Tasty Bite Eatables Limited, Pune V. ACIT, Circle-7, Pune

ITA 335/PUN/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2489 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARVIND SONDE
• Assessee Lawyers: ARVIND SONDE S MT DIVYA BAJPAI
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Rectification of order; Opportunity of being heard; International transaction; Bad and doubtful debts; Revised return
• Section: 92C; 143(3); 234B; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 335 /PN/201 3 / ASSESSMENT YEAR : 20 0 8 - 0 9 TASTY BITE EATABLES LIMITED, 204, MAYFAIR TOWERS, WAKDEWADI, SHIVAJINAGAR, PUNE 4110 05 . / APPELLANT PAN: AAAC T2317A VS. THE ASST . COMMISSIONER OF INCOME T AX, CIRCLE - 7 , P UNE . / RESPONDENT / APPELLANT BY : S HRI ARVIND SONDE / APPELLANT BY : S HRI ARVIND SONDE / RESPONDENT BY : S MT. DIVYA BAJPAI / DATE OF HEARING : 1 7 . 1 2 .2015 / DATE OF PRONOUN CEMENT: 16 . 0 3 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF A CIT , C IRCLE - 7 , PUNE , DATED 2 9 . 11 .20 1 2 RELATING TO ASSESSMENT YEAR 20 0 8 - 0 9 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . THE LEARNED ACIT PURSUANT TO THE DIRECTION OF HON'BL E DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT EXCLUDING NON - ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 2 OPERATING EXPENS ES I.E. PROVISION FOR LOSS ON DERIVATIVE CONTRACTS WHILE CALCULATING THE PROFIT LEVEL INDICATOR CPU') I.E. OPERATING MARGIN TO OPERATING EXPENSES OF THE APPELLANT. 2. THE LEARNED ACIT PURSUANT TO THE DIRECTION OF HONBLE DRP ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN CONSIDERING THE ENTIRE READY TO SERVE FOODS ('R T 'S'') SEGMENT FOR CALCULATION OF PLI OF THE APPELLANT. 3. THE LEARNED ACTT PURSUANT TO THE DIRECTION OF HO N 'BLE DR P ERRED IN LAW AND ON THE FA CTS AND IN CIRCUMSTANCES OF THE CASE IN MAKING AN ADJUSTMENT TO TH E ENTIRE SEGM E N T OF RTS AND NOT RESTRICTING IT TO THE VALUE OF INTERNATIONAL TRANSACTIONS ONLY. 4. THE LEARNED ACIT PURSUANT TO THE DIRECTION OF HON'BLE DRP ERRED O N THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN CONS IDERING THE INCORRECT OPERATING MARGIN OF THE COMPARABLE COMPANY I.E. ADF FOODS LIMITED. 5. THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF HO N 'BL E DRP HAS ERRED IN LAW AND ON T HE FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT GRANTING T HE BENEFIT OF +/ - 5 PERCENT AS PER PROVISO TO SECTION 92C (2) OF THE ACT. 6 . THE LEARNED ACIT PURSUANT TO THE DIRECTION OF HO N BLE D R P ERRED ON THE FACTS AND I N CIRCUMSTANCES OF THE CASE IN ALLOWING ADJUSTMENT FOR UNDER - UTILIZATION O F THE CAPACITY. 7. THE LEARNED ACIT PU RSUANT TO THE DIRECTION OF HONBLE DRP ERRED ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN DISALLOWING SUNDRY BALANCES WRITTEN OFF. 8. THE LEARNED ACIT HAS ERRED ON THE FACTS AND IN LAW BY LEVYING INTEREST UNDER SECTION 234B OF THE ACT, ON ACCOUNT OF THE UNANTICIPATED UNDER SECTION 234B OF THE ACT, ON ACCOUNT OF THE UNANTICIPATED ADJUSTMENTS MADE BY THE LEARNED TRANSFER PRICING OFFICER. 9. THE LEARNED ACIT ERRED ON THE FACTS AND IN LAW IN PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) READ WITH SECTION 274 OF THE ACT, WITHOUT CONSIDERING THE FA CTS OF THE CASE. 10. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER 11. THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO THE GROUNDS OF APPEAL. 3. THE ASSESSEE HAS FILED AMENDED GROUND OF APPEAL NO.6 , WHICH READ S AS UNDER: - 1. THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF HONBLE DRP HAS ERRED ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT ALLOWING ADJUSTMENT FOR UNDER - UTILIZATION OF THE CAPACITY. 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE GROUNDS OF APPEAL NO.5, 7, 8 AND 9 ARE NOT PRESSED AND HENCE, ALL THESE GROUNDS OF APPEAL ARE DISMISSED AS NOT PRESSED. ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 3 5 . IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ISSUE IN G ROUNDS OF APPEAL NO.2, 3 AND 6 IS COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2007 - 08 . 6. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND OF APPEAL N O .1 , WHICH READS AS UNDER: - 1. THE LEARNED ACIT PURSUANT TO THE DIRECTIONS OF HONBLE DRP HAS ERRED IN LAW AND ON FACTS AND IN CIRCUMSTANCES OF THE CASE IN NOT EXCLUDING NON - OPERATING EXPENSES I.E. INTEREST AND FINANCE COST WHILE CALCULATING THE PROFIT LEVEL INDICATOR (PLI) I.E. OPERATING MARGIN TO OPERATING EXPENSES OF THE AP PELLANT. 7. IT WAS POINTED OUT THAT THE FACTS RELATING TO THE SAID GROUND OF APPEAL ARE ON RECORD AND HENCE, THE SAME BEING A LEGAL ISSUE BE ADMITTED FOR ADJUDICATION. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, OBJEC TED TO THE ADMISSION OF THE ADDITIONAL GROUND OF APPEAL. HOWEVER, WE FIND THAT THE ISSUE RAISED IS PURELY A LEGAL ISSUE AND HENCE, THE SAID ADDITIONAL GROUND OF APPEAL IS ADMITTED FOR ADJUDICATION. 9. NOW, COMING TO THE FACTS OF THE PRESENT CASE. THE AS SESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE, MARKETING AND DISTRIBUTION OF READY TO SERVE AND READY TO COOK FOOD P RODUCTS AND FOOD INTERMEDIATES. THE MANUFACTURING UNIT OF THE ASSESSEE COMPANY IS AT VILLAGE B HA ND GAON , TALUKA DAUND, DISTRICT PUNE. F OR THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 38,30,670/ - . THE ASSESSEE COMPANY WAS PART OF PREFERRED BRANDS INTERNATIONAL LLC, USA . THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES AT USA AND ALSO WITH PREFERRED BRANDS AUSTRALIA PTY LTD., AUSTRALIA. THE ASSESSING OFFICER MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) UNDER SECTION 92CA(2) OF THE ACT . THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATI ONAL ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 4 TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES AND HAD APPLIED DIFFERENT METHODS IN RESPECT OF DIFFERENT INTERNATIONAL TRANSACTIONS. THE ASSESSEE HAD SOLD GOODS WORTH RS.26.27 CRORES TO ITS ASSOCIATE ENTERPRISES AND HAD ADOPTED TNMM METHOD TO BENCHMARK ITS TRANSACTIONS WITH ASSOCIATE ENTERPRISES. THE ASSESSEE HAD SELECTED M/S. ADF FOODS LTD. AS COMPARABLE COMPANY TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES. AS PER THE ASSESSEE, ITS PBTD ON COST DURING THE YEAR WAS 10.25% , WHE REAS THAT OF THE COMPARABLE COMPANY M/S. ADF FOODS LTD. WORKED OUT TO 8.10% CONSIDERING THE AVERAGE OF SALES AND COST FOR THE FINANCIAL YEARS 2005 - 06 TO 2007 - 08 . THE TPO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD NOT CONS IDERED SEGMENTAL RESULTS EVEN THOUGH THE SAME WERE AVAILABLE TO BENCHMARK THE TRANSACTIONS IN RESPECT OF FINISHED GOODS. THE TPO RE - WORKED THE PROFIT LEVEL INDICATOR (PLI) OF THE ASSESSEE COMPANY AS WELL AS OF M/S. ADF FOODS LTD. CO NSIDERING THE SEGMENTAL DATA AS PER THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2007 - 08 AND NOTED THAT FOR READY TO SERVE REPORT FOR THE FINANCIAL YEAR 2007 - 08 AND NOTED THAT FOR READY TO SERVE PRODUCTS, THE PLI WORKED OUT TO 4.53% AND SIMILARLY FOR PROCESSED AND PRESERVED FOODS, EXCLUDING THE SEGMENT OF TRADED GOODS, THE PLI OF M/S. ADF FOODS LTD. WAS WORKED OUT TO 16.55% . THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE AFORESAID COMPARABLE WITH ITS PLI BE NOT TAKEN FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF EXPORT OF FINISHED GOODS AND AN ADJUSTMENT O F RS.4.16 CRORES WAS PROPOSED BY THE TPO. IN REPLY, THE ASSESSEE POINTED OUT THAT THE PLI COMPUTATION GIVEN IN THE SHOW CAUSE NOTICE HAD CONSIDERED THE SEGMENTAL RESULTS, BUT THE ADJUSTMENT GIVEN IN THE TP REPORT WAS NOT CONSIDERED. THE ASSESSING OFFICER ASKED FOR ADJUSTMENT ON ACCOUNT OF PROVISION FOR LOSS ON DERIVATIVE CONTRACTS OF RS. 120.59 LAKHS ON ACCOUNT OF LOSS ON CURRENCY SWAPS CONTRACTS USD - CHF FOR THE PURPOSE OF HEDGING ITS EXPOSURE TO EXTERNAL COMMERCIAL BORROWINGS USD 13,00,000. THE ASSESSEE EXPLAINED THAT IT HAD PROVIDED FOR LOSSES ON ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 5 DE RIVATIVE INSTRUMENTS BY MAKING THEM TO THE MARKET AS ON 31.03.2008 IN ORDER TO COMPLY WITH ACCOUNTING STANDARDS - 30 ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THIS PROVISION WAS STATED BY THE ASSES SEE NOT TO BE DIRECTLY RELATING TO THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S WITH ITS ASSOCIATE ENTERPRISES AND THE SAME WAS TO BE REDUCED AS ADJUSTMENT OF PLI. FURTHER, ADJUSTMENT WAS ASKED ON ACCOUNT OF WRITE OFF OF BAD DEBTS IN SUNDRY BA LANCES WRITTEN OFF. THE SAID WRITE OFF OF BAD DEBTS OF RS.18.64 LAKHS AND SUNDRY BALANCES WRITTEN OFF OF RS.2.17 LAKHS RELATED TO DOMESTIC BUSINESS AND SINCE WAS NOT CONNECTED WITH THE INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES, HENCE, AS P ER THE ASSESSEE, THE SAME SHOULD NOT BE CONSIDERED WHILE COMPUTING PLI. FURTHER, INTEREST RELATED COST ALSO SHOULD NOT BE CONSIDERED WHILE COMPUTING PLI. ANOTHER ADJUSTMENT WAS ON ACCOUNT OF DEPRECIATION AND IT WAS PLEADED THAT THE SAME SHOULD NOT BE INC LUDED AS PART OF OPERATING COST TO ARRIVE AT PLI OF BOTH THE COMPANIES DUE TO DIFFERENCE IN CAPACITY UTILIZATION AND ASSET BASE OF THE COMPANIES. AS PER THE ASSESSEE, CAPACITY UTILIZATION AND ASSET BASE OF THE COMPANIES. AS PER THE ASSESSEE, AFTER MAKING THE ABOVE SAID ADJUSTMENT, THE PLI OF THE ASSESSEE ARRIVES AT 14.28% AND PL I OF COMPARABLE M/S. ADF FOODS LTD. WAS ARRIVED AT 1.88% AND THEREFORE, THE INTERNATIONAL TRANSACTION WITH ASSOCIATE ENTERPRISES WAS CLAIMED TO BE AT ARM'S LENGTH PRICE. IT WAS FURTHER POINTED OUT BY THE ASSESSEE THAT THE ASSOCIATE ENTERPRISE HAD INCURRED LOSS OR MINOR PROFITS DURING THE FINANCIAL YEAR 2007 - 08, WHEREAS THE ASSESSEE HAD EARNED PROFIT OF 8.5% AND HENCE, IT WAS PLEADED THAT THERE WAS NO SHIFTING OF PROFIT FROM INDIA TO FOREIGN COUNTRIES. THE ASSESSEE ALSO SUBMITTED LIST OF ADDITIONAL COMPANI ES WHICH WERE FOUND AND WERE IN SIMILAR INDUSTRY AND THE AVERAGE PLI OF THE SAID ADDITIONAL COMPARABLES WAS WORKED OUT AT 3.8%, WHICH WAS LOWER THAN THE PLI OF ASSESSEE COMPANY. THE TPO NOTED THAT THE DISPUTE RESOLUTION PANEL (DRP), PUNE VIDE ORDER PASSED UNDER SECTION 144C(5) OF THE ACT RELATING TO ASSESSMENT YEAR 2007 - 08 , DATED 20.05.2011 HAD DIRECTED TO EXCLUDE THE IMPORT LICENCE FEES OF RS.4.54 ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 6 CRORES FROM THE SEGMENTAL PROFIT AND PROPORTIONATE UNALLOCATED EXPENSES SHOWN FOR WORKING OUT PLI OF COMPARAB LES. HOWEVER, THE FIGURE OF SEGMENTAL REVENUE OF RS.86.97 CRORES WAS TAKEN FROM ANNUAL REPORT OF ADF FOODS LTD., WHICH DID NOT INCLUDE THE INCOME FROM IMPORT OF LICENCE. AFTER LOOKING AT THE FIGURES OF M/S. ADF FOODS LTD., THE TPO OBSERVED THAT THE INCOM E FROM IMPORT OF LICENCE WAS NOT AT ALL TAKEN INTO ACCOUNT FOR WORKING OUT THE PLI AND AS SUCH THE ASSESSEES REQUEST TO CALCULATE PLI WAS FOUND TO BE NOT ACCEPTED. FURTHER, THE CLAIM OF THE ASSESSEE TO EXCLUDE DERIVATIVE LOSSES FROM OPERATING LOSSES WAS ALSO HELD TO BE NOT CORRECT BECAUSE THE SAME WAS PART OF BUSINESS AND HENCE, COULD NOT BE EXCLUDED FROM THE EXPENSES. EVEN IN THE CASE OF COMPARABLE COMPANIES I.E. M/S. ADF FOODS LTD., THERE WAS DERIVATIVE LOSS OF RS.18.28 LAKHS AND THE SAME WAS CONSIDERE D AS PART OF OPERATING EXPENSES, WHILE WORKING OUT THE PLI ON SEGMENTAL PROFIT. 10. THE NEXT REQUEST OF THE ASSESSEE WAS TO EXCLUDE BAD DEBTS OF RS.18.64 LAKHS AND RS.2.17 LAKHS AS SUNDRY BALANCES WRITTEN OFF FROM THE OPERATING EXPENSES ON THE GROUND TH AT THE SAME RELATES TO DOMESTIC SALES, WAS ALSO REFUSED AS THE ASSESSEE HAD NOT FURNISHED COMPLETE DETAILS IN SUPPORT OF ITS CLAIM. 11. THE NEXT OBJECTION OF THE ASSESSEE THAT THE DEPRECIATION SHOULD NOT BE INCLUDED IN THE OPERATING COST IN THE HANDS OF ASSESSEE AS WELL AS THE COMPARABLES DUE TO DIFFERENCE IN CAPACITY UTILIZATION AND CAPITAL BASE, WAS ALSO NOT ACCEPTED BECAUSE THE ASSESSEE WAS 24 YEARS OLD AND THE COMPARABLE COMPANY WAS 18 YEARS OLD AND SUCH UNDER - UTILIZATION OF THE CAPACITY WAS NOT JUST IFIED. FURTHER, THE ASSESSEE HAD NOT FURNISHED COMP L ETE DETAILS WITH REGARD TO UNDER - UTILIZATION OF THE CAPACITY. THE EXPLANATION OF THE ASSESSEE THAT THERE WAS NO SHIFTING OF PROFIT FROM INDIA TO FOREIGN COUNTRY ON THE GROUND THAT THE ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 7 ASSOCIATE ENTERPRI SE HAD INCURRED LOSSES OR MINOR PROFIT IN THE FINANCIAL YEAR WAS ALSO BRUSHED ASIDE BY THE TPO ON THE GROUND THAT THE TP PROCEEDINGS WERE TO VERIFY AS TO WHETHER INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE WAS AT ARM'S LENGTH PRICE OR NOT. R EGARD ING THE ADDITIONAL COMPARABLE S S UBMITTED BY THE ASSESSEE, THE TPO NOTED THAT OUT OF SIX COMPARABLES, FOUR COMPANIES WERE ALREADY REJECTED BY THE ASSESSEE IN ITS TP STUDY REPORT ON THE GROUND THAT THESE WERE NOT FUNCTIONALLY SIMILAR AND HENCE, NOT COMPARABL E, HENCE, THE SELECTION PROCESS OF THE ASSESSEE WAS FOUND TO BE NOT JUSTIFIED. THE TPO NOTED THAT ALL THE ABOVE SAID COMPANIES WERE REJECTED EARLIER ON FUNCTIONAL DIFFERENCE SINCE NONE OF THE COMPANIES FRESHLY SELECTED WERE FOUND TO BE COMPARABLE. THE TP O NOTED THAT ONLY COMPARABLE REMAINED WAS M/S. ADF FOODS LTD., THEREFORE, THE SEGMENTAL RESULTS WERE CONSIDERED FOR BENCHMARKING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION, WHICH WAS ALSO DONE IN THE FINANCIAL YEAR 2007 - 08. IN VIEW THEREOF, THE O P/TC OF THE ASSESSEE WORKED OUT AT 4.53% WAS COMPARED WITH THE PLI OF M/S. ADF FOODS ASSESSEE WORKED OUT AT 4.53% WAS COMPARED WITH THE PLI OF M/S. ADF FOODS LTD. AT 16.55% AND ADJUSTMENT TO THE EXTENT OF RS.4.16 CRORES WAS PROPOSED. THEREFORE, THE ASSESSEE FILED AN APPLICATION FOR RECTIFICATION UNDER SECTION 154 OF THE ACT, I N WHICH PLI OF BOTH THE TESTED PARTY AND COMPARABLE WAS SOUGHT TO BE REVISED. THE TPO PASSED AN ORDER UNDER SECTION 92CA(5) OF THE ACT DATED 14.12.2011 AND ACCEPTED THE MISTAKE OF ADOPTION OF FIGURE OF IMPORT LICENCE INCOME AND THE PLI OF M/S. ADF FOODS L TD. WAS WORKED OUT AT 12.88% AS AGAINST PLI OF THE ASSESSEE AT 4.53%. ACCORDINGLY, AS PER THE TPO, THE REVISED ADJUSTMENT TO BE MADE TO THE ARM'S LENGTH PRICE WAS RS.3.08 CRORES. AGAINST THIS, THE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORDER UNDER S ECTION 143(3) R.W.S. 144C(3) OF THE ACT PROPOSING THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.3.08 CRORES. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP, WHO IN TURN, GAVE CERTAIN DIRECTIONS. AS PER THE FIRST DIRECTION OF THE DRP, THE ASSESSING OFFICER WAS DIRECTED TO INCLUDE INDO NISSIN F OODS AS ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 8 ONE OF THE COMPARABLES AND THE ARITHMETIC MEAN OF TWO COMPARABLES WORKED OUT TO 11.78% . FURTHER, THE ASSESSING OFFICER WAS DIRECTED TO REVISE THE PLI AFTER EXCLUDING THE BAD DEBTS AND SUNDRY BALANCES WRITTEN OFF, WHEREAS THE DERIVATIVE LOSSES AND DEPRECIATION WAS DIRECTED NOT TO BE EXCLUDED. FURTHER, THE ASSESSEE HAD POINTED OUT THAT CERTAIN CALCULATION MISTAKES IN WORKING OUT THE OPERATING PROFIT IN THE RECTIFICATION ORDER AND THE TPO IS DIR ECTED TO CORRECT THE SAID WORKING. FURTHER, THERE WAS A DIRECTION TO GIVE BENEFIT OF +/ - 5% ADJUSTMENT WHICH WAS NOT GIVEN AS THE ASSESSEE FELL OUTSIDE THE BENEFIT OF +/ - 5%. THE TPO PASSED A REVISED ORDER ADOPTING THE DIRECTIONS OF DRP AND PROPOSED TO M AKE THE ADJUSTMENT TO THE TUNE OF RS.206.97 LAKHS. THE ASSESSING OFFICER WHILE PASSING THE ORDER UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT, MADE AN ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.206.97 LAKHS. ANOTHER ADDITION WAS MADE ON ACCOUNT OF DISALLOWANCE OF SUNDRY BALANCES WRITTEN OFF TO THE TUNE OF RS. 1,99,000/ - . 12. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER / DRP. 13. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 IS AGAINST THE ORDER OF ASSESSING OFFICER / D RP IN NOT EXCLUDING THE NON - OPERATIVE EXPENSES I.E. PROVISION FOR LOSS ON DERIVATIVE CONTRACTS WHILE CALCULATING PLI I.E. OPERATING MARGINS / OPERATING EXPENSES OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURNISHED TABULATED DE TAILS IN THIS REGARD AND POINTED OUT THAT THE GAINS OR LOSSES OF THE EXPORT ORIENTED UNIT WERE TAKEN INTO ACCOUNT OF OPERATING PROFITS. HOWEVER, PROVISION FOR LOSSES ON DERIVATIVES WAS NOT MADE PART OF OPERATING COST / EXPENSES. AS PER THE ASSESSING OFFI CER, THIS WAS PART OF OPERATING COST, BUT THE CLAIM OF THE ASSESSEE WAS THAT IT RELATED TO LOANS AND HENCE, NOT PART OF OPERATING COST. HE FURTHER POINTED OUT THAT SCHEDULE 11 WAS IN RELATION TO THE OPERATIONS OF THE ASSESSEE I.E. GOODS SOLD ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 9 AND HENCE, PA RT OF THE OPERATING PROFITS. OUR ATTENTION WAS DRAWN TO THE PAGE 136 OF THE PAPER BOOK AND WAS POINTED OUT THAT BOTH THE FORWARD CONTRACTS GAIN AND CURRENCY PROVISION WERE TAKEN INTO ACCOUNT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT UNDER THE PROVISIONS OF SECTION 43(A) , THE SAME REQUIRES TO BE CAPITALIZED. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON SERIES OF DECISIONS OF VARIOUS BENCHES OF TRIBUNAL AND STRESSED THAT SINCE THE SAID LOSS WAS NON - OPERATIVE LOSS, THE SAME IS NOT TO BE CONSIDERED WHILE COMPUTING THE PLI OF THE ASSESSEE COMPANY. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT UNDER THE HARBOUR RULES, SPECIFIC LIST OF I TEMS NOT TO BE EXCLUDED, IS PROVIDED. IT WAS FURTHER POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE TPO HAS GIVEN A FINDING THAT THE COMPARABLE M/S. ADF FOODS LTD. HAD ALSO CONSIDERED THE DERIVATIVE LOSSES WHILE COMPUTING ITS PLI. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE CASE OF THE ASSESSEE BEFORE US IS THAT CERTAIN ITEMS CLAIMED AS EXPENSES ARE NOT TO BE TAKEN INTO ACCOUNT WHILE COMPUTING OPERATIVE EXPENSES OF THE ASSESSEE I.E. WHILE DETERMINI NG ITS PLI. THE ASSESSEE CLAIMED THAT THE EXPENSES OF LOSSES ON DERIVATIVE CONTRACTS WERE NOT RELATABLE TO INTERNATIONAL TRANSACTIONS OF EXPORT OF RTS FOODS SEGMENT AND HENCE, THE SAME IS TO BE EXCLUDED. THE AFORESAID DERIVATIVE LOSS HAD ARISEN FROM THE DERIVATIVE CONTRACT TAKEN FROM THE ICICI BANK LTD. TOWARDS EXTERNAL COMMERCIAL BORROWINGS (ECB) AND NOT FOR THE EXPORT OF GOODS TO THE RELATED PARTIES , WAS THE PLEA RAISED . FURTHER, THE ASSESSEE ON ITS OWN MOTION IN THE STATEMENT OF TOTAL INCOME FILED ALO NG WITH RETURN OF INCOME, HAD ADDED BACK RS.1.20 CRORES TO THE TOTAL INCOME AND THE ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 10 SAME WAS OFFERED TO TAX. IN VIEW THEREOF, THE ASSESSEE CLAIMED THAT THE PROVISION FOR LOSS ON DERIVATIVE INSTRUMENTS WAS NON - OPERATING EXPENSES. THE ISSUE ARISING BEFORE US IS WHETHER THE DERIVATIVE LOSS ARISING FROM THE DERIVATIVE CONTRACTS RELATABLE TO EXTERNAL COMMERCIAL BORROWINGS PERTAIN TO THE ENTIRE BUSINESS AND WHETHER THE SAME CAN BE LINKED TO ANY PARTICULAR SEGMENT AND IS TO BE EXCLUDABLE FROM THE OPERATING COST WHILE WORKING OUT THE PLI OF ASSESSEE COMPANY. THE DRP HAD NOTED THAT THE ASSESSEE HAD REGISTERED APPROXIMATELY 84% OF ITS TOTAL SALES OF EXPORT OF GOODS AND IN SUCH CIRCUMSTANCES, THE DERIVATIVE LOSS COULD NOT BE EXCLUDED FROM THE OPERATING COST. SIMILA RLY, THE EXCLUSION FOR DEPRECIATION ALSO WAS NOT PERMITTED BY THE ASSESSING OFFICER / DRP. WE FIND THAT THIS ISSUE OF TREATMENT OF EXCHANGE FLUCTUATION GAIN / LOSS RELATING TO ECB HAS ARISEN BEFORE DIFFERENT BENCHES OF TRIBUNAL AS RELIED UPON BY THE LEARN ED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND IT HAS BEEN HELD THAT THE GAIN ARISING ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION RELATING TO ECB LOAN WAS A CAPITAL IN NATURE SINCE THE LOAN WAS TAKEN FOR ACQUISITION OF ECB LOAN WAS A CAPITAL IN NATURE SINCE THE LOAN WAS TAKEN FOR ACQUISITION OF CAPITAL ASSETS. THE SAID PROPOSITI ON WAS LAID DOWN BY MUMBAI BENCH OF TRIBUNAL IN M/S. TEVA INDIA PVT. LTD. VS. DCIT IN ITA NO.6107/MUM/2009 AND DCIT VS. M/S. IVAX INDIA PVT. LTD. IN ITA NO.5707/MUM/2009, RELATING TO ASSESSMENT YEAR 2004 - 05, ORDER DATED 28.01.2011 . FURTHER THE HYDERABAD B ENCH OF TRIBUNAL IN M/S. KENEXA TECHNOLOGIES PVT. LTD. VS. DCIT IN ITA NO.243/HYD/2014, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 14.11.2014 HELD THAT WHERE PROVISION OF FOREIGN EXCHANGE LOSS WAS ATTRIBUTABLE TO NON - ASSOCIATE ENTERPRISE TRANSACTIONS AND FURTHERMORE, A PORTION OF SAID FOREIGN EXCHANGE LOSS PERTAIN TO ADVANCES WHICH WERE NON - OPERATING IN NATURE, THEN THE MATTER WAS REMITTED BACK TO THE TPO WITH A DIRECTION THAT ONLY FOREIGN EXCHANGE LOSS ATTRIBUTABLE TO ASSOCIATE ENTERPRISE TRANSACTION S SHOULD BE CONSIDERED AND ONLY THAT PORTION OF LOSS WHICH IS OPERATIVE IN NATURE WAS TO BE INCLUDED IN THE PLI CALCULATIONS. FURTHER, SIMILAR PROPOSITION WAS LAID DOWN IN ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 11 M/S. CISCO SYSTEMS (INDIA) PVT. LTD. VS. DCIT IN S.P.NO.130/BANG/2014 AND IT(TP)A N O. 271/BANG/2014 , RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 14.08.2014. THE DELHI BENCH OF TRIBUNAL IN HAWORTH (INDIA) PVT. LTD. VS. DCIT IN ITA NO.5341/DEL/2010, RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 29.04.2011 HAD LAID DOWN THE PROPOSIT ION THAT WHERE CERTAIN EXPENSES HAVE BEEN SUO MOTO DISALLOWED BY THE ASSESSEE AND WERE NOT CLAIMED AS OPERATING EXPENSES, WHILE COMPUTING ARM'S LENGTH PRICE , THE SAME ARE REQUIRED TO BE EXCLUDED FROM THE OPERATING COST AND THE PROFIT MARGINS SHOULD HAVE BE EN TAKEN ACCORDING TO THE INCOME COMPUTED IN THE REVISED RETURN. 16. IN THE FACTS OF THE PRESENT CASE , THE PERUSAL OF MANUFACTURING AND OTHER EXPENSES UNDER SCHEDULE 13, SCHEDULE FORM PART OF THE ACCOUNTS FOR THE YEAR UNDER CONSIDERATION ENDING 31.03.20 08 REFLECTS THAT THE ASSESSEE HAD CLAIMED SUM OF RS.1,20,59,000/ - ON ACCOUNT OF PROVISION FOR LOSS ON DERIVATIVE CONTRACTS. IN THE NOTES TO ACCOUNTS, THE ASSESSEE HAS EXPLAINED THAT THE COMPANY HAD TAKEN ECB OF RS.1.3 MILLIONS FROM ITS ASSOCIATE ENTERPRIS E FOR CAPACITY EXPANSION AND MODERNIZATION OF EXISTI NG MANUFACTURING INFRASTRUCTURE. AS PER THE TERMS OF LEASE AGREEMENT, LOAN WAS REPAYABLE AT ANY TIME AFTER THREE ANNIVERSARIES OF DATE OF FIRST DISBURSEMENT UPON THE WRITTEN DEMAND BY THE LENDOR. IN THE ABSENCE OF ANY SUCH DEMAND, THE ASSESSEE WAS TO REPAY THE PRINCIPAL SUM IN EIGHT EQUAL INSTALLMENTS. THE LOSSES ON DERIVATIVE INSTRUMENTS HAVE BEEN WORKED OUT BY MAKING THEM TO MARKET AS ON 31.03.2008 . THE ASSESSEE HAD SHOWN THE FOLLOWING DERIVATIVE INS TRUMENTS AS OUTSTANDING AS ON 31.03.2008 : - I) FORWARD CONTRACTS USD - INR FOR THE PURPOSE OF HEDGING ITS EXPOSURE TO FOREIGN CURRENCY RECEIVABLES: USD 33,50,000 (PREVIOUS YEAR : USD 13,13,969). II) CURRENCY SWAP CONTRACT USD - CHF FOR THE PURPOSE OF HEDGING I TS EXPOSURE TO EXTERNAL COMMERCIAL BORROWINGS: USD 13,00,000 (PREVIOUS YEAR : USD 13,00,000). ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 12 III) CURRENCY OPTIONS CONTRACTS USD - INR FOR THE PURPOSE OF HEDGING ITS EXPOSURE TO FOREIGN CURRENCY RECEIVABLES : USD 14,00,000 (PREVIOUS YEAR:NIL). 17. THE CLA IM OF THE ASSESSEE BEFORE US IS THAT THE SAID LOSS ON DERIVATIVES THOUGH CLAIMED IN THE PROFIT & LOSS ACCOUNT HAS BEEN WRITTEN BACK AND NOT CLAIMED AS EXPENDITURE WHILE COMPUTING ITS INCOME FOR THE YEAR UNDER CONSIDERATION. HOWEVER, THE ISSUE WHICH IS ARI SING BEFORE US IS THAT WHERE SIMILAR LOSS ON DERIVATIVES HAS BEEN CLAIMED AS OPERATING COST OF COMPARABLE COMPANY M/S. ADF FOODS LTD., THEN WHILE WORKING OUT THE PLI OF THE ASSESSEE COMPANY ALSO, THE SAME SHOULD BE INCLUDED AS OPERATING COST OR NOT. IN THE FIRST INSTANCE, WHERE SIMILAR LOSS IS BEING CLAIMED BY THE TESTED PARTY AND THE CONCERN PICKED UP AS COMPARABLE, THEN IN CASE BOTH THE CONCERNS ARE CLAIMING THE DERIVATIVE LOSSES, THEN THE TREATMENT OF SUCH CLAIM OF DERIVATIVE LOSS SHOULD BE AT PAR. IN C ASE THE SAME IS CONSIDERED AS OPERATING COST OF THE COMPARABLE WHILE WORKING OUT THE PLI OF SEGMENTAL PROFIT, THEN THE SAME ALSO SHOULD BE CONSIDERED IN THE HANDS OF TESTED PARTY. HOWEVER, IN THE CASE OF ASSESSEE CONSIDERED IN THE HANDS OF TESTED PARTY. HOWEVER, IN THE CASE OF ASSESSEE BEFORE US, THE ASSESSEE HAS NOT CLAIMED TH E SAID PROVISION OF DERIVATIVE LOSSES IN THE FINAL COMPUTATION OF INCOME. IN OTHER WORDS, HAS REJECTED THE SAID LOSSES. ONCE SUCH A TREATMENT IS GIVEN BY THE ASSESSEE, THEN THE SAME CANNOT FORM THE PART OF OPERATING EXPENSES WHILE COMPUTING PLI OF THE AS SESSEE COMPANY. IN CASE, THE SAME IS EXCLUDED IN THE HANDS OF TESTED PARTY, THE SAME ALSO SHOULD BE EXCLUDED IN THE HANDS OF COMPARABLE PICKED UP BY THE ASSESSEE ITSELF IN ORDER TO BRING BOTH THE COMPANIES AT PAR. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY DELHI BENCH OF TRIBUNAL IN HAWORTH (INDIA) PVT. LTD. VS. DCIT (SUPRA) . ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER / TPO TO EXCLUDE DERIVATIVE LOSSES FROM THE OPERATING EXPENSES OF TESTED PARTY I.E. THE ASSESSEE BEFORE US AND ALSO FRO M THE OPERATING EXPENSES OF COMPARABLE M/S. ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 13 ADF FOODS LTD. WHILE WORKING OUT THE PLI OF BOTH THE CONCERNS. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED AS INDICATED ABOVE. 18. NOW, COMING TO THE ISSUE VIDE GROUNDS OF APPEAL NO.2 AND 3 I.E. CALCULATION OF PLI OF THE ASSESSEE COMPANY OF READY TO SERVE FOODS SEGMENT. 19. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.2 AND 3 IS WHETHER THE TRANSFER PRICING ADJUSTMENT HAS TO BE MADE TO THE ENTIRE SEGMENT OF RTS I.E. READY TO SERVE FOODS OR THE SAME IS TO BE RESTRICTED TO THE VALUE OF INTERNATIONAL TRANSACTION ONLY. THE ASSESSEE ADMITTEDLY, WAS ENGAGED IN BOTH DOMESTIC AND EXPORT SALES IN THE RTS SEGMENT AND FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE COMPANY WITH ITS ASS OCIATE ENTERPRISE, THE TPO HAD ADOPTED RESULTS OF ENTIRE SEGMENT OF RTS AND NOT THE SEGMENT RELATING TO THE INTERNATIONAL TRANSACTION. 20. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN 20. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08 AN D THE TRIBUNAL VIDE ORDER DATED 10.06.2015 IN ITA NO.1682/PN/2011 VIDE PARA 37, HELD AS UNDER: - 37. SO FAR AS GROUND OF APPEAL NO.3 IS CONCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT RIGHT SEGMENTAL FOR APPLYING TNM METHOD IS ONLY AE SEGMENT. ACCORDING TO HIM THE TPO HAS TAKEN THE ENTIRE RTS SEGMENT WHICH CONTAINS TRANSACTIONS WITH AES (EXPORT) AS WELL AS TRANSACTIONS WITH NON AES (DOMESTIC). HOWEVER, SINCE THE ASSESSEE WAS MAKING LOSSES IN THE NON AE SEGMENT THE PLI OF THE ASSES SEE WAS ARTIFICIALLY BROUGHT DOWN. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT FOR DETERMINING ALP ONLY INTERNATIONAL TRANSACTIONS NEED TO BE CONSIDERED. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DEMAG CRANES & COMPONENTS (INDIA) PVT. LTD. (SUPRA) WHERE IT HAS BEEN HELD THAT TP ADJUSTMENTS ARE TO BE COMPUTED NOT CONSIDERING THE ENTITY LEVEL SALES RATHER IT SHOULD BE DONE IDEALLY CONSIDERING THE RELATABLE SALES DRAWING THE QUANTITATI VE RELATIONSHIP TO THE IMPORTS FROM THE AES, I.E. CONTROLLED COST. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EMERSONS PROCESS MANAGEMENT INDIA PVT. LTD., (SUPRA) HAS HELD THAT TRANSFER PRICING ADJUSTMENT IS TO BE MADE WITH RESPECT TO INTERNATIONAL T RANSACTIONS AND NOT THE ENTIRE SALES. SIMILAR VIEW HAS BEEN TAKEN BY VARIOUS OTHER COORDINATE BENCHES OF THE TRIBUNAL. IN VIEW OF THE ABOVE, WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT TRANSFER PRICING ADJUSTMENT HAS TO BE MADE WITH RESPECT TO INTERNATIONAL TRANSACTIONS ONLY AND NOT ON THE ENTIRE SALES. HOWEVER, THIS ADJUSTMENT ALSO REQUIRES VERIFICATION AT THE LEVEL OF THE ASSESSING OFFICER. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF THE AO/TPO WITH A DIRECTION TO RECOMP UTE THE ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 14 ADJUSTMENT, IF ANY, ON THE BASIS OF MATERIAL PROVIDED BY THE ASSESSEE. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUNDS OF APPEAL N O. 3 BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 21. THE ISSUE ARISING VIDE GROUNDS OF APPEAL NO.2 AND 3 IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 VIDE GROUND OF APPEAL NO.3 AND FOLLOWING THE SAME PARIT Y OF REASONING, WE HOLD THAT TRANSFER PRICING ADJUSTMENT HAS TO BE MADE WITH RESPECT TO INTERNATIONAL TRANSACTION ONLY AND NOT ON THE ENTIRE SALES OF RTS SEGMENT. HOWEVER, SINCE A VERIFICATION EXERCISE IS REQUIRE D TO BE CARRIED OUT, WE REMIT THIS ISSUE BA CK TO THE FILE OF ASSESSING OFFICER / TPO WITH A DIRECTION TO RE - COMPUTE THE ADJUSTMENT, IF ANY, IN LINE WITH DIRECTIONS GIVEN BY THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 . THE ASSESSING OFFICER / TPO SHALL AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE ARE THUS, ALLOWED FOR STATISTICAL PURPOSES. 22. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.4 IS WITH REGARD TO WORKING OF OPERATING MARGINS OF COMPARABLE COMPANY M/S. ADF FOODS LTD. 23. TH E LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TPO IN PARA 5 OF ITS ORDER NOTES THAT THE MARGIN OF M/S. ADF FOODS LTD. IS 12.88%, WHEREAS THE ASSESSING OFFICER IN FINAL ORDER TALKS OF MARGINS OF M/S. ADF FOODS LTD. AT 16.55% . TH E LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT RECTIFICATION OF THE SAID MISTAKE APPARENT FROM THE RECORD NEEDS TO BE CARRIED OUT . IN VIEW OF THE ISSUE RAISED BY THE ASSESSEE I.E. THE ADOPTION OF CORRECT MARGINS OF M/S. ADF FOODS LT D., WE DIRECT THE ASSESSING OFFICER / TPO TO LOOK INTO THE MATTER AND AFTER VERIFYING THE SAME, ADOPT THE CORRECT MARGINS OF M/S. ADF FOODS LTD. IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTION OF THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 15 GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 24. THE AMENDED GROUND OF APPEAL NO.6, WHICH IS WITH REGARD TO ADJUSTMENT TO BE ALLOWED ON ACCOUNT OF UNDER - UTILIZATION OF CAPACITY. 25. BOTH THE LEARNED AUTHORIZED REPRESE NTATIVES FAIRLY AGREED THAT THIS ISSUE IS ALSO COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08. THE TRIBUNAL VIDE PARAS 33 TO 36 OBSERVED AS UNDER: - 33. SO FAR AS THE ADJUSTMENT ON ACCOUNT OF CAPACITY UNDER UT ILISATION IS CONCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT CAPACITY UTILISATION OF THE ASSESSEE WORKS OUT TO 15% WHEREAS CAPACITY UTILISATION OF THE COMPARABLE COMPANY WAS 53%. THEREFORE, THE DIFFERENCE BETWEEN THE TWO IS SIGNIF ICANT AND MATERIAL TO IMPACT THE PROFIT MARGIN OF THE ASSESSEE AND THE COMPARABLE COMPANYS ABILITY TO ABSORB THE FIXED OVERHEADS LIKE DEPRECIATION, SALARY AND WAGES, POWER, REPAIR ETC. IS LESS WHERE CAPACITY UTILISATION IS LOW AND THIS WOULD LEAD TO INCRE ASED COST AND LOWER PROFIT. 34. WE FIND SOME FORCE IN THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. FIAT ASSESSEE. WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. FIAT INDIA LTD. VS. ACIT VIDE ITA NO.1848/MUM/2009 ORDER DATED 30 - 04 - 2010 FOR A.Y . 2004 - 05 AT PARA 8 OF THE ORDER HAS OBSERVED AS UNDER : 8. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE ID. CIT(A) IN ALLOWING THE ADJUSTMENTS MADE BY THE ASSESSEE TO WORK OUT ITS OPERATING MARGIN FOR COMPARING THE SAME WITH THE PROFIT M ARGIN OF COMPARABLE CASES. IT IS OBSERVED IN THIS CONTEXT THAT A DETAILED SUBMISSION WAS MADE ON BEHALF OF THE ASSESSEE BEFORE THE ID. CIT(A) EXPLAINING EACH AND EVERY ADJUSTMENT SOUGHT TO BE MADE BY IT. THE GIST OF THE SAID SUBMISSION HAS ALREADY BEEN EXT RACTED BY US IN THE FOREGOING PORTION OF THIS ORDER AND A PERUSAL OF THE SAME SHOWS THAT EACH AND EVERY ADJUSTMENT MADE BY THE ASSESSEE COMPANY WAS DULY EXPLAINED BY IT BY FURNISHING THE RELEVANT FACTS AND FIGURES AS WELL AS BY PRODUCING THE SUPPORTING EVI DENCE WHEREVER REQUIRED. AS RIGHTLY HELD BY THE LD. CIT(A), THE SAID SUBMISSION MADE BY THE ASSESSEE IS SUFFICIENT TO DEMONSTRATE THAT THERE WAS A MATERIAL DIFFERENCE IN THE FACTS OF THE ASSESSEE'S CASE AND THAT OF THE COMPARABLE CASES IN TERMS OF CAPACITY UTILIZATION AS WELL AS IN OTHER TERMS. APPROPRIATE ADJUSTMENTS THUS WERE REQUIRED TO BE MADE TO ELIMINATE SUCH DIFFERENCES AND AFTER HAVING CONSIDERED THE RELEVANT TRANSFER PRICING GUIDELINES AS WELL AS TRANSFER PRICING REGULATIONS, IT WAS HELD BY THE LD. CIT(A) THAT VARIOUS ADJUSTMENTS MADE BY THE ASSESSEE WERE REASONABLE AND ACCURATE. HE ALSO HELD THAT THE SAID MATERIAL DIFFERENCE WERE ARBITRARILY IGNORED BY THE TPO WHILE DISALLOWING THE ASSESSEE'S CLAIM SUCH FOR ADJUSTMENTS AND THERE BEING NO PROPER REA SONS ASSIGNED BY HIM FOR IGNORING THE SAID DIFFERENCE, THE TRANSFER PRICING EXERCISE DONE BY HIM IN THE REPORT WAS ENTIRELY FUTILE. AT THE TIME OF HEARING BEFORE US, THE ID. D.R. HAS NOT BEEN ABLE TO RAISE ANY MATERIAL CONTENTION TO REBUT/CONTROVERT THE ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 16 OB SERVATIONS/FINDING RECORDED BY THE LD. CIT(A) IN HIS IMPUGNED ORDER TO ARRIVE AT THE SAID CONCLUSION. HE HAS SIMPLY RELIED ON THE REPORT OF THE TRANSFER PRICING OFFICER IN SUPPORT OF THE REVENUE'S CASE. HOWEVER, AS POINTED OUT BY THE LD. COUNSEL FOR THE AS SESSEE FROM THE COPIES OF RELEVANT REPORTS, THE TPO HIMSELF HAS ALLOWED SIMILAR ADJUSTMENTS MADE BY THE ASSESSEE IN THE IMMEDIATELY PROCEEDING YEARS I.E. A.Y. 2002 - 03, 2003 - 04 AS WELL AS IN THE IMMEDIATELY SUCCEEDING YEARS I.E. 2005 - 06 AND 2006 - 07 WHEREIN THE FACTS INVOLVED WERE SIMILAR TO THAT OF THE YEAR UNDER CONSIDERATION I.E. A.Y. 2004 - 05. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) HOLDING THAT THE ADJUSTMENTS MADE BY THE ASSESSEE IN TNMM ANALYSIS WERE REASONABLE AND ACCUR ATE AND AS REFLECTED IN THE SAID ANALYSIS, INTERNATIONAL TRANSACTIONS MADE BY THE ASSESSEE COMPANY WITH ITS ASSOCIATED CONCERNS DURING THE YEAR UNDER CONSIDERATION WERE AT ARMS LENGTH REQUIRING NO ADJUSTMENT/ADDITION ON THIS ISSUE. THE IMPUGNED ORDER OF TH E LD. CIT(A) ON THIS ISSUE IS THEREFORE UPHELD DISMISSING GROUND NO. 2 OF REVENUE'S APPEAL. (UNDERLINE GIVEN BY US) 35. WE FIND FOLLOWING THE ABOVE DECISION THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ARISTON THERMO INDIA LTD. (SUPRA) HAS ALSO AGREED I N PRINCIPLE THE ADJUSTMENT ON ACCOUNT OF LOW CAPACITY UTILISATION AND HIGH FIXED OPERATING COST BY OBSERVING AS UNDER : 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE POINT SOUGHT TO BE MADE OUT BY THE ASSESSEE IS THAT THIS BEING THE FIRST Y EAR OF OPERATIONS, IT HAS NOT ACHIEVED AN OPTIMUM LEVEL OF CAPACITY UTILIZATION AND THE SALES ARE ALSO ON A LOWER SIDE. MOREOVER, IT HAS INCURRED CERTAIN START - UP COSTS AND THE FIXED OPERATING COSTS HAVE ALSO NOT BEING ABSORBED DUE TO LOW CAPACITY UTILIZAT ION. IN THE ABSENCE OF OPTIMUM UTILIZATION OF ITS PRODUCTION CAPACITY, IT HAS SUFFERED OPERATING LOSSES DURING THE YEAR. ON THE OTHER HAND, THE NET PROFIT MARGIN OF THE ASSESSEE HAS BEEN BENCHMARKED AGAINST COMPARABLES CASES, WHO ARE ASSESSEE HAS BEEN BENCHMARKED AGAINST COMPARABLES CASES, WHO ARE ESTABLISHED ENTITIES A ND HAVE STARTED BUSINESSES MANY YEARS AGO. IN OUR CONSIDERED OPINION, THE CASE MADE OUT BY THE ASSESSEE IS BASED ON ECONOMIC AND COMMERCIAL REASONS. THE ASSESSEE IS A UNIT WHICH HAS BEEN SET - UP DURING THE YEAR AND ITS CAPACITY UTILIZATION IS ONLY 21%, WHIC H HAS RESULTED IN LOSSES, WHILE ITS PROFIT MARGINS HAVE BEEN COMPARED WITH ENTITIES ESTABLISHED OVER THE YEARS. OSTENSIBLY, SUCH A COMPARABILITY ANALYSIS DOES NOT PROVIDE A LEVEL PLAYING FIELD. IN OUR VIEW, THE AFORESAID FACTOR IS REQUIRED TO BE ADJUSTED S O AS TO FACILITATE A MEANINGFUL COMPARABILITY ANALYSIS BETWEEN THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. 11. HOWEVER, AS PER THE REVENUE, SUCH AN ADJUSTMENT TO THE PROFIT MARGIN OF THE ASSESSEE IS NOT PER MISSIBLE HAVING REGARD TO THE PROVISIONS OF RULE 10B(1)(E) OF THE RULES. THE METHOD ADOPTED BY THE ASSESSEE FOR BENCHMARKING ITS INTERNATIONAL TRANSACTION IS THE TNM METHOD AND RULE 10B(1)(E) OF THE RULES PRESCRIBES THE MANNER IN WHICH THE SAME IS TO BE AP PLIED. AS PER THE REVENUE, IN SUB - CLAUSE (III) ADJUSTMENTS TO THE NET PROFIT MARGIN ARE PERMISSIBLE BUT IT IS ONLY IN RELATION TO THE NET PROFIT MARGINS OF THE COMPARABLE UNCONTROLLED TRANSACTIONS AND NOT WITH RESPECT TO THE MARGIN OF THE TESTED PARTY AND THUS THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED. IN OUR CONSIDERED OPINION, IN SUB - CLAUSE (I) THE NET PROFIT MARGIN REALIZED BY A TESTED PARTY FROM AN INTERNATIONAL TRANSACTION IS REQUIRED TO BE ASCERTAINED HAVING REGARD TO THE RELEVANT BASE. IN SUB - CLAUS E (II) THE NET PROFIT MARGIN REALIZED BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION IS TO BE ASCERTAINED HAVING REGARD TO THE SAME BASE. SUB - CLAUSE (III) PERMITS ADJUSTMENT WITH REGARD TO THE NET PROFIT MARGIN ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 17 REFERRED TO IN SUB - CLA USE (II) I.E. OF THE COMPARABLE UNCONTROLLED TRANSACTIONS SO AS TO TAKE INTO ACCOUNT THE DIFFERENCE, IF ANY BETWEEN THE INTERNATIONAL TRANSACTION OF THE TESTED PARTY AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. THE PLEA OF THE REVENUE, IN OUR VIEW, IS MIS DIRECTED FOR THE REASON THAT THE NET PROFIT MARGIN OF THE TESTED PARTY REFERRED TO IN SUB - CLAUSE (I) HAS NOT BEEN DEFINED IN A MANNER AS IS BEING UNDERSTOOD BY THE REVENUE. AS PER THE REVENUE THE NET PROFIT MARGIN OF THE TESTED PARTY AS STATED IN SUB - CLAUS E (I) IS TO BE THE SAME AS REFLECTED IN THE FINANCIAL ACCOUNTS. IN PARA 8.1 OF THE ORDER OF THE TPO IT IS CANVASSED THAT THE NET PROFIT MARGIN HAS TO BE UNDERSTOOD AS MEANING PROFIT BEFORE TAX COMPUTED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES. IN OUR CONSI DERED OPINION, THE WHOLE OBJECTIVE OF ADOPTING THE MOST APPROPRIATE METHOD FOR THE PURPOSE OF COMPARABILITY ANALYSIS IS TO DETERMINE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. IN OTHER WORDS, THE PURPOSE OF THE COMPARABILITY ANALYSIS IS TO EXAMI NE AS TO WHETHER OR NOT THE VALUES STATED FOR THE INTERNATIONAL TRANSACTIONS ARE AT AN ARMS LENGTH PRICE I.E. WHETHER THE PRICE CHARGED IS COMPARABLE TO AN UNCONTROLLED TRANSACTION OF SIMILAR NATURE. THEREFORE, THE ADOPTION OF THE NET PROFIT MARGIN OF THE TESTED PARTY HAS TO BE MADE KEEPING IN MIND ITS OBJECTIVE, I.E. TO FACILITATE ITS COMPARISON WITH OTHER UNCONTROLLED COMPARABLE ENTITIES/TRANSACTIONS. THEREFORE, KEEPING IN MIND THE AFORESAID OBJECTIVE, THE NET PROFIT MARGIN OF THE TESTED PARTY DRAWN FROM ITS FINANCIAL ACCOUNTS CAN BE SUITABLY ADJUSTED TO FACILITATE ITS COMPARISON WITH OTHER UNCONTROLLED ENTITIES/TRANSACTIONS AS PER SUB - CLAUSE (I) OF RULE 10B(1)(E) OF THE RULES ITSELF. THE ABSENCE OF SUCH A SPECIFIC PROVISION IN RULE 10B(1)(E)(III) OF THE RULES DOES NOT OPERATE AS A BAR, SO LONG AS THE ADJUSTMENT SOUGHT TO BE MADE IN THE PROFIT MARGIN OF THE TESTED PARTY ARE BASED ON COGENT AND SUFFICIENT REASONS AND SEEKS TO MAKE THE COMPARABILITY ANALYSIS WITH COMPARABLE UNCONTROLLED TRANSACTIONS MORE MEA NINGFUL. IN - FACT, PUNE BENCH OF THE TRIBUNAL IN THE CASE OF EGAIN COMMUNICATION (P.) LTD. (SUPRA) IN PARA 36 OF THE ORDER OPINED THAT DEPENDING ON THE FACTS AND CIRCUMSTANCES OF A CASE, IT MAY OPINED THAT DEPENDING ON THE FACTS AND CIRCUMSTANCES OF A CASE, IT MAY BE APPROPRIATE TO ADJUST THE OPERATING PROFIT OF THE TESTED PAR TY AS WELL AS OF THE COMPARABLE PARTIES. TO THE SIMILAR EFFECT IS THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S FIAT INDIA PVT. LTD. (SUPRA). IN FACT, IN THE CASE OF AMDOCS BUSINESS SERVICES (P.) LTD. (SUPRA) WHEREIN ONE OF US WAS A M EMBER OF THE BENCH I.E. ACCOUNTANT MEMBER, AN ADJUSTMENT WAS ALLOWED TO THE PROFIT MARGIN OF THE TESTED PARTY WITH RESPECT TO THE UNDER CAPACITY UTILIZATION, THE UNIT BEING IN THE START - UP PHASE. THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE O F SKODA AUTO INDIA (SUPRA) IS ALSO ON SIMILAR LINES. 12. THE LEARNED CIT(DR) HAS RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF HAWORTH (INDIA) P. LTD. (SUPRA) FOR THE PROPOSITION THAT ADJUSTMENT TO THE PROFIT MARGIN OF THE TESTED PARTY IS NOT PER MISSIBLE. WE HAVE PERUSED THE SAID DECISION. IN THE CASE BEFORE THE DELHI BENCH OF THE TRIBUNAL, ASSESSEE HAD COMPUTED ITS MARGIN AFTER CLAIMING ADJUSTMENT FOR CAPACITY UTILIZATION. THE ASSESSEE HAD ADOPTED THE TNM METHOD FOR THE PURPOSE OF COMPUTING ITS A LP. THE ASSESSEE HAD CLAIMED THAT CAPACITY UTILIZATION OF COMPARABLES WAS TO THE EXTENT OF 70%, WHICH WAS AN ASSUMPTION MADE DUE TO NON - AVAILABILITY OF THE REQUIRED DETAILS OF THE COMPARABLE CASES. THE TPO REJECTED THE ADJUSTMENT ON THE GROUND THAT ASSESSE E HAD NOT SUBMITTED ANY EVIDENCE FOR ASSUMING THE CAPACITY UTILIZATION OF THE COMPARABLES AND THE DATA BEING RELIED UPON BY THE ASSESSEE WAS FOUND TO BE EITHER UNRELIABLE OR INCORRECT. THE TRIBUNAL IN PARA 90 OF ITS ORDER EXAMINED THE EVIDENCE RELIED BY TH E ASSESSEE WITH REGARD TO ITS ASSUMPTION MADE TOWARDS THE CAPACITY UTILIZATION OF 70% OF THE COMPARABLE CASES. ON THE BASIS OF THE DOCUMENTS AND MATERIAL ON RECORD, THE TRIBUNAL CAME TO CONCLUDE THAT THE ASSESSEE DID NOT FURNISH SUFFICIENT EVIDENCE WITH ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 18 RE GARD TO THE CAPACITY UTILIZATION OF THE COMPARABLE CASES. THE TRIBUNAL HELD THAT ASSESSEE WAS NOT ENTITLED TO SEEK ADJUSTMENT ON ACCOUNT OF CAPACITY UTILIZATION BECAUSE OF ITS FAILURE TO FURNISH CREDIBLE AND ACCURATE INFORMATION IN THIS REGARD. IN CONCLUSI ON, THE TRIBUNAL SPECIFICALLY NOTED THAT BECAUSE OF THE AFORESAID FAILURE OF THE ASSESSEE, THE PRECEDENTS CITED BY THE ASSESSEE BY WAY OF THE DECISIONS OF THE TRIBUNAL IN M/S FIAT INDIA PVT. LTD. (SUPRA), SKODA AUTO INDIA (P.) LTD. (SUPRA), EGAIN COMMUNICA TION (P.) LTD. (SUPRA) AND GLOBAL VATEDGE PVT. LTD. VS. DCIT (ITA NOS, 2763 & 2764/DEL/2009) COULD NOT BE APPLIED IN THE CASE OF THE ASSESSEE. THE AFORESAID DISCUSSION IN THE ORDER OF THE TRIBUNAL CLEARLY SHOWS THAT THE ASSESSEE THEREIN FAILED IN SEEKING A DJUSTMENT TO ITS PROFIT MARGINS FOR LACK OF EVIDENCE, AND THE TRIBUNAL WAS FULLY CONSCIOUS THAT THE RELIEF WAS OTHERWISE ALLOWABLE TO THE ASSESSEE IN PRINCIPLE, BASED ON THE PRECEDENTS CITED ABOVE. THUS, THE DECISION IN THE CASE OF HAWORTH (INDIA) P. LTD. (SUPRA) DOES NOT HELP THE REVENUE, AND THE RELIANCE BY THE CIT(DR) IS MISPLACED. THEREFORE, IN OUR VIEW, HAVING REGARD TO THE PRECEDENTS AND THE AFORESAID DISCUSSION, IN THE PRESENT CASE ASSESSEE HAS TO SUCCEED IN PRINCIPLE FOR ADJUSTMENT ON ACCOUNT OF LOW ER CAPACITY UTILIZATION, AND THE LOSS SUFFERED ON ACCOUNT OF UNABSORBED FIXED OPERATING COSTS INCURRED IN THE INITIAL YEAR. THE AFORESAID FACTORS, IN OUR VIEW, WARRANT AN APPROPRIATE ADJUSTMENT TO THE OPERATING MARGINS OF THE ASSESSEE TO FACILITATE A MEANI NGFUL COMPARISON WITH THE COMPARABLE UNCONTROLLED TRANSACTIONS. 13. AT THE TIME OF HEARING, THE LEARNED CIT(DR) POINTED OUT THAT TPO HAS ALSO OBSERVED THAT APPROPRIATE DETAILS IN RESPECT OF LOW UTILIZATION OF CAPACITY IN THE CASE OF COMPARABLES ETC . WERE NOT AVAILABLE. IT WAS SUBMITTED THAT THE PLEA OF THE ASSESSEE WAS REJECTED AT THE THRESHOLD, AND THEREFORE, THE LOWER AUTHORITIES HAD NO OCCASION TO EXAMINE THE PLEA OF THE ASSESSEE ON MERITS. NO DOUBT, THE AFORESAID ASPECT SPRING UP ONLY AFTER THE PLEA OF THE ASSESSEE IS ACCEPTED IN PRINCIPLE AND THE SAME WAS NOT SO DONE BY THE AUTHORITIES BELOW. THE LEARNED COUNSEL FOR SAME WAS NOT SO DONE BY THE AUTHORITIES BELOW. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TO PAGE 97 OF THE PAPER BOOK WHEREIN IS PLACED THE FINANCIAL STATEMENT OF A COMPARABLE CONCERN, M/S KHAITA N ELECTRICALS LIMITED FOR THE FINANCIAL YEAR 2005 - 06 TO POINT OUT THAT THE INFORMATION REGARDING THE INSTALLED CAPACITY AND ACTUAL PRODUCTION CARRIED OUT DURING THE YEAR IS AVAILABLE, WHICH WOULD FACILITATE THE COMPARISON AND ALSO MAKING OF AN ADJUSTMENT T O THE PROFITS MARGIN OF THE ASSESSEE. IT WAS POINTED OUT THAT AT - LEAST FOR THE SAID COMPARABLE THE ADJUSTMENT OUGHT TO HAVE BEEN ALLOWED BY THE LOWER AUTHORITIES. 14. IN OUR CONSIDERED OPINION, IN ORDER TO ARRIVE AT AN APPROPRIATE ADJUSTMENT, THE ENTIRE F ACTUAL MATRIX IS REQUIRED TO BE EXAMINED AT THE APPROPRIATE LEVEL. THE TPO AS WELL AS THE DRP DID NOT ACCEPT THE PLEA OF THE ASSESSEE IN PRINCIPLE, WHILE THE SAME HAS BEEN ACCEPTED BY US. THEREFORE, IN ORDER TO ALLOW AN APPROPRIATE ADJUSTMENT, NECESSARY VE RIFICATION ON THE BASIS OF THE MATERIAL TO BE FURNISHED BY THE ASSESSEE, DESERVES TO BE CARRIED OUT BY THE ASSESSING OFFICER. THEREFORE, WHILE UPHOLDING THE PLEA OF THE ASSESSEE, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL ALL OW THE ASSESSEE A REASONABLE OPPORTUNITY TO MAKE SUBMISSIONS AND PRODUCE RELEVANT MATERIAL IN SUPPORT OF ITS STAND AND THEREAFTER THE ASSESSING OFFICER SHALL ALLOW AN APPROPRIATE ADJUSTMENT IN THE OPERATING MARGINS OF THE ASSESSEE FOR LOW CAPACITY UTILIZAT ION AND HIGH FIXED OPERATING COSTS INCURRED IN THE INITIAL YEAR OF OPERATION. 36. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS CITED (SUPRA) WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE SHOULD BE GIVEN THE BENEFIT OF LOW CAPACITY UTILISATION. WE TH EREFORE RESTORE THE GROUND OF APPEAL NO.2 TO THE FILE OF THE AO/TPO WITH A DIRECTION TO CONSIDER THE APPROPRIATE ADJUSTMENT AFTER ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 19 NECESSARY VERIFICATION ON THE BASIS OF MATERIAL SUPPLIED BY THE ASSESSEE. THE ASSESSING OFFICER SHALL RECOMPUTE SUCH ADJUSTME NT AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND OF APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 26. THE TRIBUNAL HAS REMITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER / TPO TO WORK OUT APPROP RIATE ADJUSTMENT TO BE ALLOWED TO THE ASSESSEE AFTER NECESSARY VERIFICATION. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2007 - 08 AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER / TPO TO RE - COMPUTE THE ADJUSTMENT ON ACCOUNT OF UNDER - UTILIZATION CAPACITY. THE ASSESSING OFFICER SHALL AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE AMENDED GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 27. THE ASSESSEE VIDE ADDITIONAL GROUND OF APPEAL NO.1 HAS RAISED THE ISSUE OF COMPUTATION OF PLI I.E. OPERATING MARGINS / OPERATING EXPENSES OF THE ASSESSEE WITH THE SUBMISSION THAT NON - OPERATING EXPENSES I.E. INTEREST ON FINANCE COST SHOULD BE EXCLUDED WHILE COMPUTING PLI. 28. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FACTS IN THIS REGARD WERE BEFORE BOTH THE TPO AND DRP AND S UCH AN ADJUSTMENT WAS ASKED FOR. HOWEVER, THE SAME HAS NOT BEEN ALLOWED TO THE ASS ESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR EXERCISE SHOULD BE CARRIED OUT IN PLI OF CONCERN SELECTED AS COMPARABLE. 29. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED ON THE ORDER OF ASSESSING O FFICER / TPO. ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 20 30. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WHILE COMPUTING THE PLI OF CONCERN OF COSTS, WHICH ARE RELATABLE TO CARRYING ON OF THE BUSINESS ARE TO BE CONSIDERED AS PART OF OPERATING MARGINS / OPERATING EXPENSES. ONLY SUCH ITEMS WHICH ARE NOT RELATABLE TO CARRYING ON OF BUSINESS ARE TO BE EXCLUDED WHILE COMPUTING THE OPERATING MARGINS / OPERATING EXPENSES OF THE ASSESSEE, IN TURN, WORKING OUT THE PLI OF THE COMPANY. THE ASSESSEE BEFORE US HAS CLAIMED THAT THE NON - OPERA TING EXPENSES OF INTEREST ON FINANCE COST NEEDS TO BE EXCLUDED WHILE CALCULATING PLI OF THE ASSESSEE COMPANY. THE PERUSAL OF PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY SHOWS THAT THE MAJOR REVENUE IS FROM BUSINESS CARRIED ON BY THE ASSESSEE AND SOME PA RT OF THE INCOME IS SHOWN AS OTHER INCOME. WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE THAT THE INTEREST ON FINANCE COST IS TO BE EXCLUDED WHILE CALCULATING PLI OF THE ASSESSEE COMPANY BEING NON - OPERATING EXPENSES. THE ASSESSEE HAS FAILED TO FURNISH TH E COMPLETE DETAILS IN THIS REGARD AND IN THE ABSENCE OF HAS FAILED TO FURNISH TH E COMPLETE DETAILS IN THIS REGARD AND IN THE ABSENCE OF THE SAME, WE REJECT THE CLAIM OF THE ASSESSEE. 31. NOW, COMING TO THE RELIANCE PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN DCIT VS. EXXON MOBIL GAS (INDIA) PVT. LTD. IN I TA NO.417/DEL/2011, RELATING TO ASSESSMENT YEAR 2004 - 05, ORDER DATED 13.11.2014 , IT HAS BEEN NOTED THAT THE SAID CONCERN HAD SHOWN MAJOR ITEM OF OTHER INCOME A S INTEREST INCOME AGGREGATING TO RS.3,776.65 LAKHS AND IT WA S HELD THAT THE SAME IS TO BE EXCLU DED FROM THE OPERATING PROFIT AND INCLUDE THE NON - OPERATING EXPENSES IN THE CALCULATION OF PLI OF THE SAID CONCERN. HOWEVER, IN THE FACTS OF THE PRESENT CASE BEFORE US AND IN THE ABSENCE OF INFORMATION AVAILABLE AS TO THE NATURE OF INTEREST ON THE FINANCE COST AND HOW THE SAME IS PART OF NON - OPERATING EXPENSES, WE DISMISS THE CLAIM OF ASSESSEE. UPHOLDING THE ORDER OF ASSESSING OFFICER / TPO, WE DISMISS THE ADDITIONAL GROUND OF ITA NO. 335 /PN/20 1 3 TASTY BITE EATABLES LTD. 21 APPEAL NO.1 RAISED BY THE ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESS EE ARE THUS, PARTLY ALLOWED. 3 2 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 16 TH DAY OF MARCH , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 16 TH MARCH , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 4. THE DRP, PUNE ; 5. THE DR B , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE