AND ALSO EMPLOYMENT OF 184 EMPLOYEES OF M/S.ELPRO INTERNATIONAL LTD AND CONSEQUENTLY IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 5 OF 39 GRATUITY FUND OF THESE EMPLOYEES AMOUNTING TO RS.27 LAKHS WAS TRANSFERRED TO ASSESSEE - CO MPANY AND SINCE GRATUITY TO ALL THE EMPLOYEES ON RETIREMENT WOULD COME TO RS.8,45,000/ - , ONLY THE BALANCE AMOUNT OF RS.57,57,000/ - WAS CAPITALIZED AS PLANT AND MACHINERY AND DEPRECIATION WAS CLAIMED ON THE SAME. THE AO OBSERVED THAT THIS ISSUE HAS ARISEN SINCE THE ASSE SSMENT YEAR 1998 - 99 WHEREIN THE AO HAD DISALLOWED THE CLAIM OF DEPRECIATION U/S 32 OF THE ACT ON THE GROUND THAT THE SUM CAPITALIZED DOES NOT REPRESENT VALUE OF ANY PLANT AND MACHINERY BUT WAS A MERE DIFFERENCE BETWEEN GRATUITY RECEIVED BY THE EMPLOYEES OF ELPRO INTERNATIONAL AND GRATUITY ACTUALLY PAID BY THE ASSESSEE TO THOSE EMPLOYEES ON THEIR RETIREMENT WHICH DOES NOT QUALITY FOR DEDUCTION U/S 32 AND THAT THE CIT(A) HAD CONFIRMED THE SAID DISALLOWANCE. THEREFORE, FOLLOWING THE ORDERS OF HIS PREDECESSOR, THE AO DISALLOWED THE CLAIM OF DEPRECIATION FOR THE RELEVANT ASSESSMENT YEAR ALSO. AS REGARDS THE TRANSFER PRICING ADJUSTMENT IS CONCERNED, HE FOLLOWED THE ORDER OF THE TPO AND MADE THE TRANSFER PRICING ADJUSTMENT OF RS.43,09,86,678/ - . 5 . AGGRIEV ED BY THE ORDER OF THE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGAINST THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US , WHILE ASSESSEE IS IN APPEAL AGAINST THE CONFIRMATION OF THE A DDITION MADE BY THE AO. IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 6 OF 39 6 . AS REGARDS THE TRANSFER PRICING ADJUSTMENT, BRIEF FACTS ARE THAT THE ASSESSEE , WHICH IS A CONTRACT MANUFACTURER OF MEDICAL EQUIPMENTS AND COMPONENTS , IS ALSO RENDERING ENGINEERING S ERVICES TO THE GROUP COMPANIES. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE HAD ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS: IMPORT OF RAW MATERIALS FOR CONTRACT MANUFACTURING ACTIVITY: RS.43,89,45,267/ - . PURCHASE OF FIXED ASSETS FOR CONTRACT MANUFACTURING ACTIVITY: RS.73,61,156/ - . SALE OF MANUFACTURED GOODS: RS.3,05,09,49,854/ - . PROVISION OF ENGINEERING SERVICES: RS.27,50,71,855/ - . PAYMENT OF DATA AND PORT LINK CHARGES: RS.29,90,626/ - . RECOVERY OF EXPENSES: RS.10,20,16,368/ - . PAYMENT OF ROYALTY/TECHNICAL KNOW - HOW FEES: RS.1,45,40 ,480/ - FOR THE ABOVE ACTIVITY, THE ASSESSEE SOURCES RAW MATERIALS AND COMPONENTS, PERFORMS THE MANUFACTURING FUNCTIONS AND SUPPLIES THE ENTIRE PRODUCE TO GE MEDICAL SYSTEMS (GEMS). IT IS STATED THAT GEMS GROUP AFFILIATE GLOBAL TECHNOLOGY COMPANY HAS LICEN SED CERTAIN LICENSED INTELLECTUAL PROPERTY TO GEMS INDIA . WHICH IS USED IN MANUFACTURING PROCESS FOR WHICH ROYALTY IS PAID AND GEMS INDIA IS REMUNERATED ON A COST PLUS METHOD BUT HAS THE LEVERAGE TO INCREASE THE MARGINS BY SAVING ON COSTS. THUS GE MS INDIA IS A CONTRACT MANUFACTURER WHOSE PRICING DECISIONS ARE CONTROLLED BY THE AFFILIATE. IN ITS TP STUDY, T HE ASSESSEE ADOPTED THE COST PLUS METHOD AS THE MOST APPROPRIATE METHOD IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 7 OF 39 AND HAS ADOPTED COMPARABLE COMPANIES WHICH ARE ENGAGED IN CONTRACT MANUFACTURING OF VARIOUS PRODUCTS RANGING FROM BASE METAL TO AUTO ANCILLARIES. AFTER ADOPTING THE VARIOUS FILTERS, ASSESSEE ADOPTED 19 COMPANIES AS COMPARABLES. THE AO AGREED THAT THE COST PLUS METHOD IS THE MOST APPROPRIATE METHOD BUT REJECTED THE COMPARA BLES ADOPTE D BY THE ASSESSEE . AS REGARDS SELECTION OF THE COMPARABLE S , THE TPO OBSERVED THAT THE TAX PAYER BEING A MANUFACTURER OF MEDICAL EQUIPMENT HAS TO SEARCH FOR THE COMPANIES WHICH ARE ALSO INTO THE MANUFACTURE OF MEDICAL EQUIPMENT I.E. SIMILAR PRODUCTS. THER EFORE PROPOSAL TO ADOPT THE COMPANIES WHICH ARE INTO MANUFACTURE OF MEDICAL EQUIPMENT WAS SENT TO THE ASSESSEE VIDE LETTER DATED 13/10/2006. THE ASSESSEE OBJECTED TO THE SAME STATING THAT THE FUNCTIONAL COMPARABILITY IS IMPORTANT TO DETERMINE THE COMPARAB LE AND THAT COST MARGINS ARE LIKELY TO BE AFFECTED BY DIFFERENCES IN FUNCTIONING AND NOT PRODUCT. THE TPO WAS NOT CONVINCED BY THE ASSESSEE S CONTENTION AND HELD THAT THE PRODUCT COMPARABILITY IS MORE APPROPRIATE IN THE ASSESSEE S CASE . THE ASSESSEE, THE REAFTER, SUBMITTED THAT IF THE COMPARABLES ON THE BASIS OF PRODUCTS ARE TAKEN INTO CONSIDERATION, THEN THE MOST APPROPRIATE METHOD TO DETERMINE THE ALP WOULD BE TNMM AS SUCH COMPARABLES NEED TO SPEND MORE ON ADVERTISEMENT AND MARKETING AS COMPARED TO THE A SSESSEE AND ON ACCOUNT OF THIS, PRICES ARE HIKED UP INCREASING THEIR MARGIN VIS - - VIS TAX - PAYER. THE TPO, HOWEVER, REJECTED THE ASSESSEE S OBJECTION , HOLDING THAT THE ASSESSEE ITSELF HAD ADOPTED IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 8 OF 39 COST PLUS METHOD AS THE MOST APPROPRIATE METHOD AND THAT N O NEW FACT OR EVIDENCE IS BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT CPM CEASED TO BE THE MOST APPROPRIATE METHOD OR TO JUSTIFY SWITCH OVER TO A LESS DIRECT METHOD I.E. TNMM. HE HELD THAT THE CPM IS THE MOST DIRECT METHOD AFTER CUP METHOD TO DETERMINE PRICING WHEN AN ENTERPRISE MANUFACTURES AND SELLS TO AFFILIATES. HE HELD THAT ARMS LENGTH SALES PRICE IS DETERMINED BY ADDING THE NORMAL GROSS MARK UP ON COST TO THE COSTS INCURRED. THUS IT IS AFFECTED ONLY BY THE COST OF PRODUCTION WHILE TNMM IS INFL UENCED BY A LOT OF OTHER FACTORS SUCH AS OPERATIONAL EFFICIENCY. HE, THEREFORE, HELD THAT CPM IS THE MOST APPROPRIATE METHOD. THEREAFTER, HE EXAMINED THE IMPACT OF ADVERTISING AND MARKETING ON THE MARGINS EARNED BY THE COMPARABLE COMPANIES AND HELD THAT THE AVERAGE SPENDING ON ADVERTISEMENT, MARKING AND DISTRIBUTION (FUNCTIONS NOT PER FORMED BY THE ASSESSEE) BY THE COMPARABLE COMPANIES RANGE BETWEEN 7 TO 8% AND THE SPENDING BY ONE OF THE COMPARABLES IS UNUSUALLY HIGH BUT IT IS NOT ESTABLISHED THAT IT LEAD S TO SUPER PROFITS. HE, THEREFORE, MADE AN ADJUSTMENT OF 8% TO THE NORMAL GROSS MARK UP TO ARRIVE AT THE ALP ADJUSTMENT OF RS.40,94,31,047/ - . 7 . AS REGARDS THE INTERNATIONAL TRANSACTION INVOLVING ENGINEERING SERVICES, THE ASSESSEE HAD ADOPTED TNMM AS THE MOST APPROPRIATE METHOD WHICH IS ACCEPTED BY THE TPO. THE TPO FINALLY ADOPTED 5 COMPANIES AS COMPARABLES AND ARRIVED AT THE AVERAGE NET MARGIN OF THE COMPARABLES AT 18.12% AS AGAINST THE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 9 OF 39 PROFIT MARGIN OF THE ASSESSEE AT 10% AND ARRIVED AT THE ADJUS TMENT U/S 92CA OF RS.2,15,55,631/ - . 8. IN ACCORDANCE WITH THE TRANSFER PRICING ADJUSTMENT PROPOSED BY THE TPO, THE AO PASSED THE ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE TRANSFER PRICING ADJUST MENT ON ACCOUNT OF CONTRACT M ANUFACTURE IS CONCERNED BUT GRANTED ADVERTISEMENT AND MARKETING ADJUSTMENT OF THE ACTUAL EXPENDITURE INCURRED BY THE COMPARABLE S WHICH HAS RESULTED IN NIL ADJUSTMENT TO THE ALP. A S REGARDS THE ENGINEERING SERVICES IS CONCER NED, THE ASSESSEE HAD CHALLENGED THE ADOPTION OF VIMTA LABS AS ONE OF THE COMPARABLES. THE CIT(A) HAD CALLED FOR A REMAND REPORT FROM THE TPO WHO REPORTED THAT VIMTA LABS IS NOT COMPARABLE TO THE ASSESSEE. ON THE BASIS OF THE SAID REMAND REPORT, THE CIT(A ) DIRECTED THE AO/TPO TO DELETE VIMTA LABS FROM THE LIST OF COMPARABLE. THOUGH TRANSFER PRICING ADJUSTMENT IN THE CASE OF THE CONTRACT M ANUFACTURE HAS RESULTED IN NIL ADJUSTMENT, THE ASSESSEE IN APPEAL BEFORE US ON THE PRINCIPLE OF ADOPTING THE MOST APP ROPRIATE METHOD AND THE BASIS OF ADOPTION OF COMPARABLE S I.E. ON FUNCTIONAL OR PRODUCT BASIS. AGAINST THE DELETION OF VIMTA LABS LTD., FROM THE LIST OF COMPARABLES IN THE CASE OF ENGINEERING SERVICES, THE REVENUE IS IN APPEAL BEFORE US. 9 . AS FAR AS THE REVENUE S APPEAL AGAINST THE DELETION OF VIMTA LABS LTD., FROM THE LIST OF COMPARABLES IS CONCERNED, IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 10 OF 39 THOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDER OF THE AO, WE FIND THAT THE TPO HAS, IN THE REMAND REPORT ( WHICH IS REPRODU CED AT 14.2.1 OF THE ORDER OF THE CIT(A) ) HAS STATED THAT VIMTA LABS LTD., WAS INTO CONTRACTING , RESEARCH AND TECHNICAL ACTIVITY AND THEREFORE IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. SINCE THE TPO HIMSELF HAS AGREED THAT THE SAID COMPANY IS NOT COMPAR ABLE TO THE ASSESSEE - COMPANY, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE REVENUE S GROUND OF APPEAL ON THIS ISSUE IS REJECTED. 10 . AS REGARDS THE BASIS COMPARABILITY ADOPTED BY THE TPO I.E. THE PRODUCT COMPARABILITY AS AGAINST THE FUNCTIONAL COMPARABILITY ADOPTED BY THE ASSESSEE IS CONCERNED, IT IS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE VERY SAME ISSUE HAD ARISEN IN THE CASE OF RELATED PARTY TO THE ASSESSEE I.E. M/S.GE BE PVT. LTD., IN I TA NO.850/BANG/2010 DATED 06/12/2013. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUPPORTED THE ORDERS OF THE AO/TPO. 11. ON PERUSA L OF THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S.GE BE PVT. LTD. (CITED SU P RA) WE FIND THAT M/S.GE BE PVT. LTD ., IS A CONTRACT MANUFACTURER OF MEDICAL EQUIPMENT AND THAT IT ALSO ENTERED INTO SIMILAR INTERNATIONAL TRANSACTIONS WITH ITS AES WHICH ARE REPRODUCED AT PARA .4 OF THE ORDER OF THE TRIBUNAL. IN THE SAID CASE ALSO, THE ASSESSEE THEREIN , HAD ADOPTED CPM AS T HE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP AND HA D IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 11 OF 39 ADOPTED COMPARABLE S INVOLVED IN MANUFACTURE OF AUTOMOBILE PARTS ON CONTRACT BASIS. THE TPO THEREIN WAS OF THE VIEW THAT SINCE THE ASSESSEE WAS A MANUFACTURE OF MEDICAL EQUIPMENT, THE COMPARABLE S A DOPTED BY THE COMPANY ARE NOT COMPARABLE TO THE ASSESSEE. THE TPO HELD THAT THE ASSESSEE HAS NOT CHOSEN COMPARABLE S USING AN OBJECTIVE, CONSISTENT, LOGICAL AND TRANSPARENT BASIS . THUS, THE TPO REJECTED THE COMPARABLES CHOSEN BY THE ASSESSEE AND IDENTIFIE D 4 COMPARABLE COMPANIES WHICH WERE ALSO IN THE BUSINESS OF MANUFACTURE OF MEDICAL EQUIPMENT. THE ASSESSEE TOOK A STAND THEREIN ALSO THAT TNMM MAY BE ADOPTED AS THE MOST APPROPRIATE METHOD. THE TPO THEREIN REJECTED THE ASSESSEE S CONTENTION AND ADOPTED CPM AS THE MOST APPROPRIATE METHOD AND PROCEEDED TO MAKE TRANSFER PRICING ADJUSTMENT . THIS ISSUE HAD COME UP BEFORE THE TRIBUNAL FOR ADJUDICATION AND THE TRIBUNAL, AFTER CONSIDERING THE ISSUE AT LENGTH , HAS HELD AT PARAS.32 TO 53 AS UNDER: 32. W E HAV E GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. WE SHALL FIRST RECAPITULATE THE SEQUENCE OF EVENTS. THE DISPUTE RAISED BY THE ASSESSEE IN GR.NO.1 TO 7 RELATE TO THE DETERMINATION OF ARM S LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TRANS ACTION OF SALE OF MANUFACTURED GOODS BY THE ASSESSEE TO ONE ITS ASSOCIATED ENTERPRISE (AE). THE ASSESSEE MANUFACTURES COMPONENTS OF MEDICAL DEVICES AND SELLS IT TO ITS AE. THE PRICING IS CLAIMED TO BE BASED ON THE GE GLOBAL PRICING POLICY. THE ASSESSEE SOURCES RAW MATERIAL AND COMPONENTS, PERFORMS THE MANUFACTURING FUNCTIONS AND SUPPLIES THE ENTIRE PRODUCE TO ITS AE. TO JUSTIFY THE PRICE THAT IT RECEIVES FROM ITS AE IS AT ARM S LENGTH THE ASSESSEE FILED A TRANSFER PRICING STUDY REPORT. THE ASSESSEE CLA IMED THAT IT PERFORMED FUNCTIONS AND UNDERTOOK RISKS THAT ARE NORMALLY PERFORMED BY A CONTRACT MANUFACTURER. THE ASSESSEE CHOSE COST PLUS METHOD (CPM) AS THE MOST APPROPRIATE METHOD IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 12 OF 39 (MAM) FOR DETERMINATION OF ALP. THE ASSESSEE IDENTIFIED 19 COMPARABLE CO MPANIES WHICH WERE IN THE BUSINESS OF MANUFACTURE OF (I) STEEL FORGINGS, (II) AUTOMOTIVE BRAKE SYSTEMS, (III) COMPRESSORS; (IV) COLOUR TV PICTURE TUBES, (V) AXLE SHAFTS, (VI) AUTOMOTIVE GEARS; (VII) REAR FORK ASSEMBLY; (VIII) SHEET METAL COMPONENTS, ASSEMB LIES AND SUB - ASSEMBLIES,(IX) AUTO HEAD LIGHTS, (X) FUEL TANKS, AXLE HOUSING; (X) STEERING GEARS; (XI) WHEELS FOR AUTOMOBILES; (XII) DESIGN ENGINES; (XIII) STEERING GEAR ASSEMBLY; (XIV) AUTOMOTIVE AIR - CONDITIONING SYSTEMS; (XV) STEEL METAL PARTS. THE ARIT HMETIC MEAN OF THE COMPARABLE COMPANIES WAS 15.72% GROSS MARK - UP ON COST. THE ASSESSEE S GROSS MARK - UP ON COST WAS 16.24% AND THEREFORE IT WAS CLAIMED THAT THE PRICE RECEIVED FROM THE AE BY THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTION WAS AT A RM S LENGTH. 33. THE TPO ACCEPTED THE METHODOLOGY ADOPTED BY THE ASSESSEE VIZ., CPM AS THE MAM. THE PROFIT LEVEL INDICATOR (PLI) CHOSEN BY THE ASSESSEE VIZ., GROSS PROFIT ON COST WAS ALSO ACCEPTED BY THE TPO. THE TPO WAS OF THE VIEW THAT THE COMPARABLE CHOSEN BY THE ASSESSEE WERE NOT FROM THE MEDICAL EQUIPMENT INDUSTRY SEGMENT AND IN TERMS OF RULE 10B(2) (A) THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE SPECIFIC CHARAC TERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION . THE TPO THEREFORE WAS OF THE VIEW THAT PRODUCT COMPARABILITY IS VERY IMPORTANT. THE TPO REFERRED TO PARA 2.18 OF THE OECD GUIDELINES ON TRANSFER PRICING WHEREIN IT IS PROVI DED THAT ALTHOUGH BROADER PRODUCT DIFFERENCES CAN BE ALLOWED IN THE RESALE PRICE METHOD, THE PROPERTY TRANSFERRED IN THE CONTROLLED TRANSACTION MUST STILL BE COMPARED TO THAT BEING TRANSFERRED IN THE UNCONTROLLED TRANSACTION. THE GUIDELINES ALSO LAY DOWN THAT CLOSER COMPARABILITY OF PRODUCTS WILL PRODUCE BETTER RESULT. THE TPO ALSO REFERRED TO AN AUSTRALIAN TAX RULING TR 97/20 WHICH ALSO LAYS DOWN THAT TO ACHIEVE AN ACCEPTABLE LEVEL OF RELIABILITY, GREATER CARE IS NEEDED TO ENSURE THAT THE INDUSTRY SEGMEN T OR GROUP OF SEGMENTS BEING COMPARED ARE SUFFICIENTLY SIMILAR, ESPECIALLY IN RELATION TO FUNCTIONS PERFORMED AND LEVELS OF PROFITABILITY. 34. THE ASSESSEE JUSTIFIED ITS ACTION IN CHOOSING COMPARABLE COMPANIES FROM AUTO ANCILLARY AND OTHER INDU STRIES FOR THE REASON THAT THOSE COMPANIES ALSO SUPPLY COMPONENTS/SEMI - FINISHED GOODS TO ORIGINAL EQUIPMENT MANUFACTURERS (OEMS) AND WAS THEREFORE AKIN TO CONTRACT MANUFACTURING. THOSE COMPANIES ALSO DID NOT PERFORM FUNCTIONS LIKE MARKETING AND ADVERTISEM ENT. THE TPO ON THE ABOVE STAND OF THE ASSESSEE REFERRED TO PARA 1.20 OF IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 13 OF 39 OECD GUIDELINES WHEREIN IT HAS BEEN LAID DOWN THAT COMPARABILITY SHOULD BE BASED ON FUNCTIONS PERFORMED AND NOT ON THE BASIS OF FUNCTIONS NOT PERFORMED. THE TPO ALSO REFERRED TO THE ADVERTISING AND MARKETING FUNCTIONS WHICH WERE NOT BEING PERFORMED BY THE ASSESSEE AS WELL AS THE COMPARABLE COMPANIES IDENTIFIED BY THE ASSESSEE AS HAVING NO RELEVANCE BECAUSE OF THE GROSS MARK UP ON COST WHICH IS THE PLI ADOPTED BY THE ASSESSEE AND THER EFORE FOR COMPARABILITY AT THE LEVEL OF GROSS MARK UP ON COST OF THE PRODUCTS SOLD, THOSE EXPENSES WERE IMMATERIAL. 35. ONE OF THE OBJECTION OF THE ASSESSEE BEFORE THE TPO WAS THAT THE COMPARABLE CHOSEN BY THE TPO HAD LOW EXPORT TURNOVER. O N THE ABOVE OBJECTION OF THE ASSESSEE THE TPO HAS OBSERVED THAT TWO OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO HAD EXPORT TURNOVER. 36. THEREAFTER THE TPO CHOSE COMPARABLE COMPANIES IN THE MEDICAL EQUIPMENT COMPONENTS MANUFACTURING SECTOR. THE FOLLOWING FOUR COMPARABLES WERE IDENTIFIED BY THE TPO. SL. NAME OF THE COMPARABLE % OF GP OVER NO. COSTS 1. CONTENTIAL SURGICAL SUTURE LTD 74.167 2. POLYMEDICURE LTD. 27.646 3. SOUTH INDIA SURGICAL CO. LTD. 37.833 4. SHRI PACETRONIX LTD. 38.462 A VG. 44.527 OUT OF THIS SHREE PACETRONIX LTD. W AS REJECTED AS PER THE TAXPAYER S REQUEST SINCE IT HAD RELATED PARTY TRANSACTIONS. THE FINAL LIST OF COMPARABLE COMPANIES WAS AS FOLLOWS: SL. NAME OF THE COMPARABLE % OF GP OVER COSTS NO. 1. CONTENTIAL SURGICAL SUTURE LTD 74.167 2. POLYMEDICURE LTD. 27.646 3. SOUTH INDIA SURGICAL CO. LTD. 37.833 AVG. 46.55% THE ADJUSTMENT AND CONSEQUENT ADDITION TO THE ALP WAS MADE BY THE AO. 37. THE CIT(A) CONFIRMED THE REASONING OF THE TPO ON ALL THE ABOVE OBJECTIONS OF THE ASSESSEE. ON THE QUESTION OF PRODUCT COMPARABILITY BEI NG IMPORTANT THE CIT(A) AGREED WITH THE VIEW OF THE TPO. HOWEVER WITH REGARD TO THE OBJECTION OF THE ASSESSEE THAT THE COMPARABLE COMPANIES CHOSEN BY THE TPO DO NOT HAVE EXPORT SALES, THE CIT(A) IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 14 OF 39 FOUND MERIT IN THE ARGUMENT ADVANCED BY THE ASSESSEE. HE FO UND THAT 2 OUT OF THE THREE COMPANIES CHOSEN BY THE TPO VIZ., CENTENIAL SURGICAL SUTURES LTD. AND SOUTH INDIA SURGICAL COMPANY LTD., HAD ONLY 6.79% AND 17.74% EXPORT SALES TO TOTAL SALES. THE CIT(A) FOUND THAT THE TPO SELECTED THESE TWO COMPANIES AS COMPA RABLE BASED ON THE QUANTITATIVE FILTER OF EXPORT EARNINGS WITHOUT PROVIDING ANY MINIMUM THRESHOLD LEVEL OF SUCH EARNINGS. THE CIT(A) ALSO FOUND THAT THE ASSESSEE WAS A 100% EOU AND ANY COMPARISON OF ITS GROSS MARGINS WITH COMPANIES HAVING AN INSIGNIFICANT PROPORTION OF EXPORT SALES IS NOT LIKELY TO YIELD MEANINGFUL RESULTS. HE ALSO FOUND THAT THE TPO HAS CONSISTENTLY ADOPTED THE QUANTITATIVE FILTER OF EXPORT REVENUE TO OPERATING REVENUE BEING GREATER THAN 25% IN ACCORDANCE WITH THE COMPARABILITY CRITERIA LAID DOWN IN RULE 10B(2)(D). HE WAS OF THE VIEW THAT DOMESTIC COMPANIES NORMALLY CANNOT BE TREATED AS COMPARABLE TO THOSE OPERATING IN THE OVERSEAS MARKETS BECAUSE OF THE DIFFERENCES IN GEOGRAPHIC LOCATIONS, CONDITIONS PREVAILING IN THE DOMESTIC AND EXPOR T MARKETS, SIZE OF MARKETS, COST OF LABOUR AND CAPITAL, LEVEL OF COMPETITION AND OVERALL ECONOMIC DEVELOPMENT. THE CIT(A) THEREFORE FELT THAT THE TPO SHOULD BE DIRECTED TO APPLY THE FILTER OF EXPORTS REVENUES TO OPERATING REVENUES BEING MORE THAN 25% FILT ER AND RE - COMPUTE ALP. THE CIT(A) HOWEVER GAVE A RIDER TO HIS OWN DIRECTION AS ABOVE BY ADDING THAT IF THE TPO CAN DEMONSTRATE THAT THERE WOULD BE NO DIFFERENCE IN PRICING AS WELL AS MARGINS BETWEEN THE DOMESTIC AND EXPORT SECTORS OF THE INDUSTRY THEN HE CAN IGNORE THIS FILTER. 38. THE FIRST ISSUE THAT NEEDS TO BE ADDRESSED IS WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT TNMM SHOULD BE ADOPTED AS THE MAM INSTEAD OF CPM. ON THE ABOVE ISSUE, THE REVENUE AUTHORITIES PROCEEDED ON THE BASIS THAT ONCE THE ASS ESSEE HAS CHOSEN A PARTICULAR METHOD AS MAM THEN HE CANNOT GO BACK ON IT. THE REVENUE AUTHORITIES FURTHER RELIED ON A RULING OF THE PUNE BENCH OF ITAT IN THE CASE OF MSS INDIA (P) LTD. (SUPRA) WHEREIN IT WAS HELD THAT PROFIT METHODS ARE PRESSED INTO SERVI CE ONLY WHEN THE TRADITIONAL METHOD WHICH INCLUDES CPM CANNOT BE REASONABLY APPLIED. ONCE THE STANDARD METHOD IS APPLIED IT CANNOT BE DISCARDED IN PREFERENCE OVER TRANSACTIONAL PROFIT METHOD UNLESS THE REVENUE AUTHORITIES ARE ABLE TO DEMONSTRATE THE FALLA CIES IN APPLICATION OF STANDARD METHOD. 39. THIS REASONING CANNOT BE ACCEPTED. THERE CANNOT BE ANY ESTOPPEL IN TAXATION MATTERS. IF THE ASSESSEE CAN SHOW THAT THE STAND HE ORIGINALLY TOOK WAS NOT SUSTAINABLE IN LAW AND SEEKS TO TAKE A DIFFER ENT STAND EITHER IN THE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 15 OF 39 COURSE OF PROCEEDINGS BEFORE THE ASSESSING OFFICER OR APPELLATE AUTHORITIES, THE CLAIM OF THE ASSESSEE HAS TO BE TESTED ON THE BASIS OF THE APPLICABLE PROVISIONS OF LAW. IT CANNOT BE REJECTED SOLELY ON THE BASIS THAT IT WAS CONTRAR Y TO THE STAND WHICH THE ASSESSEE HAD TAKEN ORIGINALLY. AT THE SAME TIME, IT DOES ALSO MEAN THAT THE ASSESSEE COULD BE ALLOWED FREE LICENSE TO VARY THE FUNCTIONAL ANALYSIS AND THE METHOD ADOPTED AT ANY TIME DURING THE APPELLATE PROCEEDINGS. TH E ABOVE PROPOSITION FINDS SUPPORT IN THE DECISION OF THE ITAT, PUNE, IN THE CASE OF ACIT VS MSS INDIA (SUPRA) REPORTED IN 009 - TII - 67 - ITAT - PUNE - TECHNICAL SERVICES DATED 29.5.2009 IS RELEVANT. IN THIS CASE, THE ITAT HAD OBSERVED THAT A METHOD CHOSEN CANNOT BE DISCARDED UNLESS THERE ARE COMPELLING REASONS FOR THE SAME. WHILE THIS RULING HAS BEEN GIVEN IN THE CONTEXT OF THE TPO CHANGING THE METHOD DURING THE TP AUDIT, IT WOULD, IN ALL FAIRNESS AND EQUITY, BE EQUALLY APPLICABLE TO THE ASSESSEE AS WELL. THE RULING OF THE PUNE, ITAT IN THE CASE OF MSS INDIA PVT. LTD. (SUPRA) AT PARA 22 OF THE ORDER IS AS UNDER : THE CONSIDERATION AS TO WHICH METHOD WILL BE MORE BENEFICIAL TO THE REVENUE AUTHORITIES IS CERTAINLY NOT GERMANE TO THE SELECTION OF MOST APPROPRIATE METHOD. WHILE THERE IS NO PARTICULAR ORDER OR PRIORITY OF METHODS WHICH THE ASSESSEE MUST FOLLOW, AND NO METHOD CAN INVARIABLY BE CONSIDERED TO BE MORE RELIABLE THAN OTHERS, ON A CONCEPTUAL NOTE, TRANSACTIONAL PROFIT METHODS (I.E. TRAN SACTIONAL NET MARGIN METHOD AND PROFIT SPLIT METHOD) ARE TREATED AS METHODS OF LAST RESORT WHICH ARE PRESSED INTO SERVICE ONLY WHEN THE STANDARD METHODS, WHICH ARE ALSO TERMED AS TRADITIONAL METHODS , (I.E. COMPARABLE UNCONTROLLED PRICE METHOD, RESALE PRI CE METHOD AND COST PLUS METHOD) CANNOT BE REASONABLY APPLIED. THE OECD GUIDELINES ALSO RECOGNIZE THIS FACT AND STATE THAT TRANSACTIONAL PROFIT METHODS MIGHT BE USED TO APPROXIMATE ARM S LENGTH CONDITIONS WHEN TRADITIONAL METHODS CANNOT BE RELIED / APPLIE D ALONE OR EXCEPTIONALLY CANNOT BE APPLIED AT ALL . THE TRANSACTION PROFIT METHODS SHOULD BE APPLIED ONLY WHEN STANDARD OR TRADITIONAL METHODS ARE INCAPABLE OF BEING PROPERLY APPLIED IN THE FACTS OF A CASE. WHILE TRADITIONAL METHODS SEEK TO COMPUTE THE PR ICES AT IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 16 OF 39 WHICH INTERNATIONAL TRANSACTIONS WOULD NORMALLY BE ENTERED INTO BY THE ASSOCIATED ENTERPRISE, BUT FOR THEIR INTERDEPENDENCE AND RELATIONSHIP, TRANSACTIONAL PROFIT METHODS SEEK TO COMPUTE THE PROFITS THAT THE TESTED PARTY WOULD NORMALLY EARN ON SUCH TRANSACTIONS WITH UNRELATED PARTIES. IT IS ONLY AXIOMATIC THAT THE PROFITS EARNED BY AN ENTERPRISE ARE DEPENDENT ON SEVERAL FACTORS, AND NOT ONLY ON THE PRICES AT WHICH TRANSACTIONS HAVE BEEN ENTERED INTO WITH THE ASSOCIATED ENTERPRISES. THE PROFIT BAS ED RESULTS, THUS, ADMIT POSSIBILITY OF VITIATION OF RESULTS BY A NUMBER OF FACTORS, WHICH ARE NOT RELEVANT TO THE DETERMINATION OF PRICES AT WHICH INTERNATIONAL TRANSACTIONS ARE ENTERED INTO BY THE ASSOCIATED ENTERPRISES. THESE METHODS, WHICH ARE A STEP R EMOVED FROM THE METHODS OF COMPUTING THE PRICES AT WHICH INDEPENDENT TRANSACTIONS WOULD NORMALLY TAKE PLACE IN RESPECT OF THE PRODUCT OR SERVICE MUST, THEREFORE, BE PUT TO SERVICE WHEN THE TRADITIONAL METHODS, WHICH SEEK TO COMPUTE PRICES IN INDEPENDENT SI TUATIONS, FAIL OR ARE INCAPABLE OF BEING IMPLEMENTED, AS THERE ARE A LARGE NUMBER OF SITUATIONS IN WHICH, FOR A VARIETY OF REASONS, TRADITIONAL METHODS ARE SIMPLY UNWORKABLE. THE INPUTS NECESSARY FOR APPLYING THE TRADITIONAL METHODS ARE NOT ALWAYS AVAILAB LE AND THAT IS THE REASON THAT DESPITE BETTER RESULTS PRODUCED BY THESE METHODS, THESE METHODS ARE NOT AS MUCH PUT TO USE. HOWEVER, WHENEVER NECESSARY INPUTS FOR APPLYING ONE OF THESE METHODS ARE AVAILABLE AND THERE IS NO DISPUTE ABOUT COMPARABILITY OF TH OSE INPUTS, THERE IS NO GOOD REASON TO RESORT TO TRANSACTIONAL PROFIT METHODS. IT WOULD THUS FOLLOW THAT IN A SITUATION IN WHICH THE ASSESSEE HAS FOLLOWED ONE OF THE STANDARD METHODS OF DETERMINING ALP, SUCH A METHOD CANNOT BE DISCARDED IN PREFERENCE OVER TRANSACTIONAL PROFIT METHODS, UNLESS THE REVENUE AUTHORITIES ARE ABLE TO DEMONSTRATE THE FALLACIES IN APPLICATION OF STANDARD METHODS. IN ANY EVENT, ANY PREFERENCE OF ONE METHOD OVER THE OTHER METHOD MUST BE JUSTIFIED BY THE TRANSFER PRICING OFFICER ON T HE BASIS OF COGENT MATERIAL AND SOUND REASONING. (PARA 22). 40. OF COURSE THE FACTS OF THE CASE IN MSS LTD. ARE LITTLE DIFFERENT FROM THAT OF THE FACTS IN THE INSTANT CASE. IN THE CASE OF MSS INDIA, INTERNAL COMPARABILITY ANALYSIS WAS AVAILABLE WHER EAS IT IS ABSENT IN THE CASE OF THE ASSESSEE. FURTHER, IN THAT CASE, THE TPO HAD NOTED THAT CPM CANNOT BE APPLIED AS THE RELEVANT DATA FOR APPLYING THE METHOD IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 17 OF 39 WAS NOT AVAILABLE IN THE PROWESS DATABASE OR CAPITOLINE DATABASE AND THUS RESORTED TO TNMM. IN THE INSTANT CASE, IT IS NOT THE CASE OF EITHER THE ASSESSEE OR REVENUE THAT RELEVANT DATA IS NOT AVAILABLE FOR APPLYING A PARTICULAR METHOD. HENCE IT IS ALL THE MORE NECESSARY TO SELECT THE MAM BASED ON THE PRINCIPLES AND THE RULES ENACTED, RATHER THAN O N OTHER CONSIDERATIONS. THEREFORE THE PRINCIPLES ENUNCIATED IN THE CASE OF MSS LTD. (SUPRA), THAT CHANGINGTHE MAM IS NOT TENABLE UNLESS THERE ARE COGENT REASONING FOR THE SAME IS SQUARELY APPLICABLE TO THIS CASE. 41. A RE FERENCE CAN ALSO BE MADE TO THE PROVISIONS IN THE ACT WHICH DEALS WITH SELECTION OF THE MAM. MOST APPROPRIATE METHOD. SEC.92C AND RULE 10C(1) ARE RELEVANT IN THIS REGARD AND THEY PROVIDE AS FOLLOWS: COMPUTATION OF ARM S LENGTH PRICE. 92C. (1) THE ARM S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE24, NAMELY : (A) COMPARABLE UNCONTROLLED PRICE METHOD; (B) RESALE PRICE METHOD; (C) COST PLUS METHOD; (D) PROFIT SPLIT METHOD; (E) TRANSACTIONAL NET MARGIN METHOD; ( F) SUCH OTHER METHOD AS MAY BE PRESCRIBED24 BY THE BOARD. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB - SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARM S LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED. RULE 10C. (1) FOR THE PURPOSES OF SU B - SECTION (1) OF SECTION 92C, THE MOST APPROPRIATE METHOD SHALL BE THE METHOD WHICH IS BEST SUITED TO THE FACTS AND CIRCUMSTANCES OF EACH PARTICULAR INTERNATIONAL TRANSACTION, AND WHICH PROVIDES THE MOST RELIABLE MEASURE OF AN ARM S LENGTH PRICE IN RELATIO N TO THE INTERNATIONAL TRANSACTION. (2) IN SELECTING THE MOST APPROPRIATE METHOD AS SPECIFIED IN SUB - RULE (1), THE FOLLOWING FACTORS SHALL BE TAKEN INTO ACCOUNT, NAMELY: IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 18 OF 39 (A) THE NATURE AND CLASS OF THE INTERNATIONAL TRANSACTION; (B) THE CLASS OR CLASSE S OF ASSOCIATED ENTERPRISES ENTERING INTO THE TRANSACTION AND THE FUNCTIONS PERFORMED BY THEM TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND RISKS ASSUMED BY SUCH ENTERPRISES; (C) THE AVAILABILITY, COVERAGE AND RELIABILITY OF DATA NECESSARY FOR APPLICATION OF THE METHOD; (D) THE DEGREE OF COMPARABILITY EXISTING BETWEEN THE INTERNATIONAL TRANSACTION AND THE UNCONTROLLED TRANSACTION AND BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS; (E) THE EXTENT TO WHICH RELIABLE AND ACCURATE ADJUSTM ENTS CAN BE MADE TO ACCOUNT FOR DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTION OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS; (F) THE NATURE, EXTENT AND RELIABILITY OF ASSUMPTIONS REQUIR ED TO BE MADE IN APPLICATION OF A METHOD. 42. IN THIS REGARD, IT IS SEEN THAT IN THE TP STUDY SUBMITTED, THE ASSESSEE HAS ITSELF ADOPTED. THE COST PLUS METHOD ( CPM ) AS THE MOST APPROPRIATE METHOD ( MAM ). WHILE DOING SO, THE APPELLANT HAS OBSERVED I N THE TP STUDY, AT PAGE 22, AS UNDER : COST PLUS METHOD THE COST PLUS METHOD ( CPLM ) EVALUATES THE ARM S LENGTH CHARACTER OF A CONTROLLED TRANSACTION BY REFERENCING THE GROSS PROFIT MARK UP REALIZED IN COMPARABLE UNCONTROLLED TRANSACTIONS. THE ARM S LENGTH PRICE FOR THE CONTROLLED TRANSFER IS THE CONTROLLED TAXPAYER S COST OF PRODUCING THE PROPERTY INVOLVED IN THE TRANSACTION, PLUS AN AMOUNT EQUAL TO THOSE COSTS MULTIPLIED BY THE APPROPRIATE PROFIT MARK UP. ONE ORDINARILY USES THE COST PLUS MET HOD TO DETERMINE ARM S LENGTH PRICING FOR MANUFACTURING, ASSEMBLY, OR OTHER ACTIVITIES RELATING TO THE PRODUCTION OF GOODS SOLD TO RELATED PARTIES. AS WITH THE RESALE PRICE METHOD, COMPARABILITY UNDER THE COST PLUS METHOD IS PARTICULARLY DEPENDENT UPON TH E SIMILARITY OF FUNCTIONS, RISKS, AND CONTRACTUAL TERMS. AGAIN, CLOSE PHYSICAL SIMILARITY OF THE PRODUCTS IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 19 OF 39 INVOLVED IN THE CONTROLLED AND UNCONTROLLED TRANSACTIONS IS NOT ORDINARILY NECESSARY TO ESTABLISH THE COMPARABILITY OF THE MANUFACTURERS GROSS PROFI T MARK - UPS, ALTHOUGH SUBSTANTIAL DIFFERENCES IN THE PRODUCTS MAY INDICATE SIGNIFICANT FUNCTIONAL DIFFERENCES. SPECIFIC FACTORS THAT MAY BE RELEVANT TO THIS METHOD INCLUDE : THE COMPLEXITY OF THE MANUFACTURING OR ASSEMBLY; MANUFACTURING, PRODUCTION, PROCE SS ENGINEERING, PROCUREMENT, PURCHASING, AND INVENTORY CONTROL ACTIVITIES; TEST FUNCTIONS; SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES; FOREIGN CURRENCY RISKS; AND CONTRACTUAL TERMS (THE SCOPE AND TERMS OF WARRANTIES PROVIDED, SALES OF PURCHASE VOLUME, C REDIT TERMS, ETC.). APPLICABILITY TO CONTACT MANUFACTURING SERVICES IN THE CASE OF THE ABOVE REFERRED SERVICES PROVIDED BY GE BE, IT HAS A LONG TERM CONTRACTUAL OBLIGATION TO PROVIDE SERVICES TO GEMS GLOBAL AND ITS AFFILIATES. AS THE SAID SERVICES ARE P ROVIDED PREDOMINANTLY TO RELATED PARTIES, APPLICATION OF CPLM WOULD BE APPROPRIATE IN THIS CASE. FURTHER, BASED UPON THE SIMILARITY OF FUNCTIONS, RISKS, AND CONTRACTUAL TERMS, THE CPLM WOULD BE SUITABLE IN ARRIVING AT THE ARM S LENGTH PRICE. BASED UPON T HE ABOVE, IT WOULD BE RELEVANT TO NOTE THAT AN EXTERNAL COMPARABILITY ANALYSIS HAS BEEN UNDERTAKEN TO SUBSTANTIATE THE ARM S LENGTH PRICE. ALSO, IN THE TP STUDY, THE APPELLANT HAS SPECIFICALLY REJECTED TNMM AS THE MAM, BY OBSERVING AS FOLLOWS : APPLICABILITY TO CONTRACT MANUFACTURING SERVICES : TNMM IS GENERALLY CONSIDERED TO BE A RESIDUARY METHOD AND IS RELIED UPON WHEN NO DIRECT COMPARABLES ARE AVAILABLE. IN THE INSTANT CASE, DUE TO AVAILABILITY OF COMPARABLES, CPLM C OULD BE CONSIDERED AS THE MOST APPROPRIATE METHOD IN DETERMINING ARM S LENGTH PRICE WITH RESPECT TO CONTRACT MANUFACTURING SERVICES. ACCORDINGLY TNMM IS NOT CONSIDERED AS MOST APPROPRIATE METHOD. 43. THE UN PRACTICAL TRANSFER PRICING MANUAL FOR DEVELO PING COUNTRIES, 2012 IN PARA 5.3.6 LAYS DOWN THE FOLLOWING CRITERIA FOR CHOOSING MAM. 5.3.6. SELECTION OF TRANSFER PRICING METHOD 5.3.6.1. THE MOST APPROPRIATE TRANSFER PRICING METHOD IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 20 OF 39 WILL BE SELECTED TAKING INTO ACCOUNT THE STRENGTHS AND WEAKNESS ES OF THE METHOD, THE APPROPRIATENESS OF THE METHOD IN THE LIGHT OF THE NATURE OF THE CONTROLLED TRANSACTION (BASED UPON A FUNCTIONAL ANALYSIS), THE AVAILABILITY OF RELIABLE INFORMATION (ESPECIALLY ON UNCONTROLLED COMPARABLES) AND THE DEGREE OF COMPARABILI TY BETWEEN THE CONTROLLED AND THE UNCONTROLLED TRANSACTIONS(INCLUDING RELIABILITY OF COMPARABILITY ADJUSTMENTS NEEDED). 5.3.6.2.ONCE THE TAXPAYER HAS IDENTIFIED THE TRANSFER PRICING METHODS THAT ARE POTENTIALLY APPLICABLE TO THE CONTROLLED TRANSACTION, AP PLICATION OF THE MOST APPROPRIATE METHOD RULE INVOLVES A CAREFUL BALANCE IN WHICH THE FOLLOWING FACTORS MAY BE TAKEN INTO ACCOUNT TO ASSESS THE RELATIVE ACCURACY OF THE IDENTIFIED METHODS: I. THE EXTENT TO WHICH THE COMPARABILITY FACTORS (CHARACTERISTICS OF THE PROPERTY OR SERVICES, FUNCTIONAL ANALYSIS, CONTRACTUAL TERMS, ECONOMIC CIRCUMSTANCES AND BUSINESS STRATEGIES) OF UNCONTROLLED TRANSACTIONS OR ENTITIES ARE SIMILAR TO THE CONTROLLED TRANSACTIONS OR ENTITIES, GIVEN THE TYPE OF COMPARABILITY THAT IS REQUI RED UNDER EACH PRICING METHOD; II. THE AVAILABILITY AND RELIABILITY OF FINANCIAL AND OTHER INFORMATION THAT IS KNOWN ABOUT THE COMPARABLE; III. RELIABILITY AND ACCURACY OF THE COMPARABILITY ADJUSTMENTS; AND IV. RELIABILITY OF PRESUMPTIONS AS WELL AS DEFICIENCIES IN DATA AND PRESUMPTIONS. 44. THE OECD GUIDELINES ON TRANSFER PRICING IN PARA 2.2 ALSO LAYS DOWN SIMILAR APPROACH TO BE ADOPTED FOR CHOOSING MAM. IT LAYS DOWN AS FOLLOWS: 2.2 THE SELECTION OF A TRANSFER PRICING METHOD ALWAYS AIMS AT FINDING THE MOST APPROPRIATE METHOD FOR A PARTICULAR CASE. FOR THIS PURPOSE, THE SELECTION PROCESS SHOULD TAKE ACCOUNT OF THE RESPECTIVE STRENGTHS AND WEAKNESSES OF THE OECD RECOGNIZED METHODS; THE APPROPRIATENESS OF THE METHOD CONSIDERED IN VIEW OF THE NATURE OF THE CONTROLLED TRANSACTION, DETERMINED IN PARTICULAR THROUGH A FUNCTIONAL ANALYSIS; THE AVAILABILITY OF RELIABLE INFORMATION (IN PARTICULAR UNCONTROLLED COMPARABLE) NEEDED TO APPLY THE SELECTED METHOD AND/OR OTHER METHODS; AND THE DEGREE O F COMPARABILITY BETWEEN CONTROLLED AND UNCONTROLLED IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 21 OF 39 TRANSACTIONS, INCLUDING THE RELIABILITY OF COMPARABILITY ADJUSTMENTS THAT MAY BE NEEDED TO ELIMINATE MATERIAL DIFFERENCES BETWEEN THEM. NO ONE METHOD IS SUITABLE IN EVERY POSSIBLE SITUATION, NOR IS IT NEC ESSARY TO PROVE THAT A PARTICULAR METHOD IS NOT SUITABLE UNDER THE CIRCUMSTANCES. (EMPHASIS SUPPLIED) IN THIS REGARD, IT MAY BE NECESSARY TO HIGHLIGHT HERE THAT THERE ARE CERTAIN KEY DIFFERENCES BETWEEN OECD GUIDELINES AND INDIAN REGULATIONS IN RESPECT OF THE TRANSFER PRICING METHODS. ONE OF THE DIFFERENCES IS THAT WHILE OECD GUIDELINES, IN EXCEPTIONAL CIRCUMSTANCES, PERMIT THE USE OF MORE THAN ONE TRANSFER PRICING METHOD TO DEMONSTRATE THE ARMS LENGTH NATURE OF RELATED PARTY TRANSACTIONS, THE I NDIAN TP RULES ADVOCATE THE USE OF ONLY ONE TP METHOD THE MOST APPROPRIATE METHOD . HENCE THE ASSESSEE'S CONTENTION OF USING TNMM AS AN ALTERNATE APPROACH OR METHOD IS NOT IN TUNE WITH THE INDIAN TP RULES, EVEN THOUGH IT MAY BE PERMISSIBLE AS PER OECD GUIDELINES. AS PER THE INDIAN TP RULES, THE ASSESSEE IS TO SELECT ONE METHOD AS THE MAM. THE INDIAN TP RULES DOES NOT GIVE ANY SCOPE OR LEVERAGE TO USE DIFFERENT TP METHODS. 45. THE U.N. PRACTICAL TRANSFER PRICING MANUAL FOR DEVELOPING COUNTRIES, 20 12 IN PARA 6.1.3.3 LAYS DOWN AS FOLLOWS: 6.1.3.3. ONCE A METHOD IS CHOSEN AND APPLIED TAXPAYERS ARE GENERALLY EXPECTED TO APPLY THE METHOD IN A CONSISTENT FASHION. ASSUMING THAT AN APPROPRIATE TRANSFER PRICING METHOD IS BEING APPLIED, A CHANGE IN METHOD IS TYPICALLY REQUIRED ONLY IF THERE ARE ANY CHANGES IN THE FACTS, FUNCTIONALITIES OR AVAILABILITY OF DATA. THE ABOVE GUIDELINES PRESUPPOSES AN APPROPRIATE TRANSFER PRICING METHOD BEING APPLIED. THE ABOVE GUIDELINES EMPHASIZE ON CONSISTENCY BEING FOLLOWED IN APPLYING THE METHOD. IT ALSO PROVIDES THAT THE METHOD CAN BE CHANGED, ONLY IF THERE ARE ANY CHANGES IN THE FACTS, FUNCTIONALITIES OR AVAILABILITY OF DATA. ASSUMING THAT THERE COULD BE SITUATIONS WHERE ON ASSESSEE MAY BE REQUIRED TO CHANGE ITS CHOSEN MAM FOR THE SAME YEAR BETWEEN THE TIME OF HIS TP STUDY AND THE ASSESSMENT / APPELLATE PROCEEDINGS, SUCH A CHANGE CAN HAPPEN ONLY IF THERE ARE ANY CHANGES IN FACTS, FUNCTIONALITIES OR AVAILABILITY OF DATA. IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 22 OF 39 46. IN THE INSTANT CASE, THE ASSESSEE HA S NOT MADE OUT ANY CASE OR ADDUCED ANY EVIDENCE TO DEMONSTRATE THAT THERE HAS BEEN ANY CHANGE IN THE FACTS, FUNCTIONALITIES OR AVAILABILITY OF DATA. NOR IS IT THE ASSESSEE'S CASE THAT ANY OF THESE HAVE BEEN TAKEN WRONGLY IN THE TP STUDY THAT WARRANT A CHA NGE OF METHOD HAS BECOME NECESSARY. THE ONLY REASON FOR SEEKING CHANGE OF METHOD IS THAT THE COMPARABLES CHOSEN BY THE TPO ARE DIFFERENT FROM THAT CHOSEN BY THE ASSESSEE AND THAT THE FUNCTIONAL PROFILE OF THE COMPARABLES ARE DIFFERENT. WHILE THE ASPECT O F FUNCTIONAL DIFFERENCE HAS BEEN DISCUSSED IN THE LATER PART OF THE ORDER, WE CAN CONCLUDE HERE THAT THE CHANGE OF METHOD SOUGHT BY THE ASSESSEE IS NOT IN TUNE WITH THE INDIAN TP RULES, WHICH FINDS SUPPORT IN THE UN TP MANUAL. 47. THE NEXT ASPECT TO BE SEEN IS AS TO WHETHER IN THE CASE OF A CONTRACT MANUFACTURER MAM IS COST PLUS METHOD. THE UN PRACTICAL TRANSFER PRICING MANUAL FOR DEVELOPING COUNTRIES, 2012, IN PARA 6.2.20.2 AND 6.1.3.3 LAYS DOWN SELECTION OF MAM AND THE RELEVANT GUIDELINES ARE AS UNDE R: 6.2.20 WHEN TO USE THE COST PLUS METHOD 6.2.20.1. THE COST PLUS METHOD IS TYPICALLY APPLIED IN CASES INVOLVING THE INTERCOMPANY SALE OF TANGIBLE PROPERTY WHERE THE RELATED PARTY MANUFACTURER PERFORMS LIMITED MANUFACTURING FUNCTIONS OR IN THE CAS E OF THE INTRA GROUP PROVISION OF SERVICES. THE METHOD USUALLY ASSUMES THE INCURRENCE OF LOW RISKS, BECAUSE THE LEVEL OF THE COSTS WILL THEN BETTER REFLECT THE VALUE BEING ADDED AND HENCE THE MARKET PRICE. NOTE THAT IF THE CONTRACT IS BASED ON ACTUAL COST S, THE CONTRACTUAL TERMS MAY INCLUDE INCENTIVES OR PENALTIES DEPENDING ON THE PERFORMANCE OF THE CONTRACT MANUFACTURER. 6.2.20.2. THE COST PLUS METHOD IS ALSO GENERALLY USED IN TRANSACTIONS INVOLVING A CONTRACT MANUFACTURER, A TOLL MANUFACTURER OR A LOW RISK ASSEMBLER WHICH DOES NOT OWN PRODUCT INTANGIBLES AND INCURS LITTLE RISKS. THE RELATED CUSTOMER INVOLVED IN THE CONTROLLED TRANSACTION WILL GENERALLY BE MUCH MORE COMPLEX THAN THE CONTRACT MANUFACTURER IN TERMS OF FUNCTIONS PERFORMED (E.G. CONDUCTING M ARKETING AND SELLING FUNCTIONS, COORDINATION OF PRODUCTION AND SALES, GIVING INSTRUCTIONS TO THE CONTRACT MANUFACTURER ABOUT THE QUANTITY AND QUALITY OF PRODUCTION, AND PURCHASING RAW MATERIALS IN SOME CASES), RISKS INCURRED (E.G. MARKET RISK, CREDIT RISK AND INVENTORY IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 23 OF 39 RISK) AND ASSETS OWNED (PRODUCT INTANGIBLES). THE CONTRACT MANUFACTURER IS THUS THE LESS COMPLEX AND AS SUCH SHOULD BE THE TESTED PARTY IN THE TRANSFER PRICING ANALYSIS. 6.2.20.3 THE COST PLUS METHOD IS USUALLY NOT A SUITABLE METHOD TO USE IN TRANSACTIONS INVOLVING A FULLY - FLEDGED MANUFACTURER WHICH OWNS VALUABLE PRODUCT INTANGIBLES AS IT WILL BE VERY DIFFICULT TO LOCATE INDEPENDENT MANUFACTURERS OWNING COMPARABLE PRODUCT INTANGIBLES. THAT IS, IT WILL BE HARD TO ESTABLISH A PROFIT MARK - UP T HAT IS REQUIRED TO REMUNERATE THE FULLY - FLEDGED MANUFACTURER FOR OWNING THE PRODUCT INTANGIBLES. IN A TYPICAL TRANSACTION STRUCTURE INVOLVING A FULLYFLEDGED MANUFACTURER AND RELATED SALES COMPANIES (E.G. COMMISSIONAIRES), THE SALES COMPANIES WILL NORMALL Y BE THE LEAST COMPLEX ENTITIES INVOLVED IN THE CONTROLLED TRANSACTIONS AND WILL THEREFORE BE THE TESTED PARTY IN THE ANALYSIS. THE RESALE PRICE METHOD IS TYPICALLY MORE EASILY APPLIED IN SUCH CASES. 6.2.21 CASE EXAMPLES OF COST PLUS METHOD: 6.2.21.1. EXA MPLE 1 (I) LCO, A DOMESTIC MANUFACTURER OF COMPUTER COMPONENTS, SELLS ITS PRODUCTS TO FS, ITS FOREIGN DISTRIBUTOR. UT1, UT2, AND UT3 ARE DOMESTIC COMPUTER COMPONENT MANUFACTURERS THAT SELL TO UNCONTROLLED FOREIGN PURCHASERS; (II) RELATIVELY COMPLETE DATA IS AVAILABLE REGARDING THE FUNCTIONS PERFORMED AND RISKS BORNE BY UT1, UT2, AND UT3, AND THE CONTRACTUAL TERMS IN THE UNCONTROLLED TRANSACTIONS. IN ADDITION, DATA IS AVAILABLE TO ENSURE ACCOUNTING CONSISTENCY BETWEEN ALL THE UNCONTROLLED MANUFACTURERS AND LCO. AS THE AVAILABLE DATA IS SUFFICIENTLY COMPLETE TO CONCLUDE THAT IT IS LIKELY THAT ALL MATERIAL DIFFERENCES BETWEEN THE CONTROLLED AND UNCONTROLLED TRANSACTIONS HAVE BEEN IDENTIFIED, THE EFFECT OF THE DIFFERENCES IS DEFINITE AND REASONABLY ASCERTAINAB LE, AND RELIABLE ADJUSTMENTS ARE MADE TO ACCOUNT FOR THE DIFFERENCES AN ARM'S LENGTH RANGE CAN BE ESTABLISHED. 6.2.21.2. EXAMPLE 2 THE FACTS ARE THE SAME AS IN EXAMPLE 1 EXCEPT THAT LCO ACCOUNTS FOR SUPERVISORY, GENERAL, AND ADMINISTRATIVE COSTS AS OPERA TING EXPENSES, WHICH ARE NOT ALLOCATED TO ITS SALES TO FS. THE GROSS PROFIT MARK - UPS OF UT1, UT2, AND UT3, HOWEVER, REFLECT SUPERVISORY, GENERAL, AND ADMINISTRATIVE EXPENSES IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 24 OF 39 BECAUSE THEY ARE ACCOUNTED FOR AS COSTS OF GOODS SOLD. ACCORDINGLY, THE GROSS PRO FIT MARK _UPS OF UT1, UT2, AND UT3 MUST BE ADJUSTED TO PROVIDE ACCOUNTING CONSISTENCY. IF DATA IS NOT SUFFICIENT TO DETERMINE WHETHER SUCH ACCOUNTING DIFFERENCES EXIST BETWEEN THE CONTROLLED AND UNCONTROLLED TRANSACTIONS THE RELIABILITY OF THE RESULTS WIL L DECREASE. 6.2.21.3. EXAMPLE 3 THE FACTS ARE THE SAME AS IN EXAMPLE 1 ABOVE, EXCEPT THAT UNDER ITS CONTRACT WITH FS, LCO USES MATERIALS CONSIGNED BY FS.UT1,UT2, ANDUT3, ON THE OTHER HAND, PURCHASE THEIR OWN MATERIALS, AND THEIR GROSS PROFIT MARK _U PS ARE DETERMINED BY INCLUDING THE COSTS OF THE MATERIALS. THE FACT THAT LCO DOES NOT CARRY AN INVENTORY RISK BY PURCHASING ITS OWN MATERIALS WHILE THE UNCONTROLLED PRODUCERS CARRY INVENTORY IS A SIGNIFICANT DIFFERENCE THAT MAY REQUIRE AN ADJUSTMENT IF THE DIFFERENCE HAS A MATERIAL EFFECT ON THE GROSS PROFIT MARK _UPS OF THE UNCONTROLLED PRODUCERS. INABILITY TO REASONABLY ASCERTAIN THE EFFECT OF THE DIFFERENCE ON THE GROSS PROFIT MARK - UPS WILL AFFECT THE RELIABILITY OF THE RESULTS OF UT1, UT2 AND UT3. 6.2.21.4. EXAMPLE 4 (I) FS, A FOREIGN CORPORATION, PRODUCES APPAREL FOR PCO, ITS PARENT CORPORATION. FS PURCHASES ITS MATERIALS FROM UNRELATED SUPPLIERS AND PRODUCES THE APPAREL ACCORDING TO DESIGNS PROVIDED BY PCO. THE LOCAL TAXING AUTHORITY IDENTIFIE S 10 UNCONTROLLED FOREIGN APPAREL PRODUCERS THAT OPERATE IN THE SAME GEOGRAPHIC MARKET AND ARE SIMILAR IN MANY RESPECTS TO FS; (II) RELATIVELY COMPLETE DATA IS AVAILABLE REGARDING THE FUNCTIONS PERFORMED AND RISKS BORNE BY THE UNCONTROLLED PRODUCERS. IN ADDITION, DATA IS SUFFICIENTLY DETAILED TO PERMIT ADJUSTMENTS FOR DIFFERENCES IN ACCOUNTING PRACTICES. HOWEVER, SUFFICIENT DATA IS NOT AVAILABLE TO DETERMINE WHETHER IT IS LIKELY THAT ALL MATERIAL DIFFERENCES IN CONTRACTUAL TERMS HAVE BEEN IDENTIFIED. FOR EXAMPLE, IT IS NOT POSSIBLE TO DETERMINE WHICH PARTIES IN THE UNCONTROLLED TRANSACTIONS BEAR CURRENCY RISKS. AS THE DIFFERENCES IN THESE CONTRACTUAL TERMS COULD MATERIALLY AFFECT PRICE OR PROFITS, THE INABILITY TO DETERMINE WHETHER DIFFERENCES EXIST BETWEE N THE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 25 OF 39 CONTROLLED AND UNCONTROLLED TRANSACTIONS WILL DIMINISH THE RELIABILITY OF THESE RESULTS. THEREFORE, THE RELIABILITY OF THE RESULTS OF THE UNCONTROLLED TRANSACTIONS MUST BE ENHANCED. AS A GENERAL RULE IT CAN BE SAID THAT THE ABOVE GUIDELINES ADVOCA TE USE OF CPM IN THE CASE OF CONTRACT MANUFACTURERS. HOWEVER, THE PROVISIONS OF SEC.92C(2) OF THE ACT READ WITH RULE 10C(1) & (2) MAKE IT CLEAR THAT MAM HAS TO BE DETERMINED ON THE BASIS OF PARAMETERS LAID DOWN THEREIN. ONE CAN THEREFORE CONCLUDE THIS DI SCUSSION BY HOLDING THAT AS A GENERAL RULE CPM WOULD BE THE MAM IN THE CASE OF CONTRACT MANUFACTURERS BUT THAT WOULD BE SUBJECT TO THE SATISFACTION OF THE PARAMETERS LAID DOWN IN RULE 10C(1) & 2 OF THE RULES. 48. IN THIS REGARD, WE WILL EXAMINE THE PARAMETERS LAID DOWN IN RULE 10C(1) AND 2 OF THE RULES, WHICH HAVE BEEN ALREADY QUOTED IN PRE - PARA 41 OF THIS ORDER. RULE 10C(1) STATES THAT THE MAM SHALL BE THE METHOD WHICH IS BEST SUITED TO THE FACTS AND CIRCUMSTANCES OF EACH PARTICULAR SET OF INT ERNATIONAL TRANSACTIONS. AS EXPLAINED IN EARLIER PARAGRAPHS AND FORTIFIED BY THE UN TP MANUAL GUIDELINES, IN CASE OF CONTRACT MANUFACTURERS LIKE THE ASSESSEE, CPM IS THE MAM. RULE 10C(2) ENUMERATES SIX FACTORS THAT SHALL BE TAKEN INTO ACCOUNT IN SELECTIN G THE MAM. OUT OF THESE SIX FACTORS, WHILE THERE IS NO DISPUTE IN FOUR OF THE FACTORS, THE OBJECTION OF THE ASSESSEE NEEDS TO BE ANALYSED IN THE LIGHT OF RULE 10C(2)(D) AND (E). IT IS THE CONTENTION OF THE ASSESSEE THE COMPARABLES CHOSEN BY THE TPO, BEIN G FULL - FLEDGED MANUFACTURERS, THE DEGREE OF COMPARABILITY REQUIRED IS NOT EXISTING BETWEEN THE ASSESSEE'S INTERNATIONAL TRANSACTIONS VIS - - VIS THE TRANSACTIONS OF THE COMPARABLE COMPANIES. THIS OBJECTION HAS BEEN DULY TAKEN NOTE OF BY THE TPO AND HE HAS APPLIED RULE 10C(2)(E) GRANTING ADJUSTMENTS. WHILE THE ASSESSEE MAY WELL CONTEND THAT THE ADJUSTMENTS GRANTED ARE NOT RELIABLE AND ACCURATE, SEEKING A CHANGE OF THE METHOD ITSELF IS NOT WITHIN THE SCOPE AND COVERAGE OF RULE 10C. IN THIS REGARD, I T WOULD BE RELEVANT TO MENTION THAT THE ASSESSEE HAD EARLIER ADOPTED CPM AS THE MAM AND HAD SUGGESTED TNMM ONLY AS AN ALTERNATIVE APPROACH. FOR INSTANCE, IN THE SUBMISSIONS MADE BEFORE THE CIT (APPEALS) BY LETTER DATED 9.2.2009 AT PAGES 115 AND 116 OF THE PAPER BOOK, THE ASSESSEE HAS STATED AS UNDER : COMPARABILITY ANALYSIS CONSIDERING COST PLUS METHOD > THE BASIC PARAMETER ON WHICH THE CPM OPERATES IS FUNCTIONAL SIMILARITY. THE APPELLANT IS A CONTRACT IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 26 OF 39 MANUFACTURER AND ACCORDINGLY THE COMPARAB LES CHOSEN BY THE APPELLANT ARE PERFORM FUNCTIONS AKIN / SIMILAR TO THAT OF A CONTRACT MANUFACTURER. THE APPELLANT SUBMITS THAT THE COMPARABLES ARRIVED AT BY THE APPELLANT ARE PRIMARILY SUPPLIERS OF COMPONENTS / SEMI FINISHED GOODS TO ORIGINAL EQUIPMENT M ANUFACTURERS (OEMS) AND THE FUNCTIONS OF SUCH COMPANIES ARE COMPARABLE OR SIMILAR TO THOSE OF A CONTRACT MANUFACTURER. THE COMPARABLES DETERMINED BY THE COMPANY PRIMARILY PERFORM MANUFACTURING FUNCTIONS AND THE PERFORMANCE OF OTHER FUNCTIONS (E.G. MARKETI NG & ADVERTISEMENT) IS NEGLIGIBLE AND INSIGNIFICANT, MUCH THE SAME AS IS THE CASE WITH THE APPELLANT. THEREFORE, THE PROFIT MARGINS OF THESE COMPANIES ARE PRIMARILY REFLECTIVE OF THE RETURN ON THE MANUFACTURING FUNCTION. > HOWEVER, IT WOULD BE WORTHY TO NOTE THAT THE LD. TPO HAS GIVEN WEIGHTAGE TO PRODUCT SIMILARITY OVER THE FUNCTIONAL SIMILARITY THEREBY CONTRADICTING THE BASIC PREMISE OF APPLICATION OF CPM. BASED ON THIS, THE LD. TPO HAS CHOSEN THE SET OF COMPARABLES WHICH FALL UNDER THE BROAD CATEGORY OF MEDICAL EQUIPMENTS AS CLASSIFIED IN THE PROWESS DATABASE. THE COMPARABLES CHOSEN BY THE LD. TPO ARE ENGAGED IN THE MANUFACTURE OF MEDICAL CONSUMABLES VIZ. DISPOSABLE SYRINGES, DISPOSABLE SUTURES, DISPOSABLE NEEDLES, ETC. ON THE OTHER HAND, THE APPEL LANT IS A CONTRACT MANUFACTURER ENGAGED IN MANUFACTURING TUBES, INSERTS, DETECTORS, TANKS AND OTHER PARTS AND ACCESSORIES FOR MEDICAL DIAGNOSTIC IMAGING EQUIPMENT. SUCH COMPONENTS ARE INCORPORATED BY THE AFFILIATES INTO EQUIPMENT WHICH ARE IN THE NATURE OF CAPITAL GOODS. HENCE, ON THE ANALYSIS OF PRODUCT COMPARABILITY, THE COMPARABLES CHOSEN BY THE LD. TPO ARE NOT COMPARABLE WITH THE PRODUCTS OF GE BE AS THE COMPARISON IS PRIMARILY BETWEEN CONSUMABLES VERSUS EQUIPMENTS. > ACCORDINGLY, COMPARABLES CH OSEN BY THE LD. TPO ALSO DO NOT MANUFACTURE THE SAME OR SIMILAR PRODUCTS AND HENCE WOULD NEED TO BE REJECTED EVEN IF THE PRODUCT COMPARABILITY CRITERION IS CONSIDERED TO BE RELEVANT TO THE APPLICATION OF THE CPM. EVEN OTHERWISE, THE SET OF COMPARABLES CHO SEN BY THE TPO ARE FUNCTIONALLY NOT COMPARABLE, BEING ENGAGED AS THEY ARE IN MARKETING AND DISTRIBUTION FUNCTIONS, WHILE NOT BEING PREDOMINANTLY CONTRACT MANUFACTURERS. IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 27 OF 39 > ASSUMING WITHOUT ADMITTING, THAT EVEN IF THE LD. TPO COMPARABLES ARE TO BE CON SIDERED FOR THE PURPOSES OF COMPARABILITY ANALYSIS BY APPLYING CPM AS APPROPRIATE METHOD, THE APPELLANT SUBMITS AS FOLLOWS : - THAT THERE ARE SIGNIFICANT DIFFERENCES IN THE FUNCTIONS PERFORMED BY THESE COMPARABLES PRIMARILY WITH RESPECT TO THE ADDITIONAL MARKETING AND THE SELLING FUNCTION, VIS - - VIS GE BE WHICH DOES NOT PERFORM ANY MARKETING OR SELLING ACTIVITY; - THIS IS EVIDENT FROM THE SIGNIFICANT MARKETING AND SELLING EXPENSES OF THESE COMPANIES WHICH FURTHER UNDERLINE THE DIFFERENCES IN THE FUNCTIO NS PERFORMED AS AGAINST GE BE WHICH HAS NO MARKETING OR SELLING EXPENSES; - THERE IS A RETURN ON THESE ADDITIONAL FUNCTIONS PERFORMED BY THE LD. TPO COMPARABLES WHICH IS EMBEDDED IN THE SELLING PRICE AND CONSEQUENTLY IN THE GROSS MARGINS OF THESE COMPAN IES; AND - THUS, IN ORDER TO COMPUTE APPROPRIATE GROSS MARK - UP COMPARABLE TO THE GROSS MARK - UP OF GE BE, AN ADJUSTMENT TO THE GROSS MARGINS EARNED BY THESE COMPANIES IS WARRANTED FOR APPLYING THE CPM AS THE APPROPRIATE METHOD. > IT IS NOTEWORTHY T HAT THE ABOVE RATIONALE IS ALSO APPRECIATED BY THE LD. TPO WHO HAS PROCEEDED TO PROVIDE SUCH AN ADJUSTMENT BY ELIMINATING THE SELLING AND MARKETING COST FORM THE SALES AND CONSEQUENTLY ITS IMPACT ON THE GROSS PROFITS. HAVING SAID THIS, THE APPELLANT SUBMI TS THAT THE LD. TPO IS GROSSLY INCORRECT IN PROVIDING AN ADHOC ADJUSTMENT OF 8% OF SALES FOR ELIMINATING THE FUNCTIONAL DIFFERENCES BETWEEN THE COMPARABLES SELECTED BY THE LD. TPO AND GE BE. > WHILE THE APPELLANT ALSO IS IN PRINCIPLE IN AGREEMENT WITH T HE LD. TPOS PHILOSOPHY OF ADJUSTING THE GROSS MARK - UP, HOWEVER, YOUR GOODSELF WOULD APPRECIATE THAT IN ORDER THAT THE ADJUSTMENTS HAVE THE DESIRED EFFECT, THE ACTUAL PROPORTION OF MARKETING EXPENSES TO SALES OUGHT TO BE CONSIDERED FOR EACH COMPARABLE. THI S IS MORE SO NECESSARY BECAUSE THE LEVEL OF THESE EXPENSES AS A PROPORTION OF SALES FOR EACH OF THE LD. TPO COMPARABLE VARIES. > IN THIS REGARD, THE APPELLANT WOULD LIKE TO MENTION THAT CENTENIAL SURGICAL (A COMPARABLE SELECTED BY THE LD. TPO) IS A CASE IN POINT, FOR THE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 28 OF 39 REASON THAT ITS MARKETING EXPENSES AS A PROPORTION OF SALES IS 30% AND THE ADJUSTMENT OF 8% TRIBUNAL SALES GRANTED BY THE LD. TPO WOULD BE GROSSLY INADEQUATE TO ELIMINATE THE EFFECT OF THE MARKETING, DISTRIBUTION AND ADVERTISEMENT FUNCTI ON ON THE GROSS PROFITS. > THEREFORE THE APPELLANT SUBMITS THAT THE FINANCIAL ANALYSIS BY THE LD. TPO TO ARRIVE AT THE APPROPRIATE GROSS MARGIN IS ERRONEOUS, AND THE ADJUSTMENT FOR THE DIFFERENCES IN THE MARKETING AND SELLING FUNCTIONS OUGHT TO BE RECO MPUTED BASED ON THE ACTUAL EXPENSES INCURRED BY THE COMPANIES. FURTHER, IN THE SAME WRITTEN SUBMISSIONS, AT PAGE 117 OF THE PAPER BOOK, IT IS SUBMITTED AS UNDER : ANALYSIS CONSIDERING ALTERNATIVE APPROACH USING TNMM > FURTHER, WITHOUT PREJUDICE TO OUR SUBMISSIONS ABOVE, THE APPELLANT SUBMITS THAT IF ONE WERE TO ARGUE THAT : - THE ADJUSTMENTS MENTIONED ABOVE ARE NOT TO BE CONSIDERED; OR - THAT THE COMPARABLES USED IN THE TP STUDY DO NOT HAVE THE DESIRED DEGREE OF COMPARABILITY FOR APPLYING CPM AS T HE MOST APPROPRIATE METHOD. - THEN ALTERNATIVELY IT WOULD BE APPROPRIATE TO USE THE TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE APPROPRIATE METHOD INSTEAD OF CONSIDERING ADHOC ADJUSTMENTS OR REJECTING THE COMPARABLES USED IN THE TP STUDY. A CAREFUL PERUSAL AND ANALYSIS OF THE ASSESSEE'S SUBMISSIONS BEFORE THE CIT (APPEALS) (SUPRA) CLEARLY PLACES THE ASSESSEE'S STATED POSITION AS ONE THAT ACCEPTS CPM AS THE MAM, PROVIDED CERTAIN ADJUSTMENTS ARE MADE FOR THE DIFFERENCES IN THE MARKETING AND SELLING FUNCTIONS, BASED ON THE ACTUAL EXPENSES INCURRED BY THE COMPANIES. WE, THEREFORE, CLEARLY FIND THAT IT IS BEFORE THE TRIBUNAL THAT THE ASSESSEE HAS CHANGED ITS STAND, STATING THAT TNMM IS THE MAM AND THAT IT WOULD BE ABSURD TO CONSIDER CPM TO BE THE MAM. TNMM WAS BROACHED AS AN ALTERNATIVE APPROACH ONLY DURING THE APPELLATE PROCEEDINGS. AS WE HAVE ALREADY HELD, THE CONCEPT OF ALTERNATE APPROACH OR USE OF MORE THAN ONE METHOD IS NOT RECOGNIZED IN INDIAN TP RULES. THE INDIAN TP RULE S RECOGNIZE USE OF ONLY ONE METHOD THE MOST APPROPRIATE METHOD (MAM). IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 29 OF 39 BASED ON THE DISCUSSIONS IN THE PRE PARAGRAPH OF THIS ORDER, CPM IS THE MAM IN THIS CASE. 49. HAVING SAID SO, ONE SHOULD EMBARK UPON THE STAND TAKEN BY THE ASSESSEE AS TO WHY TNM M IS THE MOST APPROPRIATE METHOD TO BE ADOPTED FOR DETERMINING ALP IN THE CASE OF THE ASSESSEE. THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE HAVE ALREADY BEEN SET OUT IN THE EARLIER PART OF THIS ORDER AND ARE NOT BEING REPEATED. THE ARGUMENTS PROCEE D ON PURELY THEORETICAL BASIS WITHOUT CITING AS TO HOW THE REQUIRED DATA OF DIRECT AND INDIRECT COSTS OF PRODUCTION OF THE PROPERTY IN THE CASE OF THE COMPARABLE COMPANIES CHOSEN BY THE TPO ARE NOT AVAILABLE. NO SPECIFIC INSTANCE AS TO HOW IN THE CASE OF COMPARABLE COMPANIES CHOSEN BY THE TPO, INDIRECT COSTS OF PRODUCTION HAS BEEN TAKEN AT THE NET PROFIT LEVEL. THE OTHER ARGUMENT WAS THAT THE ASSESSEE IS A CONTRACT MANUFACTURER AND THE COMPARABLE COMPANIES SELECTED SHOULD ALSO PERFORM A FUNCTION PERFORMED BY A CONTRACT MANUFACTURER. IF COMPARABLE COMPANIES PERFORM FUNCTIONS BEYOND THAT OF A CONTRACT MANUFACTURER THEN THEY ARE NOT COMPARABLE. THIS ARGUMENT IS AGAIN GENERAL IN NATURE WITHOUT ANY PARTICULARS ON THE THREE COMPARABLE COMPANIES CHOSEN BY THE TPO . 50. ONE OF THE PLEAS RAISED BY THE ASSESSEE WAS THAT FUNCTIONAL SIMILARITY IS TO BE FIRST SEEN BEFORE CHOOSING AN APPROPRIATE METHOD AND THAT THE TPO IN CHOOSING CPM HAS GIVEN WEIGHTAGE TO PRODUCT SIMILARITY RATHER THAN FUNCTIONAL SIMILARIT Y. THE ASSESSEE HAD FURTHER POINTED OUT THAT THE COMPARABLE CHOSEN BY THE TPO WERE MANUFACTURING MEDICAL CONSUMABLES VIZ., DISPOSAL SYRINGES, DISPOSABLE SUTURES, DISPOSABLE NEEDLES ETC., AND THAT THE SAME CANNOT BE COMPARED WITH CONTRACT MANUFACTURING OF TUBES, INSERTS, DETECTORS, TANKS AND OTHER PARTS AND ACCESSORIES FOR MEDICAL DIAGNOSTIC IMAGING EQUIPMENT WHICH THE ASSESSEE MANUFACTURES AND WHICH ARE INCORPORATED BY THE AE INTO EQUIPMENT WHICH ARE CAPITAL GOODS. ON THE ABOVE SUBMISSION, THE LEARNED DR HAS SUBMITTED THAT IT CANNOT BE SAID THAT PRODUCT SIMILARITY HAS NO RELEVANCE. PRODUCT SIMILARITY IS ALSO IMPORTANT. IF THERE IS NO PRODUCT SIMILARITY THEN EVEN THOUGH THERE MAY BE FUNCTIONAL SIMILARITY THEN CPM MAY NOT BE THE RIGHT METHOD. THE CONCLUSI ONS OF THE CIT(A) IN THIS REGARD ARE FOUND TO BE CORRECT IN THE PRESENT CASE. THE TPO IN THE PRESENT CASE HAS GIVEN DUE WEIGHTAGE TO FUNCTIONAL SIMILARITY ALSO. THE ARGUMENT ON BEHALF OF THE ASSESSEE BY PLACING RELIANCE ON PARA 1.41 OF THE OECD GUIDELINE S WHICH PROVIDES THAT COMPARABILITY EVEN WHERE PRODUCTS ARE DIFFERENT CAN BE UNDERTAKEN BUT THE FUNCTIONS UNDERTAKEN SHOULD BE SIMILAR IS NOT APPLICABLE IN THE PRESENT CASE AS THE TPO HAS CONSIDERED BOTH PRODUCT AS IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 30 OF 39 WELL AS FUNCTIONAL SIMILARITY OF COMPARAB LE. THE DIFFERENCE IN FUNCTIONS PERFORMED BETWEEN THE ASSESSEE AND THE COMPARABLE, IF ANY, CALLS ONLY FOR ADJUSTMENTS TO BE MADE, WHICH IN THE PRESENT CASE CAN BE QUANTIFIED. THEREFORE THE CLAIM OF THE ASSESSEE THAT THE COMPARABLE CHOSEN HAS TO BE REJECT ED CANNOT BE ACCEPTED. 51. THE ARGUMENT ON BEHALF OF THE ASSESSEE THAT INDIAN ACCOUNTING STANDARDS DO NOT GIVE CLEAR CUT REQUIREMENT FOR DISCLOSURE OF GROSS PROFITS AND THEREFORE THERE WILL BE DIFFICULTY IN COMPUTATION OF THE COST OF PRODUCTION AND GRO SS PROFIT IS AGAIN AN ARGUMENT IN THE AIR WITHOUT ANY SPECIFIC INSTANCE HAVING BEEN POINTED OUT REFERABLE TO THE THREE COMPARABLE COMPANIES CHOSEN BY THE TPO. IN ANY EVENT SUCH DIFFERENCES AS LAID DOWN IN PARA 2.46 OF THE OECD TP GUIDELINES, WHERE THE AC COUNTING PRACTICES DIFFER IN THE CONTROLLED TRANSACTION AND THE UNCONTROLLED TRANSACTION, APPROPRIATE ADJUSTMENTS SHOULD BE MADE TO THE DATA USED TO ENSURE THAT THE SAME TYPE OF COSTS ARE USED IN EACH CASE TO ENSURE CONSISTENCY. 52. THE ARGUMENT ON BEHALF OF THE ASSESSEE THAT A CONTRACT MANUFACTURER AND DOES NOT PERFORM FUNCTIONS LIKE MARKETING, SELLING AND DISTRIBUTION. THE EXPENSES ON MARKETING, SELLING AND DISTRIBUTION ARE EXPENSES WHICH WILL BE RELEVANT ONLY WHEN COMPUTING NET PROFIT AND THERE FORE THOSE EXPENSES ARE IRRELEVANT WHILE APPLYING CPM. SIMILARITY OF FUNCTIONS TO THE GROSS PROFIT LEVEL WILL ONLY BE RELEVANT. IN SUCH CASES IT HAS TO BE DEMONSTRATED AS TO HOW LOWER NET PROFIT AND HIGHER GROSS PROFIT TAKES A COMPARABLE COMPANY OUT OF T HE COMPARABILITY. ALTERNATIVELY, IT CAN BE SHOWN AS TO WHY THE GROSS MARGIN OF THE COMPARABLE COMPANY NEED TO BE REDUCED BECAUSE OF ITEMS WHICH ARE REQUIRED TO BE CONSIDERED WHILE DETERMINING THE GROSS MARGIN HAVE BEEN CONSIDERED ONLY FOR DETERMINING NET MARGIN IN THE CASE OF COMPARABLE COMPANIES. IN THAT EVENT APPROPRIATE ADJUSTMENT TO THE GROSS MARGIN OF THE COMPARABLE COMPANIES CAN BE MADE. 53. IT IS THUS SEEN THAT THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT AS TO HOW CPM IS NOT THE MAM IN THE PRESENT CASE. IT CAN THEREFORE BE CONCLUDED THAT CPM, ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, IS THE MAM. 12. SUBSEQUENT T HERE T O, AS REGARDS THE ASSESSEE S CONTENTION THAT THE APPROPRIATE ADJUSTMENT S TO THE MARGINS OF THE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 31 OF 39 COMPARABLE CO MPANIES AS REGARDS ADVERTISEMENT AND MARKETING EXPENSES SHOULD BE MADE, THE TRIBUNAL, AT PARA.54, HAS HELD AS UNDER: 54. IT IS HOWEVER SEEN THAT THE TPO HAS NOT GIVEN ANY WEIGHTAGE TO THE VARIOUS ASPECTS POINTED OUT BY THE ASSESSEE WHICH CALL FOR M AKING APPROPRIATE ADJUSTMENTS TO THE MARGINS OF THE COMPARABLE COMPANIES, AS REQUIRED UNDER RULE 10B(1)( C )(III), (IC) & (V) OF THE RULES. THE COMPUTATION OF ADJUSTMENT AT 8% MADE BY TPO IS NOT BACKED BY PROPER REASONING OR RATIONALE. THE COMPARABLES SE LECTED BY THE TPO PERFORM ADDITIONAL FUNCTIONS IN THE NATURE OF SELLING & MARKETING THUS EVIDENCING FUNCTIONAL DIFFERENCES WITH THE APPELLANT. THIS FACT HAS BEEN ACKNOWLEDGED BY THE TPO, BUT WHILE GIVING ADJUSTMENT, THE TPO HAS COMPUTED THE ADJUSTMENT AT AN ADHOC FIGURE OF 8%. IN VIEW OF THE DIFFERENCE IN FUNCTIONS, THE ASSESSEE IS ENTITLED TO ADJUSTMENTS WHICH ARE RELIABLE AND ACCURATE, AS STIPULATED IN RULE 10C(2)(E) OF THE RULES. IF SUCH ADJUSTMENTS ARE PROVIDED ON ACTUAL BASIS, THE DIFFERENCE IN THE FUNCTIONAL PROFILE WITH THE COMPARABLE COMPANIES GETS QUANTIFIED AS PROVIDED IN RULE 10B(1)( C ) (III) AS APPLICABLE TO COST PLUS METHOD (CPM). IN THE ABSENCE OF SUCH ADJUSTMENT, A MERE APPLICATION OF CPM ON COMPARABLES WITH DIFFERENT FUNCTIONAL PROFILE W ILL NOT BE IN TUNE WITH THE TP RULES. THEREFORE, AS CPM IS ADOPTED AS THE MAM, THE ASSESSEE SHOULD BE ALLOWED ADJUSTMENT ON ACTUAL BASIS, WHICH WILL RELIABLE AND ACCURATE, AS STIPULATED IN RULE 10C(2). NEEDLESS TO ADD, THE TPO WILL AFFORD OPPORTUNITY OF HEARING TO THE ASSESSEE WITH LEAVE TO FILE DETAILED SUBMISSIONS IN THIS REGARDS, IF NECESSARY. THUS THE ISSUES RAISED IN GROUNDS 1 TO 7 BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. WE FIND THAT THE CIT(A) HAS GRANTED ADJUSTMENT TO MARKETING AND SELLING, FINANCES BASED ON ACTUAL EXPENDITURE INCURRED BY THE COMPARABLE COMPANIES AND ALSO WORKING CAPITAL ADJUSTMENT WHICH HAS RESULTED IN THE ADJUSTMENT AT NIL . AS THE ORDER OF THE CIT(A) ON THIS ISSUE IS IN CONSONANCE W ITH THE DECISION OF THE TRIBUNAL IN THE CASE OF GROUP OF COMPANY CITED IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 32 OF 39 SUPRA, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THEREFORE, THE ASSESSEE S GROUNDS OF APPEAL AGAINST THE TRANSFER PRICING ADJUSTMENT OF CONTRACT MANUFACTUR ING IS CONC ERNED, IS REJECTED. 14. AS REGARDS ADJUSTMENTS MADE TO EXPORT TURNOVER AND PROFITS OF THE BUSINESS IN COMPUTING DEDUCTION U/S 10A OF THE ACT, WE FIND THAT IT CONSISTS OF THE FOLLOWING THREE ADJUSTMENTS: (I) DEDUCTION OF RS.58,07,090/ - FROM THE EXPO RT TURNOVER DUE TO THE ASSESSEE S FAILURE TO SUBSTANTIATE ITS CLAIM THAT FOREIGN CURRENCY WAS BROUGHT TO THE COUNTRY WITHIN SIX MONTHS IN ACCORDANCE WITH THE PROVISIONS OF SEC.10A ( 3) OF THE ACT. AS REGARDS THIS ISSUE, WE FIND THAT THE ASSESSEE H AD FILED BEFORE THE CIT(A) , A COPY OF THE CERTIFICATE ISSUED BY HSBC DATED 26/05/2005 CONFIRMING THAT EXPORT BILLS OF THE ASSESSEE BOOKED PRIOR TO 31/12/2004 HAVE BEEN CLOSED. THE CIT(A) HAS CONSIDERED THE FACT THAT THE ASSESSEE HAD APPLIED FOR EXTENSION OF TIME FOR REMITTANCE OF PROCEEDINGS AND THAT THE ENTIRE SALE PROCEEDS WERE REALIZED SUBSEQUENTLY AND THE BANK CERTIFICATE TO THIS EFFECT WAS SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND THAT THE AO HAS NOT TAKEN COGNIZANCE OF THE SAME . THE CIT(A) HAS THEREFORE GRANTED RELIEF TO THE ASSESSEE ON THE BASIS OF THE ABOVE EVIDENCE . THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT BEEN ABLE TO PRODUCE ANY EVIDENCE TO REBUT THIS FINDING OF THE CIT(A). ON THE OTHER HAND, THE LEARNED IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 33 OF 39 COUNSEL F OR THE ASSESSEE HAS PLACED RELIANCE UPON THE JUDGMENT OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TYCO ELECTRONICS CORPN.INDIA (P) LTD., (2012) 22 TAXMAN.COM 267(KAR.) WHEREIN THE HON BLE HIGH COURT AT PARA 9 OF ITS ORDER HAS HELD AS UNDER: 9. A READING OF THE AFORESAID PROVISION MAKES IT CLEAR THAT THE ASSESSEE TO BE ENTITLED TO THE BENEFIT OF SECTION 10A, THE SALE PROCEEDS WOULD HAVE TO BE BROUGHT INTO THE COUNTRY WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR. HOWEVER, THE LEGISLATURE HAS CONSCIOUSLY IN EXPRESS WORDS HAS VESTED THE POWER TO EXTEND THE TIME - LIMIT FOR THE SAID BENEFIT, IF THE COMPETENT AUTHORITY CHOOSES TO ALLOW THE SAID BENEFIT. THEREFORE, THE SIX MONTHS PERIOD PRESCRIBED IS NOT M ANDATORY. A DISCRETIO N IS VESTED WITH THE COMPETENT AUTHORITY TO EXTEND THE SAID BENEFIT OF THE SECTION EVEN IN CASES WHERE THE SALE PROCEEDS ARE RECEIVED BEYOND THE PERIOD OF TIME PRESCRIBED UNDER THE SAID PROVISION. THE ONLY CONDITION IS THAT THE SALE PROCEEDS WOULD HAVE TO BE RECEIVED. IF THE SALE PROCEEDS ARE NOT RECEIVED WITHIN 6 MONTHS PERIOD, ALL THAT THE ASSESSEE HAS TO DO IS TO MAKE A REQUEST TO THE COMPETENT AUTHORITY FOR EXTENSION OF TIME. OF COURSE, HE HAS TO MAKE ALL EFFORTS TO RECEIVE THE SALE PROCEEDS FROM THE FOREIGN BUYER EXPEDITIOUSLY. GRANTING TO EXTENSION OF TIME IS THE DISCRETION OF THE COMPETENT AUTHORITY. BUT ONCE SUCH A DISCRETION IS EXERCISED AND THE TIME IS EXTENDED, THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF THE SAME. 9A. THE STATUTE DOES N OT PRESCRIBE ANY TIME - LIMIT WITHIN WHICH THE APPLICATION IS TO BE MADE FOR SUCH AN EXTENSION OF TIME AND THE PERIOD WITHIN WHICH THE COMPETENT AUTHORITY HAS TO PASS AN ORDER. THE OBJECT BEHIND THIS PROVISION APPEARS TO BE THAT ONCE THE SALE PROCEEDS ARE R ECEIVED IN INDIA THOUGH LATE AND THE AUTHORITY VESTED WITH THE POWER TO EXTEND THE TIME, EXERCISES THE DISCRETION, THE ASSESSEE SHOULD BE ENTITLED TO THE BENEFIT. IN THAT VIEW OF THE MATTER, THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER OF THE APP ELLATE COMMISSIONER AS WELL AS THE ASSESSING OFFICER AND IN EXTENDING THE SAID BENEFIT. IT IS IN CONSONANCE WITH THE EXPRESS WORDS USED IN THE STATUTE. THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THE SAID CONTENTION. THEREFORE, THE FIRST SUBSTANTIAL IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 34 OF 39 QUES TION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. AS THE FACTS AND CIRCUMSTANCES BEFORE US ARE SIMILAR TO THE FACTS BEFORE THE HON BLE HIGH COURT AND ALSO THE CIT(A) HAS VERIFIED THE FACTS AND FOUND THAT THE ENTIRE SALE PROCEEDS I N THE FORM OF FOREIGN EXCHANGE HAVE BEEN RECEIVED BY THE ASSESSEE WITHIN THE EXTENDED TIME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). (II) EXCLUSION OF BANDWIDTH / TELECOMMUNICATION EXPENSES OF RS.68,41,559/ - FROM THE EXP ORT TURNOVER FOR THE REASON THAT IT WAS ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA. AS REGARDS THIS ISSUE, WE FIND THAT THE CIT(A) HAD DIRECTED EXCLUSION OF THESE EXPENSES FROM BOTH THE EXPORT TURNOVER AS WELL AS TOTAL TURNOVER BY RELYING UPO N THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, CHENNAI IN THE CASE OF SAK SOFT LTD. (313 ITR 353). WE FIND THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI (3 49 ITR 98) AS WELL. SINCE THE DECISION OF THE CIT(A) IS IN CONSONANCE WITH THE DECISION OF THE JURISDICTIONAL HIGH COURT, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE SAME. THIS GROUND OF APPEAL IS ACCORDINGLY REJECTED. (III) AS REGARDS EXCLUSION OF PR OFIT FROM SALE OF SPARE PARTS AND COMPONENTS OF RS.27,25,570/ - , WE FIND THAT THE CIT(A) CONFIRMED THE DISALLOWANCE BY FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF GEBE PVT. LTD., I.E. A GROUP COMPANY OF THE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 35 OF 39 ASSESSEE ON IDENTICAL FACTS. THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF GROUP OF COMPANIES FOR THE ASSESSMENT YEAR 2003 - 04 WHEREAS THE TRIBUNAL, IN THE CASE OF GE BE PVT. LTD., IN ITA NO.815/BANG/2010 DATED 06/12/2013 FOR THE ASSESSMENT YEAR HAS CONSIDERED THE ISSUE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, INDORE IN THE CASE OF MARAL OVERSEAS LTD. VS. ACIT (136 ITD 177)(SB)(INDORE) TO H O LD THAT THE CLAIM OF THE ASSESSEE THAT PROFITS FROM TRADING ACTI VITY OF THE SPARE PARTS IS ALSO TO BE CONSIDERED FOR THE PURPOSE OF DEDUCTION U/S 10B OF THE ACT SHOULD BE ACCEPTED. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF LIBERTY I NDIA LTD. REPORTED IN (2009) 317 ITR 0218. 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MARAL OVERSEAS LTD. (CITED SUPRA ) HAS CONSIDERED THE APPLICABILITY OF THE D ECISION OF THE HON BLE SUPREME COURT IT THE CASE OF LIBERTY INDIA (CITED SUPRA) AND AT PARAS.78 TO 80 HAS HELD AS UNDER: 78. SECTION 10B SUB - SECTION (1) ALLOWS DEDUCTION IN RESPECT OF PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU. SECTION 10B(4) LAYS DOW N SPECIAL FORMULA FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING FROM EXPORT. THE FORMULA IS AS UNDER : - IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 36 OF 39 PROFIT OF THE BUSINESS OF THE UNDERTAKING EXPORT TURNOVER X TOTAL TURNOVER OF B USINESS CARRIED OUT BY THE UNDER - TAKING 79. THUS, SUB - SEC TION (4) OF SECTION 10B STIPULATED THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY APPORTIONING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN THE RATIO OF TURNOVER TO THE TOTAL TURNOVER. THUS, NOT - WITH - STANDING THE FACT THAT SUB - SECTION (1) OF S ECTION 10B REFERS THE PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU, YET THE MANNER OF DETERMINING SUCH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINED IN SUB - SECTION (4) OF SECTION 10B OF THE ACT. AS PER THE FORMULA STATED ABOVE, THE ENTIRE PROFITS OF THE BUSINESS ARE TO BE TAKEN WHICH ARE MULTIPLIED BY THE RATIO OF THE EXPORT TURNOVER TO THE TOTAL TURNOVER OF THE BUSINESS. SUB - SECTION (4) DOES NOT REQUIRE AN ASSESSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE UNDERTAKING, THE SAME WOULD BE INCLUDED IN THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THUS, ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE ELIGIBLE UNDERTAKING, THERE IS NO FURTHER MANDATE IN THE PROVISIONS OF SECTION 10B TO EXCLUDE THE SAME FROM THE ELIGIBLE PROFITS. THE MODE OF DETERMINING THE ELIGIBLE DEDUCTION U/S 10B IS SIMILAR TO THE PROVISIONS OF SECTION 80HHC INASMUCH AS BOTH THE SECTIONS MANDATES DETERMINATION OF ELIGIBLE PROFITS AS PER THE FORMULA CONTAINED THERE IN. THE ONLY DIFFERENCE IS THAT SECTION 80HHC CONTAINS A FURTHER MANDATE IN TERMS OF EXPLANATION (BAA) FOR EXCLUSION OF CERTAIN INCOME FROM THE 'PROFITS OF THE BUSINESS' WHICH IS, HOWEVER, CONSPICUOUS BY ITS ABSENCE IN SECTION 10B. ON THE BASIS OF THE AFOR ESAID DISTINCTION, SUB - SECTION (4) OF SECTION 10A/10B OF THE ACT IS A COMPLETE CODE PROVIDING THE MECHANISM FOR COMPUTING THE 'PROFITS OF THE BUSINESS' ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE INCOME OF TH E ELIGIBLE UNDERTAKING OF THE ASSESSEE, THE SAME CANNOT BE EXCLUDED FROM THE ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B OF THE ACT. AS PER THE COMPUTATION MADE BY THE ASSESSING OFFICER HIMSELF, THERE IS NO DISPUTE THAT BOTH THESE INCOM ES HAVE BEEN TREATED BY THE ASSESSING OFFICER AS BUSINESS INCOME. THE CBDT CIRCULAR NO. 564 DATED 5TH JULY, 1990 REPORTED IN 184 ITR (ST.) 137 EXPLAINED THE SCOPE AND AMBIT OF SECTION 80HHC AND THE MODE OF DETERMINATION OF PROFITS DERIVED BY AN ASSESSEE FR OM THE EXPORT OF GOODS. I.T.A.T., SPECIAL BENCH IN THE CASE OF INTERNATIONAL RESEARCH PARK LABORATORIES V. ACIT, 212 ITR (AT) 1, AFTER FOLLOWING THE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 37 OF 39 AFORESAID CIRCULAR, HELD THAT STRAIGHT JACKET FORMULA GIVEN IN SUB - SECTION (3) HAS TO BE FOLLOWED TO DETERM INE THE ELIGIBLE DEDUCTION. THE HON'BLE SUPREME COURT IN THE CASE OF P.R. PRABHAKAR; 284 ITR 584 HAD APPROVED THE PRINCIPLE LAID DOWN IN THE SPECIAL BENCH DECISION IN INTERNATIONAL RESEARCH PARK LABORATORIES V. ACIT (SUPRA). IN THE ASSESSEE'S OWN CASE THE I.T.A.T. IN THE PRECEDING YEARS, AFTER CONSIDERING THE DECISION IN THE CASE OF LIBERTY INDIA HELD THAT PROVISIONS OF SECTION 10B ARE DIFFERENT FROM THE PROVISIONS OF SECTION 80IA WHEREIN NO FORMULA HAS BEEN LAID DOWN FOR COMPUTING THE ELIGIBLE BUSINESS PRO FIT. 80. IN VIEW OF THE ABOVE DISCUSSION, QUESTION NO. 2 IS ANSWERED IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISIONS OF SECTION 10B(1) RE AD WITH SECTION 10B(4) OF THE ACT. 16. WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GE BE PVT. LTD., HAS CONSIDERED THE DECISION OF THE SPECIAL BENCH IN COMING TO THE CONCLUSION THAT THE TRIBUNAL S ORDER IN THE ASSESSEE S OWN CA SE FOR ASSESSMENT YEAR 2002 - 03 IS NOT APPLICABLE FOR THE ASSESSMENT YEAR BEFORE US. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 17. AS REGARDS THE ISSUE OF DEPRECIATION ON PL ANT AND MACHINERY PURCHASED FROM ELPRO INTERNATIONAL LTD. , IS CONCERNED, WE FIND THAT THIS ISSUE HAD FIRST ARISEN IN THE ASSESSMENT YEAR 1998 - 99 AND HAD COME UP TO THE TRIBUNAL FOR ADJUDICATION AND THE TRIBUNAL HAD SET ASIDE THE ISSUE TO THE AO FOR VERIFIC ATION OF THE CLAIM OF THE ASSESSEE. THE RELEVANT PARAGRAPH OF THE ORDER OF THE TRIBUNAL IS REPRODUCED AT PARA.16.1.1 OF THE ORDER OF THE CIT(A). IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 38 OF 39 IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AO HAD MADE DISALLOWANCE OF DEPRECIATION IN THE ORDERS PASSED U/S 143(3) R.W.S. 254 FOR THE ASSESSMENT YEARS 1998 - 99 AND 1999 - 2000 AND THE APPEALS AGAINST THE SAME ARE PENDING BEFORE THE CIT(A). HE SUBMITTED THAT ALL THE DETAILS WERE FURNISHED BEFORE THE CIT(A) FOR THE ASSESSMENT YEARS 1998 - 99 AND 1999 - 2000 AND THEREFORE THIS ISSUE IS TO BE REMANDED BACK TO THE FILE OF THE CIT(A) TO GIVE EFFECT TO THE ORDERS OF THE CIT(A) FOR THE ASSESSMENT YEARS 1998 - 99 AND 1999 - 2000 AS THIS IS A SUBSEQUENT YEAR AND THE ORDERS FOR THE ASSESSMENT YEARS 1998 - 99 WOUL D HAVE CONSEQUENTIAL EFFECT FOR THE RELEVANT ASSESSMENT YEAR ALSO. WE, THEREFORE, REMAND THIS ISSUE TO THE FILE OF THE CIT(A) WITH A DIRECTION TO GIVE CONSEQUENTIAL EFFECT TO THE ORDER OF HIS PREDECESSOR FOR ASSESSMENT YEAR 1998 - 99 ONWARDS. 18 . IN THE RES ULT, THE REVENUE S APPEAL IS DISMISSED AND THE ASSESSEE S APPEAL IS PARTLY ALLOWED. ASSESSMENT YEAR: 2005 - 06 : 19 . THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE ADOPTION OF CPM AS THE MOST APPROPRIATE METHOD AND THE COMPARABLES ADOPTED BY THE TPO O N THE BASIS OF PRODUCT COMPARABILITY AND ALSO AGAINST THE ADJUSTMENT MADE TO THE PROFIT OF COMPANIES IN COMPUTING DEDUCTION U/S 10A OF THE ACT BY REDUCING PROFIT FROM SALE OF SPARE PARTS AND COMPONENTS FROM EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. WE FIND THAT ALL THESE IT (TP) A NO S . 332, 333 & 337 /BANG/201 1 M/S.GE MEDICAL SYSTEMS INDIA P.LTD. PAGE 39 OF 39 ISSUES HAVE ARISEN IN THE ASSESSEE S CASE FOR ASSESSMENT YEAR 2004 - 05 ALSO AND FOR THE DETAILED REASONS GIVEN IN THE ORDER EVEN DATED FOR THE ASSESSMENT YEAR 2004 - 05 ABOVE , GROUND S RELATING TO THE MOST APPROPRIATE METHO D IS DECIDED AGAINST THE ASSESSEE WHILE THE GROUND WITH REGARD TO ADJUSTMENT TO THE EXPORT TURNOVER IN COMPUTATION OF DEDUCTION U/S 10A IS ALLOWED IN FAVOUR OF THE ASSESSEE AS IN THE ASSESSEE S CASE FOR ASSESSMENT YEAR 2004 - 05. 20 . IN THE RESULT, TH E ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2005 - 06 I S PARTLY ALLOWED. PRON OUNCED IN THE OPEN COURT ON 30 TH OF JUNE , 201 5 . SD/ - SD/ - ( ABRAHAM P GEORGE ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT ME MBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REG I STRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE